Dominion Power 2004 Annual Report Download - page 81

Dominion’s short-term credit facilities and long-term debt agreements
contain customary covenants and default provisions. As of December 31,
2004, there were no events of default under these covenants.
Convertible Securities
As described in Note 3, Dominion entered into an exchange transaction
with respect to $219 million of its outstanding contingent convertible
senior notes in contemplation of the transition method provided by
EITF 04-8. Dominion exchanged the outstanding notes for new notes with a
conversion feature that requires that the principal amount of each note be
repaid in cash. The notes are valued at a conversion rate of 13.5865 shares
of common stock per $1,000 principal amount of senior notes, which repre-
sents a conversion price of $73.60. Amounts payable in excess of the princi-
pal amount will be paid in common stock. The conversion rate is subject to
adjustment upon certain events such as subdivisions, splits, combinations
of common stock or the issuance to all common stock holders of certain
common stock rights, warrants or options and certain dividend increases.
The new notes outstanding on December 31, 2004 were included in the
diluted EPS calculation retroactive to the date of issuance using the
method described in EITF 04-8. Under this method, the number of shares
included in the denominator of the diluted EPS calculation are calculated
as the net shares issuable for the reporting period based upon the average
market price for the period. This did not result in an increase to the average
shares outstanding used in the calculation of Dominion’s diluted EPS since
the conversion price of $73.60 included in the notes was greater than the
average market price of the shares.
The senior notes are convertible by holders into a combination of cash
and shares of Dominion’s common stock under any of the following circum-
stances:
(1) the price of Dominion common stock reaches $88.32 per share for a
specified period;
(2) the senior notes are called for redemption by Dominion on or after
December 20, 2006;
(3) the occurrence of specified corporate transactions; or
(4) the credit rating assigned to the senior notes by Moody’s is below Baa3
and by Standard & Poor’s is below BBB– or the ratings are discontinued
for any reason.
Since none of the conditions have been met, the senior notes are not
yet subject to conversion. In 2007, Dominion will also begin to pay contin-
gent interest if the average trading price as defined in the indenture equals
or exceeds 120% of the principal amount of the senior notes. Holders have
the right to require Dominion to purchase their senior notes for cash at
100% of the principal plus accrued interest in December 2006, 2008, 2013
or 2018, or if Dominion undergoes certain fundamental changes.
Equity
— Linked Securities
In 2002 and 2000, Dominion issued equity-linked debt securities, consisting
of stock purchase contracts and senior notes. The stock purchase contracts
obligate the holders to purchase shares of Dominion common stock from
Dominion by a settlement date, two years prior to the senior notes’ matu-
rity date. The purchase price is $50 and the number of shares to be pur-
chased will be determined under a formula based upon the average closing
price of Dominion common stock near the settlement date. The senior
notes, or treasury securities in some instances, are pledged as collateral to
secure the purchase of common stock under the related stock purchase
contracts. The holders may satisfy their obligations under the stock pur-
chase contracts by allowing the senior notes to be remarketed with the
proceeds being paid to Dominion as consideration for the purchase of
stock. Alternatively, holders may choose to continue holding the senior
notes and use other resources as consideration for the purchase of stock
under the stock purchase contracts.
Dominion makes quarterly interest payments on the senior notes and
quarterly payments on the stock purchase contracts at the rates described
below. Dominion has recorded the present value of the stock purchase con-
tract payments as a liability, offset by a charge to common stock in share-
holders’ equity. Interest payments on the senior notes are recorded as
interest expense and stock purchase contract payments are charged
against the liability. Accretion of the stock purchase contract liability is
recorded as interest expense. In calculating diluted EPS, Dominion applies
the treasury stock method to the equity-linked debt securities. These secu-
rities did not have a significant effect on diluted EPS for 2003.
Under the terms of the stock purchase contracts, Dominion issued
6.7 million shares of its common stock in November 2004 and will issue
between 4.1 million and 5.5 million shares of its common stock in May
2006. Sufficient shares of Dominion common stock have been reserved for
issuance in connection with the May 2006 stock purchase contracts.
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Based on stated maturity dates rather than early redemption dates that could be elected by instrument holders, the scheduled principal payments of long-
term debt at December 31, 2004 were as follows:
2005 2006 2007 2008 2009 Thereafter Total
(millions, except percentages)
Secured First and Refunding Mortgage Bonds — — $ 215 — — $ 512 $ 727
Secured Senior Notes $ 8 $ 9 10 $ 10 $ 11 183 231
Unsecured Senior Notes (including Medium-Term Notes) 1,355 1,774 858 1,009 500 7,046 12,542
Unsecured Callable and Puttable Enhanced SecuritiesSM — — — — — 225 225
Tax-Exempt Financings 5 5 19 157 114 401 701
Secured Bank Debt — 688 370 — — — 1,058
Unsecured Junior Subordinated Notes Payable to Affiliated Trusts — — — — — 1,443 1,443
Other — — — 6 — — 6
Total $1,368 $2,476 $1,472 $1,182 $625 $9,810 $16,933
Weighted average coupon 6.02% 4.16% 5.02% 5.11% 5.21% 6.27%