ComEd 2006 Annual Report Download - page 195

Exelon Corporation and Subsidiary Companies
Exelon Generation Company, LLC and Subsidiary Companies
Commonwealth Edison Company and Subsidiary Companies
PECO Energy Company and Subsidiary Companies
Combined Notes to Consolidated Financial Statements—(Continued)
(Dollars in millions, except per share data unless otherwise noted)
The carrying value of long-lived assets is considered impaired when the projected undiscounted cash
flows are less than the carrying value. In that event, a loss would be recognized based on the amount
by which the carrying value exceeds the fair value. Fair value is determined primarily by available
market valuations or, if applicable, discounted cash flows.
Upon meeting certain criteria defined in SFAS No. 144, the assets and associated liabilities that
compose a disposal group are classified as held for sale and presented separately on the Consolidated
Balance Sheets. The carrying value of these assets is adjusted downward, if necessary, to the
estimated sales price, less cost to sell.
Investments. Beginning in 2006, and in connection with the issuance of FSP 115-1, Generation
considers all nuclear decommissioning trust fund investments in an unrealized loss position to be
other-than-temporarily impaired. As a result of certain NRC restrictions, Generation is unable to
demonstrate its ability and intent to hold the nuclear decommissioning trust fund investments through a
recovery period and accordingly recognizes any unrealized holding losses immediately.
Prior to 2006, Exelon and Generation evaluated, among other factors, general market conditions,
the duration and extent to which the fair value is less than cost, as well as their intent and ability to hold
the investment to determine whether an investment was considered other-then-temporarily impaired.
Exelon and Generation also considered specific adverse conditions related to the financial health of
and business outlook for the investee. Once a decline in fair value was determined to be other-than-
temporary, an impairment charge was recorded and a new cost basis was established.
See Note 9—Fair Value of Financial Assets and Liabilities for a description of the other-than-
temporary impairments in the nuclear decommissioning trust funds determined in 2006 and 2005.
Goodwill. Goodwill represents the excess of the purchase price paid over the estimated fair value
of the assets acquired and liabilities assumed in the acquisition of a business. Pursuant to SFAS
No. 142, “Goodwill and Other Intangible Assets” (SFAS No. 142), goodwill is not amortized but is
tested for impairment at least annually or on an interim basis if an event occurs or circumstances
change that would reduce the fair value of a reporting unit below its carrying value. See Note 8—
Intangible Assets for information regarding the application of SFAS No. 142 and the results of goodwill
impairment studies that have been performed, which include the $776 million and $1.2 billion goodwill
impairment charges Exelon and ComEd recorded in 2006 and 2005, respectively.
Derivative Financial Instruments (Exelon, Generation, ComEd and PECO)
The Registrants may enter into derivatives to manage their exposure to fluctuations in interest
rates, changes in interest rates related to planned future debt issuances and changes in the fair value
of outstanding debt. Generation utilizes derivatives with respect to energy transactions to manage the
utilization of its available generating capability and the supply of wholesale energy to its affiliates.
Generation also utilizes energy option contracts and energy financial swap arrangements to limit the
market price risk associated with forward energy commodity prices. Additionally, Generation enters into
energy-related derivatives for trading purposes. ComEd has derivatives related to one wholesale
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