-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CTe8rXanDRfr9vZfujU0X8QIYLYtJRO3J/Jw6YyoaoAkCIegzY22WMB8t9G+1Fjl +J1RGS5vY/goe7cWXMX2zw== 0001021408-01-505144.txt : 20010815 0001021408-01-505144.hdr.sgml : 20010815 ACCESSION NUMBER: 0001021408-01-505144 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TAMPA ELECTRIC CO CENTRAL INDEX KEY: 0000096271 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 590475140 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05007 FILM NUMBER: 1707687 BUSINESS ADDRESS: STREET 1: 702 N FRANKLIN ST STREET 2: TECO PLZA CITY: TAMPA STATE: FL ZIP: 33602 BUSINESS PHONE: 8132284111 MAIL ADDRESS: STREET 1: TAMPA ELECTRIC CO STREET 2: TECO PLAZA 702 N FRANKLIN ST CITY: TAMPA STATE: FL ZIP: 33602 10-Q 1 d10q.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ------ EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 -------------------------- OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period _____ to _____ Commission File Number 1-5007 ------ TAMPA ELECTRIC COMPANY ---------------------- (Exact name of registrant as specified in its charter) FLORIDA 59-0475140 ------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 702 N. Franklin Street, Tampa, Florida 33602 - -------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (813) 228-4111 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ___ ----- Number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date (July 31, 2001): Common Stock, Without Par Value 10 The registrant meets the conditions set forth in General Instruction (H)(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format. Index to Exhibits Appears on Page 16 Page 1 of 16 PART I. FINANCIAL INFORMATION -------------------------------- Item 1. Condensed Financial Statements ------------------------------ In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments which are of a recurring nature and necessary to present fairly the financial position of Tampa Electric Company as of June 30, 2001 and 2000, and the results of operations and cash flows for the three- and six-month periods ended June 30, 2001 and 2000. The results of operations for the three- and six-month periods ended June 30, 2001 are not necessarily indicative of the entire fiscal year ending Dec. 31, 2001. Reference should be made to the explanatory notes affecting the income and balance sheet accounts contained in Tampa Electric Company's Annual Report on Form 10-K for the year ended Dec. 31, 2000 and to the notes on pages 7 and 8 of this report. 2 CONSOLIDATED BALANCE SHEETS unaudited (in millions) June 30, Dec. 31, 2001 2000 --------- --------- Assets Property, plant and equipment, at original cost Utility plant in service Electric $ 4,067.4 $ 4,054.1 Gas 649.6 632.1 Construction work in progress 278.8 150.1 --------- --------- 4,995.8 4,836.3 Accumulated depreciation (1,963.8) (1,931.3) --------- --------- 3,032.0 2,905.0 Other property 8.1 8.3 --------- --------- 3,040.1 2,913.3 --------- --------- Current assets Cash and cash equivalents 1.0 0.7 Receivables, less allowance for uncollectibles 203.7 180.4 Inventories, at average cost Fuel 88.6 56.8 Materials and supplies 51.8 52.4 Prepayments 7.2 3.3 --------- --------- 352.3 293.6 --------- --------- Deferred debits Unamortized debt expense 14.1 13.2 Deferred income taxes 128.8 124.3 Regulatory asset - tax related 62.2 62.3 Other 178.6 143.1 --------- --------- 383.7 342.9 --------- --------- $ 3,776.1 $ 3,549.8 ========= ========= Liabilities and Capital Capital Common stock $ 1,306.1 $ 1,148.1 Retained earnings 298.9 299.0 -------- -------- 1,605.0 1,447.1 Long-term debt, less amount due within one year 1,036.9 789.3 -------- -------- 2,641.9 2,236.4 -------- -------- Current liabilities Long-term debt due within one year 55.3 55.2 Notes payable 58.5 231.2 Accounts payable 162.1 188.0 Customer deposits 83.9 82.4 Interest accrued 19.6 34.2 Taxes accrued 82.1 71.6 -------- -------- 461.5 662.6 -------- -------- Deferred credits Deferred income taxes 443.4 424.5 Investment tax credits 33.8 36.1 Regulatory liability-tax related 69.1 72.4 Other 126.4 117.8 -------- -------- 672.7 650.8 -------- -------- $ 3,776.1 $ 3,549.8 ======== ======== The accompanying notes are an integral part of the consolidated financial statements. 3 CONSOLIDATED STATEMENTS OF INCOME unaudited (in millions) For the three months ended June 30, 2001 2000 ------ ------ Revenues Electric $358.8 $340.3 Gas 82.3 71.4 ------ ------ 441.1 411.7 ------ ------ Operating expenses Operation Fuel 68.3 84.7 Purchased power 75.1 41.8 Natural gas sold 43.4 36.0 Other 62.5 62.8 Maintenance 26.6 32.8 Depreciation 49.8 43.8 Taxes-Federal and state income 24.0 22.7 Taxes-Other than income 33.2 30.6 ------ ------ 382.9 355.2 ------ ------ Operating Income 58.2 56.5 Other income Allowance for other funds used during construction 1.3 0.7 Other income, net 0.7 -- ------ ------ 2.0 0.7 ------ ------ Income before interest charges 60.2 57.2 ------ ------ Interest charges Interest on long-term debt 14.2 12.4 Allowance for borrowed funds used during construction (0.5) (0.2) Other interest 4.2 5.3 ------ ------ 17.9 17.5 ------ ------ Net Income $ 42.3 $ 39.7 ====== ====== The accompanying notes are an integral part of the consolidated financial statements. 5 CONSOLIDATED STATEMENTS OF INCOME unaudited (in millions)
For the six months ended June 30, 2001 2000 ------ ------ Revenues Electric $694.6 $632.6 Gas 216.4 158.1 ------ ------ 911.0 790.7 ------ ------ Operating expenses Operation Fuel 144.6 164.2 Purchased power 129.7 67.6 Natural gas sold 125.4 76.7 Other 125.2 118.1 Maintenance 53.9 59.5 Depreciation 98.9 88.9 Taxes-Federal and state income 47.0 43.9 Taxes-Other than income 68.8 61.4 ------ ------ 793.5 680.3 ------ ------ Operating Income 117.5 110.4 Other income Allowance for other funds used during construction 2.1 1.0 Other income, net 2.4 0.1 ------ ------ 4.5 1.1 ------ ------ Income before interest charges 122.0 111.5 ------ ------ Interest charges Interest on long-term debt 28.1 25.3 Allowance for other funds used during construction (0.8) (0.4) Other interest 11.4 9.8 ------ ------ 38.7 34.7 ------ ------ Net Income $ 83.3 $ 76.8 ====== ======
The accompanying notes are an integral part of the consolidated financial statements. 6 CONSOLIDATED STATEMENTS OF CASH FLOWS unaudited (in millions) For the six months ended June 30, 2001 2000 ------- ------- Cash flows from operating activities Net income $ 83.3 $ 76.8 Adjustments to reconcile net income to net cash Depreciation 98.9 88.9 Deferred income taxes 12.3 (3.9) Investment tax credits, net (2.2) (2.2) Allowance for funds used during construction (2.9) (1.4) Deferred recovery clause (25.0) (3.2) Receivables, less allowance for uncollectibles (23.2) (27.5) Inventories (31.2) (16.8) Taxes accrued 10.5 49.6 Interest accrued (14.5) 9.3 Accounts payable (25.9) (4.3) Other (7.5) 20.1 ------- ------- 72.6 185.4 ------- ------- Cash flows from investing activities Capital expenditures (226.8) (176.6) Allowance for funds used during construction 2.9 1.4 ------- ------- (223.9) (175.2) ------- ------- Cash flows from financing activities Proceeds from contributed capital from parent 158.0 99.0 Proceeds from long-term debt 250.0 -- Repayment of long-term debt (0.4) (80.3) Net increase (decrease) in short-term debt (172.6) 5.7 Payment of dividends (83.4) (60.3) ------- ------- 151.6 (35.9) ------- ------- Net increase (decrease) in cash and cash equivalents 0.3 (25.7) Cash and cash equivalents at beginning of period 0.7 26.1 ------- ------- Cash and cash equivalents at end of period $ 1.0 $ 0.4 ======= ======= The accompanying notes are an integral part of the consolidated financial statements. 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ A. Tampa Electric Company (the company) is a wholly owned subsidiary of TECO Energy, Inc. B. The company has made certain commitments in connection with its continuing construction program. Total construction expenditures during 2001 are estimated to be $373 million for its electric division (referred to as Tampa Electric) and $74 million for its natural gas division (referred to as Peoples Gas System). Tampa Electric Company is a potentially responsible party for certain superfund sites and, through its Peoples Gas System 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, the company estimates its ultimate financial liability at approximately $22 million over the next 10 years. The environmental remediation costs associated with these sites have been recorded on the accompanying consolidated balance sheet, and are not expected to have a significant impact on customer prices. C. Contribution by operating division (in millions) Net Revenues Income -------- ------ Three Months Ended June 30, 2001 Tampa Electric $359.1 $38.1 Peoples Gas System 82.3 4.2 ------ ----- 441.4 42.3 Other and eliminations (0.3) -- ------ ----- Tampa Electric Company $441.1 $42.3 ====== ===== Three Months Ended June 30, 2000 Tampa Electric $340.4 $35.7 Peoples Gas System 71.4 4.0 ------ ----- 411.8 39.7 Other and eliminations (0.1) -- ------ ----- Tampa Electric Company $411.7 $39.7 ====== ===== Six Months Ended June 30, 2001 Tampa Electric $695.1 $68.6 Peoples Gas System 216.4 14.7 ------ ----- 911.5 83.3 Other and eliminations (0.5) -- ------ ----- Tampa Electric Company $911.0 $83.3 ====== ===== Six Months Ended June 30, 2000 Tampa Electric $633.0 $64.3 Peoples Gas System 158.1 12.5 ------ ----- 791.1 76.8 Other and eliminations (0.4) -- ------ ----- Tampa Electric Company $790.7 $76.8 ====== ===== 8 D. Tampa Electric Company adopted FAS 133, Accounting for Derivative Instruments and Hedging, effective Jan. 1, 2001. The standard requires the company 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 fair value of those instruments as either components of comprehensive income or in net income, depending on the types of those instruments. The company has completed the review and documentation of its derivative contracts, and found such activity has been minimal and relatively short-term in duration. Based on policies and procedures approved by the Board of Directors, from time to time, the company enters into futures, swaps and options contracts to limit exposure to gas price increases at Peoples Gas System. The company did not have any open derivatives or hedges at adoption of the standard that were subject to FAS 133 accounting. Management will continue to document all current, new and possible uses of derivatives, and develop procedures and methods for measuring them. E. On June 25, 2001, Tampa Electric Company issued $250 million principal amount of 6.875% notes due June 15, 2012 (the Notes). The Notes are subject to redemption, in whole or in part, at any time, and at the option of Tampa Electric Company, at a redemption price equal to the greater of 100% of the principal amount of Notes then outstanding to be redeemed or the sum of the present values of the remaining scheduled payments of principal and interest on the Notes then outstanding to be redeemed, discounted at an adjusted treasury rate plus 25 basis points to the redemption date. Net proceeds were 98.928% of the principal amount. The proceeds were used to repay short-term debt and for general corporate purposes. F. On June 30, 2001, the Financial Accounting Standards Board finalized FAS 141, Business Combinations, and FAS 142, Goodwill and Other Intangible Assets. FAS 141 requires all business combinations initiated after June 30, 2001, to be accounted for using the purchase method of accounting. With the adoption of FAS 142 effective Jan. 1, 2002, goodwill is no longer subject to amortization. Rather, goodwill will be subject to at least an annual assessment for impairment by applying a fair-value- based test. Under the new rules, an acquired intangible asset should be separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented, or exchanged, regardless of the acquirer's intent to do so. These intangible assets will be required to be amortized over their useful lives. Tampa Electric Company does not have any recorded goodwill. The company does not expect adoption of FAS 142 to significantly impact its results. In July 2001, the Financial Accounting Standards Board finalized FAS 143, Accounting for Asset Retirement Obligations, which requires the recognition of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the carrying amount of the related long-lived asset is correspondingly increased. Over time, the liability is accreted to its present value and the related capitalized charge is depreciated over the useful life of the asset. FAS 143 is effective for fiscal years beginning after June 15, 2002. The company is currently reviewing the impact that FAS 143 will have on its results. 9 Item 2. Management's Narrative Analysis of Results of Operations -------------------------------------------------------- This Quarterly Report on Form 10-Q contains forward-looking statements, which are subject to the inherent uncertainties in predicting future results and conditions. Certain factors that could cause actual results to differ materially from those projected in these forward-looking statements include the following: interest rates, debt levels, restrictive covenants and other factors that could impact Tampa Electric Company's ability to obtain access to sufficient capital on satisfactory terms; general economic conditions, particularly those in Tampa Electric's service area affecting energy sales; weather variations affecting energy sales and operating costs; potential competitive changes in the electric and gas industries, particularly in the area of retail competition; regulatory actions affecting Tampa Electric and Peoples Gas System; commodity price changes affecting the competitive positions of Tampa Electric and Peoples Gas System; and changes in and compliance with environmental regulations that may impose additional costs or curtail some activities. Some of these factors are discussed more fully under "Investment Considerations" in TECO Energy, Inc.'s Quarterly Report on Form 10-Q included as Exhibit 99.1 for the period ended June 30, 2001, and reference is made thereto. Results of Operations - --------------------- Three Months Ended June 30, 2001: Tampa Electric Company's net income for the quarter ended June 30, 2001 was $42.3 million, up from $39.7 million recorded for the three-month period ended June 30, 2000. The 7-percent increase for the quarter relative to last year reflected continued strong customer growth. Higher depreciation expense was partially offset by lower operations and maintenance expense. Electric division (Tampa Electric) Tampa Electric's net income for the second quarter was $38.1 million, compared with $35.7 million for the same period in 2000. The company showed improved results from customer growth of almost 3 percent, which more than offset the impact of mild spring weather on retail energy sales that were essentially unchanged from the same period last year. Higher depreciation expense from normal plant additions was more than offset by lower operations and maintenance expense. Operations and maintenance expense in last year's second quarter included higher expenditures related to improving generating unit reliability. A summary of the operating statistics for the three months ended June 30, 2001 and 2000 follows.
(in millions, except average customers) Operating Revenues Kilowatt-hour sales --------------------------- ------------------------- Three Months Ended June 30, 2001 2000 Change 2001 2000 Change ---- ---- ------ ---- ---- ------ Residential $ 158.1 $ 149.7 5.6% 1,793.8 1,818.0 -1.3% Commercial 103.3 94.5 9.3% 1,415.5 1,412.6 0.2% Industrial - Phosphate 17.2 15.8 8.9% 335.1 340.3 -1.5% Industrial - Other 18.6 16.0 16.3% 289.4 280.6 3.1% Other sales of electricity 25.7 24.2 6.2% 337.2 343.8 -1.9% Deferred and other revenues 7.3 5.8 25.9% -- -- -- ------- -------- ------- ------- 330.2 306.0 7.9% 4,171.0 4,195.3 -0.6% Sales for resale 20.6 26.9 -23.4% 341.8 631.2 -45.8% Other operating revenue 8.3 7.5 10.7% -- -- -- ------- -------- ------- ------- $ 359.1 $ 340.4 5.5% 4,512.8 4,826.5 -6.5% ======= ======== ======= ======= Average customers (thousands) 572.8 557.6 2.7% ======= ======== Retail output to line (kilowatt hours) 4,590.3 4,564.4 0.6% ======= =======
10 FORM 10-Q Natural Gas division (Peoples Gas System) Peoples Gas System (PGS) reported net income for the quarter of $4.2 million, compared with $4.0 million for the same period last year. Quarterly results reflected strong customer growth of more than 4 percent and higher residential and commercial sales. Decreased volumes for low-margin, transportation gas for electric power generators, interruptible customers and off-system sales reflected the higher cost of gas for purchasers who have the ability to switch to alternate fuels or alter consumption patterns. Operating and maintenance expenses were slightly higher than in the previous year, while depreciation increased slightly due to normal plant growth. A summary of the operating statistics for the three months ended June 30, 2001 and 2000 follows:
(in millions, except average customers) Operating Revenues Therms ------------------ -------- Three Months Ended June 30, 2001 2000 Change 2001 2000 Change ---- ---- ------ ---- ---- ------ By Customer Segment: Residential $ 17.8 $ 13.5 31.9% 11.0 9.8 12.2% Commercial 40.2 32.8 22.6% 72.3 67.5 7.1% Industrial 2.9 3.6 -19.4% 63.1 72.3 -12.7% Off system sales 8.7 11.2 -22.3% 19.0 29.3 -35.1% Power generation 2.8 3.0 -6.7% 108.4 109.3 -0.8% Other revenues 9.9 7.3 35.6% -- -- -- ------- ------ ----- ----- $ 82.3 $ 71.4 15.3% 273.8 288.2 -5.0% ======= ====== ===== ===== By Sales Type: System supply $ 58.0 $ 52.6 10.3% 62.0 79.4 -21.9% Transportation 14.4 11.5 25.2% 211.8 208.8 1.4% Other revenues 9.9 7.3 35.6% -- -- -- ------- ------ ----- ----- $ 82.3 $ 71.4 15.3% 273.8 288.2 -5.0% ======= ====== ===== ===== Average customers (thousands) 266.2 255.6 4.1% ====== ======
Other Allowance for funds used during construction (AFUDC) was $1.8 million and $0.9 million for the three months ended June 30, 2001 and 2000, respectively. AFUDC is expected to increase over the next several years, reflecting Tampa Electric's generation expansion activities. Total interest charges were $17.9 million for the three months ended June 30, 2001 compared to $17.5 million for the same period in 2000. Increased financing costs for the second quarter of 2001 reflected primarily higher borrowing levels. Six Months Ended June 30, 2001: Tampa Electric Company's net income for the six months ended June 30, 2001 was $83.3 million, up from $76.8 million recorded for the same period last year. The 8-percent increase year-to-date reflected the continued strong customer growth and favorable winter weather. Increased revenues were somewhat offset by higher depreciation in the first half of 2001 due to normal plant growth and higher operation and maintenance expense spending in the electric division. Electric division (Tampa Electric) Tampa Electric's year-to-date net income increased 7 percent to $68.6 million, reflecting strong customer growth and almost 5-percent higher retail energy sales as a result of favorable winter weather. Increased revenues were 11 somewhat offset by higher operation and maintenance expense due to increased spending on generation assets and an increase in liability reserve requirements, and higher depreciation in the first half of 2001 due to normal plant growth. A summary of the operating statistics for the six months ended June 30, 2001 and 2000 follows:
(in millions, except average customers) Operating Revenues Kilowatt-hour sales --------------------------- -------------------------- Six Months Ended June 30, 2001 2000 Change 2001 2000 Change ------ ------ ------ ------ ------ ------ Residential $ 316.6 $ 281.5 12.5% 3,672.6 3,410.3 7.7% Commercial 195.0 177.2 10.1% 2,719.9 2,637.9 3.1% Industrial - Phosphate 33.6 30.0 12.0% 678.2 675.2 0.4% Industrial - Other 34.2 30.4 12.5% 560.6 539.5 3.9% Other sales of electricity 49.0 45.7 7.2% 651.0 646.1 0.8% Deferred and other revenues 0.4 3.8 -89.5 -- -- -- -------- ------ ------- ------- 628.8 568.6 10.6% 8,282.3 7,909.0 4.7% Sales for resale 48.1 49.0 -1.8% 970.9 1,146.0 -15.3% Other operating revenue 18.2 15.4 18.2% -- -- -- -------- -------- ------- ------- $ 695.1 $ 633.0 9.8% 9,253.2 9,055.0 2.2% ======== ======== ======= ======= Average customers (thousands) 572.5 556.9 2.8% ======== ======== Retail output to line (kilowatt hours) 8,697.4 8,414.9 3.4% ======= =======
Natural Gas division (Peoples Gas System) PGS' year-to-date net income increased more than 17 percent to $14.7 million, reflecting more than 4 percent customer growth and higher residential and commercial usage early in the year as a result of favorable winter weather. Decreased volumes for low-margin, transportation gas for electric power generators, interruptible customers and off-system sales reflected the higher cost of gas for purchasers who have the ability to switch to alternate fuels or alter consumption patterns. Operating and maintenance expenses were up slightly from last year, while depreciation increased slightly due to normal plant growth. A summary of the operating statistics for the six months ended June 30, 2001 and 2000 follows:
(in millions, except average customers) Operating Revenues Therms --------------------------- --------------------------- Six Months Ended June 30, 2001 2000 Change 2001 2000 Change ------ ------ ------ ------ ------ ------ By Customer Segment: Residential $ 59.6 $ 39.0 52.8% 38.5 33.7 14.2% Commercial 107.7 71.1 51.5% 163.1 151.8 7.4% Industrial 6.8 7.1 -4.2% 125.1 152.4 -17.9% Off system sales 13.1 20.4 -35.8% 25.6 59.5 -57.0% Power generation 5.7 5.5 3.6% 186.4 211.7 -11.9% Other revenues 23.5 15.0 56.7% -- -- -- -------- -------- ------- ------- $216.4 $158.1 36.9% 538.7 609.1 -11.6% ======== ======== ======= ======= By Sales Type: System supply $163.1 $118.6 37.5% 143.9 183.3 -21.5% Transportation 29.8 24.5 21.6% 394.8 425.8 -7.3% Other revenues 23.5 15.0 56.7% -- -- -- -------- -------- ------- ------- $216.4 $158.1 36.9% 538.7 609.1 -11.6% ======== ======== ======= ======= Average customers (thousands) 266.2 255.6 4.2% ======== ========
12 Other Allowance for funds used during construction (AFUDC) was $2.9 million and $1.4 million for the six months ended June 30, 2001 and 2000, respectively. AFUDC is expected to increase over the next several years, reflecting Tampa Electric's generation expansion activities. Total interest charges were $38.7 million for the six months ended June 30, 2001 compared to $34.7 million for the same period in 2000. Increased financing costs for the first half of 2001 primarily reflected higher borrowing levels. Recent Developments - ------------------- As previously reported, Tampa Electric, Florida Power and Light, and Florida Power Corporation (collectively, Applicants), in compliance with the Federal Energy Regulatory Commission's (FERC) Order No. 2000, submitted to the FERC an application to form a regional transmission organization (RTO) to be known as GridFlorida. On March 28, 2001, FERC granted "provisional" approval of the proposal for GridFlorida. This approval was conditional upon the Applicants making a subsequent compliance filing by May 29, 2001, implementing certain changes describe in the order. In early May, the Staff of the Florida Public Service Commission (FPSC) recommended that the FPSC examine the prudence of the Applicants' decision to join an RTO, in general, and to form and participate in GridFlorida, in particular. The FPSC Staff asserted that FERC Order No. 2000 does not require participation and, therefore, each company's decision must be evaluated and associated costs and benefits to ratepayers must be quantified. The issues raised by the FPSC process create uncertainty with respect to the Applicants' actions to comply with Order No. 2000. Because the resolution of these issues is critical to the continued formation of GridFlorida, the Applicants decided to suspend their RTO development activities until the issues are resolved. This was communicated to FERC when the May 29, 2001 compliance filing was made. The FPSC has begun an RTO prudence determination for each company that is expected to be resolved by Dec. 1, 2001. Concurrently, the FERC has ordered mediation among the various proposed RTOs in the four quadrants of the country, including the Southeast. GridFlorida is participating in the discussions, with the other RTO participants. Accounting Standards - -------------------- Accounting for Derivative Instruments and Hedging The company adopted FAS 133, Accounting for Derivative Instruments and Hedging, effective Jan. 1, 2001. The standard requires the company 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 fair value of those instruments as either components of comprehensive income or in net income, depending on the types of those instruments. See Note D on page 8 for a full discussion of the impacts to Tampa Electric Company. Business Combinations and Goodwill and Other Intangible Assets On June 30, 2001, the Financial Accounting Standards Board finalized FAS 141, Business Combinations, and FAS 142, Goodwill and Other Intangible Assets. FAS 141 requires all business combinations initiated after June 30, 2001, to be accounted for using the purchase method of accounting. With the adoption of FAS 142 effective Jan. 1, 2002, goodwill is no longer subject to amortization. Rather, goodwill will be subject to at least an annual assessment for impairment by applying a fair-value-based test. Under the new rules, an acquired intangible asset should be separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented, or exchanged, regardless of the acquirer's intent to do so. These intangible assets will be required to be amortized over their useful lives. Tampa Electric Company does not have any recorded goodwill. The company does not expect adoption of FAS 142 to significantly impact its results. 13 Asset Retirement Obligations In July 2001, the Financial Accounting Standards Board finalized FAS 143, Accounting for Asset Retirement Obligations, which requires the recognition of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the carrying amount of the related long-lived asset is correspondingly increased. Over time, the liability is accreted to its present value and the related capitalized charge is depreciated over the useful life of the asset. FAS 143 is effective for fiscal years beginning after June 15, 2002. The company is currently reviewing the impact that FAS 143 will have on its results. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk - ------------------ Tampa Electric Company is exposed to changes in interest rates primarily as a result of its borrowing activities. A hypothetical 10-percent increase in Tampa Electric Company's weighted average interest rate on its variable rate debt would have an estimated $1.6 million impact on Tampa Electric Company's pretax earnings over the next fiscal year. A hypothetical 10-percent decrease in interest rates would not have a significant impact on the estimated fair value of Tampa Electric Company's long- term debt at June 30, 2001. Based on policies and procedures approved by the Board of Directors, from time to time Tampa Electric Company may enter into futures, swaps and option contracts to moderate exposure to interest rate changes. Commodity Price Risk - -------------------- Currently, at Tampa Electric and Peoples Gas System, commodity price increases due to changes in market conditions for fuel, purchased power and natural gas are recovered through cost recovery clauses, with no effect on earnings. From time to time, Peoples Gas System may enter into futures, swaps and options contracts to limit the effect of natural gas price increases on the prices it charges customers. Tampa Electric Company does not use derivatives or other financial products for speculative purposes. 14 PART II. OTHER INFORMATION ----------------- Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits 10.1 Supplemental Executive Retirement Plan for R. D. Fagan, as amended. 10.2 Severance Agreement between TECO Energy, Inc. and R. D. Fagan, as amended. 12 Ratio of earnings to fixed charges (b) Reports on Form 8-K The registrant filed the following Current Reports on Form 8-K for the quarter ended June 30, 2001. The registrant filed a Current Report on Form 8-K dated June 20, 2001, reporting under "Item 5. Other Events" furnishing certain exhibits f or ----- ------ incorporation by reference into the Registration Statement on Form S-3 previously filed with the Securities and Exchange Commission (File No. 333-55090). The registrant filed a Current Report on Form 8-K dated June 25, 2001, reporting under "Item 5. Other Events" furnishing certain exhibits for ----- ------ incorporation by reference into the Registration Statement on Form S-3 previously filed with the Securities and Exchange Commission (File No. 333-55090). 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TAMPA ELECTRIC COMPANY --------------------- (Registrant) Date: August 13, 2001 *By: /s/ G. L. GILLETTE ------------------- G. L. GILLETTE Senior Vice President - Finance and Chief Financial Officer (Principal Financial Officer) 16 EX-10.1 3 dex101.txt SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN FOR R. D. F Exhibit 10.1 TECO ENERGY GROUP SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN FOR ROBERT D. FAGAN SECTION 1. PURPOSE AND EFFECTIVE DATE The purpose of this plan is to provide Robert D. Fagan, Chief Executive Officer of TECO Energy, Inc. with additional retirement income by supplementing the retirement benefits provided under the retirement plan. The plan was originally effective as of May 24, 1999. The effective date of this amendment and restatement is July 18, 2001. SECTION 2. DEFINITIONS This section contains definitions of terms used in the plan. Where the context so requires, the singular includes the plural, and the plural includes the singular. 2.1 Annual earnings will have the same meaning as in the retirement plan, --------------- except that the same will be determined without regard to (a) any dollar limitation on such annual earnings that may be imposed under the retirement plan or (b) any reduction in taxable income as a result of voluntary salary reduction deferrals under the TECO Energy Group Retirement Savings Excess Benefit Plan. 2.2 Average annual earnings of Mr. Fagan as of any date of reference ----------------------- means the average of his annual earnings during whichever of the following periods yields the highest average: (a) the 36 consecutive months of active employment preceding the date of reference (or all months of employment if less than 36), or (b) any three consecutive calendar years out of the five calendar years preceding the date of reference. Bonuses are included as compensation for the period in which paid, provided that if more than three regular annual bonuses are paid in any 36 consecutive month period, only the largest three bonuses will be counted. 2.3 Board means the Board of Directors of TECO Energy. ----- 2.4 Committee means the retirement plan committee as constituted under --------- the retirement plan. 2.5 TECO Energy means TECO Energy, Inc. and any successor to all or a ----------- major portion of its assets or business which assumes the obligations of TECO Energy, Inc. under this plan. 2.6 Disability income plan means the TECO Energy Group Disability Income ---------------------- Plan, as amended from time to time. 2.7 Plan means the TECO Energy Group Supplemental Executive Retirement ---- Plan for Robert D. Fagan, as set forth in this plan instrument, and as it may be amended from time to time. Exhibit 10.1 2.8 Retirement means termination of Mr. Fagan's employment with TECO ---------- Energy by Mr. Fagan or TECO Energy for any reason. 2.9 Retirement plan means the TECO Energy Group Retirement Plan, as --------------- amended from time to time. 2.10 Service will have the same meaning as "plan service" in the ------- retirement plan. 2.11 Social security benefit of Mr. Fagan as of any date of reference (the ----------------------- "computation date") means the primary insurance amount to which he is or would be entitled, payable under Title II of the Social Security Act as in effect on such date, based on the assumptions: (a) that no changes in the benefit levels payable or the wage base under Title II occur after the computation date; (b) that, if the computation date falls before his 63/rd/ birthday, his annual earnings during the calendar year in which the computation date falls and during any subsequent calendar year before the calendar year in which his 63/rd/ birthday falls is zero; (c) that payment of his primary insurance amount begins for the month after he reaches age 63, or his retirement date if later, without reduction or delay because of future gainful employment or delay in applying for benefits; and (d) that his earnings for calendar years before the calendar year in which the computation date falls will be determined using his actual earnings history if available, and otherwise by applying a six percent retrospective salary scale to his rate of annual earnings in effect on the computation date. The social security benefit of Mr. Fagan if he retires after his 66/th/ birthday will include any delayed retirement credit. 2.12 Survivor income plan means the TECO Energy Group Survivor Income -------------------- Plan, as amended from time to time. SECTION 3. RETIREMENT BENEFITS 3.1 Amount. Subject to the reductions in Section 6.1 below, Mr. Fagan ------ will receive a supplemental monthly retirement benefit equal to one-twelfth of the greater of (a) (1) the sum of (A) 20 percent and (B) four percent multiplied by his years of service (or portions thereof), multiplied by (2) his average annual earnings, up to a maximum benefit of 60 percent of his average annual earnings (60 percent is equal to 20 percent plus four percent multiplied by a maximum of ten years of service), and (b) $160,000. Mr. Fagan's retirement benefit hereunder will be calculated using his years of service (or portions thereof) and average annual earnings as of his actual date of retirement. 3.2 Form of Payment. --------------- (a) Normal form of retirement benefits. The normal form of ---------------------------------- retirement benefit payable to Mr. Fagan under the plan is a life annuity. Benefits payable in the normal form will begin on the first day of the month coinciding with or next following the date of Mr. Fagan's retirement. (b) Optional lump sum benefit. In lieu of the normal form of ------------------------- benefit, Mr. Fagan may elect to receive payment of his benefit in the form of a commuted single sum payment that is the actuarial equivalent of the normal form of benefit (including the value of the post-retirement surviving spouse benefit under Section 4.2(c)). If Mr. Fagan elects to receive a lump sum payment, such payment will be made on the first day of the month coinciding with or next following the date Mr. Fagan's employment terminates. Actuarial equivalence will be 2 Exhibit 10.1 based on the actuarial assumptions specified from time to time in the retirement plan for lump sum payments. Mr. Fagan's election to receive a lump sum payment will be effective only with respect to a retirement occurring at least 12 months after the date Mr. Fagan submits the election, provided that elections submitted on or before June 30, 1999 will be immediately effective. SECTION 4. SURVIVING SPOUSE BENEFIT 4.1 Eligibility. Mr. Fagan's surviving spouse will receive the surviving ----------- spouse benefit if Mr. Fagan and his spouse were married to each other for at least the 12 months preceding Mr. Fagan's death and, in the case of Mr. Fagan's death after retirement, Mr. Fagan and his spouse were married to each other on Mr. Fagan's date of retirement. 4.2 Amount of surviving spouse benefit. Subject to the reductions ---------------------------------- described in Section 6.2 below, the benefit provided under the plan to Mr. Fagan's surviving spouse will be determined as follows: (a) Pre-retirement before age 63. If Mr. Fagan dies during ---------------------------- employment with TECO Energy and before his 63/rd/ birthday, his surviving spouse will receive a monthly survivor income payment equal to 50 percent of his monthly projected retirement benefit. Mr. Fagan's monthly projected retirement benefit is the monthly benefit he would have received if he had retired at age 63 under Section 3.1 calculated using his average annual earnings determined as of his date of death. (b) Pre-retirement on or after age 63. If Mr. Fagan dies during --------------------------------- employment with TECO Energy on or after his 63/rd/ birthday, his surviving spouse will receive a monthly survivor income payment equal to 50 percent of his monthly retirement benefit earned under Section 3.1 using his years of service (or portions thereof) and his average annual earnings as of his date of death. (c) Post-retirement. If Mr. Fagan dies on or after the date of his --------------- retirement, his surviving spouse will receive a monthly survivor income payment equal to 50 percent of the monthly benefit payment he was receiving at his death (or would have received if he had survived until the first payment date). 4.3 Form and time of surviving spouse benefit. Surviving spouse benefits ----------------------------------------- under this Section 4 will be payable in the form of a life annuity to the surviving spouse. Benefit payments will begin on the first day of the month coinciding with or next following the date of Mr. Fagan's death. 4.4 Death benefit where lump sum paid. If Mr. Fagan received a lump sum --------------------------------- payment of his benefit under Section 3.2(b), no surviving spouse benefit or other death benefit will be payable under the plan to any person. SECTION 5. DISABILITY 5.1 If Mr. Fagan suffers a total disability (as defined in the disability income plan) before his 63/rd/ birthday, he will continue to be credited with service as if he were actively employed by TECO Energy during his period of total disability. Mr. Fagan may not receive 3 Exhibit 10.1 benefits under this plan at any time when he is receiving disability income payments under the disability income plan. Benefits under this plan will begin when payments cease under the disability income plan. 5.2 Mr. Fagan's disability date is his last day of work for TECO Energy before becoming unable to continue working because of his total disability. A period of total disability of Mr. Fagan will begin on his disability date and will end on the earlier of the last day of the month in which his final disability income payment is due under the disability income plan or on the date he retires hereunder and starts receiving benefit payments. 5.3 If Mr. Fagan does not return to active service with TECO Energy after suffering a total disability, his retirement benefits under Section 3 will be calculated using his average annual earnings as of his disability date, his total service including service credited under Section 5.1 above, and his primary social security benefit as of his date of disability. 5.4 If Mr. Fagan dies while disabled, his surviving spouse will, if eligible, receive the pre-retirement surviving spouse benefit determined under Section 4.2(a) or (b). SECTION 6. OFFSET FOR OTHER PAYMENTS 6.1 Mr. Fagan's retirement benefit will be reduced (but not below zero) by the following payments, with such reductions starting when such payments are assumed to begin: (a) 100 percent of the social security benefit of Mr. Fagan assuming such benefit begins on the later of his 63rd birthday or the date of his actual retirement and (b) the amount of his benefit payments under the retirement plan and any tax-qualified or nonqualified defined benefit retirement plan of former employers of Mr. Fagan (converted in all cases to a life annuity if such payments are in a form other than a life annuity, using the actuarial assumptions in the TECO Energy retirement plan), assuming such payments begin on the later of the earliest date on which he could begin receiving payments from such plan or the date of his actual retirement. 6.2 The benefit of Mr. Fagan's surviving spouse will be reduced (but not below zero) by the following payments to her: (a) payments under the survivor income plan, and (b) payments under the retirement plan and any tax-qualified or nonqualified defined benefit retirement plans of former employers of Mr. Fagan. SECTION 7. BENEFITS NOT CURRENTLY FUNDED 7.1 Nothing in this plan will be construed to create a trust or to obligate TECO Energy or any other employer to segregate a fund, purchase an insurance contract, or in any other way currently to fund the future payment of any benefits hereunder, nor will anything herein be construed to give Mr. Fagan or any other person rights to any specific assets of TECO Energy or of any other employer or entity. 7.2 Notwithstanding Section 7.1, TECO Energy has established a grantor trust of which it is treated as the owner under Section 671 of the Internal Revenue Code to provide for the payment of benefits hereunder. 4 Exhibit 10.1 SECTION 8. ADMINISTRATION The plan will be administered by the committee, which will have full power and authority to construe, interpret and administer the plan. Decisions of the committee will be final and binding on all persons. The committee may, in its discretion, adopt, amend and rescind rules and regulations relating to the administration of the plan. SECTION 9. RIGHTS NON-ASSIGNABLE Neither Mr. Fagan, his surviving spouse, nor any other person will have any right to assign or otherwise to alienate the right to receive payments under the plan, in whole or in part. SECTION 10. OTHER BENEFIT PLANS This plan will supersede any obligation to pay benefits to Mr. Fagan under the excess benefit plan contained in the retirement plan or the TECO Energy Group Supplemental Executive Retirement Plan, as they may be amended from time to time. No benefits will be payable to Mr. Fagan under such excess benefit plan or the TECO Energy Group Supplemental Executive Retirement Plan. SECTION 11. AMENDMENT TECO Energy reserves the right at any time by action of the board to amend the plan in any way. However, no amendment of the plan may reduce the benefits to be paid to Mr. Fagan or his surviving spouse below those that would have been paid if the plan had continued without change to the date of Mr. Fagan's retirement. Executed as of July 18, 2001 TECO ENERGY, INC. By: ______________________________ C. E. Childress Chief Human Resources Officer 5 EX-10.2 4 dex102.txt SEVERANCE AGREEMENT BETWEEN TECO ENERGY, INC. AND Exhibit 10.2 PRIVILEGED AND CONFIDENTIAL --------------------------- October 18, 2000 Mr. Robert D. Fagan Dear Robert: TECO Energy, Inc. (the "Company") considers it essential to the best interests of its stockholders to foster the continuous employment of key management personnel. In this connection, the Board of Directors of the Company (the "Board") recognizes that, as is the case with many publicly held corporations, the possibility of a change in control may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of key management personnel to the detriment of the Company and its stockholders. The Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control of the Company. In order to induce you to remain in the employ of the Company and in consideration of your agreement set forth in Subsection 2(iii) hereof, the Company agrees that you shall receive the severance benefits set forth in this letter agreement (the "Agreement") in the event your employment with the Company is terminated subsequent to a "change in control of the Company" (as defined in Section 2(i) hereof) (or is deemed to be terminated subsequent to a change in control of the Company in accordance with the second sentence of Section 3 hereof) under the circumstances described below. This Agreement amends and restates the letter agreement dated October 22, 1999 between you and the Company. 1. Term of Agreement. Subject to the provisions of Section 13 hereof, ----------------- this Agreement shall commence on the date hereof and shall continue in effect through June 30, 2001; provided, however, that commencing on July 1, 2000 and each July 1 thereafter, the term of this Agreement shall automatically be extended for one additional year unless, not later than March 31 of such year, the Company shall have given notice that it does not wish to extend this Agreement (provided that no such notice may be given during the pendency of or within two years following a potential change in control of the Company, as defined in Section 2(ii) hereof); provided, further, if a change in control of the Company shall have occurred during the original or extended term of this Agreement, this Agreement shall continue in effect for a period of thirty-six (36) months beyond the month in which such change in control occurred. Exhibit 10.2 2. Change in Control; Potential Change in Control. (i) Except as provided ---------------------------------------------- in the second sentence of Section 3 hereof, no benefits shall be payable hereunder unless there shall have been a change in control of the Company, as set forth below. For purposes of this Agreement, a "change in control of the Company" shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Company is in fact required to comply therewith; provided, that, without limitation, such a change in control shall be deemed to have occurred if: (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding securities; (B) during any period of twenty-four (24) consecutive months (not including any period prior to the date of this Agreement), individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in paragraphs (A), (C) or (D) of this Section 2(i)) whose election by the Board or nomination for election by the stockholders of the Company was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (C) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (i) a merger or consolidation resulting in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 65% of the combined voting securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (as hereinabove defined) acquires 30% or more of the combined voting power of the Company's then outstanding securities; or (D) the stockholders of the Company approve a plan of complete liquidation of the Company or there is consummated the sale or disposition by the Company of all or substantially all of the Company's assets. (ii) For purposes of this Agreement, a "potential change in control of the Company" shall be deemed to have occurred if: Exhibit 10.2 Mr. Robert D. Fagan October 18, 2000 Page 3 (A) the Company enters into an agreement, the consummation of which would result in the occurrence of a change in control of the Company; (B) any person (as hereinabove defined), including the Company, publicly announces an intention to take or consider taking actions which if consummated would constitute a change in control of the Company; (C) any person (as hereinabove defined), other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company (a) is or becomes the beneficial owner, (b) discloses directly or indirectly to the Company or publicly a plan or intention to become the beneficial owner, or (c) makes a filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, with respect to securities to become the beneficial owner, directly or indirectly, of securities representing 9.9% or more of the combined voting power of the outstanding voting securities of the Company; or (D) the Board adopts a resolution to the effect that, for purposes of this Agreement, a potential change in control of the Company has occurred. (iii) You agree that, subject to the terms and conditions of this Agreement, in the event of a potential change in control of the Company, you will remain in the employ of the Company until the earliest of (a) a date which is one (1) year from the occurrence of such potential change in control of the Company, (b) the termination by you of your employment after you attain "normal retirement age" under the provisions of the TECO Energy Group Retirement Plan or any successor thereto (the "Retirement Plan") or by reason of Disability as defined in Section 3(i), or (c) the date of the occurrence of a change in control of the Company. 3. Termination Following Change in Control. If (i) your employment is --------------------------------------- terminated following a change in control of the Company and during the term of this Agreement (as determined under Section 1 hereof), other than (A) by the Company for Cause, (B) by reason of death or Disability, or (C) by you without Good Reason, or (ii) you voluntarily terminate your employment for any reason during the one-month period commencing on the first anniversary of the change in control of the Company, then, in either such case, the Company shall pay you the amounts, and provide you the benefits, described in Section 4(iii) hereof. For purposes of this Agreement, your employment shall be deemed to have been terminated following a change in control of the Company by the Exhibit 10.2 Mr. Robert D. Fagan October 18, 2000 Page 4 Company without Cause or by you with Good Reason, if (i) your employment is terminated by the Company without Cause prior to a change in control of the Company (whether or not such a change in control ever occurs) and such termination was at the request or direction of a "person" (as hereinabove defined) who has entered into an agreement with the Company the consummation of which would constitute a change in control of the Company, (ii) you terminate your employment for Good Reason prior to a change in control of the Company (whether or not such a change in control ever occurs) and the circumstance or event which constitutes Good Reason occurs at the request or direction of such person, or (iii) your employment is terminated by the Company without Cause or by you for Good Reason and such termination or the circumstance or event which constitutes Good Reason is otherwise in connection with or in anticipation of a change in control of the Company (whether or not such a change in control ever occurs). (i) Disability. If, as a result of your incapacity due to physical ---------- or mental illness, you shall have been absent from the full-time performance of your duties with the Company for six (6) consecutive months, and within thirty (30) days after written notice of termination is given you shall not have returned to the full-time performance of your duties, your employment may be terminated for "Disability". (ii) Cause. Termination by the Company of your employment for ----- "Cause" shall mean termination upon (A) the willful and continued failure by you to substantially perform your duties with the Company (other than any such failure resulting from your incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination by you for Good Reason, as defined in Subsections 3(iv) and 3(iii), respectively) after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties, or (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise. For purposes of this Subsection, no act, or failure to act, on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Company. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of conduct set forth above in this Subsection and specifying the particulars thereof in detail. Exhibit 10.2 Mr. Robert D. Fagan October 18, 2000 Page 5 (iii) Good Reason. "Good Reason" for termination by you of your ----------- employment shall mean the occurrence (without your express written consent) after any change in control of the Company, or prior to a change in control of the Company under the circumstances described in the second sentence of Section 3 hereof (treating all references in paragraphs (A) through (H) below to a "change in control of the Company" as references to a "potential change in control of the Company"), of any one of the following acts by the Company, or failures by the Company to act: (A) the assignment to you of any duties inconsistent (except in the nature of a promotion) with the position in the Company that you held immediately prior to the change in control of the Company or a substantial adverse alteration in the nature or status of your position or responsibilities or the conditions of your employment from those in effect immediately prior to the change in control of the Company; (B) a reduction by the Company in your annual base salary as in effect on the date hereof or as the same may be increased from time to time; (C) the Company's requiring you to be based more than twenty-five (25) miles from the Company's offices at which you were principally employed immediately prior to the date of the change in control of the Company except for required travel on the Company's business to an extent substantially consistent with your present business travel obligations; (D) the failure by the Company to pay to you any portion of your current compensation or compensation under any deferred compensation program of the Company, within seven (7) days of the date such compensation is due; (E) the failure by the Company to continue in effect any material compensation or benefit plan in which you participate immediately prior to the change in control of the Company unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue your participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of your participation relative to other participants, than existed at the time of the change in control; (F) the failure by the Company to continue to provide you with benefits substantially similar to those enjoyed by you under any of the Company's pension, life insurance, medical, health and accident, or disability plans in which you were participating at the time of the change in control of the Company, the taking of any action by the Company Exhibit 10.2 Mr. Robert D. Fagan October 18, 2000 Page 6 which would directly or indirectly materially reduce any of such benefits or deprive you of any material fringe benefit enjoyed by you at the time of the change in control of the Company, or the failure by the Company to provide you with the number of paid vacation days to which you are entitled on the basis of your years of service with the Company in accordance with the Company's normal vacation policy in effect at the time of the change in control of the Company; (G) the failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 6 hereof; or (H) any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Subsection (iv) below (and, if applicable, the requirements of Subsection (ii) above), which purported termination shall not be effective for purposes of this Agreement. Your right to terminate your employment pursuant to this Subsection shall not be affected by your incapacity due to physical or mental illness. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. (iv) Notice of Termination. Any purported termination of your --------------------- employment by the Company or by you shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 7 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (v) Date of Termination, Etc. "Date of Termination" shall mean (A) ------------------------ if your employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that you shall not have returned to the full- time performance of your duties during such thirty (30) day period), and (B) if your employment is terminated pursuant to Subsection (ii) or (iii) above or for any other reason (other than Disability), the date specified in the Notice of Termination (which, in the case of a termination pursuant to Subsection (ii) above shall not be less than thirty (30) days, and in the case of a termination pursuant to Subsection (iii) above shall not be less than fifteen (15) nor more than sixty (60) days, respectively, from the date such Notice of Termination is given); provided that if within fifteen (15) days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this proviso), the party receiving such Exhibit 10.2 Mr. Robert D. Fagan October 18, 2000 Page 7 Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties or by a binding arbitration award; and provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Company will continue to pay you your full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, base salary) and continue you as a participant in all compensation, benefit and insurance plans in which you were participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this Subsection. Amounts paid under this Subsection are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 4. Compensation Upon Termination or During Disability. Following a change -------------------------------------------------- in control of the Company, as defined by Subsection 2(i), or prior to a change in control of the Company under the circumstances described in the second sentence of Section 3 hereof, upon termination of your employment or during a period of disability you shall be entitled to the following benefits: (i) During any period that you fail to perform your full-time duties with the Company as a result of incapacity due to physical or mental illness, you shall continue to receive your base salary at the rate in effect at the commencement of any such period, together with all compensation payable to you under the Company's disability plan or program or other similar plan during such period, until this Agreement is terminated pursuant to Section 3(i) hereof. Thereafter, or in the event your employment shall be terminated by reason of your death, your benefits shall be determined under the Company's retirement, insurance and other compensation programs then in effect in accordance with the terms of such programs. (ii) If your employment shall be terminated by the Company for Cause or by you other than for Good Reason, the Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation plan of the Company at the time such payments are due, and the Company shall have no further obligations to you under this Agreement. (iii) If your employment by the Company terminates in a manner entitling you to benefits under this Section pursuant to Section 3 hereof, then you shall be entitled to the benefits provided below: Exhibit 10.2 Mr. Robert D. Fagan October 18, 2000 Page 8 (A) the Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation plan of the Company, at the time such payments are due, except as otherwise provided below; (B) in lieu of any further salary payments to you for periods subsequent to the Date of Termination, the Company shall pay as severance pay to you a lump sum severance payment (together with the payments provided in paragraphs (D), (E) and (F) below, the "Severance Payments") equal to three (3) times the sum of (1) the greater of (a) your annual rate of base salary in effect on the Date of Termination or (b) your annual rate of base salary in effect immediately prior to the change in control of the Company and (2) the greatest of (a) the average of the last two annual bonuses (annualized in the case of any bonus paid with respect to a partial year) paid to you preceding the Date of Termination, (b) the average of the last two annual bonuses (annualized in the case of any bonus paid with respect to a partial year) paid to you preceding such change in control, (c) the most recent annual bonus (annualized in the case of any bonus paid with respect to a partial year) paid to you preceding the Date of Termination, or (d) the most recent annual bonus (annualized in the case of any bonus paid with respect to a partial year) paid to you preceding such change in control, or (e) in the event that on the date of the change in control of the the Company you have been employed by the Company for less than two years and have not yet been considered for receipt of an annual bonus, your annual incentive target award in effect immediately prior to such change in control; (C) the Company shall also pay to you, within five (5) days after any such fees or expenses are incurred, all legal fees and expenses incurred by you as a result of or in connection with such termination, including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement (other than any such fees or expenses incurred in connection with any such claim which is determined by arbitration, in accordance with Section 11 of this Agreement, to be frivolous) or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), to any payment or benefit provided hereunder; (D) for a thirty-six (36) month period after such termination, the Company shall arrange to provide you with life, disability, accident and health insurance benefits substantially similar to those which you are receiving immediately prior to the Notice of Termination. Benefits otherwise receivable by you pursuant to this Subsection 4(iii)(D) shall be reduced to Exhibit 10.2 Mr. Robert D. Fagan October 18, 2000 Page 9 the extent comparable benefits are actually received by you from a subsequent employer during the thirty-six (36) month period following your termination, and any such benefits actually received by you shall be reported to the Company; (E) in addition to the retirement benefits to which you are entitled under the Retirement Plan, any supplemental retirement or excess benefit plan maintained by TECO or any of its subsidiaries or any successor plans thereto (hereinafter collectively referred to as the "Pension Plans"), the Company shall pay you in cash a lump sum equal to the excess of (a) the actuarial equivalent (computed at your date of termination) of the retirement pension (taking into account any early retirement subsidies and post-retirement surviving spouse benefits associated therewith and determined as an annuity payable in the normal form under the Pension Plans commencing at your normal retirement age under the Retirement Plan or any earlier date, but in no event earlier than the fifth anniversary of the Date of Termination, whichever annuity the actuarial equivalent of which is greatest) which you would have accrued under the terms of the Pension Plans (without regard to the limitations imposed by Section 401(a)(17) of the Code, or any amendment to the Pension Plans made subsequent to a change in control of the Company and on or prior to the Date of Termination, which amendment adversely affects in any manner the computation of retirement benefits thereunder), determined as if you were fully vested thereunder and had continued to be a participant in each of the Pension Plans for sixty (60) additional months and as if you had accumulated sixty (60) additional months of compensation (for purposes of determining your pension benefits thereunder), each in an amount equal to the sum of the amounts determined under clauses (1) and (2) of Section 4(iii)(B) hereof over (b) the actuarial equivalent (computed at your date of termination) of the vested retirement pension (taking into account any early retirement subsidies and post-retirement surviving spouse benefits associated therewith and determined as an annuity payable in the normal form under the Pension Plans commencing at your normal retirement age under the Retirement Plan or any earlier date, but in no event earlier than the Date of Termination, whichever annuity the actuarial equivalent of which is greatest) which you had then accrued pursuant to the provisions of the Pension Plans. For purposes of this Subsection, "actuarial equivalent" shall be determined using the same actuarial assumptions utilized in determining the amount of alternate forms of benefits under the Retirement Plan immediately prior to the change in control of the Company; and (F) should you move your residence in order to pursue other business opportunities within one (1) year of the Date of Termination, the Company will pay you, within five (5) days after any such expenses are incurred, an amount equal to the expenses incurred by you in connection with such relocation (including expenses incurred in selling Exhibit 10.2 Mr. Robert D. Fagan October 18, 2000 Page 10 your home to the extent such expenses were customarily reimbursed by the Company to transferred executives prior to the change in control of the Company) and which are not reimbursed by another employer. (iv) Except as otherwise specifically provided in paragraph (C) and (F) thereof, the payments provided for in Subsection (iii) shall be made not later than the fifth day following the Date of Termination; provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Company shall pay to you on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to you payable on the fifth day after demand therefor by the Company (together with interest at the rate provided in section 1274(b)(2)(B) of the Code). (v) You shall not be required to mitigate the amount of any payment provided for in this Section 4 or Section 5 hereof by seeking other employment or otherwise, nor, except as specifically provided in Sections 4(iii)(D) and (F) above, shall the amount of any payment or benefit provided for in this Section 4 or Section 5 hereof be reduced by any compensation earned by you as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by you to the Company, or otherwise. 5. Certain Additional Payments by the Company. ------------------------------------------ (i) Whether or not you become entitled to payments under this Agreement, if any of the payments or benefits received or to be received by you in connection with a change in control of the Company or the termination of your employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a change in control of the Company or any person affiliated with the Company or such person) (such payments or benefits, including the Severance Payments but excluding the Gross-Up Payment, being hereinafter referred to as the "Total Payments") will be subject to the excise tax imposed by section 4999 of the Code or any interest or penalties are incurred by you with respect to such excise tax (such excise tax, together with any such interest and penalties, being hereinafter referred to as the "Excise Tax"), the Company shall pay to you an additional amount (the "Gross-Up Payment") such that the net amount retained by you, after paying any Excise Tax on the Total Payments and any federal, state Exhibit 10.2 Mr. Robert D. Fagan October 18, 2000 Page 11 and local income and employment taxes and Excise Tax on the Gross-Up Payment, shall be equal to the Total Payments. (ii) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (A) all of the Total Payments shall be treated as "parachute payments" (within the meaning of section 280G(b)(2) of the Code) unless, in the opinion of tax counsel ("Tax Counsel") acceptable to you and selected by the accounting firm which was, immediately prior to the change in control of the Company, the Company's independent auditor (the "Auditor"), such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of section 280G(b)(4)(A) of the Code, (B) all "excess parachute payments" (within the meaning of section 280G(b)(1) of the Code) shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered (within the meaning of section 280G(b)(4)(B) of the Code) in excess of the "base amount" (within the meaning of section 280G(b)(3) of the Code) allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (C) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, you shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of your residence on the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (iii) In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of the termination of your employment, you shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross- Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by you to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income or employment tax deduction) plus interest on the amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of your employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by you with respect to such excess) at the time that the amount of such excess is finally determined. You and the Company shall each reasonably cooperate with the other in Exhibit 10.2 Mr. Robert D. Fagan October 18, 2000 Page 12 connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments. 6. Successors; Binding Agreement. (iv) The Company will require any ----------------------------- successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Company in the same amount and on the same terms as you would be entitled to hereunder if you terminate your employment for Good Reason following a change in control of the Company, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there is no such designee, to your estate. 7. Notice. For the purpose of this Agreement, notices and all other ------ communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 8. Miscellaneous. No provision of this Agreement may be modified, waived ------------- or discharged unless such waiver, modification or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar Exhibit 10.2 Mr. Robert D. Fagan October 18, 2000 Page 13 provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Florida, without giving effect to the conflicts of law principles thereof. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Company under Sections 4 and 5 shall survive the expiration of the term of this Agreement. 9. Validity. The invalidity or unenforceability or any provision of this -------- Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 10. Counterparts. This Agreement may be executed in several counterparts, ------------ each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 11. Arbitration. Any dispute or controversy arising under or in ----------- connection with this Agreement shall be settled exclusively by arbitration conducted before a panel of three arbitrators in the State of Florida in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 12. Entire Agreement. This Agreement sets forth the entire agreement of ---------------- the parties hereto in respect of the subject matter contained herein and during the term of the Agreement supersedes the provisions of all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto with respect to the subject matter hereof. 13. Effective Date; Pooling. This Agreement shall become effective as of ----------------------- the date set forth above. In the event that the Company is party to an agreement with respect to a transaction that is intended to qualify for "pooling of interests" accounting treatment, then (A) this Agreement shall, to the extent practicable, be interpreted so as to permit such accounting treatment, and (B) to the extent that the application of clause (A) of this Section 13 does not preserve the availability of such Exhibit 10.2 Mr. Robert D. Fagan October 18, 2000 Page 14 accounting treatment, then the Company shall have the unilateral right to amend this Agreement to the extent necessary to enable the Company's accountants to issue a "pooling" opinion with respect to such transaction, and any such amendment shall be effective as of the date hereof. If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to the Company the enclosed copy of this letter which will then constitute our agreement on this subject. Sincerely, TECO Energy, Inc. __________________________________ Name: David E. Schwartz Title: Secretary Agreed to this _______ day of __________________, 2000. ______________________________ Robert D. Fagan EX-12 5 dex12.txt RATIO OF EARNINGS TO FIXED CHARGES Exhibit 12 TAMPA ELECTRIC COMPANY RATIO OF EARNINGS TO FIXED CHARGES The following table sets forth the company's ratio of earnings to fixed charges for the periods indicated. Three Months Twelve Months Ended Ended Year Ended December 31, ---------------------------------------- June 30, 2001 June 30, 2001 2000 1999(1) 1998(2) 1997 1996(3) - -------------------- ------------- ---- ------ ------- ---- ------- 4.17x 4.09x 4.14x 3.82x 4.51x 4.38x 4.40x For the purposes of calculating these ratios, earnings consist of income before income taxes and fixed charges. Fixed charges consist of interest on indebtedness, amortization of debt premium, the interest component of rentals and preferred stock dividend requirements. (1) Includes the effect of one-time, pretax charges totaling $18.3 million recorded in the third and fourth quarters of 1999. Charges consisted of the following: $10.5 million recorded based onFlorida Public Service Commission audits of Tampa Electric's 1997 and 1998 earnings which limited Tampa Electric's equity ratio to 58.7 percent; $3.5 million to resolve litigation filed by the U.S. Environmental Protection Agency; and $4.3 million for corporate income tax settlements related to prior years' tax returns. The effect of these charges was to reduce the ratio of earnings to fixed charges. Had these charges been excluded from the calculation, the ratio of earnings to fixed charges would have been 4.61x for the year ended Dec. 31, 1999. (2) Includes the effect of one-time, pretax charges totaling $16.9 million, as more fully explained in Note I to Item 8, Financial Statements and Supplementary Data of the Company's Annual Report on Form 10-K for the 1998 fiscal year. The effect of these charges was to reduce the ratio of earnings to fixed charges. Had these charges been excluded from the calculation, the ratio of earnings to fixed charges would have been 4.66x for the year ended Dec. 31, 1998. (3) Amounts have been restated to reflect the merger of Peoples Gas System, Inc., with and into Tampa Electric Company. -----END PRIVACY-ENHANCED MESSAGE-----