-----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, HsdA9YnD3+0eIGYqpvLY/c6rjBukZXM2K7lhY9qlpbXwC+1UWsxP6M7KiND7cJbV S2JOEAs/mY8itUYTE63cOg== 0000774197-96-000015.txt : 19960517 0000774197-96-000015.hdr.sgml : 19960517 ACCESSION NUMBER: 0000774197-96-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTERIOR ENERGY CORP CENTRAL INDEX KEY: 0000774197 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 341479083 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09130 FILM NUMBER: 96567966 BUSINESS ADDRESS: STREET 1: 6200 OAK TREE BLVD CITY: INDEPENDENCE STATE: OH ZIP: 44131 BUSINESS PHONE: 2164473100 MAIL ADDRESS: STREET 1: PO BOX 94661 CITY: CLEVELAND STATE: OH ZIP: 44101-4661 FORMER COMPANY: FORMER CONFORMED NAME: NORTH HOLDING CO /OH/ DATE OF NAME CHANGE: 19851002 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CLEVELAND ELECTRIC ILLUMINATING CO CENTRAL INDEX KEY: 0000020947 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 340150020 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-02323 FILM NUMBER: 96567967 BUSINESS ADDRESS: STREET 1: 55 PUBLIC SQ STREET 2: PO BOX 5000 CITY: CLEVELAND STATE: OH ZIP: 44101 BUSINESS PHONE: 2166229800 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TOLEDO EDISON CO CENTRAL INDEX KEY: 0000352049 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 344375005 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03583 FILM NUMBER: 96567968 BUSINESS ADDRESS: STREET 1: 300 MADISON AVE CITY: TOLEDO STATE: OH ZIP: 43652 BUSINESS PHONE: 4192495000 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended 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 Registrant; State of Incorporation; I.R.S. Employer File Number Address; and Telephone Number Identification No. 1-9130 CENTERIOR ENERGY CORPORATION 34-1479083 (An Ohio Corporation) 6200 Oak Tree Boulevard Independence, Ohio 44131 Telephone (216) 447-3100 1-2323 THE CLEVELAND ELECTRIC 34-0150020 ILLUMINATING COMPANY (An Ohio Corporation) 55 Public Square Cleveland, Ohio 44113 Telephone (216) 622-9800 1-3583 THE TOLEDO EDISON COMPANY 34-4375005 (An Ohio Corporation) 300 Madison Avenue Toledo, Ohio 43652 Telephone (419) 249-5000 Indicate by check mark whether each of the registrants (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No On May 10, 1996, there were 148,027,828 shares of Centerior Energy Corporation Common Stock outstanding. Centerior Energy Corporation is the sole holder of the 79,590,689 shares and 39,133,887 shares of common stock of The Cleveland Electric Illuminating Company and The Toledo Edison Company, respectively, outstanding on that date. This combined Form 10-Q is separately filed by Centerior Energy Corporation ("Centerior Energy"), The Cleveland Electric Illuminating Company ("Cleveland Electric") and The Toledo Edison Company ("Toledo Edison"). Centerior Energy, Cleveland Electric and Toledo Edison are sometimes referred to collectively as the "Companies". Cleveland Electric and Toledo Edison are sometimes collectively referred to as the "Operating Companies". Information contained herein relating to any individual registrant is filed by such registrant on its behalf. No registrant makes any representation as to information relating to any other registrant, except that information relating to either or both of the Operating Companies is also attributed to Centerior Energy. TABLE OF CONTENTS Page PART I. FINANCIAL INFORMATION Centerior Energy Corporation and Subsidiaries The Cleveland Electric Illuminating Company The Toledo Edison Company Notes to the Financial Statements (Unaudited) 1 Centerior Energy Corporation and Subsidiaries Income Statement 4 Balance Sheet 5 Cash Flows 6 Management's Discussion and Analysis of Financial 7 Condition and Results of Operations The Cleveland Electric Illuminating Company Income Statement 10 Balance Sheet 11 Cash Flows 12 Management's Discussion and Analysis of Financial 13 Condition and Results of Operations The Toledo Edison Company Income Statement 15 Balance Sheet 16 Cash Flows 17 Management's Discussion and Analysis of Financial 18 Condition and Results of Operations PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security-Holders 20 Item 5. Other Information 21 Item 6. Exhibits and Reports on Form 8-K 22 Signatures 23 Exhibit Index 24 -i- CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES, THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND THE TOLEDO EDISON COMPANY NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) (1) Interim Financial Statements Centerior Energy Corporation (Centerior Energy) is the parent company of Centerior Service Company (Service Company); two electric utilities, The Cleveland Electric Illuminating Company (Cleveland Electric) and The Toledo Edison Company (Toledo Edison); and three other wholly owned subsidiaries. The two utilities are referred to collectively herein as the "Operating Companies" and individually as an "Operating Company". Centerior Energy, Cleveland Electric and Toledo Edison are referred to collectively herein as the "Companies". The comparative income statement and balance sheet and the related statement of cash flows of each of the Companies have been prepared from the records of each of the Companies without audit by independent public accountants. In the opinion of management, all adjustments necessary for a fair presentation of financial position at March 31, 1996 and results of operations and cash flows for the three months ended March 31, 1996 and 1995 have been included. All such adjustments were normal recurring adjustments, except for the write-down of inactive production facilities in 1996 discussed in Note 7. These financial statements and notes should be read in conjunction with the financial statements and notes included in the Companies' combined Annual Report on Form 10-K for the year ended December 31, 1995 (1995 Form 10-K). These interim period financial results are not necessarily indicative of results for a 12-month period. In August 1995, Cleveland Electric formed a wholly owned subsidiary to serve as the transferor in connection with an asset-backed securitization which is expected to be completed by the Operating Companies in May 1996. At March 31, 1996, the subsidiary was not yet funded. (2) Equity Distribution Restrictions The Operating Companies can make cash available for the funding of Centerior Energy's common stock dividends by paying dividends on their respective common stock, which is held solely by Centerior Energy. Federal law prohibits the Operating Companies from paying dividends out of capital accounts. However, the Operating Companies may pay preferred and common stock dividends out of appropriated retained earnings and current earnings. At March 31, 1996, Cleveland Electric and Toledo Edison had $199.1 million and $187.1 million, respectively, of appropriated retained earnings for the payment of dividends. However, Toledo Edison is prohibited from paying a common stock dividend by a provision in its mortgage that essentially requires such dividends to be paid out of the total balance of retained earnings, which currently is a deficit. (3) Common Stock Dividends Cash dividends per common share declared by Centerior Energy during the three months ended March 31, 1996 and 1995 were as follows: 1996 1995 Paid February 15 $.20 $.20 Paid May 15 .20 .20 - - 1 - Common stock cash dividends declared by Cleveland Electric during the three months ended March 31, 1996 and 1995 were as follows: 1996 1995 (millions) Paid in February $29.6 $ -- Toledo Edison did not declare any common stock dividends during the three months ended March 31, 1996 and 1995. (4) Financing Activity During the three months ended March 31, 1996, the Operating Companies redeemed or retired debt and preferred stock as follows: Cleveland Electric Mandatory redemptions consisted of $15 million of Serial Preferred Stock, $9.125 Series N, and $0.8 million of bank loans secured by subordinated mortgage collateral. Toledo Edison Mandatory redemptions consisted of $28.8 million of bank loans and notes secured by subordinated mortgage collateral. (5) Short-Term Borrowing Arrangements In May 1996, Centerior Energy renewed a $125 million revolving credit facility until May 8, 1997. Centerior Energy and the Service Company may borrow under the facility, with all borrowings jointly and severally guaranteed by the Operating Companies. Centerior Energy plans to transfer any of its borrowed funds to the Operating Companies. The credit agreement is secured with first mortgage bonds of Cleveland Electric and Toledo Edison in the proportion of 40% and 60%, respectively. The banks' fee is 0.625% per annum payable quarterly in addition to interest on any borrowings. There have not been any borrowings under the facility. (6) Regulatory Matters On April 11, 1996, The Public Utilities Commission of Ohio (PUCO) issued an order granting the full price increases aggregating $119 million in annualized revenues ($84 million for Cleveland Electric and $35 million for Toledo Edison) requested in April 1995. The new prices were implemented in April 1996. The average price increase for Cleveland Electric and Toledo Edison customers was 4.9% and 4.7%, respectively, with the actual percentage increase depending upon the customer class. The Operating Companies intend to freeze prices through at least 2002, although they are not precluded from requesting further price increases. The PUCO also recommended that the Operating Companies reduce the value of their assets for regulatory purposes by an aggregate $1.25 billion during the next five years. This represents an incremental reduction beyond the normal level in nuclear plant and regulatory assets. Implementation of the price increases was not contingent upon a revaluation of assets. The PUCO invited the Operating Companies to file a proposal to effectuate the PUCO's recommendation and expressed a willingness to consider alternatives to its recommendation. The PUCO stated in its order that failure by the Operating Companies to follow the recommendation could result in a PUCO-ordered write-down of assets for regulatory purposes. The PUCO approved a return on equity of 12.59% and an overall rate of return of 10.06% for both Operating Companies. However, the PUCO also indicated the authorized return could be lowered by the PUCO if the Operating Companies do not implement the recommendation. - 2 - The Operating Companies agree with the concept of accelerating the recognition of costs and recovery of assets as such concept is consistent with the strategic objective to become more competitive. However, the Operating Companies believe that such acceleration must also be consistent with the reduction of debt and the opportunity for Centerior Energy common stock share owners to receive a fair return on their investment. The PUCO rate order provided for recovery of all regulatory assets in the approved prices and the Operating Companies continue to comply with the provisions of Statement of Financial Accounting Standards (SFAS) 71. With respect to the PUCO's asset revaluation recommendation and the strategic objective to become more competitive, the Operating Companies are examining a number of accelerated cost recognition and asset recovery plans. If there is a change in the Operating Companies' evaluation of the competitive environment, regulatory framework or other factors, or the PUCO significantly reduces the value of the Operating Companies' assets for future regulatory purposes, such actions could require the Operating Companies to record material charges to earnings. The PUCO also approved the Operating Companies' request for changes in the straight-line rates of depreciation. An increase in the depreciation rate for nuclear property from 2.5% for both Operating Companies to 2.88% for Cleveland Electric and 2.95% for Toledo Edison will increase annual depreciation expense approximately $13 million and $8 million, respectively, and approximately $21 million for Centerior Energy. A reduction in the composite depreciation rate for nonnuclear property from 3.34% to 3.23% for Cleveland Electric and from 3.36% to 3.13% for Toledo Edison will decrease annual depreciation expense by approximately $3 million and $2 million, respectively, and by approximately $5 million for Centerior Energy. (7) Write-down of Inactive Production Facilities In the first quarter of 1996, Toledo Edison wrote down the net book value of two inactive production facilities, $11.3 million, to "Other Income and Deductions, Net" resulting in nonoperating losses for Toledo Edison and Centerior Energy for that period. The net write-down was $7.2 million after taxes, or, for Centerior Energy, $.05 per common share. The write-down resulted from a decision that the facilities are no longer expected to provide revenues. (8) Commitments and Contingencies Various legal actions, claims and regulatory proceedings covering several matters are pending against the Companies. See "Item 3. Legal Proceedings" in the 1995 Form 10-K; "Part II, Item 5. Other Information" in this Quarterly Report on Form 10-Q; and "Item 5. Other Events" in the Companies' combined Current Report on Form 8-K dated April 11, 1996. - 3 - CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES INCOME STATEMENT (Unaudited) (Thousands, Except Per Share Amounts)
Three Months Ended March 31, -------------------- 1996 1995 -------- -------- OPERATING REVENUES $ 605,255 $ 587,581 OPERATING EXPENSES Fuel and Purchased Power 114,984 119,369 Other Operation and Maintenance 155,905 140,604 Generation Facilities Rental Expense, Net 39,853 39,852 Depreciation and Amortization 73,232 69,448 Taxes, Other Than Federal Income Taxes 83,952 81,956 Deferred Operating Expenses, Net 10,543 (16,064) Federal Income Taxes 17,993 22,678 -------- -------- Total Operating Expenses 496,462 457,843 -------- -------- OPERATING INCOME 108,793 129,738 NONOPERATING INCOME (LOSS) Allowance for Equity Funds Used During Construction 911 1,375 Other Income and Deductions, Net (6,460) 2,302 Deferred Carrying Charges -- 11,572 Federal Income Taxes - Credit (Expense) 1,915 (1,800) -------- -------- Total Nonoperating Income (Loss) (3,634) 13,449 -------- -------- INCOME BEFORE INTEREST CHARGES 105,159 143,187 INTEREST CHARGES Long-Term Debt 83,318 87,078 Short-Term Debt 1,876 2,982 Allowance for Borrowed Funds Used During Construction (843) (690) -------- -------- Net Interest Charges 84,351 89,370 -------- -------- INCOME AFTER INTEREST CHARGES 20,808 53,817 Preferred Dividend Requirements of Subsidiaries 14,235 15,740 -------- -------- NET INCOME $ 6,573 $ 38,077 -------- -------- WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 148,028 148,032 -------- -------- EARNINGS PER COMMON SHARE $ .04 $ .26 -------- -------- The accompanying notes as they relate to Centerior Energy are an integral part of this statement.
- 4 - CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES BALANCE SHEET (Thousands)
March 31, December 31, 1996 1995 (Unaudited) ----------- ----------- ASSETS PROPERTY, PLANT AND EQUIPMENT Utility Plant In Service $ 9,812,444 $ 9,767,788 Accumulated Depreciation and Amortization (3,110,606) (3,036,181) ----------- ----------- 6,701,838 6,731,607 Construction Work In Progress 92,536 101,031 ----------- ----------- 6,794,374 6,832,638 Nuclear Fuel, Net of Amortization 222,484 199,707 Other Property, Less Accumulated Depreciation 90,615 101,745 ----------- ----------- 7,107,473 7,134,090 CURRENT ASSETS Cash and Temporary Cash Investments 179,114 179,038 Amounts Due from Customers and Others, Net 228,868 223,228 Unbilled Revenues 90,344 100,344 Materials and Supplies, at Average Cost 115,269 119,507 Fossil Fuel Inventory, at Average Cost 27,377 30,663 Taxes Applicable to Succeeding Years 218,976 255,142 Other 18,184 18,562 ----------- ----------- 878,132 926,484 REGULATORY AND OTHER ASSETS Amounts Due from Customers for Future Federal Income Taxes, Net 1,063,056 1,067,374 Unamortized Loss from Beaver Valley Unit 2 Sale 95,083 96,206 Unamortized Loss on Reacquired Debt 87,115 88,893 Carrying Charges and Operating Expenses 1,043,905 1,053,220 Nuclear Plant Decommissioning Trusts 117,698 113,681 Other 151,156 163,156 ----------- ----------- 2,558,013 2,582,530 ----------- ----------- $ 10,543,618 $ 10,643,104 ----------- ----------- CAPITALIZATION AND LIABILITIES CAPITALIZATION Common Stock Equity $ 1,930,855 $ 1,983,560 Preferred Stock With Mandatory Redemption Provisions 205,646 220,440 Without Mandatory Redemption Provisions 450,871 450,871 Long-Term Debt 3,725,698 3,733,892 ----------- ----------- 6,313,070 6,388,763 CURRENT LIABILITIES Current Portion of Long-Term Debt and Preferred Stock 213,221 234,771 Current Portion of Lease Obligations 85,295 94,653 Accounts Payable 206,132 152,909 Accrued Taxes 291,897 373,757 Accrued Interest 96,318 83,050 Dividends Declared 43,997 14,666 Other 67,669 73,328 ----------- ---------- 1,004,529 1,027,134 DEFERRED CREDITS AND OTHER LIABILITIES Unamortized Investment Tax Credits 260,757 263,352 Accumulated Deferred Federal Income Taxes 1,889,574 1,875,080 Unamortized Gain from Bruce Mansfield Plant Sale 492,767 498,771 Accumulated Deferred Rents for Bruce Mansfield Plant and Beaver Valley Unit 2 136,138 145,393 Nuclear Fuel Lease Obligations 158,217 137,260 Retirement Benefits 179,855 178,579 Other 108,711 128,772 ----------- ----------- 3,226,019 3,227,207 COMMITMENTS AND CONTINGENCIES (Note 8) ----------- ----------- $10,543,618 $ 10,643,104 ----------- ----------- The accompanying notes as they relate to Centerior Energy are an integral part of this statement.
- 5 - CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES CASH FLOWS (Unaudited) (Thousands)
Three Months Ended March 31, --------------------- 1996 1995 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 6,573 $38,077 -------- -------- Adjustments to Reconcile Net Income to Cash from Operating Activities: Depreciation and Amortization 73,232 69,448 Deferred Federal Income Tax 18,601 15,793 Unbilled Revenues 10,000 12,000 Deferred Fuel (2,016) 10,913 Deferred Carrying Charges -- (11,572) Leased Nuclear Fuel Amortization 20,688 30,600 Deferred Operating Expenses, Net 10,543 (16,064) Allowance for Equity Funds Used During Construction (911) (1,375) Changes in Amounts Due from Customers and Others, Net (5,640) (2,693) Changes in Inventories 7,524 (7,136) Changes in Accounts Payable 53,223 (23,399) Changes in Working Capital Affecting Operations (37,707) (46,384) Other Noncash Items (12,463) 10,270 -------- ------- Total Adjustments 135,074 40,401 -------- -------- Net Cash from Operating Activities 141,647 78,478 CASH FLOWS FROM FINANCING ACTIVITIES Reacquired Common Stock (7) -- Maturities, Redemptions and Sinking Funds (44,550) (16,506) Nuclear Fuel Lease Obligations (32,163) (11,043) Common Stock Dividends Paid (29,606) (29,606) Premiums, Discounts and Expenses (50) -- -------- -------- Net Cash from Financing Activities (106,376) (57,155) CASH FLOWS FROM INVESTING ACTIVITIES Cash Applied to Construction (39,700) (35,173) Interest Capitalized as Allowance for Borrowed Funds Used During Construction (843) (690) Contributions to Nuclear Plant Decommissioning Trusts -- (5,897) Other Cash Received (Applied) 5,348 (18,927) -------- -------- Net Cash from Investing Activities (35,195) (60,687) -------- -------- NET CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS 76 (39,364) CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD 179,038 186,399 -------- -------- CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD $179,114 $147,035 ======== ======== Other Payment Information: Interest (net of amounts capitalized) $68,000 $63,000 Federal Income Taxes -- 27,600 The accompanying notes as they relate to Centerior Energy are an integral part of this statement.
- 6 - CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Capital Resources and Liquidity Reference is made to "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in Item 7 of the 1995 Form 10-K. The information under "Capital Resources and Liquidity" remains unchanged with the following exceptions: During the first quarter of 1996, the Operating Companies redeemed or retired various securities as discussed in Note 4. In May 1996, Centerior Energy renewed a $125 million revolving credit facility until May 8, 1997 as discussed in Note 5. Additional first mortgage bonds may be issued by the Operating Companies under their respective mortgages on the basis of property additions, cash or refundable first mortgage bonds. If the applicable interest coverage test is met, each Operating Company may issue first mortgage bonds on the basis of property additions and, under certain circumstances, refundable bonds. At March 31, 1996, Cleveland Electric and Toledo Edison would have been permitted to issue approximately $392 million and $271 million of additional first mortgage bonds, respectively. Under its articles of incorporation, Toledo Edison cannot issue preferred stock unless certain earnings coverage requirements are met. At March 31, 1996, Toledo Edison would have been permitted to issue approximately $54 million of additional preferred stock at an assumed dividend rate of 10.75%. Results of Operations Factors contributing to the 3% increase in 1996 first quarter operating revenues are shown as follows: Changes from First Quarter 1995 Factors Operating Revenues (millions) Kilowatt-hour Sales Volume and Mix $14.4 Wholesale Revenues 3.5 Miscellaneous Revenues 5.5 Fuel Cost Recovery Revenues (5.7) Total $17.7 Percentage changes between 1996 and 1995 first quarter billed electric kilowatt-hour sales are summarized as follows: Customer Categories % Change Residential 6.5% Commercial 3.1 Industrial (0.4) Other 9.6 Total 3.3 - 7 - First quarter 1996 total kilowatt-hour sales increased because of weather-related demand and a 14.9% increase in wholesale sales (included in the "Other" category). Residential and commercial sales increased because of the colder weather in the first quarter of 1996 than in the first quarter of 1995, which increased heating-related demand. Weather-normalized residential and commercial sales increased 1.9% and 1.7%, respectively, for the 1996 period. Industrial sales decreased slightly as less sales to large automotive manufacturers were partially offset by increased sales to petroleum refineries and the broad-based, smaller industrial customer group. First quarter 1996 miscellaneous revenues increased from the 1995 amount primarily because of the billings to the other utility owners and lessees for overhead expenses related to the refueling and maintenance outage of the jointly owned Perry Nuclear Power Plant Unit 1 (Perry Unit 1) in 1996. This scheduled outage began on January 27, 1996 and ended on April 10, 1996. The decrease in first quarter 1996 fuel cost recovery revenues included in customer bills resulted from changes in the fuel cost recovery factors used by the Operating Companies to calculate these revenues. The weighted average of the respective fuel cost recovery factors used for the first quarter of 1996 decreased about 8% for Cleveland Electric and increased about 0.5% for Toledo Edison compared to the weighted average of the respective fuel cost recovery factors used for the first quarter of 1995. First quarter operating expenses in 1996 increased 8.4% from the 1995 amount. The cessation of the Rate Stabilization Program deferrals and the commencement of their amortization in December 1995 resulted in the decrease in deferred operating expenses. Other operation and maintenance expenses increased because of increases in nuclear power production expenses (attributable to the Perry Unit 1 refueling and maintenance outage, and the end of accelerated amortization of certain excess interim spent nuclear fuel storage costs under the Rate Stabilization Program) and expenses related to distribution operations and improvements in customer service and sales and marketing efforts. Depreciation and amortization expenses increased primarily because of the cessation of the accelerated amortization of unrestricted investment tax credits under the Rate Stabilization Program, which was reported in 1995 as a reduction of depreciation expense. Taxes, other than federal income taxes, increased primarily because of increases in payroll and property taxes, the latter resulting primarily from plant additions. Lower fuel and purchased power expenses resulted from less amortization of previously deferred fuel costs than the amount amortized in 1995. Federal income taxes decreased as a result of lower pretax operating income. A first quarter 1996 nonoperating loss resulted primarily from Toledo Edison's write-down of two inactive production facilities as discussed in Note 7. Also, the deferral of carrying charges related to the Rate Stabilization Program ended in November 1995. The first quarter 1996 federal income tax credit for nonoperating income (loss) increased accordingly. First quarter 1996 interest charges and preferred dividend requirements decreased because of the redemption of securities and refinancing at favorable terms. First quarter net income and earnings per common share in 1996 decreased $31.5 million and $.22, respectively, from the 1995 amounts primarily because of the negative impact ($35.2 million after taxes and $.24 per common share) related to both the cessation of the Rate Stabilization Program deferrals and accelerated amortizations, and the commencement of amortization of the deferrals in December 1995. Recovery of both the costs no longer being deferred and the amortization of the deferrals began in April 1996 with the implementation of the price increases. First quarter 1996 earnings were also negatively affected by Toledo Edison's write-down of two inactive production facilities ($7.2 million after taxes and $.05 per share). - 8 - See Note 6 for a full discussion and analysis of the PUCO's April 11, 1996 rate order and applicable financial accounting implications. - 9 - THE CLEVELAND ELECTRIC ILLUMINATING COMPANY INCOME STATEMENT (Unaudited) (Thousands)
Three Months Ended March 31, ------------------------ 1996 1995 -------- -------- OPERATING REVENUES $ 427,526 $ 410,383 OPERATING EXPENSES Fuel and Purchased Power (1) 103,726 106,062 Other Operation and Maintenance 105,132 94,654 Generation Facilities Rental Expense, Net 13,892 13,892 Depreciation and Amortization 50,816 48,604 Taxes, Other Than Federal Income Taxes 60,010 57,688 Deferred Operating Expenses, Net 6,368 (10,893) Federal Income Taxes 11,805 15,075 -------- -------- Total Operating Expenses 351,749 325,082 -------- -------- OPERATING INCOME 75,777 85,301 NONOPERATING INCOME Allowance for Equity Funds Used During Construction 498 1,088 Other Income and Deductions, Net 1,649 292 Deferred Carrying Charges -- 7,648 Federal Income Taxes - Credit (Expense) (752) (495) -------- -------- Total Nonoperating Income 1,395 8,533 -------- -------- INCOME BEFORE INTEREST CHARGES 77,172 93,834 INTEREST CHARGES Long-Term Debt 60,160 59,968 Short-Term Debt 692 651 Allowance for Borrowed Funds Used During Construction (519) (413) -------- -------- Net Interest Charges 60,333 60,206 -------- -------- NET INCOME 16,839 33,628 Preferred Dividend Requirements 10,032 10,957 -------- -------- EARNINGS AVAILABLE FOR COMMON STOCK $ 6,807 $ 22,671 -------- -------- (1) Includes purchased power expense for purchases from Toledo Edison. $ 26,672 $ 23,396 The accompanying notes as they relate to Cleveland Electric are an integral part of this statement.
- 10 - THE CLEVELAND ELECTRIC ILLUMINATING COMPANY BALANCE SHEET (Thousands)
March 31, December 31, 1996 1995 (Unaudited) ----------- ----------- ASSETS PROPERTY, PLANT AND EQUIPMENT Utility Plant In Service $ 6,897,466 $ 6,871,468 Accumulated Depreciation and Amortization (2,144,455) (2,094,092) ----------- ----------- 4,753,011 4,777,376 Construction Work In Progress 71,295 73,250 ----------- ---------- 4,824,306 4,850,626 Nuclear Fuel, Net of Amortization 133,401 121,966 Other Property, Less Accumulated Depreciation 55,317 58,299 ----------- ----------- 5,013,024 5,030,891 CURRENT ASSETS Cash and Temporary Cash Investments 60,009 69,770 Amounts Due from Customers and Others, Net 154,661 152,339 Amounts Due from Affiliates 8,138 4,729 Unbilled Revenues 74,500 78,500 Materials and Supplies, at Average Cost 75,857 79,540 Fossil Fuel Inventory, at Average Cost 18,431 21,391 Taxes Applicable to Succeeding Years 157,416 184,099 Other 7,223 7,197 ----------- ----------- 556,235 597,565 REGULATORY AND OTHER ASSETS Amounts Due from Customers for Future Federal Income Taxes, Net 647,122 651,264 Unamortized Loss on Reacquired Debt 60,395 61,252 Carrying Charges and Operating Expenses 637,940 643,561 Nuclear Plant Decommissioning Trusts 63,700 61,497 Other 101,312 105,696 ----------- ----------- 1,510,469 1,523,270 ----------- ----------- $ 7,079,728 $ 7,151,726 ---------- ----------- CAPITALIZATION AND LIABILITIES CAPITALIZATION Common Stock Equity $ 1,112,913 $ 1,126,762 Preferred Stock With Mandatory Redemption Provisions 200,626 215,420 Without Mandatory Redemption Provisions 240,871 240,871 Long-Term Debt 2,666,066 2,665,981 ----------- ----------- 4,220,476 4,249,034 CURRENT LIABILITIES Current Portion of Long-Term Debt and Preferred Stock 175,674 176,474 Current Portion of Lease Obligations 49,495 54,634 Accounts Payable 116,796 89,038 Accounts and Notes Payable to Affiliates 54,172 63,961 Accrued Taxes 236,252 296,141 Accrued Interest 69,817 58,608 Dividends Declared 6,434 15,818 Other 39,322 40,766 ----------- ----------- 747,962 795,440 DEFERRED CREDITS AND OTHER LIABILITIES Unamortized Investment Tax Credits 182,276 184,002 Accumulated Deferred Federal Income Taxes 1,308,489 1,298,260 Unamortized Gain from Bruce Mansfield Plant Sale 306,941 310,678 Accumulated Deferred Rents for Bruce Mansfield Plant 92,202 91,604 Nuclear Fuel Lease Obligations 95,299 85,569 Retirement Benefits 67,197 65,424 Other 58,886 71,715 ----------- ----------- 2,111,290 2,107,252 COMMITMENTS AND CONTINGENCIES (Note 8) ----------- ----------- $ 7,079,728 $ 7,151,726 ----------- ----------- The accompanying notes as they relate to Cleveland Electric are an integral part of this statement.
- 11 - THE CLEVELAND ELECTRIC ILLUMINATING COMPANY CASH FLOWS (Unaudited) (Thousands)
Three Months Ended March 31, ----------------------- 1996 1995 --------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 16,839 $33,628 -------- -------- Adjustments to Reconcile Net Income to Cash from Operating Activities: Depreciation and Amortization 50,816 48,604 Deferred Federal Income Tax 14,388 11,168 Unbilled Revenues 4,000 9,000 Deferred Fuel (2,639) 11,305 Deferred Carrying Charges -- (7,648) Leased Nuclear Fuel Amortization 11,339 17,303 Deferred Operating Expenses, Net 6,368 (10,893) Allowance for Equity Funds Used During Construction (498) (1,088) Changes in Amounts Due from Customers and Others, Net (2,322) (142) Changes in Inventories 6,643 (6,443) Changes in Accounts Payable 27,758 (18,841) Changes in Working Capital Affecting Operations (31,665) (47,375) Other Noncash Items (9,791) 2,668 -------- -------- Total Adjustments 74,397 7,618 -------- -------- Net Cash from Operating Activities 91,236 41,246 CASH FLOWS FROM FINANCING ACTIVITIES Notes Payable to Affiliates (5,000) (24,800) Maturities, Redemptions and Sinking Funds (15,800) (11,877) Nuclear Fuel Lease Obligations (18,194) (6,789) Dividends Paid (39,865) (12,911) -------- -------- Net Cash from Financing Activities (78,859) (56,377) CASH FLOWS FROM INVESTING ACTIVITIES Cash Applied to Construction (25,105) (30,169) Interest Capitalized as Allowance for Borrowed Funds Used During Construction (519) (413) Contributions to Nuclear Plant Decommissioning Trusts -- (3,204) Other Cash Received (Applied) 3,486 (11,644) -------- -------- Net Cash from Investing Activities (22,138) (45,430) -------- -------- NET CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS (9,761) (60,561) CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD 69,770 65,643 -------- -------- CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD $60,009 $5,082 ======== ======== Other Payment Information: Interest (net of amounts capitalized) $47,000 $41,000 Federal Income Taxes -- 27,600 The accompanying notes as they relate to Cleveland Electric are an integral part of this statement.
- 12 - THE CLEVELAND ELECTRIC ILLUMINATING COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Capital Resources and Liquidity Reference is made to "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in Item 7 of the 1995 Form 10-K. The information under "Capital Resources and Liquidity" remains unchanged with the following exceptions: During the first quarter of 1996, Cleveland Electric redeemed or retired various securities as discussed in Note 4. Cleveland Electric is a party to a $125 million revolving credit facility which Centerior Energy renewed in May 1996 until May 8, 1997 as discussed in Note 5. Centerior Energy plans to transfer any of its borrowed funds under the facility to the Operating Companies. Additional first mortgage bonds may be issued by Cleveland Electric under its mortgage on the basis of property additions, cash or refundable first mortgage bonds. If the applicable interest coverage test is met, Cleveland Electric may issue first mortgage bonds on the basis of property additions and, under certain circumstances, refundable bonds. At March 31, 1996, Cleveland Electric would have been permitted to issue approximately $392 million of additional first mortgage bonds. Results of Operations Factors contributing to the 4.2% increase in 1996 first quarter operating revenues are shown as follows: Changes from First Quarter 1995 Factors Operating Revenues (millions) Kilowatt-hour Sales Volume and Mix $13.1 Wholesale Revenues 3.7 Miscellaneous Revenues 6.2 Fuel Cost Recovery Revenues (5.9) Total $17.1 Percentage changes between 1996 and 1995 first quarter billed electric kilowatt-hour sales are summarized as follows: Customer Categories % Change Residential 6.4% Commercial 2.4 Industrial (1.3) Other 3.0 Total 2.0 First quarter 1996 total kilowatt-hour sales increased because of weather-related demand and a 6.4% increase in wholesale sales (included in the "Other" category). Residential and commercial sales increased because of the colder weather in the first quarter of 1996 than in the first quarter of 1995, which increased heating-related demand. Weather-normalized residential and commercial sales increased 1.8% and 1.1%, respectively, for the 1996 period. Industrial sales decreased primarily because of less sales to large automotive manufacturers and the broad-based, smaller industrial customer group. - 13 - First quarter 1996 miscellaneous revenues increased from the 1995 amount primarily because of the billings to the other utility owners and lessees for overhead expenses related to the refueling and maintenance outage of the jointly owned Perry Nuclear Power Plant Unit 1 (Perry Unit 1) in 1996. This scheduled outage began on January 27, 1996 and ended on April 10, 1996. The decrease in fuel cost recovery revenues included in customer bills resulted from an 8% decrease in the weighted average of the fuel cost recovery factors used in the first quarter of 1996 to calculate these revenues compared to the 1995 first quarter average. First quarter operating expenses in 1996 increased 8.2% from the 1995 amount. The cessation of the Rate Stabilization Program deferrals and the commencement of their amortization in December 1995 resulted in the decrease in deferred operating expenses. Other operation and maintenance expenses increased because of increases in nuclear power production expenses (attributable to the Perry Unit 1 refueling and maintenance outage, and the end of accelerated amortization of certain excess interim spent nuclear fuel storage costs under the Rate Stabilization Program) and expenses related to distribution operations and improvements in customer service and sales and marketing efforts. Depreciation and amortization expenses increased primarily because of the cessation of the accelerated amortization of unrestricted investment tax credits under the Rate Stabilization Program, which was reported in 1995 as a reduction of depreciation expense. Taxes, other than federal income taxes, increased primarily because of increases in payroll and property taxes, the latter resulting primarily from plant additions. Lower fuel and purchased power expenses resulted from less amortization of previously deferred fuel costs than the amount amortized in 1995. Federal income taxes decreased as a result of lower pretax operating income. Nonoperating income decreased because the deferral of carrying charges related to the Rate Stabilization Program ended in November 1995. However, an increase in other income, primarily the result of a legal settlement, partially offset the nonoperating income decrease. First quarter earnings available for common stock in 1996 decreased $15.9 million from the 1995 amount primarily because of the negative impact ($22.5 million after taxes) related to both the cessation of the Rate Stabilization Program deferrals and accelerated amortizations, and the commencement of the amortization of the deferrals in December 1995. Recovery of both the costs no longer being deferred and the amortization of the deferrals began in April 1996 with the implementation of the price increase. See Note 6 for a full discussion and analysis of the PUCO's April 11, 1996 rate order and applicable financial accounting implications. - 14 - THE TOLEDO EDISON COMPANY INCOME STATEMENT (Unaudited) (Thousands)
Three Months Ended March 31, -------------------- 1996 1995 -------- -------- OPERATING REVENUES (1) $ 210,793 $ 206,384 OPERATING EXPENSES Fuel and Purchased Power 38,768 37,491 Other Operation and Maintenance 56,519 52,061 Generation Facilities Rental Expense, Net 25,961 25,960 Depreciation and Amortization 22,416 20,844 Taxes, Other Than Federal Income Taxes 23,853 24,149 Deferred Operating Expenses, Net 4,175 (5,171) Federal Income Taxes 6,227 7,655 -------- -------- Total Operating Expenses 177,919 162,989 -------- -------- OPERATING INCOME 32,874 43,395 NONOPERATING INCOME (LOSS) Allowance for Equity Funds Used During Construction 413 287 Other Income and Deductions, Net (9,153) 2,018 Deferred Carrying Charges -- 3,924 Federal Income Taxes - Credit (Expense) 3,195 (781) -------- -------- Total Nonoperating Income (Loss) (5,545) 5,448 -------- -------- INCOME BEFORE INTEREST CHARGES 27,329 48,843 INTEREST CHARGES Long-Term Debt 23,159 27,110 Short-Term Debt 1,218 2,500 Allowance for Borrowed Funds Used During Construction (325) (277) -------- -------- Net Interest Charges 24,052 29,333 -------- -------- NET INCOME 3,277 19,510 Preferred Dividend Requirements 4,204 4,783 -------- -------- EARNINGS (LOSS) AVAILABLE FOR COMMON STOCK $ (927) $ 14,727 -------- -------- (1) Includes revenues from bulk power sales to Cleveland Electric. $ 26,672 $ 23,396 The accompanying notes as they relate to Toledo Edison are an integral part of this statement.
- 15 - THE TOLEDO EDISON COMPANY BALANCE SHEET (Thousands)
March 31, December 31, 1996 1995 (Unaudited) ----------- ----------- ASSETS PROPERTY, PLANT AND EQUIPMENT Utility Plant In Service $ 2,914,978 $ 2,896,320 Accumulated Depreciation and Amortization (966,152) (942,088) ----------- ----------- 1,948,826 1,954,232 Construction Work In Progress 21,242 27,781 ----------- ----------- 1,970,068 1,982,013 Nuclear Fuel, Net of Amortization 89,083 77,741 Other Property, Less Accumulated Depreciation 7,420 19,555 ----------- ----------- 2,066,571 2,079,309 CURRENT ASSETS Cash and Temporary Cash Investments 79,825 93,669 Amounts Due from Customers and Others, Net 70,293 68,077 Amounts Due from Affiliates 18,714 18,905 Unbilled Revenues 15,844 21,844 Materials and Supplies, at Average Cost 39,413 39,967 Fossil Fuel Inventory, at Average Cost 8,946 9,273 Taxes Applicable to Succeeding Years 61,560 71,044 Other 4,413 4,315 -------- --------- 299,008 327,094 REGULATORY AND OTHER ASSETS Amounts Due from Customers for Future Federal Income Taxes, Net 416,174 416,351 Unamortized Loss from Beaver Valley Unit 2 Sale 95,083 96,206 Unamortized Loss on Reacquired Debt 26,720 27,640 Carrying Charges and Operating Expenses 405,965 409,659 Nuclear Plant Decommissioning Trusts 53,998 52,185 Other 62,712 65,345 ----------- ----------- 1,060,652 1,067,386 ----------- ----------- $ 3,426,231 $ 3,473,789 ----------- ----------- CAPITALIZATION AND LIABILITIES CAPITALIZATION Common Stock Equity $ 761,928 $ 762,877 Preferred Stock With Mandatory Redemption Provisions 5,020 5,020 Without Mandatory Redemption Provisions 210,000 210,000 Long-Term Debt 1,059,632 1,067,603 ----------- ----------- 2,036,580 2,045,500 CURRENT LIABILITIES Current Portion of Long-Term Debt and Preferred Stock 37,547 58,297 Current Portion of Lease Obligations 35,800 40,019 Accounts Payable 88,678 56,233 Accounts and Notes Payable to Affiliates 32,314 53,245 Accrued Taxes 55,722 78,178 Accrued Interest 26,311 24,250 Other 16,708 18,607 ----------- ----------- 293,080 328,829 DEFERRED CREDITS AND OTHER LIABILITIES Unamortized Investment Tax Credits 78,481 79,350 Accumulated Deferred Federal Income Taxes 577,113 573,035 Unamortized Gain from Bruce Mansfield Plant Sale 185,827 188,093 Accumulated Deferred Rents for Bruce Mansfield Plant and Beaver Valley Unit 2 43,937 53,789 Nuclear Fuel Lease Obligations 62,632 51,691 Retirement Benefits 102,988 103,060 Other 45,593 50,442 ----------- ----------- 1,096,571 1,099,460 COMMITMENTS AND CONTINGENCIES (Note 8) ----------- ----------- $ 3,426,231 $ 3,473,789 ----------- ----------- The accompanying notes as they relate to Toledo Edison are an integral part of this statement.
- 16 - THE TOLEDO EDISON COMPANY CASH FLOWS (Unaudited) (Thousands)
Three Months Ended March 31, ---------------------- 1996 1995 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 3,277 $19,510 -------- -------- Adjustments to Reconcile Net Income to Cash from Operating Activities: Depreciation and Amortization 22,416 20,844 Deferred Federal Income Tax 4,403 4,623 Unbilled Revenues 6,000 3,000 Deferred Fuel 623 (391) Deferred Carrying Charges -- (3,924) Leased Nuclear Fuel Amortization 9,349 13,297 Deferred Operating Expenses, Net 4,175 (5,171) Allowance for Equity Funds Used During Construction (413) (287) Changes in Amounts Due from Customers and Others, Net (2,216) (2,313) Changes in Inventories 881 (693) Changes in Accounts Payable 32,445 343 Changes in Working Capital Affecting Operations (12,698) (3,127) Other Noncash Items (2,672) 7,602 -------- -------- Total Adjustments 62,293 33,803 -------- -------- Net Cash from Operating Activities 65,570 53,313 CASH FLOWS FROM FINANCING ACTIVITIES Notes Payable to Affiliates (20,950) -- Maturities, Redemptions and Sinking Funds (28,750) (3,954) Nuclear Fuel Lease Obligations (13,969) (4,254) Dividends Paid (4,226) (4,806) Premiums, Discounts and Expenses (50) -- -------- -------- Net Cash from Financing Activities (67,945) (13,014) CASH FLOWS FROM INVESTING ACTIVITIES Cash Applied to Construction (14,595) (5,004) Interest Capitalized as Allowance for Borrowed Funds Used During Construction (325) (277) Loans to Affiliates -- (33,300) Contributions to Nuclear Plant Decommissioning Trusts -- (2,693) Other Cash Received (Applied) 3,451 (5,212) -------- -------- Net Cash from Investing Activities (11,469) (46,486) -------- -------- NET CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS (13,844) (6,187) CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD 93,669 87,800 -------- -------- CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD $79,825 $81,613 ======== ======== Other Payment Information: Interest (net of amounts capitalized) $21,000 $22,000 Federal Income Taxes -- -- The accompanying notes as they relate to Toledo Edison are an integral part of this statement.
- 17 - THE TOLEDO EDISON COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Capital Resources and Liquidity Reference is made to "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in Item 7 of the 1995 Form 10-K. The information under "Capital Resources and Liquidity" remains unchanged with the following exceptions: During the first quarter of 1996, Toledo Edison redeemed or retired debt securities as discussed in Note 4. Toledo Edison is a party to a $125 million revolving credit facility which Centerior Energy renewed in May 1996 until May 8, 1997 as discussed in Note 5. Centerior Energy plans to transfer any of its borrowed funds under the facility to the Operating Companies. Additional first mortgage bonds may be issued by Toledo Edison under its mortgage on the basis of property additions, cash or refundable first mortgage bonds. If the applicable interest coverage test is met, Toledo Edison may issue first mortgage bonds on the basis of property additions and, under certain circumstances, refundable bonds. At March 31, 1996, Toledo Edison would have been permitted to issue approximately $271 million of additional first mortgage bonds. Under its articles of incorporation, Toledo Edison cannot issue preferred stock unless certain earnings coverage requirements are met. At March 31, 1996, Toledo Edison would have been permitted to issue approximately $54 million of additional preferred stock at an assumed dividend rate of 10.75%. Results of Operations Factors contributing to the 2.1% increase in 1996 first quarter operating revenues are shown as follows: Changes from First Quarter 1995 Factors Operating Revenues (millions) Kilowatt-hour Sales Volume and Mix $ 1.2 Wholesale Revenues 3.1 Fuel Cost Recovery Revenues 0.2 Miscellaneous Revenues (0.1) Total $ 4.4 Percentage changes between 1996 and 1995 first quarter billed electric kilowatt-hour sales are summarized as follows: Customer Categories % Change Residential 6.8% Commercial 5.4 Industrial 1.5 Other 9.1 Total 5.2 - 18 - First quarter 1996 total kilowatt-hour sales increased because of weather-related demand and a 10.5% increase in wholesale sales (included in the "Other" category). Residential and commercial sales increased because of the colder weather in the first quarter of 1996 than in the first quarter of 1995, which increased heating-related demand. Weather-normalized residential and commercial sales increased on the strength of a 3.5% increase in sales to nonautomotive industrial customers which entirely offset a 4.3% decrease in sales to large automotive manufacturers. The increase in fuel cost recovery revenues included in customer bills resulted from a 0.5% increase in the weighted average of the fuel cost recovery factors used in the first quarter of 1996 to calculate these revenues compared to the 1995 first quarter average. First quarter operating expenses in 1996 increased 9.2% from the 1995 amount. The cessation of the Rate Stabilization Program deferrals and the commencement of their amortization in December 1995 resulted in the decrease in deferred operating expenses. Other operation and maintenance expenses increased because of increases in nuclear power production expenses (attributable to a refueling and maintenance outage, and the end of accelerated amortization of certain excess interim spent nuclear fuel storage costs under the Rate Stabilization Program) and expenses related to improvements in customer service and sales and marketing efforts. Depreciation and amortization expenses increased primarily because of the cessation of the accelerated amortization of unrestricted investment tax credits under the Rate Stabilization Program, which was reported in 1995 as a reduction of depreciation expense. Fuel and purchased power expenses increased as increased purchased power expense was partially offset by lower fuel expense. Federal income taxes decreased as a result of lower pretax operating income. A first quarter 1996 nonoperating loss resulted primarily from the write-down of two inactive production facilities as discussed in Note 7. Also, the deferral of carrying charges related to the Rate Stabilization Program ended in November 1995. The first quarter 1996 federal income tax credit for nonoperating income (loss) increased accordingly. First quarter 1996 interest charges and preferred dividend requirements decreased because of the redemption of securities and refinancing at favorable terms. The first quarter 1996 loss available for common stock in 1996 of $0.9 million resulted from the write-down of two inactive production facilities and the negative impact ($12.7 million after taxes) related to both the cessation of the Rate Stabilization Program deferrals and accelerated amortizations, and the commencement of the amortization of the deferrals in December 1995. Recovery of both the costs no longer being deferred and the amortization of the deferrals began in April 1996 with the implementation of the price increase. See Note 6 for a full discussion and analysis of the PUCO's April 11, 1996 rate order and applicable financial accounting implications. - 19 - PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security-Holders 1. Centerior Energy a. Centerior Energy's Annual Meeting of share owners was held on April 23, 1996. b. Proxies for the Annual Meeting were solicited pursuant to Regulation 14 under the Securities Exchange Act of 1934. There was no solicitation in opposition to management's nominees for directors as listed in the proxy statement dated March 12, 1996, and all such nominees were elected. c. Four matters were submitted to share owners for a vote at the Annual Meeting. Issue 1 was the election of 11 directors of Centerior Energy. The vote on this issue was as follows: Broker Nominee For Withheld Non-Vote R. P. Anderson 112,892,522 6,389,679 5,824,340 A. C. Bersticker 113,182,869 6,099,332 5,824,340 T. A. Commes 113,283,752 5,998,449 5,824,340 W. F. Conway 113,009,852 6,272,349 5,824,340 W. R. Embry 112,873,465 6,408,736 5,824,340 R. J. Farling 112,784,475 6,497,726 5,824,340 R. A. Miller 112,728,966 6,553,234 5,824,340 F. E. Mosier 112,985,605 6,296,596 5,824,340 Sr. M. M. Reinhard 112,770,614 6,511,587 5,824,340 R. C. Savage 113,145,611 6,136,589 5,824,340 W. J. Williams 113,001,165 6,281,035 5,824,340 Issue 2 was the ratification of the appointment by the Board of Directors of Arthur Andersen LLP as the independent accountants of Centerior Energy, Cleveland Electric and Toledo Edison for 1996. The vote on this issue was as follows: Broker For Against Abstain Non-Vote 115,197,310 2,572,872 1,512,018 5,824,340 Issue 3 was a share owner proposal to prevent the named proxy holder from having discretionary power of voting on any issue where no direction is given by the share owner. The vote on this issue was as follows: Broker For Against Abstain Non-Vote 20,745,772 79,082,908 4,008,360 21,269,500 Issue 4 was a share owner proposal to rescind the Centerior Energy Equity Compensation Plan. The vote on this issue was as follows: Broker For Against Abstain Non-Vote 19,119,248 81,247,230 3,470,562 21,269,500 - 20 - 2. Cleveland Electric a. In lieu of an Annual Meeting, Cleveland Electric's sole share owner, Centerior Energy (the sole share owner of all 79,590,689 outstanding shares of Cleveland Electric common stock), elected directors of Cleveland Electric through a Written Action of Sole Share Owner on April 23, 1996. b. The directors elected pursuant to the Written Action were: Robert J. Farling Murray R. Edelman Fred J. Lange, Jr. c. No other matters were addressed in the Written Action in lieu of an Annual Meeting. 3. Toledo Edison a. In lieu of an Annual Meeting, Toledo Edison's sole share owner, Centerior Energy (the sole share owner of all 39,133,887 outstanding shares of Toledo Edison common stock), elected directors of Toledo Edison through a Written Action of Sole Share Owner on April 23, 1996. b. The directors elected pursuant to the Written Action were: Robert J. Farling Murray R. Edelman Fred J. Lange, Jr. c. No other matters were addressed in the Written Action in lieu of an Annual Meeting. Item 5. Other Information 1. Retail Wheeling Bill For background relating to this topic, see "Item 7. Management's Financial Analysis--Outlook--Competition" in the Companies' Annual Report on Form 10-K for the year ended December 31, 1995. On March 21, 1996, House Bill 653 was introduced in the Ohio House of Representatives by Representative Ronald Amstutz (R-Wooster) which, if enacted, would provide for the deregulation of the electric utility industry in Ohio. H.B. 653 includes provisions allowing customers to choose their electricity provider, ensuring that all customers have access to alternative suppliers, and removing electric services except distribution services from regulation. H.B. 653 does not provide for the recovery of stranded investment. H.B. 653 is expected to get hearings in the House Public Utilities Committee, but the Companies do not expect the bill to pass this legislative session which runs through the end of the year. 2. FERC Open-Access Transmission For background relating to this topic, see "Item 7. Management's Financial Analysis--Outlook--Competition" in the Companies' Annual Report on Form 10-K for the year ended December 31, 1995. On April 24, 1996, the Federal Energy Regulatory Commission ("FERC") adopted final rules as to the requirement that all electric utilities provide transmission service to others on the same rates, terms and conditions under which they utilize their transmission system for - 21 - their own use. These rules permit utilities to seek recovery of legitimate, prudent stranded costs. The Operating Companies' open- access transmission tariffs are currently pending before the FERC. The Operating Companies are reviewing the final rules to determine their impact on the pending tariffs. 3. Cost Reduction Efforts On May 13, 1996, the Companies announced their intention to reduce the number of employees from 6,800 at January 1, 1996 to 6,300 by December 31, 1996. The Companies also announced plans to decommission two older fossil-fueled generating units at the Acme Station in Toledo and the C-Plant in Ashtabula and to reduce generating activities at three other plants. These steps are part of an ongoing effort to reduce annual operating costs and will result in annualized savings of about $18 million. Item 6. Exhibits and Reports on Form 8-K a. Exhibits See Exhibit Index following. b. Reports on Form 8-K During the quarter ended March 31, 1996, Centerior Energy, Cleveland Electric and Toledo Edison did not file any Current Reports on Form 8-K. - 22 - Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The person signing this report on behalf of each such registrant is also signing in his capacity as each registrant's Chief Accounting Officer. CENTERIOR ENERGY CORPORATION (Registrant) THE CLEVELAND ELECTRIC ILLUMINATING COMPANY (Registrant) THE TOLEDO EDISON COMPANY (Registrant) By: E. LYLE PEPIN E. Lyle Pepin, Controller and Chief Accounting Officer of each Registrant Date: May 14, 1996 - 23 - EXHIBIT INDEX The following exhibits are submitted herewith: CENTERIOR ENERGY EXHIBIT Exhibit Number Description 27(a) Financial Data Schedule for the period ended March 31, 1996. CLEVELAND ELECTRIC EXHIBITS Exhibit Number Description 27(b) Financial Data Schedule for the period ended March 31, 1996. TOLEDO EDISON EXHIBITS Exhibit Number Description 27(c) Financial Data Schedule for the period ended March 31, 1996. - 24 - EX-27 2
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RELATED FORM 10-Q FINANCIAL STATEMENTS FOR CENTERIOR ENERGY CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000774197 CENTERIOR ENERGY CORPORATION 1,000 US DOLLARS 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 1 PER-BOOK 6,794,374 431,198 878,132 2,439,914 0 10,543,618 2,319,825 0 (388,970) 1,930,855 205,646 450,871 3,725,698 0 0 0 181,842 31,379 158,217 85,295 3,773,815 10,543,618 605,255 17,993 478,469 496,462 108,793 (3,634) 105,159 84,351 6,573 0 0 59,211 303,505 141,647 .04 0
EX-27 3
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RELATED FORM 10-Q FINANCIAL STATEMENTS FOR THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000020947 THE CLEVELAND ELECTRIC ILLUMINATING COMPANY 1,000 US DOLLARS 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 1 PER-BOOK 4,824,306 252,468 556,235 1,446,719 0 7,079,728 1,241,309 78,624 (207,020) 1,112,913 200,626 240,871 2,666,066 0 0 0 145,960 29,714 95,299 49,495 2,538,784 7,079,728 427,526 11,805 339,944 351,749 75,777 1,395 77,172 60,333 16,839 10,032 6,807 29,606 231,195 91,236 0 0
EX-27 4
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RELATED FORM 10-Q FINANCIAL STATEMENTS FOR THE TOLEDO EDISON COMPANY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000352049 THE TOLEDO EDISON COMPANY 1,000 US DOLLARS 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 1 PER-BOOK 1,970,068 150,852 299,008 1,006,303 0 3,426,231 195,687 602,116 (35,875) 761,928 5,020 210,000 1,059,632 0 0 0 35,882 1,665 62,632 35,800 1,253,672 3,426,231 210,793 6,227 171,692 177,919 32,874 (5,545) 27,329 24,052 3,277 4,204 (927) 0 72,310 65,570 0 0
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