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 March 31, 2002
--------------------------------------------
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
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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 or 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 (April 30, 2002):
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 17
FORM 10-Q
PART I. FINANCIAL INFORMATION
- -------------------------------
Item 1. Condensed Consolidated 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 Mar. 31, 2002 and 2001, and the results of operations and cash flows for the
three-month periods ended Mar. 31, 2002 and 2001. The results of operations for
the three-month period ended Mar. 31, 2002 are not necessarily indicative of
the entire fiscal year ending Dec. 31, 2002. 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,
2001 and to the notes on pages 7 through 10 of this report.
2
TAMPA ELECTRIC COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
(in millions)
March 31, Dec.31,
2002 2001
---------- ----------
Assets
Property, plant and equipment
Utility plant in service
Electric $ 4,165.9 $ 4,112.3
Gas 705.2 699.4
Construction work in progress 539.6 404.4
---------- ----------
5,410.7 5,216.1
Accumulated depreciation (2,050.9) (2,014.8)
---------- ----------
3,359.8 3,201.3
Other property 8.0 8.2
---------- ----------
3,367.8 3,209.5
---------- ----------
Current assets
Cash and cash equivalents 13.7 15.4
Receivables, less allowance for uncollectibles 178.6 156.3
Inventories, at average cost
Fuel 85.8 69.0
Materials and supplies 51.6 51.0
Prepayments and other 12.9 12.5
---------- ----------
342.6 304.2
---------- ----------
Deferred debits
Unamortized debt expense 13.1 13.6
Deferred income taxes 133.4 136.2
Regulatory assets 162.2 192.1
Other 27.3 23.6
---------- ----------
336.0 365.5
---------- ----------
$ 4,046.4 $ 3,879.2
========== ==========
Liabilities and Capital
Capital
Common stock $ 1,517.1 $ 1,318.1
Retained earnings 304.4 304.4
Accumulated other comprehensive loss -- (0.1)
---------- ----------
1,821.5 1,622.4
Long-term debt, less amount due within one year 880.0 880.9
---------- ----------
2,701.5 2,503.3
---------- ----------
Current Liabilities
Long-term debt due within one year 156.1 156.1
Notes payable 158.9 249.0
Accounts payable 133.3 135.8
Customer deposits 87.6 86.3
Interest accrued 25.5 16.1
Taxes accrued 104.4 57.3
---------- ----------
665.8 700.6
---------- ----------
Deferred credits
Deferred income taxes 427.4 441.6
Investment tax credits 30.5 31.6
Regulatory liability 104.6 106.2
Other 116.6 95.9
---------- ----------
679.1 675.3
---------- ----------
$ 4,046.4 $ 3,879.2
========== ==========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
TAMPA ELECTRIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited
(in millions)
For the three months ended Mar. 31,
2002 2001
---------- -----------
Revenues
Electric (includes franchise fees and gross receipts taxes of
$14.0 million in 2002, and $13.1 million in 2001) $ 345.5 $ 335.8
Gas (includes franchise fees and gross receipts taxes of
$3.2 million in 2002, and $6.7 million in 2001) 85.4 134.1
--------- ---------
430.9 469.9
--------- ---------
Operating expenses
Operation
Fuel 97.3 76.3
Purchased power 39.2 54.6
Natural gas sold 35.3 82.0
Other 63.3 62.7
Maintenance 26.9 27.3
Depreciation 53.0 49.1
Taxes-federal and state income 24.3 23.0
Taxes-other than income 33.1 35.6
--------- ---------
372.4 410.6
--------- ---------
Operating Income 58.5 59.3
Other income
Allowance for other funds used during construction 4.3 0.8
Other income, net 0.4 1.7
--------- ---------
Total other income 4.7 2.5
--------- ---------
Interest charges
Interest on long-term debt 16.8 13.9
Other interest 2.3 7.2
Allowance for borrowed funds used during construction (1.7) (0.3)
--------- ---------
Total interest charges 17.4 20.8
--------- ---------
Net Income $ 45.8 $ 41.0
========= =========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
TAMPA ELECTRIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(in millions)
For the three months ended Mar. 31,
2002 2001
-------- ---------
Cash flows from operating activities
Net income $ 45.8 $ 41.0
Adjustments to reconcile net income to net cash from operating activities:
Depreciation 53.0 49.1
Deferred income taxes (14.9) 3.4
Investment tax credits, net (1.1) (1.1)
Allowance for funds used during construction (6.0) (1.1)
Deferred recovery clause 28.3 (7.7)
Receivables, less allowance for uncollectibles (22.3) 6.6
Inventories (17.4) (8.0)
Taxes accrued 47.1 26.7
Interest accrued 9.5 4.0
Accounts payable (2.4) (29.1)
Other 21.7 1.6
-------- ---------
Cash flows from operating activities 141.3 85.4
-------- ---------
Cash flows from investing activities
Capital expenditures (211.8) (111.9)
Allowance for funds used during construction 6.0 1.1
-------- ---------
Cash flows from investing activities (205.8) (110.8)
-------- ---------
Cash flows from financing activities
Proceeds from contributed capital from parent 199.0 10.0
Repayment of long-term debt (0.4) (0.4)
Net (decrease) increase in short-term debt (90.1) 62.0
Payment of dividends (45.7) (45.8)
-------- ---------
Cash flows from financing activities 62.8 25.8
-------- ---------
Net (decrease) increase in cash and cash equivalents (1.7) 0.4
Cash and cash equivalents at beginning of period 15.4 0.7
-------- ---------
Cash and cash equivalents at end of period $ 13.7 $ 1.1
======== =========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
TAMPA ELECTRIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Unaudited
(in millions)
For the three months ended Mar. 31,
2002 2001
-------- --------
Net income $ 45.8 $ 41.0
Other comprehensive income (loss), net of tax:
Cash flow hedges net of adjustments (see Note B) 0.1 --
-------- --------
Comprehensive income $ 45.9 $ 41.0
======== ========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------------
A. Summary of Significant Accounting Policies
Revenue Recognition: Tampa Electric Company recognizes revenues in
accordance with the Securities and Exchange Commission's Staff Accounting
Bulletin (SAS) 101, Revenue Recognition in Financial Statements. The
criteria outlined in SAS101 are that (a) there is persuasive evidence that
an arrangement exists; (b) delivery has occurred or services have been
rendered; (c) the fee is fixed and determinable; and (d) collectibility is
reasonably assured. Generally, the company recognizes revenues on a gross
basis when earned, and the risks and rewards of ownership have transferred
to the buyer.
The regulated utilities' retail business and the prices charged to
customers are regulated by the Florida Public Service Commission (FPSC),
and Tampa Electric's wholesale business is regulated by the Federal Energy
Regulatory Commission (FERC). As a result, the regulated utilities qualify
for the application of Financial Accounting Standard (FAS) 71, Accounting
for the Effects of Certain types of Regulation. See Note D for a discussion
of the applicability of FAS 71 to the company.
Accounting for Franchise Fees and Gross Receipts: Tampa Electric and
Peoples Gas System expense excise taxes when incurred. Regulated utilities
are allowed to recover certain costs incurred from customers through prices
approved by the regulatory process. The amounts included in customers'
bills for franchise fees and gross receipt taxes are included as revenues
on the Consolidated Income Statement. These amounts totaled $17.2 million,
and $19.8 million, for the three months ended Mar. 31, 2002 and 2001,
respectively. Franchise fees and gross receipt taxes paid by the regulated
utilities are included in Taxes, other than income on the Consolidated
Statement of Income, and totaled $17.2 million and $19.7 million,
respectively, for the three months ended Mar. 31, 2002 and 2001.
Planned Major Maintenance: Tampa Electric Company generally accounts
for planned maintenance projects by expensing the costs as incurred as
planned major maintenance projects do not increase the overall life or
value of the related assets and are expensed accordingly. When the planned
major maintenance materially increases the life or value of the underlying
asset, the cost is capitalized. While normal maintenance outages covering
various areas of the plants generally occur on at least a yearly basis,
major overhauls occur less frequently.
Tampa Electric Company expenses major maintenance costs as incurred.
Concurrent with a planned major maintenance outage, the cost of adding or
replacing retirement units-of-property is capitalized in conformity with
FPSC and FERC regulations.
Principles of Consolidation and Reclassifications: Tampa Electric
Company (the company) is a wholly owned subsidiary of TECO Energy, Inc.
Certain reclassifications have been made to prior year amounts to conform
with current year presentations. These reclassifications did not affect
total net income, total assets, or net cash flows.
B. Comprehensive Income
Statement of Financial Accounting Standards (FAS) No. 130, Reporting
Comprehensive Income, 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 and are reflected in
the Statement of Comprehensive Income. For the three months ended Mar.
31,2002, other comprehensive income reflected the $0.1 million adjustment
for cash flow hedge losses included in net income. There were no components
of other comprehensive income in 2001.
C. Derivatives and Hedging
FAS 133, Accounting for Derivative Instruments and Hedging, requires
companies 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 designation of
those instruments. From time to time, the company has entered into futures,
swaps and options contracts to limit exposure to gas price increases at
Peoples Gas System (PGS). As of Mar. 31, 2002, Tampa Electric Company did
not have any open hedges During the three months ended Mar. 31, 2002, the
company reclassified net pretax losses of $0.1 million, to earnings for
cash flow hedges. Reclassifications from OCI to earnings primarily occur
when (1) the underlying hedged transaction impacts earnings, or (2) the
forecasted transaction is no longer probable.
Tampa Electric Company does not use derivatives or other financial
products for speculative purposes.
7
D. Regulatory Assets and Liabilities
Tampa Electric and Peoples Gas System (the regulated utilities)
maintain their accounts in accordance with recognized policies prescribed
or permitted by the Florida Public Service Commission (FPSC). In addition,
Tampa Electric maintains its accounts in accordance with recognized
policies prescribed or permitted by the Federal Energy Regulatory
Commission (FERC). These policies conform with generally accepted
accounting principles in all material respects.
The utilities apply the accounting treatment permitted by FAS 71,
Accounting for the Effects of Certain Types of Regulation. Areas of
applicability include deferral of revenues under approved regulatory
agreements, revenue recognition resulting from cost recovery clauses that
provide for monthly billing charges to reflect increases or decrease in
fuel, purchased power, conservation and environmental costs, and deferral
of costs as regulatory assets when cost recovery is ordered over a period
longer than a fiscal year to the period that the regulatory agency
recognizes them. Details of the regulatory assets and liabilities as of
Mar. 31, 2002, and Dec. 31, 2001, are presented below:
Mar. 31, 2002 Dec. 31, 2001
------------- -------------
Regulatory assets:
Regulatory tax asset (1) $ 43.2 $ 41.3
Other:
Recovery clause related 76.8 105.2
Coal contract buyout (2) 7.4 8.1
Deferred bond refinancing costs (3) 13.0 13.4
Environmental remediation 20.3 22.3
Other 1.5 1.8
-------- --------
119.0 150.8
-------- --------
Total regulatory assets $ 162.2 $ 192.1
======== ========
Regulatory liabilities:
Regulatory tax Liability (1) $ 41.5 $ 43.1
Other:
Deferred allowance auction credits 1.0 1.1
Recovery clause related 0.5 0.5
Deferred gain on property sales (4) 0.8 0.9
Revenue refund 6.4 6.3
Environmental remediation 20.3 22.3
Transmission and delivery storm reserve 33.0 32.0
Other 1.1 --
-------- --------
63.1 63.1
-------- --------
Total regulatory liabilities $ 104.6 $ 106.2
======== ========
(1) Related to plant life. Includes excess deferred taxes of $23.7 million
and $24.6 million as of Mar. 31, 2002 and Dec. 31, 2001, respectively.
(2) Amortized over a 10-year period ending December 2004
(3) Refinancing costs as follows:
Debt related to Amortized until
--------------- ---------------
Refinancing costs for $85.95 million 2014
Refinancing costs for $155 million 2003
Refinancing costs for $100 million 2012
Refinancing costs for $25 million 2011
Refinancing costs for $51.605 million 2005
Refinancing costs for $38 million 2011
(4) Amortized over a 5-year period with various ending dates
8
E. Purchased Power
Tampa Electric purchases power on a regular basis primarily to meet
the needs of its retail customers. For the three months ended Mar. 31, 2002
and 2001, Tampa Electric purchased $39.2 million and $54.6 million,
respectively.
F. Commitment and Contingencies
The company has made certain commitments in connection with its
continuing construction program. Total construction expenditures during
2002 are estimated to be $624 million for its electric division (referred
to as Tampa Electric) and $58 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 $20 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
G. Contribution by Operating Division
(in millions) Net
Revenues Income
-------- ------
Three Months Ended Mar. 31, 2002
Electric division (1) $ 345.7 $ 36.0
Peoples Gas System (2) 85.4 9.8
--------- --------
431.1 45.8
Other and eliminations (0.2) --
--------- --------
Tampa Electric Company $ 430.9 $ 45.8
========= ========
Three Months Ended Mar. 31, 2001
Electric division (1) $ 336.0 $ 30.5
Peoples Gas System (2) 134.1 10.5
--------- --------
470.1 41.0
Other and eliminations (0.2) --
--------- --------
Tampa Electric Company $ 469.9 $ 41.0
========= ========
(1) Net income includes provisions for taxes of $18.2 million, and $16.8
million, respectively for the three months ended Mar. 31, 2002 and
2001.
(2) Net income includes and provisions for taxes of $6.1 million, and $6.2
million, respectively for the three months ended Mar. 31, 2002 and
2001.
9
H. New Accounting Pronouncements
FAS 141 and FAS 142: Effective Jan. 1, 2002, the company adopted
Financial Accounting Standards Board 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,
goodwill is no longer subject to amortization. Rather, goodwill is 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 has no
recorded goodwill.
FAS 143: In July 2001, the Financial Accounting Standards Board issued
FAS 143, Accounting for Asset Retirement Obligations, which requires the
recognition of a liability at fair value 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
future value and the corresponding amount capitalized at inception is
depreciated over the useful life of the asset. The liability must be
revalued each period based on current market prices. 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.
FAS 144: In August 2001, the Financial Accounting Standards Board
issued FAS 144, Accounting for the Impairment or Disposal of Long-Lived
Assets. FAS 144 addresses accounting and reporting for the impairment or
disposal of long-lived assets, including the disposal of a segment of
business. The company's adoption of FAS 144, effective Jan. 1, 2002, has
had no significant impact on its results.
FAS 145: In April 2002, the Financial Accounting Standards Board
issued FAS 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment
of FASB Statement No. 13, and Technical Corrections. In addition to
rescinding the aforementioned statements, FAS 145 also amends FAS 13,
Accounting for Leases, to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. This statement also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. The
company is reviewing the impact that FAS 145 will have on its results.
10
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 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's Annual Report on
Form 10-K for the year ended Dec. 31, 2001, and reference is made thereto.
Results of Operations
- ---------------------
Three Months Ended Mar. 31, 2002:
Tampa Electric Company's net income for the quarter ended March 31,
2002 was $45.8 million, up from $41.0 million recorded for the three-month
period ended March 31, 2001. The 12-percent increase for the quarter relative to
last year reflected the continued strong customer growth, improved results from
higher other income related to a pole attachment revenue true-up in the electric
division and higher allowance for funds used during construction (AFUDC) (which
represents interest and allowed equity cost capitalized to the construction
costs). These were partially offset by mild winter weather patterns.
Electric division (Tampa Electric)
Tampa Electric's net income for the first quarter was $36.0 million,
compared with $30.5 million for the same period in 2001. The benefits of strong
customer growth of 2.6 percent in 2002 was partially offset by mild winter
weather patterns which resulted in retail energy sales 4.8 percent lower than
2001. Results in the first quarter of 2001 included higher than normal energy
sales due to colder than normal winter weather. The company showed improved
results from higher income related to a pole attachment revenue true-up.
Depreciation expense increased due to normal plant growth. Allowance for funds
used during construction (AFUDC) (which represents interest and allowed equity
cost capitalized to the construction costs), primarily from the Gannon to
Bayside Units 1 and 2 repowering project, increased to $6.0 million for the
quarter, from $1.1 million for the same period last year. A summary of the
operating statistics for the three months ended Mar. 31, 2002 and 2001, follows:
(in millions, except average customers) Operating Revenues Kilowatt-hour sales
-------------------------------- ---------------------------------
Three Months Ended Mar. 31, 2002 2001 Change 2002 2001 Change
------- ------- ------ -------- -------- ------
Residential $162.7 $158.6 2.6% 1,714.4 1,878.8 -8.8%
Commercial 102.8 91.8 12.0% 1,285.7 1,304.4 -1.4%
Industrial - Phosphate 16.2 16.0 1.3% 316.8 343.1 -7.7%
Industrial - Other 19.1 15.9 20.1% 283.3 271.1 4.5%
Other sales of electricity 26.2 23.2 12.9% 311.9 313.9 -0.6%
Deferred and other revenues (9.4) (6.9) -36.2% -- -- --
------ ------ -------- --------
317.6 298.6 6.4% 3,912.1 4,111.3 -4.8%
Sales for resale 13.3 27.5 -51.6% 165.5 629.1 -73.7%
Other operating revenue 14.8 9.9 49.5% -- -- --
------ ------ -------- --------
$345.7 $336.0 2.9% 4,077.6 4,740.4 -14.0%
====== ====== ======== ========
Average customers (thousands) 587.2 572.1 2.6%
====== ======
Retail Output to Line (kilowatt hours) 4,098.6 4,106.9 -0.2%
======== ========
11
Natural Gas division (Peoples Gas System)
Peoples Gas System (PGS) reported net income of $9.8 million for the
quarter, compared with $10.5 million for the same period last year. Quarterly
results reflected mild winter weather patterns which more than offset customer
growth of almost 4 percent. Volumes for low-margin, gas transportation for
electric power generators, interruptible customers and off-system sales
increased as lower gas prices made gas utilization more attractive for these
price-sensitive customers. Operating expenses were lower than last year
reflecting the lower cost of gas sold, while depreciation increased due to
normal plant growth. A summary of the operating statistics for the three months
ended Mar. 31, 2002 and 2001 is below:
(in millions, except average customers) Operating Revenues Therms
----------------------------------- --------------------
Three Months Ended Mar. 31, 2002 2001 Change 2002 2001 Change
------- ------ -------- ------ ------ --------
By Customer Segment:
Residential $ 25.8 $ 41.8 -38.3% 25.3 27.5 -8.0%
Commercial 35.7 67.5 -47.1% 95.9 90.8 5.6%
Industrial 3.3 3.9 -15.4% 67.4 62.0 8.7%
Off system sales 10.4 4.4 136.4% 33.3 6.6 404.5%
Power generation 2.9 2.9 -- 116.2 78.0 49.0%
Other revenues 7.3 13.6 -46.3% -- -- --
------- ------ ----- -----
$ 85.4 $134.1 -36.3% 338.1 264.9 27.6%
======= ====== ===== =====
By Sales Type:
System supply $ 57.8 $105.0 -45.0% 91.6 82.0 11.7%
Transportation 20.3 15.5 31.0% 246.5 182.9 34.8%
Other revenues 7.3 13.6 -46.3% -- -- --
------- ------ ----- -----
$ 85.4 $134.1 -36.3% 338.1 264.9 27.6%
======= ====== ===== ===== ====
Average customers (thousands) 276.0 266.3 3.6%
======= ======
Peoples Gas System filed a Test Year Notification letter with the Florida
Public Service Commission on Apr. 26, 2002, which notified the FPSC of PGS's
intent to file a petition for rate relief on or before June 30, 2002 designating
2003 as the test year for determining rates. The petition, if filed, would
contain a request for a rate increase to reflect, among other things, the
effects of inflation and investment in system expansion since PGS's last rate
case in 1992.
Other
AFUDC was $6.0 million and $1.1 million for the three months ended Mar. 31,
2002 and 2001, respectively. AFUDC has increased reflecting Tampa Electric's
generation expansion programs.
Total interest charges were $17.4 million for the three months ended Mar.
31, 2002 compared to $20.8 million for the same period in 2001. Increased
financing costs for the first quarter of 2002 reflecting primarily higher
borrowing levels were offset by greater AFUDC credits.
Critical Accounting Policies
Management's Discussion & Analysis of Financial Condition & Results of
Operations are based on Tampa Electric Company's consolidated financial
statements, which have been prepared in accordance with United States generally
accepted accounting principles. The preparation of these financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses. These estimates and
assumptions are based on historical experience and on various other factors that
are believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates and judgments under different assumptions or
conditions. Please refer to Critical Accounting Policies of the Management's
Discussion & Analysis of Financial Condition & Results of Operations section of
the Annual Report on Form 10-K for the fiscal year ended Dec. 31, 2001 for a
discussion of our critical accounting policies.
Liquidity and Changes in Financial Condition
On Apr. 25, 2002, Standard & Poor's Rating Service (S&P) lowered the
ratings on Tampa Electric Company's debt securities to A- from A for its senior
secured debt and senior unsecured debt, and to A-2 from A-1 for its commercial
paper. S&P indicated that the rating outlook remained negative. The ratings
actions were attributed to increased debt levels, the required capital outlays,
and the uncertainties related to industry restructuring. These downgrades and
any future downgrades may affect the company's ability to borrow and increase
costs, which may decrease earnings.
Credit Ratings/Senior Debt (as of Apr. 25, 2002)
Moody's Standard & Poor's Fitch
------- ----------------- -----
Senior Secured Aa3 A- AA-
Senior Unsecured A1 A- A+
Commercial Paper P1 A2 F1+
Tampa Electric Company issues commercial paper. This program is backed by
the bank credit line facilities. The company's ability to utilize our commercial
paper program is dependent upon maintaining an investment grade rating, and
would be adversely affected by changes in the commercial paper market or if bank
credit facilities were unavailable.
12
Accounting Standards
- --------------------
Business Combinations, Goodwill and Other Intangible Assets
Effective Jan. 1, 2002, the company adopted Financial Accounting Standards
Board 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, goodwill is no longer subject to amortization. Rather,
goodwill is 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 has no recorded
goodwill.
Accounting for Asset Retirement Obligations
In July 2001, the Financial Accounting Standards Board issued FAS 143,
Accounting for Asset Retirement Obligations, which requires the recognition of a
liability at fair value 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 future value and the corresponding amount
capitalized at inception is depreciated over the useful life of the asset. The
liability must be revalued each period based on current market prices. 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.
Accounting for the Impairment or Disposal of Long-Lived Assets
In August 2001 the Financial Accounting Standards Board issued FAS 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. FAS 144
addresses accounting and reporting for the impairment or disposal of long-lived
assets, including the disposal of a segment of business. The company's adoption
of FAS 144, effective Jan. 1, 2002, has had no significant impact on its
results.
Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No.
13, and Techinical Correction
FAS 145: In April 2002, the Financial Accounting Standards Board issued FAS
145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections. In addition to rescinding the
aforementioned statements, FAS 145 also amends FAS 13, Accounting for Leases, to
eliminate and inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions. This
statement also amends other existing authoritative pronouncements to make
various technical corrections, clarify meanings, or describe their applicability
under changed conditions. The company is reviewing the impact that FAS 145 will
have on its results.
13
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, as discussed in Item 7a of the Form 10-K
for the year ended Dec. 31, 2001, previously filed with the Securities and
Exchange Commission. At Mar. 31, 2002, there was no material change from Dec.
31, 2001, in the company's exposure to interest rate risk.
Commodity Price Risk
- --------------------
Tampa Electric and Peoples Gas System, are subject to commodity price risk,
as discussed in Item 7a of the Form 10-K for the year ended Dec. 31, 2001,
previously filed with the Securities and Exchange Commission. At Mar. 31, 2002,
there was no material change from Dec. 31, 2001, in the company's exposure to
commodity price risk.
14
PART II. OTHER INFORMATION
--------------------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
10.1 Compensation Committee's Determinations Regarding Crediting
Rates for the TECO Energy Group Deferred Compensation Plan.
12 Ratio of earnings to fixed charges
(b) Reports on Form 8-K
The registrant did not file any Current Reports on Form 8-K
for the quarter ended Mar. 31, 2002.
15
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
----------------------------------------
(Registrant)
Date: May 14, 2002 *By: /s/ G. L. GILLETTE
-----------------------------------
G. L. GILLETTE
Senior Vice President - Finance
and Chief Financial Officer
(Principal Financial Officer)
16
INDEX TO EXHIBITS
Exhibit No. Description of Exhibits
10.1 Compensation Committee's Determinations Regarding Crediting
Rates for the TECO Energy Group Deferred Compensation Plan.
12 Ratio of earnings to fixed charges
17