8-KEarnings & ResultsExhibits & Filings

FIRSTENERGY CORP 8-K Report, Financial Results (Oct 25, 2018)

Filed October 25, 2018For Securities:FE

Summary

FirstEnergy Corp. (FE) filed an 8-K on October 25, 2018, to announce results for the three and nine months ended September 30, 2018, and to update its 2018 GAAP earnings forecast and operating (non-GAAP) earnings guidance. The filing primarily serves to provide supplemental financial information through attached press releases and reports, which include non-GAAP financial measures. Investors should note that the company is emphasizing its 'Operating earnings' and 'Operating earnings per share,' which exclude 'special items' that management believes do not reflect ongoing core business trends. The company also detailed its use of non-GAAP measures like Adjusted Equity, Adjusted Debt, and Adjusted Capitalization for covenant compliance under its credit facility. A significant theme in the filing is the ongoing restructuring and strategic shift towards a fully regulated business model. This includes the reclassification of substantially all operations of the previously reported Competitive Energy Services segment as discontinued operations, with the exception of the Pleasants Power Station. This reclassification impacts prior period disclosures and the presentation of non-GAAP financial measures. The company's forward-looking statements highlight significant risks and uncertainties related to exiting commodity-based generation, the FirstEnergy Solutions Corp. (FES) bankruptcy, regulatory and operational goals, and the transition to a fully regulated entity.

Key Highlights

  • 1FirstEnergy announced updated 2018 GAAP earnings forecast and operating (non-GAAP) earnings guidance.
  • 2The company provided results for the three and nine months ended September 30, 2018.
  • 3Non-GAAP financial measures, such as 'Operating earnings' and 'Operating earnings per share,' are being used to present performance, excluding 'special items' management deems non-indicative of core trends.
  • 4Substantially all operations from the Competitive Energy Services segment have been reclassified as discontinued operations, impacting prior period reporting.
  • 5The company utilizes non-GAAP measures (Adjusted Equity, Adjusted Debt, Adjusted Capitalization) to monitor compliance with debt covenants under its credit facility.
  • 6Forward-looking statements emphasize significant risks related to exiting commodity-based generation and the ongoing FES bankruptcy proceedings.
  • 7The strategic focus remains on transitioning to a fully regulated business model.

Frequently Asked Questions

FirstEnergy uses 'Operating earnings' as a non-GAAP financial measure that excludes 'special items.' Management believes these special items, which can include charges or benefits, do not represent the company's ongoing core business activities and may obscure trends. The company uses Operating earnings to provide a more consistent and comparable measure of performance over time and against peers.

FirstEnergy has reclassified most of its Competitive Energy Services segment as discontinued operations as of March 31, 2018 (with the Pleasants Power Station reclassified as of September 30, 2018). This action reflects a strategic shift, likely away from commodity-based generation, and impacts how prior financial periods are reported, including the presentation of non-GAAP financial measures.

Key risks highlighted include the challenges and potential liabilities associated with exiting commodity-based generation, the ongoing bankruptcy proceedings of FirstEnergy Solutions Corp. (FES), meeting regulatory and operational goals for transmission and distribution investments, and successfully executing the transition to a fully regulated business model. The company also notes risks related to litigation, cyber-attacks, and regulatory changes.

These non-GAAP financial measures are used by FirstEnergy's management to calculate and monitor compliance with the financial covenants under its credit facility, specifically the debt to total capitalization ratio. This helps management and investors understand the company's leverage and its capacity for additional debt.