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
SEPTEMBER 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
September 30, 1999.
CE CASECNAN WATER AND ENERGY COMPANY, INC.
Form 10-Q
September 30, 1999
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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, September 30, 1999 and December 31, 1998 4
Statements of Operations for the Three and Nine Months Ended September 30, 1999
and 1998 and for the period from inception (September 21, 1994) to September 30,
1999 5
Statements of Cash Flows for the Nine Months Ended September 30, 1999 and 1998
and for the period from inception (September 21, 1994) to September 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
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ITEM 2. Changes in Securities 11
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ITEM 3. Defaults on Senior Securities 11
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ITEM 4. Submission of Matters to a Vote of Security Holders 11
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ITEM 5. Other Information 11
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ITEM 6. Exhibits and Reports on Form 8-K 11
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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 September 30, 1999, and
the related statements of operations for the three and nine months ended
September 30, 1999 and 1998 and the period from inception (September 21, 1994)
to September 30, 1999, and cash flows for the nine months ended September 30,
1999 and 1998 and the period from inception (September 21, 1994) to September
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 inception
(September 21, 1994) to December 31, 1998, changes in stockholders' equity for
the period from inception (September 21, 1994) to December 31, 1998 and cash
flows for the year ended December 31, 1998, and for the period from 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
November 08, 1999
CE CASECNAN WATER AND ENERGY COMPANY, INC.
BALANCE SHEETS
(in thousands, except share and per share amounts)
--------------------------------
September 30, December 31,
1999 1998
------------- ----
(unaudited)
ASSETS
Cash $ 2,437 $ 1,996
Restricted cash and short-term investments 77,188 145,958
Accrued interest and other receivables 3,166 3,014
Restricted investments 121,614 122,341
Bond issue costs - net 9,341 10,334
Development and construction costs 311,267 261,563
DEFERRED INCOME TAX 8,010 8,227
-------- --------
TOTAL ASSETS $ 533,023 $ 553,433
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 55,942 $ 82,635
Advances from an affiliate 6,288 756
NOTES AND BONDS PAYABLE 371,500 371,500
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TOTAL LIABILITIES 433,730 454,891
--------- ----------
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 (24,543) (25,294)
-------- ---------
TOTAL STOCKHOLDERS' EQUITY 99,293 98,542
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 533,023 $ 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 Nine Months Ended Sept. 21,1994)
September 30, September 30, to
1999 1998 1999 1998 SEPT. 30, 1999
---- ---- ---- ---- --------------
Revnues:
INTEREST AND OTHER INCOME $ 2,665 $ 5,159 $ 8,958 $ 15,203 $ 76,381
------- ------- ------- -------- --------
TOTAL REVENUES 2,665 5,159 8,958 15,203 76,381
------- ------- ------- -------- -------
Costs and expenses:
Interest expense - net
of interest capitalized 1,935 3,844 6,997 14,776 104,685
AMORTIZATION OF BOND
ISSUE COSTS 331 295 993 884 4,249
-------- --------- -------- --------- ---------
TOTAL COSTS AND EXPENSES 2,266 4,139 7,990 15,660 108,934
-------- --------- -------- --------- ---------
Net income (loss) before
income tax 399 1,020 968 (457) (32,553)
Benefit from (provision for)
deferred income tax (90) (219) (217) 112 8,010
-------- --------- -------- --------- ---------
Net income (loss) to common
stockholders $ 309 $ 801 $ 751 $ (345)$ (24,543)
======== ========= ========= ========= =========
NET INCOME (LOSS)
PER SHARE $ 0.40 $ 1.04 $ 0.98 $ (0.45)$ (34.23)
======== ========= ========= ========= =========
Average number of common
shares outstanding 767,162 767,162 767,162 767,162 716,993
========= ========= ========= ========= =========
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)
--------------------------------
Nine Months Ended From Inception
September 30, (September 21, 1994)
1999 1998 to Sept. 30, 1999
---- ---- ------------------
Cash flows from operating activities:
Net income (loss) $ 751 $ (345) $ (24,543)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Provision for (Benefit from)
deferred income tax 217 (112) (8,010)
Amortization of bond issue costs 993 884 4,249
Increase in accrued interest and other
Receivables (152) (75) (3,166)
Increase in accounts payable and
accrued expenses 9,584 9,439 18,234
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Net cash provided by (used in)
operating activities 11,393 9,791 (13,236)
------- ------- ---------
Cash flows from investing activities:
Additions to development and
construction costs (49,704) (75,248) (311,267)
Decrease (increase) in restricted cash
and short-term investments 68,770 3,638 (77,188)
Decrease (increase) in restricted
investments 727 4,595 (121,614)
Increase (decrease) in accounts payable and
accrued expenses related to development
and construction activities (36,277) 61,612 37,708
--------- ---------- -------------
Net cash used in investing activities (16,484) (5,403) (472,361)
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Cash flows from financing activities:
Increase (decrease) in advances
from an affiliate 5,532 (2,812) 6,288
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 5,532 (2,812) 488,034
--------- ---------- -------------
Net increase in cash and cash
equivalents 441 1,576 2,437
Cash at beginning of period 1,996 547 -
--------- ---------- -------------
Cash at end of period $ 2,437 $ 2,123 $ 2,437
========== ========== ============
Supplemental disclosure:
Interest paid (net of amount
capitalized) $ (2,587) $ (1,118) $ 89,257
========== ========== =============
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 September 30, 1999 and the
results of operations for the three and nine months ended September 30, 1999 and
1998 and the period from inception (September 21, 1994) to September 30, 1999,
and cash flows for the nine months ended September 30, 1999 and 1998 and the
period from inception (September 21, 1994) to September 30, 1999.
The results of operations for the three and nine months ended September 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 third
quarter of 1999 to $2,665 from $5,159 in the same period in 1998, a 48.3%
decrease. For the nine months ended September 30, 1999, interest income
decreased 41.1% to $8,958 from $15,203 for the same period in 1998. 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 third quarter of 1999 was $11,250 compared to $10,962
for the same period in 1998. For the nine months ended September 30, 1999 and
1998, interest expense was $33,655 and $34,005, respectively. Capitalized
interest in the third quarter 1999 increased to $9,315 from $7,118 for the same
period in 1998, a 30.9% increase. For the nine months ended September 30, 1999,
capitalized interest increased to $26,658 from $19,229 for the same period in
1998, a 38.6% increase. The increases in capitalized interest resulted from
higher cumulative development and construction costs. Amortization of bond issue
costs for the three and nine month periods ended September 30, 1999 were $331
and $993, respectively, compared to $295 and $884 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:
The Company 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,
$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 CP Casecnan Consortium, a
consortium consisting of Cooperativa Muratori Cementisti CMC di Ravenna and
Impresa Pizzarotti & C. Spa, and Siemens A.G., Sulzer Hydro Ltd., Black & Veatch
and Colenco Power Engineering Ltd. (collectively, the "Contractor"). The
Casecnan Project, which was expected to become operational in the fourth quarter
of 2000, is now expected to become operational in the first quarter of 2001 due
to certain recent delays experienced by the Contractor. The Company is currently
assessing the impact of these delays with the Contractor.
What is generally known as the year 2000 computer issue ("Y2K") 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, it is anticipated 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 year 2000, the Y2K problem in regard to Casecnan's operational
assets cannot 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 not expected to be material. 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. Although such plans are substantially complete, they
will be refined throughout the remainder of the year, based on results of
contingency planning drills and other changes in circumstances.
Although management believes that the Y2K project will be substantially complete
before January 1, 2000, 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,
uncertainties relating to construction (and in particular tunneling) activities
and SCHEDULE, 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: NOVEMBER 12, 1999 /S/ PATRICK J. GOODMAN
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Patrick J. Goodman
Senior Vice President & Chief Financial Officer