The monthly checks from more than 4 million utility customers
keep coming in at FirstEnergy Corp.
And despite some analysts' concerns about a host of problems, the
Akron-based utility said it will have operating cash flow this year
of about $800 million before paying dividends. Those concerns
include the utility's role in the historic Aug. 14 blackout,
management mistakes, a surprise earnings restatement and a troubled
nuclear power plant that has burned a$450 million-plus hole in the
corporate wallet the last 18 months.
While it initially has been fingered as the possible instigator
in the massive blackout and has lowered its earnings outlook for the
year, FirstEnergy is not in financial distress, Richard Marsh,
senior vice president and chief financial officer, said Tuesday.
``Clearly, we are under the microscope,'' he said.
The company will have a likely $500 million to $750 million
equity offering in the near future that it will use to bolster its
credit rating, he said. ``All things being equal, we would like to
do it sooner than later,'' he said.
Among those who question FirstEnergy's finances is Carol
Levenson, a bond analyst atChicago-based Gimme Credit. FirstEnergy's
second-quarter filing and earnings restatement with the Securities
and Exchange Commission showed badly deteriorated liquidity, she
Other analysts also questioned FirstEnergy's finances. In
addition, credit rating agencies Moody's and Standard & Poor's
recently placed FirstEnergy on watch for a possible downgrade of its
approximately $15 billion in debt to below investment grade.
But Marsh said it appears to him that some of the most critical
analysts have not followed the company closely and did not have a
clear idea of how the company operates. ``A lot of people drew a lot
of inferences'' from the filings, he said.
After flirting with all-time highs in June and early July,
FirstEnergy's stock subsequently took two major hits. The first came
Aug. 5, when the company surprised investors by saying it will
restate earnings going back to 2002, causing the stock price to drop
8.3 percent in a day.
The first quarter 2003 restatement lowered earnings by $22.5
million, or 8 cents per share, to $218.5 million, or 74 cents per
share. The restatement reduced earnings for all of 2002 by $76.5
million, or 26 cents per share, to $552.8 million, or $1.89 per
The company restated earnings after reviewing the transition
costs following its $4.5 billion acquisition in 2001 of the New
Jersey-based utility GPU Inc.
The restatement will result in an increase in net income of $381
million from 2006 to 2017, the company said. FirstEnergy said it
expects to earn $2.68 to $2.88 per share this year, down from its
previous estimate of $3.35 to $3.55 a share.
The second shock hit when investigators of the Aug. 14 blackout
said it appeared the massive outages that spread in the Midwest and
Northeast United States and parts of Canada started in FirstEnergy's
system in northern Ohio. Investors sold off Aug. 18, sending share
prices down 9.3 percent to $27.75, in its largest percentage drop
By Tuesday, FirstEnergy stock had regained about half of the
post-blackout plunge. Shares closed up 65 cents at $29.19.
Meanwhile, Marsh said FirstEnergy keeps generating cash.
After paying out about $400 million in dividends this year, the
company will be left with about $372 million in cash, about $100
million more than a year ago, he said. One-time items will boost
that total to about $575 million, he said. Most of that will go
toward paying down debt, he said.
``That's a cash-flow number most Fortune 500 companies would die
for,'' Marsh said. Even so, that's less than he and FirstEnergy's
other top executives had forecast earlier in the year, he said.
``We typically use all our cash to pay down long-term debt,''
Marsh said. The company typically does not carry a cash balance, he
The cash-flow numbers are not readily apparent in FirstEnergy's
required filings with the Securities and Exchange Commission,
company spokesman Ralph DiNicola said.
Problems at the Davis-Besse nuclear power plant have cost the
company more than $450 million in the last 18 months and have been a
larger-than-anticipated drag on cash and earnings, Marsh said. The
company hopes to get Davis-Besse restarted this fall, pending
approval from the Nuclear Regulatory Commission.
``That's cash that would have been used to pay down debt,'' Marsh
said. ``Those costs have impacted our cash flow and how people
perceive the company.''