ACQUISITIONS AND DISPOSITIONS

ACQUISITIONS

The Duke Energy Registrants consolidate assets and liabilities from acquisitions as of the purchase date and include earnings from acquisitions in consolidated earnings after the purchase date.

2016 Acquisition of Piedmont Natural Gas

On October 3, 2016, Duke Energy acquired all outstanding common stock of Piedmont for a total cash purchase price of $5.0 billion and assumed Piedmont's existing long-term debt, which had a fair value of approximately $2.0 billion at the time of the acquisition. The acquisition provides a foundation for Duke Energy to establish a broader, long-term strategic natural gas infrastructure platform to complement its existing natural gas pipeline investments and regulated natural gas business in the Midwest. In connection with the closing of the acquisition, Piedmont became a wholly owned subsidiary of Duke Energy.

Accounting Charges Related to the Acquisition

Duke Energy incurred pretax transaction and integration costs associated with the acquisition of $84 million, $103 million and $439 million for the years ended December 31, 2018, 2017 and 2016, respectively. Amounts recorded on the Consolidated Statements of Operations in 2018 and 2017 were primarily system integration costs of $78 million and $71 million, respectively, related to combining the various operational and financial systems of Duke Energy and Piedmont, including a one-time software impairment resulting from planned accounting system and process integration in 2017. A $7 million charge was recorded within Impairment Charges, with the remaining $64 million recorded within Operation, maintenance and other in 2017.

Amounts recorded in 2016 include:


•	Interest expense of $234 million related to the acquisition financing, including realized losses on forward-starting interest rate swaps of $190 million. See Note 14 for additional information on the swaps.


•	Charges of $104 million related to commitments made in conjunction with the transaction, including charitable contributions and a one-time bill credit to Piedmont customers. $10 million was recorded as a reduction in Operating Revenues, with the remaining $94 million recorded within Operation, maintenance and other.


•	Other transaction and integration costs of $101 million recorded to Operation, maintenance and other, including professional fees and severance charges.

The majority of transition and integration activities were completed by the end of 2018.

Pro Forma Financial Information

The following unaudited pro forma financial information reflects the combined results of operations of Duke Energy and Piedmont as if the merger had occurred as of January 1, 2015. The pro forma financial information does not include potential cost savings, intercompany revenues, Piedmont’s earnings from a certain equity method investment sold immediately prior to the merger or non-recurring transaction and integration costs incurred by Duke Energy and Piedmont. The after-tax transaction and integration costs incurred by Duke Energy and Piedmont were $279 million for the year ended December 31, 2016.

This information has been presented for illustrative purposes only and is not necessarily indicative of the consolidated results of operations that would have been achieved or the future consolidated results of operations of Duke Energy.



	Year Ended December 31,
(in millions)	2016
Operating Revenues	$	23,504
Net Income Attributable to Duke Energy Corporation	2,442

Piedmont's Earnings

Piedmont's revenues and net income included in Duke Energy's Consolidated Statements of Operations for the year ended December 31, 2016, were $367 million and $20 million, respectively. Piedmont's revenues and net income for the year ended December 31, 2016, include the impact of non-recurring transaction costs of $10 million and $46 million, respectively.

DISPOSITIONS

For the years ended December 31, 2018, and 2017, the Income (Loss) from Discontinued Operations, net of tax, was immaterial. The following table summarizes the Loss from Discontinued Operations, net of tax recorded on Duke Energy's Consolidated Statements of Operations for the year ended December 31, 2016:



	Year Ended December 31,
(in millions)	2016
International Disposal Group	$	(534	)
Other^(a)	126
Loss from Discontinued Operations, net of tax	$	(408	)


(a)	Amount represents an income tax benefit resulting from immaterial out of period deferred tax liability adjustments for previously sold businesses not related to the International Disposal Group.

2016 Sale of International Energy

In February 2016, Duke Energy announced it had initiated a process to divest the International Disposal Group, and in October 2016, announced it had entered into two separate purchase and sale agreements to execute the divestiture. Both sales closed in December of 2016, resulting in available cash proceeds of $1.9 billion, excluding transaction costs. Proceeds were primarily used to reduce the Parent debt. Existing favorable tax attributes result in no immediate U.S. federal-level cash tax impacts. Details of each transaction are as follows:

•

On December 20, 2016, Duke Energy closed on the sale of its ownership interests in businesses in Argentina, Chile, Ecuador, El Salvador, Guatemala and Peru to I Squared Capital. The assets sold included approximately 2,230 MW of hydroelectric and natural gas generation capacity, transmission infrastructure and natural gas processing facilities. I Squared Capital purchased the businesses for an enterprise value of $1.2 billion.


•	On December 29, 2016, Duke Energy closed on the sale of its Brazilian business, which included approximately 2,090 MW of hydroelectric generation capacity, to CTG for an enterprise value of $1.2 billion. With the closing of the CTG deal, Duke Energy finalized its exit from the Latin American market.

Assets Held For Sale and Discontinued Operations

As a result of the transactions, the International Disposal Group was classified as held for sale and as discontinued operations in the fourth quarter of 2016. Interest expense directly associated with the International Disposal Group was allocated to discontinued operations. No interest from corporate level debt was allocated to discontinued operations.

The following table presents the results of the International Disposal Group for the year ended December 31, 2016, which are included in Loss from Discontinued Operations, net of tax in Duke Energy's Consolidated Statements of Operations.



	Year Ended December 31,
(in millions)	2016
Operating Revenues	$	988
Fuel used in electric generation and purchased power	227
Cost of natural gas	43
Operation, maintenance and other	341
Depreciation and amortization^(a)	62
Property and other taxes	15
Impairment charges^(b)	194
(Losses) Gains on Sales of Other Assets and Other, net	(3		)
Other Income and Expenses, net	58
Interest Expense	82
Pretax loss on disposal^(c)	(514		)
Loss before income taxes^(d)	(435		)
Income tax expense^(e)(f)	99
Loss from discontinued operations of the International Disposal Group	$	(534	)


(a)	Upon meeting the criteria for assets held for sale, beginning in the fourth quarter of 2016 depreciation expense ceased.

(b)

In conjunction with the advancements of marketing efforts during 2016, Duke Energy performed recoverability tests of the long-lived asset groups of International Energy. As a result, Duke Energy determined the carrying value of certain assets in Central America was not fully recoverable and recorded a pretax impairment charge of $194 million. The charge represents the excess of carrying value over the estimated fair value of the assets, which was based on a Level 3 Fair Value measurement that was primarily determined from the income approach using discounted cash flows but also considered market information obtained in 2016.


(c)	The pretax loss on disposal includes the recognition of cumulative foreign currency translation losses of $620 million as of the disposal date. See the Consolidated Statements of Changes in Equity for additional information.


(d)	Pretax Loss attributable to Duke Energy Corporation was $(445) million for the year ended December 31, 2016.


(e)	Amount includes $126 million of income tax expense on the disposal, which primarily reflects in-country taxes incurred as a result of the sale. The after-tax loss on disposal was $640 million.


(f)	Amount includes an income tax benefit of $95 million. See Note 23, "Income Taxes," for additional information.

Duke Energy has elected not to separately disclose discontinued operations on the Consolidated Statements of Cash Flows. The following table summarizes Duke Energy's cash flows from discontinued operations related to the International Disposal Group.



	Year Ended December 31,
(in millions)	2016
Cash flows provided by (used in):
Operating activities	$	204
Investing activities	(434		)

Other Sale Related Matters

During 2017, Duke Energy provided certain transition services to CTG and I Squared Capital. Cash flows related to providing the transition services were not material as of December 31, 2017. All transition services related to the International Disposal Group ended in 2017. Additionally, Duke Energy will reimburse CTG and I Squared Capital for all tax obligations arising from the period preceding consummation on the transactions, and recorded a liability of $54 million and $78 million as of December 31, 2018, and 2017, respectively. Duke Energy has not recorded any other liabilities, contingent liabilities or indemnifications related to the International Disposal Group.