ComEd 2003 Annual Report Download - page 89

87Notes to Consolidated Financial Statements
EXELON CORPORATION AND SUBSIDIARY COMPANIES
cussion of Exelon’s stock-compensation plans. The table be-
low shows the effect on net income and earnings per share
had Exelon elected to account for its stock-based compensa-
tion plans using the fair-value method under SFAS No. 123 for
the years ended December 31, 2003, 2002 and 2001:
2003 2002 2001
Net income–as reported $ 905 $1,440 $1,428
Deduct: Total stock-based
compensation expense determined
under fair-value method for all
awards, net of income taxes 20 33 26
Pro forma net income $ 885 $1,407 $1,402
Earnings per share:
Basic–as reported $2.78 $ 4.47 $ 4.46
Basic–pro forma $2.72 $4.36 $4.38
Diluted–as reported $2.75 $ 4.44 $ 4.43
Diluted–pro forma $2.69 $4.33 $4.35
Income Taxes
Deferred Federal and state income taxes are provided on all
significant temporary differences between the book basis
and the tax basis of assets and liabilities and for tax benefits
carried forward. Investment tax credits previously utilized
for income tax purposes have been deferred on the Con-
solidated Balance Sheets and are recognized in book income
over the life of the related property. Pursuant to the Internal
Revenue Code, Exelon files a consolidated Federal income tax
return that includes its subsidiaries in which it owns at least
80% of the outstanding stock. Income taxes are allocated to
each of Exelon’s subsidiaries included in the filing of the
consolidated Federal income tax return based on the sepa-
rate return method and records its income tax valuation al-
lowance by assessing which deferred tax assets are more
likely than not to be realized in the future (see Note 12 – In-
come Taxes).
Gains and Losses on Reacquired Debt
Recoverable gains and losses on reacquired debt related to
regulated operations are deferred and amortized to interest
expense over the life of new debt issued to finance the debt
redemption consistent with rate recovery for ratemaking
purposes. Gains and losses on other debt are recognized in
Exelon’s Consolidated Statements of Income as incurred (see
Note 20 – Supplemental Financial Information).
Comprehensive Income
Comprehensive income includes all changes in equity during
a period except those resulting from investments by and dis-
tributions to shareholders. Comprehensive income is re-
flected in the Consolidated Statements of Changes in
Shareholders’ Equity and the Consolidated Statements of
Comprehensive Income.
Cash and Cash Equivalents
Exelon considers all temporary cash investments purchased
with an original maturity of three months or less to be cash
equivalents.
Restricted Cash
As of December 31, 2003, restricted cash primarily represents
liquidated damages receipts at Generation and proceeds
from a ComEd pollution control bond offering in December
2003 which were applied to redeem pollution control bonds
that matured in January 2004. Prior to the adoption of FIN
No. 46-R, the restricted cash of ComEd Transitional Funding
Trust and PETT was included in Exelon’s Consolidated Bal-
ance Sheets. This restricted cash reflected escrowed cash to
be applied to the principal and interest payments on the
debt issued by the financing trusts.
Allowance for Doubtful Accounts
The allowance for doubtful accounts reflects Exelon’s best
estimate of probable losses inherent in the accounts receiv-
able balance. The allowance is based on known troubled ac-
counts, historical experience, and other currently available
evidence.
Inventories
Fossil Fuel. Fossil fuel inventory includes the weighted aver-
age cost of stored natural gas, coal, and oil. Fossil fuel also
includes propane at cost. PECO has several long-term storage
contracts as well as a liquefied natural gas facility.
Materials and Supplies. Materials and supplies inventory
generally includes the average costs of transmission, dis-
tribution and generating plant materials. Materials are gen-
erally charged to inventory when purchased and then
expensed or capitalized to plant, as appropriate, when in-
stalled.
Inventory is recorded at the lower of cost or market, and
provisions are made for obsolete inventory.
Emission Allowances
Emission allowances are included in inventories and de-
ferred debits and other assets and are carried at the lower of
cost or market and charged to fuel expense as they are used
in operations. Emission allowances can be used from the
years 2004 to 2028. As of December 31, 2003 and 2002, emis-
sion allowance balances were $105 million and $107 million,
respectively.
Marketable Securities
Marketable securities are classified as available-for-sale
securities and are reported at fair value. Unrealized gains
and losses, net of tax, on nuclear decommissioning trust
funds transferred to Generation from PECO and ComEd are
reflected in regulatory assets and liabilities on Exelon’s Con-
solidated Balance Sheets. Unrealized gains and losses on