Progress Energy 2004 Annual Report Download - page 69

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4. DIVESTITURES
A. Sale of Natural Gas Assets
In December 2004, the Company sold certain gas-
producing properties and related assets owned by
Winchester Production Company, Ltd. (Winchester
Production), an indirectly wholly owned subsidiary of
Progress Fuels Corporation (Progress Fuels), which is
included in the Fuels segment. Net proceeds of
approximately $251 million were used to reduce debt.
Because the sale significantly altered the ongoing
relationship between capitalized costs and remaining
proved reserves, under the full-cost method of
accounting, the pre-tax gain of $56 million was
recognized in earnings rather than as a reduction of the
basis of the Company’s remaining oil and gas properties.
The pre-tax gain has been included in (gain)/loss on the
sale of assets in the Consolidated Statements of Income.
B. Divestiture of Synthetic Fuel
Partnership Interests
In June 2004, the Company through its subsidiary, Progress
Fuels, sold, in two transactions, a combined 49.8%
partnership interest in Colona Synfuel Limited Partnership,
LLLP, one of its synthetic fuel facilities. Substantially all
proceeds from the sales will be received over time, which
is typical of such sales in the industry. Gain from the sales
will be recognized on a cost recovery basis. The Company’s
book value of the interests sold totaled approximately
$5 million. The Company received total gross proceeds of
$10 million in 2004. Based on projected production and tax
credit levels, the Company anticipates receiving
approximately $24 million in 2005, approximately $31 million
in 2006, approximately $32 million in 2007, and approximately
$8 million through the second quarter of 2008. In the event
that the synthetic fuel tax credits from the Colona facility
are reduced, including an increase in the price of oil that
could limit or eliminate synthetic fuel tax credits, the
amount of proceeds realized from the sale could be
significantly impacted.
C. Railcar Ltd., Divestiture
In December 2002, the Progress Energy Board of
Directors adopted a resolution approving the sale of
Railcar Ltd., a subsidiary included in the Rail Services
segment. An estimated pre-tax impairment of $59 million
on assets held for sale was recognized in December 2002
to write-down the assets to fair value less costs to sell.
This impairment has been included in impairment of long-
lived assets in the Consolidated Statements of Income
(See Note 10A). In March 2003, the Company signed a
letter of intent to sell the majority of Railcar Ltd. assets to
The Andersons, Inc., and the transaction closed in
February 2004. Proceeds from the sale were
approximately $82 million before transaction costs and
taxes of approximately $13 million. In July 2004, the
Company sold the remaining assets classified as held for
sale to a third-party for net proceeds of $6 million. The
assets of Railcar Ltd. were grouped as assets held for
sale and were included in other current assets on the
Consolidated Balance Sheets at December 31, 2003, at
approximately $75 million, which reflected the Company’s
estimates of the fair value expected to be realized from
the sale of these assets less costs to sell.
D. Mesa Hydrocarbons, Inc., Divestiture
In October 2003, the Company sold certain gas-producing
properties owned by Mesa Hydrocarbons, LLC, a wholly
owned subsidiary of Progress Fuels. Net proceeds were
approximately $97 million. Because the Company utilizes
the full-cost method of accounting for its oil and gas
operations, the pre-tax gain of approximately $18 million
was applied to reduce the basis of the Company’s other
U.S. oil and gas investments and will prospectively result
in a reduction of the amortization rate applied to those
investments as production occurs.
E. NCNG Divestiture
On September 30, 2003, the Company completed the sale
of North Carolina Natural Gas Corporation (NCNG) and the
Company’s equity investment in Eastern North Carolina
Natural Gas Company (ENCNG) to Piedmont Natural Gas
Company, Inc. Net proceeds from the sale of NCNG of
approximately $443 million were used to reduce debt.
The consolidated financial statements have been
restated for all periods presented for the discontinued
operations of NCNG. The net income of these operations
is reported as discontinued operations in the
Consolidated Statements of Income. Interest expense of
$10 million and $16 million for the years ended
December 31, 2003 and 2002, respectively, has been
allocated to discontinued operations based on the net
assets of NCNG, assuming a uniform debt-to-equity ratio
across the Company’s operations. The Company ceased
recording depreciation effective October 1, 2002, upon
classification of the assets as discontinued operations.
After-tax depreciation expense recorded by NCNG for
the year ended December 31, 2002, was $9 million.
Results of discontinued operations for years ended
December 31 were as follows:
67
Progress Energy Annual Report 2004