Progress Energy 2007 Annual Report Download - page 82

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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C. Natural Gas Drilling and Production
On October 2, 2006, we sold our natural gas drilling and
production business (Gas) 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.
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.
The accompanying consolidated financial statements
reflect the operations of Gas as discontinued operations.
Interest expense has been allocated to discontinued
operations based on their respective net assets,
assuming a uniform debt-to-equity ratio across our
operations. Pre-tax interest expense allocated for each
of the years ended December 31, 2006, and 2005 was
$13 million. We ceased recording depreciation upon
classification of the assets as discontinued operations
in July 2006. After-tax depreciation expense during the
years ended December 31, 2006, and 2005 was $16 million
and $26 million, respectively. Results of discontinued
operations for Gas for the years ended December 31 were
as follows:
D. CCO – DeSoto and Rowan Generation
Facilities
On May 2, 2006, our board of directors approved a plan
to divest of two subsidiaries of PVI, DeSoto County
Generating Co., LLC (DeSoto) and Rowan County Power, LLC
(Rowan). DeSoto owned a 320 MW dual-fuel combustion
turbine electric generation facility in DeSoto County,
Fla., and Rowan owned a 925 MW dual-fuel combined
cycle and combustion turbine electric generation facility
in Rowan County, N.C. On May 8, 2006, we entered
into definitive agreements to sell DeSoto and Rowan,
including certain existing power supply contracts, to
Southern Power Company, a subsidiary of Southern
Company, for gross purchase prices of approximately
$80 million and $325 million, respectively. We used the
proceeds from the sales to reduce debt and for other
corporate purposes.
The sale of DeSoto closed in the second quarter of 2006
and the sale of Rowan closed during the third quarter
of 2006. Based on the gross proceeds associated with
the sales, we recorded an after-tax loss on disposal of
$67 million during the year ended December 31, 2006.
The accompanying consolidated financial statements
reflect the operations of DeSoto and Rowan as
discontinued operations. Interest expense has been
allocated to discontinued operations based on their
respective net assets, assuming a uniform debt-to-equity
ratio across our operations. Pre-tax interest expense
allocated for the years ended December 31, 2006, and
2005 was $6 million and $13 million, respectively. We
ceased recording depreciation upon classification of
the assets as discontinued operations in May 2006.
After-tax depreciation expense during the years
ended December 31, 2006, and 2005 was $3 million and
$8 million, respectively. Results of discontinued operations
for DeSoto and Rowan for the years ended December 31
were as follows:
E. Progress Telecom, LLC
On March 20, 2006, we completed the sale of Progress
Telecom, LLC (PT LLC) to Level 3 Communications, Inc.
(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
approximately $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 20 for a
discussion of the subsequent sale of the Level 3 stock
in 2006.
(in millions) 2007 2006 2005
Revenues $– $192 $159
Earnings before income taxes $– $135 $73
Income tax benefit (expense) 4(53) (25)
Net earnings from discontinued operations 482 48
(Loss) gain on disposal of discontinued
operations, including income tax benefit
(expense) of $1 and $(188), respectively (2) 300 –
Earnings from discontinued operations $2 $382 $48
(in millions) 2006 2005
Revenues $64 $67
Earnings before income taxes $15 $5
Income tax expense (5) (2)
Net earnings from discontinued operations 10 3
Loss on disposal of discontinued operations,
including income tax benefit of $37 (67) –
(Loss) earnings from discontinued operations $(57) $3