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, 1998
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, 1998.
<PAGE>
CE CASECNAN WATER AND ENERGY COMPANY, INC.
Form 10-Q
September 30, 1998
_____________
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, 1998 and December 31, 1997 4
Statements of Operations for the Three Months and Nine Months
Ended September 30, 1998 and 1997 and for the period from inception
(September 21, 1994) to September 30,1998 5
Statements of Cash Flows for the Nine Months Ended September 30,
1998 and 1997 and for the period from inception (September 21, 1994)
to September 30, 1998 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults on Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Exhibit 27 14
<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, 1998, and the related statements of
operations for the three months and nine months ended September
30, 1998 and 1997 and the period from inception (September 21,
1994) to September 30, 1998, and cash flows for the nine months
ended September 30, 1998 and 1997 and the period from inception
(September 21, 1994) to September 30, 1998. 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, 1997,
and the related statements of operations for the year ended
December 31, 1997, and for the period from inception (September
21, 1994) to December 31, 1997, changes in stockholders' equity
for the period from date of inception (September 21, 1994) to
December 31, 1997 and cash flows for the year ended December 31,
1997, and for the period from inception (September 21, 1994) to
December 31, 1997 (not presented separately herein) and, in our
report dated January 23, 1998, we expressed an unqualified
opinion on those financial statements.
SYCIP, GORRES, VELAYO & CO.
Makati City, Philippines
November 12, 1998
<PAGE>
CE CASECNAN WATER AND ENERGY COMPANY, INC.
BALANCE SHEETS
(in thousands, except share and per share amounts)
________________________________
September December
30, 1998 31, 1997
ASSETS (unaudited)
Cash $ 2,123 $ 547
Restricted cash and short-term 179,969 183,607
investments
Accrued interest and other receivables 3,037 2,962
Restricted investments 122,089 126,684
Bond issue costs, net 10,629 11,513
Development and construction costs 233,514 158,266
Deferred income tax
8,445 8,333
Total assets $ 559,806 $ 491,912
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 90,243 $ 19,192
Advances from an affiliate 247 3,059
Notes and bonds payable 371,500 371,500
Total liabilities 461,990 393,751
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 (26,020) (25,675)
Total stockholders' equity 97,816 98,161
Total liabilities and stockholders'equity $ 559,806 $ 491,912
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 (Sept. 21, 1994)
September 30, September 30, to Sept. 30,
1998 1997 1998 1997 1998
Revenues:
Interest and other income $ 5,159 $ 3,893 $ 15,203 $ 14,311 $ 63,094
Total revenues 5,159 3,893 15,203 14,311 63,094
Costs and expenses:
Interest expense, net of
interest capitalized 3,844 7,630 14,776 26,515 94,598
Amortization of bond
issue costs 295 263 884 790 2,961
Total costs and expenses 4,139 7,893 15,660 27,305 97,559
Income (loss) before
income taxes 1,020 (4,000) (457) (12,994) (34,465)
Deferred income tax
benefit (expense) (219) 984 112 3,187 8,445
Net income (loss) to
common stockholders $ 801 $(3,016) $ (345) $(9,807) $(26,020)
Net income (loss) per
share $ 1.04 $ (3.93) $(0.45) $(12.78) $ (36.93)
Average number of common
shares outstanding 767,162 767,162 767,162 767,192 704,537
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)
________________________________
Nine Months Ended From Inception
September 30, (September 21, 1994)
1998 1997 to Sept. 30, 1998
Cash flows from operating
activities:
Net loss $ (345) $(9,807) $(26,020)
Adjustments to reconcile net
loss to net cash provided
by (used in) operating activities:
Deferred income tax benefit (112) (3,187) (8,445)
Amortization of bond issue costs 884 790 2,961
Increase in accrued interest and
and other receivables (75) (1,324) (3,037)
Increase in accounts payable
and accrued expenses 9,439 9,893 15,894
Net cash provided by (used in)
operating activities 9,791 (3,635) (18,647)
Cash flows from investing activities:
Additions to construction in
progress (75,248) (76,011) (233,514)
Decrease (increase) in restricted
cash and short-term investments 3,638 85,690 (179,969)
Decrease (increase) in restricted
investments 4,595 (8,214) (122,089)
Increase in accounts payable and
accrued expenses related to development
and construction activities 61,612 618 74,349
Net cash provided by (used in)
investing activities (5,403) 2,083 (461,223)
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 - - (13,590)
Increase (decrease) in advances
from an affiliate (2,812) 1,650 247
Net cash provided by (used in)
financing activities (2,812) 1,650 481,993
Net increase in cash 1,576 98 2,123
Cash at beginning of period 547 32 -
Cash at end of period $ 2,123 $ 130 $ 2,123
Supplemental disclosure:
Interest paid (net of amount
capitalized) $(1,118) $10,483 $ 78,704
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, 1998
and the results of operations for the three and nine months ended
September 30, 1998 and 1997 and the period from inception
(September 21, 1994) to September 30, 1998, and cash flows for
the nine months ended September 30, 1998 and 1997 and the period
from inception (September 21, 1994) to September 30, 1998.
The results of operations for the three and nine months ended
September 30, 1998 and 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, 1997 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 3 to the financial statements
included in that report.
3. Commitments and Contingencies
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. On May 7, 1997, CE Casecnan entered into a new fixed-
price, date-certain, 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
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 "Replacement Contractor").
In connection with the Hanbo Contract termination CE Casecnan
tendered four certificates of drawing to Korea First Bank ("KFB")
under the irrevocable standby letter of credit issued by KFB as
security under the Hanbo Contract to pay for certain transition
costs and other then ascertainable damages under the Hanbo
Contract. As a result of KFB's wrongful dishonor of the draw
request, CE Casecnan filed an action against KFB in New York
State Court.
<PAGE>
CE CASECNAN WATER AND ENERGY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
(in thousands, except per share amounts)
________________________________
Commitments and Contingencies (continued)
On September 2, 1997, Hanbo and HECC filed a Request for
Arbitration before the International Chamber of Commerce ("ICC").
The Request for Arbitration asserted various claims by Hanbo and
HECC against CE Casecnan relating to the terminated Hanbo
Contract and sought 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.
On April 17, 1998, CE Casecnan announced that it and Hanbo, HECC,
Hanbo Steel Company, Ltd. and KFB mutually agreed to settle the
differences among them related to the Casecnan Project. Under
the settlement, KFB agreed to pay CE Casecnan $90,000 and the
parties discontinued with prejudice the pending arbitration and
litigation proceedings and released each other from all claims
arising out of the litigation and arbitration. In accordance
with the terms of such settlement, CE Casecnan received $10,000
from KFB on April 17, 1998 and the remaining $80,000, including
interest thereon, on July 3, 1998. The receipt of the $90,000
was originally included in accounts payable and accrued expenses
and is being released periodically to offset costs which were,
and will be, incurred over the remainder of the construction
period.
<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.
Interest income increased in the third quarter of 1998 to $5,159
from $3,893 in the same period in 1997, a 33% increase. For the
nine months ended September 30, 1998, interest income increased
to $15,203 from $14,311, a 6% increase. These increases are
primarily due to higher cash balances due to the receipt of the
Hanbo settlement proceeds, which were partially offset by
construction draws.
Interest expense in the third quarter of 1998 was $10,962
compared to $11,509 for the same period in 1997. For the nine
months ended September 30, 1998 and 1997, interest expense was
$34,005 and $34,420, respectively. Capitalized interest in the
third quarter 1998 increased to $7,118 from $3,879 for the same
period in 1997, a 84% increase. For the nine months ended
September 30, 1998, capitalized interest increased to $19,229
from $7,905 for the same period in 1997, a 143% increase. The
increases in capitalized interest result from higher cumulative
development and construction costs. Amortization of bond issue
costs for the three and nine month periods ended September 30,
1998 was $295 and $884, respectively, compared to $263 and $790
for the same periods in 1997. 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.
<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. On May 7, 1997, CE Casecnan entered into a new fixed-
price, date-certain, 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
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 "Replacement Contractor").
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 had fully mobilized and
commenced engineering, procurement and construction work on the
project. Construction of the Casecnan Project is expected to be
completed in 2000.
In connection with the Hanbo Contract termination, CE Casecnan
tendered four certificates of drawing to Korea First Bank ("KFB")
under the irrevocable standby letter of credit issued by KFB as
security under the Hanbo Contract to pay for certain transition
costs and other then ascertainable damages under the Hanbo
Contract. As a result of KFB's wrongful dishonor of the draw
request, CE Casecnan filed an action against KFB in New York
State Court.
On September 2, 1997, Hanbo and HECC filed a Request for
Arbitration before the International Chamber of Commerce ("ICC").
The Request for Arbitration asserted various claims by Hanbo and
HECC against CE Casecnan relating to the terminated Hanbo
Contract and sought 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.
On April 17, 1998, CE Casecnan announced that it and Hanbo, HECC,
Hanbo Steel Company, Ltd. and KFB mutually agreed to settle the
differences among them related to the Casecnan Project. Under
the settlement, KFB agreed to pay CE Casecnan $90,000 and the
parties discontinued with prejudice the pending arbitration and
litigation proceedings and released each other from all claims
arising out of the litigation and arbitration. In accordance
with the terms of such settlement, CE Casecnan received $10,000
from KFB on April 17, 1998 and the remaining $80,000, including
interest thereon, on July 3, 1998.
<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):
What is generally known as the year 2000 ("Y2K") computer problem
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 problem could result in an interruption in, or a
failure of, certain normal business activities or operations.
Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition.
The Y2K problem creates uncertainty for the Company from
potential problems in 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 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
problem. This project involves use of 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 process of repairing or replacing those systems
which 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.
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.
Any unforeseen failures of the Company and/or third parties'
computer systems could have a material impact on the Company's
ability to conduct its business. Accordingly, the Company is
developing a formal contingency plan that is expected to be completed
by mid year 1999 to mitigate any potential business interruption.
<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:
Not applicable.
<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 12, 1998 /s/ Craig M. Hammett
Craig M. Hammett
Senior Vice President and
Chief Financial Officer
/s/ Patrick J. Goodman
Patrick J. Goodman
Vice President, Chief Accounting Officer
& Controller
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0
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