01—Abstract
Summary
Summary of the 10-K filed February 28, 2008. Cited figures are marked; the original filing is the authoritative source.
Public Service Enterprise Group Incorporated (PSEG) reported 2007 net income of $1.335 billiona, or $2.62 per diluted share, up from $739 million ($1.46 per diluted share) in 2006, on operating revenues of $12.853 billion.
Income from continuing operations was $1.319 billionb ($2.59 per diluted share), compared with $679 million in 2006. The 2006 results included an after-tax charge of $178 million related to the sale of RGE. Power, the wholesale generation subsidiary, contributed income from continuing operations of $949 million, up from $515 million, driven by higher prices on new contracts including BGS contracts, higher sales volumes, and lower generation costs.
PSE&G, the regulated New Jersey utility, earned $380 millionc, up from $265 million, while Global and Resources contributed $31 million and $58 million respectively. The filing describes a company with strong Power earnings tied to contracted nuclear and coal output and rising capacity prices, offset by significant risks. Those risks include a pending IRS challenge to leveraged lease deductions at Resources (with $781 million of deferred tax liabilities that would become currently payable if fully sustained, plus interest and penalties), pending environmental costs such as roughly $1.1 billion of back-end technology projects at Mercer and Hudson, and possible cooling-tower requirements at Salem with an estimated cost of about $575 million for Power's share.
Long-term debt declined to $8.662 billiond from $10.100 billion as several notes were redeemed. Management also raised the quarterly dividend to $0.3225 per share from $0.2925 and approved a two-for-one stock split effective February 4, 2008.
Credit ratings were stable to positive at PSEG and Power, with Moody's placing PSE&G's outlook at negative. Power would have needed approximately $777 million of additional collateral if it lost its investment-grade rating as of December 31, 2007.
02—Key points
Key Highlights
- Net income rose to $1.335 billion ($2.62 diluted EPS) in 2007 from $739 million ($1.46) in 2006, on operating revenues of $12.853 billion.
- Power's income from continuing operations increased to $949 million from $515 million, reflecting higher prices on new contracts including BGS, higher volumes, and lower generation costs.
- PSE&G earned $380 million in 2007 versus $265 million in 2006, aided by the full-year effect of November 2006 base rate increases and weather-driven gas sales.
- Power had contracted all of its anticipated 2008 nuclear and coal-fired generation and 85% to 95% for 2009 as of February 15, 2008.
- The IRS disallowed deductions on certain leveraged lease transactions at Resources; if fully sustained, $781 million of deferred tax liabilities would become currently payable, plus interest of about $179 million after-tax and penalties of $169 million.
- Significant environmental capital needs include approximately $1.1 billion for back-end technology projects at Mercer and Hudson, and potential closed-cycle cooling costs at Salem with Power's share estimated at about $575 million.
- The board approved a two-for-one stock split effective February 4, 2008 and raised the quarterly dividend to $0.3225 per share from $0.2925.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2007filed February 28, 2008Financial Statements
| Revenue | $12.68B |
| Operating Expenses | $9.83B |
| Operating Income | $2.85B |
| Interest Expense | $727.00M |
| Net Income | $1.33B |
| EPS (Basic) | $2.63 |
| EPS (Diluted) | $2.62 |
| Shares Outstanding (Basic) | 507.56M |
| Shares Outstanding (Diluted) | 508.81M |
05—Questions
Frequently Asked Questions
How did PSEG's earnings change in 2007?
Net income was $1.335 billion, or $2.62 per diluted share, compared with $739 million, or $1.46 per diluted share, in 2006. Income from continuing operations was $1.319 billion ($2.59 per diluted share), versus $679 million ($1.34 per diluted share) in 2006. The 2006 figure included an after-tax charge of $178 million from the sale of RGE.
What drove the increase in Power's earnings?
The filing attributes the increase in Power's income from continuing operations, to $949 million from $515 million, primarily to higher prices realized from new contracts, including BGS contracts, along with higher sales volumes and lower generation costs. Improved margins and higher BGSS volumes from a colder winter also contributed.
What is the largest legal and tax risk disclosed?
The IRS disallowed deductions on certain leveraged lease transactions at Resources for tax years 1997 through 2000 and imposed a 20% penalty. PSEG protested the decision. If the disallowance were fully sustained, $781 million of deferred tax liabilities would become currently payable, along with interest of about $179 million after-tax and penalties of $169 million. PSEG deposited $100 million with the IRS in December 2007 to cover potential interest costs.
What are the main capital spending plans for 2008 through 2012?
Projected construction and investment expenditures for PSEG's subsidiaries total $1.795 billion in 2008, declining to $1.645 billion in 2012. Power's share includes environmental projects at Hudson and Mercer, while PSE&G's spending rises from $840 million in 2008 to $1.265 billion in 2012, driven by transmission system reinforcement.
Did PSEG change its dividend or share count?
Yes. In January 2008, the board approved a two-for-one stock split distributed February 4, 2008, and increased the quarterly common dividend from $0.2925 to $0.3225 per share, an indicated annual rate of $1.29 per share. Dividends declared in 2007 totaled $1.17 per share.
06—Continue