Progress Energy 2004 Annual Report Download - page 70

During 2004, the Company recorded an additional tax gain
of approximately $6 million due to final tax adjustments
related to the divestiture of NCNG.
The sale of ENCNG resulted in net proceeds of $7 million
and a pre-tax loss of $2 million, which is included in other,
net on the Consolidated Statements of Income for the
year ended December 31, 2003.
5. ACQUISITIONS AND
BUSINESS COMBINATIONS
A. Progress Telecommunications Corporation
In December 2003, Progress Telecommunications
Corporation (PTC) and Caronet, Inc. (Caronet), both wholly
owned subsidiaries of Progress Energy, and EPIK
Communications, Inc. (EPIK), a wholly owned subsidiary of
Odyssey Telecorp, Inc. (Odyssey), contributed substantially
all of their assets and transferred certain liabilities to
Progress Telecom, LLC (PT LLC), a subsidiary of PTC.
Subsequently, the stock of Caronet was sold to an affiliate
of Odyssey for $2 million in cash and Caronet became
a wholly owned subsidiary of Odyssey. Following
consummation of all the transactions described above, PTC
holds a 55% ownership interest in, and is the parent of, PT
LLC. Odyssey holds a combined 45% ownership interest in
PT LLC through EPIK and Caronet. The accounts of PT LLC
have been included in the Company’s Consolidated
Financial Statements since the transaction date.
The transaction was accounted for as a partial
acquisition of EPIK through the issuance of the stock of a
consolidated subsidiary. The contributions of PTC’s and
Caronet’s net assets were recorded at their carrying
values of approximately $31 million. EPIK’s contribution
was recorded at its estimated fair value of $22 million
using the purchase method. No gain or loss was
recognized on the transaction. The EPIK purchase price
was initially allocated as follows: property and equipment
– $27 million; other current assets – $9 million; current
liabilities – $21 million; and goodwill – $7 million. During
2004, PT LLC developed a restructuring plan to exit
certain leasing arrangements of EPIK and finalized its
valuation of acquired assets and liabilities. Management
considered a number of factors, including valuations and
appraisals, when making these determinations. Based on
the results of these activities, the preliminary purchase
price allocation for EPIK was revised as follows at
December 31, 2004: property and equipment – $36 million;
other current assets – $7 million; intangible assets –
$1 million; current liabilities – $18 million; and exit costs –
$4 million. The exit costs consist primarily of lease
termination penalties and noncancelable lease payments
made after certain leased properties are vacated. The
pro forma results of operations reflecting the acquisition
would not be materially different than the reported
results of operations for 2003 or 2002.
B. Acquisition of Natural Gas Reserves
During 2003, Progress Fuels entered into several
independent transactions to acquire approximately 200
natural gas-producing wells with proven reserves of
approximately 190 billion cubic feet (Bcf) from Republic
Energy, Inc., and three other privately owned companies,
all headquartered in Texas. The total cash purchase price
for the transactions was $168 million. The pro forma results
of operations reflecting the acquisition would not be
materially different from the reported results of operations
for the years ended December 31, 2003 and 2002.
C. Wholesale Energy Contract Acquisition
In May 2003, PVI entered into a definitive agreement with
Williams Energy Marketing and Trading, a subsidiary of
The Williams Companies, Inc., to acquire a long-term full-
requirements power supply agreement at fixed prices
with Jackson Electric Membership Corporation
(Jackson), located in Jefferson, Georgia. The agreement
calls for a $188 million cash payment to Williams Energy
Marketing and Trading in exchange for assignment of the
Jackson supply agreement; the $188 million cash
payment was recorded as an intangible asset and is
being amortized based on the economic benefit of the
contract (See Note 9). The power supply agreement
terminates in 2015, with a first refusal right to extend for
five years. The agreement includes the use of
640 megawatts (MW) of contracted Georgia System
generation comprised of nuclear, coal, gas and pumped-
storage hydro resources. PVI expects to supplement the
acquired resources with open market purchases and
with its own intermediate and peaking assets in Georgia
to serve Jackson’s forecasted 1,100 MW peak demand in
2005 growing to a forecasted 1,700 MW demand by 2015.
68
Notes to Consolidated Financial Statements
(in millions) 2004 2003 2002
Revenues $– $284 $300
Earnings before income taxes $– $6 $9
Income tax expense –24
Net earnings from discontinued operations –45
Gain/(Loss) on disposal of discontinued
operations, including applicable income tax
benefit/(expense) of $6, $1 and $3, respectively 6(12) (29)
Earnings (loss) from discontinued operations $6 $(8) $(24)