SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 22, 1999
PECO ENERGY COMPANY
(Exact name of registrant as specified in its charter)
Pennsylvania 1-1401 23-0970240
(State or other (Commission (IRS Employer
jurisdiction of file number) Identification
incorporation) Number)
230l Market Street, Philadelphia, Pennsylvania 19101
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(215) 841-4000
<PAGE>
Item 5. Other Events
Merger Agreement. On September 23, 1999, Unicom Corporation ("Unicom") and
PECO Energy Company ("PECO"), issued a joint press release announcing that they,
along with a wholly owned subsidiary of PECO ("Newco"), had entered into an
Agreement and Plan of Exchange and Merger, dated as of September 22, 1999 (the
"Merger Agreement").
PECO is filing this Form 8-K to provide additional information about the
transactions contemplated by the Merger Agreement before PECO commences
repurchases of shares of its common stock, as more fully described below.
Nothing contained herein shall be considered a solicitation of any proxy to
approve such transactions.
The Merger Agreement was filed by PECO with the Securities and Exchange
Commission as an exhibit to the Form 8-K filed September 29, 1999. The following
description of the Merger Agreement does not purport to be complete and is
qualified in its entirety by reference to the provisions of the Merger
Agreement.
The Merger Agreement provides for (a) the mandatory exchange of the
outstanding common stock, no par value, of PECO ("PECO Common Stock") for common
stock of Newco ("Newco Common Stock") or cash (the "Share Exchange") and (b) the
merger of Unicom with and into Newco (the "Merger" and together with the Share
Exchange, the "Merger Transaction"). In the Merger, holders of the outstanding
common stock, no par value of Unicom ("Unicom Common Stock") will exchange their
shares for Newco Common Stock or cash. As a result of the Share Exchange, PECO
will become a wholly owned subsidiary of Newco. As a result of the Merger,
Unicom will cease to exist and its subsidiaries, including Commonwealth Edison
Company, an Illinois corporation ("ComEd"), will become subsidiaries of Newco.
Thus, following the Merger Transaction, Newco will be a holding company with two
principal utility subsidiaries, ComEd and PECO, and additional subsidiaries.
<PAGE>
2
Repurchase of Unicom Common Stock. The Merger Agreement requires that the
Merger be accounted for as a purchase of Unicom by PECO in accordance with
generally accepted accounting principles ("GAAP"). Based on the number of shares
of PECO Common Stock and Unicom Common Stock outstanding as of the date hereof,
the number of shares of PECO Common Stock which PECO anticipates repurchasing
prior to the consummation of the Merger Transaction and other anticipated
changes in the number of outstanding shares (such as option exercises), Unicom
expects to purchase approximately six million shares of Unicom Common Stock
prior to the closing of the Merger Transaction. This number is in addition to
the 20.1 million shares of Unicom Common Stock that Unicom expects to repurchase
no later than February 2000 under certain forward purchase contracts.
Unicom expects that it will commence share repurchases following the filing
hereof and will continue purchasing shares from time to time on the open market
or through negotiated purchases.
Repurchase of PECO Common Stock. PECO expects to purchase approximately four
million shares of PECO Common Stock prior to the closing of the Merger
Transaction. This number is in addition to the 38.7 million shares of PECO
Common Stock that have been previously purchased with proceeds from its
securitization of stranded costs.
PECO expects that it will commence share repurchases following the filing
hereof and will continue purchasing shares from time to time on the open market
or through negotiated purchases.
Cost Savings. The combined companies expect to achieve net annual cost savings
of approximately $100 million in the first year after the close of the Merger
Transaction, which grow to over $180 million by the third year. The companies
expect that sixty percent of these savings will come from regulated operations
and forty percent will come from unregulated operations. These cost savings are
expected to result primarily from eliminating duplicate corporate and
administrative positions and programs and achieving efficiencies in operations,
business processes and purchasing. Based on these
<PAGE>
3
cost savings, excluding one-time merger-related costs, the transaction is
expected to be accretive in the first year after closing. In addition, as a
result of the combination, the companies expect to achieve revenue enhancements.
Item 7. Financial Statements and Exhibits
(b) Pro Forma Financial Information
Unaudited Pro Forma Combined Condensed Financial Statements. The following
unaudited pro forma combined condensed financial statements have been prepared
to reflect the acquisition of Unicom by PECO under the purchase method of
accounting. The historical consolidated financial statements of Unicom have been
adjusted to give effect to the sale of ComEd's fossil generating plants and the
annualized effects of Unicom's issuance of securitization notes and related use
of proceeds ("Unicom Pro Forma Adjustments"). ComEd expects to complete the sale
of its fossil generating plants during the fourth quarter of 1999. The
historical consolidated financial statements of PECO have been adjusted to give
effect to its use of the remaining proceeds from its securitization of stranded
costs ("PECO Pro Forma Adjustments"). The unaudited pro forma financial
statements do not give effect to the estimated cost savings and revenue
enhancements as a result of the Merger Transaction or the costs to achieve such
savings and revenue enhancements or one-time merger-related costs. The Unicom
and PECO Pro Forma Adjustments and the Merger Transaction are reflected in the
unaudited combined condensed pro forma balance sheet as if they occurred on June
30, 1999. The unaudited pro forma combined condensed statements of income for
the six months ended June 30, 1999 and for the year ended December 31, 1998
assume that these transactions were completed on January 1, 1998.
The unaudited pro forma combined condensed financial statements do not reflect
potential adjustments to Unicom's assets and liabilities to reflect fair value,
as will be required upon consummation of the Merger Transaction under purchase
accounting. Such adjustments to the book value of assets and liabilities could
be significant, particularly with respect to Unicom's nuclear generating
stations. The fair value of the nuclear generating stations is expected to be
determined considering, among other things, independent appraisals or expected
cash flows. To the extent the fair value of Unicom's nuclear generating stations
is ultimately determined to be less than the June 30, 1999 book value of $6.9
billion, additional goodwill and/or an identifiable intangible asset will be
recorded. The results of the fair value determination are not currently known;
however, the ultimate determination is not expected to have a dilutive effect on
results of operations.
The following unaudited pro forma financial statements should be read in
conjunction with the consolidated historical financial statements and related
notes of PECO and Unicom, which are included in their respective Annual Reports
on Form 10-K for the year ended December 31, 1998 and Quarterly Reports on Form
10-Q for the quarter ended June 30, 1999. PECO has provided all the information
included in this Form 8-K regarding PECO and its subsidiaries. Unicom has
provided all the information included in this Form 8-K regarding Unicom and its
subsidiaries. Neither PECO nor Unicom assumes any responsibility for the
accuracy or completeness of the information provided by the other party.
The following unaudited pro forma financial statements are for illustrative
purposes only. They are not necessarily indicative of the financial position or
operating results that would have occurred had these transactions been completed
on January 1, 1998 or June 30, 1999, as assumed above; nor is the information
necessarily indicative of future financial position or operating results.
Results of operations and financial position in the first year after
consummation could differ significantly from the unaudited pro forma combined
condensed financial statements, which are based on past operations.
<PAGE>
4
Future operations will be affected by various factors including operating
performance, energy market developments, and other matters.
The unaudited pro forma financial statements assume that approximately $180
million of PECO available funds will be used to purchase approximately four
million shares of PECO Common Stock prior to the closing of the Merger
Transaction. Given the assumption of PECO share repurchases, the Merger
Transaction requires Unicom to purchase 26.1 million shares of Unicom Common
Stock prior to the closing of the Merger Transaction. Unicom expects to meet
this requirement through a currently existing pre-paid forward contract for the
purchase of 20.1 million shares and the purchase of approximately 6 million
additional shares from available funds. Unicom and PECO anticipate that the $750
million cash consideration to be paid to each company's shareholders in the
Merger Transaction will be provided from available funds of each company.
The historical financial statements of PECO included in the accompanying pro
forma combined condensed financial statements for the six months ended June 30,
1999 are unaudited. The December 31, 1998 historical financial statements of
PECO and Unicom and the June 30, 1999 historical financial statements of Unicom
were derived from audited financial statements but do not include all
disclosures required by GAAP.
Forward-looking statements. Except for historical data, the information
contained in this Form 8-K constitutes forward-looking statements. Forward-
looking statements are inherently uncertain and subject to risks and the
statements should be viewed with caution. Actual results or experience could
differ materially from the forward-looking statements as a result of many
factors, including without limitation, those factors discussed below or
elsewhere in this Form 8-K.
The forward-looking statements in this Form 8-K include the statements
regarding the estimated number of shares of Unicom Common Stock to be purchased
by Unicom in order to comply with the Merger Agreement; the number of shares of
PECO Common Stock to be purchased prior to the closing of the Merger
Transaction; the expected source of funds necessary to provide the cash
consideration in the Merger Transaction and to acquire Unicom and PECO Common
Stock prior to the closing of the Merger Transaction; the estimated cost savings
to be achieved as a result of the Merger Transaction and the source of those
savings; the statement that the transaction is expected to be accretive in the
first year after closing (excluding one-time merger-related costs); and the
statement that the companies expect to achieve revenue enhancements.
These forward-looking statements are subject to numerous assumptions, risks
and uncertainties. Factors that may cause actual results to differ from those
indicated by such forward-looking statements include, among others, the
following:
. The fact that these forward-looking statements are based on information of a
preliminary nature which may be subject to further and continuing review and
adjustment;
. The risk of legislative, regulatory or other governmental action seeking to
impose additional restrictions on the operations of Unicom or PECO or to
increase the burden of necessary regulatory approvals for the Merger
Transaction, or the imposition of unfavorable terms as a condition of approval
of the Merger Transaction;
. The risk of a significant delay in the expected completion of, and unexpected
consequences resulting from the Merger Transaction, including the inability to
close the transaction or unexpected difficulties in integrating the operations
of the two companies; difficulties in achieving anticipated cost savings;
<PAGE>
5
difficulties in achieving other operational improvements and revenue
enhancements;
. The risk that the assumptions and estimates underlying the anticipated cost
savings may prove to be faulty or other factors may adversely affect the
amount, nature or timing of anticipated cost savings;
. The risk that competition, difficulties encountered by the companies in
coordinating new business ventures or other difficulties could adversely
affect the amount, nature or timing of anticipated revenue enhancements;
. Changes in the number of shares of outstanding common stock of Unicom and
PECO for reasons not foreseen at the date hereof;
. Changes in the amount of proceeds received by the companies from asset sales,
securitization transactions or other factors affecting the amount and timing
of receipt of available funds to provide the cash consideration for the Merger
Transaction or share repurchases;
. The increasingly competitive nature of the electric, natural gas and energy
industries, including the speed and degree to which competition enters these
industries and the risk that other companies will further expand into markets
in which Unicom or PECO operate;
. The risk of unforeseen developments in the market for electricity in the areas
in which Unicom and PECO conduct their business including changes resulting
from regulatory changes, the influence of developments in the regulatory
environments in other areas, adverse weather conditions and changes in the
overall economy, any or all of which may affect revenues and margins;
. The risks associated with Unicom's and PECO's nuclear generating stations
including the capacity factor of those stations, which may affect the
utilities' electricity generation and purchased power costs;
. Other considerations that may be disclosed from time to time in Unicom's or
PECO's publicly disseminated documents or filings.
Unicom and PECO make no commitment to disclose any revisions to the
forward-looking statements, or any facts, events or circumstances after the date
hereof that may bear upon the forward-looking statements.
<PAGE>
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
(Millions Except Per Share Data)
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
PECO PECO
PECO Securitization Prior to
As ProForma Merger
Filed Adjustments(1) ProForma
------- --------------- --------
<C> <S> <S> <S>
Operating Revenues
Electric $ 2,144 $ -- $2,144
Gas 307 -- 307
------- ---------- --------
Total Operating Revenues $ 2,451 $ -- $2,451
------- ---------- --------
Operating Expenses
Fuel and Energy Interchange $ 965 $ -- $ 965
Operation and Maintenance 628 -- 628
Depreciation and Amortization 114 -- 114
Goodwill Amortization -- -- --
Taxes Other Than Income Taxes 121 -- 121
------- ---------- --------
Total Operating Expenses $ 1,828 $ -- $1,828
------- ---------- --------
Operating Income $ 623 $ -- $ 623
------- ---------- --------
Other Income and Deductions
Interest Expense $ (188) $ (15) $ (203)
Preferred and Preference Stock Dividends -- -- --
Other, net (59) 10 (49)
------- ---------- --------
Total Other Income and Deductions $ (247) $ (5) $ (252)
------- ---------- --------
Income Before Income Taxes
and Extraordinary Item $ 376 $ (5) $ 371
Income Tax Expense 139 (2) 137
------- ---------- --------
Income Before Extraordinary Item $ 237 $ (3) $ 234
======= ========== ========
Preferred Stock Dividends $ 7 $ (1) $ 6
======= ========== ========
Income Before Extraordinary
Item per Share $ 1.11
=======
Income Before Extraordinary
Item per Share-Diluted $ 1.10
=======
Average Basic Shares Outstanding 207.6
=======
Average Diluted Shares Outstanding 209.1
=======
</TABLE>
6
<PAGE>
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
(Millions Except Per Share Data)
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
UNICOM UNICOM UNICOM
UNICOM Fossil Sale Securitization Prior to
As ProForma ProForma Merger
Filed Adjustments(3) Adjustments(4) ProForma
---------- -------------- -------------- --------
<S> <C> <C> <C> <C>
Operating Revenues
Electric $ 3,224 $ -- $ -- $3,224
Gas -- -- -- --
-------- ----------- --------- -------
Total Operating Revenues $ 3,224 $ -- $ -- $3,224
-------- ----------- --------- -------
Operating Expenses
Fuel and Energy Interchange $ 664 $ 64 $ -- $ 728
Operation and Maintenance 1,205 (132) -- 1,073
Depreciation and Amortization 498 52 -- 550
Goodwill Amortization -- -- -- --
Taxes Other Than Income Taxes 248 (7) -- 241
-------- ----------- --------- -------
Total Operating Expenses $ 2,615 $ (23) $ -- $2,592
-------- ----------- --------- -------
Operating Income $ 609 $ 23 $ -- $ 632
-------- ----------- --------- -------
Other Income and Deductions
Interest Expense $ (287) $ -- $ 13 $ (274)
Preferred and Preference Stock Dividends (33) -- 3 (30)
Other, net 52 42 5 99
-------- ----------- --------- -------
Total Other Income and Deductions $ (268) $ 42 $ 21 $ (205)
-------- ----------- --------- -------
Income Before Income Taxes
and Extraordinary Item $ 341 $ 65 $ 21 $ 427
Income Tax Expense 124 26 7 157
-------- ----------- --------- -------
Income Before Extraordinary Item $ 217 $ 39 $ 14 $ 270
======== =========== ========= =======
Income Before Extraordinary
Item per Share $ 1.00
========
Income Before Extraordinary
Item per Share - Diluted $ 1.00
========
Average Basic Shares Outstanding 217.2
========
Average Diluted Shares Outstanding 218.1
========
</TABLE>
7
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(Millions Except Per Share Data)
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
PECO UNICOM
Prior to Prior to Merger
Merger Merger ProForma Merger
ProForma ProForma Adjustments ProForma
--------- --------- ----------- --------
<S> <C> <C> <C> <C>
Operating Revenues
Electric $2,144 $3,224 $ (30)(8) $5,338
Gas 307 -- -- 307
------ ------ ------ ------
Total Operating Revenues $2,451 $3,224 $ (30) $5,645
------ ------ ------ ------
Operating Expenses
Fuel and Energy Interchange $ 965 $ 728 $ (30)(8) $1,663
Operation and Maintenance 628 1,073 -- 1,701
Depreciation and Amortization 114 550 (90)(7) 574
Goodwill Amortization -- -- 38 (9) 38
Taxes Other Than Income Taxes 121 241 -- 362
------ ------ ------ ------
Total Operating Expenses $1,828 $2,592 $ (82) $4,338
------ ------ ------ ------
Operating Income $ 623 $ 632 $ 52 $1,307
------ ------ ------ ------
Other Income and Deductions
Interest Expense $ (203) $ (274) $ -- $ (477)
Preferred and Preference Stock Dividends -- (30) (11)(10) (41)
Other, net (49) 99 5 (10) 55
------ ------ ------ ------
Total Other Income and Deductions $ (252) $ (205) $ (6) $ (463)
------ ------ ------ ------
Income Before Income Taxes
and Extraordinary Item $ 371 $ 427 $ 46 $ 844
Income Tax Expense 137 157 35 329
------- ------ ------ ------
Income Before Extraordinary Item $ 234 $ 270 $ 11 $ 515
======= ====== ====== ======
Preferred Stock Dividends $ 6 $ -- $ (6)(10) $ --
======= ====== ====== ======
Income Before Extraordinary
Item per Share $ 1.56
======
Income Before Extraordinary
Item per Share - Diluted $ 1.55
======
Average Basic Shares Outstanding 330.8(6)
======
Average Diluted Shares Outstanding 333.2
======
</TABLE>
8
<PAGE>
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
(Millions Except Per Share Data)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PECO PECO
PECO Securitization Prior to
As Pro Forma Merger
Filed Adjustments(1) Pro Forma
------ --------------- --------
<S> <C> <C> <C>
Operating Revenues
Electric $4,811 $ - $4,811
Gas 399 - 399
------ ------ ------
Total Operating Revenues $5,210 $ - $5,210
------ ------ ------
Operating Expenses
Fuel and Energy Interchange $1,752 $ - $1,752
Operation and Maintenance 1,253 - 1,253
Depreciation and Amortization 643 - 643
Goodwill Amortization - - -
Taxes Other Than Income Taxes 279 - 279
------ ------ ------
Total Operating Expenses $3,927 $ - $3,927
------ ------ ------
Operating Income $1,283 $ - $1,283
------ ------ ------
Other Income and Deductions
Interest Expense $ (331) $ (108) $ (439)
Preferred and preference stock
dividends - - -
Other, net (100) 20 (80)
------ ------ ------
Total Other Income and Deductions $ (431) $ (88) $ (519)
------ ------ ------
Income Before Income Taxes
and Extraordinary Item $ 852 $ (88) $ 764
Income Tax Expense 320 (35) 285
------ ------ ------
Income Before Extraordinary Item $ 532 $ (53) $ 479
====== ====== ======
Preferred Stock Dividends $ 13 $ (2) $ 11
====== ====== ======
Income Before Extraordinary
Item per Share $ 2.33
======
Income Before Extraordinary
Item per Share - Diluted $ 2.32
======
Average Basic Shares Outstanding 223.2
======
Average Diluted Shares Outstanding 223.9
======
</TABLE>
9
<PAGE>
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
(Millions Except Per Share Data)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
UNICOM UNICOM UNICOM
UNICOM Fossil Sale Securitization Prior to
As Pro Forma Pro Forma Merger
Filed Adjustments(3) Adjustments(4) Pro Forma
------ -------------- -------------- --------
<S> <C> <C> <C> <C>
Operating Revenues
Electric $7,151 $ - $ - $7,151
Gas - - - -
------ ----- ----- ------
Total Operating Revenues $7,151 $ - $ - $7,151
------ ----- ----- ------
Operating Expenses
Fuel and Energy Interchange $1,888 $ 168 $ - $2,056
Operation and Maintenance 2,286 (254) - 2,032
Depreciation and Amortization 943 140 - 1,083
Goodwill Amortization - - -
Taxes Other Than Income Taxes 672 (65) - 607
------ ----- ----- ------
Total Operating Expenses $5,789 $ (11) $ - $5,778
------ ----- ----- ------
Operating Income $1,362 $ 11 $ - $1,373
------ ----- ----- ------
Other Income and Deductions
Interest Expense $ (464) $ - $ (76) $ (540)
Preferred and Preference Stock Dividends (87) - 50 (37)
Other, net 49 88 11 148
------ ----- ----- ------
Total Other Income and Deductions $ (502) $ 88 $ (15) $ (429)
------ ----- ----- ------
Income Before Income Taxes
and Extraordinary Item $ 860 $ 99 $ (15) $ 944
Income Tax Expense 350 40 (26) 364
------ ----- ----- ------
Income Before Extraordinary Item $ 510 $ 59 $ 11 $ 580
====== ===== ===== ======
Income Before Extraordinary
Item per Share $ 2.35
======
Income Before Extraordinary
Item per Share - Diluted $ 2.34
======
Average Basic Shares Outstanding 216.9
======
Average Diluted Shares Outstanding 217.7
======
</TABLE>
10
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(Millions Except Per Share Data)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PECO UNICOM
Prior to Prior to Merger
Merger Merger Pro Forma Merger
Pro Forma Pro Forma Adjustments Pro Forma
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
Operating Revenues
Electric $ 4,811 $ 7,151 $ (64)(8) $11,898
Gas 399 -- -- 399
-------- -------- ---------- --------
Total Operating Revenues $ 5,210 $ 7,151 $ (64) $12,297
-------- -------- ---------- --------
Operating Expenses
Fuel and Energy Interchange $ 1,752 $ 2,056 $ (64)(8) $ 3,744
Operation and Maintenance 1,253 2,032 -- 3,285
Depreciation and Amortization 643 1,083 (184)(7) 1,542
Goodwill Amortization -- -- 75 (9) 75
Taxes Other Than Income Taxes 279 607 -- 886
-------- -------- ---------- --------
Total Operating Expenses $ 3,927 $ 5,778 $ (173) $ 9,532
-------- -------- ---------- --------
Operating Income $ 1,283 $ 1,373 $ 109 $ 2,765
-------- -------- ---------- --------
Other Income and Deductions
Interest Expense $ (439) $ (540) $ -- $ (979)
Preferred and Preference
Stock Dividends -- (37) (22)(10) (59)
Other, net (80) 148 11 (10) 79
-------- -------- ---------- --------
Total Other Income and Deductions $ (519) $ (429) $ (11) $ (959)
-------- -------- ---------- --------
Income Before Income Taxes
and Extraordinary Item $ 764 $ 944 $ 98 $ 1,806
Income Tax Expense 285 364 73 722
-------- -------- ---------- --------
Income Before Extraordinary Item $ 479 $ 580 $ 25 $ 1,084
======== ======== ========== ========
Preferred Stock Dividends $ 11 $ -- $ (11)(10) $ --
======== ======== ========== ========
Income Before Extraordinary
Item per Share $ 3.28
========
Income Before Extraordinary
Item per Share - Diluted $ 3.26
========
Average Basic Shares Outstanding 330.8(6)
========
Average Diluted Shares Outstanding 332.2
========
</TABLE>
11
<PAGE>
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
(In Millions)
AS OF JUNE 30, 1999
<TABLE>
<CAPTION>
PECO PECO
PECO Securitization Prior to
As Pro Forma Merger
Filed Adjustments(1) Pro Forma
------- ---------------- ----------
<S> <C> <C> <C>
ASSETS
Utility Plant
Plant $ 7,549 $ - $ 7,549
Accumulated Provision for Depreciation 3,008 - 3,008
------- ----- -------
$ 4,541 $ - $ 4,541
Nuclear Fuel, net 297 - 297
------- ----- -------
$ 4,838 $ - $ 4,838
------- ----- -------
Current Assets
Cash and Temporary Cash Investments $ 900 $(652) $ 248
Accounts Receivable, net 589 - 589
Inventories, at average cost 172 - 172
Other Current Assets 116 - 116
------- ----- -------
$ 1,777 $(652) $ 1,125
------- ----- -------
Deferred Debits and Other Assets
Regulatory Assets $ 6,046 $ - $ 6,046
Goodwill - - -
Investments and Other Property, net 555 - 555
Other 131 - 131
------- ----- -------
$ 6,732 $ - $ 6,732
------- ----- -------
TOTAL $13,347 $(652) $12,695
======= ===== =======
CAPITALIZATION AND LIABILITIES
Capitalization
Common Stock Equity $ 1,688 $(177) $ 1,511
Preferred and Preference Stock 231 (37) 194
Company Obligated Mandatorily
Redeemable Preferred Securities 340 (212) 128
Long-Term Debt 6,092 - 6,092
------- ----- -------
$ 8,351 $(426) $ 7,925
------- ----- -------
Current Liabilities
Notes Payable, Bank $ 226 $(226) $ -
Accounts Payable 358 - 358
Other Current Liabilities 700 - 700
------- ----- -------
$ 1,284 $(226) $ 1,058
------- ----- -------
Deferred Credits and Other Liabilities
Deferred Income Taxes $ 2,355 $ - $ 2,355
Unamortized Investment Tax Credits 293 - 293
Other 1,064 - 1,064
------- ----- -------
$ 3,712 $ - $ 3,712
------- ----- -------
TOTAL $13,347 $(652) $12,695
======= ===== =======
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
(Millions)
AS OF JUNE 30, 1999
UNICOM UNICOM UNICOM
UNICOM Fossil Sale Securitization Prior to
As Pro Forma Pro Forma Merger
Filed Adjustments(2) Adjustments(4) Pro Forma
------- -------------- -------------- --------
<S> <C> <C> <C> <C>
ASSETS
Utility Plant
Plant $28,245 $(3,423) $ - $24,822
Accumulated Provision for Depreciation 15,662 (2,107) - 13,555
------- ------- ------- -------
$12,583 $(1,316) $ - $11,267
Nuclear Fuel, net 856 - - 856
------- ------- ------- -------
$13,439 $(1,316) $ - $12,123
------- ------- ------- -------
Current Assets
Cash and Temporary Cash Investments $ 739 $ 4,271 $ (326) $ 4,684
Accounts Receivable, net 2,087 - (695) 1,392
Inventories, at average cost 386 (141) - 245
Other Current Assets 79 - - 79
------- ------- ------- -------
$ 3,291 $ 4,130 $(1,021) $ 6,400
------- ------- ------- -------
Deferred Debits and Other Assets
Regulatory Assets $ 4,433 $(2,765) $ - $ 1,668
Goodwill - - - -
Investments and Other Property, net 2,763 - - 2,763
Other 71 (49) - 22
------- ------- ------- -------
$ 7,267 $(2,814) $ - $ 4,453
------- ------- ------- -------
TOTAL $23,997 $ - $(1,021) $22,976
======= ======= ======= =======
CAPITALIZATION AND LIABILITIES
Capitalization
Common Stock Equity $ 5,101 $ - $(1,021) $ 4,080
Preferred and Preference Stock 2 - - 2
Company Obligated Mandatorily
Redeemable Preferred Securities 350 - - 350
Long-Term Debt 7,374 - - 7,374
------- ------- ------- -------
$12,827 $ - $(1,021) $11,806
------- ------- ------- -------
Current Liabilities
Notes Payable, Bank $ 412 $ - $ - $ 412
Accounts Payable 491 - - 491
Other Current Liabilities 1,963 1,332 - 3,295
------- ------- ------- -------
$ 2,866 1,332 $ - $ 4,198
------- ------- ------- -------
Deferred Credits and Other Liabilities
Deferred Income Taxes $ 3,732 $(1,352) $ - $ 2,380
Unamortized Investment Tax Credits 544 (47) - 497
Nuclear Decommissioning Liab. For
Retired Plants 1,252 - - 1,252
Other 2,776 67 - 2,843
------- ------- ------- -------
$ 8,304 $(1,332) $ - $ 6,972
------- ------- ------- -------
TOTAL $23,997 - $(1,021) $22,976
======= ======= ======= =======
</TABLE>
13
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(In Millions)
AS OF JUNE 30, 1999
<TABLE>
<CAPTION>
PECO UNICOM
Prior to Prior to Merger Merger
Merger Merger Pro Forma Pro Forma
Pro Forma Pro Forma Adjustments Balance
---------- ---------- ------------ ----------
ASSETS
<S> <C> <C> <C> <C>
Utility Plant
Plant $ 7,549 $ 24,822 $(13,555) (7) $ 18,816
Accumulated Provision for Depreciation 3,008 13,555 (13,555) (7) 3,008
---------- ---------- -------- ----------
$ 4,541 $ 11,267 $ - $ 15,808
Nuclear Fuel, net 297 856 - 1,153
---------- ---------- -------- ----------
$ 4,838 $ 12,123 $ - $ 16,961
---------- ---------- -------- ----------
Current Assets
Cash and Temporary Cash Investments $ 248 $ 4,684 $ (850) (5) $ 4,082
Accounts Receivable, net 589 1,392 - 1,981
Inventories, at average cost 172 245 - 417
Other Current Assets 116 79 - 195
---------- ---------- -------- ----------
$ 1,125 $ 6,400 $ (850) $ 6,675
---------- ---------- -------- ----------
Deferred Debits and Other Assets
Regulatory Assets $ 6,046 $ 1,668 $ - $ 7,714
Goodwill - - 3,006 (7) 3,006
Investments and Other Property, net 555 2,763 - 3,318
Other 131 22 - 153
---------- ---------- -------- ----------
$ 6,732 $ 4,453 $ 3,006 $ 14,191
---------- ---------- -------- ----------
TOTAL $ 12,695 $ 22,976 $ 2,156 $ 37,827
========== ========== ======== ==========
CAPITALIZATION AND LIABILITIES
Capitalization
Common Stock Equity $ 1,511 $ 4,080 $ 1,506 (5,7) $ 7,097
Preferred and Preference Stock 194 2 - 196
Company Obligated Mandatorily
Redeemable Preferred Securities 128 350 - 478
Long-Term Debt 6,092 7,374 - 13,466
---------- ---------- -------- ----------
$ 7,925 $ 11,806 $ 1,506 $ 21,237
---------- ---------- -------- ----------
Current Liabilities
Notes Payable, Bank $ - $ 412 $ 650 (5) $ 1,062
Accounts Payable 358 491 849
Other Current Liabilities 700 3,295 - 3,995
---------- ---------- -------- ----------
$ 1,058 $ 4,198 $ 650 $ 5,906
---------- ---------- -------- ----------
Deferred Credits and Other Liabilities
Deferred Income Taxes $ 2,355 $ 2,380 $ - $ 4,735
Unamortized Investment Tax Credits 293 497 - 790
Nuclear Decommissioning Liab. For
Retired Plants - 1,252 - 1,252
Other 1,064 2,843 - 3,907
---------- ---------- -------- ----------
$ 3,712 $ 6,972 $ - $ 10,684
---------- ---------- -------- ----------
TOTAL $ 12,695 $ 22,976 $ 2,156 $ 37,827
========== ========== ======== ==========
</TABLE>
14
<PAGE>
15
Notes to Unaudited Pro Forma Combined Condensed Financial Statements
1. Represents the use of the remaining balance of the proceeds from the
securitization of stranded costs to repurchase approximately four million shares
of PECO Common Stock, PECO obligated mandatorily redeemable preferred
securities, preferred stock and short-term debt. This adjustment also reflects
the effects of PECO's securitization of its stranded costs on its statements of
income as a net increase to interest expense, decrease to interest on PECO's
obligated mandatorily redeemable preferred securities and related aggregate tax
benefit.
2. Reflects the accounting impacts related to the sale of the fossil
generating plants. The sale is expected to produce an after-tax gain of
approximately $1.7 billion, after settling commitments associated with certain
coal contracts, recognition of employee-related costs and funding certain
environmental initiatives. The gain on the sale will be utilized to recover
certain regulatory assets and, as a result, the sale is not expected to have a
significant impact on Unicom net income in 1999.
3. Reflects the effects of the sale of ComEd's fossil generating plants. The
increase in energy interchange expense reflects the net incremental energy cost
that ComEd would have incurred under transitional power purchase agreements to
purchase replacement power in the absence of its own generating capacity.
Additionally, "Other, net" reflects interest income related to the unused
proceeds from the sale of the fossil generating plants. The Unicom Pro Forma
Adjustments include increased regulatory asset amortization because those
adjustments on a prior-to-merger, pro forma basis would result in ComEd's
earnings exceeding the earnings cap provisions of the Illinois Public Utilities
Act.
<PAGE>
16
Notes to Unaudited Pro Forma Combined Condensed Financial Statements
(CONTINUED)
4. Reflects Unicom's expected obligation to purchase, at prevailing market
prices, approximately six million shares of Unicom Common Stock prior to the
closing of the Merger Transaction and the 20.1 million shares of Unicom Common
Stock that are subject to certain forward purchase contracts and are expected to
settle no later than February 2000. In addition, reflects adjustments to net
interest expense and preferred and preference stock dividends related to the use
of securitization proceeds.
5. Reflects cash consideration paid to PECO and Unicom common shareholders who
choose the cash election, subject to proration. The amount of the adjustment
assumes a payment of $750 million at a cash price of $45.00 per share to PECO
shareholders and a payment of $750 million at a cash price of $42.75 per share
to Unicom shareholders. PECO's pro forma cash balance as of June 30, 1999 was
insufficient to fully fund this cash election. Accordingly, for pro forma
purposes, it was assumed that PECO would borrow $650 million from its available
revolving credit facility and that this borrowing would be repaid immediately
following the Merger Transaction. The amount of actual borrowing, if any, at the
time of consummation of the Merger Transaction will depend on PECO's actual cash
available at that time.
<PAGE>
17
Notes to Unaudited Pro Forma Combined Condensed Financial Statements
(CONTINUED)
6. Reflects issuance of Newco shares in exchange for PECO and Unicom Common
Stock net of shares which were exchanged for cash or repurchased by PECO and
Unicom as follows:
<TABLE>
<CAPTION>
As of June 30, 1999
------------------------------------
(Shares in 000's)
Newco
PECO Unicom Pro Forma
-------- --------- ---------
<S> <C> <C> <C>
Actual shares outstanding at June 30, 1999 186,603 217,287 --
Shares exchanged for cash or repurchased-
Notes (1), (4) and (5) (20,900) (43,487) --
------- -------
Remaining shares to be exchanged 165,703 173,800 --
Exchange factor 1.0 .95
------- -------
Estimated Share consideration 165,703 165,110 330,813
</TABLE>
7. A pro forma adjustment has been made to recognize goodwill in connection
with the Merger. The goodwill represents the excess of the purchase
consideration of $6.3 billion, including PECO's estimated transaction costs
resulting from the Merger, over the assumed value of Unicom's assets and
liabilities at June 30, 1999. The adjustment reflects the share consideration
equal to approximately 165.1 million shares of Newco Common Stock at a price of
$38.18 based on the average closing price of PECO Common Stock between September
16, 1999 and September 29, 1999. PECO's transaction costs of approximately $32.5
million represent the estimated costs to be incurred for the Merger that meet
the requirements for inclusion in the purchase price. Actual goodwill recorded
upon consummation will consider the fair value of Unicom's assets and
liabilities at that future date, including the fair value determination of
nuclear generating stations, and may differ significantly from the amount
recorded in these pro forma statements. The pro forma adjustment also relates to
the elimination of accumulated depreciation reflected on Unicom's books in
accordance with purchase accounting as prescribed by GAAP. As a result of the
increased merger pro forma common stock equity balance, the merger pro forma
adjustments include a reversal of the increased regulatory asset amortization
related to the Unicom Pro Forma Adjustments discussed in Note 3.
<PAGE>
18
Notes to Unaudited Pro Forma Combined Condensed Financial Statements
(CONCLUDED)
8. Reflects the elimination of purchased power and off-system sales
transactions between PECO and Unicom.
9. Reflects amortization of goodwill over a 40-year period.
10. Reflects the reclassification of PECO preferred stock dividends and
interest on PECO obligated mandatorily redeemable preferred securities for
consistent presentation.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PECO ENERGY COMPANY
\s\ Jean H. Gibson
-----------------------
Vice President & Controller
October 12, 1999
