Progress Energy 2008 Annual Report Download - page 63

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Progress Energy Annual Report 2008
The following table reflects the effects of the restatement
on the Consolidated Balance Sheet and Consolidated
Statement of Changes in Common Stock Equity as of
December 31, 2007:
(in millions)
As Previously
Reported Restatement Adjustments As Restated
Receivables, net $1,167 $(45) $1,122
Prepayments and
other current assets 183 18 201
Total current assets 2,829 (27) 2,802
Total assets 26,365 (27) 26,338
Retained earnings 2,465 (27) 2,438
Total common stock
equity 8,422 (27) 8,395
Total capitalization 17,336 (27) 17,309
Total capitalization and
liabilities 26,365 (27) 26,338
Our net income for the years ended December 31,
2008, 2007 and 2006 was not materially impacted by this
error; accordingly, no income adjustments have been
recorded.
C. Consolidation of Variable Interest Entities
We consolidate all voting interest entities in which we
own a majority voting interest and all variable interest
entities (VIEs) for which we are the primary beneficiary
in accordance with Financial Accounting Standards
Board (FASB) Interpretation No. 46R, “Consolidation
of Variable Interest Entities – an Interpretation of ARB
No. 51” (FIN 46R).
In general, we determine whether we are the primary
beneficiary of a VIE through a qualitative analysis of risk
that identifies which variable interest holder absorbs the
majority of the financial risk and variability of the VIE. In
performing this analysis, we consider all relevant facts
and circumstances, including: the design and activities
of the VIE, the terms of the contracts the VIE has entered
into, the nature of the VIE’s variable interests issued and
how they were negotiated with or marketed to potential
investors, and which parties participated significantly
in the design or redesign of the entity. If the qualitative
analysis is inconclusive, a specific quantitative analysis
is performed in accordance with FIN 46R.
In December 2008, the FASB issued FASB Staff Position
(FSP) No. FAS 140-4 and FIN 46R-8, “Disclosures by
Public Entities (Enterprises) About Transfers of Financial
Assets and Interests in Variable Interest Entities,” which
is effective for Progress Energy on December 31, 2008.
This FSP amended the disclosure requirements of FIN
46R. The disclosures required by the FSP are presented
below. For purposes of these disclosures, the maximum
loss amounts represent the maximum exposure that
would be absorbed in the event that all of the assets of
the VIE are deemed worthless, including any additional
costs that we would incur.
In addition to the variable interests listed below for PEC
and PEF, Progress Energy, through its subsidiary Progress
Fuels Corporation (Progress Fuels), is the primary
beneficiary of, and consolidates, Ceredo Synfuel, LLC
(Ceredo), a coal-based solid synthetic fuels production
facility that qualified for federal tax credits under Section
45K of the Internal Revenue Code (the Code). In March
2007, we disposed of our 100 percent ownership interest in
Ceredo to a third-party buyer. Ceredo ceased operations
upon expiration of the synthetic fuels tax credit program
at the end of 2007. Our variable interests in Ceredo
are comprised of an agreement to operate the Ceredo
facility on behalf of the buyer through December 2007
and certain legal and tax indemnifications provided to the
buyer. We performed a qualitative analysis to determine
the primary beneficiary of Ceredo. The primary factors
in the analysis were the estimated levels of production
of qualifying synthetic fuels in 2007, the final value of the
related 2007 synthetic fuels tax credits, the likelihood of
a full or partial phase-out of the 2007 synthetic fuels tax
credits due to high oil prices, our exposure to certain
variable costs under the facility operating agreement and
exposure from indemnifications provided to the buyer.
There were no changes to our assessment of the primary
beneficiary during 2007 or 2008. No financial or other
support has been provided to Ceredo during the periods
presented. At December 31, 2008, we had no assets
and $20 million of liabilities related to the legal and tax
indemnifications provided to the buyer included in other
liabilities and deferred credits in the Progress Energy
Consolidated Balance Sheets. The ultimate resolution of
the indemnifications could result in adjustments to the
loss on disposal in future periods. The creditors of Ceredo
do not have recourse to the general credit of Progress
Energy. See Note 3J for additional information on the
disposal of Ceredo and Note 22C for a general discussion
of guarantees.
VARIABLE INTEREST ENTITIES FOR WHICH PEC IS THE
PRIMARY BENEFICIARY
PEC is the primary beneficiary of, and consolidates, two
limited partnerships that qualify for federal affordable
housing and historic tax credits under Section 42 of
the Code. PEC’s variable interests are debt and equity
investments in the two VIEs. PEC performed quantitative