Progress Energy 2004 Annual Report Download - page 81

B. Investments
The Company continually reviews its investments to
determine whether a decline in fair value below the cost
basis is other than temporary. In 2003, PEC’s affordable
housing investment (AHI) portfolio was reviewed and
deemed to be impaired based on various factors
including continued operating losses of the AHI portfolio
and management performance issues arising at certain
properties within the AHI portfolio. As a result, PEC
recorded an impairment of $18 million on a pre-tax basis
during the fourth quarter of 2003. PEC also recorded an
impairment of $3 million for a cost investment.
In May 2002, Interpath Communication, Inc., merged with a
third party. As a result, the Company reviewed the Interpath
investment for impairment and wrote off the remaining
amount of its cost-basis investment in Interpath, recording
a pre-tax impairment of $25 million in the third quarter of
2002. In the fourth quarter of 2002, the Company sold its
remaining interest in Interpath for a nominal amount.
11. EQUITY
A. Common Stock
At December 31, 2004, the Company had approximately
63 million shares of common stock authorized by the
Board of Directors that remained unissued and reserved,
primarily to satisfy the requirements of the Company’s
stock plans. In 2002, the Board of Directors authorized
meeting the requirements of the Progress Energy 401(k)
Savings and Stock Ownership Plan and the Investor Plus
Stock Purchase Plan with original issue shares. During
2004, 2003 and 2002, respectively, the Company issued
approximately 1 million, 8 million and 2 million shares
under these plans for net proceeds of approximately
$62 million, $305 million and $86 million. The Company
continues to meet the requirements of the restricted
stock plan with issued and outstanding shares.
In November 2002, the Company issued 14.7 million
shares of common stock for net cash proceeds of
approximately $600 million, which were primarily used to
retire commercial paper. In April 2002, the Company
issued 2.5 million shares of common stock, valued at
approximately $129 million, in conjunction with the
purchase of Westchester (See Note 5D).
There are various provisions limiting the use of retained
earnings for the payment of dividends under certain
circumstances. At December 31, 2004, there were no
significant restrictions on the use of retained earnings.
B. Stock-Based Compensation
EMPLOYEE STOCK OWNERSHIP PLAN
The Company sponsors the Progress Energy 401(k) Savings
and Stock Ownership Plan (401(k)) for which substantially
all full-time nonbargaining unit employees and certain part-
time nonbargaining unit employees within participating
subsidiaries are eligible. Participating subsidiaries within
the Company as of January 1, 2003, were PEC, PEF, PTC,
Progress Fuels (Corporate) and Progress Energy Service
Company. Effective December 19, 2003, (the PT LLC/EPIK
merger date), PTC no longer participates in the 401(k) plan.
The 401(k), which has Company matching and incentive
goal features, encourages systematic savings by
employees and provides a method of acquiring Company
common stock and other diverse investments. The 401(k),
as amended in 1989, is an Employee Stock Ownership Plan
(ESOP) that can enter into acquisition loans to acquire
Company common stock to satisfy 401(k) common share
needs. Qualification as an ESOP did not change the level of
benefits received by employees under the 401(k). Common
stock acquired with the proceeds of an ESOP loan is held
by the 401(k) Trustee in a suspense account. The common
stock is released from the suspense account and made
available for allocation to participants as the ESOP loan is
repaid. Such allocations are used to partially meet common
stock needs related to Company matching and incentive
contributions and/or reinvested dividends. All or a portion
of the dividends paid on ESOP suspense shares and on
ESOP shares allocated to participants may be used to
repay ESOP acquisition loans. To the extent used to repay
such loans, the dividends are deductible for income tax
purposes. Also, beginning in 2002, the dividends paid on
ESOP shares that are either paid directly to participants or
used to purchase additional shares, which are then
allocated to participants, are fully deductible for income
tax purposes.
There were 3.5 million and 4.0 million ESOP suspense
shares at December 31, 2004 and 2003, respectively, with
a fair value of $156 million and $183 million, respectively.
ESOP shares allocated to plan participants totaled
12.6 million and 13.1 million at December 31, 2004 and
2003, respectively. The Company’s matching and
incentive goal compensation cost under the 401(k) is
determined based on matching percentages and
incentive goal attainment as defined in the plan. Such
compensation cost is allocated to participants’ accounts
in the form of Company common stock, with the number
of shares determined by dividing compensation cost by
the common stock market value at the time of allocation.
The Company currently meets common stock share
needs with open market purchases, with shares
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Progress Energy Annual Report 2004