ComEd 2006 Annual Report Download - page 68

• a reserve recorded by Generation in 2005 for estimated future asbestos-related bodily injury
claims.
The factors driving the overall increase in net income were partially offset by the following:
• a $776 million impairment charge associated with ComEd’s goodwill primarily due to the
impacts of the ICC’s July 2006 rate order;
• a charge of approximately $55 million for the write-off of capitalized costs associated with the
now terminated proposed merger with PSEG;
• increased severance and severance-related charges;
• unfavorable weather conditions in the ComEd and PECO service territories;
• reduced earnings from investments in synthetic fuel-producing facilities and the impairment of
the associated intangible asset;
• increased depreciation and amortization expense, primarily related to CTC amortization at
PECO;
• higher operating and maintenance expenses, including increased nuclear refueling outage
costs, increased costs associated with incremental storm damage in the PECO service
territory, expenses related to stock-based compensation as a result of adopting Financial
Accounting Standards Board Statement No. 123 (revised 2004), “Share-Based Payment”
(SFAS No. 123-R) and the impacts of inflation;
• increased interest expense associated with the debt issued in March 2005 to fund Exelon’s
pension contributions; and
• gains realized in 2005 on AmerGen’s decommissioning trust fund investments related to
changes to the investment strategy.
Termination of Proposed Merger with PSEG. On December 20, 2004, Exelon entered into a
Merger Agreement with PSEG, a public utility holding company primarily located and serving
customers in New Jersey, whereby PSEG would be merged with and into Exelon (Merger). On
September 14, 2006, Exelon gave formal notice to PSEG that Exelon had terminated the Merger
Agreement and the companies agreed to withdraw their application for Merger approval, which had
been pending before the NJBPU for more than 19 months. The notice followed a number of
discussions with state officials and other interested parties, which made clear that gaps separating the
parties’ respective settlement positions were insurmountable. Major differences included, among other
things, issues relating to rate concessions and market power mitigation. During 2006, Exelon recorded
Merger-related expenses of approximately $93 million (pre-tax), of which $55 million relates to the
write-off of the capitalized costs associated with the Merger. Including this $93 million of expenses,
total Merger-related expenses incurred since the inception of the Merger discussions were
approximately $130 million.
Financing Activities. During 2006, Exelon met its capital resource requirements primarily with
internally generated cash. When necessary, Exelon obtains funds from external sources, including the
capital markets, and through bank borrowings. As of December 31, 2006, Exelon, Generation, ComEd
and PECO have access to revolving credit facilities with aggregate bank commitments of $1 billion, $5
billion, $1 billion and $600 million, respectively. In addition, ComEd and PECO issued First Mortgage
Bonds of $1.1 billion and $300 million, respectively, in 2006. See Note 11 of the Combined Notes to
Consolidated Financial Statements for further information on the credit facilities and the bond issuances.
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