Progress Energy 2007 Annual Report Download - page 41

Progress Energy Annual Report 2007
39
FUTURE LIQUIDITY AND CAPITAL RESOURCES
Please review “Safe Harbor for Forward-Looking
Statements” for a discussion of the factors that may impact
any such forward-looking statements made herein.
The Utilities produced substantially all of our consolidated
cash from operations for the years ended December 31,
2007, 2006 and 2005. We anticipate that the Utilities will
continue to produce substantially all of the consolidated
cash flows from operations over the next several years.
Our synthetic fuels businesses, whose operations have
been reclassified to discontinued operations, have
historically produced significant earnings from the
generation of tax credits (See “Other Matters – Synthetic
Fuels Tax Credits”). These tax credits have yet to be
realized in cash due to the difference in timing of when
tax credits are recognized for financial reporting purposes
and realized for tax purposes. As of December 31, 2007, we
have carried forward $830 million of deferred tax credits.
Realization of these tax credits is dependent upon our
future taxable income, which is expected to be generated
primarily by the Utilities.
With the exception of the anticipated proceeds in
2008 from the sale of our coal mining and terminals
operations (See Notes 3B and 3G), the absence of cash
flow resulting from divested businesses is not expected
to impact our future liquidity or capital resources as these
businesses in the aggregate have been largely cash flow
neutral over the last several years.
Cash from operations plus availability under our credit
facilities and shelf registration statements is expected to
be sufficient to meet our requirements in the near term.
To the extent necessary, we may also use limited ongoing
equity sales from our Investor Plus Stock Purchase Plan
and employee benefit and stock option plans to meet our
liquidity requirements.
We issue commercial paper to meet short-term liquidity
needs. In the latter half of 2007, the short-term credit
markets tightened, resulting in higher interest rate spreads
and shorter durations. Currently, the market has improved;
however, there has been volatility on commercial paper
spreads, as the supply of short-term commercial paper
has increased following recent actions by the Federal
Open Market Committee. If liquidity conditions deteriorate
and negatively impact the commercial paper market, we
will need to evaluate other, potentially more expensive,
options for meeting our short-term liquidity needs, which
may include borrowing from our RCAs, issuing short-term
floating rate notes, and/or issuing long-term debt.
Progress Energy has approximately $9.7 billion in
outstanding debt. Only $860 million of our debt is insured.
These bonds are obligations of the Utilities and are traded
in the tax-exempt auction rate securities market. Ambac
Assurance Corporation insures approximately $620 million
of the bonds and XL Capital Assurance, Inc. insures the
remaining $240 million. To date, auctions for the Utilities’
bonds have seen an increase in the interest rates that are
periodically reset at each auction. Since the downgrade of
XL Capital Assurance, Inc. on February 7, 2008, by Moody’s
Investors Service, Inc. (Moody’s), we have seen additional
market volatility and an increase in the reset interest
rates for a portion of our tax-exempt bonds. If additional
downgrades by Moody’s or Standard & Poor’s Rating
Services (S&P) occur, we could see additional volatility
in this market and the potential for higher rate resets. We
will continue to monitor this market and evaluate options
to mitigate our exposure to future volatility.
Over the long term, meeting the anticipated load
growth at the Utilities will require a balanced approach,
including energy conservation and efficiency programs,
development and deployment of new energy technologies,
and new generation, transmission and distribution
facilities, potentially including new baseload generation
facilities in both Florida and the Carolinas toward the end
of the next decade. This approach will require the Utilities
to make significant capital investments. See “Introduction
– Strategy” for additional information. These anticipated
capital investments are expected to be funded through
a combination of cash from operations and issuance
of long-term debt, preferred stock and common equity,
which are dependent on our ability to successfully access
capital markets. We may pursue joint ventures or similar
arrangements with third parties in order to share some of
the financing and operational risks associated with new
baseload generation.
The amount and timing of future sales of securities will
depend on market conditions, operating cash flow, asset
sales and our specific needs. We may from time to time
sell securities beyond the amount immediately needed
to meet capital requirements in order to allow for the
early redemption of long-term debt, the redemption of
preferred stock, the reduction of short-term debt or for
other corporate purposes.
At December 31, 2007, the current portion of our long-term
debt was $877 million, which we expect to fund with a
combination of cash from operations, proceeds from sales
of assets, commercial paper borrowings and long-term
debt. See Note 3 for additional information on asset sales.