<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
<TABLE>
<CAPTION>
COMMISSION
FILE REGISTRANT; STATE OF INCORPORATION; IRS EMPLOYER
NUMBER ADDRESS; AND TELEPHONE NUMBER IDENTIFICATION NO.
---------- ----------------------------------- ------------------
<C> <S> <C>
1-11375 UNICOM CORPORATION 36-3961038
(an Illinois corporation)
37th Floor, 10 South Dearborn Street
Post Office Box A-3005
Chicago, Illinois 60690-3005
312/394-7399
1-1839 COMMONWEALTH EDISON COMPANY 36-0938600
(an Illinois corporation)
37th Floor, 10 South Dearborn Street
Post Office Box 767
Chicago, Illinois 60690-0767
312/394-4321
</TABLE>
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) have been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Common Stock outstanding at April 30, 1996:
Unicom Corporation 215,344,531 shares
Commonwealth Edison Company 214,197,601 shares
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
UNICOM CORPORATION
AND
COMMONWEALTH EDISON COMPANY
QUARTERLY REPORTS ON FORM 10-Q
TO THE SECURITIES AND EXCHANGE COMMISSION
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
This document contains the Quarterly Reports on Form 10-Q for the quarterly
period ended March 31, 1996 for each of Unicom Corporation and Commonwealth
Edison Company. Information contained herein relating to an individual
registrant is filed by such registrant on its own behalf. Accordingly, except
for its subsidiaries, Commonwealth Edison Company makes no representation as to
information relating to Unicom Corporation or to any other companies affiliated
with Unicom Corporation.
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 Income for the three months and twelve
months ended March 31, 1995 and 1996................................ 5
Consolidated Balance Sheets--December 31, 1995 and March 31, 1996.... 6-7
Statements of Consolidated Capitalization--December 31, 1995 and
March 31, 1996...................................................... 8
Statements of Consolidated Retained Earnings for the three months and
twelve months ended March 31, 1995 and 1996......................... 9
Statements of Consolidated Cash Flows for the three months and twelve
months ended March 31, 1995 and 1996................................ 10
Notes to Financial Statements........................................ 11-30
Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................... 31-41
Commonwealth Edison Company and Subsidiary Companies:
Financial Statements--
Report of Independent Public Accountants............................. 42
Statements of Consolidated Income for the three months and twelve
months ended March 31, 1995 and 1996................................ 43
Consolidated Balance Sheets--December 31, 1995 and March 31, 1996.... 44-45
Statements of Consolidated Capitalization--December 31, 1995 and
March 31, 1996...................................................... 46
Statements of Consolidated Retained Earnings for the three months and
twelve months ended March 31, 1995 and 1996......................... 47
Statements of Consolidated Cash Flows for the three months and twelve
months ended March 31, 1995 and 1996................................ 48
Notes to Financial Statements........................................ 49-53
Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................... 54
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 55-59
Item 6. Exhibits and Reports on Form 8-K............................... 60
SIGNATURES............................................................... 61
</TABLE>
2
<PAGE>
DEFINITIONS
The following terms are used in this document with the following meanings:
<TABLE>
<CAPTION>
TERM MEANING
-------------------- ---------------------------------------------------------
<C> <S>
AFUDC Allowance for funds used during construction
AMT Alternative minimum tax
BWR Boiling water reactor
CERCLA Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended
CFC Chlorofluorocarbon
Circuit Court Circuit Court of Cook County, Illinois
Clean Air Amendments Clean Air Act Amendments of 1990
ComEd Commonwealth Edison Company
Congress U.S. Congress
Cotter Cotter Corporation, which is a wholly-owned subsidiary of
ComEd
DOE U.S. Department of Energy
EMFs Electric and magnetic fields
FASB Financial Accounting Standards Board
FERC Federal Energy Regulatory Commission
ICC Illinois Commerce Commission
Illinois EPA Illinois Environmental Protection Agency
Indiana Company Commonwealth Edison Company of Indiana, Inc., which is a
wholly-owned subsidiary of ComEd.
IPCB Illinois Pollution Control Board
MAIN Mid-America Interconnected Network
MGP Manufactured gas plant
NEIL Nuclear Electric Insurance Limited
NML Nuclear Mutual Limited
NPDES National Pollutant Discharge Elimination System
NPL National Priorities List
NRC Nuclear Regulatory Commission
PRPs Potentially responsible parties under CERCLA
Rate Order ICC rate order issued on January 9, 1995, as subsequently
modified
Remand Order ICC rate order issued in January 1993, as subsequently
modified
SEC Securities and Exchange Commission
SFAS Statement of Financial Accounting Standards
Trust ComEd Financing I, which is a wholly-owned subsidiary
trust of ComEd.
Unicom Unicom Corporation
Unicom Enterprises Unicom Enterprises Inc., which is a wholly-owned
subsidiary of Unicom.
Unicom Thermal Unicom Thermal Technologies Inc., which is a wholly-owned
subsidiary of Unicom Enterprises.
Units ComEd's nuclear generating units known as Byron Unit 2
and Braidwood Units 1 and 2
U.S. EPA U.S. Environmental Protection Agency
Westinghouse Westinghouse Electric Corporation
</TABLE>
3
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To 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, 1995 and March 31, 1996, and the
related statements of consolidated income, retained earnings and cash flows for
the three-month and twelve-month periods ended March 31, 1995 and 1996. 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 generally accepted auditing
standards. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Unicom Corporation and
subsidiary companies as of December 31, 1995 and March 31, 1996, and the
results of their operations and their cash flows for the three-month and
twelve-month periods ended March 31, 1995 and 1996, in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Chicago, Illinois
May 9, 1996
4
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED INCOME
The following Statements of Consolidated Income for the three months and
twelve months ended March 31, 1995 and 1996 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 rates, population, business activity, competition, taxes,
environmental control, energy use, fuel supply, cost of labor, fuel and
purchased power and other matters, the nature and effect of which cannot now be
determined.
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31 MARCH 31
---------------------- ----------------------
1995 1996 1995 1996
---------- ---------- ---------- ----------
(THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Operating Revenues:
Operating revenues............ $1,578,136 $1,683,929 $6,340,574 $7,015,837
Provisions for revenue
refunds...................... -- -- (9,667) --
---------- ---------- ---------- ----------
$1,578,136 $1,683,929 $6,330,907 $7,015,837
---------- ---------- ---------- ----------
Operating Expenses and Taxes:
Fuel.......................... $ 269,493 $ 283,975 $1,045,318 $1,101,590
Purchased power............... 3,543 31,439 45,517 92,274
Operation and maintenance..... 531,090 513,677 2,061,508 2,158,236
Depreciation.................. 225,106 230,925 890,646 903,854
Recovery of regulatory
assets....................... 3,818 3,818 15,272 15,272
Taxes (except income)......... 209,905 218,239 797,677 841,632
Income taxes.................. 81,781 111,472 372,772 556,208
Investment tax credits
deferred--net ............... (7,179) (7,167) (28,712) (28,697)
---------- ---------- ---------- ----------
$1,317,557 $1,386,378 $5,199,998 $5,640,369
---------- ---------- ---------- ----------
Operating Income............... $ 260,579 $ 297,551 $1,130,909 $1,375,468
---------- ---------- ---------- ----------
Other Income and (Deductions):
Interest on long-term debt.... $ (152,270) $ (130,819) $ (616,345) $ (566,088)
Interest on notes payable..... (151) (4,251) (622) (7,380)
Allowance for funds used
during construction--
Borrowed funds.............. 1,685 4,898 14,419 14,350
Equity funds................ 2,093 4,698 17,364 15,735
Income taxes applicable to
nonoperating activities...... 268 4,276 30,075 9,094
Interest and other costs for
1993 Settlements............. (61) -- (11,049) (1)
Provision for dividends--
Preferred and preference
stocks of ComEd............ (16,908) (16,514) (66,291) (69,567)
ComEd-obligated mandatorily
redeemable preferred
securities of subsidiary
trust...................... -- (4,240) -- (8,668)
Miscellaneous--net............ (6,634) (18,667) (90,946) (55,079)
---------- ---------- ---------- ----------
$ (171,978) $ (160,619) $ (723,395) $ (667,604)
---------- ---------- ---------- ----------
Net Income Before Extraordinary
Item.......................... $ 88,601 $ 136,932 $ 407,514 $ 707,864
Extraordinary Loss Related to
Early Redemption of Long-Term
Debt, Less Applicable Income
Taxes......................... -- -- -- (20,022)
---------- ---------- ---------- ----------
Net Income..................... $ 88,601 $ 136,932 $ 407,514 $ 687,842
========== ========== ========== ==========
Average Number of Common Shares
Outstanding................... 214,429 215,248 214,193 214,897
Earnings per Common Share
Before Extraordinary Item..... $0.41 $0.64 $1.90 $ 3.29
Extraordinary Loss Related to
Early Redemption of Long-Term
Debt, Less Applicable Income
Taxes......................... -- -- -- (0.09)
---------- ---------- ---------- ----------
Earnings per Common Share...... $0.41 $0.64 $1.90 $ 3.20
========== ========== ========== ==========
Cash Dividends Declared per
Common Share.................. $0.40 $0.40 $1.60 $ 1.60
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
5
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
ASSETS 1995 1996
------ ------------ -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Utility Plant:
Plant and equipment, at original cost (includes
construction work in progress of $1,105 million
and $1,060 million, respectively)................. $27,052,778 $27,325,321
Less--Accumulated provision for depreciation....... 10,565,093 10,768,406
----------- -----------
$16,487,685 $16,556,915
Nuclear fuel, at amortized cost.................... 734,667 710,103
----------- -----------
$17,222,352 $17,267,018
----------- -----------
Investments and Other Property:
Nuclear decommissioning funds...................... $ 1,237,527 $ 1,329,879
Subsidiary companies............................... 113,657 113,204
Other, at cost..................................... 96,937 98,861
----------- -----------
$ 1,448,121 $ 1,541,944
----------- -----------
Current Assets:
Cash............................................... $ 3,575 $ 4,940
Temporary cash investments......................... 47,801 35,907
Special deposits................................... 3,546 1,446
Receivables--
Customers........................................ 580,254 583,956
Taxes............................................ 82,319 --
Other............................................ 83,151 45,633
Provisions for uncollectible accounts............ (11,828) (11,985)
Coal and fuel oil, at average cost................. 129,176 144,667
Materials and supplies, at average cost............ 333,539 335,142
Deferred unrecovered energy costs.................. 46,028 75,644
Deferred income taxes related to current assets and
liabilities....................................... 107,991 122,342
Prepayments and other.............................. 45,272 51,385
----------- -----------
$ 1,450,824 $ 1,389,077
----------- -----------
Deferred Charges and Other Noncurrent Assets:
Regulatory assets.................................. $ 2,467,386 $ 2,452,975
Unrecovered energy costs........................... 588,152 517,901
Other.............................................. 70,153 60,273
----------- -----------
$ 3,125,691 $ 3,031,149
----------- -----------
$23,246,988 $23,229,188
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
6
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
CAPITALIZATION AND LIABILITIES 1995 1996
------------------------------ ------------ -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Capitalization (see accompanying statements):
Common stock equity................................. $ 5,769,637 $ 5,816,900
Preferred and preference stocks of ComEd--
Without mandatory redemption requirements......... 508,034 508,009
Subject to mandatory redemption requirements...... 261,475 261,475
ComEd-obligated mandatorily redeemable preferred
securities of subsidiary trust*.................... 200,000 200,000
Long-term debt...................................... 6,549,335 6,247,096
----------- -----------
$13,288,481 $13,033,480
----------- -----------
Current Liabilities:
Notes payable--
Commercial paper.................................. $ 261,000 $ 228,000
Bank loans........................................ 7,150 7,550
Current portion of long-term debt, redeemable pref-
erence stock and capitalized lease obligations of
subsidiary companies............................... 434,563 742,225
Accounts payable.................................... 606,806 448,646
Accrued interest.................................... 171,488 147,348
Accrued taxes....................................... 215,966 280,881
Dividends payable................................... 102,497 106,856
Customer deposits................................... 44,521 44,286
Other............................................... 93,841 84,438
----------- -----------
$ 1,937,832 $ 2,090,230
----------- -----------
Deferred Credits and Other Noncurrent Liabilities:
Deferred income taxes............................... $ 4,506,043 $ 4,506,902
Accumulated deferred investment tax credits......... 689,041 681,875
Accrued spent nuclear fuel disposal fee and related
interest........................................... 624,191 632,393
Obligations under capital leases of subsidiary com-
panies............................................. 375,524 433,157
Regulatory liabilities.............................. 601,002 595,428
Other............................................... 1,224,874 1,255,723
----------- -----------
$ 8,020,675 $ 8,105,478
----------- -----------
Commitments and Contingent Liabilities (Note 20)
$23,246,988 $23,229,188
=========== ===========
</TABLE>
*As described in Note 7 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 accompanying Notes to Financial Statements are an integral part of the
above statements.
7
<PAGE>
<TABLE>
<CAPTION>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CAPITALIZATION
DECEMBER 31, MARCH 31,
1995 1996
----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Common Stock Equity:
Common stock, without par value--
Outstanding--215,255,998 shares and 215,278,294
shares, respectively (excludes $4 million as of
March 31, 1996 held by trustee for Unicom Stock
Bonus Deferral Plan)............................. $ 4,916,438 $ 4,912,871
Preference stock expense of ComEd.................. (3,694) (3,694)
Retained earnings.................................. 856,893 907,723
----------- -----------
$ 5,769,637 $ 5,816,900
----------- -----------
Preferred and Preference Stocks of ComEd--
Without Mandatory Redemption Requirements:
Preference stock, cumulative, without par value--
Outstanding--13,499,549 shares.................. $ 504,957 $ 504,957
$1.425 convertible preferred stock, cumulative,
without par value--
Outstanding--96,753 shares and 95,966 shares,
respectively................................... 3,077 3,052
Prior preferred stock, cumulative, $100 par value
per share--
No shares outstanding........................... -- --
----------- -----------
$ 508,034 $ 508,009
----------- -----------
Subject to Mandatory Redemption Requirements:
Preference stock, cumulative, without par value--
Outstanding--2,934,990 shares................... $ 292,163 $ 292,163
Current redemption requirements for preference
stock included in current liabilities........... (30,688) (30,688)
----------- -----------
$ 261,475 $ 261,475
----------- -----------
ComEd-Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trust:
Outstanding--8,000,000............................. $ 200,000 $ 200,000
----------- -----------
Long-Term Debt:
First mortgage bonds:
Maturing 1995 through 2000--5 1/4% to 9 3/8%..... $ 1,170,000 $ 1,170,000
Maturing 2001 through 2010--5.30% to 8 3/8%...... 1,465,400 1,465,400
Maturing 2011 through 2020--5.85% to 9 7/8%...... 1,266,000 1,266,000
Maturing 2021 through 2023--7 3/4% to 9 1/8%..... 1,385,000 1,385,000
----------- -----------
$ 5,286,400 $ 5,286,400
Sinking fund debentures, due 1999 through 2011--
2 3/4% to 7 5/8%.................................. 110,505 110,505
Pollution control obligations, due 2004 through
2014--3.30% to 6 7/8%............................. 317,200 317,200
Other long-term debt............................... 1,126,318 1,125,178
Deposit for retirement of long-term debt........... -- (3,618)
Current maturities of long-term debt included in
current liabilities............................... (235,992) (534,660)
Unamortized net debt discount and premium.......... (55,096) (53,909)
----------- -----------
$ 6,549,335 $ 6,247,096
----------- -----------
$13,288,481 $13,033,480
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
8
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED RETAINED EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31 MARCH 31
------------------- -------------------
1995 1996 1995 1996
--------- --------- -------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Balance at Beginning of Period........ $ 560,971 $ 856,893 $499,655 $ 563,761
Add--Net income....................... 88,601 136,932 407,514 687,842
--------- --------- -------- ----------
$ 649,572 $ 993,825 $907,169 $1,251,603
--------- --------- -------- ----------
Deduct--
Cash dividends declared on common
stock............................. $ 85,811 $ 86,102 $342,853 $ 343,909
Other capital stock transactions--
net............................... -- -- 555 (29)
--------- --------- -------- ----------
$ 85,811 $ 86,102 $343,408 $ 343,880
--------- --------- -------- ----------
Balance at End of Period.............. $ 563,761 $ 907,723 $563,761 $ 907,723
========= ========= ======== ==========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
9
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31 MARCH 31
-------------------- ----------------------
1995 1996 1995 1996
--------- --------- --------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Cash Flow from Operating Activi-
ties:
Net income...................... $ 88,601 $ 136,932 $ 407,514 $ 687,842
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization. 238,629 241,188 935,261 951,972
Deferred income taxes and in-
vestment tax credits--net.... 10,014 16,260 140,829 163,063
Extraordinary loss related to
early redemption of long-term
debt......................... -- -- -- 33,158
Equity component of allowance
for funds used during
construction................. (2,093) (4,698) (17,364) (15,735)
Provisions for revenue refunds
and related interest......... -- -- 20,779 (233)
Revenue refunds and related
interest..................... 15,115 -- (859,984) 21
Recovery of regulatory assets. 3,818 3,818 15,272 15,272
Provisions/(payments) for
liability for early
retirement and separation
costs--net................... 380 (32,303) 18,353 28,030
Net effect on cash flows of
changes in:
Receivables................. 1,218 116,292 (98,211) (62,683)
Coal and fuel oil........... (11,624) (15,491) (11,516) (24,171)
Materials and supplies...... 13,607 (1,603) 34,702 35,863
Accounts payable excluding
nuclear fuel lease
principal payments and
early retirement and
separation costs--net...... 14,418 (69,686) 183,556 374,183
Accrued interest and taxes.. 83,405 40,775 103,089 (44,771)
Other changes in certain
current assets and
liabilities................ 6,728 9,352 (67,145) 29,169
Other--net.................... 79,500 4,705 173,184 65,261
--------- --------- --------- -----------
$ 541,716 $ 445,541 $ 978,319 $ 2,236,241
--------- --------- --------- -----------
Cash Flow from Investing Activi-
ties:
Construction expenditures....... $(206,263) $(288,555) $(758,218) $(1,009,619)
Nuclear fuel expenditures....... (38,857) (34,419) (247,372) (284,680)
Equity component of allowance
for funds used during
construction................... 2,093 4,698 17,364 15,735
Contributions to nuclear
decommissioning funds.......... (96,229) (83,178) (132,550) (119,602)
Investment in subsidiary compa-
nies........................... -- -- (49) (8)
Other investments and special
deposits....................... (8,070) (48) 542,678 6,427
--------- --------- --------- -----------
$(347,326) $(401,502) $(578,147) $(1,391,747)
--------- --------- --------- -----------
Cash Flow from Financing Activi-
ties:
Issuance of securities--
Long-term debt................. $ 20,000 $ -- $ 500,751 $ 42,000
Preferred securities of sub-
sidiary trust................. -- -- -- 200,000
Capital stock.................. 4,159 611 84,162 21,863
Retirement and redemption of
securities--
Long-term debt................. (29,637) (1,140) (678,260) (1,108,775)
Capital stock.................. -- -- (17,709) (17,822)
Deposits and securities held
for retirement and redemption
of securities.................. (1,674) (3,618) 14,405 (1,838)
Premium paid on early redemp-
tion of long-term debt......... -- -- (4,064) (25,823)
Cash dividends paid on common
stock.......................... (85,738) (85,983) (342,560) (343,619)
Proceeds from sale/leaseback of
nuclear fuel................... 115,340 124,213 305,025 202,088
Nuclear fuel lease principal
payments....................... (62,785) (56,051) (219,029) (231,111)
Increase (Decrease) in short-
term borrowings................ -- (32,600) 1,050 228,400
--------- --------- --------- -----------
$ (40,335) $ (54,568) $(356,229) $(1,034,637)
--------- --------- --------- -----------
Increase (Decrease) in Cash and
Temporary Cash Investments...... $ 154,055 $ (10,529) $ 43,943 $ (190,143)
Cash and Temporary Cash
Investments at Beginning of
Period.......................... 76,935 51,376 187,047 230,990
--------- --------- --------- -----------
Cash and Temporary Cash Invest-
ments at End of Period.......... $ 230,990 $ 40,847 $ 230,990 $ 40,847
========= ========= ========= ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
10
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
Corporate Structure and Basis of Presentation. Unicom was incorporated in
January 1994 and became the parent holding company of ComEd and Unicom
Enterprises in a corporate restructuring that became effective on September 1,
1994. Previously, Unicom Enterprises was a wholly-owned subsidiary of ComEd.
The restructuring was accounted for by the pooling-of-interests method. Under
this method, the assets, liabilities and ownership interests of each of the
companies are combined at their existing recorded amounts as of the
restructuring date, and the financial statements are presented herein as if the
restructuring took place as of the earliest period shown. In the restructuring,
each of the 214,185,572 outstanding shares of ComEd common stock, par value
$12.50 per share, was converted into one fully paid and non-assessable share of
Unicom common stock, without par value. The preferred and preference stocks,
common stock purchase warrants, first mortgage bonds and other debt obligations
of ComEd were unchanged in the restructuring and remain as ComEd's outstanding
securities and obligations.
ComEd, an electric utility, is the principal subsidiary of Unicom. Unicom
Enterprises is an unregulated subsidiary of Unicom and is engaged, through
subsidiaries, in energy service activities. Unicom also has one other
subsidiary that has been formed to engage in unregulated activities.
The consolidated financial statements include the accounts of Unicom, ComEd,
the Indiana Company, ComEd Financing I and Unicom's unregulated subsidiaries.
All significant intercompany transactions have been eliminated. ComEd's
investments in other subsidiary companies, which are not material in relation
to ComEd's financial position or results of operations, are accounted for in
accordance with the equity method of accounting.
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles 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.
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 generally accepted
accounting principles applicable to rate-regulated enterprises and reflect the
effects of the ratemaking process in accordance with SFAS No. 71, Accounting
for the Effects of Certain Types of Regulation. Such effects concern mainly the
time at which various items enter into the determination of net income in order
to follow the principle of matching costs and revenues.
11
<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, 1995 and March 31, 1996 were
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Regulatory assets:
Deferred income taxes (1)............................. $1,689,832 $1,675,658
Deferred carrying charges (2)......................... 409,923 406,661
Nuclear decommissioning costs--Dresden Unit 1 (3)..... 138,058 145,639
Unamortized loss on reacquired debt (4)............... 160,440 156,695
Other................................................. 69,133 68,322
---------- ----------
$2,467,386 $2,452,975
========== ==========
Regulatory liabilities:
Deferred income taxes (1)............................. $ 601,002 $ 595,428
========== ==========
</TABLE>
- --------
(1) Recorded in compliance with SFAS No. 109.
(2) Amortized over the remaining lives of the Units.
(3) Amortized over the remaining life of Dresden station. See "Depreciation
and Decommissioning" below for additional information.
(4) Amortized over the remaining lives of the long-term debt issued to finance
the reacquisition. See "Loss on Reacquired Debt" below for additional
information.
For additional information related to deferred carrying charges, see "Deferred
Carrying Charges" under the subcaption "Results of Operations" in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." See also "Deferred Unrecovered Energy Costs" below regarding the
fuel adjustment clause, the DOE assessment and coal reserves.
If a portion of ComEd's operations was no longer subject to the provisions
of SFAS No. 71 as a result of a change in regulation or the effects of
competition, ComEd would be required to write off the related regulatory
assets and liabilities. In addition, ComEd would be required to determine any
impairment to other assets and write down such assets to their fair value.
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, which was adopted on January 1, 1996,
establishes accounting standards for the impairment of long-lived assets. The
SFAS also requires that regulatory assets which are no longer probable of
recovery through future revenue be charged to earnings. SFAS No. 121 did not
have an impact on ComEd's financial position or results of operations upon
adoption.
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 and industrial customers. ComEd's
electric service territory has an area of approximately 11,540 square miles
and an estimated population of approximately eight million as of December 31,
1995 and 1994. It includes the city of Chicago, an area of about 225 square
miles with an estimated population of approximately three million from which
ComEd derived approximately one-third of its ultimate consumer revenues in the
twelve months ended March 31, 1996. ComEd had approximately 3.4 million
electric customers at March 31, 1996.
Depreciation and Decommissioning. ComEd's depreciation is provided on the
straight-line basis by amortizing the cost of depreciable plant and equipment
over estimated composite service lives. Non-nuclear plant and equipment is
depreciated at annual rates developed for each class of plant based on their
composite service lives. Provisions for depreciation were at average annual
rates of 3.13% for the three months and twelve months ended March 31, 1995 and
3.14% for the three months and twelve
12
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
months ended March 31, 1996 of average depreciable utility plant and equipment.
The annual rate for nuclear plant and equipment is 2.88%, which excludes
separately collected decommissioning costs. See Note 2 for additional
information concerning ComEd's announcement of customer initiatives which
include the increase of depreciation charges on nuclear generating units.
Nuclear plant decommissioning costs are accrued over the expected service
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
"Decommissioning" under "Management's Discussion and Analysis of Financial
Condition and Results of Operations," subcaption "Results of Operations," for a
discussion of questions raised by the staff of the SEC and a FASB review
regarding the electric utility industry method of accounting for
decommissioning costs. Dismantling is expected to occur relatively soon after
the end of the useful life of each related generating station. The accrual for
decommissioning is based on the prompt removal method authorized by NRC
guidelines. ComEd's twelve operating units have estimated remaining service
lives ranging from 10 to 32 years. ComEd's first nuclear unit, Dresden Unit 1,
is retired and will be dismantled upon the retirement of the remaining units at
that station, which is consistent with the regulatory treatment for the related
decommissioning costs.
Based on ComEd's most recent study, decommissioning costs, including the cost
of decontamination and dismantling, are estimated to aggregate $3.7 billion in
current-year (1996) dollars excluding a contingency allowance. ComEd estimates
that it will expend approximately $15.5 billion, excluding any contingency
allowance, for decommissioning costs primarily during the period from 2007
through 2032. 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.
Pursuant to the Rate Order, beginning in 1995, ComEd collects decommissioning
costs from its ratepayers under a rider which allows annual adjustments to
decommissioning cost collections outside the context of a traditional rate
proceeding. The estimated decommissioning costs allowed under the rider exclude
a contingency allowance. 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. Under its most recent annual rider, filed with the
ICC on February 28, 1996, ComEd has decreased its estimated annual
decommissioning cost accrual from $113.5 million to $108.8 million, primarily
reflecting stronger than expected after-tax returns on the external trust funds
in 1995. The ICC issued an order approving the rider filing on April 24, 1996.
As a result of the ICC approval of the rider filing, beginning April 30,
1996, the effective date of the order, ComEd began accruing and collecting
$108.8 million annually for decommissioning costs. The assumptions used to
calculate the $108.8 million decommissioning cost accrual include: the
decommissioning cost estimate of $3.7 billion in current-year (1996) dollars,
after-tax earnings on the tax-qualified and nontax-qualified decommissioning
funds of 7.30% and 6.26%, respectively, as well as an escalation rate for
future decommissioning costs of 5.5%. The annual accrual of $108.8 million
provided over the lives of the nuclear plants, coupled with the expected fund
earnings and amounts previously recovered in rates, is expected to aggregate
approximately $15.5 billion. The annual accrual and collection amounts will be
reviewed again during the first quarter of 1997.
For the twelve operating nuclear units, decommissioning costs are recorded as
portions of depreciation expense and accumulated provision for depreciation on
the Statements of Consolidated
13
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
Income and the Consolidated Balance Sheets, respectively. As of March 31, 1996,
the total decommissioning costs included in the accumulated provision for
depreciation were $1,336 million. For ComEd's retired nuclear unit, Dresden
Unit 1, the total estimated liability at March 31, 1996 in current-year (1996)
dollars of $267 million was recorded on the Consolidated Balance Sheets as a
noncurrent liability and the unrecovered portion of the liability of
approximately $146 million was recorded as a regulatory asset.
Under Illinois law, decommissioning cost collections are required to be
deposited into external trusts; and, 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
service lives of the nuclear plants. At March 31, 1996, the past accruals that
are required to be contributed to the external trusts aggregate $127 million.
The fair value of funds accumulated in the external trusts at March 31, 1996
was approximately $1,330 million which includes pre-tax unrealized appreciation
of $153 million. The earnings on the external trusts accumulate in the fund
balance and in the accumulated provision for depreciation.
Amortization of 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
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 current interest on the one-time fee are currently being recovered
through the fuel adjustment clause. See Note 10 for further information
concerning the disposal of spent nuclear fuel, the one-time fee and the
interest accrual on the one-time fee. Nuclear fuel expenses, including leased
fuel costs and provisions for spent nuclear fuel disposal costs, were $98.8
million and $95.9 million for the three months ended March 31, 1995 and 1996,
respectively, and $367.6 million and $387.7 million for the twelve months ended
March 31, 1995 and 1996, 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 timing 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. 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. 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 9.65% and 8.82% for the three months
ended March 31, 1995 and 1996, respectively, and 9.80% and 9.31% for the twelve
months ended March 31, 1995 and 1996, respectively. AFUDC does not contribute
to the current cash flow of Unicom or ComEd.
Interest. Total interest costs incurred on debt, leases and other obligations
were $177.0 million and $158.6 million for the three months ended March 31,
1995 and 1996, respectively, and $716.5 million and $677.4 million for the
twelve months ended March 31, 1995 and 1996, respectively.
14
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
Debt Discount, Premium and Expense. Discount, premium and expense on long-term
debt of subsidiary companies 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 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.
Deferred Unrecovered Energy Costs. The fuel adjustment clause adopted by the
ICC provides for the recovery of changes in fossil and nuclear fuel costs and
the energy portion of purchased power costs as compared to the fuel and
purchased energy costs included in ComEd's base rates. As authorized by the ICC,
ComEd has recorded under or overrecoveries of allowable fuel and energy costs
which, under the clause, are recoverable or refundable in subsequent months.
Deferred unrecovered energy costs also include amounts to be recovered through
the fuel adjustment clause for assessments by the DOE to fund a portion of the
cost for the decontamination and decommissioning of uranium enrichment
facilities owned and previously operated by the DOE. As of December 31, 1995 and
March 31, 1996, an asset related to the assessments of approximately $179
million and $175 million, respectively, was recorded, of which the current
portion of approximately $15 million was included in current assets on the
Consolidated Balance Sheets. As of December 31, 1995 and March 31, 1996, a
corresponding liability of approximately $152 million was recorded in other
noncurrent liabilities and approximately $15 million was recorded in other
current liabilities.
At December 31, 1995 and March 31, 1996, ComEd had unrecovered fuel costs in
the form of coal reserves of approximately $448 million and $435 million,
respectively. In prior years, ComEd's commitments for the purchase of coal
exceeded its requirements. Rather than take all the coal it was required to
take, ComEd agreed to purchase the coal in place in the form of coal reserves.
ComEd has been allowed to recover from its customers the costs of the coal
reserves through its fuel adjustment clause as coal is used for the generation
of electricity; however, ComEd is not earning a return on the expenditures for
coal reserves. Such fuel costs expected to be recovered within one year
amounting to approximately $24 million and $76 million at December 31, 1995 and
March 31, 1996, respectively, have been included on the Consolidated Balance
Sheets in current assets as deferred unrecovered energy costs. ComEd expects to
fully recover the costs of the coal reserves by the year 2007. See Note 20 for
additional information concerning ComEd's coal commitments.
Reclassifications. Certain prior year amounts have been reclassified to
conform with current period presentation. These reclassifications had no effect
on net income.
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, are considered to be cash
equivalents. Supplemental cash flow information for the three months and twelve
months ended March 31, 1995 and 1996 was as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31 MARCH 31
-------------------- -------------------
1995 1996 1995 1996
--------- --------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Supplemental Cash Flow Infor-
mation:
Cash paid during the period
for:
Interest (net of amount
capitalized)............. $ 171,405 $ 157,495 $ 644,005 $ 591,022
Income taxes (net of re-
funds)................... $ (30,421) $ -- $ 98,045 $ 398,129
Supplemental Schedule of Non-
Cash Investing and Financing
Activities:
Capital lease obligations
incurred by subsidiary
companies.................. $ 116,810 $ 125,492 $ 309,028 $ 207,259
</TABLE>
15
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(2) RATE MATTERS. On January 9, 1995, the ICC issued its Rate Order in the
proceedings relating to ComEd's February 1994 rate increase request. The Rate
Order provided, among other things, for (i) an increase in ComEd's total
revenues of approximately $301.8 million (excluding add-on revenue taxes) or
5.2%, on an annual basis, including a $303.2 million increase in base rates,
(ii) the collection of municipal franchise costs on an individual municipality
basis through a rider, and (iii) the use of a rider, with annual review
proceedings, to pass on to ratepayers increases or decreases in estimated costs
associated with the decommissioning of ComEd's nuclear generating units. See
Note 1 under "Depreciation and Decommissioning" for additional information
related to the level of decommissioning cost collections. The ICC also
determined that the Units were 100% "used and useful" and that the previously
determined reasonable costs of such Units, as depreciated, should be included
in full in ComEd's rate base. The rates provided in the Rate Order became
effective on January 14, 1995; however, they are being collected subject to
refund as a result of subsequent judicial action. As of March 31, 1996,
electric operating revenues of approximately $399 million (excluding revenue
taxes) are subject to refund. Intervenors and ComEd have filed appeals of the
Rate Order with the Illinois Appellate Court.
On December 11, 1995, ComEd announced a series of customer initiatives as
part of its larger ongoing effort to address the need to give all customer
classes the opportunity to benefit from increased competition in the electric
utility business, while retaining the benefits (such as reliability) of current
regulation and ensuring utilities' cost recovery for commitments made under the
obligation to serve customers. The initiatives include a five-year cap on base
electric rates at current levels and various customer service and incentive
pricing programs designed to allow customers more choice and control over the
services they seek and the prices they pay. These initiatives are in addition
to previously implemented special discount contract rate programs for new or
existing industrial customers. ComEd anticipates the initiatives will be fully
implemented in 1997 and will reduce its revenues by approximately $42 million
annually (including the effects of previously implemented initiatives and
before income tax effects) primarily through changes in energy utilization and
increase its costs by at least $30 million annually (before income tax effects)
through the increase of depreciation charges on its nuclear generating units.
In March 1996, ComEd filed a request for ICC approval of the additional
depreciation initiatives. ComEd also continues to consider the possibility of
additional depreciation options. Management expects the financial impact of
these initiatives will be substantially offset by ComEd's cost reduction
efforts and expected growth in its business.
Under ComEd's initiatives, the five-year base rate cap at current levels
became effective in December 1995 and will extend until January 1, 2001. The
rate cap does not affect ComEd's fuel cost or nuclear decommissioning cost
recovery provisions. ComEd's fuel cost variances will continue to be collected
through its fuel adjustment clause, and such collections will continue to be
subject to annual reconciliation proceedings before the ICC. Likewise, nuclear
decommissioning costs will continue to be collected as described in Note 1
under "Depreciation and Decommissioning."
(3) AUTHORIZED SHARES AND VOTING RIGHTS OF CAPITAL STOCK. At March 31, 1996,
Unicom's authorized shares consisted of 400,000,000 shares of common stock. The
authorized shares of ComEd preferred and preference stocks at March 31, 1996
were: preference stock--23,244,990 shares; $1.425 convertible preferred stock--
95,966 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.
16
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(4) COMMON STOCK. At March 31, 1996, shares of Unicom common stock were
reserved for the following purposes:
<TABLE>
<S> <C>
Long-Term Incentive Plan........................................ 3,575,432
Employee Stock Purchase Plan.................................... 900,083
Employee Savings and Investment Plan............................ 218,203
Exchange for ComEd common stock not held by Unicom.............. 135,639
---------
4,829,357
=========
</TABLE>
Common stock for the three months and twelve months ended March 31, 1995 and
1996 was issued as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31 MARCH 31
------------------- --------------------
1995 1996 1995 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Shares of Common Stock Issued:
Long-Term Incentive Plan......... 182,882 (22,804) 182,882 276,065
Employee Stock Purchase Plan..... -- -- 305,205 217,080
Employee Savings and Investment
Plan............................ -- 45,100 47,400 262,200
Conversion of $1.425 convertible
preferred stock................. -- -- 179,291 --
Conversion of warrants........... -- -- 13,076 --
--------- --------- --------- ---------
182,882 22,296 727,854 755,345
========= ========= ========= =========
<CAPTION>
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Amount of Common Stock Issued:
Total issued..................... $ 4,141 $ 611 $ 17,700 $ 21,865
Held by trustee for Unicom Stock
Bonus Deferral Plan............. -- (4,203) -- (4,203)
Other............................ 33 25 (344) 104
--------- --------- --------- ---------
$ 4,174 $ (3,567) $ 17,356 $ 17,766
========= ========= ========= =========
</TABLE>
At December 31, 1995 and March 31, 1996, 82,742 and 82,536 ComEd common stock
purchase warrants, respectively, 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.
(5) COMED PREFERRED AND PREFERENCE STOCKS WITHOUT MANDATORY REDEMPTION
REQUIREMENTS. During the twelve months ended March 31, 1995, 3,000,000 shares
of ComEd preference stock without mandatory redemption requirements were issued
and no shares of ComEd preferred or preference stocks without mandatory
redemption requirements were redeemed. No shares of ComEd preferred or
preference stocks without mandatory redemption requirements were issued or
redeemed during the twelve months ended March 31, 1996. The series of ComEd
preference stock without mandatory redemption requirements outstanding at March
31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
INVOLUNTARY
SHARES AGGREGATE REDEMPTION LIQUIDATION
SERIES OUTSTANDING STATED VALUE PRICE(1) PRICE(1)
------ ----------- ------------ ---------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
$1.90 4,249,549 $106,239 $ 25.25 $25.00
$2.00 2,000,000 51,560 $ 26.04 $25.00
$1.96 2,000,000 52,440 $ 27.11 $25.00
$7.24 750,000 74,340 $101.00 $99.12
$8.40 750,000 74,175 $101.00 $98.90
$8.38 750,000 73,566 $100.16 $98.09
$2.425 3,000,000 72,637 $ 25.00 $25.00
---------- --------
13,499,549 $504,957
========== ========
</TABLE>
--------
(1) Per share plus accrued and unpaid dividends, if any.
17
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
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.
(6) COMED PREFERENCE STOCK SUBJECT TO MANDATORY REDEMPTION REQUIREMENTS.
During the twelve months ended March 31, 1995 and 1996, no shares of ComEd
preference stock subject to mandatory redemption requirements were issued. The
series of ComEd preference stock subject to mandatory redemption requirements
outstanding at March 31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
SHARES AGGREGATE
SERIES OUTSTANDING STATED VALUE OPTIONAL REDEMPTION PRICE(1)
- -------------- ----------- ------------ --------------------------------------------------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
$8.20 249,990 $ 24,999 $103 through October 31, 1997; and $101 thereafter
$8.40 Series B 360,000 35,758 $101
$8.85 300,000 30,000 $103 through July 31, 1998; and $101 thereafter
$9.25 675,000 67,500 $103 through July 31, 1999; and $101 thereafter
$9.00 650,000 64,431 Non-callable
$6.875 700,000 69,475 Non-callable
--------- --------
2,934,990 $292,163
========= ========
</TABLE>
- --------
(1) Per share plus accrued and unpaid dividends, if any.
The annual sinking fund requirements and sinking fund and involuntary
liquidation prices per share of the outstanding series of ComEd preference
stock subject to mandatory redemption requirements are summarized as follows:
<TABLE>
<CAPTION>
SINKING
ANNUAL SINKING FUND INVOLUNTARY
SERIES FUND REQUIREMENT PRICE(1) LIQUIDATION PRICE(1)
-------------- ----------------- -------- --------------------
<S> <C> <C> <C>
$8.20 35,715 shares $100 $100.00
$8.40 Series B 30,000 shares(2) $100 $ 99.326
$8.85 37,500 shares $100 $100.00
$9.25 75,000 shares $100 $100.00
$9.00 130,000 shares(2) $100 $ 99.125
$6.875 (3) $100 $ 99.25
</TABLE>
--------
(1) Per share plus accrued and unpaid dividends, if any.
(2) ComEd has a non-cumulative option to increase the annual
sinking fund payment on each sinking fund redemption date
to retire an additional number of shares, not in excess of
the sinking fund requirement, at the applicable redemption
price.
(3) All shares are required to be redeemed on May 1, 2000.
Annual remaining sinking fund requirements through 2000 on ComEd preference
stock outstanding at March 31, 1996 will aggregate $30,822,000 in each of 1996,
1997, 1998 and 1999, and $100,822,000 in 2000. During the twelve months ended
March 31, 1995 and 1996, 177,085 shares and 178,215 shares, respectively, of
ComEd preference stock subject to mandatory redemption requirements were
reacquired to meet sinking fund requirements.
Sinking fund requirements due within one year are included in current
liabilities.
18
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(7) COMED-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF COMED
FINANCING I. In September 1995, ComEd Financing I (Trust), 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 the Trust is
$206.2 million principal amount of ComEd's 8.48% subordinated deferrable
interest notes due September 30, 2035. There is a full and unconditional
guarantee by ComEd of the Trust's obligations under the securities issued by the
Trust. 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. If
interest payments on the subordinated deferrable interest notes 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, or at any time in
the event of certain income tax circumstances. If the subordinated deferrable
interest notes are redeemed, the Trust must redeem preferred securities having
an aggregate liquidation amount equal to the aggregate principal amount of the
subordinated deferrable interest notes so redeemed. In the event of the
dissolution, winding up or termination of the Trust, the holders of the
preferred securities will be entitled to receive, for each preferred security, a
liquidation amount of $25 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 are distributed to
the holders of the preferred securities.
(8) LONG-TERM DEBT. Sinking fund requirements and scheduled maturities
remaining through 2000 for ComEd's first mortgage bonds, sinking fund debentures
and other long-term debt outstanding at March 31, 1996, after deducting deposits
made for retirement of sinking fund debentures and sinking fund debentures
reacquired for satisfaction of future sinking fund requirements, are summarized
as follows: 1996--$231,234,000; 1997--$689,168,000; 1998--$350,017,000; 1999--
$152,445,000; and 2000--$464,446,000. Unicom Enterprises' note payable to bank
of $42,000,000 will mature in 1998.
At March 31, 1996, ComEd's outstanding first mortgage bonds maturing through
2000 were as follows:
<TABLE>
<CAPTION>
SERIES PRINCIPAL AMOUNT
-------------------------- ----------------------
(THOUSANDS OF DOLLARS)
<S> <C>
5 1/4% due April 1, 1996........................... $ 50,000
5 3/4% due November 1, 1996........................ 50,000
5 3/4% due December 1, 1996........................ 50,000
7% due February 1, 1997............................ 150,000
5 3/8% due April 1, 1997........................... 50,000
6 1/4% due October 1, 1997......................... 60,000
6 1/4% due February 1, 1998........................ 50,000
6% due March 15, 1998.............................. 130,000
6 3/4% due July 1, 1998............................ 50,000
6 3/8% due October 1, 1998......................... 75,000
9 3/8% due February 15, 2000....................... 125,000
6 1/2% due April 15, 2000.......................... 230,000
6 3/8% due July 15, 2000........................... 100,000
----------
$1,170,000
==========
</TABLE>
19
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
Other long-term debt outstanding at March 31, 1996 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 $ 9,152 Interest rate of 8.31%
Loan due January 1, 2004 9,749 Interest rate of 8.44%
----------
$ 18,901
----------
ComEd--
Notes:
Medium Term Notes, Series 1N
due various dates through
April 1, 1998 $ 50,500 Interest rates ranging from 9.40% to 9.65%
Medium Term Note, Series 2N
due July 1, 1996 10,000 Interest rate of 9.85%
Medium Term Notes, Series 3N
due various dates through
October 15, 2004 322,250 Interest rates ranging from 8.92% to 9.20%
Medium Term Notes, Series 4N
due various dates through
May 15, 1997 46,000 Interest rates ranging from 8.11% to 8.875%
Notes due February 15, 1997 150,000 Interest rate of 7.00%
Notes due July 15, 1997 100,000 Interest rate of 6.50%
Notes due October 15, 2005 235,000 Interest rate of 6.40%
----------
$ 913,750
----------
Long-Term Note Payable to Bank:
Note due June 1, 1997 $ 150,000 Prevailing interest rate of 5.875% at March 31, 1996
----------
Purchase Contract Obligations:
Woodstock due January 2, 1997 $ 95 Interest rate of 4.50%
Hinsdale due April 30, 2005 432 Interest rate of 3.00%
----------
$ 527
----------
Total ComEd $1,064,277
----------
Unicom Enterprises--
Note Payable to Bank:
Note due November 22, 1998 $ 42,000 Prevailing interest rate of 6.532% at March 31, 1996
----------
Total Unicom $1,125,178
==========
</TABLE>
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.
ComEd recorded an extraordinary loss of $33 million in the fourth quarter of
1995 related to the early redemption of $645 million of long-term debt which
reduced net income by $20 million (after reflecting income tax effects of $13
million) or $0.09 per common share.
20
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(9) LINES OF CREDIT. ComEd had total bank lines of credit of approximately
$923 million and unused bank lines of credit of $915 million at March 31, 1996.
Of that amount, $915 million (of which $175 million expires on September 30,
1996, $72 million expires in equal quarterly installments commencing on
December 31, 1996 and ending on September 30, 1998 and $668 million expires in
equal quarterly installments commencing on December 31, 1997 and ending on
September 30, 1999) may be borrowed on secured or unsecured notes of ComEd at
various interest rates. 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 ComEd's credit ratings, or on a prime interest rate. Amounts under the
remaining lines of credit may be borrowed at prevailing prime interest rates on
unsecured notes of ComEd. Collateral, if required for the borrowings, would
consist of first mortgage bonds issued under and in accordance with the
provisions of ComEd's mortgage. ComEd is obligated to pay commitment fees with
respect to $915 million of such lines of credit.
Unicom Enterprises has a $200 million credit facility which will expire in
1998, of which $158 million was unused as of March 31, 1996. The credit
facility can be used by Unicom Enterprises to finance investments in
unregulated energy-related businesses and projects, including Unicom Thermal,
and for general corporate purposes. The credit facility is guaranteed by Unicom
and includes certain covenants with respect to Unicom's 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
$10 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.
(10) 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 signed 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 beginning not later than January 1998;
however, this delivery schedule is expected to be delayed significantly. The
contract with the DOE requires ComEd to pay the DOE a one-time fee applicable
to nuclear generation through April 6, 1983 of approximately $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. As
provided for under 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
in the Consolidated Balance Sheets.
(11) 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.
21
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
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, 1995 and March
31, 1996, was as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 MARCH 31, 1996
-------------------------------- --------------------------------
UNREALIZED UNREALIZED
COST BASIS GAINS FAIR VALUE COST BASIS GAINS FAIR VALUE
---------- ---------- ---------- ---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Short-term investments. $ 40,575 $ 283 $ 40,858 $ 40,458 $ 44 $ 40,502
U.S. Government and
Agency issues......... 156,745 17,636 174,381 159,185 6,977 166,162
Municipal bonds........ 496,707 34,970 531,677 495,652 20,867 516,519
Common stock........... 348,866 107,280 456,146 444,348 120,461 564,809
Other.................. 29,757 4,708 34,465 37,281 4,606 41,887
---------- -------- ---------- ---------- -------- ----------
$1,072,650 $164,877 $1,237,527 $1,176,924 $152,955 $1,329,879
========== ======== ========== ========== ======== ==========
</TABLE>
At March 31, 1996, the debt securities held by the nuclear decommissioning
funds had the following maturities:
<TABLE>
<CAPTION>
COST FAIR
BASIS VALUE
-------- --------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Within 1 year........................................... $ 40,458 $ 40,502
1 through 5 years....................................... 83,627 84,623
5 through 10 years...................................... 232,327 244,419
Over 10 years........................................... 364,365 379,097
</TABLE>
The net earnings of the nuclear decommissioning funds, which are recorded as
increases to the accumulated provision for depreciation, for the three months
and twelve months ended March 31, 1995 and 1996 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31 MARCH 31
-------------------- ------------------------
1995 1996 1995 1996
--------- --------- ----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Gross proceeds from sales of
securities.................... $ 618,607 $ 617,871 $ 1,252,314 $ 2,598,154
Less cost based on specific
identification................ (618,654) (603,496) (1,256,776) (2,566,556)
--------- --------- ----------- -----------
Realized gains (losses) on
sales of securities........... $ (47) $ 14,375 $ (4,462) $ 31,598
Other realized fund earnings
net of expenses............... 11,333 6,721 40,740 41,681
--------- --------- ----------- -----------
Total realized net earnings of
the funds..................... $ 11,286 $ 21,096 $ 36,278 $ 73,279
Unrealized gains (losses)...... 47,836 (11,922) 34,098 101,085
--------- --------- ----------- -----------
Total net earnings of the
funds........................ $ 59,122 $ 9,174 $ 70,376 $ 174,364
========= ========= =========== ===========
</TABLE>
Current Assets. Cash, temporary cash investments and other cash investments,
which include U.S. Government Obligations and other short-term marketable
securities, and special deposits, which primarily includes cash deposited for
the redemption, refund or discharge of debt securities, 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.
22
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
Capitalization. The estimated fair values of ComEd preferred and preference
stocks, ComEd- obligated mandatorily redeemable preferred securities of the
Trust 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, 1995 and March 31, 1996 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 MARCH 31, 1996
-------------------------------- --------------------------------
CARRYING UNREALIZED CARRYING UNREALIZED
VALUE LOSSES FAIR VALUE VALUE LOSSES FAIR VALUE
---------- ---------- ---------- ---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
ComEd preferred and
preference stocks.... $ 800,197 $ 14,769 $ 814,966 $ 800,172 $ 3,059 $ 803,231
ComEd-obligated
mandatorily
redeemable preferred
securities of the
Trust................ $ 200,000 $ 6,000 $ 206,000 $ 200,000 $ 1,000 $ 201,000
Long-term debt of
subsidiary companies. $6,572,853 $470,175 $7,043,028 $6,574,024 $218,567 $6,792,591
</TABLE>
Long-term notes payable, which are not included in the above table, amounted
to $212 million and $211 million at December 31, 1995 and March 31, 1996,
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.
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, 1995 and March 31, 1996; therefore, the carrying value is equal to
the fair value.
(12) PENSION BENEFITS. ComEd and the Indiana Company have non-contributory
defined benefit pension plans which cover all regular employees. Benefits under
these plans reflect each employee's compensation, years of service and age at
retirement. During 1995, these plans were amended to more closely base
retirement benefits on final pay. 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, 1995 and March 31,
1996 pension liabilities and related data were estimated pending completion of
the January 1, 1996 actuarial valuation.
During 1994, the companies implemented an early retirement program for
employees eligible to retire or who would become eligible to retire after
December 31, 1993 and before April 1, 1995. A total of 679 employees accepted
the program, resulting in the recognition of approximately $34 million of
additional pension cost and an additional increase to the projected benefit
obligation of that $34 million and $41 million of unrecognized net loss. The
charge to income was approximately $20.5 million after reflecting income tax
effects as a result of the program.
23
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
The funded status of these plans at December 31, 1995 and March 31, 1996 was
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Actuarial present value of accumulated pension plan
benefits:
Vested benefit obligation........................... $(2,839,000) $(2,871,000)
Nonvested benefit obligation........................ (251,000) (253,000)
----------- -----------
Accumulated benefit obligation...................... $(3,090,000) $(3,124,000)
Effect of projected future compensation levels...... (304,000) (308,000)
----------- -----------
Projected benefit obligation........................ $(3,394,000) $(3,432,000)
Fair value of plan assets, invested primarily in U.S.
Government, government-sponsored corporation and
agency securities, fixed income funds, registered
investment companies, equity index funds and other
equity funds........................................ 3,059,000 3,080,000
----------- -----------
Plan assets less than projected benefit obligation... $ (335,000) $ (352,000)
Unrecognized prior service cost...................... (73,000) (74,000)
Unrecognized transition asset........................ (142,000) (139,000)
Unrecognized net loss................................ 205,000 210,000
----------- -----------
Accrued pension liability........................... $ (345,000) $ (355,000)
=========== ===========
</TABLE>
The assumed discount rate was 7.5% at December 31, 1995 and March 31, 1996,
and the assumed annual rate of increase in future compensation levels was 4.0%.
These rates were used in determining the projected benefit obligations, the
accumulated benefit obligations and the vested benefit obligations.
Pension costs were determined under the rules prescribed by SFAS No. 87,
including the use of the projected unit credit actuarial cost method and the
following actuarial assumptions for periods during 1994, 1995 and 1996:
<TABLE>
<CAPTION>
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Annual discount rate.......................................... 7.50% 8.00% 7.50%
Annual rate of increase in future compensation levels......... 4.00% 4.00% 4.00%
Annual long-term rate of return on plan assets................ 9.50% 9.75% 9.75%
</TABLE>
The components of pension costs, portions of which were recorded as
components of construction costs, for the three months and twelve months ended
March 31, 1995 and 1996 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31 MARCH 31
------------------- --------------------
1995 1996 1995 1996
--------- -------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Service cost........................ $ 21,000 $ 25,000 $ 93,000 $ 91,000
Interest cost on projected benefit
obligation......................... 57,000 62,000 216,000 230,000
Actual return on plan assets........ (167,000) (70,000) (208,000) (584,000)
Early retirement program cost....... -- -- 18,000 --
Net amortization and deferral....... 104,000 (7,000) (53,000) 307,000
--------- -------- --------- ---------
$ 15,000 $ 10,000 $ 66,000 $ 44,000
========= ======== ========= =========
</TABLE>
In addition, an employee savings and investment plan is available to eligible
employees of ComEd and certain of its and Unicom's subsidiaries. During the
fourth quarter of 1995 (the first quarter of 1996 for bargaining unit employees
of the Indiana Company), the employee savings and investment plan was amended.
Under the plan, as amended, 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
24
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
to 100% of the first 2% of contributed base salary, 70% of the next 3% of
contributed base salary and 25% of the last 1% of contributed base salary. The
participating companies' contributions were $6,475,000 and $8,134,000 for the
three months ended March 31, 1995 and 1996, respectively, and $23,214,000 and
$26,317,000 for the twelve months ended March 31, 1995 and 1996, respectively.
(13) POSTRETIREMENT BENEFITS. ComEd and the Indiana Company provide certain
postretirement health care, dental care, vision care and life insurance for
retirees and their dependents and for the surviving dependents of eligible
employees and retirees. The employees become eligible for postretirement
benefits when they reach age 55 with 10 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 postretirement health care plan for ComEd and the
Indiana Company was amended, effective April 1, 1995. Prior to that date, the
postretirement health care plan was fully funded by the companies. With respect
to employees who retire on or after April 1, 1995, the plan is contributory,
funded jointly by the companies and the participating employees. The December
31, 1995 and March 31, 1996 postretirement benefit liabilities and related data
were estimated pending completion of the January 1, 1996 actuarial valuation.
Postretirement health care costs in 1995 included $25 million related to a
voluntary separation offer for union employees who accepted and left ComEd's
employ by year-end 1995 combined with separation offers to selected groups of
non-union employees.
The funded status of the plan at December 31, 1995 and March 31, 1996 was as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Actuarial present value of accumulated postretirement
benefit obligation:
Retirees.............................................. $(474,000) $(482,000)
Active fully eligible participants.................... (28,000) (29,000)
Other participants.................................... (457,000) (465,000)
--------- ---------
Accumulated benefit obligation........................ $(959,000) $(976,000)
Fair value of plan assets, invested primarily in S&P
500 common stocks and U.S. Government, government
agency, municipal and listed corporate obligations.... 603,000 619,000
--------- ---------
Plan assets less than accumulated postretirement bene-
fit obligation........................................ $(356,000) $(357,000)
Unrecognized transition obligation..................... 392,000 387,000
Unrecognized prior service cost........................ 29,000 29,000
Unrecognized net gain.................................. (280,000) (288,000)
--------- ---------
Accrued liability for postretirement benefits.......... $(215,000) $(229,000)
========= =========
</TABLE>
Different health care cost trends are used for pre-Medicare and post-Medicare
medical expenses. The pre-Medicare trend rate was 9.5% at December 31, 1995,
grading down in 0.5% annual increments and leveling off at 5.0%. The post-
Medicare trend rate was 7.5% at December 31, 1995, grading down in 0.5% annual
increments to 5.0%. The assumed discount rate was 7.5%. These rates were used
to determine the accumulated benefit obligations. The effect of a 1% increase
in the health care cost trend rate for each future year would increase the
accumulated postretirement health care obligations by approximately $160
million.
25
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
The components of postretirement health care costs, portions of which were
recorded as components of construction costs, for the three months and twelve
months ended March 31, 1995 and 1996 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31 MARCH 31
------------------ -------------------
1995 1996 1995 1996
-------- -------- -------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Service cost.......................... $ 11,000 $ 8,000 $ 46,000 $ 28,000
Interest cost on accumulated benefit
obligation........................... 21,000 17,000 82,000 65,000
Actual return on plan assets.......... (35,000) (24,000) (41,000) (126,000)
Amortization of transition obligation. 7,000 6,000 29,000 22,000
Severance plan cost................... -- -- -- 25,000
Other................................. 24,000 7,000 -- 66,000
-------- -------- -------- ---------
$ 28,000 $ 14,000 $116,000 $ 80,000
======== ======== ======== =========
</TABLE>
Postretirement benefit costs were determined under the rules prescribed by
SFAS No. 106, including the use of the projected unit credit actuarial cost
method. The discount rates used were 7.5%, 8.0% and 7.5%, respectively, for
1994, 1995 and 1996 periods and the estimated long-term rate of return of fund
assets, net of income tax effects, were 9.04%, 9.32% and 9.38%, respectively,
for 1994, 1995 and 1996 periods. Pre-Medicare health care cost trend rates were
14% for 1994 periods, grading down in 0.5% annual increments to 5.0%. Post-
Medicare health care cost trend rates were 11.5% for 1994 periods, grading down
in 0.5% annual increments to 5.0%. Pre-Medicare trend rates were 13.5% for the
first three months of 1995 and 10% for the remainder of the year, grading down
in 0.5% annual increments to 5.0%. Post-Medicare trend rates were 11% for the
first three months of 1995 and 8% for the remainder of the year, grading down
in 0.5% annual increments to 5.0%. The effect of a 1% increase in the health
care cost trend rate for each future year would increase the aggregate of the
service and interest cost components of postretirement benefit costs by
approximately $20 million for the twelve months ended March 31, 1996.
(14) SEPARATION PLAN COSTS. Operation and maintenance expenses included $97
million for the year 1995 related to a voluntary separation offer for union
employees who accepted and left ComEd's employ by year-end 1995 combined with
separation plans offered to selected groups of non-union employees. These
employee separation plans reduced net income by $59 million or $0.27 per common
share for the year 1995.
(15) INCOME TAXES. The components of the net deferred income tax liability at
December 31, 1995 and March 31, 1996 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Deferred income tax liabilities:
Accelerated cost recovery and liberalized deprecia-
tion, net of removal costs.......................... $3,379,987 $3,409,736
Overheads capitalized................................ 252,910 248,302
Repair allowance..................................... 219,585 216,955
Regulatory assets recoverable through future rates... 1,689,832 1,675,658
Deferred income tax assets:
Postretirement benefits.............................. (235,360) (245,308)
Unbilled revenues.................................... (116,274) (119,366)
Alternative minimum tax.............................. (145,019) (144,251)
Unamortized investment tax credits to be settled
through future rates................................ (452,210) (447,509)
Other regulatory liabilities to be settled through
future rates........................................ (148,792) (147,919)
Other--net........................................... (46,607) (61,738)
---------- ----------
Net deferred income tax liability..................... $4,398,052 $4,384,560
========== ==========
</TABLE>
26
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
The $13 million decrease in the net deferred income tax liability from December
31, 1995 to March 31, 1996 is comprised of $24 million of deferred income tax
expense, a $28 million decrease in the deferred income tax balance for AMT
(before reflecting utilizations) and a $9 million decrease in regulatory assets
net of regulatory liabilities pertaining to income taxes for the period. 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.
The components of net income tax expense charged to continuing operations for
the three months and twelve months ended March 31, 1995 and 1996 were as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31 MARCH 31
------------------- --------------------
1995 1996 1995 1996
--------- --------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Operating income:
Current income taxes.............. $ 64,981 $ 87,342 $187,964 $362,349
Deferred income taxes............. 16,800 24,130 184,808 193,859
Investment tax credits deferred--
net.............................. (7,179) (7,167) (28,712) (28,697)
Other (income) and deductions...... (227) (4,126) (25,353) (11,584)
-------- --------- --------- ---------
Net income taxes charged to
continuing operations............. $ 74,375 $100,179 $318,707 $515,927
======== ========= ========= =========
</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 and twelve months ended March 31, 1995
and 1996:
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31 MARCH 31
------------------ --------------------
1995 1996 1995 1996
-------- -------- -------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Net income before extraordinary item. $ 88,601 $136,932 $407,514 $ 707,864
Net income taxes charged to
continuing operations............... 74,375 100,179 318,707 515,927
Provision for dividends on ComEd
preferred and preference stocks..... 16,908 16,514 66,291 69,567
-------- -------- -------- ----------
Pre-tax income before provision for
dividends........................... $179,884 $253,625 $792,512 $1,293,358
======== ======== ======== ==========
Effective income tax rate............ 41.3% 39.5% 40.2% 39.9%
======== ======== ======== ==========
</TABLE>
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 and twelve months ended March 31, 1995 and 1996 were as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31 MARCH 31
----------------- --------------------
1995 1996 1995 1996
------- -------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Federal income taxes computed at
statutory rate....................... $62,959 $ 88,769 $ 277,379 $452,675
Equity component of AFUDC which was
excluded from taxable income......... (733) (1,644) (6,077) (5,507)
Amortization of investment tax
credits.............................. (7,179) (7,167) (28,766) (28,697)
State income taxes, net of federal
income taxes......................... 10,396 13,402 45,535 68,978
Differences between book and tax
accounting, primarily property-
related deductions................... 8,498 5,882 28,750 45,148
Other--net............................ 434 937 1,886 (16,670)
------- -------- --------- ---------
Net income taxes charged to continuing
operations........................... $74,375 $100,179 $ 318,707 $515,927
======= ======== ========= =========
</TABLE>
27
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
Current federal income tax liabilities which were recorded prior to 1995
included excess amounts of AMT over the regular federal income tax, which
amounts were also recorded as decreases to deferred federal income taxes. The
excess amounts of AMT were carried forward and portions were applied as credits
against the post-1994 regular federal income tax liabilities. The remaining
excess amounts of AMT can be carried forward indefinitely as credits against
future periods' regular federal income tax liabilities.
(16) TAXES, EXCEPT INCOME TAXES. Provisions for taxes, except income taxes,
for the three months and twelve months ended March 31, 1995 and 1996 were as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31 MARCH 31
------------------- -------------------
1995 1996 1995 1996
--------- --------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Illinois public utility revenue......... $ 56,178 $ 58,511 $ 214,899 $ 231,879
Illinois invested capital............... 27,297 26,154 109,258 105,688
Municipal utility gross receipts........ 38,045 41,579 147,716 171,292
Real estate............................. 46,831 45,128 182,422 174,691
Municipal compensation.................. 17,790 19,095 72,712 79,907
Other--net.............................. 23,764 27,772 70,670 78,175
--------- --------- --------- ---------
$ 209,905 $ 218,239 $ 797,677 $ 841,632
========= ========= ========= =========
</TABLE>
(17) 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 $700 million, consisting of $300 million of commercial
paper or bank borrowings and $400 million of intermediate term notes, to
finance the transactions. With respect to the commercial paper/bank borrowing
portion, $20 million will expire on November 23, 1996, $10 million will expire
on November 23, 1997 and $270 million will expire on November 23, 1998. ComEd
has asked for an extension of the expiration dates. At March 31, 1996, ComEd's
obligation to the lessor for leased nuclear fuel amounted to approximately $646
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.
Future minimum rental payments, net of executory costs, at March 31, 1996 for
capital leases are estimated to aggregate $737 million, including $188 million
in 1996, $205 million in 1997, $144 million in 1998, $92 million in 1999, $53
million in 2000 and $55 million in 2001-2043. The estimated interest component
of such rental payments aggregates $93 million. The estimated portions of
obligations due within one year under capital leases are included in current
liabilities and approximated $168 million and $177 million at December 31, 1995
and March 31, 1996, respectively.
Future minimum rental payments at March 31, 1996 for operating leases are
estimated to aggregate $155 million, including $6 million in 1996, $10 million
in 1997, $10 million in 1998, $10 million in 1999, $9 million in 2000 and $110
million in 2001-2024.
(18) INVESTMENTS IN URANIUM-RELATED PROPERTIES. In May 1994, ComEd recorded a
reduction in the carrying value of its investments in uranium-related
properties after completing a review of various alternatives and reassessing
the long-term recoverability of those investments. The effects of the reduction
reduced net income for the twelve months ended March 31, 1995 by $34 million or
$0.16 per common share.
28
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(19) 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, operation or
maintenance accounts and provides its own financing. At March 31, 1996, for its
share of ownership in the station, ComEd had an investment of $596 million in
production and transmission plant in service (before reduction of $187 million
for the related accumulated provision for depreciation) and $52 million in
construction work in progress.
(20) COMMITMENTS AND CONTINGENT LIABILITIES. Purchase commitments,
principally related to construction and nuclear fuel, approximated $1,157
million at March 31, 1996, comprised of approximately $1,122 million for ComEd
and the Indiana Company and approximately $35 million for Unicom Thermal. In
addition, ComEd has substantial commitments for the purchase of coal. ComEd's
coal costs are high compared to those of other utilities. ComEd's western coal
contracts and its rail contracts for delivery of the western coal provide for
the purchase of certain coal at prices substantially above currently prevailing
market prices. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations," subcaption "Liquidity and Capital Resources," for
additional information regarding ComEd's purchase commitments.
ComEd is a member of NML, established to provide insurance coverage against
property damage to members' nuclear generating facilities. The members are
subject to a retrospective premium adjustment in the event losses exceed
accumulated reserve funds. Capital has been accumulated in the reserve funds of
NML to the extent that ComEd would not be liable for a retrospective premium
adjustment in the event of a single incident. However, ComEd could be subject
to a maximum assessment of approximately $54 million in any policy year, in the
event losses exceed accumulated reserve funds.
ComEd also is a member of NEIL, which provides insurance coverage against the
cost of replacement power obtained during certain prolonged accidental outages
of nuclear generating units and coverage for property losses in excess of $500
million occurring at nuclear stations. 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 of NEIL to the
extent that ComEd would not be liable for a retrospective premium adjustment in
the event of a single incident under the replacement power coverage and the
property damage coverage. However, ComEd could be subject to maximum
assessments, in any policy year, of approximately $26 million and $113 million
in the event losses exceed accumulated reserve funds under the replacement
power and property damage coverages, respectively.
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 $991 million in the
event of an incident, limited to a maximum of $125 million in any calendar
year.
In addition, ComEd participates in the American Nuclear Insurers and Mutual
Atomic Energy Liability Underwriters Master Worker Program which provides
coverage for worker tort claims filed for bodily injury caused by the nuclear
energy hazard. The coverage applies to workers whose "nuclear related
employment" began after January 1, 1988. ComEd would currently be subject to a
maximum assessment of approximately $36 million in the event losses exceed
accumulated reserve funds.
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<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONCLUDED
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. In February 1994, a federal jury returned nominal dollar verdicts on
eight bellwether plaintiffs' claims in these cases, which verdicts were upheld
on appeal. The remaining claims in the 1989 actions are the subject of a
settlement agreement entered into by counsel for the plaintiffs and Cotter. If
the settlement agreement is implemented, the 1989 actions will be dismissed.
Although the remaining cases will necessarily involve the resolution of
numerous contested issues of fact and law, Unicom and ComEd's determination is
that these actions will not have a material impact on their financial position
or results of operations.
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 and 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.
ComEd presently estimates that its costs of former MGP site investigation and
remediation will aggregate from $25 million to $150 million in current-year
(1996) dollars. It is expected that the costs associated with investigation and
remediation of former MGP sites will be incurred over a period of approximately
20 to 30 years. Because ComEd is not able to determine the most probable
liability for such MGP costs, in accordance with accounting standards, a
reserve of approximately $25 million has been included on the Consolidated
Balance Sheets as of December 31, 1995 and March 31, 1996, which reflects the
low end of the range of ComEd's estimate of the liability associated with
former MGP sites. In addition, as of December 31, 1995 and March 31, 1996, a
reserve of $8 million has been included on the Consolidated Balance Sheets,
representing ComEd's estimate of the liability associated with cleanup costs of
remediation sites other than former MGP sites. Approximately half of this
reserve relates to anticipated cleanup costs associated with a property
formerly used as a tannery which was purchased by ComEd in 1973. Unicom and
ComEd presently estimate that ComEd's costs of investigating and remediating
the former MGP and other remediation sites pursuant to CERCLA and state
environmental laws will not have a material impact on the financial position or
results of operations of Unicom or ComEd. 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.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On September 1, 1994, a corporate restructuring took place in which Unicom
became the parent holding company of ComEd and Unicom Enterprises, an
unregulated subsidiary engaged, through a subsidiary, in energy service
activities. The purpose of the restructuring was, in part, to permit Unicom
Enterprises to engage in energy service activities without the prior approval
of, or being regulated by, the ICC, in part to permit timely responses to
competitive activities which could adversely affect ComEd's utility business
and in part to permit Unicom to take advantage of unregulated business
opportunities.
ComEd continues to represent substantially all of the assets, revenues and
net income of Unicom; and Unicom's resources and results of operations are
largely dependent on, and reflect, those of ComEd. Unicom's unregulated
subsidiaries are not expected to make material contributions to Unicom's
revenues or results of operations in the near future. Consequently, the
following discussion focuses on ComEd's utility operations although information
is also provided about Unicom's unregulated operations.
LIQUIDITY AND CAPITAL RESOURCES
UTILITY OPERATIONS
Construction Program. ComEd and the Indiana Company have a construction
program for the years 1996-98 which consists principally of improvements to
their existing nuclear and other electric production, transmission and
distribution facilities. It does not include funds (other than for planning) to
add new generating capacity to ComEd's system. The program, as currently
approved by ComEd, calls for electric plant and equipment expenditures of
approximately $2,784 million (excluding nuclear fuel expenditures of
approximately $885 million). It is estimated that such construction
expenditures, with cost escalation computed at 3.5% annually, will be as
follows:
<TABLE>
<CAPTION>
1996 1997 1998 TOTAL
---- ---- ---- ------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C>
Production............................................. $451 $385 $426 $1,262
Transmission and Distribution.......................... 392 405 410 1,207
General................................................ 110 110 95 315
---- ---- ---- ------
Total............................................... $953 $900 $931 $2,784
==== ==== ==== ======
</TABLE>
Such construction program includes the replacement of the steam generators at
ComEd's Braidwood Unit 1 and Byron Unit 1 nuclear generating units, for service
prior to year-end 1999. The estimated replacement cost, including the cost of
removal of the existing steam generators, is approximately $470 million.
Approximately $355 million of this estimated cost is included in the
construction expenditures shown above. See "Part II. Other Information, Item 1.
Legal Proceedings," subcaption "Nuclear Matters" for additional information
relating to the replacement of the steam generators.
ComEd's forecasts of peak load indicate a need for additional resources to
meet demand, either through generating capacity or through equivalent purchased
power or demand-side management resources, in 1998 and each year thereafter
through the year 2000. The projected resource needs reflect the current
planning reserve margin recommendations of MAIN, the reliability council of
which ComEd is a member. ComEd's forecasts indicate that the need for
additional resources during this period would exist only during the summer
months. ComEd does not expect to make expenditures for additional capacity to
the extent the need for capacity can be met through cost-effective demand-side
management resources, non-utility generation or other power purchases. Based on
current market information, ComEd believes that adequate resources, including
cost-effective demand-side management resources, non-utility generation
resources and other-utility power purchases, could be obtained sufficient to
meet
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<PAGE>
forecasted requirements through the year 2000. If ComEd were to build
additional capacity to meet its needs, it would need to make additional
expenditures during the 1996-98 period.
ComEd's construction program will be reviewed and modified as necessary to
adapt to changing economic conditions, rate levels and other relevant factors
including changing business and legal needs and requirements. ComEd cannot
anticipate all such possible needs and requirements. While regulatory needs in
particular are more likely, on balance, to require increases in construction
expenditures than decreases, financial constraints may require compensating or
greater reductions in other construction expenditures. See "Regulation" below
and "Part II. Other Information, Item 1. Legal Proceedings," subcaption
"Nuclear Matters" herein for additional information.
Purchase commitments for ComEd and the Indiana Company, principally related
to construction and nuclear fuel, approximated $1,122 million at March 31,
1996. In addition, ComEd has substantial commitments for the purchase of coal
as indicated in the following table.
<TABLE>
<CAPTION>
CONTRACT PERIOD COMMITMENT(1)
-------- --------- -------------
<S> <C> <C>
Black Butte Coal Co. ............................. 1996-2007 $954
Decker Coal Co. .................................. 1996-2015 $684
Big Horn Coal Co. ................................ 1998 $ 22
Other commitments................................. 1996-1997 $ 21
</TABLE>
--------
(1) Estimated costs in millions of dollars FOB mine. No estimate of
future cost escalation has been made.
For additional information concerning these coal contracts and ComEd's fuel
supply, see "Results of Operations" below and Notes 1 and 20 of Notes to
Financial Statements.
The foregoing paragraphs in this "Construction Program" section include
forward-looking statements with respect to the future levels of capital
expenditures which are necessarily based upon assumptions regarding estimated
costs and availability of materials and services as well as contingencies.
Unforeseen events or conditions may require changes in the scope of work with
consequent changes in the timing and level of the projected expenditures. In
addition, changes in laws and regulations, or their interpretation and
enforcement, can affect the scope of certain projects, the manner in which they
are undertaken and the costs associated therewith. While ComEd gives
consideration to such factors in developing its budgets, such consideration
cannot predict the course of future events or anticipate the interaction of
multiple factors beyond management's control upon project timing and cost.
Consequently, actual results could differ materially from those described.
Capital Resources. ComEd has forecast that internal sources will provide more
than three-fourths of the funds required for ComEd's construction program and
other capital requirements, including nuclear fuel expenditures, contributions
to nuclear decommissioning funds, sinking fund obligations and refinancing of
scheduled debt maturities (the annual sinking fund requirements and scheduled
maturities for ComEd preference stock and long-term debt are summarized in
Notes 6 and 8, respectively, of Notes to Financial Statements). The forecast
assumes the rate levels reflected in the Rate Order remain in effect. See
"Regulation" subcaption "Rate Matters" below for additional information.
The type and amount of external financing will depend on financial market
conditions and the needs and capital structure of ComEd at the time of such
financing. A portion of ComEd's financing is expected to be provided through
the continued sale and leaseback of nuclear fuel through ComEd's existing
nuclear fuel lease facility. See Note 17 of Notes to Financial Statements for
more information concerning ComEd's nuclear fuel lease facility. ComEd has
approximately $915 million of unused bank lines of credit at March 31, 1996
which may be borrowed at various interest rates and which may be secured or
unsecured. 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
ComEd's credit ratings or on a prime interest rate. Collateral, if required for
the borrowings, would consist of first mortgage bonds issued under and in
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<PAGE>
accordance with the provisions of ComEd's mortgage. See Note 9 of Notes to
Financial Statements for information concerning lines of credit. See the
Statements of Consolidated Cash Flows for the construction expenditures and
cash flow from operating activities for the three months and twelve months
ended March 31, 1996.
During the first three months of 1996, ComEd sold and leased back
approximately $124 million of nuclear fuel through its existing nuclear fuel
lease facility. See the Statements of Consolidated Cash Flows and Note 4 of
Notes to Financial Statements for information regarding common stock activity.
As of May 9, 1996, ComEd has an effective "shelf" registration statement with
the SEC for the future sale of up to an additional $805 million of debt
securities and cumulative preference stock for general corporate purposes of
ComEd, including the discharge or refund of other outstanding securities.
Financial Condition. ComEd's financial condition will continue to depend on
its ability to generate revenues to cover its costs and to maintain adequate
debt and preferred and preference stock coverages and common stock equity
earnings. ComEd has no significant revenues other than from the sale of
electricity. In December 1995, ComEd announced a cap on base electric rates at
current levels. Consequently, ComEd's financial condition will be affected by,
and ComEd's management is addressing, actions to maintain and increase sales,
to control operating and capital expenditures and to anticipate competitive
activities. See "Business and Competition" and "Regulation" below.
On April 17, 1996, ComEd announced that it had finalized agreements to sell
two of its coal-fired generating stations. State Line and Kincaid stations will
be sold for a total of $250 million, which approximates the book value of the
stations. The net proceeds, after income tax effects, will be approximately
$200 million, which will be used to retire or redeem existing debt. Under the
terms of the sales, ComEd will enter into exclusive 15-year purchased power
agreements for the output of the plants. The agreements are subject to
regulatory approval.
See "Regulation" and "Part II. Other Information, Item 1. Legal Proceedings"
herein for information concerning administrative and legal proceedings and
certain other matters involving ComEd, the Indiana Company and Cotter. The
outcome of certain of the proceedings or matters described or referred to
therein, if not favorable to ComEd and the Indiana Company, could have a
material adverse effect on the future business and operating results of Unicom,
ComEd and the Indiana Company.
ComEd's securities and other securities guaranteed by ComEd are currently
rated by three principal securities rating agencies as follows:
<TABLE>
<CAPTION>
STANDARD DUFF &
MOODY'S & POOR'S PHELPS
------- -------- ------
<S> <C> <C> <C>
First mortgage and secured pollution control
bonds.......................................... Baa2 BBB BBB
Publicly-held debentures and unsecured pollution
control obligations............................ Baa3 BBB- BBB-
Convertible preferred stock..................... baa3 BBB- BBB-
Preference stock................................ baa3 BBB- BBB-
ComEd-obligated mandatorily redeemable preferred
securities of the Trust baa3 BBB- BBB-
Commercial paper................................ P-2 A-2 D-2
</TABLE>
As of April 1996, Moody's and Standard & Poor's rating outlooks on ComEd
remained stable. In August 1995, Duff & Phelps upgraded its rating of ComEd's
preferred and preference stock from BB+ to BBB- and reaffirmed that its rating
outlook on ComEd remained stable. See "Part II, Item 5. Market for Registrant's
Common Equity and Related Stockholder Matters" in Unicom's and ComEd's Annual
Reports on Form 10-K for the year ended December 31, 1995, for additional
information regarding ComEd's securities ratings.
Business and Competition. Traditionally, the electric utility industry has
consisted of vertically integrated monopolies subject to extensive regulation.
In recent years, market forces and federal and state regulatory actions have
moved the industry toward competition. Both the state and federal regulatory
33
<PAGE>
framework under which ComEd and other electric utilities have operated are
under review. As a result, electric utilities, including ComEd, are facing
increased competition from non-utility businesses, as well as the prospect of
competition from other electric utilities.
Much of the debate surrounding deregulation and changed regulation centers on
the transition of the industry from monopoly to non-monopoly status. In
particular, the debate concerns the extent to which electric utilities will be
permitted to recover "stranded" or "strandable" costs incurred to fulfill their
duty to serve all of the electricity needs within their service territories.
These costs would be stranded to the extent that market-based rates would be
insufficient to allow for full recovery of the investments. Such costs include
the costs incurred to meet the actual and anticipated needs of all customers in
the service territory.
The federal Energy Policy Act of 1992 has accelerated the move toward greater
competition in the electric utility industry. That Act empowered the FERC to
order electric utilities owning transmission lines to give other parties access
to their systems to transmit or "wheel" power across the system for wholesale
customers. Open access to transmission systems is expected to provide energy
suppliers the opportunity to buy and sell energy at market-based prices across
large distances.
In April 1996, the FERC issued its Open Access Rule, ordering utilities to
file open access tariffs with regard to their transmission systems. These
tariffs set forth the terms, including prices, under which other parties may
use a utility's transmission system. ComEd has filed an open access tariff with
the FERC. The Rule requires the separation of the transmission operations and
wholesale marketing functions so as to ensure that unaffiliated third parties
have access to the same information as to system availability and other
requirements. The Rule further requires utilities to operate an electronic
bulletin board to make transmission price and access data available to all
potential users. A key feature of the Rule is that it contemplates full
recovery of a utility's costs stranded by competition and this change in
federal policy. To recover strandable costs, the utility must show that it had
a reasonable expectation that it would continue to serve the customer in
question.
In Illinois, a legislative proposal dealing with a reform of the state's
Public Utilities Act is expected to be presented by the Joint Committee on
Electric Utility Regulatory Reform (created by joint resolution of both houses
of the Illinois General Assembly) on November 8, 1996. ComEd has been actively
involved in this process as a member of the Technical Advisory Group. As part
of this process, ComEd has submitted its own legislative reform proposal and
responded to the proposals made by others.
An important element of reform proposals under consideration is the ability
of others to provide energy on a competitive basis with the utility, within a
utility's service territory. This generally has included consideration of some
future form of "retail wheeling" whereby a utility's transmission and
distribution system is made available to alternative energy suppliers for
delivery of their services to retail customers. In addition, some state
governmental entities, such as cities, may elect to "municipalize" a utility's
distribution facilities through condemnation proceedings. Such municipalities
are then able to purchase electric power on a wholesale basis and resell it to
end customers over the newly acquired facilities. The FERC Open Access Rule
provides for the recovery of a utility's investments stranded by
municipalization. While municipalization is possible under the present
regulatory system, ComEd is not required to grant alternative electric
suppliers access to its distribution system through any type of "retail
wheeling."
Retail wheeling and municipalization are significant issues for ComEd and
other electric utility companies because of their potential to strand a
utility's costs. Without the development of a more fully competitive market
place, it is not possible to provide an estimate of strandable costs with any
degree of accuracy. However, ComEd believes the amount would be material
without allowance for recovery of costs and investments it incurred under its
regulatory compact, including ComEd's duty to serve. Most reform proposals
anticipating increased competition include some form of stranded cost recovery.
ComEd is taking steps, such as cost-cutting measures and additional
depreciation, to minimize its potential stranded investment.
34
<PAGE>
In addition to the increased competition expected to result from changes in
regulation, ComEd is presently facing competition from several non-utility
businesses seeking to provide energy services to customers, particularly larger
and wholesale customers. Generally, these efforts have focused on self-
generation and cogeneration alternatives to ComEd. ComEd is continuing to
negotiate special contracts with larger customers who have other energy
alternatives in order to retain their load and prevent uneconomic bypass of its
system. On December 11, 1995, ComEd instituted a five-year base rate cap for
all of its customers. The base rate cap does not affect ComEd's fuel cost or
nuclear decommissioning cost recovery provisions. See Note 2 of Notes to
Financial Statements for additional information about ComEd's base rate cap and
other initiatives intended to give customers more choice and control over the
services they seek and the price they pay. Also see "Regulation" and
"Regulatory Assets and Liabilities" in Note 1 of Notes to Financial Statements.
Capital Structure. ComEd's ratio of long-term debt to total capitalization
has decreased to 47.9% at March 31, 1996 from 49.3% at December 31, 1995. This
decrease is related primarily to the increase in current maturities of long-
term debt reclassified to current liabilities.
UNREGULATED OPERATIONS
Unicom Enterprises is engaged, through its subsidiaries, in energy service
activities which are not subject to utility regulation by state or federal
agencies. Its principal subsidiary, Unicom Thermal, currently provides district
cooling services to office and other buildings from a central location in the
city of Chicago. District cooling involves, in essence, the production of
chilled water at a central location(s) and its circulation to customers'
buildings through a closed circuit of supply and return piping. Such water is
circulated through customers' premises primarily for air conditioning. This
process is used in lieu of self-generated cooling. As a result of the Clean Air
Amendments, the manufacture of CFCs has been curtailed, commencing in January
1996, thereby creating an excellent marketing opportunity for non-CFC based
systems, such as Unicom Thermal's district cooling. Unicom Thermal and the city
of Chicago have entered into a non-exclusive franchise agreement. Unicom
Thermal's first plant began service in May 1995, and sufficient contracts have
been secured to utilize the full capacity of the plant. In January 1996, Unicom
Thermal Technologies Boston Inc., a subsidiary of Unicom Thermal, became a
minority participant with Boston Edison Technologies Group, Inc. in a venture
to provide district cooling services to office and other buildings in the city
of Boston.
Construction Program. Unicom has approved capital expenditures for the years
1996-98 of approximately $100 million for Unicom Thermal, primarily
representing the construction costs of its district cooling facilities in the
cities of Chicago and Boston. Construction of its first district cooling
facility in Chicago was completed in May 1995 and cost approximately $30
million. Unicom Thermal began construction on two additional cooling facilities
in 1995. As of March 31, 1996, Unicom Thermal's purchase commitments,
principally related to construction, were approximately $35 million.
Capital Resources. Unicom expects to obtain funds to invest in its
unregulated subsidiaries principally from dividends received on its ComEd
common stock and from bank borrowings. While the amount of dividends on ComEd
common stock is expected to be greater than the amount of dividends on Unicom
common stock, the availability of such dividends is dependent on ComEd's
financial performance and cash position. Other forms of financing by ComEd of
Unicom or the unregulated subsidiaries, such as loans or additional equity
investments (none of which is expected), would be subject to the prior approval
of the ICC.
Unicom Enterprises has a $200 million credit facility which will expire in
1998, of which $158 million was unused as of March 31, 1996. The credit
facility can be used by Unicom Enterprises to finance investments in
unregulated energy-related businesses and projects, including Unicom Thermal,
and for general corporate purposes. The credit facility is guaranteed by Unicom
and includes certain covenants
35
<PAGE>
with respect to Unicom's and Unicom Enterprises' operations. 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. See Note 9 of Notes to Financial Statements for additional
information regarding certain covenants with respect to Unicom's and Unicom
Enterprises' operations.
REGULATION
ComEd and the Indiana Company are subject to state and federal regulation in
the conduct of their respective businesses, including the operations of Cotter.
Such regulation includes rates, securities issuance, nuclear operations,
environmental and other matters. Particularly in the cases of nuclear
operations and environmental matters, such regulation can and does affect
operational and capital expenditures.
Rate Matters. On January 9, 1995, the ICC issued its Rate Order in the
proceedings relating to ComEd's February 1994 rate increase request. The Rate
Order provided, among other things, for (i) an increase in ComEd's total
revenues of approximately $301.8 million (excluding add-on revenue taxes) or
5.2%, on an annual basis, including a $303.2 million increase in base rates,
(ii) the collection of municipal franchise costs on an individual municipality
basis through a rider, and (iii) the use of a rider, with annual review
proceedings, to pass on to ratepayers increases or decreases in estimated costs
associated with the decommissioning of ComEd's nuclear generating units. See
"Depreciation and Decommissioning" in Note 1 of Notes to Financial Statements
for additional information related to the level of decommissioning cost
collections. The ICC also determined that the Units were 100% "used and useful"
and that the previously determined reasonable costs of such Units, as
depreciated, should be included in full in ComEd's rate base. The rates
provided in the Rate Order became effective on January 14, 1995; however, they
are being collected subject to refund as a result of subsequent judicial
action. As of March 31, 1996, electric operating revenues of approximately $399
million (excluding revenue taxes) are subject to refund. Intervenors and ComEd
have filed appeals of the Rate Order with the Illinois Appellate Court. See
"Business and Competition" herein and Note 2 of Notes to Financial Statements
for additional information.
Nuclear Matters. During 1992, the NRC placed ComEd's Dresden station on its
list of plants to be monitored closely and Dresden station remains on the list.
In June 1995, the NRC reported that over the past year performance at Dresden
was cyclical, that plant material condition needed to be improved at Dresden
and that a more effective work management system was needed to deal with the
corrective maintenance backlog. In January 1996, the NRC noted improvement but
indicated that certain of the same concerns continue to exist. The NRC also
stated that the effectiveness of the recent improvement efforts must be
sustained.
Because of the age of Zion, Dresden and Quad-Cities stations, ComEd
anticipates continued expenditures in order to improve reliability and to meet
NRC regulatory expectations. Recently, ComEd restructured its management of its
nuclear operations division and since that time has committed additional
resources to the stations' operations. In addition, generating station
availability and performance during a year may be issues in fuel reconciliation
proceedings in assessing the prudence of fuel and power purchases during such
year. Final ICC orders have been issued in fuel reconciliation proceedings for
years prior to 1994. Certain intervenors appealed the ICC order in the 1989
fuel reconciliation proceedings on issues relating to nuclear station
performance. However, in May 1996, the Illinois Appellate Court affirmed the
ICC order. In 1996, an intervenor filed testimony in the fuel reconciliation
proceeding for 1994 seeking a refund of approximately $90 million relating to
nuclear station performance. See "Part II. Other Information, Item 1. Legal
Proceedings," subcaption "Nuclear Matters," for additional information.
ComEd estimates that it will expend approximately $15.5 billion, excluding
any contingency allowance, for decommissioning costs primarily during the
period from 2007 through 2032. Such costs,
36
<PAGE>
which are estimated to aggregate $3.7 billion in current-year (1996) dollars,
are expected to be funded by 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. See Note 1 of
Notes to Financial Statements under "Depreciation and Decommissioning" for
additional information regarding decommissioning costs.
Environmental Matters. 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. See
Note 20 of Notes to Financial Statements and "Part II. Other Information, Item
1. Legal Proceedings," subcaption "Environmental Matters."
RESULTS OF OPERATIONS
Unicom's earnings per common share for the three months ended March 31, 1996
were $0.64 compared to $0.41 for the three months ended March 31, 1995, and
$3.20 for the twelve months ended March 31, 1996 compared to $1.90 for the
twelve months ended March 31, 1995. Substantially all of the results of
operations for Unicom are the results of operations for ComEd. The results of
Unicom's unregulated subsidiaries are not material to the results of Unicom and
subsidiary companies as a whole. As such, the following section discusses the
results of operations for ComEd alone.
Net Income. The increase in ComEd's earnings in the recent three-month period
reflects, among other factors, higher operating revenues as a result of higher
sales to retail customers and, to a lesser extent, the effects of the Rate
Order, as compared to the three months ended March 31, 1995. Also contributing
to the higher earnings for the recent three-month period was a decrease in
interest expense and operation and maintenance expenses as compared to the
three months ended March 31, 1995.
The increase in the recent twelve-month period reflects, among other factors,
higher operating revenues primarily due to significantly higher kilowatthour
sales and the higher rate levels which became effective in January 1995 under
the Rate Order. The higher kilowatthour sales reflect the unusually hot summer
weather in 1995. The results for the twelve months ended March 31, 1996 were
also affected by higher operation and maintenance expenses, which reflect an
after-tax charge of $59 million or $0.27 per common share, recorded in 1995,
for a voluntary separation offer for union employees who accepted and left
ComEd's employ by year-end 1995 combined with separation plans offered to
selected groups of non-union employees. ComEd also recorded an after-tax charge
of $20 million or $0.09 per common share related to the early redemption of
$645 million of long-term debt in 1995. The results for the twelve months ended
March 31, 1995 reflect an after-tax charge of $11 million or $0.05 per common
share for additional pension costs related to an early retirement offer made to
certain employees during 1994 and a reduction in the carrying value of its
investments in uranium-related properties in 1994, which reduced net income by
$34 million or $0.16 per common share.
Kilowatthour Sales. Kilowatthour sales to ultimate consumers for the three
months and twelve months ended March 31, 1996 increased 5.8% and 6.7%,
respectively, compared to the three months and twelve months ended March 31,
1995. The increase in the recent three-month period reflects higher
kilowatthour sales to all classes of customers due to a colder winter as
compared to the same period in the prior year and economic strength in the
industrial sector of ComEd's service territory. The increase in the recent
twelve-month period reflects higher kilowatthour sales to all classes of
customers, reflecting the unusually hot summer weather in 1995 as compared to
the twelve months ended March 31, 1995. Kilowatthour sales including sales for
resale increased 3.4% and 6.7% during the three-month and twelve-month periods
ended March 31, 1996, respectively, compared to the same periods ended March
31, 1995.
37
<PAGE>
Operating Revenues. Operating revenues increased in the three months ended
March 31, 1996 compared to the three months ended March 31, 1995, reflecting
the higher kilowatthour sales to retail customers discussed above, and to a
lesser extent, the effects of the Rate Order. Operating revenues increased in
the twelve months ended March 31, 1996 compared to the twelve months ended
March 31, 1995, primarily as a result of higher kilowatthour sales described
above and higher rate levels under the Rate Order.
Fuel Costs. Changes in fuel expense for the three months and twelve months
ended March 31, 1996 as compared to the same periods ended March 31, 1995
primarily resulted from changes in the average cost of fuel consumed, changes
in the mix of fuel sources of electric energy generated and changes in net
generation of electric energy. Fuel mix is determined primarily by system load,
the costs of fuel consumed and the availability of nuclear generating units.
The cost of fuel consumed, net generation of electric energy and fuel sources
of kilowatthour generation were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31 MARCH 31
-------------------- --------------------
1995 1996 1995 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cost of fuel consumed (per million Btu):
Nuclear...................................... $0.53 $0.52 $0.53 $0.52
Coal......................................... $2.44 $2.44 $2.35 $2.43
Oil.......................................... $2.74 $3.07 $2.93 $3.10
Natural gas.................................. $1.77 $3.04 $2.07 $1.97
Average all fuels............................ $1.05 $1.04 $1.07 $1.04
Net generation of electric energy (millions of
kilowatthours)............................... 24,197 23,493 92,227 95,904
Fuel sources of kilowatthour generation:
Nuclear...................................... 73% 74% 71% 73%
Coal......................................... 25 24 25 24
Oil.......................................... -- 1 1 1
Natural gas.................................. 2 1 3 2
--------- --------- --------- ---------
100% 100% 100% 100%
========= ========= ========= =========
</TABLE>
Under the Energy Policy Act of 1992, investor-owned electric utilities that
have purchased enrichment services from the DOE are being assessed amounts to
fund a portion of the cost for the decontamination and decommissioning of
uranium enrichment facilities owned and previously operated by the DOE. ComEd's
portion of such assessments is estimated to be approximately $15 million per
year (to be adjusted annually for inflation) to 2007. The Act provides that
such assessments are to be treated as a cost of fuel. See Note 1 of Notes to
Financial Statements under "Deferred Unrecovered Energy Costs" for information
related to the accounting for such costs.
Fuel Supply. Compared to other utilities, ComEd has relatively low average
fuel costs as a result of its reliance predominantly on lower cost nuclear
generation. ComEd's coal costs, however, are high compared to those of other
utilities. ComEd's western coal contracts and its rail contracts for delivery
of the western coal provide for the purchase of certain coal at prices
substantially above currently prevailing market prices and ComEd has
significant purchase commitments under its contracts. In addition, as of March
31, 1996, ComEd had unrecovered fuel costs in the form of coal reserves of
approximately $435 million. In prior years, ComEd's commitments for the
purchase of coal exceeded its requirements. Rather than take all the coal it
was required to take, ComEd agreed to purchase the coal in place in the form of
coal reserves. For additional information concerning ComEd's coal purchase
commitments, fuel reconciliation proceedings and coal reserves, see "Liquidity
and Capital Resources" above and Notes 1 and 20 of Notes to Financial
Statements.
Purchased Power. Amounts of purchased power are primarily affected by system
load, the availability of ComEd and the Indiana Company's generating units and
the availability and cost of power from other utilities.
38
<PAGE>
The number and average cost of kilowatthours purchased were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31 MARCH 31
------------------ -------------------
1995 1996 1995 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Kilowatthours (millions).............. 209 1,471 1,623 3,737
Cost per kilowatthour................. 1.69c 2.14c 2.80c 2.47c
</TABLE>
Deferred Under or Overrecovered Energy Costs--Net. Operating expenses for the
three months and twelve months ended March 31, 1996 and 1995 include the net
change in under or overrecovered allowable energy costs under ComEd's fuel
adjustment clause. See "Fuel Costs" and "Fuel Supply" above and Note 1 of Notes
to Financial Statements under "Deferred Unrecovered Energy Costs."
Operation and Maintenance Expenses. ComEd's operation and maintenance
expenses decreased 3.4% and increased 4.6% for the three months and twelve
months ended March 31, 1996, respectively, compared to the same periods ended
March 31, 1995. The decrease in the current three-month period primarily
reflects lower operation and maintenance expenses associated with nuclear
generating stations, transmission and distribution facilities, pensions and
other employee benefits, including postretirement health care benefits and
certain administrative and general costs, partially offset by increased
expenses associated with fossil generating stations. The increase in the
current twelve-month period primarily reflects higher operation and maintenance
expenses associated with nuclear and fossil generating stations, customer-
related activities, voluntary employee separation plans and incentive
compensation programs, partially offset by lower expenses associated with
transmission and distribution facilities, pensions and other employee benefits,
including postretirement health care benefits and certain administrative and
general costs. The effects of inflation are reflected in the increases and
decreases discussed below and have increased operation and maintenance expenses
for the three months and twelve months ended March 31, 1996.
Operation and maintenance expenses associated with the nuclear generating
stations tend to be affected by the number of outages (both scheduled and non-
scheduled) of the units, during which a greater number of activities related to
inspection, maintenance and improvement are scheduled and carried out. Such
expenses decreased $6 million for the three months ended March 31, 1996 and
increased $19 million for the twelve months ended March 31, 1996 compared to
the same periods ended March 31, 1995. The decrease in operation and
maintenance expenses for the recent three-month period is primarily due to
activities undertaken during scheduled and non-scheduled outages and a
reduction in personnel, partially offset by increased expenses related to plant
improvement and repair efforts performed concurrently with a scheduled
refueling outage at Dresden station. The increase for the current twelve-month
period is primarily due to increased expenses related to plant improvement and
repair efforts performed concurrently with a scheduled refueling outage at
Dresden station. Future operation and maintenance expenses associated with
nuclear generating stations may be significantly affected by regulatory,
operational and other requirements. See "Nuclear Matters" under "Regulation"
above and "Part II. Other Information, Item 1. Legal Proceedings," subcaption
"Nuclear Matters."
In March 1996, ComEd's Board of Directors authorized a program of additional
expenditures related to its nuclear operations. The program consists of various
operation, maintenance and capital expenditure items, and overall includes an
$89 million increase in ComEd's three-year construction budget. Nuclear
operation and maintenance expenses are anticipated to be approximately $70
million higher than budgeted, or $50 million higher in 1996 than in 1995. The
program further contemplates that ComEd's nuclear operation and maintenance
expenses will be at a similarly increased level for 1997. The changes were
based upon a determination by ComEd's Board that it would be prudent to
accelerate certain nuclear capital projects previously scheduled for later
years and to implement an intensive program to make various operation and
maintenance improvements in a shorter period of time than was originally
planned.
39
<PAGE>
Operation and maintenance expenses associated with fossil generating stations
also tend to be affected by the number of outages in the same manner as nuclear
generating stations. Such expenses increased $19 million and $34 million for
the three months and twelve months ended March 31, 1996, respectively, compared
to the same periods ended March 31, 1995. The increases in the recent three-
month and twelve-month periods reflect an increase in the scope of scheduled
overhauls to upgrade plant performance, partially offset by a reduction of
personnel.
Operation and maintenance expenses associated with ComEd's transmission and
distribution system decreased $3 million and $4 million in the three months and
twelve months ended March 31, 1996, respectively, compared to the same periods
ended March 31, 1995. The decrease in the recent three-month period reflects a
reduction in personnel. The decrease in the recent twelve-month period reflects
the effects of ComEd's cost containment efforts. Operation and maintenance
expenses associated with ComEd's customer-related activities, including
customer assistance and energy sales services, increased $10 million in the
twelve-month period ended March 31, 1996 compared to the same period ended
March 31, 1995.
Operation and maintenance expenses in the twelve months ended March 31, 1996
and 1995 reflect $65 million and $50 million, respectively, for employee
incentive compensation plan costs related to the achievement of certain
financial performance, cost containment and operating performance goals in 1995
and 1994, respectively.
Operation and maintenance expenses for pension and other employee benefits,
including postretirement health care benefits, decreased $15 million and $41
million in the three months and twelve months ended March 31, 1996,
respectively, compared to the same periods ended March 31, 1995. The decrease
in the recent three-month period reflects a decrease of $13 million in the
provision for postretirement health care benefits and a decrease of $2 million
for certain other employee benefits. The decrease in the recent twelve-month
period reflects a decrease of $52 million in the provision for postretirement
health care benefits, partially offset by a $25 million increase for the
portion of the costs of the voluntary employee separation plans related to
postretirement health care benefits and an increase of $4 million for certain
other employee benefits. The twelve-month period ended March 31, 1995 includes
$18 million in pension costs related to an early retirement program offered in
1994. See Note 14 of Notes to Financial Statements for additional information
regarding the employee separation plans offered in 1995.
Operation and maintenance expenses in the twelve months ended March 31, 1996
reflect $72 million recorded in 1995 for the portion of the costs of the
voluntary employee separation plans not related to the postretirement health
care benefits described above. See Note 14 of Notes to Financial Statements for
additional information regarding the employee separation plans offered in 1995.
Certain administrative and general costs decreased $8 million and $5 million
for the three months and twelve months ended March 31, 1996, respectively,
compared to the same periods ended March 31, 1995. The decreases in the recent
three-month and twelve-month periods were due to a variety of reasons including
a decrease in expenses related to the provision for injuries and damages.
Depreciation. Depreciation expense for the three months and twelve months
ended March 31, 1996 increased over the same periods a year ago as a result of
additions to plant in service. In March 1996, ComEd filed a request for ICC
approval of an additional depreciation initiative. ComEd also continues to
consider the possibility of additional depreciation options. See "Depreciation
and Decommissioning" in Note 1 and Note 2 of Notes to Financial Statements for
additional information.
Interest on Debt. Changes in interest on long-term debt and notes payable for
the three months and twelve months ended March 31, 1996 compared to the same
periods ended March 31, 1995 were due to changes in average interest rates and
in the amounts of long-term debt and notes payable outstanding. Changes in
interest on ComEd's long-term debt also reflected new issues of debt, the
retirement and
40
<PAGE>
early redemption of debt, and the retirement and redemption of issues which
were refinanced at generally lower rates of interest. The average amounts of
ComEd's long-term debt and notes payable outstanding and average interest rates
thereon were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31 MARCH 31
--------------------- ---------------------
1995 1996 1995 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Long-term debt outstand-
ing:
Average amount
(millions)............ $7,842 $6,724 $7,888 $7,269
Average interest rate.. 7.76% 7.72% 7.81% 7.75%
Notes payable outstand-
ing:
Average amount
(millions)............ $ 7 $ 289 $ 9 $ 121
Average interest rate.. 8.59% 5.91% 7.00% 6.09%
</TABLE>
Deferred Carrying Charges. In the Remand Order, the ICC provided that, for
ratemaking purposes, deferred carrying charges on the reasonable and "used and
useful" plant costs of the Units for the period April 1, 1989 until
approximately March 20, 1991, the date under the Remand Order that the Units
were reflected in rates, could be deferred and amortized. Such costs of
approximately $410 million and $407 million at December 31, 1995 and March 31,
1996, respectively, have been included on the Consolidated Balance Sheets in
regulatory assets. Amortization of deferred carrying charges was $3 million for
the three months ended March 31, 1995 and 1996, and $13 million for the twelve
months ended March 31, 1995 and 1996.
Decommissioning. The staff of the SEC has questioned certain of the current
accounting practices of the electric utility industry, including ComEd,
regarding the recognition, measurement and classification of decommissioning
costs for nuclear generating stations in financial statements of electric
utilities. In response to these questions, the FASB is reviewing the accounting
for nuclear decommissioning costs and it issued an exposure draft in February
1996 requesting written comment. If current electric utility industry
accounting practices for such decommissioning costs are changed, annual
provisions for decommissioning could increase and the estimated cost for
decommissioning could be recorded as a liability rather than as accumulated
depreciation. Unicom does not believe that such changes, if required, would
have an adverse effect on results of operations due to ComEd's current and
future ability to recover decommissioning costs through rates.
Investments in Uranium-Related Properties. In May 1994, ComEd recorded a
reduction in the carrying value of its investments in uranium-related
properties after completing a review of various alternatives and reassessing
the long-term recoverability of those investments. The effects of the reduction
reduced net income for the twelve months ended March 31, 1995 by $34 million or
$0.16 per common share.
Other Items. The amounts of AFUDC reflect changes in the average levels of
investment subject to AFUDC and changes in the average annual capitalization
rates as discussed in Note 1 of Notes to Financial Statements. AFUDC does not
contribute to the current cash flow of Unicom or ComEd.
ComEd's ratios of earnings to fixed charges for the twelve months ended
December 31, 1995 and March 31, 1996 were 2.79 and 2.95, respectively. ComEd's
ratios of earnings to fixed charges and preferred and preference stock dividend
requirements for the twelve months ended December 31, 1995 and March 31, 1996
were 2.39 and 2.51, respectively.
Business corporations in general have been adversely affected by inflation
because amounts retained after the payment of all costs have been inadequate to
replace, at increased costs, the productive assets consumed. Electric utilities
in particular have been especially affected as a result of their capital
intensive nature and regulation which limits capital recovery and prescribes
installation or modification of facilities to comply with increasingly
stringent safety and environmental requirements. Because the regulatory process
limits the amount of depreciation expense included in ComEd's revenue allowance
to the original cost of utility plant investment, the resulting cash flows are
inadequate to provide for replacement of that investment in future years or
preserve the purchasing power of common equity capital previously invested.
41
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Commonwealth Edison Company:
We have audited the accompanying consolidated balance sheets and statements
of consolidated capitalization of Commonwealth Edison Company (an Illinois
corporation) and subsidiary companies as of December 31, 1995 and March 31,
1996, and the related statements of consolidated income, retained earnings and
cash flows for the three-month and twelve-month periods ended March 31, 1995
and 1996. 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 generally accepted auditing
standards. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Commonwealth Edison Company
and subsidiary companies as of December 31, 1995 and March 31, 1996, and the
results of their operations and their cash flows for the three-month and
twelve-month periods ended March 31, 1995 and 1996, in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Chicago, Illinois
May 9, 1996
42
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED INCOME
The following Statements of Consolidated Income for the three months and
twelve months ended March 31, 1995 and 1996 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 rates, population, business activity, competition, taxes,
environmental control, energy use, fuel supply, cost of labor, fuel and
purchased power and other matters, the nature and effect of which cannot now be
determined.
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31 MARCH 31
---------------------- -----------------------
1995 1996 1995 1996
---------- ---------- ---------- -----------
(THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Electric Operating Reve-
nues:
Operating revenues............ $1,578,136 $1,683,489 $6,340,574 $ 7,015,139
Provisions for revenue
refunds...................... -- -- (9,667) --
---------- ---------- ---------- -----------
$1,578,136 $1,683,489 $6,330,907 $ 7,015,139
---------- ---------- ---------- -----------
Electric Operating Expenses
and Taxes:
Fuel.......................... $ 272,857 $ 260,972 $1,058,494 $ 1,077,956
Purchased power............... 3,543 31,439 45,517 92,274
Deferred (under)/over-
recovered energy costs--net.. (3,363) 23,002 (13,176) 23,633
Operation..................... 383,744 347,447 1,510,853 1,561,666
Maintenance................... 145,326 163,547 541,370 584,970
Depreciation.................. 225,088 230,611 890,598 902,828
Recovery of regulatory assets. 3,818 3,818 15,272 15,272
Taxes (except income)......... 209,757 218,130 797,479 840,400
Income taxes--
Current--Federal............ 53,589 67,712 177,242 271,207
--State..................... 11,740 21,189 12,941 96,587
Deferred--Federal--net...... 12,578 23,871 123,390 183,695
--State--net................ 4,489 207 62,366 11,322
Investment tax credits
deferred--net............... (7,179) (7,167) (28,712) (28,697)
---------- ---------- ---------- -----------
$1,315,987 $1,384,778 $5,193,634 $ 5,633,113
---------- ---------- ---------- -----------
Electric Operating Income...... $ 262,149 $ 298,711 $1,137,273 $ 1,382,026
---------- ---------- ---------- -----------
Other Income and (Deductions):
Interest on long-term debt.... $ (152,197) $ (129,730) $ (616,270) $ (563,338)
Interest on notes payable..... (151) (4,251) (622) (7,380)
Allowance for funds used
during construction--
Borrowed funds.............. 1,685 4,898 14,419 14,350
Equity funds................ 2,093 4,698 17,364 15,735
Income taxes applicable to
nonoperating activities...... 268 4,276 30,075 9,094
Interest and other costs for
1993 Settlements............. (61) -- (11,049) (1)
Provision for dividends on
company-obligated mandatorily
redeemable preferred
securities of subsidiary
trust........................ -- (4,240) -- (8,668)
Miscellaneous--net............ (6,740) (18,471) (91,763) (55,796)
---------- ---------- ---------- -----------
$ (155,103) $ (142,820) $ (657,846) $ (596,004)
---------- ---------- ---------- -----------
Net Income Before Extraordinary
Item.......................... $ 107,046 $ 155,891 $ 479,427 $ 786,022
Extraordinary Loss Related to
Early Redemption of Long-Term
Debt, Less Applicable Income
Taxes......................... -- -- -- (20,022)
---------- ---------- ---------- -----------
Net Income..................... $ 107,046 $ 155,891 $ 479,427 $ 766,000
Provision for Dividends on
Preferred and Preference
Stocks........................ 16,908 16,514 66,291 69,567
---------- ---------- ---------- -----------
Net Income on Common Stock..... $ 90,138 $ 139,377 $ 413,136 $ 696,433
========== ========== ========== ===========
Average Number of Common
Shares Outstanding............ 214,191 214,195 214,111 214,194
Earnings per Common Share
Before Extraordinary Item..... $0.42 $0.65 $1.93 $ 3.34
Extraordinary Loss Related to
Early Redemption of Long-Term
Debt, Less Applicable Income
Taxes......................... -- -- -- (0.09)
---------- ---------- ---------- -----------
Earnings per Common Share...... $0.42 $0.65 $1.93 $ 3.25
========== ========== ========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
43
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
ASSETS 1995 1996
------ ------------ -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Utility Plant:
Plant and equipment, at original cost (includes
construction work in progress of $1,105 million
and $1,060 million, respectively)................. $27,052,778 $27,325,321
Less--Accumulated provision for depreciation....... 10,565,093 10,768,406
----------- -----------
$16,487,685 $16,556,915
Nuclear fuel, at amortized cost.................... 734,667 710,103
----------- -----------
$17,222,352 $17,267,018
----------- -----------
Investments:
Nuclear decommissioning funds...................... $ 1,237,527 $ 1,329,879
Subsidiary companies............................... 113,657 117,407
Other investments, at cost......................... 20,478 16,534
----------- -----------
$ 1,371,662 $ 1,463,820
----------- -----------
Current Assets:
Cash............................................... $ 972 $ 852
Temporary cash investments......................... 14,138 20,162
Special deposits................................... 3,546 1,446
Receivables--
Customers........................................ 579,861 583,969
Taxes............................................ 75,536 --
Other............................................ 82,824 43,726
Provisions for uncollectible accounts............ (11,828) (11,985)
Coal and fuel oil, at average cost................. 129,176 144,667
Materials and supplies, at average cost............ 333,539 335,142
Deferred unrecovered energy costs.................. 46,028 75,644
Deferred income taxes related to current assets and
liabilities....................................... 107,931 122,283
Prepayments and other.............................. 44,661 50,855
----------- -----------
$ 1,406,384 $ 1,366,761
----------- -----------
Deferred Charges and Other Noncurrent Assets:
Regulatory assets.................................. $ 2,467,386 $ 2,452,975
Unrecovered energy costs........................... 588,152 517,901
Other.............................................. 63,124 53,317
----------- -----------
$ 3,118,662 $ 3,024,193
----------- -----------
$23,119,060 $23,121,792
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
44
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
CAPITALIZATION AND LIABILITIES 1995 1996
------------------------------ ------------ -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Capitalization (see accompanying statements):
Common stock equity................................. $ 5,706,130 $ 5,759,854
Preferred and preference stocks without mandatory
redemption requirements............................ 508,034 508,009
Preference stock subject to mandatory redemption re-
quirements......................................... 261,475 261,475
Company-obligated mandatorily redeemable preferred
securities of subsidiary trust*.................... 200,000 200,000
Long-term debt...................................... 6,488,434 6,188,168
----------- -----------
$13,164,073 $12,917,506
----------- -----------
Current Liabilities:
Notes payable--
Commercial paper.................................. $ 261,000 $ 228,000
Bank loans........................................ 7,150 7,550
Current portion of long-term debt, redeemable pref-
erence stock and capitalized lease obligations..... 433,299 740,088
Accounts payable.................................... 614,283 459,997
Accrued interest.................................... 170,284 146,214
Accrued taxes....................................... 215,965 289,679
Dividends payable................................... 102,192 106,432
Customer deposits................................... 44,521 44,286
Other............................................... 93,841 84,439
----------- -----------
$ 1,942,535 $ 2,106,685
----------- -----------
Deferred Credits and Other Noncurrent Liabilities:
Deferred income taxes............................... $ 4,506,704 $ 4,507,519
Accumulated deferred investment tax credits......... 689,041 681,875
Accrued spent nuclear fuel disposal fee and related
interest........................................... 624,191 632,393
Obligations under capital leases.................... 373,697 431,329
Regulatory liabilities.............................. 601,002 595,428
Other............................................... 1,217,817 1,249,057
----------- -----------
$ 8,012,452 $ 8,097,601
----------- -----------
Commitments and Contingent Liabilities (Note 20)
$23,119,060 $23,121,792
=========== ===========
</TABLE>
*As described in Note 7 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 accompanying Notes to Financial Statements are an integral part of the
above statements.
45
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CAPITALIZATION
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Common Stock Equity:
Common stock, $12.50 par value per share--
Outstanding--214,194,950 shares and 214,195,814
shares, respectively............................. $ 2,677,437 $ 2,677,448
Premium on common stock and other paid-in capital.. 2,223,004 2,223,018
Capital stock and warrant expense.................. (16,159) (16,159)
Retained earnings.................................. 821,848 875,547
----------- -----------
$ 5,706,130 $ 5,759,854
----------- -----------
Preferred and Preference Stocks Without Mandatory
Redemption Requirements:
Preference stock, cumulative, without par value--
Outstanding--13,499,549 shares ................... $ 504,957 $ 504,957
$1.425 convertible preferred stock, cumulative,
without par value--
Outstanding--96,753 shares and 95,966 shares, re-
spectively....................................... 3,077 3,052
Prior preferred stock, cumulative, $100 par value
per share--
No shares outstanding............................. -- --
----------- -----------
$ 508,034 $ 508,009
----------- -----------
Preference Stock Subject to Mandatory Redemption Re-
quirements:
Preference stock, cumulative, without par value--
Outstanding--2,934,990 shares..................... $ 292,163 $ 292,163
Current redemption requirements for preference
stock included in current liabilities............. (30,688) (30,688)
----------- -----------
$ 261,475 $ 261,475
----------- -----------
Company-Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trust:
Outstanding--8,000,000............................. $ 200,000 $ 200,000
----------- -----------
Long-Term Debt:
First mortgage bonds:
Maturing 1995 through 2000--5 1/4% to 9 3/8%..... $ 1,170,000 $ 1,170,000
Maturing 2001 through 2010--5.30% to 8 3/8%...... 1,465,400 1,465,400
Maturing 2011 through 2020--5.85% to 9 7/8%...... 1,266,000 1,266,000
Maturing 2021 through 2023--7 3/4% to 9 1/8%..... 1,385,000 1,385,000
----------- -----------
$ 5,286,400 $ 5,286,400
Sinking fund debentures, due 1999 through 2011--
2 3/4% to 7 5/8%.................................. 110,505 110,505
Pollution control obligations, due 2004 through
2014--3.30% to 6 7/8%............................. 317,200 317,200
Other long-term debt............................... 1,064,318 1,064,277
Deposit for retirement of long-term debt........... -- (3,618)
Current maturities of long-term debt included in
current liabilities............................... (234,893) (532,688)
Unamortized net debt discount and premium.......... (55,096) (53,908)
----------- -----------
$ 6,488,434 $ 6,188,168
----------- -----------
$13,164,073 $12,917,506
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
46
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED RETAINED EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31 MARCH 31
------------------- -------------------
1995 1996 1995 1996
--------- --------- -------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Balance at Beginning of Period......... $ 517,335 $ 821,848 $499,655 $ 521,795
Add--Net income........................ 107,046 155,891 479,427 766,000
--------- --------- -------- ----------
$ 624,381 $ 977,739 $979,082 $1,287,795
--------- --------- -------- ----------
Deduct--
Dividends declared on--
Common stock....................... $ 85,678 $ 85,678 $390,441 $ 342,711
Preferred and preference stocks.... 16,908 16,514 66,746 66,461
Other capital stock transactions--
net................................ -- -- 100 3,076
--------- --------- -------- ----------
$ 102,586 $ 102,192 $457,287 $ 412,248
--------- --------- -------- ----------
Balance at End of Period............... $ 521,795 $ 875,547 $521,795 $ 875,547
========= ========= ======== ==========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
47
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31 MARCH 31
-------------------- -----------------------
1995 1996 1995 1996
--------- --------- ---------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Cash Flow from Operating Activi-
ties:
Net income..................... $ 107,046 $ 155,891 $ 479,427 $ 766,000
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortiza-
tion........................ 238,612 240,874 935,214 950,946
Deferred income taxes and in-
vestment tax credits--net... 10,282 16,208 141,778 164,222
Extraordinary loss related to
early redemption of long-
term debt................... -- -- -- 33,158
Equity component of allowance
for funds used during
construction................ (2,093) (4,698) (17,364) (15,735)
Provisions for revenue
refunds and related
interest.................... -- -- 20,779 (233)
Revenue refunds and related
interest.................... 15,115 -- (859,984) 21
Recovery of regulatory as-
sets........................ 3,818 3,818 15,272 15,272
Provisions/(payments) for li-
ability for early retirement
and separation costs--net... 380 (32,303) 18,353 28,030
Net effect on cash flows of
changes in:
Receivables................ 2,020 110,683 (96,369) (60,548)
Coal and fuel oil.......... (11,624) (15,491) (11,516) (24,171)
Materials and supplies..... 13,607 (1,603) 34,702 35,863
Accounts payable excluding
nuclear fuel lease
principal payments and
early retirement and
separation costs--net..... 17,227 (65,812) 187,094 382,437
Accrued interest and taxes. 83,018 49,644 105,121 (39,139)
Other changes in certain
current assets and
liabilities............... 6,559 9,271 (66,713) 29,266
Other--net................... 83,578 3,492 168,034 61,310
--------- --------- ---------- -----------
$ 567,545 $ 469,974 $1,053,828 $ 2,326,699
--------- --------- ---------- -----------
Cash Flow from Investing Activi-
ties:
Construction expenditures...... $(201,018) $(280,834) $ (734,242) $ (979,182)
Nuclear fuel expenditures...... (38,857) (34,419) (247,372) (284,680)
Equity component of allowance
for funds used during
construction.................. 2,093 4,698 17,364 15,735
Contributions to nuclear
decommissioning funds......... (96,229) (83,178) (132,550) (119,602)
Investment in subsidiary com-
panies........................ -- -- (49) (8)
Other investments and special
deposits...................... (8,070) (48) 542,678 27,627
--------- --------- ---------- -----------
$(342,081) $(393,781) $ (554,171) $(1,340,110)
--------- --------- ---------- -----------
Cash Flow from Financing Activi-
ties:
Issuance of securities--
Long-term debt................ $ -- $ -- $ 480,751 $ --
Preferred securities of sub-
sidiary trust................ -- -- -- 200,000
Capital stock................. -- -- 76,936 (1)
Retirement and redemption of
securities--
Long-term debt................ (29,637) (41) (678,260) (1,107,677)
Capital stock................. -- -- (17,709) (17,822)
Deposits and securities held
for retirement and redemption
of securities................. (1,674) (3,618) 14,405 (1,838)
Premium paid on early redemp-
tion of long-term debt........ -- -- (4,064) (25,823)
Cash dividends paid on capital
stock......................... (102,585) (102,192) (447,880) (409,564)
Proceeds from sale/leaseback
of nuclear fuel............... 115,340 124,213 305,025 202,088
Nuclear fuel lease principal
payments...................... (62,785) (56,051) (219,029) (231,111)
Increase (Decrease) in short-
term borrowings............... -- (32,600) 1,050 228,400
--------- --------- ---------- -----------
$ (81,341) $ (70,289) $ (488,775) $(1,163,348)
--------- --------- ---------- -----------
Increase (Decrease) in Cash and
Temporary Cash Investments..... $ 144,123 $ 5,904 $ 10,882 $ (176,759)
Cash and Temporary Cash
Investments at Beginning of
Period......................... 53,650 15,110 186,891 197,773
--------- --------- ---------- -----------
Cash and Temporary Cash Invest-
ments at End of Period......... $ 197,773 $ 21,014 $ 197,773 $ 21,014
========= ========= ========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
48
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
See Unicom's Note 1 of Notes to Financial Statements for a discussion of
significant accounting policies, except for the following specific policies
discussed below.
Holding Company Restructuring. Effective September 1, 1994, Unicom became the
parent holding company of ComEd and Unicom Enterprises in a corporate
restructuring. Previously, Unicom Enterprises was a wholly-owned subsidiary of
ComEd. The restructuring was accounted for by the pooling-of-interests method.
In the restructuring, each of the 214,185,572 outstanding shares of ComEd
common stock, par value $12.50 per share, was converted into one fully paid and
non-assessable share of Unicom common stock, without par value. In addition,
the outstanding shares of the common stock of CECo Merging Corporation (a
wholly-owned subsidiary of ComEd created to effect the restructuring) were
converted into the same number of shares of ComEd common stock, par value
$12.50 per share, outstanding immediately prior to the restructuring. The
preferred and preference stocks, common stock purchase warrants, first mortgage
bonds and other debt obligations of ComEd were unchanged in the restructuring
and remain as ComEd's outstanding securities and obligations.
Income Taxes. ComEd is included in the consolidated federal and state income
tax returns filed by Unicom. Current and deferred income taxes of the
consolidated group are allocated to ComEd as if ComEd filed separate tax
returns. 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 timing 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.
Interest. Total interest costs incurred on debt, leases and other obligations
were $176.9 million and $157.5 million for the three months ended March 31,
1995 and 1996, respectively, and $716.3 million and $673.6 million for the
twelve months ended March 31, 1995 and 1996, respectively.
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, are considered to be cash
equivalents. Supplemental cash flow information for the three months and twelve
months ended March 31, 1995 and 1996 was as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31 MARCH 31
-------------------- -------------------
1995 1996 1995 1996
--------- --------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest (net of amount capital-
ized)............................ $ 171,255 $ 156,610 $ 643,732 $ 589,557
Income taxes (net of refunds)..... $ (30,421) $ -- $ 98,045 $ 399,263
Supplemental Schedule of Non-Cash
Investing and Financing Activities:
Capital lease obligations incurred.. $ 116,810 $ 125,492 $ 309,028 $ 207,259
</TABLE>
(2) RATE MATTERS. See Unicom's Note 2 of Notes to Financial Statements.
(3) AUTHORIZED SHARES AND VOTING RIGHTS OF CAPITAL STOCK. At March 31, 1996,
the authorized shares of capital stock were: common stock--250,000,000 shares;
preference stock--23,244,990
49
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
shares; $1.425 convertible preferred stock--95,966 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 shares at any time outstanding, regardless of class, are entitled to
one vote for each share held on each matter submitted to a vote at a meeting of
shareholders, with the right to cumulate votes in all elections for directors.
(4) COMMON STOCK. At March 31, 1996, shares of common stock were reserved for
the following purposes:
<TABLE>
<S> <C>
Conversion of $1.425 convertible preferred stock.................. 97,885
Conversion of warrants............................................ 27,512
-------
125,397
=======
</TABLE>
During the three months and twelve months ended March 31, 1995 and 1996,
shares of common stock were issued as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31 MARCH 31
-------------------- --------------------
1995 1996 1995 1996
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Employee Stock Purchase Plan........... -- -- 154,710 --
Employee Savings and Investment Plan... -- -- 43,400 --
Conversion of $1.425 convertible
preferred stock....................... 1,070 801 185,370 3,361
Conversion of warrants................. 130 63 13,646 232
---------- -------- ---------- --------
1,200 864 397,126 3,593
========== ======== ========== ========
</TABLE>
At December 31, 1995 and March 31, 1996, 82,742 and 82,536 common stock
purchase warrants, respectively, were outstanding. The warrants entitle the
holders to convert such warrants into common stock at a conversion rate of one
share of common stock for three warrants.
(5) PREFERRED AND PREFERENCE STOCKS WITHOUT MANDATORY REDEMPTION
REQUIREMENTS. See Unicom's Note 5 of Notes to Financial Statements.
(6) PREFERENCE STOCK SUBJECT TO MANDATORY REDEMPTION REQUIREMENTS. See
Unicom's Note 6 of Notes to Financial Statements.
(7) COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF COMED
FINANCING I. See Unicom's Note 7 of Notes to Financial Statements.
(8) LONG-TERM DEBT. See Unicom's Note 8 of Notes to Financial Statements.
(9) LINES OF CREDIT. See the first paragraph of Unicom's Note 9 of Notes to
Financial Statements.
(10) DISPOSAL OF SPENT NUCLEAR FUEL. See Unicom's Note 10 of Notes to
Financial Statements.
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS. See Unicom's Note 11 of Notes to
Financial Statements.
(12) PENSION BENEFITS. See Unicom's Note 12 of Notes to Financial Statements.
(13) POSTRETIREMENT BENEFITS. See Unicom's Note 13 of Notes to Financial
Statements.
(14) SEPARATION PLAN COSTS. See Unicom's Note 14 of Notes to Financial
Statements.
50
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(15) INCOME TAXES. The components of the net deferred income tax liability at
December 31, 1995 and March 31, 1996 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Deferred income tax liabilities:
Accelerated cost recovery and liberalized
depreciation, net of removal costs.................. $3,379,987 $3,409,736
Overheads capitalized................................ 252,910 248,302
Repair allowance..................................... 219,585 216,955
Regulatory assets recoverable through future rates... 1,689,832 1,675,658
Deferred income tax assets:
Postretirement benefits.............................. (235,353) (245,299)
Unbilled revenues.................................... (116,274) (119,366)
Alternative minimum tax.............................. (145,019) (144,251)
Unamortized investment tax credits to be settled
through future rates................................ (452,210) (447,509)
Other regulatory liabilities to be settled through
future rates........................................ (148,792) (147,919)
Other--net........................................... (45,893) (61,071)
---------- ----------
Net deferred income tax liability..................... $4,398,773 $4,385,236
========== ==========
</TABLE>
The $13 million decrease in the net deferred income tax liability from December
31, 1995 to March 31, 1996 is comprised of $24 million of deferred income tax
expense, a $28 million decrease in the deferred income tax balance for AMT
(before reflecting utilizations) and a $9 million decrease in regulatory assets
net of regulatory liabilities pertaining to income taxes for the period. 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.
The components of net income tax expense charged to continuing operations for
the three months and twelve months ended March 31, 1995 and 1996 were as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31 MARCH 31
------------------ ------------------
1995 1996 1995 1996
------- --------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Electric operating income:
Current income taxes.................. $65,329 $88,901 $190,183 $367,794
Deferred income taxes................. 17,067 24,078 185,756 195,017
Investment tax credits deferred--net.. (7,179) (7,167) (28,712) (28,697)
Other (income) and deductions.......... (227) (4,126) (25,691) (11,584)
------- -------- -------- --------
Net income taxes charged to continuing
operations............................ $74,990 $101,686 $321,536 $522,530
======= ======== ======== ========
</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 and twelve months ended March 31, 1995
and 1996:
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31 MARCH 31
------------------ --------------------
1995 1996 1995 1996
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
Pre-tax book income (thousands)....... $182,036 $257,577 $800,963 $1,308,552
Effective income tax rate............. 41.2% 39.5% 40.1% 39.9%
</TABLE>
51
<PAGE>
COMMONWEALTH EDISON COMPANY 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 and twelve months ended March 31, 1995 and 1996 were as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31 MARCH 31
------------------ -------------------
1995 1996 1995 1996
------- --------- -------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Federal income taxes computed at
statutory rate......................... $63,713 $ 90,152 $280,337 $457,993
Equity component of AFUDC which was
excluded from taxable income........... (733) (1,644) (6,077) (5,507)
Amortization of investment tax credits.. (7,179) (7,167) (28,766) (28,697)
State income taxes, net of federal
income taxes........................... 10,396 13,402 45,535 68,978
Differences between book and tax
accounting, primarily property-related
deductions............................. 8,498 5,882 28,750 45,148
Other--net.............................. 295 1,061 1,757 (15,385)
------- -------- -------- --------
Net income taxes charged to continuing
operations............................. $74,990 $101,686 $321,536 $522,530
======= ======== ======== ========
</TABLE>
Current federal income tax liabilities which were recorded prior to 1995
included excess amounts of AMT over the regular federal income tax, which
amounts were also recorded as decreases to deferred federal income taxes. The
excess amounts of AMT were carried forward and portions were applied as credits
against the post-1994 regular federal income tax liabilities. The remaining
excess amounts of AMT can be carried forward indefinitely as credits against
future periods' regular federal income tax liabilities.
(16) TAXES, EXCEPT INCOME TAXES. Provisions for taxes, except income taxes,
for the three months and twelve months ended March 31, 1995 and 1996 were as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31 MARCH 31
------------------ -------------------
1995 1996 1995 1996
-------- --------- -------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Illinois public utility revenue....... $ 56,178 $ 58,511 $214,899 $231,879
Illinois invested capital............. 27,297 26,154 109,258 105,688
Municipal utility gross receipts...... 38,045 41,579 147,716 171,292
Real estate........................... 46,831 45,128 182,422 174,043
Municipal compensation................ 17,790 19,095 72,712 79,907
Other--net............................ 23,616 27,663 70,472 77,591
-------- -------- -------- --------
$209,757 $218,130 $797,479 $840,400
======== ======== ======== ========
</TABLE>
(17) LEASE OBLIGATIONS. Under its nuclear fuel lease arrangement, ComEd may
sell and lease back nuclear fuel from a lessor who may borrow an aggregate of
$700 million, consisting of $300 million of commercial paper or bank borrowings
and $400 million of intermediate term notes, to finance the transactions. With
respect to the commercial paper/bank borrowing portion, $20 million will expire
on November 23, 1996, $10 million will expire on November 23, 1997 and $270
million will expire on November 23, 1998. ComEd has asked for an extension of
the expiration dates. At March 31, 1996, ComEd's obligation to the lessor for
leased nuclear fuel amounted to approximately $646 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.
Future minimum rental payments, net of executory costs, at March 31, 1996 for
capital leases are estimated to aggregate $724 million, including $187 million
in 1996, $205 million in 1997, $144 million in
52
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONCLUDED
1998, $92 million in 1999, $53 million in 2000 and $43 million in 2001-2004.
The estimated interest component of such rental payments aggregates $81
million. The estimated portions of obligations due within one year under
capital leases are included in current liabilities and approximated $168
million and $177 million at December 31, 1995 and March 31, 1996, respectively.
Future minimum rental payments at March 31, 1996 for operating leases are
estimated to aggregate $139 million, including $5 million in 1996, $10 million
in 1997, $9 million in 1998, $9 million in 1999, $9 million in 2000 and $97
million in 2001-2024.
(18) INVESTMENTS IN URANIUM-RELATED PROPERTIES. See Unicom's Note 18 of Notes
to Financial Statements.
(19) JOINT PLANT OWNERSHIP. See Unicom's Note 19 of Notes to Financial
Statements.
(20) COMMITMENTS AND CONTINGENT LIABILITIES. See Unicom's Note 20 of Notes to
Financial Statements.
53
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES. See Unicom's "Management's Discussion and
Analysis of Financial Condition and Results of Operations," subcaptions
"Liquidity and Capital Resources--UTILITY OPERATIONS" and "Regulation," which
are incorporated herein by this reference.
RESULTS OF OPERATIONS. See Unicom's "Management's Discussion and Analysis of
Financial Condition and Results of Operations," subcaption "Results of
Operations" (other than the first paragraph thereof), which is incorporated
herein by this reference.
54
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
CERTAIN REGULATORY MATTERS. Through its fuel adjustment clause, ComEd
recovers from its customers the cost of the fuel used to generate electricity
and of purchased power as compared to fuel costs included in base rates. The
amounts collected under the fuel adjustment clause are subject to review by the
ICC, which, under the Illinois Public Utilities Act, is required to hold annual
public hearings to reconcile the collected amounts with the actual cost of fuel
and power prudently purchased. In the event that the collected amounts exceed
such actual cost, then the ICC can order that the excess be refunded. For
additional information concerning ComEd's fuel reconciliation proceedings and
coal reserves, see Note 1 of Unicom and ComEd's Notes to Financial Statements.
LITIGATION. 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. In February 1994, a federal jury returned nominal dollar
verdicts on eight bellwether plaintiffs' claims in these cases, which verdicts
were upheld on appeal. The remaining claims in the 1989 actions are the subject
of a settlement agreement entered into by counsel for the plaintiffs and
Cotter. If the settlement agreement is implemented, the 1989 actions will be
dismissed. Although the remaining cases will necessarily involve the resolution
of numerous contested issues of fact and law, Unicom and ComEd's determination
is that these actions will not have a material impact on their financial
position or results of operations.
In 1990, ComEd filed a complaint in the Circuit Court against Westinghouse
and certain of its employees. The complaint alleges that the defendants
knowingly concealed information regarding the durability of the metal used in
the steam generators (a major component of the nuclear steam supply systems) at
ComEd's Zion, Byron and Braidwood stations. The complaint further alleges that
the defects in the steam generators will prevent the plants from maintaining
their full power output through their forty-year design life without costly
remanufacture or replacement of the steam generators. Damages, including
punitive damages, in an unspecified amount are claimed. Westinghouse has filed
a counterclaim against ComEd which seeks recovery of Westinghouse's costs of
defense and damages of approximately $13 million.
In July 1995, the Chicago area experienced several consecutive days of
unusually high temperatures coupled with high humidity. Between July 12 and 14,
1995, ComEd experienced record demand for electricity. On July 14, 1995, a fire
in a substation caused a power outage to approximately 40,000 customers. Other
equipment failures in the same general area caused certain of these customers
to be without power for up to 48 hours. In the wake of these power outages,
three class action lawsuits were filed against ComEd seeking recovery of
damages for property losses allegedly suffered. One suit seeks at least $10
million in damages; the others seek unspecified damages. One individual suit
was also filed seeking damages less than $100,000 for property losses.
NUCLEAR MATTERS. 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 signed 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 beginning not later than January 1998; however,
this delivery schedule is expected to be delayed significantly. It is not
certain when the DOE will accept high-level radioactive waste from ComEd and
other operators of nuclear power plants. Significant legislation, in both the
House of Representatives and the Senate, would fundamentally change the
nation's spent fuel management program by creating a federal interim storage
facility which could begin accepting spent nuclear fuel as early as 1998.
Delivery to the interim facility could be accomplished using existing
technology. Extended delays in spent nuclear fuel
55
<PAGE>
acceptance by the DOE would lead to ComEd's consideration of costly storage
alternatives. The contract with the DOE requires ComEd to pay the DOE a one-
time fee applicable to nuclear generation through April 6, 1983 of
approximately $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. As provided for under 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 costs incurred by the DOE
for disposal activities will be paid out of fees charged to owners and
generators of spent nuclear fuel and high-level radioactive waste. ComEd has
primary responsibility for the interim storage of its spent nuclear fuel.
ComEd's capability to store spent fuel is more than adequate for some years to
come. Dresden station has spent fuel capacity through the year 2001, Zion
station has capacity through 2005 and all of the other stations have capacity
through at least 2009. In addition, ComEd is developing on site dry cask spent
fuel storage for Dresden Unit 1 at a budgeted cost of $21 million. The Dresden
Unit 1 facility will use existing technology procured to meet the federal
requirements for both storage and transportation of spent nuclear fuel.
Meeting other spent fuel storage requirements beyond the years stated above
could require new and separate storage facilities. The costs for ComEd's other
nuclear units have not been determined.
The federal Low-Level Radioactive Waste Policy Act of 1980 provides that
states may enter into compacts to provide for regional disposal facilities for
low-level radioactive waste and restrict use of such facilities to waste
generated within the region. Between July 1, 1994 and July 1, 1995, there were
no commercial operating sites in the United States for the disposal of low-
level radioactive waste available to ComEd. However, the Barnwell, South
Carolina low-level radioactive waste site was reopened on July 1, 1995 and is
available to ComEd. ComEd entered into an agreement with the Barnwell site
operator and began shipping waste to Barnwell on August 17, 1995. Illinois has
entered into a compact with the state of Kentucky, which has been approved by
Congress as required by the Waste Policy Act. Neither Illinois nor Kentucky
currently has an operational site, and one is currently not expected to be
operational until after the year 2000. ComEd has temporary on-site storage
capacity at its nuclear generating stations for a limited amount of low-level
radioactive waste. ComEd anticipates the possibility of continuing
difficulties in disposing of low-level radioactive waste. Since the reopening
and availability of the Barnwell site, ComEd continues to reevaluate its
options.
During 1992, the NRC placed ComEd's Dresden station on its list of plants to
be monitored closely and Dresden station remains on the list. In June 1995,
the NRC reported that over the past year performance at Dresden was cyclical,
that plant material condition needed to be improved at Dresden and that a more
effective work management system was needed to deal with the corrective
maintenance backlog. In January 1996, the NRC noted improvement but indicated
that certain of the same concerns continue to exist. The NRC also stated that
the effectiveness of the recent improvement efforts must be sustained.
Because of the age of Zion, Dresden and Quad-Cities stations, ComEd
anticipates continued expenditures in order to improve reliability and to meet
NRC regulatory expectations. Recently, ComEd restructured its management of
its nuclear operations division and since that time has committed additional
resources to the stations' operations. In addition, generating station
availability and performance during a year may be issues in fuel
reconciliation proceedings in assessing the prudence of fuel and power
purchases during such year. Final ICC orders have been issued in fuel
reconciliation proceedings for years prior to 1994. Certain intervenors
appealed the ICC order in the 1989 fuel reconciliation proceedings on issues
relating to nuclear station performance. However, in May 1996, the Illinois
Appellate Court affirmed the ICC order. In 1996, an intervenor filed testimony
in the fuel reconciliation proceeding for 1994 seeking a refund of
approximately $90 million relating to nuclear station performance.
In accordance with a commitment to the NRC, ComEd examined its operating
boiling water nuclear generating units in 1983 to determine the existence or
extent of inter-granular stress corrosion in certain of the large diameter
piping in those units. Inter-granular stress corrosion was discovered in the
Dresden
56
<PAGE>
and Quad-Cities units. ComEd replaced the stainless steel piping susceptible to
stress corrosion at Dresden Unit 3. ComEd believes the remedial actions taken
to minimize the impact of stress corrosion cracking on BWR stainless steel
reactor coolant piping have been successfully completed on Dresden Units 2 and
3, Quad-Cities Units 1 and 2 and LaSalle County Units 1 and 2. Future work on
this piping will consist of routine inspections and repairs. As a result of
ComEd's experience with the effects of inter-granular stress corrosion of
stainless steel materials in BWRs, an inspection, repair and mitigation program
of reactor vessel internals has been implemented. This effort is intended to
prevent non-budgeted costs and refueling outage extensions resulting from
unanticipated repairs occurring during a refueling outage. For 1996, current
estimated expenditures for mitigation systems at Dresden, LaSalle County and
Quad-Cities stations are $11.8 million, $6.5 million and $7.1 million,
respectively. For 1997, estimated expenditures for installation of mitigation
systems for LaSalle County and Quad-Cities stations are $1.6 million and $0.6
million, respectively.
ComEd has studied the possibility of having to replace the steam generators
at its Zion station. The initial studies were completed in 1991 and additional
follow-up studies are continuing. Based on the most recent findings, it will
not be necessary on a technical basis to replace the Zion steam generators
until at least the year 2005; however, ComEd is continuing to monitor the
extent of steam generator degradation and is continuing to study the timing and
economics of replacement. ComEd has also studied the replacement of the steam
generators at Byron Unit 1 and Braidwood Unit 1. The studies indicate that,
from a technical standpoint, the steam generators should be replaced and, from
an economic standpoint, the replacements should be performed at the earliest
possible time. The steam generator replacements are currently planned to be
completed prior to year-end 1999. The estimated replacement cost, including the
cost of removal of the existing steam generators, is approximately $235 million
for each unit. Approximately $355 million of expenditures is included in the
current 1996-98 construction program. See Unicom and ComEd's Current Report on
Form 8-K/A-1 dated March 14, 1996 for additional information.
ComEd estimates that it will expend approximately $15.5 billion, excluding
any contingency allowance, for decommissioning costs primarily during the
period from 2007 through 2032. Such costs, which are estimated to aggregate
$3.7 billion in current-year (1996) dollars, are expected to be funded by
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. See Note 1 of Notes to Financial Statements under
"Depreciation and Decommissioning" for additional information regarding
decommissioning costs.
Since January 1, 1996, civil penalties were imposed on ComEd on three
occasions for violations of NRC regulations in amounts aggregating $150,000. To
ComEd's knowledge, there are two enforcement issues outstanding and under
review by the NRC.
ENVIRONMENTAL MATTERS. Air quality regulations, promulgated by the IPCB as
well as the Indiana and Hammond Departments of Environmental Management in
accordance with federal standards, impose restrictions on the emission of
particulates, sulfur dioxide, nitrogen oxides and other air pollutants and
require permits from the respective state and local environmental protection
agencies for the operation of emission sources. Permits authorizing operation
of ComEd's fossil fuel generating facilities subject to this requirement have
been obtained and, where such permits are due to expire, ComEd has, in a timely
manner, filed applications for renewal or requested extensions of the existing
permits.
Under the Federal Clean Water Act, NPDES permits for discharges into
waterways are required to be obtained from the U.S. EPA or from the state
environmental agency to which the permit program has been delegated. Those
permits must be renewed periodically. ComEd and the Indiana Company either have
NPDES permits for all of their generating stations or have pending applications
for such permits under the current delegation of the program to the Illinois
EPA or the Indiana Department of Environmental Management. ComEd is also
subject to the jurisdiction of certain pollution control agencies of the state
of Iowa with respect to the discharge into the Mississippi River from the Quad-
Cities station.
57
<PAGE>
In 1990, the Sierra Club filed suit in the U.S. District Court under Section
505 of the Federal Clean Water Act alleging violations of state of Illinois
water quality standards with respect to thermal effluents at ComEd's Fisk,
Crawford, Will County and Joliet generating stations. In 1991, the Sierra Club
and ComEd reached a settlement of this suit which was also approved by the
Court. Under the settlement, ComEd agreed to perform an ecological study of the
thermal effluents discharged from the generating stations. Ultimately, this
study, which was completed in April 1996, may determine whether the
installation of closed cycle cooling facilities or operational restrictions are
necessary at one or more of these stations.
The Great Lakes Critical Programs Act of 1990 requires that, following the
issuance of guidance by the U.S. EPA, the states of Illinois and Indiana, among
others, adopt water quality standards, policies and procedures to assure
protection of the water quality of the Great Lakes. Water quality standards and
procedures that the states would be required to adopt are to be based on the
U.S. EPA's final guidance issued on March 13, 1995. ComEd is presently
following state activities to promulgate rules implementing the final guidance,
and assessing the extent to which such may impact certain ComEd facilities.
Ultimately, the new rules may require that ComEd install additional pollution
control equipment or restrict operations at its facilities that discharge,
either directly or indirectly, into Lake Michigan.
The Clean Air Amendments require reductions in nitrogen oxide emissions from
ComEd's and the Indiana Company's fossil fuel generating units. On January 26,
1996, the U.S. EPA issued a final rule exempting existing sources inside the
Chicago ozone non-attainment area from further nitrogen oxide emission
reductions; however, this exemption is limited pending further study of ozone
transport. The Illinois EPA is also considering nitrogen oxide emission
reductions at ComEd generating stations outside the Chicago ozone non-
attainment area also due to ozone transport. Under the Acid Rain program, the
U.S. EPA will prepare nitrogen oxide emission regulations that would apply to
all of ComEd's boilers with a compliance date of January 1, 2000. These
regulations were proposed on January 19, 1996 and include limits for cyclone
and tangentially fired boilers.
CERCLA provides for immediate response and removal actions coordinated by the
U.S. EPA to releases of hazardous substances into the environment and
authorizes the U.S. Government either to clean up sites at which hazardous
substances have created actual or potential environmental hazards or to order
persons responsible for the situation to do so. Under CERCLA, generators and
transporters of hazardous substances, as well as past and present owners and
operators of hazardous waste sites, are made strictly, jointly and severally
liable for the cleanup costs of waste at sites, most of which are listed by the
U.S. EPA on the NPL. These responsible parties can be ordered to perform a
cleanup, can be sued for costs associated with a U.S. EPA directed cleanup, may
voluntarily settle with the U.S. Government concerning their liability for
cleanup costs, or may voluntarily begin a site investigation and site
remediation prior to listing on the NPL under state oversight. Various states,
including Illinois, have enacted statutes which contain provisions
substantially similar to CERCLA. 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.
MGPs manufactured gas in Illinois from approximately 1850 to 1950. 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 Northern Illinois Gas Company 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.
ComEd presently estimates that its costs of former MGP site investigation and
remediation will aggregate from $25 million to $150 million in current-year
(1996) dollars. It is expected that the costs associated with investigation and
remediation of former MGP sites will be incurred over a period of approximately
20 to 30 years. Because ComEd is not able to determine the most probable
liability for such MGP costs, in accordance with accounting standards, a
reserve of
58
<PAGE>
approximately $25 million has been included on the Consolidated Balance Sheets
as of December 31, 1995 and March 31, 1996, which reflects the low end of the
range of ComEd's estimate of the liability associated with former MGP sites. In
addition, as of December 31, 1995 and March 31, 1996, a reserve of $8 million
has been included on the Consolidated Balance Sheets, representing ComEd's
estimate of the liability associated with cleanup costs of remediation sites
other than former MGP sites. Approximately half of this reserve relates to
anticipated cleanup costs associated with a property formerly used as a tannery
which was purchased by ComEd in 1973. Unicom and ComEd presently estimate that
ComEd's costs of investigating and remediating the former MGP and other
remediation sites pursuant to CERCLA and state environmental laws will not have
a material impact on the financial position or results of operations of Unicom
or ComEd. 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.
In 1991, the U.S. Government filed a complaint in U.S. District Court
alleging that ComEd and four other defendants are PRPs for remediation costs
associated with surface, soil and groundwater contamination alleged to have
occurred from the disposal by other persons of hazardous wastes at a site
located near ComEd's Byron station near Byron, Illinois. The U.S. Government
alleges that a portion of the site is owned by ComEd. The U.S. Government is
presently seeking reimbursement from the PRPs for past study and response costs
associated with the site of approximately $7 million. ComEd is currently
pursuing a negotiated settlement and is not actively pursuing cost recovery
from other PRPs at this time.
In 1990, the IPCB replaced existing landfill regulations with new, more
stringent design and performance standards. These regulations are expected to
increase the cost to ComEd for disposal of coal combustion by-products at its
Joliet station. At Joliet, an existing landfill utilized for disposal of coal
ash may require the installation by 1997 of engineered retrofits designed to
protect groundwater. ComEd has requested exemptions from certain of the new
regulations from the IPCB. If its request is denied, then alternative landfill
siting, commercial disposal, or retrofitting of the existing facility could
result in significant increases in disposal expenditures.
The outcome of many of the regulatory proceedings referred to above, if not
favorable, could have a material adverse effect on Unicom and ComEd's future
business and operating results.
An unresolved issue is whether exposure to EMFs may result in adverse health
effects or damage to the environment. EMFs are produced by virtually all
devices carrying or utilizing electricity, including transmission and
distribution lines as well as home appliances. If regulations are adopted
related to EMFs, they could affect the construction and operation of electrical
equipment, including transmission and distribution lines and the cost of such
equipment. ComEd cannot predict the effect on the cost of such equipment or
operations if new regulations related to EMFs are adopted. In the absence of
such regulations, EMFs have nonetheless become an issue in siting facilities
and in other land use contexts. Litigation has been filed in a variety of
locations against a variety of defendants (including ComEd) alleging that the
presence or use of electrical equipment has had an adverse effect on the health
of persons or has caused a diminution in property values of land adjacent to
these facilities. If plaintiffs are successful in litigation of this type and
it becomes widespread, the impact on ComEd and on the electric utility industry
is not predictable, but could be severe.
From time to time, Unicom and its subsidiaries are, or are claimed to be, in
violation of or in default under orders, statutes, rules or regulations
relating to environmental controls and other matters, compliance plans imposed
upon or agreed to by them or permits issued by various state and federal
agencies for the construction or operation of their facilities. Unicom and
ComEd do not believe, so far as they now foresee, that such violations or
defaults will have a material adverse effect on their future business and
operating results, except for events otherwise described in Unicom and ComEd's
Annual Reports on Form 10-K for the year ended December 31, 1995 or in these
Quarterly Reports on Form 10-Q for the quarterly period ended March 31, 1996,
which could have such an effect.
59
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ------------------------------------------------------------------
<C> <S>
(12) Statement computing Commonwealth Edison Company ratios of earnings
to fixed charges and ratios of earnings to fixed charges and
preferred and preference stock dividend requirements.
(23)-1 Consent of independent public accountants applicable to Unicom
Corporation.
(23)-2 Consent of independent public accountants applicable to
Commonwealth Edison Company.
(27)-1 Financial data schedule of Unicom Corporation.
(27)-2 Financial data schedule of Commonwealth Edison Company.
</TABLE>
(b) Reports on Form 8-K
A Current Report on Form 8-K dated January 26, 1996 was filed containing
Unicom's financial statements as of, and for the year ended, December 31,
1995.
A Current Report on Form 8-K dated January 26, 1996 was filed containing
ComEd's financial statements as of, and for the year ended, December 31,
1995.
A Current Report on Form 8-K dated February 20, 1996 was filed by Unicom
and ComEd describing ComEd's announcement that it had reached agreement
with its principal union with respect to the terms of a new collective
bargaining agreement.
A Current Report on Form 8-K dated March 14, 1996 was filed by Unicom and
ComEd describing ComEd's authorization of a program of additional
expenditures for its nuclear operations.
A Current Report on Form 8-K/A-1 dated March 14, 1996 was filed by Unicom
and ComEd to amend the Current Report on Form 8-K dated March 14, 1996.
60
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on the 9th day of May, 1996. The
signature for each undersigned company shall be deemed to relate only to
matters having reference to such company and its subsidiaries thereof.
Unicom Corporation
Registrant
Roger F. Kovack
By __________________________________
Roger F. Kovack
Comptroller
(Chief accounting officer and
officer duly authorized to sign on
behalf of the registrant)
Commonwealth Edison Company
Registrant
Roger F. Kovack
By __________________________________
Roger F. Kovack
Comptroller
(Chief accounting officer and
officer duly authorized to sign on
behalf of the registrant)
61
<PAGE>
EXHIBIT INDEX
Exhibits filed with or incorporated by reference in Form 10-Q for the
quarterly period ended March 31, 1996:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ---------------------------------------------------------------------
<C> <S>
(12) Statement computing Commonwealth Edison Company ratios of earnings to
fixed charges and ratios of earnings to fixed charges and preferred
and preference stock dividend requirements.
(23)-1 Consent of independent public accountants applicable to Unicom
Corporation.
(23)-2 Consent of independent public accountants applicable to Commonwealth
Edison Company.
(27)-1 Financial data schedule of Unicom Corporation.
(27)-2 Financial data schedule of Commonwealth Edison Company.
</TABLE>
<PAGE>
Exhibit (12)
Commonwealth Edison Company
Form 10-Q File No. 1-1839
Commonwealth Edison Company and Subsidiary Companies Consolidated
-----------------------------------------------------------------
Computation of Ratios of Earnings to Fixed Charges
and Ratios of Earnings to Fixed Charges and
Preferred and Preference Stock Dividend Requirements
---------------------------------------------------
(Thousands of Dollars)
<TABLE>
<CAPTION>
Twelve Months Ended
----------------------------
Line December 31, March 31,
No. 1995 1996
- ---- ------------ -----------
<C> <S> <C> <C>
1 Net income before extraordinary item $ 737,176 $ 786,022
---------- ----------
2 Net provisions for income taxes and investment tax credits deferred
3 charged to-
4 Operations $ 503,519 $ 534,114
5 Other income (7,685) (11,585)
---------- ----------
6 $ 495,834 $ 522,529
---------- ----------
7 Fixed charges-
8 Interest on debt $ 589,217 $ 570,843
9 Estimated interest component of nuclear fuel and
10 other lease payments, rentals and other interest 73,003 70,863
11 Amortization of debt discount, premium and expense 22,738 22,189
12 Preferred securities dividend requirements of subsidiary trust 4,428 8,668
---------- ----------
13 $ 689,386 $ 672,563
---------- ----------
14 Preferred and preference stock dividend requirements-
15 Provisions for preferred and preference stock dividends $ 69,961 $ 69,567
16 Taxes on income required to meet provisions for
17 preferred and preference stock dividends 45,945 45,819
---------- ----------
18 $ 115,906 $ 115,386
---------- ----------
19 Fixed charges and preferred and preference stock
20 dividend requirements $ 805,292 $ 787,949
---------- ----------
21 Earned for fixed charges and preferred and preference stock
22 dividend requirements $1,922,396 $1,981,114
---------- ----------
23 Ratios of earnings to fixed charges (line 22 divided by line 13) 2.79 2.95
==== ====
24 Ratios of earnings to fixed charges and preferred and preference
25 stock dividend requirements (line 22 divided by line 20) 2.39 2.51
==== ====
</TABLE>
<PAGE>
Exhibit (23)-1
Unicom Corporation
Form 10-Q File No. 1-11375
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation
by reference of our report in this Form 10-Q for the quarterly period ended
March 31, 1996 (Report), into Unicom Corporation's previously filed prospectuses
dated March 18, 1994, constituting part of Form S-4 Registration Statement File
No. 33-52109, as amended (relating to Common Stock of Unicom Corporation), as
further amended by Post-Effective Amendment No. 1 on Form S-8 (relating to
Commonwealth Edison Company's Employee Savings and Investment Plan) and Post-
Effective Amendment No. 2 on Form S-8 (relating to Unicom Corporation's Employee
Stock Purchase Plan), Form S-8 Registration Statement File No. 33-56991
(relating to Unicom Corporation's Long-Term Incentive Plan) and Form S-4
Registration Statement File No. 333-01003 (relating to the Common Stock of
Unicom Corporation). We also consent to the application of our Report, to
Commonwealth Edison Company and subsidiary companies' ratios of earnings to
fixed charges and the ratios of earnings to fixed charges and preferred and
preference stock dividend requirements for each of the twelve months ended
December 31, 1995 and March 31, 1996 appearing in this Form 10-Q.
ARTHUR ANDERSEN LLP
Chicago, Illinois
May 9, 1996
<PAGE>
Exhibit (23)-2
Commonwealth Edison Company
Form 10-Q File No. 1-1839
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation
by reference of our report in this Form 10-Q for the quarterly period ended
March 31, 1996 (Report), into Commonwealth Edison Company's (the Company)
previously filed prospectuses as follows: (1) prospectus dated August 21, 1986,
constituting part of Form S-3 Registration Statement File No. 33-6879, as
amended (relating to the Company's Debt Securities and Common Stock); (2)
prospectus dated January 7, 1994, constituting part of Form S-3 Registration
Statement File No. 33-51379 (relating to the Company's Debt Securities and
Cumulative Preference Stock); and (3) prospectus dated September 19, 1995,
constituting part of Amendment No. 1 to Form S-3 Registration Statement File No.
33-61343, as amended (relating to Company-Obligated Mandatorily Redeemable
Preferred Securities of Subsidiary Trust). We also consent to the application of
our Report to the ratios of earnings to fixed charges and the ratios of earnings
to fixed charges and preferred and preference stock dividend requirements for
each of the twelve months ended December 31, 1995 and March 31, 1996 appearing
in this Form 10-Q.
ARTHUR ANDERSEN LLP
Chicago, Illinois
May 9, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND> This schedule contains summary financial information extracted from
the Consolidated Balance Sheet and Statement of Consolidated Capitalization as
of March 31, 1996 and the related Statements of Consolidated Income, Retained
Earnings and Cash Flows for the three months ended March 31, 1996 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000918040
<NAME> Unicom Corporation
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 17,267,018
<OTHER-PROPERTY-AND-INVEST> 1,541,944
<TOTAL-CURRENT-ASSETS> 1,389,077
<TOTAL-DEFERRED-CHARGES> 0<F1>
<OTHER-ASSETS> 3,031,149
<TOTAL-ASSETS> 23,229,188
<COMMON> 4,912,871
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 907,723
<TOTAL-COMMON-STOCKHOLDERS-EQ> 5,816,900<F2>
261,475<F3>
508,009<F3>
<LONG-TERM-DEBT-NET> 6,247,096<F4>
<SHORT-TERM-NOTES> 7,550
<LONG-TERM-NOTES-PAYABLE> 0<F4>
<COMMERCIAL-PAPER-OBLIGATIONS> 228,000
<LONG-TERM-DEBT-CURRENT-PORT> 534,660
30,688<F3>
<CAPITAL-LEASE-OBLIGATIONS> 433,157
<LEASES-CURRENT> 176,877
<OTHER-ITEMS-CAPITAL-AND-LIAB> 8,984,776<F5>
<TOT-CAPITALIZATION-AND-LIAB> 23,229,188
<GROSS-OPERATING-REVENUE> 1,683,929
<INCOME-TAX-EXPENSE> 100,179<F6>
<OTHER-OPERATING-EXPENSES> 1,282,073
<TOTAL-OPERATING-EXPENSES> 1,386,378
<OPERATING-INCOME-LOSS> 297,551
<OTHER-INCOME-NET> (29,675)<F6><F7>
<INCOME-BEFORE-INTEREST-EXPEN> 272,002
<TOTAL-INTEREST-EXPENSE> 135,070
<NET-INCOME> 136,932
0<F7>
<EARNINGS-AVAILABLE-FOR-COMM> 136,932
<COMMON-STOCK-DIVIDENDS> 86,102
<TOTAL-INTEREST-ON-BONDS> 0<F8>
<CASH-FLOW-OPERATIONS> 445,541
<EPS-PRIMARY> 0.64
<EPS-DILUTED> 0
<FN>
<F1> This item is not disclosed as a separate line item on the Consolidated
Balance Sheet.
<F2> Includes a deduction of $3,694 thousand for preference stock expense of
ComEd.
<F3> Preferred and preference stocks of ComEd.
<F4> $1,124,651 thousand of notes and long-term notes payable to banks is
included in LONG-TERM-DEBT-NET.
<F5> Includes $200,000 thousand of ComEd-obligated mandatorily redeemable
preferred securities of subsidiary trust.
<F6> A tax benefit of $4,126 thousand related to nonoperating activities is
included in INCOME-TAX-EXPENSE.
<F7> A $16,514 thousand provision for preferred and preference stock dividends
of ComEd and $4,240 thousand provision for preferred securities dividends
of subsidiary trust are included in OTHER-INCOME-NET.
<F8> This item is not disclosed as a separate line item on the Statement of
Consolidated Income.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND> This schedule contains summary financial information extracted from
the Consolidated Balance Sheet and Statement of Consolidated Capitalization as
of March 31, 1996 and the related Statements of Consolidated Income, Retained
Earnings and Cash Flows for the three months ended March 31, 1996 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000022606
<NAME> Commonwealth Edison Company
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 17,267,018
<OTHER-PROPERTY-AND-INVEST> 1,463,820
<TOTAL-CURRENT-ASSETS> 1,366,761
<TOTAL-DEFERRED-CHARGES> 0<F1>
<OTHER-ASSETS> 3,024,193
<TOTAL-ASSETS> 23,121,792
<COMMON> 2,677,448
<CAPITAL-SURPLUS-PAID-IN> 2,206,859
<RETAINED-EARNINGS> 875,547
<TOTAL-COMMON-STOCKHOLDERS-EQ> 5,759,854
261,475
508,009
<LONG-TERM-DEBT-NET> 6,188,168<F2>
<SHORT-TERM-NOTES> 7,550
<LONG-TERM-NOTES-PAYABLE> 0<F2>
<COMMERCIAL-PAPER-OBLIGATIONS> 228,000
<LONG-TERM-DEBT-CURRENT-PORT> 532,688
30,688
<CAPITAL-LEASE-OBLIGATIONS> 431,329
<LEASES-CURRENT> 176,712
<OTHER-ITEMS-CAPITAL-AND-LIAB> 8,997,319<F3>
<TOT-CAPITALIZATION-AND-LIAB> 23,121,792
<GROSS-OPERATING-REVENUE> 1,683,489
<INCOME-TAX-EXPENSE> 101,686<F4>
<OTHER-OPERATING-EXPENSES> 1,278,966
<TOTAL-OPERATING-EXPENSES> 1,384,778
<OPERATING-INCOME-LOSS> 298,711
<OTHER-INCOME-NET> (12,965)<F4><F5>
<INCOME-BEFORE-INTEREST-EXPEN> 289,872
<TOTAL-INTEREST-EXPENSE> 133,981
<NET-INCOME> 155,891
16,514
<EARNINGS-AVAILABLE-FOR-COMM> 139,377
<COMMON-STOCK-DIVIDENDS> 85,678
<TOTAL-INTEREST-ON-BONDS> 0<F6>
<CASH-FLOW-OPERATIONS> 469,974
<EPS-PRIMARY> 0.65
<EPS-DILUTED> 0
<FN>
<F1> This item is not disclosed as a separate line item on the Consolidated
Balance Sheet.
<F2> $1,063,750 thousand of notes and long-term note payable to bank is
included in LONG-TERM-DEBT-NET.
<F3> Includes $200,000 thousand of company-obligated mandatorily redeemable
preferred securities of subsidiary trust.
<F4> A tax benefit of $4,126 thousand related to nonoperating activities is
included in INCOME-TAX-EXPENSE.
<F5> Includes $4,240 thousand of provision for preferred securities dividends of
subsidiary trust.
<F6> This item is not disclosed as a separate line item on the Statement of
Consolidated Income.
</FN>
</TABLE>
