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, 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 June 30, 1998.
<PAGE>
CE CASECNAN WATER AND ENERGY COMPANY, INC.
Form 10-Q
June 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, June 30, 1998 and December 31, 1997 4
Statements of Operations for the Three Months and
Six Months Ended June 30, 1998 and 1997 and for the
period from inception (September 21, 1994)to June 30,1998 5
Statements of Cash Flows for the Six Months Ended
June 30,1998 and 1997 and for the period from inception
(September 21, 1994) to June 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 June 30, 1998, and the related statements of
operations for the three months and six months ended June 30,
1998 and the period from inception (September 21, 1994) to June
30, 1998, and cash flows for the six months ended June 30, 1998
and 1997 and the period from inception (September 21, 1994) to
June 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, 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
August 12, 1998
<PAGE>
CE CASECNAN WATER AND ENERGY COMPANY, INC.
BALANCE SHEETS
(in thousands, except share and per share amounts)
________________________________
June 30, December 31,
1998 1997
ASSETS (unaudited)
Cash $ 2,527 $ 547
Restricted cash and short-term investments 117,683 183,607
Settlement receivable, accrued interest
and other receivables 84,137 2,962
Restricted investments 123,250 126,684
Due from affiliates, net 670 ---
Bond issue costs, net 10,924 11,513
Development and construction costs 221,777 158,266
Deferred income tax 8,664 8,333
Total assets $569,632 $491,912
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $101,117 $ 19,192
Advances from an affiliate --- 3,059
Notes and bonds payable 371,500 371,500
Total liabilities 472,617 393,751
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 (26,821) (25,675)
Total stockholders' equity 97,015 98,161
Total liabilities and stockholders' equity $569,632 $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 Six Months Ended (Sept. 21, 1994)
June 30, June 30, to
1998 1997 1998 1997 June 30, 1998
Revenues:
Interest and other income $4,960 $5,914 $10,044 $10,418 $57,935
Total revenues 4,960 5,914 10,044 10,418 57,935
Costs and expenses:
Interest expense, net of
interest capitalized 4,966 9,189 10,932 18,885 90,754
Amortization of bond
issue costs 295 264 589 527 2,666
Total costs and expenses 5,261 9,453 11,521 19,412 93,420
Loss before income taxes (301) (3,539) (1,477) (8,994) (35,485)
Deferred income tax benefit 68 867 331 2,203 8,664
Net loss to common
stockholders $(233) $(2,672) $(1,146) $(6,791) $(26,821)
Net loss per share $(0.30) $ (3.48) $ (1.49) $ (8.85) $ (38.30)
Average number of common
shares outstanding 767,162 767,162 767,162 767,162 700,356
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)
________________________________
Six Months Ended From Inception
June 30, (September 21, 1994)
1998 1997 June 30, 1998
Cash flows from operating
activities:
Net loss $(1,146) $(6,791) $(26,821)
Adjustments to reconcile net
cash flows used in operating
activities:
Deferred income tax benefit (331) (2,203) (8,664)
Amortization of bond issue costs 589 527 2,666
Decrease (increase) in accrued
interest and other receivables (1,175) 2,818 (4,137)
Increase in accounts payable
and accrued expenses 231 174 6,686
Net cash flows used in
operating activities (1,832) (5,475) (30,270)
Cash flows from investing activities:
Additions to construction in progress(63,511) (24,750) (221,777)
Decrease (increase) in restricted
cash and short-term investments 65,924 13,109 (117,683)
Decrease (increase) in restricted
investments 3,434 14,365 (123,250)
Increase (decrease) in accounts
payable and accrued expenses
related to development and
construction activities 1,694 618 14,431
Net cash flows provided by (used in)
investing activities 7,541 3,342 (448,279)
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 (3,729) 2,369 (670)
Net cash flows provided by
(used in) financing activities (3,729) 2,369 481,076
Net increase in cash 1,980 236 2,527
Cash at beginning of period 547 32 -
Cash at end of period $2,527 $ 268 $ 2,527
Supplemental disclosure:
Interest paid (net of amount
capitalized) $10,701 $18,914 $84,067
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 June 30, 1998 and the
results of operations for the three and six months ended June 30,
1998 and 1997 and the period from inception (September 21, 1994)
to June 30, 1998, and cash flows for the six months ended June
30, 1998 and 1997 and the period from inception (September 21,
1994) to June 30, 1998.
The results of operations for the three and six months ended June
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
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 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.
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 turnkey
engineering, procurement and construction contract to complete
the construction of the Casecnan Project (the
<PAGE>
CE CASECNAN WATER AND ENERGY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
(in thousands, except per share amounts)
________________________________
Commitments and Contingencies (continued)
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.
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 in New York State Court.
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 have 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, on July 3, 1998. The receipt of the $10,000
and the accrual of the receivable for the remaining $80,000 were included
in accounts payable and accrued expenses, pending final determination
of actual transition costs and damages incurred by the Company.
<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 second quarter of 1998 to $4,960 from
$5,914 in the same period in 1997, a 16.1% decrease. For the six
months ended June 30, 1998, revenue decreased to $10,044 from
$10,418, a 3.6% decrease. These decreases are primarily a result
of lower cash balances due to construction draws.
Interest expense in the second quarter of 1998 was $11,500
compared to $11,469 for the same period in 1997. For the six
months ended June 30, 1998 and 1997, interest expense was $23,044
and $22,911, respectively. Capitalized interest in the second
quarter 1998 increased to $6,534 from $2,280 for the same period
in 1997, a 186.6% increase. For the six months ended June 30,
1998, capitalized interest increased to $12,112 from $4,026 for
the same period in 1997, a 200.8% 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, 1998 was $295 and $589
respectively, compared to $264 and $527 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
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.
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 in New York State Court.
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 have 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, on July 3, 1998.
The Company has commenced, for all of its information systems, a year
2000 date conversion project to address all necessary code changes,
testing and implementation. The "Year 2000 Computer Problem" creates
risk for the Company from unforeseen problems in its own computer
systems and from third parties with whom the Company deals on financial
transactions worldwide. Such 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, and especially to process and account
for the transfer of funds electronically. Management believes that it
will substantially complete the year 2000 implementation before
January 1, 2000 and that the related costs and potential effect should
not have a material financial impact on the Company.
<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) The Company filed a Current Report on Form 8-K dated April
8, 1998 reporting the New York Appellate Court order for Korea
First Bank to honor draws on an irrevocable standby letter of
credit issued by Korea First Bank for the benefit of the Company.
(ii) The Company filed a Current Report on Form 8-K dated
April 17, 1998 reporting settlement with Korea First Bank, Hanbo
Corporation, Hanbo Engineering & Construction Company, Ltd. and
Hanbo Steel Company, Ltd.
<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: August 13, 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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<PERIOD-END> JUN-30-1998
<CASH> 120,210
<SECURITIES> 0
<RECEIVABLES> 84,137
<ALLOWANCES> 0
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<PP&E> 221,777
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0
0
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