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 June 30, 2001
--------------------------
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 1-5007
------
TAMPA ELECTRIC COMPANY
----------------------
(Exact name of registrant as specified in its charter)
FLORIDA 59-0475140
------- ----------
(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 (July 31, 2001):
Common Stock, Without Par Value 10
The registrant meets the conditions set forth in General Instruction (H)(1)(a)
and (b) of Form 10-Q and is therefore filing this form with the reduced
disclosure format.
Index to Exhibits Appears on Page 16
Page 1 of 16
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 Tampa Electric Company as
of June 30, 2001 and 2000, and the results of operations and cash flows for the
three- and six-month periods ended June 30, 2001 and 2000. The results of
operations for the three- and six-month periods ended June 30, 2001 are not
necessarily indicative of the entire fiscal year ending Dec. 31, 2001.
Reference should be made to the explanatory notes affecting the income and
balance sheet accounts contained in Tampa Electric Company's Annual Report on
Form 10-K for the year ended Dec. 31, 2000 and to the notes on pages 7 and 8 of
this report.
2
CONSOLIDATED BALANCE SHEETS
unaudited
(in millions)
June 30, Dec. 31,
2001 2000
--------- ---------
Assets
Property, plant and equipment, at original cost
Utility plant in service
Electric $ 4,067.4 $ 4,054.1
Gas 649.6 632.1
Construction work in progress 278.8 150.1
--------- ---------
4,995.8 4,836.3
Accumulated depreciation (1,963.8) (1,931.3)
--------- ---------
3,032.0 2,905.0
Other property 8.1 8.3
--------- ---------
3,040.1 2,913.3
--------- ---------
Current assets
Cash and cash equivalents 1.0 0.7
Receivables, less allowance for uncollectibles 203.7 180.4
Inventories, at average cost
Fuel 88.6 56.8
Materials and supplies 51.8 52.4
Prepayments 7.2 3.3
--------- ---------
352.3 293.6
--------- ---------
Deferred debits
Unamortized debt expense 14.1 13.2
Deferred income taxes 128.8 124.3
Regulatory asset - tax related 62.2 62.3
Other 178.6 143.1
--------- ---------
383.7 342.9
--------- ---------
$ 3,776.1 $ 3,549.8
========= =========
Liabilities and Capital
Capital
Common stock $ 1,306.1 $ 1,148.1
Retained earnings 298.9 299.0
-------- --------
1,605.0 1,447.1
Long-term debt, less amount due within one year 1,036.9 789.3
-------- --------
2,641.9 2,236.4
-------- --------
Current liabilities
Long-term debt due within one year 55.3 55.2
Notes payable 58.5 231.2
Accounts payable 162.1 188.0
Customer deposits 83.9 82.4
Interest accrued 19.6 34.2
Taxes accrued 82.1 71.6
-------- --------
461.5 662.6
-------- --------
Deferred credits
Deferred income taxes 443.4 424.5
Investment tax credits 33.8 36.1
Regulatory liability-tax related 69.1 72.4
Other 126.4 117.8
-------- --------
672.7 650.8
-------- --------
$ 3,776.1 $ 3,549.8
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
3
CONSOLIDATED STATEMENTS OF INCOME
unaudited
(in millions)
For the three months ended June 30, 2001 2000
------ ------
Revenues
Electric $358.8 $340.3
Gas 82.3 71.4
------ ------
441.1 411.7
------ ------
Operating expenses
Operation
Fuel 68.3 84.7
Purchased power 75.1 41.8
Natural gas sold 43.4 36.0
Other 62.5 62.8
Maintenance 26.6 32.8
Depreciation 49.8 43.8
Taxes-Federal and state income 24.0 22.7
Taxes-Other than income 33.2 30.6
------ ------
382.9 355.2
------ ------
Operating Income 58.2 56.5
Other income
Allowance for other funds used during construction 1.3 0.7
Other income, net 0.7 --
------ ------
2.0 0.7
------ ------
Income before interest charges 60.2 57.2
------ ------
Interest charges
Interest on long-term debt 14.2 12.4
Allowance for borrowed funds used during construction (0.5) (0.2)
Other interest 4.2 5.3
------ ------
17.9 17.5
------ ------
Net Income $ 42.3 $ 39.7
====== ======
The accompanying notes are an integral part of the consolidated financial
statements.
5
CONSOLIDATED STATEMENTS OF INCOME
unaudited
(in millions)
For the six months ended June 30, 2001 2000
------ ------
Revenues
Electric $694.6 $632.6
Gas 216.4 158.1
------ ------
911.0 790.7
------ ------
Operating expenses
Operation
Fuel 144.6 164.2
Purchased power 129.7 67.6
Natural gas sold 125.4 76.7
Other 125.2 118.1
Maintenance 53.9 59.5
Depreciation 98.9 88.9
Taxes-Federal and state income 47.0 43.9
Taxes-Other than income 68.8 61.4
------ ------
793.5 680.3
------ ------
Operating Income 117.5 110.4
Other income
Allowance for other funds used during construction 2.1 1.0
Other income, net 2.4 0.1
------ ------
4.5 1.1
------ ------
Income before interest charges 122.0 111.5
------ ------
Interest charges
Interest on long-term debt 28.1 25.3
Allowance for other funds used during construction (0.8) (0.4)
Other interest 11.4 9.8
------ ------
38.7 34.7
------ ------
Net Income $ 83.3 $ 76.8
====== ======
The accompanying notes are an integral part of the consolidated financial
statements.
6
CONSOLIDATED STATEMENTS OF CASH FLOWS
unaudited
(in millions)
For the six months ended June 30, 2001 2000
------- -------
Cash flows from operating activities
Net income $ 83.3 $ 76.8
Adjustments to reconcile net income to net cash
Depreciation 98.9 88.9
Deferred income taxes 12.3 (3.9)
Investment tax credits, net (2.2) (2.2)
Allowance for funds used during construction (2.9) (1.4)
Deferred recovery clause (25.0) (3.2)
Receivables, less allowance for uncollectibles (23.2) (27.5)
Inventories (31.2) (16.8)
Taxes accrued 10.5 49.6
Interest accrued (14.5) 9.3
Accounts payable (25.9) (4.3)
Other (7.5) 20.1
------- -------
72.6 185.4
------- -------
Cash flows from investing activities
Capital expenditures (226.8) (176.6)
Allowance for funds used during construction 2.9 1.4
------- -------
(223.9) (175.2)
------- -------
Cash flows from financing activities
Proceeds from contributed capital from parent 158.0 99.0
Proceeds from long-term debt 250.0 --
Repayment of long-term debt (0.4) (80.3)
Net increase (decrease) in short-term debt (172.6) 5.7
Payment of dividends (83.4) (60.3)
------- -------
151.6 (35.9)
------- -------
Net increase (decrease) in cash and cash equivalents 0.3 (25.7)
Cash and cash equivalents at beginning of period 0.7 26.1
------- -------
Cash and cash equivalents at end of period $ 1.0 $ 0.4
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
A. Tampa Electric Company (the company) is a wholly owned subsidiary of
TECO Energy, Inc.
B. The company has made certain commitments in connection with its
continuing construction program. Total construction expenditures during
2001 are estimated to be $373 million for its electric division (referred
to as Tampa Electric) and $74 million for its natural gas division
(referred to as Peoples Gas System).
Tampa Electric Company is a potentially responsible party for certain
superfund sites and, through its Peoples Gas System division, for certain
former manufactured gas plant sites. While the joint and several liability
associated with these sites presents the potential for significant response
costs, the company estimates its ultimate financial liability at
approximately $22 million over the next 10 years. The environmental
remediation costs associated with these sites have been recorded on the
accompanying consolidated balance sheet, and are not expected to have a
significant impact on customer prices.
C. Contribution by operating division
(in millions) Net
Revenues Income
-------- ------
Three Months Ended June 30, 2001
Tampa Electric $359.1 $38.1
Peoples Gas System 82.3 4.2
------ -----
441.4 42.3
Other and eliminations (0.3) --
------ -----
Tampa Electric Company $441.1 $42.3
====== =====
Three Months Ended June 30, 2000
Tampa Electric $340.4 $35.7
Peoples Gas System 71.4 4.0
------ -----
411.8 39.7
Other and eliminations (0.1) --
------ -----
Tampa Electric Company $411.7 $39.7
====== =====
Six Months Ended June 30, 2001
Tampa Electric $695.1 $68.6
Peoples Gas System 216.4 14.7
------ -----
911.5 83.3
Other and eliminations (0.5) --
------ -----
Tampa Electric Company $911.0 $83.3
====== =====
Six Months Ended June 30, 2000
Tampa Electric $633.0 $64.3
Peoples Gas System 158.1 12.5
------ -----
791.1 76.8
Other and eliminations (0.4) --
------ -----
Tampa Electric Company $790.7 $76.8
====== =====
8
D. Tampa Electric Company adopted FAS 133, Accounting for Derivative
Instruments and Hedging, effective Jan. 1, 2001. The standard requires the
company 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. The company has completed the review and
documentation of its derivative contracts, and found such activity has
been minimal and relatively short-term in duration. Based on policies and
procedures approved by the Board of Directors, from time to time, the
company enters into futures, swaps and options contracts to limit exposure
to gas price increases at Peoples Gas System.
The company did not have any open derivatives or hedges at
adoption of the standard that were subject to FAS 133 accounting.
Management will continue to document all current, new and possible uses of
derivatives, and develop procedures and methods for measuring them.
E. On June 25, 2001, Tampa Electric Company issued $250 million
principal amount of 6.875% notes due June 15, 2012 (the Notes). The Notes
are subject to redemption, in whole or in part, at any time, and at the
option of Tampa Electric Company, at a redemption price equal to the
greater of 100% of the principal amount of Notes then outstanding to be
redeemed or the sum of the present values of the remaining scheduled
payments of principal and interest on the Notes then outstanding to be
redeemed, discounted at an adjusted treasury rate plus 25 basis points to
the redemption date. Net proceeds were 98.928% of the principal amount.
The proceeds were used to repay short-term debt and for general corporate
purposes.
F. On June 30, 2001, the Financial Accounting Standards Board
finalized FAS 141, Business Combinations, and FAS 142, Goodwill and Other
Intangible Assets. FAS 141 requires all business combinations initiated
after June 30, 2001, to be accounted for using the purchase method of
accounting. With the adoption of FAS 142 effective Jan. 1, 2002, goodwill
is no longer subject to amortization. Rather, goodwill will be subject to
at least an annual assessment for impairment by applying a fair-value-
based test. Under the new rules, an acquired intangible asset should be
separately recognized if the benefit of the intangible asset is obtained
through contractual or other legal rights, or if the intangible asset can
be sold, transferred, licensed, rented, or exchanged, regardless of the
acquirer's intent to do so. These intangible assets will be required to be
amortized over their useful lives.
Tampa Electric Company does not have any recorded goodwill. The
company does not expect adoption of FAS 142 to significantly impact its
results.
In July 2001, the Financial Accounting Standards Board finalized
FAS 143, Accounting for Asset Retirement Obligations, which requires the
recognition of a liability for an asset retirement obligation in the
period in which it is incurred. When the liability is initially recorded,
the carrying amount of the related long-lived asset is correspondingly
increased. Over time, the liability is accreted to its present value and
the related capitalized charge is depreciated over the useful life of the
asset. FAS 143 is effective for fiscal years beginning after June 15,
2002. The company is currently reviewing the impact that FAS 143 will have
on its results.
9
Item 2. Management's Narrative Analysis of 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:
interest rates, debt levels, restrictive covenants and other factors that could
impact Tampa Electric Company's ability to obtain access to sufficient capital
on satisfactory terms; general economic conditions, particularly those in Tampa
Electric's service area affecting energy sales; weather variations affecting
energy sales and operating costs; potential competitive changes in the electric
and gas industries, particularly in the area of retail competition; regulatory
actions affecting Tampa Electric and Peoples Gas System; commodity price changes
affecting the competitive positions of Tampa Electric and Peoples Gas System;
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 TECO Energy, Inc.'s Quarterly
Report on Form 10-Q included as Exhibit 99.1 for the period ended June 30, 2001,
and reference is made thereto.
Results of Operations
- ---------------------
Three Months Ended June 30, 2001:
Tampa Electric Company's net income for the quarter ended June 30, 2001
was $42.3 million, up from $39.7 million recorded for the three-month period
ended June 30, 2000. The 7-percent increase for the quarter relative to last
year reflected continued strong customer growth. Higher depreciation expense was
partially offset by lower operations and maintenance expense.
Electric division (Tampa Electric)
Tampa Electric's net income for the second quarter was $38.1 million,
compared with $35.7 million for the same period in 2000. The company showed
improved results from customer growth of almost 3 percent, which more than
offset the impact of mild spring weather on retail energy sales that were
essentially unchanged from the same period last year. Higher depreciation
expense from normal plant additions was more than offset by lower operations and
maintenance expense. Operations and maintenance expense in last year's second
quarter included higher expenditures related to improving generating unit
reliability. A summary of the operating statistics for the three months ended
June 30, 2001 and 2000 follows.
(in millions, except average customers) Operating Revenues Kilowatt-hour sales
--------------------------- -------------------------
Three Months Ended June 30, 2001 2000 Change 2001 2000 Change
---- ---- ------ ---- ---- ------
Residential $ 158.1 $ 149.7 5.6% 1,793.8 1,818.0 -1.3%
Commercial 103.3 94.5 9.3% 1,415.5 1,412.6 0.2%
Industrial - Phosphate 17.2 15.8 8.9% 335.1 340.3 -1.5%
Industrial - Other 18.6 16.0 16.3% 289.4 280.6 3.1%
Other sales of electricity 25.7 24.2 6.2% 337.2 343.8 -1.9%
Deferred and other revenues 7.3 5.8 25.9% -- -- --
------- -------- ------- -------
330.2 306.0 7.9% 4,171.0 4,195.3 -0.6%
Sales for resale 20.6 26.9 -23.4% 341.8 631.2 -45.8%
Other operating revenue 8.3 7.5 10.7% -- -- --
------- -------- ------- -------
$ 359.1 $ 340.4 5.5% 4,512.8 4,826.5 -6.5%
======= ======== ======= =======
Average customers
(thousands) 572.8 557.6 2.7%
======= ========
Retail output to line (kilowatt hours) 4,590.3 4,564.4 0.6%
======= =======
10
FORM 10-Q
Natural Gas division (Peoples Gas System)
Peoples Gas System (PGS) reported net income for the quarter of $4.2
million, compared with $4.0 million for the same period last year. Quarterly
results reflected strong customer growth of more than 4 percent and higher
residential and commercial sales. Decreased volumes for low-margin,
transportation gas for electric power generators, interruptible customers and
off-system sales reflected the higher cost of gas for purchasers who have the
ability to switch to alternate fuels or alter consumption patterns. Operating
and maintenance expenses were slightly higher than in the previous year, while
depreciation increased slightly due to normal plant growth. A summary of the
operating statistics for the three months ended June 30, 2001 and 2000 follows:
(in millions, except average customers) Operating Revenues Therms
------------------ --------
Three Months Ended June 30, 2001 2000 Change 2001 2000 Change
---- ---- ------ ---- ---- ------
By Customer Segment:
Residential $ 17.8 $ 13.5 31.9% 11.0 9.8 12.2%
Commercial 40.2 32.8 22.6% 72.3 67.5 7.1%
Industrial 2.9 3.6 -19.4% 63.1 72.3 -12.7%
Off system sales 8.7 11.2 -22.3% 19.0 29.3 -35.1%
Power generation 2.8 3.0 -6.7% 108.4 109.3 -0.8%
Other revenues 9.9 7.3 35.6% -- -- --
------- ------ ----- -----
$ 82.3 $ 71.4 15.3% 273.8 288.2 -5.0%
======= ====== ===== =====
By Sales Type:
System supply $ 58.0 $ 52.6 10.3% 62.0 79.4 -21.9%
Transportation 14.4 11.5 25.2% 211.8 208.8 1.4%
Other revenues 9.9 7.3 35.6% -- -- --
------- ------ ----- -----
$ 82.3 $ 71.4 15.3% 273.8 288.2 -5.0%
======= ====== ===== =====
Average customers
(thousands) 266.2 255.6 4.1%
====== ======
Other
Allowance for funds used during construction (AFUDC) was $1.8 million and
$0.9 million for the three months ended June 30, 2001 and 2000, respectively.
AFUDC is expected to increase over the next several years, reflecting Tampa
Electric's generation expansion activities.
Total interest charges were $17.9 million for the three months ended June
30, 2001 compared to $17.5 million for the same period in 2000. Increased
financing costs for the second quarter of 2001 reflected primarily higher
borrowing levels.
Six Months Ended June 30, 2001:
Tampa Electric Company's net income for the six months ended June 30, 2001
was $83.3 million, up from $76.8 million recorded for the same period last year.
The 8-percent increase year-to-date reflected the continued strong customer
growth and favorable winter weather. Increased revenues were somewhat offset by
higher depreciation in the first half of 2001 due to normal plant growth and
higher operation and maintenance expense spending in the electric division.
Electric division (Tampa Electric)
Tampa Electric's year-to-date net income increased 7 percent to $68.6
million, reflecting strong customer growth and almost 5-percent higher retail
energy sales as a result of favorable winter weather. Increased revenues were
11
somewhat offset by higher operation and maintenance expense due to increased
spending on generation assets and an increase in liability reserve requirements,
and higher depreciation in the first half of 2001 due to normal plant growth. A
summary of the operating statistics for the six months ended June 30, 2001 and
2000 follows:
(in millions, except average customers) Operating Revenues Kilowatt-hour sales
--------------------------- --------------------------
Six Months Ended June 30, 2001 2000 Change 2001 2000 Change
------ ------ ------ ------ ------ ------
Residential $ 316.6 $ 281.5 12.5% 3,672.6 3,410.3 7.7%
Commercial 195.0 177.2 10.1% 2,719.9 2,637.9 3.1%
Industrial - Phosphate 33.6 30.0 12.0% 678.2 675.2 0.4%
Industrial - Other 34.2 30.4 12.5% 560.6 539.5 3.9%
Other sales of electricity 49.0 45.7 7.2% 651.0 646.1 0.8%
Deferred and other revenues 0.4 3.8 -89.5 -- -- --
-------- ------ ------- -------
628.8 568.6 10.6% 8,282.3 7,909.0 4.7%
Sales for resale 48.1 49.0 -1.8% 970.9 1,146.0 -15.3%
Other operating revenue 18.2 15.4 18.2% -- -- --
-------- -------- ------- -------
$ 695.1 $ 633.0 9.8% 9,253.2 9,055.0 2.2%
======== ======== ======= =======
Average customers (thousands) 572.5 556.9 2.8%
======== ========
Retail output to line (kilowatt hours) 8,697.4 8,414.9 3.4%
======= =======
Natural Gas division (Peoples Gas System)
PGS' year-to-date net income increased more than 17 percent to $14.7
million, reflecting more than 4 percent customer growth and higher residential
and commercial usage early in the year as a result of favorable winter weather.
Decreased volumes for low-margin, transportation gas for electric power
generators, interruptible customers and off-system sales reflected the higher
cost of gas for purchasers who have the ability to switch to alternate fuels or
alter consumption patterns. Operating and maintenance expenses were up slightly
from last year, while depreciation increased slightly due to normal plant
growth. A summary of the operating statistics for the six months ended June 30,
2001 and 2000 follows:
(in millions, except average customers) Operating Revenues Therms
--------------------------- ---------------------------
Six Months Ended June 30, 2001 2000 Change 2001 2000 Change
------ ------ ------ ------ ------ ------
By Customer Segment:
Residential $ 59.6 $ 39.0 52.8% 38.5 33.7 14.2%
Commercial 107.7 71.1 51.5% 163.1 151.8 7.4%
Industrial 6.8 7.1 -4.2% 125.1 152.4 -17.9%
Off system sales 13.1 20.4 -35.8% 25.6 59.5 -57.0%
Power generation 5.7 5.5 3.6% 186.4 211.7 -11.9%
Other revenues 23.5 15.0 56.7% -- -- --
-------- -------- ------- -------
$216.4 $158.1 36.9% 538.7 609.1 -11.6%
======== ======== ======= =======
By Sales Type:
System supply $163.1 $118.6 37.5% 143.9 183.3 -21.5%
Transportation 29.8 24.5 21.6% 394.8 425.8 -7.3%
Other revenues 23.5 15.0 56.7% -- -- --
-------- -------- ------- -------
$216.4 $158.1 36.9% 538.7 609.1 -11.6%
======== ======== ======= =======
Average customers (thousands) 266.2 255.6 4.2%
======== ========
12
Other
Allowance for funds used during construction (AFUDC) was $2.9 million and
$1.4 million for the six months ended June 30, 2001 and 2000, respectively.
AFUDC is expected to increase over the next several years, reflecting Tampa
Electric's generation expansion activities.
Total interest charges were $38.7 million for the six months ended June 30,
2001 compared to $34.7 million for the same period in 2000. Increased financing
costs for the first half of 2001 primarily reflected higher borrowing levels.
Recent Developments
- -------------------
As previously reported, Tampa Electric, Florida Power and Light, and
Florida Power Corporation (collectively, Applicants), in compliance with the
Federal Energy Regulatory Commission's (FERC) Order No. 2000, submitted to the
FERC an application to form a regional transmission organization (RTO) to be
known as GridFlorida. On March 28, 2001, FERC granted "provisional" approval of
the proposal for GridFlorida. This approval was conditional upon the Applicants
making a subsequent compliance filing by May 29, 2001, implementing certain
changes describe in the order.
In early May, the Staff of the Florida Public Service Commission (FPSC)
recommended that the FPSC examine the prudence of the Applicants' decision to
join an RTO, in general, and to form and participate in GridFlorida, in
particular. The FPSC Staff asserted that FERC Order No. 2000 does not require
participation and, therefore, each company's decision must be evaluated and
associated costs and benefits to ratepayers must be quantified.
The issues raised by the FPSC process create uncertainty with respect to
the Applicants' actions to comply with Order No. 2000. Because the resolution of
these issues is critical to the continued formation of GridFlorida, the
Applicants decided to suspend their RTO development activities until the issues
are resolved. This was communicated to FERC when the May 29, 2001 compliance
filing was made. The FPSC has begun an RTO prudence determination for each
company that is expected to be resolved by Dec. 1, 2001. Concurrently, the FERC
has ordered mediation among the various proposed RTOs in the four quadrants of
the country, including the Southeast. GridFlorida is participating in the
discussions, with the other RTO participants.
Accounting Standards
- --------------------
Accounting for Derivative Instruments and Hedging
The company adopted FAS 133, Accounting for Derivative Instruments and
Hedging, effective Jan. 1, 2001. The standard requires the company 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. See Note D on page 8
for a full discussion of the impacts to Tampa Electric Company.
Business Combinations and Goodwill and Other Intangible Assets
On June 30, 2001, the Financial Accounting Standards Board finalized FAS
141, Business Combinations, and FAS 142, Goodwill and Other Intangible Assets.
FAS 141 requires all business combinations initiated after June 30, 2001, to be
accounted for using the purchase method of accounting. With the adoption of FAS
142 effective Jan. 1, 2002, goodwill is no longer subject to amortization.
Rather, goodwill will be subject to at least an annual assessment for impairment
by applying a fair-value-based test. Under the new rules, an acquired intangible
asset should be separately recognized if the benefit of the intangible asset is
obtained through contractual or other legal rights, or if the intangible asset
can be sold, transferred, licensed, rented, or exchanged, regardless of the
acquirer's intent to do so. These intangible assets will be required to be
amortized over their useful lives.
Tampa Electric Company does not have any recorded goodwill. The company
does not expect adoption of FAS 142 to significantly impact its results.
13
Asset Retirement Obligations
In July 2001, the Financial Accounting Standards Board finalized FAS 143,
Accounting for Asset Retirement Obligations, which requires the recognition of a
liability for an asset retirement obligation in the period in which it is
incurred. When the liability is initially recorded, the carrying amount of the
related long-lived asset is correspondingly increased. Over time, the liability
is accreted to its present value and the related capitalized charge is
depreciated over the useful life of the asset. FAS 143 is effective for fiscal
years beginning after June 15, 2002. The company is currently reviewing the
impact that FAS 143 will have on its results.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
- ------------------
Tampa Electric Company is exposed to changes in interest rates primarily as
a result of its borrowing activities. A hypothetical 10-percent increase in
Tampa Electric Company's weighted average interest rate on its variable rate
debt would have an estimated $1.6 million impact on Tampa Electric Company'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 Tampa Electric Company's long-
term debt at June 30, 2001.
Based on policies and procedures approved by the Board of Directors, from
time to time Tampa Electric Company 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.
From time to time, Peoples Gas System may enter into futures, swaps and
options contracts to limit the effect of natural gas price increases on the
prices it charges customers.
Tampa Electric Company does not use derivatives or other financial products
for speculative purposes.
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PART II. OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
10.1 Supplemental Executive Retirement Plan for R. D. Fagan, as amended.
10.2 Severance Agreement between TECO Energy, Inc. and R. D. Fagan, as
amended.
12 Ratio of earnings to fixed charges
(b) Reports on Form 8-K
The registrant filed the following Current Reports on Form 8-K for the
quarter ended June 30, 2001.
The registrant filed a Current Report on Form 8-K dated June 20, 2001,
reporting under "Item 5. Other Events" furnishing certain exhibits f or
----- ------
incorporation by reference into the Registration Statement on Form S-3
previously filed with the Securities and Exchange Commission (File No.
333-55090).
The registrant filed a Current Report on Form 8-K dated June 25, 2001,
reporting under "Item 5. Other Events" furnishing certain exhibits for
----- ------
incorporation by reference into the Registration Statement on Form S-3
previously filed with the Securities and Exchange Commission (File No.
333-55090).
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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.
TAMPA ELECTRIC COMPANY
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(Registrant)
Date: August 13, 2001 *By: /s/ G. L. GILLETTE
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G. L. GILLETTE
Senior Vice President - Finance
and Chief Financial Officer
(Principal Financial Officer)
16