Income Taxes

12 Months Ended

Dec. 31, 2013

4. Income Taxes

In 2013, 2012 and 2011, TECO Energy recorded net tax provisions of $108.8 million, $160.2 million and $153.9 million, respectively. A majority of this provision is non-cash. TECO Energy has net operating losses that are being utilized to reduce its taxable income. As such, cash taxes paid for income taxes as required for the alternative minimum tax, state income taxes, foreign income taxes and prior year audits in 2013, 2012 and 2011 were $1.8 million, $7.2 million and $9.4 million, respectively.

Income tax expense consists of the following:


Income Tax Expense (Benefit)
(millions) For the year ended Dec. 31,	2013			2012			2011
Continuing Operations
Current income taxes
Federal	$	2.2		$	15.7		$	0.0
State		(3.5	)		1.1			0.9
Deferred income taxes
Federal		98.6			102.9			124.0
State		11.9			18.4			18.2
Amortization of investment tax credits		(0.3	)		(0.3	)		(0.4	)

Income tax expense from continuing operations	$	108.9		$	137.8		$	142.7

Discontinued Operations
Current income taxes
Federal	$	0.0		$	0.0		$	0.0
Foreign		0.0			6.8			7.4
State		0.0			0.0			0.0
Deferred income taxes
Federal		(0.1	)		14.9			4.4
Foreign		0.0			0.0			(0.3	)
State		0.0			0.7			(0.3	)

Income tax expense from discontinued operations		(0.1	)		22.4			11.2

Total income tax expense	$	108.8		$	160.2		$	153.9

During 2013, TECO Energy increased its net operating loss carryforward. Total current income tax expense for the years ended Dec. 31, 2012 and 2011 was reduced by $13.6 million and $32.1 million, respectively, to reflect the benefits of operating loss carryforwards.

The reconciliation of the federal statutory rate to the company’s effective income tax rate is as follows:


Effective Income Tax Rate
(millions) For the year ended Dec. 31,	2013			2012			2011
Income tax expense at the federal statutory rate of 35%	$	107.3		$	134.3		$	137.7
Increase (decrease) due to:
State income tax, net of federal income tax		5.5			12.7			12.4
Equity portion of AFUDC		(2.2	)		(0.9	)		(0.4	)
Valuation allowance		0.0			1.1			0.0
Depletion		(3.7	)		(8.5	)		(9.1	)
Other		2.0			(0.9	)		2.1

Total income tax expense from continuing operations	$	108.9		$	137.8		$	142.7

Income tax expense as a percent of income from continuing operations, before income taxes		35.5	%		35.9	%		36.3	%

For the three years presented, the overall effective tax rate on continuing operations was higher than the 35% U.S. federal statutory rate primarily due to state income taxes offset by depletion.

As discussed in Note 1, TECO Energy uses the asset and liability method to determine deferred income taxes. Based primarily on the reversal of deferred income tax liabilities and future earnings of the company’s utility operations, management has determined that the net deferred tax assets recorded at Dec. 31, 2013 will be realized in future periods.

The major components of the company’s deferred tax assets and liabilities recognized are as follows:


Deferred Income Taxes
(millions)
As of Dec. 31,	2013			2012
Deferred tax liabilities ⁽¹⁾
Property related	$	1,164.2		$	1,023.3
Deferred fuel		1.6			11.3
Pension		52.8			43.0

Total deferred tax liabilities		1,218.6			1,077.6

Deferred tax assets ⁽¹⁾
Alternative minimum tax credit carryforward		213.0			211.8
Loss and credit carryforwards ⁽²⁾		479.8			473.2
Other postretirement benefits		68.9			68.0
Other		113.2			113.0

Total deferred tax assets		874.9			866.0
Valuation allowance		0.0			(3.0	)

Total deferred tax assets, net of valuation allowance		874.9			863.0

Total deferred tax liability, net		343.7			214.6
Less: Current portion of deferred tax asset		(100.3	)		(63.3	)

Long-term portion of deferred tax liability, net	$	444.0		$	277.9

(1)	Certain property related assets and liabilities have been netted.

(2)

As a result of certain realization requirements of accounting guidance, loss carryforwards do not include certain deferred tax assets as of Dec. 31, 2013 that arose directly from tax deductions related to equity compensation greater than compensation recognized for financial reporting. Stockholder’s equity will be increased by $1.1 million when such deferred tax assets are ultimately realized. The company uses tax law ordering when determining when excess tax benefits have been realized.

At Dec. 31, 2013, the company had cumulative unused federal and state (Florida) NOLs for income tax purposes of $1,321.9 million and $392.6 million, respectively, expiring at various times between 2025 and 2028. In addition, the company has unused general business credits of $3.9 million expiring between 2026 and 2032. Due to the sale of the company’s remaining Guatemalan operations, unused foreign tax credits of $38.5 million have been reclassed to net operating loss. During 2013, the company’s available alternative minimum tax credit carryforward for tax purposes increased from $211.8 million to $213.0 million, reflecting the future AMT payable for the amendment of prior years’ federal income tax returns to claim a deduction for foreign tax paid. The alternative minimum tax credit may be used indefinitely to reduce federal income taxes.

The company’s consolidated balance sheet reflects loss carryforwards excluding amounts resulting from excess stock-based compensation. Accordingly, such losses from excess stock-based compensation tax deductions are accounted for as an increase to additional paid-in capital if and when realized through a reduction in income taxes payable.

The company establishes valuation allowances on its deferred tax assets, including losses and tax credits, when the amount of expected future taxable income is not likely to support the use of the deduction or credit. A state capital loss carryforward valuation allowance of $3.0 million was recorded as of Dec. 31, 2012. For the year ended Dec. 31, 2013, the company recorded a full valuation allowance release of $3.0 million due to the expiration of the state capital loss carryforward.

The company accounts for uncertain tax positions in accordance with FASB guidance. This guidance addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under the guidance, the company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. The guidance also provides standards on derecognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:


Unrecognized Tax Benefits
(millions)	2013			2012
Balance at Jan. 1,	$	2.9		$	4.1
Decreases due to tax positions related to prior years		0.0			0.0
Decreases due to settlements with taxing authorities		0.0			0.0
Decreases due to expiration of statute of limitations		(2.9	)		0.0
Dispositions		0.0			(1.2	)

Balance at Dec. 31,	$	0.0		$	2.9

The company recognizes interest and penalties associated with uncertain tax positions in “Operation other expense – Other” in the Consolidated Statements of Income. In 2013, 2012 and 2011, the company recognized $(0.9) million, $0.3 million and $0.2 million, respectively, of pretax charges (benefits) for interest only. Additionally, the company had $0.0 million of interest accrued at Dec. 31, 2013 and $0.9 million of interest accrued at Dec. 31, 2012. No amounts have been recorded for penalties. As a result of the 2012 sale of TCAE, interest and penalties recorded on TCAE’s books for an uncertain tax position have been removed from the company’s unrecognized tax benefits (see Note 19).

The company’s U.S. subsidiaries join in the filing of a U.S. federal consolidated income tax return. The IRS concluded its examination of the company’s 2012 consolidated federal income tax return in January 2014. The U.S. federal statute of limitations remains open for the year 2010 and forward. The federal income tax return for calendar year 2013 is part of the IRS’s Compliance Assurance Program. As a result, the IRS audit of such return is expected to be completed in 2014. U.S. state jurisdictions have statutes of limitations generally ranging from three to four years from the filing of an income tax return. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. Years still open to examination by taxing authorities in major state jurisdictions include 2010 and forward. The company does not expect the settlement of audit examinations to significantly change the total amount of unrecognized tax benefits within the next 12 months.

Tampa Electric Company [Member]

Income Taxes

4. Income Taxes

TEC is included in the filing of a consolidated federal income tax return with TECO Energy and its affiliates. TEC’s income tax expense is based upon a separate return computation. For the three years presented, TEC’s effective tax rate differs from the statutory rate principally due to state income taxes, domestic production deduction and AFUDC equity benefit. The decrease in the 2013 effective tax rate compared to 2012 is principally due to equity portion of AFUDC.

Income tax expense consists of the following components:


Income Tax Expense (Benefit)
(millions) For the year ending Dec. 31,	2013			2012			2011
Current income taxes
Federal	$	19.4		$	(19.5	)	$	(30.7	)
State		1.3			5.6			2.9
Deferred income taxes
Federal		99.8			141.2			155.6
State		18.6			14.7			18.0
Amortization of investment tax credits		(0.3	)		(0.3	)		(0.4	)

Total income tax expense	$	138.8		$	141.7		$	145.4

The total income tax provisions differ from amounts computed by applying the federal statutory tax rate to income before income taxes as follows:


Effective Income Tax Rate
(millions) For the years ended Dec. 31,	2013			2012			2011
Income tax expense at the federal statutory rate of 35%	$	127.5		$	129.1		$	133.2
Increase (decrease) due to
State income tax, net of federal income tax		13.0			13.2			13.6
Equity portion of AFUDC		(2.2	)		(0.9	)		(0.4	)
Domestic production deduction		(0.6	)		(0.4	)		(1.5	)
Other		1.1			0.7			0.5

Total income tax expense on consolidated statements of income	$	138.8		$	141.7		$	145.4

Income tax expense as a percent of income from continuing operations, before income taxes		38.1	%		38.4	%		38.2	%

Deferred taxes result from temporary differences in the recognition of certain liabilities or assets for tax and financial reporting purposes. The principal components of TEC’s deferred tax assets and liabilities recognized in the balance sheet are as follows:


Deferred Income Taxes
(millions) As of Dec. 31,	2013			2012
Deferred tax liabilities ⁽¹⁾
Property related	$	1,166.4		$	1,016.2
Deferred fuel		1.6			11.3
Pension and postretirement benefits		70.5			106.6
Pension		43.2			36.7
Other		0.0			22.2

Total deferred tax liabilities		1,281.7			1,193.0

Deferred tax assets ⁽¹⁾
Medical benefits		50.9			49.0
Insurance reserves		29.1			31.1
Investment tax credits		5.3			5.5
Hedging activities		4.9			5.5
Pension and postretirement benefits		70.5			106.6
Unbilled revenue		12.1			14.8
Capitalized energy conservation assistance costs		19.6			19.6
Other		4.4			0.0

Total deferred tax assets		196.8			232.1

Total deferred tax liability, net		1,084.9			960.9
Less: Current portion of deferred tax asset		(29.4	)		(20.0	)

Long-term portion of deferred tax liability, net	$	1,114.3		$	980.9

(1)	Certain property related assets and liabilities have been netted.

TEC accounts for uncertain tax positions as required by FASB accounting guidance. This guidance addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under the guidance, TEC may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. The guidance also provides standards on derecognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.

As of Dec. 31, 2013 and 2012, TEC did not have a liability for unrecognized tax benefits. Based on current information, TEC does not anticipate that this will change materially in 2014. As of Dec. 31, 2013, TEC does not have a liability recorded for payment of interest and penalties associated with uncertain tax positions.

The IRS concluded its examination of federal income tax returns for the year 2012 in January 2014. The U.S. federal statute of limitations remains open for the year 2010 and onward. The federal income tax return for calendar year 2013 is part of the IRS’s Compliance Assurance Program. As a result, the IRS audit of such return is expected to be completed in 2014. Florida’s statute of limitations is three years from the filing of an income tax return. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. Years still open to examination by Florida’s tax authorities include 2010 and onward. TEC does not expect the settlement of audit examinations to significantly change the total amount of unrecognized tax benefits within the next 12 months.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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