-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ELM3JXvQO24QR0DOZgCvmABB9/RjBLNrQ1o1oWqHTU/x1ODY6ZOmcNeigWr7o1Aa DZqBC+Vs0NphP3AuwszVmA== 0001047469-03-025016.txt : 20030724 0001047469-03-025016.hdr.sgml : 20030724 20030724141123 ACCESSION NUMBER: 0001047469-03-025016 CONFORMED SUBMISSION TYPE: 20-F/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20030724 FILED AS OF DATE: 20030724 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ABB LTD CENTRAL INDEX KEY: 0001091587 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT CONSULTING SERVICES [8742] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 20-F/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-16429 FILM NUMBER: 03800641 BUSINESS ADDRESS: STREET 1: PO BOX 8131 STREET 2: CH 8050 CITY: ZURICH SWITZERLAND STATE: V8 ZIP: 999999999 20-F/A 1 a2115058z20-fa.txt FORM 20-F/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 24, 2003 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 20-F/A (AMENDMENT NO. 1) / / REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-16429 ------------------------ ABB LTD (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) SWITZERLAND (JURISDICTION OF INCORPORATION OR ORGANIZATION) AFFOLTERNSTRASSE 44 CH-8050 ZURICH SWITZERLAND (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) Securities registered or to be registered pursuant to Section 12(b) of the Act: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - ----------------------------------------------------------- --------------------------------------------- AMERICAN DEPOSITARY SHARES, NEW YORK STOCK EXCHANGE EACH REPRESENTING ONE REGISTERED SHARE REGISTERED SHARES, PAR VALUE CHF 2.50 NEW YORK STOCK EXCHANGE*
- ------------------------------ * Listed on the New York Stock Exchange not for trading or quotation purposes, but only in connection with the registration of American Depositary Shares pursuant to the requirements of the Securities and Exchange Commission. Securities registered or to be registered pursuant to Section 12(g) of the Act: None. Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None. Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual: 1,200,009,432 Registered Shares ------------------------ 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 / / Indicate by check mark which financial statement item the registrant has elected to follow. Item 17 / / Item 18 /X/ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EXPLANATORY NOTE This Form 20-F/A is being filed by ABB Ltd ("ABB") as Amendment No. 1 to its Annual Report on Form 20-F filed on June 30, 2003 (the "Form 20-F") for the purpose of revising Exhibit 99.2 under Item 19 by: - deleting in their entirety the consolidated financial statements of Jorf Lasfar Energy Company S.C.A. ("JLEC"), an entity in which ABB owns a 50% interest, for the financial year ended December 31, 2002 included as Exhibit 99.2 to the Form 20-F; and - including as Exhibit 99.2 the restated consolidated financial statements of JLEC for the financial year ended December 31, 2002. In the JLEC financial statements that were included as Exhibit 99.2 to ABB's Form 20-F filed on June 30, 2003, JLEC had reflected its investment in certain direct financing leases on a gross basis. ABB has been advised that JLEC has restated its 2002 financial statements to properly present this lease-related information on a net basis. The impact of the restatement, as of December 31, 2002, was to increase JLEC's total current assets by approximately $52 million, reduce its total non-current assets by approximately $1,232 million, increase its total current liabilities by approximately $3 million and reduce its total non-current liabilities by approximately $1,183 million. The net assets of JLEC and its reported earnings are unaffected by the restatement. Pursuant to the requirements of Rule 4-08(g) under Regulation S-X, ABB provided summary financial information relating to JLEC in Note 13 to its 2002 consolidated financial statements contained in Item 18 of its Form 20-F. The restatement of the JLEC financial statements has not affected the carrying value of ABB's investment in JLEC, or the amount of earnings of JLEC recognized in ABB's consolidated financial statements. Consequently, ABB believes the revisions to the JLEC financial statements are immaterial to ABB. As ABB is not required to file the JLEC financial statements pursuant to Rule 3-09 under Regulation S-X and has elected to provide these financial statements solely for purposes of additional disclosure, ABB is filing the restated financial statements of JLEC as Exhibit 99.2 with this Form 20-F/A. This Form 20-F/A consists of a cover page, this explanatory note, Item 19 (as amended), the signature page, the required certifications of the chief executive officer and the chief financial officer of ABB and the revised Exhibit 99.2. Other than as expressly set forth above, this Form 20-F/A does not, and does not purport to, amend, update or restate the information in any other Item of the Form 20-F filed on June 30, 2003 or reflect any events that have occurred after the Form 20-F was filed on June 30, 2003. ITEM 19. EXHIBITS 1.1 Articles of Incorporation of ABB Ltd as amended to date.* 2.1 Form of Amended and Restated Deposit Agreement, by and among ABB Ltd, Citibank, N.A., as Depositary, and the holders and beneficial owners from time to time of the American Depositary Shares issued thereunder (including as an exhibit the form of American Depositary Receipt). Incorporated by reference to Exhibit (a)(i) to Post-Effective Amendment No. 1 on Form F-6 (File No. 333-13346) filed by ABB Ltd on May 7, 2001. 2.2 Form of American Depositary Receipt (included in Exhibit 2.1).
2 2.3 EMTN Amended and Restated Fiscal Agency Agreement, dated May 30, 2001, between ABB International Finance Limited, ABB Finance Inc., ABB Capital B.V., Banque Generale du Luxembourg S.A., The Chase Manhattan Bank and Banque Generale du Luxembourg (Suisse) S.A. Incorporated by reference to Exhibit 2.3 to the Annual Report on Form 20-F filed by ABB Ltd on June 27, 2002. 2.4 EMTN Deed of Covenant, dated March 10, 1993 by ABB International Finance N.V. Incorporated by reference to Exhibit 2.4 to the Annual Report on Form 20-F filed by ABB Ltd on June 27, 2002. 2.5 EMTN Deed of Covenant, dated March 10, 1993 by ABB Finance Inc. Incorporated by reference to Exhibit 2.5 to the Annual Report on Form 20-F filed by ABB Ltd on June 27, 2002. 2.6 EMTN Deed of Covenant, dated March 10, 1993 by ABB Capital B.V. Incorporated by reference to Exhibit 2.6 to the Annual Report on Form 20-F filed by ABB Ltd on June 27, 2002. The total amount of long-term debt securities of ABB Ltd authorized under any other instrument does not exceed 10% of the total assets of the ABB Group on a consolidated basis. ABB Ltd hereby agrees to furnish to the Commission, upon its request, a copy of any instrument defining the rights of holders of long-term debt of ABB Ltd or of its subsidiaries for which consolidated or unconsolidated financial statements are required to be filed. 4.1 Share Purchase and Settlement Agreement dated as of March 31, 2000 among ABB Ltd, ALSTOM and ABB ALSTOM POWER N.V., as amended. Incorporated by reference to Exhibit 4.1 to the Annual Report on Form 20-F filed by ABB Ltd on June 27, 2002. 4.2 Purchase Agreement, dated as of December 21, 1999, between ABB Handels-Und Verwaltungs AG, as Seller, and British Nuclear Fuels plc, as Purchaser, as amended. Incorporated by reference to Exhibit 4.2 to the Annual Report on Form 20-F filed by ABB Ltd on June 27, 2002. 4.3 $1,500,000 Multicurrency Revolving Facilities Agreement dated 17 December 2002 for ABB Ltd and Certain Subsidiaries of ABB Ltd, as Borrowers and Guarantors, arranged by Barclays Capital, Bayerische Hypo-und Vereinsbank AG, Credit Suisse First Boston and Salomon Brothers International Limited, with Credit Suisse First Boston acting as Facility Agent and Trustee.* 4.4 Amendment Agreement, dated 23 June 2003, relating to a Facility Agreement dated 17 December 2002, between ABB Ltd as Borrower and Obligor Agent and Credit Suisse First Boston as Facility Agent and Trustee.* 4.5 Sale and Purchase Agreement, dated 4 September 2002, between ABB Financial Services B.V., General Electric Capital Corporation and ABB Ltd.* 4.6 Amendment Agreement, dated 29 November 2002, between ABB Financial Services B.V., General Electric Capital Corporation and ABB Ltd.* 4.7 Employment Agreement of Jurgen Dormann, dated December 5, 2002.* 4.8 Employment Agreement of Peter Voser, dated November 21, 2001.* 4.9 Employment Agreement of Dinesh Paliwal, dated February 21, 2003.* 4.10 Employment Agreement of Peter Smits, dated November 1, 2001.* 4.11 Employment Agreement of Gary Steel, dated August 27, 2002.*
3 8.1 Subsidiaries of ABB Ltd as of December 31, 2002.* 10.1 Certification by the chief executive officer of ABB Ltd pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.** 10.2 Certification by the chief financial officer of ABB Ltd pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.** 99.1 Financial statements of Swedish Export Credit Corporation.* 99.2 Financial statements of Jorf Lasfar Energy Company S.C.A.
- ------------------------ * Filed with ABB's Annual Report on Form 20-F on June 30, 2003. ** This document is being furnished in accordance with SEC Release Nos. 33-8212 and 34-74551. 4 SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this amendment to the annual report on Form 20-F on its behalf. ABB LTD By: /s/ JURGEN DORMANN ----------------------------------------- Name: Jurgen Dormann Title: President, Chairman and Chief Executive Officer By: /s/ PETER VOSER ----------------------------------------- Name: Peter Voser Title: Executive Vice President and Chief Financial Officer
Date: July 24, 2003 CERTIFICATION I, Jurgen Dormann, certify that: 1. I have reviewed this annual report on Form 20-F of ABB Ltd; and 2. Based on my knowledge, this annual 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 annual report. Date: July 24, 2003 /s/ JURGEN DORMANN -------------------------------------------- Jurgen Dormann Chief Executive Officer
CERTIFICATION I, Peter Voser, certify that: 1. I have reviewed this annual report on Form 20-F of ABB Ltd; and 2. Based on my knowledge, this annual 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 annual report. Date: July 24, 2003 /s/ PETER VOSER -------------------------------------------- Peter Voser Chief Financial Officer
EX-10.1 3 a2115058zex-10_1.txt EXHIBIT 10.1 Exhibit 10.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Form 20-F for the year ended December 31, 2002, of ABB Ltd (the "Company") as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jurgen Dormann, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Jurgen Dormann ----------------------------- Jurgen Dormann Chief Executive Officer July 24, 2003 A signed original of this written statement required by Section 906 has been provided to ABB and will be retained by ABB and furnished to the Securities and Exchange Commission or its staff upon request. EX-10.2 4 a2115058zex-10_2.txt EXHIBIT 10.2 Exhibit 10.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Form 20-F for the year ended December 31, 2002, of ABB Ltd (the "Company") as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Peter Voser, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Peter Voser ----------------------------- Peter Voser Chief Financial Officer July 24, 2003 A signed original of this written statement required by Section 906 has been provided to ABB and will be retained by ABB and furnished to the Securities and Exchange Commission or its staff upon request. EX-99.2 5 a2115058zex-99_2.txt EXHIBIT 99.2 EXHIBIT 99.2 Jorf Lasfar Energy Company S.C.A JLEC CENTRALE THERMIQUE DE JORF LASFAR B P 99 SIDI BOUZID El JADIDA MOROCCO Tel : 212 23 34 53 71 Fax : 212 23 34 54 05 US GAAP FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002, 2001 AND 2000 - -------------------------------------------------------------------------------- R.C. n DEG. 86655 - Patente n DEG. 35511273 - Identification Fiscale (I.S TVA) n DEG. 1021595 JORF LASFAR ENERGY COMPANY INDEX TO FINANCIAL STATEMENTS
Page(s) ----------- Report of Independent Auditors 3 Balance Sheet as of December 31, 2002, 2001 and 2000 4 Statements of Income for the year ended December 31, 2002, 2001 and 2000 5 Statements of Stockholders' Equity for the year ended December 31, 2002, 6 2001 and 2000 Statements of Cash Flows for the year ended December 31, 2002, 2001 and 2000 7 Notes to US GAAP Financial Statements 8-20
Report of Independent Auditors To the Management Committee and Stockholders of Jorf Lasfar Energy Company S.C.A. B.P. 99 Sidi Bouzid El Jadida We have audited the accompanying balance sheets of Jorf Lasfar Energy Company as of December 31, 2002, 2001 and 2000, and the related statements of income, of stockholders' equity and of cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Jorf Lasfar Energy Company at December 31, 2002, 2001 and 2000, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Price Waterhouse Price Waterhouse Casablanca, Morocco February 7, 2003 Page 3 JORF LASFAR ENERGY COMPANY BALANCE SHEETS
December 31, 2002 December 31, 2001 December 31, 2000 ------------------ ------------------ ------------------ (000) U.S. Dollars (000) U.S. Dollars (000) U.S. Dollars ASSETS Current Assets Cash ................................................. $ 46,683 $ 67,106 $ 67,203 Inventories .......................................... 40,615 31,759 22,517 Accounts receivable .................................. 76,175 86,515 63,540 Prepayments .......................................... 10,431 4,477 5,455 Net investment in direct financing leases 51,504 77,362 81,776 Other ................................................ - - 191 ------------------ ------------------ ------------------ Total current assets ........................... 225,408 267,219 240,682 Long Term Assets, net Restricted cash ...................................... 53,778 17,140 - Fixed Assets ......................................... 6,554 6,284 - Net investment in direct financing leases 1,053,057 1,026,152 1,121,934 Other long term assets ............................... 10,968 9,445 1,576 ------------------ ------------------ ------------------ Total long term assets ......................... 1,124,357 1,059,021 1,123,510 ------------------ ------------------ ------------------ Total assets ................................... $ 1,349,765 $ 1,326,240 $ 1,364,192 ================== ================== ================== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable to third parties .................... $ 25,498 $ 34,764 $ 55,465 Accounts payable to related parties .................. 145,065 74,704 10,902 Current part of long-term loans in US Dollars ........ 25,749 24,873 18,436 Current part of long-term loans in Euro .............. 36,855 31,167 24,543 Other current liabilities ............................ 18,370 8,426 21,689 ------------------ ------------------ ------------------ Total current liabilities ...................... 251,537 173,934 131,035 Non-Current Liabilities Long-term loans in US Dollars ........................ 238,174 251,667 227,167 Long-term loans in Euro .............................. 340,912 319,457 322,168 Deferred tax liability ............................... 13,005 6,097 - Derivative instrument liability ...................... 21,410 10,665 - Unfunded pension obligation 5,693 - - ------------------ ------------------ ------------------ Total non-current liabilities .................. 619,194 587,886 549,335 Commitment and Contingencies Stockholders' Equity Common stock ......................................... 58 58 58 Convertible stockholders' securities ................. 201,425 201,425 387,355 Preferred stock ...................................... 185,930 185,930 - Retained earnings .................................... 113,031 187,672 296,409 Accumulated other comprehensive loss ................. (21,410) (10,665) - ------------------ ------------------ ------------------ Total stockholders' equity ..................... 479,034 564,420 683,822 ------------------ ------------------ ------------------ Total liabilities and stockholders' equity ..... $ 1,349,765 $ 1,326,240 $ 1,364,192 ================== ================== ==================
The accompanying notes are an integral part of these financial statements. Page 4 JORF LASFAR ENERGY COMPANY STATEMENTS OF INCOME FOR THE YEARS ENDED
December 31, 2002 December 31, 2001 December 31, 2000 ------------------ ------------------ ------------------ (000) U.S. Dollars (000) U.S. Dollars (000) U.S. Dollars REVENUE Lease revenue from direct financing leases ................. $ 183,542 $ 195,224 $ 146,153 Energy ..................................................... 130,446 116,709 70,487 Operations and maintenance ................................. 42,930 38,809 24,981 Other 7,354 6,554 4,968 ------------------ ------------------ ------------------ TOTAL REVENUE 364,272 357,296 246,589 Operating Expenses Coal Cost .................................................. 126,957 115,066 69,180 Fuel oil cost .............................................. 911 753 586 Operations and maintenance ................................. 30,484 20,329 21,775 Operator's incentive ....................................... 3,721 2,099 1,411 Generator costs ............................................ 11,397 12,547 6,583 Amortization of major maintenance .......................... 1,128 470 - Depreciation of fixed assets ............................... 1,624 261 - ------------------ ------------------ ------------------ TOTAL OPERATING EXPENSES 176,222 151,525 99,535 OPERATING INCOME 188,050 205,771 147,054 Financial Items Financial income ........................................... 1,764 4,735 1,319 Exchange gain (loss) ....................................... (1,558) 8,197 229 Financial expenses ......................................... (44,834) (50,617) (22,437) ------------------ ------------------ ------------------ TOTAL FINANCIAL ITEMS (44,628) (37,685) (20,889) INCOME BEFORE TAXES 143,422 168,086 126,165 Income taxes Current .............................................. 4,226 603 8,580 Deferred ............................................. 6,908 6,097 (88) ------------------ ------------------ ------------------ NET INCOME $ 132,288 $ 161,386 $ 117,673 ================== ================== ==================
The accompanying notes are an integral part of these financial statements. Page 5 JORF LASFAR ENERGY COMPANY STATEMENT OF STOCKHOLDERS' EQUITY
COMMON STOCK 2002 2001 2000 2002 2001 2000 ---- ---- ---- ---------- ---------- ---------- NUMBER OF SHARES (000) U.S. DOLLARS At beginning and end of period 5,500 5,500 5,500 $ 58 $ 58 $ 58 CONVERTIBLE STOCKHOLDERS' SECURITIES At beginning of period 201,425 387,355 - Conversion of the Company Loan to Convertible Stockholder's Securities - 387,355 Conversion of Convertible Stockholder's Securities to Preferred Stock - -185,930 0 ---------- ---------- ---------- At end of period 201,425 201,425 387,355 PREFERRED STOCK At beginning of period 185,930 - - Conversion of Convertible Stockholder's Securities to Preferred Stock - 185,930 - ---------- ---------- ---------- At end of period 185,930 185,930 - RETAINED EARNINGS (DEFICIT) At beginning of period 187,672 296,409 178,736 Net income 132,288 161,386 117,673 Common stock dividend declared -184,891 -270,123 - Preferred stock dividend declared -9,942 - - Dividend on convertible stockholders' securities -12,096 - - ---------- ---------- ---------- At end of period 113,031 187,672 296,409 OTHER COMPREHENSIVE INCOME (LOSS) (a) Derivative Instruments At beginning of period -10,665 - - Reclassification of gains (losses) included in net income 2,950 699 - Unrealized gain (loss) on derivative instruments -13,695 -11,364 - ---------- ---------- ---------- At end of period -21,410 -10,665 - ---------- ---------- ---------- 479,034 564,420 683,822 ========== ========== ========== (a) Disclosure of Comprehensive Income (Loss) Net income $ 132,288 $ 161,386 $ 117,673 Derivative instruments Reclassification of gains (losses) in net income 2,950 699 - Unrealized gain (loss) on derivative instruments -13,695 -11,364 - ---------- ---------- ---------- Total Comprehensive Income $ 121,543 $ 150,721 $ 117,673 ========== ========== ==========
The accompanying notes are an integral part of these financial statements. Page 6 JORF LASFAR ENERGY COMPANY STATEMENT OF CASH FLOWS FOR THE YEARS ENDED
December 31, 2002 December 31, 2001 December 31, 2000 ------------------ ------------------ ------------------ (000) U.S. Dollars (000) U.S. Dollars (000) U.S. Dollars CASH FLOWS FROM OPERATING ACTIVITIES Payments received from ONE ................................ $ 471,044 $ 411,872 $ 240,827 Interest received ......................................... 1,748 4,543 1,286 Insurance payments ........................................ (5,665) (7,104) 1,389 Payments of operating costs ............................... (261,641) (228,771) (93,587) Cash effect of value added tax ............................ (321) 4,430 9,236 ------------------ ------------------ ------------------ Net cash provided by operating activities ............ 205,165 184,970 159,151 CASH FLOWS USED FOR INVESTING ACTIVITIES Net (increase) in restricted cash (36,638) (17,140) - Acquisition of fixed assets ............................... (3,957) (5,501) (80,121) Payment of project costs .................................. -93 (21,504) (20,693) ------------------ ------------------ ------------------ Net cash (used in) investing activities .............. (40,688) (44,145) (100,814) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from loans ....................................... - 92,589 44,152 Repayment of loans ........................................ (57,964) (41,961) - Payment of financing costs ................................ - - (52,661) Payment of dividend ....................................... (132,114) (189,600) - ------------------ ------------------ ------------------ Net cash (used in) financing activities .............. (190,078) (138,972) (8,509) Effect of exchange rate changes on cash ................... 5,178 (1,950) (450) CASH AT BEGINNING OF PERIOD ..................................... 67,106 67,203 17,825 NET (DECREASE) INCREASE IN CASH ................................. -20,423 -97 49,378 ------------------ ------------------ ------------------ CASH AT END OF PERIOD ........................................... $ 46,683 $ 67,106 $ 67,203 ================== ================== ================== SUPPLEMENTAL CASH FLOWS INFORMATION Cash paid during the year- Interest 56,054 45,486 52,671 Income taxes 5,150 6,173 -
The accompanying notes are an integral part of these financial statements. Page 7 JORF LASFAR ENERGY COMPANY NOTES TO US GAAP FINANCIAL STATEMENTS 1. GENERAL a. BACKGROUND The power station at Jorf Lasfar is located on the Atlantic coast of Morocco, adjacent to the Port of Jorf Lasfar, in the Province of El Jadida. This location is approximately 127 km south--west of Casablanca. Units 1 and 2 of the power station were constructed by GEC Alstom for the Moroccan Electricity Company, Office National de l'Electricite ("ONE"), and are in commercial operation. Each of these existing Units is 330 MW, fired by coal. In October of 1994, the ONE issued a public tender for international companies to expand the power station at Jorf Lasfar. In February of 1995, the ONE selected the "Consortium" of ABB Energy Ventures and CMS Generation Company as the preferred bidder and exclusive partner for negotiation. In April of 1996, the Consortium and ONE reached agreement in principle, and initialed the necessary Project Agreements. b. ESTABLISHMENT In order to officially conclude and implement these Project Agreements, the Consortium established the Jorf Lasfar Energy Company (the "Company" or "JLEC") on January 20, 1997. The Company was established as a limited partnership ("societe en commandite par actions") in accordance with the Laws of the Kingdom of Morocco, with Commercial Registration Number 86655, Fiscal Identification Number 1021595, and Patente Number 35511274. In accordance with its charter documents, the Company's objective and purpose was to construct, operate, manage and maintain the power station at Jorf Lasfar, including the development, financing, engineering, design, construction, commissioning, testing, operation and maintenance of two (2) new coal-fired Units, which are very similar in size and technology to the previously existing Units. In order to secure its fuel supply the Company also operates and maintains the coal-unloading pier in the Port of Jorf Lasfar. For these activities, the Company received a "right of possession" ("droit de jouissance") for the Site, the existing Units, the new Units and coal unloading pier. This "right of possession" will continue for the duration of the Project Agreements, which is anticipated to be from 15 to 30 years. c. COMPANY LOAN, TRANSFER OF POSSESSION, PROJECT FINANCING AND INITIAL DISBURSEMENT On September 12, 1997, all Project Agreements were signed, the Company Loan Agreement was executed and the first disbursement of the Company Loan was used to pay the Transfer of Possession Agreement (TPA) fee to ONE, amounting to US$ 263,158,000. As a consequence, JLEC received possession of the power station at Jorf Lasfar on September 13, 1997, and began to sell its available capacity and net generation to ONE. All remaining requirements for project financing were completed in November, and initial disbursement of the Project Loans occurred on November 25, 1997. d. CONSTRUCTION, COMMERCIAL OPERATION, PURCHASE OF COMPANY LOAN AND REPAYMENT OF PROJECT LOANS After a period of construction lasting 33 months and 41 months, Unit 3 and 4 began normal commercial operation on June 9, 2000, and February 2, 2001, respectively. Consequently, the JLEC shareholders converted 100% of the Company Loan Notes on December 11, 2000 in equity, and JLEC began the repayment of all Project Loans on May 15, 2001. After JLEC completes the repayment of all Project Loans ( which is scheduled for February 15, 2013), ONE has the option to pay JLEC a Termination Amount of US$ 229,544,000, and then terminate all Project Agreements and retake possession of the Site and power station at Jorf Lasfar. The Termination Amount declines from US$ 220,076,000 in 2013 to zero in 2027. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. BASIS OF PREPARATION OF FINANCIAL STATEMENTS The Company's books and records are maintained using the historical cost convention. The accounting and reporting policies of the Company are in accordance with the accounting principles generally accepted in Morocco, which are called "Code General de Normalisation Comptable" or "CGNC". These financial statements reflect all adjustments necessary to comply with accounting principles generally accepted in the United States. Page 8 JORF LASFAR ENERGY COMPANY NOTES TO US GAAP FINANCIAL STATEMENTS b. REVENUE RECOGNITION On September 12, 1997, the Company and the Office National de L'Electricite (ONE) executed a set of contracts related to the power station at Jorf Lasfar. In accordance with Statement of Financial Accounting Standard (SFAS) No. 13, these contracts are accounted for as a direct financing lease. JLEC ( the "Lessor") is entitled to receive a stream of payments from ONE (the "Lessee") through September 2013, the date at which ONE can repurchase the facility through the payment of the Termination Amount, as defined. LEASE REVENUE FROM DIRECT FINANCING LEASES is based on the accretion of the unearned income in the direct financing leases (See Note 12.) over the lease term using the interest method. ENERGY REVENUES are recognized for the sale of energy to ONE when delivered. OPERATIONS AND MAINTENANCE REVENUES are earned based on the terms of the contracts. The revenues provide for the recovery of these costs incurred by JLEC to meet the contract requirements, including a profit mark-up. Revenues are recognized upon the sale of energy to ONE. c. INVENTORIES The Company accounts for inventories by applying the FIFO or average cost method to each item on a lower of market value or cost. d. FOREIGN CURRENCY TRANSACTIONS The books and records of the Company for U.S. GAAP are maintained in U.S. Dollars, which is both the reporting and functional currency. Transactions in other currencies are translated to U.S. Dollars at the spot rate. Monetary assets and monetary liabilities outstanding in foreign currencies on balance sheet dates are translated into U.S. Dollars at rates prevailing on such balance sheet dates. Exchange gains and losses on those foreign currency operations are included in determining net income for the period in which exchange rates change. e. CORPORATE TAX Current Income tax is determined under Moroccan Income tax rules. In 1997, JLEC signed a "Tax incentive" convention with the Moroccan tax authorities. The main principals of this convention are summarized below: - - Income is subject to corporate tax and "Produit de Solidarite National" tax (PSN) - - PSN tax rate is 8.75% and is not subject of any tax holiday. - - Income tax holiday period is ten years - - income tax holiday period starts on the "commercial operation date" for each unit - - income tax holiday is 100% during the first five-year period then at 50% of the income tax rate during the second five-year period - - income not related to the sale of electricity is subject to a tax rate of 35% The "commercial operation date" for units 1 and 2, unit 3 and unit 4 were September 1997, June 2000 and February 2001, respectively. On September 12, 2002, income related to units 1 and 2 became taxable at 17.5%. Unit 3 and Unit 4 are still in the tax holiday period. The PSN tax was eliminated on January 1, 2001. Page 9 JORF LASFAR ENERGY COMPANY NOTES TO US GAAP FINANCIAL STATEMENTS f. DEFERRED INCOME TAX Starting September 13, 2002, JLEC tax rate on Units 1&2 is 17.5%. JLEC records current income tax as required by tax rules. JLEC uses the liability method in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is established if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. The difference between the statutory income tax rate of 35% and the effective income tax relates primarily to the effect of the tax holiday for fiscal years ended December 31, 2002 and 2001 and to the effect of the tax holiday and the PNS for the fiscal year ended December 31, 2000. The principal temporary difference results from the use of the direct financing lease method under US GAAP. In particular, the treatment of the net investment and revenue recognition (as disclosed in note 2.b above) under US GAAP are different from the treatment of these items under tax rules. The total of all the deferred tax liabilities is US$13,005,298 as of December 31, 2002 and $6,097,093 for 2001. g. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Actual result could differ from these estimates and assumptions. h. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of cash and restricted cash approximates fair value because of the short-term maturity of these instruments. The fair value of long term debt has been estimated based on the discounted value of future cash flows for non quoted instruments using the interest rates obtained by JLEC for instruments with similar conditions and maturities. The carrying value and the fair value of long-term debt as of December 31 are as follows:
2002 2001 2000 US$ US$ US$ ------------- ----------------------------- Carrying value 641,690 627,164 592,314 Fair value 669,709 652,250 610,083
3. CASH 3.1 Cash The Company's cash as of December 31 includes the initial capital deposits of the Company's stockholders, as explained further in Note 11 . Such cash is held in Moroccan Dirhams. The remainder of JLEC's cash is held by the Offshore Collateral Agent, Deutsche Bank Trust Company Americas in US$ and Euro, and by the Onshore Collateral Agent, BMCI - Banque Marocaine pour le Commerce et l'Industrie in Morocain Dirhams and US$. The cash balances includes the following categories:
2002 2001 2000 US$ US$ US$ ------------- ----------------------------- Off-shore Revenue in US$ 22,666,875 36,223,422 53,051,958 Off-shore Revenue in Euro 5,331,124 5,000,414 80,376 ------------- ----------------------------- Total Off-Shore Revenue 27,997,999 41,223,836 53,132,334 On-shore O&M Account - Generator 793,293 2,899,102 2,023,823 On-shore O&M Account - Operator 3,258,836 2,298,642 2,376,961 Off-shore O&M Accounts 10,607 8,464 7,231 ------------- ----------------------------- Total O&M Accounts 4,062,736 5,206,208 4,408,015 Fuel & Spare Part Accounts 5,289,381 12,080,028 7,197,326 On-shore Construction Accounts - 1,100,363 2,276,433 Off-shore Construction Accounts - - 90,005 Company Loan Accrual Account - - 42,085 Off-shore Debt Service Accrual Accounts in US$ 3,843,187 3,540,479 - Off-shore Debt Service Accrual Accounts in Euro 5,433,301 3,898,143 - ------------- ----------------------------- Total Debt Service Accrual Accounts 9,276,488 7,438,622 - Stockholder capital deposits 56,624 56,624 56,624 ------------- ----------------------------- Total 46,683,228 67,105,681 67,202,822 ============= =============================
Page 10 JORF LASFAR ENERGY COMPANY NOTES TO US GAAP FINANCIAL STATEMENTS 3.2 Restricted Cash
The Reserve Accounts are as follow : 2002 2001 2000 US$ US$ US$ ------------- ---------------------------- Major Maintenance Reserve Account in US$ 2,500,000 5,000,000 - Fixed O&M Reserve Account in US$ 4,800,000 9,600,000 - Debt Service Reserve Account in US$ 11,730,000 730,000 - Super Reserve Account in US$ 18,100,000 - - ------------- ---------------------------- Off-shore Reserve Accounts in US$ 37,130,000 15,330,000 - Fixed O&M Reserve Account in Euro 197,262 161,372 - Debt Service Reserve Account in Euro 16,450,805 1,649,031 - ------------- ---------------------------- Off-shore Reserve Accounts in Euro 16,648,067 1,810,403 - ------------- ---------------------------- Total Reserve Accounts 53,778,067 17,140,403 - ============= ============================
3.3 Total Cash
2002 2001 2000 US$ US$ US$ ------------- ----------------------------- Cash 46,683,228 67,105,681 67,202,822 Restricted Cash in Reserve Accounts 53,778,067 17,140,403 - ------------- ----------------------------- 100,461,295 84,246,084 67,202,822 ============= =============================
3.4 Letters of Credit Additional liquidity is available, if needed for debt service, from Sponsor (CMS and ABB) Letters of Credit in the following accounts as of December 31, 2002: a. Major Maintenance Reserve Account US$ 2,500,000 b. Fixed O&M Reserve Account US$ 4,800,000 c. Debt Service Reserve Account US$ 11,300,000 d. Super Reserve Account US$ 47,900,000 e. Debt Service Reserve Account Euro 15,000,000
4. INVENTORIES Inventories as of December 31 are detailed as follows :
2002 2001 2000 US$ US$ US$ ------------- ----------------------------- Stock of Coal 22,499,748 23,305,684 30,456,351 Stock of Fuel-oil 2,078,600 2,988,752 1,625,767 Stock of Spare Parts 15,081,606 4,952,377 - Other 954,692 512,445 434,716 ------------- ----------------------------- 40,614,646 31,759,259 32,516,834 ============= =============================
5. ACCOUNTS RECEIVABLE Accounts Receivable as of December 31 are detailed as follows :
2002 2001 2000 US$ US$ US$ ------------- ----------------------------- Account receivable - ONE 76,098,673 85,811,099 63,416,998 Account receivable - other 76,097 704,024 122,976 ------------- ----------------------------- 76,174,770 86,515,123 63,539,974 ============= =============================
Page 11 JORF LASFAR ENERGY COMPANY NOTES TO US GAAP FINANCIAL STATEMENTS 6. PREPAYMENTS Prepayments as of December 31 are detailed as follows :
2002 2001 2000 US$ US$ US$ -------------------------------------------- Prepaid insurance 3,582,404 3,822,746 1,942,019 Prepayments for income tax 5,194,869 - - Other prepayments 1,653,537 653,896 3,513,054 -------------------------------------------- 10,430,810 4,476,642 5,455,073 ============================================
7. OTHER LONG TERM ASSETS Other long term assets as of December 31 are as follows :
2002 2001 2000 US$ US$ US$ -------------------------------------------- Long term receivables loan 2,754,540 2,016,161 1,575,678 Long term ash disposal site 1,913,308 - - Capitalized major maintenance 7,898,850 7,898,850 - Less : accumulated amortization -1,598,577 -470,170 - -------------------------------------------- 10,968,121 9,444,841 1,575,678 ============================================
JLEC has a long term major maintenance schedule for each of its 4 units. The cost of major maintenance is capitalized and amortized over the estimated useful life of the investment, which for the turbine overhauls is 7 years (84 months). 8. ACCOUNTS PAYABLE TO THIRD PARTIES Account Payable to Third Parties includes the main suppliers of JLEC as of December 31 and are detailed as follows:
2002 2001 2000 US$ US$ US$ -------------------------------------------- Billiton (coal supplier) 4,119,817 16,060,510 6,916,220 Anglo (coal supplier) 2,245,218 5,281,412 - Total (coal supplier) - 2,267,178 - RAG Trading (coal supplier) 4,499,958 - - Glencore 2,187,744 - - Consol (coal supplier) - - 5,033,586 Guasare (coal supplier) - - 2,359,559 Alstom Power 2,845,357 2,607,834 1,283,788 ONE 2,767,010 3,547,774 9,601,292 Other suppliers 6,832,615 4,999,250 30,271,318 -------------------------------------------- 25,497,719 34,763,958 55,465,763 ============================================
9. RELATED PARTY TRANSACTIONS During 2002, related party transactions consisted of the following:
ABB ABB CMS CMS CMS EV MAROC MOPCO MOPCO RD & GEN Total - -------------------------------------------------------------------------------------------------------------------------------- Currencies US$ MAD MAD MAD US$ US$ - -------------------------------------------------------------------------------------------------------------------------------- Acc. Payable 12/31/01 137,581 78,576 7,726,314 44,598,493 76,753 - -------------------------------------------------------------------------------------------------------------------- Management Fees 35,654,033 Incentive Accrual 46,253,517 Other 207,059 778,086 -6,139,521 114,510 - -------------------------------------------------------------------------------------------------------------------- Total Payments 2002 238,876 730,782 38,693,220 44,598,665 108,577 - -------------------------------------------------------------------------------------------------------------------- Acc. Payable 12/31/02 105,764 125,880 -1,452,394 46,253,345 82,686 - -------------------------------------------------------------------------------------------------------------------------------- Acc. Pay. in US$ 12/31/02 105,764 12,345 -142,433 4,535,976 82,686 4,594,337 - --------------------------------------------------------------------------------------------------------------------------------
Jorf Lasfar Jorf Lasfar Energiaktie- Power Jorf Lasfar Common Stock bolag Energy AB Handels-bolag - ------------------------------------------------------------------------------------- Currencies MAD MAD MAD - ------------------------------------------------------------------------------------- Acc. Payable 12/31/01 202,826,993 186,600,834 16,226,160 - ------------------------------------------------------------------------------------- Dividend Payable Oct 29, 2002 495,000,000 455,400,000 39,600,000 - ------------------------------------------------------------------------------------- Total Payments 2002 477,660,429 439,447,594 38,212,834 - ------------------------------------------------------------------------------------- Acc. Payable 12/31/02 220,166,565 202,553,239 17,613,325 - ------------------------------------------------------------------------------------- B/S FX Rate MAD/USD 10.20 10.20 10.20 - ------------------------------------------------------------------------------------- Acc. Pay. in US$ 12/31/02 21,591,308 19,864,003 1,727,305 - ------------------------------------------------------------------------------------- Tre Kronor Common Stock Investment AB AB Cythere 61 AB Cythere 63 Total - ---------------------------------------------------------------------------------------------- Currencies MAD MAD MAD MAD - ---------------------------------------------------------------------------------------------- Acc. Payable 12/31/01 16,226,160 885,063 388,542,764 811,307,973 - ---------------------------------------------------------------------------------------------- Dividend Payable Oct 29, 2002 39,600,000 2,160,000 948,240,000 1,980,000,000 - ---------------------------------------------------------------------------------------------- Total Payments 2002 16,144,045 880,600 386,583,232 1,358,928,734 - ---------------------------------------------------------------------------------------------- Acc. Payable 12/31/02 39,682,115 2,164,464 950,199,532 1,432,379,240 - ---------------------------------------------------------------------------------------------- B/S FX Rate MAD/USD 10.20 10.20 10.20 10.20 - ---------------------------------------------------------------------------------------------- Acc. Pay. in US$ 12/31/02 3,891,548 212,265 93,184,224 140,470,652 - ---------------------------------------------------------------------------------------------- -------------- Total Accounts Payable to Related Parties 145,064,989 --------------
Page 12 JORF LASFAR ENERGY COMPANY NOTES TO US GAAP FINANCIAL STATEMENTS 9. RELATED PARTY TRANSACTIONS (CONTINUED) During 2001, related party transactions consisted of the following:
ABB ABB ABB ABB CMS CMS CMS EV Secheron Secheron MAROC MOPCO MOPCO RD & GEN Total - ---------------------------------------------------------------------------------------------------------------------------- Currencies US$ DEM CHF MAD MAD MAD US$ US$ - ---------------------------------------------------------------------------------------------------------------------------- Acc. Payable 12/31/00 43,545 - - - 16,747,904 96,757,074 200,667 - ------------------------------------------------------------------------------------------------------------- Management Fees 35,287,098 Incentive Accrual 44,314,093 Other 331,716 375,000 25,200 469,461 -5,873,718 471,870 - ------------------------------------------------------------------------------------------------------------- Total Payments 2001 237,679 375,000 25,200 390,885 38,434,970 96,472,673 595,784 - ------------------------------------------------------------------------------------------------------------- Acc. Payable 12/31/01 137,581 - - 78,576 7,726,314 44,598,493 76,753 - ---------------------------------------------------------------------------------------------------------------------------- Acc. Pay. in US$ 12/31/01 137,581 - - 6,777 666,349 3,846,356 76,753 4,733,816 - ----------------------------------------------------------------------------------------------------------------------------
Jorf Lasfar Jorf Lasfar Tre Kronor AB Cythere Energiaktie- Power Investment 63 bolag Energy AB AB - -------------------------------------------------------------------------------------------------- Currencies MAD MAD MAD MAD - -------------------------------------------------------------------------------------------------- Dividend Payable Apr 24, 2001 790,200,000 412,500,000 379,500,000 33,000,000 - -------------------------------------------------------------------------------------------------- Dividend Payable Oct 29, 2001 650,598,000 339,625,000 312,455,000 27,170,000 - -------------------------------------------------------------------------------------------------- Total Payments 2001 1,052,255,236 549,298,007 505,354,166 43,943,841 - -------------------------------------------------------------------------------------------------- Acc. Payable 12/31/01 388,542,764 202,826,993 186,600,834 16,226,160 - -------------------------------------------------------------------------------------------------- B/S FX Rate MAD/USD 11.60 11.60 11.60 11.60 - -------------------------------------------------------------------------------------------------- Acc. Pay. in US$ 12/31/01 33,509,510 17,492,626 16,093,216 1,399,410 - -------------------------------------------------------------------------------------------------- Jorf Lasfar Handels- AB Cythere bolag 61 Total - ------------------------------------------------------------------------------------------------ Currencies MAD MAD MAD - ------------------------------------------------------------------------------------------------ Dividend Payable Apr 24, 2001 33,000,000 1,800,000 1,650,000,000 - ------------------------------------------------------------------------------------------------ Dividend Payable Oct 29, 2001 27,170,000 1,482,000 1,358,500,000 - ------------------------------------------------------------------------------------------------ Total Payments 2001 43,943,841 2,396,937 2,197,192,027 - ------------------------------------------------------------------------------------------------ Acc. Payable 12/31/01 16,226,160 885,063 811,307,973 - ------------------------------------------------------------------------------------------------ B/S FX Rate MAD/USD 11.60 11.60 11.60 - ------------------------------------------------------------------------------------------------ Acc. Pay. in US$ 12/31/01 1,399,410 76,331 69,970,502 - ------------------------------------------------------------------------------------------------ --------------- 74,704,318 ---------------
During 2000, related party transactions consisted of the following:
ABB ABB ABB ABB EV Secheron Secheron Trafo - -------------------------------------------------------------------------------------------------- Currencies US$ DEM CHF DEM - -------------------------------------------------------------------------------------------------- Acc. Payable 12/31/99 29,636 - - - - -------------------------------------------------------------------------------------------------- Management Fees 21,346,655 Incentive Accrual Other 166,848 3,375,000 630,000 567,355 - -------------------------------------------------------------------------------------------------- Total Payments 2000 152,939 3,375,000 630,000 567,355 - -------------------------------------------------------------------------------------------------- Acc. Payable 12/31/00 43,545 - - - - -------------------------------------------------------------------------------------------------- Acc. Pay. in US$ 12/31/00 43,545 - - - - -------------------------------------------------------------------------------------------------- ABB CMS CMS CMS MAROC MOPCO MOPCO RD Total - -------------------------------------------------------------------------------------------------------------- Currencies MAD MAD MAD US$ US$ - -------------------------------------------------------------------------------------------------------------- Acc. Payable 12/31/99 - 19,442,763 78,401,202 64,739 - -------------------------------------------------------------------------------------------------------------- Management Fees 21,346,655 Incentive Accrual 22,044,199 Other 53,580 24,968,135 -3,688,327 788,927 - -------------------------------------------------------------------------------------------------------------- Total Payments 2000 53,580 49,009,650 - 653,000 - -------------------------------------------------------------------------------------------------------------- Acc. Payable 12/31/00 - 16,747,904 96,757,074 200,667 - -------------------------------------------------------------------------------------------------------------- Acc. Pay. in US$ 12/31/00 - 1,572,481 9,085,171 200,667 10,901,863 - --------------------------------------------------------------------------------------------------------------
Page 13 JORF LASFAR ENERGY COMPANY NOTES TO US GAAP FINANCIAL STATEMENTS 10. LONG TERM LOANS Long term loans are detailed as follows as of December 31, 2002 :
Interest Reimbursement Borrowing Principal ------------------------ Interest ----------------------------- Loan Date Currency Amount Type Rate Payment Maturity Periodicity - ------------------------------------------------------------------------------------------------------------------------------------ US EXIM 9/12/02 US$ 200,971,655 Fixed 7.2% Quarterly Feb. 15, 2013 Quarterly OPIC Note A 11/25/97 US$ 51,677,083 Fixed 10.23% Quarterly Feb. 15, 2013 Quarterly OPIC Note B 02/11/98 US$ 11,275,000 Fixed 9.92% Quarterly Feb. 15, 2013 Quarterly ----------- 62,952,083 - ------------------------------------------------------------------------------------------------------------------------------------ Total L.T loan in US$ 263,923,738 ---------------------------------------------- Current part in USD 25,749,000 ---------------------------------------------- Non-Current part in USD 238,174,738 ----------------------------------------------
Interest Reimbursement Borrowing Principal ------------------------ Interest ----------------------------- Loan Date Currency Amount Type Rate Payment Maturity Periodicity - ------------------------------------------------------------------------------------------------------------------------------------ SACE 11/15/02 Euro 198,720,273 Fixed 5.73% Quarterly Feb. 15, 2013 Quarterly ERG 11/15/02 Euro 25,537,392 Variable 5.14% Quarterly Feb. 15, 2013 Quarterly World Bank 11/15/02 Euro 136,696,015 Variable 4.89% Quarterly Feb. 15, 2013 Quarterly - ------------------------------------------------------------------------------------------------------------------------------------ Total L.T loan in Euro 360,953,680 ---------------------------------------------- B/S FX Rate Euro/USD 1.04658 ---------------------------------------------- Total L.T loan in USD 377,767,743 ---------------------------------------------- Current part in USD 36,855,389 ---------------------------------------------- Non-Current part in USD 340,912,354 ----------------------------------------------
Total principal repayments for the next five years are detailed below. Forecasts of interest payments, interest-rate swap payments and guarantee fees are also shown below . For further information regarding interest rate swaps, see Note 15.
Principal Principal Principal Principal Repayment in Repayment in Repayment in Repayment in 2003 2004 2005 2006 ------------------------------------------------------------ In USD - ----------------------------------------------------------------------------- US EXIM 19,606,893 19,606,893 19,606,893 19,606,893 - ----------------------------------------------------------------------------- OPIC A 5,041,667 5,041,666 5,041,666 5,041,666 - ----------------------------------------------------------------------------- OPIC B 1,100,000 1,100,000 1,100,000 1,100,000 - ----------------------------------------------------------------------------- Total in USD 25,748,560 25,748,559 25,748,559 25,748,559 - ----------------------------------------------------------------------------- In Euro - ----------------------------------------------------------------------------- SACE 19,387,344 19,387,344 19,387,344 19,387,344 - ----------------------------------------------------------------------------- ERG 2,491,452 2,491,452 2,491,452 2,491,452 - ----------------------------------------------------------------------------- WB 13,336,197 13,336,197 13,336,197 13,336,197 - ----------------------------------------------------------------------------- Total in Euro 35,214,993 35,214,993 35,214,993 35,214,993 - ----------------------------------------------------------------------------- B/S FX Rate Euro/USD 1.047 1.047 1.047 1.047 - ----------------------------------------------------------------------------- Total in USD 36,855,389 36,855,389 36,855,389 36,855,389 - ----------------------------------------------------------------------------- Remaining Remaining Remaining Principal Interest Swap Guarantee Repayment in Payments Payments Fees 2007 2003-2013 2003-2013 2003-2013 ----------------------------------------------------------- In USD - ---------------------------------------------------------------------------- US EXIM 19,606,893 76,033,383 - - - ---------------------------------------------------------------------------- OPIC A 5,041,666 27,754,052 - - - ---------------------------------------------------------------------------- OPIC B 1,100,000 5,871,955 - - - ---------------------------------------------------------------------------- Total in USD 25,748,559 109,659,390 - - - ---------------------------------------------------------------------------- In Euro - ---------------------------------------------------------------------------- SACE 19,387,344 60,663,342 - - - ---------------------------------------------------------------------------- ERG 2,491,452 7,093,552 4,535,473 - - ---------------------------------------------------------------------------- WB 13,336,197 36,148,188 23,844,995 6,757,469 - ---------------------------------------------------------------------------- Total in Euro 35,214,993 103,905,082 28,380,468 6,757,469 - ---------------------------------------------------------------------------- B/S FX Rate Euro/USD 1.047 1.047 1.047 1.047 - ---------------------------------------------------------------------------- Total in USD 36,855,389 108,745,223 29,702,496 7,072,248 - ----------------------------------------------------------------------------
Page 14 JORF LASFAR ENERGY COMPANY NOTES TO US GAAP FINANCIAL STATEMENTS 10. LONG TERM LOANS (CONTINUED) Long term loans are detailed as follows as of December 31, 2001 :
Interest Reimbursement Borrowing Principal ------------------------ Interest ----------------------------- Loan Date Currency Amount Type Rate Payment Maturity Periodicity - ----------------------------------------------------------------------------------------------------------------------------------- US EXIM 15/11/2001 US$ 207,446,204 Variable 4.14% Quarterly Feb. 15, 2013 Quarterly OPIC Note A 11/25/97 US$ 56,718,750 Fixed 10.48% Quarterly Feb. 15, 2013 Quarterly OPIC Note B 02/11/98 US$ 12,375,000 Fixed 10.17% Quarterly Feb. 15, 2013 Quarterly ----------- 69,093,750 - ----------------------------------------------------------------------------------------------------------------------------------- Total L.T loan in US$ 276,539,954 -------------------------------------------- Current part in USD 24,873,137 -------------------------------------------- Non-Current part in USD 251,666,817 --------------------------------------------
Interest Reimbursement Borrowing Principal ------------------------ Interest ----------------------------- Loan Date Currency Amount Type Rate Payment Maturity Periodicity - ------------------------------------------------------------------------------------------------------------------------------------ SACE 15/11/2001 Euro 218,107,617 Fixed 5.73% Quarterly Feb. 15, 2013 Quarterly ERG 15/11/2001 Euro 28,028,845 Variable 5.34% Quarterly Feb. 15, 2013 Quarterly World Bank 15/11/2001 Euro 150,032,211 Variable 5.09% Quarterly Feb. 15, 2013 Quarterly - ------------------------------------------------------------------------------------------------------------------------------------ Total L.T loan in Euro 396,168,673 -------------------------------------------- B/S FX Rate Euro/USD 0.885 -------------------------------------------- Total L.T loan in USD 350,623,797 -------------------------------------------- Current part in USD 31,166,559 -------------------------------------------- Non-Current part in USD 319,457,237 --------------------------------------------
Long term loans are detailed as follows as of December 31, 2000 :
Interest Reimbursement Drawdown Drawdown ------------------------ Interest ----------------------------- Loan Date Currency Amount Type Rate Payment Maturity Periodicity - ------------------------------------------------------------------------------------------------------------------------------------ US EXIM 11/12/2000 US$ 171,078,318 Variable 8.39% Added to Feb. 15, 2013 Quarterly Principal OPIC Note A 11/25/97 US$ 60,500,000 Fixed 10.48% Quarterly Feb. 15, 2013 Quarterly OPIC Note B 02/11/98 US$ 13,200,000 Fixed 10.17% Quarterly Feb. 15, 2013 Quarterly ----------- 73,700,000 - ------------------------------------------------------------------------------------------------------------------------------------ Accrual for Capitalized Interests 824,884 - ------------------------------------------------------------ Total L.T loan in US$ 245,603,202 --------------------------------------------
Interest Reimbursement Drawdown Drawdown ------------------------ Interest ----------------------------- Loan Date Currency Amount Type Rate Payment Maturity Periodicity - ------------------------------------------------------------------------------------------------------------------------------------ SACE 11/10/2000 DEM 138,444,711 Fixed 5.73% Added to Feb. 15, 2013 Quarterly 09/11/2000 DEM 175,403,182 Fixed 5.73% Principal Feb. 15, 2013 Quarterly 11/12/2000 DEM 127,398,544 Fixed 5.73% Feb. 15, 2013 Quarterly ----------- 441,246,437 ERG 11/12/2000 DEM 56,914,448 Variable 6.96% Added to Feb. 15, 2013 Quarterly Principal World Bank 11/12/2000 DEM 228,100,000 Variable 6.71% Quarterly Feb. 15, 2013 Quarterly - ------------------------------------------------------------------------------------------------------------------------------------ Accrual for Capitalized Interests in DEM 3,456,603 - ------------------------------------------------------------ Total L.T loan in DEM 729,717,488 -------------------------------------------- B/S FX Rate DEM/USD 2.105 -------------------------------------------- Total L.T loan in USD 346,711,732 --------------------------------------------
Page 15 JORF LASFAR ENERGY COMPANY NOTES TO US GAAP FINANCIAL STATEMENTS 10. LONG TERM LOANS (CONTINUED) PLEADGE OF STOCK AND OTHER ASSETS As security for the repayment of the loans, and the payment of all related interest, fees and swap obligations, JLEC and its stockholders have entered into various pledge agreements with Deutsche Bank Trust Company Americas, as Offshore Collateral Agent, and with Banque Marocaine pour le Commerce et l'Industrie, as Onshore Collateral Agent, for the benefit of such lenders and other secured parties. Such security shall continue in effect until the repayment in full of all outstanding principal amounts and the payment in full of all related interest, fee and swap obligations, which is scheduled to occur in February of 2013. The principle pledge agreements are: 1. The Stockholder Pledge and Security Agreements, in which each of JLEC's stockholders pledges all of its shares, claims, rights and interests in JLEC to the Offshore Collateral Agent. 2. The Security and Assignment Agreement, in which JLEC assigns to the Offshore Collateral Agent a security interest in all of JLEC's rights, title and interest in the following collateral, among others: a. all of JLEC's contractual rights, b. all rents, profits, income and revenues derived by JLEC from its ownership of the Project, c. all cash deposits and other assets in any of JLEC's accounts with financial institutions, d. all permits, licenses and other governmental authorizations obtained by JLEC in connection with its ownership of the Project, e. all of JLEC's insurance policies and related claims and proceeds, and f. all personal property and inventories of JLEC. 3. The Agreement for Pledge of Shares, in which each of JLEC's stockholders pledges all of its shares, claims, rights and interests in JLEC to the Onshore Collateral Agent, and assigns to the Onshore Collateral Agent the direct payment by JLEC of all dividends and other stockholder distributions if and whenever a Default has occurred and is continuing. 4. The General Delegation of Contract Claims, in which JLEC assigns to the Onshore Collateral Agent the direct payment of any and all contract claims due to JLEC if and whenever a Default has occurred and is continuing. 5. The Pledge over General Operating Accounts, in which JLEC pledges to the Onshore Collateral Agent any and all monies in JLEC's accounts with the Onshore Collateral Agent. 6. The Master Agreement for Assignment of Accounts Receivable as Security, in which JLEC assigns to the Onshore Collateral Agent a security interest in all of the accounts receivable payable by ONE to JLEC under the Power Purchase Agreement. COVENANTS The covenants on the loans also place restrictions on JLEC's payment of dividends and other distributions to JLEC's stockholders. Specifically, JLEC may not: 1. Pay any dividends to its stockholders, or 2. Make any distribution, payment or delivery of property or cash to its stockholders, or 3. Redeem, retire, purchase or otherwise acquire any shares of its capital stock, or 4. Purchase or redeem any subordinated debt except, on quarterly repayment dates and only then after first satisfying all debt service obligations and satisfying all of the following conditions, among others: a. No default shall have occurred, b. The cash balance in all JLEC reserve and accrual accounts shall equal or exceed required levels, c. JLEC's actual debt service coverage ratios for the current quarter and preceding four quarters have all been greater than 1.3, and d. JLEC's forecasted debt service coverage ratios for the next succeeding two quarters are greater than 1.3 JLEC has complied with these covenants since May 2001, when the loans began to be repaid. Page 16 JORF LASFAR ENERGY COMPANY NOTES TO US GAAP FINANCIAL STATEMENTS 11. STOCKHOLDERS' EQUITY The composition of Stockholders' Equity is as follows as of December 31, 2002: 11.1 COMMON STOCK
Common Stock ----------------------------------------------- Number Par value Par value Shareholders of Shares Dirham US Dollar - ------------------------------------------------ ----------------------------------------------- AB Cythere 63, Sweden ............................. 2,634 263,400 27,668 Jorf Lasfar Energiaktiebolag, Sweden .............. 1,375 137,500 14,443 Jorf Lasfar Power Energy AB, Sweden ............... 1,265 126,500 13,288 Tre Kronor Investment AB, Sweden .................. 110 11,000 1,155 Jorf Lasfar Handelsbolag, Sweden .................. 110 11,000 1,155 AB Cythere 61, Sweden ............................. 6 600 63 ----------------------------------------------- Total 5,500 550,000 57,773
11.2 CONVERTIBLE STOCKHOLDERS' SECURITIES On December 11, 2000, the JLEC stockholders purchased all Company Loan Notes totaling $ 387,355,000, and amended the Company Loan Agreement, to convert these notes into securities convertible into Preferred Stock or Common Stock. On January 1, 2001, a portion of these convertible securities held by AB Cythere 61and AB Cythere 63 were converted into Preferred Stock (itself convertible into common stock) as shown below. After these conversions, the balance of convertible stockholders' securities as follows at December 31, 2002 and 2001:
Convertible Shareholders' Securities ----------------------------------------------- Number Par value Par value Shareholders of Shares Dirham US Dollar - ------------------------------------------------ ----------------------------------------------- Jorf Lasfar Energiaktiebolag, Sweden .............. 10,537,024 1,053,702,400 96,838,750 Jorf Lasfar Power Energy AB, Sweden ............... 9,694,062 969,406,200 89,091,650 Tre Kronor Investment AB, Sweden .................. 842,962 84,296,200 7,747,100 Jorf Lasfar Handelsbolag, Sweden .................. 842,962 84,296,200 7,747,100 ----------------------------------------------- Total 21,917,010 2,191,701,000 201,424,600
Under the terms of the amended Agreement, these convertible securities may be converted into one share of common stock for each 100 MAD. (a) Expression of the Loan in MAD The outstanding USD 201,424,600 principal amount is expressed as MAD 2,191,701,000 for the purpose of computing interest and principal payments due under this Agreement. However, principal and renumeration payments will be paid to the stockholders in USD, provided that the Company is not responsible for any losses realized by the stockholders resulting from the depreciation of the value of the MAD relative to the USD. (b) Repayment or conversion into Stock Under the terms of the amended Agreement : - - the Security may only be repaid, in whole or in part, at the Company's option; - - the part of the Security principal held by other Company Lenders listed above may be converted into Common Stock at any time, using the same conversion ratio used for the conversion of the parts of AB Cythere 61 and AB Cythere 63 (one share of Common Stock for each 100 MAD); - - the shares of Preferred Stock issued to AB Cythere 61 and AB Cythere 63 may be converted into Common Stock. In this case, all outstanding securities held by Company lenders will be mandatorily converted into Common Stock at the same conversion ratio. (c) Renumeration The Company will pay renumeration on the unpaid principal amount once per year, at the rate per annum equal to the Moroccan maximum deductible rate, which was 4.87% p.a, in 2002. Accruals for such payments are reported as part of the Retained Earnings allocation. Page 17 JORF LASFAR ENERGY COMPANY NOTES TO US GAAP FINANCIAL STATEMENTS 11.3 PREFERRED STOCK In accordance with Section 3.01 par.(b) of the amended Company Loan Agreement (see note 11.2 above), the Company has converted on January 1, 2001 all outstanding Company Loan principal held by AB Cythere 61 and AB Cythere 63, at the conversion ratio of one share of Preferred Stock for each 100 MAD of such Company Loan principal converted into Preferred Stock, as follows :
Preferred Stock ----------------------------------------------- Number Par value Par value Shareholders of Shares Dirham US Dollar - ------------------------------------------------ ----------------------------------------------- AB Cythere 63, Sweden ............................. 20,185,145 2,018,514,500 185,508,183 AB Cythere 61, Sweden ............................. 45,941 4,594,100 422,217 ----------------------------------------------- Total 20,231,086 2,023,108,600 185,930,400
Such shares are non-participating voting shares of convertible Preferred Stock of the Company, and : - - are convertible at any moment into shares of Common Stock; - - give right to the collection of a minimum priority dividend, at least equal to 4% of the aggregate par value of the preferred shares, - - do not participate in the distribution of the undistributed balance of Retained Earnings, which is divided among the shares of Common Stock as shown in Note 11.4. 11.4 ALLOCATION OF RETAINED EARNINGS The Retained Earnings are allocated among the shareholders as follows :
Common Convertible Securities Preferred Stock Stock Total ---------------------------------------------------------------------------------------- Shareholders Dirhams US Dollars Dirhams US Dollars US Dollars US Dollars - ---------------------------------------- ---------------------------------------------------------------------------------------- AB Cythere 63, Sweden .................... - - 99,666,957 9,774,145 44,357,210 54,131,355 Jorf Lasfar Energiaktiebolag, Sweden ..... 52,028,019 5,102,287 - - 23,155,340 28,257,627 Jorf Lasfar Power Energy AB, Sweden ...... 47,865,778 4,694,104 - - 21,302,912 25,997,016 Tre Kronor Investment AB, Sweden ......... 4,162,242 408,183 - - 1,852,427 2,260,610 Jorf Lasfar Handelsbolag, Sweden ......... 4,162,242 408,183 - - 1,852,427 2,260,610 AB Cythere 61, Sweden .................... - - 226,840 22,246 101,041 123,287 ---------------------------------------------------------------------------------------- Total 108,218,281 10,612,757 99,893,797 9,796,391 92,621,357 113,030,505
The allocations for Convertible Securities (108,218,281 Dirhams) and Preferred Stock (99,893,797 Dirhams) are payable as of January 1, 2003, and are scheduled for payment on May 15, 2003. 12. NET INVESTMENT IN DIRECT FINANCING LEASE The following lists the components of the net investment in direct financing leases as of December 31 (in 000s):
2002 2001 2000 US$ US$ US$ ------------ --------------------------- Total minimum lease payments to be received 2,284,642 2,433,939 2,763,561 Less: unearned income 1,180,081 1,330,425 1,559,851 ------------ --------------------------- Net investment in direct financing leases 1,104,561 1,103,514 1,203,710 ============ ===========================
Minimum lease payments are based on the estimated capacity payments that ONE makes to JLEC. Under the terms of the contracts with ONE, capacity payments are made monthly based on the availability of the Units and energy deliveries to ONE. Management has estimated the total minimum lease payments over the term of the contracts based on its estimate of the plants' availability. If the Units do not achieve the performance estimated in JLEC's models, adjustments to the revenues recorded using the interest method for the direct financing lease may be required. The minimum lease payments do not include reimbursable or executory costs such as the reimbursement of coal costs. As of December 31, 2002, minimum lease payments for the next five years are as follows (in 000s): 2003 228,783 2004 238,734 2005 228,530 2006 201,868 2007 185,640
Page 18 JORF LASFAR ENERGY COMPANY NOTES TO US GAAP FINANCIAL STATEMENTS 13. PENSION PLANS JLEC contributes to the following pension plans : 13.1 CAISSE COMMUNE DES RETRAITES (CCR) As required by PPA Section 23.2.4, most of JLEC's employees (263 employees of 314, or 84%) plus 1 recent retiree are participants in the CCR defined benefit pension plan. This plan is funded by employee payroll deductions equal to 9% of the employees' gross pay, plus JLEC contributions equal to 18% of the participating employees' gross pay. In 2002, 2001 and 2000, JLEC contributed to the CCR USD 291,036, USD 266,972 and USD 280,577, respectively. Benefits provided under this plan include pension and retiree health insurance. As of December 31, 2002, the benefit obligation totaled USD 7,738,000. The fair value of assets contributed to the CCR was USD 1,947,000 as of December 31, 2002. The net unfunded benefit obligation as of December 31, 2002 reflected in the accompanying balance sheet was USD 5,693,000. The following assumptions were used to perform the actuarial valuation for 2002: Discount rate 7.58% Rate of compensation increase 6.50%
13.2 CAISSE INTERPROFESSIONNELLE MAROCAINE DE RETRAITES (CIMR) Employees of JLEC not covered by CCR participate in a fund to which the employer contributes an amount equal to 12 percent of the employee's gross pay. This fund is carried in the employee's name, and the pension benefits an employee will receive depend only on the amount contributed to this account and the returns earned on investments of those contributions. During 2002, 2001 and 2000, JLEC's contributed USD 109,147, USD 105,912 and USD 102,558, respectively. 14. COMMITMENTS AND CONTINGENCIES JLEC's corporate tax return for the years 1999 to 2002, and the JLEC's payroll and VAT returns for the years 1997 to 2002 are open to audit by the Moroccan Tax Authorities. JLEC is peridiocally involved in other legal, tax and other proceedings regarding matters arising in the oridinary course of business. JLEC believes that the outcome of these matters will not materially affect its results of operations or liquidity. 15. DERIVATIVE INSTRUMENT LIABILITY / OTHER COMPREHENSIVE LOSS JLEC adopted SFAS N DEG.. 133 on January 1, 2001. This standard requires JLEC to recognize at fair value on the balance sheet, as assets or liabilities, all contracts that meet the definition of a derivative instrument. Details of all JLEC derivative instruments (interest rate swaps) are provided in the following table as of December 31, 2002, and all such swaps qualify with 100% effectiveness as cash flow hedge for JLEC's variable interest rate loans. Therefore, in accordance with SFAS N DEG.. 133, the changes in fair value of these interest rate swaps are reflected directly in Stockholders' Equity under "Accumulated Other Comprehensive Loss". JLEC determines fair value based upon market price estimations provided by the swap providers.
Fixed Rate Current Credit Swap Paid Libor Paid Current Notional Facility Providers Currency by JLEC to JLEC Amount -------------------------------------------------------------------------------- World Bank BNP Euro 6.41% 3.14% 45,565,338 ABN Euro 6.42% 3.14% 45,565,338 CSFB Euro 6.41% 3.14% 45,565,338 -------------------------------------------------------------------------------- 136,696,014 --------------- -------------------------------------------------------------------------------- ERG BNP Euro 6.47% 3.14% 8,512,464 ABN Euro 6.48% 3.14% 8,512,464 CSFB Euro 6.47% 3.14% 8,512,464 -------------------------------------------------------------------------------- 25,537,392 --------------- Forecast of Settlement and Remaining Valuation in Amortization Termination Date Payments Euro ----------------------------------------------------------------------- Quarterly 2/15/2013 7,947,927 5,729,083 Quarterly 2/15/2013 7,962,491 5,739,581 Quarterly 2/15/2013 7,934,576 5,719,459 ----------------------------------------------------------------------- 23,844,995 17,188,123 ------------------------------ ----------------------------------------------------------------------- Quarterly 2/15/2013 1,511,371 1,089,437 Quarterly 2/15/2013 1,513,638 1,091,072 Quarterly 2/15/2013 1,510,464 1,088,783 ----------------------------------------------------------------------- 4,535,473 3,269,292 ------------------------------ Total in Euro 20,457,415 ------------ B/S FX rate X 1.04658 Total in USD 21,410,369 ============
Approximately USD 1.9 million of the current net deferred loss on derivative instruments in accumulated comprehensive loss is expected to be reclassified to earnings during the next twelve months as hedged transactions occur, assuming no significant fluctuation in interest rates. Page 19 JORF LASFAR ENERGY COMPANY NOTES TO US GAAP FINANCIAL STATEMENTS 16. SUPPLEMENTAL DISLOSURES OF CASH FLOW INFORMATION Reconciliation of net income to net cash from operating activities under the Direct Method for the year ended December 31 is as follows:
2002 2001 2000 US$ US$ US$ ------------------------------------------------- Net Income...................................................................... 132,287,908 161,385,686 117,673,500 Adjustment to reconcile Net Income to cash provided from operating activities : Depreciation and amortization.................................. 2,752,641 731,003 - Deferred taxes................................................. 6,908,298 6,097,093 - Lease Revenue.................................................. -183,541,585 -195,223,932 -146,153,000 Finance tariff cash revenue.................................... 263,559,812 262,829,803 160,664,130 Financial expenses............................................. - - 22,437,000 Changes in operating assets and liabilities: Inventories.................................................... -8,855,387 -9,242,424 -2,678,193 Accounts receivable............................................ 10,340,353 -22,975,149 -26,530,344 Prepayments.................................................... -5,954,169 979,429 13,069,000 Accounts payable............................................... -9,266,000 -20,701,000 8,015,944 Unfunded pension obligation.................................... 5,692,943 - - Other liabilities.............................................. -12,995,792 3,093,490 12,078,463 Effect of exchange rate changes................................ 4,235,487 -2,003,877 574,000 ------------------------------------------------- Net cash provided by operating activities ...................................... 205,164,509 184,970,122 159,150,500
17. NEW ACCOUNTING STANDARDS In August 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 143, "Accounting for Asset Retirement Obligations." The new statement provides accounting standards for retirement obligations associated with tangible long-lived assets, with adoption required by January 1, 2003. SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recorded in the period in which it is incurred. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. JLEC is currently assessing the new standard but does not expect that it will have a material effect on its financial statements. In June 2002, FASB issued SFAS No 146, "Accounting for Costs Associated with Exit or Disposal Activities.". This statement addresses the recognition, measurement and reporting of costs that are associated with exit and disposal activities and nullifies EITF 94-3 "Liability Recognition for Certain Employee Termination Benefits and Other Costs to exit an Activity (Including Certain costs incurred in a Restructuring)". Under SFAS 146, the cost associated with an exit or disposal activity is recognized in the periods in which it is incurred rather than at the date the company committed to the exit plan. This statement becomes effective for exit or disposal activities initiated after December 31, 2002. JLEC does not anticipate that the adoption of SFAS 146 will have a material impact on its results of operations or its financial position. In January 2003, the FASB issued FASB Interpretation (FIN) No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." This interpretation identifies minimum guarantee disclosures required for annual periods ending after December 15, 2002. It also clarifies that providers of guarantees must record the fair value of those guarantees at their inception. This accounting guidance is applicable on a prospective basis to guarantees issued or modified after December 31, 2002. JLEC does not believe that the implementation of FIN 45 will be material but will continue to evaluate anticipated guarantees. In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51." The primary objective of FIN 46 is to provide guidance on the identification of, and financial reporting, for entities over which control is achieved through means other than voting rights; such entities are known as variable-interest entities (VIEs). Although the FASB's initial focus was on special purpose entities, the final guidance applies to a wide range of entities. FIN 46 has far-reaching effects and applies to new and existing entities. VIEs created before February 1, 2003 are subject to this interpretation's provisions in the first reporting period beginning after June 15, 2003. JLEC is currently assessing the new standard and has not yet determined the impact on its financial statements. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." The Standard specifies that instruments within its scope embody obligations of the issuer and that, therefore, the issuer must classify them as liabilities. The Standard is effective for interim or fiscal periods ending after June 15, 2003. JLEC is currently assessing the new standard and has not yet determined the impact on its financial statements. Page 20 -----END PRIVACY-ENHANCED MESSAGE-----