Corporate Analysis of Dominion Resources, Inc. NYSE (D) Analysts: Ronnie Ingram Victoria D. Johnson Jerome Pratt February 22, 2011
Table of Contents1. Introduction2. Abstract3. History4. Financial Analyst a. Trends, Anomalies & Off Balance Sheet Obligations: i. Balance Sheet ii. Income and Expense Statement iii. Statement of Cash Flows: Investing, Financing, Operating Activities iv. Statement of Retained Earnings5. Financial Ratio Analysis a. Liquidity, Asset Management, Debt Management, Profitability, Market Value Ratios6. Bond Analysis a. Issues, IR’s, Ratings, average weighted rd.7. Equity Analysis a. Common Stock i. IPOs, Trends, Splits, Repurchases ii. Treasury, Beta, Equity Issuances iii. Fundamental & Technical Analysis Techniques iv. News articles from WSJ & industry analysis v. Calculations for rs. (including CAPM & DCF)8. Preferred Equities9. Analyst Reports & Wall Street’s Expectations10. Dividend Policy, Historical and Current11. WACC Calculations12. Intrinsic Valuation Model versus Enterprise Value13. Capital Expenditure Projects14. M&A Activity15. Recommendation/Conclusion16. Appendix
Introduction:The following paper analyzes the financials of Dominion Resources (NYSE symbol D). One ofDominion’s biggest competitors, American Electric Power Company (NYSE - AEP) wascompared to establish clear ratios on how Dominion compared to a major competitorsperformance. The objective of the analysis was to decide if Dominion Resources is capable ofremaining competitive in the power service industry. To conduct this research, a financialanalysis was used to review the desired level of corporate liquidity required to meet current andfuture goals of Dominion Resources in a timely and cost effective manner. An overview ofDominion Resources will be used to assess working capital strategies and tools used to managecurrent assets and liabilities most effectively. Both companies were reviewed regarding theoptimization of capital structure, their management towards costs of long-term capital and capitalresource investments. The results of these functions will help analysts make a decision on thelikelihood Dominion Resources can remain profitable, stay above competition, and maximizeshareholders’ equityDominion Resources, Inc. (DRI) is a holding company with assets of over $35 billion whoselargest subsidiary, Dominion Virginia Power, provides electricity to about two million retailcustomers in Virginia and North Carolina. Dominion also distributes natural gas to 1.7 millioncustomers in Ohio, Pennsylvania, and West Virginia. Diversification efforts have led Dominionto establish subsidiaries to pursue interests in real estate, investment, and other non-utility areas.In anticipation of deregulation, Dominion separated its generation operations from itstransmission and distribution operations. Transmission and distribution remained under federaland state regulation, keeping the name Virginia Power, while a new subsidiary, DominionEnergy, was formed to manage Dominions power generating plants as well as other non-regulated energy activities. Dominions 2000 merger with Consolidated Natural Gas transformedit into one of the largest integrated natural gas and electric companies in the United States.HistoryIncorporated in Virginia on Feb. 18, 1983.On July 1, 1986, Co. formed Virginia Natural Gas, Inc., Dominion Reserves, an oil and natural gas unit ofDominion Energy, Inc..In Apr. 1988, Co. acquired Suffolk Gas Corp.In June 1988, Co.s subsidiary, Dominion Energy Inc., acquired 50% of Enron Cogeneration Co. fromEnron Corp for $106.4 million.On Feb. 15, 1990, Co. sold its subsidiary, Virginia Natural Gas, Inc. for $150 million.On Sept. 1, 1995, Dominion Capital, Inc. and Venture Capital Holdings, Inc. announced that they will formTrilon Dominion Partners, L.L.C. to own and manage a $102 million portfolio of venture capitalinvestments. Venture Capital Holdings, Inc. will serve as general partner and manager of the portfolio.The assets under management will primarily consist of an investment in approximately 18 venture capitalenterprises at various stages of development, as well as an interest in Houston Venture Partners, a
Texas-based venture capital fund.On May 13, 1996, Dominion Capital, through a wholly owned subsidiary, acquired the stock of SaxonMortgage, Inc.In Aug. 1996, Dominion Energy, through wholly owned subsidiary, acquired a 60% ownership andmanagement interest in Empresa de Generacion Electrica NorPeru S.A.In 1997, Co. purchased East Midlands, the principal operating subsidiary of Dominion UK Holding, Inc.In 1997, Dominion Capital acquired the remaining 50% of First Source Financial.In Feb. 1998, Dominion Energy completed its purchase of Kincaid Power Station from CommonwealthEdison Co. of Chicago. The purchase price was $186 million and the transaction has been recordedusing the purchase method of accounting.In April 1998, DEI purchased Dominion Energy Canada, Ltd. DEI paid $119 million and assumed debt of$26 million.In Apr. 1998, Dominion Energy purchased Archer Resources, Ltd. for $119 million plus the assumption ofdebt amounting to $26 million. The transaction has been recorded using the purchase method ofaccounting.In July 1998, Co. sold East Midlands Electricity plc to PowerGen plc. Under terms of the sale, PowerGenacquired 100% of Co. for $3.2 billion.In 1999, DEI acquired all of the issued and outstanding shares of Remington Energy Ltd. (Remington) for$33 million and assumed $260 million of Remingtons debt and liabilities.In 2000, Co. completed the sale of its interest in Corby Power Limited for $78,000,000.On Jan. 28, 2000, Consolidated Natural Gas Co. merged with and into Co.On Oct. 6, 2000, Co. completed the sale of VNG to AGL Resources Inc. for $533,000,000.In Dec. 2000, Co. formed Dominion Fiber Ventures, LLC (DFV).In Mar. 2001, Co. contributed through DT Services, Inc. (DTSI) all of the outstanding shares of itstelecommunications subsidiary, Dominion Telecom, Inc. (DTI), formerly VPS Communications, with anequity value of $110 million, in exchange for 100% of Class B managing membership interests in DFV. Athird-party investor trust (Investor Trust) contributed $60 million for 100% of the Class A membershipinterests in DFV. DFV is the sole owner of DTI. DTI will continue to own and operate the existingtelecommunications business of Co. As a result of the contribution to the joint venture, DTI is no longerconsolidated, and Cos investment in the joint venture is accounted for using the equity method.On Mar. 31, 2001, Co. acquired Millstone Nuclear Power Station (Millstone), for a purchase price of $1.3billion.In July 2001, Dominion Capital, Inc. (DCI) sold Saxon Capital, Inc. (Saxon) for approx. $109 million incash, a $25 million note and an approx. 9% interest in the purchaser, Saxon Capital Acquisition Corp.,which completed a concurrent private placement of approx. $277 million.
On Nov. 1, 2001, Co. acquired Louis Dreyfus Natural Gas Corp. shares of outstanding common stock for$1.8 billion, consisting of approx. 14 million shares of Co.s common stock valued at $876 billion andapproximately $888 billion in cash.In June 2002, Co. acquired 100 percent ownership of Mirant State Line Ventures, Inc. (State Line) fromMirant Corporation for approx. $185 million in cash.In Sept. 2002, Co. acquired 100 percent ownership of Cove Point LNG Limited Partnership (Cove Point)from The Williams Companies (Williams) for approx. $217 million in cash.On May 24, 2004, Co. sold its telecommunication operations to Elantic Telecom, Inc.In Jan. 2005, Co. acquired three fossil-fuel fired generation facilities from USGen New England, Inc. for$642,000,000, in cash.In July 2005, Co. acquired a 556 megawatt (Mw) Kewaunee nuclear power station (Kewaunee), locatedin northeastern Wisconsin, from Wisconsin Public Service Corporation for approx. $192,000,000, in cash.On Dec. 31, 2005, Co.s Virginia Electric and Power Company subsidiary completed a transfer of itsindirect wholly-owned subsidiary, Virginia Power Energy Marketing, Inc., to Co. through a series ofdividend distributions, in exchange for a capital contribution of $633,000,000.In Feb. 2006, Co. acquired Pablo Energy LLC for approx. $92,000,000, in cash.During 2007, Co. completed the sale of its non-Appalachian natural gas and oil Exploration & Production(E&P) operations and received approximately $13,300,000,000 for its U.S. non-Appalachian E&Poperations and approximately $624,000,000 million for its Canadian E&P operations.On June 26, 2007, Co. completed the sale of its Canadian E&P operations to Paramount Energy Trustand Baytex Energy Trust for approximately $624,000,000.On July 2, 2007, Co. completed the merger of its wholly owned subsidiary, Consolidated Natural GasCompany.On July 31, 2007, Co. completed the sale of its E&P operations in Alabama, Michigan and Permian toHight Mount Exploration & Production LLC for approx. $4,000,000,000 and also its sale of E&Poperations in the Gulf Coast, Rockies, South Louisiana and San Juan basin of New Mexico to XTOEnergy Inc. for $2,500,000,000.In Aug. 2007, Co. completed the sale of Gichner, LLC (Gichner), all of the issued and outstanding sharesof the capital stock of Gichner, Inc. for approximately $30,000,000.In March 2008, Co. reached an agreement to sell the remaining interest in the subordinated notes of athird-party collateralized debt obligation (CDO) entity held as an investment by DCI and in April 2008received proceeds of $54 million, including accrued interest.On Sept. 30, 2008, Co. announced that it closed its agreement to assign drilling rights to 114,259 acres inthe Marcellus Shale prospect to Antero Resources for about $347 million ($205 million after tax), or about$3,037 per acre. Co. will receive a 7.5 percent royalty interest on future natural gas production from theassigned acreage. After-tax proceeds will be used initially to reduce outstanding short-term debt.Longer term, the proceeds are expected to partially offset previously announced equity issuances in2009. Co. has drilling rights on 600,000 to 800,000 acres in the Marcellus Shale formation, including theacreage assigned to Antero. Co. is continuing its effort to market additional Marcellus Shale acreage.
Antero is one of the anchor tenants of the proposed Dominion Keystone pipeline, which isdesigned to transport Marcellus Shale production to market. Co. continues to negotiate binding precedentagreements with potential customers following an open season. Barclays Capital Inc. acted as financialadviser to Co. on the transaction.In Dec. 2008, Co.s Virginia Electric and Power Company completed the merger with Dominion NuclearNorth Anna.On Apr. 30, 2010, Co. sold its subsidiaries, Dominion Exploration & Production, Inc., Dominion Reserves,Inc. and Dominion Transmission, Inc. to CONSOL Energy Inc. for $3,475,000,000 in cash.http://www.mergentonline.com.ezproxy.averett.edu/documents.php?pagetype=predefinedreport&compnumber=99014 Historical performanceDominion outperformed the S&P and Dow between May 2010 to early November.YAHOO FINANCE
Trend Analysis of Balance Sheet and income statement(data from 2007-2009 income Statementand balance Sheet) Trend Analysis for YearsDominion Resources : endedComparative BalanceSheet Latest Latest LatestAssets 2009 2008 2007 Less 1 Yr less 2YrsCash 48 66 283 17% 23% 100%Accounts Receivable (lessBad Debts estimate) 2180 2354 2130 102% 111% 100%Merchandise Inventory 1185 1166 1045 113% 112% 100%Prepaid Expenses 405 163 387 105% 42% 100%Total Current Assets 3818 3749 3845 99% 98% 100%Furniture and Equipment(less depreciation) 5623 5206 5189 108% 100% 100%Total Assets 9441 8955 9034 105% 99% 100%Liabilities and CapitalAccounts payable 1401 1499 1734 81% 86% 100%Notes payable 1409 2436 1734 81% 140% 100%Accrued Expenses 676 754 934 72% 81% 100%Total Current Liability 3486 4689 4402 79% 107% 100%Capital / Owners Equity 11442 9850 9663 118% 102% 100%Total Liabilities andCapital/Owners Equity 14928 14539 14065 106% 103% 100% Trend Analysis for YearsDominion Resources : endedComparative IncomeStatements Latest Latest Latest 2009 2008 2007 Less 1 Yr less 2YrsSales (Net) 14798 16290 14816 100% 110% 100%Cost of Goods Sold 2611 3809 3214 81% 119% 100%Gross Margin 12187 12481 11602 105% 108% 100%Expenses (less otherincome) 10313 9750 7092 145% 137% 100%Net Income for the year 1874 2731 4510 42% 61% 100%Sales (Net) 100% 100% 100%Cost of Goods Sold 18% 23% 22%Gross Margin 82% 77% 78%Expenses (less otherincome) 70% 60% 48%Net Income for the year 13% 17% 30%
Trend analysis results of Balance Sheet revealed cash trending downward slightly , butAssets and equity trending upward, overall income statement show positive trends and that thecompany is an good condition. Trend analysis results of Income Statement revealed sales did well over the period withno significant drop-off., cost of goods sold is trending downward which could be sign ofincreased efficiency or waste reduction. Expense trending upward something that needs to bewatched, but net income trending upward. Overall very positive income statement . Trend Analysis of Cash Flows 12000 10000 10192 Cash from Financing 8000 Activities 6000 Cash from Investing 4000 Activities 3786 2676 Cash from Operating 2000 Activities 0 -3695 -230 2009 2008-3490 2007 -2000 Analysis results Cash from financing activities has trended as low and steady with little increase this is a good indicator that company is not relying heavily on debt. Cash from investing is trending upward which is a good sign that modest returns are being realized. Cash from Operating Activities is trending upward and is a positive indicator of expected good performance.
Trend Analysis of Free Cash Flows FCF $0 -$47 -$51 2006 2007 2008 2009 -$1,000 -$895 -$2,000 FCF -$3,000 -$4,000 -$4,218 -$5,000Cash Flow analysis ResultsAfter taking a significant decrease in 2007,Free Cash Flow for Dominion Resources, thetrend is currently strong and upward.Trend Analysis of Operating Cash Flows OPERATING CASH FLOW 5000 4000 $4,005 $3,786 3000 $2659 OPERATING CASH 2000 FLOW 1000 0 -246 2006 2007 2008 2009 -1000Operating Cash Flow analysis ResultsAfter taking a significant decrease in 2007,Operating Cash Flow for DominionResources, the trend is currently strong and upward.
Trend Analysis of Statement of Retained Earnings Statement of Retained earnings Trend Analysis 5000 4686 4500 4170 4000 3510 3500 3000 2500 DOMINION R/E 1960 2000 1500 1000 500 0 2006 2007 2008 2009 Trend AnalysisDominion for YearsResources : endedComparative Less 1 less 2Balance Sheet 2009 2008 2007 Latest Year YearsRetainedearnings $4686 $4170 $3510 134% 119% 100% Retained earnings Trend Analysis results Retained earnings are trending upward which is a positive indicator, steady increases from 2006- 2006 with a 34% positive changes from 2007. These retained earningsincreases indicate increased net income and is a good trend towards increased company value. boost company value .
Anomalies of Dominion’s financial statements. There were no apparent anomalies notedon the Financial Statements reviewed during research. There were no off balance sheet obligations listed in the financial reports. Many off-the-balance-sheet factors can play a role in the success or failure of a company. Financial ratios for Dominion Resources and American Electric Power were compared.The 2010 third quarter balance sheet of both firms represent similarities among current and totalassets, total liabilities and common shareholder’s equity. Total current assets in September 2010for Dominion were reported at $5,995,000 and American Electric Power at $5,421,000. Thisincludes items such as cash and cash equivalents, customer receivables, inventories and more.Total assets, which are items such as loans receivables, investments, property, plant equipment,intangible assets and accumulated depreciation, which were reported at 42,229,000 for Dominionand 49,892,000 for American Electric Power. Total liabilities such as securities, short-term debtand accounts payable, accounted for $29,877,000 (Dominion) and $35,176,000 (AmericanElectric Power). Total common shareholders’ equity for Dominion fell at $12,095,000 and$13,656,000 for American Electric Power. Ratios for Dominion were compared to American Electric Power and where industry datawas found, those results were compared as well. Overall Dominion’s performance in allmanagement areas did well vs. their major competitor American Electric Power. WhenDominion Resources was when compared to the electric industry their overall number werewell above industry figures which supported their overall management effectiveness for thecorporation. Financial ratios were designed to evaluate financial statements . (Brigham,Ehrhardt, 2008, p 123 ) This analysis will help during the evaluation to uncover anydeficiencies within the corporation that may affect the overall decision to buy, hold, or sell stock.
The table below is a quick snapshot of probability ratios that examines liquidity, debtmanagement, asset management, and per share values vs. Dominion Resources major competitorAmerican Electric Power.. Dominion American Electric Resources Inc Power Company, (NYS: D) Inc. (NYS: AEP)Profitability Ratios vs. 09/30/2010 09/30/2010 American Electric DIFF.Competitor DominionROA % (Net) 5.43 4.42 1.01ROE % (Net) 18.43 16.31 2.12ROI % (Operating) 15.79 12.59 3.2EBITDA Margin % 37.95 37.6 0.35Calculated Tax Rate % 39.24 31.77 7.47 0Liquidity Ratios 09/30/2010 09/30/2010 0Quick Ratio 0.46 0.49 -0.03Current Ratio 1.22 0.88 0.34Net Current Assets % TA 2.53 (1.46) 3.99 0Debt Management 09/30/2010 09/30/2010 0LT Debt to Equity 1.3 1.17 0.13Total Debt to Equity 1.31 1.37 -0.06Interest Coverage 4.89 4.13 0.76 0Asset Management 09/30/2010 09/30/2010 0Total Asset Turnover 0.37 0.32 0.05Receivables Turnover 8.47 8.8 -0.33Inventory Turnover 8.35 6.39 1.96Accounts Payable Turnover 11.93 18.46 -6.53Accrued Expenses Turnover 12.91 20.42 -7.51Property Plant & Equip Turnover 0.61 0.46 0.15Cash & Equivalents Turnover 36.57 15.44 21.13 0Per Share 09/30/2010 09/30/2010 0Cash Flow per Share 3.24 9.27 -6.03Book Value per Share 21.26 28.57 -7.31
ROA Analyst Evaluating Dominion with American Electric Power, we note that Dominion has a higherreturn on assets than American Electric, which means they are most likely turning over theirassets at a higher rate. ROA 4.00% 3.50% 3.70% 3.00% 2.90% 2.50% 2.00% ROA 1.50% 1.00% 0.50% 0.00% D AEP ROE Analyst Dominion has higher ROE. This shows they are a much better managed company and theoverall performance through management of marketing activities, asset management and debt ismuch better than American Electric but greatly exceeds the industry. ROE 18.00% 16.00% 15.30% 14.00% 12.00% 11.40% 10.00% 9.70% 8.00% ROE 6.00% 4.00% 2.00% 0.00% D AEP Industry
ROI Analyst Dominion has a higher ROI which means Dominion is allocating its capital better thanAmerican Electric. There is a close range among both companies on earnings before deductions.Dominion has a higher tax rate than American Electric(industry data was not available). ROI % (Operating) 20 15 15.79 12.59 10 ROI % (Operating) 5 0 Dominion American Electric Quick Ratio Analyst Dominion has a slightly less quick ratio which means that it is slightly less liquid thanAmerican Electric in the short term; although, they have a slightly higher ability to pay shortterm obligations. Quick Ratio 0.495 0.49 0.49 0.485 0.48 0.475 0.47 Quick Ratio 0.465 0.46 0.46 0.455 0.45 0.445 Dominion American Electric
Current Ratio Analyst Dominion has significantly greater net current assets than AE. This shows that Dominionpositively uses its assets to generate capital on day to day activities. This works to theiradvantage in the event they need to take out a loan; most financial institutions would be willingto loan them the money. Current Ratio 1.5 1.22 1 0.88 Current Ratio 0.5 0 Dominion American Electric Debt/equity Ratio Analyst Dominion’s debt to common equity ratio indicates that Dominion is slightly moreleveraged than American Electric in the power industry. DEBT/COMMON EQUITY RATIO 1.32 1.35 1.3 1.25 DEBT/COMMON EQUITY 1.17 1.2 RATIO 1.15 1.1 1.05 D AEP
Total Asset Turnover AnalysisDominion has higher percentage than AE which means they are utilizing more of their assets togenerate revenue. Total Asset Turnover 0.38 0.37 0.37 0.36 0.35 0.34 0.33 Total Asset Turnover 0.32 0.32 0.31 0.3 0.29 Dominion American ElectricReceivables Turnover AnalysisDominion has a lower ratio than AE which could mean that Dominion has looser credit policiesthat should be reviewed. Receivables Turnover 9 8.8 8.5 8.47 Receivables Turnover 8 Dominion American Electric
Inventory Turnover AnalysisInventory turnover is higher with Dominion which indicates AEP has a better operatingefficiency.. Inventory Turnover 10 8.35 6.39 5 Inventory Turnover 0 Dominion American ElectricAccrued Expenses turnoverAnalysis shows Dominion is not accruing enough cash for expenses compared to AE. Accrued Expenses Turnover 25 20 20.42 15 12.91 Accrued Expenses 10 Turnover 5 0 Dominion American Electric
Property Plant &Equipment Turnover AnalysisDominion is more efficient than AE at generating revenue from fixed assets and more efficient atmanaging capital investments. Property Plant &Equipment Turnover 0.7 0.6 0.61 0.5 0.46 0.4 Property Plant 0.3 &Equipment Turnover 0.2 0.1 0 Dominion American ElectricCash Flow Turnover AnalysisDominion’s cash flow turnover may be too high compared to AE; further analysis comparing itto similar industries should be done to fully assess if this is good or bad. Dominion has a muchlower cash flow per share than AE. A low ratio indicates that the cash flow is high relative to thestock’s price. Cash and Equivalent Turnover 40 36.57 30 20 Cash and Equivalent 15.44 Turnover 10 0 Dominion American Electric
Cash Flow per share AnalysisDominion has a much lower cash flow per share than AE. companies. Cash Flow per Share 10 9 9.27 8 7 6 5 Cash Flow per Share 4 3 3.24 2 1 0 Dominion American ElectricBook Value per share AnalysisA lower book value could mean Dominion’s stock is underpriced. Book Value per Share 30 28.57 25 21.26 20 15 Book Value per Share 10 5 0 Dominion American Electric
Long Term debt ratio AnalysisDominion has a slightly higher long term debt to equity ratio than AE which means AE has asmaller financial risk than Dominion. LT Debt to Equity 1.35 1.3 1.3 1.25 LT Debt to Equity 1.2 1.17 1.15 1.1 Dominion American ElectricDominion has a lower total debt ratio which means it has a stronger equity position than AE overall. Total Debt to Equity 1.38 1.37 1.36 1.34 1.32 Total Debt to Equity 1.31 1.3 1.28 Dominion American Electric
Interest Coverage AnalystDominion has a higher ratio meaning they are more capable than AE in the ability to pay the interestcharges on its debt. Interest Coverage 5 4.89 4.8 4.6 4.4 4.2 Interest Coverage 4.13 4 3.8 3.6 Dominion American ElectricEBITDA AnalysisDominion has a lower EBITDA than AEP but much higher than the industry this shows thatDominion is able to satisfy all financial obligations including leases and principal payments.(EBITDA is short for earnings before interest, taxes, depreciation, and amortization.) EBITDA (ttm): in Billions 4.72 5 4.15 4 3 1.7821 EBITDA (ttm): in Billions 2 1 0 D AEP Industry
ProfitabilityProfitability Ratios: Net Profit Margin, Return on Assets (ROA), Return on EquityDominion .has a significantly higher net profit margin than AEP and the industry NET PROFIT MARGIN 20.00% 12.70% 9.00% 7.50% NET PROFIT MARGIN 0.00% D AEP IndustryDominion has, better ROE % which shows better overall performance through management ofmarketing activities, asset management and debt than AE and the industry. ROE % 100.00% 18.43% 16.31% 5.50% 50.00% ROE % 0.00% Dominion American Industry ElectricDominion has a higher ROI which means Dominion is allocating its capital better than AE. ROI % 100.00% 50.00% 15.79% 12.59% 14.10% ROI % 0.00% Dominion American Industry Electric
Market Value RatiosDominion has lower price to earnings than AEP and the industry P/E (ttm): price to earnings 20 14.7 15 13.42 10.55 10 P/E (ttm): 5 0 D AEP IndustryDominion has higher Price per share than AEP and the industry P/S (ttm): price per share 1.71 2 1.52 1.21 1.5 1 P/S (ttm): 0.5 0 D AEP IndustryBond AnalysisIssues
IR’sRatingsMorningstar acknowledged Dominion Resources with a BBB+ rating while Market Watch upgraded them to an A-.http://quicktake.morningstar.com/stocknet/bonds.aspx?symbol=dhttp://www.marketwatch.com/story/sp-raises-dominion-resources-credit-rating-to-aWeighted average of long term debt. Coupon FUTUREBOND FACE VALUE Rate YIELD VALUE weight1 $6,222,000,000 5.95% $370,209,000 $6,592,209,000 0.3742 $300,000,000 2.01% $6,030,000 $306,030,000 0.0183 $202,000,000 2.13% $4,292,500 $206,292,500 0.0124 $268,000,000 7.85% $21,038,000 $289,038,000 0.0165 $1,485,000,000 7.50% $111,375,000 $1,596,375,000 0.0896 $1,380,000,000 6.23% $85,974,000 $1,465,974,000 0.0837 $5,838,000,000 5.84% $340,939,200 $6,178,939,200 0.3518 $119,000,000 1.76% $2,094,400 $121,094,400 0.0079 $504,000,000 6.31% $31,802,400 $535,802,400 0.03010 $183,000,000 7.33% $13,413,900 $196,413,900 0.01111 $124,000,000 5.30% $6,572,000 $130,572,000 0.007 $16,625,000,000 5.29% $993,740,400 $17,618,740,400 1.000DUE INLESS THAN1 YEAR $1,144,000,000 . 105.98%TOTALLONGTERMDEBT $15,481,000,000
RatingsEquity Analysis: (This will include a detailed technical analysis).Common Stock:IPOsStock Pricing Trends:Dominion ResourcesAEP
http://www.nasdaq.com/asp/quotes_reports.asp?symbol=D&selected=DDominion outperformed the S&P and Dow between May 2010 to early November.http://finance.yahoo.com/q/bc?t=1y&s=D&l=on&z=m&q=l&c=&c=%5EGSPC&c=%5EDJI
Splits Historical Common Stock Splits and Dividends (DominionAppendix F:Investor Relations<Victoria paraphrase>.Updated December 31, 2010Page 1 of 3Common Stock SplitsNovember 19, 2007 – 2 for 1 split of Dominion Resources, Inc. (NYSE: D)On this date, 1 held share of Dominion common stock was exchanged for 2 new shares of Dominion.January 23, 1992 – 3 for 2 split of Dominion Resources, Inc. (NYSE: D)On this date, 2 held shares of Dominion common stock were exchanged for 3 new shares of Dominion.May 19, 1983 – 2 for 3 reverse split of Virginia Electric and Power Company (NYSE: VEL) intoDominion Resources, Inc. (NYSE: D)On this date, the holding company Dominion Resources, Inc. was created. Virginia Electric and PowerCompany (VEPCO) was merged into Dominion as a wholly owned subsidiary at which time 3 sharesof VEPCO common stock were surrendered for 2 shares of Dominion common stock.May 11, 1968 – 4 for 3 split of Virginia Electric and Power Company (NYSE: VEL)On this date, 3 held shares of VEPCO common stock were exchanged for 4 new shares of VEPCOcommon stock.April 29, 1963 – 3 for 2 split of Virginia Electric and Power Company (NYSE: VEL)On this date, 2 held shares of VEPCO common stock were exchanged for 3 new shares of VEPCOcommon stock.May 3, 1957 – 2 for 1 split of Virginia Electric and Power Company (NYSE: VEL)On this date, 1 held share of VEPCO common stock was exchanged for 2 shares of new VEPCOcommon stock.RepurchasesShelf-RegistrationThe only record found on Dominion was for the shelf-registration found below recorded in June 2005.http://dom.mediaroom.com/index.php?s=43&item=364Dominion Files Shelf RegistrationJune 22, 2005RICHMOND, Va. - Dominion (NYSE: D) announced today that it has filed a universal shelfregistration statement with the U.S. Securities & Exchange Commission. The filing will allowDominion to issue up to $3 billion in securities consisting of senior debt, junior subordinateddebentures, trust preferred, common stock, preferred stock, stock purchase contracts and stockpurchase units. Dominion has also deregistered approximately $215 million of securitiesregistered under two prior registration statements. The amount registered in this filing issufficient to cover the replacement of debt securities maturing over the next two years. Dominionhas no plans to issue new common stock other than that which has been previously disclosed orpursuant to employee benefit plans. Dominion last filed a universal shelf registration statement inJuly of 2003.The registration statement described above has been filed with the U. S. Securities& Exchange Commission but has not yet become effective. This news release does not constitutean offer of any securities for sale. Dominion is one of the nations largest energy companies andis headquartered in Richmond, Virginia.
TreasuryIn 2009, credit markets improved for large businesses.This reduced our financing costs comparedto earlier expectations and had a positive impacton 2009 earnings. We expect continued benefits tobe reflected in 2010 earnings. Moreover, we tookadvantage of historically low treasury rates by enteringinto pre-issuance interest rate hedges at attractivelevels for anticipated debt issuances in 2009and 2010. The transactions have yielded positiveresults.BetaAs of February 24, 2011 Dominion’s beta was 0.56 compared to AEP’s 0.55 beta.http://finance.yahoo.com/q/ks?s=AEP+Key+StatisticsEquity IssuancesTwo to three methods to calculate rs. (Should include CAPM & DCF).Please add CAPM and WACC from PowerPointPreferred Equities.Analyst Reports & Wall Street’s Expectations (can be included in appendix)Stock Price Forecasthttp://money.cnn.com/quote/forecast/forecast.html?symb=DThe 15 analysts offering 12-month price forecasts for Dominion Resources Inc have a median target of 45.00, with a high estimateof 50.00 and a low estimate of 38.00. The median estimate represents a +0.40% increase from the last price of 44.82.
Analyst RecommendationsThe current consensus among 17 polled investment analysts is to Hold stock in Dominion Resources Inc. This rating has heldsteady since February, when it was unchanged from a Hold rating.months for detail Growth annually 2.85%Earnings EstimatesBroker SummaryNumber of Analysts 21Number of Buy Recommendations 3Number of Hold Recommendations 7Number of Sell Recommendations 0Ratios and StatisticsEPS Long-Term Growth 3.05Forward P/EPEGAverage Target Price $44.5
Dividend Policy, Historical and Current.Dividend InformationDividends on Dominion common stock are paid as declared by the Board of Directors.Dividends are typically paid on the 20th day of March, June, September and December.Dividends can be paid by check or electronic deposit, or may be reinvested.Proposed 2011 Record and Payment DatesEx-Dividend Date Record Date Payment Date Amount Per ShareMarch 2, 2011 March 4, 2011 March 20, 2011 .4925May 25, 2011 May 27, 2011 June 20, 2011 TBDAug. 24, 2011 Aug. 26, 2011 Sept. 20, 2011 TBDNov. 30, 2011 Dec. 2, 2011 Dec. 20, 2011 TBD2010 Record and Payment DatesEx-Dividend Date Record Date Payment Date Amount Per ShareFeb. 24, 2010 Feb. 26, 2010 March 20, 2010 .4575May 26, 2010 May 28, 2010 June 20, 2010 .4575Aug. 25, 2010 Aug. 27, 2010 Sept. 20, 2010 .4575Nov. 24, 2010 Nov. 29, 2010 Dec. 20, 2010 .4575http://www.dom.com/investors/stock-information/dividend-information.jsphttp://investors.dom.com/phoenix.zhtml?c=110481&p=irol-dividends
WACC Calculation to include CAPM & DCF calculations and explanations of the logic behind the WACCcomponents and weight calculations. (Discounted cash flow model)http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NTExNTJ8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1*ADD WACC FROM PPT AND CAPM
Intrinsic Valuation Model Calculation versus Enterprise Value (Market Capitalization plus the Value ofDebt).Intrinsic Valuation Model vs. Enterprise ValueIntrinsic Valuation Model Intrinsic value calculation initial earning first stage growth rate WACC 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 terminal value earning flows pv of flows sum= long term debt shares outstanding share priceEnterprise ValueFormulaEnterprise Value = Market Capitalization + Total Debt + Minority Interest + Preferred Shares -CashUsing latest quarterly informationEnterprise value=26,190,000,000.(market cap)+1790000000+28.000000+257000-4446000)=$44,056,257,000.00Enterprise value is the theoretical price an acquirer might pay for another firm, and is useful in comparingfirms with different capital structures since the value of a firm is unaffected by its choice of capitalstructure.
Capital Expenditure Projects (were they spending $$$, what are they purchasing?) CAPITOL EXPENDITURES -3300 2006 2007 2008 2009 -3400 -3500 -3600 CAPITOL -3700 EXPENDITURES -3800 -3900 -4000 -4100Much of Dominion’s purchasing costs are derived from ___________ACQUISITIONS AND DISPOSITIONSFollowing are significant acquisitions and divestitures by Dominion and Virginia Power duringthe last five years.ACQUISITION OF KEWAUNEE NUCLEAR POWER STATIONIn July 2005, Dominion completed the acquisition of Kewaunee, a 556 MW facility innortheastern Wisconsin for approximately $192 million in cash. The operations of Kewaunee areincluded in the Dominion Generation operating segment.ACQUISITION OF USGEN NEW ENGLAND, INC. POWER STATIONSIn January 2005, Dominion completed the acquisition of three fossil-fuel fired generationfacilities for $642 million in cash. The facilities include Brayton Point, a 1,551 MW facility inSomerset, Massachusetts; Salem Harbor, a 754 MW facility in Salem, Massachusetts; andManchester Street, a 432 MW facility in Providence, Rhode Island. The operations of thesefacilities are included in the Dominion Generation operating segment.
ASSIGNMENT OF MARCELLUS ACREAGEIn 2008, Dominion completed a transaction with Antero to assign drilling rights to approximately117,000 acres in the Marcellus Shale formation located in West Virginia and Pennsylvania.Dominion received proceeds of approximately $347 million. Under the agreement, Dominionreceives a 7.5% overriding royalty interest on future natural gas production from the assignedacreage. Dominion retained the drilling rights in traditional formations both above and below theMarcellus Shale interval and continues its conventional drilling program on the acreage.SALE OF E&P PROPERTIESIn 2007, Dominion completed the sale of its non-Appalachian natural gas and oil E&P operationsand assets for approximately $13.9 billion. See Note 4 to the Consolidated Financial Statementfor additional information.In 2006, Dominion received approximately $393 million of proceeds from sales of certain gasand oil properties, primarily resulting from the sale of certain properties located in Texas andNew Mexico.The historical results of these operations are included in the Corporate and Other segment.SALE OF MERCHANT FACILITIESIn March 2007, Dominion sold three Peaker facilities for net cash proceeds of $254 million. ThePeaker facilities included the 625 MW Armstrong facility in Shelocta, Pennsylvania; the 600MW Troy facility in Luckey, Ohio; and the 313 MW Pleasants facility in St. Mary’s, WestVirginia. Following the decision to sell these assets in December 2006, the results of theseoperations were reclassified to discontinued operations and are presented in the Corporate andOther segment.SALE OF DRESDENIn September 2007, Dominion completed the sale of Dresden to AEP Generating Company for$85 million.SALE OF CERTAIN DCI OPERATIONSIn August 2007, Dominion completed the sale of Gichner, LLC, all of the issued and outstandingshares of the capital stock of Gichner, Inc. (an affiliate of Gichner, LLC) and Dallastown forapproximately $30 million.In March 2008, Dominion reached an agreement to sell its remaining interest in the subordinatednotes of a third-party CDO entity held as an investment by DCI and in April 2008 receivedproceeds of $54 million, including accrued interest. As discussed in Note 25 to the ConsolidatedFinancial Statements, Dominion deconsolidated the CDO entity as of March 31, 2008.
TRANSFER OF VIRGINIA POWER ENERGY MARKETING, INC. TO DOMINIONOn December 31, 2005, Virginia Power completed a transfer of its indirect wholly-ownedsubsidiary, VPEM, to Dominion through a series of dividend distributions, in exchange for acapital contribution of $633 million. VPEM provides fuel, gas supply management and price riskmanagement services to other Dominion affiliates and engages in energy trading and marketingactivities. As a result of the transfer, VPEM’s results of operations were reclassified todiscontinued operations in Virginia Power’s Consolidated Statements of Income and presented inits Corporate and Other segment.SALE OF PEOPLESIn March 2006, Dominion entered into an agreement with Equitable to sell two of its wholly-owned regulated gas distribution subsidiaries, Peoples and Hope. Peoples serves approximately358,000 customer accounts in Pennsylvania and Hope serves approximately 114,000 customeraccounts in West Virginia. This sale was subject to regulatory approvals in the states in whichthe companies operate, as well as antitrust clearance under the HSR Act. In January 2008,Dominion and Equitable announced the termination of that agreement, primarily due to thecontinued delays in achieving final regulatory approvals. Dominion continued to seek otheroffers for the purchase of these utilities.In July 2008, Dominion entered into an agreement with an indirect subsidiary of BBIFNA to sellPeoples and Hope. In May 2009, following a change in ownership of the general partner ofBBIFNA and other related transactions, BBIFNA was renamed “SteelRiver Infrastructure FundNorth America LP”. The sale of Peoples and Hope to the SteelRiver Buyer, an indirectsubsidiary of the SteelRiver Fund, was expected to close in 2009, subject to state regulatoryapprovals in Pennsylvania and West Virginia. In November 2009, the Pennsylvania Commissionapproved the settlement entered into among Dominion, Peoples, the SteelRiver Buyer and two ofthe active intervenors in the Peoples sale proceeding, thereby approving the sale of Peoples to theSteelRiver Buyer. In December 2009, the West Virginia Commission denied the application forthe sale of Hope. Dominion decided to retain Hope, but continue with the sale of Peoples. Thesales price for Peoples was approximately $780 million, subject to changes in working capital,capital expenditures and affiliated borrowings. In February 2010, Dominion completed the saleof Peoples and netted after-tax proceeds of approximately $542 million. A more detaileddescription of the sale can be found in Note 4 to the Consolidated Financial Statementshttp://seekingalpha.com/symbol/d/description
Dominion Resources Inc. says if it doesnt build a third nuclear reactor at its North Anna Power Station, it will need tobuild another power generation source in its place.CEO Thomas F. Farrell II spoke Tuesday at the Bank of America Merrill Lynch Power ; Gas Leaders Conference inNew York about the potential reactor at the central Virginia plant.Farrell said the company is looking for a partner to build the third nuclear reactor, but isnt going to build it itself rightnow. Dominion announced in May that it selected Mitsubishi Heavy Industrys Advanced Pressurized Water Reactortechnology for the potential unitIf it decides to go forward with the reactor, the Richmond-based energy company must first get approval from theNuclear Regulatory Commission and the Virginia State Corporation Commission.Farrell said that if the company doesnt build the reactor, Dominion would have to find another source for the 1,300megawatts of electricity the reactor would have produced.He also said Dominion plans to spend about $10 billion in growth capital expenditures for generation, transmissionand distribution between 2011 and 2015. That doesnt include about $3.6 billion for projects like the third nuclearreactor, its replacement, or certain gas transmission growth projects under development.http://nuclearstreet.com/nuclear_power_industry_news/b/nuclear_power_news/archive/2010/09/30/bloomberg_3a00_-dominion-discusses-future-north-anna-nuclear-plant-_1320_-unit-3-093004.aspxM&A Activity (May include a discussion about Goodwill) (Are they purchasing other corporations?)Thomas FarrellGood morning, everyone, and thank you for joining us. While we typically do not discuss issuesrelated to M&A, I want to make a couple of comments, given market rumors regardingDominions interest in merging with or acquiring other utilities. As anyone familiar with ourcompany knows, Dominion has a very strong organic growth plan. We are investing over $2billion a year in growth projects across all of our regulated lines of business. Achieving our 5%to 6% earnings growth targets does not depend on our ability to make acquisitions. If we were toconsider an M&A transaction, it would have to be a unique opportunity that would not weakenour financial condition and would be accretive to earnings per share and shareholder value.http://seekingalpha.com/article/249434-dominion-resources-ceo-discusses-q4-2010-results-earnings-call-transcriptStrategic Position: Industry / Annual Reports letters from the Chairman/CEO. (include in Appendix)SEE APPENDIX D FOR CEO LETTERRecommendation: Buy, Sell, and Hold from the POV of a potential investor & the current shareholder.(would you trade or invest?)
APPENDIX D 2010 LAST QUARTERLY REPORT Fiscal Year Fiscal Year Ends: Dec 31 Most Recent Quarter (mrq): Dec 31, 2010 Profitability Profit Margin (ttm): 18.48% Operating Margin (ttm): 24.78% Management Effectiveness Return on Assets (ttm): 5.51% Return on Equity (ttm): 25.67% Income Statement Revenue (ttm): 15.20B Revenue Per Share (ttm): 25.75 Qtrly Revenue Growth (yoy): 15.10% Gross Profit (ttm): 4.26B EBITDA (ttm): 5.02B Net Income Avl to Common (ttm): 2.96B Diluted EPS (ttm): 4.76 Qtrly Earnings Growth (yoy): N/A Balance Sheet Total Cash (mrq): 62.00M Total Cash Per Share (mrq): 0.11 Total Debt (mrq): 17.90B Total Debt/Equity (mrq): 148.74 Current Ratio (mrq): 1.00 Book Value Per Share (mrq): 20.67 Cash Flow Statement Operating Cash Flow (ttm): 1.82B Levered Free Cash Flow (ttm): 21.12Mhttp://finance.yahoo.com/q/ks?s=D+Key+Statistics