-----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, WQF7NSZAv7O7eWoAwRNF6+7XJu5cRzi4rW0QKndyjDVUQX9p7D7PeRPb7fdpmEtV LFuMXErwjP2llFXzGGfcxQ== 0000073960-96-000003.txt : 19960503 0000073960-96-000003.hdr.sgml : 19960503 ACCESSION NUMBER: 0000073960-96-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960502 SROS: CSX SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: OHIO EDISON CO CENTRAL INDEX KEY: 0000073960 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 340437786 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-02578 FILM NUMBER: 96555472 BUSINESS ADDRESS: STREET 1: 76 S MAIN ST CITY: AKRON STATE: OH ZIP: 44308 BUSINESS PHONE: 2163845100 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to_________________ Commission File Number 1-2578 OHIO EDISON COMPANY (Exact name of Registrant as specified in its charter) Ohio 34-0437786 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 76 South Main Street, Akron, Ohio 44308 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 330-384-5100 Indicate by check mark whether the registrant (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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 152,569,437 shares of common stock, $9 par value, outstanding as of May 2, 1996. OHIO EDISON COMPANY TABLE OF CONTENTS Pages Part I. Financial Information Consolidated Statements of Income 1 Consolidated Balance Sheets 2-3 Consolidated Statements of Cash Flows 4 Notes to Consolidated Financial Statements 5-6 Report of Independent Public Accountants 7 Management's Discussion and Analysis of Results of Operations and Financial Condition 8-9 Part II. Other Information PART I. FINANCIAL INFORMATION - ------------------------------ OHIO EDISON COMPANY CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended March 31, -------------------------- 1996 1995 -------- -------- (In thousands, except per share amounts) OPERATING REVENUES $611,636 $587,734 -------- -------- OPERATING EXPENSES AND TAXES: Fuel and purchased power 123,290 110,041 Nuclear operating costs 58,774 73,886 Other operating costs 100,873 106,843 -------- -------- Total operation and maintenance expenses 282,937 290,770 Provision for depreciation 83,291 56,866 Amortization of net regulatory assets 5,632 3,289 General taxes 63,959 59,557 Income taxes 45,331 43,439 -------- -------- Total operating expenses and taxes 481,150 453,921 -------- -------- OPERATING INCOME 130,486 133,813 OTHER INCOME 6,996 2,997 -------- -------- TOTAL INCOME 137,482 136,810 -------- -------- NET INTEREST AND OTHER CHARGES: Interest on long-term debt 56,535 61,931 Deferred nuclear unit interest - (2,125) Allowance for borrowed funds used during construction and capitalized interest (1,178) (1,314) Other interest expense 4,858 5,562 Subsidiaries' preferred stock dividend requirements 3,857 1,160 -------- -------- Net interest and other charges 64,072 65,214 -------- -------- NET INCOME 73,410 71,596 PREFERRED STOCK DIVIDEND REQUIREMENTS 3,125 5,359 -------- -------- EARNINGS ON COMMON STOCK $ 70,285 $ 66,237 ======== ======== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 143,946 143,521 ======== ======== EARNINGS PER SHARE OF COMMON STOCK $ .49 $ .46 ===== ===== DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $.375 $.375 ===== ===== The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
- 1 - OHIO EDISON COMPANY CONSOLIDATED BALANCE SHEETS (Unaudited)
March 31, December 31, 1996 1995 ------------ ------------- (In thousands) ASSETS ------ UTILITY PLANT: In service, at original cost $8,577,415 $8,556,722 Less--Accumulated provision for depreciation 3,134,320 3,051,148 ---------- ---------- 5,443,095 5,505,574 ---------- ---------- Construction work in progress- Electric plant 144,751 150,262 Nuclear fuel 48,219 39,613 ---------- ---------- 192,970 189,875 ---------- ---------- 5,636,065 5,695,449 ---------- ---------- OTHER PROPERTY AND INVESTMENTS: Letter of credit collateralization 277,763 277,763 Other 255,271 252,005 ---------- ---------- 533,034 529,768 ---------- ---------- CURRENT ASSETS: Cash and cash equivalents 30,217 29,830 Receivables- Customers (less accumulated provisions of $2,568,000 and $2,528,000, respectively, for uncollectible accounts) 257,054 274,692 Other 34,235 54,988 Materials and supplies, at average cost- Owned 68,420 68,829 Under Consignment 45,867 41,080 Prepayments 87,520 82,257 ---------- ---------- 523,313 551,676 ---------- ---------- DEFERRED CHARGES: Regulatory assets 1,776,105 1,786,543 Unamortized sale and leaseback costs 101,874 103,091 Property taxes 104,071 104,071 Other 53,400 53,336 ---------- ---------- 2,035,450 2,047,041 ---------- ---------- $8,727,862 $8,823,934 ========== ==========
- 2 - OHIO EDISON COMPANY CONSOLIDATED BALANCE SHEETS (Unaudited)
March 31, December 31, 1996 1995 ------------- -------------- (In thousands) CAPITALIZATION AND LIABILITIES ------------------------------ CAPITALIZATION: Common stockholders' equity- Common stock, $9 par value, authorized 175,000,000 shares- 152,569,437 shares outstanding $1,373,125 $1,373,125 Other paid-in capital 726,789 726,307 Retained earnings 487,288 471,095 Unallocated employee stock ownership plan common stock - 8,613,748 and 8,663,575 shares, respectively (161,089) (162,656) ---------- ---------- Total common stockholders' equity 2,426,113 2,407,871 Preferred stock- Not subject to mandatory redemption 160,965 160,965 Subject to mandatory redemption 25,000 25,000 Preferred stock of consolidated subsidiary- Not subject to mandatory redemption 50,905 50,905 Subject to mandatory redemption 15,000 15,000 Company obligated mandatorily redeemable preferred securities of subsidiary trust holding solely Company subordinated debentures 120,000 120,000 Long-term debt 2,759,970 2,786,256 ---------- ---------- 5,557,953 5,565,997 ---------- ---------- CURRENT LIABILITIES: Currently payable long-term debt 302,707 376,716 Short-term borrowings 119,008 119,965 Accounts payable 92,546 100,536 Accrued taxes 142,059 131,432 Accrued interest 56,490 57,462 Other 188,884 196,482 ---------- ---------- 901,694 982,593 ---------- ---------- DEFERRED CREDITS: Accumulated deferred income taxes 1,772,534 1,772,434 Accumulated deferred investment tax credits 210,541 213,876 Other 285,140 289,034 ---------- ---------- 2,268,215 2,275,344 ---------- ---------- COMMITMENTS, GUARANTEES AND CONTINGENCIES (Note 2) ---------- ---------- $8,727,862 $8,823,934 ========== ========== The accompanying Notes to Consolidated Financial Statements are an integral part of these balance sheets.
- 3 - OHIO EDISON COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31, ---------------------- 1996 1995 --------- -------- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 73,410 $ 71,596 Adjustments to reconcile net income to net cash from operating activities- Provision for depreciation 83,291 56,866 Nuclear fuel and lease amortization 12,237 14,260 Deferred income taxes, net 8,424 5,803 Investment tax credits, net (3,335) (2,006) Allowance for equity funds used during construction - (666) Deferred fuel costs, net (2,936) 4,496 Receivables 38,391 26,504 Materials and supplies (4,378) 506 Accounts payable (1,814) 4,649 Other 9,287 22,096 -------- -------- Net cash provided from operating activities 212,577 204,104 -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: New Financing- Long-term debt 40,621 74,577 Redemptions and Repayments- Preferred stock 671 - Long-term debt 146,867 143,037 Short-term borrowings, net 957 15,781 Dividend Payments- Common stock 53,862 54,805 Preferred stock 3,360 5,401 -------- -------- Net cash used for financing activities 165,096 144,447 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Property additions 43,725 54,205 Other 3,369 4,720 -------- -------- Net cash used for investing activities 47,094 58,925 -------- -------- Net increase in cash and cash equivalents 387 732 Cash and cash equivalents at beginning of period 29,830 23,291 -------- -------- Cash and cash equivalents at end of period $ 30,217 $ 24,023 ======== ======== The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
- 4 - OHIO EDISON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1 - FINANCIAL STATEMENTS: The condensed consolidated financial statements reflect all normal recurring adjustments that, in the opinion of management, are necessary to fairly present results of operations for the interim periods. These statements should be read in conjunction with the consolidated financial statements and notes included in Ohio Edison Company's (Company) 1995 Annual Report to Stockholders. The results of operations are not intended to be indicative of results of operations for any future period. The sole assets of the subsidiary trust that is the obligor on the preferred securities included in the Company's capitalization are $123,711,350 principal amount of 9% Junior Subordinated Debentures of the Company due December 31, 2025. 2 - COMMITMENTS, GUARANTEES AND CONTINGENCIES: Construction Program -- The Company and its wholly owned subsidiary, Pennsylvania Power Company (Companies), currently forecast expenditures of approximately $650,000,000 for property additions and improvements from 1996-2000, of which approximately $160,000,000 is applicable to 1996. The Companies' nuclear fuel investments are expected to be approximately $180,000,000 during the 1996-2000 period, of which approximately $29,000,000 is applicable to 1996. Guarantees -- The Companies, together with the other Central Area Power Coordination Group companies, have each severally guaranteed certain debt and lease obligations in connection with a coal supply contract for the Bruce Mansfield Plant. As of March 31, 1996, the Companies' shares of the guarantees were $60,417,000. The price under the coal supply contract, which includes certain minimum payments, has been determined to be sufficient to satisfy the debt and lease obligations. Environmental Matters -- Various federal, state and local authorities regulate the Companies with regard to air and water quality and other environmental matters. The Companies have estimated additional capital expenditures for environmental compliance of approximately $17,000,000 for the period 1996 through 2000, which is included in the construction forecast under "Construction Program." - 5 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Cont'd) The Companies are in compliance with the sulfur dioxide(SO2) and nitrogen oxides (NOx) reduction requirements under the Clean Air Act Amendments of 1990. SO2 reductions through the year 1999 are being achieved by burning lower-sulfur fuel, generating more electricity from lower-emitting plants, and/or purchasing emission allowances. Plans for complying with reductions required for the year 2000 and thereafter have not been finalized. The Environmental Protection Agency (EPA) is conducting additional studies which could indicate the need for additional NOx reductions from the Companies' Pennsylvania facilities by the year 2003. The cost of such reductions, if required, may be substantial. The Companies continue to evaluate their compliance plans and other compliance options. The Companies are required to meet federally approved SO2 regulations. Violations of such regulations can result in shutdown of the generating unit involved and/or civil or criminal penalties of up to $25,000 for each day the unit is in violation. The EPA has an interim enforcement policy for SO2 regulations in Ohio that allows for compliance based on a 30-day averaging period. The EPA has proposed regulations that could change the interim enforcement policy, including the method of determining compliance with emission limits. The Companies cannot predict what action the EPA may take in the future with respect to the proposed regulations or the interim enforcement policy. Legislative, administrative and judicial actions will continue to change the way that the Companies must operate in order to comply with environmental laws and regulations. With respect to any such changes and to the environmental matters described above, the Companies expect that any resulting additional capital costs which may be required, as well as any required increase in operating costs, would ultimately be recovered from their customers. - 6 - REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Ohio Edison Company: We have reviewed the accompanying consolidated balance sheet of Ohio Edison Company (an Ohio corporation) and subsidiaries as of March 31, 1996, and the related consolidated statements of income and cash flows for the three-month periods ended March 31, 1996 and 1995. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet and consolidated statement of capitalization of Ohio Edison Company and subsidiaries as of December 31, 1995, and the related consolidated statements of income, retained earnings, capital stock and other paid-in capital, cash flows and taxes for the year then ended (not presented separately herein). In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 1995 is fairly stated in all material respects in relation to the balance sheet from which it has been derived. ARTHUR ANDERSEN LLP Cleveland, Ohio May 1, 1996 - 7 - OHIO EDISON COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Results of Operations Earnings on common stock increased to $.49 per share in the first quarter of 1996 from $.46 per share for the same period last year. The improved earnings were due to record quarterly retail sales and the Companies' continuing cost control efforts. These results reflect accelerated depreciation and amortization of nuclear and regulatory assets totaling approximately $37,000,000 under the Company's Rate Reduction and Economic Development Plan. The Company also discontinued deferral of postretirement benefits and nuclear unit interest expense in the third quarter of 1995 in accordance with the Plan. During the first quarter of 1996, retail kilowatt-hour sales increased 7.5% compared to last year. Residential and commercial sales increased 10.9% and 3.9%, respectively, during the period. Industrial sales increased 6.8% reflecting the restart of operations by two major customers in the second half of 1995. Excluding sales to those customers, industrial sales were relatively flat compared to the first quarter of 1995. The Company began supplying 250 megawatts of power to another utility at the beginning of 1996 under a one-year contract, which was the principal cause for a 57.7% increase in sales to other utilities in the first quarter of 1996 compared to last year. This increase, coupled with the higher level of retail sales, caused total kilowatt-hour sales to increase by 15.4% during the first quarter of 1996 compared with the first quarter of 1995. Because of higher kilowatt-hour sales, the Companies spent more on fuel and purchased power during the first quarter of 1996, compared to last year. Reduced nuclear expenses reflect lower refueling outage cost levels in 1996. Despite a charge of about $5,000,000 for a voluntary retirement program, other operating costs were lower in the first quarter of 1996 compared to the same period last year due to the Companies' continuing cost control efforts. The Companies continue to review their operations to identify opportunities to increase revenues and improve operating efficiency. After a comprehensive review of the Companies' division operations, the voluntary retirement program was offered to eligible full-time union employees, which is expected to produce annual savings of approximately $8,000,000. General taxes were up in 1996 compared to 1995 due primarily to higher property and gross receipts taxes. - 8 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Cont'd) Interest costs continued to drop during the first three months of 1996 compared to last year's level. Interest on long-term debt decreased due to redemptions and refinancing of higher-cost debt that occurred subsequent to March 31, 1995. Total Company and subsidiaries' preferred stock dividend requirements were relatively unchanged from last year's level, taking into account the preferred stock refinancing that occurred in the fourth quarter of 1995. Capital Resources and Liquidity The Companies have continuing cash requirements for planned capital expenditures and debt maturities. During the last three quarters of 1996, capital requirements for property additions and capital leases are expected to be about $146,000,000, including $20,000,000 for nuclear fuel. The Companies have additional cash requirements of approximately $222,000,000 due to maturing long- term debt during the remainder of 1996. These cash requirements are expected to be satisfied with internal cash and/or short-term credit arrangements. In addition, approximately $57,000,000 of variable rate pollution control put bonds are subject to repricing during the remainder of the year. As of March 31, 1996, the Companies had about $30,000,000 of cash and temporary investments and $119,000,000 of short-term indebtedness. The Company had the capability to borrow approximately $135,000,000 as of March 31, 1996 through OES Fuel credit facilities. In addition, the Companies had $52,000,000 of unused short-term bank lines of credit, and $50,000,000 of bank facilities that provide for borrowings on a short-term basis at the banks' discretion. OES Capital had approximately $1,000,000 of unused, short-term borrowing capability as of March 31, 1996. During the first quarter of 1996, the Company made open market purchases for $67,550,000 of its first mortgage bonds having a weighted average interest rate of 9.27%. During the same period, Penn Power made open market purchases for $13,000,000 of its 6.375% first mortgage bonds. From April 1, 1996 through May 1, 1996, the Company repaid at maturity $150,000,000 of its 8.5% first mortgage bonds and made open market purchases for $11,000,000 of its 8.75% first mortgage bonds. During that same period, Penn Power made open market purchases for $13,000,000 of its 7.625% first mortgage bonds. On March 7, 1996, Penn Power filed a petition and application with the Pennsylvania Public Utility Commission requesting approval of a Rate Stability and Economic Development Plan (Transition Plan). The Transition Plan, which would remain in effect unless certain significant events occur, provides for the - 9 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Cont'd) roll-in to base rates of the energy cost rate and the freezing of base rates for a ten-year period. A major component of the Transition Plan is the commitment to reduce fixed costs during the ten-year period. Penn Power expects to recognize additional depreciation expense related to generating assets and additional amortization of regulatory assets during the ten-year Transition Plan period of at least $330,000,000 more than the amount that would have been recognized if the Transition Plan were not in effect. Additionally, the Transition Plan provides for an increase in contributions to Penn Power's nuclear decommissioning trusts amounting to $28,000,000 over the ten-year period. The entire $358,000,000 would be recovered through current rates. On April 2, 1996, the work force at the Bruce Mansfield Plant was reduced by 98 union and 33 salaried employees. This action was the result of continuing efforts to make the plant's costs more competitive with similar-sized plants. This work force reduction is expected to reduce the Companies' annual operating costs by about $3,200,000. - 10 - PART II. OTHER INFORMATION - --------------------------- Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit Number ------- 15 Letter from independent public accountants. Pursuant to paragraph (b)(4)(iii)(A) of Item 601 of Regulation S-K, the Company has not filed as an exhibit to this Form 10-Q any instrument with respect to long-term debt if the total amount of securities authorized thereunder does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis, but hereby agrees to furnish to the Commission on request any such documents. (b) Reports on Form 8-K The Company filed one report on Form 8-K since December 31, 1995. A report dated February 23, 1996, reported audited consolidated financial statements for the year ended December 31, 1995, and related matters. - 11 - SIGNATURE 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 thereunto duly authorized. May 2, 1996 OHIO EDISON COMPANY ------------------- Registrant /s/ H. P. Burg ----------------------------------- H. P. Burg Senior Vice President and Chief Financial Officer - 12 - EX-15 2 EXHIBIT 15 Ohio Edison Company 76 South Main Street Akron, Ohio 44308 Gentlemen: We are aware that Ohio Edison Company has incorporated by reference in previously filed Registration Statements No. 33-49135, No. 33- 49259, No. 33-49413, No. 33-51139 and No. 333-01489, the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, which includes our report dated May 1, 1996, covering the unaudited interim consolidated financial statements contained therein. Pursuant to Rule 436(c) of Regulation C of the Securities Act of 1933, such report is not considered a part of the Registration Statements prepared or certified by our firm or a report prepared or certified by our firm within the meaning of Sections 7 and 11 of the Act. Very truly yours, ARTHUR ANDERSEN LLP Cleveland, Ohio May 1, 1996 EX-27 3
OPUR1 (Amounts in 1,000's, except earnings per share) Income tax expense includes $2,760,000 related to other income. 3-MOS DEC-31-1996 MAR-31-1996 PER-BOOK 5,636,065 533,034 523,313 2,035,450 0 8,727,862 1,373,125 565,700 487,288 2,426,113 160,000 211,870 2,759,970 0 0 119,008 297,047 0 0 5,660 2,748,194 8,727,862 611,636 48,091 435,819 481,150 130,486 6,996 137,482 64,072 73,410 3,125 70,285 53,983 56,535 212,577 .49 .49
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