UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 11-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the plan year ended December 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to .
------ ------
Commission file number 1-15929
THE PROGRESS ENERGY 401(k)
SAVINGS & STOCK OWNERSHIP PLAN
Full title plan and the address of the
plan, if different from that of the issuer named below
PROGRESS ENERGY, INC.
(a North Carolina corporation)
410 South Wilmington Street, Raleigh, North Carolina 27601-1748
Name of issuer of the securities held pursuant to the
plan and address of its principal executive office
PROGRESS ENERGY 401(k) SAVINGS
& STOCK OWNERSHIP PLAN
TABLE OF CONTENTS
PAGE
Independent Auditors' Report ............................................3
Statement of Net Assets Available for Benefits, December 31, 2003........4
Statement of Changes in Net Assets Available for Benefits
For the Year Ended December 31, 2003................................5
Statement of Net Assets Available for Benefits, December 31, 2002........6
Statement of Changes in Net Assets Available for Benefits
For the Year Ended December 31, 2002................................7
Notes to Financial Statements.........................................8-13
Schedule H, line 4i - Schedule of Assets (Held at End of Year)
As of December 31, 2003............................................14
Schedule H, line 4j - Schedule of Reportable Transactions
For the Year Ended December 31, 2003...............................15
2
The Progress Energy 401(k) Savings & Stock Ownership Plan
We have audited the accompanying statements of net assets available for benefits
of the Progress Energy 401(k) Savings & Stock Ownership Plan (the "Plan") as of
December 31, 2003 and 2002, and the related statements of changes in net assets
available for benefits for the years then ended. These financial statements are
the responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the net assets available for benefits of the Plan at December 31, 2003
and 2002, and the changes in net assets available for benefits for the years
then ended in conformity with accounting principles generally accepted in the
United States of America.
/s/ DELOITTE & TOUCHE LLP
June 4, 2004
3
PROGRESS ENERGY 401(K) SAVINGS
& STOCK OWNERSHIP PLAN
Statement of Net Assets Available for Benefits
December 31, 2003
SUPPLEMENTAL INFORMATION
------------------------------------------------------------------------------------
ESOP COMMON STOCK PARTICIPANT
UNALLOCATED ALLOCATED TO PARTICIPANTS' DIRECTED
TOTAL PLAN TO PARTICIPANTS PARTICIPANTS LOANS INVESTMENTS
------------------------------------------------------------------------------------
ASSETS
Investments:
Progress Energy, Inc. Common Stock Fund $ 775,960,387 $ 182,552,227 $ 593,408,160 $ - $ -
Putnam New Opportunities Fund 58,481,379 - - - 58,481,379
American EuroPacific Growth Fund 24,574,291 - - - 24,574,291
Putnam Investors Large-Cap Growth Fund 24,799,130 - - - 24,799,130
Vanguard S&P 500 Index Fund 76,983,739 - - - 76,983,739
Vanguard Retirement Savings Trust 130,703,777 - - - 130,703,777
PIMCO Total Return Bond Fund 41,276,945 - - - 41,276,945
Fidelity Equity Income Fund 68,847,355 - - - 68,847,355
Fidelity Freedom Income Fund 2,466,000 - - - 2,466,000
Fidelity Freedom 2000 Fund 4,563,003 - - - 4,563,003
Fidelity Freedom 2010 Fund 16,135,136 - - - 16,135,136
Fidelity Freedom 2020 Fund 12,849,696 - - - 12,849,696
Fidelity Freedom 2030 Fund 20,959,682 - - - 20,959,682
Fidelity Freedom 2040 Fund 9,957,284 - - - 9,957,284
Progress Energy, Inc., Contingent
Value Obligations 106,842 - - - 106,842
Liberty Acorn Fund 34,770,226 - - - 34,770,226
Participants' Loans Receivable 37,573,359 - - 37,573,359 -
------------------------------------------------------------------------------------
Total Investments 1,341,008,231 182,552,227 593,408,160 37,573,359 527,474,485
Dividends/Capital Gains/Interest Receivable 10,307,697 2,319,212 7,538,880 - 449,605
Employer Contributions Receivable 14,789,327 - 14,789,327 - -
Cash and Cash Equivalents 4,408,830 - 4,408,830 - -
------------------------------------------------------------------------------------
Total Assets 1,370,514,085 184,871,439 620,145,197 37,573,359 527,924,090
------------------------------------------------------------------------------------
LIABILITIES
ESOP Loan Payable 111,801,184 111,801,184 - - -
Participants' Loans Payable 5,576,708 - - 5,576,708 -
Interest Payable - ESOP Loan 1,118,012 1,118,012 - - -
------------------------------------------------------------------------------------
Total Liabilities 118,495,904 112,919,196 - 5,576,708 -
------------------------------------------------------------------------------------
NET ASSETS AVAILABLE FOR BENEFITS $ 1,252,018,181 $ 71,952,243 $ 620,145,197 $ 31,996,651 $ 527,924,090
====================================================================================
See Notes to Financial Statements.
4
PROGRESS ENERGY 401(K) SAVINGS
& STOCK OWNERSHIP PLAN
Statement of Changes in Net Assets Available for Benefits
For the Year Ended December 31, 2003
SUPPLEMENTAL INFORMATION
--------------------------------------------------------------------------------------
ESOP COMMON STOCK PARTICIPANT
UNALLOCATED ALLOCATED TO PARTICIPANTS' DIRECTED
TOTAL PLAN TO PARTICIPANTS PARTICIPANTS LOANS INVESTMENTS
--------------------------------------------------------------------------------------
ADDITIONS TO NET ASSETS
Investment Income:
Dividends/Capital Gains $ 52,735,546 $ 9,142,560 $ 30,537,049 $ - $ 13,055,937
Net Appreciation in Fair Value 107,103,052 5,687,193 34,113,866 - 67,301,993
Interest 2,601,930 - 814,490 1,199,422 588,018
Contributions:
Employer 28,317,113 10,456,516 17,860,597 - -
Participants 52,042,760 - 19,952,270 - 32,090,490
--------------------------------------------------------------------------------------
Total Additions to Net Assets 242,800,401 25,286,269 103,278,272 1,199,422 113,036,438
--------------------------------------------------------------------------------------
DEDUCTIONS FROM NET ASSETS
Interest Expense 7,300,548 7,060,263 - 240,285 -
Allocation of Shares 23,255,660 23,255,660 - - -
Distribution of Benefits 61,338,580 - 30,055,965 1,656,304 29,626,311
Administrative Expense 204,592 - - 204,592 -
--------------------------------------------------------------------------------------
Total Deductions from Net Assets 92,099,380 30,315,923 30,055,965 2,101,181 29,626,311
--------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 150,701,021 (5,029,654) 73,222,307 (901,759) 83,410,127
LOAN ISSUANCES/REPAYMENTS - - (5,058,451) 7,053,665 (1,995,214)
NET TRANSFERS AMONG INVESTMENT
OPTIONS - - (60,758,617) (164,953) 60,923,570
NET ASSETS - DECEMBER 31, 2002 1,101,317,160 76,981,897 612,739,958 26,009,698 385,585,607
--------------------------------------------------------------------------------------
NET ASSETS - DECEMBER 31, 2003 $ 1,252,018,181 $ 71,952,243 $ 620,145,197 $ 31,996,651 $ 527,924,090
======================================================================================
See Notes to Financial Statements.
5
PROGRESS ENERGY 401(K) SAVINGS
& STOCK OWNERSHIP PLAN
Statement of Net Assets Available for Benefits
December 31, 2002
SUPPLEMENTAL INFORMATION
-------------------------------------------------------------------------------------
ESOP COMMON STOCK PARTICIPANT
UNALLOCATED ALLOCATED TO PARTICIPANTS' DIRECTED
TOTAL PLAN TO PARTICIPANTS PARTICIPANTS LOANS INVESTMENTS
-------------------------------------------------------------------------------------
ASSETS
Investments:
Progress Energy, Inc. Common Stock Fund $ 787,699,108 $ 200,120,940 $ 587,578,168 $ - $ -
Putnam New Opportunities Fund 39,557,732 - - - 39,557,732
American EuroPacific Growth Fund 16,007,474 - - - 16,007,474
Putnam Investors Large-Cap Growth Fund 10,009,009 - - - 10,009,009
Vanguard S&P 500 Index Fund 56,120,460 - - - 56,120,460
Vanguard Retirement Savings Trust 119,838,235 - - - 119,838,235
PIMCO Total Return Bond Fund 44,417,517 - - - 44,417,517
Fidelity Equity Income Fund 52,124,297 - - - 52,124,297
Fidelity Freedom Income Fund 1,826,929 - - - 1,826,929
Fidelity Freedom 2000 Fund 4,837,484 - - - 4,837,484
Fidelity Freedom 2010 Fund 9,027,142 - - - 9,027,142
Fidelity Freedom 2020 Fund 8,416,274 - - - 8,416,274
Fidelity Freedom 2030 Fund 16,559,378 - - - 16,559,378
Fidelity Freedom 2040 Fund 6,296,602 - - - 6,296,602
Progress Energy, Inc., Contingent
Value Obligations 76,132 - - - 76,132
Participants' Loans Receivable 36,813,759 - - 36,813,759 -
-------------------------------------------------------------------------------------
Total Investments 1,209,627,532 200,120,940 587,578,168 36,813,759 385,114,665
Dividends/Capital Gains/Interest Receivable 10,646,525 2,585,184 7,590,399 - 470,942
Employer Contributions Receivable 12,632,451 - 12,632,451 - -
Cash and Cash Equivalents 4,938,940 - 4,938,940 - -
-------------------------------------------------------------------------------------
Total Assets 1,237,845,448 202,706,124 612,739,958 36,813,759 385,585,607
-------------------------------------------------------------------------------------
LIABILITIES
ESOP Loan Payable 124,479,433 124,479,433 - - -
Participants' Loans Payable 10,804,061 - - 10,804,061 -
Interest Payable - ESOP Loan 1,244,794 1,244,794 - - -
-------------------------------------------------------------------------------------
Total Liabilities 136,528,288 125,724,227 - 10,804,061 -
-------------------------------------------------------------------------------------
NET ASSETS AVAILABLE FOR BENEFITS $ 1,101,317,160 $ 76,981,897 $ 612,739,958 $ 26,009,698 $ 385,585,607
=====================================================================================
See Notes to Financial Statements.
6
PROGRESS ENERGY 401(K) SAVINGS
& STOCK OWNERSHIP PLAN
Statement of Changes in Net Assets Available for Benefits
For the Year Ended December 31, 2002
SUPPLEMENTAL INFORMATION
--------------------------------------------------------------------------------------
ESOP COMMON STOCK PARTICIPANT
UNALLOCATED ALLOCATED TO PARTICIPANTS' DIRECTED
TOTAL PLAN TO PARTICIPANTS PARTICIPANTS LOANS INVESTMENTS
--------------------------------------------------------------------------------------
ADDITIONS TO NET ASSETS
Investment Income:
Dividends/Capital Gains $ 51,217,158 $ 10,355,607 $ 29,531,251 $ - $ 11,330,300
Interest 2,074,054 - 659,867 900,557 513,630
Contributions:
Employer 28,192,871 9,273,815 18,919,056 - -
Participants 52,127,720 - 19,490,614 - 32,637,106
--------------------------------------------------------------------------------------
Total Additions to Net Assets 133,611,803 19,629,422 68,600,788 900,557 44,481,036
--------------------------------------------------------------------------------------
DEDUCTIONS FROM NET ASSETS
Net Depreciation in Fair Value 89,396,558 6,517,377 17,457,573 - 65,421,608
Interest Expense 8,413,778 7,800,595 - 613,183 -
Allocation of Shares 27,502,736 27,502,736 - - -
Distribution of Benefits 48,323,683 - 28,339,656 236,779 19,747,248
Administrative Expense 372,963 - 407 287,375 85,181
--------------------------------------------------------------------------------------
Total Deductions from Net Assets 174,009,718 41,820,708 45,797,636 1,137,337 85,254,037
--------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (40,397,915) (22,191,286) 22,803,152 (236,780) (40,773,001)
LOAN ISSUANCES/REPAYMENTS - - (15,528,684) 19,747,104 (4,218,420)
NET TRANSFERS AMONG INVESTMENT
OPTIONS - - (77,707,671) - 77,707,671
NET ASSETS - DECEMBER 31, 2001 1,141,715,075 99,173,183 683,173,161 6,499,374 352,869,357
--------------------------------------------------------------------------------------
NET ASSETS - DECEMBER 31, 2002 $ 1,101,317,160 $ 76,981,897 $ 612,739,958 $ 26,009,698 $ 385,585,607
======================================================================================
See Notes to Financial Statements.
7
PROGRESS ENERGY 401(k) SAVINGS
& STOCK OWNERSHIP PLAN
Notes to Financial Statements
Periods Ended December 31, 2003 and 2002
1. DESCRIPTION OF THE PLAN
General Information Regarding the Plan
The Progress Energy 401(k) Savings & Stock Ownership Plan (the "Plan") is a
defined contribution plan and subject to the provisions of the Employee
Retirement Income Security Act (ERISA). The purposes of the Plan are to
encourage systematic savings by employees and to provide employees with a
convenient method of acquiring an equity interest in the Company and other
investments. The notes which follow provide a high level summary of Plan
features. The Plan Document, Summary Plan Description, and Prospectus for the
Plan should be consulted for Plan details and limitations.
Effective January 1, 2002 the Plan changed its name from the Stock
Purchase-Savings Plan of Progress Energy, Inc. to the Progress Energy 401(k)
Savings & Stock Ownership Plan.
Effective January 1, 2003, CP&L, Florida Power Corporation and Progress
Ventures, Inc. began doing business under the assumed names Progress Energy
Carolinas, Inc. (PEC), Progress Energy Florida, Inc. (PEF), and Progress Energy
Ventures, Inc. (Progress Ventures), respectively. The legal names of these
entities have not changed, and there is no restructuring of any kind related to
the name change.
On September 30, 2003, Progress Energy (the "Company") completed the sale of
North Carolina Natural Gas Corporation (NCNG) and the Company's equity
investment in Eastern North Carolina Natural Gas (ENCNG) to Piedmont Natural Gas
Company, Inc. Effective September 30, 2003, NCNG was no longer eligible to
participate in the Plan.
In December 2003, Progress Telecommunications (PTC), through its subsidiary
Progress Telecom LLC (PTC LLC) entered into a transaction with EPIK
Communications, Inc. (EPIK), which was accounted for as a partial acquisition of
EPIK. Effective December 19, 2003 (the PTC LLC/EPIK merger date), PTC was no
longer eligible to participate in the Plan.
Participation in the Plan
Generally, individuals classified as non-bargaining regular, full-time,
part-time or temporary employees of PEC, PEF, Progress Energy Service Company,
Progress Ventures, and corporate employees of Progress Fuels Corporation (the
"Participating Companies"), are eligible to participate in the Plan on their
first day of employment. Only persons treated as employees of the Participating
Companies for federal tax purposes may participate in the Plan. Independent
contractors, leased employees and contract employees are not eligible. Full-time
employees are eligible for the Company match allocations as soon as
participation in the plan begins. Part-time and temporary employees are eligible
for the Company match allocations after six months of continuous credited
service or 1,000 hours of service in a 12-month period. If employees wish to
participate in the Plan, they must elect to do so and must specify their level
of savings and how their savings should be allocated among the Plan's investment
options.
NCNG employees were eligible to participate through September 30, 2003 and
employees of PTC were eligible to participate through December 19, 2003. As of
the respective effective dates, the NCNG and PTC employees became terminated
participants in the Plan and were offered an election to have their account
balances in the Plan rolled over to their new employer's plan. The employees in
both companies were allowed, if they chose, to leave their account balances in
the Plan under the terminated participants provisions of the Plan. NCNG
participants were offered distribution options in accordance with the terms of
the Plan.
8
Retired participants and former eligible employees of the Participating
Companies, who are currently ineligible to participate, may retain investments
in the Plan but may not continue to make contributions. Account balances valued
at $5,000 or less at termination will be automatically distributed to the
participant as a lump sum.
Employee Contributions Under the Plan
Employees who have earnings equal to or less than a certain level ($90,000 for
2003 and 2002) may contribute up to 25%, in increments of 1%, of their annual
eligible base salary earnings (the "Deferred Contribution"). Employees with
earnings above this level may contribute up to 18% of their eligible base salary
earnings. These contributions reduce, in like amount, the employee's earnings
subject to income tax for that year. An employee's total before-tax
contributions were limited to $12,000 for 2003 and $11,000 for 2002.
Participating employees may also elect to contribute an additional amount on an
after-tax basis. Employees who have earnings equal to or less than a specified
level ($90,000 for 2003 and 2002) may elect to contribute an after-tax amount up
to 25%, in increments of 1%, of their eligible base salary earnings. Employees
with earnings above this level may contribute an after-tax amount up to 18% of
their eligible base salary earnings. In no event may the before-tax
contributions plus the after-tax contributions exceed a total of 25% or 18%,
respectively, of annual eligible base salary earnings during 2003 or 2002.
Company Contributions Under the Plan
At the time employee contributions are made, the Company's matching allocations
are made to the Plan in an amount (the "Automatic Company-match") equal to 50%
of the first 6% of each employee's before- or after-tax contributions on a pay
period by pay period basis. All Company matching allocations and any earnings on
securities purchased with these allocations are invested in common stock of the
Company. Beginning January 3, 2003, participants may reallocate the company
match allocation from the Company Stock Fund to any of the other investment
options at any time.
The Plan also has an incentive feature (the "Employee Stock Incentive Plan
Match") which provides for additional Company matching allocations to be made to
the Plan on behalf of each eligible employee when at least five out of ten of
the Company and business unit strategic goals set by senior management are met.
Employees eligible to participate in the Plan are generally eligible for these
additional Company matching allocations. Those eligible employees with more than
one year of service who do not contribute at least 2% before tax to the Plan
are, for the purpose of determining the Employee Stock Incentive Plan Match,
assumed to have made a before-tax contribution of 2% to the Plan. The Company
made Employee Stock Incentive Plan matching allocations of approximately $14.8
million for the Plan year ended December 31, 2003 and approximately $12.6
million for the Plan year ended December 31, 2002.
Employees are 100 percent vested in the contributions they have made to the
Plan, the investment earnings credited on such contributions, and the dividends
from the Company matching allocations. Upon attaining one year of service with
the Company, employees are 100 percent vested in all Company matching
allocations that have been allocated to their accounts.
Employee Stock Ownership Plan
In 1989, the Plan was restated as an Employee Stock Ownership Plan, which allows
the Plan to enter into acquisition loans ("ESOP Loans") for the purpose of
acquiring Company common stock. Common stock acquired with the proceeds of an
ESOP Loan is held by the Trustee in a suspense account ("ESOP Stock Suspense
Account"). Such common stock is released from the ESOP Stock Suspense Account
and made available for allocation to the accounts of participants as the ESOP
Loan is repaid as specified by provisions of the Internal Revenue Code.
9
ESOP Loan payments are made quarterly and may be funded by dividends on stock
held in the ESOP Stock Suspense Account, dividends on Company stock held in the
Progress Energy, Inc. Common Stock Fund, Company contributions or the proceeds
of stock sold from the ESOP Stock Suspense Account.
In October 1989, the Trustee purchased 13,636,362 shares of common stock (as
restated for the two-for-one stock split in February 1993) from the Company for
an aggregate purchase price of approximately $300 million. The purchase was
financed with a long-term ESOP Loan from the Company, bearing a 6% interest
rate. Prepayment of the loan without a penalty is allowed. Excluding the effects
of any future prepayments, required payments, including principal and interest,
are $19,865,293 for each of the years 2004 through 2008 and a total of
$38,111,651 from 2009 through 2010. The ESOP Stock Suspense Account shares in
the Plan, which totaled 4,033,412 shares at December 31, 2003, are pledged as
collateral for the ESOP Loan. During the 2003 and 2002 Plan years, 582,988 ESOP
shares were released from the ESOP Stock Suspense Account and allocated to
participants.
Progress Energy, Inc. Common Stock Fund
The Progress Energy, Inc. Common Stock Fund is partially funded through the
release of shares from the ESOP Stock Suspense Account. The price at which such
released shares are allocated to Plan participants is the closing price per
share on the payroll date. In addition, the Progress Energy, Inc. Common Stock
Fund may use available cash from contributions and dividends to purchase
Progress Energy, Inc. common stock on the open market or otherwise, including
purchases from the Company of authorized but unissued shares of common stock.
The purchase price of shares of common stock acquired on the open market for
employee accounts will be the weighted average price of all shares purchased
under the Plan during the applicable Investment Period which is generally one
pay period, running from the payroll date that deductions are taken to the date
before the following payroll date. If funds to be invested in Company common
stock are used to purchase authorized but unissued common stock directly from
the Company, the purchase price on the date of purchase will be the prior day's
volume weighted average price of common shares of the Company traded on the New
York Stock Exchange. No brokerage commission or other charges shall be deducted.
The Progress Energy, Inc. Common Stock Fund is accounted for on a unitized
accounting basis. This changeover required a conversion of a small portion of
this fund into a cash reserve in order to provide the liquidity necessary to
process daily fund transactions by the close of market each business day. The
cash reserve generally represents between one and three percent of the total
fund value, and varies depending upon account activity. The reserve may consist
of cash or cash equivalents. As of December 31, 2003 and December 31, 2002, the
reserve totaled approximately $4.4 million and $4.9 million, respectively.
Investment of Funds
At the election of the participating employee, contributions made by the
employee and any earnings on the securities purchased with these contributions
are invested in the investment options listed on the Statement of Net Assets
Available for Benefits. Employee contributions to the Plan may be allocated to
one or more of the investment options in increments of 1%. This election is made
at the time the employee begins to participate in the Plan. The election may be
changed upon request and is generally effective by the following pay period. A
participant may transfer current fund balances among the Plan options without
any limitations. All Company matching allocations will be invested in common
stock of the Company. Beginning in 2002, employees may elect to receive Company
common stock dividends in cash (subject to income tax). Effective July 1, 2002,
all participants will immediately vest in all dividends generated from Company
common stock, including dividends on Company match allocations, without regard
to length of service.
10
Contingent Value Obligations
Pursuant to the acquisition of Florida Progress Corporation by the Company
during 2000, participants of the Savings Plan for Employees of Florida Progress
Corporation with investments in the Florida Progress Stock Fund were given the
option of either cashing in their investments or exchanging their existing
Florida Progress Stock Fund shares for shares of the Progress Energy Common
Stock Fund and cash. In addition, Florida Progress Stock Fund shareholders
received shares of the Contingent Value Obligation Fund (the "CVO Fund") which
were transferred into the Plan effective December 31, 2001. The CVO Fund invests
in contingent value obligations, each of which represents the right to receive
contingent payments based on the performance of four synthetic fuel facilities
owned by the Company. While the Plan does not allow additional contributions to
the CVO Fund, participants are permitted to liquidate and reinvest the proceeds
of all or a portion of their account balance as desired.
Retirement, Death, or Termination of Employment
Participants with one or more years of service with the Participating Companies
are vested with respect to all Company matching allocations. Generally,
participants leaving the employ of the Company with less than one year of
service forfeit non-vested Company matching allocations and reinvested earnings
on those allocations. In the case of an employee's death, retirement or
termination of employment with at least one year of service with the Company,
all employee and Company matching allocations, including those otherwise
non-vested, become payable upon request by the employee, the employee's estate
or other appropriate recipients. Forfeited matching allocations are used by the
Plan to reduce future matching allocations otherwise required from the Company.
These forfeited matching allocations and associated reinvested earnings were
$48,036 in 2003 and $391,698 in 2002.
Withdrawals
Participants may withdraw certain funds while employed at the Participating
Companies. Such withdrawals will be applied to the participant's account based
on the fund withdrawal hierarchy prescribed by the Plan (participants cannot
direct that the withdrawal be applied to a specific fund). Employees may
withdraw matured-company match funds before age 59 & 1/2, subject to a penalty.
Employees also may withdraw after-tax contributions and any earnings on such
funds. The earnings on after-tax funds are subject to a penalty. In general,
withdrawals of before-tax employee contributions and their earnings are not
permitted. Financial hardship withdrawals are permitted when an employee has a
substantial "immediate and heavy" financial need, subject to a penalty. However,
under certain specified circumstances, the IRS will allow limited withdrawals of
before tax contributions without penalty. Once reaching age 59 & 1/2, employees
may make a withdrawal of before-tax contributions without having to meet the
hardship requirements.
Loans
Participants are allowed to borrow against their accounts while continuing to
defer taxes on the amount of the loan. The tax deferral is preserved as long as
the principal and interest on the loan are repaid as due. The loan amount is
taken on a pro-rata basis across the investment funds in which the participant
has a balance. The minimum loan available is $500. Only two loans can be
outstanding at any time. The maximum is 50 percent of the participant's account
balance or $50,000, whichever is smaller. Loans are available in increments of
$100 only. For active employees, loan repayment is made through automatic
payroll deduction of after-tax dollars. Loans from the Plan must be repaid
within five years or when employment is terminated, whichever happens first.
Prior to 2002, the loans were funded with a borrowing arrangement by the Plan
with an outside lending institution (former loan plan). All loans prior to 2002
are being repaid under the former loan plan; however, no new loans are being
issued under the former plan. Under the current loan plan, loans are funded
directly from the employees' account, reducing the account balance.
The interest rate for loans is determined periodically by the Plan's Committee,
and is set at a reasonable amount in accordance with IRS regulations. The
interest rate charged is different for loans under the former loan plan and
loans from participant accounts. The interest rate on loans issued since 2002
under the current loan plan is the prime rate and is fixed for the life of the
loan. Loans outstanding under the former loan plan are subject to a variable
rate and bear interest at the prime rate plus one-half percent. The prime rate
ranged from 4.00% to 4.25% in 2003 and from 4.25% to 4.75% in 2002. Interest
rates on loans issued ranged from 4.50% to 5.25% during 2003 and 4.8% to 6.5%
during 2002.
11
The borrowings from the outside lender to fund the former loan plan bear
interest at the One-month London InterBank Offering Rate (LIBOR). For 2003 and
2002, the LIBOR averaged 1.30% and 1.77%.
Federal Income Taxes
The Plan was amended in 2001 to comply with the qualification requirements of
the Uruguay Round Agreements Act ("GATT"), the Small Business Job Protection Act
of 1986 (including the Uniformed Services Employment and Reemployment Rights Act
of 1994), the Taxpayer Relief Act of 1997, the Restructuring and Reform Act of
1998 and the Community Renewal Tax Relief Act of 2000 (collectively "Gust II").
The Plan obtained its latest determination letter on July 23, 2002, in which the
Internal Revenue Service stated that the Plan and Trust, as then designed, was
in compliance with the applicable requirements of the Internal Revenue Code. The
Plan has been amended since receiving the determination letter. However, the
Plan Administrator believes that the Plan is currently designed and being
operated in compliance with the applicable requirements of the Internal Revenue
Code. Therefore, it is believed that the Plan was qualified and the related
trust was tax-exempt as of the financial statement date. As such, no provision
for income taxes has been included in the Plan's financial statements.
Termination of the Plan
The Company has reserved the right to amend, modify, suspend or terminate the
Plan at any time, except that no such action will have a retroactive effect and
none of the assets of the Plan will revert to the Company or be used for any
purpose other than the exclusive benefit of the participating employees,
provided that, in the event of Plan termination, shares of Company common stock
not allocated to participants' accounts may be sold to repay the ESOP Loans. In
the event of termination of the Plan, all contributions of the participants and
of the Company through the date of termination will be vested.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements are prepared on the accrual basis of
accounting. Dividends, interest and other income are recognized as earned, and
expenses are accrued as incurred. Benefits are recorded when paid.
The expenses incurred by State Street Bank & Trust Company, N.A. (the "Trustee")
and ADP, Inc., the third-party administrator, in the administration of the Plan
may be paid from assets of the Plan to the extent not paid by Progress Energy,
Inc. (the "Company").
Cash and cash equivalents include funds invested in the Trustee's Short Term
Investment Fund (STIF) which is a money market fund (see Note 3).
The Plan's investments are stated at fair value (see Note 3). Quoted market
prices are used to value investments. Shares of mutual funds are valued at the
net asset value of shares held by the Plan at year end. Participant loans are
valued at their outstanding balances, which approximate fair value.
Purchases and sales of securities are recorded on a trade-date basis. Dividends
are recorded on the ex-dividend date.The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets,
liabilities, and changes therein, and disclosure of contingent assets and
liabilities. Actual results could differ from those estimates.
12
3. INVESTMENTS
The Plan's investments are held in trust by the Trustee. The following table
summarized the Plan's investments that represent 5% or more of the Plan's net
assets available for benefits:
2003 2002
Fidelity Equity Income Fund,
1,383,866 shares and 1,313,947 shares, respectively $ 68,847,355 $ 52,124,297
Vanguard Retirement Savings Trust,
130,703,777 and 119,838,235 shares, respectively $ 130,703,777 $ 119,838,235
Progress Energy, Inc. Common Stock Fund, *
17,144,507 and 18,170,683 shares, respectively $ 775,960,387 $ 787,699,108
*Nonparticipant-directed
During 2003 and 2002, the Plan's investments (including gains and losses on
investments bought and sold, as well as held during the year) appreciated in
value by $107,103,052 and depreciated in value by $89,396,558, respectively, as
follows:
2003 2002
Progress Energy, Inc. Common Stock $ 39,801,059 $ (23,974,950)
Mutual Funds 67,301,993 (65,421,608)
-------------------------------------
$ 107,103,052 $ (89,396,558)
=====================================
4. RELATED PARTY TRANSACTIONS
Plan investments at end of period include shares of money market funds managed
by State Street Bank, the Trustee as defined by the Plan, and therefore qualify
as party-in-interest transactions.
5. RISKS AND UNCERTAINTIES
The Plan invests in various investment securities. Investment securities are
exposed to various risks such as interest rate, market, and credit risks. Due to
the level of risk associated with certain investment securities, it is at least
reasonably possible that changes in the values of investment securities will
occur in the near term and that such changes could materially affect
participants' account balances and the amounts reported in the statement of net
assets available for benefits.
6. SUBSEQUENT EVENTS
In July 2003, the Company received notice from the Plan's record keeper, ADP,
Inc., that it would no longer provide 401(k) plan recordkeeping services to
large-market clients which includes the Progress Energy 401(k) Savings & Stock
Ownership Plan, effective May 1, 2004. The Company subsequently initiated and
completed a Request For Proposal process to select a new record keeper for the
Plan. Fidelity Investments was selected to be the new record keeper for the
Plan. State Street Bank and Trust Company will continue to provide trustee
services to the Plan.
13
PROGRESS ENERGY 401(K) SAVINGS
& STOCK OWNERSHIP PLAN
Schedule H, line 4i - Schedule of Assets (Held at End of Year)
As of December 31, 2003
- ---------------------------------------------------------------------------------------------------------------------------
Identity of Issue Description of Investment Cost Value Fair Value
- ---------------------------------------------------------------------------------------------------------------------------
Progress Energy, Inc. Common Common stock, no par or
Stock Fund stated value 17,144,507 shares $ 461,170,170 $ 775,960,387 *
Putnam New Opportunities Fund Mutual fund 2,711,237 shares 51,883,979 58,481,379
American EuroPacific Growth Fund Mutual fund 813,718 shares 20,963,319 24,574,291
Putnam Investors Large-Cap Growth Mutual fund 1,009,737 shares 22,183,132 24,799,130
Fund
Vanguard S&P 500 Index Fund Mutual fund 756,374 shares 74,505,182 76,983,739
Vanguard Retirement Savings Trust Mutual Fund 130,703,777 shares 130,703,777 130,703,777
PIMCO Total Return Bond Fund Mutual Fund 3,854,057 shares 41,311,790 41,276,945
Fidelity Equity Income Fund Mutual Fund 1,383,866 shares 60,770,068 68,847,355
Fidelity Freedom Income Fund Mutual Fund 222,362 shares 2,409,941 2,466,000
Fidelity Freedom 2000 Fund Mutual Fund 387,352 shares 4,421,785 4,563,003
Fidelity Freedom 2010 Fund Mutual Fund 1,239,258 shares 15,388,249 16,135,136
Fidelity Freedom 2020 Fund Mutual Fund 986,920 shares 11,962,471 12,849,696
Fidelity Freedom 2030 Fund Mutual Fund 1,618,508 shares 19,851,902 20,959,682
Fidelity Freedom 2040 Fund Mutual Fund 1,317,101 shares 9,261,368 9,957,284
Progress Energy, Inc. Contingent Value
Obligations 19,095 shares 190,487 106,842 *
Liberty Acorn Fund Mutual Fund 1,541,233 shares 30,582,237 34,770,226
Participants' Loans Receivable Loans to plan participants
Maturing through 2008 with interest rates
ranging from 4.0% to 9.5% 37,573,359 37,573,359 *
Total $ 995,133,216 $ 1,341,008,231
============= ================
* Party in interest
14
PROGRESS ENERGY 401(K) SAVINGS
& STOCK OWNERSHIP PLAN
Schedule H, line 4j - Schedule of Reportable Transactions
For the Year Ended December 31, 2003
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses Current Value on
Identity of Party/Description of Asset Purchase Price Selling Price Incurred Cost Value Transaction Date Gain (Loss)
- ----------------------------------------------------------------------------------------------------------------------------------
State Street
Progress Energy, Inc. Common Stock Fund:
- ---------------------------------------------------
141 Purchases $ 175,813,321 $ 175,813,321 $ 175,813,321
253 Sales $ 210,378,705 $ 207,163,556 $ 210,378,705 $ 3,215,149
-------------
394 Transactions $ 386,192,026
=============
15
SIGNATURE
The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934,
the Progress Energy 401(k) Savings & Stock Ownership Plan Administrative
Committee has duly caused this Annual Report to be signed on its behalf by the
undersigned hereunto duly authorized.
PROGRESS ENERGY 401(k) SAVINGS
& STOCK OWNERSHIP PLAN ADMINISTRATIVE COMMITTEE
/s/Brenda F. Castonguay
--------------------------------------------
Brenda F. Castonguay, Chairperson
Progress Energy 401(k) Savings & Stock
Ownership Plan
Administrative Committee
Date: June 15, 2004
16
EXHIBITS INDEX
Exhibit Number
Exhibit No. 23 Consent of Deloitte & Touche LLP
17
Exhibit No. 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-33520 on Form S-8 and Registration Statement No. 333-48164 on Form S-8 of our
report dated June 4, 2004, appearing in this Annual Report on Form 11-K of the
Progress Energy 401(k) Savings & Stock Ownership Plan for the year ended
December 31, 2003.
/s/ DELOITTE & TOUCHE LLP
Raleigh, North Carolina
June 15, 2004
18