Progress Energy 2004 Annual Report Download - page 89

$2,434 million and $2,143 million at December 31, 2004 and
2003, respectively. Total noncurrent income tax liabilities
on the Consolidated Balance Sheets at December 31, 2004
and 2003 include $105 million and $86 million,
respectively, related to probable tax liabilities on which
the Company accrues interest that would be payable with
the related tax amount in future years.
The federal income tax credit carry forward at
December 31, 2004, consists of $749 million of alternative
minimum tax credit with an indefinite carry forward
period and $30 million of general business credit with a
carry forward period that will begin to expire in 2020.
As of December 31, 2004, the Company had a state net
operating loss carry forward of $79 million, which will
begin to expire in 2007.
The Company established additional valuation allowances
of $5 million during 2004 and 2003 and $12 million during
2002, due to the uncertainty of realizing certain future state
tax benefits. The Company believes it is more likely than
not that the results of future operations will generate
sufficient taxable income to allow for the utilization of the
remaining deferred tax assets. Progress Energy
decreased its 2004 beginning of the year valuation
allowance by $8 million for a change in circumstances
related to net operating losses.
The Company establishes accruals for certain tax
contingencies when, despite the belief that the
Company’s tax return positions are fully supported, the
Company believes that certain positions may be
challenged and that it is probable the Company’s
positions may not be fully sustained. The Company is
under continuous examination by the Internal Revenue
Service and other tax authorities and accounts for
potential losses of tax benefits in accordance with SFAS
No. 5. At December 31, 2004 and 2003, respectively, the
Company had recorded $60 million and $56 million of tax
contingency reserves, excluding accrued interest and
penalties, which are included in other current liabilities
on the Consolidated Balance Sheets. Considering all tax
contingency reserves, the Company does not expect the
resolution of these matters to have a material impact on
its financial position or result of operations. All tax
contingency reserves relate to capitalization and basis
issues and do not relate to any potential disallowances of
tax credits from synthetic fuel production (See Note 23E).
Reconciliations of the Company’s effective income tax
rate to the statutory federal income tax rate are:
Income tax expense (benefit) applicable to continuing
operations is comprised of:
The company has recognized tax benefits from state net
operating loss carry forwards in the amount of $7 million
during 2004 and $3 million during 2003 and 2002.
The Company, through its subsidiaries, is a majority
owner in five entities and a minority owner in one entity
that owns facilities that produce synthetic fuel as defined
under the Internal Revenue Code (Code). The production
and sale of the synthetic fuel from these facilities
qualifies for tax credits under Section 29 if certain
requirements are satisfied (See Note 23E).
16. CONTINGENT VALUE OBLIGATIONS
In connection with the acquisition of FPC during 2000, the
Company issued 98.6 million contingent value obligations
(CVOs). Each CVO represents the right to receive
contingent payments based on the performance of four
synthetic fuel facilities purchased by subsidiaries of FPC
in October 1999. The payments, if any, would be based on
the net after-tax cash flows the facilities generate. The
CVO liability is adjusted to reflect market price
fluctuations. The unrealized loss/gain recognized due to
these market fluctuations is recorded in other, net on the
Consolidated Statements of Income (See Note 21). The
liability, included in other liabilities and deferred credits,
at December 31, 2004 and 2003, was $13 million and
$23 million, respectively.
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Progress Energy Annual Report 2004
2004 2003 2002
Effective income tax rate 13.5% (15.8)% (40.0)%
State income taxes, net of federal benefit (6.9) (3.3) (8.2)
AFUDC amortization (0.5) (1.4) (5.2)
Federal tax credits 25.6 50.4 78.0
Investment tax credit amortization 1.6 2.3 4.7
ESOP dividend deduction 1.8 2.1 3.8
Other differences, net (0.1) 0.7 1.9
Statutory federal income tax rate 35.0% 35.0% 35.0%
(in millions) 2004 2003 2002
Current – federal $127 $127 $195
state 76 54 67
Deferred – federal (84) (255) (379)
state 10 (21) (23)
Investment tax credit (14) (16) (18)
Total income tax expense (benefit) $115 $(111) $(158)