Progress Energy 2004 Annual Report Download - page 35

OTHER NONREGULATED BUSINESS AREAS
Progress Energy’s other business areas include the
operations of SRS and the telecommunications
operations. SRS was engaged in providing energy
services to industrial, commercial and institutional
customers to help manage energy costs primarily in the
southeastern United States. During 2004, SRS sold its
subsidiary, Progress Energy Solutions (PES). With the
disposition of PES, the Company exited this business
area. Telecommunication operations provide broadband
capacity services, dark fiber and wireless services in
Florida and the eastern United States. In December 2003,
PTC and Caronet, both wholly owned telecommunication
subsidiaries of Progress Energy, and EPIK, a wholly
owned subsidiary of Odyssey, contributed substantially
all of their assets and transferred certain liabilities to PT
LLC, a subsidiary of PTC. The accounts of PT LLC have
been included in the Company’s Consolidated Financial
Statements since the transaction date. See additional
discussion on the telecommunication business
combination in Note 5A.
Other nonregulated business areas contributed segment
losses of $38 million compared to losses of $24 million for
the years ended December 31, 2004, and 2003,
respectively. SRS recorded a net loss of $27 million for
2004 compared to a net loss of $6 million for 2003. The
increased loss compared to the prior year is due primarily
to the recording of the litigation settlement reached with
San Francisco United School District (the District) related
to civil proceedings. In June 2004, SRS reached a
settlement with the District that settled all outstanding
claims for approximately $43 million pre-tax ($29 million
after-tax). The reduction in earnings due to the settlement
was offset partially by a gain recognized on the sale of
Progress Energy Solutions. Telecommunication
operations recorded a net loss of $5 million in 2004
compared to a net profit of $2 million in 2003. The
increase in losses compared to prior year is due to an
increase in fixed costs, mainly depreciation expense, and
professional fees related to the merger with EPIK. The
increased losses at SRS and telecommunication
operations were offset partially by a reduction in losses
at the nonutility subsidiaries of PEC. The nonutility
subsidiaries of PEC contributed segment losses of
$6 million and $18 million for the years ended December
31, 2004, and 2003, respectively. Included in the 2003
segment losses is an investment impairment of $6 million
after-tax on the Affordable Housing portfolio held by the
nonutility subsidiaries of PEC (See Note 10B). A reduction
in investment losses accounted for the remaining
favorability compared to prior year.
Other nonregulated business areas contributed segment
losses of $24 million in 2003 compared to $250 million for
the year ended December 31, 2002. The 2002 segment
losses include an asset impairment and other charges in
the telecommunications business of $225 million after-
tax. See discussion of impairments at Note 10 of the
Consolidated Financial Statements.
CORPORATE SERVICES
Corporate Services (Corporate) includes the operations of
the holding company, Progress Energy Service Company
and other consolidating and nonoperating entities, as
summarized below:
The other interest expense decrease for 2004 compared to
2003 is partially due to the repayment of a $500 million
unsecured note by the Holding Company on March 1, 2004,
which reduced interest expense by $27 million pre-tax for
2004. This reduction was offset by interest no longer being
capitalized due to the completion of construction in the
CCO segment in 2003. Approximately $10 million ($6 million
after-tax) was capitalized in 2003. No interest expense was
capitalized during 2004. Interest expense increased
$10 million in 2003 compared to 2002 due to a decrease of
$9 million in the amount of interest capitalized related to
the construction of plants by CCO which was completed
in 2003.
Progress Energy issued 98.6 million contingent value
obligations (CVOs) in connection with the acquisition of
FPC in 2000. Each CVO represents the right to receive
contingent payments based on the performance of four
synthetic fuel facilities owned by Progress Energy. The
payments, if any, are based on the net after-tax cash
flows the facilities generate. At December 31, 2004, 2003
and 2002, the CVOs had a fair market value of
approximately $13 million, $23 million and $14 million,
respectively. Progress Energy recorded unrealized
losses of $9 million for 2003 and an unrealized gain of
$9 million and $28 million for 2004 and 2002, respectively,
to record the changes in fair value of CVOs, which
33
Progress Energy Annual Report 2004
Income (Expense) (in millions)
2004 Change 2003 Change 2002
Other interest
expense $(270) $15 $(285) $(10) $(275)
Contingent value
obligations 918 (9) (37) 28
Tax reallocation (37) 1 (38) 18 (56)
Other income taxes 102 (22) 124 11 113
Other income
(expense) (2) 19 (21) (16) (5)
Segment loss $(198) $31 $(229) $(34) $(195)