Dominion Power 2000 Annual Report Download - page 60

58
Notes to Consolidated Financial Statements (continued)
(millions) Pension Benefits Other Benefits
Year ended December 31, 2000 1999 1998 1998 2000 1999 1998
U.S. U.S. U.S. Non-U.S.
Service cost $65 $40 $32 $10 $30 $17 $12
Interest cost 161 76 71 44 52 28 24
Expected return on plan assets (298) (93) (80) (49) (31) (20) (16)
Recognized gain 6
Amortization of prior service cost 3
Amortization of transition obligation (4) 13 12 12
Curtailment gains (20) (6)
ERP benefit costs 81 33
Net amortization and deferral (1) (2) (1)
Net periodic benefit cost $(6) $23 $22 $ 5 $89 $37 $31
year would have decreased by $0.03, due to the issuance of the
stock options. In 1999, had compensation costs associated with the
stock options been determined under SFAS No. 123, compensation
cost, net of tax, would have been approximately $20 million for the
year ended December 31, 1999. Both basic and diluted earnings per
share for the year would have decreased by $0.10.
The fair value of the options was estimated on the date of
grant using the Black-Scholes option pricing model. The following
assumptions were used: expected dividend yield of 5.22 percent;
expected volatility of 21.54 percent; contractual life of 10 years; risk-
free interest rate of 5.18 percent; and expected lives of six years.
The weighted-average fair value of options granted during 2000
and 1999 was $6.86 and $4.35, respectively.
In 2000, Dominion instituted a third-party loan program whereby
Dominion officers may borrow funds to increase their investment in
the common stock of Dominion. Under certain phases of this pro-
gram, approximately 1.7 million options were issued under the
Incentive Plan, which were then immediately exercised. Certain of
the officers who met their target ownership level under the loan
program received bonus restricted shares equal to five percent of
the number of shares they purchased under the program. The num-
ber of bonus shares totaled 101,666 in the aggregate. Dominion
officers are responsible for the payment of such loans.
Note 21 Employee Benefit Plans
In 2000 and 1999, Dominion and its subsidiaries maintained quali-
fied noncontributory defined benefit retirement plans covering vir-
tually all employees of Dominion. The benefits of the retirement
plans are based on years of service, age, and the employee’s com-
pensation. Dominion’s funding policy is to contribute annually an
amount that is in accordance with the provisions of the Employment
Retirement Income Security Act of 1974. For the year 1998, non-U.S.
activity refers to the pension plan of East Midlands, which was sold
in July 1998. The pension program also includes the payment of
benefits to certain retired executives under company-sponsored
nonqualified employee benefit plans. Certain of these nonqualified
plans are funded through contributions to a grantor trust.
Dominion and its subsidiaries provide retiree health care and
life insurance benefits with annual premiums based on several
factors such as age, retirement date, and years of service. From
time to time in the past, Dominion and its subsidiaries have
changed benefits. Some of these changes have reduced benefits.
Under the terms of their benefit plans, the companies reserve the
right to change, modify or terminate the plans.
On January 28, 2000, Dominion offered an early retirement pro-
gram (ERP). The ERP provided up to three additional years of age
and three additional years of employee service for benefit formula
purposes, subject to age and service maximums under the compa-
nies’ postretirement medical and pension plans. Certain employees
who satisfied certain minimum age and years of service require-
ments were eligible under the ERP. The effect of the ERP on the
Company’s pension plan and post retirement benefit expenses was
$81 million and $33 million, respectively. These expenses were off-
set, in part, by curtailment gains of approximately $20 million and
$6 million from pension plans and other postretirement benefit
plans, respectively, attributable to reductions in expected future
years of service as a result of ERP participation and involuntary
employee terminations.
In addition, effective January 1, 2000, Dominion adopted a
change in the method of calculating the market-related value of
pension plan assets. The change is reported as a change in
accounting principle. See Note 3.
The components of the provision for net periodic benefit cost
were as follows: