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Lawsuit cuts into Progress' earnings

Despite higher revenue than last year, a California settlement causes the energy company's net income to fall.

By LOUIS HAU
Published July 22, 2004

Progress Energy Inc. said Wednesday it posted a slight decline in second-quarter net income from a year earlier because of a previously disclosed $43.1-million charge to settle a lawsuit against one of its subsidiaries.

The Raleigh, N.C., parent of Progress Energy Florida of St. Petersburg still managed to exceed Wall Street earnings expectations, however, as unusually warm temperatures in the Carolinas drove up electricity demand.

In the quarter ended June 30, Progress reported net income of $154-million, or 63 cents a share, down from $157-million, or 66 cents a share, during the same period last year. Revenue in the second quarter totaled $2.43-billion, up from $2.05-billion a year earlier.

The decline in net income stemmed from the settlement of the lawsuit filed by the San Francisco Unified School District against Progress subsidiary Strategic Resource Solutions. The school district and the city attorney of San Francisco had alleged that Strategic Resource issued false invoices and performed shoddy work that worsened the district's lighting and heating problems.

Excluding charges, Progress reported second-quarter net income of 79 cents a share, up from 68 cents a year earlier and exceeding the Thomson First Call analyst consensus estimate of 72 cents.

Progress Energy Florida reported second-quarter net income of $84-million, up 38 percent from $61-million a year earlier because of lower retail revenue sharing, customer growth and an additional return on investment on a new generating unit put into service at the utility's Hines Energy complex in Polk County. Despite recording two consecutive days of record-high electricity demand June 23 and 24, weather did not have a significant effect on Progress Florida's results in the quarter.

Progress Energy Carolinas posted net income of $97-million, up 9 percent from $89-million during the same period last year, because of unusually warm temperatures, customer growth and lower depreciation and amortization costs.

During a conference call with Wall Street analysts, Progress chairman and chief executive Bob McGehee said the company had nothing new to report on the topic most on the minds of those on the call: the status of the Internal Revenue Service's audit of Progress' Earthco coal-based synthetic fuel facilities. Earlier this month, Progress said IRS field auditors had determined that the Earthco facilities don't meet the agency's requirement that only synfuel facilities operating before July 1, 1998, can collect a lucrative federal tax credit on their output.

"We are confident in our position and we will continue to operate our synthetic fuel facilities at current levels of production," McGehee said.

Progress' shares closed Wednesday at $41.73, down 62 cents, or 1.5 percent.

[Last modified July 21, 2004, 23:20:22]