Non-GAAP Financial Information

Management believes the adjusted net income from continuing operations and related per share data are representative of Pepco Holdings’ ongoing business operations. Management uses this information internally to evaluate Pepco Holdings’ period-over-period financial performance and, therefore, believes that this information is useful to investors. The presentation of adjusted net income from continuing operations and related per share data is intended to complement, and should not be considered as an alternative to, reported earnings and related per share data presented in accordance with accounting principles generally accepted in the United States (GAAP).

Reconciliation of GAAP Financial Information to Adjusted Financial Information
   
Three Months Six Months
Ended Ended

Net Income from Continuing Operations – Millions of dollars
June 30, June 30,
  2012     2011   2012     2011
Reported (GAAP) Net Income from Continuing Operations $ 62   $ 95 $ 130   $ 157
Adjustments (after-tax):

--
  Mark-to-market (gains)/losses from Pepco Energy Services retail energy economic hedging activities (($12) million, $3 million, ($12) million, and $7 million pre-tax, respectively) (7 ) 2

 

(7

 

)
4
-- Impairment charges related to Pepco Energy Services long-lived assets ($3 million pre-tax)   2       -  

2
      -
Adjusted Net Income from Continuing Operations (Non-GAAP) $ 57     $ 97 $ 125     $ 161
 
  Three Months   Six Months
Ended Ended

Earnings per Share from Continuing Operations
June 30, June 30,
  2012     2011   2012     2011
Reported (GAAP) Earnings per Share from Continuing Operations $ 0.27   $ 0.42

$

0.57
  $ 0.69
Adjustments (after-tax):

 

--
 

Mark-to-market (gains)/losses from Pepco Energy Services retail energy economic hedging activities

(0.03

)

0.01

(0.03

)

0.02
--

Impairment charges related to Pepco Energy Services long-lived assets
  0.01    

-
 

0.01
   

-
Adjusted Earnings per Share from Continuing Operations (Non-GAAP) $ 0.25     $ 0.43 $ 0.55     $ 0.71
 

The income tax effect with respect to the foregoing adjustments was calculated using a composite income tax rate of approximately 40 percent.

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