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, 2004
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
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
Report of Independent Registered Public Accounting Firm......................3
Statement of Net Assets Available for Benefits, December 31, 2004............4
Statement of Changes in Net Assets Available for Benefits
For the Year Ended December 31, 2004....................................5
Statement of Net Assets Available for Benefits, December 31, 2003............6
Notes to Financial Statements.............................................7-14
Schedule H, Part IV, line 4i - Schedule of Assets (Held at End of Year)
As of December 31, 2004................................................15
Schedule H, Part IV, Question 4a - Delinquent Participant Contributions
For the Year Ended December 31, 2004...................................16
Note: All other schedules required by Section 2520.130-10 of the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974 have been omitted because they are not
applicable.
2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Participants and Administrator of
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, 2004 and 2003, and the related statements of changes in net assets
available for benefits for the year ended December 31, 2004. 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 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. The Plan is not required to have,
nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Plan's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, 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 as of December 31,
2004 and 2003, and the changes in net assets available for benefits for the year
ended December 31, 2004 in conformity with accounting principles generally
accepted in the United States of America.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplemental schedules
listed in the Table of Contents as of December 31, 2004 are presented for the
purpose of additional analysis and are not a required part of the basic
financial statements, but are supplementary information required by the
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. These schedules are the
responsibility of the Plan's management. Such schedules have been subjected to
the auditing procedures applied in our audit of the basic 2004 financial
statements and, in our opinion, are fairly stated in all material respects when
considered in relation to the basic financial statements taken as a whole.
/s/ DELOITTE & TOUCHE LLP
June 27, 2005
3
PROGRESS ENERGY 401(K) SAVINGS
& STOCK OWNERSHIP PLAN
Statement of Net Assets Available for Benefits
December 31, 2004
SUPPLEMENTAL INFORMATION
------------------------------------------------------------
PARTICIPANT
DIRECTED
ESOP COMMON STOCK PARTICIPANT
UNALLOCATED ALLOCATED TO PARTICIPANTS' DIRECTED
TOTAL PLAN TO PARTICIPANTS PARTICIPANTS LOANS INVESTMENTS
----------------------------------------------------------------------------
ASSETS
Investments:
Progress Energy, Inc. Common Stock
Fund $ 725,307,767 $156,097,182 $ 569,210,585 $ - $ -
Fidelity Mid Cap Stock Fund 59,227,400 - - - 59,227,400
EuroPacific Growth Fund 42,261,356 - - - 42,261,356
Growth Fund of America 35,895,258 - - - 35,895,258
Vanguard S&P 500 Index Fund 84,612,490 - - - 84,612,490
Vanguard Retirement Savings Trust 140,625,844 - - - 140,625,844
PIMCO Total Return Bond Fund 48,200,236 - - - 48,200,236
Fidelity Equity Income Fund 79,272,236 - - - 79,272,236
Fidelity Freedom Income Fund 4,229,991 - - - 4,229,991
Fidelity Freedom 2000 Fund 5,316,764 - - - 5,316,764
Fidelity Freedom 2005 Fund 635,821 - - - 635,821
Fidelity Freedom 2010 Fund 19,321,999 - - - 19,321,999
Fidelity Freedom 2015 Fund 1,709,741 - - - 1,709,741
Fidelity Freedom 2020 Fund 16,224,152 - - - 16,224,152
Fidelity Freedom 2025 Fund 765,874 - - - 765,874
Fidelity Freedom 2030 Fund 22,993,510 - - - 22,993,510
Fidelity Freedom 2035 Fund 281,078 - - - 281,078
Fidelity Freedom 2040 Fund 12,072,179 - - - 12,072,179
Progress Energy, Inc. Contingent
Value Obligations 49,138 - - - 49,138
Columbia Acorn Fund 80,629,569 - - - 80,629,569
Participants' Loans Receivable 35,000,006 - - 35,000,006 -
----------------------------------------------------------------------------
Total Investments 1,414,632,409 156,097,182 569,210,585 35,000,006 654,324,636
----------------------------------------------------------------------------
Dividends/Capital Gains/Interest
Receivable 9,934,227 2,035,750 7,423,392 - 475,085
Employer Contributions Receivable 15,230,780 - 15,230,780 - -
Cash and Cash Equivalents 3,963,483 - 3,963,483 - -
----------------------------------------------------------------------------
Total Assets 1,443,760,899 158,132,932 595,828,240 35,000,006 654,799,721
----------------------------------------------------------------------------
LIABILITIES
ESOP Loan Payable 98,344,953 98,344,953 - - -
Participants' Loans Payable 2,214,541 - - 2,214,541 -
Interest Payable - ESOP Loan 983,450 983,450 - - -
----------------------------------------------------------------------------
Total Liabilities 101,542,944 99,328,403 - 2,214,541 -
----------------------------------------------------------------------------
NET ASSETS AVAILABLE FOR BENEFITS $ 1,342,217,955 $ 58,804,529 $ 595,828,240 $ 32,785,465 $ 654,799,721
============================================================================
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, 2004
SUPPLEMENTAL INFORMATION
----------------------------------------------------------------------
PARTICIPANT
DIRECTED
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 $ 56,389,774 $ 8,049,360 $ 30,161,528 $ - $ 18,178,886
Net Appreciation in Fair Value 36,309,878 221,852 (1,308,996) - 37,397,022
Interest 1,623,498 - 1,002,657 174,569 446,272
Contributions:
Employer 42,407,910 11,532,445 30,875,465 - -
Participants 55,170,584 - 18,806,691 - 36,363,893
------------------------------------------------------------------------------------------
Total Additions to Net Assets 191,901,644 19,803,657 79,537,345 174,569 92,386,073
------------------------------------------------------------------------------------------
DEDUCTIONS FROM NET ASSETS
Interest Expense 6,357,083 6,274,500 - 82,583 -
Allocation of Shares 26,676,871 26,676,871 - - -
Distribution of Benefits 68,575,930 - 36,025,590 920,340 31,630,000
Administrative Expense 91,986 - - 91,986 -
------------------------------------------------------------------------------------------
Total Deductions from Net Assets 101,701,870 32,951,371 36,025,590 1,094,909 31,630,000
------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 90,199,774 (13,147,714) 43,511,755 (920,340) 60,756,073
LOAN ISSUANCES/REPAYMENTS - - (909,821) 2,198,352 (1,288,531)
NET TRANSFERS AMONG INVESTMENT
OPTIONS - - (66,918,891) (489,198) 67,408,089
ET ASSETS AVAILABLE FOR BENEFITS -
DECEMBER 31, 2003 1,252,018,181 71,952,243 620,145,197 31,996,651 527,924,090
------------------------------------------------------------------------------------------
NET ASSETS AVAILABLE FOR BENEFITS -
DECEMBER 31, 2004 $ 1,342,217,955 $ 58,804,529 $ 595,828,240 $ 32,785,465 $ 654,799,721
==========================================================================================
See Notes to Financial Statements.
5
PROGRESS ENERGY 401(K) SAVINGS
& STOCK OWNERSHIP PLAN
Statement of Net Assets Available for Benefits
December 31, 2003
SUPPLEMENTAL INFORMATION
-------------------------------------------------------------
PARTICIPANT
DIRECTED
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 $ - $ -
Fidelity Mid Cap Stock Fund 58,481,379 - - - 58,481,379
EuroPacific Growth Fund 24,574,291 - - - 24,574,291
Growth Fund of America 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
Columbia 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.
6
PROGRESS ENERGY 401(k) SAVINGS
& STOCK OWNERSHIP PLAN
Notes to Financial Statements
As of December 31, 2004 and 2003 and
Period Ended December 31, 2004
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 purpose of the Plan is to encourage
systematic savings by employees and to provide employees with a convenient
method of acquiring an equity interest in Progress Energy (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, 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. (PVI), respectively. The legal names of these entities have not
changed, and there is no restructuring of any kind related to the name change.
In 2003, the Company received notice from the Plan's record keeper, ADP, Inc.,
that effective May 2004 it would no longer provide 401(k) plan recordkeeping
services to large-market clients, which included the Progress Energy 401(k)
Savings & Stock Ownership Plan. Fidelity Investments Institutional Operations
Company, Inc. ("Fidelity") was selected and approved to be the new record keeper
for the Plan, effective May 14, 2004. State Street Bank & Trust Company, N.A.
("State Street" or the "Trustee") continues to provide trustee services to the
Plan.
In order to ensure that all account information was properly transferred
accurately from ADP to Fidelity, there was a transition blackout period from May
7, 2004 through May 21, 2004. Related to this blackout period, Progress Energy
was late in filing a Form 8-K pursuant to Item 11 of that Form (Temporary
Suspension of Trading Under Registrant's Employee Benefit Plans). The filing
relates to notice to Section 16 insiders informing them of the prohibition of
trading in the Company's securities during an upcoming 401(k) blackout period.
Notice was given to all Section 16 insiders regarding these trading restrictions
well before the blackout period commenced.
On September 30, 2003, 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.
7
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,
PVI, 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.
Employee Contributions Under the Plan
Employees who have earnings equal to or less than a certain level ($90,000 for
2004 and 2003) may contribute from 1% to 25%, in increments of 1%, of their
annual eligible base salary earnings (the "Deferred Contribution") as defined by
the Plan. Employees with earnings above this level may contribute from 1% to 18%
of their eligible base salary earnings, as defined by the Plan. 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
$13,000 for 2004 and $12,000 for 2003, as defined by certain Internal Revenue
Code ("IRC") limitations.
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 2004 and 2003) may elect to contribute an after-tax amount
from 1% to 25%, in increments of 1%, of their eligible base salary earnings, as
defined by the Plan. Employees with earnings above this level may contribute an
after-tax amount from 1% to 18% of their eligible base salary earnings, as
defined by the Plan. 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, as defined by the Plan, during 2004 or 2003.
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 equal to 50% of the first 6% of each
employee's before- or after-tax contributions on a pay period by pay period
basis (the "Automatic Company-match").
The Plan also has an incentive feature (the "Employee Stock Incentive Plan
(ESIP) 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 ESIP Match, assumed to have
made a before-tax contribution of 2% to the Plan. During the first year of
service, employees must contribute at least 1% of eligible base pay earnings
each pay period to receive an ESIP match allocation. The Company made ESIP
matching allocations of approximately $15.2 million for the Plan year ended
December 31, 2004 and approximately $14.8 million for the Plan year ended
December 31, 2003.
8
All Company matching allocations and any earnings on securities purchased with
these allocations are invested in common stock of the Company. Participants may
reallocate the company match allocation from the Company Stock Fund to any of
the other investment options at any time.
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.
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 2005 through 2009 and a total of
$18,246,358 for 2010. The ESOP Stock Suspense Account shares in the Plan, which
totaled 3,450,424 shares at December 31, 2004, are pledged as collateral for the
ESOP Loan. During the 2004 and 2003 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 requires a small portion of this fund to be held in 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, 2004 and December 31, 2003, the reserve totaled
approximately $4.0 million and $4.4 million, respectively.
9
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. The only
limitations on transfers are the limitations on roundtrip transactions under
Fidelity's Excessive Trading Policy, which was put in place on December 6, 2004
and applies to all Fidelity mutual funds. A roundtrip transactions occurs when a
participant exchanges in and then out of a fund option within 30 days.
Fidelity's Excessive Trading Policy limits participants to one roundtrip
transaction per fund within any rolling 90-day period, subject to an overall
limit of four roundtrip transactions across all funds over a rolling 12-month
period. All Company matching allocations are initially invested in common stock
of the Company. Employees may elect to receive Company common stock dividends in
cash (subject to income tax). Participants immediately vest in all dividends
generated from Company common stock, including dividends on Company match
allocations, without regard to length of service.
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.
Participants Accounts
Individual accounts are maintained for each plan participant. Each participant's
account is credited with the participant's contributions, the Company's matching
contributions, plan earnings and charged with withdrawals, allocations of plan
losses and administrative expenses. Allocations are based on participant
earnings or account balances, as defined. The benefit to which a participant is
entitled is the benefit that can be provided from the participant's vested
account.
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. Participants with
less than one year of service will become 100% vested in Company match
allocations upon; death, becoming totally and permanently disabled while
employed, placement in a specially designed Company outplacement program or
discontinuance of the Plan. 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. 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 $1,000 or
less at termination are automatically distributed to the participant as a lump
sum. 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 $41,395 in 2004 and
$48,036 in 2003.
10
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 vested
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. Prior to 2002, the loans were funded with a borrowing
arrangement by the Plan with an outside lending institution (former loan plan).
All loans issued prior to 2002, except those transferred to the Plan from the
Savings Plan for Employees of Florida Progress Corporation ("Florida Plan") at
December 31, 2001, 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 participants'
account balance and placed in a separate Participant Loan Fund. Repayments are
returned to each participant account, reducing the outstanding Participant Loan
Fund balance. Interest income for the current loan plan is recorded in the
participant directed investment accounts.
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 based on the prime rate on the last day of the
previous calendar quarter and is fixed for the life of the loan. The prime rate
ranged from 4.00% to 5.15% in 2004 and from 4.00% to 4.25% in 2003. Interest
rates on loans outstanding during 2004 and 2003 under the current loan plan,
including those transferred from the Florida Plan, ranged from 4.00% to 9.50%.
Loans outstanding under the former loan plan are subject to a variable rate and
bear interest at the prime rate plus one-half percent. Interest rates on loans
outstanding issued under the former loan plan ranged from 4.50% to 5.25% during
2004 and 2003.
The borrowings from the outside lender to fund the former loan plan bear
interest at the one-month London InterBank Offering Rate (LIBOR). For 2004 and
2003, the one-month LIBOR averaged 1.50% and 1.30%, respectively.
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.
11
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following accounting policies, which conform to accounting principles
generally accepted in the United States of America, have been used consistently
in the preparation of the Plan's financial statements:
Basis of Accounting
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.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires plan management to
make estimates and assumptions that affect the reported amounts of net assets
available for benefits and changes therein. Actual results could differ from
those estimates. The Plan utilizes various investment instruments. Investment
securities, in general, are exposed to various risks, such as interest rate,
credit, and overall market volatility. Due to the level of risk associated with
certain investment securities, it is reasonably possible that changes in the
values of investment securities will occur in the near term and that such
changes could materially affect the amounts reported in the financial
statements.
Investment Valuation and Income Recognition
The Plan's investments are stated at fair value. Shares of registered investment
companies are value at quoted market prices, which represent the net asset value
of shares held by the Plan at year-end. The Progress Energy Company Stock Fund
and the Contingent Value Obligation ("CVO") Fund are valued at their year-end
unit closing prices (constituting market value of shares owned or CVOs,
respectively, plus uninvested cash position). Progress Energy Company common
stock is valued at its closing market price as of the end of the day. CVOs are
valued at their last traded price which management believes is an estimate of
their fair value at the valuation date. CVOs do not trade frequently. Therefore,
the values presented are not necessarily indicative of what the Plan could have
recognized if CVOs were traded on the valuation date. Participant loans are
valued at cost, which approximates fair value.
Purchases and sales of investments are recorded on a trade-date basis. Interest
income is accrued when earned. Dividend income is recorded on the ex-dividend
date.
Payment of Benefits
Benefits are recorded when paid. When Progress Energy Company common stock is
distributed from the Progress Energy Company Stock Fund to participants in
settlement of their accounts, distributions are recorded at the value of shares
distributed.
Plan Expenses
The expenses incurred by the Trustee and Fidelity, the third-party
administrator, in the administration of the Plan may be paid from assets of the
Plan to the extent not paid by the Company.
3. INVESTMENTS
The Plan's investments are held in trust by the Trustee. During the 2004 plan
year, the following fund names were changed; Fidelity Mid Cap Stock Fund
(formerly Putnam New Opportunities Fund), Growth Fund of America (formerly
Putnam Investors Large Cap Growth Fund), EuroPacific Growth Fund (formerly
American EuroPacific Growth Fund) and Columbia Acorn Fund (formerly Liberty
Acorn Fund).
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The following table summarized the Plan's investments that represent 5% or more
of the Plan's net assets available for benefits:
2004 2003
Vanguard S&P 500 Index Fund,
764,271 and 756,374 shares, respectively $ 84,612,490 $ 76,983,739
Fidelity Equity Income Fund,
1,501,937 and 1,383,866 shares, respectively $ 79,272,236 $ 68,847,355
Columbia Acorn Fund,
3,048,377 and 1,541,233 shares, respectively $ 80,629,569 *
Vanguard Retirement Savings Trust,
140,625,844 and 130,703,777 units, respectively $ 140,625,844 $ 130,703,777
Progress Energy, Inc. Common Stock Fund,
16,032,444 and 17,144,507 units, respectively $ 725,307,767 $ 775,960,387
*balance is less than 5% of the Plan's net assets available for benefits as
of the end of the year
During 2004, the Plan's investments (including gains and losses on investments
bought and sold, as well as held during the year) appreciated in value by
$36,309,878 as follows:
Progress Energy, Inc. Common Stock $ (1,087,144)
Mutual Funds 37,397,022
--------------
Net Appreciation in Fair Value of Investments $ 36,309,878
==============
4. RELATED PARTY TRANSACTIONS
The Plan invests in shares of mutual funds managed by affiliates of Fidelity,
which acts as record keeper for the Plan. Transactions in such investments
qualify as party-in-interest transactions and are exempt from the prohibited
transaction rules.
Plan investments at end of period include shares of money market funds managed
by State Street, the Trustee as defined by the Plan, and therefore qualify as
party-in-interest transactions.
5. TAX STATUS
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.
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6. NONEXEMPT PARTY-IN-INTEREST TRANSACTIONS
Progress Energy, Inc. remitted the following participant contributions, which
consisted of loan repayments, to the trustee later than required by D.O.L.
Regulation 2510.3-102, which requires an employer to segregate employee
contributions from its general assets as soon as practicable, but no more than
the 15th business day following the end of the month in which amounts are
contributed by employees or withheld from their wages: the February 27, 2004
participant contributions of $147,423 were remitted on March 30, 2004; the July
30, 2004 participant contributions of $95,701 were remitted on August 25, 2004;
and the August 27, 2004 participant contributions of $88,120 were remitted on
September 29, 2004.
14
PROGRESS ENERGY 401(K) SAVINGS
& STOCK OWNERSHIP PLAN
Schedule H, Part IV, line 4i - Schedule of Assets (Held at End of Year)
As of December 31, 2004
- ------------------------------------------------------------------------------------------------------------------
Description of Investment, Including
Identity of Issue, Borrower, Maturity Date, Rate of Interest,
Lessor, or Similar Party Collateral, Par or Maturity Value Cost Current Value
- ------------------------------------------------------------------------------------------------------------------
*Progress Energy, Inc. Common Stock Fund Common stock, no par or
stated value ** $ 725,307,767
*Fidelity Mid Cap Stock Fund Mutual fund ** 59,227,400
EuroPacific Growth Fund Mutual fund ** 42,261,356
Growth Fund of America Mutual fund ** 35,895,258
Vanguard S&P 500 Index Fund Mutual fund ** 84,612,490
Vanguard Retirement Savings Trust Common trust fund ** 140,625,844
PIMCO Total Return Bond Fund Mutual Fund ** 48,200,236
*Fidelity Equity Income Fund Mutual Fund ** 79,272,236
*Fidelity Freedom Income Fund Mutual Fund ** 4,229,991
*Fidelity Freedom 2000 Fund Mutual Fund ** 5,316,764
*Fidelity Freedom 2005 Fund Mutual Fund ** 635,821
*Fidelity Freedom 2010 Fund Mutual Fund ** 19,321,999
*Fidelity Freedom 2015 Fund Mutual Fund ** 1,709,741
*Fidelity Freedom 2020 Fund Mutual Fund ** 16,224,152
*Fidelity Freedom 2025 Fund Mutual Fund ** 765,874
*Fidelity Freedom 2030 Fund Mutual Fund ** 22,993,510
*Fidelity Freedom 2035 Fund Mutual Fund ** 281,078
*Fidelity Freedom 2040 Fund Mutual Fund ** 12,072,179
*Progress Energy, Inc. Contingent Value Obligations ** 49,138
Columbia Acorn Fund Mutual Fund ** 80,629,569
*Various participants Loans to plan participants
(Maturing through 2009 with
interest rates
ranging from 4.0% to 9.5%) ** 35,000,006
------------------
Total $ 1,414,632,409
==================
* Party in interest
**Cost information is not required for participant-directed investments, and
therefore, is not included.
15
PROGRESS ENERGY 401(K) SAVINGS
& STOCK OWNERSHIP PLAN
Form 5500, Schedule H, Part IV, Question 4a -
Delinquent Participant Contributions
For the Year Ended December 31, 2004
- -------------------------------------------------------------------------------------------------------------------------------
Relationship to Plan, Employer,
Identity of Party Involved or Other Party-in-Interest Description of Transactions Amount
- -------------------------------------------------------------------------------------------------------------------------------
Progress Energy, Inc. Employer/Plan Sponsor Participant contributions for employees, which $ 147,423
consisted of loan repayments, were not funded
within the time period prescribed by D.O.L.
Regulation 2510.3-102. The February 27, 2004,
participant contribution, which consisted of
loan repayments, was deposited on March 30, 2004.
Progress Energy, Inc. Employer/Plan Sponsor Participant contributions for employees, which $ 95,701
consisted of loan repayments, were not funded
within the time period prescribed by D.O.L.
Regulation 2510.3-102. The July 30, 2004,
participant contribution, which consisted of
loan repayments, was deposited on August 25, 2004.
Progress Energy, Inc. Employer/Plan Sponsor Participant contributions for employees, which $ 88,120
consisted of loan repayments, were not funded
within the time period prescribed by D.O.L.
Regulation 2510.3-102. The August 27, 2004,
participant contribution, which consisted of
loan repayments, was deposited on September 29, 2004.
16
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/ Masceo S. DesChamps, Secretary
----------------------------------
Masceo S. DesChamps, Secretary
Progress Energy 401(k) Savings & Stock Ownership Plan
Administrative Committee
Date: June 28, 2005
17
EXHIBITS INDEX
Exhibit Number
Exhibit No. 23 Consent of Deloitte & Touche LLP
18
Exhibit No. 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in this Registration Statement No.
33-33520 and Registration Statement No. 333-48164 on Form S-8 of our report
dated June 27, 2005, 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, 2004.
/s/ DELOITTE & TOUCHE LLP
Raleigh, North Carolina
June 27, 2005
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