Progress Energy 2004 Annual Report Download - page 96

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Notes to Consolidated Financial Statements
Company has fully and unconditionally guaranteed the
obligations of Funding Corp. under the Subordinated
Notes (the Notes Guarantee). In addition, the Company
has guaranteed the payment of all distributions related
to the $300 million Preferred Securities required to be
made by the Trust, but only to the extent that the Trust
has funds available for such distributions (Preferred
Securities Guarantee). The Preferred Securities
Guarantee, considered together with the Notes
Guarantee, constitutes a full and unconditional
guarantee by the Company of the Trust’s obligations
under the Preferred Securities. The Subordinated Notes
and the Notes Guarantee are the sole assets of the Trust.
The Subordinated Notes may be redeemed at the option
of Funding Corp. at par value plus accrued interest
through the redemption date. The proceeds of any
redemption of the Subordinated Notes will be used by
the Trust to redeem proportional amounts of the
Preferred Securities and common securities in
accordance with their terms. Upon liquidation or
dissolution of Funding Corp., holders of the Preferred
Securities would be entitled to the liquidation preference
of $25 per share plus all accrued and unpaid dividends
thereon to the date of payment. The yearly interest
expense is $21 million and is reflected in the
Consolidated Statements of Income.
The Company sold NCNG to Piedmont Natural Gas
Company, Inc. on September 30, 2003 (See Note 4E).
Prior to disposition, NCNG sold natural gas to affiliates.
During the years ended December 31, 2003 and 2002,
sales of natural gas to affiliates amounted to $11 million
and $20 million, respectively. These revenues are
included in discontinued operations on the Consolidated
Statements of Income.
20. FINANCIAL INFORMATION
BY BUSINESS SEGMENT
The Company currently provides services through the
following business segments: PEC Electric, PEF, Fuels,
CCO and Rail Services. Prior to 2004, other nonregulated
business activities were reported separately in the
Other segment. These reportable segment changes
reflect the current reporting structure. For comparative
purposes, the results have been restated to align with
the current presentation.
PEC Electric and PEF are primarily engaged in the
generation, transmission, distribution and sale of electric
energy in portions of North Carolina, South Carolina and
Florida. These electric operations are subject to the rules
and regulations of the FERC, the NCUC, the SCPSC and
the FPSC. These electric operations also distribute and
sell electricity to other utilities, primarily on the east
coast of the United States.
Fuels operations, which are located throughout the
United States, are involved in natural gas drilling and
production, coal terminal services, coal mining, synthetic
fuel production and fuel transportation and delivery.
CCO’s operations, which are located in the southeastern
United States, include nonregulated electric generation
operations and marketing activities.
Rail Services’ operations include railcar repair, rail parts
reconditioning and sales, railcar leasing and sales and
scrap metal recycling. These activities include
maintenance and reconditioning of salvageable scrap
components of railcars, locomotive repair and right-of-
way maintenance. Rail Services’ operations are located
in the United States, Canada and Mexico.
In addition to these reportable operating segments, the
Company has Corporate and Other activities that include
holding company and service company operations as well
as other nonregulated business areas. These nonregulated
business areas include telecommunications and energy
service operations and other nonregulated subsidiaries that
do not separately meet the disclosure requirements of SFAS
No. 131, “Disclosures about Segments of an Enterprise and
Related Information.” Included in the 2004 losses is a
$43 million pre-tax ($29 million after-tax) settlement
agreement that SRS reached with the San Francisco United
School District related to civil proceedings. Included in the
2002 losses are asset impairments and certain other after-
tax charges related to the telecommunications operations
of $225 million. The operations of NCNG were reclassified to
discontinued operations and therefore are not included in
the results from continuing operations during the periods
reported. The profit or loss of the identified segments plus
the loss of Corporate and Other represents the Company’s
total income from continuing operations.
Products and services are sold between the various
reportable segments. All intersegment transactions are
at cost except for transactions between Fuels and PEF,
which are at rates set by the FPSC. In accordance with
SFAS No. 71, profits on intercompany sales between PEF
and Fuels are not eliminated if the sales price is
reasonable and the future recovery of sales price
through the ratemaking process is probable. The profits
for all three years presented were not significant.