ComEd 2015 Annual Report Download - page 50

Table of Contents
Certain long-lived assets and other assets recorded on the Registrants’ statements of financial position could become impaired, which
would result in write-offs of the impaired amounts. (Exelon, Generation, ComEd, PECO and BGE)
Long-lived assets represent the single largest asset class on the Registrants’ statement of financial positions. Specifically, long-lived assets
account for 60%, 56%, 66%, 69% and 80% of total assets for Exelon, Generation, ComEd, PECO and BGE, respectively, as of December 31,
2015. In addition, Exelon and Generation have significant balances related to unamortized energy contracts. See Note 11—Intangible Assets of
the Combined Notes to Consolidated Financial Statements for additional information on Exelon’s unamortized energy contracts. The Registrants
evaluate the recoverability of the carrying value of long-lived assets to be held and used whenever events or circumstances indicating a potential
impairment exist. Factors such as the business climate, including current and future energy and market conditions, environmental regulation, and
the condition of assets are considered when evaluating long-lived assets for potential impairment. An impairment would require the Registrants to
reduce the carrying value of the long-lived asset through a non-cash charge to expense by the amount of the impairment, and such an impairment
could have a material adverse impact on the Registrants’ results of operations.
Exelon holds investments in coal-fired plants in Georgia that are subject to long-term leases. The investments are accounted for as direct
financing lease investments. The investments represent the estimated residual value of the leased assets at the end of the lease term. On an
annual basis, Exelon reviews the estimated residual values of its direct financing lease investments and records a non-cash impairment charge to
expense if the review indicates an other than temporary decline in the fair value of the residual values below their carrying values. Such an
impairment could have a material adverse impact on Exelon’s results of operations.
Exelon and ComEd had approximately $2.7 billion of goodwill recorded at December 31, 2015 in connection with the merger between PECO
and Unicom Corporation, the former parent company of ComEd. Under GAAP, goodwill remains at its recorded amount unless it is determined to
be impaired, which is generally based upon an annual analysis that compares the implied fair value of the goodwill to its carrying value. If an
impairment occurs, the amount of the impaired goodwill will be written-off to expense, which will also reduce equity. The actual timing and amounts
of any goodwill impairments will depend on many sensitive, interrelated and uncertain variables. A successful IRS challenge to Exelon’s and
ComEd’s like-kind exchange income tax position, adverse regulatory actions such as early termination of EIMA, or changes in significant
assumptions used in estimating ComEd’s fair value (e.g., discount and growth rates, utility sector market performance and transactions, operating
and capital expenditure requirements and the fair value of debt) could result in an impairment. Such an impairment would result in a non-cash
charge to expense, which could have a material adverse impact on Exelon’s and ComEd’s results of operations.
See ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—Critical
Accounting Policies and Estimates and Note 7—Property, Plant and Equipment, Note 8—Impairment of Long Lived Assets and Note 11—
Intangible Assets of the Combined Notes to the Consolidated Financial Statements for additional discussion on long-lived asset and goodwill
impairments.
The Registrants’ businesses are capital intensive, and their assets could require significant expenditures to maintain and are subject to
operational failure, which could result in potential liability. (Exelon, Generation, ComEd, PECO and BGE)
The Registrants’ businesses are capital intensive and require significant investments by Generation in electric generating facilities and by
ComEd, PECO and BGE in transmission and
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Source: BALTIMORE GAS & ELECTRIC CO, 10-K, February 10, 2016 Powered by Morningstar® Document Research℠
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