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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the quarter ended September 30, 2002
Commission File No. 333-89521
CE Generation, LLC
(Exact name of registrant as specified in its charter)
Delaware 47-0818523
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
302 South 36th Street, Suite 400-2 Omaha, NE 68131
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (402) 341-4500
Securities registered pursuant to Section 12(b) of the Act: N/A
Securities registered pursuant to Section 12(g) of the Act: N/A
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No _____
The members' equity accounts are held 50% by MidAmerican Energy
Holdings Company and 50% by El Paso Merchant Energy North America Company as of
November 14, 2002.
TABLE OF CONTENTS
Part I Financial Information.............................................1
Item 1. Financial Statements..........................................3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................ 10
Item 4. Controls and Procedures......................................17
Part II Other Information................................................18
Item 1. Legal Proceedings............................................18
Item 2. Changes in Securities and Use of Proceeds....................18
Item 3. Defaults on Senior Securities................................18
Item 4. Submission of Matters to a Vote of Security Holders..........18
Item 5. Other Information............................................18
Item 6. Exhibits and Reports on Form 8-K.............................18
Signatures.................................................................19
INDEPENDENT ACCOUNTANTS' REPORT
Board of Managers
CE Generation, LLC
Omaha, Nebraska
We have reviewed the accompanying consolidated balance sheet of CE
Generation, LLC and subsidiaries (collectively, the "Company") as of September
30, 2002, and the related consolidated statements of operations and other
comprehensive income for the three-month and nine-month periods ended September
30, 2002 and 2001 and of cash flows for the nine-month periods ended September
30, 2002 and 2001. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material modifications that
should be made to such consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of CE
Generation, LLC and subsidiaries as of December 31, 2001, and the related
consolidated statements of operations and other comprehensive income, members'
equity and cash flows for the year then ended (not presented herein); and in our
report dated January 17, 2002 (March 1, 2002 as to Note 9A) we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated balance sheet as of
December 31, 2001 is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Omaha, Nebraska
November 8, 2002
CE GENERATION, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
September 30, December 31,
2002 2001
--------------- -------------
(unaudited)
ASSETS
Cash and cash equivalents $ 65,056 $ 34,870
Restricted cash 52,048 17,025
Accounts receivable, net of allowance for
doubtful accounts of $5,141 and $24,754 90,652 128,725
Prepaid expenses and other assets 7,324 7,178
Inventory 24,077 23,705
Due from affiliates 1,507 132
--------------- -------------
Total current assets 240,664 211,635
Restricted cash 13,793 14,009
Properties, plants, contracts and equipment, net 1,252,215 1,287,668
Excess of cost over fair value of net assets acquired, net 265,897 265,897
Note receivable from related party 138,843 139,896
Deferred financing charges and other assets 10,614 13,014
--------------- -------------
Total assets $ 1,922,026 $ 1,932,119
=============== =============
LIABILITIES AND MEMBERS' EQUITY
Liabilities:
Accounts payable $ 1,863 $ 8,766
Accrued interest 17,335 3,674
Interest rate swap liability 21,007 16,295
Other accrued liabilities 35,324 42,037
Current portion of long term debt 87,021 85,036
--------------- -------------
Total current liabilities 162,550 155,808
Project loans 132,716 163,142
Salton Sea notes and bonds 477,635 491,678
Senior secured bonds 347,400 356,400
Deferred income taxes 252,735 237,882
--------------- -------------
Total liabilities 1,373,036 1,404,910
Minority interest 55,764 59,832
Commitments and contingencies (Note 3)
Members' equity 503,061 475,073
Accumulated other comprehensive loss (9,835) (7,696)
--------------- -------------
Total equity 493,226 467,377
--------------- -------------
Total liabilities and members' equity $ 1,922,026 $ 1,932,119
=============== =============
The accompanying notes are an integral part of these financial statements.
CE GENERATION, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME
(Amounts in Thousands)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
------------- ----------- ------------- -----------
Revenues:
Sales of electricity and steam $ 141,305 $ 120,089 $ 381,247 $ 392,122
Interest and other income 2,272 3,560 7,237 10,619
------------- ----------- ------------- -----------
Total revenues 143,577 123,649 388,484 402,741
Cost and Expenses:
Fuel 30,398 28,675 89,667 95,137
Plant operations 33,129 34,170 101,559 100,863
Depreciation and amortization 19,966 21,453 62,380 64,965
Interest expense 18,950 20,392 58,108 61,563
------------- ----------- ------------- -----------
Total expenses 102,443 104,690 311,714 322,528
------------- ----------- ------------- -----------
Income before provision for income taxes 41,134 18,959 76,770 80,213
Provision for income taxes 10,999 2,509 19,408 20,019
------------- ----------- ------------- -----------
Income before minority interest and
cumulative effect of accounting change 30,135 16,450 57,362 60,194
Minority interest 5,287 5,543 14,974 11,741
------------- ----------- ------------- -----------
Income before cumulative effect
of accounting change 24,848 10,907 42,388 48,453
Cumulative effect of accounting
change, net of tax --- --- --- (15,386)
------------- ----------- ------------- -----------
Net income $ 24,848 $ 10,907 $ 42,388 $ 33,067
============= =========== ============= ===========
Other comprehensive income (loss):
Cumulative effect of change in accounting
principle, net of tax --- --- --- (5,954)
Unrealized (loss) on cash flow
hedges, net of tax (1,721) (3,078) (2,139) (3,000)
------------- ----------- ------------- -----------
Comprehensive income $ 23,127 $ 7,829 $ 40,249 $ 24,113
============= =========== ============= ===========
The accompanying notes are an integral part of these financial statements.
CE GENERATION, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
Nine Months Ended
September 30,
2002 2001
---- ----
Cash flows from operating activities:
Net income $ 42,388 $ 33,067
Adjustments to reconcile net income to cash flows from
operating activities:
Cumulative effect of change in accounting
principle, net of tax --- 15,386
Depreciation and amortization 62,380 64,965
Provision for deferred income taxes 15,489 (29,400)
Distributions to minority interest in excess of income (2,132) (3,499)
Changes in other items:
Accounts receivable 38,073 19,373
Due from affiliates (1,375) 2,810
Accounts payable and other accrued liabilities 45 39,809
Other assets 2,856 2,413
------------- ------------
Net cash flows from operating activities 157,724 144,924
Cash flows from investing activities:
Capital expenditures (26,847) (19,422)
Decrease (increase) in restricted cash 216 (3,021)
------------- ------------
Net cash flows from investing activities (26,631) (22,443)
------------- ------------
Cash flows from financing activities:
Repayment of Salton Sea notes and bonds (14,286) (11,829)
Repayment of project loans (37,198) (29,718)
Distributions to members (14,400) ---
Decrease (increase) in restricted cash (35,023) (36)
------------- ------------
Net cash flows from financing activities (100,907) (41,583)
------------- ------------
Net increase in cash and cash equivalents 30,186 80,898
Cash and cash equivalents at beginning of period 34,870 36,152
------------- ------------
Cash and cash equivalents at end of period $ 65,056 $ 117,050
============= ============
Supplemental disclosure:
Interest paid $ 42,782 $ 46,192
============= ============
Income taxes paid $ 993 $ 28,630
============= ============
The accompanying notes are an integral part of these financial statements.
CE GENERATION, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General
In the opinion of the management of CE Generation, LLC ("CE Generation" or the
"Company") the accompanying unaudited consolidated financial statements contain
all adjustments (consisting of normal recurring accruals) necessary to present
fairly the financial position as of September 30, 2002 and the results of
operations for the three and the nine months ended September 30, 2002 and 2001
and cash flows for the nine months ended September 30, 2002 and 2001. The
results of operations for the nine months ended September 30, 2002 are not
necessarily indicative of the results to be expected for the full year.
The unaudited consolidated financial statements shall be read in conjunction
with the consolidated financial statements included in the CE Generation annual
report on Form 10-K for the year ended December 31, 2001.
Certain prior year amounts have been reclassified in order to conform with
current year classifications.
2. Accounting Policies
Effective January 1, 2001, CE Generation changed its accounting policy for major
maintenance, overhaul and well workover costs. These costs, had historically
been accounted for using deferral and accrual methods, and are now expensed as
incurred. The Company recorded a cumulative effect of this change of
approximately $15.4 million, net of tax of approximately $9.9 million, in the
nine months ended September 30, 2001.
CE Generation adopted Statement of Financial Accounting Standard (SFAS) No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended
effective January 1, 2001. As a result of the adoption of SFAS No. 133, CE
Generation recorded the fair value of the liability associated with the interest
rate swap agreements at January 1, 2001, which was approximately $6.0 million,
net of tax of approximately $4.0 million. These interest rate swap agreements
are considered cash flow hedges and therefore the offset is recorded in
accumulated other comprehensive income. The adoption did not have an impact on
net income or cash flows.
On January 1, 2002, CE Generation adopted SFAS No. 142, Goodwill and Other
Intangible Assets, which establishes the accounting for acquired goodwill and
other intangible assets, and provides that goodwill and indefinite-lived
intangible assets will not be amortized, but will be tested for impairment on an
annual basis. CE Generation's related amortization consists solely of goodwill
amortization, which has no income tax effect. Following is a reconciliation of
net income as originally reported for the three and nine month periods ended
September 30, 2002 and 2001, to adjusted net income (in thousands):
Three Months Nine Months
Ended September 30, Ended September 30,
2002 2001 2002 2001
---- ---- ---- ----
Reported net income $ 24,848 $10,907 $ 42,388 $ 33,067
Goodwill amortization --- 2,397 --- 7,192
--------- ------- -------- ---------
Adjusted net income $ 24,848 $13,304 $ 42,388 $ 40,259
========= ======= ======== =========
The following table summarizes the acquired intangible assets as of September
30, 2002 (in thousands):
Gross Carrying Accumulated
Amount Amortization
-------------- ------------
Amortized Intangible Assets:
Power Purchase Contracts $ 313,183 $ 194,014
Patented Technology 46,290 14,903
------------- -------------
Total $ 359,473 $ 208,917
============= =============
Amortization expense on acquired intangible assets was $4.6 million and $13.7
million for the three and nine month periods ended September 30, 2002,
respectively. CE Generation expects amortization expense on acquired intangible
assets to be $4.6 million for the remainder of fiscal 2002, $18.1 million for
2003 and $14.9 million for each of the four succeeding fiscal years.
In accordance with SFAS No. 142, CE Generation has determined its reporting
units and completed the transitional impairment testing of goodwill in the
second quarter primarily using a discounted cash flow methodology as of January
1, 2002. No impairment was indicated as a result of the transitional impairment
test. CE Generation intends to complete its annual goodwill impairment test
during the fourth quarter of 2002.
In August 2001, FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. This standard addresses financial accounting and reporting for
obligations related to the retirement of tangible long-lived assets and the
related asset retirement costs. SFAS No. 143 is effective for the Company's
fiscal year beginning January 1, 2003. Management has not determined the impact
this standard will have on the Company's consolidated financial statements.
In October 2001, FASB issued SFAS No. 144, Accounting for Impairment or Disposal
of Long-Lived Assets. The standard addresses financial accounting and reporting
for the impairment or disposal of long-lived assets. There was no financial
statement impact as a result of CE Generation's adoption of SFAS No. 144 on
January 1, 2002.
3. Commitments and Contingencies
A. Southern California Edison and the California Power Exchange
Southern California Edison ("Edison"), a wholly-owned subsidiary of Edison
International, is a public utility primarily engaged in the business of
supplying electric energy to retail customers in Central and Southern
California, excluding Los Angeles. Due to reduced liquidity, Edison had failed
to pay approximately $119 million owed under the power purchase agreements with
the Imperial Valley Projects (excluding the Salton Sea V and Turbo Projects) for
power delivered in the fourth quarter 2000 and the first quarter 2001. Due to
Edison's failure to pay contractual obligations, the Imperial Valley Projects
(excluding the Salton Sea V and Turbo Projects) had established an allowance for
doubtful accounts of approximately $21 million as of December 31, 2001.
The final payment by Edison for past due balances was received March 1, 2002.
Following the receipt of Edison's payment of past due balances, the Imperial
Valley Projects released the remaining allowance for doubtful accounts.
As a result of uncertainties related to Edison, the letter of credit that
supports the debt service reserve fund at Salton Sea Funding Corporation has not
been extended beyond its current July 2004 expiration date, and as such, cash
distributions are not available to CE Generation until the Salton Sea Funding
Corporation debt service reserve fund of approximately $67.6 million has been
funded or the letter of credit has been extended beyond its July 2004 expiration
date or replaced.
In January 2001, the California Power Exchange ("PX") declared bankruptcy. As a
result, the Salton Sea V and Turbo Projects have not received payment for power
sold under the Transaction Agreements during December 2000 and January 2001 of
approximately $3.8 million. The Imperial Valley Projects have established an
allowance for doubtful accounts for the full amount of this receivable. The
Project entities are vigorously pursuing collection.
Edison has failed to pay approximately $3.9 million of capacity bonus payments
for the months from October 2001 through May 2002. On December 10, 2001 the
Imperial Valley Projects (excluding the Salton Sea I, Salton Sea V and Turbo
Projects) filed a lawsuit against Edison in California's Imperial County
Superior Court seeking a court order requiring Edison to make the required
capacity bonus payments under the Power Purchase Agreements. Due to Edison's
failure to pay these contractual obligations, the Imperial Valley Projects have
established an allowance for doubtful accounts of approximately $1.3 million.
The Project entities are vigorously pursuing collection of the capacity bonus
payments.
B. Stone and Webster
The Salton Sea V and Turbo Projects were constructed by Stone & Webster, Inc.
(formerly Stone & Webster Engineering Corporation), a wholly-owned subsidiary of
the Shaw Group ("Stone & Webster"), pursuant to date certain, fixed-price,
turnkey engineering, procure, construct and manage contracts (collectively, the
"Salton Sea V and Turbo Projects EPC Contracts"). On March 7, 2002, Salton Sea
Power L.L.C., Vulcan/BN Geothermal Power Company, Del Ranch, L.P., and CE Turbo
LLC, the owners of the Salton Sea V and Turbo Projects, filed a Demand for
Arbitration against Stone & Webster for breach of contract and breach of
warranty arising from deficiencies in Stone & Webster's design, engineering,
construction and procurement of equipment for the Salton Sea V and Turbo
Projects pursuant to the Salton Sea V and Turbo Projects EPC Contracts. Each of
the Salton Sea V Project and Turbo Project claims are currently proceeding in
separate arbitrations. The arbitration relating to the Turbo Project is
currently scheduled for December 2002, with a stated claim amount of
approximately $6 million of actual damages and an as yet undetermined amount of
consequential damages. The arbitration relating to the Salton Sea V Project is
currently scheduled to commence in April 2003, with no current stated claim
amount.
C. Environmental Liabilities
The Company is subject to numerous legislative and regulatory environmental
protection requirements involving air and water pollution, waste management,
hazardous chemical use, noise abatement, and land use aesthetics.
State and federal environmental laws and regulations currently have, and future
modifications may have, the effect of (i) increasing the lead time for the
construction of new facilities, (ii) significantly increasing the total cost of
new facilities, (iii) requiring modification of the Company's existing
facilities, (iv) increasing the risk of delay on construction projects, (v)
increasing the Company's cost of waste disposal and (vi) reducing the
reliability of service provided by the Company and the amount of energy
available from the Company's facilities. Any of such items could have a
substantial impact on amounts required to be expended by the Company in the
future. Expenditures for ongoing compliance with environmental regulations that
relate to current operations are expensed or capitalized as appropriate.
Expenditures that relate to an existing condition caused by past operations, and
which do not contribute to current or future revenue generation, are expensed.
Liabilities are recorded when environmental assessments indicate that
remediation efforts are probable and the costs can be reasonably estimated.
Estimates of the liability are based upon currently available facts, existing
technology and presently enacted laws and regulations taking into consideration
the likely effects of inflation and other social and economic factors, and
include estimates of associated legal costs. These amounts also consider prior
experience in remediating sites, other companies' clean-up experience and data
released by the Environmental Protection Agency or other organizations. These
estimated liabilities are subject to revision in future periods based on actual
costs or new circumstances, and are included in the accompanying balance sheets
at their undiscounted amounts. As of September 30, 2002 and December 31, 2001,
the environmental liabilities recorded on the balance sheet were $2.3 million
and $4.2 million, respectively.
4. Related Party Transactions
Pursuant to the Administrative Services Agreement, MidAmerican Energy Holdings
Company ("MEHC") provides certain administrative and management services to CE
Generation, and MEHC's executive, financial, legal, tax and other corporate
staff departments perform certain services for CE Generation. Expenses incurred
by MEHC and allocated to CE Generation were estimated based on the individual
services and expense items provided. Allocated expenses totaled approximately
$.8 million for the three months and $2.7 million for the nine months ended
September 30, 2001, and are included in plant operations expense.
On August 1, 2002, the Administrative Services Agreement between MEHC and CE
Generation was amended to provide for a fixed monthly fee in lieu of certain
expenses, which were being allocated. The fixed fee, which is retroactive to
January 1, 2002 and ends December 2004, is $258,333 per month.
On September 29, 2000, Salton Sea Power L.L.C. ("Salton Sea Power") and CE Turbo
LLC ("CE Turbo") entered into an agreement to sell all available power from the
Salton Sea V Project and Turbo Project to El Paso Merchant Energy Company
("EPME"). Under the terms of the agreement, EPME purchased and sold available
power on behalf of Salton Sea Power and CE Turbo, into the California ISO
markets. The purchase price for the available power was equivalent to the value
actually received by EPME for the sale of such power, including renewable
premiums.
On January 17, 2001, Salton Sea Power and CE Turbo entered into a Transaction
Agreement to sell available power from the Salton Sea V Project and Turbo
Project to EPME. Under the terms of the agreement, at the option of Salton Sea
Power and CE Turbo, EPME purchased all available power from the Salton Sea V
Project and Turbo Project based on day ahead price quotes received from EPME.
On March 27, 2001 and May 1, 2001, the Imperial Valley Projects entered into
Transaction Agreements to sell available power to EPME based on percentages of
the Dow Jones SP-15 Index. On June 22, 2001, the Imperial Valley Projects
(excluding the Salton Sea V Project and Turbo Project) ceased selling available
power to EPME and resumed power sales to Edison under the Power Purchase
Agreements ("PPAs"). Effective September 16, 2002 Salton Sea Power and CE Turbo
entered into Transaction Agreements to sell available power to EPME at increased
percentages of the Dow Jones SP-15 Index.
Pursuant to these agreements, sales to EPME from the Company totaled $2.7
million and $3.5 million for the three months ended September 30, 2002 and 2001,
respectively and $6.1 million and $29.9 million for the nine months ended
September 30, 2002 and 2001, respectively. As of September 30, 2002 and December
31, 2001, accounts receivable from EPME were $.7 million and $.9 million,
respectively.
Effective August 1, 2002, Salton Sea Power and CE Turbo amended their respective
power sale agreements with CalEnergy Minerals, LLC ("Minerals") to provide for a
fixed price of $31.00 per megawatt hour for all hours of August 1, 2002 through
December 31, 2002. Pursuant to these agreements, sales to Minerals from Salton
Sea Power totaled $.1 million and $.1 million for the three months ended
September 30, 2002 and 2001, respectively and $.2 million and $.9 million for
the nine months ended September 30, 2002 and 2001, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is management's discussion and analysis of significant factors,
which have affected CE Generation, LLC's ("CE Generation" or the "Company")
financial condition and results of operations during the periods included in the
accompanying statements of operations. The Company's actual results in the
future could differ significantly from the historical results.
Forward-Looking Statements
Certain information included in this report contains forward-looking statements
made pursuant to the Private Securities Litigation Reform Act of 1995 ("Reform
Act"). Such statements are based on current expectations and involve a number of
known and unknown risks and uncertainties that could cause the actual results
and performance of the Company to differ materially from any expected future
results or performance, expressed or implied, by the forward-looking statements.
In connection with the safe harbor provisions of the Reform Act, the Company has
identified important factors that could cause actual results to differ
materially from such expectations, including development and construction
uncertainty, operating uncertainty, acquisition uncertainty, uncertainties
relating to geothermal resources, uncertainties relating to economic and
political conditions and uncertainties regarding the impact of regulations,
changes in government policy, industry deregulation and competition. Reference
is made to all of the Company's SEC filings, incorporated herein by reference,
for a description of such factors. The Company assumes no responsibility to
update forward-looking information contained herein.
Business
The consolidated financial statements reflect the consolidated financial
statements of CE Generation, and its wholly-owned subsidiaries, Magma Power
Company ("Magma"), FSRI Holdings, Inc. ("FSRI") and Yuma Cogeneration Associates
("Yuma").
The following table sets out information concerning CE Generation
Projects:
PROJECT FUEL COMMERCIAL CAPACITY LOCATION
OPERATION
Vulcan Geothermal 1986 34 MW California
Del Ranch Geothermal 1989 38 MW California
Elmore Geothermal 1989 38 MW California
Leathers Geothermal 1990 38 MW California
CE Turbo Geothermal 2000 10 MW California
Salton Sea I Geothermal 1987 10 MW California
Salton Sea II Geothermal 1990 20 MW California
Salton Sea III Geothermal 1989 49.8 MW California
Salton Sea IV Geothermal 1996 39.6 MW California
Salton Sea V Geothermal 2000 49 MW California
Power Resources Gas 1988 200 MW Texas
Yuma Gas 1994 50 MW Arizona
Saranac Gas 1994 240 MW New York
The Vulcan Project, Del Ranch Project, Elmore Project, Leathers Project and CE
Turbo Project are referred to as the Partnership Projects. The Salton Sea I
Project, Salton Sea II Project, Salton Sea III Project, Salton Sea IV Project
and Salton Sea V Project are referred to as the Salton Sea Projects. The
Partnership Projects and the Salton Sea Projects are collectively referred to as
the Imperial Valley Projects. The Power Resources Project, Yuma Project and
Saranac Project are collectively referred to as the Gas Projects.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States requires
management to make judgments, assumptions and estimates that affect the amounts
reported in the Consolidated Financial Statements and accompanying notes. Note 2
to the Consolidated Financial Statements in the Annual Report on Form 10-K
describes the significant accounting policies and methods used in the
preparation of the Consolidated Financial Statements. Estimates are used for,
but not limited to, the accounting for the allowance for doubtful accounts,
impairment of long-lived assets and contingent liabilities. Actual results could
differ from these estimates. The following critical accounting policies are
impacted significantly by judgments, assumptions and estimates used in the
preparation of the Consolidated Financial Statements.
Allowance for Doubtful Accounts
The allowance for doubtful accounts is based on our assessment of the
collectibility of specific customer accounts and the aging of the accounts
receivable. If there is a deterioration of a major customer's credit worthiness
or actual defaults are higher than our historical experience, estimates of the
recoverability of amounts due could be adversely affected.
Impairment of Long-Lived Assets
The Company's long-lived assets consist primarily of property, plant and
equipment and intangible assets with useful lives, that range from 3 to 40
years, and acquired goodwill. The Company believes the useful lives of its
long-lived assets are reasonable. The Company evaluates goodwill impairment on
an annual basis. The Company also evaluates long-lived assets for impairment
whenever events or changes in circumstances indicate the carrying amount of an
asset may not be recoverable. Triggering events include a significant change in
the extent or manner in which long-lived assets are being used or in its
physical condition, in legal factors, or in the business climate that could
affect the value of the long-lived assets, including changes in regulation. The
interpretation of such events requires judgment from management as to whether
such an event has occurred and is required. If an event occurs that could affect
the carrying value of the asset and management does not identify it as a
triggering event, future results of operations could be significantly affected.
Upon the occurrence of a triggering event, the carrying amount of a long-lived
asset is reviewed to assess whether the recoverable amount has declined below
its carrying amount. The recoverable amount is the estimated net future cash
flows that the Company expects to recover from the future use of the asset,
undiscounted and without interest, plus the asset's residual value on disposal.
Where the recoverable amount of the long-lived asset is less than the carrying
value, an impairment loss would be recognized to write down the asset to its
fair value, which is based on discounted estimated cash flows from the future
use of the asset.
The estimated cash flows arising from future use of the asset that are used in
the impairment analysis requires judgment regarding what the Company would
expect to recover from future use of the asset. Any changes in the estimates of
cash flows arising from future use of the asset or the residual value of the
asset on disposal based on changes in the market conditions, changes in the use
of the assets, management's plans, the determination of the useful life of the
assets and technology change in the industry could significantly change the
calculation of the fair value or recoverable amount of the asset and the
resulting impairment loss, which could significantly affect the results of
operations.
On January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other
Intangible Assets, which dictates the accounting for acquired goodwill and other
intangible assets. SFAS No. 142 requires that amortization of goodwill and
indefinite-lived intangible assets be discontinued. The Company has completed
the initial impairment testing of goodwill as required by SFAS No. 142 and no
impairment was indicated. The Company intends to complete its annual goodwill
impairment test during the fourth quarter of 2002.
Contingent Liabilities
The Company is subject to the possibility of various loss contingencies,
including tax, legal and environmental, arising in the ordinary course of
business. The Company considers the likelihood of the loss or the incurrence of
a liability as well as our ability to reasonably estimate the amount of loss in
determining loss contingencies. An estimated loss contingency is accrued when it
is probable that a liability has been incurred and the amount of loss can be
reasonably estimated. The Company regularly evaluates current information
available to us to determine whether such accruals should be adjusted.
Results of Operations
Sales of electricity and steam increased to $141.3 million for the three months
ended September 30, 2002 from $120.1 million for the same period in 2001, a
17.5% increase. Sales of electricity and steam decreased to $381.2 million for
the nine months ended September 30, 2002 from $ 392.1 million for the same
period in 2001, a 4% decrease. Sales of electricity and steam for the nine
months ended September 30, 2002 included the impact of a $20 million reduction
in the allowance for doubtful accounts. Sales of electricity and steam for the
three and nine months ended September 30, 2001 included the impact of a $7.9
million and a $90 million increase in the allowance for doubtful accounts,
respectively. Excluding the impact of the adjustments related to the allowance
for doubtful accounts, sales of electricity and steam increased $13.3 million
for the three months ended September 30, 2002 and decreased $120.8 million for
the nine months ended September 30, 2002 compared to the same periods in 2001.
The three and nine month fluctuations were primarily a result of changes in
energy prices under the Imperial Valley Projects' and the Yuma Project's Power
Purchase Agreements ("PPAs").
As a result of the settlement agreements, Edison has elected to pay the Imperial
Valley Projects (except Salton Sea Projects IV and V and the Turbo Project) a
fixed energy price in lieu of Edison's Average Avoided Cost of Energy. The fixed
energy price was 3.25 cents per kilowatt-hour for the period January 1, 2002
through April 30, 2002 and increased to 5.37 cents per kilowatt-hour effective
May 1, 2002 through April 30, 2007. Edison's Average Avoided Cost of Energy was
3.6 cents per kilowatt-hour for the three months and 8.9 cents per kilowatt-hour
for the nine months ended September 30, 2001, respectively.
The following operating data represents the aggregate capacity and electricity
production of the Imperial Valley Projects:
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
Overall capacity factor 94.8% 92.5% 89.6% 90.7%
Megawatt-hours produced 683,500 666,800 1,915,300 1,940,100
Capacity (net megawatts)(average) 326.4 326.4 326.4 326.4
The overall capacity factor for the Imperial Valley Projects increased for the
three months ended September 30, 2002 compared to the same period in 2001 due to
higher availability in the third quarter 2002. The overall capacity factor
decreased for the nine months ended September 30, 2002 compared to the same
period in 2001 due to more extensive overhauls in 2002. The 2002 overhauls
include an uncontrollable force event at the Salton Sea II Project. Salton Sea
II's 10 MW turbine went out of service on March 25, 2002 and is expected to be
placed back into service in December 2002. The Company expects to collect lost
revenues under the Salton Sea II PPA and through insurance coverage excluding
deductibles.
The following operating data represents the aggregate capacity and electricity
production of the Gas Projects:
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
Overall capacity factor 91.8% 91.9% 92.5% 91.7%
Megawatt-hours produced 993,018 994,034 2,967,962 2,942,983
Capacity (net megawatts)(average) 490 490 490 490
The overall capacity factor of the Gas Projects reflects the effect of
contractual curtailments and maintenance scheduling. The capacity factors
adjusted for the contractual curtailments during the three months ended
September 30, 2002 and 2001 were 98.5% and 98.9%, respectively. The capacity
factors adjusted for the contractual curtailments during the nine months ended
September 30, 2002 and 2001 were 99.4% and 97.3%, respectively.
Interest and other income decreased to $2.3 million during the three months
ended September 30, 2002 from $3.6 million for the same period in 2001. Interest
and other income decreased to $7.2 million during the nine month's ended
September 30, 2002 from $10.6 million for the same period in 2001. The decreases
were primarily due to interest earned on past due balances from Edison in 2001.
Fuel expenses increased during the three months ended September 30, 2002 to
$30.4 million from $28.7 million for the same period in 2001. The increase
reflects increased production at the Gas Projects in 2002, partially offset by
lower gas prices at the Yuma Project. Fuel expenses decreased to $89.7 million
during the nine months ended September 30, 2002 from $95.1 million for the same
period in 2001. The decrease was primarily due to higher gas prices in 2001, at
the Yuma Project.
Plant operating expenses decreased during the three months ended September 30,
2002 to $33.1 million from $34.2 million for the same period in 2001. For the
nine month period ended September 30, 2002 operating expenses increased to
$101.6 million from $100.9 million for the same period in 2001. These costs
include operating, maintenance, resource, general and administrative and other
plant operating expenses. The expenses fluctuate primarily due to maintenance
schedules.
Depreciation and amortization decreased to $20.0 million during the three months
ended September 30, 2002 from $21.5 million for the same period in 2001. For the
nine month period ended September 30, 2002 depreciation and amortization
decreased to $62.4 million from $65.0 million in 2001. The decreases were due to
the discontinuation of goodwill amortization, resulting from the adoption of
SFAS No. 142, which totaled $2.4 million and $7.2 million for the three and nine
months ended September 30, 2001, respectively. This decrease was partially
offset by capital additions and miscellaneous equipment write-offs in 2002.
Interest expense decreased during the three months ended September 30, 2002 to
$19.0 million from $20.4 million for the same period in 2001. For the nine
months ended September 30, 2002 interest decreased to $58.1 million from $61.6
million for the same period in 2001. The decreases resulted from the paydown of
debt balances.
The provision for income taxes increased to $11.0 million during the three
months ended September 30, 2002 from $2.5 million for the same period in 2001.
For the nine month period ended September 30, 2002, the provision for income tax
decreased to $19.4 from $20.0 million for the same period in 2001. The effective
rate was 31.4% and 29.2% for the nine months ended September 30, 2002 and 2001,
respectively. The changes from year to year in the effective tax rate are due
primarily to the generation of energy tax credits and depletion deductions and
the discontinuance of non-deductible goodwill amortization in 2002.
Minority interest decreased to $5.3 million during the three months ended
September 30, 2002 from $5.5 million for the same period in 2001. For the nine
month period ended September 30, 2002, minority interest increased to $15.0
million from $11.7 million for the same period in 2001. The increase was the
result of higher fixed return payments to the minority interest partners in 2002
at the Saranac project.
Effective January 1, 2001, the Company changed its accounting policy for major
maintenance, overhaul and well workover costs. These costs, which had
historically been accounted for using deferral and accrual methods, are now
expensed as incurred. The cumulative effect of the change in accounting policy
represents a January 1, 2001 write off of prepaid and accrued major maintenance
and well workover balances of approximately $15.4 million, net of tax of
approximately $9.9 million in the three months ended March 31, 2001.
Net income increased to $24.8 million during the three months ended September
30, 2002 from $10.9 million for the same period in 2001. Net income increased to
$42.4 million during the nine months ended from $33.1 million for the same
period in 2002.
Related Party Transactions
Pursuant to the Administrative Services Agreement, MidAmerican Energy Holdings
Company ("MEHC") provides certain administrative and management services to CE
Generation, and MEHC's executive, financial, legal, tax and other corporate
staff departments perform certain services for CE Generation. Expenses incurred
by MEHC and allocated to CE Generation were estimated based on the individual
services and expense items provided. Allocated expenses totaled approximately
$.8 million for the three months and $2.7 million for the nine months ended
September 30, 2001, and are included in plant operations expense.
On August 1, 2002, the Administrative Services Agreement between MEHC and CE
Generation was amended to provide for a fixed monthly fee in lieu of certain
expenses, which were being allocated. The fixed fee, which is retroactive to
January 1, 2002 and ends December 2004, is $258,333 per month.
On September 29, 2000, Salton Sea Power L.L.C. ("Salton Sea Power") and CE Turbo
LLC ("CE Turbo") entered into an agreement to sell all available power from the
Salton Sea V Project and Turbo Project to El Paso Merchant Energy Company
("EPME"). Under the terms of the agreement, EPME purchased and sold available
power on behalf of Salton Sea Power and CE Turbo, into the California ISO
markets. The purchase price for the available power was equivalent to the value
actually received by EPME for the sale of such power, including renewable
premiums.
On January 17, 2001, Salton Sea Power and CE Turbo entered into a Transaction
Agreement to sell available power from the Salton Sea V Project and Turbo
Project to EPME. Under the terms of the agreement, at the option of Salton Sea
Power and CE Turbo, EPME purchased all available power from the Salton Sea V
Project and Turbo Project based on day ahead price quotes received from EPME.
On March 27, 2001 and May 1, 2001, the Imperial Valley Projects entered into
Transaction Agreements to sell available power to EPME based on percentages of
the Dow Jones SP-15 Index. On June 22, 2001, the Imperial Valley Projects
(excluding the Salton Sea V Project and Turbo Project) ceased selling available
power to EPME and resumed power sales to Edison under the PPAs. Effective
September 16, 2002 Salton Sea Power and CE Turbo entered into Transaction
Agreements to sell available power to EPME at increased percentages of the Dow
Jones SP-15 Index.
Pursuant to these agreements, sales to EPME from the Company totaled $2.7
million and $3.5 million for the three months ended September 30, 2002 and 2001,
respectively and $6.1 million and $29.9 million for the nine months ended
September 30, 2002 and 2001, respectively. As of September 30, 2002 and December
31, 2001, accounts receivable from EPME were $.7 million and $.9 million,
respectively.
Effective August 1, 2002, Salton Sea Power and CE Turbo amended their respective
power sale agreements with CalEnergy Minerals, LLC ("Minerals") to provide for a
fixed price of $31.00 per megawatt hour for all hours of August 1, 2002 through
December 31, 2002. Pursuant to these agreements, sales to Minerals from Salton
Sea Power totaled $.1 million and $.1 million for the three months ended
September 30, 2002 and 2001, respectively and $.2 million and $.9 million for
the nine months ended September 30, 2002 and 2001, respectively.
Liquidity and Capital Resources
Each of CE Generation's direct or indirect subsidiaries is organized as a legal
entity separate and apart from CE Generation and its other subsidiaries and
MEHC. Pursuant to separate project financing agreements, the assets of each
subsidiary (excluding the Yuma Project) are pledged or encumbered to support or
otherwise provide the security for their own project or subsidiary debt. It
should not be assumed that any asset of any subsidiary of CE Generation, will be
available to satisfy the obligations of CE Generation or any of its other
subsidiaries; provided, however, that unrestricted cash or other assets which
are available for distribution may, subject to applicable law and the terms of
financing arrangements for such parties, be advanced, loaned, paid as dividends
or otherwise distributed or contributed to CE Generation or affiliates thereof.
"Subsidiary" means all of CE Generation's direct or indirect subsidiaries (1)
owning direct or indirect interests in the Imperial Valley Projects (including
the Salton Sea Projects and the Partnership Projects other than Magma Power
Company and Salton Sea Power Company), or (2) owning direct interests in the
subsidiaries that own interests in the foregoing projects, the Saranac Project
and the Power Resources Project.
CE Generation generated cash flows from operations of $157.7 million for the
nine months ended September 30, 2002 compared with $144.9 million for the same
period in 2001. The increase was primarily due to the receipt of past due
balances from Southern California Edison ("Edison").
Cash flow used in investing activities was $26.6 million for the nine months
ended September 30, 2002 compared with cash used of $22.4 million for the same
period in 2001. Capital expenditures are the primary components of investing
activities.
Cash flow used in financing activities was $100.9 million for the nine months
ended September 30, 2002 compared with $41.6 million for the same period in
2001. The changes in cash flows from financing activities reflect the scheduled
debt repayments, a $14.4 million distribution in 2002 and a $35.0 million
deposit into the debt service reserve account in 2002.
Edison, a wholly-owned subsidiary of Edison International, is a public utility
primarily engaged in the business of supplying electric energy to retail
customers in Central and Southern California, excluding Los Angeles. Due to
reduced liquidity, Edison failed to pay approximately $119 million owed under
the power purchase agreements with the Imperial Valley Projects, (excluding the
Salton Sea V and Turbo Projects) for power delivered in the fourth quarter 2000
and the first quarter 2001. Due to Edison's failure to pay contractual
obligations, the Imperial Valley Projects (excluding the Salton Sea V and Turbo
Projects) had established an allowance for doubtful accounts of approximately
$21 million as of December 31, 2001.
The final payment of the past due amounts by Edison was received March 1, 2002.
Following the receipt of Edison's final payment of past due balances, the
Imperial Valley Projects released the remaining allowance for doubtful accounts.
As a result of uncertainties related to Edison, the letter of credit that
supports the debt service reserve fund at Salton Sea Funding Corporation has not
been extended beyond its current July 2004 expiration date, and as such, cash
distributions are not available to CE Generation until the Salton Sea Funding
Corporation debt service reserve fund of approximately $67.6 million has been
funded or the letter of credit has been extended beyond its July 2004 expiration
date or replaced.
In January 2001, the California Power Exchange ("PX") declared bankruptcy. As a
result, the Salton Sea V and Turbo Projects have not received payment for power
sold under the Transaction Agreements during December 2000 and January 2001 of
approximately $3.8 million. The Imperial Valley Projects have established an
allowance for doubtful accounts for the full amount of this receivable.
Edison has failed to pay approximately $3.9 million of capacity bonus payments
for the months from October 2001 through May 2002. On December 10, 2001 the
Imperial Valley Projects (excluding the Salton Sea I, Salton Sea V, and Turbo
Projects) filed a lawsuit against Edison in California's Imperial County
Superior Court seeking a court order requiring Edison to make the required
capacity bonus payments under the Power Purchase Agreements. Due to Edison's
failure to pay these contractual obligations, the Imperial Valley Projects have
established an allowance for doubtful accounts of approximately $1.3 million.
The Project entities are vigorously pursuing collection of the capacity bonus
payments.
Environmental Liabilities
The Company is subject to numerous legislative and regulatory environmental
protection requirements involving air and water pollution, waste management,
hazardous chemical use, noise abatement, and land use aesthetics.
State and federal environmental laws and regulations currently have, and future
modifications may have, the effect of (i) increasing the lead time for the
construction of new facilities, (ii) significantly increasing the total cost of
new facilities, (iii) requiring modification of the Company's existing
facilities, (iv) increasing the risk of delay on construction projects, (v)
increasing the Company's cost of waste disposal and (vi) reducing the
reliability of service provided by the Company and the amount of energy
available from the Company's facilities. Any of such items could have a
substantial impact on amounts required to be expended by the Company in the
future. Expenditures for ongoing compliance with environmental regulations that
relate to current operations are expensed or capitalized as appropriate.
Expenditures that relate to an existing condition caused by past operations, and
which do not contribute to current or future revenue generation, are expensed.
Liabilities are recorded when environmental assessments indicate that
remediation efforts are probable and the costs can be reasonably estimated.
Estimates of the liability are based upon currently available facts, existing
technology and presently enacted laws and regulations taking into consideration
the likely effects of inflation and other social and economic factors, and
include estimates of associated legal costs. These amounts also consider prior
experience in remediating sites, other companies' clean-up experience and data
released by the Environmental Protection Agency or other organizations. These
estimated liabilities are subject to revision in future periods based on actual
costs or new circumstances, and are included in the accompanying balance sheets
at their undiscounted amounts. As of September 30, 2002 and December 31, 2001,
the environmental liabilities recorded on the balance sheet were $2.3 million
and $4.2 million, respectively.
Inflation
Inflation has not had a significant impact on CE Generation's cost structure.
Quantitative and Qualitative Disclosure About Market Risk
There have been no material changes in the market risk from the information
provided in Item 7A Quantitative and Qualitative Disclosures About Market Risk
of the Company's Annual Report on Form 10-K for the year ended December 31,
2001.
Contractual Obligations and Commercial Commitments
There have been no material changes in the contractual obligations and
commercial commitments from the information provided in Item 7 of the Company's
Annual Report on Form 10-K for the year ended December 31, 2001 other than
scheduled debt repayments.
ITEM 4. CONTROLS AND PROCEDURES
The Company's chief executive officer and chief financial officer have
established "disclosure controls and procedures" (as defined in Rule 13a-14 (C)
and Rule 15d - 14(C) of the Securities and exchange Act of 1934) to ensure that
material information of the companies and their subsidiaries is made known to
them by others within the respective companies. Under their supervision, an
evaluation of the disclosure controls and procedures was performed within 90
days prior to the filing of this quarterly report. Based on that evaluation, the
above-mentioned officers have concluded that, as of the date of the evaluation,
the disclosure controls and procedures were operating effectively. Additionally,
the above-mentioned officers find that there have been no signification changes
in internal controls, or in other factors that could significantly affect
internal controls, subsequent to the date of that evaluation.
Part II Other Information.
Item I - Legal proceedings
Neither CE Generation nor its subsidiaries are parties to any material
legal matters except those described in Footnote 3 of CE Generation's financial
statements.
Item 2 - Changes in Securities
Not applicable.
Item 3 - Default on Senior Securities
Not applicable.
Item 4 - Submission of matters to a vote of Security Holders.
Not applicable.
Item 5 - Other information
Not applicable.
Item 6 - Exhibits and reports on Form 8-K
(a) Exhibits:
3.2.1 Amended and Restated Limited Liability Company Operating
Agreement of CE Generation, LLC
3.2.2 First Amendment to the Amended and Restated Limited Liability
Company Operating Agreement
(b) Reports on Form 8-K:
Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Omaha,
State of Nebraska, on this 14th day of November 2002.
CE Generation, LLC
/s/ Joseph M. Lillo
--------------------------------------
By: Joseph M. Lillo
Vice President and Controller
SECTION 302 CERTIFICATION FOR FORM 10-Q
CERTIFICATIONS
I, Edward J. Heinrich, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CE Generation, LLC;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Edward J. Heinrich
----------------------
Edward J. Heinrich
President
(chief executive officer)
SECTION 302 CERTIFICATION FOR FORM 10-Q
CERTIFICATIONS
I, Joseph M. Lillo, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CE Generation, LLC;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and b) any fraud, whether
or not material, that involves management or other employees who have a
significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Joseph M. Lillo
-------------------
Joseph M. Lillo
Vice President and Controller
(chief financial officer)