UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
January 13, 2000
(Date of earliest
event reported)
PECO ENERGY COMPANY
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 1-1401 23-0970240
(State or other (Commission (IRS Employer
jurisdiction of file number) Identification
incorporation) Number)
230l Market Street, Philadelphia, Pennsylvania 19101
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(215) 841-4000
Item 5. Other Events
Amended Merger Agreement. On September 23, 1999, Unicom Corporation
("Unicom") and PECO Energy Company ("PECO"), issued a joint press release
announcing that they, along with a wholly owned subsidiary of PECO ("Exelon"),
had entered into an Agreement and Plan of Exchange and Merger, dated as of
September 22, 1999 (the "Merger Agreement"). On January 7, 2000, the Agreement
and Plan of Exchange and Merger was amended and restated (the "Amended Merger
Agreement") to: (a) accelerate approximately $1.5 billion of common stock
repurchases of which Unicom intends to repurchase approximately $1.0 billion
(in addition to the 26.3 million shares of Unicom common stock that Unicom
expects to repurchase no later than February 2000 under certain forward
purchase contracts), and PECO intends to repurchase approximately $500 million
(in addition to the 44.0 million shares of PECO common stock that was
purchased in 1999 with proceeds from its 1999 securitization of stranded
costs) and (b) amend the consideration Unicom common shareholders will receive
in the merger to consist of 0.875 shares of Exelon common stock plus $3.00 in
cash per share of Unicom common stock. The dual cash election available to
PECO and Unicom shareholders has been eliminated. The above description of the
Amended Merger Agreement does not purport to be complete and is qualified in
its entirety by reference to the provisions of the Amended Merger Agreement
which is being filed with the Securities and Exchange Commission as an exhibit
to this Current Report on Form 8-K.
PECO is filing this Form 8-K to provide additional information about the
transactions contemplated by the Amended Merger Agreement before PECO
commences repurchases of shares of its common stock. Nothing contained herein
shall be considered a solicitation of any proxy to approve such transactions.
PECO expects that it will commence share repurchases following the filing
hereof and will continue purchasing shares from time to time on the open
market or through negotiated purchases.
Item 7. Financial Statements and Exhibits
(b) Pro Forma Financial Information
Unaudited Pro Forma Combined Condensed Financial Statements. The following
unaudited pro forma combined condensed financial statements have been prepared
to reflect the acquisition of Unicom by PECO under the purchase method of
accounting. The historical consolidated financial statements of Unicom have
been adjusted to give effect to the sale of ComEd's fossil generating plants
and the annualized effects of Unicom's issuance of securitization notes and
related use of proceeds ("Unicom Pro Forma Adjustments"). ComEd completed the
sale of its fossil generating plants during the fourth quarter of 1999. The
historical consolidated financial statements of PECO have been adjusted to
give effect to its use of the remaining proceeds from its securitization of
stranded costs ("PECO Pro Forma Adjustments"). The unaudited pro forma
financial statements do not give effect to the estimated cost savings and
revenue enhancements as a result of the merger or the costs to achieve such
savings and revenue enhancements or one-time merger-related costs. The Unicom
and PECO Pro Forma Adjustments and the merger are reflected in the unaudited
combined condensed pro forma balance sheets as if they occurred on September
30, 1999. The unaudited pro forma combined condensed statements of income for
the nine months ended September 30, 1999 and for the year ended December 31,
1998 assume that these transactions were completed on January 1, 1998.
The unaudited pro forma combined condensed financial statements do not
reflect potential adjustments to Unicom's assets and liabilities to reflect
fair value, as will be required upon consummation of the merger under purchase
accounting. Such adjustments to the book value of assets and liabilities could
be significant, particularly with respect to Unicom's nuclear generating
stations. The fair value of the nuclear generating stations is expected to be
determined considering, among other things, independent appraisals or expected
cash flows. To the extent the fair value of Unicom's nuclear generating
stations is ultimately determined to be less than the September 30, 1999 book
value of $6.9 billion, additional goodwill and/or an identifiable intangible
asset will be recorded.
2
The following unaudited pro forma financial statements should be read in
conjunction with the consolidated historical financial statements and related
notes of PECO and Unicom, which are included in their respective Annual Report
on Form 10-K for the year ended December 31, 1998 and Quarterly Reports on
Form 10-Q for the quarter ended September 30, 1999. PECO has provided all the
information included in this Form 8-K regarding PECO and its subsidiaries.
Unicom has provided all the information included in this Form 8-K regarding
Unicom and its subsidiaries. Neither PECO nor Unicom assumes any
responsibility for the accuracy or completeness of the information provided by
the other party.
The following unaudited pro forma financial statements are for illustrative
purposes only. They are not necessarily indicative of the financial position
or operating results that would have occurred had these transactions been
completed on January 1, 1998 or September 30, 1999, as assumed above; nor is
the information necessarily indicative of future financial position or
operating results.
Results of operations and financial position in the first year after
consummation could differ significantly from the unaudited pro forma combined
condensed financial statements, which are based on past operations.
Future operations will be affected by various factors including operating
performance, energy market developments, and other matters.
The historical financial statements of PECO included in the accompanying
pro forma combined condensed financial statements for the nine months ended
September 30, 1999 are unaudited. The December 31, 1998 historical financial
statements of PECO and Unicom and the September 30, 1999 historical financial
statements of Unicom were derived from audited financial statements but do not
include all disclosures required by GAAP.
Forward-looking statements. Except for historical data, the information
contained in this Form 8-K constitutes forward-looking statements. Forward-
looking statements are inherently uncertain and subject to risks and the
statements should be viewed with caution. Actual results or experience could
differ materially from the forward-looking statements as a result of many
factors, including without limitation, those factors discussed below or
elsewhere in this Form 8-K.
The forward-looking statements in this Form 8-K include the statements
regarding the estimated number of shares of Unicom common stock to be
purchased by Unicom under the terms of the Amended Merger Agreement; the
estimated number of shares of PECO common stock expected to be purchased under
the terms of the Amended Merger Agreement; the expected source of funds
necessary to provide the cash consideration in the merger and to acquire
Unicom and PECO common stock prior to the closing of the merger.
These forward-looking statements are subject to numerous assumptions, risks
and uncertainties. Factors that may cause actual results to differ from those
indicated by such forward-looking statements include, among others, the
following:
. The fact that these forward-looking statements are based on information
of a preliminary nature which may be subject to further and continuing
review and adjustment,
. The risk of legislative, regulatory or other governmental action seeking
to impose additional restrictions on the operations of Unicom or PECO or
Exelon or to increase the burden of necessary regulatory approvals for
the merger, or the imposition of unfavorable terms as a condition of
approval of the merger,
. The risk of a significant delay in the expected completion of, and
unexpected consequences resulting from the merger, including the
inability to close the transaction or unexpected difficulties in
integrating the operations of the two companies,
. Changes in the number of shares of outstanding common stock of Unicom and
PECO for reasons not foreseen at the date hereof,
3
. Changes in the amount of proceeds received by the companies from asset
sales, securitization transactions or other factors affecting the amount
and timing of receipt of available funds to provide the cash
consideration for the merger or share repurchases,
. Future state and federal regulatory and/or legislative initiatives,
. The development of competition in the utility industry, including;
legislative and regulatory restructuring initiatives, industry
restructuring initiatives, transmission system operation, recovery of
investments made under traditional regulation, nature of competitors
entering the industry, retail wheeling, new pricing structures and former
customers entering the generation market,
. Economic conditions, including inflation rates, generally and in the
markets served by PECO and Unicom,
. Trade, monetary, fiscal, taxation and environmental policies of
governments, agencies and similar organizations in geographic areas where
PECO or Unicom has a financial interest,
. Financial or regulatory accounting principles or policies imposed by the
Financial Accounting Standards Board, the Securities and Exchange
Commission, the Federal Energy Regulatory Commission, the Nuclear
Regulatory Commission and similar agencies with regulatory oversight,
. Factors affecting utility and nonutility operations such as unusual
weather conditions, catastrophic weather-related damage, unscheduled
generation outages, maintenance or repairs, unanticipated changes to
fossil fuel, nuclear fuel or gas supply costs or availability due to
higher demand, shortages, transportation problems or other developments,
nuclear or environmental incidents, or electric transmission or gas
pipeline system constraints, all of which may affect revenues and
margins,
. Employee workforce factors, including loss or retirement of key
executives, collective bargaining agreements with union employees, union
organizing activities or work stoppages,
. Nuclear plant operating risks and nuclear regulatory policies and
procedures, including nuclear decommissioning costs and related funding
requirements, operating regulations and spent nuclear fuel storage,
. Cost and other effects of legal and administrative proceedings,
settlements, investigations and claims,
. Technology developments resulting in competitive disadvantages and
creating the potential for impairment of existing assets,
. Factors associated with unregulated investments, including government
actions, economic risks, partnership actions, competition, operating
risks, dependence on certain suppliers and customers, and environmental
and energy regulations, and
. Changes in the number of shares of common stock of Unicom and PECO that
will be repurchased prior to completion of the merger caused by changing
market prices for those shares or other factors.
Unicom and PECO make no commitment to disclose any revisions to the
forward-looking statements, or any facts, events or circumstances after the
date hereof that may bear upon the forward-looking statements.
4
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
(Millions Except Per Share Data)
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
PECO PECO
PECO Securitization Prior to
As ProForma Merger
Filed Adjustments(1) ProForma
------ -------------- --------
Operating Revenues
Electric..................................... $3,826 $ -- $3,826
Gas.......................................... 357 -- 357
------ ----- ------
Total Operating Revenues................... $4,183 $ -- $4,183
------ ----- ------
Operating Expenses
Fuel and Energy Interchange.................. $1,739 $ -- $1,739
Operation and Maintenance.................... 964 -- 964
Depreciation and Amortization................ 171 -- 171
Taxes Other Than Income Taxes................ 196 -- 196
------ ----- ------
Total Operating Expenses................... $3,070 $ -- $3,070
------ ----- ------
Operating Income............................... $1,113 $ -- $1,113
------ ----- ------
Other Income and Deductions
Interest Expense............................. $ (296) $ (17) $ (313)
Other, net................................... (69) 12 (57)
------ ----- ------
Total Other Income and Deductions.......... $ (365) $ (5) $ (370)
------ ----- ------
Income Before Income Taxes and Extraordinary
Item.......................................... $ 748 $ (5) $ 743
Income Tax Expense............................. 278 (2) 276
------ ----- ------
Income Before Extraordinary Item............... $ 470 $ (3) $ 467
====== ===== ======
Preferred Stock Dividends...................... $ 10 $ (2) $ 8
====== ===== ======
Income Before Extraordinary Item per Share..... $ 2.30
======
Income Before Extraordinary Item per Share-
Diluted....................................... $ 2.28
======
Average Basic Shares Outstanding............... 200.5
======
Average Diluted Shares Outstanding............. 202.0
======
5
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
(Millions Except Per Share Data)
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
UNICOM UNICOM UNICOM
UNICOM Fossil Sale Securitization Prior to
As ProForma ProForma Merger
Filed Adjustments(3) Adjustments(4) ProForma
------ -------------- -------------- --------
Operating Revenues
Electric...................... $5,308 $ -- $-- $5,308
------ ----- ---- ------
Total Operating Revenues.... $5,308 $ -- $-- $5,308
------ ----- ---- ------
Operating Expenses
Fuel and Energy Interchange... $1,216 $ 258 $-- $1,474
Operation and Maintenance..... 1,788 (183) -- 1,605
Depreciation and Amortization. 700 (57) 43 686
Taxes Other Than Income Taxes. 407 (14) -- 393
------ ----- ---- ------
Total Operating Expenses.... $4,111 $ 4 $ 43 $4,158
------ ----- ---- ------
Operating Income................ $1,197 $ (4) $(43) $1,150
------ ----- ---- ------
Other Income and Deductions
Interest Expense.............. $ (426) $ -- $ 24 $ (402)
Preferred and Preference Stock
Dividends.................... (42) -- 10 (32)
Other, net.................... 52 -- 3 55
------ ----- ---- ------
Total Other Income and
Deductions................. $ (416) $ -- $ 37 $ (379)
------ ----- ---- ------
Income Before Income Taxes and
Extraordinary Item............. $ 781 $ (4) $ (6) $ 771
Income Tax Expense.............. 285 -- (6) 279
------ ----- ---- ------
Income Before Extraordinary
Item........................... $ 496 $ (4) $-- $ 492
====== ===== ==== ======
Income Before Extraordinary Item
per Share...................... $ 2.29
======
Income Before Extraordinary Item
per Share--Diluted............. $ 2.28
======
Average Basic Shares
Outstanding.................... 217.2
======
Average Diluted Shares
Outstanding.................... 218.1
======
6
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(Millions Except Per Share Data)
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
PECO UNICOM
Prior to Prior to Merger
Merger Merger ProForma Exelon
ProForma ProForma Adjustments ProForma
-------- -------- ----------- --------
Operating Revenues
Electric........................... $3,826 $5,308 $(47)(8) $9,087
Gas................................ 357 -- -- 357
------ ------ ---- ------
Total Operating Revenues......... $4,183 $5,308 $(47) $9,444
------ ------ ---- ------
Operating Expenses
Fuel and Energy Interchange........ $1,739 $1,474 $(47)(8) $3,166
Operation and Maintenance.......... 964 1,605 -- 2,569
Depreciation and Amortization...... 171 686 (43)(7) 814
Goodwill Amortization.............. -- -- 46 (9) 46
Taxes Other Than Income Taxes...... 196 393 -- 589
------ ------ ---- ------
Total Operating Expenses......... $3,070 $4,158 $(44) $7,184
------ ------ ---- ------
Operating Income..................... $1,113 $1,150 $ (3) $2,260
------ ------ ---- ------
Other Income and Deductions
Interest Expense................... $ (313) $ (402) $(27)(11) $ (742)
Preferred and Preference Stock
Dividends......................... -- (32) (15)(10) (47)
Other, net......................... (57) 55 $ 7 (10) 5
------ ------ ---- ------
Total Other Income and
Deductions...................... $ (370) $ (379) $(35) $ (784)
------ ------ ---- ------
Income Before Income Taxes and
Extraordinary Item.................. $ 743 $ 771 $(38) $1,476
Income Tax Expense................... 276 279 6 561
------ ------ ---- ------
Income Before Extraordinary Item..... $ 467 $ 492 $(44) $ 915
====== ====== ==== ======
Preferred Stock Dividends............ $ 8 $ -- $ (8)(10) $ --
====== ====== ==== ======
Income Before Extraordinary Item per
Share............................... $ 2.92
======
Income Before Extraordinary Item per
Share--Diluted...................... $ 2.90
======
Average Basic Shares Outstanding..... 313.5(6)
======
Average Diluted Shares Outstanding... 315.9
======
7
UNAUDITED PROFORMA CONDENSED STATEMENT OF INCOME
(Millions Except Per Share Data)
FOR THE YEAR ENDED DECEMBER 31, 1998
PECO PECO
PECO Securitization Prior to
As ProForma Merger
Filed Adjustments(1) ProForma
------ -------------- --------
Operating Revenues
Electric..................................... $4,811 $ -- $4,811
Gas.......................................... 399 -- 399
------ ----- ------
Total Operating Revenues................... $5,210 $ -- $5,210
------ ----- ------
Operating Expenses
Fuel and Energy Interchange.................. $1,752 $ -- $1,752
Operation and Maintenance.................... 1,253 -- 1,253
Depreciation and Amortization................ 643 -- 643
Taxes Other Than Income Taxes................ 279 -- 279
------ ----- ------
Total Operating Expenses................... $3,927 $ -- $3,927
------ ----- ------
Operating Income............................... $1,283 $ -- $1,283
------ ----- ------
Other Income and Deductions
Interest Expense............................. $ (331) $(108) $ (439)
Other, net................................... (100) 20 (80)
------ ----- ------
Total Other Income and Deductions.......... $ (431) $ (88) $ (519)
------ ----- ------
Income Before Income Taxes and Extraordinary
Item.......................................... $ 852 $ (88) $ 764
Income Tax Expense............................. 320 (35) 285
------ ----- ------
Income Before Extraordinary Item............... $ 532 $ (53) $ 479
====== ===== ======
Preferred Stock Dividends...................... $ 13 $ (2) $ 11
====== ===== ======
Income Before Extraordinary Item per Share..... $ 2.33
======
Income Before Extraordinary Item per Share--
Diluted....................................... $ 2.32
======
Average Basic Shares Outstanding............... 223.2
======
Average Diluted Shares Outstanding............. 223.9
======
8
UNAUDITED PROFORMA CONDENSED STATEMENT OF INCOME
(Millions Except Per Share Data)
FOR THE YEAR ENDED DECEMBER 31, 1998
UNICOM UNICOM
UNICOM UNICOM Fossil Securitization Prior to
As Sale ProForma ProForma Merger
Filed Adjustments(3) Adjustments(4) ProForma
------ -------------- -------------- --------
Operating Revenues
Electric...................... $7,151 $ -- $-- $7,151
------ ----- ---- ------
Total Operating Revenues.... $7,151 $ -- $-- $7,151
------ ----- ---- ------
Operating Expenses
Fuel and Energy Interchange... $1,888 $ 168 $-- $2,056
Operation and Maintenance..... 2,286 (254) -- 2,032
Depreciation and Amortization. 943 148 8 1,099
Taxes Other Than Income Taxes. 700 (21) -- 679
------ ----- ---- ------
Total Operating Expenses.... $5,817 $ 41 $ 8 $5,866
------ ----- ---- ------
Operating Income.............. $1,334 $ (41) $ (8) $1,285
------ ----- ---- ------
Other Income and Deductions
Interest Expense.............. $ (464) $ -- $(63) $ (527)
Preferred and Preference Stock
Dividends.................... (87) -- 74 (13)
Other, net.................... 49 -- 4 53
------ ----- ---- ------
Total Other Income and
Deductions................. $ (502) $ -- $ 15 $ (487)
------ ----- ---- ------
Income Before Income Taxes and
Extraordinary Item............. $ 832 $ (41) $ 7 $ 798
Income Tax Expense.............. 322 (41) (26) 255
------ ----- ---- ------
Income Before Extraordinary
Item........................... $ 510 $ -- $ 33 $ 543
====== ===== ==== ======
Income Before Extraordinary Item
per Share...................... $ 2.35
======
Income Before Extraordinary Item
per Share--Diluted............. $ 2.34
======
Average Basic Shares
Outstanding.................... 216.9
======
Average Diluted Shares
Outstanding.................... 217.7
======
9
UNAUDITED PROFORMA COMBINED CONDENSED STATEMENT OF INCOME
(Millions Except Per Share Data)
FOR THE YEAR ENDED DECEMBER 31, 1998
PECO UNICOM
Prior to Prior to Merger
Merger Merger ProForma Exelon
ProForma ProForma Adjustments ProForma
-------- -------- ----------- --------
Operating Revenues
Electric......................... $4,811 $7,151 $ (64)(8) $11,898
Gas.............................. 399 -- -- 399
------ ------ ----- -------
Total Operating Revenues....... $5,210 $7,151 $ (64) $12,297
------ ------ ----- -------
Operating Expenses
Fuel and Energy Interchange...... $1,752 $2,056 $ (64)(8) $ 3,744
Operation and Maintenance........ 1,253 2,032 -- 3,285
Depreciation and Amortization.... 643 1,099 (203)(7) 1,539
Goodwill Amortization............ -- -- 61 (9) 61
Taxes Other Than Income Taxes.... 279 679 -- 958
------ ------ ----- -------
Total Operating Expenses....... $3,927 $5,866 $(206) $ 9,587
------ ------ ----- -------
Operating Income................... $1,283 $1,285 $ 142 $ 2,710
------ ------ ----- -------
Other Income and Deductions
Interest Expense................. $ (439) $ (527) $ (36)(11) $(1,002)
Preferred and Preference Stock
Dividends....................... -- (13) (22)(10) (35)
Other, net....................... (80) 53 11 (10) (16)
------ ------ ----- -------
Total Other Income and
Deductions.................... $ (519) $ (487) $ (47) $(1,053)
------ ------ ----- -------
Income Before Income Taxes and
Extraordinary Item................ $ 764 $ 798 $ 95 $ 1,657
Income Tax Expense................. 285 255 66 606
------ ------ ----- -------
Income Before Extraordinary Item... $ 479 $ 543 $ 29 $ 1,051
====== ====== ===== =======
Preferred Stock Dividends.......... $ 11 $ -- $ (11)(10) $ --
====== ====== ===== =======
Income Before Extraordinary Item
per Share......................... $ 3.35
=======
Income Before Extraordinary Item
per Share--Diluted................ $ 3.34
=======
Average Basic Shares Outstanding... 313.5 (6)
=======
Average Diluted Shares Outstanding. 314.9
=======
10
UNAUDITED PROFORMA CONDENSED BALANCE SHEET
(In Millions)
AS OF SEPTEMBER 30, 1999
PECO PECO
Securitization Prior to
PECO As ProForma Merger
ASSETS Filed Adjustments(1) ProForma
------ ------- -------------- --------
Utility Plant
Plant.............................................. $ 7,623 $ -- $ 7,623
Accumulated Provision for Depreciation............. 3,063 -- 3,063
------- ----- -------
$ 4,560 $ -- $ 4,560
Nuclear Fuel, net.................................. 286 -- 286
------- ----- -------
$ 4,846 $ -- $ 4,846
------- ----- -------
Current Assets
Cash and Temporary Cash Investments................ $ 642 $(320) $ 322
Accounts Receivable, net........................... 632 -- 632
Inventories, at average cost....................... 181 -- 181
Other Current Assets............................... 71 -- 71
------- ----- -------
$ 1,526 $(320) $ 1,206
------- ----- -------
Deferred Debits and Other Assets
Regulatory Assets.................................. $ 6,056 $ -- $ 6,056
Investments and Other Property, net................ 605 -- 605
Other.............................................. 131 -- 131
------- ----- -------
$ 6,792 $ -- $ 6,792
------- ----- -------
TOTAL.......................................... $13,164 $(320) $12,844
======= ===== =======
CAPITALIZATION AND LIABILITIES
------------------------------
Capitalization
Common Stock Equity................................ $ 1,873 $(198) $ 1,675
Preferred and Preference Stock..................... 194 -- 194
Company Obligated Mandatorily Redeemable Preferred
Securities........................................ 128 -- 128
Long-Term Debt..................................... 6,051 -- 6,051
------- ----- -------
$ 8,246 $(198) $ 8,048
------- ----- -------
Current Liabilities
Notes Payable, Bank................................ $ 122 $(122) $ --
Accounts Payable................................... 373 -- 373
Other Current Liabilities.......................... 683 -- 683
------- ----- -------
$ 1,178 $(122) $ 1,056
------- ----- -------
Deferred Credits and Other Liabilities
Deferred Income Taxes.............................. $ 2,383 $ -- $ 2,383
Unamortized Investment Tax Credits................. 289 -- 289
Other.............................................. 1,068 -- 1,068
------- ----- -------
$ 3,740 $ -- $ 3,740
------- ----- -------
TOTAL.......................................... $13,164 $(320) $12,844
======= ===== =======
11
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
(Millions)
AS OF SEPTEMBER 30, 1999
UNICOM UNICOM
UNICOM UNICOM Fossil Securitization Prior to
As Sale ProForma ProForma Merger
ASSETS Filed Adjustments(2) Adjustments(4) ProForma
------ ------- -------------- -------------- --------
Utility Plant
Plant............................... $28,501 $(3,645) $ -- $24,856
Accumulated Provision for
Depreciation....................... 15,750 (2,152) -- 13,598
------- ------- ------- -------
$12,751 $(1,493) $ -- $11,258
Nuclear Fuel, net................... 864 -- -- 864
------- ------- ------- -------
$13,615 $(1,493) $ -- $12,122
------- ------- ------- -------
Current Assets
Cash and Temporary Cash Investments. $ 689 $ 4,632 $ (464) $ 4,857
Accounts Receivable, net............ 2,072 -- (671) 1,401
Inventories, at average cost........ 374 (138) -- 236
Other Current Assets................ 68 -- -- 68
------- ------- ------- -------
$ 3,203 $ 4,494 $(1,135) $ 6,562
------- ------- ------- -------
Deferred Debits and Other Assets
Regulatory Assets................... $ 4,474 $(2,756) $ -- $ 1,718
Investments and Other Property, net. 2,693 -- -- 2,693
Other............................... 113 (59) -- 54
------- ------- ------- -------
$ 7,280 $(2,815) $ -- $ 4,465
------- ------- ------- -------
TOTAL........................... $24,098 $ 186 $(1,135) $23,149
======= ======= ======= =======
CAPITALIZATION AND LIABILITIES
------------------------------
Capitalization
Common Stock Equity................. $ 5,296 $ -- $ (995) $ 4,301
Preferred and Preference Stock...... 2 -- -- 2
Company Obligated Mandatorily
Redeemable Preferred Securities.... 350 -- -- 350
Long-Term Debt...................... 7,196 -- (140) 7,056
------- ------- ------- -------
$12,844 $ -- $(1,135) $11,709
------- ------- ------- -------
Current Liabilities
Notes Payable, Bank................. $ 449 $ -- $ -- $ 449
Accounts Payable.................... 499 -- -- 499
Other Current Liabilities........... 2,004 1,409 -- 3,413
------- ------- ------- -------
$ 2,952 1,409 $ -- $ 4,361
------- ------- ------- -------
Deferred Credits and Other Liabilities
Deferred Income Taxes............... $ 3,720 $(1,239) $ -- $ 2,481
Unamortized Investment Tax Credits.. 535 (45) -- 490
Nuclear Decommissioning Liab. For
Retired Plants..................... 1,267 -- -- 1,267
Other............................... 2,780 61 -- 2,841
------- ------- ------- -------
$ 8,302 $(1,223) $ -- $ 7,079
------- ------- ------- -------
TOTAL........................... $24,098 $ 186 $(1,135) $23,149
======= ======= ======= =======
12
UNAUDITED PROFORMA COMBINED CONDENSED BALANCE SHEET
(In Millions)
AS OF SEPTEMBER 30, 1999
PECO UNICOM
Prior to Prior to Merger Exelon
Merger Merger ProForma ProForma
ASSETS ProForma ProForma Adjustments Balance
------ -------- -------- ----------- --------
Utility Plant
Plant.................................... $ 7,623 $24,856 $(13,598)(7) $18,881
Accumulated Provision for Depreciation... 3,063 13,598 (13,598)(7) 3,063
------- ------- -------- -------
$ 4,560 $11,258 $ -- $15,818
Nuclear Fuel, net........................ 286 864 -- 1,150
------- ------- -------- -------
$ 4,846 $12,122 $ -- $16,968
------- ------- -------- -------
Current Assets
Cash and Temporary Cash Investments...... $ 322 $ 4,857 $ (300)(5)
(1,000)(11) $ 3,879
Accounts Receivable, net................. 632 1,401 -- 2,033
Inventories, at average cost............. 181 236 -- 417
Other Current Assets..................... 71 68 -- 139
------- ------- -------- -------
$ 1,206 $ 6,562 $ (1,300) $ 6,468
------- ------- -------- -------
Deferred Debits and Other Assets
Regulatory Assets........................ $ 6,056 $ 1,718 $ -- $ 7,774
Goodwill................................. -- -- 2,432 (7) 2,432
Investments and Other Property, net...... 605 2,693 -- 3,298
Other.................................... 131 54 -- 185
------- ------- -------- -------
$ 6,792 $ 4,465 $ 2,432 $13,689
------- ------- -------- -------
TOTAL................................ $12,844 $23,149 $ 1,132 $37,125
======= ======= ======== =======
CAPITALIZATION AND LIABILITIES
------------------------------
Capitalization
Common Stock Equity...................... $ 1,675 $ 4,301 $ (500)(5)
(500)(11)
(1,000)(11)
2,432 (7) $ 6,408
Preferred and Preference Stock........... 194 2 -- 196
Company Obligated Mandatorily Redeemable
Preferred Securities.................... 128 350 -- 478
Long-Term Debt........................... 6,051 7,056 500 (11) 13,607
------- ------- -------- -------
$ 8,048 $11,709 $ 932 $20,689
------- ------- -------- -------
Current Liabilities
Notes Payable, Bank...................... $ -- $ 449 $ 200 (5) $ 649
Accounts Payable......................... 373 499 -- 872
Other Current Liabilities................ 683 3,413 -- 4,096
------- ------- -------- -------
$ 1,056 $ 4,361 $ 200 $ 5,617
------- ------- -------- -------
Deferred Credits and Other Liabilities
Deferred Income Taxes.................... $ 2,383 $ 2,481 $ -- $ 4,864
Unamortized Investment Tax Credits....... 289 490 -- 779
Nuclear Decommissioning Liab. For Retired
Plants.................................. -- 1,267 -- 1,267
Other.................................... 1,068 2,841 -- 3,909
------- ------- -------- -------
$ 3,740 $ 7,079 $ -- $10,819
------- ------- -------- -------
TOTAL................................ $12,844 $23,149 $ 1,132 $37,125
======= ======= ======== =======
13
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
1. Represents the use of the remaining proceeds from the securitization of
stranded costs as follows: (a) repurchased approximately 5.3 million shares of
PECO common stock at a cost of $198 million in October and November 1999 and
(b) repaid $122 million of short-term debt in October and December 1999.
The effects of the use of proceeds on the pro forma combined condensed
statements of income were as follows:
Nine Months Ended Year Ended
September 30, 1999 December 31, 1998
------------------ -----------------
(in millions)
Transition Bond Interest Expense................ $180 $ 240
Interest Savings Associated with Higher Cost
Debt that was Repurchased...................... (92) (132)
Transition Bond Interest Expense Included in
Historical Interest Expense.................... (130) --
Interest Savings Included in Historical Interest
Expense........................................ 59 --
---- -----
$ 17 $ 108
==== =====
PECO Obligated Mandatorily Redeemable Preferred
Securities ($221 million @ 9%)................. $(15) $ (20)
Interest Savings Included in Historical
Financial Statements........................... 3 --
---- -----
$(12) $ (20)
==== =====
Preferred Stock Dividends ($37 million @ 6.12%). $ (2) $ (2)
==== =====
2. Reflects the accounting impacts related to the December 1999 sale of the
fossil generating plants. The sale is expected to result in an after-tax gain
of approximately $1.6 billion, after settling commitments associated with
certain coal contracts ($350 million), recognition of employee severance costs
($112 million) and funding certain environmental initiatives as required by
Illinois law upon the closing of the sale ($250 million).
The employee related costs reflect employee severance costs associated with
selling the fossil generating plants. Such costs include certain pension and
post-retirement welfare benefits, transition allowances and retention payments
offered to employees whose positions were eliminated as of the date of the
asset sale in December 1999.
The gain on the sale was utilized to recover certain regulatory assets and,
as a result, the sale is not expected to have a significant impact on Unicom
net income in 1999. Both the amortization of regulatory assets and the gain on
the fossil sale are reflected on the depreciation and amortization line of the
pro forma income statement.
3. Reflects the continuing impact of the sale of ComEd's fossil generating
plants:
. Fuel and Energy Interchange: Reflects the elimination of fossil fuel
expense and the replacement impact of purchasing power under the power
purchase agreements entered into with the purchaser of the fossil assets
at the time of the fossil sale, as provided below:
Nine Months Ended Year Ended
September 30, 1999 December 31, 1998
------------------ -----------------
(in millions)
Fossil Fuel Expense.................. $(509) $(768)
Energy Interchange Expense........... 767 936
----- -----
Total................................ $ 258 $ 168
===== =====
. Operation and Maintenance: Reflects the elimination of the fossil
generating plants operation and maintenance expenses.
14
Notes to Unaudited Pro Forma Combined Condensed Financial Statements--
(Continued)
. Depreciation and Amortization: For the year ended December 31, 1998,
depreciation and amortization expense includes the following amounts (in
millions):
Fossil Sale Transaction:
Amortization of Regulation Assets.............................. $ 2,756
Amortization of Regulatory Liabilities......................... (2,713)
Continuing Impacts:
Elimination of Fossil Plant Depreciation....................... (91)
Additional Amortization of Regulatory Assets................... 196
-------
Total........................................................ $ 148
=======
Amortization of regulatory liabilities represents the application of the
gain on the sale of the fossil plants to recover regulatory assets. The
total pre-tax gain on the fossil sale used to recover regulatory assets
is $2,756 million, which includes $43 million of Investment Tax Credit
(ITC) amortization related to fossil plant. The amortization of ITC's is
reflected in income taxes. The Unicom Fossil Sale Pro forma adjustments
include increased regulatory asset amortization because those adjustments
on a prior-to-merger, pro forma basis would result in ComEd's earnings
exceeding the earnings cap provision of the Illinois Public Utilities
Act.
For the nine-month period ended September 30, 1999, depreciation and
amortization expense includes the following (in millions):
Continuing Impacts:
Elimination of Fossil Plant Depreciation......................... $(57)
. Taxes Other Than Income Taxes: Reflects the elimination of real estate
and payroll taxes related to the ownership of the fossil plants.
The pro forma adjustments do not reflect the income effects of the
reinvestment of cash proceeds received from the fossil sale.
4. Reflects Unicom's expected obligation to purchase, at prevailing market
prices, approximately 26.3 million shares of Unicom common stock that are
subject to certain forward purchase contracts and are expected to settle no
later than February 2000. Also reflects the use of securitization proceeds to
retire $140 million of long-term debt in October 1999. In addition, reflects
adjustments to net interest expense and preferred and preference stock
dividends related to the use of securitization proceeds. The Unicom
Securitization Pro Forma adjustments include increased regulatory asset
amortization because those adjustments on a prior-to-merger, pro forma basis
would result in ComEd's earnings exceeding the earnings cap provision of the
Illinois Public Utilities Act.
5. Reflects the payment of the cash portion of the merger consideration to
Unicom common shareholders. PECO's pro forma cash balance as of September 30,
1999 was insufficient to fully fund this cash payment. Accordingly, for pro
forma purposes, it was assumed that PECO would borrow $200 million from its
available revolving credit facility and that this borrowing would be repaid
immediately following the merger. The amount of actual borrowing, if any, at
the time of consummation of the merger will depend on PECO's actual cash
available at that time.
6. Reflects issuance of Exelon shares in exchange for PECO and Unicom
common stock net of shares which were repurchased by PECO and Unicom as
follows:
15
Notes to Unaudited Pro Forma Combined Condensed Financial Statements--
(Continued)
Exelon
PECO Unicom Pro Forma
------- ------- ---------
(Shares in 000's)
Actual shares outstanding at September 30,
1999....................................... 186,617 217,433 --
Shares repurchased--Notes (1), (4) and (11). (17,717) (52,183) --
------- -------
Remaining shares to be exchanged............ 168,900 165,250 --
Exchange factor............................. 1.0 .875
------- -------
Remaining shares to be exchanged............ 168,900 144,600 313,500
======= ======= =======
7. A pro forma adjustment has been made to recognize estimated goodwill in
connection with the merger. The goodwill represents the excess of the purchase
consideration of $5.7 billion, including PECO's estimated transaction costs
resulting from the merger, over the book value of Unicom's assets and
liabilities at September 30, 1999. The adjustment reflects the merger
consideration including approximately 144.6 million shares of Exelon Common
Stock at a price of $35.96 based on the average closing price of PECO Common
Stock between January 4 and 11, 2000, (the most current data available as of
the date of this 8-K filing). PECO's transaction costs of approximately $32.5
million represent the estimated costs to be incurred for the merger that meet
the requirements for inclusion in the purchase price. Actual goodwill recorded
upon consummation will consider the fair value of Unicom's assets and
liabilities at that future date, including the fair value determination of
nuclear generating stations, and may differ significantly from the amount
recorded in these pro forma financial statements. The pro forma adjustment
also relates to the elimination of accumulated depreciation reflected on
Unicom's books in accordance with purchase accounting as prescribed by GAAP.
As a result of the increased merger pro forma common stock equity balance, the
merger pro forma adjustments include a reversal of the increased regulatory
asset amortization related to the Unicom Pro Forma Adjustments discussed in
Notes 3 and 4.
8. Reflects the elimination of purchased power and off-system sales
transactions between PECO and Unicom.
9. Reflects amortization of goodwill over a 40-year period.
10. Reflects the reclassification of PECO preferred stock dividends and
interest on PECO obligated mandatorily redeemable preferred securities for
consistent presentation.
11. Reflects the repurchase of approximately $1.0 billion of Unicom's
outstanding common shares and approximately $500 million of PECO's outstanding
common shares prior to closing. PECO's pro forma cash balance as of September
30, 1999 was insufficient to fully fund its repurchase. Accordingly, for pro
forma purposes, it was assumed that PECO would borrow $500 million of long
term debt at an interest rate of approximately 7.25% in order to fund this
transaction. The amount of the borrowing, if any, at the time of consummation
of the merger will depend on PECO's actual cash available at that time.
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PECO ENERGY COMPANY
\S\ Jean H. Gibson
-----------------------
Vice President & Controller
January 13, 2000
17