FirstEnergy (FE) Q4 2006 earnings summary

Executive summary

• FY06 net income $1.254B, basic EPS $3.84 and diluted EPS $3.81, versus $861M, $2.62 and $2.61 in FY05; reported growth reflected higher generation margins, lower transition-cost amortization and regulatory deferrals.

• Q4 06 revenue was $2.680B, continuing income $274M and basic/diluted EPS $0.85; Q4 05 net income was $190M and EPS $0.58, including one-time charges.

Financial highlights

• FY06 revenue $11.501B vs $11.358B; operating income $2.606B vs $2.067B; income from continuing operations $1.258B vs $879M.

• Operating cash flow was $1.939B vs $2.220B in FY05; year-end cash and equivalents $90M vs $64M.

• FY05 one-time items included a $30M after-tax FIN 47 adoption charge, $28M Davis-Besse penalty and $9M MYR goodwill impairment; Davis-Besse and FIN 47 each reduced EPS by $0.09.

• FY06 segment results included a $10.3M pretax PPUC-related NUG accounting charge at Met-Ed; reported EPS bridge also included $0.02/share each for PPUC NUG accounting and trust-securities impairment.

Outlook and guidance

• Capital spending forecast for 2007-11 was $7.892B excluding nuclear fuel, including $1.443B in 2007; environmental compliance spending was estimated at $1.8B over 2007-11.

• 2007 pension and OPEB cost was forecast as a $94M credit, reflecting a $300M voluntary pension contribution and OPEB plan changes effective in 2008.

• 2007 generation obligations were estimated at 134.5B kWh; owned or leased capacity of 14,041 MW was expected to cover ~60% of supply needs, with contracted and market purchases covering the balance.

• Air-quality controls under the Sammis consent decree were estimated at $1.5B, with $400M expected in 2007 and most remaining spending in 2008-09.