Duke Energy 2012 Annual Report Download - page 63

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PART II
a decrease as a result of the DukeNet deconsolidation in December 2010
and the subsequent accounting for Duke Energy’s investment in DukeNet as
an equity method investment; partially offset by higher costs related to the
proposed merger with Progress Energy.
(Losses) Gains on Sales of Other Assets and other, net.
The variance was primarily due to the $139 million gain from the sale of
a 50% ownership interest in DukeNet in the prior year.
Other Income and Expense, net.
The variance was due primarily to the sale of Duke Energy’s ownership
interest in Q-Comm in the prior year of $109 million; partially offset by prior
year impairments and 2011 gains on sales of investments.
Interest Expense.
The variance was due primarily to higher debt balances as a result of debt
issuances.
Income Tax Benefi t.
The variance is primarily due to a decrease in pre-tax income. The
effective tax rate for the year ended December 31, 2011 and 2010 was 56.0%
and 55.4%, respectively.
Net Expense.
The variance was driven primarily by $172 million of 2010 employee
severance costs related to the voluntary severance plan and the consolidation
of certain corporate offi ce functions from the Midwest to Charlotte, North
Carolina, prior year donations of $56 million to the Duke Energy Foundation,
a decrease as a result of the DukeNet deconsolidation in December 2010 and
the subsequent accounting for Duke Energy’s investment in DukeNet as an
equity method investment, and higher interest expense due to increased debt
issuances in the current year. These negative impacts were partially offset by
prior year impairments and 2011 gains on sales of investments and higher
income tax benefi t due to increased net expense.
Matters Impacting Future Other Results
Duke Energy previously held an effective 50% interest in Crescent, which
was a real estate joint venture formed by Duke Energy in 2006 that fi led for
Chapter 11 bankruptcy protection in June 2009. On June 9, 2010, Crescent
restructured and emerged from bankruptcy and Duke Energy forfeited its entire
50% ownership interest to Crescent debt holders. This forfeiture caused Duke
Energy to recognize a loss, for tax purposes, on its interest in the second quarter
of 2010. Although Crescent has reorganized and emerged from bankruptcy
with creditors owning all Crescent interest, there remains uncertainty as to the
tax treatment associated with the restructuring. Based on this uncertainty, it
is possible that Duke Energy could incur a future tax liability related to the tax
losses associated with its partnership interest in Crescent and the resolution of
issues associated with Crescent’s emergence from bankruptcy.
DUKE ENERGY CAROLINAS
INTRODUCTION
Management’s Discussion and Analysis should be read in conjunction
with the accompanying Consolidated Financial Statements and Notes for the
years ended December 31, 2012, 2011, and 2010.
BASIS OF PRESENTATION
The results of operations and variance discussion for Duke Energy
Carolinas is presented in a reduced disclosure format in accordance with
General Instruction (I)(2)(a) of Form 10-K.
RESULTS OF OPERATIONS
Years Ended December 31,
(in millions) 2012 2011 Variance
Operating revenues $6,665 $6,493 $ 172
Operating expenses 5,160 5,014 146
Gains on sales of other assets and other, net 12 111
Operating income 1,517 1,480 37
Other income and expense, net 185 186 (1)
Interest expense 384 360 24
Income before income taxes 1,318 1,306 12
Income tax expense 453 472 (19)
Net income $ 865 $ 834 $ 31