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, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission Name of Registrant; State of Incorporation; IRS Employer
File Number Address of Principal Executive Offices; and Identification
Telephone Number 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
June 30, 2003 was:
Exelon Corporation Common Stock, without par value 325,848,491
Commonwealth Edison Company Common Stock, $12.50 par value 127,016,429
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 61
Exelon Corporation 61
Commonwealth Edison Company 90
PECO Energy Company 105
Exelon Generation Company, LLC 120
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 135
ITEM 4. CONTROLS AND PROCEDURES 147
PART II. OTHER INFORMATION 150
ITEM 1. LEGAL PROCEEDINGS 150
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 150
ITEM 5. OTHER INFORMATION 152
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 153
SIGNATURES 156
2
FILING FORMAT
This combined Form 10-Q is being filed separately by Exelon
Corporation (Exelon), Commonwealth Edison Company (ComEd), PECO Energy
Company (PECO) and Exelon Generation Company, LLC (Generation)
(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 factors discussed herein, as well as the items
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 each of 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 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 June 30, Six Months Ended June 30,
--------------------------- -------------------------
(in millions, except per share data) 2003 2002 2003 2002
- -------------------------------------------------------------------------------------------------------------------------
OPERATING REVENUES $ 3,721 $ 3,519 $ 7,795 $ 6,876
OPERATING EXPENSES
Purchased power 746 699 1,586 1,311
Purchased power from unconsolidated affiliate 110 60 177 116
Fuel 531 364 1,356 860
Operating and maintenance 1,100 1,070 2,212 2,137
Depreciation and amortization 275 332 549 667
Taxes other than income 159 181 358 367
- -------------------------------------------------------------------------------------------------------------------------
Total operating expenses 2,921 2,706 6,238 5,458
- -------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 800 813 1,557 1,418
- -------------------------------------------------------------------------------------------------------------------------
OTHER INCOME AND DEDUCTIONS
Interest expense (220) (241) (443) (490)
Distributions on preferred securities of subsidiaries (10) (11) (22) (23)
Equity in earnings of unconsolidated affiliates 15 9 33 22
Other, net 9 194 (134) 222
- -------------------------------------------------------------------------------------------------------------------------
Total other income and deductions (206) (49) (566) (269)
- -------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT
OF CHANGES IN ACCOUNTING PRINCIPLES 594 764 991 1,149
INCOME TAXES 222 279 370 427
- -------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES 372 485 621 722
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING
PRINCIPLES (net of income taxes of $69 and $(90) for the six
months ended June 30, 2003 and 2002, respectively) -- -- 112 (230)
- -------------------------------------------------------------------------------------------------------------------------
NET INCOME 372 485 733 492
- -------------------------------------------------------------------------------------------------------------------------
OTHER COMPREHENSIVE INCOME (LOSS) (net of income taxes)
Cash flow hedge adjustment 62 (16) (84) (68)
Foreign currency translation adjustment 1 -- 2 --
Unrealized gain (loss) on marketable securities 3 (72) (2) (87)
SFAS No. 143 transition adjustment -- -- 168 --
Interest in other comprehensive income (loss) of unconsolidated
affiliates 17 (7) 8 (1)
- -------------------------------------------------------------------------------------------------------------------------
Total other comprehensive income (loss) 83 (95) 92 (156)
- -------------------------------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME $ 455 $ 390 $ 825 $ 336
=========================================================================================================================
AVERAGE SHARES OF COMMON STOCK OUTSTANDING - Basic 325 322 324 322
=========================================================================================================================
AVERAGE SHARES OF COMMON STOCK OUTSTANDING - Diluted 327 324 327 324
=========================================================================================================================
EARNINGS PER AVERAGE COMMON SHARE:
BASIC:
Income before cumulative effect of changes in accounting
principles $ 1.14 $ 1.50 $ 1.92 $ 2.24
Cumulative effect of changes in accounting principles -- -- 0.34 (0.71)
- -------------------------------------------------------------------------------------------------------------------------
Net income $ 1.14 $ 1.50 $ 2.26 $ 1.53
- -------------------------------------------------------------------------------------------------------------------------
DILUTED:
Income before cumulative effect of changes in accounting
principles $ 1.14 $ 1.50 $ 1.90 $ 2.23
Cumulative effect of changes in accounting principles -- -- 0.34 (0.71)
- -------------------------------------------------------------------------------------------------------------------------
Net income $ 1.14 $ 1.50 $ 2.24 $ 1.52
=========================================================================================================================
DIVIDENDS PER COMMON SHARE $ 0.46 $ 0.44 $ 0.92 $ 0.88
=========================================================================================================================
See Condensed Combined Notes to Consolidated Financial Statements
5
EXELON CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
-------------------------
(in millions) 2003 2002
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 733 $ 492
Adjustments to reconcile net income to net cash flows provided by
operating activities:
Depreciation, amortization and accretion, including nuclear fuel 846 848
Cumulative effect of changes in accounting principles (net of income taxes) (112) 230
Gain on sale of investments -- (199)
Provision for uncollectible accounts 43 67
Deferred income taxes (100) (10)
Equity in earnings of unconsolidated affiliates (33) (22)
Impairment of investments 238 38
Impairment of goodwill and long-lived assets 53 --
Net realized (gains) losses on nuclear decommissioning trust funds (12) 21
Other operating activities 12 40
Changes in assets and liabilities:
Accounts receivable 66 (281)
Inventories (16) (3)
Accounts payable, accrued expenses and other current liabilities (62) 364
Changes in payables and receivables from unconsolidated affiliates 19 12
Other current assets (214) (143)
Deferred energy costs (24) 49
Pension and non-pension postretirement benefits obligations (146) 10
Other noncurrent assets and liabilities 1 125
- -----------------------------------------------------------------------------------------------------------------------
Net cash flows provided by operating activities 1,292 1,638
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (1,019) (1,028)
Proceeds from liquidated damages 86 --
Proceeds from nuclear decommissioning trust funds 1,262 889
Investment in nuclear decommissioning trust funds (1,368) (943)
Note receivable from unconsolidated affiliate 35 (75)
Proceeds from sale of investment 6 285
Acquisition of generating plants -- (443)
Other investing activities 11 47
- -----------------------------------------------------------------------------------------------------------------------
Net cash flows used in investing activities (987) (1,268)
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt 1,813 701
Retirement of long-term debt (1,479) (697)
Change in short-term debt (100) 110
Issuance of preferred securities of subsidiaries 300 --
Retirement of preferred securities of subsidiaries (300) --
Dividends paid on common stock (285) (280)
Payment on acquisition note payable to Sithe Energies, Inc. (210) --
Proceeds from employee stock plans 91 60
Change in restricted cash (29) (26)
Other financing activities (85) (10)
- -----------------------------------------------------------------------------------------------------------------------
Net cash flows used in financing activities (284) (142)
- -----------------------------------------------------------------------------------------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 21 228
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 469 485
- -----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS INCLUDING CASH CLASSIFIED AS HELD FOR SALE 490 713
CASH CLASSIFIED AS HELD FOR SALE ON THE CONSOLIDATED BALANCE SHEET (26) --
- -----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 464 $ 713
- -----------------------------------------------------------------------------------------------------------------------
See Condensed Combined Notes to Consolidated Financial Statements
6
EXELON CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
(in millions) 2003 2002
- -----------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 464 $ 469
Restricted cash 425 396
Accounts receivable, net
Customer 1,903 2,076
Other 246 284
Receivable from unconsolidated affiliate -- 39
Inventories, at average cost
Fossil fuel 172 175
Materials and supplies 309 306
Other 579 380
Assets held for sale 352 --
- -----------------------------------------------------------------------------------------------------------------------
Total current assets 4,450 4,125
- -----------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 20,323 17,126
DEFERRED DEBITS AND OTHER ASSETS
Regulatory assets 5,414 5,993
Nuclear decommissioning trust funds 3,316 3,053
Investments 1,189 1,403
Goodwill 4,735 4,992
Other 861 793
- -----------------------------------------------------------------------------------------------------------------------
Total deferred debits and other assets 15,515 16,234
- -----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 40,288 $ 37,485
=======================================================================================================================
See Condensed Combined Notes to Consolidated Financial Statements
7
EXELON CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
(in millions) 2003 2002
- -----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 581 $ 681
Note payable to unconsolidated affiliate 326 534
Long-term debt due within one year 2,391 1,402
Accounts payable 1,762 1,607
Accrued expenses 1,205 1,354
Other 283 296
Liabilities held for sale 81 --
- -----------------------------------------------------------------------------------------------------------------------
Total current liabilities 6,629 5,874
- -----------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT 12,480 13,127
MANDATORILY REDEEMABLE PREFERRED SECURITIES 100 --
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes 3,973 3,702
Unamortized investment tax credits 295 301
Nuclear decommissioning liability for retired plants -- 1,395
Asset retirement obligation 2,444 --
Pension obligation 1,747 1,959
Non-pension postretirement benefits obligation 943 877
Spent nuclear fuel obligation 863 858
Regulatory liabilities 810 --
Other 1,037 978
- -----------------------------------------------------------------------------------------------------------------------
Total deferred credits and other liabilities 12,112 10,070
- -----------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST OF CONSOLIDATED SUBSIDIARIES 79 77
PREFERRED SECURITIES OF SUBSIDIARIES 510 595
SHAREHOLDERS' EQUITY
Common stock 7,169 7,059
Deferred compensation -- (1)
Retained earnings 2,475 2,042
Accumulated other comprehensive income (loss) (1,266) (1,358)
- -----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 8,378 7,742
- -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 40,288 $ 37,485
=======================================================================================================================
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 June 30, Six Months Ended June 30,
-------------------------- -------------------------
(in millions) 2003 2002 2003 2002
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING REVENUES
Operating revenues $ 1,345 $ 1,469 $ 2,756 $ 2,773
Operating revenues from affiliates 16 12 29 23
- ---------------------------------------------------------------------------------------------------------------------------
Total operating revenues 1,361 1,481 2,785 2,796
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Purchased power 5 6 11 12
Purchased power from affiliate 528 547 1,099 1,079
Operating and maintenance 193 191 425 386
Operating and maintenance from affiliates 28 29 58 71
Depreciation and amortization 96 133 190 268
Taxes other than income 68 73 148 146
- ---------------------------------------------------------------------------------------------------------------------------
Total operating expenses 918 979 1,931 1,962
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 443 502 854 834
- ---------------------------------------------------------------------------------------------------------------------------
OTHER INCOME AND DEDUCTIONS
Interest expense (106) (127) (215) (252)
Distributions on mandatorily redeemable preferred securities (6) (7) (14) (15)
Interest income from affiliates 7 8 13 16
Other, net 5 6 21 13
- ---------------------------------------------------------------------------------------------------------------------------
Total other income and deductions (100) (120) (195) (238)
- ---------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT
OF A CHANGE IN ACCOUNTING PRINCIPLE 343 382 659 596
INCOME TAXES 138 151 263 236
- ---------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE 205 231 396 360
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE (net of income taxes of $0) -- -- 5 --
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME 205 231 401 360
- ---------------------------------------------------------------------------------------------------------------------------
OTHER COMPREHENSIVE INCOME (LOSS) (net of income taxes)
Cash flow hedge adjustment (3) (9) 28 (6)
Unrealized gain (loss) on marketable securities 1 (2) 1 (2)
Foreign currency translation adjustment 1 -- 2 --
- ---------------------------------------------------------------------------------------------------------------------------
Total other comprehensive income (loss) (1) (11) 31 (8)
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME $ 204 $ 220 $ 432 $ 352
===========================================================================================================================
See Condensed Combined 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) 2003 2002
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 401 $ 360
Adjustments to reconcile net income to net cash flows provided by
operating activities:
Depreciation and amortization 190 268
Cumulative effect of a change in accounting principle (net of income taxes) (5) --
Provision for uncollectible accounts 20 11
Deferred income taxes 60 75
Other operating activities 25 29
Changes in assets and liabilities:
Accounts receivable 9 (158)
Inventories 2 --
Accounts payable, accrued expenses and other current liabilities (115) 51
Changes in receivables and payables to affiliates (94) 63
Other current assets (2) (1)
Pension and non-pension postretirement benefits obligations (72) 15
Other noncurrent assets and liabilities 11 27
- -------------------------------------------------------------------------------------------------------------------------
Net cash flows provided by operating activities 430 740
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (355) (372)
Notes receivable from affiliates (165) 13
Other investing activities 14 7
- -------------------------------------------------------------------------------------------------------------------------
Net cash flows used in investing activities (506) (352)
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt 1,135 701
Retirement of long-term debt (662) (481)
Issuance of mandatorily redeemable preferred securities 200 --
Retirement of mandatorily redeemable preferred securities (200) --
Change in short-term debt (71) --
Dividends paid on common stock (211) (235)
Change in restricted cash (18) (32)
Settlement of cash flow hedges (51) (10)
Other financing activities (28) --
- -------------------------------------------------------------------------------------------------------------------------
Net cash flows provided by (used in) financing activities 94 (57)
- ---------------------------------------------------------------------------------------------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 18 331
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 16 23
- -------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 34 $ 354
=========================================================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION
Noncash investing and financing activities:
Retirement of treasury shares $ -- $ 1,344
Adoption of SFAS No. 143 - adjustment to other paid in capital and goodwill 210 --
See Condensed Combined Notes to Consolidated Financial Statements
10
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
(in millions) 2003 2002
- -------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 34 $ 16
Restricted cash 83 65
Accounts receivable, net
Customer 747 782
Other 78 72
Inventories, at average cost 63 65
Deferred income taxes 19 20
Receivables from affiliates 177 15
Other 16 14
- -------------------------------------------------------------------------------------------------------------------------
Total current assets 1,217 1,049
- -------------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 7,944 7,756
DEFERRED DEBITS AND OTHER ASSETS
Regulatory assets -- 447
Investments 35 42
Goodwill 4,711 4,916
Receivables from affiliates 2,397 1,300
Other 373 320
- -------------------------------------------------------------------------------------------------------------------------
Total deferred debits and other assets 7,516 7,025
- -------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 16,677 $ 15,830
=========================================================================================================================
See Condensed Combined Notes to Consolidated Financial Statements
11
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
(in millions) 2003 2002
- -------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ -- $ 71
Long-term debt due within one year 869 698
Accounts payable 158 201
Accrued expenses 456 538
Payables to affiliates 209 416
Customer deposits 79 81
Other 19 18
- -------------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,790 2,023
- -------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT 5,584 5,268
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes 1,741 1,650
Unamortized investment tax credits 50 51
Pension obligation 1 91
Non-pension postretirement benefits obligation 156 138
Payables to affiliates 26 224
Regulatory liabilities 810 --
Other 345 297
- -------------------------------------------------------------------------------------------------------------------------
Total deferred credits and other liabilities 3,129 2,451
- -------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
MANDATORILY REDEEMABLE PREFERRED 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 (554) (615)
Retained earnings 767 577
Accumulated other comprehensive income (loss) (7) (38)
- -------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 5,830 5,758
- -------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 16,677 $ 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 June 30, Six Months Ended June 30,
--------------------------- ------------------------
(in millions) 2003 2002 2003 2002
- -----------------------------------------------------------------------------------------------------------------------
OPERATING REVENUES
Operating revenues $ 958 $ 992 $ 2,173 $ 2,008
Operating revenues from affiliates 3 3 5 7
- -----------------------------------------------------------------------------------------------------------------------
Total operating revenues 961 995 2,178 2,015
- -----------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Purchased power 62 59 127 107
Purchased power from affiliate 324 346 681 649
Fuel 67 53 257 188
Operating and maintenance 110 114 236 225
Operating and maintenance from affiliates 11 17 25 42
Depreciation and amortization 116 109 236 221
Taxes other than income 47 63 110 122
- -----------------------------------------------------------------------------------------------------------------------
Total operating expenses 737 761 1,672 1,554
- -----------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 224 234 506 461
- -----------------------------------------------------------------------------------------------------------------------
OTHER INCOME AND DEDUCTIONS
Interest expense (83) (92) (168) (187)
Distributions on mandatorily redeemable preferred securities (2) (2) (5) (5)
Other, net 1 2 10 2
- -----------------------------------------------------------------------------------------------------------------------
Total other income and deductions (84) (92) (163) (190)
- -----------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 140 142 343 271
INCOME TAXES 52 49 119 90
- -----------------------------------------------------------------------------------------------------------------------
NET INCOME 88 93 224 181
Preferred stock dividends (2) (2) (3) (4)
- -----------------------------------------------------------------------------------------------------------------------
NET INCOME ON COMMON STOCK $ 86 $ 91 $ 221 $ 177
=======================================================================================================================
OTHER COMPREHENSIVE INCOME (LOSS) (net of income taxes)
Net income $ 88 $ 93 $ 224 $ 181
Other comprehensive income (loss) (net of income taxes):
Cash flow hedge adjustment -- (6) -- (4)
- -----------------------------------------------------------------------------------------------------------------------
Total other comprehensive income (loss) -- (6) -- (4)
- -----------------------------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME $ 88 $ 87 $ 224 $ 177
=======================================================================================================================
See Condensed Combined 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) 2003 2002
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 224 $ 181
Adjustments to reconcile net income to net cash flows provided by
operating activities:
Depreciation and amortization 236 221
Provision for uncollectible accounts 21 32
Deferred income taxes (28) (19)
Other operating activities 5 --
Changes in assets and liabilities:
Accounts receivable 48 (4)
Changes in receivables and payables to affiliates 27 34
Inventories (1) 14
Accounts payable, accrued expenses and other current liabilities 11 44
Prepaid taxes (91) (98)
Deferred energy costs (24) 49
Other current assets (4) (3)
Pension and non-pension postretirement benefits obligations 16 8
Other noncurrent assets and liabilities (15) 9
- -----------------------------------------------------------------------------------------------------------------------
Net cash flows provided by operating activities 425 468
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (132) (132)
Other investing activities 6 10
- -----------------------------------------------------------------------------------------------------------------------
Net cash flows used in investing activities (126) (122)
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt 450 --
Issuance of mandatorily redeemable preferred securities 100 --
Retirement of long-term debt (592) (207)
Retirement of mandatorily redeemable preferred securities (50) --
Retirement of preferred stock (50) --
Change in short-term debt (30) 74
Dividends paid on preferred and common stock (168) (174)
Contribution from parent 17 --
Change in restricted cash 28 1
Other financing activities (6) --
- -----------------------------------------------------------------------------------------------------------------------
Net cash flows used in financing activities (301) (306)
- -----------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2) 40
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 63 32
- -----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 61 $ 72
=======================================================================================================================
See Condensed Combined Notes to Consolidated Financial Statements
14
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
(in millions) 2003 2002
- -----------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 61 $ 63
Restricted cash 303 331
Accounts receivable, net
Customer 300 379
Other 51 39
Inventories, at average cost
Fossil fuel 67 67
Materials and supplies 9 8
Deferred energy costs 55 31
Prepaid taxes 92 1
Other 10 8
- -----------------------------------------------------------------------------------------------------------------------
Total current assets 948 927
- -----------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 4,213 4,159
DEFERRED DEBITS AND OTHER ASSETS
Regulatory assets 5,414 5,546
Investments 19 19
Prepaid pension asset 56 41
Other 22 28
- -----------------------------------------------------------------------------------------------------------------------
Total deferred debits and other assets 5,511 5,634
- -----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 10,672 $ 10,720
=======================================================================================================================
See Condensed Combined Notes to Consolidated Financial Statements
15
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
(in millions) 2003 2002
- -----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 170 $ 200
Payables to affiliates 137 170
Long-term debt due within one year 264 689
Accounts payable 70 87
Accrued expenses 361 332
Deferred income taxes 27 27
Other 32 33
- -----------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,061 1,538
- -----------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT 5,230 4,951
MANDATORILY REDEEMABLE PREFERRED SECURITIES 100 --
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes 2,891 2,903
Unamortized investment tax credits 23 24
Non-pension postretirement benefits obligation 282 251
Payable to affiliate 16 --
Other 149 164
- -----------------------------------------------------------------------------------------------------------------------
Total deferred credits and other liabilities 3,361 3,342
- -----------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
MANDATORILY REDEEMABLE PREFERRED SECURITIES 78 128
SHAREHOLDERS' EQUITY
Common stock 1,993 1,976
Receivable from parent (1,698) (1,758)
Preferred stock 87 137
Retained earnings 455 401
Accumulated other comprehensive income 5 5
- -----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 842 761
- -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 10,672 $ 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 June 30, Six Months Ended June 30,
--------------------------- --------------------------
(in millions) 2003 2002 2003 2002
- ------------------------------------------------------------------------------------------------------------------------
OPERATING REVENUES
Operating revenues $ 990 $ 606 $ 1,876 $ 1,175
Operating revenues from affiliates 896 953 1,889 1,845
- ------------------------------------------------------------------------------------------------------------------------
Total operating revenues 1,886 1,559 3,765 3,020
- ------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Purchased power 675 634 1,436 1,186
Purchased power from affiliates 125 71 206 137
Fuel 348 224 706 433
Operating and maintenance 411 374 861 750
Operating and maintenance from affiliates 40 37 82 94
Depreciation and amortization 46 65 91 128
Taxes other than income 40 41 88 90
- ------------------------------------------------------------------------------------------------------------------------
Total operating expenses 1,685 1,446 3,470 2,818
- ------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 201 113 295 202
- ------------------------------------------------------------------------------------------------------------------------
OTHER INCOME AND DEDUCTIONS
Interest expense (16) (10) (30) (27)
Interest expense - affiliates (4) (1) (8) (1)
Equity in earnings of unconsolidated affiliates 18 9 37 32
Other, net 34 24 (134) 40
- ------------------------------------------------------------------------------------------------------------------------
Total other income and deductions 32 22 (135) 44
- ------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT
OF CHANGES IN ACCOUNTING PRINCIPLES 233 135 160 246
INCOME TAXES 91 51 71 96
- ------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES 142 84 89 150
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING
PRINCIPLES (net of income taxes of $70 and $9 for the six
months ended June 30, 2003 and 2002, respectively) -- -- 108 13
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME 142 84 197 163
- ------------------------------------------------------------------------------------------------------------------------
OTHER COMPREHENSIVE INCOME (LOSS) (net of income taxes)
Unrealized gain (loss) on marketable securities 2 (74) (3) (83)
SFAS No. 143 transition adjustment -- -- 168 --
Cash flow hedge adjustment 64 6 (116) (67)
Interest in other comprehensive income (loss) of unconsolidated
affiliates 17 (7) 8 (1)
- ------------------------------------------------------------------------------------------------------------------------
Total other comprehensive income (loss) 83 (75) 57 (151)
- ------------------------------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME $ 225 $ 9 $ 254 $ 12
========================================================================================================================
See Condensed Combined 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) 2003 2002
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 197 $ 163
Adjustments to reconcile net income to net cash flows provided by
operating activities:
Depreciation, amortization and accretion, including nuclear fuel 388 312
Cumulative effect of changes in accounting principles (net of income taxes) (108) (13)
Provision for uncollectible accounts 1 17
Deferred income taxes (107) (4)
Equity in earnings of unconsolidated affiliates (37) (32)
Impairment of investment 200 --
Impairment of long-lived assets 5 --
Net realized (gains) losses on nuclear decommissioning trust funds (12) 21
Other operating activities (39) 53
Changes in assets and liabilities:
Accounts receivable (116) (136)
Changes in receivables and payables to affiliates, net 238 (93)
Inventories (19) (15)
Accounts payable, accrued expenses and other current liabilities 91 307
Other current assets (104) (87)
Pension and non-pension postretirement benefits obligations (59) (4)
Other noncurrent assets and liabilities 20 30
- ------------------------------------------------------------------------------------------------------------------------
Net cash flows provided by operating activities 539 519
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (510) (475)
Proceeds from liquidated damages 86 --
Proceeds from nuclear decommissioning trust funds 1,262 889
Investment in nuclear decommissioning trust funds (1,368) (943)
Note receivable from unconsolidated affiliate 35 (75)
Acquisition of generating plants -- (443)
Other investing activities (1) (1)
- ------------------------------------------------------------------------------------------------------------------------
Net cash flows used in investing activities (496) (1,048)
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt 211 --
Retirement of long-term debt (3) (2)
Payment on acquisition note payable to Sithe Energies, Inc. (210) --
Change in payables to affiliates 58 331
Distribution to member (45) --
Change in restricted cash (38) --
- ------------------------------------------------------------------------------------------------------------------------
Net cash flows (used in) provided by financing activities (27) 329
- ------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 16 (200)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 58 224
- ------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 74 $ 24
========================================================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION
Noncash financing activities:
Distribution to member $ 17 $ --
See Condensed Combined Notes to Consolidated Financial Statements
18
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
(in millions) 2003 2002
- ------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 74 $ 58
Restricted cash 38 --
Accounts receivable, net
Customer 656 587
Other 83 57
Receivables from affiliates 334 594
Inventories, at average cost
Fossil fuel 96 97
Materials and supplies 235 217
Deferred income taxes 7 7
Other 288 188
- ------------------------------------------------------------------------------------------------------------------------
Total current assets 1,811 1,805
- ------------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 7,884 4,800
DEFERRED DEBITS AND OTHER ASSETS
Nuclear decommissioning trust funds 3,316 3,053
Investments 484 657
Receivable from affiliate 35 220
Deferred income taxes 102 271
Prepaid pension asset 55 --
Other 226 201
- ------------------------------------------------------------------------------------------------------------------------
Total deferred debits and other assets 4,218 4,402
- ------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 13,913 $ 11,007
========================================================================================================================
See Condensed Combined Notes to Consolidated Financial Statements
19
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
(in millions) 2003 2002
- ------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND MEMBER'S EQUITY
CURRENT LIABILITIES
Long-term debt due within one year $ 1,252 $ 5
Accounts payable 1,408 1,126
Payables to affiliates 45 10
Notes payable to affiliates 717 863
Accrued expenses 431 482
Other 93 108
- ------------------------------------------------------------------------------------------------------------------------
Total current liabilities 3,946 2,594
- ------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT 1,111 2,132
DEFERRED CREDITS AND OTHER LIABILITIES
Unamortized investment tax credits 222 226
Nuclear decommissioning liability for retired plants -- 1,395
Asset retirement obligation 2,440 --
Pension obligation -- 37
Non-pension postretirement benefits obligation 443 410
Spent nuclear fuel obligation 863 858
Payable to affiliate 1,094 --
Other 438 402
- ------------------------------------------------------------------------------------------------------------------------
Total deferred credits and other liabilities 5,500 3,328
- ------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST OF CONSOLIDATED SUBSIDIARY 54 54
MEMBER'S EQUITY
Membership interest 2,489 2,296
Undistributed earnings 1,077 924
Accumulated other comprehensive income (loss) (264) (321)
- ------------------------------------------------------------------------------------------------------------------------
Total member's equity 3,302 2,899
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND MEMBER'S EQUITY $ 13,913 $ 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 June 30,
2003 and for the three and six 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. 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 $3,316 million and
$3,053 million as of June 30, 2003 and December 31, 2002, respectively, in
trust accounts. Exelon and Generation anticipate that all trust fund assets
will ultimately be used to decommission Generation's nuclear plants.
21
After considering interpretations 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 in the first quarter of 2003.
The components of the cumulative effect of a change in accounting
principle, after income taxes, are as follows:
- --------------------------------------------------------------------------------
Generation (net of income taxes of $52) $ 80
Generation's investments in AmerGen Energy Company, LLC and
Sithe Energies, Inc. (net of income taxes of $18) 28
ComEd (net of income taxes of $0) 5
Exelon Enterprises Company, LLC (net of income taxes of $(1)) (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 obligation (ARO) as of January 1, 2003 was
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.
Accretion expense for the three months and six months ended June 30, 2003
for Exelon was $39 million and $78 million, respectively. Accretion expense
for the three months and six months ended June 30, 2003 for Generation was
$38 million and $77 million, respectively. The following table provides a
reconciliation of the AROs reflected on the balance sheet at December 31,
2002 and June 30, 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 six months ended June 30, 2003 77 78
- -------------------------------------------------------------------------------
Asset retirement obligation at June 30, 2003 $2,440 $2,444
================================================================================
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 represents the amount a third party would
receive for assuming an entity's entire 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.
22
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.
The following tables set forth Exelon's net income and earnings
per common share for the three and six months ended June 30, 2002 adjusted
as if SFAS No. 143 had been applied effective January 1, 2002.
Three Months Ended Six Months Ended
June 30, 2002 June 30, 2002
- ---------------------------------------------------------------------------------------------------------------------------
Reported income before cumulative effect
of changes in accounting principles $ 485 $ 722
Adjustment as if SFAS No. 143 had been applied
effective January 1, 2002 10 20
- ---------------------------------------------------------------------------------------------------------------------------
Adjusted income before cumulative effect
of changes in accounting principles $ 495 $ 742
===========================================================================================================================
Three Months Ended Six Months Ended
June 30, 2002 June 30, 2002
- ---------------------------------------------------------------------------------------------------------------------------
Reported net income $ 485 $ 492
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 20
Cumulative effect of changes in accounting principles -- 132
- ---------------------------------------------------------------------------------------------------------------------------
Adjusted net income $ 495 $ 644
===========================================================================================================================
Three Months Ended June 30, 2002
--------------------------------
Basic earnings per common share: Reported Adjustment (1) Adjusted
- ---------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect
of changes in accounting principles $ 1.50 $ 0.03 $ 1.53
Net income $ 1.50 $ 0.03 $ 1.53
- ---------------------------------------------------------------------------------------------------------------------------
Three Months Ended June 30, 2002
--------------------------------
Diluted earnings per common share: Reported Adjustment (1) Adjusted
- ---------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect
of changes in accounting principles $ 1.50 $ 0.03 $ 1.53
Net income $ 1.50 $ 0.03 $ 1.53
- ---------------------------------------------------------------------------------------------------------------------------
(1) The adjustment represents the earnings impact as if SFAS No. 143 had been applied effective January 1, 2002.
Six Months Ended June 30, 2002
------------------------------
Basic earnings per common share: Reported Adjustment (1) Adjusted
- ---------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect
of changes in accounting principles $ 2.24 $ 0.06 $ 2.30
Net income $ 1.53 $ 0.47 $ 2.00
- ---------------------------------------------------------------------------------------------------------------------------
23
Six Months Ended June 30, 2002
------------------------------
Diluted earnings per common share: Reported Adjustment (1) Adjusted
- ---------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect
of changes in accounting principles $ 2.23 $ 0.06 $ 2.29
Net income $ 1.52 $ 0.47 $ 1.99
- ---------------------------------------------------------------------------------------------------------------------------
(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 October 20,
2000 (Merger Date) as a result of the merger of Exelon, Unicom Corporation
and PECO (Merger), 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 Illinois Commerce Commission (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. At June 30, 2003,
the regulatory liability and corresponding receivable from Generation
totaled $1,094 million. Exelon believes that all of the decommissioning
assets, including up to $73 million of annual collections through 2006,
will be used to decommission the former ComEd plants. Accordingly, Exelon
expects the regulatory liability and corresponding receivable from
Generation will be reduced to zero at or before 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.
At June 30, 2003, the regulatory asset and corresponding payable to
Generation totaled $16 million. Exelon believes that all of the
decommissioning assets, including the $29 million of annual collections,
will be used to decommission the former PECO plants. 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.
In accordance with regulatory accounting, the net plant balances
of Exelon, ComEd and PECO include recoveries for removal costs, which are
included as a component of accumulated depreciation. The adoption of SFAS
No. 143 had no impact on the accounting for removal costs not associated
with AROs.
24
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 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.
In accordance with the provisions of SFAS No. 143 and regulatory
accounting guidance, Exelon and Generation recorded a SFAS No. 143
transition adjustment to accumulated other comprehensive income to
reclassify $168 million of accumulated net unrealized losses on the nuclear
decommissioning trust funds to regulatory assets and 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 and six months ended June 30, 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.
Three Months Ended Six Months Ended
ComEd June 30, 2002 June 30, 2002
- -------------------------------------------------------------------------------------------------------------
Reported net income $ 231 $ 360
Adjustment as if SFAS No. 143 had been applied
effective January 1, 2002:
Cumulative effect of changes in accounting principles -- 5
- -------------------------------------------------------------------------------------------------------------
Adjusted net income $ 231 $ 365
=============================================================================================================
25
Three Months Ended Six Months Ended
Generation June 30, 2002 June 30, 2002
- ------------------------------------------------------------------------------------------------------------
Reported income before cumulative effect
of changes in accounting principles $ 84 $ 150
Adjustment as if SFAS No. 143 had been applied
effective January 1, 2002 10 20
- ------------------------------------------------------------------------------------------------------------
Adjusted income before cumulative effect
of changes in accounting principles $ 94 $ 170
=============================================================================================================
Three Months Ended Six Months Ended
Generation June 30, 2002 June 30, 2002
- ------------------------------------------------------------------------------------------------------------
Reported net income $ 84 $ 163
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 20
Cumulative effect of changes in accounting principles -- 128
- ------------------------------------------------------------------------------------------------------------
Adjusted net income $ 94 $ 311
=============================================================================================================
Accounting methodology under SFAS No. 143
For the former ComEd plants, realized gain