Progress Energy Announces Solid Second Quarter Results
Highlights:
- Reports quarterly ongoing earnings of $0.79 per share, GAAP earnings of
$0.63 per share
- Reports year-to-date ongoing earnings of $1.43 per share, GAAP earnings
of $1.08 per share
- Reaffirms 2004 ongoing earnings guidance of $3.50 - $3.65 per share
RALEIGH, N.C. (July 21, 2004) - Progress Energy [NYSE: PGN] today reported
ongoing earnings of $191 million, or $0.79 per share, for the second quarter of
2004 compared with ongoing earnings of $161 million, or $0.68 per share, for the
second quarter of 2003. Reported consolidated net income under generally
accepted accounting principles (GAAP) was $154 million, or $0.63 per share, for
the quarter compared with reported consolidated net income of $157 million, or
$0.66 per share, for the second 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 $0.11 per share increase in ongoing earnings in the
second quarter of 2004 compared to 2003:
o Weather in the Carolinas was favorable compared to last year.
o The retail revenue sharing accrual in Florida was lower primarily due
to an additional refund made in 2003 that was associated with 2002.
o Both utilities had increased retail revenues from customer growth and
usage.
o These three items were partially offset by a decrease in off-system
wholesale sales in the Carolinas.
Ongoing earnings for the six months ended June 30, 2004 were $346 million, or
$1.43 per share, compared with ongoing earnings of $356 million, or $1.52 per
share, for the first half of 2003. Reported GAAP consolidated net income for the
first half of 2004 was $262 million, or $1.08 per share, compared with
consolidated net income of $376 million, or $1.60 per share, for the first half
of 2003.
"Progress Energy's utility operations continue to perform well in our growing
service territories and we are successfully executing our plan for 2004," said
Bob McGehee, chairman, president and CEO, Progress Energy. "In Progress
Ventures, we signed wholesale energy agreements that commit 75 to 80 percent of
our competitive generation portfolio to sales contracts through 2010 and
finalized the sale of a partnership interest in our Colona synthetic fuels
operation. Overall, we achieved solid second quarter results and Progress Energy
remains on track to achieve the goals we have set for our company, including our
2004 ongoing earnings guidance of $3.50 to $3.65 per share."
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
June 30, 2004
- ---------------------------------------------------------------------------------------------------
As Restated As Restated
Q2 2004 Q2 2003* YTD 2004 YTD 2003*
- ---------------------------------------------------------------------------------------------------
Ongoing earnings per share $ 0.79 $ 0.68 $ 1.43 $ 1.52
Intraperiod tax allocation (0.02) (0.02) (0.18) 0.02
CVO mark-to-market (0.02) (0.01) (0.05) --
NCNG discontinued operations -- 0.01 -- 0.06
SRS litigation settlement (0.12) -- (0.12) --
--------------------------------------------------------------
Reported GAAP earnings per share $ 0.63 $ 0.66 $ 1.08 $ 1.60
====== ====== ====== ======
Shares outstanding (millions) 242 236 242 235
- ---------------------------------------------------------------------------------------------------
* Beginning in the fourth quarter of 2003, Progress Energy ceased recording
portions of 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.
The change in Progress Energy's second quarter 2003 and six months ended June
30, 2003 net income was an increase of $4 million and $15 million, respectively.
The reported second quarter 2003 and six months ended June 30, 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
Progress Energy Announced Development in Audit of Synthetic Fuel Tax Credits
On July 7, 2004, Progress Energy announced that Internal Revenue Service (IRS)
field auditors anticipate taking an adverse position regarding the
placed-in-service date of the company's four Earthco synthetic fuel facilities.
Due to the auditors' position, the IRS has decided to withdraw from the
Pre-Filing Agreement (PFA) program with Progress Energy. With the IRS's
withdrawal from the PFA program, the review of Progress Energy's Earthco
facilities is back on the normal procedural audit path of the company's tax
returns. The company anticipates that the field audit team will provide its
written recommendation by the end of this summer. At that point, the company
will have the opportunity to present its case to the appeals section within the
IRS. The company believes that the appeals process could take up to two years to
complete; however, it cannot control the actual timing of resolution. As
previously announced, Progress Energy has no plans to alter its synthetic fuel
production schedule and is not revising its previous 2004 earnings per share
guidance. 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=9143.
2
Progress Energy Adds Natural Gas Reserves in Louisiana
During the second quarter 2004, one of Progress Energy's subsidiaries, Progress
Fuels Corporation, purchased or entered into agreements to purchase
approximately 12 billion cubic feet equivalent (bcfe) of proved natural gas
reserves and another approximately 10 bcfe of probable reserves for a total of
$7.3 million. The acquisitions are in DeSoto Parish, La., near Shreveport, La.
This acquisition brings Progress Fuels' total proved natural gas and oil
reserves to approximately 370 bcfe.
Progress Energy Subsidiary Settles Civil Case with San Francisco Unified School
District
On June 30, 2004, Progress Energy announced that one of its subsidiaries,
Strategic Resource Solutions (SRS), reached a settlement agreement for $43.1
million pre-tax in a civil suit with the San Francisco Unified School District
(SFUSD). The suit stems from a contract dispute and related allegations of
misrepresentations and other misconduct between the school district and SRS. SRS
has agreed to pay the SFUSD $10.1 million upon approval of the settlement by the
court, and an additional $16 million in 2005 and $17 million in 2006, guaranteed
by Progress Energy. Progress Energy recorded the charge in the second quarter.
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=9122.
Progress Energy Florida Sets New Summer Peak
On June 24, 2004, warm temperatures and high electricity use prompted Progress
Energy Florida to set a new summer record for energy use for a second
consecutive day. Progress Energy Florida customers used approximately 8,519
megawatt hours (MWh) between 4 and 5 p.m. One day earlier, the company's
customers used 8,446 MWh of electricity, eclipsing the former mark of 8,388 MWh,
set July 17, 2002. 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=9102.
Progress Energy Becomes 11th Member of NuStart Energy Consortium
On June 17, 2004, Progress Energy announced that it joined eight other energy
companies and two reactor vendors to demonstrate the new construction and
operating licensing process for a new nuclear power plant. The addition of
Progress Energy expands the NuStart Energy Development consortium to 11
companies, nine of whom operate 60 nuclear reactors - 58 percent of the 103 U.S.
nuclear power plants. 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=9084.
3
Progress Energy Announces Agreement to Sell Interest in Synthetic Fuel Operation
On June 16, 2004, Progress Energy announced that one of its subsidiaries,
Progress Fuels Corporation, had entered two transactions to sell a combined 49.8
percent partnership interest in Colona Synfuel Limited Partnership, LLLP, one of
its synthetic fuel operations. Progress Energy subsidiaries will continue to
operate the facilities and market the output on behalf of the partners. These
transactions will not change the company's previous 2004 earnings per share
guidance. 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=9022.
Progress Energy Signs Additional Wholesale Energy Contracts
Regulated Commercial Operations
On June 18, 2004, Progress Energy announced a contract extension to continue
serving as the full-requirements wholesale energy provider to French Broad
Electric Membership Corp. through 2012. Financial terms of the contract were not
disclosed. The previous contract, which took effect in 1994, was to expire in
2007. Both parties were interested in extending the wholesale relationship,
which began in 1939. The EMC represents about 100 MW of electric load. 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=9062.
On May 19, 2004, Progress Energy announced that it executed a wholesale power
supply agreement with the North Carolina Electric Membership Corporation (NCEMC)
to serve its peak-load electricity needs. Under the terms of the contract, NCEMC
will purchase from Progress Energy Carolinas 500 megawatts (MW) of electric
generation in 2005, 750 MW in 2006, 450 MW in 2007, and 300 megawatts per year
from 2008 through 2024. 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=8842.
Competitive Commercial Operations
On June 16, 2004, Progress Energy announced that its Progress Ventures
subsidiary executed wholesale power-supply agreements with three Georgia
electric membership cooperatives (EMCs) to serve their electricity needs through
2010. Combined with its previously announced agreements with Jackson EMC,
Georgia Energy Cooperative and Greystone Power Corporation, Progress Energy will
be serving 16 EMCs, or approximately one-third of the cooperative load, in
Georgia. These contracts commit approximately 77 percent of Progress Ventures'
competitive generation portfolio to sales contracts for the period 2005-2010.
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=9023.
4
On May 18, 2004, Progress Energy announced that its Progress Ventures subsidiary
executed a wholesale power-supply agreement with Georgia Energy Cooperative and
Greystone Power Corporation to serve their electricity needs through 2010.
Progess Ventures' Southeast supply portfolio, including more than 1,850
megawatts (MW) of generation capacity in Georgia, will serve as support for the
new EMCs' load contracts. The power-supply agreement runs through 2010 and
includes call rights on approximately 1,600 MW of Georgia system generation
comprised of nuclear, coal, gas and pumped-storage hydro resources. Progress
Energy expects to supplement the EMCs' resources with its own intermediate and
peaking assets in Georgia to serve the EMCs' peak demand, forecasted to grow
from 1,800 MW in 2005 to 2,300 MW by 2010. 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=8822.
Progress Energy President and CEO Bob McGehee Elected Chairman of the Board
On May 12, 2004, Progress Energy President and CEO Bob McGehee was elected
chairman of the company's board of directors following the annual shareholders
meeting. McGehee replaces Bill Cavanaugh, who had served in the role since 1999
and retired from the board at this meeting. McGehee became chief executive
officer of Progress Energy, Inc. on March 1, 2004. 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=8802.
LINE-OF-BUSINESS FINANCIAL INFORMATION
Progress Energy Carolinas
Progress Energy Carolinas electric energy operations contributed GAAP net income
of $97 million for the quarter compared with $89 million for the same period
last year. This quarter's earnings were positively affected by favorable
weather, increased revenues from customer growth and usage and lower
depreciation and amortization charges, primarily due to the impact of the
depreciation study filed in the first quarter 2004. Additionally, results in the
prior quarter included losses on limited partnership investment funds. These
factors were partially offset by increased nuclear O&M charges and lower
wholesale sales.
For the six months ended June 30, 2004, Progress Energy Carolinas electric
energy operations contributed GAAP net income of $213 million compared with $223
million for the same period last year.
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 $84 million for the quarter compared with $61 million for the same period
last year. This quarter's earnings were positively affected by lower retail
revenue sharing, the additional return on investment on the Hines 2 plant that
was placed into service in December 2003 and increased revenues from customer
growth and usage. Results in the prior quarter included a year-to-date accrual
for 2003 retail revenue sharing and an additional refund associated with 2002.
These factors were partially offset by higher depreciation charges, primarily
due to normal property additions.
5
For the six months ended June 30, 2004, Progress Energy Florida electric energy
operations contributed GAAP net income of $133 million compared with $132
million for the same period last year.
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, coal terminal services, synthetic fuels
production and fuels transportation and delivery, and Competitive Commercial
Operations, which includes nonregulated generation and energy marketing
activities. The Progress Ventures business unit had GAAP net income of $61
million for the quarter compared with $60 million for the same period last year.
Progress Fuels generated GAAP net income of $56 million for the quarter compared
with $58 million for the same period last year. The decrease resulted primarily
from lower synthetic fuel sales and increased synthetic fuel operating expenses
partially offset by increased gas prices and volumes and increased coal margins.
Within Progress Fuels, synthetic fuels operations generated GAAP net income of
$36 million for the quarter compared with $49 million for the same period last
year. The decrease in net income resulted primarily from lower synthetic fuel
sales due to an internal change in the production schedule in 2004 compared to
2003 and an increase in operating expenses. Total synthetic fuel sales were 2.7
million tons for the quarter compared with 3.0 million tons for the same period
last year.
Competitive Commercial Operations contributed GAAP net income of $5 million for
the quarter compared with net income of $2 million for the same period last
year. This quarter's results were positively impacted by favorable margins on
new contracts. These items were partially offset by higher fixed charges. 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.
For the six months ended June 30, 2004, the Progress Ventures business unit had
net income of $101 million compared with net income of $108 million for the same
period last year. Progress Fuels generated net income of $104 million for the
six months ended June 30, 2004, compared with $97 million for the same period
last year. Within Progress Fuels, synthetic fuels operations generated net
income of $72 million for the six months ended June 30, 2004, compared with $83
million for the same period last year. Total synthetic fuel sales were 5.7
million tons for the six months ended June 30, 2004, compared with 5.5 million
tons for the same period last year. Competitive Commercial Operations
contributed a net loss of $3 million compared with net income of $11 million for
the same period last year.
6
Other Businesses
Other businesses include Progress Rail, Progress Telecom and other small
subsidiaries. Other businesses had a GAAP net loss of $26 million for the
quarter compared with GAAP net income of $3 million for the same period last
year. This quarter's results were negatively impacted by a $29 million after-tax
charge recorded by SRS related to a civil litigation settlement. This item was
partially offset by strong sales in the recycling operations at Progress Rail.
For the six months ended June 30, 2004, other businesses reported a net loss of
$22 million compared with a net loss of $0.3 million for the same period in the
prior year.
Progress Rail
Progress Rail had GAAP net income of $4 million for the quarter compared
with net income of $2 million for the same period last year. Progress Rail
earnings were positively impacted by higher prices and margins on recycling
sales.
For the six months ended June 30, 2004, Progress Rail reported net income
of $9 million compared with a net loss of $1 million for the same period in
the prior year.
Progress Telecom
Progress Telecom recorded a GAAP net loss of $1 million for the quarter
compared with GAAP net income of $0.8 million for the same period last
year.
For the six months ended June 30, 2004, Progress Telecom reported a net
loss of $2 million compared with net income of $1 million for the same
period in the prior year.
Corporate
Corporate results, which primarily include interest expense on holding company
debt, posted an ongoing operating loss of $52 million for the quarter compared
with an ongoing operating loss of $52 million for the same period last year.
For the six months ended June 30, 2004, corporate results had an operating loss
of $107 million compared with an operating loss of $107 million for the same
period in the prior year.
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:
7
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 $0.02 for the quarter, and decreased earnings per share by $0.02
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 $0.02 for the quarter and decreased 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.
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 $1
million for this quarter and $3 million for the quarter ended June 30, 2003.
SRS Litigation Settlement
In June 2004, SRS, a subsidiary of the company, reached a settlement agreement
in a civil suit with the San Francisco Unified School District. As a result, the
company recorded a charge of approximately $29 million after-tax in the second
quarter 2004. Management does not believe this settlement charge is indicative
of ongoing operations of the company.
8
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 these types of
adjustments, management believes it is not representative of the 2003 operations
of Progress Energy.
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
July 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 913-981-4900, confirmation
code 501863. Should technical difficulties be encountered, please contact Tammy
Blankenship at 919-546-2233. A playback of the call will be available from 1
p.m. ET July 21 through midnight August 4, 2004. To listen to the recorded call,
dial 719-457-0820 and enter confirmation code 501863.
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.
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
719-457-2673, confirmation code 572993.
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.
9
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; the impact to our financial condition and
performance in the event that we are required to refund previously taken Section
29 tax credits; 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.
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)
10
Progress Energy, Inc.
CONSOLIDATED INTERIM FINANCIAL STATEMENTS
June 30, 2004
UNAUDITED CONSOLIDATED STATEMENTS of INCOME
Three Months Ended Six Months Ended
June 30, June 30,
- ---------------------------------------------------------------------------------------------------------
(in millions except per share data) 2004 2003 2004 2003
- ---------------------------------------------------------------------------------------------------------
Operating Revenues
Utility $ 1,721 $ 1,583 $ 3,406 $ 3,237
Diversified business 709 467 1,258 1,000
- ---------------------------------------------------------------------------------------------------------
Total Operating Revenues 2,430 2,050 4,664 4,237
- ---------------------------------------------------------------------------------------------------------
Operating Expenses
Utility
Fuel used in electric generation 468 394 961 805
Purchased power 219 210 402 413
Operation and maintenance 372 364 735 699
Depreciation and amortization 207 224 409 444
Taxes other than on income 109 94 214 197
Diversified business
Cost of sales 661 416 1,165 891
Depreciation and amortization 46 36 91 69
Other 45 38 88 88
- ---------------------------------------------------------------------------------------------------------
Total Operating Expenses 2,127 1,776 4,065 3,606
- ---------------------------------------------------------------------------------------------------------
Operating Income 303 274 599 631
- ---------------------------------------------------------------------------------------------------------
Other Income (Expense)
Interest income 4 3 7 6
Other, net - (9) (25) (15)
- ---------------------------------------------------------------------------------------------------------
Total Other Income (Expense) 4 (6) (18) (9)
- ---------------------------------------------------------------------------------------------------------
Interest Charges
Net interest charges 160 159 326 315
Allowance for borrowed funds used during construction (2) (2) (3) (5)
- ---------------------------------------------------------------------------------------------------------
Total Interest Charges, Net 158 157 323 310
- ---------------------------------------------------------------------------------------------------------
Income from Continuing Operations before Income Tax and
Cumulative Effect of Change in Accounting Principle 149 111 258 312
Income Tax Benefit (4) (43) (3) (49)
- ---------------------------------------------------------------------------------------------------------
Income from Continuing Operations before Cumulative Effect of
Change in Accounting Principle 153 154 261 361
Discontinued Operations, Net of Tax 1 3 1 14
- ---------------------------------------------------------------------------------------------------------
Income before Cumulative Effect of Change in Accounting
Principle 154 157 262 375
Cumulative Effect of Change in Accounting Principle,
Net of Tax - - - 1
- ---------------------------------------------------------------------------------------------------------
Net Income $ 154 $ 157 $ 262 $ 376
- ---------------------------------------------------------------------------------------------------------
Average Common Shares Outstanding 242 236 242 235
- ---------------------------------------------------------------------------------------------------------
Basic Earnings per Common Share
Income from Continuing Operations before Cumulative
Effect of Change in Accounting Principle $ 0.63 $ 0.65 $ 1.08 $ 1.54
Discontinued Operations, Net of Tax - 0.01 - 0.06
Cumulative Effect of Change in Accounting Principle,
Net of Tax - - - -
Net Income $ 0.63 $ 0.66 $ 1.08 $ 1.60
- ---------------------------------------------------------------------------------------------------------
Diluted Earnings per Common Share
Income from Continuing Operations before Cumulative
Effect of Change in Accounting Principle $ 0.63 $ 0.65 $ 1.08 $ 1.53
Discontinued Operations, Net of Tax - 0.01 - 0.06
Cumulative Effect of Change in Accounting Principle,
Net of Tax - - - -
Net Income $ 0.63 $ 0.66 $ 1.08 $ 1.59
- ---------------------------------------------------------------------------------------------------------
Dividends Declared per Common Share $ 0.575 $ 0.560 $ 1.150 $ 1.120
- ---------------------------------------------------------------------------------------------------------
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.
PROGRESS ENERGY, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in millions) June 30, December 31,
ASSETS 2004 2003
- -------------------------------------------------------------------------------------------------------
Utility Plant
Utility plant in service $ 21,991 $ 21,675
Accumulated depreciation (8,240) (8,077)
Utility plant in service, net 13,751 13,598
Held for future use 13 13
Construction work in progress 643 634
Nuclear fuel, net of amortization 218 228
- -------------------------------------------------------------------------------------------------------
Total Utility Plant, Net 14,625 14,473
- -------------------------------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents 78 273
Accounts receivable 900 841
Unbilled accounts receivable 245 217
Inventory 776 808
Deferred fuel cost 304 317
Prepayments and other current assets 360 375
- -------------------------------------------------------------------------------------------------------
Total Current Assets 2,663 2,831
- -------------------------------------------------------------------------------------------------------
Deferred Debits and Other Assets
Regulatory assets 638 612
Nuclear decommissioning trust funds 978 938
Diversified business property, net 2,197 2,158
Miscellaneous other property and investments 458 464
Goodwill 3,730 3,726
Prepaid pension costs 449 462
Intangibles, net 306 327
Other assets and deferred debits 238 253
- -------------------------------------------------------------------------------------------------------
Total Deferred Debits and Other Assets 8,994 8,940
- -------------------------------------------------------------------------------------------------------
Total Assets $ 26,282 $ 26,244
- -------------------------------------------------------------------------------------------------------
Capitalization and Liabilities
- -------------------------------------------------------------------------------------------------------
Common Stock Equity
Common stock without par value, 500 million shares authorized,
247 and 246 million shares issued and outstanding, respectively $ 5,339 $ 5,270
Unearned restricted shares (17) (17)
Unearned ESOP shares (76) (89)
Accumulated other comprehensive loss (56) (50)
Retained earnings 2,313 2,330
- -------------------------------------------------------------------------------------------------------
Total Common Stock Equity 7,503 7,444
- -------------------------------------------------------------------------------------------------------
Preferred Stock of Subsidiaries-Not Subject to Mandatory Redemption 93 93
Long-Term Debt, Affiliate 309 309
Long-Term Debt, Net 9,282 9,625
- -------------------------------------------------------------------------------------------------------
Total Capitalization 17,187 17,471
- -------------------------------------------------------------------------------------------------------
Current Liabilities
Current portion of long-term debt 343 868
Accounts payable 731 699
Interest accrued 189 209
Dividends declared 141 140
Short-term obligations 628 4
Customer deposits 172 167
Other current liabilities 836 580
- -------------------------------------------------------------------------------------------------------
Total Current Liabilities 3,040 2,667
- -------------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities
Accumulated deferred income taxes 525 737
Accumulated deferred investment tax credits 184 190
Regulatory liabilities 3,053 2,977
Asset retirement obligations 1,306 1,271
Other liabilities and deferred credits 987 931
- -------------------------------------------------------------------------------------------------------
Total Deferred Credits and Other Liabilities 6,055 6,106
- -------------------------------------------------------------------------------------------------------
Commitments and Contingencies
- -------------------------------------------------------------------------------------------------------
Total Capitalization and Liabilities $ 26,282 $ 26,244
- -------------------------------------------------------------------------------------------------------
PROGRESS ENERGY, INC.
UNAUDITED CONSOLIDATED STATEMENTS of CASH FLOWS
Six Months Ended June 30,
(in millions) 2004 2003
- --------------------------------------------------------------------------------------------------------
Operating Activities
Net income $ 262 $ 376
Adjustments to reconcile net income to net cash provided by operating
activities:
Income from discontinued operations (1) (14)
Cumulative effect of change in accounting principle - (1)
Depreciation and amortization 557 572
Deferred income taxes (176) (118)
Investment tax credit (6) (8)
Deferred fuel cost (credit) 13 (94)
Cash provided (used) by changes in operating assets and
liabilities:
Accounts receivable (103) (80)
Inventories 26 31
Prepayments and other current assets (53) 15
Accounts payable 61 (5)
Income Taxes, net 173 105
Other current liabilities 46 35
Other 116 93
- --------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 915 907
- --------------------------------------------------------------------------------------------------------
Investing Activities
Gross utility property additions (483) (541)
Diversified business property additions (122) (367)
Nuclear fuel additions (47) (84)
Net contributions to nuclear decommissioning trust (18) (18)
Investments in non-utility activities (7) (8)
Acquisition of intangibles - (191)
Proceeds from sales of investments and assets 92 1
Net decrease in restricted cash 5 17
Other (11) (4)
- --------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (591) (1,195)
- --------------------------------------------------------------------------------------------------------
Financing Activities
Issuance of common stock 58 172
Purchase of restricted shares (7) (7)
Issuance of long-term debt 1 655
Net increase in short-term indebtedness 624 163
Net decrease in cash provided by checks drawn in excess of bank balances (58) (44)
Retirement of long-term debt (865) (392)
Dividends paid on common stock (280) (268)
Other 8 (5)
- --------------------------------------------------------------------------------------------------------
Net Cash (Used in) Provided by Financing Activities (519) 274
- --------------------------------------------------------------------------------------------------------
Cash Used in Discontinued Operations - (1)
- --------------------------------------------------------------------------------------------------------
Net Decrease in Cash and Cash Equivalents (195) (15)
Cash and Cash Equivalents at Beginning of Period 273 61
- --------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 78 $ 46
- ----------------------------------------------------------------------------------------------------------
Progress Energy, Inc.
SUPPLEMENTAL DATA - Page S-1
Unaudited
Three Months Ended Three Months Ended Percentage Change
June 30, 2004 June 30, 2003 From June 30, 2003
- ---------------------------------------------------------------------------------------------------------------------
Total Total
Progress Progress
Utility Statistics Carolinas Florida Energy Carolinas Florida Energy Carolinas Florida
- ---------------------------------------------------------------------------------------------------------------------
Operating Revenues (in millions)
Retail
Residential $284 $422 $706 $248 $414 $662 14.5 % 1.9 %
Commercial 213 214 427 199 192 391 7.0 11.5
Industrial 161 66 227 156 56 212 17.9
Other retail 19 52 71 18 46 64 13.0
Provision for retail revenue
sharing - 2004 - (3) (3) - - - -
Provision for retail revenue
sharing - 2003 - - - - (10) (10) -
Provision for retail revenue
sharing - 2002 - - - - (18) (18) -
- ---------------------------------------------------------------------------------------------------------------------
Total Retail $677 $751 $1,428 $621 $680 $1,301 9.0 10.4
Unbilled 24 24 48 23 7 30 - -
Wholesale 139 53 192 154 50 204 (9.7) 6.0
Miscellaneous revenue 21 32 53 18 30 48 16.7 6.7
- ---------------------------------------------------------------------------------------------------------------------
Total Electric $861 $860 $1,721 $816 $767 $1,583 5.5 % 12.1 %
- ---------------------------------------------------------------------------------------------------------------------
Energy Sales (millions of kWh)
Retail
Residential 3,525 4,505 8,030 3,052 4,703 7,755 15.5 % (4.2)%
Commercial 3,172 2,941 6,113 2,946 2,951 5,897 7.7 (0.3)
Industrial 3,280 1,051 4,331 3,197 1,008 4,205 2.6 4.3
Other retail 337 751 1,088 317 742 1,059 6.3 1.2
- ---------------------------------------------------------------------------------------------------------------------
Total Retail 10,314 9,248 19,562 9,512 9,404 18,916 8.4 (1.7)
Unbilled 404 790 1,194 396 498 894 - -
Wholesale 3,114 1,093 4,207 3,301 890 4,191 (5.7) 22.8
- ---------------------------------------------------------------------------------------------------------------------
Total Electric 13,832 11,131 24,963 13,209 10,792 24,001 4.7 % 3.1 %
- ---------------------------------------------------------------------------------------------------------------------
Energy Supply (millions of kWh)
Generated - steam 7,178 5,656 12,834 6,531 5,673 12,204
nuclear 5,411 1,708 7,119 5,793 1,688 7,481
hydro 156 - 156 304 - 304
combustion turbines/
combined cycle 576 2,139 2,715 172 1,548 1,720
Purchased 1,042 2,322 3,364 1,028 2,435 3,463
- ---------------------------------------------------------------------------------------------------------------------
Total Energy Supply
(Company Share) 14,363 11,825 26,188 13,828 11,344 25,172
- ---------------------------------------------------------------------------------------------------------------------
Impact of Weather to Normal on Retail Sales
Heating Degree Days - Actual 211 21 251 21 (15.9)% - %
Normal 236 13 235 13
Cooling Degree Days - Actual 647 1,090 406 1,189 59.4 % (8.3)%
Normal 531 1,144 544 1,144
Impact of retail weather to normal
on EPS $0.03 ($0.01) $0.02 ($0.04) $0.00 ($0.04)
- ---------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended Percentage Change
June 30, 2004 June 30, 2003 From June 30, 2003
- ---------------------------------------------------------------------------------------------------------------------
Total Total
Progress Progress
Utility Statistics Carolinas Florida Energy Carolinas Florida Energy Carolinas Florida
- ---------------------------------------------------------------------------------------------------------------------
Operating Revenues (in millions)
Retail
Residential $655 $824 $1,479 $605 $798 $1,403 8.3 % 3.3 %
Commercial 420 395 815 400 342 742 5.0 15.5
Industrial 308 128 436 302 104 406 23.1
Other retail 38 99 137 36 84 120 17.9
Provision for retail revenue
sharing - 2004 - (5) (5) - - - -
Provision for retail revenue
sharing - 2003 - (2) (2) - (10) (10) -
Provision for retail revenue
sharing - 2002 - - - - (18) (18) -
- ---------------------------------------------------------------------------------------------------------------------
Total Retail $1,421 $1,439 $2,860 $1,343 $1,300 $2,643 5.8 10.7
Unbilled 1 18 19 (7) 7 - - -
Wholesale 295 120 415 364 121 485 (19.0) (0.8)
Miscellaneous revenue 45 67 112 42 67 109 7.1 -
- ---------------------------------------------------------------------------------------------------------------------
Total Electric $1,762 $1,644 $3,406 $1,742 $1,495 $3,237 1.1 % 10.0 %
- ---------------------------------------------------------------------------------------------------------------------
Energy Sales (millions of kWh)
Retail
Residential 8,266 8,797 17,063 7,639 9,256 16,895 8.2 % (5.0)%
Commercial 6,230 5,431 11,661 5,930 5,393 11,323 5.1 0.7
Industrial 6,273 2,074 8,347 6,202 1,924 8,126 1.1 7.8
Other retail 682 1,423 2,105 660 1,398 2,058 3.3 1.8
- ---------------------------------------------------------------------------------------------------------------------
Total Retail 21,451 17,725 39,176 20,431 17,971 38,402 5.0 (1.4)
Unbilled 20 655 675 (84) 554 470 - -
Wholesale 6,904 2,415 9,319 7,920 2,166 10,086 (12.8) 11.5
- ---------------------------------------------------------------------------------------------------------------------
Total Electric 28,375 20,795 49,170 28,267 20,691 48,958 0.4 % 0.5 %
- ---------------------------------------------------------------------------------------------------------------------
Energy Supply (millions of kWh)
Generated - steam 15,127 10,688 25,815 14,417 10,769 25,186
nuclear 11,345 3,366 14,711 11,709 3,385 15,094
hydro 364 - 364 558 - 558
combustion turbines/
combined cycle 899 3,534 4,433 457 2,995 3,452
Purchased 1,804 4,493 6,297 2,290 4,619 6,909
- ---------------------------------------------------------------------------------------------------------------------
Total Energy Supply
(Company Share) 29,539 22,081 51,620 29,431 21,768 51,199
- ---------------------------------------------------------------------------------------------------------------------
Impact of Weather to Normal on Retail Sales
Heating Degree Days - Actual 2,056 385 2,028 482 1.4 % (20.1)%
Normal 1,892 385 1,893 385
Cooling Degree Days - Actual 657 1,090 416 1,258 57.9 % (13.4)%
Normal 544 1,172 555 1,172
Impact of retail weather to normal
on EPS $0.08 ($0.01) $0.07 ($0.01) $0.03 $0.02
- ---------------------------------------------------------------------------------------------------------------------
S-1
Progress Energy, Inc.
SUPPLEMENTAL DATA - Page S-2
Unaudited
- -------------------------------------------------------------------------------
Financial Statistics June 30,
- -------------------------------------------------------------------------------
2004 2003
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Return on average common stock equity (12 months ended) 9.1 % 9.8 %
Book value per common share $30.92 $29.42
Capitalization
Common stock equity 41.3 % 38.2 %
Preferred stock of subsidiary-redemption not required 0.5 0.5
Total debt 58.2 61.3
- -------------------------------------------------------------------------------
Total Capitalization 100.0 % 100.0 %
- -------------------------------------------------------------------------------
ONGOING EARNINGS BY BUSINESS LINE
The following table provides an update to Progress Energy's 2004 projected
ongoing earnings through the second quarter 2004, originally presented at
Progress Energy's analyst meeting in February. As indicated below, the projected
earnings for Progress Fuels' non-synthetic fuels business has been increased by
$20 million, with a corresponding reduction for the synthetic fuels business.
The February 2004 forecast did not reflect the full extent of the fees charged
between Progress Fuels and the synthetic fuels businesses, which do not differ
materially from those charged in prior years. This fee reallocation has no
impact on projected consolidated earnings, historical financial statements or on
the net after-tax cash flows previously reported in the Company's periodic
reports to the holders of Contingent Value Obligations.
The 2004 ongoing earnings guidance of $3.50 to $3.65 per share excludes any
impacts from the CVO mark-to-market adjustment, SRS litigation settlement and
discontinued operations of NCNG. The CVO mark-to-market adjustment is based on
the market value of the CVOs that management does not control and cannot
predict. Management does not believe that the SRS litigation settlement charge
is indicative of the ongoing operations of the company. The sale of NCNG closed
on September 30, 2003, and the company does not anticipate any material
discontinued earnings for NCNG after this date. Therefore, Progress Energy is
not able to provide a corresponding GAAP equivalent for 2004 earnings guidance
figures.
- --------------------------------------------------------------------------------------------------------------
February 2004 Fee July 2004
($ in millions) Forcast Reallocation Forecast YTD 6/30/04
- --------------------------------------------------------------------------------------------------------------
Utilities $825 $825 $346
Progress Ventures
Competitive Commercial Operations (10) (10) (3)
Progress Fuels (excluding Synthetic fuels) 45 20 65 32
Synthetic fuels 205 (20) 185 72
Other Diversified 5 5 7
Corporate Costs (205) (205) (107)
- --------------------------------------------------------------------------------------------------------------
Ongoing Earnings* $865 $865 $346
Intra-period tax allocation (43)
CVO mark-to-market (13)
SRS settlement (29)
NCNG discontinued operations 1
Reported GAAP Net Income $262
- --------------------------------------------------------------------------------------------------------------
*Totals may not foot due to rounding
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 $782
* See explanation for ongoing earnings adjustments under the caption "Ongoing
Earnings Adjustments" in the text of the press release.
S-3
Progress Energy, Inc.
Earnings Variances
Second Quarter 2004 vs. 2003
Regulated Utilities
Corporate and
Other
($ per share) Carolinas Florida Fuels CCO Businesses Consolidated
- ---------------------------------------------------------------------------------------------------------------------------
2003 GAAP earnings 0.37 0.26 0.24 0.01 (0.22) 0.66
Intra-period tax allocation 0.02 A 0.02
CVOs 0.01 B 0.01
NCNG discontinued operations (0.01) C (0.01)
- ---------------------------------------------------------------------------------------------------------------------------
2003 ongoing earnings 0.37 0.26 0.24 0.01 (0.20) 0.68
- ---------------------------------------------------------------------------------------------------------------------------
Weather - retail 0.07 (0.01) 0.06
Other retail - growth and usage 0.02 0.02 0.04
Wholesale (0.05) 0.01 D (0.04)
Retail revenue sharing - 0.06 E 0.06
Other margin (0.01) 0.04 F 0.03
O&M (0.04) 0.01 G (0.03)
Utility depreciation and amortization 0.04 (0.02) H 0.02
Other 0.01 (0.01) I 0.00
Interest charges - - (0.01) 0.01 J 0.00
Net diversified business - - (0.01) 0.02 (0.02) K, L (0.01)
Share dilution (0.01) (0.01) M (0.02)
- ---------------------------------------------------------------------------------------------------------------------------
2004 ongoing earnings 0.40 0.35 0.23 0.02 (0.21) 0.79
- ---------------------------------------------------------------------------------------------------------------------------
Intra-period tax allocation (0.02) A (0.02)
CVOs (0.02) B (0.02)
SRS Litigation Settlement (0.12) N (0.12)
- ---------------------------------------------------------------------------------------------------------------------------
2004 GAAP earnings 0.40 0.35 0.23 0.02 (0.37) 0.63
- ---------------------------------------------------------------------------------------------------------------------------
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 favorable weather in Northeast
United States in April 2003 led to increased off-system sales.
E - Florida - Revenue sharing accrual in prior year included a year-to-date
accrual for 2003 and an additional refund for 2002.
F - Florida - Primarily return on investment on Hines 2 which was placed in
service in December 2003.
G - Carolinas - Higher O&M due to increased business unit spending as a
result of nuclear outages in Q2 2004.
H - Carolinas - Reduced depreciation expense due primarily to lower rates
based on depreciation study filed in Q1 2004. Florida - Increased
depreciation expense due primarily to normal property additions.
I - Carolinas - Favorable due to decrease in losses on investments in limited
partnership funds included in prior year partially offset by an increase in
taxes over the prior year.
J - CCO - Interest is no longer capitalized related to construction at
nonregulated generation plants. Corporate and Other Businesses - Reduction
in interest expense is due to repayment of $500M of debt at the Holding
Company during Q1 2004.
K - Fuels - Decrease due primarily to lower synthetic fuel sales and
increased operating expenses partially offset by increased gas prices and
volumes and increased coal margins.
L - CCO - Increase due to favorable margins on several contracts partially
offset by higher fixed costs.
M - Primarily due to the impact of issuances under Investor Plus and Employee
Benefit programs.
N - Impact of SRS litigation settlement reached in civil proceedings.
S-4
Progress Energy, Inc.
Earnings Variances
Year-to-Date 2004 vs. 2003
Regulated Utilities
Corporate and
Other
($ per share) Carolinas Florida Fuels CCO Businesses Consolidated
- -------------------------------------------------------------------------------------------------------------------------
2003 GAAP earnings 0.95 0.56 0.41 0.05 (0.37) 1.60
Intra-period tax allocation (0.02) A (0.02)
CVOs 0.00 B 0.00
NCNG discontinued operations (0.06) C (0.06)
- -------------------------------------------------------------------------------------------------------------------------
2003 ongoing earnings 0.95 0.56 0.41 0.05 (0.45) 1.52
- -------------------------------------------------------------------------------------------------------------------------
Weather - retail 0.10 (0.04) 0.06
Other retail - growth and usage 0.04 0.02 0.06
Wholesale (0.13) 0.01 D (0.12)
Retail revenue sharing - 0.05 E 0.05
Other margin (0.01) 0.06 F 0.05
O&M (0.05) (0.04) G (0.09)
Service Company reallocation prior years (0.04) - 0.01 0.01 0.02 H 0.00
Utility depreciation and amortization 0.07 (0.03) I 0.04
Other (0.02) (0.02) J (0.04)
Interest charges - - (0.03) (0.01) K, L (0.04)
Net diversified business - - 0.01 (0.04) 0.01 M, N, O (0.02)
Share dilution (0.03) (0.02) 0.01 P (0.04)
- -------------------------------------------------------------------------------------------------------------------------
2004 ongoing earnings 0.88 0.55 0.43 (0.01) (0.42) 1.43
- -------------------------------------------------------------------------------------------------------------------------
Intra-period tax allocation (0.18) A (0.18)
CVOs (0.05) B (0.05)
SRS Litigation Settlement (0.12) Q (0.12)
- -------------------------------------------------------------------------------------------------------------------------
2004 GAAP earnings 0.88 0.55 0.43 (0.01) (0.77) 1.08
- -------------------------------------------------------------------------------------------------------------------------
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 favorable weather in Northeast
United States in 2003 led to increased off-system sales.
E - Florida - Included higher revenue sharing and an additional refund for
2002 in 2003.
F - Florida - Primarily return on investment on Hines 2 which was placed in
service in December 2003.
G - Carolinas - Higher O&M due to increased business unit spending as a
result of nuclear outages in Q2 2004. Florida - Higher O&M due to increased
business unit spending for 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 Q1 2004. Florida - Increased
depreciation expense due primarily to normal property additions.
J - Carolinas - Increase in other costs is due primarily to increase in taxes
over the prior year.
K - CCO - Interest is no longer capitalized related to construction at
nonregulated generation plants.
L - Corporate and Other Business - Higher interest is due to reduction in
capitalized interest related to construction at nonregulated plants which
was partially offset by repayment of $500M of debt at the Holding Company
during Q1 2004.
M - Fuels - Increase due primarily to higher gas prices and volumes,
increased coal margins, partially offset by increased synthetic fuel
operating expenses.
N - CCO - Decrease due to: 1) mark-to-market losses on a contract, 2)
increased depreciation and amortization charges and fixed costs of 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 contracts.
O - Corporate and Other Business - Favorability is attributable primarily to
increased margins at Rail due to increased recycling sales.
P - Primarily due to the impact of issuances under Investor Plus and Employee
Benefit programs.
Q - Impact of SRS litigation settlement reached in civil proceedings.
S-5