Duke Energy 2009 Annual Report Download - page 18

DUKE ENERGY CORPORATION / 2009 ANNUAL REPORT 17
NON-GAAP FINANCIAL MEASURES
Adjusted Diluted Earnings per Share (“EPS”)
Duke Energy’s 2009 Annual Report references 2009 adjusted
diluted EPS of $1.22 and states that adjusted diluted EPS has
been essentially flat from 2007 through 2009. Adjusted diluted
EPS is a non-GAAP (generally accepted accounting principles)
financial measure as it represents diluted EPS from continuing
operations attributable to Duke Energy Corporation common
shareholders, 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, although it is reasonably
possible such charges and credits could recur. 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. Management believes that the
presentation of adjusted diluted EPS provides useful information
to investors, as it provides them an additional relevant
comparison of the company’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 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
2009, 2008, and 2007:
2009 2008 2007
Diluted EPS from continuing operations,
as reported $ 0.82 $ 1.01 $ 1.20
Diluted EPS from discontinued operations,
as reported 0.01 0.01 (0.02)
Diluted EPS from extraordinary items,
as reported — 0.05 —
Diluted EPS, as reported $ 0.83 $ 1.07 $ 1.18
Adjustments to reported EPS:
Diluted EPS from discontinued operations (0.01) (0.01) 0.02
Diluted EPS from extraordinary items — (0.05) —
Diluted EPS impact of special items
and mark-to-market in Commercial Power
(see below) 0.40 0.20 0.03
Diluted EPS, adjusted $ 1.22 $ 1.21 $ 1.23
The following is the detail of the $(0.40) per share in
special items and mark-to-market in Commercial Power
impacting adjusted diluted EPS for 2009:
2009
Diluted
Pre-Tax Tax EPS
(In millions, except per-share amounts) Amount Effect Impact
Costs to achieve the Cinergy merger $ (25) $10 $(0.01)
Crescent related guarantees and
tax adjustments (26) (3) (0.02)
International transmission adjustment (32) 10 (0.02)
Goodwill and other impairments (431) 21 (0.32)
Mark-to-market impact of economic hedges (60) 22 (0.03)
Total Adjusted EPS impact $(0.40)
The following is the detail of the $(0.20) per share 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 EPS impact $(0.20)