Dominion Power 2005 Annual Report Download - page 81

Note 19. Subsidiary Preferred Stock
Dominion is authorized to issue up to 20 million shares of
preferred stock. At December 31, 2005 and 2004, none were
issued and outstanding.
Virginia Power is authorized to issue up to 10 million shares of
preferred stock, $100 liquidation preference. At December 31,
2005 and 2004, Virginia Power had 2.59 million preferred shares
issued and outstanding. Upon involuntary liquidation, dissolution or
winding-up of Virginia Power, each share would be entitled to
receive $100 plus accrued dividends. Dividends are cumulative.
Holders of Virginia Power’s outstanding preferred stock are not
entitled to voting rights except under certain provisions of the
amended and restated articles of incorporation and related provi-
sions 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, disso-
lution and changes in voting rights or priorities of preferred stock).
Presented below are the series of Virginia Power preferred stock
not subject to mandatory redemption that were outstanding as of
December 31, 2005:
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
7.05 500 102.82(1)
6.98 600 102.80(2)
Flex MMP 12/02, Series A 1,250 100.00(3)
Total 2,590
(1) Through 7/31/06; $102.47 commencing 8/1/06; amounts decline in steps thereafter to
$100.00 by 8/1/13.
(2) Through 8/31/06; $102.45 commencing 9/1/06; amounts decline in steps thereafter to
$100.00 by 9/1/13.
(3) Dividend rate is 5.50% through 12/20/07; after which the rate will be determined according
to periodic auctions for periods established by Virginia Power at the time of the auction
process. This series is not callable prior to 12/20/07.
Note 20. Shareholders’ Equity
Issuance of Common Stock
In 2005, we received proceeds of $345 million for 5.8 million
shares issued through Dominion Direct®(a dividend reinvestment
and open enrollment direct stock purchase plan), employee savings
plans and the exercise of employee stock options. In February
2005, Dominion Direct®and the Dominion employee savings plans
began purchasing our 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 February 2005, we were authorized by our Board of Directors to
repurchase up to the lesser of 25 million shares, or $2.0 billion of
our outstanding common stock. As of December 31, 2005, we had
repurchased approximately 3.7 million shares for approximately
$276 million.
Forward Equity Transaction
In September 2004, we entered into a forward equity sale agree-
ment (forward agreement) with Merrill Lynch International (MLI), as
forward purchaser, relating to 10 million shares of our common
stock. The forward agreement provided for the sale of two tranches
of our common stock, each with stated maturity dates and settle-
ment prices. In connection with the forward agreement, MLI
borrowed an equal number of shares of our common stock from
stock lenders and, at our request, sold the borrowed shares to
J.P. Morgan Securities Inc. (JPM) under a purchase agreement
among Dominion, MLI and JPM. JPM subsequently offered the
borrowed shares to the public. We accounted for the forward
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 allowed us to avoid equity
market uncertainty by pricing a stock offering under then existing
market conditions, while mitigating share dilution by postponing
the issuance of stock until funds were needed. Except in specified
circumstances or events that would have required physical share
settlement, we were able to elect to settle the forward agreement
by means of a physical share, cash or net share settlement and
were also able to elect to settle the agreement in whole, or in part,
earlier than the stated maturity date at fixed settlement prices.
Under either a physical share or net share settlement, the maxi-
mum number of shares that were deliverable under the terms of
the forward agreement was limited to the 10 million shares speci-
fied in the two tranches. Assuming gross share settlement of all
shares under the forward agreement, we would have received
aggregate proceeds of approximately $644 million, based on matu-
rity forward prices of $64.62 per share for the 2 million shares
included in the first tranche and $64.34 per share for the 8 million
shares included in the second tranche.
We elected to cash settle the first tranche in December 2004
and paid MLI $5.8 million, representing the difference between our
share price and the applicable forward sale price, multiplied by the
2 million shares. Additionally, we elected to cash settle 3 million
shares of the second tranche in February 2005 and paid MLI
$17.4 million. We recorded the settlement payments as a reduction
to common stock in our Consolidated Balance Sheets.
In April 2005, we entered into an agreement with MLI that
extended the settlement date for the remaining 5 million shares of
the second tranche to August 2005. In August 2005, we delivered
5 million newly issued shares of our common stock to MLI, and
received proceeds of $319.7 million as final settlement of the
forward agreement.
Shares Reserved for Issuance
At December 31, 2005, we had a total of 37 million shares
reserved and available for issuance for the following: Dominion
Direct®, employee stock awards, employee savings plans, director
stock compensation plans, and stock purchase contracts associ-
ated with equity-linked debt securities.
Dominion 2005 79