10-Q 1 d401803d10q.htm FORM 10-Q Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended Sept. 30, 2012

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 No.

  

Exact name of each registrant as specified in its charter, state of incorporation, address of principal
executive offices, telephone number

  

I.R.S. Employer

Identification Number

1-8180    TECO ENERGY, INC.    59-2052286
   (a Florida corporation)   
   TECO Plaza   
   702 N. Franklin Street   
   Tampa, Florida 33602   
   (813) 228-1111   
1-5007    TAMPA ELECTRIC COMPANY    59-0475140
   (a Florida corporation)   
   TECO Plaza   
   702 N. Franklin Street   
   Tampa, Florida 33602   
   (813) 228-1111   

 

 

Indicate by check mark whether the registrants (1) have 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) have been subject to such filing requirements for the past 90 days.    YES  x    NO  ¨

Indicate by check mark whether the registrants have submitted electronically and posted on their corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrants were required to submit and post such files).    YES  x    NO  ¨

Indicate by check mark whether TECO Energy, Inc. is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨    Smaller reporting company   ¨

Indicate by check mark whether Tampa Electric Company is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x    Smaller reporting company   ¨

Indicate by check mark whether TECO Energy, Inc. is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  x

Indicate by check mark whether Tampa Electric Company is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  x

The number of shares of TECO Energy, Inc.’s common stock outstanding as of October 26, 2012 was 216,584,129. As of October 29, 2012, there were 10 shares of Tampa Electric Company’s common stock issued and outstanding, all of which were held, beneficially and of record, by TECO Energy, Inc.

Tampa Electric Company 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.

This combined Form 10-Q represents separate filings by TECO Energy, Inc. and Tampa Electric Company. Information contained herein relating to an individual registrant is filed by that registrant on its own behalf. Each registrant makes representations only as to information relating to itself and its subsidiaries.

 

 

 

 

Page 1 of 58

Index to Exhibits appears on page 58.


Table of Contents

DEFINITIONS

Acronyms and defined terms used in this and other filings with the U.S. Securities and Exchange Commission include the following:

 

Term

  

Meaning

ABS

   asset-backed security

ADR

   American depository receipt

AFUDC

   allowance for funds used during construction

AFUDC - debt

   debt component of allowance for funds used during construction

AFUDC - equity

   equity component of allowance for funds used during construction

AOCI

   accumulated other comprehensive income

APBO

   accumulated postretirement benefit obligation

ARO

   asset retirement obligation

capacity clause

   capacity cost-recovery clause, as established by the FPSC

CERCLA

   Comprehensive Environmental Response, Compensation and Liability Act of 1980

CGESJ

   Central Generadora Eléctrica San José, Limitada, owner of the San José Power Station in Guatemala

CMO

   collateralized mortgage obligation

CO2

   carbon dioxide

CT

   combustion turbine

DECA II

   Distribución Eléctrica Centro Americana, II, S.A.

DOE

   U.S. Department of Energy

EEGSA

   Empresa Eléctrica de Guatemala, S.A., the largest private distribution company in Central America

EEI

   Edison Electric Institute

EPA

   U.S. Environmental Protection Agency

EPS

   earnings per share

ERISA

   Employee Retirement Income Security Act

EROA

   expected return on plan assets

ERP

   enterprise resource planning

FASB

   Financial Accounting Standards Board

FDEP

   Florida Department of Environmental Protection

FERC

   Federal Energy Regulatory Commission

FGT

   Florida Gas Transmission Company

FPSC

   Florida Public Service Commission

fuel clause

   fuel and purchased power cost-recovery clause, as established by the FPSC

GAAP

   generally accepted accounting principles

GHG

   greenhouse gas(es)

HCIDA

   Hillsborough County Industrial Development Authority

HPP

   Hardee Power Partners

IFRS

   International Financial Reporting Standards

IGCC

   integrated gasification combined-cycle

IOU

   investor owned utility

IRS

   Internal Revenue Service

ISDA

   International Swaps and Derivatives Association

ISO

   independent system operator

ITCs

   investment tax credits

kW

   Kilowatt

kWh

   kilowatt-hour(s)

LIBOR

MAP-21

  

London Interbank Offered Rate

Moving Ahead for Progress in the 21st Century Act

MARN

   Ministry of Environment, Guatemala

MBS

   mortgage-backed securities

MD&A

   Management’s Discussion and Analysis

MMA

   The Medicare Prescription Drug, Improvement and Modernization Act of 2003

MM&A

   Marshall Miller & Associates

 

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MMBTU

   one million British Thermal Units

MRV

   market-related value

MSHA

   Mine Safety and Health Administration

MW

   megawatt(s)

MWH

   megawatt-hour(s)

NAESB

   North American Energy Standards Board

NAV

   net asset value

NERC

   North American Electric Reliability Corporation

NOL

   net operating loss

Note     

   Note      to consolidated financial statements

NOx

   nitrogen oxide

NPNS

   normal purchase normal sale

NYMEX

   New York Mercantile Exchange

O&M expenses

   operations and maintenance expenses

OATT

   open access transmission tariff

OCI

   other comprehensive income

OTC

   over-the-counter

OTTI

   other than temporary impairment

PBGC

   Pension Benefit Guarantee Corporation

PBO

   postretirement benefit obligation

PCI

   pulverized coal injection

PCIDA

   Polk County Industrial Development Authority

PGA

   purchased gas adjustment

PGS

   Peoples Gas System, the gas division of Tampa Electric Company

PPA

   power purchase agreement

PPSA

   Power Plant Siting Act

PRP

   potentially responsible party

PUHCA 2005

   Public Utility Holding Company Act of 2005

REIT

   real estate investment trust

REMIC

   real estate mortgage investment conduit

RFP

   request for proposal

ROE

   return on common equity

Regulatory ROE

   return on common equity as determined for regulatory purposes

RPS

   renewable portfolio standards

RTO

   regional transmission organization

SEC

   U.S. Securities and Exchange Commission

SO2

   sulfur dioxide

SERP

   Supplemental Executive Retirement Plan

SPA

   stock purchase agreement

STIF

   short-term investment fund

TCAE

   Tampa Centro Americana de Electridad, Limitada, majority owner of the Alborada Power Station

Tampa Electric

   Tampa Electric, the electric division of Tampa Electric Company

TEC

   Tampa Electric Company, the principal subsidiary of TECO Energy, Inc.

TECO Diversified

   TECO Diversified, Inc., a subsidiary of TECO Energy, Inc. and parent of TECO Coal Corporation

TECO Coal

   TECO Coal Corporation, a coal producing subsidiary of TECO Diversified

TECO Finance

   TECO Finance, Inc., a financing subsidiary for the unregulated businesses of TECO Energy, Inc.

TEMSA

   Tecnología Marítima, S.A., a provider of dry bulk and coal unloading services located in Guatemala

TRC

   TEC Receivables Company

VIE

   variable interest entity

WRERA

   The Worker, Retiree and Employer Recovery Act of 2008

 

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PART I. FINANCIAL INFORMATION

Item 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

TECO ENERGY, INC.

In the opinion of management, the unaudited consolidated condensed financial statements include all adjustments that are of a recurring nature and necessary to state fairly the financial position of TECO Energy, Inc. and subsidiaries as of Sept. 30, 2012 and Dec. 31, 2011, and the results of operations and cash flows for the periods ended Sept. 30, 2012 and 2011. The results of operations for the three month and nine month periods ended Sept. 30, 2012 are not necessarily indicative of the results that can be expected for the entire fiscal year ending Dec. 31, 2012. References should be made to the explanatory notes affecting the consolidated financial statements contained in TECO Energy, Inc.’s Annual Report on Form 10-K for the year ended Dec. 31, 2011 and to the notes on pages 11 through 29 of this report.

INDEX TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 

     Page
No.
 

Consolidated Condensed Balance Sheets, Sept. 30, 2012 and Dec. 31, 2011

     5-6   

Consolidated Condensed Statements of Income for the three month and nine month periods ended Sept. 30, 2012 and 2011

     7-8   

Consolidated Condensed Statements of Comprehensive Income for the three month and nine month periods ended Sept. 30, 2012 and 2011

     9   

Consolidated Condensed Statements of Cash Flows for the nine month periods ended Sept. 30, 2012 and 2011

     10   

Notes to Consolidated Condensed Financial Statements

     11-29   

All other financial statement schedules have been omitted since they are not required, are inapplicable or the required information is presented in the financial statements or notes thereto.

 

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TECO ENERGY, INC.

Consolidated Condensed Balance Sheets

Unaudited

 

Assets

(millions)

   Sept. 30,
2012
    Dec. 31,
2011
 

Current assets

    

Cash and cash equivalents

   $ 234.6      $ 44.0   

Restricted cash

     8.9        8.7   

Receivables, less allowance for uncollectables of $2.9 and $2.6 at Sept. 30, 2012 and Dec. 31, 2011, respectively

     360.2        327.7   

Inventories, at average cost

    

Fuel

     117.7        136.8   

Materials and supplies

     81.6        87.3   

Derivative assets

     2.0        0.9   

Regulatory assets

     58.8        87.3   

Deferred income taxes

     52.8        72.7   

Prepayments and other current assets

     34.2        31.9   

Income tax receivables

     0.0        0.6   

Assets held for sale

     59.0        0.0   
  

 

 

   

 

 

 

Total current assets

     1,009.8        797.9   
  

 

 

   

 

 

 

Property, plant and equipment

    

Utility plant in service

    

Electric

     6,647.7        6,731.7   

Gas

     1,216.1        1,169.9   

Construction work in progress

     299.3        247.4   

Other property

     445.9        432.3   
  

 

 

   

 

 

 

Property, plant and equipment, at original costs

     8,609.0        8,581.3   

Accumulated depreciation

     (2,673.0     (2,613.5
  

 

 

   

 

 

 

Total property, plant and equipment, net

     5,936.0        5,967.8   
  

 

 

   

 

 

 

Other assets

    

Regulatory assets

     344.7        364.5   

Derivative assets

     1.1        0.0   

Goodwill

     0.0        55.4   

Deferred charges and other assets

     125.3        136.6   

Assets held for sale

     164.3        0.0   
  

 

 

   

 

 

 

Total other assets

     635.4        556.5   
  

 

 

   

 

 

 

Total assets

   $ 7,581.2      $ 7,322.2   
  

 

 

   

 

 

 

The accompanying notes are an integral part of the consolidated condensed financial statements.

 

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TECO ENERGY, INC.

Consolidated Condensed Balance Sheets continued

Unaudited

 

Liabilities and Capital

(millions)

   Sept. 30,
2012
    Dec. 31,
2011
 

Current liabilities

    

Long-term debt due within one year

    

Recourse

   $ 147.1      $ 374.9   

Non-recourse

     0.0        11.2   

Accounts payable

     253.6        252.3   

Customer deposits

     162.1        159.5   

Regulatory liabilities

     102.2        86.2   

Derivative liabilities

     14.3        58.4   

Interest accrued

     62.9        39.3   

Taxes accrued

     78.1        20.7   

Other

     17.6        17.2   

Liabilities associated with assets held for sale

     27.7        0.0   
  

 

 

   

 

 

 

Total current liabilities

     865.6        1,019.7   
  

 

 

   

 

 

 

Other liabilities

    

Deferred income taxes

     241.6        150.8   

Investment tax credits

     9.8        10.0   

Regulatory liabilities

     642.5        619.4   

Derivative liabilities

     1.0        8.6   

Deferred credits and other liabilities

     537.2        559.2   

Liabilities associated with assets held for sale

     6.3        0.0   

Long-term debt, less amount due within one year

    

Recourse

     2,981.0        2,665.0   

Non-recourse

     0.0        22.3   
  

 

 

   

 

 

 

Total other liabilities

     4,419.4        4,035.3   
  

 

 

   

 

 

 

Commitments and Contingencies (see Note 10)

    

Capital

    

Common stock (400.0 million shares authorized par value $1; 216.6 million shares and 215.8 million shares outstanding at Sept. 30, 2012 and Dec. 31, 2011, respectively)

     216.6        215.8   

Additional paid in capital

     1,560.5        1,553.4   

Retained earnings

     544.2        519.4   

Accumulated other comprehensive loss

     (25.1     (22.0
  

 

 

   

 

 

 

TECO Energy capital

     2,296.2        2,266.6   

Noncontrolling interest

     0.0        0.6   
  

 

 

   

 

 

 

Total capital

     2,296.2        2,267.2   
  

 

 

   

 

 

 

Total liabilities and capital

   $ 7,581.2      $ 7,322.2   
  

 

 

   

 

 

 

The accompanying notes are an integral part of the consolidated condensed financial statements.

 

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TECO ENERGY, INC.

Consolidated Condensed Statements of Income

Unaudited

 

      Three months ended Sept. 30,  

(millions, except per share amounts)

   2012     2011  

Revenues

    

Regulated electric and gas (includes franchise fees and gross receipts taxes of $31.0 in 2012 and $28.8 in 2011)

   $ 670.1      $ 685.5   

Unregulated

     188.5        192.3   
  

 

 

   

 

 

 

Total revenues

     858.6        877.8   
  

 

 

   

 

 

 

Expenses

    

Regulated operations & maintenance

    

Fuel

     209.1        226.3   

Purchased power

     25.8        32.1   

Cost of natural gas sold

     40.5        41.5   

Other

     115.4        107.9   

Operation & maintenance other expense

    

Mining related costs

     141.5        149.7   

Other

     1.5        1.8   

Depreciation and amortization

     83.4        80.5   

Taxes, other than income

     58.3        56.7   
  

 

 

   

 

 

 

Total expenses

     675.5        696.5   
  

 

 

   

 

 

 

Income from continuing operations

     183.1        181.3   
  

 

 

   

 

 

 

Other income

    

Allowance for other funds used during construction

     0.7        0.2   

Other income

     2.7        2.3   
  

 

 

   

 

 

 

Total other income

     3.4        2.5   
  

 

 

   

 

 

 

Interest charges

    

Interest expense

     45.0        48.9   

Allowance for borrowed funds used during construction

     (0.4     (0.1
  

 

 

   

 

 

 

Total interest charges

     44.6        48.8   
  

 

 

   

 

 

 

Income from continuing operations before provision for income taxes

     141.9        135.0   

Provision for income taxes

     51.7        48.9   
  

 

 

   

 

 

 

Net income from continuing operations

     90.2        86.1   
  

 

 

   

 

 

 

Discontinued operations

    

Income (loss) from discontinued operations

     (27.4     6.5   

Provision for income taxes

     18.7        2.3   
  

 

 

   

 

 

 

Income (loss) from discontinued operations, net

     (46.1     4.2   

Less: Income from discontinued operations attributable to noncontrolling interest

     0.1        0.1   
  

 

 

   

 

 

 

Income (loss) from discontinued operations attributable to TECO Energy, net

     (46.2     4.1   

Net income attributable to TECO Energy

   $ 44.0      $ 90.2   
  

 

 

   

 

 

 

Average common shares outstanding – Basic

     214.5        213.8   

                                                                 – Diluted

     215.4        215.3   
  

 

 

   

 

 

 

Earnings per share from continuing operations – Basic

   $ 0.42      $ 0.40   

                                                                                   – Diluted

   $ 0.42      $ 0.40   
  

 

 

   

 

 

 

Earnings per share from discontinued operations attributable to TECO Energy – Basic

   $ (0.22   $ 0.02   

                                                                                                                                           – Diluted

   $ (0.22   $ 0.02   
  

 

 

   

 

 

 

Earnings per share attributable to TECO Energy – Basic

   $ 0.20      $ 0.42   

                                                                                       – Diluted

   $ 0.20      $ 0.42   
  

 

 

   

 

 

 

Dividends paid per common share outstanding

   $ 0.220      $ 0.215   
  

 

 

   

 

 

 

The accompanying notes are an integral part of the consolidated condensed financial statements.

 

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TECO ENERGY, INC.

Consolidated Condensed Statements of Income

Unaudited

 

      Nine months ended Sept. 30,  

(millions, except per share amounts)

   2012     2011  

Revenues

    

Regulated electric and gas (includes franchise fees and gross receipts taxes of $85.4 in 2012 and $84.3 in 2011)

   $ 1,826.8      $ 1,929.1   

Unregulated

     481.4        560.7   
  

 

 

   

 

 

 

Total revenues

     2,308.2        2,489.8   
  

 

 

   

 

 

 

Expenses

    

Regulated operations & maintenance

    

Fuel

     534.5        565.4   

Purchased power

     85.2        103.2   

Cost of natural gas sold

     118.5        177.6   

Other

     342.2        331.4   

Operation & maintenance other expense

    

Mining related costs

     358.7        437.2   

Other

     4.4        4.8   

Depreciation and amortization

     246.9        237.8   

Taxes, other than income

     170.8        170.1   
  

 

 

   

 

 

 

Total expenses

     1,861.2        2,027.5   
  

 

 

   

 

 

 

Income from operations

     447.0        462.3   
  

 

 

   

 

 

 

Other income

    

Allowance for other funds used during construction

     1.6        0.8   

Other income

     5.8        4.3   
  

 

 

   

 

 

 

Total other income

     7.4        5.1   
  

 

 

   

 

 

 

Interest charges

    

Interest expense

     141.7        149.2   

Allowance for borrowed funds used during construction

     (0.9     (0.4
  

 

 

   

 

 

 

Total interest charges

     140.8        148.8   
  

 

 

   

 

 

 

Income from continuing operations before provision for income taxes

     313.6        318.6   

Provision for income taxes

     113.2        115.1   
  

 

 

   

 

 

 

Net income from continuing operations

     200.4        203.5   
  

 

 

   

 

 

 

Discontinued operations

    

Income (loss) from discontinued operations

     (7.9     24.7   

Provision for income taxes

     24.6        8.6   
  

 

 

   

 

 

 

Income (loss) from discontinued operations, net

     (32.5     16.1   

Less: Income from discontinued operations attributable to noncontrolling interest

     0.3        0.2   
  

 

 

   

 

 

 

Income (loss) from discontinued operations attributable to TECO Energy, net

     (32.8     15.9   

Net income attributable to TECO Energy

   $ 167.6      $ 219.4   
  

 

 

   

 

 

 

Average common shares outstanding – Basic

     214.2        213.5   

                                                                 – Diluted

     215.3        215.1   
  

 

 

   

 

 

 

Earnings per share from continuing operations – Basic

   $ 0.93      $ 0.95   

                                                                                   – Diluted

   $ 0.93      $ 0.95   
  

 

 

   

 

 

 

Earnings per share from discontinued operations attributable to TECO Energy – Basic

   $ (0.15   $ 0.07   

                                                                                                                                           – Diluted

   $ (0.15   $ 0.07   
  

 

 

   

 

 

 

Earnings per share attributable to TECO Energy – Basic

   $ 0.78      $ 1.02   

                                                                                       – Diluted

   $ 0.78      $ 1.02   
  

 

 

   

 

 

 

Dividends paid per common share outstanding

   $ 0.660      $ 0.635   
  

 

 

   

 

 

 

The accompanying notes are an integral part of the consolidated condensed financial statements.

 

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TECO ENERGY, INC.

Consolidated Condensed Statements of Comprehensive Income

Unaudited

 

     Three months ended Sept. 30,     Nine months ended Sept. 30,  

(millions)

   2012      2011     2012     2011  

Net income attributable to TECO Energy

   $ 44.0       $ 90.2      $ 167.6      $ 219.4   
  

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

         

Net unrealized gains (losses) on cash flow hedges

     1.7         (1.8     (4.2     (0.9

Amortization of unrecognized benefit costs and other

     0.5         0.4        1.1        1.2   
  

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive (loss) income, net of tax

     2.2         (1.4     (3.1     0.3   
  

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to TECO Energy

   $ 46.2       $ 88.8      $ 164.5      $ 219.7   
  

 

 

    

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of the consolidated condensed financial statements.

 

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TECO ENERGY, INC.

Consolidated Condensed Statements of Cash Flows

Unaudited

 

      Nine months ended Sept. 30,  

(millions)

   2012     2011  

Cash flows from operating activities

    

Net income attributable to TECO Energy

   $ 167.6      $ 219.4   

Adjustments to reconcile net income to net cash from operating activities:

    

Depreciation and amortization

     253.2        243.4   

Deferred income taxes

     115.2        117.5   

Investment tax credits

     (0.3     (0.3

Allowance for funds used during construction

     (1.6     (0.8

Non-cash stock compensation

     8.5        6.6   

Loss (gain) on sale of business/assets, pretax

     14.5        (0.5

Asset impairment, pretax

     17.4        0.0   

Deferred recovery clauses

     (3.7     3.6   

Receivables, less allowance for uncollectibles

     (47.3     (9.4

Inventories

     7.9        39.7   

Prepayments and other current assets

     (3.1     (4.4

Taxes accrued

     58.7        35.2   

Interest accrued

     23.6        23.2   

Accounts payable

     22.0        (26.9

Other

     (25.0     25.3   
  

 

 

   

 

 

 

Cash flows from operating activities

     607.6        671.6   
  

 

 

   

 

 

 

Cash flows from investing activities

    

Capital expenditures

     (355.2     (298.3

Allowance for funds used during construction

     1.6        0.8   

Net proceeds from sale of business/assets

     7.4        3.4   

Other investing activities

     0.0        14.4   
  

 

 

   

 

 

 

Cash flows used in investing activities

     (346.2     (279.7
  

 

 

   

 

 

 

Cash flows from financing activities

    

Dividends

     (142.8     (136.8

Proceeds from the sale of common stock

     3.2        6.6   

Proceeds from long-term debt issuance

     538.3        0.0   

Repayment of long-term debt/Purchase in lieu of redemption

     (469.2     (150.8

Dividend to noncontrolling interest

     (0.3     (0.6

Net decrease in short-term debt

     0.0        (12.0
  

 

 

   

 

 

 

Cash flows used in financing activities

     (70.8     (293.6
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     190.6        98.3   

Cash and cash equivalents at beginning of period

     44.0        67.5   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 234.6      $ 165.8   
  

 

 

   

 

 

 

The accompanying notes are an integral part of the consolidated condensed financial statements.

 

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TECO ENERGY, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

UNAUDITED

1. Summary of Significant Accounting Policies

See the company’s 2011 Annual Report on Form 10-K for a complete detailed discussion of accounting policies. The significant accounting policies for both utility and diversified operations include:

Principles of Consolidation and Basis of Presentation

The consolidated condensed financial statements include the accounts of TECO Energy, Inc., its majority-owned and controlled subsidiaries and the accounts of VIEs for which it is the primary beneficiary (TECO Energy or the company). TECO Energy is considered to be the primary beneficiary of VIEs if it has both 1) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and 2) the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. For the periods presented, no VIEs have been consolidated (see Note 14).

All significant intercompany balances and intercompany transactions have been eliminated in consolidation. Generally, the equity method of accounting is used to account for investments in partnerships or other arrangements in which TECO Energy is not the primary beneficiary, but is able to exert significant influence. In the opinion of management, the unaudited consolidated condensed financial statements include all adjustments that are of a recurring nature and necessary to state fairly the financial position of TECO Energy, Inc. and its subsidiaries as of Sept. 30, 2012 and Dec. 31, 2011, and the results of operations and cash flows for the periods ended Sept. 30, 2012 and 2011. The results of operations for the three and nine months ended Sept. 30, 2012 are not necessarily indicative of the results that can be expected for the entire fiscal year ending Dec. 31, 2012.

The use of estimates is inherent in the preparation of financial statements in accordance with U.S. GAAP. Actual results could differ from these estimates. The year-end consolidated condensed balance sheet data was derived from audited financial statements, however, this quarterly report on Form 10-Q does not include all year-end disclosures required for an annual report on Form 10-K by U.S. GAAP.

Revenues

As of Sept. 30, 2012 and Dec. 31, 2011, unbilled revenues of $52.6 million and $50.2 million, respectively, are included in the “Receivables” line item on the Consolidated Condensed Balance Sheets.

Accounting for Excise Taxes, Franchise Fees and Gross Receipts

TECO Coal incurs most of TECO Energy’s total excise taxes, which are accrued as an expense and reconciled to the actual cash payment of excise taxes. As general expenses, they are not specifically recovered through revenues. Excise taxes paid by the regulated utilities are not material and are expensed when incurred.

The regulated utilities are allowed to recover certain costs on a dollar-per-dollar basis incurred from customers through prices approved by the FPSC. The amounts included in customers’ bills for franchise fees and gross receipt taxes are included as revenues on the Consolidated Condensed Statements of Income. Franchise fees and gross receipt taxes payable by the regulated utilities are included as an expense on the Consolidated Condensed Statements of Income in “Taxes, other than income”. These amounts totaled $31.0 million and $85.4 million, respectively, for the three and nine months ended Sept. 30, 2012, compared to $28.8 million and $84.3 million, respectively, for the three and nine months ended Sept. 30, 2011.

Cash Flows Related to Derivatives and Hedging Activities

The company classifies cash inflows and outflows related to derivative and hedging instruments in the appropriate cash flow sections associated with the item being hedged. In the case of diesel fuel swaps, which are used to mitigate the fluctuations in the price of diesel fuel, the cash inflows and outflows are included in the operating section. For natural gas and ongoing interest rate swaps, the cash inflows and outflows are included in the operating section. For interest rate swaps that settle coincident with the debt issuance, the cash inflows and outflows are treated as premiums or discounts and included in the financing section of the Consolidated Condensed Statements of Cash Flows.

Reclassifications

Certain reclassifications were made to prior year amounts to conform to current period presentation. None of the reclassifications affected TECO Energy’s net income in any period.

2. New Accounting Pronouncements

Intangibles – Goodwill and Other

In July 2012, the FASB issued guidance that allows companies to perform a qualitative analysis as the first step in determining whether it is more likely than not that an indefinite-lived intangible asset is impaired. If it is determined that it is not more likely than not that the asset is impaired, then no further analysis is required. The guidance is effective for interim and annual impairment tests for fiscal years beginning after Sept. 15, 2012. Early adoption is permitted. The company has adopted this guidance early and it has had no effect on the company’s results of operations, financial position or cash flows.

 

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Offsetting Assets and Liabilities

In December 2011, the FASB issued guidance enhancing disclosures of financial instruments and derivative instruments that are offset in the statement of financial position or subject to enforceable master netting agreements. The guidance is effective for interim and annual reporting periods beginning on or after Jan. 1, 2013. The company will adopt this guidance as required. It will have no effect on the company’s results of operations, financial position or cash flows.

3. Regulatory

Tampa Electric’s and PGS’s businesses are regulated by the FPSC. Tampa Electric also is subject to regulation by the FERC under the PUHCA 2005. However, pursuant to a waiver granted in accordance with the FERC’s regulations, TECO Energy is not subject to certain accounting, record-keeping and reporting requirements prescribed by the FERC’s regulations under the PUHCA 2005. The operations of PGS are regulated by the FPSC separately from the operations of Tampa Electric. The FPSC has jurisdiction over rates, service, issuance of securities, safety, accounting and depreciation practices and other matters. In general, the FPSC sets rates at a level that allows utilities such as Tampa Electric and PGS to collect total revenues (revenue requirements) equal to their cost of providing service, plus a reasonable return on invested capital.

Storm Damage Cost Recovery

Tampa Electric accrues $8.0 million annually to a FERC-authorized and FPSC-approved self-insured storm damage reserve. This reserve was created after Florida’s IOUs were unable to obtain transmission and distribution insurance coverage due to destructive acts of nature. Tampa Electric’s storm reserve was $48.4 million and $43.6 million as of Sept. 30, 2012 and Dec. 31, 2011, respectively.

Wholesale and Transmission Rate Cases

In July 2012, the FERC approved the uncontested settlement that Tampa Electric filed with its customers in its wholesale requirements rate case earlier this year. The approved settlement took effect in August and Tampa Electric refunded its wholesale requirements’ customers the appropriate amounts under the terms of the settlement. On Oct. 5, 2012, Tampa Electric received FERC approval for its uncontested transmission rate case settlement, which was filed with FERC earlier this year. The wholesale requirements and transmission rate case settlements’ rates will not have a material impact on Tampa Electric’s results.

Regulatory Assets and Liabilities

Tampa Electric and PGS maintain their accounts in accordance with recognized policies of the FPSC. In addition, Tampa Electric maintains its accounts in accordance with recognized policies prescribed or permitted by the FERC.

Tampa Electric and PGS apply the accounting standards for regulated operations. 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 decreases in fuel, purchased power, conservation and environmental costs; and the deferral of costs as regulatory assets to the period that the regulatory agency recognizes them when cost recovery is ordered over a period longer than a fiscal year.

 

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Details of the regulatory assets and liabilities as of Sept. 30, 2012 and Dec. 31, 2011 are presented in the following table:

 

Regulatory Assets and Liabilities

             

(millions)

   Sept. 30,
2012
     Dec. 31,
2011
 

Regulatory assets:

     

Regulatory tax asset (1)

   $ 62.1       $ 63.6   
  

 

 

    

 

 

 

Other:

     

Cost-recovery clauses

     32.3         73.3   

Postretirement benefit asset

     241.6         252.4   

Deferred bond refinancing costs (2)

     8.5         11.1   

Environmental remediation

     37.8         30.5   

Competitive rate adjustment

     3.5         3.5   

Other

     17.7         17.4   
  

 

 

    

 

 

 

Total other regulatory assets

     341.4         388.2   
  

 

 

    

 

 

 

Total regulatory assets

     403.5         451.8   

Less: Current portion

     58.8         87.3   
  

 

 

    

 

 

 

Long-term regulatory assets

   $ 344.7       $ 364.5   
  

 

 

    

 

 

 

Regulatory liabilities:

     

Regulatory tax liability (1)

   $ 14.9       $ 16.0   
  

 

 

    

 

 

 

Other:

     

Cost-recovery clauses

     70.6         61.4   

Transmission and delivery storm reserve

     48.4         43.6   

Deferred gain on property sales (3)

     3.7         5.0   

Provision for stipulation and other

     1.0         0.8   

Accumulated reserve - cost of removal

     606.1         578.8   
  

 

 

    

 

 

 

Total other regulatory liabilities

     729.8         689.6   
  

 

 

    

 

 

 

Total regulatory liabilities

     744.7         705.6   

Less: Current portion

     102.2         86.2   
  

 

 

    

 

 

 

Long-term regulatory liabilities

   $ 642.5       $ 619.4   
  

 

 

    

 

 

 

 

(1) Primarily related to plant life and derivative positions.
(2) Amortized over the term of the related debt instruments.
(3) Amortized over a 5-year period with various ending dates.

All regulatory assets are being recovered through the regulatory process. The following table further details the regulatory assets and the related recovery periods:

 

Regulatory Assets

             

(millions)

   Sept. 30,
2012
     Dec 31,
2011
 

Clause recoverable (1)

   $ 35.8       $ 76.8   

Components of rate base (2)

     255.4         264.9   

Regulatory tax assets (3)

     62.1         63.6   

Capital structure and other (3)

     50.2         46.5   
  

 

 

    

 

 

 

Total

   $ 403.5       $ 451.8   
  

 

 

    

 

 

 

 

(1) To be recovered through cost-recovery clauses approved by the FPSC on a dollar-for-dollar basis in the next year.
(2) Primarily reflects allowed working capital, which is included in rate base and earns a rate of return as permitted by the FPSC.
(3) “Regulatory tax assets” and “Capital structure and other” regulatory assets have a recoverable period longer than a fiscal year and are recognized over the period authorized by the regulatory agency. Also included are unamortized loan costs, which are amortized over the life of the related debt instruments. See footnotes 1 and 2 in the prior table for additional information.

 

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4. Income Taxes

The company’s U.S. subsidiaries join in the filing of a U.S. federal consolidated income tax return. The IRS concluded its examination of the company’s 2010 consolidated federal income tax return during 2011. The U.S. federal statute of limitations remains open for years 2009 and onward. Years 2011 and 2012 are currently being examined by the IRS under its Compliance Assurance Program. TECO Energy does not expect the settlement of current IRS examinations to significantly change the total amount of unrecognized tax benefits in the next twelve months. U.S. state jurisdictions have statutes of limitations generally ranging from three to four years from the filing of an income tax return. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. Years still open to examination by tax authorities in major state jurisdictions include 2008 and forward.

The company recognizes interest and penalties associated with uncertain tax positions in “Operation & maintenance other expense-Other” on the Consolidated Condensed Statements of Income in accordance with standards for accounting for uncertainty in income taxes. For the nine months ended Sept. 30, 2012 and Sept. 30, 2011, the company recorded $0.1 million and $0.1 million of interest charges respectively. No amounts were recorded in continuing operations for penalties for the nine months ended Sept. 30, 2012 or Sept. 30, 2011.

During the three months ended Sept. 30, 2012, the company incurred an after tax charge of $22.6 million for foreign tax credits associated with its Guatemalan operations being reclassified as an asset held for sale. See Note 15 for more information.

The effective tax rate for continuing operations decreased to 36.09% for the nine months ended Sept. 30, 2012 from 36.13% for the same period in 2011.

5. Employee Postretirement Benefits

Included in the table below is the periodic expense for pension and other postretirement benefits offered by the company.

 

Pension Expense

                         
(millions)    Pension Benefits     Other Postretirement Benefits  

Three months ended Sept. 30,

   2012     2011     2012      2011  

Components of net periodic benefit expense

         

Service cost

   $ 4.3      $ 4.0      $ 0.6       $ 0.5   

Interest cost on projected benefit obligations

     7.5        7.7        2.5         2.8   

Expected return on assets

     (9.3     (9.6     0.0         0.0   

Amortization of:

         

Transition obligation

     0.0        0.0        0.4         0.5   

Prior service (benefit) cost

     (0.1     (0.1     0.2         0.2   

Actuarial loss

     3.9        2.8        0.1         0.1   
  

 

 

   

 

 

   

 

 

    

 

 

 

Net pension expense recognized in the TECO Energy Consolidated Condensed Statements of Income

   $ 6.3      $ 4.8      $ 3.8       $ 4.1   
  

 

 

   

 

 

   

 

 

    

 

 

 

Nine months ended Sept. 30,

                         

Components of net periodic benefit expense

         

Service cost

   $ 12.8      $ 12.0      $ 1.8       $ 1.6   

Interest cost on projected benefit obligations

     22.5        23.2        7.6         8.3   

Expected return on assets

     (27.8     (28.8     0.0         0.0   

Amortization of:

         

Transition obligation

     0.0        0.0        1.3         1.7   

Prior service (benefit) cost

     (0.3     (0.3     0.6         0.6   

Actuarial loss

     11.5        8.4        0.1         0.1   
  

 

 

   

 

 

   

 

 

    

 

 

 

Net pension expense recognized in the TECO Energy Consolidated Condensed Statements of Income

   $ 18.7      $ 14.5      $ 11.4       $ 12.3   
  

 

 

   

 

 

   

 

 

    

 

 

 

For the fiscal 2012 plan year, TECO Energy assumed a long-term EROA of 7.50% and a discount rate of 4.797% for its pension benefits under its qualified pension plan, and a discount rate of 4.744% for its other postretirement benefits as of their Jan. 1, 2012 measurement dates. Additionally, TECO Energy made contributions of $27.8 million to its pension plan for the nine months ended Sept. 30, 2012.

 

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For the three and nine months ended Sept. 30, 2012, TECO Energy and its subsidiaries reclassed $0.8 million and $2.3 million, respectively, of unamortized transition obligation, prior service cost and actuarial losses from AOCI to net income as part of periodic benefit expense. In addition, during the three and nine months ended Sept. 30, 2012, TEC reclassed $3.6 million and $10.9 million, respectively, of unamortized transition obligation, prior service cost and actuarial losses from regulatory assets to net income as part of periodic benefit expense.

In July 2012, the President signed into law the MAP-21. MAP-21 provides funding relief for pension plan sponsors by stabilizing discount rates used in calculating the required minimum pension contributions and increasing PBGC premium rates to be paid by plan sponsors. The company is currently evaluating the impact MAP-21 will have on its pension contributions and on future PBGC premiums, and expects the required minimum pension contributions to be lower than the levels previously projected.

6. Short-Term Debt

At Sept. 30, 2012 and Dec. 31, 2011, the following credit facilities and related borrowings existed:

 

Credit Facilities

                                         
     Sept. 30, 2012      Dec. 31, 2011  

(millions)

   Credit
Facilities
     Borrowings
Outstanding  (1)
     Letters
of Credit
Outstanding
     Credit
Facilities
     Borrowings
Outstanding  (1)
     Letters
of Credit
Outstanding
 

Tampa Electric Company:

                 

5-year facility (2)

   $ 325.0       $ 0.0       $ 0.7       $ 325.0       $ 0.0       $ 0.7   

1-year accounts receivable facility

     150.0         0.0         0.0         150.0         0.0         0.0   

TECO Energy/TECO Finance:

                 

5-year facility (2)(3)

     200.0         0.0         0.0         200.0         0.0         0.0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 675.0       $ 0.0       $ 0.7       $ 675.0       $ 0.0       $ 0.7   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Borrowings outstanding are reported as notes payable.
(2) This 5-year facility matures Oct. 25, 2016.
(3) TECO Finance is the borrower and TECO Energy is the guarantor of this facility.

At Sept. 30, 2012, these credit facilities require commitment fees ranging from 12.5 to 30.0 basis points. There were no outstanding borrowings at Sept. 30, 2012 or Dec. 31, 2011.

Tampa Electric Company Accounts Receivable Facility

On Feb. 17, 2012, TEC and TRC amended their $150 million accounts receivable collateralized borrowing facility, entering into Amendment No. 10 to the Loan and Servicing Agreement with certain lenders named therein and Citibank, N.A. as Program Agent. The amendment (i) extends the maturity date to Feb. 15, 2013, (ii) provides that TRC will pay program and liquidity fees, which will total 60 basis points, (iii) continues to provide that the interest rates on the borrowings will be based on prevailing asset-backed commercial paper rates, unless such rates are not available from conduit lenders, in which case the rates will be at an interest rate equal to, at TEC’s option, either Citibank’s prime rate (or the federal funds rate plus 50 basis points, if higher) or a rate based on the LIBOR (if available) plus a margin and (iv) makes other technical changes.

7. Long-Term Debt

Issuance of Tampa Electric Company 2.60% Notes due 2022

On Sept. 28, 2012, TEC completed an offering of $250 million aggregate principal amount of 2.60% Notes due 2022 (the Notes). The Notes were sold at 99.878% of par. The offering resulted in net proceeds to TEC (after deducting underwriting discounts and commissions and estimated offering expenses) of approximately $247.7 million. Net proceeds were used to repay the Hillsborough County Industrial Development Authority Pollution Control Revenue Refunding Bonds, Series 2002 (consisting of 5.10% bonds due 2013 and 5.50% bonds due 2023). The remaining net proceeds will be used to repay short-term debt and for general corporate purposes. See Note 17 for more information. At any time prior to June 15, 2022, TEC may redeem all or any part of the Notes at its option at a redemption price equal to the greater of (i) 100% of the principal amount of Notes to be redeemed or (ii) the sum of the present values of the remaining payments of principal and interest on the Notes to be redeemed, discounted to the redemption date on a semiannual basis at an applicable treasury rate, plus 15 basis points; in either case, the redemption price would include accrued and unpaid interest to the redemption date. At any time on or after June 15, 2022, TEC may at its option redeem the Notes, in whole or in part, at 100% of the principal amount of the Notes being redeemed plus accrued and unpaid interest thereon to but excluding the date of redemption.

 

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Table of Contents

Issuance of Tampa Electric Company 4.10% Notes due 2042

On June 5, 2012, TEC completed an offering of $300 million aggregate principal amount of 4.10% Notes due 2042 (the Notes). The Notes were sold at 99.724% of par. The offering resulted in net proceeds to TEC (after deducting underwriting discounts, commissions, and estimated offering expenses and before settlement of interest rate swaps) of approximately $296.2 million. Net proceeds were used to repay maturing long-term debt, to repay short-term debt and for general corporate purposes. At any time prior to Dec. 15, 2041, TEC may redeem all or any part of the Notes at its option and from time to time at a redemption price equal to the greater of (i) 100% of the principal amount of Notes to be redeemed or (ii) the sum of the present value of the remaining payments of principal and interest on the Notes to be redeemed, discounted at an applicable treasury rate, plus 25 basis points; in either case, the redemption price would include accrued and unpaid interest to the redemption date. At any time on or after Dec. 15, 2041, TEC may at its option redeem the Notes, in whole or in part, at 100% of the principal amount of the Notes being redeemed plus accrued and unpaid interest thereon to but excluding the date of redemption.

Purchase in Lieu of Redemption of Hillsborough County Industrial Development Authority Pollution Control Revenue Refunding Bonds, Series 2006 (Non-AMT) and Polk County Industrial Development Authority Solid Waste Disposal Facility Revenue Refunding Bonds, Series 2010

On March 15, 2012, TEC purchased in lieu of redemption $86 million HCIDA Pollution Control Revenue Refunding Bonds, Series 2006 (Non-AMT) (the HCIDA Bonds). On March 19, 2008, the HCIDA remarketed the HCIDA Bonds in a term-rate mode pursuant to the terms of the Loan and Trust Agreement governing those bonds. The HCIDA Bonds bore interest at a term rate of 5.00% per annum from March 19, 2008 to March 15, 2012. TEC is responsible for payment of the interest and principal associated with the HCIDA Bonds. Regularly scheduled principal and interest when due are insured by Ambac Assurance Corporation.

On March 1, 2011, TEC purchased in lieu of redemption $75 million PCIDA Solid Waste Disposal Facility Revenue Refunding Bonds, Series 2010 (the PCIDA Bonds). On Nov. 23, 2010, the PCIDA issued the PCIDA Bonds in a term-rate mode pursuant to the terms of the Loan and Trust Agreement governing those bonds. Proceeds of the PCIDA Bonds were used to redeem $75 million PCIDA Solid Waste Disposal Facility Revenue Refunding Bonds, Series 2007, which previously were in auction rate mode and were held by TEC since March 26, 2008. The PCIDA Bonds bore interest at the initial term rate of 1.50% per annum from Nov. 23, 2010 to March 1, 2011.

On March 26, 2008, TEC purchased in lieu of redemption $20 million HCIDA Pollution Control Revenue Refunding Bonds, Series 2007C. $181 million in bonds purchased in lieu of redemption were held by the trustee at the direction of TEC as of Sept. 30, 2012 (the “Held Bonds”) to provide an opportunity to evaluate refinancing alternatives. The Held Bonds effectively offset the outstanding debt balances and are presented net on the balance sheet.

Fair Value of Long-Term Debt

At Sept. 30, 2012, total long-term debt had a carrying amount of $3,128.1 million and an estimated fair market value of $3,612.5 million. Additionally, there is outstanding long-term debt that is classified in current liabilities associated with assets held for sale with a carrying value and fair value of $25.1 million at Sept. 30, 2012. At Dec. 31, 2011, total long-term debt had a carrying amount of $3,075.8 million and an estimated fair market value of $3,435.3 million. The company uses the market approach in determining fair value. The majority of the outstanding debt is valued using real-time financial market data obtained from Bloomberg Professional Service. The remaining securities are valued using prices obtained from the Municipal Securities Rulemaking Board and by applying estimated credit spreads obtained from a third party to the par value of the security. All debt securities are level 2 instruments.

 

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8. Other Comprehensive Income

TECO Energy reported the following OCI for the three and nine months ended Sept. 30, 2012 and 2011, related to changes in the fair value of cash flow hedges and amortization of unrecognized benefit costs associated with the company’s postretirement plans:

 

Other Comprehensive Income

                                    
     Three months ended Sept. 30,     Nine months ended Sept. 30,  

(millions)

   Gross     Tax     Net     Gross     Tax     Net  

2012

            

Unrealized gain (loss) on cash flow hedges

   $ 2.5      ($ 0.9   $ 1.6      ($ 7.2   $ 2.7      ($ 4.5

Reclassification from AOCI to net income

     0.2        (0.1     0.1        0.5        (0.2     0.3   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gain (Loss) on cash flow hedges

     2.7        (1.0     1.7        (6.7     2.5        (4.2

Amortization of unrecognized benefit costs and other

     0.8        (0.3     0.5        2.3        (1.2     1.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

   $ 3.5      ($ 1.3   $ 2.2      ($ 4.4   $ 1.3      ($ 3.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

2011

            

Unrealized (loss) gain on cash flow hedges

   ($ 2.1   $ 0.8      ($ 1.3   $ 0.8      ($ 0.3   $ 0.5   

Reclassification from AOCI to net income

     (0.8     0.3        (0.5     (2.3     0.9        (1.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss on cash flow hedges

     (2.9     1.1        (1.8     (1.5     0.6        (0.9

Amortization of unrecognized benefit costs and other

     0.7        (0.3     0.4        1.9        (0.7     1.2   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive (loss) income

   ($ 2.2   $ 0.8      ($ 1.4   $ 0.4      ($ 0.1   $ 0.3   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Accumulated Other Comprehensive Loss

            

(millions)

   Sept. 30, 2012     Dec. 31, 2011  

Unrecognized pension losses and prior service credits (1)

   ($ 30.2   ($ 31.2

Unrecognized other benefit gains, prior service costs and transition obligations (2)

     14.3        14.2   

Net unrealized losses from cash flow hedges (3)

     (9.2     (5.0
  

 

 

   

 

 

 

Total accumulated other comprehensive loss

   ($ 25.1   ($ 22.0
  

 

 

   

 

 

 

 

(1) Net of tax benefit of $18.5 million and $19.6 million as of Sept. 30, 2012 and Dec. 31, 2011, respectively.
(2) Net of tax expense of $6.2 million and $6.2 million as of Sept. 30, 2012 and Dec. 31, 2011, respectively.
(3) Net of tax benefit of $5.8 million and $3.2 million as of Sept. 30, 2012 and Dec. 31, 2011, respectively.

 

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9. Earnings Per Share

 

     Three months ended Sept. 30,     Nine months ended Sept. 30,  

(millions, except per share amounts)

   2012     2011 (1)     2012     2011 (1)  

Basic earnings per share

        

Net income from continuing operations

   $ 90.2      $ 86.1      $ 200.4      $ 203.5   

Amount allocated to nonvested participating shareholders

     (0.3     (0.5     (0.7     (1.1
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before discontinued operations available to common shareholders - Basic

   $ 89.9      $ 85.6      $ 199.7      $ 202.4   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from discontinued operations attributable to TECO Energy, net

   ($ 46.2   $ 4.1      ($ 32.8   $ 15.9   

Amount allocated to nonvested participating shareholders

     0.1        0.0        0.1        (0.1
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from discontinued operations attributable to TECO Energy available to common shareholders - Basic

   ($ 46.1   $ 4.1      ($ 32.7   $ 15.8   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to TECO Energy

   $ 44.0      $ 90.2      $ 167.6      $ 219.4   

Amount allocated to nonvested participating shareholders

     (0.2     (0.5     (0.6     (1.2
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to TECO Energy available to common shareholders - Basic

   $ 43.8      $ 89.7      $ 167.0      $ 218.2   
  

 

 

   

 

 

   

 

 

   

 

 

 

Average common shares outstanding - Basic

     214.5        213.8        214.2        213.5   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share from continuing operations available to common shareholders - Basic

   $ 0.42      $ 0.40      $ 0.93      $ 0.95   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share from discontinued operations attributable to TECO Energy available to common shareholders - Basic

   ($ 0.22   $ 0.02      ($ 0.15   $ 0.07   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share attributable to TECO Energy available to common shareholders - Basic

   $ 0.20      $ 0.42      $ 0.78      $ 1.02   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings per share

        

Net income from continuing operations

   $ 90.2      $ 86.1      $ 200.4      $ 203.5   

Amount allocated to nonvested participating shareholders

     (0.3     (0.5     (0.7     (1.1
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before discontinued operations available to common shareholders - Diluted

   $ 89.9      $ 85.6      $ 199.7      $ 202.4   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from discontinued operations attributable to TECO Energy, net

   ($ 46.2   $ 4.1      ($ 32.8   $ 15.9   

Amount allocated to nonvested participating shareholders

     0.1        0.0        0.1        (0.1
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from discontinued operations attributable to TECO Energy available to common shareholders - Diluted

   ($ 46.1   $ 4.1      ($ 32.7   $ 15.8   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to TECO Energy

   $ 44.0      $ 90.2      $ 167.6      $ 219.4   

Amount allocated to nonvested participating shareholders

     (0.2     (0.5     (0.6     (1.2
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to TECO Energy available to common shareholders - Diluted

   $ 43.8      $ 89.7      $ 167.0      $ 218.2   
  

 

 

   

 

 

   

 

 

   

 

 

 

Unadjusted average common shares outstanding - Diluted

     214.5        213.8        214.2        213.5   

Assumed conversion of stock options, unvested restricted stock and contingent performance shares, net

     0.9        1.5        1.1        1.6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Average common shares outstanding - Diluted

     215.4        215.3        215.3        215.1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share from continuing operations available to common shareholders - Diluted

   $ 0.42      $ 0.40      $ 0.93      $ 0.95   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share from discontinued operations attributable to TECO Energy available to common shareholders - Diluted

   ($ 0.22   $ 0.02      ($ 0.15   $ 0.07   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share attributable to TECO Energy available to common shareholders - Diluted

   $ 0.20      $ 0.42      $ 0.78      $ 1.02   
  

 

 

   

 

 

   

 

 

   

 

 

 

Anti-dilutive shares

     0.0        1.4        0.6        1.8   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) All prior periods presented reflect the classification of TECO Guatemala as discontinued operations (see Note 15).

 

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10. Commitments and Contingencies

Legal Contingencies

From time to time, TECO Energy and its subsidiaries are involved in various legal, tax and regulatory proceedings before various courts, regulatory commissions and governmental agencies in the ordinary course of its business. Where appropriate, accruals are made in accordance with accounting standards for contingencies to provide for matters that are probable of resulting in an estimable loss. While the outcome of such proceedings is uncertain, management does not believe that their ultimate resolution will have a material adverse effect on the company’s results of operations, financial condition or cash flows.

Superfund and Former Manufactured Gas Plant Sites

TEC, through its Tampa Electric and Peoples Gas divisions, is a PRP for certain superfund sites and, through its Peoples Gas 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, as of Sept. 30, 2012, TEC has estimated its ultimate financial liability to be $28.4 million, primarily at PGS. This amount has been accrued and is primarily reflected in the long-term liability section under “Other” on the Consolidated Condensed Balance Sheets. The environmental remediation costs associated with these sites, which are expected to be paid over many years, are not expected to have a significant impact on customer prices.

The estimated amounts represent only the portion of the cleanup costs attributable to TEC. The estimates to perform the work are based on TEC’s experience with similar work, adjusted for site-specific conditions and agreements with the respective governmental agencies. The estimates are made in current dollars, are not discounted and do not assume any insurance recoveries.

In instances where other PRPs are involved, many of those PRPs are creditworthy and are likely to continue to be creditworthy for the duration of the remediation work. However, in those instances that they are not, TEC could be liable for more than TEC’s actual percentage of the remediation costs.

Factors that could impact these estimates include the ability of other PRPs to pay their pro-rata portion of the cleanup costs, additional testing and investigation which could expand the scope of the cleanup activities, additional liability that might arise from the cleanup activities themselves or changes in laws or regulations that could require additional remediation. These costs are recoverable through customer rates established in subsequent base rate proceedings.

Potentially Responsible Party Notification

In October 2010, the EPA notified TEC that it is a PRP under the CERCLA for the proposed conduct of a contaminated soil removal action, if necessary, at a property owned by TEC in Tampa, Florida. The property owned by TEC is undeveloped except for the location of transmission lines and poles, and is adjacent to an industrial site, not owned by TEC, which the EPA has studied since 1992 or earlier. The EPA has asserted this potential liability due to TEC’s ownership of the property described above but, to the knowledge of TEC, this assertion is not based upon any release of hazardous substances by TEC. TEC has been in contact with the EPA to resolve this matter, and on July 10, 2012, TEC received an Enforcement Action Memorandum from the EPA, outlining the remediation actions the EPA is requiring at the site. The estimated costs to remediate the site are not expected to be material to the financial results or financial position of TEC or TECO Energy. TEC expects the remediation to be substantially completed in the fourth quarter of 2012.

Environmental Protection Agency Administrative Order

In December 2010, Clintwood Elkhorn Mining Company, a subsidiary of TECO Coal, received an Administrative Order from the EPA relating to the discharge of wastewater associated with inactive mining operations in Pike County, Kentucky. TECO Coal responded to the EPA in February 2011, and has been in contact with the EPA to resolve this matter. The company is unable to estimate the possible loss or range of loss with respect to this matter due to the uncertainty regarding the scope and extent of TECO Coal’s potential liability, if any, and the costs of any required investigation and remediation related to these inactive mining operations.

 

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Table of Contents

Guarantees and Letters of Credit

A summary of the face amount or maximum theoretical obligation under TECO Energy’s and TEC’s letters of credit and guarantees as of Sept. 30, 2012 is as follows:

 

Guarantees - TECO Energy

                                  

(millions)

Guarantees for the Benefit of:

   2012      2013-2016      After (1)
2016
     Total      Liabilities Recognized
at Sept. 30, 2012
 

TECO Coal

              

Fuel purchase related (2)

   $ 0.0       $ 0.0       $ 5.4       $ 5.4       $ 1.6   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other subsidiaries

              

Fuel purchase/energy management (2)

     0.0         10.0         95.3         105.3         0.8   

Guaranty under sale agreement (3)

     0.0         4.8         0.0         4.8         4.8   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 0.0       $ 14.8       $ 100.7       $ 115.5       $ 7.2   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Letters of Credit - Tampa Electric Company

                                  

(millions)

Letters of Credit for the Benefit of:

   2012      2013-2016      After (1)
2016
     Total      Liabilities Recognized
at Sept. 30, 2012
 

Tampa Electric (2)

   $ 0.0       $ 0.0       $ 0.7       $ 0.7       $ 0.2   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) These letters of credit and guarantees renew annually and are shown on the basis that they will continue to renew beyond 2016.
(2) The amounts shown are the maximum theoretical amounts guaranteed under current agreements. Liabilities recognized represent the associated obligation of TECO Energy under these agreements at Sept. 30, 2012. The obligations under these letters of credit and guarantees include net accounts payable and net derivative liabilities.
(3) The liability recognized relates to an indemnification provision for an uncertain tax position at TCAE that was provided for in the purchase agreement. See Note 15 for additional information.

Financial Covenants

In order to utilize their respective bank facilities, TECO Energy and its subsidiaries must meet certain financial tests as defined in the applicable agreements. In addition, TECO Energy, TECO Finance, TEC and the other operating companies have certain restrictive covenants in specific agreements and debt instruments. At Sept. 30, 2012, TECO Energy, TECO Finance, TEC and the other operating companies were in compliance with all applicable financial covenants.

11. Segment Information

TECO Energy is an electric and gas utility holding company with significant diversified activities. Segments are determined based on how management evaluates, measures and makes decisions with respect to the operations of the entity. The management of TECO Energy reports segments based on each subsidiary’s contribution of revenues, net income and total assets as required by the accounting guidance for disclosures about segments of an enterprise and related information. All significant intercompany transactions are eliminated in the Consolidated Condensed Financial Statements of TECO Energy, but are included in determining reportable segments.

 

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Table of Contents

Segment Information (1)

                                       

(millions)

Three months ended Sept. 30,

   Tampa
Electric
     Peoples
Gas
     TECO
Coal
     TECO
Guatemala
    Other &
Eliminations
    TECO
Energy
 

2012

               

Revenues - external

   $ 574.9       $ 95.2       $ 186.0       $ 0.0      $ 2.5      $ 858.6   

Sales to affiliates

     0.3         0.0         0.0         0.0        (0.3     0.0   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total revenues

     575.2         95.2         186.0         0.0        2.2        858.6   

Depreciation and amortization

     60.2         12.7         10.2         0.0        0.3        83.4   

Total interest charges (1)

     26.7         3.7         1.9         0.0        12.3        44.6   

Internally allocated interest (1)

     0.0         0.0         1.7         0.0        (1.7     0.0   

Provision for income taxes

     45.7         4.4         6.0         0.0        (4.4     51.7   

Net income from continuing operations

     73.5         7.0         17.4         0.0        (7.7     90.2   

Discontinued operations attributable to TECO, net of tax (2)

     0.0         0.0         0.0         (42.6     (3.6     (46.2

Net income attributable to TECO Energy

   $ 73.5       $ 7.0       $ 17.4       ($ 42.6   ($ 11.3   $ 44.0   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

2011

               

Revenues - external

   $ 591.6       $ 93.9       $ 190.5       $ 0.0      $ 1.8      $ 877.8   

Sales to affiliates

     0.3         0.3         0.0         0.0        (0.6     0.0   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total revenues

     591.9         94.2         190.5         0.0        1.2        877.8   

Depreciation and amortization

     56.2         12.2         11.8         0.0        0.3        80.5   

Total interest charges (1)

     30.3         4.4         1.7         0.0        12.4        48.8   

Internally allocated interest (1)

     0.0         0.0         1.7         0.0        (1.7     0.0   

Provision for income taxes

     47.4         3.0         4.1         0.0        (5.6     48.9   

Net income from continuing operations

     75.0         4.8         14.1         0.0        (7.8     86.1   

Discontinued operations attributable to TECO, net of tax (2)

     0.0         0.0         0.0         4.4        (0.3     4.1   

Net income attributable to TECO Energy

   $ 75.0       $ 4.8       $ 14.1       $ 4.4      ($ 8.1   $ 90.2   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

(millions)

Nine months ended Sept. 30,

                                       

2012

               

Revenues - external

   $ 1,527.8       $ 298.9       $ 474.1       $ 0.0      $ 7.4      $ 2,308.2   

Sales to affiliates

     0.8         1.3         0.0         0.0        (2.1     0.0   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total revenues

     1,528.6         300.2         474.1         0.0        5.3        2,308.2   

Depreciation and amortization

     177.2         37.7         31.0         0.0        1.0        246.9   

Total interest charges (1)

     86.2         12.6         5.5         0.0        36.5        140.8   

Internally allocated interest (1)

     0.0         0.0         5.2         0.0        (5.2     0.0   

Provision for income taxes

     96.5         17.0         13.2         0.0        (13.5     113.2   

Net income from continuing operations

     156.9         27.0         39.4         0.0        (22.9     200.4   

Discontinued operations attributable to TECO, net of tax (2)

     0.0         0.0         0.0         (28.6     (4.2     (32.8

Net income attributable to TECO Energy

   $ 156.9       $ 27.0       $ 39.4       ($ 28.6   ($ 27.1   $ 167.6   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

2011

               

Revenues - external

   $ 1,570.6       $ 358.5       $ 555.5       $ 0.0      $ 5.2      $ 2,489.8   

Sales to affiliates

     1.0         3.0         0.0         0.0        (4.0     0.0   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total revenues

     1,571.6         361.5         555.5         0.0        1.2        2,489.8   

Depreciation and amortization

     166.4         36.0         34.4         0.0        1.0        237.8   

Total interest charges (1)

     91.6         13.3         5.1         0.0        38.8        148.8   

Internally allocated interest (1)

     0.0         0.0         5.0         0.0        (5.0     0.0   

Provision for income taxes

     104.3         16.0         10.7         0.0        (15.9     115.1   

Net income from continuing operations

     165.0         25.4         38.1         0.0        (25.0     203.5   

Discontinued operations attributable to TECO, net of tax (2)

     0.0         0.0         0.0         16.4        (0.5     15.9   

Net income attributable to TECO Energy

   $ 165.0       $ 25.4       $ 38.1       $ 16.4      ($ 25.5   $ 219.4   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

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Table of Contents

(millions)

   Tampa
Electric
     Peoples
Gas
     TECO
Coal
     TECO
Guatemala
     Other &
Eliminations
    TECO
Energy
 

At Sept. 30, 2012

                

Assets held for sale, current

   $ 0.0       $ 0.0       $ 0.0       $ 59.0       $ 0.0      $ 59.0   

Assets held for sale, non-current

     0.0         0.0         0.0         164.3         0.0        164.3   

Total assets

   $ 6,196.7       $ 978.0       $ 363.8       $ 243.2       ($ 200.5   $ 7,581.2   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

At Dec. 31, 2011

                

Goodwill

   $ 0.0       $ 0.0       $ 0.0       $ 55.4       $ 0.0      $ 55.4   

Total assets

   $ 5,940.9       $ 932.0       $ 385.2       $ 304.1       ($ 240.0   $ 7,322.2   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

(1) Segment net income is reported on a basis that includes internally allocated financing costs. Total interest charges include internally allocated interest costs that for January 2012 through September 2012 were at a pretax rate of 6.00% and for 2011 were at a pretax rate of 6.25% based on an average of each subsidiary’s equity and indebtedness to TECO Energy assuming a 50/50 debt/equity capital structure.
(2) All periods have been adjusted to reflect the reclassification of results from operations to discontinued operations for TECO Guatemala and certain charges at Parent that directly relate to TECO Guatemala. See Note 15.

12. Accounting for Derivative Instruments and Hedging Activities

From time to time, TECO Energy and its affiliates enter into futures, forwards, swaps and option contracts for the following purposes:

 

   

to limit the exposure to price fluctuations for physical purchases and sales of natural gas in the course of normal operations at Tampa Electric and PGS,

 

   

to limit the exposure to interest rate fluctuations on debt securities at TECO Energy and its affiliates, and

 

   

to limit the exposure to price fluctuations for physical purchases of fuel at TECO Coal.

TECO Energy and its affiliates use derivatives only to reduce normal operating and market risks, not for speculative purposes. The company’s primary objective in using derivative instruments for regulated operations is to reduce the impact of market price volatility on ratepayers.

The risk management policies adopted by TECO Energy provide a framework through which management monitors various risk exposures. Daily and periodic reporting of positions and other relevant metrics are performed by a centralized risk management group which is independent of all operating companies.

The company applies the accounting standards for derivative instruments and hedging activities. These standards require 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 the fair value of those instruments as either components of OCI or in net income, depending on the designation of those instruments. The changes in fair value that are recorded in OCI are not immediately recognized in current net income. As the underlying hedged transaction matures or the physical commodity is delivered, the deferred gain or loss on the related hedging instrument must be reclassified from OCI to earnings based on its value at the time of the instrument’s settlement. For effective hedge transactions, the amount reclassified from OCI to earnings is offset in net income by the market change of the amount paid or received on the underlying physical transaction.

The company applies the accounting standards for regulated operations to financial instruments used to hedge the purchase of natural gas for its regulated companies. These standards, in accordance with the FPSC, permit the changes in fair value of natural gas derivatives to be recorded as regulatory assets or liabilities reflecting the impact of hedging activities on the fuel recovery clause. As a result, these changes are not recorded in OCI (see Note 3).

A company’s physical contracts qualify for the NPNS exception to derivative accounting rules, provided they meet certain criteria. Generally, NPNS applies if the company deems the counterparty creditworthy, if the counterparty owns or controls resources within the proximity to allow for physical delivery of the commodity, if the company intends to receive physical delivery and if the transaction is reasonable in relation to the company’s business needs. As of Sept. 30, 2012, all of the company’s physical contracts qualify for the NPNS exception.

The company has reviewed the new Commodity Exchange Act (CEA) clearing requirement enacted under Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The regulation will require commodity swaps to be submitted to a derivatives clearing organization registered with the Commodity Futures Trading Commission (CFTC) for clearing. The CFTC has further provided that the clearing requirement shall not apply to a swap if one of the counterparties to the swap: (i) is not a financial entity; (ii) is using swaps to hedge or mitigate commercial risk; (iii) notifies the CFTC how it generally meets its financial obligations associated with entering into non-cleared swap; and (iv) information related to whether the electing counterparty is an issuer of securities with board approval to not clear the swaps’(referred to as the end-user exception). The Audit Committee, appointed as the appropriate committee of the Board of Directors, has elected the use of the end-user exception that will allow the company to enter into swaps used to hedge its commercial risk without submitting them for clearing as permitted by the Dodd-Frank Act.

 

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Table of Contents

The following table presents the derivatives that are designated as cash flow hedges at Sept. 30, 2012 and Dec. 31, 2011:

 

Total Derivatives (1)

      

(millions)

   Sept. 30,
2012
     Dec. 31,
2011
 

Current assets

   $ 2.0       $ 0.9   

Long-term assets

     1.1         0.0   
  

 

 

    

 

 

 

Total assets

   $ 3.1       $ 0.9   
  

 

 

    

 

 

 

Current liabilities

   $ 14.3       $ 58.4   

Long-term liabilities

     1.0         8.6   
  

 

 

    

 

 

 

Total liabilities

   $ 15.3       $ 67.0   
  

 

 

    

 

 

 

 

(1) Amounts presented above are on a gross basis, with asset and liability positions netted by counterparty in accordance with accounting standards for derivatives and hedging.

The following table presents the derivative hedges of diesel fuel contracts at Sept. 30, 2012 and Dec. 31, 2011 to limit the exposure to changes in the market price for diesel fuel used in the production of coal:

 

Diesel Fuel Derivatives

      

(millions)

   Sept. 30,
2012
     Dec. 31,
2011
 

Current assets

   $ 0.5       $ 0.9   

Long-term assets

     0.0         0.0   
  

 

 

    

 

 

 

Total assets

   $ 0.5       $ 0.9   
  

 

 

    

 

 

 

Current liabilities

   $ 0.2       $ 0.0   

Long-term liabilities

     0.5         1.2   
  

 

 

    

 

 

 

Total liabilities

   $ 0.7       $ 1.2   
  

 

 

    

 

 

 

The following table presents the derivative hedges of natural gas contracts at Sept. 30, 2012 and Dec. 31, 2011 to limit the exposure to changes in market price for natural gas used to produce energy and natural gas purchased for resale to customers:

 

Natural Gas Derivatives

      

(millions)

   Sept. 30,
2012
     Dec. 31,
2011
 

Current assets

   $ 1.5       $ 0.0   

Long-term assets

     1.1         0.0   
  

 

 

    

 

 

 

Total assets

   $ 2.6       $ 0.0   
  

 

 

    

 

 

 

Current liabilities

   $ 14.1       $ 58.4   

Long-term liabilities

     0.5         7.4   
  

 

 

    

 

 

 

Total liabilities

   $ 14.6       $ 65.8   
  

 

 

    

 

 

 

The ending balance in AOCI related to the cash flow hedges and previously settled interest rate swaps at Sept. 30, 2012 is a net loss of $9.2 million after tax and accumulated amortization. This compares to a net loss of $5.0 million in AOCI after tax and accumulated amortization at Dec. 31, 2011. The balance at Sept. 30, 2012 is primarily comprised of interest rate swaps settled coincident with debt issued in June of 2008 and 2012 (see Note 7). These amounts will be amortized into earnings over the life of the related debt.

 

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The following table presents the fair values and locations of derivative instruments recorded on the balance sheet at Sept. 30, 2012:

 

Derivatives Designated As Hedging Instruments

                  
    

Asset Derivatives

    

Liability Derivatives

 

(millions)

at Sept. 30, 2012

  

Balance Sheet

Location

   Fair
Value
    

Balance Sheet

Location

   Fair
Value
 

Commodity Contracts:

           
Diesel fuel derivatives:            

Current

   Derivative assets    $ 0.5       Derivative liabilities    $ 0.2   

Long-term

   Derivative assets      0.0       Derivative liabilities      0.5   
Natural gas derivatives:            

Current

   Derivative assets      1.5       Derivative liabilities      14.1   

Long-term

   Derivative assets      1.1       Derivative liabilities      0.5   
     

 

 

       

 

 

 

Total derivatives designated as hedging instruments

   $ 3.1          $ 15.3   
     

 

 

       

 

 

 

The following table presents the cumulative amount of pretax net gains or losses on all derivative instruments deferred in regulatory assets and liabilities as of Sept. 30, 2012:

 

Energy Related Derivatives

                       
    

Asset Derivatives

    

Liability Derivatives

 

(millions)

at Sept. 30, 2012

  

Balance Sheet

Location (1)

   Fair
Value
    

Balance Sheet
Location (1)

   Fair
Value
 

Commodity Contracts:

           
Natural gas derivatives:            

Current

   Regulatory liabilities    $ 1.5       Regulatory assets    $ 14.1   

Long-term

   Regulatory liabilities      1.1       Regulatory assets      0.5   
     

 

 

       

 

 

 

Total

      $ 2.6          $ 14.6   
     

 

 

       

 

 

 

 

(1) Natural gas derivatives are deferred in accordance with accounting standards for regulated operations and all increases and decreases in the cost of natural gas supply are passed on to customers with the fuel recovery clause mechanism. As gains and losses are realized in future periods, they will be recorded as fuel costs in the Consolidated Condensed Statements of Income.

Based on the fair value of the instruments at Sept. 30, 2012, net pretax losses of $12.6 million are expected to be reclassified from regulatory assets or liabilities to the Consolidated Condensed Statements of Income within the next 12 months.

The following tables present the effect of hedging instruments on OCI and income for the three and nine months ended Sept. 30:

 

Three months ended Sept. 30,

(millions)

   Amount of
Gain/(Loss)  on
Derivatives
Recognized in
OCI
   

Location of Gain/(Loss)

Reclassified From AOCI

Into Income

   Amount of
Gain/(Loss)
Reclassified
From AOCI
Into Income
 

Derivatives in Cash Flow Hedging Relationships

   Effective
Portion (1)
         Effective
Portion (1)
 

2012

       

Interest rate contracts

   $ 0.0      Interest expense    ($ 0.2

Diesel fuel derivatives

     1.6      Mining related costs      0.1   
  

 

 

      

 

 

 

Total

   $ 1.6         ($ 0.1
  

 

 

      

 

 

 

2011

       

Interest rate contracts

   $ 0.0      Interest expense    ($ 0.2

Diesel fuel derivatives

     (1.3   Mining related costs      0.7   
  

 

 

      

 

 

 

Total

   ($ 1.3      $ 0.5   
  

 

 

      

 

 

 

 

(1) Changes in OCI and AOCI are reported in after-tax dollars.

 

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Table of Contents

Nine months ended Sept. 30,

(millions)

   Amount of
Gain/(Loss)  on
Derivatives
Recognized in
OCI
   

Location of Gain/(Loss)

Reclassified From AOCI

Into Income

   Amount of
Gain/(Loss)
Reclassified
From AOCI
Into Income
 

Derivatives in Cash Flow Hedging Relationships

   Effective
Portion (1)
         Effective
Portion (1)
 

2012

       

Interest rate contracts

   ($ 4.9   Interest expense    ($ 0.6

Diesel fuel derivatives

     0.4      Mining related costs      0.3   
  

 

 

      

 

 

 

Total

   ($ 4.5      ($ 0.3
  

 

 

      

 

 

 

2011

       

Interest rate contracts

   $ 0.0      Interest expense    ($ 0.5

Diesel fuel derivatives

     0.6      Mining related costs      2.0   
  

 

 

      

 

 

 

Total

   $ 0.6         $ 1.5   
  

 

 

      

 

 

 

 

(1) Changes in OCI and AOCI are reported in after-tax dollars.

For derivative instruments that meet cash flow hedge criteria, the effective portion of the gain or loss on the derivative is reported as a component of OCI and reclassified into earnings in the same period or period during which the hedged transaction affects earnings. Gains and losses on the derivatives representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. For the nine months ended Sept. 30, 2012 and 2011, all hedges were effective.

The following table presents the derivative activity for instruments classified as qualifying cash flow hedges and their effect on OCI and AOCI for the nine months ended Sept. 30:

 

(millions)

   Fair Value
Asset/(Liability)
    Amount of
Gain/(Loss)
Recognized
in OCI (1)
    Amount of
Gain/(Loss)
Reclassified From
AOCI Into Income
 

2012

      

Interest rate swaps

   $ 0.0      ($ 4.9   ($ 0.6

Diesel fuel derivatives

     (0.2     0.4        0.3   
  

 

 

   

 

 

   

 

 

 

Total

   ($ 0.2   ($ 4.5   ($ 0.3
  

 

 

   

 

 

   

 

 

 

2011

      

Interest rate swaps

   $ 0.0      $ 0.0      ($ 0.5

Diesel fuel derivatives

     0.0        0.6        2.0   
  

 

 

   

 

 

   

 

 

 

Total

   $ 0.0      $ 0.6      $ 1.5   
  

 

 

   

 

 

   

 

 

 

 

(1) Changes in OCI and AOCI are reported in after-tax dollars.

The maximum length of time over which the company is hedging its exposure to the variability in future cash flows extends to Dec. 31, 2014 for both financial natural gas and financial diesel fuel contracts. The following table presents by commodity type the company’s derivative volumes that, as of Sept. 30, 2012, are expected to settle during the 2012, 2013 and 2014 fiscal years:

 

(millions)

   Diesel Fuel Contracts
(Gallons)
     Natural Gas Contracts
(MMBTUs)
 

Year

   Physical      Financial      Physical      Financial  

2012

     0.0         2.5         0.0         9.7   

2013

     0.0         2.7         0.0         22.7   

2014

     0.0         1.5         0.0         4.0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     0.0         6.7         0.0         36.4   
  

 

 

    

 

 

    

 

 

    

 

 

 

The company is exposed to credit risk primarily through entering into derivative instruments with counterparties to limit its exposure to the commodity price fluctuations associated with diesel fuel and natural gas. Credit risk is the potential loss resulting from a counterparty’s nonperformance under an agreement. The company manages credit risk with policies and procedures for, among other things, counterparty analysis, exposure measurement and exposure monitoring and mitigation.

 

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It is possible that volatility in commodity prices could cause the company to have material credit risk exposures with one or more counterparties. If such counterparties fail to perform their obligations under one or more agreements, the company could suffer a material financial loss. However, as of Sept. 30, 2012, substantially all of the counterparties with transaction amounts outstanding in the company’s energy portfolio are rated investment grade by the major rating agencies. The company assesses credit risk internally for counterparties that are not rated.

The company has entered into commodity master arrangements with its counterparties to mitigate credit exposure to those counterparties. The company generally enters into the following master arrangements: (1) EEI agreements - standardized power sales contracts in the electric industry; (2) ISDA agreements - standardized financial gas and electric contracts; and (3) NAESB agreements - standardized physical gas contracts. The company believes that entering into such agreements reduces the risk from default by creating contractual rights relating to creditworthiness, collateral and termination.

The company has implemented procedures to monitor the creditworthiness of its counterparties and to consider nonperformance in valuing counterparty positions. The company monitors counterparties’ credit standings, including those that are experiencing financial problems, have significant swings in credit default swap rates, have credit rating changes by external rating agencies or have changes in ownership. Net liability positions are generally not adjusted as the company uses derivative transactions as hedges and has the ability and intent to perform under each of these contracts. In the instance of net asset positions, the company considers general market conditions and the observable financial health and outlook of specific counterparties, forward-looking data such as credit default swaps, when available, and historical default probabilities from credit rating agencies in evaluating the potential impact of nonperformance risk to derivative positions. As of Sept. 30, 2012, all positions with counterparties are net liabilities.

Certain TECO Energy derivative instruments contain provisions that require the company’s debt, or in the case of derivative instruments where TEC is the counterparty, TEC’s debt, to maintain an investment grade credit rating from any or all of the major credit rating agencies. If debt ratings, including TEC’s, were to fall below investment grade, it could trigger these provisions, and the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing full overnight collateralization on derivative instruments in net liability positions. The company has no other contingent risk features associated with any derivative instruments.

The table below presents the fair value of the overall contractual contingent liability positions for the company’s derivative activity at Sept. 30, 2012:

 

Contingent Features

                  

(millions)

At Sept. 30, 2012

   Fair Value
Asset/
(Liability)
    Derivative
Exposure
Asset/
(Liability)
    Posted
Collateral
 

Credit Rating

   ($ 14.6   ($ 14.6   $ 0.0   

13. Fair Value Measurements

Items Measured at Fair Value on a Recurring Basis

The following tables set forth by level within the fair value hierarchy the company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of Sept. 30, 2012 and Dec. 31, 2011. As required by accounting standards for fair value measurements, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. For natural gas and diesel fuel swaps, the market approach was used in determining fair value. There were no reclassifications between levels for the quarter.

 

Recurring Fair Value Measures

                           
     At fair value as of Sept. 30, 2012  

(millions)

   Level 1      Level 2      Level 3      Total  

Assets

           

Natural gas swaps

   $ 0.0       $ 2.6       $ 0.0       $ 2.6   

Diesel fuel swaps

     0.0         0.5         0.0         0.5   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 0.0       $ 3.1       $ 0.0       $ 3.1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Natural gas swaps

   $ 0.0       $ 14.6       $ 0.0       $ 14.6   

Diesel fuel swaps

     0.0         0.7         0.0         0.7   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 0.0       $ 15.3       $ 0.0       $ 15.3   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
     At fair value as of Dec. 31, 2011  

(millions)

   Level 1      Level 2      Level 3      Total  

Assets

           

Natural gas swaps

   $ 0.0       $ 0.0       $ 0.0       $ 0.0   

Diesel fuel swaps

     0.0         0.9         0.0         0.9   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 0.0       $ 0.9       $ 0.0       $ 0.9   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Natural gas swaps

   $ 0.0       $ 65.8       $ 0.0       $ 65.8   

Diesel fuel swaps

     0.0         1.2         0.0         1.2   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 0.0       $ 67.0       $ 0.0       $ 67.0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Natural gas and diesel fuel swaps are over-the-counter swap instruments. The primary pricing inputs in determining the fair value of these swaps are the NYMEX quoted closing prices of exchange-traded instruments. These prices are applied to the notional amounts of active positions to determine the reported fair value (see Note 12).

The company considered the impact of nonperformance risk in determining the fair value of derivatives. The company considered the net position with each counterparty, past performance of both parties, the intent of the parties, indications of credit deterioration and whether the markets in which the company transacts have experienced dislocation. At Sept. 30, 2012, the fair value of derivatives was not materially affected by nonperformance risk. The company’s net positions with substantially all counterparties were liability positions.

14. Variable Interest Entities

The determination of a VIE’s primary beneficiary is the enterprise that has both 1) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and 2) the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE.

TEC has entered into multiple PPAs with wholesale energy providers in Florida to ensure the ability to meet customer energy demand and to provide lower cost options in the meeting of this demand. These agreements range in size from 117 MW to 370 MW of available capacity, are with similar entities and contain similar provisions. Because some of these provisions provide for the transfer or sharing of a number of risks inherent in the generation of energy, these agreements meet the definition of being VIEs. These risks include: operating and maintenance, regulatory, credit, commodity/fuel and energy market risk. TEC has reviewed these risks and has determined that the owners of these entities have retained the majority of these risks over the expected life of the underlying generating assets, have the power to direct the most significant activities, the obligation or right to absorb losses or benefits and hence remain the primary beneficiaries. As a result, TEC is not required to consolidate any of these entities. TEC purchased $19.0 million and $62.3 million pursuant to PPAs for the three and nine months ended Sept. 30, 2012, respectively, and $22.9 million and $64.9 million for the three and nine months ended Sept. 30, 2011, respectively.

In one instance, TEC’s agreement with an entity for 370 MW of capacity was entered into prior to Dec. 31, 2003, the effective date of these standards. Under these standards, TEC is required to make an exhaustive effort to obtain sufficient information to determine if this entity is a VIE and which holder of the variable interests is the primary beneficiary. The owners of this entity are not willing to provide the information necessary to make these determinations, have no obligation to do so and the information is not available publicly. As a result, TEC is unable to determine if this entity is a VIE and, if so, which variable interest holder, if any, is the primary beneficiary. TEC has no obligation to this entity beyond the purchase of capacity; therefore, the maximum exposure for TEC is the obligation to pay for such capacity under terms of the PPA at rates that could be unfavorable to the wholesale market. TEC purchased $13.1 million and $38.3 million for the three and nine months ended Sept. 30, 2012, respectively, and $12.0 million and $24.9 million for the three and nine months ended Sept. 30, 2011, respectively, under this PPA.

The company does not provide any material financial or other support to any of the VIEs it is involved with, nor is the company under any obligation to absorb losses associated with these VIEs. In the normal course of business, the company’s involvement with these VIEs does not affect its Consolidated Condensed Balance Sheets, Statements of Income or Cash Flows.

15. Discontinued Operations and Assets Held for Sale

On Aug. 7, 2012, TECO Energy received an offer from Renewable Energy Investments Guatemala Limited (REIN), a wholly-owned subsidiary of Sur Eléctrica Holding Limited (SUR) to purchase the independent power projects in Guatemala and certain affiliated Guatemala companies. SUR and REIN are international business companies organized under the laws of the Commonwealth of the Bahamas. On Sept. 27, 2012, an indirect wholly-owned subsidiary of TECO Energy, Inc., TECO Guatemala Holdings II, LLC (TGH), entered into an equity purchase agreement with SUR, and two equity purchase agreements with REIN (the three equity purchase agreements are collectively referred to herein as the “PAs”). Pursuant to the PA with SUR, TGH agreed to sell all of its ownership interests in TPS Guatemala One, Ltd. (TPS GO) for $12.5 million, and pursuant to the PAs with REIN, it agreed to sell all of its ownership interests in (i) TPS San José International, Inc. (TPS SJI) for $213.5 million and (ii) TECO Guatemala Services, Ltd. (TGS) for $1.5 million (TPS GO, TPS SJI and TGS are collectively referred to herein as the Disposal Group). The companies in the Disposal Group are the ultimate parent companies of TCAE, CGESJ, TEMSA, and TPS Operaciones de Guatemala, Limitada (TPSO), the owner of certain local real estate assets and the employer of the local employees. The total purchase price for the Disposal Group under the PAs is $227.5 million.

 

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Table of Contents

The sale of TPS GO, which owns 96.06% of TCAE, closed on Sept. 27, 2012. An affiliate of the party that controls the remaining interest in TCAE (the “noncontrolling interest holder”) holds certain contractual rights with respect to TEMSA and CGESJ, including a right of first offer. The noncontrolling interest holder was also granted the opportunity to purchase TGS since the operations of TPSO are integral to the operations of TEMSA and CGESJ. The noncontrolling interest holder exercised the right of first offer for TPS SJI and elected to purchase TGS by executing PAs similar to the PAs with REIN on Oct. 17, 2012 and Oct. 26, 2012, respectively. If the noncontrolling interest holder fails to close on the sales for TPS SJI and TGS within ninety days of exercise and election, REIN will be obligated to close on the PAs of TPS SJI and TGS absent an intervening event causing a material adverse effect, which includes an adverse change in the credit markets, in which case it has the right to terminate the transaction.

As a result of the PAs, the TECO Guatemala segment is accounted for as an asset held for sale and discontinued operation at Sept. 30, 2012. The after-tax loss from discontinued operations reflects an after-tax loss on assets sold and held for sale, including transaction costs, of $31.2 million and an after-tax charge of $22.6 million associated with foreign tax credits. The sale of TPS GO and the pending sale of TPS SJI and TGS eliminate future foreign source income that would be required to utilize these credits. Also included in the loss calculation is $25.1 million of outstanding non-recourse debt held by CGESJ that must be paid by the company concurrent with the closing of the TPS SJI PA.

Pretax amounts recorded and included in pretax loss from discontinued operations include revenues of $31.5 million and $100.4 million for the three and nine months ended Sept. 30, 2012 and $33.6 million and $103.3 million for the three and nine months ended Sept. 30, 2011.

The PAs contain customary representations, warranties and covenants. The PAs also contain indemnification provisions subject to specified limitations as to time and amount, including an indemnification provision related to an uncertain tax position related to TCAE. In addition, each of the two pending PAs contain various closing conditions, including the conditions described above, and are subject to termination by either party if specified closing conditions are not met within the time periods allowed under the PAs.

As part of the PAs, TEC will perform and be paid for certain transitional services related to the sales, including certain engineering and information technology support. These cash flows will continue only while REIN, SUR and the noncontrolling interest holder (as applicable) are integrating the entities into their operations and information systems. Once the transitions to ultimate purchasers are complete, the cash flows from the continuation of activities will cease. Additionally, cash flows will not be material to the previously forecasted cash flows at TGI.

The following table provides a summary of the carrying amounts of the significant assets and liabilities reported in the combined current and non-current “Assets held for sale” and “Liabilities associated with assets held for sale” line items:

 

Assets held for sale

      

(millions)

   Sept. 30, 2012  

Current assets (including cash of $26.9 million)

   $ 59.0   

Property, plant and equipment, net

     119.0   

Goodwill

     39.9   

Long-term assets

     5.4   
  

 

 

 

Total assets held for sale

   $ 223.3   
  

 

 

 

 

Liabilities associated with assets held for sale

      

(millions)

   Sept. 30, 2012  

Current liabilities

   $ 2.6   

Long-term debt due within one year, non-recourse

     25.1   

Long-term liabilities

     6.3   
  

 

 

 

Total liabilities associated with assets held for sale

   $ 34.0   
  

 

 

 

 

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Table of Contents

16. Goodwill and Asset Impairments

In connection with the sale of TPS GO and anticipated sales of TPS SJI and TGS, the company recorded impairment charges related to goodwill and long-lived assets. Pretax amounts recorded and included in pretax loss from discontinued operations through Sept. 30, 2012 include the following charges related to assets sold and assets held for sale:

 

            Fair Value Measurements Using:         

(millions)

   Balance
as of

Sept. 30,
2012
     Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
     Significant
Other
Observable
Inputs (Level 2)
     Significant
Unobservable
Inputs (Level 3)
     Pretax Gains
(Losses)
 

Goodwill

              

TPS GO

   $ 0.0       $ 0.0       $ 0.0       $ 0.0       $ (3.1

TPS SJI

     39.9         0.0         39.9         0.0         (12.4
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Long-lived assets held for sale

              

TGS

   $ 0.7       $ 0.0       $ 0.7       $ 0.0       $ (1.9
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Goodwill for each reporting unit was written down to its implied fair value calculated using the offers from SUR and REIN. Although these are binding quoted prices, the fair value measurement is considered a Level 2 measurement since the market is not active as defined by accounting standards (i.e. transactions for these assets are too infrequent to provide pricing information on an ongoing basis). Prior to receiving the offers from REIN and SUR, the fair values of TPS GO’s and TPS SJI’s goodwill amounts were calculated using the discounted cash flows appropriate for the business model of each reporting unit. Discounted cash flows were formerly the best estimates of fair value of the reporting units, since neither a sale nor a similar transaction was readily observed in the marketplace for many years due to an inactive market.

Long-lived assets held for sale for each reporting unit were written down to fair value less estimated costs to sell. The fair values were calculated using the offers from REIN. Although these are binding quoted prices, the fair value measurement is considered a Level 2 measurement since the market is not active as defined by accounting standards (i.e. transactions for these assets are too infrequent to provide pricing information on an ongoing basis).

17. Subsequent Events

Sale of TPS San José International, Inc.

As previously reported in Note 15, TGH entered into a PA to sell all of its ownership interests in TPS SJI, Inc. for $213.5 million. Also reported in Note 15, a condition precedent to the closing of the PA was that the third party that held a right of first offer with respect to CGESJ and TEMSA, not exercise such right. On Oct. 17, 2012, this third party exercised its right of first offer, and, as a result, TGH entered into a PA with this third party, pursuant to which it agreed to sell all of its ownership interests on the same terms as contained in the original PA. On Oct. 26, 2012, TGH entered into a PA with the third party to sell all of its ownership interests in TGS. If the sales under the third party PAs do not close within ninety days from Oct. 17, 2012, the original party will be obligated to close on their PAs, absent an intervening event causing a material adverse effect, which includes an adverse change in the credit markets, in which case it has the right to terminate the transaction.

Optional Redemption of $147.1 million Hillsborough County Industrial Development Authority Pollution Control Revenue Refunding Bonds, Series 2002

On Oct. 1, 2012, TEC redeemed $147.1 million of Hillsborough County Industrial Development Authority Pollution Control Revenue Refunding Bonds, Series 2002 due Oct. 1, 2013 and Oct. 1, 2023 (the “Bonds”) at a redemption price equal to 100% of the principal amount of the Bonds redeemed, plus accrued and unpaid interest to Oct. 1, 2012. Before the optional redemption, $60.7 million of the Bonds due Oct. 1. 2013 bore interest at 5.1% and $86.4 million of the Bonds due Oct. 1, 2023 bore interest at 5.5%.

 

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Table of Contents

TAMPA ELECTRIC COMPANY

In the opinion of management, the unaudited consolidated condensed financial statements include all adjustments that are of a recurring nature and necessary to state fairly the financial position of TEC as of Sept. 30, 2012 and Dec. 31, 2011, and the results of operations and cash flows for the periods ended Sept. 30, 2012 and 2011. The results of operations for the three month and nine month periods ended Sept. 30, 2012 are not necessarily indicative of the results that can be expected for the entire fiscal year ending Dec. 31, 2012. References should be made to the explanatory notes affecting the consolidated financial statements contained in TEC’s Annual Report on Form 10-K for the year ended Dec. 31, 2011 and to the notes on pages 36 through 47 of this report.

INDEX TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 

     Page
No.
 

Consolidated Condensed Balance Sheets, Sept. 30, 2012 and Dec. 31, 2011

     31-32   

Consolidated Condensed Statements of Income and Comprehensive Income for the three month and nine month periods ended Sept. 30, 2012 and 2011

     33-34   

Consolidated Condensed Statements of Cash Flows for the nine month periods ended Sept. 30, 2012 and 2011

     35   

Notes to Consolidated Condensed Financial Statements

     36-47   

All other financial statement schedules have been omitted since they are not required, are inapplicable or the required information is presented in the financial statements or notes thereto.

 

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Table of Contents

TAMPA ELECTRIC COMPANY

Consolidated Condensed Balance Sheets

Unaudited

 

Assets

(millions)

   Sept. 30,
2012
    Dec. 31,
2011
 

Property, plant and equipment

    

Utility plant in service

    

Electric

   $ 6,645.7      $ 6,516.0   

Gas

     1,159.7        1,113.5   

Construction work in progress

     296.9        239.2   
  

 

 

   

 

 

 

Utility plant in service, at original costs

     8,102.3        7,868.7   

Accumulated depreciation

     (2,352.8     (2,230.3
  

 

 

   

 

 

 
     5,749.5        5,638.4   

Other property, net

     7.3        6.5   
  

 

 

   

 

 

 

Total property, plant and equipment, net

     5,756.8        5,644.9   
  

 

 

   

 

 

 

Current assets

    

Cash and cash equivalents

     226.6        13.9   

Receivables, less allowance for uncollectibles of $1.6 and $1.3 at Sept. 30, 2012 and Dec. 31, 2011, respectively

     279.4        216.8   

Inventories, at average cost

    

Fuel

     88.0        97.9   

Materials and supplies

     71.8        67.7   

Regulatory assets

     58.8        87.3   

Derivative assets

     1.5        0.0   

Taxes receivable

     0.0        14.6   

Deferred income taxes

     28.6        30.4   

Prepayments and other current assets

     14.8        10.5   
  

 

 

   

 

 

 

Total current assets

     769.5        539.1   
  

 

 

   

 

 

 

Deferred debits

    

Unamortized debt expense

     16.6        14.1   

Regulatory assets

     344.7        364.5   

Derivative assets

     1.1        0.0   

Other

     3.6        8.8   
  

 

 

   

 

 

 

Total deferred debits

     366.0        387.4   
  

 

 

   

 

 

 

Total assets

   $ 6,892.3      $ 6,571.4   
  

 

 

   

 

 

 

The accompanying notes are an integral part of the consolidated condensed financial statements.

 

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TAMPA ELECTRIC COMPANY

Consolidated Condensed Balance Sheets – continued

Unaudited

 

Liabilities and Capital

(millions)

   Sept. 30,
2012
    Dec. 31,
2011
 

Capital

    

Common stock

   $ 1,905.4      $ 1,852.4   

Accumulated other comprehensive loss

     (8.9     (4.6

Retained earnings

     340.1        305.7   
  

 

 

   

 

 

 

Total capital

     2,236.6        2,153.5   

Long-term debt, less amount due within one year

     1,932.2        1,616.3   
  

 

 

   

 

 

 

Total capital

     4,168.8        3,769.8   
  

 

 

   

 

 

 

Current liabilities

    

Long-term debt due within one year

     147.1        374.9   

Accounts payable

     194.6        191.3   

Customer deposits

     162.1        159.5   

Regulatory liabilities

     102.2        86.2   

Derivative liabilities

     14.1        58.4   

Interest accrued

     45.0        25.6   

Taxes accrued

     75.5        11.9   

Other

     11.7        11.6   
  

 

 

   

 

 

 

Total current liabilities

     752.3        919.4   
  

 

 

   

 

 

 

Deferred credits

    

Deferred income taxes

     920.8        833.0   

Investment tax credits

     9.8        10.0   

Derivative liabilities

     0.5        7.4   

Regulatory liabilities

     642.5        619.4   

Other

     397.6        412.4   
  

 

 

   

 

 

 

Total deferred credits

     1,971.2        1,882.2   
  

 

 

   

 

 

 

Commitments and Contingencies (see Note 8)

    

Total liabilities and capital

   $ 6,892.3      $ 6,571.4   
  

 

 

   

 

 

 

The accompanying notes are an integral part of the consolidated condensed financial statements.

 

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TAMPA ELECTRIC COMPANY

Consolidated Condensed Statements of Income and Comprehensive Income

Unaudited

 

     Three months ended Sept. 30,  

(millions)

   2012     2011  

Revenues

    

Electric (includes franchise fees and gross receipts taxes of $26.7 in 2012 and $24.7 in 2011)

   $ 575.1      $ 591.8   

Gas (includes franchise fees and gross receipts taxes of $4.3 in 2012 and $4.1 in 2011)

     95.2        93.8   
  

 

 

   

 

 

 

Total revenues

     670.3        685.6   
  

 

 

   

 

 

 

Expenses

    

Regulated operations & maintenance

    

Fuel

     209.1        226.3   

Purchased power

     25.8        32.1   

Cost of natural gas sold

     40.5        41.4   

Other

     115.5        107.6   

Depreciation and amortization

     72.9        68.4   

Taxes, other than income

     48.3        45.9   
  

 

 

   

 

 

 

Total expenses

     512.1        521.7   
  

 

 

   

 

 

 

Income from operations

     158.2        163.9   
  

 

 

   

 

 

 

Other income

    

Allowance for other funds used during construction

     0.7        0.2   

Other income, net

     2.1        0.8   
  

 

 

   

 

 

 

Total other income

     2.8        1.0   
  

 

 

   

 

 

 

Interest charges

    

Interest on long-term debt

     30.0        31.9   

Other interest

     0.8        2.9   

Allowance for borrowed funds used during construction

     (0.4     (0.1
  

 

 

   

 

 

 

Total interest charges

     30.4        34.7   
  

 

 

   

 

 

 

Income before provision for income taxes

     130.6        130.2   

Provision for income taxes

     50.1        50.4   
  

 

 

   

 

 

 

Net income

     80.5        79.8   
  

 

 

   

 

 

 

Other comprehensive income, net of tax

    

Net unrealized gain on cash flow hedges

     0.2        0.2   
  

 

 

   

 

 

 

Total other comprehensive income, net of tax

     0.2        0.2   
  

 

 

   

 

 

 

Comprehensive income

   $ 80.7      $ 80.0   
  

 

 

   

 

 

 

The accompanying notes are an integral part of the consolidated condensed financial statements.

 

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TAMPA ELECTRIC COMPANY

Consolidated Condensed Statements of Income and Comprehensive Income

Unaudited

 

     Nine months ended Sept. 30,  

(millions)

   2012     2011  

Revenues

    

Electric (includes franchise fees and gross receipts taxes of $70.0 in 2012 and $65.3 in 2011)

   $ 1,528.3      $ 1,571.2   

Gas (includes franchise fees and gross receipts taxes of $15.4 in 2012 and $19.0 in 2011)

     298.9        358.5   
  

 

 

   

 

 

 

Total revenues

     1,827.2        1,929.7   
  

 

 

   

 

 

 

Expenses

    

Regulated operations & maintenance

    

Fuel

     534.5        565.4   

Purchased power

     85.2        103.2   

Cost of natural gas sold

     118.6        177.6   

Other

     341.8        330.9   

Depreciation and amortization

     214.9        202.4   

Taxes, other than income

     140.6        137.4   
  

 

 

   

 

 

 

Total expenses

     1,435.6        1,516.9   
  

 

 

   

 

 

 

Income from operations

     391.6        412.8   
  

 

 

   

 

 

 

Other income

    

Allowance for other funds used during construction

     1.6        0.8   

Other income, net

     3.0        2.0   
  

 

 

   

 

 

 

Total other income

     4.6        2.8   
  

 

 

   

 

 

 

Interest charges

    

Interest on long-term debt

     93.0        96.7   

Other interest

     6.7        8.6   

Allowance for borrowed funds used during construction

     (0.9     (0.4
  

 

 

   

 

 

 

Total interest charges

     98.8        104.9   
  

 

 

   

 

 

 

Income before provision for income taxes

     297.4        310.7   

Provision for income taxes

     113.5        120.3   
  

 

 

   

 

 

 

Net income

     183.9        190.4   
  

 

 

   

 

 

 

Other comprehensive (loss) income, net of tax

    

Net unrealized (loss) gain on cash flow hedges

     (4.3     0.5   
  

 

 

   

 

 

 

Total other comprehensive (loss) income, net of tax

     (4.3     0.5   
  

 

 

   

 

 

 

Comprehensive income

   $ 179.6      $ 190.9   
  

 

 

   

 

 

 

The accompanying notes are an integral part of the consolidated condensed financial statements.

 

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TAMPA ELECTRIC COMPANY

Consolidated Condensed Statements of Cash Flows

Unaudited

 

     Nine months ended Sept. 30,  

(millions)

   2012     2011  

Cash flows from operating activities

    

Net income

   $ 183.9      $ 190.4   

Adjustments to reconcile net income to net cash from operating activities:

    

Depreciation and amortization

     214.9        202.4   

Deferred income taxes

     92.6        79.0   

Investment tax credits, net

     (0.2     (0.3

Allowance for funds used during construction

     (1.6     (0.8

Deferred recovery clauses

     (3.7     3.6   

Receivables, less allowance for uncollectibles

     (64.0     10.9   

Inventories

     5.8        30.1   

Prepayments

     (4.3     (2.7

Taxes accrued

     78.2        81.4   

Interest accrued

     19.4        21.9   

Accounts payable

     22.9        (33.6

Gain on sale of assets, pretax

     (0.2     (0.2

Other

     4.5        20.1   
  

 

 

   

 

 

 

Cash flows from operating activities

     548.2        602.2   
  

 

 

   

 

 

 

Cash flows from investing activities

    

Capital expenditures

     (318.3     (248.3

Allowance for funds used during construction

     1.6        0.8   

Net proceeds from sale of assets

     0.3        2.8   
  

 

 

   

 

 

 

Cash flows used in investing activities

     (316.4     (244.7
  

 

 

   

 

 

 

Cash flows from financing activities

    

Common stock

     53.0        0.0   

Proceeds from long-term debt issuance

     538.3        0.0   

Repayment of long-term debt/Purchase in lieu of redemption

     (460.9     (78.8

Net decrease in short-term debt

     0.0        (12.0

Dividends

     (149.5     (159.3
  

 

 

   

 

 

 

Cash flows used in financing activities

     (19.1     (250.1
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     212.7        107.4   

Cash and cash equivalents at beginning of period

     13.9        3.7   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 226.6      $ 111.1   
  

 

 

   

 

 

 

The accompanying notes are an integral part of the consolidated condensed financial statements.

 

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TAMPA ELECTRIC COMPANY

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

UNAUDITED

1. Summary of Significant Accounting Policies

See TEC’s 2011 Annual Report on Form 10-K for a complete detailed discussion of accounting policies. The significant accounting policies for TEC include:

Principles of Consolidation and Basis of Presentation

TEC is a wholly-owned subsidiary of TECO Energy, Inc. For the purposes of its consolidated financial reporting, TEC is comprised of the electric division, generally referred to as Tampa Electric, the natural gas division, generally referred to as PGS, and potentially the accounts of VIEs for which it is the primary beneficiary. TEC is considered to be the primary beneficiary of VIEs if it has both 1) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and 2) the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. For the periods presented, no VIEs have been consolidated (see Note 13).

All significant intercompany balances and intercompany transactions have been eliminated in consolidation. In the opinion of management, the unaudited consolidated condensed financial statements include all adjustments that are of a recurring nature and necessary to state fairly the financial position of TEC as of Sept. 30, 2012 and Dec. 31, 2011, and the results of operations and cash flows for the periods ended Sept. 30, 2012 and 2011. The results of operations for the three and nine months ended Sept. 30, 2012 are not necessarily indicative of the results that can be expected for the entire fiscal year ending Dec. 31, 2012.

The use of estimates is inherent in the preparation of financial statements in accordance with U.S. GAAP. Actual results could differ from these estimates. The year-end consolidated condensed balance sheet data was derived from audited financial statements, however, this quarterly report on Form 10-Q does not include all year-end disclosures required for an annual report on Form 10-K by U.S. GAAP.

Revenues

As of Sept. 30, 2012 and Dec. 31, 2011, unbilled revenues of $52.6 million and $50.2 million, respectively, are included in the “Receivables” line item on the Consolidated Condensed Balance Sheets.

Accounting for Franchise Fees and Gross Receipts

The regulated utilities are allowed to recover certain costs on a dollar-per-dollar basis incurred from customers through prices approved by the FPSC. The amounts included in customers’ bills for franchise fees and gross receipt taxes are included as revenues on the Consolidated Condensed Statements of Income. Franchise fees and gross receipt taxes payable by the regulated utilities are included as an expense on the Consolidated Condensed Statements of Income in “Taxes, other than income”. These amounts totaled $31.0 million and $85.4 million, respectively, for the three and nine months ended Sept. 30, 2012, compared to $28.8 million and $84.3 million, respectively, for the three and nine months ended Sept. 30, 2011.

Cash Flows Related to Derivatives and Hedging Activities

TEC classifies cash inflows and outflows related to derivative and hedging instruments in the appropriate cash flow sections associated with the item being hedged. For natural gas and ongoing interest rate swaps, the cash inflows and outflows are included in the operating section. For interest rate swaps that settle coincident with the debt issuance, the cash inflows and outflows are treated as premiums or discounts and included in the financing section of the Consolidated Condensed Statements of Cash Flows.

Reclassifications

Certain reclassifications were made to prior year amounts to conform to current period presentation. Income tax expense related to regulated operations was previously included within income from operations as it is part of the determination of utility revenue requirements. Income tax expense is now presented directly above net income to conform to the TECO Energy, Inc. presentation. For prior periods, this change results in an increase in income from operations for the amount of income tax expense reclassified. None of the reclassifications affected TEC’s net income in any period.

2. New Accounting Pronouncements

Offsetting Assets and Liabilities

In December 2011, the FASB issued guidance enhancing disclosures of financial instruments and derivative instruments that are offset in the statement of financial position or subject to enforceable master netting agreements. The guidance is effective for interim and annual reporting periods beginning on or after Jan. 1, 2013. TEC will adopt this guidance as required. It will have no effect on the company’s results of operations, financial position or cash flows.

 

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3. Regulatory

Tampa Electric’s an