Exelon 2001 Annual Report Download - page 33

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31
Enterprises’ revenues increased $897 million for 2001 compared to 2000. Normal operations contributed $430 million
and the Merger added $467 million. Operating revenues attributable to normal operations increased $574 million as a result
of acquisitions by its services businesses. Additionally, revenues increased by $26 million as a result of increased operations
at Exelon Services. These increases were partially offset by $166 million lower revenues primarily attributable to reduced
operations of retail energy sales in Pennsylvania.
Enterprises’ operating and other expenses increased $830 million for 2001 compared to 2000. Normal operations
contributed $339 million and the Merger added $491 million. Operating expenses from normal operations included $554
million as a result of acquisitions made by its services businesses. Additionally, operating and other expenses increased by
$32 million from increased operations at Exelon Services and $13 million due to net writedowns on investments. These
increases were partially offset by $193 million from lower expense primarily attributable to reduced operations of retail
energy sales in Pennsylvania, $27 million from net realized gains on investments, $23 million from lower net losses in
communications joint ventures, and $21 million of reduced losses on the sale of assets.
Enterprises’ depreciation and amortization expense increased primarily as a result of goodwill amortization related to
acquisitions made by its services businesses.
Depreciation and amortization includes goodwill amortization of $24 million in 2001, which will be discontinued in
2002 upon the adoption of SFAS No. 142.
Enterprises’ investments are weighted towards investments in the communication industry, which continues to be
adversely impacted by the significant downturn in the communications market.
Other Components of Net Income
Interest Charges Interest charges consist of interest expense and distributions on preferred securities of subsidiaries. Interest
charges increased $524 million, or 83%, for 2001. The increase was primarily attributable to $438 million from the effects of
the Merger, $70 million related to borrowings by Exelon to finance the Merger cash consideration and the December 2000
investment in Sithe as well as additional interest of $16 million as a result of the issuance of transition bonds in May 2000 to
securitize a portion of PECO’s stranded cost recovery.
Investment Income Investment income is recorded in Other, Net on the Consolidated Statements of Income,but is excluded from
EBIT. Investment income decreased by $17 million due to net realized losses of $60 million on the nuclear decommissioning trust
funds for the nuclear stations formerly owned by ComEd,offset by increased income of $43 million,primarily reflecting a full year
of investment income from the former Unicom companies, as well as money market interest and interest on the loan to Sithe
recorded at Generation in 2001.
Income Taxes Income taxes increased by $590 million in 2001 as compared to 2000, $541 million of which is due to higher
pretax income and $49 million due to a higher effective income tax rate. The increase in income taxes reflects additional
pretax income of $1,440 million, of which $1,044 million is attributable to the Merger. The effective income tax rate was
39.7% for 2001 as compared to 37.6% for 2000. The increase in the effective income tax rate was primarily attributable to
goodwill amortization associated with the Merger which is not deductible for tax purposes, a higher effective state income
tax rate due to operations in Illinois subsequent to the Merger, reduced impact of investment tax credit amortization and
a favorable annual tax return adjustment recorded in 2001.
Extraordinary Items In 2000, Exelon incurred extraordinary charges aggregating $6 million ($4 million, net of tax) related to
prepayment premiums and the write-off of unamortized deferred financing costs associated with the early retirement of
debt with a portion of the proceeds from the securitization of PECO’s stranded cost recovery in May 2000.
Cumulative Effect of Changes in Accounting Principles On January 1, 2001, Exelon adopted SFAS No. 133 “Accounting for Derivative
Instruments and Hedging Activities” (SFAS No. 133), as amended, resulting in a benefit of $20 million ($12 million, net of
income taxes). On January 1, 2000, Exelon recorded a benefit of $40 million ($24 million, net of income taxes) representing
the cumulative effect of a change in accounting method for nuclear outage costs by PECO in conjunction with the
synchronization of accounting policies in connection with the Merger.