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, 1999
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, 1999.
CE CASECNAN WATER AND ENERGY COMPANY, INC.
Form 10-Q
March 31, 1999
_____________
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, 1999 and December 31, 1998 4
Statements of Operations for the Three Months Ended
March 31, 1999 and 1998 and for the period from inception
(September 21, 1994) to March 31, 1999 5
Statements of Cash Flows for the Three Months Ended
March 31,1999 and 1998 and for the period from inception
(September 21, 1994) to March 31, 1999 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
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 March 31, 1999, and the related statements of
operations for the three months ended March 31, 1999 and 1998 and
the period from the date of inception (September 21, 1994) to
March 31, 1999, and cash flows for the three months ended March
31, 1999 and 1998 and the period from the date of inception
(September 21, 1994) to March 31, 1999. 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, 1998,
and the related statements of operations for the year ended
December 31, 1998, and for the period from the date of inception
(September 21, 1994) to December 31, 1998, changes in
stockholders' equity for the period from date of inception
(September 21, 1994) to December 31, 1998 and cash flows for the
year ended December 31, 1998, and for the period from the date of
inception (September 21, 1994) to December 31, 1998 (not
presented separately herein) and, in our report dated January 20,
1999, we expressed an unqualified opinion on those financial
statements.
SYCIP GORRES VELAYO & CO.
An Arthur Andersen Member Firm
Makati City, Philippines
May 12, 1999
CE CASECNAN WATER AND ENERGY COMPANY, INC.
BALANCE SHEETS
(in thousands, except share and per share amounts)
________________________________
March 31, December 31,
1999 1998
ASSETS (unaudited)
Cash $ 2,143 $ 1,996
Restricted cash and short-term 136,300 145,958
investments
Accrued interest and other receivables 2,566 3,014
Restricted investments 122,783 122,341
Bond issue costs, net 10,003 10,334
Development and construction costs 279,747 261,563
Deferred income tax
8,179 8,227
Total assets $ 561,721 $ 553,433
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 89,115 $ 82,635
Advances from an affiliate 2,455 756
Notes and bonds payable 371,500 371,500
Total liabilities 463,070 454,891
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 (25,185) (25,294)
Total stockholders' equity 98,651 98,542
Total liabilities and stockholders' equity $ 561,721 $ 553,433
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 the Date of
Inception
Three Months Ended (September 21, 1994)
March 31, to
1999 1998 March 31, 1999
Revenues:
Interest and other income $ 3,302 5,084 70,725
Total revenues 3,302 5,084 70,725
Costs and expenses:
Interest expense, net of
interest capitalized 2,809 5,966 100,497
Amortization of bond
issue costs 331 294 3,587
Total costs and expenses 3,140 6,260 104,084
Net income (loss) before
income taxes 162 (1,176) (33,359)
Benefit from (provision
for) deferred income tax (48) 263 8,179
Net income (loss) to
common stockholders $ (25,180) 114 (913)
Net income (loss) per
share $ .15 $ (1.19) $ (35.39)
Average number of common
shares outstanding 767,162 767,162 711,436
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 the Date of
Three Months Ended Inception
March 31, (September 21, 1994)
1999 1998 to March 31, 1999
Cash flows from operating
activities:
Net income (loss) $ 114 $ (913) $ (25,180)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Provision for (benefit from)
deferred income tax 48 (263) (8,179)
Amortization of bond issue costs 331 294 3,587
Decrease (increase) in accrued
interest and other receivables 448 (385) (2,566)
Increase in accounts payable
and accrued expenses 9,322 9,749 17,972
Net cash provided by (used in)
operating activities 10,263 8,482 (14,366)
Cash flows from investing
activities:
Additions to development and
construction costs (18,184) (32,680) (279,747)
Decrease (increase)in restricted
cash and short-term
investments 9,658 28,175 (136,300)
Decrease (increase) in
restricted investments (442) 3,227 (122,783)
Increase (decrease) in accounts
payable and accrued expenses
related to development and
construction activities (2,847) (4,754) 71,138
Net cash used in investing
activities (11,815) (6,032) (467,692)
Cash flows from financing
activities:
Increase (decrease) in advances
from an affiliate 1,699 (2,612) 2,455
Issuance of bonds payable - - 371,500
Proceeds from issuance of
capital stock - - 29
Additional paid-in capital - - 123,807
Bond issue costs - - (13,590)
Net cash provided by (used in)
financing activities 1,699 (2,612) 484,201
Net increase (decrease) in cash
and cash equivalents 147 (162) 2,143
Cash at beginning of period 1,996 547 -
Cash at end of period $ 2,143 385 2,143
Supplemental disclosure:
Interest paid (net of amount
capitalized) $(6,512) $(5,578) $ 85,332
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, 1999 and
the results of operations for the three months ended March 31,
1999 and 1998 and the period from inception (September 21, 1994)
to March 31, 1999, and cash flows for the three months ended
March 31, 1999 and 1998 and the period from inception (September
21, 1994) to March 31, 1999.
The results of operations for the three months ended March 31,
1999 and 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, 1998 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 2 to the financial statements
included in that report.
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.
Interest income decreased in the first quarter of 1999 to $3,302
from $5,084 in the same period in 1998. This decrease is
primarily due to lower cash balances due to the use of existing
cash to support the ongoing construction activities.
Interest expense in the first quarter of 1999 was $11,019
compared to $11,544 for the same period in 1998. Capitalized
interest in the first quarter 1999 increased to $8,210 from
$5,578 for the same period in 1998, a 47% increase. The
increases in capitalized interest result from higher cumulative
development and construction costs. Amortization of bond issue
costs for the three month period ended March 31, 1999 was $331,
compared to $294 for the same periods in 1998. 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 1996.
Liquidity and Capital Resources:
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 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 is being constructed pursuant to a fixed-
price, date-certain, turnkey engineering, procurement and
construction contract to complete the construction of the
Casecnan Project (the "EPC Contract"). The work under the EPC
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 "Contractor"). Construction of the Casecnan
Project is expected to be completed in 2000.
What is generally known as the year 2000 ("Y2K") computer issue
arose because many existing computer programs and embedded
systems use only the last two digits to refer to a year.
Therefore, those computer programs do not properly distinguish
between a year that begins with "20" instead of "19". If not
corrected, many computer applications could fail or create
erroneous results. The failure to correct a material Y2K item
could result in an interruption in, or a failure of, certain
normal business activities or operations including the
generation, distribution and supply of electricity. Such
failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition.
The Y2K issue creates uncertainty for the Company from potential
issues with its own computer systems and from third parties with
whom the Company deals on transactions worldwide. The Company's
operations utilize systems and equipment provided by other
organizations. As a result, Y2K readiness of contractors,
suppliers, vendors, service providers or customers could impact
the Company's operations. The Company is assessing the readiness
of such constituent entities and the impacts on those entities
that rely upon the Company's services. The Company is unable to
determine at this time whether the consequences of Y2K failures
of third parties will have a material impact on the Company's
results of operations, liquidity, or financial condition.
The Company has commenced, for all of its information systems, a
Y2K date conversion project to address all necessary code
changes, testing and implementation in order to resolve the Y2K
issue. The Company created a worldwide Y2K project team to
identify, assess and correct all of its information technology
(IT) and non-IT systems, as well as, identify and assess third
party systems. The Company has identified and assessed
substantially all of its IT and non-IT systems and is currently
in the process of repairing or replacing those systems which it
believes are not year 2000 compliant. As the Casecnan Project is
expected to be in construction through the second quarter of the
year 2000, the Y2K problem in regard to Casecnan's operational
assets can not be tested by the Company until construction is
complete. This compliance is the obligation of the contractor
until completion of construction.
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):
Total Y2K expenditures, for both repairing or replacing non-
compliant systems, are expected to be immaterial. The Company is
not aware of any additional material costs needed to be incurred
to bring all of its systems into compliance; however, there is no
assurance that additional costs will not be incurred.
A contingency plan identifying credible worst-case scenarios is being
developed. The contingency plan is comprised of both mitigation and
recovery aspects. Mitigation entails planning to reduce the impact of
unresolved year 2000 problems, and recovery entails palnning to restore
services in the event that year 2000 problems occur. It is expected
that the contingency plan will be complete by mid-year 1999.
Although management believes that the Y2K project will be
substantially complete before January 1, 2000, any unforeseen
failures of the Company's and/or third parties' computer systems
could have a material impact on the Company's ability to conduct
its business.
Certain information included in this report contains forward-looking
statements made pursuant to the Private Securities Litigation Reform
Act of 1995 ("Reform Act"). Such statements are based on current
expectations and involve a number of known and unknown risks and
uncertainties that could cause the actual results and performance of
the Company to differ materially from any expected future results or
performance, expressed or implied, by the forward-looking statements.
In connection with the safe harbor provisions of the Reform Act, the
Company has identified important factors that could cause actual
results to differ materially from such expectations, including
development uncertainty, operating uncertainty, acquisition uncertainty,
uncertainties relating to doing business outside of the United States,
uncertainties relating to domestic and international economic and
political conditions and uncertainties regarding the impact of regulations,
changes in government policy, industry deregulation and competition.
Reference is made to all of the Company's SEC filings, incorporated
herein by reference, for a description of such factors. The Company
assumes no responsibility to update forward-looking information
contained herein.
CE CASECNAN WATER AND ENERGY COMPANY, INC.
PART II - OTHER INFORMATION
Item 1 - Legal proceedings.
Not applicable.
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:
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 12, 1999 /s/ Patrick J. Goodman
Patrick J. Goodman
Senior Vice President & Chief Financial Officer