COGENTRIX ENERGY, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

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

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

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

COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)

1.   Principles of Consolidation and Basis of Presentation

          The accompanying consolidated condensed financial statements include the accounts of Cogentrix Energy, Inc. ("Cogentrix Energy") and its subsidiary companies (collectively, the "Company"). Wholly-owned and majority-owned subsidiaries, including a 50%-owned entity in which the Company has effective control through its designation as the managing partner of this project, are consolidated. Less-than-majority-owned subsidiaries are accounted for using the equity method. Investments in unconsolidated affiliates in which the Company has less than a 20% interest and does not exercise significant influence over operating and financial policies are accounted for under the cost method. All material intercompany transactions and balances among Cogentrix Energy, its subsidiary companies and its consolidated joint ventures have been eliminated in the accompanying consolidated condensed financial statements.

          Information presented as of June 30, 2003 and for the three months and six months ended June 30, 2003 and 2002 is unaudited. In the opinion of management, however, such information reflects all adjustments, which consist of normal recurring adjustments necessary to present fairly the financial position of the Company as of June 30, 2003, the results of operations for the three months and six months ended June 30, 2003 and 2002 and cash flows for the six months ended June 30, 2003 and 2002. The results of operations for these interim periods are not necessarily indicative of results which may be expected for any other interim period or for the year as a whole.

          The accompanying unaudited consolidated condensed financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the "Commission"). Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to those rules and regulations, although management believes that the disclosures made are adequate to make the information presented not misleading. These unaudited consolidated condensed financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company's most recent report on Form 10-K which the Company filed with the Commission on March 31, 2003.

          The accompanying unaudited consolidated condensed financial statements have been prepared assuming the Company will continue as a going concern which contemplates the continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business. However, as a result of the maturity of the outstanding obligations ($187.1 million as of June 30, 2003) under Cogentrix Energy's Corporate Credit Facility (see Note 5) on October 29, 2003, the realization of assets and the satisfaction of liabilities are subject to uncertainty. Management of the Company intends to refinance these obligations and is currently negotiating the terms of a restructured facility. However, there are no assurances that this restructuring can be accomplished. As a result of the maturity of the outstanding obligations under Cogentrix Energy's Corporate Credit Facility on October 29, 2003, the Company's independent auditors expressed a going concern uncertainty in their report on the Company's consolidated financial statements for the year ended December 31, 2002, which triggered an event of default under the Corporate Credit Facility. Cogentrix Energy has a forbearance agreement in effect with the lenders to the Corporate Credit Facility pursuant to which the lenders have agreed to forbear through August 31, 2003 from terminating their commitments or accelerating the outstanding obligations and demanding payment. Additionally, the lenders have agreed to allow Cogentrix Energy to continue to convert to borrowings, drawings under outstanding letters of credit issued under the Corporate Credit Facility during this forbearance period. However, we are unable to make any restricted payments, a category that includes shareholders dividends and loans to Cogentrix Energy shareholders or repay any other senior debt prior to its scheduled maturity. If the lenders to the Corporate Credit Facility accelerate the outstanding obligations subsequent to the August 31, 2003 forbearance expiration, or if the Corporate Credit Facility matures and is not paid, a cross-default under the Cogentrix Energy's senior unsecured notes due 2004 and 2008 would be created, and the senior note holders would have the ability to accelerate the $394.7 million of senior notes outstanding as of June 30, 2003 and demand immediate payment.

          Cogentrix Energy is a management company that derives cash flow from its operating subsidiaries. Management of the Company believes that cash currently on hand and remaining expected 2003 cash flows from these subsidiaries will be adequate for Cogentrix Energy to meet its non-contingent contractual obligations and its other 2003 operating obligations including debt service on its senior unsecured notes due 2004 and 2008, interest and fees related to the Corporate Credit Facility and recurring general and administrative costs. However, this belief is based on a number of material assumptions, including, without limitation, the continuing ability of the Company's subsidiaries to pay dividends, management fees and other distributions and the ability to refinance the Corporate Credit Facility. There is no assurance that these sources will be available when needed or that Cogentrix Energy's actual cash requirements will not be greater than anticipated .

          The Company's Southaven, Caledonia and Dominican Republic facilities are in default of their senior, non-recourse project debt aggregating $1.0 billion as of June 30, 2003 as a result of the factors described in Note 5. As a result, these facilities' non-recourse project debt is callable and has been classified as a component of current liabilities in the accompanying consolidated balance sheets as of June 30, 2003 and December 31, 2002. See Note 3 for additional discussion regarding the Caledonia facility. The project lenders are not obligated to continue funding draws and have the right to exercise all remedies available to them under the applicable project loan agreement, including foreclosing upon and taking possession of all of the applicable project assets. Until the events of default under the applicable project loan agreements are cured, our project subsidiaries will be unable to make any distributions to Cogentrix Energy or the Company' s partners. These projects could remain in default for an extended period of time until the events of default are waived by the lenders, the project loan agreements are refinanced or a replacement conversion services or power purchase agreement is provided. However, there can be no assurances that the Company will be able to enter into a replacement conversion services or power purchase agreement, to refinance the project loan agreements or that the lenders will waive the events of default. The project lender to each of these facilities is able to satisfy this obligation with the applicable project's assets only (total assets of approximately $1.3 billion as of June 30, 2003) and cannot look to Cogentrix Energy or its other subsidiaries to satisfy this obligation. While these lenders do not have direct recourse to Cogentrix Energy, these defaults may still have important consequences for our results of operations and liquidity, including, without limitation:

2.   Newly Adopted Accounting Pronouncements

          On January 1, 2003, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset Retirement Obligations." This statement requires companies to record a liability relating to legal obligations to retire and remove assets used in their business. The Company identified obligations to remove or dismantle certain facilities under the terms of these facilities' land leases or, in the case of one facility, under a development agreement. The Company developed cost estimates representing the future cost to dismantle and remove these facilities at the end of the respective lease term or useful life. The future cost to dismantle and remove these facilities has been discounted to its present value, and the related asset and liability have been recorded on the balance sheet as of January 1, 2003. The asset will be depreciated over the life of the asset and the liability will be accreted to its future value and even tually extinguished when the asset is taken out of service. As of January 1, 2003, the Company recorded an expense of $1.0 million, net of tax, related to these obligations as a cumulative effect of a change in accounting principle in the accompanying consolidated condensed financial statements. This amount represents the cumulative accretion expense and depreciation expense which would have been recorded had the accounting pronouncement been applied since the retirement obligation was created. The proforma effect of this change in accounting principle was not significant to the prior periods presented.

          The following table represents the details of the Company's asset retirement obligations which are included in other long-term liabilities in the accompanying consolidated balance sheets (dollars in thousands):

          On January 1, 2003, the Company adopted SFAS No. 145, "Rescission of SFAS No. 4, 44 and 64, Amendment of SFAS No. 13 and Technical Corrections." SFAS No. 4 had required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. During the first quarter of 2003, the Company recognized a gain of approximately $1.3 million related to the repurchase of approximately $5.9 million Cogentrix Energy's senior unsecured notes due 2004. In accordance with SFAS No. 145, this gain is included in other income in the accompanying condensed consolidated financial statements. In addition, SFAS No. 145 rescinds SFAS No. 4 and the related required classification gains and losses from extinguishment of debt as extraordinary items under certain circumstances. Additionally, SFAS No. 145 amends SFAS No. 13 to require that certain lease modifications that have economic eff ects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. The provisions related to SFAS No. 13 are applicable for transactions occurring after May 15, 2002.

          On January 1, 2003, the Company adopted SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 requires costs associated with exit or disposal activities to be recognized when they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company's adoption of this statement did not have an impact on the Company's financial condition or results of operations.

          In December 2002, the Company adopted Financial Accounting Standards Board ("FASB") Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others, and interpretation of SFAS Nos. 5, 57 and 107 and a rescission of FASB Interpretation No. 34". This Interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees issued. The Interpretation also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken. The initial recognition and measurement provisions of the Interpretation are applicable to guarantees issued or modified after December 31, 2002 and the disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of this n ew standard did not have a material impact on the Company's financial position, results of operations or cash flows.

          In April 2003, the FASB issued SFAS No. 149, "Amendment of SFAS No. 133 on Derivative Instruments and Hedging Activities". This Statement amends and clarifies the accounting and reporting for derivative instruments, including embedded derivatives, and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 149 amends SFAS No. 133 to reflect the decisions made as part of the Derivatives Implementation Group and in other FASB projects or deliberations. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The adoption of SFAS No. 149 is not expected to have an impact on the Company's consolidated financial statements.

          In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company adopted SFAS No. 150 on July 1, 2003 and this adoption did not have a material impact on the Company's consolidated condensed financial statements.

3.   Impairment of Long-Lived Assets

          Turbines and Other Equipment - The Company has entered into commitments with a turbine supplier and a heat recovery steam generator ("HRSG") supplier to purchase three sets of turbines and HRSGs with an original intent of placing this equipment in a new electric generating facility. During 2002, management of the Company reassessed the utilization of this equipment and currently intends to place two of three turbine and HRSG sets in the expansion of one of the Company's existing facilities. The Company has prepared a cash flow model for this expansion project, including the costs to place this equipment in service, and has concluded that the undiscounted cash flows from this expanded facility will be adequate to recover the carrying value of two sets of turbines and HRSGs, including the capital cost to place this equipment in service. Accordingly, under the provisions of SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Live d Assets," the carrying value of these two sets of turbines and HRSGs are deemed to be recoverable, and no impairment charge is warranted. A third turbine and HRSG set was written down to fair market value during the fourth quarter of 2002 due to the uncertainty regarding placement into a new or existing project. The value of this third turbine and partially completed HRSG set continues to approximate fair value and no additional impairment charge is warranted as of June 30, 2003. As of June 30, 2003, the revised net book value of the three sets of turbines and HRSGs was $138.0 million. The Company expects to make additional progress payments on the turbines of $7.9 million during 2003 which will be capitalized into the remaining two unimpaired sets of turbines. Although the Company is attempting to place the two turbine and HRSG sets in the expansion of one of the Company's existing projects or a new development project, the Company cannot provide any assurances that we will be able to place this equip ment. In the event the Company is unsuccessful, the carrying value of this equipment may be further impaired and consequently the Company's results of operations would be adversely affected.

          Southaven Facility - The Company's project subsidiary which owns the Southaven facility is currently in default of its project loan agreement as a result of the earlier downgrade of the credit rating of PG&E National Energy Group, Inc. ("NEG") and the guarantor of the facility's then existing conversion services purchaser, PG&E Energy Trading-Power, L.P. ("PGET") as discussed in Note 5. During July 2003, NEG and certain of its subsidiaries, including PGET, voluntarily filed for protection from their creditors under Chapter 11 of the United States Bankruptcy Code (the "NEG Bankruptcy). On August 4, 2003, the bankruptcy court approved the rejection of the Southaven conversion services agreement by PGET as an executory contract.

          The Company's project subsidiary began operating this facility as a merchant plant during July 2003 under an agreement with a third party whereby the third party will manage and provide power marketing, fuel procurement and related services for the Southaven facility. The Company has prepared a merchant cash flow model for the facility and has concluded as of June 30, 2003 that the undiscounted cash flows from the facility will be adequate to recover the carrying value of its long-lived assets. Accordingly, under the provisions of SFAS No. 144, the carrying value of the long-lived assets is deemed to be recoverable, and no impairment charge is warranted as of June 30, 2003. However, the Company cannot provide any assurances that the actual cash flows from merchant plant operation will be adequate to recover the carrying value of the facility's long-lived assets. In the event the Company is unsuccessful, the carrying value of these long-lived ass ets may become impaired and consequently the Company's results of operations would be adversely affected. In addition, these long-lived assets may become impaired as a result of certain conditions discussed in Note 5.

          Caledonia Facility - The Company's project subsidiary which owns the Caledonia facility is currently in default of its project loan agreement as a result of the earlier downgrade of the credit rating of NEG and the guarantor of the facility's then existing conversion services purchaser, PGET as discussed in Note 5. The Company entered into an agreement in May 2003 with the lender to the Caledonia facility which will involve the transfer of its ownership interest in the Caledonia facility to the project lender in exchange for the project lender assuming all obligations of the Caledonia project, including long-term debt, and releasing the Company from all additional security obligations under the project loan agreement. This transaction is anticipated to close prior to December 31, 2003. A wholly-owned subsidiary of the Company will continue to operate and manage the Caledonia facility subsequent to the ownership transfer. The Company' s subsidiary and the project lender each has the ability to terminate the operations and maintenance agreement with 90 and 30 days notice, respectively. Accordingly, under the provisions of SFAS No. 144, the Caledonia facility was classified as assets of discontinued operations during the second quarter of 2003 and the carrying value of the facility's long-lived assets was written down to their fair value. The Company recorded a pre-tax charge of approximately $38.1 million related to this impairment which is included in discontinued operations in the consolidated condensed statements of operations. The components of discontinued operations are as follows (dollars in thousands):

          The major components of assets and liabilities of discontinued operations as of June 30, 2003 are as follows (dollars in thousands):

4.   Sale of Project Interest

          Cogentrix of Oklahoma, Inc. ("Cogentrix of Oklahoma"), the Company's wholly-owned subsidiary, was formed to own and hold 100% of the membership interest in Green Country Energy, LLC ("Green Country"). Green Country is the owner of an approximate 810-megawatt combined-cycle, natural gas-fired electric generating facility located in Jenks, Oklahoma.

          On June 10, 2003, Cogentrix of Oklahoma sold 100% of its direct membership interest in Green Country to a newly formed limited liability company, Green Country Holding LLC (the "Purchaser") formed by affiliates of General Electric Structured Finance, Inc. (collectively, "GESF") in exchange for cash consideration and a 10% interest in the Purchaser. As a result of the transaction, Green Country is now wholly-owned by the Purchaser, and the Purchaser is 90% owned by GESF and 10% owned by Cogentrix of Oklahoma. Cogentrix of Oklahoma remains an indirect, wholly-owned subsidiary of the Company. The purchase was effected pursuant to an amended purchase agreement dated April 11, 2003 (the "Purchase Agreement"). The sale to the Purchaser was consummated in connection with a refinancing of the Green Country bank loan which refinancing required additional equity contributions from GESF and Cogentrix of Oklahoma.

          In connection with the refinancing and sale of the Green Country interest, GESF and the financial institutions providing the refinancing required that Cogentrix Energy and Cogentrix of Oklahoma provide certain guarantees and indemnities pursuant to the Purchase Agreement and other related transaction agreements. The Cogentrix Energy guarantees and indemnities relate to any costs or expenses arising from: (1) the Jenks LC Litigations (see Note 6) and (2) any claim arising out of a breach of representations and warranties made under the amended Purchase Agreement. The Cogentrix of Oklahoma indemnities relate to any claims, costs or expenses arising from (1) the Jenks LC Litigation (see Note 6), (2) a performance guarantee for services provided to Green Country by a Cogentrix Energy affiliate, and (3) any claim arising out of a breach of representations and warranties made under the Purchase Agreement. In connection with the sale of our interest in Green Country, Cogentrix of Oklahoma agreed to escrow (the "Litigation Escrow") a portion of the sale proceeds until final and non-appealable resolution of the litigation has been reached. This has been included as restricted cash and other current liabilities in the accompanying consolidated balance sheet.

          The sale proceeds received by Cogentrix Energy, net of the Litigation Escrow, Cogentrix of Oklahoma capital contribution required upon refinancing, and transaction costs were approximately $71.6 million. Cogentrix Energy utilized $50.0 million of these proceeds to repay borrowings outstanding under the Corporate Credit Facility. The Company recorded a gain of approximately $58.8 million which is included in gain on sale of project interest, net of transaction costs and other revenue in the consolidated statements of income.

5.   Long-Term Debt Defaults

     Corporate Credit Facility Default

          The Company has an agreement with a syndicate of banks that provides up to $225.0 million of revolving credit through October 29, 2003 in the form of direct advances or the issuance of letters of credit (the "Corporate Credit Facility"). The total obligations outstanding as of June 30, 2003 consisted of approximately $107.1 million of borrowings and $80.0 million of letters of credit. The outstanding borrowings are included as current portion of long-term debt in the accompanying consolidated balance sheets as of June 30, 2003 and December 31, 2002. As discussed in Note 1, we are currently in default of the Corporate Credit Facility. Cogentrix Energy has a forbearance agreement in effect with the lenders to the Corporate Credit Facility pursuant to which the lenders agreed to forbear through August 31, 2003 from terminating their commitments or accelerating the outstanding obligations and demanding payment. Additionally, the lenders have agreed to allow Cogentrix Energy to continue to convert to borrowings, drawings under outstanding letters of credit issued under the Corporate Credit Facility during this forbearance period. However, we are unable to make any restricted payments, a category that includes shareholders dividends and loans to Cogentrix Energy shareholders or repay any other senior debt prior to its scheduled maturity. Even though the lenders have granted this forbearance, the Company cannot provide assurances that the lenders to the Corporate Credit Facility will not choose to accelerate the obligations outstanding under the Corporate Credit Facility and demand immediate payment of all obligations outstanding after the forbearance expiration on August 31, 2003.

     Project Level Defaults

          As discussed below, the Southaven, Caledonia, Sterlington and Dominican Republic facilities continue to be in default of their project loan agreements. As a result, the non-recourse project debt of each of the Southaven, Caledonia and Dominican Republic facilities is callable and has been classified as a component of current liabilities in the accompanying consolidated balance sheets as of June 30, 2003 and December 31, 2002. These facilities are 100%, 100%, 50% and 65%-owned by the Company, respectively. As discussed in Note 3, the Caledonia facility's long-term debt was reclassified as a liability of discontinued operations during the second quarter of 2003. The Company accounts for the Sterlington project using the equity method of accounting and its proportional interest in this facility's assets and related liabilities, including long-term debt, are reflected net as an investment in unconsolidated affiliates in the accompanying consolid ated balance sheets. The project lenders to these facilities are not obligated to continue funding draws and have the right to exercise all remedies available to them under the applicable project loan agreement, including foreclosing upon and taking possession of all of the applicable project assets. Until the events of default under these project loan agreements are cured, the project subsidiaries will be unable to make any distributions from these projects. These projects could remain in default for an extended period of time until the Company can obtain waivers from the lenders, cure the events of default, refinance or restructure the project loan agreements or in the case of the Southaven and Sterlington facilities, provide a replacement conversion services or power purchaser. However, there can be no assurances that the Company will be able to enter into a replacement conversion services or power purchase agreement, refinance or restructure the project loan agreements, cure the events of default or obtain waivers from the lenders. The project lenders to each facility are able to satisfy the respective obligations with the applicable project's assets (total assets of approximately $1.3 billion as of June 30, 2003) only and cannot look to Cogentrix Energy or its other subsidiaries to satisfy this obligation. While these lenders do not have direct recourse to Cogentrix Energy, these defaults may still have important consequences for the Company's results of operations and liquidity, including, without limitation,

          Caledonia and Southaven Facility Customer Defaults - During August 2002, NEG was downgraded below investment grade which created an event of default by NEG under each facility's then existing separate conversion services agreements (the "NEG Default"). This NEG Default created an event of default under these project subsidiaries' non-recourse loan agreements during February 2003. As a result, the applicable project lenders will not be obligated to continue funding draws and will have the right to exercise all remedies available to them under the applicable project loan agreement, including foreclosing upon and taking possession of all the applicable project assets. As a consequence of these events of default, the total senior borrowings for the two facilities of $790.7 million are callable and have been classified as a component of current liabilities on the consolidated balance sheets at June 30, 2003 and December 31, 2002. As a result o f the Caledonia and Southaven debt being in default and callable, the project's independent auditors expressed or are expected to express a going concern uncertainty in each project's financial statements for the year ended December 31, 2002 that triggered additional events of default under their non-recourse loan agreements during the second quarter of 2003. In addition, the NEG Bankruptcy and the rejections of the conversion services agreements by the bankruptcy court on August 4, 2003 triggered additional events of default under their non-recourse loan agreements.

          Sterlington Facility Customer Default - During July 2002, Dynegy Holdings, Inc. ("Dynegy"), the guarantor of the conversion services purchaser at our Sterlington facility, was downgraded below investment grade creating a purchaser event of default under the Sterlington facility's conversion services agreement and an event of default under the Sterlington facility's non-recourse project loan agreements. During October 2002, the Company and the project lender amended the loan agreement requiring that all excess cash generated by the facility be utilized to repay the outstanding borrowings under the Sterlington facility's loan agreement on a quarterly basis. The project lenders have the right to exercise all remedies available to them under the project loan agreements including foreclosing upon and taking possession of all project assets. Dynegy continues to perform pursuant to the terms of the conversion services agreement and is current on i ts payments due to the Sterlington facility. The Company accounts for this project using the equity method of accounting and its proportional interest in this facility's assets and related liabilities, including long-term debt, are reflected net as an investment in unconsolidated affiliates in the accompanying consolidated balance sheets. The Company's investment in this project was $9.8 million as of June 30, 2003. As a result of the Sterlington debt being in default and callable, the project's independent auditors expressed a going concern uncertainty in the Sterlington financial statements for the year ended December 31, 2002 that triggered an additional event of default under the Sterlington non-recourse loan agreement during April 2003.

          Dominican Republic Facility Customer Defaults - The Company's project subsidiary which owns our Dominican Republic facility notified the power purchaser, Corporación Dominicana de Electricidad ("CDE"), on several occasions since the facility achieved commercial operations in March 2002 of events of default under the power purchase agreement based on CDE's failure to pay amounts due for the sale of capacity and electricity (the "Payment Defaults"). Under the terms of the project subsidiary's implementation agreement with the State of the Dominican Republic ("SDR"), which guarantees CDE's payment obligations, we demanded that the SDR pay certain of these amounts owed by CDE and, when the SDR failed to do so in the time allotted according to the implementation agreement, notified the SDR that they are in default of the implementation agreement for failing to pay this past due amount by CDE (the "SDR Defaults"). During June and July 2003 , CDE and SDR made payments aggregating $45.0 million to our project subsidiary curing all existing Payment Defaults and SDR Defaults.

          Due to certain Payment Defaults and SDR Defaults existing at the time, the Company's project subsidiary could not convert the outstanding borrowings from construction loans to term loans on or before March 28, 2003. This event triggered an event of default under the project loan agreement. The project lenders have the right to exercise all remedies available to them under the project loan agreements including foreclosing upon and taking possession of all project assets. As a consequence of these events, the total borrowings for the Dominican Republic facility of $227.2 million are callable and have been classified as a current liability on the consolidated balance sheets as of June 30, 2003 and December 31, 2002. As a result of the Dominican Republic debt being in default and callable, the project's independent auditors expressed a going concern uncertainty in the Dominican Republic financial statements for the year ended December 31, 2002 that triggered an additional event of default under the Dominican Republic non-recourse loan agreement during April 2003. The Company is currently negotiating with the project lenders to obtain permanent waivers related to these remaining defaults and obtain approval to convert the construction loans to terms loans. The Company is unable to provide any assurance that the project lenders will waive the remaining events of default or approve the conversion of construction loans.

6.   Claims and Litigation

          Product Liability Claims Related to Coal Combustion By-Products - One of the Company's wholly-owned subsidiaries is party to certain product liability claims related to the sale of coal combustion by-products for use in 1997-1998 in various construction projects. Management cannot currently estimate the range of possible loss, if any, the Company will ultimately bear as a result of these claims. However, management believes - based on its knowledge of the facts and legal theories applicable to these claims, after consultations with various counsel retained to represent the subsidiary in the defense of such claims, and considering all claims resolved to date - that the ultimate resolution of these claims should not have a material adverse effect on its consolidated financial position or results of operations or on Cogentrix Energy's ability to generate sufficient cash flow to service its outstanding debt.

          Claims Asserted by City of Jenks against the Jenks, Oklahoma Facility - In October 2002, the City of Jenks, Oklahoma filed a petition in the District Court for Tulsa County, State of Oklahoma against Green Country (see Note 4 for additional discussion). The petition also names as defendants the counterparty under the conversion services agreement for this facility, Exelon Generation Company, LLC ("Exelon"), and a third party that transports natural gas on behalf of Exelon. The City of Jenks claims that Green Country is liable for failure to pay an annual gross receipts tax of 2% on sales of electricity and that Green Country and the other defendants are also liable to Jenks for failure to pay a pipeline capacity permit fee of 3% of the purchase price of natural gas transported to the Jenks facility. In conjunction with the Green Country sale transaction (see Note 4), Green Country entered into a settlement agreement with the City of Jenks whereby Green Country paid a one-time lump sum payment of $3.0 million in exchange for being dismissed from the lawsuit and released from all past and future gross receipt tax and capacity permit fees. This charge is included in operations and maintenance expense in the accompanying consolidated condensed statement of operations.

          Letter of Credit Draw Litigation - Jenks, Oklahoma Facility - To support the obligations of National Energy Production Corporation ("NEPCO"), the former construction contractor for several of our new electric generating facilities, Bayerische Hypo-und Vereinsbank AG ("HVB") issued a $39.0 million letter of credit for Green Country's benefit related to the construction of the Jenks facility. During February 2001, HVB sold and transferred, without recourse, an undivided 100% interest in this letter of credit to Banca Nazionale del Larvaro SPA ("BNL") under a participation agreement executed by HVB and BNL. Green Country drew this $39.0 million letter of credit in December 2001, after NEPCO failed to meet certain obligations under the construction contract. When HBV requested reimbursement for the amount drawn from BNL pursuant to the participation agreement, BNL refused to pay. In response, HBV filed an action in the Supreme Court of the St ate of New York in December 2001, against BNL for reimbursement of the $39.0 million plus costs and attorneys fees for breach of the participation agreement. In February 2002, BNL filed a third-party complaint against Green Country, Cogentrix Energy, NEPCO and Green Country's administrative agent for its outstanding indebtedness seeking recovery from each of them of the $39.0 million, plus interest, attorneys' fees and other unspecified damages (the "HVB Litigation"). The case was removed to the United States Bankruptcy Court, Southern District of New York, in July 2002. On May 16, 2003, the court granted summary judgment in favor of HVB against BNL, and BNL has reimbursed HVB the full $39.0 million. The Company believes that Cogentrix Energy and Green Country each has meritorious defenses to these claims and intends to contest them vigorously.

          During December 2002, JP Morgan Chase Bank ("JP Morgan") commenced a separate action in the United States District Court, Southern District of New York against Cogentrix Energy, Green Country and Cogentrix of Oklahoma arising out of a $14.0 million draw Green Country made in December 2001 on a letter of credit that JP Morgan issued on behalf of NEPCO (together with the HVB Litigation, the "Jenks LC Litigations"). This letter of credit was also issued to support certain obligations of NEPCO related to the construction of the Jenks facility. The complaint alleges that the draw was wrongful because the construction of the Jenks facility was completed substantially on time and the draw was a breach of the original NEPCO contract because it did not meet the conditions to draw these funds. The case was referred to the United States Bankruptcy Court, Southern District of New York, in March 2003. The Company believes that Cogentrix Energy, Green Country and Cogentrix of Oklahoma each has meritorious defenses to these claims and intends to contest them vigorously.

          Letter of Credit Draw Litigation - Sterlington Facility - During December 2002, JP Morgan commenced an action in the United States District Court, Southern District of New York against Cogentrix Energy, Quachita Power, LLC ("Quachita Power"), an indirect, 50%-owned subsidiary of the Company and owner of the Sterlington facility, and Cogentrix Ouachita Holdings, Inc. (the Company's wholly-owned subsidiary which holds a 50% interest in Quachita Power) arising out of a $41.2 million draw in May 2002 on a letter of credit that JP Morgan issued to support certain obligations of NEPCO related to the construction of the Sterlington facility. The complaint alleges that the construction of the Sterlington facility was deliberately delayed by Quachita Power in order to draw on the letter of credit and that the draw was a breach of the original NEPCO contract because the conditions had not been met to draw these funds. The case was referred to the Uni ted States Bankruptcy Court, Southern District of New York, in March 2003. The Company believes that Cogentrix Energy, Quachita Power and Cogentrix Ouachita Holdings, Inc. each has meritorious defenses to these claims and intends to contest them vigorously.

          During February 2003, Westdeutsche Landesbank Girozentrale ("WestLB") commenced an action in the United States District Court, Southern District of New York against Quachita Power arising out of Quachita Power's draw in May 2002 on a $16.2 million letter of credit that WestLB issued to support certain obligations of NEPCO related to the construction of the Sterlington facility. The complaint alleges that the draw was improper and that the contractual conditions allowing this draw to be made had not been met. On May 9, 2003, Quachita Power filed a motion to have this case referred to the United States Bankruptcy Court, Southern District of New York which is still pending decision. The Company believes that Quachita Power has meritorious defenses to WestLB's claims and intends to contest them vigorously.

          PGET Arbitration - On February 4, 2003, the Southaven and Caledonia facilities received a notice from PGET of PGET's intention to terminate the then existing conversion services agreements alleging our project subsidiaries failed to properly interconnect our facilities to the applicable transmission systems. This notice indicated that the then existing conversion services agreements would terminate on March 6, 2003 and that PGET did not intend to continue to perform under the agreements after February 6, 2003. On February 7, 2003, the project subsidiaries filed an emergency petition to compel arbitration or, in the alternative, for a temporary restraining order and preliminary injunction in the Circuit Court for Montgomery County, Maryland. By order dated February 7, 2003, the court denied our petition for a temporary restraining order and set the remaining aspects of the petition for hearing.

          On March 5, 2003, the Circuit Court ruled that PGET was required to comply with the arbitration provisions of the then existing conversion services agreements. The court further ordered that PGET and the project subsidiaries continue to perform their obligations under the then existing conversion services agreements during the pendency of the disputes and the arbitration proceedings. On March 7, 2003, PGET filed an emergency motion to stay the court's ruling, which compels performance pending their appeal of the Circuit Court ruling in the Court of Special Appeals of Maryland. This motion was denied on March 11, 2003. In April 2003, the Court of Special Appeals of Maryland by its own motion removed PGET's appeal of the lower court ruling to the Court of Appeals of Maryland. On March 24, 2003, PGET issued a Demand for Arbitration to resolve the disputes. In accordance with the terms of the then existing conversion services agreements, three arb itrators are to be designated to resolve these disputes. The American Arbitration Association has confirmed the designated arbitrators. Through the NEG/PGET Chapter 11 filing in the United States Bankruptcy Court on July 8, 2003, our project subsidiaries performed their obligations and PGET performed certain of their obligations under the then existing conversion services agreements (see additional information related to the rejection of these contracts in Note 3). Both the arbitration and the Maryland State court proceedings have been stayed by order of the bankruptcy court. In the event arbitration is allowed to proceed and our project subsidiaries are unsuccessful and the conversion services agreements are found to have been terminated on March 6, 2003, our project subsidiaries may be required to reimburse PGET for purchase of test gas, net of revenues from the sale of test energy.

          Other Routine Litigation - In addition to the litigation described above, the Company experiences other routine litigation in the normal course of business. The Company does not believe that any of this routine litigation, if decided adversely to the Company, would have a material adverse impact on the accompanying consolidated financial position or results of operations.

7.   Comprehensive Income

          The table below presents the Company's comprehensive income for the three-month and six-month periods ended June 30, 2003 and 2002, respectively (dollars in thousands):

8.   Subsequent Event

          On August 14, 2003, the Company executed an agreement with David J. Lewis, Chief Executive Officer and Chairman (the "Agreement"), which provided by mutual agreement for David J. Lewis' separation from employment with and resignation as Chief Executive Officer of the Company, effective immediately. Pursuant to the Agreement, Mr. David J. Lewis will be entitled to receive separation compensation of $1.8 million per year plus benefits for a period of five years. Mr. David J. Lewis is also entitled under the Company's profit sharing program to receive severance payments aggregating approximately $3.3 million paid over 21 months. Pursuant to the Agreement, Mr. David J. Lewis will continue to serve as Chairman of the Company. The Company's execution of the Agreement was preceded by unanimous Shareholder approval and authorized by a resolution of the Board of Directors of the Company at the quarterly meeting on August 14, 2003. At the same meetin g, by resolution of the Board of Directors, Mr. James E. Lewis was appointed Chief Executive Officer of the Company effective immediately.

9.   Reclassifications

          Certain amounts included in the accompanying consolidated condensed financial statements for the periods ended June 30, 2002, have been reclassified from their original presentation to conform with the presentation for the periods ended June 30, 2003.

Item 1.   Consolidated Condensed Financial Statements.

          The information called for by this item is hereby incorporated herein by reference to pages 3 through 15 of this report.


Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations.

          In addition to discussing and analyzing our recent historical financial results and condition, the following "Management's Discussion and Analysis of Financial Condition and Results of Operations" includes statements concerning certain trends and other forward-looking information affecting or relating to us which are intended to qualify for the protections afforded "Forward-Looking Statements" under the Private Securities Litigation Reform Act of 1995, Public Law 104-67. The forward-looking statements made herein are inherently subject to risks and uncertainties which could cause our actual results to differ materially from the forward-looking statements.

          This section should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our most recent report on Form 10-K for the year ended December 31, 2002, including discussion of Critical Accounting Policies, which was filed with the Securities and Exchange Commission on March 31, 2003.

General

          Cogentrix Energy, Inc. is an independent power producer that through its direct and indirect subsidiaries acquires, develops, owns and operates electric generating plants. We derive most of our revenue from the sale of electricity, but we also produce and sell steam. We sell the electricity we generate to regulated electric utilities and power marketers, primarily under long-term power purchase agreements. We sell the steam we produce to industrial customers with manufacturing or other facilities located near our electric generating plants. We were one of the early participants in the market for electric power generated by independent power producers that developed as a result of energy legislation the United States Congress enacted in 1978. We believe we are one of the larger independent power producers in the United States based on our total project megawatts in operation.

          We currently own - entirely or in part - a total of 26 electric generating facilities in the United States and one in the Dominican Republic. Our 27 plants are designed to operate at a total production capability of approximately 7,695 megawatts. After taking into account our partial interests in the 20 plants that are not wholly-owned by us, which range from 1.6% to approximately 74.2%, our net ownership interests in the total production capability of our 27 electric generating facilities is approximately 4,160 megawatts. We currently operate 14 of our facilities, 12 of which we developed and constructed.

          Unless the context requires otherwise, references in this report to "we," "us," "our," or "Cogentrix" refer to Cogentrix Energy, Inc. and its subsidiaries, including subsidiaries that hold investments in other corporations or partnerships whose financial results are not consolidated with ours. The term "Cogentrix Energy" refers only to Cogentrix Energy, Inc., which is a development and management company that conducts its business primarily through subsidiaries. Cogentrix Energy's subsidiaries that are engaged in the development, ownership or operation of cogeneration facilities are sometimes referred to individually as a "project subsidiary" and collectively as Cogentrix Energy's "project subsidiaries." The unconsolidated affiliates of Cogentrix Energy that are engaged in the ownership and operation of electric generating facilities and in which we have less than a majority interest are sometimes referred to individually as a "project affil iate" or collectively as "project affiliates."

Results of Operations - Three Months and Six Months Ended June 30, 2003 and 2002 (dollars in thousands)

Three Months Ended June 30, 2003 as Compared to Three Months Ended June 30, 2002

     Operating Revenues, Gains and Income from Unconsolidated Investments

          Total operating revenues, gains and income from unconsolidated investments increased 20.9% to $190.3 million for the quarter ended June 30, 2003 as compared to $157.4 for the quarter ended June 30, 2002 as a result of the following:

     Operating Costs

          Total operating costs decreased 8.6% to $72.9 million for the quarter ended June 30, 2003 as compared to $79.8 million for the quarter ended June 30, 2002 as a result of the following:

     General, Administrative and Development

          General, administrative and development expense decreased 64.9% to $7.1 million for the quarter ended June 30, 2003 as compared to $20.2 million for the quarter ended June 30, 2002 as a result of the following:

     Operating Costs

          Total operating costs increased 1.0% to $150.5 million for the six months ended June 30, 2003 as compared to $149.0 million for the six months ended June 30, 2002 as a result an increase in cost of services of approximately $8.1 million. Cost of services increased as a result of an increase in fuel expense at our Cottage Grove and Whitewater facilities related to an increase in natural gas prices. The increase was partially offset by a decrease in megawatt hours sold to the purchasing utilities at those facilities.

     General, Administrative and Development

          General, administrative and development expense decreased 59.9% to $14.1 million for the six months ended June 30, 2003 as compared to $35.2 million for the quarter ended June 30, 2002 as a result of the following:

Liquidity and Capital Resources

     Consolidated Information

          The primary components of cash flows from operations for the six months ended June 30, 2003, were as follows (dollars in millions):

          Total cash flows from operations of $92.3 million, proceeds from sale of project interest of $71.6 million (net of litigation reserve, transaction costs and additional contributions) and proceeds from borrowings of $139.3 million were used primarily to (dollars in millions):

     Parent Company Liquidity

          As of June 30, 2003, we had long-term debt (including the current portion thereof) of approximately $2.3 billion, including approximately $471.0 million of debt classified as a component of liabilities of discontinued operations. With the exception of the $394.7 million of senior notes outstanding as of June 30, 2003, and $107.1 million in advances under the corporate credit facility as of June 30, 2003, substantially all such indebtedness is project financing debt, the majority of which is non-recourse to Cogentrix Energy (the "Parent"). Accordingly, we believe that the unconsolidated Parent company liquidity position is more important than the liquidity position of the Company and its consolidated subsidiaries as presented on a consolidated basis. As of June 30, 2003, the Parent company had approximately $17.9 million of unrestricted cash and Cogentrix Delaware Holdings, Inc., a wholly-owned subsidiary of Cogentrix Energy and guarantor of a ll of Cogentrix Energy's senior, unsecured debt, had approximately $30.0 million of unrestricted cash. The Parent company's principal sources of liquidity are:

The Parent company's principal uses of cash are:

          During the twelve months ended June 30, 2003, the Parent company received payments from its subsidiaries of $176.5 million related to dividends (including $71.6 million in proceeds from the sale of our Jenks facility; see "- Sale of Interest in Our Jenks Facility"), management fees, tax payments and other fees. During the same period, the Parent company paid $25.8 million in corporate overhead and development charges and $41.8 million in interest and fees on its senior unsecured bonds and corporate credit facility.

          As of the date of this filing, the Parent company's non-contingent contractual obligations are set forth below (dollars in millions):

          As of the date of this filing, the Parent company's contingent contractual obligations are set forth below (in millions, except for number of agreements):

(a)      Secured by letters of credit primarily issued under our corporate credit facility

          One of our contingent contractual obligations is a reimbursement obligation to our partner at our 50%-owned project affiliate which owns the Birchwood facility. For the benefit of the Birchwood project lenders, our Birchwood partner has posted a $19.2 million debt service letter of credit which expires on October 31, 2003. The project lenders have the ability to draw on this letter of credit 30 days prior to the expiration if the letter of credit is not extended or replaced. We have an obligation to reimburse our partner for 50% ($9.6 million) of any amount drawn under this letter of credit. Our Birchwood partner has entered into an agreement with a third party to sell its entire 50% interest in the Birchwood facility and, under the terms of the sale agreement, the third party is required to replace our current partner's debt service letter of credit. In the event this sale transaction is not completed or, alternatively, our current partner is unable to extend the expiration of the debt service letter of credit, and the project lenders draw the letter of credit, we will be required to reimburse our Birchwood partner for 50% of the amount drawn by the lenders. We cannot provide any assurances that our partner will consummate this sale transaction and replace the letter of credit or obtain an extension of the expiration on the existing letter of credit.

          Our other contingent contractual obligations are designed to cover potential risks and only require payment if certain targets are not met or certain contingencies occur. The risks associated with these contingent obligations include construction cost overruns, reimbursement of test gas purchased by our Southaven facility's former customer (see "- Facilities Recently Achieving Commercial Operations") and guarantees supporting our project subsidiaries' obligations under certain project operating documents. Aside from the Birchwood reimbursement obligation, we do not expect these other contingent contractual obligations to be funded or drawn upon for any material amounts. However, many of the events that would result in a draw upon these letters of credit are beyond our control.

          Our management believes that cash on hand and remaining expected 2003 cash flows from our project subsidiaries and project affiliates will be adequate to meet our non-contingent contractual obligations in the table above and our other remaining 2003 operating obligations, including interest and fees related to the corporate credit facility and recurring general and administrative costs. However, this belief is based on a number of material assumptions, including, without limitation, the continuing ability of our project subsidiaries and project affiliates to pay dividends, management fees and other distributions and our ability to refinance our corporate credit facility before maturity. We cannot assure you that these sources of cash will be available when needed or that our actual cash requirements will not be greater than we anticipate.

     Corporate Credit Facility

          We have an unsecured $225 million corporate credit facility that provides for either direct borrowings or the issuance of letters of credit for our benefit to third parties that, if they become entitled to and do draw upon them, will convert into borrowings under this credit facility. In June 2003, we utilized $50.0 million of the proceeds from the sale of our Jenks facility (see "- Sale of Interest in Our Jenks Facility") to repay outstanding borrowings under the corporate credit facility. As of the date of this filing, there are $116.8 million of borrowings and $28.2 million of letters of credit outstanding representing a total use of the commitment of $145.0 million. We posted the letters of credit primarily to secure commitments - both non-contingent and contingent - we have made to support our project subsidiary that is constructing the Southaven facility. Under the terms of the corporate credit facility, the Company is subject to certain covenants. Under the tangible net worth covenant in our corporate credit facility, at June 30, 2003, we could have experienced a reduction in the balance of shareholder's equity, prior to considering the amount of accumulated other comprehensive loss, of approximately $36.0 million and still have been in compliance with this covenant.

          The corporate credit facility matures on October 29, 2003 at which time all outstanding obligations will become due and payable. We are currently negotiating for a restructured facility and have engaged two of our existing lenders to lead the restructuring process. Deteriorating market conditions for borrowers in the energy industry and concerns about the uncertainties we face and our liquidity are likely to result in higher interest costs, reduced borrowing capacity and more restrictive terms and conditions in any restructured credit facility than we have in our current credit facility. Although we believe we will be successful, we can make no assurances that we will be able to restructure the credit facility and refinance the outstanding obligations prior to the facility's maturity date on October 29, 2003 due to these uncertainties.

          As a result of the maturity of the outstanding obligations under our corporate credit facility on October 29, 2003, our independent auditors expressed a going concern uncertainty in their report on our consolidated financial statements for the year ended December 31, 2002 that triggered an event of default under our corporate credit facility. Cogentrix Energy has a forbearance agreement in effect with the lenders to the credit facility pursuant to which the lenders agreed to forbear through August 31, 2003 from terminating their commitments or accelerating the outstanding obligations and demanding payment. Additionally, the lenders agreed to allow Cogentrix Energy to continue to convert to borrowings drawings under outstanding letters of credit issued under the corporate credit facility during this forbearance period. Until we cure this event of default, we will not be able to make any restricted payments, a category that includes shareholder div idends and loans, or repay any of our other senior indebtedness prior to its scheduled maturity. Even though the lenders have granted this forbearance, we can make no assurances that the lenders to the corporate credit facility will not choose to accelerate the obligations outstanding under the corporate credit facility and demand immediate payment of all obligations outstanding after the August 31, 2003 forbearance expiration. In the event the lenders to the corporate credit facility accelerate the outstanding obligations, or if the corporate credit facility matures and is not repaid, this would create a cross-default under the indentures under which we issued our senior notes, and the senior note holders would have the ability to accelerate the $394.7 million of senior notes currently outstanding and demand immediate payment.

     Facilities Recently Achieving Commercial Operations

          Two of our electric generating facilities, Southaven and Caledonia, achieved commercial operations during May 2003. The construction of each facility was or is being funded under each project subsidiary's separate financing agreements and our equity contribution commitments. Our remaining Southaven firm equity commitments are supported by letters of credit issued under our corporate credit facility and are expected to be contributed utilizing corporate cash balances or converting the outstanding letters of credit to borrowings under the corporate credit facility. Summarized information regarding each of the facilities follows (dollars in millions):

          Any projects we develop in the future, and those electric generating facilities we may seek to acquire, are likely to require substantial capital investment. Our ability to arrange financing on a non-recourse basis and the cost of such capital are dependent on numerous factors. These factors include, but are not limited to, general economic and market conditions, conditions in the independent power generation market, and investor confidence and credit availability in our industry. In order to access capital on a non-recourse basis in the future, we may have to make larger equity investments in, or provide more financial support for, the project entity.

     Equipment Commitments

          We currently have commitments with turbine and other equipment suppliers to purchase a set of three combustion/steam turbines and heat recovery steam generators. We have made cumulative payments of $165.3 million with remaining payments of $7.9 million due on the turbines over the remainder of 2003. We are currently storing the turbine engines and partially completed generators and most of the accessories related to this equipment.

     Project Level Defaults

          Cogentrix Energy's project subsidiaries which own the Southaven, Caledonia and Dominican Republic facilities are in default of their senior project debt aggregating $1.0 billion as of June 30, 2003. As a result, this project debt is callable and classified as components of current liabilities in our consolidated financial statements as of June 30, 2003. In addition, Cogentrix Energy's project affiliate which owns the Sterlington facility is in default of its project debt which is callable. The Sterlington facility is accounted for under the equity method and accordingly, the Company's proportional share of the facility's assets and related liabilities, including long-term debt, are reflected net as an investment in unconsolidated project affiliates in our consolidated financial statements. The debt for these four facilities is non-recourse to Cogentrix Energy and, therefore, the lenders to these projects cannot look to Cogentrix Energy or any ot her project subsidiary or affiliate for the repayment of these obligations and can only look to the applicable project assets of these project subsidiaries (book value of approximately $1.3 billion as of June 30, 2003 for our Southaven, Caledonia and Dominican Republic facilities) to satisfy these obligations. While these lenders do not have direct recourse to Cogentrix Energy, these defaults by our project subsidiaries and project affiliates can still have important consequences for our results of operations and liquidity, including, without limitation,

     Sale of Interest in Our Jenks Facility

          Cogentrix of Oklahoma, Inc. ("Cogentrix of Oklahoma"), our wholly-owned subsidiary, was formed to own and hold 100% of the membership interest in Green Country Energy, LLC ("Green Country"). Green Country is the owner of an approximate 810-megawatt combined-cycle, natural gas-fired electric generating facility located in Jenks, Oklahoma.

          On June 10, 2003, Cogentrix of Oklahoma sold 100% of its direct membership interest in Green Country to a newly formed limited liability company, Green Country Holding LLC (the "Purchaser") formed by affiliates of General Electric Structured Finance, Inc. (collectively, "GESF") in exchange for cash consideration and a 10% interest in the Purchaser. As a result of the transaction, Green Country is now wholly-owned by the Purchaser, and the Purchaser is 90% owned by GESF and 10% owned by Cogentrix of Oklahoma. Cogentrix of Oklahoma remains an indirect, wholly-owned subsidiary of Cogentrix Energy. The purchase was effected pursuant to a purchase agreement, as amended, dated April 11, 2003 (the "Purchase Agreement"). The sale to the Purchaser was consummated in connection with a refinancing of the Green Country bank loan which refinancing required additional equity contributions from GESF and Cogentrix of Oklahoma.

          In connection with the refinancing and sale of the Green Country interest, GESF and the financial institutions providing the refinancing required that Cogentrix Energy and Cogentrix of Oklahoma provide certain guarantees and indemnities pursuant to the Purchase Agreement and other related transaction agreements. The Cogentrix Energy guarantees and indemnities relate to any costs or expenses arising from (1) certain litigation to which Green Country is a party (see " - Legal Proceedings - Letter of Credit Draw Litigation - Jenks, Oklahoma Facility"), and (2) any claim arising out of a breach of representations and warranties made under the Purchase Agreement. The Cogentrix of Oklahoma indemnities relate to any claims, costs or expenses arising from (1) certain litigation to which Green Country is a party (see " - Legal Proceedings - Letter of Credit Draw Litigation - Jenks, Oklahoma Facility"); (2) a performance guarantee for services provided to G reen Country by a Cogentrix Energy affiliate; and (3) any claim arising out of a breach of representations and warranties made under the amended Purchase Agreement. In conjunction with the sale of our interest in Green Country, Cogentrix of Oklahoma agreed to escrow (the "Litigation Escrow") a portion of the sale proceeds until final and non-appealable resolution of the litigation has been reached.

          The sale proceeds received by Cogentrix Energy, net of the Litigation Escrow, Cogentrix of Oklahoma capital contribution required upon refinancing, and transaction costs were approximately $71.6 million. We utilized $50.0 million of proceeds from the transaction to repay outstanding borrowings under our corporate credit facility. We recorded a gain of approximately $58.8 million which is included in gain on sale of project interest in the consolidated statements of income.

Cash Flow from Our Project Subsidiaries and Project Affiliates

          The ability of our project subsidiaries and project affiliates to pay management fees, dividends and distributions periodically to Cogentrix Energy is subject to limitations imposed by various financing documents. These limitations generally require that (1) debt service payments are current; (2) historical and projected debt service coverage ratios are met; (3) all debt service and other reserve accounts are funded at required levels; and (4) there are no defaults or events of default under the relevant financing documents. There are also additional limitations that are adapted to the particular characteristics of each project subsidiary and project affiliate. Events of default and other circumstances currently exist at certain project subsidiaries or project affiliates that are in some cases eliminating or blocking the payment of management fees, dividends and distributions to Cogentrix Energy. In addition, certain facilities achieving commerc ial operations and the termination and modification of certain other facilities' power sales agreements have changed the source of where Cogentrix Energy expects to receive management fees, dividends and distributions in the future. Certain of these circumstances are described in detail below.

     PG&E National Energy Group, Inc. ("NEG") Bankruptcy Impact on Our Project Subsidiaries and
     Project Affiliates

          During July 2003, NEG and certain of its subsidiaries voluntarily filed for protection from their creditors under Chapter 11 of the United States Bankruptcy Code. Included in this filing was PG&E Energy Trading-Power, L.P. ("PGET"), the former conversion services purchaser at our Southaven and Caledonia facilities. See " - Southaven Facility Defaults and - Caledonia Facility Defaults and Pending Ownership Transfer." Certain other subsidiaries of NEG provide operations and maintenance services to seven of our project affiliates and are partners at ten of our project affiliates. To date, neither the operations and maintenance service providers nor our NEG project affiliate partners has been included in the NEG bankruptcy proceedings. If the NEG affiliate that provides maintenance and operating services to our Logan facility is brought into bankruptcy proceedings with NEG, it would create an event of default under the Logan facility' s non-recourse project loan agreements if the project subsidiary is unable to cure this default within the time period provided. This event of default would create a cross-default under our subsidiary Eastern America's credit facility that would give the lenders the right to exercise all remedies available to them including foreclosing upon and taking possession of the capital stock of Eastern America (see "- Cogentrix Eastern America").

     Southaven Facility Defaults

          Our Southaven facility achieved commercial operations during May 2003. The project subsidiary which owns the Southaven facility is currently in default of its non-recourse project loan agreements as a result of NEG, the guarantor of the then existing conversion services agreement, being downgraded during August 2002 below investment grade creating an event of default under our then existing conversion services agreement by our purchaser, PGET. The project lenders are not obligated to continue funding draws and have the right to exercise all remedies available to them under the project loan agreement, including foreclosing upon and taking possession of all of the project's assets. Until the event of default under the project loan agreements is cured and we convert the Southaven construction loan to a term loan, our project subsidiary will be unable to make any distributions to Cogentrix Energy. This project could remain in default for an exte nded period of time until we can provide a replacement conversion services or power purchaser or refinance the project loan agreement. However, there can be no assurances that we will be able to enter into a replacement conversion services or power purchase agreement or refinance the project loan agreement. As a result of this event of default, this facility's non-recourse project debt is callable and has been classified as a current liability, as of June 30, 2003. The project lender is able to satisfy this obligation with the project's assets only and cannot look to Cogentrix Energy or its other subsidiaries to satisfy this obligation. As a result of the Southaven debt being in default and callable, the projects' independent auditors expressed a going concern uncertainty in the project's financial statements for the year ended December 31, 2002 that triggered an additional event of default under their non-recourse loan agreement during the second quarter of 2003. The Chapter 11 filing in the United Sta tes Bankruptcy Court by NEG and PGET triggered an additional event of default under their non-recourse loan agreement during July 2003. On August 4, 2003, the bankruptcy court approved the rejection of the Southaven conversion services agreement by PGET as an executory contract. The termination of the conversion services agreement triggered an additional event of default under our project subsidiary's non-recourse loan agreement.

          During July 2003, we began operating the Southaven facility as a merchant generating facility under a commodity management agreement with a third party. The third party will manage and provide power marketing, fuel procurement and related services on our project subsidiary's behalf. Operation of this facility as a merchant electric generating facility should not add additional risks such as commodity risk exposure with changing commodity prices for the natural gas and electricity we may sell in the open market. There is a potential for exposure to additional costs, risks and requirements to post additional credit support to obtain short to intermediate term contracts to sell our power, to procure fuel supply and transportation agreements and obtain electrical transmission arrangements, under the commodity management agreement.

          During August 2003, our Southaven project subsidiary and the project lenders amended the non-recourse loan agreement to require all excess cash generated by the facility to be utilized to repay the outstanding borrowings on a quarterly basis beginning after the construction loans are converted to term loans and through the remaining term of the Southaven facility's loan agreement (through June 2007). The non-recourse project loan agreements require the construction loan to be converted to term loans on or before December 1, 2003. In the event our project subsidiary is unable to complete this conversion, this would trigger an additional event of default under the non-recourse loan agreement.

     Caledonia Facility Default and Pending Ownership Transfer

          Our Caledonia facility achieved commercial operations during May 2003. The project subsidiary which owns the Caledonia facility is in default of its non-recourse project loan agreements as a result of NEG, the guarantor of the then existing conversion services agreement being downgraded during August 2002 below investment grade creating an event of default under our conversion services agreement by our purchaser, PGET.

          As a consequence of this event of default we entered into an agreement with the lender to the Caledonia facility that will involve the transfer of our ownership interest in the Caledonia facility to the project lender in exchange for the project lender assuming all obligations of the Caledonia project including long-term debt and the project lender releasing all security provided by us under the project loan agreements. In conjunction with this agreement, we recognized a loss of approximately $38.1 million, before taxes, to write-down the value of the facility's long-lived assets to its fair value. The assets and liabilities have been classified as discontinued operations as of June 30, 2003 and operations of the facility are accounted for as part of discontinued operations. We expect the closing of this transaction prior to December 31, 2003. However, we can provide no assurances that conditions to transferring our ownership be satisfied and th e transaction be completed.

     Southaven and Caledonia Facilities PGET Arbitration

          On February 4, 2003, our project subsidiaries for both facilities received a notice from PGET of PGET's intention to terminate the conversion services agreements alleging our project subsidiaries failed to properly interconnect our facilities to the applicable transmission systems. This notice indicated that the conversion services agreements would terminate on March 6, 2003 and that PGET did not intend to continue to perform under the agreements after February 6, 2003. On February 7, 2003, the project subsidiaries filed an emergency petition to compel arbitration or, in the alternative, for a temporary restraining order and preliminary injunction in the Circuit Court for Montgomery County, Maryland. By order dated February 7, 2003, the court denied our petition for a temporary restraining order and set the remaining aspects of the petition for hearing.

          On March 5, 2003, the Circuit Court ruled that PGET was required to comply with the arbitration provisions of the conversion services agreements. The court further ordered that PGET and the project subsidiaries continue to perform their obligations under the conversion services agreements during the pendency of the disputes and the arbitration proceedings. On March 7, 2003, PGET filed an emergency motion to stay the court's ruling, which compels performance pending their appeal of the Circuit Court ruling in the Court of Special Appeals of Maryland. This motion was denied on March 11, 2003. In April 2003, the Court of Special Appeals of Maryland by its own motion removed PGET's appeal of the lower court ruling to the Court of Appeals of Maryland. On March 24, 2003, PGET issued a Demand for Arbitration to resolve the disputes. In accordance with the terms of the conversion services agreements, three arbitrators are to be designated to resolve t hese disputes. The American Arbitration Association has confirmed the designated arbitrators. Through the NEG/PGET Chapter 11 filing in the United States Bankruptcy Court on July 8, 2003, our project subsidiaries performed their obligations and PGET performed certain of their obligations under the conversion services agreements. Both the arbitration and the Maryland State court proceedings have been stayed by order of the bankruptcy court. In the event arbitration is allowed to proceed and our project subsidiaries are unsuccessful and the conversion services agreements are found to have been terminated on March 6, 2003, our project subsidiaries may be required to reimburse PGET for purchase of test gas, net of revenues from the sale of test energy.

     Sterlington Facility

          Our 50%-owned project affiliate is currently in default under its non-recourse project loan agreements as a result of the credit ratings of Dynegy, the guarantor of the conversion services agreement at our Sterlington facility, being downgraded during July 2002 below investment grade creating a purchaser event of default under our conversion services agreement. During October 2002, our Sterlington project affiliate and the project lenders amended the non-recourse loan agreement to require all excess cash generated by the facility to be utilized to repay the outstanding borrowings on a quarterly basis during the remaining term of the Sterlington facility's loan agreement (through August 2007). Management does not expect to receive distributions from this project affiliate until the non-recourse project debt can be refinanced. Until then the project lenders continue to have the right to exercise all remedies available to them under the project loan agreements including foreclosing upon and taking possession of all project assets. The project lender to this facility is able to satisfy this obligation with the Sterlington facility's project assets only and cannot look to Cogentrix Energy or its other subsidiaries to satisfy the project affiliate's debt. The Company accounts for this project using the equity method of accounting, and our proportional interest in the facility's assets and related liabilities, including long-term debt, are reflected net as an investment in unconsolidated affiliates in the accompanying consolidated balance sheets. The Company's investment in this project was approximately $9.8 million as of June 30, 2003. As a result of the Sterlington debt being in default and callable, the project's independent auditors expressed a going concern uncertainty in the Sterlington financial statements for the year ended December 31, 2002 that triggered an additional event of default under the Sterlington non-recourse loan agreement dur ing April 2003.

     Dominican Republic Facility

          Our 65%-owned project subsidiary that owns our Dominican Republic facility has notified the power purchaser, Corporación Dominicana de Electricidad ("CDE"), on several occasions since the facility achieved commercial operations in March 2002 of events of default under the power purchase agreement based on CDE's failure to pay amounts due for the sale of capacity and electricity (collectively, the "Payment Defaults"). We have notified the State of the Dominican Republic ("SDR"), the guarantor of CDE's payment obligations, of defaults under the project subsidiary's implementation agreement with the SDR related to a portion of these amounts overdue by CDE (the "SDR Defaults"). During July 2003, CDE and the SDR made payments aggregating $45.0 million to our project subsidiary curing all existing Payment Defaults and SDR Defaults.

          As a result of certain Payment Defaults and SDR Defaults existing at the time, we were unable to convert the construction loans to term loans by March 28, 2003. This failure to convert created an event of default under our project subsidiary's non-recourse loan agreement and the lenders currently have the right to exercise all remedies available to them including foreclosing upon and taking possession of all project assets. As a result of the Dominican Republic debt being in default and callable, the project's independent auditors expressed a going concern uncertainty in the Dominican Republic financial statements for the year ended December 31, 2002 that triggered an additional event of default under the Dominican Republic non-recourse loan agreement during April 2003. As a result of this event of default, this non-recourse project debt is currently callable and has been classified as a current liability in our consolidated financial statements a s of June 30, 2003. The project lender to this facility is able to satisfy this obligation with the Dominican Republic facility's project assets only and cannot look to Cogentrix Energy or its other subsidiaries to satisfy their debt. Until these events of default under the project loan agreement are cured and as long as the borrowings remain construction loans, our project subsidiary will be unable to make distributions to Cogentrix Energy or our partner. Continued slow payment by CDE and the SDR in the future may increase our project subsidiary's working capital needs and delay distributions to Cogentrix Energy or our partner. We are currently negotiating with the project lender to obtain permanent waivers related to these remaining defaults and obtain approval to convert the construction loans to term loans. We are unable to provide any assurance that the project lenders will waive the remaining events of default or approve the conversion of the construction loans.

     Cogentrix Eastern America

          Our intermediate, wholly-owned subsidiary, Cogentrix Eastern America, Inc. ("Eastern America"), which was formed to hold interests in twelve electric generating facilities acquired in 1998 and 1999, has a credit facility with a financial institution consisting of a term loan with principal payments due quarterly through the final maturity date of September 30, 2005. The total outstanding borrowings were $56.5 million as of June 30, 2003. The Eastern America credit facility is secured by, among other things, a pledge of the Eastern America capital stock and the capital stock of the project subsidiaries that hold the Company's investment in our Northampton and Logan projects as well as the dividends, distributions and other payments made to us by the Northampton, Logan, Indiantown and Carneys Point projects. The credit agreement, as amended, requires Eastern America to continue to accumulate in escrow, the distributions received from these four proj ect affiliates (collectively, the "Significant Affiliates"). If certain conditions exist at February 15, 2004 at certain of the Significant Affiliates which prevent those Significant Affiliates from making distributions to Eastern America (the "Eastern America Distribution Restrictions"), the entire amount held in escrow and, as long as any such conditions exist, any future distributions from those Significant Affiliates will be used to prepay debt at the next quarterly distribution date. If at February 15, 2004, these conditions do not exist and the Significant Affiliates are able to make distributions to Eastern America, the remaining amount in escrow can be distributed to Eastern America and ultimately to Cogentrix Energy. In addition, if an event of default occurs under the project loan agreements for certain of Eastern America's project affiliates, a corresponding event of default would be triggered under the Eastern America credit agreement.

     Indiantown Facility

          During November and December 2002, certain letters of credit posted to secure certain of the Indiantown facility's operating obligations were drawn upon and converted to loans ("L/C Loans") when the bank that provided these letters of credit did not extend the terms of these letters of credit past their original expiration date. The Indiantown facility will be prohibited from making distributions to Eastern America (and ultimately, to Cogentrix Energy) until these L/C Loans (currently $10.0 million) are repaid in full or replacement letters of credit are obtained.

          The Indiantown facility also has posted a letter of credit in the amount of approximately $29.9 million which, together with cash in the debt service reserve account, represents the required debt service reserve. The bank that issued this letter of credit has notified the Indiantown facility of its intention not to extend the term of this letter of credit, which is due to expire in November 2005. As a result, unless a replacement letter of credit provider is obtained, the Indiantown facility will be prohibited from making distributions to Eastern America (and ultimately, to Cogentrix Energy) until the Indiantown facility has fully funded the debt service reserve account. The remaining balance to be funded into this reserve account is approximately $23.9 million.

          The Company's management believes that the Indiantown facility will be able to enter into arrangements to obtain all of these letters of credit from replacement letter of credit providers. There can be no assurances, however, that the Indiantown facility will be able to obtain such replacement letters of credit. The failure to obtain such replacement letters of credit would constitute one of the Eastern America Distribution Restrictions.

Newly Adopted Accounting Pronouncements

          On January 1, 2003, we adopted Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset Retirement Obligations." This statement requires companies to record a liability relating to legal obligations to retire and remove assets used in their business. We identified obligations to remove or dismantle certain facilities under the terms of these facilities' land leases or, in the case of one facility, under a development agreement. We developed cost estimates representing the future cost to dismantle and remove these facilities at the end of the respective lease term or useful life. The future cost to dismantle and remove these facilities has been discounted to its present value, and the related asset and liability have been recorded on the balance sheet as of January 1, 2003. The asset will be depreciated over the life of the asset and the liability will be accreted to its future value and eventually extinguished when th e asset is taken out of service. As of January 1, 2003, we recorded an expense of $1.0 million, net of tax, related to these obligations as a cumulative effect of an accounting change in the accompanying consolidated condensed financial statements. This amount represents the cumulative accretion expense and depreciation expense which would have been recorded had the accounting pronouncement been applied since the retirement obligation was created. The adoption of this pronouncement had no impact on our cash flows.

          On January 1, 2003, we adopted SFAS No. 145, "Rescission of SFAS No. 4, 44 and 64, Amendment of SFAS No. 13 and Technical Corrections." SFAS No. 4 had required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. During the first quarter of 2003, we recognized a gain of approximately $1.3 million related to the repurchase of approximately $5.9 million Cogentrix Energy's senior unsecured notes due 2004. In accordance with SFAS No. 145, this gain is included in other income in our condensed consolidated financial statements. In addition, SFAS No. 145 rescinds SFAS No. 4 and the related required classification gains and losses from extinguishment of debt as extraordinary items under certain circumstances. Additionally, SFAS No. 145 amends SFAS No. 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. The provisions related to SFAS No. 13 are applicable for transactions occurring after May 15, 2002.

          On January 1, 2003, we adopted SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 requires costs associated with exit or disposal activities to be recognized when they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. Our adoption of this statement did not have an impact on our financial condition or results of operations.

          In December 2002, we adopted Financial Accounting Standards Board ("FASB") Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others, and interpretation of SFAS Nos. 5, 57 and 107 and a rescission of FASB Interpretation No. 34". This Interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees issued. The Interpretation also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken. The initial recognition and measurement provisions of the Interpretation are applicable to guarantees issued or modified after December 31, 2002 and the disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of this new standa rd did not have a material impact on our financial position, results of operations or cash flows.

          In April 2003, the FASB issued SFAS No. 149, "Amendment of SFAS No. 133 on Derivative Instruments and Hedging Activities". This Statement amends and clarifies the accounting and reporting for derivative instruments, including embedded derivatives, and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 149 amends SFAS No. 133 to reflect the decisions made as part of the Derivatives Implementation Group and in other FASB projects or deliberations. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The adoption of SFAS No. 149 is not expected to have an impact on our consolidated financial statements.

          The FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" in May 2003. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. We adopted SFAS No. 150 on July 1, 2003 and this adoption did not have a material impact on its financial statements.

Item 3.  Quantitative and Qualitative Disclosure about Market Risk

     Impact of Energy Price Changes, Interest Rates and Inflation

          Energy prices are influenced by changes in supply and demand, as well as general economic conditions, and therefore tend to fluctuate significantly. We attempt to protect against the risk of changes in the market price for electricity by entering into contracts with fuel suppliers, utilities or power marketers that reduce or eliminate our exposure to this risk by establishing future prices and quantities for the electricity produced independent of the short-term market. Through various hedging mechanisms, we have attempted to mitigate the impact of changes on the results of operations of most of our projects. The hedging mechanism against increased fuel and transportation costs for most of our currently operating facilities is to provide contractually for matching increases in the energy payments our project subsidiaries receive from the utility purchasing the electricity generated by the facility.

          Under the power sales agreements for certain of our facilities, energy payments are indexed, subject to certain caps, to reflect the purchasing utility's solid fuel cost of producing electricity or provide periodic, scheduled increases in energy prices that are designed to match periodic, scheduled increases in fuel and transportation costs that are included in the fuel supply and transportation contracts for the facilities.

          Some of our facilities that recently achieved commercial operations have conversion services arrangements in place to minimize the impact of fluctuating fuel prices. Under these conversion services arrangements, each conversion services purchaser is typically obligated to supply and pay for fuel necessary to generate the electrical output expected to be dispatched by the conversion services purchaser.

          Changes in interest rates could have a significant impact on our results of operations because they affect the cost of capital needed to construct projects as well as interest expense of existing project financing debt. As with fuel price escalation risk, we attempt to hedge against the risk of fluctuations in interest rates by arranging either fixed-rate financing or variable-rate financing with interest rate swaps on a portion of our indebtedness.

          Although hedged to a significant extent, our financial results will likely be affected to some degree by fluctuations in energy prices, interest rates and inflation. The effectiveness of the hedging techniques implemented by us is dependent, in part, on each counterparty's ability to perform in accordance with the provisions of the relevant contracts.

     Interest Rate Sensitivity

          We routinely enter into derivative financial instruments and other financial instruments to hedge our risk against interest rate fluctuations. As of June 30, 2003, there have been no significant changes in the portfolio of instruments as disclosed in our report on Form 10-K for the year ended December 31, 2002 filed with the Commission on March 31, 2003.

Item 4.  Controls and Procedures

          Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in rules 13a-15(c) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this quarterly report. Based on that evaluation, these officers have concluded that, as of the end of such period, the Company's disclosure controls and procedures are effective in alerting them on a timely basis to material information relating to Cogentrix Energy (including its consolidated subsidiaries) required to be included in our periodic filings under the Exchange Act. No change in our internal control over financial reporting was made during our most recent fiscal quarter that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 1.  Legal Proceedings

     Product Liability Claims Related to Coal Combustion By-Products

          One of our indirect, wholly-owned subsidiaries is party to certain product liability claims related to the sale by that subsidiary of coal combustion by-products for use in 1997 and 1998 in various construction projects. We cannot currently estimate the range of possible loss, if any, we will ultimately bear as a result of these claims. However, we believe - based on our knowledge of the facts and legal theories applicable to these claims, after consultations with various counsel retained to represent the subsidiary in the defense of such claims, and considering all claims resolved to date - that the ultimate resolution of these claims should not have a material adverse effect on our consolidated financial position or results of operations.

     Claims Asserted by City of Jenks against our Jenks, Oklahoma Facility

          In October 2002, the City of Jenks, Oklahoma filed a petition in the District Court for Tulsa County, State of Oklahoma against our indirect, wholly-owned subsidiary, Green Country Energy, LLC ("Green Country"), which owns our Jenks facility. The petition also names as defendants the counterparty under the conversion services agreement for this facility, Exelon Generation Company, LLC ("Exelon"), and a third party that transports natural gas on behalf of Exelon. The City of Jenks claims that Green Country is liable for failure to pay an annual gross receipts tax of 2% on sales of electricity and that Green Country and the other defendants are also liable to the City of Jenks for failure to pay a pipeline capacity permit fee of 3% of the purchase price of natural gas transported to the Jenks facility. In conjunction with the Green Country sale transaction (see "Liquidity and Capital Resources - Sale of Interest in Our Jenks Facility"), Green C ountry entered into a settlement agreement with the City of Jenks whereby Green Country paid a one-time lump sum payment of $3.0 million, in exchange for being dismissed from the lawsuit and released from all past and future gross receipt tax and capacity permit fees.

          Letter of Credit Draw Litigation - Jenks, Oklahoma Facility

          To support the obligations of National Energy Production Company ("NEPCO"), the contractor initially engaged to construct our Jenks facility, Bayerische Hypo-und Vereinsbank AG ("HVB") issued a $39.0 million letter of credit for our benefit related to the construction of the Jenks facility. During February 2001, HVB sold and transferred, without recourse, an undivided 100% interest in this letter of credit to Banca Nazionale del Larvaro SPA ("BNL") under a participation agreement executed by HVB and BNL. Our project subsidiary drew this $39.0 million letter of credit in December 2001, after NEPCO failed to meet certain obligations under the construction contract. When HBV requested reimbursement for the amount drawn from BNL pursuant to the participation agreement, BNL refused to pay. In response, HBV filed an action in the Supreme Court of the State of New York in December 2001, against BNL for reimbursement of the $39.0 million plus costs and attorneys fees for breach of the participation agreement. In February 2002, BNL filed a third-party complaint against Green Country, Cogentrix Energy, NEPCO and Green Country's administrative agent for its outstanding indebtedness seeking recovery from each of them of the $39.0 million, plus interest, attorneys' fees and other unspecified damages. The case was removed to the United States Bankruptcy Court, Southern District of New York, in July 2002. On May 16, 2003, the court granted summary judgment in favor of HVB against BNL, and BNL has reimbursed HVB the full $39.0 million. We believe that Cogentrix Energy and Green Country each have meritorious defenses to these claims and intend to contest them vigorously.

          During December 2002, JP Morgan Chase Bank ("JP Morgan") commenced a separate action in the United States District Court, Southern District of New York against Cogentrix Energy, Green Country and Cogentrix of Oklahoma, Inc. arising out of a $14.0 million draw Green Country made in December 2001 on a letter of credit that JP Morgan issued on behalf of NEPCO. This letter of credit was also issued to support certain obligations of NEPCO related to the construction of the Jenks facility. The complaint alleges that the draw was wrongful because the construction of the Jenks facility was completed substantially on time and the draw was a breach of the original NEPCO contract because it did not meet the conditions to draw these funds. The case was referred to the United States Bankruptcy Court, Southern District of New York, in March 2003. We believe that Cogentrix Energy, Green Country and Cogentrix of Oklahoma, Inc. each have meritorious defenses to these claims and intend to contest them vigorously.

     Letter of Credit Draw Litigation - Sterlington Facility

          During December 2002, JP Morgan commenced an action in the United States District Court, Southern District of New York against Cogentrix Energy, Quachita Power, LLC ("Quachita"), our indirect, 50%-owned project affiliate which owns our Sterlington facility, and Cogentrix Ouachita Holdings, Inc. arising out of a $41.2 million draw in May 2002 on a letter of credit that JP Morgan issued to support certain obligations of NEPCO related to the construction of the Sterlington facility. The complaint alleges that the construction of the Sterlington facility was deliberately delayed by Quachita in order to draw on the letter of credit and that the draw was a breach of the original NEPCO contract because the conditions had not been met to draw these funds. The case was referred to the United States Bankruptcy Court, Southern District of New York, in March 2003. We believe that Cogentrix Energy, Quachita and Cogentrix Ouachita Holdings, Inc. all have m eritorious defenses to these claims and intend to contest them vigorously.

          During February 2003, Westdeutsche Landesbank Girozentrale ("WestLB") commenced an action in the United States District Court, Southern District of New York against Quachita arising out of Quachita's draw in May 2002 on a $16.2 million letter of credit that WestLB issued to support certain obligations of NEPCO related to the construction of the Sterlington facility. The complaint alleges that the draw was improper and that the contractual conditions allowing this draw to be made had not been met. On May 9, 2003, Quachita filed a motion to have this case referred to the United States Bankruptcy Court, Southern District of New York which is still pending decision. We believe that Quachita has meritorious defenses to WestLB's claims and intend to contest them vigorously.

     PGET Arbitration - Southaven and Caledonia Facilities

          For discussion of this matter, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Cash Flow from Our Project Subsidiaries and Project Affiliates - Southaven and Caledonia Facilities PGET Arbitration."

     Other Routine Litigation

          In addition to the litigation described above, we experience other routine litigation in the normal course of business. We do not believe that any of this routine litigation, if decided adversely to us, would have a material adverse impact on our consolidated financial position or results of operations.

Item 5.  Other Information

          On August 14, 2003, we executed an agreement with David J. Lewis, Chief Executive Officer and Chairman (the "Agreement"), which provided by mutual agreement for David J. Lewis' separation from employment with and resignation as Chief Executive Officer of the Company, effective immediately. Pursuant to the Agreement, Mr. David J. Lewis will be entitled to receive separation compensation of $1.8 million per year plus benefits for a period of five years. Mr. David J. Lewis, as a function of his 18 years with the Company, is also entitled under the Company's profit sharing program to receive severance payments aggregating approximately $3.3 million payable over 21 months. Pursuant to the Agreement, Mr. David J. Lewis will continue to serve as Chairman of the Company. The Company's execution of the Agreement was preceded by unanimous Shareholder approval and authorized by a resolution of the Board of Directors of the Company at the quarterly meeting on August 14, 2003. At the same meeting, by resolution of the Board of Directors, Mr. James E. Lewis was appointed Chief Executive Officer of the Company effective immediately.

Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits

(b)  Reports on Form 8-K

       One report on Form 8-K was filed during the quarter covered by this report.

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.