Dominion Power 2007 Annual Report Download - page 94

Notes to Consolidated Financial Statements, Continued
allowing the senior notes to be remarketed with the proceeds
being paid to us as consideration for the purchase of stock or
continue to hold the senior notes and use other resources as con-
sideration for the purchase of stock under the stock purchase
contracts. In February 2006, we successfully remarketed the
senior notes related to our equity-linked debt securities. The
senior notes, which will mature in 2008, now carry an annual
interest rate of 5.687%; prior to the remarketing, 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 purchase contract payments as a liability, offset by a
charge to common 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 9 million shares,
recast to reflect the impact of our November 2007 stock split, of
our common stock. Interest payments on the senior notes are
recorded as interest expense and stock purchase contract payments
were charged against the liability. Prior to conversion, accretion of
the stock purchase contract liability was recorded as interest
expense. In calculating diluted EPS, we applied the treasury stock
method to the equity-linked debt securities. These securities did
not have a significant effect on diluted EPS in 2006 or 2005.
Junior Subordinated Notes Payable to Affiliated Trusts
From 1997 through 2002, we established five subsidiary capital
trusts, each as a finance 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 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, we issued various junior subordinated 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.
In July and August 2007, we redeemed approximately
240 thousand units of the $250 million 8.4% Dominion Capital
Trust III debentures due January 15, 2031. The securities were
redeemed at a price of $1,209 per preferred security plus accrued
and unpaid distributions.
In July 2007, we redeemed all 8 million units of the $200
million 7.8% Dominion CNG Capital Trust I debentures due
October 31, 2041. The securities were redeemed at a price of $25
per preferred security plus accrued and unpaid distributions.
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 out-
standing as of December 31, 2007:
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 $ 7.7
January 2001 Dominion
Resources
Capital Trust III(2) 10 8.4% 10 0.3
August 2002 Virginia Power
Capital Trust II(3) 16,000 7.375% 400 12.4
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) $10 million—Dominion Resources, Inc. 8.4% Debentures due
1/15/2031.
(3) $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 company that issued the debt instruments held
by each trust, when all of the related agreements are taken into
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
pay amounts when they are due on the trust preferred securities is
dependent solely upon the payment of amounts by Dominion or
Virginia Power when they are due on the junior subordinated
notes. We may defer interest payments on the junior sub-
ordinated notes on one or more occasions for up to five consec-
utive years and the related trusts must also defer distributions. If
the payment on the junior subordinated notes is deferred, the
company that issued them may not make distributions related to
its capital stock, including dividends, redemptions, repurchases,
liquidation payments or guarantee payments. Also, during the
deferral period, the company that issued them may not make any
payments on, redeem or repurchase any debt securities that are
equal in right of payment with, or subordinated to, the junior
subordinated notes.
Enhanced Junior Subordinated Notes
In June 2006 and September 2006, we issued $300 million of
2006 Series A Enhanced Junior Subordinated Notes due 2066
(June hybrids) and $500 million of 2006 Series B Enhanced
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 at the three-month LIBOR plus 2.3%, reset quar-
terly. We may defer interest payments on the hybrids on one or
more occasions for up to 10 consecutive years. If the interest
payments on the hybrids are deferred, we may not make dis-
92 Dominion 2007 Annual Report