Duke Energy reports 2015 adjusted EPS and introduces 2016 adjusted EPS guidance range

• Record mild December weather results in fourth quarter 2015 adjusted diluted EPS of 87 cents, compared to 86 cents for the fourth quarter 2014; fourth quarter 2015 reported diluted EPS of 69 cents, compared to 14 cents in 2014

• Company establishes 2016 adjusted diluted EPS guidance range of $4.50 to $4.70

CHARLOTTE, N.C. -- Duke Energy today announced 2015 full-year adjusted diluted EPS of $4.54 compared to $4.55 in 2014. Duke Energy's full-year 2015 reported diluted EPS was $4.05, compared to $2.66 in 2014.

Fourth quarter 2015 adjusted diluted EPS was 87 cents, compared to 86 cents for fourth quarter 2014. Fourth quarter 2015 reported diluted EPS was 69 cents, compared to 14 cents for fourth quarter 2014.

Fourth quarter adjusted results were supported by increased retail pricing and wholesale margins in the regulated business, helping to offset the impact of record mild December weather in the Carolinas.

Reported diluted EPS includes the impact of special items, which are excluded from adjusted diluted EPS. Special items during 2015 principally included charges associated with a settlement in Indiana related to the ongoing Edwardsport IGCC regulatory proceedings, severance related to cost savings initiatives, and merger costs-to-achieve.

Special items during 2014 principally included charges related to the company's intent to repatriate $2.7 billion of foreign earnings, a settlement resolving the federal grand jury investigation into the company's coal ash basin operations, and merger costs-to-achieve.

"I am pleased with our strong execution at the regulated utilities during 2015, underpinned by exceptional operational performance," said Lynn Good, chairman, president and chief executive officer. "The dedication by our employees helped us meet growing customer peak demand as well as achieve industry-leading safety performance during the year.

"We also successfully completed several strategic transactions, increasing our focus on our core regulated and highly contracted businesses. This focus positions us for evolving customer expectations and a desire for lower carbon, more flexible generation resources while supporting greater stability in earnings and cash flows for our investors," Good said.

The company has established its 2016 adjusted diluted EPS guidance range at $4.50 to $4.70.

Business unit results

In addition to the summary business unit discussion below, comprehensive tables of quarterly and year-to-date adjusted earnings per share drivers compared to the prior year are provided on pages 17 and 18.

The discussion below of fourth-quarter and full-year results includes adjusted segment income, which is a non-GAAP financial measure. The tables on pages 27 through 30 present a reconciliation of reported results to adjusted results. Per share segment variances highlighted below exclude the benefit of the $1.5 billion accelerated stock repurchase program that was completed in June.

Regulated Utilities

Regulated Utilities recognized fourth quarter 2015 adjusted segment income of $601 million, compared to $551 million in the fourth quarter 2014, an increase of 7 cents per share. These results were driven by:

• Increased pricing and riders (+$0.09 per share) as a result of increased riders, including a favorable Ohio energy efficiency settlement
• Higher wholesale net margins (+$0.05 per share) due to new and updated contracts, including earnings from the long-term wholesale contract associated with the recent North Carolina Eastern Municipal Power Agency (NCEMPA) asset purchase
• Increased weather-normal retail volumes (+$0.04 per share)

These favorable drivers were partially offset by:

• Record breaking mild winter weather (-$0.12 per share), principally in the Carolinas and Midwest

Full-year 2015 adjusted segment income for Regulated Utilities was $2,972 million, compared to $2,897 million in 2014, an increase of 10 cents per share.

Increased year-to-date results at Regulated Utilities were primarily driven by:

• Higher revenues from increased pricing and riders (+$0.23 per share) due to increased energy efficiency programs and fuel and purchased power cost true-ups
• Increased wholesale net margins (+$0.16 per share) due to new and updated contracts including earnings from the long-term wholesale contract associated with the recent NCEMPA asset purchase
• Increased weather-normal retail volumes (+$0.07 per share) of 0.6 percent compared to the prior year

These favorable drivers were partially offset by:

• Higher O&M expense (-$0.18 per share) due to higher planned outages, increased costs related to the recent NCEMPA asset purchase and nuclear outage cost levelization. These costs were partially offset by lower storm costs
• Higher depreciation and amortization expense (-$0.13 per share) primarily resulting from additional plant in-service, including the NCEMPA assets

International Energy

International Energy recognized fourth quarter 2015 adjusted segment income of $68 million, compared to $72 million in the fourth quarter 2014, which was flat on a per share basis. These results were driven by:

• Lower margins at National Methanol (-$0.03 per share) due to lower MTBE and methanol prices

These unfavorable drivers were partially offset by:

• Stronger results in Brazil (+$0.02 per share) due to lower purchased power costs partially offset by unfavorable foreign currency exchange rates

Full-year 2015 adjusted segment income for International Energy was $225 million, compared to $428 million in 2014, a decrease of 29 cents per share.

International Energy's lower year-to-date adjusted earnings were driven by:

• Weaker results in Brazil (-$0.10 per share) primarily due to lower sales volumes and higher purchased power costs resulting from ongoing drought conditions and decreased demand in Brazil as well as unfavorable foreign currency exchange rates
• Lower results in Central America (-$0.04 per share) primarily due to lower generation and prices from increased competition
• Absence of a prior-year tax benefit in Chile (-$0.07 per share)
• Lower margins at National Methanol (-$0.07 per share) largely driven by lower MTBE and methanol prices

Commercial Portfolio

Subsequent to the sale of its nonregulated Midwest Commercial Generation Business to Dynegy Inc. in April 2015, Commercial Portfolio (formerly Commercial Power) includes Duke Energy's unregulated renewable assets as well as its commercial electric and gas transmission investments.

Commercial Portfolio recognized fourth quarter 2015 adjusted segment income of $41 million, compared to $32 million in the fourth quarter 2014, an increase of 1 cent per share. The increase in Commercial Portfolio's quarterly earnings was primarily due to additional in-service wind and solar facilities in the renewables portfolio (+$0.03 per share), offset by the absence of earnings from the Midwest generation business (-$0.01 per share), which was sold in April.

Full-year 2015 adjusted segment income for Commercial Portfolio was $140 million, compared to $109 million in 2014, an increase of 4 cents per share. This increase was primarily due to higher results from the Midwest generation business (+$0.04 per share), which was sold in April, and increased earnings from the renewables portfolio due to additional in-service wind and solar facilities despite lower wind resources during the year (+$0.01 per share).

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 a fourth quarter 2015 adjusted net expense of $108 million, compared to net expense of $45 million in the fourth quarter 2014, additional expense of 9 cents per share. Other's quarterly results were primarily driven by higher income tax expense (-$0.07 per share) due to impacts from the extension of bonus depreciation and quarterly tax levelization adjustments, including renewable tax credits which were allocated to Commercial Portfolio upon completion of the projects.  

On a year-to-date basis, Other recognized adjusted net expense of $185 million, compared to $216 million for 2014, an improvement of 5 cents per share. Other's year-to-date results were primarily driven by favorable income taxes (+$0.07 per share) due to favorable tax structuring and settlements.

On a consolidated basis, the company experienced a fourth-quarter 2015 adjusted effective tax rate of approximately 31 percent, compared to approximately 30 percent in the prior year. The company experienced an adjusted effective tax rate of approximately 32 percent for full-year 2015, consistent with the rate in 2014. Adjusted effective tax rate is a non-GAAP financial measure. The tables on pages 31 and 32 present a reconciliation of reported effective tax rate to adjusted effective tax rate.

Accelerated stock repurchase program

In connection with the transaction to sell the Midwest Generation business to Dynegy for $2.8 billion, which closed in April 2015, Duke Energy completed a $1.5 billion accelerated stock repurchase (ASR). The ASR resulted in retirements of approximately 19.8 million shares, providing a benefit to the fourth quarter 2015 and year-to-date results of approximately 2 cents per share and 9 cents per share, respectively.

Earnings Conference Call for Analysts

An earnings conference call for analysts is scheduled for 10 a.m. ET today to provide financial and other business updates. The conference call will be hosted by Lynn Good, president and chief executive officer, and Steve Young, 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 877-719-9786 in the United States or 719-325-4768 outside the United States. The confirmation code is 8694980. 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, Feb. 28, 2016, by calling 888-203-1112 in the United States or 719-457-0820 outside the United States and using the code 8694980. A replay and transcript also will be available by accessing the investors' section of the company's website.

Special Items and Non-GAAP Reconciliation

Special items affecting Duke Energy's adjusted diluted EPS for quarterly and full-year results in 2015 and 2014 include:

(1)   Reported discontinued operations includes the Midwest generation impairment, the economic hedges (mark-to-market) of Midwest generation, and operating results of the Midwest generation business

(2)   Represents the Midwest generation operation results reported as discontinued operations of $(0.04) per diluted share, partially offset by tax benefit related to the sale but not reported as discontinued operations of $0.02 per diluted share, which are treated as a special item and reflected in adjusted diluted EPS. 

(1)   Reported discontinued operations includes the Midwest generation impairment, the economic hedges (mark-to-market) of Midwest generation, and operating results of the Midwest generation business

(2)   Represents reported income from discontinued operations of $0.03 per diluted share, including the impact of a litigation reserve related to the Midwest generation business, less the Midwest generation operation results reported as discontinued operations of $(0.14) per diluted share and a tax charge resulting from the completion of the sale of the Midwest generation business but not reported as discontinued operations ($0.06). 

(3)   Represents reported loss from discontinued operations of $(0.80) per diluted share, the Midwest generation operation results reported as discontinued operations of $(0.16) per diluted share, and elimination entries of $(0.02) per diluted share, partially offset by tax benefit related to the sale but not reported as discontinued operations of $0.02 per diluted share, which are treated as a special item and reflected in adjusted diluted EPS. 

Reconciliation of reported to adjusted diluted EPS for the quarter:

Reconciliation of reported to adjusted diluted EPS for the year:

Non-GAAP financial measures

Management evaluates financial performance in part based on the non-GAAP financial measures, adjusted earnings and adjusted diluted earnings per share (EPS). These items are measured as income from continuing operations net of income (loss) attributable to non-controlling interests, adjusted for the dollar and per-share impact of mark-to-market impacts of economic hedges in the Commercial Portfolio segment and special items including the operating results of the Midwest Generation business (Disposal Group) classified as discontinued operations for GAAP purposes. 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. Operating results of the Disposal Group sold to Dynegy are reported as discontinued operations, including a portion of the mark-to-market adjustments associated with derivative contracts. Management believes that including the operating results of the Disposal Group reported as discontinued operations better reflects its financial performance and therefore has included these results in adjusted earnings and adjusted diluted EPS prior to the sale of the Disposal Group. Additionally, as a result of completing the sale of the Disposal Group during the second quarter of 2015, state income tax expense increased as state income tax apportionments changed. The additional tax expense was recognized in Continuing Operations on a GAAP basis. This impact to state income taxes has been reflected in Discontinued Operations in the Commercial Portfolio segment for adjusted diluted EPS purposes as management believes these impacts are incidental to the sale of the Disposal Group. Derivative contracts are used in Duke Energy's hedging of a portion of the economic value of its generation assets in the Commercial Portfolio segment. The mark-to-market impact of derivative contracts is recognized in GAAP earnings immediately and, if associated with the Disposal Group, classified as discontinued operations, as such derivative contracts do not qualify for hedge accounting or regulatory treatment. The economic value of generation assets is subject to fluctuations in fair value due to market price volatility of input and output commodities (e.g. coal, electricity, natural gas). Economic hedging involves both purchases and sales of those input and output commodities related to generation assets. Operations of the generation assets are accounted for under the accrual method. Management believes excluding impacts of mark-to-market changes of the derivative contracts from adjusted earnings until settlement better matches the financial impacts of the derivative contract with the portion of economic value of the underlying hedged asset. Management believes the presentation of adjusted earnings and adjusted diluted EPS provides useful information to investors, as it provides them an additional relevant comparison of Duke Energy's performance across periods. Management uses these non-GAAP financial measures for planning and forecasting and for reporting results to the Board of Directors, employees, shareholders, analysts and investors concerning Duke Energy's financial performance. Adjusted diluted EPS is also used as a basis for employee incentive bonuses. The most directly comparable GAAP measures for adjusted earnings and adjusted diluted EPS are Net Income Attributable to Duke Energy Corporation and Diluted EPS Attributable to Duke Energy Corporation common shareholders, which include the dollar and per share impact of special items, mark-to-market impacts of economic hedges in the Commercial Portfolio segment and discontinued operations.

Management evaluates segment performance based on segment income. Segment income is defined as income from continuing operations net of income attributable to non-controlling interests. Segment income, as discussed below, includes intercompany revenues and expenses that are eliminated in the Consolidated Financial Statements. Management also uses adjusted segment income as a measure of historical and anticipated future segment performance. Adjusted segment income is a non-GAAP financial measure, as it is based upon segment income adjusted for the mark-to-market impacts of economic hedges in the Commercial Portfolio segment and special items, including the operating results of the Disposal Group classified as discontinued operations for GAAP purposes. Management believes the presentation of adjusted segment income as presented provides useful information to investors, as it provides them with an additional relevant comparison of a segment's performance across periods. The most directly comparable GAAP measure for adjusted segment income is segment income, which represents segment income from continuing operations, including any special items and the mark-to-market impacts of economic hedges in the Commercial Portfolio segment.

Due to the forward-looking nature of any forecasted adjusted earnings guidance, information to reconcile this non-GAAP financial measure to the most directly comparable GAAP financial measure is not available at this time, as management is unable to project all special items or mark-to-market adjustments for future periods.

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 all special items, the mark-to-market impacts of economic hedges in the Commercial Portfolio 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. Its regulated utility operations serve approximately 7.3 million electric customers located in six states in the Southeast and Midwest, representing a population of approximately 23 million people. Its Commercial Portfolio 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. 

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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 and can often be identified by terms and phrases that include "anticipate," "believe," "intend," "estimate," "expect," "continue," "should," "could," "may," "plan," "project," "predict," "will," "potential," "forecast," "target," "guidance," "outlook" or other similar terminology. Various factors may cause actual results to be materially different than the suggested outcomes within forward-looking statements; accordingly, there is no assurance that such results will be realized. These factors 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 extent and timing of costs and liabilities to comply with federal and state regulations related to coal ash, including amounts for the required closure of certain ash basins, are uncertain and difficult to estimate; the ability to recover eligible costs, including amounts associated with coal ash basin asset retirement obligations and future significant weather events, and earn an adequate return on investment through the regulatory process; the costs of decommissioning Crystal River Unit 3 and other nuclear facilities could prove to be more extensive than amounts estimated and all costs may not be fully recoverable through the regulatory process; credit ratings of the company or its subsidiaries may be different from what is expected; 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 variations in customer usage patterns, including energy efficiency efforts and use of alternative energy sources, including self-generation and distributed generation technologies; advancements in technology; additional competition in electric markets and continued industry consolidation; political, economic and regulatory uncertainty in Brazil and 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, earthquakes and tornadoes; the ability to successfully operate electric generating facilities and deliver electricity to customers including direct or indirect effects to the company resulting from an incident that affects the U.S. electric grid or generating resources; the impact on facilities and business from a terrorist attack, cybersecurity threats, data security breaches, and other catastrophic events such as fires, explosions, pandemic health events or other similar occurrences; 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 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, interest rate fluctuations and general economic conditions; declines in the market prices of equity and fixed income securities and resultant cash funding requirements for defined benefit pension plans, other post-retirement benefit plans, and nuclear decommissioning trust funds; construction and development risks associated with the completion of Duke Energy and its subsidiaries' capital investment projects, 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 customers in a timely manner or at all; 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 prospective undistributed earnings of foreign subsidiaries or repatriate such earnings on a tax-efficient basis; the expected timing and likelihood of completion of the proposed acquisition of Piedmont Natural Gas Company, Inc. (Piedmont), including the timing, receipt and terms and conditions of any required governmental and regulatory approvals of the proposed acquisition that could reduce anticipated benefits or cause the parties to abandon the acquisition, and under certain specified circumstance pay a termination fee of $250 million, as well as the ability to successfully integrate the businesses and realize anticipated benefits and the risk that the credit ratings of the combined company or its subsidiaries may be different from what the companies expect; 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 described. Forward-looking statements speak only as of the date they are made; Duke Energy expressly disclaims an obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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