8-KOther Events

FIRSTENERGY CORP 8-K Report (Apr 18, 2003)

Filed April 18, 2003For Securities:FE

Summary

FirstEnergy Corp. has announced the abandonment of its ownership in GPU Empresa Distribuidora Electrica Regional S.A. (Emdersa), an Argentine electric distribution holding company, as of April 18, 2003. This action was taken due to challenging economic conditions in Argentina, which prevented the company from completing a sale. The abandonment involves tendering FirstEnergy's shares in Emdersa's parent company, GPU Argentina Holdings, Inc., back to that entity. This divestiture will result in a one-time, non-cash charge of $63 million ($0.21 per share) in the second quarter of 2003. This charge reflects the realization of previously recorded foreign currency translation adjustment (CTA) losses and a gain from eliminating the investment. Importantly, while this charge impacts earnings, the net effect on common shareholders' equity will be an increase of $27 million, as the CTA losses were previously recorded in other comprehensive income. Furthermore, FirstEnergy anticipates significant income tax benefits of approximately $129 million from this abandonment.

Key Highlights

  • 1FirstEnergy Corp. divested its ownership in Argentine electric distributor Emdersa through abandonment of shares in its parent company.
  • 2The divestiture is a result of difficult economic conditions in Argentina.
  • 3A one-time, non-cash charge of $63 million ($0.21 per share) will be recognized in Q2 2003.
  • 4The charge is comprised of realized CTA losses ($90 million) offset by a gain on investment elimination ($27 million).
  • 5Despite the charge, common shareholders' equity will increase by $27 million due to prior CTA loss recognition in Other Comprehensive Income.
  • 6FirstEnergy expects approximately $129 million in income tax benefits from the abandonment.
  • 7A portion of the tax benefits ($50 million) is expected to increase net income when probable, with the remainder reducing goodwill.

Frequently Asked Questions

FirstEnergy will recognize a one-time, non-cash charge of $63 million, or $0.21 per share, in the second quarter of 2003. This charge stems from realizing $90 million in foreign currency translation adjustment (CTA) losses and a $27 million gain from eliminating the investment. The net effect on common shareholders' equity will be an increase of $27 million, as the CTA losses were previously booked in Other Comprehensive Income.

In the second quarter of 2003, a non-cash charge of $63 million will negatively impact net income. However, FirstEnergy anticipates significant income tax benefits totaling approximately $129 million. Of this, $50 million is expected to increase net income in the period it becomes probable that the benefits will be realized, partially offsetting the charge.

FirstEnergy is abandoning its investment in Emdersa due to difficult economic conditions in Argentina, which have prevented the company from successfully completing a sale transaction for this Argentine electric distribution holding company.

FirstEnergy anticipates approximately $129 million in income tax benefits. $50 million of these benefits are expected to increase net income when realization becomes probable, while the remaining $79 million will reduce goodwill associated with the acquisition of GPU. The total tax benefits will increase common shareholders' equity by $50 million when realized and also represent positive cash flow.