XFRA:D2MN Duke Energy Corporation Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2012 or
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to


Commission file number	Exact name of registrants as specified in their charters, addresses of principal executive offices, telephone numbers and states of incorporation	IRS Employer Identification No.
1-32853	DUKE ENERGY CORPORATION 550 South Tryon Street Charlotte, NC 28202-1803 704-382-3853 State of Incorporation: Delaware	20-2777218

1-4928	DUKE ENERGY CAROLINAS, LLC 526 South Church Street Charlotte, NC 28202-1803 704-382-3853 State of Incorporation: North Carolina	56-0205520

1-1232	DUKE ENERGY OHIO, INC. 139 East Fourth Street Cincinnati, OH 45202 704-382-3853 State of Incorporation: Ohio	31-0240030

1-3543	DUKE ENERGY INDIANA, INC. 1000 East Main Street Plainfield, IN 46168 704-382-3853 State of Incorporation: Indiana	35-0594457

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Duke Energy Corporation (Duke Energy)	Yes x	No ¨		Duke Energy Ohio, Inc. (Duke Energy Ohio)	Yes x	No ¨
Energy Carolinas, LLC (Duke Energy Carolinas)	Yes x	No ¨		Duke Energy Indiana, Inc. (Duke Energy Indiana)	Yes x	No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Duke Energy	Yes x	No ¨		Duke Energy Ohio	Yes x	No ¨
Duke Energy Carolinas	Yes x	No ¨		Duke Energy Indiana	Yes x	No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Duke Energy	Large accelerated filer x	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting company ¨
Duke Energy Carolinas	Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filer x	Smaller reporting company ¨
Duke Energy Ohio	Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filer x	Smaller reporting company ¨
Duke Energy Indiana	Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filer x	Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Duke Energy	Yes ¨	No x		Duke Energy Ohio	Yes ¨	No x
Duke Energy Carolinas	Yes ¨	No x		Duke Energy Indiana	Yes ¨	No x

Indicate the number of shares outstanding of each of the Issuer’s classes of common stock, as of the latest practicable date.

Outstanding as of August 3, 2012 Registrant	Description	Shares
Duke Energy	Common Stock, par value $0.001	704,125,200
Duke Energy Carolinas	All of the registrant’s limited liability company member interests are directly owned by Duke Energy.
Duke Energy Ohio	All of the registrant’s common stock is indirectly owned by Duke Energy.
Duke Energy Indiana	All of the registrant’s common stock is indirectly owned by Duke Energy.

This combined Form 10-Q is filed separately by four registrants: Duke Energy, Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana (collectively the Duke Energy Registrants). Information contained herein relating to any individual registrant is filed by such registrant solely on its own behalf. Each registrant makes no representation as to information relating exclusively to the other registrants.

Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana meet the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and are therefore filing this form with the reduced disclosure format specified in General Instructions H(2) of Form 10-Q.

INDEX

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2012

			Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements		4

	Duke Energy Corporation (Duke Energy)

		Unaudited Condensed Consolidated Statements of Operations	4

		Unaudited Condensed Consolidated Comprehensive Income	5

		Unaudited Condensed Consolidated Balance Sheets	6

		Unaudited Condensed Consolidated Statements of Cash Flows	8

		Unaudited Condensed Consolidated Statements of Equity	9

	Duke Energy Carolinas, LLC (Duke Energy Carolinas)

		Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income	10

		Unaudited Condensed Consolidated Balance Sheets	11

		Unaudited Condensed Consolidated Statements of Cash Flows	13

		Unaudited Condensed Consolidated Statements of Member’s Equity	14

	Duke Energy Ohio, Inc. (Duke Energy Ohio)

		Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income	15

		Unaudited Condensed Consolidated Balance Sheets	16

		Unaudited Condensed Consolidated Statements of Cash Flows	18

		Unaudited Condensed Consolidated Statements of Common Stockholder’s Equity	19

	Duke Energy Indiana, Inc. (Duke Energy Indiana)

		Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income	20

		Unaudited Condensed Consolidated Balance Sheets	21

		Unaudited Condensed Consolidated Statements of Cash Flows	23

		Unaudited Condensed Consolidated Statements of Common Stockholder’s Equity	24

	Combined Notes to Unaudited Condensed Consolidated Financial Statements for Duke Energy, Duke Energy Carolinas,
	Duke Energy Ohio and Duke Energy Indiana		25

2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		76

3	Quantitative and Qualitative Disclosures About Market Risk		91

4	Controls and Procedures		92

PART II. OTHER INFORMATION

1	Legal Proceedings		93

1A.	Risk Factors		93

2	Unregistered Sales of Equity Securities and Use of Proceeds		93

5	Other Information		93

6	Exhibits		95

	Signatures		96

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This document includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are based on management’s beliefs and assumptions. These forward-looking statements, which are intended to cover Duke Energy and the applicable Duke Energy Registrants, are identified by terms and phrases such as “anticipate,” “believe,” “intend,” “estimate,” “expect,” “continue,” “should,” “could,” “may,” “plan,” “project,” “predict,” “will,” “potential,” “forecast,” “target,” “guidance,” “outlook,” and similar expressions. Forward-looking statements involve risks and uncertainties that may cause actual results to be materially different from the results predicted. Factors that could cause actual results to differ materially from those indicated in any forward-looking statement include, but are not limited to:

· State, federal and foreign legislative and regulatory initiatives, including costs of compliance with existing and future environmental requirements, as well as rulings that affect cost and investment recovery or have an impact on rate structures;

· The ability to recover eligible costs and earn an adequate return on investment through the regulatory process;

· The scope of necessary repairs of the delamination of Crystal River Unit 3 Nuclear Plant could prove more extensive than is currently identified, such repairs could prove not to be feasible resulting in early retirement of the unit, the cost of repair and/or replacement power could exceed estimates and insurance coverage or may not be recoverable through the regulatory process;

· The ability to maintain relationships with customers, employees or suppliers post-merger;

· The ability to successfully integrate the Progress Energy businesses and realize cost savings and any other synergies expected from the merger;

· The risk that the credit ratings of the combined company or its subsidiaries may be different from what the companies expect;

· The impact of compliance with material restrictions of conditions related to the Progress Energy merger imposed by regulators could exceed our expectations;

· Costs and effects of legal and administrative proceedings, settlements, investigations and claims;

· Industrial, commercial and residential growth or decline in the respective Duke Energy Registrants’ service territories, customer base or customer usage patterns;

· Additional competition in electric markets and continued industry consolidation;

· Political and regulatory uncertainty in other countries in which Duke Energy conducts business;

· The influence of weather and other natural phenomena on each of the Duke Energy Registrants’ operations, including the economic, operational and other effects of storms, hurricanes, droughts and tornadoes;

· The ability to recover, in a timely manner, if at all, costs associated with future significant weather events through the regulatory process;

· The impact on the Duke Energy Registrants’ facilities and business from a terrorist attack;

· The inherent risks associated with the operation and potential construction of nuclear facilities, including environmental, health, safety, regulatory and financial risks;

· The timing and extent of changes in commodity prices, interest rates and foreign currency exchange rates;

· Unscheduled generation outages, unusual maintenance or repairs and electric transmission system constraints;

· The performance of electric generation facilities and of projects undertaken by Duke Energy’s non-regulated businesses;

· The results of financing efforts, including the Duke Energy Registrants’ ability to obtain financing on favorable terms, which can be affected by various factors, including the respective Duke Energy Registrants’ credit ratings and general economic conditions;

· Declines in the market prices of equity securities and resultant cash funding requirements for Duke Energy’s defined benefit pension plans and nuclear decommissioning trust funds;

· The level of creditworthiness of counterparties to Duke Energy Registrants’ transactions;

· Employee workforce factors, including the potential inability to attract and retain key personnel;

· Growth in opportunities for the respective Duke Energy Registrants’ business units, including the timing and success of efforts to develop domestic and international power and other projects;

· Construction and development risks associated with the completion of Duke Energy Registrants’ capital investment projects in existing and new generation facilities, including risks related to financing, obtaining and complying with terms of permits, meeting construction budgets and schedules, and satisfying operating and environmental performance standards, as well as the ability to recover costs from ratepayers in a timely manner or at all;

· The effect of accounting pronouncements issued periodically by accounting standard-setting bodies;

· The impact of potential goodwill impairments;

· The ability to successfully complete future merger, acquisition or divestiture plans.

In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than Duke Energy has described. The Duke Energy Registrants undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

DUKE ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

			Three Months Ended				Six Months Ended
			June 30,				June 30,
(in millions, except per-share amounts)			2012		2011		2012		2011
Operating Revenues
	Regulated electric		$	2,628	$	2,576	$	5,129	$	5,149
	Non-regulated electric, natural gas, and other			868		864		1,826		1,719
	Regulated natural gas			81		94		252		329
	Total operating revenues			3,577		3,534		7,207		7,197
Operating Expenses
	Fuel used in electric generation and purchased power - regulated			849		834		1,626		1,646
	Fuel used in electric generation and purchased power - non-regulated			396		388		844		764
	Cost of natural gas and coal sold			42		63		144		214
	Operation, maintenance and other			862		959		1,608		1,839
	Depreciation and amortization			475		437		954		891
	Property and other taxes			171		169		355		355
	Impairment charges			―		9		402		9
		Total operating expenses		2,795		2,859		5,933		5,718
Gains on Sales of Other Assets and Other, net				4		4		7		14
Operating Income				786		679		1,281		1,493
Other Income and Expenses
	Equity in earnings of unconsolidated affiliates			40		48		85		80
	Impairments and gains on sales of unconsolidated affiliates			(1)		12		(6)		14
	Other income and expenses, net			70		97		159		214
		Total other income and expenses		109		157		238		308
Interest Expense				232		203		456		422
Income From Continuing Operations Before Income Taxes				663		633		1,063		1,379
Income Tax Expense from Continuing Operations				214		192		317		425
Income From Continuing Operations				449		441		746		954
(Loss) Income From Discontinued Operations, net of tax				(1)		―		1		―
Net Income				448		441		747		954
Less: Net Income Attributable to Noncontrolling Interests				4		6		8		8
Net Income Attributable to Duke Energy Corporation			$	444	$	435	$	739	$	946


Earnings Per Share - Basic and Diluted
	Income from continuing operations attributable to Duke Energy Corporation common shareholders
		Basic	$	0.99	$	0.98	$	1.65	$	2.13
		Diluted	$	0.99	$	0.98	$	1.65	$	2.13
	Income from discontinued operations attributable to Duke Energy Corporation common shareholders
		Basic	$	―	$	―	$	―	$	―
		Diluted	$	―	$	―	$	―	$	―
	Net Income attributable to Duke Energy Corporation common shareholders
		Basic	$	0.99	$	0.98	$	1.65	$	2.13
		Diluted	$	0.99	$	0.98	$	1.65	$	2.13
	Dividends declared per share		$	1.515	$	1.485	$	2.265	$	2.22
	Weighted-average shares outstanding
		Basic		446		444		446		444
		Diluted		446		444		446		444

DUKE ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

Three Months Ended

Six Months Ended

June 30,

(in millions)

2012

2011

2012

2011

Net income

448

441

747

954

Other comprehensive (loss) income, net of tax

Foreign currency translation adjustments

(131)

(87)

Pension and OPEB adjustments^(a)

(7)

Net unrealized loss on cash flow hedges^(b)

(30)

(7)

(17)

(5)

Reclassification into earnings from cash flow hedges^(c)

Unrealized gain on investments in auction rate securities^(d)

Unrealized gain on investments in available for sale securities^(e)

―

Reclassification into earnings from available for sale securities^(f)

(2)

―

(3)

―

Other comprehensive (loss) income, net of tax

(150)

(90)

Comprehensive income

298

503

657

1,044

Less: Comprehensive income attributable to Noncontrolling Interests

―

Comprehensive income attributable to Duke Energy Corporation

298

494

653

1,033

(a)

Net of $1 million tax expense and $3 million tax expense for the three and six months ended June 30, 2012 and insignificant tax expense and $3 tax benefit for the three and six months ended June 30, 2011.

(b)

Net of $14 million tax benefit and $9 million tax benefit for the three and six months ended June 30, 2012 and $3 million tax benefit and $2 million tax benefit for the three and six months ended June 30, 2011.

(c)

Net of $2 million tax benefit and insignificant tax expense for the three and six months ended June 30, 2012 and $1 million tax expense for the three and six months ended June 30, 2011, respectively.

(d)

Net of $2 million tax expense and $3 million tax expense for the three and six months ended June 30, 2012 and $2 million tax benefit and $1 million tax expense for the three and six months ended June 30, 2011.

(e)

Net of insignificant tax expense for the three and six months ended June 30, 2012.

(f)

Net of insignificant tax benefit for the three and six months ended June 30, 2012.

See Notes to Unaudited Condensed Consolidated Financial Statements

PART I

DUKE ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

		June 30,		December 31,
(in millions)		2012		2011
ASSETS
Current Assets
Cash and cash equivalents		$	1,526	$	2,110
Short-term investments			234		190
Receivables (net of allowance for doubtful accounts of $16 at June 30, 2012 and $35 at December 31, 2011)			610		784
Restricted receivables of variable interest entities (net of allowance for doubtful accounts of $43 at June 30, 2012 and $40 at December 31, 2011)			1,233		1,157
Inventory			1,762		1,588
Other			1,122		1,051
	Total current assets		6,487		6,880
Investments and Other Assets
Investments in equity method unconsolidated affiliates			450		460
Nuclear decommissioning trust funds			2,204		2,060
Goodwill			3,842		3,849
Intangibles, net			357		363
Notes receivable			72		62
Restricted other assets of variable interest entities			133		135
Other			1,894		2,231
	Total investments and other assets		8,952		9,160
Property, Plant and Equipment
Cost			61,458		60,377
Cost, variable interest entities			1,357		913
Accumulated depreciation and amortization			(19,101)		(18,709)
Generation facilities to be retired, net			73		80
	Net property, plant and equipment		43,787		42,661
Regulatory Assets and Deferred Debits
Regulatory assets			3,646		3,672
Other			159		153
	Total regulatory assets and deferred debits		3,805		3,825
Total Assets		$	63,031	$	62,526

See Notes to Unaudited Condensed Consolidated Financial Statements

PART I

DUKE ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS — (Continued)
(Unaudited)

		June 30,		December 31,
(in millions, except per-share amounts)		2012		2011
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable		$	1,160	$	1,433
Notes payable and commercial paper			793		154
Non-recourse notes payable of variable interest entities			269		273
Taxes accrued			359		431
Interest accrued			254		252
Current maturities of long-term debt			1,870		1,894
Other			1,434		1,091
	Total current liabilities		6,139		5,528
Long-term Debt			17,539		17,730
Non-recourse long-term debt of variable interest entities			915		949
Deferred Credits and Other Liabilities
Deferred income taxes			7,914		7,581
Investment tax credits			379		384
Accrued pension and other post-retirement benefit costs			829		856
Asset retirement obligations			1,999		1,936
Regulatory liabilities			2,981		2,919
Other			1,820		1,778
	Total deferred credits and other liabilities		15,922		15,454
Commitments and Contingencies
Equity
Common Stock, $0.001 par value, 2 billion shared authorized; 446 million and 444 million shares outstanding at June 30, 2012 and December 31, 2011, respectively			1		1
Additional paid-in capital			21,140		21,132
Retained earnings			1,598		1,873
Accumulated other comprehensive loss			(320)		(234)
	Total Duke Energy Corporation shareholders' equity		22,419		22,772
Noncontrolling interests			97		93
	Total equity		22,516		22,865
Total Liabilities and Equity		$	63,031	$	62,526

See Notes to Unaudited Condensed Consolidated Financial Statements

PART I

DUKE ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

					Six Months Ended
					June 30,
(in millions)					2012		2011
CASH FLOWS FROM OPERATING ACTIVITIES
	Net income				$	747	$	954
	Adjustments to reconcile net income to net cash provided by operating activities:
			Depreciation and amortization (including amortization of nuclear fuel)			1,077		991
			Equity component of AFUDC			(116)		(123)
			Gains on sales of other assets			(7)		(27)
			Impairment of other long-lived assets			408		9
			Deferred income taxes			230		461
			Equity in earnings of unconsolidated affiliates			(85)		(80)
			Voluntary opportunity cost deferral			(101)		―
			Accrued pension and other post-retirement benefit costs			57		52
			(Increase) decrease in
				Net realized and unrealized mark-to-market and hedging transactions		(10)		13
				Receivables		61		166
				Inventory		(165)		(85)
				Other current assets		105		128
			Increase (decrease) in
				Accounts payable		(102)		(338)
				Taxes accrued		(67)		(99)
				Other current liabilities		34		(179)
			Other assets			22		81
			Other liabilities			(86)		(207)
				Net cash provided by operating activities		2,002		1,717
CASH FLOWS FROM INVESTING ACTIVITIES
	Capital expenditures					(2,252)		(1,938)
	Investment expenditures					(9)		(49)
	Acquisitions					(36)		(4)
	Purchases of available-for-sale securities					(1,240)		(1,266)
	Proceeds from sales and maturities of available-for-sale securities					1,155		1,281
	Net proceeds from the sales of other assets, and sales of and collections on notes receivable					23		109
	Change in restricted cash					(51)		24
	Other					19		5
				Net cash used in investing activities		(2,391)		(1,838)
CASH FLOWS FROM FINANCING ACTIVITIES
	Proceeds from the:
		Issuance of long-term debt				721		499
		Issuance of common stock related to employee benefit plans				14		10
	Payments for the redemption of long-term debt					(878)		(82)
	Notes payable and commercial paper					631		63
	Distributions to noncontrolling interests					(5)		(18)
	Dividends paid					(670)		(657)
	Other					(8)		(2)
				Net cash used in financing activities		(195)		(187)
	Net decrease in cash and cash equivalents					(584)		(308)
	Cash and cash equivalents at beginning of period					2,110		1,670
	Cash and cash equivalents at end of period				$	1,526	$	1,362
	Supplemental Disclosures:
	Significant non-cash transactions:
		Accrued capital expenditures			$	216	$	317
		Dividends declared but not paid			$	344	$	337
		Extinguishment of debt related to investment in Attiki Gas Supply, S. A.			$	66	$	―

See Notes to Unaudited Condensed Consolidated Financial Statements

PART I

DUKE ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

Duke Energy Corporation Shareholders

Accumulated Other Comprehensive Income (Loss)

Net Gains

Pension and

Common

Additional

Foreign

(Losses) on

OPEB Related

Common

Stock

Common

Paid-in

Retained

Currency

Cash Flow

Adjustments

Stockholders'

Noncontrolling

Total

(in millions)

Stock

Capital

Earnings

Adjustments

Hedges

Other

to AOCI

Equity

Interests

Equity

Balance at December 31, 2010

443

21,023

1,496

(18)

(17)

(60)

22,522

131

22,653

Net income

―

946

―

946

954

Other comprehensive income (loss)

―

(3)

(7)

Common stock issuances, including dividend reinvestment and employee benefits

―

Common stock dividends

―

(994)

―

(994)

―

(994)

Changes in noncontrolling interest in subsidiaries

―

(23)

Balance at June 30, 2011

444

21,045

1,448

190

(21)

(13)

(67)

22,583

119

22,702

Balance at December 31, 2011

445

21,132

1,873

(45)

(71)

(9)

(109)

22,772

22,865

Net income

―

739

―

739

747

Other comprehensive (loss) income

―

(83)

(15)

(86)

(4)

(90)

Common stock issuances, including dividend reinvestment and employee benefits

―

Common stock dividends

―

(1,014)

―

(1,014)

―

(1,014)

Balance at June 30, 2012

446

21,140

1,598

(128)

(86)

(3)

(103)

22,419

22,516

See Notes to Unaudited Condensed Consolidated Financial Statements

PART I

DUKE ENERGY CAROLINAS, LLC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)

Three Months Ended

Six Months Ended

June 30,

(in millions)

2012

2011

2012

2011

Operating Revenues-Regulated Electric

1,616

1,607

3,117

3,159

Operating Expenses

Fuel used in electric generation and purchased power

442

511

822

980