UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1997
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-23148
AES CHINA GENERATING CO. LTD.
(Exact name of registrant as specified in its charter)
Bermuda 98-0152612
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3/F(W), Golden Bridge Plaza
No. 1(A) Jianguomenwai Avenue
Beijing 100020, People's Republic of China
(Address of principal executive office)
Telephone Number (86 10) 6089619
(Registrant's 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 ___
Indicate the number of shares outstanding of the registrant's Common
Stock, as of July 15, 1997.
12,000 shares of Common Stock, par value $1.00 per share
<PAGE>
AES CHINA GENERATING CO. LTD.
INDEX
PART I. FINANCIAL INFORMATION Page No
Item 1. Consolidated Financial Statements:
Consolidated Statements of Operations ....................... 3
Consolidated Balance Sheets ................................. 5
Consolidated Statements of Cash Flows........................ 7
Notes to Consolidated Financial Statements .................. 8
Item 2. Discussion and Analysis of Financial Condition
and Results of Operations .................................. 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................... Not Applicable
Item 2. Changes in Securities........................................ 17
Item 3. Defaults Upon Senior Securities...................... Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.......... 17
Item 5. Other Information.................................... Not Applicable
Item 6. Exhibits and Reports on Form 8-K............................. 18
Signatures................................................... 19
2
<PAGE>
PART I
Item 1. Consolidated Financial Statements
AES CHINA GENERATING CO. LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
May 31, 1997 May 31, 1996
--------------------------------------------------
(unaudited)
<S> <C> <C>
REVENUES:
Electricity sales US$ 2,566 US$ 2,383
Construction delay fee -- 43
---------------------- ---------------------
Total revenues 2,566 2,426
OPERATING COSTS AND EXPENSES:
Costs of sales 1,564 1,766
Development, selling, general and
administrative expenses 1,698 1,413
---------------------- ---------------------
Total operating costs and expenses 3,262 3,179
---------------------- ---------------------
OPERATING LOSS (696) (753)
OTHER INCOME/(EXPENSES):
Interest income 3,363 1,737
Interest expense (1,082) (322)
Equity in earnings of an affiliate 101 126
Amalgamation cost (33) --
---------------------- ---------------------
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 1,653 788
Income taxes (32) 202
Minority interest (68) (8)
---------------------- ---------------------
NET INCOME US$ 1,753 US$ 594
====================== =====================
NET INCOME PER SHARE US$ 146.08 US$ 49.50
====================== =====================
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
AES CHINA GENERATING CO. LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Six Months Ended
May 31, 1997 May 31, 1996
--------------------------------------------------
(unaudited)
<S> <C> <C>
REVENUES:
Electricity sales US$ 5,073 US$ 2,447
Construction delay fee -- 403
---------------------- ---------------------
Total revenues 5,073 2,850
OPERATING COSTS AND EXPENSES:
Costs of sales 3,290 1,997
Development, selling, general and
administrative expenses 3,335 3,405
---------------------- ---------------------
Total operating costs and expenses 6,625 5,402
---------------------- ---------------------
OPERATING LOSS (1,552) (2,552)
OTHER INCOME/(EXPENSES):
Interest income 6,578 3,715
Interest expense (2,252) (322)
Equity in earnings of an affiliate 208 252
Amalgamation cost (176) --
---------------------- ---------------------
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 2,806 1,093
Income taxes 54 202
Minority interest (124) (19)
---------------------- ---------------------
NET INCOME US$ 2,876 US$ 910
====================== =====================
NET INCOME PER SHARE US$ 239.67 US$ 75.83
====================== =====================
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
AES CHINA GENERATING CO. LTD.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par values and share amounts)
<TABLE>
<CAPTION>
As of As of
May 31, 1997 November 30, 1996
-------------------- ----------------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents US$ 128,903 US$ 56,200
Debt service reserves 18,073 --
Investments - held-to-maturity 8,336 8,995
Investments - available-for-sale 8,407 --
Accounts receivable from related parties 5,604 6,809
Interest receivable 1,004 286
Inventory 1,020 765
Prepaid expenses and other current assets 1,628 874
-------------------- ----------------------
Total current assets 172,975 73,929
Property, Plant and Equipment:
Electric generating facilities 71,504 64,185
Equipment, furniture and leasehold improvements 3,221 2,646
Accumulated depreciation and amortization (4,925) (3,143)
Construction in progress 166,899 98,912
-------------------- ----------------------
Total property, plant and equipment, net 236,699 162,600
Other Assets:
Deferred costs, net 5,823 407
Project development costs 4,449 3,352
Investments in and advances to affiliates 44,260 33,202
Note receivable 7,597 6,626
Debt service reserves 18,225 --
Deposits and other assets 751 582
-------------------- ----------------------
Total other assets 81,105 44,169
-------------------- ----------------------
TOTAL US$ 490,779 US$ 280,698
==================== ======================
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
AES CHINA GENERATING CO. LTD.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par values and share amounts)
<TABLE>
<CAPTION>
As of As of
May 31, 1997 November 30, 1996
--------------------- ---------------------
(unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable - The AES Corporation US$ 554 US$ 1,185
Accounts payable 2,877 2,199
Accounts payable for construction 9,210 --
Accrued liabilities 9,573 2,618
Accrued liabilities for construction 3,854 4,259
Loans from minority shareholders - current portion 2,909 1,365
Bank loans 2,990 2,861
--------------------- ---------------------
Total current liabilities 31,967 14,487
Long-Term Liabilities:
Notes payable, net 179,835 --
Bank loan 7,000 --
Deferred income taxes 441 387
Loans from minority shareholders 35,149 34,933
--------------------- ---------------------
Total long-term liabilities 222,425 35,320
Minority Interest 42,846 40,536
Shareholders' Equity:
Common Stock - par value $1.00 per share,
(Authorized, issued and outstanding shares:
1997 - 12,000; 1996 - N/A) 12 --
Class A Common Stock - par value $0.01 per share,
(50,000,000 shares authorized; issued and outstanding
shares: 1997 - N/A; 1996 - 8,134,100) -- 81
Class B Common Stock - par value $0.01 per share,
(50,000,000 shares authorized; issued and outstanding
shares: 1997 - N/A; 1996 - 7,500,000) -- 75
Additional paid-in capital 184,348 183,980
Retained earnings 8,783 5,907
Cumulative translation adjustment 398 312
--------------------- ---------------------
Total shareholders' equity 193,541 190,355
--------------------- ---------------------
TOTAL US$ 490,779 US$ 280,698
===================== =====================
</TABLE>
See Notes to Consolidated Financial Statements
6
<PAGE>
AES CHINA GENERATING CO. LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
May 31, 1997 May 31, 1996
-------------------- ------ --------------------
(unaudited)
<S> <C> <C>
Net cash provided by / (used in) operating activities US$ 1,552 US$ (2,387)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of notes 174,110 --
Contributions and loans from minority shareholders 2,390 5,155
Repayment of loans from minority shareholders (818) --
Proceeds from bank loans 8,809 180
Repayment of bank loans (1,680) --
Sale of Class A common stock 224 --
Repurchase of Class A common stock -- (11,443)
-------------------- --------------------
Net cash provided by/(used in) financing activities 183,035 (6,108)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and construction in progress (58,423) (20,782)
Purchase of investments - held-to-maturity (14,376) (11,534)
Purchase of investments - available-for-sale (14,533) (17,794)
Proceeds from maturity of investments - held-to-maturity 15,982 39,441
Proceeds from sales of investments - available-for-sale 6,184 3,000
Investments in and advances to affiliates (8,919) --
Recoupment of investment in affiliate 322 447
Project development costs and other assets (903) (1,569)
Deposit to debt service reserves (36,247) --
Investment in note receivable (971) (2,401)
-------------------- --------------------
Net cash used in investing activities (111,884) (11,192)
-------------------- --------------------
Increase/(decrease) in cash and cash equivalents 72,703 (19,687)
CASH AND CASH EQUIVALENTS,
Beginning of period 56,200 125,684
-------------------- --------------------
End of period US$ 128,903 US$ 105,997
==================== ====================
</TABLE>
See Notes to Consolidated Financial Statements
7
<PAGE>
AES CHINA GENERATING CO. LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. General and Basis of Presentation
AES China Generating Co. Ltd. ("AES Chigen" or the "Company"), a Bermuda
company, was incorporated on December 7, 1993, to develop, acquire, finance,
construct, own and manage electric power generation facilities in the People's
Republic of China (the "PRC"). On May 8, 1997, the amalgamation of a
wholly-owned subsidiary of The AES Corporation ("AES") with and into AES Chigen
(the "Amalgamation") was completed. The Company became a wholly-owned subsidiary
of AES. Prior to the Amalgamation, the Company was a controlled affiliate of
AES, which owned approximately 48% of the outstanding common stock of the
Company.
The consolidated financial statements include the accounts of AES Chigen, its
subsidiaries and controlled affiliates. Investments in 50% or less owned
affiliates over which the Company has the ability to exercise significant
influence, but not control, are accounted for using the equity method.
Intercompany transactions and balances have been eliminated.
The number of shares used in computing net income per share for the three months
and six months ended May 31, 1997 and May 31, 1996 was 12,000.
In the Company's opinion, all adjustments necessary for a fair presentation of
the unaudited results of operations for the three months and the six months
ended May 31, 1997 and May 31, 1996 are included. All such adjustments are
accruals of a normal and recurring nature. The results of operations for the
periods are not necessarily indicative of the results of operations for the full
year. The financial statements are unaudited.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at May 31, 1997 and November 30, 1996 and the
reported amounts of revenues and expenses during the three months and the six
months ended May 31, 1997 and May 31, 1996. Actual results could differ from
those estimates.
The organization and business of the Company, accounting policies followed by
the Company and other information are contained in the notes to the Company's
financial statements filed as part of the Company's Annual Report on Form 10-K
for the fiscal year ended November 30, 1996 (the "Annual Report"). This
Quarterly Report on Form 10-Q should be read in conjunction with such Annual
Report.
2. Notes Payable
As of May 31, 1997, notes payable consisted of $180 million principal amount
Notes due on December 15, 2006 (the "2006 Notes"). The 2006 Notes bear interest
at the rate of 10 1/8%
8
<PAGE>
per annum. Interest is payable on June 15 and December 15 of each year,
commencing on June 15, 1997. The 2006 Notes rank at least pari passu in right of
payment with all existing and future senior unsecured indebtedness of the
Company. The holders of the 2006 Notes have a claim to amounts on deposit in
debt service and interim reserve accounts that is prior to the claims of other
creditors of the Company. The 2006 Notes are redeemable at the Company's option,
in whole or in part, beginning December 15, 2001 at redemption prices in excess
of par and are redeemable at par beginning December 15, 2003.
The terms of the 2006 Notes contain certain covenants and restrictions. The most
restrictive of these covenants include a requirement to maintain certain
reserves and limitations on the payment of dividends, redemption of equity
interests, redemption of subordinated indebtedness, making of certain
investments, incurrence of certain indebtedness, certain assets sales and the
incurrence of indebtedness to refinance existing indebtedness, among other
things.
3. Bank Loan
As of May 31, 1997, a long-term bank loan of $7.0 million to Anhui Liyuan-AES
Power Company Ltd., a joint venture of the Company, was outstanding. The loan is
unsecured and bears interest at the prevailing lending rates in the PRC. The
interest rate for the six months ended May 31, 1997 was approximately 7.7% per
annum. Scheduled maturities of the bank loan as of May 31, 1997 are as follows:
(in thousands)
1998 $ --
1999 1,000
2000 2,000
2001 2,500
2002 2,500
-----------------
$ 7,000
=================
4. Shareholders' Equity
Since May 8, 1997, the effective date of the Amalgamation, the capital of the
Company has consisted of 12,000 authorized, issued and outstanding shares of
Common Stock, par value $1.00 per share.
Upon the effectiveness of the Amalgamation, each issued and outstanding share of
Class A common stock of the Company was canceled in consideration of the right
to receive 0.29 of a share of common stock of AES and cash in lieu of any
fractional shares. All such shares of Class A common stock are no longer
outstanding and were automatically canceled and retired and ceased to exist and
each holder of a certificate representing any such shares of Class A common
stock ceased to have any rights with respect thereto, except the right to
receive the consideration, without interest.
9
<PAGE>
Upon the effectiveness of the Amalgamation, each share of the Class B Common
Stock was automatically canceled and ceased to exist and no consideration was
delivered in exchange therefor.
Upon the effectiveness of the Amalgamation, all outstanding options issued under
the AES Chigen Incentive Stock Option Plan (the "Option Plan") automatically and
without any action on the part of the holders thereof became options for shares
of AES common stock. The Option Plan remains in full force and effect.
5. Commitments and Contingencies
Since the commencement of operations, the Company has entered into commitments
to invest a total of approximately $357.8 million in the form of equity
contributions and loans to its joint ventures. As of May 31, 1997, the total
outstanding commitments to its joint ventures was $170.5 million.
Pursuant to the Payment and Milestone Schedule agreed between Sichuan Fuling
Aixi Power Company Ltd. and Shanghai Electric Corporation ("Shanghai Electric"),
a portion of the price of the Engineering, Procurement and Construction Services
Contract (the "EPC Contract") can be deferred. Interest shall accrue on the
amount of the deferred payments as set forth in the Payment and Milestone
Schedule. AES Chigen guaranteed to pay Shanghai Electric up to $19.2 million,
representing 60% of the price of the EPC Contract, plus the interest accrued
thereon. As of May 31, 1997, the amount of the deferred payment with interest
accrued thereon was $9.2 million.
The Company has initialed or signed several joint venture contracts which become
effective under Chinese law following receipt of certain government approvals.
These joint venture contracts are also subject to the satisfaction or waiver of
certain conditions precedent specified in the joint venture contracts. Until the
appropriate governmental approvals have been obtained and all conditions
precedent have been satisfied or waived, the Company regards the initialing or
signing of a joint venture contract as being a preliminary step in the
development of an electric power generation project and therefore does not
recognize amounts under these joint venture contracts as commitments.
Item 2. Discussion and Analysis of Financial Condition and Results of
Operations
Introduction
The Company, directly and through its wholly-owned offshore subsidiaries,
engages in the development, construction, operation and ownership of electric
power generating facilities in the PRC by means of its participation in joint
ventures. The Company currently owns interests in the nine power plants listed
in the table below (the "Current Projects") with an aggregate nameplate capacity
of approximately 2,918MW.
In June 1997, the Company announced the investment of a total of $98.2 million
in the form of an equity contribution in Yangcheng International Power Company
("Yangcheng Power").
10
<PAGE>
Yangcheng Power, a 20-year cooperative joint venture, was organized to build,
own and operate a 6 x 350MW mine-mouth, coal-fired power plant in the Shanxi
Province. The total investment in Yangcheng Power approved by the State Planning
Council ("SPC") is approximately $1.6 billion. The registered capital approved
by the SPC is 25% of the total investment, or $392.9 million. The respective
ownership interests of the shareholders in Yangcheng Power are as follows: AES
China Corp., a wholly owned subsidiary of the Company (25%); North China
Electric Power (Group) Corporation (25%); Jiangsu Province Investment
Corporation (20%); Shanxi Energy Enterprises (Group) Company (16%); Shanxi
Provincial Power Company (10%); and Jiangsu Provincial Power Company (4%). The
difference of $1.21 billion between the total investment and the total
registered capital of the joint venture is financed by the China Construction
Bank, China State Development Bank, US Export-Import Bank and Kreditanstalt fur
Wiederaufbau (KfW). The project is being constructed over a 60-month period by
the Shanxi Provincial Power Company under a fixed price, fixed-schedule turnkey
contract. The first unit is scheduled to be in operation within 35 months. The
turbines and generators will be provided by Siemens and boilers will be provided
by Foster Wheeler Energy Corporation. Electric power from the plant will be
transmitted over a 730 kilometer transmission line to Jiangsu Power in Jiangsu
Province, on the eastern coast of China.
Projects in Operation or Under Construction
<TABLE>
<CAPTION>
Company Company
Location Capacity Interest Ownership
Joint Venture(s) (Province) (MW) (MW) (%) Fuel Status
<S> <C> <C> <C> <C> <C> <C>
Yangcheng Shanxi 2,100 525 25 Coal Under construction
International (first unit scheduled
Power Company to be in operation by
("Yangcheng Sun second quarter of 2000;
City") last unit scheduled to be in
operation by the second
quarter of 2002)
Jiaozuo Wan Fang Henan 250 175 70 Coal Under construction
Power Company (first unit scheduled to
Ltd. be in operation by the
("Jiaozuo third quarter of 1997:
Aluminum second unit scheduled
Power") to be in operation by the
second quarter of 1998)
Wuhu Shaoda Anhui 250 62.5 25 Coal In operation
Electric Power
Development
Company Ltd.
("Wuhu Grassy Lake")
11
<PAGE>
Anhui Liyuan-AES Anhui 115.2 80.6 70 Oil Under construction
Power Company (simple cycle unit
Ltd. and Hefei scheduled to be in
Zhongli Energy operation by the third
Company Ltd. quarter of 1997;
("Hefei Prosperity combined cycle unit
Lake") scheduled to be in
operation in the second
quarter of 1998)
Wuxi-AES-CAREC Jiangsu 63 34.7 55 Oil In operation
Gas Turbine Power
Company Ltd. and
Wuxi-AES-
Zhonghang Power
Company Ltd.
("Wuxi Tin Hill")
Sichuan Fuling Aixi Sichuan 50 35 70 Coal Under construction
Power Company (scheduled to be in
Ltd. operation in February
("Aixi Heart River") 1998)
Chengdu AES-Kaihua Sichuan 48 16.8 35 Natural In operation
Gas Turbine Power Gas (facility passed its output
Company Ltd. performance test on
("Chengdu Lotus July 4, 1997)
City")
Hunan Xingci-AES Hunan 26.2 13.4 51 Hydro In operation
Hydro Power
Company Ltd.
("Cili Misty Mountain")
Yangchun Fuyang Guangdong 15.1 3.8 25 Oil In operation
Diesel Engine Power
Company Ltd.
("Yangchun Sun
Spring")
------- -------
Total 2,917.5 946.8
========== ========
</TABLE>
The Company is currently pursuing a number of other projects in the PRC (the
"Potential Projects").
The Company and AES entered into an Amended and Restated Agreement and Plan of
Amalgamation, dated as of November 12, 1996, pursuant to which a wholly-owned
subsidiary of AES, AES Acquisition Co. Ltd. ("AES Sub"), would amalgamate (the
"Amalgamation") with and into the Company and each share of the Company's Class
A common stock outstanding prior to the Amalgamation would thereafter represent
the right to receive shares of AES common stock.
12
<PAGE>
The Company's shareholders approved the Amalgamation at a Special Class Meeting
of holders of the Class A common stock and a Special General Meeting of the
shareholders of the Company, both of which were held on April 10, 1997. The
Amalgamation was completed on May 8, 1997 after certain regulatory filings were
made with, and certain approvals were obtained from, Bermuda authorities.
As a result of the Amalgamation, the Company's ability to invest in projects is
substantially limited by covenants contained in various AES debt agreements (the
"AES Debt Covenants"). See "Liquidity and Capital Resources."
In March 1997, the Wuxi Tin Hill joint venture reached agreement with the power
purchaser on the amount of payment for required minimum offtake of electricity
for 1996, which was in dispute. The agreement included the deferral of certain
amounts scheduled to be paid in 1996 and a corresponding adjustment upward of
future scheduled payments of capital return.
On March 17, 1997, the second unit of the Wuhu Grassy Lake 250 MW coal-fired
facility passed its output performance test. During the second quarter of 1997,
approvals for electricity tariff to be paid to the joint venture were obtained.
However, the approved tariff is less than expected, and the joint venture is
negotiating with Anhui Provincial Electric Power, the Operation and Offtake
Contractor, about its operation cost and management fee charged to the joint
venture. Due to the uncertainty related to the operation cost and management
fee, no amount for the Company's equity in the earnings of the Wuhu Grassy Lake
project has been recognized in the statement of operations.
Results of Operations
Revenues
Total revenues increased from approximately $2.4 million to $2.6 million from
the second quarter of 1996 to the second quarter of 1997. The increase was
attributable to the commencement of operation of Unit 3 of the Cili Misty
Mountain facility.
Total revenues increased from approximately $2.9 million to $5.1 million from
the six months ended May 31, 1996 to the six months ended May 31, 1997. The
increase was primarily due to the commencement of operation of the Wuxi Tin Hill
facility and Units 2 and 3 of the Cili Misty Mountain facility.
Cost of Sales
Cost of sales, which include fuel, operations, and maintenance expenses, and
depreciation and amortization, decreased $0.2 million to $1.6 million from the
second quarter of 1996 to the second quarter of 1997. The decrease in cost of
sales was primarily due to the lower operation cost at the Wuxi Tin Hill
facility resulting from minimal operation.
Costs of sales increased from approximately $2.0 million to $3.3 million from
the six months ended May 31, 1996 to the six months ended May 31, 1997. The
increases in costs of sales were primarily due to the commencement of operation
of the Wuxi Tin Hill facility and Units 2 and 3 of the Cili Misty Mountain
facility.
13
<PAGE>
Development, Selling, General and Administrative Expenses
Development, selling, general and administrative expenses increased from
approximately $1.4 million to $1.7 million from the second quarter of 1996 to
the second quarter of 1997. The increase was primarily due to the capitalization
of a lower proportion of development costs.
Development, selling, general and administrative expenses decreased from
approximately $3.4 million to $3.3 million from the six months ended May 31,
1996 to the six months ended May 31, 1997. The decrease was primarily due to the
capitalization of development costs associated with Yangcheng Sun City, which
achieved certain project-related milesstones in the fourth quarter of 1996.
Interest Income
Interest income increased from $1.7 million to $3.4 million from the second
quarter of 1996 to the second quarter of 1997 and increased from $3.7 million to
$6.6 million from the six months ended May 31, 1996 to the six months ended May
31, 1997. The increases were primarily due to the proceeds received from the
Company's public debt offering in December 1996 being available for investment
in marketable securities for the three months and the six months ended May 31,
1997.
Interest Expense
Interest expense increased from $0.3 million to $1.1 million from the second
quarter of 1996 to the second quarter of 1997 and increased from $0.3 million to
$2.3 million from the six months ended May 31, 1996 to the six months ended May
31, 1997. The increases were primarily due to (i) the interest expense
associated with the issuance of the 2006 Notes in December of 1996, offset in
part by capitalization of interest incurred during the development and
construction of the Company's projects, and (ii) an increase in interest on two
minority shareholder loans to Wuxi Tin Hill. Capitalized interest was
approximately $3.9 million for the second quarter of 1997 and $6.9 million for
the six months ended May 31, 1997.
Amalgamation Cost
Amalgamation costs of approximately $0.2 million for the six months ended May
31, 1997 related to expenses incurred in pursuing the Amalgamation.
Liquidity and Capital Resources
The Company's business has required substantial investment associated with the
development, acquisition and construction of electric power plants and related
facilities through its Joint Ventures. Since commencing business, the Company
has entered into commitments to invest a total of approximately $357.8 million
in the form of equity contributions and loans to its Joint Ventures, of which
$203.5 million has been invested as of June 30, 1997. The Company has not yet
funded $154.3 million of its commitments but, as of June 30, 1997, has
approximately $113.2 million available in cash and cash equivalents and
marketable securities for such commitments. The shortfall of $41.1 million may
be made up by loans or equity contributions from AES, but AES is not obligated
to provide any such loan or equity contribution
14
<PAGE>
for such purpose and there are no assurances that AES would decide to provide
any such loan or equity contribution.
As a result of the Amalgamation, the Company is subject to the AES Debt
Covenants, including those contained in the documents governing AES's 10 1/4%
Subordinated Notes due 2006, 9 3/4% Senior Subordinated Notes due 2000 and $425
million credit facility due 1999. The material limitations that are applicable
to the Company pursuant to the AES Debt Covenants include those described below.
Under the AES Debt Covenants, AES may not permit any subsidiary with a direct or
indirect interest in a power generation facility (as defined in the relevant
agreements) to make any investment in, or to consolidate or merge with, any
other entity with a direct or indirect interest in any other power generation
facility or other business.
Under the AES Debt Covenants, as a general matter, after exhaustion of the net
proceeds of AES Chigen's 2006 Notes remaining after the funding of an interim
reserve account and a debt service reserve account, no additional AES Chigen
funds would be available to fund investment in additional power projects or to
fund the capital requirements and construction cost overruns for the Current
Projects. As a consequence, opportunities for investment, along with the
associated risks, that would otherwise be available to the Company may instead
be taken by other investors, including AES. Additional capital requirements for
AES Chigen-invested projects would have to be funded by other parties, including
AES, which would result in a dilution of the Company's interest in any such
project. In addition, due to the application of the AES Debt Covenants, cash
flow generated from projects is not permitted to be invested in any other
project. As a result, to the extent these funds are not required to pay expenses
incurred by the Company, they may accumulate over time. The Company is
permitted, pursuant to the terms of the Indenture under which its 2006 Notes
were issued, to pay a portion of such funds as dividends, provided that the
Company satisfies certain conditions.
Because the AES Debt Covenants are applicable to the Company, after the
Amalgamation investment cannot be made in a project directly by the Company (as
opposed to through one of its subsidiaries). Accordingly, prior to the
Amalgamation, the Company transferred its interests in Yangcheng Sun City to a
wholly owned subsidiary of the Company. In the case of this project, the
approval of the relevant PRC government authority is required to effect the
transfer of the Company's interest. There can be no assurance that such approval
will be obtained.
One of the results of the Amalgamation has been the termination of the
Non-Competition and Non-Disclosure Agreement, dated as of December 29, 1993 and
amended and restated as of February 1, 1994 (the "Non-Competition Agreement")
between the Company and AES, which, among things, prohibited the Company from
developing, constructing, owning, managing and operating electric power
generation projects in any part of Asia other than China. Subject to the
limitations imposed by the AES Debt Covenants, the Company may consider
investing through its subsidiaries in power projects outside of China.
Under the AES Debt Covenants, the Company and its subsidiaries are effectively
prohibited from incurring additional indebtedness (as defined in the relevant
instruments), except that AES Chigen's subsidiaries would under some
circumstances be permitted to incur indebtedness for the purpose of
15
<PAGE>
financing a power project as long as such indebtedness does not have recourse to
AES, the Company or another subsidiary.
Both the AES Debt Covenants and the covenants contained in the Indenture for AES
Chigen's 2006 Notes require the repayment or purchase of indebtedness under
specified circumstances involving asset dispositions. Insofar as separate
repayments are required at the AES and the Company levels with respect to a
single asset sale, this covenant may tend to cause the Company not to make an
asset sale under circumstances where it otherwise would.
Under the AES Debt Covenants, an AES subsidiary is not permitted to make an
investment in a project company following the occurrence of a condition
permitting the acceleration of indebtedness relating to the project or any
failure to pay such indebtedness at its final maturity.
As a result of the Amalgamation, the Company expects to bear the costs of
project development to the extent that the Company plans to invest in a project.
Insofar as the AES Debt Covenants limit the Company's future development
activities and insofar as opportunities for investment, along with the
associated risks, that would otherwise be available to the Company are instead
taken by other investors such as AES or one of its subsidiaries, there may be a
cost saving.
Cash from Operations
Net cash provided by operating activities for the six months ended May 31, 1997
totaled $1.6 million as compared to $2.4 million used in operating activities
for the same period in 1996. The increase in 1997 resulted primarily from an
increase in net income due to the commencement of operations of Wuxi Tin Hill
and interest income from investments in marketable securities and a net increase
in the components of working capital.
Cash from Investing Activities
Net cash used in investing activities totaled $111.9 million during the six
months ended May 31, 1997 as compared to $11.2 million used in investing
activities during the same period of 1996. The 1997 amount primarily reflected
the purchase of property, plant and equipment and other project related
investments of $69.2 million, the purchase of short-term investments (net of any
proceeds from the maturity or sale of short-term investments) of $6.7 million
and the deposit of $36.2 million in debt service reserves.
Cash from Financing Activities
Net cash provided by financing activities during the six months ended May 31,
1997 aggregated $183.0 million as compared to $6.1 million used in financing
activities during the same period of 1996. During the six months ended May 31,
1997, the Company received proceeds, net of underwriting discounts and
commissions and offering costs, of $174.1 million from the issuance of the 2006
Notes, proceeds of $8.8 million from bank loans available to subsidiaries and
$2.4 million of loans and contributions made to subsidiaries by minority
shareholders, which were partially offset by repayment of bank loans of $1.7
million and repayment of $0.8 million of loans from minority shareholders.
16
<PAGE>
PART II - OTHER INFORMATION
Item 2. Changes in Securities.
Each issued and outstanding share of Class A common stock of the Company has
been canceled in consideration of the right to receive 0.29 of a share of common
stock of AES. Each issued and outstanding share of Class B common stock of the
Company has been canceled and ceases to exist, and no consideration has been
delivered in exchange therefor. Each share of the capital stock of AES Sub was
converted into and became one fully paid and nonassessable share of common stock
of the Company after the Amalgamation.
As a result of the Amalgamation, which became effective on May 8, 1997, the
Company's capitalization now consists of 12,000 issued and outstanding shares of
common stock, par value $1.00 per share, all of which is owned by AES. The
Company did not receive any consideration for the cancellation of the Class A
common stock and the Class B common stock, nor for its currently issued and
outstanding common stock. The exemption from registration claimed by the Company
for its common stock is based on Section 4(2) of the Securities Act of 1933, as
amended, which exempts transactions by an issuer, such as the Company, not
involving a public offering. With respect to the Company's common stock, the
Amalgamation was not a transaction involving a public offering because only one
person, AES, was offered and acquired such shares.
Item 4. Submission of Matters to a Vote of Security Holders.
On April 10, 1997, the Company held a special class meeting of the holders of
the Company's Class A common stock and a special general meeting of the
Company's shareholders. Each of these meetings was held to consider and vote
upon the adoption and approval of the Amended and Restated Amalgamation
Agreement, dated as of November 12, 1996, among the Company, AES and AES Sub
(the "Amalgamation Proposal"), pursuant to which the parties agreed to the
Amalgamation.
The vote at each such meeting was as follows:
Special Class Meeting Special General Meeting
of holders of of Shareholders
Class A Common Stock
Votes for: 5,327,176 12,828,526
Vote against: 266,426 265,576
Abstentions: 12,610 12,610
Broker non-votes: 2,151,673 2,151,673
17
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
Number Document
------- --------
3.1 Memorandum of Diminution of Authorised Share Capital.
27 Financial Data Schedule.
99.1 Statement Re: Computation of Fixed Charge Coverage Ratio.
(b) Reports on Form 8-K
Two reports on Form 8-K have been filed during the quarter
for which this report on Form 10-Q is filed.
1. April 8, 1997. Items 5 and 7 were reported (including
Consolidated Statements of Operations for the three
months ended February 28, 1997 and February 29, 1996
and Consolidated Balance Sheets as of February 28, 1997
and November 30, 1996).
2. May 22, 1997. Items 1 and 7 were reported.
18
<PAGE>
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 China Generating Co. Ltd.
(Registrant)
Date: July 15, 1997 /s/ Jeffery A. Safford
----------------------
Jeffery A. Safford
Vice President,
Chief Financial Officer and Secretary
19
Exhibit 3.1
BERMUDA
THE COMPANIES ACT 1981
MEMORANDUM OF DIMINUTION OF AUTHORISED
SHARE CAPITAL
AES China Generating Co. Ltd.
(hereinafter referred to as "the Company")
DEPOSITED in the office of the Registrar of Companies on the day of 1997 in
accordance with the provisions of section 45(1)(f) and 45(3) of Companies Act
1981.
Minimum Share Capital of the Company $12,000
Authorised Share Capital of the Company $12,000
Issued Share Capital of the Company as last $1,000,000
previously determined
Amount by which the authorised share capital is to $988,000
be diminished as authorised by a written resolution
of the sole shareholder of the Company
----------------------
AUTHORISED SHARE CAPITAL AFTER DIMINUTION $12,000
----------------------
/s/Dennis W. Bakke
- ---------------------
Director
DATED THIS 10th day of April, 1997.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED
MAY 31, 1997 AND THE CONSOLIDATED BALANCE SHEET AS OF MAY 31, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> MAY-31-1997
<CASH> 146,976
<SECURITIES> 16,743
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,020
<CURRENT-ASSETS> 172,975
<PP&E> 241,624
<DEPRECIATION> 4,925
<TOTAL-ASSETS> 490,779
<CURRENT-LIABILITIES> 31,967
<BONDS> 221,984
0
0
<COMMON> 12
<OTHER-SE> 193,529
<TOTAL-LIABILITY-AND-EQUITY> 490,779
<SALES> 0
<TOTAL-REVENUES> 2,566
<CGS> 0
<TOTAL-COSTS> 1,564
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,082
<INCOME-PRETAX> 1,653
<INCOME-TAX> 32
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,753
<EPS-PRIMARY> 146.08
<EPS-DILUTED> 146.08
</TABLE>
Exhibit 99.1
AES CHINA GENERATING CO. LTD.
STATEMENT RE: COMPUTATION OF FIXED CHARGE COVERAGE RATIO
(in thousands, except ratio amounts)
<TABLE>
<CAPTION>
Six months ended May 31,
1997 1996
-----------------------------------------------
<S> <C> <C>
Adjusted Cash Flow
(A) Cash Inflow:
(i) Dividend, distribution, payment of interest and
scheduled repayment of loan received by the Company
and its Wholly Owned Subsidiaries from the Project
Companies $ 2,297 $ 447
(ii) 50% of the combined interest income of the Company,
and its Wholly Owned Subsidiaries from cash, cash
equivalents and investments in marketable securities 2,166 1,741
--------------------- ----------------------
4,463 2,188
--------------------- ----------------------
(B) Cash Outflow:
(i) Selling, general and administrative expenses of the
Company and its Wholly Owned Subsidiaries 1,443 993
(ii) Company Designated Costs 854 4,862
--------------------- ----------------------
2,297 5,855
--------------------- ----------------------
$ 2,166 $ (3,667)
===================== ======================
Adjusted Interest Expenses $ 8,563 $ --
===================== ======================
Fixed Charge Coverage Ratio 0.25: 1.0 --
===================== ======================
</TABLE>
