TECO Energy reports first quarter net income from continuing operations of $52 million
TAMPA, April 26, 2005
TECO Energy, Inc. (NYSE:TE) today reported first quarter net income of $32.7 million, compared to net income of $2.5 million in the first quarter of 2004. Earnings per share for the quarter were $0.16, compared to earnings per share of $0.01 in the first quarter of 2004. The first quarter net income from continuing operations was $51.5 million, compared to net income from continuing operations of $31.7 million for the same period in 2004. Earnings per share from continuing operations were $0.25 for the quarter, compared to $0.17 per share in the 2004 period. Discontinued operations in the quarter primarily reflect the operating results from the Union and Gila River power stations and the recently sold Commonwealth Chesapeake Power Station. The number of common shares outstanding was 9% higher for the quarter than it was for the same period in 2004, primarily due to the common shares issued in the settlement of the 9.5% adjustable conversion-rate equity security units.
Chairman and CEO Sherrill Hudson said, “Our first quarter results get us off to a great start on our stated objectives for the year. Our strong earnings are a solid foundation for our businesses’ performance going forward. The recent progress on the transfer of the Union and Gila River power stations and our closed sale of Commonwealth Chesapeake further reduce our already minimized merchant power risk.”
“Our Florida utilities continued to have strong customer growth, TECO Coal enjoyed strong selling prices and TECO Transport benefited from strong markets and improved operating performance,” added Hudson.Non-GAAP Earnings
First quarter net income from continuing operations was $51.5 million, which was unaffected by the exclusion of certain identified charges and gains and therefore the same as the non-GAAP results shown in Table 1 below. Non-GAAP results from continuing operations in 2004 were $25.3 million, excluding the charges and gains identified in Table 1 below. Table 1 also provides non-GAAP results for the 12 month periods ended March 31, 2005 and March 31, 2004.
For a discussion regarding this presentation of non-GAAP results and management’s use of this information, please see the Non-GAAP Presentation section later in this release.
Table 1 – Results Reconciliation:
Three months ended
Twelve months ended
GAAP net income (loss)
Add change in accounting
Exclude loss from discontinued operations
GAAP net income (loss) from continuing operations
Add Dell & McAdams valuation adjustment
Add TIE write-off
Add corporate restructuring costs
Add Guatemalan debt extinguishment
Add tax on Guatemalan cash repatriation
Add unutilized tax credits
Add TWG cancelled project write-offs
Add Hamakua FIN 46 accounting adjustment
Add TECO Solutions valuation adjustment
Add steam turbine write-offs
Add TECO Transport valuation adjustment
Add Hardee gain on sale
Add Hardee operating results
Add benefits of early exchange
Add gain on propane business sale
Total charges and gains
Non-GAAP results from continuing operations (1)
(1) A non-GAAP financial measure is a numerical measure of historical or future financial performance, financial position or cash flow that includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable GAAP measure so calculated and presented.Segment Reporting:
Effective with the first quarter results, TECO Energy’s segment reporting has been revised to separately report the results of TECO Guatemala, which includes the results for the San José and Alborada power stations and the 24% ownership interest in EEGSA, Guatemala’s largest distribution utility. The results for these operations were previously reported in the “Other unregulated” segment. Following the sales of the larger energy services businesses, which were previously reported in the “Other unregulated” segment, the remaining small operations of TECO Solutions are now reported in the Parent/other results. Following the sales of the merchant power assets, the current-period TWG Merchant segment includes only the results for the uncompleted Dell and McAdams power stations and the costs associated with TWG Merchant parent. Prior periods also include the results for the ownership interest in the Texas Independent Energy (TIE) projects.Results for the unregulated business segments include internally allocated interest expense. Interest expense is not allocated to discontinued operations and instead remains at the TECO Energy parent level.
Table 2 – Segment Information
Ended Mar. 31
Ended Mar. 31
Net Income (Loss) Summary
Peoples Gas System
TECO Transport (1)
Net income from continuing operations before cumulative effect of an accounting change
Cumulative effect of an accounting change(4)
Total net income (loss)
1) 2004 results include $0.8 million of charges related to valuation adjustments.
2) 2004 results include the $10.6 million gain on the sale of TECO Propane Ventures and the $3.4 million valuation adjustment at TECO Solutions.
3) Interest expense that was previously internally allocated to the TIE, Frontera and Commonwealth Chesapeake power stations is now reflected as a TECO Energy parent company expense for 2005.
4) Reflects the implementation of Financial Accounting Standard 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.
Tampa Electric’s net income for the first quarter was $22.0 million, compared to $23.9 million for the same period in 2004. Results in 2005 reflect good customer growth, offset by milder weather than in 2004, higher depreciation expense from normal plant additions and a full quarter of Bayside Unit 2 depreciation. Operations and maintenance expenses were unchanged from 2004. There were no earnings in 2005 from the equity component of AFUDC (which represents allowed equity cost capitalized to construction costs), which was a decrease of $0.7 million from the 2004 period, due to the completion of the Gannon/Bayside repowering project in January 2004. Results in 2005 also reflect a $3.8 million reduction in pretax income due to the Florida Public Service Commission’s decision in the third quarter of 2004 to disallow recovery of a portion of Tampa Electric’s waterborne solid fuel transportation costs.
Retail energy sales decreased almost 1% compared to the first quarter of 2004 as average customer growth of 2.1% was partially offset by mild weather, lower sales to weather-sensitive residential customers and lower sales to industrial-phosphate customers. Total heating and cooling degree-days for the Tampa area in the quarter were almost 15% below normal and 10% below 2004 levels.
Peoples Gas System reported net income of $12.8 million for the quarter, unchanged from the same period in 2004. Quarterly results reflected customer growth of 4.2% and higher therm sales to residential and commercial customers. Residential therm sales growth was limited by the mild weather early in the quarter. Peoples Gas is sensitive to heating degree days during the winter months, and statewide heating degree days for the period were above normal but below 2004 levels. Strong sales to commercial customers reflected growth in the Florida economy and high levels of tourism, which affect commercial sales to hotels and restaurants. Sales of low-margin transportation service for interruptible customers declined due to high gas prices.
TECO Coal reported net income of $27.5 million on total sales of 2.3 million tons, compared to $15.4 million reported in the same period in 2004 on a similar level of sales. Synfuel sales, which are included in the total sales, were 1.6 million tons in both years. Results for the quarter reflect an average net selling price per ton almost 40% higher and average cash cost of sales, excluding synfuel costs, more than 10% higher than 2004. Results also include a $1.9 million pretax benefit as a result of the final adjustment to the calculation of the 2004 Section 29 tax credit rate by the Internal Revenue Service to $1.13 per million BTU, a $0.7 million after-tax mark-to-market gain on hedges placed to protect the synfuel benefits against rising oil prices, and an increased percentage of synfuel tax credits utilized by the third parties with membership interests in TECO Synfuel Holdings, LLC, as described below. These benefits were partially offset by a $2.4 million negative adjustment to deferred tax assets, due to a reduction in the Kentucky state income tax rate.
TECO Synfuel Holdings, LLC, had previously sold 90% of its membership interest to two third parties, along with associated percentage rights to benefits in the business that adjust from time to time. Allocation of the benefits increased 8% in the first quarter such that 98% of the benefits went to the third parties. Under these transactions, TECO Coal is paid to provide feedstock, operate the synthetic fuel production facilities and sell the output while the purchasers have the risks and rewards of ownership, including being allocated 98% of the tax credits and operating costs. Due to TECO Energy’s anticipated 2005 tax position and inability to record Section 29 tax credits to its account, this allocation decreases the operating loss and increases earnings and cash flow to TECO Coal. The third-party ownership structure of the synthetic fuel production facilities retains TECO Coal as the operator and decreases overall earnings per ton but increases cash generation per ton. The allocation of the additional 8% of the rights to the benefits is expected to continue until the end of the second quarter and then the absolute benefits received by the current third parties are scheduled to revert to 90%.
TECO Transport recorded first quarter net income of $4.1 million, compared to $1.9 million, excluding $0.8 million of valuation adjustments on oceangoing equipment, in the same period in 2004. These results reflect higher river barge rates and increased northbound shipments at TECO Barge Line, increased movements of export coal through TECO Bulk Terminal and improved operating conditions and efficiencies. Higher fuel costs were partially offset by $0.7 million of mark-to-market gains on fuel hedges.
TECO Guatemala reported first quarter net income of $11.5 million, compared to $11.1 million in the 2004 period. These results reflect higher capacity revenues and lower operations and maintenance expenses at the Alborada Power Station, higher energy sales from the San José Power Station and at EEGSA, lower Guatemalan taxes due to a tax rate change first implemented in the third quarter of 2004, and recognition of foreign tax credits.
TWG Merchant recorded a first-quarter loss of $5.7 million, compared to a loss of $15.6 million for the same period in 2004. The 2005 results primarily reflect allocated interest expense at the uncompleted Dell and McAdams power stations and overhead expenses of TWG Merchant. Results in 2004 included the losses from the ownership interest in the TIE projects, which was sold in July 2004.
Parent/Other results in the first quarter were a $20.7 million loss, compared to a $17.0 million loss in the same period in 2004. Although total parent interest expense declined in the first quarter due to the retirement of the trust-preferred debt associated with the early settlement and final conversion of the variable conversion-rate equity security units, less interest was allocated to TWG Merchant.
The net loss from discontinued operations for the 2005 first quarter was $18.8 million, compared to a net loss of $29.2 million in the same period of 2004. Discontinued operations in the first quarter of 2005 included the operating losses for the Union and Gila River power stations and the results for the Commonwealth Chesapeake Power Station. On January 26, 2005 the Union and Gila River project companies filed a pre-negotiated Chapter 11 case in Arizona, and at the time of the filing the project companies stopped recording the interest expense associated with the non-recourse project debt. The net loss from discontinued operations was approximately $14.4 million lower in the first quarter due to this change. Discontinued operations for the first quarter in 2004 now include the results from the Frontera and Commonwealth Chesapeake power stations and the results from the energy services businesses that have also been sold, as well as the Union and Gila River power stations, including the interest on the non-recourse debt.
Cash and Liquidity
TECO Energy’s consolidated cash and cash equivalents, excluding all restricted cash, totaled $312.6 million at March 31, 2005. Restricted cash of $57.1 million includes $50.0 million held in escrow until the end of 2007 related to the sale of a 49 percent interest in the synthetic coal production facilities. Cash at March 31, 2005 excludes the San José and Alborada power stations’ unrestricted cash balances of $23.5 million and restricted cash of $8.3 million, as these companies were deconsolidated due to the adoption of FIN 46R, Consolidation of Variable Interest Entities, effective Jan. 1, 2004.
In addition, at March 31, 2005, aggregate availability under bank credit facilities was $517.4 million, net of letters of credit of $27.6 million outstanding under these facilities and $80 million drawn on Tampa Electric’s credit facilities. At the end of the first quarter, total liquidity, including cash plus credit facilities, was $853.5 million, which included $400.7 million at Tampa Electric consisting of $345.0 million of undrawn credit facilities and $55.7 million of cash.
TECO Energy parent had total liquidity of $399.5 million at March 31, 2005, consisting of $227.1 million of cash, and availability under its credit facilities of $172.4 million.
First quarter TECO Energy consolidated cash flow from operations was $98.4 million, which included recovery of fuel costs previously underrecovered, payments for hurricane restoration costs at Tampa Electric that carried over from 2004, and the cash operating results of the Union and Gila River power stations. The results from the Union and Gila River power stations were offset by restricted cash proceeds of $24 million that were invested in the projects in 2004 and are recorded in the “Investing Activities” section.
Other sources of cash in the first quarter of 2005 were $42 million of proceeds from the third-party investors for synfuel production and $180 million of proceeds from the final settlement of the equity security units. Cash used in financing activities included dividends of $39 million on TECO Energy common stock and the repayment of $35 million of short-term debt at Tampa Electric. Capital expenditures for the quarter were $62 million.
For 2005, TECO Energy is maintaining its estimate for earnings per share from continuing operations in a range of $0.95 to $1.05, consolidated cash flow from operations in a range of $250 million to $300 million and net cash generation at TECO Energy parent in a range of $320 million to $360 million. These forecasted results are based on the company’s curr ent expectations and assumptions, which are subject to risks and uncertainties, including those described below.
Tampa Electric expects continued 2.5% annual customer growth with energy sales growth slightly above that, assuming normal weather for the remainder of the year. Peoples Gas expects customer growth of more than 4% in 2005. Operations and maintenance expenses at the utilities are expected to increase at about the level of inflation.
Results at TECO Coal are expected to improve due to prices for coal sales being more than 40% higher, partially offset by production costs more than 10% higher than 2004 levels. TECO Coal also expects to benefit from continued strong earnings and cash flow from its synfuel facilities. These estimates of earnings and cash flow assume no reduction in Section 29 tax credits due to potential limitations that might result from oil prices exceeding the benchmark price.
TECO Transport anticipates improved results from strong river market pricing due to better balance in the supply and demand for river barges as well as increased product movement through the bulk transfer terminal as imports and exports improve.
TECO Guatemala expects to continue to provide strong earnings and cash flow with earnings about $7 million and cash flow about $5 million lower than 2004, reflecting tax benefits in 2004 that moderate in 2005.
Estimated 2005 consolidated cash flow from operations of $250 million to $300 million reflects the expected improvements in the operating companies’ results and includes the expected cash operating losses from the Union and Gila River power stations through the anticipated ownership transfer of these stations in May. Capital expenditures are expected to be about $300 million, and the company will pay $31.8 million upon the final transfer of the Union and Gila River power stations. Expected net cash generation also reflects the proceeds from the final settlement of the mandatorily convertible equity security units, the cash proceeds from the third-party ownership in TECO Coal’s synfuel production facilities, the proceeds from the recently closed sale of the Commonwealth Chesapeake Power Station and the payment of common stock dividends.
Common shares outstanding increased by 6.85 million shares on January 18, 2005 upon the final settlement of TECO Energy’s equity security units, which is reflected in the 2005 earning-per-share forecast. Consistent with its objective to improve its financial position, TECO Energy may use available cash to reduce outstanding debt. Although the company does not expect to require capital from external sources to meet cash needs in 2005, except for short-term borrowings under Tampa Electric’s credit facilities, it may issue debt securities to refinance existing debt if it is economic to do so. The company’s 2005 forecast does not include any impact to earnings or cash flow that might result from early retirement of debt or refinancings.
Table 1, “Results Reconciliation,” presents non-GAAP financial results after elimination of the effects of certain identified gains and charges in the 2004 quarterly period and the 12-months ended periods. Management believes that the presentation of this non-GAAP financial performance provides investors a measure that reflects the company’s operations under its business strategy, which is focused on its utility operations and profitable unregulated businesses. Management also believes that it is helpful to present a non-GAAP measure of performance that clearly reflects the ongoing operations of TECO Energy’s business and which allows investors to better understand and evaluate the business as it is expected to operate in future periods.
The non-GAAP measure of financial performance used by the company is not a measure 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.
Management and the Board of Directors use this non-GAAP presentation as a yardstick for measuring the company’s performance, making decisions that are dependent upon the profitability of the company’s various operating units and in determining levels of incentive compensation.
While each of the particular excluded items is not expected to recur, there may be adjustments to charges related to merchant power facilities or additional debt extinguishment activities. Management recognizes that there may be items that could be excluded in the future. Even though charges may occur, management believes the non-GAAP measure is an important addition to GAAP net income for assessing the company’s potential future performance because excluded items are limited to those that management believes are not indicative of future performance.
TECO Energy plans to Webcast an update on its first quarter results and 2005 outlook during its presentation at the American Gas Association Financial Forum at 10:55AM Eastern time on Tuesday, May 3, 2005. The Webcast can be accessed by following the link on TECO Energy’s Website: www.tecoenergy.com.
TECO Energy, Inc. (NYSE: TE) is an integrated energy-related holding company with regulated utility businesses, complemented by a family of unregulated businesses. Its principal subsidiary, Tampa Electric Company, is a regulated utility with both electric and gas divisions (Tampa Electric and Peoples Gas System). Other subsidiaries are engaged in waterborne transportation, coal and synthetic fuel production and electric generation and distribution 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 expectations for 2005 described above. Additional factors that could impact actual results include: the ability to complete the planned transfer of the Union and Gila River power stations to the lending bank group in the timeframe anticipated; any adverse outcome in the previously disclosed litigation; any debt extinguishment costs or premiums associated with the early retirement of TECO Energy debt; unexpected capital needs or unanticipated reductions in cash flow that affect liquidity; oil price increases that could reduce or eliminate Section 29 tax credits, which would reduce or eliminate the earnings and cash flow from the sale of membership interests in the synfuel production facilities at TECO Coal; general economic conditions in Tampa Electric’s service area affecting energy sales; economic conditions, both national and international, affecting the demand for TECO Transport’s waterborne transportation services; weather variations affecting energy sales and operating costs at Tampa Electric and the effect of extreme weather conditions; commodity price changes affecting the margins at TECO Coal; the ability of TECO Energy’s subsidiaries to operate equipment without undue accidents, breakdowns or failures; and TECO Coal’s ability to successfully operate its synthetic fuel production facilities in a manner qualifying for Section 29 federal income tax credits, which could be impacted by changes in law, regulation or administration. Additional information is contained under “Investment Considerations” in the company’s Annual Report on Form 10-K for the period ended December 31, 2004.
News Media: Laura Plumb Duda - (813) 228-1572
Investor Relations: Mark Kane – (813) 228-1772
Summary Information as of March 31, 2005
Ended Mar. 31
Ended Mar. 31
(millions except per share amounts)
Net income (loss)from continuing operations
Net income (loss) from discontinued operations
Total net income (loss) before cumulative effect of change in accounting principle
Cumulative effect of change in accounting principle
Earnings (loss) per share from continuing operations- basic
Earnings (loss) per share from discontinued operations- basic
Earnings (loss) per share from cumulative effect of change in accounting principle – basic
Earnings (loss) per share – basic
Total earnings (loss) per share – basic
Total earnings (loss) per share – diluted
Average common shares outstanding – basic
Average common shares outstanding – diluted