Dominion Power 2004 Annual Report Download - page 71

FIN 46R
On December 31, 2003, Dominion adopted FIN 46R for its interests in spe-
cial purpose entities, resulting in the consolidation of several special pur-
pose lessor entities through which Dominion had constructed, financed and
leased several new power generation projects, as well as its corporate
headquarters and aircraft. As a result, the Consolidated Balance Sheet as
of December 31, 2003 reflects an additional $644 million in net property,
plant and equipment and deferred charges and $688 million of related
debt. This resulted in additional depreciation expense of approximately
$20 million in 2004. The cumulative effect in 2003 of adopting FIN 46R for
Dominion’s interests in special purpose entities was an after-tax charge of
$27 million, representing depreciation expense and amortization associ-
ated with the consolidated assets.
From 1997 through 2002, Dominion established five capital trusts that
sold trust preferred securities to third party investors. Dominion received
the proceeds from the sale of the trust preferred securities in exchange for
various junior subordinated notes issued by Dominion to be held by the
trusts. Upon adoption of FIN 46R, Dominion began reporting as long-term
debt its junior subordinated notes held by the trusts rather than the trust
preferred securities. As a result in 2004, Dominion reported interest
expense on the junior subordinated notes rather than preferred distribution
expense on the trust preferred securities.
Pro Forma Information Reflecting Adoption of New Standards
Disclosure requirements associated with the adoption of FIN 46R and SFAS
No. 143 require a presentation of pro forma net income and EPS for 2002 as
if Dominion had applied the provisions of those standards as of January 1,
2002. Other standards adopted during 2004 and 2003 do not require pro
forma information and are excluded from the amounts presented below.
Basic Diluted
Amount EPS EPS
(in millions, except per share amounts)
2002
Reported net income $1,362 $4.85 $4.82
Adjusted net income 1,363 4.85 4.82
4. Recently Issued Accounting Standards
EITF 03-1
In accordance with FSP EITF 03-1-1, Dominion delayed its adoption of the
recognition and measurement provisions of EITF Issue No. 03-1, The Mean-
ing of Other-Than-Temporary Impairment and Its Application to Certain
Investments
, which provides guidance for evaluating and recognizing other-
than-temporary impairments for certain investments in debt and equity
securities. This delay will be in effect until the FASB reaches a final conclu-
sion on issues raised in its proposed FSP 03-1-a, which relates primarily to
implementation issues concerning certain types of debt securities.
Pending the adoption of any new guidance that may be finalized in the
future, Dominion has continued to evaluate its available-for-sale securities
for other-than-temporary impairment based upon the accounting policy
described in Note 2. In addition to issues being addressed by the FASB in
FSP 03-1-a, Dominion and other entities in the electric industry have sought
additional guidance from the FASB concerning the proper application of
EITF 03-1 to debt and equity securities held in nuclear decommissioning
trusts. Given the delayed effective date and the request for additional
guidance described above, Dominion cannot predict what the initial or
ongoing impact of applying EITF 03-1 to its nuclear decommissioning trust
investments may have on its results of operations and financial condition
at this time.
SFAS No. 123R
In December 2004, the FASB issued SFAS No. 123 (revised 2004),
Share-
Based Payment
(SFAS No. 123R), which requires that the compensation
cost relating to share-based payment transactions be recognized in the
financial statements. The cost will be measured based on the fair value of
the equity or liability instruments issued. SFAS No. 123R covers a wide
range of share-based compensation arrangements, including share
options, restricted share plans, performance-based awards, share appreci-
ation rights and employee share purchase plans. The requirements of SFAS
No. 123R are effective for unvested awards outstanding as of July 1, 2005
as well as for awards granted, modified, repurchased or cancelled on or
after that date. Compensation expense expected to be recognized for
unvested stock options outstanding at adoption is not expected to be mate-
rial and Dominion’s accounting for restricted stock awards is not expected
to change significantly under the new standard. Dominion is currently eval-
uating the financial statement impact of applying SFAS No. 123R to future
grants of stock-based awards.
SFAS No. 151
In November 2004, the FASB issued SFAS No. 151,
Inventory Costs — an
amendment of ARB No. 43, Chapter 4
, which clarifies that abnormal
amounts of idle facility expense, handling costs, freight, and wasted materi-
als (spoilage) should be recognized as current period charges, and requires
that in manufacturing operations, allocation of fixed production overheads
to the costs of conversion be based on the normal capacity of the production
facility. Dominion will adopt the provisions of this standard prospectively
beginning January 1, 2006 and does not expect the adoption to have a
material impact on its results of operations and financial condition.
SFAS No. 153
In December 2004, the FASB issued SFAS No. 153,
Exchanges of Nonmone-
tary Assets
— an amendment of APB Opinion No. 29 , which requires that all
commercially substantive exchange transactions, for which the fair value
of the assets exchanged are reliably determinable, be recorded at fair
value, whether or not they are exchanges of similar productive assets. This
amends the exception from fair value measurements in APB No. 29,
Accounting for Nonmonetary Transactions , for nonmonetary exchanges of
similar productive assets and replaces it with an exception for only those
exchanges that do not have commercial substance. Dominion will adopt
the provisions of this standard prospectively beginning July 1, 2005 and
does not expect the adoption to have a material impact on its results of
operations and financial condition.
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