01—Abstract
Summary
Summary of the 10-K filed February 27, 2009. Cited figures are marked; the original filing is the authoritative source.
Wisconsin Energy Corporation's 2008 Form 10-K, filed February 27, 2009, reports 2008 net income of $359.1 milliona, or $3.04 diluted earnings per share, compared with $335.6 million ($2.83 diluted) in 2007.
Total operating revenues were $4,431.0 millionb, up from $4,237.8 million. Results were shaped by the September 2007 sale of Point Beach to an affiliate of FPL for about $924 million, which now generates bill credits and a power purchase agreement cost, and by a January 2008 Wisconsin rate order that authorized a 17.2% electric rate increase, partly offset by bill credits for a net 3.2% increase. Operating income in the utility segment fell slightly to $581.9 million from $586.0 million, while the non-utility segment rose to $89.3 million from $47.4 million on lease income from Port Washington Generating Station Unit 2, which entered service in May 2008.
The company's main forward risk is its Power the Future strategy, centered on the Oak Creek expansion, where OC 1 is scheduled for late 2009 and OC 2 for fall 2010. Bechtel, the fixed-price contractor, submitted claims of approximately $413 millionc and $72 million in December 2008, which the company says are without merit and is contesting through dispute resolution. The filing states that each month of delay in OC 1 would reduce 2009 earnings by $0.03 per share.
Liquidity was affected by the credit market contraction, with $1.6 billiond of undrawn bank credit lines excluding Lehman's commitments, and the company's debt to total capitalization ratio was 58.5%. In January 2009 the board raised the quarterly dividend 25% to $0.3375 per share and adopted a new payout policy of 40% to 45% of earnings for 2009 through 2011.
02—Key points
Key Highlights
- Net income of $359.1 million, or $3.04 diluted EPS, for 2008, up from $335.6 million, or $2.83 diluted EPS, in 2007.
- Total operating revenues of $4,431.0 million in 2008, compared with $4,237.8 million in 2007.
- Point Beach sale to an affiliate of FPL for about $924 million in September 2007 drives a $488.1 million amortization of gain in 2008, largely through bill credits and a one-time $62.5 million FERC refund.
- January 2008 Wisconsin rate order authorized a 17.2% electric rate increase, offset by bill credits to a net 3.2% increase for customers in 2008 and another 3.2% in 2009.
- Oak Creek expansion: Bechtel claims of approximately $413 million and $72 million; the company expects OC 1 in service late 2009 and OC 2 in fall 2010 and considers the claims without merit.
- Non-utility energy segment operating income rose to $89.3 million from $47.4 million, reflecting lease income from Port Washington Generating Station Unit 2.
- Dividend increased 25% to $0.3375 per quarter ($1.35 annualized) in January 2009 under a new payout policy of 40% to 45% of earnings for 2009 through 2011.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2008filed February 27, 2009Financial Statements
FY2008 against FY2007
| Line item | FY2008FY2007 | Change |
|---|---|---|
| Operating Income | $655.20M$627.20M | +4.5% |
| Interest Expense | $153.70M$167.60M | −8.3% |
| Net Income | $359.10M$335.60M | +7.0% |
| EPS (Basic) | $3.07$2.87 | +7.0% |
| EPS (Diluted) | $3.04$2.83 | +7.4% |
| Shares Outstanding (Basic) | 116.90M116.90M | 0.0% |
| Shares Outstanding (Diluted) | 118.20M118.50M | −0.3% |
05—Questions
Frequently Asked Questions
How did the Point Beach sale affect 2008 results?
The sale to an affiliate of FPL for about $924 million, completed September 28, 2007, led to a power purchase agreement under which Wisconsin Electric buys all of Point Beach's output, raising fuel and purchased power costs. The deferred net gain is being returned to customers through bill credits, and 2008 amortization of gain was $488.1 million, including $340.6 million in retail bill credits, a $62.5 million one-time FERC refund, and an $85.0 million one-time offset to regulatory assets.
What are the main risks to the Oak Creek expansion?
Bechtel submitted claims in December 2008 seeking about $413 million for severe weather and labor conditions and about $72 million for ERS-directed changes and delays. The company says it will vigorously defend them and is in mediation. The filing notes that if an arbitration panel awards significant cost relief and the PSCW does not allow recovery in rates, results could be materially and adversely affected. Costs above a 5% cap over the target would not be recovered absent extenuating circumstances.
How is the company financing its capital program?
The company expects to meet 2009 capital requirements mainly through internally generated funds and short-term borrowings, supplemented by debt issuance. Capital expenditures are estimated at $875 million in 2009, $819 million in 2010 and $1,010 million in 2011. In 2008 it issued $966 million of long-term debt and retired $350.8 million, and it does not plan to issue new common equity for the PTF strategy.
What did the credit market turmoil mean for the company?
The company reported that interest rates on short-term and variable rate tax-exempt debt rose in the second half of 2008 before stabilizing. Wisconsin Electric still issued $300 million of 6.00% debentures in October 2008 and $250 million of 6.25% debentures in December 2008. Lehman Brothers, which filed for bankruptcy in September 2008, provided about $80 million of back-up credit commitments that the company does not plan to replace; excluding Lehman, about $1.6 billion of bank lines were undrawn at year-end.
What is the company's dividend outlook?
In December 2008 the board approved a policy targeting a payout ratio of 40% to 45% of earnings for 2009 through 2011 and 45% to 50% after 2011. In January 2009 the quarterly dividend was raised 25% to $0.3375 per share, an annualized rate of $1.35. Dividends per share were $1.08 in 2008, compared with $1.00 in 2007.
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