Dominion Power 2002 Annual Report Download - page 68

Notes to Consolidated Financial Statements, Continued
The table below presents a summary of the impairment
losses recorded in 2002, 2001 and 2000:
2002 2001 2000
(millions)
Retained interests from
mortgage securitizations $11 $ 21 $106
Retained interests from
CLO/CDO securitizations — 81 —
Loans receivable — 94 36
Venture capital and other equity investments 13 64 46
Investment in First Source Financial LLP —— 49
Real-estate projects and other — 21 54
Total $24 $281 $291
Retained Interests—Mortgage,CLO and CDO Securitizations
As part of routine quarterly reviews of its retained interests in
mortgage securitizations during the fourth quarter of 2002,
Dominion revised its prepayment speed assumptions for esti-
mating fair values and, as a result, recognized an $11 million
write-down of the carrying values of those investments.
During its review of its retained interests in mortgage, CLO
and CDO securitizations in 2001, Dominion considered the
following: historical performance of its securitized pools; recent
prepayment and credit loss experience of loans in those pools;
other industry data; and economic factors prevailing in the U.S.
economy, particularly conditions brought about by the Septem-
ber 11, 2001 events and the mortgage interest rate environment
at the time of the assessment. In light of actual credit loss expe-
rience and actual prepayment activity of certain mortgage and
commercial loans in the securitization trusts, Dominion
increased its credit loss and prepayment speed assumptions used
to estimate the fair value of its retained interests in mortgage,
CLO and CDO securitizations. With these changes in esti-
mates, Dominion recognized a write-down of the carrying val-
ues of its retained interests in mortgage and CLO and CDO
securitizations of $21 million and $81 million, respectively.
During the first half of 2000, in response to changes in market
conditions, Dominion increased the discount rate used to value
the interest-only strips included in its retained interests in mort-
gage securitizations from 12 percent to 17 percent and recog-
nized a loss of $106 million. See Note 13 for significant credit
loss, prepayment and discount rate assumptions.
Loans and Other Investments
The other impairments and loss provisions in 2001 reflect
Dominion’s current estimate of net realizable values considering
the dramatically weakened economy and increasing instances of
bankruptcies, defaults and major restructurings that signifi-
cantly diminished investment values. Dominion’s valuation
methodologies and assumptions vary by investment and include
cash flow analysis, signed contracts, independent third-party
appraisals and, in certain cases, liquidation value.
10Income Taxes
Income before provision for income taxes, classified by source of
income, before minority interests, was as follows:
Year Ended December 31, 2002 2001 2000
(millions)
U.S. $2,018 $816 $552
Non-U.S. 25 98 48
Total $2,043 $914 $600
Details of income tax expense were as follows:
Year Ended December 31, 2002 2001 2000
(millions)
Current
Federal $ (46) $104 $255
State 13 62 20
Non-U.S. 3
Total current (33) 169 275
Deferred
Federal 654 151 (111)
State 65 24 16
Non-U.S. 13 45 22
Total deferred 732 220 (73)
Amortization of deferred
investment tax credits—net (18) (19) (19)
Total income tax expense $681 $370 $183
66 Dominion ’02 Annual Report