Dominion Power 2006 Annual Report Download - page 73

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Employers’ Accounting for Postretirement Benefits Other Than Pen-
sions,allofwhich were previouslynetted against the fundedstatus
of our plans in our Consolidated Balance Sheet. The amounts in
AOCI, regulatory assets and regulatory liabilities will be sub-
sequently recognized as a component of net periodic benefit cost
pursuanttoour historical accounting policy for amortizing such
amounts. Further, actuarial gainsand losses that arise in sub-
sequent periods and are not recognized as net periodic benefit cost
(credit) in the same periods will be recognized as acomponent of
other comprehensive income (loss) or regulatory assets or regu-
latory liabilities as appropriate. Those amounts will be sub-
sequently recognized as a component of net periodic benefit cost
(credit) on the same basis as the amounts recognized in AOCI,
regulatoryassets and regulatory liabilities at adoption of SFAS
No. 158.
SAB 108
In September 2006, the SECissued Staff Accounting Bulletin
(SAB) No. 108,Considering the Effects ofPrior Year Misstatements
when Quantifying Misstatements in CurrentYear Financial State-
ments. SAB 108 provides guidance on how prior year misstate-
ments should be taken into consideration when quantifying
misstatements in currentyear financial statements forpurposes of
determiningwhether the current year’s financial statements are
materially misstated. Our adoption of SAB 108 on December 31,
2006 had no impact our Consolidated Financial Statements.
EITF 04-13
We enter into buy/sell and related agreements primarily as a
means to reposition our offshore Gulf of Mexico crude oil pro-
duction to more liquid onshore marketing locations and to facili-
tate gas transportation. In September 2005, the Financial
Accounting Standards Board (FASB) ratified the EITF’s con-
sensus on Issue No. 04-13, Accounting for Purchases and Sales of
Inventory with the Same Counterparty,which requires buy/sell and
related agreements to be presented on anetbasis in our Con-
solidated Statements of Income if they are entered into in con-
templation of oneanother. We adopted the provisions of EITF
04-13 on April 1, 2006 for new arrangements and modifications
or renewals of existing arrangements made after that date. As a
result, a significant portion of our activity related to buy/sell
arrangements is presented on anetbasis in our Consolidated
Statement of Income for2006; however, there was no impact on
our results of operations or cash flows. Pursuant to the transition
provisionsof EITF 04-13, activity related to buy/sell arrange-
ments that were entered into prior to April 1, 2006 and have not
been modified or renewed after that date continue to be reported
on agross basis and are summarized below:
2006 2005 2004
(millions)
Sale activity included in operatingrevenue $576 $623 $436
Purchase activity included in operating
expenses(1) 578 651 440
(1) Included in other energy-related commodity purchases expense and pur-
chased gas expense in our Consolidated Statements of Income.
2005
FIN 47
We adoptedFASB Interpretation No. 47, Accountingfor Condi-
tional Asset Retirement Obligations (FIN 47) on December 31,
2005. FIN 47 clarifies that an entity is required to recognize a
liability for the fair value of aconditionalasset retirement obliga-
tion when the obligation is incurred—generally upon acquisition,
construction, or development and/or through the normal oper-
ation of the asset, if the fair value of the liability can be reasonably
estimated. A conditional asset retirement obligation is alegal
obligation to perform an asset retirement activity in which the
timingand/or methodof settlement are conditional on afuture
event that may or maynot be within the control of the entity.
Uncertainty about the timingand/or methodof settlement is
required to be factoredinto the measurement of the liability when
sufficient information exists. Our adoption of FIN 47 resulted in
the recognition of an after-tax charge of $6 million, representing
the cumulative effect of the change in accounting principle.
Presented below are our pro forma net income and earnings
per shareasif we had applied the provisionsofFIN 47 as ofJan-
uary 1, 2004:
Year Ended December 31, 2005 2004
(millions, except per shareamounts)
Net income—as reported $1,033 $1,249
Net income—pro forma 1,038 1,248
Basic EPS—as reported 3.02 3.80
Basic EPS—pro forma 3.03 3.79
Diluted EPS—as reported 3.00 3.78
Diluted EPS—pro forma 3.02 3.78
If we had applied the provisions of FIN 47 as of January 1,
2004, our asset retirement obligations would have increased by
$131 million and$140 million as of January 1, 2004 and
December 31, 2004, respectively.
2004
EITF 04-8
On December 31, 2004, we adopted EITF Issue No. 04-8, The
Effect ofContingently Convertible Instruments on Diluted Earnings
perShare,which requires the sharesissuable undercontingently
convertible instruments to be included in the diluted EPS calcu-
lation regardless of whether the marketprice trigger(orother
contingent feature) has been met. Prior to adoption, we
exchanged $219 million of outstanding contingent convertible
senior notes fornew notes with aconversion feature that requires
that the principal amount of each note be repaid in cash. The new
notes outstanding on December 31, 2004 were included in the
diluted EPS calculation retroactive to the date of issuance using
the method described in EITF 04-8. Under this method, the
number of shares included in the denominator of the dilutedEPS
calculation is calculated as the netshares issuable for the reporting
period based upon the average market price forthe period. This
change didnot result in an increase to the average shares out-
standing used in the 2004 calculation of our diluted EPS since the
conversion price includedin the noteswasgreater than the aver-
72 DOMINION2006 Annual Report