Inca One Resources June 2012 Corporate Presentation
Dominion Financial analysis paper2 d adj34
1. Corporate Analysis of Dominion Resources, Inc.
NYSE (D)
Analysts:
Ronnie Ingram
Victoria D. Johnson
Jerome Pratt
February 22, 2011
2. Table of Contents
1. Introduction
2. Abstract
3. History
4. 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 Earnings
5. Financial Ratio Analysis
a. Liquidity, Asset Management, Debt Management, Profitability, Market Value Ratios
6. 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 Equities
9. Analyst Reports & Wall Street’s Expectations
10. Dividend Policy, Historical and Current
11. WACC Calculations
12. Intrinsic Valuation Model versus Enterprise Value
13. Capital Expenditure Projects
14. M&A Activity
15. Recommendation/Conclusion
16. Appendix
3. Introduction:
The following paper analyzes the financials of Dominion Resources (NYSE symbol D). One of
Dominion’s biggest competitors, American Electric Power Company (NYSE - AEP) was
compared to establish clear ratios on how Dominion compared to a major competitors
performance. The objective of the analysis was to decide if Dominion Resources is capable of
remaining competitive in the power service industry. To conduct this research, a financial
analysis was used to review the desired level of corporate liquidity required to meet current and
future goals of Dominion Resources in a timely and cost effective manner. An overview of
Dominion Resources will be used to assess working capital strategies and tools used to manage
current assets and liabilities most effectively. Both companies were reviewed regarding the
optimization of capital structure, their management towards costs of long-term capital and capital
resource investments. The results of these functions will help analysts make a decision on the
likelihood Dominion Resources can remain profitable, stay above competition, and maximize
shareholders’ equity
Dominion Resources, Inc. (DRI) is a holding company with assets of over $35 billion whose
largest subsidiary, Dominion Virginia Power, provides electricity to about two million retail
customers in Virginia and North Carolina. Dominion also distributes natural gas to 1.7 million
customers in Ohio, Pennsylvania, and West Virginia. Diversification efforts have led Dominion
to establish subsidiaries to pursue interests in real estate, investment, and other non-utility areas.
In anticipation of deregulation, Dominion separated its generation operations from its
transmission and distribution operations. Transmission and distribution remained under federal
and state regulation, keeping the name Virginia Power, while a new subsidiary, Dominion
Energy, was formed to manage Dominion's power generating plants as well as other non-
regulated energy activities. Dominion's 2000 merger with Consolidated Natural Gas transformed
it into one of the largest integrated natural gas and electric companies in the United States.
History
Incorporated in Virginia on Feb. 18, 1983.
On July 1, 1986, Co. formed Virginia Natural Gas, Inc., Dominion Reserves, an oil and natural gas unit of
Dominion 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. from
Enron 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 form
Trilon Dominion Partners, L.L.C. to own and manage a $102 million portfolio of venture capital
investments. 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 capital
enterprises at various stages of development, as well as an interest in Houston Venture Partners, a
4. Texas-based venture capital fund.
On May 13, 1996, Dominion Capital, through a wholly owned subsidiary, acquired the stock of Saxon
Mortgage, Inc.
In Aug. 1996, Dominion Energy, through wholly owned subsidiary, acquired a 60% ownership and
management 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 Commonwealth
Edison Co. of Chicago. The purchase price was $186 million and the transaction has been recorded
using 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 of
debt amounting to $26 million. The transaction has been recorded using the purchase method of
accounting.
In July 1998, Co. sold East Midlands Electricity plc to PowerGen plc. Under terms of the sale, PowerGen
acquired 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 Remington's 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 its
telecommunications subsidiary, Dominion Telecom, Inc. (DTI), formerly VPS Communications, with an
equity value of $110 million, in exchange for 100% of Class B managing membership interests in DFV. A
third-party investor trust (Investor Trust) contributed $60 million for 100% of the Class A membership
interests in DFV. DFV is the sole owner of DTI. DTI will continue to own and operate the existing
telecommunications business of Co. As a result of the contribution to the joint venture, DTI is no longer
consolidated, and Co's 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 $1.3
billion.
In July 2001, Dominion Capital, Inc. (DCI) sold Saxon Capital, Inc. (Saxon) for approx. $109 million in
cash, 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.
5. 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 and
approximately $888 billion in cash.
In June 2002, Co. acquired 100 percent ownership of Mirant State Line Ventures, Inc. (State Line) from
Mirant 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), located
in 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 its
indirect wholly-owned subsidiary, Virginia Power Energy Marketing, Inc., to Co. through a series of
dividend 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&P
operations 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 Trust
and Baytex Energy Trust for approximately $624,000,000.
On July 2, 2007, Co. completed the merger of its wholly owned subsidiary, Consolidated Natural Gas
Company.
On July 31, 2007, Co. completed the sale of its E&P operations in Alabama, Michigan and Permian to
Hight Mount Exploration & Production LLC for approx. $4,000,000,000 and also its sale of E&P
operations in the Gulf Coast, Rockies, South Louisiana and San Juan basin of New Mexico to XTO
Energy Inc. for $2,500,000,000.
In Aug. 2007, Co. completed the sale of Gichner, LLC (Gichner), all of the issued and outstanding shares
of 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 a
third-party collateralized debt obligation (CDO) entity held as an investment by DCI and in April 2008
received 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 in
the 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 the
assigned 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 in
2009. Co. has drilling rights on 600,000 to 800,000 acres in the Marcellus Shale formation, including the
acreage assigned to Antero. Co. is continuing its effort to market additional Marcellus Shale acreage.
6. Antero is one of the anchor tenants of the proposed Dominion Keystone pipeline, which is
designed to transport Marcellus Shale production to market. Co. continues to negotiate binding precedent
agreements with potential customers following an open season. Barclays Capital Inc. acted as financial
adviser to Co. on the transaction.
In Dec. 2008, Co.'s Virginia Electric and Power Company completed the merger with Dominion Nuclear
North 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 performance
Dominion outperformed the S&P and Dow between May 2010 to early November.
YAHOO FINANCE
7. Trend Analysis of Balance Sheet and income statement(data from 2007-2009 income Statement
and balance Sheet)
Trend Analysis
for Year's
Dominion Resources : ended
Comparative Balance
Sheet Latest Latest Latest
Assets 2009 2008 2007 Less 1 Yr less 2Yrs
Cash 48 66 283 17% 23% 100%
Accounts Receivable (less
Bad 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 Capital
Accounts 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 / Owner's Equity 11442 9850 9663 118% 102% 100%
Total Liabilities and
Capital/Owner's Equity 14928 14539 14065 106% 103% 100%
Trend Analysis
for Year's
Dominion Resources : ended
Comparative Income
Statements Latest Latest Latest
2009 2008 2007 Less 1 Yr less 2Yrs
Sales (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 other
income) 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 other
income) 70% 60% 48%
Net Income for the year 13% 17% 30%
8. Trend analysis results of Balance Sheet revealed cash trending downward slightly , but
Assets and equity trending upward, overall income statement show positive trends and that the
company is an good condition.
Trend analysis results of Income Statement revealed sales did well over the period with
no significant drop-off., cost of goods sold is trending downward which could be sign of
increased efficiency or waste reduction. Expense trending upward something that needs to be
watched, 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.
9. 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
-$5,000
Cash Flow analysis Results
After taking a significant decrease in 2007,Free Cash Flow for Dominion Resources, the
trend 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
-1000
Operating Cash Flow analysis Results
After taking a significant decrease in 2007,Operating Cash Flow for Dominion
Resources, the trend is currently strong and upward.
10. 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
Analysis
Dominion for Year's
Resources : ended
Comparative Less 1 less 2
Balance Sheet 2009 2008 2007 Latest Year Years
Retained
earnings $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 earnings
increases
indicate increased net income and is a good trend towards increased company value. boost
company value .
11. Anomalies of Dominion’s financial statements. There were no apparent anomalies noted
on 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 total
assets, total liabilities and common shareholder’s equity. Total current assets in September 2010
for Dominion were reported at $5,995,000 and American Electric Power at $5,421,000. This
includes 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 Dominion
and 49,892,000 for American Electric Power. Total liabilities such as securities, short-term debt
and accounts payable, accounted for $29,877,000 (Dominion) and $35,176,000 (American
Electric 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 data
was found, those results were compared as well. Overall Dominion’s performance in all
management areas did well vs. their major competitor American Electric Power. When
Dominion Resources was when compared to the electric industry their overall number were
well above industry figures which supported their overall management effectiveness for the
corporation. Financial ratios were designed to evaluate financial statements . (Brigham,
Ehrhardt, 2008, p 123 ) This analysis will help during the evaluation to uncover any
deficiencies within the corporation that may affect the overall decision to buy, hold, or sell stock.
12. The table below is a quick snapshot of probability ratios that examines liquidity, debt
management, asset management, and per share values vs. Dominion Resources major competitor
American 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 Dominion
ROA % (Net) 5.43 4.42 1.01
ROE % (Net) 18.43 16.31 2.12
ROI % (Operating) 15.79 12.59 3.2
EBITDA Margin % 37.95 37.6 0.35
Calculated Tax Rate % 39.24 31.77 7.47
0
Liquidity Ratios 09/30/2010 09/30/2010 0
Quick Ratio 0.46 0.49 -0.03
Current Ratio 1.22 0.88 0.34
Net Current Assets % TA 2.53 (1.46) 3.99
0
Debt Management 09/30/2010 09/30/2010 0
LT Debt to Equity 1.3 1.17 0.13
Total Debt to Equity 1.31 1.37 -0.06
Interest Coverage 4.89 4.13 0.76
0
Asset Management 09/30/2010 09/30/2010 0
Total Asset Turnover 0.37 0.32 0.05
Receivables Turnover 8.47 8.8 -0.33
Inventory Turnover 8.35 6.39 1.96
Accounts Payable Turnover 11.93 18.46 -6.53
Accrued Expenses Turnover 12.91 20.42 -7.51
Property Plant & Equip Turnover 0.61 0.46 0.15
Cash & Equivalents Turnover 36.57 15.44 21.13
0
Per Share 09/30/2010 09/30/2010 0
Cash Flow per Share 3.24 9.27 -6.03
Book Value per Share 21.26 28.57 -7.31
13. ROA Analyst
Evaluating Dominion with American Electric Power, we note that Dominion has a higher
return on assets than American Electric, which means they are most likely turning over their
assets 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 the
overall performance through management of marketing activities, asset management and debt is
much 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
14. ROI Analyst
Dominion has a higher ROI which means Dominion is allocating its capital better than
American 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 than
American Electric in the short term; although, they have a slightly higher ability to pay short
term 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
15. Current Ratio Analyst
Dominion has significantly greater net current assets than AE. This shows that Dominion
positively uses its assets to generate capital on day to day activities. This works to their
advantage in the event they need to take out a loan; most financial institutions would be willing
to 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 more
leveraged 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
16. Total Asset Turnover Analysis
Dominion has higher percentage than AE which means they are utilizing more of their assets to
generate 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 Electric
Receivables Turnover Analysis
Dominion has a lower ratio than AE which could mean that Dominion has looser credit policies
that should be reviewed.
Receivables Turnover
9
8.8
8.5
8.47 Receivables Turnover
8
Dominion American Electric
17. Inventory Turnover Analysis
Inventory turnover is higher with Dominion which indicates AEP has a better operating
efficiency..
Inventory Turnover
10
8.35
6.39
5
Inventory Turnover
0
Dominion American Electric
Accrued Expenses turnover
Analysis 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
18. Property Plant &Equipment Turnover Analysis
Dominion is more efficient than AE at generating revenue from fixed assets and more efficient at
managing 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 Electric
Cash Flow Turnover Analysis
Dominion’s cash flow turnover may be too high compared to AE; further analysis comparing it
to similar industries should be done to fully assess if this is good or bad. Dominion has a much
lower cash flow per share than AE. A low ratio indicates that the cash flow is high relative to the
stock’s price.
Cash and Equivalent Turnover
40
36.57
30
20 Cash and Equivalent
15.44 Turnover
10
0
Dominion American Electric
19. Cash Flow per share Analysis
Dominion 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 Electric
Book Value per share Analysis
A 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
20. Long Term debt ratio Analysis
Dominion has a slightly higher long term debt to equity ratio than AE which means AE has a
smaller 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 Electric
Dominion 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
21. Interest Coverage Analyst
Dominion has a higher ratio meaning they are more capable than AE in the ability to pay the interest
charges 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 Electric
EBITDA Analysis
Dominion has a lower EBITDA than AEP but much higher than the industry this shows that
Dominion 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
22. Profitability
Profitability Ratios: Net Profit Margin, Return on Assets (ROA), Return on Equity
Dominion .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 Industry
Dominion has, better ROE % which shows better overall performance through management of
marketing 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
Electric
Dominion 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
23. Market Value Ratios
Dominion 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 Industry
Dominion 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 Industry
Bond Analysis
Issues
24. IR’s
Ratings
Morningstar acknowledged Dominion Resources with a BBB+ rating while Market Watch upgraded them to an A-
.http://quicktake.morningstar.com/stocknet/bonds.aspx?symbol=d
http://www.marketwatch.com/story/sp-raises-dominion-resources-credit-rating-to-a
Weighted average of long term debt
.
Coupon FUTURE
BOND FACE VALUE Rate YIELD VALUE weight
1 $6,222,000,000 5.95% $370,209,000 $6,592,209,000 0.374
2 $300,000,000 2.01% $6,030,000 $306,030,000 0.018
3 $202,000,000 2.13% $4,292,500 $206,292,500 0.012
4 $268,000,000 7.85% $21,038,000 $289,038,000 0.016
5 $1,485,000,000 7.50% $111,375,000 $1,596,375,000 0.089
6 $1,380,000,000 6.23% $85,974,000 $1,465,974,000 0.083
7 $5,838,000,000 5.84% $340,939,200 $6,178,939,200 0.351
8 $119,000,000 1.76% $2,094,400 $121,094,400 0.007
9 $504,000,000 6.31% $31,802,400 $535,802,400 0.030
10 $183,000,000 7.33% $13,413,900 $196,413,900 0.011
11 $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 1.000
DUE IN
LESS THAN
1 YEAR $1,144,000,000 . 105.98%
TOTAL
LONG
TERM
DEBT $15,481,000,000
28. Splits
Historical Common Stock Splits and Dividends (Dominion
Appendix F:
Investor Relations
<Victoria paraphrase>.Updated December 31, 2010
Page 1 of 3
Common Stock Splits
November 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) into
Dominion Resources, Inc. (NYSE: D)
On this date, the holding company Dominion Resources, Inc. was created. Virginia Electric and Power
Company (VEPCO) was merged into Dominion as a wholly owned subsidiary at which time 3 shares
of 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 VEPCO
common 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 VEPCO
common 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 VEPCO
common stock.
Repurchases
Shelf-Registration
The 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=364
Dominion Files Shelf Registration
June 22, 2005
RICHMOND, Va. - Dominion (NYSE: D) announced today that it has filed a universal shelf
registration statement with the U.S. Securities & Exchange Commission. The filing will allow
Dominion to issue up to $3 billion in securities consisting of senior debt, junior subordinated
debentures, trust preferred, common stock, preferred stock, stock purchase contracts and stock
purchase units. Dominion has also deregistered approximately $215 million of securities
registered under two prior registration statements. The amount registered in this filing is
sufficient to cover the replacement of debt securities maturing over the next two years. Dominion
has no plans to issue new common stock other than that which has been previously disclosed or
pursuant to employee benefit plans. Dominion last filed a universal shelf registration statement in
July 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 constitute
an offer of any securities for sale. Dominion is one of the nation's largest energy companies and
is headquartered in Richmond, Virginia.
29. Treasury
In 2009, credit markets improved for large businesses.
This reduced our financing costs compared
to earlier expectations and had a positive impact
on 2009 earnings. We expect continued benefits to
be reflected in 2010 earnings. Moreover, we took
advantage of historically low treasury rates by entering
into pre-issuance interest rate hedges at attractive
levels for anticipated debt issuances in 2009
and 2010. The transactions have yielded positive
results.
Beta
As 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+Statistics
Equity Issuances
Two to three methods to calculate rs. (Should include CAPM & DCF).
Please add CAPM and WACC from PowerPoint
Preferred Equities.
Analyst Reports & Wall Street’s Expectations (can be included in appendix)
Stock Price Forecast
http://money.cnn.com/quote/forecast/forecast.html?symb=D
The 15 analysts offering 12-month price forecasts for Dominion Resources Inc have a median target of 45.00, with a high estimate
of 50.00 and a low estimate of 38.00. The median estimate represents a +0.40% increase from the last price of 44.82.
30. Analyst Recommendations
The current consensus among 17 polled investment analysts is to Hold stock in Dominion Resources Inc. This rating has held
steady since February, when it was unchanged from a Hold rating.
months for detail
Growth annually 2.85%
Earnings Estimates
Broker Summary
Number of Analysts 21
Number of Buy Recommendations 3
Number of Hold Recommendations 7
Number of Sell Recommendations 0
Ratios and Statistics
EPS Long-Term Growth 3.05
Forward P/E
PEG
Average Target Price $44.5
31. Dividend Policy, Historical and Current.
Dividend Information
Dividends 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 Dates
Ex-Dividend Date Record Date Payment Date Amount Per Share
March 2, 2011 March 4, 2011 March 20, 2011 .4925
May 25, 2011 May 27, 2011 June 20, 2011 TBD
Aug. 24, 2011 Aug. 26, 2011 Sept. 20, 2011 TBD
Nov. 30, 2011 Dec. 2, 2011 Dec. 20, 2011 TBD
2010 Record and Payment Dates
Ex-Dividend Date Record Date Payment Date Amount Per Share
Feb. 24, 2010 Feb. 26, 2010 March 20, 2010 .4575
May 26, 2010 May 28, 2010 June 20, 2010 .4575
Aug. 25, 2010 Aug. 27, 2010 Sept. 20, 2010 .4575
Nov. 24, 2010 Nov. 29, 2010 Dec. 20, 2010 .4575
http://www.dom.com/investors/stock-information/dividend-information.jsp
http://investors.dom.com/phoenix.zhtml?c=110481&p=irol-dividends
32. WACC Calculation to include CAPM & DCF calculations and explanations of the logic behind the WACC
components and weight calculations. (Discounted cash flow model)
http://phx.corporate-
ir.net/External.File?item=UGFyZW50SUQ9NTExNTJ8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1
*ADD WACC FROM PPT AND CAPM
33. Intrinsic Valuation Model Calculation versus Enterprise Value (Market Capitalization plus the Value of
Debt).
Intrinsic Valuation Model vs. Enterprise Value
Intrinsic 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 price
Enterprise Value
Formula
Enterprise Value = Market Capitalization + Total Debt + Minority Interest + Preferred Shares -
Cash
Using latest quarterly information
Enterprise value=
26,190,000,000.(market cap)+1790000000+28.000000+257000-4446000)=
$44,056,257,000.00
Enterprise value is the theoretical price an acquirer might pay for another firm, and is useful in comparing
firms with different capital structures since the value of a firm is unaffected by its choice of capital
structure.
34. 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
-4100
Much of Dominion’s purchasing costs are derived from ___________
ACQUISITIONS AND DISPOSITIONS
Following are significant acquisitions and divestitures by Dominion and Virginia Power during
the last five years.
ACQUISITION OF KEWAUNEE NUCLEAR POWER STATION
In July 2005, Dominion completed the acquisition of Kewaunee, a 556 MW facility in
northeastern Wisconsin for approximately $192 million in cash. The operations of Kewaunee are
included in the Dominion Generation operating segment.
ACQUISITION OF USGEN NEW ENGLAND, INC. POWER STATIONS
In January 2005, Dominion completed the acquisition of three fossil-fuel fired generation
facilities for $642 million in cash. The facilities include Brayton Point, a 1,551 MW facility in
Somerset, Massachusetts; Salem Harbor, a 754 MW facility in Salem, Massachusetts; and
Manchester Street, a 432 MW facility in Providence, Rhode Island. The operations of these
facilities are included in the Dominion Generation operating segment.
35. ASSIGNMENT OF MARCELLUS ACREAGE
In 2008, Dominion completed a transaction with Antero to assign drilling rights to approximately
117,000 acres in the Marcellus Shale formation located in West Virginia and Pennsylvania.
Dominion received proceeds of approximately $347 million. Under the agreement, Dominion
receives a 7.5% overriding royalty interest on future natural gas production from the assigned
acreage. Dominion retained the drilling rights in traditional formations both above and below the
Marcellus Shale interval and continues its conventional drilling program on the acreage.
SALE OF E&P PROPERTIES
In 2007, Dominion completed the sale of its non-Appalachian natural gas and oil E&P operations
and assets for approximately $13.9 billion. See Note 4 to the Consolidated Financial Statement
for additional information.
In 2006, Dominion received approximately $393 million of proceeds from sales of certain gas
and oil properties, primarily resulting from the sale of certain properties located in Texas and
New Mexico.
The historical results of these operations are included in the Corporate and Other segment.
SALE OF MERCHANT FACILITIES
In March 2007, Dominion sold three Peaker facilities for net cash proceeds of $254 million. The
Peaker facilities included the 625 MW Armstrong facility in Shelocta, Pennsylvania; the 600
MW Troy facility in Luckey, Ohio; and the 313 MW Pleasants facility in St. Mary’s, West
Virginia. Following the decision to sell these assets in December 2006, the results of these
operations were reclassified to discontinued operations and are presented in the Corporate and
Other segment.
SALE OF DRESDEN
In September 2007, Dominion completed the sale of Dresden to AEP Generating Company for
$85 million.
SALE OF CERTAIN DCI OPERATIONS
In August 2007, Dominion completed the sale of Gichner, LLC, all of the issued and outstanding
shares of the capital stock of Gichner, Inc. (an affiliate of Gichner, LLC) and Dallastown for
approximately $30 million.
In March 2008, Dominion reached an agreement to sell its remaining interest in the subordinated
notes of a third-party CDO entity held as an investment by DCI and in April 2008 received
proceeds of $54 million, including accrued interest. As discussed in Note 25 to the Consolidated
Financial Statements, Dominion deconsolidated the CDO entity as of March 31, 2008.
36. TRANSFER OF VIRGINIA POWER ENERGY MARKETING, INC. TO DOMINION
On December 31, 2005, Virginia Power completed a transfer of its indirect wholly-owned
subsidiary, VPEM, to Dominion through a series of dividend distributions, in exchange for a
capital contribution of $633 million. VPEM provides fuel, gas supply management and price risk
management services to other Dominion affiliates and engages in energy trading and marketing
activities. As a result of the transfer, VPEM’s results of operations were reclassified to
discontinued operations in Virginia Power’s Consolidated Statements of Income and presented in
its Corporate and Other segment.
SALE OF PEOPLES
In 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 approximately
358,000 customer accounts in Pennsylvania and Hope serves approximately 114,000 customer
accounts in West Virginia. This sale was subject to regulatory approvals in the states in which
the 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 the
continued delays in achieving final regulatory approvals. Dominion continued to seek other
offers for the purchase of these utilities.
In July 2008, Dominion entered into an agreement with an indirect subsidiary of BBIFNA to sell
Peoples and Hope. In May 2009, following a change in ownership of the general partner of
BBIFNA and other related transactions, BBIFNA was renamed “SteelRiver Infrastructure Fund
North America LP”. The sale of Peoples and Hope to the SteelRiver Buyer, an indirect
subsidiary of the SteelRiver Fund, was expected to close in 2009, subject to state regulatory
approvals in Pennsylvania and West Virginia. In November 2009, the Pennsylvania Commission
approved the settlement entered into among Dominion, Peoples, the SteelRiver Buyer and two of
the active intervenors in the Peoples sale proceeding, thereby approving the sale of Peoples to the
SteelRiver Buyer. In December 2009, the West Virginia Commission denied the application for
the sale of Hope. Dominion decided to retain Hope, but continue with the sale of Peoples. The
sales price for Peoples was approximately $780 million, subject to changes in working capital,
capital expenditures and affiliated borrowings. In February 2010, Dominion completed the sale
of Peoples and netted after-tax proceeds of approximately $542 million. A more detailed
description of the sale can be found in Note 4 to the Consolidated Financial Statements
http://seekingalpha.com/symbol/d/description
37. Dominion Resources Inc. says if it doesn't build a third nuclear reactor at its North Anna Power Station, it will need to
build 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 in
New 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 isn't going to build it itself right
now. Dominion announced in May that it selected Mitsubishi Heavy Industry's Advanced Pressurized Water Reactor
technology for the potential unit
If it decides to go forward with the reactor, the Richmond-based energy company must first get approval from the
Nuclear Regulatory Commission and the Virginia State Corporation Commission.
Farrell said that if the company doesn't build the reactor, Dominion would have to find another source for the 1,300
megawatts of electricity the reactor would have produced.
He also said Dominion plans to spend about $10 billion in growth capital expenditures for generation, transmission
and distribution between 2011 and 2015. That doesn't include about $3.6 billion for projects like the third nuclear
reactor, 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/bloomber
g_3a00_-dominion-discusses-future-north-anna-nuclear-plant-_1320_-unit-3-093004.aspx
M&A Activity (May include a discussion about Goodwill) (Are they purchasing other corporations?)
Thomas Farrell
Good morning, everyone, and thank you for joining us. While we typically do not discuss issues
related to M&A, I want to make a couple of comments, given market rumors regarding
Dominion's interest in merging with or acquiring other utilities. As anyone familiar with our
company knows, Dominion has a very strong organic growth plan. We are investing over $2
billion 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 to
consider an M&A transaction, it would have to be a unique opportunity that would not weaken
our 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-
transcript
Strategic Position: Industry / Annual Reports letters from the Chairman/CEO. (include in Appendix)
SEE APPENDIX D FOR CEO LETTER
Recommendation: Buy, Sell, and Hold from the POV of a potential investor & the current shareholder.
(would you trade or invest?)
41. 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): 21.12M
http://finance.yahoo.com/q/ks?s=D+Key+Statistics
