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Index to Financial Statements

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended March 31, 2003

OR

For the transition period from                          to                         

Commission File No. 1-8180

TECO ENERGY, INC.

(a Florida corporation)

(Exact name of registrant as specified in its charter)

TECO Plaza

702 N. Franklin Street

Tampa, Florida 33602

(Address of principal executive offices)

(813) 228-4111

(Telephone number)

Commission File No. 1-5007

TAMPA ELECTRIC COMPANY

(a Florida corporation)

(Exact name of registrant as specified in its charter)

TECO Plaza

702 N. Franklin Street

Tampa, Florida 33602

(Address of principal executive offices)

(813) 228-4111

(Telephone number)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark whether the registrants (1) have 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) have been subject to such filing requirements for the past 90 days. YES  x  NO  ¨

Indicate by check mark whether TECO Energy, Inc. is an accelerated filer (as defined in Exchange Act Rule 12b-2).  YES  x  NO  ¨

Indicate by check mark whether Tampa Electric Company is an accelerated filer (as defined in Exchange Act Rule 12b-2).  YES  x  NO  ¨

Number of shares of TECO Energy, Inc.’s common stock outstanding as of April 30, 2003 was 176,508,379.

As of April 30, 2003, there were 10 shares of Tampa Electric Company’s common stock issued and outstanding, all of which were held, beneficially and of record, by TECO Energy, Inc.

Tampa Electric Company 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.

This combined Form 10-Q represents separate filings by TECO Energy, Inc. and Tampa Electric Company. Information contained herein relating to an individual registrant is filed by that registrant on its own behalf. Each registrant makes representations only as to information relating to itself and its subsidiaries.

Page 1 of 61

Index to Exhibits appears on page 61

Index to Financial Statements

PART I. FINANCIAL INFORMATION

Item 1. CONSOLIDATED FINANCIAL STATEMENTS

TECO ENERGY, INC.

In the opinion of management, the unaudited 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 Mar. 31, 2003 and Dec. 31, 2002, and the results of their operations and cash flows for the three-month periods ended Mar. 31, 2003 and 2002. The results of operations for the three-month period ended Mar. 31, 2003 are not necessarily indicative of the results that can be expected for the entire fiscal year ending Dec. 31, 2003. References should be made to the explanatory notes affecting the consolidated income and balance sheet accounts contained in TECO Energy, Inc.’s Annual Report on Form 10-K for the year ended Dec. 31, 2002 and to the notes on pages 8 through 26 of this report.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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Index to Financial Statements

TECO ENERGY, INC.

Consolidated Balance Sheets

Unaudited

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

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TECO ENERGY, INC.

Consolidated Balance Sheets—continued

Unaudited

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

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TECO ENERGY, INC.

Consolidated Statements of Income

Unaudited

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

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TECO ENERGY, INC.

Consolidated Statements of Comprehensive (Loss) Income

Unaudited

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

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ECO ENERGY, INC.

Consolidated Statements of Cash Flows

Unaudited

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

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TECO ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

The significant accounting policies for both utility and diversified operations are as follows:

Principles of Consolidation

The consolidated financial statements include the accounts of TECO Energy, Inc. (TECO Energy or the company) and its wholly-owned subsidiaries.

The equity method of accounting is used to account for investments in partnership arrangements in which TECO Energy or its subsidiary companies do not have majority ownership or exercise control.

The proportional share of expenses, revenues and assets reflecting TECO Coalbed Methane’s undivided interest in joint venture property is included in the consolidated financial statements. Results of operations for TECO Coalbed Methane are included in discontinued operations.

All significant intercompany balances and intercompany transactions have been eliminated in consolidation.

The use of estimates is inherent in the preparation of financial statements in accordance with generally accepted accounting principles (GAAP).

Investments in Unconsolidated Affiliates

Investments in unconsolidated affiliates are accounted for using the equity method of accounting. The ownership interest for each investment is presented in the table below. See Notes 17 and 18 for a discussion of items that could materially impact the method of accounting for certain unconsolidated affiliates.

TECO Energy and Subsidiaries’ Investments in Unconsolidated Affiliates

        Summary financial information for TPGC as of Mar. 31, 2003 and Dec. 31, 2002 is presented in the following table. Results from operations prior to 2003 were primarily attributable to financing and general administrative costs associated with construction activities. Under the financing structure for the Union Power Partners, L.P. (UPP) project, UPP purchased industrial revenue bonds from Union County, Arkansas, which were financed by borrowings from Union County. The aggregate maximum of bonds purchased is $700 million, which equals the ultimate amount of borrowings from Union County. The County’s debt service payments on the bonds to UPP will equal UPP’s debt service payments to the County for the project. Principal and interest on the bonds and related financing will be due quarterly commencing Sept. 15, 2003 and continuing to final maturity on June 15, 2021.

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Summary Financial Information for TPGC

Revenue Recognition

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 (PGS)) 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). See Note 4 for a discussion of the applicability of Financial Accounting Standard (FAS) 71, Accounting for the Effects of Certain Types of Regulation, 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. Revenues for long-term engineering or construction-type contracts at TECO Energy Services (formerly 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.

Revenues for energy marketing operations at Prior Energy and TECO Gas Services are presented on a net basis in accordance with Emerging Issues Task Force No. (EITF), 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent and EITF 02-3, Recognition and Reporting of Gains and Losses on Energy Trading Contracts Under Issues No. 98-10 and 00-17, to reflect the nature of the contractual relationships with customers and suppliers. As a result, costs netted against revenues were $313.5 million and $124.7 million, respectively, for the three months ended Mar. 31, 2003 and 2002.

Purchased Power

Tampa Electric purchases power on a regular basis primarily to meet the needs of its retail customers. For the three months ended Mar. 31, 2003 and 2002, Tampa Electric purchased power from non-TECO Energy affiliates of $39.4 million and $27.1 million, respectively. These purchased power costs are recoverable through an FPSC-approved cost recovery clause.

Total unregulated purchased power for the three months ended Mar. 31, 2003 and 2002 was $6.8 million and $6.6 million, respectively.

Depreciation

TECO Energy provides for depreciation primarily by the straight-line method at annual rates that amortize the original cost, less net salvage, of depreciable property over its estimated service life. The provision for utility plant in service, expressed as a percentage of the original cost of depreciable property was 4.2% for the three months ended Mar. 31, 2003 and 2002.

        The original cost of utility plant retired or otherwise disposed of and the cost of removal, or dismantlement, less salvage are charged to accumulated depreciation. As regulated utilities, Tampa Electric and Peoples Gas must file depreciation and dismantlement studies periodically and receive approval from the Florida Public Service Commission before implementing new depreciation rates. Included in approved depreciation rates is either an implicit net salvage factor or a cost of removal factor, expressed as a percentage. The net salvage factor is principally comprised of two components—a salvage factor and a cost of removal or dismantlement factor. The company uses current cost of removal or dismantlement factors as part of the estimation method to approximate the amount of cost of removal in accumulated depreciation. At Jan. 1, 2003 the estimated accumulated cost of removal and dismantlement included in net accumulated depreciation was approximately $442.0 million. At Mar. 31, 2003 the cost of removal and dismantlement component of accumulated depreciation is approximately $441.1 million.

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The implementation of FAS 143, Accounting for Asset Retirement Obligations in 2003 resulted in an increase in the carrying amount of long-lived assets. The adjusted capitalized amount is depreciated over the remaining useful life of the asset. (See Note 5.)

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. Excise taxes paid by the regulated utilities are not material and are expensed 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 Consolidated Statement of Income. These amounts totaled $18.8 million and $17.2 million, respectively, for the three months ended Mar. 31, 2003 and 2002. 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. For the three months ended Mar. 31, 2003 and 2002, these totaled $18.7 million and $17.2 million, respectively.

Asset Impairments

Effective Jan. 1, 2002, TECO Energy and its subsidiaries adopted FAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which superseded FAS 121, Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of. FAS 144 addresses accounting and reporting for the impairment or disposal of long-lived assets, including the disposal of a segment of a business.

In accordance with FAS 144, the company assesses whether there has been an other-than-temporary impairment of its long-lived assets and certain intangibles held and used by the company when indicators of other than temporary impairment exist. Except as discussed in Note 8 relating to certain long-term turbine purchase contracts, no significant events or changes in circumstances occurred during the three months ended Mar. 31, 2003 to indicate an impairment of long-lived assets.

Restrictions on Dividend Payments and Transfer of Assets

Dividends on TECO Energy’s common stock are declared and paid at the discretion of its Board of Directors.

TECO Energy’s 10.5% Notes issued in November 2002 contain covenants that limit the ability of the company to incur additional liens and require the company to achieve certain interest coverage levels in order to pay dividends or distributions, make certain investments, or issue additional indebtedness. These covenants became effective as of Apr. 21, 2003, with Moody’s downgrade of TECO Energy’s senior unsecured debt rating to Ba1 from Baa2. (See Note 18 for additional information about the recent ratings downgrade.) The covenants apply only if either the notes are rated non-investment grade by either Standard & Poor’s (S&P) or Moody’s Investor Service (Moody’s) or the notes are rated below the levels required by the equity bridge loan and Union and Gila River construction undertaking while those obligations are outstanding. The limitation on restricted payments restricts the company from paying dividends or making distributions or certain investments unless there is sufficient cumulative operating cash flow, as defined, in excess of 1.7 times interest to make contemplated dividend payments, distributions or investments. The operating cash flow and restricted payments are calculated on a cumulative basis since the issuance of the 10.5% Notes in the fourth quarter of 2002. At Mar. 31, 2003, $99.1 million was accumulated and available for future restricted payments, representing a one quarter accumulation. The company is not permitted, with certain exceptions as defined, to create any lien upon any of its property in excess of 5% of consolidated net tangible assets without equally and ratably securing the 10.5% Notes. As of Mar. 31, 2003 this limitation would apply to certain liens exceeding $224.3 million. The company’s EBITDA to interest coverage for the immediate preceding four quarters must exceed a ratio of 2.0 to 1.0 for the company to be able to issue additional indebtedness with certain exceptions as defined within the agreement. As of Mar. 31, 2003, the company’s EBITDA to interest coverage for the immediate preceding four quarters was 3.7 times.

On Apr. 9, 2003, TECO Energy entered into a $350 million unsecured credit facility with Merrill Lynch that will be available if required to refinance the credit facility maturing in November 2003. In addition, $150 million of the facility is available for general corporate purposes until November. The term of the new credit facility is for up to eighteen months. The Merrill Lynch Bank USA (Merrill Lynch) credit facility requires TECO Energy’s debt-to-capital ratio, as defined in the credit agreement not to exceed 65.0%. At Mar. 31, 2003, TECO Energy’s debt-to-capital ratio was 56.2%. This facility also has covenants that could limit the payment of dividends exceeding $40 million in any quarter under certain circumstances if the facility is drawn. (See Note 18.)

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 bond indenture and certain long-term debt at PGS contain restrictions that limit the payment of dividends on the common stock of Tampa Electric (see Note 15). Tampa Electric’s first mortgage bond indenture does 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 and TECO Solutions, has a guarantee related to a coal supply agreement that

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Index to Financial Statements

limits the payment of dividends to its common shareholder, TECO Energy, but does not limit loans or advances. As of Mar. 31, 2003 and Dec. 31, 2002, 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.

Reclassifications

Certain prior year amounts were reclassified to conform with current year presentation.

2. Derivatives and Hedging

At. Mar. 31, 2003, the company had derivative assets totaling $93.9 million and liabilities totaling $93.0 million. At Dec. 31, 2002, the company had derivative assets totaling $12.6 million and liabilities totaling $4.1 million. At Mar. 31, 2003 and Dec. 31, 2002, accumulated other comprehensive income (OCI) included $42.1 million and $32.4 million, respectively, of unrealized after-tax losses, representing the fair value of cash flow hedges whose transactions will occur in the future, including an unrealized loss of $42.2 million and $37.3 million for 2003 and 2002, respectively, on an interest rate swap at TPGC, a TPS unconsolidated affiliate. 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 future reclassification from OCI.

As of Mar. 31, 2003, 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 ended Mar. 31, 2003, TECO Energy reclassified net pretax gains of $18.7 million to earnings for cash flow hedges, compared to pretax losses of $20.4 million for the same period in 2002. Amounts reclassified from OCI were primarily related to cash flow hedges of physical purchases of natural gas and physical sales of electricity. 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 or sales of electricity. Conversely, reclassification of a gain from OCI to earnings is offset by the increased cost of spot purchases of natural gas or sales of electricity.

Based on the fair value of cash flow hedges at Mar. 31, 2003, pretax losses of $12.3 million are expected to be reversed from OCI to the Consolidated Statement of Income within the next twelve months. However, these gains and other future reclassifications from OCI will fluctuate with movements in the underlying market price of the derivative instruments. Excluding interest rate risk exposures, the company does not currently have any cash flow hedges for transactions forecasted to take place in periods subsequent to 2005.

At Mar. 31, 2003, TECO Energy had transactions in place to hedge gas storage inventory that qualify for fair value hedge accounting treatment under FAS 133. During the three months ended Mar. 31, 2003, the company recognized pretax losses of $2.0 million compared to pretax gains of $0.9 million for the same period in 2002. For the three months ended Mar. 31, 2003 and 2002, the company also recognized pretax losses of $5.0 million and $2.4 million, respectively, relating to derivatives that do not qualify for cash flow or fair value hedge accounting treatment that are marked to market.

3. Goodwill and Other Intangible Assets

Goodwill increased $1.6 million to $195.3 million as of Mar. 31, 2003 as a result of the payment of contingent consideration related to a performance payment associated with the acquisition of BCH Mechanical, Inc. in September 2000.

The amount of intangible assets on the Consolidated Balance Sheets of TECO Energy at Mar. 31, 2003 was $6.4 million, which is net of accumulated amortization of $40.1 million, and at Dec. 31, 2002 was $11.1 million, which was net of accumulated amortization of $35.4 million. Amortization expense of $4.7 million and $3.7 million, respectively, was recorded for the three months ended Mar. 31, 2003 and 2002. Unamortizable intangible assets of $6.7 million at Mar. 31, 2003 represent licenses held by TPS related to gasification technologies.

As required under FAS 142, TECO Energy continues to review recorded goodwill and intangibles at least annually for each reporting unit. Reporting units are generally determined as one level below the operating segment level; reporting units with similar characteristics may be grouped for the purpose of determining the impairment, if any, of goodwill and other intangible assets. The fair value for the reporting units evaluated is generally determined using discounted cash flows appropriate for the business model of each significant group of assets within each reporting unit. The models incorporate assumptions relating to future results of operations that are based on a combination of historical experience, fundamental economic analysis, observable market activity and independent market studies. Management periodically reviews and adjusts the assumptions, as necessary, to reflect current market conditions and observable activity.

For the three months ended Mar. 31, 2003, no impairment loss was recorded for recognized goodwill or other intangible assets with indefinite lives. As of Jan. 1, 2002, each reporting unit evaluated had fair values exceeding the carrying value, including goodwill.

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Index to Financial Statements

4. Regulatory Assets and Liabilities

Tampa Electric and PGS maintain their accounts in accordance with recognized policies of 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 Mar. 31, 2003 and Dec. 31, 2002 are presented in the following table:

Regulatory Assets and Liabilities

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Index to Financial Statements

5. Asset Retirement Obligations

On Jan. 1, 2003, TECO Energy adopted FAS 143, Accounting for Asset Retirement Obligations. The company recognized liabilities for retirement obligations associated with certain long-lived assets, in accordance with the new accounting guidance. An asset retirement obligation for a long-lived asset is recognized at fair value at inception of the obligation if there is a legal obligation under existing or enacted law, statute, written or oral contract, or by legal construction under the doctrine of promissory estoppel. Retirement obligations are recognized only if the legal obligation exists in connection with or as a result of the permanent retirement, abandonment or sale of a long-lived asset.

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 remaining useful life of the asset. The liability must be revalued each period based on current market prices.

TECO Energy has recognized asset retirement obligations for reclamation and site restoration obligations principally associated with coal mining, storage and transfer facilities. The majority of obligations arise from environmental remediation and restoration activities for coal-related operations. Prior to the adoption of FAS 143, TECO Coal accrued reclamation costs for such activities. For TECO Coal, the adoption of FAS 143 modifies the valuation and accrual methods used to estimate the fair value of asset retirement obligations.

As a result of the adoption of FAS 143, TECO Energy recorded an increase to net property, plant and equipment of $7.8 million (net of accumulated depreciation of $6.6 million) and an increase to asset retirement obligation of $22.1 million, partially offset by previously recognized accrued reclamation obligations associated with coal mining activities of $12.3 million. An after-tax charge of $1.1 million ($1.8 million pretax, net of $0.2 million offset by a regulatory asset at Tampa Electric) was recognized as a change in accounting principle.

For the three months ended Mar. 31, 2003, TECO Energy recognized $0.3 million of accretion expense associated with asset retirement obligations. During this period, no new retirement obligations were incurred and no revisions were made to estimated cash flows used in determining the recognized asset retirement obligations. FAS 143 was not effective for the three months ended Mar. 31, 2002.

6. Short-Term Debt

At Mar. 31, 2003 and Dec. 31, 2002, notes payable consisted of the following:

Notes Payable

The weighted average interest rate on outstanding notes payable at Mar. 31, 2003 and Dec. 31, 2002 was 1.91% and 1.88%, respectively.

At Mar. 31, 2003 and Dec. 31, 2002, the following credit facilities and related borrowings existed:

Credit Facilities

In April 2003, TECO Energy entered into a new $350 million unsecured credit facility with Merrill Lynch Bank USA (Merrill Lynch). (See Note 18 for additional information.)

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Index to Financial Statements

Tampa Electric Company’s credit facility has a maturity date of November 2003. TECO Energy’s one-year facility also matures in November 2003 and its 3-year facility matures in November 2004. Within its 3-year facility, TECO Energy has $250 million of capacity to issue letters of credit. TECO Energy’s one-year credit facility requires commitment fees of 20-25 basis points and drawn amounts incur interest expense at Libor plus 55-80 basis points at current ratings. The Tampa Electric Company Bank facility requires commitment fees of 15 basis points and drawn amounts are charged interest at LIBOR plus 85-97.5 basis points at current credit ratings.

In order to utilize the credit facilities, TECO Energy’s debt-to-capital ratio, as defined in the credit agreement, may not exceed 65.0%. At Mar. 31, 2003, TECO Energy’s debt-to-capital ratio was 56.2%. Under Tampa Electric’s credit facility, Tampa Electric’s debt-to-capital ratio may not exceed 60.0% measured at the end of the applicable quarter and its earnings before interest, taxes, depreciation and amortization (EBITDA) to interest coverage ratio must be at least 2.5 times. At Mar. 31, 2003, Tampa Electric’s debt-to-capital ratio was 44.6% and its EBITDA to interest coverage ratio was 6.4 times. (See Note 15.)

7. Common Stock

Stock-Based Compensation

TECO Energy has adopted the disclosure-only provisions of FAS 123, Accounting for Stock-Based Compensation, as amended by FAS 148, Accounting for Stock Based Compensation-Transition and Disclosure, an amendment of FASB Statement No. 123, but applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its plans. Therefore, since stock options are granted with an option price greater than or equal to the fair value on date of grant, no compensation expense has been recognized for stock options granted under the 1996 Equity Incentive Plan and the 1997 Director Equity Plan. If the company had elected to recognize compensation expense for stock options based on the fair value at grant date, consistent with the method prescribed by FAS 123, net income and earnings per share would have been reduced to the pro forma amounts as follows. The pro forma amounts were determined using the Black-Scholes valuation model with weighted average assumptions as set forth below.

Pro Forma Disclosure—Stock Options