UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
October 23, 2003
(Date of earliest
event reported)
Commission File Name of Registrant; State of Incorporation; Address of IRS Employer
Number Principal Executive Offices; and Telephone Number Identification Number
- ---------------------------------------------------------------------------------------------------------------
1-16169 EXELON CORPORATION 23-2990190
(a Pennsylvania corporation)
10 South Dearborn Street - 37th Floor
P.O. Box 805379
Chicago, Illinois 60680-5379
(312) 394-7398
1-1839 COMMONWEALTH EDISON COMPANY 36-0938600
(an Illinois corporation)
10 South Dearborn Street - 37th Floor
P.O. Box 805379
Chicago, Illinois 60680-5379
(312) 394-4321
1-1401 PECO ENERGY COMPANY 23-0970240
(a Pennsylvania corporation)
P.O. Box 8699 2301 Market Street
Philadelphia, Pennsylvania 19101-8699
(215) 841-4000
333-85496 EXELON GENERATION COMPANY, LLC 23-3064219
(a Pennsylvania limited liability company)
300 Exelon Way
Kennett Square, Pennsylvania 19348
(610) 765-6900
Item 12. Results of Operations and Financial Condition
This Form 8-K/A is being furnished to revise the manner in which pro forma
operating earnings, a non-GAAP financial measure, are presented in (a) Exelon
Corporation's (Exelon) press release dated October 23, 2003, in which Exelon
announced results for its third quarter ended September 30, 2003 (earnings
release), and (b) the attachments to the earnings release that present a
detailed reconciliation of pro forma operating earnings to GAAP earnings. No
changes to reported GAAP and pro forma earnings are being reported in this Form
8-K/A.
The specific areas of the earnings release and the attachments to the earnings
release that have been revised are:
(1) The term "adjusted (non-GAAP)" immediately precedes the term
"operating earnings" throughout the earnings release;
(2) A bullet-point presentation of the items excluded from adjusted
(non-GAAP) operating earnings now follows the first paragraph of the
earnings release;
(3) A table of contents has been included for the earnings release
attachments;
(4) The order of the presentation of the earnings release attachments has
been changed;
(5) The title of the Consolidated Statements of Income has been changed to
"Reconciliation of Adjusted (Non-GAAP) Operating Earnings to
Consolidated Statements of Income"; and
(6) The title of Earnings Per Diluted Share Reconciliation has been
changed to "Reconciliation of Adjusted (Non-GAAP) Operating Earnings
Per Diluted Share to GAAP Earnings (Loss) Per Diluted Share."
The revised presentation is as follows:
Third Quarter Earnings
Exelon's adjusted (non-GAAP) operating earnings for the third quarter of 2003
were $535 million, or $1.63 per share (diluted), compared with adjusted
(non-GAAP) operating earnings of $551 million, or $1.70 per share (diluted), for
the same period in 2002. The 3% decrease in year-over-year adjusted (non-GAAP)
operating earnings was due primarily to a weather-related decrease in kWh sales
and decreased competitive transition charge (CTC) revenue at Commonwealth Edison
(ComEd), which was only partially offset by higher margins at Exelon Generation
Company, LLC (Generation) and lower interest expense. Adjusted (non-GAAP)
operating earnings is a non-GAAP financial measure. Adjusted (non-GAAP)
operating earnings do not include the following items that are included in
reported earnings:
o A $573 million, or $1.74 per share, after-tax charge for the
impairment of the Exelon Boston Generating (EBG) assets as a result of
management's decision to transition out of ownership of those assets.
o After-tax severance charges related to The Exelon Way program that
reduced reported earnings by $104 million or $0.32 per share.
o A $36 million, or $0.11 per share, after-tax charge related to the
impairment of Exelon's investment in Sithe Energies, Inc. (Sithe).
o An after-tax gain of $29 million, or $0.09 per share, during the third
quarter of 2003 associated with the closing of the sale of certain
businesses of InfraSource, Inc.
o A $47 million after-tax gain, or $0.14 per share, related to the
reduction of certain real estate tax reserves.
Third quarter adjusted (non-GAAP) operating earnings drivers include savings
related to the Midwest Generation contracts, increased market sales at higher
prices at Generation, lower interest expense and higher interest income in the
quarter compared with third quarter 2002. These positives were not sufficient to
offset a weather-related decrease in kWh sales and revenue and reduced CTC
revenue at ComEd. The estimated net impact of weather for the quarter is a
decrease of $0.14 per share in the third quarter compared with the prior year
but a $0.02 per share increase relative to the normal weather that was
incorporated in Exelon's guidance.
Exelon's third quarter 2003 consolidated earnings prepared in accordance with
accounting principles generally accepted in the United States (GAAP) were a loss
of $102 million, or $0.31 per share.
"I am pleased by all that we accomplished during the third quarter," said John
W. Rowe, Exelon Chairman and CEO. "Our adjusted (non-GAAP) operating earnings
strength is evidence of our commitment to excellence and the success of The
Exelon Way. The completed sale of InfraSource and the announced purchase of
British Energy's interest in AmerGen demonstrate our focus on our core
strengths."
2003 and 2004 Earnings Outlook
Rowe added, "We have revised our adjusted (non-GAAP) operating earnings guidance
for 2003 to $5.05 to $5.20 per share. Based on the current outlook, we believe
we are in a position to earn $5.25 to $5.55 per share in 2004." Exelon's 2003
earnings outlook has been updated to incorporate year-to-date events including
year-to-date operating results and our expectations for the balance of the year.
Exelon's current guidance for consolidated 2003 adjusted (non-GAAP) operating
earnings, excluding unusual items, is a range of $5.05 to $5.20 per diluted
share based on the assumption of normal weather in the fourth quarter. Adjusted
(non-GAAP) operating earnings exclude the first quarter $0.34 per share gain
from the cumulative effect for the change in accounting principle (SFAS 143),
the net $0.05 per share charge related to the March 3 ComEd settlement agreement
and the $0.51 per share impairment charge of our Sithe Energies investment. We
also exclude the $1.74 per share impairment charge related to EBG, the $0.32 per
share severance charge related to The Exelon Way and the $0.14 per share
positive effect of the reduction of property tax reserves in the third quarter.
We have increased our guidance for 2004 adjusted (non-GAAP) operating earnings
to a range of $5.25 to $5.55 per share, to include the impact of the purchase of
50% of AmerGen during the first quarter. We are not providing any guidance on
forward looking GAAP earnings information comparable to adjusted (non-GAAP)
operating earnings because we are unable to estimate our forward-looking GAAP
earnings for a number of reasons. These include our inability to predict: (1)
the effect of transactions that may occur in future periods of which we are not
presently aware, such as dispositions of assets, (2) the results of our annual
goodwill impairment analyses under FAS 142 and other asset impairment analyses,
and (3) the timing and impact of changes to GAAP standards, among other reasons.
The guidance regarding forward looking adjusted (non-GAAP) operating earnings
for 2003 and 2004 assumes normal weather and our forecast of wholesale market
prices and does not include any earnings or losses from Exelon Boston Generating
or the effects of future transactions such as asset dispositions or new
accounting standards.
Third Quarter Highlights
o Nuclear Operations Generation's nuclear fleet, excluding AmerGen, produced
30,152 GWhs for the third quarter of 2003, compared with 29,817 GWhs output
for the third quarter of 2002. The fleet, including AmerGen, achieved a
capacity factor of 95.3% for the third quarter of 2003, compared with 93.9%
for the third quarter of 2002. Generation's nuclear group did not have any
outages scheduled during July and August and began two scheduled outages in
September, a similar schedule to the third quarter 2002.
o Sithe Energies, Inc. Investment On August 13, 2003, Generation announced an
agreement with entities controlled by Reservoir Capital Group (Reservoir),
a private investment firm, to sell 50% of Sithe in exchange for $75.8
million in cash. This sale will occur after Generation closes on the Call
Transaction announced in May 2003. Both Exelon's and Reservoir's 50%
interest in Sithe will be subject to Put and Call Options that could result
in either party owning 100% of Sithe. While Exelon's intent is to fully
divest Sithe by the end of 2004, the timing of the Put and Call Options
vary by acquirer and can extend through March 2006. The sale is expected to
close in the fourth quarter 2003. In a separate transaction, Sithe has
entered into an agreement with Reservoir to sell entities holding six U.S.
generating facilities, each a Qualifying Facility under the Public Utility
Regulatory Policies Act, and an entity holding Sithe's Canadian assets in
exchange for $46.2 million ($26.2 million in cash and a $20 million
two-year note). The sale is also expected to close in the fourth quarter
2003. This sale is not contingent on the sale of Exelon's 50% interest in
Sithe to Reservoir.
o InfraSource Sale On September 24, 2003, Exelon Enterprises, parent company
of InfraSource, Inc., announced that it had finalized the sale of the
electric construction and services, underground and telecom businesses of
InfraSource to GFI Energy Ventures LLC and Oaktree Capital Management LLC.
The InfraSource companies involved in the sale are MJ Electric, InfraSource
Underground, Electric Services Inc., Dashiell and Dacon, Blair Park
Services/Sunesys and RJE Telecom.
o Midwest Generation Options On October 1, 2003, Generation notified Midwest
Generation (Midwest) of the exercise of its termination options under the
existing Collins and Peaking Purchase Power Agreements. Generation released
303 MWs of peaking capacity and will retain the output of 1,476 MWs of
Collins and peaking unit capacity in 2004. On June 25, 2003, Exelon
exercised its call option to retain 687 MWs of coal capacity. For the
contract year 2004, Exelon has contracted for 3,859 MWs of capacity from
Midwest, which includes 1,696 MWs of non-option coal capacity. By
exercising the Midwest contract options and restructuring the 2004 supply
portfolio, the expected pre-tax net capacity savings in 2004 compared with
2003, after replacement energy and other associated costs, are
approximately $20-$40 million.
o AmerGen On October 10, 2003, Exelon reached an agreement to buy British
Energy's 50-percent interest in AmerGen Energy Co. LLC for $276.5 million,
giving Exelon sole ownership of AmerGen and its three nuclear plants.
AmerGen owns the Clinton Power Station, Three Mile Island Unit 1 and the
Oyster Creek Generating Station. The three plants represent about 2,500
megawatts of generating capacity. The AmerGen purchase is expected to be
completed around the end of the first quarter of 2004.
BUSINESS UNIT RESULTS
Exelon's consolidated net loss in accordance with GAAP for the third quarter of
2003 was $102 million compared with net income of $551 million in the third
quarter of 2002.
Exelon Energy Delivery consists of the retail electricity transmission and
distribution operations of ComEd and PECO Energy Company (PECO) and the natural
gas distribution business of PECO. Energy Delivery's net income in the third
quarter of 2003 was $303 million compared with net income of $370 million in the
third quarter of 2002, primarily due to decreased weather-related kWh sales,
reduced CTC recoveries at ComEd and severance charges associated with The Exelon
Way, partially offset by lower regulatory asset amortization at ComEd and the
reduction of certain property tax reserves at PECO in 2003.
Cooling degree-days in the ComEd service territory were down 25% relative to
last year and 3% below normal. In the PECO service territory, cooling
degree-days were down 11% compared with 2002 but were 13% above normal. Total
retail kWh deliveries decreased 5% for ComEd, with a 10% decrease in deliveries
to the weather-sensitive residential customer class. PECO's residential
deliveries were down 5% and retail kWh deliveries decreased 2% overall. Energy
Delivery's total revenues for the third quarter of 2003 of $2,886 million were
down 9% from $3,162 million in 2002, offset by a $124 million net decrease in
fuel and purchased power. Operating and maintenance expense increased $84
million reflecting severance charges associated with The Exelon Way and higher
storm costs in the ComEd and PECO service territories in 2003. The impact of the
cooler summer weather decreased Exelon's third quarter 2003 earnings per share
(diluted) by approximately $0.14 relative to 2002, but results were favorable by
$0.02 relative to the normal weather that was incorporated in our earnings
guidance.
Exelon Generation consists of Exelon's electric generation operations and power
marketing and trading functions. Generation's third quarter 2003 net loss was
$428 million compared to third quarter 2002 net income of $163 million. The loss
is primarily attributable to the $573 million after-tax charge for the
impairment of the EBG assets, an additional impairment loss of $36 million after
tax on the investment in Sithe, a $30 million after-tax severance reserve
related to The Exelon Way, and a $9 million after-tax benefit for the reduction
of an accrual for Pennsylvania property taxes. Excluding these items, net income
was $202 million in the third quarter of 2003.
Energy sales for the third quarter of 2003 totaled 61,850 GWhs, exclusive of
trading volumes, compared with 57,173 GWhs in 2002. Generation's third quarter
2003 revenue of $2,537 million includes a net trading portfolio gain of $1
million compared with third quarter 2002 revenue of $2,213 million, which
includes a net trading portfolio loss of $12 million. Revenues, excluding the
trading portfolio, increased 14% from the third quarter of 2002, reflecting the
increased revenue from the 2002 acquisition of the New England plants and higher
market prices for energy.
Generation's revenue net fuel increased by $183 million in third quarter 2003
compared with third quarter 2002 excluding the mark-to-market impact in both
years. The improvement includes $59 million of incremental margin contribution
from the New England plants acquired in the fourth quarter of 2002. The increase
was driven by higher wholesale power prices and volume in all regions in which
Power Team operates, a higher average power price to ComEd, higher nuclear
generation and lower capacity payments to Midwest Generation, offset partially
by higher supply costs, primarily fuel costs. The average realized price
excluding trading activity in the third quarter of 2003 was $40.03 per MWh
compared with $38.69 per MWh in 2002. Higher market prices, driven by higher
market gas and oil prices, were partially offset by our hedged position during
the quarter. Higher gas prices resulted in higher supply costs, primarily fuel
costs.
Operating and maintenance expenses include the $945 million pre-tax charge for
the impairment of the EBG assets. Excluding this charge, operating and
maintenance expenses were up for the quarter reflecting $30 million of
additional expenses resulting from the acquired New England plants, $46 million
of severance costs associated with The Exelon Way and the effects of certain new
accounting treatments under FAS 143. The net impact of FAS 143 was neutral in
the third quarter of 2003 versus a net expense impact in the third quarter 2002.
Depreciation expense was $17 million lower in the third quarter 2003 versus 2002
due to the impact of FAS 143, partially offset by additional depreciation for
the acquired New England plants and new capital additions.
Earnings from equity affiliates were $34 million lower for the quarter driven by
lower earnings from Sithe as a result of Exelon's acquisition of Sithe's New
England plants in the fourth quarter of 2002 and lower earnings at AmerGen.
Exelon Enterprises consists of Exelon's competitive retail energy sales, energy
solutions and infrastructure services, venture capital investments and related
businesses. Enterprises reported third quarter 2003 net income of $16 million
compared with third quarter 2002 net income of $15 million. Enterprises achieved
a $1 million net income improvement compared with 2002 due to an after-tax gain
of $29 million recognized during the third quarter of 2003 upon the closing of
the sale of certain businesses of InfraSource. Absent that gain, operating
earnings were down $28 million primarily from lower operating results at
InfraSource resulting from a decrease in the electric line of business and lower
equity in earnings of unconsolidated affiliates compared with the recovery of
trade receivables at a communications joint venture in 2002.
Adjusted (non-GAAP) Operating Earnings
Adjusted (non-GAAP) operating earnings, which generally exclude non-operational
items as well as one-time charges or credits that are not normally associated
with our ongoing operations, are provided as a complement to results provided in
accordance with GAAP. Management uses such adjusted (non-GAAP) operating
earnings measures internally to evaluate the company's performance and manage
its operations. A reconciliation of GAAP to adjusted (non-GAAP) operating
earnings for historical periods is attached as Exhibit 99.1 to this Form 8-K/A.
This combined Form 8-K/A is being furnished separately by Exelon, ComEd, PECO
and Generation (Registrants). Information contained herein relating to any
individual registrant has been filed by such registrant on its own behalf. No
registrant makes any representation as to information relating to any other
registrant. Except for the historical information contained herein, certain of
the matters discussed in this Report are forward-looking statements, within the
meaning of the Private Securities Litigation Reform Act of 1995, that are
subject to risks and uncertainties. The factors that could cause actual results
to differ materially from the forward-looking statements made by a registrant
include those factors discussed herein, as well as the items discussed in (a)
the Registrants' 2002 Annual Report on Form 10-K - ITEM 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Business Outlook and the Challenges in Managing Our Business for
each of Exelon, ComEd, PECO and Generation, (b) the Registrants' 2002 Annual
Report on Form 10-K - ITEM 8. Financial Statements and Supplementary Data:
Exelon - Note 19, ComEd - Note 16, PECO - Note 18 and Generation - Note 13 and
(c) other factors discussed in filings with the United States Securities and
Exchange Commission (SEC) by the Registrants. Readers are cautioned not to place
undue reliance on these forward-looking statements, which apply only as of the
date of this Report. None of the Registrants undertakes any obligation to
publicly release any revision to its forward-looking statements to reflect
events or circumstances after the date of this Report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EXELON CORPORATION
COMMONWEALTH EDISON COMPANY
PECO ENERGY COMPANY
EXELON GENERATION COMPANY, LLC
/s/ Robert S. Shapard
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Robert S. Shapard
Executive Vice President and Chief Financial
Officer Exelon Corporation
January 13, 2004