RICHMOND, Va. - Dominion (NYSE: D) announced today net income
prepared in accordance with Generally Accepted Accounting Principles (GAAP)
for the three months ended March 31, 2004, of $444 million ($1.36 per share)
compared to net income of $508 million ($1.64 per share) for the same period
last year.
Operating earnings, which are defined as GAAP earnings adjusted
for certain items, were $448 million ($1.37 per share) for the three months
ended March 31, 2004, compared to operating earnings of $475 million ($1.53
per share) for the same period in 2003.
Dominion uses operating earnings as the primary performance
measurement of its earnings outlook and results for public communications with
analysts and investors. Dominion also uses operating earnings internally for
budgeting, reporting to the Board of Directors and for the company’s profit
sharing plan. Dominion management believes operating earnings provide a more
meaningful representation of the company’s fundamental earnings power.
A detailed description of the items included in 2004 and 2003 GAAP earnings
but excluded from operating earnings can be found at the end of this press release
or by visiting our Web site at www.dom.com/investors.
Thos. E. Capps, chairman and chief executive officer, said:
“We achieved our first quarter results in spite of pressure
on several areas of our business. While we did benefit by 4-cents per share
as a result of colder than normal weather, it was more than offset by a negative
6-cent per share mark-to-market impact of our corporate hedge on future 2004
natural gas production, an effect that is strictly timing in nature.
“The fact that this performance comes in a quarter when
our earnings power was affected by dampened volatility in the wholesale energy
sector, is evidence that our fully-integrated model is poised to usher in a
return to earnings-per-share growth.
“A positive component for Dominion’s future potential
earnings growth is the April 14 signing into law of the extension of the capped
rate period in our Virginia service territory. The law extends base rates through
Dec. 31, 2010, maintains our current fuel recovery factor until July 1, 2007
and allows for a one-time adjustment to the fuel factor in 2007 for expected
fuel costs during the period from July 1, 2007 to Dec. 31, 2010. Although the
risk of fuel expense shifts to our shareholders, we believe we have the appropriate
assets and skill sets to create more cash flow, earnings and value during the
next three years than would have been possible under the traditional fuel recovery
mechanism.”
The company will recognize an estimated $23 million after-tax
charge to earnings in the second quarter of 2004 for fuel expenses no longer
recoverable under the new law.
Capps said: “There will be an initial cost to Dominion’s
shareholders. Accordingly, we are lowering our 2004 operating earnings guidance
to a range of $4.75 to $4.90 per share from the previous range of $4.80 to $5.00
per share. This is a small price to pay for the extension of our base rates
and the opportunity to improve net income in future years. I and other members
of Dominion management look forward to discussing the impacts of the new law
on future earnings at our analyst meeting in New York on May 6th.”
Operating earnings guidance for 2005 is $5.10 to $5.20 per
share. Dominion expects operating earnings growth of 5 to 7 percent annually
in 2006, 2007 and 2008. “Based on a number of positive factors, we are
optimistic that our business model will produce earnings at the upper end of
this growth range,” Capps said.
In providing operating earnings guidance, Dominion management
is aware of potential differences between 2004 operating earnings and GAAP-earnings.
In addition to differences recorded in the first quarter, Dominion will continue
to account for the company’s telecom business as discontinued operations.
At this time Dominion management is not able to accurately estimate any income
or loss from discontinued operations, or if there will be any incremental gain
or loss from the disposal of the telecom business. Therefore, Dominion is not
able at this time to provide a corresponding GAAP equivalent for 2004 earnings
per share guidance. Dominion management is not aware of potential differences
between 2005 operating earnings and GAAP-earnings.
May 6 analyst meeting
Dominion will host an analyst meeting on May 6 in New York,
where management will discuss in detail the provisions of the new Virginia law.
Individuals interested in attending should visit www.dom.com/investors/rsvp.jsp
or contact investor relations at (804) 819-2155. For those not able to attend,
the analyst meeting will be webcast.
Earnings breakdown by operating segment
Dominion Delivery earned $166 million (51 cents per share)
in the first quarter of 2004 compared to $159 million (51 cents per share) in
the first quarter of 2003. The change is primarily attributable to customer
growth and other margins, partially offset by comparatively milder weather in
the electric and gas franchise areas.
Dominion Energy earned $69 million (21 cents per share) in
the first quarter of 2004 compared to $173 million (56 cents per share) in the
first quarter of 2003. The decrease is primarily attributable to lower contributions
from Dominion Energy Clearinghouse, lower electric transmission margins and
other factors, partially offset by higher contributions from the Cove Point
liquefied natural gas facility.
Dominion Generation earned $144 million (44 cents per share)
in the first quarter of 2004 compared to $111 million (36 cents per share) in
the first quarter of 2003. The increase is primarily attributable to customer
growth, the contribution from Millstone Power Station and lower purchased power
capacity expenses, partially offset by comparatively milder weather in the electric
franchise area and other factors.
Dominion E&P earned $129 million (39 cents per share)
in the first quarter of 2004 compared to $106 million (34 cents per share) in
the first quarter of 2003. The change is primarily attributable to the positive
impact of revenue recognized from the delivery of reserves sold under a volumetric
production payment agreement, net of related lower production volumes, and reduced
O&M expenses, partially offset by lower average realized prices, a higher
depreciation, depletion and amortization rate and other factors.
The impact of the corporate segment on first quarter 2004
GAAP earnings was negative $64 million (19 cents per share) compared to negative
$41 million (13 cents per share) in the first quarter of 2003. The corporate
operating earnings impact was negative $60 million (18 cents per share) compared
to negative $74 million (24 cents per share) in the first quarter of 2003. A
detailed description of the items included in 2004 and 2003 GAAP earnings but
excluded from operating earnings can be found at the end of this press release
or by visiting our Web site at www.dom.com/investors.
Company reaffirms position on officer stock loans
To finance the acquisition of Dominion common stock to meet
newly established ownership guidelines, the company arranged an Executive Stock
Purchase and Loan Program with a bank in February 2000.
As the company informed investors during its fourth quarter
2003 earnings call, between now and February 2005 certain executive officers
may exercise options for the sole purpose of paying off these loans. These exercises
could occur at anytime over the next year and could occur individually or in
one or more bulk trades. Officers are also authorized to sell a sufficient number
of directly owned Dominion shares to repay any part of their loans outstanding
after application of cash received from any option exercise.
The stock ownership guidelines are still in place and, after
any option exercises or stock sales used to pay off these loans, executive officers
will not be allowed to sell any stock prior to retirement without forfeiture
of certain company benefits.
Conference call for investors / media
Dominion will host a conference call today at 10 a.m. EDT
to discuss first-quarter 2004 results and other issues of interest to investors.
Domestic investors who wish to participate in the conference
call should dial 877-258-8840. International investors should
dial 973-935-2067. Participants should dial in five to 10 minutes
prior to the scheduled start time. Members of the media are also invited to
listen.
A live web cast of the conference call will be available on
the company’s investor information page at www.dom.com/investors.
A replay of the conference call will be available from approximately
11 a.m. EDT, April 20, until 11 p.m. EDT, April 27. Domestic investors may access
the recording by dialing 877-519-4471. International callers
should dial 973-341-3080 to access the recording. The PIN for
the conference call replay is 4682150. Additionally, a replay
of the webcast will be available on the company’s investor information
page by the end of the day, April 20.
Dominion is one of the nation's largest producers of energy,
with an energy portfolio of more than 24,000 megawatts of generation, 6.4 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 5.3 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 2004 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, including changes in the cost of fuel for
our regulated electric business, changes to rating agency requirements and ratings,
changing financial accounting standards, trading counter-party credit risks,
risks related to energy trading and marketing, failure to complete the expected
sale of our telecommunications business, and other uncertainties. Other risk
factors are detailed from time to time in Dominion’s most recent quarterly
report on Form 10-Q or annual report on Form 10-K filed with the Securities
& Exchange Commission.
