10-QPeriod: Q3 FY2013

FIRSTENERGY CORP Quarterly Report for Q3 Ended Sep 30, 2013

Filed November 5, 2013For Securities:FE

Summary

FirstEnergy Corp. (FE) reported a significant year-over-year decline in earnings for the third quarter and the first nine months of 2013. For the third quarter, net income fell to $218 million, or $0.52 per diluted share, compared to $425 million, or $1.02 per diluted share, in the same period of 2012. This earnings decrease was primarily driven by higher operating expenses, including a substantial increase in the amortization of regulatory assets and plant deactivation costs, which collectively impacted earnings per share by approximately $0.71 for the quarter. The company is actively undertaking strategic actions to reposition its competitive energy services segment and reduce debt, including the sale of hydroelectric assets and adjustments to its hedging strategy, aiming to navigate current economic conditions and prepare for future market improvements. Looking ahead, FirstEnergy plans to focus on growth in its regulated operations, particularly in transmission, with a planned $2.8 billion Transmission Reliability Excellence Plan (TREP). This investment aims to enhance system reliability and capacity. Despite the current financial pressures, the company's financial plan includes debt reduction and balance sheet strengthening, supported by ongoing asset optimization and capital management. Investors should monitor the progress of these strategic initiatives and the company's ability to manage its operational costs and regulatory environments across its diverse service territories.

Financial Highlights

45 data points
Beta

Revenue

$4.03B

Net Income

$218.00M

5.4% Net Margin

EPS (Diluted)

$0.52

Total Assets

$50.47B

Cash & Equivalents

$222.00M

Free Cash Flow

$1.18B

Financial Statements
Beta
Revenue$4.03B
Operating Expenses$3.52B
Operating Income$508.00M
Interest Expense$257.00M
Net Income$218.00M
EPS (Basic)$0.52
EPS (Diluted)$0.52
Shares Outstanding (Basic)418.00M
Shares Outstanding (Diluted)419.00M

Key Highlights

  • 1Net income for Q3 2013 was $218 million, a significant decrease from $425 million in Q3 2012, with diluted EPS of $0.52 versus $1.02.
  • 2Nine-month net income dropped to $250 million in 2013 from $919 million in 2012.
  • 3Operating expenses increased significantly, particularly due to a $251 million rise in amortization of regulatory assets and $473 million impairment of long-lived assets related to plant deactivations.
  • 4FirstEnergy is executing a financial plan to reduce competitive energy services segment debt by $1.5 billion, including the sale of hydroelectric assets and asset transfers.
  • 5The company plans to invest $2.8 billion over four years in a Transmission Reliability Excellence Plan (TREP) to bolster its regulated transmission operations.
  • 6Despite lower earnings, the company's liquidity remains sufficient, with $2.96 billion in available liquidity as of October 31, 2013.
  • 7Regulatory matters, including ongoing proceedings in Pennsylvania regarding marginal transmission losses, represent a significant factor impacting financial results, with a $254 million regulatory asset impairment recorded in Q3 2013.

Frequently Asked Questions

The primary drivers for the decrease in net income were higher operating expenses, including a substantial increase in the amortization of regulatory assets ($251 million increase) and plant deactivation costs related to the Hatfield's Ferry and Mitchell generating units, which resulted in a $473 million impairment charge for long-lived assets. These factors, combined with other operational changes, led to the significant year-over-year decline in profitability.

FirstEnergy is actively pursuing several strategic initiatives. These include repositioning its Competitive Energy Services segment by reducing debt, adjusting its hedging strategy, and divesting non-core assets like the proposed sale of hydroelectric power stations. Concurrently, the company is focusing on strengthening its regulated operations, particularly in transmission, through a $2.8 billion investment in the Transmission Reliability Excellence Plan (TREP) aimed at improving system reliability and capacity.

Regulatory matters continue to be a significant factor for FirstEnergy. Notably, a $254 million pre-tax regulatory asset impairment charge was recorded in the third quarter of 2013 related to the recovery of marginal transmission losses in Pennsylvania, following a U.S. District Court decision. The company is also involved in various other regulatory proceedings across its service territories that could affect future costs and revenues.

FirstEnergy intends to focus on growing its regulated operations, with a specific emphasis on transmission infrastructure development through the TREP initiative. The competitive energy services segment is undergoing a strategic repositioning to improve its financial strength and adapt to market conditions, including a significant debt reduction plan and asset optimization efforts.