-----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, FoNGlv0ZdVt44iu7B4Y0fq9ne8gitWxPZ5Mkdl439yN+1cyzt55H0ivSBnL1rTPz dJzuBbwI8pJyj1AH7ezKaA== 0000073960-98-000001.txt : 19980324 0000073960-98-000001.hdr.sgml : 19980324 ACCESSION NUMBER: 0000073960-98-000001 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980213 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980323 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: 8-K SEC ACT: SEC FILE NUMBER: 001-02578 FILM NUMBER: 98570854 BUSINESS ADDRESS: STREET 1: 76 S MAIN ST CITY: AKRON STATE: OH ZIP: 44308 BUSINESS PHONE: 2163845100 8-K 1 OE FINANCIALS 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) February 13, 1998 OHIO EDISON COMPANY (Exact name of Registrant as specified in its charter) Ohio 1-2578 34-0437786 (State or other jurisdiction of (Commission (I.R.S. Employer incorporation) File Number) Identification No.) 76 South Main Street, Akron, Ohio 44308 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (800)736-3402 Item 5. Other Events Ohio Edison Company reports audited consolidated financial statements for the year ended December 31, 1997 and related matters. Such financial statements and related matters consist of the following: 1) Consolidated Statements of Income 2) Consolidated Balance Sheets 3) Consolidated Statements of Capitalization 4) Consolidated Statements of Retained Earnings 5) Consolidated Statements of Capital Stock and Other Paid-In Capital 6) Consolidated Statements of Cash Flows 7) Consolidated Statements of Taxes 8) Notes to Consolidated Financial Statements 9) Report of Independent Public Accountants 10) Management's Discussion and Analysis of Results of Operations and Financial Condition 11) Consent of Independent Public Accountants Item 7. Exhibits Exhibit Number - ------- 24 Consent of Independent Public Accountants. - 1 - OHIO EDISON COMPANY CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 1997 1996 1995 - ------------------------------------------------------------------------------------------------ (In thousands, except per share amounts) OPERATING REVENUES $2,473,582 $2,469,785 $2,465,846 ---------- ---------- ---------- OPERATING EXPENSES AND TAXES: Fuel and purchased power 437,223 456,629 465,483 Nuclear operating costs 267,681 247,708 289,717 Other operating costs 446,778 420,523 446,967 ---------- ---------- ---------- Total operation and maintenance expenses 1,151,682 1,124,860 1,202,167 Provision for depreciation 392,525 355,780 256,085 Amortization of net regulatory assets 37,416 27,661 5,825 General taxes 234,964 241,998 243,179 Income taxes 168,427 189,417 191,972 ---------- ---------- ---------- Total operating expenses and taxes 1,985,014 1,939,716 1,899,228 ---------- ---------- ---------- OPERATING INCOME 488,568 530,069 566,618 OTHER INCOME 52,847 37,537 14,424 ---------- ---------- ---------- INCOME BEFORE NET INTEREST CHARGES 541,415 567,606 581,042 ---------- ---------- ---------- NET INTEREST CHARGES: Interest on long-term debt 204,285 211,935 243,570 Deferred nuclear unit interest - - (4,250) Allowance for borrowed funds used during construction and capitalized interest (2,699) (3,136) (5,668) Other interest expense 31,209 28,211 22,944 Subsidiaries' preferred stock dividend requirements 15,426 15,426 7,205 ---------- ---------- ---------- Net interest charges 248,221 252,436 263,801 ---------- ---------- ---------- NET INCOME $293,194 $315,170 $317,241 PREFERRED STOCK DIVIDEND REQUIREMENTS 12,392 12,497 22,494 -------- -------- -------- EARNINGS ON COMMON STOCK $280,802 $302,673 $294,747 ======== ======== ======== The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
- 2 - OHIO EDISON COMPANY CONSOLIDATED BALANCE SHEETS
At December 31, 1997 1996 - ----------------------------------------------------------------------------------------- (In thousands) ASSETS UTILITY PLANT: In service, at original cost $8,666,272 $8,634,030 Less--Accumulated provision for depreciation 3,546,594 3,226,259 ---------- ---------- 5,119,678 5,407,771 ---------- ---------- Construction work in progress-- Electric plant 99,158 93,413 Nuclear fuel 21,360 5,786 ---------- ---------- 120,518 99,199 ---------- ---------- 5,240,196 5,506,970 ---------- ---------- OTHER PROPERTY AND INVESTMENTS: PNBV Capital Trust (Note 3) 482,220 487,979 Letter of credit collateralization (Note 3) 277,763 277,763 Other (Note 4B) 529,408 323,316 ---------- ---------- 1,289,391 1,089,058 ---------- ---------- CURRENT ASSETS: Cash and cash equivalents 4,680 5,253 Receivables-- Customers (less accumulated provisions of $5,618,000 and $2,306,000, respectively, for uncollectible accounts) 235,332 247,027 Associated companies 25,348 - Other 87,566 58,327 Materials and supplies, at average cost-- Owned 75,580 66,177 Under consignment 47,890 44,468 Prepayments and other 78,348 75,681 ---------- ---------- 554,744 496,933 ---------- ---------- DEFERRED CHARGES: Regulatory assets 1,601,709 1,703,111 Unamortized sale and leaseback costs 95,096 100,066 Property taxes 100,043 100,802 Other 96,276 57,517 ---------- ---------- 1,893,124 1,961,496 ---------- ---------- $8,977,455 $9,054,457 ========== ========== CAPITALIZATION AND LIABILITIES CAPITALIZATION (See Consolidated Statements of Capitalization): Common stockholders' equity $2,724,319 $2,503,359 Preferred stock -- Not subject to mandatory redemption 160,965 160,965 Subject to mandatory redemption 15,000 20,000 Preferred stock of consolidated subsidiaries-- 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 2,569,802 2,712,760 ---------- ---------- 5,655,991 5,582,989 ---------- ---------- CURRENT LIABILITIES: Currently payable long-term debt and preferred stock 278,492 333,667 Short-term borrowings (Note 5) 302,229 349,480 Accounts payable 115,836 93,509 Accrued taxes 157,095 142,909 Accrued interest 53,165 52,855 Other 115,256 131,275 ---------- ---------- 1,022,073 1,103,695 ---------- ---------- DEFERRED CREDITS: Accumulated deferred income taxes 1,698,354 1,777,086 Accumulated deferred investment tax credits 184,804 199,835 Pensions and other postretirement benefits 158,038 123,446 Other 258,195 267,406 ---------- ---------- 2,299,391 2,367,773 ---------- ---------- COMMITMENTS, GUARANTEES AND CONTINGENCIES (Notes 3 and 6 ) $8,977,455 $9,054,457 ========== ========== The accompanying Notes to Consolidated Financial Statements are an integral part of these balance sheets.
- 3 - OHIO EDISON COMPANY CONSOLIDATED STATEMENTS OF CAPITALIZATION
At December 31, 1997 1996 - ---------------------------------------------------------------------------------------------------- (In thousands, except per share amounts) COMMON STOCKHOLDERS' EQUITY: Common stock, $9 par value, authorized 175,000,000 shares-100 shares and 152,569,437 shares outstanding, respectively $ 1 $1,373,125 Other paid-in capital 2,102,644 727,602 Retained earnings (Note 4A) 621,674 557,642 Unallocated employee stock ownership plan common stock- 8,259,053 shares (Note 4B) - (155,010) ---------- ---------- Total common stockholders' equity 2,724,319 2,503,359 ---------- ---------- Number of Shares Optional Outstanding Redemption Price ------------------ -------------------- 1997 1996 Per Share Aggregate PREFERRED STOCK (Note 4C): Cumulative, $100 par value- Authorized 6,000,000 shares Not Subject to Mandatory Redemption: 3.90% 152,510 152,510 $103.63 $15,804 15,251 15,251 4.40% 176,280 176,280 108.00 19,038 17,628 17,628 4.44% 136,560 136,560 103.50 14,134 13,656 13,656 4.56% 144,300 144,300 103.38 14,917 14,430 14,430 ---------- ---------- ------- ---------- ---------- 609,650 609,650 63,893 60,965 60,965 Cumulative, $25 par value- Authorized 8,000,000 shares Not Subject to Mandatory Redemption: 7.75% 4,000,000 4,000,000 100,000 100,000 ---------- ---------- ------- ---------- ---------- Total not subject to mandatory redemption 4,609,650 4,609,650 $63,893 160,965 160,965 ========== ========== ======= ---------- ---------- Cumulative, $100 par value- Subject to Mandatory Redemption (Note 4D): 8.45% 200,000 250,000 20,000 25,000 Redemption within one year (5,000) (5,000) ---------- ---------- --------- ---------- Total subject to mandatory redemption 200,000 250,000 15,000 20,000 ========== ========== --------- ---------- PREFERRED STOCK OF CONSOLIDATED SUBSIDIARY (Note 4C): Pennsylvania Power Company Cumulative, $100 par value- Authorized 1,200,000 shares Not Subject to Mandatory Redemption: 4.24% 40,000 40,000 $103.13 $ 4,125 4,000 4,000 4.25% 41,049 41,049 105.00 4,310 4,105 4,105 4.64% 60,000 60,000 102.98 6,179 6,000 6,000 7.64% 60,000 60,000 101.42 6,085 6,000 6,000 7.75% 250,000 250,000 - - 25,000 25,000 8.00% 58,000 58,000 102.07 5,920 5,800 5,800 ---------- ---------- ------- --------- ---------- Total not subject to mandatory redemption 509,049 509,049 $26,619 50,905 50,905 ========== ========== ======= --------- ---------- Subject to Mandatory Redemption (Note 4D): 7.625% 150,000 150,000 107.63 $16,145 15,000 15,000 ========== ========== ---------- ---------- COMPANY OBLIGATED MANDATOR- ILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUSTHOLDING SOLELY COMPANY SUBORDINATED DEBENTURES (Note 4E): Cumulative, $25 par value- Authorized 4,800,000 shares Subject to Mandatory Redemption: 9.00% 4,800,000 4,800,000 120,000 120,000 ========= ========= ---------- ----------
- 4 - OHIO EDISON COMPANY CONSOLIDATED STATEMENTS OF CAPITALIZATION (Cont.)
At December 31, 1997 1996 1997 1996 1997 1996 - --------------------------------------------------------------------------------------------------------- (In thousands) LONG-TERM DEBT (Note 4F): First mortgage bonds: Ohio Edison Company-- Pennsylvania Power Company-- 8.750% due 1998 150,000 150,000 9.740% due 1999-2019 20,000 20,000 6.875% due 1999 150,000 150,000 7.500% due 2003 40,000 40,000 6.375% due 2000 80,000 80,000 6.375% due 2004 20,500 37,000 7.375% due 2002 120,000 120,000 6.625% due 2004 14,000 20,000 7.500% due 2002 34,265 34,265 8.500% due 2022 27,250 27,250 8.250% due 2002 125,000 125,000 7.625% due 2023 6,500 6,500 ------- ------- 8.625% due 2003 150,000 150,000 6.875% due 2005 80,000 80,000 8.750% due 2022 50,960 50,960 7.625% due 2023 75,000 75,000 7.875% due 2023 100,000 100,000 --------- --------- Total first mortgage bonds. 1,115,225 1,115,225 128,250 150,750 1,243,475 1,265,975 --------- --------- ------- ------- ---------- ---------- Secured notes: Ohio Edison Company-- Pennsylvania Power Company-- 7.930% due 2002 50,646 60,467 4.750% due 1998 850 850 7.680% due 2005 200,000 200,000 6.080% due 2000 23,000 23,000 6.750% due 2015 40,000 40,000 5.400% due 2013 1,000 1,000 7.450% due 2016 47,725 47,725 5.400% due 2017 10,600 10,600 7.100% due 2018 26,000 26,000 7.150% due 2017 17,925 17,925 7.050% due 2020 60,000 60,000 5.900% due 2018 16,800 16,800 7.000% due 2021 69,500 69,500 8.100% due 2018 - 10,300 7.150% due 2021 443 443 8.100% due 2020 5,200 5,200 7.625% due 2023 50,000 50,000 7.150% due 2021 14,482 14,482 8.100% due 2023 30,000 30,000 6.150% due 2023 12,700 12,700 7.750% due 2024 108,000 108,000 3.900% due 2027 10,300 - 5.625% due 2029 50,000 50,000 6.450% due 2027 14,500 14,500 5.950% due 2029 56,212 56,212 5.450% due 2028 6,950 6,950 5.450% due 2033 14,800 14,800 6.000% due 2028 14,250 14,250 5.950% due 2029 238 238 --------- --------- ------- ------- 803,326 813,147 148,795 148,795 952,121 961,942 --------- --------- ------- ------- ---------- ---------- OES Fuel-- 5.86% weighted average interest rate 80,755 84,000 ---------- ---------- Total secured notes 1,032,876 1,045,942 ---------- ---------- Unsecured notes: Ohio Edison Company-- 7.430% due 1997 - 100,000 8.735% due 1997 - 50,000 6.088% due 1999 - 225,000 6.338% due 1999 40,000 - 6.400% due 1999 175,000 - 4.300% due 2012 50,000 50,000 4.350% due 2014 50,000 50,000 3.950% due 2015 50,000 50,000 4.100% due 2018 57,100 57,100 4.200% due 2018 56,000 56,000 4.050% due 2032 53,400 53,400 ---------- ---------- Total unsecured notes 531,500 691,500 ---------- ---------- Capital lease obligations (Note 3) 40,614 43,775 ---------- ---------- Net unamortized discount on debt (5,171) (5,765) ---------- ---------- Long-term debt due within one year (273,492) (328,667) ---------- ---------- Total long-term debt 2,569,802 2,712,760 ---------- ---------- TOTAL CAPITALIZATION $5,655,991 $5,582,989 ========== ========== The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
- 5 - OHIO EDISON COMPANY CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
For the Years Ended December 31, 1997 1996 1995 - --------------------------------------------------------------------------------- (In thousands) Balance at beginning of year $557,642 $471,095 $389,600 Net income 293,194 315,170 317,241 -------- -------- -------- 850,836 786,265 706,841 - -------------------------------------------------------------------------------- Cash dividends on preferred stock 12,392 12,497 20,234 Cash dividends on common stock 216,770 216,126 215,512 -------- -------- -------- 229,162 228,623 235,746 -------- -------- -------- Balance at end of year (Note 4A) $621,674 $557,642 $471,095 - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CAPITAL STOCK AND OTHER PAID-IN CAPITAL Preferred Stock ----------------------------------------- Unallo- Not Subject to Subject to Common Stock cated Mandatory Redemption Mandatory Redemption ------------------------------ --------------------- -------------------- Other ESOP Par or Par or Number Par Paid-In Common Number Stated Number Stated of Shares Value Capital Stock of Shares Value of Shares Value ----------- ---------- -------- ---------- --------- -------- ------- -------- (Dollars in thousands) Balance, January 1, 1995 152,569,437 $1,373,125 $ 724,848 $(170,376) 6,282,399 $328,240 400,000 $40,000 Minimum liability for unfunded retirement benefits 2,446 Allocation of ESOP Shares 1,274 7,720 Sale of 9% Preferred Stock 4,800,000 120,000 Redemptions-- 7.24% Series (720) (363,700) (36,370) 7.36% Series (609) (350,000) (35,000) 8.20% Series (932) (450,000) (45,000) - -------------------------------------------------------------------------------------------------------- Balance, December 31, 1995 152,569,437 1,373,125 726,307 (162,656) 5,118,699 211,870 5,200,000 160,000 Minimum liability for unfunded retirement benefits (51) Allocation of ESOP Shares 1,346 7,646 - -------------------------------------------------------------------------------------------------------- Balance, December 31, 1996 152,569,437 1,373,125 727,602 (155,010) 5,118,699 211,870 5,200,000 160,000 FirstEnergy merger(152,569,337)(1,373,124) 1,373,124 146,977 Minimum liability for unfunded retirement benefits 44 Allocation of ESOP Shares 1,874 8,033 Redemptions-- 8.45% Series (50,000) (5,000) - -------------------------------------------------------------------------------------------------------- Balance, December 31, 1997 100 $ 1 $2,102,644 $ - 5,118,699 $211,870 5,150,000 $155,000 ========================================================================================================= The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
- 6 - OHIO EDISON COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997 1996 1995 - ----------------------------------------------------------------------------------------------- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $293,194 $315,170 $317,241 Adjustments to reconcile net income to net cash from operating activities: Provision for depreciation 392,525 355,780 256,085 Nuclear fuel and lease amortization 49,251 52,784 70,849 Other amortization, net 36,229 25,961 5,885 Deferred income taxes, net (40,478) 41,365 53,395 Investment tax credits, net (15,031) (14,041) (9,951) Receivables (23,887) 24,326 (20,452) Materials and supplies (10,557) (736) 12,428 Accounts payable 32,531 962 3,545 Other 22,943 (41,254) 64,189 -------- -------- -------- Net cash provided from operating activities 736,720 760,317 753,214 -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: New Financing- Preferred stock - - 120,000 Long-term debt 89,773 306,313 254,365 Short-term borrowings, net - 229,515 - Redemptions and Repayments- Preferred stock 5,000 1,016 117,528 Long-term debt 292,409 438,916 499,276 Short-term borrowings, net 47,251 - 54,677 Dividend Payments- Common stock 237,848 218,656 217,192 Preferred stock 12,559 12,560 20,623 -------- -------- -------- Net cash used for financing activities 505,294 135,320 534,931 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Property additions 179,328 148,189 198,103 PNBV capital trust investment - 487,979 - Other 52,671 13,406 13,641 -------- -------- -------- Net cash used for investing activities 231,999 649,574 211,744 -------- -------- -------- Net increase (decrease) in cash and cash equivalents (573) (24,577) 6,539 Cash and cash equivalents at beginning of year 5,253 29,830 23,291 -------- -------- -------- Cash and cash equivalents at end of year $ 4,680 $ 5,253 $ 29,830 ======== ======== ======== SUPPLEMENTAL CASH FLOWS INFORMATION: Cash Paid During the Year- Interest (net of amounts capitalized) $212,987 $224,541 $254,789 ======== ======== ======== Income taxes $228,399 $157,477 $178,643 ======== ======== ======== The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
- 7 - OHIO EDISON COMPANY CONSOLIDATED STATEMENTS OF TAXES
For the Years Ended December 31, 1997 1996 1995 - --------------------------------------------------------------------------------------------- (In thousands) GENERAL TAXES: Real and personal property $ 114,111 $ 115,443 $ 118,707 State gross receipts 99,262 104,158 100,591 Social security and unemployment 14,113 14,602 15,787 Other 7,478 7,795 8,094 ---------- ---------- ---------- Total general taxes $ 234,964 $ 241,998 $ 243,179 ========== ========== ========== PROVISION FOR INCOME TAXES: Currently payable- Federal $ 225,529 $ 164,132 $ 145,511 State 17,784 9,839 10,352 ---------- ---------- ---------- 243,313 173,971 155,863 ---------- ---------- ---------- Deferred, net- Federal (34,429) 37,277 50,631 State (6,048) 4,088 2,764 ---------- ---------- ---------- (40,477) 41,365 53,395 ---------- ---------- ---------- Investment tax credit amortization (15,031) (14,041) (9,951) ---------- ---------- ---------- Total provision for income taxes $ 187,805 $ 201,295 $ 199,307 ========== ========== ========== INCOME STATEMENT CLASSIFICATION OF PROVISION FOR INCOME TAXES: Operating income $ 168,427 $ 189,417 $ 191,972 Other income 19,378 11,878 7,335 ---------- ---------- ---------- Total provision for income taxes $ 187,805 $ 201,295 $ 199,307 ========== ========== ========== RECONCILIATION OF FEDERAL INCOME TAX EXPENSE AT STATUTORY RATE TO TOTAL PROVISION FOR INCOME TAXES: Book income before provision for income taxes $ 480,999 $ 516,465 $ 516,548 ========== ========== ========== Federal income tax expense at statutory rate $ 168,350 $ 180,763 $ 180,792 Increases (reductions) in taxes resulting from- Amortization of investment tax credits (15,031) (14,041) (9,951) State income taxes net of federal income tax benefit 7,628 9,053 8,525 Amortization of tax regulatory assets 28,277 26,945 19,690 Other, net (1,419) (1,425) 251 ---------- ---------- ----------- Total provision for income taxes $ 187,805 $ 201,295 $ 199,307 ========== ========== ========== ACCUMULATED DEFERRED INCOME TAXES AT DECEMBER 31: Property basis differences $1,019,952 $1,086,533 $1,047,387 Allowance for equity funds used during construction 210,136 233,345 263,465 Deferred nuclear expense 252,946 262,123 271,114 Customer receivables for future income taxes 177,578 191,537 204,978 Deferred sale and leaseback costs 74,861 78,607 82,381 Unamortized investment tax credits (67,208) (72,663) (77,777) Other 30,089 (2,396) (19,114) ---------- ---------- ---------- Net deferred income tax liability $1,698,354 $1,777,086 $1,772,434 ========== ========== ========== The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
- 8 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The consolidated financial statements include Ohio Edison Company (Company), and its wholly owned subsidiaries. Pennsylvania Power Company (Penn) is the Company's principal operating subsidiary. All significant intercompany transactions have been eliminated. The Company became a wholly owned subsidiary of FirstEnergy Corp. on November 8, 1997. The Company and Penn (Companies) follow the accounting policies and practices prescribed by the Public Utilities Commission of Ohio (PUCO), the Pennsylvania Public Utility Commission (PPUC) and the Federal Energy Regulatory Commission (FERC). The preparation of financial statements in conformity with generally accepted accounting principles requires management to make periodic estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Certain prior year amounts have been reclassified to conform with the current year presentation. REVENUES- The Companies' principal business is providing electric service to customers in central and northeastern Ohio and western Pennsylvania. The Companies' retail customers are metered on a cycle basis. Revenue is recognized for unbilled electric service through the end of the year. Receivables from customers include sales to residential, commercial and industrial customers located in the Companies' service area and sales to wholesale customers. There was no material concentration of receivables at December 31, 1997 or 1996, with respect to any particular segment of the Companies' customers. REGULATORY PLANS- The Company's Rate Reduction and Economic Development Plan was approved by the PUCO in 1995 and Penn's Rate Stability and Economic Development Plan was approved by the PPUC in the second quarter of 1996. These regulatory plans initially maintain current base electric rates for the Company and Penn through December 31, 2005 and June 20, 2006, respectively. At the end of the regulatory plan period, the Company's base rates will be reduced by $300 million (approximately 20 percent below current levels). The plans also revised the Companies' fuel cost recovery methods. The Companies formerly recovered fuel-related costs not otherwise included in base rates from retail customers through separate energy rates. In accordance with the respective regulatory plans, the Company's fuel rate will be frozen through the regulatory plan period, subject to limited periodic adjustments; Penn's plan provided for the roll-in to base rates of its fuel rate. As part of the Company's regulatory plan, transition rate credits were implemented for customers, which are expected to reduce operating revenues for the Company by approximately $600 million during the regulatory plan period. All of the Companies' regulatory assets are being recovered under provisions of the regulatory plans. In addition, the PUCO has authorized the Company to recognize additional capital recovery related to its generating assets (which is reflected as additional depreciation expense) and additional amortization of regulatory assets during the regulatory plan period of at least $2 billion, and the PPUC has authorized Penn to accelerate at least $358 million, more than the amounts that - 9 - would have been recognized if the regulatory plans were not in effect. These additional amounts are being recovered through current rates. As of December 31, 1997, the Companies' cumulative additional capital recovery and regulatory asset amortization amounted to $427 million. UTILITY PLANT AND DEPRECIATION- Utility plant reflects the original cost of construction, including payroll and related costs such as taxes, employee benefits, administrative and general costs and financing costs (allowance for funds used during construction). The Companies provide for depreciation on a straight- line basis at various rates over the estimated lives of property included in plant in service. The annual composite rate for electric plant was approximately 3.0% in 1997, 1996, and 1995. In addition to the straight-line depreciation recognized in 1997, 1996 and 1995, the Companies recognized additional capital recovery of $172 million, $144 million and $27 million, respectively, as additional depreciation expense in accordance with their regulatory plans. Such additional charges in the accumulated provision for depreciation were $343 million and $171 million as of December 31, 1997 and 1996, respectively. Annual depreciation expense includes approximately $8.8 million for future decommissioning costs applicable to the Companies' ownership and leasehold interests in three nuclear generating units. The Companies' share of the future obligation to decommission these units is approximately $481 million in current dollars and (using a 3.5% escalation rate) approximately $1.2 billion in future dollars. The estimated obligation and the escalation rate were developed based on site specific studies. Payments for decommissioning are expected to begin in 2016, when actual decommissioning work begins. The Companies have recovered approximately $72 million for decommissioning through their electric rates from customers through December 31, 1997. If the actual costs of decommissioning the units exceed the funds accumulated from investing amounts recovered from customers, the Companies expect that additional amount to be recoverable from their customers. The Companies have approximately $109.9 million invested in external decommissioning trust funds as of December 31, 1997. Earnings on these funds are reinvested with a corresponding increase to the decommissioning liability. The Companies have also recognized an estimated liability of approximately $15.2 million related to decontamination and decommissioning of nuclear enrichment facilities operated by the United States Department of Energy (DOE), as required by the Energy Policy Act of 1992. The Financial Accounting Standards Board (FASB) issued a proposed accounting standard for nuclear decommissioning costs in February 1996. If the standard is adopted as proposed: (1) annual provisions for decommissioning could increase; (2) the net present value of estimated decommissioning costs could be recorded as a liability; and (3) income from the external decommissioning trusts could be reported as investment income. The FASB indicated in October 1997 that it plans to continue work on the proposal. COMMON OWNERSHIP OF GENERATING FACILITIES- The Companies, together with the other FirstEnergy Corp. (FirstEnergy) utilities, The Cleveland Electric Illuminating Company (CEI) and The Toledo Edison Company (TE), and Duquesne Light Company constitute the Central Area Power Coordination Group (CAPCO). The CAPCO companies own and/or lease, as tenants in common, various power generating facilities. Each of the companies is obligated to pay a share of the costs associated with any jointly owned facility in the same proportion as its interest. The Companies' portions of operating expenses - 10 - associated with jointly owned facilities are included in the corresponding operating expenses on the Consolidated Statements of Income. The amounts reflected on the Consolidated Balance Sheet under utility plant at December 31, 1997, include the following: Utility Accumulated Construction Ownership/ Plant Provision for Work in Leasehold Generating Units in Service Depreciation Progress Interest - ---------------------------------------------------------------------------- (In millions) W.H. Sammis #7 $ 305.5 $ 100.8 $ .8 68.80% Bruce Mansfield #1, #2 and #3 786.3 380.3 2.1 50.68% Beaver Valley #1 and #2 1,900.0 651.7 3.9 47.11% Perry 1,837.0 720.4 3.1 35.24% - ---------------------------------------------------------------------------- Total $4,828.8 $1,853.2 $9.9 - ---------------------------------------------------------------------------- NUCLEAR FUEL- Nuclear fuel is recorded at original cost, which includes material, enrichment, fabrication and interest costs incurred prior to reactor load. The Companies amortize the cost of nuclear fuel based on the rate of consumption. The Companies' electric rates include amounts for the future disposal of spent nuclear fuel based upon the formula used to compute payments to the DOE. INCOME TAXES- Details of the total provision for income taxes are shown on the Consolidated Statements of Taxes. Deferred income taxes result from timing differences in the recognition of revenues and expenses for tax and accounting purposes. Investment tax credits, which were deferred when utilized, are being amortized over the recovery period of the related property. The liability method is used to account for deferred income taxes. Deferred income tax liabilities related to tax and accounting basis differences are recognized at the statutory income tax rates in effect when the liabilities are expected to be paid. RETIREMENT BENEFITS- The Companies' trusteed, noncontributory defined benefit pension plans cover almost all full-time employees. Upon retirement, employees receive a monthly pension based on length of service and compensation. The Companies use the projected unit credit method for funding purposes and were not required to make pension contributions during the three years ended December 31, 1997. The following sets forth the funded status of the plans and amounts recognized on the Consolidated Balance Sheets as of December 31: - 11- 1997 1996 - ----------------------------------------------------------------- (In millions) Actuarial present value of benefit obligations: Vested benefits $ 677.4 $ 562.0 Nonvested benefits 29.9 38.9 - ---------------------------------------------------------------- Accumulated benefit obligation $ 707.3 $ 600.9 ================================================================ Plan assets at fair value $1,080.6 $ 946.3 Actuarial present value of projected benefit obligation 794.1 688.5 - ---------------------------------------------------------------- Plan assets in excess of projected benefit obligation 286.5 257.8 Unrecognized net gain (139.5) (106.2) Unrecognized prior service cost 21.0 20.1 Unrecognized net transition asset (25.9) (33.9) - ---------------------------------------------------------------- Net pension asset $ 142.1 $ 137.8 ================================================================ The assets of the plans consist primarily of common stocks, United States government bonds and corporate bonds. Net pension costs for the three years ended December 31, 1997, were computed as follows: 1997 1996 1995 - ---------------------------------------------------------------- (In millions) Service cost-benefits earned during the period $ 12.9 $ 14.2 $ 12.8 Interest on projected benefit obligation 49.8 49.3 48.1 Return on plan assets (188.8) (141.6) (194.5) Net deferral 90.1 52.7 118.7 Voluntary early retirement program expense 31.5 12.5 - Gain on plan curtailment - (12.8) - - ---------------------------------------------------------------- Net pension cost $ (4.5) $ (25.7) $ (14.9) ================================================================ The assumed discount rates used in determining the actuarial present value of the projected benefit obligation were 7.25% in 1997 and 7.5% in 1996 and 1995. The assumed rates of increase in future compensation levels used to measure this obligation were 4.0% in 1997 and 4.5% in 1996 and 1995. Expected long-term rates of return on plan assets were assumed to be 10% in 1997, 1996 and 1995. The Companies provide a minimum amount of noncontributory life insurance to retired employees in addition to optional contributory insurance. Health care benefits, which include certain employee deductibles and copayments, are also available to retired employees, their dependents and, under certain circumstances, their survivors. The Companies pay insurance premiums to cover a portion of these benefits in excess of set limits; all amounts up to the limits are paid by the Companies. The Companies recognize the expected cost of providing other postretirement benefits to employees and their beneficiaries and covered dependents from the time employees are hired until they become eligible to receive those benefits. In accordance with Statement of Financial Accounting Standards (SFAS) No. 88 "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits," the 1996 net pension costs shown above and the 1996 postretirement benefit costs shown below included curtailment effects (significant changes in projected plan assumptions) relating to the pension and postretirement benefit plans. The employee terminations reflected in the Companies' 1996 voluntary early retirement program represented a plan curtailment that significantly reduced the expected future employee service years and the related accrual of defined pension and - 12 - postretirement benefits. In the pension plan, the reduction in the benefit obligation increased the net pension asset and was shown as a plan curtailment gain. In the postretirement benefit plan, the unrecognized prior service cost associated with service years no longer expected to be rendered as a result of the terminations, was shown as a plan curtailment loss. The following sets forth the funded status of the plans and amounts recognized on the Consolidated Balance Sheets as of December 31: 1997 1996 - ---------------------------------------------------------------- (In millions) Accumulated postretirement benefit obligation allocation: Retirees $174.9 $155.5 Fully eligible active plan participants 15.8 10.1 Other active plan participants 76.9 75.5 - ---------------------------------------------------------------- Accumulated postretirement benefit obligation 267.6 241.1 Plan assets at fair value 2.8 2.0 - ---------------------------------------------------------------- Accumulated postretirement benefit obligation in excess of plan assets 264.8 239.1 Unrecognized transition obligation (125.1) (133.5) Unrecognized net loss (24.0) (7.4) - ---------------------------------------------------------------- Net postretirement benefit liability $115.7 $ 98.2 ================================================================ Net periodic postretirement benefit costs for the three years ended December 31, 1997, were computed as follows: 1997 1996 1995 - ---------------------------------------------------------------- (In millions) Service cost-benefits attributed to the period $ 4.1 $ 4.3 $ 4.5 Interest cost on accumulated benefit obligation 17.6 17.4 21.1 Amortization of transition obligation 8.3 8.8 10.2 Amortization of loss - .1 .1 Voluntary early retirement program expense 1.9 .5 - Loss on plan curtailment - 13.1 - - ----------------------------------------------------------------- Net periodic postretirement benefit cost $31.9 $44.2 $35.9 ================================================================ The health care trend rate assumption is 6.0% in the first year gradually decreasing to 4.0% for the year 2008 and later. The discount rates used to compute the accumulated postretirement benefit obligation were 7.25% in 1997 and 7.5% in 1996 and 1995. An increase in the health care trend rate assumption by one percentage point in all years would increase the accumulated postretirement benefit obligation by approximately $34.6 million and the aggregate annual service and interest costs by approximately $3.1 million. TRANSACTIONS WITH AFFILIATED COMPANIES- Operating revenues and operating expenses include amounts for affiliated transactions with CEI and TE since the November 8, 1997 merger date. The Company's transactions with CEI and TE from the merger date were primarily for electric sales. The amounts related to CEI and TE were $4.3 million and $0.4 million, respectively. - 13 - SUPPLEMENTAL CASH FLOWS INFORMATION- All temporary cash investments purchased with an initial maturity of three months or less are reported as cash equivalents on the Consolidated Balance Sheets. The Companies reflect temporary cash investments at cost, which approximates their market value. Noncash financing and investing activities included capital lease transactions amounting to $3.0 million, $2.0 million and $1.0 million for the years 1997, 1996 and 1995, respectively. Commercial paper transactions of OES Fuel (a wholly owned subsidiary of the Company) that have initial maturity periods of three months or less are reported net within financing activities under long-term debt and are reflected as long-term debt on the Consolidated Balance Sheets (see Note 4F). All borrowings with initial maturities of less than one year are defined as financial instruments under generally accepted accounting principles and are reported on the Consolidated Balance Sheets at cost, which approximates their fair market value. The following sets forth the approximate fair value and related carrying amounts of all other long-term debt, preferred stock subject to mandatory redemption and investments other than cash and cash equivalents as of December 31: 1997 1996 ---------------- --------------- Carrying Fair Carrying Fair Value Value Value Value -------- ----- -------- ----- (In Millions) Long-term debt $2,727 $2,835 $2,919 $2,963 Preferred stock $ 155 $ 161 $ 160 $ 160 Investments other than cash and cash equivalents: Debt securities - Maturity (5-10 years) $ 486 $ 512 $ 364 $ 364 - Maturity (more than 10 years) 259 294 387 390 Equity securities 14 14 14 14 All other 145 147 104 102 ------ ------ ------ ------ $ 904 $ 967 $ 869 $ 870 The fair values of long-term debt and preferred stock reflect the present value of the cash outflows relating to those securities based on the current call price, the yield to maturity or the yield to call, as deemed appropriate at the end of each respective year. The yields assumed were based on securities with similar characteristics offered by a corporation with credit ratings similar to the Companies' ratings. The fair value of investments other than cash and cash equivalents represent cost (which approximates fair value) or the present value of the cash inflows based on the yield to maturity. The yields assumed were based on financial instruments with similar characteristics and terms. Investments other than cash and cash equivalents include decommissioning trust investments. Unrealized gains and losses applicable to the decommissioning trust have been recognized in the trust investment with a corresponding change to the decommissioning liability. The other debt and equity securities referred to above are in the held-to- maturity category. The Companies have no securities held for trading purposes. REGULATORY ASSETS- The Companies recognize, as regulatory assets, costs which the FERC, PUCO and PPUC have authorized for recovery from customers in future periods. Without such authorization, the - 14 - costs would have been charged to income as incurred. All regulatory assets are being recovered from customers under the Companies' respective regulatory plans. Based on those regulatory plans, at this time, the Companies believe they will continue to be able to bill and collect cost-based rates; accordingly, it is appropriate that the Companies continue the application of SFAS No. 71 "Accounting for the Effects of Certain Types of Regulation" (SFAS 71). However, based on the regulatory environment in Pennsylvania, Penn is expected to discontinue its application of SFAS 71 for its generation operations, possibly as early as 1998. The impact of Penn discontinuing SFAS 71 is not expected to be material. The Companies also recognized additional cost recovery of $39 million, $34 million and $11 million in 1997, 1996 and 1995, respectively, as additional regulatory asset amortization in accordance with their regulatory plans. Regulatory assets on the Consolidated Balance Sheets are comprised of the following: 1997 1996 - --------------------------------------------------------------- (In millions) Nuclear unit expenses $ 707.7 $ 733.4 Customer receivables for future income taxes 484.7 523.0 Sale and leaseback costs 210.3 220.8 Loss on reacquired debt 89.1 95.8 Employee postretirement benefit costs 25.9 29.2 Uncollectible customer accounts 18.9 29.8 Perry Unit 2 termination 36.7 40.4 DOE decommissioning and decontamination costs 16.5 18.0 Other 11.9 12.7 - --------------------------------------------------------------- Total $1,601.7 $1,703.1 =============================================================== 2. MERGER: FirstEnergy was formed on November 8, 1997, by the merger of the Company and Centerior Energy Corporation (Centerior). FirstEnergy holds directly all of the issued and outstanding common shares of the Company and all of the issued and outstanding common shares of Centerior's former direct subsidiaries, which include, among others, CEI and TE. As a result of the merger, the former common shareholders of the Company and Centerior now own all of the outstanding shares of FirstEnergy Common Stock. All other classes of capital stock of the Company and its subsidiaries and of the subsidiaries of Centerior are unaffected by the Merger and remain outstanding. 3. LEASES: The Companies lease certain generating facilities, certain transmission facilities, office space and other property and equipment under cancelable and noncancelable leases. The Company sold portions of its ownership interests in Perry Unit 1 and Beaver Valley Unit 2 and entered into operating leases on the portions sold for basic lease terms of approximately 29 years. During the terms of the leases the Company continues to be responsible, to the extent of its individual combined ownership and leasehold interests, for costs associated with the units including construction expenditures, operation and maintenance expenses, insurance, nuclear fuel, property taxes and decommissioning. The Company has the right, at - 15 - the end of the respective basic lease terms, to renew the leases for up to two years. The Company also has the right to purchase the facilities at the expiration of the basic lease term or renewal term (if elected) at a price equal to the fair market value of the facilities. The basic rental payments are adjusted when applicable federal tax law changes. OES Finance, Incorporated (OES Finance), a wholly owned subsidiary of the Company, maintains deposits pledged as collateral to secure reimbursement obligations relating to certain letters of credit supporting the Company's obligations to lessors under the Beaver Valley Unit 2 sale and leaseback arrangements. The deposits pledged to the financial institution providing those letters of credit are the sole property of OES Finance. In the event of liquidation, OES Finance, as a separate corporate entity, would have to satisfy its obligations to creditors before any of its assets could be made available to the Company as sole owner of OES Finance common stock. Consistent with the regulatory treatment, the rentals for capital and operating leases are charged to operating expenses on the Consolidated Statements of Income. Such costs for the three years ended December 31, 1997, are summarized as follows: 1997 1996 1995 - ------------------------------------------------------------ (In millions) Operating leases Interest element $111.3 $107.6 $104.6 Other 23.2 18.3 13.9 Capital leases Interest element 6.1 6.5 7.0 Other 6.0 6.3 6.6 - ------------------------------------------------------------- Total rentals $146.6 $138.7 $132.1 ============================================================= The future minimum lease payments as of December 31, 1997, are: Operating Leases -------------------------------------- Capital Lease PNBV Capital Leases Payments Trust Income Net - -------------------------------------------------------------------------------- (In millions) 1998 $ 13.8 $ 120.9 $ 38.4 $ 82.5 1999 11.7 125.8 38.0 87.8 2000 10.3 125.0 37.6 87.4 2001 9.7 127.6 36.2 91.4 2002 9.2 127.8 34.5 93.3 Years thereafter 80.0 1,979.6 249.4 1,730.2 - ------------------------------------------------------------------------------- Total minimum lease payments 134.7 $2,606.7 $ 434.1 $2,172.6 ======== ======= ======== Executory costs 36.0 - ------------------------------------- Net minimum lease payments 98.7 Interest portion 58.1 - ------------------------------------- Present value of net minimum lease payments 40.6 Less current portion 4.9 - ------------------------------------- Noncurrent portion $ 35.7 ===================================== The Company invested in the PNBV Capital Trust in the third quarter of 1996. The Trust was established to purchase a portion of the lease obligation bonds issued on behalf of lessors in the Company's Perry Unit 1 and Beaver Valley Unit 2 sale and leaseback transactions. As noted in the table above, the PNBV Capital Trust income, which is included in other income in the Consolidated Statements of Income, effectively reduces lease costs related to those transactions. - 16 - 4. CAPITALIZATION: (A) RETAINED EARNINGS- Under the Company's first mortgage indenture, the Company's consolidated retained earnings unrestricted for payment of cash dividends on the Company's common stock were $554.9 million at December 31, 1997. (B) EMPLOYEE STOCK OWNERSHIP PLAN- The Companies fund the matching contribution for their 401(k) savings plan through an ESOP Trust. All full-time employees eligible for participation in the 401(k) savings plan are covered by the ESOP. The ESOP borrowed $200 million from the Company and acquired 10,654,114 shares of the Company's common stock through market purchases; the shares were converted into FirstEnergy's common stock in connection with the merger. The ESOP loan, which was shown as a reduction to common equity on the Consolidated Balance Sheet as of December 31, 1996, is included in Other Property and Investments on the Consolidated Balance Sheet as of December 31, 1997 as an investment with FirstEnergy related to the FirstEnergy savings plan. Dividends on ESOP shares are used to service the debt. Shares are released from the ESOP on a pro-rata basis as debt service payments are made. In 1997, 1996 and 1995, 429,515 shares, 404,522 shares and 412,914 shares, respectively, were allocated to the Companies' employees with the corresponding expense recognized based on the shares allocated method. Total ESOP-related compensation expense was calculated as follows: - -------------------------------------------------------------- 1997 1996 1995 - -------------------------------------------------------------- (In millions) Base compensation $ 9.9 $ 9.0 $ 9.0 Dividends on common stock held by the ESOP and used to service debt (3.4) (2.9) (2.5) - --------------------------------------------------------------- Net expense $ 6.5 $ 6.1 $ 6.5 =============================================================== (C) PREFERRED STOCK- Penn's 7.75% series of preferred stock has a restriction which prevents early redemption prior to July 2003. The Company's 8.45% series of preferred stock has no optional redemption provision, and its 7.75% series is not redeemable before April 1998. All other preferred stock may be redeemed by the Companies in whole, or in part, with 30-60 days' notice. (D) PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION- The Company's 8.45% series of preferred stock has an annual sinking fund requirement for 50,000 shares that began on September 16, 1997. Penn's 7.625% series has an annual sinking fund requirement for 7,500 shares beginning on October 1, 2002. - 17 - The Companies' preferred shares are retired at $100 per share plus accrued dividends. Annual sinking fund requirements are $5 million in each year 1998-2001 and $1 million in 2002. (E) COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY COMPANY SUBORDINATED DEBENTURES- Ohio Edison Financing Trust, a wholly owned subsidiary of the Company, has issued $120 million of 9% Cumulative Trust Preferred Capital Securities. The Company purchased all of the Trust's Common Securities and simultaneously issued to the Trust $123.7 million principal amount of 9% Junior Subordinated Debentures due 2025 in exchange for the proceeds that the Trust received from its sale of Preferred and Common Securities. The sole assets of the Trust are the Subordinated Debentures whose interest and other payment dates coincide with the distribution and other payment dates on the Trust Securities. Under certain circumstances the Subordinated Debentures could be distributed to the holders of the outstanding Trust Securities in the event the Trust is liquidated. The Subordinated Debentures may be optionally redeemed by the Company beginning December 31, 2000, at a redemption price of $25 per Subordinated Debenture plus accrued interest, in which event the Trust Securities will be redeemed on a pro-rata basis at $25 per share plus accumulated distributions. The Company's obligations under the Subordinated Debentures along with the related Indenture, amended and restated Trust Agreement, Guarantee Agreement and the Agreement for expenses and liabilities, constitute a full and unconditional guarantee by the Company of payments due on the Preferred Securities. (F) LONG-TERM DEBT- The first mortgage indentures and their supplements, which secure all of the Companies' first mortgage bonds, serve as direct first mortgage liens on substantially all property and franchises, other than specifically excepted property, owned by the Companies. Based on the amount of bonds authenticated by the Trustee through December 31, 1997, the Company's annual sinking and improvement fund requirement for all bonds issued under the mortgage amounts to $30 million. The Company expects to deposit funds in 1998 that will be withdrawn upon the surrender for cancellation of a like principal amount of bonds, which are specifically authenticated for such purposes against unfunded property additions or against previously retired bonds. This method can result in minor increases in the amount of the annual sinking fund requirement. Sinking fund requirements for first mortgage bonds and maturing long-term debt (excluding capital leases) for the next five years are: (In Millions) - ------------------------------------------------------- 1998 $268.6 1999 617.2 2000 166.5 2001 14.5 2002 324.4 - -------------------------------------------------------- The Companies' obligations to repay certain pollution control revenue bonds are secured by several series of first mortgage bonds and, in some cases, by subordinate liens on the related pollution control facilities. Certain pollution control revenue bonds are entitled to the benefit of irrevocable bank - 18 - letters of credit of $338.8 million. To the extent that drawings are made under those letters of credit to pay principal of, or interest on, the pollution control revenue bonds, the Company is entitled to a credit against their obligation to repay those bonds. The Company pays annual fees of 0.43% to 0.625% of the amounts of the letters of credit to the issuing banks and are obligated to reimburse the banks for any drawings thereunder. The Company had unsecured borrowings of $215 million at December 31, 1997, which are supported by a $250 million long- term revolving credit facility agreement which expires December 30, 1999. The Company must pay an annual facility fee of 0.20% on the total credit facility amount. In addition, the credit agreement provides that the Company maintain unused first mortgage bond capability for the full credit agreement amount under the Company's indenture as potential security for the unsecured borrowings. Nuclear fuel purchases are financed through the issuance of OES Fuel commercial paper and loans, both of which are supported by a $225 million long-term bank credit agreement which expires March 31, 1999. Accordingly, the commercial paper and loans are reflected as long-term debt on the Consolidated Balance Sheets. OES Fuel must pay an annual facility fee of 0.1875% on the total line of credit and an annual commitment fee of 0.0625% on any unused amount. 5. SHORT-TERM BORROWINGS AND BANK LINES OF CREDIT: Short-term borrowings outstanding at December 31, 1997, consisted of $182.2 million of bank borrowings and $120.0 million of OES Capital, Incorporated commercial paper. OES Capital is a wholly owned subsidiary of the Company whose borrowings are secured by customer accounts receivable. OES Capital can borrow up to $120 million under a receivables financing agreement at rates based on certain bank commercial paper and is required to pay an annual fee of 0.26% on the amount of the entire finance limit. The receivables financing agreement expires in 1999. The Companies have lines of credit with domestic banks that provide for borrowings of up to $77 million under various interest rate options. Short-term borrowings may be made under these lines of credit on their unsecured notes. To assure the availability of these lines, the Companies are required to pay annual commitment fees that vary from 0.22% to 0.50%. These lines expire at various times during 1998. The weighted average interest rates on short-term borrowings outstanding at December 31, 1997 and 1996, were 6.02% and 5.77%, respectively. 6. COMMITMENTS, GUARANTEES AND CONTINGENCIES: CAPITAL EXPENDITURES- The Companies' current forecasts reflect expenditures of approximately $600 million for property additions and improvements from 1998-2002, of which approximately $165 million is applicable to 1998. Investments for additional nuclear fuel during the 1998-2002 period are estimated to be approximately $206 million, of which approximately $26 million applies to 1998. During the same periods, the Companies' nuclear fuel investments are expected to be reduced by approximately $182 million and $41 million, respectively, as the nuclear fuel is consumed. - 19 - NUCLEAR INSURANCE- The Price-Anderson Act limits the public liability relative to a single incident at a nuclear power plant to $8.92 billion. The amount is covered by a combination of private insurance and an industry retrospective rating plan. Based on their present ownership and leasehold interests in the Beaver Valley Station and the Perry Plant, the Companies' maximum potential assessment under the industry retrospective rating plan (assuming the other co-owners contribute their proportionate shares of any assessments under the retrospective rating plan) would be $102.8 million per incident but not more than $13 million in any one year for each incident. The Companies are also insured as to their respective interests in the Beaver Valley Station and the Perry Plant under policies issued to the operating company for each plant. Under these policies, up to $2.75 billion is provided for property damage and decontamination and decommissioning costs. The Companies have also obtained approximately $232 million of insurance coverage for replacement power costs for their respective interests in Perry and Beaver Valley. Under these policies, the Companies can be assessed a maximum of approximately $13 million for incidents at any covered nuclear facility occurring during a policy year which are in excess of accumulated funds available to the insurer for paying losses. The Companies intend to maintain insurance against nuclear risks as described above as long as it is available. To the extent that replacement power, property damage, decontamination, decommissioning, repair and replacement costs and other such costs arising from a nuclear incident at any of the Companies' plants exceed the policy limits of the insurance in effect with respect to that plant, to the extent a nuclear incident is determined not to be covered by the Companies' insurance policies, or to the extent such insurance becomes unavailable in the future, the Companies would remain at risk for such costs. GUARANTEES- The CAPCO companies have each severally guaranteed certain debt and lease obligations in connection with a coal supply contract for the Bruce Mansfield Plant. As of December 31, 1997, the Companies' shares of the guarantees (which approximate fair market value) were $43.4 million. 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. The Companies' total payments under the coal supply contract were $119.5 million, $113.8 million and $120.0 million during 1997, 1996 and 1995, respectively. The Companies' minimum annual payments are approximately $35 million under the contract, which expires December 31, 1999. ENVIRONMENTAL MATTERS- Various federal, state and local authorities regulate the Companies with regard to air and water quality and other environmental matters. The Companies estimate additional capital expenditures for environmental compliance of approximately $27 million, which is included in the construction forecast provided under "Capital Expenditures" for 1998 through 2002. The Companies are in compliance with the current sulfur dioxide (SO2) and nitrogen oxides (NOX) reduction requirements under the Clean Air Act Amendments of 1990. SO2 reductions through the year 1999 will be achieved by burning lower-sulfur fuel, generating more electricity from lower-emitting plants, and/or purchasing emission allowances. Plans for complying with - 20 - 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. In addition, the EPA is also considering the need for additional NOX reductions from the Companies' Ohio facilities. On November 7, 1997, the EPA proposed uniform reductions of NOX emissions across a region of twenty-two states, including Ohio and the District of Columbia (NOX Transport Rule) after determining that such NOX emissions are contributing significantly to ozone pollution in the eastern United States. In a separate but related action, eight states filed petitions with the EPA under Section 126 of the Clean Air Act seeking reductions of NOX emissions which are alleged to contribute to ozone pollution in the eight petitioning states. A December 1997 EPA Memorandum of Agreement proposes to finalize the NOX Transport Rule by September 30, 1998, and establishes a schedule for EPA action on the Section 126 petitions. The cost of NOX 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 Companies cannot predict what action the EPA may take in the future with respect to 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. 7. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED): The following summarizes certain consolidated operating results by quarter for 1997 and 1996.
March 31, June 30, September 30, December 31, Three Months Ended 1997 1997 1997 1997 - ---------------------------------------------------------------------------------------------- (In millions) Operating Revenues $604.8 $593.3 $652.7 $622.9 Operating Expenses and Taxes 478.5 467.3 511.6 527.7 - -------------------------------------------------------------------------------------------- Operating Income 126.3 126.0 141.1 95.2 Other Income 13.5 14.1 12.0 13.3 Net Interest Charges 63.8 63.2 61.3 60.0 - -------------------------------------------------------------------------------------------- Net Income $ 76.0 $ 76.9 $ 91.8 $ 48.5 - -------------------------------------------------------------------------------------------- Earnings on Common Stock $ 72.9 $ 73.8 $ 88.7 $ 45.4 - -------------------------------------------------------------------------------------------- - 21 - March 31, June 30, September 30, December 31, Three Months Ended 1996 1996 1996 1996 - ---------------------------------------------------------------------------------------------- (In millions) Operating Revenues $611.6 $599.3 $646.9 $611.9 Operating Expenses and Taxes 481.1 471.7 500.0 486.8 - ------------------------------------------------------------------------------------------- Operating Income 130.5 127.6 146.9 125.1 Other Income 7.0 10.7 7.1 12.7 Net Interest Charges 64.1 61.7 61.5 65.1 - ------------------------------------------------------------------------------------------- Net Income $ 73.4 $ 76.6 $ 92.5 $ 72.7 - ------------------------------------------------------------------------------------------- Earnings on Common Stock $ 70.3 $ 73.5 $ 89.4 $ 69.5 - -------------------------------------------------------------------------------------------
- 22 - Report of Independent Public Accountants To the Stockholders and Board of Directors of Ohio Edison Company: We have audited the accompanying consolidated balance sheets and consolidated statements of capitalization of Ohio Edison Company (an Ohio corporation and wholly owned subsidiary of FirstEnergy Corp.) and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, retained earnings, capital stock and other paid-in capital, cash flows and taxes for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ohio Edison Company and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Cleveland, Ohio February 13, 1998 - 23 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION This discussion includes forward looking statements based on information currently available to management. Such statements are subject to certain risks and uncertainties. These statements typically contain, but are not limited to, the terms "anticipate", "potential", "expect", "believe", "estimate" and similar words. Actual results may differ materially due to the speed and nature of increased competition and deregulation in the electric utility industry, economic or weather conditions affecting future sales and margins, changes in markets for energy services, changing energy market prices, legislative and regulatory changes (including revised environmental requirements), availability and cost of capital and other similar factors. RESULTS OF OPERATIONS We continued to make significant progress in 1997 as our companies prepare for a more competitive environment in the electric utility industry. The most significant event during the year was the approval by the Federal Energy Regulatory Commission (FERC) of our merger with Centerior Energy Corporation to form FirstEnergy Corp., which came into existence on November 8, 1997. We expect the merger to produce a minimum of $1 billion in savings for FirstEnergy Corp. during the first ten years of joint operations through the elimination of duplicative activities, improved operating efficiencies, lower capital expenditures, accelerated debt reduction, the coordination of the companies' work forces and enhanced purchasing power. Earnings on common stock of $280.8 million were adversely affected by net nonrecurring charges amounting to $26.4 million relating to a voluntary retirement program and estimated severance expenses. Excluding these charges, 1997 earnings on common stock were $307.2 million, compared to $302.7 million in 1996. The 1997 results reflect accelerated depreciation and amortization of nuclear and regulatory assets totaling approximately $211 million under our Rate Reduction and Economic Development Plan and Pennsylvania Power Company's (Penn's) Rate Stability and Economic Development Plan; results for 1996 included approximately $178 million of accelerated depreciation and amortization. The 1996 results compared favorably to earnings on common stock of $294.7 million in 1995. For the third consecutive year, we achieved record operating revenues and for the fifth consecutive year, we achieved record retail sales. The following table summarizes the sources of changes in operating revenues for 1997 and 1996 as compared to the previous year: 1997 1996 ---- ---- (In millions) Increased retail kilowatt-hour sales $ 7.8 $ 58.1 Change in average retail price 13.3 (46.1) Sales to utilities (25.8) (4.5) Other 8.5 (3.6) ------ ------ Net Increase $ 3.8 $ 3.9 ====== ====== - 24 - An improving local economy helped us achieve record retail sales of 27.3 billion kilowatt-hours. Our customer base continues to grow with approximately 4,900 new retail customers added in 1997, after gaining more than 12,200 customers the previous year. Residential sales decreased 0.8% in 1997, following a 1.8% gain the previous year. Commercial sales rose 1.2% and 1.3% in 1997 and 1996, respectively. Increased demand by rubber and plastics and primary metal manufacturers contributed to a 1.0% rise in industrial sales during 1997, following a 5.5% increase the previous year. Sales to other utilities fell 26.4% in 1997 as a result of the December 31, 1996, expiration of a one-year contract with another utility to supply 250 megawatts of power. This reduction follows a 2.7% increase the previous year. As a result of the above factors, total kilowatt-hour sales dropped 5.0%, compared with sales in 1996, which were up 3.0% from 1995. Because of lower kilowatt-hour sales, the Companies spent less on fuel and purchased power during 1997, compared to 1996 costs, which were also down compared to 1995. Higher nuclear expenses in 1997 reflect increased operating costs at the Beaver Valley Plant. Nuclear operating costs were lower in 1996, compared to 1995, due primarily to lower refueling outage cost levels. The increase in other operating costs in 1997 reflects a fourth quarter charge of approximately $41.5 million for a voluntary retirement program and estimated severance expenses. These cost increases were partially offset by gains on the sale of emission allowances during the year. The decrease in other operating costs in 1996, compared to 1995, reflects lower maintenance costs at our fossil-fuel generating units. The changes in depreciation and regulatory asset amortization in 1997 and 1996 reflect accelerations under the regulatory plans discussed above. General taxes decreased in 1997, compared to 1996, due to lower property taxes and an adjustment in the second quarter of 1997 which reduced the Companies' liabilities for gross receipts taxes. The increases in other income in 1997 and 1996 were principally due to higher investment income--primarily through our PNBV Capital Trust investment, which was effective in the third quarter of 1996. Overall, interest costs continue to trend downward. Total interest costs were lower in 1997 than in 1996. Interest on long-term debt decreased due to our economic refinancings and redemption of higher-cost debt totaling approximately $282 million that had been outstanding as of December 31, 1996. Other interest expense increased compared to 1996 due mainly to higher levels of short-term borrowing. We also discontinued deferring nuclear unit interest in the second half of 1995, consistent with our regulatory plan. CAPITAL RESOURCES AND LIQUIDITY We have significantly improved our financial position over the past five years. Cash generated from operations was nearly 25% higher in 1997 than it was in 1992 due to higher revenues and aggressive cost controls. At the same time, return on common equity improved from 10.8% in 1992 to 12.0% in 1997, excluding the net nonrecurring charges discussed above. By the end of 1997, we were serving about 57,000 more customers than we were five years ago, with approximately 2,000 fewer employees. As a result, our customer/employee ratio has increased by 56% over the past five years, standing at 264 customers per employee at the end of 1997, compared with 169 at the end of 1992. In addition, capital expenditures have dropped substantially during that period. Expenditures in 1997 were approximately 37% lower than they were in 1992, and total depreciation charges have exceeded property additions since the end of 1987. - 25 - Over the past five years, we have aggressively taken advantage of opportunities in the financial markets to reduce our average capital costs. Through refinancing activities, we have reduced the average cost of outstanding debt from 8.53% at the end of 1992 to 7.77% at the end of 1997. Excluding the nonrecurring charges mentioned above, our fixed charge coverage ratios continue to improve. Our indenture ratio, which is used to measure our ability to issue first mortgage bonds, improved from 4.34 at the end of 1992 to 6.21 at the end of 1997. Over the same period, our charter ratio--a measure of our ability to issue preferred stock-- improved from 1.89 to 2.35. At the end of 1997, our common equity as a percentage of capitalization stood at 48% compared to 40% at the end of 1992. Our cash requirements in 1998 for operating expenses, construction expenditures and scheduled debt maturities are expected to be met without issuing additional securities. During 1997, we reduced our total debt by approximately $245 million. We also have cash requirements of approximately $1,015 million for the 1998-2002 period to meet scheduled maturities of long-term debt and preferred stock. Of that amount, approximately $167 million applies to 1998. We had about $4.7 million of cash and temporary investments and $302.2 million of short-term indebtedness on December 31, 1997. As of December 31, 1997, we had the capability to borrow $61 million through unused OES Fuel credit facilities. In addition, our unused borrowing capability included $37 million under revolving lines of credit and $26 million of bank facilities that provide for borrowings on a short-term basis at the banks' discretion. Our capital spending for the period 1998-2002 is expected to be about $600 million (excluding nuclear fuel), of which approximately $165 million applies to 1998. This spending level is nearly $300 million lower than actual capital outlays over the past five years. Investments for additional nuclear fuel during the 1998-2002 period are estimated to be approximately $206 million, of which about $26 million applies to 1998. During the same periods, our nuclear fuel investments are expected to be reduced by approximately $182 million and $41 million, respectively, as the nuclear fuel is consumed. Also, we have operating lease commitments (net of PNBV Capital Trust income) of approximately $442 million for the 1998-2002 period, of which approximately $83 million relates to 1998. We recover the cost of nuclear fuel consumed and operating leases through our electric rates. INTERST RATE RISK Our exposure to fluctuations in market interest rates is mitigated by the fact that a significant portion of our debt has fixed interest rates, as noted in the table below. We are subject to the inherent interest rate risks related to refinancing maturing debt by issuing new debt securities. As discussed in Note 3, our investment in the PNBV Capital Trust effectively reduces future lease obligations, also reducing interest rate risk. As discussed in Note 1, changes in the market value of our decommissioning trust funds are recognized with a corresponding change to the decommissioning liability. The table below presents principal amounts and related weighted average interest rates by year of maturity for our investment portfolio, debt obligations and preferred stock with mandatory redemption provisions: - 26 -
There- Fair 1998 1999 2000 2001 2002 after Total Value - ------------------------------------------------------------------------------------- (In Millions) Investments other than Cash - --------------------------- and Cash Equivalents - -------------------- Fixed Income $ 7 $ 6 $ 17 $ 23 $ 26 $ 738 $ 817 $ 880 Average interest rate 5.9% 5.5% 7.3% 7.7% 7.8% 7.8% 7.8% Liabilities Long-term Debt Fixed rate $162 $162 $116 $15 $324 $1,406 $2,185 $2,297 Average interest rate 8.7% 6.9% 6.5% 8.1% 7.8% 7.4% 7.5% Variable rate 215 327 542 538 Average interest rate 6.4% 4.1% 5.0% Short-term Borrowings 302 302 302 Average interest rate 6.0% 6.0% Preferred Stock 5 5 5 5 134 155 161 Average dividend rate 8.5% 8.5% 8.5% 8.5% 7.6% 8.9% 8.8%
OUTLOOK We face many competitive challenges in the years ahead as the electric utility industry undergoes significant changes, including changing regulation and the entrance of more energy suppliers into the marketplace. Retail wheeling, which would allow retail customers to purchase electricity from other energy producers, will be one of those challenges. Our regulatory plans provide the foundation to position us to meet the challenges we are facing by significantly reducing fixed costs and lowering rates to a more competitive level. The Company's Rate Reduction and Economic Development Plan was approved by the Public Utilities Commission of Ohio (PUCO) in 1995; Penn's Rate Stability and Economic Development Plan was approved by the Pennsylvania Public Utility Commission (PPUC) in the second quarter of 1996. These regulatory plans initially maintain the Company's current base electric rates through December 31, 2005, and Penn's through June 20, 2006. The plans also revised the Companies' fuel cost recovery methods. As part of the Company's regulatory plan, transition rate credits were implemented for customers, which are expected to reduce operating revenues by approximately $600 million during the regulatory plan period, which is to be followed by a base rate reduction of approximately $300 million in 2006. The Companies' regulatory assets are being recovered under provisions of the regulatory plans. In addition, we have been authorized by the PUCO and PPUC to recognize additional capital recovery related to our generating assets (which is reflected as additional depreciation expense) and additional amortization of regulatory assets during the regulatory plan periods of at least $2 billion for the Company and $358 million for Penn, more than the amounts that would have been recognized if the regulatory plans were not in effect. These additional amounts are being recovered through current rates. Based on the regulatory environment we operate in today and the regulatory plans, we believe we will continue to be able to bill and collect cost-based rates for all of our operations; - 27 - accordingly, it is appropriate that we continue the application of Statement of Financial Accounting Standards No. 71 "Accounting for the Effects of Certain Types of Regulation" (SFAS 71). However, as discussed below, changes in the regulatory environment are on the horizon. With respect to Penn, we expect to discontinue the application of SFAS 71 for the generation portion of that business, possibly as early as 1998. We do not expect the impact of Penn discontinuing SFAS 71 to be material. As further discussed below, the Ohio legislature is in the discussion stages of restructuring the electric utility industry within the State. We do not expect any changes in Ohio regulation to be effective within the next two years and we cannot assess what the ultimate impact may be. On September 30, 1997, Penn filed a restructuring plan with the PPUC. The plan describes how Penn will restructure its rates and provide customers with direct access to alternative electricity suppliers; customer choice is to be phased in over three years beginning in 1999, after completion of a two-year pilot program. Penn will continue to deliver power to homes and businesses through its transmission and distribution system, which remains regulated by the PPUC. Penn also plans to sell electricity and energy-related services in its own territory and throughout Pennsylvania as an alternative supplier through its nonregulated subsidiary, Penn Power Energy. Through the restructuring plan, Penn is seeking recovery of $293 million of stranded costs through a competitive transition charge starting in 1999 and ending in 2005, which is consistent with Penn's Rate Stability and Economic Development Plan currently in effect. The PPUC plans to hold public hearings on Penn's restructuring plan early in 1998. On January 6, 1998, the co-chairs of the Ohio General Assembly's Joint Select Committee on Electric Industry Deregulation released their draft report of a plan which proposes to give customers a choice from whom they buy electricity beginning January 1, 2000. No consensus has been reached by the full Committee; in the meantime, legislation consistent with the co-chairs' draft report may be introduced into the General Assembly by one or both of the co-chairs. We cannot predict when or if this legislation will be introduced and if it will be passed into law. We continue to study the potential effects that such legislation would have on our financial position and results of operations. The Financial Accounting Standards Board (FASB) issued a proposed accounting standard for nuclear decommissioning costs in February 1996. If the standard is adopted as proposed: (1) annual provisions for decommissioning could increase; (2) the net present value of estimated decommissioning costs could be recorded as a liability; and (3) income from the external decommissioning trusts could be reported as investment income. The FASB reported in October 1997 that it plans to continue working on the proposal in 1998. The Clean Air Act Amendments of 1990, discussed in Note 6, require additional emission reductions by 2000. We are pursuing cost-effective compliance strategies for meeting the reduction requirements that begin in 2000. IMPACT OF THE YEAR 2000 ISSUE The Year 2000 Issue is the result of computer programs being written using two digits rather than four to identify the applicable year. Any of our programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in system failures or miscalculations. - 28 - We currently believe that with modifications to existing software and conversions to new software, the Year 2000 Issue will pose no significant operational problems for our computer systems as so modified and converted. If these modifications and conversions are not made, or are not completed on a timely basis, the Year 2000 Issue could have a material impact on our operations. We have initiated formal communications with many of our major suppliers to determine the extent to which we are vulnerable to those third parties' failure to resolve their own Year 2000 problems. Our total Year 2000 project cost and estimates to complete are based on currently available information and do not include the estimated costs and time associated with the impact of a third party's Year 2000 issue. There can be no guarantee that the failure of other companies to resolve their own Year 2000 issues will not have a material adverse effect on us. We are utilizing both internal and external resources to reprogram and/or replace and test the software for Year 2000 modifications. Most of our Year 2000 problems will be resolved through system replacements. The different phases of our Year 2000 project will be completed at various dates, most of which occur in 1999. We plan to complete the entire Year 2000 project by mid- December 1999. Of the total project cost, approximately $30 million will be capitalized since those costs are attributable to the purchase of new software for total system replacements (i.e., the Year 2000 solution comprises only a portion of the benefit resulting from the system replacements). The remaining $4 million will be expensed as incurred over the next two years. To date, we have incurred approximately $0.5 million related to the assessment of, and preliminary efforts in connection with, our Year 2000 project and the development of a remediation plan. The costs of the project and the date on which we plan to complete the year 2000 modifications are based on management's best estimates, which were derived from numerous assumptions of future events including the continued availability of certain resources, and other factors. However, there can be no guarantee that this project will be completed as planned and actual results could differ materially from the estimates. Specific factors that might cause material differences include, but are not limited to, the availability and cost of trained personnel, the ability to locate and correct all relevant computer code, and similar uncertainties. - 29 - 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. OHIO EDISON COMPANY /s/ Harvey L. Wagner ------------------------- Harvey L. Wagner Controller Dated: March 23, 1998 - 30 - EX-4 2 EXHIBIT 24 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report on the consolidated financial statements of Ohio Edison Company, dated February 13, 1998 and included in this Form 8-K, into the Company's previously filed Registration Statements, No. 33-49135, No. 33-49259, No. 33- 49413, No. 33-51139, No. 333-01489, No. 333-05277, and No. 333- 21011. ARTHUR ANDERSEN LLP Cleveland, Ohio March 23, 1998 - 31 - EX-27 3
OPUR1 (Amounts in 1,000's, except per share) Income tax expense inclues $19,378,000 related to other income. 12-MOS DEC-31-1997 DEC-31-1997 PER-BOOK 5,240,196 1,289,391 554,744 1,893,124 0 8,977,455 1 2,102,644 621,674 2,724,319 150,000 211,870 2,569,802 182,245 0 119,984 268,621 5,000 0 4,871 2,740,743 8,977,455 2,473,582 187,805 1,816,587 1,985,014 488,568 52,847 541,415 248,221 293,194 12,392 280,802 216,770 204,285 736,720 0 0
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