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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to_________________
Commission 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: 330-384-5100
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 2, 1996.
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
<TABLE>
PART I. FINANCIAL INFORMATION
- ------------------------------
OHIO EDISON COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
--------------------------
1996 1995
-------- --------
(In thousands, except per share amounts)
<S> <C> <C>
OPERATING REVENUES $611,636 $587,734
-------- --------
OPERATING EXPENSES AND TAXES:
Fuel and purchased power 123,290 110,041
Nuclear operating costs 58,774 73,886
Other operating costs 100,873 106,843
-------- --------
Total operation and maintenance expenses 282,937 290,770
Provision for depreciation 83,291 56,866
Amortization of net regulatory assets 5,632 3,289
General taxes 63,959 59,557
Income taxes 45,331 43,439
-------- --------
Total operating expenses and taxes 481,150 453,921
-------- --------
OPERATING INCOME 130,486 133,813
OTHER INCOME 6,996 2,997
-------- --------
TOTAL INCOME 137,482 136,810
-------- --------
NET INTEREST AND OTHER CHARGES:
Interest on long-term debt 56,535 61,931
Deferred nuclear unit interest - (2,125)
Allowance for borrowed funds used during construction and
capitalized interest (1,178) (1,314)
Other interest expense 4,858 5,562
Subsidiaries' preferred stock dividend requirements 3,857 1,160
-------- --------
Net interest and other charges 64,072 65,214
-------- --------
NET INCOME 73,410 71,596
PREFERRED STOCK DIVIDEND REQUIREMENTS 3,125 5,359
-------- --------
EARNINGS ON COMMON STOCK $ 70,285 $ 66,237
======== ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 143,946 143,521
======== ========
EARNINGS PER SHARE OF COMMON STOCK $ .49 $ .46
===== =====
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>
- 1 -
<TABLE>
OHIO EDISON COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
March 31, December 31,
1996 1995
------------ -------------
(In thousands)
<S> <C> <C>
ASSETS
------
UTILITY PLANT:
In service, at original cost $8,577,415 $8,556,722
Less--Accumulated provision for depreciation 3,134,320 3,051,148
---------- ----------
5,443,095 5,505,574
---------- ----------
Construction work in progress-
Electric plant 144,751 150,262
Nuclear fuel 48,219 39,613
---------- ----------
192,970 189,875
---------- ----------
5,636,065 5,695,449
---------- ----------
OTHER PROPERTY AND INVESTMENTS:
Letter of credit collateralization 277,763 277,763
Other 255,271 252,005
---------- ----------
533,034 529,768
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents 30,217 29,830
Receivables-
Customers (less accumulated provisions of $2,568,000 and
$2,528,000, respectively, for uncollectible accounts) 257,054 274,692
Other 34,235 54,988
Materials and supplies, at average cost-
Owned 68,420 68,829
Under Consignment 45,867 41,080
Prepayments 87,520 82,257
---------- ----------
523,313 551,676
---------- ----------
DEFERRED CHARGES:
Regulatory assets 1,776,105 1,786,543
Unamortized sale and leaseback costs 101,874 103,091
Property taxes 104,071 104,071
Other 53,400 53,336
---------- ----------
2,035,450 2,047,041
---------- ----------
$8,727,862 $8,823,934
========== ==========
</TABLE>
- 2 -
<TABLE>
OHIO EDISON COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
March 31, December 31,
1996 1995
------------- --------------
(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 726,789 726,307
Retained earnings 487,288 471,095
Unallocated employee stock ownership plan common stock - 8,613,748
and 8,663,575 shares, respectively (161,089) (162,656)
---------- ----------
Total common stockholders' equity 2,426,113 2,407,871
Preferred stock-
Not subject to mandatory redemption 160,965 160,965
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
Company obligated mandatorily redeemable preferred securities of
subsidiary trust holding solely Company subordinated debentures 120,000 120,000
Long-term debt 2,759,970 2,786,256
---------- ----------
5,557,953 5,565,997
---------- ----------
CURRENT LIABILITIES:
Currently payable long-term debt 302,707 376,716
Short-term borrowings 119,008 119,965
Accounts payable 92,546 100,536
Accrued taxes 142,059 131,432
Accrued interest 56,490 57,462
Other 188,884 196,482
---------- ----------
901,694 982,593
---------- ----------
DEFERRED CREDITS:
Accumulated deferred income taxes 1,772,534 1,772,434
Accumulated deferred investment tax credits 210,541 213,876
Other 285,140 289,034
---------- ----------
2,268,215 2,275,344
---------- ----------
COMMITMENTS, GUARANTEES AND
CONTINGENCIES (Note 2) ---------- ----------
$8,727,862 $8,823,934
========== ==========
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these balance sheets.
</TABLE>
- 3 -
<TABLE>
OHIO EDISON COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
----------------------
1996 1995
--------- --------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 73,410 $ 71,596
Adjustments to reconcile net income to net cash from operating activities-
Provision for depreciation 83,291 56,866
Nuclear fuel and lease amortization 12,237 14,260
Deferred income taxes, net 8,424 5,803
Investment tax credits, net (3,335) (2,006)
Allowance for equity funds used during construction - (666)
Deferred fuel costs, net (2,936) 4,496
Receivables 38,391 26,504
Materials and supplies (4,378) 506
Accounts payable (1,814) 4,649
Other 9,287 22,096
-------- --------
Net cash provided from operating activities 212,577 204,104
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
New Financing-
Long-term debt 40,621 74,577
Redemptions and Repayments-
Preferred stock 671 -
Long-term debt 146,867 143,037
Short-term borrowings, net 957 15,781
Dividend Payments-
Common stock 53,862 54,805
Preferred stock 3,360 5,401
-------- --------
Net cash used for financing activities 165,096 144,447
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions 43,725 54,205
Other 3,369 4,720
-------- --------
Net cash used for investing activities 47,094 58,925
-------- --------
Net increase in cash and cash equivalents 387 732
Cash and cash equivalents at beginning of period 29,830 23,291
-------- --------
Cash and cash equivalents at end of period $ 30,217 $ 24,023
======== ========
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</TABLE>
- 4 -
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) 1995 Annual Report to
Stockholders. The results of operations are not intended to be
indicative of results of operations for any future period.
The sole assets of the subsidiary trust that is the
obligor on the preferred securities included in the Company's
capitalization are $123,711,350 principal amount of 9% Junior
Subordinated Debentures of the Company due December 31, 2025.
2 - COMMITMENTS, GUARANTEES AND CONTINGENCIES:
Construction Program --
The Company and its wholly owned subsidiary, Pennsylvania
Power Company (Companies), currently forecast expenditures of
approximately $650,000,000 for property additions and improvements
from 1996-2000, of which approximately $160,000,000 is applicable
to 1996. The Companies' nuclear fuel investments are expected to be
approximately $180,000,000 during the 1996-2000 period, of which
approximately $29,000,000 is applicable to 1996.
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, 1996, the
Companies' shares of the guarantees were $60,417,000. 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
$17,000,000 for the period 1996 through 2000, which is included in
the construction forecast under "Construction Program."
- 5 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Cont'd)
The Companies are in compliance with the sulfur
dioxide(SO2) and nitrogen oxides (NOx) reduction requirements under
the Clean Air Act Amendments of 1990. SO2 reductions through the
year 1999 are being achieved by burning lower-sulfur fuel,
generating more electricity from lower-emitting plants, and/or
purchasing emission allowances. 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
Companies continue to evaluate their 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.
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, 1996, and the related consolidated statements of
income and cash flows for the three-month periods ended March 31,
1996 and 1995. 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, 1995, 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, 1995 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 1, 1996
- 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 $.49 per share in
the first quarter of 1996 from $.46 per share for the same period
last year. The improved earnings were due to record quarterly
retail sales and the Companies' continuing cost control efforts.
These results reflect accelerated depreciation and amortization of
nuclear and regulatory assets totaling approximately $37,000,000
under the Company's Rate Reduction and Economic Development Plan.
The Company also discontinued deferral of postretirement benefits
and nuclear unit interest expense in the third quarter of 1995 in
accordance with the Plan.
During the first quarter of 1996, retail kilowatt-hour
sales increased 7.5% compared to last year. Residential and
commercial sales increased 10.9% and 3.9%, respectively, during the
period. Industrial sales increased 6.8% reflecting the restart of
operations by two major customers in the second half of 1995.
Excluding sales to those customers, industrial sales were
relatively flat compared to the first quarter of 1995. The Company
began supplying 250 megawatts of power to another utility at the
beginning of 1996 under a one-year contract, which was the
principal cause for a 57.7% increase in sales to other utilities in
the first quarter of 1996 compared to last year. This increase,
coupled with the higher level of retail sales, caused total
kilowatt-hour sales to increase by 15.4% during the first quarter
of 1996 compared with the first quarter of 1995.
Because of higher kilowatt-hour sales, the Companies
spent more on fuel and purchased power during the first quarter of
1996, compared to last year. Reduced nuclear expenses reflect lower
refueling outage cost levels in 1996. Despite a charge of about
$5,000,000 for a voluntary retirement program, other operating
costs were lower in the first quarter of 1996 compared to the same
period last year due to the Companies' continuing cost control
efforts. The Companies continue to review their operations to
identify opportunities to increase revenues and improve operating
efficiency. After a comprehensive review of the Companies' division
operations, the voluntary retirement program was offered to
eligible full-time union employees, which is expected to produce
annual savings of approximately $8,000,000. General taxes were up
in 1996 compared to 1995 due primarily to higher property and gross
receipts taxes.
- 8 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Cont'd)
Interest costs continued to drop during the first three
months of 1996 compared to last year's level. Interest on long-term
debt decreased due to redemptions and refinancing of higher-cost
debt that occurred subsequent to March 31, 1995. Total Company and
subsidiaries' preferred stock dividend requirements were relatively
unchanged from last year's level, taking into account the preferred
stock refinancing that occurred in the fourth quarter of 1995.
Capital Resources and Liquidity
The Companies have continuing cash requirements for
planned capital expenditures and debt maturities. During the last
three quarters of 1996, capital requirements for property additions
and capital leases are expected to be about $146,000,000, including
$20,000,000 for nuclear fuel. The Companies have additional cash
requirements of approximately $222,000,000 due to maturing long-
term debt during the remainder of 1996. These cash requirements are
expected to be satisfied with internal cash and/or short-term
credit arrangements. In addition, approximately $57,000,000 of
variable rate pollution control put bonds are subject to repricing
during the remainder of the year.
As of March 31, 1996, the Companies had about $30,000,000
of cash and temporary investments and $119,000,000 of short-term
indebtedness. The Company had the capability to borrow
approximately $135,000,000 as of March 31, 1996 through OES Fuel
credit facilities. In addition, the Companies had $52,000,000 of
unused short-term bank lines of credit, and $50,000,000 of bank
facilities that provide for borrowings on a short-term basis at the
banks' discretion. OES Capital had approximately $1,000,000 of
unused, short-term borrowing capability as of March 31, 1996.
During the first quarter of 1996, the Company made open
market purchases for $67,550,000 of its first mortgage bonds having
a weighted average interest rate of 9.27%. During the same period,
Penn Power made open market purchases for $13,000,000 of its 6.375%
first mortgage bonds. From April 1, 1996 through May 1, 1996, the
Company repaid at maturity $150,000,000 of its 8.5% first mortgage
bonds and made open market purchases for $11,000,000 of its 8.75%
first mortgage bonds. During that same period, Penn Power made open
market purchases for $13,000,000 of its 7.625% first mortgage
bonds.
On March 7, 1996, Penn Power filed a petition and
application with the Pennsylvania Public Utility Commission
requesting approval of a Rate Stability and Economic Development
Plan (Transition Plan). The Transition Plan, which would remain in
effect unless certain significant events occur, provides for the
- 9 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Cont'd)
roll-in to base rates of the energy cost rate and the freezing of
base rates for a ten-year period. A major component of the
Transition Plan is the commitment to reduce fixed costs during the
ten-year period. Penn Power expects to recognize additional
depreciation expense related to generating assets and additional
amortization of regulatory assets during the ten-year Transition
Plan period of at least $330,000,000 more than the amount that
would have been recognized if the Transition Plan were not in
effect. Additionally, the Transition Plan provides for an increase
in contributions to Penn Power's nuclear decommissioning trusts
amounting to $28,000,000 over the ten-year period. The entire
$358,000,000 would be recovered through current rates.
On April 2, 1996, the work force at the Bruce Mansfield
Plant was reduced by 98 union and 33 salaried employees. This
action was the result of continuing efforts to make the plant's
costs more competitive with similar-sized plants. This work force
reduction is expected to reduce the Companies' annual operating
costs by about $3,200,000.
- 10 -
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
The Company filed one report on Form 8-K since
December 31, 1995. A report dated February 23, 1996,
reported audited consolidated financial statements
for the year ended December 31, 1995, and related
matters.
- 11 -
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 2, 1996
OHIO EDISON COMPANY
-------------------
Registrant
/s/ H. P. Burg
-----------------------------------
H. P. Burg
Senior Vice President and
Chief Financial Officer
- 12 -
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, No. 33-51139 and No. 333-01489, the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996,
which includes our report dated May 1, 1996, 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 1, 1996
<TABLE> <S> <C>
<ARTICLE> OPUR1
<LEGEND>
(Amounts in 1,000's, except earnings per share)
Income tax expense includes $2,760,000 related to other income.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 5,636,065
<OTHER-PROPERTY-AND-INVEST> 533,034
<TOTAL-CURRENT-ASSETS> 523,313
<TOTAL-DEFERRED-CHARGES> 2,035,450
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 8,727,862
<COMMON> 1,373,125
<CAPITAL-SURPLUS-PAID-IN> 565,700
<RETAINED-EARNINGS> 487,288
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,426,113
160,000
211,870
<LONG-TERM-DEBT-NET> 2,759,970
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 119,008
<LONG-TERM-DEBT-CURRENT-PORT> 297,047
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 5,660
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,748,194
<TOT-CAPITALIZATION-AND-LIAB> 8,727,862
<GROSS-OPERATING-REVENUE> 611,636
<INCOME-TAX-EXPENSE> 48,091
<OTHER-OPERATING-EXPENSES> 435,819
<TOTAL-OPERATING-EXPENSES> 481,150
<OPERATING-INCOME-LOSS> 130,486
<OTHER-INCOME-NET> 6,996
<INCOME-BEFORE-INTEREST-EXPEN> 137,482
<TOTAL-INTEREST-EXPENSE> 64,072
<NET-INCOME> 73,410
3,125
<EARNINGS-AVAILABLE-FOR-COMM> 70,285
<COMMON-STOCK-DIVIDENDS> 53,983
<TOTAL-INTEREST-ON-BONDS> 56,535
<CASH-FLOW-OPERATIONS> 212,577
<EPS-PRIMARY> .49
<EPS-DILUTED> .49
</TABLE>
