FirstEnergy (FE) 10-K/A risk factor changes: FY2019 vs FY2018

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

Amendment No.1

(Mark One)

☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the FISCAL YEAR ended December 31, 2019

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________________ to ___________________

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| Commission | | | | | | Registrant; State of Incorporation; | | | | | | | | | | | | | | | I.R.S. Employer | | |

| File Number | | | | | | Address; and Telephone Number | | | | | | | | | | | | | | | Identification No. | | |

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| 333-21011 | | | | | | FIRSTENERGY CORP | | | | | | | | | | | | | | | 34-1843785 | | |

| | | | | | | (An | | | Ohio | | | Corporation) | | | | | | | | | | | |

| | | | | | | 76 South Main Street | | | | | | | | | | | | | | | | | |

| | | | | | | Akron | | | | | | OH | | | 44308 | | | | | | | | |

| | | | | | | Telephone | | | | | | (800) | | | 736-3402 | | | | | | | | |

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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

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| Title of Each Class | | | | | | Trading Symbol | | | | | | Name of Each Exchange on Which Registered | | |

| Common Stock, $0.10 par value per share | | | | | | FE | | | | | | New York Stock Exchange | | |

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

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| Yes | | | ☑ | | | No | | | ☐ | | | | | |

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

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The consolidated financial statements and supplementary data of FirstEnergy required in this item are set forth beginning on page 4.

The only changes from the financial statements filed with FirstEnergy’s Original 10-K are changes to the Report of Independent Registered Public Accounting Firm on page 2, and the addition of Note 18, "Subsequent Events", on page 62.

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of FirstEnergy Corp.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of FirstEnergy Corp. and its subsidiaries (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of income (loss), of comprehensive income (loss), of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2019, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in *Internal Control - Integrated Framework* (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in *Internal Control - Integrated Framework* (2013) issued by the COSO because a material weakness in internal control over financial reporting existed as of that date related to its senior management failing to set an appropriate tone at the top.

Specifically, certain members of senior management failed to reinforce the need for compliance with the Company’s policies and code of conduct, which resulted in inappropriate conduct that was inconsistent with the Company’s policies and code of conduct.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

The material weakness referred to above is described in Management's Report on Internal Control over Financial Reporting appearing under Item 9A.

We considered this material weakness in determining the nature, timing, and extent of audit tests applied in our audit of the 2019 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.

*Restatement of Management’s Conclusion Regarding Internal Control over Financial Reporting*

Management and we previously concluded that the Company maintained effective internal control over financial reporting as of December 31, 2019.

However, management has subsequently determined that a material weakness in internal control over financial reporting related to its senior management failing to set an appropriate tone at the top existed as of that date.

Accordingly, management’s report has been restated and our present opinion on internal control over financial reporting, as presented herein, is different from that expressed in our previous report.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in management’s report referred to above.

Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

*Recoverability of Regulatory Assets That Do Not Have an Order for Recovery*

As described in Note 1 to the consolidated financial statements, the Company accounts for the effects of regulation through the application of regulatory accounting to its regulated distribution and transmission subsidiaries as their rates are established by a third-party regulator with the authority to set rates that bind customers, are cost-based and can be charged to and collected from customers.

This ratemaking process results in the recording of regulatory assets and liabilities based on anticipated future cash inflows and outflows.

Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures to provide reasonable assurance that information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure, and ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended (Exchange Act) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of December 31, 2019.

At the time that the Original 10-K was filed on February 10, 2020, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2019.

Subsequent to this evaluation, the Company’s current acting chief executive officer and current chief financial officer concluded that our disclosure controls and procedures were not effective as of December 31, 2019, due to the material weakness in internal control over financial reporting described below.

Notwithstanding the material weakness described below, management has concluded that its consolidated financial statements included in the Original 10-K (and as presented in this Amendment) were not materially misstated and presented fairly, in all material respects, our consolidated financial statements as of December 31, 2019 and 2018, and as of and for each of the years in the three-year period ended December 31, 2019.

Management’s Report on Internal Control over Financial Reporting (Restated)

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.

Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2019 based on the framework in "Internal Control-Integrated Framework" (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of FirstEnergy’s annual or interim financial statements will not be prevented or detected on a timely basis.

We did not maintain an effective control environment as our senior management failed to set an appropriate tone at the top.

Specifically, certain members of senior management failed to reinforce the need for compliance with the Company’s policies and code of conduct, which resulted in inappropriate conduct that was inconsistent with the Company’s policies and code of conduct.

This control deficiency did not result in a material misstatement of our annual or interim consolidated financial statements.

However, this control deficiency could have resulted in material misstatements to the annual or interim consolidated financial statements that would not have been prevented or detected.

Accordingly, our management has concluded that this control deficiency constitutes a material weakness.

In Management's Report on Internal Control over Financial Reporting included in our Original 10-K for the year ended December 31, 2019, our management, including our chief executive officer and chief financial officer, concluded that our internal control over financial reporting was effective as of December 31, 2019.

Management subsequently concluded that the material weakness described above existed as of December 31, 2019.

As a result, management has concluded that we did not maintain effective internal control over financial reporting as of December 31, 2019 based on the framework in Internal Control-Integrated Framework (2013) issued by the COSO.

Accordingly, management has restated its report on internal control over financial reporting.

The effectiveness of our internal control over financial reporting as of December 31, 2019 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which is included herein.

Remediation Plans

Management and the Board of Directors take FirstEnergy’s internal control over financial reporting and the integrity of its financial statements seriously.

Management, the Board of Directors, along with the Audit Committee, and its newly formed subcommittee, are currently working to remediate the material weakness identified above.

While we expect to take other remedial actions, actions taken to date include:

- the appointment of a new acting chief executive officer and executive director to improve the tone at the top;

- the termination of certain members of senior management, including FirstEnergy’s former chief executive officer, for violations of certain Company policies and its code of conduct;

- the separation of two senior members of the legal department, due to inaction and conduct that the Board determined was influenced by the improper tone at the top; and

- the establishment of the new subcommittee of FirstEnergy’s Audit Committee, who, with the Board, will oversee the assessment and implementation of potential changes (as appropriate) in FirstEnergy’s compliance program.

Management currently does not have an expected timetable for the execution and completion of a remediation plan.

Management and the Board of Directors are committed to maintaining a strong internal control environment and will make every effort to ensure that the material weakness described above will be promptly remediated, however, the material weakness cannot be considered remediated until the applicable remedial control is implemented and operates for a sufficient period of time to allow management to conclude, through testing, that this remediation plan is implemented and the control is operating effectively.

Changes in Internal Control over Financial Reporting

During the quarter ended December 31, 2019, there were no changes in internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) that have materially affected, or are reasonably likely to materially affect, FirstEnergy's internal control over financial reporting.

PART IV

(a) The following documents are filed as a part of this report on Form 10-K/A:

1.

Financial Statements:

Management’s Report on Internal Control Over Financial Reporting for FirstEnergy Corp. is listed under Item 9A, "Controls and Procedures" herein.

Report of Independent Registered Public Accounting Firm for FirstEnergy Corp. is listed under Item 8, "Financial Statements and Supplementary Data," herein.

The financial statements filed as a part of this report for FirstEnergy Corp. are listed under Item 8, "Financial Statements and Supplementary Data," herein.

2.

Financial Statement Schedule:

Report of Independent Registered Public Accounting Firm for FirstEnergy Corp. (including the schedule referenced below) is listed under Item 8, "Financial Statements and Supplementary Data," herein on page:

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Schedule II — Consolidated Valuation and Qualifying Accounts for each of the three years in the period ended December 31, 2019, are listed herein on page:

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3.

Exhibits

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| The following exhibits are filed as part of this Amendment. | | | | | | | | |

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| (A) 23 | | | | | | [Consent of Independent Registered Public Accounting Firm.](https://www.sec.gov/Archives/edgar/data/1031296/000103129620000043/fe-1231201910xkaxex23.htm) | | |

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| (A) 31.1 | | | | | | [Certification of acting chief executive officer, pursuant to Rule 13a-14(a)](https://www.sec.gov/Archives/edgar/data/1031296/000103129620000043/fe-1231201910xkaxex311.htm) | | |

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| (A) 31.2 | | | | | | [Certification of chief financial officer, pursuant to Rule 13a-14(a).](https://www.sec.gov/Archives/edgar/data/1031296/000103129620000043/fe-1231201910xkaxex312.htm) | | |

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| (A) 32 | | | | | | [Certification of acting chief executive officer and chief fin](https://www.sec.gov/Archives/edgar/data/1031296/000103129620000043/fe-1231201910xkaxex32.htm)[ancial officer, pursuant to 18 U.S.C. §1350.](https://www.sec.gov/Archives/edgar/data/1031296/000103129620000043/fe-1231201910xkaxex32.htm) | | |

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| 101 | | | | | | The following materials from the Annual Report on Form 10-K/A for FirstEnergy Corp. for the period ended December 31, 2019, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) Consolidated Statements of Income (Loss) and Consolidated Statements of Comprehensive Income (Loss), (ii) Consolidated Balance Sheets, (iii) Consolidated Statements of Common Stockholders' Equity, (iv) Consolidated Statements of Cash Flows, (v) related notes to these financial statements and (vi) document and entity information. | | |

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10-K/A 1 fe-12312018x10ka.htm 10-K/A

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

(Amendment No.1)

(Mark One)

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the FISCAL YEAR ended December 31, 2018

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________________ to ___________________

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| Commission | | Registrant; State of Incorporation; | | I.R.S. Employer |

| File Number | | Address; and Telephone Number | | Identification No. |

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| 333-21011 | | FIRSTENERGY CORP. | | 34-1843785 |

| | | (An Ohio Corporation) | | |

| | | 76 South Main Street | | |

| | | Akron, OH 44308 | | |

| | | Telephone (800)736\-3402 | | |

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

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| Registrant | | Title of Each Class | | Name of Each Exchange on Which Registered |

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| FirstEnergy Corp. | | Common Stock, $0.10 par value per share | | New York Stock Exchange |

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

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| Yes þ No o | | |

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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

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