<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, For Use of the
Commission Only (As Permitted By
[X] Definitive Proxy Statement Rule 14a-6(e)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
UNICOM CORPORATION
------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
<PAGE>
[LETTERHEAD OF UNICOM CORPORATION]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 24, 1995
The regular annual meeting of shareholders of Unicom Corporation ("Unicom")
will be held in the Wallingford Center of the Clock Tower Resort & Conference
Center, 7801 E. State Street, Rockford, Illinois, on Wednesday, May 24, 1995,
at 10:30 A.M., local time, for the following purposes, which are described in
the accompanying Proxy Statement, and to transact such other business as may
properly be brought before the meeting:
Item A: To elect a Board of ten Directors.
Item B: To consider and act upon approval of the appointment by the Unicom
Board of Directors of Arthur Andersen LLP, independent public
accountants, as Auditors for 1995.
Shareholders of record on the books of Unicom at 4:00 P.M., Chicago time, on
March 27, 1995, will be entitled to vote at the meeting.
PLEASE FILL IN, SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY.
IN THE ABSENCE OF SPECIFIC DIRECTION, THE SHARES REPRESENTED BY THE PROXIES
WILL BE VOTED AT THE MEETING AND WILL BE VOTED NON-CUMULATIVELY FOR THE
ELECTION OF THE NOMINEES NAMED IN THIS PROXY STATEMENT AS DIRECTORS AND FOR
APPROVAL OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS AUDITORS.
David A. Scholz
Secretary
April 5, 1995
<PAGE>
DIRECTIONS TO THE CLOCK TOWER
RESORT & CONFERENCE CENTER
FROM CHICAGO AREA:
I-90 (Kennedy Expressway--Northwest Tollway) West to Rockford, exit at Business
Route U.S. 20. Straight across Business Route U.S. 20 to Clock Tower Resort &
Conference Center.
[MAP OF DIRECTIONS TO THE CLOCK TOWER RESORT & CONFERENCE CENTER]
<PAGE>
[LOGO OF UNICOM APPEARS HERE]
PROXY STATEMENT
April 5, 1995
This Proxy Statement is furnished in connection with the solicitation by the
Unicom Board of Directors of proxies for use at Unicom's regular annual meeting
of shareholders to be held on May 24, 1995.
Any shareholder giving a proxy will have the right to revoke it at any time
prior to the time it is voted. A proxy may be revoked by written notice to
David A. Scholz, Secretary, Unicom Corporation, 10 South Dearborn Street, Post
Office Box A-3005, Chicago, Il 60690-3005 and execution of a subsequent proxy
or attendance at the annual meeting and voting in person. Attendance at the
meeting will not automatically revoke the proxy. All shares represented by
properly executed and unrevoked proxies received in the accompanying form in
time for the annual meeting will be voted at the meeting or at any adjournment
thereof. A ticket is not required for attendance at the annual meeting;
however, confirmation of stock ownership will be made prior to admission to the
meeting.
The cost of soliciting proxies will be borne by Unicom. In addition to
solicitation by mail, officers and employees of Unicom may solicit proxies by
telephone or in person. Unicom has arranged for Morrow & Co. Inc. to assist in
the solicitation of proxies, at an estimated cost (excluding reimbursement of
out of pocket costs) of $17,000.
Unicom's 1994 Summary Annual Report was mailed to each shareholder on or
about February 15, 1995. The audited financial statements of Unicom, along with
certain other financial information, are included in Appendix A to this Proxy
Statement. This Proxy Statement and form of Proxy were first mailed to
shareholders on or about April 5, 1995.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL DIRECTOR NOMINEES NAMED IN
ITEM A AND A VOTE FOR APPROVAL OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS
AUDITORS AS DISCUSSED IN ITEM B.
<PAGE>
ITEM A. ELECTION OF DIRECTORS
NOMINEES
Harvey Kapnick and Byron Lee, Jr., whose current terms as Directors expire at
the 1995 annual meeting of shareholders, are not standing for reelection. Mr.
Kapnick, who has retired from his other business activities and is now residing
in Florida, has elected to retire; and Mr. Lee has reached the applicable
mandatory retirement age. Their contributions were many and are gratefully
appreciated.
Ten Directors are to be elected at the annual meeting to serve terms of one
year and until their respective successors have been elected. The Board has
decided that it is not necessary to fill the vacancies caused by the retirement
of Harvey Kapnick and Byron Lee, Jr. at this time and, therefore, the number of
Board members is being reduced from twelve to ten. The nominees for Director,
all of whom are now serving as Directors of Unicom, are listed below together
with certain biographical information. Except as otherwise indicated, each
nominee for Director has been engaged in his or her present principal
occupation for at least the past five years. Unicom was formed in 1994.
JEAN ALLARD, age 70. Director of Unicom since 1994. Director of
Commonwealth Edison since 1975. President of the Metropolitan
[PHOTO Planning Council (a non-profit agency) since October 1991.
APPEARS Partner in the law firm of Sonnenschein Nath & Rosenthal for
HERE] more than five years prior to October 1991. Chair of Finance
Committee and member of Audit and Compensation Committees. Other
directorships: Castlerock Group, Inc., LaSalle Cragin Bank,
F.S.B., LaSalle National Bank, LaSalle National Corporation,
LaSalle National Trust, N.A. and LaSalle Talman Bank, F.S.B.
JAMES W. COMPTON, age 56. Director of Unicom since 1994.
[PHOTO Director of Commonwealth Edison since 1989. President and Chief
APPEARS Executive Officer of the Chicago Urban League (a non-profit
HERE] agency). Chairman of Audit Committee and member of Compensation,
Executive and Nominating Committees. Other directorships: Drexel
National Bank, Independence Bank of Chicago and MATRA Transit,
Inc.
SUE L. GIN, age 53. Director of Unicom since 1994. Director of
[PHOTO Commonwealth Edison since 1993. Founder, Owner, Chairman and
APPEARS Chief Executive Officer of Flying Food Fare, Inc. (in-flight
HERE] catering company). Member of Audit, Compensation and Finance
Committees. Other directorship: Michigan National Bank.
DONALD P. JACOBS, age 67. Director of Unicom since 1994.
Director of Commonwealth Edison since 1979. Dean of the J. L.
[PHOTO Kellogg Graduate School of Management, Northwestern University.
APPEARS Member of Compensation, Finance and Nominating Committees. Other
HERE] directorships: First Chicago Corporation, The First National
Bank of Chicago, Hartmarx Corp., Pet, Incorporated, UDC Homes,
Inc., Unocal Corp. and Whitman Corp.
2
<PAGE>
EDGAR D. JANNOTTA, age 63. Director of Unicom and Commonwealth
Edison since 1994. Senior Partner of William Blair & Company
[PHOTO (investment banking and brokerage company) since January 1995.
APPEARS Managing Partner of William Blair & Company for more than five
HERE] years prior to January 1995. Member of Compensation and
Nominating Committees. Other directorships: AAR Corp., Bandag,
Incorporated, Molex Incorporated, Oil-Dri Corporation of America
and Safety-Kleen Corp.
GEORGE E. JOHNSON, age 67. Director of Unicom since 1994.
Director of Commonwealth Edison since 1971. Chairman of
[PHOTO Indecorp, Inc. (holding company for Drexel National Bank and
APPEARS Independence Bank of Chicago). Founder and retired Chairman,
HERE] Johnson Products Company, Inc. Member of Compensation, Executive
and Nominating Committees. Other directorships: Burrell
Communications Group, Drexel National Bank, Indecorp, Inc. and
Independence Bank of Chicago.
EDWARD A. MASON, age 70. Director of Unicom since 1994. Director
[PHOTO of Commonwealth Edison since 1980. Retired. Vice President,
APPEARS Research, of Amoco Corporation for more than five years prior to
HERE] July 1989. Member of Audit and Compensation Committees. Other
directorship: Symbollon Corporation.
JAMES J. O'CONNOR, age 58. Director of Unicom since 1994.
[PHOTO Director of Commonwealth Edison since 1978. Chairman of Unicom.
APPEARS Chairman of Executive Committee. Other directorships: Corning
HERE] Incorporated, First Chicago Corporation, The First National Bank
of Chicago, Scotsman Industries, Inc., Tribune Company and UAL
Corporation.
FRANK A. OLSON, age 62. Director of Unicom since 1994. Director
[PHOTO of Commonwealth Edison since 1992. Chairman and Chief Executive
APPEARS Officer of The Hertz Corporation (rental car company). Chairman
HERE] of Nominating Committee and member of Audit and Compensation
Committees. Other directorships: Becton, Dickinson and Company,
Cooper Industries and Foundation Health Corp.
SAMUEL K. SKINNER, age 56. Director of Unicom since 1994.
Director of Commonwealth Edison since 1993. President of Unicom.
President of Commonwealth Edison Company since February 1993.
[PHOTO General Chairman of the Republican National Committee from
APPEARS August 1992 to January 1993. Chief of Staff to the President of
HERE] the United States from December 1991 to August 1992. Secretary
of the United States Department of Transportation from February
1989 to December 1991. Member of Executive Committee. Other
directorships: ANTEC Corporation, Chicago and North Western
Holdings Corp., and LTV Corporation.
3
<PAGE>
ADDITIONAL INFORMATION CONCERNING BOARD OF DIRECTORS
Compensation of Directors--Directors who are not employees of Unicom or any
of its subsidiaries receive an annual retainer of $20,000, a fee of $1,000 for
each Board and Committee meeting attended and an additional annual retainer of
$2,500 for chairing a Committee of the Board. Following each annual meeting of
shareholders, non-employee Directors receive a grant of 100 shares of Unicom
Common Stock under a plan to increase the proprietary interest of non-employee
Directors. In the event that Directors also serve as directors of Commonwealth
Edison Company ("ComEd"), or as chairs of corresponding committees of ComEd,
the aggregate retainers paid to such Directors in respect of such service to
Unicom and ComEd do not exceed the foregoing amounts. Directors who are full-
time employees of Unicom or any of its subsidiaries receive no fees for service
on the Board of Directors. Directors' fees may be deferred. Directors, who have
never been an officer or an employee of Unicom or any of its subsidiaries, and
who have attained at least age 65 and completed the required period of Board
service (including service as a director of ComEd), are eligible for retirement
benefits upon retirement. Such benefits are paid to the retired Director or a
surviving spouse for a period equal to such Director's years of service
(including service as a director of ComEd) in an amount per year equal to the
annual retainer for Board members as in effect at the time of payment.
Audit Committee--The Audit Committee consists of five Directors who are not
employees of Unicom or any of its subsidiaries. Members serve three-year
staggered terms. It is the responsibility of the Audit Committee to review with
Unicom's independent Auditors, Unicom's financial statements and the scope and
results of such Auditors' examinations, to monitor the internal accounting
controls and practices of Unicom, to review the Annual Report to shareholders
and to recommend the appointment, subject to shareholder approval, of
independent Auditors. The Committee met two times during 1994. Members of the
Committee are James W. Compton (Chairman), Jean Allard, Sue L. Gin, Edward A.
Mason and Frank A. Olson.
Compensation Committee--The Compensation Committee consists of all Directors
who are not and have never been employees of Unicom or any of its subsidiaries.
Members serve one-year terms. The Committee reviews management and executive
compensation programs and administers awards under the Deferred Compensation
Unit Plan and the Long-Term Incentive Plan. The Committee met one time during
1994. Members of the Committee are Harvey Kapnick (Chairman), Jean Allard,
James W. Compton, Sue L. Gin, Donald P. Jacobs, Edgar D. Jannotta, George E.
Johnson, Edward A. Mason and Frank A. Olson.
Executive Committee--The Executive Committee consists of five Directors.
Members serve one-year terms. The remaining Directors constitute alternates to
serve temporarily, in rotation, in place of any member unable to serve. The
Committee has and may exercise all the authority of the Board of Directors when
the Board is not in session, subject to limitations set forth in the By-Laws.
The Committee did not meet during 1994. Members of the Committee are James J.
O'Connor (Chairman), James W. Compton, George E. Johnson, Harvey Kapnick and
Samuel K. Skinner.
Finance Committee--The Finance Committee consists of five Directors. Members
serve one-year terms. The Committee reviews the scope and results of Unicom's
and its subsidiaries' financing program. The Committee met one time during
1994. Members of the Committee are Jean Allard (Chair), Sue L. Gin, Donald P.
Jacobs, Harvey Kapnick and Byron Lee, Jr.
Nominating Committee--The Nominating Committee consists of five Directors who
are not employees of Unicom or its subsidiaries. Members serve one-year terms.
The Committee reviews the qualifications of potential candidates and proposes
nominees for Director to the Board. The Committee will consider nominees
recommended by shareholders if such recommendations are submitted in writing,
accompanied by a description of the proposed nominee's qualifications and other
relevant biographical information and evidence of the consent of the proposed
nominee. The recommendations should be addressed to the Nominating Committee,
in care of the Secretary of Unicom. Nominations
4
<PAGE>
also may be presented by shareholders at Unicom's annual meeting of
shareholders. The Committee met one time during 1994. Members of the Committee
are Frank A. Olson (Chairman), James W. Compton, Donald P. Jacobs, Edgar D.
Jannotta and George E. Johnson.
Attendance at Meetings--During 1994, there were three meetings of the Unicom
Board of Directors. The attendance of all incumbent Directors, expressed as a
percent of the aggregate total of Board and Board Committee meetings in 1994,
was 100%. Each incumbent Director attended all of the meetings of the Board and
Board Committees of which the Director was a member.
During 1994, there were eight meetings of the ComEd Board of Directors. The
average attendance of all incumbent Directors, expressed as a percent of the
aggregate total of Board and Board Committee meetings in 1994, was 98%. Each
incumbent Director attended at least 94% of the meetings of the Board and Board
Committees of which the Director was a member.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table lists the beneficial ownership, as of December 31, 1994,
of persons known to Unicom to be the beneficial owner of more than five percent
of Unicom Common Stock. The table also lists the beneficial ownership, as of
March 1, 1995 (except with respect to shares beneficially owned by executive
officers under ComEd's Employee Savings and Investment Plan, as to which
beneficial ownership is reported as of December 31, 1994), of Unicom Common
Stock by each of the Directors, each of the executive officers named in the
Summary Compensation Table on page 7 and the Unicom Directors and executive
officers as a group.
<TABLE>
<CAPTION>
AMOUNT OF
BENEFICIAL
OWNERSHIP PERCENT
OF COMMON OF
NAME STOCK CLASS
---- ---------- -------
<S> <C> <C>
Wellington Management Company................ 13,831,443(1) 6.45%
Vanguard/Windsor Fund, Inc................... 11,221,499(1) 5.23
Jean Allard.................................. 1,165 *
James W. Compton............................. 1,298 *
Sue L. Gin................................... 3,225 *
Donald P. Jacobs............................. 2,288 *
Edgar D. Jannotta............................ 1,100 *
George E. Johnson............................ 1,205 *
Harvey Kapnick............................... 4,101 *
Byron Lee, Jr.(2)............................ 2,852 *
Edward A. Mason.............................. 1,517 *
James J. O'Connor............................ 26,454(3) *
Frank A. Olson............................... 1,100 *
Samuel K. Skinner............................ 13,607 *
Thomas J. Maiman............................. 5,062 *
Cordell Reed................................. 4,588(4) *
Michael J. Wallace........................... 8,194(5) *
Directors and executive officers as a group
(32 persons)................................. 142,417(6) *
</TABLE>
--------
*Less than one percent
(1) Wellington Management Company ("Wellington") is an investment management
company for a variety of investment advisory clients, including
Vanguard/Windsor Fund, Inc. ("Vanguard"), and
5
<PAGE>
the shares reported as beneficially owned by it include the shares reported
as beneficially owned by Vanguard. Wellington exercises shared voting power
with its investment counseling clients with respect to 413,400 shares and
shared dispositive power with such clients with respect to 13,831,443
shares. According to their Schedule 13G dated February 10, 1995, Vanguard
exercises sole voting power and shares dispositive power with respect to
11,221,499 shares. Their address is 75 State Street, Boston, Massachusetts
02109.
(2) Mr. Lee also beneficially owns 8 shares of ComEd Preference Stock,
representing less than one percent of such class.
(3) Includes 1,487 shares owned by family members.
(4) Includes 366 shares owned by spouse.
(5) Includes 100 shares jointly owned with a family member and 368 shares held
in custodial accounts for family members.
(6) Includes: 1,551 shares owned by spouses; 368 shares held in custodial
accounts for family members; 1,246 shares jointly owned by spouse and in-
law; 1,487 shares owned by family members; and 1,753 shares jointly owned
with family members. Such persons also beneficially own 77 shares of ComEd
Preference Stock, representing less than one percent of such class.
Section 16(a) of the Securities Exchange Act of 1934 requires Unicom's
officers and directors and persons who own more than ten percent of a
registered class of Unicom equity securities ("Reporting Person") to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission. Reporting Persons are required by Securities and Exchange
Commission regulations to furnish Unicom with copies of all Section 16(a)
reports they file.
Based solely on its review of the copies of such forms received by it and
written representations from certain Reporting Persons, Unicom believes that
during fiscal 1994 its Reporting Persons complied with all filing requirements
applicable to them, except for Jean Allard, Louis O. DelGeorge and Emerson
Lacey, Jr. With respect to each of them, one transaction was not reported on a
timely basis.
ITEM B. APPROVAL OF AUDITORS
Subject to approval of the shareholders, the Board of Directors of Unicom has
appointed Arthur Andersen LLP, independent public accountants, as Auditors to
examine the annual and quarterly consolidated financial statements of Unicom
and its subsidiary companies for 1995. The shareholders will be asked at the
meeting to approve such appointment. The firm of Arthur Andersen LLP has
audited the accounts of Unicom since its inception in 1994, and ComEd since
1932. A representative of Arthur Andersen LLP will be present at the meeting to
make a statement if such representative so desires, and to respond to
shareholders' questions.
6
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information relating to the
compensation during the past three calendar years of those persons who were, at
December 31, 1994, the Chief Executive Officer and the other four most highly
compensated executive officers of Unicom or ComEd.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------- ALL OTHER
NAME AND PRINCIPAL SALARY BONUS OTHER ANNUAL COMPENSATION(1)
POSITION YEAR $ $ $ $
------------------ ---- ------- ------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
James J. O'Connor 1994 773,536 485,106 0 93,120
Chairman (Chief 1993 668,126 215,137 0 80,976
Executive Officer) 1992 739,084 0 -- 77,476
Unicom and ComEd
Samuel K. Skinner(2) 1994 543,748 602,338 0 87,969
President 1993 442,885 157,780 0 101,455
Unicom and ComEd
Thomas J. Maiman 1994 267,516 155,862 0 19,609
Senior Vice President 1993 196,555 42,200 78 17,633
ComEd 1992 199,249 0 -- 16,079
Michael J. Wallace 1994 269,689 123,803 0 12,919
Senior Vice President 1993 190,209 30,178 44 10,395
ComEd 1992 169,023 0 -- 9,046
Cordell Reed 1994 218,313 138,624 0 20,416
Senior Vice President 1993 205,935 44,214 129 20,304
ComEd 1992 216,654 0 -- 19,953
</TABLE>
--------
(1) Amounts shown include matching contributions made by ComEd pursuant to the
ComEd Employee Savings and Investment Plan ("ESIP"), matching contributions
made by ComEd pursuant to the Excess Benefits Savings Plan, interest earned
on a delayed payment of amounts paid to holders of current compensation
units in respect of current common stock dividends and premiums and
administrative service fees paid by ComEd on behalf of the named
individuals under various group life insurance plans. For the year 1994,
contributions made to the ESIP amounted to $8,343, $8,495, $6,146, $8,480
and $6,468 on behalf of Messrs. O'Connor, Skinner, Maiman, Wallace and
Reed, respectively. Contributions made to the Excess Benefits Savings Plan
during 1994 totaled $13,882, $2,011, $2,402 and $340 on behalf of Messrs.
O'Connor, Skinner, Maiman and Wallace, respectively. Interest earned on a
delayed payment of amounts paid to holders of current compensation units in
respect of current common stock dividends totaled $227, $22, $38, $29 and
$30 on behalf of Messrs. O'Connor, Skinner, Maiman, Wallace and Reed,
respectively. Premiums and administrative service fees paid during 1994 for
Split Dollar Life, Accidental Death and Travel Accident insurance policies
for Messrs. O'Connor, Skinner, Maiman, Wallace and Reed, respectively, are
as follows: $70,323, $330 and $15; $77,192, $234 and $15; $10,894, $114 and
$15; $3,944, $111 and $15; and $13,809, $96 and $13. ComEd is entitled to
recover the premiums and administrative service fees from any amounts paid
by the insurer on such Split Dollar Life policies and has retained a
collateral interest in each policy to the extent of the premiums and
administrative service fees paid with respect to such policy.
(2) Mr. Skinner became employed by ComEd in February 1993.
7
<PAGE>
LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERFORMANCE ESTIMATED FUTURE PAYOUTS
OR OTHER UNDER
NUMBERS PERIOD NON-STOCK PRICE-BASED PLANS
OF SHARES, UNTIL -----------------------------
UNITS OR MATURATION THRESHOLD TARGET MAXIMUM
NAME OTHER RIGHTS(1) OR PAYOUT NUMBER NUMBER NUMBER
---- --------------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
James J. O'Connor....... 6,999.32 2 years (2) 3,499.66 6,999.32 13,998.64
Chief Executive Officer 13,998.63 3 years (3) 6,999.32 13,998.63 27,997.26
Samuel K. Skinner....... 5,018.52 2 years (2) 2,509.26 5,018.52 10,037.04
10,037.04 3 years (3) 5,018.52 10,037.04 20,074.08
Thomas J. Maiman........ 1,959.66 2 years (2) 979.83 1,959.66 3,919.32
3,919.33 3 years (3) 1,959.67 3,919.33 7,838.66
Michael J. Wallace...... 1,892.15 2 years (2) 946.08 1,892.15 3,784.30
3,784.30 3 years (3) 1,892.15 3,784.30 7,568.60
Cordell Reed............ 1,599.52 2 years (2) 799.76 1,599.52 3,199.04
3,199.03 3 years (3) 1,599.52 3,199.03 6,398.06
</TABLE>
--------
(1) Long-Term Performance Unit Awards were initiated during 1994 to executive
and group level employees under the Unicom Corporation Long-Term Incentive
Plan. Under the Awards, the number of units awarded to a participant is
determined by dividing a portion of base salary (including income from
current compensation units under ComEd's Deferred Compensation Plan) (such
portion being 25% for each of Messrs. O'Connor and Skinner and 20% for each
of Messrs. Maiman, Wallace and Reed for the two-year Award and 50% for each
of Messrs. O'Connor and Skinner and 40% for each of Messrs. Maiman, Wallace
and Reed for the three-year Award) by $27. Payouts are based on the
cumulative total shareholder return on Unicom Common Stock (assuming
reinvestment of dividends) relative to that of the other companies
constituting the Dow Jones Utility Stock Index over three-year performance
periods. In order to phase in the Award program, the Compensation Committee
established a one-year performance period for 1994 (payouts for the one-
year period are included in the Bonus column of the Summary Compensation
Table), a two-year performance period covering 1994 and 1995, and a three-
year performance period covering the years 1994 through 1996. The dollar
value of a payout is determined by multiplying the number of units
applicable to the level of performance achieved by the average closing
price of Unicom Common Stock as reported in the Wall Street Journal as New
York Stock Exchange Composite Transactions during the calendar quarter
ending on the last day of the performance period. Payments are to be made
half in cash and half in the form of unrestricted Unicom Common Stock.
Notwithstanding the foregoing, no payouts are earned or made if Unicom
fails to maintain regular quarterly cash dividends of at least $0.40 per
share during the performance period. In addition, no payouts are earned or
made if the relative cumulative total shareholder return on Unicom stock is
lower than the 25th percentile; and the highest level of payout is reached
when such relative return equals or exceeds the 90th percentile.
(2) Two year period ending December 31, 1995.
(3) Three year period ending December 31, 1996.
8
<PAGE>
SERVICE ANNUITY SYSTEM PLAN
The following table sets forth the annual retirement benefits payable under
ComEd's Service Annuity System Plan (including payments under the unfunded
equalization benefit plan) to employees who retire at age 65 at stated levels
of compensation and years of service at retirement (in 1995).
<TABLE>
<CAPTION>
PENSION PLAN TABLE
-------------------------------------------------------------------------------------
HIGHEST
5-YEAR
AVERAGE ANNUAL NORMAL RETIREMENT BENEFITS AFTER SPECIFIED YEARS OF SERVICE*
EARNINGS
--------- -------------------------------------------------------------------------
15 20 25 30 35 40
------- ------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
$ 100,000 $35,410 $45,018 $53,967 $62,423 $ 70,511 $ 73,825
200,000 70,821 90,036 107,934 124,847 141,023 147,649
300,000 106,231 135,055 161,901 187,270 211,534 221,474
400,000 141,641 180,073 215,868 249,693 282,046 295,298
500,000 177,052 225,091 269,835 312,117 352,557 369,123
600,000 212,462 270,109 323,802 374,540 423,068 442,948
700,000 247,872 315,127 377,769 436,963 493,580 516,772
800,000 283,282 360,146 431,736 499,386 564,091 590,597
900,000 318,693 405,164 485,703 561,810 634,603 664,421
1,000,000 354,103 450,182 539,670 624,233 705,114 738,246
1,100,000 389,513 495,200 593,637 686,656 775,625 812,071
1,200,000 424,924 540,218 647,604 749,080 846,137 885,895
1,300,000 460,334 585,237 701,571 811,503 916,648 959,720
1,400,000 495,744 630,255 755,538 873,926 987,160 1,033,544
1,500,000 531,155 675,273 809,505 936,350 1,057,671 1,107,369
</TABLE>
--------
* An employee may elect a marital annuity for a surviving spouse which would
reduce the employee's normal retirement benefits. The amounts shown
reflect certain assumptions as to total earnings, but do not reflect the
reduction for Social Security benefits described below.
Service Annuity System Plan--ComEd maintains a non-contributory Service
Annuity System Plan for all regular employees of ComEd. The Plan provides
benefits upon retirement at age 65 which are based upon years of service and
percentages of the employee's (a) total earnings and (b) highest consecutive
five-year average annual base pay, reduced by 25% (less one percentage point
for each year of service less than 35 years) of the employee's estimated Social
Security benefits. An employee with at least 10 years of service may retire
prior to attaining age 65 (but not prior to age 55) and will receive reduced
benefits if retirement is prior to age 60. A non-executive employee may work
beyond age 65 with additional benefits accruing for earnings and service after
age 65. Contributions to the Plan by ComEd are based upon actuarial
determinations 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 compensation used in the
computation of annual retirement benefits under the Plan is substantially
equivalent to the amount set forth in the Salary column of the Summary
Compensation Table except that the amount set forth in the Bonus column is
included in the computation of "total earnings." The compensation used in the
computation of annual retirement benefits under the Plan is limited by the
Internal Revenue Code as of January 1, 1995 to $245,000 for any one employee
and as of January 1, 1996 to $150,000 (adjusted for increases in cost of
living) for any one employee. Any reduction in the annual retirement benefits
payable to management employees under the Plan as a result of any limitations
imposed by the Internal Revenue Code is restored by an unfunded equalization
benefit plan maintained by ComEd. Thus, annual retirement benefits, as set
forth in the Pension Plan Table above, are based on the amounts shown in the
Salary and Bonus columns of the Summary Compensation Table, without limitation
as a result of the application of the provisions of the Internal Revenue Code.
Credited years of service under the Plan for the persons named in the
9
<PAGE>
Summary Compensation Table are as follows: James J. O'Connor, 31 years; Samuel
K. Skinner, 2 years; Thomas J. Maiman, 29 years; Michael J. Wallace, 20 years;
and Cordell Reed, 34 years.
EMPLOYMENT AGREEMENT
ComEd has an agreement with Mr. Skinner providing for an initial base salary
of $490,000 and an unfunded supplemental retirement benefit. The supplemental
retirement benefit does not vest until the completion of five years of
employment and, consequently, no benefit is presently available. The formula
underlying the supplemental retirement benefit provides a benefit, together
with any benefits payable under the Service Annuity System Plan and a social
security supplement, equal to one-third of Mr. Skinner's highest base salary
during the preceding five years, after five years of service, and increasing
ratably annually to one-half of such salary after ten years. The agreement also
provides for a severance payment equal to two years of base salary, payable
over three years, and a three year continuation of health and life insurance
benefits in the event that Mr. Skinner's employment is terminated by ComEd for
reasons other than death, fraud or willful misconduct. The severance payment is
subject to reduction to the extent that Mr. Skinner receives compensation from
another full-time employer during the payment period.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors of Unicom was
established in September, 1994 as a result of the corporate reorganization
pursuant to which Unicom became the parent holding company of ComEd. As a
result of the reorganization, the individuals who have been and are members of
the Board of Directors of ComEd also became members of the Unicom Board.
Therefore, the same persons are members of the Compensation Committees of ComEd
and of Unicom; and references in the following report to the "Committee" are
references to the ComEd Compensation Committee, the Unicom Compensation
Committee, or both. The Compensation Committees of both Boards jointly have
furnished the following report on executive compensation:
Introduction. It is the policy of the Committee to compensate executive
officers based on their responsibilities, their achievement of annual goals and
the Company's annual and long-term performance. The Committee believes that
compensation paid should be appropriate in relation to the financial
performance of the Company and should be sufficient to enable the Company to
attract and retain individuals possessing the talents required for the
Company's long-term successful performance. The Committee also believes that
the incentive compensation performance goals for executive management should be
based on factors over which management has significant control and which are
important to the Company's long-term success.
In 1994, there were three major components of compensation applicable to the
executive officers of Unicom and ComEd: (i) cash salary, (ii) current
compensation unit income, and (iii) incentive compensation awards under the
Unicom Corporation Long-Term Incentive Plan (the "Incentive Plan"). Cash salary
and current compensation unit income constitute "base salary" for purposes of
this report.
Base Salary Ranges. The process of determining the officers' base salary
begins with establishing a salary range for each officer level. To establish
salary ranges, salary levels at twenty-one of the largest companies in the
electric utility industry were reviewed. The salary data for these companies
were taken from the 1993 Edison Electric Institute's Executive Compensation
Survey. The Committee considered the median levels of base salary among such
companies as a beginning reference point, on grounds that the basic duties and
responsibilities associated with executive officer positions in the other
utilities are similar to those in the Company. Judgment was applied to reflect
differences in the organization structure and responsibilities of executive
officers of the Company, in the size and complexity of the Company's
operations, and in the regulatory environment and competitive challenges faced
by the
10
<PAGE>
Company. In addition, the Committee examined compensation levels in industry
generally for executives with responsibilities comparable to those employed by
the Company.
After considering these various factors with respect to 1994, the Committee
recommended, and the Board approved, salary ranges which were, in general,
about 5% above 1993 levels. Prior to adjustment as described below, salary
levels of the top executive officers of the Company were generally in or near
the bottom quartile of the salary levels of comparable executives at such other
utilities.
Finally, regarding comparisons with other companies, it should be noted that
because of the differences, discussed above, between Unicom and ComEd and
others in the group of twenty-one large utilities that participated in the 1993
Edison Electric Institute Executive Compensation Survey, that group is not used
in the performance comparisons shown on page 14. The Dow Jones Utility Stock
Index, a well-known and widely-followed utility index comprising a broader
array of utility companies (including Unicom and 9 of the other large utilities
in the Edison Electric Institute Survey), is used for those comparisons. A
comparison to the companies composing this Index is also used for measuring
performance for purposes of one of the incentive awards discussed below.
Individual Base Salary Determinations. After salary ranges are established,
the base salary of each officer is set within the applicable range based on a
largely subjective assessment of the particular responsibilities and
performance of such officer. The length of service and level of experience of
each officer in his or her area of responsibility are also considered.
With respect to each officer other than the Chairman, the Chairman makes
recommendations regarding cash salary and current compensation units. The
recommendations are considered and discussed by the Committee in a private
meeting with the Chairman. The Chairman's performance and compensation are
considered and determined by the Committee without the Chairman present.
Cash Salary. For the year 1994, the Committee recommended and the Board
approved increases in cash salary for the executive officers averaging 14.3% of
base salary. Percentage increases for individual executive officers were highly
variable around this average and were structured, in part, to help bring the
base salary of individual officers closer to levels at the previously mentioned
other large utilities. The 1994 cash salary program followed the year 1993 for
which there had been no cash salary increases (except for one increase related
to a promotion). The 1994 cash salary increases were awarded partly in
recognition of the 1993 settlement by management of a number of pending
regulatory and judicial proceedings which eliminated substantial financial
exposure and much of the financial uncertainty facing the Company a year
earlier.
Current Compensation Unit Awards. For many years, ComEd has had a Deferred
Compensation Plan under which current compensation units have been awarded by
the Committee. Current compensation units are awarded as a supplement to cash
salary increases, based largely on subjective judgment as opposed to
quantifiable performance measures, to recognize the special contributions of
individual management personnel. Under the Plan, a holder of current
compensation units is entitled to current income equal to the dividend on one
share of common stock of ComEd for each unit held. Such income is paid on a
quarterly basis, simultaneously with the payment of dividends, for the duration
of employment.
In December 1993, the Committee awarded compensation units to executive
officers and other management personnel as a part of the program for base
salary increases in 1994, for the reasons discussed earlier with respect to
cash salary increases. The awards for 1994 were also granted partly in
recognition of the fact that substantial financial exposure and uncertainty had
been eliminated as a result of the settlement by management of several pending
regulatory and judicial matters. The units awarded produced, for the year 1994,
an average annual increase of 2% in base salary for executive officers at
current dividend levels. Again, the awards for individual executive officers
were highly variable
11
<PAGE>
for the reasons discussed earlier with respect to cash salary increases for
1994. These compensation unit awards, granted in December 1993, followed 3
consecutive years for which no awards had been granted.
All compensation units outstanding as of the end of 1994 were awarded under
the ComEd Deferred Compensation Plan prior to the corporate reorganization in
September 1994, and payments on such units are, therefore, tied to dividends on
ComEd common stock. Due to the $50 million special dividend on ComEd common
stock that occurred as part of the corporate reorganization, dividends on ComEd
common stock exceeded the otherwise matching dividends on Unicom Common Stock.
A new Deferred Compensation Unit Plan has been established by Unicom under
which payments are tied to the dividends on Unicom Common Stock. The Committee
intends that all future awards of compensation units will be made under the
Unicom Plan, and it has put in place a plan under which current compensation
units outstanding under the ComEd Plan may be exchanged for Unicom units. In
accordance with the provisions of the ComEd Plan, such exchange is voluntary on
the part of the ComEd unit holders.
Incentive Compensation Awards. The third component of executive compensation
for 1994 was payable pursuant to incentive compensation awards under the
Incentive Plan.
A 1994 Variable Compensation Award for Management Employees was established
providing for payments contingent on the achievement of certain corporate and
business unit goals, the maintenance of quarterly cash dividends of at least
40c, and achievement of at least a $90 million reduction in operation and
maintenance expenses and capital expenditures from budgeted amounts for the
year 1994 (with at least half of the reduction, $45 million, resulting from a
reduction in operation and maintenance expenses). Half of the potential payout
was related to achievement of corporate goals and the other half was related to
the achievement of business unit goals. The potential payouts as a percentage
of base salary varied with different levels of management and also according to
level of achievement of the goals. The varying payouts were established on the
basis of subjective judgment with respect to the appropriate level of incentive
and award, considering degree of difficulty of the goals and degree of
responsibility of the different levels of management for achievement of the
goals.
Corporate goals were established with respect to earnings per share, and also
with respect to the amount by which operation and maintenance expenses and
capital expenditures were below budget. For purposes of measuring achievement
of the 1994 goals, the Committee provided for the exclusion of charges related
to a 1994 early retirement program on grounds that the related benefits will be
realized primarily in future years, and also excluded charges related to
uranium investments that had been made many years ago and did not reflect the
performance of current management. As a result of these adjustments, the
earnings per share goals ranged from $1.70 at the minimum level for payments
under the Award to $2.00 at the maximum level, and the operation and
maintenance/capital expenditure goals ranged from reductions of $90 million at
the minimum level to $395 million at the maximum level. As so adjusted, actual
amounts achieved were earnings per share of $1.93 and expenditure reductions of
$132.2 million.
Similar Awards were granted to Mr. O'Connor and Mr. Skinner for the year 1994
except that payment was dependent entirely upon achievement of the corporate
earnings per share goals, as well as the 40c quarterly cash dividend and
minimum $90 million operation and maintenance/capital expenditure reduction
requirements described above. The earnings per share goals were set at the same
levels, and earnings were adjusted in the same manner, as in the 1994 Variable
Compensation Award discussed above.
Long-Term Performance Unit Awards were initiated in 1994 to provide
compensation to executive officers and other senior managers based on the total
return performance of Unicom Common Stock relative to that of the other
companies constituting the Dow Jones Utility Stock Index over three-year
performance periods. The Committee intends to make such awards each year, thus
establishing moving three-year performance periods for the years ahead. In
order to phase in the program, the Committee established a one-year performance
period for 1994 and a two-year performance period covering 1994 and 1995, as
well as the initial three-year performance period covering the years 1994-96.
Payouts for
12
<PAGE>
the one and two-year periods are based on relative performance of Unicom stock
during those periods, but are at reduced levels reflecting the shorter periods.
Payments on performance unit awards, as a percentage of base salary, vary for
the different levels of executive officers, with higher percentages applicable
to higher level officers. Again, the varying payouts were established on the
basis of subjective judgment with respect to the appropriate level of incentive
and award, considering degree of difficulty of the goals and degree of
responsibility for achievement of the goals.
For the 1994 one-year performance period, Unicom stock performance was at the
75th percentile among the stocks constituting the Dow Jones Utility Stock
Index. Resulting payments are included under the "Bonus" column in the Summary
Compensation Table.
Compensation of the Chief Executive Officer. With regard to the compensation
of the Chairman and Chief Executive Officer, the Committee's assessment of his
personal performance, based upon a non-quantifiable evaluation of his
leadership, achievements and contributions to the Company, was very favorable.
Two of the Company's most significant achievements under the Chairman's
leadership in 1993 were the settlement of six pending regulatory and judicial
matters, thus eliminating substantial financial exposure and uncertainty for
the Company, and the passage of legislation allowing for the creation of a
holding company structure for the conduct of unregulated business activities
without the extensive regulatory proceedings that would otherwise have been
required. In view of this assessment and these achievements, the Committee
recommended and the Board approved a cash salary increase from $560,000 to
$635,000 for 1994 and the Committee also awarded the Chairman 8,000 current
compensation units under the Commonwealth Edison Deferred Compensation Plan.
The Chairman's total base salary in 1994 was $773,536 ($635,000 cash salary
plus $138,536 in current compensation unit income).
The Chairman's compensation for 1994 pursuant to the separate incentive
compensation Award made to him under the Incentive Plan was $226,464, with
$88,615 payable in cash and $137,849 payable in Unicom common stock. The Award
was limited to this amount as a result of a limitation of $1 million placed by
the Committee on the total of base salary and compensation pursuant to this
Award (but not including the 1994 Long-Term Performance Unit Award, discussed
below) in order to avoid payment of compensation that otherwise might not be
deductible under Section 162(m) of the Internal Revenue Code for purposes of
federal income taxes. In addition, the Chairman received compensation for 1994
pursuant to the 1994 Long-Term Performance Unit Award equal to $258,642, half
payable in stock and half in cash.
The Chairman's total compensation (cash salary, compensation unit income, and
compensation earned pursuant to the Awards under the Incentive Plan) was
$1,258,642 for 1994. This placed him 9th in total compensation among the CEOs
of the 22 largest electric power companies on the basis of amounts reported in
the 1994 Edison Electric Institute Executive Compensation Survey. (In a similar
1993 survey, the Chairman's total compensation ranked 13th among the 21 largest
companies for that year.) The Committee believes both the absolute and relative
levels of compensation for 1994 were fully appropriate considering the size and
complexity of the Company's operations (the Company is one of the largest in
the comparison group of 22 electric power companies), and also considering the
Committee's very favorable assessment of the Chairman's performance in
providing leadership to the Company, which achieved improved financial
performance in 1994 and has been positioned for further improvements in the
years ahead.
Internal Revenue Code Section 162(m) Considerations. Section 162(m) of the
Internal Revenue Code provides that executive compensation in excess of $1
million will not be deductible for purposes of corporate income taxes unless it
is performance-based compensation and is paid pursuant to a plan meeting
certain requirements of the Code. The Committee intends to continue increased
reliance on performance-based compensation programs. Such programs will be
designed to fulfill, in the best possible manner, future corporate business
objectives. To the extent consistent with this goal, the Committee currently
anticipates that such programs will also be designed to satisfy the
requirements of Section 162(m) with respect to the deductibility of
compensation paid. The Committee believes that executive compensation actually
paid in respect of 1994 was deductible.
13
<PAGE>
Compensation Committee
Jean Allard Edgar D. Jannotta
James W. Compton George E. Johnson
Sue L. Gin Edward A. Mason
Harvey Kapnick Frank A. Olson
Donald P. Jacobs
SHAREHOLDER RETURN PERFORMANCE
Set forth below is a line graph comparing the quarterly percentage change in
the cumulative total shareholder return on Unicom Common Stock ("UCM") against
the cumulative total return of the S&P 500 Composite Stock Index and the Dow
Jones Utility Stock Index for the five-year period ending December 31, 1994.
CUMULATIVE PERFORMANCE SINCE JANUARY 1, 1990
ASSUMING REINVESTMENT OF DIVIDENDS
(JANUARY 1, 1990 = $100)
<TABLE>
[GRAPH APPEARS HERE]
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG UCM COMMON STK, DJ UTIL AND S&P 500 COMPOSITE
<CAPTION>
Measurement Period UCM S&P 500
(Fiscal Year Covered) COMMON STK DJ UTIL COMPOSITE
------------------- ---------- ------- ---------
<S> <C> <C> <C>
Measurement Pt-
01/01/90 $100 $100 $100
FYE 01/01/91 $101 $ 95 $ 97
FYE 01/01/92 $125 $110 $126
FYE 01/01/93 $ 79 $114 $136
FYE 01/01/94 $102 $125 $150
FYE 01/01/95 $ 93 $106 $152
</TABLE>
*Performance shown for Unicom Common Stock on and after September 1, 1994 and
for ComEd common stock prior to that date.
14
<PAGE>
VOTING
Shareholders of record on the books of Unicom at 4:00 P.M., Chicago time, on
March 27, 1995, will be entitled to vote at the regular annual meeting. Unicom
had outstanding on March 27, 1995, 214,522,949 shares of Common Stock without
par value. Each share entitles the holder to one vote on each matter submitted
to a vote at the meeting, except that in the election of Directors each
shareholder has the right to vote the number of shares owned by such
shareholder for as many persons as there are Directors to be elected, or to
cumulate such votes and give one candidate as many votes as shall equal the
number of Directors to be elected multiplied by the number of such shares or to
distribute such cumulative votes in any proportion among any number of
candidates. The holders of a majority of the outstanding shares entitled to
vote on a particular matter and represented in person or by proxy will
constitute a quorum for the consideration of such matter at the meeting.
The shares represented by the proxy of each shareholder include shares owned
by such shareholder and shares credited to such shareholder's account under
Unicom's Dividend Reinvestment and Stock Purchase Plan.
The shares represented by properly executed and unrevoked proxies received in
the accompanying form in time for the meeting will be voted at the meeting and
will be voted as directed in the proxies. With respect to the election of
Directors, a shareholder may mark the accompanying form of proxy to (i) vote
for the election of all ten nominees named in this Proxy Statement as
Directors, (ii) withhold authority to vote for all such Director nominees or
(iii) vote for the election of all such Director nominees other than any
nominee with respect to whom the shareholder withholds authority to vote.
Assuming that a quorum is present at the meeting, the ten persons receiving the
greatest number of votes shall be elected as Directors. Withholding authority
to vote for a Director nominee will not prevent such Director nominee from
being elected. The proxy holders will cumulate votes for shares represented by
proxies only if a shareholder gives them specific written instructions to do
so.
With respect to the appointment of Auditors, a shareholder may mark the
accompanying form of proxy to (i) vote for the matter, (ii) vote against the
matter or (iii) abstain from voting on the matter. Assuming that a quorum is
present at the meeting, the affirmative vote of a majority of the shares of
stock represented at the meeting and entitled to vote on the matter is required
for approval of the appointment of the Auditors. Proxies marked to abstain from
voting with respect to this matter will have the legal effect of voting against
such matter.
The shares represented by properly executed and unrevoked proxies received in
the accompanying form in time for the meeting will be voted as directed in the
proxies. IN THE ABSENCE OF SPECIFIC DIRECTION, THE SHARES REPRESENTED BY THE
PROXIES WILL BE VOTED AT THE MEETING AND WILL BE VOTED NON-CUMULATIVELY FOR THE
ELECTION OF THE NOMINEES NAMED IN THIS PROXY STATEMENT AS DIRECTORS AND FOR
APPROVAL OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS AUDITORS. In the event
any nominee for Director shall be unable to serve, which is not now
contemplated, the proxies may or may not be voted for a substitute nominee.
SHAREHOLDER PROPOSALS FOR 1996 ANNUAL MEETING
Any shareholder proposal intended to be presented at the 1996 annual meeting
of Unicom's shareholders must be received at the principal executive offices of
Unicom by December 7, 1995, in order to be considered for inclusion in Unicom's
proxy materials relating to that meeting. Any such proposal should be directed
to the Secretary of Unicom located on the 37th Floor, First National Bank
Building, 10 South Dearborn Street, Chicago, Illinois. If mailed, it should be
sent to Secretary, Unicom Corporation, 10 South Dearborn Street, Post Office
Box A-3005, Chicago, IL 60690-3005.
15
<PAGE>
OTHER MATTERS
As of the date of this Proxy Statement, management knows of no matters to be
brought before the annual meeting other than the matters referred to in this
Proxy Statement. If, however, further business is presented, the proxy holders
will act in accordance with their best judgment.
By order of the Board of Directors.
David A. Scholz
Secretary
April 5, 1995
A COPY OF UNICOM'S ANNUAL REPORT ON FORM 10-K TO THE SECURITIES AND EXCHANGE
COMMISSION MAY BE OBTAINED WITHOUT CHARGE BY WRITING TO DAVID A. SCHOLZ,
SECRETARY, UNICOM CORPORATION, 10 SOUTH DEARBORN STREET, POST OFFICE BOX A-
3005, CHICAGO, ILLINOIS 60690-3005.
16
<PAGE>
APPENDIX A
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994 AND 1993
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Definitions............................................................... A-2
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... A-3
Report of Independent Public Accountants.................................. A-15
Summary of Selected Consolidated Financial Data........................... A-16
Price Range and Dividends Paid Per Share of Common Stock.................. A-16
1994 Revenues and Sales................................................... A-16
Consolidated Financial Statements--
Statements of Consolidated Income for the years 1994, 1993 and 1992..... A-17
Consolidated Balance Sheets--December 31, 1994 and 1993................. A-18
Statements of Consolidated Capitalization--December 31, 1994 and 1993... A-20
Statements of Consolidated Retained Earnings for the years 1994, 1993
and 1992............................................................... A-21
Statements of Consolidated Cash Flows for the years 1994, 1993 and 1992. A-22
Notes to Financial Statements........................................... A-23
</TABLE>
A-1
<PAGE>
DEFINITIONS
Certain terms are used in this Appendix with the following meanings:
<TABLE>
<CAPTION>
TERM MEANING
----------------------- ------------------------------------------------------------------
<S> <C>
AFUDC Allowance for funds used during construction
AMT Alternative minimum tax
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, which is a majority-owned subsidiary
of Unicom.
Cotter Cotter Corporation, which is a wholly-owned subsidiary of ComEd.
DOE U.S. Department of Energy
FASB Financial Accounting Standards Board
FERC Federal Energy Regulatory Commission
Fuel Matters Settlement A settlement relating to the ICC fuel reconciliation proceedings
involving ComEd for the period from 1985 through 1988 and to
future challenges by the settling parties to the prudency of
ComEd's western coal costs for the period from 1989 through 1992.
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.
MGP Manufactured gas plant
NEIL Nuclear Electric Insurance Limited
NML Nuclear Mutual Limited
NRC Nuclear Regulatory Commission
Rate Matters Settlement A settlement concerning the proceedings relating to ComEd's 1985
and 1991 ICC rate orders (which orders relate to, among other
things, the recovery of costs associated with ComEd's four most
recently completed nuclear generating units), the proceedings
relating to the reduction in the difference between ComEd's
summer and non-summer residential rates that was effected in the
summer of 1988, outstanding issues relating to the appropriate
interest rate and rate design to be applied to a refund made by
ComEd during 1990 relating to a 1988 ICC rate order, and matters
related to a rider to ComEd's rates that it was required to file
as a result of the change in the federal corporate tax rate made
by the Tax Reform Act of 1986.
Rate Order ICC rate order issued on January 9, 1995
Remand Order ICC rate order issued on January 6, 1993, as subsequently modified
SEC Securities and Exchange Commission
SFAS Statement of Financial Accounting Standards
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>
A-2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
On September 1, 1994, a corporate restructuring took place in which Unicom
became the parent holding company of ComEd and Unicom Enterprises, an
unregulated subsidiary engaged, through a subsidiary, in energy service
activities. The primary purpose of the restructuring was to permit Unicom
Enterprises to engage in energy service activities without the prior approval
of, or being regulated by, the ICC, in part to permit timely responses to
competitive activities which could adversely affect ComEd's utility business.
Notwithstanding the restructuring, ComEd will continue to represent
substantially all of the assets, revenues and net income of Unicom; and
Unicom's resources and results of operations will be largely dependent on, and
will reflect, those of ComEd. Unicom Enterprises' sole subsidiary, Unicom
Thermal, is a development stage company and is not expected to make a material
contribution to the revenues or results of operations of Unicom in the near
future. Consequently, the descriptions that follow focus on the utility
operations of ComEd, although information is provided with respect to the
unregulated operations of Unicom Enterprises.
LIQUIDITY AND CAPITAL RESOURCES
UTILITY OPERATIONS
Capital Budgets. ComEd and its electric utility subsidiary, the Indiana
Company, have a construction program for the three-year period 1995-97 which
consists principally of improvements to ComEd's and the Indiana Company's
existing nuclear and other electric production, transmission and distribution
facilities. It does not include funds (other than for planning) to add new
generating capacity to ComEd's system. The program, as approved by Unicom and
ComEd in December 1994, calls for electric plant and equipment expenditures of
approximately $2,750 million (excluding nuclear fuel expenditures of
approximately $800 million). It is estimated that such construction
expenditures, with cost escalation computed at 3.5% annually, will be as
follows:
<TABLE>
<CAPTION>
THREE-YEAR
1995 1996 1997 TOTAL
---- ---- ---- ----------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C>
Production......................................... $415 $395 $360 $1,170
Transmission and Distribution...................... 410 445 455 1,310
General............................................ 95 90 85 270
---- ---- ---- ------
Total.......................................... $920 $930 $900 $2,750
==== ==== ==== ======
</TABLE>
In October 1994, ComEd made a commitment to provide for the replacement of
the steam generators at its Braidwood Unit 1 and Byron Unit 1 nuclear
generating plants, for service in the years 1998 and 1999, respectively, at a
total estimated cost of approximately $470 million. Approximately $170 million
of this commitment is included in the construction expenditures shown above.
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 1997 and each year thereafter
through the year 2000. The projected resource needs reflect the current
planning reserve margin recommendations of the Mid-America Interconnected
Network, the reliability council of which ComEd is a member. ComEd's forecasts
indicate that the need for additional resources during this period would exist
only during the summer months. ComEd does not expect to make expenditures for
additional capacity to the extent the need for capacity can be met through
cost-effective demand-side management resources, non-utility generation or
other power purchases. To
A-3
<PAGE>
assess the market potential to provide such cost-effective resources, ComEd
solicited proposals to supply it with cost-effective demand-side management
resources, non-utility generation resources and other-utility power purchases
sufficient to meet forecasted requirements through the year 2000. The responses
to the solicitation suggest that adequate resources to meet ComEd's needs could
be obtained from those sources but ComEd has not yet determined whether those
sources represent the most economical alternative. If ComEd were to build
additional capacity to meet its needs, it would need to make additional
expenditures during the 1995-97 period.
ComEd has not budgeted for a number of projects, particularly at generating
stations, which could be required, but which ComEd does not expect to be
required during the budget period. In particular, ComEd has not budgeted for
the construction of scrubbers at its Kincaid station or for the replacement of
major amounts of piping at its boiling water reactor nuclear stations. See
"Regulation" below for additional information.
Purchase commitments for ComEd and the Indiana Company, principally related
to construction and nuclear fuel, approximated $1,210 million at December 31,
1994. In addition, ComEd has substantial commitments for the purchase of coal
as indicated in the following table.
<TABLE>
<CAPTION>
CONTRACT PERIOD COMMITMENT (1)
----------------- --------- --------------
<S> <C> <C>
Black Butte Coal Co................................... 1995-2007 $1,119
Decker Coal Co........................................ 1995-2015 $ 822
Big Horn Coal Co...................................... 1998 $ 21
Other commitments..................................... 1995-1996 $ 31
</TABLE>
--------
(1) Estimated costs in millions of dollars FOB mine. No estimate of future
escalation has been made.
For additional information concerning these coal contracts and ComEd's fuel
supply, see "Results of Operations" below and Notes 1 and 19 of Notes to
Financial Statements.
ComEd's construction program will be reviewed and modified as necessary to
adapt to changing economic conditions, rate levels and other relevant factors
including changing business and legal needs and requirements. ComEd cannot
anticipate all such possible needs and requirements. While regulatory needs in
particular are more likely, on balance, to require increases in construction
expenditures than decreases, ComEd's financial condition may require
compensating or greater reductions in other construction expenditures.
Capital Resources. ComEd has forecast that internal sources will provide more
than three-fourths of the funds required for ComEd's construction program and
other capital requirements, including nuclear fuel expenditures, contributions
to nuclear decommissioning funds, sinking fund obligations and refinancing of
scheduled debt maturities (the annual sinking fund requirements for ComEd
preference stock and for ComEd and the Indiana Company long-term debt are
summarized in Notes 7 and 8, respectively, of Notes to Financial Statements).
The forecast assumes the rate levels reflected in the Rate Order.
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. ComEd's new money financing requirements have increased in recent
years due to higher expenditures and lower operating cash flows resulting from
reduced revenues due to customer refunds and rate level adjustments ordered in
various proceedings related to the level of ComEd's rates and the effects of
the Rate Matters Settlement and the Fuel Matters Settlement. Unicom's balances
of cash and cash investments decreased by approximately $793 million from
December 31, 1993 to December 31, 1994, primarily due to the effects of those
settlements. 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. ComEd has approximately $915 million of unused
bank lines of credit at December 31, 1994 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
A-4
<PAGE>
on several floating rate bank indices plus a spread which is dependent upon
ComEd's credit ratings or on a prime interest rate. Collateral, if required for
the borrowings, would consist of first mortgage bonds issued under and in
accordance with the provisions of ComEd's mortgage. See Note 9 of Notes to
Financial Statements for information concerning lines of credit. See the
Statements of Consolidated Cash Flows for the construction expenditures and
cash flow from operating activities for the years 1994, 1993 and 1992.
During 1994, Unicom and ComEd issued 390,605 shares of common stock for
approximately $8,503,000 under the employee stock plans. During 1994, ComEd
also issued and sold 3,000,000 shares of $2.425 Cumulative Preference Stock;
sold and leased back approximately $306,649,000 of nuclear fuel through its
existing nuclear fuel lease; refinanced $249,200,000 of outstanding pollution
control revenue bonds through the issuance, through the Illinois Development
Finance Authority, of an equivalent amount of lower cost variable rate and
fixed rate bonds (of which $157,000,000 was collaterally secured through the
issuance to the related bond trustee of an equivalent amount of first mortgage
bonds); and issued $300,000,000 of other long-term debt.
As of January 27, 1995, ComEd has an effective "shelf" registration statement
with the SEC for the future sale of up to an additional $805 million of debt
securities and cumulative preference stock for general corporate purposes of
ComEd, including the discharge or refund of other outstanding securities.
Financial Condition. ComEd's financial condition will continue to depend on
its ability to generate revenues to cover its costs and to maintain adequate
debt and preferred and preference stock coverages and common stock equity
earnings. ComEd's management recognizes that competitive and regulatory
circumstances in Illinois may limit its ability to raise its rates.
Consequently, ComEd's financial condition will be affected by, and ComEd's
management is addressing, actions to maintain and increase sales, to control
operating and capital expenditures, and to anticipate competitive activities.
During the past several years, ComEd has instituted cost reduction plans
including various workforce reductions. ComEd reached agreement in August 1993
with its unions regarding certain cost reduction actions. The agreement
provided for a wage freeze until April 1, 1994, changes to reduce health care
plan costs, increased use of part-time employment and changes in holiday
provisions. The agreement also included a continuation of negotiations relative
to other issues. ComEd and union representatives reached agreement in February
1994 and announced an offer of a voluntary early retirement program. This
program is available to ComEd and the Indiana Company management, non-union and
union employees eligible to retire or who would become eligible to retire after
December 31, 1993 and before April 1, 1995. The period for most eligible
employees to elect to participate in the program expired on April 20, 1994. The
charge to income related to the program in 1994 was approximately $20 million
(net of income tax effects) related to employees who accepted the program
during 1994. ComEd estimates that, in total, approximately $21 million (net of
income tax effects) will be charged to income as a result of the program. See
"Regulation" below and Note 12 of Notes to Financial Statements.
The current ratings of ComEd's securities by three principal securities
rating agencies are 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- BB+
Preference stock................................. baa3 BBB- BB+
Commercial paper................................. P-2 A-2 Duff 2
</TABLE>
On October 27, 1993, Standard & Poor's changed its "outlook" on ComEd's
ratings from stable to negative as part of its larger assessment of the
electric utility industry. In January 1995, following the issuance of the Rate
Order, Standard & Poor's affirmed its ratings of ComEd's debt, with its ratings
"outlook" remaining negative. In December 1993, Moody's and Duff & Phelps
affirmed their ratings of ComEd's securities, and Moody's rating outlook on
ComEd remained stable.
A-5
<PAGE>
Business and Competition. The electric utility business has historically been
characterized by retail service monopolies in state or locally franchised
service territories. Investor-owned electric utilities have tended to be
vertically integrated with all aspects of their business subject to pervasive
regulation. Although customers have normally been free to supply their electric
power needs through self-generation, they have not had a choice of electric
suppliers and self-generation has not generally been economical.
The market in which electric utilities like ComEd operate has become more
competitive and many observers believe competition will intensify. Self-
generation can be economical for certain customers, depending on how and when
they use electricity and other customer-specific considerations. A number of
competitors are currently seeking to identify and do business with those
customers. In addition, suppliers of other forms of energy are increasingly
competing to supply energy needs which historically were supplied primarily or
exclusively by electricity.
The Energy Policy Act of 1992 will likely have a significant effect on
companies engaged in the generation, transmission, distribution, purchase and
sale of electricity. This Act, among other things, expands the authority of the
FERC to order electric utilities to transmit or "wheel" wholesale power for
others, and facilitates the creation of non-utility electric generating
companies. Although ComEd cannot now predict the full impact of this Act, it
will likely create and increase competition affecting ComEd.
ComEd is facing increased competition from several non-utility businesses
which seek to provide energy services to users of electricity, especially
larger customers such as industrial, commercial and wholesale customers. Such
suppliers include independent power producers and unregulated energy services
companies. In this regard, natural gas utilities operating in ComEd's service
area have established subsidiary ventures to provide heating, ventilating and
air conditioning services, attempting to attract ComEd's customers. Also,
several utilities in the United States have established unregulated energy
services subsidiaries which pursue business opportunities wherever they exist.
In addition, cogeneration and energy services companies have begun soliciting
ComEd's customers to provide alternatives to using ComEd's electricity. In
October 1993, the ICC granted ComEd the authority to negotiate special discount
contract rates with new or existing industrial customers for up to a total of
400 megawatts of added load, where the customers would not have chosen service
from ComEd for the increased load in the absence of the discount rates. In
addition, in June 1994, the ICC granted ComEd the authority to negotiate
special discount contract rates with up to 25 of its largest existing
customers, where such contracts would be necessary to retain the customers'
existing load on ComEd's system.
ComEd recently negotiated amendments to existing contracts with three of its
wholesale municipal customers, which extended the contracts for an additional
ten-year period past the 1997 expiration dates. ComEd was one of a number of
bidders for providing service to these customers. The contracts became
effective upon FERC approval.
The ICC formed a task force for the purpose of conducting a broad-based and
open examination of the expanding presence of market components within the
electric utility industry. Participants from more than forty organizations,
including representatives from the electric utility industry, are meeting to
examine three broad issues: effects of regulation, competition and future
regulatory and legislative changes. A report examining all sides of the issues
is planned for release in the first half of 1995 to the ICC, the legislature,
the Governor and other Illinois constitutional officers.
Capital Structure. The ratio of ComEd's long-term debt to total
capitalization has decreased to 54.6% at December 31, 1994 from 55.0% at
December 31, 1993. This decrease is related primarily to the retirement and
early redemption of long-term debt and the issuance of cumulative preference
stock.
A-6
<PAGE>
UNREGULATED OPERATIONS
Unicom Enterprises intends, through subsidiaries, to engage in energy-related
businesses which will not be subject to utility regulation by state or federal
agencies. As of December 31, 1994, Unicom Enterprises had only one subsidiary,
Unicom Thermal, which will provide district cooling services to office and
other buildings from central locations in the city of Chicago. District cooling
involves, in essence, the production of chilled water at a central location and
its circulation from such location to customers' buildings in a closed circuit
of piping. Such water is used to chill air in customers' air conditioning
systems without the use of CFCs. As a result of the Clean Air Amendments, the
manufacture and use of CFCs will be curtailed, commencing in 1996, thereby
creating an excellent marketing opportunity for non-CFC based systems, such as
district cooling. Unicom Thermal is currently a development stage enterprise
and, as such, has generated no sales revenues. Unicom Thermal has secured two
long-term contracts and expects to begin serving customers in the summer of
1995. Unicom Thermal is in the process of negotiating with additional potential
customers.
Capital Budgets. Unicom Thermal has forecasted capital expenditures for the
years of 1995-97 of approximately $95 million, primarily representing the
construction costs of its district cooling facilities and piping system.
Construction of its first district cooling facility is expected to be completed
by May 1995 and is expected to cost approximately $30 million. As of December
31, 1994, Unicom Thermal's purchase commitments, principally related to
construction, were approximately $24 million.
Capital Resources. Unicom expects to obtain funds to invest in Unicom
Enterprises and its subsidiaries principally from dividends that it receives on
its ComEd common stock and from bank borrowings by Unicom Enterprises. While
the amount of dividends on ComEd common stock is expected to be greater than
the amount of dividends on Unicom common stock, the availability of such
dividends is dependent on ComEd's financial performance and cash position.
Other forms of financing by ComEd of Unicom or its other subsidiaries, such as
loans or additional equity investments (none of which is expected), would be
subject to the prior approval of the ICC.
Unicom Enterprises has a $200 million credit facility which will expire in
1997 of which the entire amount was unused as of December 31, 1994. The credit
facility could be used by Unicom Enterprises to finance investments in
nonregulated 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 would be
set at the time of a borrowing and would be based on either a prime interest
rate or a floating rate bank index plus a spread which will vary with the
credit rating of ComEd's outstanding first mortgage bonds. See Note 9 of Notes
to Financial Statements for additional information regarding certain covenants
with respect to Unicom's and Unicom Enterprises' operations.
REGULATION
ComEd and the Indiana Company are subject to state and federal regulation in
the conduct of their respective businesses, including the operations of Cotter.
Such regulation includes rates, securities issuance, nuclear operations,
environmental and other matters. Particularly in the cases of nuclear
operations and environmental matters, such regulation can and does affect
operational and capital expenditures.
Rate Proceedings. ComEd's revenues, net income, cash flows and plant carrying
costs have been affected directly by various rate-related proceedings. During
the periods presented in the consolidated financial statements, ComEd was
involved in a number of proceedings concerning its rates. The uncertainties
associated with such proceedings and related issues, among other things, led to
the Rate Matters Settlement and the Fuel Matters Settlement (see Note 2 of
Notes to Financial Statements). The effects of the aforementioned rate
proceedings and settlements during the periods presented are discussed below
under "Results of Operations."
A-7
<PAGE>
On January 9, 1995, the ICC issued its Rate Order in the proceedings relating
to ComEd's February 10, 1994 rate increase request. The Rate Order provides,
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 as an adder to base rates until May 1,
1995, when such costs will be collected prospectively 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. 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. ComEd expects the Rate Order to be
appealed by the intervenors in the rate proceeding.
In the Rate Order, the ICC 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 ICC also
determined, however, that ComEd's annual nuclear plant decommissioning cost
collections from its ratepayers should be reduced from the $127 million
previously authorized in the 1991 ICC rate order to $112.7 million. The $112.7
million annual collection amount primarily resulted from the ICC's decision to
exclude from ComEd's costs subject to collection a contingency allowance. As
noted above, the Rate Order establishes a rider which will allow annual
adjustments to decommissioning cost collections outside of the context of a
traditional rate proceeding. Such rider is intended to allow adjustments in
decommissioning cost recoveries from ratepayers as changes in cost estimates
become identifiable. Under Illinois law, decommissioning cost collections are
required to be deposited in external trust funds; and consequently, such
collections do not add to the cash flows available for general corporate
purposes.
Nuclear Matters. During the past several years, the NRC has placed two of
ComEd's nuclear generating stations, Zion station and Dresden station, on its
list of plants to be monitored closely. Although Zion station (which was placed
on the list in early 1991) was removed from that list in February 1993, Dresden
station (which was placed on the list in early 1992) remains on the list. The
NRC concern with Dresden station was that, although processes and programs were
in place to make improvements, the rate of improvement needed to accelerate. In
February 1995, the NRC reported that a sense of progress at Dresden is evident,
but that more time is needed to determine if the improving trend will continue.
Because of the age of the Zion, Dresden and Quad-Cities stations, ComEd
anticipates increased expenditures for operation and maintenance expenses in
order to improve reliability and to meet NRC regulatory expectations.
Accordingly, ComEd has restructured its management of its nuclear stations and
committed additional resources to the stations' operations.
In January 1994, ComEd was notified by the NRC that ComEd's LaSalle County
and Quad-Cities stations were placed on the list of plants with adverse
performance trends. ComEd was informed that the NRC concerns about LaSalle
County station included, among other matters, deficient radiation worker
practices. The NRC concerns with Quad-Cities station included, among other
matters, deficiencies in the condition of certain station equipment and the
effectiveness of the operators of the units in identifying and responding to
certain operational problems. ComEd has provided written and verbal responses
to the NRC and is working to resolve the concerns. In the February 1995 report,
the NRC concluded that LaSalle County had arrested the adverse trends in most
areas and "normal" designation should be returned. Like Dresden and LaSalle
County, the NRC noted that positive developments had been observed at Quad-
Cities but additional time was required to determine if those developments had
been effective in arresting the adverse trends and thus Quad-Cities remains on
the list of plants with adverse performance trends. As noted above, ComEd
anticipates continued increased expenditures in connection with those stations.
In addition, generating station availability and performance during a year may
be issues in fuel reconciliation proceedings in assessing the prudence of fuel
and power purchases during such year. ICC orders have been issued in fuel
reconciliation proceedings for years prior to 1993.
A-8
<PAGE>
ComEd estimates that it will expend approximately $15 billion, excluding any
contingency allowance, for decommissioning costs primarily during the period
from 2007 through 2032. Such costs, which are estimated to aggregate
approximately $3.5 billion, in current-year (1995) dollars, are expected to be
funded by the external decommissioning trust funds 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. See Note 1 of Notes
to Financial Statements under "Depreciation and Decommissioning" for additional
information regarding decommissioning costs.
Environmental Matters. The Clean Air Amendments require reductions in sulfur
dioxide emissions from ComEd's Kincaid station. The Clean Air Amendments also
bar future utility sulfur dioxide emissions except to the extent utilities hold
allowances for their emissions. Allowances which authorize their holder to emit
sulfur dioxide have been issued by the U.S. EPA based largely on historical
levels of sulfur dioxide emissions. These allowances are transferable and
marketable. ComEd's ability to increase generation in the future to meet
expected increased demand for electricity will depend in part on ComEd and the
Indiana Company's ability to acquire additional allowances or to reduce
emissions below otherwise allowable levels from their existing generating
plants. In addition, the Clean Air Amendments require studies to determine what
controls, if any, should be imposed on utilities to control air toxic
emissions, including mercury. ComEd's Clean Air Compliance Plan for Kincaid
station was approved by the ICC on July 8, 1993. In late 1993, however, a
federal court declared the Illinois law under which the approval was received
to be unconstitutional and compliance plans prepared and approved in reliance
on the law to be void. In January 1995, the federal court's decision was
affirmed by the U.S. Court of Appeals. It is not known whether a petition for
rehearing or further appeals will be filed. Under the Compliance Plan approved
by the ICC, ComEd would have been allowed to burn low sulfur Illinois coal at
Kincaid station without the installation of pollution control equipment for the
years 1995 through 1999, and to purchase any necessary emission allowances that
are expected to be available under the Clean Air Amendments during this period.
Also, under the Plan, ComEd expected to install pollution control equipment for
Kincaid station by the year 2000. When the final outcome of the federal
litigation is known, ComEd will determine whether any changes are required.
The Clean Air Amendments also require reductions in nitrogen oxide emissions
from ComEd and the Indiana Company's fossil fuel generating units. The Illinois
EPA has proposed rules with respect to such emissions which would require
modifications to certain of ComEd's boilers inside the Chicago ozone non-
attainment area. The proposed rules are currently under review. The Illinois
EPA is also considering nitrogen oxide emission reductions at ComEd generating
stations outside the Chicago ozone non-attainment area.
RESULTS OF OPERATIONS
Unicom's earnings per common share were $1.66 in 1994, $0.22 in 1993 and
$2.08 in 1992. Substantially all of the results of operations for Unicom are
the results of operations of ComEd. Unicom Enterprises' only subsidiary, Unicom
Thermal, is currently a development stage enterprise, and for the period from
July 30, 1993 (its date of inception) through December 31, 1993 and for the
year 1994 incurred losses that are not material to the results of Unicom and
subsidiary companies as a whole. As such, the following section discusses the
results of operations of ComEd alone.
Net Income. The 1994 results reflect higher revenues as a result of the
favorable comparison to 1993 in which the effects of the Rate Matters
Settlement and the Fuel Matters Settlement were recorded and ComEd's increased
kilowatthour sales to ultimate consumers. The effects of these items were
partially offset by higher operation and maintenance expenses, which include an
after-tax charge for additional pension costs related to an early retirement
program of $20 million or $0.09 per common share. ComEd also recorded a
reduction in the carrying value of its investments in uranium-related
properties in 1994, which reduced net income by $33.8 million or $0.16 per
common share.
A-9
<PAGE>
The 1993 results were significantly affected by the recording of the effects
of the Rate Matters Settlement and the Fuel Matters Settlement, which reduced
1993 net income by approximately $354 million or $1.66 per common share, in
addition to the effect of the deferred recognition of revenues which ComEd had
recorded during 1993 (approximately $160 million or $0.75 per common share),
and after the partially offsetting effect of recording approximately $269
million or $1.26 per common share in deferred carrying charges, net of income
taxes, as authorized in the Remand Order. The 1993 earnings also reflect a one-
time favorable cumulative effect of $9.7 million or $0.05 per common share as a
result of the adoption of SFAS No. 109, Accounting for Income Taxes, in January
1993. The effect of the non-recurring items was partially offset by a higher
level of kilowatthour sales and lower operation and maintenance expenses.
Excluding non-recurring items, earnings in 1993 would have been $1.83 per
common share.
The 1992 results were significantly affected by the decreased level of
kilowatthour sales due to a cooler than normal summer, higher operation and
maintenance expenses, higher revenues resulting from the full effect of the
rate increase which became effective on March 20, 1991, lower fuel and
purchased power costs and the 1992 reduction to net income of $50 million or
$0.24 per common share to reflect a provision for additional refunds and
interest related to the 1985 ICC rate order. Excluding non-recurring items,
earnings in 1992 would have been $2.32 per common share.
Kilowatthour Sales. Kilowatthour sales to ultimate consumers increased 2.8%
in 1994, the result of increased sales to all classes of customers (except
railroads, which decreased), due in part to warmer summer weather and colder
winter weather as compared to 1993. The service territory economy also improved
during 1994, which contributed to the increase in kilowatthour sales.
Kilowatthour sales to ultimate consumers increased 4.6% in 1993, the result of
increased sales to all classes of customers (except railroads, which
decreased), due primarily to more normal summer weather in 1993 as compared to
1992. Kilowatthour sales to ultimate consumers decreased 4.6% in 1992
principally reflecting lower kilowatthour sales to residential consumers as a
result of a cooler than normal summer. Kilowatthour sales including sales for
resale decreased 3.0% in 1994, increased 16.0% in 1993 and decreased 3.7% in
1992.
Operating Revenues. Operating revenues increased $1,017 million in 1994
principally reflecting the favorable comparison to 1993 in which the effects of
the Rate Matters Settlement and the Fuel Matters Settlement were recorded and
the increased level of kilowatthour sales to ultimate consumers described
above. The increase was partially offset by a decrease in energy costs
recovered under the fuel adjustment provision in ComEd's rates.
Operating revenues decreased $766 million in 1993 principally reflecting the
recording of the effects of the Rate Matters Settlement and the Fuel Matters
Settlement, which reduced 1993 electric operating revenues by $1,282 million.
This reduction was partially offset by a higher level of kilowatthour sales and
an increase in energy costs recovered under the fuel adjustment provision in
ComEd's rates. See "Net Income" above and Note 2 of Notes to Financial
Statements for additional information.
Operating revenues decreased $249 million in 1992 principally reflecting a
lower level of kilowatthour sales due to a cooler than normal summer, a
decrease in the recovery of energy costs under the fuel adjustment provision in
ComEd's rates and a provision for revenue refunds of approximately $18 million
related to the 1985 ICC rate order. The decrease more than offset the full
effect of the rate increase authorized in the 1991 ICC rate order, which became
effective on March 20, 1991.
Fuel Costs. Changes in fuel expense for 1994, 1993 and 1992 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
A-10
<PAGE>
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>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Cost of fuel consumed (per million Btu):
Nuclear........................................... $0.53 $0.52 $0.52
Coal.............................................. $2.31 $2.89 $2.96
Oil............................................... $2.89 $3.03 $3.02
Natural gas....................................... $2.27 $2.70 $2.36
Average all fuels................................. $1.08 $1.15 $0.97
Net generation of electric energy (millions of kilo-
watthours)......................................... 90,243 94,266 79,889
Fuel sources of kilowatthour generation:
Nuclear........................................... 71% 75% 83%
Coal.............................................. 25 23 15
Oil............................................... 1 1 1
Natural gas....................................... 3 1 1
------ ------ ------
100% 100% 100%
====== ====== ======
</TABLE>
In February 1992, a $46 million court-ordered refund from the DOE relating to
spent nuclear fuel disposal costs was refunded to ComEd's ratepayers through
the fuel adjustment clause.
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 three
nuclear enrichment facilities 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). 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. This results from ComEd's 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 were renegotiated during 1992 effective as of
January 1, 1993, to provide, among other things, for significant reductions in
the delivered price of the coal over the duration of the contracts. However,
the renegotiated contracts 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
December 31, 1994, ComEd had unrecovered fuel costs in the form of coal
reserves of approximately $498 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, 2 and 19 of Notes to Financial
Statements.
Purchased Power. Amounts of purchased power are primarily affected by system
load, the availability of ComEd and the Indiana Company's generating units and
the availability and cost of power from other utilities.
The number and average cost of kilowatthours purchased were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----- ---- -----
<S> <C> <C> <C>
Kilowatthours (millions)................................. 2,068 644 2,555
Cost per kilowatthour.................................... 2.86c 1.91c 1.78c
</TABLE>
A-11
<PAGE>
Deferred Under or Overrecovered Energy Costs--Net. Operating expenses for the
years 1994, 1993 and 1992 reflect 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. Total operation and maintenance expenses
increased 3% during 1994, decreased 4% during 1993 and increased 9% during
1992. The increase in 1994 primarily reflects an increase in operation and
maintenance expenses associated with pension benefit costs, incentive
compensation programs, nuclear and fossil generating stations, certain other
employee benefits, and certain administrative and general costs, partially
offset by lower expenses associated with transmission and distribution
facilities. The decrease in 1993 primarily reflects a decrease in operation and
maintenance expenses associated with nuclear and fossil generating stations,
lower costs of pension benefits and customer-related activities, a decrease in
the number of employees and lower research costs, partially offset by higher
costs of postretirement health care benefits and the cost related to the 1993
special incentive plan for employees. The increase in 1992 primarily reflects
an increase in operation and maintenance expenses associated with nuclear
generating stations, higher costs of pension and postretirement health care
benefits and an increased number of employees. Wage increases, the effects of
which are reflected in the increases and decreases discussed below, have
increased operation and maintenance expenses during 1994 and 1992. Wages in
1993 were not increased over 1992 levels. Operation and maintenance expenses in
1994 include approximately $20 million for wage increases. The effects of
inflation have increased operation and maintenance costs during the periods and
are also reflected in the increases and decreases discussed below.
The cost of pension benefits (net of amounts charged to construction)
increased $29 million in 1994, decreased $16 million in 1993 and increased $21
million in 1992. The increase in pension benefits in 1994 reflects $34 million
related to employees who elected in 1994 to take early retirements under a 1994
early retirement program. It is estimated that, in total, the program will
result in the recognition of approximately $35 million of pension cost (see
"Liquidity and Capital Resources," subcaption "Financial Condition" above for
additional information). The 1992 pension increase reflects the effect of
ComEd's workforce reduction program in which a charge to income of $26 million
was recorded in 1992. See Note 12 of Notes to Financial Statements for
additional information. Additional costs associated with ComEd's management
workforce reduction program of approximately $11 million were recorded in 1992,
which adversely impacted operation and maintenance expenses for 1992. The cost
of postretirement health care benefits (net of amounts charged to construction)
increased $14 million and $29 million in 1993 and 1992, respectively. The $14
million increase in 1993 reflects an increase in the cost of postretirement
health care benefits of $17 million as a result of adopting on January 1, 1993,
SFAS No. 106, Employers' Accounting for Postretirement Benefits Other Than
Pensions (see Note 13 of Notes to Financial Statements for additional
information). Certain other employee benefits increased $4 million in 1994,
primarily due to an increase in medical costs for active employees.
Operation and maintenance expenses associated with the nuclear generating
stations increased $9 million in 1994, decreased $74 million in 1993 and
increased $105 million in 1992. The increase at the nuclear stations in 1994 is
due to activities undertaken during increased scheduled and non-scheduled
outages. The decrease at the nuclear generating stations in 1993 includes the
effects of ComEd's cost reduction efforts. 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. Operation and maintenance expenses
associated with the fossil generating stations increased $4 million and
decreased $13 million for 1994 and 1993, respectively. The increase in 1994
reflects, in part, activities undertaken during a greater number of scheduled
overhauls. The decrease in 1993 includes the effects of ComEd's cost reduction
efforts. Research costs also decreased $10 million in 1993 due to the cost
reduction efforts.
A-12
<PAGE>
Operation and maintenance expenses associated with ComEd's transmission and
distribution system decreased $18 million in 1994. The decrease in 1994
reflects the effects of ComEd's cost containment efforts. Costs of customer-
related activities decreased $13 million in 1993.
Operation and maintenance expenses in 1994 reflect a $50 million cost for
employee incentive compensation plans related to the achievement of certain
financial performance, cost containment and operating performance goals.
Operation and maintenance expenses in 1993 reflect a $36 million special
incentive plan cost for employees related to a sharing of operation and
maintenance savings below 1993 budgeted levels.
Certain administrative and general costs increased an additional $12 million
in 1994 primarily due to increases in the provisions for injuries and damages
and obsolete materials.
In 1993, a provision of $5 million was recorded to reflect the low end of the
range of ComEd's estimate of the liability associated with cleanup costs of
remediation sites other than former MGP sites. In 1991, a provision of $25
million was recorded which reflects the low end of the range of ComEd's
estimate of the liability associated with former MGP sites. See Note 19 of
Notes to Financial Statements for additional information concerning cleanup
costs of remediation sites and former MGP sites.
Depreciation. Depreciation expense increased in 1994 and 1993 as a result of
additions to plant in service. Depreciation expense increased in 1992 as a
result of reflecting in expense a full year's effect of increased
decommissioning costs allowed by the 1991 ICC rate order, which became
effective March 20, 1991. See Note 1 of Notes to Financial Statements for
information concerning depreciation rates and decommissioning costs.
Interest on Debt. Changes in interest on long-term debt and notes payable for
the years 1994, 1993 and 1992 were due to changes in average interest rates and
in the amounts of long-term debt and notes payable outstanding. Changes in
interest on long-term debt also reflected new issues of debt and the retirement
and redemption of issues which were refinanced at generally lower rates of
interest. The average amounts of long-term debt and notes payable outstanding
and average interest rates thereon were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Long-term debt outstanding:
Average amount (millions).......................... $7,934 $8,105 $7,700
Average interest rate.............................. 7.83% 8.03% 8.58%
Notes payable outstanding:
Average amount (millions).......................... $ 9 $ 6 $ 17
Average interest rate.............................. 6.48% 5.83% 4.43%
</TABLE>
Deferred Carrying Charges. In the Remand Order, the ICC provided that, for
ratemaking purposes, deferred carrying charges on the reasonable and "used and
useful" plant costs of the Units for the period April 1, 1989 until
approximately March 20, 1991, the date under the Remand Order that the Units
were reflected in rates, could be deferred and amortized. Approximately $438
million of such costs was capitalized as a regulatory asset in October 1993 and
resulted in an increase to net income for the year 1993 of approximately $269
million or $1.26 per common share. Amortization of deferred carrying charges
for the years 1994 and 1993 amounted to approximately $13 million and $2
million, respectively.
Income Taxes. In the third quarter of 1993, the President of the United
States signed into law a deficit-reduction plan that included, among other
things, an increase in the federal statutory corporate income tax rate from 34%
to 35%, effective January 1, 1993. The recording of the effects of the
increased taxes began in 1993. In addition, a net increase in the deferred
income tax liability was recorded in the third quarter of 1993 which was
primarily offset by regulatory assets net of regulatory liabilities, reflecting
the increase in taxes recoverable in rates to settle net income tax liabilities
recorded in prior years.
A-13
<PAGE>
Further, the effects of the elimination of a scheduled reduction in a
component of the statutory Illinois income tax rate, which was to have declined
to 4.4% from 4.8%, effective July 1, 1993, were recorded in the third quarter
of 1993.
In 1993, a loss for income tax purposes was recorded. Income tax overpayments
resulting from such loss and other tax refunds, approximating $36 million and
$187 million at December 31, 1994 and 1993, respectively, were included in
receivables in the Consolidated Balance Sheets.
See Note 14 of Notes to Financial Statements for information concerning the
accounting standard adopted in January 1993 which requires an asset and
liability approach for financial accounting and reporting for income taxes
rather than the deferred method.
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 has agreed to review the
accounting for nuclear decommissioning costs. If current electric utility
industry accounting practices for such decommissioning costs are changed: (1)
annual provisions for decommissioning could increase; (2) the estimated cost
for decommissioning could be recorded as a liability rather than as accumulated
depreciation; and (3) trust fund income from the external decommissioning
trusts could be reported as investment income rather than as a reduction to
decommissioning expense. Unicom does not believe that such changes, if
required, would have an adverse effect on results of operations due to ComEd's
current and future ability to recover decommissioning costs through rates.
Investments in Uranium-Related Properties. In May 1994, ComEd recorded a
reduction in the carrying value of its investments in uranium-related
properties after completing a review of various alternatives and reassessing
the long-term recoverability of those investments. The effects of the reduction
reduced 1994 net income by approximately $33.8 million or $0.16 per common
share.
Other Items. The amounts of AFUDC reflect changes in the average levels of
investment subject to AFUDC and changes in the average annual rates as
discussed in Note 1 of Notes to Financial Statements. AFUDC does not contribute
to the current cash flow of Unicom.
ComEd's ratios of earnings to fixed charges for the years 1994, 1993 and 1992
were 1.99, 1.19 and 2.06, respectively. ComEd's ratios of earnings to fixed
charges and preferred and preference stock dividend requirements for the years
1994, 1993 and 1992 were 1.73, 1.03 and 1.78, 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.
A-14
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Unicom Corporation:
We have audited the accompanying consolidated balance sheets and statements
of consolidated capitalization of Unicom Corporation (an Illinois corporation)
and subsidiary companies as of December 31, 1994 and 1993, and the related
statements of consolidated income, retained earnings and cash flows for each of
the three years in the period ended December 31, 1994. 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, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
As discussed in Notes 13 and 14, effective January 1, 1993, the Company
changed its method of accounting for postretirement health care benefits and
income taxes, respectively.
Arthur Andersen LLP
Chicago, Illinois
January 27, 1995
A-15
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
(MILLIONS OF DOLLARS EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C> <C>
Operating revenues.................. $ 6,278 $ 5,260 $ 6,026 $ 6,276 $ 5,311
Net income.......................... $ 355 $ 46 $ 443 $ 17 $ 46
Earnings per common share........... $ 1.66 $ 0.22 $ 2.08 $ 0.08 $ 0.22
Cash dividends declared per common
share.............................. $ 1.60 $ 1.60 $ 2.30 $ 3.00 $ 3.00
Total assets (at end of year)....... $23,121 $24,383 $20,993(1) $17,365 $17,889
Long-term obligations at end of year
excluding current portion:
Long-term debt and preference
stock subject to mandatory
redemption requirements.......... $ 7,745 $ 7,861 $ 7,913 $ 7,081 $ 7,341
Accrued spent nuclear fuel dis-
posal fee and related interest... $ 590 $ 567 $ 549 $ 530 $ 500
Capital lease obligations......... $ 433 $ 323 $ 347 $ 396 $ 387
Other long-term obligations....... $ 1,754 $ 1,718 $ 666 $ 341 $ 225
</TABLE>
--------
(1) See Note 14 of Notes to Financial Statements for additional information.
PRICE RANGE* AND DIVIDENDS PAID PER SHARE OF COMMON STOCK
<TABLE>
<CAPTION>
1994 (BY QUARTERS) 1993 (BY QUARTERS)
--------------------------- ---------------------------
FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Price range:
High................. 24 3/4 24 7/8 26 28 3/4 30 5/8 31 5/8 29 7/8 28 1/4
Low.................. 20 5/8 21 1/4 22 25 1/8 27 3/8 27 3/8 25 5/8 22 7/8
Cash dividends paid.... 40c 40c 40c 40c 40c 40c 40c 40c
</TABLE>
* As reported as NYSE Composite Transactions for Unicom on and after September
1, 1994 and for ComEd prior to that date.
--------
Unicom's common stock is traded on the New York, Chicago and Pacific stock
exchanges, with the ticker symbol UCM. At December 31, 1994, there were
approximately 182,000 holders of record of Unicom's common stock.
1994 REVENUES AND SALES
<TABLE>
<CAPTION>
ELECTRIC
OPERATING INCREASE/ KILOWATTHOUR INCREASE/
REVENUES(1) (DECREASE) SALES (DECREASE) INCREASE
(THOUSANDS) OVER 1993 (MILLIONS) OVER 1993 CUSTOMERS OVER 1993
----------- ---------- ------------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Residential............. $2,273,763 (2.9)% 21,376 2.7 % 3,047,354 1.3%
Small commercial and
industrial............. 1,917,084 (2.3)% 24,320 3.7 % 286,793 1.1%
Large commercial and
industrial............. 1,381,251 (3.9)% 23,450 2.3 % 1,528 1.7%
Public authorities...... 452,512 (4.5)% 6,885 2.1 % 12,059 0.3%
Electric railroads...... 26,179 (5.1)% 397 (1.8)% 2 --
---------- ------ ---------
Ultimate consumers--
total................... $6,050,789 (3.1)% 76,428 2.8 % 3,347,736 1.2%
Provisions for revenue
refunds--ultimate
consumers.............. (15,909) -- --
---------- ------ ---------
Ultimate consumers--net. $6,034,880 76,428 3,347,736
Sales for resale........ 187,147 8,743 18
Other revenues.......... 55,494 -- --
---------- ------ ---------
$6,277,521 19.3 % 85,171 (3.0)% 3,347,754 1.2%
========== ====== =========
</TABLE>
--------
(1) See Note 2 of Notes to Financial Statements and the Statements of
Consolidated Income for information related to revenue refunds.
A-16
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED INCOME (NOTE 1)
The following Statements of Consolidated Income for the years 1994, 1993 and
1992 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, taxes, environmental control, energy use, fuel supply, cost of labor,
fuel and purchased power and other matters, the nature and effect of which
cannot now be determined.
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
(THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Operating Revenues (Notes 2 and 3):
Operating revenues....................... $6,293,430 $6,547,205 $6,044,693
Provisions for revenue refunds........... (15,909) (1,286,765) (18,372)
---------- ---------- ----------
$6,277,521 $5,260,440 $6,026,321
---------- ---------- ----------
Operating Expenses and Taxes:
Fuel (Notes 1, 2, 10 and 19)............. $1,049,853 $1,170,935 $ 841,321
Purchased power.......................... 59,123 12,303 45,579
Deferred (under)/overrecovered energy
costs--net (Note 1)..................... 1,940 (1,757) (30,254)
Operation................................ 1,533,335 1,457,689 1,529,849
Maintenance.............................. 561,320 581,714 587,778
Depreciation (Note 1).................... 887,466 862,766 836,129
Recovery of regulatory assets............ 15,453 5,235 3,330
Taxes (except income) (Note 15).......... 787,852 701,913 743,909
Income taxes (Notes 1 and 14)--
Current--Federal....................... 156,429 (19,930) 139,857
--State................................ 1,913 (7,623) 21,531
Deferred--Federal--net................. 103,385 88,052 97,066
--State--net........................... 65,017 34,752 45,829
Investment tax credits deferred--net
(Notes 1 and 14)........................ (28,757) (29,424) (32,506)
---------- ---------- ----------
$5,194,329 $4,856,625 $4,829,418
---------- ---------- ----------
Operating Income........................... $1,083,192 $ 403,815 $1,196,903
---------- ---------- ----------
Other Income and (Deductions):
Interest on long-term debt............... $ (621,225) $ (651,181) $ (660,429)
Interest on notes payable................ (557) (334) (775)
Allowance for funds used during construc-
tion (Note 1)--
Borrowed funds......................... 18,912 16,930 17,213
Equity funds........................... 22,628 20,618 19,960
Income taxes applicable to nonoperating
activities (Notes 1 and 14)............. 27,074 29,913 6,275
Income tax reduction for disallowed plant
costs................................... -- 792 --
Deferred carrying charges (Note 2)....... -- 438,183 --
Interest and other costs for 1993 Settle-
ments (Note 2).......................... (21,464) (98,674) --
Provision for dividends on preferred and
preference stocks of
Commonwealth Edison Company............. (64,927) (66,052) (70,539)
Miscellaneous--net (Note 17)............. (88,699) (57,360) (65,166)
---------- ---------- ----------
$ (728,258) $ (367,165) $ (753,461)
---------- ---------- ----------
Net Income Before Cumulative Effect of
Change In Accounting for Income Taxes..... $ 354,934 $ 36,650 $ 443,442
Cumulative Effect of Change In Accounting
for Income Taxes.......................... -- 9,738 --
---------- ---------- ----------
Net Income................................. $ 354,934 $ 46,388 $ 443,442
========== ========== ==========
Average Number of Common Shares Outstand-
ing....................................... 214,031 213,508 212,929
Earnings Per Common Share Before Cumulative
Effect of Change In Accounting for Income
Taxes..................................... $ 1.66 $ 0.17 $ 2.08
Cumulative Effect of Change In Accounting
for Income Taxes.......................... -- 0.05 --
---------- ---------- ----------
Earnings Per Common Share.................. $ 1.66 $ 0.22 $ 2.08
========== ========== ==========
Cash Dividends Declared Per Common Share... $ 1.60 $ 1.60 $ 2.30
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
A-17
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS (NOTE 1)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
ASSETS 1994 1993
------ ----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Utility Plant (Notes 1, 3, 8, 16 and 18):
Plant and equipment, at original cost (includes
construction work in progress of $1,043 million
and $1,040 million, respectively)................. $26,257,665 $25,581,003
Less--Accumulated provision for depreciation....... 9,623,756 8,790,519
----------- -----------
$16,633,909 $16,790,484
Nuclear fuel, at amortized cost.................... 689,424 662,562
----------- -----------
$17,323,333 $17,453,046
----------- -----------
Investments and Other Property:
Nuclear decommissioning funds (Notes 1 and 11)..... $ 880,944 $ 706,841
Subsidiary companies (Notes 1 and 17).............. 118,051 122,332
Other, at cost (Note 17)........................... 41,292 74,371
----------- -----------
$ 1,040,287 $ 903,544
----------- -----------
Current Assets:
Cash............................................... $ 1,927 $ 743
Temporary cash investments (Note 11)............... 75,008 247,119
Other cash investments (Note 11)................... 19,588 641,575
Special deposits (Note 11)......................... 29,603 32,635
Receivables (Note 1)--
Customers........................................ 463,241 427,613
Taxes............................................ 36,228 186,687
Other............................................ 67,389 66,963
Provisions for uncollectible accounts............ (10,720) (10,910)
Coal and fuel oil, at average cost................. 108,872 111,752
Materials and supplies, at average cost............ 384,612 402,714
Deferred unrecovered energy costs (Note 1)......... 48,697 43,885
Deferred income taxes related to current assets and
liabilities (Note 14)--
Loss carryforward................................ 10,090 175,197
Other............................................ 110,267 169,477
Prepayments and other.............................. 57,050 42,190
----------- -----------
$ 1,401,852 $ 2,537,640
----------- -----------
Deferred Charges and Other Noncurrent Assets:
Regulatory assets (Notes 1 and 14)................. $ 2,604,270 $ 2,698,465
Unrecovered energy costs (Note 1).................. 643,438 680,243
Other.............................................. 108,308 109,949
----------- -----------
$ 3,356,016 $ 3,488,657
----------- -----------
$23,121,488 $24,382,887
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
A-18
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS (NOTE 1)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
CAPITALIZATION AND LIABILITIES 1994 1993
------------------------------ ----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Capitalization (see accompanying statements):
Common stock equity.................................. $ 5,448,127 $ 5,421,893
Preferred and preference stocks of Commonwealth
Edison Company--
Without mandatory redemption requirements.......... 508,147 441,445
Subject to mandatory redemption requirements....... 292,163 309,964
Long-term debt of subsidiary companies............... 7,453,206 7,550,762
----------- -----------
$13,701,643 $13,724,064
----------- -----------
Current Liabilities:
Notes payable--bank loans (Note 9)................... $ 7,150 $ 5,950
Current portion of long-term debt, redeemable prefer-
ence stock and capitalized lease obligations of
subsidiary companies (Note 11)...................... 560,545 630,260
Accounts payable..................................... 350,958 444,080
Accrued interest..................................... 182,745 186,825
Accrued taxes........................................ 206,973 132,362
Dividends payable.................................... 102,647 101,047
Estimated revenue refunds and related interest
(Note 2)............................................. -- 1,166,308
Customer deposits.................................... 44,514 45,757
Other................................................ 85,845 143,519
----------- -----------
$ 1,541,377 $ 2,856,108
----------- -----------
Deferred Credits and Other Noncurrent Liabilities:
Deferred income taxes (Note 14)...................... $ 4,383,347 $ 4,448,548
Accumulated deferred investment tax credits (Notes 1
and 14)............................................. 717,752 746,508
Accrued spent nuclear fuel disposal fee and related
interest (Note 10).................................. 589,757 566,527
Obligations under capital leases of subsidiary
companies (Note 16)................................. 433,184 323,175
Regulatory liabilities (Notes 1 and 14).............. 699,426 782,338
Other (Notes 1, 12 and 13)........................... 1,055,002 935,619
----------- -----------
$ 7,878,468 $ 7,802,715
----------- -----------
Commitments and Contingent Liabilities (Note 19)
$23,121,488 $24,382,887
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
A-19
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CAPITALIZATION (NOTE 1)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1993
----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Common Stock Equity (Notes 4 and 5):
Common stock, without par value--
Outstanding--214,340,067 shares and 213,751,147
shares, respectively.............................. $ 4,890,931 $ 4,876,535
Preference stock expense of Commonwealth Edison
Company............................................ (3,775) (3,794)
Retained earnings................................... 560,971 549,152
----------- -----------
$ 5,448,127 $ 5,421,893
----------- -----------
Preferred and Preference Stocks of Commonwealth Edison
Company--
Without Mandatory Redemption Requirements
(Notes 4, 6 and 11):
Preference stock, cumulative, without par value--
Outstanding--13,499,549 shares and 10,499,549
shares, respectively............................ $ 504,957 $ 432,320
$1.425 convertible preferred stock, cumulative,
without par value--
Outstanding--100,323 shares and 286,949 shares,
respectively.................................... 3,190 9,125
Prior preferred stock, cumulative, $100 par value
per share--
No shares outstanding............................ -- --
----------- -----------
$ 508,147 $ 441,445
----------- -----------
Subject to Mandatory Redemption Requirements
(Notes 4, 7 and 11):
Preference stock, cumulative, without par value--
Outstanding--3,113,205 shares and 3,290,290
shares, respectively............................ $ 309,964 $ 327,653
Current redemption requirements for preference
stock included in current liabilities............ (17,801) (17,689)
----------- -----------
$ 292,163 $ 309,964
----------- -----------
Long-Term Debt of Subsidiary Companies (Notes 8 and
11):
First mortgage bonds:
Maturing 1995 through 1999--5 1/4% to 7%.......... $ 818,000 $ 818,000
Maturing 2000 through 2009--5.30% to 10 3/8%...... 2,220,500 2,204,600
Maturing 2010 through 2019--5.85% to 10 5/8%...... 1,106,000 1,106,000
Maturing 2020 through 2023--7 3/4% to 9 7/8%...... 1,870,000 1,870,000
----------- -----------
$ 6,014,500 $ 5,998,600
Sinking fund debentures, due 1999 through 2011--
2 3/4% to 7 5/8%................................... 112,593 120,185
Pollution control obligations, due 2004 through
2014--5 7/8% to 11 3/8%............................ 337,200 353,200
Other long-term debt................................ 1,451,449 1,598,625
Current maturities of long-term debt included in
current liabilities................................ (395,554) (446,724)
Unamortized net debt discount and premium (Note 1).. (66,982) (73,124)
----------- -----------
$ 7,453,206 $ 7,550,762
----------- -----------
$13,701,643 $13,724,064
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
A-20
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED RETAINED EARNINGS (NOTE 1)
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Balance at Beginning of Year....................... $549,152 $847,186 $ 893,702
Add--Net income.................................... 354,934 46,388 443,442
-------- -------- ----------
$904,086 $893,574 $1,337,144
-------- -------- ----------
Deduct--
Cash dividends declared on common stock......... $342,561 $341,683 $ 489,768
Other capital stock transactions--net........... 554 2,739 190
-------- -------- ----------
$343,115 $344,422 $ 489,958
-------- -------- ----------
Balance at End of Year............................. $560,971 $549,152 $ 847,186
======== ======== ==========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
A-21
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWS (NOTE 1)
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Cash Flow From Operating Activities:
Net income............................. $ 354,934 $ 46,388 $ 443,442
Adjustments to reconcile net income to
net cash provided by operating activ-
ities:
Depreciation and amortization........ 929,365 911,139 874,156
Deferred income taxes and investment
tax credits--net.................... 126,281 84,500 109,850
Cumulative effect of change in ac-
counting for income taxes........... -- (9,738) --
Equity component of allowance for
funds used during construction...... (22,628) (20,618) (19,960)
Provisions for revenue refunds and
related interest.................... 37,548 1,354,197 73,370
Revenue refunds and related interest. (1,221,650) (190,723) (248,360)
Recovery/(deferral) of regulatory
assets/deferred carrying charges--
net................................. 15,453 (432,948) 3,330
Provisions/(payments) for liability
for early retirement and separation
costs--net.......................... 33,580 (1,816) 27,814
Net effect on cash flows of changes
in:
Receivables........................ 114,215 (157,405) 70,776
Coal and fuel oil.................. 2,880 215,382 (111,333)
Materials and supplies............. 18,102 1,834 1,990
Accounts payable adjusted for nu-
clear fuel lease principal pay-
ments and early retirement and
separation costs--net............. 116,565 278,946 315,822
Accrued interest and taxes......... 70,531 (39,234) (85,633)
Other changes in certain current
assets and liabilities............ (54,653) (6,637) (9,031)
Other--net........................... 133,325 109,361 (52,433)
----------- ----------- -----------
$ 653,848 $ 2,142,628 $ 1,393,800
----------- ----------- -----------
Cash Flow From Investing Activities:
Construction expenditures.............. $ (739,679) $ (842,591) $ (995,881)
Nuclear fuel expenditures.............. (257,264) (261,370) (220,347)
Equity component of allowance for
funds used during construction........ 22,628 20,618 19,960
Contributions to nuclear
decommissioning funds................. (132,550) (132,550) (123,573)
Investment in subsidiary companies..... (49) -- (268)
Other cash investments and special de-
posits................................ 621,987 (619,349) 23,853
----------- ----------- -----------
$ (484,927) $(1,835,242) $(1,296,256)
----------- ----------- -----------
Cash Flow From Financing Activities:
Issuance of securities--
Long-term debt........................ $ 546,289 $ 1,927,296 $ 1,962,737
Capital stock......................... 81,037 80,585 15,568
Retirement and redemption of securi-
ties--
Long-term debt........................ (703,930) (1,900,540) (1,214,730)
Capital stock......................... (17,709) (93,081) (50,069)
Deposits and securities held for re-
tirement and redemption of securi-
ties.................................. 3,191 241,731 (245,028)
Premium paid on early redemption of
long-term debt........................ (4,564) (78,395) (10,809)
Cash dividends paid on common stock.... (342,322) (341,505) (563,953)
Proceeds from sale/leaseback of nu-
clear fuel............................ 306,649 204,254 190,830
Nuclear fuel lease principal payments.. (209,689) (245,968) (245,877)
Increase in short-term borrowings...... 1,200 350 3,600
----------- ----------- -----------
$ (339,848) $ (205,273) $ (157,731)
----------- ----------- -----------
Increase (Decrease) In Cash and Tempo-
rary Cash Investments.................. $ (170,927) $ 102,113 $ (60,187)
Cash and Temporary Cash Investments at
Beginning of Year...................... 247,862 145,749 205,936
----------- ----------- -----------
Cash and Temporary Cash Investments at
End of Year............................ $ 76,935 $ 247,862 $ 145,749
=========== =========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
A-22
<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 corporation of ComEd and Unicom Enterprises
in a corporate restructuring that became effective on September 1, 1994.
Previously, Unicom Enterprises was a wholly-owned subsidiary of ComEd. The
restructuring was accounted for by the pooling-of-interests method. Under this
method, the assets, liabilities and ownership interests of each of the
companies are combined at their existing recorded amounts as of the
restructuring date, and the financial statements are presented herein as if the
restructuring took place as of the earliest period shown. In the restructuring,
each of the 214,185,572 outstanding shares of ComEd common stock, par value
$12.50 per share, was converted into one fully paid and non-assessable share of
Unicom common stock, without par value. ComEd, an electric utility, is the
principal subsidiary of Unicom. Unicom Enterprises is an unregulated subsidiary
engaged, through Unicom Thermal, in energy service activities. Unicom Thermal
will provide district cooling services to office and other buildings from
central locations in the city of Chicago. Unicom Thermal expects to begin
serving customers in the summer of 1995.
The consolidated financial statements include the accounts of Unicom, ComEd,
the Indiana Company and the consolidated accounts of Unicom Enterprises. 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 and results of operations, are accounted for in accordance
with the equity method of accounting. The preferred and preference stocks,
common stock purchase warrants, first mortgage bonds and other debt obligations
of ComEd and the Indiana Company were unchanged in the restructuring and remain
outstanding securities and obligations of ComEd and the Indiana Company.
Regulation. ComEd is subject to regulation as to accounting, service 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. 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.
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 8.2 million as of December 31, 1994,
approximately 8.1 million as of December 31, 1993 and approximately 8.2 million
as of December 31, 1992. It includes the city of Chicago, an area of about 225
square miles with an estimated population of three million from which ComEd
derived approximately one-third of its ultimate consumer revenues in 1994.
ComEd had approximately 3.3 million electric customers at December 31, 1994.
Depreciation and Decommissioning. Depreciation is provided on the straight-
line basis by amortizing the cost of depreciable plant and equipment over
estimated composite service lives. The 1991 ICC rate order directed ComEd to
depreciate non-nuclear plant and equipment at annual rates developed for each
class of plant based on their composite service lives (unchanged by the Rate
Order). Provisions for depreciation were at average annual rates of 3.13%,
3.12% and 3.12% of average depreciable utility plant and equipment for the
years 1994, 1993 and 1992, respectively. The annual rate for nuclear plant and
equipment is 2.88%, which excludes separately collected decommissioning costs.
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
A-23
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
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 the NRC
guidelines. ComEd's twelve operating units have estimated remaining service
lives ranging from 11 to 33 years. ComEd's first nuclear unit, Dresden Unit 1,
is retired and will be dismantled upon the retirement of the remaining units at
that station, which is consistent with the regulatory treatment for the related
decommissioning costs.
Based on ComEd's most recent study, decommissioning costs, including the cost
of decontamination and dismantling but excluding a contingency allowance, are
estimated to aggregate $3.5 billion in current-year (1995) dollars. ComEd
estimates that it will expend approximately $15 billion, excluding any
contingency allowance, for decommissioning costs primarily during the period
from 2007 to 2032. Such costs are expected to be funded by the external
decommissioning trust funds which ComEd established in compliance with Illinois
law and into which ComEd has been making annual contributions. Contingency
allowances used in decommissioning cost estimates provide for currently
unforeseeable costs that are likely to occur after decommissioning begins and
generally range from 20% to 25% of the identifiable costs. Future
decommissioning cost estimates may be significantly affected by the adoption of
or changes to NRC regulations.
On January 9, 1995, the ICC issued its Rate Order in the proceedings relating
to ComEd's February 10, 1994 rate increase request. In the Rate Order, the ICC
determined that ComEd's annual nuclear plant decommissioning cost collections
from its ratepayers should be reduced from the $127 million previously
authorized in the 1991 ICC rate order to $112.7 million. The $112.7 million
annual collection amount primarily resulted from the ICC's decision to exclude
from ComEd's costs subject to collection a contingency allowance. However, the
Rate Order establishes a rider which will allow annual adjustments to
decommissioning cost collections outside of the context of a traditional rate
proceeding. Such rider is intended to allow adjustments in decommissioning cost
recoveries from ratepayers as changes in cost estimates become identifiable.
Under Illinois law, decommissioning cost collections are required to be
deposited in external trust funds; and, consequently, such collections do not
add to the cash flows available for general corporate purposes.
As a result of the Rate Order, beginning January 14, 1995, the effective date
of the order, ComEd will collect and accrue $112.7 million annually for
decommissioning costs. The assumptions used to calculate the $112.7 million
decommissioning cost accrual include: the decommissioning cost estimate of $3.5
billion in current-year (1995) 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 5.3%. The annual
accrual of $112.7 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 billion.
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 December 31, 1994, the total decommissioning costs included
in the accumulated provision for depreciation were approximately $988 million.
For ComEd's retired nuclear unit, Dresden Unit 1, the total estimated liability
at December 31, 1994 in current-year (1995) dollars of approximately $235
million was recorded on the Consolidated
A-24
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
Balance Sheets as a noncurrent liability and the unrecovered portion of the
liability of approximately $141 million was recorded as a regulatory asset.
Illinois law requires ComEd to establish external trusts to hold
decommissioning funds, and 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
December 31, 1994, the past accruals that are required to be contributed to the
external trusts aggregate $201 million. The fair value of funds accumulated in
the external trusts at December 31, 1994 was approximately $881 million which
includes pre-tax unrealized appreciation of $4 million. The earnings on the
external trusts accumulate in the fund balance and in the accumulated provision
for depreciation. Such earnings on the external trust funds for the years 1994,
1993 and 1992, which have been recorded as a component of depreciation expense
on the Statements of Consolidated Income, were $37,519,000, $40,828,000 and
$32,443,000, respectively.
Amortization of Nuclear Fuel. The cost of nuclear fuel is amortized to fuel
expense based on the quantity of heat produced using the unit of production
method. As authorized by the ICC, provisions for spent nuclear fuel disposal
costs have been recorded at a level required to recover the fee payable on
current nuclear-generated and sold electricity and the current interest accrual
on the one-time fee payable to the DOE for nuclear generation prior to April 7,
1983. The one-time fee and interest thereon have been recovered and the current
fee and current interest on the one-time fee are currently being recovered
through the fuel adjustment clause. See Note 10 for further information
concerning the disposal of spent nuclear fuel, the one-time fee and the current
interest accrual on the one-time fee. Nuclear fuel expenses, including leased
fuel costs and provisions for spent nuclear fuel disposal costs, for the years
1994, 1993 and 1992 were $358,027,000, $385,894,000 and $366,821,000,
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.
For additional information relating to income taxes, including information
related to the adoption in January 1993 of SFAS No. 109, Accounting for Income
Taxes, which requires an asset and liability approach to accounting for income
taxes, see Note 14. In addition, see "Income Taxes" under the subcaption
"Results of Operations," in "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
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 for the years 1994, 1993 and 1992 were
9.85%, 10.05% and 10.31%, respectively. AFUDC does not contribute to the
current cash flow of Unicom or ComEd. For additional information regarding
AFUDC, see Note 14.
Interest. Total interest costs incurred on debt, leases and other obligations
for the years 1994, 1993 and 1992 were $729,765,000, $778,653,000 and
$777,122,000, respectively.
Debt Discount, Premium and Expense. Discount, premium and expense on long-
term debt of subsidiary companies are being amortized over the lives of the
respective issues.
A-25
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
Loss on Reacquired Debt. Consistent with regulatory treatment, the net loss
from ComEd's reacquisition of first mortgage bonds, sinking fund debentures and
pollution control obligations prior to their scheduled maturity dates is
deferred and amortized over the lives of the long-term debt issued to finance
the reacquisition.
Deferred Unrecovered Energy Costs. The uniform 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 three nuclear
enrichment facilities previously operated by the DOE. As of December 31, 1994
and 1993, an asset of approximately $191 million and $202 million,
respectively, was recorded, of which the current portion of approximately $15
million has been included in current assets on the Consolidated Balance Sheets.
As of December 31, 1994 and 1993, a corresponding liability of approximately
$165 million and $177 million, respectively, was recorded in other noncurrent
liabilities and approximately $15 million and $29 million, respectively, was
recorded in other current liabilities.
At December 31, 1994 and 1993, ComEd had unrecovered fuel costs in the form
of coal reserves of approximately $498 million and $517 million, respectively.
In prior years, ComEd's commitments for the purchase of coal exceeded its
requirements. Rather than take all the coal it was required to take, ComEd
agreed to purchase the coal in place in the form of coal reserves. ComEd has
been allowed to recover from its customers the costs of the coal reserves
through its fuel adjustment clause as the coal is used for the generation of
electricity. ComEd expects to recover the costs of the coal reserves by the
year 2007. However, ComEd is not earning a return on the expenditures for coal
reserves prior to the coal reserves being used for the generation of
electricity by including the coal reserves in rate base. Unrecovered fuel costs
expected to be recovered within one year amounting to approximately $31 million
and $24 million at December 31, 1994 and 1993, respectively, have been included
on the Consolidated Balance Sheets in current assets as deferred unrecovered
energy costs. See Note 19 for additional information concerning ComEd's coal
commitments.
Regulatory Assets and Liabilities. Regulatory assets include the unamortized
portions of certain rate case and consultant costs associated with the prudency
audits of ComEd's Byron and Braidwood stations which the ICC allowed to be
deferred and amortized for ratemaking purposes, consultant costs associated
with the prudency audits of certain other significant plant addition audit
costs which the ICC allowed to be deferred and amortized for ratemaking
purposes, unamortized deferred depreciation related to Byron Unit 1 which the
ICC allowed to be deferred and amortized over the remaining life of the unit,
unamortized losses on ComEd's reacquired debt, unamortized deferred carrying
charges associated with the Units which the ICC allowed to be deferred and
amortized for ratemaking purposes, a regulatory asset for the unrecovered
portion of nuclear decommissioning costs for ComEd's Dresden Unit 1 and a
regulatory asset related to income taxes recorded in compliance with SFAS No.
109, which was adopted in January 1993. A regulatory liability related to
income taxes was also recorded in compliance with SFAS No. 109.
For additional information relating to deferred carrying charges, see
"Deferred Carrying Charges," under the subcaption "Results of Operations," in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Certain Investments. Effective January 1, 1994, SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities, was adopted. SFAS No. 115
addresses the accounting and reporting for
A-26
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
investments in equity securities that have readily determinable fair values and
for all investments in debt securities. For additional information, see Note
11.
Reclassifications. Certain prior year amounts have been reclassified to
conform with current period presentation. These reclassifications had no effect
on net income.
Statements of Consolidated Cash Flows. For purposes of the Statements of
Consolidated Cash Flows, temporary cash investments, generally investments
maturing within three months at the time of purchase, are considered to be cash
equivalents. Supplemental information required by SFAS No. 95 for the years
1994, 1993 and 1992 was as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Supplemental Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized).......... $645,658 $677,682 $652,501
Income taxes (net of refunds)................. $ (4,923) $103,014 $238,052
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Capital lease obligations of subsidiary
companies incurred............................. $309,997 $215,751 $193,677
</TABLE>
(2) SETTLEMENTS RELATING TO CERTAIN RATE MATTERS
Under the Rate Matters Settlement, effective as of November 4, 1993, ComEd
reduced its rates by approximately $339 million annually and commenced
refunding approximately $1.26 billion (including revenue taxes), plus interest
at five percent on the unpaid balance, through temporarily reduced rates over
an initial refund period which ended in November 1994 (to be followed by a
reconciliation period of no more than five months). ComEd had previously
deferred the recognition of revenues during 1993 as a result of developments in
the proceedings related to the 1991 ICC rate order, which resulted in a
reduction to 1993 net income of approximately $160 million or $0.75 per common
share. The recording of the effects of the Rate Matters Settlement in October
1993 reduced 1993 net income by approximately $292 million or $1.37 per common
share, in addition to the approximately $160 million effect of the deferred
recognition of revenues and after the partially offsetting effect of recording
approximately $269 million or $1.26 per common share in deferred carrying
charges, net of income taxes, authorized in the Remand Order. The deferred
recognition of revenues was eliminated in October 1993 at the time the
provisions for revenue refunds related to the Rate Matters Settlement, which
reflected those deferred revenues, were recorded.
Under the Fuel Matters Settlement, effective as of December 2, 1993, ComEd
commenced paying approximately $108 million (including revenue taxes) to its
customers through temporarily reduced collections under its fuel adjustment
clause over a twelve-month period which ended in November 1994. The recording
of the effects of the Fuel Matters Settlement in October 1993 reduced 1993 net
income by approximately $62 million or $0.29 per common share.
(3) OTHER RATE MATTERS
On January 9, 1995, the ICC issued its Rate Order in the proceedings relating
to ComEd's February 10, 1994 rate increase request. The Rate Order provides,
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 as an adder to base rates until May 1,
1995, when such costs will be collected prospectively on an
A-27
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
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
information related to the level of decommissioning cost collections allowed in
the Rate Order. 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. ComEd expects the Rate Order to be
appealed by the intervenors in the rate proceeding.
In the Rate Order, the ICC 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.
(4) AUTHORIZED SHARES AND VOTING RIGHTS OF CAPITAL STOCK
At December 31, 1994, Unicom's authorized shares consisted of 400,000,000
shares of common stock. The authorized shares of ComEd preferred and preference
stocks at December 31, 1994 were: preference stock--23,423,205 shares; $1.425
convertible preferred stock--100,323 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.
(5) COMMON STOCK
At December 31, 1994, shares of Unicom common stock were reserved for the
following purposes:
<TABLE>
<S> <C>
Long-Term Incentive Plan........................................ 4,000,000
Employee Stock Purchase Plan.................................... 1,117,163
Employee Savings and Investment Plan............................ 480,403
---------
5,597,566
=========
</TABLE>
Common stock for the years 1994, 1993 and 1992 was issued as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Shares of Common Stock Issued--
Employee Stock Purchase Plan........................ 305,205 268,594 374,815
Employee Savings and Investment Plan................ 85,400 153,400 235,900
Conversion of $1.425 convertible preferred stock.... 185,041 22,375 16,221
Conversion of warrants.............................. 13,274 1,374 1,300
------- ------- -------
588,920 445,743 628,236
======= ======= =======
<CAPTION>
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Amount of Common Stock Issued......................... $14,781 $12,211 $16,122
======= ======= =======
</TABLE>
At December 31, 1994 and 1993, 83,751 and 128,699 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. During 1994, 1993 and 1992, $558,000,
$53,000 and $48,000 of warrants, respectively, were converted into ComEd common
stock.
A-28
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(6) COMED PREFERRED AND PREFERENCE STOCKS WITHOUT MANDATORY REDEMPTION
REQUIREMENTS
During 1994, 3,000,000 shares of ComEd preference stock without mandatory
redemption requirements were issued and no shares of ComEd preferred or
preference stocks without mandatory redemption requirements were redeemed. No
shares of ComEd preferred or preference stocks without mandatory redemption
requirements were issued or redeemed during 1993 or 1992. The series of ComEd
preference stock without mandatory redemption requirements outstanding at
December 31, 1994 are summarized as follows:
<TABLE>
<CAPTION>
INVOLUNTARY
SHARES AGGREGATE REDEMPTION LIQUIDATION
SERIES OUTSTANDING STATED VALUE PRICE(A) PRICE(A)
------ ----------- ------------ ---------- -----------
(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>
--------
(a) 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. During 1994, 1993 and 1992, 186,626 shares, 21,942 shares
and 15,911 shares, respectively, of the convertible preferred stock were
converted into ComEd common stock.
(7) COMED PREFERENCE STOCK SUBJECT TO MANDATORY REDEMPTION REQUIREMENTS
During 1994 and 1992, no shares of ComEd preference stock subject to
mandatory redemption requirements were issued. During 1993, 700,000 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 December 31, 1994 are summarized as follows:
<TABLE>
<CAPTION>
SHARES AGGREGATE
SERIES OUTSTANDING STATED VALUE OPTIONAL REDEMPTION PRICE(A)
-------------- ----------- ------------ --------------------------------------------------
(THOUSANDS
OF DOLLARS)
<S> <C> <C> <C>
$8.20 285,705 $ 28,571 $103 through October 31, 1997; and $101 thereafter
$8.40 Series B 390,000 38,737 $101
$8.85 337,500 33,750 $103 through July 31, 1998; and $101 thereafter
$9.25 750,000 75,000 $103 through July 31, 1999; and $101 thereafter
$9.00 650,000 64,431 Non-callable
$6.875 700,000 69,475 Non-callable
--------- --------
3,113,205 $309,964
========= ========
</TABLE>
--------
(a) Per share plus accrued and unpaid dividends, if any.
A-29
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
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
FUND INVOLUNTARY
SERIES ANNUAL SINKING FUND REQUIREMENT PRICE(A) LIQUIDATION PRICE(A)
--------- ----------------------------------- ------- -------------------
<S> <C> <C> <C>
$8.20 35,715 shares $100 $100.00
$8.40
Series B 30,000 shares(b) $100 $ 99.326
$8.85 37,500 shares $100 $100.00
$9.25 75,000 shares $100 $100.00
$9.00 130,000 shares beginning in 1996(b) $100 $ 99.125
$6.875 (c) $100 $ 99.25
</TABLE>
--------
(a) Per share plus accrued and unpaid dividends, if any.
(b) 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.
(c) All shares are required to be redeemed on May 1, 2000.
Annual remaining sinking fund requirements through 1999 on ComEd preference
stock outstanding at December 31, 1994 will aggregate $17,822,000 in 1995,
$30,822,000 in 1996, $30,822,000 in 1997, $30,822,000 in 1998 and $30,822,000
in 1999. During 1994, 1993 and 1992, 177,085 shares, 1,835,155 shares and
793,132 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.
On November 1, 1992, ComEd redeemed 300,000 shares of its $2.875 Series of
preference stock at the optional redemption price of $25 per share and 75,000
shares of its $11.70 Series of preference stock at the optional redemption
price of $100 per share, plus accrued and unpaid dividends.
On June 28, 1993, ComEd redeemed the remaining 170,810 shares of its $2.875
Series of preference stock and all 1,050,000 shares of its $2.375 Series of
preference stock, both at the optional redemption price of $25.25 per share,
plus accrued and unpaid dividends.
On November 1, 1993, ComEd redeemed the remaining 75,000 shares of its $11.70
Series of preference stock (150,000 shares had been redeemed on August 1, 1993
at the optional redemption price of $105 per share, plus accrued and unpaid
dividends). Of the remaining 75,000 shares, 37,500 shares were redeemed to meet
the November 1, 1993 mandatory sinking fund requirement and 37,500 shares were
redeemed as a permitted optional sinking fund payment, both at the sinking fund
redemption price of $100 per share, plus accrued and unpaid dividends.
On November 1, 1993, ComEd redeemed all 210,000 shares of its $9.30 Series of
preference stock, of which 70,000 shares were redeemed at the optional
redemption price of $101.03 per share, plus accrued and unpaid dividends,
70,000 shares were redeemed to meet the November 1, 1993 mandatory sinking fund
requirement and 70,000 shares were redeemed as a permitted optional sinking
fund payment, the latter two at the sinking fund redemption price of $100 per
share, plus accrued and unpaid dividends.
(8) LONG-TERM DEBT OF SUBSIDIARY COMPANIES
Sinking fund requirements and scheduled maturities remaining through 1999 for
ComEd and the Indiana Company's first mortgage bonds, sinking fund debentures
and other long-term debt outstanding at December 31, 1994, after deducting
sinking fund debentures reacquired for satisfaction of future sinking fund
requirements, are summarized as follows: 1995--$395,554,000; 1996--
$331,429,000; 1997--$689,397,000; 1998--$350,017,000; and 1999--$152,445,000.
A-30
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
At December 31, 1994, ComEd's outstanding first mortgage bonds maturing
through 1999 were as follows:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
SERIES ----------------------
------ (THOUSANDS OF DOLLARS)
<S> <C>
6 1/8% due May 15, 1995............................ $103,000
5 1/4% due April 1, 1996........................... 50,000
5 3/4% due November 1, 1996........................ 50,000
5 3/4% due December 1, 1996........................ 50,000
7% due February 1, 1997............................ 150,000
5 3/8% due April 1, 1997........................... 50,000
6 1/4% due October 1, 1997......................... 60,000
6 1/4% due February 1, 1998........................ 50,000
6% due March 15, 1998.............................. 130,000
6 3/4% due July 1, 1998............................ 50,000
6 3/8% due October 1, 1998......................... 75,000
--------
$818,000
========
</TABLE>
Other ComEd long-term debt outstanding at December 31, 1994 is summarized as
follows:
<TABLE>
<CAPTION>
DEBT PRINCIPAL
SECURITY AMOUNT INTEREST RATE PROVISIONS
------------ ---------- --------------------------------------------
(THOUSANDS
OF
DOLLARS)
<S> <C> <C>
Notes:
Medium Term Notes, Series 1N
due various dates through
April 1, 1998 $ 73,500 Interest rates ranging from 9.27% to 9.65%
Medium Term Notes, Series 2N
due various dates through
July 1, 1996 24,000 Interest rates ranging from 9.79% to 9.874%
Medium Term Notes, Series 3N
due various dates through
October 15, 2004 322,250 Interest rates ranging from 8.92% to 9.20%
Medium Term Notes, Series 4N
due various dates through
May 15, 1997 46,000 Interest rates ranging from 8.11% to 8.875%
Notes due July 15, 1995 100,000 Fixed interest rate of 5.50%
Notes due February 15, 1997 150,000 Fixed interest rate of 7.00%
Notes due July 15, 1997 100,000 Fixed interest rate of 6.50%
Notes due October 15, 2005 235,000 Fixed interest rate of 6.40%
----------
$1,050,750
----------
Long-Term Notes Payable to Banks:
Notes due July 31, 1995 $ 150,000 Prevailing interest rates averaging 6.28125%
at December 31, 1994
Note due January 9, 1996 100,000 Prevailing interest rate of 6.6875%
at December 31, 1994
Note due June 1, 1997 150,000 Prevailing interest rate of 5.675%
at December 31, 1994
----------
$ 400,000
----------
Purchase Contract Obligations:
Woodstock due January 2, 1997 $ 186 Fixed interest rate of 4.50%
Hinsdale due April 30, 2005 513 Fixed interest rate of 3.00%
----------
$ 699
----------
$1,451,449
==========
</TABLE>
A-31
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
Long-term debt maturing within one year has been included in current
liabilities.
ComEd's outstanding first mortgage bonds are secured by a lien on
substantially all property and franchises, other than expressly excepted
property, owned by ComEd.
In December 1994, ComEd placed in escrow with a trustee sufficient funds to
redeem on March 1, 1995 all of the 10 3/8% Pollution Control Revenue Bonds,
Series 1985 and the 10 5/8% Pollution Control Revenue Bonds, Series 1985
previously issued on its behalf by the Illinois Development Finance Authority,
effecting the extinguishment of such bonds. At December 31, 1994, $141 million
outstanding principal amount of such bonds was not reflected on the
Consolidated Balance Sheets.
(9) LINES OF CREDIT
ComEd had total bank lines of credit of approximately $922 million and unused
bank lines of credit of approximately $915 million at December 31, 1994. Of
that amount, $915 million (of which $175 million expires on October 2, 1995,
$72 million expires in equal quarterly installments commencing on December 31,
1996 and ending on September 30, 1998 and $668 million expires in equal
quarterly installments commencing on December 31, 1997 and ending on September
30, 1999) may be borrowed on secured or unsecured notes of ComEd at various
interest rates. The interest rate is set at the time of a borrowing and is
based on several floating rate bank indices plus a spread which is dependent
upon ComEd's credit ratings, or on a prime interest rate. Amounts under the
remaining lines of credit may be borrowed at prevailing prime interest rates on
unsecured notes of ComEd. Collateral, if required for the borrowings, would
consist of first mortgage bonds issued under and in accordance with the
provisions of ComEd's mortgage. ComEd is obligated to pay commitment fees with
respect to $915 million of such lines of credit.
Unicom Enterprises has a $200 million credit facility which will expire in
1997 of which the entire amount was unused as of December 31, 1994. The credit
facility can be used by Unicom Enterprises to finance investments in
nonregulated 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 would be set at the
time of a borrowing and would be based on either a prime interest rate or a
floating rate bank index plus a spread which will vary with the credit rating
of ComEd's outstanding first mortgage bonds.
(10) DISPOSAL OF SPENT NUCLEAR FUEL
Under the Nuclear Waste Policy Act of 1982, the DOE is responsible for the
selection and development of repositories for, and the disposal of, spent
nuclear fuel and high-level radioactive waste. ComEd, as required by that Act,
has signed a contract with the DOE to provide for the disposal of spent nuclear
fuel and high-level radioactive waste from ComEd's nuclear generating stations
beginning not later than January 1998. 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
A-32
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
of payment, and a fee payable quarterly equal to one mill per kilowatthour of
nuclear-generated and sold electricity after April 6, 1983. ComEd has elected
to pay the one-time fee, with interest, just prior to the first scheduled
delivery of spent nuclear fuel to the DOE, which is scheduled to occur not
later than January 1998; however, this delivery schedule is expected to be
delayed significantly. The liability for the one-time fee and the related
interest is reflected in the Consolidated Balance Sheets.
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
financial instruments either held or issued and outstanding. The disclosure of
such information does not purport to be a market valuation of Unicom and
subsidiary companies as a whole. The impact of any realized or unrealized gains
or losses related to such financial instruments on the financial position or
results of operations of Unicom and subsidiary companies is primarily dependent
on the treatment authorized under future ComEd ratemaking proceedings.
Investments. Securities included in 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,
is based on published market data. The net earnings of the nuclear
decommissioning funds, which are recorded as increases to the accumulated
provision for depreciation (only the realized portion prior to January 1,
1994), for the years 1994, 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Gross proceeds from sales of securities....... $ 811,368 $ 388,684 $ 342,854
Less cost based on specific identification.... (811,997) (377,734) (335,105)
--------- --------- ---------
Realized gains (losses) on sales of securi-
ties......................................... $ (629) $ 10,950 $ 7,749
Other realized fund earnings net of expenses.. 38,148 29,878 24,694
--------- --------- ---------
Total realized net earnings of the funds...... $ 37,519 $ 40,828 $ 32,443
Unrealized gains (losses)..................... (57,948) 30,969 8,592
--------- --------- ---------
Total net earnings (losses) of the funds..... $ (20,429) $ 71,797 $ 41,035
========= ========= =========
</TABLE>
Financial instruments included in investments and other property, subcaption
other, at a cost of approximately $5 million and $4 million at December 31,
1994 and 1993, respectively, are not material in relation to other financial
instruments of Unicom and subsidiary companies; therefore, an estimate of the
fair value of these instruments has not been made.
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 (without and subject to mandatory redemption requirements) and long-term
debt of subsidiary companies, including the current portions thereof, have been
obtained from an independent consultant. Estimated fair values exclude accrued
interest and preferred and preference stock dividends. Long-term notes payable
to banks in the amounts of $400 million and $250 million at December 31, 1994
and 1993, respectively, for which interest is paid at prevailing rates, are
included in the consolidated financial statements at cost, which approximates
their fair value. Purchase contract obligations included in long-term debt at a
cost of approximately $1 million at December 31, 1994 and 1993, are not
material in relation to other financial
A-33
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
instruments of Unicom and subsidiary companies; therefore, an estimate of the
fair value of these instruments has not been made.
Current Liabilities. The carrying value of notes payable, which consists of
bank loans maturing within one year, approximates the fair value because of the
short maturity of these instruments. See "Capitalization" above for a
discussion of the fair value of the current portion of long-term debt and
redeemable preference stock.
Other Noncurrent Liabilities. The carrying value of accrued spent nuclear
fuel disposal fee and related interest represents the settlement value as of
December 31, 1994 and 1993; therefore, the carrying value is equal to the fair
value.
Estimated Fair Values of Financial Instruments. The estimated fair values of
financial instruments other than those instruments reflected in the
consolidated financial statements at cost which approximates fair value, as of
December 31, 1994 and 1993, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
--------------------------------- --------------------------------
UNREALIZED
GAINS UNREALIZED
COST BASIS (LOSSES) FAIR VALUE COST BASIS GAINS FAIR VALUE
---------- ---------- ---------- ---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Nuclear Decommissioning
Funds:
Short-term
investments.......... $ 65,203 $ 106 $ 65,309 $ 22,030 $ 4 $ 22,034
U.S. Government and
Agency issues........ 94,450 (562) 93,888 25,113 14 25,127
Municipal bonds....... 478,074 (7,301) 470,773 598,559 49,851 648,410
Common stock.......... 220,395 9,069 229,464 48,282 10,974 59,256
Other................. 18,788 2,722 21,510 12,857 1,139 13,996
---------- --------- ---------- ---------- -------- ----------
$ 876,910 $ 4,034 $ 880,944 $ 706,841 $ 61,982 $ 768,823
========== ========= ========== ========== ======== ==========
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
--------------------------------- --------------------------------
CARRYING UNREALIZED CARRYING UNREALIZED
VALUE (GAINS) FAIR VALUE VALUE LOSSES FAIR VALUE
---------- ---------- ---------- ---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Capitalization
(including current
portion):
Preferred and
preference stocks of
Commonwealth Edison
Company.............. $ 818,111 $ (64,443) $ 753,668 $ 769,098 $ 7,015 $ 776,113
Long-term debt of
subsidiary companies. $7,448,236 $(450,429) $6,997,807 $7,746,734 $412,241 $8,158,975
</TABLE>
At December 31, 1994, the debt securities held by the nuclear decommissioning
funds had the following maturities:
<TABLE>
<CAPTION>
COST FAIR
BASIS VALUE
-------- --------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Within 1 year........................................... $ 65,203 $ 65,309
1 through 5 years....................................... 57,463 56,949
5 through 10 years...................................... 211,690 211,645
Over 10 years........................................... 299,816 292,379
</TABLE>
A-34
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(12) PENSION BENEFITS
ComEd and the Indiana Company have non-contributory defined benefit pension
plans which cover all regular employees. Benefits under these plans reflect
each employee's compensation, years of service and age at retirement. 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.
Actuarial valuations were determined as of January 1, 1994 and 1993.
During 1992, ComEd and the Indiana Company implemented a workforce reduction
program designed to reduce the management workforce. This program included an
early retirement program and voluntary and involuntary separation plans. The
early retirement program resulted in the recognition during the second half of
1992 of an additional $26 million of pension cost and an increase to the
projected benefit obligation of that $26 million plus an additional $39 million
of unrecognized net loss. ComEd and the Indiana Company also recognized in 1992
a charge to expense of $11 million primarily related to the cost of the
separation plans. The total charge to income of $37 million in 1992 was
approximately $23 million after reflecting income tax effects.
During 1994, an early retirement program was implemented for ComEd and the
Indiana Company employees eligible to retire or who would become eligible to
retire after December 31, 1993 and before April 1, 1995. During 1994, 671
employees from ComEd and the Indiana Company accepted the program, resulting in
the recognition of an additional $34 million of pension cost and an increase to
the projected benefit obligation of that $34 million and an additional $41
million of unrecognized net loss. The charge to income after reflecting income
tax effects was approximately $20 million for 1994. It is estimated that in
total approximately 700 employees will accept the early retirement program,
resulting in the recognition of a total of $35 million of pension cost and a
total increase to the projected benefit obligation of that $35 million and an
additional $42 million of unrecognized net loss.
The funded status of these plans at December 31, 1994 and 1993 was as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1993
----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Actuarial present value of accumulated pension plan
benefits:
Vested benefit obligation......................... $(2,071,000) $(1,984,000)
Nonvested benefit obligation...................... (442,000) (460,000)
----------- -----------
Accumulated benefit obligation.................... $(2,513,000) $(2,444,000)
Effect of projected future compensation levels.... (423,000) (470,000)
----------- -----------
Projected benefit obligation...................... $(2,936,000) $(2,914,000)
Fair value of plan assets, invested primarily in eq-
uity index funds, other managed equity and fixed
income investments, U.S. Government, government-
sponsored corporation and agency securi-
ties and listed corporate obligations.............. 2,545,000 2,742,000
----------- -----------
Plan assets less than projected benefit obligation.. $ (391,000) $ (172,000)
Unrecognized prior service cost..................... 22,000 24,000
Unrecognized transition asset....................... (155,000) (168,000)
Unrecognized net loss............................... 228,000 99,000
----------- -----------
Accrued pension liability......................... $ (296,000) $ (217,000)
=========== ===========
</TABLE>
A-35
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
The assumed discount rates were 8.0% and 7.5% at December 31, 1994 and 1993,
respectively, 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 the years 1994, 1993 and 1992:
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Annual discount rate.......................................... 7.50% 7.50% 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% 9.50% 9.50%
</TABLE>
The components of pension costs, portions of which were recorded as
components of construction costs, for the years 1994, 1993 and 1992 were as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Service cost.................................... $ 97,000 $ 96,000 $ 98,000
Interest cost on projected benefit obligation... 213,000 204,000 189,000
Actual loss (return) on plan assets............. 39,000 (310,000) (179,000)
Early retirement program cost................... 34,000 -- 26,000
Net amortization and deferral................... (304,000) 61,000 (67,000)
--------- --------- ---------
$ 79,000 $ 51,000 $ 67,000
========= ========= =========
</TABLE>
In addition, an employee savings and investment plan is available to all
regular employees who have completed three months of service. Each
participating employee may contribute up to 20% of such employee's base pay and
the participating companies match such contribution equal to 70% of up to the
first 5% of contributed base salary. During 1994, 1993 and 1992, the
participating companies contributed $22,756,000, $21,948,000 and $20,023,000,
respectively.
(13) POSTRETIREMENT HEALTH CARE BENEFITS
ComEd and the Indiana Company provide certain postretirement health care
benefits for retirees and their dependents and for the surviving dependents of
eligible employees and retirees. Substantially all of the employees become
eligible for postretirement health care benefits when they reach retirement age
while working for the companies. ComEd and the Indiana Company fund the
liability for postretirement health care benefits through a trust fund based
upon actuarially determined contributions that take into account the amount
deductible for income tax purposes. Actuarial valuations were determined as of
January 1, 1994 and 1993.
For the years 1980 through 1992, the liability for postretirement health care
benefits and the related provisions for postretirement health care were accrued
based on the aggregate cost actuarial method and attributed over participants'
employment periods from the date of hire to the retirement date. On January 1,
1993, SFAS No. 106, Employers' Accounting for Postretirement Benefits Other
Than Pensions, was adopted, which requires that the liability and related
provisions for postretirement benefits be determined based on the projected
unit credit actuarial cost method and attributed over employment periods of
plan participants to the date of eligibility for postretirement benefits rather
than over the entire employment period. By adopting the new standard in January
1993, ComEd and the Indiana Company estimate that for the year 1993,
postretirement costs increased $20 million, resulting in a decrease in
A-36
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
1993 net income of $10 million or $0.05 per common share, net of income taxes
and the portion of the costs charged to construction. The transition obligation
shown in the following schedule is being amortized over 20.6 years.
The funded status of the plan at December 31, 1994 and 1993 was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1993
----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Actuarial present value of accumulated
postretirement health care obligation:
Retirees.......................................... $ (524,000) $ (434,000)
Active fully eligible participants................ (7,000) (72,000)
Other participants................................ (560,000) (591,000)
----------- -----------
Accumulated benefit obligation.................... $(1,091,000) $(1,097,000)
Fair value of plan assets, invested primarily in S&P
500 common stocks, equity and fixed income mutual
funds, and U.S. Government and listed corporate ob-
ligations.......................................... 502,000 457,000
----------- -----------
Plan assets less than accumulated postretirement
health care obligation............................. $ (589,000) $ (640,000)
Unrecognized transition obligation.................. 531,000 559,000
Unrecognized net gain............................... (60,000) (6,000)
----------- -----------
Accrued liability for postretirement health care.... $ (118,000) $ (87,000)
=========== ===========
</TABLE>
For 1993 and 1994, different health care cost trends are used for pre-
Medicare and post-Medicare expenses. Pre-Medicare trend rates are 14.5% for
1993 grading down in 0.5% annual increments to 5%. Post-Medicare trend rates
are 12% for 1993 grading down in 0.5% annual increments to 5%. The effect of a
1% increase in the assumed health care cost trend rates for each future year
would increase the accumulated postretirement health care obligation at January
1, 1994 by approximately $200 million and increase the aggregate of the service
and interest cost components of plan costs by approximately $28 million for the
year 1994. The assumed discount rates used were 8.0% and 7.5% at December 31,
1994 and 1993, respectively, and was 7.5% for the years 1994 and 1993. The
annual long-term rate of return on plan assets was 9.5%, or 9.1% for the year
1993 and 9.04% for the year 1994, after including income tax effects.
The components of postretirement health care costs, portions of which were
recorded as components of construction costs, for 1994 and 1993 were as
follows:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Service cost................................... $ 47,000 $ 45,000
Interest cost on accumulated benefit obliga-
tion.......................................... 81,000 74,000
Actual loss (return) on plan assets............ 9,000 (41,000)
Amortization of transition obligation.......... 29,000 29,000
Other.......................................... (49,000) 9,000
----------- -----------
$ 117,000 $ 116,000
=========== ===========
</TABLE>
A-37
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(14) INCOME TAXES
The components of the net deferred income tax liability at December 31, 1994
and 1993 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1993
---------- ----------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Deferred income tax liabilities:
Accelerated cost recovery and liberalized deprecia-
tion, net of removal costs.......................... $3,266,930 $3,095,855
Overheads capitalized................................ 266,159 286,287
Repair allowance..................................... 210,655 210,302
Regulatory assets recoverable through future rates... 1,791,395 1,863,587
Deferred income tax assets:
Postretirement benefits.............................. (177,991) (134,590)
Unbilled revenues.................................... (90,396) (98,164)
Loss carryforward.................................... (10,090) (175,197)
Alternative minimum tax.............................. (283,331) (137,328)
Unamortized investment tax credits to be settled
through future rates................................ (471,058) (489,891)
Other regulatory liabilities to be settled through
future rates........................................ (179,755) (236,236)
Other--net........................................... (59,528) (80,751)
---------- ----------
Net deferred income tax liability...................... $4,262,990 $4,103,874
========== ==========
</TABLE>
The $159 million increase in the net deferred income tax liability from
December 31, 1993 to December 31, 1994 is comprised of a $156 million net
increase to deferred income tax expense and a $3 million increase in regulatory
assets net of regulatory liabilities pertaining to income taxes for the year.
The components of net income tax expense charged to continuing operations for
the years 1994, 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Operating income:
Current income taxes........................... $158,342 $(27,553) $161,388
Deferred income taxes.......................... 168,402 122,804 142,895
Investment tax credits deferred--net........... (28,757) (29,424) (32,506)
Other (income) and deductions.................... (22,498) (31,076) (6,537)
-------- -------- --------
Net income taxes charged to continuing opera-
tions........................................... $275,489 $ 34,751 $265,240
======== ======== ========
</TABLE>
A-38
<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 years 1994, 1993 and 1992:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Net income before cumulative effect of change in
accounting for income taxes..................... $354,934 $ 36,650 $443,442
Net income taxes charged to continuing
operations...................................... 275,489 34,751 265,240
Provision for dividends on preferred and prefer-
ence stocks of Commonwealth Edison Company...... 64,927 66,052 70,539
-------- -------- --------
Pre-tax income before provision for dividends on
preferred and preference stocks of Commonwealth
Edison Company.................................. $695,350 $137,453 $779,221
======== ======== ========
Effective income tax rate........................ 39.6% 25.3% 34.0%
======== ======== ========
</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 years 1994 and 1993 and 34% for 1992 were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Federal income taxes computed at statutory rate.. $243,373 $ 48,109 $264,935
Equity component of AFUDC which was excluded from
taxable income.................................. (7,920) (7,216) (6,786)
Amortization of investment tax credits........... (28,810) (29,421) (26,560)
State income taxes, net of federal income taxes.. 40,140 13,138 43,455
Differences between book and tax accounting,
primarily property related deductions........... 26,505 2,063 250
Other--net....................................... 2,201 8,078 (10,054)
-------- -------- --------
Net income taxes charged to continuing
operations...................................... $275,489 $ 34,751 $265,240
======== ======== ========
</TABLE>
Current federal income tax liabilities were recorded that include 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 can be carried forward indefinitely as a credit against future years'
regular federal income tax liabilities. In 1993, a loss was recorded for income
tax purposes which may be carried forward through 2008. It is currently
expected that the loss carryforward will be utilized by the expiration date.
Effective January 1, 1993, SFAS No. 109 was adopted. SFAS No. 109 requires an
asset and liability approach to accounting for income taxes which replaces the
deferred method formerly used. Under the asset and liability approach, the
deferred income tax liability represents the income tax effect of temporary
differences between financial accounting and income tax bases of assets and
liabilities and is determined at the presently enacted income tax rates. The
SFAS No. 109 adjustments to ComEd's deferred income tax liability related to
utility operations represents income taxes recoverable or returnable through
future rates and have been recorded as regulatory assets and regulatory
liabilities on the Consolidated Balance Sheets. The cumulative effect of the
change in the method of accounting for income taxes resulted in an increase to
net income in 1993 of $9.7 million or $0.05 per common share, due primarily to
the reduction of deferred income taxes on nonregulated activities (primarily
nonconsolidated subsidiaries) accrued in prior years at income tax rates in
excess of the presently enacted income tax rates. The effect of the
A-39
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
implementation entry on regulated activities was to record regulatory assets of
$1,546 million primarily related to the equity component of AFUDC which was
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; regulatory liabilities of
$577 million primarily related to recognition of the deferred income tax
effects of unamortized investment tax credits and to the changes in prior
years' income tax rates; and a net increase to the deferred income tax
liability of $969 million.
(15) TAXES, EXCEPT INCOME TAXES
Provisions for taxes, except income taxes, for the years 1994, 1993 and 1992
were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Illinois public utility revenue............... $211,263 $199,498 $204,004
Illinois invested capital..................... 109,373 111,126 107,207
Municipal utility gross receipts.............. 145,011 107,232 129,250
Real estate................................... 180,221 162,560 162,151
Municipal compensation........................ 72,647 56,878 73,323
Other--net.................................... 69,337 64,619 67,974
-------- -------- --------
$787,852 $701,913 $743,909
======== ======== ========
</TABLE>
(16) LEASE OBLIGATIONS OF SUBSIDIARY COMPANIES
On November 23, 1993, ComEd consolidated its nuclear fuel lease arrangements
into a new arrangement. Under the new 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. The commercial
paper/bank borrowing portion currently will expire on November 23, 1996, but
ComEd plans to ask for an extension of the expiration date. At December 31,
1994, ComEd's obligation to the lessor for leased nuclear fuel amounted to $617
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 December 31, 1994
for capital leases are estimated to aggregate $628 million, including $239
million in 1995, $159 million in 1996, $108 million in 1997, $51 million in
1998, $37 million in 1999 and $34 million in 2000-2043. The estimated interest
component of such rental payments aggregates $70 million. The estimated
portions of obligations due within one year under capital leases are included
in current liabilities and approximated $147 million and $166 million at
December 31, 1994 and 1993, respectively.
Future minimum rental payments at December 31, 1994 for operating leases are
estimated to aggregate $148 million, including $9 million in 1995, $9 million
in 1996, $9 million in 1997, $8 million in 1998, $8 million in 1999 and $105
million in 2000-2024.
(17) INVESTMENTS IN URANIUM-RELATED PROPERTIES
In May 1994, ComEd recorded a reduction in the carrying value of its
investments in uranium-related properties after completing a review of various
alternatives and reassessing the long-term recoverability of those investments.
The effects of the reduction reduced 1994 net income by approximately $33.8
million or $0.16 per common share.
A-40
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(18) JOINT PLANT OWNERSHIP
ComEd has a 75% undivided ownership interest in the Quad-Cities nuclear
generating station. Further, ComEd is responsible for 75% of all costs which
are charged to appropriate investment, operation or maintenance accounts and
provides its own financing. At December 31, 1994, for its share of ownership in
the station, ComEd had an investment of $537 million in production and
transmission plant in service (before reduction of $172 million for the related
accumulated provision for depreciation) and $76 million in construction work in
progress.
(19) COMMITMENTS AND CONTINGENT LIABILITIES
Purchase commitments, principally related to construction and nuclear fuel,
approximated $1,234 million at December 31, 1994, comprised of approximately
$1,210 million for ComEd and the Indiana Company and approximately $24 million
for Unicom Thermal. In addition, ComEd has substantial commitments for the
purchase of coal under long-term contracts. 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 were renegotiated during 1992
effective as of January 1, 1993, to provide, among other things, for
significant reductions in the delivered price of the coal over the duration of
the contracts. However, the renegotiated contracts provide for the purchase of
certain coal at prices substantially above currently prevailing market prices
and ComEd has significant purchase commitments under its contracts. 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 $57 million in any policy year, in the
event losses exceed accumulated reserve funds.
ComEd also is a member of NEIL, which provides insurance coverage against the
cost of replacement power obtained during certain prolonged accidental outages
of nuclear generating units and coverage for property losses in excess of $500
million occurring at nuclear stations. All companies insured with NEIL are
subject to retrospective premium adjustments if losses exceed accumulated
reserve funds. Capital has been accumulated in the reserve funds of NEIL to the
extent that ComEd would not be liable for a retrospective premium adjustment in
the event of a single incident under the replacement power coverage and the
property damage coverage. However, ComEd could be subject to maximum
assessments, in any policy year, of approximately $28 million and $89 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
A-41
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
employment" began after January 1, 1988. ComEd would currently be subject to a
maximum assessment of approximately $37 million in the event losses exceed
accumulated reserve funds.
Shareholder derivative lawsuits were filed on October 1, 1992 and on April
14, 1993 in the Circuit Court against current and former directors of ComEd
alleging that they breached their fiduciary duty and duty of care to ComEd in
connection with the management of the activities associated with the
construction of ComEd's four most recently completed nuclear generating units.
The lawsuits sought restitution to ComEd by the defendants for unquantified and
undefined losses and costs alleged to have been incurred by ComEd. Both
lawsuits were dismissed by the Circuit Court; however, appeals are pending
before the Illinois Appellate Court.
During 1989 and 1991, actions were brought in federal and state courts in
Colorado against ComEd and its subsidiary, 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.
Plaintiffs have appealed those judgments. Although the remaining cases will
necessarily involve the resolution of numerous contested issues of fact and
law, Unicom's determination is that these actions will not have a material
impact on its 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
(1995) 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 recorded as of December 31, 1994
and 1993, 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,
1994 and 1993, a reserve of $8 million and $5 million, respectively, has been
recorded representing ComEd's estimate of the liability associated with cleanup
costs of remediation sites other than former MGP sites. Unicom presently
estimates 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 and subsidiary companies. 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.
The Clean Air Amendments require reductions in sulfur dioxide emissions from
ComEd's Kincaid station. The Clean Air Amendments also bar future utility
sulfur dioxide emissions except to the extent utilities hold allowances for
their emissions. Allowances which authorize their holder to emit sulfur dioxide
A-42
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONCLUDED
have been issued by the U.S. EPA based largely on historical levels of sulfur
dioxide emissions. These allowances are transferable and marketable. ComEd's
ability to increase generation in the future to meet expected increased demand
for electricity will depend in part on ComEd and the Indiana Company's ability
to acquire additional allowances or to reduce emissions below otherwise
allowable levels from their existing generating plants. In addition, the Clean
Air Amendments require studies to determine what controls, if any, should be
imposed on utilities to control air toxic emissions, including mercury. ComEd's
Clean Air Compliance Plan for Kincaid station was approved by the ICC on July
8, 1993. In late 1993, however, a federal court declared the Illinois law under
which the approval was received to be unconstitutional and compliance plans
prepared and approved in reliance on the law to be void. In January 1995, the
federal court's decision was affirmed by the U.S. Court of Appeals. It is not
known whether a petition for rehearing or further appeals will be filed. Under
the Compliance Plan approved by the ICC, ComEd would have been allowed to burn
low sulfur Illinois coal at Kincaid station without the installation of
pollution control equipment for the years 1995 through 1999, and to purchase
any necessary emission allowances that are expected to be available under the
Clean Air Amendments during this period. Also, under the Plan, ComEd expected
to install pollution control equipment for Kincaid station by the year 2000.
When the final outcome of the federal litigation is known, ComEd will determine
whether any changes are required.
(20) QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
AVERAGE EARNINGS
NUMBER OF (LOSS)
OPERATING NET COMMON PER
OPERATING INCOME INCOME SHARES COMMON
THREE MONTHS ENDED REVENUES (LOSS) (LOSS) OUTSTANDING SHARE
------------------ ---------- --------- --------- ----------- --------
(THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
March 31, 1993........ $1,483,385 $ 240,840 $ 60,575 213,337 $ 0.28
June 30, 1993......... $1,430,547 $ 237,223 $ 58,051 213,466 $ 0.27
September 30, 1993.... $1,872,448 $ 456,227 $ 270,558 213,550 $ 1.27
December 31, 1993..... $ 474,060 $(530,475) $(342,796)(a) 213,680 $(1.60)
March 31, 1994........ $1,524,750 $ 213,014 $ 36,020 213,780 $ 0.17
June 30, 1994......... $1,432,166 $ 184,891 $ (23,339) 213,923 $(0.11)
September 30, 1994.... $1,855,276 $ 438,883 $ 263,661 214,138 $ 1.23
December 31, 1994..... $1,465,329 $ 246,404 $ 78,592 214,283 $ 0.37
</TABLE>
--------
(a) See Note 2 for information concerning the Rate Matters Settlement, which
lowered the level of ComEd's rates and provided for substantial customer
refunds, and the Fuel Matters Settlement, which provided for payments to
customers.
A-43
<PAGE>
[X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS MADE, IT WILL BE VOTED FOR THE ELECTION OF DIRECTOR NOMINEES
AND FOR THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS AUDITORS.
--------------------------------------------------------------------------------
FOR WITHHELD
A. Election of Directors [_] [_]
For, except vote withheld from the following nominee(s):
------------------------
Director Nominees:
Jean Allard George E. Johnson
James W. Compton Edward A. Mason
Sue L. Gin James J. O'Connor
Donald P. Jacobs Frank A. Olson
Edgar D. Jannotta Samuel K. Skinner
--------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
B. Appointment of Auditors [_] [_] [_]
--------------------------------------------------------------------------------
If you have noted comments on the other side of the card, please mark box at
right. [_]
SIGNATURE(S)______________________________DATE_________
The signer hereby revokes all proxies heretofore given by the signer to vote at
said meeting or any adjournments thereof.
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
--------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
(UNICOM LOGO APPEARS HERE)
To Our Shareholders:
The first annual meeting of shareholders of Unicom Corporation will
be held Wednesday, May 24, 1995 in the Wallingford Center of the Clock Tower
Resort & Conference Center, 7801 East State Street, Rockford, Illinois. Unicom
became the corporate parent of Commonwealth Edison Company (ComEd) on September
1, 1994 following approval of the corporate restructuring by ComEd shareholders
at the 1994 annual meeting. You are invited to attend Unicom's 1995 annual
meeting and learn more about the progress being made toward strengthening our
core business, ComEd, and positioning Unicom's unregulated subsidiaries to
succeed in the marketplace.
The enclosed Unicom Proxy Statement describes the two items of business to be
conducted, the election of Directors and appointment of auditors. As always,
your vote is very important. Therefore, I urge you to exercise your proxy and
return it as early as possible. This action will expedite the tabulation process
and minimize costs associated with follow-up reminder contacts.
Even if you now expect to attend the Unicom annual meeting, please sign, date
and return the accompanying proxy in the enclosed addressed, postage-paid
envelope. You may revoke your proxy at any time before it is voted by delivering
written notice of such revocation to David A. Scholz, Secretary, Unicom,
executing a subsequent proxy or attending the annual meeting and voting in
person.
Sincerely,
James J. O'Connor
James J. O'Connor
Chairman and CEO
<PAGE>
UNICOM CORPORATION
One First National Plaza
(UNICOM LOGO) P.O. Box A-3005 PROXY
Chicago, Illinois 60690-3005
--------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
P UNICOM CORPORATION ("UNICOM") FOR THE
R ANNUAL MEETING OF SHAREHOLDERS ON MAY 24, 1995.
O
X The undersigned appoints James J. O'Connor, Samuel K. Skinner and David A.
Y Scholz, or any of them, as Proxies each with the power to appoint his
substitute, and hereby authorizes them to represent and to vote, as designated
on the reverse side, all shares of Unicom's stock held in the undersigned's
name and shares held by agents in the Plan, hereafter described, subject to
the voting direction of the undersigned at the Annual Meeting of Shareholders
to be held on May 24, 1995, or any adjournment thereof and, in the Proxies'
discretion, to vote upon such other business as may properly come before the
meeting, all as more fully set forth in the Proxy Statement related to such
meeting, receipt of which is hereby acknowledged.
ALL SHARES TO BE VOTED HEREBY BY THE UNDERSIGNED INCLUDE SHARES, IF ANY,
HELD IN THE NAME OF AGENTS, FOR THE BENEFIT OF THE UNDERSIGNED, IN THE
COMPANY'S DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN.
Comments/Change of address: -----------------
PLEASE SEE
-------------------------------------------------------- REVERSE SIDE
-----------------
--------------------------------------------------------
------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
