ComEd 2002 Annual Report Download - page 92

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impairment loss is reported as a reduction to goodwill and a
charge to operating expense, except at the transition date,
when the loss is reflected as a cumulative effect of a change in
accounting principle.
As of December 31, 2001, Exelon’s Consolidated Balance
Sheets reflected approximately $5.3 billion in goodwill net of
accumulated amortization, including $4.9 billion of net good-
will related to the Merger recorded on ComEd’s Consolidated
Balance Sheets, with the remainder related to Enterprises. The
first step of the transitional impairment analysis indicated that
ComEd’s goodwill was not impaired but that an impairment did
exist with respect to goodwill recorded in Enterprises’reporting
units.InfraSource,the energy services business (Exelon Services)
and the competitive retail energy sales business (Exelon Energy)
were determined to be those reporting units of Enterprises that
had goodwill allocated to them.The second step of the analysis,
which compared the fair value of each of Enterprises’reporting
units’goodwill to the carrying value at December 31, 2001, indi-
cated a total goodwill impairment of $357 million ($243 million,
net of income taxes and minority interest).The fair value of the
Enterprises’ reporting units was determined using discounted
cash flow models reflecting the expected range of future cash
flow outcomes related to each of the Enterprises reporting
units over the life of the investment. These cash flows were
discounted to 2002 using a risk-adjusted discount rate. The
impairment was recorded as a cumulative effect of a change in
accounting principle in the first quarter of 2002.
The changes in the carrying amount of goodwill by
reportable segment (see Note 20—Segment Information) for
the year ended December 31, 2002 are as follows:
Energy Delivery Enterprises Total
Balance as of January 1, 2002 $ 4,902 $ 433 $ 5,335
Impairment losses – (357) (357)
Resolution of certain tax matters 21 – 21
Merger severance adjustment (7) – (7)
Balance as of December 31, 2002 $ 4,916 $ 76 $ 4,992
The December 31, 2002, Energy Delivery goodwill relates to
ComEd and the remaining Enterprises goodwill relates to the
InfraSource and Exelon Services reporting units. Consistent
with SFAS No. 142, the remaining goodwill will be reviewed for
impairment on an annual basis, or more frequently if signifi-
cant events occur that could indicate an impairment exists.
ComEd and Enterprises performed an impairment review in the
fourth quarter of 2002. Such review was consistent with the
review conducted related to the implementation of SFAS No.
142, which required estimates of numerous items with varying
degrees of uncertainty, such as discount rates, terminal value
earnings multiples,future revenue levels and estimated future
expenditure levels for ComEd and Enterprises; load growth and
the resolution of future rate proceedings for ComEd; and cus-
tomer base and construction back logs for Enterprises. These
valuations determined the Step I calculated fair value of both
ComEd and the Enterprises’units to be in excess of their respec-
tive book values at November 1, 2002. Significant changes from
the assumptions used in the impairment review could possibly
result in a future impairment loss. Illinois legislation provides
that reductions to ComEd’s common equity resulting from
goodwill impairments will not impact ComEd’s earnings
through 2006 under the earnings provisions of the legislation.
See Note 5—Regulatory Issues for further discussion of ComEd’s
earnings provisions.
The components of the net transitional impairment loss
recognized in the first quarter of 2002 as a cumulative effect of
a change in accounting principle are as follows:
Enterprises goodwill impairment
(net of income taxes of $103) $ (254)
Minority interest (net of income taxes of $4) 11
Elimination of AmerGen negative goodwill (net of
income taxes of $9) 13
Total cumulative effect of a change in accounting principle $ (230)
The following tables set forth Exelon’s net income and earnings
per common share for 2002,2001,and 2000 adjusted to exclude
2001 and 2000 amortization expense related to goodwill that is
no longer being amortized.
2002 2001 2000
Reported income before
cumulative effect of changes
in accounting principles $ 1,670 $ 1,416 $ 562
Cumulative effect of changes
in accounting principles (230) 12 24
Reported net income 1,440 1,428 586
Goodwill amortization –155 34
Adjusted net income $ 1,440 $ 1,583 $ 620
Basic earnings per common share:
Reported income before
cumulative effect of changes
in accounting principles $ 5.18 $ 4.42 $ 2.79
Cumulative effect of changes
in accounting principles (0.71) 0.04 0.12
Reported net income 4.47 4.46 2.91
Goodwill amortization –0.48 0.17
Adjusted net income $4.47 $ 4.94 $ 3.08
Diluted earnings per common share:
Reported income before
cumulative effect of changes
in accounting principles $ 5.15 $ 4.39 $ 2.75
Cumulative effect of changes
in accounting principles (0.71) 0.04 0.12
Reported net income 4.44 4.43 2.87
Goodwill amortization –0.48 0.17
Adjusted net income $4.44 $ 4.91 $ 3.04
Notes To Consolidated Financial Statements
exelon corporation and subsidiary companies
90