Original Source: FD (FAIR DISCLOSURE) WIRE
. Kurt Turosky, FirstEnergy, Director IR . Rich Marsh, FirstEnergy, SVP, CFO . Tony Alexander, FirstEnergy, President, CEO . Paul Patterson, Glenrock Associates, Analyst . Steve Fleishman, Merrill Lynch, Analyst
. Paul Fremont, Jefferies & Company, Analyst . Daniele Seitz, Dahlman Rose, Analyst . Paul Ridzon, KeyBanc, Analyst . Dan Jenkins, State of Wisconsin Investment Board, Analyst . Margaret Jones, Citigroup, Analyst
The Co. reported that earnings on a GAAP basis for 2Q06 were $0.92 per share. 2Q06 normalized non-GAAP earnings were $0.95 per share, excluding unusual items of $0.03 per share. 2006 non-GAAP earnings guidance is $3.65-3.85 per share and non-GAAP cash generation guidance is $460m.
A. Key Data From Call 1. 2Q06 GAAP EPS = $0.92. 2. 2Q06 normalized non-GAAP EPS = $0.95 (excluding unusual items of $0.03 per share).
3. 2006 non-GAAP EPS guidance = $3.65-3.85. 4. 2006 non-GAAP cash generation guidance = $460m.
S1. Financial Review (R.M.) 1. 2Q06 Financial Overview: 1. Earnings on a GAAP basis were $0.92 per share vs. GAAP earnings of $0.54 per share in 2Q05. 2. Normalized non-GAAP earnings were $0.95 per share, excluding unusual items of $0.03 per share. 1. These unusual items included the impairment of non-core assets in the Facility Services Group, partially offset by the gain on the sale of one the Co.'s [smaller retired] generating units. 2. These results compare favorably to normalized non-GAAP earnings of $0.71 per share in 2Q05. 1. This improvement was driven primarily by the implementation of the Ohio rate plans, recently approved
deferral accounting for PJM transmission expenses and continued favorable operating performance. 3. The major contributors to earnings from the Ohio rate plans vs. 2Q05 include: 1. Reduction in transition cost amortization of $0.20 per share, primarily reflecting the end of generation transition cost recovery in 2005. 2. The deferral of $0.07 per share of certain distribution cost related to a liability spending. 3. The deferral of $0.05 per share of incremental fuel expenses. 1. These were partially offset by a $0.07 per share reduction in earnings related to the rate stabilization charge discount provided to shopping customers. 4. Another favorable factor in 2Q06 earnings was the implementation of deferral accounting for the PJM transmission costs that [aren't] included in the base rate tariffs. 1. This deferral was authorized by a Pennsylvania Public Utility Commission order on 05/04/06.
2. Consistent with the Co.'s petition, the order doesn't grab rate recovery of these costs, but does allow Met-Ed and Penelec to seek recovery in the pending transition rate plan filing. 3. The deferral increased earnings by $0.10 per share during 2Q06 and then included a $0.05 per share benefit for deferral of charges incurred in 1Q06. 1. The benefit of this deferral accounting order was not
included in the Co.'s prior earnings guidance for 2006. 5. Other factors that contributed to the earnings improvement included:
1. A $0.02 per share benefit from lower nuclear O&M expenses as a result of fewer outage days this year vs. the same period last year. 2. A $0.01 per share reduction in the cost of other
post-retirement benefits. 3. A $0.02 per share benefit from the Jersey Central Power & Light rate increase that became effective in June 2005. 6. Factors partially offsetting these favorable impacts included: 1. A $0.03 per share decrease in generation revenues driven primarily by lower wholesale market prices. 2. A $0.05 per share increase in fuel and purchase power expenses, primarily due to increased generation output and higher coal cost. 3. A $0.03 per share decline in distribution deliveries primarily as a result of unseasonably mild weather during the period. 7. Heating degree days were 17% lower than in 2Q05 and 14% below normal.
8. Cooling degree days were 24% lower than in 2Q05 and 17% below
normal. 9. Total financing cost increased $0.03 per share from 2Q05. 1. This resulted from the absence of the gains on reacquired debt that were realized in 2Q05 and also $3m after-tax
charge in 2006 related to the redemption of $61m of Ohio Edison preferred stock. 2. The Co. also experienced a $0.03 per share reduction in investment income primarily due to lower nuclear decommissioning trust income. 10. Total electric generation sales rose 4% vs. 2Q05.
11. Retail …