Exelon 2002 Annual Report Download - page 116

Service, Inc., a stock purchase agreement between Exelon and
Apollo being executed and subsequently terminated, or the
occurence of any event of default, other than a change of
control, under certain Exelon or Apollo credit agreements.
Depending on the triggering event,Apollo’s put price of approx-
imately $460 million, growing at a market rate of interest,
needs to be funded within 18 or 30 days of the Put being exer-
cised. There have been no changes to the Put and Call terms
with respect to Marubeni’s remaining 14.9% interest.
The delay in the effective date of Apollo’s Put right allows
Exelon to explore a further restructuring of our investment in
Sithe.Exelon is continuing discussions with Apollo and Marubeni
regarding restructuring alternatives that are designed in part
to resolve Exelon’s ownership limitations of Sithe’s qualifying
facilities. Exelon would hope to implement any additional
restructuring of its Sithe investment in 2003.If Exelon is unsuc-
cessful in restructuring the Sithe transaction,Exelon will proceed
to implement measures to address the ownership of the quali-
fied facilities as well as divest non-strategic assets,for which the
financial outcome is uncertain.
If Generation exercises its option to acquire the remaining
outstanding common stock in Sithe, or if all the other stock-
holders exercise their Put Rights, the purchase price for Apollo’s
35.2% interest will be approximately $460 million, growing at a
market rate of interest.The additional 14.9% interest will be val-
ued at fair market value subject to a floor of $141 million and a
ceiling of $290 million.
If Generation increases its ownership in Sithe to 50.1% or
more, Sithe may become a consolidated subsidiary and our
financial results may include Sithe’s financial results from the
date of purchase.At December 31,2002,Sithe had total assets of
$2.6 billion and total debt of $1.3 billion.This $1.3 billion includes
$624 million of subsidiary debt incurred primarily to finance
the construction of six new generating facilities, $461 million of
subordinated debt,$103 million of line of credit borrowings, $43
million of the current portion of long-term debt and capital
leases,$30 million of capital leases,and excludes $453 million of
non-recourse project debt associated with Sithe’s equity invest-
ments. For the year ended December 31, 2002, Sithe had rev-
enues of $1.0 billion. As of December 31, 2002, Generation had a
$449 million equity investment in Sithe.
Environmental Issues
Exelon’s operations have in the past and may in the future
require substantial capital expenditures in order to comply with
environmental laws. Additionally, under Federal and state envi-
ronmental laws, Exelon, through its subsidiaries, is generally
liable for the costs of remediating environmental contamina-
tion of property now or formerly owned by Exelon and of prop-
erty contaminated by hazardous substances generated by
Exelon. Exelon owns or leases a number of real estate parcels,
including parcels on which its operations or the operations of
others may have resulted in contamination by substances that
are considered hazardous under environmental laws. Exelon
has identified 71 sites where former manufactured gas plant
(MGP) activities have or may have resulted in actual site con-
tamination. Exelon is currently involved in a number of pro-
ceedings relating to sites where hazardous substances have
been deposited and may be subject to additional proceedings
in the future.
As of December 31, 2002 and 2001, Exelon had accrued $156
million for environmental investigation and remediation costs,
including $125 million and $127 million, respectively, for MGP
investigation and remediation that currently can be reasonably
estimated. Included in the environmental investigation and
remediation cost obligation as of December 31,2002 and 2001 is
$97 million and $100 million, respectively, that has been
recorded on a discount basis (reflecting discount rates of 5.0%
and 5.5%, respectively). Such estimates, reflecting the effects of
a 2.5% and 3.0% inflation rate before the effects of discounting
were $138 million and $154 million at December 31, 2002 and
2001, respectively. Exelon anticipates that payments related to
the discounted environmental investigation and remediation
costs,recorded on an undiscounted basis, of $76 million will be
incurred for the five-year period through 2007. Exelon cannot
reasonably estimate whether it will incur other significant
liabilities for additional investigation and remediation costs
at these or additional sites identified by Exelon, environmental
agencies or others, or whether such costs will be recoverable
from third parties.
Leases
Minimum future operating lease payments, including lease
payments for vehicles,real estate,computers,rail cars and office
equipment,as of December 31, 2002 were:
2003 $ 77
2004 59
2005 58
2006 54
2007 49
Remaining years 598
Total minimum future lease payments $ 895
Rental expense under operating leases totaled $85 million, $75
million and $41 million in 2002, 2001 and 2000, respectively.
Notes To Consolidated Financial Statements
exelon corporation and subsidiary companies
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