Exelon 2005 Annual Report Download - page 29

Discussion of Financial Results – Exelon
(continued)
Operating and Maintenance Expense. Operating and maintenance expense increased primarily due to a gain recorded in 2004
related to a settlement agreement with the Department of Energy, an increase to the reserve for the estimated future asbestos-
related bodily injury claims that was recorded in 2005, higher costs associated with planned nuclear refueling outages, and
increased costs related to an operating agreement with a subsidiary of Tamuin International, Inc. (formerly Sithe International,
Inc.), partially offset by the sale of Boston Generating in 2004 and decreased severance and benefit expense.
Impairment of Goodwill. ComEd recorded a $1,207 million charge during 2005 to impair its goodwill. See Note 8 of Exelon’s
Notes to Consolidated Financial Statements within its 2005 Form 10-K for further information.
Depreciation and Amortization Expense. The increase in depreciation and amortization expense was primarily due to additional
plant placed in service, additional amortization of the CTC regulatory asset at PECO and accelerated amortization of PECO’s
current customer information and billing system, partially offset by the establishment of an asset retirement cost asset for retired
nuclear units in 2004 which was immediately impaired through depreciation expense.
Operating Income. Exclusive of the changes in operating revenues, purchased power and fuel expense, operating and
maintenance expense, impairment of goodwill and depreciation and amortization expense discussed above, the change in
operating income was the result of increased taxes other than income, partially offset by the sale of Boston Generating in 2004
and reduced property tax expense.
Other Income and Deductions. The change in other income and deductions reflects a 2004 charge at ComEd associated with
the accelerated retirement of debt and the related reduction in interest expense from these debt retirements and increased
realized gains related to the decommissioning trust fund investments for the AmerGen plants, partially offset by increased
interest expense on short-term debt at Exelon, increased losses from Exelon’s investment in synthetic fuel-producing facilities
and an $85 million gain recorded in 2004 on the sale of Boston Generating.
Effective Income Tax Rate. The effective income tax rate from continuing operations was 50% for 2005 compared to 28% for
2004. Exclusive of the goodwill impairment charge, the effective income tax rate for 2005 was 30%. See Note 12 of Exelon’s
Notes to the Consolidated Financial Statements within its 2005 Form 10-K for further discussion of the change in the effective
income tax rate.
Discontinued Operations. On January 31, 2005, subsidiaries of Generation completed a series of transactions that resulted in
Generation’s sale of its investment in Sithe. In addition, Exelon has sold or wound down substantially all components of
Enterprises and AllEnergy, a business within Exelon Energy. Accordingly, the results of operations and any gain or loss on the
sale of these entities have been presented as discontinued operations within Exelon’s and Generation’s Consolidated
Statements of Income. See Notes 2 and 3 of Exelon’s Notes to Consolidated Financial Statements within its 2005 Form 10-K for
further information regarding the presentation of Sithe, certain Enterprises businesses and AllEnergy as discontinued
operations and the sale of Sithe. The results of Sithe and AllEnergy are included in the Generation discussion below.
The income from discontinued operations increased by $43 million from 2004 to 2005 primarily due to the gain on the sale of
Sithe in the first quarter of 2005.
Cumulative Effect of Changes in Accounting Principles. The cumulative effect of changes in accounting principles reflects the
impact of adopting FIN 47 as of December 31, 2005 and the consolidation of Sithe in accordance with FIN 46-R as of March 31,
2004. See Notes 1 and 14 of Exelon’s Notes to Consolidated Financial Statements within its 2005 Form 10-K for further
discussion of the consolidation of Sithe and the adoption of FIN 47, respectively.
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