Dominion Power 2004 Annual Report Download - page 82

Notes to Consolidated Financial Statements, Continued
Junior Subordinated Notes Payable to Affiliated Trusts
From 1997 through 2002, Dominion established five subsidiary capital
trusts, each as a finance subsidiary of the respective parent company,
which holds 100% of the voting interests. The capital trusts sold trust pre-
ferred securities representing preferred beneficial interests and 97% bene-
ficial 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 subor-
dinated notes. The junior subordinated notes constitute 100% of each
capital trust’s assets. Each trust must redeem its trust 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 Statements. In accordance
with FIN 46R, Dominion ceased to consolidate the trusts as of December
31, 2003 and instead reports as long-term debt on its Consolidated Balance
Sheet the junior subordinated notes issued by Dominion and held by
the trusts.
D 2004/Page 80
Selected information about Dominion’s equity-linked debt securities is presented below:
Senior Stock
Total Notes Purchase Stock
Total Long- Annual Contract Total Purchase Maturity
Date of Units Net term Interest Annual Equity Settlement of Senior
Issuance Issued Proceeds Debt Rate Rate Charge Date Notes
(millions, except percentages)
2000 8.3 $400.1 $412.5 3.66%(1) — %(2) $20.7 11/04 11/06
2002 6.6 $320.1 $330.0 5.75% 3.00% $36.3 5/06 5/08
(1) Prior to their remarketing in November 2004, the senior notes carried an annual interest rate of 8.05%.
(2) The stock purchase contracts carried an annual interest rate of 1.45% prior to their settlement in November 2004.
The following table provides summary information about the trust preferred securities and junior subordinated notes outstanding as of December 31, 2004:
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
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 considered
to be fully and unconditionally guaranteed by the respective parent com-
pany that issued the debt instruments held by each trust, when all of the
related agreements are taken into consideration. Each guarantee agree-
ment only provides for the guarantee of distribution payments on the rele-
vant trust preferred securities to the extent that the trust has funds legally
and immediately 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 subordinated 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, includ-
ing dividends, redemptions, repurchases, liquidation payments or guaran-
tee 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.