Capitalization

9 Months Ended

Sep. 30, 2019

Stockholders’ Equity

The changes in stockholders’ equity for the three and nine months ended September 30, 2019 for FirstEnergy are included in the following table:



	Series A Convertible Preferred Stock					Common Stock			OPIC			AOCI			Accumulated Deficit			Total Stockholders’ Equity
(In millions)	Shares		Amount			Shares	Amount		OPIC			AOCI			Accumulated Deficit			Total Stockholders’ Equity
Balance, January 1, 2019	0.7		$	71		512	$	51	$	11,530		$	41		$	(4,879	)	$	6,814
Net income															320			320
Other comprehensive loss, net of tax												(5		)				(5		)
Stock-based compensation									7									7
Stock Investment Plan and certain share-based benefit plans						1			1									1
Cash dividends declared on common stock ($0.38/common share)									(202		)							(202		)
Cash dividends declared on preferred stock ($0.38/as-converted share)									(3		)							(3		)
Conversion of Series A Convertible Preferred Stock	(0.5	)	(50		)	18	2		48									—
Balance, March 31, 2019	0.2		$	21		531	$	53	$	11,381		$	36		$	(4,559	)	$	6,932
Net income															312			312
Other comprehensive loss, net of tax												(5		)				(5		)
Stock-based compensation									9									9
Stock Investment Plan and certain share-based benefit plans						1			21									21
Balance, June 30, 2019	0.2		$	21		532	$	53	$	11,411		$	31		$	(4,247	)	$	7,269
Net income															391			391
Other comprehensive loss, net of tax												(4		)				(4		)
Stock-based compensation									7									7
Stock Investment Plan and certain share-based benefit plans						1			20									20
Cash dividends declared on common stock ($0.38/share in July and September)									(411		)							(411		)
Conversion of Series A Convertible Preferred Stock	(0.2	)	(21		)	7	1		20									—
Balance, September 30, 2019	—		$	—		540	$	54	$	11,047		$	27		$	(3,856	)	$	7,272

The changes in stockholders’ equity for the three and nine months ended September 30, 2018 for FirstEnergy are included in the following table:



	Series A Convertible Preferred Stock					Common Stock			OPIC			AOCI			Accumulated Deficit			Total Stockholders’ Equity
(In millions)	Shares		Amount			Shares	Amount		OPIC			AOCI			Accumulated Deficit			Total Stockholders’ Equity
Balance, January 1, 2018	—		$	—		445	$	44	$	10,001		$	142		$	(6,262	)	$	3,925
Net income															1,369			1,369
Other comprehensive loss, net of tax												(56		)				(56		)
Stock-based compensation									19									19
Stock Investment Plan and certain share-based benefit plans						2	1		5									6
Cash dividends declared on common stock ($0.36/common share in January and March)									(343		)							(343		)
Cash dividends declared on preferred stock ($0.36/as-converted share in January and March)									(42		)							(42		)
Stock issuance ⁽¹⁾	1.6		162			30	3		2,297									2,462
Impact of adopting new accounting pronouncements ⁽²⁾															35			35
Balance, March 31, 2018	1.6		$	162		477	$	48	$	11,937		$	86		$	(4,858	)	$	7,375
Net income															$	299		$	299
Other comprehensive loss, net of tax												(13		)				(13		)
Stock-based compensation									19									19
Stock Investment Plan and certain share-based benefit plans						1			19									19
Balance, June 30, 2018	1.6		$	162		478	$	48	$	11,975		$	73		$	(4,559	)	$	7,699
Net loss															$	(458	)	$	(458	)
Other comprehensive loss, net of tax												(12		)				(12		)
Stock-based compensation									10									10
Stock Investment Plan and certain share-based benefit plans						1			21									21
Cash dividends declared on common stock ($0.36/common share in July and September)									(368		)							(368		)
Cash dividends declared on preferred stock ($0.36/as-converted share in July and September)									(19		)							(19		)
Conversion of Series A Convertible Preferred Stock	(0.9	)	(92		)	33	3		89									—
Balance, September 30, 2018	0.7		$	70		512	$	51	$	11,708		$	61		$	(5,017	)	$	6,873

⁽¹⁾The preferred stock included an embedded conversion option at a price that was below the fair value of the common stock on the commitment date. This beneficial conversion feature (BCF), which was approximately $296 million, was recorded to OPIC as well as the amortization of the BCF (deemed dividend of $35 million and $296 million for the three and nine months ended September 30, 2018, respectively) through the period from the issue date to the first allowable conversion date (July 22, 2018). There is no net impact to OPIC for the three and nine months ended September 30, 2018. Please see below and Note 4, “Earnings Per Share” for additional information.

⁽²⁾ FirstEnergy adopted ASU 2016-01, “Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities” standard on January 1, 2018, and subsequently recorded a cumulative effect adjustment to retained earnings of $57 million representing unrealized gains on equity securities with FES NDTs that were previously recorded to AOCI. In addition, FirstEnergy adopted ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” and upon adoption, recorded a $22 million cumulative effect adjustment for stranded tax effects, such as pension and OPEB prior service costs and losses on derivative hedges, to retained earnings on January 1, 2018. These amounts are offset in other comprehensive loss and do not have an impact on total stockholders’ equity.

Preferred Stock

On January 22, 2018, FirstEnergy entered into agreements for the private placement of its equity securities representing an approximately $2.5 billion investment in FE. FE entered into a Preferred Stock Purchase Agreement (the Preferred SPA) for the private placement of 1,616,000 shares of mandatorily convertible preferred stock, designated as the Series A Convertible Preferred Stock, par value $100 per share, representing an investment of nearly $1.62 billion ($162 million of mandatorily convertible preferred

stock and $1.46 billion of OPIC). FE also entered into a Common Stock Purchase Agreement for the private placement of 30,120,482 shares of FE’s common stock, par value $0.10 per share, representing an investment of $850 million ($3 million of Common Stock and $847 million of OPIC).

During 2018, 911,411 shares of preferred stock were converted into 33,238,910 shares of common stock at the option of the preferred stockholders. Also at the option of the preferred stockholders, 494,767 shares of preferred stock were converted into 18,044,018 shares of common stock in January 2019. On July 22, 2019, 28,302 shares of preferred stock automatically converted into 1,032,165 shares of common stock, and 181,520 shares of preferred stock remained unconverted as the holder reached the 4.9% cap as outlined in the terms of the preferred stock. The remaining 181,520 preferred stock shares were converted on August 1, 2019, into 6,619,985 shares of common stock. As of September 30, 2019, there are no preferred shares outstanding and 1,616,000 shares of preferred stock were converted into 58,935,078 shares of common stock.

The preferred stock participated in dividends on the common stock on an as-converted basis based on the number of shares of common stock a holder of preferred stock would receive if its shares of preferred stock were converted on the dividend record date at the conversion price in effect at that time. Such dividends were paid at the same time that the dividends on common stock were paid.

The preferred stock included an embedded conversion option at a price that was below the fair value of the common stock on the commitment date. This beneficial conversion feature, which was approximately $296 million, represents the difference between the fair value per share of the common stock and the conversion price, multiplied by the number of common shares issuable upon conversion. The beneficial conversion feature was amortized as a deemed dividend over the period from the issue date to the first allowable conversion date (July 22, 2018) as a charge to OPIC, since FE is in an accumulated deficit position with no retained earnings to declare a dividend. As noted above, for EPS reporting purposes, this beneficial conversion feature was reflected in net income attributable to common stockholders as a deemed dividend. The beneficial conversion feature ($296 million) was fully amortized during the third quarter of 2018.

Each share of preferred stock was convertible at the holder’s option into a number of shares of common stock equal to the $1,000 liquidation preference, divided by the conversion price then in effect ($27.42 per share). The conversion price was subject to anti-dilution adjustments and adjustments for subdivisions and combinations of the common stock, as well as dividends on the common stock paid in common stock and for certain equity issuances below the conversion price then in effect.