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Dominion to Sell Telecom Biz

Dominion Resources to take a $650M asset impairment charge on telecom business, which it now intends to sell

September 22, 2003

3 Min Read

RICHMOND, Va. -- Dominion (NYSE: D) announced today that it will take a special charge of approximately $650 million in its third-quarter earnings to recognize the impaired value of its telecom assets. This represents less than 2 percent of Dominion’s consolidated asset base of $42 billion as of June 30, 2003. The company also announced that it intends to put the business up for sale. No tax benefit has currently been reflected in the book impairment loss, since recognition of the full tax benefit is dependent upon the company’s future tax profile and taxable earnings.

The impairment will not affect the company’s operating earnings estimates of $4.60 to $4.80 per share this year, nor its 5 to 7 percent expected future earnings growth rate. This operating earnings estimate excludes the approximate $650 million special charge. Additionally, in reaffirming 2003 operating earnings estimates, Dominion management is aware of other potential differences going forward between operating earnings and Generally Accepted Accounting Principles (GAAP) -based earnings, in addition to those previously reported, resulting from the implementation of recently issued accounting standards. These additional differences have not yet been quantified, and therefore Dominion is not able at this time to provide a corresponding GAAP equivalent for 2003 estimated earnings.

Dominion has discussed this with Standard & Poor’s and Moody’s rating agencies and has confirmed the write-down will not affect its investment-grade credit ratings.

In response to potential opportunities created by the Telecommunications Act of 1996, Dominion entered the telecom business in 1997 with the creation of VPS Communications, a subsidiary of Virginia Electric and Power Company. VPS Communications gradually grew into Dominion Telecom, a subsidiary of Dominion Resources. Dominion Telecom’s strategy was to focus primarily on delivering lit capacity, dark fiber and collocation services to under-served U.S. markets east of the Mississippi.

Thos. E. Capps, Dominion’s chairman, president and chief executive officer, said:

“Over the past several years we have done many good things to create value for our shareholders, and we thought we had an opportunity to create additional value in the telecom business. Unfortunately, markets for Dominion Telecom’s services did not grow as we had expected, and a glut in fiber capacity put continued downward pressure on prices. Our best course of action now is to take steps to minimize the impact, learn from it and get it behind us, and that is exactly what we are doing.”

The decision to write down the telecom assets concludes an impairment review begun in August. Dominion most recently disclosed the possibilities of depressed market conditions potentially creating an asset impairment in its annual 10-K filing with the U.S. Securities & Exchange Commission on March 20 and in subsequent 10-Q filings in 2003.

Dominion Telecom will continue to operate and serve its customers until the business is sold. Existing staff of 94 will continue to serve Dominion Telecom’s customers from the company’s offices in suburban Richmond.

Dominion management will discuss further details during its third-quarter earnings conference call scheduled for October 21, 2003.

Dominion Telecom

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