Duke Energy reports first quarter 2016 adjusted earnings

• Reported diluted EPS of $1.01 for first quarter 2016, compared to $1.22 for the first quarter of 2015

• Company remains on track to achieve its 2016 adjusted diluted earnings guidance range of $4.50 to $4.70 per share

CHARLOTTE, N.C. -- Duke Energy (NYSE: DUK) today announced first quarter 2016 adjusted diluted EPS of $1.13, compared to $1.24 for first quarter 2015. First quarter 2016 reported EPS was $1.01, compared to $1.22 for first quarter 2015.

Based upon results through the first quarter, the company remains on track to achieve its 2016 adjusted diluted earnings guidance range of $4.50 to $4.70 per share.

"Operational excellence continues to underpin our commitment to our customers, communities and investors," said Lynn Good, chairman, president and CEO. "This was evidenced by our quick response in restoring more than 1.1 million customers after multiple winter storms in the Carolinas.

"Equally important, we continued to make investments to better serve our customers -- expanding natural gas and renewable generation investments, modernizing the electric grid and investing in infrastructure while continuing to efficiently manage our operations."

Business unit results

In addition to the summary business unit discussion below, a comprehensive table of quarterly adjusted earnings per share drivers compared to the prior year is provided on page 14.

The discussion below of first-quarter results includes adjusted segment income, which is a non-GAAP financial measure. The tables on pages 23 and 24 present a reconciliation of reported results to adjusted results.

During the first quarter of 2016, Duke Energy began to evaluate interim period segment performance based on financial information that includes the impact of income tax levelization within segment income. This represents a change from the previous measure, where the interim period impacts of income tax levelization were included within Other, and therefore excluded from segment income. As a result, prior period segment results presented in this release have been recast to conform to this change.

Regulated Utilities

Regulated Utilities recognized first quarter 2016 adjusted segment income of $695 million, compared to $774 million in the first quarter 2015, a decrease of $0.11 per share.

Lower quarterly results at Regulated Utilities were primarily driven by:

• Milder winter weather compared to the prior year (-$0.10 per share), principally in the Carolinas and Midwest
• Higher depreciation and amortization expense (-$0.06 per share), primarily resulting from additional plant-in-service, including the North Carolina Eastern Municipal Power Agency (NCEMPA) asset purchase in July 2015
• Higher O&M expenses (-$0.01 per share), as a result of significant winter storm costs and the NCEMPA asset purchase, which were mostly offset by lower outage costs and ongoing cost efficiency initiatives

These unfavorable drivers were partially offset by:

• Higher revenues from increased pricing and riders (+$0.07 per share) driven by the NCEMPA rider and energy efficiency programs

Commercial Portfolio

Commercial Portfolio recognized first quarter 2016 adjusted segment income of $27 million, compared to $101 million in the first quarter 2015, a decrease of $0.11 per share.

Lower quarterly results at Commercial Portfolio were primarily driven by the absence of earnings from the Midwest Generation business (-$0.12 per share), which was sold in April 2015, partially offset by stronger results from the renewables portfolio (+$0.01 per share).

International Energy

International Energy recognized first quarter 2016 adjusted segment income of $123 million, compared to $36 million in the first quarter 2015, an increase of $0.13 per share.

International Energy's improved quarterly earnings were driven by lower tax expense (+$0.11 per share) and stronger results in Brazil (+$0.05 per share), primarily due to improved hydrology. These results were partially offset by weaker foreign currency exchange rates (-$0.02 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, and other investments.

Other recognized a first quarter 2016 adjusted net expense of $68 million, compared to net expense of $30 million in the first quarter 2015. The $0.06 per share decrease was primarily driven by tax adjustments in the prior year (-$0.04 per share) and higher interest expense (-$0.01 per share).

The consolidated adjusted effective tax rate for first quarter 2016 was 26 percent, compared to 32 percent in the first quarter of 2015. Adjusted effective tax rate is a non-GAAP financial measure. The tables on pages 25 and 26 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 on April 2, 2015, Duke Energy completed a $1.5 billion accelerated stock repurchase program (ASR). The program resulted in share retirements of approximately 19.8 million, providing a benefit to the first quarter 2016 results of approximately 4 cents per share.

Earnings conference call for analysts

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 other business and financial updates.

The conference call will be hosted by Lynn Good, chairman, 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 877-856-1955 in the United States or 719-325-4765 outside the United States. The confirmation code is 7567946. 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, May 13, 2016, by calling 888-203-1112 in the United States or 719-457-0820 outside the United States and using the code 7567946. 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 results in 2016 and 2015 include:

(1)   Amounts exclude the Midwest Generation business operating results of $0.13 per diluted share included in reported income from discontinued operations, and included within adjusted diluted EPS. 

Reconciliation of reported to adjusted diluted EPS for the quarter:

Non-GAAP financial measures

Management evaluates financial performance in part based on non-GAAP financial measures, adjusted earnings and adjusted diluted EPS. These items represent income from continuing operations net of income (loss) attributable to noncontrolling interests, adjusted for the dollar and per-share impact of special items. Special items represent certain charges and credits, which management believes will not be recurring on a regular basis. The special items for the period ended March 31, 2015, include the operating results of the nonregulated Midwest generation business and Duke Energy Retail Sales (collectively, the Disposal Group) which are classified as discontinued operations for GAAP purposes. Management believes inclusion of the Disposal Group's operating results within adjusted earnings and adjusted diluted EPS results in a better reflection of Duke Energy's financial performance. Costs to achieve mergers includes financing costs related to the Bridge Facility and the mark-to-market unrealized losses related to the forward-starting interest rate swaps used by Duke Energy to manage interest rate exposure for the expected financing of the Piedmont acquisition. The mark-to-market impact of forward-starting interest rate swaps is recognized in GAAP earnings immediately as the contracts do not qualify for hedge accounting or regulatory treatment. Management believes excluding the impact of the mark-to-market losses of the forward-starting interest rate swaps from adjusted earnings better reflects Duke Energy's financial performance and therefore has excluded these impacts from adjusted earnings and adjusted diluted EPS. 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, stockholders, 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 stockholders.

Management evaluates segment performance based on segment income. Segment income is defined as income from continuing operations net of income attributable to noncontrolling interests. Segment income, as discussed below, includes intercompany revenues and expenses that are eliminated in the Condensed 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 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 not adjusted for any special items.

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 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 or any amounts that may be reported as discontinued operations or extraordinary items for future periods.

Duke Energy's adjusted earnings, adjusted diluted EPS, and adjusted segment income may not be comparable to similarly titled measures of another company because other entities may not calculate the measures in the same manner.

Duke Energy is one of the largest electric power holding companies in the United States. Its regulated utility operations serve approximately 7.4 million electric customers located in six states in the Southeast and Midwest, representing a population of approximately 24 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 S&P 100 Stock Index 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 successfully complete future merger, acquisition or divestiture plans; 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 likelihood, terms and timing of the potential sale of International Energy, excluding the equity investment in National Methanol Company, could change the presentation of certain assets, liabilities and results of operations as assets held for sale, liabilities associated with assets held for sale, and discontinued operations, respectively.

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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