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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
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SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
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SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-19281
THE AES CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 54-1163725
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1001 NORTH 19TH STREET, ARLINGTON, VIRGINIA 22209
(Address of Principal Executive Offices) (Zip Code)
(703) 522-1315
(Registrant's Telephone Number, Including Area Code)
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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
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The number of shares outstanding of Registrant's Common Stock, par
value $0.01 per share, at April 30, 1998, was 175,492,530.
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THE AES CORPORATION
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Interim Financial Statements:
Consolidated Statements of Operations 1
Consolidated Balance Sheets 2
Consolidated Statements of Cash Flow 4
Notes to Consolidated Financial Statements 5
Item 2. Discussion and Analysis of Financial Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 16
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
THE AES CORPORATION
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CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED MARCH 31, 1997 AND 1998
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(UNAUDITED) THREE THREE
MONTHS MONTHS
ENDED ENDED
3/31/97 3/31/98
- ------------------------------------------------------------------------------------------------------------
($ in millions, except per share amounts)
REVENUES:
Sales and services $ 261 $ 575
OPERATING COSTS AND EXPENSES:
Cost of sales and services 167 397
Selling, general and administrative expenses 9 15
Provision to reduce contract receivables 7 15
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TOTAL OPERATING COSTS AND EXPENSES 183 427
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OPERATING INCOME 78 148
OTHER INCOME AND (EXPENSE):
Interest expense (44) (101)
Interest income 8 14
Foreign currency exchange loss -- (2)
Equity in earnings (before income tax) 19 57
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INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 61 116
Income taxes 19 33
Minority interest 2 18
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NET INCOME $ 40 $ 65
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BASIC EARNINGS PER SHARE: $ 0.26 $ 0.37
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DILUTED EARNINGS PER SHARE: $ 0.25 $ 0.37
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See Notes to Consolidated Financial Statements
1
THE AES CORPORATION
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CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND MARCH 31, 1998
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(UNAUDITED)
12/31/97 3/31/98
- --------------------------------------------------------------------------------------------------------------------
($ in millions)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 302 $ 317
Short-term investments 127 99
Accounts receivable, less provision to reduce
contract receivables (1997-$37 and 1998-$52) 323 365
Inventory 95 95
Asset held for sale 139 -
Receivable from affiliates 23 16
Deferred income taxes 47 37
Prepaid expenses and other current assets 134 131
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TOTAL CURRENT ASSETS 1,190 1,060
PROPERTY, PLANT AND EQUIPMENT:
Land 29 37
Electric generation and distribution assets 3,809 4,120
Accumulated depreciation and amortization (373) (410)
Construction in progress 684 549
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PROPERTY, PLANT AND EQUIPMENT, NET 4,149 4,296
OTHER ASSETS:
Deferred financing costs, net 122 120
Project development costs 87 92
Investments in and advances to affiliates 1,863 1,942
Debt service reserves and other deposits 236 180
Electricity sales concessions and contracts 1,179 1,189
Goodwill 23 22
Other assets 60 94
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TOTAL OTHER ASSETS 3,570 3,639
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TOTAL $ 8,909 $ 8,995
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See Notes to Consolidated Financial Statements
2
THE AES CORPORATION
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CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND MARCH 31, 1998
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(UNAUDITED)
12/31/97 3/31/98
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($ in millions)
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 205 $ 187
Accrued interest 68 72
Accrued and other liabilities 335 292
Other notes payable - current portion - 23
Project financing debt - current portion 596 177
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TOTAL CURRENT LIABILITIES 1,204 751
LONG-TERM LIABILITIES:
Project financing debt 3,489 3,607
Revolving bank loan 27 225
Other notes payable 1,069 1,077
Deferred income taxes 273 351
Other long-term liabilities 291 268
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TOTAL LONG-TERM LIABILITIES 5,149 5,528
MINORITY INTEREST 525 653
COMPANY-OBLIGATED MANDATORILY REDEEMABLE
PREFERRED SECURITIES OF SUBSIDIARY TRUSTS HOLDING
SOLELY JUNIOR SUBORDINATED DEBENTURES OF AES 550 550
STOCKHOLDERS' EQUITY:
Common stock 2 2
Additional paid-in capital 1,030 1,037
Retained earnings 581 646
Cumulative foreign currency translation adjustment (131) (171)
Less treasury stock at cost (1) (1)
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TOTAL STOCKHOLDERS' EQUITY 1,481 1,513
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TOTAL $ 8,909 $ 8,995
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See Notes to Consolidated Financial Statements
3
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998
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(UNAUDITED) Three Three
Months Months
Ended Ended
3/31/97 3/31/98
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($ in millions)
OPERATING ACTIVITIES:
Net Income $ 40 $ 65
Adjustments to net income:
Depreciation and amortization 15 45
Provision for deferred taxes 5 20
Undistributed earnings of affiliates (16) (48)
Other (12) 15
Change in working capital (22) (89)
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Net cash provided by operating activities 10 8
INVESTING ACTIVITIES:
Property additions (97) (156)
Acquisitions, net of cash acquired -- (76)
Proceeds from the sales of equity investments -- 254
Sale/(purchase) of short-term investments (6) 28
Affiliate advances and equity investments (90) (1)
Project development costs (6) (5)
Debt service reserves and other assets (39) 56
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Net cash provided by (used in) investing activities (238) 100
FINANCING ACTIVITIES:
Borrowings/(repayments) under the revolver (213) 221
Issuance of project financing debt and other
coupon bearing securities 540 140
Repayments of project financing debt and other
coupon bearing securities (12) (441)
Payments for deferred financing costs -- (5)
Other liabilities -- (15)
Contributions by minority interests 2 --
Sale of common stock 149 7
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Net cash provided by (used in) financing activities 466 (93)
Increase in cash and cash equivalents 238 15
Cash and cash equivalents, beginning 185 302
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Cash and cash equivalents, ending $ 423 $ 317
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Supplemental interest and income taxes disclosures:
Cash payments for interest $ 38 $ 97
Cash payments for income taxes 11 13
See Notes to Consolidated Financial Statements
4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
The consolidated financial statements include the accounts of The AES
Corporation, its subsidiaries and controlled affiliates (the "Company" or
"AES"). Intercompany transactions and balances have been eliminated. 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.
In the Company's opinion, all adjustments necessary for a fair
presentation of the unaudited results of operations for the three months ended
March 31, 1997 and 1998, respectively, are included. All such adjustments are
accruals of a normal and recurring nature. The results of operations for the
period ended March 31, 1998 are not necessarily indicative of the results of
operations to be expected for the full year. The financial statements are
unaudited and should be read in conjunction with the financial statements which
are incorporated herein by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997.
2. Net Income Per Share
Basic and diluted net income per share computations are based on the
weighted average number of shares of common stock and potential common stock
outstanding during the period, after giving effect to stock splits. Potential
common stock, for purposes of determining diluted earnings per share, includes
the dilutive effects of stock options, warrants, deferred compensation
arrangements and convertible securities.
The effect of such potential common stock is computed using the
treasury stock method or the if-converted method, in accordance with SFAS
(Statement of Financial Accounting Standards) No. 128, Earnings Per Share.
Comparative earnings per share data have been restated for prior periods. The
number of shares used in computing basic earnings per share were 155.5 million
and 175.1 million for the quarters ended March 31, 1997 and 1998, respectively.
The number of shares used in computing diluted earnings per share were 159.6 and
186.3 for the quarters ended March 31, 1997 and 1998, respectively.
3. Inventory
Inventory, valued at the lower of cost (principally first in, first out
method) or market, consists of coal, raw materials, spare parts, and supplies.
Inventory at December 31, 1997 and March 31, 1998 consisted of the following (in
millions):
1997 1998
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Coal, oil and other raw materials $ 58 $ 57
Spare parts, materials and supplies 37 38
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Total $ 95 $ 95
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5
4. Investments in and Advances to Affiliates
The following table presents summarized financial information (in
millions) for equity method affiliates on a combined 100% basis. Amounts
presented include condensed income statement information of NIGEN Ltd. (a 47%
owned UK affiliate), Medway Power Ltd. (a 25% owned UK affiliate) and Light (a
13.75% owned Brazilian affiliate) for the three months ended March 31, 1997 and
condensed income statement information of NIGEN Ltd., Medway Power Ltd., Light,
CEMIG (a 9.45% owned Brazilian affiliate), and Kingston (a 50% owned Canadian
affiliate) for the three months ended March 31, 1998.
3/31/97 3/31/98
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Revenues $313 $1,200
Operating Income 93 358
Net Income 41 274
5. Litigation
The Company is involved in certain legal proceedings in the normal
course of business. It is the opinion of the Company that none of the pending
litigation is expected to have a material adverse effect on its results of
operations or financial position.
6. Acquisitions
In February 1998, the Company acquired approximately 80% of Compania de
Luz Electrica de Santa Ana ("CLESA") , an electricity distribution company in El
Salvador, for approximately $96 million. The acquisition was accounted for as a
purchase. The purchase price allocation has been prepared on a preliminary basis
subject to adjustments resulting from additional facts that may come to light
when the engineering, environmental, and legal analysis are completed during the
allocation period.
Subsequent to the first quarter of 1997, the Company completed its
acquisitions of EDEN and EDES (May 1997), Los Mina and Indian Queens (June
1997), and Sul and Altai (October 1997) and its equity investments in Kingston
and CEMIG (June 1997), all of which were accounted for as purchases.
The accompanying statements of operations include the operating results
and equity earnings for all of the acquired companies from the dates of the
acquisitions and investments. The following table presents supplemental
unaudited pro forma operating information as if each of the acquisitions and
investments had occurred at the beginning of the periods presented (in millions,
except per share amounts):
Quarter Quarter
Ended Ended
3/31/97 3/31/98
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Revenues $458 $581
Net Income 24 65
Basic Earnings Per Share 0.14 0.37
Diluted Earnings Per Share 0.14 0.37
6
7. Comprehensive Income
The Company has adopted SFAS No. 130, Reporting Comprehensive Income.
The components of other comprehensive income include $19 million and $40 million
of foreign currency translation adjustment losses for the quarters ended March
31, 1997 and 1998, respectively. Comprehensive income is $21 million and $25
million for the quarters ended March 31, 1997 and 1998, respectively.
8. Subsequent Events
In May 1998, Energia Global International, Ltd. purchased 20% of AES's
interest in CLESA from AES for approximately $8 million under an option
agreement negotiated during the Company's February 1998 acquisition of
approximately 80% of CLESA.
ITEM 2. DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
INTRODUCTION
The AES Corporation and its subsidiaries and affiliates (collectively
"AES" or the "Company") are helping to meet the world's needs by providing
electricity to customers in many countries in a socially responsible way.
Until recently, the Company's sales of electricity were made almost
exclusively to customers (generally electric utilities or regional electric
companies) on a wholesale basis for further resale to end users. This is often
referred to as the electricity "generating" business. Sales by these generating
companies are usually made under long-term contracts from power plants owned by
the Company. The Company's ownership portfolio of power facilities includes new
plants constructed for such purposes ("greenfield" plants) as well as existing
power plants acquired through competitively bid privatization initiatives and
negotiated acquisitions.
AES now operates and owns (entirely or in part) a diverse portfolio of
electric power plants (including those within the integrated distribution
companies discussed below) with a total capacity of 17,681 megawatts ("MW"). Of
the total, 1,069 MW (six plants) are located in the United States, 1,588 MW
(four plants) are in the United Kingdom, 885 MW (six plants) are in Argentina,
603 MW (seven plants) are in China, 1,281 MW (three pants) are in Hungary, 5,856
MW (thirty-nine plants) are in Brazil, 5,384 MW (seven plants) are in Kazakhstan
(including 4,000 MW attributable to Ekibastuz which currently has a capacity
factor of approximately 20%), 210 MW (one plant) are in the Dominican Republic,
110 MW (one plant) are in Canada, and 695 MW (two plants) are in Pakistan.
AES also is currently in the process of adding approximately 5,931 MW
to its operating portfolio by constructing several new plants. These include a
180 MW coal-fired plant in the United States, four coal-fired plants in China
totaling 2,314 MW, one natural gas-fired and two hydro plants in Brazil totaling
1,200 MW, a 230 MW natural gas-fired plant in the United Kingdom, a 405 MW
natural gas-fired plant in the Netherlands, a 288 MW kerosene-fired plant in
Australia, an 830 MW natural gas-fired plant in Argentina and a 484 MW natural
gas-fired plant in Mexico.
7
As a result, AES's total of 87 power plants in operation or under
construction approximates 23,612 MW, and net equity ownership (total MW adjusted
for the Company's ownership percentage) represents approximately 12,333 MW.
Beginning in 1996, AES has also acquired interests (both majority and
minority) in companies that sell electricity directly to commercial, industrial,
governmental and residential customers. This is often referred to as the
electricity "distribution" business. Electricity sales by AES's distribution
businesses are generally made pursuant to the provisions of long-term
electricity sale concessions granted by the appropriate governmental authority
as part of the original privatization of each distribution company. In certain
cases, these distribution companies are "integrated", in that they also own
electric power plants for the purpose of generating a portion of the electricity
they sell. Each distribution company also purchases, in varying proportions,
electricity from third party wholesale suppliers, including in certain cases,
other subsidiaries of the Company.
AES has majority ownership in two distribution companies in Argentina,
one in Brazil and one in El Salvador, and less than majority ownership in three
additional distribution companies in Brazil (including Metropolitana which was
acquired by Light in April 1998). These seven companies serve a total of
approximately 12.5 million customers with sales exceeding 98,000 gigawatt hours.
On a net equity basis, AES's ownership represents approximately 2.4 million
customers and sales exceeding 19,000 gigawatt hours.
AES does not limit its investments solely to the most developed
countries or economies, or only to those countries with investment grade
sovereign credit ratings. In certain locations, particularly developing
countries or countries that are in a transition from centrally planned to market
oriented economies, the electricity purchasers, both wholesale and retail, may
experience difficulty in meeting contractual payment obligations, and in such
situations, that customer may be subject to contractually imposed interest or
penalty charges. The prolonged failure of any of the Company's significant
customers to fulfill its contractual payment obligations could have a
substantial negative impact on AES's results of operations.
Beginning in August 1996 and continuing through March 31, 1998, AES has
recorded a provision of $35 million associated with aggregate outstanding
receivables (excluding VAT) of $62 million at March 31, 1998 related to the
operations of the Ekibastuz power plant in Kazakhstan. Approximately $35 million
of the aggregate balance (excluding VAT), before considering the provision, is
due from a government-owned distribution company. There can be no assurance of
the ultimate collectibility of these amounts owned to Ekibastuz, or as a result,
the recoverability of the related net assets (totaling $66 million at March 31,
1998) or additional amounts the Company may invest.
As of May 15, 1998, the Pakistani Ministry of Water and Power
("WAPDA"), the Company's customer at its Lal Pir and Pak Gen plants, is late on
making certain contractually obligated payments and is incurring additional
interest charges as a result. Such late payments will become an event of default
under the applicable power purchase agreement if not cured by WAPDA within the
appropriate period of time. The Company believes that it is entitled to full
payment under each contract.
Certain subsidiaries and affiliates of the Company (domestic and
non-U.S.) have signed long-term contracts or similar arrangements for the sale
of electricity and are in various stages of developing the related greenfield
power plants. There exist substantial risks to their successful completion,
including, but not limited to, those relating to failures of siting, financing,
construction, permitting, governmental approvals or termination of the power
sales contract as a result of a failure to meet milestones. As of March 31,
1998, capitalized costs for projects under development were approximately $92
million. The Company believes that these costs are recoverable, however, no
assurance can be given that changes in circumstances related to individual
development projects will not occur or that any of these projects will be
completed and reach commercial operation.
The Company wishes to caution readers that there are important factors
and areas affecting the Company which involve risk and uncertainty. These
factors are set forth in the Company's Annual Report on Form 10-K filed with the
Commission for the year ended December 31, 1997 under the heading "Cautionary
Statement and Risk Factors", and should be considered when reviewing the
Company's business. Such factors are relied upon by AES in issuing any
forward-looking statements and could affect AES's actual results and cause such
results to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, AES. Some or all of these factors may apply
to the Company's businesses as currently maintained or to be maintained.
ACQUISITIONS AND OTHER EVENTS
In February 1998, the Company acquired approximately 80% of the
outstanding shares of Compania de Luz Electrica de Santa Ana ("CLESA"), an
electricity distribution company in El Salvador, for a purchase price of
approximately $96 million. The shares were purchased from Comision Ejecutiva
Hidroelectrica del Rio Lempa ("CEL"), a government-owned utility company, in an
auction held in January 1998. In May 1998, Energia Global International, Ltd.
purchased 20% of AES's interest in CLESA from AES for approximately $8 million,
under an option agreement negotiated during the acquisition. CLESA serves
188,000 customers and borders Guatemala and Honduras to the north. CLESA
purchases its electricity in the local spot market and from CEL under an annual
contract.
Also in February, the Company sold its 20% interest in Hazelwood Power
Partners to National Power PLC for approximately $139 million. Hazelwood Power
Partners operates a 1,600 MW coal-fired power plant in Victoria, Australia
("Hazelwood"). AES had acquired its interest in Hazelwood as part of its
acquisition of the international businesses of Destec Energy, Inc. in June 1997.
In January 1998, the Company announced that it was selected by the
Government of Bangladesh's Ministry of Energy and Mineral Resources as the
winning bidder to build, own and
8
operate a 360 MW (net) gas-fired combined cycle power plant at a site near
Dhaka, Bangladesh ("Haripur"). Haripur is expected to commence commercial
operations in the year 2000, and electricity will be sold to the Bangladesh
Power Development Board under the terms of a 22-year power purchase agreement
which is expected to be signed following the formal award.
In January 1998 the Company, pursuant to an option agreement with one
of its partners in CEMIG, sold approximately 28% of its 13.06% ownership
interest in CEMIG for $115 million, approximating its carrying value. As a
result of the sale, the Company's ownership percentage decreased to
approximately 10%. The Company continues to exert significant influence, as its
voting interests remain unchanged.
In November 1997, AES won a bid to acquire three natural gas-fired,
electric generating stations from Southern California Edison ("Edison") for
approximately $781 million. The three plants, all located on the southern
California coast, are Alamitos (2,083 MW), Redondo Beach (1,310 MW) and
Huntington Beach (563 MW). Each of the plants has been designated a "must-run
facility" and initially will operate in part under agreements with California's
Independent System Operator that was established through electricity
restructuring. Pursuant to California's electricity restructuring law, Edison
will remain under contract to operate and maintain the facilities for two years.
Completion of the acquisition is subject to a number of conditions, but is
expected to occur during the second quarter of 1998.
FIRST QUARTER 1998 AND 1997 RESULTS OF OPERATIONS
Revenues increased 120%, or approximately $314 million, to $575 million
from the first quarter of 1997 to the first quarter of 1998. The increase in
revenues was due primarily to the acquisition of EDEN and EDES in May 1997,
Altai and Sul in October 1997, and the commencement of commercial operations at
Lal Pir in November 1997 and Pak Gen in February 1998. Cost of sales and
services increased 138%, or approximately $230 million, to $397 million from the
first quarter of 1997 to the first quarter of 1998. The increase in cost of
sales and services was primarily due to the acquisitions of EDEN, EDES, Sul and
Altai, and the start of commercial operations at Lal Pir and Pak Gen. Gross
margin, which represents total revenues reduced by cost of sales and services
(before consideration of the provision to reduce contract receivables),
increased 89%, or approximately $84 million, to $178 million during the same
period. The increase in gross margin was primarily due to the acquisitions and
commencement of commercial operations as discussed above. Gross margin as a
percentage of revenues (net of the provision to reduce contract receivables)
decreased from 33% in the first quarter of 1997 to 28% in the first quarter of
1998. The decrease was primarily due to lower relative gross margin percentages
of recently acquired businesses including EDEN, EDES, Sul and Altai.
Selling, general and administrative expenses increased 67%, or
approximately $6 million to $15 million from the first quarter of 1997 to the
first quarter of 1998, and as a percentage of total revenue, were 3% for both
quarters. The increase was primarily due to increased business development
activities. The Company's selling, general and administrative costs do not
necessarily vary with changes in revenues.
Operating income increased 90%, or approximately $70 million, to $148
million from the first quarter of 1997 to the first quarter of 1998. The
increase was the result of the factors discussed above.
Interest expense increased 130%, or approximately $57 million, to $101
million from the first quarter of 1997 to the first quarter of 1998. The
increase resulted from the additional interest expense associated with the
senior subordinated notes, the TECONS and project financing debt issued in 1997
relating to the acquisitions during the year, offset slightly by declining
balances of project financing
9
debt of existing projects and the retirement of the $75 million, 9.75% Senior
Subordinated Notes in July 1997.
Interest income increased 75%, or approximately $6 million, to $14
million from the first quarter of 1997 to the first quarter of 1998. The
increase was due primarily to interest income associated with late payments on
customer accounts at certain distribution subsidiaries, interest income on
higher cash balances at other subsidiaries, and interest on debt service reserve
accounts.
Equity in earnings of affiliates (before income taxes) increased 200%,
or approximately $38 million, to $57 million from the first quarter of 1997 to
the same period of 1998. The increase was due primarily to earnings from the
Company's investment in CEMIG in June 1997.
Income taxes increased 74%, or approximately $14 million, to $33
million from the first quarter of 1997 to the first quarter of 1998. The
increase for the quarter was due primarily to higher income before taxes and an
increase in the tax rate from 32% to 34% from the first quarter of 1997 to the
first quarter of 1998.
FINANCIAL POSITION, CASH FLOWS AND FOREIGN CURRENCY EXCHANGE RATES
At March 31, 1998, cash and cash equivalents totaled approximately $317
million, as compared to $302 million at December 31, 1997. The $15 million
increase in cash resulted from a use of $93 million for financing activities
which were funded by $100 million from investing activities and $8 million
provided by operating activities. Significant investing activities included
project construction at Barry, Mt. Stuart, Pak Gen and Warrior Run, the
acquisition of CLESA, and proceeds from the sales of the Company's 20% interest
in Hazelwood and a portion of the Company's CEMIG investment. The net use of
cash from financing activities was primarily the result of repayments of $441
million of project financing debt offset by borrowings of $221 million under the
Revolver, and borrowing $140 million of project financing debt. Unrestricted net
cash flow of the parent company totaled approximately $260 million for the four
quarters ended March 31, 1998.
The increase in electric generation and distribution assets of $311
million to $4,120 million from December 31, 1997 to March 31, 1998 was due
primarily to the acquisition of CLESA and Pak Gen's commencement of operations.
The decrease in construction in progress of $135 million to $549 million was due
to construction completion at Pak Gen offset by the progress payments at the
other facilities in construction. The decrease in the current portion of project
financing debt of $419 million, to $177 million from December 31, 1997 to March
31, 1998 was primarily due to the repayment of the bridge loans associated with
the acquisitions of CEMIG, EDEN and EDES with the proceeds from the sale of the
Hazelwood interest and a portion of the Company's equity investment in CEMIG and
borrowings under the Revolver.
Through its equity investments in foreign affiliates and subsidiaries,
AES operates in jurisdictions with currencies other than the Company's
functional currency, the U.S. dollar. Such investments and advances were made to
fund equity requirements and to provide collateral for contingent obligations.
Due primarily to the long-term nature of the investments and advances, the
Company accounts for any adjustments resulting from translation of the financial
statements of its foreign investments as a charge or credit directly to a
separate component of stockholders' equity until such time as the Company
realizes such charge or credit. At that time, any differences would be
recognized in the statement of operations as gains or losses.
10
In addition, certain of the Company's foreign subsidiaries have entered
into obligations in currencies other than their own functional currencies or the
U.S. dollar. These subsidiaries have attempted to limit potential foreign
exchange exposure by entering into revenue contracts that adjust to changes in
the foreign exchange rates. Certain foreign affiliates and subsidiaries operate
in countries where the local inflation rates are greater than U.S. inflation
rates. In such cases the foreign currency tends to devalue relative to the U.S.
dollar over time. The Company's subsidiaries and affiliates have entered into
revenue contracts which attempt to adjust for these differences, however, there
can be no assurance that such adjustments will compensate for the full effect of
currency devaluation, if any. The Company had approximately $171 million in
cumulative foreign currency translation adjustment losses at March 31, 1998.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The company believes that there have been no material changes in
exposure to market risks during the first quarter of 1998 set forth in the
Company's Annual Report filed with the Commission on Form 10-K for the year
ended December 31, 1997.
11
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in certain legal proceedings in the normal
course of business. It is the opinion of the Company that none of the pending
litigation is expected to have a material adverse effect on its results of
operations or financial position.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
In April 1998, a subsidiary of the Company signed a 40-year concession
agreement for its 230 MW Caracoles project and took over the operation of
Quebrada de Ullum, an existing 45 MW hydroelectric plant. The Caracoles project
is located in San Juan Province, Argentina on the San Juan River where AES
already owns and operates the Ullum 45 MW hydroelectric facility. The project is
a mixed hydroelectric/irrigation system that, when completed, will consist of
the existing Quebrada de Ullum plant and two newly constructed dams and their
associated facilities. The Province of San Juan, with credit support from the
Republic of Argentina, is providing the funds for the irrigation portion of the
project.
Also in April 1998, Light (a 14% owned affiliate of the Company)
purchased a majority and controlling interest in the Sao Paulo, Brazil
electricity distribution company Metropolitana. Metropolitana serves
approximately 4.3 million customers with sales exceeding 34,000 gigawatt hours.
As a member of the Light Consortium, AES has the ability to exercise significant
influence in Metropolitana.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
3.1 Amended and Restated Certificate of Incorporation of The AES
Corporation is incorporated herein by reference to Exhibits 3.1
and 3.2 to the Registration Statement on Form S-8 (Registration
No. 333-26225).
3.2 By-Laws of The AES Corporation, as amended, are incorporated
herein by reference to Exhibit 3.2 of the Registration Statement
on Form S-4 (Registration No. 333-22513).
4.1 Amended and Restated Declaration of Trust of AES Trust I, among
The AES Corporation, The First National Bank of Chicago and First
Chicago Delaware, Inc., to
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provide for the issuance of the $2.6875 Term Convertible
Securities, Series A is incorporated herein by reference to
Exhibit 4.1 to Annual Report on Form 10-K of the Registrant for
the year ended December 31, 1997 filed March 30, 1998.
4.2 Junior Subordinated Indenture, between The AES Corporation and
The First National Bank of Chicago, to provide for the issuance
of the $2.6875 Term Convertible Securities, Series A is
incorporated herein by reference to Exhibit 4.1 to Annual Report
on Form 10-K of the Registrant for the year ended December 31,
1997 filed March 30, 1998.
4.3 First Supplemental Indenture to Junior Subordinated Indenture,
between The AES Corporation and The First National Bank of
Chicago, as trustee, to provide for the issuance of the $2.6875
Term Convertible Securities, Series A is incorporated herein by
reference to Exhibit 4.1 to Annual Report on Form 10-K of the
Registrant for the year ended December 31, 1997 filed March 30,
1998.
4.4 Guarantee Agreement, between The AES Corporation and The First
National Bank of Chicago, as initial guarantee trustee, to
provide for the issuance of the $2.6875 Term Convertible
Securities, Series A is incorporated herein by reference to
Exhibit 4.1 to Annual Report on Form 10-K of the Registrant for
the year ended December 31, 1997 filed March 30, 1998.
4.5 Second Supplemental Indenture dated as of October 13, 1997
between the Company and the First National Bank of Chicago, as
trustee, to provide for the issuance from time to time of the
10.25% Senior Subordinated Notes Due 2006, is incorporated herein
by reference to Exhibit 4.2.1 of the Registration Statement on
Form S-3/A (Registration No. 333-39857) filed November 19, 1997.
4.6 Indenture dated as of October 29, 1997 between The AES
Corporation and The First National Bank of Chicago, as trustee,
to provide for the issuance from time to time of the 8.50% Senior
Subordinated Notes due 2007 of the Company and the 8.875% Senior
Subordinated Debentures due 2027, is incorporated herein by
reference to Exhibit 4.1 to the Registration Statement on Form
S-4 (Registration No. 333-44845) filed January 23, 1998.
4.7 First Supplemental Indenture dated as of November 21, 1997
between The AES Corporation and The First National Bank of
Chicago, as trustee, to provide for the issuance from time to
time of the 8.50% Senior Subordinated Notes due 2007 of the
Company and the 8.875% Senior Subordinated Debentures due 2027,
is incorporated herein by reference to Exhibit 4.1.2 to the
Registration Statement on Form S-4 (Registration No. 333-44845)
filed January 23, 1998.
4.8 Junior Subordinated Debt Trust Securities Indenture dated as of
March 1, 1997 between the Company and The First National Bank of
Chicago, to provide for the issuance of the $2.75 Term
Convertible Securities, Series B, is incorporated herein by
reference to Exhibit 4.1 to the Registration Statement on Form
S-3 (Registration No. 333-46189) filed February 12, 1998.
4.9 Second Supplemental Indenture dated as of October 29, 1997
between the Company and The First National Bank of Chicago, to
provide for the issuance of the $2.75 Term Convertible
Securities, Series B, is incorporated herein by reference to
Exhibit 4.1.1 to the Registration Statement on Form S-3
(Registration No. 333-46189) filed February 12, 1998.
4.10 Amended and Restated Declaration of Trust of AES Trust II, to
provide for the issuance of the $2.75 Term Convertible
Securities, Series B, is incorporated herein by reference to
Exhibit 4.3 to the Registration Statement on Form S-3
(Registration No. 333-46189) filed February 12, 1998.
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4.11 Restated Certificate of Trust of AES Trust II, to provide for
the issuance of the $2.75 Term Convertible Securities, Series B,
is incorporated herein by reference to Exhibit 4.4 to the
Registration Statement on Form S-3 (Registration No. 333-46189)
filed February 12, 1998.
4.12 Form of Preferred Security, to provide for the issuance of the
$2.75 Term Convertible Securities, Series B, is incorporated
herein by reference to Exhibit 4.5 to the Registration Statement
on Form S-3 (Registration No. 333-46189) filed February 12,
1998.
4.13 Form of Junior Subordinated Debt Trust Security, to provide for
the issuance of the $2.75 Term Convertible Securities, Series B,
is incorporated herein by reference to Exhibit 4.6 to the
Registration Statement on Form S-3 (Registration No. 333-46189)
filed February 12, 1998.
4.14 Preferred Securities Guarantee with respect to Preferred
Securities, to provide for the issuance of the $2.75 Term
Convertible Securities, Series B, is incorporated herein by
reference to Exhibit 4.7 to the Registration Statement on Form
S-3 (Registration No. 333-46189) filed February 12, 1998.
4.15 Other instruments defining the rights of holders of long-term
indebtedness of the Registrant and its consolidated
subsidiaries.
10.1 Amended Power Sales Agreement, dated as of December 10, 1985,
between Oklahoma Gas and Electric Company and AES Shady Point,
Inc. is incorporated herein by reference to Exhibit 10.5 to the
Registration Statement on Form S-1 (Registration No. 33-40483).
10.2 First Amendment to the Amended Power Sales Agreement, dated as
of December 19, 1985, between Oklahoma Gas and Electric Company
and AES Shady Point, Inc. is incorporated herein by reference to
Exhibit 10.45 to the Registration Statement on Form S-1
(Registration No. 33-46011).
10.3 Electricity Purchase Agreement, dated as of December 6, 1985,
between The Connecticut Light and Power Company and AES Thames,
Inc. is incorporated herein by reference to Exhibit 10.4 to the
Registration Statement on Form S-1 (Registration No. 33-40483).
10.4 Power Purchase Agreement, dated March 25, 1988, between AES
Barbers Point, Inc. and Hawaiian Electric Company, Inc., as
amended, is incorporated herein by reference to Exhibit 10.6 to
the Registration Statement on Form S-1 (Registration No.
33-40483).
10.5 The AES Corporation Profit Sharing and Stock Ownership Plan is
incorporated herein by reference to Exhibit 4(c)(1) to the
Registration Statement on Form S-8 (Registration No. 33-49262).
10.6 The AES Corporation Incentive Stock Option Plan of 1991, as
amended, is incorporated herein by reference to Exhibit 10.30 to
the Annual Report on Form 10-K of the Registrant for the fiscal
year ended December 31, 1995.
10.7 Applied Energy Services, Inc. Incentive Stock Option Plan of
1982 is incorporated herein by reference to Exhibit 10.31 to the
Registration Statement on Form S-1 (Registration No. 33-40483).
10.8 Deferred Compensation Plan for Executive Officers, as amended,
is incorporated herein by reference to Exhibit 10.32 to
Amendment No. 1 to the Registration Statement on Form S-1
(Registration No. 33-40483).
10.9 Deferred Compensation Plan for Directors.
10.10 The AES Corporation Stock Option Plan for Outside Directors is
incorporated herein by reference to Exhibit 10.43 to the Annual
Report on Form 10-K of Registrant for the Fiscal Year ended
December 31, 1991.
14
10.11 The AES Corporation Supplemental Retirement Plan is incorporated
herein by reference to Exhibit 10.64 to the Annual Report on
Form 10-K of the Registrant for the year ended December 31,
1994.
11 Statement of Computation of Earnings Per Share.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
- Registrant filed a Current Report on Form 8-K dated January 9, 1998 in
connection with the Registrant's acquisition by a subsidiary of the
Registrant of 90% of the common shares of Companhia Centro-oeste de
Distribuicao de Energia Electrica (also known as "CCODEE" or "CEEE-D2"
and now known as "AES Sul") including audited financial statements.
15
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.
THE AES CORPORATION
(Registrant)
Date: May 15, 1998 By: /s/ Barry J. Sharp
------------------------
Name: Barry J. Sharp
Title: Senior Vice President and
Chief Financial Officer
16
EXHIBIT INDEX
Sequentially
Exhibit Description of Exhibit Numbered Page
- ------- ---------------------- ------------
10.9 Deferred Compensation Plan for Directors.
11 Statement of Computation of Earnings Per Share.
27 Financial Data Schedule.