Duke Energy Corporation Non-GAAP Reconciliations Second Quarter Earnings Review & Business Update August 6, 2015

Transcription

1 Duke Energy Corporation Non-GAAP Reconciliations Second Quarter Review & Business Update August 6, 2015 Adjusted Diluted per Share (EPS) The materials for Duke Energy Corporation s (Duke Energy) Second Quarter Review and Business Update on August 6, 2015 include a discussion of adjusted diluted EPS for the quarters and year-to-date periods ended June 30, 2015 and Adjusted diluted EPS 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 the mark-to-market impacts of economic hedges in the Commercial Portfolio segment (formerly Commercial Power) and special items, including the operating results of the nonregulated 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 classified as discontinued operations better reflects its financial performance and therefore has included these results in adjusted diluted EPS prior to the sale of the Disposal Group in April 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 on a GAAP basis. This impact to state income taxes has been reflected in Discontinued 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. 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 that the presentation of adjusted diluted EPS provides useful information to investors, as it provides them an additional relevant comparison of Duke Energy 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, mark-to-market impacts of economic hedges in the Commercial Portfolio segment, and discontinued operations. Reconciliations of adjusted diluted EPS for the quarters and year-to-date periods ended June 30, 2015 and 2014 to the most directly comparable GAAP measures are included here-in. Adjusted Diluted EPS Outlook The materials for Duke Energy s Second Quarter Review and Business Update on August 6, 2015 include a reference to the original forecasted 2013 adjusted diluted EPS guidance range of $ $4.45 per share and the forecasted 2015 adjusted diluted EPS outlook range of $ $4.75 per share. The materials also reference the long-term targeted range of growth of 4% - 6% in adjusted diluted EPS (on a compound

2 annual growth rate (CAGR) basis). Adjusted diluted EPS is a non-gaap financial measure as it represents diluted EPS from continuing operations attributable to Duke Energy Corporation shareholders, adjusted for the per-share impact of special items and the mark-to-market impacts of economic hedges in the Commercial Portfolio segment (as discussed above under Adjusted Diluted EPS). 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 impact of derivative contracts, which 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 as such derivative contracts do not qualify for hedge accounting or regulatory treatment. 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, mark-to-market impacts of economic hedges in the Commercial Portfolio segment, and discontinued operations. Due to the forward-looking nature of this non-gaap financial measure for future periods, information to reconcile it to the most directly comparable GAAP financial measure is not available at this time, as management is unable to project all special items or markto-market adjustments for future periods. The earnings guidance range assumptions for 2015 include a halfyear of earnings contributions from the nonregulated Midwest generation business. Irrespective of discontinued operations accounting treatment, operating results from the nonregulated Midwest generation business remain in Duke Energy s adjusted diluted EPS and adjusted segment income prior to the sale of the Disposal Group in April Adjusted Segment Income and Adjusted Other Net Expense and Forecasted Adjusted Segment Income and Adjusted Other Net Expense The materials for Duke Energy s Second Quarter Review and Business Update on August 6, 2015 include a discussion of adjusted segment income and adjusted Other net expense for the year-to-date period ended June 30, 2015 and a discussion of forecasted 2015 adjusted segment income and adjusted Other net expense. Adjusted segment income and adjusted Other net expense are non-gaap financial measures, as they represent reported segment income and Other net expense adjusted for special items and the mark-to-market impacts of economic hedges in the Commercial Portfolio segment (as discussed above under Adjusted Diluted EPS). Management believes that the presentation of adjusted segment income and adjusted Other net expense provides useful information to investors, as it provides them an additional relevant comparison of a segment s or Other s performance across periods. When an EPS amount is provided for a segment income driver, the per share impact is derived by taking the before-tax amount of the item less income taxes based on the consolidated prior-year adjusted effective tax rate, divided by the Duke Energy weighted-average diluted shares outstanding for the period. The prior-year adjusted effective tax rate used to calculate the quarter-todate per share impact on EPS is approximately 28 percent. The prior-year adjusted effective tax rate used to calculate the year to date per share impact on EPS is approximately 31 percent. The most directly comparable GAAP measure for adjusted segment income or adjusted Other net expense is reported segment income or Other net expense, which represents segment income and Other net expense from continuing operations, including any special items and the mark-to-market impacts of economic hedges in the Commercial Portfolio segment. A reconciliation of adjusted segment income and Other net expense for the year-to-date period ended June 30, 2015 to the most directly comparable GAAP measures is included herein. Due to the forward-looking nature of any forecasted adjusted segment income or adjusted Other net expense 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 for future periods.

3 Adjusted Effective Tax Rate (ETR) The materials for Duke Energy s Second Quarter Review and Business Update on August 6, 2015 include a discussion of the adjusted ETR for the year-to-date period ended June 30, The materials also include a discussion of the 2015 forecasted adjusted ETR. Adjusted ETR is a non-gaap financial measure as the rate is calculated using a pre-tax earnings and income tax expense, both adjusted for the impact of special items and the mark-to-market impacts of economic hedges in the Commercial Portfolio segment. The most directly comparable GAAP measure for adjusted ETR is reported effective tax rate, which includes the impact of special items and the mark-to-market impacts of economic hedges in the Commercial Portfolio segment. A reconciliation of the adjusted ETR for the year-to-date period ended June 30, 2015 to the most directly comparable GAAP measure is included here-in. Due to the forward-looking nature of the 2015 forecasted adjusted ETR, information to reconcile it 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. Dividend Payout Ratio The materials for Duke Energy s Second Quarter Review and Business Update on August 6, 2015 include a discussion of Duke Energy s anticipated long-term dividend payout ratio of 65% - 70% based upon adjusted diluted EPS. This payout ratio is a non-gaap financial measure as it is based upon forecasted diluted EPS from continuing operations attributable to Duke Energy Corporation shareholders, adjusted for the per-share impact of special items and the mark-to-market impacts of economic hedges in the Commercial Portfolio segment, as discussed above under Adjusted Diluted EPS. 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-tomarket impacts of economic hedges in the Commercial Portfolio segment. Due to the forward-looking nature of this non-gaap financial measure for future periods, information to reconcile it to the most directly comparable GAAP financial measure is not available at this time, as management is unable to project special items or mark-to-market adjustments for future periods. Available Liquidity The materials for Duke Energy s Second Quarter Review and Business Update on August 6, 2015 include a discussion of Duke Energy s available liquidity balance. The available liquidity balance presented is a non-gaap financial measure as it represents Cash and cash equivalents, excluding certain amounts held in foreign jurisdictions and cash otherwise unavailable for operations, and remaining availability under the master credit facility. The most directly comparable GAAP financial measure for available liquidity is Cash and cash equivalents. A reconciliation of available liquidity as of June 30, 2015 to the most directly comparable GAAP measure is included here-in.

4 DUKE ENERGY CORPORTATION ADJUSTED TO REPORTED EARNINGS RECONCILIATION Three Months Ended June 30, 2015 (Dollars in millions, except per-share amounts) SEGMENT INCOME Adjusted Special Items Costs to Achieve, Progress Merger Discontinued Total Adjustments Reported Regulated Utilities $ 632 $ $ $ $ 632 International Energy Commercial Portfolio 8 (41)D (41) (33) Total Reportable Segment Income 692 (41) (41) 651 Other (34) (14)A (14) (48) Intercompany Eliminations (3)C (3) (3) Total Reportable Segment Income and Other Net Expense 658 (14) (44) (58) 600 Discontinued (57)B (57) (57) Net Income (Loss) Attributable to Duke Energy Corporation $ 658 $ (14) $ (101) $ (115) $ 543 EPS ATTRIBUTABLE TO DUKE ENERGY CORPORATION, BASIC $ 0.95 $ (0.02) $ (0.15) $ (0.17) $ 0.78 EPS ATTRIBUTABLE TO DUKE ENERGY CORPORATION, DILUTED $ 0.95 $ (0.02) $ (0.15) $ (0.17) $ 0.78 A - Net of $8 million tax benefit. Recorded within Operating Expenses on the Condensed Consolidated Statements of. B - Recorded in Income (Loss) From Discontinued, net of tax on the Consolidated Statements of, and includes the impact of a litigation reserve related to the nonregulated Midwest generation business. C - Reverses the impact on eliminations of classifying the nonregulated Midwest generation business as discontinued operations. D - State tax expense resulting from the completion of the sale of the nonregulated Midwest generation business. Weighted Average Shares (reported and adjusted) - in millions Basic 692 Diluted 692

5 DUKE ENERGY CORPORATION ADJUSTED TO REPORTED EARNINGS RECONCILIATION Six Months Ended June 30, 2015 (Dollars in millions, except per-share amounts) Special Items Adjusted Costs to Achieve, Progress Merger Midwest Generation Discontinued Total Adjustments Reported SEGMENT INCOME Regulated Utilities $ 1,406 $ $ $ $ $ 1,406 International Energy Commercial Portfolio 103 (94)B (41)E (135) (32) Total Reportable Segment Income 1,597 (94) (41) (135) 1,462 Other (58) (27)A (27) (85) Intercompany Eliminations (4)D (4) (4) Total Reportable Segment Income and Other Net Expense 1,539 (27) (94) (45) (166) 1,373 Discontinued 94 B (60)C Net Income (Loss) Attributable to Duke Energy Corporation $ 1,539 $ (27) $ $ (105) $ (132) $ 1,407 EPS ATTRIBUTABLE TO DUKE ENERGY CORPORATION, BASIC $ 2.20 $ (0.04) $ $ (0.15) $ (0.19) $ 2.01 EPS ATTRIBUTABLE TO DUKE ENERGY CORPORATION, DILUTED $ 2.20 $ (0.04) $ $ (0.15) $ (0.19) $ 2.01 A - Net of $16 million tax benefit. Recorded within Operating Expenses on the Condensed Consolidated Statements of. B - Operating results of the nonregulated Midwest generation business that had been classified from discontinued operations after adjustment for special items and economic hedges (net of $53 million tax benefit). C - Recorded in Income (Loss) From Discontinued, net of tax on the Condensed Consolidated Statements of, and includes the impact of a litigation reserve related to the nonregulated Midwest generation business. D - Reverses the impact on eliminations of classifying the nonregulated Midwest generation business as discontinued operations. E - State tax expense resulting from the completion of the sale of the nonregulated Midwest generation business. Weighted Average Shares (reported and adjusted) - in millions Basic 700 Diluted 700

6 DUKE ENERGY CORPORATION ADJUSTED TO REPORTED EARNINGS RECONCILIATION Three Months Ended June 30, 2014 (Dollars in millions, except per-share amounts) Special Items Adjusted Costs to Achieve, Progress Merger Midwest Generation Economic Hedges (Mark-to- Market) * Discontinued Total Adjustments Reported SEGMENT INCOME Regulated Utilities $ 689 $ $ $ $ $ $ 689 International Energy Commercial Portfolio 16 (34) B (3) C (37) (21) Total Reportable Segment Income 851 (34) (3) (37) 814 Other (65) (38) A 13 B (25) (90) Intercompany Eliminations (2)D (2) (2) Total Reportable Segment Income and Other Net Expense 786 (38) (21) (3) (2) (64) 722 Discontinued 21 B (134) E (113) (113) Net Income (Loss) Attributable to Duke Energy Corporation $ 786 $ (38) $ $ (3) $ (136) $ (177) $ 609 EPS ATTRIBUTABLE TO DUKE ENERGY CORPORATION, BASIC $ 1.11 $ (0.06) $ $ $ (0.19) $ (0.25) $ 0.86 EPS ATTRIBUTABLE TO DUKE ENERGY CORPORATION, DILUTED $ 1.11 $ (0.06) $ $ $ (0.19) $ (0.25) $ 0.86 A - Net of $23 million tax benefit. Recorded in Operating Expenses on the Consolidated Statements of. B - Operating results of the nonregulated Midwest generation business that had been classified from discontinued operations after adjustment for special items and economic hedges to the Commercial Portfolio segment (net of $10 million tax expense) and Other segment (net of $13 million tax benefit). C - Net of $2 million tax expense. Recorded in Operating Revenues on the Consolidated Statement of. D - Reverses the impact on eliminations of classifying the nonregulated Midwest generation business as discontinued operations. E - Recorded in Income (Loss) From Discontinued, net of tax on the Consolidated Statement of. Includes the impairment of the nonregulated Midwest generation business and the mark-to-market of economic hedges of the nonregulated Midwest generation business. Weighted Average Shares (reported and adjusted) - in millions Basic 707 Diluted 707 * Mark-to-market adjustments reflect the impact of derivative contracts, which are used in Duke Energy s hedging of a portion of the economic value of its generation assets in the Commercial Portfolio segment and also relate to existing derivative positions that may have tenors beyond the planned disposal date of the nonregulated Midwest generation business. The mark-to-market impact of derivative contracts is recognized in GAAP earnings immediately 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. 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. However, due to the divestiture of the nonregulated Midwest generation business as mentioned above, certain derivative positions have tenors beyond the planned disposal date of these assets. As such, management has excluded settlements of these derivative positions from adjusted diluted EPS as these realized gains and losses more closely relate to the loss on disposal of these assets. Management believes that the presentation of adjusted diluted EPS Attributable to Duke Energy Corporation provides useful information to investors, as it provides them an additional relevant comparison of Duke Energy Corporation's performance across periods.

7 DUKE ENERGY CORPORATION ADJUSTED TO REPORTED EARNINGS RECONCILIATION Six Months Ended June 30, 2014 (Dollars in millions, except per-share amounts) Special Items SEGMENT INCOME Adjusted Costs to Achieve, Progress Merger Midwest Generation Impairment Midwest Generation Economic Hedges (Mark-to- Market) * Discontinued Total Adjustments Reported Regulated Utilities $ 1,426 $ $ $ $ $ $ $ 1,426 International Energy Commercial Portfolio 26 (59)B (14)C (6)F (79) (53) Total Reportable Segment Income 1,728 (59) (14) (6) (79) 1,649 Other (113) (72)A 8 C (64) (177) Intercompany Eliminations (4)E (4) (4) Total Reportable Segment Income and Other Net Expense 1,615 (72) (59) (6) (6) (4) (147) 1,468 Discontinued 6 C (962)D (956) (956) Net Income (Loss) Attributable to Duke Energy Corporation $ 1,615 $ (72) $ (59) $ $ (6) $ (966) $ (1,103) $ 512 EPS ATTRIBUTABLE TO DUKE ENERGY CORPORATION, BASIC $ 2.28 $ (0.10) $ (0.08) $ $ (0.01) $ (1.37) $ (1.56) $ 0.72 EPS ATTRIBUTABLE TO DUKE ENERGY CORPORATION, DILUTED $ 2.28 $ (0.10) $ (0.08) $ $ (0.01) $ (1.37) $ (1.56) $ 0.72 A - Net of $44 million tax benefit. $1 million recorded as a decrease in Operating Revenues, $114 million recorded within Operating Expenses and $1 million recorded within Interest Expense on the Consolidated Statements of. B - Net of $35 million tax benefit. Recorded within Impairment Charges (Operating Expenses) on the Consolidated Statements of. C - Operating results of the nonregulated Midwest generation business that had been classified from discontinued operations after adjustment for special items and economic hedges to the Commercial Portfolio segment (net of $19 million tax benefit) and Other segment (net of $8 million tax benefit). D - Recorded in Income (loss) From Discontinued, net of tax on the Consolidated Statements of. Includes the impairment of the nonregulated Midwest generation business and the mark-to-market of economic hedges of the nonregulated Midwest generation business. E - Reverses the impact on eliminations of classifying the nonregulated Midwest generation business as discontinued operations. F - Net of $3 million tax benefit. Recorded within Operating Revenues on the Consolidating Statements of. Weighted Average Shares (reported and adjusted) - in millions Basic 707 Diluted 707 * Mark-to-market adjustments reflect the impact of derivative contracts, which are used in Duke Energy s hedging of a portion of the economic value of its generation assets in the Commercial Portfolio segment and also relate to existing derivative positions that may have tenors beyond the planned disposal date of the nonregulated Midwest generation business. The mark-to-market impact of derivative contracts is recognized in GAAP earnings immediately 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. 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. However, due to the divestiture of the nonregulated Midwest generation business as mentioned above, certain derivative positions have tenors beyond the planned disposal date of these assets. As such, management has excluded settlements of these derivative positions from adjusted diluted EPS as these realized gains and losses more closely relate to the loss on disposal of these assets. Management believes that the presentation of adjusted diluted EPS Attributable to Duke Energy Corporation provides useful information to investors, as it provides them an additional relevant comparison of Duke Energy Corporation's performance across periods.

8 DUKE ENERGY CORPORATION ADJUSTED EFFECTIVE TAX RECONCILIATION Three and Six Months Ended June 30, 2015 (Dollars in Millions) Three Months Ended June 30, 2015 Six Months Ended June 30, 2015 Balance Effective Tax Rate Balance Effective Tax Rate Adjusted, Pre-Tax Income* $ 962 $ 2,272 Costs to Achieve, Progress Energy Merger (22) (43) Midwest Generation (147) Intercompany eliminations (2) (4) Reported Income From Continuing Before Income Taxes $ 938 $ 2,078 Adjusted Tax Expense* $ % ** $ % ** Tax Adjustment Related to Midwest Generation Sale Midwest Generation (53) Costs to Achieve, Progress Energy Merger (8) (16) Intercompany eliminations 1 Reported Income Tax Expense From Continuing $ % $ % *Includes amounts attributable to noncontrolling interests **Adjusted effective tax rate is a non-gaap financial measure as the rate is calculated using a pretax earnings and income tax expense, both adjusted for the impact of special items. The most directly comparable GAAP measure for adjusted effective tax rate is reported effective tax rate, which includes the impact of special items.

9 DUKE ENERGY CORPORATION ADJUSTED EFFECTIVE TAX RECONCILIATION Three and Six Months Ended June 30, 2014 (Dollars in Millions) Three Months Ended June 30, 2014 Six Months Ended June 30, 2014 Balance Effective Tax Rate Balance Effective Tax Rate Adjusted, Pre-Tax Income* $ 1,101 $ 2,354 Costs to Achieve, Progress Energy Merger (61) (116) Midwest Generation (24) (33) Economic Hedges (Mark-to-Market) (5) (9) Asset Impairment (94) Intercompany eliminations (3) (5) Reported Income From Continuing Before Income Taxes $ 1,008 $ 2,097 Adjusted Tax Expense* $ % ** $ % ** Costs to Achieve, Progress Energy Merger (23) (44) Midwest Generation (3) (27) Economic Hedges (Mark-to-Market) (2) (3) Asset Impairment (35) Intercompany eliminations (1) (1) Reported Income Tax Expense From Continuing $ % $ % *Includes amounts attributable to noncontrolling interests **Adjusted effective tax rate is a non-gaap financial measure as the rate is calculated using a pretax earnings and income tax expense, both adjusted for the impact of special items. The most directly comparable GAAP measure for adjusted effective tax rate is reported effective tax rate, which includes the impact of special items.

10 Duke Energy Corporation Available Liquidity Reconciliation As of June 30, 2015 (In millions) Cash and Cash Equivalents $ 960 Less: Certain Amounts Held in Foreign Jurisdictions (446) Less: Unavailable Domestic Cash (57) Plus: Remaining Availability under Master Credit Facility 5,224 Total Available Liquidity (a) $ 5,681 (approximately 5.7 billion) 457 (a) The available liquidity balance presented is a non-gaap financial measure as it represents Cash and cash equivalents, excluding certain amounts held in foreign jurisdictions and cash otherwise unavailable for operations, and remaining availability under the master credit facility. The most directly comparable GAAP financial measure for available liquidity is Cash and cash equivalents.