FIRSTENERGY CORP - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - April 5, 2018

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Exhibit 99.1

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

The unaudited pro forma consolidated financial information presented reflect the deconsolidation of FirstEnergy Solutions Corp. and its subsidiaries (“FES”) and FirstEnergy Nuclear Operating Company (“FENOC”), both wholly owned subsidiaries of FirstEnergy Corp. (“FirstEnergy”), as a result of their voluntary filing of petitions for bankruptcy protection (the “Bankruptcy Filings”) under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Northern District of Ohio on March 31, 2018 (the “Petition Date”).

The following unaudited consolidated pro forma financial information (“pro forma financial statements”) of FirstEnergy are included herein:

•
Unaudited consolidated pro forma balance sheet as of December 31, 2017 (“pro forma balance sheet”);
•
Unaudited consolidated pro forma statements of operations for the years ended December 31, 2017, 2016 and 2015 (“pro forma statements of operations”); and
•
Notes to the unaudited consolidated pro forma financial statements.

The pro forma financial statements are based upon the historical consolidated financial statements of FirstEnergy, adjusted to reflect the deconsolidation and discontinued operations of FES and FENOC as a result of the Bankruptcy Filings by FES and FENOC on the Petition Date. Additionally, the pro forma financial statements reflect a portion of Allegheny Energy Supply Company, LLC (“AES”) and Bay Shore Power Company (“BSPC”) as a discontinued operation as a result of the sale of certain assets of AES in 2017 and the expected sale of certain assets of BSPC and AES in 2018. FES and FENOC, along with AES and BSPC, were subject to FirstEnergy’s strategic review of its commodity-exposed generation business.

The pro forma balance sheet reflects the deconsolidation of FES and FENOC assuming the Bankruptcy Filings had occurred on December 31, 2017, while the pro forma statements of operations give effect to the deconsolidation assuming the Bankruptcy Filings had occurred on January 1, 2015, and the presentation of a portion of AES and BSPC as discontinued operations, effective January 1, 2015. The pro forma adjustments are based on the best available information including certain assumptions that FirstEnergy management believes are reasonable. Management believes that such adjustments are appropriate and directly attributable to the deconsolidation of FES and FENOC. The pro forma financial statements reflect the reclassification of FES and FENOC from consolidated entities to investments accounted for at fair value with estimated fair values of zero.

The pro forma financial statements are provided for illustrative purposes only and, therefore, are not necessarily indicative of the operating results or financial position that might have been achieved had the events described in the Form 8-K to which this exhibit is attached occurred as of an earlier date, nor are they indicative of operating results and financial position that may occur in the future. The pro forma financial statements of FirstEnergy should be read in conjunction with the historical consolidated financial statements of FirstEnergy and the related notes included in our 2017 Annual Report on Form 10-K for the period ended December 31, 2017, as filed with the United States Securities and Exchange Commission on February 20, 2018.

1


FIRSTENERGY CORP.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
December 31, 2017
(Unaudited)
(In millions)
 
As Reported
 
(a)
Less:
Deconsolidation of
FES and FENOC
 
Eliminations/Pro Forma Adjustments
 
Pro Forma
ASSETS
 
 
 
 
 
 

 
 

CURRENT ASSETS:
 
 
 
 
 
 

 
 

Cash and cash equivalents
 
$
589

 
$
1

 
$
—

 
$
588

Receivables
 
1,654

 
512

 
396

(b) (c)
1,538

Notes receivable
 
—

 
25

 
25

(b) (c)
—

Materials and supplies
 
463

 
183

 
(2
)
(n)
278

Derivatives
 
37

 
34

 
—

 
3

Collateral
 
146

 
137

 
—

 
9

Other
 
219

 
28

 
—

 
191

 
 
3,108

 
920

 
419

 
2,607

PROPERTY, PLANT AND EQUIPMENT:
 
 
 
 
 
 

 
 

In service
 
39,778

 
2,495

 
—

 
37,283

Less — Accumulated provision for depreciation
 
11,925

 
1,823

 
—

 
10,102

 
 
27,853

 
672

 
—

 
27,181

Construction work in progress
 
1,026

 
22

 
—

 
1,004

 
 
28,879

 
694

 
—

 
28,185

INVESTMENTS:
 
 
 
 
 
 

 
 

Nuclear plant decommissioning trusts
 
2,678

 
1,856

 
—

 
822

Other
 
506

 
9

 
—

(e)
497

 
 
3,184

 
1,865

 
—

 
1,319

 
 
 
 
 
 
 
 
 
ASSETS HELD FOR SALE
 
375

 
—

 
2

(n)
377

 
 
 
 
 
 
 
 
 
DEFERRED CHARGES AND OTHER ASSETS:
 
 
 
 
 
 

 
 

Goodwill
 
5,618

 
—

 
—

 
5,618

Regulatory assets
 
40

 
—

 
—

 
40

Accumulated deferred income taxes
 
—

 
1,812

 
1,812

(i)
—

Other
 
1,053

 
1,131

 
775

(b) (g)
697

 
 
6,711

 
2,943

 
2,587

 
6,355

 
 
$
42,257

 
$
6,422

 
$
3,008

 
$
38,843

LIABILITIES AND CAPITALIZATION
 
 
 
 
 
 

 
 

CURRENT LIABILITIES:
 
 
 
 
 
 

 
 

Currently payable long-term debt
 
$
1,082

 
$
524

 
$
—

 
$
558

Short-term borrowings
 
300

 
105

 
630

(b) (d)
825

Accounts payable
 
1,027

 
456

 
387

(b)
958

Accrued taxes
 
571

 
85

 
47

(b)
533

Accrued compensation and benefits
 
336

 
91

 
—

 
245

Collateral
 
39

 
—

 
—

 
39

Other
 
722

 
168

 
151

(h)
705

 
 
4,077

 
1,429

 
1,215

 
3,863

CAPITALIZATION:
 
 
 
 
 
 

 
 

Common stockholders' equity:
 
 
 
 
 
 

 
 

Common stock
 
44

 
14

 
14

(f)
44

Other paid-in capital
 
10,001

 
3,778

 
3,778

(f)
10,001

Accumulated other comprehensive income
 
142

 
99

 
40

(f) (g)
83

Accumulated deficit
 
(6,262
)
 
(6,018
)
 
(4,661
)
(f)
(4,905
)
Total common stockholders' equity
 
3,925

 
(2,127
)
 
(829
)
 
5,223

Long-term debt and other long-term obligations
 
21,115

 
2,299

 
—

 
18,816

 
 
25,040

 
172

 
(829
)
 
24,039

NONCURRENT LIABILITIES:
 
 
 
 
 
 

 
 

Accumulated deferred income taxes
 
1,359

 
—

 
761

(j)
2,120

Retirement benefits
 
3,975

 
906

 
906

(g)
3,975

Regulatory liabilities
 
2,720

 
—

 
—

 
2,720

Asset retirement obligations
 
2,515

 
1,945

 
—

 
570

Deferred gain on sale and leaseback transaction
 
723

 
723

 
—

 
—

Adverse power contract liability
 
130

 
—

 
—

 
130

Other
 
1,718

 
1,247

 
955

(b) (g)
1,426

 
 
13,140

 
4,821

 
2,622

 
10,941

 
 
$
42,257

 
$
6,422

 
$
3,008

 
$
38,843



2


FIRSTENERGY CORP.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2017
(Unaudited)
(In millions except per share amounts)
 
As Reported
(k)
Less:
Deconsolidation of
FES and FENOC
Eliminations/Pro Forma Adjustments
 
(n)
AES & BSPC
Discontinued
Operations
 
Pro Forma
REVENUES:
 
 
 
 
 
 
 
 
Regulated distribution
 
$
9,734

$
—

$
—

 
$
—

 
$
9,734

Regulated transmission
 
1,325

—

—

 
—

 
1,325

Other
 
2,958

3,767

1,227

(l)
(197
)
 
221

Total revenues
 
14,017

3,767

1,227

 
(197
)
 
11,280

 
 
 
 
 
 
 
 
 
OPERATING EXPENSES:
 
 
 
 
 
 
 
 

Fuel
 
1,383

599

4

(l)
(97
)
 
691

Purchased power
 
3,194

829

572

(l)
—

 
2,937

Other operating expenses
 
4,232

2,153

736

(l) (m)
3

 
2,818

Pension and OPEB mark-to-market adjustment
 
141

24

—

 
—

 
117

Provision for depreciation
 
1,138

109

—

 
—

 
1,029

Amortization of regulatory assets, net
 
308

—

—

 
—

 
308

General taxes
 
1,043

84

—

 
(2
)
 
957

Impairment of assets
 
2,406

2,044

—

 
(193
)
 
169

Total operating expenses
 
13,845

5,842

1,312

 
(289
)
 
9,026

 
 
 
 
 
 
 
 
 
OPERATING INCOME (LOSS)
 
172

(2,075
)
(85
)
 
92

 
2,254

 
 
 
 
 
 
 
 
 
OTHER INCOME (EXPENSE):
 
 
 
 
 
 
 
 

Investment income
 
98

96

15

(l)
(1
)
 
16

Interest expense
 
(1,178
)
(160
)
(19
)
(l)
24

 
(1,013
)
Capitalized financing costs
 
79

27

—

 
—

 
52

Total other expense
 
(1,001
)
(37
)
(4
)
 
23

 
(945
)
 
 
 
 
 
 
 
 
 
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (BENEFITS)
 
(829
)
(2,112
)
(89
)
 
115

 
1,309

 
 
 
 
 
 
 
 
 
INCOME TAXES (BENEFITS)
 
895

314

(33
)
(p)
29

 
577

 
 
 
 
 
 
 
 
 
INCOME (LOSS) FROM CONTINUING OPERATIONS
 
$
(1,724
)
$
(2,426
)
$
(56
)
 
$
86

 
$
732

 
 
 
 
 
 
 
 
 
EARNINGS (LOSS) PER SHARE OF COMMON STOCK:
 
 
 
 
 
 
 
 
Basic - Continuing Operations
 
$
(3.88
)
 
 
 
 
 
$
1.65

Diluted - Continuing Operations
 
$
(3.88
)
 
 
 
 
 
$
1.65

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
 
 
 
 
 
 
 
 
Basic
 
444

 
 
 
 
 
444

Diluted
 
444

 
 
 
 
 
444





3


FIRSTENERGY CORP.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2016
(Unaudited)
(In millions except per share amounts)
 
As Reported
(k)
Less:
Deconsolidation of
FES and FENOC
Eliminations/Pro Forma Adjustments
 
(n)
AES & BSPC
Discontinued
Operations
 
Pro Forma
REVENUES:
 
 
 
 
 
 
 
 
Regulated distribution
 
$
9,629

$
—

$
—

 
$
—

 
$
9,629

Regulated transmission
 
1,144

—

—

 
—

 
1,144

Other
 
3,789

5,075

1,770

(l)
(213
)
 
271

Total revenues
 
14,562

5,075

1,770

 
(213
)
 
11,044

 
 
 
 
 
 
 
 
 
OPERATING EXPENSES:
 
 
 
 
 
 
 
 

Fuel
 
1,666

784

7

(l)
(95
)
 
794

Purchased power
 
3,843

1,644

1,122

(l)
—

 
3,321

Other operating expenses
 
3,851

1,920

721

(l) (m)
2

 
2,654

Pension and OPEB mark-to-market adjustment
 
147

48

—

 
—

 
99

Provision for depreciation
 
1,313

342

—

 
(14
)
 
957

Amortization of regulatory assets, net
 
297

—

—

 
—

 
297

General taxes
 
1,042

110

—

 
(2
)
 
930

Impairment of assets
 
10,665

8,734

(224
)
(o)
(867
)
 
840

Total operating expenses
 
22,824

13,582

1,626

 
(976
)
 
9,892

 
 
 
 
 
 
 
 
 
OPERATING INCOME (LOSS)
 
(8,262
)
(8,507
)
144

 
763

 
1,152

 
 
 
 
 
 
 
 
 
OTHER INCOME (EXPENSE):
 
 
 
 
 
 
 
 

Investment income
 
84

69

4

(l)
(4
)
 
15

Interest expense
 
(1,157
)
(157
)
(7
)
(l)
26

 
(981
)
Capitalized financing costs
 
103

35

(11
)
(l)
—

 
57

Total other expense
 
(970
)
(53
)
(14
)
 
22

 
(909
)
 
 
 
 
 
 
 
 
 
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (BENEFITS)
 
(9,232
)
(8,560
)
130

 
785

 
243

 
 
 
 
 
 
 
 
 
INCOME TAXES (BENEFITS)
 
(3,055
)
(3,035
)
(33
)
(p)
239

 
186

 
 
 
 
 
 
 
 
 
INCOME (LOSS) FROM CONTINUING OPERATIONS
 
$
(6,177
)
$
(5,525
)
$
163

 
$
546

 
$
57

 
 
 
 
 
 
 
 
 
EARNINGS (LOSS) PER SHARE OF COMMON STOCK:
 
 
 
 
 
 
 
 
Basic - Continuing Operations
 
$
(14.49
)
 
 
 
 
 
$
0.13

Diluted - Continuing Operations
 
$
(14.49
)
 
 
 
 
 
$
0.13

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
 
 
 
 
 
 
 
 
Basic
 
426

 
 
 
 
 
426

Diluted
 
426

 
 
 
 
 
426





4


FIRSTENERGY CORP.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2015
(Unaudited)
(In millions except per share amounts)
 
As Reported
(k)
Less:
Deconsolidation of
FES and FENOC
Eliminations/Pro Forma Adjustments
 
(n)
AES & BSPC
Discontinued
Operations
 
Pro Forma
REVENUES:
 
 
 
 
 
 
 
 
Regulated distribution
 
$
9,625

$
—

$
—

 
$
—

 
$
9,625

Regulated transmission
 
1,003

—

—

 
—

 
1,003

Other
 
4,398

5,679

1,850

(l)
(239
)
 
330

Total revenues
 
15,026

5,679

1,850

 
(239
)
 
10,958

 
 
 
 
 
 
 
 
 
OPERATING EXPENSES:
 
 
 
 
 
 
 
 

Fuel
 
1,855

872

4

(l)
(120
)
 
867

Purchased power
 
4,423

2,037

1,278

(l)
—

 
3,664

Other operating expenses
 
3,740

1,955

680

(l) (m)
(5
)
 
2,460

Pension and OPEB mark-to-market adjustment
 
242

57

—

 
—

 
185

Provision for depreciation
 
1,282

331

—

 
(37
)
 
914

Amortization of regulatory assets, net
 
172

—

—

 
—

 
172

General taxes
 
978

120

—

 
(2
)
 
856

Impairment of assets
 
42

33

—

 
—

 
9

Total operating expenses
 
12,734

5,405

1,962

 
(164
)
 
9,127

 
 
 
 
 
 
 
 
 
OPERATING INCOME (LOSS)
 
2,292

274

(112
)
 
(75
)
 
1,831

 
 
 
 
 
 
 
 
 
OTHER INCOME (EXPENSE):
 
 
 
 
 
 
 
 

Investment income (loss)
 
(22
)
(12
)
4

(l)
(3
)
 
(9
)
Impairment of equity method investment
 
(362
)
—

—

 
—

 
(362
)
Interest expense
 
(1,132
)
(157
)
(7
)
(l)
24

 
(958
)
Capitalized financing costs
 
117

36

(9
)
(l)
—

 
72

Total other expense
 
(1,399
)
(133
)
(12
)
 
21

 
(1,257
)
 
 
 
 
 
 
 
 
 
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (BENEFITS)
 
893

141

(124
)
 
(54
)
 
574

 
 
 
 
 
 
 
 
 
INCOME TAXES (BENEFITS)
 
315

59

(55
)
(p)
4

 
205

 
 
 
 
 
 
 
 
 
INCOME (LOSS) FROM CONTINUING OPERATIONS
 
$
578

$
82

$
(69
)
 
$
(58
)
 
$
369

 
 
 
 
 
 
 
 
 
EARNINGS PER SHARE OF COMMON STOCK:
 
 
 
 
 
 
 
 
Basic - Continuing Operations
 
$
1.37

 
 
 
 
 
$
0.87

Diluted - Continuing Operations
 
$
1.37

 
 
 
 
 
$
0.87

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
 
 
 
 
 
 
 
 
Basic
 
422

 
 
 
 
 
422

Diluted
 
424

 
 
 
 
 
424




5



Notes to the Unaudited Pro Forma Consolidated Financial Statements

(a) Reflects the deconsolidation of FES and FENOC assets and liabilities at their carrying amounts included in FirstEnergy's Consolidated Balance Sheet as of December 31, 2017.

(b) Includes adjustments related to intercompany transactions and balances between FirstEnergy and FES and FENOC, which, as a result of the deconsolidation, would no longer be eliminated in consolidation. These adjustments include the following:
•
Adjustments to present amounts owed to FirstEnergy from FES and FENOC as accounts receivable and amounts owed from FirstEnergy to FES and FENOC as accounts payable, primarily related to power sales agreements, a tax sharing agreement between FirstEnergy, the consolidated tax filer, and its affiliates, support service billings and costs charged between FirstEnergy, FES and FENOC.
•
Adjustments to present amounts owed to FirstEnergy from FES and FENOC as notes receivable primarily related to a promissory note payable to AES ($102 million) and other short-term borrowings. Also includes recognition of a secured note receivable from FES of $500 million under the credit facility between FES and FirstEnergy.
•
Adjustments to present non-current liabilities associated with pension/other post-employment benefits (OPEB) mark-to-market (MTM) costs allocated to FES and FENOC as non-current assets ($429 million) of FirstEnergy and to present non-current assets associated with pension/OPEB mark-to-market costs allocated from FES and FENOC ($140 million) as non-current liabilities of FirstEnergy.

(c) Represents valuation adjustments for accounts receivable ($39 million) and notes receivable ($605 million) deemed uncollectible.

(d) Amounts include borrowings by FirstEnergy to fund the $500 million draw by FES under the credit facility between FES and FirstEnergy.

(e) Subsequent to the deconsolidation, FirstEnergy will account for its investments in FES and FENOC at fair value. For purposes of the Unaudited Pro Forma Consolidated Balance Sheet as of December 31, 2017, the investments in FES and FENOC are initially reflected with estimated fair values of zero.
 
(f) The adjustment to retained earnings includes the estimated impact from the gain on deconsolidation due to the de-recognition of the carrying amounts of FES and FENOC assets and liabilities and accumulated other comprehensive income, net of tax, previously consolidated in FirstEnergy's historical consolidated financial statements as of December 31, 2017.

(In millions)
Dec. 31, 2017
Removal of investment of FES' and FENOC's equity
$
2,127

Assumption of pension/OPEB liability
(796
)
Guarantees and credit support
(151
)
Reserve on receivables and allocated pension MTM
(933
)
Deferred tax assets including estimated worthless stock deduction
1,051

Gain on deconsolidation
1,298

Eliminations of FES/FENOC common stock and other paid-in capital not impacted at FirstEnergy Consolidated
(5,959
)
 
$
(4,661
)

(g) Amounts represent employee retirement related assets and liabilities of FES and FENOC that FirstEnergy would assume upon deconsolidation ($906 million in liabilities and $110 million in assets) as well as related balances included in accumulated other comprehensive income ($40 million), and the reserve for the net pension/OPEB MTM costs allocated to FES and FENOC due to FirstEnergy ($289 million).

(h) Amounts include $151 million of guarantee obligations that FirstEnergy, as guarantor of certain FES and FENOC obligations, would be required to stand ready to perform on behalf of FES and FENOC, including credit support as an indemnitor to FES.

(i) Represents reclassification of the FES and FENOC deferred tax asset deconsolidation to FirstEnergy’s net deferred tax liability position (see j).

(j) Represents reclassification of the FES and FENOC deferred tax asset deconsolidation to conform with FirstEnergy’s net deferred tax liability position ($1,812 million), as well as an estimated worthless stock deduction that is contingent upon emergence from bankruptcy by FES ($628 million), and deferred tax assets resulting from expenses and obligations resulting from the deconsolidation of FES and FENOC ($423 million). Such amounts are based on the carrying amounts at December 31, 2017, and may be impacted by future events.


6


(k) Reflects the deconsolidation of FES and FENOC statement of operations (including FES and FENOC intercompany transactions with FirstEnergy and its remaining consolidated entities) included in FirstEnergy’s Consolidated Statement of Operations for the years ended December 31, 2017, 2016 and 2015.

(l) Includes adjustments related to intercompany transactions and balances between FirstEnergy and FES and FENOC, which as a result of the deconsolidation would no longer be eliminated in consolidation. The pro forma statements of operations do not include an estimated gain on deconsolidation, as it is not expected to have a continuing impact due to its non-recurring nature.

(m) Includes indirect support costs allocated to FES and FENOC from FirstEnergy.

(n) Represents adjustments to reflect a portion of AES and BSPC as discontinued operations as a result of the sale and expected sale of certain assets.

(o) Represents an adjustment associated with the impairment of goodwill in 2016 at the Competitive Energy Services segment.

(p) Represents tax effect of eliminations/pro forma adjustments. Additionally, FES and FENOC are expected to continue to remain in the FirstEnergy consolidated tax group until their emergence from bankruptcy. As part of the consolidated tax group, and under the tax sharing arrangement, FirstEnergy pays FES and FENOC for the use of their tax attributes. Payments by (or receipts to) FirstEnergy are offset and eliminated with receipts from (or payments by) FES and FENOC within income tax expense on the Consolidated Statements of Operations. Upon deconsolidation of FES and FENOC, payments made by (or received by) FirstEnergy through the tax sharing arrangement with FES and FENOC will be recorded as an operating expense by FirstEnergy, reducing pre-tax income.


7

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