Why was this 10-K/A filed, and does it change Duke Energy's reported results?

It was filed to provide separately audited financial statements of DCP Midstream, LLC, a 50%-owned joint venture, as required by Rule 3-09 of Regulation S-X. The amendment states that it does not update or modify Duke Energy's financial position, results of operations, cash flows, or disclosures from the original 10-K filed March 1, 2007.

Why did DCP Midstream's net income decline so sharply in 2006?

Net income fell from $2,170 million in 2005 to $1,135 million in 2006 mainly because 2005 included a $1,137 million gain on the sale of the TEPPCO general partner interest. Excluding that gain, 2005 net income would have been roughly $1,033 million, so 2006 operating performance improved. Operating income rose from $1,144 million to $1,272 million.

How does the Spectra Energy spin-off affect DCP Midstream and its investors?

On January 2, 2007, Duke Energy's 50% interest in DCP Midstream was transferred to the newly formed Spectra Energy Corp. The company was renamed DCP Midstream, LLC on January 1, 2007. Management does not expect the spin-off to have a material effect on operations. The ownership split with ConocoPhillips remains 50/50, and the board requires approval from both a Spectra and a ConocoPhillips representative for major decisions.

What are the main customer concentration and credit risks?

ConocoPhillips, an affiliate, was a significant customer, with sales to it and its 50%-owned CP Chem totaling about $2,677 million in 2006, up from $2,513 million in 2005. Approximately 40% of NGL production is committed to ConocoPhillips and CP Chem under a contract expiring in 2015. Management notes that these customers may be similarly affected by economic or regulatory changes.

What is the company's leverage and liquidity position?

Long-term debt increased to $2,115 million from $1,760 million at year-end 2006, while total assets fell to $6,896 million from $7,711 million. The company's $450 million revolving credit facility had no borrowings at year-end 2006, and its covenant requires debt to total capitalization of 60% or less. Working capital was negative, with current liabilities of $2,177 million against current assets of $2,129 million.

Duke Energy CORP 10-K FY2006 Annual Report

01—Abstract

Summary

Summary of the 10-K/A filed March 22, 2007. Cited figures are marked; the original filing is the authoritative source.

This Form 10-K/A (Amendment No. 1) for Duke Energy Corporation's fiscal 2006 annual report does not change Duke's own financial statements.

It was filed to add separately audited financial statements of DCP Midstream, LLC (formerly Duke Energy Field Services, LLC) under Rule 3-09 of Regulation S-X. DCP Midstream is a midstream natural gas gathering, processing, and NGL business that was 50%^a owned by Duke Energy and 50% by ConocoPhillips, and the financial statements are audited by Deloitte & Touche with an unqualified opinion dated March 14, 2007. DCP Midstream's 2006 results were mixed.

Operating income rose 11% to $1,272 million^b, but total operating revenues fell 5% to $12,335 million, and net income dropped to $1,135 million from $2,170 million. The 2005 figure was inflated by a one-time $1,137 million gain on the sale of the TEPPCO general partner interest, so the comparison is not like-for-like. Total assets declined to $6,896 million, long-term debt increased to $2,115 million, and members' equity fell to $2,257 million after $1,451 million in distributions and dividends to members.

Operating cash flow was $1,246 million^c, down from $1,764 million, while capital expenditures rose to $325 million. The key forward-looking points concern corporate structure. On January 2, 2007, Duke Energy spun off its natural gas businesses, including its 50% stake in DCP Midstream, into a new public company, Spectra Energy Corp. The company was renamed DCP Midstream, LLC, effective January 1, 2007.

Management does not expect the spin to materially affect operations. Subsequent events also include a roughly $180 million^d agreement by DCP Midstream Partners to acquire gathering and compression assets in southern Oklahoma from Anadarko. ConocoPhillips and its affiliate CP Chem are the largest customers, accounting for about $2.7 billion of 2006 sales, which is a notable concentration risk.

02—Key points

Key Highlights

This is an amendment that adds audited DCP Midstream, LLC financial statements under Rule 3-09; Duke Energy's own 10-K financial results are unchanged.
DCP Midstream 2006 operating income rose to $1,272 million from $1,144 million, while operating revenues declined about 5% to $12,335 million from $13,034 million.
Net income fell to $1,135 million from $2,170 million, mainly because 2005 included a $1,137 million one-time gain on the sale of the TEPPCO general partner interest.
Operating cash flow decreased to $1,246 million from $1,764 million, and capital expenditures increased to $325 million from $212 million.
Long-term debt rose to $2,115 million from $1,760 million, following $300 million of 6.45% notes issued in October 2006 and higher DCP Partners borrowings.
Distributions and dividends to members totaled $1,451 million in 2006 versus $2,313 million in 2005, reducing members' equity to $2,257 million.
The January 2, 2007 Spectra Energy spin-off transferred Duke's 50% stake to Spectra Energy Corp, and the company was renamed DCP Midstream, LLC; ConocoPhillips' 50% ownership is unchanged.

03—Questions

Frequently Asked Questions

Why was this 10-K/A filed, and does it change Duke Energy's reported results?
It was filed to provide separately audited financial statements of DCP Midstream, LLC, a 50%-owned joint venture, as required by Rule 3-09 of Regulation S-X. The amendment states that it does not update or modify Duke Energy's financial position, results of operations, cash flows, or disclosures from the original 10-K filed March 1, 2007.
Why did DCP Midstream's net income decline so sharply in 2006?
Net income fell from $2,170 million in 2005 to $1,135 million in 2006 mainly because 2005 included a $1,137 million gain on the sale of the TEPPCO general partner interest. Excluding that gain, 2005 net income would have been roughly $1,033 million, so 2006 operating performance improved. Operating income rose from $1,144 million to $1,272 million.
How does the Spectra Energy spin-off affect DCP Midstream and its investors?
On January 2, 2007, Duke Energy's 50% interest in DCP Midstream was transferred to the newly formed Spectra Energy Corp. The company was renamed DCP Midstream, LLC on January 1, 2007. Management does not expect the spin-off to have a material effect on operations. The ownership split with ConocoPhillips remains 50/50, and the board requires approval from both a Spectra and a ConocoPhillips representative for major decisions.
What are the main customer concentration and credit risks?
ConocoPhillips, an affiliate, was a significant customer, with sales to it and its 50%-owned CP Chem totaling about $2,677 million in 2006, up from $2,513 million in 2005. Approximately 40% of NGL production is committed to ConocoPhillips and CP Chem under a contract expiring in 2015. Management notes that these customers may be similarly affected by economic or regulatory changes.
What is the company's leverage and liquidity position?
Long-term debt increased to $2,115 million from $1,760 million at year-end 2006, while total assets fell to $6,896 million from $7,711 million. The company's $450 million revolving credit facility had no borrowings at year-end 2006, and its covenant requires debt to total capitalization of 60% or less. Working capital was negative, with current liabilities of $2,177 million against current assets of $2,129 million.

04—Continue

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