10-QPeriod: Q2 FY2008

Duke Energy CORP Quarterly Report for Q2 Ended Jun 30, 2008

Filed August 11, 2008For Securities:DUKDUKBDUK-PA

Summary

Duke Energy Corporation reported solid financial results for the second quarter and the first six months of 2008, demonstrating growth in key metrics. Net income rose to $351 million for the quarter and $816 million for the first half of the year, up from $293 million and $650 million respectively in the prior year periods. This increase was driven by improved performance across most business segments, particularly the U.S. Franchised Electric and Gas and Commercial Power segments. The company's U.S. Franchised Electric and Gas segment saw increased revenues and operating income, benefiting from higher fuel revenues and legislative changes allowing for recovery of purchased power and environmental costs. Commercial Power also showed significant improvement, driven by higher mark-to-market gains, sales of emission allowances, and lower operating expenses. International Energy also contributed positively with higher sales prices and volumes. Financially, Duke Energy's liquidity remains robust. Net cash provided by operating activities increased significantly to $1,695 million for the first six months of 2008. The company also executed several financing activities, including substantial long-term debt issuances and an amendment to its master credit facility, increasing its borrowing capacity. Despite some covenant technicality at International Energy, the company was in compliance with its debt covenants overall, indicating a stable financial position.

Financial Statements
Beta
Revenue$3.23B
Operating Expenses$2.58B
Operating Income$683.00M
Interest Expense$194.00M
Net Income$351.00M
EPS (Basic)$0.84
EPS (Diluted)$0.84
Shares Outstanding (Basic)421.33M
Shares Outstanding (Diluted)422.00M

Key Highlights

  • 1Net income increased by 19.8% to $351 million in Q2 2008 compared to $293 million in Q2 2007, and by 25.5% to $816 million for the first six months of 2008 compared to $650 million in the same period of 2007.
  • 2Operating revenues grew to $3.23 billion in Q2 2008, an increase of 8.9% year-over-year, driven by higher fuel revenues and legislative cost recovery in the regulated segment, and improved mark-to-market gains in Commercial Power.
  • 3Segment EBIT from reportable segments increased by 18.6% to $746 million in Q2 2008, with U.S. Franchised Electric and Gas and Commercial Power showing significant improvements.
  • 4Net cash provided by operating activities increased by 19.9% to $1.70 billion for the first six months of 2008.
  • 5Duke Energy successfully issued approximately $2.4 billion in new long-term debt during the first six months of 2008, and increased its master credit facility capacity to $3.2 billion.
  • 6The company reported $113 million in impairment charges primarily related to residential properties and joint venture projects within its Crescent segment during Q2 2008.
  • 7Despite a technical default on a covenant at International Energy, Duke Energy remained in compliance with its overall debt covenants.

Frequently Asked Questions

Duke Energy's total operating revenues increased to $3.23 billion for the three months ended June 30, 2008, up from $2.97 billion in the same period of 2007, representing an 8.9% increase. This growth was primarily driven by higher fuel revenues in the regulated segment and improved mark-to-market revenues in the Commercial Power segment.

For the first six months of 2008, net income increased to $816 million from $650 million in the prior year. Key drivers included higher income from continuing operations due to improved segment EBIT, particularly from the U.S. Franchised Electric and Gas and Commercial Power segments, and a significant contribution from discontinued operations due to the sale of a generating station.

Duke Energy's liquidity remained strong, with net cash provided by operating activities increasing by 19.9% to $1.70 billion for the first six months of 2008. The company also secured significant financing through long-term debt issuances totaling approximately $2.4 billion and increased its credit facility capacity. The increase in net income and a decrease in pension contributions also positively impacted operating cash flows.

Yes, Duke Energy reported approximately $113 million in impairment charges in the second quarter of 2008 related to residential properties and joint venture projects within its Crescent segment. Additionally, the company is evaluating a potential impairment of up to $100 million for emission allowances held by its Commercial Power segment due to the vacating of the Clean Air Interstate Rule (CAIR) by a court.