Duke Energy Posts Second Quarter 2013 Results

CHARLOTTE, N.C., Aug. 7, 2013 /PRNewswire/ -- Duke Energy (NYSE: DUK) today announced second quarter 2013 adjusted diluted EPS of $0.87, compared to $1.02 for second quarter 2012, and reported diluted EPS of $0.48, compared to $0.99 for the same period last year.

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Reported results include special items that are excluded from the company's adjusted diluted EPS results. Special items for the second quarter 2013 primarily include $0.26 per share in charges related to a write-off of investment balances in Crystal River 3, $0.08 per share in charges related to a write-off of nuclear development costs, $0.07 per share in merger costs to achieve, and $0.04 per share in charges for litigation reserves related to the company's former investment in Crescent Resources.

On an adjusted EPS basis, U.S. Franchised Electric & Gas, the company's largest business unit, overcame milder weather to post favorable results in the second quarter of 2013 primarily due to the addition of Progress Energy's utility operations. However, these results were offset by the impact of share dilution from the merger and lower quarterly results at both the Commercial Power and International Energy business units.

Additionally, the company reaffirmed its 2013 adjusted earnings guidance range of $4.20 to $4.45 per share and expects stronger adjusted earnings in the second half of the year as the company implements revised customer rates and continues to achieve efficiencies from the merger transaction.

"After one year, we have had tremendous success coming together as one, stronger company," said President and CEO Lynn Good. "We're delivering on our promises to customers, shareholders and our communities. We continue making progress with our near-term priorities, positioning Duke Energy for long-term financial and operational success.

"We are on track to achieve our 2013 adjusted diluted earnings per share guidance range of $4.20 to $4.45. We are keenly focused on achieving our financial objectives, supported by realizing constructive regulatory outcomes, maximizing cost efficiencies from our merger, and optimizing the performance in all of our operations," she said.

BUSINESS UNIT RESULTS
The discussion below of second quarter results includes adjusted segment income, which is a non-GAAP financial measure. The tables on pages 22 through 25 present a reconciliation of reported results to adjusted results.

U.S. Franchised Electric and Gas (USFE&G)
USFE&G recognized second quarter 2013 adjusted segment income of $590 million, compared to $337 million in the second quarter 2012, an increase of $0.36 per share.

USFE&G's increased results were primarily driven by the addition of Progress Energy's regulated utility operations in the Carolinas and Florida and merger savings at these operations (+$0.38 per share).

Other drivers included:

• Increased pricing and riders (+$0.02 per share) primarily related to the implementation of revised customer rates in Duke Energy Ohio's regulated electric operations and energy efficiency programs in the company's regulated business
  
  
• Lower operations and maintenance expenses primarily driven by the reduced number of nuclear outage days and the achievement of merger synergies (+$0.02 per share)

These results were partially offset by milder weather (-$0.05 per share) and a decrease in the Allowance for Funds Used During Construction (AFUDC) equity primarily due to the completion of certain major capital projects (-$0.02 per share).

International Energy
International Energy recognized second quarter 2013 adjusted segment income of $87 million, compared to $105 million in the second quarter 2012, a decrease of $0.03 per share.

International Energy's quarterly results decreased primarily due to lower volumes resulting from an extended planned maintenance outage at National Methanol Company (-$0.02 per share).

Commercial Power
Commercial Power recognized a second quarter 2013 adjusted segment loss of $3 million, compared to adjusted segment income of $32 million in the second quarter 2012, a decrease of $0.05 per share.

Commercial Power's quarterly performance decreased primarily due to lower results from the Midwest coal and gas generation fleets (-$0.07 per share) principally due to lower PJM capacity revenues, lower generation volumes and the prior year recovery of a previously written-off receivable from Lehman Brothers.

Other
On an adjusted basis, Other primarily includes corporate interest expense not allocated to the business units, results from Duke Energy's captive insurance company, other investments, and quarterly income tax levelization adjustments.

Other recognized second quarter 2013 adjusted net expense of $57 million, compared to adjusted net expense of $18 million in the second quarter 2012, a difference of $0.06 per share. Other's results were primarily due to the addition of interest expense on Progress Energy holding company's corporate debt (-$0.03 per share) and increased Duke Energy holding company interest expense (-$0.02 per share).

Share Issuance
On July 2, 2012, Duke Energy issued approximately 258 million shares of common stock in connection with the closing of the merger with Progress Energy Inc. The issuance of these additional shares had a dilutive impact of $0.37 per share on the quarter-over-quarter adjusted diluted EPS results.

Analyst conference call
An earnings conference call for analysts is scheduled for 10 a.m. ET today to discuss Duke Energy's financial performance for the quarter and provide other business updates. The conference call will be hosted by Lynn Good, president and chief executive officer. 

The call can be accessed via the investors' section (http://www.duke-energy.com/investors/) of Duke Energy's website or by dialing 877-675-4749 in the United States or 719-325-4903 outside the United States. The confirmation code is 8727874. Please call in 10 to 15 minutes prior to the scheduled start time.

A replay of the conference call will be available until 1 p.m. ET, Aug. 17, 2013, by calling 888-203-1112 in the United States or 719-457-0820 outside the United States and using the code 8727874. A replay and transcript also will be available by accessing the investors' section of the company's website.

Special Items and Non-GAAP Reconciliation
Mark-to-market impacts of economic hedges in the Commercial Power segment and special items affecting Duke Energy's adjusted diluted EPS for the quarters include:

Reconciliation of reported-to-adjusted diluted EPS for the quarters:

Non-GAAP financial measures
The primary performance measure used by management to evaluate segment performance is segment income. Segment income is defined as income from continuing operations net of income attributable to non-controlling interests. In addition, direct interest expense and income taxes are included in segment income and certain governance costs are allocated to each of the segments.

Management believes segment income, which is the GAAP measure used to report segment results, is a good indicator of each segment's operating performance as it represents the approximate net income contribution of Duke Energy's business segments by incorporating the direct financing methods or capital structures of the business segments as well as the income tax attributes of the businesses and regions in which they operate.

Duke Energy's management uses adjusted diluted EPS, which is a non-GAAP financial measure as it represents diluted EPS from continuing operations attributable to Duke Energy Corporation common shareholders, adjusted for the per-share impact of special items and the mark-to-market impacts of economic hedges in the Commercial Power segment, as a measure to evaluate operations of the company. In addition, Duke Energy's management calculates the EPS impact of segment income drivers to facilitate an understanding of the impacts of each income driver on consolidated adjusted diluted EPS.

Special items represent certain charges and credits, which management believes will not be recurring on a regular basis, although it is reasonably possible such charges and credits could recur. Mark-to-market adjustments reflect the mark-to-market impact of derivative contracts, which is recognized in GAAP earnings immediately as such derivative contracts do not qualify for hedge accounting or regulatory accounting treatment, used in Duke Energy's hedging of a portion of the economic value of its generation assets in the Commercial Power segment. The economic value of the generation assets is subject to fluctuations in fair value due to market price volatility of the input and output commodities (e.g. coal, power, gas) and, as such, the economic hedging involves both purchases and sales of those input and output commodities related to the generation assets. Because the operations of the generation assets are accounted for under the accrual method, management believes that excluding the impact of mark-to-market changes of the economic hedge contracts from adjusted earnings until settlement better matches the financial impacts of the hedge contract with the portion of the economic value of the underlying hedged asset. Management believes that the presentation of adjusted diluted EPS provides useful information to investors, as it provides them an additional relevant comparison of the company's performance across periods. Adjusted diluted EPS is also used as a basis for employee incentive bonuses. The most directly comparable GAAP measure for adjusted diluted EPS is reported diluted EPS from continuing operations attributable to Duke Energy Corporation common shareholders, which includes the impact of special items and the mark-to-market impacts of economic hedges in the Commercial Power segment. Due to the forward-looking nature of adjusted diluted EPS for future periods, information to reconcile such non-GAAP financial measures to the most directly comparable GAAP financial measures is not available at this time, as the company is unable to forecast special items and the mark-to-market impacts of economic hedges in the Commercial Power segment for future periods.

Duke Energy also uses adjusted segment income and adjusted Other net expenses as a measure of historical and anticipated future segment and Other performance. Adjusted segment income and adjusted Other net expenses are non-GAAP financial measures, as they represent reported segment income and Other net expenses adjusted for special items and the mark-to-market impacts of economic hedges in the Commercial Power segment. Management believes that the presentation of adjusted segment income and adjusted Other net expenses provides useful information to investors, as it provides them an additional relevant comparison of a segment's or Other's performance across periods. When an EPS amount is provided for a segment income driver, the per share impact is derived by taking the before-tax amount of the item less income taxes based on Duke Energy's consolidated effective tax rate, divided by the Duke Energy weighted-average diluted shares outstanding for the period. The most directly comparable GAAP measure for adjusted segment income or adjusted Other net expenses is reported segment income or Other net expenses, which represents segment income and Other net expenses from continuing operations, including any special items and the mark-to-market impacts of economic hedges in the Commercial Power segment. Due to the forward-looking nature of any forecasted adjusted segment income or adjusted Other net expenses and any related growth rates for future periods, information to reconcile these non-GAAP financial measures to the most directly comparable GAAP financial measures is not available at this time, as the company is unable to forecast special items, the mark-to-market impacts of economic hedges in the Commercial Power segment, or any amounts that may be reported as discontinued operations or extraordinary items for future periods.

Duke Energy is the largest electric power holding company in the United States with more than $110 billion in total assets. Its regulated utility operations serve approximately 7.2 million electric customers located in six states in the Southeast and Midwest. Its commercial power and international business segments own and operate diverse power generation assets in North America and Latin America, including a growing portfolio of renewable energy assets in the United States.

Headquartered in Charlotte, N.C., Duke Energy is a Fortune 250 company traded on the New York Stock Exchange under the symbol DUK. More information about the company is available at duke-energy.com. 

Forward-Looking Information
This release 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 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 or climate change, as well as rulings that affect cost and investment recovery or have an impact on rate structures or market prices; the ability to recover eligible costs, including those associated with future significant weather events, and earn an adequate return on investment through the regulatory process; the costs of retiring Crystal River Unit 3 could prove to be more extensive than is currently identified, all costs associated with the retirement Crystal River Unit 3 asset, including replacement power may not be fully recoverable through the regulatory process; the ability to maintain relationships with customers, employees or suppliers; 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 or 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 service territories or customer bases resulting from customer usage patterns, including energy efficiency efforts and use of alternative energy sources including self-generation and distributed generation technologies; 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 operations, including the economic, operational and other effects of severe storms, hurricanes, droughts and tornadoes; the ability to successfully operate electric generating facilities and deliver electricity to customers; the impact on facilities and business from a terrorist attack, cyber security threats and other catastrophic events; 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 price, interest rates and foreign currency exchange rates and the ability to recover such costs through the regulatory process, where appropriate, and their impact on liquidity positions and the value of underlying assets; the results of financing efforts, including the ability to obtain financing on favorable terms, which can be affected by various factors, including credit ratings and general economic conditions; declines in the market prices of equity securities and resultant cash funding requirements for defined benefit pension plans, other post-retirement benefit plans, and nuclear decommissioning trust funds; changes in rules for regional transmission organizations, including changes in rate designs and new and evolving capacity markets, and risks related to obligations created by the default of other participants; the ability to control operation and maintenance costs; the level of creditworthiness of counterparties to transactions; employee workforce factors, including the potential inability to attract and retain key personnel; the ability of subsidiaries to pay dividends or distributions to Duke Energy Corporation holding company (the Parent); the performance of projects undertaken by our nonregulated businesses and the success of efforts to invest in and develop new opportunities; the effect of accounting pronouncements issued periodically by accounting standard-setting bodies; the impact of potential goodwill impairments; the ability to reinvest retained earnings of foreign subsidiaries or repatriate such earnings on a tax free basis; and the ability to successfully complete future merger, acquisition or divestiture plans.

Additional risks and uncertainties are identified and discussed in Duke Energy's and its subsidiaries' reports filed with the SEC and available at the SEC's website at www.sec.gov. 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. Forward looking statements speak only as of the date they are made, Duke Energy undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise that occur after that date.

Media Contact: Tom Shiel
Office: 704.382.2355 | 24-Hour: 800.559.3853

Analysts: Bob Drennan
Office: 704.382.4070

Analysts: Bill Currens
Office: 704.382.1603