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, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from 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 (IRS Employer
incorporation or organization) Identification No.)
702 North 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, 1999):
Common Stock, $1 Par Value 132,043,024<PAGE>
FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
In the opinion of management, the unaudited condensed
c o nsolidated financial statements include all
adjustments necessary to present fairly the results for
the three-month periods ended March 31, 1999 and 1998.
Reference should be made to the explanatory notes
a f fecting the income and balance sheet accounts
contained in TECO Energy, Inc.'s Annual Report on Form
10-K for the year ended Dec. 31, 1998 and to the notes
on pages 6 through 10 of this report.
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FORM 10-Q
CONSOLIDATED BALANCE SHEETS
unaudited
(in millions)
March 31, Dec. 31,
1999 1998
Assets
Current assets
Cash and cash equivalents $ 13.6 $ 16.9
Receivables, less allowance
for uncollectibles 230.6 229.6
Inventories, at average cost
Fuel 116.3 93.2
Materials and supplies 65.5 64.1
Prepayments 16.4 15.1
442.4 418.9
Property, plant and equipment,
at original cost
Utility plant in service
Electric 3,995.7 3,991.3
Gas 536.1 518.5
Construction work in progress 126.2 101.1
Other property 996.0 989.6
5,654.0 5,600.5
Accumulated depreciation (2,327.8) (2,292.9)
3,326.2 3,307.6
Other assets
Other investments 71.8 72.0
Investment in unconsolidated affiliates 154.3 141.2
Deferred income taxes 100.7 99.1
Deferred charges and other assets 142.6 140.5
469.4 452.8
$4,238.0 $4,179.3
Liabilities and Capital
Current liabilities
Long-term debt due within one year $ 35.6 $ 36.0
Notes payable 376.0 319.0
Accounts payable 143.4 208.1
Customer deposits 79.1 78.3
Interest accrued 23.0 14.2
Taxes accrued 57.3 5.1
714.4 660.7
Deferred income taxes 490.7 499.9
Investment tax credits 45.5 46.7
Regulatory liability-tax related 33.7 34.0
Other deferred credits 158.0 150.6
Long-term debt, less amount due
within one year 1,277.1 1,279.6
Common equity
Common equity - 400 million shares
authorized, $1 par value - issued and
outstanding 131,960,069 in 1999 and
131,955,939 in 1998 1,578.0 1,569.2
Unearned compensation (59.4) (61.4)
$4,238.0 $4,179.3
The accompanying notes are an integral part of the consolidated financial
statements.
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FORM 10-Q
CONSOLIDATED STATEMENTS OF INCOME
unaudited
(in millions)
For the three months ended March 31, 1999 1998
Revenues $446.4 $467.8
Expenses
Operation 229.5 249.4
Maintenance 27.5 28.0
Non-recurring charges -- 25.9
Depreciation 56.7 56.9
Taxes, other than income 38.0 37.7
351.7 397.9
Income from operations 94.7 69.9
Other income (expense)
Other income (expense), net .7 (2.9)
Income before interest and income taxes 95.4 67.0
Interest expense 26.1 25.9
Income before provision for income taxes 69.3 41.1
Provision for income taxes 20.7 10.3
Net income from continuing operations 48.6 30.8
Gain on disposal of discontinued operations,
net of income tax expense of $.3 million
for 1999 and $12.9 million for 1998 .6 22.2
Net income $ 49.2 $ 53.0
Average common shares outstanding 132.0 131.6
Earnings per average common share outstanding:
Basic and diluted-
From continuing operations $ 0.37 $ .23
Net income $ 0.37 $ .40
Dividend rate per common share outstanding $ 0.31 $0.295
The accompanying notes are an integral part of the consolidated financial
statements.
4<PAGE>
FORM 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS
unaudited
(in millions)
For the three months ended March 31, 1999 1998
Cash flows from operating activities
Net income $ 49.2 $ 53.0
Adjustments to reconcile net income
to net cash:
Depreciation 56.7 56.9
Deferred income taxes (10.9) 2.5
Investment tax credits, net (1.2) (1.2)
Amortization of unearned compensation 2.0 1.5
Gain on disposal of discontinued
operations, pretax -- (37.5)
Deferred revenue 1.4 (8.7)
Deferred recovery clause 2.0 4.3
Non-recurring charges -- 25.9
Receivables, less allowance
for uncollectibles (1.0) 36.5
Inventories (24.5) (14.0)
Taxes accrued 52.1 15.1
Interest accrued 8.9 8.7
Accounts payable (64.8) (27.2)
Other 2.0 11.5
71.9 127.3
Cash flows from investing activities
Capital expenditures (76.0) (51.9)
Net proceeds from sale of assets -- 39.2
Investment in unconsolidated affiliates (12.5) (4.0)
Other non-current investments .1 (.3)
(88.4) (17.0)
Cash flows from financing activities
Common stock -- 1.0
Repayment of long-term debt (2.9) (5.2)
Net increase (decrease) in short-term debt 57.0 (67.3)
Dividends (40.9) (38.8)
13.2 (110.3)
Net increase in cash and cash equivalents (3.3) --
Cash and cash equivalents
at beginning of period 16.9 10.6
Cash and cash equivalents at end of period $ 13.6 $ 10.6
The accompanying notes are an integral part of the consolidated financial
statements.
5<PAGE>
FORM 10-Q
A. Certain prior year amounts have been reclassified to conform with
the current year presentation.
B. As reported in the company's Annual Report on Form 10-K for the
year ended Dec. 31, 1998, TECO Oil & Gas, Inc., the company's
conventional oil and gas subsidiary, sold its offshore assets to
American Resources Offshore, Inc. (ARO) in March 1998 for $57.7
million, consisting of $39.2 million in cash and a subordinated note
(the "Note") in the principal amount of $18.5 million. TECO Energy
recognized an after-tax gain on this transaction of $23.7 million, or
18 cents per share, in the first quarter of 1998.
Based on the likely impact of certain economic factors, including
low oil and gas prices and unfavorable business and operational
developments at ARO, at Dec. 31, 1998, TECO Energy wrote off the
recorded value of all assets associated with the discontinued oil and
gas operation, including the $18.5-million note and associated
interest income accrued and remaining on-shore assets.
In March 1999, the company completed a transaction in which it
sold the note from ARO to a third party for $500,000 in cash. In a
separate transaction, ARO agreed to be responsible for disputed joint
billing payments of approximately $425,000. A $.6 million after-tax
gain from these transactions was recognized in the first quarter of
1999 as a gain on disposal of discontinued operations.
There were no revenues from the discontinued oil and gas
operations for the three-month periods ended March 31, 1999 and 1998.
6<PAGE>
FORM 10-Q
C. TECO Energy and its subsidiaries have made certain commitments in
connection with their continuing capital expenditure program and
estimate that capital expenditures for continuing operations during
1999, excluding TECO Power Services Corporation's investments in
unconsolidated affiliates (current commitments of $31 million for
1999), will be as follows:
millions
Tampa Electric Company
Electric division $222
Peoples Gas System 75
TECO Transport Corporation 29
TECO Coal Corporation 18
TECO Power Services 1
Other diversified businesses 10
$355
D. Revenues in the first quarter of 1999 reflected the deferral for
refund of $1.4 million of electric revenues at Tampa Electric. These
deferred revenues resulted from Tampa Electric's current regulatory
agreement. Revenues in 1998 s first quarter included recognition of
$8.7 million of previously deferred revenues, partially offset by a
stipulated temporary base rate reduction which began Oct 1, 1997 and
totaled $4.4 million for the 1998 quarter. In accordance with the
agreement, the temporary base rate reduction and recognition of
previously deferred revenues ended in December 1998.
7<PAGE>
FORM 10-Q
E. The reconciliation of TECO Energy's basic and diluted earnings
per share is shown below:
Three Months Ended March 31, 1999 1998
(millions, except per share amounts)
Numerator (Basic and Diluted)
Net income from continuing operations $48.6 $30.8
Net income $49.2 $53.0
Denominator
Average number of shares outstanding-basic 132.0 131.6
Plus: incremental shares for assumed
conversions: Stock options at end
of period 1.2 2.5
Less: Treasury shares which could
be purchased (1.0) (2.0)
Average number of shares outstanding-diluted 132.2 132.1
Earnings per share from continuing operations
Basic and diluted $ .37 $ .23
Earnings per share
Basic and diluted $ .37 $ .40
F. As discussed in its Annual Report on Form 10-K for the year ended
Dec. 31, 1998, the company recognized, in the first quarter of 1998,
one-time charges at TECO Coal, TeCom and Tampa Electric Company
totaling $16.5 million, after tax, or $.13 per share.
The one-time charges in 1998 reflected asset value adjustments at
TECO Coal's Gatliff mining facilities relating to the expiration of
the coal supply contract with Tampa Electric in 1999 ($8.9 million
after tax), a write off of product development costs associated with
features of the InterLane residential system developed early in the
product life and no longer incorporated in the current system's design
at TeCom ($1.7 million after tax) and a $5.9-million after-tax charge
at Tampa Electric associated with ongoing actions to mitigate the
effects of a 1997 Florida Public Service Commission (FPSC) ruling that
separated two wholesale power sales contracts from the retail
jurisdiction through 1999.
G. The management of TECO Energy determined its reportable segments
8<PAGE>
FORM 10-Q
based on each subsidiaries' 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 (millions)
Operating Net
1999 Revenues(1) Income(1) Income(1)
Tampa Electric Company
Electric division(2)(3) $260.9 $ 55.2 $ 27.3
Peoples Gas System 71.1 14.7 7.3
332.0 69.9 34.6
TECO Transport(4) 57.6 11.2 6.3
TECO Coal(5) 53.1 5.2 3.8
TECO Power Services(6)(7) 23.8 4.8 3.3
Other diversified business(6) 23.8 6.0 5.3
490.3 97.1 53.3
Other and eliminations (43.9) (2.4) (4.7)
446.4 94.7 48.6
Non-recurring charges -- -- --
TECO Energy consolidated $446.4 $ 94.7 $ 48.6
1998
Tampa Electric Company
Electric division(2)(3)(8) $273.4 $ 56.2 $ 26.0
Peoples Gas System 80.7 15.4 7.1
354.1 71.6 33.1
TECO Transport(4) 54.5 9.2 5.3
TECO Coal(5)(8) 56.7 4.4 3.2
TECO Power Services(6)(7) 18.9 3.5 2.2
Other diversified business(6)(8) 29.4 9.1 7.5
513.6 97.8 51.3
Other and eliminations (45.8) (2.0) (3.7)
467.8 95.8 47.6
Non-recurring charges -- (25.9) (16.8)
TECO Energy consolidated $467.8 $ 69.9 $ 30.8
(1) From continuing operations.
(2) The electric division deferred revenues of $1.4 million in 1999 for
refund to customers and recognized revenues previously deferred of
$8.7 million in 1998. See Note D on page 7.
(3) Revenues from sales to affiliates were $4.2 million in 1999 and in
1998.
(4) Revenues from sales to affiliates were $25.1 million in 1999 and $28.9
million in 1998.
(5) Revenues from sales to affiliates were $6.4 million in 1999 and $8.5
million in 1998.
9<PAGE>
FORM 10-Q
(6) Operating income includes items that are reclassified for consolidated
financial statement purposes. The principal items are the non-
conventional fuels tax credit related to coalbed methane production
($4.1 million in 1999 and $4.8 million in 1998) and interest expense
on the limited-recourse debt related to independent power operations
($2.4 million in 1999 and $3.5 million in 1998), both of which are
included in operating income for the segments. In the Consolidated
Statements of Income, the tax credit is part of the provision for
income taxes and the interest is part of interest expense.
(7) Revenues from sales to affiliates were $8.1 million in 1999 and $4.0
million in 1998.
(8) 1998 operating income and net income exclude the non-recurring charges
discussed in Note F on page 8.
10<PAGE>
FORM 10-Q
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: 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 the Peoples Gas companies as well as margins at TECO
Coalbed Methane and TECO Coal; business growth opportunities as they
may relate to the company's ability to achieve its previously
announced long-term strategy to grow its diversified business;
international risks as they may relate to TECO Power Services' ability
to continue to operate and invest successfully in its international
projects; and changes in and compliance with environmental regulations
that may impose additional costs or curtail some activities. These
factors are discussed more fully under "Investment Considerations" in
registrant's Annual Report on Form 10-K for the year ended Dec. 31,
1998, and reference is made thereto.
Results of Operations
Three months ended March 31, 1999:
Consolidated net income from continuing operations for the
quarter ended March 31, 1999 was $48.6 million, or $.37 per share, up
from $30.8 million, or $.23 per share, for the three-month period
ended March 31, 1998. The 1998 results from continuing operations
included one-time after-tax charges, discussed in Note F on page 8, of
$16.8 million, or $.13 per share. Excluding these charges, 1998 first
quarter earnings per share were $.36.
Net income for the first quarter of 1999, after a $.6 million
gain on disposal of discontinued operations, was $49.2 million
compared to 1998's first quarter net income of $53.0 million, which
included a $22.2-million, or $.17 per share, net gain on disposal of
discontinued operations. Discontinued operations are discussed in Note
B on page 6.
11<PAGE>
FORM 10-Q
Consolidated operating income from continuing operations was
$94.7 million, down one percent from 1998's first quarter operating
income, before non-recurring charges, of $95.7 million.
Tampa Electric Company's Operating Results
Tampa Electric Company's first quarter operating income of $69.9
million was down slightly from that of the same period in 1998 before
non-recurring charges, as the growth in retail electric energy sales
was offset by weather-related lower demand at both the electric and
natural gas divisions in 1999.
Net income, before non-recurring charges, was 5 percent higher
than in 1998's first quarter due primarily to lower interest expense
in 1999, the result of lower short-term debt rates and balances.
Electric division
Operating income for the electric division was $55.2 million
compared with $56.2 million for the same period last year, excluding a
one-time pretax charge of $9.6 million last year from mitigation of
the effects of a FPSC ruling that separated certain wholesale power
sales contracts from the retail jurisdiction through 1999. Tampa
Electric s revenues were $260.9 million for the quarter compared with
$273.4 million for the same period last year. Revenues in 1998's first
quarter included recognition of $8.7 million of previously deferred
revenues associated with the company s current regulatory agreement,
partially offset by a stipulated temporary base rate reduction of $4.4
million for the quarter. In accordance with the agreement, the
temporary base rate reduction and recognition of previously deferred
revenues ended in December 1998. Under this regulatory agreement for
1999, $1.4 million of revenues were deferred in the first quarter for
refund to customers.
12<PAGE>
FORM 10-Q
Despite warmer winter weather than in last year's period,
revenues for the current quarter reflected an increase in retail sales
of 2.3 percent, driven by customer growth of 2.5 percent. Interchange
sales were lower because of mild winter weather and lower gas prices.
Slightly lower operations and maintenance expenses favorably affected
quarterly results.
On April 8, 1999, an explosion at Tampa Electric's Gannon Station
Unit Six, a 375-megawatt generator that was off line for scheduled
spring maintenance, resulted in damage to Unit Six, the shut down of
the other five units at the Station and injuries to 45 employees and
contractors, including three fatalities. The preliminary investigation
indicates that the accident occurred as hydrogen, used to cool power
generators during normal operations, exploded when an access cover was
opened prior to purging the hydrogen from the unit during the Gannon
Unit Six maintenance outage. The accident continues to be investigated
b y t h e company and by the Occupational Safety and Health
Administration (OSHA).
Gannon Units One, Two, Three and Four were returned to service
shortly after the accident; Gannon Unit Five continues to undergo
repair and is expected to return to service in May 1999. Gannon Unit
Six is expected to be returned to service in early June 1999.
Replacement power purchased from neighboring utilities, estimated at
$2 million, is expected to be recovered through Tampa Electric's fuel
and purchased power clause, with little impact on customer rates.
Although the financial impact to Tampa Electric has not been
fully determined, the costs resulting from the accident are expected
to be substantially covered by insurance. The impact on current year
operation and maintenance expenses is estimated to be $1-2 million.
13<PAGE>
FORM 10-Q
Peoples Gas System
Peoples Gas System reported operating income of $14.7 million for
the quarter compared with $15.4 million last year. Revenues for the
quarter were $71.1 million compared with $80.7 million for the same
period last year. Residential and commercial therm sales were almost 7
percent below last year because of the mild winter weather. Customer
growth was 2.9 percent, reflecting Peoples' initiatives to expand its
market. Lower operations and maintenance expenses, partially offset by
higher depreciation, reflected cost savings from restructuring and
exiting the appliance sales and service business last year.
Diversified Companies-Operating Results
TECO Transport reported revenues of $57.6 million, operating
income of $11.2 million and net income of $6.3 million in the first
quarter, compared with revenues of $54.5 million, operating income of
$9.2 million and net income of $5.3 million last year. Results for
the current quarter reflected a substantial increase in third party
business, partially offset by lower coal volumes moved for Tampa
Electric. The increase in third party revenues was the result of
strong grain volumes in the ocean-going business, along with increases
in river volumes from the barges added in 1998. The export coal
market continued to be weak in the first quarter.
At TECO Coal, revenues for the quarter were $53.1 million
compared with $56.7 million last year. Operating income was $5.2
million for first quarter 1999, compared with $4.4 million, excluding
a one-time pretax charge of $13.6 million, for the same period last
y e a r . Operating income for the quarter reflected continued
improvements in unit production costs, partially offset by lower
revenues from planned reductions in Tampa Electric volumes. These same
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FORM 10-Q
factors resulted in net income of $3.8 million, which was 19 percent
higher than in 1998's first quarter.
TECO Power Services (TPS) recorded revenues of $23.8 million for
the quarter, compared with $18.9 million last year for the same
period. Operating income was $4.8 million, an increase of $1.3 million
over last year; net income was $3.3 million, up $1.1 million from
1998. These improvements reflected contributions from the company s
Guatemalan distribution business which was acquired in September 1998,
higher earnings from the company s Alborada Power Station in Guatemala
and capitalization of interest during construction on its equity
investment in the San Jose Power Station.
TECO Energy s other diversified companies recorded $23.8 million
in revenues and $6.0 million in operating income, including non-
conventional fuels tax credits, for the first quarter. This compares
with revenues of $29.4 million and operating income of $9.1 million
for the same period last year, which excludes a one-time pretax charge
of $2.7 million at TeCom. Net income for the other diversified
companies of $5.3 million was $2.2 million lower than in 1998. Lower
TECO Coalbed Methane results reflected a 7 percent decline in
production and a 14 percent decrease in gas prices, even after the
favorable effects of gas price hedging. Peoples Gas Company, the
propane business, was even with last year, reflecting lower propane
volumes and revenues because of warmer weather, offset by lower
expenses. Results at TeCom were lower, reflecting the amortization of
capitalized development costs which began in the fourth quarter 1998.
The effective income tax rate on net income from continuing
operations for the three-month period ended March 31, 1999 was 29.9
percent compared to 25.0 percent last year. This increase was
primarily due to higher pretax income and lower income tax credits in
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FORM 10-Q
1999 as a result of anticipated lower natural gas production from
coalbed methane seams.
In March 1998, TECO Oil & Gas sold its offshore assets to
American Resources Offshore, Inc. (ARO) for $57.7 million, consisting
of $39.2 million in cash and a subordinated note in the principal
amount of $18.5 million. TECO Energy recognized an after-tax gain on
this transaction of $23.7 million in the first quarter of 1998. As
discussed in TECO Energy's 1998 Annual Report on Form 10-K, the note
from ARO was written off as of Dec. 31, 1998.
In March 1999, the company completed a transaction in which it
sold the n from ARO to a third party for $500,000 in cash. In a
separate transaction, ARO agreed to be responsible for disputed joint
billing payments of approximately $425,000. The net gain recorded as
discontinued operations in 1999's first quarter related to these two
transactions was $.6 million. (See Note B on page 6)
Liquidity, Capital Resources and Changes in Financial Condition
As discussed in TECO Energy's Annual Report on Form 10-K for the
year ended Dec. 31, 1998, TPS formed a joint venture relationship with
Energia Global International, Inc. (EGI) in February 1999. As part of
this transaction, TPS committed $25 million in the form of a loan to
EGI for a stake in four power projects in operation or under
construction in Costa Rica and Guatemala, and electric distribution
companies in El Salvador and Panama.
16<PAGE>
FORM 10-Q
YEAR 2000 COMPUTER SYSTEMS READINESS:
Background
There is a global awareness that many computer programs use only
two digits to refer to a year and, therefore, may not correctly
recognize and process date information beyond the year 1999. This is
referred to as the "Year 2000" issue.
The Year 2000 issue exists in two primary areas of TECO Energy's
operations: the critical business systems (such as the financial
reporting, procurement, payroll and customer information and billing
systems) and the control systems (such as those used in the operation
of electric generation and transmission facilities, gas and electric
distribution facilities and coal mining facilities).
TECO Energy began work on Year 2000 readiness in August 1995. The
project is segmented into the following phases: awareness, inventory,
assessment, renovation, testing and contingency planning. The project
addresses readiness at Tampa Electric, Peoples Gas System and the
diversified companies.
Readiness
TECO Energy has completed its assessment of all hardware,
software and embedded systems and is currently engaged in renovation,
testing and contingency planning. TECO Energy's critical systems
(those required for uninterrupted operations) are expected to be ready
for the Year 2000, i.e. renovated and tested to the extent necessary,
by the middle of 1999. Set forth below is a description of readiness
by functional area.
Critical Business Systems
The critical business systems, including mainframe hardware which
was replaced in July 1998, have been substantially renovated and
17<PAGE>
FORM 10-Q
tested, which represents eighty-five percent of the work required to
achieve Year 2000 readiness for this part of the project. Mainframe
integrated system testing has begun and is scheduled to be completed
in the first half of 1999. To assist in assuring readiness, the
renovation work and the integration testing are being handled by
separate outside consulting firms.
Control Systems
Tampa Electric management believes that its transmission and
distribution systems, including energy management and control and
related embedded systems, are now ready for the Year 2000.
Tampa Electric retained industry specialty firms to assist with
identifying areas where renovations were needed in the embedded
systems associated with generator unit controls and with making these
renovations. Ninety-five percent of these renovations have been made,
which represents an estimated eighty percent of the work required to
achieve Year 2000 readiness for this part of the project. A number of
successful unit tests have been conducted for Tampa Electric's
generating units, and all required plant control system renovations
are scheduled to be complete and tested by June 1999.
Critical systems in the other parts of TECO Energy have been
renovated, with the exception of a portion of the Peoples Gas control
systems, the Hardee Power Station control systems and a portion of the
TECO Coal plant control systems, which are scheduled to be fully
renovated and tested by June 1999. Seventy percent of the work
required to achieve Year 2000 readiness for this part of the project
is complete.
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FORM 10-Q
Coordination with Others
TECO Energy has surveyed its largest suppliers (approximately
1,000) with respect to their Year 2000 readiness, including all
providers of technology supplies and services, and plans to complete
its customer survey process by June 1999. As part of its Year 2000
project, the company is coordinating with its suppliers and customers
based on their responses to these surveys.
At the request of the U. S. Department of Energy (DOE), the North
American Electric Reliability Council (NERC) is coordinating monthly
r e a d i ness monitoring and reporting, information sharing and
contingency planning for the industry. The latest quarterly report was
published in April of 1999. The NERC activity addresses all aspects of
the interconnected electric grid. The aggregated results are being
reported to the DOE and other regulatory bodies in the U.S., Canada
and Mexico. The Natural Gas Council, through the American Gas
A s sociation, is coordinating similar processes within the gas
industry, reporting to the Federal Energy Regulatory Commission
(FERC). Tampa Electric and Peoples Gas System are active participants
in these industry groups.
Costs
The total cost of Year 2000 remediation is expected to be $8 to
$10 million, which includes contracted resources, purchases and
internal labor. An estimated breakdown of project costs is as follows:
Tampa Electric - $6 million, Peoples Gas System - $2.5 million, and
the diversified companies - $.5 million. Approximately 40 percent of
the projected costs are attributable to testing expenses, and the
remainder consists primarily of renovation or replacement costs.
Through March 31, 1999, approximately $7 million had been spent. The
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FORM 10-Q
company expects to spend approximately $2 million in the remainder of
1999.
Risks
TECO Energy believes the most reasonably likely worst case
scenario would be the occurrence of isolated outages of limited
duration for utility customers, similar to those occurring during the
utilities' storm season. The utilities have assessed the risk of this
scenario, and believe that their contingency efforts, primarily the
ability to bypass automated controls, would mitigate the effect of
such a scenario.
Contingency Plans
TECO Energy's contingency plan is scheduled to be completed by
the middle of 1999. The contingency plan will include a team to be
established to monitor all critical systems through significant date
transitions and to promptly respond to any problems.
Forward-Looking Statements
The costs of TECO Energy's Year 2000 efforts and the dates on
which the company believes it will complete such efforts are based
upon management's best estimates, which were derived using numerous
a s s u mptions regarding future events, including the continued
availability of certain resources, third-party remediation plans and
other factors. There can be no assurance that these estimates will
prove to be accurate, and actual results could differ materially from
those currently projected. Specific factors that could cause such
differences include, but are not limited to, the availability and cost
of personnel trained in Year 2000 issues, the ability to identify,
20<PAGE>
FORM 10-Q
assess, remediate and test all relevant computer codes and embedded
technology and similar uncertainties.
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 increase in
interest rates of 10 percent of TECO Energy's weighted average
interest rate on its variable rate debt would not have a significant
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 March 31, 1999.
From time to time, TECO Energy enters into futures, swaps and
option contracts to moderate its exposure to interest rate changes.
The benefits of these arrangements are at risk only in the event of
non-performance by the other party to the agreement, which the company
does not anticipate. TECO Energy does not use derivatives or other
financial products for speculative purposes.
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.
21<PAGE>
FORM 10-Q
TECO Coalbed Methane is exposed to commodity price risk through
the sale of natural gas. A 10-percent change in the market price of
natural gas would not have a significant impact on TECO Energy's
earnings.
TECO Coal is exposed to commodity price risk through coal sales.
A 10-percent change in the market price of coal would not have a
significant impact on TECO Energy's earnings.
From time to time, TECO Energy enters into futures, swaps and
options contracts to hedge the selling price for its physical
production at TECO Coalbed Methane, to limit exposure to gas price
increases at both the regulated natural gas utility and unregulated
propane business, and to limit exposure to fuel price increases at
TECO Transport. The benefits of these financial arrangements are at
risk only in the event of non-performance by the other party to the
agreement, which the company does not anticipate. TECO Energy does not
use derivatives or other financial products for speculative purposes.
22<PAGE>
FORM 10-Q
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders held on April 21, 1999, the
shareholders of TECO Energy, Inc., elected three directors and
rejected a shareholder proposal concerning the format of certain proxy
material. The votes were as follows:
Votes Cast Votes Cast Broker
For Against Abstentions Non-Votes
Election of Directors
DuBose Ausley 110,547,731 1,886,435
James L. Ferman, Jr. 110,919,551 1,514,616
James O. Welch, Jr. 110,733,263 1,700,904
Shareholder Proposal 9,559,555 82,563,022 3,383,052 16,928,538
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
12 Ratio of earnings to fixed charges
27 Financial data schedule - three months ended March 31, 1999.
(EDGAR filing only)
(b) Reports on Form 8-K
The registrant did not file any Current Reports on Form 8-K for
the quarter ended March 31, 1999.
The registrant filed a Current Report on Form 8-K dated April 27,
1999 reporting under "Item 5. Other Events" the election of
Robert D. Fagan as President and Chief Executive Officer of TECO
Energy, Inc. effective June 1, 1999.
23<PAGE>
FORM 10-Q
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: May 14, 1999
By: /s/G. L. Gillette
G. L. Gillette
Vice President - Finance and Chief
Financial Officer
(Principal Financial Officer)
24<PAGE>
FORM 10-Q
INDEX TO EXHIBITS
Exhibit No. Description of Exhibits Page No.
12 Ratio of earnings to fixed charges 26
27 Financial data schedule - three months ended
March 31, 1999. (EDGAR filing only) --
25<PAGE>
Exhibit 12
TECO Energy, Inc.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the company's ratio of earnings to
fixed charges for the periods indicated.
Three Months Twelve Months
Ended Ended Year Ended December 31,
March 31, 1999 March 31, 1999 1998 1997 1996 1995 1994
3.69x 3.90x(1) 3.61x(2) 3.77x(3) 3.72x 3.48x 3.06x(4)
For the purposes of calculating these ratios, earnings consist of
income before income taxes and fixed charges. Fixed charges consist of
interest on indebtedness, amortization of debt premium, the interest
component of rentals and preferred stock dividend requirements.
(1) Includes the effect of non-recurring pretax charges totaling $7.3
million associated with a write-off at Tampa Electric. The effect of
this charge was to reduce the ratio of earnings to fixed charges. Had
this charge been excluded from the calculation, the ratio of earnings
to fixed charges would have been 3.97x for the 12-month period ended
March 31, 1999.
(2) Includes the effect of non-recurring pretax charges totaling $33.2
million associated with write-offs at TECO Coal, TeCom and Tampa
Electric, and $.6 million pretax of merger-related costs. The effect
of these charges was to reduce the ratio of earnings to fixed charges.
Had these charges been excluded from the calculation, the ratio of
earnings to fixed charges would have been 3.92x for the year ended
Dec. 31, 1998.
(3) Includes a $2.6-million pretax charge for all transactions associated
with the mergers completed in June 1997. The effect of this charge was
to reduce the ratio of earnings to fixed charges. Had this charge been
excluded from the calculation, the ratio of earnings to fixed charges
would have been 3.79x for the year ended Dec. 31, 1997.
(4) Includes the effect of a $25-million pretax restructuring charge. The
effect of this charge was to reduce the ratio of earnings to fixed
charges. Had this non-recurring charge been excluded from the
calculation, the ratio of earnings to fixed charges would have been
3.30x for the year ended Dec. 31, 1994.
26<PAGE>
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