Progress Energy 2010 Annual Report Download - page 90

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents selected information about
our sales of available-for-sale securities for the years
ended฀ December฀ 31.฀ Realized฀ gains฀ and฀ losses฀ were฀
determined on a specific identification basis.
(in millions) 2010 2009 2008
Proceeds $6,747 $2,207 $1,316
Realized฀gains 21 26 29
Realized฀losses 27 87 86
Proceeds were primarily related to NDT funds. Losses
for investments in the 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. At December 31,
2010 and 2009, our other securities had no investments in
a continuous loss position for greater than 12 months.
B. Fair Value Measurements
GAAP 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). Fair
value measurements require 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.
Valuation฀techniques฀are฀required฀to฀maximize฀the฀use฀of฀
observable฀inputs฀and฀minimize฀the฀use฀of฀unobservable฀
inputs. A midmarket pricing convention (the midpoint
price between bid and ask prices) is permitted for use as
a practical expedient.
GAAP also 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 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 those in
which transactions for the asset or liability occur in
sufficient frequency and volume to provide pricing
information on an ongoing basis. Level 1 primarily
consists of financial instruments such as exchange-
traded derivatives and listed equities.
Level 2 – The pricing inputs are inputs other than quoted
prices included within Level 1 that are observable
for the asset or liability, either directly or indirectly.
Level 2 includes financial instruments that are valued
using models or other valuation methodologies. These
models are primarily industry-standard models that
consider various assumptions, including quoted
forward prices for commodities, time value, volatility
factors, and current market and contractual prices
for the underlying instruments, as well as other
relevant economic measures. Substantially all of
these assumptions are observable in the marketplace
throughout the full term of the instrument, can be
derived from observable data or are supported by
observable levels at which transactions are executed
in the marketplace. Instruments in this category
include non-exchange-traded derivatives, such as
over-the-counter forwards, swaps and options; certain
marketable debt securities; and financial instruments
traded in less than active markets.
Level 3 – The pricing inputs include significant inputs
generally less observable from objective sources.
These inputs may be used with internally developed
methodologies that result in management’s best
estimate of fair value. Level 3 instruments may include
longer-term instruments that extend into periods in
which quoted prices or other observable inputs are
not available.
Certain assets and liabilities, including long-lived assets,
were measured at fair value on a nonrecurring basis.
There were no significant fair value measurement losses
recognized฀for฀such฀assets฀and฀liabilities฀in฀the฀periods฀
reported. These fair value measurements fall within
Level 3 of the hierarchy discussed above.
The following tables set forth, by level within the fair value
hierarchy, our financial assets and liabilities accounted
for at fair value on a recurring basis as of December 31,
2010 and 2009. Financial assets and liabilities are
classified in their entirety based on the lowest level of
input significant to the fair value measurement. Our
assessment of the significance of a particular input to
the fair value measurement requires judgment and may
affect the valuation of fair value assets and liabilities and
their placement within the fair value hierarchy levels.