PG&E 2008 Annual Report Download - page 107

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$25 million, respectively, was classifi ed as a current liability
(in Current Liabilities — Other) and $14 million and
$37 million, respectively, was classifi ed as a noncurrent
liability (in Noncurrent Liabilities — Other) in the accom-
panying Consolidated Balance Sheets. The discount factor
used to value these rights was adjusted on January 1, 2008
in order to comply with the provisions of SFAS No. 157,
resulting in a $6 million increase in the liability. (See Note 12
of the Notes to the Consolidated Financial Statements for
further discussion of the implementation of SFAS No. 157.)
UTILITY
Senior Notes
At December 31, 2008, the Utility had outstanding approxi-
mately $8.1 billion of senior notes with various interest
rates and maturity dates, including the following issuances
made during 2008. On March 3, 2008, the Utility issued
$200 million principal amount of 5.625% Senior Notes due
November 30, 2017 and $400 million principal amount of
6.35% Senior Notes due February 15, 2038.
On October 21, 2008 and November 18, 2008, the Utility
issued $600 million and $200 million principal amount,
respectively, of 8.25% Senior Notes due October 15, 2018.
On November 18, 2008, the Utility also issued
$400 million principal amount of 6.25% Senior Notes
due December 1, 2013.
The Utility’s senior notes are unsecured and rank equally
with the Utility’s other senior unsecured and unsubordinated
debt. Under the indenture for the senior notes, the Utility
has agreed that it will not incur secured debt or engage in
sales leaseback transactions (except for (1) debt secured by
specifi ed liens, and (2) aggregate other secured debt and sales
and leaseback transactions not exceeding 10% of the Utility’s
net tangible assets, as defi ned in the indenture) unless the
Utility provides that the senior notes will be equally and
ratably secured.
Pollution Control Bonds
The California Pollution Control Financing Authority and
the California Infrastructure and Economic Development
Bank (“CIEDB”) have issued various series of tax-exempt
pollution control bonds for the benefi t of the Utility.
Under the pollution control bond loan agreements related
to the Series 1996 A bonds, the Series 2004 A-D bonds
and the Series 2008 F and G bonds, the Utility is obligated
to pay on the due dates an amount equal to the principal,
premium, if any, and interest on these bonds to the trustees
PG&E CORPORATION
Convertible Subordinated Notes
At December 31, 2008, PG&E Corporation had outstanding
approximately $280 million of 9.50% Convertible Subor-
dinated Notes that are scheduled to mature on June 30,
2010. These Convertible Subordinated Notes may be con-
verted (at the option of the holder) at any time prior to
maturity into 18,558,059 shares of PG&E Corporation
common stock, at a conversion price of $15.09 per share.
The conversion price is subject to adjustment for signifi cant
changes in the number of outstanding shares of PG&E
Corporation’s common stock. In addition, holders of the
Convertible Subordinated Notes are entitled to receive
“pass-through dividends” determined by multiplying the cash
dividend paid by PG&E Corporation per share of common
stock by a number equal to the principal amount of the
Convertible Subordinated Notes divided by the conversion
price. During 2008, PG&E Corporation paid approximately
$28 million of pass-through dividends to the holders of
Convertible Subordinated Notes. On January 15, 2009,
PG&E Corporation paid approximately $7 million of
pass-through dividends.
On January 13, 2009, PG&E Corporation, upon request
by an investor, converted $28 million of Convertible
Subordinated Notes into 1,855,865 shares at the conversion
price of $15.09 per share. Total outstanding Convertible
Subordinated Notes after the conversion is approximately
$252 million.
In accordance with SFAS No. 133, the dividend partici-
pation rights of the Convertible Subordinated Notes are
considered to be embedded derivative instruments and, there-
fore, must be bifurcated from the Convertible Subordinated
Notes and recorded at fair value in PG&E Corporation’s
Consolidated Financial Statements. The payment of pass-
through dividends is recognized as an operating cash fl ow
in PG&E Corporation’s Consolidated Statements of Cash
Flows. Changes in the fair value are recognized in PG&E
Corporation’s Consolidated Statements of Income as a non-
operating expense or income (in Other income (expense),
net). At December 31, 2008 and December 31, 2007, the
total estimated fair value of the dividend participation
rights, on a pre-tax basis, was approximately $42 million
and $62 million, respectively, of which $28 million and