Dominion Power 2006 Annual Report Download - page 87

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
interest rate of 5.687%; prior to theremarketing,the notes car-
ried an annual interest rate of 5.75%.
Prior to conversion, we made quarterly interest payments on
the senior notes and quarterly payments on the stock purchase
contracts. Prior to conversion, we recorded the present value of
the stock purchasecontract payments as aliability, offset by a
charge tocommon stock in shareholders’ equity. The stock pur-
chase contracts carried an annual interest rate of 3.00% prior to
their settlement in May 2006, by issuance of 4.5 million shares of
our common stock. Interest payments on the senior notes are
recorded as interestexpenseand stock purchasecontract payments
were charged against the liability. Prior to conversion, accretion of
the stock purchasecontract liability was recorded as interest
expense. In calculating diluted EPS, we applied the treasury stock
methodto the equity-linked debt securities. These securities did
not have asignificant effect on diluted EPS for 2006, 2005 or
2004.
Junior Subordinated Notes Payable to Affiliated Trusts
From 1997 through 2002, we established five subsidiary capital
trusts, each as afinance subsidiary of the respective parent com-
pany, which holds 100% of the voting interests. The trusts sold
trust preferred securities representing preferred beneficial interests
and 97% beneficial ownership in the assets held by the trusts. In
exchange forthe fundsrealized from the sale of the trust preferred
securities and common securities that represent the remaining3%
beneficial ownership interest in the assets held by the capital
trusts, we issued various junior subordinated notes. The junior
subordinated notes constitute 100% of each capital trust’s assets.
Each trust must redeemits trustpreferred securities when their
respective junior subordinated notes are repaid at maturity or if
redeemed prior to maturity.
In October 2006, we redeemed all 12 million units of the
$300 million 8.4% Dominion Resources Capital Trust II
debentures due January 30, 2041. The securities were redeemed
at a price of $25 per preferred security plus accrued and unpaid
distributions. The following table provides summary information
about the trust preferred securities and junior subordinated notes
outstanding as of December 31, 2006:
Date
Established
Capital
Trusts Units Rate
Trust
Preferred
Securities
Amount
Common
Securities
Amount
(thousands) (millions)
December 1997 Dominion
Resources
Capital
Trust I(1)
250 7.83% $250 $ 8
January 2001 Dominion
Resources
Capital
Trust III(2)
250 8.4% 250 8
October 2001 Dominion
CNG
Capital
Trust I(3)
8,000 7.8% 200 6
August 2002 Virginia
Power
Capital
Trust II(4)
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) $258 million—Dominion Resources, Inc. 8.4% Debentures due 1/15/2031.
(3) $206 million—CNG 7.8% Debentures due 10/31/2041.
(4) $412 million—Virginia Power 7.375% Debentures due 7/30/2042.
Distribution payments on the trust preferred securities are
considered to be fullyand unconditionally guaranteed by the
respective parent company that issued the debt instrumentsheld
by each trust, when all of the related agreements are takeninto
consideration. Each guarantee agreement only provides for the
guarantee of distribution payments on the relevant trust preferred
securities to the extent that the trust has funds legally and
immediately available to make distributions. The trust’s ability to
payamountswhen they are due on the trust preferred securities is
solely dependent upon the payment of amounts by Dominion,
Virginia Power or CNG when theyare dueon the junior sub-
ordinated notes.If the payment on the junior subordinated notes
is deferred, the company that issued them maynot make dis-
tributions related to its capital stock, including dividends,
redemptions, repurchases, liquidationpayments or guarantee
payments. Also, duringthe deferral period, the company that
issued them maynot make any payments on, or redeem or
repurchase any debt securities that are equal in rightofpayment
with, or subordinated to,the junior subordinated notes.
Enhanced Junior Subordinated Notes
In June2006 and September 2006, we issued$300 million of
2006 Series AEnhanced Junior Subordinated Notes due 2066
(June hybrids) and $500 million of 2006 Series BEnhanced
Junior Subordinated Notes due 2066 (September hybrids),
respectively. The June hybrids will bear interest at 7.5% per year
until June 30, 2016. Thereafter, they will bear interest at the
three-month London Interbank Offered Rate (LIBOR) plus
2.825%, reset quarterly. The September hybrids will bear interest
at 6.3% per year until September 30, 2011. Thereafter, they will
bear interest atthe three-monthLIBOR plus 2.3%, reset quar-
terly. We maydefer interest payments on the hybrids on oneor
more occasions forupto 10 consecutive years. If the interest
payments on the hybrids are deferred,wemaynot make dis-
tributions related to our capital stock, including dividends,
redemptions, repurchases, liquidationpayments or guarantee
payments. Also, duringthe deferral period, we maynot make any
payments on or redeem or repurchase any debt securities that are
equal in rightofpayment with, or subordinated to,the hybrids.
NOTE 19. SUBSIDIARY PREFERRED STOCK
Dominion is authorized to issue up to20millionsharesof pre-
ferred stock, however,none were issuedandoutstandingat
December 31, 2006 or 2005.
VirginiaPower is authorized to issue up to 10 million shares of
preferred stock, $100 liquidationpreference, and had
2.59 million preferred shares issued and outstanding at
December 31, 2006 and 2005. Upon involuntary liquidation,
dissolution or winding-up of VirginiaPower, each share would be
entitled to receive $100 plus accrued dividends. Dividends are
cumulative.
Holders of VirginiaPower’s outstanding preferred stock are
not entitled to voting rights except,under certain provisionsof
the amended and restated articles of incorporation and related
provisions of Virginia lawrestricting corporate action, or upon
default in dividends, or in special statutory proceedings and as
86 DOMINION2006 Annual Report