-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Nw/1dDbrvKPG6PvwnDvUZZTw2lhQ47/efzOABbhMaI3YwwcQjBoSS/+Va8sQpbWv hZeX8vjaAFNhvc5lO15zwA== 0001031296-03-000179.txt : 20030805 0001031296-03-000179.hdr.sgml : 20030805 20030805144217 ACCESSION NUMBER: 0001031296-03-000179 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030805 ITEM INFORMATION: ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20030805 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRSTENERGY CORP CENTRAL INDEX KEY: 0001031296 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 341843785 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 333-21011 FILM NUMBER: 03823466 BUSINESS ADDRESS: STREET 1: 76 SOUTH MAIN ST CITY: AKRON STATE: OH ZIP: 44308-1890 BUSINESS PHONE: 3303845100 MAIL ADDRESS: STREET 1: 76 SOUTH MAIN ST CITY: AKRON STATE: OH ZIP: 44308-1890 8-K 1 main.txt SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported) August 5, 2003 Commission Registrant; State of Incorporation; I.R.S. Employer File Number Address; and Telephone Number Identification No. - -------------------------------------------------------------------------------- 333-21011 FIRSTENERGY CORP. 34-1843785 (An Ohio Corporation) 76 South Main Street Akron, Ohio 44308 Telephone (800)736-3402 Item 7. Financial Statements, Pro Forma Financial Statements and Exhibits (c) Exhibits. Exhibit No. Description - ----------- ----------- 99.1 Press Release issued by FirstEnergy Corp., dated August 5, 2003 99.2 Consolidated Report to the Financial Community, dated August 5, 2003 Item 12. Results of Operations and Financial Condition On August 5, 2003, FirstEnergy Corp. issued two public announcements, which are attached as Exhibits 99.1, and 99.2 hereto and incorporated by reference. FirstEnergy's Press Release and Consolidated Report to the Financial Community contain non-GAAP financial measures. Generally, a non-GAAP financial measure is a numerical measure of a company's historical or future financial performance, financial position, or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with accounting principles generally accepted in the United States, or GAAP. Pursuant to the requirements of Regulation G, FirstEnergy has provided quantitative reconciliations within the Press Release and Consolidated Report to the Financial Community of the non-GAAP financial measures to the most directly comparable GAAP financial measures. The Press Release and Consolidated Report to the Financial Community include normalized earnings per share, which is not calculated in accordance with GAAP because it excludes the impact of "unusual items". Unusual items reflect the impact on earnings of events that are not routine, are related to prior periods, are related to discontinued businesses or are the cumulative effect of an accounting change. Management believes presenting normalized earnings calculated in this manner provides useful information to investors in evaluating the ongoing results of FirstEnergy's businesses and assists investors in comparing the company's operating performance to the operating performance of others in the energy sector. FirstEnergy's management frequently references these non-GAAP financial measures in its decision-making, using them to facilitate historical and ongoing performance comparisons as well as comparisons to the performance of peer companies. The non-GAAP information presented in the Press Release and Consolidated Report to the Financial Community should be considered in addition to, and not as a substitute for, reported earnings per share prepared in accordance with GAAP. Forward-Looking Statement: This news release includes forward-looking statements based on information currently available to management. Such statements are subject to certain risk and uncertainties. These statements typically contain, but are not limited to, the terms "anticipate," "potential," "expect," "believe," "estimate," and similar words. Actual results may differ materially due to the speed and nature of increased competition and deregulation in the electric utility industry, economic or weather conditions affecting future sales and margins, changes in markets for energy services, changing energy and commodity market prices, replacement power costs being higher than anticipated or inadequately hedged, maintenance costs being higher than anticipated, legislative and regulatory changes (including revised environmental requirements), availability and cost of capital, inability of the Davis-Besse Nuclear Power Station to restart (including because of any inability to obtain a favorable final determination from the Nuclear Regulatory Commission) in the fall of 2003, additional adjustments which may result from the audited restatement of the 2002 financial statements and the restatement and review of the first quarter of 2003 for the Company and the re-audit of 2001 financial statements for Cleveland Electric Illuminating and Toledo Edison, inability to accomplish or realize anticipated benefits of strategic goals and other similar factors. 1 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. August 5, 2003 FIRSTENERGY CORP. ----------------- Registrant /s/ Harvey L. Wagner ---------------------------------------------- Harvey L. Wagner Vice President, Controller and Chief Accounting Officer 2 EX-99 3 ex99-1.txt EXHIBIT 99.1 PRESS RELEASE Exhibit 99.1 FirstEnergy Corp. For Release: August 5, 2003 76 South Main Street Akron, Ohio 44308 www.firstenergycorp.com News Media Contact: Investor Contact: Kristen Baird Kurt Turosky (330) 761-4261 (330) 384-5500 FIRSTENERGY REPORTS LOWER SECOND QUARTER EARNINGS AND ACCOUNTING ADJUSTMENTS; REVISES 2003 GUIDANCE FirstEnergy Corp. (NYSE: FE) today reported that basic earnings per share of common stock on a non-GAAP basis (*) for the second quarter of 2003 were $0.52, before a loss on discontinued operations and unusual charges, which are summarized later in this release. Including these items, the company reported a net loss of $57.9 million, or $0.20 per share. This compares with second quarter 2002 restated net income of $216.0 million, or basic earnings of $0.74 per share ($0.73 diluted). Second Quarter 2003 Non-GAAP Reconciliation Amount Basic (Millions) EPS ---------------- ---------------- Earnings Before Unusual Items $ 152.1 $ 0.52 JCP&L Rate Case Disallowance (93.5) (0.32) Discontinued Operations (67.4) (0.23) Davis-Besse Impacts (37.2) (0.13) Other Unusual Items (11.9) (0.04) ---------------- ---------------- Net Income (Loss) $(57.9) $ (0.20) Restatement of Earnings The company is restating 2002 and first quarter 2003 earnings to reflect implementation of changed accounting treatments regarding the recovery of transition assets in Ohio and recognition of above-market values of certain leased generation facilities. The restatements will reflect non-cash expenses only and are expected to reduce FirstEnergy's earnings per share by $0.23 to $1.92 ($1.91 diluted) on a GAAP basis for 2002, and are expected to lower the company's 2003 earnings by $0.17 per share on a GAAP basis compared with the company's original earnings guidance. (more) Additionally, earnings through 2005 are expected to be lower than originally estimated and earnings from 2006 through 2017 are expected to be higher than they otherwise would have been as a result of the restatement. For the 2002-2017 period, the cumulative impact of the restatement will be an increase in net income of an expected $381 million. The company also intends to restate the 2001 financial statements for its Cleveland Electric Illuminating (CEI) and Toledo Edison (TE) subsidiaries, but those restatements are not expected to be material to FirstEnergy's 2001 financial results. The previous accounting treatment of these items has been fully disclosed since implementation. Because FirstEnergy's 2002 financial statements will be restated, investors are cautioned not to rely on the previously issued 2002 statements, or the results previously reported for the first quarter of 2003. Because PricewaterhouseCoopers LLP (PwC) was not FirstEnergy's auditor in 2001, that year's financial statements for CEI and TE will be re-audited. The financial measures included in this news release, where applicable, include adjustments that are expected to result once the restatements are completed. Although not anticipated, there can be no assurance that the restatement and re-audit process will not result in further material adjustments to these measures Second Quarter Results FirstEnergy's total revenues for the second quarter of 2003 were $2.9 billion, unchanged from the year-earlier quarter. Retail generation kilowatt-hour sales during the period rose 15.9 percent compared with the year-earlier quarter. Regulated kilowatt-hour distribution deliveries to customers decreased 2.8 percent, compared with the year-earlier quarter, due primarily to unusually mild weather. Regarding second quarter earnings, the loss from discontinued operations reflects a non-cash charge of $67 million, or $0.23 per share. This loss resulted from FirstEnergy's divestiture in April of Emdersa through the abandonment of FirstEnergy's shares in Emdersa's parent company, GPU Argentina Holdings, Inc. FirstEnergy had acquired Emdersa through its 2001 merger with the former GPU, Inc. (more) Unusual items affecting 2003 second quarter results included: o A one-time pre-tax charge of $158.5 million, or $0.32 cents per share after tax, based on the New Jersey Board of Public Utilities' decision on Jersey Central Power & Light's (JCP&L) rate proceeding, which reduced the amount of deferred energy and other costs that JCP&L can recover o Pre-tax charges totaling $18.8 million, or $0.04 per share after tax, resulting from the impairment of a note receivable, which was recently sold to a third-party for approximately $63 million, related to FirstEnergy's 2002 sale of 79.9 percent of United Kingdom-based Avon Energy Partners Holdings; and, the sale in June of a non-core asset, Northeast Ohio Natural Gas Corp. Also affecting FirstEnergy's second quarter results were pre-tax costs associated with Davis-Besse Nuclear Power Station restart efforts, which totaled $63 million on a pre-tax basis, or $0.13 per share after tax, during the period - - $41 million for replacement power and $22 million for incremental operating and maintenance expenses. Other factors that reduced the company's second quarter earnings were an increase in nuclear operating expenses primarily related to longer than anticipated refueling outages at the Perry and Beaver Valley Unit 1 plants; a rise in pension and other post-employment benefits; and an increase in depreciation and amortization expenses. FirstEnergy Revises 2003 Earnings Guidance As a result of lower than expected results for the quarter, FirstEnergy has updated its 2003 earnings guidance. Previously estimated at $3.35 to $3.55 per share on a non-GAAP basis, 2003 earnings are now expected to be in the range of $2.68 to $2.88 per share on a non-GAAP basis. The revised guidance continues to exclude incremental expenses associated with the extended outage at Davis-Besse and unusual charges, as well as the first quarter increase in income from the cumulative effect of an accounting change. Including these items, FirstEnergy's revised 2003 guidance would be $1.96 to $2.16 per share on a GAAP basis. 2003 Revised Non-GAAP Earnings Guidance ($ per share) -------------- Original 2003 Non-GAAP Earnings Guidance (1) $3.35 - $3.55 Less: Perry/Beaver Valley 1 Refueling Outage Extensions (2) 0.13 Less: Increased PJM Wholesale Prices (3) 0.09 Less: Generation Margin (4) 0.13 Less: Nuclear Operating & Maintenance Costs (5) 0.03 Less: JCP&L Service Reliability Improvements (6) 0.04 Less: JCP&L Rate Case Decision (7) 0.08 Less: Revised Accounting Methodology (8) 0.17 ------ Revised 2003 Non-GAAP Earnings Guidance (1) $2.68 - $2.88 Notes: (1) Revised earnings guidance excludes incremental O&M and replacement energy costs for the Davis-Besse outage, discontinued operations, cumulative effect of accounting changes and unusual charges (2) Higher nuclear operating expenses and replacement power due to extensions of refueling outages at Beaver Valley Unit 1 and Perry (3) Higher than forecasted off-peak purchased power prices in PJM during first quarter 2003 (4) Reduced generation margin attributable to higher purchased power prices versus forecast, lower composite prices due to actual sales mix, and reduced generation output (5) Higher than forecasted non-fuel nuclear operating and maintenance costs (6) Distribution reliability improvements in JCP&L service territory (7) Final ruling in the JCP&L rate case compared with settlement agreement (8) Revised accounting methodology to reflect a more preferable treatment for amortizing certain non-cash expenses related to the recovery of transition assets in Ohio and the recognition of a bove-market values of certain leased generation assets. 3 2003 Revised GAAP Earnings Guidance ($ per share) -------------- Revised 2003 Non-GAAP Earnings Guidance $2.68 - $2.88 Less: Davis-Besse Incremental Outage Costs (1) 0.50 Less: Discontinued Operations (2) 0.21 Less: Unusual Charges - 2nd Quarter 0.36 Plus: Cumulative Effect of Accounting Change - 1st Quarter (3) 0.35 Revised 2003 GAAP Earnings Guidance ---- $1.96 - $2.16 Notes: (1) Includes incremental operating expenses ($80M) and estimated replacement power ($170M) for extended Davis-Besse outage (2) Discontinued operations net charge recorded in the first and second quarters attributed to the Emdersa abandonment. (3) Cumulative effect of accounting change in the first quarter related to the adoption of SFAS No. 143 First Half 2003 Results For the six months ended June 30, 2003, FirstEnergy's basic and diluted earnings per share on a non-GAAP basis were $1.42, excluding the loss on discontinued operations, unusual charges, and the cumulative effect of an accounting change resulting from the adoption in the first quarter of a new accounting standard for asset retirement obligations. Including these items, net income was $160.5 million, or basic earnings of $0.55 per share ($0.54 diluted). First Half 2003 Non-GAAP Reconciliation After-tax Amount Basic Millions EPS -------- ------- Earnings Before Unusual Items $415.8 $ 1.42 JCP&L Rate Case Disallowance (93.5) (0.32) Discontinued Operations (60.5) (0.21) Davis-Besse Impacts (89.4) (0.30) Other Unusual Items (11.9) (0.04) ------ ------ Net Income $160.5 $ 0.55 These results compare with restated net income for the first six months of 2002 of $322.1 million, or basic earnings of $1.10 per share ($1.09 diluted). For the six months ended June 30, 2003, total revenues were $6.1 billion, compared with $5.8 billion for the same period in 2002. FirstEnergy continued to successfully implement its aggressive debt reduction program and refinancing activities. Redemption and refinancing activities during the quarter and on a year-to-date basis will produce annualized financing cost savings of $35 million and $53 million, respectively. FirstEnergy Chairman and Chief Executive Officer H. Peter Burg and Senior Vice President and Chief Financial Officer Richard H. Marsh will discuss financial results for the second quarter during a teleconference with the financial community at 2 p.m. Eastern time today. A live Webcast of their remarks and follow-up question-and-answer session will be accessible through FirstEnergy's Investor Information Web site - www.firstenergycorp.com/ir - by clicking on the Webcast icon and selecting the Second Quarter Teleconference. (more) For those who can't listen to the live Webcast, it will be archived on the Web site. Access to the Webcast requires RealPlayer 8 and at least a 14.4 kbps connection to the Internet. RealPlayer 8 basic software is downloadable free from www.real.com/products/player/index.html, or from FirstEnergy's Internet site. FirstEnergy's Consolidated Report to the Financial Community - which includes financial results for the second quarter and first half of 2003 - is posted on the company's Internet site - www.firstenergycorp.com/ir. To access the report, click on Consolidated Report to the Financial Community. Supplemental information is included in an August 5, 2003, letter addressed to the investment community, also posted on the Investor Information section of FirstEnergy's Web site. FirstEnergy is a registered public utility holding company headquartered in Akron, Ohio. Its subsidiaries and affiliates are involved in the generation, transmission and distribution of electricity; exploration and production of oil and natural gas; transmission and marketing of natural gas; and energy management and other energy-related services. (*) This news release contains non-GAAP financial measures. Generally, a non-GAAP financial measure is a numerical measure of a company's historical or future financial performance, financial position, or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with accounting principles generally accepted in the United States. Forward-Looking Statement: This news release includes forward-looking statements based on information currently available to management. Such statements are subject to certain risk and uncertainties. These statements typically contain, but are not limited to, the terms "anticipate," "potential," "expect," "believe," "estimate," and similar words. Actual results may differ materially due to the speed and nature of increased competition and deregulation in the electric utility industry, economic or weather conditions affecting future sales and margins, changes in markets for energy services, changing energy and commodity market prices, replacement power costs being higher than anticipated or inadequately hedged, maintenance costs being higher than anticipated, legislative and regulatory changes (including revised environmental requirements), availability and cost of capital, inability of the Davis-Besse Nuclear Power Station to restart (including because of any inability to obtain a favorable final determination from the Nuclear Regulatory Commission) in the fall of 2003, additional adjustments which may result from the audited restatement of the 2002 financial statements and the restatement and review of the first quarter of 2003 for the Company and the re-audit of 2001 financial statements for Cleveland Electric Illuminating and Toledo Edison, inability to accomplish or realize anticipated benefits of strategic goals and other similar factors. (080503) EX-99 4 ex99-2.txt EXHIBIT 99.2 EXHIBIT 99.2 Consolidated Report to the Financial Community (Unaudited) - -------------------------------------------------------------------------------
________________________________________________________________ | | Second Quarter 2003 Highlights |After Tax EPS Variance Analysis 2nd Qtr.| (Released August 5, 2003) |------------------------------- --------| |2nd Quarter 2002 Basic EPS - GAAP Basis (Restated) $ 0.74 | | Davis-Besse Incremental Expenses - 2002 0.10 | o Non-GAAP earnings for the | ------- | second quarter, before a loss |2nd Quarater 2002 Normalized Earnings - Non-GAAP $ 0.84 | on discontinued operations and | Electric Gross Margin (Excl. Davis-Besse) (0.15)| unusual charges, were $0.39 | Nuclear Operating Expenses (Excl. Davis-Besse) (0.10)| per share. Excluding costs | Pension and Other Post-Employment Benefits (0.09)| associated with the | General Taxes (0.04)| Davis-Besse extended outage, | Depreciation and Amortization (0.03)| normalized non-GAAP earnings | Financing Costs 0.12 | were $0.52 per share, compared | International Operations (0.03)| to restated second quarter | ------- | 2002 normalized non-GAAP |2nd Quarter 2003 Normalized Earnings - Non-GAAP $ 0.52 | earnings of $0.84 per share. | Davis-Besse Incremental Expenses - 2003 (0.13)| Overall results for the second | ------- | quarter of 2003 reflect a $58 |Subtotal - Non GAAP $ 0.39 | million net loss, or ($0.20) | Discontinued Operations - 2003 (Emdersa) (0.23)| per share, compared to | Unusual Charges - 2003 (See Page 8) (0.36)| restated net income of $216 | ------- | million, or $0.74 per share, |2nd Quarter 2003 Basic EPS - GAAP Basis $ (0.20)| for the same period last year. | ======= | These measures reflect adjust- |_______________________________________________________________| ments expected to result from the announced restatement of the Company's 2002 and first quarter 2003 financial statements and from the restatements of the 2001 and 2002 financial statements of Cleveland Electric Illuminating and Toledo Edison. Therefore, the measures reflected in this report include adjustments expected to result from the restatements. There can be no assurance that material changes to these measures will not result from the restatements.
2Q 2003 Results Compared With 2Q 2002 - ------------------------------------- o Electric distribution deliveries decreased 3% driven largely by a 6% reduction in residential deliveries due to milder weather and a 3% reduction in industrial deliveries. Total electric generation sales increased 16% with higher wholesale sales more than offsetting a 4% decline in retail generation sales. o Electric gross margin decreased $75 million after adjusting for changes in regulatory deferrals, the write-off of $153 million of JCP&L deferred energy costs, and Davis-Besse replacement power costs. This was largely driven by increased purchased power requirements to replace the lost generation output associated with longer than anticipated refueling outages at the Beaver Valley Unit 1 and Perry nuclear plants during the quarter. Adjusted electric sales revenues increased by $99 million due to higher wholesale spot sales and Basic Generation Service sales in New Jersey. Adjusted fuel and purchased power costs increased $174 million due to higher generation sales, coupled with the reduced generation output from our nuclear units. o Nuclear operating expenses, excluding incremental expenses associated with the Davis-Besse outage, increased $52 million. The increase resulted from the two refueling outages in the second quarter of this year versus none last year. o Pension and other post-employment benefit costs increased $45 million, continuing to reflect reduced asset values at the measurement date, reduced return assumptions on trust assets, and lower discount rates used to value projected obligations. o General taxes increased $18 million as a result of higher payroll and kilowatt-hour taxes this year and a $9 million credit adjustment that lowered taxes in the second quarter last year. 1 o Total depreciation and amortization expenses, excluding adjustments, increased $13 million. The increase is primarily attributable to a $20 million increase in Ohio transition costs amortization and $10 million of depreciation expense associated with the Lake Plants in 2003. These expenses were partially offset by $17 million of lower nuclear decommissioning and depreciation expenses related to the implementation of SFAS No. 143. o Net financing costs decreased as a result of our continued aggressive debt reduction program and refinancing activities. Financing activities during the quarter included $293 million in mandatory long-term debt redemptions, $472 million of refinancings and repricings, and $106 million in net debt issuance. Redemption and refinancing activities during the quarter and on a year-to-date basis will produce financing cost savings of $32 million and $47 million, respectively. o Following abandonment of ownership interests in Emdersa, a distribution holding company in Argentina, FirstEnergy recognized a one-time, non-cash charge of $67 million, or $0.23 per share, as a loss on discontinued operations in the second quarter. FirstEnergy's income tax payments in 2003 will be reduced as a result of the abandonment and the Company reserved the full estimated tax benefit of $129 million pending final IRS determination. o Net income from international operations, before the loss on discontinued operations and the impairment of a note receivable related to the 2002 sale of 79.9% of Avon Energy Partners Holdings to Aquila, decreased $10 million from the second quarter of last year when we owned 100% of Avon for a portion of the quarter. o Unusual charges reduced earnings by $0.36 per share for the quarter. The unusual charges included: a one-time charge of $159 million related to the New Jersey Board of Public Utilities' disallowance of the recovery of $153 million of the deferred energy costs and approximately $6 million of other costs; a $13 million impairment of a note receivable; and a $6 million loss on the sale of a natural gas subsidiary. 2Q 2003 Earnings Impact Associated with Davis-Besse - --------------------------------------------------- o Incremental expenses associated with the extended outage at Davis-Besse during the quarter totaled $63 million, or $0.13 per share ($41 million of replacement power costs and $22 million of O&M expenses). Earnings Guidance Revision - -------------------------- o FirstEnergy changed its 2003 non-GAAP earnings guidance to $2.68 to $2.88 per share from the previous non-GAAP earnings guidance of $3.35-$3.55 per share. The non-GAAP earnings guidance excludes incremental costs associated with the extended Davis-Besse outage, as well as unusual charges. Please see page 3 for additional details. For additional information, please contact: Kurt E. Turosky Terrance G. Howson Thomas C. Navin Director, Vice President, Treasurer Investor Relations Investor Relations (330) 384-5889 (330) 384-5500 (973) 401-8519 2 2003 Revised Non-GAAP Earnings Guidance Excluding Davis-Besse Outage Costs, Discontinued Operations, Cumulative Effect of Accounting Changes and Unusual Charges (1) ($ per share) ------------- Original 2003 Non-GAAP Earnings Guidance (1) $3.35 - $3.55 Less: Perry/Beaver Valley 1 Refueling Outage Extensions (2) (0.13) Less: Increased PJM Wholesale Prices (3) (0.09) Less: Generation Margin (4) (0.13) Less: Nuclear Operating & Maintenance Costs (5) (0.03) Less: JCP&L Service Reliability Improvements (6) (0.04) Less: JCP&L Rate Case Decision (7) (0.08) Less: Revised Accounting Methodology (8) (0.17) ------ Revised 2003 Non-GAAP Earnings Guidance (1,9) $2.68 - $2.88 Notes: (1) Revised earnings guidance excludes incremental O&M and replacement energy costs for the Davis-Besse outage, discontinued operations, cumulative effect of accounting changes and unusual charges (see page 8) (2) Higher nuclear operating expenses and replacement power due to extensions of refueling outages at Beaver Valley Unit 1 and Perry (3) Higher than forecasted off-peak purchased power prices in PJM during 1st quarter 2003 (4) Reduced generation margin attributable to higher purchased power prices versus forecast, lower composite prices due to actual sales mix, and reduced generation output (5) Higher than forecasted non-fuel nuclear operating and maintenance costs (6) Distribution reliability improvements in JCP&L service territory (7) Final ruling in the JCP&L rate case compared with settlement agreement (8) Revised accounting methodology to reflect a more preferable treatment for amortizing certain non-cash expenses related to the recovery of transition assets in Ohio and the recognition of above-market values of certain leased generation assets. (9) See page 4 for reconciliation to revised 2003 GAAP earnings guidance ______________________________________________________________________________ | | | This Consolidated Report to the Financial Community includes forward-looking | | statements based on information currently available to management. Such | | statements are subject to certain risks and uncertainties. These statements | | typically contain, but are not limited to, the terms "anticipate," | | "potential," "expect," "believe," "estimate" and similar words. Actual | | results may differ materially due to the speed and nature of increased | | competition and deregulation in the electric utility industry, economic or | | weather conditions affecting future sales and margins, changes in markets | | for energy services, changing energy and commodity market prices, | | replacement power costs being higher than anticipated or inadequately | | hedged, maintenance costs being higher than anticipated, legislative and | | regulatory changes (including revised environmental requirements), the | | availability and cost of capital, the inability of the Davis-Besse Nuclear | | Plant to restart (including because of an inability to obtain a favorable | | final determination from the Nuclear Regulatory Commission)in the fall of | | 2003, additional adjustments which may result from the audited restatement | | of the 2002 financial statements and the restatement and review of the first | | quarter of 2003 for the Company and the re-audits of 2001 financial | | statements for Cleveland Electric Illuminating and Toledo | | Edison, inability to accomplish or realize anticipated benefits of strategic | | goals and other similar factors. | |______________________________________________________________________________| 3 2003 Revised GAAP Earnings Guidance ($ per share) ------------- Revised 2003 Non-GAAP Earnings Guidance (1) $2.68 - $2.88 Less: Davis-Besse Incremental Outage Costs (2) 0.50 Less: Discontinued Operations (3) 0.21 Less: Unusual Charges - 2nd Quarter (4) 0.36 Plus: Cumulative Effect of Accounting Change - 1st Quarter (5) 0.35 ---- Revised 2003 GAAP Earnings Guidance $1.96 - $2.16 Notes: (1) See schedule on page 3 (2) Includes incremental operating expenses ($80M) and estimated replacement power costs ($170M) for extended Davis-Besse outage (3) Discontinued operations net charge recorded in the first and second quarters attributed to the Emdersa abandonment. (4) See schedule on page 8 (5) Cumulative effect of accounting change in the first quarter related to the adoption of SFAS No. 143 ______________________________________________________________________________ | | | This Consolidated Report to the Financial Community includes forward-looking | | statements based on information currently available to management. Such | | statements are subject to certain risks and uncertainties. These statements | | typically contain, but are not limited to, the terms "anticipate," | | "potential," "expect," "believe," "estimate" and similar words. Actual | | results may differ materially due to the speed and nature of increased | | competition and deregulation in the electric utility industry, economic or | | weather conditions affecting future sales and margins, changes in markets | | for energy services, changing energy and commodity market prices, | | replacement power costs being higher than anticipated or inadequately | | hedged, maintenance costs being higher than anticipated, legislative and | | regulatory changes (including revised environmental requirements), the | | availability and cost of capital, the inability of the Davis-Besse Nuclear | | Plant to restart (including because of an inability to obtain a favorable | | final determination from the Nuclear Regulatory Commission)in the fall of | | 2003, additional adjustments which may result from the audited restatement | | of the 2002 financial statements and the restatement and review of the first | | quarter of 2003 for the Company and the re-audits of 2001 financial | | statements for Cleveland Electric Illuminating and Toledo | | Edison, inability to accomplish or realize anticipated benefits of strategic | | goals and other similar factors. | |______________________________________________________________________________| 4
FIRSTENERGY CORP. Three Months Ended Six Months Ended CONSOLIDATED INCOME June 30, June 30, ------------------------------------ ------------------------------------ STATEMENTS (thousands): 2003 2002 Change 2003 2002 Change ----------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- (1)REVENUES: (2) Electric Sales $2,386,608 $2,254,457 $ 132,151 $5,019,808 $4,339,457 $ 680,351 (3) Natural Gas 130,756 162,843 (32,087) 379,252 367,435 11,817 (4) FE Facilities 84,601 136,131 (51,530) 161,981 255,884 (93,903) (5) MYR 118,294 143,982 (25,688) 230,588 283,776 (53,188) (6) International 12,835 83,177 (70,342) 44,459 287,803 (243,344) (7) Other 130,052 117,983 12,069 260,914 217,496 43,418 ---------- ---------- ---------- ---------- ---------- ---------- (8) Total revenues 2,863,146 2,898,573 (35,427) 6,097,002 5,751,851 345,151 ---------- ---------- ---------- ---------- ---------- ---------- (9) (10)EXPENSES: (11) Fuel 170,725 190,620 (19,895) 334,863 361,241 (26,378) (12) Purchased Power 950,828 561,868 388,960 1,975,200 1,076,087 899,113 (13) Purchased Gas 128,634 145,954 (17,320) 358,099 352,181 5,918 (14) Other operating expenses 688,895 593,496 95,399 1,384,889 1,229,183 155,706 (15) FE Facilities 84,035 133,421 (49,386) 162,298 251,556 (89,258) (16) MYR 116,203 142,533 (26,330) 225,838 279,404 (53,566) (17) International 15,332 46,463 (31,131) 31,196 135,010 (103,814) (18) Mark-to-Market Adjustment 889 (1,007) 1,896 4,579 (2,146) 6,725 (19) Provision for depreciation and amortization 311,522 300,405 11,117 636,384 611,033 25,351 (20) General taxes 163,042 145,106 17,936 341,324 317,094 24,230 ---------- ---------- ---------- ---------- ---------- ---------- (21) Total expenses 2,630,105 2,258,859 371,246 5,454,670 4,610,643 844,027 ---------- ---------- ---------- ---------- ---------- ---------- (22)INCOME BEFORE INTEREST (23) AND INCOME TAXES 233,041 639,714 (406,673) 642,332 1,141,208 (498,876) ---------- ---------- ---------- ---------- ---------- ---------- (24)Net interest charges: (25) Interest expense 199,670 231,782 (32,112) 400,320 492,247 (91,927) (26) Capitalized interest (7,622) (6,605) (1,017) (16,774) (12,419) (4,355) (27) Subsidiaries' preferred stock dividend 13,860 25,105 (11,245) 28,402 49,176 (20,774) ---------- ---------- ---------- ---------- ---------- ---------- (28) Net interest charges 205,908 250,282 (44,374) 411,948 529,004 (117,056) ---------- ---------- ---------- ---------- ---------- ---------- (29)Income taxes 17,649 173,434 (155,785) 111,522 290,138 (178,616) ---------- ---------- ---------- ---------- ---------- ---------- (30)Income before discontinued operations (31) and accounting change 9,484 215,998 (206,514) 118,862 322,066 (203,204) (32)Discontinued Operations (67,372) - (67,372) (60,495) - (60,495) (33)Cumulative effect of accounting change - - - 102,147 - 102,147 ---------- ---------- ---------- ---------- ---------- ---------- (34)NET INCOME (LOSS) $ (57,888) $ 215,998 $ (273,886) $ 160,514 $ 322,066 $(161,552) ========== ========== ========== ========== ========== ========== (35) (36)Basic earnings (loss) per common share: (37) Before discontinued operations and (38) accounting change $ 0.03 $ 0.74 $ (0.71) $ 0.41 $ 1.10 $ (0.69) (39) Discontinued operations (0.23) - (0.23) (0.21) - (0.21) (40) Cumulative effect of accounting change - - - 0.35 - 0.35 ---------- ---------- ---------- ---------- ---------- ---------- (41) $ 0.20) $ 0.74 $ (0.94) $ 0.55 $ 1.10 $ (0.55) ========== ========== ========== ========== ========== ========== (42)Weighted average number of basic (43) shares outstanding 294,166 293,080 1,086 294,026 292,935 1,091 ========== ========== ========== ========== ========== ========== (44) (45)Diluted earnings (loss) per common share: (46) Before discontinued operations and (47) accounting change $ 0.03 $ 0.73 $ (0.70) $ 0.40 $ 1.09 $ (0.69) (48) Discontinued operations (0.23) - (0.23) (0.21) - (0.21) (49) Cumulative effect of accounting change - - - 0.35 - 0.35 ---------- ---------- ---------- ---------- ---------- ---------- (50) $(0.20) $ 0.73 $ (0.93) $ 0.54 $ 1.09 $ (0.55) ========== ========== ========== ========== ========== ========== (51)Weighted average number of diluted (52) shares outstanding 295,888 294,589 1,299 295,355 294,472 883 ========== ========== ========== ========== ========== ==========
5
FIrstEnergy Consolidated Income Segments Three Months Ended June 30, 2003 -------------------------------------------------------------------------------- Regulated Competitive Other Reconciling (In thousands): Services Services (c) Adjustments Consolidated ------------------------------- ---------- ---------- --------- ------------ ------------ (1)REVENUES: (2) Electric Sales $2,006,468 $ 380,140 $ - $ - $ 2,386,608 (3) Natural Gas - 130,756 - - 130,756 (4) FE Facilities - 84,601 - - 84,601 (5) MYR - 118,294 - - 118,294 (6) International - - 12,835 - 12,835 (7) Other 76,191 26,057 9,258 18,546 (a) 130,052 (8) Internal revenues 233,634 512,055 146,707 (892,396)(b) - ---------- ---------- --------- --------- ----------- (9) Total revenues 2,316,293 1,251,903 168,800 (873,850) 2,863,146 ---------- ---------- --------- --------- ----------- (10) (11)EXPENSES: (12) Fuel - 167,857 2,868 - 170,725 (13) Purchased Power 1,070,993 391,890 - (512,055)(b) 950,828 (14) Purchased Gas - 128,634 - - 128,634 (15) Other operating expenses 488,030 413,008 117,722 (329,865)(a)(b) 688,895 (16) FE Facilities - 84,035 - - 84,035 (17) MYR - 116,203 - - 116,203 (18) International - - 15,332 - 15,332 (19) Mark-to-Market Adjustment - 889 - - 889 (20) Provision for depreciation and amortization 292,964 8,468 10,090 - 311,522 (21) General taxes 144,867 5,141 3,853 9,181 163,042 ---------- ---------- --------- --------- ----------- (22) Total expenses 1,996,854 1,316,125 149,865 (832,739) 2,630,105 ---------- ---------- --------- --------- ----------- (23)INCOME BEFORE INTEREST (24) AND INCOME TAXES 319,439 (64,222) 18,935 (41,111) 233,041 ---------- ---------- --------- --------- ----------- (25)Net interest charges: (26) Interest expense 124,251 12,357 104,173 (41,111)(b) 199,670 (27) Capitalized interest (6,034) (1,588) - - (7,622) (28) Subsidiaries' preferred stock dividends 13,860 - - - 13,860 ---------- ---------- --------- --------- ----------- (29) Net interest charges 132,077 10,769 104,173 (41,111) 205,908 ---------- ---------- --------- --------- ----------- (30)Income taxes 80,346 (30,962) (31,735) - 17,649 ---------- ---------- --------- --------- ----------- (31)Income before discontinued operations (32) and an accounting change 107,016 (44,029) (53,503) - 9,484 (33)Discontinued operations - - (67,372) - (67,372) (34)Cumulative effect of an accounting change - - - - - ---------- ---------- --------- --------- ----------- (35)NET INCOME (LOSS) $ 107,016 $ (44,029) $(120,875) $ - $ (57,888) ========== ========== ========= ========= =========== Three Months Ended June 30, 2002 -------------------------------------------------------------------------------- Regulated Competitive Other Reconciling (In thousands): Services Services (c) Adjustments Consolidated ----------------------------- ---------- ---------- ----------- ------------ ------------ (1)REVENUES: (2) Electric Sales $2,118,449 $ 136,008 $ - $ - $ 2,254,457 (3) Natural Gas - 162,843 - - 162,843 (4) FE Facilities - 136,131 - - 136,131 (5) MYR - 143,982 - - 143,982 (6) International - - 83,177 - 83,177 (7) Other 92,016 10,770 9,389 5,808 (a) 117,983 (8) Internal revenues 236,327 357,416 124,653 (718,396)(b) - ---------- ---------- --------- --------- ----------- (9) Total revenues 2,446,792 947,150 217,219 (712,588) 2,898,573 ---------- ---------- --------- --------- ----------- (10) (11)EXPENSES: (12) Fuel 1,298 186,306 3,016 - 190,620 (13) Purchased Power 939,374 (8,917) - (368,589)(b) 561,868 (14) Purchased Gas - 145,954 - - 145,954 (15) Other operating expenses 472,135 313,987 136,467 (329,093)(a)(b) 593,496 (16) FE Facilities - 133,421 - - 133,421 (17) MYR - 142,533 - - 142,533 (18) International - - 46,463 - 46,463 (19) Mark-to-Market Adjustment - 4,508 (5,515) - (1,007) (20) Provision for depreciation and amortization 282,344 6,206 11,855 - 300,405 (21) General taxes 138,338 4,685 2,083 - 145,106 ---------- ---------- --------- --------- ----------- (22) Total expenses 1,833,489 928,683 194,369 (697,682) 2,258,859 ---------- ---------- --------- --------- ----------- (23)INCOME BEFORE INTEREST (24) AND INCOME TAXES 613,303 18,467 22,850 (14,906) 639,714 ---------- ---------- --------- --------- ----------- (25)Net interest charges: (26) Interest expense 133,316 10,528 102,844 (14,906)(b) 231,782 (27) Capitalized interest (2,793) (2,841) (971) - (6,605) (28) Subsidiaries' preferred stock dividends 25,105 - - - 25,105 ---------- ---------- --------- --------- ----------- (29) Net interest charges 155,628 7,687 101,873 (14,906) 250,282 ---------- ---------- --------- --------- ----------- (30)Income taxes 202,042 4,408 (33,016) - 173,434 ---------- ---------- --------- --------- ----------- (31)Income before discontinued operations (32) and an accounting change 255,633 6,372 (46,007) - 215,998 (33)Discontinued operations - - - - - (34)Cumulative effect of a change in accounting - - - - - ---------- ---------- --------- --------- ----------- (35)NET INCOME $ 255,633 $ 6,372 $ (46,007) $ - $ 215,998 ========== ========== ========= ========= ===========
6
FirstEnergy Consolidated Income Segments Three Months Ended June 30, 2003 VS 2002 ---------------------------------------- Regulated Competitive Other Reconciling (In thousands): Services Services (c) Adjustments Consolidated ----------------------------- ---------- ----------- --------- ---------- ------------ (1)REVENUES: (2) Electric Sales $ (111,981) $ 244,132 $ - $ - $ 132,151 (3) Natural Gas - (32,087) - - (32,087) (4) FE Facilities - (51,530) - - (51,530) (5) MYR - (25,688) - - (25,688) (6) International - - (70,342) - (70,342) (7) Other (15,825) 15,287 (131) 12,738 (a) 12,069 (8) Internal revenues (2,693) 154,639 22,054 (174,000)(b) - ---------- ---------- --------- --------- ----------- (9) Total revenues (130,499) 304,753 (48,419) (161,262) (35,427) ---------- ---------- --------- --------- ----------- (10) (11)EXPENSES: (12) Fuel (1,298) (18,449) (148) - (19,895) (13) Purchased Power 131,619 400,807 - (143,466)(b) 388,960 (14) Purchased Gas - (17,320) - - (17,320) (15) Other operating expenses 15,895 99,021 (18,745) (772)(a)(b) 95,399 (16) FE Facilities - (49,386) - - (49,386) (17) MYR - (26,330) - - (26,330) (18) International - - (31,131) - (31,131) (19) Mark-to-Market Adjustment - (3,619) 5,515 - 1,896 (20) Provision for depreciation and amortization 10,620 2,262 (1,765) - 11,117 (21) General taxes 6,529 456 1,770 9,181 17,936 ---------- ---------- --------- --------- ----------- (22) Total expenses 163,365 387,442 (44,504) (135,057) 371,246 ---------- ---------- --------- --------- ----------- (23)INCOME BEFORE INTEREST (24) AND INCOME TAXES (293,864) (82,689) (3,915) (26,205) (406,673) ---------- ---------- --------- --------- ----------- (25)Net interest charges: (26) Interest expense (9,065) 1,829 1,329 (26,205)(b) (32,112) (27) Capitalized interest (3,241) 1,253 971 - (1,017) (28) Subsidiaries' preferred stock dividends (11,245) - - - (11,245) ---------- ---------- --------- --------- ----------- (29) Net interest charges (23,551) 3,082 2,300 (26,205) (44,374) ---------- ---------- --------- --------- ----------- (30)Income taxes (121,696) (35,370) 1,281 - (155,785) ---------- ---------- --------- --------- ----------- (31)Income before discontinued operations (32) and an accounting change (148,617) (50,401) (7,496) - (206,514) (33)Discontinued operations - - (67,372) - (67,372) (34)Cumulative effect of a change in accounting - - - - - ---------- ---------- --------- --------- ----------- (35)NET INCOME $ (148,617) $ (50,401) $ (74,868) $ - $ (273,886) =========== ========== ========= ========= =========== Reconciling adjustments to segment operating results from internal management reporting to consolidated external financial reporting. (a) Principally fuel marketing revenues which are reflected as reductions to expenses for internal management reporting purposes. (b) Elimination of intersegment transactions. (c) "Other" segment primarily consists of corporate support services and international businesses.
7 FirstEnergy Statistical Summary - ------------------------------------------------------------------------------------------------------------------ FirstEnergy Combined Electric Sales Statistics - ------------------------------------------------------------------------------------------------------------------
Three Months Ended June 30, Six Months Ended June 30, ------------------------------ ------------------------------ 2003 2002 Change 2003 2002 Change ------- ------- ---------- ------- ------- -------- (In Millions) (In Millions) ELECTRIC GENERATION SALES (KWHs): Retail - Regulated 19,386 21,727 -10.8% 41,504 43,399 -4.4% Unregulated 3,335 2,049 62.8% 6,564 3,452 90.2% -------- -------- ---------- -------- -------- -------- Total Retail 22,721 23,776 -4.4% 48,068 46,851 2.6% Wholesale 9,737 4,231 130.1% 20,163 8,552 135.8% -------- -------- ---------- -------- -------- -------- Total Electric Generation Sales 32,458 28,007 15.9% 68,231 55,403 23.2% ======== ======== ========== ======== ======== ======== ELECTRIC DISTRIBUTION DELIVERIES (KWHs): Residential 7,258 7,685 -5.6% 17,385 16,458 5.6% Commercial 7,853 7,876 -0.3% 16,145 15,303 5.5% Industrial 9,423 9,677 -2.6% 18,146 18,285 -0.8% Other 138 133 3.8% 279 271 3.0% -------- -------- ---------- -------- -------- -------- Total Distribution Deliveries 24,672 25,371 -2.8% 51,955 50,317 3.3% ======== ======== ========== ======== ======== ======== ELECTRIC SALES SHOPPED (KWHs): Residential 1,400 1,124 24.6% 3,047 2,303 32.3% Commercial 1,720 786 118.8% 3,346 1,505 122.3% Industrial 2,166 1,734 24.9% 4,058 3,110 30.5% -------- -------- ---------- -------- -------- -------- Total Electric Sales Shopped 5,286 3,644 45.1% 10,451 6,918 51.1% ======== ======== ========== ======== ======== ======== - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ At June 30, ------------------------------------------------------ 2003 % Total 2002 % Total ---------- ---------- ----------- --------- Capitalization ( in thousands): - ------------------------------- Total common equity $ 7,135,950 31% 7,537,717 31% Preferred stock * 640,224 3% 1,099,132 4% Long-term debt * 12,565,943 55% 13,149,059 55% Short-term debt * 1,045,067 4% 655,409 3% Off-balance sheet debt equivalent: - Sale-leaseback arrangements 1,446,815 6% 1,467,254 6% -Accounts receivable factoring 145,000 1% 160,000 1% ------------ ----- ------------ ------ Total Capitalization $ 22,978,999 100% $ 24,068,571 100% ============ ===== ============ ====== * Includes amounts due to be paid within one year, JCP&L securitization of $305 million and $320 million in 2003 and 2002, respectively, and debt related to pending divestitures in 2002. - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Three Months Ended June 30, Six Months Ended June 30, ----------------------------------------- ---------------------------------------- 2003 2002 Change 2003 2002 Change ---------- ---------- ----------- -------- --------- ---------- (in thousands) (in thousands) Financial Statistics ( in thousands): - -------------------------------------- L-T Debt and Preferred Stock Redemptions $ 292,714 $ 199,738 $ 92,976 $ 414,528 $ 568,942 $(154,414) Short-term Debt Increase (Decrease) $ 189,490 $ (85,005) $ 274,495 $ (48,000) $ 30,551 $ (78,551) Capital Investments $ 177,159 $ 224,399 $ (47,240) $ 368,000 $ 416,691 $ (48,691) - --------------------------------------------------------------------------------------- --------------------------------------- - --------------------------------------------------------------------------------------- --------------------------------------- Unusual Charges: 2003 vs 2002 Three Months Ended Six Months Ended June 30, June 30, ----------------------------------------- ----------------------------------------- 2003 2002 Change 2003 2002 Change ---------- -------- ------------- ------------ --------- ------------- JCP&L Rate Case Disallowance $(158,521) $ - $ (158,521) $ (158,521) $ - $ (158,521) Note Receivable Impairment (12,563) - (12,563) (12,563) - (12,563) Loss on sale of natural gas operations unit (6,200) - (6,200) (6,200) - (6,200) Long-term Derivative Contract Adjustment - - - - (18,091) 18,091 Equity Investment - Bankruptcy - - - - (30,371) 30,371 Telecommunications Investment Writedown - - - - (12,610) 12,610 Generation Project Cancellation - - - - (17,102) 17,102 ---------- -------- ----------- ----------- ---------- ---------- Total - Pre-tax Expenses $(177,284) $ - $ (177,284) $ (177,284) $ (78,174) $ (99,110) ========== ======== =========== =========== ========== ========== EPS Effect ($0.36) $0.00 ($0.36) ($0.36) ($0.16) ($0.20) ========== ======== =========== =========== ========== ========== - ------------------------------------------------------------------------------------------------------------------------------------ 8
FirstEnergy Statistical Summary - ---------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended June 30, June 30, ------------------------------------------------------------------------ 2003 2002 Change 2003 2002 Change ------ ------ ------- ------ ------ ------ NATURAL GAS SALES (Decatherms): (in thousands) (in thousands) Retail 14,146 21,470 -34.1% 43,723 59,736 -26.8% Wholesale 9,677 19,240 -49.7% 19,713 31,540 -37.5% ------ ------ ------ ------ ------ ------ Total Natural Gas Sales 23,823 40,710 -41.5% 63,436 91,276 -30.5% ====== ====== -===== ====== ====== ======= - --------------------------------------------------------------------------------------------------------------------- Three Months Ended June 30, Six Months Ended June 30, 2003 2002 Change 2003 2002 Change -------- --------- -------- --------- --------- -------- Regulatory Asset Amortization (in thousands) (in thousands) ----------------------------- Depreciation and Amortization $ 198,897 $ 187,864 $ 11,033 $ 423,331 $ 378,453 $ 44,878 Income Tax Amortization 14,744 12,936 1,808 30,234 26,006 4,228 --------- --------- -------- --------- --------- -------- Total $ 213,641 $ 200,800 $ 12,841 $ 453,565 $ 404,459 $ 49,106 ========= ========= ======== ========= ========= ======== Regulatory Deferrals -------------------- Ohio Transition Plan -------------------- Beginning Balance $ 309,368 $ 118,901 $ 259,353 $ 75,406 Deferral of Shopping Incentives 42,223 31,779 $ 10,444 87,649 62,815 $ 24,834 Deferral of New Regulatory Assets 3,098 10,187 (7,089) 7,687 22,646 (14,959) --------- --------- -------- --------- -------- -------- Current period deferrals 45,321 41,966 $ 3,355 95,336 85,461 $ 9,875 --------- -------- ======== --------- -------- ======== Ending Balance-Ohio Deferrals $ 354,689 $ 160,867 $ 354,689 $ 160,867 ========= ========= ========= ========= Deferred Energy Costs --------------------- Pennsylvania ------------ Beginning Balance $ - $ 199,400 $ - $ 218,531 Deferral (recovery) of energy costs - 7,687 $ (7,687) - (11,444) $ 11,444 -------- --------- -------- --------- --------- -------- Current period change - 7,687 $ (7,687) - (11,444) $ 11,444 - -------- --------- ======== --------- --------- ======== Ending Balance $ - $ 207,087 $ - $ 207,087 ======== ========= -------- ========= ========= New Jersey --------- Beginning Balance $ 530,328 $ 319,855 $ 548,641 $ 301,204 Deferral (recovery) of energy costs 60,894 94,003 $ (33,109) 42,581 112,654 $ (70,073) Rate case disallowance (152,500) - (152,500) (152,500) - (152,500) --------- --------- --------- --------- --------- --------- Current period change (91,606) 94,003 $(185,609) (109,919) 112,654 $(222,573) --------- --------- ========= --------- --------- ========= Ending Balance $ 438,722 $ 413,858 $ 438,722 $ 413,858 ========= ========= ========= ========= Mark-to-Market Adjustment ------------------------- Expenses - Pre-Tax Income Effect: Increase (Decrease) $ 889 $ (1,007) $ 1,896 $ 4,579 $ (2,146) $ 6,725 EPS Effect $0.00 $0.00 $0.00 ($0.01) $0.00 ($0.01) - --------------------------------------------------------------------------------------------------------------------- At June 30, ----------------------------- Operating Statistics (12 mos. Ending) 2003 2002 ------------------------------------- ------ ------ System Load Factor 60.7% 59.5% Capacity Factors: Fossil 59.6% 55.7% Nuclear 65.1% 82.9% Generation Output: Fossil 69% 61% Nuclear 31% 39% Weather ------- Composite Heating Days Year-to-Date 706 712 (Normal - 671) Composite Cooling Days Year-to-Date 158 268 (Normal - 240) - --------------------------------------------------------------------------------------------------------------------- 9
RECENT DEVELOPMENTS - -------------------------------------------------------------------------------- Restatement of Financial Statements FirstEnergy will restate its 2002 financial statements to reflect a more preferable treatment for amortizing certain non-cash expenses related to the recovery of transition assets in Ohio and the recognition of above-market values of certain leased generation assets. The accounting treatment of these items has been fully disclosed since implementation and audited by Arthur Andersen LLP from 1997-2001 and by PricewaterhouseCoopers LLP in 2002. Since FirstEnergy's 2002 financial statements will be restated, investors are cautioned not to rely on the previously audited 2002 statements. Since Arthur Andersen was the company's independent auditor in 2001, the financial statements of its CEI and Toledo Edison subsidiaries for that year will be re-audited by PricewaterhouseCoopers, which is expected to take several weeks to complete. These changes are expected to reduce FirstEnergy's earnings per share by $0.23 in 2002 and $0.17 in 2003. Annual earnings through 2005 will be lowered by these changes while earnings from 2006 through 2017 will be increased. Over the period 2002 - 2017 the cumulative impact of these changes will be to increase net income by $381 million. Davis-Besse Nuclear Power Station The Company has decided that it will proceed with modifications to the High Pressure Injection (HPI) pumps that should result in the plant's availability for restart in the fall of 2003. The Nuclear Regulatory Commission will make the final determination on when the plant can return to service. The 2003 incremental O&M expenses - initially estimated at $50 million - are now expected to be approximately $80 million. The estimated cost of replacement power remains unchanged at $15 million per month for the non-summer months and $20 to $25 million per month for July and August. On-peak replacement energy is fully hedged through the end of the fall of 2003. Nuclear Plant Refueling Outages During the second quarter, the Beaver Valley Unit 1 refueling outage was extended by approximately two weeks to repair minor surface flaws on four of the 65 control rod drive mechanism nozzles, and the Perry Plant refueling outage was extended by approximately four weeks to make reliability and performance improvements to various plant systems. The duration of the refueling outages was 52 and 56 days, respectively. Jersey Central Power & Light (JCP&L) Rate Case Decision On July 25th, the New Jersey Board of Public Utilities (BPU) rendered its decision in the JCP&L rate case. The new rates were effective August 1st. In its ruling, the BPU: o Reduced JCP&L's annual revenues by approximately $60 million, o Provided an interim allowed return on equity (ROE) of 9.5% for the next 6 to 12 months, and o Announced a Phase II proceeding during which the ROE may be increased to 9.75% or decreased to 9.25% depending on the BPU's assessment of the reliability of the company's service, and o Disallowed $153 million of the $618 million of estimated deferred energy costs. The Company wrote-off the disallowance during the second quarter. The Company is considering its options including potentially a request for reconsideration with the BPU and an appeal to the Appellate Division of the Superior Court of New Jersey. Divestiture of Non-Core Assets On May 22, we reached an agreement to sell our remaining 20.1% ownership interest in Avon Energy Partners Holdings. FirstEnergy will receive approximately $14 million from the sale, subject to bondholder approval. Separately, FirstEnergy received approximately $63 million from the sale of the note receivable from Aquila related to the 2002 sale of 79.9% of Avon Energy Partners Holdings. Forward-Looking Statement: This news release includes forward-looking statements based on information currently available to management. Such statements are subject to certain risk and uncertainties. These statements typically contain, but are not limited to, the terms "anticipate," "potential," "expect," "believe," "estimate," and similar words. Actual results may differ materially due to the speed and nature of increased competition and deregulation in the electric utility industry, economic or weather conditions affecting future sales and margins, changes in markets for energy services, changing energy and commodity market prices, replacement power costs being higher than anticipated or inadequately hedged, maintenance costs being higher than anticipated, legislative and regulatory changes (including revised environmental requirements), availability and cost of capital, inability of the Davis-Besse Nuclear Power Station to restart (including because of any inability to obtain a favorable final determination from the Nuclear Regulatory Commission) in the fall of 2003, additional adjustments which may result from the audited restatement of the 2002 financial statements and the restatement and review of the first quarter of 2003 for the Company and the re-audit of 2001 financial statements for Cleveland Electric Illuminating and Toledo Edison, inability to accomplish or realize anticipated benefits of strategic goals and other similar factors. 10 -----END PRIVACY-ENHANCED MESSAGE-----