Progress Energy 2010 Annual Report Download - page 68

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
from April 1 to October 31 to better align our impairment
testing procedures with the completion of our financial
and strategic planning process. We believe the change
is preferable since these long-term cash flow projections
are a key component in performing our annual impairment
tests of goodwill. During 2010, we tested our goodwill for
impairment as of October 31, 2010 and April 1, 2010, and
concluded there was no impairment of the carrying value
of the goodwill. This change did not accelerate, delay,
avoid, or cause a goodwill impairment charge. As it was
impracticable to objectively determine operating and
valuation estimates for periods prior to October 31, 2010,
we have prospectively applied the change in the annual
impairment testing date from October 31, 2010.
UNAMORTIZED DEBT PREMIUMS, DISCOUNTS
AND EXPENSES
Long-term debt premiums, discounts and issuance
expenses฀ are฀ amortized฀ over฀ the฀ terms฀ of฀ the฀ debt฀
issues. Any expenses or call premiums associated with
the reacquisition of debt obligations by the Utilities are
amortized฀over฀the฀applicable฀lives฀using฀the฀straight-
line method consistent with ratemaking treatment (See
Note 7A).
INCOME TAXES
Deferred income taxes have been provided for temporary
differences. These occur when the book and tax carrying
amounts of assets and liabilities differ. Investment
tax credits related to regulated operations have been
deferred฀ and฀ are฀ being฀ amortized฀ over฀ the฀ estimated฀
service life of the related properties. Credits for the
production and sale of synthetic fuels are deferred credits
to฀ the฀ extent฀ they฀ cannot฀ be฀ or฀ have฀ not฀ been฀ utilized฀
in the annual consolidated federal income tax returns,
and are included in income tax expense (benefit) of
discontinued operations in the Consolidated Statements
of Income. We accrue for uncertain tax positions when it
is determined that it is more likely than not that the benefit
will not be sustained on audit by the taxing authority,
including resolutions of any related appeals or litigation
processes, based solely on the technical merits of the
associated tax position. If the recognition threshold is
met,฀the฀tax฀benefit฀recognized฀is฀measured฀at฀the฀largest฀
amount of the tax benefit that, in our judgment, is greater
than฀50฀percent฀likely฀to฀be฀realized.฀Interest฀expense฀on฀
tax deficiencies and uncertain tax positions is included
in net interest charges, and tax penalties are included in
other, net in the Consolidated Statements of Income.
DERIVATIVES
GAAP฀requires฀that฀an฀entity฀recognize฀all฀derivatives฀as฀
assets or liabilities on the balance sheet and measure
those instruments at fair value, unless the derivatives
meet the GAAP criteria for normal purchases or normal
sales and are designated as such. We generally
designate derivative instruments as normal purchases
or normal sales whenever the criteria are met. If normal
purchase or normal sale criteria are not met, we will
generally designate the derivative instruments as cash
flow or fair value hedges if the related hedge criteria
are met. We have elected not to offset fair value
amounts฀ recognized฀ for฀ derivative฀ instruments฀ and฀
related collateral assets and liabilities with the same
counterparty under a master netting agreement. Certain
economic derivative instruments receive regulatory
accounting฀ treatment,฀ under฀ which฀ unrealized฀ gains฀
and losses are recorded as regulatory liabilities and
assets, respectively, until the contracts are settled.
Cash flows from derivative instruments are generally
included in cash provided by operating activities on the
Consolidated Statements of Cash Flows. See Note 17
for additional information regarding risk management
activities and derivative transactions.
LOSS CONTINGENCIES AND
ENVIRONMENTAL LIABILITIES
We accrue for loss contingencies, such as unfavorable
results of litigation, when it is probable that a loss
has been incurred and the amount of the loss can be
reasonably estimated. With the exception of legal fees
that are incremental direct costs of an environmental
remediation effort, we do not accrue an estimate of legal
fees when a contingent loss is initially recorded, but
rather when the legal services are actually provided.
As discussed in Note 21, we accrue environmental
remediation liabilities when the criteria for loss
contingencies have been met. We record accruals for
probable and estimable costs, including legal fees,
related to environmental sites on an undiscounted basis.
Environmental expenditures that relate to an existing
condition caused by past operations and that have
no future economic benefits are expensed. Accruals
for estimated losses from environmental remediation
obligations฀ generally฀ are฀ recognized฀ no฀ later฀ than฀
completion of the remedial feasibility study. Such
accruals are adjusted as additional information develops
or circumstances change. Certain environmental
expenses receive regulatory accounting treatment,
under which the expenses are recorded as regulatory