Governance and Transparency
Non-GAAP Financial Measures
Adjusted Diluted Earnings per Share (“EPS”)
Duke Energy’s 2009-2010 Sustainability Report references 2009 adjusted diluted EPS of $1.22. 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:
| 2009 | |
| Diluted EPS from continuing operations, as reported | $.82 |
| Diluted EPS from discontinued operations, as reported | 0.01 |
| Diluted EPS from extraordinary items, as reported | — |
| Diluted EPS, as reported | .83 |
| Adjustments to reported EPS: | |
| Diluted EPS from discontinued operations | (0.01) |
| Diluted EPS from extraordinary items | — |
| Diluted EPS impact of special items and mark-to-market in Commercial Power impacting adjusted diluted EPS for 2009. | 0.40 |
| Diluted EPS, adjusted | $1.22 |
The following is the detail of the $(0.40) in special items and mark-to-market in Commercial Power impacting adjusted diluted EPS for 2009:
(In millions, except per-share amounts) |
Pre-Tax Amount |
Tax Effect |
2009 Diluted EPS 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 Diluted EPS impact | ($0.40) |
