Duke Energy Results Exceed 2011 Earnings Guidance Range

CHARLOTTE, N.C., Feb. 16, 2012 /PRNewswire/ -- Duke Energy (NYSE: DUK) today posted full-year adjusted diluted EPS of $1.46, exceeding the company's 2010 earnings of $1.43 and its increased 2011 guidance range of $1.40 to $1.45.

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In 2011, earnings from the company's ongoing modernization program and favorable results from its International business unit helped mitigate the impact of significantly less favorable weather, higher operating and maintenance costs, including significant storm restoration costs, and the annualized effect of customer switching in Ohio.

Duke Energy's full-year reported diluted EPS was $1.28 for 2011, compared to $1.00 in 2010.

Fourth quarter 2011 adjusted diluted EPS was 24 cents, compared to 21 cents for fourth quarter 2010. Fourth quarter 2011 reported diluted EPS was 22 cents, compared to 32 cents for fourth quarter 2010.

"2011 was a year of accomplishments for Duke Energy," said Jim Rogers, chairman, president and chief executive officer. "Some of the highlights include:

• Achieving the company's best safety performance in its history;
• exceeding our adjusted EPS objectives for the year;
• continuing to increase the quarterly per share dividend payment to shareholders;
• receiving approval from the Public Utilities Commission of Ohio (PUCO) for a new Electric Security Plan (ESP) that balances the interests of customers, the state and the company's investors;
• reaching settlements in our North Carolina and South Carolina rate cases that were approved, respectively, by the North Carolina Utilities Commission and the Public Service Commission of South Carolina;
• bringing the first of four fleet modernization projects -- Buck Combined Cycle Station -- online on time and on budget;
• finishing the year with a 92.95 percent capacity factor for our regulated nuclear fleet, the 12th consecutive year the fleet has been above 90 percent; and
• generating record annual volumes by our non-regulated Midwest gas-fired fleet for the third consecutive year.

"Our employees' efforts established a strong foundation upon which to build," he added. "We expect to complete our remaining fleet modernization projects in North Carolina and Indiana in 2012, which will better position the company to meet its customers' future energy needs in a more efficient and environmentally responsible manner. Also, we will continue to pursue regulatory approvals for our pending merger with Progress Energy."

The company has established its 2012 adjusted diluted EPS guidance range at $1.40 to $1.45. This range does not contemplate the effects of the proposed Progress Energy merger. Duke Energy remains well-positioned to achieve its long-term adjusted diluted EPS compound annual growth rate of 4 to 6 percent off of a 2009 base.

Special items affecting Duke Energy's adjusted diluted EPS for fourth quarter 2010 and fourth quarter 2011 include:

Reconciliation of reported to adjusted diluted EPS for the quarters:

Reconciliation of reported to adjusted diluted EPS for the annual periods:

BUSINESS UNIT RESULTS

Below is a discussion of fourth-quarter and year-to-date results on an adjusted basis, which is a non-GAAP financial measure. The tables on pages 22 through 26 present a reconciliation of reported results to adjusted results.

U.S. Franchised Electric and Gas (USFE&G)

USFE&G recognized fourth-quarter 2011 adjusted segment EBIT of $552 million, compared to $605 million in the fourth quarter 2010.

USFE&G's quarterly results decreased primarily due to unfavorable weather, partially offset by higher earnings from Duke Energy's investments in its ongoing modernization program and a favorable revenue true-up following a North Carolina regulatory ruling related to the company's energy efficiency programs.

Full-year 2011 adjusted segment EBIT for USFE&G was $2,826 million, compared to $2,966 million in 2010.

The decrease in full-year 2011 results was primarily driven by less favorable weather as well as planned increases in operation and maintenance costs and increased storm restoration costs. These decreases were partially offset by investments related to the ongoing construction program.

Commercial Power

Commercial Power recognized fourth-quarter 2011 adjusted segment EBIT of $6 million, compared to $54 million in the fourth quarter 2010.

Commercial Power's quarterly results decreased primarily due to fees of $35 million related to exiting the Midwest Independent System Operator (MISO) effective at the end of 2011 and the annualized effect of 2010 customer switching in Ohio, which stabilized in the latter half of 2010. Additionally, results from the Midwest gas-fired generating fleet decreased primarily driven by lower PJM capacity revenues and higher operation and maintenance costs from planned outages, partially offset by higher margins on wholesale transactions.

Full-year 2011 adjusted segment EBIT for Commercial Power was $305 million, compared to $398 million in 2010.

The decrease in full-year results was primarily due to the annualized effect of 2010 customer switching in Ohio, which remained stable throughout 2011, and fees related to exiting MISO. These results were partially offset by higher base generation rates in Ohio, favorable wholesale coal margins, and favorable results from the Midwest gas-fired generating fleet.

International Energy

International Energy recognized fourth-quarter 2011 adjusted segment EBIT of $152 million, compared to $110 million in the fourth quarter 2010.

International Energy's results for the quarter were driven primarily by favorable volumes and pricing in Brazil, higher pricing at National Methanol, and higher capacity revenues in Peru. These drivers were partially offset by slightly unfavorable average foreign exchange rates.

Full-year 2011 adjusted segment EBIT for International Energy was $679 million, compared to $486 million in 2010.

The increase in full-year results was primarily due to higher average contract prices and favorable foreign exchange rates in Brazil, favorable hydrology in Central America, increased earnings from International Energy's investment in National Methanol, and a favorable arbitration award in Peru during 2011.

Other

On an adjusted basis, Other primarily includes corporate governance expenses and results from Duke Energy's captive insurance company.  

Other recognized fourth-quarter 2011 adjusted net expense of $46 million, compared to $121 million in the fourth quarter 2010.

The decrease in adjusted net expense from Other was primarily due to the prior year $40 million donation to the Duke Energy Foundation, which supports the local communities we serve, and lower corporate governance costs in the fourth quarter 2011.

Full-year 2011 adjusted net expense for Other was $193 million, compared to $278 million in 2010.

The decrease in adjusted net expense for the year was primarily due to the prior year donations of $56 million to the Duke Energy Foundation and lower corporate governance costs.

INTEREST EXPENSE

Fourth quarter 2011 interest expense was $224 million compared to $216 million in the fourth quarter 2010. Full-year 2011 interest expense was $859 million, compared to $840 million for 2010.

The increase in interest expense for both the fourth quarter and full-year 2011 was primarily due to higher debt balances, resulting from financing the company's ongoing construction program.

INCOME TAX

Adjusted income tax expense in fourth quarter 2011 was $129 million, compared to $156 million in fourth quarter 2010. Full-year 2011 adjusted income tax expense was $884 million, compared to $929 million in 2010.

The adjusted effective tax rate for full-year 2011 was approximately 31 percent, compared to approximately 33 percent in 2010. The adjusted effective tax rate for 2010 reflects the effect of a charge due to a change in the tax treatment of the Medicare Part D subsidy that was part of health care reform legislation as well as state tax rate adjustments.

ANALYST CONFERENCE CALL

An earnings conference call for investors and analysts is scheduled for 10 a.m. ET Thursday, Feb. 16. In addition to discussing fourth quarter and year-end 2011 earnings, the company will provide its stand-alone 2012 adjusted diluted earnings per share guidance range. The conference call can be accessed via the investors' section (http://www.duke-energy.com/investors/) of Duke Energy's website or by dialing 888-428-9506 in the United States or 719-325-2223 outside the United States. The confirmation code is 9104086. Please call in 10 to 15 minutes prior to the scheduled start time.

A replay of the conference call will be available until midnight ET, Feb. 25, 2012, by calling 888-203-1112 in the United States or 719-457-0820 outside the United States, and using the code 9104086. A replay and transcript also will be available by accessing the investors' section of the company's website.

NON-GAAP FINANCIAL MEASURES

The primary performance measure used by management to evaluate segment performance is segment EBIT from continuing operations, which at the segment level represents all profits from continuing operations (both operating and non-operating), including any equity in earnings of unconsolidated affiliates, before deducting interest and taxes, and is net of the income attributable to non-controlling interests.

Management believes segment EBIT from continuing operations, which is the GAAP measure used to report segment results, is a good indicator of each segment's operating performance as it represents the results of Duke Energy's ownership interests in continuing operations without regard to financing methods or capital structures. 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.

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) 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, including the forecasted range of growth of 4%-6% in adjusted diluted EPS (on a compound annual growth rate basis) from a base of adjusted diluted EPS for 2009 of $1.22, 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 EBIT and adjusted Other net expenses as a measure of historical and anticipated future segment and Other performance. When used for future periods, adjusted segment EBIT and adjusted Other net expenses may also include any amounts that may be reported as discontinued operations or extraordinary items. Adjusted segment EBIT and adjusted Other net expenses are non-GAAP financial measures, as they represent reported segment EBIT 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 EBIT 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. The most directly comparable GAAP measure for adjusted segment EBIT or adjusted Other net expenses is reported segment EBIT or Other net expenses, which represents segment EBIT 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 EBIT 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 one of the largest electric power holding companies in the United States. Its regulated utility operations serve approximately 4 million customers located in five states in the Southeast and Midwest, representing a population of approximately 12 million people. 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 500 company traded on the New York Stock Exchange under the symbol DUK. More information about the company is available on the Internet at: www.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, as well as rulings that affect cost and investment recovery or have an impact on rate structures; costs and effects of legal and administrative proceedings, settlements, investigations and claims; industrial, commercial and residential growth or decline in Duke Energy Corporation's (Duke Energy) 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 Duke Energy operations, including the economic, operational and other effects of storms, hurricanes, droughts and tornadoes; the impact on Duke Energy's 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 Duke Energy's ability to obtain financing on favorable terms, which can be affected by various factors, including Duke Energy's 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; the level of creditworthiness of counterparties to Duke Energy's transactions; employee workforce factors, including the potential inability to attract and retain key personnel; growth in opportunities for Duke Energy's 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's 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 expected timing and likelihood of completion of the proposed merger with Progress Energy, Inc. (Progress Energy), including the timing, receipt and terms and conditions of any required governmental and regulatory approvals of the proposed merger that could reduce anticipated benefits or cause the parties to abandon the merger, the diversion of management's time and attention from Duke Energy's ongoing business during this time period, the ability to maintain relationships with customers, employees or suppliers as well as the ability to successfully integrate the businesses and realize cost savings and any other synergies and the risk that the credit ratings of the combined company or its subsidiaries may be different from what the companies expect; the risk that the proposed merger with Progress Energy is terminated prior to completion and results in significant transaction costs to Duke Energy; and the ability to successfully complete merger, acquisition or divestiture plans.

These risks, as well as other risks associated with the merger, are more fully discussed in the joint proxy statement/prospectus that is included in the Registration Statement on Form S-4 that was filed with the SEC in connection with the merger. Additional risks and uncertainties are identified and discussed in Progress Energy's and Duke Energy's 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. 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.

SOURCE Duke Energy