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.

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 an estimated fair value of approximately $2.0 billion at the time of the acquisition. Piedmont is a North Carolina corporation primarily engaged in regulated natural gas distribution to residential, commercial, industrial and power generation customers in portions of North Carolina, South Carolina and Tennessee. Piedmont is also invested in joint-venture, energy-related businesses, including regulated interstate natural gas transportation and storage and regulated intrastate natural gas transportation. 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.

Preliminary Purchase Price Allocation

The preliminary purchase price allocation of the Piedmont acquisition is estimated as follows:



(in millions)
Current assets	$	497
Property, plant and equipment, net	4,714
Goodwill	3,353
Other long-term assets	804
Total assets	9,368
Current liabilities, including current maturities of long-term debt	576
Long-term liabilities	1,790
Long-term debt	2,002
Total liabilities	4,368
Total purchase price	$	5,000

The fair value of Piedmont's assets and liabilities were determined based on significant estimates and assumptions that are judgmental in nature, including projected future cash flows (including timing); discount rates reflecting risk inherent in the future cash flows and market prices of long-term debt. The preliminary amounts are subject to revision to the extent that additional information is obtained about the facts and circumstances that existed as of the acquisition date.

The majority of Piedmont’s operations are subject to the rate-setting authority of the NCUC, the PSCSC and the TRA and are accounted for pursuant to accounting guidance for regulated operations. The rate-setting and cost recovery provisions currently in place for Piedmont’s regulated operations provide revenues derived from costs, including a return on investment of assets and liabilities included in rate base. Thus, the fair value of Piedmont's assets and liabilities subject to these rate-setting provisions approximates the pre-acquisition carrying values and does not reflect any net valuation adjustments.

The significant assets and liabilities for which valuation adjustments were reflected within the purchase price allocation include the acquired equity method investments and long-term debt. The difference between the preliminary fair value and the pre-merger carrying values of long-term debt for regulated operations was recorded as a regulatory asset.

The excess of the purchase price over the estimated fair value of Piedmont's assets and liabilities on the acquisition date was recorded as goodwill. The goodwill reflects the value paid by Duke Energy primarily for establishing a broader, long-term strategic natural gas infrastructure platform, an improved risk profile and expected synergies resulting from the combined entities. See Note 11 for information related to the allocation of goodwill to Duke Energy’s reporting units.

Accounting Charges Related to the Acquisition

Duke Energy incurred pretax non-recurring transaction and integration costs associated with the acquisition of $439 million and $9 million for the years ended December 31, 2016 and 2015, respectively. Amounts recorded on the Consolidated Statements of Operations 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.

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 non-recurring transaction and integration costs incurred by Duke Energy and Piedmont were $279 million and $19 million for the years ended December 31, 2016 and 2015, respectively.

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.

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.

Acquisition Related Financings and Other Matters

Duke Energy financed the Piedmont acquisition with a combination of debt and equity issuances and other cash sources, including:


•	$3.75 billion of long-term debt issued in August 2016.


•	$750 million borrowed under the $1.5 billion short-term loan facility in September 2016, which was repaid in December 2016.


•	10.6 million shares of common stock issued in October 2016 for net cash proceeds of approximately $723 million.

The $4.9 billion senior unsecured bridge financing facility (Bridge Facility) with Barclays Capital, Inc. (Barclays) was terminated following the issuance of the long-term debt. For additional information related to the debt and equity issuances, see Notes 6 and 18, respectively. For additional information regarding Duke Energy's and Piedmont's joint investment in Atlantic Coast Pipeline, LLC (ACP), see Note 4.

Purchase of NCEMPA's Generation

On July 31, 2015, Duke Energy Progress completed the purchase of North Carolina Eastern Municipal Power Agency’s (NCEMPA) ownership interests in certain generating assets, fuel and spare parts inventory jointly owned with and operated by Duke Energy Progress for approximately $1.25 billion. This purchase was accounted for as an asset acquisition. The purchase resulted in the acquisition of a total of approximately 700 megawatts (MW) of generating capacity at Brunswick Nuclear Plant (Brunswick), Shearon Harris Nuclear Plant (Harris), Mayo Steam Plant and Roxboro Steam Plant. In connection with this transaction, Duke Energy Progress and NCEMPA entered into a 30-year wholesale power agreement, whereby Duke Energy Progress will sell power to NCEMPA to continue to meet the needs of NCEMPA customers.

The purchase price exceeded the historical carrying value of the acquired assets by $350 million, which was recognized as an acquisition adjustment and recorded in property, plant and equipment. Duke Energy Progress established a rider in North Carolina to recover the costs to acquire, operate and maintain interests in the assets purchased as allocated to its North Carolina retail operations, including the purchase acquisition adjustment, and included the purchase acquisition adjustment in wholesale power formula rates.

Duke Energy Progress received an order from the PSCSC to defer recovery of the South Carolina retail allocated costs of the asset purchased until Duke Energy Progress' next general rate case, which was filed in July 2016. In October 2016, Duke Energy Progress, the Office of Regulatory Staff (ORS) and intervenors entered into a settlement agreement that provides for recovery of the historical carrying value of the South Carolina allocated purchased costs of the transaction. The settlement agreement was approved by the PSCSC in December 2016. See Note 4 for additional information on the South Carolina rate case.

The ownership interests in generating assets acquired are subject to rate-setting authority of the FERC, NCUC and PSCSC and accordingly, the assets are recorded at historical cost. The assets acquired are presented in the following table.



(in millions)
Inventory	$	56
Net property, plant and equipment	845
Total assets	901
Acquisition adjustment, recorded within property, plant and equipment	350
Total purchase price	$	1,251

In connection with the acquisition, Duke Energy Progress acquired NCEMPA's NDTF assets of $287 million and assumed AROs of $204 million associated with NCEMPA's interest in the generation assets. The NDTF and the AROs are subject to regulatory accounting treatment.

DISPOSITIONS

The following table summarizes the (Loss) Income from Discontinued Operations, net of tax recorded on Duke Energy's Consolidated Statements of Operations:



	Years Ended December 31,
(in millions)	2016			2015			2014
International Energy Disposal Group	$	(534	)	$	157		$	(73	)
Midwest Generation Disposal Group	36			33			(524		)
Other^(a)	90			(13		)	(52		)
(Loss) Income from Discontinued Operations, net of tax	$	(408	)	$	177		$	(649	)


(a)	Relates to previously sold businesses not related to the Disposal Groups. The amount for 2016 represents an income tax benefit resulting from immaterial out of period deferred tax liability adjustments. The amounts for 2015 and 2014 include indemnifications provided for certain legal, tax and environmental matters and foreign currency translation adjustments.

Sale of International Energy

In February 2016, Duke Energy announced it had initiated a process to divest its International Energy businesses, excluding the equity method investment in NMC (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 Duke Energy holding company 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 carrying values of the major classes of Assets held for sale and Liabilities associated with assets held for sale included in the Consolidated Balance Sheets. As a result of Duke Energy closing both transactions in December 2016, there are no Assets held for sale or Liabilities associated with assets held for sale as of December 31, 2016.



(in millions)	December 31, 2015
Current assets held for sale
Cash and cash equivalents	$	474
Receivables, net	188
Inventory	65
Other	19
Total current assets held for sale	746
Noncurrent assets held for sale
Property, Plant and Equipment
Cost	2,859
Accumulated depreciation and amortization	(930		)
Net property, plant and equipment	1,929
Goodwill	271
Other	213
Total noncurrent assets held for sale	2,413
Total assets held for sale	$	3,159
Current liabilities associated with assets held for sale
Accounts payable	$	51
Taxes accrued	60
Current maturities of long-term debt	48
Other	120
Total current liabilities associated with assets held for sale	279
Noncurrent liabilities associated with assets held for sale
Long-Term Debt	653
Deferred income taxes	157
Other	90
Total noncurrent liabilities associated with assets held for sale	900
Total liabilities associated with assets held for sale	$	1,179

The value of goodwill increased by $7 million from December 31, 2015 through the date of sale as a result of changes in foreign currency exchanges rates. At the time of the disposition, the International Disposal Group included goodwill of $278 million.

The following table presents the results of the International Disposal Group which are included in (Loss) Income from Discontinued Operations, net of tax in Duke Energy's Consolidated Statements of Operations.



	Years Ended December 31,
(in millions)	2016			2015		2014
Operating Revenues	$	988		$	1,088	$	1,417
Fuel used in electric generation and purchased power	227			306		486
Cost of natural gas	43			53		63
Operation, maintenance and other	341			334		352
Depreciation and amortization^(a)	62			92		97
Property and other taxes	15			7		9
Impairment charges^(b)	194			13		—
(Loss) Gains on Sales of Other Assets and Other, net	(3		)	6		6
Other Income and Expenses, net	58			23		47
Interest Expense	82			85		93
Pretax loss on disposal^(c)	(514		)	—		—
(Loss) Income before income taxes^(d)	(435		)	227		370
Income tax expense^(e)(f)	99			70		443
(Loss) Income from discontinued operations of the International Disposal Group	$	(534	)	$	157	$	(73	)


(a)	Upon meeting the criteria for assets held for sale, beginning in the fourth quarter of 2016 depreciation expense was 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) Income attributable to Duke Energy Corporation was $(445) million, $221 million and $360 million for the years ended December 31, 2016, 2015 and 2014, respectively.


(e)	2016 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)	2016 amount includes an income tax benefit of $95 million and 2014 amount includes an income tax charge of $373 million related to historical undistributed foreign earnings. See Note 22, "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.



	Years Ended December 31,
(in millions)	2016			2015		2014
Cash flows provided by (used in):
Operating activities	$	204		$	248	$	339
Investing activities	(434		)	177		111

Other Sale Related Matters

Duke Energy will provide transition services to CTG and I Squared for a period not to extend beyond March 2017 and September 2017, respectively. In addition, Duke Energy will reimburse CTG and I Squared for all tax obligations arising from the period preceding consummation on the transactions, totaling approximately $78 million. Duke Energy has not recorded any other liabilities, contingent liabilities or indemnifications related to the International Disposal Group.

Midwest Generation Exit

Duke Energy, through indirect subsidiaries, completed the sale of the Midwest Generation Disposal Group to a subsidiary of Dynegy on April 2, 2015, for approximately $2.8 billion in cash. The nonregulated Midwest generation business included generation facilities with approximately 5,900 MW of owned capacity located in Ohio, Pennsylvania and Illinois. On April 1, 2015, prior to the sale, Duke Energy Ohio distributed its indirect ownership interest in the nonregulated Midwest generation business to a subsidiary of Duke Energy Corporation.

Duke Energy utilized a revolving credit agreement (RCA) to support the operations of the nonregulated Midwest generation business. Duke Energy Ohio had a power purchase agreement with the Midwest Generation Disposal Group for a portion of its standard service offer (SSO) supply requirement. The agreement and the SSO expired in May 2015.

The results of operations of the Midwest Generation Disposal Group prior to the date of sale are classified as discontinued operations in the accompanying Consolidated Statements of Operations. Interest expense associated with the RCA was allocated to discontinued operations. No other interest expense related to corporate level debt was allocated to discontinued operations. Certain immaterial costs that were eliminated as a result of the sale remained in continuing operations. The following table summarizes the Midwest Generation Disposal Group activity recorded within discontinued operations.



	Duke Energy									Duke Energy Ohio
	Years Ended December 31,									Years Ended December 31,
(in millions)	2016			2015			2014			2016			2015			2014
Operating Revenues	$	—		$	543		$	1,748		$	—		$	412		$	1,299
Pretax Loss on disposal^(a)	—			(45		)	(929		)	—			(52		)	(959		)

Income (loss) before income taxes^(b)	$	—		$	59		$	(818	)	$	—		$	44		$	(863	)
Income tax (benefit) expense^(c)	(36		)	26			(294		)	(36		)	21			(300		)
Income (loss) from discontinued operations	$	36		$	33		$	(524	)	$	36		$	23		$	(563	)


(a)	The Loss on disposal includes impairments recorded to adjust the carrying amount of the assets to the estimated fair value of the business, based on the selling price to Dynegy less cost to sell.


(b)	2015 amounts include the impact of an $81 million charge for the settlement agreement reached in a lawsuit related to the Midwest Generation Disposal Group. Refer to Note 5 for further information about the lawsuit.


(c)	2016 amounts result from immaterial out of period deferred tax liability adjustments.

Years Ended December 31,

(in millions)

Operating Revenues

Net Income Attributable to Duke Energy Corporation