Duke Energy 2011 Annual Report Download - page 131

PART II
DUKE ENERGY CORPORATION •DUKE ENERGY CAROLINAS, LLC •DUKE ENERGY OHIO, INC. •DUKE ENERGY INDIANA, INC.
Combined Notes to Consolidated Financial Statements – (Continued)
and/or similar arrangement. In addition, the revised guidance requires
that certain enhanced quantitative and qualitative disclosures be
made with respect to a company’s netting arrangements and/or rights
of setoff associated with its financial instruments and/or derivative
instruments. For the Duke Energy Registrants, the revised disclosure
guidance is effective on a retrospective basis for interim and annual
periods beginning January 1, 2013. Duke Energy is currently
evaluating the potential impact of the adoption of this revised
guidance and is unable to estimate at this time the impact of
adoption on its consolidated results of financial position.
2. ACQUISITIONS AND DISPOSITIONS OF
BUSINESSES AND SALES OF OTHER ASSETS
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.
Duke Energy
On January 8, 2011, Duke Energy entered into an Agreement
and Plan of Merger (Merger Agreement) among Diamond Acquisition
Corporation, a North Carolina corporation and Duke Energy’s wholly-
owned subsidiary (Merger Sub) and Progress Energy, Inc. (Progress
Energy), a North Carolina corporation. Upon the terms and subject to
the conditions set forth in the Merger Agreement, Merger Sub will
merge with and into Progress Energy with Progress Energy continuing
as the surviving corporation and a wholly-owned subsidiary of Duke
Energy.
Pursuant to the Merger Agreement, upon the closing of the
merger, each issued and outstanding share of Progress Energy
common stock will automatically be canceled and converted into the
right to receive 2.6125 shares of common stock of Duke Energy,
subject to appropriate adjustment for a reverse stock split of the Duke
Energy common stock as contemplated in the Merger Agreement and
except that any shares of Progress Energy common stock that are
owned by Progress Energy or Duke Energy, other than in a fiduciary
capacity, will be canceled without any consideration therefor. Each
outstanding option to acquire, and each outstanding equity award
relating to, one share of Progress Energy common stock will be
converted into an option to acquire, or an equity award relating to
2.6125 shares of Duke Energy common stock, as applicable, subject
to appropriate adjustment for the reverse stock split. Based on
Progress Energy shares outstanding at December 31, 2011, Duke
Energy would issue 771 million shares of common stock to convert
the Progress Energy common shares in the merger under the
unadjusted exchange ratio of 2.6125. The exchange ratio will be
adjusted proportionately to reflect a 1-for-3 reverse stock split with
respect to the issued and outstanding Duke Energy common stock
that Duke Energy plans to implement prior to, and conditioned on,
the completion of the merger. The resulting adjusted exchange ratio is
0.87083 of a share of Duke Energy common stock for each share of
Progress Energy common stock. Based on Progress Energy shares
outstanding at December 31, 2011, Duke Energy would issue
257 million shares of common stock, after the effect of the 1-for-3
reverse stock split, to convert the Progress Energy common shares in
the merger. The merger will be accounted for under the acquisition
method of accounting with Duke Energy treated as the acquirer, for
accounting purposes. Based on the market price of Duke Energy
common stock on December 31, 2011, the transaction would be
valued at $17 billion and would result in incremental recorded
goodwill to Duke Energy of $11 billion, according to current
estimates. Duke Energy would also assume all of Progress Energy’s
outstanding debt, which is estimated to be $15 billion based on the
approximate fair value of Progress Energy’s outstanding indebtedness
at December 31, 2011. The Merger Agreement has been
unanimously approved by both companies’ Boards of Directors.
The merger is conditioned upon, among other things, approval
by the shareholders of both companies, as well as expiration or
termination of any applicable waiting period under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976 and approval by the
FERC, the Federal Communications Commission (FCC), the NRC, the
NCUC, and the KPSC. Duke Energy and Progress Energy also are
seeking review of the merger by the PSCSC and approval of the joint
dispatch agreement by the PSCSC. Although there are no merger-
specific regulatory approvals required in Indiana, Ohio or Florida, the
companies will continue to update the public services commissions
in those states on the merger, as applicable and as required. The
status of regulatory approvals is as follows:
• On April 4, 2011, Duke Energy and Progress Energy, jointly
filed applications with the FERC for the approval of the merger,
the Joint Dispatch Agreement and the joint Open Access
Transmission Tariff (OATT). On September 30, 2011, the
FERC conditionally approved the merger, subject to approval
of mitigation measures to address its finding that the
combined company could have an adverse effect on
competition in wholesale power markets in the Duke Energy
Carolinas and Progress Energy Carolinas East balancing
authority areas. On October 17, 2011, Duke Energy and
Progress Energy filed their plan for mitigating the FERC’s
concerns by proposing to offer on a daily basis a certain
quantity of power during summer and winter periods to the
extent it is available after serving native load and existing firm
obligations. On December 14, 2011, the FERC issued an
order rejecting Duke Energy and Progress Energy’s proposed
mitigation plan, finding that the proposed mitigation plans
submitted by the companies did not adequately address the
market power issues. In a separate order issued
December 14, 2011, the FERC dismissed the applications for
approval of the Joint Dispatch Agreement and the joint OATT
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