Progress Energy announces 2012 second-quarter results

RALEIGH, N.C., Aug. 2, 2012 /PRNewswire/ -- Duke Energy Corporation (NYSE: DUK) and Progress Energy, Inc. completed their merger on July 2, 2012. In connection with the merger, Progress Energy has become a wholly owned direct subsidiary of Duke Energy. As a result, the Progress Energy financial results for the second quarter 2012 are on a stand-alone basis and are not included in Duke Energy's results. The financial results of Progress Energy will be included in Duke Energy's consolidated results beginning with third quarter 2012.

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Progress Energy announced second-quarter GAAP earnings of $63 million, or $0.21 per share, compared with GAAP earnings of $176 million, or $0.60 per share, for the same period last year. Second-quarter ongoing earnings were $80 million, or $0.27 per share, compared to $211 million, or $0.71 per share, for the same period last year. The significant drivers in ongoing earnings per share were higher operation and maintenance (O&M) expense, primarily driven by an additional extended nuclear refueling outage in the Carolinas; higher depreciation and amortization expense; and the unfavorable impact of weather. (See the discussion later in this release for a reconciliation of ongoing earnings per share to GAAP earnings per share.)

An earnings conference call for analysts is scheduled for 11 a.m. ET today to discuss Duke Energy's financial performance for the second quarter 2012 and the recent finalization of the merger with Progress Energy, among other matters. Additional details are provided at the end of this earnings release.

See the second-quarter and year-to-date 2012 business highlights section on pages 2-4 for detailed earnings variance analyses for the Progress Energy Carolinas (PEC), Progress Energy Florida (PEF) and Corporate and Other Businesses segments.

SECOND-QUARTER 2012 BUSINESS HIGHLIGHTS

Below are the second-quarter and year-to-date 2012 earnings variance analyses for the company's segments. See the reconciliation tables in the ongoing earnings adjustments section on pages 5-6 and on pages S-1 and S-2 of the supplemental data for a reconciliation of ongoing earnings per share to GAAP earnings per share. Also see the attached supplemental data schedules for additional information on PEC and PEF electric revenues, energy sales, energy supply, weather impacts and other topics.

QUARTER-OVER-QUARTER ONGOING EPS VARIANCE ANALYSIS

Progress Energy Carolinas

• Reported second-quarter ongoing earnings per share of $0.14, compared with $0.37 for the same period last year; GAAP earnings per share of $0.11, compared with $0.36 for the same period last year.
• Reported primary quarter-over-quarter ongoing earnings per share favorability of:
  • $0.02 retail growth and usage
  • $0.02 clauses and other margin primarily due to increased spending on new and existing demand-side management (DSM) programs
  • $0.01 wholesale
• Reported primary quarter-over-quarter ongoing earnings per share unfavorability of:
  • $(0.18) O&M primarily due to higher nuclear plant outage costs resulting from an additional extended nuclear refueling outage, higher substation and line maintenance costs related to a reliability initiative, and higher employee benefit expenses
  • $(0.05) weather primarily due to 22 percent lower cooling-degree days
  • $(0.02) depreciation and amortization primarily due to higher depreciable asset base driven by placing the combined-cycle unit at the Smith Energy Complex in service in June 2011
  • $(0.01) allowance for funds used during construction (AFUDC) equity
  • $(0.01) interest expense
  • $(0.01) other
• 12,000 net increase in the average number of customers for the three months ended
  June 30, 2012, compared to the same period in 2011

Progress Energy Florida

• Reported second-quarter ongoing earnings per share of $0.29, compared with $0.48 for the same period last year; GAAP earnings per share of $0.28, compared with $0.38 for the same period last year.
• Reported primary quarter-over-quarter ongoing earnings per share favorability of:
  • $0.02 clauses and other margin primarily due to higher open access transmission tariff rates
  • $0.01 wholesale
  • $0.01 AFUDC equity
• Reported primary quarter-over-quarter ongoing earnings per share unfavorability of:
  • $(0.10) depreciation and amortization primarily due to the prior-year reduction in the cost of removal component of amortization expense as allowed under the 2010 settlement agreement
  • $(0.05) O&M primarily due to the recognition of expense of previously deferred costs associated with the non-selected vendor for the Crystal River Nuclear Plant Unit 3 (CR3) repair option
  • $(0.04) weather primarily due to 11 percent lower cooling-degree days
  • $(0.02) other primarily due to higher property taxes
  • $(0.01) interest expense
  • $(0.01) income taxes
• 12,000 net increase in the average number of customers for the three months ended
  June 30, 2012, compared to the same period in 2011

Corporate and Other Businesses (includes primarily Holding Company debt)

• Reported second-quarter ongoing after-tax expenses of $0.16 per share, compared with after-tax expenses of $0.14 per share for the same period last year; GAAP after-tax expenses of $0.18 per share, compared with after-tax expenses of $0.14 per share for the same period last year.
• Reported primary quarter-over-quarter ongoing after-tax expenses per share unfavorability of:
  • $(0.01) income taxes
  • $(0.01) other

YEAR-OVER-YEAR ONGOING EPS VARIANCE ANALYSIS

Progress Energy Carolinas

• Reported year-to-date ongoing earnings per share of $0.35, compared with $0.85 for the same period last year; GAAP earnings per share of $0.28, compared with $0.80 for the same period last year.
• Reported primary year-to-date ongoing earnings per share favorability of:
  • $0.04 retail growth and usage
  • $0.03 clauses and other margin primarily due to increased spending on new and existing DSM programs
• Reported primary year-to-date ongoing earnings per share unfavorability of:
  • $(0.34) O&M primarily due to higher nuclear plant outage costs resulting from two additional extended nuclear refueling outages, higher employee benefit expenses and higher substation and line maintenance costs related to a reliability initiative
  • $(0.15) weather primarily due to 24 percent lower heating-degree days and 16 percent lower cooling-degree days
  • $(0.04) depreciation and amortization primarily due to higher depreciable asset base driven by placing the combined-cycle unit at the Smith Energy Complex in service in June 2011
  • $(0.02) AFUDC equity primarily due to placing the previously mentioned combined-cycle unit in service
  • $(0.02) interest expense primarily due to higher average long-term debt outstanding
• 10,000 net increase in the average number of customers for the six months ended
  June 30, 2012, compared to the same period in 2011

Progress Energy Florida

• Reported year-to-date ongoing earnings per share of $0.72, compared with $0.85 for the same period last year; GAAP earnings per share of $0.71, compared with $0.72 for the same period last year.
• Reported primary year-to-date ongoing earnings per share favorability of:
  • $0.06 clauses and other margin primarily due to an indemnification charge for the prior-year joint owner replacement power costs related to the continued outage at CR3
  • $0.03 wholesale primarily due to a new contract with a major customer
  • $0.03 O&M primarily due to the reversal of certain regulatory liabilities associated with CR3 in accordance with the 2012 settlement agreement, partially offset by the recognition of expense of previously deferred costs associated with the non-selected vendor for the CR3 repair option
• Reported primary year-to-date ongoing earnings per share unfavorability of:
  • $(0.15) depreciation and amortization primarily due to the smaller reduction in the cost of removal component of amortization expense as allowed under the 2012 and 2010 settlement agreements
  • $(0.06) other primarily due to a prior-year favorable litigation settlement and higher property taxes
  • $(0.04) weather primarily due to 31 percent lower heating-degree days and 1 percent lower cooling-degree days
• 11,000 net increase in the average number of customers for the six months ended
  June 30, 2012, compared to the same period in 2011

Corporate and Other Businesses (includes primarily Holding Company debt)

• Reported year-to-date ongoing after-tax expenses of $0.32 per share, compared with after-tax expenses of $0.30 per share for the same period last year; GAAP after-tax expenses of $0.27 per share, compared with after-tax expenses of $0.30 per share for the same period last year.
• Reported primary year-to-date ongoing after-tax expenses per share favorability of:
  • $0.01 interest expense
• Reported primary year-to-date ongoing after-tax expenses per share unfavorability of:
  • $(0.02) income taxes primarily due to the impact at the Corporate level resulting from the deductions for domestic production activities taken by the Utilities
  • $(0.01) other

ONGOING EARNINGS ADJUSTMENTS

For periods ended on or before June 30, 2012, Progress Energy's management used ongoing earnings per share to evaluate the operations of the company and to establish goals for management and employees. Management believed this non-GAAP measure was appropriate for understanding the business and assessing potential future performance, because excluded items were limited to those that management believed were not representative of fundamental core earnings. Ongoing earnings as presented here may not be comparable to similarly titled measures used by other companies. Ongoing earnings was computed as GAAP net income attributable to controlling interests (or GAAP earnings) less discontinued operations and the effects of certain identified gains and charges. The following table provides a reconciliation of ongoing earnings per share to reported GAAP earnings per share.

Reconciling adjustments from ongoing earnings to GAAP earnings are as follows:

Tax Levelization

Generally accepted accounting principles require companies to apply an effective tax rate to interim periods that is consistent with a company's estimated annual tax rate. The company projects the effective tax rate for the year and then, based upon projected operating income for each quarter, increases or decreases the tax expense recorded in that quarter to reflect the projected tax rate. Because this adjustment varies by quarter but has no impact on annual earnings, management did not consider this item to be representative of the company's fundamental core earnings.

Discontinued Operations

Discontinued operations include amounts related to adjustments of prior sales of diversified businesses. In 2012, the company recorded the reversal of certain environmental indemnification liabilities for which the indemnification period has expired. Resolution of guarantees and indemnifications providing for certain legal, tax and environmental matters could result in additional adjustments. Management did not consider this item to be representative of the company's fundamental core earnings.

CR3 Indemnification Adjustment (Charge)

The company recorded a CR3 indemnification charge, and subsequent adjustment, for estimated future years' joint owner replacement power costs (through the expiration of the indemnification provisions of the joint owner agreement). Since GAAP requires that the charge be accounted for in the period in which it becomes probable and estimable rather than the periods to which it relates, management did not consider this item to be representative of the company's fundamental core earnings.

Merger and Integration Costs

The company recorded charges for merger and integration costs related to the merger. Management did not consider this item to be representative of the company's fundamental core earnings.

Contingent Value Obligations (CVO) Mark-to-Market

In connection with the acquisition of Florida Progress Corporation, Progress Energy issued CVOs that represent the right of the holder to receive contingent payments based on net after-tax cash flows above certain levels of four synthetic fuels facilities purchased by subsidiaries of Florida Progress Corporation in October 1999. The CVO liability is valued at fair value, and gains and losses from changes in fair value of CVOs not held by Progress Energy are recognized in earnings. Progress Energy is unable to predict the changes in the fair value of the CVOs, and management did not consider this item to be representative of the company's fundamental core earnings.  

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An earnings conference call for analysts is scheduled for 11 a.m. ET Thursday, Aug. 2.The conference call will be hosted by Jim Rogers, chairman, president and chief executive officer, and Lynn Good, executive vice president and chief financial officer.

The call can be accessed via the investors' section (http://www.duke-energy.com/investors/) of Duke Energy's website or by dialing 800-930-1344 in the United States or 913-312-0652 outside the United States. The confirmation code is 9404035. 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, Aug. 12, 2012, by calling 888-203-1112 in the United States or 719-457-0820 outside the United States and using the code 9404035. A replay and transcript also will be available by accessing the investors' section of the company's website.

Duke Energy is the largest electric power holding company in the United States with more than $100 billion in total assets. Its regulated utility operations serve approximately 7.1 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 on the Internet at: http://www.duke-energy.com/.

Caution Regarding Forward-Looking Information:

This release contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The matters discussed throughout this document involve estimates, projections, goals, forecasts, assumptions, risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements.

Examples of factors that you should consider with respect to any forward-looking statements made throughout this document include, but are not limited to, the following:

• the impact of compliance with material restrictions of conditions related to the Duke Energy merger imposed by our regulators could exceed our expectations;
• our ability to successfully integrate our business with Duke Energy and realize cost savings and any other synergies expected from the merger;
• our ability to maintain relationships with customers, employees or suppliers post-merger;
• the scope of necessary repairs of the delamination of our Crystal River Unit No. 3 Nuclear Plant (CR3) could prove more extensive than is currently identified, such repairs could prove not to be feasible, the cost of repair and/or replacement power could exceed our estimates and insurance coverage or may not be recoverable through the regulatory process, and could result in the early retirement of the unit;
• the impact of fluid and complex laws and regulations, including those relating to the environment and energy policy;
• our ability to recover eligible costs and earn an adequate return on investment through the regulatory process;
• our ability to successfully operate electric generating facilities and deliver electricity to customers;
• the impact on our facilities and businesses from a terrorist attack, cyber security threats and other catastrophic events;
• our ability to meet the anticipated future need for additional baseload generation and associated transmission facilities in our regulated service territories and the accompanying regulatory and financial risks;
• our ability to meet current and future renewable energy requirements;
• the inherent risks associated with the operation and potential construction of nuclear facilities, including environmental, health, safety, regulatory and financial risks;
• the financial resources and capital needed to comply with environmental laws and regulations;
• risks associated with climate change;
• weather and drought conditions that directly influence the production, delivery and demand for electricity;
• recurring seasonal fluctuations in demand for electricity;
• our ability to recover in a timely manner, if at all, costs associated with future significant weather events through the regulatory process;
• fluctuations in the price of energy commodities and purchased power and our ability to recover such costs through the regulatory process;
• the Progress Registrants' ability to control costs, including operations and maintenance (O&M) expense and large construction projects;
• our subsidiaries' ability to pay upstream dividends or distributions to Progress Energy, Inc. holding company (the Parent);
• current economic conditions;
• our ability to successfully access capital markets on favorable terms;
• the stability of commercial credit markets and our access to short- and long-term credit;
• the impact that increases in leverage or reductions in cash flow may have on each of the Progress Registrants;
• the Progress Registrants' ability to maintain their current credit ratings and the impacts in the event their credit ratings are downgraded;
• the investment performance of our nuclear decommissioning trust (NDT) funds;
• the investment performance of the assets of our pension and benefit plans and resulting impact on future funding requirements;
• the impact of potential goodwill impairments;
• our ability to fully utilize tax credits generated from the previous production and sale of qualifying synthetic fuels under Internal Revenue Code Section 29/45K (Section 29/45K); and
• the outcome of any ongoing or future litigation or similar disputes and the impact of any such outcome or related settlements.

Many of these risks similarly impact our nonreporting subsidiaries.

These and other risk factors are detailed from time to time in our filings with the SEC. All such factors are difficult to predict, contain uncertainties that may materially affect actual results and may be beyond our control.

Any forward-looking statement is based on information current as of the date of this document and speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances after that date on which such statement is made.

PROGRESS ENERGY, INC.
UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
June 30, 2012

The Unaudited Condensed Consolidated Interim Financial Statements should be read in conjunction with the Company's Annual Report to shareholders.  These statements have been prepared for the purpose of providing information concerning the Company and not in connection with any sale, offer for sale, or solicitation of an offer to buy any securities.

 

 

SOURCE Progress Energy