Dominion Power 2003 Annual Report Download - page 81

79.Dominion 2003
19. Company Obligated
Mandatorily Redeemable Preferred
Securities of Subsidiary Trusts
From 1997 through 2002, Dominion established five subsidiary
capital trusts, each as a finance subsidiary of the respective par-
ent company, which holds 100% of the voting interests. The capi-
tal trusts sold trust preferred securities representing preferred
beneficial interests and 97% beneficial ownership in the assets
held by the capital trusts. In exchange for the funds realized from
the sale of the trust preferred securities and common securities
that represent the remaining 3% beneficial ownership interest in
the assets held by the capital trusts, Dominion issued various
junior subordinated notes. The junior subordinated notes consti-
tute 100% of each capital trust’s assets. Each trust must redeem its
preferred securities when their respective junior subordinated
notes are repaid at maturity or if redeemed prior to maturity.
Under previous accounting guidance, Dominion consolidated
the trusts in the preparation of its Consolidated Financial State-
ments. In accordance with FIN 46R, Dominion does not consoli-
date the trusts as of December 31, 2003 and instead reports on
its Consolidated Balance Sheet the junior subordinated notes
issued by Dominion and held by the trusts as long-term debt.
The following table provides summary information about the junior subordinated notes outstanding as of December 31, 2003 and
the trust preferred securities outstanding as of December 31, 2002:
Trust
Preferred Common
Date Securities Securities
Established Capital Trusts Units Rate Amount Amount
(thousands) (millions)
December 1997 Dominion Resources Capital Trust I(1) 250 7.83% $ 250 $ 8
January 2001 Dominion Resources Capital Trust II(2) 12,000 8.4% 300 9
January 2001 Dominion Resources Capital Trust III(3) 250 8.4% 250 8
October 2001 Dominion CNG Capital Trust I(4) 8,000 7.8% 200 6
August 2002 Virginia Power Capital Trust II(5) 16,000 7.375% 400 $12
1,400
Unamortized discount (3)
Total at December 31, 2002 $1,397
Junior subordinated notes/debentures held as assets by each capital trust were as follows:
(1) $258 million
— Dominion Resources, Inc. 7.83% Debentures due 12/1/2027.
(2)$309 million — Dominion Resources, Inc. 8.4% Debentures due 1/30/2041.
(3)$258 million — Dominion Resources, Inc. 8.4% Debentures due 1/15/2031.
(4)$206 million — CNG 7.8% Debentures due 10/31/2041.
(5)$412 million — Virginia Power 7.375% Debentures due 7/30/2042.
Distribution payments on the trust preferred securities are con-
sidered to be fully and unconditionally guaranteed by the respec-
tive parent company that issued the debt instruments held by
each trust, when all of the related agreements are taken into con-
sideration. Each guarantee agreement only provides for the guar-
antee of distribution payments on the relevant trust preferred
securities to the extent that the trust has funds legally and immedi-
ately available to make distributions. The trust’s ability to pay
amounts when they are due on the trust preferred securities is
solely dependent upon the payment of amounts by Dominion,
Virginia Power or CNG when they are due on the junior subordi-
nated debt instruments. If the payment on the junior subordinated
notes is deferred, the company that issued them may not make
distributions related to its capital stock, including dividends,
redemptions, repurchases, liquidation payments or guarantee
payments. Also, during the deferral period, it may not make any
payments or redeem or repurchase any debt securities that are
equal in right of payment with, or subordinated to, the junior
subordinated notes.