-----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, DhmOtIgAzndm5uDSOEAmP79lE/MagImNleTM3oW7JlX1SxtrVY+x2+dLmFZYOTM2 nfRJjygKDW9DsGhz7eFayA== 0000774197-96-000019.txt : 19960816 0000774197-96-000019.hdr.sgml : 19960816 ACCESSION NUMBER: 0000774197-96-000019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 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: 96614156 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: 96614157 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: 96614158 BUSINESS ADDRESS: STREET 1: 300 MADISON AVE CITY: TOLEDO STATE: OH ZIP: 43652 BUSINESS PHONE: 4192495000 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 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 August 8, 1996, there were 148,025,928 shares of Centerior Energy Corporation Common Stock outstanding. Centerior Energy Corporation is the sole holder of the 79,590,689 shares and 39,133,887 shares of common stock of The Cleveland Electric Illuminating Company and The Toledo Edison Company, respectively, outstanding on that date. This combined Form 10-Q is separately filed by Centerior Energy Corporation ("Centerior Energy"), The Cleveland Electric Illuminating Company ("Cleveland Electric") and The Toledo Edison Company ("Toledo Edison"). Centerior Energy, Cleveland Electric and Toledo Edison are sometimes referred to collectively as the "Companies". Cleveland Electric and Toledo Edison are sometimes collectively referred to as the "Operating Companies". Information contained herein relating to any individual registrant is filed by such registrant on its behalf. No registrant makes any representation as to information relating to any other registrant, except that information relating to either or both of the Operating Companies is also attributed to Centerior Energy. TABLE OF CONTENTS Page PART I. FINANCIAL INFORMATION Centerior Energy Corporation and Subsidiaries The Cleveland Electric Illuminating Company and Subsidiary The Toledo Edison Company Notes to the Financial Statements (Unaudited) 1 Centerior Energy Corporation and Subsidiaries Income Statement 5 Balance Sheet 6 Cash Flows 7 Management's Discussion and Analysis of Financial 8 Condition and Results of Operations The Cleveland Electric Illuminating Company and Subsidiary Income Statement 12 Balance Sheet 13 Cash Flows 14 Management's Discussion and Analysis of Financial 15 Condition and Results of Operations The Toledo Edison Company Income Statement 18 Balance Sheet 19 Cash Flows 20 Management's Discussion and Analysis of Financial 21 Condition and Results of Operations PART II. OTHER INFORMATION Item 5. Other Information 25 Item 6. Exhibits and Reports on Form 8-K 27 Signatures 28 Exhibit Index 29 -i- CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES, THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBSIDIARY, 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 June 30, 1996 and results of operations and cash flows for the three months and six months ended June 30, 1996 and 1995 have been included. All such adjustments were normal recurring adjustments, except for the write-down of inactive production facilities in the first quarter of 1996 discussed in Note 8. These financial statements and notes should be read in conjunction with the financial statements and notes included in the Companies' combined Annual Report on Form 10-K for the year ended December 31, 1995 (1995 Form 10-K) and the Quarterly Report on Form 10-Q for the quarter ended March 31, 1996 (First Quarter 1996 Form 10-Q). 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, Centerior Funding Corporation (Centerior Funding), to serve as the transferor in connection with asset-backed securitization transactions completed by the Operating Companies in May and July 1996 as discussed in Note 5. Centerior Funding was initially funded in May 1996. As discussed in "Part II, Item 5. Other Information" in this Quarterly Report on Form 10-Q, Centerior Energy announced in April 1996 that it had entered into a partnership with an AT&T subsidiary related to wireless communications. The total investment at June 30, 1996 approximated $17 million. (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 June 30, 1996, Cleveland Electric and Toledo Edison had $168.1 million and $185.2 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 six months ended June 30, 1996 and 1995 were as follows: 1996 1995 Paid February 15 $.20 $.20 Paid May 15 .20 .20 Paid August 15 .20 .20 Common stock cash dividends declared by Cleveland Electric during the six months ended June 30, 1996 and 1995 were as follows: 1996 1995 (millions) Paid in February $29.6 $ -- Paid in May 46.6 15.0 Toledo Edison did not declare any common stock dividends during the six months ended June 30, 1996 and 1995. (4) Financing Activity During the three months ended June 30, 1996, the Operating Companies redeemed or retired debt and preferred stock as follows: Cleveland Electric Mandatory redemptions consisted of $20 million principal amount of secured medium-term notes; $3 million of Serial Preferred Stock, $88.00 Series E; $10.7 million of Serial Preferred Stock, $91.50 Series Q; and $1.1 million of bank loans secured by subordinated mortgage collateral and pollution control notes. Toledo Edison Mandatory redemptions consisted of $12.5 million aggregate principal amount of secured medium-term notes; $1.7 million of 9-3/8% Cumulative Preferred Stock, $100 par value; and $1 million of bank loans secured by subordinated mortgage collateral and pollution control notes. (5) Asset-Backed Securitization Transactions In May 1996, the Operating Companies began to sell on a daily basis substantially all of their retail customer accounts receivable and unbilled revenue receivables to Centerior Funding, a wholly owned subsidiary of Cleveland Electric, pursuant to a five-year asset-backed securitization agreement. In consideration for the initial sale, the Operating Companies received $97.4 million ($35.7 million for Cleveland Electric and $61.7 million for Toledo Edison), $18 million of notes receivable ($7.6 million for Cleveland Electric and $10.4 million for Toledo Edison) and a Cleveland Electric equity contribution in Centerior Funding of $142.1 million. The cash proceeds were used to retire maturing fixed obligations of the Operating Companies and for general corporate purposes. The transactions between each Operating Company and Centerior Funding were treated as sales for financial reporting purposes. Upon acquiring the Operating Companies' accounts receivable and unbilled revenue receivables, Centerior Funding transferred the assets to a master trust and subsequently raised $100 million through the issuance of receivables-backed investor certificates representing an undivided interest in the master trust receivables (certificates). The terms of the transaction required Centerior Funding to record the proceeds received as debt for financial reporting purposes. At June 30, 1996, the $100 million obligation is recorded as a current liability in the Cleveland Electric and Centerior Energy balance sheets. In July 1996, Centerior Funding completed a public sale of $150 million of receivables-backed investor certificates in a transaction that qualifies for sale accounting treatment for financial reporting purposes. Centerior Funding used the net proceeds of $148.9 million from the sale to retire the $100 million of its certificates, repay its notes payable ($10 million to Cleveland Electric and $16 million to Toledo Edison) and pay a $22.9 million dividend to Cleveland Electric. (6) Capital Stock In June 1996, Centerior Energy's Board of Directors increased its previous authorization to purchase Centerior Energy common stock in the open market from 1.5 million shares to 10% of the shares outstanding (about 14.8 million shares) and extended the buy-back period for one year through June 30, 1997. As of June 30, 1996, an aggregate of 225,500 shares had been purchased under the July 1991 authorization. Such shares are being held as treasury stock. No purchases have been made since August 1992. In June 1996, Centerior Energy's Board of Directors also adopted a share owner rights plan to protect the long-term value of share owner investment and to encourage anyone seeking to acquire Centerior Energy to negotiate with the Board prior to attempting a takeover. Under this plan, Centerior Energy common stock share owners of record on July 8, 1996 were granted a right to purchase one five-hundredth of a share of Centerior Energy preferred stock for each share of common stock owned on that date. Centerior Energy's Board of Directors will decide if the rights will be exercisable in the event of an unsolicited takeover attempt that the Board determines not to be in the best interest of Centerior Energy or its share owners. For additional information, see "Item 5. Other Events. 1. Shareholder Rights Plan." in the Companies' combined Current Report on Form 8-K dated June 25, 1996. (7) Generating Plant Lease Agreement Cleveland Electric has entered into an agreement with Jersey Central Power & Light Company (Jersey Central) under which Jersey Central will lease Cleveland Electric's ownership share (351,000 kilowatts) of the Seneca Power Plant, a pumped-storage, hydro-electric generating station. The lease, which is subject to regulatory approvals, has a June 1, 1996 to May 31, 2004 term. Total annual revenues are expected to be approximately $18 million initially with the rental rate subject to escalation provisions in the agreement. The Federal Energy Regulatory Commission (FERC) issued an order in August 1996 in which it concluded that the transaction should be accounted for as a wholesale power sale rather than a lease. In its order, the FERC also accepted the agreement for filing effective June 1, 1996 and set the matter for hearing on August 15, 1996 to consider the rates to be paid pursuant to the agreement. (8) 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. (9) Regulatory Matters On April 11, 1996, The Public Utilities Commission of Ohio (PUCO) issued a rate order granting the full price increase 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 late April 1996. The PUCO also approved changes in depreciation rates for the Operating Companies. For a full discussion, see Note 6 to the financial statements in the First Quarter 1996 Form 10-Q. (10) 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 and "Part II, Item 5. Other Information" in this Quarterly Report on Form 10-Q and in the First Quarter 1996 Form 10-Q.
CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES INCOME STATEMENT (Unaudited) (Thousands, Except Per Share Amounts) Three Months Ended Six Months Ended June 30, June 30, --------------------- --------------------------- 1996 1995 1996 1995 -------- -------- ----------- ----------- OPERATING REVENUES $ 608,966 $ 606,945 $ 1,214,221 $ 1,194,526 OPERATING EXPENSES Fuel and Purchased Power 110,248 113,725 225,232 233,094 Other Operation and Maintenance 149,763 150,551 305,668 291,155 Generation Facilities Rental Expense, Net 39,853 39,851 79,706 79,703 Depreciation and Amortization 76,722 70,023 149,954 139,471 Taxes, Other Than Federal Income Taxes 83,411 82,424 167,363 164,380 Deferred Operating Expenses, Net 10,868 (14,706) 21,411 (30,770) Federal Income Taxes 21,361 28,264 39,354 50,942 -------- -------- ----------- ----------- Total Operating Expenses 492,226 470,132 988,688 927,975 -------- -------- ----------- ----------- OPERATING INCOME 116,740 136,813 225,533 266,551 NONOPERATING INCOME (LOSS) Allowance for Equity Funds Used During Construction 788 271 1,699 1,646 Other Income and Deductions, Net (539) 968 (6,999) 3,270 Deferred Carrying Charges -- 11,623 -- 23,195 Federal Income Taxes - Credit (Expense) 880 (997) 2,795 (2,797) -------- -------- ----------- ----------- Total Nonoperating Income (Loss) 1,129 11,865 (2,505) 25,314 -------- -------- ----------- ----------- INCOME BEFORE INTEREST CHARGES 117,869 148,678 223,028 291,865 INTEREST CHARGES Long-term Debt 83,331 87,657 166,649 174,735 Short-term Debt 2,322 2,589 4,198 5,571 Allowance for Borrowed Funds Used During Construction (774) (1,073) (1,617) (1,763) -------- -------- ----------- ----------- Net Interest Charges 84,879 89,173 169,230 178,543 -------- -------- ----------- ----------- INCOME AFTER INTEREST CHARGES 32,990 59,505 53,798 113,322 Preferred Dividend Requirements of Subsidiaries 14,042 15,414 28,277 31,154 -------- -------- ----------- ----------- NET INCOME $ 18,948 $ 44,091 $ 25,521 $ 82,168 ======== ======== =========== =========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 148,027 148,032 148,027 148,032 ======== ======== =========== =========== EARNINGS PER COMMON SHARE $ .13 $ .30 $ .17 $ .56 ======== ======== =========== =========== The accompanying notes as they relate to Centerior Energy are an integral part of this statement.
CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES BALANCE SHEET (Thousands) June 30, December 31, 1996 1995 (Unaudited) ----------- ----------- ASSETS PROPERTY, PLANT AND EQUIPMENT Utility Plant In Service $ 9,837,652 $ 9,767,788 Accumulated Depreciation and Amortization (3,168,988) (3,036,181) ----------- ----------- 6,668,664 6,731,607 Construction Work In Progress 86,639 101,031 ----------- ----------- 6,755,303 6,832,638 Nuclear Fuel, Net of Amortization 215,874 199,707 Other Property, Less Accumulated Depreciation 91,838 101,745 ----------- ----------- 7,063,015 7,134,090 CURRENT ASSETS Cash and Temporary Cash Investments 136,439 179,038 Amounts Due from Customers and Others, Net 265,802 223,228 Unbilled Revenues 98,344 100,344 Materials and Supplies, at Average Cost 115,646 119,507 Fossil Fuel Inventory, at Average Cost 25,421 30,663 Taxes Applicable to Succeeding Years 183,288 255,142 Other 17,216 18,562 ----------- ----------- 842,156 926,484 REGULATORY AND OTHER ASSETS Amounts Due from Customers for Future Federal Income Taxes, Net 1,058,570 1,067,374 Unamortized Loss from Beaver Valley Unit 2 Sale 93,960 96,206 Unamortized Loss on Reacquired Debt 85,422 88,893 Carrying Charges and Operating Expenses 1,033,789 1,053,220 Nuclear Plant Decommissioning Trusts 123,594 113,681 Other 161,964 163,156 ----------- ----------- 2,557,299 2,582,530 ----------- ----------- $ 10,462,470 $ 10,643,104 =========== =========== CAPITALIZATION AND LIABILITIES CAPITALIZATION Common Stock Equity $ 1,920,184 $ 1,983,560 Preferred Stock With Mandatory Redemption Provisions 190,267 220,440 Without Mandatory Redemption Provisions 450,871 450,871 Long-Term Debt 3,719,312 3,733,892 ----------- ----------- 6,280,634 6,388,763 CURRENT LIABILITIES Current Portion of Long-Term Debt and Preferred Stock 185,023 234,771 Current Portion of Lease Obligations 81,889 94,653 Notes Payable to Banks and Others 100,000 -- Accounts Payable 154,199 152,909 Accrued Taxes 253,224 373,757 Accrued Interest 81,453 83,050 Dividends Declared 43,910 14,666 Other 65,839 73,328 ----------- ----------- 965,537 1,027,134 DEFERRED CREDITS AND OTHER LIABILITIES Unamortized Investment Tax Credits 257,441 263,352 Accumulated Deferred Federal Income Taxes 1,903,339 1,875,080 Unamortized Gain from Bruce Mansfield Plant Sale 486,764 498,771 Accumulated Deferred Rents for Bruce Mansfield Plant and Beaver Valley Unit 2 133,909 145,393 Nuclear Fuel Lease Obligations 149,414 137,260 Retirement Benefits 181,317 178,579 Other 104,115 128,772 ----------- ----------- 3,216,299 3,227,207 COMMITMENTS AND CONTINGENCIES (Note 10) ----------- ----------- $ 10,462,470 $ 10,643,104 =========== =========== The accompanying notes as they relate to Centerior Energy are an integral part of this statement.
CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES CASH FLOWS (Unaudited) (Thousands) Six Months Ended June 30, ----------------------- 1996 1995 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income $25,521 $82,168 -------- -------- Adjustments to Reconcile Net Income to Cash from Operating Activities: Depreciation and Amortization 149,954 139,471 Deferred Federal Income Tax 35,638 34,345 Unbilled Revenues 2,000 (7,000) Deferred Fuel 1,591 15,687 Deferred Carrying Charges -- (23,195) Leased Nuclear Fuel Amortization 35,798 60,005 Deferred Operating Expenses, Net 21,411 (30,770) Allowance for Equity Funds Used During Construction (1,699) (1,646) Changes in Amounts Due from Customers and Others, Net (42,574) 13,270 Changes in Inventories 9,103 (12,815) Changes in Accounts Payable 1,290 (4,055) Changes in Working Capital Affecting Operations (56,419) (69,801) Other Noncash Items (25,643) (7,397) -------- -------- Total Adjustments 130,450 106,099 -------- -------- Net Cash from Operating Activities 155,971 188,267 CASH FLOWS FROM FINANCING ACTIVITIES Bank Loans, Commercial Paper and Other Short-Term Debt 100,000 -- First Mortgage Bond Issues -- 398,900 Reacquired Common Stock (20) -- Maturities, Redemptions and Sinking Funds (94,479) (371,516) Nuclear Fuel Lease Obligations (52,851) (39,893) Common Stock Dividends Paid (59,211) (59,213) Premiums, Discounts and Expenses (474) (13,456) -------- -------- Net Cash from Financing Activities (107,035) (85,178) CASH FLOWS FROM INVESTING ACTIVITIES Cash Applied to Construction (75,305) (82,767) Interest Capitalized as Allowance for Borrowed Funds Used During Construction (1,617) (1,763) Contributions to Nuclear Plant Decommissioning Trusts (5,897) (11,794) Investment in Partnership (17,000) -- Other Cash Received (Applied) 8,284 (23,533) -------- -------- Net Cash from Investing Activities (91,535) (119,857) -------- -------- NET CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS (42,599) (16,768) CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD 179,038 186,399 -------- -------- CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD $136,439 $169,631 ======== ======== Other Payment Information: Interest (net of amounts capitalized) $165,000 $152,000 Federal Income Taxes 5,200 32,800 The accompanying notes as they relate to Centerior Energy are an integral part of this statement.
CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Capital Resources and Liquidity Reference is made to "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in Item 7 of the 1995 Form 10-K and in the First Quarter 1996 Form 10-Q. The information under "Capital Resources and Liquidity" remains unchanged with the following exceptions: During the second quarter of 1996, the Operating Companies redeemed or retired various securities as discussed in Note 4. Also, in May and July 1996, the Operating Companies completed certain asset-backed securitization transactions as discussed in Note 5. Nuclear fuel is financed for the Operating Companies through leases with a special-purpose corporation. On August 2, 1996, the special-purpose corporation completed a transaction in which it issued $100 million aggregate amount of intermediate-term secured notes maturing in the 1997 through 2000 period. The proceeds will be used to pay all or part of the outstanding balance of the special-purpose corporation's commercial paper borrowings and a portion of its previously issued intermediate-term secured notes as they mature. The special-purpose corporation also plans to complete new bank credit arrangements in the third quarter of 1996 to replace $150 million of bank credit arrangements terminating in October 1996. 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 June 30, 1996, Cleveland Electric and Toledo Edison would have been permitted to issue approximately $430 million and $171 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. Based on earnings for the 12 months ended June 30, 1996, Toledo Edison could not issue additional preferred stock. Toledo Edison will be unable to issue preferred stock until it can meet the interest and preferred dividend coverage test in its articles of incorporation. Results of Operations Factors contributing to the 0.3% and 1.6% increases in 1996 operating revenues from 1995 for the second quarter and six months, respectively, are shown as follows: Changes for Period Ended June 30, 1996 Three Six Factors Months Months (millions) Kilowatt-hour Sales Volume and Mix $ 0.5 $15.5 Base Rates 11.6 11.2 Wholesale Revenues (3.2) 0.3 Fuel Cost Recovery Revenues (2.8) (8.7) Miscellaneous Revenues (4.1) 1.4 Total $ 2.0 $19.7 Percentage changes between 1996 and 1995 billed electric kilowatt-hour sales are summarized as follows: Changes for Period Ended June 30, 1996 Three Six Customer Categories Months Months Residential 2.9% 5.0% Commercial 4.2 3.6 Industrial 1.0 0.3 Other (29.5) (15.3) Total (1.3) 0.4 Second quarter 1996 total kilowatt-hour sales decreased because of 40% less wholesale sales (included in the "Other" category). Residential and commercial sales increased because of the cooler spring weather in the second quarter of 1996 than in the second quarter of 1995, which increased heating-related demand. Weather-normalized residential and commercial sales increased 0.7% and 3.6%, respectively, for the 1996 period. Weather-normalized commercial sales growth in the 1996 period is attributable to a 1.4% increase in the number of commercial customers and an increase in average customer usage of about 2%. Increased sales to petroleum refineries and the broad-based, smaller industrial customer group partially offset less sales to large steel industry customers. Total kilowatt-hour sales increased for the six-month period in 1996 as increases from weather-related demand were partially offset by a 20% decline in wholesale sales. Residential and commercial sales increased because of the colder winter and spring weather in the 1996 period. Weather-normalized residential and commercial sales increased 1.4% and 2.6%, respectively, for the 1996 period. Weather-normalized commercial sales growth in the 1996 period is attributable to a 1.8% increase in the average number of commercial customers and an increase in average customer usage of about 1%. Increased sales to petroleum refineries and the broad-based, smaller industrial customer group were partially offset by less sales to large automotive manufacturers and steel producers. Wholesale sales in 1996 were suppressed by soft market conditions and limited power availability for bulk power transactions because of nuclear generating plant refueling and maintenance outages. The increases in 1996 base rates revenues resulted primarily from the April 1996 PUCO rate order for the Operating Companies. See Note 9. Renegotiated contracts for certain large industrial customers resulted in a decrease in base rates which partially offset the effect of the general price increase. The decreases in 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 second quarter of 1996 decreased about 5% for Cleveland Electric and increased about 3% for Toledo Edison compared to the weighted average of the respective fuel cost recovery factors used for the second quarter of 1995. The weighted average of the respective fuel cost recovery factors used for the 1996 six-month period decreased about 7% for Cleveland Electric and increased about 2% for Toledo Edison compared to the weighted average of the respective fuel cost recovery factors used for the 1995 six-month period. Second quarter miscellaneous revenues in 1996 decreased from the 1995 amount primarily because of the retroactive effect of a reclassification of certain revenues as credits to operating expenses. Second quarter operating expenses in 1996 increased 4.7% 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. Depreciation and amortization expenses increased because of a net increase in depreciation related to changes in depreciation rates approved in the April 1996 PUCO rate order and 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. Federal income taxes decreased as a result of lower pretax operating income. Fuel and purchased power expenses decreased as lower fuel expense was partially offset by higher purchased power expense. Second quarter 1996 nonoperating income decreased primarily because the deferral of carrying charges related to the Rate Stabilization Program ended in November 1995. The second quarter 1996 federal income tax credit for nonoperating income increased accordingly. Second quarter 1996 interest charges and preferred dividend requirements decreased because of the redemption of securities and refinancing at favorable terms. Second quarter net income and earnings per common share in 1996 decreased $25.1 million and $.17, respectively, from the 1995 amounts primarily because of the cessation of the Rate Stabilization Program deferrals and accelerated amortizations, the commencement of the amortization of the deferrals in December 1995 and the delay in realizing the full financial benefits of the Companies' strategic plan initiatives. Recovery of both the costs no longer being deferred and the amortization of the deferrals began in late April 1996 with the implementation of the price increases. Six-month operating expenses in 1996 increased 6.5% 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 refueling and maintenance outages, 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 for the same reasons cited for the second quarter 1996 increase in these expenses. Federal income taxes decreased as a result of lower pretax operating income. Lower fuel and purchased power expenses resulted from less amortization of previously deferred fuel costs than the amount amortized in 1995. A six-month 1996 nonoperating loss resulted primarily from the cessation of carrying charge deferrals related to the Rate Stabilization Program in November 1995 and Toledo Edison's write-down of two inactive production facilities as discussed in Note 8. The six-month 1996 federal income tax credit for nonoperating income increased accordingly. Six-month 1996 interest charges and preferred dividend requirements decreased because of the same reasons cited for the second quarter 1996 decrease in these charges. Six-month net income and earnings per common share in 1996 decreased $56.6 million and $.39, respectively, from the 1995 amounts primarily because of the cessation of the Rate Stabilization Program deferrals and accelerated amortizations, the commencement of the amortization of the deferrals in December 1995 and the delay in realizing the full financial benefits of the Companies' strategic plan initiatives. Six-month 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).
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBSIDIARY INCOME STATEMENT (Unaudited) (Thousands) Three Months Ended Six Months Ended June 30, June 30, --------------------- ------------------------- 1996 1995 1996 1995 -------- -------- ---------- ---------- OPERATING REVENUES $ 434,025 $ 424,362 $ 861,551 $ 834,745 OPERATING EXPENSES Fuel and Purchased Power (1) 98,216 101,831 201,942 207,893 Other Operation and Maintenance 99,083 100,315 204,215 194,969 Generation Facilities Rental Expense, Net 13,891 13,891 27,783 27,783 Depreciation and Amortization 53,033 48,883 103,849 97,487 Taxes, Other Than Federal Income Taxes 59,750 58,559 119,760 116,247 Deferred Operating Expenses, Net 6,575 (9,564) 12,943 (20,457) Federal Income Taxes 17,565 19,377 29,370 34,452 -------- -------- ---------- ---------- Total Operating Expenses 348,113 333,292 699,862 658,374 -------- -------- ---------- ---------- OPERATING INCOME 85,912 91,070 161,689 176,371 NONOPERATING INCOME Allowance for Equity Funds Used During Construction 601 (122) 1,099 966 Other Income and Deductions, Net (1,016) 845 633 1,137 Deferred Carrying Charges -- 7,715 -- 15,363 Federal Income Taxes - Credit (Expense) 1,034 (408) 282 (903) -------- -------- ---------- ---------- Total Nonoperating Income 619 8,030 2,014 16,563 -------- -------- ---------- ---------- INCOME BEFORE INTEREST CHARGES 86,531 99,100 163,703 192,934 INTEREST CHARGES Long-Term Debt 60,626 61,337 120,786 121,305 Short-Term Debt 1,372 1,143 2,064 1,794 Allowance for Borrowed Funds Used During Construction (627) (965) (1,146) (1,378) -------- -------- ---------- ---------- Net Interest Charges 61,371 61,515 121,704 121,721 -------- -------- ---------- ---------- NET INCOME 25,160 37,585 41,999 71,213 Preferred Dividend Requirements 9,813 10,718 19,845 21,675 -------- -------- ---------- ---------- EARNINGS AVAILABLE FOR COMMON STOCK $ 15,347 $ 26,867 $ 22,154 $ 49,538 ======== ======== ========== ========== (1) Includes purchased power expense for purchases from Toledo Edison. $ 25,908 $ 26,161 $ 52,580 $ 49,557 The accompanying notes as they relate to Cleveland Electric are an integral part of this statement.
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBSIDIARY BALANCE SHEET (Thousands) June 30, December 31, 1996 1995 (Unaudited) ----------- ----------- ASSETS PROPERTY, PLANT AND EQUIPMENT Utility Plant In Service $ 6,917,410 $ 6,871,468 Accumulated Depreciation and Amortization (2,184,313) (2,094,092) ----------- ----------- 4,733,097 4,777,376 Construction Work In Progress 66,907 73,250 ----------- ----------- 4,800,004 4,850,626 Nuclear Fuel, Net of Amortization 129,021 121,966 Other Property, Less Accumulated Depreciation 56,632 58,299 ----------- ----------- 4,985,657 5,030,891 CURRENT ASSETS Cash and Temporary Cash Investments 41,165 69,770 Amounts Due from Customers and Others, Net 247,218 152,339 Amounts Due from Affiliates 3,040 4,729 Unbilled Revenues 91,544 78,500 Materials and Supplies, at Average Cost 76,347 79,540 Fossil Fuel Inventory, at Average Cost 17,169 21,391 Taxes Applicable to Succeeding Years 130,673 184,099 Other 7,707 7,197 ----------- ----------- 614,863 597,565 REGULATORY AND OTHER ASSETS Amounts Due from Customers for Future Federal Income Taxes, Net 642,895 651,264 Unamortized Loss on Reacquired Debt 59,538 61,252 Carrying Charges and Operating Expenses 631,782 643,561 Nuclear Plant Decommissioning Trusts 66,904 61,497 Other 99,425 105,696 ----------- ----------- 1,500,544 1,523,270 ----------- ----------- $ 7,101,064 $ 7,151,726 =========== =========== CAPITALIZATION AND LIABILITIES CAPITALIZATION Common Stock Equity $ 1,081,893 $ 1,126,762 Preferred Stock With Mandatory Redemption Provisions 186,912 215,420 Without Mandatory Redemption Provisions 240,871 240,871 Long-Term Debt 2,659,850 2,665,981 ----------- ----------- 4,169,526 4,249,034 CURRENT LIABILITIES Current Portion of Long-Term Debt and Preferred Stock 160,874 176,474 Current Portion of Lease Obligations 48,249 54,634 Notes Payable to Banks and Others 100,000 -- Accounts Payable 93,924 89,038 Accounts and Notes Payable to Affiliates 99,039 63,961 Accrued Taxes 220,593 296,141 Accrued Interest 58,236 58,608 Dividends Declared 6,092 15,818 Other 36,519 40,766 ----------- ----------- 823,526 795,440 DEFERRED CREDITS AND OTHER LIABILITIES Unamortized Investment Tax Credits 180,059 184,002 Accumulated Deferred Federal Income Taxes 1,312,849 1,298,260 Unamortized Gain from Bruce Mansfield Plant Sale 303,204 310,678 Accumulated Deferred Rents for Bruce Mansfield Plant 95,192 91,604 Nuclear Fuel Lease Obligations 89,826 85,569 Retirement Benefits 69,065 65,424 Other 57,817 71,715 ----------- ----------- 2,108,012 2,107,252 COMMITMENTS AND CONTINGENCIES (Note 10) ----------- ----------- $ 7,101,064 $ 7,151,726 =========== =========== The accompanying notes as they relate to Cleveland Electric are an integral part of this statement.
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBSIDIARY CASH FLOWS (Unaudited) (Thousands) Six Months Ended June 30, ------------------------ 1996 1995 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income $41,999 $71,213 -------- -------- Adjustments to Reconcile Net Income to Cash from Operating Activities: Depreciation and Amortization 103,849 97,487 Deferred Federal Income Tax 22,905 24,004 Unbilled Revenues (6,000) (5,000) Deferred Fuel (52) 15,393 Deferred Carrying Charges -- (15,363) Leased Nuclear Fuel Amortization 20,338 33,987 Deferred Operating Expenses, Net 12,943 (20,457) Allowance for Equity Funds Used During Construction (1,099) (966) Changes in Amounts Due from Customers and Others, Net (29,708) 10,120 Changes in Inventories 7,415 (11,107) Changes in Accounts Payable 4,886 1,697 Changes in Working Capital Affecting Operations (31,895) (64,495) Other Noncash Items (12,856) (13,165) -------- -------- Total Adjustments 90,726 52,135 -------- -------- Net Cash from Operating Activities 132,725 123,348 CASH FLOWS FROM FINANCING ACTIVITIES Bank Loans, Commercial Paper and Other Short-Term Debt 100,000 -- Notes Payable to Affiliates 41,411 (58,100) First Mortgage Bond Issues -- 353,900 Maturities, Redemptions and Sinking Funds (50,614) (265,063) Nuclear Fuel Lease Obligations (29,533) (23,092) Dividends Paid (96,388) (36,967) Premiums, Discounts and Expenses (249) (8,644) -------- -------- Net Cash from Financing Activities (35,373) (37,966) CASH FLOWS FROM INVESTING ACTIVITIES Cash Applied to Construction (51,455) (65,316) Interest Capitalized as Allowance for Borrowed Funds Used During Construction (1,146) (1,378) Contributions to Nuclear Plant Decommissioning Trusts (3,204) (6,408) Purchases of Accounts Receivable from Affiliate (76,326) -- Other Cash Received (Applied) 6,174 (15,988) -------- -------- Net Cash from Investing Activities (125,957) (89,090) -------- -------- NET CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS (28,605) (3,708) CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD 69,770 65,643 -------- -------- CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD $41,165 $61,935 ======== ======== Other Payment Information: Interest (net of amounts capitalized) $119,000 $105,000 Federal Income Taxes (Refund) (6,200) 20,900 The accompanying notes as they relate to Cleveland Electric are an integral part of this statement.
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBSIDIARY 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 and in the First Quarter 1996 Form 10-Q. The information under "Capital Resources and Liquidity" remains unchanged with the following exceptions: During the second quarter of 1996, Cleveland Electric redeemed or retired various securities as discussed in Note 4. Also, in May and July 1996, the Operating Companies completed certain asset-backed securitization transactions as discussed in Note 5. Nuclear fuel is financed for the Operating Companies through leases with a special-purpose corporation. On August 2, 1996, the special-purpose corporation completed a transaction in which it issued $100 million aggregate amount of intermediate-term secured notes maturing in the 1997 through 2000 period. The proceeds will be used to pay all or part of the outstanding balance of the special-purpose corporation's commercial paper borrowings and a portion of its previously issued intermediate-term secured notes as they mature. The special-purpose corporation also plans to complete new bank credit arrangements in the third quarter of 1996 to replace $150 million of bank credit arrangements terminating in October 1996. 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 June 30, 1996, Cleveland Electric would have been permitted to issue approximately $430 million of additional first mortgage bonds. Results of Operations Factors contributing to the 2.3% and 3.2% increases in 1996 operating revenues from 1995 for the second quarter and six months, respectively, are shown as follows: Changes for Period Ended June 30, 1996 Three Six Factors Months Months (millions) Base Rates $13.7 $15.3 Kilowatt-hour Sales Volume and Mix 2.0 13.7 Wholesale Revenues 1.2 4.8 Fuel Cost Recovery Revenues (3.7) (9.7) Miscellaneous Revenues (3.5) 2.7 Total $ 9.7 $26.8 The increases in 1996 base rates revenues resulted primarily from the April 1996 PUCO rate order. See Note 9. Percentage changes between 1996 and 1995 billed electric kilowatt-hour sales are summarized as follows: Changes for Period Ended June 30, 1996 Three Six Customer Categories Months Months Residential 2.6% 4.8% Commercial 3.9 3.1 Industrial (0.6) (1.0) Other 9.1 4.4 Total 2.2 2.0 Second quarter 1996 total kilowatt-hour sales increased because of increased residential and commercial sales and a 14% increase in wholesale sales (included in the "Other" category). Residential and commercial sales increased because of the cooler spring weather in the second quarter of 1996 than in the second quarter of 1995, which increased heating-related demand. Weather-normalized residential and commercial sales increased 0.9% and 3.4%, respectively, for the 1996 period. Weather-normalized commercial sales growth in the 1996 period is attributable to a 1.4% increase in the number of commercial customers and an increase in average customer usage of about 2%. Industrial sales decreased slightly primarily because of less sales to large steel industry customers. Total kilowatt-hour sales increased for the six-month period in 1996 because of weather-related demand and an 8.2% increase in wholesale sales. Residential and commercial sales increased because of the colder winter and spring weather in the 1996 period. Weather-normalized residential and commercial sales increased 1.4% and 2.2%, respectively, for the 1996 period. Weather-normalized commercial sales growth in the 1996 period is attributable to a 1.7% increase in the average number of commercial customers and an increase in average customer usage of about 0.5%. Industrial sales decreased primarily because of less sales to large automotive manufacturers and steel producers. The decreases in 1996 fuel cost recovery revenues included in customer bills resulted from decreases in the fuel cost recovery factors used in 1996 to calculate these revenues compared to those used in 1995. The decreases in the weighted averages of the fuel cost recovery factors for 1996 were about 5% and 7% for the second quarter and six months, respectively. Second quarter miscellaneous revenues in 1996 decreased from the 1995 amount primarily because of the retroactive effect of a reclassification of certain revenues as credits to operating expenses. Second quarter operating expenses in 1996 increased 4.4% 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. Depreciation and amortization expenses increased because of a net increase in depreciation related to changes in depreciation rates approved in the April 1996 PUCO rate order and 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. Federal income taxes decreased as a result of lower pretax operating income. Lower fuel and purchased power expenses resulted from both lower fuel expense and lower purchased power expense. Second quarter 1996 nonoperating income decreased primarily because the deferral of carrying charges related to the Rate Stabilization Program ended in November 1995. The second quarter 1996 federal income tax credit for nonoperating income increased accordingly. Second quarter earnings available for common stock in 1996 decreased $11.5 million from the 1995 amount primarily because of the cessation of the Rate Stabilization Program deferrals and accelerated amortizations, the commencement of the amortization of the deferrals in December 1995 and the delay in realizing the full financial benefits of the Companies' strategic plan initiatives. Recovery of both the costs no longer being deferred and the amortization of the deferrals began in late April 1996 with the implementation of the price increases. Six-month operating expenses in 1996 increased 6.3% 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 refueling and maintenance outages, 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 for the same reasons cited for the second quarter 1996 increase in these expenses. Federal income taxes decreased as a result of lower pretax operating income. Lower fuel and purchased power expenses resulted from less amortization of previously deferred fuel costs than the amount amortized in 1995. Six-month 1996 nonoperating income decreased because the deferral of carrying charges related to the Rate Stabilization Program ended in November 1995. The six-month 1996 federal income tax credit for nonoperating income increased accordingly. Six-month earnings available for common stock in 1996 decreased $27.4 million from the 1995 amount primarily because of the cessation of the Rate Stabilization Program deferrals and accelerated amortizations, the commencement of the amortization of the deferrals in December 1995 and the delay in realizing the full financial benefits of the Companies' strategic plan initiatives.
THE TOLEDO EDISON COMPANY INCOME STATEMENT (Unaudited) (Thousands) Three Months Ended Six Months Ended June 30, June 30, --------------------- --------------------- 1996 1995 1996 1995 -------- -------- -------- -------- OPERATING REVENUES (1) $ 210,940 $ 215,043 $ 421,733 $ 421,427 OPERATING EXPENSES Fuel and Purchased Power 40,652 38,466 79,420 75,957 Other Operation and Maintenance 58,244 56,611 114,763 108,672 Generation Facilities Rental Expense, Net 25,962 25,960 51,923 51,920 Depreciation and Amortization 23,689 21,140 46,105 41,984 Taxes, Other Than Federal Income Taxes 23,572 23,748 47,425 47,897 Deferred Operating Expenses, Net 4,293 (5,142) 8,468 (10,313) Federal Income Taxes 3,872 9,019 10,099 16,674 -------- -------- -------- -------- Total Operating Expenses 180,284 169,802 358,203 332,791 -------- -------- -------- -------- OPERATING INCOME 30,656 45,241 63,530 88,636 NONOPERATING INCOME (LOSS) Allowance for Equity Funds Used During Construction 186 392 599 679 Other Income and Deductions, Net 374 1,110 (8,779) 3,128 Deferred Carrying Charges -- 3,908 -- 7,832 Federal Income Taxes - Credit (Expense) 115 (501) 3,310 (1,282) -------- -------- -------- -------- Total Nonoperating Income (Loss) 675 4,909 (4,870) 10,357 -------- -------- -------- -------- INCOME BEFORE INTEREST CHARGES 31,331 50,150 58,660 98,993 INTEREST CHARGES Long-Term Debt 22,704 26,321 45,863 53,431 Short-Term Debt 1,145 1,965 2,363 4,465 Allowance for Borrowed Funds Used During Construction (146) (108) (471) (385) -------- -------- -------- -------- Net Interest Charges 23,703 28,178 47,755 57,511 -------- -------- -------- -------- NET INCOME 7,628 21,972 10,905 41,482 Preferred Dividend Requirements 4,229 4,696 8,433 9,479 -------- -------- -------- -------- EARNINGS AVAILABLE FOR COMMON STOCK $ 3,399 $ 17,276 $ 2,472 $ 32,003 ======== ======== ======== ======== (1) Includes revenues from bulk power sales to Cleveland Electric. $ 25,908 $ 26,161 $ 52,580 $ 49,557 The accompanying notes as they relate to Toledo Edison are an integral part of this statement.
THE TOLEDO EDISON COMPANY BALANCE SHEET (Thousands) June 30, December 31, 1996 1995 (Unaudited) ----------- ----------- ASSETS PROPERTY, PLANT AND EQUIPMENT Utility Plant In Service $ 2,920,241 $ 2,896,320 Accumulated Depreciation and Amortization (984,676) (942,088) ----------- ----------- 1,935,565 1,954,232 Construction Work In Progress 19,732 27,781 ----------- ----------- 1,955,297 1,982,013 Nuclear Fuel, Net of Amortization 86,853 77,741 Other Property, Less Accumulated Depreciation 7,515 19,555 ----------- ----------- 2,049,665 2,079,309 CURRENT ASSETS Cash and Temporary Cash Investments 52,272 93,669 Amounts Due from Customers and Others, Net 15,367 68,077 Amounts Due from Affiliates 63,036 18,905 Unbilled Revenues 6,800 21,844 Materials and Supplies, at Average Cost 39,299 39,967 Fossil Fuel Inventory, at Average Cost 8,252 9,273 Taxes Applicable to Succeeding Years 52,615 71,044 Other 3,206 4,315 ----------- ----------- 240,847 327,094 REGULATORY AND OTHER ASSETS Amounts Due from Customers for Future Federal Income Taxes, Net 415,916 416,351 Unamortized Loss from Beaver Valley Unit 2 Sale 93,960 96,206 Unamortized Loss on Reacquired Debt 25,883 27,640 Carrying Charges and Operating Expenses 402,007 409,659 Nuclear Plant Decommissioning Trusts 56,691 52,185 Other 58,761 65,345 ----------- ----------- 1,053,218 1,067,386 ----------- ----------- $ 3,343,730 $ 3,473,789 =========== =========== CAPITALIZATION AND LIABILITIES CAPITALIZATION Common Stock Equity $ 765,345 $ 762,877 Preferred Stock With Mandatory Redemption Provisions 3,355 5,020 Without Mandatory Redemption Provisions 210,000 210,000 Long-Term Debt 1,059,461 1,067,603 ----------- ----------- 2,038,161 2,045,500 CURRENT LIABILITIES Current Portion of Long-Term Debt and Preferred Stock 24,149 58,297 Current Portion of Lease Obligations 33,640 40,019 Accounts Payable 58,786 56,233 Accounts and Notes Payable to Affiliates 26,851 53,245 Accrued Taxes 34,491 78,178 Accrued Interest 23,105 24,250 Other 16,820 18,607 ----------- ----------- 217,842 328,829 DEFERRED CREDITS AND OTHER LIABILITIES Unamortized Investment Tax Credits 77,382 79,350 Accumulated Deferred Federal Income Taxes 585,753 573,035 Unamortized Gain from Bruce Mansfield Plant Sale 183,560 188,093 Accumulated Deferred Rents for Bruce Mansfield Plant and Beaver Valley Unit 2 38,717 53,789 Nuclear Fuel Lease Obligations 59,325 51,691 Retirement Benefits 102,671 103,060 Other 40,319 50,442 ----------- ----------- 1,087,727 1,099,460 COMMITMENTS AND CONTINGENCIES (Note 10) ----------- ----------- $ 3,343,730 $ 3,473,789 =========== =========== The accompanying notes as they relate to Toledo Edison are an integral part of this statement.
THE TOLEDO EDISON COMPANY CASH FLOWS (Unaudited) (Thousands) Six Months Ended June 30, ----------------------- 1996 1995 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income $10,905 $41,482 -------- -------- Adjustments to Reconcile Net Income to Cash from Operating Activities: Depreciation and Amortization 46,105 41,984 Deferred Federal Income Tax 13,368 10,603 Unbilled Revenues 8,000 (2,000) Deferred Fuel 1,643 294 Deferred Carrying Charges -- (7,832) Leased Nuclear Fuel Amortization 15,461 26,019 Deferred Operating Expenses, Net 8,468 (10,313) Allowance for Equity Funds Used During Construction (599) (679) Changes in Amounts Due from Customers and Others, Net (12,461) 3,364 Sales of Accounts Receivable to Affiliate 76,326 -- Changes in Inventories 1,689 (1,707) Changes in Accounts Payable 2,553 (370) Changes in Working Capital Affecting Operations (30,245) (13,159) Other Noncash Items (12,787) 5,768 -------- -------- Total Adjustments 117,521 51,972 -------- -------- Net Cash from Operating Activities 128,426 93,454 CASH FLOWS FROM FINANCING ACTIVITIES Notes Payable to Affiliates (20,950) -- First Mortgage Bond Issue -- 45,000 Maturities, Redemptions and Sinking Funds (43,865) (97,678) Nuclear Fuel Lease Obligations (23,318) (16,801) Dividends Paid (8,437) (9,544) Premiums, Discounts and Expenses (225) (4,812) -------- -------- Net Cash from Financing Activities (96,795) (83,835) CASH FLOWS FROM INVESTING ACTIVITIES Cash Applied to Construction (23,850) (17,451) Interest Capitalized as Allowance for Borrowed Funds Used During Construction (471) (385) Loans to Affiliates (46,411) -- Contributions to Nuclear Plant Decommissioning Trusts (2,693) (5,386) Other Cash Received (Applied) 397 (4,857) -------- -------- Net Cash from Investing Activities (73,028) (28,079) -------- -------- NET CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS (41,397) (18,460) CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD 93,669 87,800 -------- -------- CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD $52,272 $69,340 ======== ======== Other Payment Information: Interest (net of amounts capitalized) $46,000 $47,000 Federal Income Taxes 10,400 11,300 The accompanying notes as they relate to Toledo Edison are an integral part of this statement.
THE TOLEDO EDISON COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Capital Resources and Liquidity Reference is made to "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in Item 7 of the 1995 Form 10-K and in the First Quarter 1996 Form 10-Q. The information under "Capital Resources and Liquidity" remains unchanged with the following exceptions: During the second quarter of 1996, Toledo Edison redeemed or retired various securities as discussed in Note 4. Also, in May and July 1996, the Operating Companies completed certain asset-backed securitization transactions as discussed in Note 5. Nuclear fuel is financed for the Operating Companies through leases with a special-purpose corporation. On August 2, 1996, the special-purpose corporation completed a transaction in which it issued $100 million aggregate amount of intermediate-term secured notes maturing in the 1997 through 2000 period. The proceeds will be used to pay all or part of the outstanding balance of the special-purpose corporation's commercial paper borrowings and a portion of its previously issued intermediate-term secured notes as they mature. The special-purpose corporation also plans to complete new bank credit arrangements in the third quarter of 1996 to replace $150 million of bank credit arrangements terminating in October 1996. 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 June 30, 1996, Toledo Edison would have been permitted to issue approximately $171 million of additional first mortgage bonds. Under its articles of incorporation, Toledo Edison cannot issue preferred stock unless certain earnings coverage requirements are met. Based on earnings for the 12 months ended June 30, 1996, Toledo Edison could not issue additional preferred stock. Toledo Edison will be unable to issue preferred stock until it can meet the interest and preferred dividend coverage test in its articles of incorporation. Results of Operations Factors contributing to the 1.9% second quarter decrease and 0.1% six-month increase in 1996 operating revenues from 1995 are shown as follows: Changes for Period Ended June 30, 1996 Three Six Factors Months Months (millions) Base Rates $(2.1) $(4.1) Kilowatt-hour Sales Volume and Mix (1.4) 1.9 Wholesale Revenues (2.3) 0.8 Fuel Cost Recovery Revenues 0.9 1.0 Miscellaneous Revenues 0.8 0.7 Total $(4.1) $ 0.3 The impact of the price increase authorized by the PUCO in April 1996, as discussed in Note 9, was offset by a change in the implementation of summer prices. As a result of this change, higher summer prices are now in effect for most customers from June through September. Previously, higher summer prices were in effect from May through September. Consequently, base rates revenues for the May 1996 billing period were lower relative to the May 1995 amount. Renegotiated contracts for certain large industrial customers also resulted in a decrease in base rates which partially offset the effect of the general price increase. Percentage changes between 1996 and 1995 billed electric kilowatt-hour sales are summarized as follows: Changes for Period Ended June 30, 1996 Three Six Customer Categories Months Months Residential 3.6% 5.4% Commercial 5.0 5.2 Industrial 4.0 2.7 Other (11.3) (7.9) Total (0.1) 0.7 Second quarter 1996 total kilowatt-hour sales decreased slightly as less wholesale sales (included in the "Other" category) completely offset increased residential, commercial and industrial sales. Residential and commercial sales increased because of the cooler spring weather in the second quarter of 1996 than in the second quarter of 1995, which increased heating-related demand. Weather-normalized residential and commercial sales increased 0.1% and 4.2%, respectively, for the 1996 period. Weather-normalized commercial sales growth in the 1996 period is attributable to a 1.6% increase in the number of commercial customers and an increase in average customer usage of about 2.5%. Industrial sales increased on the strength of increased sales to petroleum refineries and the broad-based, smaller industrial customer group. Total kilowatt-hour sales for the six-month period in 1996 increased as increased residential, commercial and industrial sales completely offset less wholesale sales. Residential and commercial sales increased because of the colder winter and spring weather in the 1996 period. Weather-normalized residential and commercial sales increased 1.3% and 3.8%, respectively, for the 1996 period. Weather-normalized commercial sales growth in the 1996 period is attributable to a 2% increase in the average number of commercial customers and an increase in average customer usage of about 2%. Industrial sales increased on the strength of increased sales to petroleum refineries and the broad-based, smaller industrial customer group. Wholesale sales in 1996 were suppressed by soft market conditions and limited power availability for bulk power transactions because of nuclear generating plant refueling and maintenance outages. The increases in 1996 fuel cost recovery revenues included in customer bills resulted from increases in the fuel cost recovery factors used in 1996 to calculate these revenues compared to those used in 1995. The increases in the weighted averages of the fuel cost recovery factors for 1996 were about 3% and 2% for the second quarter and six months, respectively. Second quarter operating expenses in 1996 increased 6.2% 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. Depreciation and amortization expenses increased because of a net increase in depreciation related to changes in depreciation rates approved in the April 1996 PUCO rate order and 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 higher purchased power expense was partially offset by lower fuel expense. Federal income taxes decreased as a result of lower pretax operating income. Second quarter 1996 nonoperating income decreased primarily because the deferral of carrying charges related to the Rate Stabilization Program ended in November 1995. Second quarter 1996 interest charges and preferred dividend requirements decreased because of the redemption of securities and refinancing at favorable terms. Second quarter earnings available for common stock in 1996 decreased $13.9 million from the 1995 amount primarily because of the cessation of the Rate Stabilization Program deferrals and accelerated amortizations, the commencement of the amortization of the deferrals in December 1995 and the delay in realizing the full financial benefits of the Companies' strategic plan initiatives. Recovery of both the costs no longer being deferred and the amortization of the deferrals began in late April 1996 with the implementation of the price increases. Six-month operating expenses in 1996 increased 7.6% 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 refueling and maintenance outages, 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. Fuel and purchased power expenses and depreciation and amortization expenses increased for the same reasons cited for the second quarter 1996 increases in these expenses. Federal income taxes decreased as a result of lower pretax operating income. A six-month 1996 nonoperating loss resulted primarily from the cessation of carrying charge deferrals related to the Rate Stabilization Program in November 1995 and the write-down of two inactive production facilities as discussed in Note 8. The six-month 1996 federal income tax credit for nonoperating income increased accordingly. Six-month 1996 interest charges and preferred dividend requirements decreased because of the same reasons cited for the second quarter 1996 decrease in these charges. Six-month earnings available for common stock in 1996 decreased $29.5 million from the 1995 amount primarily because of the cessation of the Rate Stabilization Program deferrals and accelerated amortizations, the commencement of the amortization of the deferrals in December 1995, the delay in realizing the full financial benefits of the Companies' strategic plan initiatives and the write-down of two inactive production facilities. PART II. OTHER INFORMATION 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 1995 Form 10-K and "Item 5. Other Information. 1. Retail Wheeling Bill" in the First Quarter 1996 Form 10-Q. 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. Hearings were held on H.B. 653 in the House Public Utilities Committee in April and May 1996, but the Companies do not expect the bill to pass during the 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 1995 Form 10-K. On April 24, 1996, the Federal Energy Regulatory Commission ("FERC") issued final order No. 888 which required that all public utilities which own, control or operate transmission facilities file open- access transmission tariffs on or before July 9, 1996. The Operating Companies filed their open-access transmission tariff with the FERC on July 9, 1996, and such tariff is in effect as of that date. 3. Transmission Alliance The Operating Companies joined Ohio Edison Company of Akron, Ohio, Virginia Electric and Power Company of Richmond, Virginia, and Allegheny Power Service Corporation of Hagerstown, Maryland in an alliance to understand better the available transmission capacities of the participating utilities and to compensate the participating utilities for the wholesale use of their facilities to transmit power. The information obtained from this alliance will increase transmission reliability for the utilities by improved scheduling and coordination of bulk power transactions. The Operating Companies intend to compare information obtained from this arrangement to information obtained from the Midwest Independent System Operation, which may be created after further negotiations among the Operating Companies and other public utilities in the Midwestern United States. The comparison will assist the Operating Companies in determining which of the two arrangements will be most beneficial for a successful transition to a more competitive marketplace. 4. AT&T Telecommunications Partnership On April 17, 1996, a wholly owned subsidiary of Centerior Energy and an AT&T Wireless Services subsidiary entered into a joint venture aimed at bringing state-of-the-art wireless communications technology to Northeast Ohio. The new venture, AT&T PCS Cleveland, LLC, is structured as a limited liability company and is part of AT&T Wireless Services, which successfully bid last year for personal communications services ("PCS") licenses that, in conjunction with its present cellular markets, will afford AT&T Wireless Services coverage of 80% of the United States. One of the licenses awarded was for Northeast Ohio. The limited liability company will operate a PCS network which will provide wireless communications services to Greater Cleveland and surrounding areas in Northeast Ohio, as well as areas in Western Pennsylvania. The subsidiary of Centerior Energy has a 25% interest in AT&T PCS Cleveland, LLC, and would be obligated to invest no more than $60 million in the venture through April 2001. Centerior Energy believes that the AT&T/Centerior Energy partnership will allow the Operating Companies to provide enhancements in electric service to their customers, improve data communications with their power plants and better control the flow of electricity through their power lines. 5. PUCO Rate Order For background relating to this topic, see "Note 6 to the Financial Statements (Unaudited)--(6) Regulatory Matters" in the First Quarter 1996 10-Q. The City of Cleveland, the Office of the Ohio Consumers' Council, Ohio Council of Retail Merchants, the Empowerment Center of Greater Cleveland, the City of Toledo, the Lucas County Board of Commissioners and Congresswoman Marcy Kaptur have filed appeals with the Ohio Supreme Court of the PUCO's April 11, 1996 rate order. The Operating Companies will oppose such appeals. 6. PUCO Order on Request by City of Clyde For background relating to this topic, see "Item 5. Other Events. 2. PUCO Order on Request by City of Clyde" in the Companies' combined Current Report on Form 8-K dated April 11, 1996. On August 12, 1996, the City of Clyde filed with the Ohio Supreme Court an appeal of the PUCO's April 11, 1996 order. 7. Garfield Heights Appeal For background relating to this topic, see "Item 1. Business-- Operations--Competitive Conditions--Cleveland Electric" in the 1995 Form 10-K. On July 31, 1996, the Ohio Supreme Court issued its decision in the City of Garfield Heights rate ordinance appeal. The Court determined that the PUCO in its June 29, 1995 order did not abuse its discretion by refusing to express an opinion on the non-rate aspects of the City's ordinances and by refusing to assess the hearing expenses and costs against the City. 8. Medical Center Co. -- FERC Petition For background relating to this topic, see "Item 1. Business-- Operations--Competitive Conditions--Cleveland Electric" in the 1995 Form 10-K. On July 31, 1996, the FERC ruled that Cleveland Electric is obligated to provide transmission service to Cleveland Public Power ("CPP"). This will enable CPP to provide electric service to Medical Center Co. beginning in August 1996. The FERC concluded that such transmission service by Cleveland Electric to CPP does not violate the Federal Power Act. The FERC also dismissed Cleveland Electric's request for stranded cost recovery, without prejudice to its refiling and demonstrating that such request meets the criteria for seeking stranded cost recovery under FERC Order 888. 9. City of Cleveland Lawsuit On August 5, 1996, the City of Cleveland filed with the Court of Common Pleas of Cuyahoga County a complaint against Cleveland Electric seeking an order requiring Cleveland Electric to remove certain lamp posts, street lights, and/or utility poles and assessing penalties for failure to take such action. Cleveland Electric plans to oppose the complaint. 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 June 30, 1996, Centerior Energy, Cleveland Electric and Toledo Edison each filed two Current Reports on Form 8-K with the Securities and Exchange Commission. A Form 8-K dated April 11, 1996 and filed on April 29, 1996 included two items under "Item 5. Other Events". The first, "1. 1995 Rate Requests", reported on the rate order issued by the PUCO in connection with the Operating Companies' pending rate cases. The second, "2. PUCO Order on Request by the City of Clyde", reported on the PUCO's denial of a request by the City of Clyde, Ohio, to require Toledo Edison to abandon service within Clyde. A Form 8-K dated June 25, 1996 and filed on August 1, 1996 included three items under "Item 5. Other Events". The first, "1. Shareholder Rights Plan", reported on the declaration by Centerior Energy's Board of Directors ("Board") of a Rights dividend distribution and the corresponding Shareholder Rights Agreement. The second, "2. Common Stock Buy-back Program", reported on the Board's one-year extension of Centerior Energy's existing common stock buy-back program. The third, "3. Management Changes", reported two vice presidential changes in the Service Company. This Form 8-K also included, under "Item 7. Financial Statements and Exhibits", Exhibit 4 Rights Agreement, dated June 25, 1996. 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: August 14, 1996 EXHIBIT INDEX The following exhibits are submitted herewith: CENTERIOR ENERGY EXHIBIT Exhibit Number Description 27(a) Financial Data Schedule for the period ended June 30, 1996. CLEVELAND ELECTRIC EXHIBITS Exhibit Number Description 27(b) Financial Data Schedule for the period ended June 30, 1996. TOLEDO EDISON EXHIBITS Exhibit Number Description 27(c) Financial Data Schedule for the period ended June 30, 1996. 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 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1 PER-BOOK 6,755,303 431,707 842,156 2,433,304 0 10,462,470 2,319,811 0 (399,627) 1,920,184 190,267 450,871 3,719,312 100,000 0 0 153,644 31,379 149,414 81,889 3,665,510 10,462,470 1,214,221 39,354 949,334 988,688 225,533 (2,505) 223,028 169,230 25,521 0 0 88,816 300,848 155,971 .17 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 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1 PER-BOOK 4,800,004 252,607 614,863 1,433,590 0 7,101,064 1,241,309 78,624 (238,040) 1,081,893 186,912 240,871 2,659,850 146,411 0 0 131,160 29,714 89,826 48,249 2,486,178 7,101,064 861,551 29,370 670,492 699,862 161,689 2,014 163,703 121,704 41,999 19,845 22,154 76,211 229,668 132,725 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 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1 PER-BOOK 1,955,297 151,410 240,847 996,176 0 3,343,730 195,687 602,116 (32,458) 765,345 3,355 210,000 1,059,461 0 0 0 22,484 1,665 59,325 33,640 1,188,455 3,343,730 421,733 10,099 348,104 358,203 63,530 (4,870) 58,660 47,755 10,905 8,433 2,472 0 71,180 128,426 0 0
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