Dominion Power 2001 Annual Report Download - page 61

For the year ended December 31, 2000, Dominion
recorded $460 million of restructuring and acquisition-related
costs, including exiting certain businesses of DCI, as follows:
(millions)
Severance and related costs $70
Commodity contract losses 55
Information technology related costs 35
Lease termination and restructuring 14
DCI exit strategies (see Note 8) 172
ERP benefit costs (see Note 26) 114
Curtailment gains (see Note 26) (26)
Other, net 26
Tot al $460
At December 31, 2001, the remaining severance liability of
$3 million represented amounts payable to employees terminated
under Dominion’s 2000 restructuring plan. The change in the
liability for severance and related benefit costs is presented below:
(millions)
Balance at December 31, 2000 $29
Amounts paid (24)
Revision of estimates (2)
Balance at December 31, 2001 $3
Employee Severance Programs — Through December 31,
2001, 750 salaried positions had been eliminated and $65 mil-
lion of severance benefits had been paid. Severance payments
were based on the individual’s base salary and years-of-service at
the time of termination. In addition, severance payments were
provided to employees at DCI who were terminated as part of
Dominion’s strategy to exit certain businesses of DCI.
Change in Risk Management Strategy — During the first
quarter of 2000, Dominion created an enterprise risk manage-
ment group with responsibility for managing Dominion’s aggre-
gate energy portfolio, including the related commodity price
risk, across its consolidated operations. In connection with this
change in risk management strategy, management evaluated
CNG’s hedging strategy in relation to Dominion’s combined
operations and designated CNG’s portfolio of derivative con-
tracts that existed on January 28, 2000, as held for purposes
other than hedging for accounting purposes. This action
required a change to mark-to-market accounting and resulted in
$55 million of losses recognized in the first quarter of 2000
before Dominion had either financially settled the contracts or
had entered into offsetting contracts.
Other — Restructuring and other acquisition-related costs
included amounts paid to employees to retain their services
during the post-acquisition transition period, amounts payable
under certain employee contracts and information technology
systems and operations integration costs. The information tech-
nology costs included excess amortization expense attributable
to shortening the useful lives of capitalized software being
impacted by systems integration and related conversion costs.
Dominion also incurred lease termination and restructuring
costs as a result of the consolidation of operations.
Impairment Losses — DCI Operations
In 2001, Dominion recognized impairment losses of $281 mil-
lion on various investments at DCI and reported the losses in
other operations and maintenance expenses. These charges,
after-tax, reduced 2001 net income by $183 million. In 2000,
Dominion recognized impairment losses of $291 million, of
which $172 million was determined to be attributable to
Dominion’s DCI exit strategy and were included in restructur-
ing and other acquisition-related costs. The remaining $119 mil-
lion of impairment charges were related to normal operations of
DCI and are included in other operations and maintenance
expenses. See Notes 6, 7, and 13. These charges, after-tax,
reduced 2000 net income by $186 million for 2000. The 2001
and 2000 impairments are reflected in the Corporate and Other
operating segment. See Note 30.
The table below presents a summary of the impairments
losses recorded in 2001 and 2000:
(millions) 2001 2000
Investment in:
Retained interests—mortgage securitizations $21 $106
Retained interests—CLO/CDO securitizations 81 —
Loans receivable 94 36
Venture capital and other equity investments 64 46
Investment in First Source — 49
Real-estate projects and other 21 54
Tot al $281 $291
Retained Interests — Mortgage, CLO and CDO Securitizations
As part of routine quarterly reviews of its retained interests in
mortgage, CLO and CDO securitizations during the fourth quar-
ter of 2001, Dominion considered the following: historical perfor-
mance of its securitized pools; recent prepayment and credit loss
experience of loans in those pools; other industry data; and eco-
nomic factors prevailing in the U.S. economy, particularly condi-
tions brought about by the September 11, 2001 events and the
mortgage interest rate environment at that time. In light of recent
actual credit loss experience and actual prepayment activity of cer-
tain mortgage and commercial loans in the securitization trusts,
Dominion increased its credit loss and prepayment speed assump-
tions used to estimate the fair value of its retained interests in
mortgage, CLO and CDO securitizations. With these changes in
Note 8
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