Exelon 2015 Annual Report Download - page 249

Table of Contents
Combined Notes to Consolidated Financial Statements—(Continued)
(Dollars in millions, except per share data unless otherwise noted)
may be evaluated on an individual basis where those assets are contracted on a long-term basis with a third party and operations are independent
of other generation assets (typically contracted renewables). See Note 8—Impairment of Long-Lived Assets for additional information.
Goodwill. Goodwill represents the excess of the purchase price paid over the estimated fair value of the assets acquired and liabilities
assumed in the acquisition of a business. Goodwill is not amortized, but is tested for impairment at least annually or on an interim basis if an
event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. See Note
11—Intangible Assets for additional information regarding Exelon’s, Generation’s and ComEd’s goodwill.
Equity Method Investments. Exelon and Generation regularly monitor and evaluate equity method investments to determine whether they
are impaired. An impairment is recorded when the investment has experienced a decline in value that is other-than-temporary in nature.
Additionally, if the project in which Generation holds an investment recognizes an impairment loss, Exelon and Generation would record their
proportionate share of that impairment loss and evaluate the investment for an other-than-temporary decline in value.
Debt and Equity Security Investments. Exelon and Generation regularly monitor and evaluate debt and equity investments to determine
whether they are impaired. An impairment is recorded when the investment has experienced a decline in value that is other-than-temporary in
nature.
Direct Financing Lease Investments. Direct financing lease investments represent the estimated residual values of leased coal-fired plants
in Georgia. Exelon reviews the estimated residual values of its direct financing lease investments and records an impairment charge if the review
indicates an other-than-temporary decline in the fair value of the residual values below their carrying values. See Note 8—Impairment of Long-
Lived Assets for additional information.
Derivative Financial Instruments (Exelon, Generation, ComEd, PECO and BGE)
All derivatives are recognized on the balance sheet at their fair value unless they qualify for certain exceptions, including the normal
purchases and normal sales exception. Additionally, derivatives that qualify and are designated for hedge accounting are classified as either
hedges of the fair value of a recognized asset or liability or of an unrecognized firm commitment (fair value hedge) or hedges of a forecasted
transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge). For fair value hedges,
changes in fair values for both the derivative and the underlying hedged exposure are recognized in earnings each period. For cash flow hedges,
the portion of the derivative gain or loss that is effective in offsetting the change in the cost or value of the underlying exposure is deferred in
accumulated OCI and later reclassified into earnings when the underlying transaction occurs. Gains and losses from the ineffective portion of any
hedge are recognized in earnings immediately. For derivative contracts intended to serve as economic hedges and that are not designated or do
not qualify for hedge accounting or the normal purchases and normal sales exception, changes in the fair value of the derivatives are recognized in
earnings each period. Amounts classified in earnings are included in revenue, purchased power and fuel, interest expense or other, net on the
Consolidated Statement of Operations based on the activity the transaction is economically hedging. For energy-related derivatives entered into for
proprietary trading purposes, which are subject to Exelon’s Risk Management Policy, changes in the fair value of the derivatives are recognized in
earnings each period. All amounts classified in earnings related to proprietary trading are included in revenue on the Consolidated Statement of
Operations. Cash inflows and outflows related to derivative instruments are included as a component of operating, investing or financing cash
flows in the Consolidated Statements of Cash Flows, depending on the nature of each transaction.
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Source: BALTIMORE GAS & ELECTRIC CO, 10-K, February 10, 2016 Powered by Morningstar® Document Research℠
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