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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transaction period from _______________ to _______________
Commission File Number: 0-25248
CONSOLIDATED WATER CO. LTD.
----------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
CAYMAN ISLANDS N/A
- --------------------------------------------- -------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
TRAFALGAR PLACE, WEST BAY ROAD, P.O. BOX
1114 GT, GRAND CAYMAN, B.W.I. N/A
- ----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (345) 945-4277
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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
As at March 31, 2003, there were 4,239,959 of the registrant's ordinary shares
of common stock, with CI$ 1.00 par value, outstanding.
EXCHANGE RATES
Unless otherwise indicated, all dollar amounts are in United States Dollars and
references to "$", "U.S.", or "U.S. $" are to United States Dollars.
The official fixed exchange rate for conversion of CI$ into U.S.$, as determined
by the Cayman Islands Monetary Authority, has been fixed since April 1974 at
U.S. $1.20 per CI$1.00.
The official fixed exchange rate for conversion of BZE$ into U.S.$, as
determined by the Central Bank of Belize, has been fixed since 1976 at
U.S.$0.50 per BZE$ 1.00.
The official fixed exchange rate for conversion of BAH$ into U.S.$, as
determined by the Central Bank of The Bahamas, has been fixed since 1973 at U.S.
$1.00 per BAH $1.00.
The official fixed exchange rate for conversation of BDS$ into U.S.$ as
determined by the Central Bank of Barbados has been fixed since 1975 at U.S.$
0.50 = BDS$ 1.00.
The British Virgin Islands' currency is U.S.$.
TABLE OF CONTENTS
Section Description Page
- ------- ----------- ----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as at March 31, 2003
and December 31, 2002...................................................... 1
Condensed Consolidated Statements of Income for the
three months ended March 31, 2003 and 2002................................. 2
Condensed Consolidated Statements of Cash Flows for each of the
three months ended March 31, 2003 and 2002................................. 3
Notes to Condensed Consolidated Financial Statements.......................... 4
Item 2. Management's Discussions and Analysis of Financial Condition
and Results of Operations.................................................. 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk.................... 19
Item 4. Controls and Procedures....................................................... 19
PART II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds..................................... 20
Item 5. Other Information............................................................. 20
Item 6. Exhibits and Reports on Form 8-K.............................................. 21
SIGNATURE .............................................................................. 22
CERTIFICATION Section 302 Certifications .................................................. 23
FORWARD-LOOKING STATEMENTS
This Form 10-Q for Consolidated Water Co. Ltd. (the "Company") includes
statements that may constitute "forward-looking" statements, usually containing
the words "believe," "estimate," "project," "intend," "expect" or similar
expressions. These statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
inherently involve risks and uncertainties that could cause actual results to
differ materially from the forward-looking statements. Factors that would cause
or contribute to such differences include, but are not limited to, the ability
to successfully integrate the recently acquired companies into our business, the
ability to successfully complete our pending equity offering, the ability of the
Company to repay the debt incurred to complete the recent acquisitions described
in this Form 10-Q, continued acceptance of the Company's products and services
in the marketplace, changes in its relationship with the governments of the
jurisdictions in which it operates, the ability to successfully secure contracts
for water projects in other countries, the ability to develop and operate such
projects profitably, and other risks detailed in the Company's other periodic
report filings with the Securities and Exchange Commission. By making these
forward-looking statements, the Company undertakes no obligation to update these
statements for revisions or changes after the date of this Form 10-Q.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED WATER CO. LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Expressed in United States Dollars)
MARCH 31, DECEMBER 31,
2003 2002
(UNAUDITED)
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents 3,723,974 568,304
Accounts receivable 2,770,139 1,406,947
Inventory 946,429 388,131
Prepaid expenses and other assets 448,934 370,429
Deferred expenditures 1,300,401 887,856
Current portion of loans receivable 1,080,127 --
----------- -----------
TOTAL CURRENT ASSETS 10,270,004 3,621,667
Loans receivable 4,045,385 --
Property, plant and equipment, net 21,062,174 20,253,646
Investments in affiliates (Note 4) 13,349,712 12,450
Intangible assets (Note 6) 6,301,893 1,619,874
Goodwill 2,673,733 --
----------- -----------
TOTAL ASSETS $57,702,901 $25,507,637
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Dividends payable 469,514 508,444
Accounts payable and other liabilities 1,949,295 1,143,850
Stock compensation liability (Note 9) 417,341 424,841
Current portion of long term debt (Note 7) 12,298,653 518,275
----------- -----------
TOTAL CURRENT LIABILITIES 15,134,803 2,595,410
Long term debt (Note 7) 18,322,857 2,074,609
Security deposits and other liabilities 136,235 136,235
----------- -----------
TOTAL LIABILITIES 33,593,895 4,806,254
----------- -----------
STOCKHOLDERS' EQUITY
Redeemable preferred stock, $1.20 par value. Authorized 100,000 shares;
issued and outstanding 18,914 shares as at March 31, 2003
and 19,740 shares at as December 31, 2002 22,697 23,688
Class A common stock, $1.20 par value. Authorized 9,870,000 shares;
issued and outstanding 4,239,959 shares as at March 31, 2003 and
3,993,419 shares at as December 31, 2002 5,087,951 4,792,103
Class B common stock, $1.20 par value. Authorized 30,000 shares;
issued and outstanding nil shares as at March 31, 2003 and nil
shares as at December 31, 2002 -- --
Additional paid-in capital 9,896,349 7,354,395
Retained earnings 9,102,009 8,531,197
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 24,109,006 20,701,383
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $57,702,901 $25,507,637
=========== ===========
The accompanying information and notes are an
integral part of these condensed consolidated financial statements.
1
CONSOLIDATED WATER CO. LTD.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(Expressed in United States Dollars)
THREE MONTHS THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
2003 2002
--------------- ---------------
Retail water sales 2,818,953 2,858,899
Bulk water sales 1,005,140 325,906
Service revenue 194,632 --
----------- -----------
TOTAL REVENUE 4,018,725 3,184,805
----------- -----------
Retail cost of sales (1,219,878) (1,421,687)
Bulk cost of sales (736,469) (244,765)
Service cost of sales (117,692) --
----------- -----------
TOTAL COST OF SALES (2,074,039) (1,666,452)
GROSS PROFIT 1,944,686 1,518,353
General and administrative expenses (926,635) (579,356)
----------- -----------
INCOME FROM OPERATIONS 1,018,051 938,997
----------- -----------
Other income (expenses):
Interest income 5,522 6,432
Interest expense (293,383) (20,867)
Other income 101,372 1,938
Equity in earnings of affiliates 192,429 --
----------- -----------
5,940 (12,497)
----------- -----------
NET INCOME BEFORE INCOME TAXES 1,023,991 926,500
----------- -----------
Income taxes (5,993) --
----------- -----------
NET INCOME $ 1,017,998 $ 926,500
=========== ===========
BASIC EARNINGS PER SHARE $ 0.25 $ 0.24
=========== ===========
DILUTED EARNINGS PER SHARE $ 0.24 $ 0.23
=========== ===========
DIVIDENDS DECLARED PER SHARE $ 0.105 $ 0.105
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON STOCK USED IN THE
DETERMINATION OF:
Basic earnings per share 4,121,698 3,923,209
=========== ===========
Diluted earnings per share 4,251,195 4,054,949
=========== ===========
The accompanying information and notes are an
integral part of these condensed consolidated financial statements.
2
CONSOLIDATED WATER CO. LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Expressed in United States Dollars)
THREE MONTHS THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
2003 2002
--------------- ---------------
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 1,166,841 590,025
------------ -----------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES
Purchase of property, plant and equipment (241,663) (1,681,993)
Business combinations, net of cash acquired (11,885,839) --
Investment in affiliate (12,069,998) --
Collections from loans receivable 178,759 --
------------ -----------
Net cash used in investing activities (24,018,741) (1,681,993)
------------ -----------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES
Proceeds from new credit facility 28,056,126 1,500,000
Deferred expenditures (412,545) --
Dividends paid (486,111) (397,520)
Proceeds from issuance of common stock 537,600 162,835
Principal payments of long term debt (1,687,500) (12,500)
Proceeds from bank loans -- 500,000
------------ -----------
Net cash provided by financing activities 26,007,570 1,752,815
------------ -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,155,670 660,847
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 568,304 516,446
------------ -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,723,974 $ 1,177,293
============ ===========
Interest paid in cash $ 230,321 $ 16,317
Interest received in cash $ 5,522 $ 6,463
The accompanying information and notes are an
integral part of these condensed consolidated financial statements.
3
CONSOLIDATED WATER CO. LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. PRESENTATION OF FINANCIAL INFORMATION
The accompanying unaudited Condensed Consolidated Financial Statements were
prepared in accordance with the instructions for Form 10-Q and, therefore, do
not include all disclosures necessary for a complete presentation of financial
condition, results of operations, and cash flows in conformity with accounting
principles generally accepted in the United States of America. All adjustments
that are, in the opinion of management, of a normal recurring nature and are
necessary for a fair presentation of the interim financial statements, have been
included. The results of operations for the period ended March 31, 2003 are not
necessarily indicative of the results that may be expected for the entire fiscal
year or any other interim period.
The accompanying consolidated financial statements of the Company should be read
in conjunction with the consolidated financial statements and notes included in
the Company's Annual Report on Form 10-K for the year ended December 31, 2002.
2. PRINCIPLES OF CONSOLIDATION
The accompanying unaudited Condensed Consolidated Financial Statements include
the accounts of Belize Water Limited, DesalCo Limited, its wholly owned
subsidiary DesalCo (Barbados) Limited, and Ocean Conversion (Cayman) Limited.
All significant intercompany balances and transactions have been eliminated in
consolidation.
3. ACQUISITIONS
Effective February 1, 2003, the Company acquired 100% of the outstanding voting
common shares of DesalCo Limited, its wholly owned subsidiary DesalCo (Barbados)
Limited and Ocean Conversion (Cayman) Limited. The total consideration paid was
$28,298,555, comprised of $25,500,000 in cash and 185,714 ordinary shares of the
Company and $506,122 in cost related to the acquisitions.
These acquisitions provide the Company with a reverse osmosis plant design,
construction and facility management and engineering services firm, as well as
facilities and contracts to supply additional potable water services in the
Cayman Islands, Bahamas and Barbados and investments in desalination companies
in the British Virgin Islands.
4
CONSOLIDATED WATER CO. LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. ACQUISITIONS (CONTINUED)
The following table summarizes the estimated fair values of assets acquired and
liabilities assumed at February 1, 2003. The Company is in the process of
finalizing the allocations of purchase price and is subject to refinement:
Current assets 4,940,343
Property, plant and equipment 949,800
Investments in affiliates 13,023,539
Intangible assets 4,868,861
Goodwill 2,673,733
Other assets 4,224,145
-----------
Total assets acquired 30,680,421
-----------
Current liabilities 1,201,870
Long term debt and liabilities 1,179,996
-----------
Total liabilities assumed 2,381,866
-----------
Net assets acquired $28,298,555
===========
The goodwill represents the excess of costs over fair value of assets of
businesses acquired. Goodwill and any intangible assets acquired in a business
combination accounted for using the purchase method and determined to have an
indefinite useful life are not amortized, but instead tested for impairment at
least annually in accordance with the provisions of SFAS No. 142. Intangible
assets with useful lives are amortized over their respective estimated useful
lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 144, "Accounting for Impairment or Disposal of
Long-Lived Assets".
The results of operations of the acquired companies are included in the
consolidated statements of operations from February 1, 2003. Unaudited pro forma
consolidated results of operations of Consolidated Water Co. Ltd., DesalCo
Limited, DesalCo (Barbados) Limited, Ocean Conversion (Cayman) Limited, and an
equity interest in Ocean Conversion (BVI) Ltd., had the companies been acquired
at January 1, 2003 would be as follows:
THREE MONTHS THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
2003 2002
--------------- ---------------
Pro forma revenue $ 4,450,629 $ 4,591,160
Pro forma net income $ 1,185,041 $ 1,147,888
Pro forma earnings per share
Basic $ 0.29 $ 0.28
Diluted $ 0.28 $ 0.27
5
CONSOLIDATED WATER CO. LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. INVESTMENTS IN AFFILIATES
As part of the acquisition described in Note 3, the Company also acquired 50% of
the outstanding voting common shares of Ocean Conversion (BVI) Ltd, 12.7% of the
outstanding voting common shares of Waterfields Company Limited ("Waterfields")
and 100% of the non-voting shares of Ocean Conversion (BVI) Ltd.
The Company's investment in Ocean Conversion (BVI) Ltd. is accounted for by the
equity method. The investment in Waterfields has been recorded at cost.
On May 9, 2003, the Company sold 100% of its non-voting shares in Ocean
Conversion (BVI) Ltd., to Sage Water Holdings (BVI), Ltd. for approximately $2.1
million. The Company acquired these shares as part of the transactions described
above.
5. SEGMENT INFORMATION
Due to the recent acquisitions, management changed the Company's internal
organizational structure to effectively assimilate the business activities of
the acquired companies. Consequently, management no longer considers it
appropriate to report separate business segments based on geographical location.
Under the Statements of Financial Accounting Standards 131, "Disclosure about
Segments of an Enterprise and Related Information", management now considers;
(i) the operations to supply water to retail customers, (ii) the operations to
supply water to bulk customers, and (iii) the provision of engineering and
management services as separate business segments. Segmented financial
information that was reported in previous periods for the Cayman Islands and the
Bahamas has been reclassified to Retail Water, and financial information for
Belize has been reclassified to Bulk Water. Services is a new business segment
created as a result of the recent acquisition.
For purposes of segment information the accounts of Ocean Conversion (BVI) Ltd.
have been proportionally consolidated into the Bulk water segment. An adjustment
has been made in reconciling items to account for the investment under the
equity method. Also included in reconciling items are corporate expenses
including interest expense that do not relate to any specific operating segment.
6
CONSOLIDATED WATER CO. LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. SEGMENT INFORMATION (CONTINUED)
As at March 31 and for the three months then ended
Retail Water Bulk Water Services Reconciling items Total
---------------------- --------------------- ------------- ----------------- ----------------------
2003 2002 2003 2002 2003 2002 2003 2002 2003 2002
---------- ---------- --------- --------- ------- ---- --------- ---- ---------- ----------
Revenue 2,818,953 2,858,899 1,491,926 325,906 194,632 -- (486,786) -- 4,018,725 3,184,805
Cost of sales 1,219,878 1,421,687 914,628 244,765 117,692 -- (178,159) -- 2,074,039 1,666,452
Net income (loss) 1,010,119 880,694 84,667 45,806 (27,581) -- (49,207) -- 1,017,998 926,500
Property, plant
and equipment 18,663,008 18,289,008 4,402,610 1,500,375 32,917 -- (2,036,361) -- 21,062,174 19,789,383
7
CONSOLIDATED WATER CO. LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. INTANGIBLE ASSETS
Effective February 1, 2003, the Company completed acquisitions of interests in
companies described in Note 3 of these consolidated financial statements. The
Company acquired the following identifiable intangible assets as part of these
acquisitions:
(a) As part of the acquisition of DesalCo Limited the Company attributed
$650,978 to intangible assets which represents the fair value of a Management
Service Agreement dated December 4, 2000, under which DesalCo Limited provides
management and engineering services to Ocean Conversion (BVI) Ltd. Management of
the Company has determined the intangible has an indefinite life, and therefore
is not being amortized.
(b) As part of the acquisition of DesalCo Limited the Company attributed
$239,263 to intangible assets which represents the fair value of the DWEER(TM)
Distribution Agreement between DesalCo Limited and DWEER Technology Limited
dated September 24, 2002. Under this agreement DesalCo Limited was granted an
exclusive right, within certain countries in the Caribbean, Central and South
America, to distribute certain patented equipment, which can enhance the
operational efficiency of reverse osmosis seawater desalination plants. The
carrying amount of the DWEER(TM) Distribution Agreement is being amortized over
the remaining term of the seven year agreement.
(c) As part of the acquisition of Ocean Conversion (Cayman) Limited the
Company attributed $3,978,620 to intangible assets which represent the fair
value of two Water Production and Supply Agreements between Ocean Conversion
(Cayman) Limited and the Government of the Cayman Islands, dated April 25, 1994
and dated December 31, 2001. Under these agreements, Ocean Conversion (Cayman)
Limited built reverse osmosis seawater desalination plants for the Government of
the Cayman Islands. Ocean Conversion (Cayman) Limited operates the plants until
the expiration of the agreement term, as extended, at which time the plant
operations will be transferred to the Government of the Cayman Islands for no
consideration. The carrying amount of the Water Production and Supply Agreements
are being amortized over the remaining term of the agreements which are
approximately 5 and 13 years, respectively.
7. LONG TERM DEBT
As of March 31, 2003, the Company has drawn down $28,056,126 from the following
Scotiabank facilities:
$20,000,000 seven-year term loan bearing interest at an annually adjusted
floating rate of LIBOR plus 1.5% to 3%, depending on the ratio of the Company's
consolidated debt to its consolidated earnings before interest, taxes and
depreciation. The average interest rate for the three months ended March 31,
2003 was 4.08%. The current interest rate is 4.06%.
$8,056,126 six-month term loan bearing interest on the same basis as the
seven-year term loan. The average interest rate for the three months ended March
31, 2003 was 4.08%. The present interest rate is 4.06%.
The Company has used the proceeds from these facilities to refinance its debt
with Royal Bank of Canada and to finance its recent acquisitions.
8
7. LONG TERM DEBT (CONTINUED)
Also at March 31, 2003 the Company had a $905,384 loan with the European
Investment Bank bearing interest at 3.36%. This loan will be repaid in full on
June 20, 2003 and has been classified as a current liability.
The Company is subject to certain restrictive covenants associated with its long
term debt and is in compliance with all such covenants at March 31, 2003.
8. EARNINGS PER SHARE
Basic earnings per common share ("EPS") is calculated by dividing net income
available to common stockholders by the weighted average number of common shares
outstanding during the period. The computation of diluted EPS assumes the
issuance of common shares for all dilutive-potential common shares outstanding
during the reporting period. The dilutive effect of stock options is considered
in earnings per common share calculations, if dilutive, using the treasury stock
method.
The following summarizes information related to the computation of basic and
diluted earnings per share for the three-month period ended March 31, 2003 and
2002.
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
2003 2002
------------------ ------------------
Net income, as reported $ 1,017,998 $ 926,500
Less:
Dividends declared and earnings attributable on preference shares
(2,362) (2,950)
Net income available to holders of ordinary shares in the determination
of basic earnings per ordinary share $ 1,015,636 $ 923,550
============= =============
Weighted average number of ordinary shares in the determination of
basic earnings per ordinary share 4,121,698 3,923,209
Plus:
Weighted average number of preference shares outstanding during the
period 19,492 25,195
Potential dilutive effect of unexercised options 110,005 106,545
------------- -------------
Weighted average number of shares used for determining diluted earnings
per ordinary share 4,251,195 4,054,949
============= =============
9
9. STOCK BASED COMPENSATION
The Company currently has various stock option plans and an employee stock
purchase plans. The Company accounts for stock-based compensation plans for
employees and directors using the intrinsic value method. Under this method, the
Company records no compensation expense for stock options granted when the
exercise price of options granted is equal to or greater than the fair market
value of the Company's common stock on the date of grant.
The following table presents the effect on net income and earnings per share if
the Company had applied a fair value recognition method:
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
2003 2002
------------------ ------------------
Net income, as reported $ 1,017,998 $ 926,500
Add: Stock-based employee compensation expense included in reported
net income 27,870 29,700
Deduct: Total stock-based compensation expense determined under fair
value based method for all awards (9,369) (10,494)
------------- -------------
Pro forma net income $ 1,036,499 $ 945,706
============= =============
Earnings per share
Basic - as reported $ 0.25 $ 0.24
============= =============
Basic - pro forma $ 0.25 $ 0.24
============= =============
Diluted - as reported $ 0.24 $ 0.23
============= =============
Diluted - pro forma $ 0.24 $ 0.23
============= =============
10. IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
143, "Accounting for Asset Retirement Obligations". SFAS No. 143 requires the
Company to record the fair value of an asset retirement obligation as a
liability in the period in which it incurs a legal obligation associated with
the retirement of tangible long-lived assets that result from the acquisition,
construction, development, and/or normal use of the assets. The Company also
records a corresponding asset that is depreciated over the life of the asset.
Subsequent to the initial measurement of the asset retirement obligation, the
obligation will be adjusted at the end of each period to reflect the passage of
time and changes in the estimated future cash flows underlying the obligation.
The Company was required to adopt SFAS No. 143 on January 1, 2003. The Company
adopted SFAS No. 143 early during the year ended December 31, 2002. The adoption
did not have a material effect on the Company's consolidated financial
statements.
10
10. IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statements No.
123". This Statement amends FASB Statement No. 123 "Accounting for Stock-Based
Compensation", to provide alternative methods of transition for voluntary change
to the fair value based method of accounting for stock-based employee
compensation. In addition the Statement amends the disclosure requirements of
Statement No. 123 to require prominent disclosures in both annual and interim
financial statements. All of the disclosure modifications required for interim
financial statements have been included in the notes to these condensed
consolidated financial statements.
In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46, "Consolidation of Variable Interest Entities". This
interpretation addresses the consolidation by business enterprises of variable
interest entities as defined in the Interpretation. The Interpretation applies
immediately to variable interest in variable interest entities created after
January 31, 2003, and to variable interests in variable interest entities
obtained after January 31, 2003. For public enterprises with a variable interest
entity created before February 1, 2003 the Interpretation applies to that
enterprise no later than the beginning of the first interim or annual reporting
period beginning after June 15, 2003. The interpretation requires certain
disclosures in financial statements issued after January 31, 2003 if it is
reasonably possible that the Company will consolidate or disclose information
about variable interest entities when the Interpretation becomes effective. The
application of this Interpretation is not expected to have a material effect on
the Company's financial statements.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RECENT ACQUISITIONS
Effective February 1, 2003, we acquired interests in five companies, which
operate a total of seven plant facilities. Consideration for this acquisition
was exchanged on February 7, 2003. These acquisitions increase our daily water
production capacity in the Cayman Islands and the Commonwealth of the Bahamas
and expand our geographic presence to include Barbados and the British Virgin
Islands. As a result of these acquisitions, our daily capacity has more than
tripled from approximately 2.9 to 10.9 million U.S. gallons per day. With one of
these acquisitions, we obtained the exclusive right through 2009 to distribute
the DWEER(TM) Energy Recovery System for use in reverse osmosis seawater
desalination plants in the Caribbean basin. We believe the DWEER(TM) System
gives us a distinct competitive advantage when bidding for new plant
construction projects.
Financial results of the acquired businesses from February 1, 2003 have been
included in the condensed consolidated financial statements in Item 1.
REVENUE
Revenue is comprised of retail water sales via pipeline to individual customers,
bulk water sales to large commercial or municipal customers, and fees for
management and engineering services.
EXPENSES
Expenses include the cost of sales ("direct expenses") and indirect, or general
and administrative, expenses. Direct expenses include royalty payments to the
Cayman Islands government; electricity and chemicals expenses; production
equipment and facility depreciation costs; equipment maintenance expenses,
operational staff costs and amortization of intangible assets. Indirect, or
general and administrative, expenses consist primarily of salaries and employee
benefits for administrative personnel, stock compensation expenses, office lease
payments, depreciation on fixed assets used for administrative purposes and
legal and professional fees. There are no income taxes in the Cayman Islands,
and we are currently exempt from taxes in the British Virgin Islands and Belize.
We may be liable for a business license fee in the Bahamas. We pay income tax in
Barbados.
CRITICAL ACCOUNTING POLICIES
The preparation of our financial statements requires management to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates, including those
related to trade accounts receivable, deferred expenditures, property, plant and
equipment, intangible assets and goodwill. We base our estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates. We believe the following critical accounting policies are the most
important to the portrayal of our financial condition and results and require
management's more significant judgments and estimates in the preparation of our
consolidated financial statements.
12
Trade accounts receivable: We maintain allowances for doubtful accounts for
estimated losses resulting from the inability of our customers to make required
payments. Management continuously evaluates the collectibility of accounts
receivable and records allowances for doubtful accounts based on estimates of
the level of actual write-offs that might be experienced. These estimates are
based on, among other things, comparisons of the relative age of accounts and
consideration of actual write-off history.
Deferred expenditures: These costs were incurred in connection with the recent
acquisitions and financing transactions. Costs relating to the acquisitions have
been included as part of the purchase price allocation and we will seek to repay
a portion of our existing debt with the net proceeds of our pending equity
offering. If we do not proceed with an equity offering we may be required to
expense the amounts relating to the financing transactions.
Intangible assets: Intangible assets with a determined useful life are amortized
over their estimated useful lives and reviewed for impairment in accordance with
SFAS No. 142. Management tests for impairment by evaluating the remaining useful
life of an intangible asset that is being amortized each reporting period to
determine whether events and circumstances warrant a revision to the remaining
period of amortization. Impairment is tested based on projected discounted
future cash flows using a discount rate reflecting our average cost of funds. If
our estimated projections are greater than our actual results there may be an
impairment that has not been reflected in the accounts. Intangible assets with
indefinite useful lives are recorded at fair value and are not amortized.
Management reevaluates the indefinite useful life of such intangible assets at
each reporting period. In addition, intangible assets with indefinite lives are
reviewed annually for impairment by comparing the fair value of the intangible
asset with its carrying value.
Goodwill: We account for acquisitions under the purchase method using the
accounting standards established in Statements of Financial Accounting
Statements No. 141, "Business Combinations" and No. 142, "Goodwill and Other
Intangible Assets". These rules require us to assess goodwill which arises from
the acquisition under the purchase method for impairment at least annually or
more frequently if certain indicators are present. These statements require
estimates in both the purchase price allocation and the fair value of our
reporting units. Impairment of goodwill is tested based on projected discounted
future cash flows of our reporting units using a discount rate reflecting our
average cost of funds.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THREE MONTHS ENDED MARCH 31, 2002
REVENUE
Total revenue increased by 26.2% from $3,184,805 to $4,018,725 for the three
months ended March 31, 2003 when compared to the same three-month period in
2002.
Revenue from our retail water ("Retail") operations decreased by 1.4% from
$2,858,899 to $2,818,953 for the three months ended March 31, 2003 when compared
to the same three-month period in 2002. This decrease was due to slightly lower
sales in our primary market in the Cayman Islands.
Revenue from our bulk water ("Bulk") operations increased by 208.4% from
$325,906 to $1,005,140 for the three months ended March 31, 2003 when compared
to the same three-month period in 2002. This increase was due to our recent
acquisition of Ocean Conversion (Cayman) Limited.
13
Revenue from services (Services") increased from nil to $194,632 for the three
months ended March 31, 2003 when compared to the same three-month period in
2002. This increase was due to our recent acquisition of DesalCo Limited and its
wholly-owned subsidiary DesalCo (Barbados) Ltd.
OTHER INCOME (EXPENSES)
Total other income (expenses) changed by 147.5% from expense of $12,497 to
income of $5,940 for the three months ended March 31, 2003 when compared to the
same three-month period in 2002. This increase was due primarily to income and
profit sharing from our equity investment in Ocean Conversion (BVI) Ltd. which
was offset by the increased interest expense related to the loan interest and
bank fees incurred in connection with our recent acquisitions. We expect loan
interest costs to decrease when we complete our pending equity offering, the
proceeds of which we intend to use to repay a portion of our debt. We are also
amortizing our bridge financing fees over a period of six months at which time
it will be fully amortized.
COST OF SALES
Total cost of sales increased by 24.5% from $1,666,452 to $2,074,039 for the
three months ended March 31, 2003 when compared to the same three-month period
in 2002 for the reasons explained below, while our total revenue increased by
26.2% for the same period.
Cost of sales of our Retail operations decreased by 14.2% from $1,421,687 to
$1,219,878 for the three months ended March 31, 2003 when compared to the same
three-month period in 2002, while our Retail revenue decreased by 1.4% for the
same period. This decrease in cost of sales resulted primarily from the
cancellation of the Governor's Harbour plant operating contract on February 7,
2003, which decreased our water purchase expense. Due to our recent acquisitions
and cancellation of the Governor's Harbour plant operating contract, we expect
our Retail cost of sales going forward to remain at this lower percentage of
Retail revenues.
Cost of sales of our Bulk operations increased by 200.9% from $244,765 to
$736,469 for the three months ended March 31, 2003 when compared to the same
three-month period in 2002, while our Bulk revenue increased by 208.4% for the
same period. This increase in cost of sales resulted almost entirely from the
operating costs of our recent acquisition of Ocean Conversion (Cayman) Limited
which included the amortization costs of the intangible assets that was
recognized in conjunction with our recent acquisition of Ocean Conversion
(Cayman) Limited. We generally sell water to our Bulk customers at a lower
profit margin than to our Retail customers.
Cost of sales of our Services reporting segment were $117,692 for the three
months ended March 31, 2003 and relate to our recent acquisition of DesalCo
Limited and its wholly-owned subsidiary DesalCo (Barbados) Ltd. which included
the amortization cost of the intangible asset that was recognized in conjunction
with our recent acquisition of DesalCo Limited.
GROSS PROFIT
Overall gross profit margin increased from 47.7% to 48.4% for the three months
ended March 31, 2003 when compared to the same three-month period in 2002, for
the reasons explained below.
Gross profit margin for our Retail operations increased from 50.3% to 56.7% for
the three months ended March 31, 2003 when compared to the same three-month
period in 2002. The primary reason for this increase is that our Retail cost of
sales decreased as a result of the cancellation of the Governor's Harbour plant
operating contract.
14
Gross profit margin for our Bulk operations increased from 24.9% to 26.7% for
the three months ended March 31, 2003 when compared to the same three-month
period in 2002. The primary reason for this increase is the inclusion of Ocean
Conversion (Cayman) Limited, which produced a higher gross profit margin than
our other Bulk operation.
Gross profit margin for our Services reporting segment was 39.5% for the three
months ended March 31, 2003.
GENERAL AND ADMINISTRATIVE EXPENSES
Total general and administrative expenses increased by 59.9% from $579,356 to
$926,635 for the three months ended March 31, 2003 when compared to the same
three-month period in 2002. General and administrative expenses were at 18.2%
and 21.3% of total revenue for the three months ended March 31, 2002 and 2003,
respectively.
General and administrative expenses for our Retail operations increased by 5.4%
from $537,981 to $567,077 for the three months ended March 31, 2003 when
compared to the same three-month period in 2002. This increase is comprised
primarily of higher insurance and rent costs.
General and administrative expenses for our Bulk operations increased by 578.0%
from $41,375 to $280,536 for the three months ended March 31, 2003 when compared
to the same three-month period in 2002. This increase is almost entirely the
result of the inclusion of the general and administrative expenses of Ocean
Conversion (Cayman) Limited. We expect to reduce general and administrative
expenses as we assimilate the administrative functions of our recent
acquisitions.
General and administrative expenses for our Services reporting segment were
$79,022 for the three months ended March 31, 2003. This is entirely the result
of our recent acquisitions of DesalCo Limited and its wholly-owned subsidiary
DesalCo (Barbados) Ltd. We expect to reduce general and administrative expenses
as we assimilate the administrative functions of our recent acquisitions.
NET INCOME
Net income increased by 9.9% from $926,500 to $1,017,998 for the three months
ended March 31, 2003 when compared to the same three-month period in 2002 as the
result of factors explained above. We expect net income to increase when we have
repaid the acquisition bridge financing from Scotiabank using the proceeds from
our pending equity offering, and have fully amortized the bank fees related to
this bridge financing.
DIVIDENDS
On January 31, 2003, we paid a dividend of $0.105 to shareholders of record on
December 31, 2002, and on April 30, 2003, we paid a dividend of $0.105 to
shareholders of record on March 31, 2003. We have consistently paid dividends to
owners of our ordinary and redeemable preferred shares since we began declaring
dividends in 1985. Our board of directors has established a policy, but not a
binding obligation, that we will seek to maintain a dividend pay out ratio in
the range of 50% to 60% of net income. While this policy is subject to
modification by our board of directors, we expect to continue increasing our
dividends, if our earnings grow. Our payment of any future cash dividends,
however, will depend upon our earnings, financial condition, capital demand and
other factors, including the condition
15
in our new loan agreement effective February 7, 2003, with Scotiabank (Cayman
Islands) Ltd. that dividends be paid only from current cash flows.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
Prior to our completion of the recent acquisitions, we generated cash primarily
from our operations in the Cayman Islands, the Bahamas and Belize and, to a
lesser extent, from the sale of our shares and through loans and credit
facilities obtained from two banks. As a result of our recent acquisitions, we
began to generate cash from our recently acquired operations in the Cayman
Islands, the Bahamas and Barbados; and from our equity investment in the British
Virgin Islands. Cash flow is affected by the timely receipt of customer
payments, by operating expenses, the timeliness and adequacy of rate increases
(excluding automatic adjustments to our rates for inflation and electricity
costs), and various factors affecting tourism in the Cayman Islands, Belize, the
British Virgin Islands, Barbados and the Bahamas, such as weather conditions and
the economy. We use cash to fund our operations in the Cayman Islands, Belize,
the British Virgin Islands, Barbados and the Bahamas, to fund capital projects,
to expand our infrastructure, to pay dividends, to repay principal on our loans,
to repurchase our shares when appropriate and to take advantage of new
investment opportunities which expand our operations.
OPERATING ACTIVITIES
Cash generated from operating activities for the years ended March 31, 2002 and
2003 was $590,025 and $1,166,841, respectively. We generate cash through the
utilization of our existing plants, equipment and resources in all segments of
the business, minimization of water losses and operating efficiencies created by
our management team. Through our recent acquisitions, we expect our revenues to
approximately double. We believe that our administrative staff will be able to
manage all our combined operations so that our indirect costs will not increase
in proportion to water sales.
INVESTING ACTIVITIES
Cash used in investing activities during the three months ended March 31, 2002
and 2003 was $1,681,993 and $24,018,741, respectively. Cash in the amount of
$23,955,837 was used for our recent acquisitions. During the same period in
2002, our investing activities consisted of expenditures for new property, plant
and equipment, including $1,500,000 on the purchase of the Britannia reverse
osmosis plant. We also continued to expand our water distribution system in the
Cayman Islands by constructing additional pipelines to service new developments
within our exclusive licensed area.
FINANCING ACTIVITIES
On February 7, 2003, we utilized a credit facility with Scotiabank (Cayman
Islands) Ltd. in order to exchange consideration for our recent acquisitions and
refinance our existing debt. Cash provided by financing activities for the three
months ended March 31, 2002 and 2003 was $1,752,815 and $26,007,570,
respectively. During the three months ended March 31, 2003 our primary financing
activity was to draw down $28,056,126 from our Scotiabank facilities from which
we used $1,687,500 to repay our Royal Bank of Canada credit facility. We
anticipate drawing down approximately $8,100,000 in additional funds to complete
our acquisitions of Waterfields Company Limited. We intend to replace a portion
of this debt with the proceeds of our pending equity offering. If we are unable
to complete this offering by August 2003 we have the option of converting the
bridge loan to a term loan and will continue to pay interest at our current
level and incur additional bank fees. During the three months ended March 31,
2002, our primary financing activity was a draw down of our Royal Bank of Canada
16
credit facility for an additional $1,500,000 in order to finance our investment
in the Britannia reverse osmosis plant, plus an increase in our short-term bank
indebtedness.
MATERIAL COMMITMENTS FOR CAPITAL EXPENDITURES AND CONTINGENCIES
At March 31, 2003, we had committed approximately $1,080,000 for capital
expenditures for the purchase, construction and site preparation of two water
storage tanks at our Governors Harbour plant. We intend to finance these
projects using cash from operations.
On February 7, 2003, we entered into a loan agreement with Scotiabank (Cayman
Islands) Ltd. to finance the recent acquisitions and refinance our existing
debt. The facilities are comprised of the following:
- $2 million revolving line of credit bearing interest at the
floating base rate as established by Cayman Island Class A
licensed banks from time to time. The present interest rate is
5.25%.
- $20 million seven-year term loan bearing interest at an
annually adjusted floating rate of LIBOR plus 1.5% to 3%,
depending on the ratio of our consolidated debt to our
consolidated earnings before interest, taxes and depreciation.
The average interest rate for the three months ended March 31,
2003 was 4.08%. The current interest rate is 4.06%.
- $17.1 million six-month term loan bearing interest on the same
basis as the seven-year term loan. The average interest rate
for the three months ended March 31, 2003 was 4.08%. The
present interest rate is 4.06%.
We have used the proceeds from these facilities to refinance our debt with Royal
Bank of Canada, for working capital and to finance our recent acquisitions.
The Company has committed to purchase an additional 13.5% equity interest in
Waterfields Company Limited, a Bahamian company, from Bacardi and & Co. for
approximately BAH$1.4 million. Completion of this purchase is subject to the
fulfillment of certain conditions, including the receipt of government approvals
and the commitment of holders of at least 51% of Waterfields' stock to sell
their shares to the Company. In addition to the transaction with Bacardi, the
Company also has an agreement to acquire an additional 64.7% of the shares of
Waterfields Company Limited, as a price of BAH$690 per share, through a tender
offer conducted outside of the United States to the remaining shareholders of
Waterfields Company Limited. The completion of the tender offer is contingent on
the completion of the Bacardi transaction and governmental approval. We expect
to receive governmental approval and complete these transactions on or before
May 30, 2003.
As of March 31, 2003, we have drawn down $28,056,126 from our Scotiabank
facilities. We anticipate drawing down approximately $8,113,020 in additional
funds to complete our acquisitions of Waterfields Company Limited. We intend to
replace a portion of this debt with the proceeds of our share offering.
We will be required to make monthly payments of interest for all borrowings
under the revolving line of credit and quarterly payments of interest for all
amounts drawn down under the two term loans. We will be obligated to make 28
equal quarterly payments of principal under the seven-year term loan and all
amounts borrowed under the six-month term loan must be repaid at the maturity
date for this facility.
17
We have collateralized all borrowings under the three facilities by providing
Scotiabank with a first lien on all of our assets, including the capital stock
we acquired in our recent acquisitions.
The loan agreement for the three facilities contains standard terms and
conditions for similar bank loans made in the Cayman Islands, including
acceleration of the repayment of all borrowings either upon the demand of
Scotiabank (Cayman Islands) Ltd. or in the event of default under the loan
agreement.
As part of our acquisition of our interests in Ocean Conversion (Cayman)
Limited, with the approval of Scotiabank (Cayman Islands) Ltd., we have
guaranteed the performance of Ocean Conversion (Cayman) Limited to the Cayman
Islands government, pursuant to the water supply contract with the Water
Authority-Cayman dated April 25, 1994 as amended.
As part of the acquisition of our interests in Ocean Conversion (Cayman)
Limited, we agreed to indemnify the seller in respect of a guarantee given by
the seller to the bank of N. T. Butterfield & Son Ltd. for 100% of the
borrowings of Ocean Conversion (Cayman) Limited totaling US$2.4 million. We are
in the process of refinancing Ocean Conversion (Cayman) Limited's loan with
Scotiabank (Cayman Islands) Ltd. and we will guarantee 100% thereof.
As part of the acquisition of our interests in Ocean Conversion (BVI) Ltd., we
agreed to indemnify the seller in respect of a guarantee given by the seller to
the bank of N. T. Butterfield & Son Ltd. for 55% of the borrowings of Ocean
Conversion (BVI) Ltd. totaling US$1.25 million. We are in the process of
refinancing Ocean Conversion (BVI) Ltd's loan with Scotiabank (Cayman Islands)
Ltd. and we will guarantee 50% thereof.
As a result of our pending acquisition of a controlling interest in Waterfields
Company Limited, we will be required to provide a performance guarantee to the
Water and Sewerage Corporation of the Bahamas in relation to the water supply
contract between Waterfields Company Limited and the Water & Sewerage
Corporation.
IMPACT OF INFLATION
Under the terms of our Cayman Islands license, Belize, Bahamas, British Virgin
Islands and Barbados water sales agreements, there is an automatic price
adjustment for inflation on an annual basis, subject to temporary exceptions.
We, therefore, believe that the impact of inflation on our net income, measured
in consistent dollars, will not be material.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
CREDIT RISK
We are not exposed to significant credit risk on retail customer accounts in the
Cayman Islands and Bimini, Bahamas, as our policy is to cease supply of water to
customers whose accounts are more than 45 days overdue. Our main exposure to
credit risk is from our bulk water sales customers in Belize, the British Virgin
Islands, Barbados and the Cayman Islands.
18
INTEREST RATE RISK
As of March 31, 2003, we had loans outstanding of $905,384 from the European
Investment Bank at fixed interest rate of 3.36%, and $28,056,126 from Scotiabank
(Cayman Islands) Ltd., at an annually adjusted floating rate of LIBOR plus 1.5%
to 3%, depending on the ratio of our consolidated debt to our consolidated
earnings before interest, taxes and depreciation. We are subject to interest
rate risk to the extent that LIBOR or Scotiabank (Cayman Islands) Ltd.'s prime
lending rate changes.
FOREIGN EXCHANGE RISK
All of our foreign currencies have fixed exchanged rates to the U.S. dollar. If
any of these fixed exchange rates become a floating exchange rate, however, our
results of operation could be adversely affected.
ITEM 4. CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer (collectively, the
"Certifying Officers") are responsible for establishing and maintaining
disclosure controls and procedures for us. Such officers have concluded (based
upon their evaluation of these controls and procedures as of a date within 90
days of the filing of this report) that our disclosure controls and procedures
are effective to ensure that information required to be disclosed by us in this
report is accumulated and communicated to management, including our principal
executive officers as appropriate, to allow timely decisions regarding required
disclosure.
The Certifying Officers also have indicated that there were no significant
changes in our internal controls or other factors that could significantly
affect such controls subsequent to the date of their evaluation, and there were
no corrective actions with regard to significant deficiencies and material
weaknesses.
Our management, including each of the Certifying Officers, does not expect that
our disclosure controls or our internal controls will prevent all error and all
fraud. A control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control
system are met. In addition, the design of a control system must reflect the
fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within a company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people or by management
override of the control. The design of any systems of controls also is based in
part upon certain assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions. Over time, control may become inadequate
because of changes in conditions, or the degree of compliance with the policies
or procedures may deteriorate. Because of these inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and
not be detected.
19
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On February 7, 2003 we issued 185,714 ordinary shares to a vendor as part of our
acquisition of certain interests in Ocean Conversion (Cayman) Limited and Ocean
Conversion (BVI) Ltd. The issuance of these shares was exempt from registration
under Regulation S promulgated under the 1933 Act because the ordinary shares
were offered and sold outside of the United States to non-US persons (as defined
in Regulation S).
On March 5, 2003, we converted 826 shares of non-vested redeemable preferred
stock for an equal number of ordinary shares under our Employee Share Incentive
Plan. The issuance of the ordinary shares was exempt from registration under
Regulation S promulgated under the Securities Act of 1933 (the "1933 Act")
because the ordinary shares were issued outside of the United States to non-U.S.
persons (as defined in Regulation S) upon conversion of the redeemable preferred
stock.
On March 4, 2003, we issued 60,000 ordinary shares to one of our directors,
pursuant to the exercise of stock options. The aggregate exercise price of the
option was $537,600. The issuance of the shares was exempt from registration
under Rule 506 of Regulation D promulgated under the Securities Act of 1933
because the shares were issued to one of our directors who has knowledge of all
material information relating to us. Proceeds of the transaction were used for
general corporate purposes.
ITEM 5. OTHER INFORMATION
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, our chief executive
officer and our chief financial officer have provided certain certifications
without any qualifications to the Securities and Exchange Commission. These
certifications accompanied this report when filed with the Securities and
Exchange Commission.
20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Exhibit Description
------- -------------------
99.1 Section 906 Certification of Chief Executive Officer of the Company
99.2 Section 906 Certification of Chief Financial Officer of the Company
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed with the Securities and Exchange
Commission ("SEC") on February 13, 2003 by the Company reporting the
recent acquisitions described herein under Item 2. Acquisition or
Disposition of Assets. The financial statements and pro forma financial
information relating thereto were filed with the SEC by the Company on
April 25, 2003 in an amendment to the Form 8-K under Item 7. Financial
Statements and Exhibits.
21
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CONSOLIDATED WATER CO. LTD.
By: /s/ Jeffrey M. Parker
--------------------------------------
Jeffrey M. Parker
Chairman of the Board of Directors and
Chief Executive Officer
Dated: May 15, 2003
22
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Consolidated Water Co. Ltd.
(the "Company") on Form 10-Q for the quarter ended March 31, 2003, as filed with
the Securities and Exchange Commission on the date hereof, I, Jeffrey M. Parker,
the Chief Executive Officer of the Company, certify, pursuant to and for
purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, that:
1. I have reviewed this quarterly report on Form 10-Q of the
Company;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements and other
financial information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this quarterly
report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the registrant's auditors and
the audit committee of the registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weakness in
internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated
in this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 15, 2003
By:/s/ Jeffrey M. Parker
Name: Jeffrey M. Parker
Title: Chief Executive Officer
23
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Consolidated Water Co. Ltd.
(the "Company") on Form 10-Q for the quarter ended March 31, 2003, as filed with
the Securities and Exchange Commission on the date hereof, I, Frederick
McTaggart, the Chief Financial Officer of the Company, certify, pursuant to and
for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002, that:
1. I have reviewed this quarterly report on Form 10-Q of the
Company;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements and other
financial information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this quarterly
report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the registrant's auditors and
the audit committee of the registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weakness in
internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated
in this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 15, 2003
By:/s/ Frederick McTaggart
Name: Frederick McTaggart
Title: Chief Financial Officer
24