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, 1995
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 9, 1995, 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
The Toledo Edison Company
Notes to the Financial Statements (Unaudited) 1
Centerior Energy Corporation and Subsidiaries
Income Statement 4
Balance Sheet 5
Cash Flows 6
Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
The Cleveland Electric Illuminating Company
Income Statement 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 4. Submission of Matters to a Vote of Security-Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 26
Signatures 27
-i-
CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES,
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
AND THE TOLEDO EDISON COMPANY
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
(1) Interim Financial Statements
Centerior Energy Corporation (Centerior Energy) is the parent company of
Centerior Service Company (Service Company); two electric utilities, The
Cleveland Electric Illuminating Company (Cleveland Electric) and The Toledo
Edison Company (Toledo Edison); and five 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 statement of
financial position at June 30, 1995 and results of operations for the three
months and six months ended June 30, 1995 and 1994 have been included. All
such adjustments were normal recurring adjustments.
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, 1994 (1994 Form 10-K) and
the Quarterly Report on Form 10-Q for the quarter ended March 31, 1995 (First
Quarter 1995 Form 10-Q). These interim period financial results are not
necessarily indicative of results for a 12-month period.
(2) Equity Distribution Restrictions
The Operating Companies can make cash available for the funding of Centerior
Energy's common stock dividends by paying dividends on their respective common
stock, which is held solely by Centerior Energy. Federal law prohibits the
Operating Companies from paying dividends out of capital accounts. However,
the Operating Companies may pay preferred and common stock dividends out of
appropriated retained earnings and current earnings. At June 30, 1995,
Cleveland Electric and Toledo Edison had $189.4 million and $136.4 million,
respectively, of appropriated retained earnings for the payment of dividends.
However, Toledo Edison is prohibited from paying a common stock dividend by a
provision in its mortgage that essentially requires such dividends to be paid
out of the total balance of retained earnings, which currently is a deficit.
(3) Common Stock Dividends
Cash dividends per common share declared by Centerior Energy during the six
months ended June 30, 1995 and 1994 were as follows:
1995 1994
Paid February 15 $.20 $.20
Paid May 15 .20 .20
Paid August 15 .20 .20
Common stock cash dividends declared by Cleveland Electric during the six
months ended June 30, 1995 and 1994 were as follows:
1995 1994
(millions)
Paid in February $ - $18.6
Paid in May 15.0 24.2
Toledo Edison did not declare any common stock dividends during the six months
ended June 30, 1995 and 1994.
(4) Financing Activity
During the three months ended June 30, 1995, one of Centerior Energy's
nonutility subsidiaries repaid its remaining balance of $8.1 million of long-
term debt. In addition, the Operating Companies redeemed or retired debt and
preferred stock as follows:
Cleveland Electric
Cleveland Electric issued $300 million principal amount of First Mortgage
Bonds, 9-1/2% Series due 2005-B, at a price of 99.808% primarily for the
purpose of redeeming Cleveland Electric securities.
Cleveland Electric also issued $53.9 million principal amount of First
Mortgage Bonds, 7-5/8% Series due 2025, 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 were used in refunding
at 103% of face value an equal principal amount of the authority's tax-exempt
bonds that were issued in 1984 with an 11.125% interest rate. Concurrently
with the refunding of the authority's 1984 bonds, Cleveland Electric's first
mortgage bonds securing the authority's 1984 bonds were redeemed.
Mandatory redemptions consisted of $35 million principal amount of Secured
Medium-Term Notes, 9.80% Series 23 due 1995; $72 million principal amount of
Secured Medium-Term Notes, 9.55% Series 25 due 1995; $4.3 million principal
amount of First Mortgage Bonds, 13-3/4% Series due 2005-A (13-3/4% Bonds); $3
million of Serial Preferred Stock, $88.00 Series E; $10.7 million of Serial
Preferred Stock, $91.50 Series Q; and $41.1 million of bank loans and
pollution control notes. Cleveland Electric also elected to redeem an
additional $4.3 million principal amount of the 13-3/4% Bonds at face value
and the remaining $26 million principal amount of the 13-3/4% Bonds at 104.58%
of face value.
Toledo Edison
Toledo Edison issued $45 million principal amount of First Mortgage Bonds,
7-5/8% Series due 2020, 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 were used in refunding at 102% of
face value an equal principal amount of the authority's tax-exempt bonds that
were issued in 1984 with a 13.25% interest rate. Concurrently with the
refunding of the authority's 1984 bonds, Toledo Edison's pollution control
notes securing the authority's 1984 bonds were redeemed.
Mandatory redemptions consisted of $46.2 million of bank loans, pollution
control notes and other long-term debt, and $1.7 million of 9-3/8% Cumulative
Preferred Stock, $100 par value.
(5) Long-Term Debt and Other Borrowing Arrangements
On June 29, 1995, the Operating Companies replaced certain letters of credit
in connection with the sale and leaseback of Beaver Valley Power Station Unit
2 (Beaver Valley Unit 2) that were due to expire with new letters of credit
expiring in June 1999. The replacement letters of credit are in an aggregate
amount of approximately $225.3 million and are secured by first mortgage bonds
of Cleveland Electric and Toledo Edison in the proportion of 40% and 60%,
respectively. The subordinate mortgage interests that secured the prior
letters of credit were released. The reimbursement agreement relating to the
replacement letters of credit contains a Centerior Energy fixed charge ratio
covenant, but does not contain the other financial covenants contained in the
prior letters of credit. In addition, a $205 million revolving credit
facility which runs through May 1996 was reduced to $125 million and secured
with first mortgage bonds of Cleveland Electric and Toledo Edison in the same
40% and 60% proportion. The credit agreement was amended to eliminate
covenants relating to capitalization ratios and certain fixed charge coverage
ratios while retaining a Centerior Energy fixed charge coverage ratio
covenant.
(6) 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 1994 Form 10-K and "Part II, Item 5. Other Information" in this
Quarterly Report on Form 10-Q and in the First Quarter 1995 Form 10-Q.
The Companies continue to seek the necessary approvals to complete the merger
of Toledo Edison into Cleveland Electric. The Pennsylvania Public Utility
Commission and The Public Utilities Commission of Ohio (PUCO) approved the
merger in July 1994 and December 1994, respectively. In May 1995, the
Operating Companies filed the additional information which the Federal Energy
Regulatory Commission (FERC) had requested in connection with the Operating
Companies' joint application for approval of the merger, including an
open-access transmission tariff. The Operating Companies do not expect the
Nuclear Regulatory Commission (NRC) to take action on their request for
authorization to transfer certain NRC licenses to the merged entity until
approval has been obtained from the FERC. The Operating Companies obtained
the approvals of their preferred stock share owners at meetings held on
June 14, 1995. The merger is expected to be effective in late 1995.
<TABLE>
<CAPTION>
CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES
INCOME STATEMENT
(Unaudited)
(Thousands, Except Per Share Amounts)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ----------------------------
1995 1994 1995 1994
-------- -------- ------------- -----------
<S> <C> <C> <C> <C>
OPERATING REVENUES $ 606,945 $ 596,437 $ 1,194,526 $ 1,184,004
OPERATING EXPENSES
Fuel and Purchased Power 113,725 104,968 233,094 220,321
Other Operation and Maintenance 150,551 160,075 291,155 307,126
Generation Facilities Rental Expense, Net 39,851 39,767 79,703 79,534
Depreciation and Amortization 70,023 67,597 139,471 135,911
Taxes, Other Than Federal Income Taxes 82,424 82,577 164,380 165,585
Deferred Operating Expenses, Net (14,706) (15,863) (30,770) (30,714)
Federal Income Taxes 28,264 23,392 50,942 43,674
-------- -------- ---------- ----------
Total Operating Expenses 470,132 462,513 927,975 921,437
-------- -------- ---------- ----------
OPERATING INCOME 136,813 133,924 266,551 262,567
NONOPERATING INCOME
Allowance for Equity Funds Used During Construction 271 1,252 1,646 2,094
Other Income and Deductions, Net 968 2,134 3,270 4,689
Deferred Carrying Charges 11,623 9,785 23,195 19,702
Federal Income Taxes - Credit (Expense) (997) (1,481) (2,797) (2,744)
-------- -------- ---------- ----------
Total Nonoperating Income 11,865 11,690 25,314 23,741
-------- -------- ---------- ----------
INCOME BEFORE INTEREST CHARGES 148,678 145,614 291,865 286,308
INTEREST CHARGES
Long-Term Debt 87,657 87,084 174,735 175,431
Short-Term Debt 2,589 1,780 5,571 3,246
Allowance for Borrowed Funds Used During Construction (1,073) (1,352) (1,763) (2,134)
-------- -------- ---------- ----------
Net Interest Charges 89,173 87,512 178,543 176,543
-------- -------- ---------- ----------
INCOME AFTER INTEREST CHARGES 59,505 58,102 113,322 109,765
Preferred Dividend Requirements of Subsidiaries 15,414 16,566 31,154 33,226
-------- -------- ---------- ----------
NET INCOME $ 44,091 $ 41,536 $ 82,168 $ 76,539
======== ======== ========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 148,032 147,948 148,032 147,674
======== ======== ========== ==========
EARNINGS PER COMMON SHARE $ .30 $ .28 $ .56 $ .52
======== ======== ========== ==========
<FN>
The accompanying notes as they relate to Centerior Energy are an integral part of this statement.
</TABLE>
<TABLE>
<CAPTION>
CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES
BALANCE SHEET
(Thousands)
June 30, December 31,
1995 1994
(Unaudited)
----------- -----------
ASSETS
PROPERTY, PLANT AND EQUIPMENT
<S> <C> <C>
Utility Plant In Service $ 9,698,233 $ 9,769,996
Accumulated Depreciation and Amortization (2,926,421) (2,906,106)
----------- -----------
6,771,812 6,863,890
Construction Work In Progress 122,749 129,495
----------- -----------
6,894,561 6,993,385
Nuclear Fuel, Net of Amortization 244,947 293,222
Other Property, Less Accumulated Depreciation 102,614 50,018
----------- -----------
7,242,122 7,336,625
CURRENT ASSETS
Cash and Temporary Cash Investments 169,631 186,399
Amounts Due from Customers and Others, Net 197,908 211,178
Unbilled Revenues 100,344 93,344
Materials and Supplies, at Average Cost 140,847 139,293
Fossil Fuel Inventory, at Average Cost 39,945 28,684
Taxes Applicable to Succeeding Years 181,019 251,877
Other 13,472 14,822
----------- -----------
843,166 925,597
DEFERRED CHARGES AND OTHER ASSETS
Amounts Due from Customers for Future Federal Income Taxes 1,059,153 1,046,317
Unamortized Loss from Beaver Valley Unit 2 Sale 98,452 100,698
Unamortized Loss on Reacquired Debt 88,179 85,921
Carrying Charges and Operating Expenses 1,010,940 957,053
Nuclear Plant Decommissioning Trusts 95,983 81,967
Other 171,503 157,278
----------- -----------
2,524,210 2,429,234
----------- -----------
$ 10,609,498 $ 10,691,456
=========== ===========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common Stock Equity $ 1,875,126 $ 1,881,930
Preferred Stock
With Mandatory Redemption Provisions 222,430 252,656
Without Mandatory Redemption Provisions 450,871 450,871
Long-Term Debt 3,902,386 3,697,082
----------- -----------
6,450,813 6,282,539
CURRENT LIABILITIES
Current Portion of Long-Term Debt and Preferred Stock 229,429 373,451
Current Portion of Lease Obligations 94,504 83,099
Accounts Payable 139,864 143,919
Accrued Taxes 239,801 384,114
Accrued Interest 86,783 89,556
Dividends Declared 44,624 15,376
Other 65,041 59,964
----------- -----------
900,046 1,149,479
DEFERRED CREDITS AND OTHER LIABILITIES
Unamortized Investment Tax Credits 269,591 278,824
Accumulated Deferred Federal Income Taxes 1,825,552 1,778,429
Unamortized Gain from Bruce Mansfield Plant Sale 511,895 525,020
Accumulated Deferred Rents for Bruce Mansfield Plant
and Beaver Valley Unit 2 148,856 138,619
Nuclear Fuel Lease Obligations 179,899 219,465
Retirement Benefits 176,891 176,221
Other 145,955 142,860
----------- -----------
3,258,639 3,259,438
COMMITMENTS AND CONTINGENCIES (Note 6)
----------- -----------
$ 10,609,498 $ 10,691,456
=========== ===========
<FN>
The accompanying notes as they relate to Centerior Energy are an integral part of this
statement.
</TABLE>
<TABLE>
<CAPTION>
CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES
CASH FLOWS
(Unaudited)
(Thousands)
Six Months Ended
June 30,
------------------------
1995 1994
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income $82,168 $76,539
-------- --------
Adjustments to Reconcile Net Income
to Cash from Operating Activities:
Depreciation and Amortization 139,471 135,911
Deferred Federal Income Taxes 34,345 29,158
Unbilled Revenues (7,000) 5,000
Deferred Fuel 15,687 (9,183)
Deferred Carrying Charges (23,195) (19,702)
Leased Nuclear Fuel Amortization 60,005 48,436
Deferred Operating Expenses, Net (30,770) (30,714)
Allowance for Equity Funds Used During Construction (1,646) (2,094)
Changes in Amounts Due from Customers and Others, Net 13,270 (21,217)
Changes in Inventories (12,815) 531
Changes in Accounts Payable (4,055) 12,079
Changes in Working Capital Affecting Operations (69,801) (25,802)
Other Noncash Items (7,397) 17,439
-------- --------
Total Adjustments 106,099 139,842
-------- --------
Net Cash from Operating Activities 188,267 216,381
CASH FLOWS FROM FINANCING ACTIVITIES
First Mortgage Bond Issues 398,900 --
Common Stock Issues -- 11,732
Maturities, Redemptions and Sinking Funds (371,516) (84,581)
Nuclear Fuel Lease Obligations (39,893) (49,077)
Common Stock Dividends Paid (59,213) (59,018)
Premiums, Discounts and Expenses (13,456) --
-------- --------
Net Cash from Financing Activities (85,178) (180,944)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash Applied to Construction (82,767) (88,984)
Interest Capitalized as Allowance for Borrowed Funds Used
During Construction (1,763) (2,134)
Contributions to Nuclear Plant Decommissioning Trusts (11,794) (4,597)
Other Cash Applied (23,533) (11,465)
-------- --------
Net Cash from Investing Activities (119,857) (107,180)
-------- --------
NET CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS (16,768) (71,743)
CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD 186,399 225,253
-------- --------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD $169,631 $153,510
======== ========
Other Payment Information:
Interest (net of amounts capitalized) $152,000 $151,000
Federal Income Taxes 32,800 --
<FN>
The accompanying notes 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 1994 Form
10-K and in the First Quarter 1995 Form 10-Q. The information under "Capital
Resources and Liquidity" remains unchanged with the following exceptions:
During the second quarter of 1995, the Companies completed financings as
discussed in Notes 4 and 5.
In July 1995, Toledo Edison repaid a $35 million bank loan originally due in
July 1996 with an annual interest rate of 9.17%.
In August 1995, Cleveland Electric issued $45.15 million principal amount of
First Mortgage Bonds, 7-3/4% Series due 2025-A, and Toledo Edison issued $35
million principal amount of First Mortgage Bonds, 7-3/4% Series due 2020-A,
and will issue $19 million principal amount of First Mortgage Bonds, 7-3/4%
Series due 2020-B, 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 in September and
November 1995 equal principal amounts of the authority's tax-exempt bonds that
were issued in 1985. Concurrently with the refunding of the authority's 1985
bonds, Cleveland Electric's first mortgage bonds and Toledo Edison's pollution
control notes securing the authority's respective 1985 bonds will be redeemed.
Also, in August 1995, Cleveland Electric plans to issue $40.9 million
principal amount of First Mortgage Bonds, 7.70% Series due 2025-B, and $2.9
million principal amount of First Mortgage Bonds, 7.70% Series due 2025-C, as
collateral security for the sale by two other public authorities of equal
principal amounts of tax-exempt bonds. The proceeds from the sales of the
public authorities' bonds will be used to refund in September 1995 equal
principal amounts of the authorities' tax-exempt bonds that were issued in
1985. Concurrently with the refunding of the authorities' 1985 bonds,
Cleveland Electric's first mortgage bonds securing those issues will be
redeemed.
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. If the applicable interest coverage test is met,
each Operating Company may issue first mortgage bonds on the basis of property
additions and, under certain circumstances, refundable bonds. At June 30,
1995, Cleveland Electric and Toledo Edison would have been permitted to issue
approximately $275 million and $345 million of additional first mortgage
bonds, respectively, after giving effect to the corresponding first mortgage
bond issuances and redemptions through September 1995 discussed above and, for
Cleveland Electric, the additional mandatory redemptions of $70.75 million
aggregate principal amount of first mortgage bonds and secured medium-term
notes through September 1995.
Under its articles of incorporation, Toledo Edison cannot issue preferred
stock unless certain earnings coverage requirements are met. At June 30,
1995, Toledo Edison would have been permitted to issue approximately $110
million of additional preferred stock at an assumed dividend rate of 10.5%.
Results of Operations
Factors contributing to the 1.8% and 0.9% increases in 1995 operating revenues
from 1994 for the second quarter and six months, respectively, are shown as
follows:
Changes for Period
Ended June 30, 1995
Three Six
Factors Months Months
(millions)
Fuel Cost Recovery Revenues $ 7.9 $14.5
Kilowatt-hour Sales Volume and Mix 7.0 1.4
Wholesale Revenues (0.2) 3.3
Miscellaneous Revenues (4.2) (8.7)
Total $10.5 $10.5
The increases in 1995 fuel cost recovery revenues included in customer bills
resulted from changes in the fuel cost recovery factors used by the Operating
Companies to calculate these revenues. The weighted average of the respective
fuel cost recovery factors used for the second quarter of 1995 increased about
16% for Cleveland Electric and decreased about 6% for Toledo Edison compared
to the weighted average of the respective fuel cost recovery factors used for
the second quarter of 1994. The weighted average of the respective fuel cost
recovery factors used for the 1995 six-month period increased about 17% for
Cleveland Electric and decreased about 9% for Toledo Edison compared to the
weighted average of the respective fuel cost recovery factors used for the
1994 six-month period.
Significant increases in unbilled revenues as a result of hot and humid
weather in the second half of June 1995 are included in the "Kilowatt-hour
Sales Volume and Mix" amounts in the above table. An accrual is made at the
end of each month to record the estimated amount of unbilled revenues for
kilowatt-hours sold in the current month but not billed by the end of that
month.
Percentage changes between 1995 and 1994 billed electric kilowatt-hour sales
are summarized as follows:
Changes for Period
Ended June 30, 1995
Three Six
Customer Categories Months Months
Residential (1.7)% (5.0)%
Commercial (0.2) (0.3)
Industrial 0.2 0.9
Other 30.7 32.1
Total 2.4 1.9
Second quarter 1995 total kilowatt-hour sales increased because of a 63%
increase in wholesale sales (included in the "Other" category). A slight
increase in industrial sales was completely offset by lower residential and
commercial sales. Industrial sales increased slightly as increased sales to
the broad-based, smaller industrial customer group entirely offset lower sales
to the largest industrial customers. Residential and commercial sales were
negatively affected by the milder spring weather as compared with the 1994
period. Kilowatt-hour sales data does not reflect a significant portion of
the effect of the hot and humid weather in the second half of June 1995
because those sales were not billed by the end of the month.
Total kilowatt-hour sales increased for the six-month period in 1995 because
of a 62% increase in wholesale sales. An increase in industrial sales was
completely offset by lower residential and commercial sales. Industrial sales
increased as increased sales to large automotive manufacturers and the
broad-based, smaller industrial customer group entirely offset lower sales to
large steel industry customers. Residential and commercial sales were
negatively affected by the milder weather as compared with the 1994 period.
Weather-normalized residential sales were 2% lower for the 1995 six-month
period than for the 1994 period, while weather-normalized commercial sales
increased 0.4%.
The significant percentage increases in wholesale sales for the 1995 second
quarter and six-month period were related to the low level of activity in the
comparable 1994 periods. Wholesale sales and revenues in the first and second
quarters of 1994 were suppressed by soft market conditions and limited power
availability for bulk power transactions because of generating plant outages.
Miscellaneous revenues decreased in 1995 from the 1994 amounts primarily
because the 1994 amounts included the billings to other utility owners and
lessees for overhead expenses related to the 1994 refueling and maintenance
outage of the jointly owned Perry Nuclear Power Plant Unit 1.
Second quarter operating expenses in 1995 increased 1.6% from the 1994 amount.
Lower power production expenses and cost-control measures combined to reduce
other operation and maintenance expenses. Generating unit maintenance outages
in 1994 had increased the level of power production expenses significantly for
the 1994 comparable period. The cost-control measures have also helped to
mitigate the increases in several operating expense categories. Fuel and
purchased power expenses increased as higher fuel expense was partially offset
by lower purchased power expense. The higher fuel expense was attributable to
increased generation and more amortization of previously deferred fuel costs
than the amount amortized in 1994. An increase in depreciation and
amortization expenses included an increase in nuclear plant decommissioning
expense accruals for the 1995 second quarter as a result of the revisions to
the cost estimates implemented in September 1994, when the true-up adjustments
for the first eight months of 1994 were recorded. A decrease in deferred
operating expenses resulted primarily from lower deferrals for postretirement
benefits other than pensions in the 1995 period pursuant to the Rate
Stabilization Program, which was approved by the PUCO for the Operating
Companies in 1992. Federal income taxes increased as a result of higher
pretax operating income.
Second quarter 1995 credits for carrying charges relating to the Rate
Stabilization Program increased from the 1994 amount primarily because of the
larger base (which is related to net property additions since 1989) subject to
the carrying charge calculation. A decrease in investment and other income
lowered "Other Income and Deductions, Net".
Six-month operating expenses in 1995 increased 0.7% from the 1994 amount.
Other operation and maintenance expenses decreased for the same reasons cited
for the decrease in second quarter 1995 other operation and maintenance
expenses. Fuel and purchased power expenses increased for the same reasons
cited for the increase in second quarter 1995 fuel and purchased power
expenses. More than half of the increase in depreciation and amortization
expenses was attributable to an increase in nuclear plant decommissioning
expense accruals. Federal income taxes increased as a result of higher pretax
operating income.
The six-month 1995 credits for carrying charges relating to the Rate
Stabilization Program increased from the 1994 amount primarily because of the
larger base (which is related to net property additions since 1989) subject to
the carrying charge calculation. A decrease in investment and other income
which lowered "Other Income and Deductions, Net" partially offset the carrying
charge increase.
<TABLE>
<CAPTION>
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
INCOME STATEMENT
(Unaudited)
(Thousands)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
OPERATING REVENUES $ 424,362 $ 414,804 $ 834,745 $ 822,659
OPERATING EXPENSES
Fuel and Purchased Power (1) 101,831 92,032 207,893 191,971
Other Operation and Maintenance 100,315 105,624 194,969 203,784
Generation Facilities Rental Expense, Net 13,891 13,891 27,783 27,783
Depreciation and Amortization 48,883 47,637 97,487 95,629
Taxes, Other Than Federal Income Taxes 58,559 58,959 116,247 118,044
Deferred Operating Expenses, Net (9,564) (10,307) (20,457) (20,026)
Federal Income Taxes 19,377 15,916 34,452 28,910
-------- -------- -------- --------
Total Operating Expenses 333,292 323,752 658,374 646,095
-------- -------- -------- --------
OPERATING INCOME 91,070 91,052 176,371 176,564
NONOPERATING INCOME
Allowance for Equity Funds Used During Construction (122) 947 966 1,577
Other Income and Deductions, Net 845 1,213 1,137 3,112
Deferred Carrying Charges 7,715 6,226 15,363 12,463
Federal Income Taxes - Credit (Expense) (408) (906) (903) (1,962)
-------- -------- -------- --------
Total Nonoperating Income 8,030 7,480 16,563 15,190
-------- -------- -------- --------
INCOME BEFORE INTEREST CHARGES 99,100 98,532 192,934 191,754
INTEREST CHARGES
Long-Term Debt 61,337 60,080 121,305 120,513
Short-Term Debt 1,143 1,307 1,794 1,933
Allowance for Borrowed Funds Used During Construction (965) (1,161) (1,378) (1,905)
-------- -------- -------- --------
Net Interest Charges 61,515 60,226 121,721 120,541
-------- -------- -------- --------
NET INCOME 37,585 38,306 71,213 71,213
Preferred Dividend Requirements 10,718 11,366 21,675 22,868
-------- -------- -------- --------
EARNINGS AVAILABLE FOR COMMON STOCK $ 26,867 $ 26,940 $ 49,538 $ 48,345
======== ======== ======== ========
(1) Includes purchased power expense for
purchases from Toledo Edison. $ 26,161 $ 27,945 $ 49,557 $ 57,613
<FN>
The accompanying notes as they relate to Cleveland Electric are an integral part of this statement.
</TABLE>
<TABLE>
<CAPTION>
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
BALANCE SHEET
(Thousands)
June 30, December 31,
1995 1994
(Unaudited)
----------- -----------
ASSETS
PROPERTY, PLANT AND EQUIPMENT
<S> <C> <C>
Utility Plant In Service $ 6,816,896 $ 6,870,651
Accumulated Depreciation and Amortization (2,023,648) (2,013,775)
----------- -----------
4,793,248 4,856,876
Construction Work In Progress 99,827 99,376
----------- -----------
4,893,075 4,956,252
Nuclear Fuel, Net of Amortization 146,567 173,745
Other Property, Less Accumulated Depreciation 59,765 20,575
----------- -----------
5,099,407 5,150,572
CURRENT ASSETS
Cash and Temporary Cash Investments 61,935 65,643
Amounts Due from Customers and Others, Net 136,292 146,412
Amounts Due from Affiliates 4,463 5,002
Unbilled Revenues 76,500 71,500
Materials and Supplies, at Average Cost 97,425 94,563
Fossil Fuel Inventory, at Average Cost 24,431 16,186
Taxes Applicable to Succeeding Years 127,544 179,716
Other 5,195 4,343
----------- -----------
533,785 583,365
DEFERRED CHARGES AND OTHER ASSETS
Amounts Due from Customers for Future Federal Income Taxes 650,782 641,249
Unamortized Loss on Reacquired Debt 60,481 57,827
Carrying Charges and Operating Expenses 614,082 578,302
Nuclear Plant Decommissioning Trusts 51,843 44,211
Other 110,468 95,114
----------- -----------
1,487,656 1,416,703
----------- -----------
$ 7,120,848 $ 7,150,640
=========== ===========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common Stock Equity $ 1,103,435 $ 1,058,190
Preferred Stock
With Mandatory Redemption Provisions 217,410 245,971
Without Mandatory Redemption Provisions 240,871 240,871
Long-Term Debt 2,790,558 2,543,036
----------- -----------
4,352,274 4,088,068
CURRENT LIABILITIES
Current Portion of Long-Term Debt and Preferred Stock 154,374 281,785
Current Portion of Lease Obligations 53,508 47,403
Accounts Payable 89,651 87,954
Accounts and Notes Payable to Affiliates 58,308 117,635
Accrued Taxes 193,122 309,724
Accrued Interest 60,522 62,210
Dividends Declared 6,924 18,075
Other 36,191 33,028
----------- -----------
652,600 957,814
DEFERRED CREDITS AND OTHER LIABILITIES
Unamortized Investment Tax Credits 186,580 192,151
Accumulated Deferred Federal Income Taxes 1,267,429 1,233,830
Unamortized Gain from Bruce Mansfield Plant Sale 318,804 326,930
Accumulated Deferred Rents for Bruce Mansfield Plant 88,029 84,454
Nuclear Fuel Lease Obligations 109,794 132,180
Retirement Benefits 62,072 59,471
Other 83,266 75,742
----------- -----------
2,115,974 2,104,758
COMMITMENTS AND CONTINGENCIES (Note 6)
----------- -----------
$ 7,120,848 $ 7,150,640
=========== ===========
<FN>
The accompanying notes as they relate to Cleveland Electric are an integral part of this
statement.
</TABLE>
<TABLE>
<CAPTION>
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
CASH FLOWS
(Unaudited)
(Thousands)
Six Months Ended
June 30,
------------------------
1995 1994
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income $71,213 $71,213
-------- --------
Adjustments to Reconcile Net Income
to Cash from Operating Activities:
Depreciation and Amortization 97,487 95,629
Deferred Federal Income Taxes 24,004 14,492
Unbilled Revenues (5,000) 3,000
Deferred Fuel 15,393 (10,899)
Deferred Carrying Charges (15,363) (12,463)
Leased Nuclear Fuel Amortization 33,987 26,425
Deferred Operating Expenses, Net (20,457) (20,026)
Allowance for Equity Funds Used During Construction (966) (1,577)
Changes in Amounts Due from Customers and Others, Net 10,120 (11,105)
Changes in Inventories (11,107) 610
Changes in Accounts Payable 1,697 9,806
Changes in Working Capital Affecting Operations (64,495) (20,191)
Other Noncash Items (13,165) 5,622
-------- --------
Total Adjustments 52,135 79,323
-------- --------
Net Cash from Operating Activities 123,348 150,536
CASH FLOWS FROM FINANCING ACTIVITIES
Notes Payable to Affiliates (58,100) 47,600
First Mortgage Bond Issues 353,900 --
Maturities, Redemptions and Sinking Funds (265,063) (53,105)
Nuclear Fuel Lease Obligations (23,092) (27,193)
Dividends Paid (36,967) (65,902)
Premiums, Discounts and Expenses (8,644) --
-------- --------
Net Cash from Financing Activities (37,966) (98,600)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash Applied to Construction (65,316) (73,071)
Interest Capitalized as Allowance for Borrowed Funds Used
During Construction (1,378) (1,905)
Contributions to Nuclear Plant Decommissioning Trusts (6,408) (2,435)
Other Cash Applied (15,988) (5,969)
-------- --------
Net Cash from Investing Activities (89,090) (83,380)
-------- --------
NET CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS (3,708) (31,444)
CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD 65,643 77,374
-------- --------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD $61,935 $45,930
======== ========
Other Payment Information:
Interest (net of amounts capitalized) $105,000 $105,000
Federal Income Taxes 20,900 --
<FN>
The accompanying notes as they relate to Cleveland Electric are an integral part of this statement.
</TABLE>
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Capital Resources and Liquidity
Reference is made to "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in Item 7 of the 1994 Form 10-K
and in the First Quarter 1995 Form 10-Q. The information under "Capital
Resources and Liquidity" remains unchanged with the following exceptions:
During the second quarter of 1995, Cleveland Electric completed financings as
discussed in Notes 4 and 5.
In August 1995, Cleveland Electric issued $45.15 million principal amount of
First Mortgage Bonds, 7-3/4% Series due 2025-A, 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 in September 1995 $45.15 million of the authority's tax-exempt bonds
that were issued in 1985. Concurrently with the refunding of the authority's
1985 bonds, Cleveland Electric's first mortgage bonds securing that issue will
be redeemed.
Also, in August 1995, Cleveland Electric plans to issue $40.9 million
principal amount of First Mortgage Bonds, 7.70% Series due 2025-B, and $2.9
million principal amount of First Mortgage Bonds, 7.70% Series due 2025-C, as
collateral security for the sale by two other public authorities of equal
principal amounts of tax-exempt bonds. The proceeds from the sales of the
public authorities' bonds will be used to refund in September 1995 equal
principal amounts of the authorities' tax-exempt bonds that were issued in
1985. Concurrently with the refunding of the authorities' 1985 bonds,
Cleveland Electric's first mortgage bonds securing those issues will be
redeemed.
Additional first mortgage bonds may be issued by Cleveland Electric under its
mortgage on the basis of property additions, cash or refundable first mortgage
bonds. If the applicable interest coverage test is met, Cleveland Electric
may issue first mortgage bonds on the basis of property additions and, under
certain circumstances, refundable bonds. At June 30, 1995, Cleveland Electric
would have been permitted to issue approximately $275 million of additional
first mortgage bonds after giving effect to the first mortgage bond issuances
and redemptions through September 1995 discussed above and the additional
mandatory redemptions of $70.75 million aggregate principal amount of first
mortgage bonds and secured medium-term notes through September 1995.
Results of Operations
Factors contributing to the 2.3% and 1.5% increases in 1995 operating revenues
from 1994 for the second quarter and six months, respectively, are shown as
follows:
Changes for Period
Ended June 30, 1995
Three Six
Factors Months Months
(millions)
Fuel Cost Recovery Revenues $ 9.5 $ 19.9
Kilowatt-hour Sales Volume and Mix 5.0 (0.8)
Wholesale Revenues (0.3) 3.5
Miscellaneous Revenues (4.6) (10.5)
Total $ 9.6 $ 12.1
The increases in 1995 fuel cost recovery revenues included in customer bills
resulted from increases in the fuel cost recovery factors used in 1995 to
calculate these revenues compared to those used in 1994. The increases in the
weighted averages of the fuel cost recovery factors for 1995 were about 16%
and 17% for the second quarter and six months, respectively.
Significant increases in unbilled revenues as a result of hot and humid
weather in the second half of June 1995 are included in the "Kilowatt-hour
Sales Volume and Mix" amounts in the above table. An accrual is made at the
end of each month to record the estimated amount of unbilled revenues for
kilowatt-hours sold in the current month but not billed by the end of that
month.
Percentage changes between 1995 and 1994 billed electric kilowatt-hour sales
are summarized as follows:
Changes for Period
Ended June 30, 1995
Three Six
Customer Categories Months Months
Residential (2.2)% (5.7)%
Commercial 0.1 0.1
Industrial 0.3 -
Other 70.5 65.8
Total 3.4 2.5
Second quarter 1995 total kilowatt-hour sales increased because a 234%
increase in wholesale sales (included in the "Other" category) completely
offset the decrease in residential sales. Residential sales were negatively
affected by the milder spring weather as compared with the 1994 period;
however, commercial sales increased slightly. Industrial sales increased
slightly as increased sales to the broad-based, smaller industrial customer
group entirely offset lower sales to large steel industry customers.
Kilowatt-hour sales data does not reflect a significant portion of the effect
of the hot and humid weather in the second half of June 1995 because those
sales were not billed by the end of the month.
Total kilowatt-hour sales increased for the six-month period in 1995 because a
149% increase in wholesale sales completely offset the decrease in residential
sales. Residential sales were negatively affected by the milder weather as
compared with the 1994 period. Weather-normalized residential sales were 3%
lower for the 1995 six-month period than for the 1994 period. Commercial
sales increased slightly. Industrial sales were virtually the same as for the
1994 period as lower sales to large steel industry customers entirely offset
increased sales to the broad-based, smaller industrial customer group.
The significant percentage increases in wholesale sales for the 1995 second
quarter and six-month period were related to the low level of activity in the
comparable 1994 periods. Wholesale sales and revenues in the first and second
quarters of 1994 were suppressed by soft market conditions and limited power
availability for bulk power transactions because of generating plant outages.
Miscellaneous revenues decreased in 1995 from the 1994 amounts primarily
because the 1994 amounts included the billings to other utility owners and
lessees for overhead expenses related to the 1994 refueling and maintenance
outage of the jointly owned Perry Nuclear Power Plant Unit 1.
Second quarter operating expenses in 1995 increased 2.9% from the 1994 amount.
Lower power production expenses and cost-control measures combined to reduce
other operation and maintenance expenses. Generating unit maintenance outages
in 1994 had increased the level of power production expenses significantly for
the 1994 comparable period. The cost-control measures have also helped to
mitigate the increases in several operating expense categories. Fuel and
purchased power expenses increased as higher fuel expense was partially offset
by lower purchased power expense. The higher fuel expense was attributable to
increased generation and more amortization of previously deferred fuel costs
than the amount amortized in 1994. An increase in depreciation and
amortization expenses included an increase in nuclear plant decommissioning
expense accruals for the 1995 second quarter as a result of the revisions to
the cost estimates implemented in September 1994, when the true-up adjustments
for the first eight months of 1994 were recorded. Federal income taxes
increased as a result of higher pretax operating income.
Second quarter 1995 credits for carrying charges relating to the Rate
Stabilization Program increased from the 1994 amount primarily because of the
larger base (which is related to net property additions since 1989) subject to
the carrying charge calculation. The Rate Stabilization Program was approved
by the PUCO for Cleveland Electric in 1992.
Six-month operating expenses in 1995 increased 1.9% from the 1994 amount.
Other operation and maintenance expenses decreased for the same reasons cited
for the decrease in second quarter 1995 other operation and maintenance
expenses. Fuel and purchased power expenses increased for the same reasons
cited for the increase in second quarter 1995 fuel and purchased power
expenses. More than half of the increase in depreciation and amortization
expenses was attributable to an increase in nuclear plant decommissioning
expense accruals. Federal income taxes increased as a result of higher pretax
operating income.
The six-month 1995 credits for carrying charges relating to the Rate
Stabilization Program increased from the 1994 amount primarily because of the
larger base (which is related to net property additions since 1989) subject to
the carrying charge calculation. A decrease in investment and other income
which lowered "Other Income and Deductions, Net" partially offset the carrying
charge increase. A decrease in the six-month federal income tax provision for
nonoperating income in 1995 also contributed to the increase in nonoperating
income.
<TABLE>
<CAPTION>
THE TOLEDO EDISON COMPANY
INCOME STATEMENT
(Unaudited)
(Thousands)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
OPERATING REVENUES (1) $ 215,043 $ 216,452 $ 421,427 $ 433,024
OPERATING EXPENSES
Fuel and Purchased Power 38,466 41,350 75,957 87,023
Other Operation and Maintenance 56,611 60,905 108,672 116,613
Generation Facilities Rental Expense, Net 25,960 25,876 51,920 51,751
Depreciation and Amortization 21,140 19,959 41,984 40,281
Taxes, Other Than Federal Income Taxes 23,748 23,443 47,897 47,191
Deferred Operating Expenses, Net (5,142) (5,555) (10,313) (10,688)
Federal Income Taxes 9,019 7,623 16,674 14,994
-------- -------- -------- --------
Total Operating Expenses 169,802 173,601 332,791 347,165
-------- -------- -------- --------
OPERATING INCOME 45,241 42,851 88,636 85,859
NONOPERATING INCOME
Allowance for Equity Funds Used During Construction 392 304 679 517
Other Income and Deductions, Net 1,110 1,154 3,128 1,622
Deferred Carrying Charges 3,908 3,559 7,832 7,239
Federal Income Taxes - Credit (Expense) (501) (352) (1,282) (378)
-------- -------- -------- --------
Total Nonoperating Income 4,909 4,665 10,357 9,000
-------- -------- -------- --------
INCOME BEFORE INTEREST CHARGES 50,150 47,516 98,993 94,859
INTEREST CHARGES
Long-Term Debt 26,321 27,004 53,431 54,917
Short-Term Debt 1,965 1,048 4,465 1,940
Allowance for Borrowed Funds Used During Construction (108) (190) (385) (228)
-------- -------- -------- --------
Net Interest Charges 28,178 27,862 57,511 56,629
-------- -------- -------- --------
NET INCOME 21,972 19,654 41,482 38,230
Preferred Dividend Requirements 4,696 5,200 9,479 10,358
-------- -------- -------- --------
EARNINGS AVAILABLE FOR COMMON STOCK $ 17,276 $ 14,454 $ 32,003 $ 27,872
======== ======== ======== ========
(1) Includes revenues from bulk power sales
to Cleveland Electric. $ 26,161 $ 27,945 $ 49,557 $ 57,613
<FN>
The accompanying notes as they relate to Toledo Edison are an integral part of this statement.
</TABLE>
<TABLE>
<CAPTION>
THE TOLEDO EDISON COMPANY
BALANCE SHEET
(Thousands)
June 30, December 31,
1995 1994
(Unaudited)
----------- -----------
ASSETS
PROPERTY, PLANT AND EQUIPMENT
<S> <C> <C>
Utility Plant In Service $ 2,881,337 $ 2,899,345
Accumulated Depreciation and Amortization (902,773) (892,331)
----------- -----------
1,978,564 2,007,014
Construction Work In Progress 22,921 30,119
----------- -----------
2,001,485 2,037,133
Nuclear Fuel, Net of Amortization 98,380 119,477
Other Property, Less Accumulated Depreciation 19,197 5,994
----------- -----------
2,119,062 2,162,604
CURRENT ASSETS
Cash and Temporary Cash Investments 69,340 87,800
Amounts Due from Customers and Others, Net 58,430 61,794
Amounts Due from Affiliates 20,606 18,929
Unbilled Revenues 23,844 21,844
Materials and Supplies, at Average Cost 43,421 44,730
Fossil Fuel Inventory, at Average Cost 15,514 12,498
Taxes Applicable to Succeeding Years 53,476 72,160
Other 1,774 2,369
----------- -----------
286,405 322,124
DEFERRED CHARGES AND OTHER ASSETS
Amounts Due from Customers for Future Federal Income Taxes 408,611 405,308
Unamortized Loss from Beaver Valley Unit 2 Sale 98,452 100,698
Unamortized Loss on Reacquired Debt 27,698 28,094
Carrying Charges and Operating Expenses 396,858 378,751
Nuclear Plant Decommissioning Trusts 44,141 37,755
Other 67,315 66,798
----------- -----------
1,043,075 1,017,404
----------- -----------
$ 3,448,542 $ 3,502,132
=========== ===========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common Stock Equity $ 716,506 $ 684,568
Preferred Stock
With Mandatory Redemption Provisions 5,020 6,685
Without Mandatory Redemption Provisions 210,000 210,000
Long-Term Debt 1,111,828 1,154,046
----------- -----------
2,043,354 2,055,299
CURRENT LIABILITIES
Current Portion of Long-Term Debt and Preferred Stock 75,055 82,891
Current Portion of Lease Obligations 40,996 35,696
Accounts Payable 47,820 48,190
Accounts Payable to Affiliates 27,372 30,701
Accrued Taxes 46,911 74,909
Accrued Interest 26,247 27,027
Other 17,912 16,566
----------- -----------
282,313 315,980
DEFERRED CREDITS AND OTHER LIABILITIES
Unamortized Investment Tax Credits 83,012 86,673
Accumulated Deferred Federal Income Taxes 554,508 540,836
Unamortized Gain from Bruce Mansfield Plant Sale 193,091 198,089
Accumulated Deferred Rents for Bruce Mansfield Plant
and Beaver Valley Unit 2 60,827 54,165
Nuclear Fuel Lease Obligations 70,105 87,285
Retirement Benefits 102,886 102,897
Other 58,446 60,908
----------- -----------
1,122,875 1,130,853
COMMITMENTS AND CONTINGENCIES (Note 6)
----------- -----------
$ 3,448,542 $ 3,502,132
=========== ===========
<FN>
The accompanying notes as they relate to Toledo Edison are an integral part of this
statement.
</TABLE>
<TABLE>
<CAPTION>
THE TOLEDO EDISON COMPANY
CASH FLOWS
(Unaudited)
(Thousands)
Six Months Ended
June 30,
------------------------
1995 1994
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income $41,482 $38,230
-------- --------
Adjustments to Reconcile Net Income
to Cash from Operating Activities:
Depreciation and Amortization 41,984 40,281
Deferred Federal Income Taxes 10,603 15,348
Unbilled Revenues (2,000) 2,000
Deferred Fuel 294 1,716
Deferred Carrying Charges (7,832) (7,239)
Leased Nuclear Fuel Amortization 26,019 22,013
Deferred Operating Expenses, Net (10,313) (10,688)
Allowance for Equity Funds Used During Construction (679) (517)
Changes in Amounts Due from Customers and Others, Net 3,364 (7,954)
Changes in Inventories (1,707) (78)
Changes in Accounts Payable (370) (1,684)
Changes in Working Capital Affecting Operations (13,159) (7,236)
Other Noncash Items 5,768 11,817
-------- --------
Total Adjustments 51,972 57,779
-------- --------
Net Cash from Operating Activities 93,454 96,009
CASH FLOWS FROM FINANCING ACTIVITIES
First Mortgage Bond Issue 45,000 --
Maturities, Redemptions and Sinking Funds (97,678) (31,476)
Nuclear Fuel Lease Obligations (16,801) (21,884)
Dividends Paid (9,544) (10,289)
Premiums, Discounts and Expenses (4,812) --
-------- --------
Net Cash from Financing Activities (83,835) (63,649)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash Applied to Construction (17,451) (15,913)
Interest Capitalized as Allowance for Borrowed Funds Used
During Construction (385) (228)
Loans to Affiliates -- (26,000)
Contributions to Nuclear Plant Decommissioning Trusts (5,386) (2,162)
Other Cash Applied (4,857) (1,422)
-------- --------
Net Cash from Investing Activities (28,079) (45,725)
-------- --------
NET CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS (18,460) (13,365)
CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD 87,800 82,042
-------- --------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD $69,340 $68,677
======== ========
Other Payment Information:
Interest (net of amounts capitalized) $47,000 $47,000
Federal Income Taxes 11,300 --
<FN>
The accompanying notes 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 1994 Form 10-K
and in the First Quarter 1995 Form 10-Q. The information under "Capital
Resources and Liquidity" remains unchanged with the following exceptions:
During the second quarter of 1995, Toledo Edison completed financings as
discussed in Notes 4 and 5.
In July 1995, Toledo Edison repaid a $35 million bank loan originally due in
July 1996 with an annual interest rate of 9.17%.
In August 1995, Toledo Edison issued $35 million principal amount of First
Mortgage Bonds, 7-3/4% Series due 2020-A, and will issue $19 million principal
amount of First Mortgage Bonds, 7-3/4% Series due 2020-B, 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 in September and November 1995 equal principal amounts
of the authority's tax-exempt bonds that were issued in 1985. Concurrently
with the refunding of the authority's 1985 bonds, Toledo Edison's pollution
control notes securing those issues will be redeemed.
Additional first mortgage bonds may be issued by Toledo Edison under its
mortgage on the basis of property additions, cash or refundable first mortgage
bonds. If the applicable interest coverage test is met, Toledo Edison may
issue first mortgage bonds on the basis of property additions and, under
certain circumstances, refundable bonds. At June 30, 1995, Toledo Edison
would have been permitted to issue approximately $345 million of additional
first mortgage bonds after giving effect to the August 1995 first mortgage
bond issuances discussed above.
Under its articles of incorporation, Toledo Edison cannot issue preferred
stock unless certain earnings coverage requirements are met. At June 30,
1995, Toledo Edison would have been permitted to issue approximately $110
million of additional preferred stock at an assumed dividend rate of 10.5%.
Results of Operations
Factors contributing to the 0.7% and 2.7% decreases in 1995 operating revenues
from 1994 for the second quarter and six months, respectively, are shown as
follows:
Changes for Period
Ended June 30, 1995
Three Six
Factors Months Months
(millions)
Kilowatt-hour Sales Volume and Mix $ 2.0 $ 2.1
Wholesale Revenues (1.7) (8.0)
Fuel Cost Recovery Revenues (1.6) (5.4)
Miscellaneous Revenues (0.1) (0.3)
Total $(1.4) $(11.6)
Significant increases in unbilled revenues as a result of hot and humid
weather in the second half of June 1995 are included in the "Kilowatt-hour
Sales Volume and Mix" amounts in the above table. An accrual is made at the
end of each month to record the estimated amount of unbilled revenues for
kilowatt-hours sold in the current month but not billed by the end of that
month.
Percentage changes between 1995 and 1994 billed electric kilowatt-hour sales
are summarized as follows:
Changes for Period
Ended June 30, 1995
Three Six
Customer Categories Months Months
Residential (0.4)% (3.4)%
Commercial (1.3) (1.6)
Industrial 0.1 2.8
Other (3.6) (5.2)
Total (1.3) (1.4)
Second quarter 1995 total kilowatt-hour sales decreased because of lower
residential and commercial sales and lower wholesale sales (included in the
"Other" category). Residential and commercial sales were negatively affected
by the milder spring weather as compared with the 1994 period. Industrial
sales increased slightly as increased sales to the broad-based, smaller
industrial customer group entirely offset lower sales to the largest
industrial customers. Other sales decreased primarily because of lower
wholesale sales to Cleveland Electric as a result of the refueling and
maintenance outage of Beaver Valley Unit 2 which began in late March 1995 and
ended in early May 1995. Kilowatt-hour sales data does not reflect a
significant portion of the effect of the hot and humid weather in the second
half of June 1995 because those sales were not billed by the end of the month.
Total kilowatt-hour sales decreased for the six-month period in 1995 because
of lower residential and commercial sales and lower wholesale sales.
Residential and commercial sales were negatively affected by the milder
weather as compared with the 1994 period. Weather-normalized residential
sales for the 1995 six-month period increased 0.6% as compared with the 1994
amount, while weather-normalized commercial sales decreased 0.1%. Industrial
sales increased on the strength of increased sales to large automotive and
glass manufacturers and the broad-based, smaller industrial customer group.
Other sales decreased primarily because of lower wholesale sales to Cleveland
Electric as a result of the aforementioned 1995 refueling and maintenance
outage of Beaver Valley Unit 2.
The decreases in 1995 fuel cost recovery revenues included in customer bills
resulted from decreases in the fuel cost recovery factors used in 1995 to
calculate these revenues compared to those used in 1994. The decreases in the
weighted averages of the fuel cost recovery factors for 1995 were about 6% and
9% for the second quarter and six months, respectively.
Second quarter operating expenses in 1995 decreased 2.2% from the 1994 amount.
Lower power production expenses and cost-control measures combined to reduce
other operation and maintenance expenses. A generating plant outage in 1994
had increased the level of power production expenses significantly for the
1994 comparable period. The cost-control measures have also helped to
mitigate the increases in several operating expense categories. Fuel and
purchased power expenses decreased primarily because of lower purchased power
requirements resulting from the increased generation from the nuclear
generating units in the 1995 second quarter. An increase in depreciation and
amortization expenses included an increase in nuclear plant decommissioning
expense accruals for the 1995 second quarter as a result of the revisions to
the cost estimates implemented in September 1994, when the true-up adjustments
for the first eight months of 1994 were recorded. Federal income taxes
increased as a result of higher pretax operating income.
Six-month operating expenses in 1995 decreased 4.1% from the 1994 amount.
Other operation and maintenance expenses decreased for the same reasons cited
for the decrease in second quarter 1995 other operation and maintenance
expenses. Fuel and purchased power expenses decreased because of less fuel
expense and lower purchased power requirements, both factors resulting from
the increased generation from the nuclear generating units in the 1995 period.
About one-half of the increase in depreciation and amortization expenses was
attributable to an increase in nuclear plant decommissioning expense accruals.
Federal income taxes increased as a result of higher pretax operating income.
Six-month 1995 nonoperating income increased from the 1994 amount primarily
because of increased investment income (included in "Other Income and
Deductions, Net") and increased credits for carrying charges relating to the
Rate Stabilization Program, which was approved by the PUCO for Toledo Edison
in 1992. The federal income tax provision for nonoperating income increased
accordingly.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders
1. Cleveland Electric
a. A Special Meeting of Cleveland Electric's preferred stock share
owners was held on June 14, 1995.
b. The only matter submitted to preferred stock share owners for a vote
at the Special Meeting was for the approval of new Amended Articles
of Incorporation to increase the number of authorized shares of
Cleveland Electric preferred stock.
The vote on this issue was as follows:
Broker
For Against Abstain Non-Vote
1,447,627 32,041 43,718 854,758
2. Toledo Edison
a. A Special Meeting of Toledo Edison's preferred stock share owners
was held on June 14, 1995.
b. The only matter submitted to preferred stock share owners at the
Special Meeting was for the approval of the Agreement of Merger
between Toledo Edison and Cleveland Electric.
The vote on this issue was as follows:
Broker
For Against Abstain Non-Vote
1,573,495 69,079 49,686 445,751
Item 5. Other Information
1. Garfield Heights
For background relating to this topic, see "Item 1. Business--Operations
--Competitive Conditions--Cleveland Electric" in the Companies' Annual
Report on Form 10-K for the year ended December 31, 1994 ("1994 Form
10-K").
On June 29, 1995, The Public Utilities Commission of Ohio ("PUCO") ruled
that a rate reduction in the City of Garfield Heights was not warranted.
Garfield Heights had passed an ordinance in March 1994 calling for a 30%
reduction in rates for Cleveland Electric's customers within that city.
Cleveland Electric appealed the ordinance to the PUCO. Each party has
subsequently filed an application for rehearing concerning certain
provisions of the PUCO's ruling.
2. City of Clyde
For background relating to this topic, see "Item 1. Business--Operations
--Competitive Conditions--Toledo Edison" in the 1994 Form 10-K.
- 24 -
On June 23, 1995, the Court of Appeals for Sandusky County, Ohio denied
Toledo Edison's challenge to an ordinance passed by the City of Clyde in
January 1995 which prohibits new customers from using Toledo Edison
service. Toledo Edison has appealed this decision to the Ohio Supreme
Court.
3. Rate Freeze Ordinances
For background relating to this topic, see "Item 5. Other Information 1.
Rate Freeze Ordinances" in the Companies' Quarterly Report on Form 10-Q
for the quarter ended March 31, 1995.
In May 1995, the cities of Parma, Brook Park and Berea and the Village of
Brooklyn Heights each rescinded ordinances passed in those communities in
April 1995 which attempted to freeze Cleveland Electric rates through
1997.
4. Federal Energy Regulatory Commission Proposed Rules on Transmission Access
On March 29, 1995, the Federal Energy Regulatory Commission ("FERC")
issued proposed rules relating to open access transmission services by
public utilities, recovery of stranded costs and other related matters.
The open access proposed rules would require all utilities subject to
FERC jurisdiction to offer non-discriminatory open access transmission
service tariffs to wholesale buyers and sellers of electric power. The
proposed rules would require transmission owners to offer wholesale
transmission customers services which are comparable to the services the
owners provide for the transmission of their own power. In the proposed
rules on stranded costs, the FERC indicates that utilities are entitled
to full recovery of legitimate, prudent and verifiable stranded costs at
both the state and federal level.
On May 25, 1995, the Operating Companies filed with the FERC non-
discriminatory open access transmission tariffs which were drafted using
the proposed rules as a guideline. On August 7, 1995, Centerior Energy
filed comments with the FERC on the proposed rules.
The long-range impact of the proposed rules on the Operating Companies
is uncertain at this time. In the near term, the impact of the
requirement to provide transmission services is not expected to be material
because the Operating Companies have provided transmission services to
wholesale customers within their respective service territories since
the late 1970s.
5. Medical Center Company
For background relating to this topic, see "Item 1. Business-Operations
--Competitive Conditions--Cleveland Electric" in the 1994 Form 10-K and
"Part I. Financial Information--Management's Discussion and Analysis of
Financial Condition and Results of Operations--Outlook--Competition--
Cleveland Public Power" in the Centerior Energy and Cleveland Electric
Quarterly Reports on Form 10-Q for the quarter ended March 31, 1995.
- 25 -
On August 10, 1995, the PUCO dismissed a complaint filed by Cleveland
Electric against American Electric Power Company ("AEP") and Medical Center
Company ("Medco") concerning a proposed power contract between Medco and
Cleveland Public Power ("CPP"). An operating subsidiary of AEP has agreed
to sell the necessary power to CPP. Cleveland Electric has contended, among
other things, that this transaction is in reality a direct purchase
from AEP in violation of Ohio's certified territory statute. The PUCO
dismissed the case on jurisdictional grounds. Cleveland Electric plans
to request a rehearing of the matter.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
None.
b. Reports on Form 8-K
During the quarter ended June 30, 1995, Centerior Energy, Cleveland
Electric and Toledo Edison each filed the following Current Report on Form
8-K:
A Form 8-K dated June 14, 1995 was filed on June 16, 1995 to report, under
"Item 5. Other Events -- 1. 1995 Special Meetings", that, at Special
Meetings of the preferred stock share owners of Cleveland Electric and
Toledo Edison held on June 14, 1995, Cleveland Electric preferred share
owners approved an increase in the number of authorized shares of
Cleveland Electric preferred stock and Toledo Edison preferred share
owners approved the Agreement of Merger between Toledo Edison and
Cleveland Electric.
-26-
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, each
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The person signing this report on
behalf of each such registrant is also signing in his capacity as each
registrant's Chief Accounting Officer.
CENTERIOR ENERGY CORPORATION
(Registrant)
THE CLEVELAND ELECTRIC
ILLUMINATING COMPANY
(Registrant)
THE TOLEDO EDISON COMPANY
(Registrant)
By: E. LYLE PEPIN
E. Lyle Pepin, Controller and Chief
Accounting Officer of each Registrant
Date: August 11, 1995
- 27 -
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RELATED
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<MULTIPLIER> 1,000
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<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 6,894,561
<OTHER-PROPERTY-AND-INVEST> 443,943
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<TOTAL-DEFERRED-CHARGES> 2,427,828
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<TOTAL-ASSETS> 10,609,498
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222,430
450,871
<LONG-TERM-DEBT-NET> 3,902,386
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51,179
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<OPERATING-INCOME-LOSS> 266,551
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0
<EARNINGS-AVAILABLE-FOR-COMM> 0
<COMMON-STOCK-DIVIDENDS> 88,818
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RELATED
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<NAME> THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
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<PERIOD-TYPE> 6-MOS
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<TOTAL-NET-UTILITY-PLANT> 4,893,075
<OTHER-PROPERTY-AND-INVEST> 258,225
<TOTAL-CURRENT-ASSETS> 533,785
<TOTAL-DEFERRED-CHARGES> 1,435,763
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 7,120,848
<COMMON> 1,241,138
<CAPITAL-SURPLUS-PAID-IN> 78,624
<RETAINED-EARNINGS> (216,327)
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,103,435
217,410
240,871
<LONG-TERM-DEBT-NET> 2,790,558
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 114,860
39,514
<CAPITAL-LEASE-OBLIGATIONS> 109,794
<LEASES-CURRENT> 53,508
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,450,898
<TOT-CAPITALIZATION-AND-LIAB> 7,120,848
<GROSS-OPERATING-REVENUE> 834,745
<INCOME-TAX-EXPENSE> 34,452
<OTHER-OPERATING-EXPENSES> 623,922
<TOTAL-OPERATING-EXPENSES> 658,374
<OPERATING-INCOME-LOSS> 176,371
<OTHER-INCOME-NET> 16,563
<INCOME-BEFORE-INTEREST-EXPEN> 192,934
<TOTAL-INTEREST-EXPENSE> 121,721
<NET-INCOME> 71,213
21,675
<EARNINGS-AVAILABLE-FOR-COMM> 49,538
<COMMON-STOCK-DIVIDENDS> 15,000
<TOTAL-INTEREST-ON-BONDS> 241,160
<CASH-FLOW-OPERATIONS> 123,348
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RELATED
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<MULTIPLIER> 1,000
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<TOTAL-NET-UTILITY-PLANT> 2,001,485
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<TOTAL-DEFERRED-CHARGES> 998,585
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<TOTAL-ASSETS> 3,448,542
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<TOTAL-COMMON-STOCKHOLDERS-EQ> 716,506
5,020
210,000
<LONG-TERM-DEBT-NET> 1,111,828
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11,665
<CAPITAL-LEASE-OBLIGATIONS> 70,105
<LEASES-CURRENT> 40,996
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,219,032
<TOT-CAPITALIZATION-AND-LIAB> 3,448,542
<GROSS-OPERATING-REVENUE> 421,427
<INCOME-TAX-EXPENSE> 16,674
<OTHER-OPERATING-EXPENSES> 316,117
<TOTAL-OPERATING-EXPENSES> 332,791
<OPERATING-INCOME-LOSS> 88,636
<OTHER-INCOME-NET> 10,357
<INCOME-BEFORE-INTEREST-EXPEN> 98,993
<TOTAL-INTEREST-EXPENSE> 57,511
<NET-INCOME> 41,482
9,479
<EARNINGS-AVAILABLE-FOR-COMM> 32,003
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