Consolidated Report to Exhibit 99.2
the Financial Community (Unaudited)
- --------------------------------------------------------------------------------
Second Quarter 2004 Highlights
(Released July 28, 2004)
---------------------------------------------------------------
| |
o Normalized non-GAAP earnings, | After Tax EPS Variance Analysis 2nd Qtr. |
excluding unusual charges, were $0.67 | ------------------------------- -------- |
per share, compared with second quarter | 2nd Quarter 2003 Basic EPS - GAAP Basis $ (0.20) |
2003 normalized non-GAAP earnings of | Discontinued Operations (Emdersa) - 2003 0.23 |
$0.52 per share. GAAP earnings for the | Unusual Charges - 2003 0.36 |
second quarter of 2004 were $0.62 per | ------- |
share compared with a net loss of $0.20 | 2nd Quarter 2003 Basic EPS - Non-GAAP Basis $ 0.39 |
per share on a GAAP basis in the same | Davis-Besse Incremental Expenses - 2003 0.13 |
quarter of 2003, which included a $0.23 | ------- |
per share charge for discontinued | 2nd Quarter 2003 Normalized Earnings - Non-GAAP $ 0.52 |
operations associated with the company's | Electric Gross Margin 0.09 |
abandonment of Emdersa, and other | JCP&L Rate Reduction (August 2003) (0.09) |
unusual charges totaling $0.36 per | Nuclear Operating Expenses 0.10 |
share. | Fossil Operating Expenses (0.02) |
| Energy Delivery (0.01) |
| Pension and Other Employee Benefits 0.05 |
| Depreciation and Amortization 0.05 |
| Financing Costs 0.06 |
| Common Stock Dilution (0.07) |
| Other (0.01) |
| ------- |
| 2nd Quarter 2004 Normalized Earnings - Non-GAAP $ 0.67 |
| Unusual Charges - 2004 (0.05) |
| ------- |
| 2nd Quarter 2004 Basic EPS - GAAP Basis $ 0.62 |
| ------- |
---------------------------------------------------------------
2Q 2004 Results Compared With 2Q 2003
- -------------------------------------
o Electric distribution deliveries were up 4% resulting from increases of 6%
in residential deliveries, 5% in commercial deliveries, and 1% in industrial
deliveries. Heating-degree-days (April and May) were 22% below the same
period last year and 19% below normal, while cooling-degree-days (June) were
21% higher than the same period last year, but 9% below normal. Total
electric generation sales rose 12% primarily due to a 37% increase in
wholesale sales. Retail generation sales increased 1% due to higher
unregulated sales.
o Electric gross margin increased $50 million after adjusting for changes in
regulatory deferrals, the impact of JCP&L's rate decision in August 2003, and
last year's Davis-Besse replacement power costs. The increase in electric
gross margin primarily resulted from a 21% increase in generation output
along with a greater proportion of lower-cost nuclear output in the
generation mix, and increased kilowatt-hour deliveries.
o Nuclear operating expenses decreased $56 million due to the absence of a
refueling outage this quarter, compared with outages at Beaver Valley Unit 1
and Perry last year. Fossil operating expenses increased $8 million, as some
of the maintenance outages originally planned for the first quarter were
delayed until the second quarter.
o Pension, OPEB, and other employee benefit costs decreased approximately $26
million as a result of favorable market returns in 2003, changes to health
care benefits for retirees, and recent Medicare legislation regarding
prescription drugs.
1
o Total depreciation and amortization expenses, adjusted for the regulatory
deferrals and the JCP&L rate case impact, decreased $25 million due to
increased shopping incentive deferrals, capitalization of carrying charges on
the deferrals, and lower depreciation, partially offset by higher Ohio
transition cost amortization.
o Net interest charges decreased $26 million. Financing activities during the
quarter included $16 million in mandatory long-term debt redemptions, and
$1.054 billion of refinancing and repricing transactions. These are expected
to result in annualized savings of approximately $42 million. Additional
shares outstanding from the issuance of 32.2 million shares of common stock
in the third quarter of 2003 diluted earnings by $0.07 per share.
2004 Earnings and Free Cash Flow Guidance*
- ------------------------------------------
o Earnings guidance for 2004, excluding unusual charges, remains at $2.70 to
$2.85 per share, but now includes the incremental expenses associated with
the Davis-Besse outage, and the impact resulting from approval of the Ohio
Rate Stabilization Plan. On this basis, year-to-date normalized non-GAAP
earnings are $1.21 per share (1Q04 = $0.53, 2Q04 = $0.67). We anticipate
that third and fourth quarter earnings will contribute approximately 60%
and 40%, respectively, of the remaining earnings for the year.
o Free cash flow (cash flow less capital expenditures and common stock
dividend) guidance for 2004 remains at $825 million.
* The GAAP to Non-GAAP reconciliation statements are available on FirstEnergy
Corp.'s website at www.firstenergycorp.com/ir.
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
FIRSTENERGY CORP. CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- ---------------------------------
2004 2003 Change 2004 2003 Change
---------- ---------- -------- ---------- ---------- ---------
(1)REVENUES: (In thousands) (In thousands)
(2) Electric Sales .......................... $2,645,166 $2,373,641 $271,525 $5,300,777 $4,997,857 $ 302,920
(3) Natural Gas ............................. 113,445 129,595 (16,150) 278,132 374,461 (96,329)
(4) FE Facilities ........................... 96,164 81,920 14,244 182,664 156,132 26,532
(5) MYR ..................................... 79,919 118,294 (38,375) 171,156 230,588 (59,432)
(6) International ........................... - 6,660 (6,660) - 14,322 (14,322)
(7) Other ................................... 215,079 142,989 72,090 399,618 300,476 99,142
---------- ---------- -------- ---------- ---------- ---------
(8) Total revenues ....................... 3,149,773 2,853,099 296,674 6,332,347 6,073,836 258,511
---------- ---------- -------- ---------- ---------- ---------
(9)
(10)EXPENSES:
(11) Fuel .................................... 191,561 181,811 9,750 389,920 354,569 35,351
(12) Purchased Power ......................... 903,574 856,506 47,068 1,839,541 1,784,384 55,157
(13) Purchased Gas ........................... 102,963 123,814 (20,851) 256,491 348,611 (92,120)
(14) Other operating expenses ................ 705,858 731,724 (25,866) 1,369,243 1,459,838 (90,595)
(15) FE Facilities ........................... 92,795 81,086 11,709 179,715 155,845 23,870
(16) MYR ..................................... 81,775 116,203 (34,428) 172,557 225,836 (53,279)
(17) International ........................... - 9,857 (9,857) - 20,246 (20,246)
(18) Mark-to-Market Adjustment ............... 2,482 889 1,593 3,010 4,579 (1,569)
(19) Provision for depreciation .............. 147,172 169,454 (22,282) 293,209 331,011 (37,802)
(20) Amortization of regulatory assets ....... 202,273 184,736 17,537 468,468 399,542 68,926
(21) General taxes ........................... 157,732 162,885 (5,153) 336,817 340,952 (4,135)
---------- ---------- -------- ---------- ---------- ---------
(22) Total expenses ...................... 2,588,185 2,618,965 (30,780) 5,308,971 5,425,413 (116,442)
---------- ---------- -------- ---------- ---------- ---------
(23)INCOME BEFORE INTEREST
(24) AND INCOME TAXES ...................... 561,588 234,134 327,454 1,023,376 648,423 374,953
---------- ---------- -------- ---------- ---------- ---------
(25)Net interest charges:
(26) Interest expense ........................ 179,881 199,278 (19,397) 352,745 399,539 (46,794)
(27) Capitalized interest .................... (5,280) (7,622) 2,342 (11,750) (16,774) 5,024
(28) Subsidiaries' preferred stock dividends . 5,389 13,860 (8,471) 10,670 28,402 (17,732)
---------- ---------- -------- ---------- ---------- ---------
(29) Net interest charges ................ 179,990 205,516 (25,526) 351,665 411,167 (59,502)
---------- ---------- -------- ---------- ---------- ---------
(30)Income taxes .............................. 177,553 18,283 159,270 293,667 112,541 181,126
---------- ---------- -------- ---------- ---------- ---------
(31)Income before discontinued operations
(32) and accounting change ................... 204,045 10,335 193,710 378,044 124,715 253,329
(33)Discontinued Operations ................... - (68,223) 68,223 - (66,248) 66,248
(34)Cumulative effect of accounting change .... - - - - 102,147 (102,147)
---------- ---------- -------- ---------- ---------- ---------
(35)NET INCOME ................................ $ 204,045 $ (57,888) $261,933 $ 378,044 $ 160,614 $ 217,430
========== ========== ======== ========== ========== =========
(36)
(37)Basic earnings per common share:
(38) Before discontinued operations and
(39) accounting change .................... $ 0.62 $ 0.03 $ 0.59 $ 1.16 $ 0.43 $ 0.73
(40) Discontinued operations ................ - (0.23) 0.23 - (0.23) 0.23
(41) Cumulative effect of accounting change . - - - - 0.35 (0.35)
---------- ---------- -------- ---------- ---------- ---------
(42) $ 0.62 $ (0.20) $ 0.82 $ 1.16 $ 0.55 $ 0.61
========== ========== ======== ========== ========== =========
(43)Weighted average number of basic
(44) shares outstanding ...................... 327,284 294,166 33,118 327,171 294,026 33,145
========== ========== ======== ========== ========== =========
(45)
(46)Diluted earnings per common share:
(47) Before discontinued operations and
(48) accounting change .................... $ 0.62 $ 0.03 $ 0.59 $ 1.15 $ 0.42 $ 0.73
(49) Discontinued operations ................ - (0.23) 0.23 - (0.23) 0.23
(50) Cumulative effect of accounting change . - - - - 0.35 (0.35)
---------- ---------- -------- ---------- ---------- ---------
(51) $ 0.62 $ (0.20) $ 0.82 $ 1.15 $ 0.54 $ 0.61
========== ========== ======== ========== ========== =========
(52)Weighted average number of diluted
(53) shares outstanding ...................... 329,034 294,877 34,157 329,034 294,877 34,157
========== ========== ======== ========== ========== =========
3
FirstEnergy Consolidated Income Segments
(Unaudited)
Three Months Ended June 30, 2004
-----------------------------------------------------------------
Regulated Competitive Other Reconciling
(In thousands): Services Services (c) Adjustments Consolidated
-------------------------------------------- ---------- ---------- --------- ------------- ------------
(1)REVENUES:
(2) Electric Sales .......................... $1,133,446 $1,511,720 $ - $ - $2,645,166
(3) Natural Gas ............................. - 113,445 - - 113,445
(4) FE Facilities ........................... - 96,164 - - 96,164
(5) MYR ..................................... - 79,919 - - 79,919
(6) International ........................... - - - - -
(7) Other ................................... 155,995 51,240 6,278 1,566 (a) 215,079
(8) Internal revenues ....................... - - 127,625 (127,625)(b) -
---------- ---------- --------- --------- ----------
(9) Total revenues ....................... 1,289,441 1,852,488 133,903 (126,059) 3,149,773
---------- ---------- --------- --------- ----------
(10)
(11)EXPENSES:
(12) Fuel .................................... - 191,561 - - 191,561
(13) Purchased Power ......................... - 903,574 - - 903,574
(14) Purchased Gas ........................... - 102,963 - - 102,963
(15) Other operating expenses ................ 290,666 378,105 150,711 (113,624)(a)(b) 705,858
(16) FE Facilities ........................... - 92,795 - - 92,795
(17) MYR ..................................... - 81,775 - - 81,775
(18) International ........................... - - - - -
(19) Mark-to-Market Adjustment ............... - 2,521 (39) - 2,482
(20) Provision for depreciation .............. 128,294 8,903 9,975 - 147,172
(21) Amortization of regulatory assets ....... 202,273 - - - 202,273
(22) General taxes ........................... 143,034 10,448 4,250 - 157,732
---------- ---------- --------- --------- ----------
(23) Total expenses ...................... 764,267 1,772,645 164,897 (113,624) 2,588,185
---------- ---------- --------- --------- ----------
(24)INCOME BEFORE INTEREST
(25) AND INCOME TAXES ...................... 525,174 79,843 (30,994) (12,435) 561,588
---------- ---------- --------- --------- ----------
(26)Net interest charges:
(27) Interest expense ........................ 108,083 11,839 72,394 (12,435)(b) 179,881
(28) Capitalized interest .................... (4,072) (1,167) (41) - (5,280)
(29) Subsidiaries' preferred stock dividends . 5,389 - - - 5,389
---------- ---------- --------- --------- ----------
(30) Net interest charges ................ 109,400 10,672 72,353 (12,435) 179,990
---------- ---------- --------- --------- ----------
(31)Income taxes .............................. 175,586 28,360 (26,393) - 177,553
---------- ---------- --------- --------- ----------
(32)Income before discontinued operations
(33) and an accounting change ................ 240,188 40,811 (76,954) - 204,045
(34)Discontinued operations ................... - - - - -
(35)Cumulative effect of an accounting change . - - - - -
---------- ---------- --------- --------- ----------
(36)NET INCOME ................................ $ 240,188 $ 40,811 $ (76,954) $ - $ 204,045
========== ========== ========= ========= ==========
(Unaudited)
Three Months Ended June 30, 2003
----------------------------------------------------------------
Regulated Competitive Other Reconciling
(In thousands): Services Services (c) Adjustments Consolidated
---------------------------------------------- ---------- ----------- --------- ------------- ------------
(1)REVENUES:
(2) Electric Sales .......................... $1,145,311 $1,228,330 $ - $ - $2,373,641
(3) Natural Gas ............................. - 129,595 - - 129,595
(4) FE Facilities ........................... - 81,920 - - 81,920
(5) MYR ..................................... - 118,294 - - 118,294
(6) International ........................... - - 6,660 - 6,660
(7) Other ................................... 91,349 16,423 38,545 (3,328)(a) 142,989
(8) Internal revenues ....................... - - 146,707 (146,707)(b) -
---------- ---------- --------- --------- ----------
(9) Total revenues ....................... 1,236,660 1,574,562 191,912 (150,035) 2,853,099
---------- ---------- --------- --------- ----------
(10)
(11)EXPENSES:
(12) Fuel .................................... - 181,811 - - 181,811
(13) Purchased Power ......................... - 856,506 - - 856,506
(14) Purchased Gas ........................... - 123,814 - - 123,814
(15) Other operating expenses ................ 252,867 447,085 149,877 (118,105)(a)(b) 731,724
(16) FE Facilities ........................... - 81,086 - - 81,086
(17) MYR ..................................... - 116,203 - - 116,203
(18) International ........................... - - 9,857 - 9,857
(19) Mark-to-Market Adjustment ............... - 889 - - 889
(20) Provision for depreciation .............. 153,197 7,392 8,865 - 169,454
(21) Amortization of regulatory assets ....... 184,736 - - - 184,736
(22) General taxes ........................... 144,867 4,984 3,853 9,181 162,885
---------- ---------- --------- --------- ----------
(23) Total expenses ...................... 735,667 1,819,770 172,452 (108,924) 2,618,965
---------- ---------- --------- --------- ----------
(24)INCOME BEFORE INTEREST
(25) AND INCOME TAXES ...................... 500,993 (245,208) 19,460 (41,111) 234,134
---------- ---------- --------- --------- ----------
(26)Net interest charges:
(27) Interest expense ........................ 123,359 13,132 103,898 (41,111)(b) 199,278
(28) Capitalized interest .................... (6,034) (1,588) - - (7,622)
(29) Subsidiaries' preferred stock dividends . 13,860 - - - 13,860
---------- ---------- --------- --------- ----------
(30) Net interest charges ................ 131,185 11,544 103,898 (41,111) 205,516
---------- ---------- --------- --------- ----------
(31)Income taxes .............................. 154,767 (105,225) (31,259) - 18,283
---------- ---------- --------- --------- ----------
(32)Income before discontinued operations
(33) and an accounting change ................ 215,041 (151,527) (53,179) - 10,335
(34)Discontinued operations ................... - (425) (67,798) - (68,223)
(35)Cumulative effect of a change in accounting - - - - -
---------- ---------- --------- --------- ----------
(36)NET INCOME ................................ $ 215,041 $ (151,952) $(120,977) $ - $ (57,888)
========== ========== ========= ========= ==========
4
FirstEnergy Consolidated Income Segments
(Unaudited)
Three Months Ended June 30, 2004 VS 2003
--------------------------------------------------------------------
Regulated Competitive Other Reconciling
(In thousands): Services Services (c) Adjustments Consolidated
--------------------------------------------- --------- ----------- -------- ----------- ------------
(1)REVENUES:
(2) Electric Sales .......................... $(11,865) $283,390 $ - $ - $271,525
(3) Natural Gas ............................. - (16,150) - - (16,150)
(4) FE Facilities ........................... - 14,244 - - 14,244
(5) MYR ..................................... - (38,375) - - (38,375)
(6) International ........................... - - (6,660) - (6,660)
(7) Other ................................... 64,646 34,817 (32,267) 4,894 (a) 72,090
(8) Internal revenues ....................... - - (19,082) 19,082 (b) -
-------- -------- -------- ------- --------
(9) Total revenues ....................... 52,781 277,926 (58,009) 23,976 296,674
-------- -------- -------- ------- --------
(10)
(11)EXPENSES:
(12) Fuel .................................... - 9,750 - - 9,750
(13) Purchased Power ......................... - 47,068 - - 47,068
(14) Purchased Gas ........................... - (20,851) - - (20,851)
(15) Other operating expenses ................ 37,799 (68,980) 834 4,481 (a)(b) (25,866)
(16) FE Facilities ........................... - 11,709 - - 11,709
(17) MYR ..................................... - (34,428) - - (34,428)
(18) International ........................... - - (9,857) - (9,857)
(19) Mark-to-Market Adjustment ............... - 1,632 (39) - 1,593
(20) Provision for depreciation .............. (24,903) 1,511 1,110 - (22,282)
(21) Amortization of regulatory assets ....... 17,537 - - - 17,537
(22) General taxes ........................... (1,833) 5,464 397 (9,181) (5,153)
-------- -------- -------- ------- --------
(23) Total expenses ...................... 28,600 (47,125) (7,555) (4,700) (30,780)
-------- -------- -------- ------- --------
(24)INCOME BEFORE INTEREST
(25) AND INCOME TAXES ...................... 24,181 325,051 (50,454) 28,676 327,454
-------- -------- -------- ------- --------
(26)Net interest charges:
(27) Interest expense ........................ (15,276) (1,293) (31,504) 28,676 (19,397)
(28) Capitalized interest .................... 1,962 421 (41) - 2,342
(29) Subsidiaries' preferred stock dividends . (8,471) - - - (8,471)
-------- -------- -------- ------- --------
(30) Net interest charges ................ (21,785) (872) (31,545) 28,676 (25,526)
-------- -------- -------- ------- --------
(31)Income taxes .............................. 20,819 133,585 4,866 - 159,270
(32)Income before discontinued operations
(33) and an accounting change ................ 25,147 192,338 (23,775) - 193,710
(34)Discontinued operations ................... - 425 67,798 - 68,223
(35)Cumulative effect of a change in accounting - - - - -
-------- -------- -------- ------- --------
(36)NET INCOME ................................ $ 25,147 $192,763 $ 44,023 $ - $261,933
======== ======== ======== ======= ========
<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>
5
FirstEnergy Corp. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
-----------------------------------------------------------------------------------------------------------------
As of As of
June 30, 2004 December 31, 2003
------------- -----------------
(In thousands)
Assets
------
Current Assets:
Cash and cash equivalents .................................... $ 99,538 $ 113,975
Receivables .................................................. 1,339,074 1,505,500
Other ........................................................ 980,116 623,836
----------- -----------
2,418,728 2,243,311
Property, Plant and Equipment .................................. 13,301,681 13,268,922
Investments .................................................... 3,103,887 3,497,691
Deferred Charges ............................................... 13,185,304 13,900,024
----------- -----------
$32,009,600 $32,909,948
=========== ===========
Liabilities and Capitalization
------------------------------
Current Liabilities
Currently payable long-term debt and preferred stock ......... $ 1,382,153 $ 1,754,197
Short-term borrowings ........................................ 74,436 521,540
Accounts payable ............................................. 612,894 725,239
Other ........................................................ 1,578,255 1,471,191
----------- -----------
3,647,738 4,472,167
Capitalization
Common stockholders' equity .................................. 8,432,963 8,289,341
Preferred stock not subject to mandatory redemption .......... 335,123 335,123
Long-term debt and other long-term obligations ............... 10,011,547 9,789,066
----------- -----------
18,779,633 18,413,530
Noncurrent Liabilities ......................................... 9,582,229 10,024,251
----------- -----------
$32,009,600 $32,909,948
=========== ===========
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- --------------------------
2004 2003 2004 2003
--------- --------- --------- ---------
(In thousands) (In thousands)
Cash flows from operating activities
Net income (loss)......................................... $ 204,045 $ (57,888) $ 378,044 $ 160,614
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization of
regulatory assets, nuclear fuel and leases .... 369,859 369,359 799,242 756,027
Deferred costs recoverable as regululatory assets . (60,974) 37,812 (144,881) (56,499)
Deferred income taxes and investment tax credits .. (100,056) (54,823) (94,133) (32,941)
Disallowed purchased power costs .................. - 152,500 - 152,500
Cumulative effect of accounting change ............ - - - (174,663)
Loss from discontinued operations ................. - 68,223 - 66,248
Change in working capital and other ............... (92,624) (493,452) 31,601 (387,293)
--------- --------- --------- ---------
320,250 21,731 969,873 483,993
Cash flows from financing activities ..................... (573,360) (119,728) (813,384) (356,103)
Cash flows from investing activities ..................... 72,379 (108,558) (170,926) (226,266)
--------- --------- --------- ---------
Net decrease in cash and cash equivalents ................ (180,731) (206,555) (14,437) (98,376)
Cash and cash equivalents at beginning of period ......... 280,269 334,111 113,975 225,932
--------- --------- --------- ---------
Cash and cash equivalents at end of period ............... $ 99,538 $ 127,556 $ 99,538 $ 127,556
========= ========= ========= =========
6
FirstEnergy Statistical Summary
Adjusted Capitalization (Including Off-Balance Sheet Items)
As of June 30,
----------------------------------------------------
2004 % Total 2003 % Total
----------- ------- ----------- -------
(Dollars in thousands)
Total common equity ....................... $ 8,432,963 39% $ 7,124,751 31%
Preferred stock * .......................... 335,123 2% 640,224 3%
Long-term debt - all other* ................ 11,393,700 52% 12,565,943 54%
Short-term debt * .......................... 74,436 0% 1,045,067 5%
Off-balance sheet debt equivalents:
- Sale-leaseback arrangements ............ 1,352,729 6% 1,446,815 6%
- Accounts receivable factoring .......... 178,000 1% 145,000 1%
----------- ------- ----------- -------
Total .................................. $21,766,951 100% $22,967,800 100%
=========== ======= =========== =======
<FN>
* Includes amounts due to be paid within one year, JCP&L securitization of
$293 million and $310 million in 2004 and 2003, respectively.
</FN>
Financial Statistics
--------------------------------- ----------------------------------
Three Months Ended June 30, Six Months Ended June 30,
--------------------------------- ----------------------------------
2004 2003 Change 2004 2003 Change
-------- --------- --------- --------- ---------- ---------
(in thousands) (in thousands)
L-T Debt and Preferred Stock Redemptions ..... $721,023 $ 940,503 $(219,480) $ 989,943 $1,141,369 $(151,426)
Short-term Debt Increase (Decrease) .......... $(59,563) $ 189,741 $(249,304) $(447,104) $ (47,749) $(399,355)
Capital Expenditures ......................... $196,094 $ 199,742 $ (3,648) $ 334,500 $ 424,161 $ (89,661)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------------- ----------------------------------
2004 2003 Change 2004 2003 Change
-------- --------- --------- --------- ---------- ---------
Regulatory Deferrals
--------------------
Ohio Transition Plan
--------------------
Beginning Balance ............................ $497,110 $ 309,368 $ 453,005 $ 259,353
Deferral of Shopping Incentives .............. 52,238 42,223 $ 10,015 93,799 87,649 $ 6,150
Deferral of New Regulatory Assets ............ 15,776 3,098 12,678 18,320 7,687 10,633
-------- --------- --------- --------- ---------- ---------
Current period deferrals ..................... 68,014 45,321 $ 22,693 112,119 95,336 $ 16,783
========= =========
-------- --------- --------- ----------
Ending Balance-Ohio Deferrals ................ $565,124 $ 354,689 $ 565,124 $ 354,689
======== ========= ========= ==========
Deferred Energy Costs
---------------------
New Jersey
----------
Beginning Balance ............................ $425,400 $ 530,328 $ 440,900 $ 548,641
Deferral (recovery) of energy costs .......... (22,700) 60,894 $ (83,594) (38,200) 42,581 $ (80,781)
Rate case disallowance ....................... - (152,500) $ 152,500 (152,500) $ 152,500
-------- --------- --------- --------- ---------- ---------
Current period change ........................ (22,700) (91,606) $ 68,906 (38,200) (109,919) $ 71,719
========= =========
Ending Balance ............................... $402,700 $ 438,722 $ 402,700 $ 438,722
======== ========= ========= ==========
Unusual Items: 2004 vs 2003 Three Months Ended June 30, Six Months Ended June 30,
--------------------------------- ----------------------------------
2004 2003 Change 2004 2003 Change
-------- --------- --------- --------- ---------- ---------
Lawsuits Settlement .......................... $(17,980) $ - $ (17,980) $ (17,980) $ - $ (17,980)
Sale of GLEP* ................................ 15,600 - 15,600 15,600 - 15,600
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 ....... - (6,200) 6,200 - (6,200) 6,200
-------- --------- --------- --------- ---------- ---------
Total - Pre-tax Amounts .................... $ (2,380) $(177,284) $ 174,904 $ (2,380) $ (177,284) $ 174,904
======== ========= ========= ========= ========== =========
EPS Effect ................................... ($0.05) ($0.36) $0.31 ($0.05) ($0.36) $0.31
======== ========= ========= ========= ========== =========
<FN>
* Before income taxes of $22.6 million
</FN>
7
FirstEnergy Statistical Summary
Three Months Ended June 30, Six Months Ended June 30,
------------------------------ ---------------------------------
ELECTRIC SALES STATISTICS 2004 2003 Change 2004 2003 Change
------ ------ ------ ------ ------ ------
(KWH In Millions) (KWH In Millions)
Electric Generation Sales
Retail -
Regulated .......................... 19,245 19,386 -0.7% 39,987 41,504 -3.7%
Unregulated ........................ 3,751 3,335 12.5% 7,767 6,564 18.3%
------ ------ ---- ------ ------ ----
Total Retail ......................... 22,996 22,721 1.2% 47,754 48,068 -0.7%
Wholesale ............................ 13,342 9,737 37.0% 25,805 20,163 28.0%
------ ------ ---- ------ ------ ----
Total Electric Generation Sales ... 36,338 32,458 12.0% 73,559 68,231 7.8%
====== ====== ==== ====== ====== ====
Electric Distribution Deliveries
Residential .......................... 7,722 7,258 6.4% 17,829 17,385 2.6%
Commercial ........................... 8,263 7,853 5.2% 16,559 16,145 2.6%
Industrial ........................... 9,538 9,423 1.2% 18,336 18,146 1.0%
Other ................................ 125 138 -9.4% 258 279 -7.5%
------ ------ ---- ------ ------ ----
Total Distribution Deliveries ..... 25,648 24,672 4.0% 52,982 51,955 2.0%
====== ====== ==== ====== ====== ====
Electric Sales Shopped
Residential .......................... 1,778 1,400 27.0% 3,951 3,047 29.7%
Commercial ........................... 2,366 1,720 37.6% 4,702 3,346 40.5%
Industrial ........................... 2,259 2,166 4.3% 4,342 4,058 7.0%
------ ------ ---- ------ ------ ----
Total Electric Sales Shopped ...... 6,403 5,286 21.1% 12,995 10,451 24.3%
====== ====== ==== ====== ====== ====
Three Months Ended June 30, Six Months Ended June 30,
------------------------------- ---------------------------------
2004 2003 Change 2004 2003 Change
------ ------ ------ ------ ------ ------
NATURAL GAS SALES STATISTICS (Decatherms in thousands) (Decatherms in thousands)
Retail ............................... 10,903 14,146 -22.9% 29,005 43,723 -33.7%
Wholesale ............................ 6,188 9,677 -36.1% 14,287 19,713 -27.5%
------ ------ ----- ------ ------ -----
Total Natural Gas Sales ........... 17,091 23,823 -28.3% 43,292 63,436 -31.8%
====== ====== ===== ====== ====== =====
As of June 30,
-------------------------
Operating Statistics (12 mos. Ending) 2004 2003
- ------------------------------------- ---- ----
System Load Factor ................................ 65.6% 60.7%
Capacity Factors:
Fossil ......................................... 58.6% 59.0%
Nuclear ........................................ 78.3% 65.0%
Generation Output:
Fossil .......................................... 64% 69%
Nuclear ......................................... 36% 31%
Weather
- -------
Composite Heating Days Year-to-Date ............... 3,534 3,819
(Normal - 3493)
Composite Cooling Days Year-to-Date ............... 299 158
(Normal - 240)
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FirstEnergy Corp.
2004 EARNINGS PER SHARE (EPS) GUIDANCE
(Reconciliation of GAAP to Non-GAAP)
(Unaudited)
Three Months Six Months
Ended Ended Annual
June 30 June 30 Guidance
------------ ---------- -------------
Basic EPS (GAAP Basis) $ 0.62 $ 1.16 $2.65 - $2.80
Unusual Charges:
Lawsuits Settlement 0.03 0.03 0.03
Sale of 50% Interest in Great Lakes Energy Partners 0.02 0.02 0.02
Davis-Besse Impact - 0.12 0.12
------ ------ -------------
Normalized EPS (Non-GAAP Basis) 0.67 1.33 $2.82 - $2.97
Davis-Besse Impact - (0.12) (0.12)
------ ------ -------------
EPS Guidance Basis (Non-GAAP Basis) (*) $ 0.67 $ 1.21 $2.70 - $2.85
------ ------ -------------
<FN>
(*) - As of July 28, 2004, earnings guidance for 2004 now includes the
incremental expenses associated with the Davis-Besse outage and the
impact resulting from approval of the Ohio Rate Stabilization Plan.
</FN>
9
FirstEnergy Corp.
Reconciliation of 2004 Estimated Cash From Operating Activities (GAAP) to
Estimated Free Cash Flow (Non-GAAP) and Estimated Cash Generation (Non-GAAP)
----------------------------------------------------------------------------
($ Millions)
Net Cash from Operating Activities:
Non-GAAP Earnings Guidance $885-$935
Adjustments:
Depreciation 598
Amortization 822
Deferred costs recoverable as regulatory assets (125)
Deferred income taxes and ITC, net (85)
Other, including changes in working capital 1 175
------
Net cash from operating activities (GAAP) 2,295
Other Items:
Capital expenditures (720)
Nuclear fuel fabrication (90)
Contributions to nuclear decommissioning trusts (100)
Common stock dividends (490)
NUG trust contributions (50)
Claim settlement 1 (100)
Miscellaneous 80
------
Free Cash Flow (Non-GAAP) 825
Claim settlement 1 100
Miscellaneous asset sales 125
------
Cash Generation (Non-GAAP) 2 $1,050
Notes:
1 On a GAAP basis, the $100 million after-tax cash benefit from the claim
settlement is reflected in "Other, including changes in working capital."
Since we do not consider this one-time settlement to be part of "Free Cash
Flow," we removed it from the subtotal and then added it back to include it
as a component of "Cash Generation."
2 Potential proceeds from a JCP&L deferred energy cost securitization, not
included in the above total, would be an additional source of cash to be
used for debt retirement in 2004.
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RECENT DEVELOPMENTS
- --------------------------------------------------------------------------------
Ohio Rate Stabilization Plan
- ----------------------------
On June 18, FirstEnergy filed an application for rehearing of its Rate
Stabilization Plan which the Public Utilities Commission of Ohio (PUCO) approved
on June 9. While much of the plan was approved as filed, the company is asking
for a rehearing of certain issues such as the ability to recover increased costs
for fuel and environmental expenditures, and the ability to defer costs
associated with distribution reliability improvements. The PUCO is expected to
issue a comprehensive order on all of the rehearing requests.
Appointment of Chief Operating Officer
- --------------------------------------
On July 23, FirstEnergy announced that Richard R. Grigg has been elected
executive vice president and chief operating officer. Mr. Grigg retired earlier
this year as president and chief executive officer of WE Generation, after
nearly 34 years with Wisconsin Energy Corporation. He will lead several
operating business units including Energy Delivery, Fossil Generation, and
Commodity Operations, starting in late August.
Sale of Great Lakes Energy Partners
- -----------------------------------
During June, FirstEnergy sold its 50% interest in Great Lakes Energy Partners.
The sale generated net after-tax cash proceeds of approximately $150 million,
which were used to accelerate the company's debt reduction. The sale continues
our efforts to divest non-core assets and businesses.
$1 Billion FirstEnergy Corp. Credit Facility Renewal
- ----------------------------------------------------
On June 22, FirstEnergy completed the replacement of $1 billion of credit
facilities. The three-year holding company senior unsecured revolving credit
facility replaces various other credit facilities at the holding company and at
Ohio Edison that were scheduled to expire this fall. The new facility, combined
with other existing credit facilities, brings the total capacity of
FirstEnergy's primary credit facilities to $2.3 billion.
JCP&L Regulatory Update
- -----------------------
On May 18, the New Jersey Board of Public Utilities (BPU) issued its final
written order on last year's JCP&L base rate case. On June 1, the Company filed
a motion for reconsideration of the final order. On July 7, the BPU agreed to
rehear certain issues in the order. Oral arguments have been scheduled for
August 4.
On July 16, JCP&L submitted its Phase II rate filing with the BPU. The filing
includes an increase in base rates of $36 million annually to recover the costs
of projects designed to enhance system reliability and provide a ROE to JCP&L
similar to that of other utilities in the state. The filing also seeks to
recognize the impact of certain NJBPU-approved restructured purchase-power
contracts with NUGs by increasing the deferred recovery component of the Market
Transition Charges by $20 million annually. If approved, the $56 million request
would result in a 2.6% base rate increase.
Settlement of Securities and Derivative Lawsuits
- ------------------------------------------------
FirstEnergy has reached an agreement that resolves all pending securities and
derivative lawsuits related to the extended outage at Davis-Besse; the August
14, 2003, regional power outage; and financial restatements related to changed
accounting treatments for transition assets being recovered in Ohio. The
agreement, which does not constitute any admission of wrongdoing and is subject
to court approval, provides for a total settlement amount of $89.9 million, of
which approximately $72 million will be paid by the company's insurance
carriers.
Forward-Looking Statements: 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), adverse regulatory or legal decisions and
the outcome of governmental investigations, availability and cost of capital,
the continuing availability and operation of generating units, the inability to
accomplish or realize anticipated benefits of strategic goals, the ability to
improve electric commodity margins and to experience growth in the distribution
business, the ability to access the public securities markets, further
investigation into the causes of the August 14, 2003 regional power outage and
the outcome, cost and other effects of present and potential legal and
administrative proceedings and claims related to that outage, the final outcome
in the proceeding related to its Rate Stabilization Plan, the risks and other
factors discussed from time to time in FirstEnergy's Securities and Exchange
Commission filings, including its annual report on Form 10-K (as amended) for
the year ended December 31, 2003, and its report on Form 10-Q for the quarter
ended March 31, 2004, and other similar factors. FirstEnergy expressly disclaims
any current intention to update any forward-looking statements contained in this
document as a result of new information, future events, or otherwise.
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