<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 JUNE 30, 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 July 31, 1996:
Unicom Corporation 215,532,415 shares
Commonwealth Edison Company 214,206,208 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 JUNE 30, 1996
This document contains the Quarterly Reports on Form 10-Q for the quarterly
period ended June 30, 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, six months
and twelve months ended June 30, 1995 and 1996...................... 5
Consolidated Balance Sheets--December 31, 1995 and June 30, 1996..... 6-7
Statements of Consolidated Capitalization--December 31, 1995 and June
30, 1996............................................................ 8
Statements of Consolidated Retained Earnings for the three months,
six months and twelve months ended June 30, 1995 and 1996........... 9
Statements of Consolidated Cash Flows for the three months, six
months and twelve months ended June 30, 1995 and 1996............... 10
Notes to Financial Statements........................................ 11-30
Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................... 31-42
Commonwealth Edison Company and Subsidiary Companies:
Financial Statements--
Report of Independent Public Accountants............................. 44
Statements of Consolidated Income for the three months, six months
and twelve months ended June 30, 1995 and 1996...................... 45
Consolidated Balance Sheets--December 31, 1995 and June 30, 1996..... 46-47
Statements of Consolidated Capitalization--December 31, 1995 and June
30, 1996............................................................ 48
Statements of Consolidated Retained Earnings for the three months,
six months and twelve months ended June 30, 1995 and 1996........... 49
Statements of Consolidated Cash Flows for the three months, six
months and twelve months ended June 30, 1995 and 1996............... 50
Notes to Financial Statements........................................ 51-55
Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................... 56
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 57-62
Item 4. Submission of Matters to a Vote of Security Holders............ 62-63
Item 6. Exhibits and Reports on Form 8-K............................... 63
SIGNATURES............................................................... 64
</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
ISO Independent System Operator
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
PTAB Property Tax Appeals Board
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 June 30, 1996, and the
related statements of consolidated income, retained earnings and cash flows for
the three-month, six-month and twelve-month periods ended June 30, 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 June 30, 1996, and the results
of their operations and their cash flows for the three-month, six-month and
twelve-month periods ended June 30, 1995 and 1996, in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Chicago, Illinois
August 8, 1996
4
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED INCOME
The following Statements of Consolidated Income for the three months, six
months and twelve months ended June 30, 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, purchased
power and other matters, the nature and effect of which cannot now be
determined.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30
---------------------- ---------------------- ----------------------
1995 1996 1995 1996 1995 1996
---------- ---------- ---------- ---------- ---------- ----------
(THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues...... $1,559,521 $1,547,916 $3,137,657 $3,231,845 $6,458,262 $7,004,233
---------- ---------- ---------- ---------- ---------- ----------
Operating Expenses and
Taxes:
Fuel................... $ 259,201 $ 254,557 $ 528,694 $ 538,532 $1,075,462 $1,096,946
Purchased power........ 6,443 33,061 9,986 64,500 24,276 118,892
Operation and
maintenance........... 511,236 536,795 1,042,326 1,050,472 2,008,187 2,183,798
Depreciation........... 224,846 230,176 449,952 461,101 893,556 909,183
Recovery of regulatory
assets................ 3,818 3,818 7,636 7,636 15,272 15,272
Taxes (except income).. 189,791 159,518 399,696 377,757 799,182 811,359
Income taxes........... 94,781 84,093 176,562 195,565 448,442 545,521
Investment tax credits
deferred--net ........ (7,179) (7,165) (14,358) (14,332) (28,690) (28,685)
---------- ---------- ---------- ---------- ---------- ----------
$1,282,937 $1,294,853 $2,600,494 $2,681,231 $5,235,687 $5,652,286
---------- ---------- ---------- ---------- ---------- ----------
Operating Income........ $ 276,584 $ 253,063 $ 537,163 $ 550,614 $1,222,575 $1,351,947
---------- ---------- ---------- ---------- ---------- ----------
Other Income and
(Deductions):
Interest on long-term
debt.................. $ (150,836) $ (130,352) $ (303,106) $ (261,171) $ (611,340) $ (545,604)
Interest on notes
payable............... (221) (4,436) (372) (8,687) (741) (11,595)
Allowance for funds
used during
construction--
Borrowed funds....... 3,192 6,367 4,877 11,265 13,294 17,525
Equity funds......... 3,776 6,068 5,869 10,766 16,071 18,026
Income taxes
applicable to
nonoperating
activities............ 201 790 469 5,066 6,974 9,682
Provision for
dividends--
Preferred and
preference stocks of
ComEd................ (16,865) (16,472) (33,773) (32,986) (67,673) (69,172)
ComEd-obligated
mandatorily
redeemable preferred
securities of
subsidiary trust..... -- (4,240) -- (8,480) -- (12,908)
Miscellaneous--net..... (6,965) (10,475) (13,660) (29,142) (39,440) (58,590)
---------- ---------- ---------- ---------- ---------- ----------
$ (167,718) $ (152,750) $ (339,696) $ (313,369) $ (682,855) $ (652,636)
---------- ---------- ---------- ---------- ---------- ----------
Net Income Before
Extraordinary Item..... $ 108,866 $ 100,313 $ 197,467 $ 237,245 $ 539,720 $ 699,311
Extraordinary Loss
Related to Early
Redemption of Long-Term
Debt, Less Applicable
Income Taxes........... -- -- -- -- -- (20,022)
---------- ---------- ---------- ---------- ---------- ----------
Net Income.............. $ 108,866 $ 100,313 $ 197,467 $ 237,245 $ 539,720 $ 679,289
========== ========== ========== ========== ========== ==========
Average Number of Common
Shares Outstanding..... 214,677 215,438 214,553 215,343 214,382 215,087
Earnings per Common
Share Before
Extraordinary Item..... $0.51 $0.47 $0.92 $1.10 $2.52 $3.25
Extraordinary Loss
Related to Early
Redemption of Long-Term
Debt, Less Applicable
Income Taxes........... -- -- -- -- -- (0.09)
---------- ---------- ---------- ---------- ---------- ----------
Earnings per Common
Share.................. $0.51 $0.47 $0.92 $1.10 $2.52 $3.16
========== ========== ========== ========== ========== ==========
Cash Dividends Declared
per Common Share....... $0.40 $0.40 $0.80 $0.80 $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, JUNE 30,
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 $1,172 million, respectively)................. $27,052,778 $27,553,015
Less--Accumulated provision for depreciation....... 10,565,093 10,967,396
----------- -----------
$16,487,685 $16,585,619
Nuclear fuel, at amortized cost.................... 734,667 770,527
----------- -----------
$17,222,352 $17,356,146
----------- -----------
Investments and Other Property:
Nuclear decommissioning funds...................... $ 1,237,527 $ 1,341,843
Subsidiary companies............................... 113,657 112,734
Other, at cost..................................... 96,937 123,323
----------- -----------
$ 1,448,121 $ 1,577,900
----------- -----------
Current Assets:
Cash............................................... $ 3,575 $ 3,689
Temporary cash investments......................... 47,801 50,276
Special deposits................................... 3,546 565
Receivables--
Customers........................................ 580,254 562,914
Taxes............................................ 82,319 1,889
Other............................................ 83,151 41,770
Provisions for uncollectible accounts............ (11,828) (12,544)
Coal and fuel oil, at average cost................. 129,176 166,981
Materials and supplies, at average cost............ 333,539 342,291
Deferred unrecovered energy costs.................. 46,028 98,165
Deferred income taxes related to current assets and
liabilities....................................... 107,991 113,737
Prepayments and other.............................. 45,272 37,092
----------- -----------
$ 1,450,824 $ 1,406,825
----------- -----------
Deferred Charges and Other Noncurrent Assets:
Regulatory assets.................................. $ 2,467,386 $ 2,441,489
Unrecovered energy costs........................... 588,152 501,283
Other.............................................. 70,153 59,772
----------- -----------
$ 3,125,691 $ 3,002,544
----------- -----------
$23,246,988 $23,343,415
=========== ===========
</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, JUNE 30,
CAPITALIZATION AND LIABILITIES 1995 1996
------------------------------ ------------ -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Capitalization (see accompanying statements):
Common stock equity................................. $ 5,769,637 $ 5,836,860
Preferred and preference stocks of ComEd--
Without mandatory redemption requirements......... 508,034 507,926
Subject to mandatory redemption requirements...... 261,475 245,609
ComEd-obligated mandatorily redeemable preferred se-
curities of subsidiary trust*...................... 200,000 200,000
Long-term debt...................................... 6,549,335 6,062,195
----------- -----------
$13,288,481 $12,852,590
----------- -----------
Current Liabilities:
Notes payable--
Commercial paper.................................. $ 261,000 $ 326,850
Bank loans........................................ 7,150 7,550
Current portion of long-term debt, redeemable pref-
erence stock and capitalized lease obligations of
subsidiary companies............................... 434,563 914,981
Accounts payable.................................... 606,806 421,563
Accrued interest.................................... 171,488 166,417
Accrued taxes....................................... 215,966 282,667
Dividends payable................................... 102,497 106,898
Customer deposits................................... 44,521 44,796
Other............................................... 93,841 84,218
----------- -----------
$ 1,937,832 $ 2,355,940
----------- -----------
Deferred Credits and Other Noncurrent Liabilities:
Deferred income taxes............................... $ 4,506,043 $ 4,525,759
Accumulated deferred investment tax credits......... 689,041 674,709
Accrued spent nuclear fuel disposal fee and related
interest........................................... 624,191 640,519
Obligations under capital leases of subsidiary com-
panies............................................. 375,524 414,763
Regulatory liabilities.............................. 601,002 596,978
Other............................................... 1,224,874 1,282,157
----------- -----------
$ 8,020,675 $ 8,134,885
----------- -----------
Commitments and Contingent Liabilities (Note 19)
$23,246,988 $23,343,415
=========== ===========
</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>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CAPITALIZATION
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
----------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Common Stock Equity:
Common stock, without par value--
Outstanding--215,255,998 shares and 215,508,674
shares, respectively (excludes $4 million as of
June 30, 1996 held by trustee for Unicom Stock
Bonus Deferral Plan)............................. $ 4,916,438 $ 4,918,725
Preference stock expense of ComEd.................. (3,694) (3,687)
Retained earnings.................................. 856,893 921,822
----------- -----------
$ 5,769,637 $ 5,836,860
----------- -----------
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 93,374 shares,
respectively................................... 3,077 2,969
Prior preferred stock, cumulative, $100 par value
per share--
No shares outstanding........................... -- --
----------- -----------
$ 508,034 $ 507,926
----------- -----------
Subject to Mandatory Redemption Requirements:
Preference stock, cumulative, without par value--
Outstanding--2,934,990 shares and 2,904,990
shares, respectively........................... $ 292,163 $ 289,183
Current redemption requirements for preference
stock included in current liabilities........... (30,688) (43,574)
----------- -----------
$ 261,475 $ 245,609
----------- -----------
ComEd-Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trust:
Outstanding--8,000,000............................. $ 200,000 $ 200,000
----------- -----------
Long-Term Debt:
First mortgage bonds:
Maturing 1996 through 2000--5 1/4% to 9 3/8%..... $ 1,170,000 $ 1,120,000
Maturing 2001 through 2010--3 1/2% to 8 3/8%..... 1,465,400 1,640,400
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 $ 5,411,400
Sinking fund debentures, due 1999 through 2011--
2 3/4% to 7 5/8%.................................. 110,505 107,857
Pollution control obligations, due 2004 through
2014--3.30% to 6 7/8%............................. 317,200 142,200
Other long-term debt............................... 1,126,318 1,143,178
Deposit for retirement of long-term debt........... -- (975)
Current maturities of long-term debt included in
current liabilities............................... (235,992) (689,597)
Unamortized net debt discount and premium.......... (55,096) (51,868)
----------- -----------
$ 6,549,335 $ 6,062,195
----------- -----------
$13,288,481 $12,852,590
=========== ===========
</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 SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30
------------------- ------------------- -------------------
1995 1996 1995 1996 1995 1996
-------- ---------- -------- ---------- -------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Balance at Beginning of
Period................. $563,761 $ 907,723 $560,971 $ 856,893 $390,691 $ 586,714
Add--Net income......... 108,866 100,313 197,467 237,245 539,720 679,289
-------- ---------- -------- ---------- -------- ----------
$672,627 $1,008,036 $758,438 $1,094,138 $930,411 $1,266,003
-------- ---------- -------- ---------- -------- ----------
Deduct--
Cash dividends de-
clared on
common stock........ $ 85,906 $ 86,207 $171,717 $ 172,309 $343,131 $ 344,211
Other capital stock
transactions--net... 7 7 7 7 566 (30)
-------- ---------- -------- ---------- -------- ----------
$ 85,913 $ 86,214 $171,724 $ 172,316 $343,697 $ 344,181
-------- ---------- -------- ---------- -------- ----------
Balance at End of Peri-
od..................... $586,714 $ 921,822 $586,714 $ 921,822 $586,714 $ 921,822
======== ========== ======== ========== ======== ==========
</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 SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30
-------------------- --------------------- ------------------------
1995 1996 1995 1996 1995 1996
--------- --------- ---------- --------- ----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Cash Flow from Operating
Activities:
Net income............. $ 108,866 $ 100,313 $ 197,467 $ 237,245 $ 539,720 $ 679,289
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization........ 238,254 238,539 476,883 479,727 942,567 952,257
Deferred income taxes
and investment tax
credits--net........ 24,412 26,060 34,426 42,320 197,602 164,711
Extraordinary loss
related to early
redemption of long-
term debt........... -- -- -- -- -- 33,158
Equity component of
allowance for funds
used during
construction........ (3,776) (6,068) (5,869) (10,766) (16,071) (18,026)
Revenue refunds and
related interest.... 20 -- 15,135 -- (532,947) --
Recovery of
regulatory assets... 3,818 3,818 7,636 7,636 15,272 15,272
Provisions/(payments)
for liability for
early retirement and
separation costs--
net................. 180 2,373 560 (29,930) 2,603 30,223
Net effect on cash
flows of changes in:
Receivables........ (10,144) 23,575 (8,926) 139,867 (80,300) (28,965)
Coal and fuel oil.. (12,802) (22,314) (24,426) (37,805) (2,271) (33,683)
Materials and
supplies.......... 4,475 (7,149) 18,082 (8,752) 36,008 24,239
Accounts payable
excluding nuclear
fuel lease
principal payments
and early
retirement and
separation costs--
net............... 64,493 22,452 78,911 (47,234) 180,397 332,142
Accrued interest
and taxes......... 5,145 20,855 88,550 61,630 117,114 (29,061)
Other changes in
certain current
assets and
liabilities....... 3,160 (17,890) 9,888 (8,538) (9,991) 8,118
Other--net........... 50,597 18,816 130,097 23,521 134,814 33,248
--------- --------- ---------- --------- ----------- -----------
$ 476,698 $ 403,380 $1,018,414 $ 848,921 $ 1,524,517 $ 2,162,922
--------- --------- ---------- --------- ----------- -----------
Cash Flow from Investing
Activities:
Construction
expenditures.......... $(185,870) $(254,671) $ (392,133) $(543,226) $ (748,226) $(1,078,420)
Nuclear fuel
expenditures.......... (72,297) (109,184) (111,154) (143,603) (263,120) (321,567)
Equity component of
allowance for funds
used during
construction.......... 3,776 6,068 5,869 10,766 16,071 18,026
Contributions to
nuclear
decommissioning
funds................. -- -- (96,229) (83,178) (132,550) (119,602)
Investment in
subsidiary companies.. (1) -- (1) -- (50) (7)
Other investments and
special deposits...... 6,921 -- (1,149) (48) 305 (493)
--------- --------- ---------- --------- ----------- -----------
$(247,471) $(357,787) $ (594,797) $(759,289) $(1,127,570) $(1,502,063)
--------- --------- ---------- --------- ----------- -----------
Cash Flow from Financing
Activities:
Issuance of
securities--
Long-term debt........ $ 5,000 $ 231,902 $ 25,000 $ 231,902 $ 294,175 $ 268,902
Preferred securities
of subsidiary trust.. -- -- -- -- -- 200,000
Capital stock......... 5,586 5,803 9,745 6,414 85,751 22,081
Retirement and
redemption of
securities--
Long-term debt........ (262,026) (267,056) (291,663) (268,196) (639,841) (1,113,805)
Capital stock......... (3,000) (3,000) (3,000) (3,000) (17,822) (17,822)
Deposits and
securities held for
retirement and
redemption of
securities............ 1,403 2,643 (271) (975) (274) (598)
Premium paid on early
redemption of long-
term debt............. -- -- -- -- (3,664) (25,823)
Cash dividends paid on
common stock.......... (85,812) (86,101) (171,550) (172,084) (342,854) (343,909)
Proceeds from
sale/leaseback of
nuclear fuel.......... -- 35,402 115,340 159,615 253,968 237,491
Nuclear fuel lease
principal payments.... (52,832) (50,918) (115,617) (106,969) (225,770) (229,197)
Increase in short-term
borrowings............ 40,000 98,850 40,000 66,250 41,050 287,250
--------- --------- ---------- --------- ----------- -----------
$(351,681) $ (32,475) $ (392,016) $ (87,043) $ (555,281) $ (715,430)
--------- --------- ---------- --------- ----------- -----------
Increase (Decrease) in
Cash and Temporary Cash
Investments............ $(122,454) $ 13,118 $ 31,601 $ 2,589 $ (158,334) $ (54,571)
Cash and Temporary Cash
Investments at
Beginning of Period.... 230,990 40,847 76,935 51,376 266,870 108,536
--------- --------- ---------- --------- ----------- -----------
Cash and Temporary Cash
Investments at End of
Period................. $ 108,536 $ 53,965 $ 108,536 $ 53,965 $ 108,536 $ 53,965
========= ========= ========== ========= =========== ===========
</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 was 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.
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 June 30, 1996 were as follows:
11
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Regulatory assets:
Deferred income taxes (1)............................. $1,689,832 $1,669,018
Deferred carrying charges (2)......................... 409,923 403,401
Nuclear decommissioning costs--Dresden Unit 1 (3)..... 138,058 145,709
Unamortized loss on reacquired debt (4)............... 160,440 155,850
Other................................................. 69,133 67,511
---------- ----------
$2,467,386 $2,441,489
========== ==========
Regulatory liabilities:
Deferred income taxes (1)............................. $ 601,002 $ 596,978
========== ==========
</TABLE>
- --------
(1) Recorded in compliance with SFAS No. 109.
(2) Recorded as authorized in the Remand Order. The amortization period is
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.
See "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 June 30, 1996. ComEd had approximately 3.4 million
electric customers at June 30, 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 3.14% for the three months ended June 30, 1995 and 1996, 3.13% for
the six months and twelve months ended June 30, 1995, and 3.14% for the six
months and twelve months ended June 30, 1996, of average depreciable utility
plant and equipment. The annual rate for nuclear plant and equipment is 2.88%,
which excludes
12
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
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 31 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 June 30, 1996,
the total decommissioning costs included in the accumulated provision for
depreciation were $1,373 million. For ComEd's retired nuclear unit, Dresden
Unit 1, the total estimated liability at June 30, 1996 in current-year (1996)
dollars of $270 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 June 30, 1996, the past accruals that
are required to be contributed to the external trusts aggregate $150 million.
The fair value of funds accumulated in the external trusts at June 30, 1996 was
approximately $1,342 million which includes pre-tax unrealized appreciation of
$150 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
million and $84 million for the three months ended June 30, 1995 and 1996,
respectively, $197 million and $179 million for the six months ended June 30,
1995 and 1996, respectively, and $388 million and $374 million for the twelve
months ended June 30, 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 9.56% and 8.73% for the three months
ended June 30, 1995 and 1996, respectively, 9.61% and 8.78% for the six months
ended June 30, 1995 and 1996, respectively, and 9.73% and 9.11% for the twelve
months ended June 30, 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 million and $158 million for the three months ended June 30, 1995 and
1996, respectively, $354 million and $317 million for the six months ended June
30, 1995 and 1996, respectively, and $710 million and $659 million for the
twelve months ended June 30, 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 ComEd are being amortized over the lives of the respective issues.
Loss on Reacquired Debt. Consistent with regulatory treatment, the net loss
from ComEd's reacquisition in connection with 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 June 30, 1996, an asset related to the assessments of approximately $179
million and $171 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 June 30, 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 June 30, 1996, ComEd had unrecovered fuel costs in
the form of coal reserves of approximately $448 million and $411 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 $66 million at December 31, 1995 and
June 30, 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 19 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, six
months and twelve months ended June 30, 1995 and 1996 was as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30
------------------- ----------------- ---------------------
1995 1996 1995 1996 1995 1996
--------- --------- -------- -------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Supplemental Cash Flow
Information:
Cash paid during the
period for:
Interest (net of
amount capitalized). $ 145,067 $ 115,372 $316,472 $272,867 $642,094 $ 561,327
Income taxes (net of
refunds)............ $ 52,953 $ 9,284 $ 22,532 $ 9,284 $ 95,200 $ 354,460
Supplemental Schedule of
Non-Cash Investing and
Financing Activities:
Capital lease obliga-
tions incurred by
subsidiary companies.. $ 1,433 $ 36,994 $118,243 $162,486 $ 258,091 $ 242,820
</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 June 30, 1996, electric
operating revenues of approximately $473 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. In
March 1996, ComEd filed a request for ICC approval of the additional
depreciation initiative. ComEd expects its costs to increase by $30 million in
the second half of 1996 (before income tax effects) through the increase of
depreciation charges on its nuclear generating units. 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 June 30, 1996,
Unicom's authorized shares consisted of 400,000,000 shares of common stock. The
authorized shares of ComEd preferred and preference stocks at June 30, 1996
were: preference stock--23,214,990 shares; $1.425 convertible preferred stock--
93,374 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 June 30, 1996, shares of Unicom common stock were
reserved for the following purposes:
<TABLE>
<S> <C>
Long-Term Incentive Plan........................................ 3,544,616
Employee Stock Purchase Plan.................................... 802,195
Employee Savings and Investment Plan............................ 85,803
Exchange for ComEd common stock not held by Unicom.............. 133,137
1996 Directors' Fee Plan........................................ 198,778
---------
4,764,529
=========
</TABLE>
Common stock increased during the three months, six months and twelve months
ended June 30, 1995 and 1996 as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30
------------------- ----------------- --------------------
1995 1996 1995 1996 1995 1996
--------- --------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Shares of Common Stock
Issued:
Long-Term Incentive
Plan.................. -- (3,563) 182,882 (26,367) 182,882 272,502
Employee Stock Purchase
Plan.................. 123,824 97,888 123,824 97,888 274,319 191,144
Employee Savings and
Investment Plan....... 110,000 132,400 110,000 177,500 129,800 284,600
Exchange for ComEd com-
mon stock not held by
Unicom................ -- 2,433 -- 2,433 -- 2,433
1996 Directors' Fee
Plan.................. -- 1,222 -- 1,222 -- 1,222
Conversion of $1.425
convertible preferred
stock................. -- -- -- -- 91,935 --
Conversion of warrants. -- -- -- -- 7,522 --
--------- --------- -------- -------- --------- ---------
233,824 230,380 416,706 252,676 686,458 751,901
========= ========= ======== ======== ========= =========
<CAPTION>
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Amount of Common Stock
Issued:
Total issued........... $ 5,587 $ 5,871 $ 9,745 $ 6,482 $ 16,346 $ 22,149
Held by trustee for
Unicom Stock Bonus De-
ferral Plan........... -- (32) -- (4,235) -- (4,235)
Other.................. 5 15 21 40 (124) 114
--------- --------- -------- -------- --------- ---------
$ 5,592 $ 5,854 $ 9,766 $ 2,287 $ 16,222 $ 18,028
========= ========= ======== ======== ========= =========
</TABLE>
At December 31, 1995 and June 30, 1996, 82,742 and 81,353 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 June 30, 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 June 30, 1996. The series of ComEd
preference stock without mandatory redemption requirements outstanding at June
30, 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 June 30, 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 June 30, 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 330,000 32,778 $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
--------- --------
2,904,990 $289,183
========= ========
</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 June 30, 1996 will aggregate $41 million in 1996, $31
million in each of 1997-99 and $88 million in 2000. During the twelve months
ended June 30, 1995 and 1996, 178,215 shares of ComEd preference stock subject
to mandatory redemption requirements were reacquired to meet sinking fund
requirements.
Sinking fund requirements due within one year, including the optional sinking
fund payment of an additional 130,000 shares of the $9.00 Series of preference
stock, are included in current liabilities.
(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
18
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
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 June 30, 1996, after
deducting a deposit made for retirement of sinking fund debentures and sinking
fund debentures reacquired for satisfaction of future sinking fund
requirements, are summarized as follows: 1996--$166 million; 1997--$686
million; 1998--$347 million; 1999--$150 million; and 2000--$462 million. Unicom
Enterprises' note payable to bank of $75 million will mature in 1998.
At June 30, 1996, ComEd's outstanding first mortgage bonds maturing through
2000 were as follows:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
SERIES ----------------------
(THOUSANDS OF DOLLARS)
<S> <C>
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
----------
$1,120,000
==========
</TABLE>
19
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
Other long-term debt outstanding at June 30, 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 $ 35,500 Interest rates ranging from 9.52% 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%
----------
$ 898,750
----------
Long-Term Note Payable to Bank:
Note due June 1, 1997 $ 150,000 Prevailing interest rate of 6.10% at June 30, 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 $1,049,277
----------
Unicom Enterprises--
Note Payable to Bank:
Note due November 22, 1998 $ 75,000 Prevailing interest rate of 6.40% at June 30, 1996
----------
Total Unicom $1,143,178
==========
</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.
In June 1996, ComEd placed in escrow with a trustee sufficient funds to
redeem pollution control obligations amounting to $50 million on July 1, 1996,
$50 million on July 15, 1996 and $99 million on August 15, 1996, effecting the
extinguishment of such bonds. At June 30, 1996, $199 million outstanding
principal amount of such bonds was not reflected on the Consolidated Balance
Sheets.
20
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(9) LINES OF CREDIT. ComEd had total bank lines of credit of $923 million and
unused bank lines of credit of $915 million at June 30, 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 $125 million was unused as of June 30, 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 June
30, 1996 was as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 JUNE 30, 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 $ 72,614 $ 17 $ 72,631
U.S. Government and
Agency issues........ 156,745 17,636 174,381 229,910 3,188 233,098
Municipal bonds....... 496,707 34,970 531,677 377,568 13,700 391,268
Common stock.......... 348,866 107,280 456,146 456,487 130,985 587,472
Other................. 29,757 4,708 34,465 55,151 2,223 57,374
---------- -------- ---------- ---------- -------- ----------
$1,072,650 $164,877 $1,237,527 $1,191,730 $150,113 $1,341,843
========== ======== ========== ========== ======== ==========
</TABLE>
At June 30, 1996, the debt securities held by the nuclear decommissioning
funds had the following maturities:
<TABLE>
<CAPTION>
COST BASIS FAIR VALUE
---------- ----------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Within 1 year....................................... $ 72,614 $ 72,631
1 through 5 years................................... 127,473 128,165
5 through 10 years.................................. 220,177 226,615
Over 10 years....................................... 302,454 311,894
</TABLE>
The net earnings of the nuclear decommissioning funds, which are recorded as
increases to the accumulated provision for depreciation, for the three months,
six months and twelve months ended June 30, 1995 and 1996 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30
-------------------- ------------------------ ------------------------
1995 1996 1995 1996 1995 1996
--------- --------- ----------- ----------- ----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Gross proceeds from
sales of securities.... $ 799,974 $ 644,794 $ 1,418,581 $ 1,262,665 $ 1,894,920 $ 2,442,973
Less cost based on spe-
cific identification... (795,785) (636,848) (1,414,439) (1,240,344) (1,893,808) (2,407,619)
--------- --------- ----------- ----------- ----------- -----------
Realized gains on sales
of securities.......... $ 4,189 $ 7,946 $ 4,142 $ 22,321 $ 1,112 $ 35,354
Other realized fund
earnings net of
expenses............... 10,997 6,861 22,330 13,582 42,550 37,545
--------- --------- ----------- ----------- ----------- -----------
Total realized net earn-
ings of the funds...... $ 15,186 $ 14,807 $ 26,472 $ 35,903 $ 43,662 $ 72,899
Unrealized gains (loss-
es).................... 43,911 (2,842) 91,747 (14,764) 82,252 54,332
--------- --------- ----------- ----------- ----------- -----------
Total net earnings of
the funds............. $ 59,097 $ 11,965 $ 118,219 $ 21,139 $ 125,914 $ 127,231
========= ========= =========== =========== =========== ===========
</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.
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 June 30, 1996 were as follows:
22
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
<TABLE>
<CAPTION>
DECEMBER 31, 1995 JUNE 30, 1996
-------------------------------- --------------------------------
UNREALIZED
CARRYING UNREALIZED CARRYING (GAINS)
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 $ 797,109 $(8,974) $ 788,135
ComEd-obligated
mandatorily
redeemable preferred
securities of the
Trust................ $ 200,000 $ 6,000 $ 206,000 $ 200,000 $(9,000) $ 191,000
Long-term debt........ $6,572,853 $470,175 $7,043,028 $6,508,400 $29,022 $6,537,422
</TABLE>
Long-term notes payable, which are not included in the above table, amounted
to $212 million and $244 million at December 31, 1995 and June 30, 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 portions 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 June 30, 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 June 30,
1996 pension liabilities and related data were estimated pending completion of
the January 1, 1996 actuarial valuation.
23
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
The funded status of these plans at December 31, 1995 and June 30, 1996 was
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Actuarial present value of accumulated pension plan
benefits:
Vested benefit obligation........................ $(2,839,000) $(2,903,000)
Nonvested benefit obligation..................... (251,000) (256,000)
----------- -----------
Accumulated benefit obligation................... $(3,090,000) $(3,159,000)
Effect of projected future compensation levels... (304,000) (312,000)
----------- -----------
Projected benefit obligation..................... $(3,394,000) $(3,471,000)
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 3,100,000
----------- -----------
Plan assets less than projected benefit obligation. $ (335,000) $ (371,000)
Unrecognized prior service cost.................... (73,000) (71,000)
Unrecognized transition asset...................... (142,000) (136,000)
Unrecognized net loss.............................. 205,000 213,000
----------- -----------
Accrued pension liability........................ $ (345,000) $ (365,000)
=========== ===========
</TABLE>
The assumed discount rate was 7.5% at December 31, 1995 and June 30, 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, six months and twelve
months ended June 30, 1995 and 1996 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30
------------------ -------------------- --------------------
1995 1996 1995 1996 1995 1996
-------- -------- --------- --------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Service cost............ $ 21,000 $ 25,000 $ 42,000 $ 50,000 $ 89,000 $ 95,000
Interest cost on pro-
jected benefit obliga-
tion................... 57,000 62,000 114,000 124,000 219,000 235,000
Actual return on plan
assets................. (208,000) (70,000) (375,000) (140,000) (435,000) (446,000)
Early retirement program
cost................... -- -- -- -- 2,000 --
Net amortization and de-
ferral................. 145,000 (7,000) 249,000 (14,000) 177,000 155,000
-------- -------- --------- --------- --------- ---------
$ 15,000 $ 10,000 $ 30,000 $ 20,000 $ 52,000 $ 39,000
======== ======== ========= ========= ========= =========
</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 to 100% of the first 2% of contributed base
salary, 70% of the next 3% of contributed base salary
24
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
and 25% of the last 1% of contributed base salary. The participating companies'
contributions were $6 million and $7 million for the three months ended June
30, 1995 and 1996, respectively, $12 million and $15 million for the six months
ended June 30, 1995 and 1996, respectively, and $24 million and $28 million for
the twelve months ended June 30, 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 June 30, 1996 postretirement benefit liabilities and related data
were estimated pending completion of the January 1, 1996 actuarial valuation.
Postretirement health care costs for the twelve months ended June 30, 1996
included $26 million related to a voluntary separation offer for union
employees who accepted and left ComEd's employ combined with separation offers
to selected groups of non-union employees.
The funded status of the plan at December 31, 1995 and June 30, 1996 was as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Actuarial present value of accumulated postretirement
benefit obligation:
Retirees.............................................. $(474,000) $(491,000)
Active fully eligible participants.................... (28,000) (29,000)
Other participants.................................... (457,000) (473,000)
--------- ---------
Accumulated benefit obligation........................ $(959,000) $(993,000)
Fair value of plan assets, invested primarily in S&P
500 common stocks, registered investment companies and
U.S. Government, government agency, municipal and
listed corporate obligations.......................... 603,000 621,000
--------- ---------
Plan assets less than accumulated postretirement bene-
fit obligation........................................ $(356,000) $(372,000)
Unrecognized transition obligation..................... 392,000 381,000
Unrecognized prior service cost........................ 29,000 29,000
Unrecognized net gain.................................. (280,000) (282,000)
--------- ---------
Accrued liability for postretirement benefits.......... $(215,000) $(244,000)
========= =========
</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, six months
and twelve months ended June 30, 1995 and 1996 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS TWELVE MONTHS
ENDED SIX MONTHS ENDED ENDED
JUNE 30 JUNE 30 JUNE 30
----------------- ------------------ ------------------
1995 1996 1995 1996 1995 1996
-------- ------- -------- -------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Service cost............ $ 11,000 $ 7,000 $ 22,000 $ 15,000 $ 45,000 $ 24,000
Interest cost on
accumulated benefit
obligation............. 22,000 18,000 43,000 35,000 83,000 61,000
Actual return on plan
assets................. (40,000) (12,000) (75,000) (36,000) (85,000) (98,000)
Amortization of transi-
tion obligation........ 7,000 5,000 14,000 11,000 29,000 20,000
Severance plan cost..... -- 1,000 -- 1,000 -- 26,000
Other................... 28,000 (3,000) 52,000 4,000 42,000 35,000
-------- ------- -------- -------- -------- --------
$ 28,000 $16,000 $ 56,000 $ 30,000 $114,000 $ 68,000
======== ======= ======== ======== ======== ========
</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 June 30, 1996.
(14) SEPARATION PLAN COSTS. Operation and maintenance expenses included $99
million for the twelve months ended June 30, 1996 related to a voluntary
separation offer for union employees who accepted and left ComEd's employ
combined with separation plans offered to selected groups of non-union
employees. These employee separation plans reduced net income by $60 million or
$0.28 per common share for the twelve months ended June 30, 1996. Substantially
all of the costs of the voluntary separation plans were recorded in 1995.
(15) INCOME TAXES. The components of the net deferred income tax liability at
December 31, 1995 and June 30, 1996 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
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 $3,439,412
Overheads capitalized................................ 252,910 243,805
Repair allowance..................................... 219,585 214,326
Regulatory assets recoverable through future rates... 1,689,832 1,669,018
Deferred income tax assets:
Postretirement benefits.............................. (235,360) (255,133)
Unbilled revenues.................................... (116,274) (122,457)
Alternative minimum tax.............................. (145,019) (133,600)
Unamortized investment tax credits to be settled
through future rates................................ (452,210) (442,795)
Other regulatory liabilities to be settled through
future rates........................................ (148,792) (154,183)
Other--net........................................... (46,607) (46,371)
---------- ----------
Net deferred income tax liability..................... $4,398,052 $4,412,022
========== ==========
</TABLE>
26
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
The $14 million increase in the net deferred income tax liability from December
31, 1995 to June 30, 1996 is comprised of a $59 million increase in deferred
income tax expense, a $28 million decrease in the deferred income tax balance
for AMT (before reflecting utilizations) and a $17 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, six months and twelve months ended June 30, 1995 and 1996
were as follows:
<TABLE>
<CAPTION>
THREE MONTHS TWELVE MONTHS
ENDED SIX MONTHS ENDED ENDED
JUNE 30 JUNE 30 JUNE 30
---------------- ------------------ ------------------
1995 1996 1995 1996 1995 1996
------- ------- -------- -------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Operating income:
Current income taxes... $64,137 $51,383 $129,118 $138,725 $228,809 $349,596
Deferred income taxes.. 30,644 32,710 47,444 56,840 219,633 195,925
Investment tax credits
deferred--net......... (7,179) (7,165) (14,358) (14,332) (28,690) (28,685)
Other (income) and de-
ductions............... (299) (913) (526) (5,038) (2,185) (12,171)
------- ------- -------- -------- -------- --------
Net income taxes charged
to continuing opera-
tions.................. $87,303 $76,015 $161,678 $176,195 $417,567 $504,665
======= ======= ======== ======== ======== ========
</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, six months and twelve months ended June
30, 1995 and 1996:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30
------------------ ------------------ ----------------------
1995 1996 1995 1996 1995 1996
-------- -------- -------- -------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Net income before extraordinary item.............. $108,866 $100,313 $197,467 $237,245 $ 539,720 $ 699,311
Net income taxes charged to continuing operations. 87,303 76,015 161,678 176,195 417,567 504,665
Provision for dividends on ComEd preferred and
preference stocks................................ 16,865 16,472 33,773 32,986 67,673 69,172
-------- -------- -------- -------- ---------- ----------
Pre-tax income before provision for dividends..... $213,034 $192,800 $392,918 $446,426 $1,024,960 $1,273,148
======== ======== ======== ======== ========== ==========
Effective income tax rate......................... 41.0% 39.4% 41.1% 39.5% 40.7% 39.6%
======== ======== ======== ======== ========== ==========
</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, six months and twelve months ended June 30, 1995 and 1996
were as follows:
<TABLE>
<CAPTION>
THREE MONTHS TWELVE MONTHS
ENDED SIX MONTHS ENDED ENDED
JUNE 30 JUNE 30 JUNE 30
---------------- ------------------ ------------------
1995 1996 1995 1996 1995 1996
------- ------- -------- -------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Federal income taxes
computed at statutory
rate................... $74,562 $67,480 $137,521 $156,249 $358,736 $445,602
Equity component of
AFUDC which was ex-
cluded from taxable
income................. (1,322) (2,124) (2,054) (3,768) (5,625) (6,309)
Amortization of invest-
ment tax credits....... (7,178) (7,165) (14,358) (14,332) (28,755) (28,685)
State income taxes, net
of federal income tax-
es..................... 12,888 10,721 23,284 24,123 57,696 66,811
Differences between book
and tax accounting,
primarily property-
related deductions..... 7,279 6,029 15,778 11,911 28,375 11,936
Other--net.............. 1,074 1,074 1,507 2,012 7,140 15,310
------- ------- -------- -------- -------- --------
Net income taxes charged
to continuing opera-
tions.................. $87,303 $76,015 $161,678 $176,195 $417,567 $504,665
======= ======= ======== ======== ======== ========
</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, six months and twelve months ended June 30, 1995 and 1996
were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30
------------------- ----------------- -------------------
1995 1996 1995 1996 1995 1996
--------- --------- -------- -------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Illinois public utility
revenue................ $ 51,763 $ 51,982 $107,941 $110,492 $ 219,416 $ 232,097
Illinois invested capi-
tal.................... 26,814 26,025 54,110 52,179 108,995 104,899
Municipal utility gross
receipts............... 36,861 37,823 74,906 79,401 151,422 172,253
Real estate............. 40,121 8,650 86,953 53,778 176,152 143,221
Municipal compensation.. 17,637 17,709 35,427 36,804 73,464 79,979
Other--net.............. 16,595 17,329 40,359 45,103 69,733 78,910
--------- --------- -------- -------- --------- ---------
$ 189,791 $ 159,518 $399,696 $377,757 $ 799,182 $ 811,359
========= ========= ======== ======== ========= =========
</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, $10 million will expire on November 23, 1997 and $290 million will
expire on November 23, 1998. At June 30, 1996, ComEd's obligation to the lessor
for leased nuclear fuel amounted to approximately $633 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 June 30, 1996 for
capital leases are estimated to aggregate $719 million, including $132 million
in 1996, $218 million in 1997, $154 million in 1998, $99 million in 1999, $58
million in 2000 and $58 million in 2001-2043. The estimated interest component
of such rental payments aggregates $90 million. The estimated portions of
obligations due within one year under capital leases of approximately $168
million and $182 million at December 31, 1995 and June 30, 1996, respectively,
are included in current liabilities.
Future minimum rental payments at June 30, 1996 for operating leases are
estimated to aggregate $153 million, including $4 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) 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 June 30, 1996, for its
share of ownership in the station, ComEd had an investment of $600 million in
production and transmission plant in service (before reduction of $190 million
for the related accumulated provision for depreciation) and $56 million in
construction work in progress.
(19) COMMITMENTS AND CONTINGENT LIABILITIES. Purchase commitments,
principally related to construction and nuclear fuel, approximated $1,076
million at June 30, 1996, comprised of approximately $1,054 million for ComEd
and the Indiana Company and approximately $22 million for Unicom Thermal.
28
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
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 $53 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.
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
29
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONCLUDED
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 June 30, 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 June 30, 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
CHANGES IN THE ELECTRIC UTILITY INDUSTRY
Unicom and its predominant business, electric energy generation, transmission
and distribution, are in a period of fundamental change in the manner in which
customers obtain, and energy suppliers provide, energy services. These changes
are attributable to changes in technology, the relaxation of regulatory
barriers to utilities' respective service territories as well as to efforts to
change the manner in which electric utilities are regulated. Federal law and
regulations have been amended to provide for open transmission system access,
and various states are considering, or have adopted, new regulatory structures
to allow access by some or all customers to energy suppliers in addition to the
local utility. Although Illinois has not yet adopted any fundamental regulatory
changes, the legislature created a Joint Committee on Electric Utility
Regulatory Reform to develop and present, no later than November 8, 1996, a
legislative proposal dealing with reform of the state's Public Utilities Act.
ComEd, along with other energy suppliers, energy customers and other interested
parties, have been active participants in discussions related to the economic
and technical issues associated with reform.
In response to these developments, ComEd has implemented certain customer
initiatives designed to improve and strengthen customer relationships and is
undertaking an evaluation of its operations and assets, particularly generating
assets, with a view toward positioning itself for market and industry changes.
As discussed below, ComEd's actions to date have included a five-year base rate
cap, efforts to control expenditure growth through personnel reductions,
operational efficiencies and sales of generating plants. Although ComEd's
operating results and financial condition have historically been affected by
various rate proceedings, ComEd expects that these industry changes, and
ComEd's activities anticipating or responding to them, will directly impact its
operating results and financial condition over the next several years.
Electric Utility Industry. The electric utility industry has historically
consisted of vertically integrated companies combining generation, transmission
and distribution assets; serving customers within relatively defined service
territories; and operating under extensive regulation with respect to rates,
operations and other matters. Utilities operated under a regulatory compact
with the state, with a statutory obligation to serve all of the electricity
needs within their service territory in a nondiscriminatory manner, and
investment and operating decisions have been made based upon the utilities'
respective assessment of those current and projected needs. In view of this
obligation, regulation has focused on investment and operating costs, and rates
have been based on a recovery of some or all of such prudently incurred costs
plus a return on invested capital. Such rate regulation, and the ability of
utilities to recover investment and other costs through rates, has provided the
basis for recording certain costs as regulatory assets. These assets represent
costs which are allocated over future periods reflecting related regulatory
treatment, rather than expensed currently.
As noted previously, the United States electric utility industry is in a
process of fundamental change as state legislators and regulators re-examine
their approach to regulation and its objectives and consider a transition to a
competitive or market-based system of pricing for electric energy. Although the
process and approach have varied from state to state in terms of the elements
and timing of implementation, it is evident that the question is no longer if,
but rather how and when there will be a more competitive electricity market.
The Federal Energy Policy Act of 1992, among other things, empowered FERC to
introduce a greater level of competition into the wholesale marketplace for
electric energy. In April 1996, FERC issued its Open Access Order requiring
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 Order 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
31
<PAGE>
requirements. The Order 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 Order is that it contemplates full
recovery of a utility's costs "stranded" by competition. These costs are
"stranded" or "strandable" to the extent market based rates would be
insufficient to allow for their full recovery. To recover stranded costs, the
utility must show that it had a reasonable expectation that it would continue
to serve the customer in question.
An important element of reform proposals under consideration is the ability
of other suppliers to provide energy in competition with a utility within its
service territory. This element 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 governmental
entities, such as cities, may elect to "municipalize" a utility's distribution
facilities through condemnation proceedings. Such municipalities would then be
able to purchase electric power on a wholesale basis and resell it to customers
over the newly acquired facilities. The FERC Open Access Order provides for the
recovery of a utility's investment 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."
Presumably, under such a modified regulatory structure, customers will base
energy purchase decisions on a combination of factors, including price,
reliability and service. In addition to the potential effects on revenues and
marketing and sales efforts, such changes can raise the question as to whether
an affected utility's rates are based on cost-based regulation, allowing
recovery of incurred costs, or are based on something else, i.e., the market
place. Under generally accepted accounting principles, the latter determination
would require the write off of regulatory assets and liabilities and would
require an examination as to the recoverability in revenues of other incurred
costs, with any portion determined to be unrecoverable being subject to write
off. Various approaches have been proposed to deal with such strandable costs,
from full recovery, as provided in the FERC Open Access Order, to no recovery,
as proposed by at least some of the participants in virtually all legislative
debates on regulatory reform proposals. For additional information, see
"Regulatory Assets and Liabilities" in Note 1 of Notes to Financial Statements.
Retail wheeling and municipalization are significant issues for electric
utility companies, including ComEd, 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 develop an estimate of strandable costs with any
degree of accuracy. Any calculation of potentially strandable costs requires
that a set of assumptions be made, including the timing of open access
(customer choice), the extent of open access allowed, potential market prices
over time, sales and load growth forecasts, operating performance over time,
allowed rates over time, cost structure over time, mitigation opportunities and
strandable cost recoveries. The calculation of strandable costs is extremely
sensitive to the assumptions made, and the resulting estimates are potentially
misleading if removed from the context in which they were calculated. At this
point in time, ComEd does not subscribe to a certain set of assumptions or a
particular estimate. However, ComEd believes the amount of its strandable costs
could be material without allowance for recovery of costs and investments it
incurred under its regulatory compact, including its duty to serve. Most reform
proposals anticipating increased competition include some form of stranded cost
recovery. ComEd is taking steps, such as cost-control measures and additional
depreciation, to minimize its potential stranded investment. See Note 2 of
Notes to Financial Statements for additional information.
ComEd. ComEd is responding, and is undertaking a significant planning effort
with respect to further responses, to the developments within the utility
industry. During the past several years, such efforts have focused on cost
reductions, including personnel reductions, efficiencies in purchasing and
inventory management, and an incentive compensation system keyed to cost
reduction and control. Notwithstanding the progress made at stemming the rates
of increase of aggregate operating expenditures, ComEd's costs remain high in
comparison to its neighboring utilities.
32
<PAGE>
ComEd is examining its assets (particularly generating assets) with a view
toward rationalizing their investment and operating costs against their ability
to contribute to the revenues of ComEd under various market scenarios. Such an
assessment involves the consideration of numerous factors, including revenue
contribution, operating costs, impacts on ComEd's service obligations, purchase
commitments and remaining assets, and the impact of various options.
On April 17, 1996, ComEd announced that it had finalized agreements to sell
two of its coal-fired generating stations, representing approximately 1,600
megawatts of generating capacity. Under the agreements, State Line and Kincaid
stations would be sold for a total of $250 million, which approximates the book
value of the stations. The net proceeds, after income tax effects, would be
approximately $200 million, which would be used to retire or redeem existing
debt. Under the terms of the sales, ComEd would enter into exclusive 15-year
purchased power agreements for the output of the plants. The agreements are
subject to regulatory approval, and proceedings have been initiated to obtain
those approvals. Numerous parties have intervened in the proceedings, including
various governmental and consumer groups and ComEd's principal union. The union
has also filed a lawsuit in state court alleging that the labor provisions of
the Kincaid agreement are violative of state law and seeking to enjoin the ICC
proceedings. ComEd had previously filed an action in federal court seeking
confirmation that the state law is preempted by federal labor law, and ComEd
believes that the Union's allegations are without merit. The State Line and
Kincaid agreements give the purchasers the right to terminate the agreements if
a closing has not occurred prior to December 31, 1996.
With respect to its transmission assets, ComEd is participating with
approximately 20 other electric utility companies in an effort to form an ISO
for the midwest United States. Under the structure currently contemplated, the
ISO would set standard transmission rates and facilitate compliance with FERC's
Open Access Order. In addition, while individual utility companies would
continue to own their transmission lines, the ISO would oversee regional
planning to avoid overloads. Creation of the ISO will be subject to further
negotiations among the parties as well as federal and state regulatory
approval.
ComEd is also taking actions to strengthen its relationship with its
customers. 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.
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 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 1998. The estimated replacement cost is approximately $470
million, including approximately $80 million for the cost of
33
<PAGE>
removal of the existing steam generators. Approximately $340 million of this
estimated cost is included in the construction expenditures shown above.
Approximately $75 million has been incurred through June 30, 1996. 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; however, it 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 such forecasted needs. If ComEd were to build additional capacity to meet
its needs, it would need to make additional expenditures during the 1996-98
period.
Purchase commitments for ComEd and the Indiana Company, principally related
to construction and nuclear fuel, approximated $1,054 million at June 30, 1996.
In addition, ComEd's estimated commitments for the purchase of coal are
indicated in the following table.
<TABLE>
<CAPTION>
CONTRACT PERIOD COMMITMENT(1)
-------- --------- -------------
<S> <C> <C>
Black Butte Coal Co. ............................. 1996-2007 $919
Decker Coal Co. .................................. 1996-2015 $656
Big Horn Coal Co. ................................ 1998 $ 22
Other commitments................................. 1996-1997 $ 14
</TABLE>
--------
(1) In millions of dollars, excluding transportation costs. 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 19 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 forecasts 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 June 30, 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
34
<PAGE>
indices plus a spread which is dependent upon the credit ratings of ComEd's
outstanding first mortgage bonds or on a prime interest rate. Collateral, if
required for the borrowings, would consist of first mortgage bonds issued under
and in 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, six months and twelve
months ended June 30, 1996.
During the first six months of 1996, ComEd sold and leased back approximately
$160 million of nuclear fuel through its existing nuclear fuel lease facility.
In June 1996, ComEd issued $199 million of pollution control obligations, the
proceeds of which were placed on deposit with a trustee to redeem $199 million
of pollution control obligations, effecting the extinguishment of such bonds.
See the Statements of Consolidated Cash Flows and Note 4 of Notes to Financial
Statements for information regarding common stock activity.
As of August 8, 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.
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. As of May 1996, Duff & Phelps 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.
Capital Structure. ComEd's ratio of long-term debt to total capitalization
has decreased to 47.0% at June 30, 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 in the city of Chicago under a
non-exclusive franchise agreement. 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 is
involved in or considering district cooling projects in other cities, including
a project in Boston (with Boston Edison Technologies Group, Inc.).
35
<PAGE>
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
Chicago and its share of construction costs in Boston. Unicom Thermal's first
two district cooling facilities in Chicago began serving customers in May 1995
and July 1996, respectively. Its third district cooling facility in Chicago
will be completed in 1997. As of June 30, 1996, Unicom Thermal's purchase
commitments, principally related to construction, were approximately $22
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 prior approval by
the ICC.
Unicom Enterprises has a $200 million credit facility which will expire in
1998, of which $125 million was unused as of June 30, 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.
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 June 30, 1996, electric operating revenues of approximately $473
million (excluding revenue taxes) are subject to refund. Intervenors and ComEd
have filed appeals of the Rate Order with the Illinois Appellate Court. See
Note 2 of Notes to Financial Statements for additional information.
Nuclear Matters. Nuclear operations have been, and remain, an important focus
of ComEd--given the impact of such operations on overall operating and
maintenance expenditures and the ability of nuclear power plants to produce
electric energy at a relatively low marginal cost. ComEd operates a large
number of nuclear plants, ranging from the older Zion, Dresden and Quad-Cities
stations to the more
36
<PAGE>
recently completed LaSalle, Byron and Braidwood stations, and is intent upon
safe, reliable and efficient operation. These plants were constructed over a
period of time in which technology, construction procedures and regulatory
initiatives and oversight have evolved, with the result that older plants
generally require greater attention and resources to meet regulatory
requirements and expectations as well as to maintain operational reliability.
ComEd's management is monitoring these developments and evaluating effective
alternatives for controlling anticipated expenditures as well as the benefits
to be derived from accelerating certain expenditures.
ComEd's Dresden station is presently on the NRC's list of plants to be
monitored closely, where it has been since being placed on that list in 1992.
In June 1995, the NRC reported, with respect to Dresden, that over the prior
year performance was cyclical, that plant material condition needed to be
improved and that a more effective work management system was needed to deal
with the corrective maintenance backlog. Although the NRC has subsequently
noted improvement, it has expressed concern with the sustainability of
improvement and has continued its monitoring to determine if lasting change has
been made. The NRC has indicated that it plans to conduct a team inspection at
Dresden to assess progress in correcting performance and to sample compliance
with licensing and other requirements. This inspection is presently expected to
begin in the Fall of 1996.
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 for the 1989 proceedings. In June 1996,
these intervenors petitioned for leave to appeal to the Illinois Supreme Court.
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, 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 19 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 were $0.47 for the three months ended June
30, 1996 compared to $0.51 for the three months ended June 30, 1995, $1.10 for
the six months ended June 30, 1996 compared to $0.92 for the six months ended
June 30, 1995, and $3.16 for the twelve months ended June 30, 1996 compared to
$2.52 for the twelve months ended June 30, 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.
37
<PAGE>
Net Income. The decrease in ComEd's earnings in the recent three-month period
reflects, among other factors, lower sales to wholesale customers, partially
offset by higher sales to retail customers, compared to the three-month period
ended June 30, 1995. Also contributing to the lower earnings were higher
operation and maintenance expenses. Partially offsetting the lower earnings was
a reduction in real estate taxes which increased net income by $23 million or
$0.11 per common share. Approximately $14 million or $0.07 per common share of
this increase is for the year 1995 and approximately $9 million or $0.04 per
common share is related to the six-month period ending June 30, 1996. The real
estate tax reduction results primarily from ongoing challenges by ComEd of the
methodology used by local taxing authorities to assess the value of ComEd's
nuclear stations. See "Part II. Other Information, Item 1. Legal Proceedings,"
subcaption "Litigation", for additional information about certain property tax
assessment appeals. In addition, the recent three-month period includes a
decrease in the total of interest expense on debt and dividend requirements on
preferred and preference stocks compared to the three-month period ended June
30, 1995.
The increase in the recent six-month period reflects, among other factors,
higher operating revenues as a result of higher sales to retail customers,
compared to the six-month period ended June 30, 1995. Also contributing to the
higher earnings for the recent six-month period was the reduction in real
estate taxes discussed above. In addition, the recent six-month period includes
a decrease in the total of interest expense on debt and dividend requirements
on preferred and preference stocks and slightly higher operation and
maintenance expenses compared to the six-month period ended June 30, 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-month period ended June 30, 1996
were also affected by a decrease in the total of interest expense on debt and
dividend requirements on preferred and preference stocks and higher operation
and maintenance expenses. The operation and maintenance expenses reflect an
after-tax charge of $60 million or $0.28 per common share for a voluntary
separation offer for union employees who accepted and left ComEd's employ
combined with separation plans offered to selected groups of non-union
employees. Substantially all of the costs of the voluntary separation plans
were recorded in 1995. 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.
Kilowatthour Sales. Kilowatthour sales to ultimate consumers for the three
months, six months and twelve months ended June 30, 1996 increased 0.5%, 3.3%
and 6.5%, respectively, compared to the three months, six months and twelve
months ended June 30, 1995. The slight increase in the recent three-month
period reflects higher kilowatthour sales to all classes of customers, except
small commercial and industrial customers and public authorities, which
decreased. The increase in the recent six-month period reflects higher
kilowatthour sales to all classes of customers, reflecting cooler weather
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 compared to the
same period in 1994 and the cooler weather in the six months ended June 30,
1996 compared to the same period in the prior year.
Kilowatthour sales, including sales for resale, decreased 5.0% and 0.7%, and
increased 2.1% for the three months, six months and twelve months ended June
30, 1996, respectively, compared to the three months, six months and twelve
months ended June 30, 1995.
Operating Revenues. Operating revenues decreased slightly in the three months
ended June 30, 1996 compared to the three months ended June 30, 1995, due to
lower kilowatthour sales to wholesale customers, partially offset by slightly
higher kilowatthour sales to retail customers. Operating revenues increased in
the six months ended June 30, 1996 compared to the six months ended June 30,
1995,
38
<PAGE>
reflecting the higher kilowatthour sales to retail customers discussed above.
Operating revenues increased in the twelve months ended June 30, 1996 compared
to the twelve months ended June 30, 1995, reflecting the higher kilowatthour
sales discussed above and to a lesser extent, the effects of the Rate Order
which became effective in January 1995.
Fuel Costs. Changes in fuel expense for the three months, six months and
twelve months ended June 30, 1996 compared to the same periods ended June 30,
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 SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30
-------------------- ------------------ --------------------
1995 1996 1995 1996 1995 1996
--------- --------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Cost of fuel consumed (per million Btu):
Nuclear..................................... $0.50 $0.54 $0.52 $0.53 $0.52 $0.53
Coal........................................ $2.52 $2.56 $2.48 $2.51 $2.36 $2.45
Oil......................................... $3.34 $3.80 $3.04 $3.27 $3.10 $3.17
Natural gas................................. $1.83 $2.87 $1.80 $2.91 $1.91 $2.22
Average all fuels........................... $0.99 $1.23 $1.02 $1.13 $1.02 $1.10
Net generation of electric energy (millions of
kilowatthours)............................... 23,979 21,822 48,175 45,315 95,905 93,748
Fuel sources of kilowatthour generation:
Nuclear..................................... 77% 67% 75% 71% 74% 71%
Coal........................................ 21 30 23 26 23 25
Oil......................................... -- -- -- 1 1 1
Natural gas................................. 2 3 2 2 2 3
--------- --------- -------- -------- --------- ---------
100% 100% 100% 100% 100% 100%
========= ========= ======== ======== ========= =========
</TABLE>
The decrease in nuclear generation as a percentage of total generation for
the three months ended June 30, 1996 compared to the three months ended June
30, 1995 is primarily due to scheduled and non-scheduled outages at certain of
ComEd's nuclear generating stations.
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 June
30, 1996, ComEd had unrecovered fuel costs in the form of coal reserves of
approximately $411 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 19 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.
39
<PAGE>
The number and average cost of kilowatthours purchased were as follows:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS ENDED TWELVE MONTHS ENDED
ENDED JUNE 30 JUNE 30 JUNE 30
------------- ------------------ ----------------------
1995 1996 1995 1996 1995 1996
------ ------ -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Kilowatthours
(millions)............. 239 1,376 448 2,847 896 4,874
Cost per kilowatthour... 2.70c 2.40c 2.23c 2.27c 2.71c 2.44c
</TABLE>
Deferred Under or Overrecovered Energy Costs--Net. Operating expenses for the
three months, six months and twelve months ended June 30, 1995 and 1996 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 increased 4.9%, 0.7% and 8.8% for the three months, six months and
twelve months ended June 30, 1996, respectively, compared to the same periods
ended June 30, 1995. The increase in the current three-month period primarily
reflects higher operation and maintenance expenses associated with nuclear and
fossil generating stations, certain administrative and general costs and
customer related activities, partially offset by lower expenses associated with
pensions and other employee benefits, including postretirement health care
benefits. The increase in the current six-month period primarily reflects
higher operation and maintenance expenses associated with nuclear and fossil
generating stations, certain administrative and general costs and customer
related activities, partially offset by lower expenses associated with the
transmission and distribution system and pensions and other employee benefits,
including postretirement health care benefits. 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 the
transmission and distribution system and pensions and other employee benefits,
including postretirement health care benefits. The effects of inflation are
reflected in the increases and decreases discussed below and have increased
operation and maintenance costs for the three months, six months and twelve
months ended June 30, 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 increased $15 million, $9 million and $85 million for the three
months, six months and twelve months ended June 30, 1996, respectively,
compared to the same periods ended June 30, 1995. The increases in operation
and maintenance expenses for the recent three-month and six-month periods
reflect increased expenses related to aggressive improvement programs, which
accelerate certain expenditures related to the nuclear generating plants. The
increase for the current twelve-month period reflects aggressive improvement
programs, which accelerate certain expenditures related to the nuclear
generating plants, and activities undertaken during scheduled and non-scheduled
outages. 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 consisted of
various operation, maintenance and capital expenditure items. 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
contemplated that ComEd's nuclear operation and maintenance expenses would be
at a similarly increased level for 1997. The program also included an $89
million increase to ComEd's three-year
40
<PAGE>
construction program. 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.
Operation and maintenance expenses associated with the fossil generating
stations also tend to be affected by the number of outages in the same manner
as nuclear generating stations. Such expenses increased $4 million, $23 million
and $39 million in the three months, six months and twelve months ended June
30, 1996, respectively, compared to the same periods ended June 30, 1995. The
increases in the recent three-month, six-month and twelve-month periods reflect
an increase in the scope of scheduled overhauls to upgrade plant performance,
partially offset by the effects of a reduction of personnel.
Operation and maintenance expenses associated with ComEd's transmission and
distribution system decreased $4 million and $6 million in the six months and
twelve months ended June 30, 1996, respectively, compared to the same periods
ended June 30, 1995. The decrease in the recent six-month and twelve-month
periods reflects the effects of a reduction of personnel. Operation and
maintenance expenses associated with ComEd's customer-related activities,
including customer assistance and energy sales services, increased $4 million
in the three-month and six-month periods ended June 30, 1996 and increased $11
million in the twelve-month period ended June 30, 1996 compared to the same
periods ended June 30, 1995. The increases in the recent three-month, six-month
and twelve-month periods reflect an increase for uncollectible accounts
partially offset by the effects of a reduction of personnel.
Operation and maintenance expenses in the twelve months ended June 30, 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, $30
million and $41 million in the three months, six months and twelve months ended
June 30, 1996, respectively, compared to the same periods ended June 30, 1995.
The decrease in the recent three-month period reflects a decrease of $13
million in the provision for postretirement health care benefits. The decrease
in the recent six-month period reflects a decrease of $27 million in the
provision for postretirement health care benefits. The decrease in the recent
twelve-month period reflects a decrease of $65 million in the provision for
postretirement health care benefits, partially offset by a $26 million increase
for the portion of the costs of the voluntary employee separation plans related
to postretirement health care benefits. 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 June 30, 1996
reflect $73 million 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.
Operation and maintenance expenses associated with certain administrative and
general costs increased $13 million and $5 million for the three months and six
months ended June 30, 1996, respectively, compared to the same periods ended
June 30, 1995, due to a variety of reasons including an increase in certain
labor costs partially offset by a decrease for the recent six-month period
related to the provision for injuries and damages.
41
<PAGE>
Depreciation. Depreciation expense for the three months, six months and twelve
months ended June 30, 1996 increased over the same periods ended June 30, 1995
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 of Notes to Financial Statements
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, six months and twelve months ended June 30, 1996 compared to
the same periods ended June 30, 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 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 SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30
--------------------- --------------------- ---------------------
1995 1996 1995 1996 1995 1996
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Long-term debt
outstanding:
Average amount (mil-
lions)................ $7,728 $6,682 $7,780 $6,700 $7,829 $7,011
Average interest rate.. 7.79% 7.72% 7.78% 7.72% 7.80% 7.73%
Notes payable
outstanding:
Average amount (mil-
lions)................ $ 11 $ 313 $ 9 $ 301 $ 10 $ 196
Average interest rate.. 7.82% 5.71% 8.12% 5.81% 7.27% 5.91%
</TABLE>
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 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 the
results of operations due to ComEd's ability to recover decommissioning costs
through rates.
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 June 30, 1996 were 2.79 and 2.96, 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 June 30, 1996
were 2.39 and 2.52, 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.
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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 June 30,
1996, and the related statements of consolidated income, retained earnings and
cash flows for the three-month, six-month and twelve-month periods ended June
30, 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 June 30, 1996, and the
results of their operations and their cash flows for the three-month, six-month
and twelve-month periods ended June 30, 1995 and 1996, in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Chicago, Illinois
August 8, 1996
44
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED INCOME
The following Statements of Consolidated Income for the three months, six
months and twelve months ended June 30, 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, purchased
power and other matters, the nature and effect of which cannot now be
determined.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30
---------------------- ---------------------- ----------------------
1995 1996 1995 1996 1995 1996
---------- ---------- ---------- ---------- ---------- ----------
(THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Electric Operating
Revenues............... $1,559,535 $1,547,632 $3,137,671 $3,231,121 $6,458,276 $7,003,236
---------- ---------- ---------- ---------- ---------- ----------
Electric Operating
Expenses and Taxes:
Fuel................... $ 254,576 $ 287,910 $ 527,432 $ 548,883 $1,051,301 $1,111,292
Purchased power........ 6,443 33,061 9,986 64,500 24,276 118,892
Deferred
(under)/overrecovered
energy costs--net..... 4,625 (33,353) 1,262 (10,351) 24,161 (14,346)
Operation.............. 369,020 379,121 752,764 726,568 1,486,253 1,571,767
Maintenance............ 139,596 154,445 284,923 317,991 510,597 599,819
Depreciation........... 224,708 229,827 449,796 460,438 893,383 907,947
Recovery of regulatory
assets................ 3,818 3,818 7,636 7,636 15,272 15,272
Taxes (except income).. 189,628 159,351 399,385 377,481 798,822 810,122
Income taxes--
Current--Federal..... 49,308 41,810 102,897 109,522 204,731 263,709
--State.............. 16,367 11,470 28,107 32,659 28,195 91,690
Deferred--Federal--
net................. 26,823 27,478 39,401 51,349 158,315 184,351
--State--net......... 3,572 5,169 8,061 5,376 61,454 12,920
Investment tax credits
deferred--net......... (7,179) (7,165) (14,358) (14,332) (28,690) (28,685)
---------- ---------- ---------- ---------- ---------- ----------
$1,281,305 $1,292,942 $2,597,292 $2,677,720 $5,228,070 $5,644,750
---------- ---------- ---------- ---------- ---------- ----------
Electric Operating
Income................. $ 278,230 $ 254,690 $ 540,379 $ 553,401 $1,230,206 $1,358,486
---------- ---------- ---------- ---------- ---------- ----------
Other Income and
(Deductions):
Interest on long-term
debt.................. $ (150,568) $ (128,949) $ (302,765) $ (258,679) $ (610,998) $ (541,720)
Interest on notes
payable............... (221) (4,436) (372) (8,687) (741) (11,595)
Allowance for funds
used during
construction--
Borrowed funds....... 3,192 6,367 4,877 11,265 13,294 17,525
Equity funds......... 3,776 6,068 5,869 10,766 16,071 18,026
Income taxes
applicable to
nonoperating
activities............ 201 790 469 5,066 6,974 9,682
Provision for
dividends on company-
obligated mandatorily
redeemable preferred
securities of
subsidiary trust...... -- (4,240) -- (8,480) -- (12,908)
Miscellaneous--net..... (7,233) (10,842) (14,034) (29,313) (40,145) (59,406)
---------- ---------- ---------- ---------- ---------- ----------
$ (150,853) $ (135,242) $ (305,956) $ (278,062) $ (615,545) $ (580,396)
---------- ---------- ---------- ---------- ---------- ----------
Net Income Before
Extraordinary Item..... $ 127,377 $ 119,448 $ 234,423 $ 275,339 $ 614,661 $ 778,090
Extraordinary Loss
Related to Early
Redemption of Long-Term
Debt, Less Applicable
Income Taxes........... -- -- -- -- -- (20,022)
---------- ---------- ---------- ---------- ---------- ----------
Net Income.............. $ 127,377 $ 119,448 $ 234,423 $ 275,339 $ 614,661 $ 758,068
Provision for Dividends
on Preferred and
Preference Stocks...... 16,865 16,472 33,773 32,986 67,673 69,172
---------- ---------- ---------- ---------- ---------- ----------
Net Income on Common
Stock.................. $ 110,512 $ 102,976 $ 200,650 $ 242,353 $ 546,988 $ 688,896
========== ========== ========== ========== ========== ==========
Average Number of Common
Shares Outstanding..... 214,192 214,198 214,192 214,196 214,178 214,195
Earnings per Common
Share Before
Extraordinary Item..... $0.52 $0.48 $0.94 $1.13 $2.55 $3.31
Extraordinary Loss
Related to Early
Redemption of Long-Term
Debt, Less Applicable
Income Taxes........... -- -- -- -- -- (0.09)
---------- ---------- ---------- ---------- ---------- ----------
Earnings per Common
Share.................. $0.52 $0.48 $0.94 $1.13 $2.55 $3.22
========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
45
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
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 $1,172 million, respectively)................. $27,052,778 $27,553,015
Less--Accumulated provision for depreciation....... 10,565,093 10,967,396
----------- -----------
$16,487,685 $16,585,619
Nuclear fuel, at amortized cost.................... 734,667 770,527
----------- -----------
$17,222,352 $17,356,146
----------- -----------
Investments:
Nuclear decommissioning funds...................... $ 1,237,527 $ 1,341,843
Subsidiary companies............................... 113,657 116,969
Other investments, at cost......................... 20,478 17,956
----------- -----------
$ 1,371,662 $ 1,476,768
----------- -----------
Current Assets:
Cash............................................... $ 972 $ 365
Temporary cash investments......................... 14,138 17,458
Special deposits................................... 3,546 565
Receivables--
Customers........................................ 579,861 563,198
Taxes............................................ 75,536 --
Other............................................ 82,824 38,875
Provisions for uncollectible accounts............ (11,828) (12,544)
Coal and fuel oil, at average cost................. 129,176 166,981
Materials and supplies, at average cost............ 333,539 342,291
Deferred unrecovered energy costs.................. 46,028 98,165
Deferred income taxes related to current assets and
liabilities....................................... 107,931 113,678
Prepayments and other.............................. 44,661 36,613
----------- -----------
$ 1,406,384 $ 1,365,645
----------- -----------
Deferred Charges and Other Noncurrent Assets:
Regulatory assets.................................. $ 2,467,386 $ 2,441,489
Unrecovered energy costs........................... 588,152 501,283
Other.............................................. 63,124 53,288
----------- -----------
$ 3,118,662 $ 2,996,060
----------- -----------
$23,119,060 $23,194,619
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
46
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
CAPITALIZATION AND LIABILITIES 1995 1996
------------------------------ ------------ -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Capitalization (see accompanying statements):
Common stock equity................................. $ 5,706,130 $ 5,777,232
Preferred and preference stocks without mandatory
redemption requirements............................ 508,034 507,926
Preference stock subject to mandatory redemption re-
quirements......................................... 261,475 245,609
Company-obligated mandatorily redeemable preferred
securities of subsidiary trust*.................... 200,000 200,000
Long-term debt...................................... 6,488,434 5,970,266
----------- -----------
$13,164,073 $12,701,033
----------- -----------
Current Liabilities:
Notes payable--
Commercial paper.................................. $ 261,000 $ 326,850
Bank loans........................................ 7,150 7,550
Current portion of long-term debt, redeemable pref-
erence stock and capitalized lease obligations..... 433,299 912,844
Accounts payable.................................... 614,283 426,915
Accrued interest.................................... 170,284 165,232
Accrued taxes....................................... 215,965 293,898
Dividends payable................................... 102,192 106,370
Customer deposits................................... 44,521 44,796
Other............................................... 93,841 84,220
----------- -----------
$ 1,942,535 $ 2,368,675
----------- -----------
Deferred Credits and Other Noncurrent Liabilities:
Deferred income taxes............................... $ 4,506,704 $ 4,523,887
Accumulated deferred investment tax credits......... 689,041 674,709
Accrued spent nuclear fuel disposal fee and related
interest........................................... 624,191 640,519
Obligations under capital leases.................... 373,697 412,936
Regulatory liabilities.............................. 601,002 596,978
Other............................................... 1,217,817 1,275,882
----------- -----------
$ 8,012,452 $ 8,124,911
----------- -----------
Commitments and Contingent Liabilities (Note 19)
$23,119,060 $23,194,619
=========== ===========
</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.
47
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CAPITALIZATION
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
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 214,198,784
shares, respectively............................. $ 2,677,437 $ 2,677,485
Premium on common stock and other paid-in capital.. 2,223,004 2,223,062
Capital stock and warrant expense.................. (16,159) (16,151)
Retained earnings.................................. 821,848 892,836
----------- -----------
$ 5,706,130 $ 5,777,232
----------- -----------
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 93,374 shares, re-
spectively....................................... 3,077 2,969
Prior preferred stock, cumulative, $100 par value
per share--
No shares outstanding............................. -- --
----------- -----------
$ 508,034 $ 507,926
----------- -----------
Preference Stock Subject to Mandatory Redemption Re-
quirements:
Preference stock, cumulative, without par value--
Outstanding--2,934,990 shares and 2,904,990
shares, respectively............................. $ 292,163 $ 289,183
Current redemption requirements for preference
stock included in current liabilities............. (30,688) (43,574)
----------- -----------
$ 261,475 $ 245,609
----------- -----------
Company-Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trust:
Outstanding--8,000,000............................. $ 200,000 $ 200,000
----------- -----------
Long-Term Debt:
First mortgage bonds:
Maturing 1996 through 2000--5 1/4% to 9 3/8%..... $ 1,170,000 $ 1,120,000
Maturing 2001 through 2010--3 1/2% to 8 3/8%..... 1,465,400 1,640,400
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 $ 5,411,400
Sinking fund debentures, due 1999 through 2011--
2 3/4% to 7 5/8%.................................. 110,505 107,857
Pollution control obligations, due 2004 through
2014-- 3.30% to 6 7/8%............................ 317,200 142,200
Other long-term debt............................... 1,064,318 1,049,277
Deposit for retirement of long-term debt........... -- (975)
Current maturities of long-term debt included in
current liabilities............................... (234,893) (687,625)
Unamortized net debt discount and premium.......... (55,096) (51,868)
----------- -----------
$ 6,488,434 $ 5,970,266
----------- -----------
$13,164,073 $12,701,033
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
48
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED RETAINED EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30
------------------- ------------------- -------------------
1995 1996 1995 1996 1995 1996
--------- --------- -------- ---------- -------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Balance at Beginning of
Period................. $ 521,795 $ 875,547 $517,335 $ 821,848 $340,691 $ 546,624
Add--Net income......... 127,377 119,448 234,423 275,339 614,661 758,068
--------- --------- -------- ---------- -------- ----------
$ 649,172 $ 994,995 $751,758 $1,097,187 $955,352 $1,304,692
--------- --------- -------- ---------- -------- ----------
Deduct--
Dividends declared
on--
Common stock........ $ 85,676 $ 85,680 $171,354 $ 171,358 $340,490 $ 342,713
Preferred and pref-
erence stocks...... 16,844 16,450 33,752 32,964 68,137 66,066
Other capital stock
transactions--net... 28 29 28 29 101 3,077
--------- --------- -------- ---------- -------- ----------
$ 102,548 $ 102,159 $205,134 $ 204,351 $408,728 $ 411,856
--------- --------- -------- ---------- -------- ----------
Balance at End of Peri-
od..................... $ 546,624 $ 892,836 $546,624 $ 892,836 $546,624 $ 892,836
========= ========= ======== ========== ======== ==========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
49
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30
-------------------- --------------------- ------------------------
1995 1996 1995 1996 1995 1996
--------- --------- ---------- --------- ----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Cash Flow from Operating
Activities:
Net income............. $ 127,377 $ 119,448 $ 234,423 $ 275,339 $ 614,661 $ 758,068
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and am-
ortization.......... 238,116 238,191 476,728 479,065 942,394 951,021
Deferred income taxes
and investment tax
credits--net........ 24,162 25,996 34,444 42,204 198,096 166,057
Extraordinary loss
related to early re-
demption of long-
term debt........... -- -- -- -- -- 33,158
Equity component of
allowance for funds
used during
construction........ (3,776) (6,068) (5,869) (10,766) (16,071) (18,026)
Revenue refunds and
related interest.... 20 -- 15,135 -- (532,947) --
Recovery of regula-
tory assets......... 3,818 3,818 7,636 7,636 15,272 15,272
Provisions/(payments)
for liability for
early retirement and
separation costs--
net................. 180 2,373 560 (29,930) 2,603 30,223
Net effect on cash
flows of changes in:
Receivables........ (8,159) 26,181 (6,139) 136,864 (78,534) (26,208)
Coal and fuel oil.. (12,802) (22,314) (24,426) (37,805) (2,271) (33,683)
Materials and sup-
plies............. 4,475 (7,149) 18,082 (8,752) 36,008 24,239
Accounts payable
excluding nuclear
fuel lease
principal payments
and early
retirement and
separation costs--
net............... 63,992 16,453 81,219 (49,359) 183,480 334,897
Accrued interest
and taxes......... 6,494 23,237 89,512 72,881 120,495 (22,397)
Other changes in
certain current
assets and
liabilities....... 3,031 (17,941) 9,590 (8,670) (9,687) 8,294
Other--net........... 51,331 26,358 134,909 29,850 137,410 40,532
--------- --------- ---------- --------- ----------- -----------
$ 498,259 $ 428,583 $1,065,804 $ 898,557 $ 1,610,909 $ 2,261,447
--------- --------- ---------- --------- ----------- -----------
Cash Flow from Investing
Activities:
Construction expendi-
tures................. $(178,948) $(237,046) $ (379,966) $(517,880) $ (721,977) $(1,037,280)
Nuclear fuel expendi-
tures................. (72,297) (109,184) (111,154) (143,603) (263,120) (321,567)
Equity component of
allowance for funds
used during
construction.......... 3,776 6,068 5,869 10,766 16,071 18,026
Contributions to nu-
clear decommissioning
funds................. -- -- (96,229) (83,178) (132,550) (119,602)
Investment in subsidi-
ary companies......... (1) -- (1) -- (50) (7)
Other investments and
special deposits...... 7,421 -- (649) (48) 805 20,207
--------- --------- ---------- --------- ----------- -----------
$(240,049) $(340,162) $ (582,130) $(733,943) $(1,100,821) $(1,440,223)
--------- --------- ---------- --------- ----------- -----------
Cash Flow from Financing
Activities:
Issuance of securi-
ties--
Long-term debt........ $ -- $ 198,902 $ -- $ 198,902 $ 269,176 $ 198,902
Preferred securities
of subsidiary trust.. -- -- -- -- -- 200,000
Capital stock......... -- (2) -- (2) 72,938 (2)
Retirement and redemp-
tion of securities--
Long-term debt........ (262,026) (267,056) (291,663) (267,097) (639,841) (1,112,706)
Capital stock......... (3,000) (3,000) (3,000) (3,000) (17,822) (17,822)
Deposits and securi-
ties held for retire-
ment and redemption
of securities......... 1,403 2,643 (271) (975) (274) (598)
Premium paid on early
redemption of long-
term debt............. -- -- -- -- (3,664) (25,823)
Cash dividends paid on
capital stock......... (102,584) (106,433) (205,169) (208,625) (449,402) (417,840)
Proceeds from
sale/leaseback of nu-
clear fuel............ -- 35,402 115,340 159,615 253,968 237,491
Nuclear fuel lease
principal payments.... (52,832) (50,918) (115,617) (106,969) (225,770) (229,197)
Increase in short-term
borrowings............ 40,000 98,850 40,000 66,250 41,050 287,250
--------- --------- ---------- --------- ----------- -----------
$(379,039) $ (91,612) $ (460,380) $(161,901) $ (699,641) $ (880,345)
--------- --------- ---------- --------- ----------- -----------
Increase (Decrease) in
Cash and Temporary Cash
Investments............ $(120,829) $ (3,191) $ 23,294 $ 2,713 $ (189,553) $ (59,121)
Cash and Temporary Cash
Investments at
Beginning of Period.... 197,773 21,014 53,650 15,110 266,497 76,944
--------- --------- ---------- --------- ----------- -----------
Cash and Temporary Cash
Investments at End of
Period................. $ 76,944 $ 17,823 $ 76,944 $ 17,823 $ 76,944 $ 17,823
========= ========= ========== ========= =========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
50
<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 million and $157 million for the three months ended June 30, 1995 and
1996, respectively, $353 million and $314 million for the six months ended June
30, 1995 and 1996, respectively, and $709 million and $654 million for the
twelve months ended June 30, 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, six
months and twelve months ended June 30, 1995 and 1996 was as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30
------------------- ----------------- -------------------
1995 1996 1995 1996 1995 1996
--------- --------- -------- -------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Supplemental Cash Flow
Information:
Cash paid during the
period for:
Interest (net of
amount capitalized). $145,011 $114,114 $316,266 $270,724 $641,806 $558,660
Income taxes (net of
refunds)............ $ 52,913 $ 9,284 $ 22,492 $ 9,284 $ 95,160 $ 355,634
Supplemental Schedule of
Non-Cash Investing and
Financing Activities:
Capital lease obliga-
tions incurred........ $ 1,433 $ 36,994 $118,243 $162,486 $258,091 $ 242,820
</TABLE>
(2) RATE MATTERS. See Unicom's Note 2 of Notes to Financial Statements.
51
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(3) AUTHORIZED SHARES AND VOTING RIGHTS OF CAPITAL STOCK. At June 30, 1996,
the authorized shares of capital stock were: common stock--250,000,000 shares;
preference stock--23,214,990 shares; $1.425 convertible preferred stock--93,374
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 June 30, 1996, shares of common stock were reserved for
the following purposes:
<TABLE>
<S> <C>
Conversion of $1.425 convertible preferred stock.................. 95,241
Conversion of warrants............................................ 27,117
-------
122,358
=======
</TABLE>
During the three months, six months and twelve months ended June 30, 1995 and
1996, shares of common stock were issued as follows:
<TABLE>
<CAPTION>
SIX MONTHS
THREE MONTHS ENDED ENDED TWELVE MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30
--------------------- ------------- ---------------------
1995 1996 1995 1996 1995 1996
--------- ---------- ------ ------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Employee Savings and In-
vestment Plan.......... -- -- -- -- 15,800 --
Conversion of $1.425
convertible preferred
stock.................. 161 2,634 1,231 3,435 98,175 5,834
Conversion of warrants.. 86 336 216 399 8,178 482
-------- ---------- ----- ----- ---------- --------
247 2,970 1,447 3,834 122,153 6,316
======== ========== ===== ===== ========== ========
</TABLE>
At December 31, 1995 and June 30, 1996, 82,742 and 81,353 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.
52
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(14) SEPARATION PLAN COSTS. See Unicom's Note 14 of Notes to Financial
Statements.
(15) INCOME TAXES. The components of the net deferred income tax liability at
December 31, 1995 and June 30, 1996 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
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 $3,439,412
Overheads capitalized................................ 252,910 243,805
Repair allowance..................................... 219,585 214,326
Regulatory assets recoverable through future rates... 1,689,832 1,669,018
Deferred income tax assets:
Postretirement benefits.............................. (235,353) (255,121)
Unbilled revenues.................................... (116,274) (122,457)
Alternative minimum tax.............................. (145,019) (133,600)
Unamortized investment tax credits to be settled
through future rates................................ (452,210) (442,795)
Other regulatory liabilities to be settled through
future rates........................................ (148,792) (154,183)
Other--net........................................... (45,893) (48,196)
---------- ----------
Net deferred income tax liability..................... $4,398,773 $4,410,209
========== ==========
</TABLE>
The $11 million increase in the net deferred income tax liability from December
31, 1995 to June 30, 1996 is comprised of a $56 million increase in deferred
income tax expense, a $28 million decrease in the deferred income tax balance
for AMT (before reflecting utilizations) and a $17 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, six months and twelve months ended June 30, 1995 and 1996
were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30
-------------------- ------------------ --------------------
1995 1996 1995 1996 1995 1996
--------- --------- -------- -------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Electric operating in-
come:
Current income taxes... $ 65,675 $ 53,280 $131,004 $142,181 $ 232,926 $ 355,399
Deferred income taxes.. 30,395 32,647 47,462 56,725 219,769 197,271
Investment tax credits
deferred--net......... (7,179) (7,165) (14,358) (14,332) (28,690) (28,685)
Other (income) and de-
ductions............... (299) (913) (526) (5,038) (2,322) (12,171)
--------- --------- -------- -------- --------- ---------
Net income taxes charged
to continuing opera-
tions.................. $ 88,592 $ 77,849 $163,582 $179,536 $ 421,683 $ 511,814
========= ========= ======== ======== ========= =========
</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, six months and twelve months ended June
30, 1995 and 1996:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30
-------------------- ------------------ ----------------------
1995 1996 1995 1996 1995 1996
--------- --------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Pre-tax book income
(thousands)............ $215,969 $197,297 $398,005 $454,875 $1,036,344 $1,289,904
Effective income tax
rate................... 41.0% 39.5% 41.1% 39.5% 40.7% 39.7%
</TABLE>
53
<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, six months and twelve months ended June 30, 1995 and 1996
were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30
-------------------- ------------------ --------------------
1995 1996 1995 1996 1995 1996
--------- --------- -------- -------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Federal income taxes
computed at statutory
rate................... $ 75,589 $ 69,054 $139,302 $159,206 $ 362,720 $ 451,467
Equity component of
AFUDC which was
excluded from taxable
income................. (1,322) (2,124) (2,054) (3,768) (5,625) (6,309)
Amortization of invest-
ment tax credits....... (7,178) (7,165) (14,358) (14,332) (28,755) (28,685)
State income taxes, net
of federal income tax-
es..................... 12,888 10,721 23,284 24,123 57,696 66,811
Differences between book
and tax accounting,
primarily property-re-
lated deductions....... 7,279 6,029 15,778 11,911 28,375 11,936
Other--net.............. 1,336 1,334 1,630 2,396 7,272 16,594
--------- --------- -------- -------- --------- ---------
Net income taxes charged
to continuing opera-
tions.................. $ 88,592 $ 77,849 $163,582 $179,536 $ 421,683 $ 511,814
========= ========= ======== ======== ========= =========
</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, six months and twelve months ended June 30, 1995 and 1996
were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30
------------------- ----------------- -------------------
1995 1996 1995 1996 1995 1996
--------- --------- -------- -------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Illinois public utility
revenue................ $ 51,763 $ 51,982 $107,941 $110,492 $ 219,416 $ 232,097
Illinois invested capi-
tal.................... 26,814 26,025 54,110 52,179 108,995 104,899
Municipal utility gross
receipts............... 36,861 37,823 74,906 79,401 151,422 172,253
Real estate............. 40,121 8,650 86,953 53,778 176,152 142,572
Municipal compensation.. 17,637 17,709 35,427 36,804 73,464 79,979
Other--net.............. 16,432 17,162 40,048 44,827 69,373 78,322
--------- --------- -------- -------- --------- ---------
$ 189,628 $ 159,351 $399,385 $377,481 $ 798,822 $ 810,122
========= ========= ======== ======== ========= =========
</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, $10 million will expire
on November 23, 1997 and $290 million will expire on November 23, 1998. At June
30, 1996, ComEd's obligation to the lessor for leased nuclear fuel amounted to
approximately $633 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 June 30, 1996 for
capital leases are estimated to aggregate $707 million, including $132 million
in 1996, $218 million in 1997, $154 million in 1998, $99 million in 1999, $58
million in 2000 and $46 million in 2001-2004. The estimated interest component
of such rental payments aggregates $78 million. The estimated portions of
obligations due within one year under capital leases of approximately $168
million and $182 million at December 31, 1995 and June 30, 1996, respectively,
are included in current liabilities.
54
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONCLUDED
Future minimum rental payments at June 30, 1996 for operating leases are
estimated to aggregate $138 million, including $4 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) JOINT PLANT OWNERSHIP. See Unicom's Note 18 of Notes to Financial
Statements.
(19) COMMITMENTS AND CONTINGENT LIABILITIES. See Unicom's Note 19 of Notes to
Financial Statements.
55
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CHANGES IN THE ELECTRIC UTILITY INDUSTRY. See Unicom's "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
subcaption "Changes in the Electric Utility Industry," which is incorporated
herein by this reference.
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.
56
<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 other seeks unspecified damages. One individual suit
was also filed seeking damages less than $100,000 for property losses.
ComEd has appeals pending in applicable counties in connection with property
tax assessments for its Byron, Braidwood and LaSalle nuclear generating
stations. These proceedings seek refunds and reduced valuations resulting in
lower property taxes for the challenged and subsequent years. In January 1996,
the PTAB rendered a decision substantially adopting ComEd's positions with
respect to the Byron nuclear station. Thereafter, the Ogle County Board of
Review issued a revised assessment. ComEd has received tax bills for 1995 taxes
(payable in 1996) based on the revised assessment. However, certain Ogle County
taxing bodies have filed legal actions challenging both the PTAB decision and
the Board of Review assessment. ComEd has also challenged the assessment, on
the grounds that it does not fully implement the PTAB decision. ComEd continues
to challenge tax assessments with respect to other
57
<PAGE>
properties. The reduction in ComEd's provision for real estate taxes in 1995
and 1996 reflects the bills received.
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. Extended delays
in spent nuclear fuel 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 2004, Quad-Cities has capacity through 2006 and all of the
other stations have capacity through at least 2008. 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.
Nuclear operations have been, and remain, an important focus of ComEd--given
the impact of such operations on overall operating and maintenance expenditures
and the ability of nuclear power plants to produce electric energy at a
relatively low marginal cost. ComEd operates a large number of nuclear plants,
ranging from the older Zion, Dresden and Quad-Cities stations to the more
recently completed LaSalle, Byron and Braidwood stations, and is intent upon
safe, reliable and efficient operation. These plants were constructed over a
period of time in which technology, construction procedures and regulatory
initiatives and oversight have evolved, with the result that older plants
generally require greater attention and resources to meet regulatory
requirements and expectations as well as to maintain operational reliability.
ComEd's management is monitoring these developments and evaluating effective
alternatives for controlling anticipated expenditures as well as the benefits
to be derived from accelerating certain expenditures.
58
<PAGE>
ComEd's Dresden station is presently on the NRC's list of plants to be
monitored closely, where it has been since being placed on that list in 1992.
In June 1995, the NRC reported, with respect to Dresden, that over the prior
year performance was cyclical, that plant material condition needed to be
improved and that a more effective work management system was needed to deal
with the corrective maintenance backlog. Although the NRC has subsequently
noted improvement, it has expressed concern with the sustainability of
improvement and has continued its monitoring to determine if lasting change has
been made. The NRC has indicated that it plans to conduct a team inspection at
Dresden to assess progress in correcting performance and to sample compliance
with licensing and other requirements. This inspection is presently expected to
begin in the Fall of 1996.
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 the 1989 proceedings. In June 1996,
these intervenors petitioned for leave to appeal to the Illinois Supreme Court.
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 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 $10.5 million, $6.5
million and $7.1 million, respectively. For 1997, estimated expenditures for
installation of mitigation systems for LaSalle County and Dresden stations are
$1.6 million and $2.1 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 1998. The estimated replacement cost is
approximately $470 million, including approximately $80 million for the cost of
removal of the existing steam generators. Approximately $340 million of this
estimated cost 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
59
<PAGE>
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 six occasions
for violations of NRC regulations in amounts aggregating $400,000. To ComEd's
knowledge, there is one enforcement issue 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 Quad-
Cities station.
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. This study, which was completed in April 1996, provides
empirical evidence that the current thermal limitations for these stations are
adequately protective of designated uses of the receiving waters. In May 1996,
ComEd filed a petition with the IPCB for alternate thermal limitations under
Section 316(a) of the Clean Water Act to conclude all regulatory issues
initiated by the Sierra Club suit. A decision by the IPCB is expected by late
1996. An adverse decision could necessitate installation of closed cycle
cooling facilities or operational restrictions at one or more 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
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<PAGE>
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 approximately $25 million has been included on the Consolidated
Balance Sheets as of December 31, 1995 and June 30, 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 June 30, 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
61
<PAGE>
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 June 30, 1996,
which could have such an effect.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Unicom's annual meeting of shareholders was held on May 22, 1996. At that
meeting, each of the persons named in the table below was elected as a
director. Vote totals for each director are shown below:
<TABLE>
<CAPTION>
SHARES SHARES
NOMINEE VOTED FOR WITHHELD FROM
------- ----------- -------------
<S> <C> <C>
Jean Allard........................................... 185,556,604 3,879,827
Edward A. Brennan..................................... 185,882,448 3,553,983
James W. Compton...................................... 185,749,268 3,687,163
Sue L. Gin............................................ 185,835,561 3,600,870
Donald P. Jacobs...................................... 185,846,835 3,589,596
Edgar D. Jannotta..................................... 185,925,100 3,511,331
George E. Johnson..................................... 185,724,530 3,711,901
Edward A. Mason....................................... 185,712,945 3,723,486
Leo F. Mullin......................................... 185,970,865 3,465,566
James J. O'Connor..................................... 185,758,718 3,677,713
Frank A. Olson........................................ 185,949,368 3,487,063
Samuel K. Skinner..................................... 185,476,201 3,960,230
</TABLE>
Also at the meeting, the appointment by Unicom's Board of Directors of Arthur
Andersen LLP as auditors for the year 1996 was approved. A total of 186,241,563
shares voted to approve the appointment, 1,581,485 shares voted against and
1,613,383 shares abstained.
62
<PAGE>
In addition, the Unicom Corporation 1996 Directors' Fee Plan was approved at
the meeting. A total of 172,743,026 shares voted to approve the plan, 9,318,821
shares voted against approval of the plan and 7,374,584 shares abstained.
ComEd's annual meeting of shareholders was held on May 22, 1996. At that
meeting, each of the persons named in the table below was elected as a
director. Vote totals for each director are shown below:
<TABLE>
<CAPTION>
SHARES
NOMINEE VOTED FOR
------- -----------
<S> <C>
Jean Allard......................................................... 214,185,572
Edward A. Brennan................................................... 214,185,572
James W. Compton.................................................... 214,185,572
Sue L. Gin.......................................................... 214,185,572
Donald P. Jacobs.................................................... 214,185,572
Edgar D. Jannotta................................................... 214,185,572
George E. Johnson................................................... 214,185,572
Edward A. Mason..................................................... 214,185,572
Leo F. Mullin....................................................... 214,185,572
James J. O'Connor................................................... 214,185,572
Frank A. Olson...................................................... 214,185,572
Samuel K. Skinner................................................... 214,185,572
</TABLE>
Also at the meeting, the appointment by ComEd's Board of Directors of Arthur
Andersen LLP as auditors for the year 1996 was approved. A total of 214,185,572
shares voted to approve the appointment.
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
None.
63
<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 8th day of August, 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)
64
<PAGE>
EXHIBIT INDEX
Exhibits filed with or incorporated by reference in Form 10-Q for the
quarterly period ended June 30, 1996:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------------------------------------------------------
(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.
<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, June 30,
No. 1995 1996
- ---- ------------ ----------
<S> <C> <C>
1 Net income before extraordinary item $ 737,176 $ 778,090
------------ ----------
2 Net provisions for income taxes and investment tax credits deferred
3 charged to-
4 Operations $ 503,519 $ 523,985
5 Other income (7,685) (12,171)
------------ ----------
6 $ 495,834 $ 511,814
------------ ----------
7 Fixed charges-
8 Interest on debt $ 589,217 $ 553,432
9 Estimated interest component of nuclear fuel and
10 other lease payments, rentals and other interest 73,003 69,710
11 Amortization of debt discount, premium and expense 22,738 21,968
12 Preferred securities dividend requirements of subsidiary trust 4,428 12,908
------------ ----------
13 $ 689,386 $ 658,018
------------ ----------
14 Preferred and preference stock dividend requirements-
15 Provisions for preferred and preference stock dividends $ 69,961 $ 69,172
16 Taxes on income required to meet provisions for
17 preferred and preference stock dividends 45,945 45,500
------------ ----------
18 $ 115,906 $ 114,672
------------ ----------
19 Fixed charges and preferred and preference stock
20 dividend requirements $ 805,292 $ 772,690
------------ ----------
21 Earned for fixed charges and preferred and preference stock
22 dividend requirements $ 1,922,396 $1,947,922
------------ ----------
23 Ratios of earnings to fixed charges (line 22 divided by line 13) 2.79 2.96
==== ====
24 Ratios of earnings to fixed charges and preferred and preference
25 stock dividend requirements (line 22 divided by line 20) 2.39 2.52
==== ====
</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
June 30, 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), Form S-4
Registration Statement File No. 333-01003 (relating to Common Stock of Unicom
Corporation) and Form S-8 Registration Statement File No. 333-04749 (relating
to Unicom Corporation's 1996 Directors' Fee Plan). We also consent to the
application of our Report to Commonwealth Edison Company and subsidiary
companies' ratios of earnings to fixed charges and ratios of earnings to fixed
charges and preferred and preference stock dividend requirements for each of
the twelve months ended December 31, 1995 and June 30, 1996 appearing in this
Form 10-Q.
ARTHUR ANDERSEN LLP
Chicago, Illinois
August 8, 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
June 30, 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
June 30, 1996 appearing in this Form 10-Q.
ARTHUR ANDERSEN LLP
Chicago, Illinois
August 8, 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
June 30, 1996 and the related Statements of Consolidated Income, Retained
Earnings and Cash Flows for the six months ended June 30, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 17,356,146
<OTHER-PROPERTY-AND-INVEST> 1,577,900
<TOTAL-CURRENT-ASSETS> 1,406,825
<TOTAL-DEFERRED-CHARGES> 0<F1>
<OTHER-ASSETS> 3,002,544
<TOTAL-ASSETS> 23,343,415
<COMMON> 4,918,725
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 921,822
<TOTAL-COMMON-STOCKHOLDERS-EQ> 5,836,860<F2>
245,609<F3>
507,926<F3>
<LONG-TERM-DEBT-NET> 6,062,195<F4>
<SHORT-TERM-NOTES> 7,550
<LONG-TERM-NOTES-PAYABLE> 0<F4>
<COMMERCIAL-PAPER-OBLIGATIONS> 326,850
<LONG-TERM-DEBT-CURRENT-PORT> 689,597
43,574<F3>
<CAPITAL-LEASE-OBLIGATIONS> 414,763
<LEASES-CURRENT> 181,810
<OTHER-ITEMS-CAPITAL-AND-LIAB> 9,026,681<F5>
<TOT-CAPITALIZATION-AND-LIAB> 23,343,415
<GROSS-OPERATING-REVENUE> 3,231,845
<INCOME-TAX-EXPENSE> 176,195<F6>
<OTHER-OPERATING-EXPENSES> 2,499,998
<TOTAL-OPERATING-EXPENSES> 2,681,231
<OPERATING-INCOME-LOSS> 550,614
<OTHER-INCOME-NET> (48,549)<F6><F7>
<INCOME-BEFORE-INTEREST-EXPEN> 507,103
<TOTAL-INTEREST-EXPENSE> 269,858
<NET-INCOME> 237,245
0<F7>
<EARNINGS-AVAILABLE-FOR-COMM> 237,245
<COMMON-STOCK-DIVIDENDS> 172,309
<TOTAL-INTEREST-ON-BONDS> 0<F8>
<CASH-FLOW-OPERATIONS> 848,921
<EPS-PRIMARY> 1.10
<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 $3,687 thousand for preference stock expense of
ComEd.
<F3> Preferred and preference stocks of ComEd.
<F4> $1,142,651 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 $5,038 thousand related to non-operating activities is
included in INCOME-TAX-EXPENSE.
<F7> A $32,986 thousand provision for preferred and preference stock dividends
of ComEd and $8,480 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
June 30, 1996 and the related Statements of Consolidated Income, Retained
Earnings and Cash Flows for the six months ended June 30, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 17,356,146
<OTHER-PROPERTY-AND-INVEST> 1,476,768
<TOTAL-CURRENT-ASSETS> 1,365,645
<TOTAL-DEFERRED-CHARGES> 0<F1>
<OTHER-ASSETS> 2,996,060
<TOTAL-ASSETS> 23,194,619
<COMMON> 2,677,485
<CAPITAL-SURPLUS-PAID-IN> 2,206,911
<RETAINED-EARNINGS> 892,836
<TOTAL-COMMON-STOCKHOLDERS-EQ> 5,777,232
245,609
507,926
<LONG-TERM-DEBT-NET> 5,970,266<F2>
<SHORT-TERM-NOTES> 7,550
<LONG-TERM-NOTES-PAYABLE> 0<F2>
<COMMERCIAL-PAPER-OBLIGATIONS> 326,850
<LONG-TERM-DEBT-CURRENT-PORT> 687,625
43,574
<CAPITAL-LEASE-OBLIGATIONS> 412,936
<LEASES-CURRENT> 181,645
<OTHER-ITEMS-CAPITAL-AND-LIAB> 9,033,406<F3>
<TOT-CAPITALIZATION-AND-LIAB> 23,194,619
<GROSS-OPERATING-REVENUE> 3,231,121
<INCOME-TAX-EXPENSE> 179,536<F4>
<OTHER-OPERATING-EXPENSES> 2,493,146
<TOTAL-OPERATING-EXPENSES> 2,677,720
<OPERATING-INCOME-LOSS> 553,401
<OTHER-INCOME-NET> (15,734)<F4><F5>
<INCOME-BEFORE-INTEREST-EXPEN> 542,705
<TOTAL-INTEREST-EXPENSE> 267,366
<NET-INCOME> 275,339
32,986
<EARNINGS-AVAILABLE-FOR-COMM> 242,353
<COMMON-STOCK-DIVIDENDS> 171,358
<TOTAL-INTEREST-ON-BONDS> 0<F6>
<CASH-FLOW-OPERATIONS> 898,557
<EPS-PRIMARY> 1.13
<EPS-DILUTED> 0
<FN>
<F1> This item is not disclosed as a separate line item on the Consolidated
Balance Sheet.
<F2> $1,048,750 thousand of notes and long-term notes 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 $5,038 thousand related to non-operating activities is
included in INCOME-TAX-EXPENSE.
<F5> Includes $8,480 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>
