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, 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 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 4, 1995.
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
PART I. FINANCIAL INFORMATION
- ------------------------------
<TABLE>
OHIO EDISON COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
--------------------------
1995 1994
---------- ---------
(In thousands, except per share amounts)
<S> <C> <C>
OPERATING REVENUES $587,734 $601,248
-------- --------
OPERATING EXPENSES AND TAXES:
Fuel and purchased power 110,041 124,559
Nuclear operating costs 73,886 81,141
Other operating costs 106,843 107,230
-------- --------
Total operation and maintenance expenses 290,770 312,930
Provision for depreciation 56,866 54,025
Amortization of net regulatory assets 3,289 (1,807)
General taxes 59,557 61,179
Income taxes 43,439 42,523
-------- --------
Total operating expenses and taxes 453,921 468,850
-------- --------
OPERATING INCOME 133,813 132,398
OTHER INCOME 2,997 2,255
-------- --------
TOTAL INCOME 136,810 134,653
-------- --------
NET INTEREST AND OTHER CHARGES:
Interest on long-term debt 61,931 64,771
Deferred nuclear unit interest (2,125) (2,130)
Allowance for borrowed funds used during construction and
capitalized interest (1,314) (1,190)
Other interest expense 5,562 3,916
Subsidiary's preferred stock dividend requirements 1,160 1,356
-------- --------
Net interest and other charges 65,214 66,723
-------- --------
NET INCOME 71,596 67,930
PREFERRED STOCK DIVIDEND REQUIREMENTS 5,359 5,601
-------- --------
EARNINGS ON COMMON STOCK $ 66,237 $ 62,329
======== ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 143,521 143,032
======== ========
EARNINGS PER SHARE OF COMMON STOCK $ .46 $ .44
====== =====
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $.375 $.375
===== =====
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
-1-
</TABLE>
<TABLE>
OHIO EDISON COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
March 31, December 31,
1995 1994
----------- ------------
(In thousands)
ASSETS
<S> <C> <C>
UTILITY PLANT:
In service, at original cost $8,512,391 $8,518,050
Less--Accumulated provision for depreciation 2,928,642 2,910,587
---------- ----------
5,583,749 5,607,463
---------- ----------
Construction work in progress-
Electric plant 194,751 174,970
Nuclear fuel 36,395 52,470
---------- ----------
231,146 227,440
---------- ----------
5,814,895 5,834,903
---------- ----------
OTHER PROPERTY AND INVESTMENTS:
Letter of credit collateralization 277,763 277,763
Other 205,730 197,546
---------- ----------
483,493 475,309
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents 24,023 23,291
Receivables-
Customers (less accumulated provisions of $2,590,000
and $2,517,000, respectively, for uncollectible
accounts) 240,385 254,515
Other 42,339 54,713
Materials and supplies, at average cost-
Fuel 41,690 40,528
Other 80,141 81,809
Prepayments 84,039 71,836
---------- ----------
512,617 526,692
---------- ----------
DEFERRED CHARGES:
Regulatory assets 2,001,157 2,005,333
Unamortized sale and leaseback costs 105,651 106,883
Other 45,701 44,844
---------- ----------
2,152,509 2,157,060
---------- ----------
$8,963,514 $8,993,964
========== ==========
-2-
</TABLE>
<TABLE>
OHIO EDISON COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
March 31, December 31,
1995 1994
----------- ------------
(In thousands)
CAPITALIZATION AND LIABILITIES
<S> <C> <C>
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 724,965 724,848
Retained earnings 402,021 389,600
Unallocated employee stock ownership plan common
stock-8,998,305 and 9,076,489 shares, respectively (168,939) (170,376)
---------- ----------
Total common stockholders' equity 2,331,172 2,317,197
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 15,000 15,000
Long-term debt 3,064,197 3,166,593
---------- ----------
5,763,609 5,852,030
---------- ----------
CURRENT LIABILITIES:
Currently payable long-term debt 261,463 227,496
Short-term borrowings 158,861 174,642
Accounts payable 100,047 100,884
Accrued taxes 145,303 140,629
Accrued interest 61,198 65,743
Other 178,326 152,856
---------- ----------
905,198 862,250
---------- ----------
DEFERRED CREDITS:
Accumulated deferred income taxes 1,799,932 1,799,324
Accumulated deferred investment tax credits 221,821 223,827
Property taxes 107,678 106,458
Other 165,276 150,075
---------- ----------
2,294,707 2,279,684
---------- ----------
COMMITMENTS, GUARANTEES AND CONTINGENCIES (Note 2) ---------- ----------
$8,963,514 $8,993,964
========== ==========
<FN>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these balance sheets.
-3-
</TABLE>
<TABLE>
OHIO EDISON COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
-----------------------
1995 1994
-------- --------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 71,596 $ 67,930
Adjustments to reconcile net income to net cash from
operating activities-
Provision for depreciation 56,866 54,025
Nuclear fuel and lease amortization 14,260 20,327
Deferred income taxes, net 5,803 9,038
Investment tax credits, net (2,006) (2,009)
Allowance for equity funds used during construction (666) (1,506)
Deferred fuel costs, net 4,496 2,207
Other amortization, net 3,757 (106)
-------- --------
Internal cash before dividends 154,106 149,906
Receivables 26,504 19,191
Materials and supplies 506 9,111
Accounts payable 4,649 (3,898)
Other 18,339 47,620
-------- --------
Net cash provided from operating activities 204,104 221,930
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
New Financing-
Long-term debt 74,577 40,086
Redemptions and Repayments-
Long-term debt 143,037 96,435
Preferred stock - 50,362
Short-term borrowings, net 15,781 1,975
Dividend Payments-
Common stock 54,805 52,412
Preferred stock 5,401 5,814
-------- --------
Net cash used for financing activities 144,447 166,912
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions 54,205 65,320
Other 4,720 3,627
-------- --------
Net cash used for investing activities 58,925 68,947
-------- --------
Net increase (decrease) in cash and cash equivalents 732 (13,929)
Cash and cash equivalents at beginning of period 23,291 159,690
-------- --------
Cash and cash equivalents at end of period $ 24,023 $145,761
======== ========
<FN>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
-4-
</TABLE>
OHIO EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1 - FINANCIAL STATEMENTS:
The condensed consolidated financial statements reflect
all normal recurring adjustments that, in the opinion of
management, are 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
included in Ohio Edison Company's (Company) 1994 Annual Report to
Stockholders. The results of operations are not intended to be
indicative of results of operations for any future period.
2 - COMMITMENTS, GUARANTEES AND CONTINGENCIES:
Construction Program --
The Company and its wholly owned subsidiary, Pennsylvania
Power Company (Companies), currently forecast expenditures of
approximately $800,000,000 for property additions and improvements
from 1995-1999, of which approximately $180,000,000 is applicable
to 1995. The Companies' nuclear fuel investments are expected to be
approximately $172,000,000 during the 1995-1999 period, of which
approximately $30,000,000 is applicable to 1995.
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, 1995, the
Companies' share of the guarantees were $74,850,000. 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
$70,000,000 for the period 1995 through 1999, which is included in
the construction forecast under "Construction Program."
The Clean Air Act Amendments of 1990 required significant
reductions of sulfur dioxide (SO2) and nitrogen oxides (NOx) from
the Companies' coal-fired generating units by 1995 and additional
emission reductions by 2000. SO2 reductions for the years 1995
through 1999 are being achieved by burning lower-sulfur fuel,
generating more electricity from lower-emitting plants, and/or
-5-
OHIO EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Cont'd)
purchasing emission allowances. Equipment already installed
provides NOx reductions sufficient to meet the 1995 requirements.
Plans for complying with reductions required for the year 2000 and
thereafter have not been finalized. The Environmental Protection
Agency (EPA) is conducting additional studies which could indicate
the need for additional NOx reductions from the Companies'
Pennsylvania facilities by the year 2003. The cost of such
reductions, if required, may be substantial. The Company continues
to evaluate its compliance plans and other compliance options.
The Companies are required to meet federally approved SO2
regulations. Violations of such regulations can result in shutdown
of the generating unit involved and/or civil or criminal penalties
of up to $25,000 for each day the unit is in violation. The EPA has
an interim enforcement policy for SO2 regulations in Ohio that
allows for compliance based on a 30-day averaging period. The EPA
has proposed regulations that could change the interim enforcement
policy, including 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 considering various compliance options
but are presently unable to determine the ultimate increase in
capital and operating costs at existing sites.
Legislative, administrative and judicial actions will
continue 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-
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, 1995, and the related consolidated statements of
income and cash flows for the three-month periods ended March 31,
1995 and 1994. 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, 1994, 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, 1994 is fairly stated in all material respects in relation to
the balance sheet from which it has been derived.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
May 4, 1995
-7-
OHIO EDISON COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Earnings on common stock increased to $.46 per share in
the first quarter of 1995 compared to $.44 per share for the same
period last year. The Companies' ongoing commitment to cost control
produced the improved earnings, even though operating revenues
decreased by about $13,500,000.
During the first quarter of 1995, retail kilowatt-hour
sales decreased 1.2% from last year's first quarter record. Due to
unseasonably mild weather conditions in the first quarter of 1995,
residential and commercial kilowatt-hour sales fell 4.0% and 0.4%,
respectively, compared to last year. Industrial sales were up 0.8%
for the quarter in spite of reduced production (until mid-1995) by
a major steel customer that is modernizing its facilities. Sales to
all other industrial customers were up 4.0% for the quarter due to
strong demand by companies in the rubber and plastics industries.
Total kilowatt-hour sales were down 6.0% in the first quarter of
1995 due to a 24.8% decrease in sales to other utilities.
Generating capacity constraints and market conditions limited the
Companies' wholesale sales opportunities during the quarter.
Because of lower kilowatt-hour sales, the Companies spent
less on fuel and purchased power during the first quarter of 1995,
compared to last year. Nuclear expenses were lower in 1995 than
they were last year because of corrective maintenance work that was
performed during the scheduled refueling outage at the Perry Plant
in 1994.
The Companies continue to review their operations to
identify opportunities to increase revenues and improve operating
efficiency. As part of this effort, Burger Plant Units 1 and 2 were
shut down during the first quarter of 1995 and Unit 3 was reserved
as a low priority peaking unit. The workforce at the plant was
reduced by 100 employees in connection with these changes.
Additional workforce reductions occurred at the Sammis and New
Castle plants as a result of productivity improvements. Staffing at
Sammis and New Castle was reduced by 108 and 19 employees,
respectively. The shutdown of the generating units at Burger,
coupled with the above staffing reductions, is expected to reduce
annual operating costs by about $13,000,000.
Increased depreciation charges in 1995 reflect an
increase in the accrual for nuclear decommissioning costs. The
change in amortization of net regulatory assets resulted
principally from the absence of credits in 1995 compared to last
year due to limitations contained in the Company's Rate
Stabilization and Service Area Development Program authorized by
the Public Utilities Commission of Ohio in 1992.
-8-
OHIO EDISON COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Cont'd)
Overall, interest costs were lower during the first
quarter of 1995 than they were last year. Interest on long-term
debt decreased due to refinancing and redemption of higher-cost
debt that occurred subsequent to March 31, 1994. Other interest
expense increased compared to last year due primarily to higher
levels of short-term borrowings.
Capital Resources and Liquidity
The Companies have continuing cash requirements for
planned capital expenditures and debt maturities. During the last
three quarters of 1995, capital requirements for property additions
and capital leases are expected to be about $160,000,000, including
$22,000,000 for nuclear fuel. The Companies have additional cash
requirements of approximately $114,000,000 to meet maturities of
long-term debt during the remainder of 1995. These cash
requirements are expected to be satisfied with internal cash and/or
short-term credit arrangements. In addition, approximately
$70,000,000 of variable rate pollution control put bonds are
subject to repricing during the remainder of the year.
As of March 31, 1995, the Companies had about $24,000,000
of cash and temporary investments and $159,000,000 of short-term
indebtedness. OES Fuel had approximately $64,000,000 of unused
borrowing capability at March 31, 1995 that was available for
reloan to the Company. The Companies also had $50,000,000 of unused
short-term bank lines of credit, and $72,000,000 of bank facilities
that provide for borrowings on a short-term basis at the banks'
discretion. OES Capital had approximately $11,000,000 of unused,
short-term borrowing capability at March 31, 1995.
During the first quarter of 1995, Penn Power purchased
$16,500,000 of its 8.5% first mortgage bonds in the open market.
Subsequent to March 31, 1995, Penn Power purchased an additional
$13,250,000 of first mortgage bonds with a weighted average
interest rate of 8.04%.
-9-
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
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 4, 1995
OHIO EDISON COMPANY
-------------------
Registrant
/s/ H. P. Burg
-----------------------------
H. P. Burg
Senior Vice President and
Chief Financial Officer
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 No. 33-51139, the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1995, which
includes our report dated May 4, 1995, 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 LLP
Cleveland, Ohio
May 4, 1995
<TABLE> <S> <C>
<ARTICLE> OPUR1
<LEGEND>
(Amounts in 1,000's, except earnings per share)
Income tax expense includes $2,376,000 related to other income.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 5,814,895
<OTHER-PROPERTY-AND-INVEST> 483,493
<TOTAL-CURRENT-ASSETS> 512,617
<TOTAL-DEFERRED-CHARGES> 2,152,509
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 8,963,514
<COMMON> 1,373,125
<CAPITAL-SURPLUS-PAID-IN> 556,026
<RETAINED-EARNINGS> 402,021
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,331,172
40,000
328,240
<LONG-TERM-DEBT-NET> 3,064,197
<SHORT-TERM-NOTES> 50,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 108,861
<LONG-TERM-DEBT-CURRENT-PORT> 255,126
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 6,337
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,779,581
<TOT-CAPITALIZATION-AND-LIAB> 8,963,514
<GROSS-OPERATING-REVENUE> 587,734
<INCOME-TAX-EXPENSE> 45,815
<OTHER-OPERATING-EXPENSES> 410,482
<TOTAL-OPERATING-EXPENSES> 453,921
<OPERATING-INCOME-LOSS> 133,813
<OTHER-INCOME-NET> 2,997
<INCOME-BEFORE-INTEREST-EXPEN> 136,810
<TOTAL-INTEREST-EXPENSE> 65,214
<NET-INCOME> 71,596
5,359
<EARNINGS-AVAILABLE-FOR-COMM> 66,237
<COMMON-STOCK-DIVIDENDS> 53,817
<TOTAL-INTEREST-ON-BONDS> 61,931
<CASH-FLOW-OPERATIONS> 204,104
<EPS-PRIMARY> .46
<EPS-DILUTED> .46
</TABLE>
