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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 March 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-19281
THE AES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
54-1163725
(IRS Employer Identification No.)
1001 North 19th Street
Arlington, Virginia 22209
(Address of principal executive office)
Telephone Number (703) 522-1315
(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
The total number of shares of the registrant's Common Stock, $.01 par
value, outstanding on April 25, 1996, was 75,017,204.
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THE AES CORPORATION
INDEX
Page
PART 1. FINANCIAL INFORMATION
Item 1. Interim Financial Statements:
Consolidated Statements of Operations 2
Consolidated Balance Sheets 3
Consolidated Statements of Cash Flow 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signature 18
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PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements.
THE AES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED MARCH 31, 1995 AND 1996
- - -------------------------------------------------------------------------------
(Unaudited) Three Three
Months Months
Ended Ended
03/31/95 03/31/96
- - -------------------------------------------------------------------------------
($ in millions, except per share amounts)
REVENUES:
Sales and services $ 171 $ 172
OPERATING COSTS AND EXPENSES:
Cost of sales and services 103 100
Selling, general and administrative expenses 8 9
------- -------
Total operating costs and expenses 111 109
------- -------
OPERATING INCOME 60 63
OTHER INCOME AND (EXPENSE):
Interest expense (31) (28)
Interest income 7 5
Equity in earnings of affiliates (net of income tax) 3 5
------- -------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 39 45
Income taxes 14 15
Minority interest -- 1
------- -------
NET INCOME $ 25 $ 29
======= =======
NET INCOME PER SHARE: $ 0.33 $ 0.38
======= =======
See Notes to Consolidated Financial Statements
2
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THE AES CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND MARCH 31, 1996
- - --------------------------------------------------------------------------------
(Unaudited)
12/31/95 03/31/96
- - -------------------------------------------------------------------------------
($ in millions)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 239 $ 207
Short-term investments 58 50
Accounts receivable 54 50
Inventory 36 42
Receivable from affiliates 11 11
Prepaid expenses and other current assets 27 34
------- -------
Total current assets 425 394
PROPERTY, PLANT AND EQUIPMENT:
Land 9 10
Electric and steam generating facilities 1,594 1,619
Furniture and office equipment 11 11
Accumulated depreciation, depletion, and
amortization (222) (235)
Construction in progress 158 198
------- -------
Property, plant and equipment, net 1,550 1,603
OTHER ASSETS:
Deferred costs, net 32 31
Project development costs 41 43
Investments in and advances to affiliates 48 52
Debt service reserves and other deposits 168 178
Goodwill and other intangible assets, net 37 37
Other assets 19 15
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Total other assets 345 356
------- -------
TOTAL $ 2,320 $ 2,353
======= =======
See Notes to Consolidated Financial Statements
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THE AES CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND MARCH 31, 1996
- - --------------------------------------------------------------------------------
(Unaudited)
12/31/95 03/31/96
- - --------------------------------------------------------------------------------
($ in millions)
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 33 $ 43
Income taxes payable -- 4
Accrued interest 12 17
Accrued and other liabilities 49 33
Revolving bank loan 50 31
Project financing debt - current portion 84 84
------- -------
Total current liabilities 228 212
LONG-TERM LIABILITIES:
Project financing debt 1,098 1,108
Other notes payable 125 125
Deferred income taxes 149 159
Other long-term liabilities 13 9
------- -------
Total long-term liabilities 1,385 1,401
MINORITY INTEREST 158 158
STOCKHOLDERS' EQUITY:
Common stock 1 1
Additional paid-in capital 293 294
Retained earnings 271 300
Cumulative foreign currency translation adjustment (10) (10)
Less treasury stock at cost (6) (3)
------- -------
Total stockholders' equity 549 582
------- -------
TOTAL $ 2,320 $ 2,353
======= =======
See Notes to Consolidated Financial Statements
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THE AES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996
- - -------------------------------------------------------------------------------
(Unaudited) Three Three
Months Months
Ended Ended
3/31/95 3/31/96
- - -------------------------------------------------------------------------------
($ in millions)
OPERATING ACTIVITIES:
Net Income $ 25 $ 29
Adjustments to net income:
Depreciation, depletion and amortization 12 14
Provision for deferred taxes 14 14
Undistributed earnings of affiliates (2) (4)
Change in working capital (7) (9)
Other 1 1
------- -------
Net cash provided by operating activities 43 45
INVESTING ACTIVITIES:
Property additions (11) (45)
Acquisitions, net of cash acquired (65) (20)
Sale of short-term investments 23 8
Affiliate advances and investments -- (1)
Project development costs (2) (2)
Debt service reserves and other assets -- (6)
------- -------
Net cash used in investing activities (55) (66)
------- -------
FINANCING ACTIVITIES:
Net repayments under the revolver -- (19)
Issuance of project financing debt -- 20
Repayments of project financing debt (15) (12)
Payments to/from minority partners 3 (1)
Sale of common stock 1 1
------- -------
Net cash used in financing activities (11) (11)
Decrease in cash and cash equivalents (23) (32)
Cash and cash equivalents, beginning 255 239
------- -------
Cash and cash equivalents, ending $ 232 $ 207
======= =======
See Notes to Consolidated Financial Statements
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THE AES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
The consolidated financial statements include the accounts of AES, its
subsidiaries, and controlled affiliates. 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. Under the equity method, the Company's
investment is recorded at cost and is adjusted to recognize its proportional
share of all earnings or losses of the entity. Distribution received reduce the
carrying amount of the Company's investment.
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, 1995
and 1996, respectively, are included. All such adjustments are accruals of a
normal and recurring nature. The results of operations for the three months
ended March 31, 1996 are not necessarily indicative of the results of operations
to be expected for the full year. The financial statements are unaudited.
2. Net Income Per Share
Net income per share is based on the weighted average number of common stock and
common stock equivalents outstanding, after giving effect to stock splits.
Common stock equivalents result from dilutive stock options, warrants and
deferred compensation arrangements. The effect of such common stock equivalents
on net income per share is computed using the treasury stock method. The shares
used in computing net income per share were 75.8 million for the quarter ended
March 31, 1995 and 76.1 million for the quarter ended March 31, 1996.
3. Inventory
Inventory, valued at the lower of cost (principally first in, first out method)
or market, consists of coal and other raw materials used in generating
electricity and steam, and spare parts, materials and supplies. Inventory at
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December 31, 1995 and March 31, 1996 consisted of the following (in millions):
1995 1996
---- ----
Coal and other raw materials 24 18
Spare parts, materials and supplies 12 24
-- --
Total $36 $42
=== ===
4. Litigation
In re The AES Corporation Securities Litigation is a purported class action suit
brought in the U.S. District Court for the Southern District of New York by
certain persons who claim to have purchased shares of common stock and
debentures issued by AES between June 25, 1991 and June 23, 1992 and who purport
to sue on behalf of others similarly situated. The litigation consolidates four
purported class actions previously filed against AES in June and July 1992. Also
named as defendants are AES's directors, certain of its officers and the
underwriters of its 1991 initial public offering of common stock and its 1992
offer of its 6 1/2 percent convertible subordinated debentures due 2002. In
February 1995, the Company entered into a settlement agreement with plaintiffs'
counsel on behalf of the class. The settlement is on a claims-made basis, and
consists of $4.5 million, as well as warrants to purchase approximately 716,800
shares of AES Common Stock. Insurance proceeds are available to cover a portion
of the settlement. The settlement was approved by the federal court in May 1995,
and became effective in July 1995. The review of the claims submitted in the
settlement is currently being finalized and, once concluded and approved by the
court, the settlement proceeds will be distributed.
On February 25, 1993, an action was filed in the 10th Judicial District Court,
Galveston County, Texas against the Company, over 25 other corporations
(including major oil refineries and chemical companies) and utilities, a utility
district, 4 Texas cities, McGinnes Industrial Maintenance Corporation, Roland
McGinnes and Lawrence McGinnes, claiming personal injuries, property, and
punitive damages of $20 billion, arising from alleged releases of hazardous and
toxic substances to air, soil and water at the McGinnes waste disposal site
located in Galveston County. This matter was consolidated with two other related
cases in December 1993. The complaint sets forth numerous causes of action,
including fraudulent concealment, negligence and strict liability, including,
among other things, allegations that the defendants sent hazardous, toxic and
noxious chemicals and other waste products to the McGinnes site for disposal. In
March 1995, the Company entered into a settlement agreement with certain
plaintiffs, pursuant to which the Company paid seven thousand dollars in return
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for withdrawal of their claims against the Company. Based on the Company's
investigation of the case to date, the Company believes it has meritorious
defenses to each and every cause of action stated in the complaint and this
action is being vigorously defended. The Company believes that the outcome of
this matter will not have a material adverse effect on its consolidated
financial statements.
The Company is involved in certain other 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 consolidated financial position.
Item 2. Discussion and Analysis of Financial Condition and Results of
Operations.
General
The AES Corporation and its subsidiaries and affiliates (collectively "AES" or
the "Company") are primarily engaged in the business of developing, acquiring,
owning and operating electric power generation facilities throughout the world.
Electricity sales accounted for 97% of total revenues during 1995. Other sales
arise from the sale of steam and other commodities related to the Company's
cogeneration operations. Service revenues represent fees earned in connection
with energy consulting, wholesale power services and services provided by AES to
its affiliates.
Electricity is generated (or manufactured) by power plants owned or leased by
the Company's subsidiaries and affiliates. AES now operates and owns (entirely
or in part) a diverse portfolio of electric power plants with a total capacity
of 3,370 megawatts. Of that total, 35% are fueled by solid fuel, 24% are fueled
by natural gas, 6% are hydroelectric facilities and the remaining 35% are
capable of burning multiple fossil fuels. Of the total megawatts, 1,069 are
located in the United States, 1,420 are in the United Kingdom, 840 are in
Argentina and 41 are in China. AES has grown its portfolio of generating assets
by developing and constructing new plants ("greenfield development") and by
acquiring existing plants, primarily through competitively bid privatization
initiatives outside the United States.
AES is now in the process of adding 962 megawatts to its operating portfolio by
constructing two oil-fired power plants in Pakistan totaling 674 megawatts, a
180 megawatt coal-fired plant in the United States and 2 plants totaling 108
megawatts in China that will be coal and oil-fired. In total, AES's net equity
ownership in plants in operation and construction is 3,027 megawatts.
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Because of the significant magnitude and complexity of building electric
generating plants, construction periods often range from two to four years,
depending on the technology and location. AES currently expects that projects
now under construction will reach commercial operation and begin to sell
electricity at various dates through 1999. The commercial operation date is
generally supported by a guarantee from each plant's construction contractor;
however, it remains possible, due to changes in the economic, political,
technological, regulatory or logistical circumstances surrounding individual
plants and their locations, that commercial operations may be delayed or, in
extreme circumstances, prohibited.
AES believes that there is significant demand for both new and more efficiently
operated electric generating capacity in many regions around the world. In an
effort to further grow and diversify the Company's portfolio of electric
generating plants, AES is pursuing, through its integrated divisions, additional
greenfield developments and acquisitions in North America, India, Pakistan,
China, other areas in Southeast Asia, South America, Europe, the Middle East and
Africa. From time to time, AES also investigates possible acquisitions of
existing power plant facilities or energy companies that would be consistent
with its objectives and strategy. Such acquisitions may be accomplished by a
cash purchase, by an exchange of project ownership interests or by the issuance
of the Company's capital stock.
Certain subsidiaries of the Company (domestic and non-U.S.) have signed
long-term contracts for the sale of electricity and are in various stages of
developing the related greenfield projects. Because these potential projects
have yet to begin construction or procure committed long-term financing
("financial closing"), 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 1996, capitalized costs for projects under development were
approximately $43 million. The Company believes that the costs are recoverable;
however, no assurance can be given that changes in circumstances related to
individual projects will not occur or that any of these projects will be
completed.
As discussed above, AES has been successful in acquiring a portion of its
portfolio of generating capacity by participating in competitive bidding under
government sponsored privatization initiatives and has been particularly
interested in acquiring existing assets in electricity markets that are
promoting competition, such as the United Kingdom and Argentina. Sellers
generally seek to complete competitive solicitations in less than one year, much
quicker than greenfield development, and require payment in full on transfer.
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AES believes that its experience in competitive markets and its divisional
structure, with geographically dispersed locations, enable it to react quickly
and creatively in such situations.
Because of this relatively quick process, it may not be possible to arrange
"project financing" (the Company's historically preferred financing method) for
specific potential acquisitions. As a result, during 1995, the Company enhanced
its financial capabilities to respond to these more accelerated opportunities by
executing a new $225 million revolving credit facility. Also, in February 1996,
AES filed a $150 million shelf registration statement for the possible issuance
of additional senior subordinated notes to further enhance its access to
longer-term credit. In addition to using short or long-term debt capacity, AES
may consider an exchange of project ownership interests or the issuance of its
common stock to fund future acquisition opportunities.
The nature of most of the Company's domestic independent power operations is
such that each facility generally relies on one power sales contract with a
single electric utility customer or a regional or national transmission and
distribution customer for the majority, if not all, of its revenues. During
1995, four customer accounted for 73% of the Company's revenues. The prolonged
failure of any one utility customer to fulfill its contractual payment
obligations in the future could have a substantial negative impact on AES's
primary source of revenues. Where possible, the Company has sought to reduce
this risk, in part, by entering into power sales contracts with utilities that
have their debt or preferred stock rated "investment grade" by nationally
recognized rating agencies and by locating its plants in different geographic
areas in order to mitigate the effects of regional economic downturns.
Because the Company's plants are located in different geographical areas,
seasonal variations are not generally expected to have a significant effect on
quarterly financial results. However, unusual weather conditions and the needs
of each plant to perform routine (including annual or multi-year) or
unanticipated facility maintenance may have an effect on quarterly financial
results. In addition, some power sales contracts permit the utility customer to
significantly dispatch the related plant (i.e., direct the plant to deliver a
reduced amount of electrical output) within certain specified parameters. Such
dispatching, however, does not have a material impact on the results of
operations of the related subsidiary because, even when dispatched, the plant's
capacity payments are not reduced.
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The Company's activities are subject to stringent environmental regulation by
federal, state, local and foreign governmental authorities. There can be no
assurance that AES would be able to recover all or any part of increased costs
from its customers or that its business and financial condition would not be
materially and adversely affected by future changes in environmental laws or
regulations. The Company strives to comply with all environmental laws,
regulations, permits and licenses but, despite such efforts, at times has been
in non-compliance. No such instance of non-compliance has resulted in revocation
of any permit or license.
Medway Power Limited ("Medway Power"), a joint venture among AES Medway Electric
Limited, an indirectly owned U.K. subsidiary of AES ("AES Medway"), and
subsidiaries of Southern Electric plc ("Southern") and SEEBOARD plc
("SEEBOARD"), owns a 660 megawatt combined cycle gas-fired power plant in
southeast England on the Isle of Grain. The plant began operations in November
1995. During pre-commercial start-up operations in the second quarter of 1995,
the plant began experiencing equipment difficulties, most notably with its
turbine rotors. Medway Power and the plant's construction contractor are working
to provide a permanent solution to the rotor problems. For a more complete
description of this matter, please see the Company's Annual Report on Form 10-K
for the year ended December 31, 1995. Although no assurance can be given that
the contractor, and as a result, Medway Power, will be able to adequately
correct the equipment difficulties, the Company believes that the outcome of
this matter will not have a material adverse effect on its consolidated
financial position.
In January 1996, the Company, through a subsidiary, completed the financing for
a 337 megawatt oil-fired facility in Punjab Province, Pakistan. This facility is
substantially identical to a 337 megawatt facility already under construction on
an adjacent property. For a more complete description of this project, please
see the Company's Annual Report on form 10-K for the year ended December 31,
1995. Substantial risks to the successful completion of this project exist,
including those relating to political risk, exchange rate risk, currency
convertibility, governmental approvals, siting, construction and permitting, and
the possible termination of the power sales contract as a result of the failure
to meet certain construction milestones. No assurance can be given that this
project will be completed.
In March 1996, AES acquired a 98% interest in Hidrotermica San Juan, S.A., ("San
Juan"), an Argentine corporation, which is the owner and operator of a 78
megawatt power generating facility in the province of San Juan, Argentina. The
facility includes a 45 megawatt hydroelectric power plant and a 33 megawatt gas
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combustion power plant. The remaining 2% is owned by a participation plan for
the employees of San Juan. San Juan will sell electricity into the Argentine
spot market.
First Quarter 1996 and 1995 Results of Operations
Revenues increased 1% or approximately $1 million, to $172 million from the
first quarter of 1995 to the first quarter of 1996. Cost of sales and services
decreased 3% or approximately $3 million, to $100 million from the first quarter
of 1995 to the first quarter of 1996. Gross margin, which represents total
revenues reduced by cost of sales and services, increased 6%, or approximately
$4 million, to $72 million during the same period. Gross margin as a percentage
of total revenues was 42% for the first quarter of 1996 and 40% for the same
period of 1995. The increase in gross margin is primarily due to improved
results at Deepwater due to higher gas prices during the first quarter of 1996,
and better performance at San Nicolas due to cost reduction efforts at the
plant.
Selling, general and administrative expenses increased 13% or approximately $1
million from the first quarter of 1995 to the first quarter of 1996, and as a
percentage of total revenue, remained constant at 5% of revenues.
Operating income increased 5%, or approximately $3 million, to $63 million from
the first quarter of 1995 to the first quarter of 1996. This increase is the
result of the factors discussed above.
Interest expense decreased 10%, or approximately $3 million, to $28 million from
the first quarter of 1995 to the first quarter of 1996. The decrease is
primarily due to the declining balances of project financing debt at U.S. plants
and San Nicolas.
Interest income decreased 29%, or approximately $2 million, to $5 million from
the first quarter of 1995 to the first quarter of 1996. This decrease is
primarily due to investments in new projects at AES Chigen and a decrease in the
balance of corporate unrestricted cash and cash equivalents.
Equity in earnings of affiliates (net of income taxes) increased 67% to
approximately $5 million from the first quarter of 1995 to the same period of
1996. The increase is primarily due to Medway, which was not in operation in
1995.
Income taxes increased 7% or approximately $1 million, to $15 million from the
first quarter of 1995 to the first quarter of 1996. This increase resulted
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primarily from an increase in the Company's estimated effective income tax rate
from approximately 38% in 1995 to 39% in 1996, and higher income before taxes.
Cash Flows, Financial Resources and Liquidity
At March 31, 1996 cash equivalents totaled approximately $207 million, as
compared to $239 million at the beginning of the year. The $32 million decrease
in cash resulted from a use of $66 million for investing activities and a use of
$11 million for financing activities which were partially funded by $45 million
provided by operating activities. Significant investing activities were property
and construction in progress additions of $45 million and the acquisition of
Hidrotermica San Juan, S.A. for approximately $20 million. Furthermore, the net
use of cash for financing activities was primarily the result of paying $19
million on the revolving credit facility, borrowing $20 million in project
financing debt, and repaying $12 million of other project financing debt.
AES has primarily utilized project financing loans to fund the capital
expenditures associated with constructing and acquiring its electric power
plants and related assets. Project financing borrowings have been substantially
non-recourse to other subsidiaries and affiliates and to AES as the parent
company and are generally secured by the capital stock, physical assets,
contracts and cash flow of the related project subsidiary or affiliate. The
Company intends to continue to seek, where possible, such non-recourse project
financing in connection with the assets which the Company or its affiliates may
develop, construct or acquire. However, depending on market conditions and the
unique characteristics of individual projects, the Company's traditional
providers of project financing, particularly multinational commercial banks, may
seek higher borrowing spreads and increased equity contributions.
Furthermore, because of the reluctance of commercial lending institutions to
provide non-recourse project financing (including financial guarantees) in
certain less developed economies, the Company, in such locations, has and will
continue to seek direct or indirect (through credit support or guarantees)
project financing from a limited number of multilateral or bilateral
international financial institutions or agencies. As a precondition to making
such project financing available, these institutions may also require
governmental guarantees of certain project and sovereign related risks.
Depending on the policies of specific governments, such guarantees may not be
offered and as a result, AES may determine that sufficient financing will
ultimately not be available to fund the related project.
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In addition to the project financing loans, if available, AES provides a
portion, or in certain instances all, of the remaining long-term financing
required to fund development, construction, or acquisition. These investments
have generally taken the form of equity investments or loans, which are
subordinated to the project financing loans. The funds for these investments
have been provided by cash flows from operations and by the proceeds from
issuances of senior subordinated notes, convertible debentures and common stock
of the Company.
Interim needs for shorter-term and working capital financing have been met with
borrowings under AES's revolving line of credit and letter of credit facility
("revolver"). Over the past several years, the Company has continued to increase
the amount of available financing under the revolver while striving to enhance
its flexibility and usefulness. During 1995, AES entered into a new $225 million
revolver which provides full availability as borrowings or letters of credit.
Under the terms of the revolver, AES is required to reduce its direct borrowings
to zero for 30 consecutive days during each twelve month period. The terms of
the credit agreement also include financial covenants related to net worth, cash
flow and investments and restrictions related to the incurrence of additional
debt and certain other obligations and limitations on cash dividends.
Inflation, Interest Rates, Exchange Rates and Changing Energy Prices
The Company attempts, whenever possible, to hedge certain aspects of its
projects against the effects of fluctuations in inflation, interest and currency
exchange rates and energy prices. AES has generally structured the energy
payments in its power sales contracts to adjust with similar price indices as do
its contracts with the fuel suppliers for the corresponding projects. In some
cases a portion of revenues is associated with operations and maintenance, and
as such is indexed to adjust with inflation. AES has also used a hedging
strategy to insulate each project's financial performance, where appropriate,
against the risk of fluctuations in interest rates. Depending on whether a
project's capacity payments are either fixed or vary with inflation, the Company
attempts to hedge against interest rate fluctuations by arranging fixed-rate or
variable-rate financing. In certain cases, the Company executes interest rate
swap agreements, or interest rate caps, to effectively fix, or in the case of
interest rate caps, limit, the interest rate on the underlying variable rate
financing.
Such hedging techniques are implemented through contractual provisions with fuel
suppliers and international financial institutions. As a result, their
effectiveness is dependent, in part, on each counterparty's ability to perform
in accordance with the provisions of the relevant contracts. The Company has
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sought to reduce this risk by entering into contracts with creditworthy
organizations, where possible, and where not possible, as in the case of certain
local fuel suppliers, to execute standby or option agreements with a
creditworthy organization.
Because of the complexity of hedging strategies and the diverse nature of AES's
operations, the financial performance of AES's portfolio, although significantly
hedged, will likely be somewhat affected by fluctuations in inflation, interest
rates and energy prices. For example, AES's current portfolio of projects
generally performs better with high oil and natural gas prices and with lower
interest rates. The Company's performance also is sensitive to the difference
between inflation and interest rates, and generally performs better when
increases in inflation are higher than increases in interest rates.
Through its equity investments in foreign affiliates, AES operates in
jurisdictions dealing in currencies other than the Company's functional
currency, the U.S. dollar. Such investments were made to fund equity
requirements and to provide collateral for contingent obligations. Due primarily
to the long-term nature of the investments, the Company accounts for any
adjustments resulting from translation as a charge or credit directly to a
separate component of stockholders' equity. The Company had approximately $10
million, net of tax, in cumulative translation adjustment losses at March 31,
1996.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In re The AES Corporation Securities Litigation is a purported class action suit
brought in the U.S. District Court for the Southern District of New York by
certain persons who claim to have purchased shares of common stock and
debentures issued by AES between June 25, 1991 and June 23, 1992 and who purport
to sue on behalf of others similarly situated. The litigation consolidates four
purported class actions previously filed against AES in June and July 1992. Also
named as defendants are AES's directors, certain of its officers and the
underwriters of its 1991 initial public offering of common stock and its 1992
offer of its 6 1/2 percent convertible subordinated debentures due 2002. In
February 1995, the Company entered into a settlement agreement with plaintiffs'
counsel on behalf of the class. The settlement is on a claims-made basis, and
consists of $4.5 million, as well as warrants to purchase approximately 716,800
shares of AES Common Stock. Insurance proceeds are available to cover a portion
of the settlement. The settlement was approved by the federal court in May 1995,
and became effective in July 1995. The review of the claims submitted in the
settlement is currently being finalized and, once concluded and approved by the
court, the settlement proceeds will be distributed.
On February 25, 1993, an action was filed in the 10th Judicial District Court,
Galveston County, Texas against the Company, over 25 other corporations
(including major oil refineries and chemical companies) and utilities, a utility
district, 4 Texas cities, McGinnes Industrial Maintenance Corporation, Roland
McGinnes and Lawrence McGinnes, claiming personal injuries, property, and
punitive damages of $20 billion, arising from alleged releases of hazardous and
toxic substances to air, soil and water at the McGinnes waste disposal site
located in Galveston County. This matter was consolidated with two other related
cases in December 1993. The complaint sets forth numerous causes of action,
including fraudulent concealment, negligence and strict liability, including,
among other things, allegations that the defendants sent hazardous, toxic and
noxious chemicals and other waste products to the McGinnes site for disposal. In
March 1995, the Company entered into a settlement agreement with certain
plaintiffs, pursuant to which the Company paid seven thousand dollars in return
for withdrawal of their claims against the Company. Based on the Company's
investigation of the case to date, the Company believes it has meritorious
defenses to each and every cause of action stated in the complaint and this
action is being vigorously defended. The Company believes that the outcome of
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this matter will not have a material adverse effect on its consolidated
financial position.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
Number Document
11 Consolidated Statements Regarding Computation
of Earnings Per Share
27 Financial Data Schedule, which is submitted
electronically to the Securities and Exchange
Commission for information only and not filed.
(b) Reports on Form 8-K
The Registrant filed a Current Report on Form 8-K, dated February 6,
1996 in respect of an acquisition of a hydroelectric facility in Argentina, and
completion of financial close of a project in construction in Pakistan.
The Registrant filed a Current Report on Form 8-K, dated February 26,
1996 in respect of Cautionary Statements for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act of 1995.
17
<PAGE>
SIGNATURE
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)
By /s/ BARRY J. SHARP
--------------------
BARRY J. SHARP
Vice President and Chief Financial Officer
Dated: May 6, 1996
18
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
11 Consolidated Statements Regarding Computation of Earnings
Per Share
27 Financial Data Schedule, which is submitted electronically
to the Securities and Exchange Commission for information
only and not filed.
EXHIBIT 11
THE AES CORPORATION
STATEMENTS REGARDING COMPUTATION OF EARNINGS PER SHARE
FOR THE PERIODS ENDED MARCH 31, 1995 AND 1996
- - --------------------------------------------------------------------------------
Three Three
Months Months
Ended Ended
3/31/95 3/31/96
- - --------------------------------------------------------------------------------
($ in millions, except per share amounts)
PRIMARY
Weighted Average Number of Shares
of Common Stock Outstanding 74.8 74.9
Net effect of Dilutive Stock Options and
Warrants Based on the Treasury Stock
Method Using Average Market Price 0.8 0.9
Stock Units Allocated to the Deferred
Compensation Plans for
Executives and Directors 0.2 0.3
-------- --------
Weighted average shares outstanding 75.8 76.1
======== ========
Net Income $ 25 $ 29
======== ========
Per Share Amount $ 0.33 $ 0.38
======== ========
FULLY DILUTED
Weighted Average Number of Shares
of Common Stock Outstanding 74.8 74.9
Net effect of Dilutive Stock Options and
Warrants Based on the Treasury Stock
Method Using Ending Market Price 0.8 0.9
Stock Units Allocated to the Deferred
Compensation Plans for
Executives and Directors 0.2 0.3
Effect of Convertible Debt - Based on
the If-Converted Method 1.9 1.9
-------- --------
Weighted average shares
outstanding 77.7 78.0
======== ========
Net Income $ 25 $ 29
Additional Contribution to Net Income if
Convertible Debt is fully converted 1 1
-------- --------
Adjusted Net Income $ 26 $ 30
======== ========
Per Share Amount $ 0.33 $ 0.37
======== ========
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<CURRENCY> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Mar-31-1996
<EXCHANGE-RATE> 1
<CASH> 207
<SECURITIES> 50
<RECEIVABLES> 50
<ALLOWANCES> 0
<INVENTORY> 42
<CURRENT-ASSETS> 394
<PP&E> 1838
<DEPRECIATION> (235)
<TOTAL-ASSETS> 2353
<CURRENT-LIABILITIES> 212
<BONDS> 1233
0
0
<COMMON> 1
<OTHER-SE> 581
<TOTAL-LIABILITY-AND-EQUITY> 2353
<SALES> 171
<TOTAL-REVENUES> 172
<CGS> 100
<TOTAL-COSTS> 109
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28
<INCOME-PRETAX> 45
<INCOME-TAX> 15
<INCOME-CONTINUING> 29
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.37
</TABLE>
