Dominion Power 2000 Annual Report Download - page 50

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Notes to Consolidated Financial Statements (continued)
settled during the first quarter of 2000. Due to these offsetting
contracts, absent any not yet identified future losses from credit
risk exposure, no additional material losses are expected to be real-
ized as these derivative contracts mature through 2003.
Early Retirement Program
On January 28, 2000, Dominion announced an early retirement
program. This program was a voluntary program for all salaried
employees of Dominion, excluding officers and employees of DCI,
VNG and CNG International. The early retirement option provides
up to three additional years of age and three additional years of
employee service for benefit formula purposes, subject to age and
service maximums under the Company’s postretirement medical
and pension plans. Qualifying salaried employees and employees
covered by several collective bargaining agreements of CNG and its
participating subsidiaries who had attained age 52 and completed
at least 12 years of service as of July 1, 2000 were eligible under
the ERP. For Dominion’s other participating subsidiaries, qualifying
employees who had attained age 52 and completed at least 5 years
of service as of July 1, 2000 were eligible under the ERP.
Certain ERP participants will also receive benefits under the
involuntary severance package, which are subject to reduction as a
result of coordination with additional benefits provided by the ERP.
Dominion Capital
DCI is a diversified financial services company. Its principal sub-
sidiaries are:
•First Source Financial, LLP (First Source), a provider of financial
services to middle market companies;
•First Dominion Capital LLC, (First Dominion Capital) an inte-
grated merchant banking and asset management business;
•Saxon Mortgage, Inc. and its affiliates (Saxon), are involved in
the origination, purchase and servicing of single-family residen-
tial mortgage loans; and
•Dominion Lands, a developer of real estate projects.
With the acquisition of CNG, Dominion became a registered
public utility holding company subject to the requirements of the
1935 Act. One such requirement restricts investment in non-
regulated businesses which are not functionally related to the
public utility business. As a result, the SEC order authorizing the
CNG acquisition required divestiture of DCI’s financial services
businesses within three years. As of December 31, 2000, Dominion
had implemented exit strategies for certain DCI businesses.
During the second quarter of 2000, management adopted a
strategy to exit certain businesses of DCI and to de-emphasize the
remaining components of the businesses that are expected to be
retained or possibly held only as long as necessary to wind up
affairs. At this time, the Company does not have a formal plan of
disposal for substantive portions of the DCI segment and does not
expect to dispose of all such portions of the business within one
year. Management has continued to monitor and evaluate its
investments in its financial services and real estate businesses.
In 2000, Dominion recognized impairment losses of $291 million, of
which $172 million was determined to be attributable to Dominion’s
exit strategy rather than other factors and are included in
Restructuring and other acquisition-related costs. The remaining
$119 million of impairment charges are related to normal operations
of DCI. These charges, net of related income taxes of $105 million,
reduced net income by $186 million for 2000. These amounts were
recorded and derived from:
•a $106 million impairment at Saxon concerning its interest-only
residual assets and servicing assets;
•additional provisions of $36 million for loan losses applicable to
the loans receivable at First Source and First Dominion Capital;
•a $46 million loss in value in venture capital equity and other
equity investments at First Source and First Dominion Capital;
•a $49 million impairment loss related to its investment in First
Source; and
•a $54 million impairment recorded with respect to certain real
estate projects managed and held by Dominion Lands.
As the planned exit strategies at DCI are implemented, addi-
tional charges may be incurred to reflect updated information.
In September 2000, Dominion sold First Dominion Capital’s asset
management division. Dominion received approximately $10 million
in cash after certain fees were paid.
Also in October 2000, Dominion sold $823 million in principal
amount of commercial loans held in First Source’s loan portfolio.
The transaction settled in a series of closings which began in mid-
October and was completed in the fourth quarter of 2000. Dominion
received proceeds of $600 million.
In October 2000, Dominion securitized $716 million in principal
amount of commercial loans held by First Source and First Dominion
Capital in a collateralized loan obligation (CLO) transaction. In the
securitization, the loans were sold to an unconsolidated special pur-
pose loan securitization trust, First Source Loan Obligations Trust, in
exchange for cash proceeds of $570 million. In addition, Dominion
holds a $76 million investment in the subordinated debt of the CLO.
First Source will manage the financial assets of the CLO.
Dominion closed on another CLO in the first quarter of 2001.
It included $461 million of the remaining First Source and First
Dominion Capital commercial loans. Dominion retained a $196
million investment in the subordinated debt of the CLO.
Dominion’s exit strategy for Dominion Lands, DCI’s real estate
development and management business, is to minimize resources
committed to the winding down and exiting of these projects. In
addition, Dominion is seeking offers that would expedite its exit
from these projects. In August 2000, Dominion realized $8 million
from the sale of its interests in certain real estate.
Dominion continues to evaluate exit strategies for Saxon.
Other
Restructuring and other acquisition-related costs also include
amounts paid to employees to retain their services during the post-
merger transition period, amounts payable under certain employee
contracts and information technology systems and operations
integration costs. The information technology costs include excess