Business Context and Reporting Period
Company: Dominion Resources, Inc. (Note: Filing text identifies registrant as Dominion Resources, Inc., though request metadata lists Dominion Energy, Inc.)
Reporting Period: Quarterly Report (Form 10-Q) for the period ended September 30, 2001.
Business Overview: A holding company with major subsidiaries including Virginia Electric and Power Company (regulated utility), Consolidated Natural Gas Company (CNG), and Dominion Energy, Inc. (independent power production). The company operates in three primary segments: Dominion Energy, Dominion Delivery, and Dominion Exploration & Production. In July 2001, the company completed the sale of Saxon Capital, Inc., substantially exiting its financial services subsidiary (DCI).
Key Financial Metrics
| Metric (Millions) | Three Months Ended Sept 30, 2001 |
Three Months Ended Sept 30, 2000 |
Nine Months Ended Sept 30, 2001 |
Nine Months Ended Sept 30, 2000 |
|---|---|---|---|---|
| Operating Revenue | $2,544 | $2,344 | $8,051 | $6,464 |
| Income from Operations | $780 | $660 | $1,794 | $1,149 |
| Net Income | $344 | $260 | $661 | $330 |
| Diluted EPS | $1.37 | $1.09 | $2.65 | $1.41 |
| Cash Flow from Operations | N/A | N/A | $1,839 | $1,288 |
| Total Assets | $31,270 | N/A | N/A | N/A |
| Total Liabilities | $22,265 | N/A | N/A | N/A |
| Long-Term Debt | $11,764 | N/A | N/A | N/A |
| Short-Term Debt | $1,299 | N/A | N/A | N/A |
| Cash and Equivalents | $367 | N/A | N/A | N/A |
Note: Balance sheet data is comparative to December 31, 2000. Nine-month cash flow data is provided; three-month cash flow is not explicitly detailed in the summary tables.
Material Changes vs. Prior Period
- Revenue Growth: Operating revenue increased 8.5% in the third quarter and 24.6% year-to-date compared to 2000. Growth was driven by the inclusion of Millstone Nuclear Power Station operations (acquired March 2001) and full-year CNG operations.
- Profitability: Net income increased 32% in the third quarter and 100% year-to-date. The year-to-date increase is significantly aided by a $21 million cumulative effect of a change in accounting principle recorded in the prior year (2000) related to pension costs, which is not present in 2001.
- Segment Performance:
- Dominion Energy: Net income contribution rose $81 million (Q3) and $176 million (YTD) due to Millstone inclusion, higher fuel rates, and warmer weather.
- Dominion Delivery: Q3 net income decreased $21 million due to lower gas sales volumes as customers switched suppliers, though YTD income increased $13 million.
- DCI (Financial Services): Reported losses of $7 million (Q3) and $16 million (YTD) compared to profits in 2000, reflecting the wind-down of mortgage lending operations and the sale of Saxon Capital.
- Debt Structure: Long-term debt increased to $11.76 billion from $10.10 billion (Dec 2000) to finance acquisitions (Millstone, CNG refinancing). Short-term debt decreased significantly from $3.24 billion to $1.30 billion.
Guidance, Outlook, Risks, and Unusual Items
- Acquisitions:
- Millstone: Completed March 2001 for $1.3 billion. Pro forma results indicate modest revenue impact but significant asset addition.
- Louis Dreyfus: Subsequent event (effective Nov 1, 2001). Acquired for $1.8 billion (cash and stock). Financed via long-term debt and trust preferred securities.
- Accounting Changes:
- SFAS 133 (Derivatives): Adopted Jan 1, 2001. Recorded a $183 million after-tax charge to AOCI. Approximately $155 million of net gains in AOCI are expected to be reclassified to earnings in the next 12 months.
- SFAS 141/142 (Goodwill): To be adopted Jan 1, 2002. Will cease goodwill amortization (currently $3.7 billion on balance sheet) and switch to impairment testing.
- Regulatory Risks:
- Virginia Deregulation: Transition to competitive retail electric market scheduled for Jan 1, 2002. Ongoing proceedings regarding the separation of generation and delivery operations (legal vs. divisional separation).
- Rate Cases: Pending settlements in Ohio (Payment Matching Program) and West Virginia (Dominion Hope rate increase). Audit in Pennsylvania (Dominion Peoples) proposes $19 million return to customers.
- Unusual Items:
- Restructuring: $136 million after-tax charge in Q1 2001 for terminating long-term power purchase agreements (NUGs).
- Divestiture Loss: $25 million after-tax loss on the sale of Saxon Capital in July 2001.
Investor Verification Checklist
- Goodwill Amortization Impact: Verify the impact of SFAS 142 adoption in 2002 on future earnings, as $3.7 billion in goodwill will no longer be amortized.
- Derivative Reclassification: Monitor the reclassification of the $155 million net gain from AOCI to earnings over the next 12 months and its offsetting effect on realized hedged transactions.
- Regulatory Separation Outcome: Confirm the Virginia State Corporation Commission's final ruling on the legal vs. divisional separation of generation and delivery operations, expected by year-end 2001.
- Louis Dreyfus Integration: Assess the financial impact and debt service requirements of the $1.8 billion Louis Dreyfus acquisition closing in November 2001.
- DCI Wind-down: Review the remaining asset value and potential further impairments in the Dominion Capital, Inc. (DCI) segment as it exits financial services.