UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Name of Registrant; State of Incorporation; Address of IRS Employer
Number Principal Executive Offices; and Telephone Number Identification Number
--------------------- ---------------------------------------------------------- ------------------------
1-16169 EXELON CORPORATION 23-2990190
(a Pennsylvania corporation)
10 South Dearborn Street - 37th Floor
P.O. Box 805379
Chicago, Illinois 60680-5379
(312) 394-7398
1-1839 COMMONWEALTH EDISON COMPANY 36-0938600
(an Illinois corporation)
10 South Dearborn Street - 37th Floor
P.O. Box 805379
Chicago, Illinois 60680-5379
(312) 394-4321
1-1401 PECO ENERGY COMPANY 23-0970240
(a Pennsylvania corporation)
P.O. Box 8699
2301 Market Street
Philadelphia, Pennsylvania 19101-8699
(215) 841-4000
333-85496 EXELON GENERATION COMPANY, LLC 23-3064219
(a Pennsylvania limited liability company)
300 Exelon Way
Kennett Square, Pennsylvania 19348
(610) 765-8200
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 [_].
The number of shares outstanding of each registrant's common stock as
of August 1, 2002 was as follows:
Exelon Corporation Common Stock, without par value 322,874,719
Commonwealth Edison Company Common Stock, $12.50 par value 127,016,398
PECO Energy Company Common Stock, without par value 170,478,507
Exelon Generation Company, LLC not applicable
TABLE OF CONTENTS
Page No.
Filing Format 3
Forward-Looking Statements 3
PART I. FINANCIAL INFORMATION 4
ITEM 1. FINANCIAL STATEMENTS 4
Exelon Corporation
Consolidated Statements of Income and Comprehensive Income 5
Consolidated Statements of Cash Flows 6
Consolidated Balance Sheets 7
Commonwealth Edison Company
Consolidated Statements of Income and Comprehensive Income 9
Consolidated Statements of Cash Flows 10
Consolidated Balance Sheets 11
PECO Energy Company
Consolidated Statements of Income and Comprehensive Income 13
Consolidated Statements of Cash Flows 14
Consolidated Balance Sheets 15
Exelon Generation Company, LLC
Consolidated Statements of Income and Comprehensive Income 17
Consolidated Statements of Cash Flows 18
Consolidated Balance Sheets 19
Combined Notes to Consolidated Financial Statements 21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 46
Exelon Corporation 46
Commonwealth Edison Company 72
PECO Energy Company 84
Exelon Generation Company, LLC 96
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 106
PART II. OTHER INFORMATION 110
ITEM 1. LEGAL PROCEEDINGS 110
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 110
ITEM 5. OTHER INFORMATION 110
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 111
SIGNATURES 117
2
Filing Format
This combined Form 10-Q is being filed separately by Exelon
Corporation, Commonwealth Edison Company, PECO Energy Company and Exelon
Generation Company, LLC (Registrants). Information contained herein relating to
any individual registrant has been filed by such registrant on its own behalf.
No registrant makes any representation as to information relating to any other
registrant.
Forward-Looking Statements
Except for the historical information contained herein, certain of the
matters discussed in this Report are forward-looking statements that are subject
to risks and uncertainties. The factors that could cause actual results to
differ materially include those discussed herein as well as those listed in Note
8 of Notes to Consolidated Financial Statements, those discussed in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Outlook" in Exelon Corporation's 2001 Annual Report, those discussed
in "Risk Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in Exelon Generation Company, LLC's
Registration Statement on Form S-4, Reg. No. 333-85496 and other factors
discussed in filings with the Securities and Exchange Commission by the
Registrants. Readers are cautioned not to place undue reliance on these
forward-looking statements, which apply only as of the date of this Report. The
Registrants undertake no obligation to publicly release any revision to
forward-looking statements to reflect events or circumstances after the date of
this Report.
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
4
EXELON CORPORATION
EXELON CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
(in millions, except per share data) 2002 2001 2002 2001
- ---------------------------------------------------------------------------------------------------------------------
OPERATING REVENUES $3,519 $3,616 $ 6,876 $ 7,439
OPERATING EXPENSES
Purchased Power 699 754 1,311 1,385
Purchased Power from Unconsolidated Affiliate 60 12 116 22
Fuel 364 409 860 1,098
Operating and Maintenance 1,070 1,134 2,137 2,192
Depreciation and Amortization 332 362 667 740
Taxes Other Than Income 181 153 367 321
- ---------------------------------------------------------------------------------------------------------------------
Total Operating Expense 2,706 2,824 5,458 5,758
- ---------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 813 792 1,418 1,681
- ---------------------------------------------------------------------------------------------------------------------
OTHER INCOME AND DEDUCTIONS
Interest Expense (241) (289) (490) (581)
Distributions on Preferred Securities of Subsidiaries (11) (12) (23) (23)
Equity in Earnings of Unconsolidated Affiliates, net 9 7 22 25
Other, net 194 44 222 99
- ---------------------------------------------------------------------------------------------------------------------
Total Other Income and Deductions (49) (250) (269) (480)
- ---------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES 764 542 1,149 1,201
INCOME TAXES 279 227 427 499
- ---------------------------------------------------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES 485 315 722 702
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING
PRINCIPLES (net of income taxes of $90 and $8 for the six
months ended June 30, 2002 and 2001, respectively) -- -- (230) 12
- ---------------------------------------------------------------------------------------------------------------------
NET INCOME 485 315 492 714
OTHER COMPREHENSIVE INCOME (LOSS) (net of income taxes)
SFAS 133 Transition Adjustment -- -- -- 44
Cash Flow Hedge Fair Value Adjustment (21) (28) (78) (43)
Unrealized Gain (Loss) on Marketable Securities, net (72) 31 (87) (72)
- ---------------------------------------------------------------------------------------------------------------------
Total Other Comprehensive Income (Loss) (93) 3 (165) (71)
- ---------------------------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME $ 392 $ 318 $ 327 $ 643
- ---------------------------------------------------------------------------------------------------------------------
AVERAGE SHARES OF COMMON STOCK OUTSTANDING - Basic 322 321 322 320
- ---------------------------------------------------------------------------------------------------------------------
AVERAGE SHARES OF COMMON STOCK OUTSTANDING - Diluted 324 324 324 323
- ---------------------------------------------------------------------------------------------------------------------
EARNINGS PER AVERAGE COMMON SHARE:
BASIC:
Income Before Cumulative Effect of Changes in
Accounting Principles $ 1.50 $ 0.98 $ 2.24 $ 2.19
Cumulative Effect of Changes in Accounting Principles -- -- (0.71) 0.04
- ---------------------------------------------------------------------------------------------------------------------
Net Income $ 1.50 $ 0.98 $ 1.53 $ 2.23
- ---------------------------------------------------------------------------------------------------------------------
DILUTED:
Income Before Cumulative Effect of Changes in
Accounting Principles $ 1.50 $ 0.97 $ 2.23 $ 2.17
Cumulative Effect of Changes in Accounting Principles -- -- (0.71) 0.04
- ---------------------------------------------------------------------------------------------------------------------
Net Income $ 1.50 $ 0.97 $ 1.52 $ 2.21
- ---------------------------------------------------------------------------------------------------------------------
DIVIDENDS PER COMMON SHARE $ 0.44 $ 0.42 $ 0.88 $ 0.98
- ---------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
5
EXELON CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
-----------------------------
(in millions) 2002 2001
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 492 $ 714
Adjustments to Reconcile Net Income to Net Cash Flows
Provided by Operating Activities:
Depreciation and Amortization, including nuclear fuel 848 939
Cumulative Effect of a Change in Accounting Principle (net of income taxes) 230 (12)
Net Gain on Sale of Investments (net of income taxes) (199) --
Provision for Uncollectible Accounts 67 60
Deferred Income Taxes (10) 7
Deferred Energy Costs 49 7
Equity in Earnings of Unconsolidated Affiliates, net (22) (25)
Net Realized Losses on Nuclear Decommissioning Trust Funds 21 24
Other Operating Activities 115 (78)
Changes in Working Capital:
Accounts Receivable (259) 68
Inventories (42) (12)
Accounts Payable, Accrued Expenses and Other Current Liabilities 342 280
Changes in Receivables and Payables to Unconsolidated Affiliates, net 12 --
Other Current Assets (6) (19)
- ------------------------------------------------------------------------------------------------------------------------
Net Cash Flows provided by Operating Activities 1,638 1,953
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (1,028) (937)
Acquisition of Generating Plants (443) --
Enterprises Acquisitions, net of cash acquired -- (39)
Proceeds from the Sale of Investment 285 --
Proceeds from Nuclear Decommissioning Trust Funds 889 621
Investment in Nuclear Decommissioning Trust Funds (943) (655)
Note Receivable from Unconsolidated Affiliate (75) --
Other Investing Activities 47 12
- ------------------------------------------------------------------------------------------------------------------------
Net Cash Flows used in Investing Activities (1,268) (998)
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Long-Term Debt 701 2,058
Retirement of Long-Term Debt (697) (1,153)
Change in Short-Term Debt 110 (949)
Dividends on Common Stock (280) (312)
Change in Restricted Cash (26) (16)
Proceeds from Employee Stock Plans 60 51
Other Financing Activities (10) --
- ------------------------------------------------------------------------------------------------------------------------
Net Cash Flows used in Financing Activities (142) (321)
- ------------------------------------------------------------------------------------------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 228 634
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 485 526
- ------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 713 $ 1,160
- ------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION
Noncash Investing and Financing Activities:
Regulatory Asset Fair Value Adjustment -- $ 347
See Notes to Consolidated Financial Statements
6
EXELON CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
(in millions) 2002 2001
- -----------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 713 $ 485
Restricted Cash 398 372
Accounts Receivable, net
Customer 1,978 1,687
Other 196 428
Receivable from Unconsolidated Affiliate 107 44
Inventories, at average cost
Fossil Fuel 206 222
Materials and Supplies 308 249
Deferred Income Taxes 76 23
Other 354 272
- -----------------------------------------------------------------------------------------
Total Current Assets 4,336 3,782
- -----------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 14,654 13,781
DEFERRED DEBITS AND OTHER ASSETS
Regulatory Assets 6,237 6,423
Nuclear Decommissioning Trust Funds 3,060 3,165
Investments 1,658 1,666
Goodwill, net 4,971 5,335
Other 705 708
- -----------------------------------------------------------------------------------------
Total Deferred Debits and Other Assets 16,631 17,297
- -----------------------------------------------------------------------------------------
TOTAL ASSETS $ 35,621 $ 34,860
- -----------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
7
EXELON CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
(in millions) 2002 2001
- ---------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes Payable $ 470 $ 360
Long-Term Debt Due within One Year 1,772 1,406
Accounts Payable 1,164 964
Accrued Expenses 1,339 1,182
Other 527 505
- ---------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 5,272 4,417
- ---------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT 12,591 12,879
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred Income Taxes 4,204 4,303
Unamortized Investment Tax Credits 308 316
Nuclear Decommissioning Liability for Retired Plants 1,379 1,353
Pension Obligation 313 334
Non-Pension Postretirement Benefits Obligation 878 847
Spent Nuclear Fuel Obligation 851 843
Other 866 725
- ---------------------------------------------------------------------------------------------------------------------
Total Deferred Credits and Other Liabilities 8,799 8,721
- ---------------------------------------------------------------------------------------------------------------------
PREFERRED SECURITIES OF SUBSIDIARIES 613 613
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common Stock 6,990 6,930
Deferred Compensation (1) (2)
Retained Earnings 1,421 1,200
Accumulated Other Comprehensive Income (Loss) (64) 102
- ---------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 8,346 8,230
- ---------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 35,621 $ 34,860
- ---------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
8
COMMONWEALTH EDISON COMPANY
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
(in millions) 2002 2001 2002 2001
- ---------------------------------------------------------------------------------------------------------------------
OPERATING REVENUES
Operating Revenues $1,469 $1,517 $ 2,773 $ 2,921
Operating Revenues from Affiliates 12 13 23 55
- ---------------------------------------------------------------------------------------------------------------------
Total Operating Revenues 1,481 1,530 2,796 2,976
- ---------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Purchased Power 6 1 12 2
Purchased Power from Affiliate 547 585 1,079 1,193
Operating and Maintenance 191 210 386 396
Operating and Maintenance from Affiliates 29 38 71 70
Depreciation and Amortization 133 168 268 334
Taxes Other Than Income 73 69 146 141
- ---------------------------------------------------------------------------------------------------------------------
Total Operating Expense 979 1,071 1,962 2,136
- ---------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 502 459 834 840
- ---------------------------------------------------------------------------------------------------------------------
OTHER INCOME AND DEDUCTIONS
Interest Expense (127) (143) (252) (284)
Distributions on Company-Obligated
Mandatorily Redeemable Preferred Securities of
Subsidiary Trusts Holding Solely the Company's
Subordinated Debt Securities (7) (7) (15) (15)
Interest Income from Affiliates 8 17 16 45
Other, net 6 5 13 14
- ---------------------------------------------------------------------------------------------------------------------
Total Other Income and Deductions (120) (128) (238) (240)
- ---------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 382 331 596 600
INCOME TAXES 151 149 236 271
- ---------------------------------------------------------------------------------------------------------------------
NET INCOME 231 182 360 329
- ---------------------------------------------------------------------------------------------------------------------
OTHER COMPREHENSIVE INCOME (LOSS) (net of income taxes):
Cash Flow Hedge Fair Value Adjustment (14) -- (16) --
Unrealized Gain (Loss) on Marketable Securities (2) -- (2) (4)
- ---------------------------------------------------------------------------------------------------------------------
Total Other Comprehensive Income (Loss) (16) -- (18) (4)
TOTAL COMPREHENSIVE INCOME $ 215 $ 182 $ 342 $ 325
- ---------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
9
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
-----------------------------
(in millions) 2002 2001
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 360 $ 329
Adjustments to Reconcile Net Income to Net Cash Flows
Provided by Operating Activities:
Depreciation and Amortization 268 334
Provision for Uncollectible Accounts 11 18
Deferred Income Taxes 75 38
Other Operating Activities 71 (36)
Changes in Working Capital:
Accounts Receivable (158) (45)
Inventories -- 16
Accounts Payable, Accrued Expenses and Other Current Liabilities 51 320
Changes in Receivables and Payables to Affiliates, net 63 (278)
Other Current Assets (1) 9
- ---------------------------------------------------------------------------------------------------------------------
Net Cash Flows provided by Operating Activities 740 705
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (372) (459)
Notes Receivable from Affiliate 13 400
Other Investing Activities 7 1
- ---------------------------------------------------------------------------------------------------------------------
Net Cash Flows used in Investing Activities (352) (58)
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Long-Term Debt 701 --
Retirement of Long-Term Debt (481) (174)
Dividends on Common Stock (235) (148)
Change in Restricted Cash (32) --
Other Financing Activities (10) --
- ---------------------------------------------------------------------------------------------------------------------
Net Cash Flows used in Financing Activities (57) (322)
- ---------------------------------------------------------------------------------------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 331 325
- ---------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 23 141
- ---------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 354 $ 466
- ---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION Noncash Investing and Financing Activities:
Net Assets Transferred as a result of Restructuring, net of Note Payable $ -- $ 1,307
Receivable from Parent $ -- $ 1,062
Regulatory Asset Fair Value Adjustment $ -- $ 347
Retirement of Treasury Shares $ 1,344 $ 2,022
See Notes to Consolidated Financial Statements
10
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
(in millions) 2002 2001
- -------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 354 $ 23
Restricted Cash 73 41
Accounts Receivable, net
Customer 886 745
Other 93 87
Receivables from Affiliates 35 95
Inventories, at average cost 56 56
Deferred Income Taxes 16 52
Other 16 15
- -------------------------------------------------------------------------------------
Total Current Assets 1,529 1,114
- -------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 7,522 7,351
DEFERRED DEBITS AND OTHER ASSETS
Regulatory Assets 614 667
Investments 54 64
Goodwill, net 4,895 4,902
Notes Receivable from Affiliates 1,301 1,314
Other 283 304
- -------------------------------------------------------------------------------------
Total Deferred Debits and Other Assets 7,147 7,251
- -------------------------------------------------------------------------------------
TOTAL ASSETS $ 16,198 $ 15,716
- -------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
11
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
(in millions) 2002 2001
- ---------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Long-Term Debt Due within One Year $ 848 $ 849
Accounts Payable 184 144
Accrued Expenses 393 374
Payables to Affiliates 272 307
Other 197 212
- ---------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 1,894 1,886
- ---------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT 6,095 5,850
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred Income Taxes 1,725 1,671
Unamortized Investment Tax Credits 53 55
Pension Obligation 163 151
Non-Pension Postretirement Benefits Obligation 149 146
Payables to Affiliates 267 297
Other 263 248
- ---------------------------------------------------------------------------------------------------------------------
Total Deferred Credits and Other Liabilities 2,620 2,568
- ---------------------------------------------------------------------------------------------------------------------
COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED
SECURITIES OF SUBSIDIARY TRUSTS HOLDING SOLELY THE COMPANY'S
SUBORDINATED DEBT SECURITIES 329 329
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common Stock 1,588 2,048
Preference Stock 7 7
Other Paid-in Capital 4,181 5,057
Receivable from Parent (875) (937)
Retained Earnings 382 257
Treasury Stock, at cost -- (1,344)
Accumulated Other Comprehensive Income (Loss) (23) (5)
- ---------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 5,260 5,083
- ---------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 16,198 $ 15,716
- ---------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
12
PECO ENERGY COMPANY
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
(in millions) 2002 2001 2002 2001
- ---------------------------------------------------------------------------------------------------------------------
OPERATING REVENUES
Operating Revenues $ 992 $ 903 $ 2,008 $ 1,952
Operating Revenues from Affiliates 3 3 7 5
- ---------------------------------------------------------------------------------------------------------------------
Total Operating Revenues 995 906 2,015 1,957
- ---------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Purchased Power 59 51 107 90
Purchased Power from Affiliate 346 264 649 508
Fuel 53 79 188 284
Operating and Maintenance 123 122 251 251
Operating and Maintenance from Affiliates 8 4 16 7
Depreciation and Amortization 109 99 221 200
Taxes Other Than Income 63 41 122 84
- ---------------------------------------------------------------------------------------------------------------------
Total Operating Expense 761 660 1,554 1,424
- ---------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 234 246 461 533
- ---------------------------------------------------------------------------------------------------------------------
OTHER INCOME AND DEDUCTIONS
Interest Expense (92) (117) (187) (219)
Interest Expense from Affiliate -- (2) -- (8)
Company-Obligated Mandatorily Redeemable Preferred
Securities of a Partnership, which holds Solely
Subordinated Debentures of the Company (2) (2) (5) (5)
Interest Income from Affiliates -- 1 -- 1
Other, net 2 3 2 17
- ---------------------------------------------------------------------------------------------------------------------
Total Other Income and Deductions (92) (117) (190) (214)
- ---------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 142 129 271 319
INCOME TAXES 49 44 90 112
- ---------------------------------------------------------------------------------------------------------------------
NET INCOME 93 85 181 207
Preferred Stock Dividends (2) (3) (4) (5)
- ---------------------------------------------------------------------------------------------------------------------
NET INCOME ON COMMON STOCK $ 91 $ 82 $ 177 $ 202
- ---------------------------------------------------------------------------------------------------------------------
OTHER COMPREHENSIVE INCOME
Net Income $ 93 $ 85 $ 181 $ 207
Other Comprehensive Income (Loss) (net of income taxes):
SFAS 133 Transition Adjustment -- -- -- 40
Cash Flow Hedge Fair Value Adjustment (6) 8 (4) (10)
- ---------------------------------------------------------------------------------------------------------------------
Total Other Comprehensive Income (6) 8 (4) 30
- ---------------------------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME $ 87 $ 93 $ 177 $ 237
- ---------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
13
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
----------------------------
(in millions) 2002 2001
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 181 $ 207
Adjustments to Reconcile Net Income to Net Cash Flows
Provided by Operating Activities:
Depreciation and Amortization 221 200
Provision for Uncollectible Accounts 32 29
Deferred Income Taxes (19) 13
Deferred Energy Costs 49 7
Other Operating Activities (81) (40)
Changes in Working Capital:
Accounts Receivable (4) (19)
Changes in Receivables and Payables to Affiliates, net 34 75
Inventories 14 6
Accounts Payable, Accrued Expenses and Other Current Liabilities 44 22
Other Current Assets (3) (73)
- ---------------------------------------------------------------------------------------------------------------------
Net Cash Flows provided by Operating Activities 468 427
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (123) (122)
Other Investing Activities 1 35
- ---------------------------------------------------------------------------------------------------------------------
Net Cash Flows used in Investing Activities (122) (87)
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Retirement of Long-Term Debt (207) (978)
Issuance of Long-Term Debt -- 805
Contribution from Parent -- 53
Change in Short-Term Debt 74 (122)
Dividends on Preferred and Common Stock (174) (105)
Change in Restricted Cash 1 (16)
Settlement of Interest Rate Swap Agreements -- 31
- ---------------------------------------------------------------------------------------------------------------------
Net Cash Flows used in Financing Activities (306) (332)
- ---------------------------------------------------------------------------------------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 40 8
Cash Transferred in Restructuring -- (31)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 32 49
- ---------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 72 $ 26
- ---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION Noncash Investing and Financing Activities:
Net Assets Transferred as a result of Restructuring,
net of Receivable from Affiliates $ -- $ 1,624
Contribution of Receivable from Parent $ -- $ 1,983
See Notes to Consolidated Financial Statements
14
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
(in millions) 2002 2001
- ------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 72 $ 32
Restricted Cash 322 323
Accounts Receivable, net
Customer 261 286
Other 30 33
Receivables from Affiliates 6 8
Inventories, at average cost
Fossil Fuel 59 72
Materials and Supplies 6 7
Prepaid Taxes 98 1
Other 13 58
- ------------------------------------------------------------------------------------
Total Current Assets 867 820
- ------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 4,098 4,047
DEFERRED DEBITS AND OTHER ASSETS
Regulatory Assets 5,623 5,756
Investments 22 24
Pension Asset 29 13
Other 78 85
- ------------------------------------------------------------------------------------
Total Deferred Debits and Other Assets 5,752 5,878
- ------------------------------------------------------------------------------------
TOTAL ASSETS $ 10,717 $ 10,745
- ------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
15
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
(in millions) 2002 2001
- ---------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes Payable $ 175 $ 101
Payables to Affiliates 190 194
Long-Term Debt Due within One Year 910 548
Accounts Payable 52 54
Accrued Expenses 436 397
Deferred Income Taxes 27 27
Other 33 21
- ---------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 1,823 1,342
- ---------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT 4,869 5,438
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred Income Taxes 2,927 2,938
Unamortized Investment Tax Credits 26 27
Non-Pension Postretirement Benefits Obligation 263 239
Payables to Affiliates 20 44
Other 120 110
- ---------------------------------------------------------------------------------------------------------------------
Total Deferred Credits and Other Liabilities 3,356 3,358
- ---------------------------------------------------------------------------------------------------------------------
COMPANY-OBLIGATED MANDATORILY REDEEMABLE
PREFERRED SECURITIES OF A PARTNERSHIP,
WHICH HOLDS SOLEY SUBORDINATED
DEBENTURES OF THE COMPANY 128 128
MANDATORILY REDEEMABLE PREFERRED STOCK 19 19
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common Stock 1,911 1,912
Receivable from Parent (1,818) (1,878)
Preferred Stock 137 137
Retained Earnings 277 270
Accumulated Other Comprehensive Income 15 19
- ---------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 522 460
- ---------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 10,717 $ 10,745
- ---------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
16
EXELON GENERATION COMPANY, LLC
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
(in millions) 2002 2001 2002 2001
- ---------------------------------------------------------------------------------------------------------------------
OPERATING REVENUES
Operating Revenues $ 606 $ 677 $1,175 $ 1,392
Operating Revenues from Affiliates 953 906 1,845 1,819
- ---------------------------------------------------------------------------------------------------------------------
Total Operating Revenues 1,559 1,583 3,020 3,211
- ---------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Purchased Power 634 690 1,186 1,272
Purchased Power from Affiliates 71 31 137 48
Fuel 224 230 433 449
Operating and Maintenance 405 400 833 798
Operating and Maintenance Expense from Affiliates 6 5 11 11
Depreciation and Amortization 65 75 128 167
Taxes Other Than Income 41 39 90 85
- ---------------------------------------------------------------------------------------------------------------------
Total Operating Expense 1,446 1,470 2,818 2,830
- ---------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 113 113 202 381
- ---------------------------------------------------------------------------------------------------------------------
OTHER INCOME AND DEDUCTIONS
Interest Expense (10) (17) (27) (35)
Interest Expense from Affiliates (1) (9) (1) (24)
Equity in Earnings of Unconsolidated Affiliates 9 13 32 39
Other, net 24 14 40 18
- ---------------------------------------------------------------------------------------------------------------------
Total Other Income and Deductions 22 1 44 (2)
- ---------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT
OF CHANGES IN ACCOUNTING PRINCIPLES 135 114 246 379
INCOME TAXES 51 43 96 150
- ---------------------------------------------------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES 84 71 150 229
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING
PRINCIPLES -- -- 13 12
- ---------------------------------------------------------------------------------------------------------------------
NET INCOME 84 71 163 241
- ---------------------------------------------------------------------------------------------------------------------
OTHER COMPREHENSIVE INCOME (LOSS) (net of income taxes)
Unrealized Gain (Loss) on Marketable Securities (74) 31 (83) (80)
SFAS 133 Transition Adjustment -- -- -- 4
Cash Flow Hedge Fair Value Adjustment 6 (35) (67) (36)
- ---------------------------------------------------------------------------------------------------------------------
Total Other Comprehensive Income (Loss) (68) (4) (150) (112)
- ---------------------------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME $ 16 $ 67 $ 13 $ 129
- ---------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
17
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
----------------------------
(in millions) 2002 2001
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 163 $ 241
Adjustments to Reconcile Net Income to Net Cash Flows
Provided by Operating Activities:
Depreciation and Amortization, including nuclear fuel 312 366
Cumulative Effect of a Change in Accounting Principle (net of income taxes) (13) (12)
Provision for Uncollectible Accounts 17 3
Deferred Income Taxes (4) (6)
Equity in (Earnings) Losses of Unconsolidated Affiliates (32) (39)
Net Realized Losses on Nuclear Decommissioning Trust Funds 21 24
Other Operating Activities 70 (116)
Changes in Working Capital:
Accounts Receivable (136) 115
Changes in Receivables and Payables to Affiliates, net (93) (161)
Inventories (54) (110)
Accounts Payable, Accrued Expenses and Other Current Liabilities 316 156
Other Current Assets (48) 24
- ---------------------------------------------------------------------------------------------------------------------
Net Cash Flows provided by Operating Activities 519 485
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (475) (301)
Acquisition of Generating Plants (443) --
Proceeds from Nuclear Decommissioning Trust Funds 889 621
Investment in Nuclear Decommissioning Trust Funds (943) (655)
Note Receivable from Affiliate (75) 236
Other Investing Activities (1) --
- ---------------------------------------------------------------------------------------------------------------------
Net Cash Flows used in Investing Activities (1,048) (99)
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Change in Intercompany Payable, Affiliate 331 (696)
Issuance of Long-Term Debt -- 752
Retirement of Long-Term Debt (2) (2)
Distribution to Member -- (121)
- ---------------------------------------------------------------------------------------------------------------------
Net Cash Flows provided by (used in) Financing Activities 329 (67)
- ---------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (200) 319
- ---------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 224 4
- ---------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 24 $ 323
- ---------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
18
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
(in millions) 2002 2001
- ----------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 24 $ 224
Accounts Receivable, net
Customer 503 316
Other 38 150
Receivable from Affiliate 523 444
Inventories, at average cost
Fossil Fuel 135 105
Materials and Supplies 227 202
Accumulated Deferred Income Taxes 7 --
Other 103 65
- ----------------------------------------------------------------------------------------
Total Current Assets 1,560 1,506
- ----------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 2,650 2,003
DEFERRED DEBITS AND OTHER ASSETS
Nuclear Decommissioning Trust Funds 3,060 3,165
Investments 913 859
Notes Receivable from Affiliates 261 291
Deferred Income Taxes 437 297
Other 223 223
- ----------------------------------------------------------------------------------------
Total Deferred Debits and Other Assets 4,894 4,835
- ----------------------------------------------------------------------------------------
TOTAL ASSETS $ 9,104 $ 8,344
- ----------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
19
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
(in millions) 2002 2001
- ---------------------------------------------------------------------------------------------------------------------
LIABILITIES AND MEMBER'S EQUITY
CURRENT LIABILITIES
Long-Term Debt Due within One Year $ 6 $ 4
Accounts Payable 788 585
Accounts Payable to Affiliate 16 105
Notes Payable to Affiliate 331 --
Accrued Expenses 416 303
Deferred Income Taxes -- 7
Other 215 171
- ---------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 1,772 1,175
- ---------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT 1,065 1,021
DEFERRED CREDITS AND OTHER LIABILITIES
Unamortized Investment Tax Credits 230 234
Nuclear Decommissioning Liability for Retired Plants 1,379 1,353
Pension Obligation 102 118
Non-Pension Postretirement Benefits Obligation 396 384
Spent Nuclear Fuel Obligation 851 843
Other 361 280
- ---------------------------------------------------------------------------------------------------------------------
Total Deferred Credits and Other Liabilities 3,319 3,212
- ---------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
MEMBER'S EQUITY
Membership Interest 2,316 2,316
Undistributed Earnings 686 523
Accumulated Other Comprehensive Income (Loss) (54) 97
- ---------------------------------------------------------------------------------------------------------------------
Total Member's Equity 2,948 2,936
- ---------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND MEMBER'S EQUITY $ 9,104 $ 8,344
- ---------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
20
EXELON CORPORATION AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share data, unless otherwise noted)
1. BASIS OF PRESENTATION (Exelon, ComEd, PECO and Generation)
The accompanying consolidated financial statements as of June 30, 2002
and for the three and six months then ended are unaudited, but include all
adjustments that Exelon Corporation (Exelon), Commonwealth Edison Company
(ComEd), PECO Energy Company (PECO) and Exelon Generation Company, LLC
(Generation) consider necessary for a fair presentation of their respective
financial statements. All adjustments are of a normal, recurring nature, except
as otherwise disclosed. The December 31, 2001 consolidated balance sheet data
were derived from audited financial statements but do not include all
disclosures required by generally accepted accounting principles. Certain
prior-year amounts have been reclassified for comparative purposes. These
reclassifications had no effect on net income or shareholders' or member's
equity. These notes should be read in conjunction with the Notes to Consolidated
Financial Statements of Exelon, ComEd and PECO included in or incorporated by
reference in Item 8 of their Annual Report on Form 10-K for the year ended
December 31, 2001 and the Notes to Consolidated Financial Statements in
Generation's Form S-4 registration statement declared effective on April 24,
2002 by the Securities and Exchange Commission (SEC), (Generation's Form S-4).
See ITEM 6. Exhibits and Reports on Form 8-K.
2. ADOPTION OF NEW ACCOUNTING PRINCIPLES (Exelon, ComEd, PECO and Generation)
SFAS No. 141 and SFAS No. 142
In 2001, the Financial Accounting Standard Board (FASB) issued
Statement of Accounting Standard (SFAS) No. 141, "Business Combinations" (SFAS
No. 141), which requires that all business combinations be accounted for under
the purchase method of accounting and establishes criteria for the separate
recognition of intangible assets acquired in business combinations. SFAS No. 141
is effective for business combinations initiated after June 30, 2001. In
addition, SFAS No. 141 requires that unamortized negative goodwill related to
pre-July 1, 2001 purchases be recognized as a change in accounting principle
concurrent with the adoption of SFAS No. 142, "Goodwill and Other Intangible
Assets" (SFAS No. 142). At December 31, 2001, AmerGen Energy Company, LLC
(AmerGen), an equity-method investee of Generation, had $43 million of negative
goodwill, net of accumulated amortization, recorded on its balance sheet. Upon
AmerGen's adoption of SFAS No. 141 in January 2002, Generation recognized its
proportionate share of income of $22 million ($13 million, net of income taxes)
as a cumulative effect of a change in accounting principle.
Exelon, ComEd, PECO and Generation adopted SFAS No. 142 as of January
1, 2002. SFAS No. 142 establishes new accounting and reporting standards for
goodwill and intangible assets. Other than goodwill, Exelon does not have
significant other intangible assets recorded on its consolidated balance sheets.
Under SFAS No. 142, goodwill is no longer subject to amortization, however,
21
goodwill is subject to an assessment for impairment using a two-step fair value
based test, the first step of which must be performed at least annually, or more
frequently if events or circumstances indicate that goodwill might be impaired.
The first step compares the fair value of a reporting unit to its carrying
amount, including goodwill. If the carrying amount of the reporting unit exceeds
its fair value, the second step is performed. The second step compares the
carrying amount of the goodwill to the fair value of the goodwill. If the fair
value of goodwill is less than the carrying amount, an impairment loss is
reported as a reduction to goodwill and a charge to operating expense, except at
the transition date, when the loss is reflected as a cumulative effect of a
change in accounting principle.
As of December 31, 2001, Exelon's Consolidated Balance Sheets reflected
approximately $5.3 billion in goodwill net of accumulated amortization,
including $4.9 billion of net goodwill related to the October 20, 2000 merger of
Unicom Corporation (Unicom), the former parent company of ComEd, and PECO
(Merger) recorded on ComEd's Consolidated Balance Sheets, with the remainder
related to acquisitions by Exelon Enterprises Company, LLC (Enterprises). The
first step of the transitional impairment analysis indicated that ComEd's
goodwill was not impaired but that an impairment did exist with respect to
goodwill recorded in Enterprises' reporting units. Exelon's infrastructure
services business (InfraSource), the energy services business (Exelon Services)
and the competitive retail energy sales business (Exelon Energy) were determined
to be those reporting units of Enterprises that had goodwill allocated to them.
The second step of the analysis, which compared the fair value of each of
Enterprises' reporting units' goodwill to the carrying value at December 31,
2001, indicated a total goodwill impairment of $357 million ($243 million, net
of income taxes and minority interest). The fair value of the Enterprises'
reporting units was determined using discounted cash flow models reflecting the
expected range of future cash flow outcomes related to each of the Enterprises
reporting units over the life of the model. These cash flows were discounted to
2002 using a risk-adjusted discount rate. The impairment was recorded as a
cumulative effect of a change in accounting principle in the first quarter of
2002.
The changes in the carrying amount of goodwill by reportable segment
(see Note 6 for further discussion of reportable segments) for the six months
ended June 30, 2002 are as follows:
Energy
Delivery Enterprises Total
- ---------------------------------------------------------------------------------------------------------------------
Balance as of January 1, 2002 $ 4,902 $ 433 $ 5,335
Impairment losses -- (357) (357)
Settlement of pre-merger income tax contingency (7) -- (7)
- ---------------------------------------------------------------------------------------------------------------------
Balance as of June 30, 2002 $ 4,895 $ 76 $ 4,971
- ---------------------------------------------------------------------------------------------------------------------
The June 30, 2002, Energy Delivery goodwill relates to ComEd and the
remaining Enterprises goodwill relates to the InfraSource and Exelon Services
reporting units. Consistent with SFAS No. 142, the remaining goodwill will be
reviewed for impairment on an annual basis or more frequently if significant
events occur that could indicate an impairment exists.
22
The components of the net transitional impairment loss recognized in
the first quarter of 2002 as a cumulative effect of a change in accounting
principle are as follows:
Exelon
- -----------------------------------------------------------------------------------------------------
Enterprises goodwill impairment (net of income taxes of $103 million) $ (254)
Minority interest (net of income taxes of $4 million) 11
Elimination of AmerGen negative goodwill (net of income taxes of $9 million) 13
- -----------------------------------------------------------------------------------------------------
Total cumulative effect of a change in accounting principle $ (230)
- -----------------------------------------------------------------------------------------------------
Generation
- -----------------------------------------------------------------------------------------------------
Elimination of AmerGen negative goodwill (net of income taxes of $9 million)
recorded as cumulative effect of a change in accounting principle $ 13
- -----------------------------------------------------------------------------------------------------
23
The following tables set forth Exelon's net income and earnings per
common share and ComEd's net income for the three and six months ended June 30,
2002 and 2001, respectively, adjusted to exclude 2001 amortization expense
related to goodwill that is no longer being amortized.
Exelon
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2002 2001 2002 2001
- ---------------------------------------------------------------------------------------------------------------------
Reported income before cumulative effect
of changes in accounting principles $ 485 $ 315 $ 722 $ 702
Cumulative effect of changes in
accounting principles -- -- (230) 12
- ---------------------------------------------------------------------------------------------------------------------
Reported net income 485 315 492 714
Goodwill amortization -- 38 -- 77
- ---------------------------------------------------------------------------------------------------------------------
Adjusted net income $ 485 $ 353 $ 492 $ 791
- ---------------------------------------------------------------------------------------------------------------------
Basic earnings per common share:
Reported income before cumulative effect
of changes in accounting principles $ 1.50 $ 0.98 $ 2.24 $ 2.19
Cumulative effect of changes in
accounting principles -- -- (0.71) 0.04
- ---------------------------------------------------------------------------------------------------------------------
Reported net income 1.50 0.98 1.53 2.23
Goodwill amortization -- 0.12 -- 0.24
- ---------------------------------------------------------------------------------------------------------------------
Adjusted net income $ 1.50 $ 1.10 $ 1.53 $ 2.47
- ---------------------------------------------------------------------------------------------------------------------
Diluted earnings per common share:
Reported income before cumulative effect
of changes in accounting principles $ 1.50 $ 0.97 $ 2.23 $ 2.17
Cumulative effect of changes in
accounting principles -- -- (0.71) 0.04
- ---------------------------------------------------------------------------------------------------------------------
Reported net income 1.50 0.97 1.52 2.21
Goodwill amortization -- 0.12 -- 0.24
- ---------------------------------------------------------------------------------------------------------------------
Adjusted net income $ 1.50 $ 1.09 $ 1.52 $ 2.45
- ---------------------------------------------------------------------------------------------------------------------
ComEd
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- --------------------------
2002 2001 2002 2001
- ---------------------------------------------------------------------------------------------------------------------
Reported net income $ 231 $ 182 $ 360 $ 329
Goodwill amortization -- 32 -- 64
- ---------------------------------------------------------------------------------------------------------------------
Adjusted net income $ 231 $ 214 $ 360 $ 393
- ---------------------------------------------------------------------------------------------------------------------
Generation
The cessation of the amortization of negative goodwill of AmerGen on
January 1, 2002 did not have a material impact on Generation's reported net
income for the three or six months ended June 30, 2002.
24
EITF Issue 02-3
Exelon and Generation early adopted the provision of Emerging Issues
Task Force (EITF) Issue 02-3 "Accounting for Contracts Involved in Energy
Trading and Risk Management Activities" (EITF 02-3) issued by the FASB EITF in
June 2002 that requires revenues and energy costs related to energy trading
contracts to be presented on a net basis in the income statement. Prior to the
second quarter of 2002, revenues from trading activity were presented in Revenue
and the energy costs related to energy trading were presented as either
Purchased Power or Fuel expense on Exelon and Generation's Consolidated
Statements of Income. For comparative purposes, energy costs related to energy
trading have been reclassified in prior periods to revenue to conform with the
net basis of presentation required by EITF 02-3. For the three and six months
ended June 30, 2001, $30 million of purchased power expense and $5 million of
fuel expense was reclassified and reflected as a reduction to revenue. The three
months ended March 31, 2002 included $504 million of purchased power expense and
$9 million of fuel expense that has been reclassified and reflected as a
reduction to revenue in the six months ended June 30, 2002.
SFAS No. 144
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (SFAS No. 144). Exelon, ComEd, PECO
and Generation adopted SFAS No. 144 on January 1, 2002. SFAS No. 144 establishes
accounting and reporting standards for both the impairment and disposal of
long-lived assets. SFAS No. 144 is effective for fiscal years beginning after
December 15, 2001 and its provisions are generally applied prospectively. The
adoption of this statement had no effect on Exelon's reported financial
positions, results of operations or cash flows.
SFAS No. 133
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS No. 133) applies to all derivative instruments and requires
that such instruments be recorded on the balance sheet either as an asset or a
liability measured at their fair value through earnings, with special accounting
permitted for certain qualifying hedges. On January 1, 2001, Exelon, ComEd,
PECO, and Generation adopted SFAS No. 133. Generation recognized a non-cash gain
of $12 million, net of income taxes, in earnings and deferred a non-cash gain of
$4 million, net of income taxes, in accumulated other comprehensive income and
PECO deferred a non-cash gain of $40 million, net of income taxes, in
accumulated other comprehensive income.
3. ACQUISITIONS AND DISPOSITIONS (Exelon and Generation)
Acquisition of Generating Plants from TXU
On April 25, 2002, Generation acquired two natural-gas and oil-fired plants from
TXU Corp. (TXU) for an aggregate purchase price of $443 million. The purchase
included the 893-megawatt Mountain Creek Steam Electric Station in Dallas and
the 1,441-megawatt Handley Steam Electric Station in Fort Worth. The transaction
included a power purchase agreement for TXU to purchase power during the months
of May through September from 2002 through 2006. During the periods covered by
the power purchase agreement, TXU will make fixed capacity payments and will
provide fuel to Exelon in return for exclusive rights to the energy and capacity
of the generation plants. Substantially all of the purchase price has been
allocated to property, plant, and equipment pending final valuation of plant
assets.
25
Sale of AT&T Wireless
On April 1, 2002, Enterprises sold its 49% interest in AT&T Wireless
PCS of Philadelphia, LLC to a subsidiary of AT&T Wireless Services for $285
million in cash. Enterprises recorded an after-tax gain of $116 million in
other, net on the $84 million investment, which was reflected in Deferred Debits
and Other Assets on Exelon's Consolidated Balance Sheets.
Sithe New England Holdings, LLC Acquisition
On June 26, 2002, Generation agreed to purchase Sithe New England
Holdings, LLC, (Sithe New England) a subsidiary of Sithe Energies Inc. (Sithe),
and related power marketing operations in exchange for a $543 million note plus
the assumption of non-recourse debt, estimated to be approximately $1.2 billion
at the transaction closing date. The parties are seeking Federal Energy
Regulatory Commission (FERC) and other required approvals of the purchase by
October 31, 2002. Exelon has negotiated closing conditions that allow Exelon to
terminate the purchase if the conditions are not satisfied. If approved, and if
the closing conditions are satisfied, the transaction could be completed in
November 2002.
The purchase involves approximately 4,471 MWs of generation capacity,
consisting of 2,050 MWs in operation and 2,421 MWs under construction, which
will increase Generation's net assets by approximately $1.7 billion when the
transaction closes. Sithe New England's generation facilities are located
primarily in Massachusetts, but are also located in Maine.
Generation is a 49.9% owner of Sithe and accounts for the investment as
an unconsolidated equity investment. The Sithe New England purchase will not
affect the accounting for Sithe as an equity investment. Additionally,
Generation is subject to a Put and Call Agreement (PCA) that gives Generation
the right to purchase (Call) the remaining 50.1% of Sithe, and gives the other
Sithe shareholders the right to sell (Put) their interest to Generation. If the
Put option is exercised, Generation has the obligation to complete the purchase.
The PCA provides that the Put and Call options become exercisable as of December
18, 2002. The Sithe New England purchase is a separate transaction from the PCA
that is intended to enable Generation to acquire only the Sithe assets that fit
Generation's strategy, accelerate the realization of synergies, and reduce the
amount of debt needed to finance the transaction.
See ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations - Exelon Corporation - for further discussion of the
PCA.
4. REGULATORY ISSUES (Exelon, ComEd and PECO)
On April 1, 2002, the Illinois Commerce Commission (ICC) issued an
interim order in ComEd's Delivery Services Rate Case. The interim order is
subject to an audit of test year expenditures that is anticipated to be
completed by the end of 2002 with a final order to be issued in 2003. The order
sets new delivery rates for residential customers choosing a new retail electric
supplier. The new rates became effective May 1, 2002 when residential customers
were eligible to choose their supplier of electricity. Traditional bundled rates
paid by customers that retain ComEd as their electricity supplier are not
affected by this order. Bundled rates will remain frozen through 2006, as a
result of the June 6, 2002 amendments to the Illinois
26
Restructuring Act that extended the freeze on bundled rates for an additional
two years. Delivery service rates for non-residential customers are not affected
by the order. The potential revenue impact of the interim order is not expected
to be material in 2002.
As permitted by the Pennsylvania Electric Competition Act, the
Pennsylvania Department of Revenue has calculated a 2002 Revenue Neutral
Reconciliation (RNR) adjustment to the gross receipts tax rate in order to
neutralize the impact of electric restructuring on its tax revenues. In January
2002, the Pennsylvania Public Utility Commission (PUC) approved the RNR
adjustment to the gross receipts tax rate collected from customers. Effective
January 1, 2002, PECO implemented the change in the gross receipts tax rate. The
RNR adjustment is under appeal. The RNR adjustment increases the gross receipts
tax rate, which will increase PECO's annual revenues and tax obligations by
approximately $50 million in 2002.
5. EARNINGS PER SHARE (Exelon)
Diluted earnings per share are calculated by dividing net income by the
weighted average number of shares of common stock outstanding, including shares
issuable upon exercise of stock options outstanding under Exelon's stock option
plans considered to be common stock equivalents. The following table shows the
effect of these stock options on the weighted average number of shares
outstanding used in calculating diluted earnings per share (in millions):
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2002 2001 2002 2001
- ----------------------------------------------------------------------------------------------------------------------
Average common shares outstanding 322 321 322 320
Assumed exercise of stock options 2 3 2 3
- ----------------------------------------------------------------------------------------------------------------------
Average diluted common shares outstanding 324 324 324 323
- ----------------------------------------------------------------------------------------------------------------------
Stock options not included in average common shares used in calculating
diluted earnings per share due to their antidilutive effect were three million
for the three and six months ended June 30, 2002 and one million for the three
and six months ended June 30, 2001.
27
6. SEGMENT INFORMATION (Exelon)
Exelon operates in three business segments: energy delivery, generation
and enterprises. Energy delivery consists of the operations of ComEd and PECO.
Beginning in 2002, Exelon evaluates the performance of its business segments on
the basis of net income. Exelon's segment information for the three months and
six months ended June 30, 2002 as compared to the same periods in 2001 and at
June 30, 2002 and December 31, 2001 are as follows:
Three Months Ended June 30, 2002 as compared to Three Months Ended June 30, 2001
Corporate and
Energy Intersegment
Delivery Generation Enterprises Eliminations Consolidated
-------------------------------------------------------------------------------------------------------------------
Revenues:
2002 $ 2,476 $ 1,559 $ 476 $ (992) $ 3,519
2001 2,436 1,583 546 (949) 3,616
Intersegment Revenues:
2002 $ 15 $ 953 $ 24 $ (992) $ --
2001 16 906 27 (949) --
Net Income:
2002 $ 322 $ 84 $ 83 $ (4) $ 485
2001 264 71 (5) (15) 315
-------------------------------------------------------------------------------------------------------------------
Six Months Ended June 30, 2002 as compared to Six Months Ended June 30, 2001
Corporate and
Energy Intersegment
Delivery Generation Enterprises Eliminations Consolidated
-------------------------------------------------------------------------------------------------------------------
Revenues:
2002 $ 4,811 $ 3,020 $ 966 $(1,921) $ 6,876
2001 4,933 3,211 1,213 (1,918) 7,439
Intersegment Revenues:
2002 $ 29 $ 1,845 $ 47 $(1,921) $ --
2001 59 1,819 40 (1,918) --
Net Income:
2002 $ 538 $ 163 $ (188) $ (21) $ 492
2001 530 241 (30) (27) 714
-------------------------------------------------------------------------------------------------------------------
Total Assets:
June 30, 2002 $26,915 $ 9,104 $ 1,290 $(1,688) $ 35,621
December 31, 2001 26,461 8,344 1,790 (1,735) 34,860
-------------------------------------------------------------------------------------------------------------------
28
7. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES (Exelon, ComEd, PECO and
Generation)
During the three and six months ended June 30, 2002 and 2001, Exelon
recorded net gains/(losses) in other comprehensive income relating to
mark-to-market (MTM) adjustments of contracts designated as cash flow hedges as
follows:
ComEd PECO Generation Enterprises Exelon
- ---------------------------------------------------------------------------------------------------------------------
Three months ended June 30, 2002 $(13) $ (7) $ 15 $ (3) $ (8)
Three months ended June 30, 2001 -- 15 (61) (2) (48)
Six months ended June 30, 2002 (6) (1) (107) 14 (100)
Six months ended June 30, 2001 -- 8 (62) 2 (52)
- ---------------------------------------------------------------------------------------------------------------------
During the three months ended June 30, 2002 and 2001, and the six
months ended June 30, 2002 and 2001, Generation recognized net MTM gains on
non-trading energy derivative contracts not designated as cash flow hedges, in
operating revenues as follows:
2002 2001
- ---------------------------------------------------------------------------------------------------------------------
Three months ended June 30, $ 4 $ 5
Six months ended June 30, 10 22
- ---------------------------------------------------------------------------------------------------------------------
During the three months ended June 30, 2002 and 2001 and the six months
ended June 30, 2002 and 2001, no amounts were reclassified from accumulated
other comprehensive income into earnings as a result of forecasted energy
commodity transactions no longer being probable.
During the three months ended June 30, 2002 and 2001, and the six
months ended June 30, 2002 and 2001, Generation recognized net MTM losses on
energy trading contracts, in operating revenues as follows:
2002 2001
- ---------------------------------------------------------------------------------------------------------------------
Three months ended June 30, $ (9) $ (6)
Six months ended June 30, (13) (6)
- ---------------------------------------------------------------------------------------------------------------------
During the three months ended June 30, 2002 and 2001 and the six months
ended June 30, 2002 and 2001, PECO reclassified other income in the Consolidated
Statements of Income and Comprehensive Income, as a result of the discontinuance
of cash flow hedges related to certain forecasted financing transactions that
were no longer probable of occurring as follows:
2002 2001
- ---------------------------------------------------------------------------------------------------------------------
Three months ended June 30, $ -- $ --
Six months ended June 30, -- 6
- ---------------------------------------------------------------------------------------------------------------------
29
As of June 30, 2002, deferred net gains on derivative instruments
accumulated in other comprehensive income are expected to be reclassified to
earnings during the next twelve months are as follows:
ComEd PECO Generation Enterprises Exelon
- ---------------------------------------------------------------------------------------------------------------------
Gains Expected to be Reclassified $ 1 $ 15 $ -- $ 2 $ 18
- ---------------------------------------------------------------------------------------------------------------------
Amounts in accumulated other comprehensive income related to interest
rate cash flow hedges are reclassified into earnings when the forecasted
interest payment occurs. Amounts in accumulated other comprehensive income
related to energy commodity cash flows are reclassified into earnings when the
forecasted purchase or sale of the energy commodity occurs.
Generation classifies investments in the trust accounts for
decommissioning nuclear pl