FIRSTENERGY CORP.
2000
MID-YEAR REPORT TO SHAREHOLDERS
www.firstenergycorp.com
Dear Shareholder:
On August 8, 2000, FirstEnergy announced that our Board of Directors, as
well as the board of Morristown, New Jersey-based GPU, Inc., had
unanimously approved a definitive merger agreement under which FirstEnergy
would acquire all of the outstanding shares of GPU's common stock.
The transaction is conditioned, among other things, upon the approval of
each company's shareholders and various regulatory agencies.
You will receive more information on the proposed merger when we mail proxy
materials later this year.
DELIVERING STRONGER EARNINGS PERFORMANCE
Net income reached $275.5 million, or $1.23 per share of common stock,
compared with $262.0 million, or $1.15 per share, for the first six months
of 1999.
Stronger financial performance reflects continued growth in our customer
base, regional economic growth and our ongoing expansion into unregulated
markets. Total kilowatt-hour sales rose 11.4 percent, reflecting a 94.6
percent increase in sales to customers in unregulated energy markets.
We made continued progress in our debt-reduction efforts. During the first
half of the year, debt and preferred stock reductions totaled $130.4
million, which will result in interest savings of $9.1 million. And, we
refinanced and re-priced debt totaling $303.8 million, which will save
another $2.4 million in annual interest expenses.
We continued to acquire shares of our outstanding common stock under a
three-year-repurchase program, which will help improve our earnings-per-
share performance. Through the second quarter, we bought back 9.3 million
of the 15 million shares we are authorized to acquire under the program.
PREPARING TO COMPETE IN OHIO
With last month's approval of our transition plan by the Public Utilities
Commission of Ohio, we're well positioned to succeed in Ohio's electricity
market, which opens to competition on January 1, 2001.
The plan - supported by most of the major parties to our case - will help
jump-start competition in Ohio through additional customer savings and
incentives for competitive suppliers, while providing us the opportunity to
recover transition costs.
Major provisions of the plan will:
- Give us the opportunity to recover $6.9 billion in past costs we incurred
to serve customers in a regulated environment;
- Provide savings for customers through incentives to shop, continued
reductions in customer charges, and an extension of our freeze in
distribution prices; and
- Result in the sale of 1,120 megawatts (MW) of our generation at set
prices during the next five years to competing suppliers for resale to
our retail customers, with 500 MW reserved for the residential market.
While our transition plan provides us with the framework for how we'll
compete, we're taking other steps to prepare for Ohio's deregulated
electricity market.
To ensure we meet corporate separation requirements of the state's
deregulation law, we're organizing our Company into three separate business
units:
- A regulated Utilities Unit - primarily responsible for distributing and
transmitting electricity;
- A Competitive Unit - that offers energy and energy-related products and
services inside and outside our traditional service area;
- And, a Corporate Support Unit - that provides business support services
to all areas of the Company.
And, we're taking additional steps to ensure these areas operate as
efficiently as possible.
For example, we reached an agreement with the Utility Workers Union of
America Local 270 that resolved all outstanding contractual issues with the
union local, which represents approximately 1,200 Illuminating Company
distribution and power plant employees.
Safety improvements at our power plants also are enhancing our
competitiveness. Employees at the Bruce Mansfield and Davis-Besse plants
set new safety records during the first half of 2000, working a combined
total of 5.7 million hours without a lost-time accident.
We're also improving our competitive position - and helping protect our
Company from volatility on the wholesale market - by adding 1,155 MW of
peaking capacity by Summer 2002, including 390 MW being installed this
year.
CONTINUING TO SUCCEED IN NEW MARKETS
As we prepare to compete in Ohio, we continue to succeed in already
deregulated energy markets.
During the first half of 2000, we added Maryland to the growing list of
states where we're licensed to sell electricity. The others are Delaware,
New Jersey and Pennsylvania, where we've added more than 20,000 new
electricity accounts.
We're also working to expand our presence in the natural gas business. Our
resources include more than 7,700 oil and gas wells; drilling rights to
more than 980,000 acres in the Appalachian Basin; proved reserves of 450
billion cubic feet equivalent of natural gas and oil; and 5,000 miles of
pipelines.
And, we're entering new Internet and telecommunications ventures to further
diversify our source of revenues, improve customer service and reduce
costs.
Our FirstEnergy Telecom subsidiary has joined other utility telecom
affiliates to form America's Fiber Network (AFN). The high-speed fiber
optics company will provide telecommunications capacity to Internet
providers, local and long-distance companies and wireless communications
companies. AFN's network, located in the eastern United States, is
positioned to reach areas responsible for 35 percent of the national
wholesale communications market.
We've also joined 20 other leading energy and utility companies to form a
new, for-profit company, Pantellos Corporation, which will operate an
Internet marketplace for the purchase of goods and services between the
energy industry and its suppliers. Participation in this e-marketplace is
expected to produce savings by streamlining purchasing, and increase
revenues through our ownership share in the company.
ACHIEVING OUR VISION
We've made significant accomplishments so far this year, a testament to the
hard work and dedication of our employees.
While we're proud of our progress, we realize that much work remains. With
your ongoing support, we'll continue capitalizing on opportunities for
growth while meeting the challenges of the competitive energy marketplace.
Sincerely,
Peter Burg
Chairman and Chief Executive Officer
August 16, 2000
INVESTOR INFORMATION
ANNUAL MEETING SUMMARY
The Annual Meeting of Shareholders was held on April 27, 2000, at the John
S. Knight Center in downtown Akron. Chairman and CEO Peter Burg
highlighted the Company's operations and financial performance. He also
addressed several issues, including how we're succeeding in already
deregulated energy markets while also preparing to compete in Ohio's
electricity market.
Shareholders elected the four nominees recommended by the Board to serve
three-year terms as directors and ratified the appointment of Arthur
Andersen LLP as auditors for the year 2000. In addition, shareholders
defeated proposals to change the process by which members of the Board are
elected and to revise voting requirements.
INVESTOR SERVICES
For information or assistance regarding investor services or your account,
please write to Investor Services, FirstEnergy Corp., 76 South Main Street,
Akron, Ohio 44308-1890; or call 1-800-736-3402, which is valid in the
United States, Canada, Puerto Rico and the Virgin Islands. Shareholder
information also can be accessed on our Web site: www.firstenergycorp.com.
NEW SERVICES FOR REGISTERED SHAREHOLDERS
Beginning November 1, two new shareholder services - a telephone voice
response system and an Internet access feature - will be available to
registered shareholders.
When calling our Investor Services toll-free number, the automated
telephone voice response system will enable shareholders to quickly and
easily obtain shareholder and Company information, as well as certain
account information. In addition, the new system will continue to provide
direct access to our account representatives.
Shareholders also will be able to access certain account information and
conduct certain shareholder-related business transactions on our secure Web
site. For example, shareholders will be able to view share balances and
change addresses. If you are interested in using this service, please
follow these easy steps beginning November 1:
1. Go to our Web site home page - www.firstenergycorp.com - and click on
Investor Information. Then click on My Shareholder Account.
2. Sign up to use this service by entering the security code that is
printed on your dividend check stub or your reinvestment plan
statement, then enter your tax identification number, which is your
Social Security number, and the Personal Identification Number (PIN)
you've chosen. Shareholders also may sign up by calling us toll-free
at 1-800-736-3402. Foreign shareholders must either call or write to
Investor Services to sign up.
3. After signing up, which you do only once, you will simply enter your
tax identification number and PIN to access your account.
COMMON STOCK PRICE HIGHLIGHTS
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
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For 6 months ended June 30, 2000 $26.875 $18.00
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For 12 months ended June 30, 2000 $31.31 $18.00
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</TABLE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA (UNAUDITED)
Condensed consolidated statements of income
(In thousands, except per share amounts) 6 Months Ended June 30
------------------------------------------------------------------------
2000 1999
------------------------------------------------------------------------
<S> <C> <C>
Total revenues $3,310,034 $2,941,291
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Operating expenses 1,866,188 1,505,994
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Depreciation and amortization 426,878 407,913
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General taxes 279,032 277,560
------------------------------------------------------------------------
Income before interest and income taxes 737,936 749,824
------------------------------------------------------------------------
Net interest expense 269,373 293,439
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Income taxes 193,041 194,342
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Net income $275,522 $262,043
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Basic and diluted earnings per share of
common stock $ 1.23 $ 1.15
------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
KILOWATT-HOUR SALES
(Billions)
1999 2000
----------------------------------------
<S> <C> <C>
First Quarter 15.9 17.9
Second Quarter 16.2 17.8
Six Months 32.1 35.7
</TABLE>
<TABLE>
<CAPTION>
EARNINGS PER SHARE
(Dollars)
1999 2000
----------------------------------------
<S> <C> <C>
First Quarter .60 .63
Second Quarter .55 .60
Six Months 1.15 1.23
</TABLE>
