Operating earnings, which are defined as GAAP earnings adjusted for certain items, were $1.523 billion ($4.61 per share) for the 12 months ended Dec. 31, 2004, compared to operating earnings of $1.449 billion ($4.55 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.
Business segment results and detailed descriptions of items included in 2004 and 2003 GAAP earnings but excluded from operating earnings can be found in schedules 1, 2 and 3 of this release or on Dominion's Web site at http://www.dom.com/investors/.
Thos. E. Capps, chairman and chief executive officer, said:
"2004 went very much the way we expected when it began with the exception of the under-recovery of Virginia fuel. We firmly believe that the trade-off between a fixed fuel factor scheduled to be adjusted in mid-2007 and base rate certainty through 2010 will result in greater value to our shareholders."
Fourth quarter earnings
Dominion also announced today preliminary unaudited net income determined in accordance with GAAP for the three months ended Dec. 31, 2004, of $224 million (67 cents per share) compared to a net loss of $174 million (54 cents per share) for the same period last year.
Operating earnings were $408 million ($1.22 per share) for the three months ended Dec. 31, 2004, compared to operating earnings of $274 million (84 cents per share) for the same period in 2003.
Business segment results and detailed descriptions of items included in fourth quarter 2004 and 2003 GAAP earnings that are excluded from operating earnings can be found in schedules 1, 2 and 3 of this release or on Dominion's Web site at http://www.dom.com/investors/.
2004 operating earnings compared to expectations
Dominion earned $1.22 per share in operating earnings during the fourth quarter of 2004. This fell below fourth-quarter guidance of $1.29 to $1.36 per share announced Oct. 21. Key reasons were lower sales in our franchise service areas due to warmer-than-normal weather; unrecoverable fuel expenses at Dominion Virginia Power; lower-than-expected contributions from the Clearinghouse; and a delay in the acquisition of the Kewuanee nuclear power plant. Additionally, sales at Dominion Exploration and Production (E&P) were reduced by longer-than-forecast production delays created by Hurricane Ivan and lower-than-expected business interruption insurance proceeds due to the timing and processing of our resulting claims. These offset the benefit of higher-than-anticipated prices received from natural gas and oil production.
Dominion's full-year 2004 operating earnings of $4.61 per share compares to expectations announced on Jan. 23, 2004 of $4.80 to $5.00 per share. The difference is primarily attributable to the effect of Virginia fuel expenses and Clearinghouse results, partially offset by the benefit of higher commodity prices and gains on oil options at Dominion E&P.
Complete details of fourth quarter and full-year 2004 results versus guidance can be found on schedule 4 of this release or on Dominion's Web site at http://www.dom.com/investors/.
2004 operating earnings compared to 2003
Fourth-quarter 2004 operating earnings of $1.22 per share compares to 84 cents per share in the fourth quarter of 2003. The increase is primarily attributable to higher contributions from Clearinghouse activities and Millstone, lower purchased power capacity expenses and higher revenue at E&P, partially offset by higher expenses at E&P and the impact of Virginia fuel expenses.
Full year 2004 operating earnings of $4.61 per share compares to $4.55 per share in 2003. The increase is primarily attributable to higher contributions from Millstone and Dominion Retail, lower purchased power capacity expenses and higher revenue at E&P, partially offset by lower contributions from Clearinghouse activities, higher expenses at E&P and the impact of Virginia fuel expense.
Complete details of fourth-quarter and full-year 2004 operating earnings versus 2003 can be found on schedules 5 and 6 of this release or on Dominion's Web site at http://www.dom.com/investors/.
Change in Clearinghouse revenue and cost allocation
As mentioned during its Dec. 20 conference call, Dominion has decided to exit proprietary trading and focus the Clearinghouse operations on management and optimization of company assets. Accordingly, Clearinghouse revenue and costs will be reported as part of the results of the business segments operating the related assets. 2004 and 2003 segment results have been recast to reflect coal and emissions trading in the Generation segment and are detailed in the attached schedules as well as supplemental schedules found on Dominion's Web site. 2004 and 2003 consolidated results are unaffected by this change.
First quarter 2005 operating earnings guidance
Dominion expects to produce first-quarter 2005 operating earnings in the range of $1.35 to $1.45 per share. This compares to $1.37 per share in the first quarter 2004. The primary drivers compared to 2004 include: customer growth, net purchased power capacity expense savings, and contributions from E&P and the newly acquired Dominion New England assets, partially offset by the impact of Virginia fuel expenses and a return to normal weather.
In providing 2005 operating earnings guidance, Dominion management is aware of potential differences between operating earnings and GAAP-earnings. Dominion estimates an after-tax charge of $40 million to $45 million related to the pending acquisition of the Panda non-utility generation facility, expected to close in the first quarter. Until the acquisition is completed, Dominion management is not able to estimate the corresponding GAAP equivalent for 2005 operating earnings per share guidance.
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