Exelon 2004 Annual Report Download - page 28

Discussion of Financial Results – Exelon
Results of Operations
in millions, except for per share data 2004 2003
Favorable
(Unfavorable)
Variance
Operating revenues $14,515 $15,812 $(1,297)
Purchased power and fuel expense 5,082 6,375 1,293
Impairment of Boston Generating, LLC long-lived assets – 945 945
Operating and maintenance expense 3,976 4,508 532
Depreciation and amortization expense 1,305 1,126 (179)
Operating income 3,433 2,277 1,156
Other income and deductions (921) (1,148) 227
Income before income taxes, minority interest and cumulative effect
of changes in accounting principles 2,512 1,129 1,383
Income taxes 692 331 (361)
Income before cumulative effect of changes in accounting principles 1,841 793 1,048
Net income 1,864 905 959
Diluted earnings per share 2.78 1.38 1.40
Net Income. Net income for 2004 reflects income of $32 million, net of income taxes, for the adoption of FIN 46-R, partially offset
by a loss of $9 million, net of income taxes, related to the adoption of Emerging Issues Task Force (EITF) Issue No. 03-16,
“Accounting for Investments in Limited Liability Companies” (EITF 03-16). Net income for 2003 reflects income of $112 million,
net of income taxes, for the adoption of SFAS No. 143, “Accounting for Asset Retirement Obligations” (SFAS No. 143). See
Note 1 of Exelon’s Notes to Consolidated Financial Statements within its 2004 Form 10-K for further information regarding the
adoptions of FIN 46-R, EITF 03-16 and SFAS No. 143.
Operating Revenues. Operating revenues decreased primarily due to decreased revenues at Enterprises due to the sale of the
majority of its businesses since the third quarter of 2003, the sale of Boston Generating and Generation’s adoption of EITF No.
03-11, “Reporting Realized Gains and Losses on Derivative Instruments That Are Subject to FASB Statement No. 133,
‘Accounting for Derivative Instruments and Hedging Activities,’ and Not ‘Held for Trading Purposes’ as Defined in EITF Issue
No. 02-3, ‘Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy
Trading and Risk Management Activities’” (EITF 03-11) in the first quarter of 2004, which changed the presentation of certain
power transactions and decreased 2004 operating revenues by $980 million. The adoption of EITF 03-11 had no impact on net
income. Operating revenues were favorably affected by Generation’s acquisition of the remaining 50% of AmerGen and the
consolidation of Sithe. Operating revenues were also favorably affected by Energy Delivery’s increased volume growth and
transmission revenues collected from PJM, partially offset by unfavorable weather conditions and customer choice initiatives.
Purchased Power and Fuel Expense. Purchased power and fuel expense decreased primarily due to Generation’s adoption of
EITF 03-11 during 2004 which resulted in a decrease in purchased power expense and fuel expense of $980 million. In addi-
tion, purchased power decreased due to Generation’s acquisition of the remaining 50% of AmerGen in December 2003, which
was only partially offset by an increase in fuel expense, and the sale of Boston Generating. Purchased power represented 24%
of Generation’s total supply in 2004 compared to 37% in 2003. Purchased power also decreased due to Energy Delivery’s
unfavorable weather conditions and customer choice initiatives, partially offset by volume growth and transmission costs paid
to PJM.
Impairment of the Long-Lived Assets of Boston Generating. Generation recorded a $945 million charge (before income taxes)
during 2003 to impair the long-lived assets of Boston Generating.
26 EXELON CORPORATION AND SUBSIDIARY COMPANIES