As filed with the Securities and Exchange Commission on June 29, 2010
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 11-K
FOR ANNUAL REPORTS OF EMPLOYEE STOCK REPURCHASE
SAVINGS AND SIMILAR PLANS PURSUANT TO SECTION 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2009
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 1-9044
A. Full title of the plan and the address of the plan, if different from that of the issuer named below:
DUKE 401(k) PLAN
B. Name of issuer of the securities held pursuant to the plan and the address of its principal executive office:
DUKE REALTY CORPORATION
600 East 96th Street, SUITE 100
INDIANAPOLIS, INDIANA 46240
DUKE 401(k) PLAN
Financial Statements with Supplemental Schedule
December 31, 2009 and 2008
(With Report of Independent Registered Public Accounting Firm Thereon)
DUKE 401(k) PLAN
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| 1 | ||
| Financial Statements: |
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| 2 | ||
| 3 | ||
| 4 | ||
| Schedule |
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| Schedule H, Line 4i – Schedule of Assets (Held at End of Year) |
10 | |
Report of Independent Registered Public Accounting Firm
The Associate Benefits Committee
Duke 401(k) Plan:
We have audited the accompanying statements of assets available for plan benefits of Duke 401(k) Plan (the Plan) as of December 31, 2009 and 2008, and the related statements of changes in assets available for plan benefits for the years then ended. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the assets available for plan benefits of Duke 401(k) Plan as of December 31, 2009 and 2008, and the changes in assets available for plan benefits for the years then ended, in conformity with U.S. generally accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule, schedule H, line 4i – schedule of assets (held at end of year), is presented for the purpose of additional analysis and is not a required part of the basic financial statements but is supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. This supplemental schedule is the responsibility of the Plan’s management. The supplemental schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
/s/ KPMG LLP
Indianapolis, Indiana
June 29, 2010
Statements of Assets Available for Plan Benefits
December 31, 2009 and 2008
| 2009 | 2008 | ||||
| Assets held by Trustee: |
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| Investments, at fair value: |
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| Money market funds |
$ | 3,480,422 | 3,862,830 | ||
| Mutual funds |
52,302,298 | 40,236,313 | |||
| Common stock |
18,450,509 | 14,676,998 | |||
| U.S. Treasury Notes |
17,354 | 15,548 | |||
| Loans to participants |
1,676,885 | 1,804,873 | |||
| Contributions receivable: |
|||||
| Employer |
— | 142,534 | |||
| Other receivable: |
|||||
| Unsettled trades |
— | 7,825 | |||
| Assets available for plan benefits |
$ | 75,927,468 | 60,746,921 | ||
See accompanying notes to financial statements.
2
Statements of Changes in Assets Available for Plan Benefits
Years ended December 31, 2009 and 2008
| 2009 | 2008 | |||||
| Contributions: |
||||||
| Participants’ salary deferral |
$ | 5,727,719 | 7,121,174 | |||
| Employer matching of salary deferral |
1,661,513 | 3,366,821 | ||||
| Participants’ rollover |
75,984 | 491,325 | ||||
| Total contributions |
7,465,216 | 10,979,320 | ||||
| Investment income/(loss): |
||||||
| Net appreciation (depreciation) in fair value of investments |
14,201,801 | (36,278,111 | ) | |||
| Interest and dividends |
2,193,870 | 3,400,037 | ||||
| Total investment gain (loss) |
16,395,671 | (32,878,074 | ) | |||
| 23,860,887 | (21,898,754 | ) | ||||
| Deductions from assets attributed to: |
||||||
| Benefits paid to participants |
8,642,949 | 5,758,170 | ||||
| Administrative fees |
37,391 | 44,982 | ||||
| Total deductions |
8,680,340 | 5,803,152 | ||||
| Net increase (decrease) |
15,180,547 | (27,701,906 | ) | |||
| Assets available for plan benefits: |
||||||
| Beginning of year |
60,746,921 | 88,448,827 | ||||
| End of year |
$ | 75,927,468 | 60,746,921 | |||
See accompanying notes to financial statements.
3
Notes to Financial Statements
December 31, 2009 and 2008
| (1) | Description of Plan |
The following description of the Duke 401(k) Plan (the Plan) provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan’s provisions.
| (a) | General |
The Plan is a defined contribution plan sponsored by Duke Realty Corporation (the Employer) covering all employees who are age 18 years or older and have met the service requirement as defined by the Plan. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA).
| (b) | Contributions |
Eligible participants may elect to defer a percentage of their compensation to be contributed to their Employee Deferral Account. The Plan stipulates the minimum and maximum percentage that may be contributed, not to exceed 75% of a participant’s compensation for each plan year, subject to limitations imposed by the Internal Revenue Service. The Plan currently offers each participant investment options including a number of mutual funds, common stock of the Employer, a money market fund, and a self-directed fund, which allows participants to direct their contributions into investments of their choice. The Employer matched participant contributions annually up to 3% of total compensation, for participants with less than 10 years of service. The Employer matched participant contributions annually up to 5% of total compensation for participants with at least 10 years of service and not at a management level of senior vice president or higher. The Employer matching contribution is limited to a participant’s first $245,000 of compensation ($230,000 in 2008). Effective June 2, 2008, the contribution is invested in the common stock of the Employer unless the participant elected to have the Employer matching contribution invested in other investment options. Effective July 1, 2009, the Employer indefinitely suspended the Employer match. The Employer may also make discretionary contributions to the Plan to be invested in the common stock of the Employer. Participants are able to transfer all Employer contributions to an investment option of their choice.
| (c) | Participant Accounts |
Each participant’s account is credited (debited) with the participant’s contribution, the Employer matching contribution, allocations of the Employer’s discretionary contribution (when applicable), and Plan earnings (losses). Allocations are based on participant earnings or account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account.
| (d) | Vesting |
Participants are immediately vested in elective salary reduction contributions and the actual earnings thereon. Vesting in discretionary contributions, matching contributions, and the earnings thereon is based upon the years of service of the participant. A year of service means a plan year in which the participant completes at least 1,000 hours of service. A participant becomes 20% vested after one year of service and vests an additional 20% for each year of service thereafter and is 100% vested after five years of service. Participants who terminate employment due to retirement after age 59 1/2, by death, or by total or permanent disability are automatically considered fully vested.
4
| (e) | Benefits |
Upon termination of service or retirement, a participant’s vested account balance is to be distributed in a lump-sum payment, and/or they can receive Employer stock for the portion of their vested account balance that was in Employer stock within 90 days of written request.
| (f) | Forfeitures |
Participants who terminate employment forfeit any nonvested portion of their account. Forfeitures are used to reduce the Employer matching contributions. In 2009 and 2008, Employer contributions were reduced by $65,000 and $174,905, respectively, from forfeited nonvested accounts. As of December 31, 2009 and 2008, there is $46,553 and $69,565, respectively, of additional forfeitures that have not yet been used to reduce Employer matching contributions.
| (2) | Summary of Significant Accounting Policies |
| (a) | Recently Adopted Accounting Pronouncements |
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements, included in ASC Topic 820, Fair Value Measurements and Disclosures, which defines fair value, establishes guidelines for measuring fair value, and expands disclosures regarding fair value measurements. Accounting Standards Codification (ASC) Topic 820 (Statement 157) does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements and is effective for fiscal years beginning after November 15, 2007. Effective January 1, 2008, the Plan adopted ASC Topic 820 (Statement 157), which did not have a material impact on the statement of net assets available or the statement of changes in net assets available for benefits. See note 8 for information and related disclosures regarding fair value measurements.
| (b) | Use of Estimates |
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and changes therein, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
| (c) | Basis of Accounting |
The Plan’s financial statements are prepared on the accrual basis of accounting, except for the cash basis recording of benefits paid.
| (d) | Investment Valuation and Income Recognition |
Investments are reported at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. See note 8 for discussion of fair value measurements.
5
Net appreciation (depreciation) in fair value of investments is reflected in the statements of changes in net assets available for benefits and includes realized gains and losses on investments bought and sold and the change in appreciation from one period to the next. Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date. Acquisition costs are included in the cost of investments purchased, and sales are recorded net of selling expenses.
| (e) | Administrative Expenses |
In service withdrawal fees, participant loan origination fees, participant loan maintenance fees, Employer stock trustee fees, and Employer stock sale/purchase fees are charged to participant’s accounts as incurred.
| (f) | Loans |
Participant loans are limited to the lesser of $50,000 or 50% of the participant’s vested account balance. Under terms of the loan agreements, loans must be repaid in not more than five years, unless used to acquire a principal residence. Interest rates are fixed at the prime rate plus 1%, and range from 4.25% to 9.5%. Loans are valued at amortized cost, which materially approximates fair value.
| (3) | Plan Termination |
Although it has not expressed any intent to do so, the Employer has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination by the Employer, participants will become 100% vested in their accounts.
In 2009, the Plan sponsor carried out a series of independent terminations of certain employee groups. Although each instance did not constitute a partial termination of the Plan, the plan administrator determined that all of those terminations combined constituted a partial termination of the Plan. Some of the forfeitures of employer contributions resulting from these terminations were used to reduce employer contribution to the Plan. However, since these events in combination were considered a partial plan termination, unvested funds of the affected terminated employees should have immediately vested to the employee and not been forfeited. The plan administrator is in the process of identifying those employees affected by the partial plan termination and determining the amount of forfeited contributions, plus earnings, to be returned to these former employees. The total impact of the partial termination of the Plan is not expected to be material. The Plan sponsor will make the contribution to the Plan to make up the shortfall between the forfeiture account balance and the total cost once the final amount is known.
6
| (4) | Investments |
The following table represents the fair value of individual investments that exceed 5% of the Plan’s assets available for plan benefits as of December 31:
| 2009 | 2008 | ||||
| Fidelity Balanced Fund |
$ | 3,800,045 | 3,578,475 | ||
| Fidelity Diversified International Fund |
6,292,163 | 4,758,575 | |||
| Fidelity Retirement Money Market Portfolio |
N/A | 3,557,049 | |||
| Fidelity Spartan Total Market Index Fund |
3,981,513 | 3,263,184 | |||
| Goldman Sachs Mid Cap Value CL A |
4,185,613 | 3,307,118 | |||
| Growth Fund of America |
6,636,728 | 5,237,692 | |||
| Pimco Total Return Fund – Admin Class |
5,299,305 | 4,101,018 | |||
| Van Kampen Growth and Income Fund |
4,279,926 | 3,709,865 | |||
| Royce Low-Priced Stock Fund – Inv Class |
4,030,987 | N/A | |||
| Duke Realty Corporation Common Stock |
16,463,730 | 13,257,969 | |||
The Plan’s investments (including gains and losses on investments bought and sold, as well as held during the year) appreciated (depreciated) in value as follows:
| 2009 | 2008 | |||||
| Common stock |
$ | 3,207,411 | (13,559,590 | ) | ||
| Mutual funds |
10,992,319 | (22,717,657 | ) | |||
| U.S. Treasury notes |
2,071 | (864 | ) | |||
| $ | 14,201,801 | (36,278,111 | ) | |||
| (5) | Nonparticipant-Directed Investments |
The Plan was amended effective March 1, 2002, to allow participants to transfer all or any part of their nonparticipant-directed investments to participant-directed investments.
| (6) | Tax Status |
The Internal Revenue Service has determined and informed the Company by a letter dated November 23, 2005 that the Plan and related trust are designed in accordance with applicable sections of the Internal Revenue Code (IRC). Although the Plan has been amended since receiving the determination letter, the plan administrator and the Plan’s tax counsel believe that the Plan is designed and is currently being operated in compliance with the applicable requirements of the IRC.
7
| (7) | Fair Value Measurements |
ASC Topic 820 (Statement 157) establishes a framework for measuring fair value that provides fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC Topic 820 (Statement 157) are described below:
|
Level 1 |
Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Plan has the ability to access. | |
| Level 2 |
Inputs to the valuation methodology include:
• Quoted prices for similar assets or liabilities in active markets;
• Quoted prices for identical or similar assets or liabilities in inactive markets;
• Inputs other than quoted prices that are observable for the asset or liability; and
• Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability. | |
| Level 3 |
Inputs to the valuation methodology are unobservable and significant to the fair value measurement. | |
The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
Following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at December 31, 2009 and 2008.
Money market funds and equity securities: Valued at the closing price reported on the active market on which the individual investments are traded.
Mutual funds: Valued at the net asset value (NAV) of shares held by the Plan at year-end.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. The fair value measurements were based upon Level 1 inputs.
8
| (8) | Party-in-Interest Transactions |
The following investment funds are sponsored by Fidelity Investments, the Trustee: Fidelity Retirement Money Market Portfolio, Fidelity Balanced Fund, Fidelity Diversified International Fund, Fidelity Freedom Funds, Fidelity Freedom Income Fund, Fidelity Inflation-Protected Bond Fund, and Fidelity Spartan Total Market Index Fund. Participant loans are made with individual participants of the Plan, and investments are made in the common stock of the Employer. Therefore, transactions in these investments are considered to be party-in-interest transactions.
| (9) | Concentrations |
At December 31, 2009 and 2008, approximately 22% and 22%, respectively, of assets available for plan benefits are invested in the Employer’s common stock.
| (10) | Risks and Uncertainties |
The Plan offers various investment options. Investment securities are exposed to various risks such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the value of investment securities will occur in the near term and that such changes could materially affect participants’ account balances and the amounts reported in the statements of assets available for plan benefits.
Recent market conditions have resulted in an unusually high degree of volatility and increased the risks with certain investments held by the Plan, which would impact the value of investments after the date of these financial statements.
9
Schedule 1
Schedule H, Line 4i – Schedule of Assets (Held at End of Year)
December 31, 2009
| Party-in- |
Identity | Description of investment |
Current value | ||||
| Money market funds: | |||||||
| * | Fidelity | Fidelity Retirement Money Market Portfolio | $ | 2,980,697 | |||
| Mutual funds: | |||||||
| Calamos | Calamos Growth Fund | 3,639,540 | |||||
| * | Fidelity | Fidelity Balanced Fund | 3,800,045 | ||||
| * | Fidelity | Fidelity Diversified International Fund | 6,292,163 | ||||
| * | Fidelity | Fidelity Freedom 2005 Fund | 125,087 | ||||
| * | Fidelity | Fidelity Freedom 2010 Fund | 96,918 | ||||
| * | Fidelity | Fidelity Freedom 2015 Fund | 871,585 | ||||
| * | Fidelity | Fidelity Freedom 2020 Fund | 1,295,234 | ||||
| * | Fidelity | Fidelity Freedom 2025 Fund | 715,775 | ||||
| * | Fidelity | Fidelity Freedom 2030 Fund | 982,126 | ||||
| * | Fidelity | Fidelity Freedom 2035 Fund | 902,851 | ||||
| * | Fidelity | Fidelity Freedom 2040 Fund | 748,371 | ||||
| * | Fidelity | Fidelity Freedom 2045 Fund | 364,009 | ||||
| * | Fidelity | Fidelity Freedom 2050 Fund | 139,294 | ||||
| * | Fidelity | Fidelity Freedom Income Fund | 374,478 | ||||
| * | Fidelity | Fidelity Inflation-Protected Bond Fund | 2,314,334 | ||||
| * | Fidelity | Fidelity Spartan Total Market Index Fund | 3,981,513 | ||||
| American | Growth Fund of America | 6,636,728 | |||||
| Goldman Sachs | Goldman Sachs Mid-Cap Value CL A | 4,185,613 | |||||
| Pimco | Pimco Total Return Fund – Admin Class | 5,299,305 | |||||
| Royce | Royce Low-Priced Stock Fund – Inv Class | 4,030,987 | |||||
| Van Kampen | Van Kampen Growth and Income Fund | 4,279,926 | |||||
| $ | 51,075,882 | ||||||
| Common stock: | |||||||
| * | Duke Realty Corporation | Common stock | $ | 16,463,730 | |||
| Participant Directed Brokerage Account |
$ | 3,730,274 | |||||
| Loans to participants: | |||||||
| * | N/A | Participant loans at interest rates ranging | |||||
| from 4.25% to 9.5% | $ | 1,676,885 | |||||
| * | Denotes party-in-interest | ||||||
See accompanying report of independent registered public accounting firm.
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.
DUKE 401(k) PLAN
| Date: June 29, 2010 | /s/ Denise K. Dank | |||||
| Denise K. Dank Sr. Vice President of Human Resources Chairman, Associate Benefits Committee | ||||||