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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, 1997
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, 1998.
Documents incorporated by reference: N/A
TABLE OF CONTENTS
PART I 2
ITEM 1. BUSINESS 2
GENERAL 2
PROJECT 2
THE EXPANDING PHILIPPINE AGRICULTURE SECTOR AND POWER MARKETS 3
AGRICULTURE 5
POWER 5
TERMS OF THE SECURITIES 6
EXCHANGE OFFER 6
GENERAL 6
PAYMENT OF PRINCIPAL AND INTEREST 6
PRIORITY OF PAYMENTS 8
DEBT SERVICE RESERVE FUND 8
OPTIONAL REDEMPTION 8
MANDATORY REDEMPTION 8
CHANGE IN CONTROL PUT 9
DISTRIBUTIONS 9
RANKING AND SECURITY FOR THE SECURITIES 9
RATINGS 9
NATURE OF RECOURSE ON THE SECURITIES 10
INCURRENCE OF ADDITIONAL DEBT 10
PRINCIPAL COVENANTS 11
INSURANCE 12
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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 17
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 18
BALANCE SHEETS 19
STATEMENTS OF OPERATIONS 20
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY 21
STATEMENTS OF CASH FLOWS 22
NOTES TO FINANCIAL STATEMENTS 23
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 28
PART III 29
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY 29
ITEM 11. EXECUTIVE COMPENSATION 31
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 31
DESCRIPTION OF CAPITAL STOCK 31
PRINCIPAL HOLDERS 31
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 32
SIGNATURES 33
INDEX TO EXHIBITS 34
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% by CalEnergy Company, Inc.
("CalEnergy"), through its wholly owned subsidiaries CE Casecnan
Ltd. and Kiewit Energy International (Bermuda) Ltd. ("Kiewit")
subject to upward adjustment based upon the actual economics of
the Casecnan Project at commencement of commercial operations.
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 CalEnergy.
The Securities (described herein) are recourse only to the
Company. CalEnergy 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 Denip 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 Denip 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, NIA.
The Casecnan Project's diversion structures will be capable
of storing flows from the Casecnan and Denip 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
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 Philippine
National Irrigation Administration ("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 and $171,500,000 of its 11.95%
Senior Secured Series B Bonds due 2010 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, CE Casecnan terminated the Hanbo Contract due to
defaults by Hanbo and HECC including the insolvency of each such
company. On May 7, 1997, CE Casecnan entered into a new turnkey
engineering, procurement and construction contract to complete
the construction of the Casecnan Project (the "Replacement
Contract"). The work under the Replacement Contract is being
conducted by a consortium consisting of Cooperativa Muratori
Cementisti CMC di Ravenna and Impresa Pizzarotti & C. Spa.,
working together with Siemens A.G., Sulzer Hydro Ltd., Black &
Veatch and Colenco Power Engineering Ltd. (collectively, the
"Replacement Contractor").
In connection with the Hanbo Contract termination, CE
Casecnan tendered a certificate of drawing to Korea First Bank
("KFB") on May 7, 1997, under the irrevocable standby letter of
credit issued by KFB as security under the Hanbo Contract to pay
for certain transition costs and other presently ascertainable
damages under the Hanbo Contract. As a result of KFB's wrongful
dishonor of the draw request, CE Casecnan filed an action in New
York State Court. That Court granted CE Casecnan's request for a
temporary restraining order requiring KFB to deposit $79,329, the
amount of the requested draw, in an interest bearing account with
an independent financial institution in the United States. KFB
appealed this order, but the appellate court denied KFB's appeal
and on May 19, 1997, KFB transferred funds in the amount of
$79,329 to a segregated New York bank account pursuant to the
Court order.
On August 6, 1997, CE Casecnan announced that it had issued
a notice to proceed to the Replacement Contractor. The
Replacement Contractor was already on site and has fully
mobilized and commenced engineering, procurement and construction
work on the Casecnan Project.
On August 27, 1997, CE Casecnan announced that it had
received a favorable summary judgment ruling in New York State
Court against KFB. The judgment, which has been appealed by the
bank, requires KFB to honor the $79,329 drawing by CE Casecnan on
a $117,850 irrevocable standby letter of credit.
On September 29, 1997, CE Casecnan tendered a second
certificate of drawing for $10,828 to KFB and on December 30,
1997, CE Casecnan tendered a third certificate of drawing for
$2,920 to KFB. KFB also wrongfully dishonored these draws, but
pursuant to a stipulation agreed to deposit the draw amounts in
an interest bearing account with the same independent financial
institution in the United States pending resolution of the appeal
regarding the first draw and agreed to expedite the appeal.
The receipt of the letter of credit funds from KFB remains
essential and CE Casecnan will continue to press KFB to honor its
clear obligations under the letter of credit and to pursue Hanbo
and KFB for any additional damages arising out of their actions
to date. If KFB were to fail to honor its obligations under the
Casecnan letter of credit, such action could have a material
adverse effect on the Casecnan Project and CE Casecnan.
On September 2, 1997, Hanbo and HECC filed a Request for
Arbitration before the International Chamber of Commerce ("ICC").
The Request for Arbitration asserts various claims by Hanbo and
HECC against CE Casecnan relating to the terminated Hanbo
Contract and seeking damages. On October 10, 1997, CE Casecnan
served its answer and defenses in response to the Request for
Arbitration as well as counterclaims against Hanbo and HECC for
breaches of the Hanbo Contract. The arbitration proceedings
before the ICC are ongoing and CE Casecnan intends to pursue
vigorously its claims against Hanbo, HECC and KFB in the
proceedings described above.
The 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. $80 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.
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
Exchange Offer
In June 1996, the Company exchanged (i) $125,000,000
aggregate principal amount of Series A Securities for an equal
principal amount of New Series A Securities, and (ii)
$171,500,000 aggregate principal amount of 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, FRNs and Additional Securities are collectively
referred to herein as the "Securities".
General
The New Securities were issued pursuant to the Exchange
offer which applied to the recapitalization of $296,500,000
aggregate principal amount of the Old Securities. The New
Securities will be 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 Security and the
New Securities and are entitled to the benefits of the Indenture
and the Depositary Agreement.
The Securities are direct obligations of the Company,
secured by the Company Collateral.
Payment of Principal and Interest
Interest on the Old Securities and New Securities is payable
semiannually on each May 15 and November 15 (the "Old Securities
and 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
Old Securities and New Securities Interest Payment Date. Holders
of Old Securities whose Old Securities are accepted for exchange
will not receive any payment in respect of accrual and unpaid
interest on such Old Securities. 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.
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 FRNs, which were not a part of the Exchange Offer, 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
FRNs have been issued in the principal amount of $75,000,000,
bear interest from their date of issuance at the rate equal to
LIBOR plus 3.00% per annum, and have final maturity of principal
of November 15, 2002.
The principal of the FRNs will be 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%
Interest on the FRNs 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. After Completion of the Casecnan
Project (as defined in the Turnkey Construction Contract), the
FRNs are subject to optional redemption, in whole or in part, pro
rata, at par plus accrued interest upon 30 days notice, on any
FRN interest payment date.
Priority of Payments
Prior to Completion, 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.
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, the Old
Series A Securities and New Series A Securities are subject to
optional redemption, in whole and not in part, at par plus
accrued interest to the Redemption Date.
The Old Series B Securities and New Series B Securities are
subject to optional redemption, 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, 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.
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 Old Securities and the FRNs were, and the New Securities
and Additional Securities 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.
Recently, Standard & Poor's placed the Securities on CreditWatch
with negative implications. Any such lowering, suspension or
withdrawal of any rating may have a Material Adverse Effect on
the market price or marketability of the Securities.
Nature of Recourse on the Securities
The Company's obligations to make payments of principal or,
premium, if any, and interest on the Old Securities and FRNs
were, and on the New Securities and Additional Securities are,
obligations solely of the Company secured solely by the
Collateral. Neither the shareholders of the Company nor any
Affiliate, including CalEnergy, incorporator, officer, director
or employee thereof or of the Company guaranteed the payment of
the Old Securities, the New Securities or the FRNs, nor have any
obligation with respect to payment of the Securities or
Additional Securities, except to the extent that affiliates of
CalEnergy 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 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,
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.
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 CalEnergy'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, CE Casecnan terminated the Hanbo Contract due to
defaults by Hanbo and HECC including the insolvency of each such
company. On May 7, 1997, CE Casecnan entered into a new turnkey
engineering, procurement and construction contract to complete
the construction of the Casecnan Project (the "Replacement
Contract"). The work under the Replacement Contract is being
conducted by a consortium consisting of Cooperativa Muratori
Cementisti CMC di Ravenna and Impresa Pizzarotti & C. Spa.,
working together with Siemens A.G., Sulzer Hydro Ltd., Black &
Veatch and Colenco Power Engineering Ltd. (collectively, the
"Replacement Contractor").
In connection with the Hanbo Contract termination, CE
Casecnan tendered a certificate of drawing to Korea First Bank
("KFB") on May 7, 1997, under the irrevocable standby letter of
credit issued by KFB as security under the Hanbo Contract to pay
for certain transition costs and other presently ascertainable
damages under the Hanbo Contract. As a result of KFB's wrongful
dishonor of the draw request, CE Casecnan filed an action in New
York State Court. That Court granted CE Casecnan's request for a
temporary restraining order requiring KFB to deposit $79,329, the
amount of the requested draw, in an interest bearing account with
an independent financial institution in the United States. KFB
appealed this order, but the appellate court denied KFB's appeal
and on May 19, 1997, KFB transferred funds in the amount of
$79,329 to a segregated New York bank account pursuant to the
Court order.
On August 6, 1997, CE Casecnan announced that it had issued
a notice to proceed to the Replacement Contractor. The
Replacement Contractor was already on site and has fully
mobilized and commenced engineering, procurement and construction
work on the Casecnan Project.
On August 27, 1997, CE Casecnan announced that it had
received a favorable summary judgment ruling in New York State
Court against KFB. The judgment, which has been appealed by the
bank, requires KFB to honor the $79,329 drawing by CE Casecnan on
a $117,850 irrevocable standby letter of credit.
On September 29, 1997, CE Casecnan tendered a second
certificate of drawing for $10,828 to KFB and on December 30,
1997, CE Casecnan tendered a third certificate of drawing for
$2,920 to KFB. KFB also wrongfully dishonored these draws, but
pursuant to a stipulation agreed to deposit the draw amounts in
an interest bearing account with the same independent financial
institution in the United States pending resolution of the appeal
regarding the first draw and agreed to expedite the appeal.
The receipt of the letter of credit funds from KFB remains
essential and CE Casecnan will continue to press KFB to honor its
clear obligations under the letter of credit and to pursue Hanbo
and KFB for any additional damages arising out of their actions
to date. If KFB were to fail to honor its obligations under the
Casecnan letter of credit, such action could have a material
adverse effect on the Casecnan Project and CE Casecnan.
On September 2, 1997, Hanbo and HECC filed a Request for
Arbitration before the International Chamber of Commerce ("ICC").
The Request for Arbitration asserts various claims by Hanbo and
HECC against CE Casecnan relating to the terminated Hanbo
Contract and seeking damages. On October 10, 1997, CE Casecnan
served its answer and defenses in response to the Request for
Arbitration as well as counterclaims against Hanbo and HECC for
breaches of the Hanbo Contract. The arbitration proceedings
before the ICC are ongoing and CE Casecnan intends to pursue
vigorously its claims against Hanbo, HECC and KFB in the
proceedings described above.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
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,
1997 1996 1995 1994
Total revenue $ 19,786 $ 25,611 $ 2,494 $ ---
Net loss to common stockholders (11,264) (13,211) (1,200) ---
Net loss per share (14.68) (17.22) (2.09) ---
Total assets 491,912 490,162 501,160 2,349
Total liabilities 393,751 380,737 378,524 1,799
Notes and bonds payable 371,500 371,500 371,500 ---
Stockholders' equity 98,161 109,425 122,636 550
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, 1997. The
quarter and year ended December 31, 1997 revenue of $5,475 and
$19,786, respectively, consists of interest income from cash
received from bond proceeds and equity contributions. The
quarter and year ended December 31, 1997 interest expense of
$11,489 and $45,909 less amounts capitalized of $4,351 and
$12,256 and amortization of bond issue costs of $263 and $1,053
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 CalEnergy, 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 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, CE Casecnan terminated the Hanbo Contract due to
defaults by Hanbo and HECC including the insolvency of each such
company. On May 7, 1997, CE Casecnan entered into a new turnkey
engineering, procurement and construction contract to complete
the construction of the Casecnan Project (the "Replacement
Contract"). The work under the Replacement Contract is being
conducted by a consortium consisting of Cooperativa Muratori
Cementisti CMC di Ravenna and Impresa Pizzarotti & C. Spa.,
working together with Siemens A.G., Sulzer Hydro Ltd., Black &
Veatch and Colenco Power Engineering Ltd. (collectively, the
"Replacement Contractor").
In connection with the Hanbo Contract termination, CE
Casecnan tendered a certificate of drawing to Korea First Bank
("KFB") on May 7, 1997, under the irrevocable standby letter of
credit issued by KFB as security under the Hanbo Contract to pay
for certain transition costs and other presently ascertainable
damages under the Hanbo Contract. As a result of KFB's wrongful
dishonor of the draw request, CE Casecnan filed an action in New
York State Court. That Court granted CE Casecnan's request for a
temporary restraining order requiring KFB to deposit $79,329, the
amount of the requested draw, in an interest bearing account with
an independent financial institution in the United States. KFB
appealed this order, but the appellate court denied KFB's appeal
and on May 19, 1997, KFB transferred funds in the amount of
$79,329 to a segregated New York bank account pursuant to the
Court order.
On August 6, 1997, CE Casecnan announced that it had issued
a notice to proceed to the Replacement Contractor. The
Replacement Contractor was already on site and has fully
mobilized and commenced engineering, procurement and construction
work on the Casecnan Project.
On August 27, 1997, CE Casecnan announced that it had
received a favorable summary judgment ruling in New York State
Court against KFB. The judgment, which has been appealed by the
bank, requires KFB to honor the $79,329 drawing by CE Casecnan on
a $117,850 irrevocable standby letter of credit.
On September 29, 1997, CE Casecnan tendered a second
certificate of drawing for $10,828 to KFB and on December 30,
1997, CE Casecnan tendered a third certificate of drawing for
$2,920 to KFB. KFB also wrongfully dishonored these draws, but
pursuant to a stipulation agreed to deposit the draw amounts in
an interest bearing account with the same independent financial
institution in the United States pending resolution of the appeal
regarding the first draw and agreed to expedite the appeal.
The receipt of the letter of credit funds from KFB remains
essential and CE Casecnan will continue to press KFB to honor its
clear obligations under the letter of credit and to pursue Hanbo
and KFB for any additional damages arising out of their actions
to date. If KFB were to fail to honor its obligations under the
Casecnan letter of credit, such action could have a material
adverse effect on the Casecnan Project and CE Casecnan.
On September 2, 1997, Hanbo and HECC filed a Request for
Arbitration before the International Chamber of Commerce ("ICC").
The Request for Arbitration asserts various claims by Hanbo and
HECC against CE Casecnan relating to the terminated Hanbo
Contract and seeking damages. On October 10, 1997, CE Casecnan
served its answer and defenses in response to the Request for
Arbitration as well as counterclaims against Hanbo and HECC for
breaches of the Hanbo Contract. The arbitration proceedings
before the ICC are ongoing and CE Casecnan intends to pursue
vigorously its claims against Hanbo, HECC and KFB in the
proceedings described above.
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 offering circular.
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.
The financial statements of the Company are prepared in
United States Dollar amounts. Gains or losses from translation
of monetary assets and liabilities in foreign currencies are not
material.
Item 8. Financial Statements and Supplementary Data
Report of Independent Public Accountants 18
Balance Sheets, December 31, 1997 and 1996 19
Statements of Operations for the Years Ended December 31, 1997,1996
and 1995 and for the Period from Inception (September 21, 1994) to
December 31, 1997 20
Statements of Changes in Stockholders' Equity for the Period from
Inception (September 21, 1994) to December 31, 1997 21
Statements of Cash Flows for the Years Ended December 31, 1997,1996
and 1995 and for the Period from Inception (September 21, 1994)
to December 31, 1997 22
Notes to Financial Statements 23
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, 1997 and 1996, 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, 1997 and for the period from inception (September 21,
1994) to December 31, 1997. 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, 1997
and 1996, 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, 1997 and for the period
from inception (September 21, 1994) to December 31, 1997, 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 23, 1998
CE CASECNAN WATER AND ENERGY COMPANY, INC.
BALANCE SHEETS
(in thousands, except share and per share amounts)
________________________________
December 31, December 31,
1997 1996
ASSETS
Cash $ 547 $ 32
Restricted cash and short-term investments 183,607 144,122
Accrued interest and other receivables 2,962 4,958
Restricted investments 126,684 273,015
Bond issue costs, net 11,513 12,566
Development and construction costs 158,266 50,793
Deferred income tax 8,333 4,676
Total assets $ 491,912 $ 490,162
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 19,192 $ 8,803
Advances from an affiliate 3,059 434
Notes and bonds payable 371,500 371,500
Total liabilities 393,751 380,737
Commitments and contingencies (Note 8)
Stockholders' equity:
Common stock - par value $0.038 per share,
authorized 2,148,000 shares, issued and
outstanding 767,162 shares at December 31,
1997 and 1996 29 29
Additional paid in capital 123,807 123,807
Accumulated deficit (25,675) (14,411)
Total stockholders' equity 98,161 109,425
Total liabilities and stockholders' equity $ 491,912 $ 490,162
The accompanying notes are an integral part of these financial statements.
CE CASECNAN WATER AND ENERGY COMPANY, INC.
STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
________________________________
From Inception
(September 21,
Year Ended Year Ended Year Ended 1994) to
December December December December
31, 1997 31, 1996 31, 1995 31, 1997
Revenues:
Interest and other income $ 19,786 $ 25,611 $ 2,494 $ 47,891
Costs and expenses:
Interest expense - net of
interest capitalized 33,653 41,903 4,265 79,822
Amortization of bond issue costs 1,053 949 75 2,077
Total cost and expenses 34,706 42,852 4,340 81,899
Loss before income taxes (14,920) (17,241) (1,846) (34,008)
Deferred income tax benefit 3,656 4,030 646 8,333
Net loss to common stockholders $(11,264) $(13,211) $(1,200) $(25,675)
Net loss per share $ (14.68) $ (17.22) $ (2.09) $ (37.20)
Average number of common
shares outstanding 767,162 767,162 575,372 690,254
The accompanying notes are an integral part of these financial statements.
CE CASECNAN WATER AND ENERGY COMPANY, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Period from Inception (September 21,1994)
to December 31, 1997
(in thousands, except share and per share amounts)
________________________________
Outstanding Additional
Common Common Paid-in Accumulated
Shares Stock Capital Deficit Total
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
stock (Note 7) 230,148 9 - - 9
Additional paid-in capital
(Note 5) - - 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
The accompanying notes are an integral part of these financial statements.
CE CASECNAN WATER AND ENERGY COMPANY, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
________________________________
From
Inception
(September
Year Ended Year Ended Year Ended 21, 1994)
December 31,December 31,December 31,to December
1997 1996 1995 31,1997
Cash flows from operating activities:
Net loss $ (11,264) $ (13,211) $(1,200) $ (25,675)
Adjustments to reconcile net cash
flow from operating activities:
Provision for deferred income
tax benefit (3,656) (4,030) (646) (8,333)
Amortization of bond issue costs 1,053 94 975 2,077
Decrease (increase) in accrued
interest and other receivables 1,996 (2,138) (2,820) (2,962)
Increase in accounts payable and
accrued expenses 360 1,828 4,266 6,455
Net cash flows from operating
activities (11,511) (16,602) (325) (28,438)
Cash flows from investing activities:
Additions to development and
construction costs (107,474) (42,453) (6,541) (158,266)
Decrease (increase) in restricted
cash and short-term investments (39,485) 91,729 (235,851) (183,607)
Decrease (increase) in restricted
investments 146,331 (34,550) (238,465) (126,684)
Increase in accounts payable and accrued
expenses related to development
and construction costs 10,029 1,303 1,406 12,737
Net cash flows from investing
activities 9,401 16,029 (479,451) (455,820)
Cash flows from financing activities:
Issuance of bonds payable - - 371,500 371,500
Proceeds from issuance of capital stock - - 9 29
Additional paid-in capital - - 123,277 123,807
Bond issue costs - (173) (13,417) (13,590)
Accrued expense related to
financing activities - (279) 279 -
Advances from an affiliate 2,625 (639) (726) 3,059
Net cash flows from financing
activities 2,625 (1,091) 480,922 484,805
Net increase (decrease) in cash and
cash equivalents 515 (1,664) 1,146 547
Cash and cash equivalents at beginning
of period 32 1,696 550 -
Cash and cash equivalents at
end of period $ 547 $ 32 $ 1,696 $ 547
Supplemental disclosure of cash flow information
Interest paid during the year
(net of amount capitalized) $ 33,292 $ 40,074 - $73,366
The accompanying notes are an integral part of these financial statements.
CE CASECNAN WATER AND ENERGY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
________________________________
1.Organization
The Company or CE Casecnan was registered with the Philippine
Securities and Exchange Commission on September 21, 1994, with
a fiscal 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
net MW 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, among others, 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 has not yet
started commercial operations as of December 31, 1997.
After the completion of the aforementioned project, the
Company is expected to be owned at least 70% by CalEnergy
Company, Inc. (CECI), through its wholly owned subsidiaries,
CE Casecnan Ltd. and Kiewit Energy International (Bermuda)
Ltd., subject to upward adjustment based upon the actual
economics of the Casecnan Project at commencement of
commercial operations.
2.United States Dollar Financial Statements
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.
3.Summary of Significant Accounting Policies
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.
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, 1997 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 Exchange Transactions
The Company prepares its financial statements in United States
dollar amounts. 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." The carrying amount of the Company's
notes and bonds payable approximates their fair value at
December 31, 1997.
4.Advances from an Affiliate
This account represents noninterest-bearing cash advances from
CE Casecnan Ltd., a stockholder, for the construction of the
Casecnan Project.
5.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,
1997, the notes and bonds had effective interest rates of
9.41%, 12.10% and 12.51% 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 semiannual interest
payments for Series A Notes and Series B Bonds commenced on
May 15, 1996.
Semiannual 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 Bonds Total
Notes
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 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 offering circular.
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
8); sale, lease, or transfer of properties material to the
Casecnan Project, among others.
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 whereby Chemical Trust
will act as a depositary and a collateral agent. As a
depositary agent, it will hold moneys, 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. CE
Casecnan Ltd. and Kiewit deposited an aggregate capital
contribution of approximately $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 of CE
Casecnan Ltd. and Kiewit are included in the "Additional paid-
in capital" in the balance sheets.
Interest capitalized as part of Development and Construction
Costs amounted to $12,256 million and $3,843 in 1997 and 1996,
respectively.
6.Income Tax
The Company's deferred tax asset amounting to $8,333 and
$4,676 (net of valuation allowance of $3,570 and $2,004) as of
December 31, 1997 and 1996, respectively, consists mainly of
the difference between the financial reporting basis and the
tax reporting basis for Development and Construction Costs.
7.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.
8.Commitments, Contingencies and Other Matters
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 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 as of November 27, 1995, as amended to date.
The Casecnan Project was being constructed pursuant to a fixed-
price, date-certain, turnkey construction contract (the "Hanbo
Contract") on a joint and several basis by Hanbo Corporation
("Hanbo") and Hanbo Engineering and Construction Co., Ltd.
("HECC"), both of which are South Korean corporations. As of
May 7, 1997, CE Casecnan terminated the Hanbo Contract due to
defaults by Hanbo and HECC including the insolvency of each
such company. On May 7, 1997, CE Casecnan entered into a new
turnkey engineering, procurement and construction contract to
complete the construction of the Casecnan Project (the
"Replacement Contract"). The work under the Replacement
Contract is being conducted by a consortium consisting of
Cooperativa Muratori Cementisti CMC di Ravenna and Impresa
Pizzarotti & C. Spa., working together with Siemens A.G.,
Sulzer Hydro Ltd., Black & Veatch and Colenco Power
Engineering Ltd. (collectively, the "Replacement Contractor").
In connection with the Hanbo Contract termination, CE Casecnan
tendered a certificate of drawing to Korea First Bank ("KFB")
on May 7, 1997, under the irrevocable standby letter of credit
issued by KFB as security under the Hanbo Contract to pay for
certain transition costs and other presently ascertainable
damages under the Hanbo Contract. As a result of KFB's
wrongful dishonor of the draw request, CE Casecnan filed an
action in New York State Court. That Court granted CE
Casecnan's request for a temporary restraining order requiring
KFB to deposit $79,329, the amount of the requested draw, in
an interest bearing account with an independent financial
institution in the United States. KFB appealed this order,
but the appellate court denied KFB's appeal and on May 19,
1997, KFB transferred funds in the amount of $79,329 to a
segregated New York bank account pursuant to the Court order.
On August 6, 1997, CE Casecnan announced that it had issued a
notice to proceed to the Replacement Contractor. The
Replacement Contractor was already on site and has fully
mobilized and commenced engineering, procurement and
construction work on the Casecnan Project.
On August 27, 1997, CE Casecnan announced that it had received
a favorable summary judgment ruling in New York State Court
against KFB. The judgment, which has been appealed by the
bank, requires KFB to honor the $79,329 drawing by CE Casecnan
on a $117,850 irrevocable standby letter of credit.
On September 29, 1997, CE Casecnan tendered a second
certificate of drawing for $10,828 to KFB and on December 30,
1997, CE Casecnan tendered a third certificate of drawing for
$2,920 to KFB. KFB also wrongfully dishonored these draws,
but pursuant to a stipulation agreed to deposit the draw
amounts in an interest bearing account with the same
independent financial institution in the United States pending
resolution of the appeal regarding the first draw and agreed
to expedite the appeal.
The receipt of the letter of credit funds from KFB remains
essential and CE Casecnan will continue to press KFB to honor
its clear obligations under the letter of credit and to pursue
Hanbo and KFB for any additional damages arising out of their
actions to date. If KFB were to fail to honor its obligations
under the Casecnan letter of credit, such action could have a
material adverse effect on the Casecnan Project and CE
Casecnan.
On September 2, 1997, Hanbo and HECC filed a Request for
Arbitration before the International Chamber of Commerce
("ICC"). The Request for Arbitration asserts various claims
by Hanbo and HECC against CE Casecnan relating to the
terminated Hanbo Contract and seeking damages. On October 10,
1997, CE Casecnan served its answer and defenses in response
to the Request for Arbitration as well as counterclaims
against Hanbo and HECC for breaches of the Hanbo Contract.
The arbitration proceedings before the ICC are ongoing and CE
Casecnan intends to pursue vigorously its claims against
Hanbo, HECC and KFB in the proceedings described above.
The 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.
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.
There were no material outstanding lawsuits as of December 31,
1997 other than the letter of credit litigation and ICC
arbitration described above.
9.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; 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.
Item 9: Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not Applicable
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 41 Director, Chairman and Chief Executive Officer
Gregory E. Abel 35 President and Chief Operating Officer
Steven A. McArthur 40 Director, Executive Vice President and General
Counsel
Craig M. Hammett 36 Senior Vice President and
Chief Financial Officer
Douglas L. Anderson 40 Assistant Vice President
Edward F. Bazemore 61 Vice President - Human Resources
Vincent R. Fesmire 57 Vice President - Construction
James A. Flores 44 Assistant Treasurer
Patrick J. Goodman 31 Vice President and Chief Accounting Officer
Brian Hankel 35 Vice President and Treasurer
Scott LaPrairie 40 Director
Ruby S. Nitorreda 34 Director and Assistant Corporate Secretary
Elizabeth B. Opena 28 Director
Donald M. O'Shei, Jr. 39 Director, Vice Chairman, President
and Chief Operating Officer, Asia
Jose R. Sandejas 60 Director and Corporate Secretary
Robert S. Silberman 40 Senior Vice President, Administration
James D. Stallmeyer 40 Vice President and General Counsel,Asia
Oscar Violago 53 Director
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 four of the directors, KEIL Casecnan
Ltd. is entitled to elect three 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 and Chief Executive Officer of the Company, Mr. Sokol
has been Chief Executive Officer since April 19, 1993 and served
as President of CalEnergy 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 CalEnergy 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 a wholly owned subsidiary of PKS
and Ogden Projects, Inc.
Gregory E. Abel. In addition to serving as President and
Chief Operating Officer of the Company, Mr. Abel is President and
Chief Operating Officer of CalEnergy. Mr. Abel joined CalEnergy
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,
Executive Vice President and General Counsel of the Company, Mr.
McArthur is a Executive Vice President, General Counsel, and
Secretary of CalEnergy. Mr. McArthur joined CalEnergy 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.
Craig M. Hammett. 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 CalEnergy. Mr. Hammett joined CalEnergy
in 1996. Prior to joining CalEnergy, Mr. Hammett served as Director of
Project Finance for Entergy Power Group, as Director, Project Finance and
M&A for CSW Energy and as a corporate loan officer for various financial
institutions.
Douglas L. Anderson. In addition to serving as Assistant
Vice President for the Company, Mr. Anderson is Assistant
Secretary and Assistant General Counsel of CalEnergy. Mr.
Anderson joined CalEnergy 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.
Edward F. Bazemore. In addition to serving as Vice
President - Human Resources for the Company, he also serves in
the same capacity for CalEnergy. Mr. Bazemore joined CalEnergy
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 CalEnergy. Mr.
Fesmire joined CalEnergy in October 1993. Since joining
CalEnergy, Mr. Fesmire's responsibilities have shifted from
project development and implementation to construction in
parallel with the status of CalEnergy's projects. Prior to
joining CalEnergy, 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.
James A. Flores. In addition to serving as Assistant
Treasurer for the Company, Mr. Flores is Vice President, Project
Finance for CalEnergy. Prior to joining CalEnergy in May 1994,
Mr. Flores was employed for 12 years with Mellon Bank first in
its Latin American Group and subsequently in its Project Finance
Group.
Patrick J. Goodman. In addition to serving as Vice
President and Chief Accounting Officer for the Company, he is
Vice President and Chief Accounting Officer for CalEnergy. Mr.
Goodman joined CalEnergy in June 1995, and serviced as Manager of
Consolidation Accounting until September 1996 when he was
promoted to Controller. Prior to joining CalEnergy, Mr. Goodman
was an accountant at Coopers & Lybrand.
Brian Hankel. In addition to serving as Treasurer for the
Company, he is Vice President and Treasurer for CalEnergy. Mr.
Hankel joined CalEnergy 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.
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 an
attorney with the law firm of Quisumbing Torres & Evangelista.
Donald M. O'Shei, Jr. In addition to serving as a Director,
Vice Chairman and President and Chief Operating Officer, Asia of
the Company, Mr. O'Shei is President of CalEnergy Development
Company. Mr. O'Shei joined the Company in August 1992. Prior to
1997, he served as General Manager-Indonesia and Vice President
of CE International Investments, Ltd. for the Company. From 1991
to 1992, he was employed by Proven Alternatives Capital
Corporation as a Financial Analyst. Prior to 1991, Mr. O'Shei
served in the U.S. Army in the Special Forces, Airborne and
Pathfinder Units.
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.
Robert S. Silberman. In addition to serving as Senior Vice
President, Administration of the Company, Mr. Silberman is Senior
Vice President, Administration of CalEnergy. Mr. Silberman
joined CalEnergy in 1995. Prior to that, Mr. Silberman served as
Executive Assistant to the Chairman and Chief Executive Officer
of International Paper Company, as Director of Project Finance
and Implementation for the Ogden Corporation, and as a Project
Manager in Business Development for Allied-Signal, Inc. He has
also served as the Assistant Secretary of the Army for the United
States Department of Defense.
James D. Stallmeyer. In addition to serving as Vice
President and General Counsel, Asia of the Company, Mr.
Stallmeyer is 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.
Oscar Violago. In addition to serving as a Director of the
Company, Mr. Violago is President of San Lorenzo Ruiz Builders
and Developers Group, Inc. of Metro Manila, the Philippines.
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, 1997 there were 13 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) 268,503 35%(2)
a Bermuda corporation
c/o Conyers Dill & Pearman
Clarendon House
P.O. Box 666
Hamilton, Bermuda HM CX
2. Kiewit Energy International
(Bermuda) Ltd.(1) 268,502 35%(2)
a Bermuda corporation
c/o Appleby Spurling & Kempe
Cedar House
41 Cedar House HM 179
Hamilton, Bermuda HM EX
3. LaPrairie Group Contractors
(International), Ltd. 115,074 15%(3)
a Barbados corporation
c/o P.O. . Box 690C
Bridgetown, Barbados
4. San Lorenzo Ruiz Builders
and Developers Group, Inc. 115,074 15%(3)
a Philippine corporation
Violago Compound
222 East Rodriguez Avenue
Quezon City, Philippines
*In addition, each director of the Company owns one share in the
Company as required by Philippine law.
(1) CalEnergy indirectly owns CE Casecnan, Ltd., a Bermuda
corporation, and Kiewit Energy International (Bermuda) Ltd.,
which are the registered owners of the shares.
(2) Number of shares owned subject to upward adjustment
based on projected level of financial return to CalEnergy 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 CalEnergy 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.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not Applicable.
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, 1998.
CE CASECNAN WATER AND ENERGY COMPANY, INC.
By: /s/ Steven A. McArthur
Steven A. McArthur
Director and Executive Vice President
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* Chairman of the Board and Chief
David L. Sokol Executive Officer March 26, 1998
(Principal Executive Officer)
Gregory E. Abel* President and Chief Operating Officer March 26, 1998
Gregory E. Abel
Craig M. Hammett* Senior Vice President and Chief Financial
Craig M. Hammett Officer March 26, 1998
(Principal Financial Officer)
Steven A. McArthur Director and Executive Vice President March 26, 1998
Steven A. McArthur
Ruby S. Nitorreda* Director and Assistant Secretary March 26, 1998
Ruby S. Nitorreda
Donald M. O'Shei Jr.* Director, Vice Chairman and President
Donald M. O'Shei Jr. and Chief Operating Officer, Asia March 26, 1998
Patrick J. Goodman* Vice President and Chief Accounting
Patrick J. Goodman Officer (Principal Accounting Officer) March 26, 1998
*By: /s/ Steven A. McArthur
Steven A. McArthur
Attorney-in-Fact
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).
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 and Energy Company, Inc. and CP Casecnan - Consortium.
24 Power of Attorney
27 Financial Data Schedule