Dominion Posts 3Q Loss on Isabel, Telecommunications Charges

Swinging wildly to a loss for the quarter due in large part to the impairment of its telecommunication assets, Dominion Resources reported a 3Q net loss of $256 million, or 79 cents per share, compared to net income of $430 million, or $1.54 per share for the same period last year.

Operating earnings, which are defined as Generally Accepted Accounting Principles (GAAP) earnings adjusted for the impact of certain items, were $423 million, or $1.30 per share for the third-quarter, compared to operating earnings of $430 million, or $1.54 per share for the same period in 2002.

Making up the difference between operating and net earnings for 3Q2003 were:

  • $80 million (25 cents per share) for restoration expenses related to Hurricane Isabel;
  • $575 million ($1.77 per share) from the previously announced impairment of telecom assets;
  • $21 million (6 cents per share) related to an impairment of Dominion Capital assets; and
  • $3 million (1 cent per share) related to the buyout of a power purchase contract.

In late September, Dominion unveiled plans to sell its telecom business and said that it would take a special charge of approximately $650 million in third quarter earnings to recognize the impaired value of the company's telecom assets.

"The third quarter presented us with a number of challenges, but we were up to the task and performed well," said Thos. E. Capps, CEO. "Hurricane Isabel was by far the worst natural disaster in our company's history and I have never been more proud of our employees and our company. In many cases we literally rebuilt portions of the distribution system from scratch and we accomplished all this in about two weeks.

"I am also encouraged by our financial performance. In spite of a 4 cents per share operating earnings impact from hurricane-related lost sales margin and a 3 cent per share charge related to a proposed settlement in the Virginia fuel case, Dominion had operating earnings of $1.30 per share. These results are indicative of Dominion's strong earnings power."

In the segment breakdown for the quarter, Dominion Energy earned $296 million (91 cents per share) in the third quarter compared to $297 million ($1.06 per share) in the third quarter of 2002. The company attributed the slight decrease to milder weather in the electric sales area, lost electric sales margin from Hurricane Isabel, settlement of the Virginia fuel case, a change in the allocation of electric franchise base revenues, lower contribution from Dominion Energy Clearinghouse, and share dilution, partially offset by customer growth, Millstone's contribution, and the effect of corporate hedges on natural gas production.

Dominion Delivery chipped in $80 million (25 cents per share) in the third quarter compared to $87 million (31 cents per share) for the third quarter 2002. Dominion said the difference is primarily attributable to milder weather in the electric and gas franchise areas, lost electric sales margin from Hurricane Isabel, performance of the telecommunications business, and share dilution, partially offset by customer growth and a change in the allocation of electric franchise base revenues.

Dominion Exploration & Production earned $98 million (30 cents per share) in the third quarter compared to $90 million (32 cents per share) in the third quarter of 2002. The increase was a result of higher average realized prices, offset by higher expenses, the expiration of Section 29 production tax credits and share dilution.

In addition to reaching a tentative fuel case settlement in Virginia and restoring power to 1.8 million homes in the wake of Hurricane Isabel, Dominion also raised $266 million in cash from the sale of 66 Bcf of natural gas reserves, deliverable through production over four years, to the Texas Municipal Gas Corp. The sale reduced Dominion's proved reserve base by approximately 1 percent.

The company also added 545 MW of gas-fired generation at Possum Point power station, was awarded a competitive bid to supply electric service to about 250,000 residential customers in PECO Energy's Philadelphia-area service territory and reactivated its Cove Point Liquefied Natural Gas facility.

Looking ahead, Dominion said it expects fourth-quarter operating earnings per share of $0.95 to $1.05, assuming normal weather. Based on that guidance and first three quarter results, the company expects full year 2003 operating earnings to be between $4.60 and $4.70 per share and 5% to 7% average annual growth after 2003.

In providing operating earnings guidance, Dominion noted that there could be differences between operating and GAAP-based reported earnings for the remainder of 2003 and 2004.

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