Dominion Power 2007 Annual Report Download - page 77

N OTE 3. N EWLY A DOPTED A CCOUNTING
S TANDARDS
2007
FIN 48
We adopted the provisions of FIN 48, on January 1, 2007. As a
result of the implementation of FIN 48, we recorded a $58 mil-
lion charge to beginning retained earnings, representing the
cumulative effect of the change in accounting principle.
In May 2007, the FASB issued FASB Staff Position (FSP)
No. FIN 48-1,Definition of Settlement in FASB Interpretation
No. 48 (FSP FIN 48-1), to provide guidance on how to
determine whether a tax position is effectively settled for the
purpose of recognizing previously unrecognized tax benefits. In
light of its delayed issuance, if an enterprise did not implement
FIN 48 in a manner consistent with the provisions of FSP FIN
48-1, it was required to retrospectively apply its provisions to the
date of its initial adoption of FIN 48. In our Quarterly Report on
Form 10-Q for the quarter ended March 31, 2007, we reported
that our unrecognized tax benefits totaled $642 million as of
January 1, 2007. In accordance with FSP FIN 48-1, we reduced
our January 1, 2007 balance of unrecognized benefits to $625
million to adjust for effectively settled tax positions. For the
majority of our unrecognized tax benefits, the ultimate deducti-
bility is highly certain, but there is uncertainty about the timing
of such deductibility.
EITF 06-3
Effective January 1, 2007, EITF Issue No. 06-3, How Taxes Col-
lected from Customers and Remitted to Governmental Authorities
Should Be Presented in the Income Statement (That Is, Gross versus
Net Presentation), requires certain disclosures if an entity collects
any tax assessed by a governmental authority that is both imposed
on and concurrent with a specific revenue-producing transaction
between the entity, as a seller, and its customers. We collect sales,
consumption and consumer utility taxes but exclude such
amounts from revenue.
SFAS 155
Effective January 1, 2007, we adopted SFAS No. 155, Accounting
for Certain Hybrid Financial Instruments (SFAS No. 155), which
permits fair value remeasurement for any hybrid financial instru-
ment that contains an embedded derivative that would otherwise
require bifurcation. Our adoption of SFAS No. 155 had no
impact on our results of operations or financial condition.
2006
SFAS 123R
Effective January 1, 2006, we adopted SFAS No. 123R which
requires that compensation expense relating to share-based pay-
ment transactions be recognized in the financial statements based
on the fair value of the equity or liability instruments issued.
SFAS No. 123R covers a wide range of share plans, performance-
based awards, share appreciation rights and employee share pur-
chase plans. We adopted SFAS No. 123R using the modified
prospective application transition method. Under this transition
method, compensation cost is recognized (a) based on the
requirements of SFAS No. 123R for all share-based awards
granted subsequent to January 1, 2006 and (b) based on the
original provisions of SFAS No. 123 for all awards granted prior
to January 1, 2006, but not vested as of that date. Accordingly,
results for prior periods were not restated.
SFAS N
O . 158
Effective December 31, 2006, we adopted SFAS No. 158, Employ-
ers’ Accounting for Defined Benefit Pension and Other Postretire-
ment Plans (SFAS No. 158). SFAS No. 158 requires an employer
to recognize the overfunded or underfunded status of its defined
benefit pension and other postretirement benefit plans as an asset
or liability, respectively, in its balance sheet and to recognize
changes in the funded status as a component of other compre-
hensive income in the year in which the changes occur. The
funded status is measured as the difference between the fair value
of a plan’s assets and the benefit obligation. In addition, SFAS
No. 158 requires an employer to measure benefit plan assets and
obligations that determine the funded status of a plan as of the
end of the employer’s fiscal year, which we already do.
Our adoption of SFAS No. 158 had no impact on our results
of operations or cash flows and it will not affect our operating
results or cash flows in future periods. The following table illus-
trates the incremental effect of adopting the provisions of SFAS
No. 158 on our Consolidated Balance Sheet at December 31,
2006:
Prior to
adopting
SFAS
No. 158
Effect of
Adopting
SFAS
No. 158
As Reported
at December 31,
2006
(millions)
Assets:
Pension and other postretirement
benefit assets $1,858 $(612) $1,246
Regulatory assets 404 135 539
Liabilities:
Other current liabilities 743 2 745
Deferred income taxes and
investment tax credits 6,097 (239) 5,858
Regulatory liabilities 601 13 614
Other deferred credits and other
liabilities 891 82 973
Shareholders’ Equity:
AOCI (90) (335) (425)
Upon adoption, we recorded regulatory assets (liabilities),
rather than an adjustment to AOCI, for previously unrecognized
pension and other postretirement benefit costs (credits) expected
to be recovered (refunded) through future rates by certain of our
rate-regulated subsidiaries. The adjustments to AOCI, regulatory
assets and regulatory liabilities at adoption of SFAS No. 158
represent net actuarial gains (losses), prior service cost (credit) and
transition obligation remaining from our initial adoption of SFAS
No. 106, all of which were previously not recognized in our
Consolidated Balance Sheet. The amounts in AOCI, regulatory
assets and regulatory liabilities will be subsequently recognized as
a component of future net periodic benefit cost. Further, actuarial
gains and losses that arise in subsequent periods and are not
recognized as net periodic benefit cost (credit) in the same periods
will be recognized as a component of other comprehensive
Dominion 2007 Annual Report 75