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WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended June 30, 2002

OR

For the transition period from _____ to _____

Commission File Number 1-8180

(Exact name of registrant as specified in its charter)

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 or 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 o

Number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date (July 31, 2002):

Common Stock, $1 Par Value 156,076,221

Index to Exhibits Appears on Page 33

PART I. FINANCIAL INFORMATION

            In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments that are of a recurring nature and necessary to present fairly the financial position of TECO Energy, Inc. and subsidiaries as of June 30, 2002 and 2001, and the results of their operations and cash flows for the three-month and six-month periods ended June 30, 2002 and 2001. The results of operations for the three-month and six-month periods ended June 30, 2002 are not necessarily indicative of the results that can be expected for the entire fiscal year ending Dec. 31, 2002. Reference should be made to the explanatory notes affecting the income and balance sheet accounts contained in TECO Energy, Inc.’s Annual Report on Form 10-K for the year ended Dec. 31, 2001 and to the notes on pages 9 through 20 of this report.

TECO ENERGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
(in millions, except for share amounts)

The accompanying notes are an integral part of the condensed consolidated financial statements.

TECO ENERGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS - continued
Unaudited
(in millions, except for share amounts)

The accompanying notes are an integral part of the condensed consolidated financial statements.

TECO ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited
(in millions, except per share amounts)

The accompanying notes are an integral part of the condensed consolidated financial statements.

TECO ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited
(in millions, except per share amounts)

The accompanying notes are an integral part of the condensed consolidated financial statements.

TECO ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(in millions)

The accompanying notes are an integral part of the condensed consolidated financial statements.

TECO ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Unaudited
(in millions)

The accompanying notes are an integral part of the condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

A.     Summary of Significant Accounting Policies

             Revenue Recognition : TECO Energy, Inc., (“TECO Energy” or the “Company”) recognizes revenues in accordance with the Securities and Exchange Commissions Staff Accounting Bulletin (SAB) 101, Revenue Recognition in Financial Statements . The criteria outlined in SAB 101 are that a) there is persuasive evidence that an arrangement exists; b) delivery has occurred or services have been rendered; c) the fee is fixed and determinable; and d) collectibility is reasonably assured. Except as discussed below, TECO Energy and its subsidiaries recognize revenues on a gross basis when earned for the physical delivery of products or services, and the risks and rewards of ownership have transferred to the buyer. Revenues for any financial or hedge transactions that do not result in physical delivery are reported on a net basis.

            The regulated utilities?(Tampa Electric and Peoples Gas System) retail businesses and the prices charged to customers are regulated by the Florida Public Service Commission (FPSC). Tampa Electric’s wholesale business is regulated by the Federal Energy Regulatory Commission (FERC). As a result, the regulated utilities qualify for the application of Financial Accounting Standard (FAS) 71, Accounting for the Effects of Certain Types of Regulation . See Note D for a discussion of the applicability of FAS 71 to the Company. Revenues for certain transportation services at TECO Transport are recognized using the percentage of completion method, which includes estimates of the distance traveled and/or the time elapsed, compared to the total estimated contract. See additional discussion in Note D on pages 11 and 12.

            Revenues for long-term engineering or construction-type contracts at TECO BGA and BCH Mechanical are recognized on a percentage of completion basis, which includes estimates of the total costs for the project compared to the estimated work progress already completed for the contract. Each month, revenue recognition and realized profit are adjusted to reflect only the percentage of the estimated costs that have been completed. Revenues from operations at TECO Coalbed Methane are based on oil and gas joint venture accounting, which reflects the proportional share of the undivided interest in joint ventures.

             Accounting for Excise Taxes, Franchise Fees and Gross Receipts: TECO Coal and TECO Transport incur most of TECO Energy’s total excise taxes, which are accrued as an expense and reconciled to the actual cash payment of excise taxes. As general expenses, they are not specifically recovered through revenues. The regulated utilities expense immaterial excise taxes when incurred.

            The regulated utilities are allowed to recover certain costs incurred from customers through prices approved by the regulatory process. The amounts included in customers bills for franchise fees and gross receipt taxes are included as revenues on the Condensed Consolidated Income Statement. These amounts totaled $18.7 million and $17.8 million, respectively, for the three months ended June 30, 2002 and 2001, and $35.9 million and $37.5 million, respectively, for the six months ended June 30, 2002 and 2001. Franchise fees and gross receipt taxes payable by the regulated utilities are included as an expense on the Consolidated Statement of Income in Taxes, other than income, and equaled the revenues collected.

             Restrictions on Dividend Payments and Transfer of Assets: Dividends on TECO Energy’s common stock are at the discretion of its Board of Directors. Should TECO Energy exercise its right to defer payments on its subordinated notes issued in connection with the issuance of trust preferred securities by TECO Capital Trust I or TECO Capital Trust II, TECO Energy would be prohibited from paying cash dividends on its common stock until the unpaid distributions on the subordinated notes are made. TECO Energy has not exercised that right.

            The primary sources of funds to pay dividends on TECO Energy’s common stock are dividends from its operating companies. Tampa Electric’s first mortgage bonds and certain long-term debt at Peoples Gas System (PGS) contain restrictions that limit the payment of dividends on the common stock of Tampa Electric Company. Tampa Electric’s first mortgage bonds do not limit loans or advances. In

addition, TECO Diversified, Inc., a wholly-owned subsidiary of TECO Energy and the holding company for TECO Transport, TECO Coal, TECO Coalbed Methane and TECO Solutions, has a guarantee related to a coal supply agreement that limits the payment of dividends to its common shareholder, but does not limit loans or advances. As of June 30, 2002 and Dec. 31, 2001, the balances restricted as to transfers to the parent company in the form of loans, advances or cash dividends were less than 25 percent of consolidated common equity.

             Planned Major Maintenance: TECO Energy accounts for planned maintenance projects by expensing the costs as incurred. Planned major maintenance projects that do not increase the overall life or value of the related assets are expensed. When the major maintenance materially increases the life or value of the underlying asset, the cost is capitalized. While normal maintenance outages covering various components of the plants generally occur on at least a yearly basis, major overhauls occur less frequently.

            Tampa Electric expenses major maintenance costs as incurred. Concurrent with a planned major maintenance outage, the cost of adding or replacing retirement units-of-property is capitalized in conformity with FPSC and FERC regulations.

            At TECO Power Services (TPS), the San Jose and Alborada plants in Guatemala each has a long-term power purchase agreement (PPA) with one customer in Guatemala. A major maintenance revenue recovery component is implicit in the capacity payment portion of the PPA for each plant. Accordingly, a portion of each monthly fixed capacity payment is deferred to recognize the portion that reflects recovery of future planned major maintenance expenses. Actual maintenance costs are expensed when incurred with a like amount of deferred recovery revenue recognized at the same time. All other TPS operating projects expense major maintenance costs when incurred.

             Principles of Consolidation and Reclassifications: All significant intercompany balances and intercompany transactions have been eliminated in consolidation. Certain reclassifications have been made to prior period amounts to conform with the current period presentation. These reclassifications did not affect total net income or total equity.

B.     Derivatives and Hedging

            FAS 133, Accounting for Derivative Instruments and Hedging , requires companies 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 the fair value of those instruments as either components of other comprehensive income (OCI) or in net income, depending on the designation of those instruments. The changes in fair value that are recorded in OCI are not recognized in current net income. As the underlying hedged transaction matures or the physical commodity is delivered, the deferred gain or the loss on the related hedging instrument must be reclassified from OCI to earnings based on its value at the time of its reclassification. For hedge transactions, the amount reclassified from OCI to earnings is

offset in net income by the amount paid or received on the underlying physical transaction.

            At June 30, 2002, the Company had derivative assets totaling $5.3 million and liabilities totaling $4.7 million. At June 30, 2002, OCI includes $15.0 million of unrealized after-tax losses, representing the fair value of cash flow hedges whose underlying hedged transaction will occur in the future, including an unrealized loss of $16.5 million of an equity investee’s interest rate swap designated as a cash flow hedge. There were no amounts in OCI related to derivatives designated as cash flow hedges at June 30, 2001. Amounts recorded in OCI reflect the value of derivative instruments designated as hedges, based on market prices as of the balance sheet date. These amounts are expected to fluctuate with movements in market prices and may or may not be realized as a loss upon reclassification from OCI.

            As of June 30, 2002, TECO Energy had transactions in place to hedge commodity price risk and interest rate risk that qualify for cash flow hedge accounting treatment under FAS 133. During the three months and six months ended June 30, 2002, TECO Energy reclassified net pretax losses of $4.2 million and $24.6 million, respectively, to earnings for cash flow hedges, compared to gains of $1.2 million and losses of $8.4 million, respectively, for the three and six months ended June 30, 2001. Amounts reclassified from OCI were primarily related to cash flow hedges of physical purchases of natural gas. For these types of hedge relationships, the loss on the derivative, reclassified from OCI to earnings, is offset by the reduced expense arising from lower prices paid for spot purchases of natural gas. Conversely, reclassification of a gain from OCI to earnings is offset by the increased cost of spot purchases of natural gas. Within the next twelve months, gains of $1.5 million are expected to be reversed to the Consolidated Statement of Income. However, this gain and other future reclassifications from OCI, will fluctuate with movements in the underlying market price of the derivative instruments.

C.     Comprehensive Income

            FAS 130, Reporting Comprehensive Income, requires that comprehensive income, which includes net income as well as certain changes in assets and liabilities recorded in common equity, be reported in the financial statements. Components of OCI are presented below:

D.     Regulatory Assets and Liabilities

            Tampa Electric and PGS maintain their accounts in accordance with recognized policies prescribed or permitted by the FPSC. In addition, Tampa Electric maintains its accounts in accordance with recognized policies prescribed or permitted by the FERC. These policies conform with generally accepted accounting principles in all material respects.

            Tampa Electric and PGS apply the accounting treatment permitted by FAS 71, Accounting for the Effects of Certain Types of Regulation . Areas of applicability include: deferral of revenues under approved regulatory agreements; revenue recognition resulting from cost recovery clauses that provide for monthly billing charges to reflect increases or decreases in fuel; purchased power, conservation and environmental costs; and deferral of costs as regulatory assets when cost recovery is ordered over a period longer than a fiscal year, to the period that the regulatory agency recognizes them. Details of the regulatory assets and liabilities as of June 30, 2002 and Dec. 31, 2001 are presented in the following table:

______________

E.     Purchased Power

            Tampa Electric purchases power on a regular basis primarily to meet the needs of its retail customers. For the three months and six months ended June 30, 2002, Tampa Electric purchased $49.8 million and $76.9 million, respectively. Purchased power for the same periods last year were $57.9 million and $91.3 million, respectively. These purchased power costs are recoverable through an FPSC-approved cost recovery clause.

            As discussed in Part 1, Item 1. Business, in TECO Energy’s Form 10-K for the period ended Dec. 31, 2001, TPS, through its wholly-owned subsidiary, Hardee Power Partners (Hardee), has agreements with Seminole Electric Cooperative and Tampa Electric to supply all the power and capacity of its Hardee Power Station for 20 years beginning in 1993. Under the Seminole agreement, Hardee has agreed to supply Seminole with an additional 145 megawatts of capacity during the first 10 years of the contract. This additional capacity is purchased from Tampa Electric’s Big Bend Unit 4 for resale to Seminole. To meet other firm commitment contracts, TPS’ merchant plants may also purchase power from time to time. Total unregulated purchased power for the three months and six months ended June 30, 2002 was $12.5 million and $19.1 million, respectively, compared to $8.3 million and $17.7 million, respectively, for the same periods in 2001 .

F.     Commitments and Contingencies

            TECO Energy and its subsidiaries have made certain commitments in connection with their continuing capital investment program and estimate that capital investments for continuing operations during 2002 will be approximately $1.3 billion as detailed below. TPS expects to invest $582.7 million in all of its projects currently under construction (Union, Gila, Dell and McAdams). This investment is reflected in the figures below and is net of $400.0 million of non-recourse project financing expected for the Dell, McAdams and Frontera power stations.

            Capital investments for continuing operations (millions):

            TECO Energy had letters of credit and financial guarantees outstanding at June 30, 2002, as indicated below. In addition, as discussed below and in Note G, TECO Energy has guaranteed $500 million in fully-drawn equity bridge facilities for the construction of the Gila River and Union Power projects. TECO’s guarantees of the obligations of the contractor under the construction contract for these projects are included in the letters of credit detail below.

            Letters of credit and financial guarantees (millions):

            Also, in addition to the guarantees discussed above, TECO Energy facilitates the extension of unsecured credit by potential counterparties to TPS and Prior Energy for the purchase and sale of gas and electricity. TECO Energy provides parent guarantees to those counterparties. TPS and Prior are wholly-owned subsidiaries of TECO Energy, and all transactions executed under the parent guarantees are reflected in TECO Energy’s consolidated financial statements.

            TECO Energy’s guarantees of the equity bridge facilities and the equity contribution agreements contain customary covenants, including two financial covenants. Under the financial covenants, TECO Energy’s consolidated debt-to-capital ratio (as defined in the guarantees) must not exceed 65.0% as of the end of each quarter, and its twelve-months ended consolidated net earnings before certain charges (EBITDA) at the end of each quarter must be at least 3.0 times its consolidated adjusted interest expense on indebtedness (as such terms are defined in the guarantees). TECO Energy’s bank facility also includes a similar debt-to-capital covenant. At June 30, 2002, the debt-to-capital ratio was 54.9% and interest coverage was 4.0 times. In addition, the guarantees of the equity bridge facilities and the equity contribution agreements require that TECO Energy maintain senior unsecured credit ratings not less than one rating of BBB and one rating of BBB-. Failure to meet these covenants requires the delivery of a letter of credit to secure the obligations. TECO Energy’s ratings of A3 for Moody’s, BBB+ for Standard and Poors, and A- for Fitch, currently meet this requirement.

            Tampa Electric Company is a potentially responsible party for certain superfund sites and, through its Peoples Gas System division, for certain manufactured gas plant sites. While the joint and several liability associated with these sites presents the potential for significant response costs, Tampa Electric Company estimates its ultimate financial liability at approximately $20 million over the next 10 years. The environmental remediation costs associated with these sites have been recorded on the accompanying condensed consolidated balance sheet, and are not expected to have a significant impact on customer prices.

            On Dec. 2, 2001, Enron Corp., a large energy trading and services company, filed for protection under the U.S. Bankruptcy Code. TECO Energy believes that its remaining exposure in operations from trade payables and other trading positions due to the Enron bankruptcy totals $3.5 million or less after tax at its subsidiaries, TPS, PGS and Prior Energy, its gas marketing subsidiary.

            On Aug. 11, 2002, US Airways Group, Inc. filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. At June 30, 2002, TECO Energy had an investment in an aircraft leased to US Airways and estimates its exposure related to that leased aircraft to be $3.0 million or less after tax.

G.     Investments in Unconsolidated Affiliates

            Certain investments are accounted for using the equity method of accounting. At June 30, 2002, these investments in unconsolidated affiliates included TPS’ 50-percent voting interest in TECO-Panda Generating Company L.P. (TPGC). TPGC is a development stage enterprise and had no revenues for the three-month and six-month periods ended June 30, 2002 and 2001. Results from operations of TPGC, which reflected the capitalization of development costs in accordance with the AICPA Statement of Position (SOP) 98-5, Reporting on the Costs of Start-up Activities, were not material for these periods.

            As discussed in Note I below, TPS has recognized income on notes receivable and from credit support for TPGC joint ventures. TPGC is accounted for using the equity method of accounting, reflecting the Company’s significant influence but lack of control over the operating and financial policies of TPGC. The Company has determined that its investment in TPGC does not meet the test for presumption of control (ownership of over 50 percent of the voting interests) and does not contain any element that would nevertheless indicate control when the presumption of control does not exist.

            The TPGC projects under construction, the Gila River and Union Power Stations, are funded by a combination of loans to TPGC from TPS and draws by the project subsidiaries under the project financing

bank facility. Upon commercial operation of certain phases of the projects, and based on the timing of financing, permanent funding is required by the partners, pursuant to the partnership agreement and the financing agreement.

            Except to the extent that TECO Energy has guaranteed $250 million of the project financing for each of the Gila River project and the Union Power project and its equity contributions for the projects of up to approximately $493 million, both of which are owned by wholly-owned subsidiaries of TPGC, no partner has made any direct guarantees of partnership debt. In addition, TECO Energy has guaranteed the obligations of the contractor under the construction contracts for these projects.

H.     Guarantees of Subsidiary Securities

            TECO Finance, a wholly-owned finance subsidiary of TECO Energy, had no commercial paper outstanding and $9.0 million of notes due in 2002 outstanding at June 30, 2002. Its obligations are fully and unconditionally guaranteed by TECO Energy. There are no restrictions on dividends or cash advances from TECO Finance to TECO Energy or its subsidiaries.

I.     Related Parties

            The Company and its subsidiaries had certain transactions, in the ordinary course of business, with entities in which directors of the Company had interests. These transactions, primarily for legal services, were not material for the periods ended June 30, 2002 and 2001. No material balances were payable as of June 30, 2002 or 2001.

            TPS Arkansas Operations Company and TPS Arizona Operations Company, both wholly-owned subsidiaries of TPS, have a combined receivable from TPGC of $0.3 million as of June 30, 2002.

            In addition, TPS recognized income on the non-TPS portion of notes receivable from unconsolidated affiliates in which TPS holds joint venture interests and from credit support for the TPGC joint venture. The notes receivable from unconsolidated affiliates include:

______________

            TPS has agreed to purchase the interests of Panda Energy in the TPGC projects in 2007 for $60 million, and TECO Energy has guaranteed payment of TPS’ purchase obligation. This obligation may be accelerated if Panda Energy defaults on a bank loan for which the TPS purchase obligation is collateral or if TECO Energy permits its debt-to-capital ratio to exceed 65.0% or defaults on the payment of indebtedness in excess of $50 million. Panda Energy may cancel the purchase obligation at any time by paying TPS a cancellation fee that ranges from $8 million to $20 million based on the time of such cancellation.

J.     Goodwill and Other Intangible Assets

            Effective Jan. 1, 2002, TECO Energy and its subsidiaries adopted 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, goodwill is no longer subject to amortization. Rather, goodwill is subject to 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 acquiror’s intent to do so. These intangible assets are required to be amortized over their useful lives.

            The amount of goodwill included on the consolidated balance sheet at June 30, 2002 and Dec. 31, 2001 was $193.3 million and $165.8 million, respectively, net of accumulated amortization of $9.5 million. Amortization of goodwill ceased effective Jan. 2, 2002 with the adoption of FAS 142 effective Jan. 1, 2001, resulting in savings of approximately $5 million of annual amortization expense. Results for the three-month and six-month periods ended June 30, 2001 included $1.0 million and $1.7 million of goodwill amortization expense, respectively.

            The amount of intangible assets included in deferred charges and other assets on the consolidated balance sheet at June 30, 2002 was $13.8 million, which is net of accumulated amortization of $31.1 million, and at Dec. 31, 2001 was $28.5 million, which was net of accumulated amortization of $12.3 million. Amortizable intangible assets of $7.1 million at June 30, 2002 represent customer backlog, supply agreements and the open cash flow hedges as of Nov. 1, 2001, related to the Prior Energy acquisition in November 2001. The Company is amortizing these intangibles over the current year period. Amortization expense of $2.6 million and $18.8 million, respectively, was recorded in the three and six months ended June 30, 2002. Unamortizable intangible assets of $6.7 million at June 30, 2002 represent licenses held by TPS related to gasification technologies.

            TECO Energy completed the initial impairment testing as of June 30, 2002 as required under FAS 142 and found no impairments to recorded goodwill or intangibles. The reconciliation of reported net income and earnings per share to adjusted net income excluding goodwill amortization expense for the three-month and six-month periods ended June 30, follows:

K.     Mergers and Acquisitions

            In May 2002, TPS purchased Mosbacher Power Partners’ interest in TM Power Ventures (TMPV) for $29.3 million. The majority of the purchase price was allocated to TMPV’s investment in the 312-megawatt Commonwealth Chesapeake Power Station (CCC) located on the Delmarva Peninsula in Virginia, and has been recorded as an increase in goodwill. TMPV also owns a minority interest in a project in the Czech Republic. The acquisition increased TPS’ ownership interest in TMPV to 100 percent.

L.     Equity Issuances

            In June 2002, the Company completed a public offering of 15.525 million common shares at a price to the public of $23.00 per share. The sale of these shares resulted in net proceeds to the Company of approximately $346 million, which were used to reduce the commercial paper balances of TECO Energy’s finance subsidiary and for general corporate purposes.

            In January 2002, TECO Energy sold 17.965 million mandatorily convertible equity security units in the form of 9.5% equity units at $25 per unit resulting in $436 million of net proceeds. Each equity unit consisted of $25 in principal amount of a trust preferred security of TECO Capital Trust II, a Delaware business trust formed by TECO Energy, with a stated liquidation amount of $25 and a contract to purchase shares of common stock of TECO Energy in January 2005 at a price per share of between $26.29 and $30.10 based on the market price at that time. The equity units represent an indirect interest in a corresponding amount of TECO Energy 5.11% subordinated debt. The holders of these contracts are entitled to quarterly contract adjustment payments at the annualized rate of 4.39% of the stated amount of $25 per year through and including Jan. 15, 2005. The net proceeds from the offering were used to repay short-term debt and for general corporate purposes.

M.     Long-Term Debt and Other Financings

            In June 2002, the Hillsborough County Industrial Development Authority (HCIDA) issued $147.1 million of HCIDA Pollution Control Revenue Refunding Bonds (Tampa Electric Company Project) Series 2002 for the benefit of Tampa Electric Company. The bonds were issued to refund three existing HCIDA Pollution Control Revenue Bonds in July and August 2002. Tampa Electric is responsible for repayment of the interest and principal associated with the issuance of the 2002 refunding bonds. The average rate on the new bonds is 5.33% compared to an average coupon rate of 7.64% on the refunded bonds. Restricted cash of $146.3 million held by the trustee from the proceeds of the 2002 refunding bonds is reflected as a financing activity in the Condensed Consolidated Statements of Cash Flows and was applied to payment of the refunded bonds in July and August 2002.

            In May 2002, TECO Energy issued $300 million principal amount of 6.125% Notes due May 1, 2007, and $400 million principal amount of 7.0% Notes due May 1, 2012. These notes are redeemable at the option of the Company, in whole or in part, from time to time, at a redemption price equal to the greater of 100% of the principal amount of the notes then outstanding to be redeemed or the sum of the present value of the remaining scheduled payments of principal and interest on the notes to be redeemed, discounted at an adjusted treasury rate plus 25 basis points to the redemption date. Net proceeds of $694.4 million were used to repay maturing debt, repay short-term indebtedness and for general corporate purposes.

N.     Income Tax Expense

            The total income tax provisions differ from amounts computed by applying the federal statutory tax rate to income before income taxes, primarily due to the recognition of non-conventional fuels tax credits and other miscellaneous items as noted in the table that follows. The non-conventional fuels tax credits are generated on qualified production at TECO Coalbed Methane through Dec. 31, 2002, and at TECO Coal through Dec. 31, 2007, subject to changes in law, regulation, or administration that could impact the qualification of Section 29 synthetic fuel tax credits. The full-year estimate of the non-conventional fuels tax credits for 2002 is approximately $115 million. The full-year estimate for cash federal tax payments to be made under alternative minimum tax rules (AMT) is expected to be approximately $75 to $85 million for 2002.

O.     Earnings per Share: The reconciliation of basic and diluted earnings per share is shown below:

            At June 30, 2002, 3.7 million stock options and 14.9 million common shares issuable under the purchase contract associated with the mandatorily convertible equity units issued in January 2002, were excluded from the computation of diluted earnings per share due to their antidilutive effect. At June 30, 2001, 1.3 million stock options were excluded from the calculation of diluted earnings per share due to their antidilutive effect.

P.     Segment Information

            The management of TECO Energy determined its reportable segments based on each subsidiary’s contribution of revenues, net income and total assets. All significant intercompany transactions are eliminated in the Condensed Consolidated Financial Statements of TECO Energy but are included in determining reportable segments.

Contributions by business segment (in millions)

______________

provisions for taxes of $2.2 million and $5.9 million, respectively, for the three and six months ended June 30, 2002.

Q.     New Accounting Pronouncements

             FAS 143: In July 2001, the Financial Accounting Standards Board issued FAS 143, Accounting for Asset Retirement Obligations , which requires the recognition of a liability at fair value 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 future value. The corresponding amount capitalized at inception is depreciated over the useful life of the asset. The liability must be revalued each period based on current market prices. FAS 143 is effective for fiscal years beginning after June 15, 2002. The Company is reviewing the impact that implementation of FAS 143 will have on its results.

             FAS 145 : In April 2002, the Financial Accounting Standards Board issued FAS 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections . In addition to rescinding the aforementioned statements, FAS 145 also amends FAS 13, Accounting for Leases , to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The implementation of FAS 145 is not anticipated to have a significant impact on the Company’s results.

             FAS 146 : In July 2002, the Financial Accounting Standards Board issued FAS 146, Accounting for Costs Associated with Exit or Disposal Activities , which addresses the accounting for costs under certain circumstances, including costs to terminate a contract that is not a capital lease, costs to consolidate facilities or relocate employees, and termination benefits provided to employees that are involuntarily terminated under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred compensation contract. FAS 146 is effective for disposal activities initiated after December 31, 2002.

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            This Quarterly Report on Form 10-Q contains forward-looking statements, which are subject to the inherent uncertainties in predicting future results and conditions. These forward-looking statements include references to our anticipated results of operations, growth rates, capital investments and funding requirements and other future plans. Certain factors that could cause actual results to differ materially from those projected in these forward-looking statements include the following: 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, Peoples Gas System (PGS) or TECO Power Services (TPS); commodity price changes affecting the competitive positions of Tampa Electric and PGS, as well as the margins at TECO Coalbed Methane and TECO Coal; energy price changes affecting TPS’ merchant plants; changes in and compliance with environmental regulations that may impose additional costs or curtail some activities; TPS’ ability to successfully construct, finance and operate its projects on schedule and within budget; TPS’ ability to obtain project financing for its Frontera, Dell, McAdams and Commonwealth Chesapeake projects; TPS’ ability to sell the output of the merchant plants operating or under construction at volumes and rates sufficient to recover the investment; the ability of TECO Energy’s subsidiaries to operate equipment without undue accidents, breakdowns or failures; interest rates and other factors that could impact TECO Energy’s ability to obtain access to sufficient capital on satisfactory terms; any unanticipated need for additional equity capital that might result from lower than expected cash flow or higher than projected capital requirements and TECO Coal’s ability to successfully operate its synthetic fuel production facilities in a manner qualifying for Section 29 federal income tax credits, which could be impacted by changes in law, regulation or administration. Some of these factors are discussed more fully under “Investment Considerations” in the Company’s Annual Report on Form 10-K for the year ended Dec. 31, 2001, and in the Company’s Registration Statement on Form S-3 (Registration No. 333-83958), and references are made thereto.

Results of Operations

Three Months Ended June 30, 2002:

            Second quarter net income increased 19 percent to $85.7 million, compared with $71.9 million in 2001. Earnings per share for the quarter were $0.59 (basic), 11 percent higher from $0.53 in the same period in 2001. The average number of common shares outstanding in the second quarter was 6.3 percent higher in 2002 than the same period in 2001. Revenues increased 27.7 percent to $819.9 million for the quarter, compared to $641.8 million for the same period last year.

            Results for the quarter relative to 2001 reflected the continued strong customer growth at Tampa Electric and PGS and higher allowance for funds used during construction (AFUDC), (which represents allowed interest and equity cost capitalized to the construction costs) primarily from the Gannon to Bayside Units 1 and 2 repowering project, partially offset by mild winter weather patterns. At TECO Coal, results for 2002 reflected better prices, as well as increased synthetic fuel production.

Tampa Electric Company - Electric division (Tampa Electric)

            Tampa Electric’s net income for the second quarter was $45.4 million, compared with $38.1 million for the same period in 2001. The company showed improved results from customer growth of almost 3 percent and 12 percent higher retail energy sales due to more-normal weather patterns. Retail energy sales in 2001 were lower due to mild spring weather. Results for the quarter included higher depreciation expense from normal plant additions and higher operations and maintenance expense related to a small-scale employee retirement program. The equity component of AFUDC, primarily from the Gannon to Bayside Units 1 and 2 repowering project, increased to $5.7 million for the quarter, from $1.3 million for the same period last year. A summary of the operating statistics for the three months ended June 30, 2002 and 2001 follows:

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Tampa Electric Company - Natural Gas division (Peoples Gas System)

            Peoples Gas System (PGS) reported net income of $4.4 million for the quarter, compared with $4.2 million for the same period last year. Quarterly results reflected almost 4 percent customer growth, higher commercial usage, increased gas transportation for power generation customers and off-system sales, and lower operating expenses. Operating expenses were lower than last year reflecting the lower cost of gas sold, while depreciation increased due to normal plant growth. A summary of operating statistics for the three months ended June 30, 2002 and 2001 is below: