10-QPeriod: Q2 FY2016

FIRSTENERGY CORP Quarterly Report for Q2 Ended Jun 30, 2016

Filed July 28, 2016For Securities:FE

Summary

FirstEnergy Corp. (FE) reported a significant net loss of $1,089 million for the second quarter of 2016, or $(2.56) per diluted share, a stark contrast to the net income of $187 million, or $0.44 per diluted share, reported in the same period of 2015. This substantial decline was primarily driven by substantial non-cash impairment charges totaling $1,447 million. These charges included an $800 million impairment of goodwill within the Competitive Energy Services (CES) segment and a $647 million impairment related to the announced plans to exit operations at the W. H. Sammis and Bay Shore generating stations by 2020. Additionally, the company recognized $58 million in coal contract settlement and termination costs and recorded $159 million in valuation allowances against state and local Net Operating Loss (NOL) carryforwards. Despite these significant charges impacting quarterly results, FirstEnergy's strategic focus remains on its regulated transmission and distribution businesses, aiming to modernize infrastructure and enhance reliability. The company is navigating challenging conditions in its competitive energy services segment due to depressed power and capacity prices, and is exploring options to reduce its exposure to these markets over time. Regulatory filings and approvals for rate increases in various jurisdictions are ongoing, which are crucial for recovering investments and supporting future capital expenditure plans.

Financial Highlights

45 data points
Beta

Revenue

$3.40B

Net Income

-$1.09B

-32.0% Net Margin

EPS (Diluted)

$-2.56

Total Assets

$51.40B

Cash & Equivalents

$199.00M

Free Cash Flow

$822.00M

Financial Statements
Beta
Revenue$3.40B
Operating Expenses$4.38B
Operating Income-$975.00M
Interest Expense$289.00M
Net Income-$1.09B
EPS (Basic)$-2.56
EPS (Diluted)$-2.56
Shares Outstanding (Basic)425.00M
Shares Outstanding (Diluted)425.00M

Key Highlights

  • 1FirstEnergy reported a net loss of $1,089 million ($2.56 per diluted share) for Q2 2016, a significant decrease from net income of $187 million ($0.44 per diluted share) in Q2 2015.
  • 2The company recorded substantial asset impairment charges totaling $1,447 million in Q2 2016, including an $800 million goodwill impairment and a $647 million impairment related to planned exits of generating stations.
  • 3Revenues decreased by $64 million year-over-year in the second quarter, primarily driven by a $80 million decrease in the Competitive Energy Services (CES) segment.
  • 4Operating expenses increased by $1,465 million in the second quarter of 2016, largely due to the aforementioned impairment charges and related costs.
  • 5The company's strategy continues to focus on regulated transmission and distribution investments, with planned capital expenditures of approximately $1.05 billion for the transmission expansion plan in 2016.
  • 6FirstEnergy is actively managing its competitive generation fleet through strategic reviews and hedging, though depressed market prices continue to pose challenges.
  • 7The company ended the quarter with $199 million in cash and cash equivalents, an increase from $131 million at the end of 2015.

Frequently Asked Questions

The primary reason for the significant net loss of $1,089 million in the second quarter of 2016 was the recognition of substantial non-cash asset impairment charges totaling $1,447 million. These included an $800 million goodwill impairment in the CES segment and a $647 million impairment related to the planned exit of operations at the W. H. Sammis and Bay Shore generating stations.

FirstEnergy is actively reviewing the economics of its generating units within the CES segment due to depressed wholesale energy and capacity prices. The company is focused on reducing exposure to competitive markets by strategically hedging generation output and exploring options to convert MWs from competitive markets to a regulated or regulated-like construct. This includes considering the sale or deactivation of generating plants if market conditions remain challenging.

FirstEnergy's primary capital investment focus is on its regulated transmission and regulated distribution businesses. The 'Energizing the Future' transmission expansion plan is a key initiative, with projected capital expenditures of $1.05 billion for 2016. Investments are aimed at modernizing the transmission system, enhancing reliability, and improving grid security.

The ESP IV PPA, initially entered into on April 1, 2016, was suspended by FERC pending further authorization. FES did not file the PPA for FERC review and agreed to suspend transactions under it. This suspension means FES will not realize the intended revenues, potentially impacting its credit ratings, results of operations, and financial condition.