Progress Energy 2006 Annual Report Download - page 81

Progress Energy Annual Report 2006
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G. 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. Proceeds from the sale were
used to reduce debt.
Based on the gross proceeds associated with the
sale of $429 million, we recorded an estimated after-
tax loss on disposal of $25 million during the year
ended December 31, 2005. During the year ended
December 31, 2006, we recorded an additional after-tax loss
on disposal of $6 million in connection with guarantees and
indemnifications provided by Progress Fuels and Progress
Energy for certain legal, tax and environmental matters to
One Equity Partners, LLC. The ultimate resolution of these
matters could result in adjustments to the loss on sale in
future periods. See general discussion of guarantees at
Note 22C.
The accompanying consolidated financial statements
have been restated for all periods presented to reflect
the operations of Progress Rail as discontinued
operations. Interest expense has been allocated to
discontinued operations based on the net assets of
Progress Rail, assuming a uniform debt-to-equity ratio
across our operations. Interest expense allocated for
the years ended December 31, 2005 and 2004 was
$4 million and $16 million, respectively. We ceased
recording depreciation upon classification of Progress
Rail as discontinued operations in February 2005.
After-tax depreciation expense during the years ended
December 31, 2005 and 2004 was $3 million and
$10 million, respectively. Results of discontinued
operations for the years ended December 31 were
as follows:
In February 2004, we sold the majority of the assets
of Railcar Ltd., a subsidiary of Progress Rail, to The
Andersons, Inc. for proceeds of approximately $82 million
before transaction costs and taxes of approximately
$13 million. In 2002, we had recognized pre-tax impairment
of $59 million to write-down the assets to our estimated
fair value less costs to sell. In July 2004, we sold the
remaining assets, which had been classified as held for
sale, to a third party for net proceeds of $6 million.
H. Net Assets of Discontinued Operations
Included in net assets of discontinued operations are the
assets and liabilities of CCO, the remaining coal mining
operations and other fuels business at December 31,
2006, and the assets and liabilities of CCO, Gas, DeSoto
and Rowan, PT LLC, Dixie Fuels, the five coal mining
businesses and other fuels business at December 31,
2005. The major balance sheet classes included in
assets and liabilities of discontinued operations in the
Consolidated Balance Sheets were as follows:
I. Winter Park Distribution Assets
As discussed in Note 7C, PEF sold certain electric
distribution assets to Winter Park, Fla. (Winter Park), on
June 1, 2005.
J. Synthetic Fuels Partnership Interests
In two June 2004 transactions, Progress Fuels sold a
combined 49.8 percent partnership interest in Colona
Synfuel Limited Partnership, LLLP (Colona), one of its
synthetic fuels facilities. Substantially all proceeds
from the sales will be received over time, which is
typical of such sales in the industry. Gains from the
sales will be recognized on a cost-recovery basis. The
book value of the interests sold totaled approximately
$5 million. We recognized gains on these transactions of
$4 million, $30 million and $8 million in the years ended
December 31, 2006, 2005 and 2004, respectively. In the
event that the synthetic fuels tax credits from the Colona
facility are reduced, including an increase in the price of
(in millions) 2006 2005 2004
Revenues $– $358 $1,127
Earnings before income taxes $– $8 $50
Income tax expense –(3) (21)
Net earnings from discontinued operations –5 29
Loss on disposal of discontinued operations,
including income tax (expense) benefit of
$(6) and $15, respectively (6) (25) –
(Loss) earnings from discontinued operations $(6) $(20) $29
(in millions)
December 31,
2006
December 31,
2005
Accounts receivable $45 $115
Inventory 24 50
Other current assets 28 47
Total property, plant and equipment, net 573 1,899
Total other assets 217 455
Assets of discontinued operations $887 $2,566
Accounts payable $43 $87
Accrued expenses 122 233
Long-term liabilities 24 222
Liabilities of discontinued operations $189 $542