AES IRONWOOD LLC - 10-Q Quarterly Report

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, 2003

[_] 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	54-1457573
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer 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)

Registrant is a wholly owned subsidiary of The AES Corporation. Registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is filing this Quarterly Report on Form 10-Q with the reduced disclosure format authorized by General Instruction H.

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 [_]

Indicate by check mark whether registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes [_] No [X]

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 Months Ended June 30, 2003 and 2002	3

	Condensed Balance Sheets as of June 30, 2003 and December 31, 2002	4

	Condensed Statement of Changes in Member’s Capital from December 31, 2002 through June 30, 2003	5

	Condensed Statements of Cash Flows	6

	Notes to Condensed Financial Statements	7

Item 2.	Management’s Discussion And Analysis Of Financial Condition and Results of Operations	15

Item 4.	Controls and Procedures	26

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	26

Item 5.	Other Information	27

Item 6.	Exhibits and Reports on Form 8-K
	(a) Exhibits	27
	(b) Reports on Form 8-K	27

SIGNATURES		28

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PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

AES IRONWOOD, L.L.C.
AN INDIRECT, WHOLLY OWNED SUBSIDIARY OF THE AES CORPORATION
Condensed Statements of Operations,
Three and Six Months Ended June 30, 2003 and 2002
(UNAUDITED)
(dollars in thousands)

	Three Months Ended			Three Months Ended		Six Months Ended			Six Months Ended
	June 30, 2003			June 30, 2002		June 30, 2003			June 30, 2002
OPERATING REVENUES
Energy	$	12,557		$	12,809	$	24,982		$	25,341

OPERATING EXPENSES
Depreciation		2,720			2,502		5,316			4,955
Management services and fees		1,509			1,972		3,227			3,754
Operating fee		1,278			1,261		2,555			2,521
Operating costs		1,199			933		2,278			1,235
General and administrative costs		1,326			600		2,438			973

Total operating expenses		8,032			7,268		15,814			13,438
Operating income (loss)		4,525			5,541		9,168			11,903

OTHER INCOME/EXPENSE
Other income		6			1,300		239			2,754
Interest income		33			19		54			52
Interest expense		6,753			6,813		13,531			13,644

NET (LOSS) INCOME	$	(2,189	)	$	47	$	(4,070	)	$	1,065

See notes to condensed financial statements.

(Page 3 of 33)

AES IRONWOOD, L.L.C.
AN INDIRECT, WHOLLY OWNED SUBSIDIARY OF THE AES CORPORATION
Condensed Balance Sheets
as of June 30, 2003 and December 31, 2002
(UNAUDITED)
(dollars in thousands)

ASSETS:	June 30,			December 31,
	2003			2002

Current assets:
Cash and cash equivalents	$	1,255		$	1,088
Interest receivable		4			8
Accounts receivable — net		5,695			10,135
Prepaid expenses		2,159			2,511
Inventory — fuel		18			26
Restricted cash including debt service reserve		4,431			5,803

Total current assets		13,562			19,571

Land		1,143			1,143
Property, plant, and equipment-net of accumulated depreciation of
$15,504 and $10,188, respectively		319,060			322,745
Restricted cash-certificate of deposit		77			77
Deferred financing costs -net of accumulated amortization of $577 and $508,
respectively		3,058			3,127
Other assets		753			753

Total assets	$	337,653		$	347,416

LIABILITIES AND MEMBER’S CAPITAL:

Current liabilities:
Accounts payable	$	409		$	2,666
Accrued interest		2,245			2,262
Payable to AES and affiliates		2,136			2,873
Note payable		2,022			2,328
Bonds payable - current		5,554			4,751

Total current liabilities		12,366			14,880

Bonds payable		298,594			301,773


Total liabilities		310,960			316,653



Commitments and Contingencies (Notes 5 and 6)
Member’s capital:
Common stock, $1 par value -10 shares authorized, none issued or
outstanding		—			—
Contributed capital		38,800			38,800
Member’s accumulated deficit		(12,107	)		(8,037	)


Total member’s capital		26,693			30,763

Total liabilities and member’s capital	$	337,653		$	347,416

See notes to condensed financial statements.

(Page 4 of 33)

AES IRONWOOD, L.L.C.
AN INDIRECT, WHOLLY OWNED SUBSIDIARY OF THE AES CORPORATION
Condensed Statement of Changes in Member’s Capital
Period From December 31, 2002
Through June 30, 2003
(UNAUDITED)
(dollars in thousands)

	Common Stock			Additional
				Paid - in		Accumulated
	Shares	Amount		Capital		Deficit			Total

BALANCE DECEMBER 31, 2002	-	$	-	$	38,800	$	(8,037	)	$	30,763
Net loss	-		-		-		(4,070	)		(4,070	)

BALANCE JUNE 30, 2003	-	$	-	$	38,800	$	(12,107	)	$	26,693

See notes to condensed financial statements.

(Page 5 of 33)

AES IRONWOOD, L.L.C.
AN INDIRECT, WHOLLY OWNED SUBSIDIARY OF THE AES CORPORATION
Condensed Statements of Cash Flows,
Six months ended June 30, 2003 and 2002
(UNAUDITED)
(dollars in thousands)

	Six Months Ended			Six Months Ended
	June 30, 2003			June 30, 2002

OPERATING ACTIVITIES:
Net (loss) income	$	(4,070	)	$	1,065
Amortization of deferred financing costs		69			104
Depreciation		5,316			4,955
Change in:
Interest receivable		4			27
Accounts receivable		4,440			(307	)
Prepaid expense		352			(834	)
Inventory		8			(1,233	)
Accounts payable		(2,257	)		(13,183	)
Accrued interest		(17	)		(7	)
Payable parent and affiliates		(737	)		978

Net cash provided by (used in) operating activities		3,108			(8,435	)


INVESTING ACTIVITIES:
Payments for property, plant and equipment		(1,631	)		(1,052	)
Withdrawals from (payments to) restricted cash accounts		1,372			2,300

Net cash provided by (used in) investing activities		(259	)		1,248


FINANCING ACTIVITIES:
Payments on project debt		(2,376	)		(988	)
Change in note payable		(306	)		-
Contributed capital		-			8,800

Net cash (used in) provided by financing activities		(2,682	)		7,812


NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		167			625

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		1,088			7,594


CASH AND CASH EQUIVALENTS, END OF PERIOD	$	1,255		$	8,219

SUPPLEMENTAL DISCLOSURE:
Interest paid (net of amounts capitalized)	$	13,531		$	13,644

See notes to condensed financial statements.

(Page 6 of 33)

AES IRONWOOD, L.L.C.
AN INDIRECT, WHOLLY OWNED SUBSIDIARY OF THE AES CORPORATION
Notes to Condensed Financial Statements

1.	ORGANIZATION

AES Ironwood, L.L.C. (the “Company”) was formed on October 30, 1998 in the State of Delaware, to develop, construct, own, operate and maintain a 705-megawatt (MW) gas-fired, combined cycle electric generating facility (the “Facility”) in South Lebanon Township, Pennsylvania. The Company was considered dormant until June 25, 1999, at which time it consummated a project financing and certain related agreements. The Facility, which was declared commercially available on December 28, 2001, consists of two Westinghouse 501 G combustion turbines, two heat recovery steam generators and one steam turbine. The Facility produces and sells electricity, and provides fuel conversion and ancillary services, solely to Williams Energy Marketing & Trading Company (“Williams Energy”) under a power purchase agreement with a term of 20 years that commenced on December 28, 2001.

The Company 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 the Company 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 the Company and AES Prescott, L.L.C. The equity that AES Ironwood, Inc. has provided to the Company has been provided to AES Ironwood, Inc. by The AES Corporation. The AES Corporation files quarterly and annual reports with the Securities and Exchange Commission, under the Securities Exchange Act of 1934, which are publicly available, but do not constitute a part of, and are not incorporated into, this Form 10-Q.

2.	BASIS OF PRESENTATION

In the Company’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 are not necessarily indicative of the results of operations to be expected for the full year or future periods.

Certain 2002 amounts have been reclassified on the condensed financial statements to conform with the 2003 presentation.

The Company generates energy revenues under its power purchase agreement with Williams Energy. During the 20-year term of the agreement, the Company expects to sell electric energy and capacity produced by the Facility, as well as ancillary and fuel conversion services. Under the power purchase agreement, the Company also generates revenues from meeting (1) base electrical output guarantees and (2) heat rate rebates through efficient

(Page 7 of 33)

electrical output. Revenues from the sales of electric energy and capacity are recorded based on output delivered and capacity provided at rates as specified under contract terms. Revenues for ancillary and other services are recorded when the services are rendered.

As of June 30, 2003, accounts receivable of approximately $5.7 million consists of unpaid invoices from Williams Energy for operations of approximately $6.7 million and from Siemens Westinghouse for warranty reimbursables of approximately $218 thousand, less allowance for doubtful accounts of approximately $1.2 million. As of December 31, 2002, accounts receivable of approximately $10.1 million consists of unpaid invoices from Williams Energy of approximately $5.8 million, from Siemens Westinghouse of approximately $4.8 million, from sales of excess fuel inventory of approximately $717,000, less allowance for doubtful accounts of approximately $1.2 million.

These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America 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, 2002 and notes thereto included in AES Ironwood, L.L.C.’s Annual Report on Form 10-K for the year ended December 31, 2002.

BONDS

On June 25, 1999, the Company 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 commenced with the quarterly payment on February 28, 2002. The amount payable in 2003 is approximately $4.75 million. Annual principal repayments over the life of the bonds range from 0.64% (or $1.97 million) to 6.92% (or $21.3 million). Repayment dates are February 28, May 31, August 31 and November 30 of each year, with the final payment due November 30, 2025.

Repayments as of December 31, 2002 are as follows:

Year	Principal		Interest		Total
2003	$	4,751	$	26,991	$	31,742
2004		6,355		26,426		32,781
2005		7,034