<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 Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
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:
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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):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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/ / 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:
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<PAGE>
UNICOM CORPORATION
ONE FIRST NATIONAL PLAZA
P.O. BOX A-3005
CHICAGO, ILLINOIS 60690-3005
[UNICOM LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 22, 1996
The regular annual meeting of shareholders of Unicom Corporation ("Unicom")
will be held in the Grand Ballroom of the Chicago Hilton and Towers, 720 South
Michigan Avenue, Chicago, Illinois, on Wednesday, May 22, 1996, at 10:30 A.M.,
Chicago 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 twelve Directors.
Item B: To consider and act upon approval of the Unicom Corporation 1996
Directors' Fee Plan.
Item C: 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 1996.
Shareholders of record on the books of Unicom at 4:00 P.M., Chicago time, on
March 25, 1996, 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, FOR APPROVAL OF THE
UNICOM CORPORATION 1996 DIRECTORS' FEE PLAN AND FOR APPROVAL OF THE APPOINTMENT
OF ARTHUR ANDERSEN LLP AS AUDITORS.
DAVID A. SCHOLZ
SECRETARY
April 8, 1996
<PAGE>
[UNICOM LOGO]
PROXY STATEMENT
April 8, 1996
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 22, 1996.
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, by execution of a subsequent proxy or by
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 $12,000.
Unicom's 1995 Summary Annual Report was mailed to each shareholder on or
about February 15, 1996. The audited financial statements of Unicom, along with
certain other financial information, are included in Appendix B to this Proxy
Statement. This Proxy Statement and form of Proxy were first mailed to
shareholders on or about April 8, 1996.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL DIRECTOR NOMINEES NAMED IN
ITEM A, A VOTE FOR APPROVAL OF THE UNICOM CORPORATION 1996 DIRECTORS' FEE PLAN
AS DISCUSSED IN ITEM B AND A VOTE FOR APPROVAL OF THE APPOINTMENT OF ARTHUR
ANDERSEN LLP AS AUDITORS AS DISCUSSED IN ITEM C.
<PAGE>
ITEM A. ELECTION OF DIRECTORS
NOMINEES
Twelve Directors are to be elected at the annual meeting to serve terms of
one year and until their respective successors have been elected. The nominees
for Director, all of whom are now serving as Directors of Unicom and
Commonwealth Edison Company ("ComEd"), 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.
<TABLE>
<S> <C>
JEAN ALLARD, age 71. Director of Unicom since 1994 and ComEd since 1975.
Of Counsel to the law firm of Sonnenschein Nath & Rosenthal. President
[PHOTO1] of the Metropolitan Planning Council (a non-profit agency) from October
1991 to March 1996. Partner, Sonnenschein Nath & Rosenthal prior to
October 1991. Chair of Audit Committee and member of Corporate
Governance and Compensation, and Finance Committees. Other directorship:
Castlerock Group, Inc.
EDWARD A. BRENNAN, age 62. Director of Unicom and ComEd since 1995.
Retired. Chairman and CEO of Sears, Roebuck and Co. (retail
[PHOTO2] merchandiser) for more than five years prior to August 1995. Member of
Corporate Governance and Compensation Committee. Other directorships:
The Allstate Corporation, Dean Witter, Discover & Co., AMR Corporation
and Minnesota Mining and Manufacturing Company.
JAMES W. COMPTON, age 58. Director of Unicom since 1994 and ComEd since
1989. President and Chief Executive Officer of the Chicago Urban League
[PHOTO3] (a non-profit agency). Chairman of Finance Committee and member of
Corporate Governance and Compensation, Executive and Nominating
Committees.
SUE L. GIN, age 54. Director of Unicom since 1994 and ComEd since 1993.
Founder, Owner, Chairman and Chief Executive Officer of Flying Food
[PHOTO4] Fare, Inc. (in-flight catering company). Member of Audit, Corporate
Governance and Compensation, Executive and Finance Committees.
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
DONALD P. JACOBS, age 68. Director of Unicom since 1994 and ComEd since
1979. Dean of the J. L. Kellogg Graduate School of Management,
[PHOTO5] Northwestern University. Member of Corporate Governance and
Compensation, Finance and Nominating Committees. Other directorships:
The First National Bank of Chicago, Hartmarx Corp., Security Capital
Industrial Trust, Unocal Corp. and Whitman Corp.
EDGAR D. JANNOTTA, age 64. Director of Unicom and ComEd since 1994.
Senior Principal of William Blair & Company, L.L.C. (investment banking
[PHOTO6] and brokerage company) since January 1996. For more than five years
prior thereto, Managing Partner of William Blair & Company and Senior
Partner during 1995. Chairman of Nominating Committee and member of
Audit, Corporate Governance and Compensation, and Finance Committees.
Other directorships: AAR Corp., AON Corporation, Bandag, Incorporated,
Molex Incorporated, Oil-Dri Corporation of America and Safety-Kleen
Corp.
GEORGE E. JOHNSON, age 68. Director of Unicom since 1994 and ComEd since
1971. Founder and retired Chairman, Johnson Products Company, Inc.
[PHOTO7] (personal care products company). Chairman of Indecorp, Inc. for more
than five years prior to December 1995. Member of Corporate Governance
and Compensation, Executive and Nominating Committees. Other
directorship: Burrell Communications Group.
EDWARD A. MASON, age 71. Director of Unicom since 1994 and ComEd since
1980. Retired. Vice President, Research, of Amoco Corporation (oil and
[PHOTO8] chemicals company) prior to July 1989. Member of Audit and Corporate
Governance and Compensation Committees. Other directorship: Symbollon
Corporation.
LEO F. MULLIN, age 53. Director of Unicom and ComEd since 1995. Vice
Chairman of Unicom and ComEd since December 1995. President and Chief
[PHOTO9] Operating Officer of First Chicago Corporation from November 1993 to
July 1995. Chairman, President and Chief Executive Officer of American
National Bank and Trust Company of Chicago from April 1991 to November
1993. Executive Vice President of First Chicago Corporation prior to
April 1991. Member of Executive Committee. Other directorship: Pittway
Corporation.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
JAMES J. O'CONNOR, age 59. Director of Unicom since 1994 and ComEd since
1978. Chairman of Unicom and ComEd. Chairman of Executive Committee.
[PHOTO10] Other directorships: Corning Incorporated, First Chicago NBD
Corporation, The First National Bank of Chicago, Scotsman Industries,
Inc., Tribune Company and UAL Corporation.
FRANK A. OLSON, age 63. Director of Unicom since 1994 and ComEd since
1992. Chairman and Chief Executive Officer of The Hertz Corporation
[PHOTO11] (rental car company). Chairman of Corporate Governance and Compensation
Committee and member of Audit and Nominating Committees. Other
directorships: Becton, Dickinson and Company, Cooper Industries and
Foundation Health Corp.
SAMUEL K. SKINNER, age 57. Director of Unicom since 1994 and ComEd since
1993. President of Unicom and ComEd since February 1993. General
[PHOTO12] Chairman of the Republican National Committee from August 1992 to
January 1993. Chief of Staff to the President of 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, The Broken
Hill Proprietary Company Limited and LTV Corporation.
</TABLE>
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 300 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 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. Subject to approval by the shareholders, the Board has also
adopted the Unicom Corporation 1996 Directors' Fee Plan (described in Item B)
which will result in non-employee Directors receiving all Unicom retainer fees
and an elective maximum of up to one hundred percent (100%) of their other fees
in Unicom Common Stock. 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 (3 to 5 years as
applicable, 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
4
<PAGE>
and results of such Auditors' examinations, to monitor the internal accounting
controls and practices of Unicom, to review the Summary Annual Report to
shareholders and the financial statements set forth in Appendix B, and to
recommend the appointment, subject to shareholder approval, of independent
Auditors. The Committee met two times during 1995. Members of the Committee are
Jean Allard (Chair), Sue L. Gin, Edgar D. Jannotta, Edward A. Mason and Frank A.
Olson.
CORPORATE GOVERNANCE AND COMPENSATION COMMITTEE--The Corporate Governance
and 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
corporate governance matters and administers awards under Unicom's Deferred
Compensation Unit Plan and Long-Term Incentive Plan. The Committee met three
times during 1995. Members of the Committee are Frank A. Olson (Chairman), Jean
Allard, Edward A. Brennan, James W. Compton, Sue L. Gin, Donald P. Jacobs, Edgar
D. Jannotta, George E. Johnson and Edward A. Mason.
EXECUTIVE COMMITTEE--The Executive Committee consists of six 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 1995. Members of the Committee are James J.
O'Connor (Chairman), James W. Compton, Sue L. Gin, George E. Johnson, Leo F.
Mullin 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 two times during
1995. Members of the Committee are James W. Compton (Chairman), Jean Allard, Sue
L. Gin, Donald P. Jacobs and Edgar D. Jannotta.
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 also may be presented
by shareholders at the annual meeting of shareholders. The Committee met one
time during 1995. Members of the Committee are Edgar D. Jannotta (Chairman),
James W. Compton, Donald P. Jacobs, George E. Johnson and Frank A. Olson.
ATTENDANCE AT MEETINGS--During 1995, there were eight meetings of Unicom's
Board of Directors. The attendance of all incumbent Directors, expressed as a
percent of the aggregate total of Board and Board Committee meetings in 1995,
was 98%. Each incumbent Director attended at least 92% of the meetings of
Unicom's Board and Board Committees of which the Director was a member.
During 1995, there were nine meetings of ComEd's 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 1995, was 97%. Each
incumbent Director attended at least 87% of the meetings of ComEd's Board and
Board Committees of which the Director was a member.
5
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 1, 1996, there was no person known to Unicom to be the
beneficial owner of more than five percent of Unicom Common Stock. The following
table lists the beneficial ownership, as of March 1, 1996, of Unicom Common
Stock by each of the Directors, each of the executive officers named in the
Summary Compensation Table on page 10 and Unicom's Directors and executive
officers as a group.
<TABLE>
<CAPTION>
AMOUNT OF
BENEFICIAL
OWNERSHIP PERCENT
OF COMMON OF
NAME STOCK CLASS
- --------------------------------------------------------------------------------------- --------------- -----------
<S> <C> <C>
Jean Allard............................................................................ 1,482 *
Edward A. Brennan...................................................................... 1,307 *
James W. Compton....................................................................... 1,681 *
Sue L. Gin............................................................................. 4,542 *
Donald P. Jacobs....................................................................... 2,725 *
Edgar D. Jannotta...................................................................... 1,400 *
George E. Johnson...................................................................... 1,522 *
Edward A. Mason........................................................................ 1,911 *
Leo F. Mullin.......................................................................... 15,143 *
James J. O'Connor...................................................................... 27,796(1)(2) *
Frank A. Olson......................................................................... 1,400 *
Samuel K. Skinner...................................................................... 26,017 *
Thomas J. Maiman....................................................................... 6,146(2) *
Pamela B. Strobel...................................................................... 3,445(2) *
Michael J. Wallace..................................................................... 8,178(2)(3) *
Directors and executive officers as a group (33 persons)............................... 177,354(2)(4) *
</TABLE>
- ------------------------
* Less than one percent
(1) Includes 1,568 shares owned by family members.
(2) Does not include shares of Unicom Common Stock that would have been received
by an officer under certain awards made pursuant to the Unicom Corporation
Long-Term Incentive Plan but for an election by such officer to defer
receipt of such shares. All such deferred shares were issued to a trust, of
which The First National Bank of Chicago is Trustee. The Trustee has sole
voting rights with respect to such deferred shares. Dividends paid thereon
are either reinvested in Unicom Common Stock and held by such Trustee or are
paid to the officer making the deferral. As of March 1, 1996, the total
number of shares deferred by officers was 79,281. Deferrals by Messrs.
O'Connor, Maiman, Wallace and Ms. Strobel totalled 31,243, 6,719, 3,914 and
3,297 shares, respectively.
(3) Includes 100 shares jointly owned with a family member and 377 shares held
in custodial accounts for family members.
(4) Includes 1,847 shares owned by spouses; 377 shares held in custodial
accounts for family members; 1,314 shares jointly owned by spouse and
in-law; 1,568 shares owned by family members; and 1,753 shares jointly owned
with family members. Such persons also beneficially own 49 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.
6
<PAGE>
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 1995, its Reporting Persons complied with all filing requirements
applicable to them.
ITEM B. APPROVAL OF THE UNICOM CORPORATION 1996 DIRECTORS' FEE PLAN
As stated above, Directors who are not employees of Unicom or any of its
subsidiaries receive an annual retainer fee of $20,000, plus an award of 300
shares of Unicom Common Stock. These Directors also receive an attendance fee of
$1,000 for each regular or special Board meeting, and $1,000 for each committee
meeting. Committee chairs also receive an annual fee of $2,500. Inasmuch as the
same persons currently serve as Directors of Unicom and ComEd, such retainer
fees and meeting and Committee chair fees are paid approximately equally by
Unicom and ComEd. Directors may elect to defer the receipt of all or a part of
these fees. Amounts so deferred earn interest at a rate equal to the rate of
interest stated in the straight debt obligation of ComEd, most recently issued
with a maturity date three years or more from the date of accrual. Additionally,
Unicom maintains a Directors and Officers Liability Insurance Policy covering
all Directors and officers. It also reimburses all expenses incurred by
Directors in connection with the conduct of the business of the Board.
Non-employee Directors who meet certain age and years of service requirements
are eligible for retirement benefits, as described above.
On March 14, 1996, Unicom's Board of Directors (the "Board") adopted,
subject to approval by the shareholders, the Unicom Corporation 1996 Directors'
Fee Plan (the "Fee Plan") for non-employee Directors. The purpose of the Fee
Plan is to solidify common interests of Directors and shareholders by paying
part or all of the compensation due non-employee Directors in shares of Unicom
Common Stock. The Fee Plan will result in non-employee Directors receiving all
Unicom retainer fees and an elective maximum of up to one hundred percent (100%)
of their other fees (including ComEd retainer fees) in Unicom Common Stock. If
the Plan is approved by the shareholders, it is anticipated that the Board will
eliminate the 300 share annual grant and, in lieu thereof, increase the
aggregate retainer fees by $10,000 (roughly the current fair market value of 300
shares), all of which would become payable in Unicom Common Stock.
The following is a summary of the principal features of the Fee Plan, a copy
of which is set forth hereto as Appendix A.
ELIGIBILITY
Those members of a board of directors of Unicom and ComEd, who are not
employees of Unicom or its subsidiaries, are eligible to participate in the Fee
Plan. Members of such boards who are employees of Unicom or its subsidiaries are
not compensated for their board and/or committee activities. At present, only
Unicom and ComEd have non-employee members on their boards of directors. The Fee
Plan, however, authorizes the Corporate Governance and Compensation Committee of
Unicom's Board of Directors to allow other subsidiaries to participate in the
Fee Plan.
GENERAL DESCRIPTION
As proposed, the Fee Plan requires non-employee Directors to receive
automatic payment of their annual retainer fees in respect of their board
service to Unicom in Unicom Common Stock in lieu of cash. The Fee Plan also
allows non-employee Directors to elect to receive up to one hundred percent
(100%) of their retainer fees in respect of their board service to ComEd in
Unicom Common Stock, which election will convert to an automatic payment at such
time as ComEd receives approval from the Illinois Commerce Commission ("ICC") to
compensate its directors with shares of Unicom Common Stock. (ComEd has filed a
7
<PAGE>
petition with the ICC seeking such authority and expects to receive such
authorization in the second half of 1996.) In addition, the terms of the Fee
Plan allow for non-employee Directors to elect to receive up to one hundred
percent (100%) of their board or committee attendance fees in Unicom Common
Stock.
Payments of stock will be made under the Fee Plan to participants every
three months, commencing with the month following the month in which the annual
meeting is held. For the purposes of such payment, the value of Unicom Common
Stock will be the closing price of such Common Stock as reported in the WALL
STREET JOURNAL as the New York Stock Exchange Composite Price on the business
day prior to the date of payment, and will be credited against the portion of
the retainer and other fees then due.
AMENDMENT
Non-material amendments, as defined by Section 16 of the Securities Exchange
Act of 1934, may be made by the Board without shareholder approval.
TERM
The Fee Plan will become effective upon approval by the shareholders and
will remain in effect until terminated by action of the Board of Directors or
until there are no further shares available under it. Subject to shareholder
approval, the first issuance of stock under the Fee Plan shall be made on June
3, 1996.
SHARES RESERVED FOR ISSUANCE
200,000 shares of Unicom Common Stock will be reserved for issuance under
the Fee Plan.
VOTE REQUIRED
Approval of the Fee Plan by the shareholders requires the affirmative vote
of the holders of a majority of the outstanding shares of Unicom Common Stock
represented, in person or by proxy, at the annual meeting.
NEW FEE PLAN BENEFITS
Unicom Corporation 1996 Directors' Fee Plan
<TABLE>
<CAPTION>
NAMES AND POSITION DOLLAR VALUE ($) NUMBER OF UNITS
- --------------------------- -------------------- -------------------
<S> <C> <C>
Non-Employee Directors Indeterminable* Indeterminable**
(currently 9 persons)
</TABLE>
- ------------------------
* The Fee Plan requires non-executive Directors to purchase shares of Unicom
Common Stock with their annual Unicom retainer fee and enables them to
purchase additional shares with their other fees (including their annual
ComEd retainer fee). The Fee Plan does not provide non-executive Directors
with any added value.
** The Fee Plan requires non-executive Directors to convert all Unicom retainer
fees (and allows them to convert a maximum of 100% of their other fees
(including their ComEd retainer fees)) into Unicom Common Stock, based on
the fair market value of such Common Stock on the last business day of the
month in which the annual meeting is held and of each three calendar-month
period thereafter.
8
<PAGE>
ITEM C. 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 1996. The shareholders will be asked at the
annual 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.
9
<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, 1995, the Chief Executive Officer and the other four most highly
compensated executive officers of Unicom or ComEd.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------------- -------------- ALL OTHER
NAME AND PRINCIPAL SALARY BONUS OTHER ANNUAL LTIP PAYOUTS COMPENSATION(1)
POSITION YEAR $ $ $ $ $
- -------------------------- --------- --------- --------- ----------------- -------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
James J. O'Connor 1995 826,926 826,926 0 452,296 98,102
Chairman (Chief 1994 773,536 485,106 0 0 93,120
Executive Officer) 1993 668,126 215,137 0 0 80,976
Unicom and ComEd
Samuel K. Skinner(2) 1995 580,000 580,000 0 324,297 105,828
President 1994 543,748 602,338 0 0 87,969
Unicom and ComEd 1993 442,885 157,780 0 0 101,455
Thomas J. Maiman 1995 279,055 128,445 0 126,633 20,265
Senior Vice President 1994 267,516 155,862 0 0 19,609
ComEd 1993 196,555 42,200 78 0 17,633
Michael J. Wallace 1995 277,440 93,021 0 122,271 13,469
Senior Vice President 1994 269,689 123,803 0 0 12,919
ComEd 1993 190,209 30,178 44 0 10,395
Pamela B. Strobel(3) 1995 238,000 96,563 0 75,892 17,146
Vice President and 1994 212,344 91,541 0 0 10,887
General Counsel 1993 103,154 78,980 0 0 7,851
ComEd
</TABLE>
- ------------------------
(1) Amounts shown include matching contributions made by ComEd pursuant to the
ComEd Employee Savings and Investment Plan ("ESIP"), incremental interest
earned on deferred compensation which is in excess of 120% of the
corresponding Federal long-term rate, matching contributions made by ComEd
pursuant to the ComEd Excess Benefits Savings Plan and premiums and
administrative service fees paid by ComEd on behalf of the named individuals
under various group life insurance plans. For the year 1995, contributions
made to the ESIP amounted to $5,654, $3,426, $5,487, $6,650 and $3,372 on
behalf of Messrs. O'Connor, Skinner, Maiman, Wallace and Ms. Strobel,
respectively. The amounts of incremental interest earned during 1995 on
deferred compensation totaled $2,223 and $37 on behalf of Messrs. O'Connor
and Wallace, respectively. Contributions made to the ComEd Excess Benefits
Savings Plan during 1995 totaled $19,533, $24,948, $3,750, $2,705 and $7,192
on behalf of Messrs. O'Connor, Skinner, Maiman, Wallace and Ms. Strobel,
respectively. Premiums and administrative service fees paid during 1995 for
Split Dollar Life, Accidental Death and Travel Accident insurance policies
for Messrs. O'Connor, Skinner, Maiman, Wallace and Ms. Strobel,
respectively, are as follows: $70,323, $355 and $14; $77,191, $249 and $14;
$10,894, $120 and $14; $3,944, $119 and $14; and $6,467, $102 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.
(3) Ms. Strobel became employed by ComEd in June 1993.
10
<PAGE>
LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERFORMANCE ESTIMATED FUTURE PAYOUTS UNDER
NUMBERS OR OTHER NON-STOCK PRICE-BASED PLANS
OF SHARES, PERIOD UNTIL -------------------------------------
UNITS OR MATURATION THRESHOLD TARGET MAXIMUM
NAME OTHER RIGHTS(1) OR PAYOUT NUMBER NUMBER NUMBER
- ------------------------------------------- --------------- ------------- ----------- ----------- -----------
(NUMBER OF PERFORMANCE UNITS)
<S> <C> <C> <C> <C> <C>
James J. O'Connor.......................... 12,899.64 3 years(2) 6,449.82 12,899.64 25,799.28
Chief Executive Officer
Samuel K. Skinner.......................... 8,992.37 3 years(2) 4,496.19 8,992.37 17,984.74
Thomas J. Maiman........................... 3,634.25 3 years(2) 1,817.13 3,634.25 7,268.50
Michael J. Wallace......................... 3,767.21 3 years(2) 1,883.61 3,767.21 7,534.42
Pamela B. Strobel.......................... 2,402.75 3 years(2) 1,201.37 2,402.75 4,805.50
</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 Unicom's and ComEd's Deferred Compensation
Unit Plans) (such portion being 50% each for Mr. O'Connor and Mr. Skinner,
40% each for Mr. Maiman and Mr. Wallace and 30% for Ms. Strobel) by $32.75.
Payouts are based on the cumulative total shareholder return on Unicom
Common Stock (assuming reinvestment of dividends) relative to that of other
companies constituting the Dow Jones Utility Stock Index over a three-year
performance period ending December 31, 1998. 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. Effective with awards payable in
1996, a participant may elect to defer receipt of up to 100% of the total
award (net of applicable taxes) under the Unicom Corporation Stock Bonus
Deferral Plan. Notwithstanding the foregoing, no payouts are earned or made
if Unicom fails to maintain regular quarterly cash dividends of at least
40 CENTS per share during the performance period. In addition, no payouts are
earned or made if the relative cumulative total shareholder return on Unicom
Common 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) Three-year period ending December 31, 1998.
11
<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 1996).
<TABLE>
<CAPTION>
PENSION PLAN TABLE
- --------------------------------------------------------------------------------------------------------------
HIGHEST
4-YEAR ANNUAL NORMAL RETIREMENT BENEFITS AFTER SPECIFIED YEARS OF SERVICE*
AVERAGE ----------------------------------------------------------------------------------------------
EARNINGS 15 20 25 30 35 40
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 100,000 $ 36,653 $ 47,189 $ 57,085 $ 66,501 $ 75,559 $ 84,350
200,000 73,306 94,379 114,169 133,002 151,118 168,700
300,000 109,959 141,568 171,254 199,502 226,677 253,050
400,000 146,612 188,757 228,338 266,003 302,236 337,400
500,000 183,265 235,947 285,423 332,504 377,796 421,750
600,000 219,919 283,136 342,508 399,005 453,355 506,100
700,000 256,572 330,325 399,592 465,506 528,914 590,449
800,000 293,225 377,515 456,677 532,007 604,473 674,799
900,000 329,878 424,704 513,761 598,507 680,032 759,149
1,000,000 366,531 471,893 570,846 665,008 755,591 843,499
1,100,000 403,184 519,083 627,930 731,509 831,150 927,849
1,200,000 439,837 566,272 685,015 798,010 906,709 1,012,199
1,300,000 476,490 613,462 742,100 864,511 982,268 1,096,549
1,400,000 513,143 660,651 799,184 931,011 1,057,827 1,180,899
1,500,000 549,796 707,840 856,269 997,512 1,133,387 1,265,249
1,600,000 586,450 755,030 913,353 1,064,013 1,208,946 1,349,599
1,700,000 623,103 802,219 970,438 1,130,514 1,284,505 1,433,949
</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 highest consecutive four-year average annual base
pay and the variable compensation portion (annual bonus) of the employee's
incentive pay. An employee with at least 10 years of service may retire prior to
attaining age 65 (but not prior to age 50) 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. Beginning with the year 1994, compensation used in the computation
of annual retirement benefits under the Plan is substantially equivalent to the
amount set forth in the Salary column plus the Bonus column of the Summary
Compensation Table. 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
12
<PAGE>
Code. Credited years of service under the Plan for the persons named in the
Summary Compensation Table are as follows: James J. O'Connor, 32 years; Samuel
K. Skinner, 3 years; Thomas J. Maiman, 30 years; Michael J. Wallace, 21 years;
and Pamela B. Strobel, 3 years.
EMPLOYMENT AGREEMENTS
ComEd has an agreement with Samuel K. Skinner providing for an initial base
salary of $490,000 per annum 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 annual
earnings during the preceding five years, after five years of service, and
increasing ratably annually to one-half of such annual earnings 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.
ComEd entered into an employment agreement with Leo F. Mullin, pursuant to
which he became Vice-Chairman of Unicom and ComEd on December 1, 1995. The
agreement provides that ComEd will pay Mr. Mullin an initial base salary of
$577,000 per annum. In addition, Mr. Mullin received a bonus upon commencement
of his duties of $275,000. The agreement provides that he will receive bonuses
on the same basis as any annual bonus paid to the Chairman or the President of
the Company, or both, as determined by the Board of Directors. For calendar year
1996, Mr. Mullin is guaranteed a bonus of at least 50% of his base salary. Mr.
Mullin was also awarded performance units making him eligible for payments under
the Unicom Corporation Long-Term Incentive Plan. Mr. Mullin's agreement also
provides for an unfunded supplemental retirement benefit pursuant to which Mr.
Mullin will receive the annual retirement benefit that would have been payable
under the Service Annuity System Plan if Mr. Mullin were to retire at age 60
with 20 years of service plus one additional year for each year of actual
employment. No such benefit is payable until Mr. Mullin has completed five years
of service, unless ComEd terminates his employment for reasons other than death,
fraud or willful misconduct or Mr. Mullin terminates his employment as a result
of certain adverse actions taken by ComEd. The agreement further provides for a
severance payment equal to two years of Mr. Mullin's then-current base salary
and most recent annual bonus, payable over three years, and a three-year
continuation of health and life insurance benefits in the event that Mr.
Mullin's employment is terminated by ComEd for reasons other than death, fraud
or willful misconduct or in the event that Mr. Mullin terminates his employment
because ComEd has reduced or failed to pay his salary or takes certain other
actions. The severance payment is subject to reduction in the event that Mr.
Mullin accepts other full-time employment during the payment period.
CORPORATE GOVERNANCE AND 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. In July
1995, the Committee's duties were expanded and it became the Corporate
Governance and Compensation Committee. The individuals who have been and are
members of the Board of Directors of ComEd are also members of the Unicom Board.
Therefore, the members of the Corporate Governance and Compensation Committees
of ComEd and of Unicom are the same individuals, constituting all of the
Directors of each corporation who are not and never have been employees of
Unicom, ComEd, or any of the subsidiaries of either. References in the following
report to the "Committee" are
13
<PAGE>
references to the ComEd Corporate Governance and Compensation Committee, the
Unicom Corporate Governance and Compensation Committee, or both. The Corporate
Governance and 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 1995, 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 the
salary ranges for 1995, salary data for various executive positions at
twenty-two of the largest companies in the electric utility industry were
reviewed from the 1994 Edison Electric Institute's Executive Compensation Survey
along with data for various positions among companies in the utility industry
and in industry generally. These data were used as a beginning reference point
on grounds that the basic duties and responsibilities associated with executive
officer positions in the other utility and non-utility companies are somewhat
similar to those in the Company. Judgment was applied to reflect differences in
the organizational 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 Company. After
considering these various factors, the Committee approved, in December 1994,
salary ranges for 1995 the midpoints of which averaged about 8.3% above 1994
levels.
With respect to comparisons with other companies, it should be noted that
because of differences between Unicom and ComEd and others in the group of
twenty-two large utilities that participated in the 1994 Edison Electric
Institute Executive Compensation Survey and because that group does not
constitute a recognized group for purposes of indexing the financial performance
of the industry, the group is not used in the performance comparisons shown on
page 18. The Dow Jones Utility Stock Index, a well-known and widely-followed
utility index comprising a broad array of utility companies (including Unicom
and nine 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. In December 1994, the Committee approved increases in cash
salary for the executive officers averaging 6.9% of base salary. Percentage
increases for individual executive officers varied around this average and were
structured, in part, to help bring the base salary of individual officers closer
to industry
14
<PAGE>
levels, and to reflect the performance and contributions of the individual
officers. These cash salary increases for 1995 were designed to recognize
improved financial performance in 1994, and the foundations that had been laid
for further improvement in 1995.
CURRENT COMPENSATION UNIT AWARDS. Current compensation units can be awarded
by the Committee pursuant to the Unicom Corporation Deferred Compensation Unit
Plan. 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 Unicom Common
Stock for each unit held. Such income is paid on a quarterly basis,
simultaneously with the payment of dividends, for the duration of employment,
and continues after employment ends for unit holders who retire or for unit
holders who resign to take advantage of a voluntary severance offer from the
Company.
In September 1995, the Committee awarded compensation units to executive
officers and other management personnel. The awards for 1995 were granted in
recognition of the improved financial performance of the Company that began in
1994 and continued into 1995. The units awarded produced, on an annual basis, an
average increase of 2.4% in base salary for executive officers at the current
dividend level. Again, the awards for individual executive officers varied
depending on the Chairman's and Committee's assessment of the contributions of
the individual officers.
INCENTIVE COMPENSATION AWARDS. The third component of executive
compensation for 1995 was incentive compensation paid pursuant to awards under
the Incentive Plan.
A 1995 Variable Compensation Award for Management Employees was established
to provide payments based upon the achievement of certain corporate and business
unit goals. The payments were also contingent on maintaining quarterly cash
dividends of at least 40 CENTS per share, and limiting operation and maintenance
expenses and capital expenditures to specified levels. 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
responsibility 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 officers,
executives and managers for achievement of the goals. This Award did not apply
to Messrs. O'Connor and Skinner for whom separate awards, discussed later, were
granted.
For purposes of the 1995 Variable Compensation Award, corporate goals were
established with respect to ComEd earnings per share, and also with respect to
the amount by which ComEd operation and maintenance expenses were below budget.
For purposes of measuring achievement of the 1995 goals, the Committee provided
for the exclusion of charges related to a 1995 severance and early retirement
program on grounds that the related benefits will be realized primarily in
future years, and also the exclusion of certain other items on grounds that it
would not be appropriate to allow such items to affect the measure of
performance. Reflecting these adjustments, the earnings per share goals ranged
from $2.55 at the threshold level of performance for payments under the Award to
$2.69 at the distinguished level, and the operation and maintenance expense
goals ranged from $2,031 million at the threshold level to $1,953 million at the
distinguished level. Also reflecting the adjustments noted above for purposes of
the Award, actual ComEd earnings per share were $3.28 and operation and
maintenance expenses were $2,021.2 million.
Similar Awards were granted to Mr. O'Connor and Mr. Skinner for the year
1995, except that payment was dependent entirely upon achievement of earnings
per share goals for Unicom. As in the 1995 Variable Compensation Award for
Management Employees, payments were contingent on maintaining the 40 CENTS per
share quarterly cash dividend and limiting operation and maintenance expenses
and capital expenditures to
15
<PAGE>
specified levels. The earnings per share goals were set at $2.55 at the
threshold level and $2.69 at the distinguished level, and earnings were adjusted
in the same manner as for the 1995 Variable Compensation Award discussed above.
The level of Unicom earnings achieved, as adjusted for purposes of these Awards,
was $3.25 per share.
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. To phase
in this program, an award for a two-year performance period (1994 and 1995) was
granted.
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 two-year performance period covering 1994 and 1995, Unicom Common
Stock performance was at the 91st percentile among the stocks constituting the
Dow Jones Utility Stock Index. Resulting payments are included under the
"Long-Term Compensation" 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, continues to
be very favorable. Under Mr. O'Connor's leadership, the Company's financial
performance in 1994 improved significantly over 1993. In 1994, operation and
maintenance expenses, for example, were held below 1992 levels for the second
consecutive year, and earnings per share rose to $1.66, as compared with $0.22
in 1993. In view of this assessment and these achievements, the Committee, in
December 1994, recommended and the Board approved a cash salary increase from
$635,000 in 1994 to $700,000 for 1995. In September 1995, the Committee awarded
the Chairman 15,000 current compensation units in recognition of continued
improvement in the financial performance of the Company. The Chairman's total
base salary in 1995 was $826,926 ($700,000 cash salary plus $126,926 in current
compensation unit income).
The Chairman's compensation for 1995 pursuant to the separate incentive
compensation Award made to him under the Incentive Plan was $826,926, with
$248,078 payable in cash and $578,848 payable in Unicom Common Stock. He elected
deferral of payment of the stock pursuant to the Unicom Corporation Stock Bonus
Deferral Plan which was adopted in 1995. In addition, the Chairman received
compensation for 1995 pursuant to the 1994 Long-Term Performance Unit Award
equal to $452,296. He elected to have the entire amount payable in Common Stock
and elected deferral of the payment pursuant to the Unicom Corporation Stock
Bonus Deferral Plan.
The Chairman's total compensation (cash salary, compensation unit income,
and compensation earned pursuant to the Awards under the Incentive Plan) was
$2,106,148 for 1995. The Committee believes, based on available information on
compensation of chief executive officers in utility and non-utility industries,
that both the absolute and relative levels of compensation for 1995 were fully
appropriate considering the size and complexity of the Company's operations, and
also considering the Committee's very favorable assessment of the Chairman's
leadership in achieving substantially improved financial performance in 1995.
Earnings per share rose to $2.98 in 1995 from $1.66 in 1994, and the improved
performance resulted in an overall 43% total return to shareholders in 1995
(assuming reinvestment of dividends) and an overall $1.8 billion increase in the
market value of shareholders' equity in 1995.
16
<PAGE>
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 1995 was
deductible.
Corporate Governance and Compensation
Committee
Jean Allard Edgar D. Jannotta
Edward A. Brennan George E. Johnson
James W. Compton Edward A. Mason
Sue L. Gin Frank A. Olson
Donald P. Jacobs
17
<PAGE>
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, 1995.
CUMULATIVE PERFORMANCE SINCE JANUARY 1, 1991
ASSUMING REINVESTMENT OF DIVIDENDS
(JANUARY 1, 1991 = $100)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
UCM COMMON STK* DJ UTIL S&P COMPOSITE
<S> <C> <C> <C>
d 100 100 100
m 115.468 105.246 114.472
j 108.136 97.109 114.222
s 123.103 106.674 120.325
d 123.866 115.089 130.336
m 107.557 106.423 127.058
j 87.078 111.045 129.478
s 75.979 117.729 133.558
d 78.553 119.71 140.251
m 95.953 132.589 146.358
j 97.324 136.23 147.051
s 106.969 140.871 150.837
d 100.454 131.194 154.325
m 91.168 114.172 148.522
j 84.001 104.964 149.158
s 83.632 109.414 156.447
d 91.713 111.41 156.42
m 92.286 117.16 171.603
j 105.012 128.199 187.93
s 120.887 138.001 202.82
d 132.477 147.255 214.991
</TABLE>
* Performance shown for Unicom Common Stock on and after September 1, 1994 and
for ComEd common stock prior to that date.
18
<PAGE>
VOTING
Shareholders of record on the books of Unicom at 4:00 P.M., Chicago time, on
March 25, 1996, will be entitled to vote at the annual meeting. Unicom had
outstanding on March 25, 1996, 215,213,707 shares of Common Stock. 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 the
Unicom Corporation Dividend Reinvestment and Employee Stock Purchase Plans.
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 twelve 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 or nominees
with respect to whom the shareholder withholds authority to vote. Assuming that
a quorum is present at the meeting, the twelve persons receiving the greatest
number of votes shall be elected as Directors. 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 Unicom Corporation 1996 Directors' Fee Plan and 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 Common Stock represented at the
meeting and entitled to vote on the matter is required for approval of the
Unicom Corporation 1996 Directors' Fee Plan and for approval of the appointment
of the Auditors. Proxies marked to abstain from voting with respect to either of
these matters will have the legal effect of voting against such matter. Proxies
submitted by brokers for shares beneficially owned by other persons may indicate
that all or a portion of the shares represented by such proxies are not being
voted with respect to approval of the Unicom Corporation 1996 Directors' Fee
Plan. This is because the rules of the New York Stock Exchange may not permit a
broker to vote Common Stock held in street name with respect to this matter in
the absence of instructions from the beneficial owner of the Common Stock. The
shares represented by broker proxies which are not voted with respect to the
Unicom Corporation 1996 Directors' Fee Plan will not be counted in determining
whether a quorum is present for the consideration of that matter and will not be
considered represented at the meeting and entitled to vote on that 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, FOR
APPROVAL OF THE UNICOM CORPORATION 1996 DIRECTORS' FEE PLAN 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.
19
<PAGE>
SHAREHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
Any shareholder proposal intended to be presented at the 1997 annual meeting
of Unicom's shareholders must be received at the principal executive offices of
Unicom by December 9, 1996, 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.
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 8, 1996
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.
20
<PAGE>
APPENDIX A
UNICOM CORPORATION
1996 DIRECTORS' FEE PLAN
1. PURPOSE. The Unicom Corporation 1996 Directors' Fee Plan (the "Fee
Plan") is intended to promote the long-term interests of Unicom Corporation by
increasing the share ownership of members of the Board of Directors of the
Corporation and its subsidiaries who are not employees of the Corporation or its
subsidiaries, thereby aligning their interests more closely with those of the
shareholders of the Corporation, and to attract and retain highly qualified and
capable non-employee Directors.
2. DEFINITIONS.
(a) "Board" means a Board of Directors of the Corporation, ComEd, or any
other subsidiaries of the Corporation authorized by the Committee to
participate in this Fee Plan.
(b) "Board Year" means the period commencing on the date of the
Corporation's annual meeting of shareholders and ending immediately before
the Corporation's next annual meeting of shareholders.
(c) "ComEd" means Commonwealth Edison Company, an Illinois corporation.
(d) "ComEd Fees" means the annual retainer fee scheduled to be paid to a
Director of ComEd for the Board Year.
(e) "Committee" means the Corporate Governance and Compensation
Committee of the Board of Directors of the Corporation or any committee
performing similar functions.
(f) "Common Stock" means the common stock, without par value, of the
Corporation.
(g) "Corporation" means Unicom Corporation, an Illinois corporation.
(h) "Director" means a member of a Board who is not an employee of the
Corporation or any of its subsidiaries.
(i) "Elective Grants" shall have the meaning set forth in Section 5(b)
hereof.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(k) "Fair Market Value" means the closing price of a share of Common
Stock as reported in the WALL STREET JOURNAL as the New York Stock Exchange
Composite Price on any particular date.
(l) "Fees" means the annual retainer scheduled to be paid to a Director
for the Board Year plus any additional fees (including meeting and committee
fees) earned by a Director for his or her services on a Board during such
Board Year; provided, however, Fees shall not include ComEd Fees earned and
payable prior to the ICC Authorization Date.
(m) "Grants" means Minimum Grants and Elective Grants.
(n) "ICC Authorization Date" means the date on which an order is entered
by the Illinois Commerce Commission in Docket No. 95-0615, or any other
docket, which authorizes ComEd to purchase shares of Common Stock for the
purpose of compensating its Directors.
(o) "Minimum Grants" shall have the meaning set forth in Section 5(a)
hereof.
(p) "Rule 16b-3" shall have the meaning set forth in Section 8 hereof.
(q) "Share Election" shall have the meaning set forth in Section 5(b)
hereof.
3. ADMINISTRATION OF THE FEE PLAN.
(a) ADMINISTRATION BY THE COMMITTEE. The Fee Plan shall be
administered by the Committee.
(b) AUTHORITY OF THE COMMITTEE. The Committee shall adopt such rules
as it may deem appropriate in order to carry out the purpose of the Fee
Plan. All questions of interpretation, administration, and application of
the Fee Plan shall be determined by a majority of the members of the
Committee then in office, except that the Committee may authorize any one or
more of its members, or
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any officer of the Corporation, to execute and deliver documents on behalf
of the Committee. The determination of such majority shall be final and
binding in all matters relating to the Fee Plan. No member of the Committee
shall be liable for any act done or omitted to be done by such member or by
any other member of the Committee in connection with the Fee Plan, except
for such member's own willful misconduct or as expressly provided by
statute.
4. STOCK RESERVED FOR THE FEE PLAN. The number of shares of Common Stock
authorized for issuance under the Fee Plan is 200,000, subject to adjustment
pursuant to Section 6 hereof. Shares of Common Stock delivered hereunder may be
either authorized but unissued shares or previously issued shares reacquired and
held by the Corporation.
5. TERMS AND CONDITIONS OF GRANTS.
(a) MINIMUM GRANT. Subject to Section 7 hereof, each Director shall
automatically receive a number of shares of Common Stock equal in value to
such Director's retainer Fees earned in each Board Year (the "Minimum
Grants"). Such shares of Common Stock shall be transferred at three-month
intervals in accordance with Section 5(c) hereof and shall be in lieu of and
not in addition to cash payment of such retainer Fees.
(b) ELECTIVE GRANT. Subject to Section 7 hereof, each Director may
make an annual election (the "Share Election") to receive all or a portion
of his or her remaining Fees earned in each Board Year, and any ComEd Fees
earned and payable prior to the ICC Authorization Date, in the form of
Common Stock (the "Elective Grants"). The shares of Common Stock issuable
pursuant to a Share Election shall be transferred at three-month intervals
in accordance with Section 5(c) hereof. The Share Election must be in
writing and delivered to the Secretary of the Corporation; provided,
however, that a Share Election shall apply only to Fees (including ComEd
Fees prior to the ICC Authorization Date) to be paid more than six months
subsequent to the date of such Share Election. A Share Election shall remain
in effect unless and until modified or revoked by a subsequent Share
Election in accordance with the provisions hereof and which applies only to
Fees (including ComEd Fees prior to the ICC Authorization Date) to be paid
more than six months subsequent to the date of such Share Election.
(c) TRANSFER OF SHARES. Shares of Common Stock issuable to a Director
with respect to Minimum Grants and Elective Grants shall be transferred to
such Director as of the first business day following the end of each
three-month period, with the first transfer to occur on the first business
day of the month following the month in which the Annual Meeting of
Shareholders is held. The total number of shares of Common Stock to be so
transferred (1) in respect of a Minimum Grant shall be determined by
dividing (a) an amount equal to the Director's retainer Fees for the
applicable three-month period by (b) the Fair Market Value of a share of
Common Stock on the last business day of the preceding three-month period,
and (2) in respect of an Elective Grant shall be determined by dividing (x)
the dollar amount of the Director's Fees subject to the Elective Grant for
the applicable three-month period by (y) the Fair Market Value of a share of
Common Stock on the last business day of such three-month period.
(d) TERMINATION OF SERVICES. If a Director's services as a Board
member are terminated before the end of a three-month period, the Director
shall receive in cash the amount such Director would otherwise have received
in shares of Common Stock in respect of his or her Elective Grant for such
period.
6. EFFECT OF CERTAIN CHANGES IN CAPITALIZATION. In the event of any stock
split, stock dividend, recapitalization, reorganization, merger, consolidation,
combination, exchange of shares, liquidation, spin-off or other similar change
in capitalization, or any distribution to holders of Common Stock other than a
cash dividend, the maximum number or class of shares available under this Fee
Plan, the number or class of shares of Common Stock to be delivered hereunder
and each Director's share account shall be proportionately adjusted by the
Committee.
7. TERM OF FEE PLAN. This Fee Plan shall become effective as of the date
of approval of the Fee Plan by the shareholders of the Corporation, and shall
remain in effect until terminated by the Board or until no further shares are
available for issuance hereunder. Prior to the effective date of this Fee Plan,
Directors may make the elections provided for herein, but the effectiveness of
such elections shall be contingent upon the
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<PAGE>
receipt of shareholder approval of this Fee Plan. No transfer of shares of
Common Stock may be made to any Director or any other person under the Fee Plan
until such time as shareholder approval of the Fee Plan is obtained.
8. AMENDMENT; TERMINATION. The Board of the Corporation may at any time
and from time to time alter, amend, suspend, or terminate this Fee Plan in whole
or in part, subject to any requirement of shareholder approval required by
applicable law, rule or regulation, including Rule 16b-3 of the Exchange Act, as
amended from time to time ("Rule 16b-3"); and provided, further, that the
provisions of Section 5(a) hereof shall not be amended more than once every six
months, other than to comply with changes in the Internal Revenue Code of 1986,
as amended, the Employee Retirement Income Security Act of 1974, as amended, or
the rules thereunder. Notwithstanding the foregoing, no amendment shall affect
adversely any of the rights of any Director, without such Director's consent,
under any election theretofore in effect under this Fee Plan.
9. RIGHTS OF DIRECTORS.
Nothing contained in this Fee Plan or with respect to any Grant shall
interfere with or limit in any way the right of the shareholders of a
corporation to remove any Director from the Board of such corporation pursuant
to the bylaws of such corporation, nor confer upon any Director any right to
continue in the service of any corporation as a Director.
10. GENERAL RESTRICTIONS.
(a) INVESTMENT REPRESENTATIONS. The Corporation may require any
Director to whom Common Stock is transferred, as a condition of receiving
such Common Stock, to give written assurances in substance and form
satisfactory to the Corporation and its counsel to the effect that such
person is acquiring the Common Stock for his or her own account for
investment and not with any present intention of selling or otherwise
distributing the same, and to such other effects as the Corporation deems
necessary or appropriate in order to comply with Federal and applicable
state securities laws.
(b) COMPLIANCE WITH SECURITIES LAWS. Each Grant shall be subject to
the requirement that, if at any time counsel to the Corporation shall
determine that the listing, registration, or qualification of the shares
subject to such Grant upon any securities exchange or under any state or
federal law, or the consent or approval of any governmental or regulatory
body, is necessary as a condition of, or in connection with, the issuance of
shares thereunder, such Grant may not be accepted or exercised in whole or
in part unless such listing, registration, qualification, consent or
approval shall have been effected or obtained on conditions acceptable to
the Committee. Nothing herein shall be deemed to require the Corporation to
apply for or to obtain such listing, registration or qualification.
11. WITHHOLDING. The Corporation may defer making payments under this Fee
Plan until satisfactory arrangements have been made for the payment of any
federal, state or local income taxes required to be withheld with respect to
such payment or delivery. Each Director shall be entitled to irrevocably elect,
at least six months prior to the date shares of Common Stock would otherwise be
delivered hereunder, to have the Corporation withhold shares of Common Stock
having an aggregate value equal to the amount required to be withheld. Shares so
withheld shall be valued at Fair Market Value on the business day immediately
preceding the date such shares would otherwise be transferred hereunder.
12. GOVERNING LAW. This Fee Plan and all rights hereunder shall be
construed in accordance with and governed by the laws of the State of Illinois.
13. FEE PLAN INTERPRETATION. This Fee Plan is intended to comply with Rule
16b-3 and shall be construed to so comply. To the extent Rule 16b-3 is
applicable to this Fee Plan, the provisions of Section 5(a) hereof are intended
to comply with the provisions of Section (c) (2) (ii) of Rule 16b-3, and the
provisions of Section 5(b) hereof are intended to comply with the provisions of
Section (d)(1)(i) of Rule 16b-3; and each such Section shall be construed to so
comply.
14. HEADINGS. The headings of sections and subsections herein are included
solely for convenience of reference and shall not affect the meaning of any of
the provisions of this Fee Plan.
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<PAGE>
APPENDIX B
UNICOM CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND 1994
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
INDEX
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Definitions............................................................................................... B-2
Summary of Selected Consolidated Financial Data........................................................... B-3
Price Range and Cash Dividends Paid Per Share of Common Stock............................................. B-3
1995 Consolidated Revenues and Sales...................................................................... B-3
Management's Discussion and Analysis of Financial Condition and Results of Operations (prepared as of
January 26, 1996)........................................................................................ B-4
Report of Independent Public Accountants.................................................................. B-16
Consolidated Financial Statements--
Statements of Consolidated Income for the years 1995, 1994 and 1993..................................... B-17
Consolidated Balance Sheets--December 31, 1995 and 1994................................................. B-18
Statements of Consolidated Capitalization--December 31, 1995 and 1994................................... B-20
Statements of Consolidated Retained Earnings for the years 1995, 1994 and 1993.......................... B-21
Statements of Consolidated Cash Flows for the years 1995, 1994 and 1993................................. B-22
Notes to Financial Statements........................................................................... B-23
Subsequent Events......................................................................................... B-45
</TABLE>
REFERENCE IS MADE TO "SUBSEQUENT EVENTS" FOR CERTAIN RECENT INFORMATION THAT
SHOULD BE READ AND CONSIDERED IN CONNECTION WITH THE OTHER INFORMATION CONTAINED
IN THIS APPENDIX B.
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<PAGE>
DEFINITIONS
The following terms are used in this document with the following meanings:
TERM MEANING
- ------------------ ------------------------------------------------------
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
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 prudence of ComEd's western coal costs
for the period from 1989 through 1992.
ICC Illinois Commerce Commission
Indiana Company Commonwealth Edison Company of Indiana, Inc., which is
a wholly-owned subsidiary of ComEd.
MAIN Mid-America Interconnected Network
MGP Manufactured gas plant
NEIL Nuclear Electric Insurance Limited
NML Nuclear Mutual Limited
NOPR Notice of Proposed Rulemaking issued by the FERC
NRC Nuclear Regulatory Commission
Rate Matters Settlement A settlement concerning the proceedings relating to
ComEd's 1985 and 1991 ICC rate orders (which orders
related to, among other things, the recovery of costs
associated with ComEd's four most recently completed
nuclear generating units), the proceedings related 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
related to the appropriate interest rate and rate
design to be applied to a refund made by ComEd during
1990 related 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 income tax rate made by the Tax
Reform Act of 1986.
Rate Order ICC rate order issued on January 9, 1995, as
subsequently modified
Remand Order ICC rate order issued in January 1993, as subsequently
modified
SEC Securities and Exchange Commission
SFAS Statement of Financial Accounting Standards
Trust ComEd Financing I, which is a wholly-owned subsidiary
trust of ComEd.
Unicom Unicom Corporation
Unicom Enterprises Unicom Enterprises Inc., which is a wholly-owned
subsidiary of Unicom.
Unicom Thermal Unicom Thermal Technologies Inc., which is a wholly-
owned subsidiary of Unicom Enterprises.
Units ComEd's nuclear generating units known as Byron Unit 2
and Braidwood Units 1 and 2
U.S. EPA U.S. Environmental Protection Agency
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<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(MILLIONS OF DOLLARS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Operating revenues . . . . . . . . . . . . . . . . . . . . . $ 6,910 $ 6,278 $ 5,260 $ 6,026 $ 6,276
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 640(1) $ 355 $ 46(2) $ 443 $ 17
Earnings per common share. . . . . . . . . . . . . . . . . . $ 2.98(1) $ 1.66 $ 0.22(2) $ 2.08 $ 0.08
Cash dividends declared per common share . . . . . . . . . . $ 1.60 $ 1.60 $ 1.60 $ 2.30 $ 3.00
Total assets (at end of year). . . . . . . . . . . . . . . . $ 23,247 $ 23,121 $ 24,383 $ 20,993 $ 17,365
Long-term obligations at end of year
excluding current portion:
Long-term debt, preference stock and preferred securities
subject to mandatory redemption requirements . . . . . . $ 7,011 $ 7,745 $ 7,861 $ 7,913 $ 7,081
Accrued spent nuclear fuel disposal
fee and related interest . . . . . . . . . . . . . . . . $ 624 $ 590 $ 567 $ 549 $ 530
Capital lease obligations. . . . . . . . . . . . . . . . . $ 376 $ 433 $ 323 $ 347 $ 396
Other long-term obligations. . . . . . . . . . . . . . . . $ 1,826 $ 1,754 $ 1,718 $ 666 $ 341
</TABLE>
- ------------
(1) Net income in 1995 includes an extraordinary loss related to the early
redemption of long-term debt of $20 million or $0.09 per common share.
(2) Net income in 1993 includes the cumulative effect of change in accounting
for income taxes of $10 million or $0.05 per common share.
PRICE RANGE* AND CASH DIVIDENDS PAID PER SHARE OF COMMON STOCK
<TABLE>
<CAPTION>
1995 (BY QUARTERS) 1994 (BY QUARTERS)
------------------------------------- -------------------------------------
FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Price range:
High.............................. 33 7/8 30 1/2 27 3/4 26 1/8 24 3/4 24 7/8 26 28 3/4
Low............................... 30 1/4 26 1/4 23 5/8 23 1/4 20 5/8 21 1/4 22 25 1/8
Cash dividends paid.................. 40 cents 40 cents 40 cents 40 cents 40 cents 40 cents 40 cents 40 cents
</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, 1995, there were
approximately 171,000 holders of record of Unicom's common stock.
1995 CONSOLIDATED REVENUES AND SALES
<TABLE>
<CAPTION>
OPERATING KILOWATTHOUR INCREASE/ INCREASE/
REVENUES INCREASE SALES (DECREASE) (DECREASE)
(THOUSANDS) OVER 1994 (MILLIONS) OVER 1994 CUSTOMERS OVER 1994
---------- --------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Residential.............................. $2,621,038 15.3% 23,303 9.0 % 3,079,381 1.1 %
Small commercial and industrial.......... 2,073,998 8.2% 25,313 4.1 % 288,848 0.7 %
Large commercial and industrial.......... 1,425,784 3.2% 23,777 1.4 % 1,539 0.7 %
Public authorities....................... 487,142 7.7% 7,158 4.0 % 12,039 (0.2)%
Electric railroads....................... 26,894 2.7% 390 (2.0)% 2 --
---------- ------ ---------
Ultimate consumers....................... $6,634,856 9.7% 79,941 4.6 % 3,381,809 1.0 %
Sales for resale......................... 207,256 11,412 24
Other revenues........................... 67,933 -- --
---------- ------ ---------
Total................................. $6,910,045 10.1% 91,353 7.3 % 3,381,833 1.0 %
---------- ------ ---------
---------- ------ ---------
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
On September 1, 1994, a corporate restructuring took place in which Unicom
became the parent holding company of ComEd and Unicom Enterprises, an
unregulated subsidiary engaged, through a subsidiary, in energy service
activities. The purpose of the restructuring was, in part, to permit Unicom
Enterprises to engage in energy service activities without the prior approval
of, or being regulated by, the ICC, in part to permit timely responses to
competitive activities which could adversely affect ComEd's utility business and
in part to permit Unicom to take advantage of unregulated business
opportunities.
ComEd continues to represent substantially all of the assets, revenues and
net income of Unicom; and Unicom's resources and results of operations are
largely dependent on, and reflect, those of ComEd. Unicom's unregulated
subsidiaries are not expected to make material contributions to Unicom's
revenues or results of operations in the near future. Consequently, the
following discussion focuses on ComEd's utility operations although information
is also provided about Unicom's unregulated operations.
LIQUIDITY AND CAPITAL RESOURCES
UTILITY OPERATIONS
CAPITAL BUDGETS. ComEd and its electric utility subsidiary, the Indiana
Company, have a construction program for the three-year period 1996-98 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 1995, calls for electric plant and equipment expenditures of
approximately $2,695 million (excluding nuclear fuel expenditures of
approximately $885 million). It is estimated that such construction
expenditures, with cost escalation computed at 3.5% annually, will be as
follows:
<TABLE>
1996 1997 1998 TOTAL
---- ---- ---- ------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C>
Production................................ $405 $390 $380 $1,175
Transmission and Distribution............. 390 405 410 1,205
General................................... 110 110 95 315
---- ---- ---- ------
Total.............................. $905 $905 $885 $2,695
---- ---- ---- ------
---- ---- ---- ------
</TABLE>
The construction program includes the replacement of the steam generators
at ComEd's Braidwood Unit 1 and Byron Unit 1 nuclear generating units, for
service in the years 1998 and 1999, respectively, at a total estimated cost of
approximately $470 million. Approximately $290 million of this estimated cost is
included in the construction expenditures shown above. ComEd is studying the
possibility of accelerating the replacement of the steam generators which could
increase 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 1998 and each year thereafter
through the year 2000. The projected resource needs reflect the current planning
reserve margin recommendations of MAIN, the reliability council of which ComEd
is a member. ComEd's forecasts indicate that the need for additional resources
during this period would exist only during the summer months. ComEd does not
expect to make expenditures for additional capacity to the extent the need for
capacity can be met through cost-effective demand-side management resources,
non-utility generation or other power purchases. Based on current market
information, ComEd believes that adequate resources, including cost-effective
demand-side management resources, non-utility generation resources and other-
utility power purchases, could be obtained sufficient to meet forecasted
requirements through the year 2000.
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ComEd's construction program will be reviewed and modified as necessary to
adapt to changing economic conditions, rate levels and other relevant factors
including changing business and legal needs and requirements. ComEd cannot
anticipate all such possible needs and requirements. While regulatory needs in
particular are more likely, on balance, to require increases in construction
expenditures than decreases, financial constraints may require compensating or
greater reductions in other construction expenditures. See "Regulation" below
for additional information.
Purchase commitments for ComEd and the Indiana Company, principally related
to construction and nuclear fuel, approximated $1,137 million at December 31,
1995. In addition, ComEd has substantial commitments for the purchase of coal as
indicated in the following table.
<TABLE>
CONTRACT PERIOD COMMITMENT (1)
-------------------- --------- --------------
<S> <C> <C>
Black Butte Coal Co. 1996-2007 $1,011
Decker Coal Co. 1996-2015 $ 713
Big Horn Coal Co. 1998 $ 22
Other commitments 1996 $ 3
</TABLE>
_______
(1) Estimated costs in millions of dollars FOB mine. No estimate of future
cost escalation has been made.
For additional information concerning these coal contracts and ComEd's fuel
supply, see "Results of Operations" below and Notes 1 and 21 of Notes to
Financial Statements.
CAPITAL RESOURCES. ComEd has forecast that internal sources will provide
more than three-fourths of the funds required for ComEd's construction program
and other capital requirements, including nuclear fuel expenditures,
contributions to nuclear decommissioning funds, sinking fund obligations and
refinancing of scheduled debt maturities (the annual sinking fund requirements
and scheduled maturities for ComEd preference stock and long-term debt are
summarized in Notes 7 and 9, respectively, of Notes to Financial Statements).
The forecast assumes the rate levels reflected in the Rate Order remain in
effect.
The type and amount of external financing will depend on financial market
conditions and the needs and capital structure of ComEd at the time of such
financing. A portion of ComEd's financing is expected to be provided through the
continued sale and leaseback of nuclear fuel through ComEd's existing nuclear
fuel lease facility. See Note 18 of Notes to Financial Statements for more
information concerning ComEd's nuclear fuel lease facility. ComEd has
approximately $915 million of unused bank lines of credit at December 31, 1995
which may be borrowed at various interest rates and which may be secured or
unsecured. The interest rate is set at the time of a borrowing and is based on
several floating rate bank indices plus a spread which is dependent upon ComEd's
credit ratings or on a prime interest rate. Collateral, if required for the
borrowings, would consist of first mortgage bonds issued under and in accordance
with the provisions of ComEd's mortgage. See Note 10 of Notes to Financial
Statements for information concerning lines of credit. See the Statements of
Consolidated Cash Flows for the construction expenditures and cash flow from
operating activities for the years 1995, 1994 and 1993.
During 1995, Unicom issued 424,480 shares of common stock for approximately
$11 million under its employee stock plans. The Trust also issued $200 million
of ComEd-obligated mandatorily redeemable preferred securities, the proceeds of
which were used to purchase ComEd's subordinated deferrable interest notes due
September 30, 2035. The proceeds of such notes were used by ComEd to refund
short-term debt incurred to meet current maturities of ComEd debt. ComEd sold
and leased back approximately $193 million of nuclear fuel through its existing
nuclear fuel lease facility.
As of January 26, 1996, ComEd has an effective "shelf" registration
statement with the SEC for the future sale of up to an additional $805 million
of debt securities and cumulative preference stock for general corporate
purposes of ComEd, including the discharge or refund of other outstanding
securities.
FINANCIAL CONDITION. ComEd's financial condition will continue to depend on
its ability to generate revenues to cover its costs and to maintain adequate
debt and preferred and preference stock coverages and common stock equity
earnings. ComEd has no significant revenues other than from the sale of
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<PAGE>
electricity. In December 1995, ComEd announced a cap on base electric rates at
current levels. Consequently, ComEd's financial condition will be affected by,
and ComEd's management is addressing, actions to maintain and increase sales, to
control operating and capital expenditures, and to anticipate competitive
activities. See "Business and Competition" and "Regulation" below.
During the past several years, ComEd has instituted cost reduction plans
including various workforce reductions. Such efforts included an offer of
voluntary early retirement which was made to ComEd and the Indiana Company
management, non-union and union employees eligible to retire or who became
eligible to retire after December 31, 1993 and before April 1, 1995. Such
program resulted in a charge to income of approximately $20.5 million (after
reflecting income tax effects), substantially all of which was recorded during
1994. ComEd is continuing to examine methods of reducing the size of its
workforce, including special severance offers. On October 30, 1995, ComEd
declared an impasse in the collective bargaining agreement negotiations with its
principal union and has implemented virtually all of the terms of its last
offered proposal prior to the impasse. Those terms include, among other things,
a wage increase retroactive to April 1, 1995 and a voluntary separation offer
for employees who accepted and left ComEd's employ by year-end 1995. The union
has filed an unfair labor practice charge with respect to ComEd's action with
the National Labor Relations Board. The voluntary separation offer, combined
with separation plans offered to selected groups of non-union employees,
resulted in a charge to income of approximately $59 million (after reflecting
income tax effects) or $0.27 per common share for the year 1995. This charge to
income occurred primarily in the fourth quarter of 1995 when most of the
acceptances of the offers occurred. ComEd expects to recover the costs of these
plans within two years as a result of reduced personnel.
ComEd has also examined, and is continuing to examine, the possibility of
disposing of one or more of its fossil generating stations to a third party or
parties and entering into a long-term power purchase arrangement. In connection
with such examination, ComEd has solicited and received binding proposals with
respect to such a transaction involving its State Line and Kincaid generating
stations; and it is negotiating with possible purchasers with respect to such
transactions. As presently structured, such transactions would involve a sale of
the generating station assets at a price approximating their book value and a
fifteen-year power purchase arrangement. Any such transactions would be subject
to the negotiation of definitive agreements and regulatory approvals and are not
expected to have a material impact on ComEd's consolidated financial position or
results of operations.
ComEd's securities and other securities guaranteed by ComEd are currently
rated by three principal securities rating agencies as follows:
<TABLE>
STANDARD DUFF &
MOODY'S & POOR'S PHELPS
------- -------- ------
<S> <C> <C> <C>
First mortgage and secured pollution
control bonds............................. Baa2 BBB BBB
Publicly-held debentures and unsecured
pollution control obligations............. Baa3 BBB- BBB-
Convertible preferred stock............... baa3 BBB- BBB-
Preference stock.......................... baa3 BBB- BBB-
ComEd-obligated mandatorily redeemable
preferred securities of the Trust........ baa3 BBB- BBB-
Commercial paper......................... P-2 A-2 D-2
</TABLE>
As of January 1996, Standard & Poor's rating outlook on ComEd remained
stable. As of October 1995, Moody's rating outlook on ComEd also remained
stable. In August 1995, Duff & Phelps upgraded its rating of ComEd's preferred
and preference stock from BB+ to BBB- and reaffirmed that its rating outlook on
ComEd remained stable.
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.
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The market place in which electric utilities like ComEd operate has become
more competitive as a result of technological and regulatory changes, 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. Also, a
number of electric utilities (including utilities bordering ComEd's service
area) have announced plans to combine, or have combined, to achieve certain size
and operating efficiencies in response to expected changes in the market place.
Finally, both the state and federal regulatory framework under which ComEd and
other electric utilities have operated are under review. In recent years, there
has been increasing debate at the state and federal levels regarding the
structure and regulation of the electric utility industry. In particular, these
discussions have focused on whether certain aspects of the industry, such as
generation, could be more efficiently provided under a more competitive scheme.
A central feature of the current debate over deregulation and changed
regulation in the electric utility industry is the extent to which electric
utilities will be permitted to recover so-called "stranded" or "strandable"
costs incurred to fulfill their duty to serve all of the electricity needs
within their service territories. These costs would be stranded to the extent
that market-based rates would be insufficient to allow for full recovery of the
investments.
ComEd cannot estimate its strandable investment with any degree of accuracy
at this time because of the number of variables involved. ComEd, however, is
taking steps, such as aggressive cost-cutting measures and accelerated
depreciation, to minimize its potential exposure. The regulatory and legislative
initiatives that ComEd has proposed, described below, contemplate a full
recovery of ComEd's costs to meet its duty to serve.
The Energy Policy Act of 1992 has had 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. In
March 1995, the FERC issued a NOPR seeking comments on proposals intended to
encourage a more competitive wholesale electric power market. The NOPR addresses
both open access transmission and stranded cost issues. ComEd is unable to
predict the structure and effect of any rule that the FERC may ultimately adopt
based upon the NOPR.
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 outside of the utilities'
regular service areas. 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. The Illinois Appellate Court reversed the
latter ICC decision, ruling that state law prohibited the confidential aspects
of the contracts. ComEd has petitioned the Illinois Supreme Court to review the
reversal. ComEd has also sought and received ICC approval for the eleven
contracts at special discount rates which it negotiated prior to the Illinois
Appellate Court's decision.
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<PAGE>
In 1994, 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 40
organizations, including representatives from the electric utility industry
(including ComEd), met to examine three broad issues: effects of regulation,
competition and future regulatory and legislative changes. In May 1995, the task
force issued its report sharing the views of the participants on the issues.
Legislation has been passed in Illinois to review the need for changes in
the regulatory framework under which Illinois electric utilities operate. The
Joint Committee on Electric Utility Regulatory Reform was created pursuant to
House/Senate Joint Resolution 21 to develop any legislative reform proposals it
finds necessary. A final legislative proposal is to be delivered by November 8,
1996. ComEd is participating as a member of the Technical Advisory Group. A bill
allowing utilities to submit plans for alternative regulation, such as price
caps or incentive regulation, has been signed by the Governor of Illinois. On
December 11, 1995, ComEd announced a series of customer initiatives as part of
its larger ongoing effort to address the need to give all customer classes the
opportunity to benefit from increased competition in the electric utility
business, while retaining the benefits (such as reliability) of current
regulation and ensuring utilities' cost recovery for commitments made under the
obligation to serve customers. The initiatives include (i) a five-year cap on
base electric rates at current levels, (ii) certain energy monitoring and
management programs designed to monitor and control energy usage, particularly
during certain peak periods, (iii) single statement, or unified, billing for
certain multi-site customers, (iv) certain incentives for manufacturing
customers looking to expand operations or to locate in northern Illinois and (v)
market pricing options for up to ten percent of certain large industrial
customers' existing electric energy requirements and all of their incremental
requirements. ComEd anticipates the initiatives will be fully implemented in
1997 and will reduce its revenues by approximately $42 million annually
(including the effects of previously implemented initiatives and before income
tax effects) primarily through changes in energy utilization and increase its
costs by at least $30 million annually (before income tax effects) through the
acceleration of depreciation charges on its nuclear generating units. ComEd
expects to file a request for ICC approval of the accelerated depreciation
initiatives in the near future. Management expects the financial impact of these
initiatives will be substantially offset by ComEd's cost reduction efforts and
expected growth in its business. ComEd also continues to consider the
possibility of additional accelerated depreciation options.
Under ComEd's initiatives, the five-year base rate cap at current levels
became effective in December 1995 and will extend until January 1, 2001. The
rate cap does not affect ComEd's fuel cost or nuclear decommissioning cost
recovery provisions. ComEd's fuel cost variances will continue to be collected
through its fuel adjustment clause, and such collections will continue to be
subject to annual reconciliation proceedings before the ICC. Nuclear
decommissioning cost variances will continue to be collected under a rider that
was approved in the Rate Order, and such rider is intended to allow annual
adjustments in decommissioning cost recoveries from ratepayers as changes in
cost estimates occur. See "Depreciation and Decommissioning" in Note 1 of
Notes to Financial Statements for additional information regarding the
decommissioning costs rider.
On December 13, 1995, ComEd announced a proposal to amend certain
provisions of the Illinois Public Utilities Act. The proposal would, among other
things, allow Illinois utilities to launch five-year experimental "direct
access" programs, whereby certain customers would have the opportunity to
obtain some of their electric energy requirements from their chosen supplier. If
the proposal is adopted as legislation, such "direct access" programs could
begin as early as 1998; and under the legislation, ComEd announced it would
offer such a program for new or expanded load of three megawatts or greater in
its northern Illinois service territory. Under ComEd's proposal, if such
"direct access" proves workable, and the ICC finds it to be in the public
interest, the ICC could order it as an option for all electricity consumers in
Illinois starting in 2003. Other Illinois utilities have also initiated both
legislative and regulatory proposals. Both Illinois Power Company and Central
Illinois Light Company have filed
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<PAGE>
proposed retail wheeling experiments with the ICC. These experiments are
currently the subject of hearings. ComEd cannot predict whether, or in what
form, these proposals may be approved. See "Regulation" and "Regulatory
Assets and Liabilities" in Note 1 of Notes to Financial Statements.
CAPITAL STRUCTURE. The ratio of ComEd's long-term debt to total
capitalization has decreased to 49.3% at December 31, 1995 from 54.6% at
December 31, 1994. This decrease is related primarily to the retirement and
early redemption of long-term debt.
UNREGULATED OPERATIONS
Unicom Enterprises is engaged, through a subsidiary, in energy service
activities which are not subject to utility regulation by state or federal
agencies. The subsidiary, Unicom Thermal, currently provides district cooling
services to office and other buildings from a central location in the city of
Chicago. District cooling involves, in essence, the production of chilled water
at a central location(s) and its circulation to and from such location(s) to
customers' buildings through a closed circuit of piping. Such water is
circulated through customers' premises for air conditioning. This process is
used in lieu of self-generated cooling utilizing CFC refrigerants. 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 and the city of
Chicago have entered into a non-exclusive franchise agreement. Unicom Thermal's
first plant began service in May 1995, and sufficient contracts have been
secured to utilize the full capacity of the plant. As of January 10, 1996,
Unicom Thermal Technologies Boston, a subsidiary of Unicom Thermal, has entered
into a limited liability corporation as a minority member with Boston Edison
Technologies Group to provide district cooling services to office and other
buildings in the city of Boston.
CAPITAL BUDGETS. Unicom Thermal has forecasted capital expenditures for the
years 1996-98 of approximately $100 million, primarily representing the
construction costs of its district cooling facilities in the city of Chicago.
Construction of its first district cooling facility was completed in May 1995
and cost approximately $30 million. Unicom Thermal began construction on two
additional cooling facilities in 1995. As of December 31, 1995, Unicom Thermal's
purchase commitments, principally related to construction, were approximately
$21 million.
CAPITAL RESOURCES. Unicom expects to obtain funds to invest in its
unregulated subsidiaries principally from dividends received on its ComEd common
stock and from bank borrowings. While the amount of dividends on ComEd common
stock is expected to be greater than the amount of dividends on Unicom common
stock, the availability of such dividends is dependent on ComEd's financial
performance and cash position. Other forms of financing by ComEd of Unicom or
the unregulated subsidiaries, such as loans or additional equity investments
(none of which is expected), would be subject to the prior approval of the ICC.
Unicom Enterprises has a $200 million credit facility which will expire in
1998 of which $158 million was unused as of December 31, 1995. The credit
facility can be used by Unicom Enterprises to finance investments in unregulated
energy-related businesses and projects, including Unicom Thermal, and for
general corporate purposes. The credit facility is guaranteed by Unicom and
includes certain covenants with respect to Unicom's and Unicom Enterprises'
operations. Interest rates for borrowings under the credit facility are set at
the time of a borrowing and are based on either a prime interest rate or a
floating rate bank index plus a spread which varies with the credit rating of
ComEd's outstanding first mortgage bonds. See Note 10 of Notes to Financial
Statements for additional information regarding certain covenants with respect
to Unicom's and Unicom Enterprises' operations.
REGULATION
ComEd and the Indiana Company are subject to state and federal regulation
in the conduct of their respective businesses, including the operations of
Cotter. Such regulation includes rates, securities
B-9
<PAGE>
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 1993, 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
in late 1993 (see Note 2 of Notes to Financial Statements). The effects of such
settlements during 1993 and 1994 are discussed below under "Results of
Operations."
On January 9, 1995, the ICC issued its Rate Order in the proceedings
relating to ComEd's February 1994 rate increase request. The Rate Order
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 ComEd began collecting such costs 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.
See "Depreciation and Decommissioning" in Note 1 of Notes to Financial
Statements for information related to the level of decommissioning cost
collections allowed in the Rate Order and subsequent rider proceedings. The ICC
also determined that the Units were 100% "used and useful" and that the
previously determined reasonable costs of such Units, as depreciated, should be
included in full in ComEd's rate base. The rates provided in the Rate Order
became effective on January 14, 1995; however, they are being collected subject
to refund as a result of subsequent judicial action. As of December 31, 1995,
electric operating revenues of approximately $319 million (excluding revenue
taxes) are subject to refund. Intervenors and ComEd have filed appeals of the
Rate Order with the Illinois Appellate Court.
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. In
June 1995, the NRC reported that over the past year performance at Dresden was
cyclical; that plant material condition needed to be improved at Dresden and
that a more effective work management system was needed to deal with the
corrective maintenance backlog. In January 1996, the NRC noted improvement but
indicated that certain of the same concerns continue to exist. The NRC also
stated that the effectiveness of the recent improvement efforts must be
sustained. 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, and that 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. In February and June 1995, the NRC concluded that
LaSalle County and Quad-Cities, respectively, had arrested the adverse trends in
most areas and "normal" designation has been reestablished.
Because of the age of Zion, Dresden and Quad-Cities stations, ComEd
anticipates continued expenditures in order to improve reliability and to meet
NRC regulatory expectations. Beginning in late 1992, ComEd restructured its
management of its nuclear operations division and since that time has committed
additional resources to the stations' operations. In addition, generating
station availability and performance during a year may be issues in fuel
reconciliation proceedings in assessing the prudence of fuel and power purchases
during such year. Final ICC orders have been issued in fuel reconciliation
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<PAGE>
proceedings for years prior to 1994; however, certain intervenors have appealed
the ICC order in the 1989 fuel reconciliation proceedings on issues relating to
nuclear station performance.
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 $3.7
billion in current-year (1996) dollars, are expected to be funded by external
decommissioning trusts which ComEd established in compliance with Illinois law
and into which ComEd has been making annual contributions. Future
decommissioning cost estimates may be significantly affected by the adoption of
or changes to NRC regulations as well as changes in the assumptions used in
making such estimates. See Note 1 of Notes to Financial Statements under
"Depreciation and Decommissioning" for additional information regarding
decommissioning costs.
ENVIRONMENTAL MATTERS. ComEd is involved in administrative and legal
proceedings concerning air quality, water quality and other matters. The outcome
of these proceedings may require increases in future construction expenditures
and operating expenses and changes in operating procedures. See Note 21 of Notes
to Financial Statements for information regarding certain effects of CERCLA on
ComEd.
RESULTS OF OPERATIONS
Unicom's earnings per common share were $2.98 in 1995, $1.66 in 1994 and
$0.22 in 1993. Substantially all of the results of operations for Unicom are the
results of operations for ComEd. The results of Unicom's unregulated
subsidiaries are not material to the results of Unicom and subsidiary companies
as a whole. As such, the following section discusses the results of operations
for ComEd alone.
NET INCOME. The 1995 results reflect higher revenues primarily as a result
of higher kilowatthour sales and the higher rate levels which became effective
in January 1995 under the Rate Order. The higher kilowatthour sales reflect the
unusually hot summer weather in 1995. The 1995 results were also affected by
higher operation and maintenance expenses, which reflect an after-tax charge of
$59 million or $0.27 per common share for a voluntary separation offer for union
employees who accepted and left ComEd's employ by year-end 1995 combined with
separation plans offered to selected groups of non-union employees. ComEd also
recorded an after-tax charge of $20 million or $0.09 per common share related to
the early redemption of $645 million of long-term debt.
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. The 1994 results also reflect 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 of $20 million or $0.09 per common share for
additional pension costs related to an early retirement offer made to certain
employees during 1994. ComEd also recorded a reduction in the carrying value of
its investments in uranium-related properties in 1994, which reduced net income
by $34 million or $0.16 per common share.
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 $10 million or $0.05 per common share as
a result
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<PAGE>
of the adoption of SFAS No. 109, Accounting for Income Taxes. 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.
KILOWATTHOUR SALES. Kilowatthour sales to ultimate consumers increased 4.6%
in 1995, 2.8% in 1994 and 4.6% in 1993 as a result of increased sales to all
classes of customers, except railroads, which decreased during each year,
reflecting progressively warmer summers (particularly in 1995) and, in 1994,
colder winter weather than in 1993. The service territory economy also improved
during 1994, which contributed to the increase in kilowatthour sales.
Kilowatthour sales including sales for resale increased 7.3% in 1995, decreased
3.0% in 1994 and increased 16.0% in 1993.
OPERATING REVENUES. ComEd's operating revenues increased $632 million in
1995 principally reflecting the higher kilowatthour sales described above and
higher rate levels under the Rate Order. 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 clause 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 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 clause in ComEd's
rates. See "Net Income" above and Note 2 of Notes to Financial Statements for
additional information.
FUEL COSTS. Changes in fuel expense for 1995, 1994 and 1993 primarily
resulted from changes in the average cost of fuel consumed, changes in the mix
of fuel sources of electric energy generated and changes in net generation of
electric energy. Fuel mix is determined primarily by system load, the costs of
fuel consumed and the availability of nuclear generating units. The cost of fuel
consumed, net generation of electric energy and fuel sources of kilowatthour
generation were as follows:
<TABLE>
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Cost of fuel consumed (per million Btu):
Nuclear....................................... $0.52 $0.53 $0.52
Coal.......................................... $2.43 $2.31 $2.89
Oil........................................... $3.06 $2.89 $3.03
Natural gas................................... $1.85 $2.27 $2.70
Average all fuels............................. $1.05 $1.08 $1.15
Net generation of electric energy
(millions of kilowatthours).................... 96,608 90,243 94,266
Fuel sources of kilowatthour generation:
Nuclear....................................... 73% 71% 75%
Coal.......................................... 24 25 23
Oil........................................... -- 1 1
Natural gas................................... 3 3 1
----- ----- -----
100% 100% 100%
----- ----- -----
----- ----- -----
</TABLE>
Under the Energy Policy Act of 1992, investor-owned electric utilities that
have purchased enrichment services from the DOE are being assessed amounts to
fund a portion of the cost for the decontamination and decommissioning of
uranium enrichment facilities owned and previously operated by the DOE. ComEd's
portion of such assessments is estimated to be approximately $15 million per
year (to be adjusted annually for inflation) to 2007. The Act provides that such
assessments are to be treated as a cost of fuel. See Note 1 of Notes to
Financial Statements under "Deferred Unrecovered Energy Costs" for information
related to the accounting for such costs.
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FUEL SUPPLY. Compared to other utilities, ComEd has relatively low average
fuel costs as a result of its reliance predominantly on lower cost nuclear
generation. ComEd's coal costs, however, are high compared to those of other
utilities. ComEd's western coal contracts and its rail contracts for delivery of
the western coal provide for the purchase of certain coal at prices
substantially above currently prevailing market prices and ComEd has significant
purchase commitments under its contracts. In addition, as of December 31, 1995,
ComEd had unrecovered fuel costs in the form of coal reserves of approximately
$448 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 21 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>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Kilowatthours (millions). . . . 2,475 2,071 644
Cost per kilowatthour . . . . . 2.60 cents 2.86 cents 1.91 cents
</TABLE>
DEFERRED UNDER OR OVERRECOVERED ENERGY COSTS--NET. Fuel expenses for the
years 1995, 1994 and 1993 include the net change in under or overrecovered
allowable energy costs under ComEd's fuel adjustment clause. See "Fuel Costs"
and "Fuel Supply" above and Note 1 of Notes to Financial Statements under
"Deferred Unrecovered Energy Costs."
OPERATION AND MAINTENANCE EXPENSES. ComEd's operation and maintenance
expenses increased 4% during 1995, increased 2% during 1994 and decreased 4%
during 1993. The increase in 1995 primarily reflects increased expenses for
costs related to voluntary employee separation plans, nuclear and fossil
generating stations, customer-related activities and incentive compensation
programs, partially offset by lower expenses associated with transmission and
distribution facilities, certain administrative and general costs and pensions
and other employee benefits, including postretirement health care benefits. The
increase in 1994 primarily reflects increased expenses associated with pensions
and other employee benefits, incentive compensation programs, nuclear and fossil
generating stations, and certain administrative and general costs, partially
offset by lower expenses associated with transmission and distribution
facilities. The decrease in 1993 primarily reflects decreased expenses
associated with nuclear and fossil generating stations, 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.
Wage increases, the effects of which are reflected in the increases and
decreases discussed below, have increased operation and maintenance expenses
during 1995 and 1994. Wages in 1993 were not increased over 1992 levels.
Operation and maintenance expenses in 1995 and 1994 include approximately $16
million and $20 million, respectively, for wage increases. The effects of
inflation have increased operation and maintenance expenses during the years and
are also reflected in the increases and decreases discussed below.
Operation and maintenance expenses for pensions and other employee
benefits, including postretirement health care benefits, decreased $40 million
in 1995, increased $30 million in 1994 and decreased $2 million in 1993. The
1995 decrease reflects a decrease of $40 million in the provision for
postretirement health care costs, partially offset by a $25 million increase for
the portion of the costs of the voluntary employee separation plans related to
postretirement health care benefits and an increase of $9 million for certain
other employee benefits. The 1994 increase includes a $34 million increase in
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pension costs related to an early retirement program offered in 1994. See
"Liquidity and Capital Resources," subcaption "Financial Condition," for
additional information regarding the employee separation plans offered in 1995
and the 1994 early retirement program. The 1993 decrease reflects a decrease in
pension benefits of $16 million which was partially offset by an increase in
postretirement health care benefits of $14 million. The increase in
postretirement health care benefits in 1993 reflects $17 million as a result of
adopting SFAS No. 106, Employers' Accounting for Postretirement Benefits Other
Than Pensions.
Operation and maintenance expenses in 1995 also reflect $72 million for the
portion of the costs of the voluntary employee separation plans not related to
the postretirement health care benefits described above. See "Liquidity and
Capital Resources," subcaption "Financial Condition," above for information
regarding the employee separation plans offered in 1995.
Operation and maintenance expenses associated with the nuclear generating
stations tend to be affected by the number of outages (both scheduled and non-
scheduled) of the units, during which a greater number of activities related to
inspection, maintenance and improvement are scheduled and carried out. Such
expenses increased $32 million in 1995, increased $9 million in 1994 and
decreased $74 million in 1993. The increase in 1995 is primarily due to
increased expenses related to the plant improvement efforts at Dresden and Zion
stations. The increase in 1994 is due to activities undertaken during increased
scheduled and non-scheduled outages. The decrease in 1993 includes the effects
of ComEd's cost reduction efforts, including re-engineering and process
improvements, eliminating unnecessary work and increasing the efficiency at
which the remaining work was performed. 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 also tend to be affected by the number of outages in the same manner as
nuclear generating stations. Such expenses increased $8 million in 1995,
increased $4 million in 1994 and decreased $13 million in 1993. The increase in
1995 reflects the cost for the increase in scope of scheduled overhauls
partially offset by the net effect of a reduction of personnel. 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.
Operation and maintenance expenses associated with ComEd's transmission and
distribution system decreased $3 million and $18 million in 1995 and 1994,
respectively. The decreases in 1995 and 1994 reflect the effects of ComEd's cost
containment efforts. Costs of customer-related activities, including customer
assistance and energy sales services, increased $10 million in 1995 and
decreased $13 million in 1993.
Operation and maintenance expenses reflect $65 million, $50 million and
$36 million for employee incentive compensation plan costs related to the
achievement of certain financial performance, cost containment and operating
performance goals in 1995, 1994 and 1993, respectively.
Certain administrative and general costs decreased $16 million in 1995 and
increased $12 million in 1994. The decrease in 1995 was due to a variety of
reasons including a decrease in expenses related to insurance, injuries and
damages and the provision for vacation pay liability. The increase in 1994 is
primarily due to increased provisions for injuries and damages and obsolete
materials.
DEPRECIATION. Depreciation expense increased in 1995, 1994 and 1993 as a
result of additions to plant in service. See "Depreciation and
Decommissioning" in Note 1 of Notes to Financial Statements for additional
information. ComEd also intends to seek authorization from the ICC to accelerate
the depreciation charges on its nuclear generating units. See "Business and
Competition" under "Liquidity and Capital Resources."
B-14
<PAGE>
INTEREST ON DEBT. Changes in interest on long-term debt and notes payable
for the years 1995, 1994 and 1993 were due to changes in average interest rates
and in the amounts of long-term debt and notes payable outstanding. Changes in
interest on ComEd's long-term debt also reflected new issues of debt, the
retirement and early redemption of debt, and the retirement and redemption of
issues which were refinanced at generally lower rates of interest. The average
amounts of ComEd's long-term debt and notes payable outstanding and average
interest rates thereon were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Long-term debt outstanding:
Average amount (millions) . . . . . $7,528 $7,934 $8,105
Average interest rate . . . . . . . 7.78% 7.83% 8.03%
Notes payable outstanding:
Average amount (millions) . . . . . $ 51 $ 9 $ 6
Average interest rate . . . . . . . 6.40% 6.48% 5.83%
</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 was
$13 million in 1995 and 1994 and was $2 million in 1993.
DECOMMISSIONING. The staff of the SEC has questioned certain of the current
accounting practices of the electric utility industry, including ComEd,
regarding the recognition, measurement and classification of decommissioning
costs for nuclear generating stations in financial statements of electric
utilities. In response to these questions, the FASB is reviewing the accounting
for nuclear decommissioning costs. If current electric utility industry
accounting practices for such decommissioning costs are changed, annual
provisions for decommissioning could increase and the estimated cost for
decommissioning could be recorded as a liability rather than as accumulated
depreciation. Unicom does not believe that such changes, if required, would have
an adverse effect on results of operations due to ComEd's current and future
ability to recover decommissioning costs through rates.
INVESTMENTS IN URANIUM-RELATED PROPERTIES. In May 1994, ComEd recorded a
reduction in the carrying value of its investments in uranium-related properties
after completing a review of various alternatives and reassessing the long-term
recoverability of those investments. The effects of the reduction reduced 1994
net income by $34 million or $0.16 per common share.
OTHER ITEMS. The amounts of AFUDC reflect changes in the average levels of
investment subject to AFUDC and changes in the average annual capitalization
rates as discussed in Note 1 of Notes to Financial Statements. AFUDC does not
contribute to the current cash flow of Unicom or ComEd.
ComEd's ratios of earnings to fixed charges for the years 1995, 1994 and
1993 were 2.79, 1.99 and 1.19, respectively. ComEd's ratios of earnings to fixed
charges and preferred and preference stock dividend requirements for the years
1995, 1994 and 1993 were 2.39, 1.73 and 1.03, 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.
B-15
<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, 1995 and 1994, and the related
statements of consolidated income, retained earnings and cash flows for each of
the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Unicom Corporation and
subsidiary companies as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 26, 1996
B-16
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED INCOME
The following Statements of Consolidated Income for the years 1995, 1994
and 1993 reflect the results of past operations and are not intended as any
representation as to results of operations for any future period. Future
operations will necessarily be affected by various and diverse factors and
developments, including changes in electric rates, population, business
activity, competition, taxes, environmental control, energy use, fuel supply,
cost of labor, fuel and purchased power and other matters, the nature and effect
of which cannot now be determined.
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- -----------
(THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
OPERATING REVENUES:
Operating revenues . . . . . . . . . . . . . . . . . . . . . $6,910,045 $6,293,430 $ 6,547,205
Provisions for revenue refunds . . . . . . . . . . . . . . . -- (15,909) (1,286,765)
---------- ---------- -----------
$6,910,045 $6,277,521 $ 5,260,440
---------- ---------- -----------
OPERATING EXPENSES AND TAXES:
Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,087,109 $1,051,793 $ 1,169,178
Purchased power. . . . . . . . . . . . . . . . . . . . . . . 64,378 59,123 12,303
Operation and maintenance. . . . . . . . . . . . . . . . . . 2,175,439 2,094,655 2,039,403
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . 898,035 887,466 862,766
Recovery of regulatory assets. . . . . . . . . . . . . . . . 15,272 15,453 5,235
Taxes (except income). . . . . . . . . . . . . . . . . . . . 833,356 787,796 701,913
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . 526,567 326,744 95,251
Investment tax credits deferred--net . . . . . . . . . . . . (28,710) (28,757) (29,424)
---------- ---------- -----------
$5,571,446 $5,194,273 $ 4,856,625
---------- ---------- -----------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . . $1,338,599 $1,083,248 $ 403,815
---------- ---------- -----------
OTHER INCOME AND (DEDUCTIONS):
Interest on long-term debt . . . . . . . . . . . . . . . . . $ (587,438) $ (621,225) $ (651,181)
Interest on notes payable. . . . . . . . . . . . . . . . . . (3,280) (557) (334)
Allowance for funds used during construction--
Borrowed funds. . . . . . . . . . . . . . . . . . . . . 11,137 18,912 16,930
Equity funds. . . . . . . . . . . . . . . . . . . . . . 13,129 22,628 20,618
Income taxes applicable to nonoperating activities . . . . . 5,085 27,074 30,705
Deferred carrying charges. . . . . . . . . . . . . . . . . . -- -- 438,183
Interest and other costs for 1993 Settlements. . . . . . . . (61) (21,464) (98,674)
Provision for dividends on--
Preferred and preference stocks of ComEd. . . . . . . . (69,961) (64,927) (66,052)
ComEd-obligated mandatorily redeemable preferred
securities of subsidiary trust. . . . . . . . . . . . (4,428) -- --
Miscellaneous--net . . . . . . . . . . . . . . . . . . . . . (43,249) (88,755) (57,360)
---------- ---------- -----------
$ (679,066) $ (728,314) $ (367,165)
---------- ---------- -----------
NET INCOME BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING FOR INCOME TAXES. . . . . . . . . . . . . $ 659,533 $ 354,934 $ 36,650
EXTRAORDINARY LOSS RELATED TO EARLY REDEMPTION OF LONG-TERM
DEBT, LESS APPLICABLE INCOME TAXES . . . . . . . . . . . . . . (20,022) -- --
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR INCOME TAXES . . . -- -- 9,738
---------- ---------- -----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 639,511 $ 354,934 $ 46,388
---------- ---------- -----------
---------- ---------- -----------
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING. . . . . . . . . . . 214,691 214,031 213,508
EARNINGS PER COMMON SHARE BEFORE EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR INCOME TAXES . . $ 3.07 $ 1.66 $ 0.17
EXTRAORDINARY LOSS RELATED TO EARLY REDEMPTION OF LONG-TERM
DEBT, LESS APPLICABLE INCOME TAXES . . . . . . . . . . . . . . (0.09) -- --
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR INCOME TAXES . . . -- -- 0.05
---------- ---------- -----------
EARNINGS PER COMMON SHARE. . . . . . . . . . . . . . . . . . . . $ 2.98 $ 1.66 $ 0.22
---------- ---------- -----------
---------- ---------- -----------
CASH DIVIDENDS DECLARED PER COMMON SHARE . . . . . . . . . . . . $ 1.60 $ 1.60 $ 1.60
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
B-17
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
ASSETS 1995 1994
------ ----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
UTILITY PLANT:
Plant and equipment, at original cost (includes construction work in
progress of $1,105 million and $1,043 million, respectively).................. $27,052,778 $26,257,665
Less--Accumulated provision for depreciation.................................... 10,565,093 9,623,756
----------- -----------
$16,487,685 $16,633,909
Nuclear fuel, at amortized cost................................................. 734,667 689,424
----------- -----------
$17,222,352 $17,323,333
----------- -----------
INVESTMENTS AND OTHER PROPERTY:
Nuclear decommissioning funds................................................... $ 1,237,527 $ 880,944
Subsidiary companies............................................................ 113,657 118,051
Other, at cost.................................................................. 96,937 41,292
----------- -----------
$ 1,448,121 $ 1,040,287
----------- -----------
CURRENT ASSETS:
Cash............................................................................ $ 3,575 $ 1,927
Temporary cash investments...................................................... 47,801 75,008
Other cash investments.......................................................... -- 19,588
Special deposits................................................................ 3,546 29,603
Receivables--
Customers..................................................................... 580,254 463,386
Taxes......................................................................... 82,319 36,083
Other......................................................................... 83,151 67,389
Provisions for uncollectible accounts......................................... (11,828) (10,720)
Coal and fuel oil, at average cost.............................................. 129,176 108,872
Materials and supplies, at average cost......................................... 333,539 384,612
Deferred unrecovered energy costs............................................... 46,028 48,697
Deferred income taxes related to current assets and liabilities--
Loss carryforward............................................................. -- 10,090
Other......................................................................... 107,991 110,267
Prepayments and other........................................................... 45,272 57,050
----------- -----------
$ 1,450,824 $ 1,401,852
----------- -----------
DEFERRED CHARGES AND OTHER NONCURRENT ASSETS:
Regulatory assets............................................................... $ 2,467,386 $ 2,604,270
Unrecovered energy costs........................................................ 588,152 643,438
Other........................................................................... 70,153 108,308
----------- -----------
$ 3,125,691 $ 3,356,016
----------- -----------
$23,246,988 $23,121,488
----------- -----------
----------- -----------
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
B-18
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
CAPITALIZATION AND LIABILITIES 1995 1994
------------------------------ ----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
CAPITALIZATION (see accompanying statements):
Common stock equity........................................................ $ 5,769,637 $ 5,448,127
Preferred and preference stocks of ComEd--
Without mandatory redemption requirements................................ 508,034 508,147
Subject to mandatory redemption requirements............................. 261,475 292,163
ComEd-obligated mandatorily redeemable preferred securities of
subsidiary trust*........................................................ 200,000 --
Long-term debt............................................................. 6,549,335 7,453,206
----------- -----------
$13,288,481 $13,701,643
----------- -----------
CURRENT LIABILITIES:
Notes payable--
Commercial paper........................................................ $ 261,000 $ --
Bank loans.............................................................. 7,150 7,150
Current portion of long-term debt, redeemable preference stock and
capitalized lease obligations of subsidiary companies................... 434,563 560,545
Accounts payable.......................................................... 606,806 351,081
Accrued interest.......................................................... 171,488 182,622
Accrued taxes............................................................. 215,966 206,973
Dividends payable......................................................... 102,497 102,647
Customer deposits......................................................... 44,521 44,514
Other..................................................................... 93,841 85,845
----------- -----------
$ 1,937,832 $ 1,541,377
----------- -----------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:
Deferred income taxes..................................................... $ 4,506,043 $ 4,383,347
Accumulated deferred investment tax credits............................... 689,041 717,752
Accrued spent nuclear fuel disposal fee and related interest.............. 624,191 589,757
Obligations under capital leases of subsidiary companies.................. 375,524 433,184
Regulatory liabilities.................................................... 601,002 699,426
Other..................................................................... 1,224,874 1,055,002
----------- -----------
$ 8,020,675 $ 7,878,468
----------- -----------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 21)
$23,246,988 $23,121,488
----------- -----------
----------- -----------
</TABLE>
*As described in Note 8 of Notes to Financial Statements, the sole asset of
ComEd Financing I, a subsidiary trust of ComEd, is $206.2 million principal
amount of ComEd's 8.48% subordinated deferrable interest notes due September 30,
2035.
The accompanying Notes to Financial Statements are an integral part of the
above statements.
B-19
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CAPITALIZATION
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1995 1994
----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
COMMON STOCK EQUITY:
Common stock, without par value--
Outstanding--214,947,629 shares and 214,340,067 shares,
respectively........................................................ $ 4,916,438 $ 4,890,931
Preference stock expense of ComEd....................................... (3,694) (3,775)
Retained earnings....................................................... 856,893 560,971
----------- -----------
$ 5,769,637 $ 5,448,127
----------- -----------
PREFERRED AND PREFERENCE STOCKS OF COMED--
WITHOUT MANDATORY REDEMPTION REQUIREMENTS:
Preference stock, cumulative, without par value--
Outstanding--13,499,549 shares...................................... $ 504,957 $ 504,957
$1.425 convertible preferred stock, cumulative, without par value--
Outstanding--96,753 shares and 100,323 shares, respectively......... 3,077 3,190
Prior preferred stock, cumulative, $100 par value per share--
No shares outstanding............................................... -- --
----------- -----------
$ 508,034 $ 508,147
----------- -----------
SUBJECT TO MANDATORY REDEMPTION REQUIREMENTS:
Preference stock, cumulative, without par value--
Outstanding--2,934,990 shares and 3,113,205 shares,respectively....... $ 292,163 $ 309,964
Current redemption requirements for preference stock included
in current liabilities................................................ (30,688) (17,801)
----------- -----------
$ 261,475 $ 292,163
----------- -----------
COMED-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF
SUBSIDIARY TRUST:
Outstanding--8,000,000 and none, respectively........................... $ 200,000 $ --
----------- -----------
LONG-TERM DEBT:
First mortgage bonds:
Maturing 1995 through 2000--5-1/4% to 9-3/8%............................ $ 1,170,000 $ 1,273,000
Maturing 2001 through 2010--5.30% to 8-3/8%............................. 1,465,400 1,765,500
Maturing 2011 through 2020--5.85% to 9-7/8%............................. 1,266,000 1,591,000
Maturing 2021 through 2023--7-3/4% to 9-1/8%............................ 1,385,000 1,385,000
----------- -----------
$ 5,286,400 $ 6,014,500
Sinking fund debentures, due 1999 through 2011--2-3/4% to 7-5/8%.......... 110,505 112,593
Pollution control obligations, due 2004 through 2014--4.434% to
9-1/8%.................................................................. 317,200 337,200
Other long-term debt...................................................... 1,126,318 1,451,449
Current maturities of long-term debt included in current liabilities...... (235,992) (395,554)
Unamortized net debt discount and premium................................. (55,096) (66,982)
----------- -----------
$ 6,549,335 $ 7,453,206
----------- -----------
$13,288,481 $13,701,643
----------- -----------
----------- -----------
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
B-20
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED RETAINED EARNINGS
<TABLE>
<CAPTION>
1995 1994 1993
---------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
BALANCE AT BEGINNING OF YEAR................. $ 560,971 $549,152 $847,186
ADD--Net income.............................. 639,511 354,934 46,388
---------- -------- --------
$1,200,482 $904,086 $893,574
---------- -------- --------
DEDUCT--
Cash dividends declared on common stock... $ 343,619 $342,561 $341,683
Other capital stock transactions--net..... (30) 554 2,739
---------- -------- --------
$ 343,589 $343,115 $344,422
---------- -------- --------
BALANCE AT END OF YEAR $ 856,893 $560,971 $549,152
---------- -------- --------
---------- -------- --------
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
B-21
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
1995 1994 1993
---------- ------------ -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income............................................................... $ 639,511 $ 354,934 $ 46,388
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................................ 949,413 929,365 911,139
Deferred income taxes and investment tax credits--net................ 156,938 126,281 84,500
Extraordinary loss related to early redemption of long-term debt..... 33,158 -- --
Cumulative effect of change in accounting for income taxes........... -- -- (9,738)
Equity component of allowance for funds used during construction..... (13,129) (22,628) (20,618)
Provisions for revenue refunds and related interest.................. (231) 37,548 1,354,197
Revenue refunds and related interest................................. 15,135 (1,221,650) (190,723)
Recovery/(deferral) of regulatory assets/deferred carrying charges--net 15,272 15,453 (432,948)
Provisions/(payments) for liability for early retirement
and separation costs--net.......................................... 60,713 33,580 (1,816)
Net effect on cash flows of changes in:
Receivables....................................................... (177,758) 114,215 (157,405)
Coal and fuel oil................................................. (20,304) 2,880 215,382
Materials and supplies............................................ 51,073 18,102 1,834
Accounts payable adjusted for nuclear fuel lease principal
payments and early retirement and separation costs--net......... 458,410 116,688 278,946
Accrued interest and taxes........................................ (2,141) 70,408 (39,234)
Other changes in certain current assets and liabilities........... 26,545 (55,843) (6,637)
Other--net........................................................... 139,830 134,515 109,361
----------- ---------- -----------
$ 2,332,435 $ 653,848 $ 2,142,628
----------- ---------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Construction expenditures................................................ $ (927,327) $ (739,679) $ (842,591)
Nuclear fuel expenditures................................................ (289,118) (257,264) (261,370)
Equity component of allowance for funds used during construction......... 13,129 22,628 20,618
Contributions to nuclear decommissioning funds........................... (132,653) (132,550) (132,550)
Investment in subsidiary companies....................................... (8) (49) --
Other investments and special deposits................................... (1,612) 621,987 (619,349)
----------- ---------- -----------
$(1,337,589) $ (484,927) $(1,835,242)
----------- ---------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of securities--
Long-term debt......................................................... $ 62,000 $ 546,289 $ 1,927,296
Preferred securities of subsidiary trust............................... 200,000 -- --
Capital stock.......................................................... 25,411 81,037 80,585
Retirement and redemption of securities--
Long-term debt......................................................... (1,137,272) (703,930) (1,900,540)
Capital stock.......................................................... (17,822) (17,709) (93,081)
Deposits and securities held for retirement and redemption of securities. 106 3,191 241,731
Premium paid on early redemption of long-term debt....................... (25,823) (4,564) (78,395)
Cash dividends paid on common stock...................................... (343,375) (342,322) (341,505)
Proceeds from sale/leaseback of nuclear fuel............................. 193,215 306,649 204,254
Nuclear fuel lease principal payments.................................... (237,845) (209,689) (245,968)
Increase in short-term borrowings........................................ 261,000 1,200 350
----------- ---------- -----------
$(1,020,405) $ (339,848) $ (205,273)
----------- ---------- -----------
INCREASE (DECREASE) IN CASH AND TEMPORARY CASH INVESTMENTS................. $ (25,559) $ (170,927) $ 102,113
CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF YEAR................... 76,935 247,862 145,749
----------- ---------- -----------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF YEAR......................... $ 51,376 $ 76,935 $ 247,862
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
B-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. The preferred and preference stocks, common
stock purchase warrants, first mortgage bonds and other debt obligations of
ComEd were unchanged in the restructuring and remain as ComEd's outstanding
securities and obligations.
ComEd, an electric utility, is the principal subsidiary of Unicom. Unicom
Enterprises is an unregulated subsidiary of Unicom and is engaged, through a
subsidiary, Unicom Thermal, in energy service activities. Unicom also has
several other subsidiaries that have been formed to engage in unregulated
activities.
The consolidated financial statements include the accounts of Unicom,
ComEd, the Indiana Company, ComEd Financing I and Unicom's unregulated
subsidiaries. All significant intercompany transactions have been eliminated.
ComEd's investments in other subsidiary companies, which are not material in
relation to ComEd's financial position or results of operations, are accounted
for in accordance with the equity method of accounting.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
REGULATION. ComEd is subject to regulation as to accounting and ratemaking
policies and practices by the ICC and FERC. ComEd's accounting policies and the
accompanying consolidated financial statements conform to generally accepted
accounting principles applicable to rate-regulated enterprises and reflect the
effects of the ratemaking process in accordance with SFAS No. 71, Accounting for
the Effects of Certain Types of Regulation. Such effects concern mainly the time
at which various items enter into the determination of net income in order to
follow the principle of matching costs and revenues.
B-23
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
REGULATORY ASSETS AND LIABILITIES. Regulatory assets are incurred costs
which have been deferred and are amortized for ratemaking and accounting
purposes. Regulatory liabilities represent amounts to be settled with customers
through future rates. Regulatory assets and liabilities reflected on the
Consolidated Balance Sheets at December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1995 1994
---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Regulatory assets:
Deferred income taxes (1)........................ $1,689,832 $1,791,395
Deferred carrying charges (2).................... 409,923 422,966
Nuclear decommissioning costs--Dresden Unit 1 (3) 138,058 141,405
Unamortized loss on reacquired debt (4).......... 160,440 176,128
Other............................................ 69,133 72,376
---------- ----------
$2,467,386 $2,604,270
---------- ----------
---------- ----------
Regulatory liabilities:
Deferred income taxes (1)........................ $ 601,002 $ 650,813
Other............................................ -- 48,613
---------- ----------
$ 601,002 $ 699,426
---------- ----------
---------- ----------
</TABLE>
- -------------
(1) Recorded in compliance with SFAS No. 109.
(2) Amortized over the remaining lives of the Units.
(3) Amortized over the remaining life of Dresden station. See "Depreciation
and Decommissioning" below for additional information.
(4) Amortized over the remaining lives of the long-term debt issued to finance
the reacquisition. See "Loss on Reacquired Debt" below for additional
information.
For additional information related to deferred carrying charges, see "Deferred
Carrying Charges" under the subcaption "Results of Operations" in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." See also "Deferred Unrecovered Energy Costs" below regarding the
fuel adjustment clause, the DOE assessment and coal reserves.
If a portion of ComEd's operations was no longer subject to the provisions
of SFAS No. 71 as a result of a change in regulation or the effects of
competition, ComEd would be required to write off the related regulatory assets
and liabilities. In addition, ComEd would be required to determine any
impairment to other assets and write down such assets to their fair value.
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, which will be adopted on January 1, 1996,
establishes accounting standards for the impairment of long-lived assets. The
SFAS also requires that regulatory assets which are no longer probable of
recovery through future revenue be charged to earnings. SFAS No. 121 is not
expected to have an impact on ComEd's financial position or results of
operations upon adoption.
CUSTOMER RECEIVABLES AND REVENUES. ComEd is engaged principally in the
production, purchase, transmission, distribution and sale of electricity to a
diverse base of residential, commercial and industrial customers. ComEd's
electric service territory has an area of approximately 11,540 square miles and
an estimated population of approximately eight million as of December 31, 1995,
1994 and 1993. It includes the city of Chicago, an area of about 225 square
miles with an estimated population of approximately three million from which
ComEd derived approximately one-third of its ultimate consumer revenues in 1995.
ComEd had approximately 3.4 million electric customers at December 31, 1995.
DEPRECIATION AND DECOMMISSIONING. ComEd's depreciation is provided on the
straight-line basis by amortizing the cost of depreciable plant and equipment
over estimated composite service lives. Non-nuclear plant and equipment is
depreciated at annual rates developed for each class of plant based on
B-24
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
their composite service lives. Provisions for depreciation were at average
annual rates of 3.14%, 3.13% and 3.12% of average depreciable utility plant and
equipment for the years 1995, 1994 and 1993, respectively. The annual rate for
nuclear plant and equipment is 2.88%, which excludes separately collected
decommissioning costs. See Note 3 for additional information concerning ComEd's
announcement of customer initiatives which include the acceleration of
depreciation charges on nuclear generating units.
Nuclear plant decommissioning costs are accrued over the expected service
lives of the related nuclear generating units. The accrual is based on an annual
levelized cost of the unrecovered portion of estimated decommissioning costs
which are escalated for expected inflation to the expected time of
decommissioning and are net of expected earnings on the trust funds. See
"Decommissioning" under "Management's Discussion and Analysis of Financial
Condition and Results of Operations," subcaption "Results of Operations," for
a discussion of questions raised by the staff of the SEC and a FASB review
regarding the electric utility industry method of accounting for decommissioning
costs. Dismantling is expected to occur relatively soon after the end of the
useful life of each related generating station. The accrual for decommissioning
is based on the prompt removal method authorized by NRC guidelines. ComEd's
twelve operating units have estimated remaining service lives ranging from 10 to
32 years. ComEd's first nuclear unit, Dresden Unit 1, is retired and will be
dismantled upon the retirement of the remaining units at that station, which is
consistent with the regulatory treatment for the related decommissioning costs.
Based on ComEd's most recent study, decommissioning costs, including the
cost of decontamination and dismantling, are estimated to aggregate $3.7 billion
in current-year (1996) dollars excluding a contingency allowance. ComEd
estimates that it will expend approximately $15 billion, excluding any
contingency allowance, for decommissioning costs primarily during the period
from 2007 through 2032. Such costs are expected to be funded by the external
decommissioning trusts which ComEd established in compliance with Illinois law
and into which ComEd has been making annual contributions. Future
decommissioning cost estimates may be significantly affected by the adoption of
or changes to NRC regulations as well as changes in the assumptions used in
making such estimates.
On January 9, 1995, the ICC issued its Rate Order in the proceedings
relating to ComEd's February 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.
Contingency allowances used in decommissioning cost estimates provide for
currently unspecifiable costs that are likely to occur after decommissioning
begins and generally range from 20% to 25% of the currently specifiable costs.
However, the Rate Order established 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 occur. On February 28,
1995, ComEd submitted its initial rider filing to the ICC to increase its annual
collections to $113.5 million, primarily reflecting additional expenditures at
Dresden Unit 1, its retired nuclear unit. The ICC approved the rider filing on
April 19, 1995.
As a result of the decommissioning rider filing, beginning May 2, 1995, the
effective date of the order related to the rider filing, ComEd began collecting
and accruing $113.5 million annually for decommissioning costs. The assumptions
used to calculate the $113.5 million decommissioning cost accrual include: the
decommissioning cost estimate of $3.7 billion in current-year (1996) dollars,
after-tax earnings on the tax-qualified and nontax-qualified decommissioning
funds of 7.30% and 6.26%,
B-25
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
respectively, as well as an escalation rate for future decommissioning costs of
5.3%. The annual accrual of $113.5 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, 1995, the total decommissioning costs included
in the accumulated provision for depreciation were $1,301 million. For ComEd's
retired nuclear unit, Dresden Unit 1, the total estimated liability at December
31, 1995 in current-year (1996) dollars of $257 million was recorded on the
Consolidated Balance Sheets as a noncurrent liability and the unrecovered
portion of the liability of approximately $138 million was recorded as a
regulatory asset.
Under Illinois law, decommissioning cost collections are required to be
deposited into external trusts; and, consequently, such collections do not add
to the cash flows available for general corporate purposes. The ICC has approved
ComEd's funding plan which provides for annual contributions of current accruals
and ratable contributions of past accruals over the remaining service lives of
the nuclear plants. At December 31, 1995, the past accruals that are required to
be contributed to the external trusts aggregate $182 million. The fair value of
funds accumulated in the external trusts at December 31, 1995 was approximately
$1,238 million which includes pre-tax unrealized appreciation of $165 million.
The earnings on the external trusts accumulate in the fund balance and in the
accumulated provision for depreciation.
AMORTIZATION OF NUCLEAR FUEL. The cost of nuclear fuel is amortized to fuel
expense based on the quantity of heat produced using the unit of production
method. As authorized by the ICC, provisions for spent nuclear fuel disposal
costs have been recorded at a level required to recover the fee payable on
current nuclear-generated and sold electricity and the current interest accrual
on the one-time fee payable to the DOE for nuclear generation prior to April 7,
1983. The one-time fee and interest thereon have been recovered and the current
fee and current interest on the one-time fee are currently being recovered
through the fuel adjustment clause. See Note 11 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
1995, 1994 and 1993 were $390.7 million, $358.0 million and $385.9 million,
respectively.
INCOME TAXES. Deferred income taxes are provided for income and expense
items recognized for financial accounting purposes in periods that differ from
those for income tax purposes. Income taxes deferred in prior years are charged
or credited to income as the book/tax timing differences reverse. Prior years'
deferred investment tax credits are amortized through credits to income
generally over the lives of the related property. Income tax credits resulting
from interest charges applicable to nonoperating activities, principally
construction, are classified as other income.
AFUDC. In accordance with the uniform systems of accounts prescribed by
regulatory authorities, ComEd capitalizes AFUDC, compounded semiannually, which
represents the estimated cost of funds used to finance its construction program.
The equity component of AFUDC is recorded on an after-tax basis and the borrowed
funds component of AFUDC is recorded on a pre-tax basis. The average annual
capitalization rates for the years 1995, 1994 and 1993 were 9.52%, 9.85% and
10.05%, respectively. AFUDC does not contribute to the current cash flow of
Unicom or ComEd.
INTEREST. Total interest costs incurred on debt, leases and other
obligations for the years 1995, 1994 and 1993 were $695.8 million, $729.8
million and $778.7 million, respectively.
B-26
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DEBT DISCOUNT, PREMIUM AND EXPENSE. Discount, premium and expense on
long-term debt of subsidiary companies are being amortized over the lives of
the respective issues.
LOSS ON REACQUIRED DEBT. Consistent with regulatory treatment, the net loss
from ComEd's reacquisition in connection with refinancing of first mortgage
bonds, sinking fund debentures and pollution control obligations prior to their
scheduled maturity dates is deferred and amortized over the lives of the
long-term debt issued to finance the reacquisition.
DEFERRED UNRECOVERED ENERGY COSTS. The fuel adjustment clause adopted by
the ICC provides for the recovery of changes in fossil and nuclear fuel costs
and the energy portion of purchased power costs as compared to the fuel and
purchased energy costs included in ComEd's base rates. As authorized by the ICC,
ComEd has recorded under or overrecoveries of allowable fuel and energy costs
which, under the clause, are recoverable or refundable in subsequent months.
Deferred unrecovered energy costs also include amounts to be recovered through
the fuel adjustment clause for assessments by the DOE to fund a portion of the
cost for the decontamination and decommissioning of uranium enrichment
facilities owned and previously operated by the DOE. As of December 31, 1995 and
1994, an asset related to the assessments of approximately $179 million and $191
million, respectively, was recorded, of which the current portion of
approximately $15 million was included in current assets on the Consolidated
Balance Sheets. As of December 31, 1995 and 1994, a corresponding liability of
approximately $152 million and $165 million, respectively, was recorded in other
noncurrent liabilities and approximately $15 million was recorded in other
current liabilities.
At December 31, 1995 and 1994, ComEd had unrecovered fuel costs in the form
of coal reserves of approximately $448 million and $498 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; however, ComEd is not earning a return on the expenditures for coal
reserves. Such fuel costs expected to be recovered within one year amounting to
approximately $24 million and $31 million at December 31, 1995 and 1994,
respectively, have been included on the Consolidated Balance Sheets in current
assets as deferred unrecovered energy costs. ComEd expects to fully recover the
costs of the coal reserves by the year 2007. See Note 21 for additional
information concerning ComEd's coal commitments.
RECLASSIFICATIONS. Certain prior year amounts have been reclassified to
conform with current period presentation. These reclassifications had no effect
on net income.
STATEMENTS OF CONSOLIDATED CASH FLOWS. For purposes of the Statements of
Consolidated Cash Flows, temporary cash investments, generally investments
maturing within three months at the time of purchase, are considered to be cash
equivalents. Supplemental cash flow information for the years 1995, 1994 and
1993 was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest (net of amount capitalized)........ $604,932 $645,658 $677,682
Income taxes (net of refunds)............... $367,708 $ (4,923) $103,014
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Capital lease obligations incurred
by subsidiary companies..................... $198,577 $309,716 $215,751
</TABLE>
B-27
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(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 refunded
approximately $1.26 billion (including revenue taxes), plus interest at five
percent on the unpaid balance, through temporarily reduced rates over a refund
period which ended in November 1994 (followed by a reconciliation period of five
months). ComEd had previously deferred the recognition of revenues during 1993
as a result of developments in the proceedings related to a 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.
Under the Fuel Matters Settlement, effective as of December 2, 1993, ComEd
paid 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 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 ComEd began collecting such costs 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.
See Note 1 under "Depreciation and Decommissioning" for information related to
the level of decommissioning cost collections allowed in the Rate Order and
subsequent rider proceedings. The ICC also determined that the Units were 100%
"used and useful" and that the previously determined reasonable costs of such
Units, as depreciated, should be included in full in ComEd's rate base. The
rates provided in the Rate Order became effective on January 14, 1995; however,
they are being collected subject to refund as a result of subsequent judicial
action. As of December 31, 1995, electric operating revenues of approximately
$319 million (excluding revenue taxes) are subject to refund. Intervenors and
ComEd have filed appeals of the Rate Order with the Illinois Appellate Court.
On December 11, 1995, ComEd announced a series of customer initiatives as
part of its larger ongoing effort to address the need to give all customer
classes the opportunity to benefit from increased competition in the electric
utility business, while retaining the benefits (such as reliability) of current
regulation and ensuring utilities' cost recovery for commitments made under the
obligation to serve customers. The initiatives include a five-year cap on base
electric rates at current levels and various customer service and incentive
pricing programs designed to allow customers more choice and control over the
services they seek and the prices they pay. These initiatives are in addition to
previously implemented special discount contract rate programs for new or
existing industrial customers. ComEd anticipates the initiatives will be fully
implemented in 1997 and will reduce its revenues by approximately $42 million
annually (including the effects of previously implemented initiatives and before
income tax
B-28
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
effects) primarily through changes in energy utilization and increase its costs
by at least $30 million annually (before income tax effects) through the
acceleration of depreciation charges on its nuclear generating units. ComEd
expects to file a request for ICC approval of the accelerated depreciation
initiatives in the near future. Management expects the financial impact of these
initiatives will be substantially offset by ComEd's cost reduction efforts and
expected growth in its business. ComEd also continues to consider the
possibility of additional accelerated depreciation options.
Under ComEd's initiatives, the five-year base rate cap at current levels
became effective in December 1995 and will extend until January 1, 2001. The
rate cap does not affect ComEd's fuel cost or nuclear decommissioning cost
recovery provisions. ComEd's fuel cost variances will continue to be collected
through its fuel adjustment clause, and such collections will continue to be
subject to annual reconciliation proceedings before the ICC. Likewise, nuclear
decommissioning costs will continue to be collected as described in Note 1 under
"Depreciation and Decommissioning."
(4) AUTHORIZED SHARES AND VOTING RIGHTS OF CAPITAL STOCK
At December 31, 1995, 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, 1995 were: preference stock--23,244,990 shares; $1.425
convertible preferred stock--96,753 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, 1995, shares of Unicom common stock were reserved for the
following purposes:
<TABLE>
<CAPTION>
<S> <C>
Long-Term Incentive Plan.................................. 3,816,918
Employee Stock Purchase Plan.............................. 900,083
Employee Savings and Investment Plan...................... 273,003
Exchange for ComEd common stock not held by Unicom........ 135,646
---------
5,125,650
---------
---------
</TABLE>
Common stock for the years 1995, 1994 and 1993 was issued as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Shares of Common Stock Issued:
Long-Term Incentive Plan...................... 183,082 -- --
Employee Stock Purchase Plan.................. 217,080 305,205 268,594
Employee Savings and Investment Plan.......... 207,400 85,400 153,400
Conversion of $1.425 convertible
preferred stock.............................. -- 185,041 22,375
Conversion of warrants........................ -- 13,274 1,374
------- ------- -------
607,562 588,920 445,743
------- ------- -------
------- ------- -------
(THOUSANDS OF DOLLARS)
Amount of Common Stock Issued $15,446 $14,781 $12,211
------- ------- -------
------- ------- -------
</TABLE>
At December 31, 1995 and 1994, 82,742 and 83,751 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.
B-29
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(6) COMED PREFERRED AND PREFERENCE STOCKS WITHOUT MANDATORY REDEMPTION
REQUIREMENTS
No shares of ComEd preferred or preference stocks without mandatory
redemption requirements were issued or redeemed during 1995 or 1993. 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. The series of ComEd
preference stock without mandatory redemption requirements outstanding at
December 31, 1995 are summarized as follows:
<TABLE>
<CAPTION>
INVOLUNTARY
SHARES AGGREGATE REDEMPTION LIQUIDATION
SERIES OUTSTANDING STATED VALUE PRICE(1) PRICE(1)
------ ----------- ------------ ---------- -----------
(THOUSANDS
OF DOLLARS)
<S> <C> <C> <C> <C>
$1.90 4,249,549 $106,239 $ 25.25 $25.00
$2.00 2,000,000 51,560 $ 26.04 $25.00
$1.96 2,000,000 52,440 $ 27.11 $25.00
$7.24 750,000 74,340 $101.00 $99.12
$8.40 750,000 74,175 $101.00 $98.90
$8.38 750,000 73,566 $100.16 $98.09
$2.425 3,000,000 72,637 $ 25.00 $25.00
---------- --------
13,499,549 $504,957
---------- --------
---------- --------
</TABLE>
- ---------------
(1) Per share plus accrued and unpaid dividends, if any.
The outstanding shares of ComEd's $1.425 convertible preferred stock are
convertible at the option of the holders thereof, at any time, into common
stock of ComEd at the rate of 1.02 shares of common stock for each share of
convertible preferred stock, subject to future adjustment. The convertible
preferred stock may be redeemed by ComEd at $42 per share, plus accrued and
unpaid dividends, if any. The involuntary liquidation price of the $1.425
convertible preferred stock is $31.80 per share, plus accrued and unpaid
dividends, if any.
(7) COMED PREFERENCE STOCK SUBJECT TO MANDATORY REDEMPTION REQUIREMENTS
During 1995 and 1994, 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, 1995 are summarized as follows:
<TABLE>
<CAPTION>
SHARES AGGREGATE
SERIES OUTSTANDING STATED VALUE OPTIONAL REDEMPTION PRICE(1)
- -------- ------------- -------------- --------------------------------
(THOUSANDS
OF DOLLARS)
<S> <C> <C> <C>
$8.20 249,990 $ 24,999 $103 through October 31, 1997; and $101 thereafter
$8.40 Series B 360,000 35,758 $101
$8.85 300,000 30,000 $103 through July 31, 1998; and $101 thereafter
$9.25 675,000 67,500 $103 through July 31, 1999; and $101 thereafter
$9.00 650,000 64,431 Non-callable
$6.875 700,000 69,475 Non-callable
--------- --------
2,934,990 $292,163
--------- --------
--------- --------
</TABLE>
- ---------------
(1) Per share plus accrued and unpaid dividends, if any.
B-30
<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
ANNUAL SINKING FUND FUND INVOLUNTARY
SERIES REQUIREMENT PRICE(1) LIQUIDATION PRICE(1)
-------------- ------------------- -------- --------------------
<S> <C> <C> <C>
$8.20 35,715 shares $100 $100.00
$8.40 Series B 30,000 shares(2) $100 $ 99.326
$8.85 37,500 shares $100 $100.00
$9.25 75,000 shares $100 $100.00
$9.00 130,000 shares(2) $100 $ 99.125
$6.875 (3) $100 $ 99.25
</TABLE>
- ------------------
(1) Per share plus accrued and unpaid dividends, if any.
(2) ComEd has a non-cumulative option to increase the annual sinking
fund payment on each sinking fund redemption date to retire an
additional number of shares, not in excess of the sinking fund
requirement, at the applicable redemption price.
(3) All shares are required to be redeemed on May 1, 2000.
Annual remaining sinking fund requirements through 2000 on ComEd preference
stock outstanding at December 31, 1995 will aggregate $30,822,000 in each of
1996, 1997, 1998 and 1999, and $100,822,000 in 2000. During 1995, 1994 and 1993,
178,215 shares, 177,085 shares and 1,835,155 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 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) COMED-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF COMED
FINANCING I
In September 1995, ComEd Financing I (Trust), a wholly-owned subsidiary
trust of ComEd, issued 8,000,000 of its 8.48% ComEd-obligated mandatorily
redeemable preferred securities. The sole asset of the Trust is $206.2 million
principal amount of ComEd's 8.48% subordinated deferrable interest notes due
September 30, 2035. There is a full and unconditional guarantee by ComEd of the
Trust's obligations
B-31
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
under the securities issued by the Trust. However, ComEd's obligations are
subordinate and junior in right of payment to certain other indebtedness of
ComEd. ComEd has the right to defer payments of interest on the subordinated
deferrable interest notes by extending the interest payment period, at any time,
for up to 20 consecutive quarters. If interest payments on the subordinated
deferrable interest notes are so deferred, distributions on the preferred
securities will also be deferred. During any deferral, distributions will
continue to accrue with interest thereon. In addition, during any such deferral,
ComEd may not declare or pay any dividend or other distribution on, or redeem or
purchase, any of its capital stock.
The subordinated deferrable interest notes are redeemable by ComEd (in
whole or in part) from time to time, on or after September 30, 2000, or at any
time in the event of certain income tax circumstances. If the subordinated
deferrable interest notes are redeemed, the Trust must redeem preferred
securities having an aggregate liquidation amount equal to the aggregate
principal amount of the subordinated deferrable interest notes so redeemed. In
the event of the dissolution, winding up or termination of the Trust, the
holders of the preferred securities will be entitled to receive, for each
preferred security, a liquidation amount of $25 plus accrued and unpaid
distributions thereon (including interest thereon) to the date of payment,
unless in connection with the dissolution, the subordinated deferrable interest
notes are distributed to the holders of the preferred securities.
(9) LONG-TERM DEBT
Sinking fund requirements and scheduled maturities remaining through 2000
for ComEd's first mortgage bonds, sinking fund debentures and other long-term
debt outstanding at December 31, 1995, after deducting sinking fund debentures
reacquired for satisfaction of future sinking fund requirements, are summarized
as follows: 1996--$234,893,000; 1997--$689,168,000; 1998--$350,017,000;
1999--$152,445,000; and 2000--$464,446,000. Scheduled payments through 2000 for
Unicom's loans payable are as follows: 1996--$1,099,000; 1997--$1,972,000;
1998--$2,465,000; 1999--$2,575,000; and 2000--$2,656,000. Unicom Enterprises'
note payable to bank of $42,000,000 will mature in 1998.
B-32
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
At December 31, 1995, ComEd's outstanding first mortgage bonds maturing
through 2000 were as follows:
<TABLE>
<CAPTION>
Series Principal Amount
------------------------- ---------------------
(Thousands of Dollars)
<S> <C>
51/4% due April 1, 1996. . . . . . . . . . . . . . . $ 50,000
53/4% due November 1, 1996 . . . . . . . . . . . . . 50,000
53/4% due December 1, 1996 . . . . . . . . . . . . . 50,000
7% due February 1, 1997. . . . . . . . . . . . . . . 150,000
53/8% due April 1, 1997. . . . . . . . . . . . . . . 50,000
61/4% due October 1, 1997. . . . . . . . . . . . . . 60,000
61/4% due February 1, 1998 . . . . . . . . . . . . . 50,000
6% due March 15, 1998. . . . . . . . . . . . . . . . 130,000
63/4% due July 1, 1998 . . . . . . . . . . . . . . . 50,000
63/8% due October 1, 1998. . . . . . . . . . . . . . 75,000
93/8% due February 15, 2000. . . . . . . . . . . . . 125,000
61/2% due April 15, 2000 . . . . . . . . . . . . . . 230,000
63/8% due July 15, 2000. . . . . . . . . . . . . . . 100,000
----------
$1,170,000
----------
----------
</TABLE>
Other long-term debt outstanding at December 31, 1995 is summarized as
follows:
<TABLE>
<CAPTION>
Principal
Debt Security Amount Interest Rate
- --------------------------------- ----------- -----------------------------------------
(Thousands
of Dollars)
<S> <C> <C>
Unicom--
Loans Payable:
Loan due January 1, 2003 $ 10,000 Interest rate of 8.31%
Loan due January 1, 2004 10,000 Interest rate of 8.44%
----------
$ 20,000
----------
ComEd--
Notes:
Medium Term Notes, Series 1N
due various dates through
April 1, 1998 $ 50,500 Interest rates ranging from 9.40% to 9.65%
Medium Term Note, Series 2N
due July 1, 1996 10,000 Interest rate of 9.85%
Medium Term Notes, Series 3N
due various dates through
October 15, 2004 322,250 Interest rates ranging from 8.92% to 9.20%
Medium Term Notes, Series 4N
due various dates through
May 15, 1997 46,000 Interest rates ranging from 8.11% to 8.875%
Notes due February 15, 1997 150,000 Interest rate of 7.00%
Notes due July 15, 1997 100,000 Interest rate of 6.50%
Notes due October 15, 2005 235,000 Interest rate of 6.40%
----------
$ 913,750
----------
Long-Term Note Payable to Bank:
Note due June 1, 1997 $ 150,000 Prevailing interest rate of 6.375% at December 31, 1995
----------
Purchase Contract Obligations:
Woodstock due January 2, 1997 $ 95 Interest rate of 4.50%
Hinsdale due April 30, 2005 473 Interest rate of 3.00%
----------
$ 568
----------
Total ComEd $1,064,318
----------
Unicom Enterprises--
Note Payable to Bank:
Note due November 22, 1998 $ 42,000 Prevailing interest rate of 6.831% at December 31, 1995
----------
Total Unicom $1,126,318
----------
----------
</TABLE>
Long-term debt maturing within one year has been included in current
liabilities.
B-33
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
ComEd's outstanding first mortgage bonds are secured by a lien on
substantially all property and franchises, other than expressly excepted
property, owned by ComEd.
ComEd recorded an extraordinary loss of $33 million in the fourth quarter of
1995 related to the early redemption of $645 million of long-term debt which
reduced net income by $20 million (after reflecting income tax effects of $13
million) or $0.09 per common share.
(10) LINES OF CREDIT
ComEd had total bank lines of credit of approximately $922 million and unused
bank lines of credit of approximately $915 million at December 31, 1995. Of
that amount, $915 million (of which $175 million expires on September 30, 1996,
$72 million expires in equal quarterly installments commencing on December 31,
1996 and ending on September 30, 1998 and $668 million expires in equal
quarterly installments commencing on December 31, 1997 and ending on September
30, 1999) may be borrowed on secured or unsecured notes of ComEd at various
interest rates. The interest rate is set at the time of a borrowing and is
based on several floating rate bank indices plus a spread which is dependent
upon ComEd's credit ratings, or on a prime interest rate. Amounts under the
remaining lines of credit may be borrowed at prevailing prime interest rates on
unsecured notes of ComEd. Collateral, if required for the borrowings, would
consist of first mortgage bonds issued under and in accordance with the
provisions of ComEd's mortgage. ComEd is obligated to pay commitment fees with
respect to $915 million of such lines of credit.
Unicom Enterprises has a $200 million credit facility which will expire in
1998 of which $158 million was unused as of December 31, 1995. The credit
facility can be used by Unicom Enterprises to finance investments in
unregulated energy-related businesses and projects, including Unicom Thermal,
and for general corporate purposes. The credit facility is guaranteed by Unicom
and includes certain covenants with respect to Unicom's and Unicom Enterprises'
operations. Such covenants include, among other things, (i) a requirement that
Unicom and its consolidated subsidiaries maintain a tangible net worth at least
$10 million over that of ComEd and its consolidated subsidiaries, (ii) a
requirement that Unicom's consolidated debt to consolidated capitalization not
exceed 0.65 to 1, (iii) restrictions on the indebtedness for borrowed money
that Unicom (excluding ComEd) and Unicom Enterprises may incur, and (iv) a
requirement that Unicom own 100% of the outstanding stock of Unicom Enterprises
and at least 80% of the outstanding stock of ComEd; and provide that Unicom may
not declare or pay dividends during the continuance of an event of default.
Interest rates for borrowings under the credit facility are set at the time of
a borrowing and are based on either a prime interest rate or a floating rate
bank index plus a spread which varies with the credit rating of ComEd's
outstanding first mortgage bonds.
(11) DISPOSAL OF SPENT NUCLEAR FUEL
Under the Nuclear Waste Policy Act of 1982, the DOE is responsible for the
selection and development of repositories for, and the disposal of, spent
nuclear fuel and high-level radioactive waste. ComEd, as required by that Act,
has signed a contract with the DOE to provide for the disposal of spent nuclear
fuel and high-level radioactive waste from ComEd's nuclear generating stations
beginning not later than January 1998; however, this delivery schedule is
expected to be delayed significantly. The contract with the DOE requires ComEd
to pay the DOE a one-time fee applicable to nuclear generation through April 6,
1983 of approximately $277 million, with interest to date of payment, and a fee
payable quarterly equal to one mill per kilowatthour of nuclear-generated and
sold electricity after April 6, 1983. As provided for under the contract, ComEd
has elected to pay the one-time fee, with interest, just prior to the first
delivery of spent nuclear fuel to the DOE. The liability for the one-time fee
and the related interest is reflected in the Consolidated Balance Sheets.
B-34
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
financial instruments either held or issued and outstanding. The disclosure of
such information does not purport to be a market valuation of Unicom and
subsidiary companies as a whole. The impact of any realized or unrealized gains
or losses related to such financial instruments on the financial position or
results of operations of Unicom and subsidiary companies is primarily dependent
on the treatment authorized under future ComEd ratemaking proceedings.
INVESTMENTS. Securities included in the nuclear decommissioning funds have
been classified and accounted for as "available for sale" securities. The
estimated fair value of the nuclear decommissioning funds, as determined by the
trustee and based on published market data, as of December 31, 1995 and 1994
was as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------------------------ ------------------------------------
UNREALIZED
UNREALIZED GAINS
COST BASIS GAINS FAIR VALUE COST BASIS (LOSSES) FAIR VALUE
---------- ---------- ---------- ---------- ----------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Short-term investments . . . . . . . . . $ 40,575 $ 283 $ 40,858 $ 65,203 $ 106 $ 65,309
U.S. Government and Agency issues. . . . 156,745 17,636 174,381 94,450 (562) 93,888
Municipal bonds. . . . . . . . . . . . . 496,707 34,970 531,677 478,074 (7,301) 470,773
Common stock . . . . . . . . . . . . . . 348,866 107,280 456,146 220,395 9,069 229,464
Other. . . . . . . . . . . . . . . . . . 29,757 4,708 34,465 18,788 2,722 21,510
---------- -------- ---------- -------- ------- --------
$1,072,650 $164,877 $1,237,527 $876,910 $ 4,034 $880,944
---------- -------- ---------- -------- ------- --------
---------- -------- ---------- -------- ------- --------
</TABLE>
At December 31, 1995, the debt securities held by the nuclear decommissioning
funds had the following maturities:
<TABLE>
<CAPTION>
COST BASIS FAIR VALUE
---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Within 1 year. . . . . . . . . $ 40,575 $ 40,858
1 through 5 years. . . . . . . 73,996 76,978
5 through 10 years . . . . . . 229,132 247,521
Over 10 years. . . . . . . . . 366,667 398,510
</TABLE>
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 1995, 1994 and 1993 were as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Gross proceeds from sales of securities. . . . . . . . . $ 2,598,889 $ 811,368 $ 388,684
Less cost based on specific identification . . . . . . . (2,581,714) (811,997) (377,734)
----------- --------- ---------
Realized gains (losses) on sales of securities . . . . . $ 17,175 $ (629) $ 10,950
Other realized fund earnings net of expenses . . . . . . 46,294 38,148 29,878
----------- --------- ---------
Total realized net earnings of the funds . . . . . . . . $ 63,469 $ 37,519 $ 40,828
Unrealized gains (losses). . . . . . . . . . . . . . . . 160,843 (57,948) 30,969
----------- --------- ---------
Total net earnings (losses) of the funds . . . . . . . $ 224,312 $ (20,429) $ 71,797
----------- --------- ---------
----------- --------- ---------
</TABLE>
CURRENT ASSETS. Cash, temporary cash investments and other cash investments,
which include U.S. Government Obligations and other short-term marketable
securities, and special deposits, which primarily includes cash deposited for
the redemption, refund or discharge of debt securities, are stated at cost,
which approximates their fair value because of the short maturity of these
instruments. The securities included in these categories have been classified
as "available for sale" securities.
B-35
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
CAPITALIZATION. The estimated fair values of ComEd preferred and preference
stocks, ComEd-obligated mandatorily redeemable preferred securities of the
Trust and long-term debt were obtained from an independent consultant. The
estimated fair values, which include the current portions of redeemable
preference stock and long-term debt but exclude accrued interest and dividends,
as of December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------------------------ -------------------------------------
CARRYING UNREALIZED CARRYING UNREALIZED
VALUE LOSSES FAIR VALUE VALUE (GAINS) FAIR VALUE
---------- ---------- ---------- ---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
ComEd preferred and preference stocks. . . . . . . $ 800,197 $ 14,769 $ 814,966 $ 818,111 $ (64,443) $ 753,668
ComEd-obligated mandatorily redeemable
preferred securities of the Trust. . . . . . . . $ 200,000 $ 6,000 $ 206,000 $ -- $ -- $ --
Long-term debt of subsidiary companies . . . . . . $6,572,853 $470,175 $7,043,028 $7,448,236 $(450,429) $6,997,807
</TABLE>
Long-term notes payable, which are not included in the above table, amounted
to $212 million and $400 million at December 31, 1995 and 1994, respectively.
Such notes, for which interest is paid at fixed and prevailing rates, are
included in the consolidated financial statements at cost, which approximates
their fair value.
CURRENT LIABILITIES. The carrying value of notes payable, which consists of
commercial paper and bank loans maturing within one year, approximates the fair
value because of the short maturity of these instruments. See
"Capitalization" above for a discussion of the fair value of the current
portion of long-term debt and redeemable preference stock.
OTHER NONCURRENT LIABILITIES. The carrying value of accrued spent nuclear
fuel disposal fee and related interest represents the settlement value as of
December 31, 1995 and 1994; therefore, the carrying value is equal to the fair
value.
(13) PENSION BENEFITS
ComEd and the Indiana Company have non-contributory defined benefit pension
plans which cover all regular employees. Benefits under these plans reflect
each employee's compensation, years of service and age at retirement. During
1995, these plans were amended to more closely base retirement benefits on
final pay. Funding is based upon actuarially determined contributions that take
into account the amount deductible for income tax purposes and the minimum
contribution required under the Employee Retirement Income Security Act of
1974, as amended. Actuarial valuations were determined as of January 1, 1995
and 1994.
During 1994, the companies implemented an early retirement program for
employees eligible to retire or who would become eligible to retire after
December 31, 1993 and before April 1, 1995. A total of 679 employees accepted
the program, resulting in the recognition of approximately $34 million of
additional pension cost and an additional increase to the projected benefit
obligation of that $34 million and $41 million of unrecognized net loss. The
charge to income was approximately $20.5 million after reflecting income tax
effects as a result of the program.
B-36
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
The funded status of these plans at December 31, 1995 and 1994 was as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1995 1994
---------- -----------
<S> <C> <C>
(THOUSANDS OF DOLLARS)
Actuarial present value of accumulated pension plan benefits:
Vested benefit obligation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(2,839,000) $(2,105,000)
Nonvested benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (251,000) (359,000)
----------- -----------
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(3,090,000) $(2,464,000)
Effect of projected future compensation levels . . . . . . . . . . . . . . . . . . . . . . . . . (304,000) (485,000)
----------- -----------
Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(3,394,000) $(2,949,000)
Fair value of plan assets, invested primarily in U.S. Government, government-sponsored corpora-
tion and agency securities, fixed income funds, registered investment companies, equity index
funds and other equity funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,060,000 2,547,000
------------ -----------
Plan assets less than projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . $ (334,000) $ (402,000)
Unrecognized prior service cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (73,000) 22,000
Unrecognized transition asset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (142,000) (155,000)
Unrecognized net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204,000 239,000
------------ ------------
Accrued pension liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (345,000) $ (296,000)
----------- -----------
----------- -----------
</TABLE>
The assumed discount rates were 7.5% and 8.0% at December 31, 1995 and 1994,
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 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- ------
<S> <C> <C> <C>
Annual discount rate . . . . . . . . . . . . . . . . . . . . . . 8.00% 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 . . . . . . . . . 9.75% 9.50% 9.50%
</TABLE>
The components of pension costs, portions of which were recorded as
components of construction costs, for the years 1995, 1994 and 1993 were as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Service cost . . . . . . . . . . . . . . . . . . . . . . . $ 87,000 $ 97,000 $ 96,000
Interest cost on projected benefit obligation. . . . . . . 225,000 213,000 204,000
Actual loss (return) on plan assets. . . . . . . . . . . . (681,000) 37,000 (310,000)
Early retirement program cost. . . . . . . . . . . . . . . -- 34,000 --
Net amortization and deferral. . . . . . . . . . . . . . . 418,000 (302,000) 61,000
--------- ---------- --------
$ 49,000 $ 79,000 $ 51,000
--------- ---------- --------
--------- ---------- --------
</TABLE>
In addition, an employee savings and investment plan is available to certain
eligible employees of ComEd, Cotter, Unicom Thermal and the Indiana Company.
During the fourth quarter of 1995, the employee savings and investment plan was
amended for employees of ComEd, Cotter, Unicom Thermal and the management
employees of the Indiana Company. Each participating employee affected by the
amendments may contribute up to 20% of such employee's base pay and the
participating companies match such contribution equal to 100% of up to the
first 2% of contributed base salary, 70% of the second 3% of contributed base
salary and 25% of the last 1% of contributed base salary. During 1995, 1994 and
1993, the participating companies contributed $24,661,000, $22,756,000 and
$21,948,000, respectively.
B-37
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
(14) 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. The employees become eligible for
postretirement health care benefits when they reach age 55 with 10 years of
service. The liability for postretirement health care benefits is funded
through trust funds based upon actuarially determined contributions that take
into account the amount deductible for income tax purposes. The
postretirement health care plan for ComEd and the Indiana Company was
amended, effective April 1, 1995. Prior to that date, the postretirement
health care plan was fully funded by the companies. With respect to employees
who retire on or after April 1, 1995, the plan is contributory, funded
jointly by the companies and the participating employees. Actuarial
valuations were determined as of January 1, 1995 and 1994.
Postretirement health care costs in 1995 included $25 million related to
a voluntary separation offer for union employees who accepted and left
ComEd's employ by year-end 1995 combined with separation plans offered to
selected groups of non-union employees.
The funded status of the plan at December 31, 1995 and 1994 was as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1995 1994
---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Actuarial present value of accumulated postretirement health
care obligation:
Retirees. . . . . . . . . . . . . . . . . . . . . . $(457,000) $ (467,000)
Active fully eligible participants. . . . . . . . . (25,000) (34,000)
Other participants. . . . . . . . . . . . . . . . . (418,000) (581,000)
---------- ----------
Accumulated benefit obligation. . . . . . . . . . . $(900,000) $(1,082,000)
Fair value of plan assets, invested primarily in S&P 500
common stocks and U.S. Government, government agency,
municipal and listed corporate obligations . . . . . . 603,000 503,000
---------- ----------
Plan assets less than accumulated postretirement health
care obligation. . . . . . . . . . . . . . . . . . . . $(297,000) $ (579,000)
Unrecognized transition obligation . . . . . . . . . . 374,000 531,000
Unrecognized net gain . . . . . . . . . . . . . . . . . (285,000) (70,000)
---------- ----------
Accrued liability for postretirement health care. . . . $(208,000) $ (118,000)
---------- ----------
---------- ----------
</TABLE>
Different health care cost trends are used for pre-Medicare and
post-Medicare expenses. Pre-Medicare trend rates were 14% for 1994 and 13.5%
for the first three months of 1995, grading down in 0.5% annual increments to
5%. Post-Medicare trend rates were 11.5% for 1994 and 11% for the first three
months of 1995, grading down in 0.5% annual increments to 5%. For the last
nine months of 1995, pre-Medicare trend rates were 10%, grading down in 0.5%
annual increments to 5%. Post-Medicare trend rates were 8% for the last nine
months of 1995, 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, 1995 by approximately $161 million and increase the aggregate of
the service and interest cost components of plan costs by approximately $20
million for the year 1995. The assumed discount rates were 7.5% and 8.0% at
December 31, 1995 and 1994, respectively. The annual long-term rate of return
on plan assets was 9.32% and 9.04% for the years 1995 and 1994, respectively,
after including income tax effects.
B-38
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
The components of postretirement health care costs, portions of which
were recorded as components of construction costs, for the years 1995, 1994
and 1993 were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Service cost . . . . . . . . . . . . . . . . . . . $ 31,000 $ 47,000 $ 45,000
Interest cost on accumulated benefit obligation. . 69,000 81,000 74,000
Actual loss (return) on plan assets. . . . . . . . (137,000) 9,000 (41,000)
Amortization of transition obligation. . . . . . . 23,000 29,000 29,000
Severance plan cost. . . . . . . . . . . . . . . . 25,000 -- --
Other. . . . . . . . . . . . . . . . . . . . . . . 83,000 (49,000) 9,000
-------- --------- ---------
$ 94,000 $ 117,000 $ 116,000
-------- --------- ---------
-------- --------- ---------
</TABLE>
(15) SEPARATION PLAN COSTS
Operation and maintenance expenses included $97 million for the year
1995 related to a voluntary separation offer for union employees who accepted
and left ComEd's employ by year-end 1995 combined with separation plans
offered to selected groups of non-union employees. These employee separation
plans reduced net income by $59 million or $0.27 per common share for the
year 1995.
(16) INCOME TAXES
The components of the net deferred income tax liability at December 31,
1995 and 1994 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1995 1994
---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Deferred income tax liabilities:
Accelerated cost recovery and liberalized depreciation,
net of removal costs . . . . . . . . . . . . . . . . . . . $3,379,987 $3,266,930
Overheads capitalized. . . . . . . . . . . . . . . . . . . 252,910 266,159
Repair allowance. . . . . . . . . . . . . . . . . . . . . . 219,585 210,655
Regulatory assets recoverable through future rates . . . . 1,689,832 1,791,395
Deferred income tax assets:
Postretirement benefits . . . . . . . . . . . . . . . . . . (235,360) (177,991)
Unbilled revenues . . . . . . . . . . . . . . . . . . . . . (116,274) (90,396)
Loss carryforward . . . . . . . . . . . . . . . . . . . . . -- (10,090)
Alternative minimum tax . . . . . . . . . . . . . . . . . . (145,019) (283,331)
Unamortized investment tax credits to be settled through
future rates . . . . . . . . . . . . . . . . . . . . . . . (452,210) (471,058)
Other regulatory liabilities to be settled through future
rates . . . . . . . . . . . . . . . . . . . . . . . . . . (148,792) (179,755)
Other net . . . . . . . . . . . . . . . . . . . . . . . . . (46,607) (59,528)
---------- ----------
Net deferred income tax liability. . . . . . . . . . . . . . $4,398,052 $ 4,262,990
---------- ----------
---------- ----------
</TABLE>
The $135 million increase in the net deferred income tax liability from
December 31, 1994 to December 31, 1995 is comprised of $187 million of
deferred income tax expense and a $52 million decrease in regulatory assets
net of regulatory liabilities pertaining to income taxes for the year. The
amount of regulatory assets included in deferred income tax liabilities
primarily relates to the equity component of AFUDC which is recorded on an
after-tax basis, the borrowed funds component of AFUDC which was previously
recorded net of tax and other temporary differences for which the related tax
effects were not previously recorded. The amount of other regulatory
liabilities included in deferred income tax assets primarily relates to
deferred income taxes provided at rates in excess of the current statutory
rate.
B-39
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
The components of net income tax expense charged to continuing
operations for the years 1995, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Operating income:
Current income taxes . . . . . . . . . . . . . . $339,920 $158,342 $(27,553)
Deferred income taxes. . . . . . . . . . . . . . 186,647 168,402 122,804
Investment tax credits deferred net. . . . . . . (28,710) (28,757) (29,424)
Other (income) and deductions . . . . . . . . . . (7,685) (22,498) (31,076)
-------- -------- --------
Net income taxes charged to continuing operations $490,172 $275,489 $ 34,751
-------- -------- --------
-------- -------- --------
</TABLE>
Provisions for current and deferred federal and state income taxes and
amortization of investment tax credits resulted in the following effective
income tax rates for the years 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
---------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Net income before extraordinary item and cumulative
effect of change in accounting for income taxes. . $ 659,533 $354,934 $ 36,650
Net income taxes charged to continuing operations. 490,172 275,489 34,751
Provision for dividends on ComEd preferred and
preference stocks . . . . . . . . . . . . . . . . 69,961 64,927 66,052
---------- -------- --------
Pre-tax income before provision for dividends. . . $1,219,666 $695,350 $137,453
---------- -------- --------
---------- -------- --------
Effective income tax rate. . . . . . . . . . . . . 40.2% 39.6% 25.3%
---------- -------- --------
---------- -------- --------
</TABLE>
The principal differences between net income taxes charged to continuing
operations and the amounts computed at the federal statutory rate of 35% for
the years 1995, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Federal income taxes computed at statutory rate. . $426,883 $243,373 $ 48,109
Equity component of AFUDC which was excluded
from taxable income . . . . . . . . . . . . . . . (4,595) (7,920) (7,216)
Amortization of investment tax credits . . . . . . (28,710) (28,810) (29,421)
State income taxes, net of federal income taxes. . 65,972 40,140 13,138
Differences between book and tax accounting,
primarily property-related deductions . . . . . . 27,534 26,505 2,063
Other net. . . . . . . . . . . . . . . . . . . . . 3,088 2,201 8,078
-------- -------- --------
Net income taxes charged to continuing operations. $490,172 $275,489 $ 34,751
-------- -------- --------
-------- -------- --------
</TABLE>
Current federal income tax liabilities which were recorded prior to 1995
included excess amounts of AMT over the regular federal income tax, which
amounts were also recorded as decreases to deferred federal income taxes. The
excess amounts of AMT were carried forward and a portion was applied as a
credit against the 1995 regular federal income tax liability. The excess
amounts of AMT can be carried forward indefinitely as a credit against future
years' regular federal income tax liabilities.
B-40
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
(17) TAXES, EXCEPT INCOME TAXES
Provisions for taxes, except income taxes, for the years 1995, 1994 and 1993
were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Illinois public utility revenue. . . . . . . . $229,546 $211,263 $199,498
Illinois invested capital. . . . . . . . . . . 106,830 109,373 111,126
Municipal utility gross receipts . . . . . . . 167,758 145,011 107,232
Real estate. . . . . . . . . . . . . . . . . . 176,454 180,221 162,560
Municipal compensation . . . . . . . . . . . . 78,602 72,647 56,878
Other net. . . . . . . . . . . . . . . . . . . 74,166 69,281 64,619
-------- -------- --------
$833,356 $787,796 $701,913
-------- -------- --------
-------- -------- --------
</TABLE>
(18) LEASE OBLIGATIONS OF SUBSIDIARY COMPANIES
Under its nuclear fuel lease arrangement, ComEd may sell and lease back
nuclear fuel from a lessor who may borrow an aggregate of $700 million,
consisting of $300 million of commercial paper or bank borrowings and $400
million of intermediate term notes, to finance the transactions. With respect
to the commercial paper/bank borrowing portion, $20 million will expire on
November 23, 1996, $10 million will expire on November 23, 1997 and $270
million will expire on November 23, 1998. ComEd has asked for an extension of
the expiration dates. At December 31, 1995, ComEd's obligation to the lessor
for leased nuclear fuel amounted to approximately $577 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,
1995 for capital leases are estimated to aggregate $659 million, including
$231 million in 1996, $171 million in 1997, $112 million in 1998, $68 million
in 1999, $37 million in 2000 and $40 million in 2001-2043. The estimated
interest component of such rental payments aggregates $84 million. The
estimated portions of obligations due within one year under capital leases
are included in current liabilities and approximated $168 million and $147
million at December 31, 1995 and 1994, respectively.
Future minimum rental payments at December 31, 1995 for operating leases
are estimated to aggregate $157 million, including $9 million in 1996, $10
million in 1997, $10 million in 1998, $10 million in 1999, $9 million in 2000
and $109 million in 2001-2024.
(19) 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 $34
million or $0.16 per common share.
B-41
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
(20) 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, 1995, for its share of ownership
in the station, ComEd had an investment of $558 million in production and
transmission plant in service (before reduction of $185 million for the
related accumulated provision for depreciation) and $75 million in
construction work in progress.
(21) COMMITMENTS AND CONTINGENT LIABILITIES
Purchase commitments, principally related to construction and nuclear
fuel, approximated $1,158 million at December 31, 1995, comprised of
approximately $1,137 million for ComEd and the Indiana Company and
approximately $21 million for Unicom Thermal. In addition, ComEd has
substantial commitments for the purchase of coal. ComEd's coal costs are high
compared to those of other utilities. ComEd's western coal contracts and its
rail contracts for delivery of the western coal provide for the purchase of
certain coal at prices substantially above currently prevailing market
prices. See ''Management's Discussion and Analysis of Financial Condition and
Results of Operations,'' subcaption ''Liquidity and Capital Resources,'' for
additional information regarding ComEd's purchase commitments.
ComEd is a member of NML, established to provide insurance coverage
against property damage to members' nuclear generating facilities. The
members are subject to a retrospective premium adjustment in the event losses
exceed accumulated reserve funds. Capital has been accumulated in the reserve
funds of NML to the extent that ComEd would not be liable for a retrospective
premium adjustment in the event of a single incident. However, ComEd could be
subject to a maximum assessment of approximately $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
$27 million and $108 million in the event losses exceed accumulated reserve
funds under the replacement power and property damage coverages,
respectively.
Under certain circumstances, member companies are eligible to continue
to receive distributions from accumulated reserve funds, if declared by NML
or NEIL, after insurance coverage has terminated on a nuclear generating
station. ComEd expects that any such post-coverage distributions would begin
about the time a station is decommissioned and continue for an undetermined
period. ComEd's twelve operating nuclear units have estimated remaining
service lives ranging from 10 to 32 years. Considering the circumstances
related to the declaration of such distributions and the extended period over
which such distributions may be declared, ComEd does not expect that any such
distributions would have a material impact on its financial position or
results of operations.
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
B-42
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
would currently be subject to a maximum assessment of $991 million in the
event of an incident, limited to a maximum of $125 million in any calendar
year.
In addition, ComEd participates in the American Nuclear Insurers and
Mutual Atomic Energy Liability Underwriters Master Worker Program which
provides coverage for worker tort claims filed for bodily injury caused by
the nuclear energy hazard. The coverage applies to workers whose ''nuclear
related employment'' began after January 1, 1988. ComEd would currently be
subject to a maximum assessment of approximately $36 million in the event
losses exceed accumulated reserve funds.
Shareholder derivative lawsuits were filed in 1992 and 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 and that dismissal was affirmed by the
Illinois Appellate Court. One of the plaintiffs has filed a petition for
leave to appeal in the Illinois Supreme Court.
During 1989 and 1991, actions were brought in federal and state courts
in Colorado against ComEd and Cotter seeking unspecified damages and
injunctive relief based on allegations that Cotter has permitted radioactive
and other hazardous material to be released from its mill into areas owned or
occupied by the plaintiffs resulting in property damage and potential adverse
health effects. In February 1994, a federal jury returned nominal dollar
verdicts on eight bellwether plaintiffs' claims in these cases. 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 (1996) dollars. It is expected that the costs associated with
investigation and remediation of former MGP sites will be incurred over a
period of approximately 20 to 30 years. Because ComEd is not able to
determine the most probable liability for such MGP costs, in accordance with
accounting standards, a reserve of approximately $25 million was recorded as
of December 31, 1995 and 1994, which reflects the low end of the range of
ComEd's estimate of the liability associated with former MGP sites. In
addition, as of December 31, 1995 and 1994, a reserve of $8 million was
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 Unicom's financial
position or results of operations. These cost estimates are based on
currently available information regarding the responsible
B-43
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONCLUDED
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.
(22) QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
AVERAGE EARNINGS
NUMBER OF (LOSS)
NET COMMON PER
OPERATING OPERATING INCOME SHARES COMMON
THREE MONTHS ENDED REVENUES INCOME (LOSS) OUTSTANDING SHARE
- ------------------ ---------- -------- -------- ----------- --------
(THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
March 31, 1994 . . . . . . . . $1,524,750 $213,014 $ 36,020 213,780 $ 0.17
June 30, 1994. . . . . . . . . $1,432,166 $184,918 $(23,339) 213,923 $(0.11)
September 30, 1994 . . . . . . $1,855,276 $438,994 $263,661 214,138 $ 1.23
December 31, 1994. . . . . . . $1,465,329 $246,322 $ 78,592 214,283 $ 0.37
March 31, 1995 . . . . . . . . $1,578,136 $260,526 $ 88,601 214,429 $ 0.41
June 30, 1995. . . . . . . . . $1,559,521 $276,673 $108,866 214,677 $ 0.51
September 30, 1995 . . . . . . $2,190,862 $582,006 $407,433 214,769 $ 1.90
December 31, 1995. . . . . . . $1,581,526 $219,394 $ 34,611 214,889 $ 0.16
</TABLE>
B-44
<PAGE>
SUBSEQUENT EVENTS
NUCLEAR PROGRAM. On March 14, 1996, the Board of Directors of Commonwealth
Edison Company ("ComEd") authorized a program of additional expenditures for its
nuclear operations. Among other things, the Board authorized an acceleration of
the planned replacement of steam generators at ComEd's Byron 1 and Braidwood 1
nuclear units. The planned schedule acceleration is not currently expected to
change the estimated $470 million total cost of the steam generator
replacements, although it will shift certain expenditures scheduled for beyond
1998 into earlier years.
The program consists of various operating, maintenance and capital
expenditure items, and overall includes an $89 million increase in ComEd's
three-year construction budget. Nuclear operating and maintenance expenses are
anticipated to be approximately $70 million higher than budgeted, or $50 million
higher in 1996 than in 1995. The program further contemplates that ComEd's
nuclear operation and maintenance expenditures will be at a similarly increased
level for 1997.
The Board determined that it would be prudent to accelerate certain capital
projects previously scheduled for later years and to implement an intensive
program to make various maintenance and operating improvements in a shorter
period of time than was originally planned. Though safety was not and is not an
issue, management reported that an accelerated expenditure program was
desirable. While a portion of the capital budget increase represents work that
was previously unbudgeted, a majority is work that was originally scheduled to
be performed in later years. The Board's decisions were based upon a
consideration of ComEd's improved financial position and resources as a result
of its increased sales and profits during 1995 due to the unusually warm weather
experienced in Northern Illinois during the summer of 1995, the effects of its
most recently granted rate increase (which became effective in January 1995) and
cost control initiatives undertaken by management. The Board believes that the
increased expenditures which it has authorized can be undertaken without
materially affecting ComEd's objective of reducing its long-term debt.
The foregoing paragraphs include forward-looking statements with respect to
the future levels of capital and operation and maintenance expenditure which are
necessarily based upon assumptions regarding estimated costs and availability of
materials and services as well as contingencies. Unforeseen events or conditions
may require changes in the scope of work with consequent changes in the timing
and level of the projected expenditures. In addition, changes in laws and
regulations, or their interpretation and enforcement, can affect the scope of
certain projects, the manner in which they are undertaken and the costs
associated therewith. While ComEd gives consideration to such factors in
developing its budgets, such consideration cannot predict the course of future
events or anticipate the interaction of multiple factors beyond management's
control upon project timing and cost. Consequently, actual results could differ
materially from those described. For additional information regarding ComEd's
results of operations, its operation and maintenance expenses, its cost
reduction efforts and its capital expenditure program, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
this Appendix B.
LABOR AGREEMENT. On February 20, 1996, ComEd announced that it had reached
agreement with Local 15 of the International Brotherhood of Electrical Workers
("IBEW") with respect to the terms of a new collective bargaining agreement. The
IBEW is ComEd's principal union and represents approximately half of ComEd's
employees. Subject to ratification by the union membership, the new agreement
provides, among other things, for a term expiring on September 30, 1997, a
retroactive wage increase to April 1, 1995 (substantially all of which had been
accrued on the Company's books as of December 31, 1995), a further wage increase
of approximately 2.7% effective on April 1, 1996 and an incentive pay
arrangement dependent upon the achievement of certain corporate and individual
goals. The agreement reflects the previously implemented voluntary separation
offer that was made for employees who accepted and left
B-45
<PAGE>
ComEd's employ by year-end 1995. For additional information regarding the
effects of the previously implemented voluntary separation offer, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," subcaption "Liquidity and Capital Resources," in this Appendix B.
OTHER INFORMATION. See Unicom Corporation's and ComEd's Annual Reports on
Form 10-K for the year ended December 31, 1995, for additional information
regarding events affecting their businesses since the preparation of the
financial statements contained in this Appendix.
B-46
<PAGE>
[UNICOM LOGO] UNICOM CORPORATION
One First National Plaza PROXY
P.O. Box A-3005
P Chicago, Illinois 60690-3005
R ---------------------------------------------------------------------------
O THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
X UNICOM CORPORATION ("UNICOM") FOR THE
Y ANNUAL MEETING OF SHAREHOLDERS ON MAY 22, 1996.
The undersigned appoints James J. O'Connor, Leo F. Mullin, Samuel K.
Skinner and David A. 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 stock
held in the undersigned's name and shares held by agents for the benefit of
the undersigned in the Plans hereafter described, subject to the voting
direction of the undersigned, at the Annual Meeting of Shareholders to be
held on May 22, 1996, 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 PURSUANT TO THIS PROXY INCLUDE SHARES, IF ANY,
HELD IN THE NAME OF AGENTS, FOR THE BENEFIT OF THE UNDERSIGNED, IN THE
COMPANY'S DIVIDEND REINVESTMENT AND EMPLOYEE STOCK PURCHASE PLANS.
Change of address:
----------------------------------------------------------- --------------
PLEASE SEE
----------------------------------------------------------- REVERSE SIDE
--------------
- --------------------------------------------------------------------------------
<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 THE DIRECTOR
NOMINEES AND FOR ITEMS B AND C.
- --------------------------------------------------------------------------------
FOR WITHHELD Director Nominees:
A. Election of Jean Allard George E. Johnson
Directors / / / / Edward A. Brennan Edward A. Mason
James W. Compton Leo F. Mullin
Sue L. Gin James J. O'Connor
Donald P. Jacobs Frank A. Olson
Edgar D. Jannotta Samuel K. Skinner
For, except vote withheld from the following nominee(s):
- --------------------------------------------------------
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
B. Directors' / / / / / /
Fee Plan
C. Appointment
of Auditors / / / / / /
- --------------------------------------------------------------------------------
----------------------------------------
SPECIAL ACTION
----------------------------------------
Discontinue Annual Report
Mailing for This Account Only. / /
Change of Address Noted
on Other Side. / /
----------------------------------------
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]
To Our Shareholders:
The annual meeting of shareholders of Unicom Corporation will be held
Wednesday, May 22, 1996 in the Grand Ballroom of the Chicago Hilton and Towers,
720 South Michigan Avenue, Chicago, Illinois. Unicom is the corporate parent of
Commonwealth Edison Company (ComEd) and other, unregulated, subsidiary
companies. You are invited to attend Unicom's 1996 annual meeting and learn more
about the progress being made toward positioning our core business, ComEd, and
our unregulated business activities to succeed in a more competitive energy
marketplace.
The enclosed Unicom Proxy Statement describes the three items of business
to be conducted: the election of Directors, approval of a Directors' Fee Plan
and appointment of auditors. The new Fee Plan would allow non-employee Directors
to receive part or all of their compensation in shares of Unicom common stock.
As always, your vote is very important. Therefore, I urge you to sign your
proxy and return it as early as possible. This action will expedite the
tabulation process and minimize costs associated with follow-up contacts.
Even if you now expect to attend the Unicom annual meeting, please sign,
date and return the accompanying proxy in the enclosed 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; by executing a
subsequent proxy; or by attending the annual meeting and voting in person.
Sincerely,
/s/ James J. O'Connor
James J. O'Connor
Chairman and Chief
Executive Officer
