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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 March 31, 2003
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) 765-6900
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
March 31, 2003 was:
Exelon Corporation Common Stock, without par value 324,234,521
Commonwealth Edison Company Common Stock, $12.50 par value 127,016,427
PECO Energy Company Common Stock, without par value 170,478,507
Exelon Generation Company, LLC not applicable
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). Exelon Corporation Yes [X] No [ ]
Commonwealth Edison Company, PECO Energy Company and Exelon Generation Company,
LLC Yes [ ] No [X].
TABLE OF CONTENTS
Page No.
--------
FILING FORMAT 3
FORWARD-LOOKING STATEMENTS 3
WHERE TO FIND MORE INFORMATION 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
Condensed Combined Notes to Consolidated Financial Statements 21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 55
Exelon Corporation 55
Commonwealth Edison Company 73
PECO Energy Company 83
Exelon Generation Company, LLC 93
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 100
ITEM 4. CONTROLS AND PROCEDURES 110
PART II. OTHER INFORMATION 112
ITEM 1. LEGAL PROCEEDINGS 112
ITEM 5. OTHER INFORMATION 113
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 114
SIGNATURES 116
CERTIFICATIONS 118
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, within the
meaning of the Private Securities Litigation Reform Act of 1995, that are
subject to risks and uncertainties. The factors that could cause actual results
to differ materially from the forward-looking statements made by a registrant
include those discussed herein, as well as those discussed in (a) the
Registrants' 2002 Annual Report on Form 10-K - ITEM 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations--Business Outlook
and the Challenges in Managing Our Business for Exelon, ComEd, PECO and
Generation, (b) the Registrants' 2002 Annual Report on Form 10-K - ITEM 8.
Financial Statements and Supplementary Data: Exelon - Note 19, ComEd - Note 16,
PECO - Note 18 and Generation - Note 13 and (c) other factors discussed in
filings with the United States Securities and Exchange Commission (SEC) 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. None
of the Registrants undertakes any obligation to publicly release any revision to
its forward-looking statements to reflect events or circumstances after the date
of this Report.
WHERE TO FIND MORE INFORMATION
The public may read and copy any reports or other information that the
Registrants file with the SEC at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. The public may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
These documents are also available to the public from commercial document
retrieval services, the web site maintained by the SEC at http://www.sec.gov and
Exelon Corporation's website at www.exeloncorp.com.
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 March 31,
----------------------------
(in millions, except per share data) 2003 2002
- ----------------------------------------------------------------------------------------------------
OPERATING REVENUES $ 4,074 $ 3,357
OPERATING EXPENSES
Purchased Power 840 612
Purchased Power from Unconsolidated Affiliate 67 56
Fuel 830 496
Operating and Maintenance 1,109 1,067
Depreciation and Amortization 274 335
Taxes Other Than Income 197 186
- ----------------------------------------------------------------------------------------------------
Total Operating Expenses 3,317 2,752
- ----------------------------------------------------------------------------------------------------
OPERATING INCOME 757 605
- ----------------------------------------------------------------------------------------------------
OTHER INCOME AND DEDUCTIONS
Interest Expense (225) (249)
Distributions on Preferred Securities of Subsidiaries (12) (11)
Equity in Earnings of Unconsolidated Affiliates, net 18 13
Other, Net (141) 28
- ----------------------------------------------------------------------------------------------------
Total Other Income and Deductions (360) (219)
- ----------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT
OF CHANGES IN ACCOUNTING PRINCIPLES 397 386
INCOME TAXES 148 148
- ----------------------------------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES 249 238
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING
PRINCIPLES (net of income taxes of $69 and $(90) for the three
months ended March 31, 2003 and 2002, respectively) 112 (230)
- ----------------------------------------------------------------------------------------------------
NET INCOME $ 361 $ 8
- ----------------------------------------------------------------------------------------------------
OTHER COMPREHENSIVE INCOME (LOSS) (net of income taxes)
Cash Flow Hedge Adjustment (146) (53)
Foreign Currency Translation Adjustment 1 --
Unrealized Gain (Loss) on Marketable Securities, net 163 (15)
Interest in Other Comprehensive Income (Loss) of Unconsolidated Affiliates (9) --
- ----------------------------------------------------------------------------------------------------
Total Other Comprehensive Income (Loss), net 9 (68)
- ----------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME (LOSS) $ 370 $ (60)
=====================================================================================================
AVERAGE SHARES OF COMMON STOCK OUTSTANDING - Basic 324 321
=====================================================================================================
AVERAGE SHARES OF COMMON STOCK OUTSTANDING - Diluted 326 323
=====================================================================================================
EARNINGS PER AVERAGE COMMON SHARE:
BASIC:
Income Before Cumulative Effect of Changes in Accounting Principles $ 0.77 $ 0.74
Cumulative Effect of Changes in Accounting Principles 0.34 (0.72)
- ----------------------------------------------------------------------------------------------------
Net Income $ 1.11 $ 0.02
=====================================================================================================
DILUTED:
Income Before Cumulative Effect of Changes in Accounting Principles $ 0.77 $ 0.73
Cumulative Effect of Changes in Accounting Principles 0.34 (0.71)
- ----------------------------------------------------------------------------------------------------
Net Income $ 1.11 $ 0.02
=====================================================================================================
DIVIDENDS PER COMMON SHARE $ 0.46 $ 0.44
=====================================================================================================
See Condensed Combined Notes to Consolidated Financial Statements
5
EXELON CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
----------------------------
(in millions) 2003 2002
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 361 $ 8
Adjustments to Reconcile Net Income to Net Cash Flows
Provided by Operating Activities:
Depreciation and Amortization, including nuclear fuel 423 427
Cumulative Effect of Changes in Accounting Principles (net of income taxes) (112) 230
Provision for Uncollectible Accounts 31 29
Deferred Income Taxes (64) 67
Equity in (Earnings) Losses of Unconsolidated Affiliates, net (18) (13)
Writedown of Investments 205 2
Net Realized (Gains) Losses on Nuclear Decommissioning Trust Funds (6) 10
Other Operating Activities (16) 8
Changes in Assets and Liabilities:
Accounts Receivable (57) 58
Inventories 43 13
Accounts Payable, Accrued Expenses and Other Current Liabilities (99) (7)
Other Current Assets (262) (134)
Deferred Energy Costs (28) 34
Pension and Non-Pension Postretirement Benefits Obligations (77) (3)
Other Noncurrent Assets and Liabilities 59 97
- ----------------------------------------------------------------------------------------------------
Net Cash Flows provided by Operating Activities 383 826
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (427) (586)
Proceeds from Nuclear Decommissioning Trust Funds 572 580
Investment in Nuclear Decommissioning Trust Funds (622) (605)
Note Receivable from Unconsolidated Affiliate -- (46)
Other Investing Activities 20 27
- ----------------------------------------------------------------------------------------------------
Net Cash Flows used in Investing Activities (457) (630)
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Long-Term Debt 951 408
Retirement of Long-Term Debt (963) (471)
Issuance of Preferred Securities of Subsidiaries 200 --
Retirement of Preferred Securities of Subsidiaries (200) --
Change in Short-Term Debt 219 78
Dividends Paid on Common Stock (145) (141)
Change in Restricted Cash 74 135
Proceeds from Employee Stock Plans 31 18
Other Financing Activities (59) (12)
- ----------------------------------------------------------------------------------------------------
Net Cash Flows provided by Financing Activities 108 15
- ----------------------------------------------------------------------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 34 211
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 469 485
- ----------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 503 $ 696
====================================================================================================
See Condensed Combined Notes to Consolidated Financial Statements
6
EXELON CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
(in millions) 2003 2002
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 503 $ 469
Restricted Cash 322 396
Accounts Receivable, net
Customer 2,121 2,095
Other 243 265
Receivable from Unconsolidated Affiliate 20 32
Inventories, at average cost
Fossil Fuel 163 218
Materials and Supplies 317 306
Deferred Income Taxes 10 6
Other 625 331
- --------------------------------------------------------------------------------
Total Current Assets 4,324 4,118
- --------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 20,237 17,134
DEFERRED DEBITS AND OTHER ASSETS
Regulatory Assets 5,459 5,938
Nuclear Decommissioning Trust Funds 3,032 3,053
Investments 1,171 1,393
Goodwill, net 4,788 4,992
Other 890 850
- --------------------------------------------------------------------------------
Total Deferred Debits and Other Assets 15,340 16,226
- --------------------------------------------------------------------------------
TOTAL ASSETS $39,901 $37,478
================================================================================
See Condensed Combined Notes to Consolidated Financial Statements
7
EXELON CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
(in millions) 2003 2002
- -----------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes Payable $ 900 $ 681
Note Payable to Unconsolidated Affiliate 534 534
Long-Term Debt Due Within One Year 1,147 1,402
Accounts Payable 1,815 1,563
Accrued Expenses 1,182 1,311
Other 481 483
- -----------------------------------------------------------------------------------------------
Total Current Liabilities 6,059 5,974
- -----------------------------------------------------------------------------------------------
LONG-TERM DEBT 13,368 13,127
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred Income Taxes 3,849 3,702
Unamortized Investment Tax Credits 298 301
Nuclear Decommissioning Liability for Retired Plants -- 1,395
Asset Retirement Obligation 2,406 --
Pension Obligation 1,848 1,959
Non-Pension Postretirement Benefits Obligation 911 877
Spent Nuclear Fuel Obligation 861 858
Regulatory Liabilities 633 --
Other 976 871
- -----------------------------------------------------------------------------------------------
Total Deferred Credits and Other Liabilities 11,782 9,963
- -----------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST OF CONSOLIDATED SUBSIDIARIES 78 77
PREFERRED SECURITIES OF SUBSIDIARIES 610 595
SHAREHOLDERS' EQUITY
Common Stock 7,099 7,059
Deferred Compensation -- (1)
Retained Earnings 2,254 2,042
Accumulated Other Comprehensive Income (Loss) (1,349) (1,358)
- -----------------------------------------------------------------------------------------------
Total Shareholders' Equity 8,004 7,742
- -----------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 39,901 $ 37,478
===============================================================================================
See Condensed Combined 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 March 31,
----------------------------
(in millions) 2003 2002
- -------------------------------------------------------------------------------------
OPERATING REVENUES
Operating Revenues $ 1,411 $ 1,304
Operating Revenues from Affiliates 13 11
- -------------------------------------------------------------------------------------
Total Operating Revenues 1,424 1,315
- -------------------------------------------------------------------------------------
OPERATING EXPENSES
Purchased Power 6 6
Purchased Power from Affiliate 572 532
Operating and Maintenance 231 195
Operating and Maintenance from Affiliates 30 42
Depreciation and Amortization 94 135
Taxes Other Than Income 80 73
- -------------------------------------------------------------------------------------
Total Operating Expenses 1,013 983
- -------------------------------------------------------------------------------------
OPERATING INCOME 411 332
- -------------------------------------------------------------------------------------
OTHER INCOME AND DEDUCTIONS
Interest Expense (110) (126)
Distributions on Company-Obligated
Mandatorily Redeemable Preferred Securities of
Subsidiary Trusts Holding Solely the Company's
Subordinated Debt Securities (7) (7)
Interest Income from Affiliates 7 8
Other, Net 15 6
- -------------------------------------------------------------------------------------
Total Other Income and Deductions (95) (119)
- -------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF
A CHANGE IN ACCOUNTING PRINCIPLE 316 213
INCOME TAXES 126 84
- -------------------------------------------------------------------------------------
NET INCOME BEFORE CUMULTIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE 190 129
CUMULTIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE (net of income taxes of $0) 5 --
- -------------------------------------------------------------------------------------
NET INCOME $ 195 $ 129
- -------------------------------------------------------------------------------------
OTHER COMPREHENSIVE INCOME (net of income taxes)
Cash Flow Hedge Adjustment 31 3
Foreign Currency Translation Adjustment 1 --
- -------------------------------------------------------------------------------------
Total Other Comprehensive Income 32 3
- -------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME $ 227 $ 132
=====================================================================================
See Condensed Combined Notes to Consolidated Financial Statements
9
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
----------------------------
(in millions) 2003 2002
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 195 $ 129
Adjustments to Reconcile Net Income to Net Cash Flows
Provided by Operating Activities:
Depreciation and Amortization 94 135
Cumulative Effect of a Change in Accounting Principle (net of income taxes) (5) --
Provision for Uncollectible Accounts 12 11
Deferred Income Taxes 63 53
Other Operating Activities (3) 13
Changes in Assets and Liabilities:
Accounts Receivable (5) --
Inventories (1) 10
Accounts Payable, Accrued Expenses and Other Current Liabilities (143) 1
Changes in Receivables and Payables to Affiliates, net (146) (90)
Pension and Non-Pension Postretirement Benefits Obligations (36) 7
Other Noncurrent Assets and Liabilities 42 9
- -------------------------------------------------------------------------------------------------------------------
Net Cash Flows provided by Operating Activities 67 278
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (174) (182)
Other Investing Activities 10 7
- -------------------------------------------------------------------------------------------------------------------
Net Cash Flows used in Investing Activities (164) (175)
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Long-Term Debt 700 400
Retirement of Long-Term Debt (377) (297)
Issuance of Company Obligated Mandatorily Redeemable Preferred Securities 200 --
Retirement of Company Obligated Mandatorily Redeemable Preferred Securities (200) --
Change in Short-Term Debt (26) --
Dividends on Common Stock (120) (118)
Change in Restricted Cash (5) (20)
Other Financing Activities (59) (9)
- -------------------------------------------------------------------------------------------------------------------
Net Cash Flows provided by (used in) Financing Activities 113 (44)
- -------------------------------------------------------------------------------------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 16 59
- -------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 16 23
- -------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 32 $ 82
===================================================================================================================
See Condensed Combined Notes to Consolidated Financial Statements
10
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
(in millions) 2003 2002
- -------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 32 $ 16
Restricted Cash 70 65
Accounts Receivable, net
Customer 759 782
Other 88 72
Inventories, at average cost 66 65
Deferred Income Taxes 20 20
Receivables from Affiliates 6 15
Other 14 14
- -------------------------------------------------------------------------------------------------------------------
Total Current Assets 1,055 1,049
- -------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 7,840 7,744
DEFERRED DEBITS AND OTHER ASSETS
Regulatory Assets -- 447
Investments 48 54
Goodwill, net 4,711 4,916
Receivables from Affiliates 2,221 1,300
Other 355 320
- -------------------------------------------------------------------------------------------------------------------
Total Deferred Debits and Other Assets 7,335 7,037
- -------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 16,230 $ 15,830
===================================================================================================================
See Condensed Combined Notes to Consolidated Financial Statements
11
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
(in millions) 2003 2002
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes Payable $ 45 $ 71
Long-Term Debt Due Within One Year 871 698
Accounts Payable 192 201
Accrued Expenses 352 477
Payables to Affiliates 200 416
Customer Deposits 82 81
Other 70 79
- -------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 1,812 2,023
- -------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT 5,421 5,268
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred Income Taxes 1,739 1,650
Unamortized Investment Tax Credits 50 51
Pension Obligation 46 91
Non-Pension Postretirement Benefits Obligation 147 138
Payables to Affiliates 7 224
Regulatory Liabilities 633 --
Other 345 297
- -------------------------------------------------------------------------------------------------------------------
Total Deferred Credits and Other Liabilities 2,967 2,451
- -------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED
SECURITIES OF SUBSIDIARY TRUSTS HOLDING SOLELY THE COMPANY'S
SUBORDINATED DEBT SECURITIES 344 330
SHAREHOLDERS' EQUITY
Common Stock 1,588 1,588
Preference Stock 7 7
Other Paid in Capital 4,029 4,239
Receivable from Parent (584) (615)
Retained Earnings 652 577
Accumulated Other Comprehensive Income (Loss) (6) (38)
- -------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 5,686 5,758
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 16,230 $ 15,830
===================================================================================================================
See Condensed Combined 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 March 31,
--------------------------------
(in millions) 2003 2002
- ------------------------------------------------------------------------------------------
OPERATING REVENUES
Operating Revenues $ 1,214 $ 1,017
Operating Revenues from Affiliates 3 3
- ------------------------------------------------------------------------------------------
Total Operating Revenues 1,217 1,020
- ------------------------------------------------------------------------------------------
OPERATING EXPENSES
Purchased Power 65 48
Purchased Power from Affiliate 357 303
Fuel 191 135
Operating and Maintenance 127 111
Operating and Maintenance from Affiliates 12 25
Depreciation and Amortization 120 112
Taxes Other Than Income 63 59
- ------------------------------------------------------------------------------------------
Total Operating Expenses 935 793
- ------------------------------------------------------------------------------------------
OPERATING INCOME 282 227
- ------------------------------------------------------------------------------------------
OTHER INCOME AND DEDUCTIONS
Interest Expense (86) (95)
Company-Obligated Mandatorily Redeemable Preferred
Securities of a Partnership, which Holds Solely
Subordinated Debentures of the Company (2) (2)
Other, Net 9 1
- ------------------------------------------------------------------------------------------
Total Other Income and Deductions (79) (96)
- ------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 203 131
INCOME TAXES 66 42
- ------------------------------------------------------------------------------------------
NET INCOME 137 89
Preferred Stock Dividends (2) (2)
- ------------------------------------------------------------------------------------------
NET INCOME ON COMMON STOCK $ 135 $ 87
==========================================================================================
OTHER COMPREHENSIVE INCOME (net of income taxes)
Net Income $ 137 $ 89
Other Comprehensive Income (net of income taxes):
Cash Flow Hedge Adjustment -- 2
- ------------------------------------------------------------------------------------------
Total Other Comprehensive Income -- 2
- ------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME $ 137 $ 91
==========================================================================================
See Condensed Combined Notes to Consolidated Financial Statements
13
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
----------------------------
(in millions) 2003 2002
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 137 $ 89
Adjustments to Reconcile Net Income to Net Cash Flows
Provided by Operating Activities:
Depreciation and Amortization 120 112
Provision for Uncollectible Accounts 17 19
Deferred Income Taxes (20) 46
Other Operating Activities 3 (2)
Changes in Assets and Liabilities:
Accounts Receivable (37) (3)
Changes in Receivables and Payables to Affiliates, net 6 (17)
Inventories 45 35
Accounts Payable, Accrued Expenses and Other Current Liabilities 14 (83)
Prepaid Taxes (131) (133)
Deferred Energy Costs (28) 34
Other Current Assets -- (1)
Pension and Non-Pension Postretirement Benefits Obligations 8 2
Other Noncurrent Assets and Liabilities (8) 2
- -------------------------------------------------------------------------------------------------------------------
Net Cash Flows provided by Operating Activities 126 100
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (65) (68)
Other Investing Activities 6 3
- -------------------------------------------------------------------------------------------------------------------
Net Cash Flows used in Investing Activities (59) (65)
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Long-Term Debt 250 --
Retirement of Long-Term Debt (364) (160)
Change in Short-Term Debt 43 58
Dividends on Preferred and Common Stock (91) (87)
Change in Restricted Cash 136 153
- -------------------------------------------------------------------------------------------------------------------
Net Cash Flows used in Financing Activities (26) (36)
- -------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 41 (1)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 63 32
- -------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 104 $ 31
===================================================================================================================
See Condensed Combined Notes to Consolidated Financial Statements
14
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
(in millions) 2003 2002
- ---------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 104 $ 63
Restricted Cash 195 331
Accounts Receivable, net
Customer 389 379
Other 49 39
Inventories, at average cost
Fossil Fuel 21 67
Materials and Supplies 9 8
Deferred Energy Costs 59 31
Prepaid Taxes 132 1
Other 8 8
- ---------------------------------------------------------------------------------------------
Total Current Assets 966 927
- ---------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 4,199 4,179
DEFERRED DEBITS AND OTHER ASSETS
Regulatory Assets 5,459 5,491
Investments 19 19
Prepaid Pension Asset 50 41
Other 61 63
- ---------------------------------------------------------------------------------------------
Total Deferred Debits and Other Assets 5,589 5,614
- ---------------------------------------------------------------------------------------------
TOTAL ASSETS $ 10,754 $ 10,720
=============================================================================================
See Condensed Combined Notes to Consolidated Financial Statements
15
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
(in millions) 2003 2002
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes Payable $ 243 $ 200
Payables to Affiliates 146 170
Long-Term Debt Due Within One Year 264 689
Accounts Payable 117 87
Accrued Expenses 354 370
Deferred Income Taxes 27 27
Other 35 33
- -------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 1,186 1,576
- -------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT 5,262 4,951
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred Income Taxes 2,890 2,903
Unamortized Investment Tax Credits 24 24
Non-Pension Postretirement Benefits Obligation 268 251
Payable to Affiliate 39 --
Other 120 126
- -------------------------------------------------------------------------------------------------------------------
Total Deferred Credits and Other Liabilities 3,341 3,304
- -------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
COMPANY-OBLIGATED MANDATORILY REDEEMABLE
PREFERRED SECURITIES OF A PARTNERSHIP,
WHICH HOLDS SOLELY SUBORDINATED
DEBENTURES OF THE COMPANY 128 128
SHAREHOLDERS' EQUITY
Common Stock 1,976 1,976
Receivable from Parent (1,728) (1,758)
Preferred Stock 137 137
Retained Earnings 447 401
Accumulated Other Comprehensive Income 5 5
- -------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 837 761
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 10,754 $ 10,720
===================================================================================================================
See Condensed Combined 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 March 31,
----------------------------
(in millions) 2003 2002
- -------------------------------------------------------------------------------------------------------------------
OPERATING REVENUES
Operating Revenues $ 886 $ 569
Operating Revenues from Affiliates 993 892
- -------------------------------------------------------------------------------------------------------------------
Total Operating Revenues 1,879 1,461
- -------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Purchased Power 761 553
Purchased Power from Affiliates 80 66
Fuel 364 209
Operating and Maintenance 445 375
Operating and Maintenance from Affiliates 42 57
Depreciation and Amortization 45 63
Taxes Other Than Income 48 49
- -------------------------------------------------------------------------------------------------------------------
Total Operating Expenses 1,785 1,372
- -------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 94 89
- -------------------------------------------------------------------------------------------------------------------
OTHER INCOME AND DEDUCTIONS
Interest Expense (15) (17)
Interest Expense - Affiliates (4) --
Equity in Earnings of Unconsolidated Affiliates 19 23
Other, Net (167) 16
- -------------------------------------------------------------------------------------------------------------------
Total Other Income and Deductions (167) 22
- -------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF
CHANGES IN ACCOUNTING PRINCIPLES (73) 111
INCOME TAXES (21) 45
- -------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES (52) 66
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES (net of income taxes
of $70 and $9 for the three months ended March 31, 2003 and 2002, respectively) 108 13
- -------------------------------------------------------------------------------------------------------------------
NET INCOME $ 56 $ 79
- -------------------------------------------------------------------------------------------------------------------
OTHER COMPREHENSIVE INCOME (LOSS) (net of income taxes)
Unrealized Gain (Loss) on Marketable Securities 163 (9)
Cash Flow Hedge Adjustment (180) (74)
Interest in Other Comprehensive Income (Loss) of Unconsolidated Affiliates (9) 6
- -------------------------------------------------------------------------------------------------------------------
Total Other Comprehensive Income (Loss) (26) (77)
- -------------------------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME $ 30 $ 2
===================================================================================================================
See Condensed Combined Notes to Consolidated Financial Statements
17
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
----------------------------
(in millions) 2003 2002
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 56 $ 79
Adjustments to Reconcile Net Income (Loss) to Net Cash Flows
Provided by Operating Activities:
Depreciation and Amortization 195 155
Cumulative Effect of Changes in Accounting Principles (net of income taxes) (108) (13)
Provision for Uncollectible Accounts 1 2
Deferred Income Taxes (106) (2)
Equity in Earnings of Unconsolidated Affiliates (19) (23)
Writedown of Investment 200 --
Net Realized (Gains) Losses on Nuclear Decommissioning Trust Funds (6) 10
Other Operating Activities 4 9
Changes in Assets and Liabilities:
Accounts Receivable (57) 53
Changes in Receivables and Payables to Affiliates, net 244 144
Inventories (10) (37)
Accounts Payable, Accrued Expenses and Other Current Liabilities 19 127
Other Current Assets (119) (26)
Pension and Non-Pension Postretirement Benefits Obligations (32) (13)
Other Noncurrent Assets and Liabilities 16 44
- -------------------------------------------------------------------------------------------------------------------
Net Cash Flows provided by Operating Activities 278 509
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (175) (308)
Proceeds from Nuclear Decommissioning Trust Funds 572 580
Investment in Nuclear Decommissioning Trust Funds (622) (605)
Note Receivable from Affiliate -- (46)
Other Investing Activities 9 --
- -------------------------------------------------------------------------------------------------------------------
Net Cash Flows used in Investing Activities (216) (379)
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Long-Term Debt 1 --
Retirement of Long-Term Debt (2) 1
Change in Intercompany Payable, Affiliate (6) --
Change in Restricted Cash (56) --
- -------------------------------------------------------------------------------------------------------------------
Net Cash Flows provided by (used in) Financing Activities (63) 1
- -------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1) 131
- -------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 58 224
- -------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 57 $ 355
===================================================================================================================
See Condensed Combined Notes to Consolidated Financial Statements
18
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
(in millions) 2003 2002
- ----------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 57 $ 58
Restricted Cash 56 --
Accounts Receivable, net
Customer 588 587
Other 80 57
Receivables from Affiliates 343 594
Inventories, at average cost
Fossil Fuel 140 140
Materials and Supplies 226 217
Deferred Income Taxes 7 7
Other 263 145
- ----------------------------------------------------------------------------------------
Total Current Assets 1,760 1,805
- ----------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 7,788 4,800
DEFERRED DEBITS AND OTHER ASSETS
Nuclear Decommissioning Trust Funds 3,032 3,053
Investments 438 657
Receivable from Affiliate 41 220
Deferred Income Taxes 196 271
Prepaid Pension Asset 13 --
Other 210 201
- ----------------------------------------------------------------------------------------
Total Deferred Debits and Other Assets 3,930 4,402
- ----------------------------------------------------------------------------------------
TOTAL ASSETS $ 13,478 $ 11,007
========================================================================================
See Condensed Combined Notes to Consolidated Financial Statements
19
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
(in millions) 2003 2002
- ----------------------------------------------------------------------------------------------
LIABILITIES AND MEMBER'S EQUITY
CURRENT LIABILITIES
Long-Term Debt Due within One Year $ 5 $ 5
Accounts Payable 1,304 1,089
Payables to Affiliates 33 10
Notes Payable to Affiliates 857 863
Accrued Expenses 516 480
Other 207 216
- ----------------------------------------------------------------------------------------------
Total Current Liabilities 2,922 2,663
- ----------------------------------------------------------------------------------------------
LONG-TERM DEBT 2,131 2,132
DEFERRED CREDITS AND OTHER LIABILITIES
Unamortized Investment Tax Credits 224 226
Nuclear Decommissioning Liability for Retired Plants -- 1,395
Asset Retirement Obligation 2,402 --
Pension Obligation -- 37
Non-Pension Postretirement Benefits Obligation 428 410
Spent Nuclear Fuel Obligation 861 858
Payables to Affiliate, net 920 --
Other 396 333
- ----------------------------------------------------------------------------------------------
Total Deferred Credits and Other Liabilities 5,231 3,259
- ----------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST OF CONSOLIDATED SUBSIDIARY 54 54
MEMBER'S EQUITY
Membership Interest 2,507 2,296
Undistributed Earnings 980 924
Accumulated Other Comprehensive Income (Loss) (347) (321)
- ----------------------------------------------------------------------------------------------
Total Member's Equity 3,140 2,899
- ----------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND MEMBER'S EQUITY $ 13,478 $ 11,007
==============================================================================================
See Condensed Combined 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
CONDENSED 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 March 31, 2003
and for the three months then ended are unaudited, but in the opinion of
management of Exelon Corporation (Exelon), Commonwealth Edison Company (ComEd),
PECO Energy Company (PECO) and Exelon Generation Company, LLC (Generation)
include all adjustments that are considered 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, 2002
consolidated balance sheets were derived from audited financial statements but
do not include all disclosures required by accounting principles generally
accepted in the United States of America (GAAP). 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, PECO and Generation included in or incorporated by reference in
ITEM 8 of their Annual Report on Form 10-K for the year ended December 31, 2002.
2. NEW ACCOUNTING PRINCIPLES AND ACCOUNTING CHANGES (Exelon, ComEd, PECO and
Generation)
Accounting Principles with a Cumulative Effect upon Adoption
SFAS No. 143
Statement of Financial Accounting Standards (SFAS) No. 143, "Accounting
for Asset Retirement Obligations" (SFAS No. 143) provides accounting
requirements for retirement obligations (whether statutory, contractual or as a
result of principles of promissory estoppel) associated with tangible long-lived
assets. Exelon, ComEd, PECO and Generation were required to adopt SFAS No. 143
as of January 1, 2003. In Exelon's case, a significant retirement obligation is
Generation's obligation to decommission its nuclear plants at the end of their
license lives projected to be from 2029 through 2056. These nuclear plants and
the related nuclear decommissioning trust fund investments were transferred to
Generation by ComEd and PECO in connection with the Exelon corporate
restructuring on January 1, 2001.
Generation had decommissioning assets of $3,053 million and $3,032
million as of December 31, 2002 and March 31, 2003, respectively, in trust
accounts. Exelon and Generation anticipate that all trust fund assets will
ultimately be used to decommission its nuclear plants.
After considering recent interpretation of the transitional guidance
included in SFAS No. 143, Exelon recorded income of $112 million (after income
taxes) as a cumulative effect of a change in accounting principle in connection
with its adoption of this standard. The components of the cumulative effect of a
change in accounting principle, after income taxes, recorded in the
21
first quarter of 2003 are as follows:
- ---------------------------------------------------------------------------------------------
Generation (net of income taxes of $52 million) $ 80
Generation's investments in AmerGen Energy Company, LLC and
Sithe Energies, Inc. (net of income taxes of $18 million) 28
ComEd (net of income taxes of $0) 5
Exelon Enterprises Company, LLC (net of income taxes of $(1) million) (1)
- ---------------------------------------------------------------------------------------------
Total $ 112
=============================================================================================
The cumulative effect of the change in accounting principle in adopting
SFAS No. 143 had no impact on PECO's income statement.
The asset retirement obligations (ARO) were determined under SFAS No.
143 to be $2,366 million and $2,363 million for Exelon and Generation,
respectively. As further explained below, the adoption also resulted in
recording regulatory assets and liabilities. The following table provides a
reconciliation of the AROs reflected on the balance sheet at December 31, 2002
and March 31, 2003:
Generation Exelon
- --------------------------------------------------------------------------------
Accumulated Depreciation $2,845 $2,845
Nuclear decommissioning liability for retired units 1,395 1,395
- --------------------------------------------------------------------------------
Decommissioning Obligation at December 31, 2002 4,240 4,240
Net reduction due to adoption of SFAS No. 143 1,877 1,874
- --------------------------------------------------------------------------------
Decommissioning Obligation at January 1, 2003 2,363 2,366
Accretion expense for first quarter 2003 39 40
- --------------------------------------------------------------------------------
Balance at March 31, 2003 $2,402 $2,406
================================================================================
Determination of Asset Retirement Obligation
In accordance with SFAS No. 143, a probability-weighted, discounted
cash flow model with multiple scenarios was used to determine the "fair value"
of the decommissioning obligation. SFAS No. 143 also stipulates that fair value
represent the amount a third party would receive for assuming all of an entity's
obligation.
The present value of future estimated cash flows was calculated using
credit-adjusted risk-free rates applicable to the various businesses in order to
determine the fair value of Exelon's decommissioning obligation at the time of
adoption of SFAS No. 143.
Significant changes in the assumptions underlying the items discussed
above could materially affect the balance sheet amounts and future costs related
to decommissioning recorded in the Consolidated Financial Statements.
Exelon
The following tables set forth Exelon's net income and earnings per
common share for the three months ended March 31, 2002 adjusted as if SFAS No.
143 had been applied effective January 1, 2002.
22
Three Months Ended
March 31, 2002
- ------------------------------------------------------------------------------------------------------------
Reported income before cumulative effect of changes in accounting principles $ 238
Adjustment as if SFAS No. 143 had been applied effective January 1, 2002 10
- ------------------------------------------------------------------------------------------------------------
Adjusted income before cumulative effect of changes in accounting principles $ 248
============================================================================================================
Three Months Ended
March 31, 2002
- ------------------------------------------------------------------------------------------------------------
Reported net income $ 8
Adjustment as if SFAS No. 143 had been applied effective January 1, 2002:
Adjustment to income before cumulative effect of changes in accounting principles 10
Cumulative effect of changes in accounting principles 132
- ------------------------------------------------------------------------------------------------------------
Adjusted net income $ 150
============================================================================================================
Three Months Ended March 31, 2002
---------------------------------
Basic earnings per common share: Reported Adjustment (1) Adjusted
- -------------------------------------------------------------------------------------------------------------------
Income before cumulative effect
of changes in accounting principles $ 0.74 $ 0.03 $ 0.77
Net Income $ 0.02 $ 0.44 $ 0.46
- -------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31, 2002
---------------------------------
Diluted earnings per common share: Reported Adjustment (1) Adjusted
- -------------------------------------------------------------------------------------------------------------------
Income before cumulative effect
of changes in accounting principles $ 0.73 $ 0.03 $ 0.76
Net Income $ 0.02 $ 0.44 $ 0.46
- -------------------------------------------------------------------------------------------------------------------
(1) The adjustment represents the earnings impact as if SFAS No. 143 had been applied effective January 1, 2002.
Effect of adopting SFAS No. 143
Exelon was required to re-measure the decommissioning liabilities at
fair value using the methodology prescribed by SFAS No. 143. The transition
provisions of SFAS No. 143 required Exelon to apply this re-measurement back to
the historical periods in which asset retirement obligations were incurred,
resulting in a re-measurement of these obligations at the date the related
assets were acquired. Since the nuclear plants previously owned by ComEd were
acquired by Exelon on the October 20, 2000 Merger date, Exelon's historical
accounting for its ARO has been revised as if SFAS No. 143 had been in effect at
the Merger date.
In the case of the former ComEd plants, the calculation of the SFAS No.
143 ARO yielded decommissioning obligations lower than the value of the
corresponding trust assets. ComEd has previously collected amounts from
customers (which were subsequently transferred to Generation) in advance of
Generation's recognition of decommissioning expense, under SFAS No. 143. While
it is expected that the trust assets will ultimately be used entirely for the
decommissioning of the plants, the current measurement required by SFAS No. 143
shows an excess of assets over related ARO liabilities. As such, in accordance
with regulatory accounting practices and a December 2000 ICC Order, a regulatory
liability of $948 million and a corresponding receivable from Generation were
recorded at ComEd upon the adoption of SFAS No. 143. Exelon believes that all of
the decommissioning assets, including the $73 million of annual collections
through 2006, will be used to decommission the former ComEd plants.
23
Accordingly, Exelon expects the regulatory liability and corresponding
receivable from Generation will be reduced to zero at the conclusion of the
decommissioning of the former ComEd plants.
In the case of the former PECO plants, the SFAS No. 143 ARO calculation
yielded decommissioning obligations greater than the corresponding trust assets.
As such, a regulatory asset of $20 million and a corresponding payable to
Generation were recorded upon adoption at PECO. Exelon also expects the
regulatory asset and corresponding payable to Generation will be reduced to zero
at the conclusion of the decommissioning of the former PECO plants.
Prior to the adoption of SFAS No. 143, Generation's Accumulated
Depreciation included $2,845 million for decommissioning liabilities related to
the active plants. This amount was reclassified to an ARO upon the adoption of
SFAS No. 143. Additionally, Generation adjusted the total decommissioning
liability for the ComEd plants to $1,575 million and for the PECO plants to $787
million. As described above, Generation recorded a payable to ComEd of $948
million and a receivable from PECO of $20 million. Generation also recorded an
Asset Retirement Cost asset (ARC) of $172 million related to the establishment
of the PECO ARO in accordance with SFAS No. 143. The ARC will be amortized over
the remaining lives of the plants.
As discussed above, Exelon re-measured its 2001 decommissioning related
balances associated with the October 2000 Merger purchase price allocation at
ComEd and the January 2001 corporate restructuring as if SFAS No. 143 had been
in effect at the Merger date. Exelon and ComEd concluded that had SFAS No. 143
been in effect, ComEd would not have recorded an impairment on its regulatory
asset for decommissioning of its retired nuclear plants as a purchase price
allocation adjustment in 2001 as a result of the December 2000 ICC order.
Increased net assets would have been transferred to Generation by ComEd in the
corporate restructuring. Accordingly, Exelon recorded a reduction of goodwill of
approximately $210 million, with a corresponding reduction in its overall
decommissioning obligation in connection with the implementation of SFAS No. 143
on January 1, 2003. Similarly, ComEd recorded a reduction of $210 million of
goodwill and of shareholders' equity, and Generation recorded a $210 million
increase in member's equity and a corresponding reduction of its decommissioning
obligation. In addition, Exelon and ComEd recorded a cumulative effect of a
change in accounting principle of $5 million to reverse goodwill amortization
that had been recorded in 2001. Exelon and ComEd also reclassified a regulatory
asset related to nuclear decommissioning costs for retired units of $248 million
to regulatory liabilities.
The following tables set forth ComEd and Generation's net income and
Generation's income before cumulative effect of changes in accounting principles
for the three months ended March 31, 2002 adjusted as if SFAS No. 143 had been
applied effective January 1, 2002. ComEd's income before cumulative effect of a
change in accounting principle was not affected by the adoption of SFAS No. 143.
24
Three Months Ended
ComEd March 31, 2002
- ------------------------------------------------------------------------------------------------------------
Reported net income $ 129
Adjustment as if SFAS No. 143 had been applied effective January 1, 2002:
Cumulative effect of a change in accounting principle 5
- ------------------------------------------------------------------------------------------------------------
Adjusted net income $ 134
============================================================================================================
Three Months Ended
Generation March 31, 2002
- ------------------------------------------------------------------------------------------------------------
Reported income before cumulative effect of changes in accounting principles $ 66
Adjustment as if SFAS No. 143 had been applied effective January 1, 2002 10
- ------------------------------------------------------------------------------------------------------------
Adjusted income before cumulative effect of changes in accounting principles $ 76
============================================================================================================
Three Months Ended
Generation March 31, 2002
- ------------------------------------------------------------------------------------------------------------
Reported net income $ 79
Adjustment as if SFAS No. 143 had been applied effective January 1, 2002:
Adjustment to income before cumulative effect of a change in accounting principle 10
Cumulative effect of a change in accounting principle 128
- ------------------------------------------------------------------------------------------------------------
Adjusted net income $ 217
============================================================================================================
Accounting methodology under SFAS No. 143
For the former ComEd plants, realized gains and losses on
decommissioning trust funds are reflected in other income and deductions in
Generation's Consolidated Statements of Income, while the unrealized gains and
losses on marketable securities held in the trust funds adjust the payable
Generation currently has to ComEd. The increases in the ARO are recorded in
accretion expense, while the funds received from ComEd for decommissioning are
recorded in revenue. Generation's payable to ComEd will be adjusted to reflect
the difference between the decommissioning assets and the ARO levels. As such,
if the ARO increases at a rate faster than the increase in the trust fund
assets, ComEd's regulatory liability and receivable from Generation will
decrease. If and when the trust assets are exceeded by the decommissioning
liability, Generation is responsible for any shortfall in funding. The result of
the above accounting will be adjusted to reflect no earnings impact to
Generation for as long as the trust assets exceed the decommissioning
liabilities for the former ComEd plants.
The above accounting practices are also applicable for former PECO
plants owned by Generation, with the addition of the depreciation expense
Generation will recognize on the ARC established upon adoption of SFAS No. 143.
However, as PECO has the expectation of full recovery of decommissioning costs,
the result of the above accounting will be adjusted to reflect no earnings
impact to Generation. Therefore, to the extent that the net of decommissioning
revenues collected and realized investment income differ from the accretion
expense to the decommissioning liability and the related depreciation of the
ARC, an adjustment to net the amounts to zero would be recorded by Generation
for that period.
The ongoing effects to Generation for the accounting for the
decommissioning of the AmerGen Energy Company, LLC (AmerGen) plants are recorded
within Generation's equity in earnings of AmerGen.
25
SFAS No. 141 and SFAS No. 142
In 2001, the FASB issued 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
became effective for business combinations initiated after June 30, 2001. In
addition, SFAS No. 141 required 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, 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.
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 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. InfraSource Inc. (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 impairment was recorded as a cumulative effect of a change in
accounting principle in the first quarter of 2002.
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:
- ------------------------------------------------------------------------------------------------
Enterprises goodwill impairment (net of income taxes of $(103)) $ (254)
Minority interest (net of income taxes of $4) 11
Elimination of AmerGen negative goodwill (net of income taxes of $9) 13
- ------------------------------------------------------------------------------------------------
Total cumulative effect of a change in accounting principle $ (230)
=================================================================================================
At March 31, 2003, Exelon had goodwill of $4.8 billion of which $4.7
billion relates to ComEd and the remaining goodwill relates to Enterprises'
reporting units. Consistent with SFAS No. 142, the remaining goodwill is
reviewed for impairment on an annual basis, or more
26
frequently if significant events occur that could indicate an impairment exists.
ComEd and Enterprises perform their annual reviews in the fourth quarter of
their fiscal years. The annual update impairment review during the fourth
quarter of 2002 did not identify any goodwill impairment.
Other Accounting Principles and Accounting Changes
EITF Issue 02-3
In the third quarter of 2002, Exelon and Generation adopted the
provisions of FASB Emerging Issue Task Force (EITF) Issue No. 02-3, "Accounting
for Contracts Involved in Energy Trading and Risk Management Activities" (EITF
02-3) issued by the 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 adoption, 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 to revenue in the results of operations for the
three months ended March 31, 2002 to conform to the net basis of presentation
required by EITF 02-3.
SFAS No. 146
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" (SFAS No. 146). SFAS No. 146
requires that the liability for costs associated with exit or disposal
activities be recognized when incurred, rather than at the date of a commitment
to an exit or disposal plan. SFAS No. 146 is to be applied prospectively to exit
or disposal activities initiated after December 31, 2002. Exelon, ComEd, PECO
and Generation's results of operations were unaffected by the adoption SFAS No.
146.
FIN No. 45
In November 2002, the FASB released FASB Interpretation (FIN) No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others" (FIN No. 45), providing for
expanded disclosures and recognition of a liability for the fair value of the
obligation undertaken by the guarantor. Under FIN No. 45, guarantors are
required to disclose the nature of the guarantee, the maximum amount of
potential future payments, the carrying amount of the liability and the nature
and amount of recourse provisions or available collateral that would be
recoverable by the guarantor. Exelon, ComEd, PECO and Generation adopted the
disclosure requirements under FIN No. 45, which were effective for financial
statements for periods ended after December 15, 2002. The recognition and
measurement provisions of FIN No. 45 were effective for guarantees issued or
modified after December 31, 2002. The adoption of FIN No. 45 had no material
effect on Exelon, ComEd, PECO or Generation's results of operations. Liabilities
associated with guarantees entered into during the first quarter of 2003 are
reflected in Note 8 - Commitments and Contingencies.
27
SFAS No. 148
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - an amendment of FASB
Statement No. 123" (SFAS No. 148). SFAS No. 148 provides alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation and requires disclosures in both annual
and interim financial statements regarding the method of accounting for
stock-based compensation and the effect of the method on financial results. SFAS
No. 148 was effective for financial statements for fiscal years ended after
December 15, 2002. Exelon adopted the additional disclosure requirements of SFAS
No. 148 and continues to account for its stock-compensation plans under the
disclosure only provision of SFAS No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123). The tables below show the effect on net income and
earnings per share for Exelon and the effect on net income for ComEd, PECO and
Generation had Exelon elected to account for stock-based compensation plans
using the fair value method under SFAS No. 123 for the three months ended March
31, 2003 and 2002:
Exelon
Three Months Ended March 31,
----------------------------
2003 2002
- ----------------------------------------------------------------------------------------
Net income - as reported $ 361 $ 8
Deduct: Total stock-based compensation expense
determined under fair value based method for all
awards, net of income taxes (5) (8)
- ----------------------------------------------------------------------------------------
Pro forma net income $ 356 $ --
========================================================================================
Earnings per share:
Basic - as reported $ 1.11 $ 0.02
Basic - pro forma $ 1.10 $ --
Diluted - as reported $ 1.11 $ 0.02
Diluted - pro forma $ 1.09 $ --
- ----------------------------------------------------------------------------------------
ComEd
Three Months Ended March 31,
----------------------------
2003 2002
- ----------------------------------------------------------------------------------------
Net income - as reported $ 195 $ 129
Deduct: Total stock-based compensation expense
determined under fair value based method for all
awards, net of income taxes (1) (3)
- ----------------------------------------------------------------------------------------
Pro forma net income $ 194 $ 126
========================================================================================
28
PECO
Three Months Ended March 31,
----------------------------
2003 2002
- -----------------------------------------------------------------------------------
Net income on common stock- as reported $ 135 $ 87
Deduct: Total stock-based compensation expense
determined under fair value based method for all
awards, net of income taxes (1) (3)
- -----------------------------------------------------------------------------------
Pro forma net income $ 134 $ 84
===================================================================================
Generation
Three Months Ended March 31,
---------------------------
2003 2002
- -----------------------------------------------------------------------------------
Net income - as reported $ 56 $ 79
Deduct: Total stock-based compensation expense
determined under fair value based method for all
awards, net of income taxes (1) (4)
- -----------------------------------------------------------------------------------
Pro forma net income $ 55 $ 75
===================================================================================
FIN No. 46
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities" (FIN No. 46). FIN No. 46 addresses consolidating certain
variable interest entities and applies immediately to variable interest entities
created after January 31, 2003. The impact, if any, of adopting FIN No. 46 on
Exelon, ComEd, PECO and Generation's consolidated financial position, results of
operations and cash flows has not been determined.
SFAS No. 149
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities" (SFAS No. 149). SFAS No.
149 amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contacts, and for hedging activities under SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS No. 133). SFAS No. 149 also
amends SFAS No. 133 for decisions made (1) as part of the Derivatives
Implementation Group process that effectively required amendments to SFAS No.
133, (2) in connection with other FASB projects dealing with financial
instruments, and (3) in connection with implementation issues raised in relation
to the application of the definition of a derivative.
SFAS No. 149 is effective for contracts entered into or modified after
June 30, 2003, except as stated below, and for hedging relationships designated
after June 30, 2003. In addition, except as stated below, all provisions of SFAS
No. 149 will be applied prospectively.
The provisions of SFAS No. 149 that relate to SFAS No. 133
implementation issues that have been effective for fiscal quarters that began
prior to June 15, 2003 should continue to be applied in accordance with their
respective effective dates. In addition, certain provisions relating to forward
purchases or sales of when-issued securities or other securities that do not yet
exist, should be applied to both existing contracts and new contracts entered
into after June 30,
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2003. Exelon, ComEd, PECO and Generation are currently determining the impact of
the adoption of SFAS No. 149 on their financial position and results of
operations.
Change in Accounting Estimate
ComEd
Effective July 1, 2002, ComEd lowered its depreciation rates based on a
depreciation study reflecting its significant construction program in recent
years, changes in and development of new technologies, and changes in estimated
plant service lives since the last depreciation study. The annualized reduction
in depreciation expense, based on December 31, 2001 plant balances, was
estimated to be approximately $100 million ($60 million, after income taxes). As
a result of the change, net income for the three months ended March 31, 2003
increased approximately $24 million ($14 million, after income taxes).
3. ACQUISITIONS AND DISPOSITIONS (Exelon and Generation)
Sithe New England Holdings Acquisition
On November 1, 2002, Generation purchased the assets of Sithe New
England Holdings, LLC (currently known as Exelon New England), a subsidiary of
Sithe Energies, Inc. (Sithe), and related power marketing operations. Exelon New
England's primary assets are gas-fired facilities currently under construction.
The purchase price for the Exelon New England assets consisted of a $534 million
note to Sithe, $14 million of direct acquisition costs and a $208 million
adjustment to Generation's investment in Sithe related to Exelon New England.
Additionally, Generation assumed various Sithe guarantees. Generation's assumed
guarantees are related to an equity contribution agreement between Exelon New
England and Sithe Boston Generating, LLC (currently known as Exelon Boston
Generating, LLC (EBG)), a project subsidiary of Exelon New England. The equity
contribution agreement requires, among other things, that Exelon New England,
upon the occurrence of certain events, contribute up to $38 million of equity
for the purpose of completing the construction of two generating facilities. EBG
has a $1.25 billion credit facility (EBG Facility), which was entered into
primarily to finance the construction of these two generating facilities. The
$1.0 billion of debt outstanding under the credit facility at March 31, 2003 is
reflected on Exelon and Generation's Consolidated Balance Sheets. Exelon New
England owns 4,066 megawatts (MWs) of generation capacity, consisting of 1,645
MWs in operation and 2,421 MWs under construction. Exelon New England's
generation facilities are located primarily in Massachusetts.
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The allocation of the preliminary purchase price to the fair value of
assets acquired and liabilities assumed in the acquisition is as follows:
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Current Assets (including $12 million of cash acquired) $ 82
Property, Plant and Equipment 1,956
Deferred Debits and Other Assets 62
Current Liabilities (159)
Deferred Credits and Other Liabilities (149)
Long-Term Debt (1,036)
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Total Purchase Price $ 756
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