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 statements.

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

The accompanying notes to consolidated condensed financial statements
are an integral part of these 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 March 31, 2003 and for the three months ended March 31, 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 March 31, 2003, and the results of operations and cash flows for the three months ended March 31, 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 $247.5 million of outstanding obligations under Cogentrix Energy's Corporate Credit Facility (see Note 5) in October 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. In addition, the independent auditor's report which contains an explanatory paragraph related to a going concern uncertainty issued on the Company's December 31, 2002 audited consolidated financial stat ements created an event of default under the Corporate Credit Facility. There can be no assurances that the lenders to the Corporate Credit Facility will not accelerate and demand immediate payment of all amounts due as a result of the event of default. In the event the lenders to the Corporate Credit Facility accelerate the outstanding obligations, or if the Corporate Credit Facility matures and is not paid, this would create a cross-default under the Company's senior unsecured notes due 2004 and 2008, and the senior note holders would have the ability to accelerate the $394.7 million of senior notes outstanding as of March 31, 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. Additional liquidity could be provided through the sale of selected project assets (see Note 4 for additional discussion). There is no assurance that these so urces 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 $987.2 million as of March 31, 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 current liability in the accompanying consolidated balance sheets as of March 31, 2003 and December 31, 2002. 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 event 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 u ntil we can refinance the project loan agreements or provide a replacement conversion services or power purchase 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 agreements. 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 December 31, 2002) 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 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 three months ended March 31, 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 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, 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.

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 these expansion projects, including the costs to place this equipment in service, and has concluded that the undiscounted cash flows from these expanded facilities 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 - -Lived 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 set of turbines and HRSGs were 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 set of turbines and partially completed HRSGs continues to approximate fair value and no additional impairment charge is warranted as of March 31, 2003. As of March 31, 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 this equipment 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 eq uipment. 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 and Caledonia Facilities - The Company's project subsidiaries which own the Southaven and Caledonia facilities are currently in default of their respective project loan agreements 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 conversion services purchaser) as discussed in Note 5. In addition, NEG has experienced a financial downturn, is currently in default of various recourse loan obligations and is engaged in restructuring it loans and other agreements. NEG and certain of its subsidiaries may be compelled to seek protection or be forced into bankruptcy proceedings under the United States Bankruptcy Code. In the event our conversion services purchasers are brought into bankruptcy proceedings with NEG, significant doubt would arise as to their ability to meet the obligations under the conversion services agreements. As a result, the Co mpany has reassessed the use of theses facilities and, in the event the conversion services agreements are terminated, intends to operate these facilities as merchant plants. The Company has prepared a merchant cash flow model for each of these facilities and has concluded as of March 31, 2003 that the undiscounted cash flows from these facilities will be adequate to recover the carrying value of each facility's long-lived assets. Accordingly, under the provisions of SFAS No. 144, the carrying value of these long-lived assets is deemed to be recoverable, and no impairment charge is warranted as of March 31, 2003. In the event the conversion services agreements are terminated, the Company intends to operate these facilities as merchant plants (as of the March 31, 2003 assessment date - see additional discussion below regarding the Caledonia facility). However, the Company cannot provide any assurances that the actual cash flows from merchant plant operation will be adequate to recover the carrying value o f the facilities' long-lived assets. In the event the Company is unsuccessful, the carrying value of these long-lived assets 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.

          During April 2003, the Company commenced negotiations with the lender to the Caledonia facility to restructure the non-recourse loan agreement which could 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. In the event this occurs, the Company would realize a loss of approximately $39.0 million related to its net investment in the Caledonia project.

4.   Sale of Project Interest

          On April 11, 2003, Cogentrix of Oklahoma, Inc. ("Cogentrix of Oklahoma"), a wholly-owned, indirect subsidiary of Cogentrix Energy and sole member of Green Country Energy, LLC ("Green Country") entered into a purchase agreement whereby Cogentrix of Oklahoma will sell a 100% membership interest in Green Country to an indirect subsidiary of General Electric Capital Corporation ("GECC") (the "Purchase Agreement"). Green Country owns the 810-megawatt, combined-cycle, natural gas-fired electric generating facility near the city of Jenks, Oklahoma. In exchange for the membership interest, Cogentrix of Oklahoma will receive at closing a 10% interest in the GECC subsidiary purchaser and a base purchase price of $97.0 million. The base purchase price is subject to upward or downward adjustment for certain matters as defined in the Purchase Agreement with the final purchase price not exceeding $112.0 million. Approximately $28.0 million of the proceeds received by Cogentrix of Oklahoma will be pledged as a restricted escrow account to reimburse Green Country in the event certain funds held by Green Country are insufficient to satisfy potential obligations related to the Jenks LC litigations (see Note 6). The Company will continue to manage and operate the Jenks facility.

          Under the terms of the Purchase Agreement, Cogentrix of Oklahoma has also agreed to indemnify GECC for certain contingent losses or payments which Green Country may become obligated to pay. The primary indemnities relate to potential losses incurred as a result of the Jenks LC litigation or City of Jenks claims (see Note 6 for additional discussion), representations related to tax qualification of certain of the Jenks facility's plant and equipment, and failure of a wholly-owned subsidiary of Cogentrix Energy to provide certain spare parts and related services to Green Country. Cogentrix Energy has guaranteed certain of these indemnities. The Purchase Agreement is subject to meeting certain conditions including, but not limited to, obtaining certain consents and approvals and closing the refinancing of Green Country's existing credit facility. 'The Company has reached an agreement with a group of investors that includes the principal terms and c onditions on which they would refinance Green Country's existing credit facility. The Company must negotiate a definitive agreement with them, however, and satisfy a number of conditions to closing before the Company will be able to complete this refinancing. The Company cannot provide any assurances that the Company will be able to satisfy those conditions and complete this refinancing, which is a condition to closing the Purchase Agreement. The Company expects to close the refinancing and sale transaction during May 2003 and expects to record a gain of approximately $45.0 million to $50.0 million.

5.   Long-Term Debt Defaults

     Corporate Credit Facility Default

          The Company has an agreement with a syndicate of banks that provides up to $250.0 million of revolving credit through October 2003 in the form of direct advances or the issuance of letters of credit (the "Corporate Credit Facility"). As a result of the event of default discussed in Note 1, we are unable to borrow any additional funds or issue any additional letters of credit. In addition, 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. Since this event of default occurred, the lenders have provided the Company a limited waiver through May 31, 2003 that will allow the Company to continue to convert to borrowings any drawings under the outstanding letters of credit. Even though they have granted this limited waiver, the Company cannot provide assurances that the lenders to the Corporate Credit F acility will not choose nonetheless at any time to accelerate the obligations outstanding under the Corporate Credit Facility and demand immediate payment of all obligations outstanding.

     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 Southaven, Caledonia and Dominican Republic facilities' non-recourse project debt is callable and has been classified as a current liability in the accompanying consolidated balance sheets as of March 31, 2003 and December 31, 2002. The Company accounts for the Sterlington project using the equity method of accounting and 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 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 ass ets. Until the events of default under the applicable project loan agreements are cured, our 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 cure the events of default, refinance the project loan agreements or in the case of the Southaven, Caledonia 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 the project loan agreements or cure the events of default. The project lender to each facility is able to satisfy this obligation with the applicable project's assets (total assets of approximately $1.3 billion as of March 31, 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, t hese 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 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 construction 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 $757.5 million are callable and have been classified as a current liability on the consolidated balance sheets at March 31, 2003 and December 31, 2002. As a result of 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 or will trigger additional events of default under their non-recourse loan agreements during the second quarter of 2003.

          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 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 $7.2 million as of March 31, 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 that commenced commercial operations during March 2002, notified the power purchaser Corporación Dominicana de Electricidad ("CDE"), on several occasions of events of default under the power purchase agreement based on CDE's failure to pay amounts due for the sale of 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"). The Company exercised its rights under the pow er purchase agreement in October 2002 to suspend operation of this facility on a continuing basis pending payment of the Payment Defaults. As of March 31, 2003, CDE owed the Company approximately $38.3 million in amounts due for the sale of capacity and electricity. Net of approximately $4.3 million in payments received subsequent to March 31, 2003, Payment Defaults and SDR Defaults currently exist related to $34.0 million and $30.3 million, respectively, of amounts invoiced prior to March 31, 2003. The Payment Defaults and the SDR Defaults created events of default under the Dominican Republic facility's non-recourse project debt. 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 $229.7 million are callable and have been classified as a current liability on the consolidated bala nce sheets as of March 31, 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 will continue to attempt to collect amounts past due from CDE or the SDR and will continue to exercise all of the rights and remedies we have available to us under the power purchase agreement, the implementation agreement and the SDR guarantee, including terminating the power purchase agreement. The termination of this agreement would require a termination payment by CDE or the SDR equal to the outstanding amounts due plus the present value of future capacity payments and other termination costs as defined in the power purchase agreement. Because the obligation is unsecured, we cannot give any assurances that the Company will be able to collect the termination amount from CDE or the SDR.

          Due to the ongoing Payment Defaults and SDR Defaults, 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 additional event of default under the project loan agreement. The project lenders have the same rights and remedies as discussed above including terminating the power purchase agreement as a result of this additional event of default.

          Insurance Coverage Defaults - The Company's project subsidiary which owns the Jenks facility incurred an event of default during the quarter ended March 31, 2003 under their project loan agreement as a result of not being able to obtain the insurance coverage levels as required under the project loan agreement. The Company received a waiver for this event of default during March 2003.

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 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 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. Green Country's position is that it does not "sell" electricity to Exelon, and, even if the conversion services agreement is construed as a "s ale" of electricity, the sale is wholesale in interstate commerce and not a sale to a residential or commercial user. In regard to the pipeline capacity permit fee, the defendants have asserted that the pipelines are not located within the city's rights of way and, therefore, are not subject to the fee. If it were to be determined that the pipeline capacity permit fee is applicable, the calculation of the amount due to the City of Jenks would be problematic as the calculation is based upon the purchase price of gas, and Green Country does not purchase gas from Exelon. Although the Company believes that Green Country has meritorious defenses to these claims, a settlement agreement has been executed which provides for a one-time lump sum payment of $3.0 million, payable only upon closing of the Green Country refinancing and sale transaction (see Note 4), by Green Country to the City of Jenks which would satisfy all claims asserted against Green Country.

          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. The Company believes 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 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 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 Power"), an indirect, 50%-owned subsidiary of the Company, 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 United States Bankruptcy Court, Southern District of New York, in March 2003. The Company believes that Cogentrix Energy, Quachita Power and Cogentrix Ouachita Holdings, Inc. all have meritorious 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 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. The Company believes that Quachita Power has meritorious defenses to WestLB's claims and intends to contest them vigorously.

          Other Routine Litigation - In addition to the litigation described above, Cogentrix Energy 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 Cogentrix Energy, 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 periods ended March 31, 2003 and 2002, respectively (dollars in thousands):

8.   Reclassifications

          Certain amounts included in the accompanying consolidated condensed financial statements for the period ended March 31, 2002, have been reclassified from their original presentation to conform with the presentation for the period ended March 31, 2003.

Item 1.   Consolidated Condensed Financial Statements.

          The information called for by this item is hereby incorporated herein by reference to pages 3 through 13 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, 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 19 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 4,889 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 Ended March 31, 2003 and 2002

Three Months Ended March 31, 2003 as Compared to Three Months Ended March 31, 2002

     Operating Revenues

          Total operating revenues and income from unconsolidated investment in power projects increased 1.5% to $156.2 million for the quarter ended March 31, 2003 as compared to $153.9 million for the quarter ended March 31, 2002 as a result of the following:

     Operating Costs

          Total operating costs increased 12.9% to $78.1 million for the quarter ended March 31, 2003 as compared to $69.2 million for the quarter ended March 31, 2002 as a result of the following:

     General, Administrative and Development

         General, administrative and development expense decreased 54.0% to $6.9 million for the quarter ended March 31, 2003 as compared to $15.0 million for the quarter ended March 31, 2002 as a result of the following:

Liquidity and Capital Resources

     Consolidated Information

          The primary components of cash flows from operations for the three months ended March 31, 2003, were as follows (dollars in millions):

          Total cash flows from operations of $55.2 million and proceeds from borrowings of $75.6 million were used primarily to (dollars in millions):

     Parent Company Liquidity

          As of March 31, 2003, we had long-term debt (including the current portion thereof) of approximately $2.7 billion. With the exception of the $394.7 million of senior notes outstanding as of March 31, 2003, and $126.8 million in advances under the corporate credit facility as of March 31, 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 March 31, 2003, the Parent company, Cogentrix Energy, had approximately $11.3 million of unrestricted cash (and $35.6 million as of the date of this filing) and Cogentrix Delaware Holdings, Inc., a wholly-owned subsidiary of Cogentrix Energy and guarantor of all of Cogentrix Energy's senior, unsecured debt, had no 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 March 31, 2003, the Parent company received payments from its subsidiaries of $143.2 million related to dividends, management fees, tax payments and other fees. During the same period, the Parent company paid $37.0 million in corporate overhead and development charges and $41.1 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 issued under our corporate credit facility

          Our 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, unpaid construction liquidated damages owed by NEPCO at our Southaven facility and guarantees supporting our project subsidiaries' obligations under certain conversion services agreements. Aside from the $2.0 million in anticipated 2003 supplemental equity commitments for anticipated cost overruns at the Southaven facility, we do not expect these letters of credit will be drawn upon to fund any material amounts under these contingent contractual obligations. 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. Additional liquidity could be provided through the sale of selected project assets (see "- Sale of Interest in Our Jenks Facility"). We cannot assure you that these sources of cash will be available when needed or that our actual cash requirements will not be grea ter than we anticipate.

     Corporate Credit Facility

          We have an unsecured $250 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. At present, there are $140.6 million of borrowings and $106.9 million of letters of credit outstanding representing a total use of the commitment of $247.5 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 March 31, 2003, we could have experienced a reduction in the balance of shareholder's equity, prior to considering the amount of accumulated ot her comprehensive loss, of approximately $29.8 million and still have been in compliance with this covenant.

          The corporate credit facility matures in October 2003 at which time all outstanding obligations will become due and payable. We are currently negotiating to obtain a commitment letter 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 in October 2003 due to these uncertainties.

          As a result of the maturity of $247.5 million in obligations outstanding under our corporate credit facility in October 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. Until we cure this event of default, we will not be able to borrow any of the $2.5 million balance of commitments available or post any additional letters of credit under the credit facility. We also will not be able to make any restricted payments, a category that includes shareholder dividends and loans, or repay any of our other senior indebtedness prior to its scheduled maturity. Since this event of default occurred, the lenders have provided us with a limited waiver through May 31, 2003 that will allow us to continue to convert to borrowings, drawings under outstanding letters of credit issued to support the construction of our Southaven facility. Even though they have granted this limited waiver, we can make no assurances that the lenders to the corporate credit facility will not choose at any time to accelerate the obligations outstanding under the corporate credit facility and demand immediate payment of all obligations outstanding. 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. We are negotiating with the lenders for an extension of the limited waiver and a forbearance of their right to accelerate the obligations outstanding under the corporate credit facility.

     Facilities Under Construction