FirstEnergy (FE) Q4 2009 earnings summary

Executive summary

• 2009 earnings available were $1.006B, or $3.31 basic EPS and $3.29 diluted, versus $1.342B and $4.41 basic EPS in 2008.

• Results reflected recession-driven demand declines, mild summer weather, lower wholesale power prices, higher purchased-power costs and selected one-time charges; OVEC asset-sale proceeds and favorable tax settlements partly offset pressure.

Financial highlights

• Revenue was $12.967B versus $13.627B; operating income was $1.879B versus $2.759B, and net income was $990M versus $1.339B.

• Operating cash flow rose to $2.465B from $2.224B; cash and equivalents ended 2009 at $874M versus $545M.

• Adjusted for the $205M pretax purchased-power mark-to-market charge ($129M after tax), earnings were also affected by a $159M after-tax gain from the OVEC sale and $200M of favorable tax settlements.

Outlook and guidance

• 2010 distribution deliveries were projected at 110M MWh versus 102M MWh in 2009; anticipated drivers included stronger retail margins, a full year of Ohio rate increases and cost savings.

• 2010 capital spending was forecast at $1.65B, including $241M for Sammis air-quality controls; 2011-2012 spending was projected at $1.0B-$1.2B annually.

• Financial strategy targeted at least $500M of debt reduction in 2010, with capital requirements primarily funded from operating cash flow.

• 2011 earnings drivers included market pricing of generation after Met-Ed and Penelec contracts expire; headwinds included higher nuclear fuel and coal costs, depreciation, taxes and lower capitalized interest.