Exelon 2003 Annual Report Download - page 27

25Management’s Discussion and Analysis of Financial Condition and Results of Operations
EXELON CORPORATION AND SUBSIDIARY COMPANIES
Power Team markets any remaining energy in the wholesale
bilateral and spot markets.
Enterprises
Our enterprise business consists primarily of the energy serv-
ices business of Exelon Services, Inc. (Exelon Services), the
district cooling business of Exelon Thermal Holdings, Inc.
(Thermal), the electrical contracting business of F&M Hold-
ings, Inc., a communications joint venture and other invest-
ments weighted towards the communications, energy
services and retail services industries. Effective January 1,
2004, Enterprises’ competitive retail sales business, Exelon
Energy Company, became part of Generation. We continue
to pursue opportunities to sell other Enterprises businesses.
EXECUTIVE SUMMARY
2003 has been a year of operating accomplishments and
painful investment write-offs. We have focused on living up
to our reliability and safety commitments while pursuing
greater productivity, quality and innovation.
Financial Results. We experienced an overall decline in di-
luted earnings per average common share of 38% in 2003.
This decline was primarily due to a charge of $573 million
(after-tax) related to the impairment of the long-lived assets
of Boston Generating. In addition, we incurred impairment
and transaction-related charges of $180 million (after-tax)
related to our investment in Sithe and severance and
severance-related charges approximating $159 million (after-
tax) associated with The Exelon Way. Our energy delivery
business experienced a decline in kilowatthour deliveries
due to moderate weather, and the operating margins at our
Enterprises business were lower due to the sale of the ma-
jority of the InfraSource Inc. business in the third quarter of
2003. Our 2003 results were favorably affected by modest
improvements in wholesale energy prices, which increased
Generation’s energy margins, and by lower interest expense
and a lower effective income tax rate. We also recorded an
after-tax gain of $112 million upon the adoption of a new
accounting standard that has a significant impact on how
we account for our nuclear decommissioning obligation.
The Exelon Way. We implemented The Exelon Way, an ag-
gressive plan defining how we will conduct business in years
to come. The Exelon Way is focused on improving operating
cash flows while meeting service and financial commit-
ments through improved integration of operations and con-
solidation of support functions. Our targeted annual cash
savings range from approximately $300 million in 2004 to
approximately $600 million in 2006. In addition to the sev-
erance and severance-related charges we recorded during
2003, we anticipate incurring additional charges associated
with The Exelon Way in future periods.
Investment Strategy. We continued to follow a disciplined
approach to investing to maximize the earnings and cash
flows from our assets and businesses and to sell those that
do not meet our goals. Our 2003 highlights include:
– We announced our transition out of our ownership of Bos-
ton Generating in July 2003 because our internal financial
analysis clearly showed that we would be obliged to make
significant equity infusions to preserve the projects with
little prospect of adequate return.
– We completed a series of transactions in November 2003
that restructured the ownership of Sithe, with Generation
continuing to own a 50% interest in Sithe. We continue to
pursue the divestiture of our investment in Sithe.
– We purchased British Energy plc’s 50% interest in AmerGen
Energy Company, LLC (AmerGen) in December 2003.
AmerGen, which owns the Clinton Power Station, Three
Mile Island Nuclear Station Unit 1 and the Oyster Creek
Generating Station representing about 2,500 megawatts of
capacity, is now our wholly owned subsidiary.
– We attempted to purchase Illinois Power Company and to
resolve certain rate issues following the end of the current
rate freeze at ComEd in 2006. Since the latter could not be
accomplished at this time, the proposed Illinois Power
transaction was abandoned.
– We continued to execute our divestiture strategy for
Enterprises by selling the electric construction and services,
underground and telecom businesses of InfraSource in
September 2003 and entering into agreements in De-
cember 2003 to sell the Chicago operations and the Alad-
din thermal facility of Thermal and certain direct
investments held by Enterprises.
Financing Activities. We refinanced $2.4 billion of out-
standing debt and equity securities in 2003 and repaid ap-
proximately $580 million of transitional trust notes and
$260 million of long-term debt, resulting in expected annual
interest savings of $96 million. We met all of our capital re-
source commitments with internally generated cash and
expect to do so in the foreseeable future, absent new
acquisitions. We increased our dividend rate by 20% over
the past twelve months.
Operational Achievements. Our energy delivery and gen-
eration businesses focused on the core fundamentals of
providing reliable delivery service and efficient generation to
our customers. Energy Delivery, Generation’s nuclear busi-
ness and BSC combined resources to minimize the aftermath
of Hurricane Isabel that affected the Philadelphia area and
helped to prevent the potentially detrimental cascading
effects of the August 14, 2003 blackout in the Northeastern
United States and Canada (August Blackout) to our system