Exelon Corp. Q1 2002 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2002, for Exelon Corporation and its subsidiaries: Commonwealth Edison Company (ComEd), PECO Energy Company (PECO), and Exelon Generation Company, LLC (Generation). Exelon operates in three segments: Energy Delivery (ComEd and PECO), Generation, and Enterprises (competitive retail and services). The filing includes unaudited financial statements and management discussion.
Key Financial Metrics
Consolidated Results (Exelon Corporation):
- Operating Revenues: $3,870 million (Q1 2002) vs. $3,823 million (Q1 2001).
- Operating Income: $605 million vs. $889 million.
- Net Income: $8 million vs. $399 million. This represents a 98% decline, primarily driven by a one-time accounting charge.
- Earnings Per Share (Diluted): $0.02 vs. $1.23.
- Cash Flow from Operations: $833 million vs. $797 million.
- Total Assets: $34,903 million.
- Long-Term Debt: $12,609 million.
- Cash and Cash Equivalents: $696 million.
Material Changes vs. Prior Period
The most significant change is the $230 million charge recorded as the "Cumulative Effect of Changes in Accounting Principles." This charge resulted from the adoption of SFAS No. 142 (Goodwill and Other Intangible Assets), which required an impairment write-down of $357 million (pre-tax) related to the Enterprises segment (InfraSource, Exelon Services, and Exelon Energy). Without this charge, income before the cumulative effect was $238 million, a 39% decrease from the prior year's $387 million.
Operational declines were driven by:
- Weather: Milder winter weather reduced retail electricity and gas volumes in both Illinois and Pennsylvania.
- Market Prices: Lower wholesale energy prices reduced margins in the Generation segment.
- Outages: Increased nuclear refueling outages (four in Q1 2002 vs. zero in Q1 2001) reduced low-cost nuclear generation availability and increased operating costs.
Guidance, Outlook, and Risks
Management Commentary: Management attributes the earnings decline to the accounting change, weather, and market conditions. The Energy Delivery segment remains a stable cash flow generator, while Generation faces margin pressure from lower market prices and higher outage costs. The Enterprises segment continues to face challenges in the telecommunications and competitive energy markets.
Subsequent Events:
- On April 25, 2002, Generation purchased two TXU power plants for $443 million.
- On April 1, 2002, Enterprises sold its 49% interest in AT&T Wireless PCS of Philadelphia for $285 million, expecting an after-tax gain of approximately $120 million.
Risks and Contingencies:
- Legal Proceedings: A class-action lawsuit was filed on May 8, 2002, alleging false statements regarding 2001 earnings expectations. Exelon intends to contest vigorously.
- Environmental Liabilities: Exelon has accrued $144 million for environmental remediation, primarily related to former manufactured gas plants.
- Regulatory: Ongoing rate cases and restructuring impacts in Illinois and Pennsylvania.
- Accounting Changes: Future adoption of SFAS No. 143 (Asset Retirement Obligations) in 2003 is expected to have a material cumulative effect on earnings.
Investor Verification Checklist
- Verify the impact of the $230 million goodwill impairment on the Enterprises segment's future profitability and asset base.
- Monitor the nuclear refueling outage schedule for 2002, as increased outages significantly impact Generation margins and costs.
- Assess the weather sensitivity of the Energy Delivery segment, as mild winters materially reduced Q1 revenues.
- Review the status of the May 2002 securities class-action lawsuit and potential settlement costs.
- Confirm the realization of the $120 million gain from the AT&T Wireless sale in Q2 2002 earnings.
- Track the adoption of SFAS No. 143 in 2003 and its projected impact on decommissioning liabilities and earnings.