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, 1994
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 5, 1994, there were 148,031,503 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 Subsidiaries
The Toledo Edison Company
Notes to Financial Statements 1
Centerior Energy Corporation and Subsidiaries
Income Statement 4
Balance Sheet 5
Cash Flows 6
Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
The Cleveland Electric Illuminating Company and Subsidiaries
Income Statement 11
Balance Sheet 12
Cash Flows 13
Management's Discussion and Analysis of Financial 14
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 25
Signatures 26
-i-
CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES,
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBSIDIARIES,
AND THE TOLEDO EDISON COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(1) Interim Financial Statements
Centerior Energy Corporation (Centerior Energy) is a holding company of
Centerior Service Company (Service Company) and two electric utilities, The
Cleveland Electric Illuminating Company (Cleveland Electric) and The Toledo
Edison Company (Toledo Edison). These two utilities are referred to collec-
tively herein as the "Operating Companies". 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 statement of
financial position at June 30, 1994 and results of operations for the three
months and six months ended June 30, 1994 and 1993 have been included. All
such adjustments were normal recurring adjustments, except for those discussed
in Notes 2 and 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, 1993 (1993 Form 10-K) and
the Quarterly Report on Form 10-Q for the quarter ended March 31, 1994 (First
Quarter 1994 Form 10-Q). These interim period financial results are not
necessarily indicative of results for a 12-month period.
(2) New Accounting Standard
Effective January 1, 1994, the Companies adopted the new accounting standard
for certain investments in debt and equity securities (SFAS 115). SFAS 115
addresses the accounting and reporting for investments in equity securities
that have readily determinable fair values and for all investments in debt
securities. The adoption of SFAS 115 did not materially affect the financial
positions or the 1994 second quarter and six-month results of operations of
the Companies.
(3) 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, 1994,
Cleveland Electric and Toledo Edison had $142.4 million and $70.1 million,
respectively, of appropriated retained earnings for the payment of dividends.
However, Toledo Edison is prohibited from paying a common stock dividend by a
provision in its mortgage that essentially requires such dividends to be paid
out of the total balance of retained earnings, which currently is a deficit.
(4) Common Stock Dividends
Dividends per common share declared by Centerior Energy during the six months
ended June 30, 1994 and 1993 were as follows:
1994 1993
Paid February 15 $.20 $.40
Paid May 15 .20 .40
Paid August 15 .20 .40
Common stock dividends declared by Cleveland Electric during the six months
ended June 30, 1994 and 1993 were as follows:
1994 1993
(millions)
Paid in February $18.6 $46.7
Paid in May 24.2 47.0
Toledo Edison did not declare any common stock dividends during the six months
ended June 30, 1994 and 1993.
(5) Centerior Energy Common Stock Purchase Program
Centerior Energy's program to purchase in the open market up to 1.5 million
shares of its common stock has been extended two years until June 30, 1996.
As of June 30, 1994, 225,500 shares had been purchased at a total cost of $3.7
million. Such shares are being held as treasury stock.
(6) Financing Activity
During the three months ended June 30, 1994, the Operating Companies retired
debt and preferred stock as follows:
Cleveland Electric
Mandatory redemptions consisted of $25 million principal amount of First
Mortgage Bonds, 4-3/8% Series due 1994; $4.3 million principal amount of First
Mortgage Bonds, 13-3/4% Series due 2005; $3 million of Serial Preferred Stock,
$88.00 Series E; and $0.3 million of pollution control notes. Cleveland
Electric also elected to redeem an additional $4.3 million principal amount of
First Mortgage Bonds, 13-3/4% Series due 2005.
Toledo Edison
Mandatory redemptions consisted of $25 million principal amount of Secured
Medium-Term Notes, 8.5% Series A (Note No. 5) due 1994; $1.7 million of 9-3/8%
Cumulative Preferred Stock, $100 par value; and $1.6 million of bank loans and
other long-term debt.
(7) Long-Term Debt and Other Borrowing Arrangements
As discussed in Centerior Energy's Note 11(e) and the Operating Companies'
respective Note 11(d) in the Notes to the Financial Statements for 1993 in the
1993 Form 10-K, certain unsecured debt agreements contain covenants relating
to capitalization, fixed charge coverage ratios and secured financings. The
write-offs recorded at December 31, 1993 caused the Companies to violate
certain of those covenants. The affected creditors agreed to waive those
violations in exchange for a second mortgage security interest on the
Operating Companies' properties and other considerations. This transaction
was completed in August 1994. The Companies have provided the same security
interest to certain other creditors because their agreements require equal
treatment. As of August 11, 1994, the Companies provided second mortgage
collateral for $212.7 million of unsecured debt ($45.6 million for Cleveland
Electric and $167.1 million for Toledo Edison), $228.1 million of bank letters
of credit and a $205 million revolving credit facility. The bank letters of
credit and revolving credit facility are joint and several obligations of the
Operating Companies.
(8) Early Retirement Program in 1993
Other operation and maintenance expenses for the three months and six months
ended June 30, 1993 included approximately $13 million, $8 million and $5
million for Centerior Energy, Cleveland Electric and Toledo Edison,
respectively, for pension and other benefit accruals for executives retiring
under an early retirement program, called the Voluntary Transition Program
(VTP). These expenses were recognized for executives of the Service Company
and the Operating Companies who had elected to retire under the VTP by
June 30, 1993.
A small portion of these accruals related to the VTP curtailment cost of
postretirement benefits other than pensions, which was deferred to later years
under a provision of the Rate Stabilization Program. The deferred amounts at
June 30, 1993 were $0.9 million, $0.5 million and $0.4 million for Centerior
Energy, Cleveland Electric and Toledo Edison, respectively.
Additional VTP benefit accruals were recorded in the second half of 1993 for
all employees who elected to retire under the VTP in 1993.
(9) 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 1993 Form 10-K.
<TABLE>
CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES
INCOME STATEMENT
(Unaudited)
(Thousands, Except Per Share Amounts)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- -------------------------
1994 1993 1994 1993
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
OPERATING REVENUES $ 596,437 $ 589,064 $ 1,184,004 $ 1,187,146
OPERATING EXPENSES
Fuel and Purchased Power 104,968 113,922 220,321 237,798
Other Operation and Maintenance 199,842 198,709 386,660 399,338
Depreciation and Amortization 67,597 64,506 135,911 130,465
Taxes, Other Than Federal Income Taxes 82,577 82,700 165,585 165,777
Deferred Operating Expenses, Net (15,863) (17,970) (30,714) (34,770)
Federal Income Taxes 23,392 20,992 43,674 40,013
-------- -------- ---------- ----------
Total Operating Expenses 462,513 462,859 921,437 938,621
-------- -------- ---------- ----------
OPERATING INCOME 133,924 126,205 262,567 248,525
NONOPERATING INCOME
Allowance for Equity Funds Used During Construction 1,252 1,070 2,094 2,418
Other Income and Deductions, Net 2,134 (3,832) 4,689 (2,203)
Deferred Carrying Charges 9,785 13,755 19,702 27,604
Federal Income Taxes - Credit (Expense) (1,481) 700 (2,744) 1,086
-------- -------- ---------- ----------
Total Nonoperating Income 11,690 11,693 23,741 28,905
-------- -------- ---------- ----------
INCOME BEFORE INTEREST CHARGES 145,614 137,898 286,308 277,430
INTEREST CHARGES
Long-term Debt 87,084 87,228 175,431 174,255
Short-term Debt 1,780 1,433 3,246 3,644
Allowance for Borrowed Funds Used During Construction (1,352) (812) (2,134) (1,832)
-------- -------- ---------- ----------
Net Interest Charges 87,512 87,849 176,543 176,067
-------- -------- ---------- ----------
INCOME AFTER INTEREST CHARGES 58,102 50,049 109,765 101,363
Preferred Dividend Requirements of Subsidiaries 16,566 16,500 33,226 32,597
-------- -------- ---------- ----------
NET INCOME $ 41,536 $ 33,549 $ 76,539 $ 68,766
======== ======== ========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 147,948 144,361 147,674 143,864
======== ======== ========== ==========
EARNINGS PER COMMON SHARE $ .28 $ .23 $ .52 $ .48
======== ======== ========== ==========
<FN>
The accompanying notes to financial statements as they relate to Centerior Energy are an integral part of this statement.
</TABLE>
<TABLE>
CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES
BALANCE SHEET
(Thousands)
<CAPTION>
June 30, December 31,
1994 1993
(Unaudited)
----------- -----------
<S> <C> <C>
ASSETS
PROPERTY, PLANT AND EQUIPMENT
Utility Plant In Service $ 9,707,107 $ 9,571,124
Accumulated Depreciation and Amortization (2,826,088) (2,677,369)
----------- -----------
6,881,019 6,893,755
Construction Work In Progress 142,599 180,931
----------- -----------
7,023,618 7,074,686
Nuclear Fuel, Net of Amortization 311,276 344,642
Other Property, Less Accumulated Depreciation 43,826 40,808
----------- -----------
7,378,720 7,460,136
CURRENT ASSETS
Cash and Temporary Cash Investments 153,510 225,253
Amounts Due from Customers and Others, Net 241,717 220,500
Unbilled Revenues 118,844 123,844
Materials and Supplies, at Average Cost 138,333 135,511
Fossil Fuel Inventory, at Average Cost 28,806 32,159
Taxes Applicable to Succeeding Years 179,575 249,544
Other 12,393 6,235
----------- -----------
873,178 993,046
DEFERRED CHARGES AND OTHER ASSETS
Amounts Due from Customers for Future Federal Income Taxes 989,219 968,267
Unamortized Loss from Beaver Valley Unit 2 Sale 102,944 105,190
Unamortized Loss on Reacquired Debt 88,066 92,385
Carrying Charges and Operating Expenses 912,000 861,660
Nuclear Plant Decommissioning Trusts 61,056 55,682
Other 165,924 173,464
----------- -----------
2,319,209 2,256,648
----------- -----------
$ 10,571,107 $ 10,709,830
=========== ===========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common Stock Equity $ 1,784,566 $ 1,785,122
Preferred Stock
With Mandatory Redemption Provisions 283,402 313,575
Without Mandatory Redemption Provisions 450,871 450,871
Long-Term Debt 3,811,284 4,018,554
----------- -----------
6,330,123 6,568,122
OTHER NONCURRENT LIABILITIES
Nuclear Fuel Lease Obligations 227,735 253,666
Other 191,576 195,377
----------- -----------
419,311 449,043
CURRENT LIABILITIES
Current Portion of Long-Term Debt and Preferred Stock 280,533 127,253
Current Portion of Lease Obligations 103,071 111,490
Accounts Payable 200,488 188,409
Accrued Taxes 282,391 377,887
Accrued Interest 86,998 87,394
Dividends Declared 45,229 15,795
Other 63,678 57,399
----------- -----------
1,062,388 965,627
DEFERRED CREDITS
Unamortized Investment Tax Credits 304,057 329,290
Accumulated Deferred Federal Income Taxes 1,644,089 1,578,955
Unamortized Gain from Bruce Mansfield Plant Sale 538,144 551,268
Accumulated Deferred Rents for Bruce Mansfield Plant
and Beaver Valley Unit 2 137,752 127,661
Other 135,243 139,864
----------- -----------
2,759,285 2,727,038
COMMITMENTS AND CONTINGENCIES (Note 9)
----------- -----------
$ 10,571,107 $ 10,709,830
=========== ===========
<FN>
The accompanying notes to financial statements as they relate to Centerior Energy are an
integral part of this statement.
</TABLE>
<TABLE>
CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES
CASH FLOWS
(Unaudited)
(Thousands)
<CAPTION>
Six Months Ended
June 30,
--------------------
1994 1993
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $76,539 $68,766
-------- --------
Adjustments to Reconcile Net Income
to Cash from Operating Activities:
Depreciation and Amortization 135,911 130,465
Deferred Federal Income Taxes 29,158 23,181
Unbilled Revenues 5,000 5,000
Deferred Fuel (9,183) 5,131
Deferred Carrying Charges (19,702) (27,604)
Leased Nuclear Fuel Amortization 48,436 36,985
Deferred Operating Expenses, Net (30,714) (34,770)
Allowance for Equity Funds Used During Construction (2,094) (2,418)
Changes in Amounts Due from Customers and Others, Net (21,217) (5,028)
Changes in Inventories 531 12,265
Changes in Accounts Payable 12,079 48,916
Changes in Working Capital Affecting Operations (25,802) (91,209)
Other Noncash Items 17,439 7,582
------- -------
Total Adjustments 139,842 108,496
------- -------
Net Cash from Operating Activities 216,381 177,262
CASH FLOWS FROM FINANCING ACTIVITIES
Bank Loans, Commercial Paper and Other Short-Term Debt -- (29,502)
Debt Issues:
First Mortgage Bonds -- 300,200
Secured Medium-Term Notes -- 128,000
Term Bank Loan -- 40,000
Preferred Stock Issue -- 100,000
Common Stock Issues 11,732 36,516
Reacquired Common Stock -- 287
Maturities, Redemptions and Sinking Funds (84,581) (343,460)
Nuclear Fuel Lease Obligations (49,077) (52,629)
Common Stock Dividends Paid (59,018) (114,726)
Premiums, Discounts and Expenses -- (7,994)
------- -------
Net Cash from Financing Activities (180,944) 56,692
CASH FLOWS FROM INVESTING ACTIVITIES
Cash Applied to Construction (88,984) (97,257)
Interest Capitalized as Allowance for Borrowed Funds Used
During Construction (2,134) (1,832)
Other Cash Applied (16,062) (13,882)
------- -------
Net Cash from Investing Activities (107,180) (112,971)
------- -------
NET CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS (71,743) 120,983
CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD 225,253 92,949
------- -------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD $153,510 $213,932
======= =======
Other Payment Information:
Interest (net of amounts capitalized) $151,000 $146,000
Federal Income Taxes -- 28,000
<FN>
The accompanying notes to financial statements as they relate to Centerior Energy are an integral
part of this statement.
</TABLE>
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 1993 Form
10-K and in the First Quarter 1994 Form 10-Q. The information under "Capital
Resources and Liquidity" remains unchanged with the following exceptions:
During the second quarter of 1994, the Operating Companies redeemed various
securities as discussed in Note 6.
As discussed in Note 7, a second mortgage security interest on the Operating
Companies' properties was provided to certain creditors in August 1994. A
$205 million revolving credit facility is now available for borrowings by
Centerior Energy (for the Operating Companies) and the Service Company. The
banks' fee is 0.625% per annum payable quarterly in addition to interest on
any borrowings. See Note 12 in Centerior Energy's Notes to the Financial
Statements for 1993 in the 1993 Form 10-K for additional information on this
facility.
In the third quarter of 1994, Cleveland Electric and Toledo Edison expect to
issue $46.1 million and $30.5 million, respectively, of first mortgage bonds
as collateral security for the sale by a public authority of equal principal
amounts of tax-exempt bonds. The proceeds from the sales of the public
authority's bonds will be used to refund equal principal amounts of the
authority's tax-exempt bonds that were issued in 1988 and have been
continuously remarketed on a floating rate basis. Each new series of bonds
will be due October 1, 2023 and will have a fixed rate of interest.
Additional first mortgage bonds may be issued by the Operating Companies under
their respective mortgages on the basis of property additions, cash or refund-
able first mortgage bonds. Under their respective mortgages, each Operating
Company may issue first mortgage bonds on the basis of property additions and,
under certain circumstances, refundable bonds only if the applicable interest
coverage test is met. At June 30, 1994, Cleveland Electric and Toledo Edison
would have been permitted to issue approximately $196 million and $348 million
of additional first mortgage bonds, respectively. After the fourth quarter of
1994, Cleveland Electric's ability to issue first mortgage bonds is expected
to increase substantially when its interest coverage ratio will no longer be
affected by the write-offs recorded at December 31, 1993.
Results of Operations
Factors contributing to the 1.3% increase in second quarter 1994 operating
revenues from the 1993 amount and the 0.3% decrease in six-month 1994
operating revenues from the 1993 amount are shown as follows:
Changes for Period
Ended June 30, 1994
Three Six
Factors Months Months
(millions)
Sales Volume and Mix $ 22.5 $ 33.0
Wholesale Revenues (12.7) (20.3)
Fuel Cost Recovery Revenues (6.8) (22.3)
Miscellaneous Revenues 4.4 6.5
Total $ 7.4 $ (3.1)
Percentage changes between 1994 and 1993 billed electric kilowatt-hour sales
are summarized as follows:
Changes for Period
Ended June 30, 1994
Three Six
Customer Categories Months Months
Residential 2.9% 4.1%
Commercial 3.8 4.5
Industrial 4.6 4.8
Other (44.6) (28.9)
Total (3.7) 0.3
Second quarter 1994 total kilowatt-hour sales decreased because of lower
wholesale sales (included in the "Other" category). Residential and
commercial sales increased as a result of warmer weather in the second quarter
of 1994 than in the second quarter of 1993, which increased cooling-related
demand. A mid-June 1994 heat wave sharply increased the use of air
conditioners in the service area. Industrial sales increased on the strength
of increased sales to large automotive manufacturers and the broad-based,
smaller industrial customer group. Other sales decreased because of lower
wholesale sales.
Total kilowatt-hour sales increased slightly for the six-month period in 1994
as a result of increased economic activity and weather-related demand.
Industrial sales increased on the strength of increased sales to large
automotive manufacturers, large steel industry customers and the broad-based,
smaller industrial customer group. Residential and commercial sales increased
as a result of colder winter temperatures and warmer spring and summer
temperatures in 1994, which increased electric heating and cooling demands.
Other sales decreased because of lower wholesale sales.
The decreases in 1994 wholesale sales and revenues were attributable to the
expiration of a wholesale power agreement, softer market conditions and
limited power availability for bulk power transactions because of generating
plant outages.
The decreases in 1994 fuel cost recovery revenues included in customer bills
resulted from decreases in the fuel cost recovery factors used by the
Operating Companies to calculate these revenues. The weighted averages of the
fuel cost recovery factors used in the second quarter of 1994 decreased about
10.5% and 1.5% for Cleveland Electric and Toledo Edison, respectively, and
during the six-month period in 1994 decreased about 15% and 1.5%,
respectively, compared to those used in 1993.
Miscellaneous revenues in 1994 increased from the 1993 amounts primarily
because of increased billings to other utilities for overhead expenses related
to the 1994 refueling and maintenance outage of the jointly owned Perry
Nuclear Power Plant Unit 1 (Perry Unit 1).
Second quarter operating expenses in 1994 were virtually the same as the 1993
amount. Fuel and purchased power expenses decreased because of lower fuel
expense, including less amortization of previously deferred fuel costs than
the amount amortized in 1993. An increase in purchased power expense
partially offset the lower fuel expense. During the June 1994 heat wave,
additional power was purchased because two large generating units were out of
operation for maintenance. Depreciation and amortization expenses increased
because of higher nuclear plant decommissioning expense accruals related to
revisions in the cost estimates in late 1993. A decrease in deferred
operating expenses resulted primarily from the cessation at the end of 1993 of
deferrals related to the rate phase-in plans for the investments in Perry
Unit 1 and Beaver Valley Power Station Unit 2 under a 1989 rate agreement for
the Operating Companies. Federal income taxes increased as a result of higher
pretax operating income. Other operation and maintenance expenses increased
slightly as increased power production expenses related to generating plant
maintenance outages completely offset expense reductions resulting from cost
reduction measures, including the work force reduction in 1993. Also, other
operation and maintenance expenses in the 1993 second quarter included $13
million of VTP benefit expenses as discussed in Note 8.
Second quarter credits for carrying charges in 1994 decreased from the 1993
amount primarily because of the cessation at the end of 1993 of accruals
related to the phase-in plans. The second quarter federal income tax
provision for nonoperating income in 1994 increased from the 1993 amount
because the expense increase resulting from a lower tax allocation of interest
charges to nonoperating activities exceeded the decrease related to the lower
carrying charge credits.
Second quarter net income in 1994 increased $8 million, or 23.8%, from the
1993 amount. Quarterly earnings per common share increased $.05 per share, or
21.7%.
Six-month operating expenses in 1994 decreased 1.8% from the 1993 amount.
Fuel and purchased power expenses decreased because of lower fuel expense,
including less amortization of previously deferred fuel costs than the amount
amortized in 1993. A change in the system generating mix (more nuclear
generation and less coal-fired generation in the 1994 period than in the 1993
period) accounted for a large part of the lower fuel expense for the 1994
period. An increase in purchased power expense partially offset the lower
fuel expense. Other operation and maintenance expenses decreased primarily
because the 1993 six-month period expenses included $13 million of VTP benefit
expenses as discussed in Note 8. Increased maintenance expense related to
generating plant outages in 1994 substantially offset expense reductions
resulting from cost reduction measures. Depreciation and amortization
expenses increased primarily because of the aforementioned higher nuclear
plant decommissioning expense accruals. A decrease in deferred operating
expenses resulted primarily from the cessation at the end of 1993 of deferrals
related to the rate phase-in plans as discussed above. Federal income taxes
increased as a result of higher pretax operating income.
The six-month credits for carrying charges in 1994 decreased from the 1993
amount primarily because of the cessation at the end of 1993 of accruals
related to the phase-in plans. The six-month federal income tax provision for
nonoperating income in 1994 increased from the 1993 amount because the expense
increase resulting from a lower tax allocation of interest charges to
nonoperating activities exceeded the decrease related to the lower carrying
charge credits.
Six-month net income in 1994 increased $7.8 million, or 11.3%, from the 1993
amount. Six-month earnings per share increased $.04 per share, or 8.3%.
<TABLE>
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBSIDIARIES
INCOME STATEMENT
(Unaudited)
(Thousands)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ------------------------
1994 1993 1994 1993
-------- -------- ---------- ---------
<S> <C> <C> <C> <C>
OPERATING REVENUES $ 414,804 $ 417,473 $ 822,659 $ 838,580
OPERATING EXPENSES
Fuel and Purchased Power (1) 92,032 103,455 191,971 215,995
Other Operation and Maintenance 119,515 122,937 231,567 241,741
Depreciation and Amortization 47,637 45,540 95,629 92,000
Taxes, Other Than Federal Income Taxes 58,959 58,821 118,044 117,784
Deferred Operating Expenses, Net (10,307) (10,579) (20,026) (20,451)
Federal Income Taxes 15,916 12,796 28,910 24,898
-------- -------- ---------- ----------
Total Operating Expenses 323,752 332,970 646,095 671,967
-------- -------- ---------- ----------
OPERATING INCOME 91,052 84,503 176,564 166,613
NONOPERATING INCOME
Allowance for Equity Funds Used During Construction 947 905 1,577 1,929
Other Income and Deductions, Net 1,213 (4,313) 3,112 (2,308)
Deferred Carrying Charges 6,226 7,654 12,463 15,302
Federal Income Taxes - Credit (Expense) (906) 527 (1,962) 665
-------- -------- ---------- ----------
Total Nonoperating Income 7,480 4,773 15,190 15,588
-------- -------- ---------- ----------
INCOME BEFORE INTEREST CHARGES 98,532 89,276 191,754 182,201
INTEREST CHARGES
Long-term Debt 60,080 59,169 120,513 119,163
Short-term Debt 1,307 836 1,933 1,843
Allowance for Borrowed Funds Used During Construction (1,161) (706) (1,905) (1,519)
-------- -------- ---------- ----------
Net Interest Charges 60,226 59,299 120,541 119,487
-------- -------- ---------- ----------
NET INCOME 38,306 29,977 71,213 62,714
Preferred Dividend Requirements 11,366 10,665 22,868 20,846
-------- -------- ---------- ----------
EARNINGS AVAILABLE FOR COMMON STOCK $ 26,940 $ 19,312 $ 48,345 $ 41,868
======== ======== ========== ==========
(1) Includes purchased power expense for
purchases from Toledo Edison. $ 27,945 $ 30,572 $ 57,613 $ 60,990
<FN>
The accompanying notes to financial statements as they relate to Cleveland Electric are an integral part of this statement.
</TABLE>
<TABLE>
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBSIDIARIES
BALANCE SHEET
(Thousands)
<CAPTION>
June 30, December 31,
1994 1993
(Unaudited)
----------- -----------
<S> <C> <C>
ASSETS
PROPERTY, PLANT AND EQUIPMENT
Utility Plant In Service $ 6,815,613 $ 6,734,130
Accumulated Depreciation and Amortization (1,957,888) (1,889,584)
----------- -----------
4,857,725 4,844,546
Construction Work In Progress 106,854 141,422
----------- -----------
4,964,579 4,985,968
Nuclear Fuel, Net of Amortization 185,019 202,200
Other Property, Less Accumulated Depreciation 40,448 41,041
----------- -----------
5,190,046 5,229,209
CURRENT ASSETS
Cash and Temporary Cash Investments 45,930 77,374
Amounts Due from Customers and Others, Net 167,004 155,899
Amounts Due from Affiliates 7,641 5,399
Unbilled Revenues 96,000 99,000
Materials and Supplies, at Average Cost 92,959 92,659
Fossil Fuel Inventory, at Average Cost 19,278 20,188
Taxes Applicable to Succeeding Years 127,261 178,577
Other 3,595 2,967
----------- -----------
559,668 632,063
DEFERRED CHARGES AND OTHER ASSETS
Amounts Due from Customers for Future Federal Income Taxes 600,895 586,494
Unamortized Loss on Reacquired Debt 58,318 60,293
Carrying Charges and Operating Expenses 551,065 518,613
Nuclear Plant Decommissioning Trusts 33,031 29,955
Other 93,374 102,546
----------- -----------
1,336,683 1,297,901
----------- -----------
$ 7,086,397 $ 7,159,173
=========== ===========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common Stock Equity $ 1,056,771 $ 1,039,947
Preferred Stock
With Mandatory Redemption Provisions 256,717 285,225
Without Mandatory Redemption Provisions 240,871 240,871
Long-Term Debt 2,635,745 2,793,162
----------- -----------
4,190,104 4,359,205
OTHER NONCURRENT LIABILITIES
Nuclear Fuel Lease Obligations 137,044 150,775
Other 95,206 96,352
----------- -----------
232,250 247,127
CURRENT LIABILITIES
Current Portion of Long-Term Debt and Preferred Stock 203,571 70,394
Current Portion of Lease Obligations 58,394 62,610
Accounts Payable 132,191 122,385
Accounts and Notes Payable to Affiliates 104,010 60,956
Accrued Taxes 236,045 304,621
Accrued Interest 60,284 60,376
Dividends Declared 7,539 19,258
Other 37,209 32,632
----------- -----------
839,243 733,232
DEFERRED CREDITS
Unamortized Investment Tax Credits 213,722 235,293
Accumulated Deferred Federal Income Taxes 1,148,924 1,104,859
Unamortized Gain from Bruce Mansfield Plant Sale 335,057 343,183
Accumulated Deferred Rents for Bruce Mansfield Plant 80,879 77,304
Other 46,218 58,970
----------- -----------
1,824,800 1,819,609
COMMITMENTS AND CONTINGENCIES (Note 9)
----------- -----------
$ 7,086,397 $ 7,159,173
=========== ===========
<FN>
The accompanying notes to financial statements as they relate to Cleveland Electric are an
integral part of this statement.
</TABLE>
<TABLE>
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBSIDIARIES
CASH FLOWS
(Unaudited)
(Thousands)
<CAPTION>
Six Months Ended
June 30,
--------------------
1994 1993
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $71,213 $62,714
-------- --------
Adjustments to Reconcile Net Income
to Cash from Operating Activities:
Depreciation and Amortization 95,629 92,000
Deferred Federal Income Taxes 14,492 13,515
Unbilled Revenues 3,000 4,000
Deferred Fuel (10,899) 10,203
Deferred Carrying Charges (12,463) (15,302)
Leased Nuclear Fuel Amortization 26,425 20,453
Deferred Operating Expenses, Net (20,026) (20,451)
Allowance for Equity Funds Used During Construction (1,577) (1,929)
Changes in Amounts Due from Customers and Others, Net (11,105) (562)
Changes in Inventories 610 6,639
Changes in Accounts Payable 9,806 33,191
Changes in Working Capital Affecting Operations (20,191) (79,639)
Other Noncash Items 5,622 187
------- -------
Total Adjustments 79,323 62,305
------- -------
Net Cash from Operating Activities 150,536 125,019
CASH FLOWS FROM FINANCING ACTIVITIES
Bank Loans, Commercial Paper and Other Short-Term Debt -- (10,000)
Notes Payable to Affiliates 47,600 (11,000)
Debt Issues:
First Mortgage Bonds -- 280,000
Secured Medium-Term Notes -- 35,000
Term Bank Loan -- 40,000
Preferred Stock Issue -- 100,000
Maturities, Redemptions and Sinking Funds (53,105) (291,504)
Nuclear Fuel Lease Obligations (27,193) (29,364)
Dividends Paid (65,902) (113,759)
Premiums, Discounts and Expenses -- (7,062)
------- -------
Net Cash from Financing Activities (98,600) (7,689)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash Applied to Construction (73,071) (80,224)
Interest Capitalized as Allowance for Borrowed Funds Used
During Construction (1,905) (1,519)
Other Cash Applied (8,404) (4,817)
------- -------
Net Cash from Investing Activities (83,380) (86,560)
------- -------
NET CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS (31,444) 30,770
CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD 77,374 33,524
------- -------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD $45,930 $64,294
======= =======
Other Payment Information:
Interest (net of amounts capitalized) $105,000 $101,000
Federal Income Taxes -- 22,600
<FN>
The accompanying notes to financial statements as they relate to Cleveland Electric are an integral
part of this statement.
</TABLE>
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY 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 1993 Form
10-K and in the First Quarter 1994 Form 10-Q. The information under "Capital
Resources and Liquidity" remains unchanged with the following exceptions:
During the second quarter of 1994, Cleveland Electric redeemed various
securities as discussed in Note 6.
As discussed in Note 7, a second mortgage security interest on the Operating
Companies' properties was provided to certain creditors in August 1994. A
$205 million revolving credit facility is now available for borrowings by
Centerior Energy (for the Operating Companies) and the Service Company. The
banks' fee is 0.625% per annum payable quarterly in addition to interest on
any borrowings. See Note 12 in Cleveland Electric's Notes to the Financial
Statements for 1993 in the 1993 Form 10-K for additional information on this
facility.
In the third quarter of 1994, Cleveland Electric expects to issue $46.1
million of first mortgage bonds as collateral security for the sale by a
public authority of an equal principal amount of tax-exempt bonds. The
proceeds from the sale of the public authority's bonds will be used to refund
$46.1 million of the authority's tax-exempt bonds that were issued in 1988 and
have been continuously remarketed on a floating rate basis. The new series of
bonds will be due October 1, 2023 and will have a fixed rate of interest.
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. Under its mortgage, Cleveland Electric may issue first mortgage bonds
on the basis of property additions and, under certain circumstances, refund-
able bonds only if the applicable interest coverage test is met. At June 30,
1994, Cleveland Electric would have been permitted to issue approximately
$196 million of additional first mortgage bonds. After the fourth quarter of
1994, Cleveland Electric's ability to issue first mortgage bonds is expected
to increase substantially when its interest coverage ratio will no longer be
affected by the write-offs recorded at December 31, 1993.
Results of Operations
Factors contributing to the 0.6% and 1.9% decreases in 1994 operating revenues
from 1993 for the second quarter and six months, respectively, are shown as
follows:
Changes for Period
Ended June 30, 1994
Three Six
Factors Months Months
(millions)
Sales Volume and Mix $ 13.0 $ 20.6
Wholesale Revenues (14.8) (24.0)
Fuel Cost Recovery Revenues (6.3) (21.0)
Miscellaneous Revenues 5.4 8.5
Total $ (2.7) $(15.9)
Percentage changes between 1994 and 1993 billed electric kilowatt-hour sales
are summarized as follows:
Changes for Period
Ended June 30, 1994
Three Six
Customer Categories Months Months
Residential 2.7% 3.6%
Commercial 3.8 4.2
Industrial 2.3 2.8
Other (71.8) (55.9)
Total (9.9) (4.3)
Second quarter 1994 total kilowatt-hour sales decreased because of lower
wholesale sales (included in the "Other" category). Residential and
commercial sales increased as a result of warmer weather in the second quarter
of 1994 than in the second quarter of 1993, which increased cooling-related
demand. A mid-June 1994 heat wave sharply increased the use of air
conditioners in the service area. Industrial sales increased on the strength
of increased sales to large automotive manufacturers and the broad-based,
smaller industrial customer group. Other sales decreased because of lower
wholesale sales.
Total kilowatt-hour sales decreased for the six-month period in 1994 as a
result of lower wholesale sales. Residential and commercial sales increased
as a result of colder winter temperatures and warmer spring and summer
temperatures in 1994, which increased electric heating and cooling demands.
Industrial sales increased on the strength of increased sales to large
automotive manufacturers, large steel industry customers and the broad-based,
smaller industrial customer group. Other sales decreased because of lower
wholesale sales.
The decreases in 1994 wholesale sales and revenues were attributable to the
expiration of a wholesale power agreement, softer market conditions and
limited power availability for bulk power transactions because of generating
plant outages.
The decreases in 1994 fuel cost recovery revenues included in customer bills
resulted from decreases in the fuel cost recovery factors used in 1994 to
calculate these revenues compared to those used in 1993. The decreases in the
weighted averages of the fuel cost recovery factors for 1994 were about 10.5%
and 15% for the second quarter and six months, respectively.
Miscellaneous revenues in 1994 increased from the 1993 amounts primarily
because of increased billings to other utilities for overhead expenses related
to the 1994 refueling and maintenance outage of the jointly owned Perry
Nuclear Power Plant Unit 1 (Perry Unit 1).
Second quarter operating expenses in 1994 decreased 2.8% from the 1993 amount.
Fuel and purchased power expenses decreased because of lower fuel expense,
including less amortization of previously deferred fuel costs than the amount
amortized in 1993. An increase in purchased power expense partially offset
the lower fuel expense. During the June 1994 heat wave, additional power was
purchased because two large generating units were out of operation for
maintenance. Other operation and maintenance expenses decreased primarily
because the 1993 second quarter expenses included $8 million of VTP benefit
expenses as discussed in Note 8. Also, an increase in power production
expenses related to generating plant maintenance outages completely offset
expense reductions resulting from cost reduction measures, including the work
force reduction in 1993. Depreciation and amortization expenses increased
because of higher nuclear plant decommissioning expense accruals related to
revisions in the cost estimates in late 1993. Federal income taxes increased
as a result of higher pretax operating income.
Second quarter credits for carrying charges in 1994 decreased from the 1993
amount primarily because of the cessation at the end of 1993 of accruals
related to the rate phase-in plan for the investments in Perry Unit 1 and
Beaver Valley Power Station Unit 2 under a 1989 rate agreement. The second
quarter federal income tax provision for nonoperating income in 1994 increased
from the 1993 amount because the expense increase resulting from a lower tax
allocation of interest charges to nonoperating activities exceeded the
decrease related to the lower carrying charge credits.
Second quarter earnings available for common stock in 1994 increased $7.6
million, or 39.5%, from the 1993 amount.
Six-month operating expenses in 1994 decreased 3.9% from the 1993 amount.
Fuel and purchased power expenses decreased because of lower fuel expense,
including less amortization of previously deferred fuel costs than the amount
amortized in 1993. A change in the system generating mix (more nuclear
generation and less coal-fired generation in the 1994 period than in the 1993
period) accounted for a large part of the lower fuel expense for the 1994
period. An increase in purchased power expense partially offset the lower
fuel expense. Other operation and maintenance expenses decreased primarily
because the 1993 six-month period expenses included $8 million of VTP benefit
expenses as discussed in Note 8. Increased maintenance expense related to
generating plant outages in 1994 substantially offset expense reductions
resulting from cost reduction measures. Depreciation and amortization
expenses increased primarily because of the aforementioned higher nuclear
plant decommissioning expense accruals. Federal income taxes increased as a
result of higher pretax operating income.
The six-month credits for carrying charges in 1994 decreased from the 1993
amount primarily because of the cessation at the end of 1993 of accruals
related to the phase-in plan. The six-month federal income tax provision for
nonoperating income in 1994 increased from the 1993 amount because the expense
increase resulting from a lower tax allocation of interest charges to non-
operating activities exceeded the decrease related to the lower carrying
charge credits.
Six-month preferred dividend requirements in 1994 increased from the 1993
amount primarily because of the new issue of preferred stock in 1993.
Six-month earnings available for common stock in 1994 increased $6.5 million,
or 15.5%, from the 1993 amount.
<TABLE>
THE TOLEDO EDISON COMPANY
INCOME STATEMENT
(Unaudited)
(Thousands)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- -------------------------
1994 1993 1994 1993
-------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES (1) $ 216,452 $ 210,350 $ 433,024 $ 425,165
OPERATING EXPENSES
Fuel and Purchased Power 41,350 42,310 87,023 84,893
Other Operation and Maintenance 86,781 82,818 168,364 172,148
Depreciation and Amortization 19,959 18,965 40,281 38,465
Taxes, Other Than Federal Income Taxes 23,443 23,760 47,191 47,755
Deferred Operating Expenses, Net (5,555) (7,391) (10,688) (14,319)
Federal Income Taxes 7,623 8,293 14,994 15,269
-------- -------- ---------- ----------
Total Operating Expenses 173,601 168,755 347,165 344,211
-------- -------- ---------- ----------
OPERATING INCOME 42,851 41,595 85,859 80,954
NONOPERATING INCOME
Allowance for Equity Funds Used During Construction 304 165 517 489
Other Income and Deductions, Net 1,154 608 1,622 881
Deferred Carrying Charges 3,559 6,102 7,239 12,302
Federal Income Taxes - Credit (Expense) (352) 385 (378) 806
-------- -------- ---------- ----------
Total Nonoperating Income 4,665 7,260 9,000 14,478
-------- -------- ---------- ----------
INCOME BEFORE INTEREST CHARGES 47,516 48,855 94,859 95,432
INTEREST CHARGES
Long-term Debt 27,004 28,058 54,917 55,091
Short-term Debt 1,048 962 1,940 2,405
Allowance for Borrowed Funds Used During Construction (190) (106) (228) (313)
-------- -------- ---------- ----------
Net Interest Charges 27,862 28,914 56,629 57,183
-------- -------- ---------- ----------
NET INCOME 19,654 19,941 38,230 38,249
Preferred Dividend Requirements 5,200 5,836 10,358 11,751
-------- -------- ---------- ----------
EARNINGS AVAILABLE FOR COMMON STOCK $ 14,454 $ 14,105 $ 27,872 $ 26,498
======== ======== ========== ==========
(1) Includes revenues from bulk power sales
to Cleveland Electric. $ 27,945 $ 30,572 $ 57,613 $ 60,990
<FN>
The accompanying notes to financial statements as they relate to Toledo Edison are an integral part of this statement.
</TABLE>
<TABLE>
THE TOLEDO EDISON COMPANY
BALANCE SHEET
(Thousands)
<CAPTION>
June 30, December 31,
1994 1993
(Unaudited)
----------- -----------
<S> <C> <C>
ASSETS
PROPERTY, PLANT AND EQUIPMENT
Utility Plant In Service $ 2,891,494 $ 2,836,993
Accumulated Depreciation and Amortization (868,200) (787,785)
----------- -----------
2,023,294 2,049,208
Construction Work In Progress 35,745 39,509
----------- -----------
2,059,039 2,088,717
Nuclear Fuel, Net of Amortization 126,257 142,442
Other Property, Less Accumulated Depreciation 3,378 (234)
----------- -----------
2,188,674 2,230,925
CURRENT ASSETS
Cash and Temporary Cash Investments 68,677 82,042
Amounts Due from Customers and Others, Net 70,933 62,979
Amounts Due from Affiliates 44,934 15,682
Unbilled Revenues 22,844 24,844
Materials and Supplies, at Average Cost 45,373 42,852
Fossil Fuel Inventory, at Average Cost 9,528 11,971
Taxes Applicable to Succeeding Years 52,314 70,966
Other 2,177 2,284
----------- -----------
316,780 313,620
DEFERRED CHARGES AND OTHER ASSETS
Amounts Due from Customers for Future Federal Income Taxes 388,280 381,729
Unamortized Loss from Beaver Valley Unit 2 Sale 102,944 105,190
Unamortized Loss on Reacquired Debt 29,748 32,093
Carrying Charges and Operating Expenses 360,935 343,046
Nuclear Plant Decommissioning Trusts 28,026 25,727
Other 71,353 77,524
----------- -----------
981,286 965,309
----------- -----------
$ 3,486,740 $ 3,509,854
=========== ===========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common Stock Equity $ 650,287 $ 622,375
Preferred Stock
With Mandatory Redemption Provisions 26,685 28,350
Without Mandatory Redemption Provisions 210,000 210,000
Long-Term Debt 1,175,539 1,225,392
----------- -----------
2,062,511 2,086,117
OTHER NONCURRENT LIABILITIES
Nuclear Fuel Lease Obligations 90,691 102,891
Other 79,446 82,757
----------- -----------
170,137 185,648
CURRENT LIABILITIES
Current Portion of Long-Term Debt and Preferred Stock 76,963 56,859
Current Portion of Lease Obligations 44,677 48,880
Accounts Payable 61,700 63,384
Accounts Payable to Affiliates 32,212 26,608
Accrued Taxes 61,814 89,574
Accrued Interest 26,579 27,022
Other 16,804 16,948
----------- -----------
320,749 329,275
DEFERRED CREDITS
Unamortized Investment Tax Credits 90,335 93,997
Accumulated Deferred Federal Income Taxes 493,222 471,471
Unamortized Gain from Bruce Mansfield Plant Sale 203,087 208,085
Accumulated Deferred Rents for Bruce Mansfield Plant
and Beaver Valley Unit 2 56,873 50,357
Other 89,826 84,904
----------- -----------
933,343 908,814
COMMITMENTS AND CONTINGENCIES (Note 9)
----------- -----------
$ 3,486,740 $ 3,509,854
=========== ===========
<FN>
The accompanying notes to financial statements as they relate to Toledo Edison are an
integral part of this statement.
</TABLE>
<TABLE>
THE TOLEDO EDISON COMPANY
CASH FLOWS
(Unaudited)
(Thousands)
<CAPTION>
Six Months Ended
June 30,
--------------------
1994 1993
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $38,230 $38,249
------- -------
Adjustments to Reconcile Net Income
to Cash from Operating Activities:
Depreciation and Amortization 40,281 38,465
Deferred Federal Income Taxes 15,348 9,505
Unbilled Revenues 2,000 1,000
Deferred Fuel 1,716 (5,072)
Deferred Carrying Charges (7,239) (12,302)
Leased Nuclear Fuel Amortization 22,013 16,532
Deferred Operating Expenses, Net (10,688) (14,319)
Allowance for Equity Funds Used During Construction (517) (489)
Changes in Amounts Due from Customers and Others, Net (7,954) (4,016)
Changes in Inventories (78) 5,626
Changes in Accounts Payable (1,684) 5,489
Changes in Working Capital Affecting Operations (7,236) (19,508)
Other Noncash Items 11,817 7,395
------ ------
Total Adjustments 57,779 28,306
------ ------
Net Cash from Operating Activities 96,009 66,555
CASH FLOWS FROM FINANCING ACTIVITIES
Bank Loans, Commercial Paper and Other Short-Term Debt -- (19,502)
Debt Issues:
First Mortgage Bonds -- 20,200
Secured Medium-Term Notes -- 93,000
Maturities, Redemptions and Sinking Funds (31,476) (51,956)
Nuclear Fuel Lease Obligations (21,884) (23,265)
Dividends Paid (10,289) (11,808)
Premiums, Discounts and Expenses -- (882)
------- ------
Net Cash from Financing Activities (63,649) 5,787
CASH FLOWS FROM INVESTING ACTIVITIES
Cash Applied to Construction (15,913) (17,033)
Interest Capitalized as Allowance for Borrowed Funds Used
During Construction (228) (313)
Loans to Affiliates (26,000) --
Other Cash Applied (3,584) (619)
------ ------
Net Cash from Investing Activities (45,725) (17,965)
------ ------
NET CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS (13,365) 54,377
CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD 82,042 15,731
------- -------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD $68,677 $70,108
======= =======
Other Payment Information:
Interest (net of amounts capitalized) $47,000 $45,000
Federal Income Taxes -- 5,400
<FN>
The accompanying notes to financial statements as they relate to Toledo Edison are an integral
part of this statement.
</TABLE>
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 1993 Form
10-K and in the First Quarter 1994 Form 10-Q. The information under "Capital
Resources and Liquidity" remains unchanged with the following exceptions:
During the second quarter of 1994, Toledo Edison redeemed various securities
as discussed in Note 6.
As discussed in Note 7, a second mortgage security interest on the Operating
Companies' properties was provided to certain creditors in August 1994. A
$205 million revolving credit facility is now available for borrowings by
Centerior Energy (for the Operating Companies) and the Service Company. The
banks' fee is 0.625% per annum payable quarterly in addition to interest on
any borrowings. See Note 12 in Toledo Edison's Notes to the Financial
Statements for 1993 in the 1993 Form 10-K for additional information on this
facility.
In the third quarter of 1994, Toledo Edison expects to issue $30.5 million of
first mortgage bonds as collateral security for the sale by a public authority
of an equal principal amount of tax-exempt bonds. The proceeds from the sale
of the public authority's bonds will be used to refund $30.5 million of the
authority's tax-exempt bonds that were issued in 1988 and have been
continuously remarketed on a floating rate basis. The new series of bonds
will be due October 1, 2023 and will have a fixed rate of interest.
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. Under its mortgage, Toledo Edison may issue first mortgage bonds on
the basis of property additions and, under certain circumstances, refundable
bonds only if the applicable interest coverage test is met. At June 30, 1994,
Toledo Edison would have been permitted to issue approximately $348 million of
additional first mortgage bonds.
Results of Operations
Factors contributing to the 2.9% and 1.8% increases in 1994 operating revenues
from 1993 for the second quarter and six months, respectively, are shown as
follows:
Changes for Period
Ended June 30, 1994
Three Six
Factors Months Months
(millions)
Sales Volume and Mix $ 9.5 $ 12.5
Wholesale Revenues (1.3) (0.8)
Miscellaneous Revenues (1.6) (2.5)
Fuel Cost Recovery Revenues (0.5) (1.3)
Total $ 6.1 $ 7.9
Percentage changes between 1994 and 1993 billed electric kilowatt-hour sales
are summarized as follows:
Changes for Period
Ended June 30, 1994
Three Six
Customer Categories Months Months
Residential 3.5% 5.3%
Commercial 3.9 5.5
Industrial 9.3 8.8
Other 10.2 13.7
Total 7.7 8.9
Second quarter 1994 total kilowatt-hour sales increased as a result of
increased economic activity, increased wholesale sales (included in the
"Other" category) and weather-related demand. Industrial sales increased on
the strength of increased sales to large automotive manufacturers and the
broad-based, smaller industrial customer group. Residential and commercial
sales increased as a result of warmer weather in the second quarter of 1994
than in the second quarter of 1993, which increased cooling-related demand. A
mid-June 1994 heat wave sharply increased the use of air conditioners in the
service area.
Total kilowatt-hour sales increased for the six-month period in 1994 as a
result of increased wholesale sales, increased economic activity and weather-
related demand. Industrial sales increased on the strength of increased sales
to large automotive manufacturers and the broad-based, smaller industrial
customer group. Residential and commercial sales increased as a result of
colder winter temperatures and warmer spring and summer temperatures in 1994,
which increased electric heating and cooling demands.
Miscellaneous revenues in 1994 decreased from the 1993 amounts because of
lower overhead expense billings in 1994 to Cleveland Electric for the jointly
owned Davis-Besse Nuclear Power Station.
The decreases in 1994 fuel cost recovery revenues included in customer bills
resulted from decreases in the fuel cost recovery factors used in 1994 to
calculate these revenues compared to those used in 1993. The decrease in the
weighted averages of the fuel cost recovery factors for both the second
quarter and six-month 1994 periods was about 1.5%.
Second quarter operating expenses in 1994 increased 2.9% from the 1993 amount.
Other operation and maintenance expenses increased as increased power
production expenses related primarily to a generating plant maintenance outage
completely offset expense reductions resulting from cost reduction measures,
including the work force reduction in 1993. Also, other operation and
maintenance expenses in the 1993 second quarter included $5 million of VTP
benefit expenses as discussed in Note 8. Depreciation and amortization
expenses increased because of higher nuclear plant decommissioning expense
accruals related to revisions in the cost estimates in late 1993. A decrease
in deferred operating expenses resulted from the cessation at the end of 1993
of deferrals related to the rate phase-in plan for the investments in Perry
Nuclear Power Plant Unit 1 and Beaver Valley Power Station Unit 2 under a 1989
rate agreement and less deferrals under the Rate Stabilization Program in the
second quarter of 1994. Federal income taxes decreased as a result of lower
pretax operating income.
Second quarter credits for carrying charges in 1994 decreased from the 1993
amount primarily because of the cessation at the end of 1993 of accruals
related to the phase-in plan. The second quarter federal income tax provision
for nonoperating income in 1994 increased from the 1993 amount because the
expense increase resulting from a lower tax allocation of interest charges to
nonoperating activities exceeded the decrease related to the lower carrying
charge credits.
Second quarter earnings available for common stock in 1994 increased $0.3
million, or 2.5%, from the 1993 amount.
Six-month operating expenses in 1994 increased 0.9% from the 1993 amount.
Higher fuel and purchased power expenses resulted from increased amortization
of previously deferred fuel costs than the amount amortized in 1993, which was
partially offset by lower purchased power expense. Depreciation and
amortization expenses increased primarily because of the aforementioned higher
nuclear plant decommissioning expense accruals. A decrease in deferred
operating expenses resulted from the cessation at the end of 1993 of deferrals
related to the rate phase-in plan as discussed above and less deferrals under
the Rate Stabilization Program in 1994. Other operation and maintenance
expenses decreased primarily because the 1993 six-month period expenses
included $5 million of VTP benefit expenses as discussed in Note 8. Increased
maintenance expense associated with a generating plant outage in 1994
substantially offset expense reductions resulting from cost reduction
measures.
The six-month credits for carrying charges in 1994 decreased from the 1993
amount primarily because of the cessation at the end of 1993 of accruals
related to the phase-in plan. The six-month federal income tax provision for
nonoperating income in 1994 increased from the 1993 amount because the expense
increase resulting from a lower tax allocation of interest charges to non-
operating activities exceeded the decrease related to the lower carrying
charge credits.
Six-month preferred dividend requirements in 1994 decreased from the 1993
amount because of the retirement of preferred stock.
Six-month earnings available for common stock in 1994 increased $1.4 million,
or 5.2%, from the 1993 amount.
PART II. OTHER INFORMATION
Item 5. Other Information
1. Management Changes
For background relating to this topic, see "Item 10. Directors and Executive
Officers of the Registrants" in the Companies' Annual Report on Form 10-K for
the Year Ended December 31, 1993.
Effective July 1, 1994, William F. Conway was elected to the Board of Direct-
ors of Centerior Energy Corporation. Mr. Conway had been Executive Vice
President - Nuclear at Arizona Public Service Company from 1989 until his
retirement in July 1994.
Effective July 25, 1994, John P. Stetz was named Vice President - Nuclear,
Davis-Besse of Centerior Service Company. Mr. Stetz was previously with
Northeast Utilities.
2. Common Stock Dividend
For background and earlier developments relating to this topic, see "Item
5. Market for Registrants' Common Equity and Related Stockholder Matters --
Dividends" in the Companies' Annual Report on Form 10-K for the Year Ended
December 31, 1993.
Centerior expects that dividends paid in 1994 will be, at least partially, a
nontaxable return of capital because of the write-off of $1.02 billion of
assets, after taxes, at year-end 1993.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
None.
b. Reports on Form 8-K
During the quarter ended June 30, 1994, Centerior Energy, Cleveland Electric
and Toledo Edison did not file any Current Report on Form 8-K.
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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 Principal Financial Officer.
CENTERIOR ENERGY CORPORATION
(Registrant)
THE CLEVELAND ELECTRIC
ILLUMINATING COMPANY
(Registrant)
THE TOLEDO EDISON COMPANY
(Registrant)
By: PAUL G. BUSBY
Paul G. Busby, Controller and Chief
Accounting Officer of each Registrant
Date: August 11, 1994
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