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)
=========== ========== ========= ========= ===========
<FN>
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.
</FN>
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