Progress Energy 2006 Annual Report Download - page 103

Progress Energy Annual Report 2006
101
2006 2005 2004
Effective income tax rate 28.1% (5.9)% 9.3%
State income taxes, net of federal
benefit (6.5) (3.7) (7.7)
Minority interest 0.2 (2.3) (1.2)
Federal tax credits 11.3 43.7 30.2
Investment tax credit amortization 1.7 2.0 1.9
Employee stock ownership plan
dividends 1.7 1.9 2.1
Domestic manufacturing deduction 0.5 1.3 –
Other differences, net (2.0) (2.0) 0.4
Statutory federal income tax rate 35.0% 35.0% 35.0%
Our effective income tax rate is favorably impacted
by federal tax credits resulting from synthetic
fuels production.
Income tax expense (benefit) applicable to continuing
operations for the years ended December 31 was
comprised of:
(in millions) 2006 2005 2004
Current – federal $377 $382 $249
– state 69 78 71
Deferred – federal (136) (163) (33)
– state (26) (36) 10
Valuation allowance 14 – –
State net operating loss carry forward (3) (3) (1)
Synthetic fuels tax credit (79) (282) (215)
Investment tax credit (12) (13) (14)
Total income tax expense (benefit) $204 $(37) $67
Total income tax expense (benefit) applicable to continuing
operations excluded the following:
• Less than $1 million of deferred tax expense related
to the cumulative effect of changes in accounting
principle recorded net of tax during 2005. There was
no cumulative effect of changes in accounting principle
recorded during 2006 or 2004.
• Taxes related to discontinued operations recorded net
of tax for 2006, 2005 and 2004, which are presented
separately in Notes 3A through 3G.
• Taxes related to other comprehensive income
recorded net of tax for 2006, 2005 and 2004, which are
presented separately in the Consolidated Statements
of Comprehensive Income.
• Current tax benefit of $3 million related to excess tax
deductions resulting from vesting of restricted stock,
interim period vesting of stock-settled PSSP awards
and exercises of nonqualified stock options, which
was recorded in common stock during 2006. Current
tax benefit of $2 million related to excess tax deductions
resulting from vesting of restricted stock and exercises
of nonqualified stock options, which was recorded in
common stock during 2005. Less than $1 million was
recorded in common stock for excess tax deductions
during 2004.
Through our subsidiaries, we are a majority owner in
five entities and a minority owner in one entity that own
facilities that produce synthetic fuels as defined under
the Code. The production and sale of the synthetic fuels
from these facilities qualifies for tax credits under Section
29/45K, if certain requirements are satisfied.
15. CONTINGENT VALUE OBLIGATIONS
In connection with the acquisition of Florida Progress
during 2000, the Parent issued 98.6 million contingent
value obligations (CVOs). Each CVO represents the right
of the holder to receive contingent payments based on the
performance of four synthetic fuels facilities purchased
by subsidiaries of Florida Progress in October 1999. The
payments, if any, would be based on the net after-tax cash
flows the facilities generate. The CVO liability is adjusted to
reflect market price fluctuations. The unrealized loss/gain
recognized due to these market fluctuations is recorded
in other, net on the Consolidated Statements of Income
(See Note 20). The liability, included in other liabilities and
deferred credits on the Consolidated Balance Sheets,
at December 31, 2006 and 2005, was $32 million and
$7 million, respectively.
16. BENEFIT PLANS
A. Postretirement Benefits
We have noncontributory defined benefit retirement
plans for substantially all full-time employees that provide
pension benefits. We also have supplementary defined
benefit pension plans that provide benefits to higher-level
employees. In addition to pension benefits, we provide
contributory other postretirement benefits (OPEB),
including certain health care and life insurance benefits,
for retired employees who meet specified criteria. We
use a measurement date of December 31 for our pension
and OPEB plans.
See Note 2 for information related to the implementation
of SFAS No. 158 as of December 31, 2006.