Duke Energy 2008 Annual Report Download - page 32

30 Duke Energy
Non-GAAP Financial Measures
2008 Adjusted Diluted Earnings Per Share (EPS)
Duke Energy’s 2008 Summary Annual Report references 2008
adjusted diluted EPS of $1.21. Adjusted diluted EPS is a non-GAAP
(generally accepted accounting principles) financial measure as
it represents diluted EPS from continuing operations, adjusted
for the per-share impact of special items and the mark-to-market
impacts of economic hedges in the Commercial Power segment.
Special items represent certain charges and credits which
management believes will not be recurring on a regular basis.
Mark-to-market adjustments reflect the mark-to-market impact
of derivative contracts, which is recognized in GAAP earnings
immediately as such derivative contracts do not qualify for
hedge accounting or regulatory accounting, used in Duke Energy’s
hedging of a portion of the economic value of certain of its
generation assets in the Commercial Power segment. The
economic value of the generation assets is subject to fluctuations
in fair value due to market price volatility of the input and output
commodities (e.g., coal, power) and, as such, the economic
hedging involves both purchases and sales of those input and
output commodities related to the generation assets. Because the
operations of the generation assets are accounted for under the
accrual method, management believes that excluding the impact
of mark-to-market changes of the economic hedge contracts from
adjusted earnings until settlement better matches the financial
impacts of the hedge contract with the portion of the economic
value of the underlying hedged asset. The most directly comparable
GAAP measure for adjusted diluted EPS is reported diluted EPS
from continuing operations, which includes the impact of special
items and the mark-to-market impacts of economic hedges in
the Commercial Power segment. The following is a reconciliation
of reported diluted EPS from continuing operations to adjusted
diluted EPS for 2008:
2008
Diluted EPS from continuing operations, as reported $ 1.01
Diluted EPS from discontinued operations, as reported 0.01
Diluted EPS from extraordinary items, as reported 0.05
Diluted EPS, as reported 1.07
Adjustments to reported EPS:
Diluted EPS from discontinued operations (0.01)
Diluted EPS from extraordinary items (0.05)
Diluted EPS impact of special items and
mark-to-market in Commercial Power (see below) 0.20
Diluted EPS, adjusted $ 1.21
The following is the detail of the $(0.20) in special items and
mark-to-market in Commercial Power impacting adjusted diluted
EPS for 2008:
2008
Diluted
Pre-Tax Tax EPS
(In millions, except per-share amounts) Amount Effect Impact
Costs to achieve the Cinergy merger $ (44) $17 $(0.02)
Crescent project impairments (214) 83 (0.10)
Emission allowances impairment (82) 30 (0.04)
Mark-to-market impact of economic hedges (75) 27 (0.04)
Total Adjusted Diluted EPS impact $(0.20)
2008 Employee Incentive Target Measure
Duke Energy’s 2008 Summary Annual Report references the
company’s 2008 employee EPS incentive target. The EPS measure
used for employee incentive bonuses is primarily based on adjusted
diluted EPS. The materials also reference the forecasted range of
growth in adjusted diluted EPS through 2013 on a compound
annual growth rate (CAGR) basis. Adjusted diluted EPS is a
non-GAAP financial measure, as it represents diluted EPS from
continuing operations, adjusted for the per-share impact of special
items and the mark-to-market impacts of economic hedges in
the Commercial Power segment. Special items represent certain
charges and credits which management believes will not be
recurring on a regular basis. Mark-to-market adjustments reflect
the mark-to-market impact of derivative contracts, which is
recognized in GAAP earnings immediately as such derivative con-
tracts do not qualify for hedge accounting or regulatory accounting,
used in Duke Energy’s hedging of a portion of the economic value
of certain of its generation assets in the Commercial Power seg-
ment. The most directly comparable GAAP measure for adjusted
diluted EPS is reported diluted EPS from continuing operations,
which includes the impact of special items and the mark-to-market
impacts of economic hedges in the Commercial Power 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.
Forecasted 2009 Adjusted Segment EBIT and
2008 Adjusted Total Segment EBIT
Duke Energy’s 2008 Summary Annual Report includes a discus-
sion of forecasted 2009 adjusted EBIT for each of Duke Energy’s
reportable segments as a percentage of forecasted 2009 adjusted
total segment EBIT and a reference to the company’s total 2008
adjusted segment EBIT. Forecasted 2009 adjusted segment and
total segment EBIT amounts are non-GAAP financial measures,
as they represent reported segment EBIT adjusted for the impact
of special items and the mark-to-market impacts of economic
hedges in the Commercial Power segment. Special items represent
certain charges and credits which management believes will not
be recurring on a regular basis. Mark-to-market adjustments reflect
the mark-to-market impact of derivative contracts, which is recog-
nized in GAAP earnings immediately, as such derivative contracts
do not qualify for hedge accounting or regulatory accounting used
in Duke Energy’s hedging of a portion of the economic value of
certain of its generation assets in the Commercial Power segment.
The most directly comparable GAAP measures for adjusted seg-
ment EBIT and total segment EBIT are reported segment EBIT
and total segment EBIT, which represent segment results from
continuing operations, including any special items and the
mark-to-market impacts of economic hedges in the Commercial
Power segment. Due to the forward-looking nature of this
non-GAAP financial measure for 2009, 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.