1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended Sept. 30, 2000
---------------------------------------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period _____ to _____
Commission File Number 1-8180
TECO ENERGY, INC.
-----------------
(Exact name of registrant as specified in its charter)
FLORIDA 59-2052286
------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
702 N. FRANKLIN STREET, TAMPA, FLORIDA 33602
-------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (813) 228-4111
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [_]
Number of shares outstanding of each of the issuer's classes of common stock,
as of the latest practicable date (Oct. 31, 2000):
Common Stock, $1 Par Value 125,937,425
Index to Exhibits Appears on Page 26
Page 1 of 33
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FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
In the opinion of management, the unaudited condensed consolidated
financial statements include all adjustments which are of a recurring nature
and necessary to present fairly the financial position of TECO Energy, Inc. and
subsidiaries as of Sept. 30, 2000 and 1999, and the results of their operations
and cash flows for the three- and nine-month periods ended Sept. 30, 2000 and
1999. The results of operations for the three- and nine- month periods ended
Sept. 30, 2000 are not necessarily indicative of the results that can be
expected for the entire fiscal year ending Dec. 31, 2000. Reference should be
made to the explanatory notes affecting the income and balance sheet accounts
contained in TECO Energy, Inc.'s Annual Report on Form 10-K for the year ended
Dec. 31, 1999 and to the notes on pages 7 through 13 of this report.
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CONSOLIDATED BALANCE SHEETS
UNAUDITED
(in millions, except for share and per share amounts)
SEPT. 30, DEC. 31,
2000 1999
-------- --------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 26.4 $ 97.5
Receivables, less allowance for uncollectibles 371.7 261.9
Inventories, at average cost
Fuel 79.2 84.0
Materials and supplies 70.8 69.5
Prepayments 28.1 18.9
-------- --------
576.2 531.8
-------- --------
PROPERTY, PLANT AND EQUIPMENT, AT ORIGINAL COST
Utility plant in service
Electric 4,447.8 4,140.9
Gas 641.5 590.0
Construction work in progress 233.5 291.1
Other property 1,041.9 1,042.4
-------- --------
6,364.7 6,064.4
Accumulated depreciation (2,547.4) (2,436.6)
-------- --------
3,817.3 3,627.8
-------- --------
OTHER ASSETS
Other investments 223.0 117.2
Investment in unconsolidated affiliates 153.2 103.3
Deferred income taxes 118.4 106.8
Deferred charges and other assets 282.0 203.2
-------- --------
776.6 530.5
-------- --------
$5,170.1 $4,690.1
======== ========
LIABILITIES AND CAPITAL
CURRENT LIABILITIES
Long-term debt due within one year $ 228.7 $ 155.8
Notes payable 935.9 813.7
Accounts payable 247.2 218.1
Customer deposits 81.5 80.7
Interest accrued 38.6 16.4
Taxes accrued 141.9 36.9
-------- --------
1,673.8 1,321.6
DEFERRED INCOME TAXES 438.5 509.4
INVESTMENT TAX CREDITS 38.0 41.7
REGULATORY LIABILITY-TAX RELATED 9.4 13.3
OTHER DEFERRED CREDITS 172.2 178.5
LONG-TERM DEBT, LESS AMOUNT DUE WITHIN ONE YEAR 1,359.8 1,207.8
COMMON EQUITY
Common equity - 400 million shares authorized,
$1 par value - outstanding 125,895,466 in 2000
(after deducting 7,043,000 shares in Treasury
at a cost of $144.7 million) and 126,655,557 in
1999 (after deducting 5,435,100 shares in Treasury,
at a cost of $114.8 million) 1,530.2 1,472.5
Unearned compensation (51.8) (54.7)
-------- --------
$5,170.1 $4,690.1
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
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4
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
(in millions, except share and per share amounts)
FOR THE THREE MONTHS ENDED SEPT. 30, 2000 1999
--------- ---------
REVENUES $ 614.7 $ 555.9
--------- ---------
EXPENSES
Operation 357.9 291.1
Maintenance 29.9 30.5
Depreciation 68.8 58.1
Taxes, other than income 37.1 37.4
--------- ---------
493.7 417.1
--------- ---------
INCOME FROM OPERATIONS 121.0 138.8
OTHER INCOME
Other income (expense), net 11.4 (13.7)
--------- ---------
INCOME BEFORE INTEREST AND INCOME TAXES 132.4 125.1
INTEREST EXPENSE 48.8 37.4
--------- ---------
INCOME BEFORE PROVISION FOR INCOME TAXES 83.6 87.7
Provision for income taxes 1.6 31.8
--------- ---------
NET INCOME FROM CONTINUING OPERATIONS 82.0 55.9
NET LOSS FROM DISCONTINUED OPERATIONS, NET OF INCOME
TAX BENEFIT OF $0.4 MILLION -- (0.7)
LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS, NET OF
INCOME TAX BENEFIT OF $7.8 MILLION -- (12.9)
--------- ---------
NET INCOME $ 82.0 $ 42.3
========= =========
Average common shares outstanding - basic 125.6 131.9
========= =========
Average common shares outstanding -diluted 126.1 132.0
========= =========
EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING
From continuing operations
Basic and diluted $ 0.65 $ 0.42
========= =========
Net income
Basic and diluted $ 0.65 $ 0.32
========= =========
DIVIDEND PER COMMON SHARE OUTSTANDING $ 0.335 $ 0.325
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
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CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
(in millions, except share and per share amounts)
FOR THE NINE MONTHS ENDED SEPT. 30, 2000 1999
---------- ----------
REVENUES $ 1,698.7 $ 1.493.0
---------- ----------
EXPENSES
Operation 951.7 780.7
Maintenance 109.5 90.8
Depreciation 194.8 173.0
Taxes, other than income 113.9 112.7
---------- ----------
1,369.9 1,157.2
---------- ----------
INCOME FROM OPERATIONS 328.8 335.8
OTHER INCOME
Other income (expense), net 19.0 (11.4)
---------- ----------
INCOME BEFORE INTEREST AND INCOME TAXES 347.8 324.4
INTEREST EXPENSE 123.8 91.1
---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES 224.0 233.3
Provision for income taxes 31.0 75.1
---------- ----------
NET INCOME FROM CONTINUING OPERATIONS 193.0 158.2
NET LOSS FROM DISCONTINUED OPERATIONS, NET OF INCOME
TAX BENEFIT OF $1.4 MILLION -- (2.5)
LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS, NET OF
INCOME TAX BENEFIT OF $7.5 MILLION -- (12.3)
---------- ----------
NET INCOME $ 193.0 $ 143.4
========== ==========
Average common shares outstanding - basic 125.8 132.0
========== ==========
Average common shares outstanding -diluted 125.9 132.2
========== ==========
EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING
From continuing operations
Basic and diluted $ 1.53 $ 1.20
========== ==========
Net income
Basic and diluted $ 1.53 $ 1.09
========== ==========
DIVIDEND PER COMMON SHARE OUTSTANDING $ 0.995 $ 0.960
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(in millions)
FOR THE NINE MONTHS ENDED SEPT. 30, 2000 1999
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 193.0 $ 143.4
Adjustments to reconcile net income to net cash
Depreciation 194.8 173.0
Deferred income taxes (85.9) (24.5)
Investment tax credits, net (3.7) (3.7)
Allowance for funds used during construction (1.9) (0.8)
Amortization of unearned compensation 6.8 6.6
Gain on propane business disposal/sale, pretax (13.6) --
Loss on disposal of discontinued operations, pretax -- 19.8
Equity in earnings of unconsolidated affiliates (4.5) (3.0)
Asset valuation adjustment, pretax 14.2 --
Deferred revenue -- 9.0
Deferred recovery clause (31.9) (29.7)
Refund to customers (3.8) --
Charges, pretax -- 17.6
Receivables, less allowance for uncollectibles (97.3) (41.0)
Inventories 1.9 10.3
Taxes accrued 105.0 84.8
Interest accrued 22.2 3.9
Accounts payable 15.0 (55.8)
Other assets and liabilities 23.0 (12.8)
------- -------
333.3 297.1
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (421.9) (253.4)
Allowance for funds used during construction 1.9 0.8
Purchase of minority interest (52.6) --
Purchase of mechanical contracting business (26.1) --
Proceeds from propane business disposal/sale, net 18.3 --
Investment in unconsolidated affiliates (4.6) (18.8)
Other non-current investments (120.4) (31.4)
------- -------
(605.4) (302.8)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock 8.6 0.1
Purchase of treasury stock (29.9) (13.4)
Proceeds from issuance of long-term debt 362.9 --
Repayment of long-term debt (137.6) (11.6)
Net increase in short-term debt 122.2 150.3
Payment of dividends (125.2) (126.7)
------- -------
201.0 (1.3)
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (71.1) (7.0)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 97.5 16.9
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 26.4 $ 9.9
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. The company has adopted FAS 130, Reporting Comprehensive
Income. This standard requires that comprehensive income, which
includes net income as well as certain changes in assets and
liabilities recorded in common equity, be reported in the financial
statements. There were no components of comprehensive income other
than net income for the nine-month periods ended Sept. 30, 2000 and
1999. Certain prior year amounts have been reclassified to conform to
the current year presentation.
B. In February 2000, TECO Energy, Inc. entered into an agreement
to form US Propane, a joint venture, to combine its Peoples Gas
Company (PGC) propane operations with the propane operations of Atmos
Energy Corporation, AGL Resources Inc. and Piedmont Natural Gas
Company, Inc. In June 2000, US Propane announced that it would combine
its propane operations with those of Heritage Propane Partners, L.P.
to create the fourth largest retail propane distributor in the United
States that will distribute propane to over 480,000 customers in 28
states. Through a series of transactions completed Aug. 10, 2000, US
Propane sold its propane business to Heritage Propane Partners for
approximately $180 million in cash and other consideration, and
purchased all of the outstanding common stock of Heritage Holdings,
Inc., the general partner of Heritage Propane Partners, for $120
million. US Propane now owns the general partner interest and 34
percent of the limited partnership interests of Heritage Propane
Partners. TECO Energy, Inc., through its wholly owned subsidiary TECO
Propane Ventures, LLC (TPV), is accounting for its $40.8 million, or
approximate 38 percent interest in US Propane under the equity method
of accounting. As a result of these transactions, TPV also received
$19.3 million in cash and recognized a pre-tax gain of $13.6 million
($8.3 million after tax) on the sale of PGC assets and liabilities to
the extent acquired by US Propane and Heritage Propane Partners.
C. In September 2000, TECO Energy, Inc. acquired BCH Mechanical,
Inc. and its affiliated companies ("BCH") accounting for the
transaction using the purchase method of accounting. BCH is one of the
leading mechanical contracting firms in Florida. In connection with
this transaction, TECO Solutions was formed to support TECO Energy's
strategy of offering customers a comprehensive and competitive package
of energy services and products. Operating companies under TECO
Solutions include TECO BGA (formerly Bosek, Gibson and Associates),
BCH, TECO Gas Services and TECO Properties. TECO Energy purchased a
combination of stock and assets of the BCH companies for $34.8 million,
comprised of $26.1 million in cash, $2.9 million in notes, and 233,819
shares of TECO Energy, Inc. common stock. Goodwill of $25.9 million
representing the excess of purchase price over the fair market value of
assets acquired was recorded, and is being amortized on a straight-line
basis over 20 years. BCH is included within the Other diversified
businesses segment. A summary of the assets acquired and liabilities
assumed is set forth:
millions
--------
Accounts Receivable $ 16.3
Other current assets 3.7
Property, Plant and Equipment, net 0.8
Goodwill 25.9
Accounts Payable (11.9)
-------
Net Assets acquired $ 34.8
=======
D. As reported in the company's Annual Report on Form 10-K for
the year ended Dec. 31, 1999, the assets of TeCom were sold for $1.0
million in cash in November 1999. TECO Energy reported a net after-tax
loss on disposal of discontinued operations of $12.9 million in the
third quarter of 1999. After-tax losses from discontinued operations
were $0.7 million and $2.5 million for the three- and nine-month
periods ended Sept. 30, 1999, respectively. Total revenues from
discontinued operations related to TeCom were $0.3 million and $1.2
million for the three- and nine- month periods ended Sept. 30, 1999,
respectively. There were no revenues reported in 2000.
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E. A $0.6 million after-tax gain on disposal of discontinued
operations was recorded in the first quarter of 1999 relating to the
sale of TECO Oil & Gas Inc.'s offshore assets previously reported in
the company's Annual Reports on Form 10-K for the years ended Dec. 31,
1998 and 1999. There were no significant revenues from the
discontinued oil and gas operations in 2000 or 1999.
F. TECO Energy and its subsidiaries have made certain
commitments in connection with their continuing capital investment
program and estimate that capital investments for continuing
operations during 2000 will be as follows:
millions
--------
Capital Expenditures:
Tampa Electric Company
Tampa Electric division $268
Peoples Gas System division 78
TECO Power Services Corporation 346
TECO Transport Corporation 19
TECO Coal Corporation 50
Other diversified businesses 11
----
$772
====
Other Capital Investments:
TECO Power Services Corporation -
Investment in unconsolidated affiliates $ 60
====
Other Investments $117
====
Capital investments at TECO Power Services include commitments
related to projects recently acquired from GenPower (see Note O on page
13). Other Investments reflect TPS' recent $93 million investment in
the form of a loan with an affiliate of Panda Energy International
relating to two projects in Texas.
Tampa Electric Company is a potentially responsible party for
certain superfund sites, and through its Peoples Gas System division,
for certain manufactured gas plant sites. While the joint and several
liability associated with these sites presents the potential for
significant response costs, Tampa Electric Company estimates its
ultimate financial liability at approximately $20 million over the
next 10 years. The environmental remediation costs associated with
these sites are not expected to have a significant impact on customer
prices.
G. Revenues reflected the reversal of $2.8 million of revenues
previously deferred for future refund to customers for the three-month
period ended Sept. 30, 1999, and the deferral for refund to customers
of $1.1 million in the nine-month period ended Sept. 30, 1999,
associated with 1999 earnings at Tampa Electric. These deferred
revenues resulted from Tampa Electric's regulatory agreement that ended
on Dec. 31, 1999. On Aug. 1, 2000, the FPSC approved a stipulation
entered into by the Office of Public Counsel (OPC), Florida Industrial
Power Users Group (FIPUG), and Tampa Electric settling the deferred
revenue refund amount for 1997 and 1998. Tampa Electric began a $13
million refund to its customers on Sept. 1, 2000 which will continue
until Dec. 31, 2000. The amount of this refund is essentially the
same as the amount originally approved by the FPSC for the years 1997
and 1998. On Oct. 12, 2000, the FPSC staff issued its recommendation
for the 1999 refund amount of $6.1 million. OPC disagreed with the
staff's recommendation stating that the refund should be $8.3 million
higher as a result of corporate income tax provisions and settlements
related to prior years' tax returns. Tampa Electric estimates the
refund to be $4.3 million. The final decision may not be made until
2001.
8
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H. In the third quarter of 2000, the company recorded a gain of
$13.6 million ($8.3 million after-tax) from the US Propane and
Heritage Propane transactions, as discussed in Note B on page 7. This
gain substantially offset charges of $8.4 million ($5.2 million
after-tax) to adjust the value of leveraged leases at TECO
Investments, and $6.2 million ($3.8 million after-tax) to adjust
property values at TECO Properties.
In the third quarter of 1999, the company recognized certain
one-time charges totaling $16.1 million, after tax, or $.12 per share.
A one-time charge of $10.5 million ($6.4 million after-tax, or $.05
per share) was recorded at Tampa Electric based on Florida Public
Service Commission (FPSC) audits of Tampa Electric's 1997 and 1998
earnings, which among other things, limited its equity ratio to 58.7
percent, a decrease of 91 basis points and 224 basis points from
1997's and 1998's ratios, respectively.
After-tax charges totaling $6.1 million were also recognized
in 1999 reflecting corporate income tax provisions and settlements
related to prior years' tax returns. These charges were recorded at
Tampa Electric (a $3.8 million net after-tax charge, after recovery
under the then current regulatory agreement), at TECO Investments (a
$4.3 million after-tax charge) and at TECO Energy (a $2.0 million
after-tax benefit).
A charge of $6.0 million ($3.6 million after tax) was
recorded in 1999 to adjust the carrying value of certain investments
in leveraged aircraft leases to reflect lower anticipated residual
values.
I. The total income tax provisions differ from amounts computed
by applying the federal statutory tax rate to income before income
taxes primarily due to the recognition of non-conventional fuels tax
credits and other miscellaneous items as noted below. The
non-conventional fuels tax credits are generated annually on qualified
production at TECO Coalbed Methane through Dec. 31, 2002, and at TECO
Coal through Dec. 31, 2007, subject to changes in law, regulation, or
administration that could impact the qualification of Section 29
synthetic fuel tax credits. The estimated effective tax rate utilized
in computing year-to-date income tax expense reflects current full
year estimates of non-conventional fuels tax credits of approximately
$50 million, resulting in lower income tax expense in the current
quarter due to the timing of the recognition of tax expense on an
interim basis.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPT. 30, SEPT. 30,
-------------------- --------------------
(in millions) 2000 1999 2000 1999
------ ------ ------ ------
Net income from continuing operations $ 82.0 $ 55.9 $193.0 $158.2
Total income tax provision 1.6 31.8 31.0 75.1
------ ------ ------ ------
Income from continuing operations
before income taxes $ 83.6 $ 87.7 $224.0 $233.3
====== ====== ====== ======
Income taxes on above at federal
statutory rate of 35% $ 29.3 $ 30.7 $ 78.4 $ 81.7
Increase (Decrease) due to:
State income tax, net of federal income tax 2.2 2.8 6.1 7.4
Amortization of investment tax credits (1.2) (1.5) (3.7) (4.0)
Non-conventional fuels tax credit (26.3) (4.4) (43.6) (12.9)
Permanent reinvestment for foreign income (1.6) (0.4) (6.4) (0.9)
Other (0.8) 4.6 0.2 3.8
------ ------ ------ ------
Total income tax provision from
continuing operations $ 1.6 $ 31.8 $ 31.0 $ 75.1
====== ====== ====== ======
Provision for income taxes as a percent of
income from continuing operations,
before income taxes 1.9% 36.3% 13.8% 32.2%
====== ====== ====== ======
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J. The reconciliation of basic and diluted earnings per share is
shown below:
THREE MONTHS ENDED SEPT. 30, 2000 1999
-------- --------
(In millions, except per share amounts)
Numerator (Basic and Diluted)
Net income from continuing operations $ 82.0 $ 55.9
Net income $ 82.0 $ 42.3
Denominator
Average number of shares outstanding - basic 125.6 131.9
Plus: incremental shares for assumed
conversions: Stock options at end of period 4.1 1.2
Less: Treasury shares which could be purchased (3.6) (1.1)
-------- --------
Average number of shares outstanding - diluted 126.1 132.0
======== ========
EARNINGS PER SHARE FROM CONTINUING OPERATIONS
Basic and Diluted $ 0.65 $ 0.42
======== ========
EARNINGS PER SHARE
Basic and Diluted $ 0.65 $ 0.32
======== ========
NINE MONTHS ENDED SEPT. 30, 2000 1999
-------- --------
(In millions, except per share amounts)
Numerator (Basic and Diluted)
Net income from continuing operations $ 193.0 $ 158.2
Net income $ 193.0 $ 143.4
Denominator
Average number of shares outstanding - basic 125.8 132.0
Plus: incremental shares for assumed
conversions: Stock options at end of period 2.2 2.3
Less: Treasury shares which could be purchased (2.1) (2.1)
-------- --------
Average number of shares outstanding - diluted 125.9 132.2
======== ========
EARNINGS PER SHARE FROM CONTINUING OPERATIONS
Basic and Diluted $ 1.53 $ 1.20
======== ========
EARNINGS PER SHARE
Basic and Diluted $ 1.53 $ 1.09
======== ========
K. In late September 1999, TECO Energy, Inc. announced a program
to repurchase up to $150 million of its outstanding common stock.
Shares acquired constitute treasury shares. In the nine months ended
Sept. 30, 2000, the company acquired 1.6 million shares of its
outstanding common stock at a cost of $29.9 million; the average per
share price was $18.62. Since the program was announced, the company
has acquired 7.0 million shares of its outstanding common stock at a
cost of $144.7 million at an average per share price of $20.55. The
company's share repurchase program favorably impacted earnings in the
third quarter and year-to-date periods of 2000 by approximately $.02
and $.05 per share, respectively.
10
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L. On Aug. 21, 2000, Tampa Electric Company issued $150 million
of Reset Put Securities (the Tampa Electric Notes) due 2015. The Tampa
Electric Notes are subject to mandatory tender on Sept. 1, 2002, at
which time they will be remarketed or redeemed. The coupon rate for
the initial term is 7.375%. If the remarketing agent appointed by
Tampa Electric Company in connection with the issue of the Tampa
Electric Notes exercises its right to purchase the Tampa Electric
Notes on Sept. 1, 2002, for the following ten years the Tampa Electric
Notes will bear interest at an annual rate of 5.75% plus a premium
based on Tampa Electric Company's then current credit spread above
United States Treasury Notes with ten years to maturity. Otherwise,
the Tampa Electric Notes may be remarketed for periods selected by
Tampa Electric Company at fixed or floating market rates of interest.
Net proceeds to Tampa Electric Company were 102.8 percent of the
principal amount and included a premium paid to Tampa Electric Company
by the remarketing agent for the right to purchase the Tampa Electric
Notes in 2002 which is being amortized over two years. Proceeds from
the Tampa Electric Note issuance were used to repay short-term debt
and for general corporate purposes.
M. On Sept. 25, 2000, TECO Energy issued $200 million of
Remarketable or Redeemable Securities (the TECO Notes) due 2015. The
TECO Notes are subject to mandatory tender on Oct. 1, 2002, at which
time they will be remarketed or redeemed. The coupon rate for the
initial term is 7.0%. If the remarketing agent appointed by TECO
Energy in connection with the issue of the TECO Notes exercises its
right to purchase the TECO Notes on Oct. 1, 2002, for the following
ten years the TECO Notes will bear interest at an annual rate of 5.86%
plus a premium based on TECO Energy's then current credit spread above
United States Treasury Notes with ten years to maturity. Otherwise,
the TECO Notes may be remarketed for interest periods selected by TECO
Energy at fixed or floating market rates of interest. Net proceeds to
TECO Energy were 103.2 percent of the principal amount and included a
premium paid to TECO Energy by the remarketing agent for the right to
purchase the TECO Notes in 2002 which is being amortized over two
years. Proceeds from the TECO Note issuance were used to repay
short-term debt and for general corporate purposes.
N. The management of TECO Energy determined its reportable
segments based on each subsidiary's contribution of revenues,
operating income and total assets. All significant intercompany
transactions are eliminated in the consolidated financial statements
of TECO Energy but are included in determining reportable segments.
CONTRIBUTIONS BY BUSINESS SEGMENT (in millions)
OPERATING NET
REVENUES(1) INCOME(1) INCOME(1)
----------- --------- ---------
THREE MONTHS ENDED SEPT. 30, 2000
Tampa Electric Company
Tampa Electric division (3) $391.8 $108.0 $ 54.7
Peoples Gas System division 72.0 7.5 3.3
------ ------ ------
463.8 115.5 58.0
TECO Transport (4) 68.1 14.3 8.0
TECO Coal (5) (6) 62.4 10.2 15.7
TECO Power Services (7) (8) 56.5 4.5 7.0
Other diversified
businesses (9) (10) 28.9 1.2 10.4
------ ------ ------
679.7 145.7 99.1
Other and eliminations (11) (65.0) (24.7) (17.1)
------ ------ ------
TECO Energy consolidated $614.7 $121.0 $ 82.0
====== ====== ======
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12
OPERATING NET
REVENUES(1) INCOME(1) INCOME(1)
----------- --------- ---------
THREE MONTHS ENDED SEPT. 30, 1999
Tampa Electric Company
Tampa Electric division (2) (3) (12) $ 358.6 $ 96.7 $ 53.0
Peoples Gas System division 57.2 6.4 2.5
-------- -------- --------
415.8 103.1 55.5
TECO Transport (4) 65.1 12.2 6.8
TECO Coal (5) 60.5 5.5 4.2
TECO Power Services (7) (8) 32.2 3.7 3.7
Other diversified businesses (9) 28.1 8.5 6.9
-------- -------- --------
601.7 133.0 77.1
Other and eliminations (13) (45.8) 5.8 (21.2)
-------- -------- --------
TECO Energy consolidated $ 555.9 $ 138.8 $ 55.9
======== ======== ========
NINE MONTHS ENDED SEPT. 30, 2000
Tampa Electric Company
Tampa Electric division (3) $1,024.8 $ 235.8 $ 118.9
Peoples Gas System division 230.1 34.0 15.9
-------- -------- --------
1,254.9 269.8 134.8
TECO Transport (4) 202.4 40.3 22.3
TECO Coal (5) (6) 169.5 17.5 24.3
TECO Power Services (7) (8) 144.2 19.8 24.6
Other diversified businesses (9) (10) 100.5 17.3 23.1
-------- -------- --------
1,871.5 364.7 229.1
Other and eliminations (11) (172.8) (35.9) (36.1)
-------- -------- --------
TECO Energy consolidated $1,698.7 $ 328.8 $ 193.0
======== ======== ========
NINE MONTHS ENDED SEPT. 30, 1999
Tampa Electric Company
Tampa Electric division (2) (3) (12) $ 923.8 $ 220.0 $ 115.1
Peoples Gas System division 185.1 29.7 13.3
-------- -------- --------
1,108.9 249.7 128.4
TECO Transport (4) 183.5 35.4 19.9
TECO Coal (5) 172.9 15.7 11.7
TECO Power Services (7) (8) 84.9 12.1 10.4
Other diversified businesses (9) 74.6 21.7 18.5
-------- -------- --------
1,624.8 334.6 188.9
Other and eliminations (13) (131.8) 1.2 (30.7)
-------- -------- --------
TECO Energy consolidated $1,493.0 $ 335.8 $ 158.2
======== ======== ========
(1) From continuing operations.
(2) The electric division revenues reflect the reversal of $2.8
million of previous deferrals for refund to customers for the
three-month period ended Sept. 30, 1999. It deferred $1.1 million
for the nine-months ended Sept. 30, 1999. See Note G on page 8.
(3) Revenues from sales to affiliates were $10.1 million and $24.0
million respectively, for the three and nine months ended Sept.
30, 2000, and $8.3 million and $19.5 million respectively, for
the three and nine months ended Sept. 30, 1999.
12
13
(4) Revenues from sales to affiliates were $26.2 million and $90.6
million respectively, for the three and nine months ended Sept.
30, 2000, and $26.5 million and $73.2 million respectively, for
the three and nine months ended Sept. 30, 1999.
(5) Revenues from sales to affiliates were $1.3 million and $4.3
million respectively, for the three and nine months ended Sept.
30, 2000, and $6.2 million and $16.7 million respectively, for
the three and nine months ended Sept. 30, 1999.
(6) Operating income includes the reclassification of
non-conventional fuels tax credits related to synthetic fuel coal
production of $22.4 million and $31.5 million respectively, for
the three and nine months ended Sept. 30, 2000. In the
Consolidated Statements of Income, these tax credits are part of
the provision for income taxes. There were no such credits in
1999.
(7) Revenues from sales to affiliates were $25.3 million and $49.7
million respectively, for the three and nine months ended Sept.
30, 2000, and $12.6 million and $29.7 million respectively, for
the three and nine months ended Sept. 30, 1999.
(8) Operating income includes the reclassification of interest
expense on the limited-recourse debt related to the independent
power operations of $4.6 million and $12.4 million respectively,
for the three and nine months ended Sept. 30, 2000, and $2.8
million and $7.9 million respectively, for the three and nine
months ended Sept. 30, 1999. In the Consolidated Statements of
Income, the interest is part of interest expense.
(9) Operating income includes the reclassification of non-convention
fuels tax credits related to coalbed methane production of $3.8
million and $12.1 respectively, for the three and nine months
ended Sept. 30, 2000, and $4.4 million and $12.9 million
respectively, for the three and nine months ended Sept. 30, 1999.
In the Consolidated Statements of Income, these tax credits are
part of the provision for income taxes.
(10) Net income for the three and nine month periods ended Sept. 30,
2000 includes an after-tax gain of $8.3 million from the US
Propane and Heritage transactions, partially offset by a $3.8
million charge to adjust property values at TECO Properties as
discussed in Note H on page 9.
(11) Net income for the three and nine month periods ended Sept. 30,
2000 includes a $5.2 million charge to adjust the value of
leveraged leases as discussed in Note H on page 9.
(12) Revenues and operating income for the three and nine month
periods ended Sept. 30, 1999 exclude a $7.9 million benefit
related to the charges discussed in Note H on page 9. Net income
for the three and nine month periods ended Sept. 30, 1999
excludes the after-tax impact of charges totaling $10.2 million
as discussed in Note H on page 9.
(13) Revenues and operating income include a credit of $7.9 million
for the three and nine months ended Sept. 30, 1999. Net income
for the three and nine month periods ended Sept. 30, 1999 include
the after-tax impact of charges totaling $10.2 million related as
discussed in Note H on page 9.
O. On Oct. 31, 2000, TECO Energy, Inc's TECO Power Services
subsidiary acquired Genesis Power Corporation, LLC's (GenPower)
interests in two independent power projects being developed in Arkansas
and Mississippi. The combined capacity of the two plants will be nearly
1,200 megawatts. It is estimated that the total cost of both projects
will be approximately $730 million, and TPS' equity investment in the
projects is expected to be approximately $330 million. These projects
are scheduled for commercial service during the second half of 2002.
13
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking
statements, which are subject to the inherent uncertainties in predicting
future results and conditions. Certain factors that could cause actual results
to differ materially from those projected in these forward-looking statements
include the following: TPS' ability to successfully complete its projects on
schedule and within budget; TECO Energy's ability to find and successfully
implement attractive investments in unregulated businesses; interest rates and
other factors that could impact TECO Energy's ability to obtain access to
sufficient capital on satisfactory terms; general economic conditions,
particularly those affecting energy sales; weather variations affecting energy
sales and operating costs; potential competitive changes in the electric
industry; commodity price changes; energy price changes affecting TPS' merchant
plants; changes in law, regulation, or administration impacting the
qualification of Section 29 synthetic fuel tax credits; and changes in and
compliance with environmental regulations that may impose additional costs or
curtail some activities. Some of these factors are discussed more fully under
"Investment Considerations" in the company's Annual Report on Form 10-K for the
year ended Dec. 31, 1999, and reference is made thereto.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPT. 30, 2000:
Net income from continuing operations for the quarter ended Sept. 30,
2000 was $82.0 million, or $.65 per share, up from the $72.0 million recorded
before charges, or $.54 per share, for the three-month period ended Sept. 30,
1999. The third quarter 2000 results include an after-tax gain of $8.3 million
from the US Propane and Heritage Propane transactions which substantially
offset after-tax charges of $5.2 million to adjust the value of leveraged
leases at TECO Investments, and $3.8 million to adjust property values at TECO
Properties. Third quarter 1999 net income including charges of $16.1 million
was $55.9 million, or $.42 per share These charges are discussed in Note H on
page 9. Results for the quarter relative to last year reflected the continued
strong customer growth in the core electric and gas businesses, contributions
from TECO Power Services' San Jose and Hardee expansion projects, good
operating conditions and markets at TECO Transport, and the addition of
synthetic fuel production at TECO Coal. These were partially offset by higher
costs and expenses. Net income for the third quarter of 1999 after discontinued
operations was $42.3 million, or $.32 per share.
TAMPA ELECTRIC COMPANY - ELECTRIC DIVISION (TAMPA ELECTRIC)
Tampa Electric's net income for the third quarter was $54.7 million,
compared with $53.0 million excluding charges, for the same period last year.
Net income for 1999 including the charges discussed in Note H on page 9 was
$42.8 million. The company showed improved results from strong customer growth
of more than 3 percent and energy sales growth of 3 percent. Expenses for the
three months ended Sept. 30, 2000 reflected higher depreciation due to the
scrubber addition at Big Bend. Purchased power costs were higher primarily due
to unit availability decreases as a result of the outage at Gannon 6. Also
included in Tampa Electric's third quarter 2000 results was a $4.5 million
after-tax provision for interest associated with income tax disputes. A summary
of the operating statistics for the three months ended Sept. 30, 2000 and 1999
is below:
14
15
(in millions, except average
customers) OPERATING REVENUES KILOWATT-HOUR SALES
-------------------------------------- -------------------------------------
THREE MONTHS ENDED SEPT. 30, 2000 1999 CHANGE 2000 1999 CHANGE
- --------------------------- -------- -------- ------ ------- ------- ------
Residential $ 186.8 $ 174.2 7.3% 2,251.0 2,224.8 1.2%
Commercial 104.9 96.3 8.9% 1,531.2 1,507.5 1.6%
Industrial - Phosphate 17.0 17.7 -4.2% 295.4 301.3 -1.9%
Industrial - Other 16.7 15.4 9.1% 275.1 263.4 4.4%
Other sales of electricity 25.0 23.3 7.2% 353.8 350.8 0.8%
Deferred and other revenues 1.4 6.0 -77.1% -- -- --
-------- -------- ------- -------
351.8 332.9 5.7% 4,706.5 4,647.8 1.3%
Sales for resale 32.0 26.3 21.7% 764.2 664.7 15.0%
Other operating revenue 8.0 7.3 8.8% -- -- --
-------- -------- ------- -------
$ 391.8 $ 366.5 6.9% 5,470.7 5,312.5 3.0%
======== ======== ======= =======
Average customers 560.5 543.3 3.2%
======== ========
System Net Input 5,071.8 4,975.4 1.9%
======== =======
TAMPA ELECTRIC COMPANY - NATURAL GAS DIVISION (PEOPLES GAS SYSTEM)
Peoples Gas System (PGS) reported net income of $3.3 million for the
quarter, compared with $2.5 million last year. The increase was primarily
driven by customer growth of almost 5 percent, along with commercial gas sales
to new customers in Southwest Florida and increased volumes for electric power
generators. A summary of the operating statistics for the three months ended
Sept. 30, 2000 and 1999 is below:
(in millions, except average
customers) OPERATING REVENUES THERMS
------------------------------- ---------------------------
THREE MONTHS ENDED SEPT. 30, 2000 1999 CHANGE 2000 1999 CHANGE
- ---------------------------- ---- ---- ------ ---- ---- ------
BY CUSTOMER SEGMENT:
Residential $ 12.5 $ 11.4 9.7% 8.0 8.2 -1.6%
Commercial 32.4 27.4 18.4% 61.9 63.1 -1.9%
Industrial 2.6 2.9 -9.0% 59.2 61.0 -2.9%
Off system sales 14.5 7.1 -- 30.0 23.6 26.7%
Power generation 2.6 2.6 -3.5% 126.4 121.4 4.1%
Other revenues 7.4 5.8 28.5% -- -- --
------ ------ ------ ------
$ 72.0 $ 57.2 25.8% 285.5 277.3 3.0%
====== ====== ====== ======
BY SALES TYPE:
System supply $ 53.6 $ 40.1 33.8% 72.0 66.0 9.1%
Transportation 11.0 11.3 -3.6% 213.5 211.3 1.1%
Other revenues 7.4 5.8 28.5% -- -- --
------ ------ ------ ------
$ 72.0 $ 57.2 25.8% 285.5 277.3 3.0%
====== ====== ====== ======
Average customers 257.4 246.2 4.6%
====== =====
DIVERSIFIED COMPANIES - OPERATING RESULTS
TECO POWER SERVICES (TPS) recorded significantly higher net income of
$7.0 million for the three months ended Sept. 30, 2000 compared to $3.7 million
for the same period last year. Improvements for the quarter primarily reflected
contributions from the commencement of operation of the 120-megawatt San Jose
Power Station in Guatemala in January and of the Hardee Power Station expansion
in May of this year.
15
16
TECO TRANSPORT reported net income of $8.0 million in the third
quarter, compared with $6.8 million last year. Increased movements for Tampa
Electric, strong government grain shipments and higher northbound river volumes
were partially offset by higher fuel prices and lower phosphate shipments.
TECO COAL reported net income of $15.7 million in the third quarter,
up from $4.2 million last year. These results were driven primarily by
production from the synthetic fuel facilities acquired earlier in 2000, which
more than offset the impact of the expiration of the Tampa Electric contract at
the end of 1999. TECO Coal's results for the third quarter of 2000 included
$22.4 million of Federal Income Tax credits on the coal produced and sold from
these synthetic fuel facilities.
TECO Energy's other diversified companies recorded net income of $10.4
million for the quarter ended Sept. 30, 2000, compared with $6.9 million for
the same period last year. The increase was driven by improved results at TECO
Coalbed Methane due to higher gas prices. The results from TECO Energy's other
diversified companies also reflected an after-tax gain of $8.3 million from the
US Propane and Heritage Propane transactions (see Note B on page 7) partially
offset by an after-tax charge of $3.8 million to adjust property values at TECO
Properties. (See Note H on page 9)
OTHER
Other Income (Expense) for the three months ended Sept. 30, 2000
included a $13.6 million pretax gain from the US Propane and Heritage Propane
transactions partially offset by a pretax charge of $8.4 million to adjust the
value of leveraged leases at TECO Investments (see Note H on page 9). In the
third quarter of 1999, Tampa Electric recorded a $10.0 million pretax charge in
Other Income (Expense) related to FPSC audits of years 1997 and 1998, and TECO
Investments recorded a $6.1 million pretax charge to adjust the carrying value
of the leveraged lease portfolio. (See Note H on page 9.)
Allowance for other funds used during construction (AFUDC) was $0.6
million for the three months ended Sept. 30, 2000 and 1999. AFUDC is expected
to increase over the next several years reflecting Tampa Electric's generation
expansion programs.
Interest charges were $48.8 million for the three months ended Sept.
30, 2000 compared to $37.4 million for the same period in 1999. Financing costs
were also higher for the third quarter of 2000, reflecting higher borrowing
levels and higher interest rates. Third quarter 2000 interest charges include a
pretax charge of $7.4 million recorded at Tampa Electric for interest
associated with income tax disputes. Third quarter 1999 results included pretax
charges to interest expense of $9.5 million primarily associated with tax
adjustments and settlements as discussed in Note H on page 9.
The effective income tax rate on net income from continuing operations
for the three-month period ended Sept. 30, 2000 was 1.9 percent compared to
36.3 percent last year. The rate for the third quarter of 2000 primarily
reflects the substantial increase in non-conventional fuels tax credits related
to the synthetic fuel facilities at TECO Coal that began production in the
second quarter of 2000. For the three months ended Sept 30, 2000, these tax
credits at TECO Coal and TECO Coalbed Methane totaled $22.4 million and $3.8
million, respectively, compared to $4.4 million at TECO Coalbed Methane for the
same quarter last year. The decrease also reflects the tax impact from
increased foreign operations with deferred tax structures. (See Note I on
page 9.)
DISCONTINUED OPERATIONS
In November 1999, TECO Energy's automated energy management system
subsidiary, TeCom, sold its assets for $1.0 million in cash. The after-tax loss
from discontinued operations and the loss on disposal of discontinued
operations for the three-months ended Sept. 30, 1999 were $0.7 million and
$12.9 million, respectively. (See Note D on page 8.)
NINE MONTHS ENDED SEPT. 30, 2000:
Year-to-date net income from continuing operations for the nine months
ended Sept. 30, 2000 was $193.0 million, or $1.53 per share, up from $174.3
million, or $1.32 per share before charges for the same period last year.
Year-to-date net income for 2000 included an after-tax gain of $8.3 million
from the US Propane and Heritage Propane transactions which substantially
offset after-tax charges of $5.2 million to adjust the value of leveraged
leases at TECO Investments, and $3.8 million to adjust property values at TECO
Properties. Charges were recorded in 1999 that reduced earnings from
16
17
continuing operations to $158.2 million, or $1.20 per share. (See Note H on
page 9.) Net income including discontinued operations was $143.4 million, or
$1.09 per share, for the nine-months ended Sept 30, 1999. The 11-percent
increase over last year's net income from operations before charges, as noted
in the three months results discussion, reflected the continued strong customer
growth in the core electric and gas businesses, contributions from TECO Power
Services' San Jose and Hardee expansion projects, good operating conditions and
markets at TECO Transport, and the addition of synthetic fuel production at
TECO Coal. These were partially offset by higher costs and expenses.
TAMPA ELECTRIC COMPANY - ELECTRIC DIVISION (TAMPA ELECTRIC)
Tampa Electric's year-to-date net income was $118.9 million compared
to $115.1 million for the same period last year. The Company showed improved
results from strong customer growth year-to-date of 3 percent and energy sales
growth of almost 7 percent. Year-to-date retail energy sales were 5 percent
above 1999 levels driven by customer growth and increased usage by residential
and commercial customers. Higher expenses year-to-date reflected the increased
scrubber depreciation and higher maintenance expenses associated with improving
summer unit availability. In addition, last year's results reflected U.S.
Department of Energy credits associated with Polk Power Station, which expired
at the end of 1999. Purchased power costs in 2000 were higher primarily due to
unit availability decreases as a result of the outage at Gannon 6. Also
included in Tampa Electric's current year-to-date results was a $4.5 million
after-tax provision for interest associated with income tax disputes. A summary
of the operating statistics for the nine months ended Sept. 30, 2000 and 1999
is below:
(in millions, except average
customers) OPERATING REVENUES KILOWATT-HOUR SALES
---------------------------------------- --------------------------------------
NINE MONTHS ENDED SEPT. 30, 2000 1999 CHANGE 2000 1999 CHANGE
- -------------------------- --------- --------- --------- --------- --------- ---------
Residential $ 468.3 $ 430.0 8.9% 5,661.3 5,389.7 5.0%
Commercial 282.1 260.7 8.2% 4,169.1 4,029.5 3.5%
Industrial - Phosphate 47.0 42.6 10.4% 970.6 911.0 6.5%
Industrial - Other 47.2 42.5 10.9% 814.7 766.5 6.3%
Other sales of electricity 70.6 64.9 8.7% 999.8 957.0 4.5%
Deferred and other revenues 5.2 7.1 -26.6% -- -- --
--------- --------- -------- --------
920.4 847.8 8.6% 12,615.5 12,053.7 4.7%
Sales for resale 81.0 63.0 28.5% 1,910.2 1,536.9 24.3%
Other operating revenue 23.4 20.9 12.1% -- -- --
--------- --------- -------- --------
$ 1,024.8 $ 931.7 10.0% 14,525.7 13,590.6 6.9%
========= ========= ======== ========
Average customers 558.1 541.7 3.0%
========= =========
System Net Input 13,492.2 12,873.5 4.8%
======== =========
A generator failure caused an unplanned outage at Tampa Electric's
385-megawatt Gannon Station Unit 6 on July 18, 2000. The unit is currently
being repaired and is expected to be back in service by the end of 2000. Tampa
Electric has been purchasing and expects to continue to purchase replacement
power to meet peak loads until the unit returns to service. The estimated
replacement power costs of approximately $20 million is expected to be fully
recovered through the fuel cost recovery clause. It is expected that most of
the repair costs will be covered by insurance and the remaining amount will be
capitalized. As a result, the outage is not expected to have a significant
impact on Tampa Electric's operating income.
TAMPA ELECTRIC COMPANY - NATURAL GAS DIVISION (PEOPLES GAS SYSTEM)
Net income at Peoples Gas System (PGS) improved almost 20 percent over
last year, with net income increasing to $15.9 million from $13.3 million for
the same period last year. Year-to-date customer growth of almost 5 percent and
normal winter weather contributed to higher retail gas sales. Commercial
volumes and residential volumes were up 6 percent and 9 percent, respectively,
for the year. Depreciation was higher reflecting the company's continuing
expansion efforts, while operation and maintenance expenses were slightly
higher. A summary of the operating statistics for the nine months ended Sept.
30, 2000 and 1999 is below:
17
18
(in millions, except average
customers) OPERATING REVENUES THERMS
---------------------------------- ----------------------------------
NINE MONTHS ENDED SEPT. 30, 2000 1999 CHANGE 2000 1999 CHANGE
- --------------------------- ------- ------- ------- ------- ------- -------
BY CUSTOMER SEGMENT:
Residential $ 51.5 $ 42.5 21.0% 41.7 38.4 8.6%
Commercial 103.6 93.9 10.4% 213.7 201.9 5.8%
Industrial 9.7 9.9 -1.5% 211.6 204.6 3.4%
Off system sales 34.8 11.0 -- 89.5 39.6 --
Power generation 8.1 7.4 8.1% 338.1 298.4 13.3%
Other revenues 22.4 20.4 9.9% -- -- --
------- ------- ----- -----
$ 230.1 $ 185.1 24.3% 894.6 782.9 14.3%
======= ======= ===== =====
BY SALES TYPE:
System supply $ 172.3 $ 137.5 25.3% 255.3 225.5 13.2%
Transportation 35.4 27.2 30.1% 639.3 557.4 14.7%
Other revenues 22.4 20.4 9.9% -- -- --
------- ------- ----- -----
$ 230.1 $ 185.1 24.3% 894.6 782.9 14.3%
======= ======= ===== =====
Average customers 258.2 247.1 4.5%
======= =======
On Aug. 11, 2000, the City of Lakeland filed a Complaint for
Declaratory and Injunctive Relief against Tampa Electric Company d/b/a Peoples
Gas System seeking an interpretation of the City's rights to acquire Peoples'
facilities under the franchise and seeking restrictions on the Company's rights
to expand its facilities to serve customers. Peoples responded with a Motion to
Dismiss Complaint filed on Aug. 31, 2000. Legal arguments on Peoples' Motion to
Dismiss were heard on Oct. 23, 2000. The Court has required that the City file
an amended complaint, and the City has withdrawn both the receivership and
temporary injunction counts from its Complaint. Although the franchise expired
on March 11, 2000, Peoples continues to serve its customers located within the
City's corporate limits.
DIVERSIFIED COMPANIES - OPERATING RESULTS
TECO POWER SERVICES recorded year-to-date net income of $24.6 million,
more than double the results of $10.4 million last year. Improvements
year-to-date reflected commencement of operation of the 120-megawatt San Jose
Power Station in Guatemala in January and the commercial operation of the
Hardee Power Station expansion in May of this year. Higher business development
expenses partially offset the increases.
TECO TRANSPORT'S year-to-date net income was $22.3 million, an
increase of 12 percent compared with $19.9 million in 1999. This increase was
driven by higher revenues from increased movements for Tampa Electric, strong
government grain shipments and higher northbound river volumes. These increases
were partially offset by higher fuel prices and lower phosphate shipments.
TECO COAL reported net income year-to-date of $24.3 million, compared
with $11.7 million in 1999. These results were driven primarily by production
from the synthetic fuel facilities acquired earlier in 2000, which more than
offset the impact of the expiration of the Tampa Electric contract at the end
of 1999. TECO Coal's nine-month results included $31.5 million of Federal
Income Tax credits on the coal produced and sold from the synthetic fuel
facilities.
TECO Energy's other diversified companies recorded net income of $23.1
million for the nine months ended Sept. 30, 2000, compared with $18.5 million
for the same period last year, driven by improved results at TECO Coalbed
Methane from higher gas prices. The results for TECO Energy's other diversified
companies also reflected the $8.3 million after-tax gain from the US Propane
and Heritage Propane transactions (see Note B on page 7), as well as a $3.8
million after-tax charge to adjust property values at TECO Properties. (See
Note H on page 9.)
18
19
OTHER
Other Income (Expense) for the nine months ended Sept. 30, 2000
included a pretax charge of $8.4 million to adjust the value of leveraged leases
at TECO Investments. In the same period last year, charges to Other Income
(Expense) included a $10.0 million pretax charge at Tampa Electric related to
FPSC audits of years 1997 and 1998, and a $6.1 million pretax charge at TECO
Investments to adjust the carrying value of the leveraged lease portfolio. (See
Note H on page 9.)
Year-to-date allowance for other funds used during construction
(AFUDC) was $1.9 million compared to $0.8 million for the same period last
year. AFUDC is expected to increase over the next several years reflecting
Tampa Electric's generation expansion activities.
Interest charges were $123.8 million for the nine months ended Sept.
30, 2000 compared to $91.1 million for the same period in 1999. Financing costs
were higher for 2000 reflecting higher borrowing levels and higher interest
rates. Current year-to-date interest charges include a pretax charge of $7.4
million recorded at Tampa Electric for interest associated with deferred taxes.
Prior year results included pretax charges to interest expense of $9.5 million
primarily associated with tax adjustments and settlements as discussed in Note
H on page 9.
The effective income tax rate on net income from continuing operations
for the nine-month period ended Sept. 30, 2000 was 13.8 percent compared to
32.2 percent last year. The 2000 rate primarily reflects the substantial
increase in non-conventional fuels tax credits related to the synthetic fuel
facilities at TECO Coal that began production in the second quarter of 2000.
For the nine months ended Sept 30, 2000, these tax credits at TECO Coal and
TECO Coalbed Methane totaled $31.5 million and $12.1 million, respectively,
compared to $12.9 million at TECO Coalbed Methane for the same period last
year. The decrease also reflects the tax impact from increased foreign
operations with deferred tax structures. (See Note I on page 9.)
DISCONTINUED OPERATIONS
In November 1999, TECO Energy's automated energy management system
subsidiary, TeCom, sold its assets for $1.0 million in cash. The after-tax loss
from discontinued operations and the loss on disposal of discontinued
operations for the nine-months ended Sept. 30, 1999 were $2.5 million and $12.9
million, respectively. (See Note D on page 7.)
In March 1999, TECO Oil & Gas sold its subordinated note from American
Resources Offshore, Inc. (ARO) to a third party for $500,000 in cash. In a
separate transaction, ARO agreed to assume disputed joint billing payments of
approximately $425,000. The net gain of $0.6 million recorded in 1999's first
quarter related to these two transactions. (See Note E on page 8.)
LIQUIDITY, CAPITAL RESOURCES AND CHANGES IN FINANCIAL CONDITION
As discussed in Note L on page 11, on Aug. 21, 2000, Tampa Electric
Company issued $150 million of Reset Put Securities (the Tampa Electric Notes)
due 2015. The Tampa Electric Notes are subject to mandatory tender on Sept. 1,
2002, at which time they will be remarketed or redeemed. The coupon rate for
the initial term is 7.375%. Proceeds from the Tampa Electric Notes issuance
were used to repay short-term debt and for general corporate purposes.
As discussed in Note M on page 11, on Sept. 25, 2000, TECO Energy
issued $200 million of Remarketable or Redeemable Securities (the TECO Notes)
due 2015. The TECO Notes are subject to mandatory tender on Oct. 1, 2002, at
which time they will be remarketed or redeemed. The coupon rate for the initial
term is 7.0%. Proceeds from the TECO Notes issuance were used to repay
short-term debt and for general corporate purposes.
TECO Energy anticipates that internally generated funds will meet most
of its capital requirements for ongoing operations and commitments. TECO Energy
expects to continue to replace a portion of its short-term debt with longer
term borrowings. In addition, non-recourse financings of TECO Power Services'
San Jose, Commonwealth Chesapeake and Hardee expansion projects are anticipated
to close in the fourth quarter of 2000. TECO Energy is in the midst of
executing an overall financing plan to fund many of its recent investments,
including the recent TPS projects and Tampa Electric's Bayside Power Station.
TECO Energy has been in the capital markets for debt this year and expects to
be in the market soon for hybrid securities and equity.
Included in the Property, Plant and Equipment increase since Dec. 31,
1999, are TPS' investments in the Hardee
19
20
expansion and in Commonwealth Chesapeake (CCC), Phase 1 which went into service
in the third quarter. Construction work in progress decreased by $58 million
since Dec. 31, 1999, primarily due to placing the San Jose plant and
Commonwealth Chesapeake, Phase 1, in service. Other investments increased $106
million due to TPS' investment in the form of loans to Panda Energy discussed
below ($93 million) and EGI, offset in part by the sales of leveraged leases in
the third quarter. Notes payable increased $122 million since Dec. 31, 1999,
reflecting the repayment of maturing long-term debt, planned capital
expenditures and the repurchase of common shares offset by issuance of debt at
TECO Energy, Inc. and Tampa Electric Company. The increase in deferred charges
and other assets includes $25.9 million of goodwill resulting from the business
combination with BCH as discussed in Note C on page 7.
Fitch and Standard & Poor's, in July 2000 and October 2000,
respectively, lowered the ratings of Tampa Electric and TECO Energy. The
resulting ratings are as follows:
FITCH STANDARD & POOR'S
----- -----------------
TAMPA ELECTRIC
Senior Secured AA A
Senior Unsecured AA- A
TECO ENERGY
Senior Unsecured A A-
In September 1999, TECO Energy announced a program for the repurchase
of up to $150 million of its outstanding common stock. To date, the company has
acquired 7.0 million shares of its outstanding common stock at a cost of $144.7
million. (See Note K on page 10.)
Through a series of transactions completed Aug. 10, 2000, US Propane
sold its propane business to Heritage Propane Partners for approximately $180
million in cash and other consideration, and purchased all of the outstanding
common stock of Heritage Holdings, Inc., the general partner of Heritage
Propane Partners for $120 million. US Propane now owns the general partner
interest and 34 percent of the limited partnership interest of Heritage Propane
Partners. TECO Energy, Inc., through its wholly owned subsidiary TECO Propane
Ventures, LLC, owns an approximate 38% interest ($40.8 million investment) in
US Propane which is being accounted for under the equity method. (See Note B on
page 7.)
In November 1999, TM Power Ventures L.L.C. (TMPV), a joint venture
between TECO Power Services and Mosbacher Power Partners L.P., executed an
agreement with NCP of Virginia, L.L.C. to build, own and operate a 312-
megawatt electric generating facility (CCC). The three Phase 1 units,
representing 135 megawatts, have been placed in service, and the remaining
capacity is expected to be in service by June 2001. The estimated $175 million
project cost is expected to be financed with equity from the partners and $90
million of limited recourse debt which is expected to be funded by early 2001.
Also in November 1999, TPS acquired a 50-percent interest in a
60-megawatt facility under construction in Hamakua, Hawaii. Construction was
completed on the first phase (30 megawatts total) of the project, and the first
combustion turbine achieved commercial operation on Aug. 12, 2000. The project
continues to make draws under a lease financing arrangement, which is supported
by guarantees from the project sponsors, a portion of which is being
restructured to non-recourse debt and is expected to close after achieving
commercial operation in December 2000.
In January 2000, TMPV acquired an additional 13.35-percent ownership
interest in the ECK Generating Project, increasing TPS' investment in the Czech
project by $19.5 million. In October 2000, TPS completed the restructuring of
its ownership share in the project by transferring 50 percent of the TMPV
ownership to Mosbacher Power Partners (MPP) in exchange for a promissory note.
This transaction gives TMPV and Mosbacher each a 13.35 percent interest in the
project. Efforts to find a qualified buyer for the combined ownership of TMPV
and MPP continue.
As previously discussed in TECO Energy's Report on Form 10-Q for the
quarter ended March 31, 2000, TPS became the 100-percent owner of the San Jose
Power Station in February 2000. The conversion of the bank financing to the
issuance of $32 million of non-recourse notes guaranteed by OPIC, closed on
Oct. 31, 2000.
On Sept. 23, 2000, TPS invested $93 million in the form of a loan with
an affiliate of Panda Energy International relating to two projects in Texas
serving the ERCOT market. It is anticipated that these projects will be brought
online in phases beginning December 2000, with all of the capacity in-service
in the third quarter of 2001.
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On Oct. 31, 2000, TECO Energy, Inc.'s TECO Power Services subsidiary
acquired Genesis Power Corporation, LLC's (GenPower) interest in two independent
power projects being developed in Arkansas and Mississippi. The combined
capacity of the two plants will be nearly 1,200 megawatts. It is estimated that
the total cost of both projects will be approximately $730 million, and TPS'
equity investment in the project is expected to be approximately $330 million.
These projects are scheduled for commercial service during the fourth quarter of
2002.
In January 2000, TECO Coal purchased two existing synthetic fuel
production facilities which qualify for Section 29 tax credits through 2007,
subject to changes in law, regulation, or administration that may impact the
qualification of Section 29 synthetic fuel tax credits. Commercial operation
began ahead of schedule during the second quarter of 2000.
RECENT DEVELOPMENTS
On Oct. 16, 2000, Tampa Electric Company, along with Florida Power &
Light Company and Florida Power Corporation, filed with the Federal Energy
Regulatory Commission (FERC) to create a regional transmission organization
(RTO) to serve peninsular Florida. The RTO will be known as GridFlorida LLC. As
proposed, GridFlorida LLC would independently control the transmission assets
of the three filing utilities, as well as other utilities in the region that
choose to join. The filing is in response to FERC's Order No. 2000, issued in
December 1999, which requires all investor-owned electric utilities subject to
FERC regulation to file a proposal to create or join an RTO, or describe any
barriers to joining or forming such a group. Proposed RTO's are required to
begin operations by Dec. 15, 2001. Following this filing, the three utilities
and other stakeholders will continue the collaborative process, with another
filing scheduled for Dec. 15, 2000, which will contain additional details of
the proposed RTO.
On May 3, 2000, the governor of Florida, by executive order, created a
commission charged with proposing a comprehensive energy plan and strategy for
the state. The 17-member Energy 2020 Study Commission will address issues
including the current and future reliability of electric and natural gas
supply, emerging energy supply and delivery options, electrical industry
competition, environmental impacts of energy supply, energy conservation, and
fiscal impacts of energy supply options on taxpayers and energy providers. The
Commission held its first meeting in September 2000, and established as its
first priority to look at the creation of a wholesale competitive electricity
market in Florida. The Commission intends to make preliminary determinations by
year's end, which would permit the Study Commission to make policy
recommendations for consideration during the 2001 Legislative Session. The
Governor's Executive Order requires the Study Commission to issue its final
report dealing with wholesale and retail restructuring issues and associated
matters by December 2001.
ACCOUNTING STANDARDS
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
In 1998, the FASB issued FAS 133, Accounting for Derivative
Instruments and Hedging. This standard is effective for fiscal years beginning
after June 15, 2000. The new standard, as amended, requires an entity to
recognize derivatives as either assets or liabilities in the financial
statements, to measure those instruments at fair value and to reflect the
changes in fair value of those instruments as either components of
comprehensive income or in net income, depending on the types of those
instruments.
In preparation for adoption of this Statement effective Jan. 1, 2001,
the company has completed an analysis of the information required by FAS 133,
and is continuing to evaluate and document all derivatives and hedging
relationships. From time to time, TECO Energy has entered into futures, swaps
and options contracts to hedge the selling
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price for its physical production at TECO Coalbed Methane, to limit exposure to
gas price increases at Peoples Gas System and TECO Gas Services, to limit
exposure to fuel price increases at TECO Transport, and to moderate exposure to
interest rate changes. TECO Energy has not used derivatives or other financial
products for speculative purposes. The company does not anticipate that the
adoption of FAS 133 will significantly impact its financial statements since
activity in derivatives has been relatively minimal and short-term in duration.
Management will continue to evaluate all current and possible future uses of
derivatives, including their effectiveness for hedging, and to apply
appropriate procedures and methods for valuing them.
ACCOUNTING FOR REPAIR AND MAINTENANCE COSTS FOR PLANNED MAJOR MAINTENANCE
ACTIVITIES
TECO Energy and its subsidiaries typically charge the cost of repairs
and maintenance to expense as incurred. One exception to this is at TPS'
Alborada Power Station in Guatemala (TCAE). For this facility, revenue
deferrals are recorded to recognize the portion of billings that reflect
payments for major maintenance and overhaul expenses that will take place in
the future. This liability is included on the balance sheet in Other deferred
credits. Amounts deferred are not significant.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
TECO Energy is exposed to changes in interest rates primarily as a
result of its borrowing activities. A hypothetical 10-percent increase in TECO
Energy's weighted average interest rate on its variable rate debt would have an
estimated $8 million impact on TECO Energy's pretax earnings over the next
fiscal year.
A hypothetical 10-percent decrease in interest rates would not have a
significant impact on the estimated fair value of TECO Energy's long-term debt
at Sept. 30, 2000.
Based on policies and procedures approved by the Board of Directors,
from time to time TECO Energy or its affiliates may enter into futures, swaps
and option contracts to moderate exposure to interest rate changes.
Commodity Price Risk
Currently, at Tampa Electric and Peoples Gas System, commodity price
increases due to changes in market conditions for fuel, purchased power and
natural gas are recovered through cost recovery clauses, with no effect on
earnings.
TECO Coalbed Methane is exposed to commodity price risk through the
sale of natural gas, and TECO Coal is exposed to commodity price risk through
coal sales.
As TECO Power Services develops the Commonwealth Chesapeake Power
Station and other similar projects, the company may utilize futures, swaps and
option contracts in connection with the marketing of power in order to reduce
the variability of electricity selling prices.
From time to time, TECO Energy or its affiliates may enter into
futures, swaps and options contracts to hedge the selling price for physical
production at TECO Coalbed Methane, to limit exposure to gas price increases at
Peoples Gas System and TECO Gas Services, or to limit exposure to fuel price
increases at TECO Transport.
TECO Energy and its affiliates do not use derivatives or other
financial products for speculative purposes.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
TECO Energy, Inc. issued 233,819 common shares in connection
with its merger with BCH Mechanical, Inc. on Sept. 8, 2000 as
discussed in Note C on page 7. The TECO Energy, Inc. shares were
issued without registration under the Securities Act of 1933, as
amended, in reliance upon the exemption provided in Section 4 (2)
thereof. Reliance upon this exemption was based upon the nature of the
transaction, the number of shareholders and investment representations
made by each shareholder.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10 Voluntary Retirement Agreement and General Release between
TECO Energy, Inc. and R.A. Dunn dated as of Nov. 14, 2000.
12 Ratio of earnings to fixed charges
27 Financial data schedule - nine months ended Sept. 30, 2000
(EDGAR filing only)
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(b) REPORTS ON FORM 8-K
The registrant filed a Current Report on Form 8-K dated July
20, 2000, reporting under "Item 5. Other Events" TECO Energy,
Inc.'s financial results and its outlook and corresponding
guidance for earnings per share growth.
The registrant filed a Current Report on Form 8-K dated Sept.
25, 2000, reporting under "Item 5. Other Events" TECO Energy,
Inc.'s financial outlook and related information.
The registrant filed a Current Report on Form 8-K dated Sept.
28, 2000, reporting under "Item 5. Other Events" that TECO
Energy, Inc. had entered into a Purchase Agreement with Banc
of America Securities LLC and Salomon Smith Barney Inc.
(collectively, the "Underwriters") for the sale to the
Underwriters of $200 million principal amount of 7%
Remarketable or Redeemable Securities Due 2015.
The registrant filed a Current Report on Form 8-K dated Oct.
30, 2000, reporting under "Item 5. Other Events" on the
acquisition by TECO Power Services, a wholly owned subsidiary
of TECO Energy, Inc., of Genesis Power Corporation's interest
in two independent power projects in Arkansas and Mississippi.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TECO ENERGY, INC.
(Registrant)
Date: Nov. 14, 2000
*By: /s/ G. L. GILLETTE
--------------------------------
G. L. GILLETTE
Vice President - Finance
and Chief Financial Officer
(Principal Financial Officer)
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INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBITS PAGE NO.
- ----------- ----------------------- --------
10 Voluntary Retirement Agreement and General Release
between TECO Energy, Inc. and R.A. Dunn dated as
of Nov. 14, 2000 27-32
12 Ratio of earnings to fixed charges 33
27 Financial data schedule - nine months ended
Sept. 30, 2000. (EDGAR filing only) --
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