Duke Energy reports third quarter 2016 financial results

• Adjusted diluted EPS of $1.68 for third quarter 2016, compared to $1.47 for the third quarter of 2015

• Company trending toward the high end of its original 2016 adjusted diluted earnings guidance range of $4.50 to $4.70 per share, excluding costs associated with Hurricane Matthew

CHARLOTTE, N.C. -- Duke Energy today announced third quarter 2016 reported diluted EPS, prepared in accordance with Generally Accepted Accounting Principles (GAAP) of $1.70, compared to $1.35 for third quarter 2015. Third quarter 2016 adjusted diluted EPS was $1.68, compared to $1.47 for third quarter 2015.

Third quarter adjusted diluted EPS was higher than the prior year driven by warm summer weather throughout Duke Energy's service territories, higher retail volumes and rider revenues, and ongoing cost management efforts.

Based upon strong results through the third quarter, and the early closing of Piedmont Natural Gas, the company is trending toward the high end of its original 2016 adjusted diluted earnings guidance range of $4.50 to $4.70 per share, excluding fourth-quarter costs associated with Hurricane Matthew.

"We delivered strong financial results again this quarter underpinned by solid operational performance and reached pivotal milestones in transitioning our business portfolio," said Lynn Good, Duke Energy chairman, president and CEO. "The recent closing of our Piedmont Natural Gas acquisition, complemented by the announced sale of our international business, advances our portfolio transition and positions us as a premier regulated energy company."

Business segment results

In addition to the quarterly business segment discussion below, a comprehensive table of quarterly and year-to-date earnings per share drivers compared to the prior year is provided on pages 14 and 15.

The discussion below of the third-quarter results includes both GAAP segment income and adjusted segment income, which is a non-GAAP financial measure. The tables on pages 23 through 26 present a detail of special items and a reconciliation of GAAP 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

On a reported basis, Regulated Utilities recognized third quarter 2016 segment income of $1,200 million, compared to $905 million in the third quarter of 2015. In addition to the drivers outlined below, quarterly results were impacted by a $56 million after-tax impairment charge in the prior year related to the September 2015 Edwardsport settlement. This charge was treated as a special item and therefore excluded from adjusted earnings.

On an adjusted basis, Regulated Utilities recognized third quarter 2016 adjusted segment income of $1,200 million, compared to $965 million in the third quarter 2015, an increase of $0.34 per share.

Higher quarterly results at Regulated Utilities were primarily driven by:

• Favorable weather (+$0.14 per share) driven by warmer temperatures across all Duke Energy service territories
• Lower effective tax rate (+$0.08 per share) due to prior year income tax adjustments
• Higher rider revenues (+$0.05 per share) primarily related to energy efficiency and grid investment riders at Duke Energy Progress and Duke Energy Ohio, respectively
• Increased weather-normal retail customer volumes (+$0.04 per share)
• Lower O&M expenses (+$0.02 per share), primarily as a result of ongoing cost savings initiatives, despite higher storm costs (-$0.02 per share)

Commercial Portfolio

On a reported basis, Commercial Portfolio recognized a third quarter 2016 segment loss of $21 million, compared to segment income of $8 million in the third quarter of 2015. In addition to the drivers outlined below, quarterly results were impacted by a $45 million after-tax impairment charge in the current year associated with equity method investments in certain wind projects. This charge was treated as a special item and therefore excluded from adjusted earnings.

On an adjusted basis, Commercial Portfolio recognized third quarter 2016 adjusted segment income of $24 million, compared to $7 million in the third quarter 2015, an increase of $0.02 per share.

Higher quarterly results at Commercial Portfolio were primarily driven by additional wind and solar plants placed in service and improved wind resources.

International Energy

International Energy recognized third quarter 2016 reported and adjusted segment income of $64 million, compared to $69 million in the third quarter 2015, a decrease of $0.01 per share.

Other

Other primarily includes corporate interest expense not allocated to the business units, results from Duke Energy's captive insurance company, and other investments.

On a reported basis, Other recognized third quarter 2016 net expense of $189 million, compared to net expense of $45 million in the third quarter of 2015. In addition to the drivers outlined below, quarterly results were impacted by $37 million of higher costs to achieve mergers and $12 million of charges in the current year related to cost savings initiatives, both net of tax. These charges were treated as special items and therefore excluded from adjusted earnings.

On an adjusted basis, Other recognized third quarter 2016 adjusted net expense of $125 million, compared to adjusted net expense of $30 million in the third quarter 2015, a decrease of $0.14 per share. The increased net expense was primarily driven by a higher effective tax rate (-$0.13 per share) due to prior year income tax benefits and an unfavorable audit settlement in the current year.

The consolidated reported effective tax rate for third quarter 2016 was 32.9 percent, compared to 30.9 percent in the third quarter of 2015. The consolidated adjusted effective tax rate for third quarter 2016 was 33.5 percent, compared to 31.6 percent in the third quarter of 2015. Adjusted effective tax rate is a non-GAAP financial measure. The tables on pages 27 and 28 present a reconciliation of GAAP reported effective tax rate to adjusted effective tax rate.

Discontinued Operations

In the third quarter, Duke Energy recognized an income tax benefit of $122 million within Discontinued Operations due to deferred tax liability adjustments related to the Midwest Generation Disposal Group and another previously sold business.

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 877-741-4253 in the United States or 719-325-4802 outside the United States. The confirmation code is 4938179. 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, Nov. 14, 2016, by calling 888-203-1112 in the United States or 719-457-0820 outside the United States and using the code 4938179. A replay and transcript also will be available by accessing the investors' section of the company's website.

Special Items and Non-GAAP Reconciliation

The following table presents a reconciliation of GAAP reported to adjusted diluted EPS for quarterly results in 2016 and 2015:

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 are not indicative of our ongoing performance, and are discussed below. Management believes the presentation of adjusted earnings and adjusted diluted EPS provides useful information to investors, as it provides them with 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.

Special items included in the periods presented include the following:

• Costs to achieve mergers and International impairment represent charges that result from potential or completed strategic acquisitions and divestitures that do not reflect ongoing costs.
• Cost savings initiatives represents severance charges related to company-wide initiatives to standardize processes and systems, leverage technology and workforce optimization, which are not representative of ongoing costs.
• Commercial Renewables Impairment represents an other-than-temporary impairment of certain equity method investments. Management believes the impairment does not reflect an ongoing cost.
• Edwardsport settlement and Ash basin settlement represent charges related to settlement agreements with regulators and other governmental entities and do not represent ongoing costs.
• Midwest generation operations represents the operating results of the nonregulated Midwest generation business and Duke Energy Retail Sales (collectively, the Midwest Generation Disposal Group), which have been classified as discontinued operations. Management believes inclusion of the Midwest Generation Disposal Group's operating results within adjusted earnings and adjusted diluted EPS results in a better reflection of Duke Energy's financial performance during the period.

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 (such as legal settlements, the impact of regulatory orders, or asset impairments).

Management evaluates segment performance based on segment income and other net expense. Segment income is defined as income from continuing operations net of income attributable to noncontrolling interests. Segment income 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, which are discussed above. Management believes the presentation of adjusted segment income 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 or adjusted other net expense is segment income and other net expense.

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 for future periods, as discussed above.

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. The company also distributes natural gas to more than 1.5 million customers in the Carolinas, Ohio, Kentucky and Tennessee. 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 an 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.

The Duke Energy News Center serves as a multimedia resource for journalists and features news releases, helpful links, photos and videos. Hosted by Duke Energy, illumination is an online destination for stories about remarkable people, innovations, and community and environmental topics. It also offers glimpses into the past and insights into the future of energy.

Follow Duke Energy on Twitter, LinkedIn, Instagram and Facebook.

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 impoundments, are uncertain and difficult to estimate; the ability to recover eligible costs, including amounts associated with coal ash impoundment retirement obligations and costs related to significant weather events, and to 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 ability to complete necessary or desirable pipeline expansion or infrastructure projects in our natural gas business; operational interruptions to our gas distribution and transmission activities; 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, including the proposed sale of International Energy, excluding the equity investment in National Methanol Company; and the ability to successfully integrate the natural gas businesses since the acquisition of Piedmont Natural Gas Company, Inc. 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.

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.