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Section 1: 8-K (8-K)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

FORM 8-K

CURRENT REPORT

 

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

August 9, 2016

(Date of earliest event reported)

 

CONSOLIDATED WATER CO. LTD.

(Exact Name of Registrant as Specified in Charter)

 

  Cayman Islands, B.W.I. 0-25248 98-0619652  
  (State or Other Jurisdiction of (Commission File No.) (IRS Employer Identification No.)  
  Incorporation)      

 

Regatta Office Park

Windward Three, 4th Floor

West Bay Road, P.O. Box 1114

Grand Cayman, KY1-1102

Cayman Islands

(Address of Principal Executive Offices)

 

(345) 945-4277

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instructions A.2. below):

 

¨Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

 

Item 2.02. Results of Operations and Financial Condition.

 

On August 9, 2016, Consolidated Water Co. Ltd. (the “Company”) issued a press release announcing its results of operations for the second quarter ended June 30, 2016. A copy of the press release is attached as Exhibit 99.1 to this report.

 

The information in this report, including the exhibit hereto, is being “furnished” in accordance with General Instruction B.2 of Form 8-K. As such, this information is not deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any filings with the Securities and Exchange Commission unless it is explicitly so incorporated in such filings.

 

Item 9.01. Financial Statements and Exhibits.

 

(d) Exhibits.

  

Exhibit No.   Title
     
99.1   Press release issued by the Company on August 9, 2016.

 

 2

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  CONSOLIDATED WATER CO. LTD.
   
     
  By: /s/ David W. Sasnett
  Name:   David W. Sasnett
  Title: Executive Vice President & Chief Financial Officer
     
Date: August 10, 2016    

 

 3

 

  

EXHIBIT INDEX

 

Exhibit   Description
     
99.1   Press release issued by the Company on August 9, 2016.

 

 4

 

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Section 2: EX-99.1 (EXHIBIT 99.1)

  

Exhibit 99.1

 

CONSOLIDATED WATER CO. LTD.

REPORTS SECOND QUARTER OPERATING RESULTS

 

COMPANY WINS TENDER FOR MEXICO PROJECT

 

 

GEORGE TOWN, Grand Cayman, Cayman Islands (August 9, 2016) -- Consolidated Water Co. Ltd. (NASDAQ Global Select Market: “CWCO”) (“Consolidated Water” or “the Company”), which develops and operates seawater desalination plants and water distribution systems in areas of the world where naturally occurring supplies of potable water are scarce or nonexistent, today reported its operating results for the second quarter of 2016. The Company will host an investor conference call on Wednesday, August 10, 2016 at 11:00 a.m. EDT (see details below) to discuss its operating results and other topics of interest.

 

Second Quarter Operating Results

 

Net income attributable to Consolidated Water Co. Ltd. stockholders for the quarter ended June 30, 2016 was $2,204,333 ($0.15 per share on a fully-diluted basis), as compared to $2,228,100 ($0.15 per share on a fully-diluted basis) for the quarter ended June 30, 2015.

 

Revenues generated by retail water operations were $6,292,833 in 2016 as compared to $6,152,185 in 2015. Although the volume of water sold by the retail segment increased by approximately 10% from 2015 to 2016, retail revenues increased by only approximately 2% in 2016 due to (i) lower energy costs, which reduced the energy component of the rates charged to the Cayman retail customers by $172,437 from 2015; and (ii) the annual first quarter adjustment of base rates under the Company’s retail license, which were lowered in 2016 by 4.4% due to downward movement in the price indices used as the basis for such rate adjustments.

 

Bulk segment revenues were $7,441,061 and $8,187,273 for 2016 and 2015, respectively. The decrease in bulk revenues from 2015 to 2016 is attributable to the Company’s Bahamas and Cayman operations, which generated approximately $587,000 and $210,000 less in revenues, respectively, in 2016 than in 2015 due to a significant decrease in the prices of diesel fuel and electricity from 2015 to 2016, which reduced the energy component of bulk water rates.

 

Services segment revenues were $1,664,741 and $146,211 for 2016 and 2015, respectively. Services revenues increased in 2016 primarily as a result of the addition of the revenues of Aerex Industries, Inc. (“Aerex”) after the acquisition of 51% of this company on February 11, 2016.

 

Consolidated gross profit increased to $6,592,379 (43% of total revenues) in 2016, versus $5,965,294 (41% of total revenues) in 2015. Gross profit for retail revenues was $3,607,517 (57% of retail revenues) and $3,494,487 (57% of retail revenues) in 2016 and 2015, respectively. Gross profit on bulk revenues was $2,627,800 (35% of bulk revenues), compared with $2,537,344 (31% of bulk revenues) for the prior year period. The services segment generated gross profit of $357,062 in 2016, while incurring a negative gross profit of ($66,537) in 2015.

 

Consolidated general and administrative expenses (“G&A”) increased to approximately $4.9 million in 2016 from approximately $3.7 million in 2015 due to the addition of the G&A expenses of Aerex and an increase in the project development expenses incurred by the Company’s Mexican subsidiary, N.S.C. Agua S.A. de C.V. (“NSC”).

 

Other income (expense), net for 2016 was $418,837 as compared to $28,195 for 2015. The fluctuation in this net component of results of operations reflects (i) the impairment charge recorded for the Company’s equity investment in Ocean Conversion (BVI) Ltd. (“OC-BVI”) in 2015 of $275,000, as no impairment charge was recorded for this investment in 2016; and (ii) foreign currency gains recorded for PT Consolidated Water Bali (“CW-Bali”) in 2016 as compared to foreign currency losses recorded for this subsidiary in 2015.

 

 

 

Management Comments

 

“Our gross profit, both in dollars and as a percentage of revenues increased for all three of our business segments this past quarter compared to the second quarter of 2015, resulting in a total gross profit increase this past quarter of approximately $627,000, or 11%, compared to the same period of 2015,” stated CEO Rick McTaggart.

 

“Our newly-acquired Aerex subsidiary contributed approximately $1.3 million in revenues to our services segment this past quarter.  Aerex is an original equipment manufacturer of a wide range of products and services applicable to the water industry, and consequently its revenues and earnings are dependent on the timing and size of purchase orders for these products and services.  While Aerex’s financial performance during the four months following its acquisition has not been consistent on average with its 2015 financial performance, we remain extremely positive about the contribution that Aerex will make to our Company.

 

We were very pleased to announce in mid-June that our consortium was declared the winner of the bidding process for the 100 million gallon per day seawater desalination plant in Rosarito, Mexico.  We are currently in the process of finalizing a public-private partnership agreement with the State of Baja California, Mexico which we expect to execute in the coming weeks. 

 

We believe that our negotiations with the Cayman Islands Water Authority for a new water utility license in Grand Cayman are nearing an end, and although a few important differences have yet to be resolved, we remain hopeful that these negotiations will be concluded before the end of this year,” concluded Mr. McTaggart.

 

Six Months Operating Results

 

Net income attributable to Consolidated Water Co. Ltd. stockholders for 2016 was $4,258,974 ($0.29 per share on a fully-diluted basis), as compared to $4,149,361 ($0.28 per share on a fully-diluted basis) for 2015.

 

Total revenues for 2016 and 2015 were $29,433,407 and $29,151,781, respectively. Higher revenues for the services segment in 2016 served to offset a decline in bulk segment revenues as retail revenue remained relatively consistent in 2016 from 2015. Gross profit for 2016 was $12,769,410 or 43% of total revenues, as compared to $12,113,596 or 42% of total revenues, for 2015. Gross profit for the retail and services segments increased while the bulk segment gross profit declined in 2016 from 2015.

 

G&A expenses on a consolidated basis were $9,396,760 and $7,554,540 for 2016 and 2015, respectively. The increase in consolidated G&A expenses from 2015 to 2016 is primarily attributable to the addition of approximately $1,022,000 in expenses for Aerex after the Company’s acquisition of a 51% ownership interest in this company in February 2016 and an increase of approximately $629,000 in the project development expenses incurred by the Company’s Mexican subsidiary, NSC.

 

Other income (expense), net for 2016 was $808,394 as compared to ($191,362) for 2015. The fluctuation in this net component of results of operations reflects (i) a decrease in the impairment charge recorded for the Company’s equity investment in OC-BVI in 2016 as compared to 2015 of $535,000; and (ii) foreign currency gains recorded for CW-Bali in 2016 of approximately $174,000 as compared to foreign currency losses recorded for this subsidiary in 2015 of approximately ($233,000).

 

 

Cash Dividends

 

On July 31, 2016, the Company paid a quarterly cash dividend of $0.075 per share to shareholders of record at the close of business on July 1, 2016. The Company has paid cash dividends to shareholders since 1985.

 

Investor Conference Call

 

The Company will host a conference call at 11:00 a.m. Eastern Time (EDT) on Wednesday, August 10, 2016 to discuss its second quarter operating results and other topics of interest. Shareholders and other interested parties may participate in the conference call by dialing 844-875-6913 (international/local participants dial 412-317-6709) and requesting participation in the “Consolidated Water Company Call” a few minutes before 11:00 a.m. EDT on Wednesday, August 10, 2016.

 

 

 

A replay of the conference call will be available one hour after the call through August 17, 2016 by dialing 877-344-7529 (international/local participants dial 412-317-0088) and entering the conference ID # 10091314, and on the Company’s website at www.cwco.com.

 

CWCO-E

 

About Consolidated Water Co. Ltd.

 

Consolidated Water Co. Ltd. develops and operates seawater desalination plants and water distribution systems in areas of the world where naturally occurring supplies of potable water are scarce or nonexistent. The Company operates water production and distribution facilities and provides water-related products and services to customers in the Cayman Islands, Belize, the British Virgin Islands, The Commonwealth of The Bahamas, Indonesia and the United States.

 

Consolidated Water Co. Ltd. is headquartered in George Town, Grand Cayman, in the Cayman Islands. The Company’s ordinary (common) stock is traded on the NASDAQ Global Select Market under the symbol “CWCO”. Additional information on the Company is available on its website at http://www.cwco.com.

 

This press release includes statements that may constitute “forward-looking” statements, usually containing the words “believe”, “estimate”, “project”, “intend”, “expect”, “should” or similar expressions. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Factors that would cause or contribute to such differences include, but are not limited to, continued acceptance of the Company’s products and services in the marketplace, changes in its relationships with the governments of the jurisdictions in which it operates, the outcome of its negotiations with the Cayman government regarding a new retail license agreement, its ability to successfully secure contracts for water projects, including the projects under development in Baja California, Mexico and Bali, Indonesia, its ability to develop and operate such projects profitably, and its ability to manage growth and other risks detailed in the Company’s periodic report filings with the Securities and Exchange Commission (“SEC”).

 

By making these forward-looking statements, the Company undertakes no obligation to update these statements for revisions or changes after the date of this release.

 

For further information, please contact:

 

Frederick W. McTaggart, President and CEO, at (345) 945-4277 or David W. Sasnett, Executive Vice President and CFO, at (954) 509-8200 or via e-mail at info@cwco.com

 

 

 

 

(Financial Highlights Follow)

 

 

CONSOLIDATED WATER CO. LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   June 30,   December 31, 
   2016   2015 
   (Unaudited)     
         
ASSETS          
Current assets          
Cash and cash equivalents  $37,081,272   $44,792,734 
Certificate of deposit   -    5,637,538 
Restricted cash   -    428,203 
Accounts receivable, net   13,717,123    9,529,016 
Inventory   1,988,249    1,918,728 
Prepaid expenses and other current assets   837,947    1,282,660 
Current portion of loans receivable   1,902,490    1,841,851 
Costs and estimated earnings in excess of billings   1,066,367    - 
Total current assets   56,593,448    65,430,730 
Property, plant and equipment, net   54,251,554    53,743,170 
Construction in progress   2,163,548    1,928,610 
Inventory, non-current   4,508,940    4,558,374 
Loans receivable   2,802,365    3,769,016 
Investment in OC-BVI   4,678,093    4,548,271 
Intangible assets, net   5,993,644    771,811 
Goodwill   11,534,248    3,499,037 
Land held for development   20,558,424    20,558,424 
Other assets   2,717,744    2,767,583 
Total assets  $165,802,008   $161,575,026 
           
LIABILITIES AND EQUITY          
Current liabilities          
Accounts payable and other current liabilities  $4,060,956   $4,829,535 
Dividends payable   1,183,134    1,177,246 
Note payable to related party   490,000    - 
Demand loan payable   -    6,958,328 
Billings in excess of costs and estimated earnings   1,469    189,985 
Total current liabilities   5,735,559    13,155,094 
Deferred tax liability   2,207,636    - 
Other liabilities   557,827    224,827 
Total liabilities   8,501,022    13,379,921 
Commitments and contingencies          
Equity          
Consolidated Water Co. Ltd. stockholders' equity          
Redeemable preferred stock, $0.60 par value. Authorized 200,000 shares;  issued and outstanding 45,206 and 38,804 shares, respectively   27,124    23,282 
Class A common stock, $0.60 par value. Authorized 24,655,000 shares; issued and outstanding 14,806,040 and 14,781,201 shares, respectively   8,883,624    8,868,721 
Class B common stock, $0.60 par value. Authorized 145,000 shares; none issued   -    - 
Additional paid-in capital   84,960,531    84,597,349 
Retained earnings   54,118,710    52,084,175 
Cumulative translation adjustment   (538,907)   (533,365)
Total Consolidated Water Co. Ltd. stockholders' equity   147,451,082    145,040,162 
Non-controlling interests   9,849,904    3,154,943 
Total equity   157,300,986    148,195,105 
Total liabilities and equity  $165,802,008   $161,575,026 

 

 

  

CONSOLIDATED WATER CO. LTD.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

 

   Three Months Ended June 30,   Six Months Ended June 30, 
   2016   2015   2016   2015 
Retail revenues  $6,292,833   $6,152,185   $12,263,071   $12,287,823 
Bulk revenues   7,441,061    8,187,273    14,706,354    16,569,589 
Services revenues   1,664,741    146,211    2,463,982    294,369 
Total revenues   15,398,635    14,485,669    29,433,407    29,151,781 
                     
Cost of retail revenues   2,685,316    2,657,698    5,314,990    5,424,561 
Cost of bulk revenues   4,813,261    5,649,929    9,423,585    11,115,989 
Cost of services revenues   1,307,679    212,748    1,925,422    497,635 
Total cost of revenues   8,806,256    8,520,375    16,663,997    17,038,185 
Gross profit   6,592,379    5,965,294    12,769,410    12,113,596 
General and administrative expenses   4,935,774    3,661,574    9,396,760    7,554,540 
Income from operations   1,656,605    2,303,720    3,372,650    4,559,056 
                     
Other income (expense):                    
Interest income   159,891    258,201    376,726    491,783 
Interest expense   (30,323)   (67,929)   (94,369)   (137,461)
Profit sharing income from OC-BVI   14,175    22,275    48,600    48,600 
Equity in earnings of OC-BVI   85,858    62,668    131,222    137,823 
Impairment of investment in OC-BVI   -    (275,000)   (50,000)   (585,000)
Other   189,236    27,980    396,215    (147,107)
Other income (expense), net   418,837    28,195    808,394    (191,362)
Income before income taxes   2,075,442    2,331,915    4,181,044    4,367,694 
Provision for (benefit from) income taxes   (170,393)   -    (243,662)   - 
Net income   2,245,835    2,331,915    4,424,706    4,367,694 
Income attributable to non-controlling interests   41,502    103,815    165,732    218,333 
Net income attributable to Consolidated Water Co. Ltd. stockholders  $2,204,333   $2,228,100   $4,258,974   $4,149,361 
                     
Basic earnings per common share attributable to Consolidated Water Co. Ltd. common stockholders  $0.15   $0.15   $0.29   $0.28 
Diluted earnings per common share attributable to Consolidated Water Co. Ltd. common stockholders  $0.15   $0.15   $0.29   $0.28 
Dividends declared per common share  $0.075   $0.075   $0.15   $0.15 
                     
Weighted average number of common shares used in the determination of:                    
Basic earnings per share   14,792,053    14,736,057    14,787,716    14,727,455 
Diluted earnings per share   14,871,119    14,793,298    14,863,791    14,780,269 

 

 

  

CONSOLIDATED WATER CO. LTD.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

 

   Three Months Ended June 30,   Six Months Ended June 30, 
   2016   2015   2016   2015 
Net income  $2,245,835   $2,331,915   $4,424,706   $4,367,694 
Other comprehensive income (loss)                    
Foreign currency translation adjustment   (2,659)   (7,202)   (5,834)   (42,751)
Total other comprehensive income (loss)   (2,659)   (7,202)   (5,834)   (42,751)
Comprehensive income   2,243,176    2,324,713    4,418,872    4,324,943 
Comprehensive income attributable to non-controlling interests   41,369    103,454    165,440    216,195 
Comprehensive income attributable to Consolidated Water Co. Ltd. stockholders  $2,201,807   $2,221,259   $4,253,432   $4,108,748 

 

 

 

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