Filed Pursuant to Rule 424(b)(4)
File No. 333-69856
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED NOVEMBER 8, 2001)
$4,000,000,000
[LOGO]
$1,000,000,000 5.50% NOTES, SERIES A, DUE 2006
$1,500,000,000 6.45% NOTES, SERIES B, DUE 2011
$1,500,000,000 7.375% NOTES, SERIES C, DUE 2031
-----------------
INTEREST PAYABLE ON MAY 15 AND NOVEMBER 15
-------------------
THE NOTES ARE UNSECURED AND WILL RANK EQUALLY WITH ALL OF OUR OTHER UNSECURED
INDEBTEDNESS. THERE IS NO SINKING FUND FOR THE NOTES. WE MAY REDEEM SOME OR ALL
OF THE NOTES FROM TIME TO TIME PRIOR TO THEIR MATURITY AT THE REDEMPTION PRICES
MORE FULLY DESCRIBED IN THIS PROSPECTUS SUPPLEMENT. FOR A MORE DETAILED
DESCRIPTION OF THE NOTES, SEE "DESCRIPTION OF THE NOTES" BEGINNING ON PAGE S-23.
-------------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS FIRSTENERGY(1)
--------- ------------- --------------
PER NOTE DUE 2006............................... 99.888% .600% 99.288%
TOTAL......................................... $998,880,000 $6,000,000 $992,880,000
PER NOTE DUE 2011............................... 99.651% .650% 99.001%
TOTAL......................................... $1,494,765,000 $9,750,000 $1,485,015,000
PER NOTE DUE 2031............................... 99.832% .875% 98.957%
TOTAL......................................... $1,497,480,000 $13,125,000 $1,484,355,000
---------
(1) PLUS ACCRUED INTEREST, IF ANY, FROM NOVEMBER 15, 2001.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE UNDERWRITERS EXPECT TO DELIVER THE NOTES TO PURCHASERS IN REGISTERED
BOOK-ENTRY FORM ONLY, THROUGH THE DEPOSITORY TRUST COMPANY, CLEARSTREAM,
LUXEMBOURG OR EUROCLEAR, AS THE CASE MAY BE, ON NOVEMBER 15, 2001.
-------------------
JOINT BOOK-RUNNERS
BARCLAYS CAPITAL MORGAN STANLEY SALOMON SMITH BARNEY
-----------------
BANC ONE CAPITAL MARKETS, INC.
BNY CAPITAL MARKETS, INC.
JPMORGAN
TD SECURITIES
NOVEMBER 8, 2001
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Page
----
ABOUT THIS PROSPECTUS SUPPLEMENT...................................................S-1
SUMMARY............................................................................S-2
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION.............................S-6
USE OF PROCEEDS....................................................................S-8
CAPITALIZATION.....................................................................S-8
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION.......................S-9
DESCRIPTION OF THE NOTES..........................................................S-23
UNDERWRITERS......................................................................S-25
PROSPECTUS
ABOUT THIS PROSPECTUS................................................................1
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS.................................1
FIRSTENERGY CORP.....................................................................2
USE OF PROCEEDS......................................................................3
RATIO OF EARNINGS TO FIXED CHARGES...................................................3
DESCRIPTION OF THE DEBT SECURITIES...................................................3
PLAN OF DISTRIBUTION................................................................16
LEGAL MATTERS.......................................................................17
EXPERTS.............................................................................17
WHERE YOU CAN FIND MORE INFORMATION.................................................17
------------
i
ABOUT THIS PROSPECTUS SUPPLEMENT
This prospectus supplement and the attached prospectus contain
information about our company and about the notes. You should rely only on
the information contained or incorporated by reference in this prospectus
supplement and the accompanying prospectus. Neither we nor any underwriter,
agent or dealer has authorized anyone to provide you with information that is
different. Neither we nor any underwriter, agent or dealer is making an offer
of these securities in any state where the offer is not permitted. You should
not assume that the information contained or incorporated by reference in
this prospectus supplement or the accompanying prospectus is accurate as of
any date other than the date on the front of this prospectus supplement.
When we refer to "FirstEnergy," "we," "us," or "our" in this
prospectus supplement, we mean FirstEnergy Corp.
S-1
SUMMARY
THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT MAY BE
IMPORTANT TO YOU. YOU SHOULD READ THIS ENTIRE PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS, AS WELL AS THE DOCUMENTS INCORPORATED IN THE
ACCOMPANYING PROSPECTUS, BEFORE MAKING AN INVESTMENT DECISION.
FIRSTENERGY CORP.
FirstEnergy Corp. was organized under the laws of the State of Ohio
in 1996 and became a holding company on November 8, 1997 in connection with
the merger of Ohio Edison Company and Centerior Energy Corporation. On
November 7, 2001, we merged with GPU, Inc. and became a registered holding
company under the Public Utility Holding Company Act of 1935. Our principal
business is the holding, directly or indirectly, of all of the outstanding
common stock of our principal electric utility operating subsidiaries, Ohio
Edison, The Cleveland Electric Illuminating Company, Pennsylvania Power
Company, The Toledo Edison Company, American Transmission Systems, Inc.,
Jersey Central Power & Light Company, Pennsylvania Electric Company and
Metropolitan Edison Company. Our consolidated revenues are primarily derived
from electric service provided by our electric utility subsidiaries. We serve
approximately 4.3 million customers with contiguous transmission systems
across a combined service area of approximately 37,000 square miles in Ohio,
Pennsylvania, New Jersey and New York.
As of June 30, 2001, Ohio Edison, Cleveland Electric, Pennsylvania
Power and Toledo Edison have 12,958 megawatts (MW) of generation capacity and
related energy to meet customer needs. Pursuant to our corporate separation
plan implemented under Ohio utility restructuring legislation, we transferred
operational control of the non-nuclear generation assets of those operating
subsidiaries to FirstEnergy Generation Corp. as of January 1, 2001. We expect
that the transfer of ownership of those assets to FirstEnergy Generation will
be completed by December 31, 2005, the end of the legislation's market
development period.
As a result of restructuring legislation in Pennsylvania and New
Jersey, the GPU system had divested essentially all of its generation assets
prior to the time we agreed to merge in August 2000. However, Pennsylvania
and New Jersey restructuring orders require Jersey Central, Pennsylvania
Electric and Metropolitan Edison, our operating subsidiaries formerly owned
by GPU, to act as providers of last resort by supplying electricity to
customers who do not choose an alternate supplier. This obligation continues,
with a deferral mechanism, at least through July 2003 in New Jersey and
through 2010, with a deferral mechanism through 2005, in Pennsylvania. As of
June 30, 2001, these operating subsidiaries have 285 MW of generation
capacity and related energy to meet customer needs and have contracts with
non-utility generators totaling 1,595 MW and agreements with other parties to
provide varying amounts of capacity through May 31, 2004. In addition, they
have purchased all of the capacity and energy of their previously owned Three
Mile Island Unit 1 and Oyster Creek nuclear generating stations through
December 31, 2001 and March 31, 2003, respectively, and have a right to 3,970
MW of capacity through May 31, 2002, associated with generating stations they
sold in 1999. These operating subsidiaries will meet their remaining capacity
and energy needs through short- to intermediate-term commitments of one month
to three years and through the spot market. Payments pursuant to these
arrangements, which include firm commitments as well as certain assumptions
regarding, among other things, call/put arrangements, are estimated to be
$839 million for the remainder of 2001, $708 million in 2002, $79 million in
2003, and $5 million in 2004.
Our principal executive office is located at 76 South Main Street,
Akron, Ohio 44308-1890. Our telephone number is (330) 384-5100.
S-2
RECENT DEVELOPMENTS
On November 7, 2001, we completed our merger with GPU, Inc., in
which 50% of the outstanding common stock of GPU was exchanged for shares of
our common stock, using a ratio of 1.2318 shares of our common stock per GPU
share. The remaining 50% of the outstanding common stock of GPU was converted
into $36.50 in cash per GPU share. On a pro forma basis, our combined 2001
revenues and net income for the six-month period ended June 30, 2001 would
have been $6.2 billion and $334 million, respectively. Our total assets as of
June 30, 2001 would have been $35.1 billion on a pro forma basis.
Prior to the merger, GPU filed annual, quarterly and other reports
and information with the SEC. The accompanying prospectus incorporates by
reference the most recent annual, quarterly and current reports filed by GPU
with the SEC. See the section of the accompanying prospectus entitled "WHERE
YOU CAN FIND MORE INFORMATION."
On October 18, 2001, FirstEnergy and UtiliCorp United announced that
UtiliCorp and its financial partner made an offer to us to purchase
GPU's wholly-owned Avon Energy Partners Holdings subsidiary, the holding
company for Midlands Electricity plc, for a total purchase price of $2.1
billion, including the assumption of approximately $1.7 billion of debt. We
accepted the offer upon completion of the GPU merger. Completion of the sale
is subject to the receipt by all parties of the required regulatory approvals.
THE OFFERING
Offered securities...................... $1,000,000,000 principal amount of 5.50% Notes, Series A, Due 2006.
$1,500,000,000 principal amount of 6.45% Notes, Series B, Due 2011.
$1,500,000,000 principal amount of 7.375% Notes, Series C, Due 2031.
Ranking................................. The notes will be unsecured and unsubordinated obligations and
will rank equally with all of our other unsecured and unsubordinated
indebtedness.
Maturity................................ The Series A notes will mature on November 15, 2006.
The Series B notes will mature on November 15, 2011.
The Series C notes will mature on November 15, 2031.
S-3
Use of proceeds......................... We intend to use the proceeds from
the sale of the notes to repay
short-term borrowings under a bank
bridge loan, the proceeds of which
were used to fund the cash portion
of the consideration paid by us in
our merger with GPU and to repay
certain other short-term
indebtedness. See "USE OF
PROCEEDS" below.
Interest rate........................... 5.50% per annum for the Series A notes.
6.45% per annum for the Series B notes.
7.375% per annum for the Series C notes.
Interest payment dates.................. May 15 and November 15 of each year, beginning May 15, 2002.
Optional redemption..................... We may redeem some or all of the
notes from time to time prior to
their maturity at the redemption
prices more fully described below
under the heading "DESCRIPTION OF
THE NOTES--Optional Redemption."
Form of securities...................... Each series of notes will be
represented by one or more fully
registered global securities that
will be deposited with and
registered in the name of The
Depository Trust Company, New
York, New York, or its nominee.
This means that you will not
receive a certificate for your
notes. Instead, beneficial
interests in the global securities
will be represented through
book-entry accounts of financial
institutions. You may hold an
interest in the global notes
through The Depository Trust
Company, Clearstream, Luxembourg
or Euroclear Bank, as operator of
the Euroclear System, directly as
a participant of any such system
or indirectly through
organizations which are
participants in such systems. We
will issue the notes only in
registered form in denominations
of $1,000 and multiples thereof.
See "DESCRIPTION OF THE DEBT
SECURITIES--Book-entry, Delivery
and Form" and "--Global Clearance
and Settlement Procedures" in the
accompanying prospectus.
S-4
Certain Covenants...................... The indenture governing the notes
contains covenants that limit our
ability to:
- incur liens on our property
or assets to secure debt, and
- merge or consolidate with
another company or convey,
sell, or otherwise transfer
our properties and assets
substantially as an entirety.
See "DESCRIPTION OF THE DEBT
SECURITIES--Limitation on Liens"
and "-- Consolidation, Merger,
Conveyance, Sale or Transfer" in
the accompanying prospectus.
S-5
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
FIRSTENERGY--SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
We present below selected historical consolidated financial data for
each of the five fiscal years ended December 31, 2000, which have been derived
from our audited consolidated financial statements, and selected historical
consolidated financial data for the six months ended June 30, 2001 and June 30,
2000, which have been derived from our unaudited consolidated financial
statements.
Due to the effect of seasonal fluctuations and other factors affecting
our operations, our financial results for the six-month period ended June 30,
2001 are not necessarily indicative of what our financial results will be for
the year ending December 31, 2001. You should read the information set forth
below in conjunction with our audited and unaudited consolidated financial
statements included in our filings with the SEC that are incorporated by
reference in the accompanying prospectus.
The information in the table below does not reflect the combined
consolidated position of FirstEnergy and GPU. See "UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL INFORMATION."
(UNAUDITED)
AT OR FOR THE
SIX MONTHS ENDED AT OR FOR THE
JUNE 30, YEARS ENDED DECEMBER 31,
-------------------- -------------------------------------------------------
2001(a) 2000 2000 1999 1998(b) 1997(c) 1996
-------- ------- ------- ------- -------- ------- -------
($ in Millions)
Revenues ................................ $ 3,790 $ 3,310 $ 7,029 $ 6,320 $ 5,875 $ 2,961 $ 2,522
Depreciation and amortization ........ 434 427 934 938 759 475 383
Other operating expenses ............. 2,653 2,145 4,590 3,847 3,770 1,663 1,370
Net interest ......................... 247 269 529 572 601 309 265
Income taxes ......................... 204 193 377 395 304 208 201
Income before accounting change and
extraordinary item ................... 252 276 599 568 441 306 303
Net income .............................. 244 276 599 568 411 306 303
Total assets ............................ 18,138 18,101 17,941 18,224 18,192 18,261 9,219
Preferred stock not subject to mandatory
redemption ........................... 649 649 649 649 660 660 212
Preferred stock subject to mandatory
redemption ........................... 40 124 41 136 175 215 35
Subsidiary-obligated mandatorily
redeemable preferred securities ...... 120 120 120 120 120 120 120
Long-term debt ......................... 5,792 5,966 5,742 6,001 6,352 6,970 2,713
----------
(a) Our 2001 results included an after-tax charge of $8 million, representing
the cumulative effect of a change in accounting principle relating to the
adoption of Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities."
(b) Our 1998 results included an extraordinary loss of $30 million, net of tax,
resulting from a Pennsylvania Public Utility Commission decision
essentially deregulating the generation business of our subsidiary
Pennsylvania Power Company.
(c) Our 1997 results included the 1997 results of operations of The Cleveland
Electric Illuminating Company and The Toledo Edison Company, the former
Centerior Energy Corporation subsidiaries, for the period November 8, 1997
through December 31, 1997, due to the merger of Ohio Edison Company and
Centerior Energy on November 8, 1997, which created FirstEnergy. Our 1997
results also included a nonrecurring net of tax charge of $34 million,
primarily resulting from merger-related staffing reductions.
S-6
GPU--SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
We present below selected historical consolidated financial data for
each of the five fiscal years ended December 31, 2000, which have been derived
from GPU's audited consolidated financial statements, and selected historical
consolidated financial data for the six months ended June 30, 2001 and June 30,
2000, which have been derived from GPU's unaudited consolidated financial
statements.
Due to the effect of seasonal fluctuations and other factors affecting
GPU's operations, GPU's financial results for the six-month period ended June
30, 2001 are not necessarily indicative of what GPU's financial results will be
for the year ending December 31, 2001. You should read the information set forth
below in conjunction with the audited and unaudited consolidated financial
statements of GPU included in its filings with the SEC that are incorporated by
reference in the accompanying prospectus.
The information in the table below does not reflect the combined
consolidated position of FirstEnergy and GPU. See "UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL INFORMATION."
(UNAUDITED)
AT OR FOR THE
SIX MONTHS ENDED AT OR FOR THE
JUNE 30, YEARS ENDED DECEMBER 31,
------------------- ----------------------------------------------------
2001(a) 2000(b) 2000(c) 1999(d) 1998(e) 1997(f) 1996(g)
-------- -------- -------- -------- -------- ------- --------
($ in Millions)
Revenues .................................. $ 2,740 $ 2,530 $ 5,399 $ 4,977 $ 4,249 $ 4,143 $ 3,971
Depreciation and amortization .......... 269 264 548 543 522 468 408
Other operating expenses ............... 1,845 1,545 3,429 3,063 2,611 2,447 2,530
Net interest ........................... 244 285 550 482 389 319 270
Income taxes ........................... 112 49 177 240 240 194 167
Income (loss) before extraordinary item ... 156 (80) 234 459 386 335 298
Net income (loss) ......................... 156 (80) 234 459 360 335 298
Total assets .............................. 19,110 20,459 19,253 21,698 16,288 12,823 10,851
Preferred stock not subject to mandatory
redemption ............................. 13 13 13 13 66 66 66
Preferred stock subject to mandatory
redemption ............................. 49 51 52 73 87 92 114
Subsidiary-obligated mandatorily redeemable
preferred securities ................... 125 125 125 125 330 330 330
Trust preferred securities ................ 200 200 200 200 - - -
Long-term debt ............................ 4,264 4,897 3,919 5,263 3,829 4,329 3,184
----------
(a) In the first half of 2001, GPU's results included a net of tax charge of
$11 million for costs related to enhanced voluntary retirement programs
offered to certain bargaining unit employees in Pennsylvania and a net of
tax charge of $9 million for costs related to the termination of an energy
contract with a wholesale customer of GPU's subsidiary, Pennsylvania
Electric. These losses were partially offset by a net of tax gain of $12
million that resulted from the sale of the Midlands Electricity plc Humber
generating station in the United Kingdom.
(b) In the second quarter of 2000, GPU's results included a loss on the sale of
GPU's Australian PowerNet transmission business of $295 million, net of
tax.
(c) In 2000, GPU's results included a net of tax loss of $277 million that
resulted from the sale of GPU's Australian PowerNet transmission business.
This was partially offset by a net of tax gain of $89 million that resulted
from the sale of the GPU International business; a net of tax gain of $41
million resulting from the Pennsylvania Public Utility Commission Phase II
restructuring orders applicable to Metropolitan Edison's and Pennsylvania
Electric's generation asset divestiture; a net of tax gain of $26 million
related primarily to a restructured power purchase agreement between a GPU
independent power project and another utility; and a net of tax gain of $16
million for the elimination of deferred taxes and realization of an
investment tax credit related to the sale of Jersey Central's Oyster Creek
nuclear generating plant.
(d) In 1999, GPU's results reflected a nonrecurring charge of $68 million, net
of tax, resulting from a New Jersey Board of Public Utilities restructuring
order applicable to GPU's subsidiary, Jersey Central. This was partially
offset by net of tax gains of $36 million and $7 million from the sale of
substantially all of (i) the electric generating facilities of GPU's
subsidiaries, Jersey Central, Metropolitan Edison and Pennsylvania
Electric, and (ii) the supply business of GPU's subsidiary Midlands
Electricity plc, respectively.
(e) In 1998, GPU's results included an extraordinary loss of $26 million, net
of tax, and a nonrecurring net of tax charge of $40 million that resulted
from Pennsylvania Public Utility Commission restructuring orders applicable
to Metropolitan Edison and Pennsylvania Electric and the establishment of a
sustainable energy fund.
(f) In 1997, GPU's results reflected a nonrecurring net of tax charge of $109
million for a windfall profits tax imposed on privatized utilities,
including Midlands, by the government of the United Kingdom.
(g) In 1996, GPU's results reflected a nonrecurring net of tax charge of $75
million for enhanced voluntary retirement program costs.
S-7
USE OF PROCEEDS
We intend to use the net proceeds from the sale of the notes to repay
short-term borrowings under a bank bridge loan, the proceeds of which were used
as follows:
- to pay approximately $2.2 billion in cash consideration to holders of
GPU common stock upon consummation of our merger with GPU;
- to repay approximately $1.5 billion of short-term indebtedness of GPU
and its subsidiaries outstanding immediately prior to the consummation
of the merger; and
- to repay approximately $0.3 billion of our short-term indebtedness.
Amounts outstanding under the bridge loan must be repaid by October 1, 2002, and
carry an initial interest rate of LIBOR plus 1.250% per annum. We may also use
any remaining net proceeds for general corporate purposes.
CAPITALIZATION
The following table shows our currently payable long-term debt and
preferred stock, short-term debt and capitalization (1) on an actual basis, (2)
on a consolidated pro forma basis to reflect our pending merger with GPU and (3)
on a consolidated pro forma basis to reflect the merger as adjusted to reflect
this offering and the use of the proceeds from this offering as set forth under
"USE OF PROCEEDS". This table should be read in conjunction with our and GPU's
consolidated financial statements and related notes for the six months ended
June 30, 2001, incorporated by reference in the accompanying prospectus and the
unaudited pro forma combined condensed financial information included in this
prospectus supplement. See "WHERE YOU CAN FIND MORE INFORMATION."
AS OF JUNE 30, 2001
--------------------------------------------
INITIAL PRO FORMA FOR
PRO FORMA MERGER AND
ACTUAL FOR MERGER(a) OFFERING
-------- ------------- -------------
($ IN MILLIONS)
Currently payable long-term debt and preferred stock ............ $ 639 $ 971 $ 971
Short-term debt ................................................. 758 4,879 879
Capitalization:
Long-term debt ............................................... $ 5,792 $ 7,918 $ 11,918
Preferred stock of consolidated subsidiaries ................. 689 752 752
Subsidiary-obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely subsidiary
subordinated debentures .................................... 120 245 245
Trust preferred securities ................................... -- 200 200
Common shareholders' equity .................................. 4,694 7,288 7,288
-------- -------- --------
Total capitalization ..................................... $ 11,295 $ 16,403 $ 20,403
======== ======== ========
-------
(a) Short-term and long-term debt amounts reflect the initial financing of
the merger with a short-term bridge loan which will be replaced with the
notes. See "USE OF PROCEEDS" above.
S-8
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The unaudited pro forma combined condensed balance sheet as of June 30,
2001 and the unaudited pro forma combined condensed statements of income for the
six month periods ended June 30, 2001 and 2000, and for the year ended December
31, 2000, combine the historical information of FirstEnergy and GPU to give
effect to our merger, including the related financings. The unaudited pro forma
combined condensed financial statements have been prepared to reflect the merger
under the purchase method of accounting where FirstEnergy is acquiring GPU.
Under the purchase method of accounting, tangible and identifiable intangible
assets acquired and liabilities assumed are recorded at their estimated fair
values. The excess of the purchase price, including estimated fees and expenses
related to the merger, over the net assets acquired, is classified as goodwill
on the accompanying unaudited pro forma combined condensed balance sheet. The
estimated fair values and useful lives of assets acquired and liabilities
assumed, which were utilized in the calculation of goodwill, are subject to
final valuation adjustments in accordance with accounting principles generally
accepted in the United States.
The unaudited pro forma financial statements do not reflect any
anticipated cost savings that FirstEnergy may be able to achieve from the
elimination of duplicate corporate and administrative programs in connection
with the merger or from operating efficiencies that may result from the merger.
The pro forma adjustments and the merger are reflected in the unaudited combined
condensed pro forma balance sheet as if the merger occurred on June 30, 2001.
The unaudited pro forma combined condensed statements of income for the six
month periods ended June 30, 2001 and 2000, and for the year ended December 31,
2000, assume that this transaction was completed on January 1, 2000.
The unaudited pro forma combined condensed financial statements assume
that 50% of the outstanding GPU common shares were exchanged for cash
consideration of $36.50 per share and 50% of the outstanding GPU common shares
were each exchanged for 1.2318 shares of FirstEnergy common stock. With a
November 7, 2001 merger effective date, the 20-day trading period used to
determine the exchange ratio in accordance with the merger agreement ended on
October 29, 2001 and resulted in an average closing price for FirstEnergy's
common stock of $35.67, which is higher than the average closing price range of
$24.2438 to $29.6313 stated in the merger agreement, and therefore, in
accordance with the merger agreement, fixed the exchange ratio at 1.2318.
The following unaudited pro forma financial statements are for
illustrative purposes only. They are not necessarily indicative of the financial
position or operating results that would have occurred had the merger been
completed on January 1, 2000 or June 30, 2001, as assumed above, nor is the
information necessarily indicative of future financial position or operating
results. Results of operations and financial position in the first year after
completion of the merger could differ significantly from the unaudited pro forma
combined condensed financial statements, which are based on historical
operations. Future operations will be affected by various factors including
operating performance, energy market developments and other matters.
S-9
FIRSTENERGY CORP.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
JUNE 30, 2001
(IN MILLIONS)
MERGER PENDING MERGER
PRO FORMA DIVESTITURES PRO FORMA
FIRSTENERGY GPU ADJUSTMENTS (NOTE 5) COMBINED
----------- -------- ----------- ------------ ---------
ASSETS:
Current assets ........................... $ 1,643 $ 2,254 $ -- $ (469) $ 3,428
Property, plant and equipment ............ 7,605 7,168 (629)(3a) (2,051) 12,093
Investments .............................. 2,778 1,346 (87)(3a) (263) 4,025
251(3d)
Regulatory assets ........................ 3,568 4,324 (271)(3f) 7,621
Intangible assets ........................ -- 119 10(3b) 129
Goodwill ................................. 2,062 1,744 4,123(3b) (775) 5,410
(1,744)(3b)
Accumulated deferred income taxes ........ -- 1,817 90(3i) (31) 1,739
(137)(3a)
Other assets ............................. 482 338 (34)(3b) (115) 671
-------- -------- -------- -------- --------
Total Assets ........................... $ 18,138 $ 19,110 $ 1,572 $ (3,704) $ 35,116
======== ======== ======== ======== ========
CAPITALIZATION AND LIABILITIES:
Currently payable long-term debt
and preferred stock .................... $ 639 $ 622 $ -- $ (290) $ 971
Short-term debt .......................... 758 1,938 (1,514)(3h) -- 1,182
Current liabilities ...................... 1,173 1,245 16(3b) (575) 2,000
134(3c)
7(3f)
Accumulated deferred income taxes ........ 2,000 3,210 (111)(3i) (615) 4,484
Accumulated deferred investment tax
credits ................................ 232 42 -- 274
Other liabilities ........................ 2,041 3,953 4(3b) (3) 6,105
110(3d)
-------- -------- -------- -------- --------
Total Liabilities: ..................... 6,843 11,010 (1,354) (1,483) 15,016
-------- -------- -------- -------- --------
Common shareholders' equity:
Common stock and other paid-in
capital ................................ 3,544 991 2,594(3e) 6,138
(991)(3e)
Retained earnings and other
comprehensive loss ..................... 1,253 2,458 (2,458)(3b) 1,253
Unallocated ESOP common shares ........... (103) -- -- (103)
-------- -------- -------- --------
Total common shareholders' equity....... 4,694 3,449 (855) 7,288
Preferred stock of consolidated
subsidiaries:
Not subject to mandatory redemption..... 649 13 -- 662
Subject to mandatory redemption......... 40 49 1(3a) 90
Subsidiary-obligated mandatorily
redeemable preferred securities of
subsidiary trust holding solely
subsidiary subordinated debentures ..... 120 125 -- 245
Trust preferred securities ............... -- 200 -- 200
Long-term debt ........................... 5,792 4,264 83(3a) (2,221) 11,615
2,183(3h)
1,514(3h)
-------- -------- -------- -------- --------
Total Capitalization ................... 11,295 8,100 2,926 (2,221) 20,100
-------- -------- -------- -------- --------
Total Capitalization and
Liabilities........................... $ 18,138 $ 19,110 $ 1,572 $ (3,704) $ 35,116
======== ======== ======== ======== ========
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
S-10
FIRSTENERGY CORP.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 2001
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
GPU
PRIOR TO MERGER PENDING MERGER
MERGER PRO FORMA DIVESTITURES PRO FORMA
FIRSTENERGY PRO FORMA ADJUSTMENTS (NOTE 5) COMBINED
----------- --------- ----------- ------------- ----------
REVENUES:
Electric utilities ..................... $ 2,572 $ 2,252 $-- $ (229) $ 4,595
Other .................................. 1,218 470 -- (79) 1,609
------- ------- ------- ------- -------
Total revenues........................ 3,790 2,722 -- (308) 6,204
------- ------- ------- ------- -------
EXPENSES:
Fuel and purchased power.............. 625 1,105 -- (23) 1,707
Other operating expenses.............. 1,816 739 (9)(3d) (90) 2,456
Provision for depreciation and
amortization ....................... 434 269 (25)(3g) (35) 637
(6)(3g)
General taxes......................... 211 114 -- (20) 305
------- ------- ------- ------- -------
Total expenses .................... 3,086 2,227 (40) (168) 5,105
------- ------- ------- ------- -------
INCOME BEFORE INTEREST
AND INCOME TAXES...................... 704 495 40 (140) 1,099
------- ------- ------- ------- -------
NET INTEREST CHARGES:
Interest expense...................... 235 230 90(3h) (102) 453
Trust preferred securities............ -- 7 -- -- 7
Subsidiary-obligated mandatorily
redeemable preferred securities .... -- 5 -- -- 5
Capitalized interest.................. (21) (1) -- -- (22)
Subsidiaries' preferred stock
dividends .......................... 34 3 -- 37
------- ------- ------- ------- -------
Net interest charges .............. 248 244 90 (102) 480
------- ------- ------- ------- -------
INCOME TAXES ........................... 204 106 (26)(3i) (7) 277
------- ------- ------- ------- -------
INCOME BEFORE CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING ................. 252 145 (24) (31) 342
CUMULATIVE EFFECT OF AN ACCOUNTING
CHANGE ............................... (8) -- -- -- (8)
------- ------- ------- ------- -------
NET INCOME ............................. $ 244 $ 145 $ (24) $ (31) $ 334
======= ======= ======= ======= =======
Average common shares outstanding:
Basic ................................ 218 120 (46)(3j) 292
======= ======= ======= =======
Diluted .............................. 219 120 (46)(3j) 293
======= ======= ======= =======
Earnings per share of common stock:
Basic................................. $ 1.12 $ 1.21 $ 1.14
======= ======= =======
Diluted .............................. $ 1.11 $ 1.21 $ 1.14
======= ======= =======
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
S-11
FIRSTENERGY CORP.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 2000
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
GPU
PRIOR TO MERGER PENDING MERGER
MERGER PRO FORMA DIVESTITURES PRO FORMA
FIRSTENERGY PRO FORMA ADJUSTMENTS (NOTE 5) COMBINED
----------- --------- ----------- ------------ ----------
REVENUES:
Electric utilities ................... $ 2,630 $ 2,134 $-- $ (255) $ 4,509
Other ................................ 680 449 -- (126) 1,003
------- ------- ------- ------- -------
Total revenues ..................... 3,310 2,583 -- (381) 5,512
------- ------- ------- ------- -------
EXPENSES:
Fuel and purchased power ............. 551 887 -- (18) 1,420
Other operating expenses ............. 1,315 783 (9)(3d) (109) 1,980
Provision for depreciation and
amortization ....................... 427 243 (25)(3g) (34) 605
(6)(3g)
General taxes ........................ 279 101 -- (8) 372
------- ------- ------- ------- -------
Total expenses ..................... 2,572 2,014 (40) (169) 4,377
------- ------- ------- ------- -------
INCOME BEFORE INTEREST
AND INCOME TAXES ..................... 738 569 40 (212) 1,135
------- ------- ------- ------- -------
NET INTEREST CHARGES:
Interest expense ..................... 247 230 83(3h) (118) 442
Trust preferred securities ........... -- 7 -- 7
Subsidiary-obligated mandatorily
redeemable preferred securities .... -- 6 -- 6
Capitalized interest ................. (13) (2) -- (15)
Subsidiaries' preferred stock
dividends .......................... 35 4 -- 39
------- ------- ------- ------- -------
Net interest charges .............. 269 245 83 (118) 479
------- ------- ------- ------- -------
INCOME TAXES ........................... 193 120 (24)(3i) (17) 272
------- ------- ------- ------- -------
NET INCOME ............................. $ 276 $ 204 $ (19) $ (77) $ 384
======= ======= ======= ======= =======
Average common shares outstanding:
Basic ................................ 224 121 (46)(3j) 299
======= ======= ======= =======
Diluted .............................. 225 121 (46)(3j) 300
======= ======= ======= =======
Earnings per share of common stock:
Basic ................................ $ 1.23 $ 1.68 $ 1.28
======= ======= =======
Diluted .............................. $ 1.23 $ 1.68 $ 1.28
======= ======= =======
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
S-12
FIRSTENERGY CORP.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 2000
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
GPU
PRIOR TO MERGER PENDING MERGER
MERGER PRO FORMA DIVESTITURES PRO FORMA
FIRSTENERGY PRO FORMA ADJUSTMENTS (NOTE 5) COMBINED
----------- --------- ----------- ------------ ---------
REVENUES:
Electric utilities ................... $ 5,422 $ 4,423 $ - $ (479) $ 9,366
Other ................................ 1,607 948 - (218) 2,337
------- ------- ------- ------- -------
Total revenues ....................... 7,029 5,371 - (697) 11,703
------- ------- ------- ------- -------
EXPENSES:
Fuel and purchased power ............. 801 2,064 -- (18) 2,847
Other operating expenses ............. 3,241 1,456 (18)(3d) (197) 4,482
Provision for depreciation and
amortization ....................... 934 523 (51)(3g) (80) 1,313
(13)(3g)
General taxes ........................ 548 228 -- (41) 735
------- ------- ------- ------- -------
Total expenses .................... 5,524 4,271 (82) (336) 9,377
------- ------- ------- ------- -------
INCOME BEFORE INTEREST
AND INCOME TAXES ..................... 1,505 1,100 82 (361) 2,326
------- ------- ------- ------- -------
NET INTEREST CHARGES:
Interest expense ..................... 493 479 166(3h) (226) 912
Trust preferred securities ........... -- 14 14
Subsidiary-obligated mandatorily
redeemable preferred securities .... -- 11 11
Capitalized interest ................. (27) (3) - (30)
Subsidiaries' preferred stock
dividends .......................... 63 7 - 70
------- ------- ------- ------- -------
Net interest charges ................. 529 508 166 (226) 977
------- ------- ------- ------- -------
INCOME TAXES ........................... 377 225 (47)(3i) (28) 527
------- ------- ------- ------- -------
NET INCOME ............................. $ 599 $ 367 $ (37) $ (107) $ 822
======= ======= ======= ======= =======
Average common shares outstanding:
Basic ................................ 222 121 (46)(3j) 297
======= ======= ======= =======
Diluted .............................. 222 121 (46)(3j) 297
======= ======= ======= =======
Earnings per share of common stock:
Basic ................................ $ 2.69 $ 3.03 $ 2.77
======= ======= =======
Diluted .............................. $ 2.69 $ 3.02 $ 2.77
======= ======= =======
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
S-13
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
NOTE 1 - RECLASSIFICATIONS
Certain reclassifications have been made to the FirstEnergy and GPU
historical financial statements to conform to the presentation expected to be
used by the merged companies.
NOTE 2 - EXCHANGE RATIO
The unaudited pro forma combined condensed financial statements assume
that 50% of the outstanding GPU common shares were exchanged for cash
consideration of $36.50 per share and 50% of the outstanding GPU common shares
were each exchanged for 1.2318 shares of FirstEnergy common stock. With a
November 7, 2001 merger effective date, the 20-day trading period used to
determine the exchange ratio in accordance with the merger agreement ended on
October 29, 2001 and resulted in an average closing price for FirstEnergy's
common stock of $35.67, which is higher than the average closing price range of
$24.2438 to $29.6313 stated in the merger agreement, and therefore, in
accordance with the merger agreement, fixed the exchange ratio at 1.2318.
(millions)
----------
Cash payment to GPU shareholders............................. $ 2,183
Stock payment to GPU shareholders............................ 2,594
---------
Purchase of 119.6 million GPU common shares.................. $ 4,777
=========
NOTE 3 - PRO FORMA ADJUSTMENTS
(a) As required by Statement of Financial Accounting Standards (SFAS)
No. 141, "Business Combinations," pro forma adjustments have been recognized by
FirstEnergy to adjust GPU's assets and liabilities to fair value. Such
adjustments have been based upon the current estimated fair market values of
these assets and liabilities which were considered in the preliminary purchase
price allocation.
(b) 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 GPU's net assets after taking into account the other adjustments
described herein. The pro forma adjustment to record the goodwill resulting from
the merger is disclosed below:
(millions)
----------
Purchase of 119.6 million GPU common shares......................... $ 4,777
Conversion of GPU stock options..................................... 4
Estimated direct costs incurred in consummating the merger.......... 50
Elimination of GPU shareholders' equity on June 30, 2001............ (3,449)
Addition of GPU goodwill to purchase price.......................... 1,744
Pre-merger impact on regulatory assets (Note 3f).................... 160
Fair value adjustments to GPU's assets and liabilities, net......... 847
Less amount identified as intangible assets......................... (10)
---------
Total adjusted goodwill ............................................ $ 4,123
========
S-14
(c) A pro forma adjustment has been made to recognize estimated
severance costs.
(d) A pro forma adjustment has been made to recognize GPU's net
unamortized transition assets and obligations related to certain retirement
benefits and the impact of this adjustment on the net periodic benefit cost.
(e) Pro forma equity adjustments have been made to recognize the
elimination of GPU's retained earnings and accumulated other comprehensive loss
as of the completion of the merger and to reflect payment of stock consideration
in the merger as discussed in Note 2.
(millions)
-----------
Elimination of GPU shareholders' equity.......................... $ (3,449)
Issuance of stock to purchase GPU common shares.................. 2,594
---------
$ (855)
=========
(f) In September 2001, the New Jersey Board of Public Utilities
approved the merger between GPU and FirstEnergy subject to the terms and
conditions set forth in a Stipulation of Settlement. In accordance with this
Stipulation of Settlement, Jersey Central wrote off $300 million of its deferred
cost upon receipt of final regulatory approval of the merger. Also, in
accordance with the Stipulation of Settlement, FirstEnergy agreed to implement a
low-income customer assistance program, as well as to provide for technology
grants to schools and libraries up to $6.5 million. In June 2001, the
Pennsylvania Public Utility Commission approved a separate Settlement
Stipulation with Metropolitan Edison and Pennsylvania Electric. As a result of
this Settlement Stipulation, in the second quarter of 2001 Metropolitan Edison
and Pennsylvania Electric recorded a combined $29 million reserve against
certain deferred energy costs incurred during the first five months of 2001,
pending consummation of the merger. This reserve will be reversed immediately
before consummation of the merger. As a result, the unaudited pro forma combined
condensed balance sheet as of June 30, 2001 has been adjusted to reflect the net
write-off of $271 million of deferred costs.
(g) Pro forma adjustments have been made to eliminate GPU's
amortization of goodwill in connection with the implementation of SFAS No. 142,
"Goodwill and Other Intangible Assets," and to reduce depreciation expense
resulting from the assumed revaluation of GPU's assets described in (a) above.
For the year
For the six months ended
ended June 30, December 31,
-------------------- ---------------
2001 2000 2000
-------- -------- ---------------
(millions)
Reversal of amortization of GPU
purchased goodwill.......................... $ (25) $ (25) $ (51)
Reduction in depreciation expense from assumed
revaluation of GPU's assets................. $ (6) $ (6) $ (13)
(h) A pro forma adjustment reflects the issuance of $2.183 billion of
long-term debt bearing interest at an assumed average effective rate of 7.15%,
inclusive of costs of issuance and hedge payments, to fund the cash
consideration to be paid to GPU shareholders. The pro forma annual interest
expense is
S-15
$156 million. Also, pro forma adjustment reflects the issuance of
$1.514 billion of long-term debt, bearing the same assumed average effective
rate of 7.15% previously noted to replace outstanding short-term debt. Average
interest rates on such short-term debt were approximately 6.5% in 2000 and 5.25%
in 2001. A 1/8 of 1% variation in the interest rate on the total $3.7 billion in
long-term debt issued would result in a $4.6 million change to the annual
interest expense.
For the year
For the six months ended
ended June 30, December 31,
------------------- ---------------
2001 2000 2000
------- -------- ---------------
(millions)
Interest expense on acquisition debt of
$2.183 billion.............................. $ 78 $ 78 $ 156
Reversal of interest expense on
short-term debt of $1.514 billion........... (42) (49) (98)
Interest expense on long-term debt
of $1.514 billion (replacement)............. 54 54 108
------- ------- --------
$ 90 $ 83 $ 166
======= ======= ========
(i) Pro forma adjustments have been made for the estimated income tax
impacts of the adjustments discussed in (a), (c), (d), (f), (g) and (h) above
assuming an income tax rate of 35%.
(j) A pro forma adjustment reflects the issuance of FirstEnergy shares
at an exchange ratio of 1.2318 as described in Note 2, net of the elimination of
average GPU common shares outstanding.
For the year
For the six months ended
ended June 30, December 31,
--------------------- -------------
Basic Common Shares Outstanding 2001 2000 2000
---------------------------------------------------- -------- --------- -------------
(millions)
Elimination of average GPU common shares
outstanding ...................................... (119.5) (121.3) (121.2)
Purchase of 50% of GPU common shares at an exchange
ratio of 1.2318 shares of FirstEnergy common stock
per GPU common share .............................. 73.6 74.7 74.6
----- ----- -----
(45.9) (46.6) (46.6)
===== ===== =====
For the year
For the six months ended
ended June 30, December 31,
--------------------- ---------------
Diluted Common Shares Outstanding 2001 2000 2000
---------------------------------------------------- --------- -------- ---------------
(millions)
Elimination of average GPU common shares
outstanding ...................................... (119.7) (121.4) (121.3)
Purchase of 50% of GPU common shares at an exchange
ratio of 1.2318 shares of FirstEnergy common stock
per GPU common share ............................. 73.7 74.7 74.7
----- ----- -----
(46.0) (46.7) (46.6)
===== ===== =====
S-16
NOTE 4 - GPU PRO FORMA ADJUSTMENTS PRIOR TO FIRSTENERGY MERGER
The unaudited pro forma condensed consolidated statements of income for
the six-month periods ended June 30, 2001 and June 30, 2000, and for the year
ended December 31, 2000, are being presented to illustrate the effect that
certain acquisition and divestiture activity may have had on GPU's historical
financial statements had these transactions occurred on the assumed date of
January 1, 2000. The pro forma information is not necessarily indicative of the
actual results that would have been realized had these transactions occurred on
the assumed date of January 1, 2000, nor are they necessarily indicative of
future results. In addition, pro forma information is being presented to
eliminate certain costs that GPU incurred in connection with the merger that
otherwise would not have been incurred. The GPU pro forma adjustments discussed
below are based upon historical information and are for illustrative purposes
only.
(a) During the six-month period ended June 30, 2001, GPU sold its
interest in Humber Power Limited, an electric generating station in the UK.
GPU's unaudited pro forma condensed consolidated statement of income for the
six-month period ended June 30, 2001 reflects an adjustment to eliminate the
nonrecurring $12 million after-tax gain realized on the sale. During the same
period, GPU incurred $1 million in merger-related costs. For pro forma purposes,
these costs have been eliminated from GPU's unaudited pro forma condensed
consolidated statement of income for the six-month period ended June 30, 2001.
Pro forma adjustments by business unit for the six-month period ended
June 30, 2001 are summarized as follows:
MILLIONS OF DOLLARS
----------------------------------------------------------------------------------
Net Interest
Revenues Expenses Charges Income Taxes Net Income
------------ ----------- ------------ ------------ ------------
GPU Power UK................. $ (18) $ -- -- $ (6) $ (12)
Merger-Related Costs......... -- (1) -- -- 1
----------- ----------- ----------- ----------- -----------
Total Adjustments............ $ (18) $ (1) -- $ (6) $ (11)
=========== =========== =========== =========== ===========
(b) During 2000, GPU sold PowerNet Pty Ltd. (June), Jersey Central's
Oyster Creek Nuclear Generating Station (August) and GPU International, Inc.
(December). In addition, in April 2000, GPU acquired MYR Group Inc. GPU's
unaudited pro forma condensed consolidated statements of income for the
six-month period ended June 30, 2000 and the year ended December 31, 2000
reflect adjustments to (1) eliminate PowerNet's and GPU International's results
of operations for the six- and twelve-month periods (including related debt
reductions and income tax effects), (2) remove fuel and operation and
maintenance expenses associated with Oyster Creek which would not have been
incurred in the six- and twelve-month periods had the plant been sold on the
assumed date of January 1, 2000, offset by additional purchase power expenses
and (3) include the consolidated results of operations of MYR Group, recognizing
ownership of these assets for the full six- and twelve-month periods, as well as
interest expense and amortization of goodwill resulting from the acquisition
(including the related income tax effects).
GPU's unaudited pro forma condensed consolidated statements of income
for the six-month period ended June 30, 2000 and the year ended December 31,
2000 also reflect an adjustment to eliminate the nonrecurring $295 million
after-tax loss incurred on the sale of PowerNet. In addition, GPU's unaudited
pro forma condensed consolidated statement of income for the year ended December
31, 2000 reflects adjustments to eliminate (1) an $18 million reduction in GPU's
loss on the sale of PowerNet due to a change in estimated tax benefits in the
fourth quarter of 2000, (2) the nonrecurring $89 million after-
S-17
tax gain realized on the sale of GPU International in December 2000, (3) the
nonrecurring gain of $17 million recognized in income in August 2000 for the
reversal of certain deferred taxes and realization of an investment tax
credit related to the sale of Oyster Creek and (4) $12 million of
merger-related costs which were incurred during the year.
Pro forma adjustments by business unit for the six months ended June
30, 2000 are summarized as follows:
MILLIONS OF DOLLARS
----------------------------------------------------------------------------------
Net Interest
Revenues Expenses Charges Income Taxes Net Income
----------- ----------- ----------- ----------- ------------
PowerNet..................... $ (96) $ (407) $ (45) $ 72 $ 284
GPU International............ (47) (47) -- (1) 1
MYR Group.................... 196 192 5 -- (1)
----------- ----------- ----------- ----------- ------------
Total Adjustments.......... $ 53 $ (262) $ (40) $ 71 $ 284
=========== ============ =========== =========== ===========
Pro forma adjustments by business unit for the year ended December 31,
2000 are summarized as follows:
MILLIONS OF DOLLARS
----------------------------------------------------------------------------------
Net Interest
Revenues Expenses Charges Income Taxes Net Income
------------ ------------- ------------ ------------ ------------
PowerNet..................... $ (96) $ (407) $ (45) $ 90 $ 266
GPU International............ (128) 60 (2) (63) (123)
Jersey Central............... -- -- -- 17 (17)
MYR Group.................... 196 192 5 -- (1)
Merger-Related Costs......... -- (12) -- 4 8
------------ ------------- ------------ ------------ ------------
Total Adjustments.......... $ (28) $ (167) $ (42) $ 48 $ 133
============ ============ =========== =========== ===========
S-18
FIRSTENERGY CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS (CONT'D)
NOTE 4 - PRIOR TO MERGER PRO FORMA ADJUSTMENTS FOR GPU, INC. (CONT'D)
SIX MONTHS ENDED JUNE 30, 2001
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
GPU
PRIOR TO MERGER PRIOR TO
PRO FORMA MERGER
GPU ADJUSTMENTS (4a) PRO FORMA
-------- ---------------- ---------
REVENUES:
Electric utilities.............................. $ 2,252 $ -- $ 2,252
Other........................................... 488 (18) 470
-------- -------- --------
Total revenues................................ 2,740 (18) 2,722
-------- -------- --------
EXPENSES:
Fuel and purchased power........................ 1,105 -- 1,105
Other operating expenses........................ 740 (1) 739
Provision for depreciation and
amortization.................................. 269 -- 269
General taxes................................... 114 -- 114
-------- -------- --------
Total expenses................................ 2,228 (1) 2,227
-------- -------- --------
INCOME BEFORE INTEREST
AND INCOME TAXES................................ 512 (17) 495
-------- -------- --------
NET INTEREST CHARGES:
Interest expense................................ 230 -- 230
Trust preferred securities...................... 7 -- 7
Subsidiary-obligated mandatorily redeemable
preferred securities.......................... 5 -- 5
Capitalized interest............................ (1) -- (1)
Subsidiaries' preferred stock dividends......... 3 -- 3
-------- -------- --------
Net interest charges.......................... 244 -- 244
-------- -------- --------
INCOME TAXES...................................... 112 (6) 106
-------- -------- --------
NET INCOME........................................ $ 156 $ (11) $ 145
======== ======== ========
Average common shares outstanding:
Basic........................................... 120 120
======== ========
Diluted......................................... 120 120
======== ========
Earnings per share of common stock:
Basic........................................... $ 1.30 $ 1.21
======== =========
Diluted......................................... $ 1.30 $ 1.21
======== =========
S-19
FIRSTENERGY CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS (CONT'D)
NOTE 4 - PRIOR TO MERGER PRO FORMA ADJUSTMENTS FOR GPU, INC. (CONT'D)
SIX MONTHS ENDED JUNE 30, 2000
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
GPU
PRIOR TO MERGER PRIOR TO
PRO FORMA MERGER
GPU ADJUSTMENTS (4b) PRO FORMA
-------- ---------------- ----------
REVENUES:
Electric utilities............................. $ 2,225 $ (91) $ 2,134
Other.......................................... 305 144 449
-------- ------- --------
Total revenues............................... 2,530 53 2,583
-------- ------- --------
EXPENSES:
Fuel and purchased power....................... 858 29 887
Other operating expenses....................... 687 96 783
Loss on sale of investment..................... 372 (372) --
Provision for depreciation and 264 (21) 243
amortization.................................
General taxes.................................. 95 6 101
-------- ------- --------
Total expenses............................... 2,276 (262) 2,014
-------- -------- --------
INCOME BEFORE INTEREST
AND INCOME TAXES............................... 254 315 569
-------- ------- --------
NET INTEREST CHARGES:
Interest expense............................... 270 (40) 230
Trust preferred securities..................... 7 -- 7
Subsidiary-obligated mandatorily redeemable
preferred securities......................... 6 -- 6
Capitalized interest........................... (2) -- (2)
Subsidiaries' preferred stock dividends........ 4 -- 4
-------- ------- --------
Net interest charges......................... 285 (40) 245
-------- -------- --------
INCOME TAXES..................................... 49 71 120
-------- ------- --------
NET INCOME (LOSS)................................ $ (80) $ 284 $ 204
======== ======= ========
Average common shares outstanding:
Basic.......................................... 121 121
======== ========
Diluted........................................ 121 121
======== ========
Earnings per share of common stock:
Basic.......................................... $ (0.66) $ 1.68
======== =======
Diluted........................................ $ (0.66) $ 1.68
======== =======
S-20
FIRSTENERGY CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS (CONT'D)
NOTE 4 - PRIOR TO MERGER PRO FORMA ADJUSTMENTS FOR GPU, INC. (CONT'D)
YEAR ENDED DECEMBER 31, 2000
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
PRIOR TO MERGER GPU
PRO FORMA PRIOR TO MERGER
GPU ADJUSTMENTS (4b) PRO FORMA
------- ---------------- ---------------
REVENUES:
Electric utilities....................... $ 4,514 $ (91) $ 4,423
Other.................................... 885 63 948
------- ------- --------
Total revenues......................... 5,399 (28) 5,371
------- ------- --------
EXPENSES:
Fuel and purchased power................. 2,030 34 2,064
Other operating expenses................. 1,399 57 1,456
Loss on sale of business................. 240 (240) --
Provision for depreciation and
amortization........................... 548 (25) 523
General taxes............................ 221 7 228
------- ------- --------
Total expenses......................... 4,438 (167) 4,271
------- -------- --------
INCOME BEFORE INTEREST AND INCOME TAXES.... 961 139 1,100
------- ------- --------
NET INTEREST CHARGES:
Interest expense......................... 521 (42) 479
Trust preferred securities............... 14 -- 14
Subsidiary-obligated mandatorily
redeemable preferred securities........ 11 -- 11
Capitalized interest..................... (3) -- (3)
Subsidiaries' preferred stock dividends.. 7 -- 7
------- ------- --------
Net interest charges................... 550 (42) 508
------- -------- --------
INCOME TAXES............................... 177 48 225
------- ------- --------
NET INCOME................................. $ 234 $ 133 $ 367
======= ======= ========
Average common shares outstanding:
Basic.................................... 121 121
======= ========
Diluted.................................. 121 121
======= ========
Earnings per share of common stock:
Basic.................................... $ 1.92 $ 3.03
======== ========
Diluted.................................. $ 1.92 $ 3.02
======== ========
S-21
NOTE 5- PRO FORMA ADJUSTMENTS FOR PENDING DIVESTITURES
The pending divestitures pro forma adjustment column is being presented
to illustrate the effect that certain pending divestitures may have had on the
pro forma financial statements had these transactions occurred as of the same
dates assumed for the merger in the accompanying pro forma financial statements.
In addition, the pro forma adjustments reflect a reduction in debt from
application of the proceeds from the divestitures, as well as the related
reduction in interest costs. The pro forma adjustments are not necessarily
indicative of the actual results that would have been realized had these
transactions occurred on the assumed dates, nor are they necessarily indicative
of the actual results that may be realized as of the date on which these
transactions occur. Descriptions of the pending divestitures are discussed
below:
(a) On October 18, 2001, FirstEnergy and UtiliCorp United announced
that UtiliCorp made an offer to FirstEnergy to purchase, with a financial
partner, GPU's wholly-owned Avon Energy Partners Holdings subsidiary, the
holding company for Midlands Electricity plc, for a total purchase price of
$2.1 billion, including the assumption of approximately $1.7 billion of debt.
FirstEnergy accepted the offer upon completion of its merger with GPU.
Completion of the sale is subject to the receipt by all parties of the
applicable regulatory approvals.
UtiliCorp and its financial partner expect to acquire all of the
outstanding shares of Avon Energy Partners Holdings. Assets to be acquired
include Midlands Electricity's 38,000-mile electric distribution network, an
investment in the 1,875-megawatt Teesside Power generating plant in the United
Kingdom, and investments in other energy businesses.
(b) GPU acquired GasNet Pty Ltd. from the State of Victoria in June
1999 as part of the natural gas industry privatization process in that state. As
a result of the decision by FirstEnergy and GPU to sell GasNet, GasNet Australia
Trust was established to acquire new securities in GasNet and an associated
trust. The Trust filed a prospectus dated October 19, 2001 with the Australian
Securities and Investments Commission for the public offer of 130,000,000 Units
of the Trust at AUS$2.00 per Unit. The Trust will use the expected net proceeds
from the offering of approximately AUS$260 million to acquire the new GasNet
securities and will assume the associated trust's debt (AUS$566.4 million at
June 30, 2001). The net proceeds will then be used by GasNet to cancel and
redeem all securities currently held by wholly-owned subsidiaries of GPU in
GasNet and the associated trust. The prospectus expires on November 28, 2002.
GasNet is the regulated natural gas transmission provider in Victoria,
Australia. It owns and maintains a high-pressure pipeline network, which
transports almost all of the natural gas consumed in Victoria. This gas is
shipped to approximately 1.4 million residential consumers and approximately
43,000 industrial and commercial users throughout Victoria.
S-22
DESCRIPTION OF THE NOTES
We will issue the notes under the indenture, dated as of November 15,
2001, between us and Bank One Trust Company, N.A., as trustee. The notes
constitute debt securities as described in the accompanying prospectus and will
contain all of the terms described in the accompanying prospectus under the
heading "DESCRIPTION OF THE DEBT SECURITIES." The notes will also contain the
additional provisions described below.
GENERAL
The indenture provides for the issuance of the notes in an unlimited
amount and in one or more series. The notes may be issued at various times and
may have differing maturity dates and may bear interest at differing rates. We
need not issue all notes of one series at the same time and, unless otherwise
provided, we may reopen a series, without the consent of the holders of the
notes of that series, for issuances of additional notes of that series. The
notes will be unsecured and unsubordinated and will rank equally with all of our
other senior unsecured and unsubordinated indebtedness and our other
obligations.
INTEREST RATE AND INTEREST PAYMENT DATES
Interest on the notes will accrue at the fixed rates of 5.50% per
annum for the Series A notes, 6.45% per annum for the Series B notes and
7.375% per annum for the Series C notes. Interest will accrue from November 15,
2001, or from the most recent interest payment date to which interest has
been paid or provided for. Interest on the notes will be payable on May 15
and November 15 of each year, beginning on May 15, 2002, to holders of record
at the close of business on the April 30 or October 31 immediately preceding
the corresponding interest payment date, except that interest payable at
maturity will be paid to the person to whom principal is paid.
MATURITY DATES
The Series A, B and C notes will mature on November 15, 2006, 2011 and
2031, respectively.
FORM
We will issue the notes only in registered form in denominations of
$1,000 and multiples thereof. The notes initially will be issued in book-entry
form only, through The Depository Trust Company, Clearstream, Luxembourg or
Euroclear. See "DESCRIPTION OF THE DEBT SECURITIES--Book-Entry, Delivery and
Form" and "--Global Clearance and Settlement Procedures" in the accompanying
prospectus.
OPTIONAL REDEMPTION
The Series A, B and C notes are redeemable at our election, in whole or
in part, at any time at a redemption price equal to the greater of:
- 100% of the principal amount of the notes to be redeemed then
outstanding; or
- as determined by an Independent Investment Banker, the sum of the
present values of the remaining scheduled payments of principal
and interest on the notes to be redeemed (not including any
portion of the payments of interest accrued to the date of
redemption)
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discounted to the redemption date on a semi-annual basis
(assuming a 360-day year consisting of twelve 30-day months)
at the Adjusted Treasury Rate, plus 20 basis points in the
case of the Series A notes, 25 basis points in the case of the
Series B notes and 30 basis points in the case of the Series
C notes, plus, in each case, accrued and unpaid interest to
the date of redemption on the notes to be redeemed.
"Adjusted Treasury Rate" means, with respect to any redemption
date:
- the yield, under the heading which represents the average for the
immediately preceding week, appearing in the most recently
published statistical release designated "H.15(519)" or any
successor publication which is published weekly by the Board of
Governors of the Federal Reserve System and which establishes
yields on actively traded United States Treasury securities
adjusted to constant maturity under the caption "Treasury
Constant Maturities," for the maturity corresponding to the
Comparable Treasury Issue (if no maturity is within three months
before or after the Remaining Life, yields for the two published
maturities most closely corresponding to the Comparable Treasury
Issue shall be determined and the Adjusted Treasury Rate shall be
interpolated or extrapolated from these yields on a straight line
basis, rounding to the nearest month); or
- if the release (or any successor release) is not published during
the week preceding the calculation date or does not contain these
yields, the rate per annum equal to the semi-annual equivalent
yield to maturity of the Comparable Treasury Issue, calculated
using a price for the Comparable Treasury Issue (expressed as a
percentage of its principal amount) equal to the Comparable
Treasury Price for the redemption date. The Adjusted Treasury
Rate will be calculated on the third Business Day preceding the
redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the notes to be redeemed that would be utilized, at the
time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
remaining term of such securities ("Remaining Life").
"Comparable Treasury Price" means (1) the average of three Reference
Treasury Dealer Quotations for the redemption date, after excluding the highest
and lowest Reference Treasury Dealer Quotations, or (2) if the Independent
Investment Banker obtains fewer than three Reference Treasury Dealer Quotations,
the average of all such quotations.
"Independent Investment Banker" means one of the Reference Treasury
Dealers appointed by us.
"Reference Treasury Dealer" means:
- each of Barclays Capital Inc., Morgan Stanley & Co.
Incorporated, Salomon Smith Barney Inc. and their respective
successors; provided, however, that if any of the foregoing
cease to be a primary U.S. Government securities dealer in New
York City (a "Primary Treasury Dealer"), we will substitute
another Primary Treasury Dealer; and
- any other Primary Treasury Dealer selected by us.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the Independent Investment Banker, of the bid and asked prices for the
Comparable Treasury Issue (expressed in each case as a percentage of its
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principal amount) quoted in writing to the Independent Investment Banker at 5:00
p.m., New York City time, on the third Business Day preceding the redemption
date.
We will mail a notice of redemption at least 30 days but not more than
60 days before the redemption date to each holder of the notes to be redeemed.
Unless we default in payment of the redemption price, on and after the
redemption date, interest will cease to accrue on the notes or portions thereof
called for redemption.
CONCERNING THE TRUSTEE
An affiliate of Bank One Trust Company, N.A., the trustee, is a
participating lender under the bank bridge loan to be repaid from the net
proceeds from the offering of the notes, as well as under certain of the credit
facilities to be repaid from the proceeds of the bridge loan. The trustee is
also affiliated with Banc One Capital Markets, Inc., an underwriter for the
offering of the notes.
UNDERWRITERS
Under the terms and subject to the conditions contained in an
underwriting agreement dated the date hereof, the underwriters named below, for
whom Barclays Capital Inc., Morgan Stanley & Co. Incorporated and Salomon Smith
Barney Inc. are acting as representatives, have severally agreed to purchase,
and we have agreed to sell to them, the following respective principal amounts
of the notes:
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT OF AMOUNT OF
SERIES A NOTES SERIES B NOTES SERIES C NOTES
NAME DUE 2006 DUE 2011 DUE 2031
------------------------------------------------------------ -------------- --------------- ---------------
Barclays Capital Inc........................................ $ 250,000,000 $ 375,000,000 $ 375,000,000
Morgan Stanley & Co. Incorporated........................... 250,000,000 375,000,000 375,000,000
Salomon Smith Barney Inc.................................... 250,000,000 375,000,000 375,000,000
Banc One Capital Markets, Inc............................... 62,500,000 93,750,000 93,750,000
BNY Capital Markets, Inc.................................... 62,500,000 93,750,000 93,750,000
J.P. Morgan Securities Inc.................................. 62,500,000 93,750,000 93,750,000
T.D. Securities (USA) Inc................................... 62,500,000 93,750,000 93,750,000
-------------- -------------- --------------
Total.................................................... $1,000,000,000 $1,500,000,000 $1,500,000,000
============== ============== ==============
The underwriting agreement provides that the obligations of the several
underwriters to pay for and accept delivery of the notes offered hereby are
subject to the approval of certain legal matters by their counsel and to certain
other conditions. The underwriters are obligated to take and pay for all of the
notes offered hereby if any notes are taken.
The underwriters initially propose to offer part of the notes of each
series directly to the public at the respective public offering prices set forth
on the cover page of this prospectus supplement and part to certain dealers at
the respective public offering prices less a concession not in excess of .35% of
the principal amount of the Series A notes, .40% of the principal amount of the
Series B notes, and .50% of the principal amount of the Series C notes. Any
underwriter may allow, and any dealer may reallow, a concession not in excess of
.25% of the principal amount of the Series A notes, .25% of the principal amount
of the Series B notes and .25% of the principal amount of the Series C notes to
other underwriters or to certain dealers. After the initial offering of the
notes, the offering price and other selling terms of any series of notes may
from time to time be varied by the representatives.
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Prior to this offering, there has been no public market for the notes.
The representatives have advised us that they presently intend to make a market
in the notes. The representatives are not obligated to make a market in the
notes, however, and may cease market-making activities at any time. We cannot
give any assurance as to the liquidity of any trading market for the notes.
We and the underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
In order to facilitate the offering of the notes, the underwriters may
engage in transactions that stabilize, maintain or otherwise affect the price of
the notes. Specifically, the underwriters may over-allot in connection with the
offering, creating a short position in the notes for their own account. In
addition, to cover over-allotments or to stabilize the price of the notes of any
series, the underwriters may bid for, and purchase, the notes of that series in
the open market. Finally, the underwriting syndicate may reclaim selling
concessions allowed to an underwriter or a dealer for distributing the notes in
the offering if the syndicate repurchases previously distributed notes in
transactions to cover syndicate short positions, in stabilization transactions
or otherwise. Any of these activities may stabilize or maintain the market price
of the notes above independent market levels. The underwriters are not required
to engage in these activities and may end any of these activities at any time.
From time to time, some of the underwriters and their affiliates have
engaged in, and may in the future engage in commercial banking and investment
banking transactions with us and our affiliates. Affiliates of some of the
underwriters are lenders under the bank bridge loan which we intend to repay
with the net proceeds of the offering of the notes. In addition, affiliates of
some of the underwriters are lenders under the short-term indebtedness we intend
to repay with the proceeds of the bank bridge loan. Accordingly, the
participation by the underwriters in this offering is made pursuant to NASD
Conduct Rule 2710(c)(8).
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PROSPECTUS
$4,000,000,000
FIRSTENERGY CORP.
DEBT SECURITIES
---------------------
By this prospectus, we may from time to time offer our senior unsecured debt
securities in one or more series with the same or different terms.
This prospectus provides a general description of our debt securities. The
specific terms of each series of debt securities will be determined at the time
they are sold and will be included in a prospectus supplement. This prospectus
may not be used to sell debt securities unless accompanied by a prospectus
supplement that describes those debt securities.
Before you invest, you should carefully read this prospectus, any applicable
prospectus supplement and any information under the heading "Where You Can Find
More Information."
---------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined that
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
---------------------
The date of this Prospectus is November 8, 2001.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with
the Securities and Exchange Commission for an offering of up to $4,000,000,000
of our debt securities described in this prospectus. This prospectus provides
you with a general description of the debt securities we may offer. A prospectus
supplement to this prospectus will contain specific information about the terms
of the offering. The prospectus supplement may also add, update or change
information contained in this prospectus. You should read this prospectus, the
applicable prospectus supplement and the additional information described below
under the heading "Where You Can Find More Information."
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
We caution you that this prospectus and the periodic reports and other
documents that are incorporated by reference in this prospectus contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. They are
statements about future performance or results (such as statements including,
but not limited to, the terms "potential," "estimate," "believe," "expect" and
"anticipate" and similar words) when we discuss our financial condition, results
of operations and business. Forward-looking statements involve certain risks,
assumptions and uncertainties. They are not guarantees of future performance.
Factors may cause actual results to differ materially from those expressed in
these forward-looking statements. These factors include:
- changes in national and regional economic conditions;
- changes in markets for energy services;
- changing commodity market prices;
- the availability and cost of capital;
- inability to accomplish or realize anticipated benefits of
strategic goals (including those associated with our recent
merger with GPU, Inc.);
- legislative and regulatory changes (including revised
environmental requirements);
- economic or weather conditions affecting future sales and
margins;
- the speed and nature of increased competition and deregulation in
the electric utility industry; and
- outcomes of legal proceedings.
We believe that the expectations reflected in our forward-looking
statements are reasonable. However, we cannot assure you that these expectations
will prove to be correct. You should consider the factors we have noted above as
you read the forward-looking statements in this prospectus.
All subsequent written and oral forward-looking statements
attributable to FirstEnergy or any person acting on our behalf are expressly
qualified in their entirety by the cautionary statements contained or
referred to in this section. We undertake no obligation to release publicly
any revisions to such
1
forward-looking statements to reflect events or circumstances after the date
of this document or to reflect the occurrence of unanticipated events.
FIRSTENERGY CORP.
FirstEnergy Corp. was organized under the laws of the State of Ohio in
1996 and became a holding company on November 8, 1997 in connection with the
merger of Ohio Edison Company and Centerior Energy Corporation. On November 7,
2001, we merged with GPU, Inc. and became a registered holding company under
the Public Utility Holding Company Act of 1935. Our principal business is the
holding, directly or indirectly, of all of the outstanding common stock of our
principal electric utility operating subsidiaries, Ohio Edison, The Cleveland
Electric Illuminating Company, Pennsylvania Power Company, The Toledo Edison
Company, American Transmission Systems, Inc., Jersey Central Power & Light
Company, Pennsylvania Electric Company and Metropolitan Edison Company. Our
consolidated revenues are primarily derived from electric service provided
by our electric utility subsidiaries. We serve approximately 4.3 million
customers with contiguous transmission systems across a combined service area
of approximately 37,000 square miles in Ohio, Pennsylvania, New Jersey and
New York.
As of June 30, 2001, Ohio Edison, Cleveland Electric, Pennsylvania
Power and Toledo Edison have 12,958 megawatts (MW) of generation capacity and
related energy to meet customer needs. Pursuant to our corporate separation plan
implemented under Ohio utility restructuring legislation, we transferred
operational control of the non-nuclear generation assets of those operating
subsidiaries to FirstEnergy Generation Corp. as of January 1, 2001. We expect
that the transfer of ownership of those assets to FirstEnergy Generation will be
completed by December 31, 2005, the end of the legislation's market development
period.
As a result of restructuring legislation in Pennsylvania and New
Jersey, the GPU system had divested essentially all of its generation assets
prior to the time we agreed to merge in August 2000. However, Pennsylvania and
New Jersey restructuring orders require Jersey Central, Pennsylvania Electric
and Metropolitan Edison, our operating subsidiaries formerly owned by GPU, to
act as providers of last resort by supplying electricity to customers who do
not choose an alternate supplier. This obligation continues, with a deferral
mechanism, at least through July 2003 in New Jersey and through 2010, with a
deferral mechanism through 2005, in Pennsylvania. As of June 30, 2001, these
operating subsidiaries have 285 MW of generation capacity and related energy
to meet customer needs and have contracts with non-utility generators
totaling 1,595 MW and agreements with other parties to provide varying
amounts of capacity through May 31, 2004. In addition, they have purchased
all of the capacity and energy of their previously owned Three Mile Island
Unit 1 and Oyster Creek nuclear generating stations through December 31, 2001
and March 31, 2003, respectively, and have a right to 3,970 MW of capacity
through May 31, 2002, associated with generating stations they sold in 1999.
These operating subsidiaries will meet their remaining capacity and energy
needs through short- to intermediate-term commitments of one month to three
years and through the spot market. Payments pursuant to these arrangements,
which include firm commitments as well as certain assumptions regarding,
among other things, call/put arrangements, are estimated to be $839 million
for the remainder of 2001, $708 million in 2002, $79 million in 2003, and $5
million in 2004.
Our principal executive office is located at 76 South Main Street,
Akron, Ohio 44308-1890. Our telephone number is (330) 384-5100.
2
USE OF PROCEEDS
Unless otherwise specified in any prospectus supplement that
accompanies this prospectus, we intend to use the net proceeds from the sale of
the debt securities offered by this prospectus to refinance short-term debt
incurred in connection with the consummation of the GPU merger. We may also use
any remaining net proceeds for general corporate purposes.
RATIO OF EARNINGS TO FIXED CHARGES
The following table displays our consolidated ratio of earnings to
fixed charges for the periods indicated.
Twelve months
Year Ended December 31, Twelve months ended June 30,
------------------------------------------------------- ended 2001 Pro Forma
1996 1997 1998 1999 2000 June 30, 2001 for Merger
----- ----- ----- ----- ----- ------------- ---------------
Ratio of Earnings
to Fixed Charges.. 2.38 2.18 1.77 2.01 2.10 2.10 1.94
"Earnings" for purposes of the calculation of Ratio of Earnings to Fixed Charges
have been computed by adding to "income before extraordinary item and cumulative
effect of change in accounting principle" all taxes based on income or profits,
total interest charges and the estimated interest element of rentals charged to
income. "Fixed charges" include total interest charges and the estimated
interest element of rentals.
DESCRIPTION OF THE DEBT SECURITIES
The following description sets forth the general terms and provisions
of the debt securities that we may offer by this prospectus. The debt securities
are senior unsecured debt securities and will rank equally with all of our other
unsecured and unsubordinated debt. The debt securities will be issued under an
indenture between us and Bank One Trust Company, N.A., as trustee. The indenture
gives us broad authority to set the particular terms of each series of debt
securities, including the right to modify certain of the terms contained in the
indenture. The particular terms of a series of debt securities and the extent,
if any, to which the particular terms of the issue modify the terms of the
indenture will be described in the prospectus supplement relating to those debt
securities.
The indenture contains the full text of the matters described in this
section. Because this section is a summary, it does not describe every aspect of
the debt securities or the indenture. This summary is subject to and qualified
in its entirety by reference to all the provisions of the indenture, including
definitions of terms used in the indenture. We also include references in
parentheses to certain sections of the indenture. Whenever we refer to
particular sections or defined terms of the indenture in this prospectus or in a
prospectus supplement, these sections or defined terms are incorporated by
reference herein or in the prospectus supplement. This summary also is subject
to and qualified by reference to the description of the particular terms of the
debt securities described in the applicable prospectus supplement or
supplements.
If applicable, the prospectus supplement relating to an issue of debt
securities will describe any special United States federal income tax
considerations relevant to those debt securities.
There is no requirement under the indenture that future issues of our
debt securities be issued under the indenture. We will be free to use other
indentures or documentation, containing provisions
3
different from those included in the indenture or applicable to one or more
issues of debt securities, in connection with future issues of other debt
securities.
GENERAL
The indenture does not limit the aggregate principal amount of debt
securities that we may issue under the indenture. The indenture provides that
the debt securities may be issued in one or more series. The debt securities may
be issued at various times and may have differing maturity dates and may bear
interest at differing rates. We need not issue all debt securities of one series
at the same time and, unless otherwise provided, we may reopen a series, without
the consent of the holders of the debt securities of that series, for issuances
of additional debt securities of that series.
Prior to the issuance of each series of debt securities, the terms of
the particular securities will be specified in a supplemental indenture, a board
resolution or in one or more officer's certificates authorized pursuant to a
board resolution. We refer you to the applicable prospectus supplement for a
description of the following terms of the series of debt securities:
- title of the debt securities;
- any limit on the aggregate principal amount of the debt
securities;
- the person to whom any interest on the debt securities shall be
payable, if other than the person in whose name the debt
securities are registered at the close of business on the regular
record date for that interest;
- the date or dates on which the principal of the debt securities
will be payable or how the date or dates will be determined;
- the rate or rates at which the debt securities will bear
interest, if any, or how the rate or rates will be determined and
the date or dates from which interest will accrue;
- the dates on which interest will be payable;
- the record dates for payments of interest;
- the place or places, if any, in addition to the office of the
trustee, where the principal of, and premium, if any, and
interest, if any, on the debt securities will be payable;
- the period or periods within which, the price or prices at which,
and the terms and conditions upon which, the debt securities may
be redeemed, in whole or in part, at our option;
- any sinking fund or other provisions or options held by holders
of the debt securities that would obligate us to purchase or
redeem the debt securities;
- the percentage, if less than 100%, of the principal amount of the
debt securities that will be payable if the maturity of the debt
securities is accelerated;
- any changes or additions to the events of default under the
indenture or changes or additions to our covenants under the
indenture;
- any collateral security, assurance or guarantee for the debt
securities; and
4
- any other specific terms applicable to the debt securities.
Unless we otherwise indicate in the applicable prospectus supplement,
the debt securities will be denominated in United States currency in minimum
denominations of $1,000 and multiples of $1,000.
Unless we otherwise indicate in the applicable prospectus supplement,
there are no provisions in the indenture or the debt securities that require us
to redeem, or permit the holders to cause a redemption of, the debt securities
or that otherwise protect the holders in the event that we incur substantial
additional indebtedness, whether or not in connection with a change in control
of our company.
SECURITY AND RANKING
We conduct our operations primarily through our subsidiaries and
substantially all of our consolidated assets are held by our subsidiaries.
Accordingly, our cash flow and our ability to meet our obligations under the
debt securities are largely dependent upon the earnings of our subsidiaries and
the distribution or other payment of these earnings to us in the form of
dividends. Our subsidiaries are separate and distinct legal entities and have no
obligation to pay any amounts due on our debt securities or to make any funds
available for payment of amounts due on our debt securities.
Because we are a holding company, our obligations under the debt
securities will be effectively subordinated to all existing and future
liabilities of our subsidiaries. Therefore, our rights and the rights of our
creditors, including the rights of the holders of our debt securities, to
participate in the liquidation of assets of any subsidiary will be subject to
the prior claims of the subsidiary's creditors. To the extent that we may be a
creditor with recognized claims against any of our subsidiaries, our claims
would still be effectively subordinated to any security interest in, or
mortgages or other liens on, the assets of the subsidiary and would be
subordinated to any indebtedness, other liabilities, and preferred securities,
of the subsidiary, senior to that held by us. As of June 30, 2001, our
pre-merger subsidiaries had approximately $7.1 billion aggregate principal
amount of indebtedness and $0.9 billion aggregate stated value of preferred
securities outstanding. As of June 30, 2001, the GPU subsidiaries which
became our subsidiaries in the merger had approximately $6.8 billion
aggregate principal amount of indebtedness and $0.4 billion aggregate stated
value of preferred securities outstanding.
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in a prospectus supplement, we will pay
interest on our debt securities on each interest payment date by wire transfer
to an account at a banking institution in the United States that is designated
in writing to the trustee by the person entitled to that payment or by check
mailed to the person in whose name the debt security is registered as of the
close of business on the regular record date relating to the interest payment
date, except that interest payable at stated maturity, upon redemption or
otherwise, will be paid to the person to whom principal is paid. However, if we
default in paying interest on a debt security, we may pay defaulted interest to
the registered owner of the debt security as of the close of business on a
special record date selected by the trustee, which will be between 10 and 15
days before the date we propose for payment of the defaulted interest, or in any
other lawful manner of payment that is consistent with the requirements of any
securities exchange on which the debt securities may be listed for trading, if
the trustee finds it practicable (See Section 307).
REDEMPTION
We will set forth any terms for the redemption of debt securities in a
prospectus supplement. Unless we indicate differently in a prospectus
supplement, and except with respect to debt securities redeemable at the option
of the registered holder, debt securities will be redeemable upon notice by mail
5
between 30 and 60 days prior to the redemption date. If less than all of the
debt securities of any series or any tranche of a series are to be redeemed, the
trustee will select the debt securities to be redeemed and will choose the
method of random selection it deems fair and appropriate. (See Sections 301, 403
and 404.)
Debt securities will cease to bear interest on the redemption date. We
will pay the redemption price and any accrued interest to the redemption date
once you surrender the debt security for redemption. (See Section 405.) If only
part of a debt security is redeemed, the trustee will deliver to you a new debt
security of the same series for the remaining portion without charge. (See
Section 406.)
We may make any redemption conditional upon the receipt by the paying
agent, on or prior to the date fixed for redemption, of money sufficient to pay
the redemption price. If the paying agent has not received the money by the date
fixed for redemption, we will not be required to redeem the debt securities.
(See Section 404.)
REGISTRATION, TRANSFER AND EXCHANGE
The debt securities will be issued without interest coupons and in
denominations that are even multiples of $1,000. Debt securities of any series
will be exchangeable for other debt securities of the same series of any
authorized denominations and of a like aggregate principal amount and tenor.
(See Section 305.)
Unless we otherwise indicate in the applicable prospectus supplement,
debt securities may be presented for registration of transfer, duly endorsed or
accompanied by a duly executed written instrument of transfer, at the office or
agency maintained for this purpose, without service charge except for
reimbursement of taxes and other governmental charges as described in the
indenture. (See Section 305.)
In the event of any redemption of debt securities of any series, the
trustee will not be required to exchange or register a transfer of any debt
securities of the series selected, called or being called for redemption except
the unredeemed portion of any debt security being redeemed in part. (See Section
305.)
LIMITATION ON LIENS
The indenture provides that, except as otherwise specified with respect
to a particular series of debt securities, we will not pledge, mortgage,
hypothecate or grant a security interest in, or permit any mortgage, pledge,
security interest, or other lien upon, any capital stock of any subsidiary now
or hereafter directly owned by us, to secure any indebtedness without also
equally and ratably securing the outstanding debt securities of that series and
all other indebtedness entitled to be so secured.
This restriction does not apply to, or prevent the creation or any
extension, renewal or refunding of:
- any mortgage, pledge, security interest, lien or encumbrance upon
any capital stock created at the time we acquire it or within one
year after that time to secure the purchase price for the capital
stock;
- any mortgage, pledge, security interest, lien or encumbrance upon
any capital stock existing at the time we acquire it, whether or
not we assume the secured obligations; or
6
- any judgment, levy, execution, attachment or other similar lien
arising in connection with court proceedings, provided that:
(1) the execution or enforcement of the lien is effectively
stayed within 30 days after entry of the corresponding
judgment, or the corresponding judgment has been discharged
within that 30-day period, and the claims secured by the
lien are being contested in good faith by appropriate
proceedings timely commenced and diligently prosecuted;
(2) the payment of each lien is covered in full by insurance and
the insurance company has not denied or contested coverage
thereof; or
(3) so long as each lien is adequately bonded, any appropriate
and duly initiated legal proceedings for the review of the
corresponding judgment, decree or order shall not have been
fully terminated or the period within which these
proceedings may be initiated shall not have expired.
Unless we otherwise specify in the prospectus supplement for a
particular series of debt securities, we may, without securing the debt
securities of that series, pledge, mortgage, hypothecate or grant a security
interest in, or permit any mortgage, pledge, security interest or other lien, in
addition to liens expressly permitted as described in the preceding paragraphs,
upon, capital stock of any subsidiary now or hereafter owned by us to secure any
indebtedness, which would otherwise be subject to the foregoing restriction, in
an aggregate amount which, together with all other such indebtedness, does not
exceed 10% of our consolidated net tangible assets. On a pro forma basis for the
GPU merger, our consolidated net tangible assets as of June 30, 2001 would have
been approximately $25.2 billion.
For purposes of this covenant, "consolidated net tangible assets" means
the amount shown as total assets on our consolidated balance sheet, less (i)
intangible assets including, without limitation, such items as goodwill,
trademarks, trade names, patents, and unamortized debt expense; (ii) current
liabilities; and (iii) appropriate adjustments, if any, related to minority
interests. These amounts will be determined in accordance with accounting
principles generally accepted in the United States.
The foregoing limitation does not limit in any manner:
- our ability to place liens on any of our assets other than the
capital stock of subsidiaries that we directly own;
- our ability to cause the transfer of our assets or those of our
subsidiaries, including the capital stock covered by the
foregoing restrictions; or
- the ability of any of our subsidiaries to place liens on any of
their assets. (See Section 608.)
CONSOLIDATION, MERGER, CONVEYANCE, SALE OR TRANSFER
We have agreed not to consolidate with or merge into any other entity
or convey, sell or otherwise transfer our properties and assets substantially as
an entirety to any entity unless:
- the successor is an entity organized and existing under the laws
of the United States of America or any State or the District of
Columbia;
7
- the successor expressly assumes by a supplemental indenture the
due and punctual payment of the principal of, and premium, if
any, and interest, if any, on all the outstanding debt securities
under the indenture and the performance of every covenant of the
indenture that we would otherwise have to perform or observe; and
- immediately after giving effect to the transactions, no event of
default with respect to any series of debt securities and no
event which after notice or lapse of time or both would become an
event of default with respect to any series of debt securities,
will have occurred and be continuing. (See Section 1101.)
MODIFICATION OF THE INDENTURE
Under the indenture or any supplemental indenture, our rights and the
rights of the holders of debt securities may be changed with the consent of the
holders representing a majority in principal amount of the outstanding debt
securities of all series affected by the change, voting as one class, provided
that the following changes may not be made without the consent of the holders of
each outstanding debt security affected thereby:
- change the fixed date upon which the principal of or the interest
on any debt security is due and payable, or reduce the principal
amount thereof or the rate of interest thereon or any premium
payable upon the redemption thereof, or reduce the amount of the
principal of an original issue discount security that would be
payable upon a declaration of acceleration of the maturity
thereof, or change any place of payment where, or the currency in
which, any debt security or any premium, if any, or the interest
thereon is payable, or impair the right to institute suit for the
enforcement of any payment on or after the date such payment is
due or, in the case of redemption, on or after the date fixed for
such redemption;
- reduce the stated percentage of debt securities, the consent of
the holders of which is required for any modification of the
applicable indenture or for waiver by the holders of certain of
their rights; or
- modify certain provisions of the indenture. (See Section 1202.)
An "original issue discount security" means any security authenticated
and delivered under the indenture which provides for an amount less than the
principal amount thereof to be due and payable upon the declaration of
acceleration of the maturity thereof.
The indenture also permits us and the trustee to amend the indenture
without the consent of the holders of any debt securities for any of the
following purposes:
- to evidence the assumption by any permitted successor of our
covenants in the indenture and in the debt securities;
- to add to the covenants with which we must comply or to surrender
any of our rights or powers under the indenture;
- to add additional Events of Default;
- to change, eliminate, or add any provision to the indenture;
provided, however, if the change, elimination, or addition will
adversely affect the interests of the holders of debt
8
securities of any series, other than any series the terms of
which permit such change, elimination or addition, in any
material respect, change, elimination, or addition will become
effective only:
(1) when the consent of the holders of debt securities of the
series has been obtained in accordance with the indenture;
or
(2) when no debt securities of the series remain outstanding
under the indenture;
- to provide collateral security for all of the debt securities;
- to establish the form or terms of debt securities of any other
series as permitted by the indenture;
- to provide for the authentication and delivery of bearer
securities and coupons attached thereto;
- to evidence and provide for the acceptance of appointment of a
successor trustee;
- to provide for the procedures required for use of a
noncertificated system of registration for the debt securities of
all or any series;
- to change any place where principal, premium, if any, and
interest shall be payable, debt securities may be surrendered for
registration of transfer or exchange and notices to us may be
served; or
- to cure any ambiguity or inconsistency or to make any other
provisions with respect to matters and questions arising under
the indenture; provided that such action shall not adversely
affect the interests of the holders of debt securities of any
series in any material respect. (See Section 1201.)
EVENTS OF DEFAULT
An event of default with respect to any series of debt securities is
defined in the indenture as being any one of the following:
- failure to pay interest on the debt securities of that series for
30 days after payment is due;
- failure to pay principal of or any premium on the debt securities
of that series when due, whether at stated maturity or upon
earlier acceleration or redemption;
- failure to perform other covenants in the indenture for 90 days
after we are given written notice from the trustee or the trustee
receives written notice from the registered owners of at least
33% in principal amount of the debt securities of that series;
however, the trustee or the trustee and the holders of such
principal amount of debt securities of that series can agree to
an extension of the 90-day period and such an agreement to extend
will be automatically deemed to occur if we are diligently
pursuing action to correct the default;
- certain events of bankruptcy, insolvency, reorganization,
receivership or liquidation relating to us; and
9
- any other event of default included in the supplemental indenture
or officer's certificate for that series of debt securities. (See
Section 801.)
An event of default regarding a particular series of debt securities
does not necessarily constitute an event of default for any other series of debt
securities.
We will be required to file with the trustee annually an officers'
certificate as to the absence of default in performance of certain covenants in
the indenture. (See Section 606.) The indenture provides that the trustee may
withhold notice to the holders of the debt securities of any default, except in
payment of principal of, or premium, if any, or interest on, the debt securities
or in the payment of any sinking fund installment with respect to the debt
securities, if the trustee in good faith determines that it is in the interest
of the holders of the debt securities to do so. (See Section 902.)
The indenture provides that, if an event of default with respect to the
debt securities of any series occurs and continues, either the trustee or the
holders of 33% or more in aggregate principal amount of the debt securities of
that series may declare the principal amount of all the debt securities to be
due and payable immediately. However, if the event of default is applicable to
all outstanding debt securities under the indenture, only the trustee or holders
of at least 33% in principal amount of all outstanding debt securities of all
series, voting as one class, and not the holders of any one series, may make
such a declaration of acceleration.
At any time after a declaration of acceleration with respect to the
debt securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained, the event of default giving rise to
such declaration of acceleration will be considered waived, and such declaration
and its consequences will be considered rescinded and annulled, if:
- we have paid or deposited with the trustee a sum sufficient to
pay:
(1) all overdue interest, if any, on all debt securities of the
series,
(2) the principal of and premium, if any, on any debt securities
of the series which have otherwise become due and interest,
if any, that is currently due, including interest on overdue
interest, if any, and
(3) all amounts due to the trustee under the indenture; and
- any other event of default with respect to the debt securities of
that series has been cured or waived as provided in the
indenture.
There is no automatic acceleration, even in the event of our
bankruptcy, insolvency or reorganization. (See Section 802.)
Subject to the provisions of the indenture relating to the duties of
the trustee, the trustee will be under no obligation to exercise any of its
rights or powers under the indenture at the request or direction of any of the
holders of the debt securities, unless the holders shall have offered to the
trustee reasonable indemnity. (See Section 903.)
Subject to the provision for indemnification, the holders of a majority
in principal amount of the debt securities of any series will have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the trustee, or exercising any trust or power conferred on the
trustee with respect to the debt securities of that series. However, if the
event of default relates to more
10
than one series of debt securities, only the holders of a majority in
aggregate principal amount of all affected series will have the right to give
this direction. However, the trustee shall have the right to decline to
follow any direction if the trustee shall determine that the action so
directed conflicts with any law or the provisions of the indenture or if the
trustee shall determine that the action would be prejudicial to holders not
taking part in the direction. (See Section 812.)
SATISFACTION AND DISCHARGE
We will be discharged from our obligations on the debt securities of
any series, or any portion of the principal amount of the debt securities of any
series, if we
(1) irrevocably deposit with the Trustee sufficient cash or eligible
obligations (or a combination of both) to pay the principal, or
portion of principal, interest, any premium and any other sums
when due on the debt securities at their maturity, stated
maturity date, or redemption; and
(2) deliver to the Trustee:
(a) a company order stating that the money and eligible
obligations deposited in accordance with the Indenture shall
be held in trust and certain opinions of counsel and of an
independent public accountant;
(b) if such deposit shall have been made prior to the maturity
of the debt securities of the series, an officer's
certificate stating our intention that, upon delivery of the
officer's certificate, our indebtedness in respect of those
debt securities, or the portions thereof, will have been
satisfied and discharged as contemplated in the Indenture;
and
(c) an opinion of counsel to the effect that, as a result of a
change in law or a ruling of the United States Internal
Revenue Service, the holders of the debt securities of the
series, or portions thereof, will not recognize income, gain
or loss for United States federal income tax purposes as a
result of the satisfaction and discharge of our indebtedness
and will be subject to United States federal income tax on
the same amounts, at the same times and in the same manner
as if we had not so satisfied and discharged our
indebtedness.
For this purpose, "eligible obligations" include direct obligations of, or
obligations unconditionally guaranteed by, the United States entitled to the
benefit of the full faith and credit thereof and certificates, depositary
receipts or other instruments which evidence a direct ownership interest in such
obligations or in any specific interest or principal payments due in respect
thereof and which do not contain provisions permitting their redemption or other
prepayment at the option of the issuer thereof.
In the event that all of the conditions set forth above have been satisfied for
any series of debt securities, or portions thereof, except that, for any reason,
we have not delivered the officer's certificate and opinion described in clauses
(b) and (c) above, the holders of those debt securities will no longer be
entitled to the benefits of certain of our covenants under the indenture,
including the covenant described above in "--Limitation on Liens." Our
indebtedness in respect of those debt securities, however, will not be deemed to
have been satisfied and discharged prior to maturity, and the holders of those
debt securities may continue to look to us for payment of the indebtedness
represented thereby. (See Section 701.)
11
The indenture will be deemed satisfied and discharged when no debt securities
remain outstanding and when we have paid all other sums payable by us under the
indenture. (See Section 702.) All moneys we pay to the trustee or any paying
agent on debt securities which remain unclaimed at the end of two years after
payments have become due will be paid to us or upon our order. Thereafter, the
holder of those debt securities may look only to us for payment and not the
trustee or any paying agent. (See Section 603.)
RESIGNATION OR REMOVAL OF TRUSTEE
The trustee may resign at any time by giving written notice to us
specifying the day upon which the resignation is to take effect. The resignation
will take effect immediately upon the later of the appointment of a successor
trustee and the specified day. (See Section 910.)
The trustee may be removed at any time by an instrument or concurrent
instruments in writing delivered to the trustee and us and signed by the
holders, or their attorneys-in-fact, representing at least a majority in
principal amount of the then outstanding debt securities. In addition, under
certain circumstances, we may remove the trustee upon notice to the holder of
each debt security outstanding and the trustee, and appointment of a successor
trustee. (See Section 910.)
CONCERNING THE TRUSTEE
Bank One Trust Company, N.A. is the trustee under the indenture. We and
our affiliates maintain other banking relationships in the ordinary course of
business with the trustee and its affiliates.
GOVERNING LAW
The indenture and the debt securities will be governed by and construed
in accordance with the laws of the State of New York, except to the extent that
the law of any other jurisdiction shall be mandatorily applicable.
BOOK-ENTRY, DELIVERY AND FORM
The debt securities will be issued in the form of one or more fully
registered global securities, the "global securities," which will be deposited
with, or on behalf of, The Depository Trust Company, New York, New York, the
"depositary" or "DTC," and registered in the name of Cede & Co., the
depositary's nominee. Beneficial interests in the global securities will be
represented through book-entry accounts of financial institutions acting on
behalf of beneficial owners as direct and indirect participants in the
depositary. Investors may elect to hold interests in the global securities held
by the depositary through Clearstream Banking, SOCIETE ANONYME, "Clearstream,
Luxembourg," or Euroclear Bank, SOCIETE ANONYME, as operator of the Euroclear
System, "Euroclear operator," if they are participants in such systems, or
indirectly through organizations which are participants in such systems.
Clearstream, Luxembourg and the Euroclear operator will hold interests on behalf
of their participants through customers' securities accounts in Clearstream,
Luxembourg's and the Euroclear operator's names on the books of their respective
depositaries, which in turn will hold such interests in customers' securities
accounts in the depositaries' names on the books of the depositary. Citibank,
N.A. will act as depositary for Clearstream, Luxembourg and The Chase Manhattan
Bank will act as depositary for the Euroclear operator, in such capacities, the
"U.S. depositaries." Except as set forth below, the global securities may be
transferred, in whole and not in part, only to another nominee of the depositary
or to a successor of the depositary or its nominee.
The depositary has advised us as follows: the depositary is a
limited-purpose trust company organized under the New York Banking Law, a
"banking organization" within the meaning of the New
12
York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and
a "clearing agency" registered pursuant to the provisions of Section 17A of
the Securities Exchange Act of 1934, as amended. The depositary holds
securities deposited with it by its participants and facilitates the
settlement of transactions among its participants in those securities through
electronic computerized book-entry changes in participants' accounts,
eliminating the need for physical movement of securities certificates. The
depositary's participants include securities brokers and dealers (including
underwriters), banks, trust companies, clearing corporations and certain
other organizations, some of whom (and/or their representatives) own the
depositary. Access to the depositary's book-entry system is also available to
others, such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a participant, either
directly or indirectly.
According to the depositary, the foregoing information relating to the
depositary has been provided to the financial community for informational
purposes only and is not intended to serve as a representation, warranty or
contract modification of any kind.
Clearstream, Luxembourg advises that it is incorporated under the laws
of Luxembourg as a bank. Clearstream, Luxembourg holds securities for its
customers, "Clearstream, Luxembourg customers," and facilitates the clearance
and settlement of securities transactions between Clearstream, Luxembourg
customers through electronic book-entry transfers between their accounts,
thereby eliminating the need for physical movement of securities. Clearstream,
Luxembourg provides to Clearstream, Luxembourg customers, among other things,
services for safekeeping, administration, clearance and settlement of
internationally traded securities and securities lending and borrowing.
Clearstream, Luxembourg interfaces with domestic securities markets in over 30
countries through established depositary and custodial relationships. As a bank,
Clearstream Luxembourg is subject to regulation by the Luxembourg Commission for
the Supervision of the Financial Sector (COMMISSION DE SURVEILLANCE DU SECTEUR
FINANCIER). Clearstream, Luxembourg customers are world-wide financial
institutions, including underwriters, securities brokers and dealers, banks,
trust companies and clearing corporations. Clearstream, Luxembourg's U.S.
customers are limited to securities brokers and dealers and banks. Indirect
access to Clearstream, Luxembourg is also available to other institutions such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Clearstream, Luxembourg customer. Clearstream,
Luxembourg has established an electronic bridge with the Euroclear operator to
facilitate settlement of trades between Clearstream, Luxembourg and the
Euroclear operator.
Distributions with respect to the debt securities held through
Clearstream, Luxembourg will be credited to cash accounts of Clearstream,
Luxembourg customers in accordance with its rules and procedures, to the extent
received by the U.S. depositary for Clearstream, Luxembourg.
The Euroclear operator advises that the Euroclear system was created in
1968 to hold securities for its participants, "Euroclear participants," and to
clear and settle transactions between Euroclear participants through
simultaneous electronic book-entry delivery against payment, thereby eliminating
the need for physical movement of certificates and any risk from lack of
simultaneous transfer of securities and cash. The Euroclear system provides
various other services, including securities lending and borrowing and
interfaces with domestic markets in several countries. The Euroclear system is
operated by the Euroclear operator, under contract with Euroclear Clearance
System S.C., a Belgian cooperative corporation, the "cooperative." All
operations are conducted by the Euroclear operator, and all Euroclear securities
clearance accounts and Euroclear cash accounts are accounts maintained with the
Euroclear operator, not the cooperative. The cooperative establishes policy for
the Euroclear system on behalf of Euroclear participants. Euroclear participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries and include the underwriters.
Indirect access
13
to the Euroclear system is also available to other firms that clear through
or maintain a custodial relationship with a Euroclear participant, either
directly or indirectly.
The Euroclear operator is a Belgian banking corporation which is
regulated and examined by the Belgian Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear
operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System, and applicable Belgian
law, collectively, the "terms and conditions." The terms and conditions govern
transfers to securities and cash within the Euroclear system, withdrawals of
securities and cash from the Euroclear system, and receipts of payments with
respect to securities in the Euroclear system. All securities in the Euroclear
system are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The Euroclear operator acts under the
terms and conditions only on behalf of Euroclear participants and has no record
of or relationship with persons holding through Euroclear participants.
Distributions with respect to the debt securities held beneficially
through the Euroclear system will be credited to the cash accounts of Euroclear
participants in accordance with the terms and conditions, to the extent received
by the U.S. depositary for Euroclear.
The Euroclear operator further advises that investors that acquire,
hold and transfer interests in the debt securities by book-entry through
accounts with the Euroclear operator or any other securities intermediary are
subject to the laws and contractual provisions governing their relationship with
their intermediary, as well as the laws and contractual provisions governing the
relationship between their intermediary and each other intermediary, if any,
standing between themselves and the registered global securities.
The Euroclear operator advises as follows: Under Belgian law, investors
that are credited with securities on the records of the Euroclear operator have
a co-property right in the fungible pool of interests in securities on deposit
with the Euroclear operator in an amount equal to the amount of interests in
securities credited to their accounts. In the event of the insolvency of the
Euroclear operator, Euroclear participants would have a right under Belgian law
to the return of the amount and type of interest in securities of that type on
the Euroclear operator's records, all participants having an amount of interests
in securities of that type credited to their accounts with the Euroclear
operator will have the right under Belgian law to the return of their pro-rata
share of the amount of interests in securities actually on deposit.
Under Belgian law, the Euroclear operator is required to pass on the
benefits of ownership in any interests in securities on deposit with it (such as
dividends, voting rights and other entitlements) to any person credited with
those interests in securities on its records.
Individual certificates in respect of the debt securities will not be
issued in exchange for the registered global securities, except in very limited
circumstances. If the depositary notifies us that it is unwilling or unable to
continue as a clearing system in connection with the registered global
securities or ceases to be a clearing agency registered under the Securities
Exchange Act, and a successor clearing system is not appointed by us within 90
days after receiving that notice from the depositary or upon becoming aware that
the depositary is no longer so registered, we will issue or cause to be issued
individual certificates in registered from on registration of transfer of, or in
exchange for, book-entry interests in the debt securities represented by the
registered global securities upon delivery of the registered global securities
for cancellation.
14
Title to book-entry interests in the debt securities will pass by
book-entry registration of the transfer within the records of Clearstream,
Luxembourg, the Euroclear operator or the depositary, as the case may be, in
accordance with their respective procedures. Book-entry interest in the debt
securities may be transferred within Clearstream, Luxembourg and within the
Euroclear system and between Clearstream, Luxembourg and the Euroclear system in
accordance with procedures established for these purposes by Clearstream,
Luxembourg and the Euroclear operator. Book-entry interest in the debt
securities may be transferred within the depositary in accordance with
procedures established for this purpose by the depositary. Transfers of
book-entry interests in the debt securities among Clearstream, Luxembourg and
the Euroclear operator and the depositary may be effected in accordance with
procedures established for this purpose by Clearstream, Luxembourg, the
Euroclear operator and the depositary.
GLOBAL CLEARANCE AND SETTLEMENT PROCEDURES
Initial settlement for the registered global securities will be made in
immediately available funds. Secondary market trading between the depositary's
participants will occur in the ordinary way in accordance with the depositary's
rules and will be settled in immediately available funds using the depositary's
Same-Day Funds Settlement System. Secondary market trading between Clearstream,
Luxembourg customers and/or Euroclear participants will occur in the ordinary
way in accordance with the applicable rules and operating procedures of
Clearstream, Luxembourg and Euroclear and will be settled using the procedures
applicable to conventional Eurobonds in immediately available funds.
Cross-market transfers between persons holding directly or indirectly
through the depositary on the one hand, and directly or indirectly through
Clearstream, Luxembourg customers or Euroclear participants, on the other, will
be effected through the depositary in accordance with the depositary's rules on
behalf of the relevant European international clearing system by its U.S.
depositary, however, these cross-market transactions will require delivery of
instructions to the relevant European international clearing system by the
counterparty in the clearing system in accordance with its rules and procedures
and within its established deadlines (European time). The relevant European
international clearing system will, if the transaction meets its settlement
requirements, deliver instructions to its U.S. depositary to take action to
effect final settlement on its behalf by delivering interests in the debt
securities to or receiving interest in the debt securities from the depositary,
and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to the depositary. Clearstream, Luxembourg
customers and Euroclear participants may not deliver instructions directly to
their respective U.S. depositaries.
Because of time-zone differences, credits of interests in the debt
securities received in Clearstream, Luxembourg or the Euroclear system as a
result of a transaction with a depositary participant will be made during
subsequent securities settlement processing and dated the business day following
the depositary settlement date. Credits of interests or any transactions
involving interests in the debt securities received in Clearstream, Luxembourg
or the Euroclear System as a result of a transaction with a depositary
participant and settled during subsequent securities settlement processing will
be reported to the relevant Clearstream, Luxembourg customers or Euroclear
participants on the business day following the depositary settlement date. Cash
received in Clearstream, Luxembourg or the Euroclear system as a result of sales
of interests in the debt securities by or through a Clearstream, Luxembourg
customer or a Euroclear participant to a depositary participant will be received
with value on the depositary settlement date but will be available in the
relevant Clearstream, Luxembourg or Euroclear cash account only as of the
business day following settlement in the depositary.
Although the depositary, Clearstream, Luxembourg and the Euroclear
operator have agreed to the foregoing procedures in order to facilitate
transfers of interests in the notes among participants of the
15
depositary, Clearstream, Luxembourg and Euroclear, they are under no
obligation to perform or continue to perform the foregoing procedures and
these procedures may be changed or discontinued at any time.
PLAN OF DISTRIBUTION
We may use the following methods to sell the debt securities:
- through negotiation with one or more underwriters;
- through one or more agents or dealers designated from time to
time;
- directly to purchasers; or
- through any combination of the above.
The distribution of the debt securities may be effected from time to
time in one or more transactions at a fixed price or prices which may be
changed, at market prices prevailing at the time of sale, at prices related to
prevailing market prices or at negotiated prices. A prospectus supplement or a
supplement thereto will describe the method of distribution of any series of
debt securities.
If we use any underwriters in the sale of debt securities, we will
enter into an underwriting agreement, distribution agreement or similar
agreement with the underwriters prior to the time of sale, and the names of the
underwriters used in the transaction will be set forth in the prospectus
supplement or a supplement thereto relating to the sale. If an underwriting
agreement is executed, the debt securities will be acquired by the underwriters
for their own account and may be resold from time to time in one or more
transactions, including negotiated transactions, at a fixed public offering
price or at varying prices determined at the time of the sale. Unless we
otherwise indicate in the prospectus supplement, the underwriting or purchase
agreement will provide that the underwriter or underwriters are obligated to
purchase all of the debt securities offered in the prospectus supplement if any
are purchased.
If any debt securities are sold through agents designated by us from
time to time, the prospectus supplement or a supplement thereto will name any
agent, set forth any commissions payable by us to any agent and the obligations
of the agent with respect to the securities. Unless otherwise indicated in the
prospectus supplement or a supplement thereto, any agent will be acting on a
best efforts basis for the period of its appointment.
Certain persons participating in an offering of the debt securities may
engage in transactions that stabilize, maintain or otherwise affect the price of
the debt securities. Specifically, the underwriters, if any, may overallot in
connection with the offering, and may bid for, and purchase, the debt securities
in the open market.
No series of debt securities, when first issued, will have an
established trading market. Any underwriters or agents to or through whom debt
securities are sold by us for public offering and sale may make a market in the
debt securities, but underwriters and agents will not be obligated to do so and
may discontinue any market making at any time without notice. No assurance can
be given as to the liquidity of the trading market for any debt securities.
In connection with the sale of the debt securities, any purchasers,
underwriters or agents may receive compensation from us or from purchasers in
the form of concessions or commissions. The underwriters will be, and any agents
and any dealers participating in the distribution of the debt securities may be
deemed to be, underwriters within the meaning of the Securities Act of 1933. The
agreement
16
between us and any purchasers, underwriters or agents will contain reciprocal
covenants of indemnity, and will provide for contribution by us in respect of
our indemnity obligations, between us and the purchasers, underwriters, or
agents against certain liabilities, including liabilities under the
Securities Act of 1933.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, us and our affiliates in the ordinary course of business.
LEGAL MATTERS
Unless otherwise indicated in the applicable prospectus supplement,
Gary D. Benz, Esq., Akron, Ohio, our counsel, and Pillsbury Winthrop LLP, One
Battery Park Plaza, New York, NY 10004-1490, our special counsel, will render
opinions to any underwriters or agents as to the legality of the debt
securities. Certain other legal matters will be passed upon by Thelen Reid &
Priest LLP, 40 West 57th Street, New York, NY 10019-4097. Thelen Reid &
Priest LLP has in the past represented FirstEnergy and GPU and continues to
represent certain FirstEnergy affiliates.
EXPERTS
The audited consolidated financial statements and related schedule
incorporated by reference or included in our Annual Report on Form 10-K/A for
the year ended December 31, 2000, incorporated by reference in this prospectus,
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports dated February 16, 2001 with respect thereto, and are
incorporated by reference in this prospectus in reliance upon the authority of
said firm as experts in accounting and auditing in giving said reports.
With respect to the unaudited interim consolidated financial
information for the quarters ended March 31, 2001 and June 30, 2001,
incorporated by reference in this prospectus, Arthur Andersen LLP has applied
limited procedures in accordance with professional standards for reviews of that
information. However, their separate reports thereon state that they did not
audit and they do not express opinions on that interim consolidated financial
information. Accordingly, the degree of reliance on their reports on that
information should be restricted in light of the limited nature of the review
procedures applied. In addition, the accountants are not subject to the
liability provisions of Section 11 of the Securities Act of 1933 for their
reports on the unaudited interim consolidated financial information because
these reports are not "reports" or "parts" of the registration statement
prepared or certified by the accountants within the meaning of Sections 7 and 11
of that Act.
The consolidated financial statements included in GPU's Annual Report
on Form 10-K for the year ended December 31, 2000 have been audited by
PricewaterhouseCoopers LLP, independent public accountants, as indicated in
their report dated January 31, 2001, and are incorporated in this prospectus by
reference. The audited consolidated financial statements of GPU are incorporated
herein by reference in reliance upon the authority of said firm as experts in
accounting and auditing in giving said report.
WHERE YOU CAN FIND MORE INFORMATION
We are required by the Securities Exchange Act of 1934 to file annual,
quarterly and special reports and other information with the SEC. These reports
and other information can be inspected and copied at the SEC's public reference
room at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. You may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. You may also read and copy these SEC filings by visiting
the SEC's website at
17
http://www.sec.gov or our website at http://www.firstenergycorp.com.
Information contained on our website does not constitute part of this
prospectus.
We have filed with the SEC a registration statement on Form S-3 under
the Securities Act of 1933 with respect to the securities offered by this
prospectus. This prospectus does not contain all of the information included in
the registration statement. For further information, you should refer to the
registration statement.
The SEC allows us to incorporate by reference information filed with
them, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is considered
to be part of this prospectus. The information included in this prospectus is
not complete, and should be read together with the information incorporated by
reference. We incorporate by reference in this prospectus the documents listed
below and any future filings we make with the SEC under Sections 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934, until we sell all of the
debt securities described in this prospectus; information we file in the future
with the SEC will automatically update and supersede this information:
- FirstEnergy Corp.'s Annual Report on Form 10-K/A for the year
ended December 31, 2000.
- FirstEnergy Corp.'s Quarterly Reports on Form 10-Q for the
quarters ended March 31 and June 30, 2001.
- FirstEnergy Corp.'s Current Reports on Form 8-K filed October 18,
October 30 and November 7, 2001.
- GPU, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 2000.
- GPU, Inc.'s Quarterly Reports on Form 10-Q for the quarters ended
March 31 and June 30, 2001.
- GPU, Inc.'s Current Reports on Form 8-K filed January 22, January
26, March 7, May 8, May 25, June 12, June 15, August 28,
September 4, September 28, and October 30, 2001.
You may also request additional copies of these reports or copies of
our SEC filings at no cost by writing or telephoning us at the following
address:
FirstEnergy Corp.
76 South Main Street
Akron, Ohio 44308-1890
Attention: Corporate Secretary
(330) 384-5100
You should rely only on the information contained in, or incorporated
by reference in, this prospectus and the applicable prospectus supplement.
Neither we nor any underwriter, agent or dealer has authorized anyone else to
provide you with different information. Neither we nor any underwriter, agent or
dealer is making an offer of these debt securities in any state where the offer
is not permitted. You should not assume that the information contained in this
prospectus is accurate as of any date other than the date on the front of the
prospectus.
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