UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report: December 16, 2004
(Date of earliest event reported):
DUKE ENERGY CORPORATION
(Exact name of registrant as specified in charter)
NORTH CAROLINA 1-4928 52-0205520
(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
526 South Church Street
Charlotte, North Carolina 28202-1904
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 704-594-6200
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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ITEM 1.01 Entry Into a Material Definitive Agreement
On February 22, 2005, the Compensation Committee of the Board of Directors of
Duke Energy Corporation took the actions described below. In addition, this
Report on Form 8-K covers certain actions taken by the Compensation Committee on
December 16, 2004, that have not previously been reported on Form 8-K.
1. Certification of Chairman and Chief Executive Officer 2004 Performance
Goals
On February 22, 2005, the Compensation Committee of the Board of Directors
certified 2004 performance for vesting of performance shares granted to Paul M.
Anderson, the registrant's Chairman and Chief Executive Officer, on November 1,
2003, resulting in the vesting of 120,000 of Mr. Anderson's performance shares
as of December 31, 2004. The performance shares were granted under the Duke
Energy Corporation 1998 Long-Term Incentive Plan, which, as amended, was
approved by the registrant's shareholders on April 24, 2003 and filed as Exhibit
1 to the registrant's Schedule 14A filed March 28, 2003. Vested performance
shares will be paid to Mr. Anderson in shares of Duke Energy Common Stock
following termination of his employment with the registrant. Dividend
equivalents granted to Mr. Anderson with respect to those performance shares
provide for payment of dividend equivalents in cash while the performance shares
remain outstanding but unpaid, payable at the time that cash dividends are paid
on the outstanding shares of Duke Energy Common Stock.
2. Approval of Payment of 2004 Executive Officer Short-Term Incentives
On February 22, 2005, following evaluation of 2004 performance compared against
2004 short-term incentive goals, the Compensation Committee certified 2004
performance under the Duke Energy Corporation Executive Short-Term Incentive
Plan, resulting in the payment to executive officers, including Fred J. Fowler,
David L. Hauser, Jimmy W. Mogg and Ruth G. Shaw (together with Mr. Anderson, the
Named Executive Officers), but excluding Mr. Anderson, of 2004 annual cash
incentives. The Duke Energy Corporation Executive Short-Term Incentive Plan, as
amended, was approved by the registrant's shareholders on April 24, 2003 and
filed as Exhibit 2 to the registrant's Schedule 14A filed March 28, 2003. The
approved payments to Named Executive Officers were as follows: Mr. Fowler,
$1,055,939; Mr. Hauser, $562,710; Mr. Mogg, $580,183; and Dr. Shaw, $534,254.
These payments do not include any payment on account of one individual objective
for each of Messrs. Fowler and Hauser and Dr. Shaw that cannot be determined
until the filing of the registrant's 2004 Form 10-K; an additional 2004
short-term incentive payment to these individuals may be made if and when the
Compensation Committee certifies performance of this objective.
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3. Establishment of Chairman and Chief Executive Officer 2005 Performance
Goals
On February 22, 2005, the Compensation Committee established 2005 performance
goals for performance shares granted on November 1, 2003 to Mr. Anderson under
the Duke Energy Corporation 1998 Long-Term Incentive Plan. Up to 120,000
performance shares will vest as of December 31, 2005, if the 2005 performance
goals are achieved. Mr. Anderson's 2005 performance goals will be based on the
registrant's earnings per share (EPS), return on capital employed (ROCE) and
individual objectives, weighted 50%, 30% and 20%, respectively. The performance
shares will be forfeited and will cease to be outstanding to the extent the 2005
performance goals are not achieved. The terms of the performance shares are
described above under "Certification of Chairman and Chief Executive Officer
2004 Performance Goals", and are more fully described in the Employment
Agreement between Mr. Anderson and the registrant dated November 2003, as
amended, filed as Exhibits 10-18 and 10-18.1 to the registrant's Annual Report
on Form 10-K for the year ended December 31, 2003.
With respect to the EPS component of the performance goal (which also applies to
the executive officer short-term incentive opportunities described below), the
target, which is tied to ongoing basic EPS, is $1.60 per share. The minimum,
which is the threshold for any earnings-related bonus payout, will also be tied
to ongoing basic EPS and has been established at $1.45 per share. The $1.60 and
$1.45 ongoing basic EPS compensation target and minimum amounts, respectively,
for 2005 represent non-GAAP financial measures as they exclude any "special
items," as defined by the registrant. The most directly comparable GAAP measure
is basic earnings per share that will be based upon reported earnings available
for common stockholders for 2005. Due to the forward-looking nature of these
non-GAAP financial measures, information to reconcile such non-GAAP financial
measures to the most directly comparable GAAP financial measure is not available
at this time as the registrant is unable to forecast any "special items" for
2005.
4. 2005 Executive Officer Base Salaries, Short-Term Incentive Opportunities
and Long-Term Incentive Opportunities
On December 16, 2004, the Compensation Committee established, effective January
1, 2005, the base salaries, the 2005 short-term incentive (STI) opportunities
under the Duke Energy Corporation Executive Short-Term Incentive Plan and the
2005 long-term incentive (LTI) opportunities under the Duke Energy Corporation
1998 Long-Term Incentive Plan for executive officers, including the Named
Executive Officers other than Mr. Anderson. The base salaries and target STI and
LTI opportunities for the Named Executive Officers other than Mr. Anderson are
set forth in the table below.
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Target opportunity, as a percentage of
Base Salary base salary
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STI Opportunity LTI Opportunity
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Mr. Fowler $755,500 90% 330%
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Mr. Hauser $520,000 80% 250%
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Mr. Mogg $520,000 80% 250%
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Dr. Shaw $510,000 75% 250%
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Short-Term Incentives
The amounts payable under the STI opportunities are based on achievement of
financial measures and individual objectives, which consist of a combination of
strategic and operational measures. The financial measures for 2005 are based
upon the registrant's earnings per share (EPS) and return on capital employed
(ROCE). In addition, Dr. Shaw has financial measures associated with Duke
Power's earnings before interest and taxes (EBIT), Duke Power's ROCE, and Duke
Power's cash flow. The financial goals established are consistent with the 2005
financial plan but exclude certain potential transactions contemplated in the
financial plan that the Compensation Committee did not consider to be
representative of ongoing operations. Performance levels for Duke Energy EPS and
ROCE, and Duke Power EBIT, ROCE and cash flow may be adjusted by the
Compensation Committee for certain types of transactions. The Compensation
Committee approved the Duke Energy ROCE and Duke Power ROCE estimated
performance target on December 16, 2004 and approved the final Duke Energy ROCE
and Duke Power ROCE targets on February 22, 2005. The Compensation Committee
approved the performance targets for each of the other goals on December 16,
2004.
2005 STI performance goals for each Named Executive Officer other than Mr.
Anderson were weighted as follows:
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2005 STI Goals Weighting, as percentage of performance goal
---------------------------------------------
Messrs. Fowler, Hauser
and Mogg Dr. Shaw
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EPS 50% 25%
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ROCE 30% 15%
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Duke Power EBIT -- 20%
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Duke Power ROCE -- 10%
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Duke Power Cash Flow -- 10%
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Individual Objectives 20% 20%
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Depending on performance, the foregoing Named Executive Officers could receive
from 0% to 190% of their STI targets.
Long-Term Incentives
Although the Compensation Committee approved the LTI opportunity and underlying
performance goals, as applicable, on December 16, 2004, it did not authorize the
actual grants for executive officers, including the Named Executive Officers
other than Mr. Anderson, until February 22, 2005. The actual grant was made
effective February 28, 2005. The number of performance shares and phantom stock
units awarded was determined based
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on the closing price of Duke Energy Common Stock on the business day immediately
preceding the date of the grant. The number of phantom stock units and
performance shares granted to Named Executive Officers other than Mr. Anderson
were as follows:
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Phantom Stock Units Performance shares(1)
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Mr. Fowler 45,480 56,850
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Mr. Hauser 23,710 29,640
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Mr. Mogg 23,710 29,640
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Dr. Shaw 23,260 29,080
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(1) The number of shares awarded represents the number of shares of Duke
Energy Common Stock payable upon achievement of the TSR goal at the
maximum performance level (i.e. 125% of target award shares).
One-half the value of the 2005 LTI award was granted in the form of performance
shares, and the other half was granted in the form of phantom stock.
o The determination of the actual number of performance shares earned is
based on the registrant's target total shareholder return (TSR) over the
three-year performance period from January 1, 2005 to December 31, 2007 as
compared to the TSR of the S&P 500 for that period. The actual number of
performance shares that can be earned ranges from 0% to 125% of target
award shares. To achieve the threshold, target and maximum payments
indicated above, the registrant's TSR ranking must be at the 55th
percentile, 70th percentile and 80th percentile, respectively. Performance
shares earned are interpolated for TSR performance between these
percentiles. The threshold and maximum payments represent 50% and 125%,
respectively, of the target number of shares. For each performance share
earned, participants receive one share of Duke Energy Common Stock.
Payment of any shares earned will be made following the determination in
early 2008 of the extent to which the performance goal has been achieved,
unless (to the extent permitted by applicable law) an election is made by
the executive to defer payment of the performance shares until termination
of employment. Any shares not earned are forfeited. In addition, following
determination that the performance goal has been achieved, participants
will receive a cash payment equal to the amount of cash dividends paid on
one share of Duke Energy Common Stock during the performance period
multiplied by the number of performance shares earned, unless (to the
extent permitted by applicable law) an election is made by the executive
to defer payment of the performance shares and tandem dividend equivalents
until termination of employment. If the executive's employment terminates
during the performance period as a result of retirement, death,
disability, or by the registrant without cause or as a result of a
divestiture, following determination that the TSR goal has been achieved
the number of shares earned will be adjusted to reflect actual service
during the performance period. If the executive's employment terminates
during the performance period for any other reason, all shares under the
award will be forfeited. In the event of a "change in control" (as defined
in the Duke Energy 1998 Long-Term Incentive Plan) prior to determination
that the TSR goal has been achieved, target TSR performance is assumed and
the number of
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shares earned are adjusted to reflect actual service during the
performance period prior to the change in control. The form of performance
award agreement for each Named Executive Officer other than Mr. Anderson
is attached hereto as Exhibit 10.1.
o Phantom stock is represented by units denominated in shares of Duke Energy
Common Stock. Each phantom stock unit that vests represents the right to
receive one share of Duke Energy Common Stock. The phantom stock awards
also grant an equal number of dividend equivalents, which represent the
right to receive cash payments equivalent to the cash dividends paid on
the number of shares of Duke Energy Common Stock represented by unvested
phantom units. One fifth of the 2005 LTI phantom stock award will vest on
each of the first five anniversaries of the grant date provided the
recipient continues to be employed by the registrant or his or her
employment terminates on account of retirement. If the recipient's
employment terminates as a result of death, disability, or by the
registrant without cause or as a result of a divestiture, units in the
award are reduced to reflect actual service during the installment vesting
period and are immediately vested, and any remaining unvested units are
forfeited. If the recipient's employment terminates other than on account
of retirement, death, disability, or by the registrant without cause or as
a result of divestiture, any units remaining unvested on the termination
date are forfeited. If the executive's employment is terminated by Duke
Energy without cause within two years following a "change in control" (as
defined in the Duke Energy 1998 Long-Term Incentive Plan), all outstanding
unvested units will vest upon separation of service, as defined by
Internal Revenue Code Section 409A. The form of phantom stock award
agreement for each Named Executive Officer other than Mr. Anderson is
attached hereto as Exhibit 10.2.
5. Approval of Award of Phantom Stock to Nonemployee Directors
In May 2004, the Board approved the payment of compensation to each nonemployee
director in the form of an annual stock retainer with a value of $50,000. On
February 22, 2005, as payment of the 2005 annual stock retainer, the Board of
Directors approved the grant of 2005 long-term incentive awards in the form of
phantom stock units to all nonemployee directors under the Duke Energy
Corporation 1998 Long-Term Incentive Plan, effective as of February 28, 2005.
The number of units in each award (1,820) was calculated by dividing $50,000 by
the closing price of Duke Energy Common Stock on the business day immediately
preceding the date of the grant. The units will vest ratably over five years,
or, if earlier, upon (1) termination of service after attaining age 70, (2)
termination of service after attaining age 62 with at least 10 years of service,
(3) termination of service due to death or disability, or (4) upon a change of
control while serving as director.
ITEM 7.01 Regulation FD Disclosure
The information (including exhibits) that is being furnished pursuant to this
Item 7.01 shall not be deemed to be "filed" for the purposes of Section 18 of
the Exchange Act or otherwise
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subject to liabilities of that section, nor shall they be deemed incorporated by
reference in any filing under the Securities Act of 1933, as amended. This
report under Item 7.01 is not an admission as to the materiality of any
information in this report.
The registrant has developed a worksheet to facilitate the understanding of the
estimated pro-forma financial implications associated with the registrant's
announced sale of the general partner of TEPPCO Partners L.P. (TEPPCO) and of
the registrant's limited partner units in TEPPCO, and the announced
restructuring of Duke Energy Field Services LLC (DEFS), as announced on February
24, 2005. This worksheet is intended to be a pro-forma review of impact to 2004
segment earnings as if these transactions had taken effect January 1, 2004.
Specifically, the spreadsheet reflects the impact on DEFS 2004 reported segment
Earnings Before Interest and Taxes (EBIT) from continuing operations; the impact
on Natural Gas Transmission 2004 reported segment EBIT; a statement on the
estimated impact to the registrant's reported consolidated interest expense as a
result of the reduction in ownership percentage of DEFS; and a breakdown of the
estimated pre-tax and after-tax cash proceeds associated with these
transactions. A copy of the worksheet is attached hereto as Exhibit 99.1.
ITEM 9.01. Financial Statements And Exhibits.
(c) Exhibits.
10.1 Form of Performance Award Agreement dated February 28, 2005, pursuant
to Duke Energy Corporation 1998 Long-Term Incentive Plan by and between Duke
Energy Corporation and each Fred J. Fowler, David L. Hauser, Jimmy W. Mogg and
Ruth G. Shaw
10.2 Form of Phantom Stock Award Agreement dated February 28, 2005,
pursuant to Duke Energy Corporation 1998 Long-Term Incentive Plan by and between
Duke Energy Corporation and each Fred J. Fowler, David L. Hauser, Jimmy W. Mogg
and Ruth G. Shaw
99.1 Worksheet of pro-forma 2004 results relating to divestiture of TEPPCO
Partners L.P. (TEPPCO) general partner, divestiture of TEPPCO limited partner
units and Duke Energy Field Services LLC restructuring
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DUKE ENERGY CORPORATION
By: /s/ Edward M. Marsh, Jr.
-------------------------------------
Edward M. Marsh, Jr.
Assistant Secretary and Deputy
General Counsel
Date: February 28, 2005
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