Dominion Resources to Take Asset Impairment
Charge on Telecomm Business
Company intends to sell the business
Will take an approximate $650 million charge in third-quarter
Reaffirms operating earnings guidance for 2003 and beyond
Foresees no material impact on financial position
RICHMOND, Va. - Dominion (NYSE: D) announced today that it
will take a special charge of approximately $650 million in its third-quarter
earnings to recognize the impaired value of its telecom assets. This represents
less than 2 percent of Dominion’s consolidated asset base of $42 billion
as of June 30, 2003. The company also announced that it intends to put the business
up for sale. No tax benefit has currently been reflected in the book impairment
loss, since recognition of the full tax benefit is dependent upon the company’s
future tax profile and taxable earnings.
The impairment will not affect the company’s operating
earnings estimates of $4.60 to $4.80 per share this year, nor its 5 to 7 percent
expected future earnings growth rate. This operating earnings estimate excludes
the approximate $650 million special charge. Additionally, in reaffirming 2003
operating earnings estimates, Dominion management is aware of other potential
differences going forward between operating earnings and Generally Accepted
Accounting Principles (GAAP) -based earnings, in addition to those previously
reported, resulting from the implementation of recently issued accounting standards.
These additional differences have not yet been quantified, and therefore Dominion
is not able at this time to provide a corresponding GAAP equivalent for 2003
estimated earnings.
Dominion has discussed this with Standard & Poor’s
and Moody’s rating agencies and has confirmed the write-down will not
affect its investment-grade credit ratings.
In response to potential opportunities created by the Telecommunications
Act of 1996, Dominion entered the telecom business in 1997 with the creation
of VPS Communications, a subsidiary of Virginia Electric and Power Company.
VPS Communications gradually grew into Dominion Telecom, a subsidiary of Dominion
Resources. Dominion Telecom’s strategy was to focus primarily on delivering
lit capacity, dark fiber and collocation services to under-served U.S. markets
east of the Mississippi.
Thos. E. Capps, Dominion’s chairman, president and chief
executive officer, said:
“Over the past several years we have done many good
things to create value for our shareholders, and we thought we had an opportunity
to create additional value in the telecom business. Unfortunately, markets for
Dominion Telecom’s services did not grow as we had expected, and a glut
in fiber capacity put continued downward pressure on prices. Our best course
of action now is to take steps to minimize the impact, learn from it and get
it behind us, and that is exactly what we are doing.”
The decision to write down the telecom assets concludes an
impairment review begun in August. Dominion most recently disclosed the possibilities
of depressed market conditions potentially creating an asset impairment in its
annual 10-K filing with the U.S. Securities & Exchange Commission on March
20 and in subsequent 10-Q filings in 2003.
Dominion Telecom will continue to operate and serve its customers
until the business is sold. Existing staff of 94 will continue to serve Dominion
Telecom’s customers from the company’s offices in suburban Richmond.
Dominion management will discuss further details during its
third-quarter earnings conference call scheduled for October 21, 2003.
Dominion is one of the nation's largest producers of energy,
with an energy portfolio of more than 24,000 megawatts of generation, 6.3 trillion
cubic feet equivalent of proved natural gas reserves and 7,900 miles of natural
gas transmission pipeline. Dominion also operates the nation's largest underground
natural gas storage system with more than 960 billion cubic feet of storage
capacity and serves 5 million retail energy customers in nine states. For more
information about Dominion, visit the company's web site at www.dom.com.
This release contains forward-looking statements including
our expectations for 2003 earnings and for future annual growth rates that are
subject to various risks and uncertainties. Discussion of factors that could
cause actual results to differ materially from management's projections, forecasts,
estimates and expectations may include factors that are beyond the company's
ability to control or estimate precisely, such as estimates of future market
conditions, estimates of proved and unproved reserves and the behavior of other
market participants. Other factors include, but are not limited to, weather
conditions, economic conditions in the company's service area, fluctuations
in energy-related commodity prices, changes to rating agency requirements and
ratings, changing financial accounting standards, trading counterparty credit
risks, risks related to energy trading and marketing, risks and costs associated
with successfully executing the company’s exit from the telecommunications
business and other uncertainties.
Other risk factors are detailed from time to time in the
company's Securities & Exchange Commission filings.
