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MANAGEMENT’S DISCUSSION AND ANALYSIS
22
•฀ higher฀interest฀expense฀at฀PEF;฀
•฀ the฀ impact฀ of฀ the฀ 2006฀ gain฀ on฀ sale฀ of฀ Level฀ 3฀
Communications, Inc. (Level 3) stock acquired as part of
the divestiture of Progress Telecom, LLC (PT LLC); and
•฀ higher฀ other฀ operating฀ expenses฀ due฀ to฀ disallowed฀
fuel costs at PEF.
For the year ended December 31, 2006, our net income was
$571 million or $2.28 per share compared to $697 million or
$2.82 per share for the same period in 2005. For the year
ended December 31, 2006, our income from continuing
operations was $551 million compared to $523 million for
the same period in 2005. The increase in income from
continuing operations as compared to prior year was due
primarily to:
•฀ prior฀ year฀ postretirement฀ and฀ severance฀ expenses฀
related to the 2005 cost-management initiative;
•฀ increased฀retail฀growth฀and฀usage฀at฀the฀Utilities;
•฀ the฀gain฀on฀sale฀of฀Level฀3฀stock฀acquired฀as฀part฀of฀the฀
divestiture of PT LLC; and
•฀ the฀prior฀year฀write-off฀of฀unrecoverable฀storm฀costs฀
at PEF.
Partially offsetting these items were:
•฀ unfavorable฀weather฀at฀the฀Utilities;
•฀ the฀cost฀incurred฀to฀redeem฀debt฀at฀the฀Parent;
•฀ unrealized฀losses฀recorded฀on฀CVOs;
•฀ increased฀nuclear฀outage฀expenses฀at฀PEC;฀and
•฀ the฀ prior฀ year฀ gain฀ on฀ the฀ sale฀ of฀ PEF’s฀ utility฀
distribution assets serving the City of Winter Park, Fla.
(Winter Park).
Our segments contributed the following profit or loss from
continuing operations:
(in millions) 2007 Change 2006 Change 2005
PEC $498 $44 $454 $(36) $490
PEF 315 (11) 326 68 258
Total segment profit 813 33 780 32 748
Corporate and Other (120) 109 (229) (4) (225)
Total income from
continuing operations 693 142 551 28 523
Discontinued operations,
net of tax (189) (209) 20 (153) 173
Cumulative effect of
change in accounting
principle, net of tax −− – (1) 1
Net income $504 $(67) $571 $(126) $697
COST-MANAGEMENT INITIATIVE
On February 28, 2005, we approved a workforce
restructuring that resulted in a reduction of approximately
450 positions. In addition to the workforce restructuring,
the cost-management initiative included a voluntary
enhanced retirement program. In connection with this
initiative, we incurred approximately $164 million of pre-
tax charges for severance and postretirement benefits
during the year ended December 31, 2005, of which
$5 million has been reclassified to discontinued
operations. We did not incur similar charges during 2007
or 2006. The severance and postretirement charges are
primarily included in O&M expense on the Consolidated
Statements of Income and will be paid over time.
Progress Energy Carolinas
PEC contributed segment profits of $498 million,
$454 million and $490 million in 2007, 2006 and 2005,
respectively. The increase in profits for 2007 as compared
to 2006 is primarily due to lower Clean Smokestacks
Act amortization, the favorable impact of weather and
favorable retail customer growth and usage, partially
offset by higher O&M expenses related to plant outage
and maintenance costs and employee benefit costs
and additional depreciation expense associated with
PEC’s accelerated cost-recovery program for nuclear
generating assets.
The decrease in profits for 2006 as compared to 2005 is
primarily due to the unfavorable impact of weather, higher
O&M expense related to nuclear outages, the impact
of suspending the allocation of the Parent’s income tax
benefit not related to acquisition interest expense and
2006 capital project write-offs. See Corporate and Other
below for additional information on the change in the tax
benefit allocation in 2006. These were partially offset by
postretirement and severance expenses incurred in 2005
and favorable retail customer growth and usage.
The revenue tables below present the total amount
and percentage change of revenues excluding fuel.
Revenues excluding fuel is defined as total electric
revenues less fuel revenues. We consider revenues
excluding fuel a useful measure to evaluate PEC’s electric
operations because fuel revenues primarily represent
the recovery of fuel and a portion of purchased power
expenses through cost-recovery clauses and, therefore,
do not have a material impact on earnings. We have
included the analysis below as a complement to the
financial information we provide in accordance with
accounting principles generally accepted in the United
States of America (GAAP). However, revenues excluding