UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
For the quarterly period ended September 30, 2004
OR
For the transition period from _________ to __________.
| Commission File Number |
Exact name of registrants as specified in their charters, state of incorporation, address of principal executive offices, and telephone number |
I.R.S. Employer Identification Number |
| 1-15929 | Progress Energy, Inc. 410 South Wilmington Street Raleigh, North Carolina 27601-1748 Telephone: (919) 546-6111 State of Incorporation: North Carolina |
56-2155481 |
| 1-3382 | Carolina Power & Light Company d/b/a Progress Energy Carolinas, Inc. 410 South Wilmington Street Raleigh, North Carolina 27601-1748 Telephone: (919) 546-6111 State of Incorporation: North Carolina |
56-0165465 |
NONE
Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No
Indicate by check mark whether Progress Energy, Inc. (Progress Energy) is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No __
Indicate by check mark whether Carolina Power & Light Company is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes __ No X
This combined Form 10-Q is filed separately by two registrants: Progress Energy and Carolina Power & Light Company d/b/a Progress Energy Carolinas, Inc. (PEC). Information contained herein relating to either individual registrant is filed by such registrant solely on its own behalf. Each registrant makes no representation as to information relating exclusively to the other registrant.
Indicate the number of shares outstanding of each of the issuers’ classes of common stock, as of the latest practicable date. As of November 3, 2004, each registrant had the following shares of common stock outstanding:
| Registrant | Description | Shares |
|---|---|---|
| Progress Energy | Common Stock (Without Par Value) | 247,047,599 |
| PEC | Common Stock (Without Par Value) | 159,608,055 (all of which were held by Progress Energy, Inc.) |
Glossary of Terms
Safe Harbor For Forward-Looking Statements
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
| Consolidated Interim Financial Statements: |
| Progress
Energy, Inc. ________________________________________ |
| Unaudited
Consolidated Statements of Income Unaudited Consolidated Balance Sheets Unaudited Consolidated Statements of Cash Flows Notes to Consolidated Interim Financial Statements |
| Carolina
Power & Light Company d/b/a Progress Energy Carolinas, Inc. ________________________________________ |
| Unaudited
Consolidated Statements of Income Unaudited Consolidated Balance Sheets Unaudited Consolidated Statements of Cash Flows Notes to Consolidated Interim Financial Statements |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
Signatures
The following abbreviations or acronyms used in the text of this combined Form 10-Q are defined below:
| TERM | DEFINITION |
|---|---|
| AFUDC the Agreement Bcf Btu CAIR CCO Colona the Company or Progress Energy CR3 CVO DIG DMT DOE DWM EIA EITF ENCNG EPA FASB Staff Position 106-2 FDEP Federal Circuit FERC FIN No. 46R Florida Progress or FPC FPSC Fuels Genco Jackson MACT Medicare Act Mesa MGP Moody's MW NCNG NCUC Norfolk Southern NOx NOx SIP Call NRC NSP OCI O&M OPEB PCH PEC PEF PFA the Plan PLRs Progress Rail PRP PTC PT LLC Progress Ventures PUHCA PVI PWR Rail Services or Rail RTO SCPSC Section 29 Service Company SFAS No. 71 SFAS No. 131 SFAS No. 133 SFAS No. 142 SFAS No. 143 SFAS No. 148 SFAS No. 149 SMD NOPR SO2 S&P SRS STB Tax Agreement the Trust Westchester |
Allowance for funds used during construction Stipulation and Settlement Agreement Billion cubic feet British thermal units Clean Air Interstate Rule Competitive Commercial Operations business segment Colona Synfuel Limited Partnership, LLLP Progress Energy, Inc. and subsidiaries Progress Energy Florida Inc.'s nuclear generating plant, Crystal River Unit No. 3 Contingent value obligation Derivatives Implementation Group Dynegy Marketing and Trading United States Department of Energy North Carolina Department of Environment and Natural Resources, Division of Waste Management Energy Information Agency Emerging Issues Task Force Eastern North Carolina Natural Gas Company, formerly referred to as Eastern NC United States Environmental Protection Agency Accounting and Disclosure Requirements Related to the Medicare Prescription Drug Improvement and Modernization Act of 2003 Florida Department of Environment and Protection United States Circuit Court of Appeals Federal Energy Regulatory Commission FASB Interpretation No. 46, "Consolidation of Variable Interest Entities - An Interpretation of ARB No. 51," revised December 2003 Florida Progress Corporation Florida Public Service Commission Fuels business segment Progress Genco Ventures, LLC Jackson County EMC Maximum Available Control Technology Medicare Prescription Drug, Improvement and Modernization Act of 2003 Mesa Hydrocarbons, LLC Manufactured gas plant Moody's Investors Service Megawatts North Carolina Natural Gas Corporation North Carolina Utilities Commission Norfolk Southern Railway Company Nitrogen oxide EPA rule which requires 23 jurisdictions including North and South Carolina and Georgia to further reduce nitrogen oxide emissions United States Nuclear Regulatory Commission Northern States Power Accumulated other comprehensive income Operating and maintenance Other post-employment benefits Progress Capital Holdings, Inc. Progress Energy Carolinas, Inc., formerly referred to as Carolina Power & Light Company Progress Energy Florida, Inc., formerly referred to as Florida Power Corporation IRS Pre-filing Agreement Revenue Sharing Incentive Plan Private Letter Rulings Progress Rail Services Corporation Potentially responsible parties Progress Telecommunications Corporation Progress Telecom LLC Business unit of Progress Energy primarily made up of nonregulated energy generation, gas, coal and synthetic fuel operations and energy marketing Public Utility Holding Company Act of 1935, as amended Legal entity of Progress Ventures, Inc. Pressurized water reactor Rail Services business segment Regional Transmission Organization Public Service Commission of South Carolina Section 29 of the Internal Revenue Code Progress Energy Service Company, LLC Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" Statement of Financial Accounting Standards No. 133, "Accounting for Derivative and Hedging Activities" Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - An Amendment of FASB Statement No. 123" Statement of Financial Accounting Standards No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" Notice of Proposed Rulemaking in Docket No. RM01-12-000, Remedying Undue Discrimination through Open Access Transmission and Standard Market Design Sulfur dioxide Standard & Poor's Rating Agency Strategic Resource Solutions Corp. Surface Transportation Board Inter-company Income Tax Allocation Agreement FPC Capital I trust Westchester Gas Company |
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
This combined report contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The matters discussed throughout this combined Form 10-Q that are not historical facts are forward-looking and, accordingly, involve estimates, projections, goals, forecasts, assumptions, risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements.
In addition, forward-looking statements are discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” including, but not limited to, statements under the sub-headings “Liquidity and Capital Resources”and “Other Matters” about the effects of new environmental regulations, nuclear decommissioning costs and the effect of electric utility industry restructuring.
Any forward-looking statement speaks only as of the date on which such statement is made, and neither Progress Energy, Inc. (Progress Energy or the Company) nor Progress Energy Carolinas, Inc. (PEC) undertakes any 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 throughout 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; 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; our ability to recover through the regulatory process, and the timing of, the costs associated with the four hurricanes that impacted our service territory in 2004 or other significant weather events; recurring seasonal fluctuations in demand for electricity; fluctuations in the price of energy commodities and purchased power; economic fluctuations and the corresponding impact on Progress Energy, Inc. and its subsidiaries’ commercial and industrial customers; the ability of the Company’s subsidiaries to pay upstream dividends or distributions to it; the impact on the facilities and the businesses of the Company 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 leverage may have on the Company; the ability of the Company to maintain its current credit ratings; the impact of derivative contracts used in the normal course of business by the Company; investment performance of pension and benefit plans; the Company's ability to control costs, including pension and benefit expense, and achieve its cost management targets for 2007; the availability and use of Internal Revenue Code Section 29 (Section 29) tax credits by synthetic fuel producers and the Company’s continued ability to use Section 29 tax credits related to its coal and synthetic fuel businesses; the impact to our financial condition and performance in the event it is determined the Company is not entitled to previously taken Section 29 tax credits; the Company’s ability to manage the risks involved with the operation of its nonregulated plants, including dependence on third parties and related counter-party risks, and a lack of operating history; the Company’s ability to manage the risks associated with its energy marketing operations; the outcome of any ongoing or future litigation or similar disputes and the impact of any such outcome or related settlements; and unanticipated changes in operating expenses and capital expenditures. Many of these risks similarly impact the Company’s subsidiaries.
These and other risk factors are detailed from time to time in the Progress Energy and PEC United States Securities and Exchange Commission (SEC) reports. Many, but not all of the factors that may impact actual results are discussed in the Risk Factors sections of Progress Energy’s and PEC’s annual report on Form 10-K for the year ended December 31, 2003, which were filed with the SEC on March 12, 2004. These reports should be read carefully. All such factors are difficult to predict, contain uncertainties that may materially affect actual results and may be beyond the control of Progress Energy and PEC. New factors emerge from time to time, and it is not possible for management to predict all such factors, nor can it assess the effect of each such factor on Progress Energy and PEC.
Item 1. Financial Statements
UNAUDITED CONSOLIDATED STATEMENTS of INCOME
| Three Months Ended September 30 |
Nine Months Ended September 30 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| (in millions except per share data) | 2004 | 2003 | 2004 | 2003 | |||||
| Operating Revenues | |||||||||
| Utility | $ 2,043 | $ 1,914 | $ 5,449 | $ 5,151 | |||||
| Diversified business | 732 | 543 | 2,002 | 1,543 | |||||
| Total Operating Revenues | 2,775 | 2,457 | 7,451 | 6,694 | |||||
| Operating Expenses | |||||||||
| Utility | |||||||||
| Fuel used in electric generation | 556 | 489 | 1,517 | 1,294 | |||||
| Purchased power | 269 | 254 | 671 | 667 | |||||
| Operation and maintenance | 324 | 369 | 1,059 | 1,068 | |||||
| Depreciation and amortization | 213 | 220 | 622 | 664 | |||||
| Taxes other than on income | 114 | 107 | 328 | 304 | |||||
| Diversified business | |||||||||
| Cost of sales | 620 | 455 | 1,797 | 1,346 | |||||
| Depreciation and amortization | 52 | 45 | 143 | 114 | |||||
| Other | 43 | 42 | 131 | 130 | |||||
| Total Operating Expenses | 2,191 | 1,981 | 6,268 | 5,587 | |||||
| Operating Income | 584 | 476 | 1,183 | 1,107 | |||||
| Other Income (Expense) | |||||||||
| Interest income | 2 | 2 | 9 | 8 | |||||
| Other, net | 36 | (2 | ) | 11 | (17 | ) | |||
| Total Other Income (Expense) | 38 | — | 20 | (9 | ) | ||||
| Interest Charges | |||||||||
| Net interest charges | 160 | 147 | 486 | 462 | |||||
| Allowance for borrowed funds used during construction | (2 | ) | (2 | ) | (5 | ) | (7 | ) | |
| Total Interest Charges, Net | 158 | 145 | 481 | 455 | |||||
| Income from Continuing Operations before Income Tax and | 464 | 331 | 722 | 643 | |||||
| Cumulative Effect of Change in Accounting Principle | |||||||||
| Income Tax Expense (Benefit) | 161 | (6 | ) | 158 | (55 | ) | |||
| Income from Continuing Operations before Cumulative Effect of | 303 | 337 | 564 | 698 | |||||
| Change in Accounting Principle | |||||||||
| Discontinued Operations, Net of Tax | — | (19 | ) | 1 | (5 | ) | |||
| Income before Cumulative Effect of Change in Accounting Principle | 303 | 318 | 565 | 693 | |||||
| Cumulative Effect of Change in Accounting Principle, Net of Tax | — | — | — | 1 | |||||
| Net Income | $ 303 | $ 318 | $ 565 | $ 694 | |||||
| Average Common Shares Outstanding | 243 | 239 | 242 | 236 | |||||
| Basic Earnings per Common Share | |||||||||
| Income from Continuing Operations before Cumulative | |||||||||
| Effect of Change in Accounting Principle | $ 1.25 | $ 1.41 | $ 2.33 | $ 2.96 | |||||
| Discontinued Operations, Net of Tax | — | (0.08 | ) | — | (0.02 | ) | |||
| Net Income | $ 1.25 | $ 1.33 | $ 2.33 | $ 2.94 | |||||
| Diluted Earnings per Common Share | |||||||||
| Income from Continuing Operations before Cumulative | |||||||||
| Effect of Change in Accounting Principle | $ 1.24 | $ 1.40 | $ 2.32 | $ 2.95 | |||||
| Discontinued Operations, Net of Tax | — | (0.08 | ) | — | (0.02 | ) | |||
| Net Income | $ 1.24 | $ 1.32 | $ 2.32 | $ 2.93 | |||||
| Dividends Declared per Common Share | $ 0.575 | $ 0.560 | $ 1.725 | $ 1.680 | |||||
See Notes to Progress Energy, Inc. Consolidated Interim Financial Statements.
PROGRESS
ENERGY, INC.
UNAUDITED
CONSOLIDATED BALANCE SHEETS
| (in millions) | September 30 | December 31 | |||
|---|---|---|---|---|---|
| ASSETS | 2004 | 2003 | |||
| Utility Plant | |||||
| Utility plant in service | $ 22,068 | $ 21,675 | |||
| Accumulated depreciation | (8,417 | ) | (8,169 | ) | |
| Utility plant in service, net | 13,651 | 13,506 | |||
| Held for future use | 13 | 13 | |||
| Construction work in progress | 680 | 634 | |||
| Nuclear fuel, net of amortization | 220 | 228 | |||
| Total Utility Plant, Net | 14,564 | 14,381 | |||
| Current Assets | |||||
| Cash and cash equivalents | 57 | 273 | |||
| Accounts receivable | 794 | 798 | |||
| Unbilled accounts receivable | 231 | 217 | |||
| Inventory | 935 | 795 | |||
| Deferred fuel cost | 382 | 317 | |||
| Prepayments and other current assets | 397 | 375 | |||
| Total Current Assets | 2,796 | 2,775 | |||
| Deferred Debits and Other Assets | |||||
| Regulatory assets | 894 | 612 | |||
| Nuclear decommissioning trust funds | 993 | 938 | |||
| Diversified business property, net | 2,186 | 2,158 | |||
| Miscellaneous other property and investments | 454 | 464 | |||
| Goodwill | 3,719 | 3,726 | |||
| Prepaid pension costs | 474 | 462 | |||
| Intangibles, net | 295 | 327 | |||
| Other assets | 245 | 253 | |||
| Total Deferred Debits and Other Assets | 9,260 | 8,940 | |||
| Total Assets | $ 26,620 | $ 26,096 | |||
| 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 | (15 | ) | (17 | ) | |
| Unearned ESOP shares | (76 | ) | (89 | ) | |
| Accumulated other comprehensive loss | (62 | ) | (50 | ) | |
| Retained earnings | 2,475 | 2,330 | |||
| Total Common Stock Equity | 7,661 | 7,444 | |||
| Preferred Stock of Subsidiaries-Not Subject to Mandatory Redemption | 93 | 93 | |||
| Long-Term Debt, Affiliate | 309 | 309 | |||
| Long-Term Debt, Net | 9,245 | 9,625 | |||
| Total Capitalization | 17,308 | 17,471 | |||
| Current Liabilities | |||||
| Current portion of long-term debt | 348 | 868 | |||
| Accounts payable and accrued liabilities | 940 | 643 | |||
| Interest accrued | 154 | 209 | |||
| Dividends declared | 141 | 140 | |||
| Short-term obligations | 668 | 4 | |||
| Customer deposits | 174 | 167 | |||
| Other current liabilities | 652 | 580 | |||
| Total Current Liabilities | 3,077 | 2,611 | |||
| Deferred Credits and Other Liabilities | |||||
| Accumulated deferred income taxes | 807 | 737 | |||
| Accumulated deferred investment tax credits | 179 | 190 | |||
| Regulatory liabilities | 2,977 | 2,885 | |||
| Asset retirement obligations | 1,323 | 1,271 | |||
| Other liabilities | 949 | 931 | |||
| Total Deferred Credits and Other Liabilities | 6,235 | 6,014 | |||
| Commitments and Contingencies (Note 15) | |||||
| Total Capitalization and Liabilities | $ 26,620 | $ 26,096 | |||
See Notes to Progress Energy, Inc. Consolidated Interim Financial Statements.
PROGRESS
ENERGY, INC.
UNAUDITED
CONSOLIDATED STATEMENTS of CASH FLOWS
| Nine Months Ended September 30 | |||||
|---|---|---|---|---|---|
| (in millions) | 2004 | 2003 | |||
| Operating Activities | |||||
| Net income | $ 565 | $ 694 | |||
| Adjustments to reconcile net income to net cash provided by operating | |||||
| activities: | |||||
| (Income) loss from discontinued operations | (1 | ) | 5 | ||
| Cumulative effect of change in accounting principle | — | (1 | ) | ||
| Depreciation and amortization | 857 | 853 | |||
| Deferred income taxes | 124 | (208 | ) | ||
| Investment tax credit | (11 | ) | (12 | ) | |
| Deferred fuel credit | (65 | ) | (144 | ) | |
| Cash provided (used) by changes in operating assets and liabilities | |||||
| Accounts receivable | (32 | ) | (77 | ) | |
| Inventories | (32 | ) | 63 | ||
| Prepayments and other current assets | (54 | ) | 30 | ||
| Accounts payable | 53 | (22 | ) | ||
| Income taxes, net | (25 | ) | 140 | ||
| Other current liabilities | (3 | ) | (13 | ) | |
| Other | (59 | ) | 123 | ||
| Net Cash Provided by Operating Activities | 1,317 | 1,431 | |||
| Investing Activities | |||||
| Gross utility property additions | (704 | ) | (759 | ) | |
| Diversified business property additions | (181 | ) | (476 | ) | |
| Nuclear fuel additions | (63 | ) | (96 | ) | |
| Contributions to nuclear decommissioning trust | (26 | ) | (26 | ) | |
| Investments in non-utility activities | (12 | ) | (11 | ) | |
| Acquisition of intangibles | (1 | ) | (198 | ) | |
| Proceeds from sales of investments and assets | 101 | 478 | |||
| Net decrease in restricted cash | 5 | 22 | |||
| Other | (8 | ) | (4 | ) | |
| Net Cash Used in Investing Activities | (889 | ) | (1,070 | ) | |
| Financing Activities | |||||
| Issuance of common stock | 58 | 284 | |||
| Purchase of common stock | (7 | ) | (7 | ) | |
| Issuance of long-term debt | 1 | 1,243 | |||
| Net increase (decrease) in short-term indebtedness | 664 | (696 | ) | ||
| Net decrease in cash provided by checks drawn in excess of bank balances | (52 | ) | (53 | ) | |
| Retirement of long-term debt | (905 | ) | (699 | ) | |
| Dividends paid on common stock | (423 | ) | (403 | ) | |
| Other | 20 | 9 | |||
| Net Cash Used in Financing Activities | (644 | ) | (322 | ) | |
| Net (Decrease) Increase in Cash and Cash Equivalents | (216 | ) | 39 | ||
| Cash and Cash Equivalents at Beginning of Period | 273 | 61 | |||
| Cash and Cash Equivalents at End of Period | $ 57 | $ 100 | |||
| Supplemental Disclosures of Cash Flow Information | |||||
| Cash paid during the year - interest (net of amount capitalized) | $ 530 | $ 516 | |||
| &nbs | |||||