10-QPeriod: Q2 FY2021

FIRSTENERGY CORP Quarterly Report for Q2 Ended Jun 30, 2021

Filed July 22, 2021For Securities:FE

Summary

FirstEnergy Corp. (FE) reported its second-quarter and first-half 2021 financial results, marked by a significant $230 million penalty as part of a Deferred Prosecution Agreement (DPA) with the U.S. Attorney's Office related to lobbying activities. This penalty, recognized in the second quarter, led to a substantial decrease in net income for the period. Despite the ongoing investigations and related litigation, the company's core regulated utility operations in distribution and transmission showed stable performance with increases in revenues and operating income compared to the prior year, driven by higher rates and increased demand as COVID-19 restrictions eased. Management has implemented significant governance and compliance changes, including executive terminations and an enhanced code of conduct, to address cultural issues and rebuild trust. Financially, the company continues to manage its liquidity and capital structure, including amending its credit facilities to maintain compliance following the DPA. While the company faces continued regulatory scrutiny and potential legal outcomes, its regulated segments demonstrate resilience, and the company is focused on operational improvements through its 'FE Forward' initiative.

Financial Highlights

44 data points
Beta

Revenue

$2.62B

Net Income

$58.00M

2.2% Net Margin

EPS (Diluted)

$0.11

Total Assets

$44.36B

Cash & Equivalents

$1.25B

Free Cash Flow

$814.00M

Financial Statements
Beta
Revenue$2.62B
Operating Expenses$2.31B
Operating Income$312.00M
Interest Expense$287.00M
Net Income$58.00M
EPS (Basic)$0.11
EPS (Diluted)$0.11
Shares Outstanding (Basic)544.00M
Shares Outstanding (Diluted)545.00M

Key Highlights

  • 1Net income for the second quarter of 2021 decreased significantly to $58 million from $309 million in the prior year, primarily due to a $230 million DPA penalty related to lobbying activities.
  • 2Revenues for the second quarter increased by 4% to $2.62 billion, driven by higher revenues in both Regulated Distribution and Regulated Transmission segments.
  • 3Operating income decreased by 39% to $312 million in the second quarter, largely impacted by the DPA penalty and increased operating expenses.
  • 4The company has undertaken significant governance and compliance reforms following investigations into its lobbying activities, including executive terminations and an enhanced code of conduct.
  • 5FirstEnergy amended its revolving credit facilities to maintain compliance and access liquidity following the Deferred Prosecution Agreement.
  • 6Capital expenditures for property additions were $1.23 billion for the first six months of 2021, down slightly from $1.29 billion in the prior year, reflecting strategic investment in regulated segments.
  • 7The company is focusing on operational efficiencies and capital improvements through its 'FE Forward' initiative, aiming for significant capital expenditure efficiencies and working capital improvements by 2024.

Frequently Asked Questions

The primary reason for the substantial decrease in net income from $309 million in Q2 2020 to $58 million in Q2 2021 was the recognition of a $230 million penalty payment as part of a Deferred Prosecution Agreement (DPA) with the U.S. Attorney's Office concerning lobbying and governmental affairs activities related to Ohio House Bill 6.

FirstEnergy has implemented significant changes, including the termination of several senior executives, including the former CEO, for violating company policies and its code of conduct. The company has also appointed new leadership in legal and compliance roles, adopted a new Code of Business Conduct and Ethics, and is enhancing employee training and oversight of political spending to foster a stronger culture of compliance and accountability.

The DPA required a $230 million penalty payment, which was expensed in Q2 2021, impacting net income. The company also amended its revolving credit facilities on July 21, 2021, to modify certain covenants and representations that were affected by the DPA, ensuring continued compliance and access to liquidity.

The Regulated Distribution and Regulated Transmission segments showed resilience. Revenues increased in both segments due to higher rates and increased demand as economic conditions improved. Operating income also increased in these segments, demonstrating the stable earnings profile of the regulated utility businesses, although overall company operating income was negatively impacted by the DPA penalty.