SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
______________________
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended
MARCH 31, 1998
COMMISSION FILE NO. 333-608
CE CASECNAN WATER AND ENERGY COMPANY, INC.
(Exact name of registrant as specified in its charter)
PHILIPPINES Not Applicable
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6750 Ayala Avenue, 24th Floor
Makati, Metro Manila Philippines Not Applicable
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (632) 892-0276
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
Former name, former address and former fiscal year, if changed
since last report. Not Applicable
767,162 shares of Common Stock, $0.038 par value were outstanding
as of March 31, 1998.
CE CASECNAN WATER AND ENERGY COMPANY, INC.
Form 10-Q
March 31, 1998
_____________
C O N T E N T S
PART I: FINANCIAL INFORMATION Page
Item 1. Financial Statements
Report of Independent Public Accountants 3
Balance Sheets, March 31, 1998 and December 31, 1997 4
Statements of Operations for the Three Months Ended
March 31,1998 and 1997 and for the period from
inception (September 21, 1994) to March 31,1998 5
Statements of Cash Flows for the Three Months Ended
March 31, 1998 and 1997 and for the period from
inception (September 21, 1994) to March 31, 1998 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults on Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Exhibit 27 15
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Stockholders and the Board of Directors
CE Casecnan Water and Energy Company, Inc.
We have reviewed the accompanying balance sheet of CE Casecnan
Water and Energy Company, Inc. (a company in the development
stage) as of March 31, 1998, and the related statements of
operations for the three months ended March 31, 1998 and 1997 and
the period from inception (September 21, 1994) to March 31, 1998,
and cash flows for the three months ended March 31, 1998 and 1997
and the period from inception (September 21, 1994) to March 31,
1998. The financial statements are the responsibility of the
Company's management.
A review of interim financial information consists principally of
applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with auditing standards generally
accepted in the United States of America, the objective of which
is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such
an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the financial statements
referred to above for them to be in conformity with accounting
principles generally accepted in the United States of America.
We have audited in accordance with auditing standards generally
accepted in the United States of America, the balance sheet of CE
Casecnan Water and Energy Company, Inc. as of December 31, 1997,
and the related statements of operations for the year ended
December 31, 1997, changes in stockholders' equity for the period
from date of inception (September 21, 1994) to December 31, 1997
and cash flows for the year ended December 31, 1997, and for the
period from inception (September 21, 1994) to December 31, 1997
(not presented separately herein) and, in our report dated
January 23, 1998, we expressed an unqualified opinion on those
financial statements.
SYCIP, GORRES, VELAYO & CO.
Makati City, Philippines
May 13, 1998
CE CASECNAN WATER AND ENERGY COMPANY, INC.
BALANCE SHEETS
(in thousands, except share and per share amounts)
________________________________
March 31, December 31,
1998 1997
(unaudited)
ASSETS
Cash $ 385 $ 547
Restricted cash and short-term 155,432 183,607
investments
Accrued interest and other receivables 3,347 2,962
Restricted investments 123,457 126,684
Bond issue costs, net
11,219 11,513
Development and construction costs 191,038 158,266
Deferred income tax
8,596 8,333
Total assets $ 493,474 $ 491,912
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 24,279 $ 19,192
Advances from an affiliate 447 3,059
Notes and bonds payable
371,500 371,500
Total liabilities
396,226 393,751
Commitments and contingencies
Stockholders' equity:
Common stock - par value $0.038 per share,
authorized 2,148,000 shares, issued
and outstanding 767,162 shares 29 29
Additional paid in capital 123,807 123,807
Accumulated deficit
(26,588) (25,675)
Total stockholders' equity
97,248 98,161
Total liabilities and stockholders' equity $ 493,474 $ 491,912
The accompanying notes are an integral part of these financial statements.
CE CASECNAN WATER AND ENERGY COMPANY, INC.
UNAUDITED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
________________________________
From Inception
Three Months Ended (September 21, 1994)
March 31, to March 31,
1998 1997 1998
Revenues:
Interest and other income $ 5,084 $ 4,504 $ 52,975
Total revenues 5,084 4,504 52,975
Costs and expenses:
Interest expense - net of interest
capitalized 5,966 9,696 85,788
Amortization of bond issue costs 294 263 2,371
Total costs and expenses 6,260 9,959 88,159
Loss before income taxes (1,176) (5,455) (35,184)
Deferred income tax benefit 263 1,336 8,596
Net loss to common stockholders $ (913) $(4,119) $(26,588)
Net loss per share $ (1.19) $ (5.37) $ (38.22)
Average number of common
shares outstanding 767,162 767,162 695,632
The accompanying notes are an integral part of these financial
statements.
CE CASECNAN WATER AND ENERGY COMPANY, INC.
UNAUDITED STATEMENTS OF CASH FLOWS
(in thousands)
From Inception
Three Months Ended (September 21, 1994)
March 31, to March 31,
1998 1997 1998
Cash flows from operating activities:
Net loss $ (913) $(4,119) $(26,588)
Adjustments to reconcile net
loss to net cash flows provided
by (used in) operating activities:
Deferred income tax benefit (263) (1,336) (8,596)
Amortization of bond issue costs 294 263 2,371
Decrease (increase) in accrued
interest and other receivables (385) 2,164 (3,347)
Increase in accounts payable
and accrued expenses 9,749 9,848 16,204
Net cash flows provided by
(used in) operating activities 8,482 6,820 (19,956)
Cash flows from investing activities:
Additions to construction in
progress (32,772) (8,113) (191,038)
Decrease (increase) in restricted
cash and short-term investments 28,175 (6,104) (155,432)
Decrease (increase) in restricted
investments 3,227 6,732 (123,457)
Increase (decrease) in accounts
payable and accrued expenses
related to development and
construction activities (4,662) 564 8,075
Net cash flows used in investing
activities (6,032) (6,921) (461,852)
Cash flows from financing activities:
Issuance of bonds payable - - 371,500
Proceeds from issuance of
capital stock - - 29
Additional paid-in capital - - 123,807
Bond issue costs - - (13,590)
Increase (decrease) in advances
from (to) an affiliate (2,612) 124 447
Net cash flows provided by
(used in) financing activities (2,612) 124 482,193
Net increase (decrease) in cash
and cash equivalents (162) 23 385
Cash at beginning of period 547 32 -
Cash at end of period $ 385 $ 55 $ 385
Supplemental disclosure:
Interest paid (net of amount
capitalized) $(3,783) $ (152) $ 69,583
The accompanying notes are an integral part of these financial
statements.
CE CASECNAN WATER AND ENERGY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
(in thousands, except per share amounts)
________________________________
1. General:
In the opinion of management of CE Casecnan Water and Energy
Company, Inc. ("CE Casecnan" or the "Company"), the accompanying
unaudited financial statements contain all adjustments
(consisting only of normal recurring accruals) necessary to
present fairly the financial position as of March 31, 1998 and
the results of operations for the three months ended March 31,
1998 and 1997 and the period from inception (September 21, 1994)
to March 31, 1998, and cash flows for the three months ended
March 31, 1998 and 1997 and the period from inception (September
21, 1994) to March 31, 1998.
The results of operations for the three months ended March 31,
1998 are not necessarily indicative of the results to be expected
for the full year.
2. Other Footnote Information:
Reference is made to the Company's December 31, 1997 audited
financial statements included in Form 10-K that included
information necessary or useful to the understanding of the
Company's business and financial statement presentations. In
particular, the Company's significant accounting policies and
practices were presented as Note 3 to the financial statements
included in that report.
3. Commitments and Contingencies
In November 1995, the Company closed the financing and commenced
construction of the Casecnan Project, a combined irrigation and
150 net MW hydroelectric power generation project (the "Casecnan
Project") located in the central part of the island of Luzon in
the Republic of the Philippines.
CE Casecnan financed a portion of the costs of the Casecnan
Project through the issuance of $125,000 of its 11.45% Senior
Secured Series A Notes due 2005 and $171,500 of its 11.95% Senior
Secured Series B Bonds due 2010 and $75,000 of its Secured
Floating Rate Notes due 2002, pursuant to an indenture dated as
of November 27, 1995, as amended to date.
The Casecnan Project was being constructed pursuant to a fixed-
price, date-certain, turnkey construction contract (the "Hanbo
Contract") on a joint and several basis by Hanbo Corporation
("Hanbo") and Hanbo Engineering and Construction Co., Ltd.
("HECC"), both of which are South Korean corporations. As of May
7, 1997, CE Casecnan terminated the Hanbo Contract due to
defaults by Hanbo and HECC including the insolvency of each such
company. On May 7, 1997, CE Casecnan entered into a new turnkey
engineering, procurement and construction contract to complete
the construction of the Casecnan Project (the "Replacement
Contract").
CE CASECNAN WATER AND ENERGY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
(in thousands, except per share amounts)
________________________________
Commitments and Contingencies (continued)
The work under the Replacement Contract is being conducted by a
consortium consisting of Cooperativa Muratori Cementisti CMC di
Ravenna and Impresa Pizzarotti & C. Spa working together with
Siemens A.G., Sulzer Hydro Ltd., Black & Veatch and Colenco Power
Engineering Ltd. (collectively, the "Replacement Contractor").
In connection with the Hanbo Contract termination, CE Casecnan
tendered a certificate of drawing to Korea First Bank ("KFB") on
May 7, 1997, under the irrevocable standby letter of credit
issued by KFB as security under the Hanbo Contract to pay for
certain transition costs and other presently ascertainable
damages under the Hanbo Contract. As a result of KFB's wrongful
dishonor of the draw request, CE Casecnan filed an action in New
York State Court. That Court granted CE Casecnan's request for a
temporary restraining order requiring KFB to deposit $79,329, the
amount of the requested draw, in an interest bearing account with
an independent financial institution in the United States. KFB
appealed this order, but the appellate court denied KFB's appeal
and on May 19, 1997, KFB transferred funds in the amount of
$79,329 to a segregated New York bank account pursuant to the
Court order.
On August 6, 1997, CE Casecnan announced that it had issued a
notice to proceed to the Replacement Contractor. The Replacement
Contractor was already on site and had fully mobilized and
commenced engineering, procurement and construction work on the
project.
On August 27, 1997, CE Casecnan announced that it had received a
favorable summary judgment ruling in New York State Court against
KFB. The judgment, which has been appealed by the bank, requires
KFB to honor the $79,329 drawing by CE Casecnan on the $117,850
irrevocable standby letter of credit.
On September 29, 1997 CE Casecnan tendered a second certificate
of drawing for $10,828 to KFB and on December 30, 1997, CE
Casecnan tendered a third certificate of drawing for $2,920 to
KFB. KFB also wrongfully dishonored these draws, but pursuant to
a stipulation agreed to deposit the draw amounts in an interest
bearing account with the same independent financial institution
in the United States pending resolution of the appeal regarding
the first draw and agreed to expedite the appeal. On March 16,
1998, CE Casecnan tendered a fourth certificate of drawing for
$24,773 to KFB which was also wrongfully dishonored.
On September 2, 1997, Hanbo and HECC filed a Request for
Arbitration before the International Chamber of Commerce ("ICC").
The Request for Arbitration asserted various claims by Hanbo and
HECC against CE Casecnan relating to the terminated Hanbo
Contract and sought damages. On October 10, 1997, CE Casecnan
served its answer and defenses in response to the Request for
Arbitration as well as counterclaims against Hanbo and HECC for
breaches of the Hanbo Contract.
CE CASECNAN WATER AND ENERGY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
(in thousands, except per share amounts)
________________________________
Commitments and Contingencies (continued)
On April 17, 1998, CE Casecnan announced that it and Hanbo, HECC,
Hanbo Steel Company, Ltd. and KFB have mutually agreed to settle
the differences among them related to the Casecnan Project.
Under the settlement, KFB has agreed to pay CE Casecnan $90
million and the parties have discontinued with prejudice the
pending arbitration and litigation proceedings and released each
other from all claims arising out of the litigation and
arbitration.
CE CASECNAN WATER AND ENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share amounts)
________________________________
Results of Operations:
The Company is in the construction stage and has not yet started
commercial operations. Revenue consists of interest income on
cash received from bond proceeds and equity contributions. For
the three months ended March 31, 1998, revenue increased to
$5,084 from $4,504, a 12.9% increase. This increase is primarily
a result of higher interest income in 1998 compared to the same
period in 1997.
For the three months ended March 31, 1998 and 1997, interest
expense was $11,544 and $11,442, respectively. For the three
months ended March 31, 1998, capitalized interest increased to
$5,578 from $1,746 for the same period in 1997, a 219.5%
increase. The increase in capitalized interest results from
higher cumulative development and construction costs.
Amortization of bond issue costs for the three months ended March
31, 1998 was $294, compared to $263 for the same period in 1997.
Interest expense, capitalized interest and amortization of bond
issue costs relate to the notes and bonds payable issued by the
Company in the fourth quarter of 1995.
Liquidity and Capital Resources:
CE Casecnan has financed a portion of the costs of the Casecnan
Project through the issuance of $125,000 of its 11.45% Senior
Secured Series A Notes due 2005 and $171,500 of its 11.95% Senior
Secured Series B Bonds due 2010 and $75,000 of its Secured
Floating Rate Notes due 2002, (the "Securities") pursuant to an
indenture (the "Indenture") dated as of November 27, 1995, as
amended to date.
The Securities are senior debt of the Company and are secured by
a collateral assignment of all revenues received from the
Project, a collateral assignment of all material contracts, a
lien on any accounts and funds on deposit under a Deposit and
Disbursement Agreement, a pledge of 100% of the capital stock of
the Company and a lien on all other material assets and property.
The Securities rank pari passu with and will share the collateral
on a pro rata basis with other senior secured debt, if any.
The Securities are subject to certain optional and mandatory
redemption schemes as defined in the Indenture. The Securities
contain customary events of default and restrictive covenants.
CE CASECNAN WATER AND ENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share amounts)
________________________________
Liquidity and Capital Resources (continued):
The Casecnan Project was being constructed pursuant to a fixed-
price, date-certain, turnkey construction contract (the "Hanbo
Contract") on a joint and several basis by Hanbo Corporation
("Hanbo") and Hanbo Engineering and Construction Co., Ltd.
("HECC"), both of which are South Korean corporations. As of May
7, 1997, CE Casecnan terminated the Hanbo Contract due to
defaults by Hanbo and HECC including the insolvency of each such
Company. On May 7, 1997, CE Casecnan entered into a new turnkey
engineering, procurement and construction contract to complete
the construction of the Casecnan Project (the "Replacement
Contract").
The work under the Replacement Contract is being conducted by a
consortium consisting of Cooperativa Muratori Cementisti CMC di
Ravenna and Impresa Pizzarotti & C. Spa working together with
Siemens A.G., Sulzer Hydro Ltd., Black & Veatch and Colenco Power
Engineering Ltd. (collectively the "Replacement Contractor").
In connection with the Hanbo Contract termination, CE Casecnan
tendered a certificate of drawing to Korea First Bank ("KFB") on
May 7, 1997, under the irrevocable standby letter of credit
issued by KFB as security under the Hanbo Contract to pay for
certain transition costs and other presently ascertainable
damages under the Hanbo Contract. As a result of KFB's wrongful
dishonor of the draw request, CE Casecnan filed an action in New
York State Court. That Court granted CE Casecnan's request for a
temporary restraining order requiring KFB to deposit $79,329, the
amount of the requested draw, in an interest bearing account with
an independent financial institution in the United States. KFB
appealed this order, but the appellate court denied KFB's appeal
and on May 19, 1997, KFB transferred funds in the amount of
$79,329 to a segregated New York bank account pursuant to the
Court order.
On August 6, 1997, CE Casecnan announced that it had issued a
notice to proceed to the Replacement Contractor. The Replacement
Contractor was already on site and had fully mobilized and
commenced engineering, procurement and construction work on the
project.
On August 27, 1997, CE Casecnan announced that it had received a
favorable summary judgment ruling in New York State Court against
KFB. The judgment, which has been appealed by the bank, requires
KFB to honor the $79,329 drawing by CE Casecnan on the $117,850
irrevocable standby letter of credit.
CE CASECNAN WATER AND ENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share amounts)
________________________________
Liquidity and Capital Resources (continued):
On September 29, 1997 CE Casecnan tendered a second certificate
of drawing for $10,828 to KFB and on December 30, 1997, CE
Casecnan tendered a third certificate of drawing for $2,920 to
KFB. KFB also wrongfully dishonored these draws, but pursuant to
a stipulation agreed to deposit the draw amounts in an interest
bearing account with the same independent financial institution
in the United States pending resolution of the appeal regarding
the first draw and agreed to expedite the appeal. On March 16,
1998, CE Casecnan tendered a fourth certificate of drawing for
$24,773 to KFB which was also wrongfully dishonored.
On September 2, 1997, Hanbo and HECC filed a Request for
Arbitration before the International Chamber of Commerce ("ICC").
The Request for Arbitration asserted various claims by Hanbo and
HECC against CE Casecnan relating to the terminated Hanbo
Contract and sought damages. On October 10, 1997, CE Casecnan
served its answer and defenses in response to the Request for
Arbitration as well as counterclaims against Hanbo and HECC for
breaches of the Hanbo Contract.
On April 17, 1998, CE Casecnan announced that it and Hanbo, HECC,
Hanbo Steel Company, Ltd. and KFB have mutually agreed to settle
the differences among them related to the Casecnan Project.
Under the settlement, KFB has agreed to pay CE Casecnan $90
million and the parties have discontinued with prejudice the
pending arbitration and litigation proceedings and released each
other from all claims arising out of the litigation and
arbitration.
CE CASECNAN WATER AND ENERGY COMPANY, INC.
PART II - OTHER INFORMATION
Item 1 - Legal proceedings.
See Note 3, Commitments and Contingencies, and Liquidity and
Capital Resources.
Item 2 - Changes in Securities.
Not applicable.
Item 3 - Defaults on Senior Securities.
Not applicable.
Item 4 - Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5 - Other Information.
Not applicable.
Item 6 - Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K:
(i) Not applicable
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CE CASECNAN WATER AND ENERGY COMPANY, INC.
Date: May 14, 1998 /s/ Craig M. Hammett
Craig M. Hammett
Senior Vice President and Chief
Financial Officer
/s/ Patrick J. Goodman
Patrick J. Goodman
Vice President, Chief Accounting
Officer and Controller