TECO Energy reports fourth quarter 2009 results
Company provides 2010 guidance in a range between $1.20 and $1.35
TAMPA, February 5, 2010
TECO Energy, Inc. (NYSE:TE) today reported fourth quarter 2009 net income of $53.5 million or $0.25 per share, compared to $22.0 million or $0.10 per share in the fourth quarter of 2008. Fourth quarter results in 2009 were reduced by $0.4 million of restructuring charges, and results in the fourth quarter of 2008 were reduced by $20.3 million of net charges and gains, primarily taxes on the repatriation of cash and investments from Guatemala, discussed below.
Full-year net income and earnings per share were $213.9 million or $1.00 per share in 2009, compared to $162.4 million or $0.77 per share in 2008. Full year results in 2009 were reduced by $16.1 million of net charges and gains, which are discussed in the non-GAAP results section below and the Results Reconciliation table later in this release. Results in 2008 were reduced by $20.9 million of net charges and gains reflecting primarily the fourth quarter items.
TECO Energy Chairman and CEO Sherrill Hudson said, “We are pleased with the strong results in 2009 in the face of the economic recession which impacted both our utility and coal businesses. In 2009, we took steps at TECO Energy and the operating companies to position our utilities to earn their allowed returns and for TECO Energy to deliver earnings growth in 2010. We’re seeing some early signs of an economic recovery in Florida, particularly in the housing market, but we expect 2010 to be another challenging year for the State’s economy. Our unregulated coal and Guatemalan operations are well-positioned to deliver improved results in 2010 as a result of their 2009 efforts.”
The table below compares the TECO Energy GAAP net income to the non-GAAP measures used in this release. Non-GAAP results exclude the charges and gains described following the table. See the Non-GAAP Presentation section and Results Reconciliation table later in this release for a reconciliation to GAAP results and a discussion regarding this presentation of non-GAAP results and management’s use of this information.
All amounts included in the non-GAAP discussion below are after tax, unless otherwise noted.
3 months ended Dec. 31
12 months ended Dec. 31
Fourth quarter 2009 non-GAAP results excluded $0.4 million of restructuring charges. F ull year non-GAAP results excluded net charges and gains of $16.1 million consisting of $15.8 million of restructuring charges at Tampa Electric, Peoples Gas and TECO Energy, the write-off of $5.2 million of project development costs at Tampa Electric, primarily related to the Polk Unit 6 IGCC plant, a $3.8 million loss on student loan securities held at TECO Energy, and an $8.7 million net gain on the sale of TECO Guatemala's 16.5% interest in the Central American fiber optic telecommunications provider Navega .
Fourth quarter 2008 non-GAAP results excluded $21.6 million of taxes related to the repatriation of cash and investments from Guatemala , a $1.9 million charge associated with a regulatory settlement with the Florida Public Service Commission (FPSC) related to the calculation of Tampa Electric’s waterborne transportation disallowance over its five-year life, and a $3.2 million favorable income tax adjustment related to the sale of TECO Transport. (See the Results Reconciliation table.) In addition to the items discussed above, full-year 2008 non-GAAP results excluded a $0.6 million adjustment to previously estimated transaction costs related to the sale of TECO Transport.
The table below includes TECO Energy segment information on a GAAP basis, which includes all charges and gains for the periods shown.
3 months ended Dec. 31
12 months ended Dec. 31
Net Income (loss)
Peoples Gas System
Operating Company Results
All amounts included in the operating company and Parent/other results discussions are after tax, unless otherwise noted.
Net income for the fourth quarter was $39.1 million, compared with $28.9 million for the same period in 2008. Tampa Electric’s 2009 fourth quarter non-GAAP results were $39.3 million, which excluded a $0.2 million restructuring charge, compared to $30.8 million in 2008. Non-GAAP results in 2008 excluded a $1.9 million charge related to the settlement with the FPSC of a dispute that arose in 2008 over the calculation of Tampa Electric’s waterborne transportation disallowance over its five-year life .
Results for the quarter reflected higher base rates approved by the FPSC in March, higher retail energy sales, a higher average number of customers, up 0.2%, the first increase in the number of customers since the second quarter of 2008, and higher operations and maintenance expenses discussed below. Net income included $1.0 million of Allowance for Funds Used During Construction (AFUDC) - equity, which represents allowed equity cost capitalized to construction costs, related to the installation of nitrogen oxide (NO x ) pollution control equipment and construction of rail unloading facilities, compared with $2.0 million in the 2008 period.
Operations and maintenance expense, excluding all FPSC-approved cost recovery clauses, increased $3.8 million in the fourth quarter of 2009, compared to the same period in 2008, reflecting higher generating unit maintenance expenses, higher expenses to operate the distribution system, and higher employee-related expenses, partially offset by savings in salaries and other benefits as a result of the restructuring actions taken in the third quarter. Interest expense increased due to higher levels of outstanding long-term debt. Depreciation and amortization expense increased due to additions to facilities to serve customers, including the combustion turbines to meet peak load completed in 2009.
The average number of customers increased 0.2% in the 2009 fourth quarter as a result of what appear to be early signs of improvements in the Florida housing market and a stabilizing of economic conditions. Tampa Electric’s retail energy sales increased 1.1% in the fourth quarter due to hotter than normal weather early in the quarter. Sales to industrial and phosphate customers declined 14%, reflecting the weak Florida economy and planned outages at phosphate customer facilities. Off-system sales declined due to lower state-wide demand. Total heating and cooling degree days for the Tampa area in the fourth quarter were 7% above normal and 23% above 2008 levels.
Pretax base revenues increased approximately $25 million in the fourth quarter from the higher base rates approved by the FPSC for Tampa Electric effective in 2009. In the fourth quarter of 2009, there was no reduction in net income due to the previous waterborne transportation disallowance for the transportation of solid fuel, which reduced net income $2.6 million in the 2008 period. In November 2008, the FPSC approved Tampa Electric's fuel adjustment filing, which included full recovery of waterborne transportation costs under new contracts effective Jan. 1, 2009. This approval eliminated the annual reduction in net income that occurred in 2004 through 2008 during the previous transportation contract.
Net income in 2009 was $160.2 million, compared to $135.6 million in 2008. Tampa Electric’s full-year non-GAAP results were $176.7 million, which excluded the $11.3 million of restructuring charges and the $5.2 million write-off of project development costs primarily related to the Polk Unit 6 IGCC plant, compared to non-GAAP results of $137.5 million in 2008, which excluded the $1.9 million waterborne transportation settlement charge discussed above.
Pretax base revenues increased approximately $72 million in 2009 from the higher base rates approved by the FPSC for Tampa Electric effective May 7, 2009. In the 2009 full-year period, there was no reduction in net income due to the waterborne transportation disallowance for the transportation of solid fuel, compared to a $8.9 million reduction in the 2008 period.
The higher base revenues were partially offset by lower retail energy sales and higher operations and maintenance, depreciation, property tax and interest expense. Results reflect 1.1% lower retail energy sales in 2009, primarily due to lower sales to commercial and industrial customers as a result of the weak Florida economy, and voluntary conservation by residential customers, which we believe was in response to the generally weaker economic conditions. Off-system sales declined due to lower state-wide demand. Total heating and cooling degree days were 4% above normal and 10% above 2008 levels. The average number of retail customers decreased 0.1% for the year.
In 2009, excluding all FPSC-approved cost recovery clause-related expenses, restructuring charges and the Polk 6 write-off, operations and maintenance expense increased $8.7 million, compared to 2008, primarily due to higher spending on generating unit maintenance and repairs, higher expenses to operate the distribution system, higher employee-related expenses, and slightly higher bad debt expense; partially offset by savings in salaries and other benefits as a result of the restructuring actions taken in the third quarter. Depreciation and amortization expense increased $9.1 million reflecting additional facilities to serve customers. Interest expense increased due to higher long-term debt balances, and interest income decreased due to lower interest rates on lower under-recovered fuel balances. Net income also included $9.3 million of AFUDC-equity related to the construction of the peaking generation units and the installation of NO x pollution control equipment, compared to $6.3 million in 2008.
Peoples Gas reported net income of $12.7 million for the fourth quarter, compared to $9.2 million in the same period in 2008. Peoples Gas had fourth quarter non-GAAP results of $12.8 million, which excluded $0.1 million of restructuring charges. These results reflect a $4.0 million f avorable adjustment to previously recorded deferred tax balances. There were no non-GAAP adjustments to the 2008 period. Quarterly results reflect a 0.1% lower average number of customers due to the weak Florida housing market, decreased sales to residential customers due to mild December weather and increased sales to commercial customers due to several higher volume new customers and conversion of propane customers to natural gas. Base revenues increased due to the higher permanent base rates which became effective Jun. 18, 2009. Gas transported for power generation customers increased in 2009, compared to the fourth quarter of 2008 when natural gas prices reduced demand for natural gas for power generation. Off-system sales volumes, which are very low margin sales, increased due to higher spot sales to power generation customers. Excluding restructuring charges, non-fuel operations and maintenance expense increased $2.4 million compared to 2008 levels when operations and maintenance expense included a $1.5 million benefit from the recognition of environmental remediation insurance recoveries and a $0.9 million benefit related to the completion of pipeline installations for power generation customers. Absent the 2008 benefits, operations and maintenance expense was essentially unchanged in 2009. Results also reflect increased depreciation expense due to routine plant additions.
Peoples Gas reported net income of $31.9 million for the full-year period, compared to $27.1 million in 2008. Full-year non-GAAP results, which exclude $2.9 million of restructuring charges, were $34.8 million (see the Results Reconciliation table ). There were no non-GAAP adjustments to the 2008 period. The 2009 improvement reflects the $4.0 million deferred tax adjustment, described above, and the new base rates effective in June, partially offset by higher non-fuel operations and maintenance expenses and depreciation. Results reflect a 0.2% lower average number of customers. Residential customer usage increased due to colder winter weather in the first quarter of 2009, compared to the very mild winter weather in 2008. Lower sales volumes to industrial customers reflected economic conditions and reduced operations by industries sensitive to the housing market, such as cement plants. Gas transported for power generation customers increased over the 2008 full-year period due to lower natural gas prices, which made it a more economical generating fuel choice. Excluding restructuring charges, non-fuel operations and maintenance expense increased primarily due to the fourth quarter items noted above, and higher pipeline integrity costs.
TECO Coal reported fourth quarter net income of $7.5 million, compared to $2.6 million in the same period in 2008. The 2008 quarter included $1.3 million of benefits from the sale of right-of-way easements, sales tax adjustments and adjustments to reclamation costs.
In 2009, fourth quarter sales were 1.9 million tons, compared to 2.3 million tons in the fourth quarter of 2008. Results reflect an average net per-ton selling price, excluding transportation allowances, of more than $73 per ton, almost 22% higher than in 2008. Fourth- quarter sales volumes were reduced approximately 100,000 tons due to rail shipment delays as a result of a major December snow storm which disrupted rail service throughout Central Appalachia. In the fourth quarter of 2009, the all-in total per-ton cost of production increased to almost $69 per ton, 16% over 2008’s level, and above the cost guidance range previously provided, but on lower tons than previously forecast. Cost increased in the fourth quarter due to reclamation work at surface mines that were closed earlier in the year due to weak demand, increased safety inspections by outside authorities, higher hedged diesel fuel prices than spot prices paid in 2008, and lost productivity due to winter weather. Due to tax percentage depletion, in the fourth quarter of 2009 TECO Coal's effective income tax rate was 12%.
TECO Coal recorded full-year net income of $37.2 million, more than double the $18.0 million in 2008, on sales of 8.7 million tons, compared to sales of 9.3 million tons in 2008. Lower volume and the sales mix in 2009 reflects coal market conditions, which included high inventory levels at utility steam coal customers and reduced demand for coal used in the production of steel. At almost $72 per ton, the 2009 full-year average net per-ton selling price was 20% above the 2008 average selling price. At almost $67 per ton, the 2009 all-in total per-ton cost of production was 14% higher than in 2008, as expected. I n the 2009 full-year period, TECO Coal's effective income tax rate was 17%.
TECO Guatemala reported fourth quarter net income of $9.4 million in 2009, compared to a net loss of $0.2 million in the 2008 period. In December 2008, TECO Guatemala repatriated to TECO Energy cash and investments of $71.7 million, resulting in additional taxes of $9.6 million. TECO Guatemala’s fourth quarter 2008 non-GAAP results, which exclude the $9.6 million of taxes related to the repatriation, were $9.4 million (see the Results Reconciliation table). In 2009, fourth quarter results reflect a $1.7 million net insurance recovery related to the unplanned outages at the San Jose? Power Station in the first half of 2009. In the fourth quarter, excluding the insurance recovery, earnings from the San Jose? Power Station decreased, despite higher energy production than in the 2008 period. Capacity payments under the power sales contract decreased $2.0 million in the fourth quarter of 2009 as a result of the unplanned outages in the first six months of 2009. At EEGSA, the distribution utility, 2009 fourth quarter results reflect the benefit of customer growth, higher energy sales, and cost control measures. The earnings from the DECA II unregulated EEGSA-affiliated companies, which provide, among other things, electricity transmission services, wholesale power sales to unregulated electric customers and engineering services, decreased due to the loss of the earnings from the telecommunications service provider, Navega, which was sold in the first quarter of 2009.
Full-year 2009 net income was $38.6 million, compared to $36.9 million in 2008. TECO Guatemala’s full-year 2009 non-GAAP results, which exclude the $8.7 million gain on the sale of Navega were $29.9 million, compared to 2008 non-GAAP results of $46.5 million, which exclude $9.6 million of taxes related to the December repatriation. In addition to the fourth quarter effects, full-year 2009 results at the San Jose? Power Station reflect the unplanned outages for much of the first half of the year and lower capacity payments that were a result of lower availability. The reduction in the VAD tariff at EEGSA reduced earnings at TECO Guatemala by approximately $5.0 million. The full-year results for EEGSA and affiliated companies also include a $2.5 million benefit related to an adjustment to previously estimated year-end equity balances, compared to a similar $3.1 million benefit in 2008.
Parent / Other
Parent/other cost in the fourth quarter was $15.2 million, compared to a cost of $18.5 million for the 2008 period. Results in 2009 reflect a $2.6 million negative valuation adjustment to foreign tax credits. Results in 2009 also reflect negative tax return adjustments that normally occur in the fourth quarter, compared to 2008 when the tax return adjustments were favorable. There were no non-GAAP adjustments to Parent/other for the fourth quarter of 2009. The 2008 non-GAAP cost for Parent/other in the fourth quarter was $9.7 million. Non-GAAP costs in 2008 exclude $12.0 million of non-cash income taxes on the repatriation of cash and investments from TECO Guatemala and a $3.2 million favorable adjustment to income taxes related to the sale of TECO Transport (see the Results Reconciliation table).
Full-year Parent/other cost was $54.0 million, compared to a cost of $55.2 million in 2008. Full year non-GAAP Parent/other cost was $48.6 million, which excluded $1.6 million of restructuring costs and a $3.8 million charge associated with the sale of student-loan securities held at TECO Energy parent (see the Results Reconciliation table ) . In 2008 the non-GAAP cost was $45.8 million, which, in addition to the fourth quarter items, excluded $0.6 million of adjustments to previously estimated costs related to the sale of TECO Transport. Full-year 2009 results included a $1.5 million gain on the sale of a lease, the final asset held in a leveraged lease portfolio, and a $2.6 million benefit from a sale of property by TECO Properties.
Cash and Liquidity
The table below sets forth the Dec. 31, 2009 consolidated liquidity and cash balances, the cash balances at the operating companies and TECO Energy parent, and amounts available under the TECO Energy/Finance and Tampa Electric Company credit facilities.
Balances as of Dec. 31, 2009
Tampa Electric Company
Available credit facilities
Cash and short-term investments
Consolidated other cash and short-term investments includes $18.6 million of cash at the unregulated operating companies for normal operations. In addition to consolidated cash, as of Dec. 31, 2009 unconsolidated affiliates owned by TECO Guatemala, CGESJ (San Jose?) and TCAE (Alborada), had unrestricted cash balances of $24.1 million, which are not included in the table above.
2010 Guidance and Business Drivers
TECO Energy expects earnings per share in 2010 to be in a range between $1.20 and $1.35, excluding all charges and gains. TECO Energy expects earnings in 2010 to be driven by the factors discussed below.
Tampa Electric and Peoples Gas have combined the organizations under a single management team with new organizational structures following the restructuring actions taken in the third quarter of 2009. These actions have reduced Tampa Electric’s expected operations and maintenance expenses in 2010 to approximately 2008 levels to offset the approximately $40 million revenue shortfall compared to the revenue projections filed in its base rate case. These restructuring actions are expected to enable the utilities to earn the authorized returns on equity set in the respective 2009 rate case decisions.
Tampa Electric and Peoples Gas will have the full year benefit of the 2009 base rate increases implemented in 2009. In addition, the FPSC approved the $26 million base rate increase related to the five combustion turbines and the rail unloading facilities placed in service in 2009 for rates effective Jan. 1, 2010. The 2010 base rate increase revenues are subject to refund pending the outcome of the hearing to be held by the FPSC in 2010. There is no date set for these hearings at this time.
The forecast for Tampa Electric and Peoples Gas assumes normal weather for the full year. The outlook and timing for a Florida economic recovery remains uncertain due to high unemployment and the weak housing market. Some economists are forecasting a very slow recovery starting about the middle of 2010, while others are forecasting a flat economy for 2010. The forecast used by Tampa Electric and Peoples Gas reflects no recovery in customer growth in 2010 and a slight decline in energy sales due to lower customer usage in response to the continued weak economy.
TECO Coal expects sales to be in range between 8.3 and 8.7 million tons. The total expected sales are contracted and priced at an average price of more than $75 per ton. More than one-third of sales are to steel producers and specialty stoker coal users with the remainder sold to utility steam coal customers. The all-in, fully-loaded production costs are expected to be in a range between $65 and $69 per ton, driven by lower diesel fuel costs offset by higher safety requirements, productivity that reflects the industry-wide trend of increased inspections by state and federal agencies, and higher royalty cost and severance taxes due to the higher selling prices. Diesel fuel prices have been hedged for those contracts that do not have diesel price adjustments in the contract at average prices below 2009 levels.
TECO Guatemala expects improved operating and financial performance at the San Jose? Power Station following the extended unplanned outages in 2009, and higher contract capacity payments, which are expected to increase as the 12-month rolling average capacity factor improves. EEGSA, the Guatemalan distribution utility, continues to experience customer and energy sales growth, but the issue with the VAD remains unresolved. There have been hearings in the Guatemalan courts, and Iberdrola, EEGSA’s largest investor, is in an international arbitration process under the bilateral trade agreement between Spain and Guatemala. At this time, there is no firm schedule to resolve this matter. TECO Guatemala is currently negotiating with the Guatemalan regulatory authorities regarding the five-year extension of the power sales contract for the Alborada Power Station, which expires in September 2010.
This guidance is provided in the form of a range to allow for varying outcomes with respect to important variables, such as the timing of the start of and the strength of an economic and housing market recovery in Florida, weather and customer usage at the Florida utilities, steam coal inventories at TECO Coal’s utility customers and their ability to accept contracted amounts, and margins at TECO Coal.
Management believes it is helpful to present a non-GAAP measure of performance that reflects the ongoing operations of TECO Energy’s businesses and which allows investors to better understand and evaluate the business as it is expected to operate in future periods.
Management and the Board of Directors use non-GAAP measures as a yardstick for measuring the company’s performance, for making decisions that are dependent upon the profitability of the company’s various operating units, and for determining levels of incentive compensation.
The non-GAAP measures of financial performance used by the company are not measures of performance under accounting principles generally accepted in the United States and should not be considered an alternative to net income or other GAAP figures as an indicator of the company’s financial performance or liquidity. TECO Energy’s non-GAAP presentation of net income may not be comparable to similarly titled measures used by other companies.
The Results Reconciliation table below presents non-GAAP financial results after elimination of the effects of certain identified charges and gains. This provides investors additional information to assess the company’s results and future earnings potential.
3 months ended Dec. 31
12 months ended Dec. 31
GAAP net income
Add restructuring charges
Add project development cost write-off
Exclude gain on sale of Navega
Add valuation adjustment on auction rate securities
Exclude TECO Transport final adjustments recorded at TECO Energy parent
Add Tampa Electric waterborne transportation audit adjustment
Add taxes on repatriated cash and investments
Total charges and gains
Non-GAAP results from continuing operations (1)
(1) A non-GAAP financial measure is a numerical measure that includes or excludes amounts, or is subject to adjustments that have the effect of including or excluding amounts that are included or excluded from the most directly comparable GAAP measure.
Conference call information
As previously announced, TECO Energy will conduct a Webcast and conference call with the financial community at 9:00 am Eastern time on Feb. 5, 2010 covering its fourth quarter and full-year results and its 2010 guidance and business drivers. The Webcast will be accessible through the link on TECO Energy’s Website: www.tecoenergy.com. The Webcast and accompanying slides will be available for replay for 30 days through the Web site, beginning approximately two hours after the conclusion of the live event.
TECO Energy, Inc. (NYSE: TE) is an energy-related holding company. Its principal subsidiary, Tampa Electric Company, is a regulated utility in Florida with both electric and gas divisions (Tampa Electric and Peoples Gas System). Other subsidiaries include TECO Coal, which owns and operates coal production facilities in Kentucky and Virginia , and TECO Guatemala, which is engaged in electric power generation and distribution and energy-related businesses in Guatemala.
Note: This press release contains forward-looking statements, which are subject to the inherent uncertainties in predicting future results and conditions. Actual results may differ materially from those forecasted. The forecasted results are based on the company's current expectations and assumptions, and the company does not undertake to update that information or any other information contained in this press release, except as may be required by law. Factors that could impact actual results include: regulatory actions by federal, state or local authorities; unexpected capital needs or unanticipated reductions in cash flow that affect liquidity; the ability to access the capital and credit markets when required; the availability of adequate rail transportation capacity for the shipment of TECO Coal's production; general economic conditions affecting energy sales at the utility companies; economic conditions, both national and international, affecting the Florida economy and demand for TECO Coal 's production; weather variations and changes in customer energy usage patterns affecting sales and operating costs at Tampa Electric and Peoples Gas and the effect of extreme weather conditions or hurricanes; operating conditions, commodity price and operating cost changes affecting the production levels and margins at TECO Coal; fuel cost recoveries and related cash at Tampa Electric and natural gas demand at Peoples Gas; the ability of TECO Energy's subsidiaries to operate equipment without undue accidents, breakdowns or failures; changes in the U.S. federal tax code on earnings from foreign investments that could reduce earnings; and the ultimate outcome of efforts to revise the significantly lower EEGSA VAD tariff rates implemented by regulatory authorities in Guatemala effective Aug. 1, 2008 affecting TECO Guatemala's results. Additional information is contained under "Risk Factors" in TECO Energy, Inc.'s Annual Report on Form 10-K for the period ended Dec. 31, 2008, and as updated in periodic filings with the SEC.
Summary Information as of Dec. 31, 2009
3 months ended
12 months ended
(millions except per share amounts)
Earnings per share – basic
Earnings per share – diluted
Average common shares outstanding – basic
Average common shares outstanding – diluted