10-KPeriod: FY2003

EXELON CORP Annual Report, Year Ended Dec 31, 2003

Filed February 20, 2004For Securities:EXC

Summary

Exelon Corporation's (EXC) 2003 10-K filing highlights a year of operational focus and significant investment in infrastructure, alongside strategic divestitures and the implementation of "The Exelon Way" initiative aimed at improving operational cash flow. The company reported a net loss of $133 million for Generation, primarily due to a $573 million after-tax impairment charge related to Boston Generating assets and $180 million in impairment and transaction-related charges for its investment in Sithe. Conversely, ComEd experienced an 11% decline in net income due to lower operating revenues from unfavorable weather and customer choice, coupled with higher operating expenses, though offset by lower depreciation and interest expenses. PECO saw a 2% decline in net income driven by higher fuel and O&M expenses. All segments are navigating a changing energy industry landscape, with a focus on cost control, reliability, and adapting to potential future regulatory frameworks.

Key Highlights

  • 1Exelon Generation reported a net loss of $133 million for 2003, largely due to significant impairment charges related to Boston Generating ($573 million after-tax) and Sithe investment ($180 million after-tax).
  • 2ComEd's net income declined by 11% in 2003, primarily due to lower operating revenues (weather and customer choice) and higher operating/maintenance expenses, partially offset by lower depreciation and interest expenses.
  • 3PECO experienced a 2% decrease in net income, attributed to higher fuel, O&M, and depreciation expenses, partially offset by higher gas revenue and lower interest expenses.
  • 4The "Exelon Way" initiative, focused on improving operating cash flows through operational integration and support function consolidation, targets annual cash savings of $300 million in 2004, rising to $600 million by 2006. Severance and related charges were incurred in 2003 for its implementation.
  • 5Exelon Generation made strategic moves by transitioning out of its ownership of Boston Generating and completing transactions to restructure its Sithe ownership, while also acquiring full ownership of AmerGen.
  • 6ComEd continued significant infrastructure investment, spending over $700 million in 2003 and projecting over $600 million for 2004.
  • 7ComEd's goodwill balance was approximately $4.7 billion at year-end 2003, with management noting a "reasonable possibility" of future impairment in 2004 or later due to anticipated cash flow reductions post-transition period.

Frequently Asked Questions

ComEd's net income declined due to unfavorable weather, increased customer choice of energy suppliers, and higher operating and maintenance expenses, offset by lower depreciation and interest expenses. PECO's net income decreased due to higher fuel, O&M, and depreciation expenses, partially offset by higher gas revenue and lower interest and taxes. Generation reported a net loss driven primarily by significant asset impairment charges for Boston Generating and its Sithe investment, alongside "The Exelon Way" severance costs, partially offset by improved wholesale energy prices.

"The Exelon Way" is a long-term operational plan focused on improving operating cash flows by integrating operations and consolidating support functions. Exelon targeted annual cash savings of $300 million in 2004, increasing to $600 million by 2006. In 2003, the company incurred severance and related charges associated with its implementation.

Generation recorded a substantial impairment charge of $945 million (before income taxes) related to the long-lived assets of Boston Generating due to its decision to transition out of ownership. Additionally, impairment charges totaling $255 million (before income taxes) were recorded for Generation's investment in Sithe due to a decline in fair value.

ComEd had approximately $4.7 billion in goodwill at the end of 2003. Management noted a reasonable possibility of goodwill impairment in 2004 or future years due to anticipated reductions in cash flows following the regulatory transition period, particularly related to competitive transition charges (CTCs).

Key legal proceedings include a "Retail Rate Law" dispute where ComEd is appealing a summary judgment ruling regarding payments to non-utility generating facilities. PECO and Generation are contesting real estate taxes assessed on nuclear plants. Generation is also involved in litigation related to environmental allegations against its former subsidiary, Cotter Corporation, and a complex arbitration and litigation process involving Raytheon and Mitsubishi concerning the Fore River Power Plant EPC Agreement.