SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) October 29, 1997
FirstEnergy Corp.
(Exact name of Registrant as specified in its charter)
Ohio 34-1843785
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation) File Number) Identification No.)
76 South Main Street, Akron, Ohio 44308
(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 330-384-5100
Item 2. Acquisition or Disposition of Assets
On November 8, 1997, the merger of Ohio Edison Company (OE)
and Centerior Energy Corporation (Centerior) became effective
pursuant to the Merger Agreement, dated September 13, 1996, which
was reported on Form 8-K filed by OE on September 17, 1996. The
Federal Energy Regulatory Commission (FERC) issued an order on
October 29, 1997, conditionally approving the transaction and OE
and Centerior notified the FERC of their acceptance of that order
on October 30, 1997. The application of FirstEnergy Corp (Company)
to the Securities and Exchange Commission (SEC) under the Public
Utility Holding Company Act of 1935 to acquire the common stock of
OE, Pennsylvania Power Company and the Centerior utility
subsidiaries was approved on November 5, 1997. Under the Merger
Agreement, OE and Centerior formed FirstEnergy Corp., an Ohio
holding company, which after a series of intermediate mergers will
hold directly all of the issued and outstanding common shares of OE
and all of the issued and outstanding common shares of Centerior's
direct subsidiaries, which include, among others, The Cleveland
Electric Illuminating Company and The Toledo Edison Company. As a
result of the merger, the former common shareholders of OE and
Centerior now own all of the outstanding shares of FirstEnergy
Common Stock. The Company's common shares are registered pursuant
to Section 12(b) of the Securities Exchange Act of 1934. All other
classes of capital stock of OE and its subsidiaries and of the
subsidiaries of Centerior will be unaffected by the Merger and will
remain outstanding.
Item 7. Financial Statements
The pro forma financial statements are based on actual
results of operations as of June 30, 1997, adjusted for the
estimated purchase accounting adjustments used for purposes of
the Company's Form S-4 filed with the SEC in February 1997. These
pro forma financial statements will be amended upon completion of
the fair value analysis of the Centerior net assets which were
acquired in the merger, but in any event no later than January
23, 1998. The unaudited pro forma financial statements reflect a
fair value adjustment of $1.25 billion to reduce the carrying
value of the nuclear generating units at FirstEnergy, as required
by Accounting Principles Board Opinion 16. This fair value
adjustment is an estimated amount; the ultimate fair value of
Cleveland Electric's and Toledo Edison's net assets to be
determined is likely to require an adjustment which may be more
or less than the amount used for purposes of these unaudited pro
forma financial statements. Any difference between the ultimate
net asset valuation and the valuation assumed in the unaudited
pro forma financial statements will be reflected as an adjustment
of the goodwill recognized in connection with the Merger.
The unaudited pro forma balance sheet of FirstEnergy at June
30, 1997, set forth below, gives effect to the Merger as if it
had been consummated on that date. The unaudited pro forma
statements of income of FirstEnergy for the twelve month period
ended June 30, 1997 set forth below, give effect to the Merger as
if it had been consummated on July 1, 1996. These statements are
prepared based on accounting for the Merger as a purchase with
the assumptions specified in the notes thereto. Purchase
accounting adjustments are estimates and therefore subject to
change.
The following pro forma financial information has been
prepared from, and should be read in conjunction with, the
historical consolidated financial statements and related notes
thereto of Ohio Edison and Centerior. The following information
does not reflect any potential cost reductions or synergies
associated with the Merger and is not necessarily indicative of
the financial position or operating results that would have
occurred had the Merger been consummated on the date as of which,
or at the beginning of the periods for which, the Merger is being
given effect, nor is it necessarily indicative of future
financial position or operating results.
<TABLE>
FIRSTENERGY CORP.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
June 30, 1997
(In millions)
<CAPTION>
Pro Forma Pro Forma
Ohio Edison Centerior Adjustments Combined
----------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Assets
Utility plant, net of depreciation $5,256 $ 6,799 $ (1,250) (3a) $10,805
Other property and investments 1,132 1,142 2,274
Current assets 513 480 (13) (3b) 980
Regulatory assets 1,656 2,248 (750) (3a) 3,154
Goodwill 0 0 904 (3c) 904
Other deferred charges 265 270 535
------ ------- ------- -------
Total Assets $8,822 $10,939 $(1,109) $18,652
====== ======= ======= =======
Capitalization and Liabilities
Common shareholders' equity:
Common stock and other paid-in capital $2,101 $2,321 $ (755) (3d) $3,667
Retained earnings (deficit) 596 (393) 393 (3d) 596
Unallocated ESOP common shares (150) 0 0 (150)
------ ------ ------ ------
Total common shareholders' equity 2,547 1,928 (362) 4,113
Preferred stock:
Not subject to mandatory redemption 161 0 (161) (3e) 0
Subject to mandatory redemption 20 0 (20) (3e) 0
Preferred stock of consolidated subsidiaries:
Not subject to mandatory redemption 51 448 161 (3e) 660
Subject to mandatory redemption 15 174 6 (3e)(3f) 195
Ohio Edison obligated mandatorily redeemable
preferred securities of subsidiary trust hold-
ing solely Ohio Edison subordinated debentures 120 0 120
Long-term debt 2,369 4,238 16 (3f) 6,623
------ ------- ------- -------
Total capitalization 5,283 6,788 (360) 11,711
Current liabilities 1,295 1,062 (13) (3b) 2,344
Accumulated deferred income taxes 1,742 1,896 (690) (3k) 2,948
Accumulated deferred investment tax credits 192 246 (64) (3k) 374
Other liabilities 310 947 18 (3g) 1,275
------ ------- ------- -------
Total Capitalization and Liabilities $8,822 $10,939 $(1,109) $18,652
====== ======= ======= =======
</TABLE>
<TABLE>
FIRSTENERGY CORP.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
Twelve Months Ended June 30, 1997
(In millions, except per share amounts))
- --------------------------------------------------------------------------------------------------
<CAPTION>
Pro Forma Pro Forma
Ohio Edison Centerior Adjustments Combined
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Operating revenues $2,457 $2,563 $(13) (3h) $5,007
------ ------ ---- ------
Fuel and purchased power 435 475 (3) (3h) 907
Other operation and maintenance expenses 679 783 (12) (3h) 1,450
------ ------ ---- ------
Total operation and maintenance expenses 1,114 1,258 (15) 2,357
Depreciation and amortization, net 399 352 (75) (3i) 676
General taxes 234 312 2 (3h) 548
Income taxes 186 125 26 (3k) 337
------ ------ ---- ------
Total operating expense and taxes 1,933 2,047 (62) 3,918
------ ------ ---- ------
Operating income 524 516 49 1,089
Other income (expense) 48 (14) (22) (3i) 12
------ ------ ---- ------
Total income 572 502 27 1,101
------ ------ ---- ------
Interest charges 240 324 564
Allowance for borrowed funds used during
construction and capitalized interest (2) (2) (4)
Subsidiaries' preferred stock dividend
requirements 16 54 12 (3j) 82
------ ------ ---- ------
Net interest and other charges 254 376 12 642
Net income 318 126 15 459
Preferred stock dividend requirements 12 - (12) (3j) -
------ ------- ---- ------
Earnings on common stock $ 306 $ 126 $ 27 $ 459
====== ======= ==== ======
Average common shares outstanding 144 148 (70) 222
====== ======= ==== ======
Earnings per share of common stock $ 2.12 $ .85 $ 2.07
====== ======= ======
</TABLE>
FIRSTENERGY CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
Note 1 - Reclassifications
Certain reclassifications have been made to the Centerior
unaudited historical financial statements to conform to the
presentation expected to be used by the merged companies.
Note 2- Exchange Ratios
Under the Merger Agreement, each outstanding share of Ohio
Edison Common Stock will be converted into one share of
FirstEnergy Common Stock, and each outstanding share of Centerior
Common Stock will be converted into 0.525 of a share of
FirstEnergy Common Stock. These conversion numbers were used in
computing share and per share amounts in the accompanying
unaudited pro forma combined condensed financial statements.
Note 3 - Pro Forma Adjustments
(a) As required by APB16, a pro forma adjustment has been
recognized by FirstEnergy to adjust the Cleveland Electric and
Toledo Edison nuclear generating units to fair value. Such
adjustment has been based upon the estimated discounted future
cash flows expected to be generated by their nuclear generating
units.
(b) A pro forma adjustment has been made to eliminate
accounts receivable and payable between Ohio Edison and Centerior
as of the balance sheet date.
(c) A pro forma adjustment has been made to recognize
goodwill in connection with the Merger. The goodwill represents
the excess of the purchase price over Centerior's net assets
after taking into account the adjustments described in (a) above.
The carrying cost for all other assets and liabilities (except as
described in (f) and (g) below) is assumed to be equal to fair
market value. If it is determined that the ultimate fair market
value of Centerior's net assets is more or less than their
estimated carrying value at the time of consummation, goodwill
would be adjusted accordingly. The purchase price was based on
the imputed value to holders of Centerior Common Stock using a
market value of Ohio Edison Common Stock of $20.125 per share.
(d) Pro forma equity adjustments recognize the elimination
of Centerior's accumulated deficit as of the consummation of the
Merger and the purchase price computed as described in (c) above.
(e) Pro forma adjustments have been made to reclassify Ohio
Edison preferred stock outstanding to subsidiary preferred stock
outstanding on FirstEnergy's balance sheet.
(f) A pro forma adjustment has been made to recognize
Centerior's preferred stock of consolidated subsidiaries subject
to mandatory redemption and long-term debt at estimated fair
market value.
(g) A pro forma adjustment has been made to recognize
Centerior's net unamortized transition obligation related to
certain retirement benefits.
(h) Pro forma adjustments have been made to eliminate
revenue and expense transactions between Ohio Edison and
Centerior.
(I) Pro forma adjustments have been made to recognize
amortization of goodwill in connection with the Merger over a 40-
year period, offset by reductions in depreciation expense and
amortization of regulatory assets resulting from the assumed
revaluation of Centerior's assets described in (a) above.
(j) A pro forma adjustment has been made to reclassify Ohio
Edison's preferred stock dividend requirements to subsidiaries'
preferred stock dividend requirements (a reduction to net income)
on FirstEnergy's statement of income.
(k) Pro forma adjustments have been made for the estimated
tax effects of the adjustments discussed in (a), (f), (g) and (i)
above.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
FIRSTENERGY CORP.
/s/Harvey L. Wagner
------------------------
Harvey L. Wagner
Controller
Dated: November 10, 1997
