Non-GAAP Financial Measures
2006 AND 2005 ONGOING DILUTED EARNINGS PER SHARE (“EPS”)
Duke Energy’s 2006 Summary Annual Report references 2006 and 2005 ongoing diluted EPS of $1.81 and $1.73, respectively. Ongoing diluted EPS is a non-GAAP (generally accepted accounting principles) financial measure, as it represents diluted EPS from continuing operations plus the per-share effect of any discontinued operations from our Crescent Resources real estate development company (“Crescent”) prior to the deconsolidation of Crescent in September 2006, adjusted for the per-share impact of special items. Special items represent certain charges and credits which management believes will not be recurring on a regular basis. The following is a reconciliation of reported diluted EPS from continuing operations to ongoing diluted EPS for 2006 and 2005:
| 2006 | 2005 | |||||
| Diluted EPS from continuing operations, as reported | $ | 1.70 | $ | 2.60 | ||
| Diluted EPS from discontinued operations, as reported | (0.13 | ) | (0.72 | ) | ||
| Diluted EPS, as reported | 1.57 | 1.88 | ||||
| Adjustments to reported EPS: | ||||||
| Diluted EPS from discontinued operations excluding Crescent Resources, and cumulative effect of change in accounting principle | 0.13 | 0.73 | ||||
| Diluted EPS impact of special items (see detail below) | 011 | (0.88 | ) | |||
| Diluted EPS, ongoing | $ | 1.81 | $ | 1.73 |
The following is the detail of the $(0.11) in special items impacting diluted EPS for 2006:
| (In millions, except per-share amounts) | Pre-Tax Amount | Tax Effect | 2006 Diluted EPS Impact | ||||||
| Natural Gas Transmission gain on contract settlement | $ | 24 | $ | (8 | ) | $ | 0.01 | ||
| Duke Energy portion of gain on Duke Energy Field Services’ (“DEFS”) asset sale | 14 | (5 | ) | 0.01 | |||||
| Costs to achieve the Cinergy merger | (128 | ) | 45 | (0.07 | ) | ||||
| Costs to achieve the spinoff of Spectra Energy | (60 | ) | 7 | (0.05 | ) | ||||
| Impairment of Campeche investment | (50 | ) | – | (0.04 | ) | ||||
| Gain on sale of interest in Crescent | 246 | (124 | ) | 0.10 | |||||
| Gain related to the issuance of units of Natural Gas Transmission’s Canadian income fund | 15 | (5 | ) | 0.01 | |||||
| Settlement reserves | (165 | ) | 58 | (0.09 | ) | ||||
| Impairment of Bolivia investment | (28 | ) | 31 | – | |||||
| Tax adjustment | – | 8 | 0.01 | ||||||
| Total Diluted EPS impact | $ | (0.11 | ) |
The following is the detail of the $0.88 in special items impacting diluted EPS for 2005:
| (In millions, except per-share amounts) | Pre-Tax Amount | Tax Effect | 2005 Diluted EPS Impact | ||||||
| Gain on sale of TEPPCO GP (net of minority interest of $343 million) | $ | 791 | $ | (293 | ) | $ | 0.51 | ||
| Gain on sale of TEPPCO LP units | 97 | (36 | ) | 0.06 | |||||
| Loss on de-designation of Field Services’ hedges, net of settlements on 2005 positions | (23 | ) | 9 | (0.01 | ) | ||||
| Additional liabilities related to mutual insurance companies | (28 | ) | 10 | (0.02 | ) | ||||
| Gain on transfer of 19.7 percent interest in DEFS to ConocoPhillips | 576 | (213 | ) | 0.37 | |||||
| Impairment of Campeche investment | (20 | ) | 6 | (0.01 | ) | ||||
| Initial and subsequent net mark-to-market gains on de-designating Southeast Duke Energy North America (“DENA”) hedges | 21 | (8 | ) | 0.01 | |||||
| Loss on Southeast DENA contract termination | (75 | ) | 28 | (0.04 | ) | ||||
| Tax adjustments | – | 12 | 0.01 | ||||||
| Total Diluted EPS impact | $ | 0.88 |
PROCEEDS FROM CERTAIN SIGNIFICANT 2006 DISPOSITION TRANSACTIONS
Duke Energy’s 2006 Summary Annual Report references the nearly $2 billion in after-tax proceeds raised from selling the commercial marketing and trading (“CMT”) operations and effectively half of Crescent. The following represents the components of the after-tax proceeds from these transactions:
| (In millions) | |||
| Proceeds related to Creation of Crescent Joint Venture | |||
| Net proceeds from issuance of debt by Crescent | $ | 1,190 | |
| Proceeds received from sale of equity interest | 415 | ||
| Estimated income tax payments resulting from transaction | (135 | ) | |
| Reduction in reported cash due to deconsolidation of Crescent | (30 | ) | |
| Net after-tax proceeds | $ | 1,440 | |
Proceeds on Sale of CMT |
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| Net proceeds received (including working capital and base price) | $ | 700 | |
| Estimated income tax payments resulting from transaction | (145 | ) | |
| Net after-tax proceeds | $ | 555 | |
| Total combined net after-tax proceeds | $ | 1,995 |
2007 EMPLOYEE INCENTIVE TARGET MEASURE
Duke Energy’s 2006 Summary Annual Report references the company’s 2007 employee incentive target. The EPS measure used for employee incentive bonuses is based on ongoing diluted EPS. Ongoing 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. Special items represent certain charges and credits which management believes will not be recurring on a regular basis. The most directly comparable GAAP measure for ongoing diluted EPS is reported diluted EPS from continuing operations, which includes the impact of special items. Due to the forward-looking nature of this non-GAAP financial measure, information to reconcile it to the most directly comparable GAAP financial measure is not available at this time, as management is unable to forecast any special items for any future periods.
ANTICIPATED ONGOING DILUTED EPS GROWTH PERCENTAGES
Duke Energy’s 2006 Summary Annual Report references the company’s anticipated growth in ongoing diluted EPS through the end of 2009. These growth percentages are based on anticipated ongoing diluted EPS. Ongoing 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. Special items represent certain charges and credits which management believes will not be recurring on a regular basis. The most directly comparable GAAP measure for ongoing diluted EPS is reported diluted EPS from continuing operations, which includes the impact of special items. Due to the forward-looking nature of this non-GAAP financial measure for future periods, information to reconcile this non-GAAP financial measure to the most directly comparable GAAP financial measure is not available at this time, as management is unable to forecast any special items for any future periods.
FORECASTED 2007 ONGOING SEGMENT AND TOTAL SEGMENT EBIT
Duke Energy’s 2006 Summary Annual Report includes a discussion of forecasted 2007 ongoing EBIT for each of Duke Energy’s reportable segments as a percentage of forecasted 2007 ongoing total segment EBIT. Forecasted 2007 ongoing segment and total segment EBIT amounts are non-GAAP financial measures, as they reflect segment and total segment EBIT, adjusted for the impact of special items. Special items represent certain charges and credits which management believes will not be recurring on a regular basis. The most directly comparable GAAP measure for forecasted ongoing segment EBIT is reported segment EBIT from continuing operations, which includes the impact of special items. The most directly comparable GAAP measure for ongoing total segment EBIT is reported total segment EBIT, which includes the impact of special items. Due to the forward-looking nature of these non-GAAP financial measures 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 management is unable to forecast any special items for any future periods.
