Dominion Power 2004 Annual Report Download - page 42

D 2004/Page 40
Management’s Discussion and Analysis of Financial Condition and Results of Operations, Continued
Corporate and Other
Presented below are the Corporate and Other segment’s after-tax results:
2004 2003 2002
(millions, except EPS amounts)
Specific items attributable to operating segments $(224) $ (220) $ 7
DCI operations (82) (96) 14
Telecommunications operations(1) (13) (750) (26)
Other corporate operations (208) (342) (264)
Total net expense (527) (1,408) (269)
Earnings per share impact $(1.59) $ (4.41) $(0.94)
(1) $15 million and $642 million are classified as discontinued operations in 2004 and
2003, respectively.
Specific Items Attributable to Operating Segments — 2004
During 2004, Dominion reported net expenses of $224 million in the Corpo-
rate and Other segment attributable to its operating segments. The net
expenses in 2004 primarily related to the impact of the following:
•A $184 million charge ($112 million after-tax) related to the valuation of
Dominion’s interest in a long-term power tolling contract, attributable
to Dominion Generation;
•$96 million of losses ($61 million after-tax) related to the discontinu-
ance of hedge accounting for certain oil hedges, resulting from an
interruption of oil production in the Gulf of Mexico caused by Hurricane
Ivan, and subsequent changes in the fair value of those hedges during
the third quarter, attributable to Dominion Exploration & Production;
and
•$71 million of charges ($43 million after-tax) resulting from the termina-
tion of certain long-term power purchase contracts, attributable to
Dominion Generation.
Specific Items Attributable to Operating Segments
— 2003
During 2003, Dominion reported net expenses of $220 million in the
Corporate and Other segment attributable to its operating segments.
The net expenses in 2003 primarily related to the impact of the following:
•$21 million net after-tax gain representing the cumulative effect of
adopting new accounting principles, as described in Note 3 to the
Consolidated Financial Statements, including:
•SFAS No. 143: a $180 million after-tax gain attributable to:
Dominion Generation ($188 million after-tax gain); Dominion
Exploration & Production ($7 million after-tax loss); and Dominion
Delivery ($1 million after-tax loss);
•EITF 02-3: a $67 million after-tax loss attributable to Dominion
Energy;
•Statement 133 Implementation Issue No. C20: a $75 million
after-tax loss attributable to Dominion Generation; and
•FIN 46R: a $17 million after-tax loss attributable to Dominion
Generation;
•$197 million of operations and maintenance expense ($122 million
after-tax), representing incremental restoration expenses associated
with Hurricane Isabel, attributable primarily to Dominion Delivery;
•A $105 million charge ($65 million after-tax) for the termination of
power purchase contracts attributable to Dominion Generation;
•A $64 million charge ($39 million after-tax) for the restructuring and ter-
mination of certain electric sales contracts attributable to Dominion
Generation; and
•$26 million of severance costs ($15 million after-tax) for workforce
reductions during the first quarter of 2003, attributable to:
•Dominion Generation ($8 million after-tax);
•Dominion Energy ($2 million after-tax);
•Dominion Delivery ($4 million after-tax); and
•Dominion Exploration & Production ($1 million after-tax).
DCI Operations
DCI recognized a net loss of $82 million in 2004; a decrease of $14 million
as compared to 2003. The decrease primarily resulted from a $20 million
reduction in after-tax charges associated with asset impairments.
DCI recognized a net loss of $96 million in 2003, compared to net
income of $14 million in 2002. The loss resulted primarily from the recogni-
tion of the following charges recognized in 2003: $108 million ($70 million
after-tax) of impairments related to retained interests from securitizations,
goodwill and other investments, and the sale of financial assets; and a
$26 million valuation allowance established on certain deferred tax assets.
Telecommunications Operations
Dominion’s loss from its discontinued telecommunications business
decreased $737 million to $13 million in 2004, primarily as a result of its
sale in May 2004 and the impact of certain charges recognized during
2003 which are discussed below.
Dominion’s loss from its telecommunications business increased $724
million to $750 million in 2003, primarily reflecting:
•$566 million associated with the impairment of network assets and
related inventories. Dominion did not recognize any deferred tax bene-
fits related to the impairment charges, since realization of tax benefits
is not anticipated at this time based on Dominion’s expected future
tax profile;
•A $48 million increase in deferred tax expense as a result of the
increase in the valuation allowance on deferred tax assets;
•Dominion’s purchase of the remaining equity interest in DFV held by
another party for $62 million in December 2003, $60 million of which
was recorded as goodwill and impaired;
•$57 million ($35 million after-tax) for the costs associated with
Dominion’s acquisition of DFV senior notes; and
•$41 million of after-tax operating losses.
Other Corporate Operations
The net expenses associated with other corporate operations for 2004
decreased by $134 million as compared to 2003, predominantly due to a
$28 million after-tax benefit associated with the disposition of CNGI’s
investment in Australian pipeline assets that were sold during 2004, lower
interest expense and the impact in 2003 of the charges discussed below.
The net expenses associated with other corporate operations for 2003
increased by $78 million as compared to 2002, primarily reflecting:
•A $22 million ($14 million after-tax) impairment related to CNGI’s gener-
ation assets that were sold in December 2003;
•A $62 million ($55 million after-tax) impairment of CNGI’s investment in
Australian pipeline assets held for sale; and
•A $16 million ($10 million after-tax) loss representing the cumulative
effect of adopting FIN 46R.