===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 20, 2000
EXELON CORPORATION
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 1-16169 23-2990190
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
37th Floor, 10 South Dearborn
Post Office Box A-3005
Chicago, Illinois 60690-3005
(address of principal executive offices)
Registrant's telephone number, including area code: (312) 394-4321
N/A
(Former name or former address, if changed since last report)
===============================================================================
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On October 20, 2000, pursuant to a Second Amended and Restated Agreement
and Plan of Exchange and Merger dated as of September 22, 1999 as amended and
restated as of October 10, 2000, among PECO Energy Company, a Pennsylvania
corporation ("PECO Energy"), Exelon Corporation, a Pennsylvania corporation
("Exelon") and Unicom Corporation, an Illinois corporation ("Unicom"), PECO
Energy, Exelon and Unicom consummated the merger and exchange as described below
(the "Merger and Exchange").
The Merger and Exchange involved two transactions. The first step was a
share exchange between PECO Energy and its wholly owned subsidiary Exelon,
pursuant to which PECO Energy became a wholly owned subsidiary of Exelon. The
second step was a merger of Unicom into Exelon, pursuant to which Unicom's
separate corporate existence ended and its subsidiaries, including Commonwealth
Edison Company, became subsidiaries of Exelon.
In the first step exchange, each outstanding share of PECO Energy common
stock (other than shares owned by PECO Energy, which were automatically
canceled) was automatically converted into the right to receive one share of
Exelon common stock and all shares of Exelon common stock held by PECO Energy
were automatically canceled.
At the completion of the second step merger, which occurred shortly
following the completion of the first step exchange, Unicom was merged with and
into Exelon, and each share of Unicom common stock (other than shares owned by
Unicom or Exelon, which were automatically canceled) was automatically converted
into the right to receive 0.875 shares of Exelon common stock and $3.00 in cash.
A copy of the press release issued by Exelon on October 20, 2000 with
respect to the effectiveness of the exchange and merger is attached hereto as
Exhibit 99.1 and is incorporated herein by reference.
On October 13, 2000, Exelon established a $1.25 billion bank credit
facility (the "Credit Facility") pursuant to the Term Loan Agreement dated as of
October 13, 2000 among Exelon, the banks listed on the signature pages thereof,
Bank One, N.A., as Administrative Agent, Credit Suisse First Boston, as
Documentation Agent, and Citibank, N.A., as Syndication Agent (the "Credit
Agreement"). Approximately $510,000,000 of the Credit Facility is being borrowed
to finance the cash consideration to be paid to former holders of Unicom common
stock in the second step merger. It is anticipated that borrowings will be made
under the remaining Credit Facility as needed.
A copy of the Credit Agreement is attached hereto as Exhibit 99.2 and is
incorporated herein by reference.
<PAGE>
ITEM 7.
(a) Financial statements of businesses acquired:
UNICOM CORPORATION
FINANCIAL STATEMENTS
For the Three, Nine and Twelve Months Ended September 30, 2000
<PAGE>
Unicom Corporation
Quarterly Report for the Quarterly Period Ended September 30, 2000
This document contains a Quarterly Report for the quarterly period ended
September 30, 2000 for Unicom Corporation. In addition, several portions of
this Quarterly Reports contain forward-looking statements; and reference is
made to pages 58-59 for the location and character of such statements.
INDEX
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Definitions.............................................................. 3
PART I. FINANCIAL INFORMATION
Unicom Corporation and Subsidiary Companies:
Financial Statements--
Report of Independent Public Accountants............................. 4
Statements of Consolidated Operations for the three months, nine
months and twelve months ended September 30, 2000 and 1999.......... 5
Consolidated Balance Sheets--September 30, 2000 and December 31,
1999................................................................ 6-7
Statements of Consolidated Capitalization--September 30, 2000 and
December 31, 1999 .................................................. 8
Statements of Consolidated Retained Earnings for the three months,
nine months and twelve months ended September 30, 2000 and 1999..... 9
Statements of Consolidated Comprehensive Income for the three months,
nine months and twelve months ended September 30, 2000 and 1999..... 9
Statements of Consolidated Cash Flows for the three months, nine
months and twelve months ended September 30, 2000 and 1999.......... 10
Notes to Financial Statements........................................ 11-41
Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................... 42-59
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 60
</TABLE>
<PAGE>
DEFINITIONS
The following terms are used in this document with the following meanings:
<TABLE>
<CAPTION>
Term Meaning
---------------------- -------------------------------------------------------
<C> <S>
1997 Act Illinois Electric Service Customer Choice and Rate
Relief Law of 1997, as amended
AFUDC Allowance for funds used during construction
APB Accounting Principles Board
APX Automated Power Exchange Inc., a California company
CERCLA Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended
City City of Chicago
ComEd Commonwealth Edison Company, an Exelon subsidiary
ComEd Funding ComEd Funding, LLC, a ComEd subsidiary
ComEd Funding Trust ComEd Transitional Funding Trust, a ComEd Funding
subsidiary
Cotter Cotter Corporation, formerly a ComEd subsidiary
CTC Non-bypassable "competitive transition charge"
DOE U.S. Department of Energy
Edison Development Edison Development Canada Inc., a ComEd subsidiary
EME Edison Mission Energy, an Edison International
subsidiary
EPS Earnings/(Loss) per Common Share
ESPP Employee Stock Purchase Plan
FASB Financial Accounting Standards Board
FERC Federal Energy Regulatory Commission
Fossil Plant ComEd's former six coal-fired generating plants, an oil
and gas-fired plant, and nine peaking unit sites
GAAP Generally Accepted Accounting Principles
ICC Illinois Commerce Commission
IDR Illinois Department of Revenue
Indiana Company Commonwealth Edison Company of Indiana, Inc., a ComEd
subsidiary
INPO Institute of Nuclear Power Operations
ISO Independent System Operator
MGP Manufactured gas plant
NEIL Nuclear Electric Insurance Limited
Northwind Chicago Northwind Chicago, LLC, a UT Holdings subsidiary
Northwind Midway Northwind Midway, LLC, a UT Holdings subsidiary
NRC Nuclear Regulatory Commission
O&M Operation and maintenance
PECO PECO Energy Company, a Pennsylvania company
PPAs Purchase Power Agreements
RES Retail Electric Supplier
RTO Regional Transmission Organization
SEC Securities and Exchange Commission
SFAS Statement of Financial Accounting Standards
SPEs Special purpose entities
S&P Standard & Poor's
Trusts ComEd Financing I and ComEd Financing II, ComEd
subsidiaries
Trust Securities ComEd-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely ComEd's
subordinated debt securities
Unicom Unicom Corporation
Unicom Energy Services Unicom Energy Services Inc., a Unicom Enterprises
subsidiary
Unicom Enterprises Unicom Enterprises Inc., a Unicom subsidiary
Unicom Investment Unicom Investment, Inc., a Unicom subsidiary
Unicom Power Holdings Unicom Power Holdings Inc., a Unicom Enterprises
subsidiary
Unicom Thermal Unicom Thermal Technologies Inc., a UT Holdings
subsidiary
U.S. EPA U.S. Environmental Protection Agency
UT Holdings UT Holdings Inc., a Unicom Enterprises subsidiary
</TABLE>
<PAGE>
Part I. Financial Information
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Unicom Corporation:
We have audited the accompanying consolidated balance sheets and statements
of consolidated capitalization of UNICOM CORPORATION (an Illinois corporation)
and subsidiary companies as of September 30, 2000 and December 31, 1999, and
the related statements of consolidated operations, retained earnings,
comprehensive income and cash flows for the three-month, nine-month and
twelve-month periods ended September 30, 2000 and 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Unicom
Corporation and subsidiary companies as of September 30, 2000 and December 31,
1999, and the results of their operations and their cash flows for the three-
month, nine-month and twelve-month periods ended September 30, 2000 and 1999,
in conformity with accounting principles generally accepted in the United
States.
Arthur Andersen LLP
Chicago, Illinois
November 3, 2000
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED OPERATIONS
The following Statements of Consolidated Operations for the three months,
nine months and twelve months ended September 30, 2000 and 1999 reflect the
results of past operations and are not intended as any representation as to
results of operations for any future period. Future operations will
necessarily be affected by various and diverse factors and developments,
including changes in electric prices, regulation, population, business
activity, asset dispositions, competition, taxes, environmental control,
energy use, fuel, cost of labor, purchased power and other matters, the nature
and effect of which cannot now be determined.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
---------------------- ---------------------- ----------------------
2000 1999 2000 1999 2000 1999
---------- ---------- ---------- ---------- ---------- ----------
(Thousands Except Per Share Data)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues...... $2,220,289 $2,084,454 $5,685,671 $5,307,972 $7,225,646 $6,871,640
---------- ---------- ---------- ---------- ---------- ----------
Operating Expenses and
Taxes:
Fuel.................. $ 97,207 $ 302,181 $ 294,046 $ 796,654 $ 494,654 $1,049,699
Purchased power....... 735,894 249,375 1,410,881 419,358 1,544,823 520,987
Operation and
maintenance.......... 654,518 581,937 1,749,008 1,787,435 2,387,446 2,369,062
Depreciation and
amortization......... 230,214 202,109 831,859 700,388 974,719 929,731
Taxes (except
income).............. 138,610 144,791 406,357 407,286 507,525 535,247
Income taxes.......... 45,771 181,654 138,073 305,265 192,007 354,131
Investment tax credits
deferred--net ....... (5,499) (7,021) (16,498) (21,063) (21,263) (27,856)
---------- ---------- ---------- ---------- ---------- ----------
$1,896,715 $1,655,026 $4,813,726 $4,395,323 $6,079,911 $5,731,001
---------- ---------- ---------- ---------- ---------- ----------
Operating Income........ $ 323,574 $ 429,428 $ 871,945 $ 912,649 $1,145,735 $1,140,639
---------- ---------- ---------- ---------- ---------- ----------
Other Income and
(Deductions):
Interest on long-term
debt, net of interest
capitalized.......... $ (133,837) $ (134,622) $ (398,058) $ (413,132) $ (529,888) $ (522,526)
Interest on notes
payable.............. (7,538) (5,282) (13,709) (13,003) (19,308) (17,377)
Allowance for funds
used during
construction......... 5,599 6,581 16,610 15,982 22,440 20,121
Income taxes
applicable to
nonoperating
activities........... (23,196) 2,080 (44,614) (1,169) (16,362) (17,418)
Provisions for
dividends and
redemption premiums--
Preferred and
preference stocks of
ComEd............... (534) (1,830) (2,773) (20,170) (6,359) (33,991)
ComEd-obligated
mandatorily
redeemable preferred
securities of
subsidiary trusts
holding solely
ComEd's subordinated
debt securities..... (7,428) (7,428) (22,283) (22,283) (29,710) (29,710)
Miscellaneous--net.... 9,991 (9,175) 102,158 37,492 43,607 67,816
---------- ---------- ---------- ---------- ---------- ----------
$ (156,943) $ (149,676) $ (362,669) $ (416,283) $ (535,580) $ (533,085)
---------- ---------- ---------- ---------- ---------- ----------
Net Income before
Extraordinary Items ... $ 166,631 $ 279,752 $ 509,276 $ 496,366 $ 610,155 $ 607,554
Extraordinary Losses,
less Applicable Income
Taxes.................. (2,967) -- (7,134) (27,579) (7,134) (27,579)
---------- ---------- ---------- ---------- ---------- ----------
Net Income.............. $ 163,664 $ 279,752 $ 502,142 $ 468,787 $ 603,021 $ 579,975
========== ========== ========== ========== ========== ==========
Earnings per common
share before
extraordinary items
Basic................. $ 0.96 $ 1.29 $ 2.82 $ 2.29 $ 3.21 $ 2.80
Diluted............... $ 0.95 $ 1.28 $ 2.80 $ 2.28 $ 3.20 $ 2.79
Extraordinary losses,
less applicable income
taxes (basic and
diluted)............... $ (0.02) -- $ (0.04) $ (0.13) $ (0.04) $ (0.13)
Earnings per common
share--
Basic................. $ 0.94 $ 1.29 $ 2.78 $ 2.16 $ 3.17 $ 2.67
Diluted............... $ 0.93 $ 1.28 $ 2.76 $ 2.15 $ 3.16 $ 2.66
Cash Dividends Declared
per Common Share....... $ 0.40 $ 0.40 $ 1.20 $ 1.20 $ 1.60 $ 1.60
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 2000 1999
------ ------------- ------------
(Thousands of Dollars)
<S> <C> <C>
Utility Plant:
Plant and equipment, at original cost (includes
construction work in progress of $801 million and
$672 million, respectively)...................... $25,742,682 $25,007,637
Less--Accumulated provision for depreciation...... 14,151,813 13,729,223
----------- -----------
$11,590,869 $11,278,414
Nuclear fuel, at amortized cost................... 845,401 843,724
----------- -----------
$12,436,270 $12,122,138
----------- -----------
Investments and Other Property:
Nuclear decommissioning funds..................... $ 2,662,020 $ 2,546,540
Investment in leases.............................. 395,868 --
Nonutility property--less accumulated provision
for depreciation of $24,894 and $17,345,
respectively..................................... 251,329 304,976
Goodwill.......................................... 78,373 34,955
Subsidiary companies.............................. 17,583 50,417
Other, at cost.................................... 196,358 130,917
----------- -----------
$ 3,601,531 $ 3,067,805
----------- -----------
Current Assets:
Cash and temporary cash investments............... $ 981,940 $ 1,696,336
Cash held for redemption of securities............ 71,622 285,056
Other cash investments............................ 1,231 62
Special deposits.................................. 515 1,845,730
Investment in leases.............................. 1,235,194 --
Receivables--
Customers....................................... 1,300,276 1,224,678
Forward share repurchase contract............... -- 813,046
Income Taxes.................................... 731,707 --
Other........................................... 192,266 181,532
Provisions for uncollectible accounts........... (48,004) (50,814)
Coal and fuel oil, at average cost................ 18,271 15,613
Materials and supplies, at average cost........... 239,929 221,157
Deferred income taxes related to current assets
and liabilities.................................. 71,276 60,056
Prepayments and other............................. 150,742 36,268
----------- -----------
$ 4,946,965 $ 6,328,720
----------- -----------
Deferred Charges and Other Noncurrent Assets:
Regulatory assets................................. $ 1,526,590 $ 1,792,907
Other............................................. 71,279 94,463
----------- -----------
$ 1,597,869 $ 1,887,370
----------- -----------
$22,582,635 $23,406,033
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
CAPITALIZATION AND LIABILITIES 2000 1999
------------------------------ ------------- ------------
(Thousands of Dollars)
<S> <C> <C>
Capitalization (see accompanying statements):
Common stock equity............................... $ 3,700,755 $ 5,332,611
Preferred and preference stocks of ComEd--
Without mandatory redemption requirements....... -- 1,790
ComEd-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely
ComEd's subordinated debt securities*............ 350,000 350,000
Long-term debt.................................... 7,133,995 7,129,906
----------- -----------
$11,184,750 $12,814,307
----------- -----------
Current Liabilities:
Notes payable..................................... $ 1,477,990 $ 4,750
Current portion of long-term debt, redeemable
preference stock and capitalized lease obliga-
tions of subsidiary companies.................... 350,474 915,439
Accounts payable.................................. 928,584 582,920
Accrued interest.................................. 136,473 146,718
Accrued taxes..................................... 130,453 1,386,930
Dividends payable................................. 70,406 94,090
Customer deposits................................. 69,823 68,128
Other............................................. 221,779 316,542
----------- -----------
$ 3,385,982 $ 3,515,517
----------- -----------
Deferred Credits and Other Noncurrent Liabilities:
Deferred income taxes............................. $ 3,451,783 $ 2,484,883
Nuclear decommissioning liability for retired
plants........................................... 1,288,000 1,259,700
Accumulated deferred investment tax credits....... 461,762 484,717
Accrued spent nuclear fuel disposal fee and re-
lated interest................................... 797,457 763,427
Obligations under capital leases of subsidiary
companies........................................ -- 161,611
Regulatory liabilities............................ 580,991 596,157
Other............................................. 1,431,910 1,325,714
----------- -----------
$ 8,011,903 $ 7,076,209
----------- -----------
Commitments and Contingent Liabilities (Note 21)
$22,582,635 $23,406,033
=========== ===========
</TABLE>
*As described in Note 10 of Notes to Financial Statements, the sole asset of
ComEd Financing I, a subsidiary trust of ComEd, is $206.2 million principal
amount of ComEd's 8.48% subordinated deferrable interest notes due September
30, 2035. The sole asset of ComEd Financing II, also a subsidiary trust of
ComEd, is $154.6 million principal amount of ComEd's 8.50% subordinated
deferrable interest debentures due January 15, 2027.
The accompanying Notes to Financial Statements are an integral part of the
above statements.
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CAPITALIZATION
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
(Thousands of Dollars)
<S> <C> <C>
Common Stock Equity:
Common stock, without par value--
Outstanding--219,075,493 shares and 217,817,610
shares, respectively............................. $ 5,002,631 $ 4,971,618
Preference stock expense of ComEd.................. -- (72)
Retained earnings.................................. 657,421 364,345
Accumulated other comprehensive income............. 3,806 6,815
Treasury stock--49,708,406 shares and 264,406
shares, respectively.............................. (1,963,103) (10,095)
----------- -----------
$ 3,700,755 $ 5,332,611
----------- -----------
Preferred and Preference Stocks of ComEd--
Without Mandatory Redemption Requirements:
$1.425 convertible preferred stock, cumulative,
without par value--Outstanding--no shares and
56,291 shares, respectively..................... $ -- $ 1,790
Prior preferred stock, cumulative, $100 par value
per share--
No shares outstanding........................... -- --
----------- -----------
$ -- $ 1,790
----------- -----------
Subject to Mandatory Redemption Requirements:
Preference stock, cumulative, without par value--
Outstanding--No shares and 700,000 shares,
respectively................................... $ -- $ 69,475
Current redemption requirements for preference
stock included
in current liabilities.......................... -- (69,475)
----------- -----------
$ -- $ --
----------- -----------
ComEd-Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trusts Holding Solely
ComEd's Subordinated Debt Securities................ $ 350,000 $ 350,000
----------- -----------
Long-Term Debt:
First mortgage bonds:
Maturing 2000 through 2004--5.30% to 9 3/8%...... $ 326,000 $ 698,245
Maturing 2005 through 2014--4.40% to 8 3/8%...... 1,299,400 1,299,400
Maturing 2015 through 2023--6.75% to 9 7/8%...... 1,486,950 1,589,443
----------- -----------
$ 3,112,350 $ 3,587,088
Transitional trust notes, due 2001 through 2008--
5.29% to 5.74%.................................... 2,804,541 3,070,000
Sinking fund debentures, due 2001 through 2011--2
7/8% to 4.75%..................................... 26,674 30,866
Pollution control obligations, due 2007 through
2014--4.65% to 5 7/8%............................. 137,700 139,200
Other long-term debt............................... 1,447,201 1,089,347
Current maturities of long-term debt included in
current liabilities............................... (350,474) (737,615)
Unamortized net debt discount and premium.......... (43,997) (48,980)
----------- -----------
$ 7,133,995 $ 7,129,906
----------- -----------
$11,184,750 $12,814,307
----------- -----------
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED RETAINED EARNINGS
<TABLE>
<CAPTION>
Three Months
Ended September Nine Months Ended Twelve Months Ended
30 September 30 September 30
------------------ ------------------ --------------------
2000 1999 2000 1999 2000 1999
-------- -------- -------- -------- --------- ---------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Balance at Beginning of
Period................. $561,502 $157,467 $364,345 $143,537 $348,126 $ 117,833
Add--Net income......... 163,664 279,752 502,142 468,787 603,021 579,975
-------- -------- -------- -------- --------- ---------
$725,166 $437,219 $866,487 $612,324 $ 951,147 $ 697,808
-------- -------- -------- -------- --------- ---------
Deduct--
Cash dividends
declared on
common stock....... $ 67,750 $ 86,979 $209,473 $260,760 $ 296,495 $ 347,566
Other capital stock
transactions--net.. (5) 2,114 (407) 3,438 (2,769) 2,116
-------- -------- -------- -------- --------- ---------
$ 67,745 $ 89,093 $209,066 $264,198 $ 293,726 $ 349,682
-------- -------- -------- -------- --------- ---------
Balance at End of Period
(Includes $1,009
million and $702
million of
appropriated retained
earnings for future
dividend payments at
September 30, 2000 and
1999, respectively)... $657,421 $348,126 $657,421 $348,126 $ 657,421 $ 348,126
======== ======== ======== ======== ========= =========
</TABLE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
-------------------- ------------------- --------------------
2000 1999 2000 1999 2000 1999
--------- --------- -------- --------- --------- ---------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Net Income.............. $ 163,664 $ 279,752 $502,142 $468,787 $603,021 $579,975
Other Comprehensive
Income
Unrealized
gains/(losses) on
securities and
foreign currency
translations......... $ (3,221) $ -- $ (2,696) -- $ 9,051 $ --
Income taxes on other
comprehensive income. 20 -- (313) -- (5,245) --
--------- --------- -------- --------- --------- ---------
Other comprehensive $ $ $
income, net of tax... $ (3,201) -- $ (3,009) -- $ 3,806 --
--------- --------- -------- --------- --------- ---------
Comprehensive Income.... $ 160,463 $ 279,752 $499,133 $468,787 $ 606,827 $ 579,975
========= ========= ======== ========= ========= =========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
--------------------- ------------------------ ------------------------
2000 1999 2000 1999 2000 1999
---------- --------- ----------- ----------- ----------- -----------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Cash Flow from Operating
Activities:
Net income............. $ 163,664 $ 279,752 $ 502,142 $ 468,787 $ 603,021 $ 579,975
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization........ 273,688 210,648 941,010 742,432 1,104,070 976,815
Deferred income taxes
and investment tax
credits--net........ (87,381) (10,983) (171,786) (109,303) (1,511,488) (35,026)
Contribution to
environmental trust. -- -- -- -- (250,000) --
Recovery of coal
reserve regulatory
assets.............. -- 91,642 -- 111,578 178,038 108,078
Change in MGP
remediation
liability........... (2,600) -- (3,800) -- 64,278 --
Loss/(gain) on
forward share
arrangements........ -- 17,514 (113,071) (15,903) (55,370) (15,903)
Provisions/(payments)
for revenue
refunds--net........ -- (2,439) -- (22,297) (371) 306
Equity component of
allowance for funds
used during
construction........ (2,643) (2,243) (7,945) (5,999) (9,735) (7,600)
Provisions/(payments)
for liability for
separation costs--
net................. 19,303 (1,746) 10,248 (11,544) (40,604) 1,029
Net effect on cash
flows of changes in:
Receivables........ (127,965) (2,306) (47,845) 63,988 (267,880) 29,834
Coal and fuel oil.. 1,000 14,753 (141) 4,143 (3,666) 21,052
Materials and
supplies.......... (3,151) (2,829) (14,972) (10,096) (6,275) 8,150
Accounts payable
excluding
separation costs--
net............... 255,105 10,016 306,624 (92,907) 364,228 26,894
Accrued interest
and taxes......... 15,095 3,198 (901,804) 107,785 236,394 (123,605)
Other changes in
certain current
assets and
liabilities....... (29,487) 37,883 19,597 89,881 (29,241) 152,030
Other--net........... 58,435 (85,162) 155,658 49,221 (16,168) 40,340
---------- --------- ----------- ----------- ----------- -----------
$ 533,063 $ 557,698 $ 673,906 $ 1,369,766 $ 359,231 $ 1,762,369
---------- --------- ----------- ----------- ----------- -----------
Cash Flow from Investing
Activities:
Construction
expenditures.......... $ (319,698) $(271,921) $ (914,425) $ (752,614) $(1,285,302) $(1,042,735)
Nuclear fuel
expenditures.......... (123,007) (90,926) (224,486) (204,873) (273,096) (247,458)
Sales of generating
plants................ -- -- -- -- 4,885,720 --
Investment in leases... (17,279) -- (1,631,062) -- (1,631,062) --
Equity component of
allowance for funds
used during
construction.......... 2,643 2,243 7,945 5,999 9,735 7,600
Contributions to
nuclear
decommissioning
funds................. -- -- (39,400) (39,426) (89,919) (96,120)
Other investments and
special deposits...... (3,638) (26,644) 1,694,534 (39,345) (167,120) (47,603)
Plant removal costs--
net................... 11,474 (17,291) (7,486) (49,303) (25,915) (89,464)
---------- --------- ----------- ----------- ----------- -----------
$ (449,505) $(404,539) $(1,114,380) $(1,079,562) $ 1,423,041 $(1,515,780)
---------- --------- ----------- ----------- ----------- -----------
Cash Flow from Financing
Activities:
Issuance of
securities--
Transitional trust
notes................ $ -- $ -- $ -- $ -- $ -- $ 3,382,629
Other long-term debt.. 450,062 98,025 478,153 161,155 518,748 161,357
Capital stock......... 18,465 3,763 31,013 8,175 43,859 13,912
Retirement, redemption
and repurchase of
securities--
Transitional trust
notes................ (85,459) (97,045) (265,459) (237,045) (358,413) (237,045)
Other long-term debt.. (231,601) (28,017) (606,372) (1,089,027) (948,893) (1,179,228)
Common stock.......... (374,433) (2,390) (959,758) (32,446) (683,649) (39,246)
Preferred stock....... (2,174) (72,644) (72,318) (606,852) (72,358) (610,423)
Common stock forward
repurchase
arrangements.......... -- -- (67,133) (662,113) (262,038) (662,113)
Cash dividends paid on
common stock.......... (70,657) (86,915) (228,737) (260,585) (315,716) (347,428)
Nuclear fuel lease
principal payments.... (235,365) (55,610) (269,985) (157,546) (367,841) (208,820)
Increase/(decrease) in
short-term
borrowings............ 797,624 36,900 1,473,240 155,787 1,029,240 40,104
---------- --------- ----------- ----------- ----------- -----------
$ 266,462 $(203,933) $ (487,356) $(2,720,497) $(1,417,061) $ 313,699
---------- --------- ----------- ----------- ----------- -----------
Change in Net Cash
Balance................ $ 350,020 $ (50,774) $ (927,830) $(2,430,293) $ 365,211 $ 560,288
Cash, Temporary Cash
Investments and Cash
Held for Redemption of
Securities:
Balance at Beginning
of Period........... 703,542 739,125 1,981,392 3,118,644 688,351 128,063
---------- --------- ----------- ----------- ----------- -----------
Balance at End of
Period.............. $1,053,562 $ 688,351 $ 1,053,562 $ 688,351 $ 1,053,562 $ 688,351
========== ========= =========== =========== =========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies.
Corporate Structure and Basis of Presentation. Unicom is the parent holding
company of ComEd and Unicom Enterprises. ComEd, a regulated electric utility,
is the principal subsidiary of Unicom. Unicom Enterprises is an unregulated
subsidiary of Unicom and is engaged, through its subsidiaries, in energy
service activities.
The consolidated financial statements include the accounts of Unicom, ComEd,
Indiana Company, Edison Development, the Trusts, ComEd Funding, ComEd Funding
Trust and Unicom's unregulated subsidiaries. All significant intercompany
transactions have been eliminated. Although the accounts of ComEd Funding,
ComEd Funding Trust and the subsidiaries of Unicom Investment, which are SPEs,
are included in the consolidated financial statements, as required by GAAP,
ComEd Funding, ComEd Funding Trust and the subsidiaries of Unicom Investment
are legally separated from Unicom, ComEd and Unicom Investment. The assets of
the SPEs are not available to creditors of Unicom, ComEd or Unicom Investment
and the transitional property and investments held by the SPEs are not assets
of Unicom, ComEd or Unicom Investment.
See Note 2 for information on Unicom's merger with PECO.
Use of Estimates. The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. Due to the transition to a new
customer information and billing system, a larger portion of customer revenues
and net receivables were based on estimates for the period July 1998 through
November 1999 than in previous and subsequent periods.
Regulation. ComEd is subject to regulation as to accounting and ratemaking
policies and practices by the ICC and FERC. ComEd's accounting policies and
the accompanying consolidated financial statements conform to GAAP applicable
to rate-regulated enterprises for the non-generation portion of its business,
including the effects of the ratemaking process in accordance with SFAS
No. 71, Accounting for the Effects of Certain Types of Regulation. Such
effects on the non-generation portion of its business concern mainly the time
at which various items enter into the determination of operating results in
order to follow the principle of matching costs with the applicable revenues
collected from or returned to customers through future rates.
ComEd's investment in generation-related net utility plant, not subject to
cost-based rate regulation, including construction work in progress and
nuclear fuel, and excluding the decommissioning costs included in the
accumulated provision for depreciation was $7.7 billion and $7.8 billion as of
September 30, 2000 and December 31, 1999, respectively.
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Regulatory Assets and Liabilities. Regulatory assets are incurred costs
which have been deferred and are amortized for ratemaking and accounting
purposes. Regulatory liabilities represent amounts to be settled with
customers through future rates. Regulatory assets and liabilities reflected on
the Consolidated Balance Sheets at September 30, 2000 and December 31, 1999
were as follows:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
(Thousands of Dollars)
<S> <C> <C>
Regulatory assets:
Impaired production plant(1)....................... $ 103,659 $ 366,221
Deferred income taxes (2).......................... 701,714 688,946
Nuclear decommissioning costs--Dresden Unit 1...... 189,506 202,308
Nuclear decommissioning costs--Zion Units 1 and 2.. 495,811 496,638
Unamortized loss on reacquired debt (3)............ 35,900 38,794
---------- ----------
$1,526,590 $1,792,907
========== ==========
Regulatory liabilities:
Deferred income taxes (2).......................... $ 580,991 $ 596,157
========== ==========
</TABLE>
--------
(1) Expected to be substantially recovered through regulated cash flow by the
end of 2000.
(2) Recorded in compliance with SFAS No. 109, Accounting for Income Taxes, for
non-generation related temporary differences.
(3) Amortized over the remaining lives of the non-generation related long-term
debt issued to finance the reacquisition. See "Loss on Reacquired Debt"
below for additional information.
The regulatory assets for Dresden Unit 1 and Zion Units 1 and 2 represent
unrecovered nuclear decommissioning costs, which are expected to be recovered
over the periods 2000-2011 and 2000-2013, respectively, through future rate
recoveries and related trust fund earnings. See "Depreciation, Amortization of
Regulatory Assets and Liabilities and Decommissioning" below for additional
information.
Depreciation, Amortization of Regulatory Assets and Liabilities, and
Decommissioning. Depreciation, amortization of regulatory assets and
liabilities, and decommissioning for the three months, nine months and twelve
months ended September 30, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
------------------- ----------------- -------------------
2000 1999 2000 1999 2000 1999
--------- --------- -------- -------- --------- ---------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Depreciation expense.... $ 171,820 $ 180,598 $506,432 $538,623 $ 594,046 $ 714,518
Amortization of
regulatory assets and
liabilities--net....... 37,439 556 262,562 98,900 296,853 131,393
--------- --------- -------- -------- --------- ---------
$ 209,259 $ 181,154 $768,994 $637,523 $ 890,899 $ 845,911
Decommissioning expense. 20,955 20,955 62,865 62,865 83,820 83,820
--------- --------- -------- -------- --------- ---------
$ 230,214 $ 202,109 $831,859 $700,388 $ 974,719 $ 929,731
========= ========= ======== ======== ========= =========
</TABLE>
The regulatory asset amortization recorded in the recent three, nine and
twelve month periods represent amounts calculated in accordance with the
earnings cap provisions of the 1997 Act.
Consistent with the provisions of the 1997 Act, the (pre-tax) gain on the
December 1999 sale of Fossil Plant assets of $2.587 billion resulted in a
regulatory liability, which was used to recover
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
regulatory assets. Therefore, the gain on the sale, excluding $43 million of
amortization of investment tax credits, was recorded as a regulatory liability
in the amount of $2.544 billion and amortized in the fourth quarter of 1999.
The amortization of the regulatory liability and additional regulatory asset
amortization of $2.456 billion are reflected in depreciation and amortization
expense on Unicom's Statements of Consolidated Operations and resulted in a
net reduction to depreciation and amortization expense of $88 million in the
fourth quarter of 1999.
See Note 3 for additional information regarding amortization of regulatory
assets with respect to limits on ComEd's earnings due to statutory sharing
provisions. See Note 4 for additional information regarding the fossil plant
sale.
Provisions for depreciation, including nuclear plant, were at average annual
rates of average depreciable utility plant and equipment for the three months,
nine months and twelve months ended September 30, 2000 and 1999 as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
------------------ ----------------- -------------------
2000 1999 2000 1999 2000 1999
--------- --------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Average annual
depreciation rates..... 2.70% 2.65% 2.70% 2.65% 2.69% 2.67%
</TABLE>
Nuclear plant decommissioning costs generally are accrued over the current
NRC license lives of the related nuclear generating units. The accrual is
based on an annual levelized cost of the unrecovered portion of estimated
decommissioning costs, which are escalated for expected inflation to the
expected time of decommissioning and are net of expected earnings on the trust
funds. Dismantling is expected to occur relatively soon after the end of the
current NRC license life of each generating station currently operating. The
accrual for decommissioning is based on the prompt removal method authorized
by NRC guidelines. ComEd's ten operating units have remaining current NRC
license lives ranging from 9 to 28 years. ComEd's Zion Station and Dresden
Unit 1 are retired and are expected to be dismantled beginning in the years
2014 and 2011, respectively, which is consistent with the regulatory treatment
for recovery of the related decommissioning costs.
Based on ComEd's most recent study, decommissioning costs are estimated to
be $5.6 billion in current-year (2000) dollars, including a contingency
allowance. These expenditures are expected to occur primarily during the
period from 2010 through 2034. All such costs are expected to be funded by the
external decommissioning trusts, which ComEd established in compliance with
Illinois law and into which ComEd has been making annual contributions. Future
decommissioning cost estimates may be significantly affected by the adoption
of, or changes to NRC regulations, as well as changes in the assumptions used
in making such estimates, including changes in technology, available
alternatives for the disposal of nuclear waste and inflation.
Since 1995, ComEd has collected decommissioning costs from its ratepayers in
conjunction with a rider to its tariffs. The rider allows annual adjustments
to decommissioning cost collections outside the context of a traditional rate
proceeding and will continue under the 1997 Act. The ICC has approved ComEd's
current funding plan, which provides for annual contributions of current
accruals and ratable contributions of past accruals over the remaining current
NRC license lives of the nuclear plants.
ComEd is undertaking steps to transfer its nuclear generating assets,
including the decommissioning trust funds, to a generation and power marketing
subsidiary of Exelon ("Genco"), following the merger with PECO. On August 3,
2000 the NRC approved the request of ComEd and PECO to transfer licenses for
both companies' nuclear plants from ComEd and PECO to Genco.
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
As part of the transfer of the nuclear generating stations, Genco is to
assume responsibility for the decommissioning of those stations, including
Zion Station and Dresden Unit 1, subject to an obligation of ComEd to continue
to collect decommissioning-related charges from its customers. In May 2000,
ComEd filed a petition with the ICC seeking approval to revise its existing
decommissioning rider to its rates. Under the proposed revision, ComEd would
collect approximately $121 million annually for a period of six years, after
which the decommissioning rider and collection of decommissioning funds would
end. On October 25, 2000, an ICC hearing examiner issued a proposed order
denying ComEd's petition on the basis that existing law does not allow the ICC
to authorize ComEd to continue to collect funds for decommissioning nuclear
generating plants that it no longer owns. ComEd believes that the proposed
order is wrong as a matter of law and that the ICC has the statutory authority
to grant ComEd's petition. The ICC is not bound by the proposed order and may
accept or reject it, in whole or in part, in preparing its final order in the
proceedings. Responses from the parties to the proceedings regarding the
proposed order are due in early November and a final order is expected before
year-end. ComEd is evaluating the effect of the proposed order on the proposed
structure of the Genco transaction. The transfer of the nuclear assets,
including the decommissioning trust funds, are subject to satisfactory
resolution of significant regulatory and tax issues. Although ComEd cannot
currently determine whether an alternative funding structure will ultimately
be approved and implemented, such a structure could increase the
decommissioning cost recovery risk. See Note 2 for additional information on
the merger of Unicom and PECO.
For the ten operating nuclear units, decommissioning cost accruals are
recorded as portions of depreciation expense and accumulated provision for
depreciation on the Statements of Consolidated Operations and the Consolidated
Balance Sheets, respectively, as such costs are recovered through rates. As of
September 30, 2000, the total decommissioning costs included in the
accumulated provision for depreciation were $2,197 million.
For ComEd's retired nuclear units, the total estimated liability for nuclear
decommissioning in current-year (2000) dollars is recorded as a noncurrent
liability. The unrecovered portion of the liability is recorded as a
regulatory asset. The nuclear decommissioning liability for retired plants as
of September 30, 2000 was as follows:
<TABLE>
<CAPTION>
Zion
Dresden Units
Unit 1 1 and 2 Total
-------- -------- ----------
(Thousands of Dollars)
<S> <C> <C> <C>
Amounts recovered through rates and investment
fund earnings.................................... $124,394 $478,289 $ 602,683
Unrecovered portion of the liability.............. 189,506 495,811 685,317
-------- -------- ----------
Nuclear decommissioning liability for retired
plants.......................................... $313,900 $974,100 $1,288,000
======== ======== ==========
</TABLE>
Under Illinois law, decommissioning cost collections are required to be
deposited into external trusts. Consequently, such collections do not add to
the cash flows available for general corporate purposes. The fair value of
funds accumulated in the external trusts at September 30, 2000 was $2,662
million, which includes pre-tax unrealized appreciation of $702 million. The
earnings on the external trusts for operating plants accumulate in the fund
balance and accumulated provision for depreciation. Nuclear decommissioning
funding as of September 30, 2000 was as follows:
<TABLE>
<CAPTION>
(Thousands of Dollars)
<S> <C>
Amounts recovered through rates and investment fund
earnings for operating plants (included in the
accumulated provision for depreciation)................ $2,196,811
Amounts recovered through rates and investment fund
earnings for retired plants............................ 602,683
Less past accruals not yet contributed to the trusts.... 137,474
----------
Fair value of external trust funds..................... $2,662,020
==========
</TABLE>
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
In February 2000, the FASB issued an exposure draft addressing the
accounting for asset removal costs, including those relating to nuclear
decommissioning. The exposure draft would require companies to recognize the
entire decommissioning liability on the balance sheet when the liability is
incurred very early in the operating life of the generating station, rather
than ratably over the operating life of the station as is the current industry
accounting practice. The cost basis of the related nuclear power plant would
be increased by a corresponding amount at the time the liability is recorded
and depreciated over the operating life. Although over the life of the
stations total decommissioning provisions would approximate the total amount
recognized over the life of the stations under current electric utility
accounting practices, amounts for interim years could increase or decrease
from currently expected decommissioning provisions. However, ComEd does not
believe such changes will adversely impact results of operations due to the
ability to recover decommissioning costs through rates. The exposure draft is
proposed to be effective for financial statements issued for fiscal years
beginning after June 15, 2001. A final statement is expected to be issued
during the first quarter of 2001.
Customer Receivables and Revenues. ComEd is engaged principally in the
production, purchase, transmission, distribution and sale of electricity to a
diverse base of residential, commercial, industrial and wholesale customers.
ComEd's electric service territory has an area of approximately 11,300 square
miles and an estimated population of approximately eight million as of
September 30, 2000. It includes the City, an area of about 225 square miles
with an estimated population of approximately three million from which ComEd
derived approximately 30 percent of its ultimate consumer revenues in 1999.
ComEd had approximately 3.5 million electric customers at September 30, 2000.
Revenues are recognized as electric and delivery services are provided to
customers.
As a result of the implementation of a new customer billing and information
system in July 1998, billing and collection delays temporarily increased
accounts receivable from customers. In December 1998 and June 1999, ComEd
recorded increased provisions for uncollectible accounts to recognize the
estimated portion of the receivables that are not expected to be recoverable.
Such provisions increased O&M expenses by $35 million in the twelve months
ended September 30, 1999, compared to normally expected levels. Receivables
from customers include $53 million and $103 million as of September 30, 2000
and December 31, 1999, respectively, in estimated unbilled revenue for service
that has been provided to customers, but for which bill issuance was delayed
beyond the normal date of issuance. Receivables from customers as of September
30, 2000 and December 31, 1999 also include $321 million and $295 million,
respectively, for estimated unbilled revenues for electric service that has
been provided to customers subsequent to the normal billing date and prior to
the end of the reporting period. See "Use of Estimates" above for additional
information regarding ComEd's revenues and net receivables.
See Note 3 for additional information.
Nuclear Fuel. The cost of nuclear fuel is amortized to fuel expense based on
the quantity of heat produced using the unit of production method. As
authorized by the ICC, provisions for spent nuclear fuel disposal costs have
been recorded at a level required to recover the fee payable on the current
nuclear-generated and sold electricity and the current interest accrual on the
one-time fee payable to the DOE for nuclear generation prior to April 7, 1983.
The one-time fee and interest thereon have been recovered and the current fee
and interest on the one-time fee are presently being recovered through base
rates. See Note 13 for additional information concerning the disposal of spent
nuclear fuel, one-time fee and interest accrual on the one-time fee. Nuclear
fuel expenses, including leased fuel costs
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
and provisions for spent nuclear fuel disposal costs, were $97 million and
$107 million for the three months ended September 30, 2000 and 1999,
respectively, $294 million and $288 million for the nine months ended
September 30, 2000 and 1999, respectively, and $386 million and $372 million
for the twelve months ended September 30, 2000 and 1999, respectively.
Income Taxes. Deferred income taxes are provided for income and expense
items recognized for financial accounting purposes in periods that differ from
those for income tax purposes. Income taxes deferred in prior years are
charged or credited to income as the book/tax temporary differences reverse.
Prior years' deferred investment tax credits are amortized through credits to
income generally over the lives of the related property. Income tax credits
resulting from interest charges applicable to nonoperating activities,
principally construction, are classified as other income.
AFUDC and Interest Capitalized. In accordance with the uniform systems of
accounts prescribed by regulatory authorities, ComEd capitalizes AFUDC,
compounded semiannually, which represents the estimated cost of funds used to
finance its construction program for the non-generation portion of its
business. The equity component of AFUDC is recorded on an after-tax basis and
the borrowed funds component of AFUDC is recorded on a pre-tax basis. The
average annual capitalization rates for AFUDC were 8.29% and 7.87% for the
three months ended September 30, 2000 and 1999, respectively, 8.29% and 7.85%
for the nine months ended September 30, 2000 and 1999, respectively, and 8.14%
and 7.92% for the twelve months ended September 30, 2000 and 1999,
respectively. In accordance with SFAS No. 34, Capitalization of Interest Cost,
ComEd capitalized $2 million and $4 million for the three months ended
September 30, 2000 and 1999, respectively, $4 million and $16 million for the
nine months ended September 30, 2000 and 1999, respectively, and $10 million
and $31 million for the twelve months ended September 30, 2000 and 1999,
respectively, in interest costs on its generation-related construction work in
progress and nuclear fuel in process. AFUDC and interest capitalized do not
contribute to the current cash flow of Unicom or ComEd.
Interest. Total interest costs incurred on debt, leases and other
obligations were $160 million and $160 million for the three months ended
September 30, 2000 and 1999, respectively, $473 million and $484 million to
the nine months ended September 30, 2000 and 1999, respectively, and $631
million and $611 million for the twelve months ended September 30, 2000 and
1999, respectively.
Debt Discount, Premium and Expense. Discount, premium and expense on long-
term debt of ComEd are being amortized over the lives of the respective
issues.
Loss on Reacquired Debt. Consistent with regulatory treatment, the net loss
from ComEd's reacquisition, in connection with the refinancing of first
mortgage bonds, sinking fund debentures and pollution control obligations
prior to their scheduled maturity dates, is deferred and amortized over the
lives of the long-term debt issued to finance the reacquisition for non-
generation related financings. See "Regulatory Assets and Liabilities" above
and Note 3 for additional information.
Stock Option Awards/Employee Stock Purchase Plan. Unicom has elected to
adopt SFAS No. 123, Accounting for Stock-Based Compensation, for disclosure
purposes only. Unicom accounts for its stock option awards and ESPP under APB
Opinion No. 25, Accounting for Stock Issued to Employees. See Note 7 for
additional information.
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Average Common Shares Outstanding. The number of average outstanding common
shares used to compute basic and diluted EPS for the three months, nine months
and twelve months ended September 30, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
------------------- ----------------- -------------------
2000 1999 2000 1999 2000 1999
--------- --------- -------- -------- --------- ---------
(Thousands of Shares)
<S> <C> <C> <C> <C> <C> <C>
Average Number of Common
Shares Outstanding:
Average Number of
Common Shares--Basic.. 174,003 217,375 180,739 217,231 189,935 217,208
Potentially Dilutive
Common Shares--
Treasury Method:
Stock Options........ 1,595 801 1,025 777 899 777
Other Convertible
Securities.......... 86 89 86 89 86 89
--------- --------- -------- -------- --------- ---------
Average Number of Common
Shares--Diluted........ 175,684 218,265 181,850 218,097 190,920 218,074
========= ========= ======== ======== ========= =========
</TABLE>
Energy Risk Management Contracts. In the normal course of business, ComEd
utilizes contracts for the forward sale and purchase of energy to manage
effectively the utilization of its available generating capability. ComEd also
utilizes put and call option contracts and energy swap arrangements to limit
the market price risk associated with the forward commodity contracts. As
ComEd does not currently utilize financial or commodity instruments for
trading or speculative purposes, any gains or losses on forward commodity
contracts are recognized when the underlying transactions affect earnings.
Revenues and expenses associated with market price risk management contracts
are amortized over the terms of such contracts.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards requiring that every derivative instrument, including certain
derivative instruments embedded in other contracts, be recorded on the
Consolidated Balance Sheets as either an asset or liability measured at its
fair value. In June 2000, FASB issued SFAS No. 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities, as an amendment of SFAS
No. 133. SFAS No. 133, as amended, requires that changes in the derivative's
fair value be recognized currently in earnings, unless specific hedge
accounting criteria are met. The accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged item on
the Statements of Consolidated Operations, and requires companies to formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting.
The effective date of SFAS No. 133, as amended, has been delayed for one
year, to fiscal years beginning after June 15, 2000. SFAS No. 133. SFAS No.
133, as amended, must be applied to (i) derivative instruments and
(ii) certain derivative instruments embedded in hybrid contracts that were
issued, acquired, or substantively modified after January 1, 1998 or January
1, 1999 at the Company's election.
Unicom and ComEd will adopt SFAS No. 133 on January 1, 2001, and are in the
final process of reviewing their various contracts to determine which
contracts need to be reflected as derivatives under the standard and accounted
for at fair value. Among the contracts that are expected to be subject to the
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
fair value requirements are contracts related to electricity and gas purchases
and sales. Unicom and ComEd have not fully quantified the effects on their
financial statements of adopting SFAS No. 133 on January 1, 2001. The ultimate
impact will depend upon market prices, at the time of adoption, for
electricity and gas. Adoption of SFAS No. 133 in 2001 will result in increased
volatility in earnings.
Reclassifications. Certain prior year amounts have been reclassified to
conform with current period presentation. These reclassifications had no
effect on operating results.
Cash Held for Redemption of Securities. As of September 30, 2000, the cash
held for redemption of securities reported on the Consolidated Balance Sheets
includes $72 million of escrowed cash and pending instrument funding charges
collected from ComEd customers to be applied to the principal and interest
payment on the transitional trust notes. See Note 3 for additional
information.
Investment in Leases. In June 2000, Unicom Investment entered into a like-
kind exchange transaction utilizing proceeds from the December 1999 sale of
fossil generating stations. Under the transaction, Unicom Investment invested
approximately $1.6 billion, previously classified as special deposits, in
passive generating station leases with two separate entities. The generating
stations were leased back to such entities as part of the transaction. For
financial accounting purposes, the investments are accounted for as direct
financing lease investments. Under the terms of the lease agreements, Unicom
Investment will receive prepayments of its scheduled lease payments of about
$1.24 billion in the fourth quarter of 2000 which will reduce the outstanding
lease investment at that time.
The components of the net investment in the direct financing leases as of
September 30, 2000 are as follows:
<TABLE>
<CAPTION>
(Thousands
of
Dollars)
----------
<S> <C>
Total minimum lease payments.................................. $2,727,233
Less: Unearned income......................................... 1,096,172
----------
$1,631,062
==========
</TABLE>
Goodwill. Goodwill represents the excess of the purchase consideration over
the fair value of the net assets of the companies or natural gas service
contracts acquired by subsidiaries of Unicom Enterprises. Goodwill arising
from such acquisitions is generally being amortized on a straight-line basis
over 40 years for goodwill arising from the acquisition of established
mechanical services companies and over 10 to 15 years for the goodwill arising
from the acquisition of performance contracting companies and natural gas
service contracts.
Statements of Consolidated Cash Flows. For purposes of the Statements of
Consolidated Cash Flows, temporary cash investments, generally investments
maturing within three months at the time of purchase, and cash held for
redemption of securities are considered to be cash equivalents. Supplemental
cash flow information for the three months, nine months and twelve months
ended September 30, 2000 and 1999 was as follows:
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
------------------- ------------------- -------------------
2000 1999 2000 1999 2000 1999
--------- --------- ---------- -------- ---------- --------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Supplemental Cash Flow
Information:
Cash paid during the
period for:
Interest (net of
amount capitalized). $143,101 $158,363 $ 411,261 $485,881 $ 532,195 $572,934
Income taxes (net of
refunds)............ $ 28,080 $140,915 $1,114,302 $225,022 $1,344,460 $484,873
Supplemental Schedule of
Non-Cash Investing and
Financing Activities:
Capital lease
obligations incurred
by subsidiary
companies............. $ -- $ 189 $ 34 $ 1,625 $ 154 $ 3,062
</TABLE>
(2) Merger Agreement. On October 19, 2000, Unicom and PECO received approval
from the Securities and Exchange Commission under the Public Utilities Holding
Company Act of 1935, the last regulatory approval, to complete their merger to
form Exelon Corporation. The companies completed the merger on October 20,
2000 and began trading as Exelon Corporation (NYSE: EXC) on October 23, 2000.
Upon completion of the merger, PECO and ComEd became the principal utility
subsidiaries of Exelon. This result was achieved by a mandatory exchange of
the outstanding common stock of PECO for common stock of Exelon, and a
subsequent merger of Unicom with and into Exelon wherein holders of Unicom
common stock received 0.875 shares of Exelon common stock plus $3.00 in cash
for each of their shares of Unicom common stock. The merger transaction will
be accounted for as a purchase of Unicom by PECO.
Consistent with Unicom's $1 billion share repurchase commitment in the
merger agreement with PECO, Unicom has completed the repurchase of 24 million
shares of its common stock. The shares were repurchased from the open market
over the recent ten months pursuant to agreements with financial institutions.
Approximately $153 million of these share repurchases were funded with
proceeds from the 1998 issuance of transitional trust notes. The remaining
share repurchases were funded from available funds, including funds ultimately
resulting from the fossil plant sale. These share repurchases are in addition
to 26.3 million shares of Unicom common stock that Unicom repurchased in
January 2000 upon settlement of certain forward purchase contracts. See Notes
6 and 23 for additional information.
ComEd and PECO are undertaking steps to transfer their generating assets and
wholesale power marketing operations to subsidiaries following the
consummation of the merger. Subsequent to those transfers, these subsidiaries
will be transferred to Exelon and ultimately will be combined into a power
generation and marketing company, which will be a direct subsidiary of Exelon
("Genco"). In ComEd's case, the transfer will include its Braidwood, Byron,
Dresden, LaSalle and Quad Cities nuclear generating stations representing an
aggregate generating capability of 9,566 megawatts, its Zion station, its
rights and obligations under various power purchase agreements, the assets
constituting its nuclear decommissioning trusts and its wholesale power
marketing business. Genco will enter into a power purchase agreement with
ComEd in which Genco will undertake to supply ComEd's full requirements for
electric energy through 2004 and all of ComEd's requirements up to the
available capacity of the nuclear generating stations in 2005 and 2006. On
August 3, the NRC approved the request of ComEd and PECO to transfer licenses
for both companies' nuclear plants from ComEd and PECO to Genco.
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
As part of the transfer of the nuclear generating stations, Genco is to
assume responsibility for the decommissioning of those stations, including
Zion Station and Dresden Unit 1, subject to an obligation of ComEd to continue
to collect decommissioning-related charges from its customers. In May 2000,
ComEd filed a petition with the ICC seeking approval to revise its existing
decommissioning rider to its rates. Under the proposed revision, ComEd would
collect approximately $121 million annually for a period of six years, after
which the decommissioning rider and collection of decommissioning funds would
end. On October 25, 2000, an ICC hearing examiner issued a proposed order
denying ComEd's petition on the basis that existing law does not allow the ICC
to authorize ComEd to continue to collect funds for decommissioning nuclear
generating plants that it no longer owns. ComEd believes that the proposed
order is wrong as a matter of law and that the ICC has the statutory authority
to grant ComEd's petition. The ICC is not bound by the proposed order and may
accept or reject it, in whole or in part, in preparing its final order in the
proceedings. Responses from the parties to the proceedings regarding the
proposed order are due in early November and a final order is expected before
year-end. ComEd is evaluating the effect of the proposed order on the proposed
structure of the Genco transaction. The transfer of the nuclear assets,
including the decommissioning trust funds, are subject to satisfactory
resolution of significant regulatory and tax issues.
(3) Accounting Effects Related to the 1997 Act. In December 1997, the
Governor of Illinois signed into law the 1997 Act, which established a phased
process to introduce competition into the electric industry in Illinois under
a less regulated structure. The 1997 Act was amended in June 1999.
As a result of the 1997 Act and FERC rules, prices for the supply of
electric energy are expected to transition from cost-based, regulated rates to
rates determined by competitive market forces. Accordingly, the 1997 Act
provides for, among other things, gradual customer access to other electric
suppliers or a power purchase option which allows the purchase of electric
energy from ComEd at market based prices, and the collection of a CTC from
customers who choose to purchase electric energy from a RES or elect the power
purchase option during a transition period that extends through 2006.
Effective October 1, 1999, the CTC was established in accordance with a
formula defined in the 1997 Act. The CTC, which is applied on a cents per
kilowatthour basis, considers the revenue which would have been collected from
a customer under tariffed rates, reduced by the revenue the utility will
receive for providing delivery services to the customer, the market price for
electricity and a defined mitigation factor, which represents the utility's
opportunity to develop new revenue sources and achieve cost savings. The CTC
allows ComEd to recover some of its costs which might otherwise be
unrecoverable under market-based rates. Nonetheless, ComEd will need to take
steps to address the portion of such costs which are not recoverable through
the CTC. Such steps may include cost control efforts, developing new sources
of revenue and asset dispositions. See Note 4 for additional information.
As of June 1, 2000, more than 62,000 non-residential customers are eligible
to choose a new electric supplier or elect the purchase power option. As of
September 30, 2000, over 7,800 non-residential customers, representing
approximately 18 percent of ComEd's retail kilowatthour sales for the twelve
months prior to the introduction of open access, elected to receive their
electric energy from a RES or chose the purchase power option. The impact of
customer choice on results of operations will depend on various factors,
including the extent to which customers elect to receive energy from a RES or
the purchased power option, the development of a competitive market, the
market price for energy, the extent to which ComEd develops new sources of
revenue and the results of cost control efforts. Because of the inherent
uncertainty in these factors ComEd is unable to predict the long term impact
of customer choice on results of operations. However, ComEd does not expect
customer choice to have a material effect in the near term as a result of the
collection of CTCs as provided by the 1997 Act.
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Utilities are required to continue to offer delivery services, including the
transmission and distribution of electric energy, such that customers who
select a RES can receive electric energy from that supplier using existing
transmission and distribution facilities. Such services will continue to be
offered under cost-based, regulated rates. The ICC issued orders in August and
September 1999 approving, with modifications, ComEd's delivery service
tariffs.
The 1997 Act also provides for a 15% residential base rate reduction which
became effective August 1, 1998 and an additional 5% residential base rate
reduction in October 2001. ComEd's operating revenues were reduced by
approximately $170 million in 1998 due to the 15% residential base rate
reduction. The 15% rate reduction further reduced ComEd's operating revenues
by approximately $226 million in 1999, compared to 1998 rate levels.
Notwithstanding the rate reductions and subject to certain earnings tests, a
rate freeze will generally be in effect until at least January 1, 2005. During
this period, utilities may reorganize, sell or assign assets, retire or remove
plants from service, and accelerate depreciation or amortization of assets
with limited ICC regulatory review. A utility may request a rate increase
during the rate freeze period only when necessary to ensure the utility's
financial viability. Under the earnings provision of the 1997 Act, if the
earned return on common equity of a utility during this period exceeds an
established threshold, one-half of the excess earnings must be refunded to
customers. The threshold rate of return on common equity is based on the 30-
Year Treasury Bond rate, plus 5.5% in the years 1998 and 1999, and plus 8.5%
in the years 2000 through 2004. The utility's earned return on common equity
and the threshold return on common equity for ComEd are each calculated on a
two-year average basis. The earnings sharing provision is applicable only to
ComEd's earnings. Consistent with the provisions of the 1997 Act, increased
amortization of regulatory assets may be recorded, thereby reducing the earned
return on common equity, if earnings otherwise would have exceeded the maximum
allowable rate of return. The potential for earnings sharing or increased
amortization of regulatory assets could limit earnings in future periods.
ComEd's returns on average common equity for the years 1999 and 1998 were
11.56% and 10.86%, respectively. The average return of 11.21% for the two year
period ended December 31, 1999 equaled the threshold return for that period
under the earnings provisions of the 1997 Act. ComEd does not currently expect
to trigger the earnings sharing provisions of the 1997 Act in the years 2000
through 2004.
The 1997 Act also allows a portion of ComEd's future revenues to be
segregated and used to support the issuance of securities by ComEd or a SPE.
The proceeds, net of transaction costs, from such security issuances must be
used to refinance outstanding debt or equity or for certain other limited
purposes. In December 1998, ComEd initiated the issuance of $3.4 billion of
transitional trust notes through its SPEs, ComEd Funding and ComEd Funding
Trust. The proceeds from the transitional trust notes, net of transaction
costs, were used to redeem long-term debt and preference stock and reduce
ComEd's outstanding short-term debt, as required. Unicom has also repurchased
its common stock using proceeds it received from ComEd's repurchase of its
common stock held by Unicom. The balance of the proceeds were used for the
payment of fees and other debt issuance costs and a collateral requirement
related to the transitional trust notes.
(4) Fossil Plant Sale. In December 1999, ComEd completed the sale of its
fossil generating assets to EME for a cash purchase price of $4.8 billion. The
fossil generating assets represent an aggregate generating capacity of
approximately 9,772 megawatts.
Just prior to the consummation of the fossil plant sale, ComEd transferred
these assets to an affiliate, Unicom Investment. In consideration for the
transferred assets, Unicom Investment paid ComEd consideration totalling
approximately $4.8 billion in the form of a demand note in the amount
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
of approximately $2.4 billion and an interest-bearing note with a maturity of
twelve years. Unicom Investment immediately sold the fossil plant assets to
EME, in consideration of which Unicom Investment received approximately $4.8
billion in cash from EME. Immediately after its receipt of the cash payment
from EME, Unicom Investment paid the $2.4 billion aggregate principal due to
ComEd under the demand note. Unicom Investment will use the remainder of the
cash received from EME to fund other business opportunities, including the
share repurchases. Of the cash received by ComEd, $1.5 billion has been used
to pay the costs and taxes associated with the fossil plant sale, including
ComEd's contribution of $250 million of the proceeds to an environmental trust
as required by the 1997 Act. The remainder of the demand note proceeds will be
available to ComEd to fund, among other things, transmission and distribution
projects, nuclear generation station projects, and environmental and other
initiatives. See Note 1, under "Investment in Leases," for additional
information.
The sale produced an after-tax gain of approximately $1.6 billion, after
recognizing commitments associated with certain coal contracts ($350 million),
recognizing employee-related costs ($112 million) and contributing to the
environmental trust. The coal contract costs include the amortization of the
remaining balance of ComEd's regulatory asset for unrecovered coal reserves of
$178 million and the recognition of $172 million of settlement payments
related to the above-market portion of coal purchase commitments ComEd
assigned to EME at market value upon completion of the fossil plant sale. The
severance costs included pension and post-retirement welfare benefit
curtailment and special termination benefit costs of $51 million and
transition, separation and retention payments of $61 million. A total of 1,730
fossil station employee positions were eliminated upon completion of the
fossil plant sale on December 15, 1999. The employees whose positions were
eliminated have been terminated. Consistent with the provisions of the 1997
Act, the (pre-tax) gain on the sale of $2.587 billion resulted in a regulatory
liability, which was used to recover regulatory assets. Therefore, the gain on
the sale, excluding $43 million of amortization of investment tax credits, was
recorded as a regulatory liability in the amount of $2.544 billion and
amortized in the fourth quarter of 1999. The amortization of the regulatory
liability and additional regulatory asset amortization of $2.456 billion are
reflected in depreciation and amortization expense on Unicom's Statement of
Consolidated Operations. See Note 1, under "Regulatory Assets and
Liabilities," for additional information.
(5) Authorized Shares, Voting Rights and Stock Rights of Capital Stock. At
September 30, 2000, Unicom's authorized shares consisted of 400,000,000 shares
of common stock. The authorized shares of ComEd preferred and preference
stocks at September 30, 2000 were: preference stock--6,810,451 shares and
prior preferred stock--850,000 shares. The preference and prior preferred
stocks are issuable in series and may be issued with or without mandatory
redemption requirements.
Pursuant to a plan adopted by the Unicom Board of Directors on February 2,
1998, each share of Unicom's common stock carries the right (referred to
herein as a "Right") to purchase one-thousandth of one share of Unicom's
common stock at a purchase price of $100 per whole share of common stock,
subject to adjustment. The plan was amended on September 22, 1999 to render
the Rights inapplicable to the transactions contemplated by the Merger
Agreement. The Rights are tradable only with Unicom's common stock until they
become exercisable. The Rights become exercisable upon the earlier of ten days
following a public announcement that a person (an "Acquiring Person") has
acquired 15% or more of Unicom's outstanding common stock or ten business days
(or such later date as may be determined by action of the Board of Directors)
following the commencement of a tender or exchange offer which, if
consummated, would result in a person or group becoming an Acquiring Person.
The Rights are subject to redemption by Unicom at a price of $0.01 per Right,
subject to certain limitations, and will expire on February 2, 2008. If a
person or group becomes an Acquiring
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
stock at a 50% discount from the then current market price. If Unicom is
acquired in a merger or other business combination transaction in which Unicom
is not the survivor, or 50% or more of Unicom's assets or earning power is
sold or transferred, each holder of a Right shall then have the right to
receive, upon exercise, common stock of the acquiring company at a 50%
discount from the then current market price of such common stock. Rights held
by an Acquiring Person become void upon the occurrence of such events.
(6) Common Equity. In January 2000, Unicom physically settled the forward
share repurchase arrangements it had with financial institutions for the
repurchase of 26.3 million Unicom common shares. Prior to settlement, the
repurchase arrangements were recorded as a receivable on Unicom's Consolidated
Balance Sheets based on the aggregate market value of the shares under the
arrangements. In 1999, net unrealized losses of $44 million (after-tax), or
$0.20 per common share were recorded related to the arrangements. The
settlement of the arrangements in January 2000 resulted in a gain of $113
million (after-tax), which was recorded in the first quarter of 2000. The
settlement of the arrangements resulted in a reduction in Unicom's outstanding
common shares and common stock equity effective January 2000.
Consistent with Unicom's $1 billion share repurchase commitment in the
merger agreement with PECO, Unicom has completed the repurchase of 24 million
shares of its common stock. The shares were repurchased from the open market
over the recent ten months pursuant to agreements with financial institutions.
Approximately $153 million of the share repurchases were funded with proceeds
from the 1998 issuance of transitional trust notes.
At September 30, 2000, shares of Unicom common stock were reserved for the
following purposes:
<TABLE>
<S> <C>
Long-Term Incentive Plan........................................ 1,041,015
Employee Stock Purchase Plan.................................... 284,940
Shareholder Rights Plan......................................... 400,000
Exchange for ComEd common stock not held by Unicom.............. 86,040
1996 Directors' Fee Plan........................................ 135,791
---------
1,947,786
=========
</TABLE>
Common stock issued/(reacquired) for the three months, nine months and
twelve months ended September 30, 2000 and 1999 was as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
--------------------- --------------------- ---------------------
2000 1999 2000 1999 2000 1999
----------- -------- ------------ ------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Shares of Common Stock
Issued/(Reacquired):
Long-Term Incentive
Plan.................. 520,842 154,971 1,190,748 388,186 1,254,063 510,850
Employee Stock Purchase
Plan.................. -- -- 38,857 45,126 83,231 86,884
Exchange for ComEd com-
mon stock not held by
Unicom................ 590 -- 1,610 (3,330) 2,486 1,727
1996 Directors' Fee
Plan.................. 1,085 739 26,668 4,087 28,102 7,088
Treasury Stock......... (7,798,100) -- (49,444,000) -- (49,444,000) --
----------- -------- ------------ ------- ------------ -------
(7,275,583) 155,710 (48,186,117) 434,069 (48,076,118) 606,549
=========== ======== ============ ======= ============ =======
</TABLE>
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
----------------------------------------- ---------------------
2000 1999 2000 1999 2000 1999
---------- ------------------- -------- ----------- --------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Changes in Common Stock
Accounts:
Total shares issued.... $ 18,492 $ 3,756 $ 30,935 $ 8,533 $ 43,691 $ 14,463
Net cash settlement of
forward share repur-
chase contract........ -- -- -- (16,454) -- (16,454)
Share repurchases...... (374,434) -- (1,953,008) -- (1,953,008) --
Shares held by trustee
for Unicom Stock Bonus
Deferral Plan......... -- -- -- -- -- 7,428
Other.................. (27) 7 78 144 87 (51)
---------- ------- ----------- -------- ----------- --------
$ (355,969) $ 3,763 $(1,921,995) $ (7,777) $(1,909,230) $ 5,386
========== ======= =========== ======== =========== ========
</TABLE>
At September 30, 2000 and December 31, 1999, 75,082 and 75,692,
respectively, ComEd common stock purchase warrants were outstanding. The
warrants entitle the holders to convert such warrants into common stock of
ComEd at a conversion rate of one share of common stock for three warrants.
(7) Stock Option Awards/Employee Stock Purchase Plan. Unicom has a
nonqualified stock option awards program under its Long-Term Incentive Plan.
The stock option awards program was adopted by Unicom in July 1996 to reward
valued employees responsible for, or contributing to, the management, growth
and profitability of Unicom and its subsidiaries. The stock options granted
expire ten years from their grant date. One-third of the shares subject to the
options vest on each of the first three anniversaries of the option grant
date. In addition, the stock options will become fully vested immediately if
the holder dies, retires, is terminated by the Company, other than for cause,
or qualifies for long-term disability. Options granted before July 22, 1998
also vest in full upon a change in control, while options granted on or after
July 22, 1998 vest in full if the option holder is terminated within 24 months
after a change of control.
Stock option transactions through September 30, 2000 are summarized as
follows:
<TABLE>
<CAPTION>
Number of Weighted Average
Options Exercise Price
--------- ----------------
<S> <C> <C>
Outstanding as of December 31, 1997................ 2,291,378 $23.810
Granted during the year............................ 1,379,525 35.234
Exercised during the year.......................... (404,082) 24.244
Expired/cancelled during the year.................. (123,928) 25.715
---------
Outstanding as of December 31, 1998................ 3,142,893 28.694
Granted during the year............................ 1,853,050 35.750
Exercised during the year.......................... (313,231) 24.102
Expired/cancelled during year...................... (179,076) 33.551
---------
Outstanding as of December 31, 1999................ 4,503,636 31.723
Granted during the nine months ended September 30,
2000.............................................. 2,213,100 37.063
Exercised during the nine months ended September
30, 2000.......................................... (874,785) 27.834
Expired/cancelled during the nine months ended Sep-
tember 30, 2000................................... (140,598) 35.710
---------
Outstanding as of September 30, 2000............... 5,701,353 34.294
=========
</TABLE>
Of the stock options outstanding at September 30, 2000, 2,075,749 had vested
with a weighted average exercise price of $30.77.
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
The fair value of each stock option is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
Stock Option Grant Date
-----------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Expected option life.................................... 7 years 7 years 7 years
Dividend yield.......................................... 4.30% 4.50% 4.54%
Expected volatility..................................... 21.97% 23.02% 21.95%
Risk-free interest rate................................. 6.76% 4.83% 5.58%
</TABLE>
The estimated weighted average fair value for each stock option granted in
the first three quarters of 2000 and in 1999 and 1998 was $8.19, $6.48 and
$6.62, respectively.
The ESPP was terminated on June 28, 2000 by Unicom's Board of Directors in
anticipation of the merger with PECO. The ESPP allowed employees to purchase
Unicom common stock at a ten percent discount from market value. Substantially
all of the employees of Unicom, ComEd and their subsidiaries were eligible to
participate in the ESPP. Unicom issued 83,231 and 86,884 shares of common
stock for the twelve months ended September 30, 2000 and 1999, respectively,
under the ESPP at a weighted average annual purchase price of $35.02 and
$34.34, respectively.
Unicom has adopted the disclosure-only provisions of SFAS No. 123. For
financial reporting purposes, Unicom has adopted APB No. 25 and has taken into
consideration FASB Interpretation No. 44 of APB No. 25, and thus no
compensation cost has been recognized for the stock option awards program or
ESPP. If Unicom had recorded compensation expense for the stock options
granted and the shares of common stock issued under the ESPP in accordance
with SFAS No. 123 using the fair value based method of accounting, the
additional charge to operations would have been $4 million (after-tax), or
$0.02 per common share (diluted), and $4 million (after-tax), or $0.02 per
common share (diluted), for the twelve months ended September 30, 2000 and
1999, respectively.
(8) ComEd Preferred and Preference Stocks Without Mandatory Redemption
Requirements. During the twelve months ended September 30, 2000 and 1999, no
shares and 13,499,549 shares of preferred or preference stock without
mandatory redemption requirements were redeemed, respectively, and no shares
were issued. All of the outstanding shares of Series $1.425 preferred stock
were redeemed on August 1, 2000. The redemption price was $42 per share, plus
accrued and unpaid dividends.
(9) ComEd Preference Stock Subject to Mandatory Redemption
Requirements. During the twelve months ended September 30, 2000 and 1999, no
shares of ComEd preference stock subject to mandatory redemption requirements
were issued. During the twelve months ended September 30, 2000 and 1999,
700,000 shares and 1,056,060 shares, respectively, of ComEd preference stock
subject to mandatory redemption requirements were reacquired to meet sinking
fund requirements or were part of the early redemption in 1999. There were
700,000 shares of Series $6.875 preference stock outstanding at December 31,
1999, at an aggregate stated value of $69 million. This series was non-
callable and was redeemed on May 1, 2000.
(10) ComEd-Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trusts Holding Solely ComEd's Subordinated Debt Securities. In
September 1995, ComEd Financing I, a wholly-owned subsidiary trust of ComEd,
issued 8,000,000 of its 8.48% ComEd-obligated mandatorily redeemable preferred
securities. The sole asset of ComEd Financing I is $206.2 million principal
amount of ComEd's 8.48% subordinated deferrable interest notes due September
30, 2035. In January 1997, ComEd Financing II, a wholly-owned subsidiary trust
of ComEd, issued 150,000 of its 8.50% ComEd-obligated mandatorily redeemable
capital securities. The sole asset of ComEd
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Financing II is $154.6 million principal amount of ComEd's 8.50% subordinated
deferrable interest debentures due January 15, 2027. There is a full and
unconditional guarantee by ComEd of the Trusts' obligations under the
securities issued by the Trusts. However, ComEd's obligations are subordinate
and junior in right of payment to certain other indebtedness of ComEd. ComEd
has the right to defer payments of interest on the subordinated deferrable
interest notes by extending the interest payment period, at any time, for up
to 20 consecutive quarters. Similarly, ComEd has the right to defer payments
of interest on the subordinated deferrable interest debentures by extending
the interest payment period, at any time, for up to ten consecutive semi-
annual periods. If interest payments on the subordinated deferrable interest
notes or debentures are so deferred, distributions on the preferred securities
will also be deferred. During any deferral, distributions will continue to
accrue with interest thereon. In addition, during any such deferral, ComEd may
not declare or pay any dividend or other distribution on, or redeem or
purchase, any of its capital stock.
The subordinated deferrable interest notes are redeemable by ComEd, in whole
or in part, from time to time, on or after September 30, 2000, and with
respect to the subordinated deferrable interest debentures, on or after
January 15, 2007, or at any time in the event of certain income tax
circumstances. If the subordinated deferrable interest notes or debentures are
redeemed, the Trusts must redeem preferred securities having an aggregate
liquidation amount equal to the aggregate principal amount of the subordinated
deferrable interest notes or debentures so redeemed. In the event of the
dissolution, winding up or termination of the Trusts, the holders of the
preferred securities will be entitled to receive, for each preferred security,
a liquidation amount of $25 for the securities of ComEd Financing I and $1,000
for the securities of ComEd Financing II, plus accrued and unpaid
distributions thereon, including interest thereon, to the date of payment,
unless in connection with the dissolution, the subordinated deferrable
interest notes or debentures are distributed to the holders of the preferred
securities.
(11) Long-Term Debt. ComEd initiated the issuance of $3.4 billion of
transitional trust notes through its SPEs, ComEd Funding and ComEd Funding
Trust, in the fourth quarter of 1998. The current amount outstanding is as
follows:
<TABLE>
<CAPTION>
Series Principal Amount
------------------------ ----------------------
(Thousands of Dollars)
<S> <C>
5.29% due June 25, 2001............................ $ 254,541
5.34% due March 25, 2002........................... 258,861
5.39% due June 25, 2003............................ 421,139
5.44% due March 25, 2005........................... 598,511
5.63% due June 25, 2007............................ 761,489
5.74% due December 25, 2008........................ 510,000
----------
$2,804,541
==========
</TABLE>
For accounting purposes, the liabilities of ComEd Funding Trust for the
transitional trust notes are reflected as long-term debt on the Consolidated
Balance Sheets of Unicom and ComEd.
The proceeds, net of transaction costs, from the transitional trust notes
were used, as required, to redeem debt and equity. During 1999, ComEd redeemed
or reacquired $1,101 million of long-term debt.
Sinking fund requirements and scheduled maturities remaining through 2004
for ComEd's first mortgage bonds, transitional trust notes, sinking fund
debentures and other long-term debt outstanding at September 30, 2000, after
deducting deposits made for the retirement of sinking fund debentures, are
summarized as follows: 2000--$86 million; 2001--$346 million; 2002--$845
million; 2003--$695 million; and 2004--$577 million.
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
At September 30, 2000, ComEd's outstanding first mortgage bonds maturing
through 2004 were as follows:
<TABLE>
<CAPTION>
Series Principal Amount
-------------------------------- ----------------------
(Thousands of Dollars)
<S> <C>
7 3/8% due September 15, 2002...................... $200,000
6 5/8% due July 15, 2003........................... 100,000
5 3/10% due January 15, 2004....................... 26,000
--------
$326,000
========
</TABLE>
Other long-term debt outstanding at September 30, 2000 is summarized as
follows:
<TABLE>
<CAPTION>
Principal
Debt Security Amount Interest Rate
---------------------------------------- ---------- ------------------------------------------
(Thousands
of
Dollars)
<S> <C> <C>
Unicom--
Loans Payable:
Loan due January 1, 2003 $ 4,212 Interest rate of 8.31%
Loan due January 1, 2004 5,021 Interest rate of 8.44%
Loan due January 15, 2009 5,228 Interest rate of 8.30%
Loan due January 15, 2009 6,568 Interest rate of 8.55%
Loan due January 15, 2010 3,632 Interest rate of 8.65%
Loan due January 15, 2010 6,880 Interest rate of 8.88%
Loan due July 15, 2010 8,703 Interest rate of 7.98%
----------
$ 40,244
----------
ComEd--
Notes:
Senior note due September 30, 2002 $ 200,000 Interest rate of 7.158%
Senior note due September 30, 2003 250,000 Interest rate of 7.284%
Medium Term Notes, Series 3N due vari-
ous dates through October 15, 2004 156,000 Interest rates ranging from 9.17% to 9.20%
Notes due January 15, 2004 150,000 Interest rate of 7.375%
Notes due October 15, 2005 235,000 Interest rate of 6.40%
Notes due January 15, 2007 150,000 Interest rate of 7.625%
Notes due July 15, 2018 225,000 Interest rate of 6.95%
----------
$1,366,000
----------
Purchase Contract Obligation
due April 30, 2005 $ 254 Interest rate of 3.00%
----------
Total ComEd $1,366,254
----------
Unicom Enterprises--
Notes:
Unicom Thermal Guaranteed Senior Note
due January 31, 2020 $ 28,000 Interest rate of 9.09%
Northwind Midway Guaranteed Senior Note
due June 30, 2023 11,423 Interest rate of 7.68%
Unicom Thermal Obligation due April 1,
2015 1,124 Interest rate of 8.00%
Unicom Mechanical Services Notes
due various dates through July 15,
2003 156 Interest rate ranging from 8.50% to 9.25%
----------
Total Unicom Enterprises $ 40,703
----------
Total Unicom $1,447,201
==========
</TABLE>
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Long-term debt maturing within one year has been included in current
liabilities.
ComEd's outstanding first mortgage bonds are secured by a lien on
substantially all property and franchises, other than expressly excepted
property, owned by ComEd.
Unicom Thermal redeemed the $115.8 million outstanding balance of the 7.38%
unsecured guaranteed senior Note on July 12, 2000. Unicom Thermal recorded an
extraordinary loss related to early redemption premiums paid and the write-off
of unamortized debt expenses, which reduced Unicom's net income on common
stock by approximately $3.5 million (after-tax) in the third quarter of 2000.
In May 2000, Northwind Chicago issued $28 million of 9.09% guaranteed senior
Notes due January 31, 2020, the proceeds of which will be used primarily to
finance certain project construction costs. The Notes were guaranteed by
Unicom and included certain covenants with respect to Unicom and Northwind
Chicago's operations. Pursuant to Unicom's merger with PECO, Exelon assumed
Unicom's guarantee obligation with respect to the Notes as a matter of law.
In June 1999, Northwind Midway issued $11.4 million of 7.68% guaranteed
senior Notes due June 2023, the proceeds of which will be used primarily to
finance certain project construction costs. The Notes were guaranteed by
Unicom and include certain covenants with respect to Unicom and Northwind
Midway's operations. Such covenants include, among other things, a requirement
that Unicom and its consolidated subsidiaries own no less than 65% of the
voting membership interest of Northwind Midway. Pursuant to Unicom's merger
with PECO, Exelon assumed Unicom's guarantee obligation with respect to the
Notes as a matter of law.
(12) Lines of Credit. ComEd had total unused bank lines of credit of $800
million at September 30, 2000. Of that amount, $500 million expires on
December 15, 2000 and $300 million expires on December 17, 2002. The interest
rate is set at the time of a borrowing and is based on several floating rate
bank indices plus a spread which is dependent upon the credit rating of
ComEd's outstanding first mortgage bonds or on a prime interest rate. ComEd is
obligated to pay commitment and facility fees with respect to the line of
credit.
(13) Disposal of Spent Nuclear Fuel. Under the Nuclear Waste Policy Act of
1982, the DOE is responsible for the selection and development of repositories
for, and the disposal of, spent nuclear fuel and high-level radioactive waste.
ComEd, as required by that Act, has entered into a contract with the DOE to
provide for the disposal of spent nuclear fuel and high-level radioactive
waste from ComEd's nuclear generating stations. The contract with the DOE
requires ComEd to pay the DOE a one-time fee applicable to nuclear generation
through April 6, 1983 of $277 million, with interest to date of payment, and a
fee payable quarterly equal to one mill per kilowatthour of nuclear-generated
and sold electricity after April 6, 1983. Pursuant to the contract, ComEd has
elected to pay the one-time fee, with interest, just prior to the first
delivery of spent nuclear fuel to the DOE. The liability for the one-time fee
and the related interest is reflected on the Consolidated Balance Sheets. The
contract also provided for acceptance by the DOE of such materials to begin in
January 1998; however, that date was not met by the DOE and is expected to be
delayed significantly. The DOE's current estimate for opening a facility to
accept such waste is 2010. This extended delay in spent nuclear fuel
acceptance by the DOE has led to ComEd's consideration of additional dry
storage alternatives. On July 30, 1998, ComEd filed a complaint against the
United States in the United States Court of Federal Claims seeking to recover
damages caused by the DOE's failure to honor its contractual obligation to
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
begin disposing of spent nuclear fuel in January 1998. On September 14, 2000,
the Judge hearing ComEd's case lifted a stay originally imposed on November 5,
1999. The court further ordered the government to file a response to ComEd's
motion for summary judgment on the issue of the DOE's liability for breaching
its contract with ComEd.
(14) Fair Value of Financial Instruments. The following methods and
assumptions were used to estimate the fair value of financial instruments
either held, or issued and outstanding. The disclosure of such information
does not purport to be a market valuation of Unicom and subsidiary companies
as a whole. The impact of any realized or unrealized gains or losses related
to such financial instruments on the financial position or results of
operations of Unicom and subsidiary companies is primarily dependent on the
treatment authorized under future ComEd ratemaking proceedings.
Investments. Securities included in the nuclear decommissioning funds have
been classified and accounted for as "available for sale" securities. The
estimated fair value of the nuclear decommissioning funds, as determined by
the trustee and based on published market data, as of September 30, 2000 and
December 31, 1999 was as follows:
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
-------------------------------- --------------------------------
Unrealized Unrealized
Gains/ Gains/
CostBasis (Losses) Fair Value Cost Basis (Losses) Fair Value
---------- ---------- ---------- ---------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Short-term investments.. $ 33,583 $ -- $ 33,583 $ 41,362 $ 95 $ 41,457
U.S. Government and
Agency issues.......... 244,797 8,761 253,558 245,399 (1,993) 243,406
Municipal bonds......... 394,946 6,027 400,973 383,816 (940) 382,876
Corporate bonds......... 212,357 (2,416) 209,941 196,942 (5,699) 191,243
Common stock............ 911,799 677,324 1,589,123 832,802 732,893 1,565,695
Other................... 162,879 11,963 174,842 125,072 (3,209) 121,863
---------- -------- ---------- ---------- -------- ----------
$1,960,361 $701,659 $2,662,020 $1,825,393 $721,147 $2,546,540
========== ======== ========== ========== ======== ==========
</TABLE>
At September 30, 2000, the debt securities held by the nuclear
decommissioning funds had the following maturities:
<TABLE>
<CAPTION>
Cost Basis Fair Value
---------- ----------
(Thousands of
Dollars)
<S> <C> <C>
Within 1 year....................................... $ 31,303 $ 31,627
1 through 5 years................................... 325,139 326,986
5 through 10 years.................................. 222,319 226,044
Over 10 years....................................... 425,776 429,513
</TABLE>
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
The net earnings of the nuclear decommissioning funds, which are recorded in
the accumulated provision for depreciation, for the three months, nine months
and twelve months ended September 30, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
------------------ ---------------------- ---------------------
2000 1999 2000 1999 2000 1999
-------- --------- ---------- ---------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Gross proceeds from
sales of
securities............. $359,346 $ 399,024 $1,263,586 $1,241,887 $1,786,700 $1,637,011
Less cost based on spe-
cific
identification......... 332,394 386,970 1,198,132 1,205,155 1,711,128 1,598,484
-------- --------- ---------- ---------- ---------- ----------
Realized gains/(losses)
on sales of
securities............. $ 26,952 $ 12,054 $ 65,454 $ 36,732 $ 75,571 $ 38,527
Other realized fund
earnings, net of
expenses............... 12,126 12,186 30,113 43,002 50,038 59,983
-------- --------- ---------- ---------- ---------- ----------
Total realized net earn-
ings of the funds...... $ 39,078 $ 24,240 $ 95,567 $ 79,734 $ 125,609 $ 98,510
Unrealized
gains/(losses)......... 6,056 (135,210) (19,488) (46,472) 128,494 142,147
-------- --------- ---------- ---------- ---------- ----------
Total net earnings of
the funds............. $ 45,134 $(110,970) $ 76,079 $ 33,262 $ 254,103 $ 240,657
======== ========= ========== ========== ========== ==========
</TABLE>
Securities held by certain trusts, which were established to provide for
supplemental retirement benefits and executive medical claims, have been
classified and accounted for as "available for sale." The estimated fair value
of these securities, as determined by the trustee and based on published
market data, as of September 30, 2000 was as follows:
<TABLE>
<CAPTION>
Cost Unrealized Fair
Basis Gain Value
------- ---------- -------
(Thousands of Dollars)
<S> <C> <C> <C>
Short-term investments.............................. $ 279 $ -- $ 279
Registered investment companies..................... 21,955 13,258 35,213
------- ------- -------
$22,234 $13,258 $35,492
======= ======= =======
</TABLE>
Current Assets. Cash, temporary cash investments, cash held for redemption
of securities and other cash investments, which include U.S. Government
obligations and other short-term marketable securities, and special deposits,
are stated at cost, which approximates their fair value because of the short
maturity of these instruments. The securities included in these categories
have been classified as "available for sale" securities.
Capitalization. The estimated fair values of ComEd preferred and preference
stocks, ComEd-obligated mandatorily redeemable preferred securities of
subsidiary trusts holding solely ComEd's subordinated debt securities,
transitional trust notes and long-term debt were obtained from an independent
consultant. The estimated fair values, which include the current portions of
redeemable preference stock and long-term debt but exclude accrued interest
and dividends, as of September 30, 2000 and December 31, 1999 were as follows:
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
-------------------------------- ---------------------------------
Unrealized Unrealized
Carrying Gains/ Carrying Gains/ Fair
Value (Losses) Fair Value Value (Losses) Value
---------- ---------- ---------- ---------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
ComEd preferred and
preference stocks...... $ -- $ -- $ -- $ 71,265 $ 58 $ 71,323
ComEd-obligated
mandatorily redeemable
preferred securities of
subsidiary trusts
holding solely ComEd's
subordinated debt
securities............. $ 350,000 $(21,467) $ 328,533 $ 350,000 $ (10,595) $ 339,405
Transitional trust
notes.................. $2,794,121 $(98,119) $2,696,002 $3,057,112 $(163,600) $2,893,512
Long-term debt.......... $4,690,093 $ 6,925 $4,697,018 $4,810,108 $ (23,136) $4,786,972
</TABLE>
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Current Liabilities. The carrying value of notes payable, which consists of
commercial paper and bank loans maturing within one year, approximates the
fair value because of the short maturity of these instruments. See
"Capitalization" above for a discussion of the fair value of the current
portion of long-term debt and redeemable preference stock.
Other Noncurrent Liabilities. The carrying value of accrued spent nuclear
fuel disposal fee and related interest represents the settlement value as of
September 30, 2000 and December 31, 1999; therefore, the carrying value is
equal to the fair value.
(15) Pension and Postretirement Benefits. As of September 30, 2000, ComEd
had a qualified non-contributory defined benefit pension plan which covers all
regular employees of ComEd and certain of Unicom's subsidiaries. Benefits
under this plan reflect each employee's compensation, years of service and age
at retirement. Funding is based upon actuarially determined contributions that
take into account the amount deductible for income tax purposes and the
minimum contribution required under the Employee Retirement Income Security
Act of 1974, as amended. The September 30, 2000 and December 31, 1999 pension
liabilities and related data were determined using the January 1, 1999
actuarial valuation. Additionally, ComEd maintains a nonqualified supplemental
retirement plan which covers any excess pension benefits that would be payable
to management employees under the qualified plan but which are limited by the
Internal Revenue Code. In 1998, Indiana Company's qualified defined benefit
pension plan was merged into ComEd's pension plan as a result of the sale of
Indiana Company's State Line Station and the transfer of its remaining
employees to ComEd.
ComEd and certain of Unicom's subsidiaries provide certain postretirement
medical, dental and vision care, and life insurance for retirees and their
dependents and for the surviving dependents of eligible employees and
retirees. Generally, the employees become eligible for postretirement benefits
if they retire no earlier than age 55 with ten years of service. The liability
for postretirement benefits is funded through trust funds based upon
actuarially determined contributions that take into account the amount
deductible for income tax purposes. The health care plans are contributory,
funded jointly by the companies and the participating retirees. The September
30, 2000 and December 31, 1999 postretirement benefit liabilities and related
data were determined using the January 1, 1999 actuarial valuations.
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Reconciliations of the beginning and ending balances of the projected
pension benefit obligation and the accumulated postretirement benefit
obligation, and the funded status of these plans for the nine months ended
September 30, 2000 and twelve months ended December 31, 1999 were as follows:
<TABLE>
<CAPTION>
Nine Months Ended Twelve Months Ended
September 30, 2000 December 31, 1999
-------------------------- --------------------------
Other Other
Pension Postretirement Pension Postretirement
Benefits Benefits Benefits Benefits
---------- -------------- ---------- --------------
(Thousands of Dollars)
Change in benefit
obligation
-----------------
<S> <C> <C> <C> <C>
Benefit obligation at
beginning of period.... $4,124,000 $1,169,000 $4,326,000 $1,236,000
Service cost............ 53,000 25,000 120,000 41,000
Interest cost........... 232,000 66,000 285,000 82,000
Plan participants' con-
tributions............. -- 3,000 -- 4,000
Actuarial loss/(gain)... 6,000 (1,000) (428,000) (170,000)
Benefits paid........... (195,000) (43,000) (241,000) (51,000)
Special termination ben-
efits.................. -- 6,000 62,000 27,000
---------- ---------- ---------- ----------
Benefit obligation at
end of period......... $4,220,000 $1,225,000 $4,124,000 $1,169,000
---------- ---------- ---------- ----------
<CAPTION>
Change in plan assets
---------------------
<S> <C> <C> <C> <C>
Fair value of plan as-
sets at beginning of
period................. $4,270,000 $ 948,000 $4,015,000 $ 865,000
Actual return on plan
assets................. 78,000 20,000 493,000 106,000
Employer contribution... 4,000 -- 3,000 24,000
Plan participants' con-
tributions............. -- 3,000 -- 4,000
Benefits paid........... (195,000) (43,000) (241,000) (51,000)
---------- ---------- ---------- ----------
Fair value of plan as-
sets at end of period. $4,157,000 $ 928,000 $4,270,000 $ 948,000
---------- ---------- ---------- ----------
Plan assets
greater/(less) than
benefit obligation..... $ (63,000) $ (297,000) $ 146,000 $ (221,000)
Unrecognized net actuar-
ial gain............... (305,000) (479,000) (534,000) (538,000)
Unrecognized prior serv-
ice cost/(asset)....... (10,000) 38,000 (11,000) 41,000
Unrecognized transition
obligation/(asset)..... (71,000) 261,000 (79,000) 276,000
---------- ---------- ---------- ----------
Accrued liability for
benefits.............. $ (449,000) $ (477,000) $ (478,000) $ (442,000)
========== ========== ========== ==========
</TABLE>
The assumed discount rate used to determine the benefit obligation as of
September 30, 2000 and December 31, 1999 was 7.75%. The fair value of plan
assets excludes $26 million and $25 million held in grantor trust as of
September 30, 2000 and December 31, 1999, respectively, for the payment of
benefits under the supplemental plan and $9 million and $9 million held in a
grantor trust as of September 30, 2000 and December 31, 1999, respectively,
for the payment of postretirement medical benefits.
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
The components of pension and other postretirement benefit costs, portions
of which were recorded as components of construction costs, for the three
months, nine months and twelve months ended September 30, 2000 were as
follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
-------------------- -------------------- --------------------
2000 1999 2000 1999 2000 1999
--------- --------- --------- --------- --------- ---------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Pension Benefit Costs
---------------------
Service cost............ $ 12,000 $ 31,000 $ 53,000 $ 94,000 $ 79,000 $ 116,000
Interest cost on pro-
jected benefit obliga-
tion................... 78,000 71,000 232,000 213,000 304,000 278,000
Expected return on plan
assets................. (98,000) (90,000) (295,000) (271,000) (386,000) (356,000)
Amortization of transi-
tion asset............. (3,000) (3,000) (8,000) (9,000) (12,000) (12,000)
Amortization of prior
service asset.......... 1,000 (1,000) (1,000) (3,000) (2,000) (4,000)
Recognized loss/(gain).. (3,000) 1,000 (5,000) 3,000 (5,000) 4,000
Curtailment loss........ -- -- -- -- 16,000 --
--------- --------- --------- --------- --------- ---------
Net periodic benefit
cost.................. $ (13,000) $ 9,000 $ (24,000) $ 27,000 $ (6,000) $ 26,000
========= ========= ========= ========= ========= =========
Other Postretirement
Benefit Costs
--------------------
Service cost............ $ 9,000 $ 10,000 $ 25,000 $ 31,000 $ 35,000 $ 42,000
Interest cost on accumu-
lated benefit
obligation............. 22,000 21,000 66,000 62,000 86,000 84,000
Expected return on plan
assets................. (21,000) (19,000) (64,000) (56,000) (84,000) (73,000)
Amortization of transi-
tion obligation........ 5,000 6,000 15,000 17,000 20,000 22,000
Amortization of prior
service cost........... 1,000 1,000 3,000 3,000 4,000 4,000
Recognized gain......... (5,000) (3,000) (16,000) (9,000) (21,000) (9,000)
Severance plan cost..... 6,000 -- 6,000 1,000 6,000 5,000
Curtailment loss........ -- -- -- -- 35,000 --
--------- --------- --------- --------- --------- ---------
Net periodic benefit
cost.................. $ 17,000 $ 16,000 $ 35,000 $ 49,000 $ 81,000 $ 75,000
========= ========= ========= ========= ========= =========
</TABLE>
In accounting for the pension costs and other postretirement benefit costs
under the plans, the following weighted average actuarial assumptions were
used for the periods during 2000, 1999 and 1998:
<TABLE>
<CAPTION>
Other
Postretirement
Pension Benefits Benefits
----------------- -----------------
2000 1999 1998 2000 1999 1998
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Annual discount rate....................... 7.75% 6.75% 7.00% 7.75% 6.75% 7.00%
Annual long-term rate of return on plan as-
sets...................................... 9.50% 9.25% 9.50% 9.23% 8.97% 9.20%
Annual rate of increase in future compensa-
tion levels............................... 4.00% 4.00% 4.00% -- -- --
</TABLE>
The pension and other postretirement benefit curtailment losses for the
twelve months ended September 30, 2000 represent the recognition of prior
service costs and transition obligations, and an increase in the benefit
obligations resulting from special termination benefits, related to the
reduction in the number of employees due to ComEd's December 1999 sale of the
fossil stations.
The health care cost trend rates used to measure the expected cost of the
postretirement medical benefits are assumed to be 7.5% for pre-Medicare
recipients and 5.5% for Medicare recipients for 2000. Those rates are assumed
to decrease in 0.5% annual increments to 5% for the years 2005 and 2001,
respectively, and to remain level thereafter. The health care cost trend
rates, used to measure the expected cost of postretirement dental and vision
benefits, are a level 3.5% and 2.0% per year, respectively. Assumed health
care cost trend rates have a significant effect on the amounts reported
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
for the health care plans. A one percentage point change in the assumed health
care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1 Percentage 1 Percentage
Point Increase Point Decrease
-------------- --------------
(Thousands of Dollars)
<S> <C> <C>
Effect on total annual service and interest cost
components...................................... $ 23,000 $ (18,000)
Effect on postretirement benefit obligation as of
September 30, 2000.............................. 195,000 (155,000)
</TABLE>
In addition, an employee savings and investment plan is available to
eligible employees of ComEd and certain of its and Unicom's subsidiaries.
Under the plan, each participating employee may contribute up to 20% of such
employee's base pay and the participating companies match the first 6% of such
contribution equal to 100% of the first 2% of contributed base salary, 70% of
the next 3% of contributed base salary and 25% of the next 1% of contributed
base salary. The participating companies' contributions were $7 million and $9
million for the three months ended September 30, 2000 and 1999, respectively,
$23 million and $24 million for nine months ended September 30, 2000 and 1999,
respectively, and $31 million and $32 million for the twelve months ended
September 30, 2000 and 1999, respectively.
(16) Separation Plan Costs. O&M expenses included $33 million and $2 million
for the three months ended September 30, 2000 and 1999, respectively, $47
million and $7 million for the nine months ended September 30, 2000 and 1999,
respectively, and $50 million and $23 million for the twelve months ended
September 30, 2000 and 1999, respectively, for costs related to voluntary
separation offers to certain employees of ComEd, other than costs related to
the fossil plant sale, as well as certain other employee-related costs. Such
costs resulted in charges of $20 million (after-tax), or $0.11 per common
share (diluted) and $1 million (after-tax), or less than $0.01 per common
share (dilutive) for the three months ended September 30, 2000 and 1999,
respectively, $28 million (after-tax), or $0.15 per common share (diluted),
and $4 million (after-tax), or $0.02 per common share (diluted), for the nine
months ended September 30, 2000 and 1999, respectively, and $30 million
(after-tax), or $0.16 per common share (diluted), and $14 million (after-tax),
or $0.06 per common share (diluted), for the twelve months ended September 30,
2000 and 1999, respectively. See Note 4 regarding employee separation costs
related to the fossil plant sale.
(17) Income Taxes. The components of the net deferred income tax liability
at September 30, 2000 and December 31, 1999 were as follows:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
(Thousands of Dollars)
<S> <C> <C>
Deferred income tax liabilities:
Accelerated cost recovery and liberalized deprecia-
tion, net of removal costs........................ $2,632,492 $2,815,972
Overheads capitalized.............................. 152,271 159,836
Deferred gain on sale of fossil stations........... 458,472 --
Involuntary conversion............................. 613,449 --
Repair allowance................................... 213,020 221,502
Regulatory assets recoverable through future rates. 701,714 688,946
Deferred income tax assets:
Postretirement benefits............................ (378,449) (376,538)
Unamortized investment tax credits................. (154,588) (161,756)
Regulatory liabilities to be settled through future
rates............................................. (580,991) (596,157)
Nuclear plant closure.............................. (5,455) (5,456)
Other--net......................................... (271,428) (321,522)
---------- ----------
Net deferred income tax liability................... $3,380,507 $2,424,827
========== ==========
</TABLE>
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
The components of net income tax expense charged to continuing operations
for the three months, nine months and twelve months ended September 30, 2000
and 1999 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
-------------------- ------------------ --------------------
2000 1999 2000 1999 2000 1999
--------- --------- -------- -------- ---------- --------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Operating income:
Current income taxes... $ 128,058 $ 193,103 $308,230 $405,482 $1,665,029 $380,183
Deferred income taxes.. (82,288) (11,449) (170,157) (100,217) (1,473,022) (26,052)
Investment tax credits
deferred--net......... (5,499) (7,021) (16,498) (21,063) (21,263) (27,856)
Other (income) and
deductions:
Current income taxes... 24,497 (5,809) 37,378 (4,057) 41,139 5,160
Deferred income taxes.. 852 6,159 13,694 12,238 27,287 23,787
Investment tax credits. (2,153) (2,153) (6,458) (6,133) (52,064) (10,768)
--------- --------- -------- -------- ---------- --------
Net income taxes charged
to continuing opera-
tions.................. $ 63,467 $ 172,830 $166,189 $286,250 $ 187,106 $344,454
========= ========= ======== ======== ========== ========
</TABLE>
Provisions for current and deferred federal and state income taxes and
amortization of investment tax credits resulted in the following effective
income tax rates for the three months, nine months and twelve months ended
September 30, 2000 and 1999:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
-------------------- ------------------ --------------------
2000 1999 2000 1999 2000 1999
--------- --------- -------- -------- --------- ---------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Net income before
extraordinary items.... $ 166,631 $ 279,752 $509,276 $496,366 $ 610,155 $607,554
Net income taxes charged
to continuing
operations............. 63,467 172,830 166,189 286,250 187,106 344,454
Provision for dividends
on ComEd preferred and
preference stocks...... 534 1,830 2,773 20,170 6,359 33,991
--------- --------- -------- -------- --------- ---------
Pre-tax income before
extraordinary items and
provision for
dividends.............. $ 230,632 $ 454,412 $678,238 $802,786 $ 803,620 $ 985,999
========= ========= ======== ======== ========= =========
Effective income tax
rate................... 27.5% 38.0% 24.5% 35.7% 23.3% 34.9%
========= ========= ======== ======== ========= =========
</TABLE>
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
The principal differences between net income taxes charged to continuing
operations and the amounts computed at the federal statutory rate of 35% for
the three months, nine months and twelve months ended September 30, 2000 and
1999 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
------------------- ------------------ --------------------
2000 1999 2000 1999 2000 1999
--------- --------- -------- -------- --------- ---------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Federal income taxes
computed at statutory
rate................... $ 80,721 $ 159,045 $237,384 $280,975 $ 281,267 $ 345,100
Amortization of
investment tax credits,
net of deferred income
taxes.................. (5,234) (5,907) (15,702) (17,525) (46,391) (24,782)
State income taxes, net
of federal income
taxes.................. 8,961 21,958 22,612 37,394 31,137 44,566
Net gain on forward
share repurchase
contract............... -- 6,130 (39,575) (5,566) (18,619) (5,566)
Earnings on non-tax
qualified
decommissioning fund... (1,505) (951) (2,637) (3,719) (7,833) (3,719)
Differences between book
and tax accounting,
primarily property-
related deductions..... (19,476) (7,445) (35,893) (5,309) (52,455) (11,145)
-------- --------- -------- -------- --------- ---------
Net income taxes charged
to continuing
operations............. $ 63,467 $ 172,830 $166,189 $286,250 $ 187,106 $ 344,454
======== ========= ======== ======== ========= =========
</TABLE>
(18) Taxes, Except Income Taxes. Provisions for taxes, except income taxes,
for the three months, nine months and twelve months ended September 30, 2000
and 1999 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
------------------- ------------------ --------------------
2000 1999 2000 1999 2000 1999
--------- --------- -------- -------- --------- ---------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Illinois public utility
revenue................ $ -- $ (601) $ (3,685) $ 1,296 $ (4,000) $ 8,365
Illinois electricity
distribution tax....... 31,267 32,942 77,985 87,615 104,611 116,061
Municipal utility gross
receipts............... 24,752 29,832 74,002 80,418 93,285 98,811
Real estate............. 18,325 33,801 94,853 97,034 113,028 122,916
Municipal compensation.. 23,781 23,714 64,702 60,515 77,536 78,821
Energy assistance and
renewable energy
charge................. 8,629 8,117 26,079 25,562 34,940 33,753
Other--net.............. 31,856 16,986 72,421 54,846 88,125 76,520
--------- --------- -------- -------- --------- ---------
$ 138,610 $ 144,791 $406,357 $407,286 $ 507,525 $ 535,247
========= ========= ======== ======== ========= =========
</TABLE>
See Note 21 for additional information regarding Illinois invested capital
taxes.
(19) Lease Obligations of Subsidiary Companies.
Future minimum rental payments at September 30, 2000 for operating leases of
equipment and real property are estimated to aggregate to $280 million,
including $7 million in 2000, $29 million in 2001, $27 million in 2002, $26
million in 2003, $25 million in 2004 and $166 million in 2005-2043.
(20) Joint Plant Ownership. ComEd has a 75% undivided ownership interest in
the Quad Cities nuclear generating station. Further, ComEd is responsible for
75% of all costs which are charged to appropriate investment and O&M accounts,
and provides its own financing. ComEd's net plant investment, including
construction work in progress, in Quad Cities Station on the Consolidated
Balance Sheets was $39 million at September 30, 2000.
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
(21) Commitments and Contingent Liabilities. Purchase commitments,
principally related to construction, nuclear fuel, and coal in support of
certain power purchase agreements approximated $839 million at September 30,
2000, comprised of $769 million for ComEd, $11 million for UT Holdings, $50
million for Unicom Energy Services, $1 million for Unicom Distributed Energy
and $8 million for Unicom Power Holdings. In addition, ComEd has substantial
commitments for expected capacity payments and fixed charges related to power
purchase agreements. Upon completion of the fossil plant sale with EME, ComEd
entered into arrangements to assign or settle a substantial portion of its
coal purchase commitments and entered into purchase power agreements with EME.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations," subcaption "Liquidity and Capital Resources--UTILITY
OPERATIONS--Construction Program," for additional information regarding
ComEd's purchase commitments.
ComEd is a member of NEIL which provides insurance coverage against property
damage and associated replacement power costs occurring at members' nuclear
generating facilities. All companies insured with NEIL are subject to
retrospective premium adjustments if losses exceed accumulated reserve funds.
Capital has been accumulated in the reserve funds such that ComEd would not be
liable for any single incident. However, ComEd could be subject to assessments
in any policy year for each of three types of coverage provided. The maximum
assessments are approximately $32 million for primary property damage, $20
million for excess property damage and $7 million for replacement power.
The NRC's indemnity for public liability coverage under the Price-Anderson
Act is supported by a mandatory industry-wide program under which owners of
nuclear generating facilities could be assessed in the event of nuclear
incidents. Based on the number of nuclear reactors with operating licenses,
ComEd would currently be subject to a maximum assessment of $969 million in
the event of an incident, limited to a maximum of $110 million in any calendar
year.
In addition, ComEd participates in the American Nuclear Insurers Master
Worker Program, which provides coverage for worker tort claims filed for
bodily injury caused by the nuclear energy hazard. This program was modified,
effective January 1, 1998, to provide coverage to all workers whose "nuclear-
related employment" began on or after the commencement date of reactor
operations. ComEd will not be liable for a retrospective assessment under this
new policy. However, ComEd is still subject to a maximum retroactive
assessment of up to $36 million in the event losses incurred under the small
number of policies in the old program exceed accumulated reserves.
Three of ComEd's wholesale municipal customers filed a complaint and request
for refund with the FERC alleging that ComEd failed to properly adjust their
rates, as provided for under the terms of their electric service contracts, to
track certain refunds made to ComEd's retail customers in the years 1992
through 1994. In the third quarter of 1998, the FERC granted the complaint and
directed that refunds be made, with interest. ComEd filed and was granted a
request for rehearing for purposes of reconsideration with the FERC. If the
order is upheld, ComEd must make refunds within 15 days of the resolution for
rehearing. ComEd's management believes an adequate reserve has been
established in connection with this case.
During 1989 and 1991, actions were brought in federal and state courts in
Colorado against ComEd and Cotter seeking unspecified damages and injunctive
relief based on allegations that Cotter has permitted radioactive and other
hazardous material to be released from its mill into areas owned or occupied
by the plaintiffs resulting in property damage and potential adverse health
effects. With
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
respect to Cotter, in 1994 a federal jury returned nominal dollar verdicts
against Cotter on eight plaintiffs' claims in the 1989 cases, which verdicts
were upheld on appeal. The remaining claims in the 1989 actions have been
settled and dismissed. On July 15, 1998, a jury verdict was rendered in Dodge
vs. Cotter (United States District Court for the District of Colorado, Civil
Action No. 91-Z-1861), a case relating to 14 of the plaintiffs in the 1991
cases. The verdict against Cotter and in favor of the plaintiffs, after an
amended judgement was issued March 11, 1999, totaled approximately $6 million,
including compensatory and punitive damages, interest and medical monitoring.
Cotter appealed. On February 11, 2000, the Tenth Circuit Court of Appeals
agreed with Cotter, found that the trial judge had erred in critical rulings
and reversed the jury verdict, remanding the case for new trial. A trial
involving the next group of twelve plaintiffs is currently underway in federal
district court in Denver. Although this trial and the other 1991 cases will
necessarily involve the resolution of numerous contested issues of law and
fact, it is ComEd's assessment that these actions will not have a material
impact on its financial position or operations.
In August of 1999, three class action lawsuits were filed against the
Company related to a series of service interruptions. The two primary events
occurred on July 30 through August 2, 1999. Another significant outage
occurred on August 12, 1999. The outages of July 30, 1999, described as the
Northwest Substation events, began during a period of intense heat and
humidity. On August 12, 1999, in what is described as the Jefferson Substation
event, ComEd interrupted service to customers on the near north and near west
side of the Loop. While major commercial customers were affected, all service
was restored in this event on the same date. The combined effect of these
events resulted in over 168,000 customers losing service for more than 4
hours. The class action complaints have been consolidated and seek to recover
damages for personal injuries and property damage, as well as economic loss
for these events. Further, ComEd initiated expedited claim settlements for
those with primarily food spoilage claims and has paid over $4 million to
date. Conditional class certification has been approved by the Court for the
sole purpose of exploring settlement talks. For purposes of such discussions,
the outage described above, as well as lesser events through August 31, 1999,
will be considered. If talks are not productive, either side can withdraw
unilaterally. The Company has repeatedly declared that it will pay no economic
damages and will vigorously defend against such claims. The lawsuits are
pending in the Circuit Court of Cook County. ComEd filed a motion challenging
the legal sufficiency of the consolidated complaints. On July 21, 2000, the
judge dismissed two of the counts with prejudice, and four others with leave
to replead. The plaintiffs filed an amended complaint on August 29, 2000.
ComEd has again filed a motion seeking dismissal of the pleadings. The
plaintiffs have not yet responded. The next status before the Court is set for
November 10, 2000. Argument on the motion to dismiss will likely occur in
December 2000. A portion of any settlement or verdict may be covered by
insurance and discussions with the carrier are ongoing. ComEd's management
believes adequate reserves have been established in connection with these
cases.
Following the summer 1999 service interruptions, the ICC opened a three-
phase investigation of the design and reliability of ComEd's transmission and
distribution system. At the conclusion of each phase of the investigation, the
ICC will issue reports that will include specific recommendations for ComEd
and a timetable for executing the recommendations. Although the
recommendations are not legally binding on ComEd, the ICC may enforce the
recommendations through litigation. The report on Phase I of the investigation
was released the week of January 3, 2000, which focused on the outages of July
and August 1999. The first and second of five reports on Phase II and Phase
III, focusing on the transmission and distribution system, were released
during the weeks of June 5 and June 17, respectively. The third report is
anticipated later this year. The investigation is expected to conclude by
early 2001. Since summer 1999, the Company has devoted significant resources
to
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
improving the reliability of its transmission and distribution system. The
Company believes that the likelihood of a successful material claim resulting
from this investigation is remote. The investigation is expected to conclude
by early 2001.
In 1996, several developers of non-utility generating facilities filed
litigation against various Illinois officials claiming that the enforcement
against those facilities of an amendment to Illinois law removing the
entitlement of those facilities to state-subsidized payments for electricity
sold to ComEd after March 15, 1996 violated their rights under the federal and
state constitutions, and against ComEd for a declaratory order that their
rights under their contracts with ComEd were not affected by the amendment. On
August 4, 1999, the Illinois Appellate Court held that the developers' claims
against the State were premature, and the Illinois Supreme Court denied leave
to appeal that ruling by Order dated December 1, 1999. On April 14, 2000, the
developer of one such facility requested leave to amend its complaint to
allege claims for damages against ComEd based on breach be ComEd of an alleged
contractual obligation to pay for electricity purchased from that developer at
the state-subsidized rate. ComEd has objected to the developer's request for
leave to amend, and intends vigorously to contest any assertion by such
developer that it is entitled to any payment in excess of ComEd's avoided
costs.
ComEd is involved in administrative and legal proceedings concerning air
quality, water quality and other matters. The outcome of these proceedings may
require increases in future construction expenditures and operating expenses
and changes in operating procedures. ComEd and its subsidiaries are or are
likely to become parties to proceedings initiated by the U.S. EPA, state
agencies and/or other responsible parties under CERCLA with respect to a
number of sites, including MGP sites, or may voluntarily undertake to
investigate and remediate sites for which they may be liable under CERCLA.
ComEd generally did not operate MGPs as a corporate entity but did, however,
acquire MGP sites as part of the absorption of smaller utilities.
Approximately half of these sites were transferred to then Northern Illinois
Gas Company (Nicor Gas) as part of a general conveyance in 1954. ComEd also
acquired former MGP sites as vacant real estate on which ComEd facilities have
been constructed. To date, ComEd has identified 44 former MGP sites for which
it may be liable for remediation. In the fourth quarter of 1999, ComEd re-
evaluated its environmental remediation strategies. As a result of this re-
evaluation, ComEd's estimate of its cost of former MGP site investigation and
remediation was increased by $68 million in the fourth quarter of 1999.
ComEd's current best estimate of its costs of former MGP site investigation
and remediation is $89 million (2000) dollars (reflecting an estimated
inflation rate of 3.0% and a discount rate of 6.5%). Such estimate, reflecting
an estimated inflation rate of 3% and before the effects of discounting, is
$176 million and is included in other liabilities on the Consolidated Balance
Sheets as of September 30, 2000. It is expected that the costs associated with
investigation and remediation of former MGP sites will be substantially
incurred through 2012, however monitoring and certain other costs are expected
to be incurred through 2042. The increase in ComEd's estimated costs of former
MGP sites of $68 million in the fourth quarter of 1999 was included in O & M
expenses on Unicom and ComEd's Statements of Consolidated Operations. In
addition, as of September 30, 2000 and December 31, 1999, a reserve of $7
million and $8 million, respectively, has been included in other noncurrent
liabilities on the Consolidated Balance Sheets, representing ComEd's estimate
of the liability associated with cleanup costs of sites other than former MGP
sites. These cost estimates are based on currently available information
regarding the responsible parties likely to share in the costs of responding
to site contamination, the extent of contamination at sites for which the
investigation has not yet been completed and the cleanup levels to which sites
are expected
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
to have to be remediated. While ComEd may have rights of reimbursement under
insurance policies, amounts that may be recoverable from other entities are
not considered in establishing the estimated liability for the environmental
remediation costs.
The IDR has issued Notices of Tax Liability to ComEd alleging deficiencies
in Illinois invested capital tax payments for the years 1988 through 1997. The
alleged deficiencies, including interest and penalties, totaled approximately
$54 million as of September 30, 2000. ComEd has protested the notices, and the
matter is currently pending before the IDR's Office of Administrative
Hearings. Interest will continue to accumulate on the alleged tax
deficiencies.
(22) Segment Reporting. Unicom's reportable operating segments as determined
under SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information include its regulated electric utility and its unregulated
business operations. Unicom's reportable segments are managed separately
because of their different regulatory and operating environments. Unicom
evaluates their performance based on net income.
ComEd is an electric utility which is engaged in the generation, purchase,
transmission, distribution and sale of electric energy in Northern Illinois.
ComEd's rates and services are subject to federal and state regulations.
Unicom's unregulated business operations, including energy services and
development of new business ventures, are not subject to utility regulation by
federal or state agencies. As a result of the December 1999 fossil plant sale,
as described in Note 4, the assets of unregulated businesses exceeded 10% of
Unicom's total assets and, as such, constitute a reportable segment. The
assets of the unregulated businesses include approximately $1.6 billion of
investments in leases at September 30, 2000 as discussed in Note 1.
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Concluded
The accounting policies of the segments are the same as those described in
Note 1. Unicom's financial data for business segments are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
---------------------- ---------------------- ----------------------
2000 1999 2000 1999 2000 1999
---------- ---------- ---------- ---------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenue:
Electric Utility....... $2,039,961 $2,060,217 $5,274,100 $5,266,647 $6,764,910 $6,824,708
Unregulated Businesses. 180,328 24,237 411,571 41,325 460,736 46,932
Intersegment Revenue... 46,873 8,998 82,012 14,675 88,864 21,509
Elimination............ (46,873) (8,998) (82,012) (14,675) (88,864) (21,509)
---------- ---------- ---------- ---------- ---------- ----------
Consolidated Unicom..... $2,220,289 $2,084,454 $5,685,671 $5,307,972 $7,255,646 $6,871,640
========== ========== ========== ========== ========== ==========
Depreciation,
Amortization and
Decommissioning:
Electric Utility....... $ 225,951 $ 200,284 $ 821,662 $ 695,387 $ 962,420 $ 923,216
Unregulated Businesses. 4,263 1,825 10,197 5,001 12,299 6,515
---------- ---------- ---------- ---------- ---------- ----------
Consolidated Unicom..... $ 230,214 $ 202,109 $ 831,859 $ 700,388 $ 974,719 $ 929,731
========== ========== ========== ========== ========== ==========
Interest and Dividend
Income:
Electric Utility....... $ 54,632 $ 10,241 $ 176,859 $ 41,110 $ 195,980 $ 48,924
Unregulated Businesses. 35,055 1,000 114,325 2,827 121,019 3,716
Elimination............ (74,298) (1,298) (189,052) (1,891) (197,966) (2,179)
---------- ---------- ---------- ---------- ---------- ----------
Consolidated Unicom..... $ 15,389 $ 9,943 $ 102,132 $ 42,046 $ 119,033 $ 50,461
========== ========== ========== ========== ========== ==========
Interest Expense--Net:
Electric Utility....... $ 124,661 $ 135,945 $ 381,156 $ 413,824 $ 512,684 $ 524,109
Unregulated Businesses. 91,012 5,257 219,663 14,202 234,478 17,973
Elimination............ (74,298) (1,298) (189,052) (1,891) (197,966) (2,179)
---------- ---------- ---------- ---------- ---------- ----------
Consolidated Unicom..... $ 141,375 $ 139,904 $ 411,767 $ 426,135 $ 549,196 $ 539,903
========== ========== ========== ========== ========== ==========
Income Tax
Expense/(Benefit):
Electric Utility....... $ 91,726 $ 184,992 $ 237,658 $ 322,868 $ 267,012 $ 400,325
Unregulated Businesses. (22,759) (5,418) 213,313 85,587 256,875 152,340
---------- ---------- ---------- ---------- ---------- ----------
Consolidated Unicom..... $ 68,967 $ 179,574 $ 450,971 $ 408,455 $ 523,887 $ 552,665
========== ========== ========== ========== ========== ==========
Net Income/(Loss):
Electric Utility....... $ 196,246 $ 287,049 $ 579,965 $ 511,435 $ 691,259 $ 643,283
Unregulated Businesses. (32,582) (7,297) (77,823) (42,648) (88,238) (63,308)
---------- ---------- ---------- ---------- ---------- ----------
Consolidated Unicom..... $ 163,664 $ 279,752 $ 502,142 $ 468,787 $ 603,021 $ 579,975
========== ========== ========== ========== ========== ==========
Capital Expenditures:
Electric Utility....... $ 324,746 $ 262,946 $ 899,072 $ 736,654 $1,245,816 $1,021,602
Unregulated Businesses. (5,048) 8,975 15,353 15,960 39,486 21,133
---------- ---------- ---------- ---------- ---------- ----------
Consolidated Unicom..... $ 319,698 $ 271,921 $ 914,425 $ 752,614 $1,285,302 $1,042,735
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Total Assets:
Electric Utility................................... $21,877,441 $23,160,265
Unregulated Businesses............................. 8,310,774 3,720,376
Elimination........................................ (7,605,580) (3,474,608)
----------- -----------
Consolidated Unicom................................. $22,582,635 $23,406,033
=========== ===========
</TABLE>
<PAGE>
UNICOM CORPORATION
FINANCIAL STATEMENTS
For the Three Years Ended Ended December 31, 1999
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Unicom Corporation:
We have audited the accompanying consolidated balance sheets and statements of
consolidated capitalization of UNICOM CORPORATION (an Illinois corporation) and
subsidiary companies as of December 31, 1999 and 1998, and the related
statements of consolidated operations, retained earnings/(deficit),
comprehensive income and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Unicom
Corporation and subsidiary companies as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed under Item 14.(a) is
presented for the purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Chicago, Illinois
January 31, 2000
(except with respect to
Notes 1 and 3 as to which
the date is May 12, 2000)
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
Financial Statements for the three years ended
December 31, 1999 STATEMENTS OF CONSOLIDATED OPERATIONS
The following Statements of Consolidated Operations for the years 1999, 1998
and 1997 reflect the results of past operations and are not intended as any
representation as to results of operations for any future period. Future
operations will necessarily be affected by various and diverse factors and
developments, including changes in electric prices, regulation, population,
business activity, asset dispositions, competition, taxes, environmental
control, energy use, fuel, cost of labor, purchased power and other matters, the
nature and effect of which cannot now be determined.
1999 1998 1997
---------- ---------- -----------
Operating Revenues........................ $6,847,947 $7,103,410 $ 7,083,022
---------- ---------- -----------
Operating Expenses and Taxes:
Fuel.................................... $ 997,262 $1,057,527 $ 1,204,218
Purchased power......................... 551,575 748,017 400,055
Operation and maintenance............... 2,427,599 2,285,034 2,438,944
Depreciation and amortization........... 843,248 943,288 1,005,089
Taxes (except income)................... 508,453 699,834 800,886
Income taxes............................ 359,198 355,023 317,558
Investment tax credits deferred--net ... (25,828) (27,730) (31,015)
---------- ---------- -----------
$5,661,507 $6,060,993 $ 6,135,735
---------- ---------- -----------
Operating Income.......................... $1,186,440 $1,042,417 $ 947,287
---------- ---------- -----------
Other Income and (Deductions):
Interest on long-term debt, net of
interest capitalized................... $ (544,962) $ (444,322) $ (488,033)
Interest on notes payable............... (18,602) (19,560) (9,134)
Allowance for funds used during
construction........................... 21,812 16,464 42,325
Income taxes applicable to nonoperating
activities............................. 27,083 4,974 11,010
Provisions for dividends and redemption
premiums--
Preferred and preference stocks of
ComEd................................. (23,756) (56,884) (60,486)
ComEd-obligated mandatorily redeemable
preferred securities of subsidiary
trusts holding solely ComEd's
subordinated debt securities.......... (29,710) (29,710) (28,860)
Loss on nuclear plant closure........... -- -- (885,611)
Income tax effects of nuclear plant
closure................................ -- -- 362,952
Miscellaneous--net...................... (21,060) (3,195) (130,665)
---------- ---------- -----------
$ (589,195) $ (532,233) $(1,186,502)
========== ========== ===========
Net Income/(Loss) before Extraordinary
Items and Cumulative Effect of Change in
Accounting Principle..................... $ 597,245 $ 510,184 $ (239,215)
Extraordinary Losses, less Applicable
Income Taxes............................. (27,579) -- (810,335)
Cumulative Effect of Change in Accounting
Principle................................ -- -- 196,700
---------- ---------- -----------
Net Income/(Loss)......................... $ 569,666 $ 510,184 $ (852,850)
---------- ---------- -----------
<PAGE>
Earnings/(loss) per common share before
extraordinary items and cumulative effect
of change in accounting principle--
Basic................................... $ 2.75 $ 2.35 $ (1.10)
Diluted................................. $ 2.74 $ 2.34 $ (1.10)
Extraordinary losses, less applicable
income taxes (basic and diluted)......... $ (0.13) $ -- $ (3.75)
Cumulative effect of change in accounting
principle (basic and diluted)............ $ -- $ -- $ 0.91
Earnings/(loss) per common share--
Basic................................... $ 2.62 $ 2.35 $ (3.94)
Diluted................................. $ 2.61 $ 2.34 $ (3.94)
Cash Dividends Declared per Common Share.. $ 1.60 $ 1.60 $ 1.60
The accompanying Notes to Financial Statements are an
integral part of the above statements.
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
December 31
------------------------
ASSETS 1999 1998
------ ----------- -----------
(Thousands of Dollars)
Utility Plant:
Plant and equipment, at original cost (includes
construction work in progress of $672 million and
$858 million, respectively)....................... $25,007,637 $27,801,246
Less--Accumulated provision for depreciation....... 13,729,223 15,234,320
----------- -----------
$11,278,414 $12,566,926
Nuclear fuel, at amortized cost.................... 843,724 874,979
----------- -----------
$12,122,138 $13,441,905
----------- -----------
Investments and Other Property:
Nuclear decommissioning funds...................... $ 2,546,540 $ 2,267,317
Subsidiary companies............................... 50,417 41,150
Other, at cost..................................... 470,848 275,794
----------- -----------
$ 3,067,805 $ 2,584,261
----------- -----------
Current Assets:
Cash and temporary cash investments................ $ 1,696,336 $ 55,828
Cash held for redemption of securities............. 285,056 3,062,816
Other cash investments............................. 62 --
Special deposits................................... 1,845,730 271
Receivables--
Customers........................................ 1,224,678 1,369,701
Forward share repurchase contract................ 813,046 --
Other............................................ 181,532 136,701
Provisions for uncollectible accounts............ (50,814) (48,645)
Coal and fuel oil, at average cost................. 15,613 135,415
Materials and supplies, at average cost............ 221,157 232,246
Deferred income taxes related to current assets and
liabilities....................................... 60,056 24,339
Prepayments and other.............................. 36,268 20,301
----------- -----------
$ 6,328,720 $ 4,988,973
----------- -----------
Deferred Charges and Other Noncurrent Assets:
Regulatory assets.................................. $ 1,792,907 $ 4,578,427
Other.............................................. 94,463 96,907
----------- -----------
$ 1,887,370 $ 4,675,334
----------- -----------
$23,406,033 $25,690,473
=========== ===========
The accompanying Notes to Financial Statements are an
integral part of the above statements.
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
December 31
-----------------------
CAPITALIZATION AND LIABILITIES 1999 1998
------------------------------ ----------- -----------
(Thousands of Dollars)
Capitalization (see accompanying statements):
Common stock equity.................................. $ 5,332,611 $ 5,099,444
Preferred and preference stocks of ComEd--
Without mandatory redemption requirements.......... 1,790 74,488
Subject to mandatory redemption requirements....... -- 69,475
ComEd-obligated mandatorily redeemable preferred se-
curities of subsidiary trusts holding solely ComEd's
subordinated debt securities*....................... 350,000 350,000
Long-term debt....................................... 7,129,906 7,792,502
----------- -----------
$12,814,307 $13,385,909
----------- -----------
Current Liabilities:
Notes payable........................................ $ 4,750 $ 292,963
Current portion of long-term debt, redeemable prefer-
ence stock and capitalized lease obligations of sub-
sidiary companies................................... 915,439 2,314,443
Accounts payable..................................... 582,920 604,936
Accrued interest..................................... 146,718 180,674
Accrued taxes........................................ 1,386,930 134,976
Dividends payable.................................... 94,090 105,133
Customer deposits.................................... 68,128 56,954
Accrued plant closing costs.......................... -- 78,430
Other................................................ 316,542 155,262
----------- -----------
$ 3,515,517 $ 3,923,771
----------- -----------
Deferred Credits and Other Noncurrent Liabilities:
Deferred income taxes................................ $ 2,484,883 $ 3,805,460
Nuclear decommissioning liability for retired plants. 1,259,700 1,215,400
Accumulated deferred investment tax credits.......... 484,717 562,285
Accrued spent nuclear fuel disposal fee and related
interest............................................ 763,427 728,413
Obligations under capital leases of subsidiary compa-
nies................................................ 161,611 333,653
Regulatory liabilities............................... 596,157 595,005
Other................................................ 1,325,714 1,140,577
----------- -----------
$ 7,076,209 $ 8,380,793
----------- -----------
Commitments and Contingent Liabilities (Note 22)
$23,406,033 $25,690,473
=========== ===========
*As described in Note 11 of Notes to Financial Statements, the sole asset of
ComEd Financing I, a subsidiary trust of ComEd, is $206.2 million principal
amount of ComEd's 8.48% subordinated deferrable interest notes due September 30,
2035. The sole asset of ComEd Financing II, also a subsidiary trust of ComEd, is
$154.6 million principal amount of ComEd's 8.50% subordinated deferrable
interest debentures due January 15, 2027.
The accompanying Notes to Financial Statements are an
integral part of the above statements.
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CAPITALIZATION
December 31
------------------------
1999 1998
----------- -----------
(Thousands of Dollars)
Common Stock Equity:
Common stock, without par value--
Outstanding--217,835,570 shares and 217,094,560
shares, respectively.............................. $ 4,971,618 $ 4,966,630
Preference stock expense of ComEd................... (72) (3,199)
Retained earnings................................... 363,621 142,813
Accumulated other comprehensive income.............. 7,539 --
Treasury stock--264,406 shares and 178,982 shares,
respectively....................................... (10,095) (6,800)
----------- -----------
$ 5,332,611 $ 5,099,444
----------- -----------
Preferred and Preference Stocks of ComEd--
Without Mandatory Redemption Requirements:
Preference stock, cumulative, without par value--
Outstanding--No shares and 13,499,549 shares,
respectively.................................... $ -- $ 504,957
Current redemption requirements for preference
stock included in current liabilities............ -- (432,320)
$1.425 convertible preferred stock, cumulative,
without par value--Outstanding--56,291 shares and
58,211 shares, respectively...................... 1,790 1,851
Prior preferred stock, cumulative, $100 par value
per share--No shares outstanding................. -- --
----------- -----------
$ 1,790 $ 74,488
----------- -----------
Subject to Mandatory Redemption Requirements:
Preference stock, cumulative, without par value--
Outstanding--700,000 shares and 1,720,345 shares,
respectively.................................... $ 69,475 $ 171,348
Current redemption requirements for preference
stock included in current liabilities............ (69,475) (101,873)
----------- -----------
$ -- $ 69,475
----------- -----------
ComEd-Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trusts Holding Solely
ComEd's Subordinated Debt Securities................. $ 350,000 $ 350,000
----------- -----------
<PAGE>
Long-Term Debt:
First mortgage bonds:
Maturing 2000 through 2004--6 3/8% to 9 3/8%...... $ 698,245 $ 1,080,000
Maturing 2005 through 2014--4.40% to 8 3/8%....... 1,299,400 1,485,400
Maturing 2015 through 2023--5.85% to 9 7/8%....... 1,589,443 1,981,000
----------- -----------
$ 3,587,088 $ 4,546,400
Transitional trust notes, due 2000 through 2008--
5.29% to 5.74%..................................... 3,070,000 3,400,000
Sinking fund debentures, due 2001 through 2011--2
3/4% to 7 5/8%..................................... 30,866 94,159
Pollution control obligations, due 2007 through
2014--5.3% to 5 7/8%............................... 139,200 140,700
Other long-term debt................................ 1,089,347 1,259,204
Current maturities of long-term debt included in
current liabilities................................ (737,615) (1,585,281)
Unamortized net debt discount and premium........... (48,980) (62,680)
----------- -----------
$ 7,129,906 $ 7,792,502
----------- -----------
$12,814,307 $13,385,909
----------- -----------
The accompanying Notes to Financial Statements are an
integral part of the above statements.
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED RETAINED EARNINGS/(DEFICIT)
1999 1998 1997
-------- -------- ----------
(Thousands of Dollars)
Balance at Beginning of Period................. $142,813 $(21,184) $1,177,997
Add--Net income/(loss)......................... 569,666 510,184 (852,850)
-------- -------- ----------
$712,479 $489,000 $ 325,147
-------- -------- ----------
Deduct--
Cash dividends declared on
common stock.............................. $347,783 $347,161 $ 346,225
Other capital stock transactions--net....... 1,075 (974) 106
-------- -------- ----------
$348,858 $346,187 $ 346,331
-------- -------- ----------
Balance at End of Period (Includes $716
million, $494 million and $331 million
of appropriated retained earnings at December
31, 1999, 1998 and 1997, respectively)....... $363,621 $142,813 $ (21,184)
======== ======== ==========
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
1999 1998 1997
-------- -------- ----------
(Thousands of Dollars)
Net Income/(Loss) on Common Stock.............. $569,666 $510,184 $ (852,850)
Other Comprehensive Income
Unrealized gains on securities............... $ 12,471 $ -- $ --
Income taxes on other comprehensive income... (4,932) -- --
-------- -------- ----------
Other comprehensive income, net of tax....... $ 7,539 $ -- $ --
-------- -------- ----------
Comprehensive Income/(Loss).................... $577,205 $510,184 $ (852,850)
======== ======== ==========
The accompanying Notes to Financial Statements are an
integral part of the above statements.
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
1999 1998 1997
----------- ----------- -----------
(Thousands of Dollars)
Cash Flow from Operating Activities:
Net income/(loss)...................... $ 569,666 $ 510,184 $ (852,850)
Adjustments to reconcile net
income/(loss) to net cash provided by
operating activities:
Depreciation and amortization........ 908,894 994,861 1,051,543
Deferred income taxes and investment
tax credits--net.................... (1,448,363) 69,768 (345,042)
Contribution to environmental trust.. (250,000) -- --
Recovery of coal reserve regulatory
assets.............................. 197,974 108,372 82,441
Increase in MGP liability............ 68,078 -- --
Extraordinary loss related to write-
off of certain net regulatory
assets.............................. -- -- 810,335
Cumulative effective of change in
accounting principle................ -- -- (196,700)
Loss on nuclear plant closure........ -- -- 885,611
Write-down of uranium-related
properties.......................... -- -- 64,387
Provisions/(payments) for revenue
refunds--net........................ (22,603) (23,622) 45,470
Equity component of allowance for
funds used during construction...... (7,789) (6,959) (23,770)
Provisions/(payments) for liability
for separation costs--net........... (62,396) 9,757 15,986
Net effect on cash flows of changes
in:
Receivables........................ 103,515 (486,838) 24,083
Coal and fuel oil.................. 618 (14,751) 19,698
Materials and supplies............. (5,202) 19,805 41,659
Accounts payable excluding nuclear
fuel lease principal payments and
separation costs--net............. (19,251) 97,094 259,810
Accrued interest and taxes......... 1,246,007 (27,201) (17,903)
Other changes in certain current
assets and liabilities............ 124,154 144,290 39,005
Other--net........................... (43,257) 27,525 109,927
----------- ----------- -----------
$ 1,360,045 $ 1,422,285 $ 2,013,690
----------- ----------- -----------
Cash Flow from Investing Activities:
Construction expenditures.............. $(1,204,064) $ (966,494) $(1,043,311)
Nuclear fuel expenditures.............. (253,483) (166,168) (185,373)
Sales of generating plants............. 4,885,720 177,454 60,791
Equity component of allowance for
funds used during construction........ 7,789 6,959 23,770
Contributions to nuclear
decommissioning funds................. (89,945) (136,771) (114,825)
Other investments and special
deposits.............................. (1,886,323) (10,965) (13,246)
Plant removals--net.................... (74,584) (86,988) (85,923)
----------- ----------- -----------
$ 1,385,110 $(1,182,973) $(1,358,117)
----------- ----------- -----------
<PAGE>
Cash Flow from Financing Activities:
Issuance of securities--
Transitional trust notes.............. $ -- $ 3,382,629 $ --
Other long-term debt.................. 201,764 382,270 362,663
Company-obligated mandatorily
redeemable preferred securities if
subsidiary trust holding solely the
Company's subordinated debt
securities........................... -- -- 150,000
Capital stock......................... 20,941 16,644 15,778
Retirement and redemption of
securities--
Transitional trust notes.............. (330,000) -- --
Other long-term debt.................. (1,431,545) (615,858) (746,240)
Capital stock......................... (639,342) (34,066) (44,111)
Repurchase of common stock............. (813,046) (6,800) --
Cash dividends paid on common stock.... (347,564) (346,954) (345,936)
Proceeds from sale/leaseback of
nuclear fuel.......................... -- 101,038 149,955
Nuclear fuel lease principal payments.. (255,402) (255,605) (166,411)
Increase/(decrease) in short-term
borrowings............................ (288,213) 134,813 29,400
----------- ----------- -----------
$(3,882,407) $ 2,758,111 $ (594,902)
----------- ----------- -----------
Change in Net Cash Balance.............. $(1,137,252) $ 2,997,423 $ 60,671
Cash, Temporary Cash Investments and
Cash Held for Redemption of Securities:
Balance at Beginning of Period....... 3,118,644 121,221 60,550
----------- ----------- -----------
Balance at End of Period............. $ 1,981,392 $ 3,118,644 $ 121,221
=========== =========== ===========
The accompanying Notes to Financial Statements are an
integral part of the above statements.
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
(1) Summary of Significant Accounting Policies.
Corporate Structure and Basis of Presentation. Unicom is the parent holding
company of ComEd and Unicom Enterprises. ComEd, a regulated electric utility, is
the principal subsidiary of Unicom. Unicom Enterprises is an unregulated
subsidiary of Unicom and is engaged, through its subsidiaries, in energy service
activities.
The consolidated financial statements include the accounts of Unicom, ComEd,
Indiana Company, Edison Development, the Trusts, ComEd Funding, ComEd Funding
Trust and Unicom's unregulated subsidiaries. All significant intercompany
transactions have been eliminated. Although the accounts of ComEd Funding and
ComEd Funding Trust, which are SPEs, are included in the consolidated financial
statements, as required by GAAP, ComEd Funding and ComEd Funding Trust are
legally separated from Unicom and ComEd. The assets of the SPEs are not
available to creditors of Unicom or ComEd and the transitional property held by
the SPEs are not assets of Unicom or ComEd.
Use of Estimates. The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates. Due to the transition to a new customer information
and billing system, a larger portion of customer revenues and net receivables
were based on estimates for the period July 1998 through November 1999 than in
previous periods.
Regulation. ComEd is subject to regulation as to accounting and ratemaking
policies and practices by the ICC and FERC. ComEd's accounting policies and the
accompanying consolidated financial statements conform to GAAP applicable to
rate-regulated enterprises for the non-generation portion of its business,
including the effects of the ratemaking process in accordance with SFAS No. 71,
Accounting for the Effects of Certain Types of Regulation. Such effects on the
non-generation portion of its business concern mainly the time at which various
items enter into the determination of operating results in order to follow the
principle of matching costs with the applicable revenues collected from or
returned to customers through future rates. See Note 3 for information regarding
the write-off of generation-related regulatory assets and liabilities in
December 1997.
ComEd's investment in generation-related net utility plant, not subject to
cost-based rate regulation, including construction work in progress and nuclear
fuel, and excluding the decommissioning costs included in the accumulated
provision for depreciation was $7.8 billion and $9.2 billion as of December 31,
1999 and 1998, respectively. See "Regulatory Assets and Liabilities" below
regarding the plant impairment recorded by ComEd in the second quarter of 1998.
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Regulatory Assets and Liabilities. Regulatory assets are incurred costs which
have been deferred and are amortized for ratemaking and accounting purposes.
Regulatory liabilities represent amounts to be settled with customers through
future rates. Regulatory assets and liabilities reflected on the Consolidated
Balance Sheets at December 31, 1999 and 1998 were as follows:
December 31
---------------------
1999 1998
---------- ----------
(Thousands of
Dollars)
Regulatory assets:
Impaired production plant............................... $ 366,221 $2,955,154
Deferred income taxes (1)............................... 688,946 680,356
Nuclear decommissioning costs--Dresden Unit 1........... 202,308 255,031
Nuclear decommissioning costs--Zion Units 1 and 2....... 496,638 443,130
Coal reserves........................................... -- 197,975
Unamortized loss on reacquired debt (2)................. 38,794 46,781
---------- ----------
$1,792,907 $4,578,427
========== ==========
Regulatory liabilities:
Deferred income taxes (1)............................... $ 596,157 $ 595,005
========== ==========
--------
(1) Recorded in compliance with SFAS No. 109, Accounting for Income Taxes, for
non-generation related temporary differences.
(2) Amortized over the remaining lives of the non-generation related long-term
debt issued to finance the reacquisition. See "Loss on Reacquired Debt"
below for additional information.
ComEd performed a SFAS No. 121 impairment analysis in 1998 which concluded
that future revenues, excluding the collection of the CTC expected to be
recovered from electric supply services, would be insufficient to cover the
costs of certain of its generating assets. Because future regulated cash flows,
which include the CTC, tariff revenues and gains from the disposition of assets,
are expected to provide recovery of the impaired plant assets, a regulatory
asset was recorded for the same amount. This regulatory asset is currently being
amortized as it is recovered through regulated cash flows over a transition
period that extends through 2006. Consistent with the provisions of the 1997
Act, the (pre-tax) gain on the sale of $2.587 billion resulted in a regulatory
liability, which was used to recover regulatory assets. Therefore, the gain on
the sale, excluding $43 million of amortization of investment tax credits, was
recorded as a regulatory liability in the amount of $2.544 billion and amortized
in the fourth quarter of 1999. The amortization of the regulatory liability and
additional regulatory asset amortization of $2.456 billion are reflected in
depreciation and amortization expense on Unicom's Statements of Consolidated
Operations and resulted in a net reduction to depreciation and amortization
expense of $88 million. See Note 3 for additional information regarding
amortization of regulatory assets with respect to limits on ComEd's earnings due
to statutory sharing provisions. See Note 5 for additional information regarding
the fossil plant sale.
The regulatory assets for Dresden Unit 1 and Zion Units 1 and 2 represent
unrecovered nuclear decommissioning costs, which are expected to be recovered
over the periods 2000-2011 and 2000-2013, respectively, through a separate rate
recovery rider provided for by the 1997 Act. See "Depreciation, Amortization of
Regulatory Assets and Liabilities and Decommissioning" below for additional
information.
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Depreciation, Amortization of Regulatory Assets and Liabilities, and
Decommissioning. Depreciation, amortization of regulatory assets and
liabilities, and decommissioning for the years 1999, 1998 and 1997 were as
follows:
1999 1998 1997
-------- -------- ----------
(Thousands of Dollars)
Depreciation expense.............................. $713,340 $788,057 $ 881,196
Amortization of regulatory assets and
liabilities--net................................. 46,088 65,211 15,272
-------- -------- ----------
$759,428 $853,268 $ 896,468
Decommissioning expense........................... 83,820 90,020 108,621
-------- -------- ----------
$843,248 $943,288 $1,005,089
======== ======== ==========
Provisions for depreciation, including nuclear plant, were at average annual
rates of average depreciable utility plant and equipment for the years 1999,
1998 and 1997 as follows:
1999 1998 1997
---- ---- ----
Average annual depreciation rates............................. 2.66% 3.02% 3.36%
Depreciation is provided on a straight-line basis by amortizing the cost of
depreciable plant and equipment over estimated service lives for each class of
plant. The decrease in the average depreciation rates for the year 1999,
compared to 1998, relates primarily to a reduction in nuclear depreciation rates
due to the partial impairment of production plant, which was recorded as a
component of accumulated depreciation, partially offset by shortened depreciable
lives for certain nuclear stations. See "Regulatory Assets and Liabilities"
above for additional information on the partial impairment of production plant.
Nuclear plant decommissioning costs generally are accrued over the current NRC
license lives of the related nuclear generating units. The accrual is based on
an annual levelized cost of the unrecovered portion of estimated decommissioning
costs, which are escalated for expected inflation to the expected time of
decommissioning and are net of expected earnings on the trust funds. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," subcaption "Results of Operations--Depreciation, Amortization and
Decommissioning," for a discussion of questions raised by the staff of the SEC
and a FASB review regarding the electric utility industry's method of accounting
for decommissioning costs. Dismantling is expected to occur relatively soon
after the end of the current NRC license life of each generating station
currently operating. The accrual for decommissioning is based on the prompt
removal method authorized by NRC guidelines. ComEd's ten operating units have
remaining current NRC license lives ranging from 7 to 28 years. ComEd's Zion
Station and its first nuclear unit, Dresden Unit 1, are retired and are expected
to be dismantled beginning in the years 2014 and 2011, respectively, which is
consistent with the regulatory treatment for recovery of the related
decommissioning costs.
Based on ComEd's most recent study, decommissioning costs are estimated to be
$5.7 billion in current-year (2000) dollars, including a contingency allowance.
This estimate includes $617 million of non-radiological costs, which are
included in ComEd's proposed rider for recovery, as discussed below. ComEd's
decommissioning cost expenditures at the end of the units' operating lives are
estimated to total approximately $13.8 billion. These expenditures are expected
to occur primarily during the period from 2007 through 2034. All such costs are
expected to be funded by the external decommissioning trusts, which ComEd
established in compliance with Illinois law and into which ComEd has been making
annual contributions. Future decommissioning cost estimates may be significantly
affected by the adoption of or
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
changes to NRC regulations, as well as changes in the assumptions used in making
such estimates, including changes in technology, available alternatives for the
disposal of nuclear waste and inflation.
Since 1995, ComEd has collected decommissioning costs from its ratepayers in
conjunction with a rider to its tariffs. The rider allows annual adjustments to
decommissioning cost collections outside the context of a traditional rate
proceeding and will continue under the 1997 Act. The current estimated
decommissioning costs include a contingency allowance, but, except at Dresden
Unit 1, exclude amounts for alternative spent fuel storage installations, which
may be necessary to store spent fuel during the period beginning at the end of
the NRC license lives of the plants to the date when the DOE accepts the spent
fuel for permanent storage. Contingency allowances used in decommissioning cost
estimates provide for currently unspecifiable costs that are likely to occur
after decommissioning begins and generally range from 20% to 25% of the
currently specifiable costs. In February 1998, the ICC authorized a reduction in
the annual decommissioning cost accrual from $109 million to $84 million. The
reduction primarily reflected stronger than expected after-tax returns on the
external trust funds and lower than expected escalation in low-level waste
disposal costs, partially offset by the higher current-year cost estimates,
including a contingency allowance.
Under its most recent annual rider, filed with the ICC on February 26, 1999,
ComEd has proposed to increase its estimated annual decommissioning cost accrual
from $84 million to $130 million. The proposed increase primarily reflects an
increase in low-level waste disposal cost escalation, the inclusion of $219
million in current-year (2000) dollars for safety-related costs of maintaining
Zion Station in a mothballed condition until dismantlement begins, and the
inclusion of non-radiological costs in the decommissioning cost estimates for
recovery under the rider.
The proposed annual decommissioning cost accrual of $130 million was
determined using the following assumptions: the decommissioning cost estimate of
$5.7 billion in current-year (2000) dollars, after-tax earnings on the
tax-qualified and nontax-qualified decommissioning funds of 7.49% and 6.83%,
respectively, and an escalation rate for future decommissioning costs of 4.84%.
The proposed annual accrual provided over the current NRC license lives of the
nuclear plants, coupled with the expected fund earnings and amounts previously
recovered in rates, is expected to aggregate to approximately $13.8 billion.
For the ten operating nuclear units, decommissioning cost accruals are
recorded as portions of depreciation expense and accumulated provision for
depreciation on the Statements of Consolidated Operations and the Consolidated
Balance Sheets, respectively, as such costs are recovered through rates. As of
December 31, 1999, the total decommissioning costs included in the accumulated
provision for depreciation were $2,100 million.
For ComEd's retired nuclear units, the total estimated liability for nuclear
decommissioning in current-year (2000) dollars is recorded as a noncurrent
liability. The unrecovered portion of the liability is recorded as a regulatory
asset. The nuclear decommissioning liability for retired plants as of December
31, 1999 was as follows:
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Zion
Dresden Units
Unit 1 1 and 2 Total
-------- -------- ----------
(Thousands of Dollars)
Amounts recovered through rates and investment
fund earnings.................................... $104,792 $455,962 $ 560,754
Unrecovered portion of the liability.............. 202,308 496,638 698,946
-------- -------- ----------
Nuclear decommissioning liability for retired
plants.......................................... $307,100 $952,600 $1,259,700
======== ======== ==========
Under Illinois law, decommissioning cost collections are required to be
deposited into external trusts. Consequently, such collections do not add to the
cash flows available for general corporate purposes. The ICC has approved
ComEd's funding plan, which provides for annual contributions of current
accruals and ratable contributions of past accruals over the remaining current
NRC license lives of the nuclear plants. The fair value of funds accumulated in
the external trusts at December 31, 1999 was $2,547 million, which includes
pre-tax unrealized appreciation of $721 million. The earnings on the external
trusts for operating plants accumulate in the fund balance and accumulated
provision for depreciation. Nuclear decommissioning funding as of December 31,
1999 was as follows:
(Thousands of Dollars)
Amounts recovered through rates and investment fund
earnings for operating plants (included in the
accumulated provision for depreciation)................ $2,099,796
Amounts recovered through rates and investment fund
earnings for retired plants............................ 560,754
Less past accruals not yet contributed to the trusts.... 114,010
----------
Fair value of external trust funds..................... $2,546,540
==========
Customer Receivables and Revenues. ComEd is engaged principally in the
production, purchase, transmission, distribution and sale of electricity to a
diverse base of residential, commercial, industrial and wholesale customers.
ComEd's electric service territory has an area of approximately 11,300 square
miles and an estimated population of approximately eight million as of December
31, 1999. It includes the City, an area of about 225 square miles with an
estimated population of approximately three million from which ComEd derived
approximately 30 percent of its ultimate consumer revenues in 1999. ComEd had
approximately 3.5 million electric customers at December 31, 1999. Revenues are
recognized as electric and delivery services are provided to customers.
As a result of the implementation of a new customer billing and information
system in July 1998, billing and collection delays have temporarily increased
accounts receivable from customers. Receivables from customers include $103
million and $331 million as of December 31, 1999 and 1998, respectively, in
estimated unbilled revenue for service that has been provided to customers, but
for which bill issuance was delayed beyond the normal date of issuance. ComEd
has recorded increased provisions for uncollectible accounts to recognize the
estimated portion of the receivables that are not expected to be recoverable.
Such provisions increased O&M expenses by $35 million and $10 million in 1999
and 1998, respectively, compared to normally expected levels. Receivables from
customers as of December 31, 1999 and 1998 also include $295 million and $266
million, respectively, for estimated unbilled revenues for electric service that
has been provided to customers subsequent to the normal billing date and prior
to the end of the reporting period.
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
See "Use of Estimates" above for additional information regarding ComEd's
revenues and net receivables.
See Notes 3 and 19 for additional information.
Nuclear Fuel. The cost of nuclear fuel is amortized to fuel expense based on
the quantity of heat produced using the unit of production method. As authorized
by the ICC, provisions for spent nuclear fuel disposal costs have been recorded
at a level required to recover the fee payable on the current nuclear-generated
and sold electricity and the current interest accrual on the one-time fee
payable to the DOE for nuclear generation prior to April 7, 1983. The one-time
fee and interest thereon have been recovered and the current fee and interest on
the one-time fee are presently being recovered through base rates. See Note 14
for additional information concerning the disposal of spent nuclear fuel,
one-time fee and interest accrual on the one-time fee. Nuclear fuel expenses,
including leased fuel costs and provisions for spent nuclear fuel disposal
costs, were $380 million, $325 million and $298 million for the years 1999, 1998
and 1997, respectively.
Income Taxes. Deferred income taxes are provided for income and expense items
recognized for financial accounting purposes in periods that differ from those
for income tax purposes. Income taxes deferred in prior years are charged or
credited to income as the book/tax temporary differences reverse. Prior years'
deferred investment tax credits are amortized through credits to income
generally over the lives of the related property. Income tax credits resulting
from interest charges applicable to nonoperating activities, principally
construction, are classified as other income.
AFUDC and Interest Capitalized. In accordance with the uniform systems of
accounts prescribed by regulatory authorities, ComEd capitalizes AFUDC,
compounded semiannually, which represents the estimated cost of funds used to
finance its construction program for the non-generation portion of its business.
The equity component of AFUDC is recorded on an after-tax basis and the borrowed
funds component of AFUDC is recorded on a pre-tax basis. The average annual
capitalization rates were 7.81%, 8.34% and 9.39% for the years 1999, 1998 and
1997, respectively. ComEd discontinued SFAS No. 71 regulatory accounting
practices in December 1997 for the generation portion of its business, and as a
result began capitalizing interest in 1998. ComEd capitalized $22 million and
$28 million for the years 1999 and 1998, respectively, in interest costs on its
generation-related construction work in progress and nuclear fuel in process.
AFUDC and interest capitalized do not contribute to the current cash flow of
Unicom or ComEd.
Interest. Total interest costs incurred on debt, leases and other obligations
were $642 million, $538 million and $598 million for the years 1999, 1998 and
1997, respectively.
Debt Discount, Premium and Expense. Discount, premium and expense on long-term
debt of ComEd are being amortized over the lives of the respective issues.
Loss on Reacquired Debt. Consistent with regulatory treatment, the net loss
from ComEd's reacquisition, in connection with the refinancing of first mortgage
bonds, sinking fund debentures and pollution control obligations prior to their
scheduled maturity dates, is deferred and amortized over the lives of the
long-term debt issued to finance the reacquisition for non-generation related
financings. See "Regulatory Assets and Liabilities" above and Note 3 for
additional information.
Stock Option Awards/Employee Stock Purchase Plan. Unicom has elected to adopt
SFAS No. 123, Accounting for Stock-Based Compensation, for disclosure purposes
only. Unicom accounts for its stock option awards and ESPP under APB Opinion No.
25, Accounting for Stock Issued to Employees. See Note 8 for additional
information.
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Average Common Shares Outstanding. The number of average outstanding common
shares used to compute basic and diluted EPS for the years, 1999, 1998 and 1997
were as follows:
1999 1998 1997
------- ------- -------
(Thousands of Shares)
Average Number of Common Shares Outstanding:
Average Number of Common Shares--Basic................. 217,303 216,942 216,330
Potentially Dilutive Common Shares--Treasury Method:
Stock Options........................................ 660 633 136
Other Convertible Securities......................... 88 85 98
------- ------- -------
Average Number of Common Shares--Diluted................ 218,051 217,660 216,564
======= ======= =======
Energy Risk Management Contracts. In the normal course of business, ComEd
utilizes contracts for the forward sale and purchase of energy to manage
effectively the utilization of its available generating capability. ComEd also
utilizes put and call option contracts and energy swap arrangements to limit the
market price risk associated with the forward commodity contracts. As ComEd does
not currently utilize financial or commodity instruments for trading or
speculative purposes, any gains or losses on forward commodity contracts are
recognized when the underlying ransactions affect earnings. Revenues and
expenses associated with market price risk management contracts are amortized
over the terms of such contracts.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards requiring that every derivative instrument, including certain
derivative instruments embedded in other contracts, be recorded on the
Consolidated Balance Sheets as either an asset or liability measured at its fair
value. SFAS No. 133 requires that changes in the derivative's fair value be
recognized currently in earnings, unless specific hedge accounting criteria are
met. Special accounting for qualifying hedges allows a derivative's gains and
losses to offset related results on the hedged item on the Statements of
Consolidated Operations, and requires Unicom and ComEd to formally document,
designate, and assess the effectiveness of transactions that receive hedge
accounting.
The effective date of SFAS No. 133 has been delayed for one year, to fiscal
years beginning after June 15, 2000. SFAS No. 133 may be implemented prior to
June 15, 2000, but such implementation cannot be applied retroactively. SFAS No.
133 must be applied to (i) derivative instruments and (ii) certain derivative
instruments embedded in hybrid contracts that were issued, acquired, or
substantively modified after January 1, 1998 or January 1, 1999 at the Company's
election.
Unicom and ComEd are in the process of reviewing their various contracts to
determine which contracts meet the requirements of SFAS No. 133 and would need
to be reflected as derivatives under the standard and accounted for at fair
value. Among the contracts that are being reviewed are purchase power
agreements, contracts related to electricity purchases and sales, contracts
related to gas purchases and sales, normal purchase orders, securities issued
and insurance contracts. Unicom and ComEd have not yet quantified the effects on
their financial statements of adopting SFAS No. 133. However, adoption of SFAS
No. 133 could increase volatility in earnings and other comprehensive income.
Reclassifications. Certain prior year amounts have been reclassified to
conform with current period presentation. These reclassifications had no effect
on operating results.
Cash Held for Redemption of Securities. As of December 31, 1999, the cash held
for redemption of securities reported on the Consolidated Balance Sheets
includes $222
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
million in unused cash proceeds from the issuance of the transitional trust
notes and $63 million of escrowed cash and pending instrument funding charges
collected from ComEd customers to be applied to the principal and interest
payment on the transitional trust notes. See Note 3 for additional information.
Special Deposits. As of December 31, 1999, special deposits included $1.8
billion for cash deposited by Unicom Investments in connection with a
contemplated like-kind exchange transaction involving certain of the sold fossil
plants.
Statements of Consolidated Cash Flows. For purposes of the Statements of
Consolidated Cash Flows, temporary cash investments, generally investments
maturing within three months at the time of purchase, and cash held for
redemption of securities are considered to be cash equivalents. Supplemental
cash flow information for the years 1999, 1998 and 1997 was as follows:
1999 1998 1997
-------- -------- --------
(Thousands of Dollars)
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest (net of amount capitalized)............ $597,984 $454,091 $512,050
Income taxes (net of refunds)................... $455,180 $272,476 $264,802
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Capital lease obligations incurred by subsidiary
companies........................................ $ 1,744 $106,370 $158,412
(2) Merger Agreement. In September 1999, the Boards of Directors of Unicom and
PECO approved a merger of equals that will create a new holding company, Exelon.
The merger is conditioned, among other things, upon the approvals of the
shareholders of both companies and by various regulatory bodies. The merger is
currently expected to be completed in the latter half of 2000.
Under the merger agreement, as amended and restated in January 2000, PECO and
ComEd will become the principal utility subsidiaries of Exelon. This result will
be achieved by a mandatory exchange of the outstanding common stock of PECO for
common stock of Exelon, and a merger of Unicom with and into Exelon wherein
holders of Unicom common stock will receive 0.875 shares of Exelon common stock
plus $3.00 in cash for each of their shares of Unicom common stock. The merger
transaction will be accounted for as a purchase of Unicom by PECO.
Prior to the consummation of the merger, Unicom expects to repurchase
approximately $1.0 billion of its outstanding common shares. These share
repurchases are in addition to 26.3 million shares of Unicom common stock that
Unicom repurchased in January 2000 upon settlement of certain forward purchase
contracts. The $1.0 billion additional share repurchases will be funded from
available funds, including funds resulting from the fossil plant sale.
(3) Accounting Effects Related to the 1997 Act. In December 1997, the Governor
of Illinois signed into law the 1997 Act, which established a phased process to
introduce competition into the electric industry in Illinois under a less
regulated structure. The 1997 Act was amended in June 1999.
As a result of the 1997 Act and FERC rules, prices for the supply of electric
energy are expected to transition from cost-based, regulated rates to rates
determined by competitive market forces. Accordingly, the 1997 Act provides for,
among other things, gradual customer access to other electric suppliers or a
power purchase option which allows the purchase of electric energy from ComEd at
market based prices, and the collection of a CTC from customers who choose to
purchase electric energy from a RES or elect the power purchase option during a
transition period that extends through 2006. Effective October 1, 1999, the CTC
was established
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
in accordance with a formula defined in the 1997 Act. The CTC, which is applied
on a cents per kilowatthour basis, considers the revenue which would have been
collected from a customer under tariffed rates, reduced by the revenue the
utility will receive for providing delivery services to the customer, the market
price for electricity and a defined mitigation factor, which represents the
utility's opportunity to develop new revenue sources and achieve cost savings.
The CTC allows ComEd to recover some of its costs which might otherwise be
unrecoverable under market-based rates. Nonetheless, ComEd will need to take
steps to address the portion of such costs which are not recoverable through the
CTC. Such steps may include cost control efforts, developing new sources of
revenue and asset dispositions. See Note 5 for additional information.
On October 1, 1999, more than 41,000 non-residential customers became eligible
to choose a new electric supplier or elect the purchase power option. The
remainder of non-residential customers will become eligible to choose an
electric supplier or the purchase power option between June 1 and December 31,
2000. As of December 31, 1999, over 4,700 non-residential customers,
representing approximately ten percent of ComEd's 1998 retail kilowatthour
sales, elected to receive their electric energy from a RES or chose the purchase
power option. The impact of customer choice on results of operations will depend
on various factors, including the extent to which customers elect to receive
energy from a RES or the purchased power option, the development of a
competitive market and the market price for energy, the extent to which ComEd
develops new sources of revenue and the results of cost control efforts. Because
of the inherent uncertainty in these factors, ComEd is unable to predict the
long term impact of customer choice on results of operations. However, ComEd
does not expect customer choice to have a material effect in the near term as a
result of the collection of CTCs as provided by the 1997 Act.
Utilities are required to continue to offer delivery services, including the
transmission and distribution of electric energy, such that customers who select
a RES can receive electric energy from that supplier using existing transmission
and distribution facilities. Such services will continue to be offered under
cost-based, regulated rates. The ICC issued orders in August and September 1999
approving, with modifications, ComEd's delivery service tariffs.
The 1997 Act also provides for a 15% residential base rate reduction which
became effective August 1, 1998 and an additional 5% residential base rate
reduction in October 2001. ComEd's operating revenues were reduced by
approximately $170 million in 1998 due to the 15% residential base rate
reduction. The 15% rate reduction further reduced ComEd's operating revenues by
approximately $226 million in 1999, compared to 1998 rate levels.
Notwithstanding the rate reductions and subject to certain earnings tests, a
rate freeze will generally be in effect until at least January 1, 2005. During
this period, utilities may reorganize, sell or assign assets, retire or remove
plants from service, and accelerate depreciation or amortization of assets with
limited ICC regulatory review. A utility may request a rate increase during the
rate freeze period only when necessary to ensure the utility's financial
viability, but not before January 1, 2000. Under the earnings provision of the
1997 Act, if the earned return on common equity of a utility during this period
exceeds an established threshold, one-half of the excess earnings must be
refunded to customers. The threshold rate of return on common equity is based on
the 30-Year Treasury Bond rate, plus 5.5% in the years 1998 and 1999, and plus
8.5% in the years 2000 through 2004. The utility's earned return on common
equity and the threshold return on common equity for ComEd are each calculated
on a two-year average basis. The earnings sharing provision is applicable only
to ComEd's earnings. Consistent with the provisions of the 1997 Act, increased
amortization of regulatory assets may be recorded, thereby reducing the earned
return on common equity, if earnings otherwise would have exceeded the maximum
allowable rate of return. The potential for earnings sharing or increased
amortization of regulatory assets could limit earnings in future periods.
The 1997 Act also allows a portion of ComEd's future revenues to be segregated
and used to support the issuance of securities by ComEd or a SPE.
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
The proceeds, net of transaction costs, from such security issuances must be
used to refinance outstanding debt or equity or for certain other limited
purposes. The total amount of such securities that may be issued is
approximately $6.8 billion. In December 1998, ComEd initiated the issuance of
$3.4 billion of transitional trust notes through its SPEs, ComEd Funding and
ComEd Funding Trust. The proceeds from the transitional trust notes, net of
transaction costs, were, as required, used to redeem $1,101 million of long-term
debt and $607 million of preference stock in 1999 and reduce by $500 million
ComEd's outstanding short-term debt. During the year 1999, ComEd recorded an
extraordinary loss related to the early redemptions of such long-term debt,
which reduced net income on common stock by approximately $28 million
(after-tax), or $0.13 per common share (diluted). ComEd also recorded $12
million (after-tax), or $0.05 per common share (diluted), for premiums paid in
connection with the redemption of such preference stock. The preference stock
premiums were included in the provision for dividends for preference stocks of
ComEd on the Statements of Consolidated Operations. As more fully described in
Note 7, Unicom has repurchased approximately 26.3 million shares of Unicom
common stock using $924 million of proceeds it received from ComEd's repurchase
of its common stock held by Unicom. The remaining proceeds from the issuance of
the transitional trust notes will be used for the payment of fees and additional
common stock repurchases. See Note 7 for additional information regarding
Unicom's share repurchases.
Because the 1997 Act is expected ultimately to lead to market-based pricing of
electric generation services, ComEd discontinued SFAS No. 71 regulatory
accounting practices for the generation portion of its business in December
1997. ComEd evaluated the regulatory assets and liabilities related to the
generation portion of its business and determined that it was not probable that
such costs would be recovered through the cash flows from the regulated portion
of its business. Accordingly, the generation-related regulatory assets and
liabilities were written off in the fourth quarter of 1997, resulting in an
extraordinary charge of $810 million (after-tax), or $3.75 per common share
(diluted). The fourth quarter of 1997 also reflected charges totaling $44
million (after-tax), or $0.20 per common share (diluted), as a result of ComEd's
elimination of its FAC pursuant to an option in the 1997 Act, and a charge of
$60 million (after-tax), or $0.28 per common share (diluted), for a write down
of ComEd's investment in uranium-related properties to realizable value.
Projections of the market price for uranium indicated that the expected
incremental costs of mining and milling uranium at the properties would exceed
the expected market price for uranium and such costs are not expected to be
recoverable in a competitive market. The market value of such uranium-related
properties was determined based on estimated future cash flows and independent
appraisals.
The 1997 Act also requires utilities to establish or join an ISO that will
independently manage and control utility transmission systems. Additionally, the
1997 Act includes the leveling of certain regulatory requirements to permit
operational flexibility, the leveling of certain regulatory and tax provisions
as applied to various electric suppliers and a new, more stringent, liability
standard applicable to ComEd in the event of a major outage.
(4) Cumulative Effect of a Change in Accounting Principle. In the fourth
quarter of 1997, ComEd changed its accounting method for revenue recognition to
record revenues associated with service which has been provided to customers but
has not yet been billed at the end of each accounting period, retroactive to
January 1, 1997. This change in accounting method increased operating results
for the year 1997 to reflect the one-time cumulative effect of the change for
years prior to 1997 by $197 million (after-tax), or $0.91 per common share.
(5) Sale of Plants and Closure. In December 1999, ComEd completed the sale of
its fossil generating assets to EME for a cash purchase price of $4.8 billion.
The fossil generating assets represent an aggregate generating capacity of
approximately 9,772 megawatts.
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Just prior to the consummation of the fossil plant sale, ComEd transferred
these assets to an affiliate, Unicom Investment. In consideration for the
transferred assets, Unicom Investment paid ComEd consideration totaling
approximately $4.8 billion in the form of a demand note in the amount of
approximately $2.4 billion and an interest-bearing Note with a maturity of
twelve years. Unicom Investment immediately sold the fossil plant assets to EME,
in consideration of which Unicom Investment received approximately $4.8 billion
in cash from EME. Immediately after its receipt of the cash payment from EME,
Unicom Investment paid the $2.4 billion aggregate principal due to ComEd under
the demand note. Unicom Investment will use the remainder of the cash received
from EME to fund other business opportunities, including the share repurchases.
Of the cash received by ComEd, $1.8 billion is expected to be used to pay the
costs and taxes associated with the fossil plant sale, including ComEd's
contribution of $250 million of the proceeds to an environmental trust as
required by the 1997 Act. The remainder of the demand note proceeds will be
available to ComEd to fund, among other things, transmission and distribution
projects, nuclear generation station projects, and environmental and other
initiatives.
The sale produced an after-tax gain of approximately $1.6 billion, after
recognizing commitments associated with certain coal contracts ($350 million),
recognizing employee-related costs ($112 million) and contributing to the
environmental trust. The coal contract costs include the amortization of the
remaining balance of ComEd's regulatory asset for unrecovered coal reserves of
$178 million and the recognition of $172 million of settlement payments related
to the above-market portion of coal purchase commitments ComEd assigned to EME
at market value upon completion of the fossil plant sale. The severance costs
included pension and post-retirement welfare benefit curtailment and special
termination benefit costs of $51 million and transition, separation and
retention payments of $61 million. A total of 1,730 fossil station employee
positions were eliminated upon completion of the fossil plant sale on December
15, 1999. As of December 31, 1999, 1,590 of the employees whose positions were
eliminated had been terminated and 140 affected employees were in a transition
program which generally extends 60 days from the date of the fossil plant sale.
Consistent with the provisions of the 1997 Act, the (pre-tax) gain on the sale
of $2.587 billion resulted in a regulatory liability, which was used to recover
regulatory assets. Therefore, the gain on the sale, excluding $43 million of
amortization of investment tax credits, was recorded as a regulatory liability
in the amount of $2.544 billion and amortized in the fourth quarter of 1999. The
amortization of the regulatory liability and additional regulatory asset
amortization of $2.456 billion are reflected in depreciation and amortization
expense on Unicom's Statement of Consolidated Operations and resulted in a net
reduction to depreciation and amortization expense of $88 million. See Note 1,
under "Regulatory Assets and Liabilities," for additional information.
In January 1998, the Boards of Directors of Unicom and ComEd authorized the
permanent cessation of nuclear generation operations and retirement of
facilities at ComEd's 2,080 megawatt Zion nuclear generating station. Such
retirement resulted in a charge in the fourth quarter of 1997 of $523 million
(after-tax), or $2.42 per common share (diluted). The charge included a
liability for estimated future closing costs associated with the retirement of
the station, excluding severance costs, resulting in a charge of $117 million
(after-tax). ComEd has recorded reductions to the expected liability for future
closing costs of $16 million (after-tax), or $0.07 per common share (diluted),
and $15 million (after-tax), or $0.07 per common share (diluted), in 1999 and
1998, respectively, to reflect employees being reassigned or removed from the
payroll sooner than anticipated, and lower support costs and use of contractors.
See Note 17 for information regarding costs of voluntary employee separation
plans.
ComEd completed the sale of its State Line and Kincaid coal-fired generating
stations (representing 1,598 megawatts of generating capacity) in December 1997
and February 1998, respectively. The net proceeds of the sales, after income tax
effects and closing costs, were approximately $190 million. The proceeds were
used to retire or redeem existing debt in the first quarter of 1998. ComEd has
entered into 15-year purchased power agreements for the output of the stations.
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
(6) Authorized Shares, Voting Rights and Stock Rights of Capital Stock. At
December 31, 1999, Unicom's authorized shares consisted of 400,000,000 shares of
common tock. The authorized shares of ComEd preferred and preference stocks at
December 31, 1999 were: preference stock--7,510,451 shares; $1.425 convertible
preferred stock--56,291 shares; and prior preferred stock--850,000 shares. The
preference and prior preferred stocks are issuable in series and may be issued
with or without mandatory redemption requirements. Holders of outstanding Unicom
shares are entitled to one vote for each share held on each matter submitted to
a vote of such shareholders; and holders of outstanding ComEd shares are
entitled to one vote for each share held on each matter submitted to a vote of
such shareholders. All such shares have the right to cumulate votes in elections
for the directors of the corporation which issued the shares.
Pursuant to a plan adopted by the Unicom Board of Directors on February 2,
1998, each share of Unicom's common stock carries the right (referred to herein
as a "Right") to purchase one-thousandth of one share of Unicom's common stock
at a purchase price of $100 per whole share of common stock, subject to
adjustment. The plan was amended on September 22, 1999 to render the Rights
inapplicable to the transactions contemplated by the Merger Agreement. The
Rights are tradable only with Unicom's common stock until they become
exercisable. The Rights become exercisable upon the earlier of ten days
following a public announcement that a person (an "Acquiring Person") has
acquired 15% or more of Unicom's outstanding common stock or ten business days
(or such later date as may be determined by action of the Board of Directors)
following the commencement of a tender or exchange offer which, if consummated,
would result in a person or group becoming an Acquiring Person. The Rights are
subject to redemption by Unicom at a price of $0.01 per Right, subject to
certain limitations, and will expire on February 2, 2008. If a person or group
becomes an Acquiring Person, each holder of a Right will thereafter have the
right to receive, upon exercise, Unicom common stock at a 50% discount from the
then current market price. If Unicom is acquired in a merger or other business
combination transaction in which Unicom is not the survivor, or 50% or more of
Unicom's assets or earning power is sold or transferred, each holder of a Right
shall then have the right to receive, upon exercise, common stock of the
acquiring company at a 50% discount from the then current market price of such
common stock. Rights held by an Acquiring Person become void upon the occurrence
of such events.
(7) Common Equity. In the fourth quarter of 1998, Unicom entered into a
forward purchase arrangement for the repurchase of $200 million of its common
stock. This contract, which was accounted for as an equity instrument as of
December 31, 1998, was settled on a net cash basis in February 1999, resulting
in a $16 million reduction to common stock equity on the Consolidated Balance
Sheets.
During 1999, Unicom also entered into forward purchase arrangements with
financial institutions for the repurchase of approximately 26.3 million shares
of Unicom common stock. The repurchase arrangements were settled in January 2000
on a physical basis. Effective January 2000, the share repurchases will reduce
outstanding shares and reduce common stock equity. Prior to the settlement, the
repurchase arrangements were recorded as a receivable on the Consolidated
Balance Sheets based on the aggregate market value of the shares deliverable
under the arrangements. In 1999, net unrealized losses of $44 million
(after-tax), or $0.20 per common share, were recorded related to the
arrangements. The settlement of the arrangements in January 2000 resulted in a
gain of $113 million (after-tax).
At December 31, 1999, shares of Unicom common stock were reserved for the
following purposes:
Long-Term Incentive Plan........................................ 2,231,763
Employee Stock Purchase Plan.................................... 323,797
Shareholder Rights Plan......................................... 400,000
Exchange for ComEd common stock not held by Unicom.............. 87,650
1996 Directors' Fee Plan........................................ 162,459
---------
3,205,669
=========
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Common stock issued for the years 1999, 1998 and 1997 was as follows:
1999 1998 1997
------- -------- --------
Shares of Common Stock Issued:
Long-Term Incentive Plan......................... 451,501 494,302 208,104
Employee Stock Purchase Plan..................... 89,500 94,270 196,003
Employee Savings and Investment Plan............. -- -- 274,203
Exchange for ComEd common stock not held by
Unicom.......................................... (2,454) 12,757 12,370
1996 Directors' Fee Plan......................... 5,521 12,733 14,175
Treasury Stock................................... (85,424) (178,982) --
------- -------- --------
458,644 435,080 704,855
======= ======== ========
(Thousands of Dollars)
Changes in Common Stock Accounts:
Total shares issued.............................. $21,290 $ 16,847 $ 15,768
Net cash settlement of forward share repurchase
contract........................................ (16,454)
Shares held by trustee for Unicom Stock Bonus De-
ferral Plan..................................... -- 6,775 (2,476)
Other............................................ 151 (203) 10
------- -------- --------
$ 4,987 $ 23,419 $ 13,302
======= ======== ========
As of December 31, 1999 and 1998, 264,406 and 178,982 shares, respectively, of
Unicom common stock were reacquired and held as treasury stock at a cost of $10
million and $7 million, respectively.
At December 31, 1999 and 1998, 75,692 and 76,079, respectively, of ComEd
common stock purchase warrants were outstanding. The warrants entitle the
holders to convert such warrants into common stock of ComEd at a conversion rate
of one share of common stock for three warrants.
As of December 31, 1999 and 1998, $716 million and $494 million, respectively,
of retained earnings had been appropriated for future dividend payments.
(8) Stock Option Awards/Employee Stock Purchase Plan. Unicom has a
nonqualified stock option awards program under its Long-Term Incentive Plan. The
stock option awards program was adopted by Unicom in July 1996 to reward valued
employees responsible for, or contributing to, the management, growth and
profitability of Unicom and its subsidiaries. The stock options granted expire
ten years from their grant date. One-third of the shares subject to the options
vest on each of the first three anniversaries of the option grant date. In
addition, the stock options will become fully vested immediately if the holder
dies, retires, is terminated by the Company, other than for cause, or qualifies
for long-term disability. Options granted before July 22, 1998 also vest in full
upon a change in control, while options granted on or after July 22, 1998 vest
in full if the option holder is terminated within 24 months after a change of
control.
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Stock option transactions for the years 1999, 1998 and 1997 are summarized as
follows:
Number of Weighted Average
Options Exercise Price
--------- ----------------
Outstanding as of January 1, 1997................... 1,188,000 $25.500
Granted during the year............................. 1,339,350 22.313
Exercised during the year........................... (23,423) 25.500
Expired/cancelled during the year................... (212,549) 23.632
---------
Outstanding as of December 31, 1997................. 2,291,378 23.810
Granted during the year............................. 1,379,525 35.234
Exercised during the year........................... (404,082) 24.244
Expired/cancelled during the year................... (123,928) 25.715
---------
Outstanding as of December 31, 1998................. 3,142,893 28.694
Granted during the year............................. 1,848,050 35.750
Exercised during the year........................... (313,231) 24.102
Expired/cancelled during year....................... (179,076) 33.551
---------
Outstanding as of December 31, 1999................. 4,498,636 31.719
=========
Of the stock options outstanding at December 31, 1999, 1,676,854 had vested
with a weighted average exercise price of $27.
The fair value of each stock option is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions:
Stock Option Grant Date
-----------------------
1999 1998 1997
------- ------- -------
Expected option life.................................... 7 years 7 years 7 years
Dividend yield.......................................... 4.50% 4.54% 7.20%
Expected volatility..................................... 23.02% 21.95% 22.29%
Risk-free interest rate................................. 4.83% 5.58% 6.25%
The estimated weighted average fair value for each stock option granted in
1999, 1998 and 1997 was $6.48, $6.62 and $2.79, respectively.
The ESPP allows employees to purchase Unicom common stock at a ten percent
discount from market value. Substantially all of the employees of Unicom, ComEd
and their subsidiaries are eligible to participate in the ESPP. Unicom issued
89,500, 94,270 and 196,003 shares of common stock during the year 1999, 1998 and
1997, respectively, under the ESPP at a weighted average annual purchase price
of $33.58, $33.11 and $19.15, respectively.
Unicom has adopted the disclosure-only provisions of SFAS No. 123. For
financial reporting purposes, Unicom has adopted APB No. 25, and thus no
compensation cost has been recognized for the stock option awards program or
ESPP. If Unicom had recorded compensation expense for the stock options granted
and the shares of common stock issued under the ESPP in accordance with SFAS No.
123 using the fair value based method of accounting, the additional charge to
operations would have been $4 million (after-tax), or $0.02 per common share
(diluted), $2 million (after-tax), or $0.01 per common share (diluted), and $2
million (after tax), or $0.01 per common share (diluted), for the years 1999,
1998 and 1997, respectively.
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
(9) ComEd Preferred and Preference Stocks Without Mandatory Redemption
Requirements. During the year 1999, 13,499,549 shares of preferred or preference
stock without mandatory redemption requirements were redeemed and no shares were
issued. No shares of ComEd preferred or preference stocks without mandatory
redemption requirements were issued or redeemed during 1998 and 1997. All series
other than Series $1.425 have been redeemed.
The outstanding shares of ComEd's $1.425 convertible preferred stock are
convertible at the option of the holders thereof, at any time, into common stock
of ComEd at the rate of 1.02 shares of common stock for each share of
convertible preferred stock, subject to future adjustment. The convertible
preferred stock may be redeemed by ComEd at $42 per share, plus accrued and
unpaid dividends, if any. The involuntary liquidation price of the $1.425
convertible preferred stock is $31.80 per share, plus accrued and unpaid
dividends, if any.
(10) ComEd Preference Stock Subject to Mandatory Redemption Requirements.
During 1999, 1998 and 1997, no shares of ComEd preference stock subject to
mandatory redemption requirements were issued. During 1999, 1998 and 1997,
1,020,345, 338,215 and 438,215 shares, respectively, of ComEd preference stock
subject to mandatory redemption requirements were reacquired to meet sinking
fund requirements or were part of the early redemption in 1999. There were
700,000 shares of Series $6.875 preference stock outstanding at December 31,
1999, at an aggregate stated value of $69 million. This series is non-callable
and is required to be redeemed on May 1, 2000. The sinking fund price is $100
and the involuntary liquidation price is $99.25 per share, plus accrued and
unpaid dividends, if any. The $69 million is included in current liabilities.
(11) ComEd-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary
Trusts Holding Solely ComEd's Subordinated Debt Securities. In September 1995,
ComEd Financing I, a wholly-owned subsidiary trust of ComEd, issued 8,000,000 of
its 8.48% ComEd-obligated mandatorily redeemable preferred securities. The sole
asset of ComEd Financing I is $206.2 million principal amount of ComEd's 8.48%
subordinated deferrable interest notes due September 30, 2035. In January 1997,
ComEd Financing II, a wholly-owned subsidiary trust of ComEd, issued 150,000 of
its 8.50% ComEd-obligated mandatorily redeemable capital securities. The sole
asset of ComEd Financing II is $154.6 million principal amount of ComEd's 8.50%
subordinated deferrable interest debentures due January 15, 2027. There is a
full and unconditional guarantee by ComEd of the Trusts' obligations under the
securities issued by the Trusts. However, ComEd's obligations are subordinate
and junior in right of payment to certain other indebtedness of ComEd. ComEd has
the right to defer payments of interest on the subordinated deferrable interest
notes by extending the interest payment period, at any time, for up to 20
consecutive quarters. Similarly, ComEd has the right to defer payments of
interest on the subordinated deferrable interest debentures by extending the
interest payment period, at any time, for up to ten consecutive semi-annual
periods. If interest payments on the subordinated deferrable interest notes or
debentures are so deferred, distributions on the preferred securities will also
be deferred. During any deferral, distributions will continue to accrue with
interest thereon. In addition, during any such deferral, ComEd may not declare
or pay any dividend or other distribution on, or redeem or purchase, any of its
capital stock.
The subordinated deferrable interest notes are redeemable by ComEd, in whole
or in part, from time to time, on or after September 30, 2000, and with respect
to the subordinated deferrable interest debentures, on or after January 15,
2007, or at any time in the event of certain income tax circumstances. If the
subordinated deferrable interest notes or debentures are redeemed, the Trusts
must redeem preferred securities having an aggregate liquidation amount equal to
the aggregate principal amount of the subordinated deferrable interest notes or
debentures so redeemed. In the event of the dissolution, winding up or
termination of the Trusts, the holders of the preferred securities will be
entitled to receive, for each preferred security, a liquidation amount of $25
for the securities of ComEd Financing I and $1,000 for the securities of ComEd
Financing II, plus accrued and unpaid distributions thereon, including interest
thereon, to the date of payment,
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
unless in connection with the dissolution, the subordinated deferrable interest
notes or debentures are distributed to the holders of the preferred securities.
(12) Long-Term Debt. ComEd initiated the issuance of $3.4 billion of
transitional trust notes through its SPEs, ComEd Funding and ComEd Funding
Trust, in the fourth quarter of 1998. The current amount outstanding is as
follows:
Series Principal Amount
------------------------ ----------------------
(Thousands of Dollars)
5.38% due March 25, 2000........................... $ 94,967
5.29% due June 25, 2001............................ 425,033
5.34% due March 25, 2002........................... 258,861
5.39% due June 25, 2003............................ 421,139
5.44% due March 25, 2005........................... 598,511
5.63% due June 25, 2007............................ 761,489
5.74% due December 25, 2008........................ 510,000
----------
$3,070,000
==========
For accounting purposes, the liabilities of ComEd Funding Trust for the
transitional trust notes are reflected as long-term debt on the Consolidated
Balance Sheets of Unicom and ComEd.
The proceeds, net of transaction costs, from the transitional trust notes have
been used, as required, to redeem debt and equity. During 1999, ComEd redeemed
or reacquired $1,101 million of long-term debt.
Sinking fund requirements and scheduled maturities remaining through 2004 for
ComEd's first mortgage bonds, transitional trust notes, sinking fund debentures
and other long-term debt outstanding at December 31, 1999, after deducting
deposits made for the retirement of sinking fund debentures, are summarized as
follows: 2000--$732 million; 2001--$345 million; 2002--$645 million; 2003--$445
million; and 2004--$577 million.
At December 31, 1999, ComEd's outstanding first mortgage bonds maturing
through 2004 were as follows:
Series Principal Amount
-------------------------------- ----------------------
(Thousands of Dollars)
9 3/8% due February 15, 2000....................... $ 42,245
6 1/2% due April 15, 2000.......................... 230,000
6 3/8% due July 15, 2000........................... 100,000
7 3/8% due September 15, 2002...................... 200,000
6 5/8% due July 15, 2003........................... 100,000
5 3/10% due January 15, 2004....................... 26,000
--------
$698,245
========
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Other long-term debt outstanding at December 31, 1999 is summarized as
follows:
Principal
Debt Security Amount Interest Rate
---------------------------------------- ---------- -------------------------
(Thousands
of
Dollars)
Unicom--
Loans Payable:
Loan due January 1, 2003 $ 5,519 Interest rate of 8.31%
Loan due January 1, 2004 6,371 Interest rate of 8.44%
Loan due January 15, 2009 6,025 Interest rate of 8.30%
Loan due January 15, 2009 7,567 Interest rate of 8.55%
Loan due January 15, 2010 6,803 Interest rate of 8.88%
Loan due July 15, 2010 9,225 Interest rate of 7.98%
----------
$ 41,510
----------
ComEd--
Notes:
Medium Term Notes, Series 3N due vari-
ous dates through October 15, 2004 $ 156,000 Interest rates ranging
from 9.17% to 9.20%
Notes due January 15, 2004 150,000 Interest rate of 7.375%
Notes due October 15, 2005 235,000 Interest rate of 6.40%
Notes due January 15, 2007 150,000 Interest rate of 7.625%
Notes due July 15, 2018 225,000 Interest rate of 6.95%
----------
$ 916,000
----------
Purchase Contract Obligation
due April 30, 2005 $ 301 Interest rate of 3.00%
----------
Total ComEd $ 916,301
----------
Unicom Enterprises--
Notes:
Unicom Thermal Guaranteed Senior Note
due May 30, 2012 $ 120,000 Interest rate of 7.38%
Northwind Midway Guaranteed Senior Note
due June 30, 2023 11,523 Interest rate of 7.68%
Unicom Mechanical Services Note
due January 1, 2001 13 Interest rate of 8.50%
----------
Total Unicom Enterprises $ 131,536
----------
Total Unicom $1,089,347
==========
Long-term debt maturing within one year has been included in current
liabilities.
ComEd's outstanding first mortgage bonds are secured by a lien on
substantially all property and franchises, other than expressly excepted
property, owned by ComEd.
In July 1998, Unicom Thermal issued a $120 million 7.38% unsecured guaranteed
senior Note due May 2012, the proceeds of which were used to refinance existing
debt. The Note is guaranteed by Unicom and includes certain covenants with
respect to Unicom and Unicom Thermal's operations. Such covenants include, among
other things, (i) a requirement that Unicom and its consolidated subsidiaries
maintain a tangible net worth at least $10 million greater than that of ComEd
and its consolidated subsidiaries, (ii) a requirement that Unicom's consolidated
debt to consolidated capitalization not exceed 0.65 to 1, (iii) restrictions on
the indebtedness for borrowed money that Unicom Thermal may incur, and (iv) a
requirement that Unicom own, directly or indirectly, 51% of the outstanding
stock of Unicom Thermal and at least 80% of the outstanding stock of ComEd.
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
In June 1999, Northwind Midway issued $12 million of 7.68% guaranteed senior
Notes due June 2023, the proceeds of which will be used primarily to finance
certain project construction costs. The Notes are guaranteed by Unicom and
include certain covenants with respect to Unicom and Northwind Midway's
operations. Such covenants include, among other things, a requirement that
Unicom and its consolidated subsidiaries own no less than 65% of the voting
membership interest of Northwind Midway.
(13) Lines of Credit. ComEd had total unused bank lines of credit of $800
million at December 31, 1999. Of that amount, $500 million expires on December
15, 2000 and $300 million expires on December 17, 2002. The interest rate is set
at the time of a borrowing and is based on several floating rate bank indices
plus a spread which is dependent upon the credit rating of ComEd's outstanding
first mortgage bonds or on a prime interest rate. ComEd is obligated to pay
commitment and facility fees with respect to the line of credit.
Unicom Enterprises has an unused $400 million credit facility which will
expire December 15, 2000. The credit facility can be used by Unicom Enterprises
to finance investments in unregulated businesses and projects, including UT
Holdings and Unicom Energy Services, and for general corporate purposes. The
credit facility is guaranteed by Unicom and includes certain covenants with
respect to Unicom and Unicom Enterprises' operations. Such covenants include,
among other things, (i) a requirement that Unicom and its consolidated
subsidiaries maintain a tangible net worth at least $3.5 million over that of
ComEd and its consolidated subsidiaries, (ii) a requirement that Unicom's
consolidated debt to consolidated capitalization not exceed 0.65 to 1, (iii)
restrictions on the indebtedness for borrowed money that Unicom (excluding
ComEd) and Unicom Enterprises may incur, and (iv) a requirement that Unicom own
100% of the outstanding stock of Unicom Enterprises and at least 80% of the
outstanding stock of ComEd; and provide that Unicom may not declare or pay
dividends during the continuance of an event of default. Interest rates for
borrowings under the credit facility are set at the time of a borrowing and are
based on either a prime interest rate or a floating rate bank index plus a
spread which varies with the credit rating of ComEd's outstanding first mortgage
bonds. Unicom Enterprises is obligated to pay commitment fees with respect to
the unused portion of such lines of credit.
(14) Disposal of Spent Nuclear Fuel. Under the Nuclear Waste Policy Act of
1982, the DOE is responsible for the selection and development of repositories
for, and the disposal of, spent nuclear fuel and high-level radioactive waste.
ComEd, as required by that Act, has entered into a contract with the DOE to
provide for the disposal of spent nuclear fuel and high-level radioactive waste
from ComEd's nuclear generating stations. The contract with the DOE requires
ComEd to pay the DOE a one-time fee applicable to nuclear generation through
April 6, 1983 of $277 million, with interest to date of payment, and a fee
payable quarterly equal to one mill per kilowatthour of nuclear-generated and
sold electricity after April 6, 1983. Pursuant to the contract, ComEd has
elected to pay the one-time fee, with interest, just prior to the first delivery
of spent nuclear fuel to the DOE. The liability for the one-time fee and the
related interest is reflected on the Consolidated Balance Sheets. The contract
also provided for acceptance by the DOE of such materials to begin in January
1998; however, that date was not met by the DOE and is expected to be delayed
significantly. The DOE's current estimate for opening a facility to accept such
waste is 2010. This extended delay in spent nuclear fuel acceptance by the DOE
has led to ComEd's consideration of additional dry storage alternatives. On July
30, 1998, ComEd filed a complaint against the United States in the United States
Court of Federal Claims seeking to recover damages caused by the DOE's failure
to honor its contractual obligation to begin disposing of spent nuclear fuel in
January 1998. On November 5, 1999, ComEd's case was stayed pending the decision
of the United States Court of Appeals for the Federal Circuit in several similar
cases brought by other utilities.
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
(15) Fair Value of Financial Instruments. The following methods and
assumptions were used to estimate the fair value of financial instruments either
held, or issued and outstanding. The disclosure of such information does not
purport to be a market valuation of Unicom and subsidiary companies as a whole.
The impact of any realized or unrealized gains or losses related to such
financial instruments on the financial position or results of operations of
Unicom and subsidiary companies is primarily dependent on the treatment
authorized under future ComEd ratemaking proceedings.
Investments. Securities included in the nuclear decommissioning funds have
been classified and accounted for as "available for sale" securities. The
estimated fair value of the nuclear decommissioning funds, as determined by the
trustee and based on published market data, as of December 31, 1999 and 1998 was
as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
-------------------------------- --------------------------------
Unrealized
Gains/ Unrealized
Cost Basis (Losses) Fair Value Cost Basis Gains Fair Value
---------- ---------- ---------- ---------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Short-term investments.. $ 41,362 $ 95 $ 41,457 $ 40,907 $ 42 $ 40,949
U.S. Government and
Agency issues.......... 245,399 (1,993) 243,406 197,240 20,213 217,453
Municipal bonds......... 383,816 (940) 382,876 416,121 24,124 440,245
Corporate bonds......... 196,942 (5,699) 191,243 241,111 8,790 249,901
Common stock............ 832,802 732,893 1,565,695 740,956 565,630 1,306,586
Other................... 125,072 (3,209) 121,863 11,345 838 12,183
---------- -------- ---------- ---------- -------- ----------
$1,825,393 $721,147 $2,546,540 $1,647,680 $619,637 $2,267,317
========== ======== ========== ========== ======== ==========
</TABLE>
At December 31, 1999, the debt securities held by the nuclear decommissioning
funds had the following maturities:
Cost Basis Fair Value
---------- ----------
(Thousands of
Dollars)
Within 1 year....................................... $ 47,853 $ 48,421
1 through 5 years................................... 263,588 263,117
5 through 10 years.................................. 227,927 225,860
Over 10 years....................................... 409,823 400,358
The net earnings of the nuclear decommissioning funds, which are recorded in
the accumulated provision for depreciation, for the years 1999, 1998 and 1997
were as follows:
1999 1998 1997
---------- ---------- ----------
(Thousands of Dollars)
Gross proceeds from sales of securities....... $1,765,000 $1,795,484 $2,163,522
Less cost based on specific identification.... 1,718,151 1,728,092 2,088,300
---------- ---------- ----------
Realized gains on sales of securities......... $ 46,849 $ 67,392 $ 75,222
Other realized fund earnings, net of expenses. 62,927 40,374 39,123
---------- ---------- ----------
Total realized net earnings of the funds...... $ 109,776 $ 107,766 $ 114,345
Unrealized gains.............................. 101,510 190,503 198,741
---------- ---------- ----------
Total net earnings of the funds.............. $ 211,286 $ 298,269 $ 313,086
========== ========== ==========
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Securities held by certain trusts, which were established to provide for
supplemental retirement benefits and executive medical claims, have been
classified and accounted for as "available for sale." The estimated fair value
of these securities, as determined by the trustee and based on published market
data, as of December 31, 1999 was as follows:
Cost Unrealized Fair
Basis Gain Value
------- ---------- -------
(Thousands of Dollars)
Short-term investments.............................. $ 162 $ -- $ 162
Registered investment companies..................... 21,641 12,471 34,112
------- ------- -------
$21,803 $12,471 $34,274
======= ======= =======
Current Assets. Cash, temporary cash investments, cash held for redemption of
securities and other cash investments, which include U.S. Government obligations
and other short-term marketable securities, and special deposits, are stated at
cost, which approximates their fair value because of the short maturity of these
instruments. The securities included in these categories have been classified as
"available for sale" securities.
Capitalization. The estimated fair values of ComEd preferred and preference
stocks, ComEd-obligated mandatorily redeemable preferred securities of
subsidiary trusts holding solely ComEd's subordinated debt securities,
transitional trust notes and long-term debt were obtained from an independent
consultant. The estimated fair values, which include the current portions of
redeemable preference stock and long-term debt but exclude accrued interest and
dividends, as of December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
--------------------------------- --------------------------------
Unrealized
Carrying Losses/ Carrying Unrealized Fair
Value (Gains) Fair Value Value Losses Value
---------- ---------- ---------- ---------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
ComEd preferred and
preference stocks...... $ 71,265 $ 58 $ 71,323 $ 678,156 $ 11,500 $ 689,656
ComEd-obligated
mandatorily redeemable
preferred securities of
subsidiary trusts
holding solely ComEd's
subordinated debt
securities............. $ 350,000 $ (10,595) $ 339,405 $ 350,000 $ 20,678 $ 370,678
Transitional trust
notes.................. $3,057,112 $(163,600) $2,893,512 $3,382,821 $ 67,168 $3,449,989
Long-term debt.......... $4,757,062 $ (23,987) $4,733,075 $5,911,757 $451,240 $6,362,997
</TABLE>
Long-term notes payable, which are not included in the above table, amounted
to $53 million and $100 million as of December 31, 1999 and 1998, respectively.
Such notes, for which interest is paid at fixed and prevailing rates, are
included in the consolidated financial statements at cost, which approximates
their fair value.
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Current Liabilities. The carrying value of notes payable, which consists of
commercial paper and bank loans maturing within one year, approximates the fair
value because of the short maturity of these instruments. See "Capitalization"
above for a discussion of the fair value of the current portion of long-term
debt and redeemable preference stock.
Other Noncurrent Liabilities. The carrying value of accrued spent nuclear fuel
disposal fee and related interest represents the settlement value as of December
31, 1999 and 1998; therefore, the carrying value is equal to the fair value.
(16) Pension and Postretirement Benefits. As of December 31, 1999, ComEd had a
qualified non-contributory defined benefit pension plan which covers all regular
employees of ComEd and certain of Unicom's subsidiaries. Benefits under this
plan reflect each employee's compensation, years of service and age at
retirement. Funding is based upon actuarially determined contributions that take
into account the amount deductible for income tax purposes and the minimum
contribution required under the Employee Retirement Income Security Act of 1974,
as amended. The December 31, 1999 and 1998 pension liabilities and related data
were determined using the January 1, 1999 actuarial valuation. Additionally,
ComEd maintains a nonqualified supplemental retirement plan which covers any
excess pension benefits that would be payable to management employees under the
qualified plan but which are limited by the Internal Revenue Code. In 1998,
Indiana Company's qualified defined benefit pension plan was merged into ComEd's
pension plan as a result of the sale of Indiana Company's State Line Station and
the transfer of its remaining employees to ComEd.
ComEd and certain of Unicom's subsidiaries provide certain postretirement
medical, dental and vision care, and life insurance for retirees and their
dependents and for the surviving dependents of eligible employees and retirees.
Generally, the employees become eligible for postretirement benefits if they
retire no earlier than age 55 with ten years of service. The liability for
postretirement benefits is funded through trust funds based upon actuarially
determined contributions that take into account the amount deductible for income
tax purposes. The health care plans are contributory, funded jointly by the
companies and the participating retirees. The December 31, 1999 and 1998
postretirement benefit liabilities and related data were determined using the
January 1, 1999 actuarial valuations.
Reconciliations of the beginning and ending balances of the projected pension
benefit obligation and the accumulated postretirement benefit obligation, and
the funded status of these plans for the years 1999 and 1998 were as follows:
Twelve Months Ended Twelve Months Ended
December 31, 1999 December 31, 1998
-------------------------- --------------------------
Other Other
Pension Postretirement Pension Postretirement
Benefits Benefits Benefits Benefits
---------- -------------- ---------- --------------
(Thousands of Dollars)
Change in benefit obligation
-----------------
Benefit obligation at
beginning of period.... $4,326,000 $1,236,000 $4,010,000 $1,139,000
Service cost............ 120,000 41,000 115,000 38,000
Interest cost........... 285,000 82,000 273,000 78,000
Plan participants' con-
tributions............. -- 4,000 -- 3,000
Actuarial loss/(gain)... (458,000) (188,000) 165,000 25,000
Benefits paid........... (241,000) (51,000) (237,000) (47,000)
Special termination ben-
efits.................. 62,000 27,000 -- --
---------- ---------- ---------- ----------
Benefit obligation at
end of period......... $4,094,000 $1,151,000 $4,326,000 $1,236,000
---------- ---------- ---------- ----------
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Change in plan assets
---------------------
Fair value of plan as-
sets at beginning of
period................. $4,015,000 $ 865,000 $3,706,000 $ 767,000
Actual return on plan
assets................. 492,000 105,000 535,000 122,000
Employer contribution... 3,000 24,000 11,000 20,000
Plan participants' con-
tributions............. -- 4,000 -- 3,000
Benefits paid........... (241,000) (51,000) (237,000) (47,000)
---------- ---------- ---------- ----------
Fair value of plan as-
sets at end of period. $4,269,000 $ 947,000 $4,015,000 $ 865,000
---------- ---------- ---------- ----------
Plan assets
greater/(less) than
benefit obligation..... $ 175,000 $ (204,000) $ (311,000) $ (371,000)
Unrecognized net actuar-
ial loss/(gain)........ (523,000) (555,000) 36,000 (371,000)
Unrecognized prior serv-
ice cost/(asset)....... (51,000) 41,000 (60,000) 48,000
Unrecognized transition
obligation/(asset)..... (79,000) 276,000 (101,000) 323,000
---------- ---------- ---------- ----------
Accrued liability for
benefits.............. $ (478,000) $ (442,000) $ (436,000) $ (371,000)
========== ========== ========== ==========
The assumed discount rate used to determine the benefit obligation as of
December 31, 1999 and 1998 was 7.75% and 6.75%, respectively. The fair value of
plan assets excludes $25 million and $21 million held in grantor trust as of
December 31, 1999 and 1998, respectively, for the payment of benefits under the
supplemental plan and $9 million and $7 million held in a grantor trust as of
December 31, 1999 and 1998, respectively, for the payment of postretirement
medical benefits.
The components of pension and other postretirement benefit costs, portions of
which were recorded as components of construction costs, for the years, 1999,
1998 and 1997 were as follows:
1999 1998 1997
-------- --------- ---------
(Thousands of Dollars)
Pension Benefit Costs
---------------------
Service cost.................................. $120,000 $ 115,000 $ 100,000
Interest cost on projected benefit obligation. 285,000 273,000 261,000
Expected return on plan assets................ (362,000) (342,000) (310,000)
Amortization of transition asset.............. (13,000) (12,000) (13,000)
Amortization of prior service asset........... (4,000) (4,000) (4,000)
Recognized loss............................... 3,000 2,000 2,000
Curtailment (gain)/loss....................... 16,000 -- (5,000)
-------- --------- ---------
Net periodic benefit cost.................... $ 45,000 $ 32,000 $ 31,000
======== ========= =========
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Other Postretirement Benefit Costs
----------------------------------
Service cost.................................. $ 41,000 $ 38,000 $ 34,000
Interest cost on accumulated benefit
obligation................................... 82,000 78,000 76,000
Expected return on plan assets................ (76,000) (69,000) (61,000)
Amortization of transition obligation......... 22,000 22,000 22,000
Amortization of prior service cost............ 4,000 4,000 4,000
Recognized gain............................... (14,000) (14,000) (13,000)
Severance plan cost........................... 1,000 6,000 8,000
Curtailment loss.............................. 35,000 -- --
-------- --------- ---------
Net periodic benefit cost.................... $ 95,000 $ 65,000 $ 70,000
======== ========= =========
In accounting for the pension costs and other postretirement benefit costs
under the plans, the following weighted average actuarial assumptions were used
for the periods during 1999, 1998 and 1997:
Other
Pension Benefits Postretirement Benefits
----------------- -----------------------
1999 1998 1997 1999 1998 1997
----- ----- ----- ------- ------- -------
Annual discount rate................. 6.75% 7.00% 7.50% 6.75% 7.00% 7.50%
Annual long-term rate of return on
plan assets......................... 9.25% 9.50% 9.75% 8.97% 9.20% 9.40%
Annual rate of increase in future
compensation levels................. 4.00% 4.00% 4.00% -- -- --
The pension curtailment gain in December 1997 represents the recognition of
prior service costs, the transition asset and the decrease in the projected
benefit obligation related to the reduction in the number of employees due to
Indiana Company's sale of State Line Station. The pension and other
postretirement benefit curtailment losses in December 1999 represent the
recognition of prior service costs and transition obligations, and an increase
in the benefit obligations resulting from special termination benefits, related
to the reduction in the number of employees due to ComEd's sale of the fossil
stations.
The health care cost trend rates used to measure the expected cost of the
postretirement medical benefits are assumed to be 8.0% for pre-Medicare
recipients and 6.0% for Medicare recipients for 1999. Those rates are assumed to
decrease in 0.5% annual increments to 5% for the years 2005 and 2001,
respectively, and to remain level thereafter. The health care cost trend rates,
used to measure the expected cost of postretirement dental and vision benefits,
are a level 3.5% and 2.0% per year, respectively. Assumed health care cost trend
rates have a significant effect on the amounts reported for the health care
plans. A one percentage point change in the assumed health care cost trend rates
would have the following effects:
1 Percentage 1 Percentage
Point Increase Point Decrease
-------------- --------------
(Thousands of Dollars)
Effect on total 1999 service and interest cost
components...................................... $ 26,000 $ (20,000)
Effect on postretirement benefit obligation as of
December 31, 1999............................... 190,000 (151,000)
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
In addition, an employee savings and investment plan is available to eligible
employees of ComEd and certain of its and Unicom's subsidiaries. Under the plan,
each participating employee may contribute up to 20% of such employee's base pay
and the participating companies match the first 6% of such contribution equal to
100% of the first 2% of contributed base salary, 70% of the next 3% of
contributed base salary and 25% of the next 1% of contributed base salary. The
participating companies' contributions were $32 million, $32 million and $33
million for the years 1999, 1998 and 1997, respectively.
(17) Separation Plan Costs. O&M expenses included $10 million, $48 million and
$39 million for the years 1999, 1998 and 1997, respectively, for costs related
to voluntary separation offers to certain employees of ComEd and Indiana
Company, as well as certain other employee-related costs. Such costs resulted in
charges of $6 million (after-tax), or $0.03 per common share (diluted), $29
million (after-tax), or $0.13 per common share (dilutive) and $24 million
(after-tax), or $0.11 per common share (diluted), for the years 1999, 1998 and
1997, respectively. See Note 5 regarding employee separation costs related to
the fossil plant sale.
(18) Income Taxes. The components of the net deferred income tax liability at
December 31, 1999 and 1998 were as follows:
December 31
----------------------
1999 1998
---------- ----------
(Thousands of
Dollars)
Deferred income tax liabilities:
Accelerated cost recovery and liberalized deprecia-
tion, net of removal costs........................... $2,815,972 $4,028,351
Overheads capitalized................................. 159,836 140,922
Repair allowance...................................... 221,502 233,861
Regulatory assets recoverable through future rates.... 688,946 680,356
Deferred income tax assets:
Postretirement benefits............................... (376,538) (331,651)
Unamortized investment tax credits.................... (161,756) (191,135)
Regulatory liabilities to be settled through future
rates................................................ (596,157) (595,005)
Nuclear plant closure................................. (5,456) (38,354)
Other--net............................................ (321,522) (146,224)
---------- ----------
Net deferred income tax liability...................... $2,424,827 $3,781,121
========== ==========
The $1,356 million decrease in the net deferred income tax liability from
December 31, 1998 to December 31, 1999 is comprised of a $1,377 million credit
to net deferred income tax expense pertaining primarily to the fossil plant
sale, a $7 million increase in regulatory assets net of regulatory liabilities
pertaining to income taxes for the period, and $14 million related to other
items. The amount of accelerated cost recovery and liberalized depreciation
included in deferred income tax liabilities for both periods includes amounts
related to the regulatory asset for impaired production plant. The amount of
regulatory assets included in deferred income tax liabilities primarily relates
to the equity component of AFUDC which is recorded on an after-tax basis, the
borrowed funds component of AFUDC which was previously recorded net of tax and
other temporary differences for which the related tax effects were not
previously recorded. The amount of other regulatory liabilities included in
deferred income tax assets primarily relates to deferred income taxes provided
at rates in excess of the current statutory rate.
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
The components of net income tax expense charged/(credited) to continuing
operations for the years 1999, 1998 and 1997 were as follows:
1999 1998 1997
---------- -------- ---------
(Thousands of Dollars)
Operating income:
Current income taxes........................ $1,762,281 $304,889 $ 255,057
Deferred income taxes....................... (1,403,083) 50,134 62,501
Investment tax credits deferred--net........ (25,828) (27,730) (31,015)
Other (income) and deductions:
Current income taxes........................ 457 (51,816) 1,116
Deferred income taxes....................... 25,739 59,458 (385,994)
Investment tax credits...................... (51,740) (12,107) (22,526)
---------- -------- ---------
Net income taxes charged/(credited) to con-
tinuing operations.......................... $ 307,826 $322,828 $(120,861)
========== ======== =========
Provisions for current and deferred federal and state income taxes and
amortization of investment tax credits resulted in the following effective
income tax rates for the years 1999, 1998 and 1997:
1999 1998 1997
-------- -------- ---------
(Thousands of Dollars)
Net income/(loss) before extraordinary items.... $597,245 $510,184 $(239,215)
Net income taxes charged/(credited) to continu-
ing operations................................. 307,826 322,828 (120,861)
Provision for dividends on ComEd preferred and
preference stocks.............................. 23,756 56,884 60,486
-------- -------- ---------
Pre-tax income/(loss) before extraordinary items
and provision for dividends.................... $928,827 $889,896 $(299,590)
-------- -------- ---------
Effective income tax rate....................... 33.1% 36.3% 40.3%
======== ======== =========
The principal differences between net income taxes charged/(credited) to
continuing operations and the amounts computed at the federal statutory rate of
35% for the years 1999, 1998 and 1997 were as follows:
1999 1998 1997
-------- -------- ---------
(Thousands of Dollars)
Federal income taxes computed at statutory rate. $325,089 $311,464 $(104,857)
Equity component of AFUDC which was excluded
from taxable income............................ (436) (390) (8,320)
Amortization of investment tax credits, net of
deferred income taxes.......................... (48,216) (25,503) (53,541)
State income taxes, net of federal income taxes. 45,882 40,899 (682)
Unrealized loss/(gain) on forward share
repurchase contract............................ 15,390 -- --
Earnings on nontax-qualified decommissioning
fund........................................... (8,915) -- --
Differences between book and tax accounting,
primarily property-related deductions.......... (20,968) (3,642) 46,539
-------- -------- ---------
Net income taxes charged/(credited) to
continuing operations.......................... $307,826 $322,828 $(120,861)
======== ======== =========
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
(19) Taxes, Except Income Taxes. Provisions for taxes, except income taxes,
for the years 1999, 1998 and 1997 were as follows:
1999 1998 1997
-------- -------- --------
(Thousands of Dollars)
Illinois public utility revenue...................... $ 981 $114,981 $228,350
Illinois invested capital............................ -- -- 99,503
Illinois electricity distribution tax................ 114,241 110,026 --
Municipal utility gross receipts..................... 99,701 152,501 168,094
Real estate.......................................... 115,208 125,521 151,508
Municipal compensation............................... 73,349 89,210 78,286
Energy assistance and renewable energy charge........ 34,423 32,736 --
Other--net........................................... 70,550 74,859 75,145
-------- -------- --------
$508,453 $699,834 $800,886
======== ======== ========
Effective January 1, 1998, the Illinois invested capital tax was repealed and
the Illinois electricity distribution tax was enacted as a replacement. The new
tax is based on the kilowatthours delivered to ultimate consumers.
The 1997 Act changed the nature of several state and municipal taxes that are
collected through customer billings. Before August 1998, the utility taxes were
assessed against the utility. Effective August 1998, the utility taxes are
assessed on the electric consumer rather than the utility. Accordingly, ComEd
records the collections as liabilities and no longer records the taxes collected
through billings as revenues and tax expense. The reduction in operating
revenues and taxes, except income taxes, due to the change in presentation for
such taxes was approximately $174 million in 1999, compared to 1998, and $110
million in 1998, compared to 1997. This change in presentation for such taxes
did not have an effect on operations.
See Note 22 for additional information regarding Illinois invested capital
taxes.
(20) Lease Obligations of Subsidiary Companies. Under its nuclear fuel lease
arrangement, ComEd may sell and lease back nuclear fuel from a lessor who may
borrow an aggregate of $267 million, consisting of intermediate term notes, to
finance the transactions. A commercial paper/bank borrowing portion expired on
November 23, 1999. With respect to the intermediate term notes, $75 million
expires on November 23, 2000, $40 million expires on November 23, 2001, $77
million expires on November 23, 2002 and $75 million expires on November 23,
2003. At December 31, 1999, ComEd's obligation to the lessor for leased nuclear
fuel amounted to approximately $270 million. ComEd has agreed to make lease
payments which cover the amortization of the nuclear fuel used in ComEd's
reactors plus the lessor's related financing costs. ComEd has an obligation for
spent nuclear fuel disposal costs of leased nuclear fuel.
As of December 31, 1999, future minimum rental payments, net of executory
costs, for capital leases are estimated to aggregate to $298 million, including
$121 million in 2000, $96 million in 2001, $48 million in 2002 and $33 million
in 2003. The estimated interest component of such rental payments aggregates $27
million. The estimated portions of obligations due within one year under capital
leases of $108 million and $195 million at December 31, 1999 and 1998,
respectively, were included in current liabilities on the Consolidated Balance
Sheets.
Future minimum rental payments at December 31, 1999 for operating leases are
estimated to aggregate to $305 million, including $33 million in 2000, $27
million in 2001, $27 million in 2002, $24 million in 2003, $23 million in 2004
and $171 million in 2005-2043.
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
(21) Joint Plant Ownership. ComEd has a 75% undivided ownership interest in
the Quad Cities nuclear generating station. Further, ComEd is responsible for
75% of all costs which are charged to appropriate investment and O&M accounts,
and provides its own financing. ComEd's net plant investment, including
construction work in progress, in Quad Cities Station on the Consolidated
Balance Sheets was $22 million at December 31, 1999, after reflecting the
accounting impairment recorded in the second quarter of 1998. See Note 1, under
"Regulatory Assets and Liabilities," for additional information.
(22) Commitments and Contingent Liabilities. Purchase commitments, principally
related to construction, nuclear fuel, and coal in support of certain power
purchase agreements approximated $799 million at December 31, 1999, comprised of
$670 million for ComEd, $27 million for UT Holdings, $24 million for Unicom
Energy Services and $78 million for Unicom Power Holdings. In addition, ComEd
has substantial commitments for expected capacity payments and fixed charges
related to power purchase agreements. Upon completion of the fossil plant sale
with EME, ComEd entered into arrangements to assign or settle a substantial
portion of its coal purchase commitments and entered into purchase power
agreements with EME. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," subcaption "Liquidity and Capital
Resources--UTILITY OPERATIONS--Construction Program," for additional information
regarding ComEd's purchase commitments.
ComEd is a member of NEIL which provides insurance coverage against property
damage and associated replacement power costs occurring at members' nuclear
generating facilities. All companies insured with NEIL are subject to
retrospective premium adjustments if losses exceed accumulated reserve funds.
Capital has been accumulated in the reserve funds such that ComEd would not be
liable for any single incident. However, ComEd could be subject to assessments
in any policy year for each of three types of coverage provided. The maximum
assessments are approximately $53 million for primary property damage, $73
million for excess property damage and $22 million for replacement power.
The NRC's indemnity for public liability coverage under the Price-Anderson Act
is supported by a mandatory industry-wide program under which owners of nuclear
generating facilities could be assessed in the event of nuclear incidents. Based
on the number of nuclear reactors with operating licenses, ComEd would currently
be subject to a maximum assessment of $1,145 million in the event of an
incident, limited to a maximum of $130 million in any calendar year.
In addition, ComEd participates in the American Nuclear Insurers Master Worker
Program, which provides coverage for worker tort claims filed for bodily injury
caused by the nuclear energy hazard. This program was modified, effective
January 1, 1998, to provide coverage to all workers whose "nuclear-related
employment" began on or after the commencement date of reactor operations. ComEd
will not be liable for a retrospective assessment under this new policy.
However, ComEd is still subject to a maximum retroactive assessment of up to $36
million in the event losses incurred under the small number of policies in the
old program exceed accumulated reserves.
Three of ComEd's wholesale municipal customers filed a complaint and request
for refund with the FERC alleging that ComEd failed to properly adjust their
rates, as provided for under the terms of their electric service contracts, to
track certain refunds made to ComEd's retail customers in the years 1992 through
1994. In the third quarter of 1998, the FERC granted the complaint and directed
that refunds be made, with interest. ComEd filed and was granted a request for
rehearing for purposes of reconsideration with the FERC. If the order is upheld,
ComEd must make refunds within 15 days of the resolution for rehearing. ComEd's
management believes an adequate reserve has been established in connection with
this case.
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
During 1989 and 1991, actions were brought in federal and state courts in
Colorado against ComEd and Cotter seeking unspecified damages and injunctive
relief based on allegations that Cotter has permitted radioactive and other
hazardous material to be released from its mill into areas owned or occupied by
the plaintiffs resulting in property damage and potential adverse health
effects. With respect to Cotter, in 1994 a federal jury returned nominal dollar
verdicts against Cotter on eight plaintiffs' claims in the 1989 cases, which
verdicts were upheld on appeal. The remaining claims in the 1989 actions have
been settled and dismissed. On July 15, 1998, a jury verdict was rendered in
Dodge v. Cotter (United States District Court for the District of Colorado,
Civil Action No. 91-Z-1861), a case relating to 14 of the plaintiffs in the 1991
cases. The verdict against Cotter and in favor of the plaintiff, after an
amended judgement was issued March 11, 1999, totaled approximately $6 million,
including compensatory and punitive damages, interest, and medical monitoring.
On February 11, 2000, the Tenth Circuit Court of Appeals agreed with Cotter,
found that the trial judge had erred in critical rulings and reversed the jury
verdict, remanding the case for new trial. A case involving the next group of
plaintiffs is set for trial in federal district court in Denver on October 2,
2000. Although ComEd sold its investment in Cotter in February 2000, ComEd will
continue to be liable for any court verdicts in favor of the plaintiffs. The
other 1991 cases will necessarily involve the resolution of numerous contested
issues of law and fact. It is Unicom and ComEd's assessment that these actions
will not have a material impact on their financial position or results of
operations.
In August 1999, three class action lawsuits were filed against ComEd related
to a series of service interruptions during the summer of 1999. The combined
effect of these events resulted in over 100,000 customers losing service. On
August 12, 1999, service was interrupted to ComEd customers on the near north
and near west side of the City's central business district. While major
commercial customers were affected, all service was restored on the same date.
The class action complaints have been consolidated and seek to recover damages
for personal injuries and property damage, as well as economic loss for these
events. Further, ComEd initiated expedited claim settlements for those with
primarily food spoilage claims. Conditional class certification has been
approved by the Court for the sole purpose of exploring settlement talks. The
lawsuits are pending in the Circuit Court of Cook County. ComEd has filed a
motion challenging the legal sufficiency of the consolidated complaints. The
plaintiff's response is due April 14, 2000 and any reply by ComEd is due May 12,
2000. The motion to dismiss is currently scheduled to be argued on May 23, 2000.
ComEd's management believes adequate reserves have been established in
connection with these cases.
Following the above-referenced series of service interruptions, the ICC opened
a three-phase investigation of the design and reliability of ComEd's
transmission and distribution system. At the conclusion of each phase of the
investigation, the ICC will issue a report that will include specific
recommendations for ComEd and a timetable for executing the recommendations.
Hearings on Phase I of the investigation were held the week of January 3, 2000,
which focused on the outages of July and August 1999. Reports on Phase II and
Phase III, focusing on the transmission and distribution system generally, are
anticipated in the second quarter of 2000. The final phase of the investigation
is expected to conclude in early 2001.
ComEd is involved in administrative and legal proceedings concerning air
quality, water quality and other matters. The outcome of these proceedings may
require increases in future construction expenditures and operating expenses and
changes in operating procedures. ComEd and its subsidiaries are or are likely to
become parties to proceedings initiated by the U.S. EPA, state agencies and/or
other responsible parties under CERCLA with respect to a number of sites,
including MGP sites, or may voluntarily undertake to investigate and remediate
sites for which they may be liable under CERCLA.
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
ComEd generally did not operate MGPs as a corporate entity but did, however,
acquire MGP sites as part of the absorption of smaller utilities. Approximately
half of these sites were transferred to then Northern Illinois Gas Company
(Nicor Gas) as part of a general conveyance in 1954. ComEd also acquired former
MGP sites as vacant real estate on which ComEd facilities have been constructed.
To date, ComEd has identified 44 former MGP sites for which it may be liable for
remediation. In the fourth quarter of 1999, ComEd re-evaluated its environmental
remediation strategies. As a result of this re-evaluation, ComEd's current best
estimate of its cost of former MGP site investigation and remediation is $93
million in current-year (2000) dollars (reflecting a discount rate of 6.5%).
Such estimate, reflecting an estimated inflation rate of 3% and before the
effects of discounting, is $182 million. It is expected that the costs
associated with investigation and remediation of former MGP sites will be
substantially incurred through 2012, however monitoring and certain other costs
are expected to be incurred through 2042. ComEd's current estimate of its costs
of former MGP site investigation and remediation of $93 million has been
included in other noncurrent liabilities on the Consolidated Balance Sheets as
of December 31, 1999. The increase in ComEd's estimated costs of former MGP
sites of $68 million in 1999 over 1998 was included in operation and maintenance
expenses on Unicom and ComEd's Statements of Consolidated Operations. In
addition, as of December 31, 1999 and 1998, a reserve of $8 million has been
included in other noncurrent liabilities on the Consolidated Balance Sheets,
representing ComEd's estimate of the liability associated with cleanup costs of
sites other than former MGP sites. These cost estimates are based on currently
available information regarding the responsible parties likely to share in the
costs of responding to site contamination, the extent of contamination at sites
for which the investigation has not yet been completed and the cleanup levels to
which sites are expected to have to be remediated. While ComEd may have rights
of reimbursement under insurance policies, amounts that may be recoverable from
other entities are not considered in establishing the estimated liability for
the environment remediation costs.
The IDR has issued Notices of Tax Liability to ComEd alleging deficiencies in
Illinois invested capital tax payments for the years 1988 through 1997. The
alleged deficiencies, including interest and penalties, totaled approximately
$52 million as of December 31, 1999. ComEd has protested the notices, and the
matter is currently pending before the IDR's Office of Administrative Hearings.
Interest will continue to accumulate on the alleged tax deficiencies.
On March 22, 1999, ComEd reached a settlement agreement with the City to end
the arbitration proceeding between ComEd and the City regarding the January 1,
1992 franchise agreement and a supplemental agreement between them. Under the
terms of the settlement agreement, the pending arbitration is to be dismissed
with prejudice and the City is to release ComEd from all claims the City may
have under the supplemental agreement. The settlement agreement was approved by
the City Council on May 12, 1999.
As part of the settlement agreement, ComEd and the City have agreed to a
revised combination of ongoing work under the franchise agreement and new
initiatives that will result in defined transmission and distribution
expenditures by ComEd to improve electric service in the City. The settlement
agreement provides that ComEd will be subject to liquidated damages if the
projects are not completed by various dates, unless it is prevented from doing
so by events beyond its reasonable control. ComEd's current construction budget
considers these projects. In addition, ComEd and the City established an Energy
Reliability and Capacity Account, into which ComEd deposited $25 million
following the effectiveness of the settlement agreement and ComEd has
conditionally agreed to deposit up to $25 million at the end of each of the
years 2000, 2001 and 2002, to help ensure an adequate and reliable electric
supply for the City.
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
The 1997 Act also committed ComEd to spend at least $2 billion from 1999
through 2004 on transmission and distribution facilities outside of the City.
(23) Segment Reporting. Unicom's reportable operating segments as determined
under SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" include its regulated electric utility and its unregulated business
operations. Unicom's reportable segments are managed separately because of their
different regulatory and operating environments. Unicom evaluates their
performance based on net income.
ComEd is an electric utility which is engaged in the generation, purchase,
transmission, distribution and sale of electric energy in Northern Illinois.
ComEd's rates and services are subject to federal and state regulations.
Unicom's unregulated business operations, including energy services and
development of new business ventures, are not subject to utility regulation by
federal or state agencies. Prior to 1999, unregulated business operations were
predominately in a developmental stage and did not meet the revenue, asset or
net income criteria for a reportable segment under SFAS 131. However, as a
result of the December 1999 fossil plant sale, as described in Note 5, the
assets of unregulated businesses exceeded 10% of Unicom's total assets and, as
such, constitute a reportable segment. The assets of the unregulated businesses
include $2.2 billion at December 31, 1999 representing special deposits and
unused cash proceeds resulting from the fossil plant sale. The assets of the
unregulated businesses also include receivables of $813 million recorded in
connection with forward share repurchase arrangements as discussed in Note 7.
The accounting policies of the segments are the same as those described in
Note 1. Unicom's financial data for business segments are as follows:
Electric Unregulated Reconciliation
Utility Businesses & Elimination Total
----------- ----------- -------------- -----------
1999 (Thousands of Dollars)
Operating Revenue......... $ 6,766,892 $ 107,729 $ (26,674) $ 6,847,947
Intersegment Revenue...... $ 9,434 $ 17,240 $ (26,674) $ --
Depreciation, Amortization
and Decommissioning...... $ 836,145 $ 7,103 $ -- $ 843,248
Interest and Dividend
Income................... $ 60,231 $ 8,957 $ (10,646) $ 58,542
Interest Expense--Net..... $ 545,352 $ 28,858 $ (10,646) $ 563,564
Income Tax
Expense/(Benefit)........ $ 352,222 $ (20,107) $ -- $ 332,115
Net Income/(Loss)......... $ 622,729 $ (29,307) $ (23,756) $ 569,666
Total Assets.............. $23,160,265 $3,720,376 $(3,474,608) $23,406,033
Capital Expenditures...... $ 1,083,398 $ 120,666 $ -- $ 1,204,064
1998
Operating Revenue......... $ 7,088,542 $ 20,967 $ (6,099) $ 7,103,410
Intersegment Revenue...... $ 6,099 $ -- $ (6,099) $ --
Depreciation, Amortization
and Decommissioning...... $ 937,604 $ 5,684 $ -- $ 943,288
Interest and Dividend
Income................... $ 15,450 $ 4,755 $ (1,573) $ 18,632
Interest Expense--Net..... $ 450,162 $ 15,293 $ (1,573) $ 463,882
Income Tax
Expense/(Benefit)........ $ 378,423 $ (28,374) $ -- $ 350,049
Net Income/(Loss)......... $ 594,206 $ (27,138) $ (56,884) $ 510,184
Total Assets.............. $25,450,577 $ 389,792 $ (149,896) $25,690,473
Capital Expenditures...... $ 945,342 $ 21,152 $ -- $ 966,494
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
1997
Operating Revenue......... $ 7,073,088 $ 14,331 $ (4,397) $ 7,083,022
Intersegment Revenue...... $ 4,397 $ -- $ (4,397) $ --
Depreciation, Amortization
and Decommissioning...... $ 1,001,149 $ 3,940 $ -- $ 1,005,089
Interest and Dividend
Income................... $ 4,911 $ 3,590 $ (1,002) $ 7,399
Interest Expense--Net..... $ 487,664 $ 10,505 $ (1,002) $ 497,167
Income Tax
Expense/(Benefit)........ $ 327,061 $ (20,513) $ -- $ 306,548
Net Income/(Loss)......... $ (773,773) $ (18,591) $ (60,486) $ (852,850)
Total Assets.............. $22,458,403 $ 352,161 $ (110,814) $22,699,750
Capital Expenditures...... $ 969,626 $ 73,685 $ -- $ 1,043,311
(24) Subsequent Event. In January 2000, Unicom physically settled the forward
share repurchase arrangements it had with financial institutions for the
repurchase of 26.3 million Unicom common shares. Prior to settlement, the
repurchase arrangements were recorded as a receivable on Unicom's Consolidated
Balance Sheets based on the aggregate market value of the shares under the
arrangements. In 1999, net unrealized losses of $44 million (after-tax), or
$0.20 per common share were recorded related to the arrangements. The settlement
of the arrangements in January 2000 resulted in a gain of $113 million
(after-tax), which will be recorded in the first quarter of 2000. The settlement
of the arrangements will also result in a reduction in Unicom's outstanding
common shares and common stock equity, effective January 2000.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SCHEDULE II
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(Thousands of Dollars)
--------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
---------------------------- --------- ----------------- ---------- --------
Additions
-----------------
Balance Charged
at to Costs Charged Balance
Beginning and to Other at End
Description of Year Expenses Accounts Deductions of Year
---------------------------- --------- -------- -------- ---------- --------
For the Year Ended December
31, 1997
----------------------------
Reserve Deducted From Assets
in Consolidated Balance
Sheet:
Provision for uncollectible
accounts.................. $ 12,893 $ 53,756 $ -- $ (49,105) $ 17,544
======== ======== ====== ========= ========
Estimated obsolete materi-
als....................... $ 12,302 $ 62,000 $ -- $ (32,559) $ 41,743
======== ======== ====== ========= ========
Other Reserves:
Estimated closing costs for
Zion Station (c).......... $ -- $194,000 $ -- $ -- $194,000
======== ======== ====== ========= ========
Estimated liabilities asso-
ciated with remediation
costs and former manufac-
tured gas plant sites..... $ 32,522 $ 2,410 $ -- $ (2,910)(a) $ 32,022
======== ======== ====== ========= ========
Accumulated provision for
injuries and damages...... $ 53,972 $ 8,565 $4,939 $ (18,213)(b) $ 49,263
======== ======== ====== ========= ========
For the Year Ended December
31, 1998
----------------------------
Reserve Deducted From Assets
in Consolidated Balance
Sheet:
Provision for uncollectible
accounts.................. $ 17,544 $ 62,059 $ -- $ (30,958) $ 48,645
======== ======== ====== ========= ========
Estimated obsolete materi-
als....................... $ 41,743 $ 23,945 $ -- $ (41,928) $ 23,760
======== ======== ====== ========= ========
Other Reserves:
Estimated closing costs for
Zion Station (c).......... $194,000 $ -- $ -- $(114,970) $ 79,030
======== ======== ====== ========= ========
Estimated liabilities asso-
ciated with remediation
costs and former manufac-
tured gas plant sites..... $ 32,022 $ 6,950 $ -- $ (6,950)(a) $ 32,022
======== ======== ====== ========= ========
<PAGE>
Accumulated provision for
injuries and damages...... $ 49,263 $ 10,114 $8,875 $ (20,796)(b) $ 47,456
======== ======== ====== ========= ========
For the Year Ended December
31, 1999
----------------------------
Reserve Deducted From Assets
in Consolidated Balance
Sheet:
Provision for uncollectible
accounts.................. $ 48,645 $ 90,254 $ -- $ (88,085) $ 50,814
======== ======== ====== ========= ========
Estimated obsolete materi-
als....................... $ 23,760 $ 19,263 $ -- $ (15,968) $ 27,055
======== ======== ====== ========= ========
Other Reserves:
Estimated closing costs for
Zion Station (c).......... $ 79,030 $ -- $ -- $ (79,030) $ --
======== ======== ====== ========= ========
Estimated liabilities asso-
ciated with remediation
costs and former manufac-
tured gas plant sites..... $ 32,022 $ 73,729 $ -- $ (5,651)(a) $100,100
======== ======== ====== ========= ========
Accumulated provision for
injuries and damages...... $ 47,456 $ 27,868 $6,477 $ (27,204)(b) $ 54,597
======== ======== ====== ========= ========
<FN>
Notes:
(a) Expenditures for site investigation and remediation costs.
(b) Payments of claims and related costs.
(c) Estimated closing costs related to the permanent cessation of nuclear
generation operations and retirement of facilities at ComEd's Zion Station.
</FN>
</TABLE>
<PAGE>
(b) Pro Forma Financial Information
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The historical consolidated financial statements of Unicom have been adjusted
to give effect to the annualized continuing impacts of the sale of ComEd's
fossil generating plants and the annualized effects of Unicom's issuance of
securitization notes and related use of proceeds. ComEd completed the sale of
its fossil generating plants on December 15, 1999. The historical consolidated
financial statements of PECO Energy have been adjusted to give effect to its use
of the proceeds from its securitization of stranded costs. The unaudited pro
forma financial statements do not give effect to the estimated cost savings and
revenue enhancements as a result of the merger or the costs to achieve these
savings and revenue enhancements or one-time merger-related costs. The Unicom
and PECO Energy pro forma adjustments and the merger are reflected in the
unaudited combined condensed pro forma balance sheet as if they occurred on
September 30, 2000. The unaudited pro forma combined condensed statements of
income for the nine months ended September 30, 2000 and for the year ended
December 31, 1999 assume that these transactions were completed on January 1,
1999.
The following unaudited pro forma combined condensed financial statements
have been prepared to reflect the acquisition of Unicom by PECO Energy under the
purchase method of accounting. Under the purchase method of accounting, tangible
and identifiable intangible assets acquired and liabilities assumed are recorded
at their current fair values. The excess of the purchase price, including
estimated fees and costs related to the merger, over the net assets acquired is
classified as goodwill on the accompanying unaudited pro forma combined
condensed balance sheet. The pro forma combined condensed financial statements
reflect the estimated fair values of the assets acquired and liabilities
assumed. Such estimates are subject to final valuation adjustments.
The following unaudited pro forma combined condensed financial statements
should be read in conjunction with the consolidated historical financial
statements and related notes of PECO Energy and Unicom, which are included in
Exelon's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000
and the PECO Energy and Unicom Annual Reports on Form 10-K for the year ended
December 31, 1999.
The following unaudited pro forma combined condensed financial statements are
for illustrative purposes only. They are not necessarily indicative of the
financial position or operating results that would have occurred had these
transactions been completed on January 1, 1999 or September 30, 2000, as assumed
above; nor is the information necessarily indicative of future financial
position or operating results. Results of operations and financial position in
the first year after consummation could differ significantly from the unaudited
pro forma combined condensed financial statements, which are based on past
operations. Future operations will be affected by various factors including
operating performance, energy market developments and other matters.
The historical financial statements of PECO Energy included in the
accompanying pro forma combined condensed financial statements for the nine
months ended September 30, 2000 are unaudited. The December 31, 1999 historical
financial statements of PECO Energy and Unicom and the September 30, 2000
historical financial statements of Unicom were derived from audited financial
statements but do not include all disclosures required by GAAP.
<PAGE>
Unaudited Pro Forma Condensed Statement of Income
(Millions Except Per Share Data)
For the Nine Month Period Ended September 30, 2000
PECO
Energy
PECO Energy Prior to
PECO Transition Bond Merger
Energy Pro Forma Pro
As Filed Adjustments(1) Forma
-------- --------------- --------
Operating Revenues........................ $4,366 $-- $4,366
------ ---- ------
Operating Expenses
Fuel and Energy Interchange............. 1,515 -- 1,515
Operation and Maintenance............... 1,305 -- 1,305
Depreciation and Amortization........... 244 -- 244
Taxes Other Than Income Taxes........... 197 -- 197
------ ---- ------
Total Operating Expenses.............. 3,261 -- 3,261
------ ---- ------
Operating Income.......................... 1,105 -- 1,105
------ ---- ------
Other Income and Deductions
Interest Expense........................ (333) 31 (302)
Other, net.............................. 71 4 75
------ ---- ------
Total Other Income and Deductions..... (262) 35 (227)
------ ---- ------
Income Before Income Taxes and
Extraordinary Item....................... 843 35 878
Income Tax Expense........................ 316 14 330
------ ---- ------
Income Before Extraordinary Item.......... $ 527 $ 21 $ 548
====== ==== ======
Preferred Stock Dividends................. $ 8 $ (1) $ 7
====== ==== ======
Income Before Extraordinary Item per
Share.................................... $ 2.96
======
Income Before Extraordinary Item per
Share--Diluted........................... $ 2.94
======
Average Basic Shares Outstanding.......... 175.0
======
Average Diluted Shares Outstanding........ 176.0
======
See accompanying Notes to Unaudited Pro Forma Combined
Condensed Financial Statements
<PAGE>
Unaudited Pro Forma Combined Condensed Statement of Income
(Millions Except Per Share Data)
For the Nine Month Period Ended September 30, 2000
<TABLE>
<CAPTION>
PECO
Energy
Prior to Unicom Merger
Merger as Pro Forma Exelon
Pro Forma Filed Adjustments Pro Forma
--------- ------ ----------- ---------
<S> <C> <C> <C> <C>
Operating Revenues................... $4,366 $5,686 $(42)(7) $10,010
Operating Expenses
Fuel and Energy Interchange........ 1,515 1,705 (42)(7) 3,178
Operation and Maintenance.......... 1,305 1,749 25 (6) 3,079
Depreciation and Amortization...... 244 832 (161)(6) 915
Goodwill Amortization.............. -- -- 86 (6) 86
Taxes Other Than Income Taxes...... 197 406 -- 603
------ ------ ----- -------
Total Operating Expenses......... 3,261 4,692 (92) 7,861
------ ------ ----- -------
Operating Income..................... 1,105 994 50 2,149
------ ------ ----- -------
Other Income and Deductions
Interest Expense................... (302) (412) -- (714)
Preferred and Preference Stock
Dividends......................... -- (25) (10)(8) (35)
Other, net......................... 75 119 (15)(6)
3 (8) 182
------ ------ ----- --------
Total Other Income and
Deductions...................... (227) (318) (22) (567)
------ ------ ----- --------
Income Before Income Taxes and
Extraordinary Item.................. 878 676 28 1,582
Income Tax Expense................... 330 167 60 (10) 557
------ ------ ----- --------
Income Before Extraordinary Item..... $ 548 $ 509 $ (32) $ 1,025
====== ====== ===== ========
Preferred Stock Dividends............ $ 7 $ (7)(8) $ --
====== ===== ========
Income Before Extraordinary Item per
Share............................... $ 2.82 $ 3.22
====== ======
Income Before Extraordinary Item per
Share--Diluted...................... $ 2.80 $ 3.20
====== ======
Average Basic Shares Outstanding..... 180.7 318.5 (5)
====== ======
Average Diluted Shares Outstanding... 181.9 320.6
====== ======
</TABLE>
See accompanying Notes to Unaudited Pro Forma
Combined Condensed Financial Statements
<PAGE>
Unaudited Pro Forma Condensed Statement of Income
(Millions Except Per Share Data)
For the Year Ended December 31, 1999
PECO Energy PECO Energy
Securitization Prior to
PECO Energy Pro Forma Merger
As Filed Adjustments(1) Pro Forma
----------- -------------- -----------
Operating Revenues................... $5,437 $-- $5,437
------ ---- ------
Operating Expenses
Fuel and Energy Interchange........ 2,145 -- 2,145
Operation and Maintenance.......... 1,384 -- 1,384
Depreciation and Amortization...... 237 -- 237
Taxes Other Than Income Taxes...... 262 -- 262
------ ---- ------
Total Operating Expenses......... 4,028 -- 4,028
------ ---- ------
Operating Income..................... 1,409 -- 1,409
------ ---- ------
Other Income and Deductions
Interest Expense................... (396) (50) (446)
Other, net......................... (36) 12 (24)
------ ---- ------
Total Other Income and
Deductions...................... (432) (38) (470)
------ ---- ------
Income Before Income Taxes and
Extraordinary Item.................. 977 (38) 939
Income Tax Expense................... 358 (15) 343
------ ---- ------
Income Before Extraordinary Item..... $ 619 $(23) $ 596
====== ==== ======
Preferred Stock Dividends............ $ 12 $ (1) $ 11
====== ==== ======
Income Before Extraordinary Item per
Share............................... $ 3.10
======
Income Before Extraordinary Item per
Share--Diluted...................... $ 3.08
======
Average Basic Shares Outstanding..... 196.3
======
Average Diluted Shares Outstanding... 197.6
======
See accompanying Notes to Unaudited Pro Forma
Combined Condensed Financial Statements
<PAGE>
Unaudited Pro Forma Condensed Statement of Income
(Millions Except Per Share Data)
For the Year Ended December 31, 1999
Unicom Unicom Unicom
Fossil Sale Securitization Prior to
Unicom Pro Forma Pro Forma Merger
As Filed Adjustments(2) Adjustments(3) Pro Forma
-------- ------------- -------------- ---------
Operating Revenues $6,848 $ -- $ -- $6,848
------ ----- ----- ------
Operating Expenses
Fuel and Energy
Interchange............. 1,549 257 -- 1,806
Operation and
Maintenance............. 2,428 (271) -- 2,157
Depreciation and
Amortization............ 843 26 113 982
Taxes Other Than Income
Taxes................... 508 (16) -- 492
------ ----- ----- ------
Total Operating
Expenses.............. 5,328 (4) 113 5,437
------ ----- ----- ------
Operating Income........... 1,520 4 (113) 1,411
------ ----- ----- ------
Other Income and Deductions
Interest Expense......... (564) -- 20 (544)
Preferred and Preference
Stock Dividends......... (53) -- 10 (43)
Other, net............... 1 -- -- 1
------ ----- ----- ------
Total Other Income and
Deductions............ (616) -- 30 (586)
------ ----- ----- ------
Income Before Income Taxes
and Extraordinary Item.... 904 4 (83) 825
Income Tax Expense......... 307 4 (37) 274
------ ----- ----- ------
Income Before Extraordinary
Item...................... $ 597 $ -- $ (46) $ 551
====== ===== ===== ======
Income Before Extraordinary
Item per Share............ $ 2.75
======
Income Before Extraordinary
Item per Share--Diluted... $ 2.74
======
Average Basic Shares
Outstanding............... 217.3
======
Average Diluted Shares
Outstanding............... 218.1
======
See accompanying Notes to Unaudited Pro Forma
Combined Condensed Financial Statements
<PAGE>
Unaudited Pro Forma Combined Condensed Statement of Income
(Millions Except Per Share Data)
For the Year Ended December 31, 1999
PECO Energy Unicom
Prior to Prior to Merger
Merger Merger Pro Forma Exelon
Pro Forma Pro Forma Adjustments Pro Forma
----------- --------- ----------- ---------
Operating Revenues.......... $5,437 $6,848 $(60)(7) $12,225
------ ------ ---- -------
Operating Expenses
Fuel and Energy
Interchange.............. 2,145 1,806 (60)(7) 3,891
Operation and
Maintenance.............. 1,384 2,157 36 (6) 3,577
Depreciation and
Amortization............. 237 982 (427)(6) 792
Goodwill Amortization..... -- -- 115 (6) 115
Taxes Other Than Income
Taxes.................... 262 492 -- 754
------ ------ ---- -------
Total Operating
Expenses............... 4,028 5,437 (336) 9,129
------ ------ ---- -------
Operating Income............ 1,409 1,411 276 3,096
------ ------ ---- -------
Other Income and Deductions
Interest Expense.......... (446) (544) (990)
Preferred and Preference
Stock Dividends.......... -- (43) (20)(8) (63)
Other, net................ (24) 1 (20)(6)
9 (8) (34)
------ ------ ---- -------
Total Other Income and
Deductions............. (470) (586) (31) (1,087)
------ ------ ---- -------
Income Before Income Taxes
and Extraordinary Item..... 939 825 245 2,009
Income Tax Expense.......... 343 274 163(10) 780
------ ------ ---- -------
Income Before Extraordinary
Item....................... $ 596 $ 551 $ 82 $ 1,229
====== ====== ==== =======
Preferred Stock Dividends... $ 11 $ -- $(11)(8) $ --
====== ====== ==== =======
Income Before Extraordinary
Item per Share............. $ 3.86
=======
Income Before Extraordinary
Item per Share--Diluted.... $ 3.83
=======
Average Basic Shares
Outstanding................ 318.5 (5)
=======
Average Diluted Shares
Outstanding................ 320.6
=======
See accompanying Notes to Unaudited Pro Forma
Combined Condensed Financial Statements
<PAGE>
Unaudited Pro Forma Combined Condensed Balance Sheet
(In millions)
As of September 30, 2000
PECO Energy Unicom Merger Exelon
As As Pro Forma Pro Forma
Filed Filed Adjustments Balance
----------- ------- ----------- ---------
ASSETS
Utility Plant, net ........... $ 5,196 $12,436 $ (4,817)(6) $12,815
Current Assets
Cash and Temporary Cash
Investments................ 169 1,056 (40)(9) 1,185
Accounts Receivable, net.... 776 1,445 -- 2,221
Inventories, at average
cost....................... 232 258 -- 490
Other Current Assets........ 180 2,189 84(6) 2,453
------- ------- -------- -------
1,357 4,948 44 6,349
------- ------- -------- -------
Deferred Debits and Other
Assets
Regulatory Assets........... 6,016 1,527 -- 7,543
Goodwill.................... 192 78 4,586 (6) 4,856
Investments and Other
Property, net.............. 722 3,524 -- 4,246
Other....................... 184 70 38 (6) 292
------- ------- -------- -------
7,114 5,199 4,624 16,937
------- ------- -------- -------
Total..................... $13,667 $22,583 $ (149) $36,101
======= ======= ======== =======
CAPITALIZATION AND LIABILITIES
Capitalization
Common Stock Equity......... $ 1,727 $ 3,701 $ (510)(4)
(2,300)(6)
4,586 (6)
(40)(9) $ 7,164
Preferred and Preference
Stock...................... 174 -- -- 174
Company Obligated
Mandatorily
Redeemable Preferred
Securities................. 128 350 (21)(6) 457
Long-Term Debt.............. 6,252 7,134 (70)(6)
510 (4) 13,826
------- ------- -------- -------
8,281 11,185 2,155 21,621
------- ------- -------- -------
Current Liabilities
Notes Payable, Bank......... 284 1,478 -- 1,762
Accounts Payable............ 308 929 -- 1,237
Other Current Liabilities... 938 979 -- 1,917
------- ------- -------- -------
1,530 3,386 -- 4,916
------- ------- -------- -------
<PAGE>
Deferred Credits and Other
Liabilities
Deferred Income Taxes....... 2,444 3,452 (1,533)(6) 4,363
Unamortized Investment Tax
Credits.................... 275 462 (402)(6) 335
Nuclear Decommissioning
Liability For Retired
Plants..................... -- 1,288 -- 1,288
Other....................... 1,137 2,810 (369)(6) 3,578
------- ------- -------- -------
3,856 8,012 (2,304) 9,564
------- ------- -------- -------
Total..................... $13,667 $22,583 $ (149) $36,101
======= ======= ======== =======
See accompanying Notes to Unaudited Pro Forma
Combined Condensed Financial Statements
<PAGE>
Notes to Unaudited Pro Forma Combined Condensed Financial Statements
1. PECO Energy used a portion of the proceeds from the securitization of
its stranded costs to repurchase common stock in order to achieve the
number of shares outstanding that were contemplated in the merger
agreement. All share repurchases are reflected in the historical
balance sheet presented herein. The effects of the use of proceeds
from the securitization of stranded costs by PECO Energy on the pro
forma combined condensed statements of income were as follows (in
million):
Year Ended Nine Months Ended
December 31, 1999 September 30, 2000
----------------- ------------------
Transition Bond Interest Expense... $318 $240
Interest Savings Associated with
Higher Cost Debt that was
Repurchased....................... (159) (120)
Transition Bond Interest Expense
Included In Historical Interest
Expense........................... (192) (216)
Interest Savings Included in
Historical Interest Expense....... 83 65
---- ----
$ 50 $(31)
==== ====
PECO Energy Obligated Mandatorily
Redeemable Preferred Securities
($221 million @ 9%)............... $(20) $(15)
Interest Savings Included in
Historical Financial Statements... 8 11
---- ----
$(12) $ (4)
==== ====
PECO Preferred Stock Dividends
($37 million @ 6.12%)............. $ (2) $ (2)
PECO Preferred Stock Dividend
Savings Included in Historical
Financial Statements.............. 1 1
---- ----
$ (1) $ (1)
==== ====
2. The Unicom fossil sale Pro Forma Adjustments for the combined condensed
statement of income for the Year Ended December 31, 1999 reflect the
continuing impact of the sale of ComEd's fossil generating plants which
was completed in December 1999.
. Fuel and Energy Interchange: Reflects the elimination of fossil fuel
expense and the replacement impact of purchasing power under the power
purchase agreements entered into with the purchaser of the fossil assets
at the time of the fossil sale, as provided below (in millions):
Fossil Fuel Expense.......................... $(616)
Energy Interchange Expense................... 873
-----
Total........................................ $ 257
=====
. Operation and Maintenance: Reflects the elimination of the fossil
generating plants operation and maintenance expenses.
<PAGE>
. Depreciation and Amortization: Reflects the following (in millions):
Elimination of Fossil Plant Depreciation............ $ (73)
Additional Amortization of Regulatory Assets........ 99
-----
Total............................................. $ 26
=====
The Unicom pro forma adjustments reflecting the sale of ComEd's fossil
generating plants include increased regulatory asset amortization because
those adjustments on a prior-to-merger, pro forma basis would result in
ComEd's earnings exceeding the earnings cap provision of the Illinois
Public Utilities Act.
. Taxes Other Than Income Taxes: Reflects the elimination of real estate
and payroll taxes related to the ownership of the fossil plants.
The pro forma adjustments do not reflect the income effects of the
reinvestment of cash proceeds received from the fossil sale.
3. Reflects Unicom's purchase, at prevailing market prices, of approximately
26.3 million shares of Unicom common stock that were subject to certain
forward purchase contracts at December 31, 1999. During 1999, Unicom entered
into forward purchase arrangements with financial institutions for the
repurchase of approximately 26.3 million shares of Unicom common stock. The
repurchase arrangements were settled in January 2000 on a physical (i.e.
shares) basis. Effective January 2000, the share repurchases have reduced
outstanding shares and common stock equity. Prior to the settlement, the
repurchase arrangements were recorded as a receivable on the Consolidated
Balance Sheet of Unicom based on the aggregate market value of the shares
deliverable under the arrangements.
In addition, reflects adjustments to net interest expense and preferred and
preference stock dividends related to the use of securitization proceeds as
follows (in millions):
Pro forma adjustment to eliminate historical interest expense associated
with higher cost debt that was repurchased....................... $(20)
Pro forma adjustment to eliminate historical
dividend provisions associated with higher cost
preferred and preference stock that was repurchased.............. $(10)
The Unicom Securitization pro forma adjustments include increased regulatory
asset amortization of $113 million because those adjustments on a
prior-to-merger, pro forma basis would result in ComEd's earnings exceeding
the earnings cap provision of the Illinois Public Utilities Act.
4. Reflects the payment of the cash portion of the merger consideration to
Unicom common shareholders.
<PAGE>
5. Reflects issuance of Exelon shares in exchange for PECO Energy and Unicom
common stock net of shares which were repurchased by PECO Energy and Unicom
as follows:
PECO Pro Forma
Energy Unicom Exelon
------- ------- ---------
(Shares in 000's)
Actual shares outstanding at September 30,
2000..................................... 170,523 169,367
Shares repurchased-Note (9)............... -- (730)
Shares issued pursuant to stock
option exercises ....................... -- 463
------- -------
Remaining shares to be exchanged.......... 170,523 169,100
Exchange factor........................... 1.0 .875
------- -------
Remaining shares to be exchanged.......... 170,523 147,963 318,486
======= ======= =======
6. Reflects the recognition of goodwill equal to the excess of the purchase
price including estimated transaction costs and stock-based compensation
costs resulting from the merger over the estimated net fair value of the
assets acquired and liabilities assumed of Unicom. The adjustment assumes
total purchase consideration equal to cash of approximately $510 million,
approximately 148 million shares of Exelon Common Stock at a price of
$35.89 based on the average closing price of PECO Energy Common Stock
between January 3 and 12, 2000 and stock-based compensation cost for
certain Unicom employees. PECO Energy's transaction costs of approximately
$33 million represent the estimated costs to be incurred for the merger
that meet the requirements for inclusion in the purchase price. Goodwill
for the balance sheet presented is based on the following calculation
(dollars in millions, except per share data):
Cash Consideration (Note 4).................... $510
Common Share Consideration:
Unicom shares converted..................... 169,100
Conversion rate............................. .875
----------
Exelon Shares Issued........................ 147,963
Exchange price.............................. $ 35.89
----------
Total Common Share Consideration...................... 5,310
Transaction Costs........................................... 33
Stock-based Compensation Costs for Certain Unicom Employees 94
------
Purchase Price.............................................. 5,947
Less: Book value of Unicom's Pro Forma net assets
as of September 30, 2000.................................... 3,661
------
Subtotal.................................................... 2,286
Increase (decrease) to goodwill for estimated fair value
adjustments to the following assets acquired and liabilities
assumed:
Utility Plant $ 4,817
Deferred Income Taxes (1,533)
Unamortized Investment Tax Credits (402)
Deferred Credits (369)
Long-Term Debt (including COMPRS) (91)
Other (122)
----------
Net Fair Value adjustment................................... 2,300
------
Goodwill.................................................... $4,586
======
<PAGE>
Utility Plant: Primarily reflects the estimated fair value analyses of
ComEd's nuclear stations based on discounted cash flows and independent
appraisals. The $4.8 billion reduction to utility plant is estimated to
reduce nuclear depreciation expense by approximately $215 million
annually.
Deferred Income Taxes: Represents the tax effect of purchase accounting
adjustments described above, except for goodwill.
Unamortized Investment Tax Credits: Represents the adjustment of
ComEd's nuclear plant investment tax credits to fair value. This
adjustment is estimated to reduce the amortization of the investment
tax credits by approximately $26 million annually.
Deferred Credits: Primarily reflects elimination of unrecognized net
actuarial gains, prior service costs and transition obligations related
to pension benefits and post-retirement obligations at September 30,
2000. Final allocation amounts may differ primarily as a result of
discount rates at the time of closing and the final determination of
severed employees. The adjustments are estimated to increase pension
benefits and post-retirement benefit expense by approximately $16
million, annually.
Long-Term Debt: Represents the adjustment of long-term debt including
transitional trust notes and Company Obligated Mandatorily Redeemable
Preferred Securities to fair value at September 30, 2000. The final
fair value determination will be based on prevailing market interest
rates at the time of closing. The adjustment is estimated to increase
expense by approximately of $20 million in the first year, declining in
subsequent years.
Other: Represents miscellaneous estimated fair value adjustments
including stock-based compensation costs for certain Unicom employees
not included in the purchase price and emission allowances. These
adjustments are estimated to increase operating expenses by
approximately $20 million in each of the first two years.
Goodwill: Represents additional goodwill resulting from the estimated
adjustments reflected above, to be amortized over 40 years.
The Merger Pro Forma Adjustments for the combined condensed statement
of income for the year ended December 31, 1999, as a result of the
increased merger pro forma common stock equity balance, include a
reversal of the increased regulatory asset amortization related to the
Unicom pro forma adjustments discussed in Notes 2 and 3, of $99 million
and $113 million, respectively.
7. Reflects the elimination of purchased power and off-system sales
transactions between PECO Energy and Unicom.
8. Reflects the reclassification of PECO Energy preferred stock dividends
and interest on PECO Energy obligated mandatorily redeemable preferred
securities for consistent presentation.
9. Reflects the repurchase of approximately $40 million of Unicom's
outstanding common shares prior to closing. Through September 30, 2000,
Unicom repurchased approximately $960 million of the $1.0 billion
common share repurchase required by the merger agreement.
10. Reflects investment tax credit amortization and the tax effect of
purchase accounting adjustments described above, except for goodwill
amortization and preferred stock dividends.
<PAGE>
EXHIBIT INDEX
The following exhibits are filed herewith:
EXHIBIT NO. DESCRIPTION
99.1 Press Release issued by Exelon Corporation on October 20,
2000. (Incorporated herein by reference to Exelon
Corporation Form 8-K filed October 20, 2000.)
99.2 Term Loan Agreement dated as of October 13, 2000 among
Exelon, the banks listed on the signature pages thereof,
Bank One, N.A., as Administrative Agent, Credit Suisse First
Boston, as Documentation Agent, and Citibank, N.A., as
Syndication Agent. (Incorporated herein by reference to
Exelon Corporation Form 8-K filed October 20, 2000.)
<PAGE>
Signatures
Pursuant to requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EXELON CORPORATION
/s/ Ruth Ann M. Gillis
--------------------------------
RUTH ANN M. GILLIS
Senior Vice President and
Chief Financial Officer
(Chief Accounting Officer)
Date: November 15, 2000
