8-KFinancial Events

EXELON CORP 8-K Report, Material Impairment (Jun 5, 2006)

Filed June 5, 2006For Securities:EXC

Summary

This 8-K filing from Exelon Corporation, dated June 5, 2006, reports a material impairment charge of approximately $70 million (after-tax). This charge is associated with the write-off of an intangible asset related to Exelon's investment in synthetic fuel-producing facilities. The decision to record this impairment stems from the recent idling of these facilities, current oil prices, and the lack of federal legislative certainty regarding tax credits for 2006 production. Investors should note that this impairment charge will not be included in Exelon's Adjusted (non-GAAP) Operating Earnings for the second quarter of 2006. Furthermore, Exelon anticipates that the financial impact of this loss will be substantially offset by income recorded in future periods from hedging activities related to these investments and a gain from the eventual dissolution of these synthetic fuel ventures. The company is disclosing this to ensure transparency regarding its financial reporting and asset valuations.

Key Highlights

  • 1Exelon Corporation recorded an after-tax impairment charge of approximately $70 million.
  • 2The impairment is related to an intangible asset associated with investments in synthetic fuel-producing facilities.
  • 3The facilities producing synthetic fuel have been idled by their operators.
  • 4Uncertainty regarding future tax credits for synthetic fuel production contributed to the impairment decision.
  • 5This charge will be excluded from Exelon's Adjusted (non-GAAP) Operating Earnings for Q2 2006.
  • 6Exelon expects future income from hedges and the dissolution of these investments to substantially offset the impairment loss.

Frequently Asked Questions

The impairment charge of approximately $70 million (after-tax) is due to the write-off of an intangible asset related to Exelon's investments in synthetic fuel-producing facilities. These facilities have been idled, and there is uncertainty regarding future tax credits, making it unlikely that Exelon will earn sufficient credits to support the asset's value.

No, this impairment charge will not be included in Exelon's measurement of Adjusted (non-GAAP) Operating Earnings for the second quarter of 2006. This means it will be excluded from their primary non-GAAP performance metric.

While the $70 million is an impairment charge, Exelon anticipates that the financial impact will be substantially offset in future periods. This is expected through income recorded from hedging instruments associated with these investments and a gain expected upon the eventual dissolution of the investments in the synthetic fuel facilities.

These are facilities owned through wholly owned subsidiaries that chemically convert coal into synthetic fuel, which is then used at power plants. These facilities were eligible for tax credits under the Internal Revenue Code.