10-QPeriod: Q3 FY2011

FIRSTENERGY CORP Quarterly Report for Q3 Ended Sep 30, 2011

Filed November 1, 2011For Securities:FE

Summary

FirstEnergy Corp. reported a significant increase in earnings for the third quarter of 2011, with earnings available to common shareholders reaching $511 million, or $1.22 per share, a substantial jump from $179 million, or $0.59 per share, in the same period of 2010. This improvement was driven by several factors, including substantial benefits from the merger with Allegheny, positive results from non-core asset sales, and improved performance in the Competitive Energy Services segment. For the first nine months of 2011, earnings were $742 million, or $1.89 per share, compared to $599 million, or $1.97 per share, in the prior year, with the change largely influenced by merger-related costs and segment performance. The company successfully completed several strategic initiatives during the quarter, including the sale of non-core assets like the Richland and Stryker Peaking Facilities, and divesting a one-third interest in the Signal Peak coal mine. These actions are expected to strengthen the balance sheet and reduce net debt. FirstEnergy is also progressing towards its merger benefits target with Allegheny, having captured a significant portion of the projected annual savings. While operations were impacted by Hurricane Irene, the majority of the restoration costs were capitalized for future recovery, mitigating the immediate impact on earnings.

Financial Highlights

46 data points
Beta

Revenue

$4.72B

Net Income

$532.00M

11.3% Net Margin

EPS (Diluted)

$1.27

Total Assets

$48.67B

Cash & Equivalents

$291.00M

Free Cash Flow

$1.20B

Financial Statements
Beta
Revenue$4.72B
Operating Expenses$3.66B
Operating Income$1.06B
Net Income$532.00M
EPS (Basic)$1.27
EPS (Diluted)$1.27
Shares Outstanding (Basic)418.00M
Shares Outstanding (Diluted)420.00M

Key Highlights

  • 1Third quarter 2011 earnings per share (EPS) were $1.22, a significant increase from $0.59 in the third quarter of 2010.
  • 2Nine-month 2011 EPS was $1.89, slightly down from $1.97 in the same period of 2010, impacted by merger-related costs.
  • 3Completed the sale of Richland and Stryker Peaking Facilities for approximately $80 million to reduce debt.
  • 4Announced the sale of a one-third interest in the Signal Peak coal mine, raising $257.5 million and reducing debt by $360 million.
  • 5The merger with Allegheny closed on February 25, 2011, and the company is on track to achieve its merger benefits target.
  • 6Experienced a $78 million cost impact from Hurricane Irene, with $75 million capitalized or deferred for future recovery.
  • 7Davis-Besse Plant shut down for scheduled maintenance and encountered an issue with hairline cracks in the Shield Building's architectural elements, with investigations ongoing.

Frequently Asked Questions

The significant increase in EPS was primarily driven by substantial benefits realized from the merger with Allegheny Energy, including cost savings and operational synergies. Additionally, the company benefited from gains on the sale of non-core assets and positive performance in its Competitive Energy Services segment. Specific items like the resolution of litigation and merger-related cost reductions also contributed positively.

The sale of non-core assets, such as the Richland and Stryker Peaking Facilities and a stake in the Signal Peak coal mine, provided significant proceeds that were used to reduce FirstEnergy's net debt. These transactions also strengthened the balance sheet by reducing indebtedness and increasing equity, contributing to improved financial flexibility.

Hurricane Irene caused approximately $78 million in costs. The majority of these costs, $75 million, were capitalized or deferred for future recovery from customers. This accounting treatment significantly mitigated the immediate impact on the company's pre-tax income in the third quarter of 2011, with only $3 million directly reducing the quarter's earnings.

The Davis-Besse plant was shut down for a scheduled outage to install a new reactor vessel head and for other maintenance. During this outage, hairline cracks were discovered in the Shield Building's exterior architectural elements. Investigations by engineers determined these cracks do not affect structural integrity or safety. The plant is currently expected to return to service around the end of November 2011.