-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GTUW6HAiuTeyiJRTZdb2g3XSQ/zN2aN0gsBb4tzJWraIRVqLftSwc1I6TJGAQWsT 9oJIaufugL27u4osDj76Fw== 0000950159-99-000275.txt : 19991018 0000950159-99-000275.hdr.sgml : 19991018 ACCESSION NUMBER: 0000950159-99-000275 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990922 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19991012 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PECO ENERGY CO CENTRAL INDEX KEY: 0000078100 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 230970240 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-01401 FILM NUMBER: 99726122 BUSINESS ADDRESS: STREET 1: 2301 MARKET ST STREET 2: P O BOX 8699 CITY: PHILADELPHIA STATE: PA ZIP: 19101 BUSINESS PHONE: 2158414000 FORMER COMPANY: FORMER CONFORMED NAME: PHILADELPHIA ELECTRIC CO DATE OF NAME CHANGE: 19920703 8-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): September 22, 1999 PECO ENERGY COMPANY (Exact name of registrant as specified in its charter) Pennsylvania 1-1401 23-0970240 (State or other (Commission (IRS Employer jurisdiction of file number) Identification incorporation) Number) 230l Market Street, Philadelphia, Pennsylvania 19101 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (215) 841-4000 Item 5. Other Events Merger Agreement. On September 23, 1999, Unicom Corporation ("Unicom") and PECO Energy Company ("PECO"), issued a joint press release announcing that they, along with a wholly owned subsidiary of PECO ("Newco"), had entered into an Agreement and Plan of Exchange and Merger, dated as of September 22, 1999 (the "Merger Agreement"). PECO is filing this Form 8-K to provide additional information about the transactions contemplated by the Merger Agreement before PECO commences repurchases of shares of its common stock, as more fully described below. Nothing contained herein shall be considered a solicitation of any proxy to approve such transactions. The Merger Agreement was filed by PECO with the Securities and Exchange Commission as an exhibit to the Form 8-K filed September 29, 1999. The following description of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the provisions of the Merger Agreement. The Merger Agreement provides for (a) the mandatory exchange of the outstanding common stock, no par value, of PECO ("PECO Common Stock") for common stock of Newco ("Newco Common Stock") or cash (the "Share Exchange") and (b) the merger of Unicom with and into Newco (the "Merger" and together with the Share Exchange, the "Merger Transaction"). In the Merger, holders of the outstanding common stock, no par value of Unicom ("Unicom Common Stock") will exchange their shares for Newco Common Stock or cash. As a result of the Share Exchange, PECO will become a wholly owned subsidiary of Newco. As a result of the Merger, Unicom will cease to exist and its subsidiaries, including Commonwealth Edison Company, an Illinois corporation ("ComEd"), will become subsidiaries of Newco. Thus, following the Merger Transaction, Newco will be a holding company with two principal utility subsidiaries, ComEd and PECO, and additional subsidiaries. 2 Repurchase of Unicom Common Stock. The Merger Agreement requires that the Merger be accounted for as a purchase of Unicom by PECO in accordance with generally accepted accounting principles ("GAAP"). Based on the number of shares of PECO Common Stock and Unicom Common Stock outstanding as of the date hereof, the number of shares of PECO Common Stock which PECO anticipates repurchasing prior to the consummation of the Merger Transaction and other anticipated changes in the number of outstanding shares (such as option exercises), Unicom expects to purchase approximately six million shares of Unicom Common Stock prior to the closing of the Merger Transaction. This number is in addition to the 20.1 million shares of Unicom Common Stock that Unicom expects to repurchase no later than February 2000 under certain forward purchase contracts. Unicom expects that it will commence share repurchases following the filing hereof and will continue purchasing shares from time to time on the open market or through negotiated purchases. Repurchase of PECO Common Stock. PECO expects to purchase approximately four million shares of PECO Common Stock prior to the closing of the Merger Transaction. This number is in addition to the 38.7 million shares of PECO Common Stock that have been previously purchased with proceeds from its securitization of stranded costs. PECO expects that it will commence share repurchases following the filing hereof and will continue purchasing shares from time to time on the open market or through negotiated purchases. Cost Savings. The combined companies expect to achieve net annual cost savings of approximately $100 million in the first year after the close of the Merger Transaction, which grow to over $180 million by the third year. The companies expect that sixty percent of these savings will come from regulated operations and forty percent will come from unregulated operations. These cost savings are expected to result primarily from eliminating duplicate corporate and administrative positions and programs and achieving efficiencies in operations, business processes and purchasing. Based on these 3 cost savings, excluding one-time merger-related costs, the transaction is expected to be accretive in the first year after closing. In addition, as a result of the combination, the companies expect to achieve revenue enhancements. Item 7. Financial Statements and Exhibits (b) Pro Forma Financial Information Unaudited Pro Forma Combined Condensed Financial Statements. The following unaudited pro forma combined condensed financial statements have been prepared to reflect the acquisition of Unicom by PECO under the purchase method of accounting. The historical consolidated financial statements of Unicom have been adjusted to give effect to the sale of ComEd's fossil generating plants and the annualized effects of Unicom's issuance of securitization notes and related use of proceeds ("Unicom Pro Forma Adjustments"). ComEd expects to complete the sale of its fossil generating plants during the fourth quarter of 1999. The historical consolidated financial statements of PECO have been adjusted to give effect to its use of the remaining proceeds from its securitization of stranded costs ("PECO Pro Forma Adjustments"). The unaudited pro forma financial statements do not give effect to the estimated cost savings and revenue enhancements as a result of the Merger Transaction or the costs to achieve such savings and revenue enhancements or one-time merger-related costs. The Unicom and PECO Pro Forma Adjustments and the Merger Transaction are reflected in the unaudited combined condensed pro forma balance sheet as if they occurred on June 30, 1999. The unaudited pro forma combined condensed statements of income for the six months ended June 30, 1999 and for the year ended December 31, 1998 assume that these transactions were completed on January 1, 1998. The unaudited pro forma combined condensed financial statements do not reflect potential adjustments to Unicom's assets and liabilities to reflect fair value, as will be required upon consummation of the Merger Transaction under purchase accounting. Such adjustments to the book value of assets and liabilities could be significant, particularly with respect to Unicom's nuclear generating stations. The fair value of the nuclear generating stations is expected to be determined considering, among other things, independent appraisals or expected cash flows. To the extent the fair value of Unicom's nuclear generating stations is ultimately determined to be less than the June 30, 1999 book value of $6.9 billion, additional goodwill and/or an identifiable intangible asset will be recorded. The results of the fair value determination are not currently known; however, the ultimate determination is not expected to have a dilutive effect on results of operations. The following unaudited pro forma financial statements should be read in conjunction with the consolidated historical financial statements and related notes of PECO and Unicom, which are included in their respective Annual Reports on Form 10-K for the year ended December 31, 1998 and Quarterly Reports on Form 10-Q for the quarter ended June 30, 1999. PECO has provided all the information included in this Form 8-K regarding PECO and its subsidiaries. Unicom has provided all the information included in this Form 8-K regarding Unicom and its subsidiaries. Neither PECO nor Unicom assumes any responsibility for the accuracy or completeness of the information provided by the other party. The following unaudited pro forma financial statements are for illustrative purposes only. They are not necessarily indicative of the financial position or operating results that would have occurred had these transactions been completed on January 1, 1998 or June 30, 1999, as assumed above; nor is the information necessarily indicative of future financial position or operating results. Results of operations and financial position in the first year after consummation could differ significantly from the unaudited pro forma combined condensed financial statements, which are based on past operations. 4 Future operations will be affected by various factors including operating performance, energy market developments, and other matters. The unaudited pro forma financial statements assume that approximately $180 million of PECO available funds will be used to purchase approximately four million shares of PECO Common Stock prior to the closing of the Merger Transaction. Given the assumption of PECO share repurchases, the Merger Transaction requires Unicom to purchase 26.1 million shares of Unicom Common Stock prior to the closing of the Merger Transaction. Unicom expects to meet this requirement through a currently existing pre-paid forward contract for the purchase of 20.1 million shares and the purchase of approximately 6 million additional shares from available funds. Unicom and PECO anticipate that the $750 million cash consideration to be paid to each company's shareholders in the Merger Transaction will be provided from available funds of each company. The historical financial statements of PECO included in the accompanying pro forma combined condensed financial statements for the six months ended June 30, 1999 are unaudited. The December 31, 1998 historical financial statements of PECO and Unicom and the June 30, 1999 historical financial statements of Unicom were derived from audited financial statements but do not include all disclosures required by GAAP. Forward-looking statements. Except for historical data, the information contained in this Form 8-K constitutes forward-looking statements. Forward- looking statements are inherently uncertain and subject to risks and the statements should be viewed with caution. Actual results or experience could differ materially from the forward-looking statements as a result of many factors, including without limitation, those factors discussed below or elsewhere in this Form 8-K. The forward-looking statements in this Form 8-K include the statements regarding the estimated number of shares of Unicom Common Stock to be purchased by Unicom in order to comply with the Merger Agreement; the number of shares of PECO Common Stock to be purchased prior to the closing of the Merger Transaction; the expected source of funds necessary to provide the cash consideration in the Merger Transaction and to acquire Unicom and PECO Common Stock prior to the closing of the Merger Transaction; the estimated cost savings to be achieved as a result of the Merger Transaction and the source of those savings; the statement that the transaction is expected to be accretive in the first year after closing (excluding one-time merger-related costs); and the statement that the companies expect to achieve revenue enhancements. These forward-looking statements are subject to numerous assumptions, risks and uncertainties. Factors that may cause actual results to differ from those indicated by such forward-looking statements include, among others, the following: . The fact that these forward-looking statements are based on information of a preliminary nature which may be subject to further and continuing review and adjustment; . The risk of legislative, regulatory or other governmental action seeking to impose additional restrictions on the operations of Unicom or PECO or to increase the burden of necessary regulatory approvals for the Merger Transaction, or the imposition of unfavorable terms as a condition of approval of the Merger Transaction; . The risk of a significant delay in the expected completion of, and unexpected consequences resulting from the Merger Transaction, including the inability to close the transaction or unexpected difficulties in integrating the operations of the two companies; difficulties in achieving anticipated cost savings; 5 difficulties in achieving other operational improvements and revenue enhancements; . The risk that the assumptions and estimates underlying the anticipated cost savings may prove to be faulty or other factors may adversely affect the amount, nature or timing of anticipated cost savings; . The risk that competition, difficulties encountered by the companies in coordinating new business ventures or other difficulties could adversely affect the amount, nature or timing of anticipated revenue enhancements; . Changes in the number of shares of outstanding common stock of Unicom and PECO for reasons not foreseen at the date hereof; . Changes in the amount of proceeds received by the companies from asset sales, securitization transactions or other factors affecting the amount and timing of receipt of available funds to provide the cash consideration for the Merger Transaction or share repurchases; . The increasingly competitive nature of the electric, natural gas and energy industries, including the speed and degree to which competition enters these industries and the risk that other companies will further expand into markets in which Unicom or PECO operate; . The risk of unforeseen developments in the market for electricity in the areas in which Unicom and PECO conduct their business including changes resulting from regulatory changes, the influence of developments in the regulatory environments in other areas, adverse weather conditions and changes in the overall economy, any or all of which may affect revenues and margins; . The risks associated with Unicom's and PECO's nuclear generating stations including the capacity factor of those stations, which may affect the utilities' electricity generation and purchased power costs; . Other considerations that may be disclosed from time to time in Unicom's or PECO's publicly disseminated documents or filings. Unicom and PECO make no commitment to disclose any revisions to the forward-looking statements, or any facts, events or circumstances after the date hereof that may bear upon the forward-looking statements. UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME (Millions Except Per Share Data) FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1999
PECO PECO PECO Securitization Prior to As ProForma Merger Filed Adjustments(1) ProForma ------- --------------- -------- Operating Revenues Electric $ 2,144 $ -- $2,144 Gas 307 -- 307 ------- ---------- -------- Total Operating Revenues $ 2,451 $ -- $2,451 ------- ---------- -------- Operating Expenses Fuel and Energy Interchange $ 965 $ -- $ 965 Operation and Maintenance 628 -- 628 Depreciation and Amortization 114 -- 114 Goodwill Amortization -- -- -- Taxes Other Than Income Taxes 121 -- 121 ------- ---------- -------- Total Operating Expenses $ 1,828 $ -- $1,828 ------- ---------- -------- Operating Income $ 623 $ -- $ 623 ------- ---------- -------- Other Income and Deductions Interest Expense $ (188) $ (15) $ (203) Preferred and Preference Stock Dividends -- -- -- Other, net (59) 10 (49) ------- ---------- -------- Total Other Income and Deductions $ (247) $ (5) $ (252) ------- ---------- -------- Income Before Income Taxes and Extraordinary Item $ 376 $ (5) $ 371 Income Tax Expense 139 (2) 137 ------- ---------- -------- Income Before Extraordinary Item $ 237 $ (3) $ 234 ======= ========== ======== Preferred Stock Dividends $ 7 $ (1) $ 6 ======= ========== ======== Income Before Extraordinary Item per Share $ 1.11 ======= Income Before Extraordinary Item per Share-Diluted $ 1.10 ======= Average Basic Shares Outstanding 207.6 ======= Average Diluted Shares Outstanding 209.1 =======
6 UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME (Millions Except Per Share Data) FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1999
UNICOM UNICOM UNICOM UNICOM Fossil Sale Securitization Prior to As ProForma ProForma Merger Filed Adjustments(3) Adjustments(4) ProForma ---------- -------------- -------------- -------- Operating Revenues Electric $ 3,224 $ -- $ -- $3,224 Gas -- -- -- -- -------- ----------- --------- ------- Total Operating Revenues $ 3,224 $ -- $ -- $3,224 -------- ----------- --------- ------- Operating Expenses Fuel and Energy Interchange $ 664 $ 64 $ -- $ 728 Operation and Maintenance 1,205 (132) -- 1,073 Depreciation and Amortization 498 52 -- 550 Goodwill Amortization -- -- -- -- Taxes Other Than Income Taxes 248 (7) -- 241 -------- ----------- --------- ------- Total Operating Expenses $ 2,615 $ (23) $ -- $2,592 -------- ----------- --------- ------- Operating Income $ 609 $ 23 $ -- $ 632 -------- ----------- --------- ------- Other Income and Deductions Interest Expense $ (287) $ -- $ 13 $ (274) Preferred and Preference Stock Dividends (33) -- 3 (30) Other, net 52 42 5 99 -------- ----------- --------- ------- Total Other Income and Deductions $ (268) $ 42 $ 21 $ (205) -------- ----------- --------- ------- Income Before Income Taxes and Extraordinary Item $ 341 $ 65 $ 21 $ 427 Income Tax Expense 124 26 7 157 -------- ----------- --------- ------- Income Before Extraordinary Item $ 217 $ 39 $ 14 $ 270 ======== =========== ========= ======= Income Before Extraordinary Item per Share $ 1.00 ======== Income Before Extraordinary Item per Share - Diluted $ 1.00 ======== Average Basic Shares Outstanding 217.2 ======== Average Diluted Shares Outstanding 218.1 ========
7 UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (Millions Except Per Share Data) FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1999
PECO UNICOM Prior to Prior to Merger Merger Merger ProForma Merger ProForma ProForma Adjustments ProForma --------- --------- ----------- -------- Operating Revenues Electric $2,144 $3,224 $ (30)(8) $5,338 Gas 307 -- -- 307 ------ ------ ------ ------ Total Operating Revenues $2,451 $3,224 $ (30) $5,645 ------ ------ ------ ------ Operating Expenses Fuel and Energy Interchange $ 965 $ 728 $ (30)(8) $1,663 Operation and Maintenance 628 1,073 -- 1,701 Depreciation and Amortization 114 550 (90)(7) 574 Goodwill Amortization -- -- 38 (9) 38 Taxes Other Than Income Taxes 121 241 -- 362 ------ ------ ------ ------ Total Operating Expenses $1,828 $2,592 $ (82) $4,338 ------ ------ ------ ------ Operating Income $ 623 $ 632 $ 52 $1,307 ------ ------ ------ ------ Other Income and Deductions Interest Expense $ (203) $ (274) $ -- $ (477) Preferred and Preference Stock Dividends -- (30) (11)(10) (41) Other, net (49) 99 5 (10) 55 ------ ------ ------ ------ Total Other Income and Deductions $ (252) $ (205) $ (6) $ (463) ------ ------ ------ ------ Income Before Income Taxes and Extraordinary Item $ 371 $ 427 $ 46 $ 844 Income Tax Expense 137 157 35 329 ------- ------ ------ ------ Income Before Extraordinary Item $ 234 $ 270 $ 11 $ 515 ======= ====== ====== ====== Preferred Stock Dividends $ 6 $ -- $ (6)(10) $ -- ======= ====== ====== ====== Income Before Extraordinary Item per Share $ 1.56 ====== Income Before Extraordinary Item per Share - Diluted $ 1.55 ====== Average Basic Shares Outstanding 330.8(6) ====== Average Diluted Shares Outstanding 333.2 ======
8 UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME (Millions Except Per Share Data) FOR THE YEAR ENDED DECEMBER 31, 1998
PECO PECO PECO Securitization Prior to As Pro Forma Merger Filed Adjustments(1) Pro Forma ------ --------------- -------- Operating Revenues Electric $4,811 $ - $4,811 Gas 399 - 399 ------ ------ ------ Total Operating Revenues $5,210 $ - $5,210 ------ ------ ------ Operating Expenses Fuel and Energy Interchange $1,752 $ - $1,752 Operation and Maintenance 1,253 - 1,253 Depreciation and Amortization 643 - 643 Goodwill Amortization - - - Taxes Other Than Income Taxes 279 - 279 ------ ------ ------ Total Operating Expenses $3,927 $ - $3,927 ------ ------ ------ Operating Income $1,283 $ - $1,283 ------ ------ ------ Other Income and Deductions Interest Expense $ (331) $ (108) $ (439) Preferred and preference stock dividends - - - Other, net (100) 20 (80) ------ ------ ------ Total Other Income and Deductions $ (431) $ (88) $ (519) ------ ------ ------ Income Before Income Taxes and Extraordinary Item $ 852 $ (88) $ 764 Income Tax Expense 320 (35) 285 ------ ------ ------ Income Before Extraordinary Item $ 532 $ (53) $ 479 ====== ====== ====== Preferred Stock Dividends $ 13 $ (2) $ 11 ====== ====== ====== Income Before Extraordinary Item per Share $ 2.33 ====== Income Before Extraordinary Item per Share - Diluted $ 2.32 ====== Average Basic Shares Outstanding 223.2 ====== Average Diluted Shares Outstanding 223.9 ======
9 UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME (Millions Except Per Share Data) FOR THE YEAR ENDED DECEMBER 31, 1998
UNICOM UNICOM UNICOM UNICOM Fossil Sale Securitization Prior to As Pro Forma Pro Forma Merger Filed Adjustments(3) Adjustments(4) Pro Forma ------ -------------- -------------- -------- Operating Revenues Electric $7,151 $ - $ - $7,151 Gas - - - - ------ ----- ----- ------ Total Operating Revenues $7,151 $ - $ - $7,151 ------ ----- ----- ------ Operating Expenses Fuel and Energy Interchange $1,888 $ 168 $ - $2,056 Operation and Maintenance 2,286 (254) - 2,032 Depreciation and Amortization 943 140 - 1,083 Goodwill Amortization - - - Taxes Other Than Income Taxes 672 (65) - 607 ------ ----- ----- ------ Total Operating Expenses $5,789 $ (11) $ - $5,778 ------ ----- ----- ------ Operating Income $1,362 $ 11 $ - $1,373 ------ ----- ----- ------ Other Income and Deductions Interest Expense $ (464) $ - $ (76) $ (540) Preferred and Preference Stock Dividends (87) - 50 (37) Other, net 49 88 11 148 ------ ----- ----- ------ Total Other Income and Deductions $ (502) $ 88 $ (15) $ (429) ------ ----- ----- ------ Income Before Income Taxes and Extraordinary Item $ 860 $ 99 $ (15) $ 944 Income Tax Expense 350 40 (26) 364 ------ ----- ----- ------ Income Before Extraordinary Item $ 510 $ 59 $ 11 $ 580 ====== ===== ===== ====== Income Before Extraordinary Item per Share $ 2.35 ====== Income Before Extraordinary Item per Share - Diluted $ 2.34 ====== Average Basic Shares Outstanding 216.9 ====== Average Diluted Shares Outstanding 217.7 ======
10 UNAUDITED PRO FORMA 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 Pro Forma Merger Pro Forma Pro Forma Adjustments Pro Forma -------- -------- ----------- -------- Operating Revenues Electric $ 4,811 $ 7,151 $ (64)(8) $11,898 Gas 399 -- -- 399 -------- -------- ---------- -------- Total Operating Revenues $ 5,210 $ 7,151 $ (64) $12,297 -------- -------- ---------- -------- Operating Expenses Fuel and Energy Interchange $ 1,752 $ 2,056 $ (64)(8) $ 3,744 Operation and Maintenance 1,253 2,032 -- 3,285 Depreciation and Amortization 643 1,083 (184)(7) 1,542 Goodwill Amortization -- -- 75 (9) 75 Taxes Other Than Income Taxes 279 607 -- 886 -------- -------- ---------- -------- Total Operating Expenses $ 3,927 $ 5,778 $ (173) $ 9,532 -------- -------- ---------- -------- Operating Income $ 1,283 $ 1,373 $ 109 $ 2,765 -------- -------- ---------- -------- Other Income and Deductions Interest Expense $ (439) $ (540) $ -- $ (979) Preferred and Preference Stock Dividends -- (37) (22)(10) (59) Other, net (80) 148 11 (10) 79 -------- -------- ---------- -------- Total Other Income and Deductions $ (519) $ (429) $ (11) $ (959) -------- -------- ---------- -------- Income Before Income Taxes and Extraordinary Item $ 764 $ 944 $ 98 $ 1,806 Income Tax Expense 285 364 73 722 -------- -------- ---------- -------- Income Before Extraordinary Item $ 479 $ 580 $ 25 $ 1,084 ======== ======== ========== ======== Preferred Stock Dividends $ 11 $ -- $ (11)(10) $ -- ======== ======== ========== ======== Income Before Extraordinary Item per Share $ 3.28 ======== Income Before Extraordinary Item per Share - Diluted $ 3.26 ======== Average Basic Shares Outstanding 330.8(6) ======== Average Diluted Shares Outstanding 332.2 ========
11 UNAUDITED PRO FORMA CONDENSED BALANCE SHEET (In Millions) AS OF JUNE 30, 1999
PECO PECO PECO Securitization Prior to As Pro Forma Merger Filed Adjustments(1) Pro Forma ------- ---------------- ---------- ASSETS Utility Plant Plant $ 7,549 $ - $ 7,549 Accumulated Provision for Depreciation 3,008 - 3,008 ------- ----- ------- $ 4,541 $ - $ 4,541 Nuclear Fuel, net 297 - 297 ------- ----- ------- $ 4,838 $ - $ 4,838 ------- ----- ------- Current Assets Cash and Temporary Cash Investments $ 900 $(652) $ 248 Accounts Receivable, net 589 - 589 Inventories, at average cost 172 - 172 Other Current Assets 116 - 116 ------- ----- ------- $ 1,777 $(652) $ 1,125 ------- ----- ------- Deferred Debits and Other Assets Regulatory Assets $ 6,046 $ - $ 6,046 Goodwill - - - Investments and Other Property, net 555 - 555 Other 131 - 131 ------- ----- ------- $ 6,732 $ - $ 6,732 ------- ----- ------- TOTAL $13,347 $(652) $12,695 ======= ===== ======= CAPITALIZATION AND LIABILITIES Capitalization Common Stock Equity $ 1,688 $(177) $ 1,511 Preferred and Preference Stock 231 (37) 194 Company Obligated Mandatorily Redeemable Preferred Securities 340 (212) 128 Long-Term Debt 6,092 - 6,092 ------- ----- ------- $ 8,351 $(426) $ 7,925 ------- ----- ------- Current Liabilities Notes Payable, Bank $ 226 $(226) $ - Accounts Payable 358 - 358 Other Current Liabilities 700 - 700 ------- ----- ------- $ 1,284 $(226) $ 1,058 ------- ----- ------- Deferred Credits and Other Liabilities Deferred Income Taxes $ 2,355 $ - $ 2,355 Unamortized Investment Tax Credits 293 - 293 Other 1,064 - 1,064 ------- ----- ------- $ 3,712 $ - $ 3,712 ------- ----- ------- TOTAL $13,347 $(652) $12,695 ======= ===== =======
12
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET (Millions) AS OF JUNE 30, 1999 UNICOM UNICOM UNICOM UNICOM Fossil Sale Securitization Prior to As Pro Forma Pro Forma Merger Filed Adjustments(2) Adjustments(4) Pro Forma ------- -------------- -------------- -------- ASSETS Utility Plant Plant $28,245 $(3,423) $ - $24,822 Accumulated Provision for Depreciation 15,662 (2,107) - 13,555 ------- ------- ------- ------- $12,583 $(1,316) $ - $11,267 Nuclear Fuel, net 856 - - 856 ------- ------- ------- ------- $13,439 $(1,316) $ - $12,123 ------- ------- ------- ------- Current Assets Cash and Temporary Cash Investments $ 739 $ 4,271 $ (326) $ 4,684 Accounts Receivable, net 2,087 - (695) 1,392 Inventories, at average cost 386 (141) - 245 Other Current Assets 79 - - 79 ------- ------- ------- ------- $ 3,291 $ 4,130 $(1,021) $ 6,400 ------- ------- ------- ------- Deferred Debits and Other Assets Regulatory Assets $ 4,433 $(2,765) $ - $ 1,668 Goodwill - - - - Investments and Other Property, net 2,763 - - 2,763 Other 71 (49) - 22 ------- ------- ------- ------- $ 7,267 $(2,814) $ - $ 4,453 ------- ------- ------- ------- TOTAL $23,997 $ - $(1,021) $22,976 ======= ======= ======= ======= CAPITALIZATION AND LIABILITIES Capitalization Common Stock Equity $ 5,101 $ - $(1,021) $ 4,080 Preferred and Preference Stock 2 - - 2 Company Obligated Mandatorily Redeemable Preferred Securities 350 - - 350 Long-Term Debt 7,374 - - 7,374 ------- ------- ------- ------- $12,827 $ - $(1,021) $11,806 ------- ------- ------- ------- Current Liabilities Notes Payable, Bank $ 412 $ - $ - $ 412 Accounts Payable 491 - - 491 Other Current Liabilities 1,963 1,332 - 3,295 ------- ------- ------- ------- $ 2,866 1,332 $ - $ 4,198 ------- ------- ------- ------- Deferred Credits and Other Liabilities Deferred Income Taxes $ 3,732 $(1,352) $ - $ 2,380 Unamortized Investment Tax Credits 544 (47) - 497 Nuclear Decommissioning Liab. For Retired Plants 1,252 - - 1,252 Other 2,776 67 - 2,843 ------- ------- ------- ------- $ 8,304 $(1,332) $ - $ 6,972 ------- ------- ------- ------- TOTAL $23,997 - $(1,021) $22,976 ======= ======= ======= =======
13 UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET (In Millions) AS OF JUNE 30, 1999
PECO UNICOM Prior to Prior to Merger Merger Merger Merger Pro Forma Pro Forma Pro Forma Pro Forma Adjustments Balance ---------- ---------- ------------ ---------- ASSETS Utility Plant Plant $ 7,549 $ 24,822 $(13,555) (7) $ 18,816 Accumulated Provision for Depreciation 3,008 13,555 (13,555) (7) 3,008 ---------- ---------- -------- ---------- $ 4,541 $ 11,267 $ - $ 15,808 Nuclear Fuel, net 297 856 - 1,153 ---------- ---------- -------- ---------- $ 4,838 $ 12,123 $ - $ 16,961 ---------- ---------- -------- ---------- Current Assets Cash and Temporary Cash Investments $ 248 $ 4,684 $ (850) (5) $ 4,082 Accounts Receivable, net 589 1,392 - 1,981 Inventories, at average cost 172 245 - 417 Other Current Assets 116 79 - 195 ---------- ---------- -------- ---------- $ 1,125 $ 6,400 $ (850) $ 6,675 ---------- ---------- -------- ---------- Deferred Debits and Other Assets Regulatory Assets $ 6,046 $ 1,668 $ - $ 7,714 Goodwill - - 3,006 (7) 3,006 Investments and Other Property, net 555 2,763 - 3,318 Other 131 22 - 153 ---------- ---------- -------- ---------- $ 6,732 $ 4,453 $ 3,006 $ 14,191 ---------- ---------- -------- ---------- TOTAL $ 12,695 $ 22,976 $ 2,156 $ 37,827 ========== ========== ======== ========== CAPITALIZATION AND LIABILITIES Capitalization Common Stock Equity $ 1,511 $ 4,080 $ 1,506 (5,7) $ 7,097 Preferred and Preference Stock 194 2 - 196 Company Obligated Mandatorily Redeemable Preferred Securities 128 350 - 478 Long-Term Debt 6,092 7,374 - 13,466 ---------- ---------- -------- ---------- $ 7,925 $ 11,806 $ 1,506 $ 21,237 ---------- ---------- -------- ---------- Current Liabilities Notes Payable, Bank $ - $ 412 $ 650 (5) $ 1,062 Accounts Payable 358 491 849 Other Current Liabilities 700 3,295 - 3,995 ---------- ---------- -------- ---------- $ 1,058 $ 4,198 $ 650 $ 5,906 ---------- ---------- -------- ---------- Deferred Credits and Other Liabilities Deferred Income Taxes $ 2,355 $ 2,380 $ - $ 4,735 Unamortized Investment Tax Credits 293 497 - 790 Nuclear Decommissioning Liab. For Retired Plants - 1,252 - 1,252 Other 1,064 2,843 - 3,907 ---------- ---------- -------- ---------- $ 3,712 $ 6,972 $ - $ 10,684 ---------- ---------- -------- ---------- TOTAL $ 12,695 $ 22,976 $ 2,156 $ 37,827 ========== ========== ======== ==========
14 15 Notes to Unaudited Pro Forma Combined Condensed Financial Statements 1. Represents the use of the remaining balance of the proceeds from the securitization of stranded costs to repurchase approximately four million shares of PECO Common Stock, PECO obligated mandatorily redeemable preferred securities, preferred stock and short-term debt. This adjustment also reflects the effects of PECO's securitization of its stranded costs on its statements of income as a net increase to interest expense, decrease to interest on PECO's obligated mandatorily redeemable preferred securities and related aggregate tax benefit. 2. Reflects the accounting impacts related to the sale of the fossil generating plants. The sale is expected to produce an after-tax gain of approximately $1.7 billion, after settling commitments associated with certain coal contracts, recognition of employee-related costs and funding certain environmental initiatives. The gain on the sale will be utilized to recover certain regulatory assets and, as a result, the sale is not expected to have a significant impact on Unicom net income in 1999. 3. Reflects the effects of the sale of ComEd's fossil generating plants. The increase in energy interchange expense reflects the net incremental energy cost that ComEd would have incurred under transitional power purchase agreements to purchase replacement power in the absence of its own generating capacity. Additionally, "Other, net" reflects interest income related to the unused proceeds from the sale of the fossil generating plants. The Unicom Pro Forma Adjustments include increased regulatory asset amortization because those adjustments on a prior-to-merger, pro forma basis would result in ComEd's earnings exceeding the earnings cap provisions of the Illinois Public Utilities Act. 16 Notes to Unaudited Pro Forma Combined Condensed Financial Statements (CONTINUED) 4. Reflects Unicom's expected obligation to purchase, at prevailing market prices, approximately six million shares of Unicom Common Stock prior to the closing of the Merger Transaction and the 20.1 million shares of Unicom Common Stock that are subject to certain forward purchase contracts and are expected to settle no later than February 2000. In addition, reflects adjustments to net interest expense and preferred and preference stock dividends related to the use of securitization proceeds. 5. Reflects cash consideration paid to PECO and Unicom common shareholders who choose the cash election, subject to proration. The amount of the adjustment assumes a payment of $750 million at a cash price of $45.00 per share to PECO shareholders and a payment of $750 million at a cash price of $42.75 per share to Unicom shareholders. PECO's pro forma cash balance as of June 30, 1999 was insufficient to fully fund this cash election. Accordingly, for pro forma purposes, it was assumed that PECO would borrow $650 million from its available revolving credit facility and that this borrowing would be repaid immediately following the Merger Transaction. The amount of actual borrowing, if any, at the time of consummation of the Merger Transaction will depend on PECO's actual cash available at that time. 17 Notes to Unaudited Pro Forma Combined Condensed Financial Statements (CONTINUED) 6. Reflects issuance of Newco shares in exchange for PECO and Unicom Common Stock net of shares which were exchanged for cash or repurchased by PECO and Unicom as follows:
As of June 30, 1999 ------------------------------------ (Shares in 000's) Newco PECO Unicom Pro Forma -------- --------- --------- Actual shares outstanding at June 30, 1999 186,603 217,287 -- Shares exchanged for cash or repurchased- Notes (1), (4) and (5) (20,900) (43,487) -- ------- ------- Remaining shares to be exchanged 165,703 173,800 -- Exchange factor 1.0 .95 ------- ------- Estimated Share consideration 165,703 165,110 330,813
7. A pro forma adjustment has been made to recognize goodwill in connection with the Merger. The goodwill represents the excess of the purchase consideration of $6.3 billion, including PECO's estimated transaction costs resulting from the Merger, over the assumed value of Unicom's assets and liabilities at June 30, 1999. The adjustment reflects the share consideration equal to approximately 165.1 million shares of Newco Common Stock at a price of $38.18 based on the average closing price of PECO Common Stock between September 16, 1999 and September 29, 1999. PECO's transaction costs of approximately $32.5 million represent the estimated costs to be incurred for the Merger that meet the requirements for inclusion in the purchase price. Actual goodwill recorded upon consummation will consider the fair value of Unicom's assets and liabilities at that future date, including the fair value determination of nuclear generating stations, and may differ significantly from the amount recorded in these pro forma statements. The pro forma adjustment also relates to the elimination of accumulated depreciation reflected on Unicom's books in accordance with purchase accounting as prescribed by GAAP. As a result of the increased merger pro forma common stock equity balance, the merger pro forma adjustments include a reversal of the increased regulatory asset amortization related to the Unicom Pro Forma Adjustments discussed in Note 3. 18 Notes to Unaudited Pro Forma Combined Condensed Financial Statements (CONCLUDED) 8. Reflects the elimination of purchased power and off-system sales transactions between PECO and Unicom. 9. Reflects amortization of goodwill over a 40-year period. 10. Reflects the reclassification of PECO preferred stock dividends and interest on PECO obligated mandatorily redeemable preferred securities for consistent presentation. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. PECO ENERGY COMPANY \s\ Jean H. Gibson ----------------------- Vice President & Controller October 12, 1999 -----END PRIVACY-ENHANCED MESSAGE-----