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
JUNE 30, 1997
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 June 30, 1997.
CE CASECNAN WATER AND ENERGY COMPANY, INC.
Form 10-Q
June 30, 1997
_____________
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, June 30, 1997 and December 31, 1996 4
Statements of Operations for the Three Months and
Six Months Ended June 30, 1997 and 1996 and for the
period from inception (September 21, 1994) to June 30,1997 5
Statements of Cash Flows for the Six Months Ended
June 30, 1997 and 1996 and for the period from inception
(September 21, 1994) to June 30, 1997 6
Notes to Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-10
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults on Senior Securities 11
Item 4. Submission of Matters to a Vote of
Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
Exhibit 27 13
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 June 30, 1997, and the related statements of
operations for the three months and six months ended June 30,
1997 and the period from inception (September 21, 1994) to June
30, 1997, and cash flows for the six months ended June 30, 1997
and 1996 and the period from inception (September 21, 1994) to
June 30, 1997. 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, 1996,
and the related statements of operations for the year ended
December 31, 1996, changes in stockholders' equity for the period
from date of inception (September 21, 1994) to December 31, 1996
and cash flows for the year ended December 31, 1996, and for the
period from inception (September 21, 1994) to December 31, 1996
(not presented separately herein) and, in our report dated
January 16, 1997, we expressed an unqualified opinion on those
financial statements.
SYCIP, GORRES, VELAYO & CO.
Makati City, Philippines
August 13, 1997
CE CASECNAN WATER AND ENERGY COMPANY, INC.
UNAUDITED BALANCE SHEET
June 30, 1997
(with comparative audited figures for 1996)
(in thousands, except share and per share amounts)
________________________________
June 30, December 31,
1997 1996
ASSETS
Cash $ 268 $ 32
Restricted cash and short-term 131,013 144,122
investments
Accrued interest and other receivables 2,140 4,958
Restricted investments 258,650 273,015
Bond issue costs, net 12,039 12,566
Development costs 75,542 50,793
Deferred income tax
6,880 4,676
Total assets $ 486,532 $ 490,162
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 9,595 $ 8,803
Advances from an affiliate 2,803 434
Notes and bonds payable
371,500 371,500
Total liabilities 383,898 380,737
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 (21,202) (14,411)
Total stockholders' equity 102,634 109,425
Total liabilities and stockholders'
equity $ 486,532 $ 490,162
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)
________________________________
Three Months Ended Six Months Ended From Inception
June 30, June 30, (September 21, 1994)
1997 1996 1997 1996 June 30,1997
Revenues:
Interest and other income $ 5,914 $ 6,321 $ 10,418 $ 13,268 $ 38,522
Total revenues 5,914 6,321 10,418 13,268 38,522
Costs and expenses:
Interest expense 11,469 11,415 22,911 22,868 73,006
Less interest capitalized (2,280) (691) (4,026) (1,198) (7,952)
Amortization of bond
issue costs 264 238 527 472 1,550
Total costs and expenses 9,453 10,962 19,412 22,142 66,604
Loss before income taxes (3,539) (4,641) (8,994) (8,874) (28,082)
Deferred income tax benefit 867 1,625 2,203 3,106 6,880
Net loss to common
stockholders (2,672) (3,016) (6,791) (5,768) (21,202)
Net loss per share-primary (3.48) (3.93) (8.85) (7.52) (31.35)
Average number of common
shares outstanding 767,162 767,162 767,162 767,162 676,284
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)
________________________________
Six Months Ended From Inception
June 30, (September 21, 1994)
1997 1996 to June 30, 1997
Cash flows from operating
activities:
Net loss $ (6,791) $ (5,768) $ (21,202)
Adjustments to reconcile net
cash flow from operating activities:
Deferred income tax benefit (2,203) (3,106) (6,880)
Amortization of bond issue costs 527 472 1,550
Decrease (increase) in accrued
interest and other receivables 2,818 (1,967) (2,140)
Increase (decrease) in accounts
payable and accrued expenses (29) 1,734 6,066
Net cash flows from operating
activities (5,678) (8,635) (22,606)
Cash flows from investing
activities:
Additions to development costs (24,750) (16,467) (75,542)
Decrease (increase) in restricted
cash and short-term investments 13,109 72,357 (131,013)
Decrease (increase) in
restricted investments 14,365 (45,998) (258,650)
Increase (decrease) in accounts
payable and accrued expenses
related to development activities 618 (1,233) 3,326
Net cash flows from investing
activities 3,342 8,659 (461,879)
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 - (173) (13,589)
Accrued expenses related to
financing activities 203 (279) 203
Advances from an affiliate 2,369 423 2,803
Net cash flows from financing
activities 2,572 (29) 484,753
Net increase (decrease) in cash
and cash equivalents 236 (5) 268
Cash and cash equivalents at
beginning of period 32 1,696 -
Cash and cash equivalents at
end of period $ 268 $ 1,691 $ 268
Supplemental disclosure:
Interest paid (net of amount
capitalized) $ 18,914 $ 19,229 $ 58,988
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 June 30, 1997 and the
results of operations for the three and six months ended June 30,
1997 and 1996 and the period from inception (September 21, 1994)
to June 30, 1997, and cash flows for the six months ended June
30, 1997 and 1996 and the period from inception (September 21,
1994) to June 30, 1997.
The results of operations for the three and six months ended June
30, 1997 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, 1996 audited
financial statements included in Form 10-K dated March 28, 1997
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 is presently indirectly owned as to approximately 35%
of its equity by CalEnergy Company, Inc. and approximately 35%
indirectly owned by Peter Kiewit Sons' Inc. 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 and 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. CE
Casecnan entered into a new turnkey engineering, procurement and
construction contract to complete the construction of the
Casecnan Project (the "Replacement
CE CASECNAN WATER AND ENERGY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
(in thousands, except per share amounts)
________________________________
Commitments and Contingencies (continued)
Contract"). The work under the Replacement Contract will be
conducted by a consortium of contractors and subcontractors
including Siemens A.G., Sulzer Hydro Ltd., Black & Veatch and
Colenco Power Engineering Ltd. and will be headed by Cooperativa
Muratori Cementisti CMC di Ravenna and Impressa Pizzarottie & C.
Spa, (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 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 is expected to immediately
fully mobilize and commence engineering, procurement and
construction work on the project. The receipt of the letter of
credit funds from KFB remains essential and CE Casecnan will
continue to press KFB to honor its clear obligations under the
letter of credit and to pursue Hanbo and KFB for any additional
damages arising out of their actions to date.
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.
Revenue decreased in the second quarter of 1997 to $5,914 from
$6,321 in the same period in 1996, a 6.4% decrease. For the six
months ended June 30, 1997, revenue decreased to $10,418 from
$13,268, a 21.5% decrease. These decreases are primarily a
result of lower cash balances due to construction draws and lower
interest rates in 1997 compared to the same periods in 1996.
Interest expense in the second quarter of 1997 was $11,469
compared to $11,415 for the same period in 1996. For the six
months ended June 30, 1997 and 1996, interest expense was $22,911
and $22,868, respectively. Capitalized interest in the second
quarter 1997 increased to $2,280 from $691 for the same period in
1996, a 230.0% increase. For the six months ended June 30, 1997,
capitalized interest increased to $4,026 from $1,198 for the same
period in 1996, a 236.1% increase. The increases in capitalized
interest result from higher cumulative development costs during
the construction period of the Casecnan Project. Amortization of
bond issue costs for the three and six month periods ended June
30, 1997 was $264 and $527 respectively, compared to $238 and
$472 for the same periods in 1996. 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:
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 is presently indirectly owned as to approximately 35%
of its equity by CalEnergy Company, Inc. and approximately 35%
indirectly owned by Peter Kiewit Sons' Inc. 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,
(the "Securities") pursuant to an indenture (the "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
CE CASECNAN WATER AND ENERGY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
(in thousands, except per share amounts)
________________________________
Liquidity and Capital Resources (continued):
and entered into a new engineering, procurement and construction
contract to complete the construction of the Casecnan Project.
The Hanbo Contract has been terminated because of events of
default under the contract including the fact that both HECC and
Hanbo are insolvent and have filed for court receivership
protection in the Republic of Korea.
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 will be conducted by a consortium of
contractors and subcontractors including Siemens A.G., Sulzer
Hydro Ltd., Black & Veatch and Colenco Power Engineering Ltd. and
will be headed by Cooperativa Muratori Cementisti CMC di Ravenna
and Impressa Pizzarotti & C. Spa.
In connection with the Hanbo Contract termination, CE Casecnan
made a draw under the irrevocable standby letter of credit issued
by Korea First Bank ("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. If
KFB were to fail to honor its obligations under the Casecnan
letter of credit, such action could have a material adverse
effect on the Casecnan Project and CE Casecnan.
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.
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.
(i) The Company filed a Current Report on Form 8-K dated May 7,
1997 reporting termination of the Hanbo contract and finalization
of replacement contract.
(ii) The Company filed a Current Report on Form 8-K dated
May 19, 1997 reporting the Company filed a motion for summary
judgment to require Korea First Bank to honor a drawing on an
irrevocable standby letter of credit issued by Korea First Bank
for the benefit of the Company.
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: August 13, 1997 /s/ Craig M. Hammett
Craig M. Hammett
Vice President and Chief Financial Officer