10-QPeriod: Q3 FY2003

FIRSTENERGY CORP Quarterly Report for Q3 Ended Sep 30, 2003

Filed November 14, 2003For Securities:FE

Summary

FirstEnergy Corp. reported a net income of $152.7 million, or $0.51 per share, for the third quarter of 2003, a decrease from $284.8 million, or $0.97 per share, in the same period of 2002. The nine-month period saw a net income of $313.3 million, or $1.06 per share, down from $611.0 million, or $2.08 per share, in the prior year. Key factors impacting the results include milder weather reducing revenues, higher purchased power costs, storm damage, increased employee benefit expenses, and costs associated with nuclear refueling. Notably, the company recorded a non-cash goodwill impairment charge of $121.5 million in the third quarter, reflecting challenging conditions in competitive retail markets. Additionally, the company is dealing with various legal and regulatory matters, including investigations into the August 14, 2003 power outage and a significant court ruling related to environmental violations at the Sammis Plant.

Key Highlights

  • 1Third quarter net income decreased to $152.7 million ($0.51/share) from $284.8 million ($0.97/share) year-over-year.
  • 2Nine-month net income decreased to $313.3 million ($1.06/share) from $611.0 million ($2.08/share) year-over-year.
  • 3Recorded a $121.5 million goodwill impairment charge in Q3 2003 related to the Competitive Services segment.
  • 4Expenses increased due to higher purchased power costs, storm damage, employee benefits, and nuclear refueling costs.
  • 5Facing ongoing investigations and litigation related to the August 14, 2003 power outage.
  • 6Rating agencies (Moody's, Fitch, S&P) have expressed concerns about debt leverage and operating performance, placing some ratings on watch.
  • 7Actively managing regulatory matters in Ohio, New Jersey, and Pennsylvania concerning electricity restructuring and cost recovery.

Frequently Asked Questions

The decrease in net income was primarily driven by milder weather impacting revenues, higher purchased power costs, increased employee benefit expenses, and costs related to nuclear refueling. A significant goodwill impairment charge of $121.5 million was also recorded in the third quarter.

The company restated its 2002 financial statements to reflect changes in the amortization of Ohio transition plan costs and recognition of above-market lease liabilities. Additionally, the adoption of SFAS 143 for asset retirement obligations resulted in a cumulative effect adjustment and impacted current period expenses.

FirstEnergy is involved in multiple legal actions, including shareholder lawsuits alleging securities law violations and class-action suits related to the August 14, 2003 power outage. The company is also addressing environmental violations and is subject to ongoing investigations regarding the power outage. Regulatory matters in Ohio, New Jersey, and Pennsylvania regarding industry deregulation and cost recovery are also significant.

Credit rating agencies like Moody's, Fitch, and S&P have expressed concerns regarding FirstEnergy's debt leverage, operating performance, and the impact of events like the Davis-Besse outage and the August 14th blackout investigation. While some ratings have been lowered or placed on watch with negative implications, the companies are taking actions such as equity offerings and credit facility renewals to mitigate liquidity concerns.