Progress Energy 2008 Annual Report Download - page 95

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Progress Energy Annual Report 2008
and gains for 2007 relate to the decommissioning trusts.
The aggregate fair values of investments that related to
the 2008 and 2007 unrealized losses were $374 million and
$243 million, respectively.
At December 31, 2008, the fair value of available-for-sale
debt securities by contractual maturity was:
(in millions)
Due in one year or less $2
Due after one through five years 183
Due after five through 10 years 126
Due after 10 years 155
Total $466
Selected information about our sales of available-for-
sale securities during the years ended December 31
is presented below. Realized gains and losses were
determined on a specific identification basis.
(in millions) 2008 2007 2006
Proceeds $1,092 $1,334 $2,547
Realized gains 29 35 33
Realized losses 86 23 19
Previously, we invested available cash balances in various
financial instruments, such as tax-exempt debt securities
(See Note 12A). For the years ended December 31, 2007
and 2006, our proceeds from the sale of these securities
were $399 million and $1.7 billion, respectively. For the year
ended December 31, 2008, our proceeds were primarily
related to nuclear decommissioning trusts. Some of our
benefit investment trusts are managed by third-party
investment managers who have the right to sell securities
without our authorization. Losses at December 31, 2008,
2007 and 2006 for investments in these benefit investment
trusts were not material. Other securities are evaluated
on an individual basis to determine if a decline in fair
value below the carrying value is other-than-temporary
(See Note 1D). At December 31, 2008 and 2007, our other
securities had no investments in a continuous loss
position for greater than 12 months.
B. Fair Value Measurements
In September 2006, the FASB issued SFAS No.157, which
defines fair value, establishes a framework for measuring
fair value under GAAP, and requires enhanced disclosures
about assets and liabilities carried at fair value. SFAS
No. 157 also establishes a fair value hierarchy that
categorizes and prioritizes the inputs that should be used
to estimate fair value. In February 2008, the FASB issued
FSP No. FAS 157-2, “Effective Date of FASB Statement
No. 157,” which delayed for us the effective date of SFAS
No. 157 until January 1, 2009, for all nonfinancial assets
and nonfinancial liabilities, except for those recognized
or disclosed at fair value in the financial statements on a
recurring basis (at least annually).
We implemented SFAS No. 157 as of January 1, 2008, for all
recurring financial assets and liabilities. The adoption of
SFAS No. 157 for recurring financial assets and liabilities
did not have a material impact on our financial position or
results of operations. We utilized the deferral provision of
FSP No. FAS 157-2 for all nonrecurring nonfinancial assets
and liabilities within its scope. Major categories of our
assets and liabilities to which the deferral applies include
reporting units and long-lived asset groups measured
at fair value for impairment purposes, AROs initially
recognized at fair value, and nonfinancial liabilities for
exit and disposal costs and indemnifications initially
measured at fair value. The January 1, 2009, adoption of
SFAS No. 157 for nonrecurring nonfinancial assets and
liabilities did not have a material impact on our financial
position or results of operations.
SFAS No. 157 defines 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 (i.e., an exit price). SFAS No.
157 permits the use of a mid-market pricing convention
(the mid-point price between bid and ask prices) as a
practical expedient and requires the use of market data
or assumptions that market participants would use in
pricing the asset or liability, including assumptions about
risk and the risks inherent in the inputs to the valuation
technique. These inputs can be readily observable,
corroborated by market data, or generally unobservable.
SFAS No. 157 requires that valuation techniques maximize
the use of observable inputs and minimize the use of
unobservable inputs.
SFAS No. 157 establishes a fair value hierarchy that
prioritizes the inputs used to measure fair value, and
requires fair value measurements to be categorized
based on the observability of those inputs. The hierarchy
gives the highest priority to unadjusted quoted prices in
active markets for identical assets or liabilities (Level 1
inputs) and the lowest priority to unobservable inputs
(Level 3 inputs). The three levels of the fair value hierarchy
defined by SFAS No. 157 are as follows:
Level 1 – The pricing inputs are unadjusted quoted
prices in active markets for identical assets or
liabilities as of the reporting date. Active markets are