Progress Energy 2008 Annual Report Download - page 93

91
Progress Energy Annual Report 2008
PEC’s mortgage indenture provides that, as long as any
first mortgage bonds are outstanding, cash dividends
and distributions on its common stock and purchases
of its common stock are restricted to aggregate net
income available for PEC since December 31, 1948, plus
$3 million, less the amount of all preferred stock dividends
and distributions, and all common stock purchases,
since December 31, 1948. At December 31, 2008, none of
PEC’s cash dividends or distributions on common stock
was restricted.
In addition, PEC’s Articles of Incorporation provide that
so long as any shares of preferred stock are outstanding,
the aggregate amount of cash dividends or distributions
on common stock since December 31, 1945, including the
amount then proposed to be expended, shall be limited
to 75 percent of the aggregate net income available
for common stock if common stock equity falls below
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 the 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, 2008, PEC’s common stock equity was
approximately 54.7 percent of total capitalization. At
December 31, 2008, none of PEC’s cash dividends or
distributions on common stock was restricted.
PEF’s mortgage indenture provides that as 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, 2008,
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 the 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, 2008, PEF’s common stock equity was
approximately 44.6 percent of total capitalization. At
December 31, 2008, 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, 2008, PEC and PEF had a total of
$2.994 billion and $4.041 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.
12. INVESTMENTS
A. Investments
At December 31, 2008 and 2007, we had investments in
various debt and equity securities, cost investments,
company-owned life insurance and investments held in
trust funds as follows: