CenterPoint Energy 2008 Annual Report Download - page 123

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101
obligations under the remaining guaranties, RRI agreed to provide cash or letters of credit for CERC’s benefit, and
undertook to use commercially reasonable efforts to extinguish the remaining guaranties. In December 2007, the
Company, CERC and RRI amended that agreement and CERC released the letters of credit it held as security. Under
the revised agreement RRI agreed to provide cash or new letters of credit to secure CERC against exposure under
the remaining guaranties as calculated under the new agreement if and to the extent changes in market conditions
exposed CERC to a risk of loss on those guaranties.
The potential exposure to CERC under the guaranties relates to payment of demand charges related to
transportation contracts. The present value of the demand charges under these transportation contracts, which will be
effective until 2018, was approximately $108 million as of December 31, 2008. RRI continues to meet its
obligations under the contracts, and, on the basis of market conditions, the Company and CERC have not required
additional security. However, if RRI should fail to perform its obligations under the contracts or if RRI should fail to
provide adequate security in the event market conditions change adversely, the Company would retain exposure to
the counterparty under the guaranty.
(11) Estimated Fair Value of Financial Instruments
The fair values of cash and cash equivalents, investments in debt and equity securities classified as ―available-for-
sale‖ and ―trading‖ in accordance with SFAS No. 115, and short-term borrowings are estimated to be approximately
equivalent to carrying amounts and have been excluded from the table below. The fair values of non-trading
derivative assets and liabilities are equivalent to their carrying amounts in the Consolidated Balance Sheets at
December 31, 2007 and 2008 and have been determined using quoted market prices for the same or similar
instruments when available or other estimation techniques (see Notes 4 and 5). Therefore, these financial
instruments are stated at fair value and are excluded from the table below.
December 31, 2007
December 31, 2008
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
(In millions)
Financial liabilities:
Long-term debt (excluding capital leases) ................................
$ 9,564
$ 10,048
$ 10,396
$ 9,875
(12) Earnings Per Share
The following table reconciles numerators and denominators of the Company’s basic and diluted earnings per
share calculations:
For the Year Ended December 31,
2006
2007
2008
(In millions, except per share and share amounts)
Basic earnings per share calculation:
Net income ................................................................................................
$ 432
$ 399
$ 447
Weighted average shares outstanding ................................................................
311,826,000
320,480,000
336,387,000
Basic earnings per share
$ 1.39
$ 1.25
$ 1.33
Diluted earnings per share calculation:
Net income ................................................................................................
$ 432
$ 399
$ 447
Weighted average shares outstanding ................................................................
311,826,000
320,480,000
336,387,000
Plus: Incremental shares from assumed conversions:
Stock options(1) ................................................................
974,000
1,059,000
760,000
Restricted stock................................................................
1,553,000
1,928,000
1,772,000
2.875% convertible senior notes ................................
1,625,000
291,000
—
3.75% convertible senior notes ................................................................
8,800,000
18,749,000
4,636,000
Weighted average shares assuming dilution ................................
324,778,000
342,507,000
343,555,000
Diluted earnings per share
$ 1.33
$ 1.17
$ 1.30
__________