Business Context and Reporting Period
This Form 8-K, dated May 25, 2004, reports the completion of the sale, transfer, and assignment of ownership of Boston Generating, LLC (BG) by Exelon Corporation and Exelon Generation Company, LLC (Generation). The transaction was executed pursuant to a settlement agreement with BG's lenders reached on February 23, 2004, and received Federal Energy Regulatory Commission (FERC) approval on May 10, 2004. The sale transferred ownership to a special purpose entity owned by the lenders under BG's $1.25 billion credit facility.
Key Financial Metrics (Pro Forma)
The filing includes unaudited pro forma combined financial statements for Exelon and Generation, giving effect to the disposition of BG as if it occurred on January 1, 2003. Figures are in millions unless otherwise noted.
| Metric | Period | Pro Forma Value |
|---|---|---|
| Operating Revenues | Three months ended March 31, 2004 | $3,563 |
| Operating Revenues | Year ended December 31, 2003 | $15,194 |
| Operating Income | Three months ended March 31, 2004 | $745 |
| Operating Income | Year ended December 31, 2003 | $3,161 |
| Net Income (Pre-Cumulative Effect) | Three months ended March 31, 2004 | $391 |
| Net Income (Pre-Cumulative Effect) | Year ended December 31, 2003 | $1,646 |
| Diluted EPS (Pre-Cumulative Effect) | Three months ended March 31, 2004 | $0.59 |
| Diluted EPS (Pre-Cumulative Effect) | Year ended December 31, 2003 | $2.50 |
| Total Assets | As of March 31, 2004 | $42,532 |
| Total Liabilities | As of March 31, 2004 | $33,543 |
| Shareholders' Equity | As of March 31, 2004 | $8,845 |
Material Changes Versus Prior Period
The pro forma statements reflect significant adjustments compared to historical filings due to the removal of BG's operations and the reversal of a prior impairment charge.
- Reversal of Impairment: The pro forma results for the year ended December 31, 2003, exclude a $945 million impairment charge previously recorded for BG's long-lived assets. This adjustment significantly improved pro forma operating income and net income for the 2003 period.
- Revenue and Expense Adjustments: Operating revenues and expenses were adjusted to remove BG's historical figures. For the three months ended March 31, 2004, pro forma operating revenues decreased by $159 million compared to historical Exelon figures, while operating expenses decreased by $185 million.
- Balance Sheet Impact: Total assets decreased by approximately $1.027 billion in the pro forma balance sheet as of March 31, 2004, reflecting the removal of BG's assets held for sale.
Outlook, Risks, and Unusual Items
Operational Transition: While ownership has transferred, responsibility for plant operations and power marketing activities will be transferred to the lenders' special purpose entity at a later date. Exelon affiliates will continue to operate and market power on behalf of the new owners pending FERC approval, expected in the third quarter of 2004.
Limitations of Pro Forma Data: The pro forma statements do not reflect:
- Costs for procurement of replacement power if Exelon had not purchased power from BG.
- Operating fees that may be earned during the transition period.
- The fair value of guarantees issued by Exelon New England, LLC, under FASB Interpretation No. 45.
Risks: The filing includes standard forward-looking statement disclaimers, noting that actual results may differ due to factors discussed in the 2003 Annual Report on Form 10-K, including business outlook challenges and regulatory factors.
Investor Verification Checklist
- Confirm the timeline for the transfer of operational and marketing responsibilities to the lenders' special purpose entity (expected Q3 2004).
- Verify the potential costs associated with procuring replacement power to fulfill existing sales contracts previously supplied by BG.
- Review the specific terms of the settlement agreement with BG's lenders regarding the $1.25 billion credit facility.
- Assess the impact of the $945 million impairment charge reversal on the comparability of 2003 financial results.
- Monitor FERC filings for the order authorizing the transfer of plant operations and marketing activities.