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Section 1: 8-K (FORM 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, 2017

(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))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company  ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨

 

 

 
 

 

Item 2.02.Results of Operations and Financial Condition.

 

On August 9, 2017, Consolidated Water Co. Ltd. (the “Company”) issued a press release announcing its results of operations for the second quarter ended June 30, 2017. 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, 2017.

 

  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, 2017      

 

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EXHIBIT INDEX

 

Exhibit   Description
     
99.1   Press release issued by the Company on August 9, 2017.

 

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Section 2: EX-99.1 (EXHIBIT 99.1)

 

Exhibit 99.1

 

Consolidated Water Reports Second Quarter Results

 

·Core Desalination Operations Reported Steady Performance with Total Revenues of $15.2 million and Gross Profit of $6.5 million
·Net income from Continuing Operations was $1.7 million, Inclusive of $885,000 in Development Expenses for the Rosarito Project
·Operating Cash Flow for the First Half of 2017 was $9.6 million
·Rosarito on Track to Begin Construction by Year-end 2017

  

GEORGE TOWN, Cayman Islands, August 9, 2017 - Consolidated Water Co. Ltd. (NASDAQ: CWCO), a leading developer and operator of seawater desalination plants, reported financial and operating results for the second quarter ended June 30, 2017.

 

Management Commentary

 

“Our second quarter results reflect the stability of existing desalination operations and our continued investment in the development of our large Rosarito, Mexico project,” said Rick McTaggart, Chief Executive Officer. “Our desalination operations, which reflect the positive outcome of negotiations over the past 12 months to extend four bulk water contracts, continue to meet expectations and provide a solid foundation for our other initiatives. Manufacturing segment results reflected lower sales this past quarter, but we are encouraged by an increase in orders that we expect will positively impact sales for this segment in the second half of 2017.

 

Net income from continuing operations continues to reflect our ongoing Rosarito project development costs. The decline compared to last year’s second quarter was primarily due to lower revenues from our retail and services segments resulting in a modest decline in gross profit and lower other (non-operating) income due to reduced earnings from our investment in OC-BVI and the absence of the one-time gain on sale of assets that occurred in the 2016 second quarter. Our results from continuing operations exclude the impairment loss resulting from our recent decision to discontinue our operations in Bali.

 

During the second quarter, we made considerable progress on our Rosarito project and expect to be in a position to break ground by year end. Our total investment in the Rosarito project to date has been $42.9 million, of which $21.0 million has been spent on land, right of ways and equipment and approximately $21.9 million on development expenses. We were pleased to see that in May, the Otay Water District received a permit to build and operate a nearly four-mile cross border pipeline that could ultimately be used to transport potable water from our Rosarito desalination plant. The Otay Water District currently serves a population of over 223,000 within the San Diego metropolitan area,” Mr. McTaggart noted.

 

Second Quarter 2017 Financial Results

 

Total revenues for the 2017 second quarter were $15.3 million, slightly below the $15.4 million reported in last year’s second quarter due primarily to modest declines in retail, services and manufacturing segments revenues that were partially offset by higher revenues in the bulk segment. Gross profit decreased 3.2% to $6.5 million from $6.7 million. Net income from continuing operations attributable to Consolidated Water stockholders was $1.7 million, or $0.11 per fully diluted share, a decrease of 27.7% from the $2.3 million, or $0.16 per fully diluted share, earned in the similar year-ago period. Net income from continuing operations for the 2017 second quarter included operating expenses of $885,000 related to costs for the Rosarito desalination plant. The Company incurred a $1.0 million impairment loss in the second quarter related to its Bali operation, which is now classified as a discontinued operation. After accounting for that loss, net income attributable to Consolidated Water stockholders was $624,548, or $0.04 per diluted share.

 

 
 

 

First Half 2017 Financial Results

 

Total revenues for the first six months of 2017 were $31.0 million, an increase of $1.5 million from the $29.4 million reported in last year’s comparable period. Gross profit was up 3.0% to $13.4 million from $13.0 million. Net income from continuing operations attributable to Consolidated Water stockholders was $4.4 million, or $0.29 per fully diluted share, an increase of 0.4% from the $4.4 million, or $0.29 per fully diluted share, earned in the similar year-ago period. Net income and diluted EPS for the first half of 2017 and 2016 included operating expenses of $1.6 million and $1.6 million, respectively, related to development costs for the Rosarito desalination plant. After accounting for the impairment loss related to the Company’s Bali operations, net income attributable to Consolidated Water stockholders was $3.3 million, or $0.21 per diluted share.

 

Net cash provided by operating activities for the six months ended June 30, 2017 was $9.6 million and capital expenditures totaled $2.6 million.

 

Segment Results

 

Three Months Ended June 30, 2017 (Unaudited)
   Retail   Bulk   Services   Manufacturing 
Revenues  $6,029,449   $8,043,921   $119,204   $1,056,047 
Cost of revenues   2,659,066    5,152,212    103,753    847,760 
Gross profit   3,370,383    2,891,709    15,451    208,287 
                     

 

Three Months Ended June 30, 2016 (Unaudited)
    Retail    Bulk    Services    Manufacturing 
Revenues  $6,273,400   $7,441,061   $403,935   $1,260,806 
Cost of revenues   2,555,545    4,813,261    272,537    1,035,142 
Gross profit   3,717,855    2,627,800    131,398    225,664 

 

Summary and Outlook

 

“In summary, we are pleased with the consistent performance of our core desalination operations and the improving prospects for our manufacturing segment. Renewal negotiations for our Cayman retail license began in July 2017 with the newly formed OfReg, and we have been informed that our retail license has been extended through January 31, 2018, while negotiations continue.

 

We continue to make progress on the Rosarito project, which should be a transformational event for the Company once it is completed. This is a very complex project and is the largest infrastructure project ever undertaken by the State of Baja California, Mexico. Over the past six months we have been working together with Mexican State and Federal government agencies to achieve the various conditions precedent in the public-private partnership agreement. In the third quarter, we look forward to finalizing financing negotiations for the project, and we continue to work closely with the client, our partners, advisors and financing institutions with the goal of commencing construction on this landmark project by year end.

 

Importantly, we maintained a strong balance sheet and continued to generate significant operating cash flows over the first six months of 2017, which provides us with the credit standing and liquidity to invest in the Rosarito project while maintaining dividends to our shareholders,” Mr. McTaggart concluded.

 

For further information, please contact our investor relations firm, MBS Value Partners:

 

Lynn Morgen: (212) 223 4147 lynn.morgen@mbsvalue.com
Eric Prouty: (978) 456 9539 eric.prouty@mbsvalue.com
Viktoriia Nakhla: (646) 625-4800 viktoriia.nakhla@mbsvalue.com

 

 

 

(Financial Highlights Follow)

 

 
 

 

CONSOLIDATED WATER CO. LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   June 30,   December 31, 
   2017   2016 
   (Unaudited)     
ASSETS          
Current assets          
Cash and cash equivalents  $45,950,954   $39,126,214 
Accounts receivable, net   14,091,119    16,480,639 
Inventory   3,057,218    1,985,006 
Prepaid expenses and other current assets   1,330,580    1,084,155 
Current portion of loans receivable   1,355,824    1,633,588 
Costs and estimated earnings in excess of billings   543,893    85,211 
Current assets of discontinued operations   154,331    480,979 
Total current assets   66,483,919    60,875,792 
Property, plant and equipment, net   50,463,135    52,471,537 
Construction in progress   2,804,958    885,494 
Inventory, non-current   4,497,027    4,558,816 
Loans receivable   1,446,541    2,135,428 
Investment in OC-BVI   2,949,547    4,086,630 
Intangible assets, net   4,468,530    5,195,476 
Goodwill   9,784,248    9,784,248 
Land held for development   20,558,424    20,558,424 
Other assets   2,183,317    2,280,519 
Long-term assets of discontinued operations   154,501    772,164 
Total assets  $165,794,147   $163,604,528 
           
LIABILITIES AND EQUITY          
Current liabilities          
Accounts payable and other current liabilities  $4,878,489   $4,840,387 
Dividends payable   1,189,786    1,187,214 
Notes payable to related party   392,000    490,000 
Billings in excess of costs and estimated earnings   1,396,426    102,966 
Current liabilities of discontinued operations   55,329    58,521 
Total current liabilities   7,912,030    6,679,088 
Deferred tax liability   1,639,096    1,915,241 
Other liabilities   752,828    904,827 
Total liabilities   10,303,954    9,499,156 
Commitments and contingencies          
Equity          
Consolidated Water Co. Ltd. stockholders' equity          

Redeemable preferred stock, $0.60 par value. Authorized 200,000 shares; issued and outstanding

45,087 and 35,225 shares, respectively 27,052 21,135

          

Class A common stock, $0.60 par value. Authorized 24,655,000 shares; issued and outstanding

14,889,865 and 14,871,664 shares, respectively

   8,933,919    8,922,998 
Class B common stock, $0.60 par value. Authorized 145,000 shares; none issued   -    - 
Additional paid-in capital   85,926,072    85,621,033 
Retained earnings   52,606,237    51,589,337 
Cumulative translation adjustment   (549,555)   (549,555)
Total Consolidated Water Co. Ltd. stockholders' equity   146,943,725    145,604,948 
Non-controlling interests   8,546,468    8,500,424 
Total equity   155,490,193    154,105,372 
Total liabilities and equity  $165,794,147   $163,604,528 

 

 
 

 

CONSOLIDATED WATER CO. LTD.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

 

   Three Months Ended June 30,   Six Months Ended June 30, 
   2017   2016   2017   2016 
Retail revenues  $6,029,449   $6,273,400   $12,478,399   $12,216,660 
Bulk revenues   8,043,921    7,441,061    15,734,323    14,706,354 
Services revenues   119,204    403,935    249,456    584,647 
Manufacturing revenues   1,056,047    1,260,806    2,435,895    1,879,335 
Total revenues   15,248,621    15,379,202    30,898,073    29,386,996 
                     
Cost of retail revenues   2,659,066    2,555,545    5,278,713    5,065,540 
Cost of bulk revenues   5,152,212    4,813,261    10,168,001    9,423,585 
Cost of services revenues   103,753    272,537    205,919    469,813 
Cost of manufacturing revenues   847,760    1,035,142    1,889,057    1,455,609 
Total cost of revenues   8,762,791    8,676,485    17,541,690    16,414,547 
Gross profit   6,485,830    6,702,717    13,356,383    12,972,449 
General and administrative expenses   4,960,170    4,888,794    9,714,680    9,295,856 
Income from operations   1,525,660    1,813,923    3,641,703    3,676,593 
                     
Other income (expense):                    
Interest income   108,821    158,085    230,893    374,843 
Interest expense   (7,939)   (30,323)   (10,162)   (94,369)
Profit sharing income from OC-BVI   -    14,175    10,125    48,600 
Equity in the earnings (losses) of OC-BVI   (37,824)   85,858    (10,958)   131,222 
Impairment loss on investment in OC-BVI   -    -    -    (50,000)
Unrealized gain (loss) on put/call options   (13,000)   -    152,000    - 
Other   (28,530)   176,383    53,191    222,129 
Other income, net   21,528    404,178    425,089    632,425 
Income before income taxes   1,547,188    2,218,101    4,066,792    4,309,018 
Benefit from income taxes   (136,448)   (170,393)   (276,145)   (243,662)
Net income from continuing operations before non-controlling interests   1,683,636    2,388,494    4,342,937    4,552,680 

Income (loss) from continuing operations

attributable to non-controlling interests

   (8,354)   48,544    (56,146)   172,040 
Net income from continuing operations   1,691,990    2,339,950    4,399,083    4,380,640 
Loss from discontinued operations   (1,071,001)   (142,659)   (1,150,850)   (127,974)

Loss from discontinued operations

attributable to non-controlling interests

   (3,559)   (7,042)   (7,543)   (6,308)
Net loss from discontinued operations   (1,067,442)   (135,617)   (1,143,307)   (121,666)

Net income attributable to Consolidated

Water Co. Ltd. stockholders

  $624,548   $2,204,333   $3,255,776   $4,258,974 
                                 

Basic earnings per common share attributable to Consolidated

Water Co. Ltd. common stockholders

                               
Continuing operations   $ 0.11     $ 0.16     $ 0.30     $ 0.30  
Discontinued operations   $ (0.07 )   $ (0.01 )   $ (0.08 )   $ (0.01 )
Basic earnings per share   $ 0.04     $ 0.15     $ 0.22     $ 0.29  
                                 

Diluted earnings per common share attributable to Consolidated

Water Co. Ltd. common stockholders

                               
Continuing operations   $ 0.11     $ 0.16     $ 0.29     $ 0.29  
Discontinued operations   $ (0.07 )   $ (0.01 )   $ (0.08 )   $ -  
Diluted earnings per share   $ 0.04     $ 0.15     $ 0.21     $ 0.29  
                                 
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     14,889,816       14,792,053       14,880,889       14,787,716  
Diluted earnings per share     15,055,554       14,871,119       15,045,204       14,863,791  

 

 

 

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