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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, 2000
/ / 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: 333-40478
AES RED OAK, L.L.C.
(Exact name of registrant as specified in its charter)
DELAWARE 54-1889658
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1001 NORTH 19TH STREET, ARLINGTON, VIRGINIA 22209,
C/O THE AES CORPORATION
(703) 522-1315
(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 / / No /x/
(Page 1 of 14)
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AES RED OAK, L.L.C.
TABLE OF CONTENTS
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Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited)
Condensed Consolidated Statements of Operations,
Three months ended June 30, 2000 and the period from March 15,
2000 (inception) through June 30, 2000 .......................................3
Condensed Consolidated Statements of Changes in Member's Deficit,
Period from March 15, 2000 (inception) through June 30, 2000 .................4
Condensed Consolidated Balance Sheets
June 30, 2000 and March 31, 2000 .............................................5
Condensed Consolidated Statements of Cash Flows,
Three months ended June 30, 2000 and the period from March 15,
2000 (inception) through June 30, 2000 .......................................6
Notes to the Condensed Consolidated Financial Statements..........................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..............................................10
Item 3. Quantitative and Qualitative Disclosures
About Market Risk................................................................12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................................................13
SIGNATURES..................................................................................................14
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(Page 2 of 14)
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
AES RED OAK, L.L.C.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS,
THREE MONTHS ENDED JUNE 30, 2000 AND THE PERIOD FROM
MARCH 15, 2000 (INCEPTION) THROUGH JUNE 30, 2000
(DOLLARS IN THOUSANDS)
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March 15, 2000
(inception)
Three Months Ended Through
June 30, 2000 June 30, 2000
--------------------------------------
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OPERATING EXPENSES
General and administrative costs ..... $ (10) $ (172)
------- -------
Operating Loss ....................... (10) (172)
OTHER INCOME/EXPENSE
Interest income ...................... 634 754
Interest expense ..................... (1,004) (1,207)
------- -------
NET LOSS ............................. $ (380) $ (625)
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
(Page 3 of 14)
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AES RED OAK, L.L.C.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER'S DEFICIT, PERIOD FROM
MARCH 15, 2000 (INCEPTION) THROUGH JUNE 30, 2000
(DOLLARS IN THOUSANDS)
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<CAPTION>
Common Stock Accumulated
Shares Amount Deficit Total
<S> <C> <C> <C> <C>
BALANCE, MARCH 15, 2000 ......... - $ - $ - $ -
Net Loss ........................ - - (245) (245)
------- ------- ------- ------
BALANCE, MARCH 31, 2000 ......... - - (245) (245)
Net Loss ........................ - - (380) (380)
------- ------- ------- ------
BALANCE , JUNE 30, 2000 ......... - - $(625) $(625)
======= ======= ======= ======
</TABLE>
See notes to condensed consolidated financial statements.
(Page 4 of 14)
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AES RED OAK, L.L.C.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED BALANCE SHEET,
JUNE 30, 2000 AND MARCH 31, 2000
(DOLLARS IN THOUSANDS)
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As of As of
June 30, March 31
2000 2000
---- ----
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ASSETS:
Current Assets:
Cash ................................................................... $ 43 $ 26
Investments held by trustee-at cost, which approximates market value.... 5,359 2,940
--------- ---------
Total current assets ................................................. 5,402 2,966
Prepaid Construction Costs ................................................ 263,611 288,573
Land ...................................................................... 4,240 4,240
Construction in progress................................................... 60,894 26,398
Deferred financing costs - Net of accumulated amortization of $160 and $10,
respectively............................................................... 18,803 18,709
Investments held by trustee-At cost, which approximates market value....... 35,783 45,809
--------- ---------
Total assets ......................................................... $ 388,733 $ 386,695
========= =========
LIABILITIES AND MEMBER'S DEFICIT:
Current Liabilities:
Accounts payable ....................................................... $ 12 $ 213
Accrued Interest ....................................................... 3,009 1,598
Payable to affiliate ................................................... 1,366 252
Payable to parent ...................................................... 971 877
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Total current liabilities ............................................ 5,358 2,940
Bonds payable ............................................................. 384,000 384,000
--------- ---------
Total liabilities .................................................... 389,358 386,940
========= =========
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 ....................... (625) (245)
--------- ---------
Total member's deficit ............................................... (625) (245)
--------- ---------
Total liabilities and member's deficit ............................... $ 388,733 $ 386,695
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
(Page 5 of 14)
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AES RED OAK, L.L.C.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS,
THREE MONTHS ENDED JUNE 30, 2000 AND
THE PERIOD FROM MARCH 15, 2000 (INCEPTION)
THROUGH JUNE 30, 2000
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three March 15, 2000
Months (inception)
Ended through
June 30, 2000 June 30, 2000
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OPERATING ACTIVITIES:
Net loss ................................................... $ (380) $ (625)
Amortization of deferred financing costs ................... 150 160
Change in:
Accounts Payable ........................................ (201) 12
Accrued interest ........................................ 1,411 3,009
Payable to affiliates ................................... 1,208 2,337
------------ -------------
Net cash provided by operating activities ...... 2,188 4,893
INVESTING ACTIVITIES:
Change in prepaid construction account ..................... 24,962 (223,611)
Payments for construction in progress ...................... (34,496) (100,894)
Payments for land .......................................... 0 (4,240)
Change in debt service reserve ............................. (7,607) (41,142)
------------ -------------
Net cash used in investing activities .......... (1,927) (369,887)
FINANCING ACTIVITIES:
Proceeds from project debt issuance ........................ 0 384,000
Payments for deferred financing costs ...................... (244) (18,963)
------------ -------------
Net cash provided by financing activities ..... (244) 365,037
NET INCREASE IN CASH AND CASH EQUIVALENTS .................. 17 43
------------ -------------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ............. 26 0
CASH AND CASH EQUIVALENTS, END OF PERIOD ................... $ 43 $ 43
============ =============
SUPPLEMENTAL DISCLOSURE:
Interest paid .................................. $ 7,052 $ 7,052
============ =============
</TABLE>
See notes to condensed consolidated financial statements.
(Page 6 of 14)
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AES RED OAK, L.L.C.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED
JUNE 30, 2000 AND THE PERIOD FROM MARCH 15, 2000 (INCEPTION) THROUGH
JUNE 30, 2000.
1. ORGANIZATION
AES Red Oak, L.L.C. (the Company) was incorporated on September 13, 1998,
in the State of Delaware, to develop, construct, own and operate a
830-megawatt (MW) gas-fired, combined cycle electric generating facility
(the facility) in Sayreville, New Jersey. The Company was considered
dormant until March 15, 2000, at which time it consummated a project
financing and certain related agreements. The facility, currently under
construction, will consist of three Westinghouse 501 FD combustion
turbines, three unfired heat recovery steam generators, and one
multicylinder steam turbine. The facility will produce and sell
electricity, as well as provide fuel conversion and ancillary services,
solely to Williams Energy Marketing and Trading Company (Williams) under
a power purchase agreement with a term of 20 years that will commence on
the facility's anticipated commercial operation date, December 31, 2001.
The Company 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 the Company
believes that the assets of the Company are realizable.
The Company is a wholly owned subsidiary of AES Red Oak, Inc. (Red Oak),
which is a wholly-owned subsidiary of The AES Corporation (AES). Red Oak
has no assets other than its ownership interests in the Company and AES
Sayreville, L.L.C. Red Oak has no operations and is not expected to have
any operations. Red Oak's only income will be from distributions it
receives from the Company and AES Sayreville, L.L.C., once the Company
achieves commercial operation. The equity that Red Oak is to provide to
the Company will be provided to Red Oak by AES, which owns all of the
stock of Red Oak. AES files quarterly and annual audited reports with the
Securities and Exchange Commission under the Securities Exchange Act of
1934, which are publicly available. Red Oak'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.
The Company owns all of the equity interests in AES Red Oak Urban Renewal
Corporation (URC), which was organized as an urban renewal corporation
under New Jersey Law. As an urban renewal corporation under New Jersey
law, portions of the facility can be designated as redevelopment areas in
order to provide real estate tax and development benefits to the
facility. URC has no operations outside of its activities in connection
with the facility.
(Page 7 of 14)
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On March 15, 2000, the Company issued $384 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.
Pursuant to an equity subscription agreement (See Note 3), Red Oak has
agreed to contribute up to approximately $55.7 million to the Company to
fund construction after the bond proceeds have been fully utilized.
2. BASIS OF PRESENTATION
In the Company's opinion, all adjustments necessary for a fair
presentation of the unaudited results of operations for the three months
ended June 30, 2000, and the period from March 15, 2000 (inception)
through June 30, 2000 are included. All such adjustments are accruals of
a normal and recurring nature. The results of operations for the three
months ended June 30, 2000 and the period from March 15, 2000 (inception)
through June 30, 2000, 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 consolidated
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
March 31, 2000 and notes thereto included in the Company's final
prospectus dated August 11, 2000. In the opinion of management, all
adjustments considered necessary for a fair presentation have been
included.
3. EQUITY SUBSCRIPTION AGREEMENT
The Company, along with Red Oak, has entered into an Equity Subscription
Agreement, pursuant to which Red Oak has agreed to contribute up to
approximately $55.7 million to the Company to fund project costs. This
amount is secured by an acceptable bond issued by Red Oak. Red Oak 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 Red Oak and the Company, which would be subordinate to the senior
secured bonds.
4. POWER PURCHASE AGREEMENT
The Company and Williams have entered into a power purchase agreement
(PPA) 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 PPA is 20 years, commencing on the Commercial Operation Date
(COD) defined in the PPA as the day the initial start up testing
procedures have been successfully completed and notified to Williams by
the Company. Payment obligations to the Company are guaranteed by The
Williams Companies, Inc. Such payment obligations under the guarantee are
capped at an amount
(Page 8 of 14)
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equal to 125% of the sum of the principal amount of the senior
secured bonds plus the maximum debt service reserve account
required balance. The Company has provided Williams a guaranty
issued by AES of specific payment obligations should the facility
not achieve commercial operation by December 31, 2001. AES's
liability under the guaranty is capped at $30 million. The Company
has the option, and may be required under specific conditions
described in the PPA, to replace the guaranty issued by AES 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 the Company.
5. COMMITMENTS AND CONTINGENCIES
CONSTRUCTION - The Company has entered into a fixed-price turnkey
construction agreement (EPC) with Raytheon Engineers and Constructors,
Inc. (the Contractor) for the design, engineering, procurement and
construction of the facility. The Company has prepaid the EPC in the
amount of $288.6 million, representing a discounted fixed price. In
consideration of the prepayment the Contractor issued in favor of the
Company a letter of credit with an initial amount of $237.7 million to be
reduced over the construction period. As of June 30, 2000, the letter of
credit has been reduced by $25 million representing completion of certain
construction milestones.
MAINTENANCE SERVICES AGREEMENT - The Company has entered into an
agreement with Siemens Westinghouse Power Corporation (Siemens). Siemens
will provide the Company with specific combustion turbine maintenance
services and spare parts for an initial term of between six and sixteen
years. For the first six years of operation, the Company is committed to
pay $306 per kilowatt hour of service. The value of this commitment is
difficult to ascertain at this time due to the unknown operational mode
Williams will require from the Company.
WATER SUPPLY - The Company has entered into a contract with the Borough
of Sayreville (the Borough) by which the Borough will provide untreated
water to the Company. The contract has a term of 30 years with an option
to extend for up to four additional five-year terms.
INTERCONNECTION AGREEMENT - The Company has entered into an
interconnection agreement with Jersey Central Power & Light Company d/b/a
GPU Energy (GPU) to transmit the electricity generated by the facility to
the transmission grid so that it may be sold as prescribed under the
Company's PPA. The agreement is in effect for the life of the facility,
yet may be terminated by mutual consent of both GPU and the Company under
certain circumstances as detailed in the agreement. Costs associated with
the agreement are based on electricity transmitted via GPU at a variable
price, the PJM (Pennsylvania/New Jersey/Maryland) Tariff as charged by
GPU to the Company, which is comprised of both service cost and asset
recovery cost, as determined by GPU and approved by the Federal Energy
Regulatory Committee.
WATER SUPPLY PIPELINE - The Borough will design the Lagoon Water
Pipeline, Lagoon Pumping Station and Sayreville Interconnection Number 2
in conformance with standard water system practice. The Company is
responsible for selection of a contractor and for payment of all costs.
The pipeline engineering and routing has been finalized. The construction
contract has been awarded, pipeline materials have been procured and the
(Page 9 of 14)
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construction will commence after closing of the right-of-way. The value
of the pipeline contract is $971,000 and will be payable by December
2000.
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
and the anticipated commercial operation date of the facility, 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 factors discussed
in the "Risk Factors" section of the Company's final prospectus dated August
11, 2000.
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
The Company was formed on September 13, 1998 to develop, construct, own,
operate and maintain its facility. The Company was dormant until March 15,
2000, 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 $384.0
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 $439.8 million, which will be financed by the proceeds from the
sale of the senior secured bonds and the equity contribution described below.
In late September 2000, the Company consummated an exchange offer whereby the
holders of the senior secured bonds were able to exchange their privately
placed senior secured bonds for registered senior secured bonds.
(Page 10 of 14)
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The Company's facility is still under construction and is expected to be
completed and operational by approximately December 31, 2001. The Company
cannot assure that these expectations will be met.
EQUITY CONTRIBUTIONS
Under the equity subscription agreement, Red Oak is obligated to contribute
up to approximately $55.7 million to the Company to fund project costs. Red
Oak's obligation to make the contributions is, and will be, supported by an
acceptable letter of credit or an acceptable bond.
RESULTS OF OPERATIONS
For the three months ended June 30, 2000 and the period from March 15, 2000
(inception) through June 30, 2000, costs in the amount of $34.5 million and
$60.9 million respectively, pertaining to the cost of the construction of the
Company's facility have been capitalized as Construction Work in Progress and
are included as assets on the balance sheet. The Company has prepaid the EPC
contract in the amount of $288.6 million and in consideration of the
prepayment the Contractor issued in favor of the Company a letter of credit.
As of June 30, 2000, the letter of credit has been reduced by $25 million
representing completion of certain construction milestones resulting in
prepaid construction costs in the amount of $263.6 million and included as
assets on the balance sheet. Interest capitalized for the three months ended
June 30, 2000 and the period from March 15, 2000 (inception) through June 30,
2000 was approximately $7.5 million and $8.9 million respectively. The cost
of purchasing land for construction of the Company's facility has been
separately identified on the Balance Sheets.
For the three months ended June 30, 2000 and the period from March 15, 2000
(inception) through June 30, 2000, general and administrative costs of
$10,000 and $172,000 respectively were incurred. These costs did not directly
relate to construction and are included as expenses in the Statement 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 June 30, 2000 and the period from March 15, 2000
(inception) through June 30, 2000, the interest income earned on these
invested funds was $634,000 and $754,000 respectively, and is included in the
Statement of Operations.
For the three months ended June 30, 2000 and the period from March 15, 2000
(inception) through June 30, 2000, interest expense incurred on the portion
of the bond proceeds expended during the construction period is capitalized
to Construction in Progress, was approximately $7.5 million and $8.9 million
respectively, and is included on the balance sheet. For the three months
ended June 30, 2000 and the period from March 15, 2000 (inception) through
June 30, 2000, interest expense incurred on the bond proceeds not spent on
construction of the Company's facility was $1 million and $1.2 million
respectively, and is included as interest expense in the Statement of
Operations.
For the three months ended June 30, 2000 and the period from March 15, 2000
(inception) through June 30 2000, non-capitalizable costs plus interest expense
and less interest income resulted in a net loss of approximately $380,000 and
$625,000 respectively. The results of operations may not be
(Page 11 of 14)
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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
revenues generated from market sales of electricity.
In order to provide liquidity in the event of cash flow shortfalls, the debt
service reserve account will contain an amount equal to the debt service
reserve account required balance through cash funding, issuance of the debt
service reserve letter of credit or a combination of the two.
As of June 30, 2000, apart from commitments totaling $511,000 arising from
the construction of our facility, we have committed to three additional
capital expenditures totaling $1.8 million. These expenditures are for a
water pipeline for $971,000, road modifications for $332,000 and a water
pumping station for $500,000. We expect to pay these amounts in fiscal year
2000. These amounts are expected to be paid out of the proceeds from the sale
of the outstanding bonds and the equity contribution. As of June 30, 2000,
water inlet infrastructure and pump-house design was complete. The electrical
supply to the pump-house design is currently 95% complete. The Company is
seeking bids for the installation of this scope of work.
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 during the 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 PJM 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 the final prospectus dated August 11, 2000.
(Page 12 of 14)
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
Exhibit Number Description
-------------- -----------
27 Financial data schedule
b) REPORTS ON FORM 8-K.
The Company did not file any reports on Form 8-K during the quarter ended
June 30, 2000.
(Page 13 of 14)
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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 RED OAK, L.L.C.
Date: September 25, 2000 By: /s/ John Ruggirello
-------------------------
JOHN RUGGIRELLO
President
Date: September 25, 2000 By: /s/ Barry Sharp
------------------------
BARRY SHARP
Vice President and Chief Financial
Officer (and principal accounting
officer)
(Page 14 of 14)
