01—Abstract
Summary
Summary of the 10-K filed February 27, 2009. Cited figures are marked; the original filing is the authoritative source.
Duke Energy's 2008 Form 10-K (filed February 27, 2009) reports net income of $1,362 milliona and diluted EPS of $1.07 for 2008, down from $1,500 million and $1.18 in 2007, with income from continuing operations falling to $1,279 million from $1,522 million.
Reported results were pressured by a $238 millionb pre-tax share of Crescent Resources real estate impairments, which drove a $259 million drop in equity earnings, and by $82 million of emission allowance impairments following the July 2008 court vacatur of CAIR. Total reportable segment EBIT rose to $3,073 million from $2,971 million, led by U.S. Franchised Electric and Gas, which benefited from higher fuel revenues and rate increases even as industrial sales weakened. The company's forward profile is dominated by a planned roughly $25 billion of capital expenditures over 2009-2013, with about $18 billion directed to the regulated U.S. Franchised Electric and Gas segment.
Major projects include the Cliffside Unit 6 coal plant, the Edwardsport IGCC plant (cost estimate raised to $2.35 billionc), the proposed William States Lee III nuclear station, and gas-fired units at Dan River and Buck. Management expects flat kilowatt-hour sales in 2009 amid recession, and it has flagged regulatory lag, pension funding needs (a roughly $500 million February 2009 contribution, with qualified plans underfunded by about $1.3 billion), and sensitivity to a potential federal greenhouse gas cap-and-trade regime.
For investors, the key positives are a largely regulated earnings base, investment-grade credit ratings (S&P A- for Duke Energy Carolinas, BBB+ at the parent), about $1.0 billiond of cash and short-term investments at year-end, and a dividend of $0.90 per share for 2008. The key risks are a heavy and back-end-loaded capital program that must be recovered through timely rate cases, a $1.4 billion parent-level borrowing increase, large asbestos and nuclear decommissioning obligations, and ongoing litigation including New Source Review claims.
02—Key points
Key Highlights
- 2008 net income fell 9% to $1,362 million; diluted EPS was $1.07 versus $1.18 in 2007, with the decline driven by Crescent impairments and lower equity earnings.
- Total reportable segment EBIT increased to $3,073 million from $2,971 million, led by U.S. Franchised Electric and Gas EBIT of $2,398 million, up $93 million.
- Management plans about $25 billion of capital expenditures for 2009-2013, with roughly $18 billion for the regulated U.S. Franchised Electric and Gas segment and $4.8 billion budgeted for 2009.
- Total long-term debt including current maturities reached about $13.9 billion, up from roughly $11.0 billion, as Duke issued new notes and drew on its master credit facility to fund construction.
- Crescent Resources impairments of about $238 million pre-tax reduced the carrying value of the equity investment to zero, and Duke suspended equity-method accounting for it in Q4 2008.
- Commercial Power reapplied SFAS No. 71 regulatory accounting to certain Ohio native-load generation effective December 17, 2008, producing a $67 million after-tax extraordinary gain.
- Dividends per share rose to $0.90 in 2008 from $0.86, and the company said it expects a $0.01 quarterly increase beginning in Q3 2009.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2008filed February 27, 2009Financial Statements
FY2008 against FY2007
| Line item | FY2008FY2007 | Change |
|---|---|---|
| Revenue | $13.21B$12.72B | +3.8% |
| Operating Expenses | $10.77B$10.22B | +5.3% |
| Operating Income | $2.51B$2.49B | +0.7% |
| Interest Expense | $741.00M$685.00M | +8.2% |
| Net Income | $1.36B$1.50B | −9.2% |
| EPS (Basic) | $3.24$3.57 | −9.2% |
| EPS (Diluted) | $3.21$3.54 | −9.3% |
| Shares Outstanding (Basic) | 421.67M420.00M | +0.4% |
| Shares Outstanding (Diluted) | 422.33M421.67M | +0.2% |
05—Questions
Frequently Asked Questions
How did Duke Energy's 2008 earnings compare with 2007, and what drove the change?
Net income was $1,362 million ($1.07 diluted EPS) versus $1,500 million ($1.18) in 2007. Income from continuing operations fell to $1,279 million from $1,522 million. The main drags were Duke's $238 million share of Crescent impairments, which cut equity earnings, and $82 million of emission allowance impairments after the CAIR was vacated. These were partly offset by higher regulated revenues and rate increases at U.S. Franchised Electric and Gas.
What is the outlook for Duke's capital spending and how will it be funded?
Duke plans about $25 billion of capital expenditures over 2009-2013, with approximately $4.8 billion budgeted for 2009. Funding is expected from operating cash flow, roughly $1.4 billion of new operating-subsidiary debt, about $350 million from dividend reinvestment and employee plans, and existing cash. The company says about $2.6 billion of the 2009 budget is committed and that it has flexibility to defer discretionary spending if the economy weakens.
What are the main regulatory and project risks investors should watch?
Large projects such as Cliffside Unit 6, the Edwardsport IGCC plant (cost estimate $2.35 billion), and the proposed Lee nuclear station depend on timely cost recovery through state commissions. Rate cases in Ohio and North Carolina, the expiration of a one-time merger rider in 2009, and the Save-A-Watt energy-efficiency proceedings all affect earnings timing. Pending litigation, including New Source Review claims and asbestos reserves of about $1.0 billion, could also produce material charges.
How strong is Duke's balance sheet and credit position?
Duke's consolidated capital structure was about 41% debt and 59% common equity at year-end 2008, and management expects the debt-to-capitalization ratio to stay near 41% in 2009. Senior unsecured ratings as of February 1, 2009 were BBB+ (S&P) and Baa2 (Moody's) at the parent, with the regulated utility subsidiaries rated A- at S&P. The company had about $1.0 billion of cash and short-term investments and roughly $1.2 billion of available capacity under its $3.14 billion master credit facility.
What pension and decommissioning obligations could affect future cash flows?
Qualified pension plans were underfunded by about $1.3 billion at year-end 2008, and Duke made a roughly $500 million voluntary contribution in February 2009. Nuclear decommissioning cost estimates rose to about $3 billion in 2008 dollars, and the North Carolina and South Carolina commissions may increase annual trust contributions later in 2009. Investment losses in the nuclear decommissioning trust, which fell to $1.4 billion from $1.9 billion, could require higher funding.
06—Continue