-----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, TnjSBWtoJIKNDr0nHIol1j/3nKZmHZ1l4vhjLK7isY69WmooTbOyoe3pTivadQeQ gWmKEinsWFN522XygkkJbQ== 0000774197-96-000023.txt : 19961118 0000774197-96-000023.hdr.sgml : 19961118 ACCESSION NUMBER: 0000774197-96-000023 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 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: 96666167 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: 96666168 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: 96666169 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 September 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) c/o Centerior Energy Corporation 6200 Oak Tree Boulevard Independence, Ohio 44131 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 November 13, 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. Centerior Energy has made forward-looking statements in Note 8 to the financial statements in this Form 10-Q regarding the merger with Ohio Edison Company ("Ohio Edison") herein referred to and the associated Regulatory Plan (as defined herein), which statements are subject to risks and uncertainties, including the impact on the Companies if: (1) competitive pressure in the electric utility industry increases significantly;(2) state and federal regulatory initiatives are implemented that increase competition, threaten costs and investment recovery and impact rate structures; (3) the provisions of the Regulatory Plan vary significantly from what has been announced; (4) the effects of the Regulatory Plan or other events on the carrying value of regulatory assets and on the Operating Companies' ability to continue to apply SFAS 71 (as defined herein) cause an impairment of property, plant and equipment or variances from the amounts disclosed; (5) expected cost savings from the merger cannot be fully realized; (6) costs or difficulties related to the integration of the business of Ohio Edison and Centerior Energy are greater than expected; (7) unanticipated developments occur which change the Operating Companies' expectations regarding cost recovery over the Regulatory Plan period; or (8) general economic conditions, either nationally or in the area in which the combined company will be doing business are less favorable than expected. -i- 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 19 Balance Sheet 20 Cash Flows 21 Management's Discussion and Analysis of Financial 22 Condition and Results of Operations PART II. OTHER INFORMATION Item 5. Other Information 26 Item 6. Exhibits and Reports on Form 8-K 27 Signatures 28 Exhibit Index 29 -ii- 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 September 30, 1996 and results of operations and cash flows for the three months and nine months ended September 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 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) and the Quarterly Reports on Form 10-Q for the quarter ended March 31, 1996 (First Quarter 1996 Form 10- Q) and the quarter ended June 30, 1996 (Second 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 to the financial statements in the Second Quarter 1996 Form 10-Q. (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 September 30, 1996, Cleveland Electric and Toledo Edison had $187.6 million and $208.9 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 nine months ended September 30, 1996 and 1995 were as follows: 1996 1995 Paid February 15 $.20 $.20 Paid May 15 .20 .20 Paid August 15 .20 .20 Paid November 15 .20 .20 Common stock cash dividends declared by Cleveland Electric during the nine months ended September 30, 1996 and 1995 were as follows: 1996 1995 (millions) Paid in February $29.6 $-- Paid in May 46.6 15.0 Paid in August 29.6 29.6 Toledo Edison did not declare any common stock dividends during the nine months ended September 30, 1996 and 1995. (4) Financing Activity During the three months ended September 30, 1996, mandatory redemptions for Cleveland Electric consisted of $80 million principal amount of secured medium-term notes; $1 million of Serial Preferred Stock, $7.35 Series C; and $0.9 million of first mortgage bonds and pollution control notes. Also, Cleveland Electric optionally purchased and retired 26,000 shares of Serial Preferred Stock, Adjustable Rate Series L, for $1.8 million. (5) Nuclear Fuel Financing 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. On October 4, 1996, the special-purpose corporation completed a two-year $100 million bank credit arrangement, replacing $150 million of bank credit arrangements which terminated in October 1996. The special-purpose corporation used the proceeds from these transactions to pay its outstanding borrowings, including $84 million of intermediate-term secured notes which matured on September 30, 1996. (6) Generating Plant Lease Agreement Cleveland Electric had entered into an agreement with Jersey Central Power & Light Company (Jersey Central) under which Jersey Central leased Cleveland Electric's ownership share (351,000 kilowatts) of the Seneca Power Plant (Seneca), a pumped-storage, hydro-electric generating station. The agreement began June 1, 1996 and was expected to provide annual revenues of approximately $18 million. The parties agreed to cancel the agreement effective October 2, 1996 because the Federal Energy Regulatory Commission (FERC) insisted on terms which were not economic to the parties. (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 in the First and Second Quarter 1996 Form 10-Qs; and "Item 5. Other Events" in the Companies' combined Current Report on Form 8-K dated August 21, 1996. On September 13, 1996, Centerior Energy and Ohio Edison Company (Ohio Edison) entered into an Agreement and Plan of Merger to form a new holding company, FirstEnergy Corp. (FirstEnergy). See "Item 5. Other Events" in the Companies' combined Current Report on Form 8-K dated September 13, 1996. The merger agreement is conditioned upon, among other matters, approval by The Public Utilities Commission of Ohio (PUCO) of a FirstEnergy regulatory plan (Regulatory Plan) for the Operating Companies which is mutually acceptable to Ohio Edison and Centerior Energy. Implementation of the Regulatory Plan is conditioned upon consummation of the merger. As announced, the Regulatory Plan is expected to include (i) a price freeze through 2005 followed by a $300 million price reduction in 2006; and (ii) a $2 billion aggregate reduction in assets through 2005, resulting from amounts that have been sold, revalued, recovered and amortized, and/or depreciated on an accelerated basis. These provisions may be changed, and other provisions may be added, to the Regulatory Plan prior to its filing. Until the Regulatory Plan is filed, Centerior Energy cannot predict what the Plan's effect on the Operating Companies' regulatory assets will be, or whether the Plan will demonstrate that the Operating Companies will continue to comply with Statement of Financial Accounting Standards (SFAS) 71. If it is determined that the Regulatory Plan ultimately approved by the PUCO does not provide for full recovery of costs and regulatory assets, or other events cause one or both of the Operating Companies to conclude that the SFAS 71 criteria are no longer met, one or both of the Operating Companies would be required to record a material charge against earnings to write off regulatory assets ($1.328 billion for Cleveland Electric and $0.932 billion for Toledo Edison, aggregating $2.260 billion for Centerior Energy at September 30, 1996), and to evaluate whether the effects of the Regulatory Plan would cause an impairment of property, plant and equipment. It is possible that only a portion of operations (such as nuclear operations) would no longer meet the criteria of SFAS 71, and, therefore, the write-off would be limited to regulatory assets and/or property, plant and equipment that are not reflected in cost-based prices established for the remaining regulated operations. Any such effects from the Regulatory Plan would be recorded at the time consummation of the merger becomes probable. If the merger is not consummated, the Operating Companies are not obligated to adopt either of the two provisions described above. Any asset revaluation must be consistent with the Operating Companies' objectives to become more competitive, reduce debt and provide the opportunity for share owners to receive a fair return on their investment. The Operating Companies continue to examine a number of accelerated cost recognition and asset recovery plans. On October 17, 1996, the FERC issued an order authorizing the merger of Toledo Edison into Cleveland Electric without a hearing and without significant conditions. The order included the FERC's conclusion that it was not necessary to require the Operating Companies to turn over control of their facilities to an independent system operator. The FERC also approved the Operating Companies' recently filed single-system, open-access transmission tariff. A request for authorization to transfer certain Nuclear Regulatory Commission licenses to the merged entity was recently withdrawn. The merger agreement between Ohio Edison and Centerior Energy requires the approval of Ohio Edison prior to consummation of the proposed merger of the Operating Companies. No decision on the proposed merger of the Operating Companies is expected prior to February 1997 when Ohio Edison and Centerior Energy common stock shareholders are expected to vote on approval of the Ohio Edison-Centerior Energy merger agreement.
CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES INCOME STATEMENT (Unaudited) (Thousands, Except Per Share Amounts) Three Months Ended Nine Months Ended September 30, September 30, --------------------- --------------------------- 1996 1995 1996 1995 -------- -------- ----------- ----------- OPERATING REVENUES $ 727,119 $ 739,579 $ 1,941,340 $ 1,934,105 OPERATING EXPENSES Fuel and Purchased Power 122,920 127,914 348,152 361,008 Other Operation and Maintenance 169,711 167,818 475,379 458,973 Generation Facilities Rental Expense, Net 39,853 39,873 119,559 119,576 Depreciation and Amortization 76,835 70,420 226,789 209,891 Taxes, Other Than Federal Income Taxes 80,129 81,961 247,492 246,341 Deferred Operating Expenses, Net 10,853 (16,772) 32,264 (47,542) Federal Income Taxes 54,385 63,827 93,739 114,769 -------- -------- ----------- ----------- Total Operating Expenses 554,686 535,041 1,543,374 1,463,016 -------- -------- ----------- ----------- OPERATING INCOME 172,433 204,538 397,966 471,089 NONOPERATING INCOME (LOSS) Allowance for Equity Funds Used During Construction 695 120 2,394 1,766 Other Income and Deductions, Net (3,909) (2,094) (10,908) 1,176 Deferred Carrying Charges -- 11,804 -- 34,999 Federal Income Taxes - Credit (Expense) 939 254 3,734 (2,543) -------- -------- ----------- ----------- Total Nonoperating Income (Loss) (2,275) 10,084 (4,780) 35,398 -------- -------- ----------- ----------- INCOME BEFORE INTEREST CHARGES 170,158 214,622 393,186 506,487 INTEREST CHARGES Long-term Debt 81,192 89,204 247,841 263,939 Short-term Debt 2,300 1,744 6,498 7,315 Allowance for Borrowed Funds Used During Construction (640) (197) (2,257) (1,960) -------- -------- ----------- ----------- Net Interest Charges 82,852 90,751 252,082 269,294 -------- -------- ----------- ----------- INCOME AFTER INTEREST CHARGES 87,306 123,871 141,104 237,193 Preferred Dividend Requirements of Subsidiaries 13,815 14,959 42,092 46,113 -------- -------- ----------- ----------- NET INCOME $ 73,491 $ 108,912 $ 99,012 $ 191,080 ======== ======== =========== =========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 148,026 148,032 148,027 148,032 ======== ======== =========== =========== EARNINGS PER COMMON SHARE $ .50 $ .74 $ .67 $ 1.29 ======== ======== =========== =========== The accompanying notes as they relate to Centerior Energy are an integral part of this statement.
CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES BALANCE SHEET (Thousands) September 30, December 31, 1996 1995 (Unaudited) ----------- ----------- ASSETS PROPERTY, PLANT AND EQUIPMENT Utility Plant In Service $ 9,835,687 $ 9,767,788 Accumulated Depreciation and Amortization (3,218,650) (3,036,181) ----------- ----------- 6,617,037 6,731,607 Construction Work In Progress 92,875 101,031 ----------- ----------- 6,709,912 6,832,638 Nuclear Fuel, Net of Amortization 203,992 199,707 Other Property, Less Accumulated Depreciation 92,434 101,745 ----------- ----------- 7,006,338 7,134,090 CURRENT ASSETS Cash and Temporary Cash Investments 284,993 179,038 Amounts Due from Customers and Others, Net 210,755 223,228 Unbilled Revenues 7,100 100,344 Materials and Supplies, at Average Cost 93,562 119,507 Fossil Fuel Inventory, at Average Cost 22,140 30,663 Taxes Applicable to Succeeding Years 109,810 255,142 Other 19,937 18,562 ----------- ----------- 748,297 926,484 REGULATORY AND OTHER ASSETS Amounts Due from Customers for Future Federal Income Taxes, Net 1,058,817 1,067,374 Unamortized Loss from Beaver Valley Unit 2 Sale 92,837 96,206 Unamortized Loss on Reacquired Debt 83,728 88,893 Carrying Charges and Operating Expenses 1,024,207 1,053,220 Nuclear Plant Decommissioning Trusts 133,034 113,681 Other 157,610 163,156 ----------- ----------- 2,550,233 2,582,530 ----------- ----------- $ 10,304,868 $ 10,643,104 =========== =========== CAPITALIZATION AND LIABILITIES CAPITALIZATION Common Stock Equity $ 1,964,802 $ 1,983,560 Preferred Stock With Mandatory Redemption Provisions 189,267 220,440 Without Mandatory Redemption Provisions 448,325 450,871 Long-Term Debt 3,612,166 3,733,892 ----------- ----------- 6,214,560 6,388,763 CURRENT LIABILITIES Current Portion of Long-Term Debt and Preferred Stock 211,423 234,771 Current Portion of Lease Obligations 84,239 94,653 Accounts Payable 114,422 152,909 Accrued Taxes 263,725 373,757 Accrued Interest 91,063 83,050 Dividends Declared 43,771 14,666 Other 66,231 73,328 ----------- ----------- 874,874 1,027,134 DEFERRED CREDITS AND OTHER LIABILITIES Unamortized Investment Tax Credits 254,294 263,352 Accumulated Deferred Federal Income Taxes 1,899,793 1,875,080 Unamortized Gain from Bruce Mansfield Plant Sale 480,760 498,771 Accumulated Deferred Rents for Bruce Mansfield Plant and Beaver Valley Unit 2 137,898 145,393 Nuclear Fuel Lease Obligations 142,464 137,260 Retirement Benefits 182,745 178,579 Other 117,480 128,772 ----------- ----------- 3,215,434 3,227,207 COMMITMENTS AND CONTINGENCIES (Note 8) ----------- ----------- $ 10,304,868 $ 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) Nine Months Ended September 30, ------------------------ 1996 1995 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income $99,012 $191,080 -------- -------- Adjustments to Reconcile Net Income to Cash from Operating Activities: Depreciation and Amortization 226,789 209,891 Deferred Federal Income Tax 30,967 52,248 Unbilled Revenues 6,344 11,000 Deferred Fuel 10,777 11,438 Deferred Carrying Charges -- (34,999) Leased Nuclear Fuel Amortization 58,212 92,682 Deferred Operating Expenses, Net 32,264 (47,542) Allowance for Equity Funds Used During Construction (2,394) (1,766) Changes in Amounts Due from Customers and Others, Net (29,341) (46,428) Proceeds from Accounts Receivable Securitization 135,223 -- Changes in Inventories 34,468 15,355 Changes in Accounts Payable (38,487) 19,373 Changes in Working Capital Affecting Operations 34,841 (9,829) Other Noncash Items (15,969) 8,362 -------- -------- Total Adjustments 483,694 279,785 -------- -------- Net Cash from Operating Activities 582,706 470,865 CASH FLOWS FROM FINANCING ACTIVITIES First Mortgage Bond Issues -- 541,850 Reacquired Common Stock (20) -- Maturities, Redemptions and Sinking Funds (178,153) (636,413) Nuclear Fuel Lease Obligations (67,962) (69,298) Common Stock Dividends Paid (88,816) (88,819) Premiums, Discounts and Expenses (561) (13,955) -------- -------- Net Cash from Financing Activities (335,512) (266,635) CASH FLOWS FROM INVESTING ACTIVITIES Cash Applied to Construction (107,451) (114,686) Interest Capitalized as Allowance for Borrowed Funds Used During Construction (2,257) (1,960) Contributions to Nuclear Plant Decommissioning Trusts (16,994) (11,794) Investment in Partnership (21,164) -- Other Cash Received (Applied) 6,627 (26,776) -------- -------- Net Cash from Investing Activities (141,239) (155,216) -------- -------- NET CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS 105,955 49,014 CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD 179,038 186,399 -------- -------- CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD $284,993 $235,413 ======== ======== Other Payment Information: Interest (net of amounts capitalized) $235,000 $217,000 Federal Income Taxes 5,200 77,900 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 and Second Quarter 1996 Form 10-Qs. The information under "Capital Resources and Liquidity" remains unchanged with the following exceptions: During the third quarter of 1996, Cleveland Electric redeemed or retired various securities as discussed in Note 4. In July 1996, Centerior Funding, a wholly owned subsidiary of Cleveland Electric, 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 to retire $100 million of its receivables-backed investor certificates which were issued in May 1996, 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. As discussed in Note 5, a special-purpose corporation completed financing transactions in the 1996 third quarter and October 1996 to replace expiring nuclear fuel financing arrangements. In October 1996, Cleveland Electric completed the purchase and retirement of $50 million principal amount of its 7.625% interest rate first mortgage bonds due in 2002 and $10 million principal amount of its 7.42% interest rate secured medium-term notes due in 2001 for a total of $59.1 million. Also in October 1996, Toledo Edison completed the purchase and retirement of $15 million principal amount of its 7.25% interest rate first mortgage bonds due in 1999 for $14.9 million. The securities are included in current liabilities in the September 30, 1996 balance sheet. 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 September 30, 1996, Cleveland Electric and Toledo Edison would have been permitted to issue approximately $571 million and $143 million of additional first mortgage bonds, respectively, after giving effect to the corresponding security retirements in October 1996 discussed above. 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 September 30, 1996, Toledo Edison could not issue additional preferred stock. Results of Operations Factors contributing to the 1.7% third quarter decrease and 0.4% nine- month increase in 1996 operating revenues from 1995 are shown as follows: Changes for Period Ended September 30, 1996 Three Nine Factors Months Months (millions) Base Rates $ 27.7 $ 40.2 Kilowatt-hour Sales Volume and Mix (36.3) (22.1) Wholesale Revenues (3.4) (3.1) Fuel Cost Recovery Revenues (1.3) (10.0) Miscellaneous Revenues 0.8 2.2 Total $ (12.5) $ 7.2 The increases in 1996 base rates revenues resulted primarily from the April 1996 rate order issued by the PUCO for the Operating Companies. Renegotiated contracts for certain large industrial customers of the Operating Companies 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 September 30, 1996 Three Nine Customer Categories Months Months Residential (14.9)% (2.5)% Commercial (3.5) 0.9 Industrial 1.4 0.7 Other (7.6) (12.1) Total (5.1) (1.6) Third quarter 1996 residential, commercial and total kilowatt-hour sales decreased because of cooler summer weather in the 1996 period which reduced cooling-related demand. Weather-normalized residential and commercial sales increased 0.6% and 3.8%, respectively, for the 1996 period. Weather-normalized commercial sales growth in the 1996 period is attributable to an increase in average customer usage of about 4%. Industrial sales increased primarily because of increased sales to large automotive manufacturers and the broad-based, smaller industrial customer group. Other sales decreased because of less sales to wholesale and public authority customers. Total kilowatt-hour sales decreased for the nine-month period in 1996 because of decreases from weather-related demand and a 14% decline in wholesale sales. Residential sales decreased because of the cooler summer weather in the 1996 period. However, commercial and industrial sales increased for the 1996 nine-month period. Colder winter and spring weather in the first six months of 1996 had boosted residential and commercial sales for the first half of 1996. Weather-normalized residential and commercial sales increased 1.1% and 3%, respectively, for the 1996 nine-month period. Weather-normalized commercial sales growth in the 1996 period is attributable to a 1% increase in the average number of customers and an increase in average customer usage of about 2%. Increased sales to petroleum refineries and the broad-based, smaller industrial customer group were partially offset by less sales to large steel industry customers. Wholesale sales in 1996 were suppressed by soft market conditions and, during the first six months of 1996, limited power availability for bulk power transactions because of nuclear generating plant refueling and maintenance outages. 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 third quarter of 1996 decreased about 2% for Cleveland Electric and increased about 1.5% for Toledo Edison compared to the weighted average of the respective fuel cost recovery factors used for the third quarter of 1995. The weighted average of the respective fuel cost recovery factors used for the 1996 nine-month period decreased about 5% 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 nine-month period. Third quarter operating expenses in 1996 increased 3.7% 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 slightly higher purchased power expense. Other operation and maintenance expenses for the 1996 third quarter included a $22.7 million charge for an ongoing inventory reduction program. The ongoing streamlining of the supply chain process includes a shift in management philosophy toward increased use of technology, consolidated warehousing and just-in-time purchase and delivery. Other operation and maintenance expenses for the 1995 third quarter had included charges totaling $14.6 million for an inventory reduction and the recognition of costs associated with preliminary engineering studies. Other cost-control measures helped to reduce third quarter 1996 other operation and maintenance expenses below the third quarter 1995 level, exclusive of the charges discussed above. Third quarter 1996 nonoperating income decreased primarily because the deferral of carrying charges related to the Rate Stabilization Program ended in November 1995. Third quarter 1996 interest charges and preferred dividend requirements decreased because of the redemption of securities and refinancing at favorable terms. Nine-month operating expenses in 1996 increased 5.5% 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), the third quarter 1996 inventory reduction charge, 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 third quarter 1996 increase in these expenses. Federal income taxes decreased as a result of lower pretax operating income. Fuel and purchased power expenses decreased as lower fuel expense related to less generation was partially offset by higher purchased power expense. A nine-month 1996 nonoperating loss resulted primarily from Toledo Edison's write-down of two inactive production facilities as discussed in Note 7. The deferral of carrying charges related to the Rate Stabilization Program ended in November 1995. The nine-month 1996 federal income tax credit for nonoperating income increased accordingly. Nine-month 1996 interest charges and preferred dividend requirements decreased because of the same reasons cited for the third quarter 1996 decrease in these charges.
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBSIDIARY INCOME STATEMENT (Unaudited) (Thousands) Three Months Ended Nine Months Ended September 30, September 30, --------------------- ------------------------- 1996 1995 1996 1995 -------- -------- ---------- ---------- OPERATING REVENUES $ 506,491 $ 525,833 $ 1,368,042 $ 1,360,578 OPERATING EXPENSES Fuel and Purchased Power (1) 102,941 110,104 304,883 317,997 Other Operation and Maintenance 115,118 113,421 319,333 308,390 Generation Facilities Rental Expense, Net 13,892 13,892 41,675 41,675 Depreciation and Amortization 53,279 49,290 157,128 146,777 Taxes, Other Than Federal Income Taxes 56,537 58,288 176,297 174,535 Deferred Operating Expenses, Net 6,567 (11,229) 19,510 (31,686) Federal Income Taxes 37,434 47,140 66,804 81,592 -------- -------- ---------- ---------- Total Operating Expenses 385,768 380,906 1,085,630 1,039,280 -------- -------- ---------- ---------- OPERATING INCOME 120,723 144,927 282,412 321,298 NONOPERATING INCOME (LOSS) Allowance for Equity Funds Used During Construction 366 290 1,465 1,256 Other Income and Deductions, Net (4,506) 804 (3,873) 1,941 Deferred Carrying Charges -- 7,991 -- 23,354 Federal Income Taxes - Credit (Expense) 1,449 (538) 1,731 (1,441) -------- -------- ---------- ---------- Total Nonoperating Income (Loss) (2,691) 8,547 (677) 25,110 -------- -------- ---------- ---------- INCOME BEFORE INTEREST CHARGES 118,032 153,474 281,735 346,408 INTEREST CHARGES Long-Term Debt 58,628 62,889 179,414 184,194 Short-Term Debt 1,063 844 3,127 2,638 Allowance for Borrowed Funds Used During Construction (380) (236) (1,526) (1,614) -------- -------- ---------- ---------- Net Interest Charges 59,311 63,497 181,015 185,218 -------- -------- ---------- ---------- NET INCOME 58,721 89,977 100,720 161,190 Preferred Dividend Requirements 9,563 10,452 29,408 32,127 -------- -------- ---------- ---------- EARNINGS AVAILABLE FOR COMMON STOCK $ 49,158 $ 79,525 $ 71,312 $ 129,063 ======== ======== ========== ========== (1) Includes purchased power expense for purchases from Toledo Edison. $ 24,933 $ 25,939 $ 77,513 $ 75,496 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) September 30, December 31, 1996 1995 (Unaudited) ----------- ----------- ASSETS PROPERTY, PLANT AND EQUIPMENT Utility Plant In Service $ 6,911,857 $ 6,871,468 Accumulated Depreciation and Amortization (2,212,724) (2,094,092) ----------- ----------- 4,699,133 4,777,376 Construction Work In Progress 69,801 73,250 ----------- ----------- 4,768,934 4,850,626 Nuclear Fuel, Net of Amortization 121,678 121,966 Other Property, Less Accumulated Depreciation 56,707 58,299 ----------- ----------- 4,947,319 5,030,891 CURRENT ASSETS Cash and Temporary Cash Investments 85,234 69,770 Amounts Due from Customers and Others, Net 191,445 152,339 Amounts Due from Affiliates 1,502 4,729 Unbilled Revenues 5,000 78,500 Materials and Supplies, at Average Cost 60,276 79,540 Fossil Fuel Inventory, at Average Cost 11,104 21,391 Taxes Applicable to Succeeding Years 77,935 184,099 Other 10,029 7,197 ----------- ----------- 442,525 597,565 REGULATORY AND OTHER ASSETS Amounts Due from Customers for Future Federal Income Taxes, Net 643,024 651,264 Unamortized Loss on Reacquired Debt 58,681 61,252 Carrying Charges and Operating Expenses 626,007 643,561 Nuclear Plant Decommissioning Trusts 71,986 61,497 Other 85,788 105,696 ----------- ----------- 1,485,486 1,523,270 ----------- ----------- $ 6,875,330 $ 7,151,726 =========== =========== CAPITALIZATION AND LIABILITIES CAPITALIZATION Common Stock Equity $ 1,102,128 $ 1,126,762 Preferred Stock With Mandatory Redemption Provisions 185,912 215,420 Without Mandatory Redemption Provisions 238,325 240,871 Long-Term Debt 2,599,076 2,665,981 ----------- ----------- 4,125,441 4,249,034 CURRENT LIABILITIES Current Portion of Long-Term Debt and Preferred Stock 140,874 176,474 Current Portion of Lease Obligations 49,468 54,634 Accounts Payable 52,486 89,038 Accounts and Notes Payable to Affiliates 59,437 63,961 Accrued Taxes 227,225 296,141 Accrued Interest 65,185 58,608 Dividends Declared 6,092 15,818 Other 40,947 40,766 ----------- ----------- 641,714 795,440 DEFERRED CREDITS AND OTHER LIABILITIES Unamortized Investment Tax Credits 178,088 184,002 Accumulated Deferred Federal Income Taxes 1,311,649 1,298,260 Unamortized Gain from Bruce Mansfield Plant Sale 299,467 310,678 Accumulated Deferred Rents for Bruce Mansfield Plant 98,183 91,604 Nuclear Fuel Lease Obligations 85,465 85,569 Retirement Benefits 71,352 65,424 Other 63,971 71,715 ----------- ----------- 2,108,175 2,107,252 COMMITMENTS AND CONTINGENCIES (Note 8) ----------- ----------- $ 6,875,330 $ 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) Nine Months Ended September 30, 1996 1995 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income $100,720 $161,190 ----------- --------- Adjustments to Reconcile Net Income to Cash from Operating Activities: Depreciation and Amortization 157,128 146,777 Deferred Federal Income Tax 21,514 36,106 Unbilled Revenues 5,500 9,000 Deferred Fuel 3,245 13,900 Deferred Carrying Charges -- (23,354) Leased Nuclear Fuel Amortization 33,537 52,552 Deferred Operating Expenses, Net 19,510 (31,686) Allowance for Equity Funds Used During Construction (1,465) (1,256) Changes in Amounts Due from Customers and Others, Net (16,219) (35,066) Proceeds from Accounts Receivable Securitization 57,988 -- Changes in Inventories 29,551 6,824 Changes in Accounts Payable (36,552) (3,565) Changes in Working Capital Affecting Operations 38,596 (16,558) Other Noncash Items (7,157) (2,438) -------- -------- Total Adjustments 305,176 151,236 -------- -------- Net Cash from Operating Activities 405,896 312,426 CASH FLOWS FROM FINANCING ACTIVITIES Notes Payable to Affiliates 1,281 (58,100) First Mortgage Bond Issues -- 442,850 Maturities, Redemptions and Sinking Funds (134,288) (428,455) Nuclear Fuel Lease Obligations (38,532) (39,776) Dividends Paid (135,598) (77,078) Premiums, Discounts and Expenses (307) (8,644) -------- -------- Net Cash from Financing Activities (307,444) (169,203) CASH FLOWS FROM INVESTING ACTIVITIES Cash Applied to Construction (74,747) (89,534) Interest Capitalized as Allowance for Borrowed Funds Used During Construction (1,526) (1,614) Contributions to Nuclear Plant Decommissioning Trusts (9,194) (6,408) Other Cash Received (Applied) 2,479 (18,389) -------- -------- Net Cash from Investing Activities (82,988) (115,945) -------- -------- NET CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS 15,464 27,278 CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD 69,770 65,643 -------- -------- CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD $85,234 $92,921 ======== ======== Other Payment Information: Interest (net of amounts capitalized) $169,000 $149,000 Federal Income Taxes (Refund) (6,200) 60,300 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 and Second Quarter 1996 Form 10-Qs. The information under "Capital Resources and Liquidity" remains unchanged with the following exceptions: During the third quarter of 1996, Cleveland Electric redeemed or retired various securities as discussed in Note 4. In July 1996, Centerior Funding, a wholly owned subsidiary of Cleveland Electric, 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 to retire $100 million of its receivables-backed investor certificates which were issued in May 1996, 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. As discussed in Note 5, a special-purpose corporation completed financing transactions in the 1996 third quarter and October 1996 to replace expiring nuclear fuel financing arrangements. In October 1996, Cleveland Electric completed the purchase and retirement of $50 million principal amount of its 7.625% interest rate first mortgage bonds due in 2002 and $10 million principal amount of its 7.42% interest rate secured medium-term notes due in 2001 for a total of $59.1 million. The securities are included in current liabilities in the September 30, 1996 balance sheet. 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 September 30, 1996, Cleveland Electric would have been permitted to issue approximately $571 million of additional first mortgage bonds after giving effect to the October 1996 security retirements discussed above. Results of Operations Factors contributing to the 3.7% third quarter decrease and 0.5% nine- month increase in 1996 operating revenues from 1995 are shown as follows: Changes for Period Ended September 30, 1996 Three Nine Factors Months Months (millions) Base Rates $ 20.2 33.4 Kilowatt-hour Sales Volume and Mix (38.2) (22.4) Wholesale Revenues (0.9) 3.9 Fuel Cost Recovery Revenues (1.8) (11.5) Miscellaneous Revenues 1.44 .1 Total $(19.3) $ 7.5 The increases in 1996 base rates revenues resulted primarily from the April 1996 rate order issued by the PUCO. Renegotiated contracts for certain large industrial customers 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 September 30, 1996 Three Nine Customer Categories Months Months Residential (15.4)% (2.8)% Commercial (3.7) 0.5 Industrial (0.6) (0.8) Other 5.8 5.2 Total (4.4) (0.3) Third quarter 1996 residential, commercial and total kilowatt-hour sales decreased because of cooler summer weather in the 1996 period which reduced cooling-related demand. Weather-normalized residential and commercial sales increased 0.8% and 2.8%, respectively, for the 1996 period. Weather-normalized commercial sales growth in the 1996 period is attributable to an increase in average customer usage of about 3%. Industrial sales decreased as less sales to large automotive manufacturers and the broad-based, smaller industrial customer group were partially offset by increased sales to large steel industry customers. Other sales increased as increased wholesale sales were partially offset by less sales to public authorities. Total kilowatt-hour sales decreased for the nine-month period in 1996 as decreases from weather-related demand were partially offset by a 10% increase in wholesale sales. Residential sales decreased because of the cooler summer weather in the 1996 period. Colder winter and spring weather in the first six months of 1996 had boosted residential and commercial sales for the first half of 1996. Weather-normalized residential and commercial sales increased 1.2% and 2.4%, respectively, for the 1996 nine-month period. Weather-normalized commercial sales growth in the 1996 period is attributable to a 1% increase in the average number of customers and an increase in average customer usage of about 1.5%. Industrial sales decreased primarily because of less sales to large automotive manufacturers and the broad-based, smaller industrial customer group. 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 2% and 5% for the third quarter and nine months, respectively. Miscellaneous revenues in 1996 increased from the 1995 amounts primarily because of the new revenues related to the Seneca lease agreement discussed in Note 6. Third quarter operating expenses in 1996 increased 1.3% 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. 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. Other operation and maintenance expenses for the 1996 third quarter included a $16.6 million charge for an ongoing inventory reduction program. The ongoing streamlining of the supply chain process includes a shift in management philosophy toward increased use of technology, consolidated warehousing and just-in-time purchase and delivery. Other operation and maintenance expenses for the 1995 third quarter had included charges totaling $11.4 million for an inventory reduction and the recognition of costs associated with preliminary engineering studies. Other cost-control measures helped to reduce third quarter 1996 other operation and maintenance expenses below the third quarter 1995 level, exclusive of the charges discussed above. Third quarter 1996 nonoperating income decreased primarily because the deferral of carrying charges related to the Rate Stabilization Program ended in November 1995. The third quarter 1996 federal income tax credit for nonoperating income increased accordingly. Nine-month operating expenses in 1996 increased 4.5% 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), the third quarter 1996 inventory reduction charge, 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 third 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 primarily from less amortization of previously deferred fuel costs than the amount amortized in 1995. Nine-month 1996 nonoperating income decreased because the deferral of carrying charges related to the Rate Stabilization Program ended in November 1995. The nine-month 1996 federal income tax credit for nonoperating income increased accordingly.
THE TOLEDO EDISON COMPANY INCOME STATEMENT (Unaudited) (Thousands) Three Months Ended Nine Months Ended September 30, September 30, --------------------- --------------------- 1996 1995 1996 1995 -------- -------- -------- -------- OPERATING REVENUES (1) $ 252,198 $ 245,830 $ 673,931 $ 667,257 OPERATING EXPENSES Fuel and Purchased Power 46,928 44,239 126,348 120,196 Other Operation and Maintenance 59,287 60,881 174,050 169,553 Generation Facilities Rental Expense, Net 25,961 25,981 77,884 77,901 Depreciation and Amortization 23,556 21,130 69,661 63,114 Taxes, Other Than Federal Income Taxes 23,503 23,555 70,928 71,452 Deferred Operating Expenses, Net 4,287 (5,543) 12,755 (15,856) Federal Income Taxes 17,011 16,730 27,110 33,404 -------- -------- -------- -------- Total Operating Expenses 200,533 186,973 558,736 519,764 -------- -------- -------- -------- OPERATING INCOME 51,665 58,857 115,195 147,493 NONOPERATING INCOME (LOSS) Allowance for Equity Funds Used During Construction 330 (169) 929 510 Other Income and Deductions, Net 96 (2,905) (8,683) 223 Deferred Carrying Charges -- 3,813 -- 11,645 Federal Income Taxes - Credit (Expense) (92) 1,100 3,218 (182) -------- -------- -------- -------- Total Nonoperating Income (Loss) 334 1,839 (4,536) 12,196 -------- -------- -------- -------- INCOME BEFORE INTEREST CHARGES 51,999 60,696 110,659 159,689 INTEREST CHARGES Long-Term Debt 22,564 26,315 68,427 79,746 Short-Term Debt 1,712 905 4,075 5,370 Allowance for Borrowed Funds Used During Construction (260) 39 (731) (346) -------- -------- -------- -------- Net Interest Charges 24,016 27,259 71,771 84,770 -------- -------- -------- -------- NET INCOME 27,983 33,437 38,888 74,919 Preferred Dividend Requirements 4,250 4,507 12,683 13,986 -------- -------- -------- -------- EARNINGS AVAILABLE FOR COMMON STOCK $ 23,733 $ 28,930 $ 26,205 $ 60,933 ======== ======== ======== ======== (1) Includes revenues from bulk power sales to Cleveland Electric. $ 24,933 $ 25,939 $ 77,513 $ 75,496 The accompanying notes as they relate to Toledo Edison are an integral part of this statement.
THE TOLEDO EDISON COMPANY BALANCE SHEET (Thousands) September 30, December 31, 1996 1995 (Unaudited) ----------- ----------- ASSETS PROPERTY, PLANT AND EQUIPMENT Utility Plant In Service $ 2,923,830 $ 2,896,320 Accumulated Depreciation and Amortization (1,005,926) (942,088) ----------- ----------- 1,917,904 1,954,232 Construction Work In Progress 23,073 27,781 ----------- ----------- 1,940,977 1,982,013 Nuclear Fuel, Net of Amortization 82,314 77,741 Other Property, Less Accumulated Depreciation 8,283 19,555 ----------- ----------- 2,031,574 2,079,309 CURRENT ASSETS Cash and Temporary Cash Investments 164,664 93,669 Amounts Due from Customers and Others, Net 15,973 68,077 Amounts Due from Affiliates 22,054 18,905 Unbilled Revenues 2,100 21,844 Materials and Supplies, at Average Cost 33,286 39,967 Fossil Fuel Inventory, at Average Cost 11,036 9,273 Taxes Applicable to Succeeding Years 31,875 71,044 Other 3,346 4,315 ----------- ----------- 284,334 327,094 REGULATORY AND OTHER ASSETS Amounts Due from Customers for Future Federal Income Taxes, Net 416,034 416,351 Unamortized Loss from Beaver Valley Unit 2 Sale 92,837 96,206 Unamortized Loss on Reacquired Debt 25,047 27,640 Carrying Charges and Operating Expenses 398,200 409,659 Nuclear Plant Decommissioning Trusts 61,048 52,185 Other 65,010 65,345 ----------- ----------- 1,058,176 1,067,386 ----------- ----------- $ 3,374,084 $ 3,473,789 =========== =========== CAPITALIZATION AND LIABILITIES CAPITALIZATION Common Stock Equity $ 789,059 $ 762,877 Preferred Stock With Mandatory Redemption Provisions 3,355 5,020 Without Mandatory Redemption Provisions 210,000 210,000 Long-Term Debt 1,013,090 1,067,603 ----------- ----------- 2,015,504 2,045,500 CURRENT LIABILITIES Current Portion of Long-Term Debt and Preferred Stock 70,549 58,297 Current Portion of Lease Obligations 34,771 40,019 Accounts Payable 58,971 56,233 Accounts and Notes Payable to Affiliates 26,160 53,245 Accrued Taxes 38,717 78,178 Accrued Interest 25,884 24,250 Other 16,039 18,607 ----------- ----------- 271,091 328,829 DEFERRED CREDITS AND OTHER LIABILITIES Unamortized Investment Tax Credits 76,206 79,350 Accumulated Deferred Federal Income Taxes 582,247 573,035 Unamortized Gain from Bruce Mansfield Plant Sale 181,293 188,093 Accumulated Deferred Rents for Bruce Mansfield Plant and Beaver Valley Unit 2 39,715 53,789 Nuclear Fuel Lease Obligations 56,758 51,691 Retirement Benefits 102,508 103,060 Other 48,762 50,442 ----------- ----------- 1,087,489 1,099,460 COMMITMENTS AND CONTINGENCIES (Note 8) ----------- ----------- $ 3,374,084 $ 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) Nine Months Ended September 30, ------------------------ 1996 1995 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income $38,888 $74,919 -------- -------- Adjustments to Reconcile Net Income to Cash from Operating Activities: Depreciation and Amortization 69,661 63,114 Deferred Federal Income Tax 9,863 16,244 Unbilled Revenues 844 2,000 Deferred Fuel 7,532 (2,463) Deferred Carrying Charges -- (11,645) Leased Nuclear Fuel Amortization 24,677 40,131 Deferred Operating Expenses, Net 12,755 (15,856) Allowance for Equity Funds Used During Construction (929) (510) Changes in Amounts Due from Customers and Others, Net (12,597) (11,398) Proceeds from Accounts Receivable Securitization 77,235 -- Changes in Inventories 4,918 8,531 Changes in Accounts Payable 2,738 27,645 Changes in Working Capital Affecting Operations (3,260) (2,014) Other Noncash Items (8,812) 10,800 -------- -------- Total Adjustments 184,625 124,579 -------- -------- Net Cash from Operating Activities 223,513 199,498 CASH FLOWS FROM FINANCING ACTIVITIES Notes Payable to Affiliates (20,950) -- First Mortgage Bond Issues -- 99,000 Maturities, Redemptions and Sinking Funds (43,865) (199,183) Nuclear Fuel Lease Obligations (29,430) (29,522) Dividends Paid (12,702) (14,155) Premiums, Discounts and Expenses (254) (5,311) -------- -------- Net Cash from Financing Activities (107,201) (149,171) CASH FLOWS FROM INVESTING ACTIVITIES Cash Applied to Construction (32,704) (25,152) Interest Capitalized as Allowance for Borrowed Funds Used During Construction (731) (346) Loans to Affiliates (6,281) -- Contributions to Nuclear Plant Decommissioning Trusts (7,800) (5,386) Other Cash Received (Applied) 2,199 (5,421) -------- -------- Net Cash from Investing Activities (45,317) (36,305) -------- -------- NET CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS 70,995 14,022 CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD 93,669 87,800 -------- -------- CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD $164,664 $101,822 ======== ======== Other Payment Information: Interest (net of amounts capitalized) $66,000 $69,000 Federal Income Taxes 10,400 17,500 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 and Second Quarter 1996 Form 10-Qs. The information under "Capital Resources and Liquidity" remains unchanged with the following exceptions: As discussed in Note 5, a special-purpose corporation completed financing transactions in the 1996 third quarter and October 1996 to replace expiring nuclear fuel financing arrangements. In October 1996, Toledo Edison completed the purchase and retirement of $15 million principal amount of its 7.25% interest rate first mortgage bonds due in 1999 for $14.9 million. The securities are included in current liabilities in the September 30, 1996 balance sheet. 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 September 30, 1996, Toledo Edison would have been permitted to issue approximately $143 million of additional first mortgage bonds after giving effect to the October 1996 first mortgage bond retirement discussed above. 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 September 30, 1996, Toledo Edison could not issue additional preferred stock. Results of Operations Factors contributing to the 2.6% and 1% increases in 1996 operating revenues from 1995 for the third quarter and nine months, respectively, are shown as follows: Changes for Period Ended September 30, 1996 Three Nine Factors Months Months (millions) Base Rates $ 7.5 $ 6.8 Kilowatt-hour Sales Volume and Mix 1.9 0.4 Wholesale Revenues (1.9) (1.1) Fuel Cost Recovery Revenues 0.5 1.5 Miscellaneous Revenues (1.6) (0.9) Total $ 6.4 $ 6.7 The increase in third quarter base rates revenues in 1996 resulted primarily from the April 1996 rate order issued by the PUCO. 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. For the nine-month period in 1996, the impact of the April 1996 price increase was offset by a change in the implementation of summer prices. As a result of this change, higher summer prices were in effect for most customers from June through September 1996. 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 September 30, 1996 Three Nine Customer Categories Months Months Residential (13.7)% (1.8)% Commercial (3.0) 2.1 Industrial 5.0 3.5 Other (12.0) (9.5) Total (4.9) (1.3) Third quarter 1996 total kilowatt-hour sales decreased as less residential and commercial sales, along with less wholesale sales (included in the "Other" category), completely offset increased industrial sales. Residential and commercial sales decreased because of the cooler summer weather in the third quarter of 1996 versus the third quarter of 1995, which reduced cooling-related demand. Weather-normalized commercial sales increased 7.6% for the 1996 period. Weather-normalized commercial sales growth in the 1996 period is attributable to a 1% increase in the average number of customers and an increase in average customer usage of about 6%. Industrial sales increased on the strength of increased sales to large automotive and glass manufacturers. Total kilowatt-hour sales for the nine-month period in 1996 decreased as less residential and wholesale sales completely offset increased commercial and industrial sales. Residential sales decreased because of the cooler summer weather in the 1996 period. Colder winter and spring weather in the first six months of 1996 had boosted residential and commercial sales for the first half of 1996. Weather-normalized residential and commercial sales increased 0.9% and 5.1%, respectively, for the 1996 nine-month period. Weather-normalized commercial sales growth in the 1996 period is attributable to a 1.6% increase in the average number of customers and an increase in average customer usage of about 3.5%. Industrial sales increased on the strength of increased sales to petroleum refineries, large automotive manufacturers and the broad-based, smaller industrial customer group. Wholesale sales in 1996 were suppressed by soft market conditions and, during the first six months of 1996, 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 1.5% and 2% for the third quarter and nine months, respectively. Third quarter operating expenses in 1996 increased 7.3% 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. Fuel and purchased power expenses increased because of higher purchased power expense. 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. Other operation and maintenance expenses for the 1996 third quarter included a $6.1 million charge for an ongoing inventory reduction program. The ongoing streamlining of the supply chain process includes a shift in management philosophy toward increased use of technology, consolidated warehousing and just-in-time purchase and delivery. Other operation and maintenance expenses for the 1995 third quarter had included charges totaling $3.2 million for an inventory reduction and the recognition of costs associated with preliminary engineering studies. Other cost-control measures helped to reduce third quarter 1996 other operation and maintenance expenses below the third quarter 1995 level, exclusive of the charges discussed above. Third quarter 1996 nonoperating income decreased primarily because the deferral of carrying charges related to the Rate Stabilization Program ended in November 1995. Third quarter 1996 interest charges and preferred dividend requirements decreased because of the redemption of securities and refinancing at favorable terms. Nine-month operating expenses in 1996 increased 7.5% 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. Depreciation and amortization expenses increased for the same reasons cited for the third quarter 1996 increase in these expenses. Fuel and purchased power expenses increased as higher purchased power expense was partially offset by lower fuel expense. 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), the third quarter 1996 inventory reduction charge, and expenses related to improvements in customer service and sales and marketing efforts. Federal income taxes decreased as a result of lower pretax operating income. A nine-month 1996 nonoperating loss resulted primarily from the write- down of two inactive production facilities as discussed in Note 7. The deferral of carrying charges related to the Rate Stabilization Program ended in November 1995. The nine-month 1996 federal income tax credit for nonoperating income increased accordingly. Nine-month 1996 interest charges and preferred dividend requirements decreased because of the same reasons cited for the third quarter 1996 decrease in these charges. PART II. OTHER INFORMATION Item 5. Other Information 1. 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 Form 10-Q and "Item 5. Other Information. 5. PUCO Rate Order" in the Second Quarter 1996 Form 10-Q. The City of Cleveland, the Office of the Ohio Consumers' Counsel, the 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 for the Operating Companies. The Operating Companies have filed motions to dismiss the appeals filed by Congresswoman Kaptur and the Lucas County Board of Commissioners because neither was a party to the PUCO proceeding. The appellants filed their merit briefs with the Ohio Supreme Court on November 4, 1996, and the Operating Companies expect to file their reply briefs with the Supreme Court by December 4, 1996. 2. 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; "Item 5. Other Information. 6. PUCO Order on Request by City of Clyde" in the Second Quarter 1996 Form 10-Q; and "Item 5. Other Events. 2. City of Clyde" in the Companies' combined Current Report on Form 8-K dated August 21, 1996 ("8/21/96 Form 8-K"). On August 28, 1996, the Ohio Supreme Court granted a Writ of Mandamus against the City of Clyde, Ohio, requiring the City to allow buildings which existed in the City prior to its February 1995 Ordinance to receive electric service from Toledo Edison or from the City's electric company, at the option of the customer. On November 5, 1996, voters in the City of Clyde passed a referendum rescinding the Ordinance. 3. 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; "Item 5. Other Information. 8. Medical Center Co.--FERC Petition" in the Second Quarter 1996 Form 10-Q; and "Item 5. Other Events. 3. Medical Center" in the 8/21/96 Form 8-K. On July 31, 1996, the FERC ruled that Cleveland Electric is obligated to provide transmission service to Cleveland Public Power ("CPP"). This ruling enabled 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. Cleveland Electric has sought rehearing of the FERC ruling and has agreed to provide the requested transmission service to CPP. On September 18, 1996, the FERC granted rehearing for further consideration of the issues. - 26 - 4. City of Cleveland Lawsuit For background relating to this topic, see "Item 5. Other Information. 9. City of Cleveland Lawsuit" in the Second Quarter 1996 Form 10-Q. 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 has filed a motion to dismiss the complaint for lack of jurisdiction, which motion is decisional. 5. Cost Reduction Efforts For background relating to this topic, see "Item 5. Other Information. Cost Reduction Efforts" in the First Quarter 1996 Form 10-Q. 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. At September 30, 1996, the Operating Companies and Centerior Service Company had 6,279 employees, with further reductions expected prior to year end. The Companies also are decommissioning two older fossil-fueled generating units at the Acme Station in Toledo and the C-Plant in Ashtabula and reducing generating activities at three other plants. These steps are part of an ongoing effort to reduce annual operating costs and are expected to result in annualized savings of at least $30 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 September 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 August 21, 1996 and filed on September 13, 1996 included three items under "Item 5. Other Events". The first, "Management Changes", reported on the election of Lew W. Myers as Vice President - Nuclear--Perry. The second, "2. City of Clyde", reported on the status of Toledo Edison's litigation with the City of Clyde. The third, "3. Medical Center", reported on the status of proceedings against Ohio Power Company. A Form 8-K dated September 13, 1996 and filed on September 17, 1996 included one item under "Item 5. Other Events". That item, "Merger with Ohio Edison", reported on the merger agreement between Centerior Energy and Ohio Edison. - 27 - 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: November 14, 1996 - 28 - EXHIBIT INDEX The following exhibits are submitted herewith: CENTERIOR ENERGY EXHIBIT Exhibit Number Description 27(a) Financial Data Schedule for the period ended September 30, 1996. CLEVELAND ELECTRIC EXHIBITS Exhibit Number Description 27(b) Financial Data Schedule for the period ended September 30, 1996. TOLEDO EDISON EXHIBITS Exhibit Number Description 27(c) Financial Data Schedule for the period ended September 30, 1996. - 29 - 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 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 1 PER-BOOK 6,709,912 430,513 748,297 2,416,146 0 10,304,868 2,320,625 0 (355,823) 1,964,802 189,267 448,325 3,612,166 0 0 0 180,044 31,379 142,464 84,239 3,652,182 10,304,868 1,941,340 93,739 1,449,635 1,543,374 397,966 (4,780) 393,186 252,082 99,012 0 0 118,422 293,659 582,706 .67 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 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 1 PER-BOOK 4,768,934 250,421 442,525 1,413,450 0 6,875,330 1,242,124 78,617 (218,613) 1,102,128 185,912 238,325 2,599,076 6,281 0 0 111,160 29,714 85,465 49,468 2,467,801 6,875,330 1,368,042 66,804 1,018,826 1,085,630 282,412 (677) 281,735 181,015 100,720 29,408 71,312 105,816 222,442 405,896 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 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 1 PER-BOOK 1,940,977 152,648 284,334 996,125 0 3,374,084 195,687 602,113 (8,741) 789,059 3,355 210,000 1,013,090 0 0 0 68,884 1,665 56,758 34,771 1,196,502 3,374,084 673,931 27,110 531,626 558,736 115,195 (4,536) 110,659 71,771 38,888 12,683 26,205 0 71,217 223,513 0 0
-----END PRIVACY-ENHANCED MESSAGE-----