PEPCO HOLDINGS, INC. (Parent Company)

STATEMENTS OF INCOME


	For the Year Ended December 31,
	2011			2010			2009
	*(millions of dollars, except share data)*
OPERATING REVENUE	$	—		$	—		$	—

OPERATING EXPENSES
Other operation and maintenance		1			5			5

Total operating expenses		1			5			5

OPERATING LOSS		(1	)		(5	)		(5	)
OTHER INCOME (EXPENSES)
Interest expense		(29	)		(72	)		(87	)
Loss on extinguishment of debt		—			(189	)		—
Income from equity investments		281			287			278
Impairment losses		(5	)		—			—

Total other income		247			26			191

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX EXPENSE		246			21			186
INCOME TAX BENEFIT RELATED TO CONTINUING OPERATIONS		(14	)		(118	)		(37	)

NET INCOME FROM CONTINUING OPERATIONS		260			139			223
(LOSS) INCOME FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES		(3	)		(107	)		12

NET INCOME	$	257		$	32		$	235

EARNINGS PER SHARE
Earnings per share of common stock from Continuing Operations	$	1.15		$	0.62		$	1.01
(Loss) earnings per share of common stock from Discontinued Operations		(0.01	)		(0.48	)		0.05

Basic and diluted earnings per share of common stock	$	1.14		$	0.14		$	1.06

The accompanying Notes are an integral part of these financial statements.

PEPCO HOLDINGS, INC. (Parent Company)

BALANCE SHEETS


	As of December 31,
	2011			2010
	*(millions of dollars, except share data)*
ASSETS
Current Assets
Cash and cash equivalents	$	257		$	131
Prepayments of income taxes		51			99
Accounts receivable and other		7			8

		315			238

Investments and Other Assets
Goodwill		1,398			1,398
Notes receivable from subsidiary companies		154			154
Investment in consolidated companies		3,654			3,033
Other		24			19
Investments held for sale		—			355

		5,230			4,959

Total Assets	$	5,545		$	5,197

LIABILITIES AND EQUITY
Current Liabilities
Short-term debt	$	465		$	230
Interest and taxes accrued		11			15
Accounts payable due to associated companies		25			3

		501			248

Deferred Credits
Liabilities and accrued interest related to uncertain tax positions		3			14

Long-Term Debt		705			705

Commitments and Contingencies (Note 4)
Equity
Common stock, $.01 par value; authorized 400,000,000 shares; 227,500,190 and 225,082,252 shares outstanding, respectively		2			2
Premium on stock and other capital contributions		3,325			3,275
Accumulated other comprehensive loss		(63	)		(106	)
Retained earnings		1,072			1,059

Total equity		4,336			4,230

Total Liabilities and Equity	$	5,545		$	5,197

The accompanying Notes are an integral part of these financial statements.

PEPCO HOLDINGS, INC. (Parent Company)

STATEMENTS OF CASH FLOWS




	For the Year Ended December 31,
	2011			2010			2009
	*(millions of dollars)*
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	257		$	32		$	235
Loss (income) from discontinued operations, net of income taxes		3			107			(12	)
Adjustments to reconcile net income to net cash from operating activities:
Distributions from related parties less than earnings		(207	)		(150	)		(186	)
Deferred income taxes		(16	)		(5	)		—
Changes in:
Prepaid and other		23			24			(24	)
Accounts payable		2			1			(4	)
Interest and taxes		42			(130	)		19
Other assets and liabilities		11			31			16

Net Cash From (Used By) Operating Activities		115			(90	)		44

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of Conectiv Energy wholesale power generation business		—			1,035			—

Net Cash From Investing Activities		—			1,035			—

CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid on common stock		(244	)		(241	)		(238	)
Common stock issued for the Dividend Reinvestment Plan and employee-related compensation		47			47			49
Issuance of long-term debt		—			250			—
Capital distribution to subsidiaries, net		(20	)		(31	)		(255	)
Reacquisitions of long-term debt		—			(1,644	)		—
Decrease in notes receivable from associated companies		—			318			156
Issuances (repayments) of short-term debt, net		235			(94	)		274
Costs of issuances		(7	)		(4	)		(1	)

Net Cash From (Used By) Financing Activities		11			(1,399	)		(15	)

Net increase (decrease) in cash and cash equivalents		126			(454	)		29
Cash and cash equivalents at beginning of year		131			585			556

CASH AND CASH EQUIVALENTS AT END OF YEAR	$	257		$	131		$	585

The accompanying Notes are an integral part of these financial statements.

NOTES TO FINANCIAL INFORMATION

(1) BASIS OF PRESENTATION

Pepco Holdings, Inc. (Pepco Holdings) is a holding company and conducts substantially all of its business operations through its subsidiaries. These condensed financial statements and related footnotes have been prepared in accordance with Rule 12-04, Schedule I of Regulation S-X. These statements should be read in conjunction with the consolidated financial statements and notes thereto of Pepco Holdings included in Part II, Item 8 of this Form 10-K.

Pepco Holdings owns 100% of the common stock of all its significant subsidiaries.

(2) RECLASSIFICATIONS AND ADJUSTMENTS

Certain prior period amounts have been reclassified in order to conform to the current period presentation.

(3) DEBT

For information concerning Pepco Holdings' long-term debt obligations, see Note (11), "Debt," to the consolidated financial statements of Pepco Holdings.

(4) COMMITMENTS AND CONTINGENCIES

For information concerning Pepco Holdings' material contingencies and guarantees, see Note (17), "Commitments and Contingencies" to the consolidated financial statements of Pepco Holdings.

(5) INVESTMENT IN CONSOLIDATED COMPANIES

Pepco Holdings' majority owned subsidiaries are recorded using the equity method of accounting. A breakout of the balance in Investment in consolidated companies is as follows:


	2011		2010
	*(millions of dollars)*
Conectiv, LLC	$	1,300	$	772
Potomac Electric Power Company		1,502		1,428
Potomac Capital Investment Corporation		499		498
Pepco Energy Services, Inc.		350		331
PHI Service Company		3		4

Total investment in consolidated companies	$	3,654	$	3,033

(6) INVESTMENTS HELD FOR SALE

As of December 31, 2010, PHI's investment in Conectiv Energy Holding Company, LLC (Conectiv Energy), a subsidiary of Conectiv was held for sale. The balance in investments held for sale of $355 million as of December 31, 2010, includes net intercompany receivables of $310 million.

(7) DISCONTINUED OPERATIONS

On April 20, 2010, the Board of Directors of Pepco Holdings approved a plan for the disposition of Conectiv Energy. The plan consists of (i) the sale of Conectiv Energy's wholesale power generation business and (ii) the liquidation, within the succeeding twelve months, of all of Conectiv Energy's remaining assets and businesses, including its load service supply contracts, energy hedging portfolio, certain tolling agreements and other non-generation assets. On July 1, 2010, Pepco Holdings completed the sale of its wholesale power generation business to Calpine Corporation.

(8) RELATED PARTY TRANSACTIONS

As of December 31, 2011 and 2010, PHI had the following balances on its balance sheets due (to) from related parties:


	2011			2010
	*(millions of dollars)*
(Liability) Asset
(Payable to) Receivable from Related Party (current) (a)
Potomac Capital Investment Corporation	$	(37	)	$	—
Conectiv, LLC		29			—
Conectiv Communications, Inc.		(4	)		(4	)
Potomac Electric Power Company		(15	)		—
PHI Service Company		2			—
Other		—			1

Total	$	(25	)	$	(3	)

Money Pool Balance with Pepco Holdings (included in cash and cash equivalents)	$	257		$	131

(a)	Included in accounts payable due to associated companies.