-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, oxb8uGUOcAit5N6dvbdr5yR0Ir+cWXhnknsg5Bce6J4iaUimPRab2nULYJwI56Ns 09pbI0/yMHhqzQBux/QWtA== 0000774197-94-000034.txt : 19940815 0000774197-94-000034.hdr.sgml : 19940815 ACCESSION NUMBER: 0000774197-94-000034 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTERIOR ENERGY CORP CENTRAL INDEX KEY: 0000774197 STANDARD INDUSTRIAL CLASSIFICATION: 4911 IRS NUMBER: 341479083 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09130 FILM NUMBER: 94543263 BUSINESS ADDRESS: STREET 1: 6200 OAK TREE BLVD CITY: INDEPENDENCE STATE: OH ZIP: 44131 BUSINESS PHONE: 2164473100 MAIL ADDRESS: STREET 1: PO BOX 94661 CITY: CLEVELAND STATE: OH ZIP: 44101-4661 FORMER COMPANY: FORMER CONFORMED NAME: NORTH HOLDING CO /OH/ DATE OF NAME CHANGE: 19851002 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CLEVELAND ELECTRIC ILLUMINATING CO CENTRAL INDEX KEY: 0000020947 STANDARD INDUSTRIAL CLASSIFICATION: 4911 IRS NUMBER: 340150020 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-02323 FILM NUMBER: 94543264 BUSINESS ADDRESS: STREET 1: 55 PUBLIC SQ STREET 2: PO BOX 5000 CITY: CLEVELAND STATE: OH ZIP: 44101 BUSINESS PHONE: 2166229800 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TOLEDO EDISON CO CENTRAL INDEX KEY: 0000352049 STANDARD INDUSTRIAL CLASSIFICATION: 4911 IRS NUMBER: 344375005 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03583 FILM NUMBER: 94543265 BUSINESS ADDRESS: STREET 1: 300 MADISON AVE CITY: TOLEDO STATE: OH ZIP: 43652 BUSINESS PHONE: 4192495000 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 1994 OR [ ] Transition report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the transition period from _____ to _____ Commission Registrant; State of Incorporation; I.R.S. Employer File Number Address; and Telephone Number Identification No. 1-9130 CENTERIOR ENERGY CORPORATION 34-1479083 (An Ohio Corporation) 6200 Oak Tree Boulevard Independence, Ohio 44131 Telephone (216) 447-3100 1-2323 THE CLEVELAND ELECTRIC 34-0150020 ILLUMINATING COMPANY (An Ohio Corporation) 55 Public Square Cleveland, Ohio 44113 Telephone (216) 622-9800 1-3583 THE TOLEDO EDISON COMPANY 34-4375005 (An Ohio Corporation) 300 Madison Avenue Toledo, Ohio 43652 Telephone (419) 249-5000 Indicate by check mark whether each of the registrants (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No On August 5, 1994, there were 148,031,503 shares of Centerior Energy Corporation Common Stock outstanding. Centerior Energy Corporation is the sole holder of the 79,590,689 shares and 39,133,887 shares of common stock of The Cleveland Electric Illuminating Company and The Toledo Edison Company, respectively, outstanding on that date. This combined Form 10-Q is separately filed by Centerior Energy Corporation ("Centerior Energy"), The Cleveland Electric Illuminating Company ("Cleveland Electric") and The Toledo Edison Company ("Toledo Edison"). Centerior Energy, Cleveland Electric and Toledo Edison are sometimes referred to collectively as the "Companies". Cleveland Electric and Toledo Edison are sometimes collectively referred to as the "Operating Companies". Information contained herein relating to any individual registrant is filed by such registrant on its behalf. No registrant makes any representation as to information relating to any other registrant, except that information relating to either or both of the Operating Companies is also attributed to Centerior Energy. TABLE OF CONTENTS Page PART I. FINANCIAL INFORMATION Centerior Energy Corporation and Subsidiaries The Cleveland Electric Illuminating Company and Subsidiaries The Toledo Edison Company Notes to Financial Statements 1 Centerior Energy Corporation and Subsidiaries Income Statement 4 Balance Sheet 5 Cash Flows 6 Management's Discussion and Analysis of Financial 7 Condition and Results of Operations The Cleveland Electric Illuminating Company and Subsidiaries Income Statement 11 Balance Sheet 12 Cash Flows 13 Management's Discussion and Analysis of Financial 14 Condition and Results of Operations The Toledo Edison Company Income Statement 18 Balance Sheet 19 Cash Flows 20 Management's Discussion and Analysis of Financial 21 Condition and Results of Operations PART II. OTHER INFORMATION Item 5. Other Information 25 Item 6. Exhibits and Reports on Form 8-K 25 Signatures 26 -i- CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES, THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBSIDIARIES, AND THE TOLEDO EDISON COMPANY NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (1) Interim Financial Statements Centerior Energy Corporation (Centerior Energy) is a holding company of Centerior Service Company (Service Company) and two electric utilities, The Cleveland Electric Illuminating Company (Cleveland Electric) and The Toledo Edison Company (Toledo Edison). These two utilities are referred to collec- tively herein as the "Operating Companies". Centerior Energy, Cleveland Electric and Toledo Edison are referred to collectively herein as the "Companies". The comparative income statement and balance sheet and the related statement of cash flows of each of the Companies have been prepared from the records of each of the Companies without audit by independent public accountants. In the opinion of management, all adjustments necessary for a fair statement of financial position at June 30, 1994 and results of operations for the three months and six months ended June 30, 1994 and 1993 have been included. All such adjustments were normal recurring adjustments, except for those discussed in Notes 2 and 8. These financial statements and notes should be read in conjunction with the financial statements and notes included in the Companies' combined Annual Report on Form 10-K for the year ended December 31, 1993 (1993 Form 10-K) and the Quarterly Report on Form 10-Q for the quarter ended March 31, 1994 (First Quarter 1994 Form 10-Q). These interim period financial results are not necessarily indicative of results for a 12-month period. (2) New Accounting Standard Effective January 1, 1994, the Companies adopted the new accounting standard for certain investments in debt and equity securities (SFAS 115). SFAS 115 addresses the accounting and reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities. The adoption of SFAS 115 did not materially affect the financial positions or the 1994 second quarter and six-month results of operations of the Companies. (3) Equity Distribution Restrictions The Operating Companies can make cash available for the funding of Centerior Energy's common stock dividends by paying dividends on their respective common stock, which is held solely by Centerior Energy. Federal law prohibits the Operating Companies from paying dividends out of capital accounts. However, the Operating Companies may pay preferred and common stock dividends out of appropriated retained earnings and current earnings. At June 30, 1994, Cleveland Electric and Toledo Edison had $142.4 million and $70.1 million, respectively, of appropriated retained earnings for the payment of dividends. However, Toledo Edison is prohibited from paying a common stock dividend by a provision in its mortgage that essentially requires such dividends to be paid out of the total balance of retained earnings, which currently is a deficit. (4) Common Stock Dividends Dividends per common share declared by Centerior Energy during the six months ended June 30, 1994 and 1993 were as follows: 1994 1993 Paid February 15 $.20 $.40 Paid May 15 .20 .40 Paid August 15 .20 .40 Common stock dividends declared by Cleveland Electric during the six months ended June 30, 1994 and 1993 were as follows: 1994 1993 (millions) Paid in February $18.6 $46.7 Paid in May 24.2 47.0 Toledo Edison did not declare any common stock dividends during the six months ended June 30, 1994 and 1993. (5) Centerior Energy Common Stock Purchase Program Centerior Energy's program to purchase in the open market up to 1.5 million shares of its common stock has been extended two years until June 30, 1996. As of June 30, 1994, 225,500 shares had been purchased at a total cost of $3.7 million. Such shares are being held as treasury stock. (6) Financing Activity During the three months ended June 30, 1994, the Operating Companies retired debt and preferred stock as follows: Cleveland Electric Mandatory redemptions consisted of $25 million principal amount of First Mortgage Bonds, 4-3/8% Series due 1994; $4.3 million principal amount of First Mortgage Bonds, 13-3/4% Series due 2005; $3 million of Serial Preferred Stock, $88.00 Series E; and $0.3 million of pollution control notes. Cleveland Electric also elected to redeem an additional $4.3 million principal amount of First Mortgage Bonds, 13-3/4% Series due 2005. Toledo Edison Mandatory redemptions consisted of $25 million principal amount of Secured Medium-Term Notes, 8.5% Series A (Note No. 5) due 1994; $1.7 million of 9-3/8% Cumulative Preferred Stock, $100 par value; and $1.6 million of bank loans and other long-term debt. (7) Long-Term Debt and Other Borrowing Arrangements As discussed in Centerior Energy's Note 11(e) and the Operating Companies' respective Note 11(d) in the Notes to the Financial Statements for 1993 in the 1993 Form 10-K, certain unsecured debt agreements contain covenants relating to capitalization, fixed charge coverage ratios and secured financings. The write-offs recorded at December 31, 1993 caused the Companies to violate certain of those covenants. The affected creditors agreed to waive those violations in exchange for a second mortgage security interest on the Operating Companies' properties and other considerations. This transaction was completed in August 1994. The Companies have provided the same security interest to certain other creditors because their agreements require equal treatment. As of August 11, 1994, the Companies provided second mortgage collateral for $212.7 million of unsecured debt ($45.6 million for Cleveland Electric and $167.1 million for Toledo Edison), $228.1 million of bank letters of credit and a $205 million revolving credit facility. The bank letters of credit and revolving credit facility are joint and several obligations of the Operating Companies. (8) Early Retirement Program in 1993 Other operation and maintenance expenses for the three months and six months ended June 30, 1993 included approximately $13 million, $8 million and $5 million for Centerior Energy, Cleveland Electric and Toledo Edison, respectively, for pension and other benefit accruals for executives retiring under an early retirement program, called the Voluntary Transition Program (VTP). These expenses were recognized for executives of the Service Company and the Operating Companies who had elected to retire under the VTP by June 30, 1993. A small portion of these accruals related to the VTP curtailment cost of postretirement benefits other than pensions, which was deferred to later years under a provision of the Rate Stabilization Program. The deferred amounts at June 30, 1993 were $0.9 million, $0.5 million and $0.4 million for Centerior Energy, Cleveland Electric and Toledo Edison, respectively. Additional VTP benefit accruals were recorded in the second half of 1993 for all employees who elected to retire under the VTP in 1993. (9) Commitments and Contingencies Various legal actions, claims and regulatory proceedings covering several matters are pending against the Companies. See "Item 3. Legal Proceedings" in the 1993 Form 10-K. CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES INCOME STATEMENT (Unaudited) (Thousands, Except Per Share Amounts)
Three Months Ended Six Months Ended June 30, June 30, --------------------- ------------------------- 1994 1993 1994 1993 -------- -------- ---------- ---------- OPERATING REVENUES $ 596,437 $ 589,064 $ 1,184,004 $ 1,187,146 OPERATING EXPENSES Fuel and Purchased Power 104,968 113,922 220,321 237,798 Other Operation and Maintenance 199,842 198,709 386,660 399,338 Depreciation and Amortization 67,597 64,506 135,911 130,465 Taxes, Other Than Federal Income Taxes 82,577 82,700 165,585 165,777 Deferred Operating Expenses, Net (15,863) (17,970) (30,714) (34,770) Federal Income Taxes 23,392 20,992 43,674 40,013 -------- -------- ---------- ---------- Total Operating Expenses 462,513 462,859 921,437 938,621 -------- -------- ---------- ---------- OPERATING INCOME 133,924 126,205 262,567 248,525 NONOPERATING INCOME Allowance for Equity Funds Used During Construction 1,252 1,070 2,094 2,418 Other Income and Deductions, Net 2,134 (3,832) 4,689 (2,203) Deferred Carrying Charges 9,785 13,755 19,702 27,604 Federal Income Taxes - Credit (Expense) (1,481) 700 (2,744) 1,086 -------- -------- ---------- ---------- Total Nonoperating Income 11,690 11,693 23,741 28,905 -------- -------- ---------- ---------- INCOME BEFORE INTEREST CHARGES 145,614 137,898 286,308 277,430 INTEREST CHARGES Long-term Debt 87,084 87,228 175,431 174,255 Short-term Debt 1,780 1,433 3,246 3,644 Allowance for Borrowed Funds Used During Construction (1,352) (812) (2,134) (1,832) -------- -------- ---------- ---------- Net Interest Charges 87,512 87,849 176,543 176,067 -------- -------- ---------- ---------- INCOME AFTER INTEREST CHARGES 58,102 50,049 109,765 101,363 Preferred Dividend Requirements of Subsidiaries 16,566 16,500 33,226 32,597 -------- -------- ---------- ---------- NET INCOME $ 41,536 $ 33,549 $ 76,539 $ 68,766 ======== ======== ========== ========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 147,948 144,361 147,674 143,864 ======== ======== ========== ========== EARNINGS PER COMMON SHARE $ .28 $ .23 $ .52 $ .48 ======== ======== ========== ========== The accompanying notes to financial statements as they relate to Centerior Energy are an integral part of this statement.
CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES BALANCE SHEET (Thousands)
June 30, December 31, 1994 1993 (Unaudited) ----------- ----------- ASSETS PROPERTY, PLANT AND EQUIPMENT Utility Plant In Service $ 9,707,107 $ 9,571,124 Accumulated Depreciation and Amortization (2,826,088) (2,677,369) ----------- ----------- 6,881,019 6,893,755 Construction Work In Progress 142,599 180,931 ----------- ----------- 7,023,618 7,074,686 Nuclear Fuel, Net of Amortization 311,276 344,642 Other Property, Less Accumulated Depreciation 43,826 40,808 ----------- ----------- 7,378,720 7,460,136 CURRENT ASSETS Cash and Temporary Cash Investments 153,510 225,253 Amounts Due from Customers and Others, Net 241,717 220,500 Unbilled Revenues 118,844 123,844 Materials and Supplies, at Average Cost 138,333 135,511 Fossil Fuel Inventory, at Average Cost 28,806 32,159 Taxes Applicable to Succeeding Years 179,575 249,544 Other 12,393 6,235 ----------- ----------- 873,178 993,046 DEFERRED CHARGES AND OTHER ASSETS Amounts Due from Customers for Future Federal Income Taxes 989,219 968,267 Unamortized Loss from Beaver Valley Unit 2 Sale 102,944 105,190 Unamortized Loss on Reacquired Debt 88,066 92,385 Carrying Charges and Operating Expenses 912,000 861,660 Nuclear Plant Decommissioning Trusts 61,056 55,682 Other 165,924 173,464 ----------- ----------- 2,319,209 2,256,648 ----------- ----------- $ 10,571,107 $ 10,709,830 =========== =========== CAPITALIZATION AND LIABILITIES CAPITALIZATION Common Stock Equity $ 1,784,566 $ 1,785,122 Preferred Stock With Mandatory Redemption Provisions 283,402 313,575 Without Mandatory Redemption Provisions 450,871 450,871 Long-Term Debt 3,811,284 4,018,554 ----------- ----------- 6,330,123 6,568,122 OTHER NONCURRENT LIABILITIES Nuclear Fuel Lease Obligations 227,735 253,666 Other 191,576 195,377 ----------- ----------- 419,311 449,043 CURRENT LIABILITIES Current Portion of Long-Term Debt and Preferred Stock 280,533 127,253 Current Portion of Lease Obligations 103,071 111,490 Accounts Payable 200,488 188,409 Accrued Taxes 282,391 377,887 Accrued Interest 86,998 87,394 Dividends Declared 45,229 15,795 Other 63,678 57,399 ----------- ----------- 1,062,388 965,627 DEFERRED CREDITS Unamortized Investment Tax Credits 304,057 329,290 Accumulated Deferred Federal Income Taxes 1,644,089 1,578,955 Unamortized Gain from Bruce Mansfield Plant Sale 538,144 551,268 Accumulated Deferred Rents for Bruce Mansfield Plant and Beaver Valley Unit 2 137,752 127,661 Other 135,243 139,864 ----------- ----------- 2,759,285 2,727,038 COMMITMENTS AND CONTINGENCIES (Note 9) ----------- ----------- $ 10,571,107 $ 10,709,830 =========== =========== The accompanying notes to financial statements as they relate to Centerior Energy are an integral part of this statement.
CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES CASH FLOWS (Unaudited) (Thousands)
Six Months Ended June 30, -------------------- 1994 1993 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income $76,539 $68,766 -------- -------- Adjustments to Reconcile Net Income to Cash from Operating Activities: Depreciation and Amortization 135,911 130,465 Deferred Federal Income Taxes 29,158 23,181 Unbilled Revenues 5,000 5,000 Deferred Fuel (9,183) 5,131 Deferred Carrying Charges (19,702) (27,604) Leased Nuclear Fuel Amortization 48,436 36,985 Deferred Operating Expenses, Net (30,714) (34,770) Allowance for Equity Funds Used During Construction (2,094) (2,418) Changes in Amounts Due from Customers and Others, Net (21,217) (5,028) Changes in Inventories 531 12,265 Changes in Accounts Payable 12,079 48,916 Changes in Working Capital Affecting Operations (25,802) (91,209) Other Noncash Items 17,439 7,582 ------- ------- Total Adjustments 139,842 108,496 ------- ------- Net Cash from Operating Activities 216,381 177,262 CASH FLOWS FROM FINANCING ACTIVITIES Bank Loans, Commercial Paper and Other Short-Term Debt -- (29,502) Debt Issues: First Mortgage Bonds -- 300,200 Secured Medium-Term Notes -- 128,000 Term Bank Loan -- 40,000 Preferred Stock Issue -- 100,000 Common Stock Issues 11,732 36,516 Reacquired Common Stock -- 287 Maturities, Redemptions and Sinking Funds (84,581) (343,460) Nuclear Fuel Lease Obligations (49,077) (52,629) Common Stock Dividends Paid (59,018) (114,726) Premiums, Discounts and Expenses -- (7,994) ------- ------- Net Cash from Financing Activities (180,944) 56,692 CASH FLOWS FROM INVESTING ACTIVITIES Cash Applied to Construction (88,984) (97,257) Interest Capitalized as Allowance for Borrowed Funds Used During Construction (2,134) (1,832) Other Cash Applied (16,062) (13,882) ------- ------- Net Cash from Investing Activities (107,180) (112,971) ------- ------- NET CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS (71,743) 120,983 CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD 225,253 92,949 ------- ------- CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD $153,510 $213,932 ======= ======= Other Payment Information: Interest (net of amounts capitalized) $151,000 $146,000 Federal Income Taxes -- 28,000 The accompanying notes to financial statements as they relate to Centerior Energy are an integral part of this statement.
CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Capital Resources and Liquidity Reference is made to "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in Item 7 of the 1993 Form 10-K and in the First Quarter 1994 Form 10-Q. The information under "Capital Resources and Liquidity" remains unchanged with the following exceptions: During the second quarter of 1994, the Operating Companies redeemed various securities as discussed in Note 6. As discussed in Note 7, a second mortgage security interest on the Operating Companies' properties was provided to certain creditors in August 1994. A $205 million revolving credit facility is now available for borrowings by Centerior Energy (for the Operating Companies) and the Service Company. The banks' fee is 0.625% per annum payable quarterly in addition to interest on any borrowings. See Note 12 in Centerior Energy's Notes to the Financial Statements for 1993 in the 1993 Form 10-K for additional information on this facility. In the third quarter of 1994, Cleveland Electric and Toledo Edison expect to issue $46.1 million and $30.5 million, respectively, of first mortgage bonds as collateral security for the sale by a public authority of equal principal amounts of tax-exempt bonds. The proceeds from the sales of the public authority's bonds will be used to refund equal principal amounts of the authority's tax-exempt bonds that were issued in 1988 and have been continuously remarketed on a floating rate basis. Each new series of bonds will be due October 1, 2023 and will have a fixed rate of interest. Additional first mortgage bonds may be issued by the Operating Companies under their respective mortgages on the basis of property additions, cash or refund- able first mortgage bonds. Under their respective mortgages, each Operating Company may issue first mortgage bonds on the basis of property additions and, under certain circumstances, refundable bonds only if the applicable interest coverage test is met. At June 30, 1994, Cleveland Electric and Toledo Edison would have been permitted to issue approximately $196 million and $348 million of additional first mortgage bonds, respectively. After the fourth quarter of 1994, Cleveland Electric's ability to issue first mortgage bonds is expected to increase substantially when its interest coverage ratio will no longer be affected by the write-offs recorded at December 31, 1993. Results of Operations Factors contributing to the 1.3% increase in second quarter 1994 operating revenues from the 1993 amount and the 0.3% decrease in six-month 1994 operating revenues from the 1993 amount are shown as follows: Changes for Period Ended June 30, 1994 Three Six Factors Months Months (millions) Sales Volume and Mix $ 22.5 $ 33.0 Wholesale Revenues (12.7) (20.3) Fuel Cost Recovery Revenues (6.8) (22.3) Miscellaneous Revenues 4.4 6.5 Total $ 7.4 $ (3.1) Percentage changes between 1994 and 1993 billed electric kilowatt-hour sales are summarized as follows: Changes for Period Ended June 30, 1994 Three Six Customer Categories Months Months Residential 2.9% 4.1% Commercial 3.8 4.5 Industrial 4.6 4.8 Other (44.6) (28.9) Total (3.7) 0.3 Second quarter 1994 total kilowatt-hour sales decreased because of lower wholesale sales (included in the "Other" category). Residential and commercial sales increased as a result of warmer weather in the second quarter of 1994 than in the second quarter of 1993, which increased cooling-related demand. A mid-June 1994 heat wave sharply increased the use of air conditioners in the service area. Industrial sales increased on the strength of increased sales to large automotive manufacturers and the broad-based, smaller industrial customer group. Other sales decreased because of lower wholesale sales. Total kilowatt-hour sales increased slightly for the six-month period in 1994 as a result of increased economic activity and weather-related demand. Industrial sales increased on the strength of increased sales to large automotive manufacturers, large steel industry customers and the broad-based, smaller industrial customer group. Residential and commercial sales increased as a result of colder winter temperatures and warmer spring and summer temperatures in 1994, which increased electric heating and cooling demands. Other sales decreased because of lower wholesale sales. The decreases in 1994 wholesale sales and revenues were attributable to the expiration of a wholesale power agreement, softer market conditions and limited power availability for bulk power transactions because of generating plant outages. The decreases in 1994 fuel cost recovery revenues included in customer bills resulted from decreases in the fuel cost recovery factors used by the Operating Companies to calculate these revenues. The weighted averages of the fuel cost recovery factors used in the second quarter of 1994 decreased about 10.5% and 1.5% for Cleveland Electric and Toledo Edison, respectively, and during the six-month period in 1994 decreased about 15% and 1.5%, respectively, compared to those used in 1993. Miscellaneous revenues in 1994 increased from the 1993 amounts primarily because of increased billings to other utilities for overhead expenses related to the 1994 refueling and maintenance outage of the jointly owned Perry Nuclear Power Plant Unit 1 (Perry Unit 1). Second quarter operating expenses in 1994 were virtually the same as the 1993 amount. Fuel and purchased power expenses decreased because of lower fuel expense, including less amortization of previously deferred fuel costs than the amount amortized in 1993. An increase in purchased power expense partially offset the lower fuel expense. During the June 1994 heat wave, additional power was purchased because two large generating units were out of operation for maintenance. Depreciation and amortization expenses increased because of higher nuclear plant decommissioning expense accruals related to revisions in the cost estimates in late 1993. A decrease in deferred operating expenses resulted primarily from the cessation at the end of 1993 of deferrals related to the rate phase-in plans for the investments in Perry Unit 1 and Beaver Valley Power Station Unit 2 under a 1989 rate agreement for the Operating Companies. Federal income taxes increased as a result of higher pretax operating income. Other operation and maintenance expenses increased slightly as increased power production expenses related to generating plant maintenance outages completely offset expense reductions resulting from cost reduction measures, including the work force reduction in 1993. Also, other operation and maintenance expenses in the 1993 second quarter included $13 million of VTP benefit expenses as discussed in Note 8. Second quarter credits for carrying charges in 1994 decreased from the 1993 amount primarily because of the cessation at the end of 1993 of accruals related to the phase-in plans. The second quarter federal income tax provision for nonoperating income in 1994 increased from the 1993 amount because the expense increase resulting from a lower tax allocation of interest charges to nonoperating activities exceeded the decrease related to the lower carrying charge credits. Second quarter net income in 1994 increased $8 million, or 23.8%, from the 1993 amount. Quarterly earnings per common share increased $.05 per share, or 21.7%. Six-month operating expenses in 1994 decreased 1.8% from the 1993 amount. Fuel and purchased power expenses decreased because of lower fuel expense, including less amortization of previously deferred fuel costs than the amount amortized in 1993. A change in the system generating mix (more nuclear generation and less coal-fired generation in the 1994 period than in the 1993 period) accounted for a large part of the lower fuel expense for the 1994 period. An increase in purchased power expense partially offset the lower fuel expense. Other operation and maintenance expenses decreased primarily because the 1993 six-month period expenses included $13 million of VTP benefit expenses as discussed in Note 8. Increased maintenance expense related to generating plant outages in 1994 substantially offset expense reductions resulting from cost reduction measures. Depreciation and amortization expenses increased primarily because of the aforementioned higher nuclear plant decommissioning expense accruals. A decrease in deferred operating expenses resulted primarily from the cessation at the end of 1993 of deferrals related to the rate phase-in plans as discussed above. Federal income taxes increased as a result of higher pretax operating income. The six-month credits for carrying charges in 1994 decreased from the 1993 amount primarily because of the cessation at the end of 1993 of accruals related to the phase-in plans. The six-month federal income tax provision for nonoperating income in 1994 increased from the 1993 amount because the expense increase resulting from a lower tax allocation of interest charges to nonoperating activities exceeded the decrease related to the lower carrying charge credits. Six-month net income in 1994 increased $7.8 million, or 11.3%, from the 1993 amount. Six-month earnings per share increased $.04 per share, or 8.3%. THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBSIDIARIES INCOME STATEMENT (Unaudited) (Thousands)
Three Months Ended Six Months Ended June 30, June 30, --------------------- ------------------------ 1994 1993 1994 1993 -------- -------- ---------- --------- OPERATING REVENUES $ 414,804 $ 417,473 $ 822,659 $ 838,580 OPERATING EXPENSES Fuel and Purchased Power (1) 92,032 103,455 191,971 215,995 Other Operation and Maintenance 119,515 122,937 231,567 241,741 Depreciation and Amortization 47,637 45,540 95,629 92,000 Taxes, Other Than Federal Income Taxes 58,959 58,821 118,044 117,784 Deferred Operating Expenses, Net (10,307) (10,579) (20,026) (20,451) Federal Income Taxes 15,916 12,796 28,910 24,898 -------- -------- ---------- ---------- Total Operating Expenses 323,752 332,970 646,095 671,967 -------- -------- ---------- ---------- OPERATING INCOME 91,052 84,503 176,564 166,613 NONOPERATING INCOME Allowance for Equity Funds Used During Construction 947 905 1,577 1,929 Other Income and Deductions, Net 1,213 (4,313) 3,112 (2,308) Deferred Carrying Charges 6,226 7,654 12,463 15,302 Federal Income Taxes - Credit (Expense) (906) 527 (1,962) 665 -------- -------- ---------- ---------- Total Nonoperating Income 7,480 4,773 15,190 15,588 -------- -------- ---------- ---------- INCOME BEFORE INTEREST CHARGES 98,532 89,276 191,754 182,201 INTEREST CHARGES Long-term Debt 60,080 59,169 120,513 119,163 Short-term Debt 1,307 836 1,933 1,843 Allowance for Borrowed Funds Used During Construction (1,161) (706) (1,905) (1,519) -------- -------- ---------- ---------- Net Interest Charges 60,226 59,299 120,541 119,487 -------- -------- ---------- ---------- NET INCOME 38,306 29,977 71,213 62,714 Preferred Dividend Requirements 11,366 10,665 22,868 20,846 -------- -------- ---------- ---------- EARNINGS AVAILABLE FOR COMMON STOCK $ 26,940 $ 19,312 $ 48,345 $ 41,868 ======== ======== ========== ========== (1) Includes purchased power expense for purchases from Toledo Edison. $ 27,945 $ 30,572 $ 57,613 $ 60,990 The accompanying notes to financial statements as they relate to Cleveland Electric are an integral part of this statement.
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBSIDIARIES BALANCE SHEET (Thousands)
June 30, December 31, 1994 1993 (Unaudited) ----------- ----------- ASSETS PROPERTY, PLANT AND EQUIPMENT Utility Plant In Service $ 6,815,613 $ 6,734,130 Accumulated Depreciation and Amortization (1,957,888) (1,889,584) ----------- ----------- 4,857,725 4,844,546 Construction Work In Progress 106,854 141,422 ----------- ----------- 4,964,579 4,985,968 Nuclear Fuel, Net of Amortization 185,019 202,200 Other Property, Less Accumulated Depreciation 40,448 41,041 ----------- ----------- 5,190,046 5,229,209 CURRENT ASSETS Cash and Temporary Cash Investments 45,930 77,374 Amounts Due from Customers and Others, Net 167,004 155,899 Amounts Due from Affiliates 7,641 5,399 Unbilled Revenues 96,000 99,000 Materials and Supplies, at Average Cost 92,959 92,659 Fossil Fuel Inventory, at Average Cost 19,278 20,188 Taxes Applicable to Succeeding Years 127,261 178,577 Other 3,595 2,967 ----------- ----------- 559,668 632,063 DEFERRED CHARGES AND OTHER ASSETS Amounts Due from Customers for Future Federal Income Taxes 600,895 586,494 Unamortized Loss on Reacquired Debt 58,318 60,293 Carrying Charges and Operating Expenses 551,065 518,613 Nuclear Plant Decommissioning Trusts 33,031 29,955 Other 93,374 102,546 ----------- ----------- 1,336,683 1,297,901 ----------- ----------- $ 7,086,397 $ 7,159,173 =========== =========== CAPITALIZATION AND LIABILITIES CAPITALIZATION Common Stock Equity $ 1,056,771 $ 1,039,947 Preferred Stock With Mandatory Redemption Provisions 256,717 285,225 Without Mandatory Redemption Provisions 240,871 240,871 Long-Term Debt 2,635,745 2,793,162 ----------- ----------- 4,190,104 4,359,205 OTHER NONCURRENT LIABILITIES Nuclear Fuel Lease Obligations 137,044 150,775 Other 95,206 96,352 ----------- ----------- 232,250 247,127 CURRENT LIABILITIES Current Portion of Long-Term Debt and Preferred Stock 203,571 70,394 Current Portion of Lease Obligations 58,394 62,610 Accounts Payable 132,191 122,385 Accounts and Notes Payable to Affiliates 104,010 60,956 Accrued Taxes 236,045 304,621 Accrued Interest 60,284 60,376 Dividends Declared 7,539 19,258 Other 37,209 32,632 ----------- ----------- 839,243 733,232 DEFERRED CREDITS Unamortized Investment Tax Credits 213,722 235,293 Accumulated Deferred Federal Income Taxes 1,148,924 1,104,859 Unamortized Gain from Bruce Mansfield Plant Sale 335,057 343,183 Accumulated Deferred Rents for Bruce Mansfield Plant 80,879 77,304 Other 46,218 58,970 ----------- ----------- 1,824,800 1,819,609 COMMITMENTS AND CONTINGENCIES (Note 9) ----------- ----------- $ 7,086,397 $ 7,159,173 =========== =========== The accompanying notes to financial statements as they relate to Cleveland Electric are an integral part of this statement.
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBSIDIARIES CASH FLOWS (Unaudited) (Thousands)
Six Months Ended June 30, -------------------- 1994 1993 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income $71,213 $62,714 -------- -------- Adjustments to Reconcile Net Income to Cash from Operating Activities: Depreciation and Amortization 95,629 92,000 Deferred Federal Income Taxes 14,492 13,515 Unbilled Revenues 3,000 4,000 Deferred Fuel (10,899) 10,203 Deferred Carrying Charges (12,463) (15,302) Leased Nuclear Fuel Amortization 26,425 20,453 Deferred Operating Expenses, Net (20,026) (20,451) Allowance for Equity Funds Used During Construction (1,577) (1,929) Changes in Amounts Due from Customers and Others, Net (11,105) (562) Changes in Inventories 610 6,639 Changes in Accounts Payable 9,806 33,191 Changes in Working Capital Affecting Operations (20,191) (79,639) Other Noncash Items 5,622 187 ------- ------- Total Adjustments 79,323 62,305 ------- ------- Net Cash from Operating Activities 150,536 125,019 CASH FLOWS FROM FINANCING ACTIVITIES Bank Loans, Commercial Paper and Other Short-Term Debt -- (10,000) Notes Payable to Affiliates 47,600 (11,000) Debt Issues: First Mortgage Bonds -- 280,000 Secured Medium-Term Notes -- 35,000 Term Bank Loan -- 40,000 Preferred Stock Issue -- 100,000 Maturities, Redemptions and Sinking Funds (53,105) (291,504) Nuclear Fuel Lease Obligations (27,193) (29,364) Dividends Paid (65,902) (113,759) Premiums, Discounts and Expenses -- (7,062) ------- ------- Net Cash from Financing Activities (98,600) (7,689) CASH FLOWS FROM INVESTING ACTIVITIES Cash Applied to Construction (73,071) (80,224) Interest Capitalized as Allowance for Borrowed Funds Used During Construction (1,905) (1,519) Other Cash Applied (8,404) (4,817) ------- ------- Net Cash from Investing Activities (83,380) (86,560) ------- ------- NET CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS (31,444) 30,770 CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD 77,374 33,524 ------- ------- CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD $45,930 $64,294 ======= ======= Other Payment Information: Interest (net of amounts capitalized) $105,000 $101,000 Federal Income Taxes -- 22,600 The accompanying notes to financial statements as they relate to Cleveland Electric are an integral part of this statement.
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Capital Resources and Liquidity Reference is made to "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in Item 7 of the 1993 Form 10-K and in the First Quarter 1994 Form 10-Q. The information under "Capital Resources and Liquidity" remains unchanged with the following exceptions: During the second quarter of 1994, Cleveland Electric redeemed various securities as discussed in Note 6. As discussed in Note 7, a second mortgage security interest on the Operating Companies' properties was provided to certain creditors in August 1994. A $205 million revolving credit facility is now available for borrowings by Centerior Energy (for the Operating Companies) and the Service Company. The banks' fee is 0.625% per annum payable quarterly in addition to interest on any borrowings. See Note 12 in Cleveland Electric's Notes to the Financial Statements for 1993 in the 1993 Form 10-K for additional information on this facility. In the third quarter of 1994, Cleveland Electric expects to issue $46.1 million of first mortgage bonds as collateral security for the sale by a public authority of an equal principal amount of tax-exempt bonds. The proceeds from the sale of the public authority's bonds will be used to refund $46.1 million of the authority's tax-exempt bonds that were issued in 1988 and have been continuously remarketed on a floating rate basis. The new series of bonds will be due October 1, 2023 and will have a fixed rate of interest. Additional first mortgage bonds may be issued by Cleveland Electric under its mortgage on the basis of property additions, cash or refundable first mortgage bonds. Under its mortgage, Cleveland Electric may issue first mortgage bonds on the basis of property additions and, under certain circumstances, refund- able bonds only if the applicable interest coverage test is met. At June 30, 1994, Cleveland Electric would have been permitted to issue approximately $196 million of additional first mortgage bonds. After the fourth quarter of 1994, Cleveland Electric's ability to issue first mortgage bonds is expected to increase substantially when its interest coverage ratio will no longer be affected by the write-offs recorded at December 31, 1993. Results of Operations Factors contributing to the 0.6% and 1.9% decreases in 1994 operating revenues from 1993 for the second quarter and six months, respectively, are shown as follows: Changes for Period Ended June 30, 1994 Three Six Factors Months Months (millions) Sales Volume and Mix $ 13.0 $ 20.6 Wholesale Revenues (14.8) (24.0) Fuel Cost Recovery Revenues (6.3) (21.0) Miscellaneous Revenues 5.4 8.5 Total $ (2.7) $(15.9) Percentage changes between 1994 and 1993 billed electric kilowatt-hour sales are summarized as follows: Changes for Period Ended June 30, 1994 Three Six Customer Categories Months Months Residential 2.7% 3.6% Commercial 3.8 4.2 Industrial 2.3 2.8 Other (71.8) (55.9) Total (9.9) (4.3) Second quarter 1994 total kilowatt-hour sales decreased because of lower wholesale sales (included in the "Other" category). Residential and commercial sales increased as a result of warmer weather in the second quarter of 1994 than in the second quarter of 1993, which increased cooling-related demand. A mid-June 1994 heat wave sharply increased the use of air conditioners in the service area. Industrial sales increased on the strength of increased sales to large automotive manufacturers and the broad-based, smaller industrial customer group. Other sales decreased because of lower wholesale sales. Total kilowatt-hour sales decreased for the six-month period in 1994 as a result of lower wholesale sales. Residential and commercial sales increased as a result of colder winter temperatures and warmer spring and summer temperatures in 1994, which increased electric heating and cooling demands. Industrial sales increased on the strength of increased sales to large automotive manufacturers, large steel industry customers and the broad-based, smaller industrial customer group. Other sales decreased because of lower wholesale sales. The decreases in 1994 wholesale sales and revenues were attributable to the expiration of a wholesale power agreement, softer market conditions and limited power availability for bulk power transactions because of generating plant outages. The decreases in 1994 fuel cost recovery revenues included in customer bills resulted from decreases in the fuel cost recovery factors used in 1994 to calculate these revenues compared to those used in 1993. The decreases in the weighted averages of the fuel cost recovery factors for 1994 were about 10.5% and 15% for the second quarter and six months, respectively. Miscellaneous revenues in 1994 increased from the 1993 amounts primarily because of increased billings to other utilities for overhead expenses related to the 1994 refueling and maintenance outage of the jointly owned Perry Nuclear Power Plant Unit 1 (Perry Unit 1). Second quarter operating expenses in 1994 decreased 2.8% from the 1993 amount. Fuel and purchased power expenses decreased because of lower fuel expense, including less amortization of previously deferred fuel costs than the amount amortized in 1993. An increase in purchased power expense partially offset the lower fuel expense. During the June 1994 heat wave, additional power was purchased because two large generating units were out of operation for maintenance. Other operation and maintenance expenses decreased primarily because the 1993 second quarter expenses included $8 million of VTP benefit expenses as discussed in Note 8. Also, an increase in power production expenses related to generating plant maintenance outages completely offset expense reductions resulting from cost reduction measures, including the work force reduction in 1993. Depreciation and amortization expenses increased because of higher nuclear plant decommissioning expense accruals related to revisions in the cost estimates in late 1993. Federal income taxes increased as a result of higher pretax operating income. Second quarter credits for carrying charges in 1994 decreased from the 1993 amount primarily because of the cessation at the end of 1993 of accruals related to the rate phase-in plan for the investments in Perry Unit 1 and Beaver Valley Power Station Unit 2 under a 1989 rate agreement. The second quarter federal income tax provision for nonoperating income in 1994 increased from the 1993 amount because the expense increase resulting from a lower tax allocation of interest charges to nonoperating activities exceeded the decrease related to the lower carrying charge credits. Second quarter earnings available for common stock in 1994 increased $7.6 million, or 39.5%, from the 1993 amount. Six-month operating expenses in 1994 decreased 3.9% from the 1993 amount. Fuel and purchased power expenses decreased because of lower fuel expense, including less amortization of previously deferred fuel costs than the amount amortized in 1993. A change in the system generating mix (more nuclear generation and less coal-fired generation in the 1994 period than in the 1993 period) accounted for a large part of the lower fuel expense for the 1994 period. An increase in purchased power expense partially offset the lower fuel expense. Other operation and maintenance expenses decreased primarily because the 1993 six-month period expenses included $8 million of VTP benefit expenses as discussed in Note 8. Increased maintenance expense related to generating plant outages in 1994 substantially offset expense reductions resulting from cost reduction measures. Depreciation and amortization expenses increased primarily because of the aforementioned higher nuclear plant decommissioning expense accruals. Federal income taxes increased as a result of higher pretax operating income. The six-month credits for carrying charges in 1994 decreased from the 1993 amount primarily because of the cessation at the end of 1993 of accruals related to the phase-in plan. The six-month federal income tax provision for nonoperating income in 1994 increased from the 1993 amount because the expense increase resulting from a lower tax allocation of interest charges to non- operating activities exceeded the decrease related to the lower carrying charge credits. Six-month preferred dividend requirements in 1994 increased from the 1993 amount primarily because of the new issue of preferred stock in 1993. Six-month earnings available for common stock in 1994 increased $6.5 million, or 15.5%, from the 1993 amount. THE TOLEDO EDISON COMPANY INCOME STATEMENT (Unaudited) (Thousands)
Three Months Ended Six Months Ended June 30, June 30, --------------------- ------------------------- 1994 1993 1994 1993 -------- -------- ---------- ---------- OPERATING REVENUES (1) $ 216,452 $ 210,350 $ 433,024 $ 425,165 OPERATING EXPENSES Fuel and Purchased Power 41,350 42,310 87,023 84,893 Other Operation and Maintenance 86,781 82,818 168,364 172,148 Depreciation and Amortization 19,959 18,965 40,281 38,465 Taxes, Other Than Federal Income Taxes 23,443 23,760 47,191 47,755 Deferred Operating Expenses, Net (5,555) (7,391) (10,688) (14,319) Federal Income Taxes 7,623 8,293 14,994 15,269 -------- -------- ---------- ---------- Total Operating Expenses 173,601 168,755 347,165 344,211 -------- -------- ---------- ---------- OPERATING INCOME 42,851 41,595 85,859 80,954 NONOPERATING INCOME Allowance for Equity Funds Used During Construction 304 165 517 489 Other Income and Deductions, Net 1,154 608 1,622 881 Deferred Carrying Charges 3,559 6,102 7,239 12,302 Federal Income Taxes - Credit (Expense) (352) 385 (378) 806 -------- -------- ---------- ---------- Total Nonoperating Income 4,665 7,260 9,000 14,478 -------- -------- ---------- ---------- INCOME BEFORE INTEREST CHARGES 47,516 48,855 94,859 95,432 INTEREST CHARGES Long-term Debt 27,004 28,058 54,917 55,091 Short-term Debt 1,048 962 1,940 2,405 Allowance for Borrowed Funds Used During Construction (190) (106) (228) (313) -------- -------- ---------- ---------- Net Interest Charges 27,862 28,914 56,629 57,183 -------- -------- ---------- ---------- NET INCOME 19,654 19,941 38,230 38,249 Preferred Dividend Requirements 5,200 5,836 10,358 11,751 -------- -------- ---------- ---------- EARNINGS AVAILABLE FOR COMMON STOCK $ 14,454 $ 14,105 $ 27,872 $ 26,498 ======== ======== ========== ========== (1) Includes revenues from bulk power sales to Cleveland Electric. $ 27,945 $ 30,572 $ 57,613 $ 60,990 The accompanying notes to financial statements as they relate to Toledo Edison are an integral part of this statement.
THE TOLEDO EDISON COMPANY BALANCE SHEET (Thousands)
June 30, December 31, 1994 1993 (Unaudited) ----------- ----------- ASSETS PROPERTY, PLANT AND EQUIPMENT Utility Plant In Service $ 2,891,494 $ 2,836,993 Accumulated Depreciation and Amortization (868,200) (787,785) ----------- ----------- 2,023,294 2,049,208 Construction Work In Progress 35,745 39,509 ----------- ----------- 2,059,039 2,088,717 Nuclear Fuel, Net of Amortization 126,257 142,442 Other Property, Less Accumulated Depreciation 3,378 (234) ----------- ----------- 2,188,674 2,230,925 CURRENT ASSETS Cash and Temporary Cash Investments 68,677 82,042 Amounts Due from Customers and Others, Net 70,933 62,979 Amounts Due from Affiliates 44,934 15,682 Unbilled Revenues 22,844 24,844 Materials and Supplies, at Average Cost 45,373 42,852 Fossil Fuel Inventory, at Average Cost 9,528 11,971 Taxes Applicable to Succeeding Years 52,314 70,966 Other 2,177 2,284 ----------- ----------- 316,780 313,620 DEFERRED CHARGES AND OTHER ASSETS Amounts Due from Customers for Future Federal Income Taxes 388,280 381,729 Unamortized Loss from Beaver Valley Unit 2 Sale 102,944 105,190 Unamortized Loss on Reacquired Debt 29,748 32,093 Carrying Charges and Operating Expenses 360,935 343,046 Nuclear Plant Decommissioning Trusts 28,026 25,727 Other 71,353 77,524 ----------- ----------- 981,286 965,309 ----------- ----------- $ 3,486,740 $ 3,509,854 =========== =========== CAPITALIZATION AND LIABILITIES CAPITALIZATION Common Stock Equity $ 650,287 $ 622,375 Preferred Stock With Mandatory Redemption Provisions 26,685 28,350 Without Mandatory Redemption Provisions 210,000 210,000 Long-Term Debt 1,175,539 1,225,392 ----------- ----------- 2,062,511 2,086,117 OTHER NONCURRENT LIABILITIES Nuclear Fuel Lease Obligations 90,691 102,891 Other 79,446 82,757 ----------- ----------- 170,137 185,648 CURRENT LIABILITIES Current Portion of Long-Term Debt and Preferred Stock 76,963 56,859 Current Portion of Lease Obligations 44,677 48,880 Accounts Payable 61,700 63,384 Accounts Payable to Affiliates 32,212 26,608 Accrued Taxes 61,814 89,574 Accrued Interest 26,579 27,022 Other 16,804 16,948 ----------- ----------- 320,749 329,275 DEFERRED CREDITS Unamortized Investment Tax Credits 90,335 93,997 Accumulated Deferred Federal Income Taxes 493,222 471,471 Unamortized Gain from Bruce Mansfield Plant Sale 203,087 208,085 Accumulated Deferred Rents for Bruce Mansfield Plant and Beaver Valley Unit 2 56,873 50,357 Other 89,826 84,904 ----------- ----------- 933,343 908,814 COMMITMENTS AND CONTINGENCIES (Note 9) ----------- ----------- $ 3,486,740 $ 3,509,854 =========== =========== The accompanying notes to financial statements as they relate to Toledo Edison are an integral part of this statement.
THE TOLEDO EDISON COMPANY CASH FLOWS (Unaudited) (Thousands)
Six Months Ended June 30, -------------------- 1994 1993 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income $38,230 $38,249 ------- ------- Adjustments to Reconcile Net Income to Cash from Operating Activities: Depreciation and Amortization 40,281 38,465 Deferred Federal Income Taxes 15,348 9,505 Unbilled Revenues 2,000 1,000 Deferred Fuel 1,716 (5,072) Deferred Carrying Charges (7,239) (12,302) Leased Nuclear Fuel Amortization 22,013 16,532 Deferred Operating Expenses, Net (10,688) (14,319) Allowance for Equity Funds Used During Construction (517) (489) Changes in Amounts Due from Customers and Others, Net (7,954) (4,016) Changes in Inventories (78) 5,626 Changes in Accounts Payable (1,684) 5,489 Changes in Working Capital Affecting Operations (7,236) (19,508) Other Noncash Items 11,817 7,395 ------ ------ Total Adjustments 57,779 28,306 ------ ------ Net Cash from Operating Activities 96,009 66,555 CASH FLOWS FROM FINANCING ACTIVITIES Bank Loans, Commercial Paper and Other Short-Term Debt -- (19,502) Debt Issues: First Mortgage Bonds -- 20,200 Secured Medium-Term Notes -- 93,000 Maturities, Redemptions and Sinking Funds (31,476) (51,956) Nuclear Fuel Lease Obligations (21,884) (23,265) Dividends Paid (10,289) (11,808) Premiums, Discounts and Expenses -- (882) ------- ------ Net Cash from Financing Activities (63,649) 5,787 CASH FLOWS FROM INVESTING ACTIVITIES Cash Applied to Construction (15,913) (17,033) Interest Capitalized as Allowance for Borrowed Funds Used During Construction (228) (313) Loans to Affiliates (26,000) -- Other Cash Applied (3,584) (619) ------ ------ Net Cash from Investing Activities (45,725) (17,965) ------ ------ NET CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS (13,365) 54,377 CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD 82,042 15,731 ------- ------- CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD $68,677 $70,108 ======= ======= Other Payment Information: Interest (net of amounts capitalized) $47,000 $45,000 Federal Income Taxes -- 5,400 The accompanying notes to financial statements as they relate to Toledo Edison are an integral part of this statement.
THE TOLEDO EDISON COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Capital Resources and Liquidity Reference is made to "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in Item 7 of the 1993 Form 10-K and in the First Quarter 1994 Form 10-Q. The information under "Capital Resources and Liquidity" remains unchanged with the following exceptions: During the second quarter of 1994, Toledo Edison redeemed various securities as discussed in Note 6. As discussed in Note 7, a second mortgage security interest on the Operating Companies' properties was provided to certain creditors in August 1994. A $205 million revolving credit facility is now available for borrowings by Centerior Energy (for the Operating Companies) and the Service Company. The banks' fee is 0.625% per annum payable quarterly in addition to interest on any borrowings. See Note 12 in Toledo Edison's Notes to the Financial Statements for 1993 in the 1993 Form 10-K for additional information on this facility. In the third quarter of 1994, Toledo Edison expects to issue $30.5 million of first mortgage bonds as collateral security for the sale by a public authority of an equal principal amount of tax-exempt bonds. The proceeds from the sale of the public authority's bonds will be used to refund $30.5 million of the authority's tax-exempt bonds that were issued in 1988 and have been continuously remarketed on a floating rate basis. The new series of bonds will be due October 1, 2023 and will have a fixed rate of interest. Additional first mortgage bonds may be issued by Toledo Edison under its mortgage on the basis of property additions, cash or refundable first mortgage bonds. Under its mortgage, Toledo Edison may issue first mortgage bonds on the basis of property additions and, under certain circumstances, refundable bonds only if the applicable interest coverage test is met. At June 30, 1994, Toledo Edison would have been permitted to issue approximately $348 million of additional first mortgage bonds. Results of Operations Factors contributing to the 2.9% and 1.8% increases in 1994 operating revenues from 1993 for the second quarter and six months, respectively, are shown as follows: Changes for Period Ended June 30, 1994 Three Six Factors Months Months (millions) Sales Volume and Mix $ 9.5 $ 12.5 Wholesale Revenues (1.3) (0.8) Miscellaneous Revenues (1.6) (2.5) Fuel Cost Recovery Revenues (0.5) (1.3) Total $ 6.1 $ 7.9 Percentage changes between 1994 and 1993 billed electric kilowatt-hour sales are summarized as follows: Changes for Period Ended June 30, 1994 Three Six Customer Categories Months Months Residential 3.5% 5.3% Commercial 3.9 5.5 Industrial 9.3 8.8 Other 10.2 13.7 Total 7.7 8.9 Second quarter 1994 total kilowatt-hour sales increased as a result of increased economic activity, increased wholesale sales (included in the "Other" category) and weather-related demand. Industrial sales increased on the strength of increased sales to large automotive manufacturers and the broad-based, smaller industrial customer group. Residential and commercial sales increased as a result of warmer weather in the second quarter of 1994 than in the second quarter of 1993, which increased cooling-related demand. A mid-June 1994 heat wave sharply increased the use of air conditioners in the service area. Total kilowatt-hour sales increased for the six-month period in 1994 as a result of increased wholesale sales, increased economic activity and weather- related demand. Industrial sales increased on the strength of increased sales to large automotive manufacturers and the broad-based, smaller industrial customer group. Residential and commercial sales increased as a result of colder winter temperatures and warmer spring and summer temperatures in 1994, which increased electric heating and cooling demands. Miscellaneous revenues in 1994 decreased from the 1993 amounts because of lower overhead expense billings in 1994 to Cleveland Electric for the jointly owned Davis-Besse Nuclear Power Station. The decreases in 1994 fuel cost recovery revenues included in customer bills resulted from decreases in the fuel cost recovery factors used in 1994 to calculate these revenues compared to those used in 1993. The decrease in the weighted averages of the fuel cost recovery factors for both the second quarter and six-month 1994 periods was about 1.5%. Second quarter operating expenses in 1994 increased 2.9% from the 1993 amount. Other operation and maintenance expenses increased as increased power production expenses related primarily to a generating plant maintenance outage completely offset expense reductions resulting from cost reduction measures, including the work force reduction in 1993. Also, other operation and maintenance expenses in the 1993 second quarter included $5 million of VTP benefit expenses as discussed in Note 8. Depreciation and amortization expenses increased because of higher nuclear plant decommissioning expense accruals related to revisions in the cost estimates in late 1993. A decrease in deferred operating expenses resulted from the cessation at the end of 1993 of deferrals related to the rate phase-in plan for the investments in Perry Nuclear Power Plant Unit 1 and Beaver Valley Power Station Unit 2 under a 1989 rate agreement and less deferrals under the Rate Stabilization Program in the second quarter of 1994. Federal income taxes decreased as a result of lower pretax operating income. Second quarter credits for carrying charges in 1994 decreased from the 1993 amount primarily because of the cessation at the end of 1993 of accruals related to the phase-in plan. The second quarter federal income tax provision for nonoperating income in 1994 increased from the 1993 amount because the expense increase resulting from a lower tax allocation of interest charges to nonoperating activities exceeded the decrease related to the lower carrying charge credits. Second quarter earnings available for common stock in 1994 increased $0.3 million, or 2.5%, from the 1993 amount. Six-month operating expenses in 1994 increased 0.9% from the 1993 amount. Higher fuel and purchased power expenses resulted from increased amortization of previously deferred fuel costs than the amount amortized in 1993, which was partially offset by lower purchased power expense. Depreciation and amortization expenses increased primarily because of the aforementioned higher nuclear plant decommissioning expense accruals. A decrease in deferred operating expenses resulted from the cessation at the end of 1993 of deferrals related to the rate phase-in plan as discussed above and less deferrals under the Rate Stabilization Program in 1994. Other operation and maintenance expenses decreased primarily because the 1993 six-month period expenses included $5 million of VTP benefit expenses as discussed in Note 8. Increased maintenance expense associated with a generating plant outage in 1994 substantially offset expense reductions resulting from cost reduction measures. The six-month credits for carrying charges in 1994 decreased from the 1993 amount primarily because of the cessation at the end of 1993 of accruals related to the phase-in plan. The six-month federal income tax provision for nonoperating income in 1994 increased from the 1993 amount because the expense increase resulting from a lower tax allocation of interest charges to non- operating activities exceeded the decrease related to the lower carrying charge credits. Six-month preferred dividend requirements in 1994 decreased from the 1993 amount because of the retirement of preferred stock. Six-month earnings available for common stock in 1994 increased $1.4 million, or 5.2%, from the 1993 amount. PART II. OTHER INFORMATION Item 5. Other Information 1. Management Changes For background relating to this topic, see "Item 10. Directors and Executive Officers of the Registrants" in the Companies' Annual Report on Form 10-K for the Year Ended December 31, 1993. Effective July 1, 1994, William F. Conway was elected to the Board of Direct- ors of Centerior Energy Corporation. Mr. Conway had been Executive Vice President - Nuclear at Arizona Public Service Company from 1989 until his retirement in July 1994. Effective July 25, 1994, John P. Stetz was named Vice President - Nuclear, Davis-Besse of Centerior Service Company. Mr. Stetz was previously with Northeast Utilities. 2. Common Stock Dividend For background and earlier developments relating to this topic, see "Item 5. Market for Registrants' Common Equity and Related Stockholder Matters -- Dividends" in the Companies' Annual Report on Form 10-K for the Year Ended December 31, 1993. Centerior expects that dividends paid in 1994 will be, at least partially, a nontaxable return of capital because of the write-off of $1.02 billion of assets, after taxes, at year-end 1993. Item 6. Exhibits and Reports on Form 8-K a. Exhibits None. b. Reports on Form 8-K During the quarter ended June 30, 1994, Centerior Energy, Cleveland Electric and Toledo Edison did not file any Current Report on Form 8-K. - 25 - Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The person signing this report on behalf of each such registrant is also signing in his capacity as each registrant's Principal Financial Officer. CENTERIOR ENERGY CORPORATION (Registrant) THE CLEVELAND ELECTRIC ILLUMINATING COMPANY (Registrant) THE TOLEDO EDISON COMPANY (Registrant) By: PAUL G. BUSBY Paul G. Busby, Controller and Chief Accounting Officer of each Registrant Date: August 11, 1994 - 26 - -----END PRIVACY-ENHANCED MESSAGE-----