FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 File Number 1-2578
OHIO EDISON COMPANY
(Exact name of Registrant as specified in its charter)
Ohio 34-0437786
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
76 South Main Street, Akron, Ohio 44308
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 216-384-5100
Indicate by check mark whether the registrant (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
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
152,569,437 shares of common stock, $9 par value, outstanding as of May 3,
1994.
<PAGE>
OHIO EDISON COMPANY
TABLE OF CONTENTS
Pages
Part I. Financial Information
Consolidated Statements of Income . . . . . . . . . . . . . . . . 1
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . 2-3
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements. . . . . . . . . . . . 5-6
Report of Independent Public Accountants. . . . . . . . . . . . . 7
Management's Discussion and Analysis of Results of Operations and
Financial Condition . . . . . . . . . . . . . . . . . . . . . . 8-9
Part II. Other Information
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
- ------------------------------
<CAPTION>
OHIO EDISON COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
-----------------------
1994 1993
--------- ---------
(In thousands, except per share amounts)
<S> <C> <C>
OPERATING REVENUES $601,248 $593,214
OPERATING EXPENSES AND TAXES:
Fuel and purchased power 124,559 117,021
Nuclear operating costs 81,141 76,104
Other operating costs 107,230 108,844
-------- --------
Total operation and maintenance expenses 312,930 301,969
Provision for depreciation 54,025 57,529
Deferral of net regulatory assets (1,807) (4,046)
General taxes 61,179 65,108
Income taxes 42,523 41,159
-------- --------
Total operating expenses and taxes 468,850 461,719
-------- --------
OPERATING INCOME 132,398 131,495
OTHER INCOME 2,255 4,016
-------- --------
TOTAL INCOME 134,653 135,511
-------- --------
NET INTEREST AND OTHER CHARGES:
Interest on long-term debt 64,771 66,460
Deferred nuclear unit interest (2,130) (2,098)
Allowance for borrowed funds used during
construction and capitalized interest (1,190) (1,427)
Other interest expense 3,916 3,817
Subsidiary's preferred stock dividend requirements 1,356 1,535
-------- --------
Net interest and other charges 66,723 68,287
-------- --------
INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE
IN ACCOUNTING 67,930 67,224
Cumulative effect to January 1, 1993 of a change
in accounting for unbilled revenues (net of income
taxes of $33,632,000) -- 58,201
-------- --------
NET INCOME 67,930 125,425
PREFERRED AND PREFERENCE STOCK DIVIDEND
REQUIREMENTS 5,601 5,905
-------- --------
EARNINGS ON COMMON STOCK $ 62,329 $119,520
======== ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 143,032 152,569
======== ========
EARNINGS PER SHARE OF COMMON STOCK:
Before cumulative effect of a change in accounting $ .44 $ .40
Cumulative effect to January 1, 1993 of a change
in accounting for unbilled revenues -- .38
------ ------
EARNINGS PER SHARE OF COMMON STOCK $ .44 $ .78
====== ======
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $ .375 $ .375
====== ======
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</TABLE>
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<PAGE>
<TABLE>
OHIO EDISON COMPANY
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
1994 1993
---------- ------------
(In thousands)
ASSETS
<S> <C> <C>
UTILITY PLANT:
In service, at original cost. . . . . . . . . . $8,402,430 $8,380,430
Less--Accumulated provision for
depreciation. . . . . . . . . . . . . . . . . 2,797,474 2,732,527
---------- ----------
5,604,956 5,647,903
---------- ----------
Construction work in progress-
Electric plant. . . . . . . . . . . . . . . . 205,336 182,894
Nuclear fuel. . . . . . . . . . . . . . . . . 55,064 46,879
---------- ----------
260,400 229,773
---------- ----------
5,865,356 5,877,676
---------- ----------
OTHER PROPERTY AND INVESTMENTS . . . . . . . . . 191,956 181,815
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . 145,761 159,690
Receivables-
Customers (less accumulated provisions of
$6,963,000 and $6,907,000, respectively,
for uncollectible accounts) . . . . . . . . . 297,636 298,913
Other . . . . . . . . . . . . . . . . . . . . 24,514 42,428
Materials and supplies, at average cost-
Fuel. . . . . . . . . . . . . . . . . . . . . 32,011 41,513
Other . . . . . . . . . . . . . . . . . . . . 88,080 87,689
Prepayments . . . . . . . . . . . . . . . . . . 81,503 72,889
---------- ----------
669,505 703,122
---------- ----------
DEFERRED CHARGES:
Regulatory assets . . . . . . . . . . . . . . . 1,989,175 1,993,795
Unamortized sale and leaseback costs. . . . . . 109,384 110,656
Other . . . . . . . . . . . . . . . . . . . . . 42,406 51,203
---------- ----------
2,140,965 2,155,654
---------- ----------
$8,867,782 $8,918,267
========== ==========
</TABLE>
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<PAGE>
<TABLE>
OHIO EDISON COMPANY
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
1994 1993
----------- ------------
(In thousands)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common stockholders' equity-
Common stock, $9 par value,
authorized 175,000,000 shares-
152,569,437 shares outstanding . . . . . . . $1,373,125 $1,373,125
Other paid-in capital. . . . . . . . . . . . 728,051 727,865
Retained earnings. . . . . . . . . . . . . . 331,300 322,821
Unallocated employee stock ownership plan
common stock - 9,491,493 and 9,608,739
shares, respectively . . . . . . . . . . . . (178,175) (180,519)
---------- ----------
Total common stockholders' equity . . . . . . 2,254,301 2,243,292
Preferred stock-
Not subject to mandatory redemption. . . . . 277,335 277,335
Subject to mandatory redemption. . . . . . . 25,000 25,000
Preferred stock of consolidated subsidiary-
Not subject to mandatory redemption. . . . . 50,905 50,905
Subject to mandatory redemption. . . . . . . 20,500 20,500
Long-term debt. . . . . . . . . . . . . . . . 3,054,362 3,039,263
---------- ----------
5,682,403 5,656,295
---------- ----------
CURRENT LIABILITIES:
Currently payable preferred stock
and long-term debt. . . . . . . . . . . . . 324,411 444,170
Short-term borrowings . . . . . . . . . . . . 102,151 104,126
Accounts payable. . . . . . . . . . . . . . . 118,147 127,895
Accrued taxes . . . . . . . . . . . . . . . . 140,977 107,687
Accrued interest. . . . . . . . . . . . . . . 64,729 72,667
Other . . . . . . . . . . . . . . . . . . . . 163,006 141,251
---------- ----------
913,421 997,796
---------- ----------
DEFERRED CREDITS:
Accumulated deferred income taxes . . . . . . 1,802,564 1,798,551
Accumulated deferred investment tax credits . 229,854 231,863
Property taxes. . . . . . . . . . . . . . . . 101,444 101,182
Other . . . . . . . . . . . . . . . . . . . . 138,096 132,580
---------- ----------
2,271,958 2,264,176
---------- ----------
COMMITMENTS, GUARANTEES AND
CONTINGENCIES (Note 2) . . . . . . . . . . . ---------- ----------
$8,867,782 $8,918,267
========== ==========
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these balance sheets.
</TABLE>
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<PAGE>
<TABLE>
OHIO EDISON COMPANY
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
----------------------
1994 1993
--------- --------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . $ 67,930 $125,425
Adjustments to reconcile net income to net
cash from operating activities-
Provision for depreciation . . . . . . . . . 54,025 57,529
Nuclear fuel and lease amortization. . . . . 20,327 15,708
Deferred income taxes, net . . . . . . . . . 9,038 6,407
Investment tax credits, net. . . . . . . . . (2,009) (2,184)
Allowance for equity funds used during
construction . . . . . . . . . . . . . . . . (1,506) (1,416)
Deferred fuel costs, net . . . . . . . . . . 2,207 (5,565)
Cumulative effect of a change in accounting
for unbilled revenues . . . . . . . . . . . -- (58,201)
Other amortization, net. . . . . . . . . . . (106) (2,138)
-------- --------
Internal cash before dividends . . . . . . . 149,906 135,565
Receivables. . . . . . . . . . . . . . . . . 19,191 30,018
Materials and supplies . . . . . . . . . . . 9,111 3,771
Accounts payable . . . . . . . . . . . . . . (3,898) 4,181
Other. . . . . . . . . . . . . . . . . . . . 47,620 23,774
-------- --------
Net cash provided from operating
activities . . . . . . . . . . . . . . . . . 221,930 197,309
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
New Financing-
Long-term debt . . . . . . . . . . . . . . . . 40,086 26,982
Redemptions and Repayments-
Long-term debt . . . . . . . . . . . . . . . . 96,435 66,378
Preferred stock. . . . . . . . . . . . . . . . 50,362 800
Short-term borrowings, net . . . . . . . . . . 1,975 9,267
Dividend Payments-
Common stock . . . . . . . . . . . . . . . . . 52,412 53,225
Preferred and preference stock . . . . . . . . 5,814 5,788
-------- --------
Net cash used for financing activities . . . 166,912 108,476
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions . . . . . . . . . . . . . . . 65,320 61,003
Sale and leaseback restructuring fees. . . . . . -- 9,957
Other. . . . . . . . . . . . . . . . . . . . . . 3,627 (2,016)
-------- --------
Net cash used for investing activities . . . 68,947 68,944
-------- --------
Net increase (decrease) in cash and cash
equivalents. . . . . . . . . . . . . . . . . . . (13,929) 19,889
Cash and cash equivalents at beginning of period . 159,690 14,212
-------- --------
Cash and cash equivalents at end of period . . . . $145,761 $ 34,101
======== ========
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</TABLE>
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<PAGE>
OHIO EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1 - FINANCIAL STATEMENTS:
The condensed consolidated financial statements reflect all normal
recurring adjustments which are, in the opinion of management, necessary to
fairly present results of operations for the interim periods. These statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in Ohio Edison Company's (Company) 1993 Annual Report to
Stockholders. The results of operations are not intended to represent results of
operations for any future period.
The American Institute of Certified Public Accountants issued its
Statement of Position 93-6 (SOP) in late 1993, which changes generally accepted
accounting principles relating to Employee Stock Ownership Plans (ESOP) for
shares purchased after December 31, 1992. The Company's ESOP shares were
purchased prior to that date, but the Company elected to adopt the SOP effective
January 1, 1994. This change in accounting reduced net income by approximately
$2,500,000 in the first quarter of 1994; however, the accompanying effect to
earnings per common share was an increase of one cent due to the elimination of
unallocated ESOP shares from the computation.
2 - COMMITMENTS, GUARANTEES AND CONTINGENCIES:
Construction Program --
The Company and its wholly owned subsidiary, Pennsylvania Power Company
(Companies), currently forecast expenditures of approximately $1,000,000,000 for
property additions and improvements from 1994-1998, of which approximately
$235,000,000 is applicable to 1994. The Companies' nuclear fuel investments are
expected to be approximately $204,000,000 during the 1994-1998 period, of which
approximately $45,000,000 is applicable to 1994.
Guarantees --
The Companies, together with the other Central Area Power Coordination
Group companies, have each severally guaranteed certain debt and lease
obligations in connection with a coal supply contract for the Bruce Mansfield
Plant. As of March 31, 1994, the Companies' share of the guarantees were
$89,036,000. The price under the coal supply contract, which includes certain
minimum payments, has been determined to be sufficient to satisfy the debt and
lease obligations.
Environmental Matters --
Various federal, state and local authorities regulate the Companies with
regard to air and water quality and other environmental matters. The Companies
have estimated additional capital expenditures for environmental compliance of
approximately $175,000,000, which is included in the construction forecast under
"Construction Program" for 1994 through 1998.
-5-
<PAGE>
OHIO EDISON COMPANY
NOTES - (Continued)
The Clean Air Act Amendments of 1990 require significant reductions of
sulfur dioxide (SO2) and oxides of nitrogen from the Companies' coal-fired
generating units by 1995 and additional emission reductions by 2000. Compliance
options include, but are not limited to, installing additional pollution control
equipment, burning less polluting fuel, purchasing emission allowances from
others, operating existing facilities in a manner which minimizes pollution and
retiring facilities. In compliance plans submitted to the Public Utilities
Commission of Ohio and to the Environmental Protection Agency (EPA), the Company
stated that reductions for the years 1995 through 1999 are likely to be achieved
by burning lower sulfur fuel, generating more electricity at its lower emitting
plants and/or purchasing emission allowances. The Company continues to evaluate
its compliance plans and other compliance options as they arise. Plans for
complying with the year 2000 reductions are less certain at this time.
The Companies are presently required to meet federally approved SO2
regulations, and the violations of such regulations can result in injunctive
relief, including shutdown of the generating unit involved, and/or civil or
criminal penalties of up to $25,000 per day of violation. The EPA has an interim
enforcement policy for the SO2 regulations in Ohio which allows for compliance
with the regulations based on a 30-day averaging period. The EPA has proposed
regulations which could cause changes in the interim enforcement policy,
including revisions of the method of determining compliance with emission
limits. The Companies cannot predict what action the EPA may take in the future
with respect to the proposed regulations or the interim enforcement policy.
The Pennsylvania Department of Environmental Resources has issued
regulations dealing with the storage, treatment, transportation and disposal of
residual waste such as coal ash and scrubber sludge. These regulations impose
additional requirements relating to permitting, ground water monitoring,
leachate collection systems, closure, liability insurance and operating
matters. The Companies are developing and analyzing various compliance options
and are presently unable to determine the ultimate increase in capital and
operating costs at existing sites.
Legislative and administrative action and the effect of court decisions
can be expected in the future (as they have in the past) to change the way that
the Companies must operate in order to comply with environmental laws and
regulations. With respect to any such changes and to the environmental matters
described above, the Companies expect that any resulting additional capital
costs which may be required, as well as any required increase in operating
costs, would ultimately be recovered from their customers.
-6-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Ohio Edison Company:
We have reviewed the accompanying consolidated balance sheet of Ohio
Edison Company (an Ohio corporation) and subsidiaries as of March 31, 1994, and
the related consolidated statements of income and cash flows for the three-
month periods ended March 31, 1994 and 1993. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet and consolidated statement
of capitalization of Ohio Edison Company and subsidiaries as of December 31,
1993, and the related consolidated statements of income, retained earnings,
capital stock and other paid-in capital, cash flows and taxes for the year then
ended (not presented separately herein). In our opinion, the information set
forth in the accompanying consolidated balance sheet as of December 31, 1993 is
fairly stated in all material respects in relation to the balance sheet from
which it has been derived.
ARTHUR ANDERSEN & CO.
Cleveland, Ohio,
May 2, 1994
-7-
<PAGE>
OHIO EDISON COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Earnings on common stock increased to $.44 per share in the first quarter
of 1994 compared to $.40 per share in the first quarter of 1993 excluding the
cumulative effect in 1993 of a change in accounting for unbilled revenues.
During the first quarter of 1994, retail sales reached a new first
quarter record, up 4.2% compared to last year. Residential and commercial
sales increased 5.1% and 3.8%, respectively, due to increased heating loads
resulting from more severe weather conditions than those that occurred during
the first quarter of 1993. Sales to industrial customers increased 3.6% due to
increased demand by rubber and plastics manufacturers, fabricated metals
manufacturers and transportation equipment producers. Total kilowatt-hour
sales were down 3.8% in the first quarter of 1994 due to a 25.9% decrease in
sales to other utilities. Increased heating loads in the retail sector and
capacity constraints limited the Companies' opportunities to sell power off
system.
The increase in fuel and purchased power costs in the first quarter of
1994 compared with 1993 was a result of greater reliance on purchased power due
to scheduled generating unit maintenance outages in 1994. Higher nuclear
operating costs in 1994 reflect additional work being performed during a
scheduled refueling outage at Perry Unit 1. The refueling outage was
originally scheduled to be complete in early May 1994; however, the most recent
estimate extends the outage by at least one month.
Other income decreased in the first quarter of 1994 due to a change in
accounting for interest income from the Employee Stock Ownership Plan Trust
(see Note 1). The effect of this accounting change on other income was
partially offset by increases in interest income from temporary cash
investments and pollution control escrow funds.
Capital Resources and Liquidity
The Companies have continuing cash requirements for planned capital
expenditures and debt maturities. During the last three quarters of 1994,
capital requirements for property additions and capital leases are expected to
be approximately $219,000,000, including $37,000,000 for nuclear fuel. The
Companies have additional cash requirements of approximately $284,000,000 to
meet maturities of, and sinking fund requirements for, long-term debt and
preferred stock during the remainder of 1994.
As of March 31, 1994, the Companies had approximately $146,000,000 of
cash and temporary investments and $102,000,000 of short-term indebtedness.
Funds are also available to the Company through $89,000,000 of unused OES Fuel
credit lines. In addition, the Companies have $55,000,000 of unused short-term
bank lines of credit and $117,000,000 of bank facilities which provide for
borrowings
-8-
OHIO EDISON COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION - (Continued)
on a short-term basis at the banks' discretion. OES Capital had approximately
$18,000,000 of unused short-term borrowing capability at March 31, 1994.
The Companies have ownership and leasehold interests in three nuclear
generating units. The Companies' share of the future obligation to
decommission these units is $382,000,000 in current dollars and (using a 2.9%
escalation rate) $889,000,000 in future dollars. The estimated obligation,
based on site specific studies, and the escalation rate were developed using
information obtained from consultants. Payments for decommissioning are
expected to begin in 2016, when actual decommissioning work begins. The
Companies recover decommissioning costs through their electric rates and expect
that any increase in actual decommissioning costs compared to estimates used to
compute customer rates would be recovered from their customers.
-9-
<PAGE>
PART II. OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number
-------
15 Letter from independent public accountants.
Pursuant to paragraph (b)(4)(iii)(A) of Item 601 of Regulation S-K,
the Company has not filed as an exhibit to this Form 10-Q any
instrument with respect to long-term debt if the total amount of
securities authorized thereunder does not exceed 10% of the total
assets of the Company and its subsidiaries on a consolidated basis,
but hereby agrees to furnish to the Commission on request any such
documents.
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
May 3, 1994
OHIO EDISON COMPANY
-------------------
Registrant
/s/H. P. Burg
----------------------------------
H. P. Burg
Senior Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT 15
Ohio Edison Company
76 South Main Street
Akron, Ohio 44308
Gentlemen:
We are aware that Ohio Edison Company has incorporated by reference in
previously filed Registration Statements No. 33-49135, No. 33-49259,
No. 33-49413 and 33-51139, the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1994, which includes our report dated May 2,
1994, covering the unaudited interim consolidated financial statements
contained therein. Pursuant to Rule 436(c) of Regulation C of the Securities
Act of 1933, such report is not considered a part of the Registration
Statements prepared or certified by our firm or a report prepared or certified
by our firm within the meaning of Sections 7 and 11 of the Act.
Very truly yours,
ARTHUR ANDERSEN & CO.
Cleveland, Ohio,
May 2, 1994
