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 1-5007
TAMPA ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
FLORIDA 59-0475140
(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, 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.<PAGE>
FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
In the opinion of management, the unaudited condensed
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 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, 1998 and to the notes on pages 6 through 7 of
this report.
2 <PAGE>
FORM 10-Q
BALANCE SHEETS
unaudited
(in millions)
March 31, Dec. 31,
1999 1998
Assets
Property, plant and equipment,
at original cost
Utility plant in service
Electric $3,747.1 $3,742.6
Gas 536.1 518.5
Construction work in progress 88.4 71.5
4,371.6 4,332.6
Accumulated depreciation (1,743.9) (1,722.2)
2,627.7 2,610.4
Other property 8.2 8.1
2,635.9 2,618.5
Current assets
Cash and cash equivalents .9 .8
Receivables, less allowance
for uncollectibles 129.8 142.8
Inventories, at average cost
Fuel 106.1 87.3
Materials and supplies 47.4 45.5
Prepayments 11.0 8.4
295.2 284.8
Deferred debits
Unamortized debt expense 15.7 16.1
Deferred income taxes 117.2 116.1
Regulatory asset - tax related 38.3 39.0
Other 68.0 72.0
239.2 243.2
$3,170.3 $3,146.5
Liabilities and Capital
Capital
Common stock $1,034.1 $1,026.1
Retained earnings 286.4 288.5
1,320.5 1,314.6
Long-term debt, less amount due
within one year 774.1 774.5
2,094.6 2,089.1
Current liabilities
Long-term debt due within one year 4.6 4.6
Notes payable 91.9 79.7
Accounts payable 141.9 189.1
Customer deposits 78.4 77.5
Interest accrued 17.9 8.8
Taxes accrued 46.0 8.8
380.7 368.5
Deferred credits
Deferred income taxes 450.1 447.6
Investment tax credits 43.9 45.1
Regulatory liability - tax related 72.0 73.0
Other 129.0 123.2
695.0 688.9
$3,170.3 $3,146.5
The accompanying notes are an integral part of the financial statements.
3 <PAGE>
FORM 10-Q
STATEMENTS OF INCOME
unaudited
(in millions)
For the three months ended March 31, 1999 1998
Operating revenues
Electric $260.9 $273.4
Gas 71.1 80.7
332.0 354.1
Operating expenses
Operation
Fuel - electric generation 67.5 89.1
Purchased power 20.4 11.3
Natural gas sold 29.3 38.0
Other 52.9 51.2
Maintenance 19.6 21.8
Non-recurring charge -- 9.6
Depreciation 42.7 41.3
Taxes, federal and state income 20.4 16.1
Taxes, other than income 29.7 29.8
282.5 308.2
Operating income 49.5 45.9
Other income (expense) .6 (1.9)
Income before interest charges 50.1 44.0
Interest charges
Interest on long-term debt 12.7 12.2
Other interest 2.8 4.6
15.5 16.8
Net Income-balance applicable to
common stock $ 34.6 $ 27.2
The accompanying notes are an integral part of the financial statements.
4 <PAGE>
FORM 10-Q
STATEMENTS OF CASH FLOWS
unaudited
(in millions)
For the three months ended March 31, 1999 1998
Cash flows from operating activities
Net income $ 34.6 $ 27.2
Adjustments to reconcile net income
to net cash:
Depreciation 42.7 41.3
Deferred income taxes 1.1 7.2
Investment tax credits, net (1.1) (1.2)
Deferred recovery clause 2.0 4.2
Deferred revenue 1.4 (8.7)
Non-recurring charge -- 9.6
Receivables, less allowance
for uncollectibles 12.9 33.6
Inventories (20.7) (14.1)
Taxes accrued 37.3 8.1
Accounts payable (47.1) (12.8)
Other 14.1 16.1
77.2 110.5
Cash flows from investing activities
Capital expenditures (60.2) (39.4)
Cash flows from financing activities
Proceeds from contributed capital
from parent 8.0 40.0
Repayment of long-term debt (.3) (.3)
Net increase (decrease) in short-term debt 12.2 (78.5)
Dividends (36.8) (33.8)
(16.9) (72.6)
Net increase (decrease) in cash
and cash equivalents .1 (1.5)
Cash and cash equivalents at
beginning of period .8 2.8
Cash and cash equivalents at end of period $ .9 $ 1.3
The accompanying notes are an integral part of the financial statements.
5 <PAGE>
FORM 10-Q
NOTES TO FINANCIAL STATEMENTS
A. Tampa Electric 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 1999 are estimated to be $222 million for the electric division
and $75 million for Peoples Gas System.
C. 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.
D. 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, a
$5.9-million after-tax charge at the electric division 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.
6 <PAGE>
FORM 10-Q
E. Contributions by operating division
(millions)
Operating Net
1999 Revenues Income Income
Electric division(1)(2) $260.9 $ 39.5 $ 27.3
Peoples Gas System(3) 71.1 10.0 7.3
332.0 49.5 34.6
Non-recurring charges -- -- --
Tampa Electric Company $332.0 $ 49.5 $ 34.6
1998
Electric division(1)(2)(4) $273.4 $ 41.4 $ 26.0
Peoples Gas System(3) 80.7 10.4 7.1
354.1 51.8 33.1
Non-recurring charge -- (5.9) (5.9)
Tampa Electric Company $354.1 $ 45.9 $ 27.2
(1) Operating income is net of income tax expense of $15.7 million in
1999 and $14.8 million in 1998.
(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 C on page 6.
(3) Operating income is net of income tax expense of $4.7 million in
1999 and $5.0 million in 1998.
(4) 1998 operating income and net income exclude the $5.9 million
after-tax non-recurring charge discussed in Note D on page 6.
7 <PAGE>
FORM 10-Q
Item 2. Management's Narrative Analysis of Results of Operations
Three months ended March 31, 1999:
Tampa Electric Company's first quarter net income of $34.6
million was 27 percent higher than in 1998's first quarter due to
growth in retail electric energy sales and the impact of a $5.9-
million after-tax charge at the electric division in 1998 discussed in
Note D on page 6. Net income, excluding this non-recurring charge, was
up 5 percent in 1999's first quarter. Lower interest charges in 1999,
the result of lower short-term debt rates and balances, also
contributed to higher net income.
Operating income of $49.5 million was down 4 percent from that of
the same period in 1998 before the non-recurring charge at the
electric division, 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.
Electric division operating results
Operating income for the electric division was $39.5 million
compared with $41.4 million for the same period last year, excluding
the one-time after-tax charge of $5.9 million discussed above. 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
8 <PAGE>
FORM 10-Q
1999, $1.4 million of revenues were deferred in the first quarter for
refund to customers.
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
by the company and 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
9 <PAGE>
FORM 10-Q
to be substantially covered by insurance. The impact on current year
operation and maintenance expenses is estimated to be $1-2 million.
Peoples Gas System operating results
Peoples Gas System reported operating income of $10.0 million for
the quarter compared with $10.4 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
e x pand 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.
Interest Charges
Interest charges for the first quarter of 1999 were 8 percent
lower than in 1998 due to lower short-term debt balances and rates,
and lower interest accrued on deferred revenues.
YEAR 2000 COMPUTER SYSTEMS READINESS:
As discussed in the company's Annual Report on Form 10-K for the
year ended Dec. 31, 1998, the Year 2000 issue exists in two primary
areas of Tampa Electric Company'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
10 <PAGE>
FORM 10-Q
transmission facilities, and gas and electric distribution
facilities).
The company began work on Year 2000 readiness in August 1995. The
company has completed its assessment of all hardware, software and
embedded systems and is currently engaged in renovation, testing and
contingency planning. The company's critical control systems (those
required for uninterrupted operations) are expected to be ready for
the Year 2000 by the middle of 1999.
The critical business systems have been substantially renovated
and tested. Mainframe integrated system testing has begun and is
scheduled to be completed in the first half of 1999.
The company's management believes that its transmission and
distribution systems, including energy management and control and
related embedded systems, are now ready for the Year 2000.
Critical systems have been renovated, with the exception of a
portion of the Peoples Gas control system, which is scheduled to be
fully renovated and tested in the first half of 1999.
As part of its Year 2000 project, the company is coordinating
with its suppliers and customers with respect to their Year 2000
readiness.
At the request of the U. S. Department of Energy (DOE), the North
American Electric Reliability Council (NERC) is conducting monthly
readiness assessment surveys and coordinating information sharing and
contingency planning activities among the member firms. The latest
quarterly report was published in April of 1999.
The total cost of Year 2000 remediation is expected to be $8-9
million, which includes contracted resources, purchases and internal
labor. An estimated breakdown of project costs is as follows: Tampa
11 <PAGE>
FORM 10-Q
Electric - $6 million and Peoples Gas System - $2.5 million. The
company expects to spend approximately $3 million in 1999 for Year
2000 remediation.
The company believes the most reasonably likely worst case
scenario would be the occurrence of isolated outages of limited
duration for utility customers. 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.
The company'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 Tampa Electric Company'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 assumptions 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,
assess, remediate and test all relevant computer codes and embedded
technology and similar uncertainties.
12 <PAGE>
FORM 10-Q
A more detailed discussion of the Year 2000 issue and its impact
on TECO Energy and its subsidiaries, including Tampa Electric Company,
is part of TECO Energy's Form 10-Q for the quarter ended March 31,
1999 (Commission File Number 1-8180).
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
increase in interest rates of 10 percent of the company's weighted
average interest rate on its variable rate debt would not have a
significant impact on the 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 the company's
long-term debt at March 31, 1999.
From time to time, the company 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. The company does not use derivatives or other
financial products for speculative purposes.
Commodity Price Risk
Currently, at Tampa Electric's electric division and at Peoples
Gas System, the 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.
13 <PAGE>
FORM 10-Q
From time to time, Peoples Gas System enters into futures, swaps
and options contracts to limit the effects of natural gas price
increases on the prices it charges customers. 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.
Tampa Electric Company does not use derivatives or other
financial products for speculative purposes.
14 <PAGE>
FORM 10-Q
PART II. OTHER INFORMATION
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 Chief Executive Officer of Tampa Electric
Company effective June 1, 1999.
15 <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.
TAMPA ELECTRIC COMPANY
(Registrant)
Dated: May 14, 1999 By: /s/G. L. Gillette
G. L. Gillette
Vice President - Finance
and Chief Financial Officer
(Principal Financial Officer)
17 <PAGE>
FORM 10-Q
INDEX TO EXHIBITS
Exhibit No. Description of Exhibits Page No.
12 Ratio of earnings to fixed charges 18
27 Financial data schedule - three months ended
March 31, 1999 (EDGAR filing only) --
18 <PAGE>
Exhibit 12
TAMPA ELECTRIC COMPANY
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(2) 1995(2) 1994(2)
4.37x 4.64x(1) 4.51x(3) 4.38x 4.40x 4.28x 3.88x(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 a fourth quarter 1998 $7.3-million pretax
charge at the Electric division associated with a regulatory ruling
denying recovery of coal expenses over an established benchmark for
coal purchases from an affiliate since 1992. 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 4.75x for the 12-month period ended March 31,
1999.
(2) Amounts have been restated to reflect the merger of Peoples Gas
System, Inc., with and into Tampa Electric Company.
(3) Includes the effect of one-time, pretax charges totaling $16.9
million. 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 4.77x for the year ended Dec. 31, 1998.
(4) Includes the effect of a $21.3-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 4.23x for the year ended Dec. 31, 1994.
18<PAGE>
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