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Progress Energy Annual Report 2006
75
fiscal year (with limited exceptions). SFAS No. 158 also
requires an entity to recognize changes in the funded
status of a pension or other postretirement benefit plan
within accumulated other comprehensive income (AOCI),
net of tax, to the extent such changes are not recognized
in earnings as components of net periodic cost. SFAS
No. 158 does not permit retrospective application of
its provisions. The recognition and disclosure provisions
of SFAS No. 158 were implemented by us as of
December 31, 2006. The implementation of SFAS No. 158
had no impact on reported net income.
The following is a summary of the incremental effect of
applying the provisions of SFAS No. 158 on individual
line items of the Consolidated Balance Sheet at
December 31, 2006.
Amounts for the Utilities that would otherwise be
recorded in AOCI pursuant to SFAS No. 158 are recorded
as regulatory assets consistent with the recovery of the
related costs through the ratemaking process.
FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes”
In July 2006, the FASB issued FASB Interpretation No.
48, “Accounting for Uncertainty in Income Taxes” (FIN
48). Enterprises must adopt FIN 48 through a cumulative
effect adjustment to retained earnings at the beginning of
their first fiscal year that begins after December 15, 2006,
which for us was January 1, 2007. FIN 48 applies to all tax
positions within the scope of SFAS No. 109, “Accounting
for Income Taxes,” and includes tax positions taken and
tax positions expected to be taken. A two-step process is
required for the application of FIN 48: recognition of the
tax benefit based on a “more likely than not” threshold
and measurement of the largest amount of tax benefit
that is greater than 50 percent likely of being realized
upon ultimate settlement with the taxing authority. FIN
48 also provides guidance on the related derecognition,
classification, interest and penalties, accounting for
interim periods, disclosure and transition of uncertain
tax positions. We are still in the process of assessing the
impact of FIN 48 on our various income tax positions. The
cumulative effect adjustment to retained earnings upon
adoption of FIN 48 could have a material impact on our
financial statements.
SFAS No. 157, “Fair Value Measurements”
In September 2006, the FASB issued SFAS No. 157,
“Fair Value Measurements” (SFAS No. 157). SFAS No.
157 redefines fair value as “the price that would be
received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants
at the measurement date.” SFAS No. 157 establishes a
fair value hierarchy that categorizes and prioritizes the
inputs that should be used to estimate fair value. We will
implement SFAS No. 157 as of January 1, 2008, applying the
provisions retrospectively for derivative accounting and
prospectively for all other valuations. We are currently
evaluating the impact adoption may have on our financial
condition, results of operations and cash flows.
Staff Accounting Bulletin No. 108, “Considering
the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year
Financial Statements”
In September 2006, the SEC issued Staff Accounting
Bulletin No. 108, “Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in
Current Year Financial Statements” (SAB 108). In practice,
some companies currently use the “rollover” method,
which focuses on the impact of a misstatement on the
income statement. Other companies use the “iron curtain”
method, which focuses on the impact of a misstatement
on the balance sheet. SAB 108 requires companies to
use a “dual approach” in quantifying financial statement
misstatements. If an error is determined to be material
under either approach, the financial statements must be
adjusted. SAB 108 also provides transition guidance for
correcting errors existing in prior years.
The SEC permits two methods for the initial application of
SAB 108. A company can elect to restate prior financial
statements as if the “dual approach” had always
been used, or it can record a cumulative effect, with
any correcting adjustments recorded to the carrying
values of assets and liabilities as of the beginning of
(in millions)
Before
Application
of SFAS
No. 158 Adjustments
After
Application
of SFAS
No. 158
Regulatory assets $892 $339 $1,231
Intangibles, net 39 (39) –
Total assets 25,401 300 25,701
Liabilities of discontinued
operations 185 4 189
Income taxes accrued 287 (3) 284
Other current liabilities 746 9 755
Noncurrent income tax
liabilities 255 51 306
Accrued pension and
other benefits 791 166 957
Accumulated other
comprehensive loss (122) 73 (49)
Total capitalization and
liabilities 25,401 300 25,701