01—Abstract
Summary
Summary of the 10-K filed February 26, 2009. Cited figures are marked; the original filing is the authoritative source.
Public Service Enterprise Group Incorporated (PSEG) reported 2008 net income of $1.188 billiona, or $2.34 per diluted share, compared with $1.335 billion, or $2.62 per diluted share, in 2007.
Income from continuing operations fell to $983 millionb from $1,325 million, driven mainly by an after-tax charge of $490 million at Energy Holdings tied to leveraged lease transactions that the IRS is challenging. Power earned $1.050 billion from continuing operations, up from $949 million, helped by higher prices and sales volumes, while PSE&G earned $364 million, slightly below $380 million in 2007. Operating revenues rose to $13.322 billion from $12.677 billion.
The filing highlights exposure to the IRS leveraged lease dispute: $1.2 billionc would become currently payable if the company conceded all deductions taken through December 31, 2008, with $180 million deposited to cover potential interest and penalties of $151 million if the IRS prevails. PSEG also reported that Power would have needed about $1.1 billion in additional collateral had it lost its investment-grade rating as of December 31, 2008. Management expects 2009 pension expense to rise by $131 million and plans cash contributions of up to $275 million to pension funding.
On the regulatory side, PSE&G filed a joint electric and gas rate case expected by mid-2009 with rates effective in 2010, and multiple capital initiatives are pending before the New Jersey Board of Public Utilities, including a $773 milliond solar program and a $698 million capital infrastructure stimulus proposal. The company repurchased 2,382,200 shares for $92 million under a $750 million authorization and raised its quarterly dividend to $0.3325 per share for the first quarter of 2009.
02—Key points
Key Highlights
- Net income of $1.188 billion ($2.34 diluted EPS) in 2008, down from $1.335 billion ($2.62) in 2007.
- Energy Holdings recorded an after-tax charge of $490 million on leveraged leases; $1.2 billion would become payable if the IRS deductions were conceded in full.
- Power income from continuing operations rose to $1.050 billion from $949 million, with 2008 generating output of approximately 55,300 GWh, the highest the facilities had achieved.
- PSE&G net income was $364 million, versus $380 million in 2007, and the company expects to file a joint electric and gas rate case by mid-2009.
- Pension trust value declines are expected to raise 2009 pension expense by $131 million, with up to $275 million in cash contributions planned.
- Power would have needed about $1.1 billion in additional collateral had it lost its investment-grade credit rating at December 31, 2008.
- Quarterly dividend increased to $0.3325 per share for Q1 2009 (indicated annual rate of $1.33); 2,382,200 shares were repurchased for $92 million in 2008.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2008filed February 26, 2009Financial Statements
FY2008 against FY2007
| Line item | FY2008FY2007 | Change |
|---|---|---|
| Revenue | $12.61B$12.68B | −0.5% |
| Operating Expenses | $10.13B$9.83B | +3.0% |
| Operating Income | $2.48B$2.85B | −12.7% |
| Interest Expense | $566.00M$727.00M | −22.1% |
| Net Income | $1.19B$1.33B | −11.0% |
| EPS (Basic) | $2.34$2.63 | −11.0% |
| EPS (Diluted) | $2.34$2.62 | −10.7% |
| Shares Outstanding (Basic) | 507.69M507.56M | 0.0% |
| Shares Outstanding (Diluted) | 508.43M508.81M | −0.1% |
05—Questions
Frequently Asked Questions
Why did PSEG's 2008 earnings decline?
Income from continuing operations fell to $983 million from $1,325 million, primarily because of a $490 million after-tax charge at Energy Holdings related to leveraged lease transactions whose tax deductions are being challenged by the IRS. Power's earnings rose, partly offsetting the charge.
What is PSEG's exposure to the IRS leveraged lease dispute?
As of December 31, 2008, $1.2 billion would become currently payable if PSEG conceded all deductions taken through that date. The company deposited $180 million to defray potential interest, and penalties of $151 million could also become payable if the IRS is successful. PSEG anticipates paying between $230 million and $370 million for tax years 1997-2000 in the second half of 2009 and then litigating to recover those amounts.
How much collateral could Power be required to post if it lost its investment-grade rating?
The filing states that if Power had lost its investment-grade credit rating as of December 31, 2008, it would have been required to provide approximately $1.1 billion in additional collateral. As of that date, $2.8 billion of available liquidity under PSEG and Power's credit facilities could be used to post collateral.
What are the key regulatory matters for PSE&G in 2009?
PSE&G expects to file a joint electric and gas rate case by mid-2009 with rates requested to take effect in 2010. It has also filed a $698 million capital economic stimulus infrastructure program, a $190 million energy efficiency stimulus program, and a Solar 4 All Program to develop 120 MW of solar capacity, all pending before the New Jersey Board of Public Utilities.
What capital return actions did PSEG take in 2008?
PSEG repurchased 2,382,200 shares of common stock for $92 million under a $750 million authorization approved in July 2008, with no repurchases after September 30, 2008. Dividends paid were $1.29 per share, totaling $655 million, and the Board approved a $0.01 increase in the quarterly dividend for the first quarter of 2009.
06—Continue