SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1998
Commission File No. 333-00608
CE CASECNAN WATER AND ENERGY COMPANY, INC.
(Exact name of registrant as specified in its charter)
Philippines Not applicable
(State or other (IRS Employer
jurisdiction of incorporation Identification No.)
or organization)
6750 Ayala Avenue, 24th Floor, Not applicable
Makati, Manila, Philippines (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (632) 892-0276
Securities registered pursuant to Section 12(b) of the Act: N/A
Securities registered pursuant to Section 12(g) of the Act: N/A
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______
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
All Common Stock of the Company is held by the original
shareholders. Accordingly there is no market value.
767,162 shares of Common Stock, $0.038 par value, were
outstanding on March 23, 1999.
Documents incorporated by reference: N/A
<PAGE>
TABLE OF CONTENTS
PART I 3
ITEM 1. BUSINESS 3
GENERAL 3
PROJECT 3
THE EXPANDING PHILIPPINE AGRICULTURE SECTOR AND POWER MARKETS 5
AGRICULTURE 5
POWER 6
TERMS OF THE SECURITIES 6
GENERAL 6
PAYMENT OF PRINCIPAL AND INTEREST 6
PRIORITY OF PAYMENTS 7
DEBT SERVICE RESERVE FUND 8
OPTIONAL REDEMPTION 8
MANDATORY REDEMPTION 8
CHANGE IN CONTROL PUT 8
DISTRIBUTIONS 9
RANKING AND SECURITY FOR THE SECURITIES 9
RATINGS 9
NATURE OF RECOURSE ON THE SECURITIES 9
INCURRENCE OF ADDITIONAL DEBT 10
PRINCIPAL COVENANTS 11
INSURANCE 11
REGULATORY MATTERS 12
EMPLOYEES 12
ITEM 2. PROPERTIES 12
ITEM 3. LEGAL PROCEEDINGS 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 13
PART II 14
ITEM 5. MARKET FOR COMPANY'S EQUITY AND RELATED STOCKHOLDER
MATTERS 14
ITEM 6. SELECTED FINANCIAL DATA 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 14
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET
RISK 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 18
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 19
BALANCE SHEETS 20
STATEMENTS OF OPERATIONS 21
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY 22
STATEMENTS OF CASH FLOWS 23
NOTES TO FINANCIAL STATEMENTS 24
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 30
PART III 31
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY 31
ITEM 11. EXECUTIVE COMPENSATION 33
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 33
DESCRIPTION OF CAPITAL STOCK 33
PRINCIPAL HOLDERS 33
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 34
SIGNATURES 35
INDEX TO EXHIBITS 36
<PAGE>
PART I
Item 1. Business
General
CE Casecnan Water and Energy Company, Inc. ("Company" or "CE
Casecnan") is a privately held Philippine corporation formed in
September of 1994 solely to develop, construct, own and operate
the Casecnan Project, a multi-purpose irrigation and
hydroelectric power facility with a rated capacity of
approximately 150 Megawatts ("MW") located on the island of Luzon
in the Republic of the Philippines (the "Casecnan Project").
After the completion of the aforementioned project, the Company
is expected to be owned at least 70% (subject to upward
adjustment based upon the actual economics of the Casecnan
Project at commencement of commercial operations) by MidAmerican
Energy Holdings Company, the successor of CalEnergy Company, Inc.
("MidAmerican"), through its wholly owned subsidiary CE Casecnan
Ltd. The ownership percentage held by the minority shareholders
may be reduced in certain circumstances and such reduction would
result in a corresponding increase in the ownership percentage of
the Company held by affiliates of MidAmerican.
The Securities (described herein) are recourse only to the
Company. MidAmerican has not guaranteed directly or indirectly
the payment or performance of any Company obligations.
The Company's principal executive office is located at 6750
Ayala Avenue, 24th Floor, Makati, Metro Manila, Philippines, and
its telephone number is 632 892 0276. The Company's principal
office will be located in Pantabangan in the Province of Nueva
Ecija, Philippines.
Project
The Casecnan Project is located in the central part of the
island of Luzon. It will consist generally of diversion
structures in the Casecnan and Taan Rivers that will capture and
divert excess water in the Casecnan watershed by means of
concrete, in-stream diversion weirs and transfer that water
through a transbasin tunnel of approximately 23 kilometers
(including the intake adit from the Taan to the Casecnan River),
with a diameter of approximately 6.5 meters to an existing
underutilized water storage reservoir at Pantabangan. During the
water transfer, the elevation differences between the two
watersheds will allow electrical energy to be generated at a new
150 net MW rated capacity power plant, which will be constructed
in a underground powerhouse cavern located at the end of the
water tunnel. A tailrace discharge tunnel of approximately three
kilometers will deliver water from the water tunnel and the new
powerhouse to the Pantabangan Reservoir, providing additional
water for irrigation and increasing the potential electrical
generation at two downstream existing hydroelectric facilities of
the Philippine National Power Corporation ("NPC"), the government-
owned and controlled corporation that is the primary supplier of
electricity in the Philippines. Since the water has been
determined to remain suitable for irrigation throughout the
Casecnan Project operations of capturing, diverting and
transferring the water, other than removing sediments at the
diversion structures, no treatment will be required. Once in the
reservoir at Pantabangan, the water will be under the control of,
and for the use of the Philippine National Irrigation
Administration ("NIA").
The Casecnan Project's diversion structures will be capable
of storing flows from the Casecnan and Taan Rivers over a number
of hours, and then discharging that stored water through the
transbasin tunnel and new powerhouse during the 12 hours (8:00
a.m. through 8:00 p.m.) coinciding with peak electrical demand
hours. Tunnel flows and water depths behind the diversion
structures will be regulated by in-tunnel valves in front of the
powerhouse turbines controlled by the operators at the powerhouse
control room.
In early 1994, President Fidel Ramos recognized the need for
an irrigation and hydroelectric project that would provide
increased water flows for irrigation to the rice growing area of
Central Luzon, would be environmentally sound, technically
feasible and economically viable, and would involve no flooding
or relocation of local residents. At that time, he directed the
<PAGE>
Philippine Department of Agriculture and NPC to work together
with other interested agencies to develop a combined irrigation
and hydroelectric project. Shortly thereafter, the Philippine
government was approached by the Company with a proposal for a
project to be developed in the Casecnan area on a build-own-
operate-transfer ("BOOT") basis, that is, an arrangement under
which the Company as developer would agree to build, own and
operate the Casecnan Project during the construction period and a
twenty-year cooperation period, after which ownership and
operation of the Project would be transferred to the NIA and NPC
at no cost. After conclusion of a public solicitation for
competing proposals, NIA selected the Company as the BOOT
developer and entered into the Project Agreement with the
Company. The Casecnan Project was subsequently designated a high
priority project under Republic Act No. 529 by the National
Economic and Development Authority of the Philippines.
CE Casecnan is developing the Casecnan Project under the
terms of the Project Agreement between CE Casecnan and NIA.
Under the Project Agreement, CE Casecnan will develop, finance
and construct the Casecnan Project over the construction period,
and thereafter own and operate the Casecnan Project for 20 years
(the "Cooperation Period"). During the Cooperation Period, NIA
is obligated to accept all deliveries of water and energy, and so
long as the Casecnan Project is physically capable of operating
and delivering in accordance with agreed levels set forth in the
Project Agreement, NIA will pay CE Casecnan a guaranteed fee for
the delivery of water and a guaranteed fee for the delivery of
electricity, regardless of the amount of water or electricity
actually delivered. In addition, NIA will pay a fee for all
electricity delivered in excess of a threshold amount up to a
specified amount. NIA will sell the electricity it purchases to
NPC, although NIA's obligations to CE Casecnan under the Project
Agreement are not dependent on NPC's purchase of the electricity
from NIA. All fees to be paid by NIA to CE Casecnan are payable
in U.S. dollars. The guaranteed fees for the delivery of water
and energy are expected to provide approximately 70% of CE
Casecnan's revenues.
The Project Agreement provides for additional compensation
to CE Casecnan upon the occurrence of certain events, including
increases in Philippine taxes and adverse changes in Philippine
law. Upon the occurrence and during the continuance of certain
force majeure events, including those associated with Philippines
political action, NIA may be obligated to buy the Casecnan
Project from CE Casecnan at a buy out price expected to be in
excess of the aggregate principal amount of the outstanding CE
Casecnan debt securities, together with accrued but unpaid
interest. At the end of the Cooperation Period, the Casecnan
Project will be transferred to NIA and NPC for no additional
consideration on an "as is" basis.
The Republic of the Philippines has provided a Performance
Undertaking under which NIA's obligations under the Project
Agreement are guaranteed by the full faith and credit of the
Republic of the Philippines. The Project Agreement and the
Performance Undertaking provide for the resolution of disputes by
binding arbitration in Singapore under international arbitration
rules.
NIA's payment obligations under the Project Agreement are
expected to be the Company's sole source of operating revenues.
Because of the Company's dependence on NIA, any material failure
of NIA to fulfill its obligations under the Project Agreement and
any material failure of the Republic of the Philippines to
fulfill its obligations under the Performance Undertaking would
significantly impair the ability of the Company to meet its
obligations under the Securities.
CE Casecnan financed a portion of the costs of the Casecnan
Project through the issuance of $125,000,000 of its 11.45% Senior
Secured Series A Notes due 2005 (the "Series A Securities") and
$171,500,000 of its 11.95% Senior Secured Series B Bonds due 2010
(the "Series B Securities") and $75,000,000 of its Secured
Floating Rate Notes due 2002, pursuant to an indenture dated
November 27, 1995, as amended to date (the "Casecnan Indenture").
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, the Company terminated the Hanbo Contract due to
defaults by Hanbo and HECC including the insolvency of each such
<PAGE>
company. On the same date, the Company 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, the
Company 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, the Company 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. The
Request of 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 of Arbitration as
well as counterclaims against Hanbo and HECC for breaches of the
Hanbo Contract.
On April 17, 1998, the Company and Hanbo, HECC, Hanbo Steel
Company and KFB mutually agreed to settle the differences among
them related to the Project. Under the settlement, KFB agreed to
pay the Company $90 million 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, the Company received $10 million from KFB on
April 17, 1998 and the remaining balance of $80 million,
including interest thereon, on July 3, 1998.
The Expanding Philippine Agriculture Sector and Power Markets
Agriculture
The agricultural sector has played an important role in the
sustained growth of the Philippines economy, accounting for
approximately 23% of gross domestic product and employing
approximately 46% of the economically active population in 1994.
The Philippine government has a policy objective to provide
necessary agriculture infrastructure for farmers to increase
productivity of important agricultural crops, such as rice, in
order to attain self-sufficiency and eliminate the need to rely
on imports of rice which consume foreign exchange reserves.
NIA supports agricultural production and rural development
by providing water and irrigation services to the Philippine
agricultural sector. NIA is responsible for the implementation
of irrigation development programs and the operation, maintenance
and administration of all national irrigation systems in the
Philippines. One of NIA's mandates is to provide and facilitate
the procurement and delivery of irrigation water to farmers in
Central Luzon.
The Casecnan watershed is one of the last remaining
substantial sources of water available to provide irrigation
water to Central Luzon, the most significant rice-producing
region in the Philippines. NIA estimates that the Casecnan
Project will divert sufficient water to irrigate the equivalent
of at least 50,000 additional hectares of agricultural land in
the Central Luzon Valley, which could produce an additional
465,000 tons or more of rice per year with a direct annual net
production value to the Philippines of approximately 2.03 billion
pesos (U.S. $52 million). The increased production resulting
from the additional irrigation water is expected to contribute
significantly to the Philippines' goal to become self-sufficient
in rice production.
<PAGE>
Power
According to NPC's 1995 Power Development Program (1995-
2005)("PDP"), industrial growth, a rising standard of living, and
an expanding power distribution network have resulted in
increased demand for electrical power in the Philippines by an
average of 6% per year since 1987. NPC has projected that over
the next ten years the need for additional generating capacity in
the Philippines will exceed 14,000 MW.
With NPC projecting that electricity demand will increase
approximately 13% annually between 1996-2000 and approximately
11% annually for 2001-2005, the government of the Philippines has
taken steps to accelerate private power investment in an attempt
to enable supply to keep up with demand. As a result of
government action, many new power projects have come on-line
during the past two years, but capacity shortages are still
anticipated over the next several years. Elimination of power
shortages through increases in production from plans such as the
Casecnan Project should contribute to further industrial growth
and economic stability in the Philippines.
TERMS OF THE SECURITIES
General
In June 1996, the Company exchanged (i) $125,000,000
aggregate principal amount of the Series A Securities for an
equal principal amount of New Series A Securities, and (ii)
$171,500,000 aggregate principal amount of the Series B
Securities for an equal amount of New Series B Securities. The
Series A Securities and Series B Securities are sometimes
referred to herein as the "Old Securities", and the New Series A
Securities and the New Series B Securities are sometimes referred
to herein as the "New Securities". The New Securities are the
obligations of the Company evidencing the same indebtedness as
the Old Securities and will be entitled to the benefits of the
Indenture, which governs both the Old Securities and the New
Securities. The form and terms (including principal amount,
interest rate, maturity and ranking) of the New Securities are
the same as the form and terms of the Old Securities, except that
(i) the New Securities have been registered under the Securities
Act and therefore will not be subject to certain restrictions on
transfer applicable to the Old Securities and will not be
entitled to registration rights, and (ii) the New Securities will
not provide for any increase in the interest rate thereon.
Simultaneously with the offering of the Old Securities the
Company also issued and sold $75,000,000 aggregate principal
amount of LIBOR Plus 3.00% Senior Secured Floating Rate Notes Due
November 15, 2002 ("FRNs") that rank pari passu with and share
the collateral on a pro rata basis with the Old Securities and
the New Securities and are entitled to the benefits of the
Indenture and the Depositary Agreement. The Old Securities, New
Securities and FRNs are collectively referred to herein as the
"Securities".
The Securities are direct obligations of the Company,
secured by the Company Collateral.
Payment of Principal and Interest
Interest on the New Securities is payable semiannually on
each May 15 and November 15 (the "New Securities Interest Payment
Date"), commencing May 15, 1996, to the registered Holders
thereof at the close of business on the May 1 and November 1, as
the case may be, preceding each New Securities Interest Payment
Date. The initial average life of the Series A Securities was
8.84 years, and the initial average life of the Series B
Securities was 11.57 years.
<PAGE>
The $125,000,000 principal of the 11.45% New Series A
Securities due November 15, 2005 are payable in semiannual
installments, commencing May 15, 2003, as follows:
Percentage of Principal
Payment Date Amount Payable
May 15, 2003 13.50%
November 15, 2003 13.50%
May 15, 2004 17.00%
November 15, 2004 17.00%
May 15, 2005 19.50%
November 15, 2005 19.50%
The $171,500,000 principal of the 11.95% New Series B
Securities due November 15, 2010 are payable in semiannual
installments, commencing May 15, 2002, as follows:
Percentage of Principal
Payment Date Amount Payable
May 15, 2002 2.50%
November 15, 2002 2.50%
May 15, 2003 2.25%
November 15, 2003 2.25%
May 15, 2004 2.00%
November 15, 2004 2.00%
May 15, 2005 1.75%
November 15, 2005 1.75%
May 15, 2006 10.50%
November 15, 2006 10.50%
May 15, 2007 11.00%
November 15, 2007 11.00%
May 15, 2008 11.00%
November 15, 2008 11.00%
May 15, 2009 4.00%
November 15, 2009 4.00%
May 15, 2010 5.00%
November 15, 2010 5.00%
The $75,000,000 principal of the FRNs due November 15, 2002
are payable in semiannual installments, commencing November 15,
2000, as follows:
Percentage of Principal
Payment Date Amount Payable
November 15, 2000 25.00%
May 15, 2001 19.50%
November 15, 2001 20.00%
May 15, 2002 18.00%
November 15, 2002 17.50%
The FRNs bear interest at LIBOR plus 3.00% per annum and
will be payable quarterly on each February 15, May 15, August 15,
and November 15, commencing on February 15, 1996, to the
registered Holders thereof at the close of business on the
preceding February 1, May 1, August 1, and November 1, as the
case may be.
Priority of Payments
Prior to Completion of the Casecnan Project (as defined in
the Turnkey Construction Contract), all net proceeds of the
Securities and any Liquidated Damages Proceeds will be deposited
in the Construction Fund and disbursed to pay for budgeted
construction or restoration costs, including interest and, if
applicable, principal on the Securities.
<PAGE>
After Completion, except as otherwise provided for with
respect to mandatory redemptions and Loss Proceeds, all revenues
received by the Company from the Project will be paid into the
Revenue Fund maintained by the Depositary (other than certain
peso payments required to be used for VAT payments to the
Republic of the Philippines). Amounts paid into the Revenue Fund
shall be distributed in the following order of priority: (a) to
pay Operating and Maintenance Costs; (b) to pay certain
administrative costs of the agents for the Secured Parties under
the Financing Documents; (c) to pay principal of, premium (if
any) and interest on the Securities (including any increased
costs necessary to gross up such payments for certain withholding
taxes and other assessments to charges), and principal and
interest on other Senior Debt, if any; (d) to cause the Debt
Service Reserve Fund to equal the Debt Service Reserve Fund
Required Balance, as defined below; (e) to pay indemnification
expenses and other expenses to the Secured Parties and certain
other costs, and (f) to the Distribution Fund or Distribution
Suspense Fund, as applicable.
Debt Service Reserve Fund
At Completion, the Company will establish a Debt Service
Reserve Fund for the benefit of the Holders of the Securities,
which will be funded in cash from any remaining shareholder
capital contributions in the Capital Contribution Fund or, to the
extent required, from operating revenues as described under
"Priority of Payments" above. Such amounts will be deposited
into the Debt Service Reserve Fund from time to time to the
extent required to cause it to equal the Debt Service Reserve
Fund Required Balance which is intended to approximate the
highest amount of the payments of principal and interest to be
made on the Securities during any semiannual period over the
subsequent three years.
Optional Redemption
On and after the seventh anniversary of the Closing (as
defined in the Trust Indenture) of the Casecnan Project
financing, the New Series A Securities are subject to optional
redemption by the Company, in whole and not in part, at par plus
accrued interest to the Redemption Date.
The New Series B Securities are subject to optional
redemption by the Company, at any time, in whole or in part, pro
rata, at par plus accrued interest to the Redemption Date plus a
premium, calculated to "make whole" to comparable U.S. treasury
securities plus 150 basis points.
After completion, the FRN's are subject to optional
redemption by the Company, in whole or in part, pro rata at par
plus accrued interest, on any FRN interest payment date.
The Company also has the option to redeem the Securities, in
whole or in part, at par plus accrued interest at any time if, as
a result of any change in Philippine tax law or in the
application or interpretation of Philippine tax law occurring
after the date of issuance of the Securities, the Company is
required to pay certain additional amounts described in the
Indenture.
Mandatory Redemption
The Securities are subject to mandatory redemption, pro
rata, at par plus accrued interest to the Redemption Date, (a)
upon the receipt by the Company of Loss Proceeds that exceed $15
million in respect of certain events of property or casualty loss
or similar events, unless the funds are to be utilized by the
Company for an Approved Restoration Plan; or (b) upon the receipt
by the Company of proceeds realized in connection with a Project
Agreement Buyout.
Change in Control Put
Upon the occurrence of a Change of Control each Holder will
have the right to require the Company to repurchase all or any
part of such Holder's Securities at a purchase price in cash
equal to 101% of the principal amount thereof, plus accrued
interest to the date of repurchase in accordance with the
procedures set forth in the Indenture. There is no assurance
that upon a Change in Control the Company will have sufficient
funds to repurchase the Securities.
<PAGE>
Distributions
Prior to Completion, there will be no distributions to the
Company or its shareholders. After Completion, distributions may
be made only from and to the extent of monies on deposit in the
Distribution Fund or Distribution Suspense Fund. Distributions
are subject to the prior satisfaction of the following
conditions:
(a) the amounts contained in the Principal Fund and the
Interest Fund will be equal to or greater than the aggregate
scheduled principal and interest payments next due on the
Securities;
(b) no Default or Event of Default under the Indenture
shall have occurred and be continuing;
(c) the Debt Service Coverage Ratio for the preceding 12-
month period is equal to or greater than 1.35 to 1 as certified
by an officer of the Company;
(d) the projected Debt Service Coverage Ratio of the
Securities for the succeeding 12-month period is equal to or
greater than 1.35 to 1, as certified by an officer of the
Company; and
(e) the Debt Service Reserve Fund has a balance equal to or
greater than the Debt Service Reserve Fund Required Balance.
Ranking and Security for the Securities
The New Securities and the FRNs are, Senior Debt of the
Company and are secured by (a) an assignment of all revenues
received by the Company from the Project; (b) a collateral
assignment of all material contracts; (c) a Lien on any accounts
and funds on deposit under the Depositary Agreement; (d) a pledge
of approximately 100% of the capital stock of the Company,
subject to release in certain circumstances relating to accessing
political risk insurance for the benefit of the shareholders; and
(e) a Lien on all other material assets and property interests of
the Company. The Securities will rank pari passu with and will
share the Collateral on a pro rata basis with certain other
Senior Secured Debt, if any (provided that the Debt Service
Reserve Fund shall be collateral solely for the obligations under
the Securities). The proceeds of any political risk insurance
covering the capital investment will not be part of the
collateral for the Securities. While under the Indenture the
Company may incur certain Permitted Debt senior to the
Securities, it has no present intention to do so.
Ratings
Moody's and Standard & Poor's have assigned the Securities
ratings of "Ba2" and "BB+", respectively. There is no assurance
that any such credit rating will remain in effect for any given
period of time or that such rating will not be lowered, suspended
or withdrawn entirely by the applicable Rating Agency, if, in
such Rating Agency's judgment, circumstances so warrant.
Nature of Recourse on the Securities
The Company's obligations to make payments of principal or,
premium, if any, and interest on the New Securities and FRNs are,
obligations solely of the Company secured solely by the
Collateral. Neither the shareholders of the Company nor any
Affiliate, including MidAmerican, incorporator, officer,
director or employee thereof or of the Company guaranteed the
payment of, nor have any obligation with respect to payment of
the Securities, except to the extent that affiliates of
MidAmerican who are stockholders of the Company have pledged
their capital stock in the Company as security for the notes and
bonds issued by the Company. As a result, payment of the
<PAGE>
Company's obligations depends upon the availability of sufficient
revenues from the Company's business after the payment of
operating expenses.
Incurrence of Additional Debt
The Company shall not incur any Debt other than "Permitted
Debt." "Permitted Debt" means:
(a) The Securities;
(b) After Completion, Debt incurred to finance the making
of capital improvements to the Casecnan Project required to
maintain compliance with applicable law or anticipated changes
therein; provided that no such Debt may be incurred unless at the
time of incurrence the Independent Engineer confirms as
reasonable (i) a certification by the Company (containing
customary assumptions and qualifications) that the proposed
capital improvements are reasonably expected to enable the
Casecnan Project to comply with applicable or anticipated legal
requirements and (ii) the calculations of the Company that
demonstrate, after giving effect to the incurrence of such Debt,
the minimum project Debt Service Coverage Ratio (x) for the next
four consecutive fiscal quarters, commencing with the quarter in
which such Debt is incurred, taken as one annual period, and (y)
for each subsequent fiscal year through the Final Maturity Date,
will not be less than 1.3 to 1;
(c) After Completion, Debt incurred to finance the making
of capital improvements to the Casecnan Project not required by
applicable law, so long as after giving effect to the incurrence
of such Debt (i) no Default or Event of Default has occurred and
is continuing, and (ii)(A) the Independent Engineer confirms as
reasonable (I) a certification by the Company (containing
customary assumptions and qualifications) that the proposed
capital improvements are technically feasible and prudent and
(II) the calculations of the Company that demonstrate, after
giving effect to the incurrence of such Debt, (x) the minimum
project Debt Service Coverage Ratio for the next four consecutive
fiscal quarters, commencing with the quarter in which such Debt
is incurred, taken as one annual period, and in every fiscal year
thereafter, will not be less than 1.4 to 1 and (y) the average
projected Debt Service Coverage Ratio for all succeeding fiscal
years until the Final Maturity Date will not be less than 1.7 to
1, or (B) the Rating Agencies confirm that the incurrence of such
Debt will not result in a Rating Downgrade;
(d) After Completion, Working Capital Debt in an aggregate
amount outstanding at any time not to exceed $5 million;
(e) Debt incurred in connection with certain permitted
interest rate and currency hedging arrangements;
(f) Subordinated Debt from Affiliates in an aggregate
amount not to exceed $150 million prior to Completion and $100
million after Completion, which shall be used to finance capital,
operating or other costs with respect to the Project;
(g) Debt incurred for purposes for which Permitted Liens
may be incurred;
(h) Debt contemplated to be incurred pursuant to the
Casecnan Project Documents, including obligations in connection
with any letter of credit in an aggregate amount outstanding at
any time not to exceed $15 million;
(i) Purchase Money Debt and other ordinary course trade
Debt to support operation and maintenance of the Casecnan
Project, in an aggregate amount at any time not to exceed $35
million;
(j) Permitted Refinancing Debt, if, as certified by an
authorized officer of the Company at the time of incurrence,
(A)(i) after giving effect to the incurrence of such Debt, (x)
the minimum projected Debt Service Coverage Ratio for the next
four consecutive fiscal quarters in which such Debt is incurred,
taken as one annual period, and in every fiscal year thereafter,
<PAGE>
will not be less than 1.5 to 1, and (y) for each subsequent
fiscal year through the Final Maturity Date, the average project
Debt Service Coverage Ratio will not be less than 2.0 to 1, and
(ii) the final maturity and average life of the Debt incurred
each exceed those of the Debt remaining, (B) each principal
payment equals that of each corresponding principal payment of
the Debt being replaced or (C) the Rating Agencies confirm that
the incurrence of such Debt will not result in a Rating
Downgrade; and,
(k) Debt incurred by the Company prior to Completion as
necessary for financing, engineering, construction, completion,
testing and start-up of the Project in accordance with an
Approved Completion Plan in order to achieve Completion ("Pre-
Completion Additional Debt"), provided that (i) the Rating
Agencies confirm that the incurrence of such Debt will not result
in a Rating Downgrade; or (ii)(A) the Independent Engineer has
confirmed (subject to customary assumptions and qualifications)
as reasonable the technical feasibility of the Approved
Completion Plan including a certification that (subject to
customary assumptions and qualifications) the net proceeds of
such Debt and other funds available to the Company (from
Liquidated Damages Proceeds or otherwise) are reasonably expected
to be sufficient to fund the costs of reaching Completion; and
(B) the Company certifies at the time of incurrence (with
customary assumptions and qualifications) that (x) the Approved
Completion Plan is technically feasible and prudent, (y) after
giving effect to the incurrence of such Debt, the minimum
projected Debt Service Coverage Ratio for the four fiscal
quarters commencing with the quarter that commences immediately
after the projected date of commercial operation of the Casecnan
Project, taken as one annual period, and in every fiscal year
thereafter, will not be less than 1.3 to 1, and (z) after giving
effect to incurrence of such Debt, the average projected Debt
Service Coverage Ratio for all succeeding Fiscal Years until the
Final Maturity Date will not be less than 1.5 to 1.
Principal Covenants
Principal covenants under the Indenture require the Company,
subject to certain exceptions and qualifications, (a) not to
incur (i) any Debt except Permitted Debt or (ii) any Lien upon
any of its assets except Permitted Liens; (b) not to enter into
any transaction of merger or consolidation, change its form of
organization, liquidate, wind-up or dissolve itself; (c) not to
enter into non-arm's length transactions or agreements with
Affiliates; (d) not to engage in any business other than as
contemplated by the Indenture; (e) not to enter into certain
change orders under the Turnkey Construction Contract or amend
the Approved Construction Budget and Schedule (or an Approved
Completion Plan), or amend, terminate or otherwise modify any
material Project Document to which it is a party, except as
permitted under the Indenture; (f) not to sell, lease or transfer
any property or assets material to the Casecnan Project except in
the ordinary course of business; (g) to construct the Casecnan
Project in accordance with the Approved Construction Budget and
Schedule; (h) to operate and maintain the Casecnan Project in
accordance with the Approved Operation and Maintenance Budget;
(i) to maintain insurance as required under the Indenture; and
(j) to enter into an interest rate agreement for the FRNs, within
30 days of Closing, at a LIBOR cap of up to 7.5%.
Insurance
The Company maintains insurance with respect to the Casecnan
Project of a type and in such amounts as are generally carried by
companies engaged in similar businesses and owning similar
projects that are financed in a similar manner. These coverages
will include casualty insurance, including flood and earthquake
coverage, business interruption insurance, primary and excess
liability insurance, automobile insurance and workers
compensation insurance. However, the proceeds of such insurance
may not be adequate to cover reduced revenues, increased expenses
or other liabilities arising from the occurrence of catastrophic
events. Moreover, there can be no assurance that such insurance
coverage will be available in the future at commercially
reasonable rates or that the amounts for which the Company will
be insured will cover all losses. Nevertheless, the Company will
not reduce or cancel coverages if the Insurance Consultant
determines it is not reasonable to do so and insurance is
available on commercially reasonable terms.
<PAGE>
Regulatory Matters
The Company is subject to a number of Philippine statutory
and regulatory standards and required and desirable approvals,
including those relating to energy and environmental laws. Many
permits and regulatory approvals are required and desirable for
the construction and operation of the Casecnan Project. A number
of these permits and regulatory approvals have not yet been
obtained. Some of the permits and regulatory approvals that have
been obtained contain conditions, and a number of the permits and
approvals not yet obtained may contain conditions when they are
issued. Delay in receipt of or failure to obtain these permits
or approvals or to satisfy any of these conditions could delay
completion of the construction of the Casecnan Project, restrict
the operation of the Casecnan Project, or result in additional
costs or taxes. The adoption of new laws, policies or
regulations, or changes in the interpretation or application of
existing laws, policies and regulations, that modify the present
regulatory environment could have a material adverse effect on
the Company's ability to construct or operate the Casecnan
Project and could trigger the Company's right to sell the Project
to NIA. Upon such sale, the Securities will be subject to
mandatory redemption.
Employees
After Completion, the Casecnan Project is expected to employ
approximately 25 people, consisting of operations, maintenance,
logistics, compliance, and engineering personnel. At the
powerhouse control room, personnel will monitor, direct and
control the operations and maintenance of the whole Casecnan
Project. The control room will be staffed 24 hours per day and
will be the contact point for the Casecnan Project's customers
and others. At the diversion structures, personnel will be
responsible to ensure that the trash racks at the tunnel intakes
are kept clean and maintained and that excessive sediment build-
up behind the structure is prevented.
Item 2. Properties
CE Casecnan does not separately own or lease office space but has
arranged for a separate suite at the offices of MidAmerican's
affiliate in Manila.
Item 3. Legal Proceedings
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, the Company terminated the Hanbo Contract due to
defaults by Hanbo and HECC including the insolvency of each such
company. On the same date, the Company 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, the
Company 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, the Company 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. The
Request of 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 of Arbitration as
well as counterclaims against Hanbo and HECC for breaches of the
Hanbo Contract.
<PAGE>
On April 17, 1998, the Company and Hanbo, HECC, Hanbo Steel
Company and KFB mutually agreed to settle the differences among
them related to the Project. Under the settlement, KFB agreed to
pay the Company $90 million 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, the Company received $10 million from KFB on
April 17, 1998 and the remaining balance of $80 million,
including interest thereon, on July 3, 1998.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
<PAGE>
PART II
Item 5. Market for Company's Equity and Related Stockholder
Matters.
Not Applicable.
Item 6. Selected Financial Data
Dollars in Thousands Except Per Share Amounts
Year Ended December 31,
1998 1997 1996 1995
Total revenue $19,533 $19,786 $25,611 $ 2,494
Net income (loss) to common
stockholders 381 (11,264) (13,211) (1,200)
Net income (loss) per share 0.50 (14.68) (17.22) (2.09)
Total assets 553,433 491,912 490,162 501,160
Total liabilities 454,891 393,751 380,737 378,524
Notes and bonds payable 371,500 371,500 371,500 371,500
Stockholders' equity 98,542 98,161 109,425 122,636
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Dollars in thousands, expect per share amounts
Results of Operations:
The Company is in the construction stage and has not yet
started commercial operations as of December 31, 1998. The
quarter and year ended December 31, 1998 revenue of $4,330 and
$19,533, respectively, consists of interest income on cash and
investment balances. The quarter and year ended December 31,
1998 interest expense of $11,023 and $45,028, respectively, less
amounts capitalized of $7,932 and $27,161, respectively, and
amortization of bond issue costs of $295 and $1,179,
respectively, are related 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
located in the central part of the island of Luzon in the
Republic of the Philippines.
CE Casecnan, which is expected to be indirectly owned at
least 70% by MidAmerican, is developing the Casecnan Project
under the terms of the Project Agreement ("Project Agreement")
between CE Casecnan and the National Irrigation Administration
("NIA"). Under the Project Agreement, CE Casecnan will develop,
finance and construct the Casecnan Project over the construction
period, and thereafter own and operate the Casecnan Project for
20 years (the "Cooperation Period"). During the Cooperation
Period, NIA is obligated to accept all deliveries of water and
energy, and so long as the Casecnan Project is physically capable
of operating and delivering in accordance with agreed levels set
forth in the Project Agreement, NIA will pay CE Casecnan a
guaranteed fee for the delivery of water and a guaranteed fee for
the delivery of electricity, regardless of the amount of water or
electricity actually delivered. In addition, NIA will pay a fee
for all electricity delivered in excess of a threshold amount up
to a specified amount. NIA will sell the electricity it
purchases to the Philippine National Power Corporation ("NPC"),
although NIA's obligations to CE Casecnan under the Project
<PAGE>
Agreement are not dependent on the purchase of the electricity
from NIA by NPC. All fees to be paid by NIA to CE Casecnan are
payable in U.S. dollars.
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, the Company terminated the Hanbo Contract due to
defaults by Hanbo and HECC including the insolvency of each such
company. On the same date, the Company 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, the
Company 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, the Company 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. The
Request of 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 of Arbitration as
well as counterclaims against Hanbo and HECC for breaches of the
Hanbo Contract.
On April 17, 1998, the Company and Hanbo, HECC, Hanbo Steel
Company and KFB mutually agreed to settle the differences among
them related to the Project. Under the settlement, KFB agreed to
pay the Company $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, the Company received $10,000 from KFB on April 17,
1998 and the remaining balance of $80,000, including interest
thereon, on July 3, 1998.
CE Casecnan financed a portion of the cost 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
November 27, 1995, as amended to date (the "Casecnan Indenture").
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 provided for in the Casecnan Indenture.
The debt covenants contain certain restrictions as to
incurrence of additional indebtedness; merger, consolidation,
dissolution, or any significant change in corporate structure;
non-arm's length transactions or agreements with affiliates;
material change in the Turnkey Construction Contract; and sale,
lease, or transfer of properties material to the Project, among
others.
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.
<PAGE>
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 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 created 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 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.
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.
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. 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.
Item 7A. Qualitative and Quantitative Disclosures About Market
Risk
The following discussion of the Company's exposure to
various market risks contains "forward-looking statements" that
involve risks and uncertainties. These projected results have
been prepared utilizing certain assumptions considered reasonable
in the circumstances and in light of information currently
available to the Company. Actual results could differ materially
from those projected in the forward-looking information.
Interest Rate Risk
At December 31, 1998, the Company had fixed-rate long-term
debt of $296,500 in principal amount and having a fair value of
$241,998. These instruments are fixed-rate and therefore do not
expose the Company to the risk of earnings loss due to changes in
market interest rates. However, the fair value of these
instruments would decrease by approximately $18,300 if interest
rates were to increase by 10% from their levels at December 31,
1998. In general, such a decrease in fair value would impact
earnings and cash flows only if the Company were to reacquire all
or a portion of these instruments prior to their maturity.
<PAGE>
At December 31, 1998, the Company had floating-rate
obligations of $75,000 which expose the Company to the risk of
increased interest expense in the event of increases in short-
term interest rates. If the floating rates were to increase by
10% from December 31, 1998 levels, the Company's consolidated
interest expense would increase by approximately $53 each month
in which such increase continued based upon December 31, 1998
principal balances.
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 and
construction uncertainty, operating uncertainty, uncertainties
relating to doing business outside of the United States,
uncertainties relating to international economic and political
conditions and uncertainties regarding the impact of regulations,
changes in government policy, industry deregulation and
competition. The Company assumes no responsibility to update
forward-looking information contained herein.
<PAGE>
Item 8. Financial Statements and Supplementary Data
Report of Independent Public Accountants 19
Balance Sheets, December 31, 1998 and 1997 20
Statements of Operations for the Years Ended December 31, 1998,
1997 and 1996 and for the Period from Inception (September 21, 1994)
to December 31, 1998 21
Statements of Changes in Stockholders' Equity for the Period from
Inception (September 21, 1994) to December 31, 1998 22
Statements of Cash Flows for the Years Ended December 31, 1998,1997
and 1996 and for the Period from Inception (September 21, 1994)
to December 31, 1998 23
Notes to Financial Statements 24
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Stockholders and the Board of Directors
CE Casecnan Water and Energy Company, Inc.
We have audited the accompanying balance sheets of CE Casecnan
Water and Energy Company, Inc. (a company in the development
stage) as of December 31, 1998 and 1997, and the related
statements of operations, changes in stockholders' equity, and
cash flows for each of the three years in the period ended
December 31, 1998 and for the period from the date of inception
(September 21, 1994) to December 31, 1998. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of CE Casecnan Water and Energy Company, Inc. as of December 31,
1998 and 1997, and the results of its operations, the changes in
stockholders' equity, and its cash flows for each of the three
years in the period ended December 31, 1998 and for the period
from the date of inception (September 21, 1994) to December 31,
1998 in conformity with accounting principles generally accepted
in the United States of America.
SyCip Gorres Velayo & Co.
An Arthur Andersen Member Firm
Makati City, Philippines
January 20, 1999
<PAGE>
CE CASECNAN WATER AND ENERGY COMPANY, INC.
(A Company in the Development Stage)
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(Presented in United States Dollars)
(Dollars in Thousands, Except Par Value Amount)
1998 1997
ASSETS
Cash $ 1,996 $ 676
Restricted Cash and Short-term Investments 145,958 183,478
Accrued Interest Receivable 3,014 2,962
Restricted Investments 122,341 126,684
Bond Issue Costs - net 10,334 11,513
Development and Construction Costs 261,563 158,266
Deferred Income Tax - net 8,227 8,333
$553,433 $491,912
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts Payable and Accrued Expenses $ 82,635 $ 19,192
Advances from an Affiliate 756 3,059
Notes and Bonds Payable 371,500 371,500
Commitments and Contingencies
Stockholders' Equity
Capital stock -$0.038 par value
Authorized - 2,148,000 shares
Issued - 767,162 shares 29 29
Additional paid-in capital 123,807 123,807
Accumulated Deficit (25,294) (25,675)
98,542 98,161
$553,433 $491,912
See accompanying Notes to Financial Statements.
<PAGE>
CE CASECNAN WATER AND ENERGY COMPANY, INC.
(A Company in the Development Stage)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
AND FOR THE PERIOD FROM THE DATE OF INCEPTION (SEPTEMBER 21,1994)
TO DECEMBER 31, 1998
(Presented in United States Dollars)
(Dollars in Thousands, Except Per Share Amounts)
From the
Date of
Inception
(September
21, 1994)
to December
1998 1997 1996 31, 1998
Interest Income $19,533 $19,786 $25,611 $67,423
Expenses
Interest - net of interest
capitalized 17,867 33,653 41,903 97,688
Amortization of bond issue costs 1,179 1,053 949 3,256
costs
19,046 34,706 42,852 100,944
Income (loss) before income tax 487 (14,920) (17,241) (33,521)
Benefit from (provision for)
deferred income tax (106) 3,656 4,030 8,227
Net income (loss) $381 ($11,264) ($13,211) ($25,294)
Net income (loss) per share $ 0.50 $(14.68) $(17.22) $(35.71)
Average number of common shares
outstanding 767,162 767,162 767,162 708,225
See accompanying Notes to Financial Statements.
<PAGE>
CE CASECNAN WATER AND ENERGY COMPANY, INC.
(A Company in the Development Stage)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM THE DATE OF INCEPTION (SEPTEMBER 21, 1994)
TO DECEMBER 31, 1998
(Presented in United States Dollars)
(Dollars in Thousands, Except Par Value Amount)
Outstanding Common Additional
Common Stock Paid-in Deficit Total
Shares Capital
Balance, September 21, 1994 - $- $- $- $-
Issuance of common shares
at $0.038 par value 537,014 20 530 - 550
Balance, December 31, 1994 537,014 20 530 - 550
Additional issuance of
common shares 230,148 9 - - 9
Additional paid-in capital - - 123,277 - 123,277
Net loss - - - (1,200) (1,200)
Balance, December 31,1995 767,162 29 123,807 (1,200) 122,636
Net loss - - - (13,211) (13,211)
Balance, December 31,1996 767,162 29 123,807 (14,411) 109,425
Net loss - - - (11,264) (11,264)
Balance, December 31,1997 767,162 29 123,807 (25,675) 98,161
Net income - - - 381 381
Balance, December 31,1998 767,162 $29 $123,807 ($25,294) $98,542
See accompanying Notes to Financial Statements.
<PAGE>
CE CASECNAN WATER AND ENERGY COMPANY, INC.
(A Company in the Development Stage)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
AND FOR THE PERIOD FROM THE DATE OF INCEPTION (SEPTEMBER 21,1994)
TO DECEMBER 31, 1998
(Presented in United States Dollars)
(Dollars in Thousands)
From the Date of
Inception
(September 21,
1994) to
December 31,
1998 1997 1996 1998
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $381 ($11,264) ($13,211) ($25,294)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in)operating activities:
Amortization of bond issue costs 1,179 1,053 949 3,256
Provision for (benefit from)
deferred income tax 106 (3,656) (4,030) (8,227)
Changes in assets and liabilities:
Decrease (increase) in
accrued interest receivable (52) 1,996 (2,138) (3,014)
Increase in accounts payable
and accrued expenses 2,195 360 1,829 8,650
Net cash provided by (used in)
operating activities 3,809 (11,511) (16,601) (24,629)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to development and
construction costs (103,297) (107,474) (42,453) (261,563)
Decrease (increase)in restricted:
Cash and short-term
investments 37,520 (39,356) 91,729 (145,958)
Investments 4,343 146,331 (34,550) (122,341)
Increase in accounts payable and
accrued expenses related to
development and construction
costs 61,248 10,029 1,302 73,985
Net cash provided by (used in)
investing activities (186) 9,530 16,028 (455,877)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in:
Advances from an affiliate (2,303) 2,625 (639) 756
Accounts payable and accrued
expenses related to financing
activities - - (279) -
Increase in bond issue costs - - (173) (13,590)
Proceeds from issuance of:
Capital stock - - - 29
Notes and bonds payable - - - 371,500
Additional paid-in capital - - - 123,807
Net cash provided by (used in)
financing activities (2,303) 2,625 (1,091) 482,502
NET INCREASE (DECREASE) IN CASH 1,320 644 (1,664) 1,996
CASH AT BEGINNING OF PERIOD 676 32 1,696 -
CASH AT END OF PERIOD $1,996 $676 $32 $1,996
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Interest paid during the period
(net of camount capitalized) $18,477 $33,293 $40,074 $91,844
See accompanying Notes to Financial Statements.
<PAGE>
CE CASECNAN WATER AND ENERGY COMPANY, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
(Dollars in Thousands)
1.Organization
The Company was registered with the Philippine Securities and
Exchange Commission on September 21, 1994, with a calendar
year which ends on December 31. Its primary purpose is to
design, develop, construct, erect, assemble, commission,
operate and own a hydroelectric power plant and the related
facilities for conversion into electricity of water provided
by and under contract with the Philippine Government or any
government-owned or controlled corporation.
The Company has a contract with the Philippine Government,
through the National Irrigation Administration (NIA) (a
government-owned and controlled corporation), for the
development and construction of a hydroelectric power plant
and related facilities under a build-own-operate-transfer
agreement, covering a 20-year cooperation period with "take-or-
pay" obligations for water and electricity. At the end of the
20-year cooperation period, the combined irrigation and 150
NMW hydroelectric power generation project (the Casecnan
Project) will be transferred to the Philippine Government at
no cost. The Philippine Government also signed a Performance
Undertaking which affirms and guarantees the obligations of
NIA under the contract. Construction of the Casecnan Project
commenced in 1995 and related costs are included under
"Development and Construction Costs" in the balance sheets.
The Company is in the development stage and as of December 31,
1998 has not yet started commercial operations.
After the completion of the aforementioned project, the
Company is expected to be at least 70% owned by MidAmerican
Energy Holdings Company, the successor of CalEnergy Company,
Inc., subject to upward adjustment based upon the actual
economics of the Casecnan Project at commencement of
commercial operations.
2.Summary of Significant Accounting Policies
Basis of Presentation
The financial statements of the Company were prepared in
United States dollar amounts. Gains or losses resulting from
translation of monetary assets and liabilities in foreign
currencies are not material.
Restricted Cash and Short-term Investments
Investments other than restricted cash are primarily
commercial paper and money market securities. Restricted cash
includes similar securities and mortgage-backed securities.
<PAGE>
Since the Company has the positive intent and ability to hold
all of its investments to maturity, these are classified as
held to maturity and recorded at amortized cost. The carrying
amount of investments as of December 31, 1998 approximates
their fair value which is based on quoted market prices as
provided by the financial institution holding the investments.
Bond Issue Costs
Bond issue costs consist of costs incurred in the issuance of
senior secured notes and bonds and are amortized over the term
of the notes and bonds using the effective interest rate
method.
Development and Construction Costs
Costs related to the development and construction of the
hydroelectric power plant and related facilities are
capitalized and will be amortized over a period of 20 years
from the start of its commercial operations.
Interest Capitalization
Interest and other financial charges are capitalized as part
of the cost of capital projects. Interest is capitalized up
to the extent of construction and development costs incurred.
Foreign Currency Transactions
Transactions conducted in foreign currencies (Philippine
pesos) are recorded based on the prevailing rates of exchange
at transaction dates. Monetary assets and liabilities
denominated in foreign currencies (Philippine pesos) are
restated in the financial statements at the exchange rates
prevailing at the balance sheet date.
Income Tax
Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between
the financial reporting bases of assets and liabilities and
their related tax bases. Deferred tax assets and liabilities
are measured using the tax rate expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. A valuation allowance is
provided for deferred tax assets which is more likely than not
that a tax benefit will not be realized.
Notes and Bonds Payable
The Company classifies its notes and bonds payable in
accordance with FAS No. 107 "Disclosures about Fair Value of
Financial Instruments." Based on quoted market rates, the
fair value of the notes and bonds is $302,248.
Net Income (Loss) Per Share
Net income (loss) per share is based on the weighted average number
of common shares outstanding during the period.
3.Advances from an Affiliate
This account represents noninterest-bearing cash advances from
CE Casecnan Ltd., a stockholder, for the construction of the
Casecnan Project.
<PAGE>
4.Notes and Bonds Payable
On November 27, 1995, the Company issued $371,500 worth of
notes and bonds to finance the construction of the Casecnan
Project. These consist of $75,000 Senior Secured Floating
Rate Notes (FRNs) due 2002; $125,000 Senior Secured Series A
Notes (Series A Notes) with interest at 11.45% due 2005; and,
$171,500 Senior Secured Series B Bonds (Series B Bonds) with
interest at 11.95% due 2010. For the year ended December 31,
1998, the notes and bonds had effective interest rates of
9.40%, 12.01% and 12.44% for FRNs, Series A Notes and Series B
Bonds, respectively, inclusive of the effect of bond issue
cost amortization. Quarterly interest payments for the FRNs
commenced on February 15, 1996, and semi-annual interest
payments for Series A Notes and Series B Bonds commenced on
May 15, 1996.
Semi-annual installments for principal payments will commence
on November 15, 2000, May 15, 2003 and May 15, 2002 for the
FRNs, Series A Notes and Series B Bonds, respectively. The
repayment schedule is as follows:
Floating Series A Series B
Rate Notes Notes Bonds Total
2000 $18,750 $- $- $18,750
2001 29,625 - - 29,625
2002 26,625 - 8,575 35,200
2003 - 33,750 7,718 41,468
2004 - 42,500 6,860 49,360
2005 - 48,750 6,002 54,752
2006 - - 36,015 36,015
2007 - - 37,730 37,730
2008 - - 37,730 37,730
2009 - - 13,720 13,720
2010 - - 17,150 17,150
$75,000 $125,000 $171,500 $371,500
The securities are senior debt of the Company and are secured
by an assignment of all revenues that will be received from
the Casecnan 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 interests of the Company. 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 provided for in the Trust Indenture.
The debt covenants contain certain restrictions as to
incurrence of additional indebtedness; merger, consolidation,
dissolution, or any significant change in corporate structure;
non-arm's length transactions or agreements with affiliates;
material change in the Turnkey Construction Contract (see Note
7); sale, lease, or transfer of properties material to the
Casecnan Project, among others.
<PAGE>
In connection with the foregoing secured indebtedness, the
Company, on November 27, 1995, entered into a Deposit and
Disbursement Agreement with Chemical Trust Company of
California (Chemical Trust) and Kiewit (a predecessor
shareholder) whereby Chemical Trust acts as a depositary and a
collateral agent. As a depositary agent, it will hold monies,
instruments and securities pledged by the Company to the
collateral agent. The terms of this agreement require the
establishment of several funds which include a Capital
Contribution Fund. The Company's stockholders deposited an
aggregate capital contribution of approximately US$123,300 to
the fund which will be strictly used to fund the construction
of the Casecnan Project when the proceeds from the Series A
Notes and Series B Bonds have been fully utilized. The
contributions are included in the "Additional paid-in capital"
in the balance sheets.
Interest capitalized as part of Development and Construction
Costs amounted to US$27,161 and US$12,256 in 1998 and 1997,
respectively.
5.Income Tax
The Company's deferred tax asset amounting to $8,227 and
$8,333 (net of valuation allowance of $3,510 and $3,570) as of
December 31, 1998 and 1997, respectively, consists mainly of
the difference between the financial reporting basis and the
tax reporting basis for Development and Construction Costs.
6.Capital Stock
On October 26, 1995, the Company issued 230,148 shares to the
current minority stockholders out of the unsubscribed portion
of the Company's authorized capital stock.
The minority stockholders initially formed a venture to pursue
the opportunity of developing a water and energy project in
the Casecnan Basin. After securing preliminary indications of
interest from the Philippine Government, the minority
stockholders sought out the other shareholders to form a new
entity capable of financing and building the Casecnan Project.
In consideration of their role in initiating the Casecnan
Project, delivering the opportunity to the Company and
performing development assistance, the minority stockholders
retained an ownership interest in the Company.
7.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 located in the central part of the island of Luzon in
the Republic of the Philippines.
<PAGE>
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, the Company terminated the Hanbo Contract due to
defaults by Hanbo and HECC including the insolvency of each
such company. On the same date, the Company 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, the Company
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, the Company 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. The
Request of 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 of
Arbitration as well as counterclaims against Hanbo and HECC
for breaches of the Hanbo Contract.
On April 17, 1998, the Company and Hanbo, HECC, Hanbo Steel
Company and KFB mutually agreed to settle the differences
among them related to the Project. Under the settlement, KFB
agreed to pay the Company $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, the Company received $10,000 from
KFB on April 17, 1998 and the remaining balance of $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.
The Company's ability to make payments on any of its existing
and future obligations is dependent on NIA and the Republic of
the Philippines' performance of their obligations under the
Project Agreement and the Performance Undertaking,
respectively. No shareholders, partners or affiliates of the
Company, including CECI, and no directors, officers or
employees of the Company will guarantee or be in any way
liable for payment of the Company's obligations. As a result,
payment of the Company's obligations depends upon the
availability of sufficient revenues from the Company's
business after the payment of operating expenses.
<PAGE>
NIA's payments of obligations under the Project Agreement will
be substantially denominated in United States dollars and are
expected to be the Company's sole source of operating
revenues. Because of the Company's dependence on NIA, any
material failure of NIA to fulfill its obligations under the
Project Agreement and any material failure of the Republic of
the Philippines to fulfill its obligations under the
Performance Undertaking would significantly impair the ability
of the Company to meet its existing and future obligations.
8.Registration with the Board of Investments (BOI)
The Company is registered with the BOI of the Philippines as
a new operator of a hydroelectric power plant with pioneer
status under the Omnibus Investment Code of 1987 (Executive
Order No. 226). Under the terms of its registration, the
Company is entitled to certain incentives which include an
income tax holiday for a minimum of six years from start of
commercial operations; tax and duty free importation of
capital equipment; tax credits on domestic capital equipment;
and exemption from custom duties and national internal
revenue taxes for the importation and unrestricted use
of the consigned equipment for the development,
construction, start-up, testing and operation of the power
plant. The registration also requires, among others, the
maintenance of a debt-to-equity ratio not exceeding
75:25 commencing from the start of commercial operations.
<PAGE>
Item 9: Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not Applicable
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Company
The following table sets forth the names, ages, and
positions of the directors and executive officers of the Company:
NAME AGE POSITION
David L. Sokol 42 Director and Chairman
Gregory E. Abel 36 Chief Executive Officer
Steven A. McArthur 41 Director, Senior Vice President and
Assistant Secretary
Alan L. Wells 39 Senior Vice President and Chief
Financial Officer
Douglas L. Anderson 41 Vice President, General Counsel and
Assistant Secretary
David A. Baldwin 34 Director, Vice President and
General Manager
Edward F. Bazemore 62 Vice President - Human Resources
Vincent R. Fesmire 58 Vice President - Construction
Patrick J. Goodman 32 Senior Vice President and Chief
Accounting Officer
Brian K. Hankel 36 Vice President and Treasurer
Frederick L. Manuel 40 Director and President
Scott LaPrairie 41 Director
Ruby S. Nitorreda 35 Director and Assistant Corporate
Secretary
Elizabeth B. Opena 29 Director
Jose R. Sandejas 61 Director and Corporate Secretary
James D. Stallmeyer 41 Vice President and General Counsel,
Asia
Directors of the Company are elected annually and hold
office until a successor is elected. Executive officers are
chosen from time to time by vote of the Board of Directors.
Pursuant to the terms of the Stockholders Agreement, CE Casecnan
Ltd. is entitled to elect seven of the directors, and each of the
minority investors is entitled to elect one director.
David L. Sokol. In addition to serving as a Director and
Chairman of the Company, Mr. Sokol has been Chief Executive
Officer of MidAmerican since April 19, 1993 and served as
President of MidAmerican from April 19, 1993 until January 21,
1995. Mr. Sokol has been Chairman of the Board of Directors
since May 1994 and a director of MidAmerican since March 1991.
Formerly, among other positions held in the independent power
industry, Mr. Sokol served as the President and Chief Executive
Officer of Kiewit Energy Company, which at that time was a wholly
owned subsidiary of PKS, and Ogden Projects, Inc.
Gregory E. Abel. In addition to serving as Chief Executive
Officer of the Company, Mr. Abel is President and Chief Operating
Officer of MidAmerican. Mr. Abel joined MidAmerican in 1992.
Mr. Abel is a Chartered Accountant and from 1984 to 1992 he was
employed by Price Waterhouse. As a Manager in the San Francisco
office of Price Waterhouse, he was responsible for clients in the
energy industry.
Steven A. McArthur. In addition to serving as a Director,
Senior Vice President of the Company, Mr. McArthur is a Senior
Vice President and Secretary of MidAmerican. Mr. McArthur joined
MidAmerican in February 1991. From 1988 to 1991 he was an
attorney in the Corporate Finance Group at Shearman & Sterling in
San Francisco. From 1984 to 1988, he was an attorney in the
Corporate Finance Group at Winthrop, Stimson, Putnam & Roberts in
New York.
<PAGE>
Alan L. Wells. In addition to serving as Senior Vice
President and Chief Financial Officer for the Company, he is
Senior Vice President and Chief Financial Officer for
MidAmerican. Mr. Wells served as Vice President of MidAmerican
Energy from November 1, 1996 to October 31, 1997 and held various
executive and management positions with MidAmerican Energy and
Iowa-Illinois from 1993 to October 31, 1996.
Douglas L. Anderson. In addition to serving as Vice
President and General Counsel for the Company, Mr. Anderson is
Vice President and Assistant General Counsel of MidAmerican. Mr.
Anderson joined MidAmerican in February 1993. From 1990 to 1993
Mr. Anderson was a business attorney with Fraser, Stryker,
Vaughn, Meusey, Olson, Boyer & Bloch, P.C. in Omaha and from 1987
through 1989, Mr. Anderson was a principal in the firm Anderson &
Anderson. Prior to that, from 1985 to 1987, he was an attorney
for Foster, Swift, Collins & Coey, P.C. in Lansing, Michigan.
David A. Baldwin. In addition to serving as Director, Vice
President and General Manager for the Company, he is General
Manager, Philippines for MidAmerican. From December 1996 to June
1997, Mr. Baldwin served as Vice President, Project Development
for Asia Power Ltd. In Hong Kong. From October 1994 to December
1996, Mr. Baldwin was Project Director at SouthPac Corporation
Ltd. In New Zealand and, prior to that, he held a series of
project management and engineering positions at Shell
International in the Neatherlands and New Zealand.
Edward F. Bazemore. In addition to serving as Vice
President - Human Resources for the Company, he also serves in
the same capacity for MidAmerican. Mr. Bazemore joined
MidAmerican in July 1991. From 1989 to 1991 he was Vice
President, Human Resources at Ogden Projects, Inc., in New
Jersey. Previously, he was Director of Industrial Relations for
Scripto, Inc. in Atlanta, Georgia.
Vincent R. Fesmire. In addition to serving as Vice
President - Construction for the Company, Mr. Fesmire is Vice
President, Construction and Engineering for MidAmerican. Mr.
Fesmire joined MidAmerican in October 1993. Since joining
MidAmerican, Mr. Fesmire's responsibilities have shifted from
project development and implementation to construction in
parallel with the status of MidAmerican's projects. Prior to
joining MidAmerican, Mr. Fesmire was employed for 19 years with
Stone & Webster, an engineering firm, serving in various
management level capacities with an expertise in geothermal
design engineering.
Patrick J. Goodman. In addition to serving as Senior Vice
President and Chief Accounting Officer for the Company, he is
Senior Vice President and Chief Accounting Officer for
MidAmerican. Mr. Goodman joined MidAmerican in June 1995, and
served as Manager of Consolidation Accounting until September
1996 when he was promoted to Controller. Prior to joining
MidAmerican, Mr. Goodman was a financial manager for National
Indemnity Company and a senior associate at Coopers & Lybrand.
Brian K. Hankel. In addition to serving as Vice President
and Treasurer for the Company, he is Vice President and Treasurer
for MidAmerican. Mr. Hankel joined MidAmerican in February 1992
as a Treasury Analyst and served in that position to December
1995. Mr. Hankel was appointed Assistant Treasurer in January
1996 and was appointed Treasurer in January 1997. Prior to
joining the Company, Mr. Hankel was a Money Position Analyst at
FirsTier Bank of Lincoln from 1988 to 1992 and Senior Credit
Analyst at FirsTier from 1987 to 1988.
Frederick L. Manuel. In addition to serving as Director and
President for the Company, he is Senior Vice President -
Operations of MidAmerican. Prior to joining MidAmerican, he was
employed by Chevron Corporation with responsibilities including
land and offshore drilling, reservoir and production engineering,
project management and technical research.
Scott LaPrairie. In addition to serving as a Director of
the Company, Mr. LaPrairie is President and Chief Executive
Officer of the LaPrairie Group of Companies.
Ruby S. Nitorreda. In addition to serving as a Director and
Assistant Corporate Secretary of the Company, Ms. Nitorreda is a
partner with the law firm of Quisumbing Torres & Evangelista.
<PAGE>
Elizabeth B. Opena. In addition to serving as a Director of
the Company, Ms. Opena is an attorney with the law firm of
Quesumbing Torres & Evangelista.
Jose R. Sandejas. In addition to serving as a Director and
Corporate Secretary of the Company, Mr. Sandejas is a partner
with the law firm of Quisumbing Torres & Evangelista.
James D. Stallmeyer. In addition to serving as Vice
President of the Company, Mr. Stallmeyer is Vice President and
General Counsel of Northern Electric. Mr. Stallmeyer joined the
Company in 1993. Mr. Stallmeyer practiced in the public finance
and banking areas at Chapman and Cutler in Chicago from 1984 to
1987 and in the corporate finance department from 1989 to 1993.
Prior to that, Mr. Stallmeyer was an attorney in the public
finance department of the Chicago office of Skadden, Arps, Slate,
Meagher & Flom in 1987 and 1988 and was a legal writing
instructor at the University of Illinois College of Law in 1988
and 1989.
Item 11. EXECUTIVE COMPENSATION
None of the executive officers or directors of the Company
receives compensation from the Company for services as officers
or directors of the Company. All directors are reimbursed for
their expenses in attending board and committee meetings.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Description of Capital Stock
As of December 31, 1997, the authorized capital stock of the
Company consisted of 2,148,000 shares of common stock, par value
1.00 peso per share (the "Common Stock"), of which 767,162 shares
were outstanding. There is no public trading market for the
Common Stock. As of December 31, 1998 there were 8 holders of
record of the Common Stock. Holders of Common Stock are entitled
to one vote per share on any matter coming before the
stockholders for a vote.
The Indenture contains certain restrictions on the payment
of dividends with respect to the Common Stock.
Principal Holders
The following table sets forth information with respect to
the shares of common stock owned of record and beneficially by
all persons who own of record or are known by the Company to own
beneficially more than 5% of the common stock and by all
directors and officers of the Company as a group.
Number Of Percentage Of
Name and Address of Owner Shares Owned* Common Stock Owned
1.CE Casecnan, Ltd. (1) 537,005 70%(2)
a Bermuda corporation
c/o Conyers Dill & Pearman
Clarendon House
P.O. Box 666
Hamilton, Bermuda HM CX
2.LaPrairie Group Contractors
(International), Ltd. 115,074 15%(3)
a Barbados corporation
c/o P.O. . Box 690C
Bridgetown, Barbados
3.San Lorenzo Ruiz Builders
and Developers Group, Inc. 115,074 15%(4)
a Philippine corporation
Violago Compound
222 East Rodriguez Avenue
Quezon City, Philippines
<PAGE>
*In addition, each director of the Company owns one share in the
Company as required by Philippine law.
(1) MidAmerican indirectly owns CE Casecnan, Ltd., a
Bermuda corporation which is the registered owner of the shares.
(2) Number of shares owned subject to upward adjustment
based on projected level of financial return to MidAmerican from
the Project calculated at the time of Completion.
(3) Number of shares owned subject to downward adjustment
based on projected level of financial return to MidAmerican from
the Project calculated at the time of Completion. Neither of the
minority shareholders will have a major role in the development,
construction or operation of the project.
(4) During 1998, MidAmerican purchased substantially all of
the shares held by San Lorenzo Ruiz Builders and Developers Group
Inc.; however, San Lorenzo has an option to repurchase those
shares at project completion.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Omaha, State of Nebraska, on
March 26, 1999.
CE CASECNAN WATER AND ENERGY COMPANY, INC.
By: /s/ Steven A. McArthur
Steven A. McArthur
Director
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has caused this report to be signed by the
following persons in the capacities and on the dates indicated:
Signature Title Date
David L. Sokol* Director and Chairman of the Board March 26, 1999
David L. Sokol
Gregory E. Abel* Chief Executive Officer March 26, 1999
Gregory E. Abel (Principal Executive Officer)
Alan L. Wells* Senior Vice President and
Alan L. Wells Chief Financial Officer March 26, 1999
(Principal Financial Officer)
Steven A. McArthur Director March 26, 1999
Steven A. McArthur
Ruby S. Nitorreda* Director March 26, 1999
Ruby S. Nitorreda
David A. Baldwin* Director March 26, 1999
David A. Baldwin
Frederick L. Manuel* Director March 26, 1999
Frederick L. Manuel
Patrick J. Goodman* Senior Vice President and March 26, 1999
Patrick J. Goodman Chief Accounting Officer
(Principal Accounting Officer)
*By: /s/ Steven A. McArthur
Steven A. McArthur
Attorney-in-Fact
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
3.1 Articles of Incorporation of the Company (incorporated
by reference to Exhibit 3.1 the Company's Registration Statement
on Form S-4, as amended, dated January 25, 1996 ("Form S-4")).
3.2 By-laws of the Company (incorporated by reference to
Exhibit 3.2 the Company's Form S-4).
4.1(a) Trust Indenture, dated as of November 27, 1995,
between Chemical Trust Company of California and the Company
(incorporated by reference to Exhibit 4.1(a) the Company's Form S-4).
4.1(b) First Supplemental Indenture, dated as of April 10, 1996, between
Chemical Trust Company of California and the Company (incorporated by
reference to Exhibit 4.1(b) to the Company's Form S-4).
4.2 Exchange and Registration Rights Agreement, dated as of
November 27, 1995, by and among CS First Boston Corporation, Bear
Stearns & Co. Inc., Lehman Brothers Inc. and the Company
(incorporated by reference to Exhibit 4.2 the Company's Form S-4).
4.3 Collateral Agency and Intercreditor Agreement, dated as
of November 27, 1995, by and among Chemical Trust Company of
California, Far East Bank & Trust Company and the Company
(incorporated by reference to Exhibit 4.3 the Company's Form S-4).
4.4 Mortgage and Security Agreement, dated as of November
10, 1995, by and among CE Casecnan Ltd., Kiewit Energy
International (Bermuda) Ltd., La Prairie Group
Contractors (International) Ltd., San Lorenzo Ruiz
Builders and Developers Group, Inc., Chemical Trust Company of
California, Far East Bank & Trust Company and the Company
(incorporated by reference to Exhibit 4.4 the Company's Form S-4).
4.6 Deposit and Disbursement Agreement, dated as of November 27, 1995,
by and among the Company, Chemical Trust Company of California,
Kiewit Energy Company and the Company (incorporated by
reference to the Company's Form S-4).
4.7 Consent of NIA, dated as of November 10, 1995, to the
assignment of the Amended and Restated Casecnan Project Agreement
(incorporated by reference to Exhibit 4.7 to the Company's Form S-4).
4.8 Consent of the Republic of Philippines, dated November
10, 1995, to the assignment of the Performance Undertaking and the
Amended and Restated Casecnan Project Agreement (incorporated by
reference to Exhibit 4.8 to the Company's Form S-4).
<PAGE>
4.9 Consent of Hanbo Corporation and You One Engineering
and Construction Company, Ltd., dated as of November 17, 1995, to
the assignment of the Engineering, Procurement and Construction
Contract (incorporated by reference to Exhibit 4.9 to the Company's
Form S-4).
4.10 Consent of Hanbo Steel, dated as of November 17, 1995, to the
assignment of the Guaranty of Engineering, Procurement and
Construction Contract (incorporated by reference to Exhibit 4.10
to the Company's Form S-4).
4.11 Notification, dated as of November 27, 1995, from the Company to
Korea First Bank, of the assignment of the Irrevocable Letter
of Credit (incorporated by reference to Exhibit 4.11 to the
Company's Form S-4).
10.1 Amended and Restated Casecnan Project Agreement, dated as of
June 26, 1995, between the National Irrigation Administration and
the Company (incorporated by reference to Exhibit 10.1 the
Company's Form S-4).
10.2 Performance Undertaking, dated as of July 20, 1995,
executed by the Secretary of Finance on behalf of the Republic of
the Philippines (incorporated by reference to Exhibit 10.2 to the
Company's Form S-4).
10.3 Engineering, Procurement and Construction Contract,
dated as of October 10, 1995, by and among Hanbo Corporation, You
One Engineering and Construction Company, Ltd. and the Company
(incorporated by reference to Exhibit 10.3 the
Company's Form S-4)
10.4 Master Equipment Lease Agreement, dated as of November 1, 1995,
between You One Engineering and Construction Company, Ltd.
and the Company (incorporated by reference to Exhibit
10.4 the Company's Form S-4).
10.5 Sublease Agreement No. 1, dated as of November 1, 1995, between
You One Engineering and Construction Company, Ltd. and the
Company (incorporated by reference to Exhibit 10.5 the Company's
Form S-4).
10.6 Guaranty of Engineering, Procurement and Construction Contract,
dated as of November 13, 1995, by Hanbo Steel guaranteeing the
performance of the obligations of Hanbo Corporation and You
One Engineering and Construction Company, Ltd. under the
Engineering Procurement and Construction Contract (incorporated
by reference to Exhibit 10.6 to the Company's Form S-4).
10.7 Korea First Bank Irrevocable Letter of Credit issued to the Company
in the aggregate principal amount of U.S.$117,850,000.00 to support
the obligations of Hanbo Corporation and You One Engineering
and Construction Company, Ltd. under the Engineering, Procurement
and Construction Contract (incorporated by reference to
Exhibit 10.7 to the Company's Form S-4).
10.8 Engineering, Procurement and Construction Contract
between CE Casecnan Water & Energy Company, Inc. and CP Casecnan -
Consortium.
24 Power of Attorney
27 Financial Data Schedule
Exhibit 24
POWER OF ATTORNEY
The undersigned, a member of the Board of Directors and/or
as Officer of CE CASECNAN WATER AND ENERGY COMPANY, INC., a
corporation registered in the Republic of the Philippines (the
"Company"), hereby constitutes and appoints Steven A. McArthur as
his/her true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for and in his/her
stead, in any and all capacities, to sign on his/her behalf the
Company's Form 10-K Annual Report for the fiscal year ending
December 31, 1998 and to execute any amendments thereto and to
file the same, with all exhibits thereto, and all other documents
in connection therewith, with the United States Securities and
Exchange Commission and applicable stock exchanges, with the full
power and authority to do and perform each and every act and
thing necessary or advisable to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent or his/her substitute or
substitutes, may lawfully do or cause to be done by virtue
hereof.
Dated as of March 26, 1999.
________________________________ _______________________________
DAVID L. SOKOL GREGORY A. ABEL
________________________________ ________________________________
ALAN L. WELLS STEVEN A. McARTHUR
________________________________ ________________________________
RUBY S. NITORREDA DAVID A. BALDWIN
________________________________ ________________________________
FREDERICK L. MANUEL PATRICK J. GOODMAN
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 147,954
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 261,563
<DEPRECIATION> 0
<TOTAL-ASSETS> 553,433
<CURRENT-LIABILITIES> 0
<BONDS> 371,500
0
0
<COMMON> 29
<OTHER-SE> 98,513
<TOTAL-LIABILITY-AND-EQUITY> 553,433
<SALES> 0
<TOTAL-REVENUES> 19,533
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,046
<INCOME-PRETAX> 487
<INCOME-TAX> (106)
<INCOME-CONTINUING> 381
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 381
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0.50
</TABLE>
