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FirstEnergy Annual Report, Year Ended Dec 31, 2004

Filing Date
Filed March 10, 2005
Period End
December 31, 2004
Security
FE
In the record · 2016–202610-K1310-Q338-K179

FE filed 13 annual reports (10-K), 33 quarterly reports (10-Q) and 179 current reports (8-K) between 2016 and 2026.

  1. Leadership change8-K · Sep ’17Sep ’17
  2. Material agreement8-K · Sep ’19Sep ’19
  3. Material agreement8-K · Nov ’21Nov ’21
  4. Leadership change8-K · Sep ’25Sep ’25

01—Abstract

Summary

Summary of the 10-K filed March 10, 2005. Cited figures are marked; the original filing is the authoritative source.

FirstEnergy Corp. (FE) reported 2004 GAAP net income of $878 milliona, or $2.68 basic EPS, up sharply from $423 million ($1.39) in 2003, though much of the swing reflects the absence of 2003 unusual charges, notably the $153 million JCP&L disallowance and FSG goodwill impairment.

Management's non-GAAP 'earnings before unusual items' rose to $991 millionb ($3.03 per share) from $736 million ($2.42). Revenues grew to $12.45 billion, driven primarily by a $680 million increase in wholesale sales from FirstEnergy Solutions (FES) on record nuclear and fossil output, and operating cash flow improved to $1.88 billion before a $300 million after-tax voluntary pension contribution. The filing also documents material risks that investors should weigh.

FENOC, the nuclear operator, is a target of a federal grand jury investigation over alleged false statements to the NRC regarding the 2002 Davis-Besse reactor head outage, and the SEC has opened a formal investigation into the 2003 restatements and Davis-Besse. The W. H.

Sammis New Source Review case could bring material penalties and capital requirements, with no liability accrued. Credit ratings remain at or near the BBB- low end, with S&P's stable outlook contingent on successful refueling outages. JCP&L faces an ongoing strike by IBEW System Council members and pending NJBPU Phase II rate proceedings.

The company's capital plan for 2005-2007 totals about $3.3 billionc, and the Board raised the dividend 10% to an indicated $1.65 per share, with a policy targeting 4-5% annual growth after 2005. Investors should note that the 2005 outlook depends on Ohio Rate Stabilization Plan pricing from 2006 and the resolution of pending investigations and litigation.

02—Key points

Key Highlights

  1. GAAP net income rose to $878 million ($2.68 basic EPS) in 2004 from $423 million ($1.39) in 2003; non-GAAP earnings before unusual items were $991 million ($3.03).
  2. Revenues increased 6.7% to $12.45 billion, led by a $680 million rise in FES wholesale sales on record generation of 76 billion kWh.
  3. Voluntary $500 million pension contribution (about $300 million after tax) was made in Q3 2004, eliminating projected 2006-2007 funding requirements.
  4. Board raised the indicated annual dividend 10% to $1.65 per share, the first increase since the 1997 formation, with a target of 4-5% annual growth after 2005.
  5. FENOC is a target of a federal grand jury over Davis-Besse NRC submissions; the SEC has a formal investigation open into restatements and Davis-Besse.
  6. Credit ratings are BBB- (S&P) and Baa3 (Moody's) at FirstEnergy with stable outlooks; S&P says an upgrade is unlikely near term due to environmental litigation and SEC matters.
  7. Capital expenditures are forecast at about $3.3 billion for 2005-2007, with approximately $979 million in 2005.

03—Questions

Frequently Asked Questions

  1. Why did reported earnings rise so much in 2004?

    Most of the increase reflects the absence of large 2003 unusual charges, including the $153 million disallowance of JCP&L deferred energy costs and the FSG goodwill impairment, plus higher generation margins from record nuclear output and lower nuclear operating costs. Excluding unusual items, earnings rose about 35% to $991 million.

  2. What is the largest legal or regulatory risk disclosed?

    The federal grand jury investigation of FENOC, which has been notified it is a target, over alleged false statements to the NRC about the 2001-2002 Davis-Besse reactor head issues, could result in federal charges. The SEC's formal investigation and the W. H. Sammis New Source Review case, with potential penalties and capital costs, add to the exposure. None of these has an accrued liability.

  3. How secure is the company's credit profile?

    Ratings are at the low end of investment grade (BBB- at S&P, Baa3 at Moody's, BBB- at Fitch for the holding company). S&P's stable outlook could turn positive if the Davis-Besse and Perry refueling outages in Q1 2005 finish without significant problems, but an upgrade is seen as unlikely in the near term.

  4. What drives the outlook for JCP&L and Ohio operations?

    JCP&L faces an ongoing IBEW strike, pending NJBPU Phase II reliability and rate decisions, and an unresolved $446 million deferred energy balance. In Ohio, the revised Rate Stabilization Plan sets generation prices from January 2006 through 2008, subject to a possible PUCO competitive bid process, and is under appeal to the Ohio Supreme Court.

04—Continue

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