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News Release

TECO Energy reports improved first quarter results

TAMPA, April 25, 2006

Net income from continuing operations increased more than 7%

TECO Energy, Inc. (NYSE:TE) today reported first quarter net income of $55.2 million or $0.27 per share, compared to $32.7 million or $0.16 per share in the first quarter of 2005. 

First quarter net income and earnings per share from continuing operations were $55.2 million and $0.27, respectively, compared to $51.5 million and $0.25 per share in the same period in 2005.

TECO Energy Chairman and CEO Sherrill Hudson said, “We’re pleased to report improved first quarter results despite the mild weather and high oil prices.  Our Florida utilities continue to benefit from the state’s strong economy and steady growth. The markets for TECO Coal and TECO Transport remain very strong, with good prices and high demand, and we expect good results from those businesses this year.”

Hudson went on to add, “TECO Transport has essentially completed the repairs at the terminal in Louisiana, and operations there are back to normal.  I can’t say enough about how proud I am of the team members across all of our businesses for their contributions to the completion of this monumental task under very difficult conditions.”

Non-GAAP Results

First quarter 2006 non-GAAP results from continuing operations, which exclude the effects of hurricane repair and restoration costs at TECO Transport, were $57.9 million, compared to $51.5 million in 2005. 

For a reconciliation to GAAP results and 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.

Segment Reporting

The table below includes TECO Energy segment information on a GAAP basis, which includes all charges and gains for the periods shown.

Segment Information

Three Months

Ended Mar. 31

Twelve Months

Ended Mar. 31

(in millions)

Net Income (loss)

2006

2005

2006

2005

Tampa Electric

$22.5

$22.0

$147.6

$144.2

Peoples Gas System

   12.5

    12.8

   29.3

  27.7

TECO Coal

24.7

27.5

112.6

73.5

TECO Transport

5.2

4.1

21.3

13.2

TECO Guatemala

8.6

11.5

37.5

6.0

TWG Merchant(1)

--

(5.7)

(8.8)

(524.3)

Parent/other

   (18.3)

    (20.7)

(124.8)

(76.1)

Net income (loss) from continuing operations

55.2

51.5

214.7

(335.8)

Discontinued operations

--

(18.8)

    82.3

(186.0)

Total net income (loss)

  $55.2

$32.7

$297.0

$(521.8)

(1)     Effective with first quarter 2006 results, only historical data is presented for TWG Merchant as all merchant assets have been divested with the exception of the McAdams Power Station site.

Operating Company Results:

Tampa Electric

Tampa Electric’s retail energy sales decreased slightly in the first quarter, as strong customer growth was more than offset by mild weather. Total heating and cooling degree-days for the Tampa area in the first quarter were 17% below normal and 2% below 2005 levels.

Net income for the first quarter was $22.5 million, compared with $22.0 million for the same period in 2005. Results for the quarter reflect 3.0% average customer growth, a $1.4 million net income benefit for higher off-system energy sales than the same period in 2005, and a $1.4 million after-tax benefit for the wholesale component of the sale of sulfur dioxide (SO2) emissions credits, which does not flow through the Environmental Cost Recovery Clause.  Non-fuel operations and maintenance expense increased as expected, primarily due to higher employee related costs and from additional spending on system reliability and coal-fired unit performance improvements.  Interest expense increased due to higher short-term debt balances. 

Peoples Gas

Peoples Gas reported net income of $12.5 million for the quarter, compared to $12.8 million in the same period in 2005. Quarterly results reflected average customer growth of 3.5% and strong off-system sales, offset by lower volumes for commercial customers and increased non-fuel operations and maintenance costs primarily related to additional personnel associated with new line location and customer service enhancements. Statewide heating degree-days for the quarter were significantly below normal and 2005.  Results in 2006 also included $0.5 million from the small remaining energy services operating companies, which provide marketing, sales support and gas management services, and are not included in the 2005 results.

TECO Coal

TECO Coal achieved first quarter net income of $24.7 million on total sales of 2.5 million tons, including synfuel, compared to $27.5 million on sales of 2.3 million tons in the same period in 2005.  First quarter tonnage included 1.5 million tons of synthetic fuel sales, compared to 1.6 million tons in the 2005. Compared to the first quarter in 2005, results reflect a 20% higher average net selling price per ton, which excludes transportation allowances.  In addition to strong markets, premiums for quality and sulfur content contributed to the higher selling prices.  Sales volumes increased over the same period in 2005 due to a new high-wall miner project entering service in the third quarter of 2005.

Results for the quarter included a $14 million after-tax, or $0.07 per share, reduction in the earnings benefits from the sale of the ownership interests in the synfuel production facilities due to oil prices which were above the threshold level for the initial phase-out of the tax credits from synthetic fuel.  The initial phase-out level for 2006 is estimated to be $61/Bbl on a NYMEX basis.  The average of the NYMEX-settled price for the quarter and the futures prices for the remainder of the year was approximately $67 per barrel, which results in about a 40% reduction in the earnings and cash benefits from synfuel for the quarter.  Final calculations of any reductions in benefits will not be made until the end of the year when final oil prices are known.  Changes in oil prices may cause quarterly adjustments to results, either positive or negative, depending on oil futures prices at the end of each quarter.

Partially offsetting the reduction in synfuel benefits was a $2.7 million after-tax benefit from the true-up in the first quarter of 2006 of the 2005 synfuel tax credit rate. The 2005 tax credit was adjusted to reflect $1.17 per million Btu on an actual basis versus the estimated $1.15 per million Btu used in 2005.  The final value of the tax credit is calculated and adjusted annually, normally in the first quarter of the subsequent year, upon release of final data by the IRS.  First quarter results also included a $1.7 million after-tax mark-to-market gain on the $20 million of hedges previously placed to protect the company’s synfuel benefits against rising oil prices. 

Compared to 2005 full-year cash cost of production, the first quarter production costs increased 7%, and are expected to average 3% to 5% higher for the full year 2006 compared to 2005.  Higher production costs reflect increased contract miner costs and continued higher fuel prices, which affect the cost of diesel fuel and explosives. Due to the timing of certain cost increases in 2005, primarily contract miner costs, the quarter-over-quarter cost comparisons are not reflective of full-year expectations.

TECO Transport

TECO Transport recorded first quarter 2006 net income of $5.2 million, compared to $4.1 million in the same period in 2005. TECO Transport’s first quarter 2006 non-GAAP results were $7.9 million, excluding the $2.7 million after-tax direct costs associated with the restoration and recovery efforts for remaining damage from Hurricane Katrina at TECO Bulk Terminal and barge repairs at TECO Barge Line (see the Results Reconciliation table).  Results in 2006 reflect higher river barge rates and lower operating costs, partially offset by higher fuel costs and lower third-party volumes at the terminal in Louisiana.  Results also reflect the qualification of three oceangoing vessels for the benefits of tax law changes under the Jobs Creation Act, compared to no benefits recorded in the first quarter of 2005.  The tax law change keeps U.S. flag vessels competitive with non-U.S. flag vessels by reducing taxes on income earned by U.S. flag vessels engaged in full-time international trade

The final major repairs to damage from Hurricane Katrina at TECO Bulk Terminal were completed in mid-April 2006. Any remaining repair and restoration costs and an insurance recovery related to TECO Barge Line hurricane damage are expected to be recorded in the second quarter of 2006.

TECO Guatemala

TECO Guatemala reported first quarter net income of $8.6 million in 2006, compared to $11.5 million in the 2005 period.  The 2006 results reflect customer growth and higher energy sales at EEGSA, which were more than offset by higher tax rates compared to 2005.  Results in 2005 included the one-year benefit of the 5% tax rate on dividends under the Jobs Creation Act while 2006 reflects the normal tax rate. 

Parent / Other

The cost for Parent/other in the first quarter was $18.3 million, compared to a cost of $20.7 million in the same period in 2005.  Total parent interest expense declined $8.8 million in the first quarter of 2006 due to the debt redemption and refinancing actions initiated in mid 2005, including the retirement of $100 million of the 8.5% trust preferred securities in December 2005 and the retirement of the $380 million of 10.5% notes in June 2005.  This was offset, in part, by no longer allocating interest to TWG Merchant.

Discontinued Operations

Discontinued operations were break-even for the 2006 first quarter, compared to a net loss of $18.8 million in the same period of 2005.  Results from discontinued operations in 2005 included the operating results from the Union and Gila River power stations through the end of May 2005, and the results for the Commonwealth Chesapeake Power Station until its sale in April 2005.      

Cash and Liquidity

TECO Energy’s consolidated cash and cash equivalents, excluding all restricted cash, totaled $393.5 million at Mar. 31, 2006.  Restricted cash of $37.2 million includes $30.0 million held in escrow until the end of 2007 related to the sale of a 49% interest in the synthetic coal production facilities. As of Mar. 31, 2006, unconsolidated affiliates owned by TECO Guatemala, CGESJ (San Jose) and TCAE (Alborada) had unrestricted cash balances of $12.0 million and restricted cash of $8.9 million.

In addition, at Mar. 31, 2006, aggregate availability under bank credit facilities was $510.6 million, net of letters of credit of $14.4 million outstanding under these facilities and $150 million drawn on Tampa Electric Company’s credit facilities.  At the end of the quarter, total liquidity, including cash plus credit facilities, was $904.1 million, which included $335.4 million at Tampa Electric Company, consisting of $325.0 million of undrawn credit facilities and $10.4 million of cash. 

TECO Energy parent had total liquidity of $535.8 million at Mar. 31, 2006, consisting of $350.2 million of cash and availability of $185.6 million under its credit facility.

2006 Earnings Outlook

TECO Energy is maintaining its January 2006 estimate for 2006 per share results from continuing operations to be in a range of $1.25 to $1.35 excluding any reduction in proceeds from the sale of synfuel ownership interests due to oil prices above the estimated $61 per barrel threshold level that would reduce the value of the synfuel tax credits (see the TECO Coal discussion).  This estimate also excludes charges and gains that might occur and be treated as non-GAAP items, such as Hurricane Katrina restoration costs and insurance recoveries at TECO Transport.  These forecasted results are based on the company’s first quarter actual results and current expectations and assumptions for the year, including normal weather at the Florida utilities for the remainder of the year and continued strong market conditions for TECO Transport, which are subject to risks and uncertainties. First quarter results included several positive factors that are not expected to recur throughout the year, including the true-up of 2005 synfuel tax credits to reflect the actual inflation rate and the benefits from the sale of emissions credits at Tampa Electric.

Average NYMEX futures prices for oil for the remainder of calendar year 2006 are currently approximately $72 per barrel.  Oil prices at these levels for the remainder of the year, combined with the year-to-date settled prices, would result in a full-year average price of almost $70 per barrel, which would reduce 2006 earnings by approximately $0.35 per share and cash proceeds by approximately $130 million.  TECO Coal has produced synfuel through April and expects to produce synfuel in May, but continued production or curtailment of production in future months will be reviewed monthly based on oil price expectations.

Non-GAAP Presentation

The “Results Reconciliation” table below presents non-GAAP financial results after elimination of the effects of certain identified gains and charges in the 2006 and 2005 quarterly and full-year 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 five core 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.

Management and the Board of Directors use this non-GAAP presentation as a yardstick for measuring the company’s performance, in making decisions that are dependent upon the profitability of the company’s various operating units and in determining levels of incentive compensation.

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.

Results Reconciliation

(in millions)

3-months ended

Mar. 31

12-months ended

Mar. 31

 

2006

2005

2006

2005

GAAP net income (loss)

$55.2

$32.7

$297.0

$(521.8)

     

Exclude discontinued operations(1)

  --

   (18.8)

82.3

(186.0)

GAAP net income (loss) from continuing operations

$55.2

$51.5

$214.7

$(335.8)

Add TECO Transport hurricane costs

2.7

--

15.4

--

Add TECO Transport hurricane insurance recovery

--

--

(13.7)

--

Add parent debt extinguishment(2)

--

--

46.7

(0.5)

Add TIE write-off

--

--

--

99.0

Add Guatemalan debt extinguishment

--

--

--

6.7

Add tax on Guatemalan cash repatriation

--

--

--

17.4

Add TECO Transport valuation adjustment

--

--

--

(0.2)

Add unutilized tax credits

--

--

--

(7.0)

Add Dell & McAdams valuation adjustment and gain on sale, net

--

--

(1.9)

381.7

Add corporate restructuring costs

--

--

--

6.5

Add steam turbine write-offs

  --

--

--

12.8

Add gain on propane business sale

    -- 

     --

     --

   (1.4)

   Total charges and gains

    2.7

     --

  46.5

  515.0

Non-GAAP results from continuing operations (3)

$57.9

$51.5

$261.2

$179.2

(1) Discontinued operations for the 2005 periods included the losses associated with operations of the Union, Gila River, Commonwealth Chesapeake and Frontera power stations, and the energy services companies. The 12-months ended 2006 results reflected primarily the gain on the final transfer of the Union and Gila River power stations.

(2) Includes the second quarter 2005 redemption premium and unamortized debt issuance costs associated with the June 2005 redemption of the 10.5% notes due in 2007 and the fourth quarter 2005 write-off of unamortized debt issuance costs associated with the December 2005 redemption of $100 million of 8.5% trust preferred securities.  The 12-months ended 2005 results include the benefits from the early exchange of the 9.5% adjustable conversion-rate equity security units.

(3) A non-GAAP financial measure is a numerical measure 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 (see the Non-GAAP presentation section).

Webcast

As previously announced, TECO Energy will host a Webcast with the investment community on its first quarter results at 5:00 PM Eastern time, today, April 25, 2006.  The Webcast can be accessed by following 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 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 current expectations and assumptions, and the company does not undertake to update that information or any other information contained in this press release. Additional factors that could impact actual results include: unforeseen regulatory actions by federal, state or local authorities that could impact operations; any adverse outcome in previously disclosed litigation;  any additional 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 prices in excess of the annual reference price, which would reduce or eliminate synfuel tax credits and reduce or eliminate the earnings and cash flow from the sale of membership interests in the synfuel production facilities at TECO Coal; the availability of adequate rail transportation capacity for the shipment of TECO Coal’s production; 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 sales and operating costs at Tampa Electric and Peoples Gas  and the effect of extreme weather conditions; commodity price changes affecting the margins at TECO Coal or natural gas demand at Peoples Gas; the ability of TECO Energy’s subsidiaries to operate equipment without undue accidents, breakdowns or failures; changes in electric tariffs or contract terms affecting TECO Guatemala’s operations; and TECO Coal’s ability to successfully operate its synthetic fuel production facilities in a manner qualifying for the federal income tax credits, which could be impacted by changes in law, regulation or administration.   Additional information is contained under “Risk Factors” in TECO Energy Inc.’s Annual Report on Form 10-K for the period ended Dec. 31, 2005.


Summary Information as of March 31, 2006

 

Three Months

Ended

Twelve Months

Ended

(millions except per share amounts)

    
 

2006

2005

2006

2005

Revenues

$836.4

$684.7

$3,161.8

$2,708.0

Net income (loss) from continuing operations

$  55.2

$51.5

$   214.7

$(335.8)

Net income (loss) from discontinued operations

   --

  (18.8)

    82.3

(186.0)

Net income (loss)

$ 55.2

$32.7

 $297.0

$(521.8)

Earnings (loss) per share from continuing operations – basic

$0.27

$0.25

$ 1.03

$(1.70)

Earnings (loss) per share from discontinued operations – basic

-- 

(0.09)

0.40

(0.95)

 Earnings (loss) per share – basic

$0.27

$0.16

$1.43

$(2.65)

     
     

Earnings (loss) per share – diluted

$0.26

$0.16

$1.42

$(2.65)

Average common shares outstanding – basic

207.5

205.1

207.1

197.0

Average common shares outstanding – diluted

208.7

206.0

208.4

197.0

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