Progress Energy 2004 Annual Report Download - page 67

IMPAIRMENT OF LONG-LIVED ASSETS
AND INVESTMENTS
As discussed in Note 10, the Company reviews the
recoverability of long-lived tangible and intangible assets
whenever indicators exist. Examples of these indicators
include current period losses, combined with a history of
losses or a projection of continuing losses, or a significant
decrease in the market price of a long-lived asset group.
If an indicator exists for assets to be held and used, then
the asset group is tested for recoverability by comparing
the carrying value to the sum of undiscounted expected
future cash flows directly attributable to the asset group.
If the asset group is not recoverable through
undiscounted cash flows or the asset group is to be
disposed of, then an impairment loss is recognized for the
difference between the carrying value and the fair value
of the asset group. The accounting for impairment of
assets is based on SFAS No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets.”
The Company reviews its investments to evaluate whether
or not a decline in fair value below the carrying value is an
other-than-temporary decline. The Company considers
various factors, such as the investee’s cash position,
earnings and revenue outlook, liquidity and management’s
ability to raise capital in determining whether the decline
is other-than-temporary. If the Company determines that
an other-than-temporary decline exists in the value of its
investments, it is the Company’s policy to write-down
these investments to fair value.
Under the full-cost method of accounting for oil and gas
properties, total capitalized costs are limited to a ceiling
based on the present value of discounted (at 10%) future
net revenues using current prices, plus the lower of cost
or fair market value of unproved properties. The ceiling
test takes into consideration the prices of qualifying cash
flow hedges as of the balance sheet date. If the ceiling
(discounted revenues) is not equal to or greater than total
capitalized costs, the Company is required to write-down
capitalized costs to this level. The Company performs this
ceiling test calculation every quarter. No write-downs
were required in 2004, 2003 or 2002.
SUBSIDIARY STOCK TRANSACTIONS
Gains and losses realized as a result of common stock
sales by the Company’s subsidiaries are recorded in the
Consolidated Statements of Income, except for any
transactions that must be credited directly to equity in
accordance with the provisions of Staff Accounting
Bulletin No. 51, “Accounting for Sales of Stock by
a Subsidiary.”
2. NEW ACCOUNTING STANDARDS
FASB STAFF POSITION 106-2, “ACCOUNTING AND
DISCLOSURE REQUIREMENTS RELATED TO THE
MEDICARE PRESCRIPTION DRUG IMPROVEMENT AND
MODERNIZATION ACT OF 2003”
In December 2003, the Medicare Prescription Drug
Improvement and Modernization Act of 2003 (Medicare
Act) was signed into law. In accordance with guidance
issued by the Financial Accounting Standards Board
(FASB) in FASB Staff Position 106-1, “Accounting and
Disclosure Requirements Related to the Medicare
Prescription Drug Improvement and Modernization Act of
2003” (FASB Staff Position 106-1), the Company elected to
defer accounting for the effects of the Medicare Act due
to uncertainties regarding the effects of the
implementation of the Medicare Act and the accounting
for certain provisions of the Medicare Act. In May 2004,
the FASB issued definitive accounting guidance for the
Medicare Act in FASB Staff Position 106-2, which was
effective for the Company in the third quarter of 2004.
FASB Staff Position 106-2 results in the recognition of
lower other postretirement employment benefit (OPEB)
costs to reflect prescription drug-related federal
subsidies to be received under the Medicare Act. As a
result of the Medicare Act, the Company’s accumulated
postretirement benefit obligation as of January 1, 2004,
was reduced by approximately $83 million, and the
Company’s 2004 net periodic cost was reduced by
approximately $13 million.
SFAS NO. 123 (REVISED 2004), “SHARE-BASED
PAYMENT” (SFAS NO. 123R)
In December 2004, the FASB issued SFAS No. 123R,
which revises SFAS No. 123, “Accounting for Stock-
Based Compensation,” and supersedes Accounting
Principles Board (APB) Opinion No. 25, “Accounting for
Stock Issued to Employees.” The key requirement of
SFAS No. 123R is that the cost of share-based awards to
employees will be measured based on an award’s fair
value at the grant date, with such cost to be amortized
over the appropriate service period. Previously, entities
could elect to continue accounting for such awards at
their grant date intrinsic value under APB Opinion No. 25,
and the Company made that election. The intrinsic value
method resulted in the Company recording no
compensation expense for stock options granted to
employees (See Note 11).
SFAS No. 123R will be effective for the Company on
July 1, 2005. The Company intends to implement the
standard using the required modified prospective
method. Under that method, the Company will record
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Progress Energy Annual Report 2004