FirstEnergy (FE) Q4 2010 earnings summary

Executive summary

• FY10 earnings available were $784M, or $2.58 basic EPS, vs. $1.006B and $3.31 in 2009; significant impairments and lower asset-sale gains weighed on results.

• Distribution deliveries rose 5.6% to 108.0M MWh, while generation output increased to 74.9M MWh from 65.6M MWh; economic recovery remained incomplete.

• The proposed Allegheny merger was expected to close in Q1 2011, pending Pennsylvania approval; shareholder, FERC, Virginia, West Virginia, Maryland and DOJ steps had cleared.

Financial highlights

• FY10 revenue was $13.339B vs. $12.973B in 2009; operating income was $1.805B vs. $1.879B, and net income was $760M vs. $990M.

• Earnings available were $784M vs. $1.006B; basic and diluted EPS were $2.58 and $2.57, compared with $3.31 and $3.29 in 2009.

• Operating cash flow reached a record $3.1B vs. $2.5B in 2009; cash and equivalents were $1.019B at year-end, up from $874M.

• FY10 included $384M of long-lived asset impairments and $65M of merger costs; OVEC output-interest sale gains added $53.8M to net income.

Outlook and guidance

• FY11 capital spending was forecast at $1.4B, excluding nuclear fuel; average annual baseline capex for 2012–13 was projected at $1.2B, also excluding nuclear fuel and new mandates.

• FY11 earnings tailwinds: higher FES retail sales, lower fuel expense and stronger Signal Peak margin; headwinds: loss of Met-Ed/Penelec supply revenues, higher purchased power and transmission costs, and Davis-Besse outage.

• Distribution deliveries and non-fuel, non-outage O&M, including benefits, were expected to be essentially flat in FY11; a $250M voluntary pension contribution was planned.

• Financial plan targeted significant debt reduction by end-2012, using operating cash, tax benefits and potential non-core asset-sale proceeds; bonus depreciation was expected to provide ~$500M through 2012.