Progress Energy 2006 Annual Report Download - page 100

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
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25 percent of total capitalization, and to 50 percent
if common stock equity falls below 20 percent. PEC’s
Articles of Incorporation also provide that cash dividends
on common stock shall be limited to 75 percent of current
year’s net income available for dividends if common stock
equity falls below 25 percent of total capitalization, and to
50 percent if common stock equity falls below 20 percent.
At December 31, 2006, PEC’s common stock equity
was approximately 49.0 percent of total capitalization.
At December 31, 2006, none of PEC’s cash dividends or
distributions on common stock was restricted.
PEF’s mortgage indenture provides that so long as any
first mortgage bonds are outstanding, it will not pay any
cash dividends upon its common stock, or make any
other distribution to the stockholders, except a payment
or distribution out of net income of PEF subsequent to
December 31, 1943. At December 31, 2006, none of PEF’s cash
dividends or distributions on common stock was restricted.
In addition, PEF’s Articles of Incorporation provide that
so long as any shares of preferred stock are outstanding,
no cash dividends or distributions on common stock
shall be paid, if the aggregate amount thereof since
April 30, 1944, including the amount then proposed to be
expended, plus all other charges to retained earnings since
April 30, 1944, exceeds all credits to retained earnings
since April 30, 1944, plus all amounts credited to capital
surplus after April 30, 1944, arising from the donation to PEF
of cash or securities or transfers of amounts from retained
earnings to capital surplus. PEF’s Articles of Incorporation
also provide that cash dividends on common stock shall be
limited to 75 percent of current year’s net income available
for dividends if common stock equity falls below 25 percent
of total capitalization, and to 50 percent if common stock
equity falls below 20 percent. On December 31, 2006,
PEF’s common stock equity was approximately 51.8 percent
of total capitalization. At December 31, 2006, none of
PEF’s cash dividends or distributions on common stock
was restricted.
C. Collateralized Obligations
PEC’s and PEF’s first mortgage bonds are collateralized
by their respective mortgage indentures. Each mortgage
constitutes a first lien on substantially all of the fixed
properties of the respective company, subject to certain
permitted encumbrances and exceptions. Each mortgage
also constitutes a lien on subsequently acquired property.
At December 31, 2006, PEC and PEF had a total of
$2.869 billion and $1.871 billion, respectively, of first mortgage
bonds outstanding, including those related to pollution control
obligations. Each mortgage allows the issuance of additional
mortgage bonds upon the satisfaction of certain conditions.
D. Guarantees of Subsidiary Debt
See Note 18 on related party transactions for a discussion
of obligations guaranteed or secured by affiliates.
E. Hedging Activities
We use interest rate derivatives to adjust the fixed and
variable rate components of our debt portfolio and to hedge
cash flow risk related to commercial paper and fixed-rate
debt to be issued in the future. See Note 17 for a discussion
of risk management activities and derivative transactions.
13. INVESTMENTS AND FAIR VALUE OF
FINANCIAL INSTRUMENTS
A. Investments
At December 31, 2006 and 2005, we had investments in
various debt and equity securities, cost investments,
company-owned life insurance and investments held in
trust funds as follows:
(in millions) 2006 2005
Nuclear decommissioning trust (See Note 5D) $1,287 $1,133
Investments in equity securities(a) 67
Equity method investments(b) 23 27
Cost investments(c) 813
Benefit investment trusts(d) 80 77
Company-owned life insurance(d) 161 153
Marketable debt securities(e) 71 191
Total $1,636 $1,601
(a) Certain investments in equity securities that have readily determinable market
values, and for which we do not have control, are accounted for as available-for-
sale securities at fair value in accordance with SFAS No. 115 (See Note 1). These
investments are included in miscellaneous other property and investments in the
Consolidated Balance Sheets.
(b) Investments in unconsolidated companies are included in the Consolidated
Balance Sheets in miscellaneous other property and investments using the equity
method of accounting (See Note 1). These investments are primarily in limited
liability corporations and limited partnerships, and the earnings from these
investments are recorded on a pre-tax basis (See Note 20).
(c) Investments stated principally at cost are included in miscellaneous other
property and investments in the Consolidated Balance Sheets.
(d) Investments in company-owned life insurance and other benefit plan assets are
included in miscellaneous other property and investments in the Consolidated
Balance Sheets and approximate fair value due to the short maturity of the
instruments.
(e) We actively invest available cash balances in various financial instruments, such
as tax-exempt debt securities that have stated maturities of 20 years or more.
These instruments provide for a high degree of liquidity through arrangements
with banks that provide daily and weekly liquidity and 7-, 28- and 35-day auctions
that allow for the redemption of the investment at its face amount plus earned
income. As we intend to sell these instruments within one year or less, generally
within 30 days, from the balance sheet date, they are classified as short-term
investments.