-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PTrKsK32tq3VjumwQweoaB7Izvc1Ofo+Taf8y8UQ5tQxFZQK3Eo8cvtYdIqRJb7G 5V4pSQ+MXMv85ydjRxoVcQ== 0000912057-01-516040.txt : 20010516 0000912057-01-516040.hdr.sgml : 20010516 ACCESSION NUMBER: 0000912057-01-516040 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AES IRONWOOD LLC CENTRAL INDEX KEY: 0001099291 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 541457573 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 333-91391 FILM NUMBER: 1638581 BUSINESS ADDRESS: STREET 1: 305 PRESCOTT ROAD CITY: LEBANON STATE: PA ZIP: 17042 BUSINESS PHONE: 7172281328 MAIL ADDRESS: STREET 1: 305 PRESCOTT ROAD CITY: LEBANON STATE: PA ZIP: 17042 10-Q/A 1 a2049744z10-qa.txt 10-Q /A UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 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. Explanatory Note: This Form 10-Q/A is being filed to correct certain typographical errors contained in the Condensed Consolidated Statements of Cash Flows included in the Company's Form 10-Q for the quarter ended March 31, 2001. During the conversion process from Word format to EDGAR format, the headings for the Three Months Ended March 31, 2000 and 2001 were transposed. These headings have been corrected in this Form 10-Q/A. There have been no changes to the financial data. TABLE OF CONTENTS
Page No. PART I. FINANCIAL INFORMATION Item 1. Condensed Financial Statements (unaudited) Condensed Statements of Operations -- Three month periods ended March 31, 2001 and 2000, and the period from June 25, 1999 (inception) through March 31, 2001.........................3 Condensed Balance Sheets -- March 31, 2001 and December 31, 2000.............................................................4 Condensed Statement of Changes in Member's Deficit -- Period from June 25, 1999 (inception) through March 31, 2001..................5 Condensed Statements of Cash Flows -- Three months ended March 31, 2001 and 2000, and the period from June 25, 1999 (inception) through March 31, 2001 ...........................................6 Notes to the Condensed Financial Statements...................................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 MONTHS ENDED MARCH 31, 2001 AND 2000, AND THE PERIOD FROM JUNE 25, 1999 (INCEPTION) THROUGH MARCH 31, 2001 (DOLLARS IN THOUSANDS)
June 25, 1999 Three Months Ended (inception through March 31, March 31, ------------------- --------- 2001 2000 2001 ---- ---- ---- OPERATING EXPENSES General and Administrative Costs ($ 97) $ (1) $ (523) ------- ------- ------- Operating Loss (97) (1) (523) OTHER INCOME/ EXPENSE Interest income 261 945 6,205 Interest expense (6) (1,418) (8,696) ------- ------- ------- NET INCOME (LOSS) $ 158 $ (474) $(3,014) ======= ======= =======
See notes to condensed financial statements. Page 3 of 17 AES IRONWOOD, L.L.C. (A DEVELOPMENT STAGE ENTERPRISE) CONDENSED BALANCE SHEETS, MARCH 31, 2001 AND DECEMBER 31, 2000 (DOLLARS IN THOUSANDS)
March 31, December 31, 2001 2000 ----------------- ----------------- ASSETS: Current Assets: Cash $ 466 $ 445 Interest Receivable 13 93 Accounts Receivable - other 362 299 Accounts Receivable - affiliates 49 73 Investments held by trustee - at cost, which approximate market value 9,139 16,263 ----------------- ----------------- Total current assets 10,029 17,173 Land 528 528 Construction in progress 316,020 297,969 Certificate of deposit 385 385 Deferred financing costs - net of accumulated amortization of $254 and $218, respectively 3,381 3,417 Other assets 1,138 1,138 ----------------- ----------------- Total assets $ 331,481 $ 320,610 ================= ================= LIABILITIES AND MEMBER'S DEFICIT: Current Liabilities Accounts payable $ 204 $ 159 Accrued Interest 2,277 2,277 Payable to affiliate 1,064 970 Payable to parent 855 754 Retention payable 11,595 11,122 ----------------- ----------------- Total current liabilities 15,995 15,282 Payable to parent, subordinated loan 10,000 - Bonds payable 308,500 308,500 ----------------- ----------------- Total liabilities $ 334,495 $ 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 (3,014) (3,172) ----------------- ----------------- Total member's deficit (3,014) (3,172) ----------------- ----------------- Total liabilities and member's deficit $ 331,481 $ 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 MARCH 31, 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 - - 158 158 BALANCE, MARCH 31, 2001 - $ - $(3,014) (3,014)
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 THREE MONTHS ENDED MARCH 31, 2001 AND 2000 AND THE PERIOD FROM JUNE 25, 1999 (INCEPTION) THROUGH MARCH 31, 2001 (DOLLARS IN THOUSANDS)
Three Months ended June 25, 1999 March 31, (inception) through 2001 2000 March 31, 2001 ------------ ------------ -------------------- OPERATING ACTIVITIES: Net Income/(loss) $ 158 $ (474) $ (3,014) Amortization of deferred financing costs 36 21 254 Change in: Interest receivable 80 179 (13) Accrued interest - 105 2,277 Other receivables (39) (743) (411) -------------- --------------- -------------- Net cash provided by (used in) operating activities 235 (912) (907) INVESTING ACTIVITIES: Payments for construction in progress (18,051) (27,205) (316,021) Changes in construction related payables 713 - 13,719 Payments for land - - (528) Change in Investments held by trustee 7,124 28,234 (9,524) Purchase of other assets - (93) (1,138) -------------- --------------- -------------- Net cash (used in) provided by investing activities (10,214) 936 (313,492) FINANCING ACTIVITIES: Proceeds from project debt issuance - - 308,500 Proceeds from parent subordinated loan 10,000 - 10,000 Payments for deferred financing costs - (611) (3,635) -------------- --------------- -------------- Net cash provided by (used in) financing activities 10,000 (611) 314,865 NET INCREASE (DECREASE) IN CASH AND CASH 21 (587) 466 EQUIVALENTS -------------- --------------- -------------- CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 445 633 - CASH AND CASH EQUIVALENTS, END OF PERIOD $ 466 46 $ 466 -------------- --------------- -------------- SUPPLEMENTAL DISCLOSURE: Interest paid (net of amounts capitalized) $ 6 1,469 $ 6,425 ============== =============== ==============
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 MONTHS ENDED MARCH 31, 2001 AND 2000, AND THE PERIOD FROM JUNE 25, 1999 (INCEPTION) THROUGH MARCH 31, 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, July 18, 2001. 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. 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. 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 Page 7 of 17 bonds exchanged their privately placed senior secured bonds for registered senior secured bonds. 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). 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 period presented herein is 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 debt, between AES Ironwood, Inc. and AES Ironwood, L.L.C., which would be subordinate to the senior secured bonds. At March 31, 2001, AES Ironwood, Inc. had issued $ 10.0 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. Page 8 of 17 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 guaranty issued by The AES Corporation of specific payment obligations should the facility not achieve commercial operation by June 30, 2001. The AES Corporation's liability under the guaranty is capped at $30 million. AES Ironwood, L.L.C. has the option, and may be required under specific conditions described in the power purchase agreement, to replace the guaranty issued by The AES Corporation with a letter of credit issued by a commercial bank. In such case, the repayment obligations with respect to drawings under the letter of credit are to be 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 approximately July 18 , 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. 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 Page 9 of 17 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 March 31, 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, 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 committee. LETTER OF CREDIT - AES Ironwood, L.L.C. also has a letter of credit agreement outstanding to fund the construction of an access road to the facility during construction. In connection with this letter of credit, AES Ironwood, L.L.C. has made a collateral deposit into a certificate of deposit account of approximately $385,000, which equals the amount available under this agreement. 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. At March 31, 2001, no amount has been drawn and no amount is outstanding under the surety bond agreement. Page 10 of 17 6. NEW ACCOUNTING PRONOUNCEMENTS On January 1, 2001, the Company adopted SFAS No. 133, Accounting For Derivative Instruments And Hedging Activities, which, as amended, established new accounting and reporting standards for derivative instruments and hedging activities. SFAS No. 133 requires that an entity recognize all derivatives (including derivatives embedded in other contracts) as either assets or liabilities on the balance sheet and measure those instruments at fair value. Changes in the derivative's fair value are to be recognized currently in earnings unless specific hedge accounting criteria are met. Hedge accounting allows a derivative's gains or losses in fair value to offset related results of a hedged item in the statement of operations and requires that a company formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. SFAS No. 133 allows hedge accounting for fair value and cash flow hedges. SFAS No. 133 provides that the gain or loss on a derivative instrument designated and qualifying as a fair value hedge, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, be recognized currently in earnings in the same accounting period. SFAS No. 133 provides that the effective portion of the gain or loss on a derivative instrument designated and qualifying as a cash flow hedge be reported as a component of other comprehensive income in stockholder's equity and be reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The remaining loss on the derivative, if any, must be recognized currently in earnings. The Company will produce and sell electricity, as well as provide fuel conversion and ancillary services, solely to Williams under the PPA. The Financial Accounting Standards Board reached a tentative conclusion in April 2001 that option contracts for the purchase and sale of electricity that meet the definition of a derivative under SFAS No. 133 are not subject to the normal purchase and sales exemption, and as such, should be accounted for as derivatives effective July 1, 2001. The Company is currently assessing the impact of this tentative conclusion on its financial condition and results of operations. The Company does not currently believe that the PPA should 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 March 31, 2001. Page 11 of 17 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 Page 12 of 17 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. 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 $308,500,000 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 July 18, 2001. The Company cannot assure that these expectations will be met. See "--Cautionary Note Regarding Forward-Looking Statements." NEW ACCOUNTING PRONOUNCEMENTS On January 1, 2001, the Company adopted SFAS No. 133, Accounting For Derivative Instruments And Hedging Activities, which, as amended, established new accounting and reporting standards for derivative instruments and hedging activities. SFAS No. 133 requires that an entity recognize all derivatives (including derivatives embedded in other contracts) as either assets or liabilities on the balance sheet and measure those instruments at fair value. Changes in the derivative's fair value are to be recognized currently in earnings unless specific hedge accounting criteria are met. Hedge accounting allows a derivative's gains or losses in fair value to offset related results of a hedged item in the statement of operations and requires that a company formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. SFAS No. 133 allows hedge accounting for fair value and cash flow hedges. SFAS No. 133 provides that the gain or loss on a derivative instrument designated and qualifying as a fair value hedge, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, be recognized currently in earnings in the same accounting period. SFAS No. 133 provides that the effective portion of the gain or loss on a derivative instrument designated and qualifying as a cash flow hedge be reported as a component of Page 13 of 17 other comprehensive income in stockholder's equity and be reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The remaining loss on the derivative, if any, must be recognized currently in earnings. The Company will produce and sell electricity, as well as provide fuel conversion and ancillary services, solely to Williams under the PPA. The Financial Accounting Standards Board reached a tentative conclusion in April 2001 that option contracts for the purchase and sale of electricity that meet the definition of a derivative under SFAS No. 133 are not subject to the normal purchase and sales exemption, and as such, should be accounted for as derivatives effective July 1, 2001. The Company is currently assessing the impact of this tentative conclusion on its financial condition and results of operations. The Company does not currently believe that the PPA should 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 March 31, 2001. 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. The subordinated debt is repayable using available cash pursuant to section 3.10 of the Collateral Agency and Intercreditor Agreement. RESULTS OF OPERATIONS As of March 31, 2001 and December 31, 2000, Construction in Progress, which includes capitalized facility construction costs, was $316.0 million and $298.0 million, respectively. For the three months ended March 31, 2001, capitalized facility construction costs were $18.0 million. 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. Page 14 of 17 For the three months ended March 31, 2001 and 2000 and the period from June 25, 1999 (inception) through March 31, 2001, general and administrative costs of $97,000, $1,000 and $523,000, respectively, were incurred. 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 the senior secured bonds have not yet been expended on construction and were invested by the trustee. For the three months ended March 31, 2001 and 2000 and the period from June 25, 1999 (inception) through March 31,2001, the interest income earned on these invested funds was approximately $261,000, $945,000 and $6.2 million, respectively, and is included in the Statements of Operations. As noted above, at March 31, 2001 and December 31, 2000 interest capitalized was approximately $39.1 million, and $33.1 million, respectively. For the three months ended March 31, 2001 and 2000 and the period from June 25, 1999 (inception) through March 31, 2001, interest cost incurred on the bond proceeds not spent on construction of the Company's facility was approximately $6,000, $1.4 million and $8.7 million respectively, and is included as interest expense in the Statement of Operations. For the three months ended March 31, 2001 and 2000 and the period from June 25, 1999 (inception) through March 31 2001, non-capitalizable costs plus interest cost and less interest income resulted in a net income/(loss) of approximately $158,000, ($474,000) and ($3.0 million) respectively. 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 July 18, 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. Page 15 of 17 As of March 31, 2001, the Company had original commitments 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: May 15, 2001 By: /s/ PETE NORGEOT ------------------- Pete Norgeot President Date: May 15, 2001 By: /s/ BARRY SHARP ------------------ Barry Sharp Vice President and Chief Financial Officer (and principal accounting officer) Page 17 of 17 -----END PRIVACY-ENHANCED MESSAGE-----