8-KOther Events

FIRSTENERGY CORP 8-K Report (Jan 21, 2003)

Filed January 21, 2003For Securities:FE

Summary

This Form 8-K filing by FirstEnergy Corp. on January 21, 2003, primarily provides updates on the implications of a Pennsylvania Supreme Court decision regarding its merger with GPU, Inc. The court denied further appeals, allowing the lower court's approval of the merger to stand. However, the court overturned an order that would have allowed subsidiaries Met-Ed and Penelec to offset certain costs with Competitive Transition Charge (CTC) revenues, impacting Provider of Last Resort (POLR) relief. Despite the POLR relief issue, FirstEnergy states there will be no significant adverse financial impact due to actions taken in Q3 2002, including reserving for deferred energy costs and a wholesale power transaction with its affiliate FirstEnergy Solutions (FES) which has hedged future supply requirements. The filing also addresses changes in pension and postretirement benefit costs, a non-cash charge related to a minimum pension liability, and the reclassification of assets pending sale for the Argentine subsidiary Emdersa, resulting in a significant one-time accounting charge. Additionally, the implementation of SFAS No. 143, Accounting for Asset Retirement Obligations, is expected to increase common stockholders' equity. FirstEnergy reaffirms its 2003 earnings per share guidance, excluding specific one-time charges and costs.

Key Highlights

  • 1Pennsylvania Supreme Court denied appeals, upholding the merger approval with GPU, Inc.
  • 2Court overturned PPUC order on POLR relief for Met-Ed and Penelec, impacting cost recovery from CTC revenues.
  • 3FirstEnergy expects no significant adverse financial impact from POLR relief disallowance due to prior reserves and affiliate hedging.
  • 4A significant non-cash, after-tax charge of $88.8 million ( $0.30/share) was recorded due to the reclassification of Argentine subsidiary Emdersa's assets from 'Pending Sale' back into operations.
  • 5FirstEnergy recorded a $448 million non-cash charge to equity for a minimum pension liability under SFAS No. 87.
  • 6Pension and other postretirement expense is expected to increase by a total of $170 million pre-tax in 2003 compared to 2002.
  • 7Implementation of SFAS No. 143 is expected to increase common stockholders' equity by $181 million and result in a $0.57 per share increase in reported net income in 2003.

Frequently Asked Questions

The Pennsylvania Supreme Court denied further appeals, upholding the merger's approval. While this is positive, the court overturned a prior order regarding Provider of Last Resort (POLR) relief for Met-Ed and Penelec, disallowing the offset of certain costs with Competitive Transition Charge (CTC) revenues. However, FirstEnergy believes this will not have a significant adverse financial impact due to actions already taken, including setting aside reserves for deferred energy costs and hedging future power supply needs through an affiliate.

FirstEnergy's Argentine subsidiary, Emdersa, will no longer be classified as 'Assets Pending Sale' because a sale agreement was not reached. Consequently, Emdersa's results will be consolidated into FirstEnergy's financial statements. This requires a one-time, non-cash 'Cumulative Effect of Accounting Change' charge of $88.8 million after-tax ($0.30 per share) to recognize Emdersa's cumulative results from November 2001 through October 2002, primarily due to currency transaction losses.

FirstEnergy's earnings per share guidance for 2003 remains unchanged at $3.35 to $3.55. This guidance explicitly excludes the impact of Davis-Besse outage costs and the cumulative effect of adopting SFAS No. 143.

FirstEnergy finalized its assumptions for 2003 pension and postretirement benefit costs, adjusting the expected return on plan assets and the discount rate. Notably, the company recorded a $448 million non-cash charge to equity in Q4 2002 for a minimum pension liability. For 2003, FirstEnergy anticipates a pre-tax increase of $170 million in pension and other postretirement expense compared to 2002.