Non-GAAP Financial Measures - 2004 Annual Report - Duke Energy
Duke Energy

Non-GAAP Financial Measures

Pages 1 and 4 of the Chairman’s letter reference a 2004 ongoing basic earnings-per-share goal of $1.20, which we beat by 18 cents. Page 4 of the Chairman’s letter also references the 2005 ongoing basic earnings-per-share target of $1.60. Ongoing basic earnings per share is a non-GAAP (generally accepted accounting principles) financial measure because it excludes the per-share effects of any “special items,” which represent certain income or charges which management believes will not be recurring on a regular basis. The most directly comparable GAAP measure is basic earnings per share.

Information to reconcile the 2005 ongoing basic earnings-per-share target to the most directly comparable GAAP financial measure is not available at this time, as management is unable to project special items for 2005. The following is a reconciliation of ongoing to reported basic earnings per share for 2004:

Ongoing Basic Earnings per Share – 2004
(In millions, except earnings per share) Pre-tax Amount   Tax Effect   Basic EPS Impact
Ongoing Basic Earnings per Share        

$ 1.38
Net gain on sale of discontinued operations (net of minority interest
   of $7 million)

$ 278

  

$ (16)

  

0.28
Net loss on asset sales, primarily sale of southeast U.S. plants
   (including minority interest benefit of $25 million)

(206)

  

72

  

(0.14)
Impairments and other related charges (net of minority interest
   of $12 million)

(25)

  

9

  

(0.02)
Litigation reserves and settlements (net of minority interest of
   $5 million) and contract termination charges

(5)

  

2

  

0.00
Tax benefit from restructuring

–

  

48

  

0.05
Adjustment to captive insurance reserve

64

  

(22)

  

0.04
Net loss on sales of equity investments (including minority interest
   benefit of $7 million) and loss on asset exchanges

(8)

  

3

  

0.00
Total basic earnings-per-share impact of special items        

0.21
Basic Earnings per Share, as Reported        

$ 1.59

Page 1 of the Chairman’s letter references a debt reduction of $4.6 billion. This amount represents a non-GAAP measure because it includes changes in amounts presented in the Consolidated Balance Sheets as other than “debt,” including amounts classified as “liabilities associated with assets held for sale” and “minority interests.” The following is a reconciliation of the $4.6 billion to the changes in the amounts reported in the Consolidated Balance Sheets as “debt”:

Reconciliation of Debt Paydown to Consolidated Balance Sheets – 2004
(In millions) 12/31/03   12/31/04   Difference
Long-term debt $

20,622

   $

16,932

   $

(3,690)
Current maturities of long-term debt and preferred stock  

1,200

    

1,832

    

632
Notes payable and commercial paper  

130

    

68

    

(62)
Total Debt  

21,952

    

18,832

    

(3,120)
Changes due to foreign currency              

(300)
Other cash changes              

(89)
Sub-total              

(389)
Redeem Australia debt              

(890)
Redeem Westcoast Energy, Inc. preferred securities              

(176)
Total Change             $

(4,575)
Total debt paydown disclosed             $

(4,600)

Page 1 of the Chairman’s letter references $3.1 billion of proceeds from asset sales in 2004. This amount represents a non-GAAP measure because it includes amounts that are presented in the Consolidated Statements of Cash Flows as other than net “proceeds from sales of equity investments and other assets, and sales of and collections on notes receivable,” including $750 million of tax benefits and $840 million of non-cash debt reductions.

The Financial Highlights on page 2 include amounts for “earnings (loss) before interest and taxes from continuing operations.” This non-GAAP measure represents the combination of “operating income (loss)” and “other income and expenses” as presented in the Consolidated Statements of Operations, and it excludes results and impacts from discontinued operations.

Page 3 of the Chairman’s letter mentions a 2004 contribution from Crescent Resources of more than $440 million. This amount represents the cash that Crescent Resources generated from its operating and investing activities and contributed to Duke Energy.

In this report, for certain segments we use ongoing segment EBIT (earnings before interest and taxes) as a measure of historical and anticipated future performance. For some segments we also use a forecasted ongoing segment EBIT growth rate, which is based on historical and forecasted ongoing segment EBIT, as an indicator of anticipated future compound annual growth rates. When used for future periods, ongoing segment EBIT may also include amounts that may be reported as discontinued operations. Ongoing segment EBIT and related growth rates are non-GAAP financial measures because they represent reported segment EBIT adjusted for special items. The most directly comparable GAAP measure for ongoing segment EBIT is reported segment EBIT, which represents EBIT from continuing operations, including any special items.

For future periods, information to reconcile ongoing segment EBIT and related growth rates to the most directly comparable GAAP financial measures is not available at this time, as management is unable to forecast special items or amounts that may be reported as discontinued operations. The following is a reconciliation of ongoing segment EBIT to reported segment EBIT for 2004:

Reconciliation of Ongoing to Reported Segment EBIT – 2004
    Special Items  
(In millions) Ongoing Segment EBIT Gains (Losses) on Sales of Assets Gains (Losses) on Sales of Equity Invest-ments Impair-ment and Other Related Charges Early Contract Termination Charges Enron/ California Settle-ments, net Total Reported Segment EBIT
Earnings Before Interest and Taxes from Continuing Operations                        
Duke Energy North America

$(288)

$(228)

 a

$–

$(2)

  

$(20)

 b

$3

 b,c

$(247)

$(535)
International Energy

236

(2)

  

1

(13)

 b

–

  

–

  

(14)

222

a Net of minority interest benefit of $26 million

b Recorded in operation and maintenance expense

c Net of minority interest of $5 million