UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 333-91391
AES IRONWOOD, L.L.C.
(Exact name of registrant as specified in its charter)
DELAWARE 54-1457537
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
305 PRESCOTT ROAD, LEBANON, PA 17042
(717) 228-1328
(Registrant's address of principal executive offices,)
(zip code and telephone number, including area code)
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 / /
(Page 1 of 17)
AES IRONWOOD, L.L.C.
TABLE OF CONTENTS
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements (Unaudited)........................................................3
Condensed Statements of Operations, Three and Six Month Periods Ended June 30, 2001 and
2000 and the Period From June 25, 1999 (Inception) Through June 30, 2001..........................3
Condensed Balance Sheets, June 30, 2001 and December 31, 2000.....................................4
Condensed Statement of Changes in Member's Deficit Period From June 25, 1999 (Inception)
Through June 30, 2001.............................................................................5
Condensed Statements of Cash Flows for the Six Months Ended June 30, 2001 and 2000 and
the Period From June 25, 1999 (Inception) Through June 30, 2001...................................6
Notes to Condensed Financial Statements, Three and Six Months Ended June 30, 2001 and
2000, and the Period From June 25, 1999 (Inception) Through June 30, 2001.........................7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............12
Item 3. Quantitative And Qualitative Disclosures About Market Risk.......................................16
SIGNATURES.......................................................................................................17
(Page 2 of 17)
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
AES IRONWOOD, L.L.C.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF OPERATIONS,
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2001 AND 2000
AND THE PERIOD FROM JUNE 25, 1999 (INCEPTION) THROUGH
JUNE 30, 2001
(DOLLARS IN THOUSANDS)
JUNE 25, 1999
THREE MONTHS ENDED SIX MONTHS ENDED (INCEPTION)
JUNE 30 JUNE 30 THROUGH JUNE 30
2001 2000 2001 2000 2001
---- ---- ---- ---- ----
OPERATING EXPENSES
General and
Administrative Costs $ (47) $ - $ (144) $ (1) $ (570)
------- ------- -------- ------ ---------
Operating Loss (47) - (144) (1) (570)
OTHER INCOME/EXPENSE
Interest income 89 766 350 1,711 6,294
Interest expense (8) (902) (14) (2,320) (8,704)
------- ------- -------- ------- ---------
NET INCOME (LOSS) $ 34 $ (136) $ 192 $ (610) $ (2,980)
====== ======== ======= ======= =========
See notes to condensed financial statements.
(Page 3 of 17)
AES IRONWOOD, L.L.C.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED BALANCE SHEETS,
JUNE 30, 2001 AND DECEMBER 31, 2000
(DOLLARS IN THOUSANDS)
JUNE 30, 2001 DECEMBER 31, 2000
------------- -----------------
ASSETS:
Current Assets:
Cash................................................... $ 211 $ 445
Interest Receivable.................................... 15 93
Accounts Receivable - other............................ 577 299
Accounts Receivable - affiliates....................... 49 73
Investments held by trustee - at cost, which ..........
approximate market value............................. 4,681 16,263
--------------- -------------------
Total current assets............................... 5,533 17,173
Land ....................................................... 996 528
Construction in progress.................................... 326,104 297,969
Certificate of deposit...................................... 385 385
Deferred financing costs - net of accumulated amortization
of $290 and $218, respectively............................ 3,345 3,417
Other assets................................................ 1,138 1,138
--------------- -------------------
Total assets....................................... $ 337,501 $ 320,610
=============== ===================
LIABILITIES AND MEMBER'S DEFICIT:
Current Liabilities
Accounts payable....................................... $ 342 $ 159
Accrued Interest....................................... 2,277 2,277
Payable to affiliate................................... 1,439 970
Payable to parent...................................... 1,328 754
Retention payable...................................... 11,595 11,122
Bonds payable, current portion......................... 987 -
--------------- -------------------
Total current liabilities.......................... 17,968 15,282
Payable to parent, subordinated loan ....................... 15,000 -
Bonds payable............................................... 307,513 308,500
--------------- -------------------
Total liabilities.................................. $ 340,481 $ 323,782
--------------- -------------------
Commitments (Notes 4 and 5)
Member's deficit:
Common stock, $1 par value-10 shares authorized,
none issued or outstanding .......................... - -
Deficit accumulated during the development stage............ (2,980) (3,172)
--------------- -------------------
Total member's deficit...................................... (2,980) (3,172)
--------------- -------------------
Total liabilities and member's deficit...................... $ 337,501 $ 320,610
=============== ===================
See notes to condensed financial statements.
(Page 4 of 17)
AES IRONWOOD, L.L.C.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENT OF CHANGES IN MEMBER'S DEFICIT
PERIOD FROM JUNE 25, 1999
(INCEPTION) THROUGH JUNE 30, 2001
(DOLLARS IN THOUSANDS)
COMMON STOCK
------------ ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
------ ------ ----------- -----
BALANCE JUNE 25, 1999....................... - $ - $ - $ -
------ ------------- --------------- ----------
Net Loss.................................... - - (2,641) (2,641)
BALANCE DECEMBER 31, 1999................... - - (2,641) (2,641)
------ ------------- --------------- ----------
Net Loss.................................... - - (531) (531)
BALANCE DECEMBER 31, 2000................... - - (3,172) (3,172)
------ ------------- --------------- -----------
Net Income.................................. - - 192 192
BALANCE JUNE 30, 2001....................... - $ - $ (2,980) (2,980)
====== ============= ================ ===========
See notes to condensed financial statements.
(Page 5 of 17)
AES IRONWOOD, L.L.C.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED
JUNE 30, 2001 AND 2000 AND THE PERIOD FROM JUNE 25, 1999
(INCEPTION) THROUGH JUNE 30, 2001
(DOLLARS IN THOUSANDS)
JUNE 25, 1999
SIX MONTHS (INCEPTION)
SIX MONTHS ENDED ENDED THROUGH
JUNE 30, 2001 JUNE 30, 2000 JUNE 30, 2001
------------- ------------- -------------
OPERATING ACTIVITIES:
Net Income/(loss).................................... $ 192 $ (610) $ (2,980)
Amortization of deferred financing costs............. 72 101 291
Change in:
Interest receivable............................. 78 220 (15)
Accrued interest................................ - 285 2,277
Other receivables............................... (254) (182) (626)
-------------------- ----------------- ----------------
Net cash provided by (used in)
operating activities........................ 88 (186) (1,053)
-------------------- ----------------- ----------------
INVESTING ACTIVITIES:
Payments for construction in progress........... (28,135) (42,356) (326,397)
Changes in construction related payables........ 1,699 (8,082) 14,705
Payments for land............................... (468) - (996)
Change in investments held by trustee........... 11,582 51,449 (5,065)
Purchase of other assets........................ - (93) (1,138)
------------------- ----------------- ----------------
Net cash (used in) provided by investing
activities...................................... (15,322) 918 (318,891)
-------------------- ----------------- ----------------
FINANCING ACTIVITIES:
Proceeds from project debt issuance............. - - 308,500
Proceeds from parent subordinated loan.......... 15,000 - 15,000
Payments for deferred financing costs........... - (1,142) (3,345)
------------------- ----------------- ----------------
Net cash provided by (used in) financing activities.. 15,000 (1,142) 320,155
-------------------- ----------------- ----------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS............................ (234) (410) 211
-------------------- ----------------- ---------------
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD............................. 445 633 -
CASH AND CASH EQUIVALENTS, END OF PERIOD............. $ 211 $ 223 $ 211
------------------- ---------------- ---------------
SUPPLEMENTAL DISCLOSURE:
Interest paid (net of amounts capitalized)...... $ 14 $ 2,320 $ 8,704
=================== ================ ===============
See notes to condensed financial statements.
(Page 6 of 17)
AES IRONWOOD, L.L.C.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000,
AND THE PERIOD FROM JUNE 25, 1999 (INCEPTION) THROUGH JUNE 30, 2001
1. ORGANIZATION
AES Ironwood, L.L.C. was formed on October 30, 1998, in the State of
Delaware, to develop, construct, and operate a 705-megawatt (MW)
gas-fired, combined cycle electric generating facility in South Lebanon
Township, Pennsylvania. AES Ironwood, L.L.C. was considered dormant
until June 25, 1999, at which time it consummated a project financing
and certain related agreements. The facility, currently under
construction, will consist of two Westinghouse 501 G combustion
turbines, two heat recovery steam generators, and one steam turbine.
The facility will produce and sell electricity, as well as provide fuel
conversion and ancillary services, solely to Williams Energy under a
power purchase agreement with a term of 20 years that will commence on
the facility's anticipated commercial operation date, September 30,
2001.
The guaranteed commercial operation date of the construction agreement
was May 22, 2001. Late completion payments are payable to the Company
by the general contractor beginning forty-five days from this date
until commercial operation is achieved. Late payments are $110,000 per
day, payable by the tenth day of the month following the month in which
the charges were incurred. As of July 31, 2001, the Company had accrued
$2.75 million in respect of these late payments.
AES Ironwood, L.L.C. is in the development stage and is not expected
to generate any operating revenues until the facility achieves
commercial operations. As with any new business venture of this size
and nature, operation of the facility could be affected by many
factors. Management of AES Ironwood, L.L.C. believes that the assets
of AES Ironwood, L.L.C. are realizable.
AES Ironwood, L.L.C. is a wholly-owned subsidiary of AES Ironwood,
Inc., which is a wholly-owned subsidiary of The AES Corporation. AES
Ironwood, Inc. has no assets other than its ownership interests in AES
Ironwood, L.L.C. and AES Prescott, L.L.C. AES Ironwood, Inc. has no
operations and is not expected to have any operations. Its only income
will be from distributions it receives from AES Ironwood, L.L.C. and
AES Prescott, L.L.C., once AES Ironwood, L.L.C. achieves commercial
operation. The equity that AES Ironwood, Inc. is to provide to AES
Ironwood, L.L.C. will be provided to AES Ironwood, Inc. by The AES
Corporation, which owns all of the stock of AES Ironwood, Inc. The AES
Corporation files quarterly and annual audited reports with the
Securities and Exchange Commission, under the Securities Exchange Act
of 1934, which are publicly available, but which do not constitute a
part of, and are not incorporated into, this Form 10-Q. AES Ironwood
Inc.'s equity contribution obligations are required to be supported by
either an insurance bond or letter of credit. Currently those
obligations are supported by an insurance bond issued to the
collateral agent.
(Page 7 of 17)
On June 25, 1999, AES Ironwood, L.L.C. issued $308.5 million in senior
secured bonds for the purpose of providing financing for the
construction of the facility and to fund, through the construction
period, interest payments to the bondholders. On May 12, 2000, the
Company consummated an exchange offer whereby the holders of the senior
secured bonds exchanged their privately placed senior secured bonds for
registered senior secured bonds. Repayment of the bonds commences in
the year 2002. The amount payable in the year 2002 is approximately
$2.0 million. Repayment of the bonds varies each year, with amounts
detailed in the financing documents. Repayment dates are February 28,
May 31, August 31 and November 30 of each year, with the final being
November 30, 2025.
Pursuant to an equity subscription agreement (see Note 3), AES
Ironwood, Inc. has agreed to contribute in the form of either equity or
subordinated debt up to approximately $50.1 million to AES Ironwood,
L.L.C. to fund construction after the bond proceeds have been fully
utilized. On March 27, 2001, AES Ironwood, Inc. issued $10 million in
subordinated debt to the Company under this agreement (Note 3) and on
June 5, 2001, AES Ironwood, Inc. issued a further $5 million dollars in
subordinated debt to the Company. The subordinated debt is repayable
using available cash pursuant to section 3.10 of the Collateral Agency
and Intercreditor Agreement.
2. BASIS OF PRESENTATION
In AES Ironwood, L.L.C.'s opinion, all adjustments necessary for a fair
presentation of the unaudited results of operations for the interim
periods presented herein, are included. All such adjustments are
accruals of a normal and recurring nature. The results of operations
for the three month and six month periods presented herein are not
necessarily indicative of the results of operations to be expected for
the full year.
These financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. Because the accompanying condensed financial
statements do not include all of the information and footnotes required
by generally accepted accounting principles, they should be read in
conjunction with the audited financial statements for the period ended
December 31, 2000 and notes thereto included in AES Ironwood, L.L.C.'s
Annual Report on Form 10-K for the year ended December 31, 2000.
3. EQUITY SUBSCRIPTION AGREEMENT
AES Ironwood, L.L.C., along with AES Ironwood, Inc., has entered into
an equity subscription agreement, pursuant to which AES Ironwood, Inc.
has agreed to contribute up to approximately $50.1 million to AES
Ironwood, L.L.C. to fund project costs. This amount is secured by an
acceptable bond issued by AES Ironwood, Inc. AES Ironwood, Inc. will
fund these amounts as they come due upon the earlier of (a)
expenditure of all funds that have been established for construction
or (b) the occurrence, and during the continuation of, an event of
default, as defined under the indenture governing its senior secured
bonds. A portion of this equity requirement may be made in the form of
affiliate
(Page 8 of 17)
debt, between AES Ironwood, Inc. and AES Ironwood, L.L.C., which would
be subordinate to the senior secured bonds.
At June 30, 2001, AES Ironwood, Inc. had issued $15.0 million in
subordinated debt to AES Ironwood, L.L.C. under the equity
subscription agreement. The subordinated debt is repayable using
available cash pursuant to section 3.10 of the Collateral Agency and
Intercreditor Agreement.
4. POWER PURCHASE AGREEMENT
AES Ironwood, L.L.C. and Williams Energy have entered into a power
purchase agreement for the sale of all electric energy and capacity
produced by the facility, as well as ancillary services and fuel
conversion services. The term of the power purchase agreement is 20
years, commencing when the construction of the facility is complete and
the facility is commercially viable to produce electricity and related
capacity, as well as to provide ancillary and fuel conversion services.
Payment obligations to AES Ironwood, L.L.C. are guaranteed by The
Williams Companies, Inc. Such payment obligations under the guarantee
are capped at an amount equal to 125% of the sum of the principal
amount of the senior secured bonds plus the maximum debt service
reserve account required balance. AES Ironwood, L.L.C. has provided
Williams Energy a letter of credit to support the project's payment
obligations should the facility not achieve commercial operation by
June 30, 2001. The amount available to be drawn under the letter of
credit is capped at $30 million. To date, no amounts have been drawn
under this letter of credit. The repayment obligations with respect
to drawings under the letter of credit are a senior debt obligation of
AES Ironwood, L.L.C.
If the commercial operation date has not occurred by June 30, 2001 for
any reason, including the continued existence of or delay caused by a
force majeure event affecting AES Ironwood, L.L.C., other than any
delay caused by any act or failure to act by Williams Energy or any of
its affiliates where the action is required under the power purchase
agreement, Williams Energy will have the right to terminate the power
purchase agreement. AES Ironwood, L.L.C., however, can extend the
commercial operation date to December 31, 2001 (1) by providing an
opinion from a third-party engineer that the commercial operation date
will occur no later than December 31, 2001 (the "Free Extension
Option"), or (2) by giving Williams Energy written notice of such
extension no later than April 30, 2001, and paying to Williams Energy a
specified amount by no later than June 30, 2001 (the "First Paid
Extension Option").
The facility's anticipated commercial operation date is expected to be
September 30, 2001. In accordance with the Power Purchase Agreement, on
April 30, 2001, an opinion from a third-party engineer was provided to
Williams Energy stating that the commercial operation date will occur
no later than December 31, 2001. As a result, the commercial operation
date under the power purchase agreement has been extended to December
31, 2001.
(Page 9 of 17)
5. COMMITMENTS AND CONTINGENCIES
CONSTRUCTION - AES Ironwood, L.L.C. has entered into a fixed-price
turnkey construction agreement with Siemens Westinghouse for the
design, engineering, procurement and construction of the facility.
Siemens Westinghouse will provide AES Ironwood, L.L.C., with specific
combustion turbine maintenance services and spare parts for an initial
term of between eight and ten years under a maintenance service
agreement. The fees assessed by Siemens Westinghouse will be based on
the number of Equivalent Base Load Hours accumulated by the applicable
Combustion Turbine as adjusted for inflation.
As of June 30, 2001 and December 31, 2000 AES Ironwood, L.L.C. was
liable to Siemens Westinghouse for a retention payment as part of the
total contract price due at the completion of the contract for
approximately $11.6 million and $11.1 million, respectively.
WATER SUPPLY - AES Ironwood, L.L.C. has entered into a contract with
the City of Lebanon Authority for the purchase of 50 percent of the
water use of the facility. The contract has a term of 25 years. Costs
associated with the use of water by the facility under this contract
are based on gallons used per day at prices specified under the
contract terms. AES Ironwood, L.L.C. has also entered into an agreement
with Pennsy Supply, Inc. which will provide the remaining 50 percent of
the water use of the facility.
INTERCONNECTION AGREEMENT - AES Ironwood, L.L.C. has entered into an
interconnection agreement with GPU Energy to transmit the electricity
generated by the facility to the transmission grid so that it may be
sold as prescribed under AES Ironwood, L.L.C.'s power purchase
agreement. The agreement is in effect for the life of the facility, yet
may be terminated by mutual consent of both GPU Energy and AES
Ironwood, L.L.C. under certain circumstances as detailed in the
agreement. Costs associated with the agreement are based on electricity
transmitted via GPU Energy at a variable price, and the tariff imposed
by the Pennsylvania/New Jersey/Maryland power pool market, as charged
by GPU Energy to AES Ironwood, L.L.C., which is comprised of both
service cost and asset recovery cost, as determined by GPU Energy and
approved by the Federal Energy Regulatory Commission.
SURETY BOND AGREEMENT - AES Ironwood, Inc. has a surety bond agreement
in relation to its equity subscription agreement. The initial amount of
the bond under this agreement was $50.1 million. This was reduced by
$10.0 million on March 27, 2001 following the issuance by AES Ironwood,
Inc. of $10 million in subordinated debt under the equity subscription
agreement. Annual commitment fees will be assessed based on the amount
outstanding during the year. There was also a reduction of $5 million
in July 2001 in respect of the $5 million of subordinated debt issued
in June 2001. At June 30, 2001, no amount has been drawn and no amount
is outstanding under the surety bond agreement.
(Page 10 of 17)
6. NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2001, the Company adopted SFAS No. 133,
"Accounting For Derivative Instruments And Hedging Activities", which,
as amended, establishes new accounting and reporting standards for
derivative instruments and hedging activities.
The Company will produce and sell electricity, as well as provide fuel
conversion and ancillary services, solely to Williams under the PPA.
The Company does not believe that the PPA meets the definition of a
derivative under SFAS 133 and, as such should not be accounted for as a
derivative.
The Company has no other contracts that meet the definition of a
derivative or an embedded derivative under SFAS No. 133. Therefore,
there is no impact on the Company's financial statements as of January
1, 2001 or for the period ending June 30, 2001.
(Page 11 of 17)
In July 2001, the FASB issued "SFAS No. 143, entitled "Accounting for
Asset Retirement Operations". This standard is effective for fiscal
years beginning after June 15, 2002, and provides accounting
requirements for asset retirement obligations associated with long-
lived assets. The Company has not determined the effects of this
standard on its financial reporting.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in this Form 10-Q, as well as statements made by the
Company in periodic press releases and other public communications, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Certain, but not necessarily all, of such
forward-looking statements can be identified by the use of forward-looking
terminology, such as "believes," "estimates," "plans," "projects," "expects,"
"may," "will," "should," "approximately," or "anticipates" or the negative
thereof or other variations thereof or comparable terminology, or by discussion
of strategies, each of which involves risks and uncertainties. The Company has
based these forward-looking statements on its current expectations and
projections about future events based upon its knowledge of facts as of the date
of this Form 10-Q and its assumptions about future events.
All statements other than of historical facts included herein, including those
regarding market trends, the Company's financial position, business strategy,
projected plans and objectives of management for future operations, are
forward-looking statements. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors outside of the Company's control
that may cause the actual results or performance of the Company to be materially
different from any future results, performance or achievements expressed or
implied by the forward-looking statements. These risks, uncertainties and other
factors include, among others, the following:
o unexpected construction delays,
o unexpected problems relating to the start-up, commissioning and
performance of the facility,
o the financial condition of third parties on which we depend,
o an adequate merchant market after the expiration of the power
purchase agreement,
o capital shortfalls and access to additional capital on reasonable
terms,
o inadequate insurance coverage,
o unexpected expenses or lower than expected revenues once commercial
operations have begun,
o environmental and regulatory compliance, and
o the additional factors that are unknown to the Company or beyond
its control.
The Company has no obligation to publicly update or revise any forward-looking
statement, whether as a result of new information, future events or otherwise.
(Page 12 of 17)
GENERAL
AES Ironwood, L.L.C. (the "Company") was formed on October 30, 1998 to develop,
construct, own, operate and maintain its facility. The Company was dormant until
June 25, 1999, the date of the sale of the senior secured bonds. The Company is
in the development stage and has no operating revenues. The Company obtained
$308.5 million of project financing from the sale of the senior secured bonds.
The total cost of the construction of the Company's facility is estimated to be
approximately $359 million, which will be financed by the proceeds from the sale
of the senior secured bonds and the equity contribution described below. On May
12, 2000, the Company consummated an exchange offer whereby the holders of the
senior secured bonds exchanged their privately placed senior secured bonds for
registered senior secured bonds.
The Company's facility is still under construction and is expected to be
completed and operational by approximately September 30, 2001. The Company
cannot assure that these expectations will be met. See "--Cautionary Note
Regarding Forward-Looking Statements." The guaranteed commercial operation
date of the construction agreement was May 22, 2001. Late completion payments
are payable to the Company by the general contractor beginning forty-five
days from this date until commercial operation is achieved. Late payments are
$110,000 per day, payable by the tenth day of the month following the month
in which the charges were incurred. As of July 31, 2001, the Company had
accrued $2.75 million in respect of these late payments.
NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2001, the Company adopted SFAS No. 133, Accounting For
Derivative Instruments And Hedging Activities, which, as amended, establishes
new accounting and reporting standards for derivative instruments and hedging
activities.
The Company will produce and sell electricity, as well as provide fuel
conversion and ancillary services, solely to Williams under the PPA.
The Company does not believe that the PPA meets the definition of a derivative
under SFAS 133 and, as such should not be accounted for as a derivative.
The Company has no other contracts that meet the definition of a derivative or
an embedded derivative under SFAS No. 133. Therefore, there is no impact on the
Company's financial statements as of January 1, 2001 or for the period ending
June 30, 2001.
(Page 13 of 17)
In July 2001, the FASB issued "SFAS No. 143, entitled "Accounting for Asset
Retirement Operations". This standard is effective for fiscal years beginning
after June 15, 2002, and provides accounting requirements for asset retirement
obligations associated with long lived-assets. The Company has not determined
the effects of this standard on its financial reporting.
EQUITY CONTRIBUTIONS / SUBORDINATED DEBT
Under the equity subscription agreement, AES Ironwood, Inc. is obligated to
contribute up to approximately $50.1 million to the Company to fund project
costs, in the form of equity contributions or subordinated loans. AES Ironwood,
Inc.'s obligation to make the contributions is, and will be, supported by an
acceptable letter of credit or an acceptable bond. On March 27, 2001, AES
Ironwood, Inc. issued $10 million in subordinated debt to the company under this
agreement, and on June 5, 2001, AES Ironwood, Inc issued another $5 million in
respect of subordinated debt. The subordinated debt is repayable using available
cash pursuant to section 3.10 of the Collateral Agency and Intercreditor
Agreement.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2001
General and administrative costs for the three months ended June 30, 2001, were
$47,000 compared to $0 for the comparable period of the prior calendar year.
A portion of the proceeds from the sale of senior secured bonds have not yet
been expended on the construction and were invested by the trustee. For the
three months ended June 30, 2001 interest income earned on these invested funds
was approximately $89,000, compared to $766,000 for the comparable period of the
prior calendar year.
(Page 14 of 17)
As noted above, at June 30, 2001 and December 31, 2000, interest capitalized was
approximately $46.7 million, and $33.1 million respectively. For the three
months ended June 30, 2001 interest costs incurred on the bond proceeds not
spent on construction of the Company's facility was approximately $8,000,
compared to $902,000 for the comparable period of the prior year.
For the three months ended June 30, 2001, non-capitalizable costs plus interest
cost and less interest income resulted in a net income of $34,000, compared to a
loss of ($136,000) for the comparable period of the prior year.
FOR THE SIX MONTHS ENDED JUNE 30, 2001
General and administrative costs for the six months ended June 30, 2001 were
$144,000, compared to $1,000 for the comparable period of the prior calendar
year.
A portion of the proceeds from the sale of senior secured bonds have not yet
been expended on the construction and were invested by the trustee. For the six
months ended June 30, 2001 interest income earned on these invested funds was
approximately $350,000, compared to $1.7 million for the comparable period of
the prior calendar year.
For the six months ended June 30, 2001 interest costs incurred on the bond
proceeds not spent on construction of the Company's facility was approximately
$14,000, compared to $2.3 million for the comparable period of the prior year.
For the six months ended June 30, 2001, non-capitalizable costs plus interest
cost and less interest income resulted in a net income of $192,000, compared to
a loss of ($610,000) for the comparable period of the prior year.
FOR THE PERIOD FROM JUNE 25, 1999 (INCEPTION) THROUGH JUNE 30, 2001
As of June 30, 2001 and December 31, 2000, Construction in Progress, which
includes capitalized facility construction costs, was $326.0 million and $298.0
million, respectively. For the three and six month periods ended June 30, 2001,
capitalized facility construction costs were $10.1 million and $28.0 million
respectively. As discussed in greater detail below, Construction in Progress
also includes the capitalization of construction related interest cost incurred
on the portion of the bond proceeds expended during the construction period.
These capitalized costs are included as assets on the balance sheet.
Additionally, the cost of purchasing land for construction of the Company's
facility has been separately identified on the balance sheets.
General and administrative costs for the period from June 25, 1999 (inception)
through June 30, 2001, were $570,000. These costs did not directly relate to
construction and are included as expenses in the Statements of Operations.
A portion of the proceeds from the sale of senior secured bonds have not yet
been expended on the construction and were invested by the trustee. Interest
earned on these invested funds for the period from June 25, 1999 (inception)
through June 30, 2001, were $6.3 million. The interest earned on these invested
funds is included the Statements of Operations.
(Page 15 of 17)
As noted above, at June 30, 2001 and December 31, 2000, interest capitalized was
approximately $46.7 million, and $33.1 million respectively. Interest costs
incurred on the bond proceeds not spent on construction of the Company's
facility for the period from June 25, 1999 (inception) through June 30, 2001,
was approximately $8.7 million.
Non-capitalizable costs plus interest cost and less interest income for the
period from June 25, 1999 (inception) through June 30, 2001, resulted in a net
loss of ($2.9 million).
The results of operations may not be comparable with the results of operations
during future periods, especially when the Company's facility commences
commercial operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that the net proceeds from the sale of the senior secured
bonds, together with the equity contribution, will be sufficient to (1) fund the
engineering, procurement, construction, testing and commissioning of the
Company's facility until it is placed in commercial operation, (2) pay certain
fees and expenses in connection with the financing and development of the
Company's project and (3) pay project costs, including interest on the senior
secured bonds. After the Company's facility is placed in commercial operation,
it will depend on revenues under the power purchase agreement, and after the
power purchase agreement expires, it will depend on market sales of electricity.
In order to provide liquidity in the event of cash flow shortfalls, the Company
has entered into a Debt Service Reserve Letter of Credit and Reimbursement
Agreement. Under this agreement, a Debt Service Reserve Letter of Credit will be
issued on the commercial operation date, currently expected to be September 30,
2001. The amount of the Debt Service Reserve Letter of Credit will equal six
months of scheduled payments of principal and interest on the bonds.
As of June 30, 2001, the Company had original commitments to the general
contractor totaling $241 million arising from the construction of its
facility of which $232 million had been paid.
BUSINESS STRATEGY AND OUTLOOK
The Company's overall business strategy is to market and sell all of its net
capacity, fuel conversion and ancillary services to Williams Energy during the
20-year term of the power purchase agreement. After expiration of the power
purchase agreement, the Company anticipates selling its facility's capacity,
ancillary services and energy under a power purchase agreement or into the
Pennsylvania/New Jersey/Maryland power pool market. The Company intends to cause
its facility to be managed, operated and maintained in compliance with the
project contracts and all applicable legal requirements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risks are not materially different from those market risks
described in it's annual report on Form 10-K for the fiscal year ended December
31, 2000.
(Page 16 of 17)
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 thereunto duly authorized.
AES IRONWOOD, L.L.C.
Date: August 14, 2001 By: /s/ PETE NORGEOT
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PETE NORGEOT
President
Date: August 14, 2001 By: /s/ MICHAEL ROMANIW
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MICHAEL ROMANIW
Vice President and Treasurer
(and principal accounting officer)
(Page 17 of 17)