EX-99.(C) 15 k86383exv99wxcy.txt FINANCIAL STATEMENTS FOR EMIRATES CMS POWER CO. EXHIBIT 99(c) EMIRATES CMS POWER COMPANY PJSC FINANCIAL STATEMENTS AS OF 31 DECEMBER 2003 AND 2002 AND FOR THE YEARS ENDED 31 DECEMBER 2003, 2002 AND 2001 REPORT OF INDEPENDENT AUDITORS TO THE BOARD OF DIRECTORS OF EMIRATES CMS POWER COMPANY PJSC We have audited the accompanying balance sheet of Emirates CMS Power Company Private Joint Stock Company ("the Company") as of 31 December 2003 and the related statements of income, cash flows and stockholders' equity for the year then ended. 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 audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 audit provides 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 the Company as of 31 December 2003, and the results of its operations and its cash flows for the year then ended in conformity with U.S. generally accepted accounting principles. /s/ ERNST & YOUNG Abu Dhabi, United Arab Emirates 27 June 2004 Emirates CMS Power Company PJSC ------------------------------------------------------------------------------- BALANCE SHEETS 31 December 2003 and 2002
Unaudited Notes 2003 2002 AED `000 AED `000 ASSETS CURRENT ASSETS Cash and cash equivalents 120,300 124,278 Prepayments and other current assets 4 25,074 10,933 Amounts due from related party 5 38,799 37,986 Advance to Al Taweelah Shared Facilities Company LLC 6 1,747 1,800 Inventories 7 166,734 160,247 --------- --------- 352,654 335,244 --------- --------- NON-CURRENT ASSETS Advance to Al Taweelah Shared Facilities Company LLC 6 34,058 35,674 Other long term asset 5,173 - Investment 9 178 178 Property, plant and equipment, net 8 2,242,212 2,291,152 Intangible asset, net 10 106,720 109,683 --------- --------- 2,388,341 2,436,687 --------- --------- TOTAL ASSETS 2,740,995 2,771,931 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Trade accounts payable 2,847 962 Amounts due to related parties 11 3,477 2,424 Accruals and other liabilities 12 346,690 388,346 Current portion of long term debt 13 58,631 81,676 Current portion of loan from shareholders 14 129,000 - --------- --------- 540,645 473,408 --------- --------- NON-CURRENT LIABILITIES Asset retirement obligation 15,403 - Loan from shareholders 14 131,000 272,000 Long term debt 13 1,769,539 1,828,171 --------- --------- 1,915,942 2,100,171 --------- --------- TOTAL LIABILITIES 2,456,587 2,573,579 --------- --------- STOCKHOLDERS' EQUITY Share capital (ordinary shares, AED 10 par value, authorised, issued and outstanding 41,324,000 shares) 15 413,240 413,240 Accumulated losses 15 (147,665) (237,512) Accumulated other comprehensive income 18 18,833 22,624 --------- --------- TOTAL STOCKHOLDERS' EQUITY 284,408 198,352 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 2,740,995 2,771,931 ========= =========
The attached notes 1 to 21 form part of these financial statements. 2 Emirates CMS Power Company PJSC -------------------------------------------------------------------------------- INCOME STATEMENTS Years ended 31 December 2003, 2002 and 2001
Unaudited Unaudited 2003 2002 2001 Notes AED `000 AED `000 AED `000 Revenue 363,564 370,686 196,091 ------- ------- ------- Cost of sales Contractors' staff costs (14,149) (14,297) (13,982) Repairs, maintenance and consumables used (47,095) (36,262) (42,046) Depreciation (63,591) (63,402) (35,370) Amortisation of intangible asset 10 (2,963) (2,940) - ------- ------- ------- (127,798) (116,901) (91,398) ------- ------- ------- GROSS PROFIT 235,766 253,785 104,693 Administrative and other operating expenses 20 (8,087) (7,925) (4,821) ------- ------- ------- INCOME FROM OPERATIONS 227,679 245,860 99,872 Financing cost (119,730) (124,163) (57,835) Accretion expense (872) - - Interest income 784 1,848 783 Changes in fair value of derivative instruments 18 55,867 (199,093) (108,536) Other income (expense) 1,084 704 (33) ------- ------- ------- NET INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES 164,812 (74,844) (65,749) Cumulative effect of change in accounting for derivatives 18 - - (21,477) Cumulative effect of change in accounting for asset retirement obligation (1,165) - - ------- ------- ------- NET INCOME (LOSS) 163,647 (74,844) (87,226) ======= ======= =======
The attached notes 1 to 21 form part of these financial statements. 3 Emirates CMS Power Company PJSC -------------------------------------------------------------------------------- STATEMENTS OF CASH FLOWS Years ended 31 December 2003, 2002 and 2001
Unaudited Unaudited 2003 2002 2001 Notes AED `000 AED `000 AED `000 OPERATING ACTIVITIES Net income (loss) 163,647 (74,844) (87,226) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortisation of intangible asset 66,554 66,342 35,370 Accretion expense 872 - - Changes in fair value of derivative instruments (55,867) 199,093 108,536 Reclassification from accumulated other comprehensive income to earnings of cash flow hedges (3,791) (3,955) (4,098) Cumulative effect of change in accounting principles 1,165 - 21,477 Loss on disposal of property, plant and equipment 14 173 - Changes in assets and liabilities: Increase in inventories (6,487) (63,623) (53,137) (Increase) decrease in amounts due from related parties (813) 21,064 (39,852) Increase in prepayments and other current assets (5,644) 17,742 (6,313) (Increase) decrease in accounts payable and accruals and due to related parties 8,652 (30,980) (186,208) -------- -------- ------- Net cash provided by (used in) operating activities 168,302 131,012 (211,451) -------- -------- ------- INVESTING ACTIVITIES Purchase of property, plant and equipment (1,299) (2,090) (400,832) Liquidated damages received (paid) - 10,846 (6,556) Recovery of advance to Al Taweelah Shared Facilities Company LLC 1,669 1,669 1,799 -------- -------- ------- Net cash from (used in) investing activities 370 10,425 (405,589) -------- -------- ------- FINANCING ACTIVITIES Dividends paid (73,800) (79,400) - Long term debt refinancing fees paid (5,173) - - Repayment of loan from shareholders (12,000) - - (Repayment) receipt of term loan (81,677) (71,467) 734,041 -------- -------- ------- Cash (used in) from financing activities (172,650) (150,867) 734,041 -------- -------- ------- (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,978) (9,430) 117,001 Cash and cash equivalents at the beginning of the year 124,278 133,708 16,707 -------- -------- ------- CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 120,300 124,278 133,708 ======== ======== ======= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for interest 117,034 92,694 68,374 Cash received during the year for interest 784 1,848 783 SUPPLEMENTAL DISCLOSURES OF SIGNIFICANT NON-CASH TRANSACTIONS: Disposal of property, plant and equipment 8 - 1,961 - Transfer of property, plant and equipment to related party 8 & 10 - 112,623 -
The attached notes 1 to 21 form part of these financial statements. 4 Emirates CMS Power Company PJSC -------------------------------------------------------------------------------- STATEMENTS OF STOCKHOLDERS' EQUITY Years ended 31 December 2003, 2002 and 2001
Accumulated Retained other earnings compre- Share (accumulated hensive capital losses) income Total AED `000 AED `000 AED `000 AED `000 Balance at 1 January 2001 - unaudited 413,240 3,958 -- 417,198 Transition adjustment from adoption of SFAS 133 (note 18) -- -- 30,677 30,677 Net loss for the year -- (87,226) -- (87,226) Reclassification to earnings of cash flow hedges (note 18) -- -- (4,098) (4,098) -------- -------- -------- -------- Balance at 31 December 2001 - unaudited 413,240 (83,268) 26,579 356,551 Net loss for the year -- (74,844) -- (74,844) Dividends paid (note 15) -- (79,400) -- (79,400) Reclassification to earnings of cash flow hedges (note 18) -- -- (3,955) (3,955) -------- -------- -------- -------- Balance at 31 December 2002 - unaudited 413,240 (237,512) 22,624 198,352 Net income for the year -- 163,647 -- 163,647 Dividends paid (note 15) -- (73,800) -- (73,800) Reclassification to earnings of cash flow hedges (note 18) -- -- (3,791) (3,791) -------- -------- -------- -------- Balance at 31 December 2003 413,240 (147,665) 18,833 284,408 ======== ======== ======== ========
The attached notes 1 to 21 form part of these financial statements. 5 Emirates CMS Power Company PJSC -------------------------------------------------------------------------------- NOTES TO THE FINANCIAL STATEMENTS 31 December 2003 and 2002 1 ACTIVITIES Emirates CMS Power Company PJSC is a private joint stock company registered and incorporated in the United Arab Emirates and is engaged in the generation of electricity and the production of desalinated water for supply into the Abu Dhabi grid. The Company is 60% owned by Emirates Power Company PJSC a wholly owned subsidiary of Abu Dhabi Water & Electricity Authority (ADWEA), and 40% owned by CMS Generation Taweelah Limited. The Company has a management operation and maintenance agreement with Taweelah A2 Operating Company, a related party, whereby the latter has undertaken to manage the day-to-day operations and maintain the Company's plant. The Company has entered into a power and water purchase agreement with Abu Dhabi Water and Electricity Company (ADWEC), a related party, (a wholly-owned subsidiary of ADWEA). Under the agreement, the Company undertakes to make available, and ADWEC undertakes to purchase, the entire net capacity and output of the plant until October 2021 in accordance with various agreed terms and conditions. The output payments cover variable operation and maintenance costs and fuel efficiency bonuses or penalty for actual output. Natural gas fuel is supplied by ADWEC at no cost. The Company's registered head office is P O Box 47688, Abu Dhabi, United Arab Emirates. At 31 December 2003 and 2002, there were no staff employed by the Company. 2 BASIS OF PRESENTATIION Although at 31 December 2003, the Company's current liabilities exceeded its current assets by AED 187,991,000 (2002: AED 138,164,000) the financial statements have been prepared on a going concern basis in view of the credit facilities available from the bankers and the refinancing of the term loan explained in note 13. Further, the negative fair value of derivatives amounting to AED 242.6 million (2002: AED 298.4 million) included within current liabilities (note 12) will not significantly affect the Company's cash flow in the foreseeable future. 3 SIGNIFICANT ACCOUNTING POLICIES BASIS OF PREPARATION The financial statements are prepared on the basis of U.S. generally accepted accounting principles and applicable requirements of United Arab Emirates Law and are presented in United Arab Emirates Dirhams (AED). ESTIMATES AND ASSUMPTIONS The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from those estimates. REVENUE RECOGNITION Revenue represents the sale of water desalination and electricity generation services comprised of the available capacity and variable output to Abu Dhabi Water and Electricity Company (a wholly owned subsidiary of ADWEA) during the year. Revenues are recognised when services are provided. Unbilled revenues are based on estimated quantities of potable water and kilowatts of electricity delivered during the period but not yet billed. These estimates are generally based on contract data and preliminary throughput and allocation measurements. 6 Emirates CMS Power Company PJSC -------------------------------------------------------------------------------- NOTES TO THE FINANCIAL STATEMENTS 31 December 2003 and 2002 3 SIGNIFICANT ACCOUNTING POLICIES continued PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is stated at historical cost less accumulated depreciation and any impairment in value. The Company capitalises all construction-related direct labour and material costs as well as indirect construction costs. Indirect construction costs include engineering and the cost of funds during the construction phase. The cost of renewals and betterments that extend the useful life of the property, plant and equipment are capitalised. The cost of repairs, spare parts and major maintenance that do not extend the useful life or increase the expected output of property, plant and equipment, is expensed as incurred. The cost of spare parts held as essential for the continuity of operations and which are designated as strategic spares are depreciated on a straight-line basis over the estimated remaining operating life of the plant and equipment to which they relate. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets as follows: Buildings 30 to 40 years Plant and equipment (including plant spares) 3 to 40 years LONG-LIVED ASSETS Long-lived assets are reviewed for impairment in accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144) when events or changes in circumstances indicate that the related carrying amount may not be recoverable. Impairment is assessed by comparing an asset's net undiscounted cash flows expected to be generated over its remaining useful life to the asset's net carrying value. If impairment is indicated, the carrying amount of the asset is reduced to its estimated fair value. INTANGIBLE ASSETS Intangible assets, which represent acquisition of connection rights, are capitalised at cost. The carrying values of intangible assets are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. The connection rights cost is amortised on a straight line basis over the 38 year period, being the expected period of benefit, commencing 1 January 2002. INVENTORIES Inventories are valued at the lower of cost, determined on the basis of weighted average costs and net realisable value. Costs are those expenses incurred in bringing each item to its present location and condition. ACCOUNTS RECEIVABLE Accounts receivable are stated net of provisions for amounts estimated to be non-collectible. An estimate for doubtful accounts is made when collection of the full amount is no longer probable. Bad debts are written-off as incurred. ACCOUNTS PAYABLE Liabilities are recognised for amounts to be paid in the future for goods or services received, whether billed by the supplier or not. CASH AND CASH EQUIVALENTS All highly liquid investments with an original maturity of three months or less are considered cash equivalents. TERM LOAN The term loan is carried on the balance sheet at its principal amount. Instalments due within one year are shown as a current liability. Interest is charged as an expense as it accrues, with unpaid amounts included in "accruals". TRANSLATION OF FOREIGN CURRENCIES AND FOREIGN EXCHANGE TRANSACTIONS Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. All differences are taken to the income statement. 7 Emirates CMS Power Company PJSC -------------------------------------------------------------------------------- NOTES TO THE FINANCIAL STATEMENTS 31 December 2003 and 2002 3 SIGNIFICANT ACCOUNTING POLICIES continued CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES The Company adopted SFAS 133 "Accounting for Derivative Instruments and Hedging Activities," as amended on 1 January 2001. SFAS 133 establishes new accounting and disclosure requirements for most derivative instruments and hedging transactions involving derivatives. SFAS 133 also requires formal documentation procedures for hedging relationships and effectiveness testing when hedge accounting is to be applied. In accordance with the transition provisions of SFAS 133, in the year ended 31 December 2001, the Company recorded a cumulative loss adjustment of AED 21.5 million in its income statement as a transition adjustment to reflect a liability for the fair value of all derivatives that did not previously meet the requirement for hedge accounting treatment prior to the adoption of SFAS 133. In addition, the Company recorded a transition gain of AED 30.7 million to accumulated other comprehensive income to recognise an asset for the fair value of all derivatives accounted for as cash flow hedges prior to the adoption of SFAS 133. DERIVATIVES The Company obtained long-term USD debt to fund the development and construction of the plant. Interest payments associated with the debt are based on LIBOR plus a spread. The Company uses derivative financial instruments to manage the interest rate exposures associated with the debt. The Company's objective is to offset gains and losses resulting from these exposures with losses and gains on the derivative financial instruments thereby reducing volatility in earnings and cash flows. In addition, the Company uses forward foreign exchange contracts to hedge its risk associated with foreign currency fluctuations relating to scheduled maintenance cost payments to an overseas supplier. The Company does not utilize derivative financial instruments with a level of complexity or with a risk greater than the exposures to be managed nor does it enter into or hold derivatives for trading purposes. The use of the derivative financial instruments associated with the interest rate risk is mandated by the debt agreement. All derivatives entered into by the Company are subject to internal policies that provide guidelines for control, counterparty risk and ongoing monitoring and reporting of such activities. The fair value of all derivatives are reported on the balance sheet based on prevailing market rates. Derivatives with positive market values (unrealised gains) are included in other current assets and derivatives with negative market values (unrealised losses) are included in other current liabilities in the balance sheet. Changes in fair value of derivatives qualifying as cash flow hedges are recorded in accumulated other comprehensive income and recognised in the income statement in the corresponding period to which the cash flows associated with the underlying hedged item transpire. Changes in fair values of contracts excluded from the assessment of hedge effectiveness together and those contracts that have not been formally designated as hedges are recorded as a separate line in the income statement in the period they arise. ASSET RETIREMENT OBLIGATIONS (ARO) SFAS No. 143, Accounting for Asset Retirement Obligations became effective January 2003. It requires companies to record the fair value of the cost to remove assets at the end of their useful life, if there is a legal obligation to do so. The Company has legal obligations to remove assets at the end of their useful lives and restore the land. The fair value of ARO liabilities has been calculated using an expected present value technique. This technique reflects assumptions, such as costs, inflation and profit margin that third parties would consider to assume the settlement of the obligation. Fair value, to the extent possible, should include a market risk premium for unforeseeable circumstances. No market risk premium was included in our ARO fair value estimate since a reasonable estimate could not be made. If a five percent market risk premium were assumed, our ARO liability would be AED 16.2 million. In 2003, the Company recorded an ARO liability for the restoration of land and an AED 1.2 million, cumulative effect of change in accounting for accretion and depreciation expense for ARO liabilities incurred prior to 2003. As the plant began operation in August 2001, the pro forma effect on results of operations would not have been material for the year ended 31 December 2002. 8 Emirates CMS Power Company PJSC -------------------------------------------------------------------------------- NOTES TO THE FINANCIAL STATEMENTS 31 December 2003 and 2002 3 SIGNIFICANT ACCOUNTING POLICIES continued ASSET RETIREMENT OBLIGATIONS (ARO) continued The following table presents the reconciliation of the beginning and ending carrying value of the ARO:
AED `000 Proforma ARO liability - At 1 January 2002 13,710 ====== ARO liability -- At 1 January 2003 14,531 Liabilities incurred - Liabilities settled - Accretion expense 872 Revisions in estimated cash flow - ------ ARO liability - At 31 December 2003 15,403 ======
4 PREPAYMENTS AND OTHER CURRENT ASSETS
Unaudited 2003 2002 AED `000 AED `000 Positive fair value of derivatives (note 18) 15,234 6,737 Other receivables 313 252 Prepaid expenses 9,527 3,944 ------ ------ 25,074 10,933 ====== ======
5 AMOUNTS DUE FROM RELATED PARTY
Unaudited 2003 2002 AED `000 AED `000 Abu Dhabi Water and Electricity Company 38,799 37,986 ====== ======
6 ADVANCE TO AL TAWEELAH SHARED FACILITIES COMPANY LLC (TSFC) This represents an advance made to TSFC by the Company in proportion to its 18% (2002: 18%) shareholding in TSFC against future use of their facilities. Amount receivable within one year has been included under current assets. 7 INVENTORIES
Unaudited 2003 2002 AED `000 AED `000 Fuel 26,975 26,975 Spare parts and consumables 139,759 133,272 ------- ------- 166,734 160,247 ======= =======
9 Emirates CMS Power Company PJSC -------------------------------------------------------------------------------- NOTES TO THE FINANCIAL STATEMENTS 31 December 2003 and 2002 8 PROPERTY, PLANT AND EQUIPMENT, NET The components of property, plant and equipment are as follows:
Unaudited 2003 2002 AED `000 AED `000 Buildings 205,114 204,823 Plant and equipment 2,193,309 2,178,384 Plant spares 6,656 6,656 --------- --------- 2,405,079 2,389,863 Less: accumulated depreciation (162,867) (98,711) --------- --------- 2,242,212 2,291,152 ========= =========
The activities of the Company are carried out from premises and equipment constructed on land leased from ADWEA. The initial term of the lease is 25 years and a nominal rental is payable by the Company. Leasehold land is carried in the books at nil value. During 2002, plant and equipment of net book value AED 112,623,000 was transferred to a related party for the right to connection to the transmission system (see note 10). During 2002, property, plant and equipment amounting to AED 1,961,000 in respect of an open discharge channel was transferred to TSFC in accordance with an agreement dated May 2002. Under the agreement, the Company has received additional shares in TSFC, amounting to AED 8,000 (see note 9) and a promissory note from TSFC for the balance of the transfer value of the open discharge channel, amounting to AED 1,953,000 to be treated as an additional advance to TSFC (note 6). 9 INVESTMENT
Unaudited 2003 2002 AED `000 AED `000 UNQUOTED INVESTMENT Cost: At 1 January 178 170 Additions - 8 ---- ---- At 31 December 178 178 ==== ====
The investment represents the 18% (2002: 18%) equity interest acquired by the Company in TSFC. TSFC is a closely held private company which maintains shared utility facilities for the supply and discharge of sea water and provides other related services to the Company and other operators at the Taweelah complex. The fair value of the investment is not materially different from its carrying amount. 10 Emirates CMS Power Company PJSC -------------------------------------------------------------------------------- NOTES TO THE FINANCIAL STATEMENTS 31 December 2003 and 2002 10 INTANGIBLE ASSET
Unaudited 2003 2002 AED `000 AED `000 Cost: At 1 January 112,623 - Additions - 112,623 ------- ------- At 31 December 112,623 112,623 ------- ------- Amortisation: At 1 January 2,940 - Charge for the year 2,963 2,940 ------- ------- At 31 December 5,903 2,940 ------- ------- Net book amount 106,720 109,683 ======= =======
The intangible asset arose from the transfer during the year ended 31 December 2002 of plant and equipment to a related party in accordance with an agreement dated August 2000 and represents the acquisition cost of the Company's right of connection to the transmission system at the connection site for a period of 38 years (note 8). Accordingly, the connection rights cost is being amortised on a straight-line basis over the 38 year period, being the expected period of benefit, commencing 1 January 2002. 11 AMOUNT DUE TO RELATED PARTIES
Unaudited 2003 2002 AED `000 AED `000 Al Taweelah Shared Facilities Company 225 282 Taweelah A2 Operating Company 1,923 2,142 CMS Resource Development Company 1,329 - ----- ----- 3,477 2,424 ===== =====
12 ACCRUALS AND OTHER LIABILITIES
Unaudited 2003 2002 AED `000 AED `000 Accrual for spare parts 34,659 37,217 Accrued interest expense 42,439 35,952 Negative fair value of derivatives (note 18) 257,796 305,166 Other payables 11,796 10,011 ------- ------- 346,690 388,346 ======= =======
11 Emirates CMS Power Company PJSC -------------------------------------------------------------------------------- NOTES TO THE FINANCIAL STATEMENTS 31 December 2003 and 2002 13 LONG TERM DEBT During 1999, the Company obtained a loan facility from a syndicate of banks led by Barclay's Capital Bank amounting to US $596,000,000 (AED 2,188,810,000) out of which US $556,000,000 (AED 2,041,910,000) was fully drawn by 31 December 2001 to finance the construction of the Plant. The loan carries interest at a variable rate of LIBOR plus a premium of between 0.8% and 1.5% per annum for the remainder period of the term loan. The loan also carried a commitment fee of 0.35% per annum of the undrawn amount. During the year ended 31 December 2003, the fourth and fifth instalments amounting to AED 81.7 million (2002: AED 71.5 million) were paid, with the remaining balance repayable in half yearly instalments until December 2013 in accordance with an agreed upon instalment schedule. The term loan is secured by a number of security documents including a commercial mortgage over all tangible and intangible assets of the Company, a pledge of the shares in the Company by both shareholders and a pledge of the equity interest in TSFC. The term loan is also subject to various covenants as stipulated in the loan facility agreement. Under the terms of its loan facility agreement, the Company is required to enter into interest rate swap agreements to hedge its interest cost exposure against fluctuations in interest rates (note 18). On 15 March 2004, the Company obtained a US $391 million (AED 1,436 million) conventional loan facility and US $150 million (AED 551 million) Islamic loan facility (the "new facilities") from a syndicate of international and UAE based banks to refinance the term loan and repay up to US $35 million (AED 129 million) of the loans from shareholders (note 14). As the existing term loan is to be refinanced by the new facilities, the amounts due in less than one year have been calculated in accordance with the repayment schedules of the new facilities. Under the new facilities 2.951% (US $15,965 thousand (AED 58,631 thousand)) is repayable in 2004 and this amount has been disclosed as being due in less than one year (current liability), with the remaining balance repayable in half yearly instalments until December 2020. Amounts repayable over the next five years are as follows:
US $'000 2004 15,965 2005 22,285 2006 21,191 2007 21,250 2008 21,835
14 LOAN FROM SHAREHOLDERS
Unaudited 2003 2002 AED `000 AED `000 Emirates Power Company PJSC 156,000 163,200 CMS Generation Taweelah Limited 104,000 108,800 ------- ------- 260,000 272,000 ======= ======= Non-current liabilities 131,000 272,000 Current liabilities 129,000 - ------- ------- 260,000 272,000 ======= =======
The above loans are free of interest and are unsecured. Though the terms of repayment have not been specified for these loans, they are subject to terms of repayment as resolved by the Board of Directors. The Board of Directors anticipates that the Company will make a shareholder loan repayment of approximately AED 129 million in 2004. Accordingly, this amount has been included under current liabilities. 12 Emirates CMS Power Company PJSC -------------------------------------------------------------------------------- NOTES TO THE FINANCIAL STATEMENTS 31 December 2003 and 2002 15 SHARE CAPITAL AND STOCKHOLDERS' EQUITY
Authorised, issued and fully paid Unaudited 2003 2002 AED `000 AED `000 Ordinary Shares of AED 10 each 413,240 413,240 ======= =======
The Company maintains its statutory accounting records in accordance with International Financial Reporting Standards (IFRS). U.A.E. Commercial Companies Law of 1984 (as amended) and the Company's Articles of Association require 10% of the net profit for the year, based on net income derived from the statutory financial statements prepared in accordance with IFRS, to be transferred to a statutory reserve. The reserve is not available for distribution. Included in (accumulated losses) retained earnings is an amount of AED 27,029,000 (2002: AED 16,603,000) in respect of the required statutory reserve, which is not available for distribution. The Board of Directors recommendation for the distribution of dividends and the ratification and approval of the Shareholders of the dividends were based on the statutory financial statements. Included in the dividends paid during the year ended 31 December 2003, are interim dividends of AED 0.56 (2002: AED 1.07) per share of AED 23,000,000 (2002: AED 44,400,000) which were declared and approved by the Board of Directors and paid during the year. The shareholders have subsequently ratified and approved the interim dividends paid at the Annual General Meeting. 16 RELATED PARTY TRANSACTIONS These represent transactions with related parties, ie. other subsidiaries of Abu Dhabi Power Corporation and Abu Dhabi Water and Electricity Authority and other subsidiaries of CMS Energy Corporation, shareholders and senior management of the Company, and companies of which they are principal owners. Pricing policies and terms of these transactions are approved by the Company's senior management. Significant transactions with related parties included in the income statement are as follows:
Unaudited Unaudited 2003 2002 2001 AED `000 AED `000 AED `000 Revenue from available capacity and supply of water and electricity to Abu Dhabi Water & Electricity Company 363,564 370,686 196,091 Al Taweelah Shared Facilities Company LLC (TSFC) service charge 1,586 2,067 2,767 Other charges from TSFC 1,668 1,670 1,799 Charges by Taweelah A2 Operating Company analysed as follows: Management fee 4,261 4,319 1,755 Manpower support services 10,852 9,673 8,991 Reimbursement of other third party costs paid on behalf of the Company 614 1,429 722 Charges by CMS Generation analysed as follows: Manpower support service 1,979 3,193 2,677
Amounts due from and to related parties are disclosed in notes 5, 6, 11 and 14 to the financial statements. 13 Emirates CMS Power Company PJSC -------------------------------------------------------------------------------- NOTES TO THE FINANCIAL STATEMENTS 31 December 2003 and 2002 17 FAIR VALUE OF FINANCIAL INSTRUMENTS With the exception of the loan from shareholders the fair value of the Company's financial instruments approximates their carrying amounts. It is not practicable to determine the fair value of the loan from shareholders with sufficient accuracy. Information on the principal characteristics of the loan is presented in note 14 to the financial statements. 18 DERIVATIVES In order to reduce its exposure to interest rates fluctuations on the term loan, the Company has entered into an interest rate arrangement with a counter-party bank for a notional amount that matches the outstanding term loan. The notional amount outstanding at 31 December 2003 was AED 1,828 million (2002: AED 1,910 million). In addition, the Company uses forward foreign exchange contracts to hedge its risk associated with foreign currency fluctuations relating to scheduled maintenance cost payments to an overseas supplier. The outstanding forward foreign exchange commitment at the year end amounted to approximately AED 42 million (2002: AED 62 million). The derivative instruments had a negative fair value of AED 258 million (2002: negative fair value of AED 305 million) which is included within other current liabilities (note 12) and a positive fair value of AED 15 million (2002: positive fair value of AED 7 million) which is included within other current assets (note 4). As a result of the debt refinancing arrangements concluded by the Company in March 2004 as explained in note 13, the existing derivatives have extinguished and new interest rate swap contracts have been entered into as part of the debt refinancing arrangements. Consequently, the Company expects to reclassify the remaining transition amount recorded in accumulated other comprehensive income into earnings in the year 2004. 19 RISK MANAGEMENT INTEREST RATE RISK The Company is exposed to interest rate risk on its interest bearing liabilities (term loan). Whilst current interest rates are low, management has sought to limit the exposure of the Company to any adverse future movements in interest rates by entering into interest rate arrangements (derivative instruments see note 18). Management is therefore of the opinion that the Company's exposure to interest rate risk is limited. CONCENTRATION OF CREDIT RISK The Company sells its products to one related party. It seeks to limits its credit risk with respect to this customer by monitoring outstanding receivables. LIQUIDITY RISK The Company limits its liquidity by monitoring its current financial position in conjunction with its cash flow forecasts on a regular basis to ensure funds are available to meet its commitments for liabilities as they fall due. The Company's terms of sale require amounts to be paid within 30 days of the date of sale. Trade payables are normally settled within 30 days of the date of purchase. CURRENCY RISK The Company uses forward currency contracts to eliminate currency exposures on its fixed Euro plant maintenance payments. The majority of other transactions are in UAE Dirhams, which are pegged to the US Dollar. Management is therefore of the opinion that the Company's exposure to currency risk is limited. 14 Emirates CMS Power Company PJSC -------------------------------------------------------------------------------- NOTES TO THE FINANCIAL STATEMENTS 31 December 2003 and 2002 20 ADMINISTRATIVE AND OTHER OPERATING EXPENSES
Unaudited Unaudited 2003 2002 2001 AED `000 AED `000 AED `000 Management fees 4,261 4,319 1,755 Other 3,826 3,606 3,066 ----- ----- ----- 8,087 7,925 4,821 ===== ===== =====
21 INCOME TAX The Company is not subject to income or other similar taxes in the United Arab Emirates and, accordingly, no income tax has been reflected in these financial statements. 15