10-QPeriod: Q1 FY2002

FIRSTENERGY CORP Quarterly Report for Q1 Ended Mar 31, 2002

Filed May 15, 2002For Securities:FE

Summary

FirstEnergy Corp. and its subsidiaries reported a net income of $116.5 million, or $0.40 per share, for the first quarter of 2002. This represents an increase from the $97.7 million, or $0.45 per share, reported in the same period of 2001. The results for the first quarter of 2002 include the positive impact of the GPU merger, which became effective in November 2001, contributing significantly to increased revenues and assets. However, a notable portion of the reported net income in Q1 2002 is attributable to a cumulative effect of an accounting change related to the sale of Avon Energy Partners Holdings, which boosted net income by $31.7 million. Excluding these accounting changes, adjusted earnings were $84.8 million or $0.29 per share for Q1 2002, compared to $106.2 million or $0.49 per share in Q1 2001, indicating a decline in operational performance prior to the accounting adjustments. The company is actively managing its capital structure, with plans to reduce debt and preferred stock through asset sales, including the sale of 79.9% of its interest in Avon Energy Partners Holdings and four power plants to NRG Energy Inc. These strategic moves aim to improve financial flexibility. Despite these efforts, the company's credit outlook has been affected by recent events, including the Davis-Besse nuclear plant issue and a Pennsylvania court decision impacting rate relief, leading Moody's and Standard & Poor's to change their outlook to negative. Investors should monitor the company's progress in integrating the GPU acquisition, managing its diverse energy portfolio, and navigating regulatory and market challenges.

Key Highlights

  • 1Net income for the first quarter of 2002 was $116.5 million ($0.40/share), up from $97.7 million ($0.45/share) in Q1 2001.
  • 2A cumulative effect of an accounting change related to the sale of Avon Energy Partners Holdings increased net income by $31.7 million in Q1 2002.
  • 3Excluding accounting changes, adjusted earnings per share decreased to $0.29 in Q1 2002 from $0.49 in Q1 2001.
  • 4Total revenues increased significantly due to the inclusion of former GPU companies following the November 2001 merger.
  • 5The company is pursuing divestitures, including 79.9% of Avon Energy Partners Holdings and four power plants, to manage its capital structure.
  • 6Credit rating agencies Moody's and Standard & Poor's have revised their outlook for FirstEnergy to negative, citing operational and regulatory concerns.

Frequently Asked Questions

The increase in net income for Q1 2002 was primarily driven by the inclusion of the results from the former GPU companies, following the merger that became effective in November 2001. Additionally, a one-time gain from an accounting change related to the sale of Avon Energy Partners Holdings contributed $31.7 million after tax.

The GPU merger significantly boosted FirstEnergy's revenues and assets in Q1 2002 by consolidating the financial results of the acquired companies. However, it also led to a substantial increase in interest expenses due to merger-related financing.

FirstEnergy is facing challenges including a decline in operational earnings (excluding accounting changes), negative outlooks from credit rating agencies due to issues like the Davis-Besse nuclear plant problem and a Pennsylvania court decision, and the ongoing integration of the acquired GPU businesses. Navigating regulatory changes in the energy industry also remains a key challenge.

FirstEnergy is focused on strategic initiatives such as divesting non-core assets, including the sale of a majority stake in Avon Energy Partners Holdings and four power plants, to manage its capital structure and reduce debt. The company is also working to integrate its expanded operations post-merger and manage its diverse energy generation and distribution portfolio.