10-QPeriod: Q2 FY2016

Duke Energy CORP Quarterly Report for Q2 Ended Jun 30, 2016

Filed August 4, 2016For Securities:DUKDUKBDUK-PA

Summary

Duke Energy Corporation (DUK) reported lower net income attributable to common stockholders for the second quarter of 2016 compared to the same period in 2015, with diluted earnings per share (EPS) of $0.74 compared to $0.78. This decrease was primarily attributed to an impairment charge on certain international assets, unrealized losses on interest rate swaps related to the proposed Piedmont acquisition, and less favorable weather conditions impacting revenues. These factors were partially offset by higher retail revenues from pricing adjustments and rider recoveries, and lower operating expenses. For the first six months of 2016, reported diluted EPS was $1.74, down from $2.01 in the prior year, reflecting similar pressures including the international asset impairment and acquisition-related hedging losses, alongside lower revenues. The company continues to advance its planned acquisition of Piedmont Natural Gas, with regulatory approvals progressing, and is managing its operations across its regulated utilities, with a focus on recovering costs through approved rate riders. The company also announced a process to divest its International Energy business segment. Key financial highlights for the period include a significant increase in cash flow from operating activities, driven by improved working capital management and lower fuel expenses. The company also issued new debt to fund capital expenditures and manage its financing structure, while maintaining compliance with its debt covenants and credit ratings.

Financial Highlights

46 data points
Beta

Revenue

$5.21B

Net Income

$509.00M

9.8% Net Margin

EPS (Diluted)

$0.74

Total Assets

$122.65B

Cash & Equivalents

$281.00M

Free Cash Flow

-$205.00M

Financial Statements
Beta
Revenue$5.21B
Operating Expenses$3.96B
Operating Income$1.26B
Interest Expense$478.00M
Net Income$509.00M
EPS (Basic)$0.74
EPS (Diluted)$0.74
Shares Outstanding (Basic)689.00M
Shares Outstanding (Diluted)690.00M

Key Highlights

  • 1Net income attributable to common stockholders decreased to $509 million in Q2 2016 from $543 million in Q2 2015.
  • 2Diluted EPS for Q2 2016 was $0.74, down from $0.78 in Q2 2015.
  • 3Total operating revenues decreased to $5,484 million in Q2 2016 from $5,589 million in Q2 2015.
  • 4Operating expenses remained relatively stable at $4,344 million in Q2 2016 compared to $4,356 million in Q2 2015.
  • 5Duke Energy initiated a process to potentially divest its International Energy business segment, recording a $194 million pretax impairment charge for certain Central American assets.
  • 6The company entered into $1.4 billion in forward-starting interest rate swaps to manage interest rate exposure for the anticipated financing of the Piedmont Natural Gas acquisition.
  • 7Cash flows from operating activities increased to $3,206 million for the six months ended June 30, 2016, compared to $2,879 million for the same period in 2015.

Frequently Asked Questions

The decrease in net income and EPS was primarily due to an impairment charge on certain international assets, unrealized losses on interest rate swaps related to the proposed Piedmont acquisition, and lower revenues caused by less favorable weather. These negative factors were partially offset by higher retail revenues from pricing adjustments and rider recoveries, and lower operating expenses.

Duke Energy entered into a Merger Agreement to acquire Piedmont Natural Gas for approximately $4.9 billion. Regulatory approvals are progressing, with proposed orders due from the North Carolina Utilities Commission in August 2016. Subject to approval and closing conditions, the transaction is expected to close by the end of 2016. Duke Energy has also entered into financial instruments to manage interest rate exposure for the acquisition financing.

Yes, Duke Energy is managing several environmental and regulatory matters. These include compliance with Coal Combustion Residuals (CCR) regulations, potential liabilities and remediation costs related to coal ash basins in North Carolina, and various other environmental compliance efforts. The company is pursuing recovery of these costs through the normal ratemaking process. Additionally, the company is subject to ongoing legal proceedings and investigations related to environmental compliance and past operations.

Duke Energy primarily relies on cash flows from operations, debt issuances, and existing cash equivalents to fund its liquidity and capital requirements, which include capital expenditures, debt repayment, and dividends. The company has a $7.5 billion Master Credit Facility and access to other credit facilities, and it maintains compliance with its debt covenants. The company is also actively managing its financial structure in anticipation of the Piedmont acquisition.