Dominion Power 2004 Annual Report Download - page 83

18. Subsidiary Preferred Stock
Dominion is authorized to issue up to 20 million shares of preferred stock.
During 2001, Dominion issued 665,000 shares of Series A mandatorily con-
vertible preferred stock, liquidation preference $1,000 per share, to Pied-
mont Share Trust (Piedmont Trust) in connection with the formation of DFV
and the issuance of senior notes by DFV. Dominion was the beneficial
owner of the Piedmont Trust, which was consolidated in the preparation
of Dominion’s Consolidated Financial Statements, thus eliminating the out-
standing shares of preferred stock. During 2004, as a result of the retire-
ment of DFV’s senior notes, the Piedmont Trust was dissolved and the
outstanding shares of preferred stock were retired.
Virginia Power is authorized to issue up to 10 million shares of preferred
stock, $100 liquidation preference. Upon involuntary liquidation, dissolution
or winding-up of Virginia Power, each share is entitled to receive $100 per
share plus accrued dividends. Dividends are cumulative.
Holders of the outstanding preferred stock of Virginia Power are not
entitled to voting rights except under certain provisions of the amended
and restated articles of incorporation and related provisions of Virginia law
restricting corporate action, or upon default in dividends, or in special
statutory proceedings and as required by Virginia law (such as mergers,
consolidations, sales of assets, dissolution and changes in voting rights
or priorities of preferred stock).
In 2002, Virginia Power issued 1,250 units consisting of 1,000 shares per
unit of cumulative preferred stock for $125 million. The preferred stock has
a dividend rate of 5.50% until the end of the initial dividend period on
December 20, 2007. The dividend rate for subsequent periods will be deter-
mined according to periodic auctions. Except during the initial dividend
period, and any non-call period, the preferred stock will be redeemable,
in whole or in part, on any dividend payment date at the option of Virginia
Power. Virginia Power may also redeem the preferred stock, in whole but
not in part, if certain changes are made to federal tax law which reduce the
dividends received deduction percentage.
Presented below are the series of Virginia Power preferred stock
not subject to mandatory redemption that were outstanding as of
December 31, 2004:
Issued and
Outstanding Entitled Per Share
Dividend Shares Upon Liquidation
(thousands)
$5.00 107 $112.50
4.04 13 102.27
4.20 15 102.50
4.12 32 103.73
4.80 73 101.00
7.05 500 103.18(1)
6.98 600 103.15(2)
Flex MMP 12/02, Series A 1,250 100.00
Total 2,590
(1) Through 7/31/05; $102.82 commencing 8/1/05; amounts decline in steps thereafter to $100.00.
(2) Through 8/31/05; $102.80 commencing 9/1/05; amounts decline in steps thereafter to $100.00.
19. Shareholders’ Equity
Issuance of Common Stock
During 2004, Dominion issued 14 million shares of common stock and
received proceeds of $839 million. Of this amount, 7 million shares and
proceeds of $413 million resulted from the settlement of stock purchase
contracts associated with Dominion’s 2000 issuance of equity-linked debt
securities. Net proceeds were used for general corporate purposes, princi-
pally repayment of debt. The remainder of the shares issued and proceeds
received in 2004 occurred through Dominion Direct®(a dividend reinvest-
ment and open enrollment direct stock purchase plan), employee savings
plans and the exercise of employee stock options. In 2005, Dominion
Direct®and the Dominion employee savings plans will purchase Dominion
common stock on the open market with the proceeds received through
these programs, rather than having additional new common shares issued.
Repurchases of Common Stock
In July 1998, Dominion was authorized by its Board of Directors to repur-
chase up to the lesser of 16.5 million shares, or $650 million of its outstand-
ing common stock. As of December 31, 2004, Dominion had repurchased
approximately 12 million shares for $537 million, with its last repurchase
occurring in 2002. In February 2005, in order to recognize the significant
increase in the size of the company and the market value of its common
stock since the time of the previous authorization, Dominion’s Board of
Directors superseded this authority, with new authority, to repurchase up to
the lesser of 25 million shares or $2.0 billion of Dominion’s outstanding
common stock.
Forward Equity Transaction
In September 2004, Dominion entered into a forward equity sale agree-
ment (forward agreement) with Merrill Lynch International (MLI), as for-
ward purchaser, relating to 10 million shares of Dominion’s common stock.
The forward agreement provides for the sale of two tranches of Dominion
common stock, each with stated maturity dates and settlement prices. In
connection with the forward agreement, MLI borrowed an equal number of
shares of Dominion’s common stock from stock lenders and, at Dominion’s
request, sold the borrowed shares to JPMorgan Securities Inc. (JPM) under
a purchase agreement among Dominion, MLI and JPM. JPM subsequently
offered the borrowed shares to the public. Dominion accounted for the for-
ward agreement as equity at its initial fair value but did not receive any
proceeds from the sale of the borrowed shares.
The use of a forward agreement allows Dominion to avoid equity mar-
ket uncertainty by pricing a stock offering under then existing market con-
ditions, while mitigating share dilution by postponing the issuance of stock
until funds are needed. Except in specified circumstances or events that
would require physical share settlement, Dominion may elect to settle the
forward agreement by means of a physical share, cash or net share settle-
ment and may also elect to settle the agreement in whole, or in part, ear-
lier than the stated maturity date at fixed settlement prices. Under either
a physical share or net share settlement, the maximum number of shares
deliverable by Dominion under the terms of the forward agreement was
limited to the 10 million shares specified in the two tranches. Assuming
gross share settlement of all shares under the forward agreement,
Dominion would have received aggregate proceeds of approximately
D 2004/Page 81