FIRSTENERGY CORP - 10-Q filing on 2016-11-04

Supplemental Guarantor Information

9 Months Ended

Sep. 30, 2016

Supplemental Guarantor Information [Abstract]

In 2007, FG completed a sale and leaseback transaction for a 93.83% undivided interest in Bruce Mansfield Unit 1. FG's parent company has fully and unconditionally and irrevocably guaranteed all of FG's obligations under each of the leases. The related lessor notes and pass through certificates are not guaranteed by FG or its parent company, but the notes are secured by, among other things, each lessor trust's undivided interest in Unit 1, rights and interests under the applicable lease and rights and interests under other related agreements, including FES' lease guaranty. This transaction is classified as an operating lease for FES and FirstEnergy and as a financing lease for FG.

The Condensed Consolidating Statements of Income (Loss) and Comprehensive Income (Loss) for the three and nine months ended September 30, 2016 and 2015, Condensed Consolidating Balance Sheets as of September 30, 2016 and December 31, 2015, and Condensed Consolidating Statements of Cash Flows for the nine months ended September 30, 2016 and 2015, for the parent and guarantor and non-guarantor subsidiaries are presented below. These statements are provided as FG's parent company fully and unconditionally guarantees outstanding registered securities of FG as well as FG's obligations under the facility lease for the Bruce Mansfield sale and leaseback that underlie outstanding registered pass-through trust certificates. Investments in wholly owned subsidiaries are accounted for by the parent company using the equity method. Results of operations for FG and NG are, therefore, reflected in their parent company's investment accounts and earnings as if operating lease treatment was achieved. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions and the entries required to reflect operating lease treatment associated with the 2007 Bruce Mansfield Unit 1 sale and leaseback transaction.



FIRSTENERGY SOLUTIONS CORP.
CONDENSED CONSOLIDATING STATEMENTS OF INCOME AND COMPREHENSIVE INCOME


For the Three Months Ended September 30, 2016	FES			FG			NG			Eliminations			Consolidated
	(In millions)
STATEMENTS OF INCOME

REVENUES	$	1,065		$	494		$	400		$	(859	)	$	1,100

OPERATING EXPENSES:
Fuel	—			149			53			—			202
Purchased power from affiliates	1,011			—			39			(859		)	191
Purchased power from non-affiliates	186			—			—			—			186
Other operating expenses	95			61			149			11			316
Provision for depreciation	4			28			51			—			83
General taxes	8			7			6			—			21
Total operating expenses	1,304			245			298			(848		)	999

OPERATING INCOME (LOSS)	(239		)	249			102			(11		)	101

OTHER INCOME (EXPENSE):
Investment income, including net income from equity investees	224			8			28			(236		)	24
Miscellaneous income	—			1			—			—			1
Interest expense — affiliates	(13		)	(3		)	(2		)	15			(3		)
Interest expense — other	(14		)	(27		)	(9		)	14			(36		)
Capitalized interest	—			3			6			—			9
Total other income (expense)	197			(18		)	23			(207		)	(5		)

INCOME (LOSS) BEFORE INCOME TAXES (BENEFITS)	(42		)	231			125			(218		)	96

INCOME TAXES (BENEFITS)	(82		)	87			49			2			56

NET INCOME	$	40		$	144		$	76		$	(220	)	$	40

STATEMENTS OF COMPREHENSIVE INCOME

NET INCOME	$	40		$	144		$	76		$	(220	)	$	40

OTHER COMPREHENSIVE INCOME (LOSS):
Pension and OPEB prior service costs	(3		)	(3		)	—			3			(3		)
Amortized gains on derivative hedges	1			—			—			—			1
Change in unrealized gains on available-for-sale securities	5			—			5			(5		)	5
Other comprehensive income (loss)	3			(3		)	5			(2		)	3
Income taxes (benefits) on other comprehensive income (loss)	1			(1		)	2			(1		)	1
Other comprehensive income (loss), net of tax	2			(2		)	3			(1		)	2
COMPREHENSIVE INCOME	$	42		$	142		$	79		$	(221	)	$	42



FIRSTENERGY SOLUTIONS CORP.
CONDENSED CONSOLIDATING STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)


For the Nine Months Ended September 30, 2016	FES			FG			NG			Eliminations			Consolidated
	(In millions)
STATEMENTS OF INCOME (LOSS)

REVENUES	$	3,281		$	1,309		$	1,404		$	(2,593	)	$	3,401

OPERATING EXPENSES:
Fuel	—			449			146			—			595
Purchased power from affiliates	2,888			—			145			(2,593		)	440
Purchased power from non-affiliates	829			—			—			—			829
Other operating expenses	218			220			450			37			925
Provision for depreciation	10			91			151			(2		)	250
General taxes	23			23			20			—			66
Impairment of assets	23			517			—			—			540
Total operating expenses	3,991			1,300			912			(2,558		)	3,645

OPERATING INCOME (LOSS)	(710		)	9			492			(35		)	(244		)

OTHER INCOME (EXPENSE):
Investment income, including net income (loss) from equity investees	310			21			67			(342		)	56
Miscellaneous income	3			1			—			—			4
Interest expense — affiliates	(34		)	(7		)	(4		)	39			(6		)
Interest expense — other	(40		)	(79		)	(33		)	43			(109		)
Capitalized interest	—			7			20			—			27
Total other income (expense)	239			(57		)	50			(260		)	(28		)

INCOME (LOSS) BEFORE INCOME TAXES (BENEFITS)	(471		)	(48		)	542			(295		)	(272		)

INCOME TAXES (BENEFITS)	(204		)	(1		)	196			4			(5		)

NET INCOME (LOSS)	$	(267	)	$	(47	)	$	346		$	(299	)	$	(267	)

STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

NET INCOME (LOSS)	$	(267	)	$	(47	)	$	346		$	(299	)	$	(267	)

OTHER COMPREHENSIVE INCOME (LOSS):
Pensions and OPEB prior service costs	(10		)	(10		)	—			10			(10		)
Amortized gains on derivative hedges	—			—			—			—			—
Change in unrealized gains on available-for-sale securities	61			—			60			(60		)	61
Other comprehensive income (loss)	51			(10		)	60			(50		)	51
Income taxes (benefits) on other comprehensive income (loss)	20			(4		)	23			(19		)	20
Other comprehensive income (loss), net of tax	31			(6		)	37			(31		)	31
COMPREHENSIVE INCOME (LOSS)	$	(236	)	$	(53	)	$	383		$	(330	)	$	(236	)



FIRSTENERGY SOLUTIONS CORP.
CONDENSED CONSOLIDATING STATEMENTS OF INCOME AND COMPREHENSIVE INCOME


For the Three Months Ended September 30, 2015	FES			FG			NG			Eliminations			Consolidated
	(In millions)
STATEMENTS OF INCOME

REVENUES	$	1,293		$	420		$	531		$	(906	)	$	1,338

OPERATING EXPENSES:
Fuel	—			193			52			—			245
Purchased power from affiliates	932			—			77			(906		)	103
Purchased power from non-affiliates	401			—			—			—			401
Other operating expenses	34			66			134			12			246
Provision for depreciation	3			30			47			(1		)	79
General taxes	10			8			6			—			24
Total operating expenses	1,380			297			316			(895		)	1,098

OPERATING INCOME (LOSS)	(87		)	123			215			(11		)	240

OTHER INCOME (EXPENSE):
Investment income (loss), including net income from equity investees	191			4			(18		)	(198		)	(21		)
Miscellaneous income	—			1			—			—			1
Interest expense — affiliates	(8		)	(2		)	(1		)	9			(2		)
Interest expense — other	(13		)	(26		)	(12		)	15			(36		)
Capitalized interest	—			1			7			—			8
Total other income (expense)	170			(22		)	(24		)	(174		)	(50		)

INCOME BEFORE INCOME TAXES (BENEFITS)	83			101			191			(185		)	190

INCOME TAXES (BENEFITS)	(37		)	36			70			1			70

NET INCOME	$	120		$	65		$	121		$	(186	)	$	120

STATEMENTS OF COMPREHENSIVE INCOME

NET INCOME	$	120		$	65		$	121		$	(186	)	$	120

OTHER COMPREHENSIVE LOSS:
Pension and OPEB prior service costs	(4		)	(3		)	—			3			(4		)
Amortized gains on derivative hedges	—			—			—			—			—
Change in unrealized gains on available for sale securities	(11		)	—			(11		)	11			(11		)
Other comprehensive loss	(15		)	(3		)	(11		)	14			(15		)
Income tax benefits on other comprehensive loss	(6		)	(1		)	(4		)	5			(6		)
Other comprehensive loss, net of tax	(9		)	(2		)	(7		)	9			(9		)
COMPREHENSIVE INCOME	$	111		$	63		$	114		$	(177	)	$	111



FIRSTENERGY SOLUTIONS CORP.
CONDENSED CONSOLIDATING STATEMENTS OF INCOME AND COMPREHENSIVE INCOME


For the Nine Months Ended September 30, 2015	FES			FG			NG			Eliminations			Consolidated
	(In millions)
STATEMENTS OF INCOME

REVENUES	$	3,699		$	1,259		$	1,494		$	(2,618	)	$	3,834

OPERATING EXPENSES:
Fuel	—			523			143			—			666
Purchased power from affiliates	2,657			—			211			(2,618		)	250
Purchased power from non-affiliates	1,336			—			—			—			1,336
Other operating expenses	300			208			452			36			996
Provision for depreciation	8			92			142			(2		)	240
General taxes	36			23			19			—			78
Impairment of assets	16			—			—			—			16
Total operating expenses	4,353			846			967			(2,584		)	3,582

OPERATING INCOME (LOSS)	(654		)	413			527			(34		)	252

OTHER INCOME (EXPENSE):
Investment income (loss), including net income from equity investees	551			12			(1		)	(569		)	(7		)
Miscellaneous income	1			4			—			—			5
Interest expense — affiliates	(21		)	(6		)	(3		)	24			(6		)
Interest expense — other	(39		)	(78		)	(37		)	44			(110		)
Capitalized interest	—			4			22			—			26
Total other income (expense)	492			(64		)	(19		)	(501		)	(92		)

INCOME (LOSS) BEFORE INCOME TAXES (BENEFITS)	(162		)	349			508			(535		)	160

INCOME TAXES (BENEFITS)	(258		)	131			187			4			64

NET INCOME	$	96		$	218		$	321		$	(539	)	$	96

STATEMENTS OF COMPREHENSIVE INCOME

NET INCOME	$	96		$	218		$	321		$	(539	)	$	96

OTHER COMPREHENSIVE LOSS
Pension and OPEB prior service costs	(12		)	(11		)	—			11			(12		)
Amortized gains on derivative hedges	(2		)	—			—			—			(2		)
Change in unrealized gains on available-for-sale securities	(20		)	—			(20		)	20			(20		)
Other comprehensive loss	(34		)	(11		)	(20		)	31			(34		)
Income tax benefits on other comprehensive loss	(13		)	(4		)	(7		)	11			(13		)
Other comprehensive loss, net of tax	(21		)	(7		)	(13		)	20			(21		)
COMPREHENSIVE INCOME	$	75		$	211		$	308		$	(519	)	$	75

FIRSTENERGY SOLUTIONS CORP.

CONDENSED CONSOLIDATING BALANCE SHEETS



As of September 30, 2016	FES		FG		NG		Eliminations			Consolidated
	(In millions)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	—	$	2	$	—	$	—		$	2
Receivables-
Customers	225		—		—		—			225
Affiliated companies	356		351		267		(492		)	482
Other	21		4		30		—			55
Notes receivable from affiliated companies	494		1,501		1,133		(3,102		)	26
Materials and supplies	38		153		212		—			403
Derivatives	146		—		—		—			146
Collateral	85		—		—		—			85
Prepayments and other	57		14		1		—			72
	1,422		2,025		1,643		(3,594		)	1,496
PROPERTY, PLANT AND EQUIPMENT:
In service	121		5,683		8,674		(378		)	14,100
Less — Accumulated provision for depreciation	49		1,915		4,050		(192		)	5,822
	72		3,768		4,624		(186		)	8,278
Construction work in progress	3		287		758		—			1,048
	75		4,055		5,382		(186		)	9,326
INVESTMENTS:
Nuclear plant decommissioning trusts	—		—		1,542		—			1,542
Investment in affiliated companies	7,826		—		—		(7,826		)	—
Other	—		10		—		—			10
	7,826		10		1,542		(7,826		)	1,552

DEFERRED CHARGES AND OTHER ASSETS:
Accumulated deferred income tax benefits	279		27		—		(306		)	—
Customer intangibles	11		—		—		—			11
Property taxes	—		3		7		—			10
Derivatives	98		—		—		—			98
Other	29		333		—		12			374
	417		363		7		(294		)	493
	$	9,740	$	6,453	$	8,574	$	(11,900	)	$	12,867

LIABILITIES AND CAPITALIZATION
CURRENT LIABILITIES:
Currently payable long-term debt	$	—	$	199	$	8	$	(25	)	$	182
Short-term borrowings-
Affiliated companies	2,723		480		—		(3,102		)	101
Accounts payable-
Affiliated companies	597		165		180		(549		)	393
Other	18		71		—		—			89
Accrued taxes	31		28		51		(38		)	72
Derivatives	88		1		—		—			89
Other	66		71		12		33			182
	3,523		1,015		251		(3,681		)	1,108
CAPITALIZATION:
Total equity	5,409		2,897		4,893		(7,790		)	5,409
Long-term debt and other long-term obligations	691		2,108		1,120		(1,104		)	2,815
	6,100		5,005		6,013		(8,894		)	8,224
NONCURRENT LIABILITIES:
Deferred gain on sale and leaseback transaction	—		—		—		765			765
Accumulated deferred income taxes	7		—		817		(90		)	734
Retirement benefits	25		194		—		—			219
Asset retirement obligations	—		186		701		—			887
Derivatives	45		5		—		—			50
Other	40		48		792		—			880
	117		433		2,310		675			3,535
	$	9,740	$	6,453	$	8,574	$	(11,900	)	$	12,867

FIRSTENERGY SOLUTIONS CORP.

CONDENSED CONSOLIDATING BALANCE SHEETS



As of December 31, 2015	FES		FG		NG		Eliminations			Consolidated
	(In millions)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	—	$	2	$	—	$	—		$	2
Receivables-
Customers	275		—		—		—			275
Affiliated companies	433		403		461		(846		)	451
Other	36		4		19		—			59
Notes receivable from affiliated companies	406		1,210		805		(2,410		)	11
Materials and supplies	53		204		213		—			470
Derivatives	154		—		—		—			154
Collateral	70		—		—		—			70
Prepayments and other	48		18		—		—			66
	1,475		1,841		1,498		(3,256		)	1,558
PROPERTY, PLANT AND EQUIPMENT:
In service	93		6,367		8,233		(382		)	14,311
Less — Accumulated provision for depreciation	40		2,144		3,775		(194		)	5,765
	53		4,223		4,458		(188		)	8,546
Construction work in progress	30		249		878		—			1,157
	83		4,472		5,336		(188		)	9,703
INVESTMENTS:
Nuclear plant decommissioning trusts	—		—		1,327		—			1,327
Investment in affiliated companies	7,452		—		—		(7,452		)	—
Other	—		10		—		—			10
	7,452		10		1,327		(7,452		)	1,337

DEFERRED CHARGES AND OTHER ASSETS:
Accumulated deferred income tax benefits	300		16		—		(316		)	—
Customer intangibles	61		—		—		—			61
Goodwill	23		—		—		—			23
Property taxes	—		12		28		—			40
Derivatives	79		—		—		—			79
Other	29		312		14		12			367
	492		340		42		(304		)	570
	$	9,502	$	6,663	$	8,203	$	(11,200	)	$	13,168

LIABILITIES AND CAPITALIZATION
CURRENT LIABILITIES:
Currently payable long-term debt	$	—	$	229	$	308	$	(25	)	$	512
Short-term borrowings-
Affiliated companies	2,021		389		—		(2,410		)	—
Other	—		8		—		—			8
Accounts payable-
Affiliated companies	884		146		368		(856		)	542
Other	21		118		—		—			139
Accrued taxes	7		93		62		(86		)	76
Derivatives	103		1		—		—			104
Other	66		61		9		45			181
	3,102		1,045		747		(3,332		)	1,562
CAPITALIZATION:
Total equity	5,605		2,944		4,476		(7,420		)	5,605
Long-term debt and other long-term obligations	690		2,116		840		(1,136		)	2,510
	6,295		5,060		5,316		(8,556		)	8,115
NONCURRENT LIABILITIES:
Deferred gain on sale and leaseback transaction	—		—		—		791			791
Accumulated deferred income taxes	6		—		697		(103		)	600
Retirement benefits	27		305		—		—			332
Asset retirement obligations	—		191		640		—			831
Derivatives	37		1		—		—			38
Other	35		61		803		—			899
	105		558		2,140		688			3,491
	$	9,502	$	6,663	$	8,203	$	(11,200	)	$	13,168

FIRSTENERGY SOLUTIONS CORP.

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS



For the Nine Months Ended September 30, 2016	FES			FG			NG			Eliminations			Consolidated
	(In millions)

NET CASH PROVIDED FROM (USED FOR) OPERATING ACTIVITIES	$	(605	)	$	401		$	820		$	(12	)	$	604
CASH FLOWS FROM FINANCING ACTIVITIES:
New Financing-
Long-term debt	—			186			285			—			471
Short-term borrowings, net	701			92			—			(692		)	101
Redemptions and Repayments-
Long-term debt	—			(211		)	(304		)	12			(503		)
Other	—			(5		)	(2		)	—			(7		)
Net cash provided from (used for) financing activities	701			62			(21		)	(680		)	62
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions	(28		)	(171		)	(233		)	—			(432		)
Nuclear fuel	—			—			(195		)	—			(195		)
Sales of investment securities held in trusts	—			—			576			—			576
Purchases of investment securities held in trusts	—			—			(619		)	—			(619		)
Cash investments	10			—			—			—			10
Loans to affiliated companies, net	(87		)	(292		)	(328		)	692			(15		)
Other	9			—			—			—			9
Net cash used for investing activities	(96		)	(463		)	(799		)	692			(666		)
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

FIRSTENERGY SOLUTIONS CORP.

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS



For the Nine Months Ended September 30, 2015	FES			FG			NG			Eliminations			Consolidated
	(In millions)

NET CASH PROVIDED FROM (USED FOR) OPERATING ACTIVITIES	$	(624	)	$	405		$	867		$	(12	)	$	636
CASH FLOWS FROM FINANCING ACTIVITIES:
New Financing-
Long-term debt	—			43			296			—			339
Short-term borrowings, net	689			51			—			(740		)	—
Redemptions and Repayments-
Long-term debt	(17		)	(55		)	(322		)	12			(382		)
Short-term borrowings, net	—			—			(27		)	(82		)	(109		)
Other	—			(4		)	(1		)	—			(5		)
Net cash provided from (used for) financing activities	672			35			(54		)	(810		)	(157		)

CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions	(3		)	(144		)	(194		)	—			(341		)
Nuclear fuel	—			—			(101		)	—			(101		)
Sales of investment securities held in trusts	—			—			503			—			503
Purchases of investment securities held in trusts	—			—			(546		)	—			(546		)
Loans to affiliated companies, net	(45		)	(302		)	(475		)	822			—
Cash Investments	(10		)	—			—			—			(10		)
Other	10			6			—			—			16
Net cash used for investing activities	(48		)	(440		)	(813		)	822			(479		)
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