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, 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 June 30, 1999.
CE CASECNAN WATER AND ENERGY COMPANY, INC.
Form 10-Q
June 30, 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, June 30, 1999 and December 31, 1998 4
Statements of Operations for the Three and Six Months Ended
June 30, 1999 and 1998 and for the period from inception
(September 21, 1994) to June 30, 1999 5
Statements of Cash Flows for the Six Months Ended June 30, 1999
and 1998 and for the period from inception (September 21, 1994) to June
30, 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 June 30, 1999, and the related statements of
operations for the three and six months ended June 30, 1999 and
1998 and the period from inception (September 21, 1994) to June
30, 1999, and cash flows for the six months ended June 30, 1999
and 1998 and the period from inception (September 21, 1994) to
June 30, 1999. These 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
July 28, 1999
CE CASECNAN WATER AND ENERGY COMPANY, INC.
BALANCE SHEETS
(in thousands, except share and per share amounts)
________________________________
June 30, December 31,
1999 1998
ASSETS (unaudited)
Cash $ 2,146 $ 1,996
Restricted cash and short-term investments 100,581 145,958
Accrued interest and other receivables 2,128 3,014
Restricted investments 122,880 122,341
Bond issue costs - net 9,672 10,334
Development and construction costs 294,709 261,563
Deferred income tax 8,100 8,227
Total assets $ 540,216 $ 553,433
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 65,685 $ 82,635
Advances from an affiliate 4,047 756
Notes and bonds payable 371,500 371,500
Total liabilities 441,232 454,891
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 (24,852) (25,294)
Total stockholders' equity 98,984 98,542
Total liabilities and stockholders'
equity $ 540,216 $ 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 Inception
Three Months Ended Six Months Ended (Sept. 21, 1994)
June 30, June 30, to
1999 1998 1999 1998 June 30, 1999
Revenues:
Interest and other income $ 2,991 $ 4,960 $ 6,293 $ 10,044 $ 73,716
Total revenues 2,991 4,960 6,293 10,044 73,716
Costs and expenses:
Interest expense - net
of interest capitalized 2,253 4,966 5,062 10,932 102,750
Amortization of bond
issue costs 331 295 662 589 3,918
Total costs and expenses 2,584 5,261 5,724 11,521 106,668
Net income (loss) before
income tax 407 (301) 569 (1,477) (32,952)
Benefit from (provision
for) deferred income tax (79) 68 (127) 331 8,100
Net income (loss) to
common stockholders $ 328 $ (233) $ 442 $ (1,146) $ (24,852)
Net loss per share $ 0.43 $(0.30) $ 0.58 $ (1.49) $ (34.79)
Average number of common
shares outstanding 767,162 767,162 767,162 767,162 714,345
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)
1999 1998 to June 30, 1999
Cash flows from operating activities:
Net income (loss) $ 442 $ (1,146) $ (24,852)
Adjustments to reconcile net
income (loss) to net cash provided
by (used in) operating activities:
Provision for (Benefit from)
deferred income tax 127 (331) (8,100)
Amortization of bond issue costs 662 589 3,918
Decrease (increase) in accrued
interest and other receivables 886 (1,175) (2,128)
Increase (decrease) in accounts
payable and accrued expenses (165) 231 8,485
Net cash provided by (used in)
operating activities 1,952 (1,832) (22,677)
Cash flows from investing activities:
Additions to development and
construction costs (33,146) (63,511) (294,709)
Decrease (increase) in restricted
cash and short-term investments 45,377 65,924 (99,001)
Decrease (increase) in
restricted investments (539) 3,434 (122,880)
Increase (decrease) in accounts
payable and accrued expenses
related to development and
construction activities (16,785) 1,694 57,200
Net cash provided by (used in)
investing activities (5,093) 7,541 (459,390)
Cash flows from financing
activities:
Increase (decrease) in advances
from an affiliate 3,291 (3,729) 4,047
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 3,291 (3,729) 485,793
Net increase in cash and cash
equivalents 150 1,980 3,726
Cash at beginning of period 1,996 547 -
Cash at end of period $ 2,146 $ 2,527 $ 3,726
Supplemental disclosure:
Interest paid (net of amount
capitalized) $ 5,228 $10,701 $ 97,072
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, 1999 and the
results of operations for the three and six months ended June 30,
1999 and 1998 and the period from inception (September 21, 1994)
to June 30, 1999, and cash flows for the six months ended June
30, 1999 and 1998 and the period from inception (September 21,
1994) to June 30, 1999.
The results of operations for the three and six months ended June
30, 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 second quarter of 1999 to $2,991
from $4,960 in the same period in 1998, a 39.7% decrease. For
the six months ended June 30, 1999, interest income decreased to
$6,293 from $10,044 in the same period in 1998, a 37.4% decrease.
These decreases are primarily due to lower cash balances due to
the use of existing cash to support the ongoing construction
activities.
Interest expense in the second quarter of 1999 was $11,386
compared to $11,500 for the same period in 1998. For the six
months ended June 30, 1999 and 1998, interest expense was $22,405
and $23,044, respectively. Capitalized interest in the second
quarter 1999 increased to $9,133 from $6,534 for the same period
in 1998, a 39.8% increase. For the six months ended June 30,
1999, capitalized interest increased to $17,343 from $12,112 for
the same period in 1998, a 43.2% increase. The increases in
capitalized interest result from higher cumulative development
and construction costs. Amortization of bond issue costs for the
three and six month periods ended June 30, 1999 were $331 and
$662, respectively, compared to $295 and $589 for the same period
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 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 planning to restore services in the event that year 2000
problems occur. It is expected that the contingency plan will be
finalized in the third quarter of 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: August 12, 1999 /s/ Patrick J. Goodman
Patrick J. Goodman
Senior Vice President & Chief Financial Officer