<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 SEPTEMBER 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 October 31, 1996:
Unicom Corporation 215,654,046 shares
Commonwealth Edison Company 214,217,653 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 SEPTEMBER 30, 1996
This document contains the Quarterly Reports on Form 10-Q for the quarterly
period ended September 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. In addition, several portions of these Quarterly
Reports contain forward looking statements; and reference is made to page 63
for the location and character of such statements.
INDEX
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Definitions.............................................................. 3
PART I. FINANCIAL INFORMATION
Unicom Corporation and Subsidiary Companies:
Financial Statements--
Report of Independent Public Accountants............................. 4
Statements of Consolidated Income for the three months, nine months
and twelve months ended September 30, 1995 and 1996................. 5
Consolidated Balance Sheets--December 31, 1995 and September 30,
1996................................................................ 6-7
Statements of Consolidated Capitalization--December 31, 1995 and Sep-
tember 30, 1996..................................................... 8
Statements of Consolidated Retained Earnings for the three months,
nine months and twelve months ended September 30, 1995 and 1996..... 9
Statements of Consolidated Cash Flows for the three months, nine
months and twelve months ended September 30, 1995 and 1996.......... 10
Notes to Financial Statements........................................ 11-32
Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................... 33-45
Commonwealth Edison Company and Subsidiary Companies:
Financial Statements--
Report of Independent Public Accountants............................. 46
Statements of Consolidated Income for the three months, nine months
and twelve months ended September 30, 1995 and 1996................. 47
Consolidated Balance Sheets--December 31, 1995 and September 30,
1996................................................................ 48-49
Statements of Consolidated Capitalization--December 31, 1995 and Sep-
tember 30, 1996..................................................... 50
Statements of Consolidated Retained Earnings for the three months,
nine months and twelve months ended September 30, 1995 and 1996..... 51
Statements of Consolidated Cash Flows for the three months, nine
months and twelve months ended September 30, 1995 and 1996.......... 52
Notes to Financial Statements........................................ 53-56
Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................... 57
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 58-63
Item 6. Exhibits and Reports on Form 8-K............................... 64
SIGNATURES............................................................... 65
</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
APB Accounting Principles Board
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
ESPP Employee stock purchase plan
FASB Financial Accounting Standards Board
FERC Federal Energy Regulatory Commission
FERC Order FERC Open Access Order issued in April 1996
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
</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 September 30, 1996, and
the related statements of consolidated income, retained earnings and cash flows
for the three-month, nine-month and twelve-month periods ended September 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 September 30, 1996, and the
results of their operations and their cash flows for the three-month, nine-
month and twelve-month periods ended September 30, 1995 and 1996, in conformity
with generally accepted accounting principles.
Arthur Andersen LLP
Chicago, Illinois
November 1, 1996
4
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED INCOME
The following Statements of Consolidated Income for the three months, nine
months and twelve months ended September 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 NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
---------------------- ---------------------- ----------------------
1995 1996 1995 1996 1995 1996
---------- ---------- ---------- ---------- ---------- ----------
(THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues...................... $2,190,862 $2,067,901 $5,328,519 $5,299,746 $6,793,592 $6,881,272
---------- ---------- ---------- ---------- ---------- ----------
Operating Expenses and Taxes:
Fuel................................... $ 313,150 $ 328,986 $ 841,844 $ 867,518 $1,090,113 $1,112,784
Purchased power........................ 22,623 48,250 32,609 112,750 35,267 144,518
Operation and maintenance.............. 519,165 536,043 1,561,491 1,586,515 2,045,383 2,200,675
Depreciation........................... 225,041 252,437 674,993 713,538 896,631 936,579
Recovery of regulatory assets.......... 3,818 3,818 11,454 11,454 15,272 15,272
Taxes (except income).................. 240,048 222,063 639,744 599,820 828,349 793,373
Income taxes........................... 292,188 213,420 468,750 408,985 545,662 466,753
Investment tax credits deferred--net... (7,177) (12,011) (21,535) (26,343) (28,672) (33,518)
---------- ---------- ---------- ---------- ---------- ----------
$1,608,856 $1,593,006 $4,209,350 $4,274,237 $5,428,005 $5,636,436
---------- ---------- ---------- ---------- ---------- ----------
Operating Income........................ $ 582,006 $ 474,895 $1,119,169 $1,025,509 $1,365,587 $1,244,836
---------- ---------- ---------- ---------- ---------- ----------
Other Income and (Deductions):
Interest on long-term debt............. $ (146,295) $ (127,850) $ (449,401) $ (389,021) $ (603,213) $ (527,160)
Interest on notes payable.............. (2,101) (3,665) (2,473) (12,352) (2,616) (13,159)
Allowance for funds used during
construction--
Borrowed funds........................ 2,674 4,544 7,551 15,809 11,631 19,395
Equity funds.......................... 2,834 4,955 8,703 15,721 13,690 20,147
Income taxes applicable to nonoperating
activities............................ 1,989 (4,601) 2,458 465 5,911 3,093
Provision for dividends--
Preferred and preference stocks of
ComEd................................ (16,674) (15,885) (50,447) (48,871) (67,380) (68,384)
ComEd-obligated mandatorily
redeemable preferred securities of
subsidiary trust..................... (188) (4,240) (188) (12,720) (188) (16,960)
Miscellaneous--net..................... (16,812) 6,827 (30,472) (22,315) (39,931) (34,950)
---------- ---------- ---------- ---------- ---------- ----------
$ (174,573) $ (139,915) $ (514,269) $ (453,284) $ (682,096) $ (617,978)
---------- ---------- ---------- ---------- ---------- ----------
Net Income Before Extraordinary Item.... $ 407,433 $ 334,980 $ 604,900 $ 572,225 $ 683,491 $ 626,858
Extraordinary Loss Related to Early
Redemption of Long-Term Debt, Less
Applicable Income Taxes................ -- -- -- -- -- (20,022)
---------- ---------- ---------- ---------- ---------- ----------
Net Income.............................. $ 407,433 $ 334,980 $ 604,900 $ 572,225 $ 683,491 $ 606,836
========== ========== ========== ========== ========== ==========
Average Number of Common Shares
Outstanding............................ 214,769 215,568 214,625 215,418 214,539 215,286
Earnings per Common Share Before
Extraordinary Item..................... $1.90 $1.55 $2.82 $2.66 $3.19 $2.91
Extraordinary Loss Related to Early
Redemption of Long-Term Debt, Less
Applicable Income Taxes................ -- -- -- -- -- (0.09)
---------- ---------- ---------- ---------- ---------- ----------
Earnings per Common Share............... $1.90 $1.55 $2.82 $2.66 $3.19 $2.82
========== ========== ========== ========== ========== ==========
Cash Dividends Declared per Common
Share.................................. $0.40 $0.40 $1.20 $1.20 $1.60 $1.60
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
5
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER
DECEMBER 31, 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 $1,028 million, respectively)................. $27,052,778 $27,687,816
Less--Accumulated provision for depreciation....... 10,565,093 11,183,254
----------- -----------
$16,487,685 $16,504,562
Nuclear fuel, at amortized cost.................... 734,667 799,465
----------- -----------
$17,222,352 $17,304,027
----------- -----------
Investments and Other Property:
Nuclear decommissioning funds...................... $ 1,237,527 $ 1,385,948
Subsidiary companies............................... 113,657 113,340
Other, at cost..................................... 96,937 128,018
----------- -----------
$ 1,448,121 $ 1,627,306
----------- -----------
Current Assets:
Cash............................................... $ 3,575 $ 20,104
Temporary cash investments......................... 47,801 83,494
Other cash investments............................. -- 3,369
Special deposits................................... 3,546 1,365
Receivables--
Customers........................................ 580,254 626,686
Taxes............................................ 82,319 --
Other............................................ 83,151 51,950
Provisions for uncollectible accounts............ (11,828) (12,596)
Coal and fuel oil, at average cost................. 129,176 149,967
Materials and supplies, at average cost............ 333,539 330,566
Deferred unrecovered energy costs.................. 46,028 83,710
Deferred income taxes related to current assets and
liabilities....................................... 107,991 119,860
Prepayments and other.............................. 45,272 30,501
----------- -----------
$ 1,450,824 $ 1,488,976
----------- -----------
Deferred Charges and Other Noncurrent Assets:
Regulatory assets.................................. $ 2,467,386 $ 2,416,420
Unrecovered energy costs........................... 588,152 484,566
Other.............................................. 70,153 65,124
----------- -----------
$ 3,125,691 $ 2,966,110
----------- -----------
$23,246,988 $23,386,419
=========== ===========
</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>
SEPTEMBER
DECEMBER 31, 30,
CAPITALIZATION AND LIABILITIES 1995 1996
------------------------------ ------------ -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Capitalization (see accompanying statements):
Common stock equity................................. $ 5,769,637 $ 6,089,083
Preferred and preference stocks of ComEd--
Without mandatory redemption requirements......... 508,034 507,373
Subject to mandatory redemption requirements...... 261,475 221,473
ComEd-obligated mandatorily redeemable preferred se-
curities of subsidiary trust*...................... 200,000 200,000
Long-term debt...................................... 6,549,335 6,123,181
----------- -----------
$13,288,481 $13,141,110
----------- -----------
Current Liabilities:
Notes payable--
Commercial paper.................................. $ 261,000 $ 156,000
Bank loans........................................ 7,150 7,550
Current portion of long-term debt, redeemable pref-
erence stock and capitalized lease obligations of
subsidiary companies............................... 434,563 796,562
Accounts payable.................................... 606,806 339,559
Accrued interest.................................... 171,488 146,772
Accrued taxes....................................... 215,966 298,800
Dividends payable................................... 102,497 101,863
Customer deposits................................... 44,521 48,389
Other............................................... 93,841 84,674
----------- -----------
$ 1,937,832 $ 1,980,169
----------- -----------
Deferred Credits and Other Noncurrent Liabilities:
Deferred income taxes............................... $ 4,506,043 $ 4,602,842
Accumulated deferred investment tax credits......... 689,041 662,698
Accrued spent nuclear fuel disposal fee and related
interest........................................... 624,191 648,959
Obligations under capital leases of subsidiary com-
panies............................................. 375,524 443,683
Regulatory liabilities.............................. 601,002 593,396
Other............................................... 1,224,874 1,313,562
----------- -----------
$ 8,020,675 $ 8,265,140
----------- -----------
Commitments and Contingent Liabilities (Note 20)
$23,246,988 $23,386,419
=========== ===========
</TABLE>
*As described in Note 8 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>
SEPTEMBER
DECEMBER 30,
31, 1995 1996
----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Common Stock Equity:
Common stock, without par value--
Outstanding--215,255,998 shares and 215,647,603
shares, respectively (excludes $4 million as of
September 30, 1996 held by trustee for Unicom
Stock Bonus Deferral Plan)....................... $ 4,916,438 $ 4,922,173
Preference stock expense of ComEd.................. (3,694) (3,526)
Retained earnings.................................. 856,893 1,170,436
----------- -----------
$ 5,769,637 $ 6,089,083
----------- -----------
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 75,969 shares,
respectively................................... 3,077 2,416
Prior preferred stock, cumulative, $100 par value
per share--
No shares outstanding........................... -- --
----------- -----------
$ 508,034 $ 507,373
----------- -----------
Subject to Mandatory Redemption Requirements:
Preference stock, cumulative, without par value--
Outstanding--2,934,990 shares and 2,532,490
shares, respectively........................... $ 292,163 $ 252,161
Current redemption requirements for preference
stock included
in current liabilities.......................... (30,688) (30,688)
----------- -----------
$ 261,475 $ 221,473
----------- -----------
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--3.95% 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%.................................. 110,505 105,911
Pollution control obligations, due 2004 through
2014--3.80% to 6 7/8%............................. 317,200 142,200
Other long-term debt............................... 1,126,318 1,090,928
Current maturities of long-term debt included in
current liabilities............................... (235,992) (576,546)
Unamortized net debt discount and premium.......... (55,096) (50,712)
----------- -----------
$ 6,549,335 $ 6,123,181
----------- -----------
$13,288,481 $13,141,110
=========== ===========
</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 NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
------------------- --------------------- ---------------------
1995 1996 1995 1996 1995 1996
-------- ---------- ---------- ---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Balance at Beginning of Peri-
od.......................... $586,714 $ 921,822 $ 560,971 $ 856,893 $ 568,110 $ 905,283
Add--Net income.............. 407,433 334,980 604,900 572,225 683,491 606,836
-------- ---------- ---------- ---------- ---------- ----------
$994,147 $1,256,802 $1,165,871 $1,429,118 $1,251,601 $1,512,119
-------- ---------- ---------- ---------- ---------- ----------
Deduct--
Cash dividends declared on
common stock............. $ 85,919 $ 86,261 $ 257,636 $ 258,570 $ 343,374 $ 344,553
Other capital stock trans-
actions--net............. 2,945 105 2,952 112 2,944 (2,870)
-------- ---------- ---------- ---------- ---------- ----------
$ 88,864 $ 86,366 $ 260,588 $ 258,682 $ 346,318 $ 341,683
-------- ---------- ---------- ---------- ---------- ----------
Balance at End of Period..... $905,283 $1,170,436 $ 905,283 $1,170,436 $ 905,283 $1,170,436
======== ========== ========== ========== ========== ==========
</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 NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
-------------------- ----------------------- ------------------------
1995 1996 1995 1996 1995 1996
--------- --------- ---------- ----------- ----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Cash Flow from Operating
Activities:
Net income............. $ 407,433 $ 334,980 $ 604,900 $ 572,225 $ 683,491 $ 606,836
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization........ 237,395 261,262 714,278 740,989 945,834 976,125
Deferred income taxes
and investment tax
credits--net........ 90,444 72,218 124,870 114,538 178,490 146,484
Extraordinary loss
related to early
redemption of long-
term debt........... -- -- -- -- -- 33,158
Equity component of
allowance for funds
used during
construction........ (2,834) (4,955) (8,703) (15,721) (13,690) (20,147)
Revenue refunds and
related interest.... -- -- 15,135 -- (123,407) --
Recovery of
regulatory assets... 3,818 3,818 11,454 11,454 15,272 15,272
Provisions/(payments)
for liability for
early retirement and
separation costs--
net................. 1,980 1,072 2,540 (28,858) 3,158 29,315
Net effect on cash
flows of changes in:
Receivables........ (132,854) (72,011) (141,780) 67,856 (169,314) 31,878
Coal and fuel oil.. 31,731 17,014 7,305 (20,791) 3,224 (48,400)
Materials and
supplies.......... 3,904 11,725 21,986 2,973 31,294 32,060
Accounts payable
excluding nuclear
fuel lease
principal payments
and early
retirement and
separation costs--
net............... 70,842 (29,777) 149,753 (77,011) 231,245 231,523
Accrued interest
and taxes......... 55,347 (3,512) 143,897 58,118 241,424 (87,920)
Other changes in
certain current
assets and
liabilities....... 35,663 21,052 45,551 12,514 41,428 (6,492)
Other--net........... 46,764 17,104 176,861 40,625 114,352 3,588
--------- --------- ---------- ----------- ----------- -----------
$ 849,633 $ 629,990 $1,868,047 $ 1,478,911 $ 2,182,801 $ 1,943,280
--------- --------- ---------- ----------- ----------- -----------
Cash Flow from Investing
Activities:
Construction
expenditures.......... $(197,437) $(192,214) $ (589,570) $ (735,440) $ (766,315) $(1,073,197)
Nuclear fuel
expenditures.......... (52,842) (83,298) (163,996) (226,901) (250,266) (352,023)
Equity component of
allowance for funds
used during
construction.......... 2,834 4,955 8,703 15,721 13,690 20,147
Contributions to
nuclear
decommissioning
funds................. -- -- (96,229) (83,178) (132,550) (119,602)
Other investments and
special deposits...... 8,006 (3,870) 6,856 (3,918) 406 (12,376)
--------- --------- ---------- ----------- ----------- -----------
$(239,439) $(274,427) $ (834,236) $(1,033,716) $(1,135,035) $(1,537,051)
--------- --------- ---------- ----------- ----------- -----------
Cash Flow from Financing
Activities:
Issuance of
securities--
Long-term debt........ $ 10,000 $ 10,000 $ 35,000 $ 241,902 $ 216,475 $ 268,902
Preferred securities
of subsidiary trust.. 200,000 -- 200,000 -- 200,000 --
Capital stock......... 964 3,481 10,747 10,003 14,124 24,780
Retirement and
redemption of
securities--
Long-term debt........ (200,498) (64,102) (492,161) (332,298) (694,489) (977,409)
Capital stock......... (11,302) (37,803) (14,340) (40,911) (17,984) (44,506)
Deposits and
securities held for
retirement and
redemption of
securities............ 377 975 106 -- 104 --
Premium paid on early
redemption of long-
term debt............. -- -- -- -- (3,664) (25,823)
Cash dividends paid on
common stock.......... (85,906) (86,208) (257,456) (258,292) (343,131) (344,211)
Proceeds from
sale/leaseback of
nuclear fuel.......... 77,876 90,301 193,216 249,916 292,401 249,916
Nuclear fuel lease
principal payments.... (64,507) (51,724) (180,124) (158,693) (236,767) (216,414)
Increase (Decrease) in
short-term
borrowings............ (40,000) (170,850) -- (104,600) -- 156,400
--------- --------- ---------- ----------- ----------- -----------
$(112,996) $(305,930) $ (505,012) $ (392,973) $ (572,931) $ (908,365)
--------- --------- ---------- ----------- ----------- -----------
Increase (Decrease) in
Cash and Temporary Cash
Investments............ $ 497,198 $ 49,633 $ 528,799 $ 52,222 $ 474,835 $ (502,136)
Cash and Temporary Cash
Investments at
Beginning of Period.... 108,536 53,965 76,935 51,376 130,899 605,734
--------- --------- ---------- ----------- ----------- -----------
Cash and Temporary Cash
Investments at End of
Period................. $ 605,734 $ 103,598 $ 605,734 $ 103,598 $ 605,734 $ 103,598
========= ========= ========== =========== =========== ===========
</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. 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 September 30, 1996 were as follows:
11
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Regulatory assets:
Deferred income taxes
(1).................... $1,689,832 $1,653,636
Deferred carrying
charges (2)............ 409,923 400,140
Nuclear decommissioning
costs--Dresden Unit 1
(3).................... 138,058 143,835
Unamortized loss on re-
acquired debt (4)...... 160,440 152,109
Other................... 69,133 66,700
---------- ----------
$2,467,386 $2,416,420
========== ==========
Regulatory liabilities:
Deferred income taxes
(1).................... $ 601,002 $ 593,396
========== ==========
</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 purchase contracts and write down such assets
or contracts 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.
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 September 30, 1996, an asset related to the assessments of
approximately $179 million and $167 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
September 30, 1996, a corresponding liability of approximately $167 million
was recorded, of which approximately $15 million was recorded in other current
liabilities.
At December 31, 1995 and September 30, 1996, ComEd had unrecovered fuel
costs in the form of coal reserves of approximately $448 million and $395
million, respectively. In prior years, ComEd's
12
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
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 $62
million at December 31, 1995 and September 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 20 for additional information concerning
ComEd's coal commitments.
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 September 30, 1996. ComEd had approximately 3.4 million electric
customers at September 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% and 3.48% for the three months ended September 30, 1995 and
1996, respectively, 3.14% and 3.25% for the nine months ended September 30,
1995 and 1996, respectively, and 3.13% and 3.22% for the twelve months ended
September 30, 1995 and 1996, respectively, of average depreciable utility plant
and equipment. The annual rate for nuclear plant and equipment is 2.88% for
1995 and 3.09% for 1996, which includes increased depreciation charges on
ComEd's nuclear generating units, approved by the ICC in September 1996, and
excludes separately collected decommissioning costs. See Note 2 for additional
information concerning the ICC's approval of ComEd's request to increase
depreciation charges on nuclear generating units in 1996.
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 is expected to be dismantled upon the retirement of the last
unit 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
13
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
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 Income and the Consolidated Balance Sheets,
respectively. As of September 30, 1996, the total decommissioning costs
included in the accumulated provision for depreciation were $1,439 million. For
ComEd's retired nuclear unit, Dresden Unit 1, the total estimated liability at
September 30, 1996 in current-year (1996) dollars of $273 million was recorded
on the Consolidated Balance Sheets as a noncurrent liability and the
unrecovered portion of the liability of approximately $144 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 September 30, 1996, the past accruals
that are required to be contributed to the external trusts aggregate $177
million. The fair value of funds accumulated in the external trusts at
September 30, 1996 was approximately $1,386 million which includes pre-tax
unrealized appreciation of $179 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
14
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
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 11 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 $105
million and $90 million for the three months ended September 30, 1995 and 1996,
respectively, $302 million and $269 million for the nine months ended September
30, 1995 and 1996, respectively, and $392 million and $358 million for the
twelve months ended September 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 9.26% and 8.94% for the three months
ended September 30, 1995 and 1996, respectively, 9.49% and 8.83% for the nine
months ended September 30, 1995 and 1996, respectively, and 9.58% and 9.03% for
the twelve months ended September 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 $179 million and $156 million for the three months ended September 30,
1995 and 1996, respectively, $532 million and $473 million for the nine months
ended September 30, 1995 and 1996, respectively, and $709 million and $637
million for the twelve months ended September 30, 1995 and 1996, respectively.
Debt Discount, Premium and Expense. Discount, premium and expense on long-
term debt of ComEd are being amortized over the lives of the respective issues.
Loss on Reacquired Debt. Consistent with regulatory treatment, the net loss
from ComEd's reacquisition in connection with 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.
Stock Option Awards/Employee Stock Purchase Plan. Unicom has elected to adopt
SFAS No. 123, "Accounting for Stock-Based Compensation", for disclosure
purposes only. Unicom accounts for its stock option awards and its employee
stock purchase plan under APB Opinion No. 25, "Accounting for Stock Issued to
Employees". See Note 5 for additional information.
Reclassifications. Certain prior year amounts have been reclassified to
conform with current period presentation. These reclassifications had no effect
on net income.
15
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
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, nine
months and twelve months ended September 30, 1995 and 1996 was as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 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). $ 152,891 $ 153,446 $ 469,363 $ 426,313 $ 620,662 $561,881
Income taxes (net of
refunds)............ $ 87,450 $ 47,900 $ 109,982 $ 57,184 $ 90,184 $ 314,910
Supplemental Schedule of
Non-Cash Investing and
Financing Activities:
Capital lease obliga-
tions incurred by
subsidiary companies.. $ 78,772 $ 90,861 $ 197,015 $ 253,347 $ 296,773 $ 254,909
</TABLE>
(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 September 30, 1996,
electric operating revenues of approximately $570 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
September 1996, the ICC approved ComEd's additional depreciation initiative for
1996. ComEd's costs will increase by approximately $30 million in the second
half of 1996 (before income tax effects), $22 million of which was recorded in
September 1996, through the increase in 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.
16
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
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 September 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
September 30, 1996 were: preference stock--22,842,490 shares; $1.425
convertible preferred stock--75,969 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.
(4) COMMON STOCK. At September 30, 1996, shares of Unicom common stock were
reserved for the following purposes:
<TABLE>
<S> <C>
Long-Term Incentive Plan........................................ 3,544,609
Employee Stock Purchase Plan.................................... 802,195
Employee Savings and Investment Plan............................ 322,803
Exchange for ComEd common stock not held by Unicom.............. 114,618
1996 Directors' Fee Plan........................................ 197,310
---------
4,981,535
=========
</TABLE>
Common stock increased during the three months, nine months and twelve months
ended September 30, 1995 and 1996 as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
------------------ ----------------- -------------------
1995 1996 1995 1996 1995 1996
------------------ -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Shares of Common Stock
Issued:
Long-Term Incentive
Plan.................. 200 7 183,082 (26,360) 183,082 272,309
Employee Stock Purchase
Plan.................. -- -- 123,824 97,888 274,319 191,144
Employee Savings and
Investment Plan....... 31,700 119,100 141,700 296,600 145,700 372,000
Exchange for ComEd com-
mon stock not held by
Unicom................ -- 18,354 -- 20,787 -- 20,787
1996 Directors' Fee
Plan.................. -- 1,468 -- 2,690 -- 2,690
-------- --------- -------- -------- --------- ---------
31,900 138,929 448,606 391,605 603,101 858,930
======== ========= ======== ======== ========= =========
<CAPTION>
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Amount of Common Stock
Issued:
Total issued........... $ 913 $ 3,378 $ 10,658 $ 9,861 $ 13,726 $ 24,614
Held by trustee for
Unicom Stock Bonus De-
ferral Plan........... -- (32) -- (4,267) -- (4,267)
Other.................. 51 102 72 141 143 165
-------- --------- -------- -------- --------- ---------
$ 964 $ 3,448 $ 10,730 $ 5,735 $ 13,869 $ 20,512
======== ========= ======== ======== ========= =========
</TABLE>
At December 31, 1995 and September 30, 1996, 82,742 and 78,476 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.
17
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(5) STOCK OPTION AWARDS/EMPLOYEE STOCK PURCHASE PLAN. Unicom has one
nonqualified stock option awards program under its Long-Term Incentive Plan and
an ESPP. The stock option awards program was adopted by Unicom in July 1996 to
reward valued employees responsible for, or contributing to, the management,
growth and profitability of Unicom and its subsidiaries. The total number of
stock options authorized is 1,250,000. As of September 30, 1996, 1,201,500
options have been granted and 1,199,000 are outstanding. The exercise price for
the outstanding stock options is $25.50. The stock options will expire ten
years from the grant date of July 18, 1996. One-third of the options granted
vest on July 18, 1997, one-third on July 18, 1998 and one-third on July 18,
1999. In addition, the stock options will become fully vested immediately if
the holder retires from the company, the holder qualifies for benefits under
the long-term disability plan, the death of the holder, change in control of
Unicom, or the holder is terminated for other than cause. As of September 30,
1996, none of the granted stock options have been exercised or are exercisable.
The ESPP allows employees to purchase Unicom common stock at a 10% discount
from market value. The stock is purchased in six month intervals, April and
October of each year. Substantially all of the employees of Unicom, ComEd and
certain subsidiaries are eligible to participate in the ESPP.
Unicom has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation". For financial reporting purposes,
Unicom has adopted APB No. 25, "Accounting for Stock Issued to Employees", and
thus no compensation cost has been recognized for the stock option awards
program or ESPP. If Unicom had recorded compensation expense for the stock
options granted and the shares of common stock issued under the ESPP in
accordance with SFAS No. 123 using the fair value based method of accounting,
the resulting effect on net income and earnings per share would have been de
minimis.
The estimated fair market value for each of the stock options granted in July
1996 was $3.74. The fair value of each stock option granted was estimated as of
the date of grant using the Black-Scholes option-pricing model. Assumptions
used to determine the estimated fair market value of the stock options include,
(i) dividend yield of 6.30%, (ii) expected volatility of 20.98%, (iii) risk-
free interest rate of 6.64%, and (iv) expected life of 7 years.
The following schedule summarizes the common stock issued under the ESPP for
the three months, nine months and twelve months ended September 30, 1995 and
1996:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
------------------- ------------------- -------------------
1995 1996 1995 1996 1995 1996
--------- --------- --------- --------- --------- ---------
(THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at Beginning
of the Period.......... 9,026,145 9,217,289 8,902,321 9,119,401 8,751,826 9,026,145
Purchased During the Pe-
riod................... -- -- 123,824 97,888 274,319 191,144
--------- --------- --------- --------- --------- ---------
Outstanding at End of
the Period............. 9,026,145 9,217,289 9,026,145 9,217,289 9,026,145 9,217,289
========= ========= ========= ========= ========= =========
Average Purchase Price
Per Share for the Peri-
od..................... -- -- $22.73 $24.42 $21.12 $26.56
</TABLE>
18
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(6) COMED PREFERRED AND PREFERENCE STOCKS WITHOUT MANDATORY REDEMPTION
REQUIREMENTS. No shares of ComEd preferred or preference stocks without
mandatory redemption requirements were issued or redeemed during the twelve
months ended September 30, 1995 and 1996. The series of ComEd preference stock
without mandatory redemption requirements outstanding at September 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.
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.
19
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(7) COMED PREFERENCE STOCK SUBJECT TO MANDATORY REDEMPTION REQUIREMENTS.
During the twelve months ended September 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 September 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
$8.85 262,500 26,250 $103 through July 31, 1998; and $101 thereafter
$9.25 600,000 60,000 $103 through July 31, 1999; and $101 thereafter
$9.00 390,000 38,659 Non-callable
$6.875 700,000 69,475 Non-callable
--------- --------
2,532,490 $252,161
========= ========
</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 September 30, 1996 will aggregate $4 million in 1996, $31
million in each of 1997-99 and $88 million in 2000. During the twelve months
ended September 30, 1995 and 1996, 178,215 and 438,215 shares, respectively, of
ComEd preference stock subject to mandatory redemption requirements were
reacquired to meet sinking fund requirements.
Sinking fund requirements due within one year are included in current
liabilities.
(8) COMED-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF COMED
FINANCING I. In September 1995, ComEd Financing I (Trust), a wholly-owned
subsidiary trust of ComEd, issued 8,000,000 of its 8.48% ComEd-obligated
mandatorily redeemable preferred securities. The sole asset of the Trust is
$206.2 million principal amount of ComEd's 8.48% subordinated deferrable
interest notes due September 30, 2035. There is a full and unconditional
guarantee by ComEd of the Trust's obligations under the securities issued by
the Trust. However, ComEd's obligations are subordinate and junior in right of
payment to certain other indebtedness of ComEd. ComEd has the right to defer
payments of interest on the subordinated deferrable interest notes by extending
the interest payment period, at any time, for up to 20 consecutive quarters. If
interest payments on the subordinated deferrable interest notes
20
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
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.
(9) 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 September 30, 1996, after
deducting sinking fund debentures reacquired for satisfaction of future sinking
fund requirements, are summarized as follows: 1996--$103 million; 1997--$536
million; 1998--$497 million; 1999--$150 million; and 2000--$462 million. Unicom
Enterprises' note payable to bank of $85 million will mature in 1998.
At September 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>
21
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
Other long-term debt outstanding at September 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 Notes, Series 3N
due various dates through
October 15, 2004 296,000 Interest rates ranging from 9.00% to 9.20%
Medium Term Notes, Series 4N
due May 15, 1997 20,000 Interest rate of 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%
----------
$ 836,500
----------
Long-Term Note Payable to Bank:
Note due June 1, 1998 $ 150,000 Prevailing interest rate of 6.04% at September 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 $ 987,027
----------
Unicom Enterprises--
Note Payable to Bank:
Note due November 22, 1998 $ 85,000 Prevailing interest rate of 6.40% at September 30, 1996
----------
Total Unicom $1,090,928
==========
</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.
(10) LINES OF CREDIT. ComEd had total bank lines of credit of $923 million
and unused bank lines of credit of $915 million at September 30, 1996. Of that
amount, $915 million (of which $175 million expires on September 29, 1997, $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 the
credit rating of ComEd's outstanding first mortgage bonds 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.
22
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
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 $115 million was unused as of September 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.
(11) 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.
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS. The following methods and
assumptions were used to estimate the fair value of financial instruments
either held or issued and outstanding. The disclosure of such information does
not purport to be a market valuation of Unicom and subsidiary companies as a
whole. The impact of any realized or unrealized gains or losses related to such
financial instruments on the financial position or results of operations of
Unicom and subsidiary companies is primarily dependent on the treatment
authorized under future ComEd ratemaking proceedings.
Investments. Securities included in the nuclear decommissioning funds have
been classified and accounted for as "available for sale" securities. The
estimated fair value of the nuclear decommissioning funds, as determined by the
trustee and based on published market data, as of December 31, 1995 and
September 30, 1996 was as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 SEPTEMBER 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 $ 34,909 $ 22 $ 34,931
U.S. Government and
Agency issues........ 156,745 17,636 174,381 264,452 2,706 267,158
Municipal bonds....... 496,707 34,970 531,677 341,460 14,958 356,418
Common stock.......... 348,866 107,280 456,146 530,817 153,287 684,104
Other................. 29,757 4,708 34,465 34,927 8,410 43,337
---------- -------- ---------- ---------- -------- ----------
$1,072,650 $164,877 $1,237,527 $1,206,565 $179,383 $1,385,948
========== ======== ========== ========== ======== ==========
</TABLE>
23
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
At September 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....................................... $ 34,909 $ 34,931
1 through 5 years................................... 154,328 155,870
5 through 10 years.................................. 219,295 225,891
Over 10 years....................................... 263,007 272,523
</TABLE>
The net earnings of the nuclear decommissioning funds, which are recorded as
increases to the accumulated provision for depreciation, for the three months,
nine months and twelve months ended September 30, 1995 and 1996 were as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
-------------------- ------------------------ ------------------------
1995 1996 1995 1996 1995 1996
--------- --------- ----------- ----------- ----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Gross proceeds from
sales of securities.... $ 957,044 $ 621,781 $ 2,375,626 $ 1,884,446 $ 2,599,968 $ 2,107,709
Less cost based on spe-
cific identification... (950,329) (617,405) (2,364,769) (1,857,748) (2,590,115) (2,074,694)
--------- --------- ----------- ----------- ----------- -----------
Realized gains on sales
of securities.......... $ 6,715 $ 4,376 $ 10,857 $ 26,698 $ 9,853 $ 33,015
Other realized fund
earnings net of ex-
penses................. 12,693 10,459 35,024 24,040 44,722 35,311
--------- --------- ----------- ----------- ----------- -----------
Total realized net earn-
ings of the funds...... $ 19,408 $ 14,835 $ 45,881 $ 50,738 $ 54,575 $ 68,326
Unrealized gains........ 31,049 29,270 122,796 14,506 103,375 52,553
--------- --------- ----------- ----------- ----------- -----------
Total net earnings of
the funds............. $ 50,457 $ 44,105 $ 168,677 $ 65,244 $ 157,950 $ 120,879
========= ========= =========== =========== =========== ===========
</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 September 30, 1996 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 SEPTEMBER 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 $ 759,534 $(7,447) $ 752,087
ComEd-obligated
mandatorily
redeemable preferred
securities of
subsidiary trust..... $ 200,000 $ 6,000 $ 206,000 $ 200,000 $(2,000) $ 198,000
Long-term debt........ $6,572,853 $470,175 $7,043,028 $6,445,343 $18,810 $6,464,153
</TABLE>
Long-term notes payable, which are not included in the above table, amounted
to $212 million and $254 million at December 31, 1995 and September 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.
24
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
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 September 30, 1996; therefore, the carrying value is
equal to the fair value.
(13) 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 September
30, 1996 pension liabilities and related data were estimated pending completion
of the January 1, 1996 actuarial valuation.
The funded status of these plans at December 31, 1995 and September 30, 1996
was as follows:
<TABLE>
<CAPTION>
SEPTEMBER
DECEMBER 31, 30,
1995 1996
------------ -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Actuarial present value of accumulated pension plan
benefits:
Vested benefit obligation........................ $(2,839,000) $(2,936,000)
Nonvested benefit obligation..................... (251,000) (258,000)
----------- -----------
Accumulated benefit obligation................... $(3,090,000) $(3,194,000)
Effect of projected future compensation levels... (304,000) (315,000)
----------- -----------
Projected benefit obligation..................... $(3,394,000) $(3,509,000)
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 and fixed income funds..... 3,059,000 3,136,000
----------- -----------
Plan assets less than projected benefit obligation. $ (335,000) $ (373,000)
Unrecognized prior service cost.................... (73,000) (70,000)
Unrecognized transition asset...................... (142,000) (133,000)
Unrecognized net loss.............................. 205,000 201,000
----------- -----------
Accrued pension liability........................ $ (345,000) $ (375,000)
=========== ===========
</TABLE>
The assumed discount rate was 7.5% at December 31, 1995 and September 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>
25
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
The components of pension costs, portions of which were recorded as
components of construction costs, for the three months, nine months and twelve
months ended September 30, 1995 and 1996 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
------------------- -------------------- --------------------
1995 1996 1995 1996 1995 1996
--------- -------- --------- --------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Service cost............ $ 20,000 $ 24,000 $ 62,000 $ 74,000 $ 86,000 $ 99,000
Interest cost on pro-
jected benefit obliga-
tion................... 57,000 61,000 171,000 185,000 224,000 239,000
Actual return on plan
assets................. (159,000) (85,000) (534,000) (225,000) (530,000) (372,000)
Early retirement program
cost................... -- -- -- -- 1,000 --
Net amortization and de-
ferral................. 97,000 11,000 346,000 (3,000) 276,000 69,000
--------- -------- --------- --------- --------- ---------
$ 15,000 $ 11,000 $ 45,000 $ 31,000 $ 57,000 $ 35,000
========= ======== ========= ========= ========= =========
</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 and 25% of the last 1% of
contributed base salary. The participating companies' contributions were $7
million and $8 million for the three months ended September 30, 1995 and 1996,
respectively, $19 million and $23 million for the nine months ended September
30, 1995 and 1996, respectively, and $24 million and $29 million for the twelve
months ended September 30, 1995 and 1996, respectively.
(14) 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 September 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 September 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.
26
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
The funded status of the plan at December 31, 1995 and September 30, 1996 was
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Actuarial present value of accumulated
postretirement benefit obligation:
Retirees.......................................... $(474,000) $ (501,000)
Active fully eligible participants................ (28,000) (30,000)
Other participants................................ (457,000) (481,000)
--------- -----------
Accumulated benefit obligation.................... $(959,000) $(1,012,000)
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........ 603,000 623,000
--------- -----------
Plan assets less than accumulated postretirement
benefit obligation................................ $(356,000) $ (389,000)
Unrecognized transition obligation................. 392,000 375,000
Unrecognized prior service cost.................... 29,000 28,000
Unrecognized net gain.............................. (280,000) (274,000)
--------- -----------
Accrued liability for postretirement benefits...... $(215,000) $ (260,000)
========= ===========
</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.
The components of postretirement health care costs, portions of which were
recorded as components of construction costs, for the three months, nine months
and twelve months ended September 30, 1995 and 1996 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS TWELVE MONTHS
ENDED NINE MONTHS ENDED ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
------------------ ------------------- -------------------
1995 1996 1995 1996 1995 1996
-------- -------- --------- -------- --------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Service cost............ $ 10,000 $ 8,000 $ 32,000 $ 23,000 $ 43,000 $ 22,000
Interest cost on accumu-
lated benefit obliga-
tion................... 21,000 18,000 64,000 53,000 84,000 58,000
Actual return on plan
assets................. (32,000) (11,000) (107,000) (47,000) (100,000) (77,000)
Amortization of transi-
tion obligation........ 7,000 6,000 21,000 17,000 29,000 19,000
Severance plan cost..... 2,000 2,000 2,000 3,000 2,000 26,000
Other................... 23,000 (7,000) 75,000 (3,000) 58,000 5,000
-------- -------- --------- -------- --------- --------
$ 31,000 $ 16,000 $ 87,000 $ 46,000 $ 116,000 $ 53,000
======== ======== ========= ======== ========= ========
</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 September 30, 1996.
27
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(15) SEPARATION PLAN COSTS. Operation and maintenance expenses included $96
million for the twelve months ended September 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 $58 million or
$0.27 per common share for the twelve months ended September 30, 1996.
Substantially all of the costs of the voluntary separation plans were recorded
in 1995.
(16) INCOME TAXES. The components of the net deferred income tax liability at
December 31, 1995 and September 30, 1996 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 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 $3,457,959
Overheads capitalized.............................. 252,910 264,169
Repair allowance................................... 219,585 215,203
Regulatory assets recoverable through future rates. 1,689,832 1,653,636
Deferred income tax assets:
Postretirement benefits............................ (235,360) (265,220)
Unbilled revenues.................................. (116,274) (125,548)
Alternative minimum tax............................ (145,019) (75,056)
Unamortized investment tax credits to be settled
through future rates.............................. (452,210) (438,095)
Other regulatory liabilities to be settled through
future rates...................................... (148,792) (155,301)
Other--net......................................... (46,607) (48,765)
---------- ----------
Net deferred income tax liability................... $4,398,052 $4,482,982
========== ==========
</TABLE>
The $85 million increase in the net deferred income tax liability from December
31, 1995 to September 30, 1996 is comprised of a $142 million increase in
deferred income tax expense, a $28 million decrease in the deferred income tax
balance for AMT (before reflecting utilizations) and a $29 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, nine months and twelve months ended September 30, 1995 and
1996 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS TWELVE MONTHS
ENDED NINE MONTHS ENDED ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
------------------ ------------------ ------------------
1995 1996 1995 1996 1995 1996
-------- -------- -------- -------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Operating income:
Current income taxes... $195,245 $131,739 $324,363 $270,464 $343,900 $286,090
Deferred income taxes.. 96,943 81,681 144,387 138,521 201,762 180,663
Investment tax credits
deferred--net......... (7,177) (12,011) (21,535) (26,343) (28,672) (33,518)
Other (income) and de-
ductions............... (5,344) 4,883 (5,870) (156) (9,362) (1,972)
-------- -------- -------- -------- -------- --------
Net income taxes charged
to continuing opera-
tions.................. $279,667 $206,292 $441,345 $382,486 $507,628 $431,263
======== ======== ======== ======== ======== ========
</TABLE>
28
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
Provisions for current and deferred federal and state income taxes and
amortization of investment tax credits resulted in the following effective
income tax rates for the three months, nine months and twelve months ended
September 30, 1995 and 1996:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
------------------ ---------------------- ----------------------
1995 1996 1995 1996 1995 1996
-------- -------- ---------- ---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Net income before ex-
traordinary item....... $407,433 $334,980 $ 604,900 $ 572,225 $ 683,491 $ 626,858
Net income taxes charged
to continuing
operations............. 279,667 206,292 441,345 382,486 507,628 431,263
Provision for dividends
on ComEd preferred and
preference stocks..... 16,674 15,885 50,447 48,871 67,380 68,384
-------- -------- ---------- ---------- ---------- ----------
Pre-tax income before
provision for
dividends.............. $703,774 $557,157 $1,096,692 $1,003,582 $1,258,499 $1,126,505
======== ======== ========== ========== ========== ==========
Effective income tax
rate................... 39.7% 37.0% 40.2% 38.1% 40.3% 38.3%
======== ======== ========== ========== ========== ==========
</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, nine months and twelve months ended September 30, 1995 and
1996 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS TWELVE MONTHS
ENDED NINE MONTHS ENDED ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
------------------ ------------------ ------------------
1995 1996 1995 1996 1995 1996
-------- -------- -------- -------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Federal income taxes
computed at statutory
rate................... $246,321 $195,005 $383,842 $351,254 $440,475 $394,277
Equity component of
AFUDC which was ex-
cluded from taxable
income................. (992) (1,734) (3,046) (5,502) (4,792) (7,051)
Amortization of invest-
ment tax credits....... (7,177) (12,011) (21,535) (26,343) (28,744) (33,518)
State income taxes, net
of federal income tax-
es..................... 35,228 26,850 58,513 50,973 70,253 58,433
Differences between book
and tax accounting,
primarily property-
related deductions..... 5,435 (3,418) 21,213 8,590 27,905 3,357
Other--net.............. 852 1,600 2,358 3,514 2,531 15,765
-------- -------- -------- -------- -------- --------
Net income taxes charged
to continuing opera-
tions.................. $279,667 $206,292 $441,345 $382,486 $507,628 $431,263
======== ======== ======== ======== ======== ========
</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.
(17) TAXES, EXCEPT INCOME TAXES. Provisions for taxes, except income taxes,
for the three months, nine months and twelve months ended September 30, 1995
and 1996 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
------------------- ----------------- -------------------
1995 1996 1995 1996 1995 1996
--------- --------- -------- -------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Illinois public utility
revenue................ $ 67,421 $ 63,399 $175,362 $173,891 $ 229,150 $ 228,075
Illinois invested capi-
tal.................... 27,980 26,587 82,090 78,766 109,416 103,506
Municipal utility gross
receipts............... 53,648 49,508 128,554 128,909 162,328 168,113
Real estate............. 45,868 40,609 132,821 94,386 177,936 137,961
Municipal compensation.. 24,449 23,205 59,876 60,009 76,691 78,735
Other--net.............. 20,682 18,755 61,041 63,859 72,828 76,983
--------- --------- -------- -------- --------- ---------
$ 240,048 $ 222,063 $639,744 $599,820 $ 828,349 $ 793,373
========= ========= ======== ======== ========= =========
</TABLE>
29
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(18) 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 September 30, 1996, ComEd's obligation to the
lessor for leased nuclear fuel amounted to approximately $672 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 September 30, 1996
for capital leases are estimated to aggregate $767 million, including $63
million in 1996, $249 million in 1997, $175 million in 1998, $122 million in
1999, $70 million in 2000 and $88 million in 2001-2043. The estimated interest
component of such rental payments aggregates $98 million. The estimated
portions of obligations due within one year under capital leases of
approximately $168 million and $189 million at December 31, 1995 and September
30, 1996, respectively, are included in current liabilities.
Future minimum rental payments at September 30, 1996 for operating leases are
estimated to aggregate $150 million, including $1 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.
(19) JOINT PLANT OWNERSHIP. ComEd has a 75% undivided ownership interest in
the Quad-Cities nuclear generating station. Further, ComEd is responsible for
75% of all costs which are charged to appropriate investment, operation or
maintenance accounts and provides its own financing. At September 30, 1996, for
its share of ownership in the station, ComEd had an investment of $599 million
in production and transmission plant in service (before reduction of $193
million for the related accumulated provision for depreciation) and $58 million
in construction work in progress.
(20) COMMITMENTS AND CONTINGENT LIABILITIES. Purchase commitments,
principally related to construction and nuclear fuel, approximated $1,067
million at September 30, 1996, comprised of approximately $1,041 million for
ComEd and the Indiana Company and approximately $26 million for Unicom Thermal.
In addition, ComEd has substantial commitments for the purchase of coal.
ComEd's coal costs are high compared to those of other utilities. ComEd's
western coal contracts and its rail contracts for delivery of the western coal
provide for the purchase of certain coal at prices substantially above
currently prevailing market prices. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations," subcaption "Liquidity and
Capital Resources," for additional information regarding ComEd's purchase
commitments.
ComEd is a member of NML, established to provide insurance coverage against
property damage to members' nuclear generating facilities. The members are
subject to a retrospective premium adjustment in the event losses exceed
accumulated reserve funds. Capital has been accumulated in the reserve funds of
NML to the extent that ComEd would not be liable for a retrospective premium
adjustment in the event of a single incident. However, ComEd could be subject
to a maximum assessment of approximately $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
30
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
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 $21 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 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 September 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 September 30, 1996,
a reserve of $8 million has been included on the Consolidated Balance Sheets,
representing ComEd's estimate of the liability associated
31
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONCLUDED
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.
32
<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.
The Joint Committee has not done so. However, it is likely that the Joint
Committee or other groups will introduce legislative proposals in the near
future.
ComEd and other energy suppliers, energy customers and other interested
parties have been active participants in the discussions related to the
economic and technical issues associated with reform. As a result of these
efforts, legislation is expected to be introduced in Illinois during November
1996 which is intended to provide both electric service providers and their
customers with an orderly transition to a less regulated market for electric
service. Under the legislative proposal, utilities would be granted a period in
which to offer direct access experiments that would allow them and customers to
gain experience with the effects of such access, with a requirement to provide
such access starting in 2000. Such requirement would be phased-in to customers
over several years, starting with larger load customers. The legislation would
provide utilities with an opportunity to recover costs which might not
otherwise be recoverable in charges for electric service in a less regulated
market through, among other things, cost savings and a transition charge for
customers who use alternate suppliers of electric power and energy. The
legislation would provide for a leveling of certain regulatory oversight and
tax provisions among electric service providers in Illinois and would also
allow certain restructurings of utility operations in order to facilitate their
response to a competitive environment. ComEd supports the proposed legislation
and believes there is support among a number of constituencies for its
provisions. Other legislative proposals may also be submitted for
consideration. Nonetheless, no assurance can be given as to when any such
legislation may be adopted or in what form it may be adopted.
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
33
<PAGE>
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 FERC 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 FERC 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
requirements. The FERC 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 FERC 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 other 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 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
marketplace. 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 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
marketplace, 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
34
<PAGE>
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.
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. These actions have now
been consolidated and are pending in federal court. 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 the
FERC 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.
35
<PAGE>
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 removal of the
existing steam generators. Approximately $340 million of this estimated cost is
included in the construction expenditures shown above. Approximately $96
million has been incurred through September 30, 1996. See "Part II. Other
Information, Item 1. Legal Proceedings," subcaption "Litigation" for
information regarding an arbitration demand filed by the City of Chicago under
its franchise agreement with ComEd with respect to capital expenditures.
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 $1,041 million at September 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 $881
Decker Coal Co. .................................. 1996-2015 $620
Big Horn Coal Co. ................................ 1998 $ 22
</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 20 of Notes to
Financial Statements.
The foregoing paragraphs in this "Construction Program" section include
forward-looking statements with respect to the future levels of capital
expenditures which are necessarily based upon assumptions regarding estimated
costs and availability of materials and services as well as contingencies.
Unforeseen events or conditions may require changes in the scope of work with
consequent changes in the timing and level of the projected expenditures. In
addition, changes in laws and regulations, or their interpretation and
enforcement, can affect the scope of certain projects, the manner in which they
are undertaken and the costs associated therewith. While ComEd gives
36
<PAGE>
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. See Notes 7 and 9 of Notes to Financial Statements
for the summaries of the annual sinking fund requirements and scheduled
maturities for ComEd preference stock and long-term debt, respectively. 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 18 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 September 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 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 10 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, nine months and twelve months ended September 30, 1996.
During the first nine months of 1996, ComEd sold and leased back
approximately $250 million of nuclear fuel through its existing nuclear fuel
lease facility. In addition, ComEd issued $199 million of pollution control
obligations, the proceeds of which were used to redeem pollution control
obligations of the same amount. See the Statements of Consolidated Cash Flows
and Note 4 of Notes to Financial Statements for information regarding common
stock activity.
As of November 1, 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 46.4% at September 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.
37
<PAGE>
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. and a project
in Windsor, Ontario, Canada with Ontario Hydro.
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 September 30, 1996, Unicom Thermal's purchase
commitments, principally related to construction, were approximately $26
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. The availability of ComEd's dividends to
Unicom is dependent on ComEd's financial performance and cash position. Other
forms of financing by ComEd to Unicom or the unregulated subsidiaries of
Unicom, 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 $115 million was unused as of September 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 10 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
38
<PAGE>
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 September 30, 1996, electric operating revenues of approximately
$570 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 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 began to conduct a team inspection at Dresden on September
30, 1996, to assess progress in correcting performance and to sample compliance
with licensing and other requirements. ComEd expects the NRC to issue an
inspection report by December 23, 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, and in October
1996, the Illinois Supreme Court denied the intervenors' petition for leave to
appeal. 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. Actual
decommissioning costs and future estimates thereof may be significantly
affected by the adoption of or changes to NRC regulations as well as changes in
the assumptions used in making such estimates. See Note 1 of Notes to Financial
Statements under "Depreciation and Decommissioning" for additional information
regarding decommissioning costs.
Environmental Matters. ComEd is involved in administrative and legal
proceedings concerning air quality, water quality and other matters. The
outcome of these proceedings may require increases in future construction
expenditures and operating expenses and changes in operating procedures. See
Note 20 of Notes to Financial Statements and "Part II. Other Information, Item
1. Legal Proceedings," subcaption "Environmental Matters."
39
<PAGE>
RESULTS OF OPERATIONS
Unicom's earnings per common share for the three months ended September 30,
1996 were $1.55 compared to $1.90 for the three months ended September 30,
1995, $2.66 for the nine months ended September 30, 1996 compared to $2.82 for
the nine months ended September 30, 1995, and $2.82 for the twelve months ended
September 30, 1996 compared to $3.19 for the twelve months ended September 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.
Net Income. The decrease in ComEd's earnings in the recent three-month period
reflects, among other factors, a decrease in operating revenues primarily due
to significantly lower kilowatthour sales. The reduction in kilowatthour sales
is primarily due to the effects of cooler weather experienced in ComEd's
service territory compared to the exceptionally hot weather experienced in the
summer of 1995. Also contributing to the decrease in earnings in the recent
three-month period were higher operation and maintenance expenses. In September
1996, the ICC approved ComEd's request to increase depreciation charges on its
nuclear generating units by approximately $30 million for the year 1996.
Approximately $22 million of the increased depreciation charges was recorded in
September 1996, reducing net income by $15 million or $0.07 per common share.
Partially offsetting the lower earnings were the effects of an income tax
refund related to prior years which increased net income by $26 million or
$0.12 per common share. 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
September 30, 1995.
The decrease in earnings in the recent nine-month period reflects, among
other factors, lower operating revenues as a result of lower kilowatthour
sales, partially offset by an increase in energy costs recovered under the fuel
adjustment clause, compared to the nine-month period ended September 30, 1995.
Also contributing to the lower earnings was a reduction to net income of $15
million or $0.07 per common share for increased depreciation charges on ComEd's
nuclear generating units, discussed above. Operation and maintenance expenses
increased in the recent nine-month period compared to the same period in 1995.
Partially offsetting the lower earnings in the recent nine-month period was a
reduction in real estate taxes which increased net income by $23 million or
$0.11 per common share compared to the same period in 1995. 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
generating stations. See "Part II. Other Information, Item 1. Legal
Proceedings," subcaption "Litigation," for information about certain property
tax assessment appeals. The effects of an income tax refund recorded in
September 1996 increased net income by $26 million or $0.12 per common share.
In addition, the recent nine-month period includes a decrease in the total of
interest expense on debt and dividend requirements on preferred and preference
stocks compared to the nine-month period ended September 30, 1995.
The decrease in earnings in the recent twelve-month period reflects, among
other factors, higher operation and maintenance expenses which include an
after-tax charge of $58 million or $0.27 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. The lower earnings in the recent twelve-month period
also include the increased depreciation charges on ComEd's nuclear generating
units, discussed above, which reduced net income by $15 million or $0.07 per
common share. 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. Partially offsetting the lower earnings in the recent twelve-
month period were higher operating revenues reflecting higher rate levels which
became effective in January 1995 under the Rate Order and an increase in energy
costs recovered under the fuel
40
<PAGE>
adjustment clause, partially offset by a reduction in kilowatthour sales. The
recent twelve-month period also reflects a reduction in the total of interest
expense on debt and dividend requirements on preferred and preference stocks. A
reduction in real estate taxes, primarily related to ComEd's nuclear generating
units, increased net income by $24 million or $0.11 per common share compared
to the same period last year. In addition, an income tax refund was recorded in
September 1996, the effects of which increased net income by $26 million or
$0.12 per common share.
Kilowatthour Sales. Kilowatthour sales to ultimate consumers for the three
months, nine months and twelve months ended September 30, 1996 decreased 8.7%,
1.3% and 0.2%, respectively, compared to the three months, nine months and
twelve months ended September 30, 1995. The decrease in the recent three-month
period reflects lower kilowatthour sales to all classes of customers, except
public authorities and electric railroads, primarily due to the effects of
cooler weather experienced in ComEd's service territory compared to the
exceptionally hot weather experienced in the summer of 1995. The decrease in
the recent nine-month and twelve-month periods reflect lower kilowatthour sales
to residential customers, and small commercial and industrial customers for the
recent nine-month period, reflecting the effects of cooler summer weather
experienced in ComEd's service territory in the recent periods compared to the
exceptionally hot summer in the same periods in the prior year.
Kilowatthour sales, including sales for resale, decreased 6.0%, 2.7% and 2.3%
for the three months, nine months and twelve months ended September 30, 1996,
respectively, compared to the three months, nine months and twelve months ended
September 30, 1995.
Operating Revenues. Operating revenues decreased in the three months and nine
months ended September 30, 1996 compared to the three months and nine months
ended September 30, 1995, reflecting the results of significantly decreased
kilowatthour sales discussed above, partially offset by an increase in energy
costs recovered under the fuel adjustment clause. Operating revenues increased
in the twelve months ended September 30, 1996 compared to the twelve months
ended September 30, 1995, reflecting the results of an increase in energy costs
recovered under the fuel adjustment clause and, to a lesser extent, the effects
of higher rate levels under the Rate Order which became effective in January
1995. The increase in operating revenues for the current twelve-month period
was partially offset by decreased kilowatthour sales discussed above.
Fuel Costs. Changes in fuel expense for the three months, nine months and
twelve months ended September 30, 1996 compared to the same periods ended
September 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 NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
-------------------- ------------------ --------------------
1995 1996 1995 1996 1995 1996
--------- --------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Cost of fuel consumed (per million Btu):
Nuclear..................................... $0.52 $0.53 $0.52 $0.53 $0.52 $0.53
Coal........................................ $2.41 $2.38 $2.45 $2.46 $2.39 $2.44
Oil......................................... $3.13 $3.96 $3.09 $3.39 $3.12 $3.29
Natural gas................................. $1.75 $2.55 $1.78 $2.73 $1.80 $2.56
Average all fuels........................... $1.09 $1.21 $1.04 $1.16 $1.03 $1.13
Net generation of electric energy (millions of
kilowatthours)............................... 27,401 24,564 75,576 69,879 98,027 90,911
Fuel sources of kilowatthour generation:
Nuclear..................................... 70% 65% 73% 69% 73% 70%
Coal........................................ 25 32 24 28 23 27
Oil......................................... 1 -- -- 1 1 1
Natural gas................................. 4 3 3 2 3 2
--------- --------- -------- -------- --------- ---------
100% 100% 100% 100% 100% 100%
========= ========= ======== ======== ========= =========
</TABLE>
41
<PAGE>
The decrease in nuclear generation as a percentage of total generation for
the three months, nine months and twelve months ended September 30, 1996
compared to the same periods ended September 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
September 30, 1996, ComEd had unrecovered fuel costs in the form of coal
reserves of approximately $395 million. In prior years, ComEd's commitments for
the purchase of coal exceeded its requirements. Rather than take all the coal
it was required to take, ComEd agreed to purchase the coal in place in the form
of coal reserves. For additional information concerning ComEd's coal purchase
commitments, fuel reconciliation proceedings and coal reserves, see "Liquidity
and Capital Resources" above and Notes 1 and 20 of Notes to Financial
Statements.
Purchased Power. Amounts of purchased power are primarily affected by system
load, the availability of ComEd and the Indiana Company's generating units and
the availability and cost of power from other utilities.
The number and average cost of kilowatthours purchased were as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
------------- -------------------- ---------------------
1995 1996 1995 1996 1995 1996
------ ------ -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Kilowatthours
(millions)............. 453 1,761 901 4,608 1,035 6,182
Cost per kilowatthour... 4.99c 2.74c 3.62c 2.45c 3.41c 2.34c
</TABLE>
Deferred Under or Overrecovered Energy Costs--Net. Operating expenses for the
three months, nine months and twelve months ended September 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 3.3%, 1.5% and 7.5% for the three months, nine months and
twelve months ended September 30, 1996, respectively, compared to the same
periods ended September 30, 1995. The increase in the current three-month
period reflects increased operation and maintenance expenses associated with
nuclear generating stations, transmission and distribution system and customer
related activities, partially offset by lower expenses associated with fossil
generating stations and pensions and other employee benefits, including
postretirement health care benefits. The increase in the current nine-month
period reflects higher operation and maintenance expenses associated with
nuclear and fossil generating stations, transmission and distribution system
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 twelve-month period reflects higher
operation and maintenance expenses associated with nuclear and fossil
generating stations, transmission and distribution system, customer
42
<PAGE>
related activities, voluntary employee separation plans and incentive
compensation programs, partially offset by lower expenses associated with
pensions and other employee benefits, including postretirement health care
benefits, and certain administrative and general costs. The effects of
inflation are reflected in the increases and decreases discussed below and have
increased operation and maintenance costs for the three months, nine months and
twelve months ended September 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 $27 million, $37 million and $83 million for the three
months, nine months and twelve months ended September 30, 1996, respectively,
compared to the same periods ended September 30, 1995. The increases in
operation and maintenance expenses for the recent three-month and nine-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 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 decreased $11 million, and
increased $12 million and $30 million in the three months, nine months and
twelve months ended September 30, 1996, respectively, compared to the same
periods ended September 30, 1995. The decrease in the recent three-month period
reflects a decrease in expenditures to upgrade plant performance and the
effects of a reduction of personnel. The increases in the recent nine-month and
twelve-month periods reflect an increase in expenditures 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 increased $11 million, $6 million and $17 million in the
three months, nine months and twelve months ended September 30, 1996,
respectively, compared to the same periods ended September 30, 1995. The
increases in the recent three-month, nine-month and twelve-month periods
reflect higher maintenance related expenditures compared to the same periods in
the prior year. Operation and maintenance expenses associated with ComEd's
customer-related activities, including customer assistance, energy sales
services and uncollectible accounts, increased $11 million, $15 million and $23
million in the three-month, nine-month and twelve-month periods ended September
30, 1996 compared to the same periods ended September 30, 1995.
43
<PAGE>
Operation and maintenance expenses in the twelve months ended September 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 $19 million, $48
million and $69 million in the three months, nine months and twelve months
ended September 30, 1996, respectively, compared to the same periods ended
September 30, 1995. The decreases in the recent three-month and nine-month
periods reflect decreases of $13 million and $40 million in the provision for
postretirement health care benefits due to an amendment which changed the
postretirement health care plan from fully funded by the employer to
contributory and favorable claim experience allowing the use of lower health
care cost trend rates. See Note 14 of Notes to Financial Statements for
additional information. The decrease in the recent twelve-month period reflects
a decrease of $78 million in the provision for postretirement health care
benefits due to the reasons mentioned above and a decrease of $18 million for
pension costs, partially offset by $26 million for the portion of the costs of
the voluntary employee separation plans related to postretirement health care
benefits. See Note 15 of Notes to Financial Statements for additional
information regarding the employee separation plans.
Operation and maintenance expenses in the twelve months ended September 30,
1996 reflect $70 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 15 of Notes to Financial Statements for additional
information regarding the employee separation plans.
Operation and maintenance expenses associated with certain administrative and
general costs decreased $15 million for the twelve months ended September 30,
1996, compared to the same period ended September 30, 1995, due to a variety of
reasons including a decrease related to the provision for injuries and damages.
Depreciation. Depreciation expense for the three months, nine months and
twelve months ended September 30, 1996 increased over the same periods ended
September 30, 1995 as a result of additions to plant in service and an increase
in the nuclear depreciation rate for 1996. In September 1996, the ICC approved
ComEd's additional depreciation initiative for 1996, which will increase
depreciation expense by approximately $30 million in 1996, of which $22 million
was recorded in September 1996. 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, nine months and twelve months ended September 30, 1996
compared to the same periods ended September 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 NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
--------------------- --------------------- ---------------------
1995 1996 1995 1996 1995 1996
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Long-term debt outstand-
ing:
Average amount (mil-
lions)................ $7,460 $6,625 $7,674 $6,674 $7,721 $6,808
Average interest rate.. 7.82% 7.62% 7.79% 7.69% 7.80% 7.67%
Notes payable outstand-
ing:
Average amount (mil-
lions)................ $ 136 $ 255 $ 52 $ 286 $ 41 $ 226
Average interest rate.. 6.11% 5.71% 6.34% 5.78% 6.41% 5.82%
</TABLE>
44
<PAGE>
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 September 30, 1996 were 2.79 and 2.78, 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
September 30, 1996 were 2.39 and 2.36, 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.
45
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Commonwealth Edison Company:
We have audited the accompanying consolidated balance sheets and statements
of consolidated capitalization of Commonwealth Edison Company (an Illinois
corporation) and subsidiary companies as of December 31, 1995 and September 30,
1996, and the related statements of consolidated income, retained earnings and
cash flows for the three-month, nine-month and twelve-month periods ended
September 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 September 30, 1996, and
the results of their operations and their cash flows for the three-month, nine-
month and twelve-month periods ended September 30, 1995 and 1996, in conformity
with generally accepted accounting principles.
Arthur Andersen LLP
Chicago, Illinois
November 1, 1996
46
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED INCOME
The following Statements of Consolidated Income for the three months, nine
months and twelve months ended September 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 NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
---------------------- ---------------------- ----------------------
1995 1996 1995 1996 1995 1996
---------- ---------- ---------- ---------- ---------- ----------
(THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Electric Operating Reve-
nues................... $2,190,879 $2,066,975 $5,328,550 $5,298,096 $6,793,623 $6,879,333
---------- ---------- ---------- ---------- ---------- ----------
Electric Operating Ex-
penses and Taxes:
Fuel................... $ 322,990 $ 317,774 $ 850,422 $ 866,657 $1,085,300 $1,106,077
Purchased power........ 22,623 48,250 32,609 112,750 35,267 144,518
Deferred
(under)/overrecovered
energy costs-- net.... (9,840) 11,212 (8,578) 861 4,813 6,707
Operation.............. 382,811 373,628 1,135,575 1,100,196 1,514,586 1,562,584
Maintenance............ 133,312 159,579 418,235 477,570 521,430 626,084
Depreciation........... 224,824 251,842 674,620 712,280 896,245 934,964
Recovery of regulatory
assets................ 3,818 3,818 11,454 11,454 15,272 15,272
Taxes (except income).. 239,904 222,144 639,289 599,625 827,846 792,363
Income taxes--
Current--Federal..... 145,136 95,705 248,033 205,227 267,143 214,277
--State.............. 51,877 40,560 79,984 73,219 80,918 80,374
Deferred--Federal--
net................. 94,262 78,668 133,663 130,017 173,775 168,757
--State--net......... 2,520 (33) 10,581 5,343 27,963 10,367
Investment tax credits
deferred--net......... (7,177) (12,011) (21,535) (26,343) (28,672) (33,518)
---------- ---------- ---------- ---------- ---------- ----------
$1,607,060 $1,591,136 $4,204,352 $4,268,856 $5,421,886 $5,628,826
---------- ---------- ---------- ---------- ---------- ----------
Electric Operating In-
come................... $ 583,819 $ 475,839 $1,124,198 $1,029,240 $1,371,737 $1,250,507
---------- ---------- ---------- ---------- ---------- ----------
Other Income and (Deduc-
tions):
Interest on long-term
debt.................. $ (145,783) $ (126,155) $ (448,548) $ (384,834) $ (602,359) $ (522,093)
Interest on notes pay-
able.................. (2,101) (3,665) (2,473) (12,352) (2,616) (13,159)
Allowance for funds
used during construc-
tion--
Borrowed funds....... 2,674 4,544 7,551 15,809 11,631 19,395
Equity funds......... 2,834 4,955 8,703 15,721 13,690 20,147
Income taxes
applicable to
nonoperating
activities............ 1,989 (4,601) 2,458 465 5,911 3,093
Provision for
dividends on company-
obligated mandatorily
redeemable preferred
securities of
subsidiary trust...... (188) (4,240) (188) (12,720) (188) (16,960)
Miscellaneous--net..... (16,893) 6,470 (30,927) (22,843) (40,403) (36,042)
---------- ---------- ---------- ---------- ---------- ----------
$ (157,468) $ (122,692) $ (463,424) $ (400,754) $ (614,334) $ (545,619)
---------- ---------- ---------- ---------- ---------- ----------
Net Income Before
Extraordinary Item..... $ 426,351 $ 353,147 $ 660,774 $ 628,486 $ 757,403 $ 704,888
Extraordinary Loss
Related to Early
Redemption of Long-Term
Debt, Less Applicable
Income Taxes........... -- -- -- -- -- (20,022)
---------- ---------- ---------- ---------- ---------- ----------
Net Income.............. $ 426,351 $ 353,147 $ 660,774 $ 628,486 $ 757,403 $ 684,866
Provision for Dividends
on Preferred and
Preference Stocks...... 16,674 15,885 50,447 48,871 67,380 68,384
---------- ---------- ---------- ---------- ---------- ----------
Net Income on Common
Stock.................. $ 409,677 $ 337,262 $ 610,327 $ 579,615 $ 690,023 $ 616,482
========== ========== ========== ========== ========== ==========
Average Number of Common
Shares Outstanding..... 214,193 214,209 214,192 214,201 214,192 214,199
Earnings per Common
Share Before
Extraordinary Item..... $1.91 $1.57 $2.85 $2.71 $3.22 $2.97
Extraordinary Loss
Related to Early
Redemption of Long-Term
Debt, Less Applicable
Income Taxes........... -- -- -- -- -- (0.09)
---------- ---------- ---------- ---------- ---------- ----------
Earnings per Common
Share.................. $1.91 $1.57 $2.85 $2.71 $3.22 $2.88
========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
47
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 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 $1,028 million, respectively)................ $27,052,778 $27,687,816
Less--Accumulated provision for depreciation...... 10,565,093 11,183,254
----------- -----------
$16,487,685 $16,504,562
Nuclear fuel, at amortized cost................... 734,667 799,465
----------- -----------
$17,222,352 $17,304,027
----------- -----------
Investments:
Nuclear decommissioning funds..................... $ 1,237,527 $ 1,385,948
Subsidiary companies.............................. 113,657 113,340
Other investments, at cost........................ 20,478 19,257
----------- -----------
$ 1,371,662 $ 1,518,545
----------- -----------
Current Assets:
Cash.............................................. $ 972 $ 13,837
Temporary cash investments........................ 14,138 58,928
Other cash investments............................ -- 3,369
Special deposits.................................. 3,546 1,365
Receivables--
Customers....................................... 579,861 626,686
Taxes........................................... 75,536 --
Other........................................... 82,824 46,631
Provisions for uncollectible accounts........... (11,828) (12,596)
Coal and fuel oil, at average cost................ 129,176 149,967
Materials and supplies, at average cost........... 333,539 330,566
Deferred unrecovered energy costs................. 46,028 83,710
Deferred income taxes related to current assets
and liabilities.................................. 107,931 119,800
Prepayments and other............................. 44,661 30,118
----------- -----------
$ 1,406,384 $ 1,452,381
----------- -----------
Deferred Charges and Other Noncurrent Assets:
Regulatory assets................................. $ 2,467,386 $ 2,416,420
Unrecovered energy costs.......................... 588,152 484,566
Other............................................. 63,124 58,798
----------- -----------
$ 3,118,662 $ 2,959,784
----------- -----------
$23,119,060 $23,234,737
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
48
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER
DECEMBER 31, 30,
CAPITALIZATION AND LIABILITIES 1995 1996
------------------------------ ------------ -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Capitalization (see accompanying statements):
Common stock equity................................. $ 5,706,130 $ 6,029,412
Preferred and preference stocks without mandatory
redemption requirements............................ 508,034 507,373
Preference stock subject to mandatory redemption re-
quirements......................................... 261,475 221,473
Company-obligated mandatorily redeemable preferred
securities of subsidiary trust*.................... 200,000 200,000
Long-term debt...................................... 6,488,434 6,021,252
----------- -----------
$13,164,073 $12,979,510
----------- -----------
Current Liabilities:
Notes payable--
Commercial paper.................................. $ 261,000 $ 156,000
Bank loans........................................ 7,150 7,550
Current portion of long-term debt, redeemable pref-
erence stock and capitalized lease obligations..... 433,299 794,425
Accounts payable.................................... 614,283 348,659
Accrued interest.................................... 170,284 145,277
Accrued taxes....................................... 215,965 314,977
Dividends payable................................... 102,192 101,289
Customer deposits................................... 44,521 48,389
Other............................................... 93,841 84,675
----------- -----------
$ 1,942,535 $ 2,001,241
----------- -----------
Deferred Credits and Other Noncurrent Liabilities:
Deferred income taxes............................... $ 4,506,704 $ 4,599,393
Accumulated deferred investment tax credits......... 689,041 662,698
Accrued spent nuclear fuel disposal fee and related
interest........................................... 624,191 648,959
Obligations under capital leases.................... 373,697 441,855
Regulatory liabilities.............................. 601,002 593,396
Other............................................... 1,217,817 1,307,685
----------- -----------
$ 8,012,452 $ 8,253,986
----------- -----------
Commitments and Contingent Liabilities (Note 20)
$23,119,060 $23,234,737
=========== ===========
</TABLE>
*As described in Note 8 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.
49
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CAPITALIZATION
<TABLE>
<CAPTION>
SEPTEMBER
DECEMBER 31, 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 214,217,331
shares, respectively............................. $ 2,677,437 $ 2,677,717
Premium on common stock and other paid-in capital.. 2,223,004 2,223,379
Capital stock and warrant expense.................. (16,159) (15,991)
Retained earnings.................................. 821,848 1,144,307
----------- -----------
$ 5,706,130 $ 6,029,412
----------- -----------
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 75,969 shares, re-
spectively....................................... 3,077 2,416
Prior preferred stock, cumulative, $100 par value
per share--
No shares outstanding............................. -- --
----------- -----------
$ 508,034 $ 507,373
----------- -----------
Preference Stock Subject to Mandatory Redemption Re-
quirements:
Preference stock, cumulative, without par value--
Outstanding--2,934,990 shares and 2,532,490
shares, respectively............................. $ 292,163 $ 252,161
Current redemption requirements for preference
stock included in current liabilities............. (30,688) (30,688)
----------- -----------
$ 261,475 $ 221,473
----------- -----------
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--3.95% 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%.................................. 110,505 105,911
Pollution control obligations, due 2004 through
2014--3.80% to 6 7/8%............................. 317,200 142,200
Other long-term debt............................... 1,064,318 987,027
Current maturities of long-term debt included in
current liabilities............................... (234,893) (574,574)
Unamortized net debt discount and premium.......... (55,096) (50,712)
----------- -----------
$ 6,488,434 $ 6,021,252
----------- -----------
$13,164,073 $12,979,510
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
50
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED RETAINED EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
------------------- --------------------- ---------------------
1995 1996 1995 1996 1995 1996
-------- ---------- ---------- ---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Balance at Beginning of
Period................. $546,624 $ 892,836 $ 517,335 $ 821,848 $ 523,307 $ 867,678
Add--Net income......... 426,351 353,147 660,774 628,486 757,403 684,866
-------- ---------- ---------- ---------- ---------- ----------
$972,975 $1,245,983 $1,178,109 $1,450,334 $1,280,710 $1,552,544
-------- ---------- ---------- ---------- ---------- ----------
Deduct--
Dividends declared
on--
Common stock........ $ 85,678 $ 85,687 $ 257,032 $ 257,045 $ 342,708 $ 342,723
Preferred and pref-
erence stocks...... 16,589 15,603 50,341 48,567 67,249 65,081
Other capital stock
transactions--net... 3,030 386 3,058 415 3,075 433
-------- ---------- ---------- ---------- ---------- ----------
$105,297 $ 101,676 $ 310,431 $ 306,027 $ 413,032 $ 408,237
-------- ---------- ---------- ---------- ---------- ----------
Balance at End of Peri-
od..................... $867,678 $1,144,307 $ 867,678 $1,144,307 $ 867,678 $1,144,307
======== ========== ========== ========== ========== ==========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
51
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
-------------------- ----------------------- ------------------------
1995 1996 1995 1996 1995 1996
--------- --------- ---------- ----------- ----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Cash Flow from Operating
Activities:
Net income............. $ 426,351 $ 353,147 $ 660,774 $ 628,486 $ 757,403 $ 684,866
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and am-
ortization.......... 237,177 260,666 713,905 739,731 945,449 974,510
Deferred income taxes
and investment tax
credits--net........ 90,283 69,174 124,727 111,378 178,487 144,947
Extraordinary loss
related to early re-
demption of long-
term debt........... -- -- -- -- -- 33,158
Equity component of
allowance for funds
used during
construction........ (2,834) (4,955) (8,703) (15,721) (13,690) (20,147)
Revenue refunds and
related interest.... -- -- 15,135 -- (123,407) --
Recovery of
regulatory assets .. 3,818 3,818 11,454 11,454 15,272 15,272
Provisions/(payments)
for liability for
early retirement and
separation costs--
net................. 1,980 1,072 2,540 (28,858) 3,158 29,315
Net effect on cash
flows of changes in:
Receivables........ (132,760) (71,192) (138,899) 65,672 (163,399) 35,360
Coal and fuel oil.. 31,731 17,014 7,305 (20,791) 3,224 (48,400)
Materials and sup-
plies............. 3,904 11,725 21,986 2,973 31,294 32,060
Accounts payable
excluding nuclear
fuel lease
principal payments
and early
retirement and
separation costs--
net............... 70,962 (26,029) 152,181 (75,388) 234,272 237,906
Accrued interest
and taxes......... 56,685 1,124 146,197 74,005 244,755 (77,957)
Other changes in
certain current
assets and
liabilities....... 35,653 20,957 45,243 12,287 41,712 (6,401)
Other--net........... 46,985 35,410 181,894 65,260 118,640 28,956
--------- --------- ---------- ----------- ----------- -----------
$ 869,935 $ 671,931 $1,935,739 $ 1,570,488 $ 2,273,170 $ 2,063,445
--------- --------- ---------- ----------- ----------- -----------
Cash Flow from Investing
Activities:
Construction expendi-
tures................. $(190,536) $(192,012) $ (570,502) $ (709,892) $ (735,263) $(1,038,756)
Nuclear fuel expendi-
tures................. (52,842) (83,298) (163,996) (226,901) (250,266) (352,023)
Equity component of
allowance for funds
used during
construction.......... 2,834 4,955 8,703 15,721 13,690 20,147
Contributions to nu-
clear decommissioning
funds................. -- -- (96,229) (83,178) (132,550) (119,602)
Other investments and
special deposits...... 18,206 (3,370) 17,556 (3,418) 11,106 (1,376)
--------- --------- ---------- ----------- ----------- -----------
$(222,338) $(273,725) $ (804,468) $(1,007,668) $(1,093,283) $(1,491,610)
--------- --------- ---------- ----------- ----------- -----------
Cash Flow from Financing
Activities:
Issuance of securi-
ties--
Long-term debt........ $ -- $ -- $ -- $ 198,902 $ 181,476 $ 198,902
Preferred securities
of subsidiary trust.. 200,000 -- 200,000 -- 200,000 --
Capital stock......... 51 549 89 655 398 678
Retirement and redemp-
tion of securities--
Long-term debt........ (200,498) (64,103) (492,161) (331,200) (694,489) (976,311)
Capital stock......... (11,302) (37,803) (14,340) (40,911) (17,984) (44,506)
Deposits and securi-
ties held for retire-
ment and redemption
of securities......... 377 975 106 -- 104 --
Premium paid on early
redemption of long-
term debt............. -- -- -- -- (3,664) (25,823)
Cash dividends paid on
capital stock......... (102,710) (110,609) (307,879) (319,234) (410,537) (425,740)
Proceeds from
sale/leaseback of nu-
clear fuel............ 77,876 90,301 193,216 249,916 292,401 249,916
Nuclear fuel lease
principal payments.... (64,507) (51,724) (180,124) (158,693) (236,767) (216,414)
Increase (Decrease) in
short-term
borrowings............ (40,000) (170,850) -- (104,600) -- 156,400
--------- --------- ---------- ----------- ----------- -----------
$(140,713) $(343,264) $ (601,093) $ (505,165) $ (689,062) $(1,082,898)
--------- --------- ---------- ----------- ----------- -----------
Increase (Decrease) in
Cash and Temporary Cash
Investments............ $ 506,884 $ 54,942 $ 530,178 $ 57,655 $ 490,825 $ (511,063)
Cash and Temporary Cash
Investments at
Beginning of Period.... 76,944 17,823 53,650 15,110 93,003 583,828
--------- --------- ---------- ----------- ----------- -----------
Cash and Temporary Cash
Investments at End of
Period................. $ 583,828 $ 72,765 $ 583,828 $ 72,765 $ 583,828 $ 72,765
========= ========= ========== =========== =========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
52
<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.
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 $178 million and $155 million for the three months ended September 30,
1995 and 1996, respectively, $531 million and $469 million for the nine months
ended September 30, 1995 and 1996, respectively, and $708 million and $631
million for the twelve months ended September 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, nine
months and twelve months ended September 30, 1995 and 1996 was as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 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). $152,404 $152,120 $468,670 $422,844 $619,928 $558,377
Income taxes (net of
refunds)............ $ 88,623 $ 47,900 $111,115 $ 57,184 $ 91,317 $ 314,910
Supplemental Schedule of
Non-Cash Investing and
Financing Activities:
Capital lease obliga-
tions incurred........ $ 78,772 $ 90,861 $197,015 $253,347 $ 296,773 $ 254,909
</TABLE>
(2) RATE MATTERS. See Unicom's Note 2 of Notes to Financial Statements.
(3) AUTHORIZED SHARES AND VOTING RIGHTS OF CAPITAL STOCK. At September 30,
1996, the authorized shares of capital stock were: common stock--250,000,000
shares; preference stock--22,842,490 shares; $1.425 convertible preferred
stock--75,969 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 September 30, 1996, shares of common stock were reserved
for the following purposes:
<TABLE>
<S> <C>
Conversion of $1.425 convertible preferred stock.................. 77,488
Conversion of warrants............................................ 26,158
-------
103,646
=======
</TABLE>
53
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
During the three months, nine months and twelve months ended September 30,
1995 and 1996, shares of common stock were issued as follows:
<TABLE>
<CAPTION>
NINE MONTHS
THREE MONTHS ENDED ENDED TWELVE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
------------------ ------------ --------------------
1995 1996 1995 1996 1995 1996
------------------ ----- ------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Conversion of $1.425 con-
vertible preferred stock. 1,642 17,727 2,873 21,162 5,206 21,919
Conversion of warrants.... 26 820 242 1,219 535 1,276
-------- --------- ----- ------ --------- ----------
1,668 18,547 3,115 22,381 5,741 23,195
======== ========= ===== ====== ========= ==========
</TABLE>
At December 31, 1995 and September 30, 1996, 82,742 and 78,476 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) STOCK OPTION AWARDS/EMPLOYEE STOCK PURCHASE PLAN. See Unicom's Note 5 of
Notes to Financial Statements.
(6) PREFERRED AND PREFERENCE STOCKS WITHOUT MANDATORY REDEMPTION
REQUIREMENTS. See Unicom's Note 6 of Notes to Financial Statements.
(7) PREFERENCE STOCK SUBJECT TO MANDATORY REDEMPTION REQUIREMENTS. See
Unicom's Note 7 of Notes to Financial Statements.
(8) COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF COMED
FINANCING I. See Unicom's Note 8 of Notes to Financial Statements.
(9) LONG-TERM DEBT. See Unicom's Note 9 of Notes to Financial Statements.
(10) LINES OF CREDIT. See the first paragraph of Unicom's Note 10 of Notes to
Financial Statements.
(11) DISPOSAL OF SPENT NUCLEAR FUEL. See Unicom's Note 11 of Notes to
Financial Statements.
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS. See Unicom's Note 12 of Notes to
Financial Statements.
(13) PENSION BENEFITS. See Unicom's Note 13 of Notes to Financial Statements.
(14) POSTRETIREMENT BENEFITS. See Unicom's Note 14 of Notes to Financial
Statements.
(15) SEPARATION PLAN COSTS. See Unicom's Note 15 of Notes to Financial
Statements.
(16) INCOME TAXES. The components of the net deferred income tax liability at
December 31, 1995 and September 30, 1996 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 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 $3,457,959
Overheads capitalized.............................. 252,910 264,169
Repair allowance................................... 219,585 215,203
Regulatory assets recoverable through future rates. 1,689,832 1,653,636
Deferred income tax assets:
Postretirement benefits............................ (235,353) (265,205)
Unbilled revenues.................................. (116,274) (125,548)
Alternative minimum tax............................ (145,019) (75,056)
Unamortized investment tax credits to be settled
through future rates.............................. (452,210) (438,095)
Other regulatory liabilities to be settled through
future rates...................................... (148,792) (155,301)
Other--net......................................... (45,893) (52,169)
---------- ----------
Net deferred income tax liability................... $4,398,773 $4,479,593
========== ==========
</TABLE>
54
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
The $81 million increase in the net deferred income tax liability from December
31, 1995 to September 30, 1996 is comprised of a $138 million increase in
deferred income tax expense, a $28 million decrease in the deferred income tax
balance for AMT (before reflecting utilizations) and a $29 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, nine months and twelve months ended September 30, 1995 and
1996 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
-------------------- ------------------ --------------------
1995 1996 1995 1996 1995 1996
--------- --------- -------- -------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Electric operating in-
come:
Current income taxes... $ 197,013 $ 136,265 $328,017 $278,446 $ 348,061 $ 294,651
Deferred income taxes.. 96,782 78,635 144,244 135,360 201,738 179,124
Investment tax credits
deferred--net......... (7,177) (12,011) (21,535) (26,343) (28,672) (33,518)
Other (income) and de-
ductions............... (5,344) 4,883 (5,870) (156) (9,362) (1,972)
--------- --------- -------- -------- --------- ---------
Net income taxes charged
to continuing opera-
tions.................. $ 281,274 $ 207,772 $444,856 $387,307 $ 511,765 $ 438,285
========= ========= ======== ======== ========= =========
</TABLE>
Provisions for current and deferred federal and state income taxes and
amortization of investment tax credits resulted in the following effective
income tax rates for the three months, nine months and twelve months ended
September 30, 1995 and 1996:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
-------------------- ---------------------- ----------------------
1995 1996 1995 1996 1995 1996
--------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Pre-tax book income
(thousands)............ $707,625 $560,919 $1,105,630 $1,015,793 $1,269,168 $1,143,173
Effective income tax
rate................... 39.7% 37.0% 40.2% 38.1% 40.3% 38.3%
</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, nine months and twelve months ended September 30, 1995 and
1996 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
-------------------- ------------------ --------------------
1995 1996 1995 1996 1995 1996
--------- --------- -------- -------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Federal income taxes
computed at statutory
rate................... $247,669 $ 196,322 $386,971 $355,528 $ 444,209 $ 400,111
Equity component of
AFUDC which was
excluded from taxable
income................. (992) (1,734) (3,046) (5,502) (4,792) (7,051)
Amortization of invest-
ment tax credits....... (7,177) (12,011) (21,535) (26,343) (28,744) (33,518)
State income taxes, net
of federal income tax-
es..................... 35,228 26,850 58,513 50,973 70,253 58,433
Differences between book
and tax accounting,
primarily property-re-
lated deductions....... 5,435 (3,418) 21,213 8,590 27,905 3,357
Other--net.............. 1,111 1,763 2,740 4,061 2,934 16,953
--------- --------- -------- -------- --------- ---------
Net income taxes charged
to continuing opera-
tions.................. $ 281,274 $ 207,772 $444,856 $387,307 $ 511,765 $ 438,285
========= ========= ======== ======== ========= =========
</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.
55
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONCLUDED
(17) TAXES, EXCEPT INCOME TAXES. Provisions for taxes, except income taxes,
for the three months, nine months and twelve months ended September 30, 1995
and 1996 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
------------------- ----------------- -------------------
1995 1996 1995 1996 1995 1996
--------- --------- -------- -------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Illinois public utility
revenue................ $ 67,421 $ 63,399 $175,362 $173,891 $ 229,150 $ 228,075
Illinois invested capi-
tal.................... 27,980 26,587 82,090 78,766 109,416 103,506
Municipal utility gross
receipts............... 53,648 49,508 128,554 128,909 162,328 168,113
Real estate............. 45,868 40,824 132,821 94,602 177,936 137,528
Municipal compensation.. 24,449 23,205 59,876 60,009 76,691 78,735
Other--net.............. 20,538 18,621 60,586 63,448 72,325 76,406
--------- --------- -------- -------- --------- ---------
$ 239,904 $ 222,144 $639,289 $599,625 $ 827,846 $ 792,363
========= ========= ======== ======== ========= =========
</TABLE>
(18) LEASE OBLIGATIONS. See the first paragraph of Unicom's Note 18 of Notes
to Financial Statements.
Future minimum rental payments, net of executory costs, at September 30, 1996
for capital leases are estimated to aggregate $754 million, including $63
million in 1996, $249 million in 1997, $175 million in 1998, $121 million in
1999, $70 million in 2000 and $76 million in 2001-2005. The estimated interest
component of such rental payments aggregates $86 million. The estimated
portions of obligations due within one year under capital leases of
approximately $168 million and $189 million at December 31, 1995 and September
30, 1996, respectively, are included in current liabilities.
Future minimum rental payments at September 30, 1996 for operating leases are
estimated to aggregate $135 million, including $1 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.
(19) JOINT PLANT OWNERSHIP. See Unicom's Note 19 of Notes to Financial
Statements.
(20) COMMITMENTS AND CONTINGENT LIABILITIES. See Unicom's Note 20 of Notes to
Financial Statements.
56
<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," subcaption
"Liquidity and Capital Resources--UTILITY OPERATIONS," which is incorporated
herein by this reference.
REGULATION. See Unicom's "Management's Discussion and Analysis of Financial
Condition and Results of Operations," subcaption "Regulation," which is
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.
57
<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 July 1995, the Chicago area experienced several consecutive days of
unusually high temperatures coupled with high humidity. Between July 12 and 14,
1995, ComEd experienced record demand for electricity. On July 14, 1995, a fire
in a substation caused a power outage to approximately 40,000 customers. Other
equipment failures in the same general area caused certain of these customers
to be without power for up to 48 hours. In the wake of these power outages,
three class action lawsuits were filed against ComEd seeking recovery of
damages for property losses allegedly suffered. One suit seeks at least $10
million in damages; the others seek unspecified damages. One individual suit
was also filed seeking damages less than $100,000 for property losses.
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 properties.
The reduction in ComEd's provision for real estate taxes in 1995 and 1996
reflects the bills received.
On November 1, 1996, the City of Chicago, Illinois filed a demand for binding
arbitration under the provisions of its franchise agreement with ComEd. In its
demand, the City alleges, among other items, that ComEd has failed to carry out
its capital expenditure commitments under the franchise agreement (which
requires ComEd to budget $1 billion in capital expenditures over a ten year
period that commenced in January 1992) and further alleges that such failure
has affected the reliability of ComEd's electric supply system in the City.
During the four years since January 1992, ComEd has expended approximately $359
million to enhance electric service reliability and energy supply for the City,
and it continues to review, and budget appropriately, for needed projects.
ComEd intends to dispute the City's allegations.
58
<PAGE>
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.
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
59
<PAGE>
has been made. The NRC began to conduct a team inspection at Dresden on
September 30, 1996, to assess progress in correcting performance and to sample
compliance with licensing and other requirements. ComEd expects the NRC to
issue an inspection report by December 23, 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, and in October
1996, the Illinois Supreme Court denied the intevenors' petition for leave to
appeal. 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 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. Actual
decommissioning costs and future estimates thereof 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 seven
occasions for violations of NRC regulations in amounts aggregating $450,000. To
ComEd's knowledge, there are three current enforcement issues outstanding and
under review by the NRC.
ENVIRONMENTAL MATTERS. Air quality regulations, promulgated by the IPCB as
well as the Indiana and Hammond Departments of Environmental Management in
accordance with federal standards, impose restrictions on the emission of
particulates, sulfur dioxide, nitrogen oxides and other air pollutants and
require permits from the respective state and local environmental protection
agencies for the operation
60
<PAGE>
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. On October
3, 1996, the IPCB granted ComEd's petition and established alternate thermal
standards.
The Great Lakes Critical Programs Act of 1990 requires that, following the
issuance of guidance by the U.S. EPA, the states of Illinois and Indiana, among
others, adopt water quality standards, policies and procedures to assure
protection of the water quality of the Great Lakes. Water quality standards and
procedures that the states would be required to adopt are to be based on the
U.S. EPA's final guidance issued on March 13, 1995. ComEd is presently
following state activities to promulgate rules implementing the final guidance,
and assessing the extent to which such may impact certain ComEd facilities.
Ultimately, the new rules may require that ComEd install additional pollution
control equipment or restrict operations at its facilities that discharge,
either directly or indirectly, into Lake Michigan.
The Clean Air Amendments require reductions in nitrogen oxide emissions from
ComEd's and the Indiana Company's fossil fuel generating units. On January 26,
1996, the U.S. EPA issued a final rule exempting existing sources inside the
Chicago ozone non-attainment area from further nitrogen oxide emission
reductions; however, this exemption is limited pending further study of ozone
transport. The Illinois EPA is also considering nitrogen oxide emission
reductions at ComEd generating stations outside the Chicago ozone non-
attainment area also due to ozone transport. Under the Acid Rain program, the
U.S. EPA will prepare nitrogen oxide emission regulations that would apply to
all of ComEd's boilers with a compliance date of January 1, 2000. These
regulations were proposed on January 19, 1996 and include limits for cyclone
and tangentially fired boilers.
CERCLA provides for immediate response and removal actions coordinated by the
U.S. EPA to releases of hazardous substances into the environment and
authorizes the U.S. Government either to clean up sites at which hazardous
substances have created actual or potential environmental hazards or to order
persons responsible for the situation to do so. Under CERCLA, generators and
transporters of hazardous substances, as well as past and present owners and
operators of hazardous waste sites, are made strictly, jointly and severally
liable for the cleanup costs of waste at sites, most of which are listed by the
U.S. EPA on the NPL. These responsible parties can be ordered to perform a
cleanup, can be sued for costs associated with a U.S. EPA directed cleanup, may
voluntarily settle with the U.S. Government concerning their liability for
cleanup costs, or may voluntarily begin a site investigation and site
remediation prior to listing on the NPL under state oversight. Various states,
including Illinois, have enacted statutes which contain provisions
substantially similar to CERCLA. ComEd and its subsidiaries are or are likely
to become parties to proceedings initiated by the U.S. EPA, state agencies
and/or other
61
<PAGE>
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 September 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 September 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. On or about October 31,
1996, ComEd and the U.S. Government filed with the Court a joint statement
indicating that they had reached an agreement in principle to settle ComEd's
total liability for a total payment of $1.35 million in cash and services.
In 1990, the IPCB replaced existing landfill regulations with new, more
stringent design and performance standards. These regulations were expected to
increase the cost to ComEd for disposal of coal combustion by-products at its
Joliet station, unless regulatory relief is granted by the IPCB. ComEd
petitioned the IPCB requesting exemptions from certain aspects of the new
regulations. In August 1996, the IPCB granted ComEd's petitioned request for
adjusted standards. The ruling allows for continued disposal of combustion by-
products at Joliet station and provides appropriate environmental protection
measures without increase in the cost of disposal. The ruling further allowed
ComEd to avoid an estimated $7 million in expenditures to retrofit the existing
facility, site an alternative landfill, or close the existing facility and seek
commercial disposal.
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
62
<PAGE>
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 September 30,
1996, which could have such an effect.
FORWARD LOOKING INFORMATION. Certain portions of these Quarterly Reports
contain forward looking statements with respect to the consequences of future
events, including estimates of costs associated with certain actions and
outcomes. Unforeseen events or conditions may require changes in the factors
affecting such estimates and the projected results thereof. Consequently,
actual results could differ materially from the estimates presented. See the
last paragraph under the subheading "Liquidity and Capital Resources--
Construction Program" in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for additional information regarding
certain caveats affecting forward looking statements. Forward looking
information is contained in various sections of this report, including, without
limitation, (i) Note 1 of Notes to Financial Statements in the fifth paragraph
under the subheading "Depreciation and Decommissioning Costs" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
the fourth paragraph under the subheading "Regulation--Nuclear Matters," with
respect to the estimated costs of decommissioning nuclear generating stations,
(ii) "Management's Discussion and Analysis of Financial Condition and Results
of Operations" under the subheading "Liquidity and Capital Resources--
Construction Program," regarding ComEd's construction program budget, (iii)
"Part II. Other Information" in the seventh paragraph under the heading "Item
1. Legal Proceedings--Nuclear Matters," regarding the time frame for steam
generator replacement at ComEd's Zion nuclear generating station and (iv) "Part
II. Other Information" in the seventh paragraph under the heading "Item 1.
Legal Proceedings--Environmental Matters," and the last paragraph in Note 20 of
Notes to Financial Statements, regarding cleanup costs associated with MGP and
other remediation sites.
63
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ------------------------------------------------------------------
<C> <S>
(12) Statement computing Commonwealth Edison Company ratios of earnings
to fixed charges and ratios of earnings to fixed charges and
preferred and preference stock dividend requirements.
(23)-1 Consent of independent public accountants applicable to Unicom
Corporation.
(23)-2 Consent of independent public accountants applicable to
Commonwealth Edison Company.
(27)-1 Financial data schedule of Unicom Corporation.
(27)-2 Financial data schedule of Commonwealth Edison Company.
</TABLE>
(b) Reports on Form 8-K
A Current Report on Form 8-K dated September 19, 1996 was filed by Unicom
and ComEd to announce a settlement reached by ComEd and Westinghouse.
64
<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 13th day of November, 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)
65
<PAGE>
EXHIBIT INDEX
Exhibits filed with or incorporated by reference in Form 10-Q for the
quarterly period ended September 30, 1996:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ---------------------------------------------------------------------
<C> <S>
(12) Statement computing Commonwealth Edison Company ratios of earnings to
fixed charges and ratios of earnings to fixed charges and preferred
and preference stock dividend requirements.
(23)-1 Consent of independent public accountants applicable to Unicom
Corporation.
(23)-2 Consent of independent public accountants applicable to Commonwealth
Edison Company.
(27)-1 Financial data schedule of Unicom Corporation.
(27)-2 Financial data schedule of Commonwealth Edison Company.
</TABLE>
<PAGE>
Exhibit (12)
Commonwealth Edison Company
Form 10-Q File No. 1-1839
Commonwealth Edison Company and Subsidiary Companies Consolidated
-----------------------------------------------------------------
Computation of Ratios of Earnings to Fixed Charges
and Ratios of Earnings to Fixed Charges and
Preferred and Preference Stock Dividend Requirements
-----------------------------------------------------
(Thousands of Dollars)
<TABLE>
<CAPTION>
Twelve Months Ended
----------------------------
Line December 31, September 30,
No. 1995 1996
- ---- ------------ -------------
<C> <S> <C> <C>
1 Net income before extraordinary item $ 737,176 $ 704,888
------------ -------------
2 Net provisions for income taxes and investment tax credits deferred
3 charged to--
4 Operations $ 503,519 $ 440,257
5 Other income (7,685) (1,972)
------------ -------------
6 $ 495,834 $ 438,285
------------ -------------
7 Fixed charges--
8 Interest on debt $ 589,217 $ 535,362
9 Estimated interest component of nuclear fuel and
10 other lease payments, rentals and other interest 73,003 69,603
11 Amortization of debt discount, premium and expense 22,738 21,872
12 Preferred securities dividend requirements of subsidiary trust 4,428 16,960
------------ -------------
13 $ 689,386 $ 643,797
------------ -------------
14 Preferred and preference stock dividend requirements--
15 Provisions for preferred and preference stock dividends $ 69,961 $ 68,384
16 Taxes on income required to meet provisions for
17 preferred and preference stock dividends 45,945 44,842
------------ -------------
18 $ 115,906 $ 113,226
------------ -------------
19 Fixed charges and preferred and preference stock
20 dividend requirements $ 805,292 $ 757,023
------------ -------------
21 Earned for fixed charges and preferred and preference stock
22 dividend requirements $ 1,922,396 $ 1,786,970
------------ -------------
23 Ratios of earnings to fixed charges (line 22 divided by line 13) 2.79 2.78
==== ====
24 Ratios of earnings to fixed charges and preferred and preference
25 stock dividend requirements (line 22 divided by line 20) 2.39 2.36
==== ====
</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
September 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), Form S-8 Registration Statement File No. 333-04749 (relating to
Unicom Corporation's 1996 Directors' Fee Plan) and Form S-8 Registration
Statement File No. 333-10613 (relating to Commonwealth Edison Company's Employee
Savings and Investment 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 September 30, 1996 appearing in this Form 10-Q.
ARTHUR ANDERSEN LLP
Chicago, Illinois
November 1, 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
September 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 September 30, 1996
appearing in this Form 10-Q.
ARTHUR ANDERSEN LLP
Chicago, Illinois
November 1, 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 September 30, 1996 and the related Statements of Consolidated Income,
Retained Earnings and Cash Flows for the nine months ended September 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 17,304,027
<OTHER-PROPERTY-AND-INVEST> 1,627,306
<TOTAL-CURRENT-ASSETS> 1,488,976
<TOTAL-DEFERRED-CHARGES> 0<F1>
<OTHER-ASSETS> 2,966,110
<TOTAL-ASSETS> 23,386,419
<COMMON> 4,922,173
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 1,170,436
<TOTAL-COMMON-STOCKHOLDERS-EQ> 6,089,083<F2>
221,473<F3>
507,373<F3>
<LONG-TERM-DEBT-NET> 6,123,181<F4>
<SHORT-TERM-NOTES> 7,550
<LONG-TERM-NOTES-PAYABLE> 0<F4>
<COMMERCIAL-PAPER-OBLIGATIONS> 156,000
<LONG-TERM-DEBT-CURRENT-PORT> 576,546
30,688<F3>
<CAPITAL-LEASE-OBLIGATIONS> 443,683
<LEASES-CURRENT> 189,328
<OTHER-ITEMS-CAPITAL-AND-LIAB> 9,041,514<F5>
<TOT-CAPITALIZATION-AND-LIAB> 23,386,419
<GROSS-OPERATING-REVENUE> 5,299,746
<INCOME-TAX-EXPENSE> 382,486<F6>
<OTHER-OPERATING-EXPENSES> 3,891,595
<TOTAL-OPERATING-EXPENSES> 4,274,237
<OPERATING-INCOME-LOSS> 1,025,509
<OTHER-INCOME-NET> (52,067)<F6><F7>
<INCOME-BEFORE-INTEREST-EXPEN> 973,598
<TOTAL-INTEREST-EXPENSE> 401,373
<NET-INCOME> 572,225
0<F7>
<EARNINGS-AVAILABLE-FOR-COMM> 572,225
<COMMON-STOCK-DIVIDENDS> 258,570
<TOTAL-INTEREST-ON-BONDS> 0<F8>
<CASH-FLOW-OPERATIONS> 1,478,911
<EPS-PRIMARY> 2.66
<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 $3,526 thousand for preference stock expense of
ComEd.
<F3> Preferred and preference stocks of ComEd.
<F4> $818,429 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 $156 thousand related to nonoperating activities is
included in INCOME-TAX-EXPENSE.
<F7> A $48,871 thousand provision for preferred and preference stock dividends
of ComEd and $12,720 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 September 30, 1996 and the related Statements of Consolidated Income,
Retained Earnings and Cash Flows for the nine months ended September 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 17,304,027
<OTHER-PROPERTY-AND-INVEST> 1,518,545
<TOTAL-CURRENT-ASSETS> 1,452,381
<TOTAL-DEFERRED-CHARGES> 0<F1>
<OTHER-ASSETS> 2,959,784
<TOTAL-ASSETS> 23,234,737
<COMMON> 2,677,717
<CAPITAL-SURPLUS-PAID-IN> 2,207,388
<RETAINED-EARNINGS> 1,144,307
<TOTAL-COMMON-STOCKHOLDERS-EQ> 6,029,412
221,473
507,373
<LONG-TERM-DEBT-NET> 6,021,252<F2>
<SHORT-TERM-NOTES> 7,550
<LONG-TERM-NOTES-PAYABLE> 0<F2>
<COMMERCIAL-PAPER-OBLIGATIONS> 156,000
<LONG-TERM-DEBT-CURRENT-PORT> 574,574
30,688
<CAPITAL-LEASE-OBLIGATIONS> 441,855
<LEASES-CURRENT> 189,163
<OTHER-ITEMS-CAPITAL-AND-LIAB> 9,055,397<F3>
<TOT-CAPITALIZATION-AND-LIAB> 23,234,737
<GROSS-OPERATING-REVENUE> 5,298,096
<INCOME-TAX-EXPENSE> 387,307<F4>
<OTHER-OPERATING-EXPENSES> 3,881,393
<TOTAL-OPERATING-EXPENSES> 4,268,856
<OPERATING-INCOME-LOSS> 1,029,240
<OTHER-INCOME-NET> (3,724)<F4><F5>
<INCOME-BEFORE-INTEREST-EXPEN> 1,025,672
<TOTAL-INTEREST-EXPENSE> 397,186
<NET-INCOME> 628,486
48,871
<EARNINGS-AVAILABLE-FOR-COMM> 579,615
<COMMON-STOCK-DIVIDENDS> 257,045
<TOTAL-INTEREST-ON-BONDS> 0<F6>
<CASH-FLOW-OPERATIONS> 1,570,488
<EPS-PRIMARY> 2.71
<EPS-DILUTED> 0
<FN>
<F1> This item is not disclosed as a separate line item on the Consolidated
Balance Sheet.
<F2> $716,500 thousand of notes and long-term note payable to bank is included
in LONG-TERM-DEBT-NET.
<F3> Includes $200,000 thousand of company-obligated mandatorily redeemable
preferred securities of subsidiary trust.
<F4> A tax benefit of $156 thousand related to nonoperating activities is
included in INCOME-TAX-EXPENSE.
<F5> Includes $12,720 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>