Duke Energy 2012 Annual Report Download - page 139

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PART II
Combined Notes to Consolidated Financial Statements – (Continued)
DUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • CAROLINA POWER & LIGHT COMPANY d/b/a PROGRESS ENERGY
CAROLINAS, INC. • FLORIDA POWER CORPORATION d/b/a PROGRESS ENERY FLORIDA, INC. • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, INC.
Energy is involved, including entities previously subject to existing accounting
guidance for VIEs, as well as any QSPEs that existed as of the effective date.
Effective with adoption of this revised accounting guidance, the accounting
treatment and/or fi nancial statement presentation of Duke Energy’s accounts
receivable securitization programs were impacted as Duke Energy began
consolidating CRC effective January 1, 2010. Duke Energy Ohio’s and Duke
Energy Indiana’s sales of accounts receivable and related fi nancial statement
presentation were not impacted by the adoption of ASC 810. This revised
accounting guidance did not have a signifi cant impact on any of the Duke Energy
Registrants’ other interests in VIEs.
ASC 820 — Fair Value Measurements and Disclosures. In
January 2010, the FASB amended existing fair value measurements and
disclosures accounting guidance to clarify certain existing disclosure
requirements and to require a number of additional disclosures, including
amounts and reasons for signifi cant transfers between the three levels of the
fair value hierarchy, and presentation of certain information in the reconciliation
of recurring Level 3 measurements on a gross basis. For the Duke Energy
Registrants, certain portions of this revised accounting guidance were effective
on January 1, 2010, with additional disclosures effective for periods beginning
January 1, 2011. The initial adoption of this accounting guidance resulted in
additional disclosure in the notes to the consolidated fi nancial statements but
did not have an impact on the Duke Energy Registrants’ consolidated results of
operations, cash fl ows or fi nancial position.
The following new Accounting Standards Updates (ASU) have been issued,
but have not yet been adopted by Duke Energy, as of December 31, 2012.
ASC 210 — Balance Sheet. In December 2011, the FASB issued
revised accounting guidance to amend the existing disclosure requirements for
offsetting fi nancial assets and liabilities to enhance current disclosures, as well
as to improve comparability of balance sheets prepared under U.S. GAAP and
IFRS. The revised disclosure guidance affects all companies that have fi nancial
instruments and derivative instruments that are either offset in the balance
sheet (i.e., presented on a net basis) or subject to an enforceable master netting
arrangement and/or similar agreement. 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 fi nancial instruments and/or derivative instruments including associated
collateral. For the Duke Energy Registrants, the revised disclosure guidance
is effective on a retrospective basis for interim and annual periods beginning
January 1, 2013. Other than additional disclosures, this revised guidance does
not impact the Duke Energy Registrants’ consolidated results of operations, cash
fl ows or fi nancial position.
ASC 220 — Comprehensive Income. In February 2013, the FASB
amended the existing requirements for presenting comprehensive income in
fi nancial statements to improve the reporting of reclassifi cations out of AOCI.
The amendments in this Update seek to attain that objective by requiring
an entity to report the effect of signifi cant reclassifi cations out of AOCI on
the respective line items in net income if the amount being reclassifi ed is
required under U.S. GAAP to be reclassifi ed in its entirety to net income. For
other amounts that are not required under U.S. GAAP to be reclassifi ed in
their entirety to net income in the same reporting period, an entity is required
to cross-reference other disclosures required under U.S. GAAP that provide
additional detail about those amounts. This would be the case when a portion
of the amount reclassifi ed out of AOCI is reclassifi ed to a balance sheet
account (for example, inventory) instead of directly to income or expense
in the same reporting period. For the Duke Energy Registrants, this revised
guidance is effective on a prospective basis for interim and annual periods
beginning January 1, 2013. Other than additional disclosures or a change in the
presentation on the statement of comprehensive income, this revised guidance
does not impact the Duke Energy Registrants’ consolidated results of operations,
cash fl ows or fi nancial position.
2. ACQUISITIONS, DISPOSITIONS 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.
Merger with Progress Energy
Description of Transaction
On July 2, 2012, Duke Energy completed the merger contemplated by the
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, a North Carolina corporation
engaged in the regulated utility business of generation, transmission and
distribution and sale of electricity in portions of North Carolina, South Carolina
and Florida. As a result of the merger, Merger Sub was merged into Progress
Energy and Progress Energy became a wholly owned subsidiary of Duke Energy.
The merger between Duke Energy and Progress Energy provides increased
scale and diversity with potentially enhanced access to capital over the long
term and a greater ability to undertake the signifi cant construction programs
necessary to respond to increasing environmental regulation, plant retirements
and customer demand growth. Duke Energy’s business risk profi le is expected
to improve over time due to the increased proportion of the business that is
regulated. Additionally, cost savings, effi ciencies and other benefi ts are expected
from the combined operations.
Progress Energy’s shareholders received 0.87083 shares of Duke Energy
common stock in exchange for each share of Progress Energy common stock
outstanding as of July 2, 2012. Generally, all outstanding Progress Energy
equity-based compensation awards were converted into Duke Energy equity-
based compensation awards using the same ratio. The merger was structured
as a tax-free exchange of shares.
Refer to Note 5 for information regarding Progress Energy merger
shareholder litigation.
Merger Related Regulatory Matters
Federal Energy Regulatory Commission. On June 8, 2012, the FERC
conditionally approved the merger including Duke Energy and Progress Energy’s
revised market power mitigation plan, the Joint Dispatch Agreement (JDA) and
the joint Open Access Transmission Tariff (OATT). The revised market power
mitigation plan provides for the acceleration of one transmission project and the
construction of seven other transmission projects (Long-term FERC Mitigation)
and interim fi rm power sale agreements during the construction of the
transmission projects (Interim FERC Mitigation). The Long-term FERC Mitigation
will increase power imported into the Duke Energy Carolinas and Progress
Energy Carolinas service areas and enhance competitive power supply options