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Section 1: 8-K (8-K)

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UNITED STATES
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): February 19, 2019

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, OH  44308
 
 
 
 
Telephone (800)736-3402
 
 
 
 
 
 
 





Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2.):

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.



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Item 2.02 Results of Operations and Financial Condition

On February 19, 2019, FirstEnergy Corp. (FirstEnergy or Company) issued two public documents regarding, among other things, results for the three months and year ended December 31, 2018 and earnings guidance for 2019. FirstEnergy’s Press Release and Consolidated Report to the Financial Community, which are attached as Exhibits 99.1 and 99.2, respectively, hereto and incorporated herein by reference, contain non-GAAP financial measures. Pursuant to the requirements of Regulation G and Item 10(e)(i) of Regulation S-K, 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 financial measures calculated and presented in accordance with accounting principles generally accepted in the United States (GAAP). The information set forth in and incorporated into this Item 2.02 of this Current Report on Form 8-K is being furnished pursuant to Item 2.02 of Form 8-K and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any of the Company’s filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and regardless of any general incorporation language in such filings, except to the extent expressly set forth by specific reference in such a filing.

The attached Press Release and Consolidated Report to the Financial Community contain references to non-GAAP financial measures including, among others, Operating earnings (loss); Operating earnings (loss) per share; Operating earnings (loss) per share on a segment basis; Adjusted Equity; Adjusted Debt; and Adjusted Capitalization. As a result of presenting substantially all of the operations of the previously reported Competitive Energy Services reportable operating segment as discontinued operations as of March 31, 2018, with the exception of the Pleasants Power Station, which was reclassified as of September 30, 2018, prior period disclosure, including the presentation of non-GAAP financial measures, has been revised to conform to the current presentation of such operations as discontinued operations in Corporate/Other. 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 GAAP. Operating earnings (loss) is not calculated in accordance with GAAP because they exclude the impact of “special items.” Special items represent charges incurred or benefits realized that management believes are not indicative of or may obscure trends useful in evaluating the Company’s ongoing core activities and results of operations or otherwise warrant separate classification. Special items also reflect the adjustment to include the full impact of share dilution from the $2.5 billion equity issuance in January 2018. Special items are not necessarily non-recurring. The Company’s management cannot estimate on a forward-looking basis the impact of these items in the context of Operating earnings (loss) per share growth projections because these items, which could be significant, are difficult to predict and may be highly variable. Consequently, the Company is unable to reconcile Operating earnings (loss) per share growth projections to a GAAP measure without unreasonable effort. Operating earnings (loss) per share and Operating earnings (loss) per share for each segment is calculated by dividing Operating earnings (loss), which excludes special items as discussed above, for the periods presented in 2018 by 538 million shares and by 540 million shares in 2019, which reflects the full impact of share dilution from the equity issuance in January 2018. Beginning in 2018, Regulated operating (non-GAAP) earnings (loss), Regulated operating earnings (loss) per share, and Regulated operating earnings (loss) per share by segment, which were non-GAAP financial measures used in the guidance provided in February 2018, are now referred to as Operating earnings (loss), Operating earnings (loss) per share, and Operating earnings (loss) per share by segment, respectively. Management uses non-GAAP financial measures such as Operating earnings (loss) and Operating earnings (loss) per share to evaluate the Company’s performance and manage its operations and frequently references these non-GAAP financial measures in its decision-making, using them to facilitate historical and ongoing performance comparisons. Additionally, management uses Operating earnings (loss) per share by segment to further evaluate FirstEnergy’s performance by segment and references this non-GAAP financial measure in its decision-making. Management believes that the non-GAAP financial measures of Operating earnings (loss) and Operating earnings (loss) per share by segment provide consistent and comparable measures of performance of its businesses on an ongoing basis. Management also believes that such measures are useful to shareholders and other interested parties to understand performance trends and evaluate the Company against its peer group by presenting period-over-period operating results without the effect of certain charges or benefits that may not be consistent or comparable across periods or across the Company’s peer group. Management uses Adjusted Equity, Adjusted Debt, and Adjusted Capitalization to calculate and monitor its compliance with the debt to total capitalization financial covenants under the FirstEnergy credit facility. These financial measures, as calculated in accordance with the FirstEnergy credit facility, help shareholders understand FirstEnergy's compliance with, and provide a basis for understanding FirstEnergy's incremental debt capacity under, the debt to total capitalization financial covenants. The financial covenants require FirstEnergy to maintain a consolidated debt to total capitalization ratio, as defined in the facilities, of no more than 65%, measured at the end of each fiscal quarter. All of these non-GAAP financial measures are intended to complement, and are not considered as alternatives to, the most directly comparable GAAP financial measures. Also, the non-GAAP financial measures may not be comparable to similarly titled measures used by other entities.

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Item 7.01 Regulation FD Disclosure

On February 19, 2019, FirstEnergy expects to post to its website at www.firstenergycorp.com/ir its latest investor FactBook, which has been, among other things, updated in certain respects with information as of the fourth quarter and year ended December 31, 2018.

The information set forth in and incorporated into this Item 7.01 of this Current Report on Form 8-K is being furnished pursuant to Item 7.01 of Form 8-K and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any of the Company’s filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and regardless of any general incorporation language in such filings, except to the extent expressly set forth by specific reference in such a filing. The furnishing of this Item 7.01 of this Current Report on Form 8-K shall not be deemed an admission as to the materiality of any information herein that is required to be disclosed solely by reason of Regulation FD.

Item 9.01 Financial Statements and Exhibits
(d)
Exhibits

Exhibit No.
 
Description
99.1
 
99.2
 



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Forward-Looking Statements: This Form 8-K includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 based on information currently available. Unless the context requires otherwise, as used herein, references to “we,” “us,” “our,” and “FirstEnergy” refer to FirstEnergy Corp. Forward-looking statements are subject to certain risks and uncertainties and readers are cautioned not to place undue reliance on these forward-looking statements. These statements include declarations regarding management's intents, beliefs and current expectations, and typically contain, but are not limited to, the terms “anticipate,” “potential,” “expect,” "forecast," "target," "will," "intend," “believe,” "project," “estimate," "plan" and similar words. Forward-looking statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements, which may include the following: the ability to successfully execute an exit from commodity-based generation; the risks associated with the Chapter 11 bankruptcy proceedings involving FirstEnergy Solutions Corp. (FES), its subsidiaries, and FirstEnergy Nuclear Operating Company (FENOC) (FES Bankruptcy) that could adversely affect FirstEnergy, FirstEnergy’s liquidity or results of operations, including, without limitation, that conditions to our settlement agreement with respect to the FES Bankruptcy settlement agreement may not be met or that such settlement agreement may not be otherwise consummated, and if so, the potential for litigation and payment demands against us by FES, FENOC or their creditors; the ability to accomplish or realize anticipated benefits from strategic and financial goals, including, but not limited to, our strategy to operate and grow as a fully regulated business, to execute our transmission and distribution investment plans, to continue to reduce costs through FE Tomorrow, which is the FirstEnergy initiative launched in late 2016 to identify our optimal organization structure and properly align corporate costs and systems to efficiently support FirstEnergy as a fully regulated company going forward, and other initiatives, and to improve our credit metrics, strengthen our balance sheet and grow earnings; legislative and regulatory developments at the federal and state levels, including, but not limited to, matters related to rates, compliance and enforcement activity; economic and weather conditions affecting future operating results, such as significant weather events and other natural disasters, and associated regulatory events or actions; changes in assumptions regarding economic conditions within our territories, the reliability of our transmission and distribution system, or the availability of capital or other resources supporting identified transmission and distribution investment opportunities; changes in customers' demand for power, including, but not limited to, the impact of state and federal energy efficiency and peak demand reduction mandates; changes in national and regional economic conditions affecting us and/or our major industrial and commercial customers or others with which we do business; the risks associated with cyber-attacks and other disruptions to our information technology system that may compromise our operations, and data security breaches of sensitive data, intellectual property and proprietary or personally identifiable information; the ability to comply with applicable state and federal reliability standards and energy efficiency and peak demand reduction mandates; changes to federal and state environmental laws and regulations, including, but not limited to, those related to climate change; changing market conditions affecting the measurement of certain liabilities and the value of assets held in our pension trusts and other trust funds, or causing us to make additional contributions sooner, or in amounts that are larger, than currently anticipated; the risks associated with the decommissioning of the retired nuclear facility owned by FirstEnergy subsidiaries; the risks and uncertainties associated with litigation, arbitration, mediation and like proceedings; labor disruptions by the unionized workforce of FirstEnergy subsidiaries; changes to significant accounting policies; any changes in tax laws or regulations, including the Tax Cuts and Jobs Act, adopted December 22, 2017, or adverse tax audit results or rulings; the ability to access the public securities and other capital and credit markets in accordance with our financial plans, the cost of such capital and overall condition of the capital and credit markets affecting us; actions that may be taken by credit rating agencies that could negatively affect either our access to or terms of financing or our financial condition and liquidity; and the risks and other factors discussed from time to time in FirstEnergy’s Securities and Exchange Commission (SEC) filings. Dividends declared from time to time on FirstEnergy’s common stock, and thereby on FirstEnergy’s preferred stock, during any period may in the aggregate vary from prior periods due to circumstances considered by FirstEnergy’s Board of Directors at the time of the actual declarations. A security rating is not a recommendation to buy or hold securities and is subject to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating. These forward-looking statements are also qualified by, and should be read together with, the risk factors included in FirstEnergy’s SEC filings with the SEC, including but not limited to the most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q, together with any subsequent Current Reports on Form 8-K. The foregoing review of factors also should not be construed as exhaustive. New factors emerge from time to time, and it is not possible for management to predict all such factors, nor assess the impact of any such factor on our business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statements. We expressly disclaim any obligation to update or revise, except as required by law, any forward-looking statements contained herein as a result of new information, future events or otherwise.


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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 hereunto duly authorized.

February 19, 2019

 
 FIRSTENERGY CORP.
 
 Registrant
 
 
 
 
 By:
/s/ Jason J. Lisowski
 
Jason J. Lisowski
Vice President, Controller and Chief Accounting Officer


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Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit


Exhibit 99.1
FirstEnergy Corp.
For Release: February 19, 2019
76 South Main Street
 
Akron, Ohio 44308
 
www.firstenergycorp.com
 
 
 
News Media Contact:
Investor Contact:
Tricia Ingraham
Irene Prezelj
(330) 384-5247
(330) 384-3859
 
 

FirstEnergy Announces 2018 Financial Results
Affirms 2019 Guidance, Regulated Growth Projection of 6-8%

Akron, Ohio - FirstEnergy Corp. (NYSE: FE) today reported full-year 2018 GAAP earnings of $981 million, or $1.99 per basic and diluted share of common stock on revenue of $11.3 billion. In 2017 the company reported GAAP losses of $(1.7) billion, or
$(3.88) per basic and diluted share of common stock on revenues of $10.9 billion. Results for both periods include special items, listed below.

Operating (non-GAAP) earnings* for 2018 were $2.59 per share, which is at the upper end of the company’s guidance range, compared to $2.17 per share for 2017.

“We are beginning 2019 with tremendous momentum, following perhaps the most pivotal year in FirstEnergy’s history,” said Charles E. Jones, FirstEnergy president and chief executive officer. “In 2018 we executed on our strategy to become a premier, high-performance, fully regulated utility with a long-term, sustainable growth plan and investment grade credit ratings. Today, we are well positioned to build a brighter future for our shareholders, customers and employees as we continue to invest in our customer-focused growth initiatives.”

FirstEnergy affirmed its 2019 earnings guidance of $2.45 to $2.75 per fully diluted share, and compound annual growth rate projection of 6 to 8 percent for its transmission and distribution operations through 2021**. The compound annual growth rate excludes the requested two-year extension of the Ohio Distribution Modernization Rider. The company also introduced first quarter 2019 earnings guidance of $0.60 to $0.70 per share.







Fourth Quarter Results

For the fourth quarter of 2018, FirstEnergy reported GAAP earnings of
$128 million, or $0.25 per basic and diluted share of common stock, on revenue of
$2.7 billion. In the fourth quarter of 2017, the company reported a GAAP loss of
$(2.5) billion or $(5.62) per basic and diluted share of common stock, on revenue of
$2.7 billion. Results for both periods include the special items shown below.

Operating (non-GAAP) earnings* for the fourth quarter of 2018 were $0.50 per share. In the fourth quarter of 2017, operating (non-GAAP) earnings were $0.58 per share.

In FirstEnergy’s Regulated Distribution business, higher fourth quarter 2018 distribution deliveries, commodity margin and lower net financing costs were offset by higher operating and depreciation expenses.

Total distribution deliveries increased 1.2 percent compared to the fourth quarter of 2017 due to higher weather-related and industrial usage. Residential sales increased
0.5 percent, reflecting a 7 percent increase in heating degree days compared to the fourth quarter of 2017, and commercial deliveries increased 1.7 percent. Sales to industrial customers increased 1.4 percent, primarily due to higher usage in the shale gas and steel sectors. This marked the tenth consecutive quarterly increase in the company’s distribution deliveries to industrial customers.

In the Regulated Transmission business, fourth quarter 2018 results reflect a higher rate base associated with the company’s Energizing the Future transmission program, offset by higher operating expense.

In the Corporate/Other segment, lower operating expenses in the fourth quarter of 2018 was more than offset by higher income taxes and the estimated non-deductible portion of interest expense due to the Tax Cuts & Jobs Act that became effective in 2018.


Full Year 2018 Segment Results

For the full year of 2018, earnings increased in the Regulated Distribution business as a result of higher distribution deliveries and regulated commodity margin related primarily to weather and industrial





usage, lower operating expense and the impact of rates that went into effect in Ohio and Pennsylvania. These factors were slightly offset by higher depreciation expense and general taxes.

In the Regulated Transmission business, full-year 2018 results benefited from higher transmission margin related to the company’s Energizing the Future initiative.

In the Corporate/Other segment, lower operating expense in 2018 was offset by income taxes, the non-deductible portion of interest expense, and higher financing costs.

 
 
Consolidated GAAP Earnings Per Share (EPS) to Operating (Non-GAAP) EPS* Reconciliation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fourth Quarter
 
Full Year
 
 
 
 
2018
2017
 
2018
2017
 
 
 
Basic EPS (GAAP)
 
$0.25
$(5.62)
 
$1.99
$(3.88)
 
 
 
Excluding Special Items*:
 
 
 
 
 
 
 
 
 
    Impact of full dilution to 538M shares
 
0
0.97
 
0.52
0.68
 
 
 
 
Mark-to-market adjustments -
 
 
 
 
 
 
 
 
 
 
  Pension/OPEB actuarial assumptions
 
0.19
0.11
 
0.19
0.11
 
 
 
 
Regulatory charges
 
0.01
0.04
 
(0.2)
0.08
 
 
 
 
Debt redemption costs
 
0.01
0
 
0.22
0.01
 
 
 
 
Tax reform
 
0.02
0.25
 
0.04
0.25
 
 
 
 
Exit of competitive generation
 
0.02
4.83
 
(0.17)
4.92
 
 
 
 
Total Special Items*
 
0.25
6.20
 
0.60
6.05
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating EPS (Non-GAAP)
 
$0.50
$0.58
 
$2.59
$2.17
 
 
 
Per share amounts for the special items and earnings drivers above are based on the after-tax effect of each item divided by number of shares outstanding assuming full impact of dilution from the $2.5 billion equity issuance in January 2018 (538M fully diluted shares). The current and deferred income tax effect was calculated by applying the subsidiaries’ statutory tax rate to the pretax amount if deductible/taxable. The income tax rates range from 21% to 29% in the fourth quarter and full year of 2018, and 35% to 42% in the fourth quarter and full year of 2017.
 


Non-GAAP financial measures
* Operating earnings (loss) excludes “special items” as described below, and is a non-GAAP financial measure. Special items represent charges incurred or benefits realized that management believes are not indicative of, or may obscure trends useful in evaluating the company’s ongoing core activities and results of operations or otherwise warrant separate classification. Special items also reflect the adjustment to include the full impact of share dilution from the $2.5 billion equity issuance in January 2018. Special items are not necessarily non-recurring. Management uses Operating earnings (loss) and Operating earnings (loss) per share to evaluate the company’s performance and manage its operations and frequently references these non-GAAP financial measures in its decision making, using them to facilitate historical and ongoing performance comparisons. Additionally, management uses Operating earnings (loss) per share by segment to further evaluate the company's performance by segment and references this non-GAAP financial measure in its decision making. Operating earnings (loss) per share and operating earnings (loss) per share for each segment is calculated by dividing Operating earnings (loss), which excludes specials items as discussed herein, for the periods presented in 2018 by 538 million shares and 540 million shares in 2019, which reflects the full impact of share dilution from the equity issuance in January 2018. As of the first quarter 2018, Regulated operating (non-GAAP) earnings (loss), Regulated operating earnings (loss) per share, and Regulated operating earnings (loss) per share by segment, which were non-GAAP financial measures used in the guidance provided in February 2018, are now referred to as Operating earnings (loss), Operating earnings (loss) per share, and Operating earnings (loss) per share by segment, respectively. Management believes that the non-GAAP financial measures of Operating earnings (loss) and Operating earnings (loss) per share and Operating earnings (loss) per share by segment provide consistent and comparable measures of performance of its businesses on an ongoing basis. Management also believes that such measures are useful to shareholders and other interested parties to understand performance trends and evaluate the company against its peer group by presenting period-over-period operating results without the effect of certain charges or benefits that may not be consistent or comparable across periods or across the company’s peer group. 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 (GAAP). These non-GAAP financial measures are intended to complement, and are not considered as alternatives to, the most directly comparable GAAP financial measures. Also, the non-GAAP financial measures may not be comparable to similarly titled measures used by other entities. Pursuant to the requirements of Regulation G, FirstEnergy (FE) has provided, where possible without unreasonable effort, quantitative reconciliations within this presentation of the non-GAAP financial measures to the most directly comparable GAAP financial measures.

** The Company’s management team cannot estimate on a forward-looking basis the impact of special items in the context of Operating earnings (loss) per share growth projections because special items, which could be significant, are difficult to predict and may be highly variable. Consequently, the Company is unable to reconcile Operating earnings (loss) per share growth projections to a GAAP measure without unreasonable effort.

Deconsolidation
FirstEnergy Solutions Corp. (FES), FirstEnergy Nuclear Operating Company, Bayshore Power Company and a portion of Allegheny Energy Supply Company, LLC (including the Pleasants Power Station), representing substantially all of FirstEnergy’s operations that previously comprised the Competitive Energy Services reportable operating segment, are presented as discontinued operations in FirstEnergy’s consolidated financial statements resulting from the FES Bankruptcy and actions taken as part of the strategic review to exit commodity-exposed generation. The Pleasants Power Station was reclassified to discontinued operations following its inclusion in the definitive FES Bankruptcy settlement agreement for the benefit of FES' creditors. Prior period results have been reclassified to conform with such presentation as discontinued operations.

Consolidated Report and Teleconference

FirstEnergy’s Consolidated Report to the Financial Community, which provides highlights on company developments and financial results for the fourth quarter and full year, is posted on the company’s Investor Information website - www.firstenergycorp.com/ir. To access the report, click on Fourth Quarter 2018 Consolidated Report to the Financial Community.

The company invites investors, customers and other interested parties to listen to a live webcast of its teleconference for financial analysts and view slides associated with the presentation at 10:00 a.m. EST tomorrow. FirstEnergy management will present an overview of the company’s financial results, followed by a question-and-answer session. The teleconference and presentation can be accessed on the website by selecting the Fourth Quarter 2018 Earnings Conference Call link. The webcast and presentation will be archived on the website.

FirstEnergy is dedicated to safety, reliability and operational excellence. Its 10 electric distribution companies form one of the nation's largest investor-owned electric systems, serving customers in Ohio, Pennsylvania, New Jersey, West Virginia, Maryland and New York. The company's transmission subsidiaries operate 24,500 miles of transmission lines that connect the Midwest and Mid-Atlantic regions. Follow FirstEnergy on Twitter @FirstEnergyCorp or online at www.firstenergycorp.com.






Forward-Looking Statements: This news release includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 based on information currently available. Unless the context requires otherwise, as used herein, references to “we,” “us,” “our,” and “FirstEnergy” refer to FirstEnergy Corp. Forward-looking statements are subject to certain risks and uncertainties and readers are cautioned not to place undue reliance on these forward-looking statements. These statements include declarations regarding management's intents, beliefs and current expectations, and typically contain, but are not limited to, the terms “anticipate,” “potential,” “expect,” "forecast," "target," "will," "intend," “believe,” "project," “estimate," "plan" and similar words. Forward-looking statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements, which may include the following: the ability to successfully execute an exit from commodity-based generation; the risks associated with the Chapter 11 bankruptcy proceedings involving FirstEnergy Solutions Corp. (FES), its subsidiaries, and FirstEnergy Nuclear Operating Company (FENOC) (FES Bankruptcy) that could adversely affect FirstEnergy, FirstEnergy’s liquidity or results of operations, including, without limitation, that conditions to our settlement agreement with respect to the FES Bankruptcy settlement agreement may not be met or that such settlement agreement may not be otherwise consummated, and if so, the potential for litigation and payment demands against us by FES, FENOC or their creditors; the ability to accomplish or realize anticipated benefits from strategic and financial goals, including, but not limited to, our strategy to operate and grow as a fully regulated business, to execute our transmission and distribution investment plans, to continue to reduce costs through FE Tomorrow, which is the FirstEnergy initiative launched in late 2016 to identify our optimal organization structure and properly align corporate costs and systems to efficiently support FirstEnergy as a fully regulated company going forward, and other initiatives, and to improve our credit metrics, strengthen our balance sheet and grow earnings; legislative and regulatory developments at the federal and state levels, including, but not limited to, matters related to rates, compliance and enforcement activity; economic and weather conditions affecting future operating results, such as significant weather events and other natural disasters, and associated regulatory events or actions; changes in assumptions regarding economic conditions within our territories, the reliability of our transmission and distribution system, or the availability of capital or other resources supporting identified transmission and distribution investment opportunities; changes in customers' demand for power, including, but not limited to, the impact of state and federal energy efficiency and peak demand reduction mandates; changes in national and regional economic conditions affecting us and/or our major industrial and commercial customers or others with which we do business; the risks associated with cyber-attacks and other disruptions to our information technology system that may compromise our operations, and data security breaches of sensitive data, intellectual property and proprietary or personally identifiable information; the ability to comply with applicable state and federal reliability standards and energy efficiency and peak demand reduction mandates; changes to federal and state environmental laws and regulations, including, but not limited to, those related to climate change; changing market conditions affecting the measurement of certain liabilities and the value of assets held in our pension trusts and other trust funds, or causing us to make additional contributions sooner, or in amounts that are larger, than currently anticipated; the risks associated with the decommissioning of the retired nuclear facility owned by FirstEnergy subsidiaries; the risks and uncertainties associated with litigation, arbitration, mediation and like proceedings; labor disruptions by the unionized workforce of FirstEnergy subsidiaries; changes to significant accounting policies; any changes in tax laws or regulations, including the Tax Cuts and Jobs Act, adopted December 22, 2017, or adverse tax audit results or rulings; the ability to access the public securities and other capital and credit markets in accordance with our financial plans, the cost of such capital and overall condition of the capital and credit markets affecting us; actions that may be taken by credit rating agencies that could negatively affect either our access to or terms of financing or our financial condition and liquidity; and the risks and other factors discussed from time to time in FirstEnergy’s Securities and Exchange Commission (SEC) filings. Dividends declared from time to time on FirstEnergy’s common stock, and thereby on FirstEnergy’s preferred stock, during any period may in the aggregate vary from prior periods due to circumstances considered by FirstEnergy’s Board of Directors at the time of the actual declarations. A security rating is not a recommendation to buy or hold securities and is subject to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating. These forward-looking statements are also qualified by, and should be read together with, the risk factors included in FirstEnergy’s SEC filings with the SEC, including but not limited to the most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q, together with any subsequent Current Reports on Form 8-K. The foregoing review of factors also should not be construed as exhaustive. New factors emerge from time to time, and it is not possible for management to predict all such factors, nor assess the impact of any such factor on our business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statements. We expressly disclaim any obligation to update or revise, except as required by law, any forward-looking statements contained herein as a result of new information, future events or otherwise.


(021919)



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Section 3: EX-99.2 (EXHIBIT 99.2)

Exhibit


Exhibit 99.2
396796944_felogo06302014a01a10.jpg
Consolidated Report to the Financial Community                                                                           
Fourth Quarter 2018
 
(Released February 19, 2019)         
HIGHLIGHTS  
GAAP earnings for the fourth quarter of 2018 were $0.25 per basic share, compared with fourth quarter 2017 losses of $(5.62) per basic share. GAAP results for the fourth quarter of 2018 and 2017 include the impact of special items listed below. Operating (non-GAAP) earnings*, which excludes special items, were $0.50 per share for the fourth quarter of 2018, compared with fourth quarter 2017 Operating (non-GAAP) earnings of $0.58 per share.
 
 
 
 
 
 
 
 
 
FirstEnergy
 
 
EPS Variance Analysis
 
Regulated
 
Regulated
 
Corporate /
 
Corp.
 
 
(in millions, except per share amounts)
 
Distribution
 
Transmission
 
Other**
 
Consolidated
 
 
4Q 2017 Net Income (Loss) attributable to Common Stockholders (GAAP)
 
$160
 
$72
 
$(2,731)
 
$(2,499)
 
 
 
 
 
 
 
 
 
 
 
 
 
4Q 2017 Basic Earnings (Loss) Per Share
(avg. shares outstanding 445M)
 
$0.35
 
$0.16
 
$(6.13)
 
$(5.62)
 
 
Special Items - 2017***
 
 
 
 
 
 
 
 
 
 
Impact of full dilution to 538M shares
 
(0.05)
 
(0.02)
 
1.04
 
0.97
 
 
Mark-to-market adjustments - Pension/OPEB actuarial assumptions
 
0.11
 
 
 
0.11
 
 
Regulatory charges
 
0.01
 
0.03
 
 
0.04
 
 
Debt redemption costs
 
 
 
 
 
 
Tax reform
 
0.06
 
0.01
 
0.18
 
0.25
 
 
Exit of competitive generation
 
 
 
4.83
 
4.83
 
 
Total Special Items - 4Q 2017
 
0.13
 
0.02
 
6.05
 
6.20
 
 
4Q 2017 Operating Earnings (Loss) Per Share - Non-GAAP*
(538M fully diluted shares)
 
$0.48
 
$0.18
 
$(0.08)
 
$0.58
 
 
Distribution Deliveries
 
0.01
 
 
 
0.01
 
 
Transmission Margin
 
 
0.02
 
 
0.02
 
 
Regulated Commodity Margin
 
0.01
 
 
 
0.01
 
 
Net Operating and Miscellaneous Expenses
 
(0.01)
 
(0.02)
 
0.02
 
(0.01)
 
 
Depreciation
 
(0.02)
 
 
 
(0.02)
 
 
Net Financing Costs
 
0.01
 
 
 
0.01
 
 
Effective Tax Rate
 
 
 
(0.10)
 
(0.10)
 
 
4Q 2018 Operating Earnings (Loss) Per Share - Non-GAAP*
(538M fully diluted shares)
 
$0.48
 
$0.18
 
$(0.16)
 
$0.50
 
 
Special Items - 2018***
 
 
 
 
 
 
 
 
 
 
Impact of full dilution to 538M shares
 
0.01
 
0.01
 
(0.02)
 
 
 
Mark-to-market adjustments - Pension/OPEB actuarial assumptions
 
(0.15)
 
 
(0.04)
 
(0.19)
 
 
Regulatory charges
 
(0.01)
 
 
 
(0.01)
 
 
Debt redemption costs
 
(0.01)
 
 
 
(0.01)
 
 
Tax reform
 
(0.02)
 
 
 
(0.02)
 
 
Exit of competitive generation
 
(0.06)
 
 
0.04
 
(0.02)
 
 
Total Special Items - 4Q 2018
 
(0.24)
 
0.01
 
(0.02)
 
(0.25)
 
 
4Q 2018 Basic Earnings (Loss) Per Share
(avg. shares outstanding 512M)
 
$0.24
 
$0.19
 
$(0.18)
 
$0.25
 
 
 
 
 
 
 
 
 
 
 
 
 
4Q 2018 Net Income (Loss) attributable to Common Stockholders (GAAP)
 
$127
 
$95
 
$(94)
 
$128
 
 
 
 
 
 
 
 
 
 
 
 
Per share amounts for the special items and earnings drivers above and throughout this report are based on the after-tax effect of each item divided by the number of shares outstanding for the period assuming full impact of dilution from the $2.5 billion equity issuance in January 2018 (538M fully diluted shares). The current and deferred income tax effect was calculated by applying the subsidiaries' statutory tax rate to the pre-tax amount if deductible/taxable. The income tax rates range from 21% to 29% and 35% to 42% in the fourth quarter of 2018 and 2017, respectively.
 



_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 4th Quarter 2018                    1



For the year ended December 31, 2018, GAAP earnings were $1.99 per basic share compared with GAAP losses of $(3.88) per basic share for the same period of 2017. GAAP results for the years ended 2018 and 2017 include the impact of the special items listed below. Operating (non-GAAP) earnings*, excluding special items, were $2.59 per share for the year ended December 31, 2018, compared to $2.17 per share for the same period of 2017.
 
 
 
 
 
 
 
 
 
FirstEnergy
 
 
EPS Variance Analysis
 
Regulated
 
Regulated
 
Corporate /
 
Corp.
 
 
(in millions, except per share amounts)
 
Distribution
 
Transmission
 
Other**
 
Consolidated
 
 
2017 Net Income (Loss) attributable to Common Stockholders (GAAP)
 
$916
 
$336
 
$(2,976)
 
$(1,724)
 
 
 
 
 
 
 
 
 
 
 
 
 
2017 Basic Earnings (Loss) Per Share
(avg. shares outstanding 444M)
 
$2.06
 
$0.76
 
$(6.70)
 
$(3.88)
 
 
Special Items - 2017***
 
 
 
 
 
 
 
 
 
 
Impact of full dilution to 538M shares
 
(0.36)
 
(0.13)
 
1.17
 
0.68
 
 
Mark-to-market adjustments - Pension/OPEB actuarial assumptions
 
0.11
 
 
 
0.11
 
 
Regulatory charges
 
0.04
 
0.04
 
 
0.08
 
 
Debt redemption costs
 
 
 
0.01
 
0.01
 
 
Tax reform
 
0.06
 
0.01
 
0.18
 
0.25
 
 
Exit of competitive generation
 
 
 
4.92
 
4.92
 
 
Total Special Items - 2017
 
(0.15)
 
(0.08)
 
6.28
 
6.05
 
 
2017 Operating Earnings (Loss) Per Share - Non-GAAP*
(538M fully diluted shares)
 
$1.91
 
$0.68
 
$(0.42)
 
$2.17
 
 
Distribution Deliveries
 
0.29
 
 
 
0.29
 
 
Ohio DCR
 
0.03
 
 
 
0.03
 
 
Pennsylvania Rate Case
 
0.03
 
 
 
0.03
 
 
Commodity Margin
 
0.03
 
 
0.05
 
0.08
 
 
Transmission Margin
 
 
0.08
 
 
0.08
 
 
Net Operating and Miscellaneous Expenses
 
0.18
 
(0.02)
 
0.01
 
0.17
 
 
Depreciation
 
(0.06)
 
 
 
(0.06)
 
 
General Taxes
 
(0.04)
 
 
 
(0.04)
 
 
Net Financing Costs
 
0.04
 
 
(0.04)
 
 
 
Effective Tax Rate
 
 
 
(0.16)
 
(0.16)
 
 
2018 Operating Earnings (Loss) Per Share - Non-GAAP*
(538M fully diluted shares)
 
$2.41
 
$0.74
 
$(0.56)
 
$2.59
 
 
Special Items - 2018***
 
 
 
 
 
 
 
 
 
 
Impact of full dilution to 538M shares
 
0.22
 
0.07
 
(0.81)
 
(0.52)
 
 
Mark-to-market adjustments - Pension/OPEB actuarial assumptions
 
(0.15)
 
 
(0.04)
 
(0.19)
 
 
Regulatory charges
 
0.20
 
 
 
0.20
 
 
Debt redemption costs
 
(0.01)
 
 
(0.21)
 
(0.22)
 
 
Tax reform
 
(0.04)
 
 
 
(0.04)
 
 
Exit of competitive generation
 
(0.10)
 
 
0.27
 
0.17
 
 
Total Special Items - 2018
 
0.12
 
0.07
 
(0.79)
 
(0.60)
 
 
2018 Basic Earnings (Loss) Per Share
(avg. shares outstanding 492M)
 
$2.53
 
$0.81
 
$(1.35)
 
$1.99
 
 
 
 
 
 
 
 
 
 
 
 
 
2018 Net Income (Loss) attributable to Common Stockholders (GAAP)
 
$1,242
 
$397
 
$(658)
 
$981
 
 
 
 
 
 
 
 
 
 
 
 
Per share amounts for the special items and earnings drivers above and throughout this report are based on the after-tax effect of each item divided by the number of shares outstanding for the period assuming full impact of dilution from the $2.5 billion equity issuance in January 2018 (538M fully diluted shares). The current and deferred income tax effect was calculated by applying the subsidiaries' statutory tax rate to the pre-tax amount if deductible/taxable. The income tax rates range from 21% to 29% and 35% to 42% in the years 2018 and 2017, respectively.
 

_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 4th Quarter 2018                    2



*Operating earnings (loss) excludes “special items” as described below, and is a non-GAAP financial measure. Special items represent charges incurred or benefits realized that management believes are not indicative of, or may obscure trends useful in evaluating the company’s ongoing core activities and results of operations or otherwise warrant separate classification. Special items also reflect the adjustment to include the full impact of share dilution from the $2.5 billion equity issuance in January 2018. Special items are not necessarily non-recurring. Management uses Operating earnings (loss) and Operating earnings (loss) per share to evaluate the company’s performance and manage its operations and frequently references these non-GAAP financial measures in its decision making, using them to facilitate historical and ongoing performance comparisons. Additionally, management uses Operating earnings (loss) per share by segment to further evaluate the company's performance by segment and references this non-GAAP financial measure in its decision making. Operating earnings (loss) per share and operating earnings (loss) per share for each segment is calculated by dividing Operating earnings (loss), which excludes specials items as discussed herein, for the periods presented in 2018 by 538 million shares and 540 million shares in 2019, which reflects the full impact of share dilution from the equity issuance in January 2018. As of the first quarter 2018, Regulated operating (non-GAAP) earnings (loss), Regulated operating earnings (loss) per share, and Regulated operating earnings (loss) per share by segment, which were non-GAAP financial measures used in the guidance provided in February 2018, are now referred to as Operating earnings (loss), Operating earnings (loss) per share, and Operating earnings (loss) per share by segment, respectively. Management believes that the non-GAAP financial measures of Operating earnings (loss) and Operating earnings (loss) per share and Operating earnings (loss) per share by segment provide consistent and comparable measures of performance of its businesses on an ongoing basis. Management also believes that such measures are useful to shareholders and other interested parties to understand performance trends and evaluate the company against its peer group by presenting period-over-period operating results without the effect of certain charges or benefits that may not be consistent or comparable across periods or across the company’s peer group. 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 (GAAP). These non-GAAP financial measures are intended to complement, and are not considered as alternatives to, the most directly comparable GAAP financial measures. Also, the non-GAAP financial measures may not be comparable to similarly titled measures used by other entities. Pursuant to the requirements of Regulation G, FirstEnergy Corp. (FE) has provided, where possible without unreasonable effort, quantitative reconciliations within this presentation of the non-GAAP financial measures to the most directly comparable GAAP financial measures. The 2018 and 2017 GAAP to non-GAAP earnings per share reconciliations can be found on pages 28-30 of this report and all GAAP to non-GAAP earnings (loss) reconciliations are available on the company’s Investor Information website at www.firstenergycorp.com/ir.
**As a result of the bankruptcy filings, FirstEnergy Solutions Corp. (FES), its subsidiaries, and FirstEnergy Nuclear Operating Company (FENOC) were deconsolidated from FE's consolidated financial statements as of March 31, 2018. Additionally, the operating results of FES and FENOC, as well as Bay Shore Power Company (BSPC) and the majority of Allegheny Energy Supply Company, LLC (AE Supply) that are subject to completed or pending asset sales and transfers, collectively representing substantially all of FirstEnergy’s operations that previously comprised the Competitive Energy Services (CES) reportable operating segment, are presented as discontinued operations in Corporate/Other. During the third quarter of 2018, the Pleasants Power Station was also reclassified to discontinued operations. The remaining business activities that previously comprised the CES reportable operating segment were not material, and as such, have been combined into Corporate/Other for reporting purposes. The external segment reporting is consistent with the internal financial reports used by FE's Chief Executive Officer (its chief operating decision maker) to regularly assess performance of the business and allocate resources. Disclosures for FE's reportable operating segments for 2017, including the presentation of non-GAAP financial measures, have been revised to conform to the current presentation.
***See pages 20-31 for additional details regarding special items.


























_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 4th Quarter 2018                    3



2019 Earnings Guidance
FE expects 2019 net income of $1,320 million - $1,485 million and affirms its 2019 earnings guidance range of $2.45 - $2.75 per share, based on an average of 540 million fully diluted shares. Please see the table below for guidance ranges by segment.
FE expects First Quarter 2019 net income of $325 million - $375 million and earnings of $0.60 - $0.70 per share for the first quarter of 2019, based on an average of 538 million fully diluted shares.
 
 
 
Estimate for Year 2019
 
Q1 of 2019
 
 
(In millions, except per share amounts)
 
Regulated Distribution
 
Regulated Transmission
 
Corporate / Other
 
FirstEnergy Corp. Consolidated
 
FirstEnergy Corp. Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2019F Net Income (Loss)
 
$1,165 - $1,275
 
$435 - $480
 
$(280) - $(270)
 
$1,320 - $1,485
 
$325 - $375
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2019F Earnings (Loss) Per Share (Based on fully diluted shares)
 
$2.16 - $2.36
 
$0.81 - $0.89
 
($0.52) - ($0.50)
 
$2.45 - $2.75
 
$0.60 - $0.70
 
 
 
 

Note: FE management cannot estimate on a forward-looking basis the impact of special items in the context of Operating earnings (loss) per share projections because these items, which could be significant, are difficult to predict and may be highly variable. Consequently, the Company is unable to reconcile Operating earnings (loss) per share projections to a GAAP measure without unreasonable effort.


_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 4th Quarter 2018                    4



4Q 2018 Results vs 4Q 2017 - By Segment
Regulated Distribution
Regulated Distribution - GAAP earnings for the fourth quarter of 2018 were $127 million, or $0.24 per basic share, compared with fourth quarter 2017 GAAP earnings of $160 million, or $0.35 per basic share. Excluding special items, Operating (non-GAAP) earnings for the fourth quarter of 2018 and 2017 were $0.48 per share.
 
 
 
 
 
 
 
EPS Variance Analysis
 
 
 
 
(In millions, except per share amounts)
 
 
 
 
4Q 2017 Net Income attributable to Common Stockholders (GAAP)
 
$160
 
 
 
 
 
 
 
4Q 2017 Basic Earnings Per Share (avg. shares outstanding 445M)
 
$0.35
 
 
Special Items - 2017*
 
0.13
 
 
4Q 2017 Operating Earnings Per Share - Non-GAAP (538M fully diluted shares)
 
$0.48
 
 
Distribution Deliveries
 
0.01
 
For the year ended December 31, 2018, GAAP earnings were $1,242 million, or $2.53 per basic share compared with $916 million, or $2.06 per basic share, for the same period of 2017. Excluding special items, Operating (non-GAAP) earnings were $2.41 per share for the year ended December 31, 2018, compared to $1.91 per share for the same period of 2017.
 
Regulated Commodity Margin
 
0.01
 
 
Net Operating and Miscellaneous Expenses
 
(0.01)
 
 
Depreciation
 
(0.02)
 
 
Net Financing Costs
 
0.01
 
 
4Q 2018 Operating Earnings Per Share - Non-GAAP (538M fully diluted shares)
 
$0.48
 
 
Special Items - 2018*
 
(0.24)
 
 
4Q 2018 Basic Earnings Per Share (avg. shares outstanding 512M)
 
$0.24
 
 
 
 
 
 
 
4Q 2018 Net Income attributable to Common Stockholders (GAAP)
 
$127
 
 
*See pages 20-31 for additional details on Special Items.
 
 
 
 
 
 
 
4Q 2018 vs 4Q 2017 Earnings Drivers
Distribution Deliveries - Total distribution deliveries increased earnings $0.01 per share primarily due to higher weather-related and industrial usage. Total deliveries increased 418,000 megawatt-hours (MWH), or 1.2%. Sales to residential customers increased 60,000 MWH, or 0.5%, and sales to commercial customers increased 173,000 MWH, or 1.7%. Heating-degree-days were 7% above the same period last year and 7% above normal. Sales to industrial customers increased 185,000 MWH, or 1.4%, primarily due to higher usage in the shale gas, steel, and chemical sectors.
Regulated Commodity Margin - Higher commodity margin at Monongahela Power Company (MP) increased earnings $0.01 per share, primarily due to higher industrial usage in West Virginia.
Net Operating and Miscellaneous Expenses - Higher expenses decreased earnings $0.01 per share, primarily due to higher vegetation management costs in Pennsylvania and higher employee-related costs, partially offset by lower pension and other postemployment benefit (OPEB) costs.
Depreciation - Higher depreciation expense decreased earnings $0.02 per share, primarily due to a higher asset base.


_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 4th Quarter 2018                    5



Net Financing Costs - Lower net financing costs increased earnings $0.01 per share, primarily reflecting lower interest expense as a result of various debt maturities and refinancings at lower rates.
Special Items - In the fourth quarter of 2018 and 2017, Regulated Distribution special items totaled $0.24 per share and $0.13 per share, respectively, as summarized in the following table. Descriptions of special items can be found on page 31.
 
 
 
 
 
 
Regulated Distribution Special Items - 4Q 2018
 
EPS
 
 
Impact of full dilution to 538M shares
 
$
(0.01
)
 
 
Mark-to-market adjustments - Pension/OPEB actuarial assumptions
 
0.15

 
 
Regulatory charges
 
0.01

 
 
Debt redemption costs
 
0.01

 
 
Tax reform
 
0.02

 
 
Exit of competitive generation
 
0.06

 
 
 
 
$
0.24

 
 
 
 
 
 
 
Regulated Distribution Special Items - 4Q 2017
 
EPS
 
 
Impact of full dilution to 538M shares
 
$
(0.05
)
 
 
Mark-to-market adjustments - Pension/OPEB actuarial assumptions
 
0.11

 
 
Regulatory charges
 
0.01

 
 
Tax reform
 
0.06

 
 
 
 
$
0.13

 
 
 
 
 
 


_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 4th Quarter 2018                    6



Regulated Transmission
Regulated Transmission - GAAP earnings for the fourth quarter of 2018 were $95 million, or $0.19 per basic share, compared with fourth quarter 2017 GAAP earnings of $72 million, or $0.16 per basic share. Excluding special items, Operating (non-GAAP) earnings for the fourth quarter of 2018 and 2017 were $0.18 per share.
 
 
 
 
 
 
 
 
EPS Variance Analysis
 
 
 
 
 
(In millions, except per share amounts)
 
 
 
 
 
4Q 2017 Net Income attributable to Common Stockholders (GAAP)
 
$72
 
 
 
 
 
 
 
 
 
4Q 2017 Basic Earnings Per Share (avg. shares outstanding 445M)
 
$0.16
 
 
 
Special Items - 2017*
 
0.02
 
 
 
4Q 2017 Operating Earnings Per Share - Non-GAAP (538M fully diluted shares)
 
$0.18
 
 
 
Transmission Margin
 
0.02
 
 
 
Net Operating and Miscellaneous Expenses
 
(0.02)
 
For the year ended December 31, 2018, GAAP earnings were $397 million, or $0.81 per basic share compared with $336 million, or $0.76 per basic share, for the same period of 2017. Excluding special items, Operating (non-GAAP) earnings were $0.74 per share for the year ended December 31, 2018, compared to $0.68 per share for the same period of 2017.
 
 
4Q 2018 Operating Earnings Per Share - Non-GAAP (538M fully diluted shares)
 
$0.18
 
 
 
Special Items - 2018*
 
0.01
 
 
 
4Q 2018 Basic Earnings Per Share (avg. shares outstanding 512M)
 
$0.19
 
 
 
 
 
 
 
 
 
4Q 2018 Net Income attributable to Common Stockholders (GAAP)
 
$95
 
 
 
*See pages 20-31 for additional details on Special Items.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4Q 2018 vs 4Q 2017 Earnings Drivers
Transmission Margin - Higher transmission margin increased earnings $0.02 per share, primarily due to higher rate base at Mid-Atlantic Interstate Transmission, LLC (MAIT) and American Transmission Systems, Incorporated (ATSI).
Net Operating and Miscellaneous Expenses - Higher operating expenses at the stated rate transmission companies decreased earnings $0.02 per share.
Special Items - In the fourth quarter of 2018 and 2017, Regulated Transmission special items were $(0.01) per share and $0.02 per share, respectively, as summarized in the following table. Descriptions of special items can be found on page 31.
 
 
 
 
 
 
Regulated Transmission Special Items - 4Q 2018
 
EPS
 
 
Impact of full dilution to 538M shares
 
$
(0.01
)
 
 
 
 
$
(0.01
)
 
 
 
 
 
 
 
Regulated Transmission Special Items - 4Q 2017
 
EPS
 
 
Impact of full dilution to 538M shares
 
$
(0.02
)
 
 
Regulatory charges
 
0.03

 
 
Tax reform
 
0.01

 
 
 
 
$
0.02

 
 
 
 
 
 


_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 4th Quarter 2018                    7



Corporate / Other
Corporate / Other - GAAP losses for the fourth quarter of 2018 were $(94) million, or $(0.18) per basic share, compared with fourth quarter 2017 GAAP losses of $(2,731) million, or $(6.13) per basic share. Operating (non-GAAP) losses, excluding special items, were ($0.16) per share for the fourth quarter of 2018 compared with ($0.08) per share for the fourth quarter of 2017.
 
 
 
 
 
 
 
 
EPS Variance Analysis
 
 
 
 
 
(In millions, except per share amounts)
 
 
 
 
 
4Q 2017 Net Loss attributable to Common Stockholders (GAAP)
 
$(2,731)
 
 
 
 
 
 
 
 
 
4Q 2017 Basic Loss Per Share (avg. shares outstanding 445M)
 
$(6.13)
 
 
 
Special Items - 2017*
 
6.05
 
 
 
4Q 2017 Operating Loss Per Share - Non-GAAP (538M fully diluted shares)
 
$(0.08)
 
 
 
Net Operating and Miscellaneous Expenses
 
0.02
 
 
 
Effective Tax Rate
 
(0.10)
 
 
 
4Q 2018 Operating Loss Per Share - Non-GAAP (538M fully diluted shares)
 
$(0.16)
 
For the year ended December 31, 2018, GAAP losses were $(658) million, or $(1.35) per basic share, compared with $(2,976) million, or $(6.70) per basic share, for the same period of 2017. Excluding special items, Operating (non-GAAP) losses were $(0.56) per share for the year ended December 31, 2018, compared to $(0.42) per share for the same period of 2017.
 
 
Special Items - 2018*
 
(0.02)
 
 
 
4Q 2018 Basic Loss Per Share (avg. shares outstanding 512M)
 
$(0.18)
 
 
 
 
 
 
 
 
 
4Q 2018 Net Loss attributable to Common Stockholders (GAAP)
 
$(94)
 
 
 
*See pages 20-31 for additional details on Special Items.
 
 
 
 
 
 
 
4Q 2018 vs 4Q 2017 Earnings Drivers
As discussed above, the operating results of FES and FENOC, as well as BSPC and the majority of AE Supply that are subject to completed or pending asset sales and transfers, are reported in discontinued operations and excluded from operating earnings as a special item.
Net Operating and Miscellaneous Expenses - Lower expenses increased results $0.02 per share.
Effective Tax Rate - The impact of higher income taxes and estimated non-deductible portion of interest expense due to the Tax Cuts & Jobs Act, decreased results $0.10 per share.
Special Items - In the fourth quarter of 2018 and 2017, Corporate / Other special items totaled $0.02 per share and $6.05 per share, respectively, as summarized in the following table. Descriptions of special items can be found on page 31.
 
 
 
 
 
 
Corporate / Other Special Items - 4Q 2018
 
EPS
 
 
Impact of full dilution to 538M shares
 
$
0.02

 
 
Mark-to-market adjustments - Pension/OPEB actuarial assumptions
 
0.04

 
 
Exit of competitive generation
 
(0.04
)
 
 
 
 
$
0.02

 
 
 
 
 
 
 
Corporate / Other Special Items - 4Q 2017
 
EPS
 
 
Impact of full dilution to 538M shares
 
$
1.04

 
 
Tax reform
 
0.18

 
 
Exit of competitive generation
 
4.83

 
 
 
 
$
6.05

 
 
 
 
 
 



_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 4th Quarter 2018                    8



For additional information, please contact:
Irene M. Prezelj
 
Gina E. Caskey
 
Jake M. Mackin
Vice President, Investor Relations
 
Senior Advisor, Investor Relations
 
Consultant, Investor Relations
(330) 384-3859
 
(330) 761-4185
 
(330) 384-4829

_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 4th Quarter 2018                    9



FirstEnergy Corp. Consolidated Statements of Income (Loss) (GAAP)
(In millions, except per share amounts)
 
 
 
 
 
Three Months Ended December 31,
 
Year Ended
December 31,
 
 
 
 
 
 
2018
 
2017
 
Change
 
2018
 
2017
 
Change
 
 
 
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1
)
 
Distribution services and retail generation
 
$
2,130

 
$
2,127

 
$
3

 
$
8,937

 
$
8,685

 
$
252

 
 
(2
)
 
Transmission
 
339

 
339

 

 
1,335

 
1,307

 
28

 
 
(3
)
 
Other
 
241

 
215

 
26

 
989

 
936

 
53

 
 
(4
)
Total Revenues
 
2,710

 
2,681

 
29

 
11,261

 
10,928

 
333

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(5
)
 
Fuel
 
134

 
101

 
33

 
538

 
497

 
41

 
 
(6
)
 
Purchased power
 
716

 
711

 
5

 
3,109

 
2,926

 
183

 
 
(7
)
 
Other operating expenses
 
770

 
803

 
(33
)
 
3,133

 
2,761

 
372

 
 
(8
)
 
Provision for depreciation
 
293

 
262

 
31

 
1,136

 
1,027

 
109

 
 
(9
)
 
Amortization (deferral) of regulatory assets, net
 
38

 
34

 
4

 
(150
)
 
308

 
(458
)
 
 
(10
)
 
General taxes
 
247

 
237

 
10

 
993

 
940

 
53

 
 
(11
)
 
Impairment of assets
 

 
28

 
(28
)
 

 
41

 
(41
)
 
 
(12
)
Total Operating Expenses
 
2,198

 
2,176

 
22

 
8,759

 
8,500

 
259

 
 
(13
)
Operating Income
 
512

 
505

 
7

 
2,502

 
2,428

 
74

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other Income (Expense)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(14
)
 
Miscellaneous income, net
 
41

 
9

 
32

 
205

 
53

 
152

 
 
(15
)
 
Pension and OPEB mark-to-market adjustment
 
(144
)
 
(102
)
 
(42
)
 
(144
)
 
(102
)
 
(42
)
 
 
(16
)
 
Interest expense
 
(258
)
 
(254
)
 
(4
)
 
(1,116
)
 
(1,005
)
 
(111
)
 
 
(17
)
 
Capitalized financing costs
 
18

 
13

 
5

 
65

 
52

 
13

 
 
(18
)
Total Other Expense
 
(343
)
 
(334
)
 
(9
)
 
(990
)
 
(1,002
)
 
12

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(19
)
Income Before Income Taxes
 
169

 
171

 
(2
)
 
1,512

 
1,426

 
86

 
 
(20
)
 
Income taxes
 
(13
)
 
1,232

 
(1,245
)
 
490

 
1,715

 
(1,225
)
 
 
(21
)
Income From Continuing Operations
 
182

 
(1,061
)
 
1,243

 
1,022

 
(289
)
 
1,311

 
 
(22
)
 
Discontinued operations (net of income taxes)
 
(44
)
 
(1,438
)
 
1,394

 
326

 
(1,435
)
 
1,761

 
 
(23
)
Net Income (Loss)
 
$
138

 
$
(2,499
)
 
$
2,637

 
$
1,348

 
$
(1,724
)
 
$
3,072

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(24
)
Income Allocated to Preferred Stockholders
 
10

 

 
10

 
367

 

 
367

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(25
)
Net Income (Loss) Attributable to Common Stockholders
 
$
128

 
$
(2,499
)
 
$
2,627

 
$
981

 
$
(1,724
)
 
$
2,705

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Earnings (Loss) Per Share of Common Stock:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(26
)
 
Basic - Continuing Operations
 
$
0.34

 
$
(2.39
)
 
$
2.73

 
$
1.33

 
$
(0.65
)
 
$
1.98

 
 
(27
)
 
Basic - Discontinued Operations
 
(0.09
)
 
(3.23
)
 
3.14

 
0.66

 
(3.23
)
 
3.89

 
 
(28
)
 
Basic - Net Income (Loss) Attributable to Common Stockholders
 
$
0.25

 
$
(5.62
)
 
$
5.87

 
$
1.99

 
$
(3.88
)
 
$
5.87

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(29
)
 
Diluted - Continuing Operations
 
$
0.34

 
$
(2.39
)
 
$
2.73

 
$
1.33

 
$
(0.65
)
 
$
1.98

 
 
(30
)
 
Diluted - Discontinued Operations
 
(0.09
)
 
(3.23
)
 
3.14

 
0.66

 
(3.23
)
 
3.89

 
 
(31
)
 
Diluted - Net Income (Loss) Attributable to Common Stockholders
 
$
0.25

 
$
(5.62
)
 
$
5.87

 
$
1.99

 
$
(3.88
)
 
$
5.87

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Weighted Average Number of Common
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Shares Outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(32
)
 
Basic
 
512

 
445

 
67

 
492

 
444

 
48

 
 
(33
)
 
Diluted
 
514

 
445

 
69

 
494

 
444

 
50

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 4th Quarter 2018                    10



FirstEnergy Corp.
Statements of Income (Loss) - By Segment (GAAP)
(In millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Regulated
 
Regulated
 
Corporate /
 
FirstEnergy
 
 
 
 
Distribution (a)
 
Transmission (b)
 
Other (c)
 
Consolidated
 
 
Revenues
 
 
 
 
 
 
 
 
(1
)
 
Electric sales
$
2,354

 
$
339

 
$
(29
)
 
$
2,664

 
(2
)
 
Other
55

 
4

 
(13
)
 
46

 
(3
)
Total Revenues
2,409

 
343

 
(42
)
 
2,710

 
 
 
 
 
 
 
 
 
 
 
 
Operating Expenses
 
 
 
 
 
 
 
 
(4
)
 
Fuel
134

 

 

 
134

 
(5
)
 
Purchased power
712

 

 
4

 
716

 
(6
)
 
Other operating expenses
757

 
71

 
(58
)
 
770

 
(7
)
 
Provision for depreciation
214

 
65

 
14

 
293

 
(8
)
 
Amortization of regulatory assets, net
31

 
7

 

 
38

 
(9
)
 
General taxes
184

 
48

 
15

 
247

 
(10
)
 
Impairment of assets

 

 

 

 
(11
)
Total Operating Expenses
2,032

 
191

 
(25
)
 
2,198

 
(12
)
Operating Income (Loss)
377

 
152

 
(17
)
 
512

 
 
 
 
 
 
 
 
 
 
 
 
Other Income (Expense)
 
 
 
 
 
 
 
 
(13
)
 
Miscellaneous income (expense), net
46

 
3

 
(8
)
 
41

 
(14
)
 
Pension and OPEB mark-to-market adjustment
(109
)
 
(8
)
 
(27
)
 
(144
)
 
(15
)
 
Interest expense
(130
)
 
(43
)
 
(85
)
 
(258
)
 
(16
)
 
Capitalized financing costs
8

 
9

 
1

 
18

 
(17
)
Total Other Expense
(185
)
 
(39
)
 
(119
)
 
(343
)
 
 
 
 
 
 
 
 
 
 
 
 
(18
)
Income (Loss) Before Income Taxes (Benefits)
192

 
113

 
(136
)
 
169

 
(19
)
 
Income taxes (benefits)
65

 
18

 
(96
)
 
(13
)
 
(20
)
Income (Loss) From Continuing Operations
127

 
95

 
(40
)
 
182

 
(21
)
 
Discontinued operations (net of income taxes)

 

 
(44
)
 
(44
)
 
(22
)
Net Income (Loss)
$
127

 
$
95

 
$
(84
)
 
$
138

 
 
 
 
 
 
 
 
 
 
 
(23
)
Income Allocated to Preferred Stockholders

 

 
10

 
10

 
 
 
 
 
 
 
 
 
 
 
 
(24
)
Net Income (Loss) Attributable to Common Stockholders
$
127

 
$
95

 
$
(94
)
 
$
128

 
 
 
 
(a)

Revenues are primarily derived from the delivery of electricity within FE's service areas, cost recovery of regulatory assets and the sale of electric generation service to retail customers who have not selected an alternative supplier (POLR or default service). Its results reflect the costs of securing and delivering electric generation from transmission facilities to customers, including the deferral and amortization of certain related costs.
 
(b)

Revenues are primarily derived from rates that recover costs and provide a return on transmission capital investment. Except for the recovery of the PATH abandoned project regulatory asset, these revenues are primarily for transmission services provided pursuant to the PJM Tariff to Load Serving Entities (LSEs). The segment's results also reflect the net transmission expenses related to the delivery of electricity on FE's transmission facilities.
 
(c)

Contains corporate support not charged to FE's subsidiaries, interest expense on FE's holding company debt, other businesses that do not constitute an operating segment, reconciling adjustments for the elimination of inter-segment transactions, and discontinued operations.
 

_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 4th Quarter 2018                    11



FirstEnergy Corp.
Statements of Income (Loss) - By Segment (GAAP)
(In millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Regulated
 
Regulated
 
Corporate /
 
FirstEnergy
 
 
 
 
 
Distribution (a)
 
Transmission (b)
 
Other (c)
 
Consolidated
 
 
 
Revenues
 
 
 
 
 
 
 
 
 
(1
)
 
Electric sales
$
2,328

 
$
339

 
$
(17
)
 
$
2,650

 
 
(2
)
 
Other
52

 
4

 
(25
)
 
31

 
 
(3
)
Total Revenues
2,380

 
343

 
(42
)
 
2,681

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Expenses
 
 
 
 
 
 
 
 
 
(4
)
 
Fuel
105

 

 
(4
)
 
101

 
 
(5
)
 
Purchased power
712

 

 
(1
)
 
711

 
 
(6
)
 
Other operating expenses
657

 
53

 
93

 
803

 
 
(7
)
 
Provision for depreciation
184

 
60

 
18

 
262

 
 
(8
)
 
Amortization of regulatory assets, net
29

 
5

 

 
34

 
 
(9
)
 
General taxes
181

 
43

 
13

 
237

 
 
(10
)
 
Impairment of assets

 
28

 

 
28

 
 
(11
)
Total Operating Expenses
1,868

 
189

 
119

 
2,176

 
 
(12
)
Operating Income (Loss)
512

 
154

 
(161
)
 
505

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other Income (Expense)
 
 
 
 
 
 
 
 
 
(13
)
 
Miscellaneous income (expense), net
12

 

 
(3
)
 
9

 
 
(14
)
 
Pension and OPEB mark-to-market adjustment
(102
)
 

 

 
(102
)
 
 
(15
)
 
Interest expense
(130
)
 
(40
)
 
(84
)
 
(254
)
 
 
(16
)
 
Capitalized financing costs
6

 
9

 
(2
)
 
13

 
 
(17
)
Total Other Expense
(214
)
 
(31
)
 
(89
)
 
(334
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(18
)
Income (Loss) Before Income Taxes (Benefits)
298

 
123

 
(250
)
 
171

 
 
(19
)
 
Income taxes (benefits)
138

 
51

 
1,043

 
1,232

 
 
(20
)
Income (Loss) From Continuing Operations
160

 
72

 
(1,293
)
 
(1,061
)
 
 
(21
)
 
Discontinued operations (net of income taxes)

 

 
(1,438
)
 
(1,438
)
 
 
(22
)
Net Income (Loss)
$
160

 
$
72

 
$
(2,731
)
 
$
(2,499
)
 
 
 
 
 
 
 
 
 
 
 
 
 
(23
)
Income Allocated to Preferred Stockholders

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
(24
)
Net Income (Loss) Attributable to Common Stockholders
$
160

 
$
72

 
$
(2,731
)
 
$
(2,499
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a)

Revenues are primarily derived from the delivery of electricity within FE's service areas, cost recovery of regulatory assets and the sale of electric generation service to retail customers who have not selected an alternative supplier (POLR or default service). Its results reflect the costs of securing and delivering electric generation from transmission facilities to customers, including the deferral and amortization of certain related costs.
 
 
(b)

Revenues are primarily derived from rates that recover costs and provide a return on transmission capital investment. Except for the recovery of the PATH abandoned project regulato