Progress Energy 2007 Annual Report Download - page 33

Progress Energy Annual Report 2007
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earnings from discontinued operations of $83 million for
the year ended December 31, 2007, is primarily due to
increased tax credits generated due to higher production
of coal-based solid synthetic fuels, unrealized mark-
to-market gain on derivative contracts in 2007 and the
impairment of synthetic fuels assets recorded in 2006.
These favorable items are partially offset by an increase
in the tax credit reserve due to the increase in production
and the change in the relative oil prices, which indicated
a higher estimated phase-out of tax credits, and lower
margins due to the increase in coal-based solid synthetic
fuels production.
The change in net earnings from discontinued operations
of $198 million for the year ended December 31, 2005, to
net loss from discontinued operations of $37 million for the
year ended December 31, 2006, is primarily due to lower
synthetic fuels production as a result of high oil prices,
which increased the potential phase-out of tax credits
and the impairment of synthetic fuels assets recorded
in 2006.
GAS OPERATIONS
On October 2, 2006, we sold Gas to EXCO Resources,
Inc. for approximately $1.1 billion in net proceeds.
Gas included Winchester Production Company, Ltd.
(Winchester Production), Westchester Gas Company,
Texas Gas Gathering and Talco Midstream Assets Ltd.;
all were subsidiaries of Progress Fuels. Proceeds from the
sale have been used primarily to reduce holding company
debt and for other corporate purposes (See Note 3C).
Based on the net proceeds associated with the sale, we
recorded an after-tax net gain on disposal of $300 million
during the year ended December 31, 2006. We recorded
an after-tax loss of $2 million during the year ended
December 31, 2007, primarily related to working capital
adjustments.
Gas operations generated net earnings from discontinued
operations of $4 million, $82 million and $48 million
for the years ended December 31, 2007, 2006 and
2005, respectively. The increase in net earnings from
discontinued operations during 2006 is primarily due to
increased production, higher market prices and mark-to-
market gains on gas hedges.
PROGRESS TELECOM, LLC
On March 20, 2006, we completed the sale of PT LLC to
Level 3. We received gross proceeds comprised of cash
of $69 million and approximately 20 million shares of
Level 3 common stock valued at an estimated $66 million
on the date of the sale. Our net proceeds from the sale
of $70 million, after consideration of minority interest,
were used to reduce debt. Prior to the sale, we had a
51 percent interest in PT LLC (See Note 3E). See Note
20 for a discussion of the subsequent sale of the Level 3
stock in 2006.
Based on the net proceeds associated with the sale and
after consideration of minority interest, we recorded
an after-tax gain on disposal of $28 million during the
year ended December 31, 2006. Net (loss) earnings
from discontinued operations for PT LLC were a loss of
$2 million and earnings of $4 million for the years ended
December 31, 2006 and 2005, respectively.
DIXIE FUELS AND OTHER FUELS BUSINESS
On March 1, 2006, we sold Progress Fuels’ 65 percent
interest in Dixie Fuels Limited (Dixie Fuels) to Kirby
Corporation for $16 million in cash. Dixie Fuels operates
a fleet of four ocean-going dry-bulk barge and tugboat
units. Dixie Fuels primarily transports coal from the lower
Mississippi River to Progress Energy’s Crystal River
Facility. We recorded an after-tax gain of $2 million on
the sale of Dixie Fuels during the year ended December 31,
2006. During the year ended December 31, 2007, we
recorded an additional gain of $2 million primarily related
to the expiration of indemnifications (See Note 3F).
Net earnings from discontinued operations for Dixie
Fuels and other fuels business were $7 million and
$5 million for the years ended December 31, 2006 and
2005, respectively.
COAL MINING BUSINESSES
Progress Fuels owned five subsidiaries engaged in the
coal mining business. These businesses were previously
included in our former Coal and Synthetic Fuels business
segment. On May 1, 2006, we sold certain net assets of
three of our coal mining businesses to Alpha Natural
Resources, LLC for gross proceeds of $23 million plus a
$4 million working capital adjustment. As a result, during
the year ended December 31, 2006, we recorded an
estimated after-tax loss of $10 million for the sale of these
assets (See Note 3G).
On December 24, 2007, we signed an agreement to sell
the remaining net assets of the coal mining business for
gross cash proceeds of $23 million. These assets include
Powell Mountain Coal Co. and Dulcimer Land Co., which
consist of about 30,000 acres in Lee County, Va., and
Harlan County, Ky. The property contains an estimated
40 million tons of high quality coal reserves.