Exelon 2003 Annual Report Download - page 101

Notes to Consolidated Financial Statements
EXELON CORPORATION AND SUBSIDIARY COMPANIES
Accounting Methodology Under SFAS No. 142
The changes in the carrying amount of goodwill by reportable segment (see Note 21—Segment Information) for the years
ended December 31, 2002 and 2003 were as follows:
Energy
Delivery Enterprises Total
Balances as of January 1, 2002 $4,902 $ 433 $ 5,335
Impairment losses – (357) (357)
Resolution of certain tax matters 21 – 21
Merger severance adjustment (7) – (7)
Balances as of January 1, 2003 4,916 76 4,992
Impairment losses – (72) (72)
Adoption of SFAS No. 143:(a)
Reduction of asset retirement obligation (210) – (210)
Cumulative effect of change in accounting principle 5 – 5
Resolution of certain tax matters 8 – 8
Other – (4) (4)
Balances as of December 31, 2003 $ 4,719 $ – $ 4,719
(a) See Note 13–Nuclear Decommissioning and Spent Fuel Storage.
As described below, Exelon recorded charges of $72 million
(before income taxes) during 2003 to fully impair the good-
will that had been recorded within the Exelon Services and
InfraSource reporting units of the Enterprises segment.
In connection with the sale of InfraSource in 2003, Exelon
recorded a goodwill impairment charge of approximately
$48 million related to the goodwill recorded by the Infra-
Source. Management of Exelon primarily considered the
negotiated sales price of InfraSource in determining the
amount of the goodwill impairment charge.
The annual goodwill impairment assessment was per-
formed as of November 1, 2003 and Exelon determined that
goodwill was not impaired at Energy Delivery, but that the
remaining goodwill at Exelon Services was fully impaired. In
its assessments to estimate the fair value of the Energy
Delivery reporting unit, Exelon used a probability-weighted,
discounted cash flow model with multiple scenarios. The
determination of the fair value is dependent on many sensi-
tive, interrelated and uncertain variables including changing
interest rates, utility sector market performance, ComEd’s
capital structure, market power prices, post-2006 rate regu-
latory structures, operating and capital expenditure
requirements and other factors. Current negotiations
regarding the sale of Exelon Services served as the basis for
the fair value of the Exelon Services reporting unit used in
the first step of the analysis.
The first step of the annual impairment analysis, compar-
ing the fair value of a reporting unit to its carrying value, in-
cluding goodwill, indicated no impairment of Energy
Delivery’s goodwill but showed an impairment of the good-
will within the Exelon Services reporting unit. The second
step of the analysis, which compared the fair value of the
Exelon Services reporting unit’s goodwill to the carrying val-
ue, indicated that the total goodwill recorded at the Exelon
Services reporting unit of $24 million was impaired.
Exelon recorded the 2003 goodwill impairment charges
related to the InfraSource and Exelon Services reporting
units as operating and maintenance expenses within the
Consolidated Statements of Income.
Changes from the assumptions used in the impairment
review could possibly result in a future impairment loss of
Energy Delivery’s goodwill. Illinois legislation provides that
reductions to ComEd’s common equity resulting from
goodwill impairments will have no impact on the determi-
nation of the rate cap on ComEd’s allowed equity return dur-
ing the electricity industry restructuring transition period
through 2006. See Note 4—Regulatory Issues for further dis-
cussion of ComEd’s earnings provisions.
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