10-Q 1 fe-06302015x10q.htm 10-Q FE- 06.30.2015-10Q


 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2015

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________________ to ___________________
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
 
 
 
 
 
 
 
000-53742
 
FIRSTENERGY SOLUTIONS CORP.
 
31-1560186
 
 
(An Ohio Corporation)
 
 
 
 
c/o FirstEnergy Corp.
 
 
 
 
76 South Main Street
 
 
 
 
Akron, OH 44308
 
 
 
 
Telephone (800)736-3402
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o
 
FirstEnergy Corp. and FirstEnergy Solutions Corp.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes þ No o
 
FirstEnergy Corp. and FirstEnergy Solutions Corp.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer þ
FirstEnergy Corp.
 
 
Accelerated Filer o
N/A
 
 
Non-accelerated Filer (Do not check
if a smaller reporting company)
þ
FirstEnergy Solutions Corp.
 
 
Smaller Reporting Company o
N/A
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
 
FirstEnergy Corp. and FirstEnergy Solutions Corp.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
 
 
OUTSTANDING
CLASS
 
AS OF JUNE 30, 2015
FirstEnergy Corp., $0.10 par value
 
422,453,361

FirstEnergy Solutions Corp., no par value
 
7

FirstEnergy Corp. is the sole holder of FirstEnergy Solutions Corp. common stock.
This combined Form 10-Q is separately filed by FirstEnergy Corp. and FirstEnergy Solutions Corp. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. No registrant makes any representation as to information relating to the other registrant, except that information relating to FirstEnergy Solutions Corp. is also attributed to FirstEnergy Corp.
FirstEnergy Web Site and Other Social Media Sites and Applications

Each of the registrants’ Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed with or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are also made available free of charge on or through the "Investors" page of FirstEnergy’s Internet web site at www.firstenergycorp.com.

These SEC filings are posted on the web site as soon as reasonably practicable after they are electronically filed with the SEC. Additionally, the registrants routinely post additional important information including press releases, investor presentations and notices of upcoming events, under the "Investors" section of FirstEnergy’s Internet web site and recognize FirstEnergy’s Internet web site as a channel of distribution to reach public investors and as a means of disclosing material non-public information for complying with disclosure obligations under SEC Regulation FD. Investors may be notified of postings to the web site by signing up for email alerts and RSS feeds on the "Investors" page of FirstEnergy's Internet web site or through push alerts from FirstEnergy Investor Relations apps for Apple Inc.'s iPad® and iPhone® devices, which can be installed for free at the Apple® online store. FirstEnergy also uses Twitter® and Facebook® as additional channels of distribution to reach public investors and as a supplemental means of disclosing material non-public information for complying with its disclosure obligations under SEC Regulation FD. Information contained on FirstEnergy’s Internet web site or its Twitter® or Facebook® site, and any corresponding applications of those sites, shall not be deemed incorporated into, or to be part of, this report.
OMISSION OF CERTAIN INFORMATION
FirstEnergy Solutions Corp. meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format specified in General Instruction H(2) to Form 10-Q.
 





Forward-Looking Statements: This Form 10-Q includes forward-looking statements based on information currently available to management. Such statements are subject to certain risks and uncertainties. These statements include declarations regarding management's intents, beliefs and current expectations. These statements typically contain, but are not limited to, the terms “anticipate,” “potential,” “expect,” "forecast," "target," "will," "intend," “believe,” "project," “estimate" 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 speed and nature of increased competition in the electric utility industry, in general, and the retail sales market in particular.
The ability to experience growth in the Regulated Distribution and Regulated Transmission segments and to successfully implement our revised sales strategy for the CES segment.
The accomplishment of our regulatory and operational goals in connection with our transmission investment plan, including but not limited to, our pending transmission rate case, the proposed transmission asset transfer, and the effectiveness of our repositioning strategy to reflect a more regulated business profile.
Changes in assumptions regarding economic conditions within our territories, assessment of the reliability of our transmission system, or the availability of capital or other resources supporting identified transmission investment opportunities.
The impact of the regulatory process on the pending matters at the federal level and in the various states in which we do business including, but not limited to, matters related to rates and the ESP IV in Ohio.
The impact of the federal regulatory process on FERC-regulated entities and transactions, in particular FERC regulation of wholesale energy and capacity markets, including PJM markets and FERC-jurisdictional wholesale transactions; FERC regulation of cost-of-service rates, including FERC Opinion No. 531's revised ROE methodology for FERC-jurisdictional wholesale generation and transmission utility service; and FERC’s compliance and enforcement activity, including compliance and enforcement activity related to NERC’s mandatory reliability standards.
The uncertainties of various cost recovery and cost allocation issues resulting from ATSI's realignment into PJM.
Economic or weather conditions affecting future sales and margins such as a polar vortex or other significant weather events, and all associated regulatory events or actions.
Changing energy, capacity and commodity market prices including, but not limited to, coal, natural gas and oil, and their availability and impact on margins and asset valuations.
The continued ability of our regulated utilities to recover their costs.
Costs being higher than anticipated and the success of our policies to control costs and to mitigate low energy, capacity and market prices.
Other legislative and regulatory changes, and revised environmental requirements, including, but not limited to, proposed GHG emission and water discharge regulations and the effects of the EPA's CCR regulations, CSAPR, MATS, including our estimated costs of compliance, and CWA 316(b) water intake regulation.
The uncertainty of the timing and amounts of the capital expenditures that may arise in connection with any litigation, including NSR litigation, or potential regulatory initiatives or rulemakings (including that such initiatives or rulemakings could result in our decision to deactivate or idle certain generating units).
The uncertainties associated with the deactivation of certain older regulated and competitive fossil units, including the impact on vendor commitments, and the timing thereof as they relate to the reliability of the transmission grid.
The impact of other future changes to the operational status or availability of our generating units and any capacity penalties associated with outages at a given unit.
Adverse regulatory or legal decisions and outcomes with respect to our nuclear operations (including, but not limited to the revocation or non-renewal of necessary licenses, approvals or operating permits by the NRC or as a result of the incident at Japan's Fukushima Daiichi Nuclear Plant).
Issues arising from the indications of cracking in the shield building at Davis-Besse.
The risks and uncertainties associated with litigation, arbitration, mediation and like proceedings, including, but not limited to, any such proceedings related to vendor commitments.
The impact of labor disruptions by our unionized workforce.
Replacement power costs being higher than anticipated or not fully hedged.
The ability to comply with applicable state and federal reliability standards and energy efficiency and peak demand reduction mandates.
Changes in customers' demand for power, including, but not limited to, changes resulting from the implementation of state and federal energy efficiency and peak demand reduction mandates.
The ability to accomplish or realize anticipated benefits from strategic and financial goals, including, but not limited to, the ability to continue to reduce costs and to successfully execute our financial plans designed to improve our credit metrics and strengthen our balance sheet through, among other actions, our previously-implemented dividend reduction, our cash flow improvement plan and our other proposed capital raising initiatives.
Our ability to improve electric commodity margins and the impact of, among other factors, the increased cost of fuel and fuel transportation on such margins.
Changing market conditions that could affect the measurement of certain liabilities and the value of assets held in our NDTs, pension trusts and other trust funds, and cause us and/or our subsidiaries to make additional contributions sooner, or in amounts that are larger than currently anticipated.
The impact of changes to material accounting policies.




The ability to access the public securities and other capital and credit markets in accordance with our announced financial plans, the cost of such capital and overall condition of the capital and credit markets affecting us and our subsidiaries.
Actions that may be taken by credit rating agencies that could negatively affect us and/or our subsidiaries' access to financing, increase the costs thereof, and increase requirements to post additional collateral to support outstanding commodity positions, LOCs and other financial guarantees.
Changes in national and regional economic conditions affecting us, our subsidiaries and/or our major industrial and commercial customers, and other counterparties with which we do business, including fuel suppliers.
The impact of any changes in tax laws or regulations or adverse tax audit results or rulings.
Issues concerning the stability of domestic and foreign financial institutions and counterparties with which we do business.
The risks associated with cyber-attacks on our electronic data centers that could compromise the information stored on our networks, including proprietary information and customer data.
The risks and other factors discussed from time to time in our SEC filings, and other similar factors.

Dividends declared from time to time on FE's common stock during any period may in the aggregate vary from prior periods due to circumstances considered by FE'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.

The foregoing review of factors 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 FirstEnergy's 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. The registrants expressly disclaim any current intention to update, except as required by law, any forward-looking statements contained herein as a result of new information, future events or otherwise.




TABLE OF CONTENTS
 
Page
 
 
Part I. Financial Information
 
 
 
 
 
Item 1. Financial Statements
 
 
 
 
 
 
 
Consolidated Statements of Operations and Comprehensive Loss
 
 
 
 
Item 2. Management's Discussion and Analysis of Registrant and Subsidiaries
FirstEnergy Corp. Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
Management's Narrative Analysis of Results of Operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 3. Defaults Upon Senior Securities
 
 
Item 4. Mine Safety Disclosures
 
 
Item 5. Other Information
 
 


i



GLOSSARY OF TERMS
The following abbreviations and acronyms are used in this report to identify FirstEnergy Corp. and its current and former subsidiaries:

AE
Allegheny Energy, Inc., a Maryland utility holding company that merged with a subsidiary of FirstEnergy on February 25, 2011. As of January 1, 2014, AE merged with and into FirstEnergy Corp.
AESC
Allegheny Energy Service Corporation, a subsidiary of FirstEnergy Corp.
AE Supply
Allegheny Energy Supply Company, LLC, an unregulated generation subsidiary
AGC
Allegheny Generating Company, a generation subsidiary of AE Supply and equity method investee of MP.
ATSI
American Transmission Systems, Incorporated, formerly a direct subsidiary of FE that became a subsidiary of FET in April 2012, which owns and operates transmission facilities.
CEI
The Cleveland Electric Illuminating Company, an Ohio electric utility operating subsidiary
CES
Competitive Energy Services, a reportable operating segment of FirstEnergy
FE
FirstEnergy Corp., a public utility holding company
FELHC
FirstEnergy License Holding Company, Inc.
FENOC
FirstEnergy Nuclear Operating Company, which operates nuclear generating facilities
FES
FirstEnergy Solutions Corp., which provides energy-related products and services
FESC
FirstEnergy Service Company, which provides legal, financial and other corporate support services
FET
FirstEnergy Transmission, LLC, formerly known as Allegheny Energy Transmission, LLC which is the parent of ATSI, TrAIL and MAIT, and has a joint venture in PATH.
FEV
FirstEnergy Ventures Corp., which invests in certain unregulated enterprises and business ventures
FG
FirstEnergy Generation, LLC, a wholly owned subsidiary of FES, which owns and operates non-nuclear generating facilities
FirstEnergy
FirstEnergy Corp., together with its consolidated subsidiaries
Global Holding
Global Mining Holding Company, LLC, a joint venture between FEV, WMB Marketing Ventures, LLC and Pinesdale LLC
Global Rail
A subsidiary of Global Holding that owns coal transportation operations near Roundup, Montana
GPU
GPU, Inc., former parent of JCP&L, ME and PN, that merged with FirstEnergy on November 7, 2001
JCP&L
Jersey Central Power & Light Company, a New Jersey electric utility operating subsidiary
MAIT
Mid-Atlantic Interstate Transmission, LLC, a subsidiary of FET, formed to own and operate transmission facilities
ME
Metropolitan Edison Company, a Pennsylvania electric utility operating subsidiary
MP
Monongahela Power Company, a West Virginia electric utility operating subsidiary
NG
FirstEnergy Nuclear Generation, LLC, a subsidiary of FES, which owns nuclear generating facilities
OE
Ohio Edison Company, an Ohio electric utility operating subsidiary
Ohio Companies
CEI, OE and TE
PATH
Potomac-Appalachian Transmission Highline, LLC, a joint venture between FE and a subsidiary of AEP
PATH-Allegheny
PATH Allegheny Transmission Company, LLC
PATH-WV
PATH West Virginia Transmission Company, LLC
PE
The Potomac Edison Company, a Maryland electric utility operating subsidiary
Penn
Pennsylvania Power Company, a Pennsylvania electric utility operating subsidiary of OE
Pennsylvania Companies
ME, PN, Penn and WP
PN
Pennsylvania Electric Company, a Pennsylvania electric utility operating subsidiary
PNBV
PNBV Capital Trust, a special purpose entity created by OE in 1996
Signal Peak
An indirect subsidiary of Global Holding that owns mining operations near Roundup, Montana
TE
The Toledo Edison Company, an Ohio electric utility operating subsidiary
TrAIL
Trans-Allegheny Interstate Line Company, a subsidiary of FET, which owns and operates transmission facilities
Utilities
OE, CEI, TE, Penn, JCP&L, ME, PN, MP, PE and WP
WP
West Penn Power Company, a Pennsylvania electric utility operating subsidiary
 
 
The following abbreviations and acronyms are used to identify frequently used terms in this report:
AEP
American Electric Power Company, Inc.
AFS
Available-for-sale
AFUDC
Allowance for Funds Used During Construction
ALJ
Administrative Law Judge
Anker WV
Anker West Virginia Mining Company, Inc.
Anker Coal
Anker Coal Group, Inc.

ii



GLOSSARY OF TERMS, Continued

AOCI
Accumulated Other Comprehensive Income
Apple®
Apple®, iPad® and iPhone® are registered trademarks of Apple Inc.
ARR
Auction Revenue Right
ASLB
Atomic Safety and Licensing Board
BGS
Basic Generation Service
BRA
PJM RPM Base Residual Auction
CAA
Clean Air Act
CCB
Coal Combustion By-Product
CCR
Coal Combustion Residuals
CDWR
California Department of Water Resources
CERCLA
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
CFR
Code of Federal Regulations
CO2
Carbon Dioxide
CONE
Cost-of-New-Entry
CSA
Coal Sales Agreement
CSAPR
Cross-State Air Pollution Rule
CTA
Consolidated Tax Adjustment
CWA
Clean Water Act
DCR
Delivery Capital Recovery
DOE
United States Department of Energy
DR
Demand Response
DSP
Default Service Plan
EDC
Electric Distribution Company
EE&C
Energy Efficiency and Conservation
EGS
Electric Generation Supplier
ELPC
Environmental Law & Policy Center
EmPOWER Maryland
EmPower Maryland Energy Efficiency Act
ENEC
Expanded Net Energy Cost
EPA
United States Environmental Protection Agency
ERO
Electric Reliability Organization
ESP
Electric Security Plan
Facebook®
Facebook is a registered trademark of Facebook, Inc.
FASB
Financial Accounting Standards Board
FERC
Federal Energy Regulatory Commission
Fitch
Fitch Ratings
FMB
First Mortgage Bond
FPA
Federal Power Act
FTR
Financial Transmission Right
GAAP
Accounting Principles Generally Accepted in the United States of America
GHG
Greenhouse Gases
GWH
Gigawatt-hour
HCL
Hydrochloric Acid
ICE
IntercontinentalExchange, Inc.
ICG
International Coal Group Inc.
IRS
Internal Revenue Service
ISO
Independent System Operator
kV
Kilovolt
KWH
Kilowatt-hour
LBR
Little Blue Run
LMP
Locational Marginal Price
LOC
Letter of Credit

iii



GLOSSARY OF TERMS, Continued

LSE
Load Serving Entity
MATS
Mercury and Air Toxics Standards
MDPSC
Maryland Public Service Commission
MISO
Midcontinent Independent System Operator, Inc.
MLP
Master Limited Partnership
mmBTU
One Million British Thermal Units
Moody’s
Moody’s Investors Service, Inc.
MVP
Multi-Value Project
MW
Megawatt
MWH
Megawatt-hour
NDT
Nuclear Decommissioning Trust
NERC
North American Electric Reliability Corporation
NGO
Non-Governmental Organization
Ninth Circuit
United States Court of Appeals for the Ninth Circuit
NJBPU
New Jersey Board of Public Utilities
NMB
Non-Market Based
NOV
Notice of Violation
NOx
Nitrogen Oxide
NPDES
National Pollutant Discharge Elimination System
NRC
Nuclear Regulatory Commission
NRG
NRG Energy, Inc.
NSR
New Source Review
NUG
Non-Utility Generation
NYISO
New York Independent System Operator, Inc.
NYPSC
New York State Public Service Commission
OCC
Ohio Consumers' Counsel
OEPA
Ohio Environmental Protection Agency
OPEB
Other Post-Employment Benefits
OTTI
Other Than Temporary Impairments
OVEC
Ohio Valley Electric Corporation
PA DEP
Pennsylvania Department of Environmental Protection
PCRB
Pollution Control Revenue Bond
PJM
PJM Interconnection, L.L.C.
PJM Region
The aggregate of the zones within PJM
PJM Tariff
PJM Open Access Transmission Tariff
PM
Particulate Matter
POLR
Provider of Last Resort
PPUC
Pennsylvania Public Utility Commission
PSA
Power Supply Agreement
PSD
Prevention of Significant Deterioration
PUCO
Public Utilities Commission of Ohio
PURPA
Public Utility Regulatory Policies Act of 1978
RCRA
Resource Conservation and Recovery Act
REC
Renewable Energy Credit
REIT
Real Estate Investment Trust
RFC
ReliabilityFirst Corporation
RFP
Request for Proposal
RGGI
Regional Greenhouse Gas Initiative
ROE
Return on Equity
RPM
Reliability Pricing Model
RSS
Rich Site Summary

iv



GLOSSARY OF TERMS, Continued

RTEP
Regional Transmission Expansion Plan
RTO
Regional Transmission Organization
S&P
Standard & Poor’s Ratings Service
SAIDI
System Average Interruption Duration Index
SAIFI
System Average Interruption Frequency Index
SB221
Amended Substitute Senate Bill No. 221
SB310
Substitute Senate Bill No. 310
SBC
Societal Benefits Charge
SEC
United States Securities and Exchange Commission
SEC Regulation FD
SEC Regulation Fair Disclosure
SERTP
Southeastern Regional Transmission Planning
Seventh Circuit
United States Court of Appeals for the Seventh Circuit
SIP
State Implementation Plan(s) Under the Clean Air Act
SO2
Sulfur Dioxide
SOS
Standard Offer Service
SPE
Special Purpose Entity
SREC
Solar Renewable Energy Credit
SSO
Standard Service Offer
TDS
Total Dissolved Solid
Third Circuit
United States Court of Appeals for the Third Circuit
TMI-2
Three Mile Island Unit 2
TSC
Transmission Service Charge
Twitter®
Twitter is a registered trademark of Twitter, Inc.
U.S. Court of Appeals for the D.C. Circuit
United States Court of Appeals for the District of Columbia Circuit
VIE
Variable Interest Entity
VRR
Variable Resource Requirement
VSCC
Virginia State Corporation Commission
WVDEP
West Virginia Department of Environmental Protection
WVPSC
Public Service Commission of West Virginia
 

v



PART I. FINANCIAL INFORMATION

ITEM I.         Financial Statements

FIRSTENERGY CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

 

Three Months Ended June 30,
 
Six Months Ended June 30,
 
(In millions, except per share amounts)
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
 
 
 
REVENUES:
 
 
 
 
 
 
 
 
 
Electric utilities
 
$
2,508

 
$
2,256

 
$
5,308

 
$
4,988

 
Unregulated businesses
 
957

 
1,240

 
2,054

 
2,690

 
Total revenues*
 
3,465

 
3,496

 
7,362


7,678

 
 
 
 
 
 
 





 
OPERATING EXPENSES:
 
 
 
 
 





 
Fuel
 
383

 
550

 
896


1,167

 
Purchased power
 
989

 
1,083

 
2,102


2,538

 
Other operating expenses
 
916

 
1,021

 
1,973


2,203

 
Provision for depreciation
 
322

 
302

 
641


596

 
Amortization (deferral) of regulatory assets, net
 
59

 
20

 
91


(8
)
 
General taxes
 
242

 
228

 
511


499

 
Total operating expenses
 
2,911

 
3,204

 
6,214


6,995

 
 
 
 
 
 
 





 
OPERATING INCOME
 
554

 
292

 
1,148


683

 
 
 
 
 
 
 





 
OTHER INCOME (EXPENSE):
 
 
 
 
 





 
Loss on debt redemptions
 

 
(1
)
 


(8
)
 
Investment income (loss)
 
(3
)
 
29

 
14


51

 
Interest expense
 
(282
)
 
(262
)
 
(561
)

(527
)
 
Capitalized financing costs
 
33

 
32

 
67


61

 
Total other expense
 
(252
)
 
(202
)
 
(480
)

(423
)
 
 
 
 
 
 
 





 
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
 
302

 
90

 
668


260

 
 
 
 
 
 
 





 
INCOME TAXES
 
115

 
26

 
259


74

 
 
 
 
 
 
 





 
INCOME FROM CONTINUING OPERATIONS
 
187

 
64

 
409


186

 
 
 
 
 
 
 





 
Discontinued operations (net of income taxes of $69) (Note 13)
 

 

 


86

 
 
 
 
 
 
 





 
NET INCOME
 
$
187

 
$
64

 
$
409


$
272

 
 
 
 
 
 
 





 
EARNINGS PER SHARE OF COMMON STOCK:
 
 
 
 
 





 
Basic - Continuing Operations
 
$
0.44

 
$
0.16

 
$
0.97


$
0.45

 
Basic - Discontinued Operations (Note 13)
 

 

 


0.20

 
Basic - Net Earnings per Basic Share
 
$
0.44

 
$
0.16

 
$
0.97


$
0.65

 
 
 
 
 
 
 





 
Diluted - Continuing Operations
 
$
0.44

 
$
0.15

 
$
0.97


$
0.45

 
Diluted - Discontinued Operations (Note 13)
 

 

 


0.20

 
Diluted - Net Earnings per Diluted Share
 
$
0.44

 
$
0.15

 
$
0.97


$
0.65

 
 
 
 
 
 
 
 
 
 
 
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
 
 
 
 
 
 
 
 
 
Basic
 
422

 
420

 
422

 
419

 
Diluted
 
423

 
421

 
423

 
420

 
 
 
 
 
 
 
 
 
 
 
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK
 
$

 
$

 
$
0.72

 
$
0.72

 

* Includes excise tax collections of $96 million and $99 million the three months ended June 30, 2015 and 2014, respectively, and $211 million and $216 million in the six months ended June 30, 2015 and 2014, respectively.


The accompanying Combined Notes to Consolidated Financial Statements are an integral part of these financial statements.


1



FIRSTENERGY CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
(In millions)
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
 
 
 
NET INCOME
 
$
187

 
$
64

 
$
409

 
$
272

 
 
 
 
 
 
 
 
 
 
 
OTHER COMPREHENSIVE INCOME (LOSS):
 
 

 
 

 
 
 
 
 
Pension and OPEB prior service costs
 
(32
)
 
(42
)
 
(63
)
 
(84
)
 
Amortized (gains) losses on derivative hedges
 
1

 
(1
)
 
2

 
(1
)
 
Change in unrealized gains on available-for-sale securities
 
(14
)
 
30

 
(10
)
 
51

 
Other comprehensive loss
 
(45
)
 
(13
)
 
(71
)
 
(34
)
 
Income tax benefits on other comprehensive loss
 
(17
)
 
(6
)
 
(27
)
 
(14
)
 
Other comprehensive loss, net of tax
 
(28
)
 
(7
)
 
(44
)
 
(20
)
 
 
 
 
 
 
 
 
 
 
 
COMPREHENSIVE INCOME
 
$
159

 
$
57

 
$
365

 
$
252

 
 
 
 
 
 
 
 
 
 
 

The accompanying Combined Notes to Consolidated Financial Statements are an integral part of these financial statements.



2



FIRSTENERGY CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited)

(In millions, except share amounts)
 
June 30,
2015
 
December 31,
2014
ASSETS
 
 

 
 

CURRENT ASSETS:
 
 

 
 

Cash and cash equivalents
 
$
94

 
$
85

Receivables-
 
 

 
 

Customers, net of allowance for uncollectible accounts of $62 in 2015 and $59 in 2014
 
1,590

 
1,554

Other, net of allowance for uncollectible accounts of $5 in 2015 and 2014
 
181

 
225

Materials and supplies
 
792

 
817

Prepaid taxes
 
235

 
128

Derivatives
 
171

 
159

Accumulated deferred income taxes
 
743

 
518

Collateral
 
141

 
230

Other
 
166

 
160

 
 
4,113

 
3,876

PROPERTY, PLANT AND EQUIPMENT:
 
 

 
 

In service
 
48,862

 
47,484

Less — Accumulated provision for depreciation
 
14,728

 
14,150

 
 
34,134

 
33,334

Construction work in progress
 
2,282

 
2,449

 
 
36,416

 
35,783

INVESTMENTS:
 
 

 
 

Nuclear plant decommissioning trusts
 
2,348

 
2,341

Other
 
886

 
881

 
 
3,234

 
3,222

 
 
 
 
 
DEFERRED CHARGES AND OTHER ASSETS:
 
 

 
 

Goodwill
 
6,418

 
6,418

Regulatory assets
 
1,523

 
1,411

Other
 
1,301

 
1,456

 
 
9,242

 
9,285

 
 
$
53,005

 
$
52,166

LIABILITIES AND CAPITALIZATION
 
 

 
 

CURRENT LIABILITIES:
 
 

 
 

Currently payable long-term debt
 
$
1,292

 
$
804

Short-term borrowings
 
2,908

 
1,799

Accounts payable
 
1,034

 
1,279

Accrued taxes
 
467

 
490

Accrued compensation and benefits
 
323

 
329

Derivatives
 
160

 
167

Other
 
605

 
693

 
 
6,789

 
5,561

CAPITALIZATION:
 
 

 
 

Common stockholders’ equity-
 
 

 
 

Common stock, $0.10 par value, authorized 490,000,000 shares - 422,453,361 and 421,102,570 shares outstanding as of June 30, 2015 and December 31, 2014, respectively
 
42

 
42

Other paid-in capital
 
9,895

 
9,847

Accumulated other comprehensive income
 
202

 
246

Retained earnings
 
2,391

 
2,285

Total common stockholders’ equity
 
12,530

 
12,420

Noncontrolling interest
 
1

 
2

Total equity
 
12,531

 
12,422

Long-term debt and other long-term obligations
 
18,570

 
19,176

 
 
31,101

 
31,598

NONCURRENT LIABILITIES:
 
 

 
 

Accumulated deferred income taxes
 
7,485

 
7,057

Retirement benefits
 
3,836

 
3,932

Asset retirement obligations
 
1,411

 
1,387

Deferred gain on sale and leaseback transaction
 
807

 
824

Adverse power contract liability
 
203

 
217

Other
 
1,373

 
1,590

 
 
15,115

 
15,007

COMMITMENTS, GUARANTEES AND CONTINGENCIES (Note 10)
 


 


 
 
$
53,005

 
$
52,166


The accompanying Combined Notes to Consolidated Financial Statements are an integral part of these financial statements.


3



FIRSTENERGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 
 
Six Months Ended June 30,
 
(In millions)
 
2015
 
2014
 
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
Net Income
 
$
409

 
$
272

 
Adjustments to reconcile net income to net cash from operating activities-
 
 
 
 
 
Income from discontinued operations (Note 13)
 

 
(86
)
 
Provision for depreciation
 
641

 
596

 
Amortization (deferral) of regulatory assets, net
 
91

 
(8
)
 
Nuclear fuel amortization
 
106

 
98

 
Amortization of debt related costs
 
20

 
28

 
Deferred purchased power and other costs
 
(45
)
 
(47
)
 
Deferred income taxes and investment tax credits, net
 
219

 
159

 
Investment impairments
 
24

 
3

 
Deferred costs on sale leaseback transaction, net
 
24

 
24

 
Amortization of customer intangibles and deferred advertising costs
 
11

 
39

 
Retirement benefits
 
(16
)
 
(42
)
 
Pension trust contributions
 
(143
)
 

 
Commodity derivative transactions, net (Note 8)
 
(7
)
 
40

 
Loss on debt redemptions
 

 
8

 
Lease payments on sale and leaseback transaction
 
(102
)
 
(100
)
 
Impairment of long lived assets
 
16

 

 
Changes in current assets and liabilities-
 
 
 
 
 
Receivables
 
8

 
(44
)
 
Materials and supplies
 

 
(50
)
 
Prepayments and other current assets
 
(116
)
 
(20
)
 
Accounts payable
 
(245
)
 
103

 
Accrued taxes
 
(23
)
 
(159
)
 
Accrued compensation and benefits
 
12

 
(70
)
 
Other current liabilities
 
2

 
26

 
Cash collateral, net
 
38

 
(127
)
 
Other
 
66

 
(21
)
 
Net cash provided from operating activities
 
990

 
622

 
 
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
New Financing-
 
 
 
 
 
Long-term debt
 
200

 
3,137

 
Short-term borrowings, net
 
1,109

 

 
Redemptions and Repayments-
 
 
 
 
 
Long-term debt
 
(292
)
 
(925
)
 
Short-term borrowings, net
 

 
(1,081
)
 
Common stock dividend payments
 
(303
)
 
(302
)
 
Other
 
(2
)
 
(24
)
 
Net cash provided from financing activities
 
712

 
805

 
 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
Property additions
 
(1,486
)
 
(1,809
)
 
Nuclear fuel
 
(97
)
 
(58
)
 
Proceeds from asset sales
 
10

 
394

 
Sales of investment securities held in trusts
 
819

 
1,164

 
Purchases of investment securities held in trusts
 
(881
)
 
(1,221
)
 
Asset removal costs
 
(67
)
 
(47
)
 
Other
 
9

 
8

 
Net cash used for investing activities
 
(1,693
)
 
(1,569
)
 
 
 
 
 
 
 
Net change in cash and cash equivalents
 
9

 
(142
)
 
Cash and cash equivalents at beginning of period
 
85

 
218

 
Cash and cash equivalents at end of period
 
$
94

 
$
76

 
    
The accompanying Combined Notes to Consolidated Financial Statements are an integral part of these financial statements.


4



FIRSTENERGY SOLUTIONS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In millions)
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
 
STATEMENTS OF OPERATIONS
 
 
 
 
 
 
 
 

REVENUES:
 
 
 
 
 
 
 
 

Electric sales to non-affiliates
 
$
914

 
$
1,234

 
$
1,989

 
$
2,674

Electric sales to affiliates
 
157

 
176

 
412

 
525

Other
 
48

 
42

 
95

 
82

Total revenues
 
1,119

 
1,452

 
2,496

 
3,281

 
 
 
 
 
 
 
 
 
OPERATING EXPENSES:
 
 
 
 
 
 

 
 

Fuel
 
191


334


421

 
653

Purchased power from affiliates
 
77


75


147

 
139

Purchased power from non-affiliates
 
392


618


935

 
1,647

Other operating expenses
 
353


468


766

 
920

Provision for depreciation
 
81


79


161

 
153

General taxes
 
25


29


54

 
68

Total operating expenses
 
1,119


1,603


2,484

 
3,580

 
 
 
 
 
 
 
 
 
OPERATING INCOME (LOSS)
 


(151
)

12

 
(299
)
 
 
 
 
 
 
 
 
 
OTHER INCOME (EXPENSE):
 
 
 
 
 
 

 
 

Loss on debt redemptions
 

 

 

 
(5
)
Investment income
 
1


24


14

 
44

Miscellaneous income
 
4


4


4

 
4

Interest expense — affiliates
 
(2
)

(2
)

(4
)
 
(4
)
Interest expense — other
 
(37
)

(37
)

(74
)
 
(73
)
Capitalized interest
 
9


8


18

 
20

Total other expense
 
(25
)

(3
)

(42
)
 
(14
)
 
 
 
 
 
 
 
 
 
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAX BENEFITS
 
(25
)

(154
)

(30
)
 
(313
)
 
 
 
 
 
 
 
 
 
INCOME TAX BENEFITS
 
(4
)

(67
)

(6
)
 
(123
)
 
 
 
 
 
 
 
 
 
LOSS FROM CONTINUING OPERATIONS
 
(21
)

(87
)
 
(24
)
 
(190
)
 
 
 
 
 
 
 
 
 
Discontinued operations (net of income taxes of $70) (Note 13)
 

 

 

 
116

 
 
 
 
 
 
 
 
 
NET LOSS
 
$
(21
)

$
(87
)

$
(24
)
 
$
(74
)
 
 
 
 
 
 
 
 
 
STATEMENTS OF COMPREHENSIVE LOSS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET LOSS
 
$
(21
)

$
(87
)

$
(24
)
 
$
(74
)
 
 
 
 
 
 
 
 
 
OTHER COMPREHENSIVE INCOME (LOSS):
 
 
 
 
 
 

 
 

Pension and OPEB prior service costs
 
(4
)

(5
)

(8
)
 
(10
)
Amortized gains on derivative hedges
 
(1
)

(3
)

(2
)
 
(5
)
Change in unrealized gain on available-for-sale securities
 
(12
)

25


(9
)
 
44

Other comprehensive income (loss)
 
(17
)

17


(19
)
 
29

Income taxes (benefits) on other comprehensive income (loss)
 
(6
)
 
7

 
(7
)
 
11

Other comprehensive income (loss), net of tax
 
(11
)
 
10

 
(12
)
 
18

 
 
 
 
 
 
 
 
 
COMPREHENSIVE LOSS
 
$
(32
)

$
(77
)

$
(36
)
 
$
(56
)

The accompanying Combined Notes to Consolidated Financial Statements are an integral part of these financial statements.


5



FIRSTENERGY SOLUTIONS CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions, except share amounts)
 
June 30,
2015
 
December 31,
2014
ASSETS
 
 

 
 

CURRENT ASSETS:
 
 

 
 

Cash and cash equivalents
 
$
2


$
2

Receivables-
 
 

 
 

Customers, net of allowance for uncollectible accounts of $16 in 2015 and $18 in 2014
 
325


415

Affiliated companies
 
403


525

Other, net of allowance for uncollectible accounts of $3 in 2015 and 2014
 
57


107

Notes receivable from affiliated companies
 
13



Materials and supplies
 
476


492

Derivatives
 
158


147

Collateral
 
140

 
229

Prepayments and other
 
139


95

 
 
1,713


2,012

PROPERTY, PLANT AND EQUIPMENT:
 
 

 
 

In service
 
13,978


13,596

Less — Accumulated provision for depreciation
 
5,431


5,208

 
 
8,547


8,388

Construction work in progress
 
917


1,010

 
 
9,464


9,398

INVESTMENTS:
 
 

 
 

Nuclear plant decommissioning trusts
 
1,365


1,365

Other
 
10


10

 
 
1,375


1,375

 
 
 
 
 
DEFERRED CHARGES AND OTHER ASSETS:
 
 

 
 

Customer intangibles
 
70


78

Goodwill
 
23


23

Property taxes
 
19


41

Unamortized sale and leaseback costs
 
266


217

Derivatives
 
104


52

Other
 
117


114

 
 
599


525

 
 
$
13,151


$
13,310

LIABILITIES AND CAPITALIZATION
 
 

 
 

CURRENT LIABILITIES:
 
 

 
 

Currently payable long-term debt
 
$
683


$
506

Short-term borrowings-
 
 
 
 
Affiliated companies
 

 
35

Other
 
258

 
99

Accounts payable-
 
 

 
 

Affiliated companies
 
297


416

Other
 
117


248

Accrued taxes
 
79


102

Derivatives
 
158


166

Other
 
163


184

 
 
1,755


1,756

CAPITALIZATION:
 
 

 
 

Common stockholder's equity-
 
 

 
 

Common stock, without par value, authorized 750 shares - 7 shares outstanding as of June 30, 2015 and December 31, 2014
 
3,599

 
3,594

Accumulated other comprehensive income
 
45

 
57

Retained earnings
 
1,910

 
1,934

Total common stockholder's equity
 
5,554


5,585

Long-term debt and other long-term obligations
 
2,359


2,608

 
 
7,913


8,193

NONCURRENT LIABILITIES:
 
 

 
 

Deferred gain on sale and leaseback transaction
 
807


824

Accumulated deferred income taxes
 
588


511

Retirement benefits
 
331


324

Asset retirement obligations
 
850


841

Derivatives
 
74

 
14

Other
 
833


847

 
 
3,483


3,361

COMMITMENTS, GUARANTEES AND CONTINGENCIES (Note 10)
 


 


 
 
$
13,151


$
13,310


The accompanying Combined Notes to Consolidated Financial Statements are an integral part of these financial statements.


6



FIRSTENERGY SOLUTIONS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 
 
Six Months Ended June 30,
 
(In millions)
 
2015
 
2014
 
 
 
 
 
 
 
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
Net loss
 
$
(24
)
 
$
(74
)
 
Adjustments to reconcile net loss to net cash from operating activities-
 
 
 
 
 
Income from discontinued operations (Note 13)
 

 
(116
)
 
Provision for depreciation
 
161

 
153

 
Nuclear fuel amortization
 
106

 
98

 
Deferred costs on sale and leaseback transaction, net
 
24

 
24

 
Amortization of customer intangibles and deferred advertising costs
 
11

 
39

 
Deferred income taxes and investment tax credits, net
 
50

 
(23
)
 
Investment impairments
 
22

 
3

 
Commodity derivative transactions, net (Note 8)
 
(7
)
 
40

 
Lease payments on sale and leaseback transaction
 
(102
)
 
(100
)
 
Loss on debt redemptions
 

 
5

 
Impairment of long lived assets
 
16

 

 
Changes in current assets and liabilities-
 
 
 
 
 
Receivables
 
277

 
550

 
Materials and supplies
 
(9
)
 
(18
)
 
Prepayments and other current assets
 
(9
)
 
5

 
Accounts payable
 
(259
)
 
(339
)
 
Accrued taxes
 
(23
)
 
(57
)
 
Accrued compensation and benefits
 
1

 
(7
)
 
Other current liabilities
 
17

 
5

 
Cash collateral, net
 
89

 
(117
)
 
Other
 
2

 
12

 
Net cash provided from operating activities
 
343

 
83

 
 
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
New financing-
 
 
 
 
 
Long-term debt
 

 
637

 
Short-term borrowings, net
 
124

 

 
Equity contribution from parent
 

 
500

 
Redemptions and repayments-
 
 
 
 
 
Long-term debt
 
(69
)
 
(664
)
 
Short-term borrowings, net
 

 
(127
)
 
Other
 
(2
)
 
(10
)
 
Net cash provided from financing activities
 
53

 
336

 
 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
Property additions
 
(264
)
 
(477
)
 
Nuclear fuel
 
(97
)
 
(57
)
 
Proceeds from asset sales
 
3

 
307

 
Sales of investment securities held in trusts
 
376

 
707

 
Purchases of investment securities held in trusts
 
(404
)
 
(736
)
 
Loans to affiliated companies, net
 
(13
)
 
(168
)
 
Other
 
3

 
5

 
Net cash used for investing activities
 
(396
)
 
(419
)
 
 
 
 
 
 
 
Net change in cash and cash equivalents
 

 

 
Cash and cash equivalents at beginning of period
 
2

 
2

 
Cash and cash equivalents at end of period
 
$
2

 
$
2

 

The accompanying Combined Notes to Consolidated Financial Statements are an integral part of these financial statements.


7



FIRSTENERGY CORP. AND SUBSIDIARIES

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note
Number
 
Page
Number
 
 
 
 
 
 
2
Earnings Per Share of Common Stock
 
 
 
3
 
 
 
4
Accumulated Other Comprehensive Income
 
 
 
5
Income Taxes
 
 
 
6
Variable Interest Entities
 
 
 
7
Fair Value Measurements
 
 
 
8
Derivative Instruments
 
 
 
9
Regulatory Matters
 
 
 
10
Commitments, Guarantees and Contingencies
 
 
 
11
Supplemental Guarantor Information
 
 
 
12
Segment Information
 
 
 
13
Discontinued Operations
 
 
 



8



COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. ORGANIZATION AND BASIS OF PRESENTATION

Unless otherwise indicated, defined terms and abbreviations used herein have the meanings set forth in the accompanying Glossary of Terms.

FirstEnergy Corp. was organized under the laws of the State of Ohio in 1996. FE’s principal business is the holding, directly or indirectly, of all of the outstanding common stock of its principal subsidiaries: OE, CEI, TE, Penn (a wholly owned subsidiary of OE), JCP&L, ME, PN, FESC, FES and its principal subsidiaries (FG and NG), AE Supply, MP, PE, WP, FET and its principal subsidiaries (ATSI and TrAIL), and AESC. In addition, FE holds all of the outstanding common stock of other direct subsidiaries including: FirstEnergy Properties, Inc., FEV, FENOC, FELHC, Inc., GPU Nuclear, Inc., and AE Ventures, Inc.

FirstEnergy and its subsidiaries are principally involved in the generation, transmission, and distribution of electricity. FirstEnergy’s ten utility operating companies comprise one of the nation’s largest investor-owned electric systems, based on serving six million customers in the Midwest and Mid-Atlantic regions. Its generation subsidiaries control nearly 17,000 MW of capacity from a diverse mix of non-emitting nuclear, scrubbed coal, natural gas, hydroelectric and other renewables. FirstEnergy’s transmission operations include approximately 24,000 miles of lines and three regional transmission operation centers.
These interim financial statements have been prepared pursuant to the rules and regulations of the SEC for Quarterly Reports on Form 10-Q. Certain information and disclosures normally included in financial statements and notes prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These interim financial statements should be read in conjunction with the financial statements and notes included in the combined Annual Report on Form 10-K for the year ended December 31, 2014.

FirstEnergy follows GAAP and complies with the related regulations, orders, policies and practices prescribed by the SEC, FERC, and, as applicable, the PUCO, the PPUC, the MDPSC, the NYPSC, the WVPSC, the VSCC and the NJBPU. The accompanying interim financial statements are unaudited, but reflect all adjustments, consisting of normal recurring adjustments, that, in the opinion of management, are necessary for a fair statement of the financial statements. The preparation of financial statements in conformity with GAAP requires management to make periodic estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. Actual results could differ from these estimates. The reported results of operations are not necessarily indicative of results of operations for any future period. FE and its subsidiaries have evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.

FE and its subsidiaries consolidate all majority-owned subsidiaries over which they exercise control and, when applicable, entities for which they have a controlling financial interest. Intercompany transactions and balances are eliminated in consolidation. FE and its subsidiaries consolidate a VIE when it is determined that it is the primary beneficiary (see Note 6, Variable Interest Entities). Investments in affiliates over which FE and its subsidiaries have the ability to exercise significant influence, but with respect to which they are not the primary beneficiary and do not exercise control, follow the equity method of accounting. Under the equity method, the interest in the entity is reported as an investment in the Consolidated Balance Sheets and the percentage share of the entity’s earnings is reported in the Consolidated Statements of Income and Comprehensive Income. These Notes to the Consolidated Financial Statements are combined for FirstEnergy and FES.

For the three months ended June 30, 2015 and 2014, capitalized financing costs on FirstEnergy's Consolidated Statements of Income includes $14 million of allowance for equity funds used during construction for both periods and $19 million and $18 million, respectively, of capitalized interest. For the six months ended June 30, 2015 and 2014, capitalized financing costs on FirstEnergy's Consolidated Statements of Income includes $30 million and $21 million, respectively, of allowance for equity funds used during construction, and $37 million and $40 million, respectively, of capitalized interest.

During the second quarter of 2015, FES recognized an impairment of $16 million associated with certain transportation equipment.  The charge is classified as a component of Other operating expenses in the Consolidated Statement of Income.

New Accounting Pronouncements

In May 2014, the FASB issued "Revenue from Contracts with Customers", requiring entities to recognize revenue by applying a five-step model in accordance with the core principle to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the accounting for costs to obtain or fulfill a contract with a customer is specified and disclosure requirements for revenue recognition are expanded. This standard is currently effective for fiscal years beginning after December 15, 2016, with no early adoption permitted, and shall be applied retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. In July 2015, the FASB voted to proceed with a one-year deferral of the revenue recognition standard for all entities, with early adoption as of the original effective date permitted. FirstEnergy is currently evaluating the impact on its financial statements of adopting this standard.



9



In February 2015, the FASB issued, "Consolidations: Amendments to the Consolidation Analysis", which amends current consolidation guidance including changes to both the variable and voting interest models used by companies to evaluate whether an entity should be consolidated. This standard is effective for interim and annual periods beginning after December 15, 2015, and early adoption is permitted. A reporting entity must apply the amendments using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the period of adoption or apply the amendments retrospectively. FirstEnergy is currently evaluating the impact on its financial statements of adopting this standard.

In April 2015, the FASB issued, "Simplifying the Presentation of Debt Issuance Costs", which requires debt issuance costs to be presented on the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Upon adoption, an entity must apply the new guidance retrospectively to all prior periods presented in the financial statements. FirstEnergy does not expect this amendment to have a material effect on its financial statements.
2. EARNINGS PER SHARE OF COMMON STOCK

Basic earnings per share of common stock are computed using the weighted average number of common shares outstanding during the relevant period as the denominator. The denominator for diluted earnings per share of common stock reflects the weighted average of common shares outstanding plus the potential additional common shares that could result if dilutive securities and other agreements to issue common stock were exercised.

The following table reconciles basic and diluted earnings per share of common stock:

(In millions, except per share amounts)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
Reconciliation of Basic and Diluted Earnings per Share of Common Stock
 
2015

2014
 
2015
 
2014
 
 
 
 
 
 
 
Income from continuing operations
 
$
187

 
$
64

 
$
409

 
$
186

Discontinued operations (Note 13)
 

 

 

 
86

Net income
 
$
187

 
$
64

 
$
409

 
$
272

 
 
 
 
 
 
 
 
 
Weighted average number of basic shares outstanding
 
422

 
420

 
422

 
419

Assumed exercise of dilutive stock options and awards(1)
 
1

 
1

 
1

 
1

Weighted average number of diluted shares outstanding
 
423

 
421

 
423

 
420

 
 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
 
Basic earnings per share:
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
0.44

 
$
0.16

 
$
0.97

 
$
0.45

Discontinued operations (Note 13)
 

 

 

 
0.20

Net earnings per basic share
 
$
0.44

 
$
0.16

 
$
0.97

 
$
0.65

 
 
 
 
 
 
 
 
 
Diluted earnings per share:
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
0.44

 
$
0.15

 
$
0.97

 
$
0.45

Discontinued operations (Note 13)
 

 

 

 
0.20

Net earnings per diluted share
 
$
0.44

 
$
0.15

 
$
0.97

 
$
0.65


(1) 
For both the three months ended June 30, 2015 and June 30, 2014, one million shares were excluded from the calculation of diluted shares outstanding, as their inclusion would be antidilutive. For the six months ended June 30, 2015 and June 30, 2014, one million and two million shares, respectively, were excluded from the calculation of diluted shares outstanding, as their inclusion would be antidilutive.


10



3. PENSION AND OTHER POSTEMPLOYMENT BENEFITS

In March 2015, FirstEnergy contributed $143 million to its qualified pension plan. The components of the consolidated net periodic cost (credits) for pension and OPEB (including amounts capitalized) were as follows:
Components of Net Periodic Benefit Costs (Credits)
 
Pension
OPEB
For the Three Months Ended June 30,
 
2015

2014

2015

2014
 
 
(In millions)
Service costs
 
$
48

 
$
41

 
$
1

 
$
2

Interest costs