Progress Energy 2010 Annual Report Download - page 129

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Progress Energy Annual Report 2010
Progress Energy’s management uses Ongoing Earnings
per share to evaluate the operations of the company
and to establish goals for management and employees.
Management believes this non-GAAP measure is
appropriate for understanding the business and assessing
our potential future performance, because excluded items
are limited to those that we believe are not representative
of our fundamental core earnings. Ongoing Earnings as
presented here may not be comparable to similarly titled
measures used by other companies.
Reconciling adjustments from Ongoing Earnings to
GAAP earnings for the years ended December 31 were
as follows:
2010 2009 2008
Ongoing Earnings per share $3.06 $3.03 $2.96
CVO mark-to-market – 0.07 –
Impairment (0.02) (0.01) –
Plant retirement charge – (0.06) –
Change in the tax treatment of the
Medicare Part D subsidy (0.08) – –
Cumulative prior period adjustment – (0.04) –
Valuation allowance and related net
operating loss carry forward – – (0.01)
Discontinued operations (0.01) (0.28) 0.22
Reported GAAP earnings per share $2.95 $2.71 $3.17
Shares outstanding (millions) 291 279 262
CVO Mark-to-Market
In connection with the acquisition of Florida Progress
Corporation, Progress Energy issued 98.6 million
CVOs. Each CVO represents the right of the holder to
receive contingent payments based on net after-tax
cash flows above certain levels of four synthetic fuels
facilities purchased by subsidiaries of Florida Progress
Corporation in October 1999. The CVO liability is valued at
fair฀value,฀and฀unrealized฀gains฀and฀losses฀from฀changes฀
in฀fair฀value฀are฀recognized฀in฀earnings.฀Progress฀Energy฀
is unable to predict the changes in the fair value of the
CVOs, and management does not consider this adjustment
to be representative of the company’s fundamental core
earnings.
Impairment
The company has recorded impairments of certain
miscellaneous investments and other assets.
Management does not consider this adjustment to be
representative of the company’s fundamental core
earnings.
Plant Retirement Charges
The฀ company฀ recognized฀ charges฀ for฀ the฀ impact฀ of฀
PEC’s decision to retire certain coal-fired generating
units, with resulting reduced emissions for compliance
with the Clean Smokestacks Act’s 2013 emission targets.
Since the coal-fired generating units will be retired
prior to their estimated useful lives, management does
not consider this charge to be representative of the
company’s fundamental core earnings.
Change in the Tax Treatment of the Medicare
Part D Subsidy
The federal Patient Protection and Affordable Care Act
(PPACA) and the related Health Care and Education
Reconciliation Act, which made various amendments
to the PPACA, were enacted in March 2010. Under prior
law, employers could claim a deduction for the entire
cost of providing retiree prescription drug coverage even
though a portion of the cost was offset by the retiree drug
subsidy received. As a result of the PPACA, as amended,
retiree drug subsidy payments will effectively become
taxable in tax years beginning after December 31, 2012,
by requiring the amount of the subsidy received to be
offset against the employer’s deduction. Under GAAP,
changes in tax law are accounted for in the period of
enactment. Management does not consider this change
in tax treatment to be representative of the company’s
fundamental core earnings.
Cumulative Prior Period Adjustment
The company recorded a cumulative prior period
adjustment charge related to certain employee life
insurance benefits. Management does not consider
this adjustment to be representative of the company’s
fundamental core earnings. The prior period adjustment
was not material to 2009 or previously issued financial
statements.
Valuation Allowance and Related Net
Operating Loss Carry Forward
Progress Energy previously recorded a deferred tax
asset for a state net operating loss carry forward upon
the sale of nonregulated generating facilities and energy
marketing and trading operations. In 2008, the company
recorded an additional deferred tax asset related to
the state net operating loss carry forward due to a
change in estimate based on 2007 tax return filings. The
company also evaluated the total state net operating loss
carry forward and partially impaired it by recording a
RECONCILIATION OF ONGOING EARNINGS PER SHARE
TO REPORTED GAAP EARNINGS PER SHARE (UNAUDITED)