<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] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(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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(4) Date Filed:
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<PAGE>
UNICOM CORPORATION
One First National Plaza
P.O. Box A-3005
Chicago, Illinois 60690-3005
[LOGO OF UNICOM]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON THURSDAY, MAY 28, 1998 AT 10:30 A.M. (LOCAL TIME)
The annual meeting of shareholders of Unicom Corporation ("Unicom" or the
"Company") will be held in the Wallingford Center of the Clock Tower Resort &
Conference Center, 7801 E. State Street, Rockford, Illinois. At the meeting,
shareholders will be asked to consider and act upon the following matters, and
to transact such other business as may properly be brought before the meeting:
Item A: The election of eight Directors.
Item B: The authorization of additional shares for the Unicom Corporation
Long-Term Incentive Plan.
Item C: The authorization of additional shares for the Unicom Corporation
Employee Stock Purchase Plan.
Item D: The appointment of Arthur Andersen LLP, independent public
accountants, as Auditors for 1998.
Only shareholders of record on the books of Unicom at 4:00 P.M., Chicago
time, on March 31, 1998, will be entitled to vote at the meeting.
PLEASE FILL IN, SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY.
IN THE ABSENCE OF SPECIFIC DIRECTION, THE SHARES REPRESENTED BY THE PROXIES
WILL BE VOTED AT THE MEETING AND WILL BE VOTED NON-CUMULATIVELY FOR THE
ELECTION OF THE NOMINEES NAMED IN THIS PROXY STATEMENT AS DIRECTORS, AND FOR
ITEMS B, C AND D.
David A. Scholz
Secretary
April 9, 1998
<PAGE>
DIRECTIONS TO THE CLOCK TOWER
RESORT & CONFERENCE CENTER
FROM CHICAGO AREA:
I-90 (Kennedy Expressway--Northwest Tollway) West to Rockford, exit at
Business Route U.S. 20. Straight across Business Route U.S. 20 to Clock Tower
Resort & Conference Center.
[MAP TO LOCATION OF ANNUAL MEETING]
<PAGE>
[UNICOM LOGO]
PROXY STATEMENT
April 9, 1998
This Proxy Statement is being sent to you in connection with the
solicitation by the Unicom Board of Directors of proxies for use at Unicom's
annual meeting of shareholders to be held on May 28, 1998.
You may revoke your proxy at any time before it is voted. You may revoke it
by sending a written notice to David A. Scholz, Secretary, Unicom Corporation,
10 South Dearborn Street, Post Office Box A-3005, Chicago, IL 60690-3005, by
signing and delivering a more recent proxy or by attending the meeting and
voting in person. Attendance at the meeting will not automatically revoke your
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 or its subsidiaries 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 1997 Summary Annual Report, this Proxy Statement and the form of
Proxy are first being mailed to shareholders on or about April 9, 1998. The
audited financial statements of Unicom, along with certain other financial
information, are included in Exhibit C to this Proxy Statement.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL DIRECTOR NOMINEES NAMED IN
ITEM A, AND FOR APPROVAL OF THE MATTERS DISCUSSED IN ITEMS B, C AND D.
<PAGE>
ITEM A: ELECTION OF DIRECTORS
NOMINEES
James J. O'Connor has resigned as Chairman and Chief Executive Officer of
the Company after thirty-four years of service, the last eighteen of which
have been as Chairman. He has also resigned as a Director. Samuel K. Skinner
has retired from the Company after five years as President and has resigned as
a Director. Their contributions to the Company have been many and are
gratefully appreciated. The Board has decided that it is not necessary at this
time to fill the vacancy on the Board caused by Mr. Skinner's retirement,
which will reduce the size of the Board to eight, the size of the Board having
been reduced to nine upon the resignation of Leo F. Mullin in August 1997.
Eight 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.
[PHOTO] EDWARD A. BRENNAN, age 64. Director of Unicom and ComEd since
1995. Retired. Chairman and CEO of Sears, Roebuck and Co.
(retail merchandiser) for more than five years prior to his
retirement in August 1995. Chairman of Corporate Governance
and Compensation Committee and member of Audit, Finance and
Nominating Committees. Other directorships: The Allstate
Corporation, AMR Corporation, Dean Foods Company, Minnesota
Mining and Manufacturing Company, Morgan Stanley, Dean Witter,
Discover & Co. and The SABRE Group Holdings, Inc.
[PHOTO] JAMES W. COMPTON, age 60. Director of Unicom since 1994 and
ComEd since 1989. President and Chief Executive Officer of the
Chicago Urban League (a non-profit agency). Chairman of
Finance Committee and member of Corporate Governance and
Compensation and Nominating Committees. Other directorships:
Ariel Mutual Funds and Highland Community Bank.
[PHOTO] BRUCE DeMARS, age 62. Director of Unicom and ComEd since 1996.
Vice President and Secretary of DeMars, Inc. (consulting firm)
since May 1997. Admiral, United States Navy and Director,
Naval Nuclear Propulsion Program for more than five years
prior to his retirement in October 1996. Member of Audit and
Corporate Governance and Compensation Committees. Other
directorship: McDermott International.
[PHOTO] SUE L. GIN, age 56. Director of Unicom since 1994 and ComEd
since 1993. Founder, Owner, Chairman and Chief Executive
Officer of Flying Food Fare, Inc. (in-flight catering
company). Member of Audit, Corporate Governance and
Compensation, Executive and Finance Committees.
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[PHOTO] DONALD P. JACOBS, age 70. Director of Unicom since 1994 and
ComEd since 1979. Dean of the J. L. Kellogg Graduate School of
Management, Northwestern University. Member of Corporate
Governance and Compensation, Executive, Finance and Nominating
Committees. Other directorships: The First National Bank of
Chicago, Hartmarx Corp., Security Capital Industrial Trust,
Unocal Corp. and Whitman Corp.
[PHOTO] EDGAR D. JANNOTTA, age 66. Director of Unicom and ComEd since
1994. Senior Director of William Blair & Company, L.L.C.
(investment banking 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, Executive and Finance
Committees. Other directorships: AAR Corp., AON Corporation,
Bandag, Incorporated, Molex Incorporated, Oil-Dri Corporation
of America and Safety-Kleen Corp.
[PHOTO] GEORGE E. JOHNSON, age 70. Director of Unicom since 1994 and
ComEd since 1971. Founder and retired Chairman, Johnson
Products Company, Inc. (personal care products company).
Chairman of Indecorp, Inc. for more than five years prior to
his retirement in December 1995. Chairman of Audit Committee
and member of Corporate Governance and Compensation and
Nominating Committees. Other directorship: Burrell
Communications Group.
[PHOTO] JOHN W. ROWE, age 52. Director, Chairman, President and Chief
Executive Officer of Unicom and ComEd since March 16, 1998.
President and Chief Executive Officer of New England Electric
System from February 1989 to March 1998. Other directorships:
Bank of Boston Corporation and UNUM Corporation.
3
<PAGE>
ADDITIONAL INFORMATION CONCERNING BOARD OF DIRECTORS
Compensation of Directors--Directors who are not employees of Unicom or any
of its subsidiaries receive an annual fee of $36,200 payable in shares of
Unicom Common Stock under the Unicom Corporation 1996 Directors' Fee Plan.
Such Directors also receive a fee of $1,000 for each Board and Committee
meeting they attend and an additional annual fee of $2,500 for each Committee
of the Board that they chair, which meeting and chair fees may, at the
election of the Director, be paid in shares of Unicom Common Stock under the
1996 Directors' Fee Plan. In the event that Directors also serve as directors
of ComEd, or as chairs of corresponding committees of ComEd, the aggregate
fees paid to such Directors in respect of such service to Unicom and ComEd do
not exceed the foregoing amounts, so that Directors do not receive duplicate
fees. Directors who are full-time employees of Unicom or any of its
subsidiaries receive no fees for service on the Board of Directors. Directors
may defer the cash portion of their fees. Prior to 1997, Directors who had
never been an officer or an employee of Unicom or any of its subsidiaries, and
who had 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), became eligible for retirement benefits upon retirement. Such benefits
were to be 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. Effective January 1, 1997, the Board of
Directors terminated the further accrual of retirement benefits and offered
each Director the option to irrevocably elect, in lieu of amounts otherwise
payable, a lump sum amount payable upon retirement, either by delivery of
shares of Unicom Common Stock or in cash. In lieu of further accrual of
retirement benefits, non-employee Directors received a $6,200 increase in
their annual fee (from $30,000 to $36,200), effective June 1, 1997 and payable
in shares of Unicom Common Stock.
In addition to his compensation as a Director, Admiral DeMars also received
from ComEd a total of $120,000 for consulting services provided to ComEd
during 1997 with respect to its nuclear power operations. The fees were based
on the amount of time spent in performing the consulting services. It is not
expected that Admiral DeMars will perform any consulting services for ComEd or
the Company during 1998.
Audit Committee--The Audit Committee consists of five Directors who are not
employees of Unicom or any of its subsidiaries. Members serve three-year
staggered terms. It is the responsibility of the Audit Committee to review,
with Unicom's independent Auditors, Unicom's financial statements and the
scope and results of such Auditors' examinations, to monitor the internal
accounting controls and practices of Unicom, to review the Summary Annual
Report to shareholders and the financial statements set forth in Exhibit C and
to recommend the appointment, subject to shareholder approval, of independent
Auditors. The Committee met three times during 1997. Members of the Committee
are George E. Johnson (Chairman), Edward A. Brennan, Bruce DeMars, Sue L. Gin
and Edgar D. Jannotta.
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, Long-Term Incentive Plan, and 1996
Directors' Fee Plan, with the exception of those matters reviewed by its
Incentive Compensation Subcommittee and described in the following paragraph.
The Committee met four times during 1997. Members of the Committee are Edward
A. Brennan (Chairman), James W. Compton, Bruce DeMars, Sue L. Gin, Donald P.
Jacobs, Edgar D. Jannotta and George E. Johnson.
The Incentive Compensation Subcommittee of the Corporate Governance and
Compensation Committee was established by the Board of Directors on September
10, 1997 to review stock-based awards and grants and to approve goals for
performance-based compensation for the Chief
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Executive Officer and for those officers who are or could be among the other
four most highly compensated officers of the Company and/or ComEd. Members
serve one-year terms. The Subcommittee met three times during 1997. Members of
the Subcommittee are Edward A. Brennan (Chairman), James W. Compton, Sue L.
Gin, Donald P. Jacobs, Edgar D. Jannotta and George E. Johnson.
Executive Committee--The Executive Committee consists of three 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 met one time during 1997. Members of the Committee are Sue
L. Gin, Donald P. Jacobs and Edgar D. Jannotta.
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
1997. Members of the Committee are James W. Compton (Chairman), Edward A.
Brennan, 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. For the 1999
annual meeting, shareholders must also comply with the nomination procedures
set forth in the Company's By-Laws effective as of June 1, 1998, which are
summarized in this Proxy Statement under the heading "Shareholder Proposals
and Nominations for 1999 Annual Meeting." The Committee met three times during
1997. Members of the Committee are Edgar D. Jannotta (Chairman), Edward A.
Brennan, James W. Compton, Donald P. Jacobs and George E. Johnson.
Attendance at Meetings--During 1997, there were nine meetings of Unicom'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 1997, was 97%. Each incumbent Director attended at least 88% of
the meetings of Unicom's Board and Board Committees of which the Director was
a member.
5
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table lists the beneficial ownership, as defined under the
rules of the Securities and Exchange Commission (the "SEC"), as of March 1,
1998 (with the exception of John W. Rowe), of Unicom Common Stock held by each
of the Directors, each of the executive officers named in the Summary
Compensation Table on page 14 and Unicom's Directors and executive officers as
a group. Mr. Rowe's ownership is listed as of March 31, 1998. There was no
person known to Unicom to be the beneficial owner of more than five percent of
Unicom's Common Stock as of March 1, 1998. In addition, the table includes two
columns describing securities held by such persons that are not considered to
be "beneficially owned" under the rules of the SEC. The column headed "Other
Stock Options" includes stock options held by such persons that are not
exercisable within 60 days of March 1, 1998. The column headed "Deferred Share
Equivalents" includes shares deferred by such persons under the Unicom
Corporation Stock Bonus Deferral Plan or share equivalents held in the Unicom
Corporation Retirement Plan for Directors.
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP OF COMMON
STOCK
------------------------ OTHER
AMOUNT PERCENT STOCK DEFERRED SHARE
NAME AND NATURE OF CLASS OPTIONS(7) EQUIVALENTS(9)
---- ---------- -------- ---------- --------------
<S> <C> <C> <C> <C>
Edward A. Brennan........... 3,133 * -- --
James W. Compton............ 3,805 * -- 2,539
Bruce DeMars................ 1,561 * -- 469
Sue L. Gin.................. 7,798 * -- 1,091
Donald P. Jacobs............ 6,502 * -- 8,614
Edgar D. Jannotta........... 4,563 * -- 1,878
George E. Johnson........... 5,695 * -- 9,988
James J. O'Connor........... 56,333(1)(2) * 123,333 44,040
John W. Rowe................ 5,000(3) * 250,000 --
Samuel K. Skinner........... 150,572(2) * -- --
Robert J. Manning........... 24,390(2)(4) * 45,332(8) 10,486(10)
Michael J. Wallace.......... 15,579(2)(5) * 22,500 13,755
Pamela B. Strobel........... 17,447(2) * 25,500 8,388
Leo F. Mullin............... 5,346 * -- --
Directors and executive
officers as a group (20
persons)................... 380,178(2)(6) * 588,330 116,739
</TABLE>
- ---------------------
*Less than one percent
(1) Includes 1,775 shares owned by family members. Mr. O'Connor disclaims any
beneficial ownership of such shares.
(2) The numbers and percentages of shares shown in the table above include
shares as to which the indicated person(s) had the right to acquire within
60 days of March 1, 1998 upon the exercise of outstanding stock options,
as follows: Mr. O'Connor 21,667; Mr. Skinner 110,000; Mr. Manning 7,668
(includes 1,834 options owned by spouse); Mr. Wallace 5,000; Ms. Strobel
4,000; and all executive officers and directors as a group (including such
individuals) 163,920. Such persons disclaim any beneficial ownership of
the shares subject to such options.
(3) Includes 2,000 shares owned by spouse.
(4) Includes 1,737 shares owned by spouse.
(5) Includes 100 shares jointly owned with a family member, 201 shares owned
by a family member and 200 shares held in a custodial account for a family
member. Mr. Wallace disclaims any beneficial ownership of such shares.
(6) Includes 3,737 shares owned by spouses, 200 shares held in a custodial
account for a family member, 1,976 shares owned by family members and 100
shares jointly owned with a family member. The directors and executive
officers to whom such beneficial ownership is attributed disclaim any
beneficial ownership of the shares held by such persons.
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<PAGE>
(7) Includes stock options which are not considered to be "beneficially owned"
under SEC rules because they cannot be exercised within 60 days of March
1, 1998.
(8) Includes 8,666 stock options held by spouse.
(9) Includes share equivalents that are not considered to be "beneficially
owned" under SEC rules because they are deferred under the Unicom
Corporation Stock Bonus Deferral Plan or the Unicom Corporation Retirement
Plan for Directors. Under the Unicom Corporation Stock Bonus Deferral
Plan, executives may defer the receipt of the stock portion of certain
awards made pursuant to the Unicom Corporation Long-Term Incentive Plan.
Deferred amounts are only required to be kept in Unicom's books of account
as deferred stock accounts, which are for bookkeeping purposes only.
Unicom has no obligation to set aside or segregate any actual shares of
Unicom Common Stock or other assets in respect of such accounts. Unicom
has elected to issue the deferred shares to a trust having an
institutional trustee, which has sole voting rights with respect to such
shares. At the end of the deferral period, the share equivalents are
distributed in whole shares of Unicom Common Stock and cash in lieu of any
fractional share. Dividends paid with respect to the deferred shares are
either reinvested in Unicom Common Stock and held by such Trustee or are
paid to the executive officer making the deferral. Under the Unicom
Corporation Retirement Plan for Directors, effective January 1, 1997, the
accrual of further benefits was terminated and directors could elect to
have benefits accrued through such date deferred into share equivalents to
be paid in shares of Unicom Common Stock upon retirement. Accounts under
such Plan are credited with an additional number of share equivalents
determined by assuming the reinvestment of dividend equivalents on share
equivalents in such accounts.
(10)Includes 2,312 deferred share equivalents held by spouse.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Unicom's
executive 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.
In 1997, Messrs. Robert E. Berdelle, John C. Bukovski, Louis O. DelGeorge,
William H. Downey, William H. Dunbar, Jr., J. Stanley Graves, Roger F. Kovack,
Edward S. Kraft, Jr., Emerson W. Lacey, Thomas J. Maiman, Robert J. Manning,
James J. O'Connor, J. Stephen Perry, Donald A. Petkus, Cordell Reed, David A.
Scholz, James A. Small, and Michael J. Wallace, and Ms. Pamela B. Strobel,
each made a filing of a late report required by Section 16(a) of the
Securities Exchange Act of 1934, as amended, insofar as the Forms 5 filed by
such persons relating to 1996 did not report the deferral of shares of Unicom
Common Stock into the Unicom Corporation Stock Bonus Deferral Plan in
transactions exempt from Section 16(b). In each case, the individual deferred
bonus shares granted under the Unicom Corporation Long-Term Incentive Plan
were part of two transactions, consisting of the annual incentive award and
the long term performance unit awards payable in 1997 for prior periods.
However, in the case of Mr. DelGeorge, only one transaction was not reported
timely, and in the case of Mr. Manning, four transactions were not reported
timely. In addition, Mr. Perry did not timely report a sale of stock in
December 1997. All of such transactions have subsequently been reported.
ITEM B: AUTHORIZATION OF ADDITIONAL SHARES FOR THE
UNICOM CORPORATION LONG-TERM INCENTIVE PLAN
The second item to be considered by shareholders at the annual meeting will
be an amendment of the Unicom Corporation Long-Term Incentive Plan (the
"Incentive Plan") to add 7,000,000 shares
7
<PAGE>
to the shares previously authorized to be available for awards under the
Incentive Plan. The Incentive Plan was originally approved by ComEd's
shareholders in May 1993. It was re-approved by ComEd in August 1994, as the
then sole shareholder of Unicom, in connection with its assumption by Unicom.
In May 1997 amendments to the Incentive Plan were approved by Unicom and ComEd
shareholders to enable certain future grants or awards under the Incentive
Plan to qualify as "performance-based compensation" under the Internal Revenue
Code. The proposed amendment, if approved by shareholders, would amend Section
4.1 of the Incentive Plan to increase the aggregate number of shares available
for awards under the Incentive Plan from 4,000,000 to 11,000,000. The full
text of the Incentive Plan as it is proposed to be amended is attached as
Exhibit A to this Proxy Statement.
PURPOSES OF INCENTIVE PLAN AND AMENDMENT
The purposes of the Incentive Plan are (i) to align the interests of the
Company's shareholders and recipients of awards by increasing the proprietary
interest of such recipients in the Company's growth and success and (ii) to
advance the interests of the Company by attracting and retaining well-
qualified persons by providing such persons with performance-related
incentives. Awards under the Incentive Plan are expected to be structured to
achieve these purposes.
The Incentive Plan provides for a variety of awards that can be flexibly
administered in order to carry out its purposes. The Board believes this
authority will continue to permit the Company to keep pace with changing
developments in compensation programs and to make the Company competitive with
other companies that offer creative incentives to attract and keep employees.
The flexibility of the Incentive Plan will continue to allow the Company to
respond to changing circumstances such as changes in tax laws, accounting
rules, securities regulations and other rules regarding benefit plans. The
Incentive Plan grants the administrators flexibility in creating the terms and
restrictions deemed appropriate for particular awards as facts and
circumstances warrant.
As of March 1, 1998, fewer than 884,551 shares remained available for Awards
under the Incentive Plan. See "Available Shares; Outstanding Awards" below.
The purpose of the amendment is to make additional shares available for future
awards under the Incentive Plan.
PRINCIPAL TERMS OF INCENTIVE PLAN
Employees of the Company and its subsidiary companies (in which the Company
owns directly or indirectly a 51% or more voting equity interest) are eligible
to be selected to participate in the Incentive Plan. The selection of
participants from eligible persons is within the sole discretion of the
Corporate Governance and Compensation Committee of the Board of Directors.
Approximately 16,800 persons are eligible to participate in the Incentive
Plan.
The Incentive Plan authorizes the Corporate Governance and Compensation
Committee to make or grant the following types of awards singly, in
combination or in tandem:
Stock Options. Awards may consist of options to purchase shares of the
Company's Common Stock, which may be "incentive stock options" or non-
qualified stock options. Incentive stock options must meet the requirements
of Section 422 of the Internal Revenue Code and carry some potential tax
advantages for the recipient. Non-qualified stock options are not subject
to those requirements and do not carry such advantages. The Committee is
empowered to determine the number of shares subject to each option, the
manner and time of the option's exercise, and the exercise price per share
of stock subject to the option. The exercise price of an incentive stock
option may not be less than the fair market value of a share of Common
Stock on the date the option is granted. The Committee may establish any
exercise price for non-qualified stock options. The exercise price of an
option may, at the discretion of the Committee, be paid by a participant in
cash, shares of Common Stock owned by the participant, a combination
thereof, or such other consideration as the Committee may deem appropriate.
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Stock Appreciation Rights. A stock appreciation right ("SAR") is a right
to receive a payment (either in cash, shares of Common Stock, or a
combination thereof) equal to the appreciation in market value of a stated
number of shares of Common Stock. The appreciation is measured by the
difference between a reference price stated in the SAR and the market value
of a share of Common Stock on the date of exercise of the SAR. A SAR may be
granted in tandem with a stock option ("Tandem SARs") or independent of a
stock option ("Non-tandem SARs"). A Tandem SAR may be granted either at the
time of the grant of the related stock option or, in the case of a non-
qualified stock option, at any time thereafter during the term of such
option. Upon the exercise of a stock option as to some or all of the shares
covered by the award, the related Tandem SAR is cancelled automatically to
the extent that the number of shares subject to the Tandem SAR exceeds the
number of remaining shares subject to the related stock option.
Stock Awards. Awards may also consist of grants of restricted or
unrestricted shares of Common Stock. Such awards will be subject to such
terms, conditions, restrictions and/or limitations, if any, as the
Committee deems appropriate, which may include restrictions on
transferability and continued employment.
Performance Shares. Performance shares are either shares of Common Stock
or units which are expressed in terms of Common Stock. Such awards are
contingent upon the attainment over a specified time period (as determined
by the Committee) of certain performance objectives. The performance
objectives to be achieved during a performance period and the measures of
whether and to what degree such objectives have been attained are also
determined by the Committee.
Performance Units. Awards may also be granted in the form of "performance
units," which are units valued by reference to criteria chosen by the
Committee other than Common Stock. Performance units are similar to
performance shares in that they are contingently awarded based on the
attainment over a performance period of certain objectives. The length of
the performance period, the performance objectives to be achieved and the
measure of whether and to what degree such objectives have been achieved
are determined by the Committee. Amounts earned under performance units may
be paid in cash, shares of Common Stock or both.
Other Stock-Based Awards. The Committee is also authorized to grant to
participants awards of stock and other awards that are valued in whole or
in part by reference to, or are otherwise based on, Common Stock.
Awards may be paid in cash, shares of Common Stock, a combination of cash
and shares of Common Stock, or any other form of property, as the Committee
determines. If an award is granted in the form of a stock option, restricted
or unrestricted stock award, performance shares, or in the form of any other
stock-based award, the Committee may include as part of such award an
entitlement to receive dividends or dividend equivalents. At the discretion of
the Committee, the payment of performance shares or performance units may be
deferred by a participant. The Incentive Plan limits (i) the maximum aggregate
number of shares of Common Stock available for stock option and stock
appreciation rights grants to 500,000 for any given individual in any five
consecutive years and (ii) the maximum aggregate number of performance units
that can be granted to 50,000 for any given individual in any given year.
Awards are evidenced by written agreements containing the terms, conditions,
restrictions and/or limitations covering the grant of the award.
AVAILABLE SHARES; OUTSTANDING AWARDS
The Incentive Plan originally made available an aggregate of 4,000,000
shares of Common Stock for the grant of awards. Since then, 855,329 shares
have been issued in payment of awards under
9
<PAGE>
the Incentive Plan. There remain 3,144,671 shares available for satisfying
currently outstanding awards (including the 2,260,120 shares reserved for the
stock options described in the next paragraph and payment of awards under
currently outstanding annual incentive awards and longer-term incentive
awards, which numbers are not presently determinable), and issuing future
awards. Shares covered by any stock option, stock appreciation right or other
stock award that expires or terminates unexercised or is cancelled or
forfeited become available again for awards under the Incentive Plan.
As of March 1, 1998, there were 2,260,120 shares covered by outstanding non-
qualified stock options. Each stock option entitles the holder to purchase
shares of the Company's Common Stock. The options become exercisable in equal
annual increments on the first three anniversaries of the grant date (subject
to acceleration in the event of a change in control of the Company), and
expire entirely on the tenth anniversary of the grant date to the extent not
previously exercised. Options to purchase an aggregate of 1,205,500 shares
were granted in 1996 to employees, including options to purchase 65,000,
50,000, 50,000, 17,500, 15,000 and 12,000 shares granted to Messrs. O'Connor,
Mullin, Skinner, Manning and Wallace and Ms. Strobel, respectively; and
options to purchase 436,500 shares granted to all executive officers as a
group. Options to purchase an aggregate of 1,339,350 shares were granted in
1997 to employees, including options to purchase 80,000, 60,000, 60,000,
25,000, 12,500, and 17,500 shares granted to Messrs. O'Connor, Mullin,
Skinner, Manning and Wallace and Ms. Strobel, respectively, and 345,500
options to purchase granted to all executive officers as a group. Non-employee
Directors are not eligible to participate in the Incentive Plan. All such
options were granted at the fair market value of the Common Stock as of the
date of grant, which range from $22.313 to $28.00. As of March 1, 1998, the
market price of the Common Stock was $32.063 per share.
Benefits under the Incentive Plan with respect to 1998 and future years are
not determinable.
INCENTIVE PLAN ADMINISTRATION
The Incentive Plan is administered by the Corporate Governance and
Compensation Committee (and its Incentive Compensation Subcommittee) of the
Board of Directors of the Company. No member of the Committee is eligible to
participate in the Incentive Plan. Among the powers granted to the Committee
are the authority to interpret the Incentive Plan, establish rules and
regulations for its operation, select employees of the Company and its
subsidiaries to receive awards, and determine the form, amount and other terms
and conditions of awards. The Committee also has the power to modify or waive
restrictions on awards, to amend awards and to grant extensions and accelerate
awards.
AMENDMENT AND TERMINATION
The Board of Directors may amend the Incentive Plan at any time but may not,
without shareholder approval, adopt any amendment which would increase the
number of shares of Common Stock available for award under the Incentive Plan
or which would cause the Incentive Plan to lose its exemption under Securities
and Exchange Commission Regulation Section 240.16b-3.
The Incentive Plan has no fixed termination date but may be terminated by
the Board at any time. Termination of the Incentive Plan will not affect the
status of any awards outstanding at the date of termination.
FEDERAL TAX TREATMENT
Under current U.S. federal tax law, the following is a brief summary of the
U.S. federal income tax consequences generally arising with respect to awards
under the Incentive Plan.
10
<PAGE>
A participant who is granted an incentive stock option will not recognize
any taxable income at the time of the grant of the option or at the time of
its exercise. If the participant does not dispose of the shares acquired
pursuant to the exercise of an incentive stock option before the later of two
years from the date of grant and one year from the date of exercise, any gain
or loss realized on a subsequent disposition of the shares will be treated as
a long-term capital gain or loss, and the Company will not be entitled to any
deduction for federal income tax purposes.
A participant who is granted a non-qualified option will not recognize
taxable income at the time of grant, but will recognize taxable income at the
time of exercise equal to the difference between the exercise price of the
shares and the market value of the shares on the date of exercise. The Company
will be entitled to a tax deduction for the amount of income recognized by the
participant.
A participant who is granted a SAR will not recognize any taxable income at
the time of grant, but will recognize taxable income at the time of exercise
equal to the difference between the reference price of the shares and the
market price of the shares on the date of exercise, and the Company will be
entitled to a tax deduction for the amount of income recognized by the
participant.
A participant who has been granted either performance units or performance
shares will not recognize taxable income at the time of the grant. A
participant will recognize ordinary income at the time the award is paid equal
to the amount of cash paid or the value of shares delivered, and the Company
will be entitled to a tax deduction for the amount of income recognized by the
participant.
A participant who has been granted an award of restricted shares of Common
Stock will not recognize taxable income at the time of the grant, and the
Company will not be entitled to a tax deduction at the time of the grant,
unless the participant makes an election to be taxed at the time of the award.
When the restrictions lapse, the participant will recognize taxable income in
an amount equal to the excess of the fair market value of the shares at such
time over the amount, if any, paid for such shares. The Company will be
entitled to a corresponding tax deduction.
A participant who has been granted an unrestricted stock award will
recognize taxable income at the time of grant in an amount equal to the then
fair market value of the Common Stock awarded. The Company will receive a
corresponding tax deduction.
11
<PAGE>
ITEM C: AUTHORIZATION OF ADDITIONAL SHARES FOR THE
UNICOM CORPORATION EMPLOYEE STOCK PURCHASE PLAN
The third item to be considered by shareholders at the annual meeting will
be an increase in the number of shares reserved for issuance under the Unicom
Corporation Employee Stock Purchase Plan (the "Purchase Plan"). The full text
of the Purchase Plan, as it is proposed to be amended, is attached as Exhibit
B to this Proxy Statement.
PRINCIPAL TERMS
Under the Purchase Plan, all regular full-time employees of the Company and
of such subsidiaries of the Company as the Board of Directors shall designate,
including officers but not Directors who are not officers or employees, may
accumulate up to 10% of their regular pay and on designated dates twice each
year (in April and October) use such accumulated savings to purchase, at their
option, Common Stock of the Company at 90% of its closing market price on the
Chicago Stock Exchange on such dates. No employee is eligible to participate
in the Purchase Plan who, immediately after he has made an election to
purchase shares under the Purchase Plan, would own stock possessing 5% or more
of the total combined voting power or par value of all classes of stock of the
Company or any subsidiary of the Company, and no employee has the right to
purchase stock under the Purchase Plan at a rate of more than $25,000 in any
calendar year. An employee may withdraw from the Purchase Plan by notifying
the Company prior to the designated dates. In the event of withdrawal from the
Purchase Plan, or its termination, all funds held for the account of an
employee under the Purchase Plan will be refunded without interest. The
Company's Board of Directors may exclude from participation in the Purchase
Plan employees who do not meet certain minimum requirements as to length of
service.
AMENDMENT AND TERMINATION
The Board of Directors may at any time interpret, amend, suspend, or
terminate the Purchase Plan except that (a) the number of shares reserved
under the Purchase Plan may not be changed by the Board, and (b) the terms of
the Purchase Plan governing determinations of the purchase prices for purchase
of stock under it may be changed by the Board only to conform such terms with
any then applicable provision of the Internal Revenue Code or any regulation
issued thereunder. Unless previously terminated by the Board, the Purchase
Plan will terminate automatically at the end of the second full calendar month
following any six-month payment period if, as of such month-end, the total
number of shares reserved for subsequent sale pursuant to the Purchase Plan
shall be less than one-third of the total number of shares purchased with
respect to the last preceding payment period within which shares were sold
under the Purchase Plan.
AVAILABLE SHARES; PURPOSE OF AMENDMENT
As of December 31, 1997, a total of 9,511,917 shares of Common Stock had
been sold to employees for an aggregate price of $246,710,828, leaving 507,567
shares available for sale pursuant to the Purchase Plan. Of the total 609,596
shares issued under the Purchase Plan from January 1, 1995 to December 31,
1997, a total of 3,659 were purchased by the current executive officers, for
an aggregate consideration of $82,624. The only current executive officers who
participated in the Purchase Plan during such period were Messrs. O'Connor,
McCoy and Wallace. During such period, Mr. O'Connor purchased 3,012 shares for
an aggregate consideration of $67,517, Mr. McCoy purchased 73 shares for an
aggregate consideration of $1,665, and Mr. Wallace purchased 574 shares for an
aggregate consideration of $13,442. As of the most recent issuance on November
1, 1997, 2,247 employees were participating in the Purchase Plan. It is
estimated that approximately 200,000 shares will be purchased under the
Purchase Plan during 1998 and it is not expected, therefore, that sufficient
shares will remain for continuation of the Purchase Plan after 1999 unless
additional shares are authorized.
12
<PAGE>
Accordingly, it is proposed that the Purchase Plan be amended by adding
500,000 shares to the shares available for purchase by employees. The proposed
amendment, if approved by shareholders, would amend Section 1 of the Purchase
Plan to change the aggregate number of shares available for Awards under the
Purchase Plan from 507,567 to 1,007,567.
FEDERAL TAX TREATMENT
Under current U.S. federal tax law, if an employee holds stock acquired
under an "employee stock purchase plan" for a period of two years or more, any
profit to him on resale, up to the amount of the discount from market value on
his purchase date, is subject to tax as ordinary income and the balance is
subject to tax as a capital gain. If the stock is held for such period, the
Company is not allowed to deduct from its income for federal income tax
purposes the value of the purchase right to the employee. If an employee
disposes of stock within two years of its acquisition, the employee's entire
discount from market value on his purchase date is subject to tax as ordinary
income; any further profit will be subject to tax as a capital gain; any loss,
after considering the full 10% discount as ordinary income, will be treated as
a capital loss; and the Company is entitled to a federal income tax deduction
equal to the entire discount.
ITEM D: APPROVAL OF AUDITORS
Subject to shareholder approval, 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 1998. 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.
13
<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, 1997, the Chief Executive Officer and the other four most
highly compensated executive officers of Unicom or ComEd, and one individual
who would have been among the four most highly compensated executive officers
on that date but for the fact that the individual was not serving as an
executive officer on December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------- -------------------------------
AWARDS PAYOUTS
OTHER ----------------------- -------
ANNUAL SECURITIES ALL OTHER
COMPEN- RESTRICTED UNDERLYING LTIP COMPEN-
NAME AND PRINCIPAL SALARY BONUS SATION(1) STOCK(2) OPTIONS/SARS PAYOUTS SATION(3)
POSITION YEAR $ $ $ $ # $ $
------------------ ---- ------- ------- --------- ---------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James J. O'Connor 1997 929,042 400,000 0 -- 80,000 371,555 106,155
Chairman (Chief 1996 844,926 528,079 0 -- 65,000 324,956 101,174
Executive Officer) 1995 826,926 826,926 0 -- -- 452,296 98,102
Unicom and ComEd
Samuel K. Skinner 1997 652,269 275,000 0 -- 60,000 261,153 104,976
President 1996 589,000 368,125 0 -- 50,000 232,994 102,048
Unicom and ComEd 1995 580,000 580,000 0 -- -- 324,297 105,828
Robert J. Manning 1997 312,802 115,092 0 291,250 25,000 84,306 19,894
Executive Vice 1996 247,135 53,601 0 -- 17,500 75,946 17,048
President 1995 234,035 65,056 0 -- -- 105,706 15,038
ComEd
Michael J. Wallace 1997 328,229 47,541 0 -- 12,500 99,732 17,419
Senior Vice President 1996 308,440 94,104 0 -- 15,000 87,847 16,488
ComEd 1995 277,440 93,021 0 -- -- 122,271 13,469
Pamela B. Strobel 1997 304,970 55,656 0 291,250 17,500 67,210 19,247
Senior Vice President 1996 262,300 79,510 0 -- 12,000 54,526 17,445
and General Counsel 1995 238,000 96,563 0 -- -- 75,892 17,146
Unicom and ComEd
Leo F. Mullin(4) 1997 478,869 -- 0 -- 60,000 -- 50,570
Former Vice Chairman 1996 580,000 362,500 0 -- 50,000 91,849 117,287
Unicom and ComEd 1995 35,508 275,000 0 -- -- 15,156 1,953
</TABLE>
- ---------------------
(1) Excludes perquisites and other benefits, unless the aggregate amount of
such compensation is at least the lesser of either $50,000 or 10% of the
total annual salary and bonus reported for the named executive officer.
(2) The value shown is as of the date of issuance. Dividends are paid or
accrued on restricted stock awards at the same rate as paid to all
shareholders. As of December 31, 1997, Mr. Manning and Ms. Strobel each
had an aggregate of 10,000 shares of restricted stock worth $307,500.
(3) 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 Benefit 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 1997,
contributions made to the ESIP amounted to $6,491, $4,049, $4,099, $3,437,
$4,274 and $6,935 on behalf of Messrs. O'Connor, Skinner, Manning and
Wallace, Ms. Strobel and Mr. Mullin, respectively. The amount of
incremental interest earned during 1997 on deferred compensation totaled
$1,072 and $18 on behalf of Messrs. O'Connor and Wallace, respectively.
Contributions made to the ComEd Excess Benefit Savings Plan during 1997
totaled $27,619, $23,281, $8,554, $9,821, $8,331 and $10,614
14
<PAGE>
on behalf of Messrs. O'Connor, Skinner, Manning and Wallace, Ms. Strobel and
Mr. Mullin, respectively. Premiums and administrative service fees paid
during 1997 for Split Dollar Life, Accidental Death and Travel Accident
insurance policies for Messrs. O'Connor, Skinner, Manning and Wallace, Ms.
Strobel and Mr. Mullin, respectively, are as follows: $70,323, $600 and $50;
$77,191, $420 and $35; $7,077, $151 and $13; $3,944, $184 and $15; $6,467,
$161 and $14; $32,566, $420 and $35. 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 on each policy to the extent of the premiums and administrative
service fees paid with respect to such policy.
(4) Mr. Mullin became an executive officer of Unicom and ComEd in December
1995, and resigned in August 1997. His options were forfeited upon his
resignation.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS/SARS EXERCISE GRANT DATE
OPTIONS/SARS GRANTED TO OR BASE PRESENT
GRANTED EMPLOYEES IN PRICE EXPIRATION VALUE
NAME #(1) FISCAL YEAR $/SHARE DATE $(2)
---- ------------ ------------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
James J. O'Connor (CEO). 80,000 5.97 22.313 7/09/07 223,200
Samuel K. Skinner....... 60,000 4.48 22.313 7/09/07 167,400
Robert J. Manning....... 25,000 1.87 22.313 7/09/07 69,750
Michael J. Wallace...... 12,500 0.93 22.313 7/09/07 34,875
Pamela B. Strobel....... 17,500 1.31 22.313 7/09/07 48,825
Leo F. Mullin(3)........ 60,000 4.48 22.313 7/09/07 167,400
</TABLE>
- --------------------
(1) Each option becomes exercisable in equal annual increments on the first,
second and third anniversaries of the July 1997 grant date, subject to
acceleration in the event that a change in control of the Company occurs.
The options do not include any stock appreciation rights.
(2) The "grant date present value" is based upon the Black-Scholes option-
pricing model. The actual value, if any, an executive may realize upon
exercise of the option will depend on the excess of the stock price over
the exercise price on the date the option is exercised. Consequently, there
is no assurance the value realized by an executive will be at or near the
value estimated by the Black-Scholes model. The principal assumptions
incorporated into the valuation model by the Company are as follows: (i)
expected time to exercise of seven years, (ii) dividend yield rate of 7.2%,
(iii) risk-free interest rate of 6.25% and (iv) expected volatility of
22.29%.
(3) Mr. Mullin's options were forfeited upon his resignation from the Company
in August 1997.
LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERFORMANCE
OR OTHER ESTIMATED FUTURE PAYOUTS
PERIOD UNDER
NUMBER UNTIL NON-STOCK PRICE-BASED PLANS
OF SHARES, MATURATION -----------------------------
UNITS OR OR THRESHOLD TARGET MAXIMUM
NAME OTHER RIGHTS(1) PAYOUT(2) NUMBER NUMBER NUMBER
---- --------------- ----------- --------- --------- ---------
(NUMBER OF PERFORMANCE UNITS)
<S> <C> <C> <C> <C> <C>
James J. O'Connor (CEO). 15,528.46 3 years 7,764.23 15,528.46 31,056.92
Samuel K. Skinner....... 9,790.24 3 years 4,895.12 9,790.24 19,580.48
Robert J. Manning....... 4,878.50 3 years 2,439.25 4,878.50 9,757.00
Michael J. Wallace...... 3,681.43 3 years 1,840.72 3,681.43 7,362.86
Pamela B. Strobel....... 3,881.30 3 years 1,940.65 3,881.30 7,762.60
Leo F. Mullin(3)........ -- -- -- -- --
</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 described in the table, the number of units
initially awarded to a participant is determined by
15
<PAGE>
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% for Mr. O'Connor, 45% for Mr. Skinner, 40%
for Mr. Manning, and 35% for Mr. Wallace and Ms. Strobel) by $30.75.
Payouts are based on the cumulative total shareholder return on Unicom
Common Stock (assuming reinvestment of dividends) relative to that of the
other companies comprising the Dow Jones Utility Stock Index over a three-
year performance period ending December 31, 2000. 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 December 31,
2000. Payments are to be made half in cash and half in the form of
unrestricted shares of 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 and receive, after such deferral, the deferred amount
in the form of unrestricted shares of Unicom Common Stock. Notwithstanding
the foregoing, 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, 2000.
(3) Mr. Mullin resigned in August 1997, prior to the granting of awards.
SERVICE ANNUITY SYSTEM PLAN
The following table sets forth the annual retirement benefits payable under
ComEd's Service Annuity System Plan (including payments under a supplemental
management retirement plan) to employees who retire at age 65 at stated levels
of compensation and years of service at retirement (in 1998).
<TABLE>
<CAPTION>
PENSION PLAN TABLE
- --------------------------------------------------------------------------------------
HIGHEST ANNUAL NORMAL RETIREMENT BENEFITS AFTER SPECIFIED YEARS OF
4-YEAR SERVICE*
AVERAGE -------------------------------------------------------------
EARNINGS 15 20 25 30 35 40
-------- -------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 100,000.............. $ 34,157 $ 44,694 $ 54,589 $ 64,005 $ 73,063 $ 81,854
200,000.............. 68,315 89,387 109,178 128,010 146,127 163,708
300,000.............. 102,472 134,081 163,766 192,015 219,190 245,562
400,000.............. 136,629 178,774 218,355 256,020 292,253 327,417
500,000.............. 170,787 223,468 272,944 320,025 365,317 409,271
600,000.............. 204,944 268,162 327,533 384,030 438,380 491,125
700,000.............. 239,101 312,855 382,122 448,035 511,443 572,979
800,000.............. 273,259 357,549 436,711 512,040 584,507 654,833
900,000.............. 307,416 402,242 491,299 576,045 657,570 736,687
1,000,000.............. 341,573 446,936 545,888 640,051 730,633 818,542
1,100,000.............. 375,731 491,629 600,477 704,056 803,697 900,396
1,200,000.............. 409,888 536,323 655,066 768,061 876,760 982,250
1,300,000.............. 444,045 581,017 709,655 832,066 949,823 1,064,104
1,400,000.............. 478,203 625,710 764,244 896,071 1,022,887 1,145,958
1,500,000.............. 512,360 670,404 818,832 960,076 1,095,950 1,227,812
1,600,000.............. 546,517 715,097 873,421 1,024,081 1,169,014 1,309,667
1,700,000.............. 580,675 759,791 928,010 1,088,086 1,242,077 1,391,521
1,800,000.............. 614,832 804,485 982,599 1,152,091 1,315,140 1,473,375
1,900,000.............. 648,989 849,178 1,037,188 1,216,096 1,388,204 1,555,229
2,000,000.............. 683,147 893,872 1,091,776 1,280,101 1,461,267 1,637,083
</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 any reduction
for Social Security benefits.
16
<PAGE>
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 credited
service and percentages of the employee's highest consecutive four-year
average annual base pay, which includes basic compensation and certain
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. Compensation used in the computation
of annual retirement benefits under the Plan is substantially equivalent to
the amounts shown in the "Salary" and "Bonus" columns under the "Annual
Compensation" heading 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, 1998 to $160,000 (which number is
subject to adjustment for increases in the 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 under a supplemental management
retirement 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 under the "Annual Compensation" heading of the
Summary Compensation Table, without limitation as a result of the application
of the provisions of the Internal Revenue Code. Credited years of service
under the Plan for the persons named in the Summary Compensation Table are as
follows: James J. O'Connor, 34 years; Samuel K. Skinner, 25 years; Robert J.
Manning, 33 years; Michael J. Wallace, 23 years; and Pamela B. Strobel, 5
years. Ms. Strobel will be credited with an additional nine years upon
achieving five years of service and attaining age 50. Mr. Mullin, who resigned
in August 1997, has forfeited his retirement benefits.
EMPLOYMENT AGREEMENTS
Unicom and ComEd have an employment agreement with John W. Rowe, pursuant to
which he became Chairman, President and Chief Executive Officer of each
company on March 16, 1998. The agreement provides that Mr. Rowe will be paid
an annual base salary of at least $900,000. Unicom also granted Mr. Rowe an
option to purchase 250,000 shares of Common Stock with an option price equal
to the fair market value of the Common Stock as of March 16, 1998. Such
options become exercisable in equal installments on March 16 of 1999, 2000,
and 2001, and expire on March 16, 2008. Mr. Rowe will not receive any
additional grants of stock options during 1998. The agreement further provides
that Mr. Rowe will participate in Unicom's Annual Incentive Award Program and
will receive an annual incentive award for 1998 and 1999 that shall equal at
least $600,000. Mr. Rowe also participates in the Unicom Long-Term Performance
Unit Award Program, and any award payable under such Program with respect to
the three-year performance periods ending on December 31, 1998, 1999, or 2000
will be made as though he had participated in the Program throughout such
performance periods (except in the case of a termination of employment). As
partial compensation for actual compensation, benefits and programs which Mr.
Rowe was, or was reasonably expected to become, entitled to receive from his
previous employer, he received a lump-sum payment of $2,000,000. In addition,
Mr. Rowe received $600,000 as an inducement to enter into the employment
agreement. Mr. Rowe's agreement provides for a retirement benefit equal to the
amount that would have been payable under the Service Annuity System Plan
(plus amounts payable under the ComEd Supplemental Management Retirement Plan)
for an employee who retires at age 60 (or such greater age if Mr. Rowe should
become eligible for the retirement benefit after attaining the age of 60)
calculated based on the assumption that Mr. Rowe had completed 20 years of
credited service as well as his actual years of credited service. The
agreement further provides for severance payments to Mr. Rowe if he should be
terminated without cause or if he should terminate the employment agreement
for good reason (as defined in the agreement) equal to his base salary at the
time of such
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<PAGE>
termination, together with a formula annual incentive award (as defined in the
agreement), until the later of March 16, 2001 or one year after termination
(if such termination should occur before March 16, 2001), or one year after
the date of termination (if such termination should occur after March 16,
2001), and a continuation of health and life insurance benefits during such
period, plus retirement benefits. Mr. Rowe agreed not to use for his own
benefit or disclose any confidential information of Unicom or ComEd during or
after the term of his employment, and not to compete with Unicom or ComEd or
solicit any key employee or interfere with the relationship with any material
customer or supplier of either company until two years after the term of his
employment with the companies.
In connection with Mr. O'Connor's resignation from all positions as an
officer or director with Unicom and ComEd and their subsidiaries effective as
of March 16, 1998 and his retirement effective as of September 1, 1998, Unicom
and ComEd entered into a Retirement and Separation Agreement with Mr.
O'Connor. Pursuant to the retirement agreement, Mr. O'Connor upon his
retirement will receive a severance payment equal to $3,056,000, which is two
times the sum of his current annual base salary and target annual incentive
payment. Mr. O'Connor will also receive the Long-Term Performance Unit and
Annual Incentive Awards to which he is entitled prorated through August 31,
1998. Mr. O'Connor is also entitled to office space and secretarial assistance
through August 31, 2008, to financial counseling and tax preparation services
for five years following the date of the agreement, to certain items of
personal property that had been provided for his business use and to
reimbursement for certain other expenses. Mr. O'Connor agreed never to use or
disclose any confidential information of Unicom and ComEd, and not to compete
with Unicom or ComEd for a period of two years after his retirement date,
September 1, 1998. Mr. O'Connor also agreed not to solicit any of Unicom's or
ComEd's key employees or interfere with the relationship of Unicom or ComEd
with any material customer or supplier and not to represent as legal counsel
any competitor in a matter adverse to the interests of Unicom or ComEd, all
for a period of two years after the date of the agreement.
ComEd had an employment agreement with Samuel K. Skinner that provided for
an initial 1993 base salary of $490,000 per annum, an unfunded supplemental
retirement benefit and credit for ten years of service for purposes of
determining eligibility for certain post-retirement health care benefits. The
supplemental retirement benefit would not vest until the completion of five
years of employment, unless ComEd terminated Mr. Skinner's employment for
reasons other than fraud or willful misconduct; however, payment of a
surviving spouse benefit would have been made if Mr. Skinner died within such
five years. The formula underlying the supplemental retirement benefit
provided 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 provided 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 was terminated by ComEd for reasons other than
death, fraud or willful misconduct. The severance payment was subject to
reduction to the extent that Mr. Skinner received compensation from another
full-time employer during the payment period. In connection with Mr. Skinner's
resignation from all offices on March 16, 1998, and his retirement at the end
of March 1998, such agreement was terminated and Mr. Skinner entered into a
retirement and separation agreement with Unicom and ComEd. Pursuant to the
retirement agreement, Mr. Skinner received a severance payment equal to
$2,007,000, which was two times the sum of his current annual base salary and
target annual incentive payment at the time of his retirement. Mr. Skinner is
also entitled to a retirement benefit equal to the retirement benefit that
would have been payable under the Service Annuity System Plan (plus amounts
payable under the ComEd Supplemental Management Retirement Plan) for employees
who retire at age 60 calculated based on the assumption that Mr. Skinner had
completed 20 years of credited service as well as his actual years of credited
service. In addition, Mr. Skinner is entitled to elect post-retirement
coverage for himself
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<PAGE>
and his dependents under the ComEd health plans. Mr. Skinner is also entitled
to office space and secretarial assistance through September 30, 1998, to
financial counseling and tax preparation services for two years following the
date of the agreement, to certain items of personal property that had been
provided for his business use and to reimbursement for certain other expenses.
Mr. Skinner agreed never to use or disclose any confidential information of
Unicom and ComEd, and not to compete with Unicom or ComEd or solicit any of
their key employees or interfere with the relationship of Unicom or ComEd with
any material customer or supplier and not to represent as legal counsel any
competitor in a matter adverse to the interests of Unicom or ComEd, all for a
period of two years after the date of the agreement.
ComEd had an employment agreement with Leo F. Mullin, pursuant to which he
became Vice-Chairman of Unicom and ComEd on December 1, 1995. The agreement
provided that ComEd would 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 provided that he would receive bonuses on
the same basis as any annual bonus paid to Unicom's and ComEd's Chairman or
President, or both, as determined by the Board of Directors. For calendar year
1996, Mr. Mullin was guaranteed a bonus of at least 50% of his base salary. He
was also awarded performance units making him eligible for payments under the
Unicom Corporation Long-Term Incentive Plan. Mr. Mullin's agreement also
provided for an unfunded supplemental retirement benefit pursuant to which he
would have received the annual retirement benefit that would have been payable
under the Service Annuity System Plan if he had retired at age 60 with 20
years of service plus one additional year for each year of actual employment.
The agreement further provided for a severance payment equal to two years of
his 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 his employment was terminated by ComEd for reasons other than
death, fraud or willful misconduct or in the event that he terminated his
employment because ComEd reduced or failed to pay his salary or took certain
other actions. The severance payment was subject to reduction in the event
that Mr. Mullin accepted other full-time employment during the payment period.
Mr. Mullin voluntarily resigned from the Company in August 1997 and terminated
his employment agreement. Accordingly, he forfeited his rights to the
performance units, severance payments, and retirement and insurance benefits
described above.
CORPORATE GOVERNANCE AND COMPENSATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION
The Corporate Governance and Compensation Committee (the "Committee") of the
Board of Directors of Unicom Corporation ("Unicom") and Commonwealth Edison
Company ("ComEd") 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 1997, the major components of executive officer compensation were base
salary, consisting of cash salary and current compensation unit income, non-
qualified stock options, and incentive compensation related to awards under
the Unicom Corporation Long-Term Incentive Plan (the "Incentive Plan").
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Base Salary. The process of determining the officers' base salary begins
with a review of the salary levels for various comparable executive positions
at twenty-six of the largest companies in the electric utility industry as
published in the 1996 Edison Electric Institute Executive Compensation Survey.
The Committee also considers the median levels of base salary for various
comparable positions among companies in the utility industry and general
industry. This information is used as a reference point due to the similarity
of the basic duties and responsibilities between such positions and positions
within the Company. Judgment is then applied to recognize differences in the
organization structure and responsibilities of executive officers of the
Company, in the size and complexity of the Company's operations, and in the
regulatory environment and competitive challenges faced by the Company. After
considering these various factors, the Committee approved, in December 1996,
base salary ranges for 1997 which were generally about 3% above 1996 levels.
The base salary of each officer is set within the applicable range based on
an assessment of the particular responsibilities and performance of such
officer following, in the case of officers other than the Chairman,
discussions with the Chairman regarding his recommendations. For 1997, the
Committee approved increases in cash salary for the executive officers
averaging 5.5% of base salary. Percentage increases for individual executive
officers varied and were structured, in part, to recognize changes in industry
levels and to reflect the impact, performance and contributions of the
individual officers.
In 1997, most executive officers held current compensation units. Each such
unit entitles the holder to receive current income equal to the dividends paid
on one share of Unicom Common Stock. During 1997, the Committee awarded
compensation units to seven executive officers in an effort to provide a
salary enhancement for these individuals in relation to competitive positions
elsewhere.
Incentive Compensation Awards. Another component of executive compensation
is incentive compensation earned under awards made by the Committee (or its
Incentive Compensation Subcommittee) under the Incentive Plan. Such awards
include an annual incentive award, a long-term performance unit award covering
a three-year performance period and stock options.
The 1997 Annual Incentive Award for Management Employees was established to
reward the achievement of certain corporate and business unit goals during
1997. The annual incentive award helped the Company communicate its strategic
direction and focus employees' efforts. The award is variable and is designed
to reward performance against goals. The amount of the annual incentive awards
is based upon the individual and collective accomplishments of employees; the
greater the goal achievement, the greater the incentive award. Varying
payments were established based on Committee assessment with respect to the
appropriate level of incentive and award, considering the degree of difficulty
of the goals and degree of responsibility of the different levels of
management for achievement of the goals.
With respect to management employees other than Messrs. O'Connor, Mullin,
and Skinner (and selected sales-related positions), the 1997 corporate goal
was the Unicom Incentive Plan Profit Margin (UIPPM). The UIPPM was defined as
revenues (excluding fuel adjustment clause revenues and revenue taxes) less
Operations and Maintenance expenditures, fuel and purchased power
expenditures, depreciation charges, property tax charges and interest charges.
Certain other revenue and expense items were excluded from the calculation.
These were primarily unusual items that the Committee determined should not be
included in determining performance achievement. The UIPPM's minimum level of
performance was not achieved; thus, no payout was made for the corporate goal.
Business unit goals comprised the other component of the 1997 Annual
Incentive Award. These goals were qualitative and/or quantitative in design.
Quantitative goals, such as productivity, growth, and customer satisfaction,
were measured on a scale of performance ranging from Threshold to
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Maximum. Qualitative goals were linked to strategic business initiatives.
Business unit managers assessed performance against qualitative goals with
internal approval by a committee of five senior executives and final approval
by the Committee.
With respect to Messrs. O'Connor, Mullin, and Skinner, the annual incentive
award was based on the UIPPM, and on a strategic goal accomplishment as
determined by the Committee.
Longer-term incentive awards were established in 1994 to focus an interest
on long range performance by linking certain incentive payments to the total
return on Unicom Common Stock in relation to that of the other companies
constituting the Dow Jones Utility Stock Index over three-year performance
periods. The Dow Jones Utility Stock Index includes Unicom and eight of the
other large utilities in the 1996 Edison Electric Institute Executive
Compensation Survey. Incentive opportunities are expressed as a percentage of
base salary and increase with the executive's management level.
For the three-year performance period that ended with 1997, Unicom stock
performance was slightly above the 39th percentile among the stock
constituting the Dow Jones Utility Stock Index. Resulting payments to certain
executive officers are included in the "Payouts" column under the "Long-Term
Compensation" heading in the Summary Compensation Table.
Stock Option Grants in 1997. The Company grants non-qualified stock options
to reward and motivate the Company's management to increase long-term
shareholder value. Option grants are made generally to key employees who are
expected to contribute materially to the Company's success. The option awards
permit grantees to purchase shares of Unicom's Common Stock at an exercise
price equal to the market value on the date of grant, and become exercisable
in equal increments over a three-year period (subject to acceleration in the
event of a change in control of the Company). The options have a maximum term
of ten years. Committee (or in certain cases Incentive Compensation
Subcommittee) decisions with respect to the size of option grants were based
on an evaluation of competitive compensation data drawn from eleven other
utilities and ten non-utility companies similar to the Company as well as the
option recipient's base salary, management level, performance and potential.
Compensation of the Chief Executive Officer. The Committee's assessment of
the Chairman and Chief Executive Officer's personal performance at the outset
of 1997, based upon a non-quantifiable evaluation of his leadership,
achievements and contributions to the Company during 1996, was favorable.
Under Mr. O'Connor's leadership, the Company's financial performance in 1996
improved over 1995 as evidenced by an increase in earnings per share to $3.09
in 1996 from $2.98 in 1995. Thus, Mr. O'Connor's cash salary for 1997 was
increased $55,074 from its 1996 level. The Chairman's total base salary in
1997 was set at a rate of $900,000 per year. The Committee's objective in
structuring the Chairman's incentive compensation was to encourage both short-
term and longer-term actions to increase the cumulative return on Unicom's
Common Stock. The elements of these awards are described above.
The Chairman's total compensation (cash salary, compensation unit income,
and incentive compensation) for 1997 was slightly lower than 1996 as a result
of reduced incentive compensation payments. Such payments were lower as a
result of a decline in operating results for the year as compared with prior
performance and with goals established for the year. The Committee believes,
based on available information, that both the absolute and relative levels of
compensation for 1997 were fully appropriate considering the size and
complexity of the Company's operations (the Company is one of the largest in
the comparison group of electric utility companies) as well as other utility
companies and general industry and also considering the Committee's favorable
assessment of the Chairman's performance in providing leadership to the
Company. For example, under the Chairman's leadership, the Company was a part
of a coalition that played a key role in the passage of landmark electric
industry restructuring legislation in Illinois in December 1997. The price of
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Unicom's Common Stock closed at $30.75 at year-end, increasing the market
value of Unicom's stock and providing a total return (price appreciation plus
reinvested dividends) to shareholders of 21.3% for the year 1997.
Internal Revenue Code Section 162(m) Considerations. Under Section 162(m) of
the Internal Revenue Code, executive compensation in excess of $1 million is
generally not deductible for purposes of corporate income taxes. However,
"qualified performance-based compensation" which is paid pursuant to a plan
meeting certain requirements of the Code and applicable regulations remains
deductible. As noted in previous reports, the Committee intends to continue
reliance on performance-based compensation programs, consistent with sound
executive compensation policy. Such programs will be designed to fulfill, in
the best possible manner, future corporate business objectives. The
Committee's policy has been to seek to cause executive incentive compensation
to qualify as "performance-based" in order to preserve its deductibility for
federal income tax purposes to the extent possible without sacrificing
flexibility in designing appropriate compensation programs. The Company last
year obtained shareholder approval of performance-based incentives in Long-
Term Performance Unit Awards under the Unicom Long-Term Incentive Plan in
order to qualify such compensation as "performance-based." However, in order
to provide executives with appropriate incentives, the Committee may also
determine, in light of all applicable circumstances, that it would be in the
best interests of the Company for awards to be paid under certain of its
incentive compensation programs or otherwise in a manner that would not
satisfy the requirements to qualify as performance-based compensation under
Code Section 162(m).
Corporate Governance and Compensation
Committee
Edward A. Brennan, Donald P. Jacobs
Chairman Edgar D. Jannotta
James W. Compton George E. Johnson
Bruce DeMars
Sue L. Gin
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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, 1997.
CUMULATIVE PERFORMANCE SINCE JANUARY 1, 1993
ASSUMING REINVESTMENT OF DIVIDENDS
(JANUARY 1, 1993 = $100)
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG UNICOM COMMON STOCK, DOW JONES UTILITY STOCK INDEX
AND S&P 500 COMPOSITE STOCK INDEX
UCM COMMON STK* DJ UTIL S&P 500 COMPOSITE
--------------- ------- -----------------
<S> <C> <C> <C>
JANUARY 01, 1993...... 100 100 100
DECEMBER 31, 1993..... 128 110 110
DECEMBER 31, 1994..... 117 93 112
DECEMBER 31, 1995..... 169 123 153
DECEMBER 31, 1996..... 148 134 188
DECEMBER 31, 1997..... 180 165 251
</TABLE>
---------------------
* Performance shown for Unicom Common Stock on and after September
1, 1994 and for ComEd common stock prior to that date.
23
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VOTING
Shareholders of record on the books of Unicom at 4:00 P.M., Chicago time, on
March 31, 1998, will be entitled to vote at the annual meeting. Unicom had
outstanding on March 31, 1998, 216,841,318 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 Dividend Reinvestment and Stock Purchase Plan and the Employee Stock
Purchase Plan.
The shares represented by properly executed and unrevoked proxies received
in the accompanying form in time for the meeting will be voted at the meeting
and will be voted as directed in the proxies. With respect to Item A (the
election of Directors), a shareholder may mark the accompanying form of proxy
to (i) vote for the election of all eight 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 eight
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 Item B (the authorization of additional shares for the
Unicom Corporation Long-Term Incentive Plan), Item C (the authorization of
additional shares for the Unicom Corporation Employee Stock Purchase Plan) and
Item D (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 these items. Proxies marked to abstain from voting with respect to
any of these matters will have the legal effect of voting against such matter.
The shares represented by properly executed and unrevoked proxies received
in the accompanying form in time for the meeting will be voted as directed in
the proxies. IN THE ABSENCE OF SPECIFIC DIRECTION, THE SHARES REPRESENTED BY
THE PROXIES WILL BE VOTED AT THE MEETING AND WILL BE VOTED NON-CUMULATIVELY
FOR THE ELECTION OF THE NOMINEES NAMED IN THIS PROXY STATEMENT AS DIRECTORS
AND FOR APPROVAL OF THE MATTERS DISCUSSED IN ITEMS B, C AND D. In the event
any nominee for Director shall be unable to serve, an event which is not now
contemplated, the proxies may or may not be voted for a substitute nominee.
SHAREHOLDER PROPOSALS AND NOMINATIONS FOR 1999 ANNUAL MEETING
Any shareholder proposal intended to be presented at the 1999 annual meeting
of Unicom's shareholders must be received at the principal executive offices
of Unicom by December 10, 1998, in order to be considered for inclusion in
Unicom's proxy materials relating to that meeting. In addition, under the
Company's By-Laws effective as of June 1, 1998, in order for a shareholder to
bring business before, or to make a nomination of a candidate for election as
a Director at, an annual
24
<PAGE>
meeting, the shareholder must comply with the procedures set forth in the By-
Laws. Under the By-Laws, written notice in proper form of any business to be
brought before an annual meeting must be provided to the Secretary of the
Company not less than 90 nor more than 120 days before the anniversary date of
the preceding annual meeting of shareholders. However, if the annual meeting
is called for a date that is not within 30 days before or after such
anniversary date, notice by the shareholder must be so received by the
Secretary not later than 10 days after the day on which notice of the date of
the annual meeting was mailed or publicly announced. To be in proper written
form, the notice must include a brief description of such business, the
reasons for conducting such business at the annual meeting, and certain
information concerning the identity of the shareholder proposing to bring the
business before the annual meeting. Similarly, under the By-Laws, written
notice in proper form of any nomination of a candidate for election as a
Director at an annual meeting must be provided to the Secretary within the
same time limits as set forth above for business to be brought before a
meeting by a shareholder. To be in proper written form, the notice must set
forth all information regarding the nominee that is required to be disclosed
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended, together with certain information concerning the identity of the
shareholder proposing to make the nomination. A copy of the By-Law provisions
specifying the requirements for shareholders wishing to bring business before
the 1999 and subsequent annual meetings or wishing to make a nomination for
election as a Director at such meetings will be furnished to any shareholder
without charge upon written request to the Secretary. Any such proposal,
nomination or request 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,
Illinois 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 9, 1998
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.
25
<PAGE>
EXHIBIT A
UNICOM CORPORATION
AMENDED AND RESTATED LONG-TERM INCENTIVE PLAN
ARTICLE I: PURPOSE
The purposes of the Long-Term Incentive Plan (the "Plan") of Unicom
Corporation (the "Company") and its subsidiaries are (i) to align the
interests of the Company's stockholders and recipients of awards under the
Plan by increasing the proprietary interest of such recipients in the
Company's growth and success and (ii) to advance the interests of the Company
by attracting and retaining well-qualified persons by providing such persons
with performance-related incentives.
ARTICLE II: DEFINITIONS
For purposes of the Plan, the following terms shall have the following
meanings:
"Award" shall mean any form of stock option, stock appreciation right,
stock award, performance shares, performance units or other stock-based
award granted under this Plan.
"Board" shall mean the Board of Directors of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended, or any
successor legislation.
"Committee" shall mean the Corporate Governance and Compensation
Committee or such other committee of the Board as may be appointed from
time to time by the Board consisting of two or more Directors, all of whom
must qualify as disinterested persons within the meaning of Securities and
Exchange Commission Regulation (S) 240.16b-3 or any successor regulation.
"Common Stock" shall mean the Common Stock, without par value, of the
Company.
"Participant" shall mean an employee to whom an Award has been made
pursuant to this Plan.
"Subsidiary" shall mean any corporation of which the Company owns
directly or indirectly 51% or more of the outstanding shares of stock
entitled to vote for the election of directors and any partnership, joint
venture or other enterprise with respect to which the Company owns a 51% or
more interest and has the power to direct or cause the direction of the
management and policies.
ARTICLE III: ELIGIBILITY
Participants in the Plan shall consist of such employees of the Company and
its Subsidiaries as the Committee in its sole discretion may select from time
to time. The Committee's selection of a person to participate in the Plan in
any year shall not require the Committee to select such person to participate
in the Plan in any other year. No employee shall have the right to be selected
to participate in the Plan.
ARTICLE IV: SHARES AVAILABLE
4.1 Shares. Subject to adjustment as provided in Section 4.2 of the Plan, an
aggregate of 11,000,000 shares of Common Stock shall be available for Awards
under the Plan, reduced by the sum of the aggregate number of shares of Common
Stock then subject to (i) outstanding stock
A-1
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options and outstanding stock appreciation rights that are not related to a
stock option, (ii) outstanding Awards which may be exercised or selected
solely in shares of Common Stock and (iii) outstanding Awards which may be
exercised or settled either in shares of Common Stock or cash. To the extent
(i) that an outstanding stock option expires or terminates unexercised or is
cancelled or forfeited (other than in connection with the exercise of a
related stock appreciation right) or (ii) that an outstanding stock
appreciation right that is not related to a stock option or other outstanding
Award, either of which may be exercised or settled (A) solely in shares of
Common Stock or (B) in shares of Common Stock or cash, expires or terminates
unexercised or is cancelled or forfeited, then the shares of Common Stock
subject to such expired, unexercised, cancelled or forfeited portion of such
Award shall again be available for Awards under the Plan. In the event that
all or a portion of a stock appreciation right is exercised, the number of
shares of Common Stock subject to such right (or portion thereof) shall again
be available for issuance under the Plan, except to the extent that shares of
Common Stock were issued (or would have been issued but were withheld to
satisfy tax withholding obligations) upon exercise of the right. Stock
appreciation rights and other Awards which may be exercised or settled only in
cash shall not affect the number of shares of Common Stock available for
Awards under the Plan.
Shares of Common Stock to be delivered under the Plan shall be made
available from authorized and unissued shares of Common Stock, or authorized
and issued shares of Common Stock reacquired and held as treasury shares or
otherwise, or a combination thereof.
4.2 Adjustment Provisions. 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
number and class of shares available under the Plan, the number and class of
shares subject to each outstanding option and the purchase price per share,
the terms of each outstanding stock appreciation right, and the number and
class of shares subject to each other outstanding Award shall be appropriately
adjusted by the Committee, such adjustments to be made in the case of
outstanding stock options and stock appreciation rights without a change in
the aggregate purchase price or reference price.
ARTICLE V: ADMINISTRATION
5.1 Administration and Interpretation. The Plan shall be administered and
interpreted by the Committee. The Committee shall have the authority to adopt,
alter and repeal such administrative rules, guidelines and practices governing
the Plan and perform all acts, including the delegation of its administrative
responsibilities, as it shall, from time to time, deem advisable; to construe
and interpret the terms and provisions of the Plan and any Award issued under
the Plan (and any notices or agreements relating thereto); and to otherwise
supervise the administration of the Plan. The Committee may correct any
defect, supply any omission or reconcile any inconsistency in the Plan or in
any notice of an Award or any agreement relating thereto in the manner and to
the extent it shall deem necessary to carry the Plan into effect. Any
decision, interpretation or other action made or taken in good faith by or at
the direction of the Committee (or any of its members) arising out of or in
connection with the Plan shall be within its absolute discretion and shall be
final, binding and conclusive on the Company and all employees and
Participants and their respective beneficiaries, heirs, executors,
administrators, successors and assigns.
Neither the Committee nor any member thereof shall be liable for any act,
omission, interpretation, construction or determination made in connection
with the Plan in good faith, and the members of the Committee shall be
entitled to indemnification and reimbursement by the Company in respect of any
claim, loss, damage or expense (including attorney's fees) arising therefrom
to the full extent permitted by law and under any directors' and officers'
liability insurance that may be in
A-2
<PAGE>
effect from time to time. In addition, no member of the Board and no employee
of the Company shall be liable for any act or failure to act hereunder, by any
other member or employee or by any agent to whom duties in connection with the
administration of this Plan have been delegated or, except in circumstances
involving a member's or employee's bad faith, gross negligence or fraud, for
any act or failure to act by the member or employee.
A majority of the Committee shall constitute a quorum, and the acts of a
majority of the members present at any meeting at which a quorum is present,
or acts approved in writing by a majority of the Committee without a meeting,
shall be the acts of the Committee.
5.2 Awards. The Committee shall have full authority to grant, pursuant to
the terms of the Plan, to employees: (i) stock options, (ii) stock
appreciation rights, (iii) stock awards, (iv) performance shares, (v)
performance units, and (vi) other stock-based awards. In particular, and
without limitation, the Committee shall have the authority:
(a) to select the employees to whom Awards may from time to time be
granted hereunder;
(b) to determine the types of Awards, and combinations thereof, to be
granted hereunder to employees and whether such Awards are to operate on a
tandem basis and/or in conjunction with or apart from other awards made by
the Company outside of this Plan;
(c) to determine the number of shares of Common Stock or monetary units
to be covered by each Award granted hereunder;
(d) to determine the terms and conditions, not inconsistent with the
terms of this Plan, of any Award granted hereunder (including, but not
limited to, any restriction or limitation on exercise or transfer, any
vesting schedule or acceleration thereof, or any forfeiture provisions or
waiver thereof, regarding any Award and the shares of Common Stock relating
thereto, based on such factors as the Committee shall determine, in its
sole discretion);
(e) to determine whether Common Stock and other amounts payable with
respect to an Award under the Plan shall be deferred either automatically
or at the election of the Participant; and
(f) to modify or waive any restrictions or limitations contained in, and
grant extensions to or accelerate the vesting of, any outstanding Awards as
long as such modifications, waivers, extensions or accelerations are
consistent with the terms of this Plan; but no such changes shall impair
the rights of any Participant without his or her consent.
An Award under the Plan shall be made in such manner and evidenced by such
means as the Committee shall determine, which may include, but shall not be
limited to, written agreements between the Company and the employee to whom
the Award is granted.
ARTICLE VI: STOCK OPTIONS
6.1 Grants. Stock options may be granted alone or in addition to other
Awards granted under this Plan. Each stock option granted under this Plan
shall be of one of two types: (i) an "incentive stock option" within the
meaning of Section 422 of the Code (or any successor provision) or (ii) a non-
qualified stock option. The Committee shall have the authority to grant to any
employee one or more incentive stock options, non-qualified stock options, or
both types of stock options (in each case with or without stock appreciation
rights). No incentive stock options may be awarded after the tenth anniversary
of the date this Plan is adopted by the Board.
6.2 Terms of Options. Stock options granted under this Plan shall be subject
to the following terms and conditions and shall be in such form and contain
such additional terms and conditions, not inconsistent with the terms of this
Plan, as the Committee shall deem desirable:
A-3
<PAGE>
(a) Exercise Price. The exercise price per share of Common Stock
purchasable under a stock option shall be determined by the Committee at
the time of grant but no incentive stock option shall have an exercise
price less than 100% of the fair market value of the Common Stock at the
option grant date.
(b) Option Term. The term of each stock option shall be fixed by the
Committee, but no incentive stock option shall be exercisable more than ten
years after the date the option is granted.
(c) Exercisability. Stock options shall be exercisable at such time or
times and subject to such terms and conditions as shall be determined by
the Committee.
(d) Method of Exercise. An option may be exercised (i) by giving written
notice to the Company specifying the number of whole shares of Common Stock
to be purchased with the purchase price therefor to be payable in full
either (A) in cash, (B) in previously owned whole shares of Common Stock
(for which the holder of the option has good title free and clear of all
liens and encumbrances) with their fair market value determined as of the
date of exercise, (C) by authorizing the Company to retain whole shares of
Common Stock which would otherwise be issuable upon exercise of the option
with their fair market value determined as of the date of exercise, (D) in
cash by a broker-dealer acceptable to the Company to whom the optionee has
submitted an irrevocable notice of exercise, or (E) a combination of (A),
(B) and (C), in each case to the extent determined by the Committee at the
time of grant of the option, (ii) if applicable, by surrendering to the
Company any stock appreciation rights or other Awards which are cancelled
by reason of the exercise of the option and (iii) by executing such
documents as the Company may reasonably request. No shares of Common Stock
shall be issued until the full purchase price has been paid.
(e) Termination of Employment by Death, Disability or Retirement. If a
Participant's employment by the Company or a Subsidiary terminates by
reason of the Participant's death, disability (as determined by the
Committee) or retirement (as determined by the Committee), any outstanding
stock option then held by such Participant shall remain exercisable, but
only to the extent such option was exercisable on the date of such
Participant's termination of employment, until the expiration of the term
of such option. If on the date of such termination of employment, any such
stock option shall not be fully exercisable, the Committee shall have the
discretion to cause such stock option to continue to become exercisable on
the date or dates specified therein as if such termination of employment
had not occurred. The Committee may exercise the discretion granted to it
by the preceding sentence at the time a stock option is granted or at any
time thereafter while such stock option remains outstanding.
(f) Other Termination of Employment. Unless otherwise determined by the
Committee at or after grant, if a Participant's employment by the Company
or a Subsidiary terminates for any reason other than the Participant's
death, disability or retirement, the stock option shall terminate at such
time as provided in the Award.
(g) Buyout and Settlement Provisions. The Committee may at any time offer
to buy out an option previously granted, based on such terms and conditions
as the Committee shall establish and communicate to the Participant at the
time that such offer is made.
(h) Maximum Share Grant. The maximum number of shares that may be granted
to a Participant in any particular five-year period shall not exceed
500,000.
ARTICLE VII: STOCK APPRECIATION RIGHTS
The Committee may grant stock appreciation rights to employees either alone
or in addition to stock options granted under Article VI. A stock appreciation
right shall entitle the holder thereof to receive upon exercise shares of
Common Stock, cash or a combination thereof with an aggregate value equal to
the excess of the fair market value of one share of Common Stock over the
reference
A-4
<PAGE>
price of such stock appreciation right multiplied by the number of shares of
Common Stock subject to such stock appreciation right or portion thereof which
is exercised. Any stock appreciation right related to a non-qualified stock
option may be granted at the same time such option is granted or at any time
thereafter before exercise or expiration of such option. Any stock
appreciation right related to an incentive stock option shall be granted at
the same time such option is granted. In the case of any stock appreciation
right related to any option, the stock appreciation right or applicable
portion thereof shall terminate and no longer be exercisable upon the
termination or exercise of the related option, except that a stock
appreciation right granted with respect to less than the full number of shares
covered by a related option shall not be reduced until the exercise or
termination of the related option exceeds the number of shares not covered by
the stock appreciation right at the time of grant. Any option related to any
stock appreciation right shall no longer be exercisable to the extent the
related stock appreciation right has been exercised. The Committee may impose
such conditions or restrictions on the exercise of any stock appreciation
right as it shall deem appropriate. The maximum number of shares that may be
subject to stock appreciation rights granted to a Participant in any
particular five-year period shall not exceed 500,000.
ARTICLE VIII: STOCK AWARDS
Restricted or unrestricted shares of Common Stock may be granted either
alone or in addition to other Awards granted under this Plan. The Committee
may grant Awards of Common Stock subject to the attainment of specified
performance goals, continued employment and such other limitations or
restrictions as the Committee may determine.
ARTICLE IX: PERFORMANCE SHARES
Performance shares may be awarded either alone or in addition to other
Awards granted under this Plan and shall consist of the right to receive
Common Stock or cash of an equivalent value at the end of a specified
performance period. The Committee shall determine the employees to whom and
the time or times at which performance shares shall be awarded, the number of
performance shares to be awarded to any person, the duration of the period
during which, and the conditions under which, a Participant's rights to
performance shares will be vested and the receipt of the shares will be
deferred.
The Committee may condition the grant of performance shares upon the
attainment of specified performance goals or such other factors or criteria as
the Committee shall determine.
ARTICLE X: PERFORMANCE UNITS
Performance units may be awarded either alone or in addition to other Awards
granted under this Plan and shall consist of the right to receive a fixed
dollar amount, payable in cash or Common Stock or a combination of both. The
Committee shall determine the employees to whom and the time or times at which
performance units shall be awarded, the number of performance units to be
awarded to any person, the duration of the period during which, and the
conditions under which, a Participant's right to performance units will be
vested and the ability of Participants to defer the receipt of payment of such
performance units. The maximum number of performance units that may be granted
to a Participant in any one-year period shall not exceed 50,000.
The Committee may condition the vesting of performance units upon the
attainment of specified performance goals or such other factors or criteria as
the Committee shall determine.
A-5
<PAGE>
ARTICLE XI: OTHER STOCK-BASED AWARDS
Other awards of Common Stock and cash awards that are valued in whole or in
part by reference to, or are payable in or otherwise based on, Common Stock
("other stock-based awards") including, without limitation, Awards valued by
reference to performance concepts, may be granted either alone or in addition
to or in tandem with stock options, stock appreciation rights, stock awards,
performance shares or performance units.
Subject to the provisions of this Plan, the Committee shall have authority
to determine the persons to whom and the time or times at which such Awards
shall be made, the number of shares of Common Stock to be awarded pursuant to
such Awards, and all other conditions of such Awards.
ARTICLE XII: TERMINATION OR AMENDMENT
Notwithstanding any other provision of this Plan, the Board may at any time,
and from time to time, amend, in whole or in part, any or all of the
provisions of this Plan, or suspend or terminate it entirely; provided,
however, that, unless otherwise required by law, the rights of a Participant
with respect to any Awards granted prior to such amendment, suspension or
termination, may not be impaired without the consent of such Participant; and,
provided further, no amendment may be made which would cause this Plan to lose
its exemption under Securities and Exchange Commission Regulation 240.16b-3 or
which would increase the number of shares of Common Stock available for Awards
under Section 4.1 of the Plan without shareholder approval.
ARTICLE XIII: GENERAL PROVISIONS
13.1 Unfunded Status of Plan. This Plan is intended to be unfunded. With
respect to any payments as to which a Participant has a fixed and vested
interest but which are not yet made to a Participant by the Company, nothing
contained herein shall give any such Participant any rights that are greater
than those of a general creditor of the Company.
13.2 No Right to Employment. Neither this Plan nor the grant of any Award
hereunder shall give any Participant or other employee any right with respect
to continuance of employment by the Company or any Subsidiary, nor shall they
be a limitation in any way on the right of the Company or any Subsidiary by
which an employee is employed to terminate his or her employment at any time.
13.3 Other Plans. In no event shall the value of, or income arising from,
any Awards under this Plan be treated as compensation for purposes of any
pension, profit sharing, life insurance, disability or any other retirement or
welfare benefit plan now maintained or hereafter adopted by the Company or any
Subsidiary, unless such plan specifically provides to the contrary.
13.4 Withholding of Taxes. The Company shall have the right to require,
prior to the issuance or delivery of any shares of Common Stock hereunder,
payment by the Participant of any federal, state, local or other taxes which
may be required to be withheld or paid in connection with an Award hereunder.
An Award agreement may provide that (i) the number of shares of Common Stock
issuable with respect to such Award shall be reduced by the amount necessary
to satisfy any such obligation or (ii) the Participant may satisfy any such
obligation by any of the following means: (A) a cash payment to the Company,
(B) delivery to the Company of previously owned whole shares of Common Stock
(for which the Participant has good title, free and clear of all liens and
encumbrances) having a fair market value determined as of the date the
obligation to withhold or pay taxes first arises in connection with an Award
(the "Tax Date"), (C) authorizing the Company to withhold from the shares of
Common Stock otherwise issuable to the Participant pursuant to an Award, a
number of
A-6
<PAGE>
whole shares of Common Stock having a fair market value determined as of the
Tax Date or (D) any combination of the foregoing methods; provided, however,
that in the case of a Participant who is subject to Section 16 of the
Securities Exchange Act of 1934, as amended, the Company may require that the
method of satisfying such an obligation shall be in compliance with Section 16
and the rules and regulations thereunder. An Award agreement may not provide
for shares of Common Stock to be delivered or withheld having a fair market
value in excess of the amount determined by applying the Participant's maximum
marginal tax rate. Any fraction of a share of Common Stock which would be
required to satisfy such an obligation shall be disregarded and the remaining
amount due shall be paid in cash by the Participant. The Company may require
that any or all obligations to satisfy or pay taxes with respect to any Award
shall be satisfied or paid by the Participant prior to satisfaction of such
Award by the Company.
13.5 No Assignment of Benefits. No Award or other benefit payable under this
Plan shall, except as otherwise specifically provided by this Plan or by law,
be transferable in any manner other than by will or the laws of descent and
distribution, and any attempt to transfer any such benefit shall be void. All
stock options, stock appreciation rights and performance shares may be
exercised or settled during the Participant's lifetime, only by the
Participant or his or her guardian, conservator or other legal representative.
Awards or other benefits payable under this Plan shall not in any manner be
subject to the debts, contracts, liabilities, engagements or torts of any
person who shall be entitled to such benefit, nor shall it be subject to
attachment or legal process for or against such person.
13.6 Governing Law. This Plan and actions taken in connection herewith shall
be governed and construed in accordance with the laws of the State of Illinois
(without regard to applicable Illinois principles of conflict of laws).
13.7 Construction. Wherever any words are used in this Plan in the masculine
gender, they shall be construed as though they were also used in the feminine
gender in all cases where they would so apply, and wherever any words are used
herein in the singular form, they shall be construed as though they were also
used in the plural form in all cases where they would so apply.
ARTICLE XIV: EFFECTIVE DATE
This Plan, formerly the Commonwealth Edison Company 1993 Long-Term Incentive
Plan, which was assumed, adopted and amended by the Board on August 30, 1994
and approved by the shareholder of the Company on August 30, 1994, is
effective September 1, 1994.
A-7
<PAGE>
EXHIBIT B
UNICOM CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
1. RESERVATION OF STOCK.
To facilitate the purchase of stock by employees, there is hereby reserved
for sale under the Unicom Corporation Employee Stock Purchase Plan (the
"Plan"), 1,007,567 shares of Common Stock, without par value, of Unicom
Corporation (the "Company"). In the event there is any increase in the number
of issued shares of Common Stock of the Company by reason of stock dividends
or stock split-ups, the number of shares then remaining for issue under the
Plan shall, in each such event, be increased in proportion to the increase in
issued shares of the Company resulting from stock dividend or stock split-up.
2. ELIGIBILITY.
Employees of the Company, and of such subsidiaries of the Company as its
Board of Directors (the "Board") may designate, shall be eligible to
participate in the Plan, provided that (i) no employee shall be eligible who,
immediately after any option is granted, owns stock possessing 5% or more of
the total combined voting power or value of all classes of stock of the
Company or of any subsidiary of the Company, (ii) no Director of the Company
or of any such subsidiary, who is not an officer or other employee of any
thereof, shall participate in the Plan, and (iii) the Board may exclude:
(a) employees whose customary employment is less than 20 hours per week,
and
(b) employees whose customary employment is for not more than five months
in any calendar year.
3. METHOD OF PURCHASE.
(a) An employee shall become a participant only by authorizing payroll
deductions to be made during such six-month periods as the Board may
establish for the convenient accumulation of funds necessary for the
payment of the purchase price of the stock that may be purchased under the
Plan. Such payroll deductions shall be any full percentage of the base pay
of the participant, or any specified even dollar amount, up to but not more
than 10% of base pay, in either case.
(b) On designated dates (the "Price Dates"), which shall be within the last
month of each six-month payment period, a participant shall become eligible
to purchase such number of shares (including fractions of shares, computed
to three decimal places) as his or her accumulated payroll deductions
during the payment period will purchase, at a price equal to 90% of the
closing market price per share of the stock on the Chicago Stock Exchange
on the Price Date (or in the absence of such a market price within the last
month of the payment period, the price for stock purchasable therein shall
be equal to 90% of the fair market value per share of the stock determined
by the Board as of a specified Price Date within such month).
(c) No employee shall have the right to purchase stock under the Plan at a
rate of more than $25,000 in value thereof in any calendar year, such value
to be based on the fair market value per share of the stock as of Price
Dates on which a participant becomes eligible to purchase stock in such
year under the terms of the Plan.
(d) A participant shall be deemed to have elected to purchase the shares
which he became entitled to purchase on the Price Date for each payment
period, unless he shall notify the Company to the contrary by such date
between such Price Date and the end of such payment period, as the Board
may establish. Until the Price Date, a participant shall have no option or
B-1
<PAGE>
other right to purchase any stock under the Plan, and the Board may at any
time prior thereto terminate the Plan without any obligation whatsoever,
other than refunding to the employee any sum accumulated for him by payroll
deduction, without interest.
4. NONASSIGNABILITY.
The option granted on the Price Date to purchase stock under the Plan shall
be nonassignable. Any purported assignment or transfer of such option,
voluntary or involuntary, shall be deemed to be an election not to exercise
such right to purchase stock, and any sum accumulated at the time of such
purported assignment or transfer shall be refunded. Similarly, all sums
accumulated at the time of any termination of employment for any reason,
including death, shall be refunded.
5. ADMINISTRATION.
(a) Subject to direction of the Board, the Secretary of the Company shall
administer the Plan and make such interpretations and regulations as he
deems desirable or necessary in connection with its operation.
(b) The Board may at any time interpret, amend, suspend, or terminate the
Plan except that (i) the number of shares reserved under the Plan may not
be changed by the Board, and (ii) the terms of this Plan governing
determinations of the purchase prices for purchase of stock hereunder may
be changed by the Board only to conform such terms with any then applicable
provision of the Internal Revenue Code or any Regulation issued hereunder.
6. APPLICABLE LAW AND REGULATIONS.
(a) It is intended that this Plan and all rights granted hereunder will
meet the requirements of an "employee stock purchase plan" under the
Internal Revenue Code or other applicable provisions, as they may be
amended from time to time. The Plan, in all respects, shall be so
interpreted and construed as to be consistent with this purpose.
(b) Sales of shares under the Plan shall be subject to compliance with
requirements of all applicable securities and other laws.
7. TERMINATION.
Unless previously terminated by the Board, the Plan will terminate
automatically at the end of the second full calendar month following any six-
month payment period if, as of such month-end, the total number of shares
reserved for subsequent sale pursuant to the Plan shall be less than one-third
of the total number of shares purchased on the Price Date for the last
preceding payment period within which shares were sold under the Plan.
B-2
<PAGE>
EXHIBIT C
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 AND 1996
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
FORWARD-LOOKING INFORMATION
Except for historical data, the information contained herein constitutes
forward-looking statements. Forward-looking statements are inherently
uncertain and subject to risks. Such statements should be viewed with caution.
Actual results or experience could differ materially from the forward-looking
statements as a result of many factors. Forward-looking statements in this
report include, but are not limited to: (1) statements regarding expectations
of revenue reductions as a result of the 1997 Act in "Management's Discussion
and Analysis of Financial Condition and Results of Operations," subcaption
"Changes in the Electric Utility Industry" and in Note 2 of Notes to Financial
Statements, (2) statements regarding estimated capital expenditures in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," subcaptions "Liquidity and Capital Resources--UTILITY
OPERATIONS--Construction Program" and "Liquidity and Capital Resources--
UNREGULATED OPERATIONS--Construction Program," (3) statements regarding the
estimated return to service of certain nuclear generating units and the costs
of purchased power in "Management's Discussion and Analysis of Financial
Condition and Results of Operations," subcaption "Regulation--Nuclear
Matters," and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," subcaption "Results of Operations--Purchased Power,"
(4) statements regarding the costs of decommissioning nuclear generating
stations in "Management's Discussion and Analysis of Financial Condition and
Results of Operations," subcaption "Regulation--Nuclear Matters" and in Note 1
of Notes to Financial Statements, under "Depreciation and Decommissioning,"
and (5) statements regarding cleanup costs associated with MGPs and other
remediation sites in Note 23 of Notes to Financial Statements. Management
cannot predict the course of future events or anticipate the interaction of
multiple factors beyond management's control and their effect on revenues,
project timing and costs. The statements regarding revenue reductions are
subject to unforeseen developments in the market for electricity in Illinois
resulting from regulatory changes. The statements regarding estimated capital
expenditures, estimated return to service of nuclear generation units,
decommissioning costs and cleanup costs are subject to changes in the scope of
work and manner in which the work is performed and consequent changes in the
timing and level of the projected expenditure, and are also subject to changes
in laws and regulations or their interpretation or enforcement. The statements
regarding the estimated return to service of nuclear generating units are
subject to the concurrence of the NRC with proceeding to power operations.
Unicom and ComEd make no commitment to disclose any revisions to the forward-
looking statements, or any facts, events or circumstances after the date
hereof that may bear upon forward-looking statements.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Definitions............................................................... C-2
Summary of Selected Consolidated Financial Data........................... C-3
Price Range and Cash Dividends Paid Per Share of Common Stock............. C-3
1997 Consolidated Revenues and Sales...................................... C-3
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... C-4
Report of Independent Public Accountants.................................. C-21
Consolidated Financial Statements--
Statements of Consolidated Operations for the years 1997, 1996 and 1995. C-22
Consolidated Balance Sheets--December 31, 1997 and 1996................. C-23
Statements of Consolidated Capitalization--December 31, 1997 and 1996... C-25
Statements of Consolidated Retained Earnings (Deficit) for the years
1997, 1996 and 1995.................................................... C-26
Statements of Consolidated Cash Flows for the years 1997, 1996 and 1995. C-27
Notes to Financial Statements........................................... C-28
</TABLE>
C-1
<PAGE>
DEFINITIONS
The following terms are used in this document with the following meanings:
<TABLE>
<CAPTION>
TERM MEANING
- ---------------------- ------------------------------------------------------------------
<S> <C>
1997 Act The Illinois Electric Service Customer Choice and Rate Relief Law
of 1997
AFUDC Allowance for funds used during construction
APB Accounting Principles Board
CERCLA Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended
CFC Chlorofluorocarbon
Clean Air Amendments Clean Air Act Amendments of 1990
ComEd Commonwealth Edison Company
Cotter Cotter Corporation, a ComEd subsidiary
CTC Non-bypassable "competitive transition charge"
DOE U.S. Department of Energy
EPS Earnings per Share
ESPP Employee Stock Purchase Plan
FAC Fuel adjustment clause
FASB Financial Accounting Standards Board
FERC Federal Energy Regulatory Commission
FERC Order FERC Open Access Order No. 888 issued in April 1996
GAAP Generally Accepted Accounting Principles
ICC Illinois Commerce Commission
Indiana Company Commonwealth Edison Company of Indiana, Inc., a ComEd subsidiary
ISO Independent System Operator
MGP Manufactured gas plant
NEIL Nuclear Electric Insurance Limited
NERC North American Electric Reliability Council
NML Nuclear Mutual Limited
NRC Nuclear Regulatory Commission
O&M Operation and maintenance
Rate Order ICC rate order issued in January 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
S&P Standard & Poor's
Trusts ComEd Financing I and ComEd Financing II, ComEd subsidiaries
Trust Securities ComEd-obligated mandatorily redeemable preferred securities of
subsidiary trusts holding solely ComEd's subordinated debt
securities
Unicom Unicom Corporation
Unicom Energy Services Unicom Energy Services Inc., a Unicom subsidiary
Unicom Enterprises Unicom Enterprises Inc., a Unicom subsidiary
Unicom Resources Unicom Resources Inc., a Unicom subsidiary
UT Holdings UT Holdings Inc., a Unicom subsidiary
U.S. EPA U.S. Environmental Protection Agency
</TABLE>
C-2
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(MILLIONS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Operating revenues........... $ 7,083 $ 6,937 $ 6,910 $ 6,278 $ 5,260
Net income (loss)............ $ (853)(1) $ 666 $ 640(2) $ 355 $ 46(3)
Earnings (loss) per common
share (basic & diluted)..... $ (3.94)(1) $ 3.09 $ 2.98(2) $ 1.66 $ 0.22(3)
Cash dividends declared per
common share................ $ 1.60 $ 1.60 $ 1.60 $ 1.60 $ 1.60
Total assets (at end of
year)....................... $22,700 $23,388 $23,250 $23,121 $24,383
Long-term obligations at end
of year excluding current
portion:
Long-term debt, preference
stock and preferred
securities subject to
mandatory redemption
requirements............... $ 6,262 $ 6,487 $ 7,011 $ 7,745 $ 7,861
Accrued spent nuclear fuel
disposal fee and related
interest................... $ 693 $ 657 $ 624 $ 590 $ 567
Capital lease obligations... $ 438 $ 477 $ 376 $ 433 $ 323
Other long-term obligations. $ 3,183 $ 1,991 $ 1,826 $ 1,754 $ 1,718
</TABLE>
- ---------------------
(1) Includes an extraordinary loss for the write-off of generation-related net
regulatory assets of $810 million (after-tax) or $3.75 per common share,
the loss on the early retirement of Zion nuclear generating station of
$523 million (after-tax) or $2.42 per common share and the positive impact
of a cumulative effect of a change in accounting principle for revenue
recognition of $197 million (after-tax) or $0.91 per common share.
(2) Includes an extraordinary loss related to the early redemption of long-
term debt of $20 million (after-tax) or $0.09 per common share.
(3) Includes the positive impact of a cumulative effect of a change in
accounting for income taxes of $10 million (after-tax) or $0.05 per common
share.
PRICE RANGE* AND CASH DIVIDENDS PAID PER SHARE OF COMMON STOCK
<TABLE>
<CAPTION>
1997 (BY QUARTERS) 1996 (BY QUARTERS)
--------------------------- ---------------------------
FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Price range:
High.................. 30 3/4 25 5/8 24 1/4 28 1/4 28 1/2 28 1/8 29 35 3/8
Low................... 18 1/2 21 18 1/2 19 1/4 24 7/8 22 5/8 26 27
Cash dividends paid.... 40c 40c 40c 40c 40c 40c 40c 40c
</TABLE>
* As reported as NYSE Composite Transactions.
- ---------------------
Unicom's common stock is traded on the New York, Chicago and Pacific stock
exchanges, with the ticker symbol UCM. At December 31, 1997, there were
approximately 145,000 holders of record of Unicom's common stock.
1997 CONSOLIDATED REVENUES AND SALES
<TABLE>
<CAPTION>
%
OPERATING % KILOWATTHOUR INCREASE/ %
REVENUES INCREASE SALES (DECREASE) INCREASE
(THOUSANDS) OVER 1996 (MILLIONS) OVER 1996 CUSTOMERS OVER 1996
----------- --------- ------------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Residential............. $2,552,742 0.4% 22,151 (0.7)% 3,123,364 0.7%
Small commercial and
industrial............. 2,153,113 1.9 25,860 2.9 291,143 0.5
Large commercial and
industrial............. 1,467,574 1.5 24,074 0.7 1,566 1.0
Public authorities...... 505,907 0.6 7,322 (0.2) 12,180 0.3
Electric railroads...... 29,785 0.5 418 (1.4) 2 --
---------- ------ ---------
Ultimate consumers...... $6,709,121 1.1 79,825 0.9 3,428,255 0.7
Provision for revenue
refunds................ (45,470) 100.0 -- -- -- --
---------- ------ ---------
Net ultimate consumers.. $6,663,651 0.4 79,825 0.9 3,428,255 0.7
Sales for resale........ 336,480 43.2 15,679 28.7 51 15.9
Other revenues.......... 82,891 21.8 -- -- -- --
---------- ------ ---------
Total.................. $7,083,022 2.1 95,504 4.6 3,428,306 0.7
========== ====== =========
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CHANGES IN THE ELECTRIC UTILITY INDUSTRY
Unicom and its predominant business, electric energy generation,
transmission and distribution, are in a period of fundamental change in the
manner in which customers obtain, and energy suppliers provide, energy
services. These changes are attributable to changes in technology, the
relaxation of regulatory barriers to utilities' respective service territories
as well as efforts to change the manner in which electric utilities are
regulated. Federal law and regulations have been amended to provide for open
transmission system access, and various states are considering, or have
adopted, new regulatory structures to allow access by some or all customers to
energy suppliers in addition to the local utility.
Electric Utility Industry. The electric utility industry has historically
consisted of vertically integrated companies which combine generation,
transmission and distribution assets; serve customers within relatively
defined service territories; and operate under extensive regulation with
respect to rates, operations and other matters. Utilities have operated under
a regulatory compact with the state, with a statutory obligation to serve all
of the electricity needs within their service territory in a nondiscriminatory
manner. Historically, investment and operating decisions have been made based
upon the utilities' respective assessment of the current and projected needs
of their customers. In view of this obligation, regulation has focused on
investment and operating costs, and rates have been based on a recovery of
some or all of such prudently incurred costs plus a return on invested
capital. Such rate regulation, and the ability of utilities to recover
investment and other costs through rates, have provided the basis for
recording certain costs as regulatory assets. These assets represent costs
which are allocated over future periods reflecting related regulatory
treatment, rather than expensed in the current period.
The 1997 Act. On December 16, 1997, the Governor of Illinois signed into law
the 1997 Act, which established a phased-process to introduce competition into
the electric industry in Illinois under a less regulated structure. The 1997
Act, as it applies to ComEd, provides for, among other things, a 15%
residential base rate reduction commencing August 1, 1998, an additional 5%
residential base rate reduction commencing May 1, 2002, and customer access to
other electric suppliers in a phased-in process. Access for commercial and
industrial customers will occur over a period from October 1999 to December
2000, and access for residential customers will occur after May 1, 2002. The
15% residential base rate reduction, commencing on August 1, 1998, is expected
to reduce ComEd's operating revenues by approximately $160 million and $375
million in 1998 and 1999, respectively, compared to 1997 rate levels. ComEd is
engaged in certain pricing experiments contemplated by the 1997 Act, which are
expected to reduce ComEd's operating revenues by approximately $30 million and
$60 million in 1998 and 1999, respectively, compared to 1997 rate levels,
notwithstanding the effects of customer growth.
The 1997 Act also provides for the collection of a CTC from customers who
choose another electric service provider during a transition period that
extends through 2006, and can be extended through 2008 with ICC approval if
certain factors are met. The CTC will be established in accordance with a
formula defined in the 1997 Act. The CTC, which will be applied on a cents per
kilowatthour basis, considers the revenue which would have been collected from
a customer under tariffed rates, reduced by 1) the revenue the utility will
receive for providing delivery services to the customer, 2) the market price
for electricity and 3) a defined mitigation factor which represents the
utility's opportunity to develop new revenue sources and achieve cost savings.
Notwithstanding these rate reductions, and subject to certain earnings
tests, a rate freeze will generally be in effect until at least January 1,
2005. During this period utilities may reorganize, sell or
C-4
<PAGE>
assign assets, retire or remove plants from service, and accelerate
depreciation or amortization of assets with limited ICC authority. Under the
earnings provision of the 1997 Act, if the earned return on common equity of a
utility during this period exceeds an established threshold, a portion of the
excess earnings must be refunded to customers. A utility may request a rate
increase during the rate freeze period when necessary to ensure the utility's
financial viability, but not before January 1, 2000.
Under the 1997 Act, utilities are required to continue to offer delivery
services, including the transmission and distribution of electric energy, such
that customers who select an alternative energy supplier can receive electric
energy from that supplier using existing transmission and distribution
facilities. Such services will continue to be offered under cost-based
regulated rates. The 1997 Act also requires utilities to establish or join an
ISO that will independently manage and control utility transmission systems.
Additionally, the 1997 Act includes the option to eliminate the FAC, the
leveling of certain regulatory requirements to permit operational flexibility,
the leveling of certain regulatory and tax provisions as applied to various
electric suppliers and a new more stringent liability standard applicable to
ComEd in the event of a major outage.
The 1997 Act also allows ComEd to unbundle a portion of its future revenues,
including tariffed and contract rates and CTC revenues, and issue securities
backed by these revenues. The proceeds from such security issuances must
generally be used to refinance outstanding debt or equity or for certain other
limited purposes. The total amount of ComEd's revenues securitized cannot
exceed $6.5 billion; approximately one-half of that amount can be issued in
the twelve-month period commencing on August 1, 1998.
As a result of the 1997 Act, prices for the supply of electric generation
are expected to transition from cost-based, regulated rates to rates
determined by competitive market forces. The CTC allows ComEd to recover a
portion of any of its costs which might otherwise be unrecoverable under
market-based rates. Nonetheless, ComEd will need to take steps to address the
portion of such costs which are not recoverable through the CTC. Such steps
include cost control efforts and developing new sources of revenue.
Accounting Effects Related to the 1997 Act. ComEd's financial statements
reflect the application of SFAS No. 71, Accounting for the Effects of Certain
Types of Regulation. This statement allows ComEd to record certain regulatory
assets and liabilities, which are expected to be recovered or settled in
future rates and would not be recorded under GAAP for non-regulated entities.
Because the 1997 Act is expected ultimately to lead to market-based pricing
of electric generation services, ComEd discontinued SFAS No. 71 regulatory
accounting practices for the generation portion of its business in December
1997. ComEd evaluated the regulatory assets and liabilities related to the
generation portion of its business and determined that it is not probable that
such costs will be recovered through the cash flows from the regulated portion
of its business. Accordingly, the generation-related regulatory assets and
liabilities were written off in the fourth quarter of 1997, resulting in a
charge of $810 million (after-tax) or $3.75 per common share. These costs
relate principally to previously incurred costs originally expected to be
collected through future revenues, including income tax benefits previously
flowed through to customers, deferred carrying charges on Byron Unit 2 and
Braidwood Units 1 and 2 nuclear generating plants, generation-related
unamortized loss on reacquired debt and other miscellaneous generation-related
costs. The regulatory asset for the unrecovered nuclear decommissioning costs
of currently retired nuclear plants was not written off, as the 1997 Act
provides for the ongoing recovery of decommissioning costs through regulated
rates. See "Regulatory Assets and Liabilities" and "Depreciation and
Decommissioning" in Note 1 of Notes to Financial Statements.
In addition, ComEd has evaluated whether the recoverability of the costs of
its generating stations has been impaired as defined in SFAS No. 121,
Accounting for the Impairment of Long-Lived
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<PAGE>
Assets and for Long-Lived Assets to Be Disposed Of. This evaluation was
conducted to determine whether future revenues expected to be recovered from
electric supply services will be sufficient to cover the costs of its
generating assets. Notwithstanding the retirement and write-off of Zion
Station, as discussed below, ComEd has concluded, as a result of these
studies, that impairment, as defined in SFAS No. 121, does not currently exist
and that asset write downs are not necessary at this time. However, ComEd is
engaged in an ongoing examination of its assets and operations. If ComEd
retires or closes one or more additional generating plants prior to expected
retirement dates, further write-offs will be required.
Pursuant to an option contained in the 1997 Act, ComEd filed a tariff on
December 16, 1997 to eliminate its FAC as of January 1, 1997. Under ComEd's
regulated rates, the FAC provided 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.
Elimination of the FAC requires ComEd to refund to customers any net FAC
charges billed from January 1, 1997 through December 31, 1997. Such FAC
charges were $25 million (after-tax) or $0.12 per common share. These costs,
as well as deferred underrecovered energy costs of $19 million (after-tax) or
$0.08 per common share which ComEd would have been entitled to recover if the
FAC had remained in effect, were recorded as a reduction to operating results
in 1997. Additionally, the elimination of the FAC and a transition to market-
based pricing for generation-related costs required ComEd to write down its
investment in uranium-related properties. Current projections of the market
price for uranium indicate that the expected incremental costs of mining and
milling uranium at such properties will exceed the expected market price for
uranium. Such costs are not expected to be recoverable in a competitive
market. A write down of ComEd's investment in uranium-related properties to
realizable value resulted in a charge in December 1997 of $60 million (after-
tax) or $0.28 per common share.
Federal Regulation. The Federal Energy Policy Act of 1992, among other
things, empowered FERC to introduce a greater level of competition into the
wholesale marketplace for electric energy. In April 1996, the FERC Order was
issued requiring utilities to file open access tariffs with regard to their
transmission systems. These tariffs set forth the terms, including prices,
under which other parties and the utility's wholesale marketing function may
use the utility's transmission system. ComEd has an approved open access
tariff with the FERC. The FERC Order requires the separation of the
transmission operations and wholesale marketing functions so as to ensure that
unaffiliated third parties have access to the same information as to system
availability and other requirements. The FERC Order further requires utilities
to operate an electronic bulletin board to make transmission price and access
data available to all potential users. A key feature of the FERC Order is that
it contemplates full recovery of a utility's costs "stranded" by competition.
These costs are "stranded" or "strandable" to the extent market-based rates
would be insufficient to allow for their full recovery. To recover stranded
costs, the utility must show that it had a reasonable expectation that it
would continue to serve the customer in question under its regulatory compact.
In addition, some governmental entities, such as cities, may elect to
"municipalize" a utility's distribution facilities through condemnation
proceedings. Such municipalities would then be able to purchase electric power
on a wholesale basis and resell it to customers over the newly acquired
facilities. The FERC Order provides for the recovery of a utility's investment
stranded by municipalization.
ComEd's Response to Regulatory Changes. ComEd is responding, and is
undertaking a significant planning effort to respond further, to the
developments within the utility industry and the 1997 Act and its potential
for strandable investment. During the past several years, such efforts have
focused on cost reductions, including personnel reductions, efficiencies in
purchasing and inventory management, and an incentive compensation system
keyed to cost control and improvement in shareholder value. Notwithstanding
these efforts, ComEd's costs remain high in comparison to its neighboring
utilities. Although ComEd's operating results and financial condition have
historically been affected by various rate proceedings, ComEd expects that the
changes in the national and
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<PAGE>
Illinois electric energy marketplace, and ComEd's activities anticipating or
responding to them, will directly impact its operating results and financial
condition over the next several years.
ComEd anticipates that the 1997 Act, and the resultant increasing
competition to supply energy in Illinois and elsewhere, will have significant
effects upon its revenues and assets as it takes steps to adjust its
operations and services to meet the changing market for electric energy. Both
Unicom and ComEd have been examining methods of positioning themselves and
their affiliates to deal with those effects and to address the developing
opportunities and challenges. ComEd has been engaged in a broad-based
examination of its assets and operations, particularly nuclear and fossil
generation and generation-related (i.e., fuel and inventory) assets, with a
view toward rationalizing their investment and operating costs against their
ability to contribute to the revenues of ComEd under various market scenarios.
Such an assessment involves the consideration of numerous factors, including
revenue contribution, operating costs, impacts on ComEd's service obligations,
purchase commitments and the impact of various options. Such options include
continued operation with accelerated depreciation, indefinite suspension from
operation, sale to a third party and retirement or closure. As discussed
below, ComEd recently ceased nuclear generation operations and retired
facilities at its Zion Station. If ComEd retired or closed one or more
additional generating plants, particularly a nuclear plant, such retirement
would have a material impact on Unicom and ComEd's financial position and
results of operations. See "Liquidity and Capital Resources--UNREGULATED
OPERATIONS" below regarding Unicom Energy Services.
On January 14, 1998, the Boards of Directors of Unicom and ComEd authorized
the permanent cessation of nuclear generation operations and retirement of
facilities at ComEd's 2,080 megawatt Zion nuclear generating station. Such
retirement resulted in a charge for 1997 of $523 million (after-tax) or $2.42
per common share. The decision to close Zion Station was a result of an
ongoing analysis, which ComEd performed regarding the economic value of its
generating assets in light of the expected changes in the manner in which
electric energy is marketed and sold. The passage of the 1997 Act provided a
clearer basis for evaluating the costs and benefits of alternative courses of
action. In reaching the decision to cease nuclear generation operations at
Zion Station, the Boards also considered the significant uncertainty
associated with continued operation of the station due to the degradation of
the steam generators, and the expected operating costs associated with
continued station operation.
Notwithstanding the closure of Zion Station as a nuclear generating
facility, a portion of the station will continue to be used to provide voltage
support in the transmission system that serves ComEd's northern region. Such
support will require capital expenditures at the station as well as upgrades
to the transmission system at various points, in order to improve the ability
to import and transport power through the system. See Note 5 of Notes to
Financial Statements for additional information.
In April 1996, ComEd announced that it had finalized agreements to sell two
of its coal-fired generating stations, representing 1,600 megawatts of
generating capacity. Under the agreements, State Line and Kincaid stations are
expected to be sold for a total of $250 million, which approximates the book
value of the stations. The net proceeds are expected to be approximately $200
million (after-tax), which will be used to retire or redeem existing debt.
Under the terms of the sales, ComEd will enter into exclusive 15-year
purchased power agreements for the output of the plants. On March 31, 1997,
the ICC issued an order approving the agreements. A subsequent appeal has been
dropped by the intervening parties. The sale of State Line Station for its
approximate book value was finalized in December 1997. The net proceeds of the
sale, after income tax effects and closing costs, were approximately $56
million. The Kincaid Station sale is expected to be finalized during the first
quarter of 1998.
C-7
<PAGE>
ComEd joined with eight Midwestern utilities in the formation of a regional
Midwest ISO in January 1998. The Midwest ISO is a key element in accommodating
the restructuring of the electric industry and will promote enhanced
reliability of the transmission system, equal access to the transmission
system and increased competition. The Midwest ISO will establish an
independent body that will ultimately take over direction of the management of
the transmission system for the utilities involved. ComEd will retain
ownership of its transmission lines. The formation of the Midwest ISO is
subject to FERC approval.
LIQUIDITY AND CAPITAL RESOURCES
UTILITY OPERATIONS
Construction Program. ComEd has a construction program for the year 1998,
which consists principally of improvements to its existing nuclear and other
electric production, transmission and distribution facilities. It does not
include funds to add new generating capacity to ComEd's system. The program,
as currently approved by ComEd, includes the following estimated expenditures
(excluding nuclear fuel expenditures of approximately $160 million):
<TABLE>
<CAPTION>
1998
-----------
(MILLIONS
OF DOLLARS)
<S> <C>
Production....................................................... $425
Transmission and Distribution.................................... 415
General.......................................................... 90
----
$930
====
</TABLE>
Such estimated expenditures include $130 million toward the replacement of
the steam generators at ComEd's Braidwood Unit 1 and Byron Unit 1 nuclear
generating units by year-end 1998. The total replacement cost is estimated to
be $455 million, of which approximately $295 million has been incurred through
December 31, 1997 and $30 million will be incurred in 1999.
ComEd's forecasts of peak load indicate a need for additional resources to
meet demand, either through generating capacity, equivalent purchased power or
the development of additional demand-side management resources, in 1998 and
each year thereafter. However, ComEd believes that adequate resources,
including cost-effective demand-side management resources, non-utility
generation resources and other-utility power purchases, could be obtained in
sufficient quantities to meet such forecasted needs.
Purchase commitments for ComEd, principally related to construction and
nuclear fuel, approximated $286 million at December 31, 1997. In addition,
ComEd's estimated commitments for the purchase of coal are as follows:
<TABLE>
<CAPTION>
CONTRACT PERIOD COMMITMENT (1)
-------------- --------- --------------
<S> <C> <C>
Black Butte Coal Co................................ 1998-2000 $ 679
Decker Coal Co..................................... 1998-2014 427
Other commitments.................................. 1998 25
------
$1,131
======
</TABLE>
--------
(1) In millions of dollars, excluding transportation costs. No estimate of
future cost escalation has been made.
For additional information concerning these coal contracts and ComEd's fuel
supply, see "Results of Operations" below and Notes 1 and 23 of Notes to
Financial Statements.
Capital Resources. ComEd forecasts that internal sources will provide
approximately three-fourths of the funds required for ComEd's 1998
construction program and other capital requirements, including nuclear fuel
expenditures, contributions to nuclear decommissioning funds, sinking fund
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<PAGE>
obligations and refinancing of scheduled debt maturities. See Notes 10 and 12
of Notes to Financial Statements for the summaries of the annual sinking fund
requirements and scheduled maturities for ComEd preference stock and long-term
debt, respectively. The forecast takes into consideration the 1997 Act. See
"Changes in the Electric Utility Industry" above and "Regulation," subcaption
"Rate Matters" below for additional information.
The type and amount of external financing will depend on financial market
conditions and the needs and capital structure of ComEd at the time of such
financing. A portion of ComEd's financing is expected to be provided through
the continued sale and leaseback of nuclear fuel through ComEd's existing
nuclear fuel lease facility. See Note 21 of Notes to Financial Statements for
additional information concerning ComEd's nuclear fuel lease facility. ComEd
has $758 million of unused bank lines of credit at December 31, 1997, which
may be borrowed at various interest rates and may be secured or unsecured. The
interest rate is set at the time of a borrowing and is based on several
floating rate bank indices plus a spread, which is dependent upon the credit
ratings of ComEd's outstanding first mortgage bonds or on a prime interest
rate. Collateral, if required for the borrowings, would consist of first
mortgage bonds issued under and in accordance with the provisions of ComEd's
mortgage. See Note 13 of Notes to Financial Statements for additional
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 1997, 1996 and 1995.
During 1997, ComEd sold and leased back $150 million of nuclear fuel through
its existing nuclear fuel lease facility. In 1997, ComEd issued $150 million
principal amount of 7.375% Notes due January 15, 2004, $150 million principal
amount of 7.625% Notes due January 15, 2007 and $150 million principal amount
of 8.50% Trust Securities due January 15, 2027, the proceeds of which were
used to discharge current maturities of long-term debt and to redeem $200
million principal amount of first mortgage bonds. See the Statements of
Consolidated Cash Flows and Note 7 of Notes to Financial Statements for
information regarding common stock activity.
As of January 30, 1998, ComEd has an effective "shelf" registration
statement with the SEC for the future sale of up to an additional $505 million
of debt securities and cumulative preference stock for general corporate
purposes of ComEd, including the discharge or refund of other outstanding
securities.
ComEd's securities and other securities guaranteed by ComEd are currently
rated by three principal securities rating agencies as follows:
<TABLE>
<CAPTION>
STANDARD DUFF &
MOODY'S & POOR'S PHELPS
------- -------- ------
<S> <C> <C> <C>
First mortgage and secured pollution control
bonds............................................ Baa2 BBB BBB
Publicly-held debentures and unsecured pollution
control obligations.............................. Baa3 BBB- BBB-
Convertible preferred stock....................... baa3 BBB- BBB-
Preference stock.................................. baa3 BBB- BBB-
Trust Securities.................................. baa3 BBB- BBB-
Commercial paper.................................. P-2 A-2 D-2
</TABLE>
In January 1997, Moody's changed the rating outlook on ComEd's securities
from "stable" to "negative" and Duff & Phelps added ComEd's securities to
"Rating Watch-Down." As of January 1998, S&P's rating outlook on ComEd
remained "stable."
Capital Structure. ComEd's ratio of long-term debt to total capitalization
has increased to 48.5% at December 31, 1997 from 46.1% at December 31, 1996.
This increase is related primarily to the write-offs recorded in the fourth
quarter of 1997 due to the discontinuance of regulatory accounting practices
for generation-related assets and the closure of Zion Station. Also as a
result of such write-offs, Unicom's retained earnings account had a deficit
balance of $21.2 million at December 31, 1997. As of December 31, 1997, $331
million of retained earnings had been appropriated for future dividend
payments.
C-9
<PAGE>
Year 2000 Conversion. Unicom, including ComEd, uses various software,
systems and technology throughout its businesses that will be affected by the
date change in the Year 2000 and any failure to address Year 2000 issues in a
timely manner could result in a material operational or financial risk.
Unicom's approach to addressing Year 2000 compliance issues is to upgrade or
remediate software, systems and technology that are not Year 2000 compliant
and that are not otherwise being replaced in accordance with Unicom's business
plans. Unicom is in the process of replacing certain of its financial, human
resources, payroll, and customer service and billing software with new
software that is Year 2000 compliant. In other cases, Unicom is upgrading
existing software to versions that are Year 2000 compliant where such upgrades
are available. In cases where Unicom has determined that it is not appropriate
to replace existing software that is not Year 2000 compliant, and that Year
2000-compliant upgrades are not available, Unicom is remediating the software
to make it Year 2000 compliant. Accordingly, Unicom is upgrading or
remediating certain software and systems in its nuclear and fossil electricity
generation business units and in its transmission and distribution and supply
management business units. Unicom is also in the process of evaluating whether
Year 2000 compliance issues will affect any of its key suppliers. The schedule
for the implementation of new Year 2000-compliant software and upgraded
versions of existing software, and the remediation of software not being
replaced or upgraded, contemplates that such efforts will be completed by the
end of 1998, except in the nuclear generation business unit, where completion
is scheduled for the third quarter of 1999. The total cost of remediating or
upgrading software, that is not being replaced or upgraded in accordance with
business plans, is currently estimated to be approximately $20 million.
Market Risks. ComEd is exposed to market risk due to changes in interest
rates and changes in the market price for electricity. Exposure for interest
rate changes relates to its long-term debt and preferred equity obligations.
Exposure to electricity market price risk relates to forward activities taken
to effectively manage the supply of, and demand for, the electric generation
capability of ComEd's generating plants. ComEd does not currently utilize
derivative commodity or financial instruments for trading or speculative
purposes.
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<PAGE>
Interest Rate Exposure. The table below provides the fair value and average
interest, or fixed dividend rate, of Unicom's outstanding debt and preferred
stock equity instruments at December 31, 1997.
<TABLE>
<CAPTION>
FAIR
EXPECTED MATURITY DATE VALUE AS
UNICOM AND SUBSIDIARY ---------------------------------------- OF
COMPANIES (MILLIONS) 1998 1999 2000 2001 2002 THEREAFTER TOTAL 12/31/97
--------------------- ---- ---- ---- ---- ---- ---------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-Term Debt-
Fixed Rate............. $355 $152 $464 $111 $308 $4,296 $5,686 $6,020
Average Interest Rate.. 6.6% 8.8% 7.2% 7.4% 7.9% 8.0%
Variable Rate.......... $150 $160 $ -- $ -- $ -- $ 292 $ 602 $ 602
Average Interest Rate.. 6.5% 7.0% 3.7%
Preferred and Preference
Stock-
Subject to Mandatory
Redemption............ $ 31 $ 18 $ 88 $ 18 $ 18 $ 33 $ 206 $ 209
Average Dividend Rate.. 8.9% 8.8% 7.3% 8.8% 8.8% 8.8%
Not Subject to Manda-
tory Redemption....... $ -- $ -- $ -- $ -- $ -- $ 507 $ 507 $ 515
Average Dividend Rate.. 8.2%
Trust Securities........ $ -- $ -- $ -- $ -- $ -- $ 350 $ 350 $ 372
Average Dividend Rate.. 8.5%
</TABLE>
Market Price Exposure. In the normal course of business, ComEd utilizes
contracts for the forward sale and purchase of electricity to effectively
manage the utilization of its available generating capability. Such contracts
include forward contracts for wholesale sales of generating capability, during
periods when ComEd's available generating capability is expected to exceed the
demands of its retail, or native load, customers. Such contracts may also
include forward contracts for the purchase of generating capability during
periods when the expected market price for electricity is below ComEd's
expected incremental cost of generation. A sensitivity analysis has been
performed which concluded that the market price risk exposure of these
transactions is not material.
The market price of electricity is subject to price volatility associated
with changes in supply and demand in the electric supply markets. To limit the
market price risk associated with the forward commodity contracts described in
the preceding paragraph, ComEd has utilized energy put and call option
contracts and energy swap arrangements. A sensitivity analysis has been
performed which indicates that the market price risk exposure of these
financial instruments is not material.
UNREGULATED OPERATIONS
Unicom Enterprises is engaged, through subsidiaries, in energy service
activities which are not subject to utility regulation by state or federal
agencies. One of these subsidiaries, UT Holdings, provides district cooling
and related services to offices and other buildings in the city of Chicago
under a non-exclusive use agreement with Chicago for an initial term expiring
in 2014. District cooling involves, in essence, the production of chilled
water at one or more central locations and its circulation to customers'
buildings through a closed circuit of supply and return piping. Such water is
circulated through customers' premises primarily for air conditioning. This
process is used by customers in lieu of self-generated cooling. As a result of
the Clean Air Amendments, the manufacture of CFCs has been curtailed since
January 1996, thereby creating a marketing opportunity for non-CFC based
systems, such as UT Holdings' district cooling. UT Holdings is involved in
district cooling projects in other cities, generally working with the local
utilities.
Unicom Energy Services, another subsidiary of Unicom Enterprises, is engaged
in providing energy services including gas services, performance contracting,
distributed energy and active energy management systems. In 1997, Unicom
Energy Services entered into a joint venture with Sonat Marketing Company L.P.
to market natural gas and related services to large gas purchasers within
ComEd's service area in Northern Illinois and other Midwestern areas. As an
entry into the distributed energy market, Unicom Energy Services also entered
into an alliance with Allied Signal Power Systems, Inc., a subsidiary of
Allied Signal Inc., to market, install and service an electric
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<PAGE>
energy generator developed by AlliedSignal, known as a TurboGenerator, in a
12-state region and the providence of Ontario, Canada. Unicom Energy Services
recently entered into an exclusive national distributorship agreement with
Engage Networks, Inc. to market active energy management software and related
hardware and services. As of December 31, 1997, Unicom Energy Services had
purchase commitments of approximately $7 million.
Construction Program. Unicom has approved capital expenditures for 1998 of
approximately $92 million for UT Holdings. UT Holdings has four district
cooling facilities serving customers in Chicago. Its third and fourth district
cooling facilities are being expanded to provide increased output for 1998 and
1999, respectively. As of December 31, 1997, UT Holdings' purchase
commitments, principally related to construction, were approximately $11
million.
Capital Resources. Unicom expects to obtain funds to invest in its
unregulated subsidiaries principally from dividends received on its ComEd
common stock and from bank borrowings. The availability of ComEd's dividends
to Unicom is dependent on ComEd's financial performance and cash position.
Other forms of financing by ComEd to Unicom or the unregulated subsidiaries of
Unicom, such as loans or additional equity investments, none of which is
expected, would be subject to prior approval by the ICC.
Unicom Enterprises has a $200 million credit facility which will expire in
November 1999, of which $40 million was unused as of December 31, 1997. The
credit facility can be used by Unicom Enterprises to finance investments in
unregulated businesses and projects, including UT Holdings and Unicom Energy
Services, and for general corporate purposes. The credit facility is
guaranteed by Unicom and includes certain covenants with respect to Unicom 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 13 of
Notes to Financial Statements for additional information regarding certain
covenants with respect to Unicom and Unicom Enterprises' operations.
REGULATION
ComEd and the Indiana Company are subject to state and federal regulation in
the conduct of their respective businesses, including the operations of
Cotter. Such regulation includes rates, securities issuance, nuclear
operations, environmental and other matters. Particularly in the cases of
nuclear operations and environmental matters, such regulation can and does
affect operational and capital expenditures.
Rate Matters. In January 1995, the ICC issued its Rate Order in the
proceedings relating to ComEd's February 1994 rate increase request. The Rate
Order provided, among other things, for an increase in ComEd's total revenues
of approximately $302 million (excluding add-on revenue taxes) on an annual
basis. 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. The Rate Order was appealed by intervenors and
ComEd to the Illinois Appellate Court, which issued a decision on May 30, 1997
affirming the Rate Order in all respects with the exception of two issues,
which it remanded to the ICC for the purpose of providing further analysis.
Those issues relate to: (i) the manner in which certain costs are recovered
and which customers should pay those costs, and (ii) the proper rate of return
on common equity for ComEd. ComEd believes that the ICC can satisfy the
Appellate Court's remand directions on the basis of the existing record from
the ICC proceedings which led to the Rate Order. The Appellate Court's
decision was not appealed and the matter was returned to the ICC, where a
decision is expected early in the second quarter of 1998.
With respect to the first issue remanded to the ICC, ComEd does not believe
it will have any effect on the overall level of rates. With respect to the
rate of return on common equity issue, the ICC
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had determined in the Rate Order that ComEd's cost of common equity was
12.28%. Intervenors had submitted testimony recommending a return on common
equity of 11.50%. The Appellate Court decision requires the ICC to clarify the
basis for certain of its findings relating to its rejection of the
intervenors' recommendation and to analyze further how it arrived at its
conclusions. The Appellate Court stated that after reanalyzing these bases the
ICC can determine whether or not the cost of common equity determination it
adopted should still be followed. Each tenth of one percent change in the rate
of return on common equity has approximately an $8 million effect on the level
of annual revenues. The Appellate Court's decision does not have any immediate
effect on ComEd's rates or require any refunds. In connection with the
initiation of the appeal, ComEd committed to make refunds "in the event that a
final, non-appealable order is entered reversing the ICC's Rate Order."
Revenues of approximately $195 million would be subject to refund if the ICC
were to adopt the lower rate of return on common equity recommended by
intervenors. An ICC Hearing Examiner issued a proposed order in January 1998,
which if adopted by the ICC, would uphold the Rate Order and the associated
$302 million revenue increase on an annual basis.
See "Changes in the Electric Utility Industry" above for information
regarding the 1997 Act.
Nuclear Matters. Nuclear operations have been, and remain, an important
focus of ComEd--given the impact of such operations on overall O&M
expenditures and the ability of nuclear power plants to produce electric
energy at a relatively low marginal cost. ComEd operates a large number of
nuclear plants, ranging from the older Dresden and Quad Cities stations to the
more recently completed LaSalle, Byron and Braidwood stations, and is intent
upon safe, reliable and efficient operation. These plants were constructed
over a period of time in which technology, construction procedures and
regulatory initiatives and oversight have evolved, with the result that older
plants generally require greater attention and resources to meet regulatory
requirements and expectations as well as to maintain operational reliability.
As discussed in "Changes in the Electric Utility Industry" above, ComEd is
closing its Zion Station.
ComEd's Dresden, Zion and LaSalle nuclear generating stations are currently
on the NRC's list of plants to be monitored closely. Dresden Station has been
on the list since 1992 and LaSalle and Zion stations were added in January
1997. On January 21, 1998, the NRC stated that although Dresden Station has
demonstrated sustained improved performance that would warrant removal from
the list, continued evidence of cyclical performance at ComEd's other nuclear
generating stations indicate Dresden Station did not meet all the criteria for
removal from the list. At its January 21, 1998 meeting, the NRC acknowledged
improvements at LaSalle Station but concluded that a substantial amount of
work remains and the plant should remain on the list. The NRC also stated
that, based on a determination made prior to the announcement of the cessation
of power operations at the station, Zion should remain on the list. The
listing of the plants does not prevent ComEd from operating the generating
units; however, it does mean that the NRC will devote additional resources to
monitoring ComEd's operating performance and that ComEd will need to work to
demonstrate to the NRC the sustainability of improvements which it believes it
has undertaken and is continuing to implement. Also at the meeting, the NRC
noted a declining performance trend at Quad Cities Station. The NRC stated
that although operations performance at Quad Cities Station was generally
good, weaknesses were observed with respect to certain maintenance and
engineering activities. The NRC has indicated that it is monitoring ComEd's
ability to manage its nuclear operations in their entirety and that the
performance at any one facility will be viewed by the NRC in context with the
performance of ComEd's nuclear generating group as a whole.
In January 1997, the NRC took the unusual additional step of requiring ComEd
to submit information to allow the NRC to determine what actions, if any,
should be taken to assure that ComEd can safely operate its six nuclear
generating stations while sustaining performance improvement at each site. The
request also required ComEd to submit information regarding the criteria that
it has established, or planned to establish, to measure performance and to
explain ComEd's proposed actions if the criteria were not met. The request
stated the NRC staff's concerns with the "cyclical
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safety performance of ComEd nuclear stations," noting the presence on the list
of plants to be monitored closely of Dresden, LaSalle and Zion stations at
various times during the past 10 years. It also noted concerns regarding
"ComEd's ability to establish lasting and effective programs that result in
sustained performance improvement." The problems identified by the NRC are
consistent with weaknesses that had been identified in station self-
assessments initiated by ComEd, and management had already undertaken to
develop and implement programs designed to address these issues. ComEd
submitted a response to the NRC on March 28, 1997 and the NRC indicated in an
April 25, 1997 public meeting with representatives of ComEd management that
ComEd's response was generally adequate to demonstrate ComEd's ability to
operate its nuclear generating stations while sustaining performance
improvements. In a November 4, 1997 meeting with the NRC staff, the NRC
indicated that it believes ComEd's nuclear performance has shown improvement,
but that it is too early to conclude that lasting improvement has been
achieved. The NRC noted, as an exception to ComEd's general improving and
sustained performance in its nuclear operations, concerns regarding ComEd's
engineering efforts to resolve the longstanding fire protection issues at the
Quad Cities Station. The NRC and representatives of ComEd's management have
met and will continue to meet periodically in the future, to follow-up on
these matters.
ComEd has devoted, and intends to continue to devote, significant resources
to the management and operations of its nuclear generating stations. Over the
past several years, it has increased and reinforced station management with
managers drawn from other utilities which have resolved similar operational
and performance issues, including the appointment of a new Chief Nuclear
Officer in late 1997. It has also sought to identify, anticipate and address
operating and performance issues in a safe, cost-effective manner, while
seeking to improve the availability and capacity factors of its nuclear
generating units.
ComEd's activities, with respect to its nuclear generating stations, have
included improvements in operating and personnel procedures and repair and
replacement of equipment and can result in longer unit outages. LaSalle Units
1 and 2 and Quad Cities Units 1 and 2 are currently not operating. ComEd is
developing an integrated schedule for restarting the units at LaSalle Station.
It currently is expected that LaSalle Unit 1 will restart in the third quarter
of 1998 and LaSalle Unit 2 is expected to restart approximately six months
later. Both units at Quad Cities Station are expected to return to service in
the Spring of 1998.
The LaSalle outage and an outage at Zion were part of several outages of
nuclear and fossil generating stations that several utilities operating in the
Midwestern power grid (including ComEd) were expecting and experienced during
1997. Although ComEd met its customers' electricity demands, the expectation
of the NERC, prior to the beginning of the summer, had been that there could
have been electric energy shortages during summer peak demand periods due to
generating station outages in the Midwestern power grid and transmission
limitations on delivering power from neighboring systems. In response to these
regional circumstances and expectations, ComEd increased the availability of
its remaining nuclear and fossil generating capacity, reinforced transmission
capacity, negotiated the purchase of power and related transmission service
from third parties, and worked with a number of customers to manage the use
and demand for power. The NERC will be analyzing electric reliability for the
summer of 1998 in light of the potential for continued outages of nuclear
plants operated by several utilities in the Midwestern power grid.
Generating station availability and performance during a year may be issues
in fuel reconciliation proceedings in assessing the prudence of fuel and power
purchases during such year. Final ICC orders have been issued in fuel
reconciliation proceedings for years prior to 1994 and for the year 1995. In
1996, an intervenor filed testimony in the fuel reconciliation proceeding for
1994 seeking a refund of approximately $90 million relating to nuclear station
performance. The 1997 Act provides that the fuel reconciliation proceedings
for 1994 and 1996 must be concluded by the end of 1998. If refunds are
required in these proceedings, the refunds could have a material effect on
results of
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operations. The 1997 Act also provides that, because ComEd eliminated its FAC
effective January 1, 1997, the ICC shall not conduct a fuel reconciliation
proceeding for the year 1997 and subsequent years. See "Changes in the
Electric Utility Industry" above for information regarding the elimination of
ComEd's FAC.
Based on ComEd's most recent study, decommissioning costs, including the
cost of decontamination and dismantling, are estimated to aggregate $4.8
billion in current-year (1998) dollars, including a contingency allowance.
ComEd estimates it will expend approximately $12.9 billion, including a
contingency allowance, for decommissioning costs primarily during the period
from 2007 through 2032. Such costs 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, including changes in technology, available alternatives
for the disposal of nuclear waste, and inflation. See Note 1 of Notes to
Financial Statements under "Depreciation and Decommissioning" for additional
information.
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 23 of Notes to Financial Statements.
RESULTS OF OPERATIONS
Unicom reported a loss per common share of $3.94 in 1997 and earnings per
common share of $3.09 and $2.98 in 1996 and 1995, respectively. 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 effect of ComEd's operations on Unicom's
financial results.
Net Income (Loss). The loss for 1997 was primarily due to ComEd's
discontinuation of regulatory accounting practices for the generation portion
of its business and other charges recorded as a result of the 1997 Act. The
1997 results also include the write-off for the closure of the Zion nuclear
generating station.
ComEd discontinued regulatory accounting practices for the generation
portion of its business in the fourth quarter of 1997 due to the 1997 Act.
Accordingly, ComEd's generation-related net regulatory assets (which represent
assets and liabilities properly recorded under regulatory accounting practices
but which would not be recorded under GAAP for non-regulated entities) were
written off, resulting in an extraordinary charge of $810 million (after-tax)
or $3.75 per common share.
In addition, as permitted under the 1997 Act, ComEd elected to eliminate its
FAC in December 1997, which resulted in a charge of $44 million (after-tax) or
$0.20 per common share. The reduction includes $25 million (after-tax) or
$0.12 per common share in net FAC charges billed to its customers in 1997,
which will be refunded to customers in 1998. The reduction also includes a
write-off of $19 million (after-tax) or $0.08 per common share in
underrecovered energy costs that ComEd would have been entitled to recover if
the FAC had remained in effect.
Also, 1997 results include the write down of ComEd's investment in uranium-
related properties to reflect costs which are not expected to be recovered in
a competitive market. The write down resulted in a charge of $60 million
(after-tax) or $0.28 per common share.
Partially offsetting the charges to operations for 1997 was a change in the
accounting method for revenue recognition to record ComEd's revenues
associated with service which has been provided to customers but has not yet
been billed at the end of each accounting period, retroactive
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to January 1, 1997. This change in accounting method had a positive impact of
$170 million (after-tax) or $0.79 per common share, consisting of a one-time
cumulative effect of the change for years prior to 1997 of $197 million
(after-tax) or $0.91 per common share, less the impact of the change on 1997
results of $27 million (after-tax) or $0.12 per common share.
On January 14, 1998, the Boards of Directors of Unicom and ComEd authorized
the cessation of nuclear generation operations at ComEd's Zion Station. The
closure resulted in a charge for 1997 of $523 million (after-tax) or $2.42 per
common share, reflecting the write-off of the unrecoverable portion of the
cost of plant and inventories and a liability for future closing costs.
ComEd's kilowatthour sales, including sales to wholesale customers,
increased 5% during 1997 compared to 1996, as discussed below. In 1997 O&M
expenses increased by 12%, as discussed below.
Also reducing 1997 operating results were increased fuel and purchased power
costs of $336 million, as discussed below. In addition, a 4% increase in
depreciation expense, primarily due to an increase in certain nuclear plant
depreciation resulted in a charge of $23 million (after-tax) or $0.11 per
common share.
The 1996 results reflect, among other factors, a 1% decrease in overall O&M
expenses as compared to 1995 and the positive effects of an income tax refund
related to prior years with an increase in operating results of $26 million
(after-tax) or $0.12 per common share and a reduction in real estate taxes
with an increase in operating results of $28 million (after-tax) or $0.13 per
common share. Approximately half of the reduction in real estate taxes is
related to the year 1995. The real estate tax reduction results primarily from
ongoing challenges by ComEd of the methodology used by local taxing
authorities to assess the value of ComEd's nuclear generating stations. The
1996 results also reflect a 9% reduction in the total of interest expense on
debt and dividend requirements on preferred and preference stocks compared to
1995, largely due to the early retirement of debt at the end of 1995. In
September 1996, the ICC approved ComEd's request to increase depreciation
charges on its nuclear generating units by $30 million for the year 1996,
resulting in a charge of $20 million (after-tax) or $0.09 per common share.
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 O&M expenses, which reflect a charge of $59 million (after-tax) or
$0.27 per common share for a voluntary employee separation offer to certain
ComEd employees. ComEd also recorded a charge of $20 million (after-tax) or
$0.09 per common share related to the early redemption of $645 million of
long-term debt.
Operating Revenues. ComEd's electric operating revenues reflect revenues
from sales to ultimate consumers (including residential, commercial and
industrial customers within its service territory), revenues from sales for
resale (i.e., sales to wholesale customers, principally other electric
utilities), and revenues from collections under its FAC for years prior to
1997 (which was intended to recover variations in ComEd's fuel cost for
generating electric energy and the energy portion of purchased power cost in
relation to the amount included in ComEd's base rates). Operating revenues are
affected by kilowatthour sales, rates and FAC recoveries. Kilowatthour sales,
in turn, are affected by weather, the level of economic activity within
ComEd's service area, and off-system or wholesale sales to other utilities.
Off-system sales opportunities are affected by a number of factors, including
nuclear generating availability and performance.
During 1997, electric operating revenues increased $139 million, primarily
due to a 29% increase in kilowatthour sales to wholesale customers.
Kilowatthour sales to ultimate consumers during 1997 increased 1% compared to
1996, reflecting continued economic growth in ComEd's service territory.
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Operating revenues in 1997 were reduced by the provision for revenue refunds
of $45 million, including revenue taxes, related to the elimination of the
FAC. Operating revenues increased $25 million in the year 1996, as compared to
1995, principally reflecting increased sales for resale and increased energy
cost recoveries under ComEd's then effective FAC, although kilowatthour sales
to ultimate consumers were down 1% from the prior year due to the cooler
summer weather compared to the exceptionally hot summer in the year 1995.
Operating revenues increased $632 million in the year 1995, as compared to the
year 1994, primarily due to an increase of 5% in kilowatthour sales to
ultimate consumers attributable to the hot summer weather, as well as a rate
increase that became effective in January 1995.
Fuel Costs. Changes in fuel expense for the years 1997, 1996 and 1995
primarily resulted from changes in the average cost of fuel consumed, changes
in the mix of fuel sources of electric energy generated and changes in net
generation of electric energy. Fuel mix is determined primarily by system
load, the costs of fuel consumed and the availability of nuclear generating
units. The cost of fuel consumed, net generation of electric energy and fuel
sources of kilowatthour generation were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Cost of fuel consumed (per million Btu):
Nuclear........................................... $0.57 $0.53 $0.52
Coal.............................................. $2.28 $2.41 $2.43
Oil............................................... $3.90 $3.41 $3.06
Natural gas....................................... $2.69 $2.75 $1.85
Average all fuels................................. $1.33 $1.17 $1.05
Net generation of electric energy (millions of
kilowatthours)..................................... 85,861 93,048 96,608
Fuel sources of kilowatthour generation:
Nuclear........................................... 57% 67% 73%
Coal.............................................. 39 30 24
Oil............................................... -- 1 --
Natural gas....................................... 4 2 3
------ ------ ------
100% 100% 100%
====== ====== ======
</TABLE>
The decrease in nuclear generation as a percentage of total generation for
1997 compared to the prior years is primarily due to outages at certain of
ComEd's nuclear generating stations. See "Regulation," subcaption "Nuclear
Matters" above for information regarding outages at certain of ComEd's nuclear
generating stations.
Under the Energy Policy Act of 1992, investor-owned electric utilities that
have purchased enrichment services from the DOE are being assessed amounts to
fund a portion of the cost for the decontamination and decommissioning of
uranium enrichment facilities owned and previously operated by the DOE.
ComEd's portion of such assessments is estimated to be approximately $15
million per year (to be adjusted annually for inflation) to the year 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 "Nuclear Fuel," for information
related to the accounting for such costs.
Fuel Supply. Compared to other utilities, ComEd has relatively low average
fuel costs as a result of its reliance predominantly on lower cost nuclear
fuel. 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, 1997, ComEd had coal reserves of $282 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
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proceedings and coal reserves, see "Liquidity and Capital Resources" above and
"Coal Reserves" in Note 1 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. Purchased power costs
increased $255 million in 1997 compared to 1996, primarily due to outages at
certain of ComEd's nuclear generating stations. See "Regulation," subcaption
"Nuclear Matters" above, for information regarding outages at certain of
ComEd's nuclear generating stations.
The number and average cost of kilowatthours purchased were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ----- -----
<S> <C> <C> <C>
Kilowatthours (millions)............................... 16,672 6,129 2,475
Cost per kilowatthour.................................. 2.40c 2.37c 2.60c
</TABLE>
Purchased power is expected to increase in the year 1998 compared to the
year 1997 due to expected increased kilowatthour sales, lower nuclear
generation and higher costs for power purchased from other utilities.
Deferred Under or Overrecovered Energy Costs--Net. Operating expenses for
the years 1997, 1996 and 1995 include the net change in under or overrecovered
allowable energy costs under ComEd's FAC. Operating expenses in 1997 also
reflect the write-off of the unrecoverable energy costs related to the
elimination of ComEd's FAC. See "Changes in the Electric Utility Industry,"
"Fuel Costs" and "Fuel Supply" above and Note 1 of Notes to Financial
Statements under "Fuel Adjustment Clause."
Operation and Maintenance Expenses. O&M expenses include the expenses
associated with operating and maintaining ComEd's generation, transmission and
distribution assets as well as customer service, administrative overhead and
support. Given the variety of expense categories covered, there are a number
of factors which affect the level of such expenses within any given year. Two
major components of such expenses, however, are the costs associated with
operating and maintaining ComEd's nuclear and fossil generating facilities.
Generating station expenses are affected by the cost of materials, regulatory
requirements and expectations, the age of facilities as well as cost control
efforts.
During the three years presented in the financial statements, the aggregate
level of O&M expenses increased 12% in 1997 compared to 1996, decreased 1% in
1996 compared to 1995, and increased 4% in 1995 compared to 1994. All three
years include increases in the level of generating station expenses, as
discussed below. The year to year variations reflect efforts in 1996 and 1997
to improve nuclear generating station availability as well as to meet
regulatory requirements and expectations, and the impact in 1995 of an early
separation program offered to ComEd's employees, which resulted in a $97
million charge. Additional factors in each year also affected the level of O&M
expenses.
O&M expenses associated with nuclear generating stations increased $122
million, $88 million and $32 million for the years 1997, 1996 and 1995,
respectively, as a result of activities associated with the repair,
replacement and improvement of nuclear generating facility equipment. Since
1995, ComEd has increased the number and scope of maintenance activities
associated with its nuclear generating stations. Such efforts are the result
of station performance evaluations performed to identify the sources and
causes of unplanned equipment repairs. The goal of such efforts is to design
and implement cost effective repairs and improvements to increase station
availability. The efforts begun in 1995 are expected to continue through 1998.
The increase in O&M expenses associated with nuclear generating stations has
been driven by ComEd's objective to improve station availability, as well as
to meet regulatory requirements and expectations. ComEd is pursuing a program
to improve the quality of nuclear operations, including
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safety and efficiency, which is also expected to achieve a longer term goal of
improved availability and to be positioned to take advantage of opportunities
in a more competitive market. During the three years presented in the
financial statements, ComEd increased and reinforced station management with
managers drawn from other utilities which have resolved similar operating
issues. It has also sought to identify, anticipate and address nuclear station
operation and performance issues in a safe, cost-effective manner, while
seeking to improve the availability and capacity factors of its nuclear
generating units. Such activities have included improvements in operating and
personnel procedures and repair and replacement of equipment, and can result
in longer unit outages. Such activities have involved increased maintenance
and repair expenses in recent years.
O&M expenses associated with fossil generating stations increased $31
million, $4 million and $3 million for the years 1997, 1996 and 1995,
respectively. The increase related to fossil generating stations in 1997 is
primarily due to an increase in the repair and improvement of fossil
generating facility equipment in order to increase their general availability,
and to ensure their availability during the Summer of 1997. That increase was
partially offset by a reduction in personnel.
O&M expenses associated with transmission and distribution facilities
increased $15 million and $11 million for the years 1997 and 1996,
respectively, and decreased $3 million for the year 1995. The 1997 increase is
primarily due to increased emergency restoration of electric service and tree
trimming costs. The 1996 increase reflects higher maintenance expenses. The
decrease in 1995 reflects cost control efforts. O&M expenses associated with
customer-related activities increased $11 million, $17 million and $10 million
for the years 1997, 1996 and 1995, respectively. The increase in 1997 is
primarily due to an increase in uncollectible accounts.
O&M expenses also include compensation and benefits expenses. Since 1995,
ComEd has reduced the size of its workforce by offering incentives for
employees to leave the company voluntarily. Such incentives included both
current payments and earlier eligibility for post-retirement health care
benefits, resulting in charges of $39 million, $12 million and $97 million for
the years 1997, 1996 and 1995, respectively.
Other compensation and benefits expenses, excluding the effects of employee
separation plans, decreased $14 million, $20 million and $65 million for 1997,
1996 and 1995, respectively. The decrease in 1997 is primarily due to a
reduction in medical costs for active employees. The decreases in 1996 and
1995 are primarily related to a reduction of post-retirement health care
benefits costs, primarily as a result of a plan amendment effected in mid-1995
which required retired employee contributions to the plan for the first time.
Favorable experience also allowed the use of lower health care cost trend
rates, producing a lower charge in 1996 and 1995. O&M expenses also reflect
$41 million, $38 million and $65 million for employee incentive compensation
plan costs for the years 1997, 1996 and 1995, respectively. The payments,
which were made partly in cash and partly in shares of Unicom common stock,
were made under Unicom's Incentive Plans as the result of the achievement
during the indicated years of specified financial performance, operating
performance and increased shareholder value. The effects of inflation have
also increased O&M expenses during the years and are also reflected in the
increases and decreases discussed herein.
O&M expenses in 1997 also include $25 million for the additional write-off
of obsolete materials and supplies compared to 1996. O&M expenses associated
with certain administrative and general costs increased $35 million for the
year 1997. This increase was due to a variety of reasons including an increase
in the provision for vacation pay liability.
Depreciation. Depreciation expense increased for the years 1997, 1996 and
1995 as a result of additional nuclear plant depreciation and additions to
plant in service. The additional depreciation on ComEd's nuclear generating
units includes depreciation recorded for the year 1997 related to its steam
generators at Byron Unit 1 and Braidwood Unit 1 of $59 million, which are
expected to be replaced prior to year-end 1998, and the 1996 additional
depreciation initiative of $30 million. See "Depreciation and Decommissioning"
in Note 1 of Notes to Financial Statements.
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Interest on Debt. Changes in interest on long-term debt and notes payable
for the years 1997, 1996 and 1995 were due to changes in average interest
rates and in the amounts of long-term debt and notes payable outstanding.
Changes in interest on 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>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Long-term debt outstanding:
Average amount (millions).......................... $6,256 $6,644 $7,528
Average interest rate.............................. 7.65% 7.67% 7.78%
Notes payable outstanding:
Average amount (millions).......................... $ 153 $ 230 $ 51
Average interest rate.............................. 5.95% 5.79% 6.40%
</TABLE>
Decommissioning. The staff of the SEC has questioned certain of the current
accounting practices of the electric utility industry, including ComEd,
regarding the recognition, measurement and classification of decommissioning
costs for nuclear generating stations in financial statements of electric
utilities. In response to these questions, the FASB is reviewing the
accounting for nuclear decommissioning costs and issued an exposure draft in
February 1996 requesting written comment. If current electric utility industry
accounting practices for such decommissioning costs are changed, annual
provisions for decommissioning could increase and the estimated cost for the
decommissioning of operating nuclear plants after retirement could be recorded
as a liability rather than as accumulated depreciation. Decommissioning costs
of currently retired nuclear plants are recorded as a liability. Unicom and
ComEd do not believe that such changes, if required, would have an adverse
effect on the results of operations due to ComEd's ability to recover
decommissioning costs through rates.
Other Items. The amounts of AFUDC reflect changes in the average levels of
investment subject to AFUDC and changes in the average annual capitalization
rates as discussed in Note 1 of Notes to Financial Statements under "AFUDC."
AFUDC does not contribute to the current cash flow of Unicom or ComEd. ComEd
discontinued SFAS No. 71 regulatory accounting practices in December 1997 for
the generation-related portion of its business. As a result, ComEd will not
record AFUDC, but will capitalize interest costs on its generation-related
construction work in progress and nuclear fuel in process beginning in 1998.
ComEd's ratios of earnings to fixed charges for the years 1997, 1996 and
1995 were 0.58, 2.90 and 2.79, respectively. ComEd's ratios of earnings to
fixed charges and preferred and preference stock dividend requirements for the
years 1997, 1996 and 1995 were 0.49, 2.48 and 2.39, respectively. Earnings for
1997 were inadequate to cover fixed charges and fixed charges and preferred
and preference stock dividend requirements by approximately $259 million and
$359 million, respectively. The deficiency is principally attributable to the
earnings impact of the closure of Zion Station.
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.
C-20
<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, 1997 and 1996, and the related
statements of consolidated operations, retained earnings (deficit) and cash
flows for each of the three years in the period ended December 31, 1997. 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, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted
accounting principles.
As discussed in Note 3, effective January 1, 1997, the Company changed its
method of accounting for revenue recognition.
Arthur Andersen LLP
Chicago, Illinois
January 30, 1998
C-21
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED OPERATIONS
The following Statements of Consolidated Operations for the years 1997, 1996
and 1995 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, regulation, population,
business activity, competition, taxes, environmental control, energy use,
fuel, cost of labor, purchased power and other matters, the nature and effect
of which cannot now be determined.
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- ----------
(THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Operating Revenues........................ $ 7,083,022 $6,937,024 $6,910,045
----------- ---------- ----------
Operating Expenses and Taxes:
Fuel.................................... $ 1,239,438 $1,157,855 $1,087,109
Purchased power......................... 400,055 145,299 64,378
Operation and maintenance............... 2,438,388 2,161,892 2,175,651
Depreciation............................ 989,817 953,700 898,034
Recovery of regulatory assets........... 15,272 15,272 15,272
Taxes (except income)................... 800,886 783,531 833,297
Income taxes............................ 317,778 489,545 526,518
Investment tax credits deferred--net.... (31,015) (33,378) (28,710)
----------- ---------- ----------
$ 6,170,619 $5,673,716 $5,571,549
----------- ---------- ----------
Operating Income.......................... $ 912,403 $1,263,308 $1,338,496
----------- ---------- ----------
Other Income and (Deductions):
Interest on long-term debt.............. $ (488,033) $ (515,285) $ (587,583)
Interest on notes payable............... (9,134) (13,308) (3,280)
Allowance for funds used during
construction--
Borrowed funds........................ 18,555 19,426 11,137
Equity funds.......................... 23,770 20,776 13,129
Income taxes applicable to nonoperating
activities............................. 11,230 7,812 5,085
Provision for dividends--
Preferred and preference stocks of
ComEd................................ (60,486) (64,424) (69,961)
ComEd-obligated mandatorily redeemable
preferred securities of subsidiary
trusts holding solely ComEd's subor-
dinated debt securities.............. (28,860) (16,960) (4,428)
Loss on nuclear plant closure........... (885,611) -- --
Income tax effect of nuclear plant
closure................................ 362,952 -- --
Miscellaneous--net...................... (96,001) (35,245) (43,062)
----------- ---------- ----------
$(1,151,618) $ (597,208) $ (678,963)
----------- ---------- ----------
Net Income (Loss) Before Extraordinary
Items and Cumulative Effect of Change in
Accounting Principle..................... $ (239,215) $ 666,100 $ 659,533
Extraordinary Losses Less Applicable
Income Taxes............................. (810,335) -- (20,022)
Cumulative Effect of Change in Accounting
Principle................................ 196,700 -- --
----------- ---------- ----------
Net Income (Loss)......................... $ (852,850) $ 666,100 $ 639,511
=========== ========== ==========
Average Number of Common Shares
Outstanding.............................. 216,330 215,500 214,692
Basic and Diluted Earnings (Loss) Per
Common Share
Earnings (Loss) Per Common Share Before
Extraordinary Items and Cumulative
Effect of Change in Accounting
Principle.............................. $ (1.10) $ 3.09 $ 3.07
Extraordinary Losses Less Applicable
Income Taxes........................... (3.75) -- (0.09)
Cumulative Effect of Change in
Accounting Principle................... 0.91 -- --
----------- ---------- ----------
Earnings (Loss) Per Common Share........ $ (3.94) $ 3.09 $ 2.98
=========== ========== ==========
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.
C-22
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
ASSETS 1997 1996
------ ----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Utility Plant:
Plant and equipment, at original cost (includes
construction work in progress of $1,131 million
and $1,034 million, respectively)................. $27,518,690 $27,900,632
Less--Accumulated provision for depreciation....... 11,646,445 11,479,991
----------- -----------
$15,872,245 $16,420,641
Nuclear fuel, at amortized cost.................... 906,043 973,961
----------- -----------
$16,778,288 $17,394,602
----------- -----------
Investments and Other Property:
Nuclear decommissioning funds...................... $ 1,855,697 $ 1,456,360
Subsidiary companies............................... 41,830 113,888
Other, at cost..................................... 216,243 146,547
----------- -----------
$ 2,113,770 $ 1,716,795
----------- -----------
Current Assets:
Cash............................................... $ 18,519 $ 8,729
Temporary cash investments......................... 102,702 51,821
Special deposits................................... 271 1,610
Receivables--
Customers........................................ 873,418 568,155
Other............................................ 132,449 108,044
Provisions for uncollectible accounts............ (17,544) (12,893)
Coal and fuel oil, at average cost................. 120,664 140,362
Materials and supplies, at average cost............ 255,338 324,485
Deferred unrecovered energy costs.................. -- 16,228
Deferred income taxes related to current assets and
liabilities....................................... 179,553 120,220
Prepayments and other.............................. 126,088 108,643
----------- -----------
$ 1,791,458 $ 1,435,404
----------- -----------
Deferred Charges and Other Noncurrent Assets:
Regulatory assets.................................. $ 1,685,235 $ 2,434,807
Coal reserves...................................... 194,769 291,324
Other.............................................. 136,230 114,922
----------- -----------
$ 2,016,234 $ 2,841,053
----------- -----------
$22,699,750 $23,387,854
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
C-23
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
CAPITALIZATION AND LIABILITIES 1997 1996
------------------------------ ----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Capitalization (see accompanying statements):
Common stock equity.................................. $ 4,918,687 $ 6,104,380
Preferred and preference stocks of ComEd--
Without mandatory redemption requirements.......... 507,053 507,342
Subject to mandatory redemption requirements....... 174,328 217,901
ComEd-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely
ComEd's subordinated debt securities*............... 350,000 200,000
Long-term debt....................................... 5,737,348 6,069,534
----------- -----------
$11,687,416 $13,099,157
----------- -----------
Current Liabilities:
Notes payable--
Commercial paper................................... $ 150,000 $ 121,000
Bank loans......................................... 8,150 7,750
Current portion of long-term debt, redeemable
preference stock and capitalized lease obligations
of subsidiary companies............................. 775,296 783,919
Accounts payable..................................... 505,444 429,492
Accrued interest..................................... 169,559 168,750
Accrued taxes........................................ 175,758 170,870
Dividends payable.................................... 107,001 101,850
Customer deposits.................................... 55,214 51,585
Accrued plant closing costs.......................... 135,000 --
Other................................................ 165,177 98,567
----------- -----------
$ 2,246,599 $ 1,933,783
----------- -----------
Deferred Credits and Other Noncurrent Liabilities:
Deferred income taxes................................ $ 3,850,308 $ 4,574,303
Nuclear decommissioning liability for retired plants. 1,301,000 275,700
Accumulated deferred investment tax credits.......... 602,122 655,662
Accrued spent nuclear fuel disposal fee and related
interest............................................ 692,673 657,448
Obligations under capital leases of subsidiary
companies........................................... 437,950 476,669
Regulatory liabilities............................... 698,750 668,301
Other................................................ 1,182,932 1,046,831
----------- -----------
$ 8,765,735 $ 8,354,914
----------- -----------
Commitments and Contingent Liabilities (Note 23)
$22,699,750 $23,387,854
=========== ===========
</TABLE>
*As described in Note 11 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 sole asset of ComEd Financing II, also a subsidiary
trust of ComEd, is $154.6 million principal amount of ComEd's 8.50%
subordinated deferrable interest debentures due January 15, 2027.
The accompanying Notes to Financial Statements are an integral part of the
above statements.
C-24
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CAPITALIZATION
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1997 1996
----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Common Stock Equity:
Common stock, without par value--
Outstanding--216,659,480 shares and 215,954,625
shares, respectively (excludes $7 million and $4
million as of December 31, 1997 and 1996,
respectively, held by trustee for Unicom Stock
Bonus Deferral Plan)............................. $ 4,943,211 $ 4,929,909
Preference stock expense of ComEd.................. (3,340) (3,526)
Retained earnings (deficit)........................ (21,184) 1,177,997
----------- -----------
$ 4,918,687 $ 6,104,380
----------- -----------
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--65,912 shares and 75,003 shares,
respectively................................... 2,096 2,385
Prior preferred stock, cumulative, $100 par value
per share-- No shares outstanding............... -- --
----------- -----------
$ 507,053 $ 507,342
----------- -----------
Subject to Mandatory Redemption Requirements:
Preference stock, cumulative, without par value--
Outstanding--2,058,560 shares and 2,496,775
shares, respectively........................... $ 205,016 $ 248,589
Current redemption requirements for preference
stock included in current liabilities........... (30,688) (30,688)
----------- -----------
$ 174,328 $ 217,901
----------- -----------
ComEd-Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trusts holding solely
ComEd's subordinated debt securities................ $ 350,000 $ 200,000
----------- -----------
Long-Term Debt:
First mortgage bonds:
Maturing 1997 through 2002--5 3/8% to 9 3/8%..... $ 1,060,000 $ 1,320,000
Maturing 2003 through 2012--3.70% to 8 3/8%...... 1,440,400 1,440,400
Maturing 2013 through 2022--5.85% to 9 7/8%...... 1,791,000 1,991,000
Maturing 2023--7 3/4% to 8 3/8%.................. 560,000 560,000
----------- -----------
$ 4,851,400 $ 5,311,400
Sinking fund debentures, due 1999 through 2011--
2 3/4% to 7 5/8%.................................. 100,298 105,164
Pollution control obligations, due 2007 through
2014--3.70% to 5 7/8%............................. 142,200 142,200
Other long-term debt............................... 1,193,818 1,100,833
Current maturities of long-term debt included in
current liabilities............................... (503,909) (540,505)
Unamortized net debt discount and premium.......... (46,459) (49,558)
----------- -----------
$ 5,737,348 $ 6,069,534
----------- -----------
$11,687,416 $13,099,157
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
C-25
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Balance at Beginning of Year............... $1,177,997 $ 856,893 $ 560,971
Add--Net income (loss)..................... (852,850) 666,100 639,511
---------- ---------- ----------
$ 325,147 $1,522,993 $1,200,482
---------- ---------- ----------
Deduct--
Cash dividends declared on common
stock................................. $ 346,225 $ 344,892 $ 343,619
Other capital stock transactions--net.. 106 104 (30)
---------- ---------- ----------
$ 346,331 $ 344,996 $ 343,589
---------- ---------- ----------
Balance at End of Year (Includes $331
million of appropriated retained earnings
at December 31, 1997)..................... $ (21,184) $1,177,997 $ 856,893
========== ========== ==========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
C-26
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Cash Flow From Operating Activities:
Net income (loss)...................... $ (852,850) $ 666,100 $ 639,511
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization........ 1,036,271 990,779 949,413
Deferred income taxes and investment
tax credits--net.................... (345,042) 129,697 156,817
Extraordinary loss related to early
redemption of long-term debt........ -- -- 33,158
Extraordinary loss related to write-
off of certain net regulatory
assets.............................. 810,335 -- --
Cumulative effect of a change in
accounting principle................ (196,700) -- --
Loss on nuclear plant closure........ 885,611 -- --
Provisions for revenue refunds....... 45,470 -- --
Equity component of allowance for
funds used during construction...... (23,770) (20,776) (13,129)
Recovery of regulatory assets........ 15,272 15,272 15,272
Provisions/(payments) for liability
for separation costs--net........... 15,986 (29,888) 60,713
Net effect on cash flows of changes
in:
Receivables........................ 24,083 71,497 (178,665)
Coal and fuel oil.................. 19,698 (11,186) (20,304)
Materials and supplies............. 41,659 9,053 51,073
Accounts payable excluding nuclear
fuel lease principal payments and
separation costs--net............. 259,810 104,366 460,705
Accrued interest and taxes......... (17,903) (47,291) (2,684)
Other changes in certain current
assets and liabilities............ 39,005 13,850 26,637
Other--net........................... 170,832 69,447 153,916
----------- ----------- -----------
$ 1,927,767 $ 1,960,920 $ 2,332,433
----------- ----------- -----------
Cash Flow From Investing Activities:
Construction expenditures.............. $(1,043,311) $ (982,274) $ (927,327)
Nuclear fuel expenditures.............. (185,373) (281,833) (289,118)
Sale of generating plant............... 60,791 -- --
Equity component of allowance for
funds used during construction........ 23,770 20,776 13,129
Contributions to nuclear
decommissioning funds................. (114,825) (119,281) (132,653)
Other investments and special
deposits.............................. (13,246) (2,116) (1,601)
----------- ----------- -----------
$(1,272,194) $(1,364,728) $(1,337,570)
----------- ----------- -----------
Cash Flow From Financing Activities:
Issuance of securities--
Long-term debt....................... $ 362,663 $ 251,902 $ 62,000
ComEd-obligated mandatorily redeem-
able preferred securities of subsid-
iary trusts holding solely ComEd's
subordinated debt securities........ 150,000 -- 200,000
Capital stock........................ 15,778 17,754 25,507
Retirement and redemption of
securities--
Long-term debt....................... (736,740) (433,084) (1,137,272)
Capital stock........................ (44,111) (44,513) (17,935)
Deposits and securities held for
retirement and redemption of
securities............................ -- -- 106
Premium paid on early redemption of
long-term debt........................ (9,500) -- (25,823)
Cash dividends paid on common stock.... (345,936) (344,553) (343,375)
Proceeds from sale/leaseback of
nuclear fuel.......................... 149,955 316,617 193,215
Nuclear fuel lease principal payments.. (166,411) (211,741) (237,845)
Increase (Decrease) in short-term
borrowings............................ 29,400 (139,400) 261,000
----------- ----------- -----------
$ (594,902) $ (587,018) $(1,020,422)
----------- ----------- -----------
Increase (Decrease) in Cash and
Temporary Cash Investments............. $ 60,671 $ 9,174 $ (25,559)
Cash and Temporary Cash Investments at
Beginning of Year...................... 60,550 51,376 76,935
----------- ----------- -----------
Cash and Temporary Cash Investments at
End of Year............................ $ 121,221 $ 60,550 $ 51,376
=========== =========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
C-27
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Corporate Structure and Basis of Presentation. Unicom is the parent holding
company of ComEd and Unicom Enterprises. ComEd, an electric utility, is the
principal subsidiary of Unicom. Unicom Enterprises is an unregulated
subsidiary of Unicom and is engaged, through its subsidiaries, in energy
service activities. Unicom Resources is also an unregulated subsidiary of
Unicom and is engaged in the development of business ventures.
The consolidated financial statements include the accounts of Unicom, ComEd,
the Indiana Company, the Trusts 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
GAAP 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 GAAP applicable
to rate-regulated enterprises for the non-generation portion of its business,
including the effects of the ratemaking process in accordance with SFAS No.
71, Accounting for the Effects of Certain Types of Regulation. Such effects on
the non-generation portion of its business concern mainly the time at which
various items enter into the determination of operating results in order to
follow the principle of matching costs with the applicable revenues collected
from or returned to customers through future rates. See Note 2 for information
regarding the write-off of generation-related regulatory assets and
liabilities in December 1997.
ComEd's investment in generation-related net utility plant, including
construction work in progress and nuclear fuel, and excluding the
decommissioning costs included in the accumulated provision for depreciation,
not subject to cost-based rate regulation, was $12.4 billion and $13.1 billion
at December 31, 1997 and 1996, respectively.
C-28
<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, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1997 1996
---------- ----------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Regulatory assets:
Deferred income taxes (1)............................... $ 785,354 $1,649,037
Deferred carrying charges (2)........................... -- 396,879
Nuclear decommissioning costs--Dresden Unit 1 (3)....... 268,369 174,621
Nuclear decommissioning costs--Zion Units 1 and 2 (4)... 579,777 --
Unamortized loss on reacquired debt (5)................. 51,735 148,380
Other................................................... -- 65,890
---------- ----------
$1,685,235 $2,434,807
========== ==========
Regulatory liabilities:
Deferred income taxes (1)............................... $ 698,750 $ 668,301
========== ==========
</TABLE>
- --------
(1) Recorded in compliance with SFAS No. 109, Accounting for Income Taxes.
(2) Recorded as authorized in the Remand Order.
(3) Amortized over the remaining current NRC license life of Dresden Station.
See "Depreciation and Decommissioning" below for additional information.
(4) Amortized over the remaining current NRC license life of Zion Station. See
"Depreciation and Decommissioning" below for additional information.
(5) Amortized over the remaining lives of the long-term debt issued to finance
the reacquisition. See "Loss on Reacquired Debt" below for additional
information.
The 1997 regulatory assets and liabilities' balances reflect the write-off
of generation-related regulatory assets and liabilities and the recording of
nuclear decommissioning costs for Zion Station. See "Depreciation and
Decommissioning" below and Note 2 for additional information.
Fuel Adjustment Clause. The FAC adopted by the ICC provided 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 had recorded
under or overrecoveries of allowable fuel and energy costs which, under the
clause, were recoverable or refundable in subsequent months. Pursuant to an
option contained in the 1997 Act, ComEd filed a tariff on December 16, 1997 to
eliminate its FAC as of January 1, 1997. See Note 2 for additional
information.
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 the 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 presently being recovered through
base rates. See Note 14 for additional information concerning the disposal of
spent nuclear fuel, the one-time fee and the interest accrual on the one-time
fee. Nuclear fuel expenses, including leased fuel costs and provisions for
spent nuclear fuel disposal costs, were $298 million, $354 million and $391
million for the years 1997, 1996 and 1995, respectively.
The balance of nuclear fuel, at amortized cost, on the Consolidated Balance
Sheets includes amounts to be recovered for assessments by the DOE to fund a
portion of the cost for the decontamination and decommissioning of uranium
enrichment facilities owned and previously
C-29
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
operated by the DOE. As of December 31, 1997 and 1996, an asset related to the
assessments of $156 million and $168 million, respectively, was recorded. As
of December 31, 1997 and 1996, a corresponding liability of $144 million and
$157 million, respectively, was recorded, of which $16 million was included in
other current liabilities on the Consolidated Balance Sheets.
Coal Reserves. At December 31, 1997 and 1996, ComEd had coal reserves of
$282 million and $364 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 expects to recover from its
customers the costs of the coal reserves, as coal is used for the generation
of electricity, through base rates. Such fuel costs expected to be recovered
within one year, amounting to $87 million and $73 million at December 31, 1997
and 1996, respectively, have been included in current assets as prepayments
and other on the Consolidated Balance Sheets. ComEd expects to fully recover
the costs of the coal reserves before the year 2001. See Note 23 for
additional information concerning ComEd's coal commitments.
Customer Receivables and Revenues. ComEd is engaged principally in the
production, purchase, transmission, distribution and sale of electricity to a
diverse base of residential, commercial, industrial and wholesale customers.
ComEd's electric service territory has an area of approximately 11,300 square
miles and an estimated population of approximately 8 million as of December
31, 1997. It includes the city of Chicago, an area of about 225 square miles
with an estimated population of approximately 3 million from which ComEd
derived approximately one-third of its ultimate consumer revenues in 1997.
ComEd had 3.4 million electric customers at December 31, 1997.
In 1997, ComEd changed its accounting method for revenue recognition to
record ComEd's revenues associated with service which has been provided to
customers but has not yet been billed at the end of each accounting period,
retroactive to January 1, 1997. See Note 3 for information regarding the
cumulative effect of a change in accounting principle on prior years and the
effect on the current year. See Note 2 for information regarding the expected
effects of the August 1, 1998 rate reduction and certain pricing experiments.
Depreciation and Decommissioning. ComEd's depreciation is provided on the
straight-line basis by amortizing the cost of depreciable plant and equipment
over estimated composite service lives. Non-nuclear plant and equipment is
depreciated at annual rates developed for each class of plant based on their
composite service lives. Provisions for depreciation were at average annual
rates of 3.36%, 3.25% and 3.14% for the years 1997, 1996 and 1995,
respectively, of average depreciable utility plant and equipment, including
the effects of additional depreciation on ComEd's nuclear generating units.
The annual rate for nuclear plant and equipment, excluding separately
collected decommissioning costs and additional depreciation, is 2.88%. The
additional depreciation on ComEd's nuclear generating units includes
depreciation recorded for the year 1997 related to its steam generators at
Byron Unit 1 and Braidwood Unit 1 of $59 million, which are expected to be
replaced prior to year-end 1998, and the 1996 additional depreciation
initiative of $30 million. See Note 4 for additional information on the 1996
additional depreciation initiative.
Nuclear plant decommissioning costs are accrued over the current NRC license
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
C-30
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
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's method of accounting for decommissioning costs.
Dismantling is expected to occur relatively soon after the end of the current
NRC license life of each related generating station. The accrual for
decommissioning is based on the prompt removal method authorized by NRC
guidelines. ComEd's 10 operating units have remaining current NRC license
lives ranging from 8 to 30 years. ComEd's Zion Station and its first nuclear
unit, Dresden Unit 1, are retired and are expected to be dismantled at the end
of the current NRC license life of the last unit at each of those stations,
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 $4.8
billion in current-year (1998) dollars, including a contingency allowance.
ComEd estimates that it will expend approximately $12.9 billion, including a
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, including changes in technology, available alternatives
for the disposal of nuclear waste and inflation.
Pursuant to the Rate Order, since 1995, ComEd has collected decommissioning
costs from its ratepayers in conjunction with a rider, which allows annual
adjustments to decommissioning cost collections outside the context of a
traditional rate proceeding. Recovery of decommissioning costs through the
rider will continue under the 1997 Act. The current estimated decommissioning
costs include a contingency allowance. Contingency allowances used in
decommissioning cost estimates provide for currently unspecifiable costs that
are likely to occur after decommissioning begins and generally range from 20%
to 25% of the currently specifiable costs. Under its most recent annual rider,
filed with the ICC on February 28, 1997, ComEd has proposed to decrease its
estimated annual decommissioning cost accrual from $108.8 million to $107.5
million. The reduction primarily reflects stronger than expected after-tax
returns on the external trust funds in 1996 and lower than expected escalation
in low-level waste disposal costs, partially offset by the higher current-year
cost estimates, which include a contingency allowance.
The proposed annual decommissioning cost accrual of $107.5 million was
determined using the following assumptions: the decommissioning cost estimate
of $4.8 billion in current-year (1998) dollars, after-tax earnings on the tax-
qualified and nontax-qualified decommissioning funds of 7.30% and 6.26%,
respectively, and an escalation rate for future decommissioning costs of 4.1%.
The annual accrual of $107.5 million provided over the current NRC license
lives of the nuclear plants, coupled with the expected fund earnings and
amounts previously recovered in rates, is expected to aggregate approximately
$12.9 billion.
For the 10 operating nuclear units, decommissioning costs are recorded as
portions of depreciation expense and accumulated provision for depreciation on
the Statements of Consolidated Operations and the Consolidated Balance Sheets,
respectively. As of December 31, 1997, the total decommissioning costs
included in the accumulated provision for depreciation were $1,570 million.
For ComEd's retired nuclear unit, Dresden Unit 1, the total estimated
liability at December 31, 1997 in current-year (1998) dollars of $365 million
was recorded under nuclear decommissioning costs for
C-31
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
retired plants and the unrecovered portion of the liability of $268 million
was recorded as a regulatory asset on the Consolidated Balance Sheets. The
increase from December 31, 1996 to December 31, 1997 in the total estimated
liability related to Dresden Unit 1, and the unrecovered portion of that
liability, is due to higher current-year cost estimates, which include a
contingency allowance.
For ComEd's retired Zion nuclear station, the total estimated liability at
December 31, 1997 in current-year (1998) dollars of $936 million was recorded
under nuclear decommissioning costs for retired plants and the unrecovered
portion of the liability of $580 million was recorded as a regulatory asset on
the Consolidated Balance Sheets.
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
current NRC license lives of the nuclear plants. At December 31, 1997, the
past accruals that are required to be contributed to the external trusts
aggregate $167 million. The fair value of funds accumulated in the external
trusts at December 31, 1997 was $1,856 million, which includes pre-tax
unrealized appreciation of $429 million. The earnings on the external trusts
accumulate in the fund balance and accumulated provision for depreciation.
Income Taxes. Deferred income taxes are provided for income and expense
items recognized for financial accounting purposes in periods that differ from
those for income tax purposes. Income taxes deferred in prior years are
charged or credited to income as the book/tax timing differences reverse.
Prior years' deferred investment tax credits are amortized through credits to
income generally over the lives of the related property. Income tax credits
resulting from interest charges applicable to nonoperating activities,
principally construction, are classified as other income.
AFUDC. In accordance with the uniform systems of accounts prescribed by
regulatory authorities, ComEd capitalizes AFUDC, compounded semiannually,
which represents the estimated cost of funds used to finance its construction
program. The equity component of AFUDC is recorded on an after-tax basis and
the borrowed funds component of AFUDC is recorded on a pre-tax basis. The
average annual capitalization rates were 9.39%, 9.02% and 9.52% for the years
1997, 1996 and 1995, respectively. AFUDC does not contribute to the current
cash flow of Unicom or ComEd. ComEd discontinued SFAS No. 71 regulatory
accounting practices in December 1997 for the generation portion of its
business. As a result, ComEd will not record AFUDC, but will capitalize
interest costs on its generation-related construction work in progress and
nuclear fuel in process beginning in 1998.
Interest. Total interest costs incurred on debt, leases and other
obligations were $598 million, $626 million and $696 million for the years
1997, 1996 and 1995, respectively.
Debt Discount, Premium and Expense. Discount, premium and expense on long-
term debt of ComEd are being amortized over the lives of the respective
issues.
Loss on Reacquired Debt. Consistent with regulatory treatment, the net loss
from ComEd's reacquisition in connection with the 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 for non-
generation related financings. See "Regulatory Assets and Liabilities" above
and Note 2 for additional information.
C-32
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
Stock Option Awards/Employee Stock Purchase Plan. Unicom has elected to
adopt SFAS No. 123, Accounting for Stock-Based Compensation, for disclosure
purposes only. Unicom accounts for its stock option awards and ESPP under APB
Opinion No. 25, Accounting for Stock Issued to Employees. See Note 8 for
additional information.
Earnings per Share. Unicom adopted SFAS No. 128, Earnings per Share, which
established standards for computing and presenting EPS. Unicom has presented
basic EPS on the Statements of Consolidated Operations for the years 1997,
1996 and 1995. Basic EPS and diluted EPS for the years presented are the same.
The diluted average number of common shares outstanding was 216,330,000,
215,686,000 and 214,828,000 for the years 1997, 1996 and 1995, respectively.
Energy Risk Management Contracts. In the normal course of business ComEd
utilizes contracts for the forward sale and purchase of energy to effectively
manage the utilization of its available generating capability. ComEd also
utilizes put and call option contracts and energy swap arrangements to limit
the market price risk associated with the forward commodity contracts. As
ComEd does not currently utilize financial or commodity instruments for
trading or speculative purposes, any gains or losses on forward commodity
contracts are recognized when the underlying transactions affect earnings.
Revenues and expenses associated with market price risk management contracts
are recognized immediately for contracts with terms of less than one year and
are amortized over the length of the term of contracts covering more than one
year.
Reclassifications. Certain prior year amounts have been reclassified to
conform with current period presentation. These reclassifications had no
effect on operating results.
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 1997, 1996
and 1995 was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Supplemental Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized)............ $512,050 $538,351 $604,932
Income taxes (net of refunds)................... $264,802 $234,743 $367,708
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Capital lease obligations incurred by subsidiary
companies........................................ $158,412 $320,975 $198,577
</TABLE>
(2) ACCOUNTING EFFECTS RELATED TO THE 1997 ACT
On December 16, 1997, the Governor of Illinois signed into law the 1997 Act
which, as it applies to ComEd, provides for, among other things, a 15%
residential base rate reduction commencing August 1, 1998, an additional 5%
residential base rate reduction commencing May 1, 2002, and customer access to
other electric suppliers in a phased-in process. Access for commercial and
industrial customers will occur over a period from October 1999 to December
2000, and access for residential customers will occur after May 1, 2002. The
15% residential base rate reduction, commencing on August 1, 1998, is expected
to reduce ComEd's operating revenues by approximately $160 million and $375
million in 1998 and 1999, respectively, compared to 1997 rate levels. ComEd is
engaged in certain pricing experiments contemplated by the 1997 Act, which are
expected to reduce its operating revenues by approximately $30 million and $60
million in 1998 and 1999, respectively, compared to 1997 rate levels,
notwithstanding the effects of customer growth.
C-33
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
The 1997 Act also provides for the collection of a CTC from customers who
choose another electric service provider during a transition period that
extends through 2006, and can be extended through 2008 with ICC approval if
certain factors are met. The CTC will be established in accordance with a
formula defined in the legislation. The CTC, which will be applied on a cents
per kilowatthour basis, considers the revenue which would have been collected
from a customer under tariffed rates, reduced by 1) the revenue the utility
will receive for providing delivery services to the customer, 2) the market
price for electricity and 3) a defined mitigation factor which represents the
utility's opportunity to develop new revenue sources and achieve cost savings.
Notwithstanding these rate reductions, and subject to certain earnings
tests, a rate freeze will generally be in effect until at least January 1,
2005. During this period utilities may reorganize, sell or assign assets,
retire or remove plants from service, and accelerate depreciation or
amortization of assets with limited ICC authority. Under the earnings
provision of the legislation, if the earned return on common equity of a
utility during this period exceeds an established threshold, a portion of the
excess earnings must be refunded to customers. A utility may request a rate
increase during the rate freeze period when necessary to ensure the utility's
financial viability, but not before January 1, 2000.
Under the 1997 Act, utilities are required to continue to offer delivery
services, including the transmission and distribution of electric energy, such
that customers who select an alternative energy supplier can receive electric
energy from that supplier using existing transmission and distribution
facilities. Such services will continue to be offered under cost-based
regulated rates. The 1997 Act also requires utilities to establish or join an
ISO that will independently manage and control utility transmission systems.
Additionally, the 1997 Act includes the option to eliminate the FAC, the
leveling of certain regulatory requirements to permit operational flexibility,
the leveling of certain regulatory and tax provisions as applied to various
electric suppliers and a new more stringent liability standard applicable to
ComEd in the event of a major outage.
The 1997 Act also allows ComEd to unbundle a portion of its future revenues,
including tariffed and contract rates and CTC revenues and issue securities
backed by these revenues. The proceeds from such security issuances must
generally be used to refinance outstanding debt or equity or for certain other
limited purposes. The total amount of ComEd's revenues securitized cannot
exceed $6.5 billion; approximately one-half of that amount can be issued in
the twelve-month period commencing on August 1, 1998.
As a result of the 1997 Act, prices for the supply of electric generation
are expected to transition from cost-based, regulated rates to rates
determined by competitive market forces. The CTC allows ComEd to recover a
portion of any of its costs which might otherwise be unrecoverable under
market-based rates. Nonetheless, ComEd will need to take steps to address the
portion of such costs which are not recoverable through the CTC. Such steps
include cost control efforts and developing new sources of revenue.
Because the 1997 Act is expected ultimately to lead to market-based pricing
of electric generation services, ComEd discontinued SFAS No. 71 regulatory
accounting practices for the generation portion of its business in December
1997. ComEd evaluated the regulatory assets and liabilities related to the
generation portion of its business and determined that it is not probable that
such costs will be recovered through the cash flows from the regulated portion
of its business. Accordingly, the generation-related regulatory assets and
liabilities were written off in the fourth quarter of 1997, resulting in a
charge of $810 million (after-tax) or $3.75 per common share. These costs
relate principally to previously incurred costs originally expected to be
collected through future
C-34
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
revenues, including income tax benefits previously flowed through to
customers, deferred carrying charges on the Byron Unit 2 and Braidwood Units 1
and 2 nuclear generating plants, generation-related unamortized loss on
reacquired debt and other miscellaneous generation-related costs. The
regulatory asset for the unrecovered nuclear decommissioning costs of
currently retired nuclear plants was not written off, as the 1997 Act provides
for the ongoing recovery of decommissioning costs through regulated rates. See
"Regulatory Assets and Liabilities" and "Depreciation and Decommissioning" in
Note 1 of Notes to Financial Statements.
Pursuant to an option contained in the 1997 Act, ComEd filed a tariff on
December 16, 1997 to eliminate its FAC as of January 1, 1997. Under ComEd's
regulated rates, the FAC provided 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.
Elimination of the FAC requires ComEd to refund to customers any net FAC
charges billed from January 1, 1997 through December 31, 1997. Such FAC
charges were $25 million (after-tax) or $0.12 per common share. These costs,
as well as deferred underrecovered energy costs of $19 million (after-tax) or
$0.08 per common share which ComEd would have been entitled to recover if the
FAC had remained in effect, were recorded as a reduction to operating results
in 1997.
Additionally, elimination of the FAC and a transition to market-based
pricing for generation-related costs required ComEd to write down its
investment in uranium-related properties. Current projections of the market
price for uranium indicate that the expected incremental costs of mining and
milling uranium at such properties will exceed the expected market price for
uranium. Such costs are not expected to be recoverable in a competitive
market. A write down of ComEd's investment in uranium-related properties to
realizable value resulted in a charge of $60 million (after-tax) or $0.28 per
common share in December 1997.
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, which was adopted on January 1, 1996,
established accounting standards for the impairment of long-lived assets,
i.e., determining whether the costs of such assets are recoverable through
future revenues. SFAS No. 121 also requires that regulatory assets, which are
no longer probable of recovery through future revenue, be charged to
operations. ComEd evaluated whether the recoverability of the costs of its
generating stations has been impaired as defined in SFAS No. 121. This
evaluation was conducted to determine whether future revenues expected to be
recovered from electric supply services will be sufficient to cover the costs
of its generating assets. Notwithstanding the retirement and write-off of Zion
Station, as discussed in Note 5, ComEd has concluded, as a result of these
studies, that impairment, as defined in SFAS No. 121, does not currently exist
and that asset write downs are not necessary at this time. However, ComEd is
engaged in an ongoing examination of its assets and operations. If ComEd
retires or closes one or more additional generating plants prior to expected
retirement dates, further write-offs will be required.
(3) CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
ComEd changed its accounting method for revenue recognition to record
revenues associated with service which has been provided to customers but has
not yet been billed at the end of each accounting period, retroactive to
January 1, 1997. This change in accounting method increased 1997 operating
results by $170 million (after-tax) or $0.79 per common share, consisting of a
one-time cumulative effect of the change for years prior to 1997 of $197
million (after-tax) or $0.91 per common share, less the impact of the change
on 1997 results of $27 million (after-tax) or $0.12 per common
C-35
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
share. The following pro forma information reflects the financial results for
1997, 1996 and 1995 as if the new accounting method had been used in such
periods (unaudited):
<TABLE>
<CAPTION>
1997 1996 1995
----------- -------- --------
(THOUSANDS EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Net Income (Loss) Before Extraordinary Items and
Cumulative Effect of Change in Accounting
Principle...................................... $ (239,215) $698,229 $682,688
Earnings (Loss) Per Common Share Before Extraor-
dinary Items and Cumulative Effect of Change in
Accounting Principle........................... $ (1.10) $ 3.24 $ 3.18
Net Income (Loss)............................... $(1,049,550) $698,229 $662,666
Earnings (Loss) Per Common Share................ $ (4.85) $ 3.24 $ 3.09
</TABLE>
(4) RATE MATTERS
In January 1995, the ICC issued its Rate Order in the proceedings relating
to ComEd's February 1994 rate increase request. The Rate Order provided, among
other things, for an increase in ComEd's total revenues of approximately $302
million (excluding add-on revenue taxes) on an annual basis. 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. The Rate Order was appealed by intervenors and ComEd to the Illinois
Appellate Court, which issued a decision on May 30, 1997 affirming the Rate
Order in all respects with the exception of two issues, which it remanded to
the ICC for the purpose of providing further analysis. Those issues relate to:
(i) the manner in which certain costs are recovered and which customers should
pay those costs, and (ii) the proper rate of return on common equity for
ComEd. ComEd believes that the ICC can satisfy the Appellate Court's remand
directions on the basis of the existing record from the ICC proceedings which
led to the Rate Order. The Appellate Court's decision was not appealed and the
matter was returned to the ICC, where a decision is expected early in the
second quarter of 1998.
With respect to the first issue remanded to the ICC, ComEd does not believe
it will have any effect on the overall level of rates. With respect to the
rate of return on common equity issue, the ICC had determined in the Rate
Order that ComEd's cost of common equity was 12.28%. Intervenors had submitted
testimony recommending a return on common equity of 11.50%. The Appellate
Court decision requires the ICC to clarify the basis for certain of its
findings relating to its rejection of the intervenors' recommendation and to
analyze further how it arrived at its conclusions. The Appellate Court stated
that after reanalyzing these bases the ICC can determine whether or not the
cost of common equity determination it adopted should still be followed. Each
tenth of one percent change in the rate of return on common equity has
approximately an $8 million effect on the level of annual revenues. The
Appellate Court's decision does not have any immediate effect on ComEd's rates
or require any refunds. In connection with the initiation of the appeal, ComEd
committed to make refunds "in the event that a final, non-appealable order is
entered reversing the ICC's Rate Order." Revenues of approximately $195
million would be subject to refund if the ICC were to adopt the lower rate of
return on common equity recommended by intervenors. An ICC Hearing Examiner
issued a proposed order in January 1998, which if adopted by the ICC, would
uphold the Rate Order and the associated $302 million revenue increase on an
annual basis.
ComEd's costs increased by $30 million in 1996 (before income tax effects)
for an increase in depreciation charges on its nuclear generating units
related to its additional depreciation initiative in 1996. See Note 1 under
"Depreciation and Decommissioning" for information concerning additional
depreciation charges related to ComEd's steam generators at Byron Unit 1 and
Braidwood Unit 1.
See Note 2 for information regarding the 1997 Act.
C-36
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(5) CLOSURE AND SALE OF PLANTS
On January 14, 1998, the Boards of Directors of Unicom and ComEd authorized
the permanent cessation of nuclear generation operations and retirement of
facilities at ComEd's 2,080 megawatt Zion nuclear generating station. Such
retirement resulted in a charge for 1997 of $523 million (after-tax) or $2.42
per common share. The decision to close Zion Station was a result of an
ongoing analysis, which ComEd performed regarding the economic value of its
generating assets in light of the expected changes in the manner in which
electric energy is marketed and sold. The passage of the 1997 Act provided a
clearer basis for evaluating the costs and benefits of alternative courses of
action. In reaching the decision to cease nuclear generation operations at
Zion Station, the Boards also considered the significant uncertainty
associated with continued operation of the station due to the degradation of
the steam generators, and the expected operating costs associated with
continued station operation.
ComEd's fourth quarter 1997 financial results reflected a charge of $406
million (after-tax) representing the undepreciated costs of Zion Station
(excluding the portion which will remain in use to provide voltage support),
materials and supplies inventories, and nuclear fuel inventories. In addition,
as required by GAAP, a liability for future closing costs associated with the
retirement of Zion Station, excluding severance costs, was recorded resulting
in a charge of $117 million (after-tax) in the fourth quarter of 1997.
In April 1996, ComEd announced that it had finalized agreements to sell 2 of
its coal-fired generating stations, representing 1,600 megawatts of generating
capacity. Under the agreements, State Line and Kincaid stations are expected
to be sold for a total of $250 million, which approximates the book value of
the stations. The net proceeds are expected to be approximately $200 million
(after-tax), which will be used to retire or redeem existing debt. Under the
terms of the sales, ComEd will enter into exclusive 15-year purchased power
agreements for the output of the plants. On March 31, 1997, the ICC issued an
order approving the agreements. A subsequent appeal has been dropped by the
intervening parties. The sale of State Line Station for its approximate book
value was finalized in December 1997. The net proceeds of the sale, after
income tax effects and closing costs, were approximately $56 million. The
Kincaid Station sale is expected to be finalized during the first quarter of
1998.
(6) AUTHORIZED SHARES AND VOTING RIGHTS OF CAPITAL STOCK
At December 31, 1997, 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, 1997 were: preference stock--22,368,560
shares; $1.425 convertible preferred stock--65,912 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.
Pursuant to a plan adopted by the Unicom Board of Directors on February 2,
1998, each share of Unicom's common stock carries the right (referred to
herein as a "Right") to purchase one-thousandth of one share of Unicom's
common stock at a purchase price of $100 per whole share of common stock,
subject to adjustment. The Rights are tradable only with Unicom's common stock
until they become exercisable. The Rights become exercisable upon the earlier
of ten days following a
C-37
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
public announcement that a person (an "Acquiring Person") has acquired 15% or
more of Unicom's outstanding common stock or ten business days (or such later
date as may be determined by action of the Board of Directors) following the
commencement of a tender or exchange offer which, if consummated, would result
in a person or group becoming an Acquiring Person. The Rights are subject to
redemption by Unicom at a price of $.01 per Right, subject to certain
limitations, and will expire on February 2, 2008. If a person or group becomes
an Acquiring Person, each holder of a Right will thereafter have the right to
receive, upon exercise, Unicom common stock at a 50% discount from the then
current market price. If Unicom is acquired in a merger or other business
combination transaction in which Unicom is not the survivor, or 50% or more of
Unicom's assets or earning power is sold or transferred, each holder of a
Right shall then have the right to receive, upon exercise, common stock of the
acquiring company at a 50% discount from the then current market price of such
common stock. Rights held by an Acquiring Person become void upon the
occurrence of such events.
(7) COMMON EQUITY
At December 31, 1997, shares of Unicom common stock were reserved for the
following purposes:
<TABLE>
<S> <C>
Long-Term Incentive Plan........................................ 3,177,566
Employee Stock Purchase Plan.................................... 507,567
Exchange for ComEd common stock not held by Unicom.............. 97,953
1996 Directors' Fee Plan........................................ 180,713
---------
3,963,799
=========
</TABLE>
Common stock for the years ended 1997, 1996 and 1995 was issued as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Shares of Common Stock Issued:
Long-Term Incentive Plan.......................... 208,104 132,579 481,751
Employee Stock Purchase Plan...................... 196,003 196,513 217,080
Employee Savings and Investment Plan.............. 274,203 339,100 217,100
Exchange for ComEd common stock not held by
Unicom........................................... 12,370 25,323 --
1996 Directors' Fee Plan.......................... 14,175 5,112 --
------- ------- -------
704,855 698,627 915,931
======= ======= =======
<CAPTION>
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Amount of Common Stock Issued:
Total issued...................................... $15,768 $17,733 $25,412
Held by trustee for Unicom Stock Bonus Deferral
Plan............................................. (2,476) (4,300) --
Other............................................. 10 38 95
------- ------- -------
$13,302 $13,471 $25,507
======= ======= =======
</TABLE>
At December 31, 1997 and 1996, 76,868 and 78,045 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.
Unicom's retained earnings account had a deficit balance of $21.2 million at
December 31, 1997. As of December 31, 1997, $331 million of retained earnings
has been appropriated for future dividend payments.
C-38
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(8) STOCK OPTION AWARDS/EMPLOYEE STOCK PURCHASE PLAN
Unicom has a nonqualified stock option awards program under its Long-Term
Incentive Plan. The stock option awards program was adopted by Unicom in July
1996 to reward valued employees responsible for, or contributing to, the
management, growth and profitability of Unicom and its subsidiaries. The stock
options granted will expire ten years from their grant date. One-third of the
shares subject to the options vest on each of the first three anniversaries of
the option grant date. In addition, the stock options will become fully vested
immediately if the holder dies, retires, is terminated by the Company other
than for cause or qualifies for long-term disability and will also vest in
full upon a change in control.
Stock options transactions for the years 1997 and 1996 are summarized as
follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTIONS PRICE
--------- --------
<S> <C> <C>
Outstanding at the beginning of 1996........................ -- $ --
Granted during the year..................................... 1,205,500 25.500
Expired/cancelled during the year........................... (17,500) 25.500
---------
Outstanding as of December 31, 1996......................... 1,188,000 25.500
Granted during the year..................................... 1,339,350 22.313
Exercised during the year................................... (23,423) 25.500
Expired/cancelled during the year........................... (213,549) 23.649
---------
Outstanding as of December 31, 1997......................... 2,290,378 23.809
=========
</TABLE>
Of the stock options outstanding at December 31, 1997, 426,174 have vested
at a weighted average price of $25.455.
The fair value of each stock option is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
STOCK OPTION
GRANT DATE
----------------
1997 1996
------- -------
<S> <C> <C>
Expected option life........................................ 7 years 7 years
Dividend yield.............................................. 7.20% 6.30%
Expected volatility......................................... 22.29% 20.98%
Risk-free interest rate..................................... 6.25% 6.64%
</TABLE>
The estimated fair value for each stock option granted in 1997 and 1996 was
$2.79 and $3.74, respectively.
The ESPP allows employees to purchase Unicom common stock at a 10% discount
from market value. Substantially all of the employees of Unicom, ComEd and
certain subsidiaries are eligible to participate in the ESPP. Unicom issued
196,003, 196,513 and 217,080 shares of common stock in 1997, 1996 and 1995,
respectively, under the ESPP at a weighted average annual purchase price of
$19.15, $23.52 and $25.34, respectively.
Unicom has adopted the disclosure-only provisions of SFAS No. 123. For
financial reporting purposes, Unicom has adopted APB No. 25 and thus no
compensation cost has been recognized for the stock option awards program or
ESPP. If Unicom had recorded compensation expense for the stock options
granted and the shares of common stock issued under the ESPP in accordance
with SFAS No. 123 using the fair value based method of accounting, the effect
on operating results and EPS would have been immaterial.
C-39
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(9) 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 1997, 1996 and 1995.
The series of ComEd preference stock without mandatory redemption requirements
outstanding at December 31, 1997 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.
(10) COMED PREFERENCE STOCK SUBJECT TO MANDATORY REDEMPTION REQUIREMENTS
During 1997, 1996 and 1995, no shares of ComEd preference stock subject to
mandatory redemption requirements were issued. The series of ComEd preference
stock subject to mandatory redemption requirements outstanding at December 31,
1997 are summarized as follows:
<TABLE>
<CAPTION>
SHARES AGGREGATE
SERIES OUTSTANDING STATED VALUE OPTIONAL REDEMPTION PRICE(1)
- -------------- ----------- ------------ -----------------------------------------------
(THOUSANDS
OF DOLLARS)
<S> <C> <C> <C>
$8.20 178,560 $ 17,856 $101
$8.40 Series B 300,000 29,798 $101
$8.85 225,000 22,500 $103 through July 31, 1998; and $101 thereafter
$9.25 525,000 52,500 $103 through July 31, 1999; and $101 thereafter
$9.00 130,000 12,887 Non-callable
$6.875 700,000 69,475 Non-callable
--------- --------
2,058,560 $205,016
========= ========
</TABLE>
- --------
(1) Per share plus accrued and unpaid dividends, if any.
C-40
<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 2002 on ComEd preference
stock outstanding at December 31, 1997 will aggregate $31 million in 1998, $18
million in 1999, $88 million in 2000 and $18 million in each of 2001 and 2002.
During each of 1997 and 1996 438,215 shares and during 1995 178,215 shares of
ComEd preference stock subject to mandatory redemption requirements were
reacquired to meet sinking fund requirements.
Sinking fund requirements due within one year are included in current
liabilities.
(11) COMED-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY
TRUSTS HOLDING SOLELY COMED'S SUBORDINATED DEBT SECURITIES
In September 1995, ComEd Financing I, 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 ComEd Financing I is $206.2 million
principal amount of ComEd's 8.48% subordinated deferrable interest notes due
September 30, 2035. In January 1997, ComEd Financing II, a wholly-owned
subsidiary trust of ComEd, issued 150,000 of its 8.50% ComEd-obligated
mandatorily redeemable capital securities. The sole asset of ComEd Financing
II is $154.6 million principal amount of ComEd's 8.50% subordinated deferrable
interest debentures due January 15, 2027. There is a full and unconditional
guarantee by ComEd of the Trusts' obligations under the securities issued by
the Trusts. 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. Similarly, ComEd has the right to defer payments of interest on the
subordinated deferrable interest debentures by extending the interest payment
period, at any time, for up to 10 consecutive semi-annual periods. If interest
payments on the subordinated deferrable interest notes or debentures 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, and with
respect to the subordinate deferrable interest debentures, on or after January
15, 2007, or at any time in the event of certain income tax
C-41
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
circumstances. If the subordinated deferrable interest notes or debentures are
redeemed, the Trusts must redeem preferred securities having an aggregate
liquidation amount equal to the aggregate principal amount of the subordinated
deferrable interest notes or debentures so redeemed. In the event of the
dissolution, winding up or termination of the Trusts, the holders of the
preferred securities will be entitled to receive, for each preferred security,
a liquidation amount of $25 for the securities of ComEd Financing I and $1,000
for the securities of ComEd Financing II, 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 or debentures are distributed to the holders of the preferred
securities.
(12) LONG-TERM DEBT
Sinking fund requirements and scheduled maturities remaining through 2002
for ComEd's first mortgage bonds, sinking fund debentures and other long-term
debt outstanding at December 31, 1997, after deducting sinking fund debentures
reacquired for satisfaction of future sinking fund requirements, are
summarized as follows: 1998--$503 million; 1999--$150 million; 2000--$462
million; 2001--$108 million; and 2002--$305 million. Unicom Enterprises' note
payable to bank of $160 million will mature in 1999.
At December 31, 1997, ComEd's outstanding first mortgage bonds maturing
through 2002 were as follows:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
SERIES ----------------------
(THOUSANDS OF DOLLARS)
<S> <C>
6 1/4% due February 1, 1998........................ $ 50,000
6% due March 15, 1998.............................. 130,000
6 3/4% due July 1, 1998............................ 50,000
6 3/8% due October 1, 1998......................... 75,000
9 3/8% due February 15, 2000....................... 125,000
6 1/2% due April 15, 2000.......................... 230,000
6 3/8% due July 15, 2000........................... 100,000
7 1/2% due January 1, 2001......................... 100,000
7 3/8% due September 15, 2002...................... 200,000
----------
$1,060,000
==========
</TABLE>
C-42
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
Other long-term debt outstanding at December 31, 1997 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 $ 7,978 Interest rate of 8.31%
Loan due January 1, 2004 8,951 Interest rate of 8.44%
----------
$ 16,929
----------
ComEd--
Notes:
Medium Term Notes, Series 1N
due various dates through
April 1, 1998 $ 35,500 Interest rates ranging from 9.52% to 9.65%
Medium Term Notes, Series 3N
due various dates through
October 15, 2004 296,000 Interest rates ranging from 9.00% to 9.20%
Notes due January 15, 2004 150,000 Interest rate of 7.375%
Notes due October 15, 2005 235,000 Interest rate of 6.40%
Notes due January 15, 2007 150,000 Interest rate of 7.625%
----------
$ 866,500
----------
Long-Term Note Payable to Bank
due June 1, 1998 $ 150,000 Prevailing interest rate of 6.53% at December 31, 1997
----------
Purchase Contract Obligation
due April 30, 2005 $ 389 Interest rate of 3.00%
----------
Total ComEd $1,016,889
----------
Unicom Enterprises--
Long-Term Note Payable to Bank
due November 15, 1999 $ 160,000 Prevailing interest rate of 6.95% at December 31, 1997
----------
Total Unicom $1,193,818
==========
</TABLE>
Long-term debt maturing within one year has been included in current
liabilities.
ComEd's outstanding first mortgage bonds are secured by a lien on
substantially all property and franchises, other than expressly excepted
property, owned by ComEd.
ComEd recorded an extraordinary loss of $33 million in the fourth quarter of
1995 related to the early redemption of $645 million of long-term debt which
resulted in a charge of $20 million, after reflecting income tax effects of
$13 million, or $0.09 per common share.
(13) LINES OF CREDIT
ComEd had total bank lines of credit of $766 million and unused bank lines
of credit of $758 million at December 31, 1997. Of that amount, $758 million
(of which $146 million expires on September 27, 1998, $27 million expires in
equal quarterly installments commencing on March 31, 1998 and ending on
September 30, 1998 and $585 million expires in equal quarterly installments
commencing on March 31, 1998 and ending on September 30, 1999) may be borrowed
on secured or unsecured notes of ComEd at various interest rates. The interest
rate is set at the time of a borrowing and is based on several floating rate
bank indices plus a spread, which is dependent upon the credit rating of
ComEd's outstanding first mortgage bonds or on a prime interest rate. Amounts
under the remaining lines of credit may be borrowed at prevailing prime
interest rates on unsecured
C-43
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
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
the unused portion of such lines of credit.
Unicom Enterprises has a $200 million credit facility which will expire on
November 15, 1999, of which $40 million was unused as of December 31, 1997.
The credit facility can be used by Unicom Enterprises to finance investments
in unregulated businesses and projects, including UT Holdings and Unicom
Energy Services, and for general corporate purposes. The credit facility is
guaranteed by Unicom and includes certain covenants with respect to Unicom 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.
Unicom Enterprises is obligated to pay commitment fees with respect to the
unused portion of such lines of credit.
(14) DISPOSAL OF SPENT NUCLEAR FUEL
Under the Nuclear Waste Policy Act of 1982, the DOE is responsible for the
selection and development of repositories for, and the disposal of, spent
nuclear fuel and high-level radioactive waste. ComEd, as required by that Act,
has signed a contract with the DOE to provide for the disposal of spent
nuclear fuel and high-level radioactive waste from ComEd's nuclear generating
stations beginning not later than January 1998. The DOE advised ComEd in
December 1996 that it anticipated it would be unable to begin acceptance of
spent nuclear fuel by January 1998. It is expected this delivery schedule will
be delayed significantly. Extended delays in spent nuclear fuel acceptance by
the DOE would lead to ComEd's consideration of costly storage alternatives.
The contract with the DOE requires ComEd to pay the DOE a one-time fee
applicable to nuclear generation through April 6, 1983 of $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
on the Consolidated Balance Sheets.
(15) 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 in
part 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
C-44
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
decommissioning funds, as determined by the trustee and based on published
market data, as of December 31, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------------- --------------------------------
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.. $ 33,524 $ 2 $ 33,526 $ 32,778 $ 38 $ 32,816
U.S. Government and
Agency issues.......... 170,240 15,882 186,122 251,994 6,885 258,879
Municipal bonds......... 306,104 20,598 326,702 331,936 17,985 349,921
Corporate bonds......... 231,738 4,293 236,031 22,405 (54) 22,351
Common stock............ 667,657 385,851 1,053,508 539,392 201,304 740,696
Other................... 17,300 2,508 19,808 47,462 4,235 51,697
---------- -------- ---------- ---------- -------- ----------
$1,426,563 $429,134 $1,855,697 $1,225,967 $230,393 $1,456,360
========== ======== ========== ========== ======== ==========
</TABLE>
At December 31, 1997, 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....................................... $ 33,699 $ 33,702
1 through 5 years................................... 162,558 166,427
5 through 10 years.................................. 219,201 232,508
Over 10 years....................................... 335,538 359,411
</TABLE>
The net earnings of the nuclear decommissioning funds, which are recorded as
increases to the accumulated provision for depreciation, for the years 1997,
1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Gross proceeds from sales of securities. $ 2,163,522 $ 2,335,974 $ 2,598,889
Less cost based on specific identifica-
tion................................... (2,088,300) (2,300,038) (2,581,714)
----------- ----------- -----------
Realized gains on sales of securities... $ 75,222 $ 35,936 $ 17,175
Other realized fund earnings net of
expenses............................... 39,123 33,008 46,294
----------- ----------- -----------
Total realized net earnings of the
funds.................................. $ 114,345 $ 68,944 $ 63,469
Unrealized gains ....................... 198,741 65,516 160,843
----------- ----------- -----------
Total net earnings of the funds........ $ 313,086 $ 134,460 $ 224,312
=========== =========== ===========
</TABLE>
Current Assets. Cash, temporary cash investments and other cash investments,
which include U.S. Government obligations and other short-term marketable
securities, and special deposits, which primarily includes cash deposited for
the redemption, refund or discharge of debt securities, are stated at cost,
which approximates their fair value because of the short maturity of these
instruments. The securities included in these categories have been classified
as "available for sale" securities.
Capitalization. The estimated fair values of ComEd preferred and preference
stocks, ComEd-obligated mandatorily redeemable preferred securities of the
Trusts 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, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------------- --------------------------------
CARRYING UNREALIZED CARRYING UNREALIZED
VALUE LOSSES FAIR VALUE VALUE LOSSES FAIR VALUE
---------- ---------- ---------- ---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
ComEd preferred and
preference stocks.... $ 712,069 $ 11,970 $ 724,039 $ 755,931 $ 3,948 $ 759,879
ComEd-obligated
mandatorily
redeemable preferred
securities of the
Trusts holding solely
ComEd's subordinated
debt securities...... $ 350,000 $ 21,701 $ 371,701 $ 200,000 $ 1,000 $ 201,000
Long-term debt........ $5,913,942 $380,890 $6,294,832 $6,345,533 $159,818 $6,505,351
</TABLE>
C-45
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
Long-term notes payable, which are not included in the above table, amounted
to $327 million and $264 million at December 31, 1997 and 1996, respectively.
Such notes, for which interest is paid at fixed and prevailing rates, are
included in the consolidated financial statements at cost, which approximates
their fair value.
Current Liabilities. The carrying value of notes payable, which consists of
commercial paper and bank loans maturing within one year, approximates the
fair value because of the short maturity of these instruments. See
"Capitalization" above for a discussion of the fair value of the current
portions of long-term debt and redeemable preference stock.
Other Noncurrent Liabilities. The carrying value of accrued spent nuclear
fuel disposal fee and related interest represents the settlement value as of
December 31, 1997 and 1996; therefore, the carrying value is equal to the fair
value.
(16) PENSION BENEFITS
As of December 31, 1997, ComEd and the Indiana Company had qualified non-
contributory defined benefit pension plans which cover all regular employees.
Benefits under these plans reflect each employee's compensation, years of
service and age at retirement. During 1995, these plans were amended to more
closely base retirement benefits on final pay. Funding is based upon
actuarially determined contributions that take into account the amount
deductible for income tax purposes and the minimum contribution required under
the Employee Retirement Income Security Act of 1974, as amended. The December
31, 1997 and 1996 pension liabilities and related data were determined using
the January 1, 1997 actuarial valuation. Additionally, ComEd maintains a
nonqualified supplemental retirement plan which covers any excess pension
benefits that would be payable to management employees under the qualified
plan but which are limited by the Internal Revenue Code. On January 19, 1998,
the Indiana Company plan was merged into the ComEd pension plan as a result of
the sale of the Indiana Company's State Line Station.
The funded status of these plans, including the supplemental plan, at
December 31, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1997 1996
----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Actuarial present value of accumulated pension plan
benefits:
Vested benefit obligation.......................... $(3,472,000) $(3,075,000)
Nonvested benefit obligation....................... (140,000) (118,000)
----------- -----------
Accumulated benefit obligation..................... $(3,612,000) $(3,193,000)
Effect of projected future compensation levels..... (462,000) (386,000)
----------- -----------
Projected benefit obligation....................... $(4,074,000) $(3,579,000)
Fair value of plan assets, invested primarily in U.S.
Government, government-sponsored
corporation and agency securities, fixed income
funds, registered investment companies,
equity index funds and other equity and fixed income
funds .............................................. 3,706,000 3,281,000
----------- -----------
Plan assets less than projected benefit obligation... $ (368,000) $ (298,000)
Unrecognized prior service cost...................... (64,000) (69,000)
Unrecognized transition asset........................ (114,000) (130,000)
Unrecognized net loss................................ 132,000 113,000
----------- -----------
Accrued pension liability.......................... $ (414,000) $ (384,000)
=========== ===========
</TABLE>
The fair value of plan assets excludes $17 million held in grantor trust as
of December 31, 1997 for payment of benefits under the supplemental plan.
C-46
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
The assumed discount rate was 7.0% and 7.5% at December 31, 1997 and 1996,
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 projected unit credit actuarial cost
method and the following actuarial assumptions for the years 1997, 1996 and
1995:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Annual discount rate.......................................... 7.50% 7.50% 8.00%
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% 9.75% 9.75%
</TABLE>
The components of pension costs, portions of which were recorded as
components of construction costs, for the years 1997, 1996 and 1995 were as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Service cost............ $ 100,000 $ 93,000 $ 87,000
Interest cost on pro-
jected benefit obliga-
tion................... 261,000 247,000 226,000
Actual return on plan
assets................. (630,000) (421,000) (681,000)
Curtailment gain........ (5,000) -- --
Net amortization and
deferral............... 305,000 117,000 419,000
--------- --------- ---------
$ 31,000 $ 36,000 $ 51,000
========= ========= =========
</TABLE>
The curtailment gain for the year 1997 represents the recognition of prior
service costs, the transition asset and the decrease in the projected benefit
obligation related to the sale of State Line Station by the Indiana Company.
In addition, an employee savings and investment plan is available to
eligible employees of ComEd and certain of its and Unicom's subsidiaries.
Under the plan, each participating employee may contribute up to 20% of such
employee's base pay. The participating companies match the first 6% of such
contribution equal to 100% of the first 2% of contributed base salary, 70% of
the next 3% of contributed base salary and 25% of the next 1% of contributed
base salary. The participating companies' contributions were $33 million, $30
million and $25 million for the years 1997, 1996 and 1995, respectively.
(17) POSTRETIREMENT BENEFITS
ComEd and the Indiana Company provide certain postretirement health care,
dental care, vision care and life insurance for retirees and their dependents
and for the surviving dependents of eligible employees and retirees. The
employees become eligible for postretirement benefits when they reach age 55
with 10 years of service. The liability for postretirement benefits is funded
through trust funds based upon actuarially determined contributions that take
into account the amount deductible for income tax purposes. The plan is
contributory, funded jointly by the companies and the participating employees.
The December 31, 1997 and 1996 postretirement benefit liabilities and related
data were determined using the January 1, 1997 actuarial valuations.
Postretirement health care costs for the years 1997, 1996 and 1995 included
$8 million, $4 million and $25 million, respectively, related to voluntary
separation offers to certain employees of ComEd and the Indiana Company.
C-47
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
The funded status of the plan at December 31, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1997 1996
----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Actuarial present value of accumulated postretirement
benefit obligation:
Retirees............................................ $ (573,000) $ (558,000)
Active fully eligible participants.................. (28,000) (28,000)
Other participants.................................. (483,000) (449,000)
----------- -----------
Accumulated benefit obligation...................... $(1,084,000) $(1,035,000)
Fair value of plan assets, invested primarily in S&P
500 common stocks, registered investment companies
and U.S. Government, government agency, municipal
and listed corporate
obligations......................................... 768,000 665,000
----------- -----------
Plan assets less than accumulated postretirement
benefit obligation.................................. $ (316,000) $ (370,000)
Unrecognized transition obligation................... 345,000 370,000
Unrecognized prior service cost...................... 52,000 56,000
Unrecognized net gain................................ (406,000) (323,000)
----------- -----------
Accrued liability for postretirement benefits....... $ (325,000) $ (267,000)
=========== ===========
</TABLE>
Different health care cost trends are used for pre-Medicare and post-
Medicare expenses. The pre-Medicare trend rates were 8.5% and 9.0% at December
31, 1997 and 1996, respectively, grading down in 0.5% annual increments and
leveling off at 5.0%. The post-Medicare trend rates were 6.5% and 7.0% at
December 31, 1997 and 1996, respectively, grading down in 0.5% annual
increments to 5.0%. The assumed discount rates were 7.0% and 7.5% at December
31, 1997 and 1996, respectively, which were used to determine the accumulated
benefit obligations. The effect of a 1% increase in the health care cost trend
rate for each future year would increase the accumulated postretirement health
care obligations by approximately $187 million.
The components of postretirement health care costs, portions of which were
recorded as components of construction costs, for the years 1997, 1996 and
1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Service cost............................. $ 34,000 $ 32,000 $ 31,000
Interest cost on accumulated benefit
obligation.............................. 76,000 73,000 69,000
Actual return on plan assets............. (130,000) (83,000) (137,000)
Amortization of transition obligation.... 22,000 22,000 23,000
Severance plan cost...................... 8,000 4,000 25,000
Other.................................... 60,000 22,000 83,000
--------- -------- ---------
$ 70,000 $ 70,000 $ 94,000
========= ======== =========
</TABLE>
Postretirement benefit costs were determined using the projected unit credit
actuarial cost method. The discount rates used were 7.5% for the years 1997
and 1996 and 8.0% for the year 1995 and the estimated long-term rate of return
of fund assets, net of income tax effects, were 9.40%, 9.38% and 9.32% for the
years 1997, 1996 and 1995, respectively. Pre-Medicare health care cost trend
rates were 13.5% for the first three months of 1995 and 10% for the remainder
of the year, grading down in 0.5% annual increments to 5.0%. Post-Medicare
health care cost trend rates were 11% for the first three months of 1995 and
8% for the remainder of the year, grading down in 0.5% annual increments to
5.0%. The effect of a 1% increase in the health care cost trend rate for each
future year would increase the aggregate of the service and interest cost
components of postretirement benefit costs by approximately $21 million for
1997.
C-48
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(18) SEPARATION PLAN COSTS
O&M expenses included $39 million, $12 million and $97 million for the years
1997, 1996 and 1995, respectively, for costs related to voluntary separation
offers to certain employees of ComEd and the Indiana Company. Such costs
resulted in charges of $24 million (after-tax) or $0.11 per common share, $7
million (after-tax) or $0.03 per common share and $59 million (after-tax) or
$0.27 per common share for the years 1997, 1996 and 1995, respectively.
(19) INCOME TAXES
The components of the net deferred income tax liability at December 31, 1997
and 1996 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1997 1996
---------- ----------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Deferred income tax liabilities:
Accelerated cost recovery and liberalized deprecia-
tion, net of removal costs........................... $4,062,801 $3,514,300
Overheads capitalized................................. 131,509 261,437
Repair allowance...................................... 231,697 228,426
Regulatory assets recoverable through future rates.... 785,354 1,649,037
Deferred income tax assets:
Postretirement benefits............................... (305,242) (269,180)
Unbilled revenues..................................... -- (136,406)
Alternative minimum tax............................... -- (80,159)
Unamortized investment tax credits.................... (206,112) (225,360)
Regulatory liabilities to be settled through future
rates................................................ (698,750) (442,941)
Nuclear plant closure................................. (194,244) --
Other--net............................................ (136,258) (45,071)
---------- ----------
Net deferred income tax liability...................... $3,670,755 $4,454,083
========== ==========
</TABLE>
The $783 million decrease in the net deferred income tax liability from
December 31, 1996 to December 31, 1997 is comprised of $370 million of
deferred income tax benefits reflected in operations, a $315 million decrease
for an adjustment associated with the write-off of the generation-related net
regulatory assets and a $98 million decrease in other 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.
The components of net income tax expense charged to continuing operations
for the years 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Operating income:
Current income taxes.......................... $ 255,277 $328,369 $339,989
Deferred income taxes......................... 62,501 161,176 186,529
Investment tax credits deferred--net.......... (31,015) (33,378) (28,710)
Other (income) and deductions, primarily
deferred income taxes in 1997................. (407,624) (7,385) (7,685)
--------- -------- --------
Net income taxes charged (credited) to
continuing operations......................... $(120,861) $448,782 $490,123
========= ======== ========
</TABLE>
C-49
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
Provisions for current and deferred federal and state income taxes and
amortization of investment tax credits resulted in the following effective
income tax rates for the years 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Net income (loss) before extraordinary items
and cumulative effect of change in
accounting principle....................... $(239,215) $ 666,100 $ 659,533
Net income taxes charged (credited) to
continuing operations...................... (120,861) 448,782 490,123
Provision for dividends on ComEd preferred
and preference stocks...................... 60,486 64,424 69,961
--------- ---------- ----------
Pre-tax income (loss) before extraordinary
items, cumulative effect and provision for
dividends.................................. $(299,590) $1,179,306 $1,219,617
========= ========== ==========
Effective income tax rate................... 40.3% 38.1% 40.2%
========= ========== ==========
</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 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Federal income taxes computed at statutory rate. $(104,857) $412,757 $426,866
Equity component of AFUDC which was excluded
from taxable income............................ (8,320) (7,272) (4,595)
Amortization of investment tax credits.......... (53,541) (33,378) (28,710)
State income taxes, net of federal income taxes. (682) 58,387 65,972
Differences between book and tax accounting,
primarily property-related deductions.......... 51,465 14,150 27,534
Other--net...................................... (4,926) 4,138 3,056
--------- -------- --------
Net income taxes charged (credited) to
continuing operations.......................... $(120,861) $448,782 $490,123
========= ======== ========
</TABLE>
The effects of an income tax refund related to prior years were recorded in
1996, resulting in a positive impact of $26 million (after-tax) or $0.12 per
common share.
(20) TAXES, EXCEPT INCOME TAXES
Provisions for taxes, except income taxes, for the years 1997, 1996 and 1995
were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Illinois public utility revenue............... $228,350 $227,062 $229,546
Illinois invested capital..................... 99,503 104,663 106,830
Municipal utility gross receipts.............. 168,094 168,715 167,758
Real estate................................... 151,508 129,770 176,454
Municipal compensation........................ 78,286 78,544 78,602
Other--net.................................... 75,145 74,777 74,107
-------- -------- --------
$800,886 $783,531 $833,297
======== ======== ========
</TABLE>
ComEd's real estate taxes in 1996 reflect a credit of $23 million which
related to the year 1995.
(21) 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/bank borrowings and $400
million of intermediate term notes, to finance the transactions. The
C-50
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
commercial paper/bank borrowing portion of $300 million will expire on
November 23, 1999. With respect to the intermediate term notes, $74 million
expires on November 23, 1998, and an additional portion each November 23
thereafter through November 23, 2003. At December 31, 1997, ComEd's obligation
to the lessor for leased nuclear fuel amounted to approximately $679 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, 1997
for capital leases are estimated to aggregate $789 million, including $268
million in 1998, $167 million in 1999, $125 million in 2000, $81 million in
2001, $57 million in 2002 and $91 million in 2003-2043. The estimated interest
component of such rental payments aggregates $112 million. The estimated
portions of obligations due within one year under capital leases of $114
million and $174 million at December 31, 1997 and 1996, respectively, are
included in current liabilities on the Consolidated Balance Sheets.
Future minimum rental payments at December 31, 1997 for operating leases are
estimated to aggregate $186 million, including $22 million in 1998, $20
million in 1999, $16 million in 2000, $15 million in 2001, $11 million in 2002
and $102 million in 2003-2024.
(22) 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 and O&M accounts, and provides its own
financing. At December 31, 1997, for its share of ownership in the station,
ComEd had an investment of $669 million in production and transmission plant
in service (before a reduction of $209 million for the related accumulated
provision for depreciation) and $8 million in construction work in progress.
(23) COMMITMENTS AND CONTINGENT LIABILITIES
Purchase commitments, principally related to construction and nuclear fuel,
approximated $304 million at December 31, 1997, comprised of $286 million for
ComEd, $11 million for UT Holdings and $7 million for Unicom Energy Services.
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 was a member of NML, established to provide insurance coverage against
property damage to members' nuclear generating facilities. NML has merged into
NEIL as of January 1, 1998. ComEd's obligations and coverages have not been
affected by the merger. 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 $51 million in any policy year, in the event losses exceed
accumulated reserve funds.
C-51
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
ComEd 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 $22 million and $70
million in the event losses exceed accumulated reserve funds under the
replacement power and property damage coverages, respectively.
The NRC's indemnity for public liability coverage under the Price-Anderson
Act is supported by a mandatory industry-wide program under which owners of
nuclear generating facilities could be assessed in the event of nuclear
incidents. Based on the number of nuclear reactors with operating licenses,
ComEd would currently be subject to a maximum assessment of $1,030 million in
the event of an incident, limited to a maximum of $130 million in any calendar
year.
In addition, ComEd participates in the American Nuclear Insurers Master
Worker Program, which provides coverage for worker tort claims filed for
bodily injury caused by the nuclear energy hazard. This program was modified,
effective January 1, 1998, to provide coverage to all workers whose "nuclear
related employment" began on or after the commencement date of reactor
operations. ComEd will not be liable for a retrospective assessment under this
new policy. However, ComEd is still subject to a maximum retroactive assesment
of up to $36 million in the event losses incurred under the small number of
policies in the old program exceed accumulated reserves.
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 1994, a federal jury returned nominal dollar verdicts on 8
bellwether plaintiffs' claims in these cases, which verdicts were upheld on
appeal. The remaining claims in the 1989 actions have been settled and
dismissed. Although the remaining cases will necessarily involve the
resolution of numerous contested issues of fact and law, Unicom and ComEd's
determination is that these actions will not have a material impact on their
financial position or results of operations. A case relating to 14 of the
plaintiffs in the 1991 cases has been set for trial in June 1998.
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.
Approximately half of these sites were transferred to Northern Illinois Gas
Company as part of a general conveyance in 1954. ComEd also acquired former
MGP sites as vacant real estate on which ComEd facilities have been
constructed. To date, ComEd has identified 44 former MGP sites for which it
may be liable for remediation. ComEd presently estimates that its costs of
former MGP site investigation and remediation will aggregate from $25
C-52
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
million to $150 million in current-year (1998) dollars. It is expected that
the costs associated with investigation and remediation of former MGP sites
will be incurred over a period not to exceed 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 $25 million has been
included in other noncurrent liabilities on the Consolidated Balance Sheets as
of December 31, 1997 and 1996, which reflects the low end of the range of
ComEd's estimate of the liability associated with former MGP sites. In
addition, as of December 31, 1997 and 1996, a reserve of $8 million has been
included in other noncurrent liabilities on the Consolidated Balance Sheets,
representing ComEd's estimate of the liability associated with cleanup costs
of remediation sites other than former MGP sites. Approximately half of this
reserve relates to anticipated cleanup costs associated with a property
formerly used as a tannery which was purchased by ComEd in 1973. Unicom and
ComEd presently estimate that ComEd's costs of investigating and remediating
the former MGP and other remediation sites, pursuant to CERCLA and state
environmental laws, will not have a material impact on the financial position
or results of operations of Unicom or ComEd. These cost estimates are based on
currently available information regarding the responsible parties likely to
share in the costs of responding to site contamination, the extent of
contamination at sites for which the investigation has not yet been completed
and the cleanup levels to which sites are expected to have to be remediated.
Final ICC orders have been issued in fuel reconciliation proceedings for
years prior to 1994 and for the year 1995. In 1996, an intervenor filed
testimony in the fuel reconciliation proceeding for 1994 seeking a refund of
approximately $90 million relating to nuclear station performance. The 1997
Act provides that the fuel reconciliation proceedings for 1994 and 1996 must
be concluded by the end of 1998. If refunds are required in these proceedings,
the refunds could have a material effect on results of operations. The 1997
Act also provides that, because ComEd eliminated its FAC effective January 1,
1997, the ICC shall not conduct a fuel reconciliation proceeding for the year
1997 and subsequent years. See Note 2 for information regarding the
elimination of ComEd's FAC.
C-53
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONCLUDED
(24) QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
AVERAGE EARNINGS/
NUMBER OF (LOSS)
THREE MONTHS ENDED (1997 NET COMMON PER
RESTATED FOR CHANGE OPERATING OPERATING INCOME/ SHARES COMMON
IN ACCOUNTING PRINCIPLE) REVENUES INCOME (LOSS) OUTSTANDING SHARE
- ------------------------ ---------- --------- ----------- ----------- ---------
(THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
March 31, 1997.......... $1,670,722 $214,912 $ 262,370 216,053 $ 1.21
June 30, 1997........... $1,686,422 $153,128 $ 5,494 216,368 $ 0.03
September 30, 1997...... $2,070,912 $387,283 $ 240,332 216,409 $ 1.11
December 31, 1997....... $1,654,966 $157,080 $(1,361,046) 216,489 $(6.29)
March 31, 1996.......... $1,683,929 $297,526 $ 136,932 215,248 $ 0.64
June 30, 1996........... $1,547,913 $253,086 $ 100,313 215,438 $ 0.47
September 30, 1996...... $2,067,901 $474,894 $ 334,980 215,568 $ 1.55
December 31, 1996....... $1,637,281 $237,802 $ 93,875 215,747 $ 0.44
<CAPTION>
AVERAGE EARNINGS/
NUMBER OF (LOSS)
NET COMMON PER
THREE MONTHS ENDED PRO OPERATING OPERATING INCOME/ SHARES COMMON
FORMA (UNAUDITED)(A) REVENUES INCOME (LOSS) OUTSTANDING SHARE
- ---------------------- ---------- --------- ----------- ----------- ---------
(THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
March 31, 1997.......... $1,670,722 $214,912 $ 65,670 216,053 $ 0.30
June 30, 1997........... $1,686,422 $153,128 $ 5,494 216,368 $ 0.03
September 30, 1997...... $2,070,912 $387,283 $ 240,332 216,409 $ 1.11
December 31, 1997....... $1,654,966 $157,080 $(1,361,046) 216,489 $(6.29)
March 31, 1996.......... $1,636,512 $271,259 $ 110,665 215,248 $ 0.51
June 30, 1996........... $1,599,877 $283,266 $ 130,493 215,438 $ 0.61
September 30, 1996...... $2,045,719 $462,005 $ 322,091 215,568 $ 1.49
December 31, 1996....... $1,709,447 $278,908 $ 134,981 215,747 $ 0.63
</TABLE>
(a) Pro forma quarterly financial information as if the change in accounting
principle had been applied retroactively, excluding the cumulative effect
of a change in accounting principle.
C-54
<PAGE>
[X] Please mark your 9500
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 LISTED ON THE REVERSE SIDE AND FOR ITEMS B, C AND D.
- --------------------------------------------------------------------------------
FOR WITHHELD
A. Election of
Directors [_] [_]
(See Reverse)
For, except vote withheld from the following nominee(s):
- ----------------------
FOR AGAINST ABSTAIN
B. Additional shares
for the Long-Term [_] [_] [_]
Incentive Plan
FOR AGAINST ABSTAIN
C. Additional shares for
the Employee Stock [_] [_] [_]
Purchase Plan
D. 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:
We invite you to attend the annual meeting of shareholders of Unicom
Corporation which will be held at 10:30 A.M. (local time), on Thursday, May 28,
1998 in the Wallingford Center of the Clock Tower Resort & Conference Center,
7801 E. State Street, Rockford, Illinois. Unicom is the corporate parent of
Commonwealth Edison Company (ComEd) and other subsidiary companies.
The enclosed Proxy Statement describes several items of business to be
considered. 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 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. You may revoke it by sending a
written notice to David A. Scholz, Secretary, Unicom, by signing and delivering
a more recent proxy or by attending the meeting and voting in person.
Sincerely,
/s/ John W. Rowe
John W. Rowe
Chairman, President
And Chief Executive Officer
<PAGE>
PROXY
Unicom Corporation PROXY
[UNICOM LOGO] One First National Plaza
P.O. Box A-3005
Chicago, Illinois 60690-3005
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
UNICOM CORPORATION FOR THE
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 28, 1998.
The undersigned appoints Pamela B. Strobel and David A. Scholz, or either
of them, as Proxies, each with the power to appoint his or her 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 28, 1998, 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.
Your instructions for the election of Directors may be indicated on the
other side. The nominees are - Brennan, Compton, DeMars, Gin, Jacobs, Jannotta,
Johnson and Rowe.
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
------------
- --------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
