10-QPeriod: Q2 FY2018

FIRSTENERGY CORP Quarterly Report for Q2 Ended Jun 30, 2018

Filed July 31, 2018For Securities:FE

Summary

FirstEnergy Corp. reported solid financial performance for the six months ended June 30, 2018, with net income increasing significantly to $1.67 billion from $379 million in the prior year period. This substantial increase was largely driven by a $1.24 billion gain on deconsolidation related to the Chapter 11 bankruptcy filings of FirstEnergy Solutions (FES) and FirstEnergy Nuclear Operating Company (FENOC) and the company's strategic exit from competitive generation. Excluding discontinued operations, income from continuing operations saw a slight decrease to $444 million from $476 million in the prior year. The company continues to focus on its core regulated businesses, Regulated Distribution and Regulated Transmission, with planned capital investments to improve reliability and modernize infrastructure. The company successfully completed a significant equity issuance, strengthening its balance sheet and positioning it for future investments in its regulated segments.

Financial Highlights

46 data points
Beta

Revenue

$2.63B

Net Income

$299.00M

11.4% Net Margin

EPS (Diluted)

$0.28

Total Assets

$38.97B

Cash & Equivalents

$256.00M

Free Cash Flow

$592.00M

Financial Statements
Beta
Revenue$2.63B
Operating Expenses$1.93B
Operating Income$700.00M
Interest Expense$355.00M
Net Income$299.00M
EPS (Basic)$0.28
EPS (Diluted)$0.28
Shares Outstanding (Basic)477.00M
Shares Outstanding (Diluted)479.00M

Key Highlights

  • 1Net income for the six months ended June 30, 2018, surged to $1.67 billion, primarily due to a $1.24 billion gain on deconsolidation from discontinued operations related to the FES and FENOC bankruptcy filings.
  • 2Income from continuing operations for the six months ended June 30, 2018, decreased slightly to $444 million from $476 million in the prior year, indicating a mixed performance in core operations.
  • 3The company completed a $2.5 billion equity issuance in January 2018, comprising preferred and common stock, which strengthened its balance sheet and was used to reduce debt and fund its pension plan.
  • 4FirstEnergy is strategically exiting its competitive generation business, with FES and FENOC deconsolidated due to their Chapter 11 bankruptcy filings, and their results presented as discontinued operations.
  • 5The Regulated Distribution segment saw revenue growth, driven by higher weather-related usage and approved rate increases, while the Regulated Transmission segment also reported increased revenues due to higher rate bases and new rates.
  • 6The company continues to invest in its transmission infrastructure through the 'Energizing the Future' plan, with significant capital investments projected through 2021.
  • 7FirstEnergy's effective tax rate decreased significantly due to the Tax Cuts and Jobs Act of 2017, which lowered the federal corporate income tax rate.

Frequently Asked Questions

The substantial increase in net income to $1.67 billion was primarily driven by a $1.24 billion gain on deconsolidation of FirstEnergy Solutions (FES) and FirstEnergy Nuclear Operating Company (FENOC) due to their Chapter 11 bankruptcy filings and the company's strategic exit from the competitive generation business. This gain significantly boosted the overall net income for the period.

The strategic shift has led to the deconsolidation of competitive generation assets and their presentation as discontinued operations, impacting reported net income positively through gains on deconsolidation. The core regulated businesses (Distribution and Transmission) are the focus for future growth and investment, with planned capital expenditures aimed at improving reliability and modernizing infrastructure. Income from continuing operations, however, showed a slight decrease, indicating the challenges in managing the core business while undergoing this strategic transition.

The $2.5 billion equity issuance, completed in January 2018, was a crucial step in strengthening FirstEnergy's balance sheet. The proceeds were used to reduce debt and fund the pension plan, which supports the company's transition to a fully regulated utility model and enhances its financial flexibility and creditworthiness, positioning it for sustained investment in its core regulated businesses.

The Tax Cuts and Jobs Act of 2017, which lowered the U.S. federal corporate income tax rate from 35% to 21%, has significantly reduced FirstEnergy's effective tax rate. The company is working with regulatory commissions to pass these benefits on to customers through rate adjustments while also tracking the impact on its deferred tax liabilities and overall tax provision.