Progress Energy Announces First Quarter Results
Quarterly Highlights:
o Reports ongoing earnings of $0.64 per share, GAAP earnings of $0.45
per share
o Retires $500 million of holding company debt in March 2004
o Reaffirms 2004 earnings guidance of $3.50 - $3.65
RALEIGH, N.C. (April 21, 2004) - Progress Energy [NYSE: PGN] today reported
ongoing earnings of $154 million, or $0.64 per share, for the first quarter of
2004 compared with ongoing earnings of $195 million, or $0.84 per share, for the
first quarter of 2003. Reported consolidated net income under generally accepted
accounting principles (GAAP) was $108 million, or $0.45 per share, for the
quarter compared with reported consolidated net income of $219 million, or $0.94
per share, for the first quarter of 2003. See the table below for a
reconciliation of ongoing earnings per share to GAAP earnings per share.
Four main items explain the $0.20 per share decrease in ongoing earnings in the
first quarter of 2004 compared to 2003:
o Wholesale sales from the utilities were lower.
o O&M costs were higher at the utilities mainly due to increased
spending in 2004 for scheduled plant outages and for planned
reliability improvements in Florida.
o There was a decrease in nonregulated generation earnings from higher
fixed costs and interest charges, reflecting the completion of plant
construction in mid-2003, and from the receipt in 2003 of a contract
termination payment on a tolling agreement.
o Common stock offerings throughout 2003 caused dilution in earnings per
share.
"We knew it would be very challenging to duplicate our first quarter 2003
results, which reflected unusually strong off-system sales in the wholesale
market," said Bob McGehee, president and CEO of Progress Energy. "So far this
year, most of our businesses are delivering results consistent with our plan,
and we are reiterating our 2004 earnings guidance of $3.50 to $3.65 per share."
"First quarter 2004 was a solid start to the year on many fronts. We paid down
$500 million in holding company debt, signed new wholesale energy contracts,
finalized the sale of Railcar, Ltd., and successfully completed the first IRS
audit of one of our synthetic fuel facilities," McGehee said. "In addition, we
continued to realize revenue growth from our retail utilities and from our
natural gas investments."
The following table provides a reconciliation of ongoing earnings per share to
reported GAAP earnings per share. A detailed discussion of these items is
provided later in this release under the caption "Ongoing Earnings Adjustments."
----------------------------------------------------------------
Progress Energy, Inc.
Reconciliation of Ongoing Earnings per Share to
Reported GAAP Earnings per Share
Three months ended March 31
As Restated
2004 2003*
--------- ---------
Ongoing earnings per share $ 0.64 $ 0.84
Intraperiod tax allocation (0.16) 0.04
CVO mark-to-market (0.03) 0.01
NCNG discontinued operations - 0.05
--------- ---------
Reported GAAP earnings per share $ 0.45 $ 0.94
========= =========
Shares outstanding (millions) 241 233
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* Beginning in the fourth quarter of 2003, Progress Energy ceased recording
portions of the Progress Fuels' segment operations, primarily synthetic fuel
facilities, one month in arrears. Progress Energy has restated previously
reported consolidated quarterly earnings to reflect the new reporting periods,
resulting in four months of earnings in first quarter 2003 net income. The
change in Progress Energy's first quarter 2003 net income was an increase of $11
million. The reported first quarter 2003 earnings for Progress Ventures and
Progress Fuels included in this release reflect this restatement. See additional
information on this restatement in the Supplemental Data schedules of this
release.
SIGNIFICANT DEVELOPMENTS
Robinson Relicensing Announcement
On April 19, 2004, the Nuclear Regulatory Commission announced that it renewed
the operating license for Progress Energy's H.B. Robinson Nuclear Plant near
Hartsville, S.C., for an additional 20 years. The Robinson Plant began
commercial operation in March 1971, with an original operating license of 40
years that was set to expire July 31, 2010. The Robinson Plant has been
consistently ranked among the top nuclear plants in the nation in terms of
safety, production and cost. The renewed license positions the Robinson Plant to
continue to deliver safe, reliable power to Progress Energy customers and
economic benefits to the company and the local community through July 2030. The
complete press release regarding this announcement is available on the company's
Web site at: http://www.progress-energy.com/aboutus/news/article.asp?id=8622.
Brunswick Unit Completes Refueling Outage and Power Uprate
Progress Energy's Brunswick Nuclear Plant Unit 1 completed a successful
refueling outage on April 2, 2004, when the unit was returned to service. During
the outage, an extended power uprate project was completed. The uprate is
expected to add approximately 50 additional megawatts of electricity at the
plant.
2
Roxboro Plant Sets Record
On March 25, 2004, Unit 1 of the Roxboro Plant set a company record by
completing 518 days on line, a first for Progress Energy's coal-fired generating
fleet. The 385-megawatt unit is the oldest of the four units at the Roxboro site
and began commercial operations in 1966. The complete press release regarding
this announcement is available on the company's Web site at:
http://www.progress-energy.com/aboutus/news/article.asp?id=8503.
Railcar, Ltd. Sale Completed
On February 12, 2004, Progress Energy completed the sale of a majority of
Railcar, Ltd. assets to The Andersons, Inc. Railcar, Ltd. was a leasing
subsidiary of Progress Rail. Net proceeds from the sale were approximately $82
million. The sale was initially announced in March of 2003. The complete press
release regarding this announcement is available on the company's Web site at:
http://www.corporate-ir.net/ireye/ir_site.zhtml?ticker=PGN&script=410&layout=
0&item_id=495123.
Progress Ventures Executes Additional Energy Contracts
In February 2004, Progress Ventures announced that it had entered into
agreements to provide Duke Power with up to 459 megawatts of peaking capacity
through contracts that run from 2006 through 2010. The energy needed to serve
these contracts will come from Progress Ventures' generating facility located in
Rowan County, North Carolina. The complete press release regarding the
announcement is available on the company's Web site at:
http://www.progress-energy.com/aboutus/news/article.asp?id=8343.
In addition, in March 2004, Progress Ventures entered into a long-term contract
to provide a 175 megawatt call option to Santee Cooper. This agreement runs from
June 1, 2004, through January 1, 2007. The energy needed to serve this contract
will also come from Progress Ventures' generating facility located in Rowan
County.
Closing Agreement with IRS Signed
On February 24, 2004, subsidiaries of Progress Energy finalized execution of a
Closing Agreement with the Internal Revenue Service (IRS) concerning the Colona
synthetic fuel facilities. The Closing Agreement provides that the Colona
facilities were placed in service before July 1, 1998, and that the fuel
produced by the Colona facilities in 2001 is a "qualified fuel" for purposes of
the Section 29 tax credits. This action concludes the IRS Prefiling Agreement
(PFA) program with respect to Colona.
The PFA process continues with respect to the four synthetic fuel facilities
owned by other affiliates of Progress Energy. Currently, the focus of that
process is on determining that the facilities were placed in service before July
1, 1998.
3
LINE OF BUSINESS FINANCIAL INFORMATION
Progress Energy Carolinas
Progress Energy Carolinas electric energy operations contributed GAAP net income
of $116 million for the quarter compared with $135 million for the same period
last year. This quarter's earnings were negatively affected by lower wholesale
sales to other utilities and higher O&M charges. O&M expenses increased in the
current quarter as the prior quarter O&M expenses were favorably impacted by the
retroactive reallocation of Service Company costs of $10 million after tax.
Details on the retroactive service company reallocation recorded in the prior
year are included in the Supplemental Data schedules of this release. These
factors were partially offset by the impact of colder weather, increased
revenues from customer growth and lower depreciation and amortization charges.
During the first quarter of 2004, Progress Energy Carolinas filed a depreciation
study with the North Carolina and South Carolina commissions which allowed the
utility to reduce the rates used to calculate depreciation expense. The
reduction in depreciation expense is primarily attributable to assumption
changes for nuclear generation, offset by increases in depreciation for
distribution assets.
See the attached Supplemental Data schedules for additional information on
Progress Energy Carolinas electric revenues, energy sales, energy supply and
weather impacts.
Progress Energy Florida
Progress Energy Florida electric energy operations contributed GAAP net income
of $49 million for the quarter compared with $71 million for the same period
last year. This quarter's earnings were negatively affected by the impact of
milder weather and higher O&M costs primarily attributable to increased spending
for scheduled plant outages and planned reliability improvements. These factors
were partially offset by the additional return on investment on the Hines 2
plant that was placed into service in December 2003.
See the attached Supplemental Data schedules for additional information on
Progress Energy Florida electric revenues, energy sales, energy supply and
weather impacts.
Progress Ventures
The Progress Ventures operations consist of Progress Fuels, which includes
natural gas production, coal mining and synthetic fuels production, and
Competitive Commercial Operations, which includes nonregulated generation and
energy marketing activities. The Progress Ventures business unit had GAAP net
income of $40 million for the quarter compared with $48 million for the same
period last year.
Progress Fuels generated GAAP net income of $48 million for the quarter compared
with $38 million for the same period last year. The increase resulted primarily
from increased earnings from gas operations due to a full quarter of North Texas
Gas volumes in the current year (acquired late February 2003) and higher gas
prices in 2004. In addition, results in the prior quarter were negatively
impacted by the retroactive reallocation of Service Company costs of $4 million
after tax. Details on the retroactive service company reallocation recorded in
the prior year are included in the Supplemental Data schedules of this release.
Within Progress Fuels, synthetic fuels operations generated GAAP net income of
4
$36 million for the quarter compared with $34 million for the same period last
year. Total synthetic fuel sales were 2.9 million tons for the quarter compared
with 2.5 million tons for the same period last year. The increase year over year
is attributable primarily to an internal change in the production schedule in
2004 compared to 2003.
Competitive Commercial Operations contributed a GAAP net loss of $8 million for
the quarter compared with net income of $9 million for the same period last
year. Results from 2003 include a contract termination payment received on a
tolling agreement. This quarter's results were also unfavorably impacted by
mark-to-market losses and higher fixed costs. Fixed charges increased from
additional depreciation and amortization on plants placed into service in 2003
and from an increase in interest expense from interest no longer being
capitalized due to the completion of construction in the prior year. These items
were partially offset by favorable margins on new contracts and the fact that
results in the prior quarter were negatively impacted by the retroactive
reallocation of Service Company costs of $2 million after tax. Details on the
retroactive service company reallocation recorded in the prior year are included
in the Supplemental Data schedules of this release.
Other Businesses
Other businesses include Progress Rail, Progress Telecom and other small
subsidiaries. Other businesses had GAAP net income of $4 million for the quarter
compared with a GAAP net loss of $3 million for the same period last year. This
quarter's results were impacted by strong sales in the recycling operations at
Progress Rail which were partially offset by losses at Progress Telecom.
Progress Rail
Progress Rail had GAAP net income of $6 million for the quarter compared
with a GAAP net loss of $3 million for the same period last year. Progress
Rail earnings were positively impacted by higher prices and margins on
recycling sales. In addition, results in the prior quarter were negatively
impacted by the retroactive reallocation of Service Company costs of $3
million after tax. Details on the retroactive service company reallocation
recorded in the prior year are included in the Supplemental Data schedules
of this release.
Progress Telecom
Progress Telecom recorded a GAAP net loss of $1.3 million for the quarter
compared with GAAP net income of $0.4 million for the same period last
year. Progress Telecom's results were negatively impacted by integration
costs associated with its combination with EPIK in December 2003. In
addition, results in the prior quarter were favorably impacted by the
retroactive reallocation of Service Company costs of $1 million after tax.
Details on the retroactive service company reallocation recorded in the
prior year are included in the Supplemental Data schedules of this release.
5
Corporate
Corporate results, which primarily include interest expense on holding company
debt, posted an ongoing operating loss of $55 million for the quarter compared
with an ongoing operating loss of $54 million for the same period last year.
Interest expense increased during the current quarter from interest no longer
being capitalized due to the completion of construction in the prior year.
Approximately $3 million after tax was capitalized in the first quarter of 2003.
This item was offset by the fact that results in the prior quarter were
negatively impacted by the retroactive reallocation of Service Company costs of
$3 million after tax. Details on the retroactive service company reallocation
recorded in the prior year are included in the Supplemental Data schedules of
this release.
ONGOING EARNINGS ADJUSTMENTS
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 presentation is appropriate and enables investors to
compare more accurately the company's ongoing financial performance over the
periods presented. Ongoing earnings as presented here may not be comparable to
similarly titled measures used by other companies. Reconciling adjustments from
GAAP earnings to ongoing earnings as they relate to the current quarter and
information included in the Supplemental Data schedules are as follows:
Intraperiod Tax Allocation
Generally accepted accounting principles require companies to apply an effective
tax rate to interim periods that is consistent with a company's estimated annual
tax rate. The tax credits generated from synthetic fuel operations reduce
Progress Energy's overall effective tax rate. The company's synthetic fuel sales
are not subject to seasonal fluctuations to the same extent as the electric
utility earnings. The company projects the effective tax rate for the year and
then, based upon projected operating income for each quarter, raises or lowers
the tax expense recorded in that quarter to reflect the projected tax rate. On
the other hand, operating losses incurred to produce the tax credits are
included in the current quarter. The resulting tax adjustment decreased earnings
per share by $0.16 for the quarter, and increased earnings per share by $0.04
for the same period last year, but has no impact on the company's annual
earnings. Since this adjustment varies by quarter but has no impact on Progress
Energy's annual earnings, management believes this adjustment is not
representative of the company's ongoing quarterly earnings.
Contingent Value Obligation (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 to receive
contingent payments based on after-tax cash flows above certain levels of four
synthetic fuel facilities purchased by subsidiaries of Florida Progress
Corporation in October 1999. The CVOs are debt instruments and, under GAAP, are
valued at market value. Unrealized gains and losses from changes in market value
are recognized in earnings each quarter. The CVO mark-to-market decreased
earnings per share by $0.03 for the quarter and increased earnings per share by
$0.01 for the same period last year. Since changes in the market value of the
CVOs do not affect the company's underlying obligation, management does not
consider the adjustment a component of ongoing earnings.
6
NCNG Discontinued Operations
The sale of NCNG to Piedmont Natural Gas closed on September 30, 2003, and the
net proceeds were used to pay down debt. The operations of NCNG are reported as
discontinued operations in the accompanying financial statements due to its
sale, and therefore management does not believe this activity is representative
of the ongoing operations of the company. NCNG had discontinued earnings of $11
million for the quarter ended March 31, 2003.
Cumulative Effect of Accounting Changes
Progress Energy recorded the cumulative effect of changes in accounting
principles due to the adoption of new FASB accounting guidance. The impact to
Progress Energy was due primarily to the new FASB guidance related to the
accounting for certain contracts. This guidance discusses whether the pricing in
a contract that contains broad market indices qualifies for certain exceptions
that would not require the contract to be recorded at its fair value. Progress
Energy Carolinas has a purchase power contract with Broad River LLC that did not
meet the criteria for an exception, and a fair value adjustment was recorded in
the fourth quarter of 2003. Due to the nonrecurring nature of the adjustment,
management believes it is not representative of the 2003 operations of Progress
Energy Carolinas.
Impairments and One-Time Charges
During the fourth quarter of 2003, the company recorded after-tax impairments of
its Affordable Housing portfolio and certain assets at the Kentucky May Coal
Company. Management does not believe these impairments and one-time charges are
representative of the ongoing operations of the company.
* * * *
This earnings announcement, as well as a package of detailed financial
information, is available on the company's Web site at www.progress-energy.com.
Progress Energy's conference call with the investment community will be held
April 21, 2004, at 10 a.m. ET (7 a.m. PT) and will be hosted by Geoff Chatas,
executive vice president and chief financial officer. Investors, media and the
public may listen to the conference call by dialing 913-981-4910, confirmation
code 454622. Should you encounter problems, please contact Tammy Blankenship at
919-546-2233. A playback of the call will be available from 1 p.m. ET April 21
through midnight May 5, 2004. To listen to the recorded call, dial 719-457-0820
and enter confirmation code 454622.
A webcast of the live conference call will be available at
www.progress-energy.com. The webcast will be available in Windows Media format.
The webcast will be archived on the site for those unable to listen in real
time.
7
Members of the media are invited to listen to the conference call and then
participate in a media-only question and answer session with Geoff Chatas
starting at 11 a.m. ET. To participate in this session, please dial
719-457-2707, confirmation code 413244.
Progress Energy (NYSE: PGN), headquartered in Raleigh, N.C., is a Fortune 250
diversified energy company with more than 24,000 megawatts of generation
capacity and $9 billion in annual revenues. The company's holdings include two
electric utilities serving more than 2.8 million customers in North Carolina,
South Carolina and Florida. Progress Energy also includes nonregulated
operations covering generation, energy marketing, natural gas production, fuel
extraction, rail services and broadband capacity. For more information about
Progress Energy, visit the company's Web site at www.progress-energy.com.
This document contains forward-looking statements within the meaning of the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. The
forward-looking statements involve estimates, projections, goals, forecasts,
assumptions, risk and uncertainties that could cause actual results or outcomes
to differ materially from those expressed in the forward-looking statements. Any
forward-looking statement speaks only as of the date such statement is made, and
we undertake no obligation to update any forward-looking statement or statements
to reflect events or circumstances after the date on which such statement is
made. Examples of factors that you should consider with respect to any
forward-looking statements made in this document include, but are not limited
to, the following: the impact of fluid and complex government laws and
regulations, including those relating to the environment; the impact of recent
events in the energy markets that have increased the level of public and
regulatory scrutiny in the energy industry and in the capital markets;
deregulation or restructuring in the electric industry that may result in
increased competition and unrecovered (stranded) costs; the uncertainty
regarding the timing, creation and structure of regional transmission
organizations; weather conditions that directly influence the demand for
electricity; recurring seasonal fluctuations in demand for electricity;
fluctuations in the price of energy commodities and purchased power; economic
fluctuations and the corresponding impact on our commercial and industrial
customers; the ability of our subsidiaries to pay upstream dividends or
distributions to us; the impact on our facilities and our businesses from a
terrorist attack; the inherent risks associated with the operation of nuclear
facilities, including environmental, health, regulatory and financial risks; the
ability to successfully access capital markets on favorable terms; the impact
that increases in our leverage may have on us; our ability to maintain our
current credit ratings; the impact of derivative contracts used in the normal
course of our business; investment performance of pension and benefit plans and
the ability to control costs; the availability and use of Internal Revenue Code
Section 29 (Section 29) tax credits by synthetic fuel producers, and our
continued ability to use Section 29 tax credits related to our coal and
synthetic fuels businesses; our ability to successfully integrate newly acquired
assets, properties or businesses into our operations as quickly or as profitably
as expected; our ability to manage the risks involved with the operation of our
nonregulated plants, including dependence on third parties and related
counter-party risks, and a lack of operating history; our ability to manage the
risks associated with our energy marketing operations; and unanticipated changes
in operating expenses and capital expenditures. Many of these risks similarly
impact our subsidiaries.
8
These and other risk factors are detailed from time to time in our SEC reports.
All such factors are difficult to predict, contain uncertainties that may
materially affect actual results, and may be beyond our ability to control or
estimate precisely. New factors emerge from time to time, and it is not possible
for management to predict all such factors or to assess the effect each such
factor will have on us.
# # #
Contacts:
Investor Relations, Bob Drennan, 919-546-7474
Corporate Communications, Garrick Francis, 919-546-6189, or
toll-free 877-641-NEWS (6397)
9
Progress Energy, Inc.
CONSOLIDATED INTERIM FINANCIAL STATEMENTS
March 31, 2004
UNAUDITED CONSOLIDATED STATEMENTS of INCOME
- ----------------------------------------------------------------------------------------------------
Three Months Ended March 31,
As Restated
(in millions except per share data) 2004 2003
- ----------------------------------------------------------------------------------------------------
Operating Revenues
Utility $ 1,685 $ 1,654
Diversified business 549 533
- ----------------------------------------------------------------------------------------------------
Total Operating Revenues 2,234 2,187
- ----------------------------------------------------------------------------------------------------
Operating Expenses
Utility
Fuel used in electric generation 493 411
Purchased power 183 203
Operation and maintenance 363 335
Depreciation and amortization 202 220
Taxes other than on income 105 103
Diversified business
Cost of sales 504 475
Depreciation and amortization 45 33
Other 43 50
- ----------------------------------------------------------------------------------------------------
Total Operating Expenses 1,938 1,830
- ----------------------------------------------------------------------------------------------------
Operating Income 296 357
- ----------------------------------------------------------------------------------------------------
Other Income (Expense)
Interest income 3 3
Other, net (25) (6)
- ----------------------------------------------------------------------------------------------------
Total Other Expense (22) (3)
- ----------------------------------------------------------------------------------------------------
Interest Charges
Net interest charges 166 156
Allowance for borrowed funds used during construction (1) (3)
- ----------------------------------------------------------------------------------------------------
Total Interest Charges, Net 165 153
- ----------------------------------------------------------------------------------------------------
Income from Continuing Operations before Income Tax and
Cumulative Effect of Change in Accounting Principle 109 201
Income Tax Expense (Benefit) 1 (6)
- ----------------------------------------------------------------------------------------------------
Income from Continuing Operations before Cumulative Effect of
Change in Accounting Principle 108 207
Discontinued Operations, Net of Tax - 11
- ----------------------------------------------------------------------------------------------------
Income before Cumulative Effect of Change in Accounting Principle 108 218
Cumulative Effect of Change in Accounting Principle, Net of Tax - 1
- ----------------------------------------------------------------------------------------------------
Net Income $ 108 $ 219
- ----------------------------------------------------------------------------------------------------
Average Common Shares Outstanding 241 233
- ----------------------------------------------------------------------------------------------------
Basic Earnings per Common Share
Income from Continuing Operations before Cumulative Effect of
Changes in Accounting Principles $ 0.45 $ 0.89
Discontinued Operations, Net of Tax $ 0.00 $ 0.05
Cumulative Effect of Changes in Accounting Principles, Net of Tax $ 0.00 $ 0.00
Net Income $ 0.45 $ 0.94
- ----------------------------------------------------------------------------------------------------
Diluted Earnings per Common Share
Income from Continuing Operations before Cumulative Effect of
Changes in Accounting Principles $ 0.45 $ 0.89
Discontinued Operations, Net of Tax $ 0.00 $ 0.05
Cumulative Effect of Changes in Accounting Principles, Net of Tax $ 0.00 $ 0.00
Net Income $ 0.45 $ 0.94
- ----------------------------------------------------------------------------------------------------
Dividends Declared per Common Share $ 0.58 $ 0.56
- ----------------------------------------------------------------------------------------------------
This financial information should be read in conjunction with the Company's 2003
Annual Report to shareholders. These statements have been prepared for the
purpose of providing information concerning the Company and not in connection
with any sale, offer for sale, or solicitation of an offer to buy any securities
10
PROGRESS ENERGY, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------------------------
(in millions) March 31, December 31,
ASSETS 2004 2003
- --------------------------------------------------------------------------------------------------
Utility Plant
Utility plant in service $ 21,761 $ 21,675
Accumulated depreciation (8,204) (8,116)
- --------------------------------------------------------------------------------------------------
Utility plant in service, net 13,557 13,559
Held for future use 13 13
Construction work in progress 722 634
Nuclear fuel, net of amortization 233 228
- --------------------------------------------------------------------------------------------------
Total Utility Plant, Net 14,525 14,434
- --------------------------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents 41 273
Accounts receivable 794 841
Unbilled accounts receivable 193 217
Inventory 782 808
Deferred fuel cost 254 317
Prepayments and other current assets 297 375
- --------------------------------------------------------------------------------------------------
Total Current Assets 2,361 2,831
- --------------------------------------------------------------------------------------------------
Deferred Debits and Other Assets
Regulatory assets 626 612
Nuclear decommissioning trust funds 988 938
Diversified business property, net 2,181 2,158
Miscellaneous other property and investments 464 464
Goodwill 3,729 3,726
Prepaid pension costs 453 462
Intangibles, net 319 327
Other assets and deferred debits 237 253
- --------------------------------------------------------------------------------------------------
Total Deferred Debits and Other Assets 8,997 8,940
- --------------------------------------------------------------------------------------------------
Total Assets $ 25,883 $ 26,205
- --------------------------------------------------------------------------------------------------
Capitalization and Liabilities
- --------------------------------------------------------------------------------------------------
Common Stock Equity
Common stock without par value, 500 million shares authorized,
246 million shares issued and outstanding $ 5,310 $ 5,270
Unearned restricted shares (20) (17)
Unearned ESOP shares (79) (89)
Accumulated other comprehensive loss (61) (50)
Retained earnings 2,299 2,330
- --------------------------------------------------------------------------------------------------
Total Common Stock Equity 7,449 7,444
- --------------------------------------------------------------------------------------------------
Preferred Stock of Subsidiaries-Not Subject to Mandatory Redemption 93 93
Long-Term Debt Affiliate 309 309
Long-Term Debt 9,603 9,625
- --------------------------------------------------------------------------------------------------
Total Capitalization 17,454 17,471
- --------------------------------------------------------------------------------------------------
Current Liabilities
Current portion of long-term debt 232 868
Accounts payable 618 699
Interest accrued 140 209
Dividends declared 141 140
Short-term obligations 507 4
Customer deposits 169 167
Other current liabilities 524 580
- --------------------------------------------------------------------------------------------------
Total Current Liabilities 2,331 2,667
- --------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities
Accumulated deferred income taxes 682 737
Accumulated deferred investment tax credits 186 190
Regulatory liabilities 2,995 2,938
Asset retirement obligations 1,289 1,271
Other liabilities and deferred credits 946 931
- --------------------------------------------------------------------------------------------------
Total Deferred Credits and Other Liabilities 6,098 6,067
- --------------------------------------------------------------------------------------------------
Total Capitalization and Liabilities $ 25,883 $ 26,205
- --------------------------------------------------------------------------------------------------
11
PROGRESS ENERGY, INC.
UNAUDITED CONSOLIDATED STATEMENTS of CASH FLOWS
- ----------------------------------------------------------------------------------------------------------
Three Months Ended March 31,
As Restated
(in millions) 2004 2003
- ---------------------------------------------------------------------------------------------------------
Operating Activities
Net income $ 108 $ 219
Adjustments to reconcile net income to net cash provided by operating
activities:
Income from discontinued operations - (11)
Cumulative effect of changes in accounting principles - (1)
Depreciation and amortization 275 280
Deferred income taxes (22) (3)
Investment tax credit (4) (4)
Deferred fuel cost (credit) 63 (46)
Cash provided (used) by changes in operating assets and liabilities:
Accounts receivable 62 16
Inventories 26 32
Prepayments and other current assets (37) (3)
Accounts payable (69) 49
Other current liabilities (77) (91)
Other 57 2
- ---------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 382 439
- ---------------------------------------------------------------------------------------------------------
Investing Activities
Gross utility property additions (248) (291)
Diversified business property additions (58) (229)
Nuclear fuel additions (39) (68)
Proceeds from sales of subsidiaries, investments and assets 85 -
Other (8) (12)
- ---------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (268) (600)
- ---------------------------------------------------------------------------------------------------------
Financing Activities
Issuance of common stock, net 22 67
Issuance of long-term debt, net - 655
Net increase (decrease) in short-term indebtedness 503 (205)
Retirement of long-term debt (675) (226)
Dividends paid on common stock (141) (133)
Other (55) (23)
- ---------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities (346) 135
- ---------------------------------------------------------------------------------------------------------
Net Decrease in Cash and Cash Equivalents (232) (26)
Cash and Cash Equivalents at Beginning of Year 273 61
- ---------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 41 $ 35
- ---------------------------------------------------------------------------------------------------------
12
Progress Energy, Inc.
SUPPLEMENTAL DATA - Page S-1
Unaudited
- ----------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Three Months Ended Percentage Change
March 31, 2004 March 31, 2003 From March 31, 2003
- ----------------------------------------------------------------------------------------------------------------------------------
Total Total
Progress Progress
Utility Statistics Carolinas Florida Energy Carolinas Florida Energy Carolinas Florida
- ----------------------------------------------------------------------------------------------------------------------------------
Operating Revenues (in millions)
Retail
Residential $ 371 $ 402 $ 773 $ 357 $ 385 $ 742 3.9 % 4.4 %
Commercial 208 181 389 201 151 352 3.5 19.9
Industrial 147 63 210 147 47 194 - 34.0
Other retail 19 46 65 19 38 57 - 21.1
Provision for retail revenue sharing (4) (4) - - - -
- ----------------------------------------------------------------------------------------------------------------------------------
Total Retail $ 745 $ 688 $ 1,433 $ 724 $ 621 $ 1,345 2.9 10.8
Unbilled (23) (6) (29) (31) (1) (32) - -
Wholesale 156 67 223 209 71 280 (25.4) (5.6)
Miscellaneous revenue 23 35 58 24 37 61 (4.2) (5.4)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Electric $ 901 $ 784 $ 1,685 $ 926 $ 728 $ 1,654 (2.7)% 7.7 %
- ----------------------------------------------------------------------------------------------------------------------------------
Energy Sales (millions of kWh)
Retail
Residential 4,741 4,291 9,032 4,587 4,553 9,140 3.4 % (5.8)%
Commercial 3,058 2,491 5,549 2,983 2,442 5,425 2.5 2.0
Industrial 2,993 1,023 4,016 3,005 916 3,921 (0.4) 11.7
Other retail 345 672 1,017 343 656 999 0.6 2.4
- ----------------------------------------------------------------------------------------------------------------------------------
Total Retail 11,137 8,477 19,614 10,918 8,567 19,485 2.0 (1.1)
Unbilled (385) (135) (520) (480) 55 (425) - -
Wholesale 3,791 1,323 5,114 4,619 1,276 5,895 (17.9) 3.7
- ----------------------------------------------------------------------------------------------------------------------------------
Total Electric 14,543 9,665 24,208 15,057 9,898 24,955 (3.4)% (2.4)%
- ----------------------------------------------------------------------------------------------------------------------------------
Energy Supply (millions of kWh)
Generated - steam 7,950 5,032 12,982 7,886 5,096 12,982
nuclear 5,933 1,658 7,591 5,915 1,697 7,612
hydro 208 - 208 254 - 254
combustion turbines/combined cycle 323 1,395 1,718 286 1,446 1,732
Purchased 762 2,171 2,933 1,262 2,184 3,446
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Total Energy Supply (Company Share) 15,176 10,256 25,432 15,603 10,423 26,026
- ----------------------------------------------------------------------------------------------------------------------------------
Impact of Weather to Normal on Retail Sales
Heating Degree Days - Actual 1,845 364 1,775 461 3.9 % (21.0)%
- Normal 1,656 372 1,658 372
Cooling Degree Days - Actual 10 0 10 69 - % (100.0)%
- Normal 13 28 11 28
Impact of retail weather to normal on EPS $ 0.05 ($ 0.01) $ 0.04 $ 0.03 $ 0.02 $ 0.05
- ----------------------------------------------------------------------------------------------------------------------------------
S-1
Progress Energy, Inc.
SUPPLEMENTAL DATA - Page S-2
Unaudited
- -----------------------------------------------------------------------------------------
Financial Statistics March 31
2004 2003
- -----------------------------------------------------------------------------------------
Return on average common stock equity (12 months ended) 9.3 % 9.4 %
Book value per common share $ 30.81 $ 29.20
Capitalization
Common stock equity 41.0 % 38.3 %
Preferred stock of subsidiary- redemption not required 0.5 0.5
Total debt 58.5 61.2
- -----------------------------------------------------------------------------------------
Total Capitalization 100.0 % 100.0 %
- -----------------------------------------------------------------------------------------
1st Quarter 2003 Earnings Impact of Cumulative Service Company Reallocation
Adjustment
($ in millions)
- -------------------------------------------------------------------------------
2001-2002 2001-2002
Retroactive Retroactive
Reallocation Reallocation
Line of Business (pre-tax) (after-tax)
- -------------------------------------------------------------------------------
Progress Energy Carolinas $ 16 $ 10
Progress Energy Florida 2 1
Progress Fuels (6) (4)
Competitive Commercial Operations (3) (2)
Holding Company (5) (3)
Progress Rail (5) (3)
Progress Telecom 1 1
- -------------------------------------------------------------------------------
Total $ 0 $ 0
- -------------------------------------------------------------------------------
The SEC completed its initial audit of Progress Energy Service Company's cost
allocation process in March 2003. The SEC routinely audits new holding company
systems within the first two years of their formation. As a result of this
audit, the SEC directed the company to change its allocation methodology for
assigning service company costs to Progress Energy's subsidiaries. Upon
completion of the audit, Progress Energy changed its allocation methodology and
recorded reallocation adjustments to reflect this new method. These reallocation
adjustments were recorded in the first quarter of 2003 and include a cumulative
adjustment for years 2001 and 2002. These retroactive reallocation entries had
no impact on consolidated earnings.
S-2
Progress Energy, Inc.
SUPPLEMENTAL DATA - Page S-3
Unaudited
2003 Quarterly Restatement of Subsidiary Reporting Period Change
Beginning in the fourth quarter of 2003, the Company ceased recording portions
of the Progress Fuels' segment operations, primarily synthetic fuel facilities,
one month in arrears. As a result, earnings for the year ended December 31, 2003
included 13 months of these operations, resulting in a net income increase of $2
million for the year. The Company restated previously reported consolidated
quarterly earnings to reflect the new reporting periods, resulting in four
months of earnings in the restated first quarter 2003 net income. The resulting
impact for each quarter is outlined in the tables below.
2003
----------------------------------------------------------
Q1 Q2 Q3 Q4 Total
- --------------------------------------------------------------------------------------------------------------
Published Quarterly Ongoing earnings $184 $157 $306 $197 $844
Adjustment for Subsidiary Reporting Period Change 11 4 (1) (14) -
- --------------------------------------------------------------------------------------------------------------
Restated Quarterly Ongoing earnings $195 $161 $305 $183 $844
2003
----------------------------------------------------------
Q1 Q2 Q3 Q4 Total
- --------------------------------------------------------------------------------------------------------------
Reported Quarterly GAAP net income $208 $153 $319 $102 $782
Adjustment for Subsidiary Reporting Period Change 11 4 (1) (14) -
- --------------------------------------------------------------------------------------------------------------
Restated Reported Quarterly GAAP Net Income $219 $157 $318 $88 $782
Reconciliation of Restated Quarterly Ongoing earnings to Restated Quarterly
Reported GAAP net income:
2003
----------------------------------------------------------
Q1 Q2 Q3 Q4 Total
- --------------------------------------------------------------------------------------------------------------
Ongoing Earnings $195 $161 $305 $183 $844
CVO mark-to-market* 2 (2) (5) (4) (9)
NCNG discontinued operations* 11 3 (18) (4) (8)
Cumulative effect of accounting changes* 1 - - (22) (21)
Impairments and one-time charges* - - - (24) (24)
Intraperiod tax allocation* 10 (5) 36 (41) -
- --------------------------------------------------------------------------------------------------------------
Reported GAAP net income $219 $157 $318 $88 $782
* See explanation for ongoing earnings adjustments under the caption "Ongoing
Earnings Adjustments" in the text of the press release.
S-3
Progress Energy, Inc.
SUPPLEMENTAL DATA - Page S-4
Unaudited
Progress Energy, Inc.
Earnings Variances
First Quarter 2004 vs 2003
Regulated Utilities
-------------------
Corporate and
Progress Other
($ per share) Carolinas Florida Fuels CCO Businesses Consolidated
- ----------------------------------------------------------------------------------------------------------------------------
2003 GAAP earnings 0.57 0.30 0.16 0.04 (0.13) 0.94
Intraperiod tax allocation (0.04) A (0.04)
CVOs (0.01) B (0.01)
NCNG discontinued operations (0.05) C (0.05)
- -------------------------------------------------------------------------------------------------------------------------
2003 ongoing earnings 0.57 0.30 0.16 0.04 (0.23) 0.84
- -------------------------------------------------------------------------------------------------------------------------
Weather - retail 0.03 (0.03) 0.00
Other retail - growth and usage 0.02 0.02
Wholesale (0.08) D (0.08)
Retail revenue sharing (0.01) E (0.01)
Other margin 0.02 F 0.02
O&M (0.01) (0.05) G (0.06)
Service Company reallocation prior years (0.04) 0.01 0.01 0.02 H 0.00
Utility depreciation and amortization 0.03 (0.01) I 0.02
Other (0.03) (0.01) J (0.04)
Interest charges (0.02) (0.02) K (0.04)
Net diversified business 0.02 (0.06) 0.03 L, M, N (0.01)
Share dilution (0.02) (0.01) 0.01 O (0.02)
- -------------------------------------------------------------------------------------------------------------------------
2004 ongoing earnings 0.47 0.20 0.19 (0.03) (0.19) 0.64
- -------------------------------------------------------------------------------------------------------------------------
Intraperiod tax allocation (0.16) A (0.16)
CVOs (0.03) B (0.03)
- -------------------------------------------------------------------------------------------------------------------------
2004 GAAP earnings 0.47 0.20 0.19 (0.03) (0.38) 0.45
- -------------------------------------------------------------------------------------------------------------------------
Corporate and Other Businesses includes Progress Telecom, Progress Rail, other
small subsidiaries, Holding Company interest expense, CVO mark-to-market,
intra-period tax allocations, purchase accounting transactions and corporate
eliminations.
A- Intra-period income tax allocation impact, related to cyclical nature of
energy demand/earnings and timing of synthetic fuel tax credits.
B- Impact of change in market value of outstanding CVOs.
C- Sale of NCNG to Piedmont Natural Gas which was finalized on September 30,
2003.
D- Carolinas - Wholesale decrease driven by sales to other utilities as
favorable weather in Northeast United States in 2003 led to increased
off-system sales.
E- Florida - Revenue sharing accrual for 2004 and true-up for 2003 revenue
sharing.
F- Florida - Primarily return on investment on Hines 2 which was placed in
service in December 2003.
G- Florida - Higher O&M due to increased spending for scheduled plant outages
and planned reliability improvements.
H- Reallocation of Service Company costs (retroactive component for 2001 and
2002) in accordance with SEC PUHCA audit in Q1 2003.
I- Carolinas - Reduced depreciation expense due primarily to lower rates based
on depreciation study filed in 2004 and lower clean air amortization.
J- Carolinas - Increase in other costs due primarily to write-off of a
non-trade receivable.
K- Progress Ventures and Corporate and Other Businesses - Interest is no
longer capitalized related to construction at nonregulated generating
plants.
L- Progress Fuels - Primarily due to favorable gas results which include a
full quarter of North Texas Gas volumes in the current year and the impact
of higher gas prices.
M- CCO - Decrease due to: 1) mark-to-market losses on a contract, 2) increased
depreciation and amortization charges and fixed costs as a result of
additional plants being placed in service, and 3) receipt of a termination
payment for a tolling contract received in Q1 2003. These items were
partially offset by favorable margins on several supply contracts.
N- Corporate and Other Businesses - Favorability is attributable primarily to
increased margins at Rail due to increased recycling sales.
O- Primarily due to the impact of issuances under Investor Plus and Employee
Benefit programs.
S-4