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:

(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 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:

(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 EPS impact             $ (0.20 )

The following is the detail of the $(0.03) per share in special items and mark-to-market in Commercial Power impacting adjusted diluted EPS for 2007:

(In millions, except per-share amounts)   Pre-Tax
Amount
    Tax
Effect
    2007
Diluted
EPS
Impact
 
Costs to achieve the Cinergy merger $ (54 ) $ 19   $ (0.03 )
Convertible debt costs associated with the spinoff of Spectra Energy   (21 )       (0.02 )
IT severance costs   (12 )   4      
Settlement reserves and adjustments   24     (9 )   0.01  
Mark-to-market impact of economic hedges   13     (5 )   0.01  
Total Adjusted EPS impact             $ (0.03 )

2010 Adjusted Diluted EPS Outlook

Duke Energy’s 2009 Annual Report references Duke Energy’s forecasted 2010 adjusted diluted EPS outlook range of $1.25-$1.30 per share and the 2009 EPS incentive target of $1.20 per share. The EPS measure used for employee incentive bonuses is primarily based on adjusted diluted EPS. Additionally, reference is made to the forecasted range of growth of 4%-6% in adjusted diluted EPS (on a compound annual growth rate (“CAGR”) basis) from a base of adjusted diluted EPS for 2009 of $1.22. Adjusted diluted EPS is a non-GAAP financial measure as it represents diluted EPS from continuing operations attributable to Duke Energy Corporation 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 treatment, used in Duke Energy’s hedging of a portion of the economic value of its generation assets in the Commercial Power segment (as discussed separately under “Adjusted Diluted Earnings per Share (‘EPS’)”). 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. 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 Adjusted Segment EBIT and Other Net Expenses for 2010

Duke Energy’s 2009 Annual Report includes a discussion of forecasted 2010 adjusted EBIT for each of Duke Energy’s reportable segments as a percentage of forecasted 2010 adjusted total segment EBIT. The primary performance measure used by management to evaluate segment performance is segment EBIT from continuing operations, which at the segment level, represents all profits from continuing operations (both operating and non-operating), including any equity in earnings of unconsolidated affiliates, before deducting interest and taxes, and is net of the income attributable to non-controlling interests. Management believes segment EBIT from continuing operations, which is the GAAP measure used to report segment results, is a good indicator of each segment’s operating performance as it represents the results of Duke Energy’s ownership interests in continuing operations without regard to financing methods or capital structures. Duke Energy also uses adjusted segment EBIT and adjusted Other net expenses (including adjusted equity earnings for Crescent Resources) as a measure of historical and anticipated future segment and Other performance. When used for future periods, adjusted segment EBIT and adjusted Other net expenses may also include any amounts that may be reported as discontinued operations or extraordinary items.

Adjusted segment EBIT and Other net expenses are non-GAAP financial measures as they represent reported segment EBIT and Other net expenses 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, 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 (as discussed above under “Adjusted Diluted Earnings per Share (‘EPS’)”). Management believes that the presentation of adjusted segment EBIT and adjusted Other net expenses provides useful information to investors, as it provides them an additional relevant comparison of a segment’s or Other’s performance across periods. The most directly comparable GAAP measures for adjusted segment EBIT and Other net expenses are reported segment EBIT and Other net expenses, which represent segment and Other 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 2010, 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.