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, 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 September 30, 1997.
<PAGE>
CE CASECNAN WATER AND ENERGY COMPANY, INC.
Form 10-Q
September 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, September 30, 1997 and December 31, 1996 4
Statements of Operations for the Three Months and Nine Months
Ended September 30, 1997 and 1996 and for the period from inception
(September 21, 1994) to September 30,1997 5
Statements of Cash Flows for the Nine Months Ended September 30,
1997 and 1996 and for the period from inception (September 21, 1994)
to September 30, 1997 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
<PAGE>
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, 1997, and the related statements of
operations for the three months and nine months ended September
30, 1997 and the period from inception (September 21, 1994) to
September 30, 1997, and cash flows for the nine months ended
September 30, 1997 and 1996 and the period from inception
(September 21, 1994) to September 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
November 13, 1997
<PAGE>
CE CASECNAN WATER AND ENERGY COMPANY, INC.
UNAUDITED BALANCE SHEET
September 30, 1997
(with comparative audited figures for 1996)
(in thousands, except share and per share amounts)
________________________________
September 30, December 31,
1997 1996
ASSETS
Cash $ 130 $ 32
Restricted cash and short-term 58,432 144,122
investments
Accrued interest, other receivables and 6,281 4,958
other assets
Restricted investments 281,229 273,015
Construction in progress 126,804 50,793
Deferred income tax 7,864 4,676
Bond issue costs, net 11,776 12,566
Total assets $ 492,516 $ 490,162
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 19,314 $ 8,803
Advances from an affiliate 2,084 434
Notes and bonds payable 371,500 371,500
Total liabilities 392,898 380,737
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 (24,218) (14,411)
Total stockholders' equity 99,618 109,425
Total liabilities and stockholders' equity $ 492,516 $ 490,162
The accompanying notes are an integral part of these financial statements.
<PAGE>
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 (September 21,1994)
September 30, September 30, to September 30,
1997 1996 1997 1996 1997
Revenues:
Interest and other income $ 3,893 $ 6,438 $ 14,311 $ 19,706 $ 42,415
Total revenues 3,893 6,438 14,311 19,706 42,415
Costs and expenses:
Interest expense 11,509 11,439 34,420 34,307 84,515
Less interest capitalized (3,879) (1,164) (7,905) (2,362) (11,831)
Amortization of bond
issue costs 263 238 790 710 1,813
Total costs and expenses 7,893 10,513 27,305 32,655 74,497
Loss before income taxes (4,000) (4,075) (12,994) (12,949) (32,082)
Deferred income tax benefit 984 1,426 3,187 4,532 7,864
Net loss to common
stockholders (3,016) (2,649) (9,807) (8,417) (24,218)
Net loss per share -
primary (3.93) (3.45) (12.78) (10.97) (35.41)
Average number of common
shares outstanding 767,162 767,162 767,162 767,162 683,851
The accompanying notes are an integral part of these financial
statements.
<PAGE>
CE CASECNAN WATER AND ENERGY COMPANY, INC.
UNAUDITED STATEMENTS OF CASH FLOWS
(in thousands)
________________________________
From Inception
Nine Months Ended (September 21, 1994)
September 30, to September 30,
1997 1996 1997
Cash flows from operating activities:
Net loss $ (9,807) $ (8,417) $(24,218)
Adjustments to reconcile net
cash flow from operating activities:
Deferred income tax benefit (3,187) (4,532) (7,864)
Amortization of bond issue costs 790 710 1,813
Decrease (increase)in accrued
interest and other receivables (1,324) (2,935) (6,281)
Increase (decrease) in accounts
payable and accrued expenses (44) 11,450 6,050
Net cash flows from operating
activities (13,572) (3,724) (30,500)
Cash flows from investing activities:
Additions to construction
in progress (76,011) (36,569) (126,804)
Decrease (increase)in restricted
cash and short-term investments 85,690 100,521 (58,432)
Decrease (increase)in restricted
investments (8,214) (60,497) (281,229)
Increase in accounts payable
and accrued expenses related to
construction activities 618 1,193 3,327
Net cash flows from investing
activities 2,083 4,648 (463,138)
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)
Increase (decrease) in accrued
expenses related to financing
activities 9,937 (279) 9,937
Increase (decrease) in advances
from (to) an affiliate 1,650 (525) 2,084
Net cash flows from financing
activities 11,587 (977) 493,768
Net increase (decrease) in cash
and cash equivalents 98 (53) 130
Cash at beginning of period 32 1,696 -
Cash at end of period $ 130 $1,643 $ 130
Supplemental disclosure:
Interest paid (net of amount
capitalized) $ 10,483 $16,226 $56,652
The accompanying notes are an integral part of these financial
statements.
<PAGE>
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, 1997
and the results of operations for the three and nine months ended
September 30, 1997 and 1996 and the period from inception
(September 21, 1994) to September 30, 1997, and cash flows for
the nine months ended September 30, 1997 and 1996 and the period
from inception (September 21, 1994) to September 30, 1997.
The results of operations for the three and nine months ended
September 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 currently approximately 35% indirectly owned by
CalEnergy Company, Inc. ("CalEnergy") and currently approximately
35% indirectly owned by Peter Kiewit Sons' Inc. ("PKS"). On
September 11, 1997, CalEnergy signed a definitive agreement with
Kiewit Diversified Group ("KDG"), a wholly owned subsidiary of
PKS, for CalEnergy to purchase KDG's ownership interest in
various project partnerships, including CE Casecnan, and
CalEnergy common shares (the "KDG Acquisition"). Final closing
of the transaction is expected to occur in January 1998. 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.
<PAGE>
CE CASECNAN WATER AND ENERGY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
(in thousands, except per share amounts)
________________________________
Commitments and Contingencies (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. 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 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 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. 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.
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 has fully mobilized and
commenced 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.
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.
<PAGE>
CE CASECNAN WATER AND ENERGY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
(in thousands, except per share amounts)
________________________________
Commitments and Contingencies (continued)
On September 29, 1997 CE Casecnan tendered a second certificate
of drawing for $10,828 to KFB. KFB also wrongfully dishonored
this draw, but pursuant to a stipulation agreed to deposit the
draw amount 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 or about September 3, 1997, Hanbo and HECC filed a Request for
Arbitration before the International Chamber of Commerce ("ICC").
The Request for Arbitration asserts various claims by Hanbo and
HECC against CE Casecnan relating to the terminated Hanbo
Contract and seeking 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. The arbitration proceedings
before the ICC are ongoing and CE Casecnan intends to pursue
vigorously its claims against Hanbo, HECC and KFB in the
proceedings described above.
<PAGE>
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 third quarter of 1997 to $3,893 from
$6,438 in the same period in 1996, a 39.5% decrease. For the
nine months ended September 30, 1997, revenue decreased to
$14,311 from $19,706, a 27.4% 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 third quarter of 1997 was $11,509
compared to $11,439 for the same period in 1996. For the nine
months ended September 30, 1997 and 1996, interest expense was
$34,420 and $34,307, respectively. Capitalized interest in the
second quarter 1997 increased to $3,879 from $1,164 for the same
period in 1996, a 233.2% increase. For the nine months ended
September 30, 1997, capitalized interest increased to $7,905 from
$2,362 for the same period in 1996, a 234.7% 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 nine
month periods ended September 30, 1997 was $263 and $790
respectively, compared to $238 and $710 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 currently approximately 35% indirectly owned by
CalEnergy Company, Inc. ("CalEnergy") and currently approximately
35% indirectly owned by Peter Kiewit Sons' Inc. ("PKS"). 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.
<PAGE>
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. 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 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 (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. 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.
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 has fully mobilized and
commenced 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.
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.
<PAGE>
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. KFB also wrongfully dishonored
this draw, but pursuant to a stipulation agreed to deposit the
draw amount 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 or about September 3, 1997, Hanbo and HECC filed a Request for
Arbitration before the International Chamber of Commerce ("ICC").
The Request for Arbitration asserts various claims by Hanbo and
HECC against CE Casecnan relating to the terminated Hanbo
Contract and seeking 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. The arbitration proceedings
before the ICC are ongoing and CE Casecnan intends to pursue
vigorously its claims against Hanbo, HECC and KFB in the
proceedings described above.
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.
<PAGE>
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) Form 8-K dated August 27, 1997 reporting the New
York State Court summary judgment ruling against
Korea First Bank.
<PAGE>
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 14, 1997 /s/ Craig M. Hammett
Craig M. Hammett
Vice President and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 58,562
<SECURITIES> 0
<RECEIVABLES> 6,281
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 126,804
<DEPRECIATION> 0
<TOTAL-ASSETS> 492,516
<CURRENT-LIABILITIES> 0
<BONDS> 371,500
0
0
<COMMON> 29
<OTHER-SE> 99,589
<TOTAL-LIABILITY-AND-EQUITY> 492,516
<SALES> 0
<TOTAL-REVENUES> 14,311
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,305
<INCOME-PRETAX> (12,994)
<INCOME-TAX> 3,187
<INCOME-CONTINUING> (9,807)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,807)
<EPS-PRIMARY> (12.78)
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