Progress Energy 2006 Annual Report Download - page 35

Progress Energy Annual Report 2006
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Net losses from discontinued operations for the
coal mining business were $4 million, $11 million and
$5 million for the years ended December 31, 2006, 2005
and 2004, respectively.
PROGRESS RAIL
On March 24, 2005, we completed the sale of Progress
Rail Services Corporation (Progress Rail) to One Equity
Partners LLC, a private equity firm unit of J.P. Morgan
Chase & Co. Cash proceeds from the sale were
approximately $429 million, consisting of $405 million base
proceeds plus a working capital adjustment. During the
years ended December 31, 2006 and 2005, we recorded
an estimated after-tax loss for the sale of these assets of
$6 million and $25 million, respectively. Proceeds from the
sale were used to reduce debt (See Note 3G).
Net earnings from discontinued operations for Rail
were $5 million and $29 million for the years ended
December 31, 2005 and 2004. Rail did not have a material
impact on earnings for the year ended December 31, 2006.
APPLICATION OF CRITICAL ACCOUNTING
POLICIES AND ESTIMATES
We prepared our Consolidated Financial Statements
in accordance with accounting principles generally
accepted in the United States of America. In doing so,
we made certain estimates that were critical in nature to
the results of operations. The following discusses those
significant estimates that may have a material impact on
our financial results and are subject to the greatest amount
of subjectivity. We have discussed the development and
selection of these critical accounting policies with the
Audit and Corporate Performance Committee (Audit
Committee) of our board of directors.
Utility Regulation
As discussed in Note 7, our regulated utilities segments
are subject to regulation that sets the prices (rates) we
are permitted to charge customers based on the costs
that regulatory agencies determine we are permitted to
recover. At times, regulators permit the future recovery
through rates of costs that would be currently charged
to expense by a nonregulated company. This ratemaking
process results in deferral of expense recognition and
the recording of regulatory assets based on anticipated
future cash inflows. As a result of the different ratemaking
processes in each state in which we operate, a significant
amount of regulatory assets has been recorded. We
continually review these assets to assess their ultimate
recoverability within the approved regulatory guidelines.
Impairment risk associated with these assets relates
to potentially adverse legislative, judicial or regulatory
actions in the future. Additionally, the state regulatory
agencies often provide flexibility in the manner and timing
of the depreciation of property, nuclear decommissioning
costs and amortization of the regulatory assets. See Note
7 for additional information related to the impact of utility
regulation on our operations.
Asset Impairments
As discussed in Note 9, we evaluate the carrying value of
long-lived assets and intangible assets with definite lives
for impairment whenever indicators exist. Examples of
these indicators include current period losses combined
with a history of losses, a projection of continuing losses,
a significant decrease in the market price of a long-lived
asset group, or the likelihood that an asset group will
be disposed of significantly prior to the end of its useful
life. If an indicator exists, the asset group held and used
is tested for recoverability by comparing the carrying
value to the sum of undiscounted expected future cash
flows directly attributable to the asset group. If the
asset group is not recoverable through undiscounted
cash flows or if the asset group is to be disposed of,
an impairment loss is recognized for the difference
between the carrying value and the fair value of the
asset group. Performing an impairment test on long-lived
assets involves management’s judgment in areas such
as identifying circumstances indicating an impairment
may exist, identifying and grouping affected assets at
the appropriate level, and developing the undiscounted
cash flows associated with the asset group. Estimates of
future cash flows contemplate factors such as expected
use of the assets, future production and sales levels, and
expected fluctuations of prices of commodities sold and
consumed. Therefore, estimates of future cash flows are,
by nature, highly uncertain and may vary significantly
from actual results.
The carrying value of our total utility plant, net is
$15.245 billion at December 31, 2006. The carrying
value of our total diversified business property, net is
$31 million at December 31, 2006. In addition, we have
certain diversified business property with a carrying
value of $573 million at December 31, 2006, included in
net assets of discontinued operations (See Note 3H).
Our exposure to potential impairment losses for utility
plant, net is mitigated by the fact that our regulated
ratemaking process generally allows for recovery of our
investment in utility plant plus an allowed return on the
investment, as long as the costs are prudently incurred.