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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:

(In millions, except per-share amounts) Pre-Tax
Amount
    Tax
Effect
  2008
Diluted
EPS
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 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 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 discussion 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 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 most directly comparable GAAP measures for adjusted segment 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.

The following is a reconciliation of 2008 adjusted segment EBIT to reported segment EBIT:

    Adjusted
EBIT
  Special
Items –
Emission
Allowances
Impairment
    Economic
Hedges
(Mark-to-Market)
    Reported EBIT  
U.S. Franchised Electric and Gas $ 2,398 $   $   $ 2,398  
Commercial Power   421   (82 )   (75 )   264  
International Energy   411           411  
Total segment EBIT $ 3,230 $ (82 ) $ (75 ) $ 3,073