SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to_______________
Commission file number 1-8489
DOMINION RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-1229715
(State or other jurisdiction of (I.R.S. Employer incorporation or
organization) Identification No.)
901 East Byrd Street, Richmond, Virginia 23219
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (804) 775-5700
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes __X__ No _____
At April 30, 1996 the latest practicable date for determination, 177,224,382
shares of common stock, without par value, of the registrant were outstanding.
<PAGE>
DOMINION RESOURCES, INC.
INDEX
Page
Number
PART I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Statements of Income - Three 3
Months Ended March 31, 1996 and 1995
Consolidated Balance Sheets - March 31, 1996 4-5
and December 31, 1995
Consolidated Statements of Cash Flows 6-7
Three Months Ended March 31, 1996 and 1995
Notes to Consolidated Financial Statements 8-12
Item 2. Management's Discussion and Analysis 13-17
PART II. Other Information
Item 1. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of 19
Security Holders
Item 5. Other Information 19-20
Item 6. Exhibits and Reports on Form 8-K 20
<PAGE>
DOMINION RESOURCES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
March 31,
1996 1995
(Millions, except
per share amounts)
Operating revenues and income:
Electric $1,164.8 $1,076.3
Nonutility 74.5 53.0
1,239.3 1,129.3
Operating expenses:
Fuel, net 263.1 254.0
Purchased power capacity, net 194.2 175.9
Other operation 169.6 167.7
Maintenance 59.6 66.9
Restructuring 5.4 3.5
Depreciation and amortization 148.1 135.2
Other taxes 75.8 69.6
915.8 872.8
Operating income 323.5 256.5
Other income 2.8 2.3
Income before fixed charges and
Federal income taxes 326.3 258.8
Fixed charges:
Interest charges, net 95.2 95.2
Preferred dividends of Virginia Power 9.0 11.7
Distributions-preferred securities of
subsidiary trust, net 1.8 0.0
106.0 106.9
Income before provision for
Federal income taxes 220.3 151.9
Provision for Federal income taxes 70.1 43.4
Net income $150.2 $108.5
Average common stock 176.6 172.3
Earnings per common share $ 0.85 $ 0.63
Dividends paid per common share $ 0.645 $ 0.645
__________________
The accompanying notes are an integral part of the Consolidated Financial
Statements.
<PAGE>
DOMINION RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
(UNAUDITED)
March 31, December 31,
1996 1995*
(Millions)
Current assets:
Cash and cash equivalents $ 58.3 $ 66.7
Trading securities 21.5 10.8
Customer accounts receivable, net 384.2 362.6
Other accounts receivable 104.7 104.2
Accrued unbilled revenues 154.8 179.5
Accrued taxes 18.1 0.0
Materials and supplies:
Plant and general 158.0 160.2
Fossil fuel 44.9 71.2
Other 138.1 141.5
1,082.6 1,096.7
Investments 1,438.6 1,442.7
Property, plant and equipment: 16,133.8 15,977.4
Less accumulated depreciation
and amortization 5,808.6 5,655.1
10,325.2 10,322.3
Deferred charges and other assets:
Regulatory assets 808.5 816.4
Other 211.0 225.2
1,019.5 1,041.6
Total assets $13,865.9 $13,903.3
__________________
The accompanying notes are an integral part of the Consolidated Financial
Statements.
* The Balance Sheet at December 31, 1995 has been taken from the
audited Consolidated Financial Statements at that date.
<PAGE>
DOMINION RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
(UNAUDITED)
March 31, December 31,
1996 1995*
(Millions)
Current liabilities:
Securities due within one year $ 577.0 $ 420.8
Short-term debt 88.0 236.6
Accounts payable, trade 336.3 336.7
Accrued interest 106.6 110.5
Accrued taxes 122.0 24.3
Other 232.8 265.3
1,462.7 1,394.2
Long-term debt:
Utility 3,590.4 3,889.4
Nonrecourse - nonutility 612.9 523.5
Other 228.8 199.0
4,432.1 4,611.9
Deferred credits and other liabilities:
Deferred income taxes 1,680.2 1,661.1
Investment tax credits 268.0 272.2
Deferred fuel expenses 46.2 57.7
Other 348.7 340.2
2,343.1 2,331.2
Total liabilities 8,237.9 8,337.3
Virginia Power obligated mandatorily
redeemable preferred securities
of subsidiary trust** 135.0 135.0
Preferred stock:
Virginia Power stock subject to
mandatory redemption 180.0 180.0
Virginia Power stock not subject to
mandatory redemption 509.0 509.0
Common shareholders' equity:
Common stock - no par 3,338.7 3,303.5
Retained earnings 1,463.0 1,427.6
Allowance on available-for-sale
securities (15.4) (6.7)
Other 17.7 17.6
4,804.0 4,742.0
Total liabilities & shareholders'
equity $13,865.9 $13,903.3
_________________
The accompanying notes are an integral part of the Consolidated Financial
Statements.
*The Balance Sheet at December 31, 1995 has been taken from the audited
Consolidated Financial Statements at that date.
**As described in Note (i) to NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, the
8.05% Junior Subordinated Notes totaling $139.2 million principal amount
constitute 100% of the Trust's assets.
<PAGE>
DOMINION RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
1996 1995
(Millions)
Cash flows from (to) operating activities:
Net income $ 150.2 $ 108.5
Adjustments to reconcile net income to
net cash:
Depreciation and amortization 169.4 151.3
Deferred income taxes 18.3 16.5
Investment tax credits, net (4.2) (4.2)
Allowance for other funds used
during construction (1.1) (1.8)
Deferred fuel expenses (11.5) (0.8)
Deferred capacity expenses 5.5 (0.8)
Restructuring 5.4 3.5
Non-cash return on terminated
construction projects costs (pre-tax) (1.8) (2.3)
Changes in assets and liabilities:
Accounts receivable (23.8) (65.0)
Accrued unbilled revenues 24.8 29.6
Materials and supplies 28.6 40.1
Accounts payable, trade 3.5 (34.6)
Accrued interest and taxes 92.8 95.2
Other changes (49.7) 35.4
Net cash flows from operating activities 406.4 370.6
Cash flows from (to) financing activities:
Issuance of common stock 37.4 35.0
Issuance of long-term debt:
Utility 24.5 200.0
Nonrecourse-nonutility 29.8 55.2
Issuance (repayment) of short-term debt (148.0) (69.1)
Repayment of long-term debt and
preferred stock (67.9) (239.9)
Common dividend payments (113.9) (111.0)
Other 11.5 (4.3)
Net cash flows (to) financing
activities (226.6) (134.1)
<PAGE>
DOMINION RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(CONTINUED)
Three Months Ended
March 31,
1996 1995
(Millions)
Cash flows from (used in) investing activities:
Capital expenditures-(excluding
AFC-equity funds) (107.4) (141.1)
Investments in Marketable Securities 0.9 29.1
Sale of Accounts Receivable 0.0 (60.0)
Other (81.7) (88.4)
Net cash flows (used in) investing activities (188.2) (260.4)
Increase in cash and cash equivalents (8.4) (23.9)
Cash and cash equivalents at beginning of
period 66.7 146.7
Cash and cash equivalents at end of period $ 58.3 $122.8
Supplementary cash flows information:
Cash paid during the period for:
Interest (net of interest capitalized) $ 101.0 $ 133.1
Income taxes 0.2 3.4
__________
The accompanying notes are an integral part of the Consolidated Financial
Statements.
<PAGE>
DOMINION RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(a) Dominion Resources, Inc. Is a holding company headquartered in Richmond,
Virginia. Its primary business is Virginia Electric and Power Company,
which is a regulated public utility engaged in the generation, trans-
mission, distribution and sale of electric energy within a 30,000
square mile area in Virginia and northeastern North Carolina. It sells
electricity to retail customers (including government agencies) and to
wholesale customers such as rural electric cooperatives and
municipalities. The Virginia service area comprises about 65 percent of
Virginia's total land area, but accounts for 80 percent of its
population.
The Company also operates business subsidiaries active in independent
power production; the acquisition and sale of natural gas reserves; in
financial services, and in real estate. Some of the independent
power and natural gas projects are located in foreign countries. Net
assets of approximately $204 million are involved in independent
power production operations in Latin America.
In the opinion of Dominion Resources' management, the accompanying
unaudited Consolidated Financial Statements contain all adjustments,
consisting only of normal recurring accruals, necessary to present
fairly the financial position as of March 31, 1996, the results of
operations for the three-month periods ended March 31, 1996 and 1995,
and cash flows for the three-month periods ended March 31, 1996 and
1995.
These Consolidated Financial Statements should be read in conjunction
with the Consolidated Financial Statements and notes thereto included
in the Dominion Resources Annual Report on Form 10-K for the year
ended December 31, 1995.
Certain amounts in the 1995 Consolidated Financial Statements have been
reclassified to conform to the 1996 presentation.
The results of operations for the interim periods are not necessarily
indicative of the results to be expected for the full year.
The consolidated financial statements include the accounts of the
Company and its subsidiaries, with all significant intercompany
transactions and accounts being eliminated on consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
<PAGE>
DOMINION RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(b) Common Stock
At March 31, 1996 there were 300,000,000 shares of common stock authorized
of which 177,043,550 were issued and outstanding. Common shareholders'
equity at March 31, 1996 also includes $10.0 million for amounts received
under the Stock Purchase Plan for Customers of Virginia Power and the
Automatic Dividend Reinvestment and Stock Purchase Plan for which shares
have not yet been issued. Common shares issued during the referenced
periods were as follows:
Three Months Ended
March 31,
1996 1995
Automatic Dividend
Reinvestment and
Stock Purchase Plan 690,476 645,998
Customer Stock Purchase Plan 0 0
Employee Savings Plan 609 0
Stock repurchase and retirement (136,800) (377,000)
Other 75,155 32,581
Total Shares 629,440 301,579
(c) Long-term Incentive Plan
On February 19, 1996, the Organization and Compensation Committee of
the Board of Directors awarded participants 47,556 shares of
restricted common stock at an award price of $42.375 per share. The
stock has a three-year vesting period.
On February 23, 1996, the Organization and Compensation Committee of
the Board of Directors awarded participants 24,728 shares of
restricted common stock at an award price of $42.125 per share. The
stock has a three-year vesting period.
For the three-month period ended March 31, 1996, 11,251 shares of
previously restricted stock were issued and 263 common shares were
issued associated with exercised stock options from previous awards.
As of March 31, 1996, options from 10,813 shares were exercisable
from previous awards.
(d) Preferred Stock - Virginia Power
As of March 31, 1996, there were 1,800,000 and 5,090,140 issued and
outstanding shares of preferred stock subject to mandatory
redemption and preferred stock not subject to mandatory redemption,
respectively. There are a total of 10,000,000 authorized shares of
Virginia Power's preferred stock.
<PAGE>
DOMINION RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(e) Provision for Federal Income Taxes
Total Federal Income tax expense differs from the amount computed by
applying the statutory Federal income tax rate to pre-tax income for the
following reasons:
Three Months Ended
March 31,
1996 1995
(Millions)
Computation of Provision
for Federal Income Tax:
Pre-tax income $220.3 $151.9
Tax at statutory federal
income tax rate of 35%
applied to pre-tax income $ 77.1 $ 53.2
Changes in federal income
taxes resulting from:
Preferred dividends
of Virginia Power 3.1 4.1
Nonconventional Fuel credit (6.6) (7.3)
Ratable amortization of
investment tax credits (4.2) (4.2)
Other, net 0.7 (2.4)
Total Provisions for Federal
Income Tax Expense $70.1 $43.4
Effective Tax Rate 31.8% 28.6%
(f) Contingencies
Virginia Power:
Nuclear Insurance
The Price-Anderson Act limits the public liability of an owner of a nuclear
power plant to $8.9 billion for a single nuclear incident. Virginia Power
is a member of certain insurance programs that provide coverage for property
damage to members' nuclear generating plants, replacement power and
liability in the event of a nuclear incident. Virginia Power may be subject
to retrospective premiums in the event of major incidents at nuclear units
owned by covered utilities (including Virginia Power). For additional
information, see Note P to CONSOLIDATED FINANCIAL STATEMENTS included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
Nonutility Subsidiaries:
Dominion Energy
Dominion Cogen, Inc. is a wholly owned subsidiary of Dominion Energy, Inc.
(Dominion Energy) with an investment interest in the Clear Lake cogeneration
plant near Houston, Texas. Under terms of the agreements, Dominion
Resources must provide contingent equity support to Dominion Energy. While
management believes that the possibility of such support is remote, Dominion
Resources could be required to insure that Dominion Energy has sufficient
funds to meet its equity support commitments of $61 million.
<PAGE>
DOMINION RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Dominion Energy has general partnership interests in certain of its energy
ventures. Accordingly, Dominion Energy may be called upon to fund future
operation of these investments to the extent operating cash flow is
insufficient.
(g) Lines of Credit
Dominion Resources and its subsidiaries have lines of credit and revolving
credit agreements that provide for maximum borrowing of $1,185.8 million.
At March 31, 1996, $133.1 million had been borrowed under such agreements.
In addition, these credit agreements supported $228.8 million of Dominion
Resources' commercial paper and $115.7 million of nonrecourse commercial
paper issued by Dominion Resources' subsidiaries which was outstanding at
March 31, 1996. A total of $318.8 million of the commercial paper is
classified as long-term debt since it is supported by revolving credit
agreements that have expiration dates extending beyond one year.
On February 8, 1996, Dominion Energy entered into a $400 million revolving
line of credit which replaced a previously existing $100 million revolving
line of credit. On February 15, 1996, Dominion Energy borrowed $55 million
on this line of credit to retire its foreign currency denominated loan due
on that date. On March 18, 1996, Dominion Energy borrowed an additional $40
million to fund part of a new acquisition.
(h) Investments
Investments at March 31, 1996 and December 31, 1995 are as follows:
March 31, December 31,
1996 1995
(Millions)
Investments in affiliates $ 427.7 $ 436.2
Available-for-sale securities 272.2 285.5
Nuclear decommissioning trust funds 373.6 351.4
Investments in real estate 133.5 133.0
Other 231.6 236.6
$1,438.6 $1,442.7
(i) Virginia Power Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trust
In 1995, Virginia Power established Virginia Power Capital Trust I (VP
Capital Trust). VP Capital Trust sold 5,400,000 shares of Preferred
Securities for $135.0 million, representing preferred beneficial interests
and 97% beneficial ownership in the assets held by VP Capital Trust.
Virginia Power issued $139.2 million of its 1995 Series A, 8.05% Junior
Subordinated Notes (the Notes) in exchange for the $135.0 million realized
from the sale of the Preferred Securities and $4.2 million of common
securities of VP Capital Trust. The common securities represent the
remaining 3% beneficial ownership interest in the assets held by VP Capital
Trust. The Notes constitute 100% of VP Capital Trust's assets.
<PAGE>
DOMINION RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(j) Restructuring Charges
In March 1995, Virginia Power announced the implementation phase of its
Vision 2000 program. For additional information, see Note O to CONSOLIDATED
FINANCIAL STATEMENTS included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1995. Restructuring charges of $5.4 million
and $3.5 million in the first quarter of 1996 and 1995, respectively,
included severance costs, purchase power contract cancellation and
negotiated settlement costs and other costs incurred directly as a result
of the Vision 2000 initiatives. The Vision 2000 review of operations is
expected to continue through 1996 and additional costs will be incurred.
At this time, Virginia Power management cannot estimate the additional
restructuring costs yet to be incurred.
In May 1995, Virginia Power established comprehensive involuntary severance
packages for employees who lose their positions as a result of these
initiatives. Through March 31, 1996, management had terminated 979
employess. The recognition of severance costs resulted in a charge to
operations of $3.2 million in the first quarter. At March 31, 1996,
severance payments totaling $19.4 million have been made. Virginia Power
estimates that these staffing reductions will result in annual savings, net
of outsourcing costs, in the range of $50 million to $60 million. These
savings will be reflected in lower construction expenditures as well as
lower operation and maintenance expenses.
(k) Acquisitions
For more information on acquisitions, see The Company, Item 5. Other
Information.
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Dominion Resources - Consolidated
Financial Condition
Earnings Per Share
Three Months Ended
March 31,
1996 1995
Virginia Power $0.81 $0.60
Nonutility .04 .03
Consolidated $0.85 $0.63
Virginia Power's earnings were up 21 cents in the first quarter of 1996 when
compared to the same time period for 1995. This is mainly attributable to the
severe weather experienced during the first quarter of 1996 when compared to
the mild winter of 1995. Virginia Power's kilowatt-hour retail sales
increased 9.8 percent over the first quarter of 1995.
Dominion Resources' nonutility subsidiaries earned 4 cents per share in the
first quarter of 1996, up 1 cent from the same period last year. The rise in
nonutility earnings resulted primarily from increased prices for natural gas
produced by Dominion Resources' independent power and natural gas subsidiary,
Dominion Energy.
Dividends
On April 19, 1996, the Board of Directors of Dominion Resources declared a
quarterly common stock dividend of $0.645 per share, payable June 20, 1996 to
holders of record at the close of business May 31,1996.
Financing Activities
Common Stock Issuance
Dominion Resources issued 629,440 net shares of common stock primarily through
its Automatic Dividend Reinvestment and Stock Purchase Plan including the
repurchase of 136,800 shares on the open market (see Note(b) to NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS) during the three-month period ended March
31, 1996.
The proceeds from issuance of common stock are invested on a short-term basis
by Dominion Resources and ultimately utilized to provide equity capital to its
subsidiaries generally within the same calendar year as the issuance of the
common stock.
Virginia Power
Liquidity and Capital Resources
Cash Flows From Operations
Internal generation of cash during the first quarter of 1996 provided 284% of
funds required for Virginia Power's capital requirements compared to 188%
during the first quarter of 1995.
With the completion of the Clover Power Station, Virginia Power is in a period
in which internal cash generation should exceed construction expenditures.
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
As detailed in the Consolidated Statements of Cash Flows, cash flow from
operating activities for the three month period ended March 31, 1996 increased
$43.2 million as compared to the three month period ended March 31, 1995
primarily as a result of increased sales due to the colder weather experienced
in the first quarter of 1996.
Cash Flows To Financing Activities
Cash from (to) financing activities was as follows:
Three Months Ended March 31,
1996 1995
(Millions)
Mortgage bonds $ 200.0
Issuance (repayment) of
short-term debt $(144.0) 13.4
Issuance of pollution
control securities 24.5
Repayment of long-term debt
and preferred stock (58.9) (185.0)
Dividends (104.2) (111.8)
Other (0.6) (4.3)
Total $(283.2) $ (87.7)
Financing activities for the first three months of 1996 resulted in
a net cash outflow of $283.2 million.
During the first quarter of 1996, $34.4 million of Medium-Term Notes
matured. In addition, Virginia Power issued $24.5 million of
variable rate pollution control securities to refund $24.5 million
of securities assumed in its acquisition of the North Branch Power
Station.
As of March 31, 1996, $25 million was outstanding under Virginia
Power's commercial paper program, which is a decrease of $144
million from the December 31, 1995 outstanding balance. The
reduction in commercial paper outstanding resulted from improved
cash flow from operations due to increased sales from colder weather
experienced in the first quarter of 1996.
Cash Flows (Used in) Investing Activities
Cash from (used in) investing activities was as follows:
Three Months Ended March 31,
1996 1995
(Millions)
Utility plant expenditures $(75.9) $(130.6)
Nuclear fuel (31.5) (4.5)
Nuclear decommissioning
contributions (9.0) (6.2)
Sale of accounts receivable (60.0)
Purchase of subsidiary assets (13.7)
Other (4.0) (5.0)
Total $(134.1) $(206.3)
Investing activities for the first three months of 1996 resulted in a net cash
outflow of $134.1 million primarily due to $75.9 million of construction
expenditures and $31.5 million of nuclear fuel expenditures. Of the construc-
tion expenditures, approximately $13.4 million was spent on power production
projects, and $54.0 million on transmission and distribution projects.
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
Results of Operations
Balance available for Common Stock increased by $40.5 million for the three-
month period ended March 31, 1996, as compared to the same period in 1995,
primarily as a result of the colder weather experienced in the first quarter
of 1996.
Operating Revenues
Operating revenues changed primarily due to the following:
Three Months Ended March 31,
1996 vs. 1995
(Millions)
Customer growth $10.1
Weather 85.3
Change in base revenues (5.3)
Fuel cost recovery (23.8)
Other, net (8.0)
Total retail 58.3
Sales for resale 23.6
Other operating revenues 6.6
Total $88.5
Customer kilowatt-hour sales changed as follows:
Three Months Ended March 31,
1996 vs. 1995
Residential 16.0%
Commercial 8.9
Industrial (0.4)
Public authorities 5.4
Total retail sales 9.8
Resale 52.8
Total sales 14.7
Heating and cooling degree days during the first quarter were as follows:
1996 1995 Normal
Heating degree days 2,334 1,923 2,050
Percentage change
compared to prior year 21.4 (12.9)
Cooling degree days 0 0 7
The increase in kilowatt-hour retail sales for the three-month period ended
March 31, 1996 reflects the colder weather experienced in the first quarter
of 1996 compared to 1995.
The increase in sales for resale for the three-month period ended March 31,
1996, as compared to the same period in 1995, was primarily due to colder
weather experienced by other utilities in surrounding regions during the
first three months of 1996 and increased marketing efforts by Virginia
Power.
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
Purchased Power Capacity, Net
Purchased power capacity, net increased for the three-month period ended March
31, 1996, as compared to the same period in 1995, primarily as a result of
additional non-utility generation being available and a decrease in the under
recovery of capacity expenses through rates due to higher sales.
Restructuring
As part of the Vision 2000 program (see Note (j) to NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS), Virginia Power recorded $5.4 million and $3.5 million
of restructuring charges in the first quarter of 1996 and 1995, respectively.
Restructuring charges included severance costs, purchase power contract
cancellation and negotiated settlement costs and other costs. Virginia Power
estimates that these staffing reductions and the staffing reductions reported
during 1995 will result in annual savings, net of outsourcing costs, in the
range of $50 million to $60 million. Virginia Power will incur additional
restructuring charges in 1996; however, the amount of restructuring charges yet
to be incurred is not known at this time.
Furthermore, because the Virginia Power's review of its operations has not been
completed, the amount of savings ultimately to be realized cannot be estimated
at this time. When realized, the savings will be reflected in lower
construction expenditures as well as lower operation and maintenance expenses.
Operation - Other and Maintenance
Operation - other and maintenance expenses decreased for the three-month period
ended March 31, 1996, as compared to the same period in 1995, primarily as a
result of decreased production plant outage costs due to fewer outages and
restructuring savings due to implemented Vision 2000 initiatives, partially
offset by an increase in transmission and distribution service restoration
costs resulting from winter storm damage.
Income Taxes
Income taxes increased for the three-month period ended March 31, 1996, as
compared to the same period in 1995 primarily as a result of increased income
subject to tax.
Future Issues
Accounting Standards
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-lived Assets and for Long-Lived Assets to Be Disposed Of," which was
adopted by the Company effective January 1, 1996. Based on the Company's
current operating environment, SFAS 121 did not have any impact on the
Company's consolidated financial statements.
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which will be effective for the
Company beginning January 1, 1996. SFAS No. 123 requires expanded disclosures
of stock-based compensation arrangements with employees and encourages (but
does not require) compensation cost to be measured based on the fair value of
the equity instrument awarded. Companies are permitted, however, to continue
to apply APB Opinion No. 25, which recognizes compensation cost based on the
intrinsic value of the equity instrument awarded. The Company is continuing
to apply APB Opinion No. 25 to its stock-based compensation to employees and
will disclose the required pro forma effect on net income and earnings per
share. <PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
Competition
As part of Virginia Power's Vision 2000 initiatives, Virginia Power supported
a number of legislative proposals during the 1996 session of the Virginia
General Assembly aimed at achieving greater flexibility for the Virginia State
Corporation Commission (the Virginia Commission) and Virginia Power in adapting
to a more competitive environment. All the Proposals supported by Virginia
Power were passed in amended form by both houses of the General Assembly and
have been subsequently signed into law by the Governor.
On April 24, 1996, FERC (Federal Energy Regulatory Commission) issued final
rules on open access transmission service, stranded costs, standards of conduct
and open access same-time information systems (OASIS). Under the final rules
utilities must file open access transmission tariffs on or around July 1,
1996. They must also take service under their own tariffs for wholesale
sales and purchases. The rule provides for stranded cost recovery from
departing customers. Utilities must participate in an OASIS by November 1,
1996, and comply with standards of conduct that require separation of trans-
mission operations/reliability functions from wholesale merchant/marketing
functions. These rules will become effective 60 days after publication in
the Federal Register. FERC also issued a notice of proposed rulemaking
(NOPR) proposing replacement of open access tariffs with a capacity
reservation tariff by December 31, 1997.
Other
Except for the historical information contained herein, the matters in this
report are forward-looking statements which involve risks and uncertainties,
including but not limited to regulatory, economic, competitive, governmental
and technological factors affecting Virginia Power's operations, rates,
markets, products, services and prices, and other factors discussed herein and
in Virginia Power's other filings with the Securities and Exchange Commission.
Dominion Resources and its Nonutility Subsidiaries
Liquidity and Capital Resources
During the first three months of 1996, Dominion Resources' nonutility
subsidiaries expended $66.6 million on capital requirements. Estimated capital
requirements for 1996 are $168.8 million. (For additional information, see Note
(g) to NOTES TO CONSOLIDATED FINANCIAL STATEMENTS)
Results of Operations
Nonutility revenues and income increased for the three-month period ended March
31, 1996, as compared to the same periods in 1995, primarily as a result of
increased prices for natural gas produced by Dominion Energy.
Commitments and Contingencies
For additional information on commitment and contingencies, see Note (f) to
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
DOMINION RESOURCES, INC.
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
In reference to the proceeding before the Virginia State Corporation
Commission (the Virginia Commission) into the holding company structure and the
relationship between Dominion Resources and Virginia Power, the Commission
Staff filed its final comments to the responses of Virginia Power and Dominion
Resources on March 15, 1996. The Staff comments addressed a broad range of
corporate structure issues, affiliate service arrangements, and finance and
diversification issues which have been the subject of scrutiny by the
Commission Staff and its consultants since the proceeding was initiated in
1994. In summary, the comments acknowledged that the two companies had adopted
changes in policy and structure which addressed the majority of the concerns
enumerated by the Staff consultants in their Final Report filed in April 1995,
and recommended continued monitoring of compliance with the Commission's
February 1995 Consent Order. The Staff recommended that the proceeding be
continued until July 1997.
Virginia Power
In reference to the lawsuit filed against Virginia Power by Doswell Limited
Partnership (Doswell), on March 1, 1996, the Virginia Supreme Court affirmed
the decision of the Circuit Court of the City of Richmond in favor of Virginia
Power. On March 29, 1996, Doswell filed a Petition for Rehearing with the
Supreme Court of Virginia and on April 19, 1996 the Supreme Court of Virginia
denied the Petition for Rehearing.
In reference to the civil action instituted in the United States District Court
for the Eastern District of Virginia, Norfolk Division, against the City of
Norfolk and Virginia Power by a landowner who alleges that his property has
been contaminated by toxic pollutants on an adjacent property formerly owned
by Virginia Power, a trial date of August 5, 1996 has been set.
<PAGE>
DOMINION RESOURCES, INC.
PART II. - OTHER INFORMATION
(CONTINUED)
Item 4. Submission of Matters to a Vote of Security Holders
Dominion Resources Annual Shareholders Meeting was held on April 19, 1996 and
the following proposals were voted on by shareholders.
Proposal 1 - Election of Directors
(a) The following Directors were elected to the Board of Directors for terms
expiring in the year 1999:
Votes
Director For Withheld
Harvey L. Lindsay, Jr. 153,188,651 3,325,397
Kenneth A. Randall 153,257,557 3,256,491
William T. Roos 153,261,972 3,252,076
Judith B. Sack 153,312,980 3,201,068
(b) The following incumbent Directors will continue on the Board of Directors
with term expiring in the years indicated:
Director Term Expiring
John B. Bernhardt 1997
Thos. E. Capps 1997
S. Dallas Simmons 1997
Robert H. Spilman 1997
John B. Adams, Jr. 1998
Benjamin J. Lambert, III 1998
Richard L. Leatherwood 1998
Frank S. Royal 1998
Proposal 2 - Dominion Resources, Inc. Stock Accumulation Plan for Outside
Directors
The shareholders voted in favor of a Stock Accumulation Plan for
Outside Directors as follows:
Votes
For 138,889,770
Against 13,369,227
Abstain 4,225,150
The shareholders also voted in favor of the designation of Deloitte &
Touche LLP as Dominion Resources' independent certified public
accountants to audit the consolidated financial statements for the
year 1996. The vote was as follows:
Votes
For 153,652,381
Against 1,168,723
Abstain 1,693,043
Item 5. Other Information
The Company
On March 15, 1996, Dominion Energy, through a wholly-owned subsidiary, acquired
interests in natural gas and oil properties offshore in the Gulf of Mexico.
<PAGE>
DOMINION RESOURCES, INC.
PART II. - OTHER INFORMATION
(CONTINUED)
On March 29, 1996, a subsidiary of Dominion Energy, Inc., Kincaid Generation,
L.L.C. entered into an asset sale agreement with Commonwealth Edison Company
with respect to the purchase and sale of the Kincaid power station. The
closing under the asset sale agreement is subject to various regulatory
approvals and other conditions.
On April 17, 1996, Dominion Capital, Inc.(Dominion Capital)entered into certain
purchase agreements with Resource Mortgage Capital, Inc. (Resource)relating to
the sale of Resource's single-family mortgage operations. Dominion Capital has
assigned its rights under the purchase agreements to its wholly-owned subsidiary
Dominion Mortgage Services, Inc. The closing under the purchase agreements is
subject to various regulatory approvals and other conditions and is expected to
occur no later than May 31, 1996.
Virginia Power
Regulation
General
In reference to the Virginia Commission proceeding to review and consider its
policy regarding restructuring of, and competition in, the electric utility
industry, the Commission has extended the deadlines for its Staff to address a
comprehensive list of issues and to report its findings and recommendations
until July 16, 1996. Interested parties will then have until September 16,
1996 to file written comments or request oral arguments in response to the
Staff report.
In reference to the North Carolina Utilities Commission informal information
gathering proceeding into the question of whether retail competition should be
allowed in North Carolina, the North Carolina Commission issued an Order on
April 3, 1996 directing parties to the proceeding to submit additional
comments on a number of issues relating to competition and industry restruc-
turing, including reliability, obligation to serve, stranded costs and
ancillary costs.
Sources of Power
On March 28, 1996, Clover Power Station Unit 2 achieved commercial operation,
with a summer capability of 416 MW (includes the 50 percent undivided ownership
interest of Old Dominion Electric Cooperative (ODEC)). Concurrent with the
commercial operation of Unit 2, a sales agreement between Virginia Power and
ODEC, whereby Virginia Power provided 100 mW of firm capacity and energy to
ODEC, ended. In early March 1996, a 75 mile 500Kv transmission line from the
Clover Power Station to the Carson Substation in Dinwiddie County, Virginia was
completed and energized.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10 - Dominion Resources, Inc. Stock Accumulation Plan for Outside
Directors, effective April 23, 1996 (Exhibit 99, Form S-8
Registration Statement, File No. 333-02733, incorporated by
reference)
11 - Statement re: computation of per share earnings (included in this
Form 10-Q on page 4)
27 - Financial Data Schedule (filed herewith)
(b) Report on Form 8-K:
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DOMINION RESOURCES, INC.
Registrant
BY JAMES L. TRUEHEART
James L. Trueheart
Vice President and Controller
(Principal Accounting Officer)
May 10, 1996
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