Dominion Power 2005 Annual Report Download - page 72

Notes to Consolidated Financial Statements, Continued
2003 — Additional Investments in DFV
The DFV senior notes contained certain stock price and credit
downgrade triggers that could have resulted in the issuance of the
convertible preferred stock held in trust. In the first quarter of
2003, we purchased $633 million of DFV senior notes to reduce
the likelihood that the remarketing of the Dominion convertible pre-
ferred stock held in trust would ever occur and, in connection with
the purchase, obtained consent to remove the triggers from the
indenture. We paid a total of $664 million for the notes acquired
and recognized a pre-tax charge of $57 million, reported in other
expenses on our Consolidated Statement of Income. The charge
consisted of the premium paid to acquire the notes, the consent
fee paid to the note holders and the recognition of previously
unamortized debt costs. After the transaction, we owned a total of
$644 million of DFV senior notes with the remaining $21 million of
outstanding notes held by third parties.
We began consolidating the results of DFV in our Consolidated
Financial Statements in February 2003, as a result of acquiring
substantially all of DFV’s outstanding senior notes. Prior to this
acquisition, we accounted for DFV as an equity-method investment,
due to the Investor Trust’s equity investment and veto rights.
In the fourth quarter of 2003, we purchased the Investor Trust’s
interest in DFV for $62 million, including $2 million for accrued divi-
dends. This transaction was accounted for as a purchase of a
minority interest and $60 million was recognized as goodwill and
impaired. The purchase enabled us to proceed with our strategy to
sell Dominion Telecom and, accordingly, classify the business as
discontinued operations as of December 31, 2003. The results of
telecommunications operations, including revenue of $18 million
and a loss before income taxes of $627 million, were presented as
discontinued operations, on a net basis, on the Consolidated State-
ment of Income for 2003.
2003 — Other
Also early in 2003, we recognized a $27 million charge for the
reallocation of DFV’s equity losses between the Investor Trust and
Dominion. Based on updated projections of DFV’s expected net
losses, Dominion and the Investor Trust revised the allocation of
equity losses, using cash allocations and liquidation provisions of
the underlying limited liability company agreement rather than
voting interests.
Note 10. Earnings Per Share
The following table presents the calculation of our basic and
diluted EPS:
Year Ended December 31, 2005 2004 2003
(millions, except per share amounts)
Income from continuing operations before cumulative
effect of changes in accounting principles $1,034 $1,264 $ 949
Income (loss) from discontinued operations 5(15) (642)
Cumulative effect of changes in accounting principles (6) — 11
Net income $1,033 $1,249 $ 318
Basic EPS
Average shares of common stock outstanding — basic 342.3 329.1 317.5
Income from continuing operations before cumulative
effect of changes in accounting principles $ 3.02 $ 3.84 $ 2.99
Income (loss) from discontinued operations 0.02 (0.04) (2.02)
Cumulative effect of changes in accounting principles (0.02) — .03
Net income $ 3.02 $ 3.80 $ 1.00
Diluted EPS
Average shares of common stock outstanding 342.3 329.1 317.5
Net effect of potentially dilutive securities(1) 2.1 1.4 1.3
Average shares of common stock outstanding — diluted 344.4 330.5 318.8
Income from continuing operations before cumulative
effect of changes in accounting principles $ 3.00 $ 3.82 $ 2.98
Income (loss) from discontinued operations 0.02 (0.04) (2.01)
Cumulative effect of changes in accounting principles (0.02) — .03
Net income $ 3.00 $ 3.78 $ 1.00
(1) Potentially dilutive securities consist of options, restricted stock, equity-linked securities,
contingently convertible senior notes and shares that were issuable under a forward equity
sale agreement.
Potentially dilutive securities with the right to purchase approxi-
mately 3 million, 5 million and 10 million common shares for the
years ended 2005, 2004 and 2003, respectively, were not
included in the respective period’s calculation of diluted EPS
because the exercise or purchase prices included in those
instruments were greater than the average market price of the
common shares.
70 Dominion 2005