Operating Cash Flow. Operating cash flows decreased $195.1 million from 1996 to 1997. This decrease primarily reflects the cash impact of costs associated with the merger and natural gas transition cost recoveries.
Operating cash flows increased $503 million from 1995 to 1996. This increase primarily reflects the cash impact of purchased capacity levelization and natural gas transition cost recoveries. Additionally, improved working capital caused cash flows from operations to increase in 1996.
Assets and liabilities recorded in the Consolidated Balance Sheets related to purchased capacity levelization and the natural gas transition cost recoveries and the related cash flow impacts are effected by state and federal regulatory initiatives and specific agreements. For more information on the purchased capacity levelization and the natural gas transition cost recoveries, see Notes 6 and 5, respectively, to the Consolidated Financial Statements.
Investing Cash Flow.Capital and investment expenditures were approximately $2.0 billion in 1997 compared with approximately $1.6 billion in 1996. Increased capital and investment expenditures were partially due to the acquisition of the remaining 50% ownership interest in the D/LD joint venture and the acquisition of an ownership interest in American Ref-Fuel Company. Additionally, increased Electric Operations’ construction costs, primarily due to steam generator replacements at certain of the Corporation’s nuclear plants and increased distribution line construction and business expansion for the Natural Gas Transmission segment caused expenditures to increase. These increases were partially offset by the 1996 acquisition of certain assets from Mobil.
The Corporation participated in the marketing of electric power and natural gas through its 50% ownership interest in D/LD. On June 17, 1997, the Corporation, through one of its subsidiaries, acquired the remaining 50% ownership interest in D/LD from affiliates of Louis Dreyfus Corp. for $247 million. The purchase price substantially represents goodwill, which will be amortized over 10 years.
Also in June 1997, the Corporation signed a letter of intent to build a $265 million,
520-megawatt combined cycle natural gas fired merchant generation plant in Bridgeport,
Connecticut. The Corporation will be majority owner, with the first phase of the project
scheduled to provide power in mid-1998. The project is currently under construction.
During December 1997, a wholly owned subsidiary of the Corporation formed a joint venture with UAE Ref-Fuel L.L.C. (UAE), a wholly owned subsidiary of United American Energy Corp. The Corporation owns a 65% interest in the joint venture, with UAE owning a 35% minority interest. The joint venture acquired a 50% ownership interest in American Ref-Fuel Company, a waste-to-energy firm, with operations primarily in New York and New Jersey. Thus, the Corporation has an indirect 32.5% ownership interest in American Ref-Fuel Company and provided $237 million of investment and financing to the venture.
During 1997, the Corporation sold its ownership in trading and marketing operations in the United Kingdom and its equity interest in certain affiliates. Proceeds from these sales were $87 million.
Capital and investment expenditures in 1996 included the acquisition of certain assets of Mobil for approximately $300 million by Field Services. The increase in capital and investment expenditures in 1996 over 1995 was a result of this acquisition and other Energy Services expansion projects, partially offset by decreased Electric Operations’ construction costs as a result of the completion of certain generating facilities in 1995.
The Corporation plans to maintain its regulated facilities and pursue business expansion of its regulated operations as opportunities arise. Projected 1998 capital and investment expenditures for the Electric Operations and the Natural Gas Transmission segments, including allowance for funds used during construction, are approximately $700 million and $300 million, respectively. These projections are subject to periodic review and revisions. Actual expenditures incurred may vary from such estimates due to various factors, including revised electric load estimates, business expansion opportunities, environmental matters and cost and availability of capital.
The Energy Services segment plans to spend approximately $100 million in 1998 for required
capital expenditures at its existing facilities. In addition, the Corporation is seeking to
significantly grow its Energy Services businesses, primarily through the Global Asset
Development business unit. One expansion opportunity includes the 520-megawatt combined
cycle natural gas fired merchant generation plant in Bridgeport, Connecticut already under
construction. Another growth opportunity includes the recently announced agreement to
purchase from Pacific Gas & Electric Company three power plants in California. The power
plants have a combined capacity of 2,645 megawatts. The purchase price is estimated at
approximately $500 million and the transaction is expected to close during 1998. Other
similar initiatives in 1998 will likely require significant capital and investment
expenditures, which will be subject to periodic review and revision and may vary
significantly depending on the value-added opportunities presented.
Financing Cash Flow. The Corporation’s consolidated capital structure at December 31, 1997, including short-term debt, was 45% debt, 3% preferred stock, 50% common equity and 2% other capitalization. Fixed charges coverage, using the SEC method, was 4.1 times for 1997 compared to 4.3 and 4.0 times for 1996 and 1995, respectively.
Subsequent to the merger, several rating agencies reviewed and in some cases revised their debt ratings for the Corporation and its subsidiaries PanEnergy, PEPL, and TETCO. As of December 31, 1997, Duke Energy Corporation’s senior indebtedness ratings were as follows: AA- by Standard &Poor’s Group and Fitch Investors Service; Aa3 by Moody’s Investors Service; and AA by Duff & Phelps. The Corporation’s intent is to maintain these current credit ratings.
During August 1997, the Corporation instituted a new commercial paper program, increasing its available commercial paper facilities to $2.5 billion. The commercial paper facilities consist of $1.25 billion for the Corporation and $1.25 billion for Duke Capital Corporation (Duke Capital), a wholly owned subsidiary of the Corporation. Duke Capital serves as the parent for the Corporation’s business segments except the Electric Operations and certain other operations. The Corporation’s total commercial paper facilities were $780 million at December 31, 1996. These facilities are supported by various bank credit agreements which totaled $2.7 billion and $1.5 billion at December 31, 1997 and 1996, respectively. As a result of the revised commercial paper program and the related credit facilities, the Corporation terminated the prior commercial paper program and related bank facilities held by the Corporation and PanEnergy. At December 31, 1997, $1.7 billion of commercial paper and $93 million of bank borrowings were outstanding.
On December 8, 1997, Duke Energy Capital Trust I (the Trust), a business trust which is treated as a subsidiary of the Corporation for financial reporting purposes, issued $350 million of its 7.2% trust preferred securities, at an $11 million discount, representing preferred undivided beneficial interests in the assets of the Trust. Payment of distributions on such preferred securities is guaranteed by the Corporation, but only to the extent the Trust has funds legally and immediately available to make such distributions.
Since December 31, 1996, $647.6 million of the Corporation’s first and refunding mortgage bonds and $114.5 million of the Corporation’s medium term notes matured or were redeemed. These retirements were funded primarily through the Corporation’s commercial paper facilities.
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During July 1996, the Corporation began purchasing shares of its common stock. In 1996, the Corporation repurchased approximately 3.3 million shares of common stock for $159 million. On January 28, 1997, the Board of Directors amended the program to expressly limit the number of shares authorized for repurchase under the program, from the initiation of the program through a date two years after the consummation of the merger, to an amount not to exceed 15 million shares. No repurchases of common stock were made in 1997, and none are anticipated in the future. The Corporation plans to use authorized but unissued shares of its common stock to meet 1998 employee benefit plan contribution requirements instead of purchasing shares on the open market. |
Trust Preferred Securities
Preferred Stock
Long-term Debt
Common EquityThe Corporation and its subsidiaries have authority to issue up to $1.3 billion aggregate principal amount of debt and other securities under shelf registration statements filed with the Securities and Exchange Commission. Such securities may be issued as First and Refunding Mortgage Bonds, Senior Notes, Subordinated Debentures, or Preferred Stock.
Dividends and debt repayments, along with operating and investing requirements, are expected to be funded by cash from operations, debt and commercial paper issuances and available credit facilities. As noted previously, the Corporation is seeking to significantly grow its Energy Services businesses, which will likely require significant additional financing.
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