<PAGE> 1
Filed pursuant to Rule 424(b)(2)
PROSPECTUS SUPPLEMENT Registration No. 333-01286
(TO PROSPECTUS DATED JUNE 27, 1996)
(AES LOGO) THE AES CORPORATION
$250,000,000
10 1/4% Senior Subordinated Notes due 2006
Interest Payable January 15 and July 15
ISSUE PRICE: 100%
The 10 1/4% Senior Subordinated Notes (the "Notes") will bear interest from July
2, 1996, at the rate of 10 1/4% per annum, payable semi-annually on January 15
and July 15, commencing January 15, 1997. The Notes are redeemable for cash at
any time on or after July 15, 2001 at the option of The AES Corporation ("AES"
or the "Company"), in whole or in part, at the redemption prices set forth
herein, plus accrued interest. The Notes are redeemable at the option of the
holder upon a Change of Control (as defined herein) at 101% of the principal
amount thereof, plus accrued interest. The Notes are unsecured obligations of
the Company and subordinated to all existing and future Senior Debt (as defined
herein) of the Company. As of March 31, 1996, on a pro forma basis after giving
effect to the recent acquisition by the Company of the Light Interest (as
defined herein) and to the application of the net proceeds from the offering and
sale of the Notes (the "Offering"), the Company had approximately $246 million
in aggregate principal amount of Senior Debt (as defined herein) and the
subsidiaries of the Company had approximately $1.2 billion in aggregate amount
of liabilities to which the Notes are effectively subordinated.
SEE "RISK FACTORS" BEGINNING ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO THE
PUBLIC (1) COMMISSIONS (2) COMPANY (1)(3)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Per Note 100.0000% 2.5625% 97.4375%
- ---------------------------------------------------------------------------------------------------------
Total $250,000,000 $6,406,250 $243,593,750
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from the date of issuance.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
See "Underwriting."
(3) Before deducting expenses estimated at $360,000, which will be paid by the
Company.
The Notes are being offered by the Underwriters subject to prior sale, when, as,
and if accepted by the Underwriters, and subject to various prior conditions,
including their right to reject orders in whole or in part, and subject to
approval of certain legal matters by Davis Polk & Wardwell, counsel for the
Underwriters. It is expected that delivery of the Notes will be made through the
book-entry facilities of the Depositary (as defined herein), against payment
therefor in New York funds, on or about July 2, 1996.
J.P. MORGAN & CO. GOLDMAN, SACHS & CO.
June 27, 1996
<PAGE> 2
No dealer, salesperson or other person is authorized to give any information or
to make any representations other than those contained or incorporated by
reference in this Prospectus Supplement or in the Prospectus in connection with
the offer made hereby and, if given or made, such information or representations
must not be relied upon as having been authorized by the Company or any
underwriters, dealers or agents. Neither the delivery of this Prospectus
Supplement or the accompanying Prospectus nor any sale made hereunder shall,
under any circumstances, create any implication that there has been no change in
the affairs of the Company since the date hereof or that the information
contained or incorporated by reference herein is correct as of any time
subsequent to its date. This Prospectus Supplement and the accompanying
Prospectus do not constitute an offer to sell or a solicitation of an offer to
buy the securities offered hereby by anyone in any state in which such offer or
solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so or to anyone to whom it is unlawful to
make such offer or solicitation.
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUPPLEMENT PAGE
Prospectus Supplement Summary........ S- 3
The Offering......................... S- 5
Summary Consolidated Financial
Data............................... S- 6
Recent Developments.................. S- 7
Use of Proceeds...................... S- 9
Capitalization....................... S-10
Unaudited Pro Forma Consolidated
Financial Information.............. S-11
Selected Consolidated Financial
Data............................... S-13
Description of Corporate Credit
Facility........................... S-14
Description of Notes................. S-17
Underwriting......................... S-40
Calculations of Fixed Charge Ratio... R-1
PROSPECTUS PAGE
Available Information................ i
Incorporation of Certain Documents by
Reference.......................... i
The Company.......................... 1
Risk Factors......................... 2
Use of Proceeds...................... 8
Discussion and Analysis of Financial
Condition and Results of
Operations......................... 9
Ratio of Earnings to Fixed Charges... 16
Description of Debt Securities....... 17
Plan of Distribution................. 22
Legal Matters........................ 23
Experts.............................. 23
Index to Consolidated Financial
Statements......................... F-1
</TABLE>
SUPPLEMENTAL INFORMATION
The Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1995 (the "1995 Form 10-K") is attached hereto. The delivery of the 1995 Form
10-K shall not be intended to create an implication that there has been no
change in the affairs of the Company since the date of filing thereof, nor that
the information contained or incorporated by reference therein is correct as of
any time subsequent to its date. Without limitation of the foregoing, the
Company's financial statements incorporated by reference in the 1995 Form 10-K
have been superseded by the Company's financial statements included as part of
the accompanying Prospectus. See "Recent Developments."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
S-2
<PAGE> 3
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and the consolidated financial
statements of AES and the notes thereto, appearing elsewhere or incorporated by
reference in the Prospectus and this Prospectus Supplement. All pro forma
adjustments herein relating to the Offering assume that the net proceeds from
the Offering will be used to repay borrowings under the Reimbursement Agreement
(as defined herein). See "Use of Proceeds."
THE COMPANY
The AES Corporation is a global power company which supplies electricity to
customers world-wide. The Company markets power principally from electric
generating and other related facilities that it owns and operates. AES was one
of the original entrants in the independent power market and today is one of the
world's largest independent power companies, based on net equity ownership of
generating capacity (in megawatts) in operation or under construction.
Over the last five years, the Company has experienced significant growth. This
growth has resulted primarily from the development and construction of new
plants ("greenfield development") and also from the acquisition of existing
plants, primarily through competitively bid privatization initiatives outside
the United States. Since 1991, the Company's total generating capacity in
megawatts has grown by 293%, with the total number of plants in operation
increasing from 6 to 20. Additionally, the Company's revenues have increased
106% from $333 million in 1991 to $685 million in 1995, while EBITDA has grown
from $5 million to $110 million over the same period.
Through its subsidiaries and affiliated companies, AES operates and owns
(entirely or in part) a diverse portfolio of electric power plants with a total
generating capacity of 4,158 megawatts. Of that total, 1,069 are produced by
plants located in the United States, 1,420 in the United Kingdom, 840 in
Argentina, 788 in Brazil and 41 in China. Of the total megawatts, 29% are
produced by plants fueled by solid fuel, 19% are produced by plants fueled by
natural gas, 24% are produced by hydroelectric facilities and the remaining 28%
are produced by plants capable of burning multiple fossil fuels.
AES is now in the process of adding 1,462 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 four plants totaling 608
megawatts in China that will be coal and oil-fired. In total, AES's net equity
ownership in plants in operation and construction is 3,233 megawatts.
On May 30, 1996, a subsidiary of AES acquired common shares representing an
11.35% interest (the "Light Interest") in Light Servicos de Eletricidade S.A.
("Light"), a publicly-held corporation that operates as the concessionaire of an
approximately 3,800 megawatt electric power generation, transmission and
distribution system in Rio de Janeiro, Brazil. In connection with the
acquisition of the Light Interest, AES, through a subsidiary, is participating
in a consortium with certain other successful bidders, and the ownership
interest held by the consortium represents a controlling interest in Light.
THE GLOBAL INDEPENDENT POWER MARKET
The market for independent power generation has expanded from a U.S. market,
consisting of cogeneration and small power production projects, to a global
competitive market for power generation. Although many foreign countries
initiated restructuring policies after the advent of the independent power
market in the United States, many of these countries have put in place market
structures that the Company believes are more competitive than most markets
existing in the United States today. A part of AES's business strategy is to
participate in competitive generation markets both in the United States and
world-wide.
The Company believes that the growth in the need for new capacity in the United
States has and will continue to slow, partly because utilities are making more
efficient use of their existing resources by improving plant availability,
extending plant lives, repowering and taking advantage of attractive bulk power
purchases, and partly because utilities have initiated programs to reduce the
demand for electricity. As a result of the reduced need for new capacity in the
United States, AES and many of its competitors are seeking new business in
markets outside the
S-3
<PAGE> 4
United States. In addition, a number of foreign countries have privatized (or
are in the process of privatizing) their generation capacity, which provides
opportunities to purchase existing generation assets. AES, through subsidiaries
and affiliates, now operates 14 plants in non-U.S. countries, is constructing
six others overseas, and has offices in numerous foreign locations to take
advantage of the opportunities in these new markets.
BUSINESS STRATEGY
The Company's primary objective is to help meet the need for electricity
world-wide by participating in competitive electricity markets as a clean, safe
and reliable power supplier. The Company's strategy is to participate in
competitive power generation markets as they develop either by greenfield
development or by acquiring and operating existing facilities in these markets.
Other elements of the Company's strategy include:
- Supplying energy to customers at the least cost possible, taking into
account factors such as reliability and environmental performance.
- Constructing or acquiring projects of a relatively large size (generally
larger than 100 megawatts).
- Entering into power sales contracts with electric utilities or other
customers with credit strength.
The Company also strives for operating excellence as a key element of its
strategy, which it believes it accomplishes by minimizing organizational layers
and maximizing company-wide participation in decision-making. AES has attempted
to create an operating environment that results in safe, clean and reliable
electricity generation. Because of this emphasis, the Company prefers to operate
all facilities which it develops or acquires; however, there can be no assurance
that the Company will have operating control of all of its facilities in the
future.
The Company's strategy also has been to attempt to finance its projects
primarily without credit recourse to the Company or to other projects, and to
construct new plants under fixed or guaranteed-maximum price contracts with
contractor-guaranteed performance standards ("turnkey" contracts). In addition,
the Company engages in careful site selection, taking into consideration
transportation, water and transmission access and attempting to gauge local
government and community receptivity to the environmental permitting process.
S-4
<PAGE> 5
THE OFFERING
NOTES OFFERED....................... $250 million aggregate principal amount
of 10 1/4% Senior Subordinated Notes
due 2006.
MATURITY DATE....................... July 15, 2006.
INTEREST RATE....................... The Notes will bear interest at the
rate of 10 1/4% per annum, payable
semi-annually.
INTEREST PAYMENT DATES.............. January 15 and July 15, commencing
January 15, 1997.
OPTIONAL REDEMPTION BY THE
COMPANY............................. The Notes may not be redeemed prior to
July 15, 2001. On and after that date,
the Notes may be redeemed at any time,
in whole or in part, on not less than
30 nor more than 60 days' notice at the
prices set forth herein.
RANKING............................. The Notes will be general unsecured
obligations of the Company and will be
subordinated in right of payment to all
Senior Debt (as defined herein) of the
Company. As of March 31, 1996, on a pro
forma basis after giving effect to
application of the net proceeds from
the Offering and the Company's recent
acquisition of the Light Interest, the
Company had approximately $246 million
in aggregate principal amount of Senior
Debt. In addition, the Company's
subsidiaries had approximately $1.2
billion in aggregate amount of
liabilities to which the Notes are
effectively subordinated.
CHANGE OF CONTROL OFFER............. Upon a Change of Control (as defined),
the Company has the obligation, subject
to certain conditions, to offer to
purchase the Notes at 101% of the
principal amount thereof, plus accrued
interest to the date of purchase in
accordance with the procedures set
forth in the Indenture for the Notes.
If a Change of Control occurs, the
subordination provisions of the Notes
require Senior Debt to be repaid prior
to the purchase of any tendered Notes.
Due to the highly leveraged nature of
the Company, there can be no assurance
that, upon a Change of Control, the
Company will be able to fund the
purchase of the Notes. See "Description
of Notes -- Repurchase of Notes Upon a
Change of Control".
PRINCIPAL COVENANTS................. The Indenture for the Notes will
restrict, among other things, the
ability of the Company and its
Subsidiaries (as defined) to (i) incur
additional indebtedness, (ii) pay
dividends and make other distributions,
(iii) make certain investments, (iv)
engage in unrelated businesses, (v)
sell or issue preferred stock of a
subsidiary, (vi) create encumbrances to
secure Debt that is pari passu with or
subordinated to the Notes, (vii) engage
in certain transactions with
affiliates, (viii) dispose of certain
assets or (ix) merge or consolidate
with or into, or sell or otherwise
transfer their properties and assets as
an entirety to, another entity. See
"Description of Notes".
USE OF PROCEEDS OF THE OFFERING..... The repayment of certain indebtedness.
See "Use of Proceeds".
S-5
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL DATA (1)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 QUARTER ENDED MARCH 31
PRO PRO
ACTUAL FORMA(2) ACTUAL FORMA(2)
In millions, except ratio and per ---------------------------------------------- ----- ---------------- ------
share data 1991 1992 1993 1994 1995 1995 1995 1996 1996
------ ------ ------ ------ ------ ----- ------ ------ ------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................... $ 333 $ 401 $ 519 $ 533 $ 685 $685 $ 171 $ 172 $ 172
Operating costs and expenses....... 201 248 326 301 437 437 111 109 109
Operating income................... 132 153 193 232 248 248 60 63 63
Interest expense................... 85 97 125 121 122 157 31 28 38
Income before income taxes and
minority interest................ 51 66 89 145 167 143 39 45 41
Net income......................... 43 56 71 100 107 97 25 29 29
Net income per share............... $ 0.66 $ 0.80 $ 0.98 $ 1.32 $ 1.41 $1.27 $ 0.33 $ 0.38 $ 0.38
Weighted average shares
outstanding...................... 63 70 73 76 76 76 76 76 76
Ratio of earnings to fixed charges
(3).............................. 1.31 1.37 1.63 2.08 2.18 1.79 2.18 2.12 1.76
BALANCE SHEET DATA:
Total assets....................... $1,367 $1,552 $1,687 $1,915 $2,320 -- $2,129 $2,353 $2,762
Revolving bank loan (current)...... 10 -- -- -- 50 -- -- 31 65
Project finance debt (current)..... 48 71 79 61 84 -- 98 84 84
Revolving bank loan (long-term).... -- -- -- -- -- -- -- -- 125
Project finance debt (long-term)... 1,093 1,146 1,075 1,019 1,098 -- 1,030 1,108 1,108
Other notes payable (long-term).... -- 50 125 125 125 -- 125 125 375
Stockholders' equity............... 141 177 309 401 549 -- 429 582 582
Debt to total capitalization and
short-term debt ratios:
-- Project financing debt........ 88.2% 83.2% 72.4% 67.0% 61.6% -- 65.6% 61.8% 51.0%
-- Parent debt (4)............... 0.8 3.4 7.9 7.8 9.1 -- 7.7 8.0 24.2
------ ------ ------ ------ ------ ------ ------ ------
Total........................ 89.0% 86.6% 80.3% 74.8% 70.7% -- 73.3% 69.8% 75.2%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 FOUR QUARTERS ENDED MARCH
31
PRO PRO
ACTUAL FORMA(2) ACTUAL FORMA(2)
---------------------------------------------- ----- ---------------- -----
1991 1992 1993 1994 1995 1995 1995 1996 1996
------ ------ ------ ------ ------ ----- ------ ------ -----
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Net cash provided by operating
activities....................... $ 86 $ 78 $ 123 $ 164 $ 197 $197 $ 168 $ 199 $199
Consolidated EBITDA (5)(6)......... 5 45 30 68 110 132 111 115 137
Consolidated Fixed Charges (5)..... 1 3 7 11 12 42 11 13 42
Fixed Charge Ratio (5)............. 6.88 14.48 4.18 6.15 9.20 3.16 9.74 9.05 3.29
</TABLE>
- ---------------
(1) The information for the five years ended December 31, 1995 has been derived
from AES's audited consolidated financial statements. The information for the
three months ended March 31, 1995 and 1996 and pro forma for the year ended
December 31, 1995 and for the three months ended March 31, 1996 are derived from
AES's unaudited consolidated financial statements.
(2) Pro forma as adjusted to give effect to the recent acquisition by the
Company of the Light Interest and to the application of the net proceeds from
the Offering. For assumptions made in the pro forma calculations, see "Unaudited
Pro Forma Consolidated Financial Information".
(3) For purposes of this ratio, earnings include income before taxes and fixed
charges excluding capitalized interest. Fixed charges include interest, whether
capitalized or expensed, and amortization of deferred financing costs, whether
capitalized or expensed. The pro forma after giving effect to the Company's
recent acquisition of the Light Interest and the application of the net proceeds
of the Offering of the Notes.
(4) Parent debt represents obligations of the Company, as parent. It does not
include non-recourse obligations of the Company's subsidiaries.
(5) The other data presented for "Consolidated EBITDA," "Consolidated Fixed
Charges" and "Fixed Charge Ratio" is calculated in accordance with the
respective definitions of such terms in the Indenture and set forth herein under
"Description of Notes -- Certain Definitions."
(6) Consolidated EBITDA is a concept defined in the Indenture and is not a
substitute for cash flows from operating activity as defined by generally
accepted accounting principles.
S-6
<PAGE> 7
RECENT DEVELOPMENTS
On May 30, 1996, AES, through certain subsidiaries, acquired for approximately
$393 million, common shares representing an 11.35% interest (the "Light
Interest") in Light, a publicly-held Brazilian corporation that operates as the
concessionaire of an approximately 3,800 megawatt electric power generation,
transmission and distribution system which serves 28 municipalities in the state
of Rio de Janeiro, Brazil. AES acquired its interest by bidding in the Brazilian
privatization program auction of 60% of Light's outstanding shares held on May
21, 1996. Subsequent to the auction, the winning bidders, including a subsidiary
of the Company, formed a consortium (the "Consortium") whose aggregate ownership
interest of 50.44% represents a controlling interest in Light. Prior to the
privatization auction, Light was owned primarily by the Brazilian government
utility holding company, Centrais Eletricas Brasileiras S.A. ("Eletrobras")
(81.6%) and public shareholders (17.9%).
The Consortium, organized pursuant to a shareholders agreement dated as of May
27, 1996 (the "Shareholder's Agreement"), is comprised of the direct common
share ownership interests held in Light by subsidiaries or affiliates of AES
(11.35%), Electricite de France ("EDF") (11.35%), Houston Industries
Incorporated ("HI") (11.35%), Companhia Siderurgica Nacional ("CSN") (7.25%),
and Banco Nacional de Desenvolvimento Economico E Social (BNDES) (9.14%). In
addition, pursuant to the terms of an Addendum to Shareholders Agreement dated
May 30, 1996, entered into among the members of the Consortium and
InvestLight -- Clube de Investimento dos Empregados da Light ("InvestLight"), an
investment group owned by Light employees, InvestLight may join the Consortium
and become a party to the Shareholder's Agreement if it acquires at least 5% of
the total outstanding registered voting common shares of Light on or prior to
June 28, 1996. Under the provisions of the Shareholder's Agreement, principal
responsibilities for the various aspects of Light's business will be allocated
among AES, EDF, HI and CSN. AES will have the principal responsibility for all
matters relating to generation and purchasing of electricity by Light. In
connection with the privatization process, the Brazilian National Department of
Water and Electric Energy ("DNAEE") has requested an opportunity to review and
to approve the general terms and conditions of the Shareholder's Agreement. Such
review by DNAEE is expected to be completed by the end of June 1996. There can
be no assurance that DNAEE will not request modifications to the terms and
conditions of the Shareholder's Agreement.
Light currently serves approximately 2.8 million customers or approximately 70%
of the population of the state of Rio de Janeiro. Light generates about 16% of
the total electricity it distributes through four hydroelectric complexes having
an aggregate installed generating capacity of approximately 788 megawatts. Of
the remaining electricity distributed by Light (approximately 84% of the total),
53% is purchased from Furnas Centrais Eletricas S.A., a power generation and
transmission company owned by Eletrobras, and the remaining 31% is purchased
from Itaipu Binacional, a power generation company owned by the Republic of
Brazil and the Republic of Paraguay.
In connection with the purchase of the controlling interest by the Consortium,
the Federal Government of Brazil, through the Ministry of Mines and Energy (the
"Grantor"), granted a 30-year concession to Light pursuant to the terms of a
concession agreement (the "Concession"). The Concession obligates Light to
provide electric services to all customers within its concession area and to
conduct whatever related projects are necessary to serve such customers. The
Concession also grants certain rights and privileges to Light to enable it to
fulfill its service obligations. Additionally, Light is obligated to provide
open access transmission and distribution services to certain individual
customers and to other entities interconnected with the Light system. As a
result, new customers with capacity needs greater than three megawatts have the
right to purchase electricity from providers other than Light.
The Concession authorizes Light to charge its customers a tariff for electric
services which consists of two components -- an expense pass-through component
and an inflation-adjusted operating cost component. Beginning in 2004, the
Grantor has the authority to review Light's costs to determine the adjustment,
if any, to the operating cost component for subsequent five-year periods. There
can be no assurance that, beginning in 2004, the Grantor will continue to allow
adjustments to the operating cost component of the tariff, consistent with
adjustments allowed historically or that future adjustments will not be set in a
manner that adversely affects Light's revenues.
The Company financed its purchase and other related transaction costs of Light
through (i) drawings of $179 million under a $425 million credit facility issued
pursuant to a credit agreement dated as of May 20, 1996, among AES,
S-7
<PAGE> 8
certain banks listed therein, and Morgan Guaranty Trust Company of New York, as
Agent (the "Bank Credit Agreement"), and (ii) a $225 million reimbursement
agreement dated as of May 20, 1996 between AES Light, Inc. ("AES Light"), an
indirect subsidiary of AES with an indirect ownership interest in Light, and
Morgan Guaranty Trust Company of New York (the "Reimbursement Agreement"). The
Credit Agreement has a three-year term, and may be extended for two one-year
terms subject to the prior written consent of the parties thereto. The
Reimbursement Agreement has an 18-month term, is recourse only to AES Light and
is secured by a pledge of approximately 18 million shares of common stock of AES
which had been previously contributed to AES Light.
For a discussion of certain litigation involving Light, see, in the accompanying
Prospectus, "Risk Factors -- Risk of Litigation Involving Light."
The following table presents summary financial data for Light:
LIGHT SERVICOS DE ELETRICIDADE S.A. (1)
SUMMARY FINANCIAL DATA
IN BRAZILIAN GAAP
<TABLE>
<CAPTION>
-----------------------------------
YEAR ENDED DECEMBER 31
1994 1995 1995(2)
------- ------- -----------
(unaudited)
<S> <C> <C> <C>
In millions
STATEMENT OF OPERATIONS DATA:
Revenues.................................................... R$1,575 R$1,465 US$1,592
Operating income............................................ 117 146 159
Net income.................................................. 149 (110) (120)
BALANCE SHEET DATA:
Total assets................................................ R$8,133 R$7,938 US$8,183
Total debt.................................................. 650 563 580
Stockholders' equity........................................ 6,763 6,746 6,955
</TABLE>
- ---------------
(1) The information for the two years ended December 31, 1995 has been derived
from Light's audited consolidated financial statements which are presented in
conformity with Brazilian generally accepted accounting principles and not U.S.
GAAP. AES owns indirectly an 11.35% interest in Light. The information does not
reflect the spin-off of Electropaulo which was approved by stockholders of Light
on January 29, 1996.
(2) Statement of Operations data is presented at an average exchange rate of
R$0.92 to US$1.00 and Balance Sheet data is presented at the year end exchange
rate of R$0.97 to US$1.00.
In early June 1996, the Company, through one of its subsidiaries, participated
in the bidding for shares of common stock representing an 80% interest in Tiszai
Eromu Rt. ("Tiszai"), a 1,281 megawatt electric generating and coal mining
company in Hungary, presently owned by the Hungarian government. The sale of the
interest in Tiszai is part of the Hungarian government's privatization of its
electric and gas industries. The evaluation committee of the Hungarian State
Privatization Agency Board (the "APV") is reviewing the bids received in
connection with the auction and will recommend a bid for approval.
The APV is expected to formally approve the winning bid by late June 1996. The
successful bidder has 120 days to agree to the terms of the government's sale of
the interest in Tiszai upon notification from the APV. If the Company's bid is
successful, the Company expects to pay in excess of $100 million for its
interest in Tiszai, and expects to initially finance such acquisition through
borrowings under its Bank Credit Agreement, the incurrence of additional
indebtedness, internally generated cash flows or a combination thereof. There
can be no assurance that (i) the Company's bid will be recommended for approval,
(ii) that the Company's bid, if recommended for approval, will be approved by
the APV, or (iii) that if the Company's bid is approved by the APV, the Company
will be able to successfully conclude the terms of the sale.
S-8
<PAGE> 9
USE OF PROCEEDS
The Company intends to use the net proceeds from the Offering to either repay
amounts outstanding under the Bank Credit Agreement, repay amounts outstanding
under the Reimbursement Agreement or for general corporate purposes.
The Reimbursement Agreement bears interest at the rate of LIBOR plus 2.50% and
matures on November 20, 1997. The Company may use $225 million of the net
proceeds of the Offering to repay the amount outstanding of $225 million under
the Reimbursement Agreement, which was incurred in connection with the Company's
acquisition of the Light Interest, and the remainder of such net proceeds to
repay a portion of the amount outstanding under the Bank Credit Agreement.
The Bank Credit Agreement, the Company's working capital facility which was used
in part to finance its acquisition of the Light Interest, bears interest at a
rate of LIBOR plus 1.75% and matures on May 19, 1999. As of the date hereof, an
amount of $202 million is outstanding under the Bank Credit Agreement. If the
Company uses the proceeds of the Offering to repay indebtedness under the Bank
Credit Agreement, the Company intends to use the remainder of the net proceeds
of the Offering for general corporate purposes. See "Description of Corporate
Credit Facility."
All pro forma adjustments herein relating to the Offering assume that all of the
net proceeds from the Offering will be used to repay the entire amount
outstanding under the Reimbursement Agreement and a portion of the amount
outstanding under the Bank Credit Agreement, as described above.
S-9
<PAGE> 10
CAPITALIZATION
The following table sets forth the book capitalization (including short-term
debt) of AES as of March 31, 1996 and such capitalization as adjusted to give
effect on a pro forma basis to the recent acquisition by the Company of the
Light Interest, the sale of the Notes offered hereby and the application of the
proceeds thereof.
<TABLE>
<CAPTION>
-------------------------------------------
PRO FORMA
FOR THE
PRO FORMA LIGHT INTEREST
AS OF FOR THE AND THE
In millions MARCH 31 LIGHT INTEREST OFFERING
-------- -------------- --------------
<S> <C> <C> <C>
SHORT-TERM DEBT:
Revolving bank loan -- current portion.............. $ 31 $ 85 $ 65
Project financing debt -- current portion........... 84 84 84
------ ------ ------
Total short-term debt............................ $ 115 $ 169 $ 149
====== ====== ======
LONG-TERM DEBT:
Revolving bank loan................................. $ -- $ 125 $ 125
Project financing debt.............................. 1,108 1,333 1,108
9 3/4% Senior Subordinated Notes due 2000........... 75 75 75
10 1/4% Senior Subordinated Notes due 2006.......... -- -- 250
6 1/2% Convertible Subordinated Debentures due
2002............................................. 50 50 50
------ ------ ------
Total long-term debt............................. 1,233 1,583 1,608
------ ------ ------
STOCKHOLDERS' EQUITY:
Common Stock; $.01 par value; 100 million shares
authorized; 75 million shares issued and
outstanding (1).................................. 1 1 1
Additional paid-in capital.......................... 294 294 294
Retained earnings................................... 300 300 300
Treasury stock...................................... (3) (3) (3)
Cumulative translation adjustment................... (10) (10) (10)
------ ------ ------
Total stockholders' equity............................ 582 582 582
------ ------ ------
Total capitalization.................................. $1,815 $2,165 $2,190
====== ====== ======
</TABLE>
- ---------------
(1) As of March 31, 1996 there were outstanding 75 million shares of Common
Stock, warrants and options to purchase shares of Common Stock and stock units
representing a total of 5 million shares of Common Stock, and $50 million
principal amount of the Company's 6 1/2% Convertible Subordinated Debentures due
2002 convertible at a per share price of $26.16 into 2 million shares of Common
Stock.
S-10
<PAGE> 11
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following tables and related notes present financial information at and for
the periods presented herein to give effect on a pro forma basis to the recent
acquisition by the Company of the Light Interest and the sale of the Notes. The
acquisition of the Light Interest will be accounted for using the purchase
method. The unaudited pro forma adjustments are based upon available information
and certain assumptions and estimates which the Company believes are reasonable
under the circumstances. The unaudited pro forma results do not purport to be
indicative of the results that would have been obtained had the acquisition of
the Light Interest occurred at the beginning of the periods presented, nor are
they intended to be a projection of future results. The unaudited pro forma
financial information should be read in conjunction with the notes hereto.
The following unaudited pro forma consolidated statements of operations
information combine the results of AES's investment in Light for the year ended
December 31, 1995 and the quarter ended March 31, 1996 on the equity method as
if the acquisition by the Company of the Light Interest and the Offering had
occurred at the beginning of the periods.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1995 (1)(2)(3) PRO FORMA
FOR THE
ADJUSTMENTS PRO FORMA ADJUSTMENTS LIGHT INTEREST
FOR THE FOR THE FOR THE AND THE
In millions except per share data ACTUAL LIGHT INTEREST (4) LIGHT INTEREST OFFERING (4) OFFERING
------ -------------- -------------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues........................ $ 685 $ -- $ 685 $ -- $ 685
Total operating cost and expenses..... 437 -- 437 -- 437
---- ----- ---- ----- ----
Operating income...................... 248 -- 248 -- 248
Other income and (expense):
Interest expense.................... (122) (27)(d) (149) (8)(h) (157)
Interest income..................... 27 -- 27 -- 27
Equity in earnings of affiliates...... 14 11(c) 25 -- 25
---- ----- ---- ----- ----
Income before income taxes and
minority interest................... 167 (16) 151 (8) 143
Income taxes.......................... 57 (11)(e) 46 (3)(e) 43
Minority interest..................... 3 -- 3 -- 3
---- ----- ---- ----- ----
Net income............................ $ 107 $ (5) $ 102 $ (5) $ 97
==== ===== ==== ===== ====
Net income per share.................. $1.41 $(0.07) $1.34 $(0.07) $1.27
==== ===== ==== ===== ====
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
QUARTER ENDED MARCH 31, 1996 (1)(2)(3) PRO FORMA
FOR THE
ADJUSTMENTS PRO FORMA ADJUSTMENTS LIGHT INTEREST
FOR THE FOR THE FOR THE AND THE
ACTUAL LIGHT INTEREST (4) LIGHT INTEREST OFFERING (4) OFFERING
------ -------------- -------------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues........................ $ 172 $ -- $ 172 $ -- $ 172
Total operating cost and expenses..... 109 -- 109 -- 109
---- ----- ---- ----- ----
Operating income...................... 63 -- 63 -- 63
Other income and (expense):
Interest expense.................... (28) (7)(d) (35) (3)(h) (38)
Interest income..................... 5 -- 5 -- 5
Equity in earnings of affiliates...... 5 6(c) 11 -- 11
---- ---- ---- ----- ----
Income before income taxes and
minority interest................... 45 (1) 44 (3) 41
Income taxes.......................... 15 (3)(e) 12 (1)(e) 11
Minority interest..................... 1 -- 1 -- 1
---- ---- ---- ----- ----
Net income............................ $ 29 $ 2 $ 31 $ (2) $ 29
==== ===== ==== ===== ====
Net income per share.................. $0.38 $0.03 $0.41 $(0.03) $0.38
==== ===== ==== ===== ====
</TABLE>
S-11
<PAGE> 12
The following unaudited pro forma consolidated balance sheet information
represents AES's financial position at March 31, 1996 as if the acquisition by
the Company of the Light Interest and the Offering had occurred on that date.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
AS OF MARCH 31, 1996 (1)(2)(3) PRO FORMA
FOR THE
ADJUSTMENTS PRO FORMA ADJUSTMENTS LIGHT INTEREST
FOR THE FOR THE FOR THE AND THE
In millions except ratios ACTUAL LIGHT INTEREST (4) LIGHT INTEREST OFFERING (4) OFFERING
------ -------------- -------------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets......................... $2,353 $404(a) $2,757 $ 5(f) $2,762
Revolving bank loan (current)........ 31 54(b) 85 (20)(g) 65
Project financing debt (current)..... 84 -- 84 -- 84
Revolving bank loan (long-term)...... -- 125(b) 125 -- 125
Project financing debt (long-term)... 1,108 225(b) 1,333 (225)(g) 1,108
Other notes payable (long-term)...... 125 -- 125 250(g) 375
Stockholders' equity................. 582 -- 582 -- 582
Debt to total capitalization plus
short-term debt ratio:
-- Project financing debt.......... 61.8% 60.7% 51.0%
-- Parent debt..................... 8.0% 14.4% 24.2%
----- ----- -----
Total................................ 69.8% 75.1% 75.2%
===== ===== =====
</TABLE>
- ---------------
(1) Basis of presentation. The AES subsidiary which owns an 11.35% interest in
Light is participating in a consortium that owns a 50.44% controlling interest.
As a result, the Company has the ability to exert significant influence over the
operations of Light, and will record its investment using the equity method.
The unaudited pro forma financial information presented is based on Light's
financial position and results of operations as of March 31, 1996 and for the
periods ended December 31, 1995 and March 31, 1996, during which time it was
controlled by Eletrobras, the Brazilian government utility holding company
(which owned approximately 81.6%). The unaudited pro forma financial information
has been prepared based on the Company's estimate of Light's financial position
and results of operation in conformity with U.S. generally accepted accounting
principles.
Equity in earnings of Light for the year ended December 31, 1995 has been
translated into U.S. dollars at the average rate during the year of R$0.92 to
U.S.$1.00, and at the average rate for the quarter ended March 31, 1996, of
R$0.99 to U.S.$1.00.
(2) Goodwill. The estimated excess of the purchase price over the Company's
proportionate share of the net assets acquired is being amortized over the 30
year life of the concession.
(3) Financing. For purposes of the unaudited pro forma financial information
presented herein, the acquisition of the Light Interest was funded through
drawings of $179 million under the Company's $425 million Bank Credit Agreement
and borrowings of $225 million under the Reimbursement Agreement which is
assumed to be repaid by the proposed issuance of the $250 million Notes.
(4) Description of unaudited pro forma entries.
(a) Represents the investment in Light of $393 million and costs of $11
million financed by borrowings of $225 million under the Reimbursement
Agreement and drawings of $179 million under the Bank Credit Agreement.
(b) Represents the financing of the transaction described in (a).
(c) Represents equity in earnings of Light, net of goodwill amortization.
(d) Represents interest expense associated with borrowings under the
Reimbursement Agreement and the Bank Credit Agreement, and amortization
of deferred financing costs.
(e) Represents the income tax benefit related to the interest costs.
(f) Represents the deferred financing costs resulting from the issuance of
the Notes.
(g) Assumes that the net proceeds to the Company from the proposed issuance
of the $250 million Notes will be used to repay the $225 million
Reimbursement Agreement and $20 million of the amount outstanding under
the Bank Credit Agreement. Alternatively, the Company may use the
proceeds from the Offering to repay amounts outstanding under the Bank
Credit Agreement, currently $202 million, and the balance for general
corporate purposes. See "Use of Proceeds."
(h) Represents incremental interest costs associated with the assumed
refinancing of the Reimbursement Agreement and of a portion of the Bank
Credit Agreement through the Offering, and write-off of deferred
financing costs associated with the Reimbursement Agreement.
S-12
<PAGE> 13
SELECTED CONSOLIDATED FINANCIAL DATA
The following table summarizes certain selected consolidated financial data,
which should be read in conjunction with the Company's consolidated financial
statements and related notes and with the "Discussion and Analysis of Financial
Condition and Results of Operations" included in the accompanying Prospectus.
The selected consolidated financial data as of and for each of the five years in
the period ended December 31, 1995 have been derived from the audited
consolidated financial statements of the Company. The consolidated financial
statements as of December 31, 1994 and 1995, and for each of the three years in
the period ended December 31, 1995, and the independent auditors' report
thereon, are included in the accompanying Prospectus. The selected financial
data presented below as of March 31, 1995 and 1996 and for the three months
ended March 31, 1995 and 1996 are derived from the unaudited consolidated
financial statements of the Company included in the accompanying Prospectus. The
results of operations for the three months ended March 31, 1996 are not
necessarily indicative of the results to be expected for the full year. The
Company believes that the unaudited information for the three months ended March
31, 1995 and 1996 contain all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the operating results for such
periods.
<TABLE>
<CAPTION>
----------------------------------------------------------
QUARTER
ENDED
YEAR ENDED DECEMBER 31 MARCH 31
In millions except ratio and per share data 1991 1992 1993 1994 1995 1995
----- ----- ----- ----- ----- -----
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Sales............................................................. $ 328 $ 394 $ 508 $ 514 $ 672 $ 167
Services.......................................................... 5 7 11 19 13 4
----- ----- ----- ----- ----- -----
Total revenues.................................................. 333 401 519 533 685 171
----- ----- ----- ----- ----- -----
Operating cost and expenses:
Cost of sales..................................................... 187 224 260 256 393 99
Cost of services.................................................. 4 6 9 13 12 4
Selling, general and administrative expenses...................... 10 18 35 32 32 8
Provision to reduce carrying value of lease hold oil interest..... -- -- 22 -- -- --
----- ----- ----- ----- ----- -----
Total operating costs and expenses.............................. 201 248 326 301 437 111
----- ----- ----- ----- ----- -----
Operating income................................................... 132 153 193 232 248
Other income and (expense):
Interest expense.................................................. (85) (97) (125) (121) (122) (31)
Interest income................................................... 4 8 11 22 27 7
Equity in earnings of affiliates................................... -- 2 10 12 14 3
----- ----- ----- ----- ----- -----
Income before income taxes, minority interest and extraordinary
item.............................................................. 51 66 89 145 167 39
Income taxes....................................................... 7 9 18 44 57 14
Minority interest.................................................. 1 1 -- 3 3 --
----- ----- ----- ----- ----- -----
Income before extraordinary item................................... 43 56 71 98 107 25
Extraordinary item................................................. -- -- -- 2 -- --
----- ----- ----- ----- ----- -----
Net income......................................................... $ 43 $ 56 $ 71 $ 100 $ 107 $ 25
====== ====== ====== ====== ====== ======
Net income per share............................................... $0.66 $0.80 $0.98 $1.32 $1.41 $0.33
Ratio of earnings to fixed charges (1)............................. 1.31 1.37 1.63 2.08 2.18 2.18
<CAPTION>
QUARTER
ENDED
MARCH 31
In millions except ratio and per share data 1996
-----
(unaudited)
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Sales............................................................. $ 170
Services.......................................................... 2
-----
Total revenues.................................................. 172
-----
Operating cost and expenses:
Cost of sales..................................................... 99
Cost of services.................................................. 1
Selling, general and administrative expenses...................... 9
Provision to reduce carrying value of lease hold oil interest..... --
-----
Total operating costs and expenses.............................. 109
-----
Operating income...................................................
Other income and (expense):
Interest expense.................................................. (28)
Interest income................................................... 5
Equity in earnings of affiliates................................... 5
-----
Income before income taxes, minority interest and extraordinary
item.............................................................. 45
Income taxes....................................................... 15
Minority interest.................................................. 1
-----
Income before extraordinary item................................... 29
Extraordinary item................................................. --
-----
Net income......................................................... $ 29
======
Net income per share............................................... $0.38
Ratio of earnings to fixed charges (1)............................. 2.12
<CAPTION>
-------------------------------------------------------------
QUARTER
ENDED
YEAR ENDED DECEMBER 31 MARCH 31
In millions except ratio and per share data 1991 1992 1993 1994 1995 1995
----- ----- ----- ----- ----- -----
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets....................................................... $1,367 $1,552 $1,687 $1,915 $2,320 $2,129
Revolving bank loan (current)...................................... 10 -- -- -- 50 --
Project financing debt (current)................................... 48 71 79 61 84 98
Project financing debt (long term)................................. 1,093 1,146 1,075 1,019 1,098 1,030
Other notes payable (long term).................................... -- 50 125 125 125 125
Stockholders' equity............................................... 141 177 309 401 549 429
Debt to total capitalization plus short term debt ratio:
-- Project financing debt......................................... 88.2% 83.2% 72.4% 67.0% 61.6% 65.6%
-- Parent debt (2)................................................ 0.8 3.4 7.9 7.8 9.1 7.7
------ ------ ------ ------ ------ ------
Total....................................................... 89.0% 86.6% 80.3% 74.8% 70.7% 73.3%
======= ======= ======= ======= ======= =======
<CAPTION>
QUARTER
ENDED
MARCH 31
In millions except ratio and per share data 1996
-----
(unaudited)
BALANCE SHEET DATA:
<S> <C>
Total assets....................................................... $2,353
Revolving bank loan (current)...................................... 31
Project financing debt (current)................................... 84
Project financing debt (long term)................................. 1,108
Other notes payable (long term).................................... 125
Stockholders' equity............................................... 582
Debt to total capitalization plus short term debt ratio:
-- Project financing debt......................................... 61.8%
-- Parent debt (2)................................................ 8.0
------
Total....................................................... 69.8%
=======
<CAPTION>
--------------------------------------------------------------
FOUR
QUARTERS
ENDED
YEAR ENDED DECEMBER 31 MARCH 31
In millions except ratio and per share data 1991 1992 1993 1994 1995 1995
------ ------ ------ ------ ------ ------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Net cash provided by operating activities.......................... $86 $78 $123 $164 $197 $168
Consolidated EBITDA (3)(4)......................................... 5 45 30 68 110 111
Consolidated Fixed Charges (3)..................................... 1 3 7 11 12 11
Fixed charge ratio (3)............................................. 6.88 14.48 4.18 6.15 9.20 9.74
<CAPTION>
FOUR
QUARTERS
ENDED
MARCH 31
In millions except ratio and per share data 1996
------
(unaudited)
<S> <C>
OTHER DATA:
Net cash provided by operating activities.......................... $199
Consolidated EBITDA (3)(4)......................................... 115
Consolidated Fixed Charges (3)..................................... 13
Fixed charge ratio (3)............................................. 9.05
</TABLE>
- ---------------
(1) For purposes of this ratio, earnings include income before taxes and fixed
charges excluding capitalized interest. Fixed charges include interest, whether
capitalized or expensed, and amortization of deferred financing costs, whether
capitalized or expensed. On a pro forma basis giving effect to the Company's
recent acquisition of the Light Interest and the application of the net proceeds
of the Offering of the Notes at the beginning of the relevant periods, the ratio
of earnings to fixed charges would have been 1.79x and 1.76x for the year ended
December 31, 1995 and the quarter ended March 31, 1996, respectively.
(2) Parent debt represents obligations of the Company, as parent. It does not
include non-recourse obligations of the Company's subsidiaries.
(3) The other data presented for "Consolidated EBITDA," "Consolidated Fixed
Charges" and "Fixed Charge Ratio" is calculated in accordance with the
respective definitions of such terms in the Indenture and set forth herein under
"Description of Notes -- Certain Definitions." On a pro forma basis giving
effect to the Company's recent acquisition of the Light Interest and the
application of the net proceeds of the Offering of the Notes at the beginning of
the relevant periods, the Fixed Charge Ratio would have been 3.16x and 3.29x for
the year ended December 31, 1995 and for the four quarters ended March 31, 1996,
respectively.
(4) Consolidated EBITDA is a concept defined in the Indenture and is not a
substitute for cash flows from operating activity as defined by generally
accepted accounting principles.
S-13
<PAGE> 14
DESCRIPTION OF CORPORATE CREDIT FACILITY
The Company has a $425 million credit facility pursuant to the Bank Credit
Agreement dated May 20, 1996 with Morgan Guaranty Trust Company of New York
("Morgan Guaranty"), as agent. There follows under this caption a brief summary
of certain provisions of the Bank Credit Agreement and related subsidiary
guaranties. The summary is subject to and qualified in its entirety by reference
to the detailed provisions of the Bank Credit Agreement, a copy of which has
been filed with the Commission. Unless otherwise indicated, capitalized terms
used in this summary description of the Bank Credit Agreement have the same
meaning as that given to them in the Bank Credit Agreement.
BORROWING AND LETTER OF CREDIT COMMITMENTS
The Company can borrow up to $425 million under the Bank Credit Agreement,
provided that for a period of 30 consecutive days during each twelve-month
period there are no loans under the agreement outstanding in excess of $125
million in the aggregate and, during such period, no letter of credit will be
used to fund any debt service reserve. The Company also can utilize the entire
facility (less any outstanding borrowings) for letters of credit. The Bank
Credit Agreement terminates on May 19, 1999, but may be extended for two
one-year periods with the consent of the parties to the agreement.
INTEREST AND FEES
The "Base Rate" as defined under the Bank Credit Agreement is the rate per annum
equal to the higher of (i) the rate as announced from time to time by Morgan
Guaranty as its prime rate and (ii) the federal funds rate plus 1/2%. The
Company may specify whether its borrowing is either a Base Rate Loan or a
Eurodollar Loan. Base Rate Loans bear interest at the Base Rate and mature at
the end of 30 days. The percentages of the Eurodollar margin, commitment fee
rate and letter of credit commission rate are based on a schedule related to the
Company's long-term debt rating. As of the date hereof, Eurodollar Loans bear
interest at the rate per annum equal to LIBOR plus 1.75% and mature in one, two,
three or six months, as specified by the Company. As of the date hereof,
outstanding letters of credit bear a fee of 1.75% per annum. Reimbursement
obligations in respect of any letters of credit drawn bear interest at the Base
Rate. A penalty interest rate of Base Rate plus 2% applies to any overdue
reimbursement obligations. As of the date hereof, the Company pays a commitment
fee at the rate of 3/8% per annum on the unused portion of the facility.
CERTAIN COVENANTS OF THE COMPANY
Definitions. In the Bank Credit Agreement, "subsidiary" means any corporation
or other entity of which securities or ownership interests having ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions are directly or indirectly owned by the Company.
"Material AES Entity" means any of AES Connecticut Management Co., Inc.; AES
Hawaii Management Co., Inc.; AES Thames; AES Barbers Point; and AES Shady Point
and any other person in which AES has a direct or indirect equity investment if
such person's contribution to Parent Operating Cash Flow for the four most
recently completed fiscal quarters of AES constitutes 15% or more of the total
Parent Operating Cash Flow for such period. "Significant AES Entity" means any
Material AES Entity and any other person in which AES has a direct or indirect
equity investment so long as the Company's direct or indirect interest in the
total assets of such person, if such person is a Consolidated Subsidiary (as
defined therein), or in the net assets of such person in all other cases is at
least equal to 10% of the consolidated assets of the Company and its
Consolidated Subsidiaries, taken as a whole, or the Company's direct or indirect
interest in the total net income of such person (for the preceding fiscal
quarter) is at least equal to 10% of the net income of the Company and its
Consolidated Subsidiaries (for such fiscal quarter) taken as a whole, or such
person's contribution to Parent Cash Flow for the four most recently completed
fiscal quarters of AES constitutes 10% or more of Parent Cash Flow for such
period.
Affirmative Covenants. Among other affirmative covenants, the Company is
required to pay all its material obligations and liabilities at or before
maturity and to cause its subsidiaries to maintain appropriate reserves and
accruals therefor. The Company is required to continue and to cause its
subsidiaries to continue to engage in businesses of the same general type as now
conducted. Mergers of subsidiaries into the Company or into another person are
permitted if the survivor is a subsidiary and after giving effect thereto, no
Default shall have occurred and be continuing and certain other conditions are
satisfied. The Company is required to comply and cause each
S-14
<PAGE> 15
subsidiary to comply in all material respects with applicable laws, except where
non-compliance would result in payments of less than $200,000 for each such
non-compliance and the necessity of compliance therewith is contested in good
faith by appropriate proceedings.
Financial Tests. The Company must maintain consolidated tangible net worth at
least equal to $300 million plus 75% of the amount of any net proceeds to AES
from the issuance of any equity securities issued by the Company after the date
of the Bank Credit Agreement and, for each fiscal quarter of AES ended after
June 30, 1995 and at or prior to such time for which the consolidated net income
of AES is a positive number, 50% of the consolidated net income earned by the
Company for such quarter. The Company must also maintain a minimum ratio of
Adjusted Parent Operating Cash Flow (defined as parent operating cash flow for
such period less the sum of development expenses, income tax payments, and
corporate overhead expenses) to Corporate Charges (defined as the sum of
interest expense, rental expense and dividends paid on AES's capital stock) of
1.8 to 1. In addition, the Company must maintain a ratio of Cash Flow to total
parent debt outstanding of 0.17 to 1.
Restrictions on Debt. The Company cannot assume, incur or create any debt
(including guaranties of debt of others) except for: (i) certain existing debt;
(ii) debt under the Credit Agreement and related subsidiary guaranty thereof;
(iii) debt incurred by a subsidiary to finance the development, acquisition,
construction, maintenance or working capital requirements of a power project
operated or managed (including on a joint basis with others), directly or
indirectly, by AES and in which such Subsidiary has an interest and that is not
also the debt of, or guaranteed by, any other subsidiary with an interest in any
other Power Project; (iv) debt owing to AES or one of its Consolidated
Subsidiaries; (v) debt of AES or its subsidiaries representing the refinancing,
replacement or refunding of debt permitted by clauses (ii) and (iii) hereof;
(vi) guarantees by AES of debt permitted under clause (ii) hereof; (vii) the
Notes offered hereby; and (viii) other debt in an aggregate principal amount of
no more than $2 million.
Limitations on Dividends and Repurchases of Capital Stock. The Company cannot
pay any dividend on its capital stock (except dividends payable solely in shares
of its capital stock), or pay for the purchase, redemption, retirement or other
acquisition of shares of its capital stock or any right to acquire shares of its
capital stock, unless the aggregate amount of all such payments made after June
30, 1995 does not exceed the sum of $5 million plus 5% of consolidated net
income of AES calculated from June 30, 1995.
Limitations on Liens. The Company cannot create, assume or suffer to exist any
lien on any asset now owned or hereafter acquired by it except existing liens on
the date thereof; liens existing on any asset prior to the acquisition thereof
(including an asset of any corporation at the time it becomes a subsidiary or is
merged with the Company or a subsidiary) not created in contemplation of such
acquisition; liens on assets securing debt incurred or assumed for the purpose
of financing the costs of acquiring such asset; liens arising out of the
refinancing, extension, renewal or refunding of any debt secured by any lien
permitted by the foregoing clauses; liens arising in the ordinary course which
do not secure debt, do not secure any obligation exceeding $25 million and do
not in the aggregate materially detract from the value of or materially impair
the use of the assets encumbered thereby; other liens required in the ordinary
course of business and not in connection with the borrowing of money or
obtaining advances or credit; liens on cash collateral securing investment and
guarantee commitments; and liens securing debt of subsidiaries permitted by
clause (iii) of the "Restrictions on Debt" covenant described above or utility
obligations, or other customer, supplier or contractor obligations associated
with power projects that are limited to the assets and revenues of such power
projects and the capital stock or other assets of subsidiaries of AES having a
direct or indirect interest in such power projects.
Restrictions on Mergers and Sales of Assets. The Company cannot consolidate or
merge with or into any other person unless the Company is the survivor and,
immediately after giving effect thereto, no Default or Event of Default shall
have occurred or be continuing. The Company cannot sell, lease or otherwise
transfer all or any substantial part of its or its subsidiaries' assets, taken
as a whole, and may not sell or transfer the capital stock of AES Finance or any
Material AES Entity unless certain conditions, including meeting a pro forma
cash flow coverage ratio of 1.8 to 1, are met.
Other Restrictions. The Bank Credit Agreement restricts the Company's ability
to make investments and restricts the ability of the Company and its
subsidiaries to engage in transactions with affiliates.
S-15
<PAGE> 16
EVENTS OF DEFAULT
An "Event of Default" is defined in the Bank Credit Agreement as the failure by
any Obligor to pay when due any principal of any Loan or any Reimbursement
Obligation, or failure to pay within three days of the date when due any
interest, fees or other amounts payable under any Financing Document; the
failure by the Company to observe or perform any covenant imposing limitations
on project exposure, debt, subordinated debt, investments, guarantees and
commitments to invest and liens on assets; requiring the maintenance of a cash
flow to debt ratio; requiring the maintenance of minimum consolidated tangible
net worth and cash flow coverage; and restricting certain payments,
consolidations, mergers, sales of assets, use of proceeds and transactions with
affiliates; the failure by any Obligor to observe or perform any covenant or
agreement contained in any Financing Document for 20 days after notice thereof
has been given to the Company; the failure in any material respect of any
representation or warranty to have been correct when made or deemed made; and
the failure by the Company or any Material AES Entity to make any payment in
respect of any Material Debt when due or within any applicable grace period. It
is also an Event of Default if any event or condition shall occur which results
in the acceleration of the maturity of any debt of the Company or any of its
subsidiaries (except AES Placerita and San Nicolas) or enables the holder of any
Material Debt to accelerate the maturity thereof or enables the holder of any
debt outstanding under the Reimbursement Agreement to accelerate the maturity
thereof; the Company or any Significant AES Entity commences a voluntary
bankruptcy or is the subject of an involuntary bankruptcy; any member of the
ERISA Group shall fail to pay when due amounts in excess of $1 million for which
it shall have become liable under Title IV of ERISA, any material plan shall be
in danger of termination; a judgment in excess of $1 million shall be rendered
against the Company or any of its subsidiaries which shall continue unsatisfied
and unstayed for 10 days; any person or group (other than a member of the
Company's management) shall acquire beneficial ownership of 20% or more of the
Company's Common Stock; or there shall be a change in the majority of the Board
of Directors during any 12 consecutive months.
SUBSIDIARY GUARANTIES
AES Oklahoma Management Company, Inc., is a wholly-owned subsidiary of the
Company which in turn is the direct parent of AES Shady Point. AES Hawaii
Management Co., Inc., is a wholly-owned subsidiary of the Company which in turn
is the direct parent of AES Barbers Point. Each of AES Oklahoma Management
Company, Inc. and AES Hawaii Management Co., Inc. has agreed, if the Company
shall have failed to make full and punctual payment of each reimbursement
obligation or any debt owed under the Corporate Credit Facility, to pay the
amount not so paid.
Each of the two subsidiary guarantors (hereinafter "guarantor") also has agreed
to be precluded from declaring or paying any dividends, purchasing any shares of
its capital stock or making any investment in the Company, if there shall have
been an Event of Default under the Bank Credit Agreement due to a payment
default by the Company thereunder, a payment default by the Company or any
subsidiary in respect of any Material Debt, any acceleration or ability to
accelerate any Material Debt or a voluntary or involuntary bankruptcy of the
Company or any Significant AES Entity. Each guarantor and its subsidiaries also
is precluded from merging into or consolidating with any person or selling or
otherwise disposing of all or substantially all of its assets, except for
mergers into or transfers of assets to the guarantor, and provided that, in the
case of a merger, the guarantor is the survivor and, in any case, no event
constituting a breach of a material provision of the guaranty agreement would
exist and Morgan Guaranty shall have consented to any assumption by the
guarantor of the debt of any subsidiary so merging or transferring its assets.
No guarantor can sell, assign, lease or otherwise dispose of any equity interest
in the project subsidiary of which it is the direct parent or cause or permit
such project subsidiary to be owned other than as currently owned by the
guarantor.
S-16
<PAGE> 17
DESCRIPTION OF NOTES
The Notes will be issued under an Indenture as amended by the First Supplemental
Indenture thereto (such Indenture, as so amended, hereinafter referred to as the
"Indenture") to be dated as of July 1, 1996 between the Company and The First
National Bank of Chicago (hereinafter referred to as the "Trustee"). A copy of
the form of the Indenture is filed as an exhibit to the Registration Statement
of which this Prospectus is a part and is also available for inspection at the
office of the Trustee. The following summary of certain provisions of the
Indenture does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Indenture, including the
definitions of certain terms therein and those terms made a part thereof by the
Trust Indenture Act of 1939, as amended. Wherever particular Sections or defined
terms of the Indenture are referred to, such Sections or defined terms shall be
incorporated herein by reference. A summary of certain defined terms used in the
Indenture and referred to in the following summary description of the Notes is
set forth below under "Certain Definitions".
GENERAL
The Notes will be general unsecured obligations of the Company subordinated in
right of payment to all Senior Debt of the Company, will be limited to $250
million aggregate principal amount, and will mature on July 15, 2006.
Principal of, and premium, if any, on, the Notes will be payable, and the Notes
may be exchanged or transferred, at the office or agency of the Company in
Chicago, Illinois (which initially shall be the corporate trust office of the
Trustee, at One First National Plaza, Suite 0126, Chicago, Illinois 60670-0126).
Interest at the annual rate set forth on the cover page hereof will accrue from
July 2, 1996, will be payable semi-annually on January 15 and July 15,
commencing January 15, 1997, to the Holders thereof at the close of business on
the preceding January 1 and July 1, respectively, and, unless other arrangements
are made, will be paid by checks mailed to such Holders.
The Notes will be issued only in fully registered form in denominations of
$1,000 and any multiple of $1,000. No service charge shall be payable for any
registration of transfer or exchange of Notes, but the Company may require
payment of a sum sufficient to cover any transfer tax or other similar
governmental charge payable in connection therewith.
OPTIONAL REDEMPTION
The Notes will be redeemable, at the Company's option, in whole or in part, at
any time on or after July 15, 2001 and prior to maturity, upon not less than 30
nor more than 60 days' prior notice, at the following redemption prices
(expressed in percentages of principal amount) ("Redemption Prices"), plus
accrued interest to the date of redemption, if redeemed during the 12-month
period commencing on or after July 15 of the years set forth below:
<TABLE>
<CAPTION>
-----------
REDEMPTION
YEAR PRICE
- -------------------------------------------------------------------------------- -----------
<S> <C>
2001............................................................................ 105.1250%
2002............................................................................ 102.5625%
</TABLE>
and, after July 15, 2003, at 100% of the principal amount.
GLOBAL NOTES
The Notes will be issued in the form of one or more fully registered global
notes (each a "Global Note") deposited with The Depository Trust Company (the
"Depositary") or a nominee thereof. Unless and until it is exchanged in whole or
in part for Notes in definitive registered form, a Global Note may not be
transferred except as a whole by the Depositary to a nominee of the Depositary
or by a nominee of the Depositary to the Depositary or another nominee of the
Depositary or by the Depositary or any such nominee to a successor of the
Depositary or a nominee of such successor.
Ownership of beneficial interests in a Global Note will be limited to persons
that have accounts with the Depositary ("Participants") or persons that may hold
interests through Participants. Upon the issuance of a Global Note, the
Depositary for such Global Note will credit, on its book-entry registration and
transfer system, the Participants' accounts with the respective principal
amounts of the Notes represented by such Global Note beneficially owned by
S-17
<PAGE> 18
such Participants. The accounts to be credited will be designated by the
Underwriters. Ownership of beneficial interests in such Global Note will be
shown on, and the transfer of such ownership interests will only be effected
through, records maintained by the Depositary (with respect to interests of
Participants) and on the records of Participants (with respect to interests of
persons holding through Participants). The laws of some states may require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to own,
transfer, or pledge beneficial interests in Global Notes.
So long as the Depositary or its nominee is the owner of record of a Global
Note, the Depositary or such nominee, as the case may be, will be considered the
sole owner or holder of the Notes represented by such Global Note for all
purposes under the Indenture. Except as set forth below, owners of beneficial
interests in a Global Note will not be entitled to have the Notes represented by
such Global Note registered in their names, and will not receive or be entitled
to receive physical delivery of such Notes in definitive form and will not be
considered the owners or holders thereof under the Indenture. Accordingly, each
person owning a beneficial interest in a Global Note must rely on the procedures
of the Depositary and, if such person is not a Participant, on the procedures of
the Participant through which such person owns its interest, to exercise any
rights of a holder of record under the Indenture. The Company understands that
under existing industry practices, if the Company requests any action of holders
or if any owner of a beneficial interest in a Global Note desires to give or
take any action which a holder is entitled to give or take under the Indenture,
the Depositary would authorize the Participants holding the relevant beneficial
interests to give or take such action, and such Participants would authorize
beneficial owners owning through such Participants to give or take such action
or would otherwise act upon the instruction of beneficial owners holding through
them.
Payments of principal of, premium, if any, and interest on Notes represented by
a Global Note registered in the name of the Depositary or its nominee will be
made to such Depositary or such nominee, as the case may be, as the registered
owner of such Global Note. None of the Company, the Trustee, or any agent of the
Company or agent of the Trustee will have any responsibility or liability for
any aspect of the records relating to or payments made on account of beneficial
ownership interests in such Global Note or for maintaining, supervising, or
reviewing any records relating to such beneficial ownership interests.
The Company expects that the Depositary, upon receipt of any payment of
principal, premium, if any, or interest in respect of such Global Note, will
immediately credit Participants' accounts with payments in amounts proportionate
to their respective beneficial interests in such Global Note as shown on the
records of the Depositary. The Company also expects that payments by
Participants to owners of beneficial interests in such Global Note held through
such Participants will be governed by standing customer instructions and
customary practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of such Participants.
If the Depositary notifies the Company that it is at any time unwilling or
unable to continue as Depositary or ceases to be eligible under applicable law,
and a successor Depositary eligible under applicable law is not appointed by the
Company within 90 days, the Company will issue such Notes in definitive form in
exchange for such Global Note. In addition, the Company may at any time and in
its sole discretion determine not to have any of the Notes represented by one or
more Global Notes and, in such event, will issue Notes in definitive form in
exchange for all of the Global Notes representing such Notes. Any Notes issued
in definitive form in exchange for a Global Note will be registered in such name
or names as the Depositary shall instruct the Trustee. It is expected that such
instructions will be based upon directions received by the Depositary from
Participants with respect to ownership of beneficial interests in such Global
Note.
SAME-DAY SETTLEMENT IN RESPECT OF GLOBAL NOTES
So long as any Notes are represented by Global Notes registered in the name of
the Depositary or its nominee, such Notes will trade in the Depositary's
Same-Day Funds Settlement System, and secondary market trading activity in such
Notes will therefore be required by the Depositary to settle in immediately
available funds. No assurances can be given as to the effect, if any, of
settlement in immediately available funds on trading activity in the Notes.
S-18
<PAGE> 19
SUBORDINATION
The payment of principal of, Change of Control purchase price, premium, if any,
and interest on the Notes will, to the extent and in the manner set forth in the
Indenture, be subordinated in right of payment to the prior payment in full, in
cash equivalents, of all Senior Debt.
Upon any payment or distribution of assets to creditors upon any liquidation,
dissolution, winding up, receivership, reorganization, assignment for the
benefit of creditors, marshalling of assets and liabilities or any bankruptcy,
insolvency or similar proceedings of the Company, the holders of all Senior Debt
will first be entitled to receive payment in full of all amounts due or to
become due thereon before the Holders of the Notes will be entitled to receive
any payment in respect of the principal of, Change of Control purchase price,
premium, if any, or interest on the Notes.
No payments on account of principal, Change of Control purchase price, premium,
if any, or interest in respect of the Notes may be made by the Company if there
shall have occurred and be continuing a default in any payment with respect to
Senior Debt. In addition, during the continuance of any other event of default
(other than a payment default) with respect to Designated Senior Debt pursuant
to which the maturity thereof may be accelerated, from and after the date of
receipt by the Trustee of written notice from the holders of such Designated
Senior Debt or from an agent of such holders, no payments on account of
principal, Change of Control purchase price, premium, if any, or interest in
respect of the Notes may be made by the Company for a period ("Payment Blockage
Period") commencing on the date of delivery of such notice and ending 179 days
thereafter (unless such Payment Blockage Period shall be terminated by written
notice to the Trustee from the holders of such Designated Senior Debt or from an
agent of such holders, or such event of default has been cured or waived or has
ceased to exist). Only one Payment Blockage Period may be commenced with respect
to the Notes during any period of 360 consecutive days. No event of default
which existed or was continuing on the date of the commencement of any Payment
Blockage Period with respect to the Designated Senior Debt initiating such
Payment Blockage Period shall be or be made the basis for the commencement of
any subsequent Payment Blockage Period by the holders of such Designated Senior
Debt, unless such event of default shall have been cured or waived for a period
of not less than 90 consecutive days.
By reason of such subordination, in the event of insolvency, funds that would
otherwise be payable to Holders will be paid to the holders of Senior Debt to
the extent necessary to pay the Senior Debt in full, and the Company may be
unable to meet fully its obligations with respect to the Notes.
As of March 31, 1996, after giving effect to the Company's recent acquisition of
the Light Interest and to the application of the net proceeds of the Offering,
the Company had approximately $246 million in aggregate principal amount of Debt
which would have constituted Senior Debt. The Company expects from time to time
to incur additional Debt constituting Senior Debt. Although the Indenture
contains limitations on the amount of Debt which the Company may incur, the
amount of such Debt could be substantial and, in any case, such Debt may be
Senior Debt. See "Covenants -- Limitation on Debt" below.
In addition, the Company currently conducts substantially all of its operations
through its Subsidiaries. The rights of the Company and its creditors, including
the Holders of the Notes, to participate in the distribution of the assets of
any Subsidiary upon any liquidation or reorganization of such Subsidiary or
otherwise will be effectively subordinated to, and subject to, the prior claims
of creditors of such Subsidiary, except to the extent that the Company may
itself be a creditor with recognized claims against the Subsidiary. The ability
of the Company to pay principal of, Change of Control purchase price, premium,
if any, and interest on the Notes will be dependent upon the receipt of funds
from its Subsidiaries by way of dividends, fees, interest, loans or otherwise.
Most of the Company's Subsidiaries with interests in a Power Generation Facility
currently have in place, and the Indenture will permit the Company's
Subsidiaries to enter into, arrangements that restrict their ability to make
distributions to the Company by way of dividends, fees, interest, loans and
otherwise. As of March 31, 1996, the Company's Subsidiaries had approximately
$1.2 billion of indebtedness to which the Notes would have been effectively
subordinated. The Company expects its Subsidiaries from time to time to incur
additional Debt and the amount of such Debt could be substantial.
S-19
<PAGE> 20
COVENANTS
Limitation on Debt
The Company shall not Incur any Debt, including Acquisition Debt, unless after
giving effect to the Incurrence of such Debt and the receipt and application of
the proceeds therefrom, the Fixed Charge Ratio of the Company would be greater
than (a) 2 to 1 through June 30, 1999 and (b) 2.625 to 1 thereafter. The
Company's obligation to comply with this covenant will terminate if and when the
Notes become Investment Grade. On a pro forma basis, after giving effect to the
Company's recent acquisition of the Light Interest and the application of the
net proceeds from the Offering, as of March 31, 1996, the Company could have
Incurred $160 million of additional Debt at an interest rate of 10.25% per
annum.
Notwithstanding the foregoing, the Company may Incur each and all of the
following: (i) Debt under or in respect of the Bank Credit Agreement in an
aggregate principal amount at any one time outstanding not to exceed $225
million; provided that in the event the Notes are rated both Ba2 or higher by
Moody's Investors Service Inc. and BB or higher by Standard & Poor's
Corporation, the $225 million amount in the foregoing clause shall be increased
to $425 million; and provided further that such Debt shall be permitted under
this clause (i) only to the extent such Debt consists of borrowings for working
capital purposes or letters of credit issued for purposes consistent with the
practices of the Company in its use of the Bank Credit Agreement on or prior to
the date of the Indenture; (ii) Debt issued in exchange for, or the proceeds of
which are used to refinance, outstanding Notes or other Debt of the Company in
an amount (or, if such new Debt provides for an amount less than the principal
amount thereof to be due and payable upon a declaration of acceleration thereof,
with an original issue price) not to exceed the amount so exchanged or
refinanced (plus accrued interest and fees and expenses related to such exchange
or refinancing); provided that (A) the date of any payment of principal by way
of sinking fund, mandatory redemption or otherwise (including defeasance) on any
Debt so refinanced or exchanged otherwise due after the final scheduled maturity
date of the Notes shall not occur prior to such maturity date as a result of
such exchange or refinancing and (B) new Debt the proceeds of which are used to
exchange or refinance the Notes or other Debt of the Company that is
subordinated in right of payment to the Notes shall only be permitted under this
clause (ii) if (x) in case the Notes are exchanged or refinanced in part, such
new Debt, by its terms or by the terms of any agreement or instrument pursuant
to which such Debt is issued, is expressly made pari passu with, or subordinate
in right of payment to, the remaining Notes, (y) in case the Debt to be
exchanged or refinanced is subordinated in right of payment to the Notes, such
new Debt, by its terms or by the terms of any agreement or instrument pursuant
to which such Debt is issued, is expressly made subordinate in right of payment
to the Notes, at least to the extent that the Debt to be exchanged or refinanced
is subordinated in right of payment to the Notes and (z) in case the Notes are
exchanged or refinanced in part or the Debt to be exchanged or refinanced is
subordinated in right of payment to the Notes, as of the date the new Debt is
Incurred, the Average Life of the new Debt shall be equal or greater than the
Average Life of the Notes or Debt to be exchanged or refinanced; (iii) Debt of
the Company to any of its Consolidated Subsidiaries, except that any transfer of
such Debt by a Consolidated Subsidiary (other than to another Consolidated
Subsidiary) will be deemed to be an Incurrence of Debt; provided that such Debt
is expressly subordinated in right of payment to the Notes; and (iv) Debt in an
aggregate principal amount not to exceed $50 million at any one time
outstanding.
For purposes of determining any particular amount of Debt under this "Limitation
on Debt" covenant, Guarantees of, or obligations with respect to letters of
credit supporting, Debt otherwise included in the determination of such
particular amount shall not be included. For purposes of determining compliance
with this "Limitation on Debt" covenant, (A) in the event that an item of Debt
meets the criteria of more than one of the types of Debt described in the above
clauses, the Company, in its sole discretion, shall classify such item of Debt
and only be required to include the amount and type of such Debt in one of such
clauses and (B) the amount of Debt issued at a price that is less than the
principal amount thereof shall be equal to the amount of the liability in
respect thereof determined in conformity with GAAP.
Limitation on Subsidiary Debt
The Company shall not permit any Subsidiary to Incur, directly or indirectly,
any Debt, including Acquisition Debt. The Company's obligation to comply with
this covenant will terminate if and when the Notes become Investment Grade.
S-20
<PAGE> 21
Notwithstanding the foregoing, each and all of the following Debt may be
Incurred by a Subsidiary; (i) Debt outstanding as of the Closing Date; (ii) Debt
Incurred for any purpose (including without limitation the purposes set forth in
clause (iii) below) to the extent of the amount thereof that is also Debt of the
Company and is permitted under the "Limitation on Debt" covenant described
above; (iii) Debt Incurred to finance the development, acquisition,
construction, maintenance, working capital requirements in the ordinary course
of business consistent with past practice or operation of a Power Generation
Facility or Unrelated Business in which such Subsidiary has a direct or indirect
interest; provided that (a) such Debt shall be permitted under this clause (iii)
only to the extent of the amount thereof which (x) is Non-Recourse to the
Company and (y) is Non-Recourse to any other Subsidiary with a direct or
indirect interest in any other Power Generation Facility or Unrelated Business;
provided that, the foregoing clause (y) shall not apply if (A) each of Moody's
Investors Service Inc. and Standard & Poor's Corporation reaffirms the rating of
the Notes at a level at least 1 rating category above the respective ratings of
the Notes on the date of issuance thereof and (B) such Debt is Non-Recourse to
any other Subsidiary of the Company other than Subsidiaries which represented
less than 30% of the Consolidated EBITDA of the Company for the Reference
Period, and (b) upon the commencement of commercial operations of such Power
Generation Facility or, in the case of an acquisition of such Power Generation
Facility or Unrelated Business, upon the date of such acquisition, the Company
directly or through its Subsidiaries either (x) controls, under an operating and
management agreement or otherwise, the day to day management and operation of
the Power Generation Facility or Unrelated Business so financed or (y) has
significant influence over the management and operation of such Power Generation
Facility or Unrelated Business; (iv) Debt issued in exchange for, or the
proceeds of which are used to refinance, outstanding Debt of such Subsidiary
otherwise permitted under the Indenture in an amount (or, if such new Debt
provides for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration thereof, with an original issue
price) not to exceed the amount so exchanged or refinanced (plus accrued
interest and fees and expenses related to such exchange or refinancing plus any
principal amounts previously repaid); provided that (a) the new Debt shall be
Non-Recourse to the Company to the same extent as the Debt to be exchanged or
refinanced, (b) if such Subsidiary has a direct or indirect interest in any
Power Generation Facility or Unrelated Business, the new Debt shall be
Non-Recourse to any other Subsidiary with a direct or indirect interest in any
other Power Generation Facility or Unrelated Business to the same extent as the
Debt to be exchanged or refinanced, (c) the date of any payment of principal by
way of sinking fund, mandatory redemption or otherwise (including defeasance) on
any Debt so refinanced or exchanged otherwise due after the final scheduled
maturity date of the Notes shall not occur prior to such maturity date as a
result of such exchange or refinancing and (d) if the new Debt refinances
principal amounts previously repaid, (x) such new Debt shall be permitted only
if on the date such new Debt is Incurred, the Company could incur at least $1 of
Debt under the first paragraph of the "Limitation on Debt" covenant described
above and (y) the proceeds from such new Debt are not to be used to make any
Restricted Payments; (v) Guarantees of Debt of the Company under the Bank Credit
Agreement; (vi) Debt Incurred to support the performance obligations of a
Subsidiary engaged in providing construction management or operating services to
a Power Generation Facility; provided that (a) such Debt shall be permitted
under this clause (vi) only to the extent of the amount thereof which is
Non-Recourse to the Company and is Non-Recourse to any other Subsidiary with a
direct or indirect interest in any other Power Generation Facility or Unrelated
Business and (b) upon the commencement of commercial operation of such Power
Generation Facility or in the case of an acquisition of such Power Generation
Facility, upon the date of such acquisition, the Company directly or through its
Subsidiaries either (x) controls, under an operating and management agreement or
otherwise, the day to day management and operation of such Power Generation
Facility or (y) has significant influence over the management and operation of
such Power Generation Facility; (vii) Debt in an aggregate amount for all
Subsidiaries at any one time outstanding of not more than $10 million Incurred
to finance the on-going operation, but not any expansion or improvement, of a
Power Generation Facility or Unrelated Business in which Subsidiary has a direct
or indirect interest; provided that such Debt shall be permitted under this
clause (vii) only to the extent it is Non-Recourse to the Company and to any
other Subsidiary with a direct or indirect interest in any other Power
Generation Facility or Unrelated Business; (viii) Debt of any Subsidiary of the
Company owed to (A) the Company or (B) an Intermediate Holding Company; (ix)
Debt in respect of Currency Agreements or Interest Rate Agreements; (x) Debt
that is Non-Recourse to the Company and Non-Recourse to any other Subsidiary of
the Company with a direct or indirect interest in any other Power Generation
Facility or Unrelated Business only to the extent that the proceeds of such Debt
are received by the Company or an Intermediate Holding Company (as defined
below) as a result of such proceeds being used to pay dividends or make
distributions on the Capital Stock of such Subsidiary and any other Subsidiary
in the chain of ownership between the Company or such Intermediate Holding
Company and such Subsidiary; and (xi) Debt of the type described in clause (iii)
of the definition thereof the Incurrence of which causes
S-21
<PAGE> 22
a corresponding reduction in any debt service or other similar cash reserve
required to be maintained in connection with any Debt of such Subsidiary
permitted by clause (iii) above and (to the extent that the same constitutes a
refinancing of Debt permitted under such clause (iii)), clause (iv) above, in
each case, only to the extent that the proceeds from such reserve reduction are
received by the Company or an Intermediate Holding Company as a result of such
proceeds being used to pay dividends or make distributions on the Capital Stock
of such Subsidiary and any other Subsidiary in the chain of ownership between
the Company or such Intermediate Holding Company and such Subsidiary.
For purposes of determining compliance with this "Limitation on Subsidiary Debt"
covenant, (A) in the event that an item of Debt meets the criteria of more than
one of the types of Debt described in the above clauses, the Company, in its
sole discretion, shall classify such item of Debt and only be required to
include the amount and type of such Debt in one of such clauses and (B) the
amount of Debt issued at a price that is less than the principal amount thereof
shall be equal to the amount of the liability in respect thereof determined in
conformity with GAAP.
Limitation on Restricted Payments
The Company will not, and will not permit any Subsidiary to, directly or
indirectly, make any Restricted Payment if at the time of such Restricted
Payment or after giving effect thereto: (a) an Event of Default or event that,
after the giving of notice or lapse of time or both would become an Event of
Default, shall have occurred and be continuing, (b) the Company could not Incur
at least $1 of Debt under the first paragraph of the "Limitation on Debt"
covenant described above or (c) the aggregate amount expended by the Company and
its Subsidiaries for all Restricted Payments (the amount of any single or
related series of Restricted Payments so expended or distributed, if in excess
of $15 million and other than in cash, to be determined in good faith by the
Board of Directors, as evidenced by a Board resolution) after July 1, 1996 shall
exceed the sum of: (1) 50% of the Net Income of the Company and its Consolidated
Subsidiaries for the period (taken as one accounting period) beginning on July
1, 1996 and ending on the last day of the fiscal quarter immediately prior to
the date of such calculation; provided that if Net Income for such period is
less than zero, then minus 100% of such net loss; plus (2) if the Notes are
Investment Grade at the time of the Restricted Payment, an additional 25% of the
Net Income of the Company and its Consolidated Subsidiaries for a period, if
any, consisting of the one or more consecutive quarters (taken as one accounting
period), if any, contained within, and ending on the same day as, the period
referred to in clause (1) above in which the Notes were Investment Grade during
the entire period; provided that if Net Income for such period is less than
zero, then no amount shall be added under this clause (2); plus (3) the
aggregate net proceeds (including the fair market value of proceeds other than
cash, as determined in good faith by the Board of Directors, as evidenced by a
Board resolution if the fair market value of such non-cash proceeds is in excess
of $15 million) received by the Company from and after July 1, 1996 from the
issuance and sale (other than to a Subsidiary) of its Capital Stock (excluding
Redeemable Stock, but including Capital Stock other than Redeemable Stock issued
upon conversion of, or in exchange for, Redeemable Stock or securities other
than its Capital Stock), and warrants, options and rights to purchase its
Capital Stock (other than Redeemable Stock), but excluding the net proceeds from
the issuance, sale, exchange, conversion or other disposition of its Capital
Stock convertible (whether at the option of the Company or the holder thereof or
upon the happening of any event) into (x) any security other than its Capital
Stock or (y) its Redeemable Stock; plus (4) the net reduction in Investments of
the type specified in clause (iv) of the definition of Restricted Payment
resulting from payments of interest on Debt, dividends, repayments of loans or
advances, or other transfers of assets to the Company or other Person that made
the original Investment from the person in which such Investment was made or
resulting from the sale or disposition of the Investment or other return of the
amount of the Investment; provided that such payment, for purposes of the
calculation to be made pursuant to this clause (4), shall not exceed the amount
of the original investment; plus (5) any amount previously included as a
Restricted Payment on account of an obligation by the Company or any Subsidiary
to make a Restricted Payment which has not actually been made by the Company or
any Subsidiary and which is no longer required to be paid by the Company or any
Subsidiary; plus (6) $150 million; provided that the foregoing clause (c) shall
not prevent the payment of any dividend within 60 days after the date of its
declaration if such dividend could have been made on the date of its declaration
without violation of the provisions of this covenant. For purposes of clause
(c)(3) above, the aggregate net proceeds received by the Company (x) from the
issuance of its Capital Stock upon the conversion of, or exchange for,
securities evidencing Debt of the Company, shall be calculated on the assumption
that the gross proceeds from such issuance are equal to the aggregate principal
amount (or, if discount Debt, the accreted principal amount) of the Debt
evidenced by such securities converted or exchanged and (y) upon the conversion
or exchange of other securities of the Company shall be equal to the
S-22
<PAGE> 23
aggregate net proceeds of the original sale of the securities so converted or
exchanged if such proceeds of such original sale were not previously included in
any calculation for the purposes of clause (c)(3) above plus any additional sums
payable upon conversion or exchange.
If an Investment which the Company or any Subsidiary is obligated to make either
in part from time to time or in whole in the future is fixed in amount by the
agreement setting forth such obligation, for purposes of determining whether
such Investment is a Restricted Payment permitted under the foregoing covenant
or is a Permitted Payment, the Investment shall be deemed to have been made only
once, in the amount so fixed, at the time the obligation first arises (and not
when payments in respect thereof are later made). If an Investment which the
Company or any Subsidiary is obligated to make either in part from time to time
or in whole in the future is not fixed in amount by the agreement setting forth
such obligation, for purposes of determining whether such Investment is a
Restricted Payment permitted under the foregoing covenant or is a Permitted
Payment, the Investment shall be deemed to have been made at the time the
obligation first arises in an amount to be determined in good faith by the Board
of Directors, as evidenced by a Board resolution, and any actual payments in
respect of such Investment shall be deemed to be Investments made on the date of
payment thereof. Subject to the terms of clause (v) of the definition of
Permitted Payments, such later Investments may be Permitted Payments.
Restricted Payments are defined in the Indenture to exclude Permitted Payments
which include Permitted Investments. See "Certain Definitions" below.
Limitation on Subsidiary Investments and Mergers
The Company will not permit any Subsidiary with any direct or indirect interest
in a Power Generation Facility to make any Investment in, or to consolidate or
merge with, any other Person with a direct or indirect interest in any other
Power Generation Facility or any Unrelated Business. In addition, the Company
will not permit any Subsidiary with any direct or indirect interest in any
Unrelated Business to make any Investment in, or to consolidate or merge with,
any other Person with a direct or indirect interest in any Power Generation
Facility or any other Unrelated Business. The Company's obligation to comply
with this covenant shall terminate if and when the Notes become Investment
Grade.
Notwithstanding the foregoing:
(a) subject to any applicable restrictions imposed by the "Limitation on
Restricted Payments" covenant described above, the Company may permit one
or more of its Subsidiaries (each, an "Intermediate Holding Company") to
serve as a holding company for the Company's direct and indirect interests
in Power Generation Facilities and Unrelated Businesses; provided that (i)
each such Intermediate Holding Company's direct and indirect interest in
any Power Generation Facility or Unrelated Business shall be limited to the
ownership of Capital Stock or Debt obligations of a Person with a direct or
indirect interest in such Power Generation Facility or Unrelated Business;
(ii) no consensual encumbrance or restriction of any kind shall exist on
the ability of any Intermediate Holding Company to make the payments,
distributions, loans, advances or transfers referred to in clauses (i)
through (iv) of the first paragraph of the description of the "Limitations
on Dividend and Other Payment Restrictions Affecting Subsidiaries" covenant
set forth below, other than those in existence on the date of the Indenture
or those required by the Bank Credit Agreement or any Guarantee thereof;
(iii) no Intermediate Holding Company shall incur, assume, create or suffer
to exist any Debt (including any Guarantee of Debt) other than Debt to the
Company or Debt permitted under clause (iii) of the "Limitation on
Subsidiary Debt" covenant described above; and (iv) no Lien shall exist
upon any assets of such Intermediate Holding Company whether now or
hereafter acquired, except for Liens upon the Capital Stock of a Subsidiary
of an Intermediate Holding Company securing Debt of such Subsidiary; and
(b) subject to any applicable restrictions imposed by the "Limitation on
Restricted Payments" covenant described above, a Subsidiary with an
indirect interest in a Power Generation Facility in commercial operations
as of the date of the Indenture may acquire the Capital Stock of a Person
with a direct or indirect interest in another Power Generation Facility;
provided (i) such acquisition is in connection with an Asset Disposition
described under clause (B) of the "Limitation on Asset Dispositions"
covenant described below; (ii) the Subsidiary's direct and indirect
interest in each Power Generation Facility shall be limited to the
ownership of Capital Stock of a Person with a direct or indirect interest
in such Power Generation Facility; and (iii) no consensual encumbrance or
restriction of any kind shall exist on the ability of the Subsidiary to
make the payments, distributions, loans, advances or transfers referred to
in clauses (i) through (iv) of the first paragraph of the description of
the "Limitations on Dividend and Other Payment Restrictions Affecting
S-23
<PAGE> 24
Subsidiaries" covenant set forth below, other than those in effect on the
date of the Indenture or those required by the Bank Credit Agreement or any
Guarantee thereof.
Limitation on Business
The Company (a) will continue, and will cause each Material AES Entity to
continue, to engage in business of the same general type as now conducted by the
Company and its Subsidiaries and (b) will continue, and will cause each Material
AES Entity to continue, to operate its and their respective businesses on a
basis substantially consistent with the policies and standards of the Company or
such Material AES Entity as in effect on the Closing Date.
Limitations on Dividend and Other Payment Restrictions Affecting Subsidiaries
The Company will not, and will not permit any Subsidiary to, create or otherwise
cause or suffer to exist or become effective any consensual encumbrance or
restriction of any kind on the ability of any Subsidiary to (i) pay dividends or
make any other distributions permitted by applicable law on any Capital Stock of
such Subsidiary owned by the Company or any other Subsidiary, (ii) make payments
in respect of any Debt owed to the Company or any other Subsidiary, (iii) make
loans or advances to the Company or any other Subsidiary or (iv) transfer any of
its Property to the Company or any other Subsidiary. The Company's obligation to
comply with this covenant will terminate if and when the Notes become Investment
Grade.
This covenant shall not restrict or prohibit any encumbrances or restrictions
existing: (i) in connection with the Incurrence of any Debt permitted under
clause (iii), (vi), (vii) or (x) of the "Limitation on Subsidiary Debt" covenant
described above or with respect to any portion thereof that is also Debt of the
Company and permitted under the "Limitation on Debt" covenant described above;
provided that such encumbrances or restrictions are required in order to effect
such financing and are not materially more restrictive, taken as a whole, on the
ability of the applicable Subsidiary to make the payments, distributions, loans,
advances or transfers referred to in clauses (i) through (iv) of the preceding
paragraph than encumbrances and restrictions, taken as a whole, customarily
accepted (or, in the absence of any industry custom, reasonably acceptable) in
substantially non-recourse project financing, (ii) in connection with the
execution and delivery of an electric power or thermal energy purchase contract
to which such Subsidiary is the supplying party or other contracts with
customers, suppliers and contractors to which such Subsidiary is a party and
where such Subsidiary is engaged in the development, construction, acquisition
or operation of a Power Generation Facility; provided that such encumbrances or
restrictions are required in order to effect such contracts and are not
materially more restrictive, taken as a whole, on the ability of the applicable
Subsidiary to make the payments, distributions, loans, advances or transfers
referred to in clauses (i) through (iv) in the preceding paragraph than
encumbrances and restrictions, taken as a whole, customarily accepted (or, in
the absence of any industry custom, reasonably acceptable) in substantially
non-recourse project financing, (iii) in connection with the Incurrence of any
Debt permitted under clause (iv) of the "Limitation on Subsidiary Debt" covenant
described above, provided that such encumbrances or restrictions taken as a
whole are not materially more restrictive on the ability of the applicable
Subsidiary to make the payments, distributions, loans, advances or transfers
referred to in clauses (i) through (iv) in the preceding paragraph than those
that are then in effect, taken as a whole, in connection with the Debt so
exchanged or refinanced, (iv) in connection with the Bank Credit Agreement and
the project financing, electric power and thermal energy purchase arrangements
and other contracts with customers, suppliers and contractors in effect on the
Closing Date, including extensions, refinancings, renewals or replacements
thereof; (v) pursuant to customary non-assignment provisions in leases, (vi)
pursuant to restrictions imposed pursuant to any stock purchase or asset
purchase agreement pending the consummation of the transactions contemplated
thereby, (vii) in connection with any Acquisition Debt, provided that such
encumbrance or restriction was not incurred in contemplation of the obligor
becoming a Subsidiary of the Company, which encumbrance or restriction is not
applicable to any Person, or the Property or assets of any Person, other than
the Person, or the Property or assets, acquired, (viii) customary restrictions
on transfers of Property subject to a Lien which could not materially adversely
affect the Company's ability to satisfy its obligations under the Indenture and
the Notes or (ix) provisions contained in agreements or instruments relating to
Debt which prohibit the transfer of all or substantially all of the assets of
the obligor thereunder unless the transferee shall assume the obligations of the
obligor under such agreement or instrument, in each case; provided that, in the
case of clause (iv) above, such encumbrances and restrictions, taken as a whole,
in any such extensions, refinancings, renewals or replacements are not
materially more restrictive on the ability of the applicable Subsidiary to make
the payments, distributions, loans, advances or transfers referred to in clauses
(i) through (iv) in the preceding paragraph than those
S-24
<PAGE> 25
encumbrances or restrictions taken as a whole in effect immediately before such
extension, refinancing, renewal or replacement. The covenant shall not prevent
the Company from granting any Liens not expressly prohibited by this covenant.
Limitation on Issuance of Preferred Stock of Subsidiaries
The Company will not permit any Subsidiary to create, assume or otherwise cause
or suffer to exist any Preferred Stock except: (i) Preferred Stock outstanding
on the Closing Date, (ii) Preferred Stock issued to and held by the Company or a
Consolidated Subsidiary of the Company (but only so long as held or owned by the
Company or a Consolidated Subsidiary of the Company), (iii) Preferred Stock
issued by a Person prior to the time (a) such Person became a Subsidiary, (b)
such Person merges with or into a Subsidiary or (c) another Subsidiary merges
with or into such Person (in a transaction in which such Person becomes a
Subsidiary), which Preferred Stock was not issued in anticipation of such
transaction, (iv) Preferred Stock issued or agreed to be issued by a Subsidiary
in connection with the financing of the construction, equipping, development,
operation, acquisition, maintenance or working capital requirements in the
ordinary course of business consistent with past practice of a Power Generation
Facility or any Unrelated Business; provided that as of the Closing Date either
the Company does not have any direct or indirect interest or Investment therein
or such Power Generation Facility or Unrelated Business is not in commercial
operation, (v) Preferred Stock issued by a Subsidiary in connection with an
Asset Disposition described in clause (B) of the first sentence of the
description of the "Limitation on Asset Dispositions" covenant described below
and (vi) Preferred Stock which is exchanged for, or the proceeds of which are
used to refinance, any Preferred Stock permitted to be outstanding pursuant to
clauses (i) through (v) hereof (or any extension, renewal or refinancing
thereof), having a liquidation preference not to exceed the liquidation
preference of the Preferred Stock so exchanged or refinanced. The Company's
obligation to comply with this covenant will terminate if and when the Notes
become Investment Grade.
Limitation on Additional Tiers of Senior Subordinated Debt
The Company will not Incur or suffer to exist any Debt, other than Debt
evidenced by the Notes, that is subordinate in right of payment to any Senior
Debt unless such Debt, by its terms or the terms of the instrument creating or
evidencing it, is pari passu with, or subordinate in right of payment to, the
Notes; provided that any Debt of the Company or any of its Subsidiaries which is
outstanding on the Closing Date shall be excluded from the operation of this
covenant.
Limitation on Asset Dispositions
Subject to the provisions of "Subordination" above and "Restriction on Mergers,
Consolidations and Sales of Assets" below, the Company will not make, and will
not permit any of its Subsidiaries to make, any Asset Disposition unless the
Company (or the Subsidiary, as the case may be) receives consideration at the
time of each such Asset Disposition at least equal to the fair market value of
the shares or assets sold or otherwise disposed of (such amounts in excess of
$15 million determined in good faith by the Board of Directors, as evidenced by
a Board resolution) and either (A) (i) not less than 75% of the consideration
received by the Company (or such Subsidiary, as the case may be) is in the form
of cash, provided that any note or other obligation received by the Company (or
such Subsidiary, as the case may be) that is immediately converted into cash
shall be deemed to be cash for purposes of this clause (i), and (ii) first, the
Net Cash Proceeds of such Asset Disposition are applied within 90 days from the
later of the date of such Asset Disposition or the receipt of Net Cash Proceeds
related thereto, to the payment of the principal of, premium and interest on any
Senior Debt of the Company (including to cash collateralize letters of credit)
if required by the lenders, or the terms, of the Senior Debt and, in connection
with any such payment, any related loan commitment, standby facility or the like
shall be permanently reduced in an amount equal to the principal amount so
repaid and second, to the extent such Net Cash Proceeds are not required by the
lenders, or the terms, of the Senior Debt to be applied in accordance with the
foregoing or, if after being so applied there remain Net Cash Proceeds, then at
the Company's election, such Net Cash Proceeds are either (x) invested in the
business or businesses of the Company or any of its Subsidiaries consistent with
the "Limitation on Business" covenant described above; provided that such
investment is made within 365 days from the later of the date of such Asset
Disposition or the receipt of the Net Cash Proceeds related thereto or (y) in
the case of any Asset Disposition by a Subsidiary, applied to the payment of any
Debt of such Subsidiary or any Consolidated Subsidiary (other than Debt owed to
the Company or another Subsidiary), and, in connection with any such payment,
any related loan commitment, standby facility or the like shall be permanently
reduced in an amount equal to the principal amount so repaid; provided that such
Net Cash Proceeds are so applied within three months after the expiration of the
S-25
<PAGE> 26
270 day period referred to in clause (x) above or (z) applied to make a tender
offer (the "Offer") to purchase Notes at a purchase price of 100% of their
principal amount, plus accrued interest (subject to proration in the event of
oversubscription in the manner set forth below); or (B) if the Asset Disposition
is with respect to the assets or Capital Stock of a Subsidiary, (i) the Company
or a Subsidiary receives as consideration exclusively Capital Stock, cash, or
assets of a Person which will be used by the Company and its Subsidiaries
consistent with the "Limitation on Business" covenant described above, (ii) the
Company could Incur at least $1 of Debt under the first paragraph of the
"Limitation on Debt" covenant described above and (iii) if the Asset Disposition
is with respect to greater than 25% of the outstanding Capital Stock or assets
of a Significant Subsidiary, the Fixed Charge Ratio of the Company after giving
effect to the Asset Disposition shall be no less than 3 to 1; provided that to
the extent the Company or any Subsidiary receives any cash consideration in
connection with any Asset Disposition pursuant to this clause (B), the Net Cash
Proceeds from such Asset Disposition shall be applied in accordance with clause
(A)(ii) of this covenant. Notwithstanding the foregoing, to the extent that any
or all of the Net Cash Proceeds of any Foreign Asset Disposition are prohibited
or delayed by applicable local law from being repatriated to the U.S., the
Company (or such Subsidiary, as the case may be) shall not be required to apply
the portion of such Net Cash Proceeds so affected in accordance with clause (A)
(ii) above (other than to repay Debt of the Subsidiary making such Asset
Disposition or Debt of a Consolidated Subsidiary of the Company, in each case as
contemplated by clause (A)(ii) above and to the extent the prohibition or delay
on repatriation is not applicable to such repayment and such repayment is not in
violation of the terms of any Senior Debt) (the Company hereby agreeing to cause
the applicable Subsidiary to promptly take all actions required by the
applicable local law to permit such repatriation); provided that once such
repatriation of any such affected Net Cash Proceeds is permitted under the
applicable local law, such repatriation will be immediately effected and such
repatriated Net Cash Proceeds will be applied in the manner set forth in this
covenant. To the extent that dividends or distributions of any or all of the Net
Cash Proceeds of any Foreign Asset Disposition would result in a tax liability
greater than that which would be incurred if such Net Cash Proceeds were not so
dividended or distributed, the Net Cash Proceeds so affected may be retained by
the applicable Subsidiary for so long as such adverse tax liability would
continue to be incurred.
Notwithstanding anything in this covenant to the contrary, the Company and any
Subsidiary may make the following Asset Dispositions: (i) a disposition
resulting from the bona fide exercise by governmental authority of its claimed
or actual power of eminent domain, (ii) a realization upon a security interest,
(iii) any Permitted Payment or Restricted Payment that is permitted hereunder,
or (iv) any sale, transfer, conveyance, lease or other disposition of the
Capital Stock or Property of a Subsidiary pursuant to the terms of any power
sales agreement or steam sales agreement or other agreement or contract related
to the output or product of, or services rendered by, a Power Generation
Facility as to which such Subsidiary is the supplying party; provided that to
the extent the Company or any Subsidiary receives any cash consideration in
connection with such Asset Disposition, the Net Cash Proceeds from such Asset
Disposition shall be applied in accordance with clause (A)(ii) of this covenant.
If the aggregate purchase price of Notes tendered pursuant to an Offer made
pursuant to clause (A)(ii)(z) in the preceding paragraph is less than the Net
Cash Proceeds allotted to the purchase of the Notes, the Company may use the
remaining Net Cash Proceeds for general corporate purposes. The Company will not
be required to comply with the provisions of clause (A)(ii) in the first
paragraph of this covenant if the Net Cash Proceeds from one or more Asset
Dispositions occurring on or after the date of the Indenture are less than $25
million in any one fiscal year. Any lesser amounts so carried forward and
cumulated need not be segregated or reserved and may be used for general
corporate purposes.
The Company will make such Offer by mailing to each Holder of the Notes, within
30 days from the receipt of Net Cash Proceeds, a written notice specifying the
purchase date, which shall be not less than 30 days nor more than 60 days after
the date of such notice (the "Purchase Date") and shall contain certain
information concerning the business of the Company which the Company believes in
good faith will enable the Holders of the Notes to make an informed decision.
Holders electing to have their Notes purchased will be required to surrender
such Notes at least one Business Day prior to the Purchase Date. If at the
expiration of the offer period the aggregate principal amount of Notes
surrendered by Holders exceeds the amount available to purchase Notes, the
Company will select the Notes to be purchased on a pro rata basis.
In the event the Company is unable to purchase Notes from Holders in an Offer
because of provisions of applicable law, the Company need not make an Offer. The
Company shall then be obligated to use the Net Cash Proceeds in accordance with
clauses (A)(ii)(x) or (y) in the first paragraph of this covenant description.
S-26
<PAGE> 27
The Company will comply with all applicable tender offer rules, including
without limitation Rule 14e-1 under the Exchange Act, in connection with an
Offer under the provisions of this covenant.
Repurchase of Notes Upon a Change of Control
Upon a Change of Control, each Holder of the Notes shall have, subject to the
provisions of "Subordination" above, the right to require that the Company
repurchase such Holder's Notes at a repurchase price in cash equal to 101% of
the principal amount thereof plus accrued and unpaid interest, if any, to the
date of repurchase. Certain of the events constituting a Change of Control under
the Notes will also constitute an event of default under the Company's Bank
Credit Agreement and, in any event, the right of Holders to receive the Change
of Control purchase price is subordinated in right of payment to the payment of
all Senior Debt, including Debt outstanding under the Bank Credit Agreement. As
of March 31, 1996, on a pro forma basis after giving effect to the Company's
recent acquisition of the Light Interest and to the application of the net
proceeds of the Offering, the Company had approximately $246 million in
aggregate principal amount of Debt which would have constituted Senior Debt.
Furthermore, other Senior Debt is permitted to be Incurred, provided certain
Fixed Charge Ratios are met. Due to the highly leveraged nature of the Company,
there can be no assurance that the Company will have sufficient funds to
purchase tendered Notes upon a Change of Control.
The Change of Control provisions may not be waived by the Trustee or by the
Board of Directors, and any modification thereof must be approved by each
Holder. Nevertheless, the Change of Control provisions will not necessarily
afford protection to Holders, including protection against an adverse effect on
the value of the Notes, in the event that the Company or its Subsidiaries Incur
additional Debt, whether through recapitalizations or otherwise. Furthermore,
the Change of Control provisions will not be applicable in the event of certain
transactions with Affiliates of the Company that are approved by the Board of
Directors. The Change of Control provisions will not prevent a change in the
Board of Directors which is approved by the then-present members of the Board of
Directors. See "Certain Definitions -- Change of Control" below. With respect to
a sale of assets, the phrase "all or substantially all", which appears in the
definition of Change of Control, has not gained an established meaning. In
interpreting this phrase, courts have made subjective determinations,
considering such factors as the value of the assets conveyed and the proportion
of an entity's income derived from such assets. Accordingly, there may be
uncertainty as to whether a Holder can determine whether a Change of Control has
occurred and can exercise any remedies such Holder may have upon a Change of
Control.
Within 30 days following any Change of Control, the Company shall mail a notice
to each Holder of the Notes with a copy to the Trustee stating (1) that a Change
of Control has occurred and that such Holder has the right to require the
Company to repurchase such Holder's Notes at a repurchase price in cash equal to
101% of the principal amount thereof plus accrued and unpaid interest, if any,
to the date of repurchase (the "Change of Control Offer"), (2) the circumstances
and relevant facts regarding such Change of Control (including information with
respect to pro forma historical income, cash flow and capitalization after
giving effect to such Change of Control), (3) the repurchase date (which shall
be not earlier than 30 days or later than 60 days from the date such notice is
mailed) (the "Repurchase Date"), (4) that any Note not tendered will continue to
accrue interest, (5) that any Note accepted for payment pursuant to the Change
of Control Offer shall cease to accrue interest after the Repurchase Date, (6)
that Holders electing to have a Note purchased pursuant to a Change of Control
Offer will be required to surrender the Note, with the form entitled "Option of
Holder to Elect Purchase" on the reverse of the Note completed, to the paying
agent at the address specified in the notice prior to the close of business on
the Repurchase Date, (7) that Holders will be entitled to withdraw their
election if the paying agent receives, not later than the close of business on
the third Business Day (or such shorter periods as may be required by applicable
law) preceding the Repurchase Date, a telegram, telex, facsimile transmission or
letter setting forth the name of the Holder, the principal amount of Notes the
Holder delivered for purchase, and a statement that such Holder is withdrawing
his election to have such Notes purchased, and (8) that Holders which elect to
have their Notes purchased only in part will be issued new Notes in a principal
amount equal to the unpurchased portion of the Notes surrendered.
On the Repurchase Date, the Company shall (i) accept for payment Notes or
portions thereof tendered pursuant to the Change of Control Offer, (ii) deposit
with the Trustee money sufficient to pay the purchase price of all Notes or
portions thereof so tendered and (iii) deliver or cause to be delivered to the
Trustee Notes so accepted together with an officers' certificate identifying the
Notes or portions thereof tendered to the Company. The Trustee shall promptly
mail to the Holders of the Notes so accepted payment in an amount equal to the
purchase price, and promptly authenticate and mail to such Holders a new Note in
a principal amount equal to any unpurchased portion
S-27
<PAGE> 28
of the Note surrendered. The Company will publicly announce the results of the
Change of Control Offer on or as soon as practicable after the Repurchase Date.
The Company will comply with all applicable tender offer rules, including
without limitation Rule 14e-1 under the Exchange Act, in connection with a
Change of Control Offer.
Limitations on Transactions with Affiliates
The Company will not, and will not permit any of its Subsidiaries to, directly
or indirectly enter into any transaction (including, without limitation, the
sale, purchase or lease of any assets or properties or the rendering of any
services) involving aggregate consideration in excess of $5 million with any
Affiliate or holder of 5% or more of any class of Capital Stock of the Company
except for transactions (including, subject to the "Limitation on Restricted
Payments" covenant described above, any loans or advances by or to, or Guarantee
on behalf of, any Affiliate or any such holder) made in good faith the terms of
which are fair and reasonable to the Company or such Subsidiary, as the case may
be, and are at least as favorable as the terms which could be obtained by the
Company or such Subsidiary, as the case may be, in a comparable transaction made
on an arm's-length basis with Persons who are not such a holder or Affiliate;
provided that any such transaction shall be conclusively deemed to be on terms
which are fair and reasonable to the Company or any of its Subsidiaries and on
terms which are at least as favorable as the terms which could be obtained on an
arm's-length basis with Persons who are not such a holder or Affiliate if such
transaction is approved by a majority of the Company's directors (including a
majority of the Company's independent directors) and; provided further that with
respect to the purchase or disposition of assets of the Company or any of its
Subsidiaries having a net book value in excess of $15 million, in addition to
approval of its Board of Directors, the Company shall obtain a written opinion
of an Independent Financial Advisor stating that the terms of such transaction
are fair to the Company or its Subsidiary, as the case may be, from a financial
point of view; and provided further that the fairness, reasonableness and
arm's-length nature of the terms of any transaction which is part of a series of
related transactions may be determined on the basis of the terms of the series
of related transactions taken as a whole. This covenant shall not apply to (a)
transactions between the Company or any of its Subsidiaries and any employee of
the Company or any of its Subsidiaries that are approved by the Board of
Directors or any committee of the Board of Directors consisting of the Company's
independent directors, (b) the payment of reasonable and customary regular fees
to directors of the Company or a Subsidiary, (c) any transaction between the
Company and any of its Consolidated Subsidiaries or between any of its
Consolidated Subsidiaries, (d) any Permitted Payment and any Restricted Payment
not otherwise prohibited by the "Limitation on Restricted Payments" covenant
described above or (e) the provision of general corporate administrative,
operating and management services, including, without limitation, procurement,
construction engineering, construction administration, legal, accounting,
financial, money management, risk management, personnel, administration and
business planning services, in each case, in the ordinary course.
EVENTS OF DEFAULT
An Event of Default, as defined in the Indenture and applicable to the Notes,
will occur with respect to the Notes if: (i) the Company defaults in the payment
of all or any part of principal, the Change of Control Purchase price or
premium, if any, on any Note when the same becomes due and payable at maturity,
upon acceleration, redemption, mandatory repurchase, or otherwise; (ii) the
Company defaults in the payment of interest on any Note when the same becomes
due and payable, and such default continues for a period of 30 days; (iii) an
event of default, as defined in any indenture or instrument evidencing or under
which the Company or any Significant Subsidiary has at the date of this
Indenture or shall hereafter have outstanding any Debt, shall happen and be
continuing and either (a) such default results from the failure to pay the
principal of such Debt in excess of $10 million at final maturity of such Debt
or (b) as a result of such default, the maturity of such Debt shall have been
accelerated so that the same shall be or become due and payable prior to the
date on which the same would otherwise have become due and payable, and such
acceleration shall not be rescinded or annulled within 30 days and the principal
amount of such Debt, together with the principal amount of any other Debt of the
Company or any Significant Subsidiary in default, or the maturity of which has
been accelerated, aggregates $10 million or more; provided that such default
shall not be an Event of Default if such Debt is Debt of a Significant
Subsidiary, is Non-Recourse to the Company in respect of the amounts not paid or
due upon acceleration and the Company could, at the time of default, incur at
least $1 of Debt under the "Limitation on Debt" covenant described above; and
provided further however that, subject to certain provisions, the Trustee shall
not be charged with knowledge of any such default unless written notice thereof
shall have been given to the Trustee by the Company, by the holder or an agent
of the holder of any such Debt, by the
S-28
<PAGE> 29
trustee then acting under any indenture or other instrument under which such
default shall have occurred, or by the holders of not less than 25% in the
aggregate principal amount of the Notes at the time outstanding; (iv) the
Company defaults in the performance of or breaches any other covenant or
agreement of the Company in the Indenture with respect to the Notes or under the
Notes and such default or breach continues for a period of 30 consecutive days
after written notice by the Trustee or by the Holders of 25% or more in
aggregate principal amount of the Notes; (v) one or more judgments or orders
shall be entered by a court against the Company or any Significant Subsidiary
for the payment of money in an amount which, individually or in the aggregate
exceeds $10 million (excluding the amount thereof covered by insurance or by a
bond written by third parties but treating any deductibles, self insurance or
retentions as not so covered by insurance) and which judgments or orders shall
not be discharged or waived, and shall remain outstanding and there shall be any
period of 30 consecutive days following entry of such judgment or order in
excess of $10 million or the judgment or order which causes the aggregate amount
to exceed $10 million during which a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect;
provided, that such a judgment or order shall not be an Event of Default if such
judgment or order is against a Significant Subsidiary and does not require any
payment by the Company and the Company could, at the expiration of the
applicable 30 day period, incur at least $1 of Debt under the "Limitation on
Debt" covenant described above; (vi) a court having jurisdiction in the premises
enters a decree or order for (A) relief in respect of the Company or any of its
subsidiaries in an involuntary case under any applicable bankruptcy, insolvency,
or other similar law now or hereafter in effect, (B) appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator, or similar official of
the Company or any of its subsidiaries or for all or substantially all of the
property and assets of the Company or any of its subsidiaries or (C) the winding
up or liquidation of the affairs of the Company or any of its subsidiaries and,
in each case, such decree or order shall remain unstayed and in effect for a
period of 60 consecutive days; or (vii) the Company or any of its subsidiaries
(A) commences a voluntary case under any applicable bankruptcy, insolvency, or
other similar law now or hereafter in effect, or consents to the entry of an
order for relief in an involuntary case under any such law, (B) consents to the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator, or similar official of the Company or any of
its subsidiaries or for all or substantially all of the property and assets of
the Company or any of its subsidiaries or (C) effects any general assignment for
the benefit of creditors.
If an Event of Default (other than an Event of Default specified in clause (vi)
or (vii) above that occurs with respect to the Company) occurs with respect to
the Notes and is continuing under the Indenture, then, and in each and every
such case either the Trustee or the holders of not less than 25% in aggregate
principal amount of the Notes then outstanding by written notice to the Company
(and to the Trustee if such notice is given by the holders (the "Acceleration
Notice")), may, and the Trustee at the request of such holders shall, declare
the principal of, premium, if any, and accrued interest on the Notes to be
immediately due and payable. Upon a declaration of acceleration, such principal
of, Change in Control purchase price or premium, if any, and accrued interest
shall be immediately due and payable. If an Event of Default specified in clause
(vi) or (vii) above occurs with respect to the Company, the principal of, Change
in Control purchase price or premium, if any, and accrued interest on the Notes
then outstanding shall ipso facto become and be immediately due and payable,
subject to the prior payment in full of all Senior Debt, without any declaration
or other act on the part of the Trustee or any holder. The holders of at least a
majority in principal amount of the outstanding Notes may, by written notice to
the Company and to the Trustee, waive all past defaults with respect to the
Notes and rescind and annul a declaration of acceleration with respect to the
Notes and its consequences if (i) all existing Events of Default applicable to
the Notes, other than the nonpayment of the principal of, Change in Control
purchase price or premium, if any, and interest on the Notes that have become
due solely by such declaration of acceleration, have been cured or waived and
(ii) the rescission would not conflict with any judgment or decree of a court of
competent jurisdiction.
The holders of at least a majority in aggregate principal amount of the
outstanding the Notes may direct the time, method, and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the Trustee
in personal liability, or that the Trustee determines in good faith may be
unduly prejudicial to the rights of holders of the Notes not joining in the
giving of such direction and may take any other action it deems proper that is
not inconsistent with any such direction received from holders of the Notes. A
holder may not pursue any remedy with respect to the Indenture or the Notes
unless: (i) the holder gives the Trustee written notice of a continuing Event of
Default; (ii) the holders of at least 25% in aggregate principal amount of the
outstanding Notes make a written request to the Trustee to pursue the remedy;
(iii) such holder or holders offer the
S-29
<PAGE> 30
Trustee indemnity satisfactory to the Trustee against any costs, liability or
expense; (iv) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity; and (v) during such 60-day
period, the holders of a majority in aggregate principal amount of the
outstanding Notes do not give the Trustee a direction that is inconsistent with
the request. However, such limitations do not apply to the right of any Notes to
receive payment of the principal of, premium, if any, or interest on, such Notes
or to bring suit for the enforcement of any such payment, on or after the due
date expressed in the Notes, which right shall not be impaired or affected
without the consent of the Holder.
The Indenture will require certain officers of the Company to certify, on or
before a date not more than four months after the end of each fiscal year, that
to the best of such officers' knowledge, the Company has fulfilled all its
obligations under the Indenture. The Company will also be obligated to notify
the Trustee of any default or defaults in the performance of any covenants or
agreements under the Indenture.
MODIFICATION AND WAIVER
The Indenture provides that the Company and the Trustee may amend or supplement
the Indenture or the Notes without notice to or the consent of any Holder: (i)
to cure any ambiguity, defect, or inconsistency in the Indenture; provided that
such amendments or supplements shall not adversely affect the interests of the
Holders in any material respect; (ii) to comply with Article 5 of the Indenture;
(iii) to comply with any requirements of the Commission in connection with the
qualification of the Indenture under the Trust Indenture Act of 1939, as
amended; (iv) to evidence and provide for the acceptance of appointment with
respect to the Notes by a successor Trustee; (v) to establish the form or forms
or terms of Notes or of the coupons pertaining to such Notes as permitted by the
Indenture; (vi) to provide for uncertificated Notes and to make all appropriate
changes for such purpose; and (vii) to make any change that does not materially
and adversely affect the rights of any Holder.
The Indenture also provides that modifications and amendments of the Indenture
may be made by the Company and the Trustee with the consent of the Holders of
not less than a majority in aggregate principal amount of the outstanding Notes;
provided, however, that no such modification or amendment may, without the
consent of each Holder affected thereby, (i) change the stated maturity of the
principal of, or any sinking fund obligation or any installment of interest on,
any Note, (ii) reduce the principal amount of, or premium, if any, or interest
on, any Note, (iii) reduce the above-stated percentage of outstanding Notes the
consent of whose Holders is necessary to modify or amend the Indenture with
respect to the Notes, or (iv) reduce the percentage or aggregate principal
amount of outstanding Notes the consent of whose Holders is necessary for waiver
of compliance with certain provisions of the Indenture or for waiver of certain
defaults. It shall not be necessary for the consent of the Holders to approve
the particular form of any proposed amendment, supplement or waiver, but it
shall be sufficient if such consent approves the substance thereof. After an
amendment, supplement, or waiver becomes effective, the Company shall give to
the Holders affected thereby a notice briefly describing the amendment,
supplement, or waiver. The Company will mail supplemental indentures to Holders
upon request. Any failure of the Company to mail such notice, or any defect
therein, shall not, however, in any way impair or affect the validity of any
such supplemental indenture or waiver.
RESTRICTION ON MERGERS, CONSOLIDATIONS AND SALES OF ASSETS
The Company may not consolidate with, merge with or into, or transfer all or
substantially all of its assets (as an entirety or substantially an entirety in
one transaction or a series of related transactions), to any Person unless: (i)
the Company shall be the continuing Person, or the Person (if other than the
Company) formed by such consolidation or into which the Company is merged or to
which properties and assets of the Company are transferred shall be a solvent
corporation organized and existing under the laws of the United States or any
State thereof or the District of Columbia and shall expressly assume in writing
all the obligations of the Company under the Notes; (ii) immediately after
giving effect to such transaction no Event of Default or event or condition
which through the giving of notice of lapse of time or both would become an
Event of Default shall have occurred and be continuing; (iii) the Net Worth of
the Company or the surviving entity, as the case may be, on a pro forma basis
after giving effect to such transaction is not less than the Net Worth of the
Company immediately prior to such transaction; and (iv) immediately after giving
effect to such transaction on a pro forma basis, the Company or the surviving
entity would be able to incur at least $1 of Debt under the first paragraph of
the "Limitation on Debt" covenant described above. Notwithstanding the
foregoing, clause (iv) of the preceding sentence shall not prohibit a
transaction, the principal purpose of which is (as determined in good faith by
the Board of Directors as evidenced by a Board
S-30
<PAGE> 31
resolution) to change the state of incorporation of the Company, and such
transaction does not have as one of its purposes the evasion of the limitations
imposed by this covenant.
DEFEASANCE
Defeasance and Discharge
The Indenture provides that the Company shall be deemed to have paid and shall
be discharged from any and all obligations in respect of the Notes of any
series, on the 123rd day after the deposit referred to below has been made, and
the provisions of the Indenture shall no longer be in effect with respect to the
Notes (except for, among other matters, certain obligations to register the
transfer or exchange of the Notes, to replace stolen, lost, or mutilated Notes,
to maintain paying agencies, and to hold monies for payment in trust) if, among
other things, (A) the Company has deposited with the Trustee, in trust, money
and/or U.S. government obligations that through the payment of interest and
principal in respect thereof, in accordance with their terms will provide money
in an amount sufficient to pay the principal of, premium, if any, and accrued
interest on the Notes on the Stated Maturity thereof or earlier redemption
(irrevocably provided for under arrangements satisfactory to the Trustee), as
the case may be, in accordance with the terms of the Indenture and the Notes,
(B) the company has delivered to the Trustee (i) either (x) an Opinion of
Counsel to the effect that holders of the Notes will not recognize income, gain,
or loss for federal income tax purposes as a result of the Company's exercise of
its option under this "Defeasance" provision and will be subject to federal
income tax on the same amount and in the same manner and at the same times as
would have been the case if such deposit, defeasance, and discharge had not
occurred, which opinion of counsel must be based upon (and accompanied by a copy
of) a ruling of the Internal Revenue Service to the same effect unless there has
been a change in applicable federal income tax law after the date of the
Indenture such that a ruling is no longer required or (y) a ruling directed to
the Trustee received from the Internal Revenue Service to the same effect as the
aforementioned opinion of counsel and (ii) an opinion of counsel to the effect
that the creation of the defeasance trust does not violate the Investment
Company Act of 1940 and after the passage of 123 days following the deposit, the
trust fund will not be subject to the effect of section 547 of the United States
Bankruptcy Code or section 15 of the New York Debtor and Creditor Law, (C)
immediately after giving effect to such deposit on a pro forma basis, no Event
of Default, or event that after the giving of notice or lapse of time or both
would become an Event of Default, shall have occurred and be continuing on the
date of such deposit or during the period ending on the 123rd day after the date
of such deposit, and such deposit shall not result in a breach or violation of,
or constitute a default under, any other agreement or instrument to which the
Company is a party or by which the Company is bound, (D) the Company is not
prohibited from making payments in respect of the Notes by the subordination
provisions contained in the Indenture and (E) if at such time the Notes are
listed on a national securities exchange, the Company has delivered to the
Trustee an opinion of counsel to the effect that the Notes will not be delisted
as a result of such deposit, defeasance, and discharge.
Defeasance of Certain Covenants and Certain Events of Default
The Indenture further provides that the provisions of the Indenture will no
longer be in effect with respect to the covenants described in this Prospectus
Supplement under "-- Covenants" and clause (iv) under "-- Events of Default"
with respect to such covenants and clauses (iii) and (v) under "-- Events of
Default" shall be deemed not to be Events of Default with respect to the Notes,
upon, among other things, the deposit with the Trustee, in trust, of money
and/or U.S. government obligations through the payment of interest and principal
in respect thereof in accordance with their terms will provide money in an
amount sufficient to pay the principal of, premium, if any, and accrued interest
on the Notes, on the Stated Maturity thereof or earlier redemption (irrevocably
provided for under agreements satisfactory to the Trustee), as the case may be,
in accordance with the terms of the Indenture and the Notes, the satisfaction of
the provisions described in clauses (B)(ii), (C), (D), and (E) of the preceding
paragraph and the delivery by the Company to the Trustee of an opinion of
counsel to the effect that, among other things, the holders of the Notes will
not recognize income, gain, or loss for federal income tax purposes as a result
of such deposit and defeasance of the covenants and Events of default and will
be subject to federal income tax on the same
S-31
<PAGE> 32
amount and in the same manner and at the same times as would have been the case
if such deposit and defeasance had not occurred.
Defeasance and Certain Other Events of Default
If the Company exercises its option to omit compliance with certain covenants
and provisions of the Indenture with respect to the Notes as described in the
immediately preceding paragraph and the Notes are declared due and payable
because of the occurrence of an Event of Default that remains applicable, the
amount of money and/or U.S. Government Obligations on deposit with the Trustee
will be sufficient to pay amounts due on the Notes at the time of their Stated
Maturity, but may not be sufficient to pay amounts due on the Notes at the time
of the acceleration resulting from such Event of Default. However, the Company
shall remain liable for such payments.
CERTAIN DEFINITIONS
"Acquisition Debt" is defined to mean Debt of any Person existing at the time
such Person became a Subsidiary of the Company (or such Person is merged into
the Company or one of its Subsidiaries) or assumed in connection with the
acquisition of assets from any such Person (other than assets acquired in the
ordinary course of business), including Debt Incurred in connection with, or in
contemplation of, such Person becoming a Subsidiary of the Company (but
excluding Debt of such Person which is extinguished, retired or repaid in
connection with such Person becoming a Subsidiary of the Company).
"Adjusted Consolidated Net Income" is defined to mean, for any period, for any
Person the aggregate Net Income (or loss) of such Person and its Consolidated
Subsidiaries for such period determined in conformity with GAAP plus the Net
Income of any Subsidiary of such Person for prior periods to the extent such Net
Income is actually paid in cash to such Person during such period plus the Net
Income of any Person (other than a Subsidiary) in which such Person has a joint
interest with a third party for prior periods to the extent such Net Income is
actually paid in cash to such Person during such period; provided that the
following items shall be excluded in computing Adjusted Consolidated Net Income
(without duplication): (i) the Net Income (or loss) of any Person (other than a
Subsidiary) in which such Person has a joint interest with a third party, except
to the extent such Net Income is actually paid in cash to such Person during
such period; (ii) solely for the purposes of calculating the amount of
Restricted Payments that may be made pursuant to clause (c)(1) or (c)(2) of the
"Limitation on Restricted Payments" covenant described above (and in such case,
except to the extent includible pursuant to clause (i) above), the Net Income
(if positive) of such Person accrued prior to the date it becomes a Subsidiary
of any other Person or is merged into or consolidated with such other Person or
any of its Subsidiaries or all or substantially all of the property and assets
of such Person are acquired by such other Person or any of its Subsidiaries;
(iii) the Net Income (or loss) of any Subsidiary of such Person, except to the
extent such Net Income (if positive) is actually paid in cash to such Person
during such period; (iv) any gains or losses (on an after-tax basis)
attributable to Asset Sales; (v) the cumulative effect of a change in accounting
principle; and (vi) any amounts paid or accrued as dividends on Preferred Stock
of such Person or Preferred Stock of any Subsidiary of such Person.
"AES Hawaii" is defined to mean AES Hawaii Management Co., Inc., a Delaware
corporation and a Subsidiary of the Company, and its successors.
"AES Oklahoma" is defined to mean AES Oklahoma Management Co., Inc., a Delaware
corporation and a Subsidiary of the Company, and its successors.
"Affiliate" is defined to mean, as applied to any Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such Person. For the purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling", "controlled by"
and "under common control with") when used with respect to any Person is defined
to mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Asset Acquisition" is defined to mean (i) an investment by the Company or any
of its Subsidiaries in any other Person pursuant to which such Person shall
become a Subsidiary of the Company or any of its Subsidiaries or shall be merged
into or consolidated with the Company or any of its Subsidiaries or (ii) an
acquisition by the Company or any of its Subsidiaries of the Property of any
Person other than the Company or any of its Subsidiaries that constitutes
substantially all of an operating unit or business of such Person.
"Asset Disposition" is defined to mean, with respect to any Person, any sale,
transfer, conveyance, lease or other disposition (including by way of merger,
consolidation or sale-leaseback) by such Person or any of its Subsidiaries to
S-32
<PAGE> 33
any Person (other than to such Person or a Consolidated Subsidiary of such
Person and other than in the ordinary course of business) of (i) any assets
(excluding cash and cash equivalents) of such Person or any of its Subsidiaries
or (ii) any shares of Capital Stock of such Person's Subsidiaries. For purposes
of this definition, any disposition in connection with directors' qualifying
shares or investments by foreign nationals mandated by applicable law shall not
constitute an Asset Disposition. In addition, the term "Asset Disposition" shall
not include any sale, transfer, conveyance, lease or other disposition of assets
governed by the "Restriction on Mergers, Consolidations and Sales of Assets"
covenant described above. The term "Asset Disposition" also shall not include
(i) any sale of shares of Capital Stock for the purposes of, and subject to the
provisions set forth in, the "Limitation on Issuance of Preferred Stock of
Subsidiaries" covenant described above, (ii) the grant of a security interest by
any Person in any assets or shares of Capital Stock securing a borrowing by, or
contractual performance obligation of, such Person or any Subsidiary of such
Person, (iii) a sale-leaseback transaction involving substantially all of the
assets of a Power Generation Facility where a Subsidiary of the Company sells
the Power Generation Facility to a Person in exchange for the assumption by that
Person of the Debt financing the Power Generation Facility and the Subsidiary
leases the Power Generation Facility from such Person, (iv) dispositions of
contract rights, development rights and resource data made in connection with
the initial development of a Power Generation Facility, made prior to the
commencement of commercial operation of such Power Facility or (v) transactions
made in order to enhance the repatriation of cash proceeds in connection with a
Foreign Asset Disposition or in order to increase the after-tax proceeds thereof
available for immediate distribution.
"Asset Sale" is defined to mean the sale or other disposition by the Company or
any of its Subsidiaries (other than to the Company or another Subsidiary of the
Company) of (i) all or substantially all of the Capital Stock of any Subsidiary
of the Company or (ii) all or substantially all of the Property that constitutes
an operating unit or business of the Company or any of its Subsidiaries.
"Average Life" is defined to mean, at any date of determination with respect to
any debt security, the quotient obtained by dividing (i) the sum of the product
of (A) the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security multiplied by (B)
the amount of such principal payment by (ii) the sum of all such principal
payments.
"Bank Agent" is defined to mean Morgan Guaranty Trust Company of New York, as
agent for the Banks pursuant to the Bank Credit Agreement, and any successor or
successors thereto in such capacity.
"Banks" is defined to mean the lenders who are from time to time parties to the
Bank Credit Agreement.
"Bank Credit Agreement" is defined to mean the Credit Agreement dated as of May
20, 1996 among the Company, the Banks named on the signature pages thereof and
the Bank Agent, as such Agreement has been and may be amended, restated,
supplemented or otherwise modified from time to time, and includes any agreement
extending the maturity of, or restructuring (including, but not limited to, the
inclusion of additional borrowers thereunder that are Subsidiaries of the
Company and whose obligations are guaranteed by the Company thereunder) all or
any portion of, the Debt under such Agreement or any successor agreements and
includes any agreement with one or more banks or other lending institutions
refinancing all or any portion of the Debt under such Agreement or any successor
agreements.
"Board of Directors" is defined to mean either the Board of Directors of the
Company or (except for the purposes of clause (iii) of the definition of "Change
of Control") any committee of such Board duly authorized to act hereunder.
"Business Day" is defined to mean any day, other than a Saturday or Sunday, that
is neither a legal holiday nor a day on which banking institutions are
authorized or required by law or regulation to close in The City of New York.
"Capital Stock" is defined to mean, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of, or interests in (however designated), the
equity of such Person which is outstanding or issued on or after the Closing
Date, including, without limitation, all Common Stock and Preferred Stock and
partnership and joint venture interests of such Person.
"Capitalized Lease" is defined to mean, as applied to any Person, any lease of
any Property of which the discounted present value of the rental obligations of
such Person as lessee, in conformity with GAAP, is required to be capitalized on
the balance sheet of such Person; and "Capitalized Lease Obligation" is defined
to mean the rental obligations, as aforesaid, under such lease.
"Change of Control" is defined to mean the occurrence of one or more of the
following events: (i) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially all,
of the
S-33
<PAGE> 34
assets of the Company to any Person or group (as that term is used in Section
13(d)(3) of the Securities Exchange Act of 1934) of Persons, (ii) a Person or
group (as so defined) of Persons (other than management of the Company on the
date of this Indenture or their Affiliates) shall have become the beneficial
owner of more than 35% of the outstanding Voting Stock of the Company, or (iii)
during any one-year period, individuals who at the beginning of such period
constitute the Board of Directors (together with any new director whose election
or nomination was approved by a majority of the directors then in office who
were either directors at the beginning of such period or who were previously so
approved) cease to constitute a majority of the Board of Directors.
"Closing Date" is defined to mean the date on which the Notes are originally
issued under the Indenture.
"Common Stock" is defined to mean, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of common stock of such Person which is
outstanding or issued on or after the date of this Indenture, including, without
limitation, all series and classes of such common stock.
"Consolidated EBITDA" of any Person for any period is defined to mean the
Adjusted Consolidated Net Income of such Person, plus (without duplication) (i)
income taxes (other than income taxes (x) (either positive or negative)
attributable to extraordinary and non-recurring gains or losses or Asset Sales
and (y) actually payable with respect to such period) determined on a
consolidated basis for such Person and its Consolidated Subsidiaries in
accordance with GAAP to the extent payable by such Person, (ii) Consolidated
Fixed Charges, (iii) depreciation and amortization expense for such period and
prior periods, all determined on a consolidated basis for such Person and its
Consolidated Subsidiaries in accordance with GAAP, but only to the extent that
the positive cash flow associated with such depreciation and amortization
expense is actually received in cash by such Person during such period and (iv)
all other non-cash items reducing Net Income for such period and prior periods,
all determined on a consolidated basis for such Person and its Consolidated
Subsidiaries in accordance with GAAP, but only to the extent that the positive
cash flow associated with such non-cash items is actually received in cash by
such Person during such period, and less (without duplication) (i) all non-cash
items increasing Net Income of such Person during such period and prior periods,
but only to the extent that positive cash flow associated with such non-cash
items in not actually received in cash by such Person during such period, and
(ii) the aggregate amount of any capitalized expenses (including capitalized
interest) paid by such Person during such period which have the effect of
increasing Net Income for such period.
"Consolidated Fixed Charges" of any Person is defined to mean, for any period,
the aggregate of (i) Consolidated Interest Expense, (ii) the interest component
of Capitalized Leases, determined on a consolidated basis for such Person and
its Consolidated Subsidiaries in accordance with GAAP, excluding any interest
component of Capitalized Leases in respect of that portion of a Capitalized
Lease Obligation of a Subsidiary that is Non-Recourse to such Person and (iii)
cash and non-cash dividends due (whether or not declared) on the Preferred Stock
of any Subsidiary and any Redeemable Stock of such Person.
"Consolidated Interest Expense" of any Person is defined to mean, for any
period, the aggregate interest expense in respect of Debt (including
amortization of original issue discount and non-cash interest payments or
accruals) of such Person and its Consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, including all commissions,
discounts, other fees and charges owed with respect to letters of credit and
bankers' acceptance financing and net costs associated with Interest Rate
Agreements and any amounts paid during such period in respect of such interest
expense, commissions, discounts, other fees and charges that have been
capitalized; provided that Consolidated Interest Expense of the Company shall
not include any interest expense (including all commissions, discounts, other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing and net costs associated with Interest Rate Agreements) in respect of
that portion of Debt of a Subsidiary of the Company that is Non-Recourse to the
Company; and provided further that Consolidated Interest Expense of the Company
in respect of a Guarantee by the Company of Debt of a Subsidiary shall be equal
to the commissions, discounts, other fees and charges that would be due with
respect to a hypothetical letter of credit issued under the Bank Credit
Agreement that can be drawn by the beneficiary thereof in the amount of the Debt
so guaranteed if (i) the Company is not actually making directly or indirectly
interest payments on such Debt and (ii) GAAP does not require the Company on an
unconsolidated basis to record such Debt as a liability of the Company.
"Consolidated Subsidiary" is defined to mean at any date with respect to any
Person, any Subsidiary of such Person or other entity the accounts of which
would be consolidated with those of such Person in its consolidated financial
statements if such statements were prepared as of such date.
S-34
<PAGE> 35
"Consolidated Total Assets" is defined to mean, with respect to any Person at
any time, the total assets of such Person and its Consolidated Subsidiaries at
such time determined in conformity with GAAP.
"Currency Agreement" is defined to mean, with respect to any Person, any foreign
exchange contract, currency swap agreement or other similar agreement or
arrangement designed to protect such Person or any of its Subsidiaries against
fluctuations in currency values to or under which such Person or any of its
Subsidiaries is a party or a beneficiary on the Closing Date or becomes a party
or a beneficiary thereafter.
"Debt" is defined to mean, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or bankers' acceptance or other similar
instruments (or reimbursement obligations with respect thereto), (iv) all
obligations of such Person to pay the deferred purchase price of property or
services, except Trade Payables, (v) all obligations of such Person as lessee
under Capitalized Leases, (vi) all Debt of others secured by a Lien on any asset
of such Person, whether or not such Debt is assumed by such Person; provided
that, for purposes of determining the amount of any Debt of the type described
in this clause, if recourse with respect to such Debt is limited to such asset,
the amount of such Debt shall be limited to the lesser of the fair market value
of such asset or the amount of such Debt, (vii) all Debt of others Guaranteed by
such Person to the extent such Debt is Guaranteed by such Person, (viii) all
Redeemable Stock valued at the greater of its voluntary or involuntary
liquidation preference plus accrued and unpaid dividends and (ix) to the extent
not otherwise included in this definition, all obligations of such Person under
Currency Agreements and Interest Rate Agreements.
"Designated Senior Debt" is defined to mean (i) Debt under the Bank Credit
Agreement and (ii) Debt constituting Senior Debt which, at the time of its
determination, (A) has an aggregate principal amount of at least $30 million and
(B) is specifically designated in the instrument evidencing such Senior Debt as
"Designated Senior Debt" by the Company.
"Excess Cash Flow" of any Person for any period is defined to mean Consolidated
EBITDA less Consolidated Fixed Charges less any income taxes actually paid by
such Person during such period.
"Fixed Charge Ratio" is defined to mean the ratio, on a pro forma basis, of (i)
the aggregate amount of Consolidated EBITDA of any Person for the Reference
Period immediately prior to the date of the transaction giving rise to the need
to calculate the Fixed Charge Ratio (the "Transaction Date") to (ii) the
aggregate Consolidated Fixed Charges of such Person during such Reference
Period; provided that for purposes of such computation, in calculating
Consolidated EBITDA and Consolidated Fixed Charges, (1) the Incurrence of the
Debt giving rise to the need to calculate the Fixed Charge Ratio and the
application of the proceeds therefrom shall be assumed to have occurred on the
first day of the Reference Period, (2) Asset Sales and Asset Acquisitions which
occur during the Reference Period or subsequent to the Reference Period and
prior to the Transaction Date (but including any Asset Acquisition to be made
with the Debt Incurred pursuant to clause (1) above) shall be assumed to have
occurred on the first day of the Reference Period, (3) the Incurrence of any
Debt during the Reference Period or subsequent to the Reference Period and prior
to the Transaction Date and the application of the proceeds therefrom shall be
assumed to have occurred on the first day of such Reference Period, (4)
Consolidated Interest Expense attributable to any Debt (whether existing or
being Incurred) computed on a pro forma basis and bearing a floating interest
rate shall be computed as if the rate in effect on the date of computation had
been the applicable rate for the entire period unless such Person or any of its
Subsidiaries is a party to an Interest Rate Agreement (which shall remain in
effect for the twelve month period after the Transaction Date) which has the
effect of fixing the interest rate on the date of computation, in which case
such rate (whether higher or lower) shall be used and (5) there shall be
excluded from Consolidated Fixed Charges any Consolidated Fixed Charges related
to any amount of Debt which was outstanding during and subsequent to the
Reference Period but is not outstanding on the Transaction Date, except for
Consolidated Fixed Charges actually incurred with respect to Debt borrowed (as
adjusted pursuant to clause (4)) (x) under a revolving credit or similar
arrangement to the extent the commitment thereunder remains in effect on the
Transaction Date or (y) pursuant to clause (iv) in the "Limitation on Debt"
covenant described above. For the purpose of making this computation, Asset
Sales and Asset Acquisitions which have been made by any Person which has become
a Subsidiary of the Company or been merged with or into the Company or any
Subsidiary of the Company during the Reference Period or subsequent to the
Reference Period and prior to the Transaction Date shall be calculated on a pro
forma basis (including all of the calculations referred to in clauses (1)
through (5) above assuming such Asset Sales or Asset Acquisitions occurred on
the first day of the Reference Period).
S-35
<PAGE> 36
"Foreign Asset Disposition" is defined to mean any Asset Disposition in respect
of the Capital Stock and/or Property of any Subsidiary of any Person where such
Subsidiary is organized under the laws of any jurisdiction other than the U.S.
or any state thereof or any Subsidiary of the type described in Section 936 of
the Internal Revenue Code of 1986, as amended, to the extent that the proceeds
of such Asset Disposition are received by a Person subject in respect of such
proceeds to the tax laws of a jurisdiction other than the U.S. or any state
thereof.
"GAAP" is defined to mean generally accepted accounting principles in the U.S.
as in effect as of the date of this Indenture applied on a basis consistent with
the principles, methods, procedures and practices employed in the preparation of
the Company's audited financial statements, including, without limitation, those
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as is approved by a significant segment of the
accounting profession.
"Guarantee" is defined to mean any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Debt or other obligation of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt or other obligation of such other Person (whether arising by virtue of
partnership arrangements, or by agreement to keepwell, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Debt or other obligation of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Holder", "holder of Securities", "Securityholder" and other similar terms mean
the registered holder of any Security.
"Incur" is defined to mean, with respect to any Debt, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Debt; provided
that neither the accrual of interest (whether such interest is payable in cash
or kind) nor the accretion of original issue discount shall be considered an
Incurrence of Debt.
"Independent Financial Advisor" is defined to mean a nationally recognized
investment banking firm (i) which does not (and whose directors, officers,
employees and Affiliates do not) have a direct or indirect material financial
interest in the Company and (ii) which, in the sole judgment of the Board of
Directors, is otherwise independent and qualified to perform the task for which
such firm is being engaged.
"Interest Rate Agreement" is defined to mean, with respect to any Person, any
interest rate protection agreement, interest rate future agreement, interest
rate option agreement, interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedge agreement or
other similar agreement or arrangement designed to protect such Person or any of
its Subsidiaries against fluctuations in interest rates to or under which such
Person or any of its Subsidiaries is a party or a beneficiary on the date of the
Indenture or becomes a party or a beneficiary thereafter.
"Investment" in a Person is defined to mean any investment in, loan or advance
to, Guarantee on behalf of, directly or indirectly, or other transfer of assets
to such Person.
"Investment Grade" is defined to mean, with respect to any security, a rating of
Baa3 or higher of such security by Moody's Investors Service Inc. together with
a rating of BBB- or higher of such security by Standard & Poor's Corporation.
"Joint Venture" is defined to mean a joint venture, partnership or other similar
arrangement, whether in corporate, partnership or other legal form; provided
that, as to any such arrangement in corporate form, such corporation shall not,
as to any Person of which such corporation is a Subsidiary, be considered to be
a Joint Venture to which such Person is a party.
"Lien" is defined to mean, with respect to any Property, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
Property. For purposes of this Indenture, the Company shall be deemed to own
subject to a Lien any Property which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such Property.
"Material AES Entity" is defined to mean (i) any Subsidiary Guarantor, (ii) any
of AES Connecticut Management Co., Inc., AES Thames, Inc., AES Barbers Point,
Inc. and AES Shady Point, Inc. and (iii) any other Person in
S-36
<PAGE> 37
which the Company has a direct or indirect equity Investment if such Person's
contribution to Consolidated EBITDA of the Company for the four most recently
completed fiscal quarters of the Company constitutes 15% or more of the
Consolidated EBITDA of the Company for such period.
"Net Cash Proceeds" from an Asset Disposition is defined to mean cash payments
received (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received (including any cash received upon sale or disposition of such
note or receivable), excluding any other consideration received in the form of
assumption by the acquiring Person of Debt or other obligations relating to the
Property disposed of in such Asset Disposition or received in any other noncash
form) therefrom, in each case, net of all legal, title and recording tax
expenses, commissions and other fees and expenses incurred (including, without
limitation, consent and waiver fees and any applicable premiums, earn-out or
working interest payments or payments in lieu or in termination thereof), and
all federal, state, provincial, foreign and local taxes required to be accrued
as a liability under GAAP (i) as a consequence of such Asset Disposition, (ii)
as a result of the repayment of any Debt in any jurisdiction other than the
jurisdiction where the Property disposed of was located or (iii) as a result of
any repatriation to the U.S. of any proceeds of such Asset Disposition, and in
each case net of a reasonable reserve for the after tax-cost of any
indemnification payments (fixed and contingent) attributable to seller's
indemnities to the purchaser undertaken by the Company or any of its
Subsidiaries in connection with such Asset Disposition (but excluding any
payments, which by the terms of the indemnities will not, under any
circumstances, be made during the term of the Notes), and net of all payments
made on any Debt which is secured by such Property, in accordance with the terms
of any Lien upon or with respect to such Property or which must by its terms or
by applicable law be repaid out of the proceeds from such Asset Disposition, and
net of all distributions and other payments made to minority interest holders in
Subsidiaries or Joint Ventures as a result of such Asset Disposition.
"Net Income" of any Person for any period is defined to mean the net income
(loss) of such Person for such period, determined in accordance with GAAP,
except that extraordinary and non-recurring gains and losses as determined in
accordance with GAAP shall be excluded.
"Net Worth" of any Person is defined to mean, as of any date, the aggregate of
capital, surplus and retained earnings (including any cumulative translation
adjustment) of such Person and its Consolidated Subsidiaries as would be shown
on a consolidated balance sheet of such Person and its Consolidated Subsidiaries
prepared as of such date in accordance with GAAP.
"Non-Recourse" to a Person as applied to any Debt (or portion thereof) is
defined to mean that such Person is not directly or indirectly liable to make
any payments with respect to such Debt (or portion thereof), that no Guarantee
of such Debt (or portion thereof) has been made by such Person and that such
Debt (or portion thereof) is not secured by a Lien on any asset of such Person.
"Opinion of Counsel" is defined to mean an opinion in writing signed by legal
counsel who may be an employee of or counsel to the Company or who may be other
counsel satisfactory to the Trustee. Each such opinion shall comply with Section
314 of the Trust Indenture Act of 1939 and include the statements provided for
in the Indenture, if and to the extent required thereby.
"Permitted Investment" is defined to mean any Investment of the type specified
in clauses (iv) through (v) of the definition of Restricted Payment which is
made directly or indirectly by the Company and its Subsidiaries; provided that
(i) at the time such Investment is made, the Company could Incur at least $1 of
Debt under the first paragraph of the "Limitation on Debt" covenant described
above; (ii) at the time such Investment is made, no Event of Default or event
that, after the giving of notice or lapse of time or both would become an Event
of Default, shall have occurred and be continuing; (iii) after giving effect to
the Investment, the aggregate Investments made by the Company and its
Subsidiaries in the applicable Person and in any other Persons that have a
direct or indirect interest in the same Power Generation Facility or Unrelated
Business does not exceed 40% of the Net Worth of the Company as of the end of
its most recently ended fiscal quarter; (iv) the Person in which the Investment
is made is engaged only in the businesses described in the "Limitation on
Business" covenant described above; and (v) the Company directly or through its
Subsidiaries either (x) controls, under an operating and management agreement or
otherwise, the day to day management and operation of any Power Generation
Facility or Unrelated Business of the Person in which the Investment is made or
(y) has significant influence over the management and operation of any such
Power Generation Facility or Unrelated Business in connection with such
management or operation. To the extent that an Investment is not a Permitted
Investment only because the aggregate investment limitation in clause (iii)
above is not satisfied, such Investment shall be treated as a Permitted
Investment to the extent of the limitation
S-37
<PAGE> 38
and any excess Investment shall be subject to the other restrictions of the
"Limitation on Restricted Payments" covenant described above.
"Permitted Payments" is defined to mean with respect to the Company or any of
its Subsidiaries (i) any dividend on shares of Capital Stock payable (or to the
extent paid) solely in shares of Capital Stock (other than Redeemable Stock) or
in options, warrants or other rights to purchase Capital Stock (other than
Redeemable Stock) and any distribution of Capital Stock (other than Redeemable
Capital Stock) in respect of the exercise of any right to convert or exchange
any instrument (whether Debt or equity and including Redeemable Stock); (ii) any
dividend or other distribution payable to the Company by any of its Subsidiaries
or by a Subsidiary to another Subsidiary; (iii) the repurchase or other
acquisition or retirement for value of any shares of the Company's Capital
Stock, or any option, warrant or other right to purchase shares of the Company's
Capital Stock with additional shares of, or out of the proceeds of a
substantially contemporaneous issuance of, Capital Stock other than Redeemable
Stock (unless the redemption provisions of such Redeemable Stock prohibit the
redemption thereof prior to the date on which the Capital Stock to be acquired
or retired was by its terms required to be redeemed); (iv) any defeasance,
redemption, repurchase or other acquisition for value of any Debt which by its
terms ranks pari passu with, or subordinate in right of payment to the Notes
with the proceeds from the issuance of (x) Debt which is also pari passu with
the Notes or subordinate to the Notes at least to the extent and in the manner
as the Debt to be defeased, redeemed, repurchased or otherwise acquired is
subordinate in right of payment to, the Notes; provided that such new pari passu
or subordinated Debt provides for no payments of principal by way of sinking
fund, mandatory redemption or otherwise (including defeasance) by the Company
(including, without limitation, at the option of the holder thereof other than
an option given to a holder pursuant to a "change of control" covenant which is
no more favorable to the holders of such Debt than the provisions contained in
the Debt being replaced or, if none, the "Repurchase of Notes Upon a Change in
Control" covenant described above) prior to the maturity of Debt being replaced
and the proceeds of such new pari passu or subordinated Debt are utilized for
such purpose within 45 days of issuance or (y) Capital Stock (other than
Redeemable Stock); (v) in respect of any actual payment on account of an
Investment which is not fixed in amount at the time when made, the amount
determined by the Board of Directors to be a Restricted Payment on the date such
Investment was originally deemed to have been made (the "Original Restricted
Payment Charge") plus an amount equal to the interest on a hypothetical
investment in a principal amount equal to the Original Restricted Payment Charge
assuming interest at the rate of 7% per annum compounded annually for a period
beginning on the date the Investment was originally deemed to have been made and
ending with respect to any portion of the Original Restricted Payment Charge
actually paid on the date of actual payment, less any actual payments previously
made on account of such Investment; provided that the Permitted Payment under
this clause (v) shall in no event exceed the payment actually made; or (vi) a
Permitted Investment.
"Person" is defined to mean an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
"Power Generation Facility" is defined to mean an electric power or thermal
energy generation or cogeneration facility or related facilities, and its or
their related electric power transmission, distribution, fuel supply and fuel
transportation facilities, all subject to related security interests under
related project financing arrangements, together with its or their related power
supply, thermal energy and fuel contracts as well as other contractual
arrangements with customers, suppliers and contractors.
"Preferred Stock" is defined to mean, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of preferred or preference stock of such Person
which is outstanding or issued on or after the date of this Indenture.
"Principal" wherever used with reference to the Notes or any Note or any portion
thereof, shall be deemed to include "and premium, if any".
"Property" of any Person is defined to mean all types of real, personal,
tangible, intangible or mixed property owned by such Person whether or not
included in the most recent consolidated balance sheet of such Person under
GAAP.
"Redeemable Stock" is defined to mean any class or series of Capital Stock of
any Person that by its terms or otherwise is (i) required to be redeemed prior
to the Stated Maturity of the Notes, (ii) redeemable at the option of the holder
of such class or series of Capital Stock at any time prior to the Stated
Maturity of the Notes or (iii) convertible into or exchangeable for Capital
Stock referred to in clause (i) or (ii) above or Debt having a scheduled
maturity prior to the Stated Maturity of the Notes; provided that any Capital
Stock that would not constitute Redeemable Stock but for provisions thereof
giving holders thereof the right to require the Company to
S-38
<PAGE> 39
repurchase or redeem such Capital Stock upon the occurrence of an "asset sale"
or a "change of control" occurring prior to the Stated Maturity of the
Securities shall not constitute Redeemable Stock if the "asset sale" or "change
of control" provision applicable to such Capital Stock is no more favorable to
the holders of such Capital Stock than the provisions contained in the
"Limitation on Asset Dispositions" and "Repurchase of Notes upon a Change of
Control" covenants described above, and such Capital Stock specifically provides
that the Company will not repurchase or redeem any such Capital Stock pursuant
to such provisions prior to the Company's repurchase of Notes required to be
repurchased by the Company under the "Limitation on Asset Dispositions" and
"Repurchase of Notes upon a Change of Control" covenants described above.
"Reference Period" is defined to mean the four fiscal quarters for which
financial information is available preceding the date of a transaction giving
rise to the need to make a financial calculation.
"Responsible Officer" when used with respect to the Trustee is defined to mean
any officer of the Trustee assigned by the Trustee to administer its corporate
trust matters.
"Restricted Payment" is defined to mean, with respect to any Person, (i) any
dividend or other distribution on any shares of such Person's Capital Stock;
(ii) any payment on account of the purchase, redemption, retirement or
acquisition for value of such Person's Capital Stock; (iii) any defeasance,
redemption, repurchase or other acquisition or retirement for value prior to
scheduled maturity of any Debt ranked pari passu with or subordinated in right
of payment to the Notes and having a maturity date after the maturity of the
Notes; (iv) any Investment in a Subsidiary after the occurrence of an event of
default, as defined in any indenture or instrument evidencing or under which
such Subsidiary has at the date of this Indenture or shall thereafter have
outstanding any Debt, shall happen and be continuing; and (v) any Investment
made in an Affiliate (other than a Person that constitutes an Affiliate solely
because of the Company's, or a Subsidiary of the Company's, control of such
Person). Notwithstanding the foregoing, "Restricted Payment" shall not include
any Permitted Payment.
"Security" or "Securities" is defined to mean any Notes or Notes, as the case
may be, authenticated and delivered under the Indenture.
"Senior Debt" is defined to mean the principal of (and premium, if any) and
interest on all Debt of the Company whether created, incurred or assumed before,
on or after the date of the issuance of the Securities; provided that Senior
Debt shall not include (i) the Company's 9 3/4% Senior Subordinated Notes due
2000 which rank pari passu to the Notes, (ii) the Company's 6 1/2% Convertible
Subordinated Debentures due 2002 which rank junior to the Notes, (iii) Debt
that, when incurred and without respect to any election under Section 1111(b) of
Title 11, United States Code, was without recourse to the Company, (iv) Debt of
the Company to any Affiliate, (v) any other Debt of the Company which by the
terms of the instrument creating or evidencing the same are specifically
designated as not being senior in right of payment to the Notes and (vi)
Redeemable Stock of the Company.
"Significant Subsidiary" of a Person is defined to mean, as of any date, any
Subsidiary which has two or more of the following attributes: (i) it contributes
20% or more of such Person's Excess Cash Flow for its most recently completed
fiscal quarter or (ii) it contributes 15% or more of Net Income before tax of
such Person and its Consolidated Subsidiaries for such Person's most recently
completed fiscal quarter or (iii) it constitutes 20% or more of Consolidated
Total Assets of such Person at the end of such Person's most recently completed
fiscal quarter.
"Stated Maturity" is defined to mean, with respect to any debt security or any
installment of interest thereon, the date specified in such debt security as the
fixed date on which any principal of such debt security or any such installment
of interest is due and payable.
"Subsidiary" is defined to mean, with respect to any Person, any corporation or
other entity of which a majority of the Capital Stock or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are at the time directly
or indirectly owned by such Person.
"Subsidiary Guarantors" is defined to mean (i) prior to the first day, if any,
on which the Company's long-term debt is rated BBB- or higher by Standard &
Poor's Ratings Group and Baa3 or higher by Moody's Investors Service, Inc., AES
Oklahoma and AES Hawaii, and (ii) on and after such first day, if any, AES
Hawaii.
"Trade Payables" is defined to mean, with respect to any Person, any accounts
payable or any other indebtedness or monetary obligation to trade creditors
created, assumed or Guaranteed by such Person or any of its Subsidiaries arising
in the ordinary course of business in connection with the acquisition of goods
or services.
"Unrelated Business" is defined to mean any business not of the same general
type now conducted by the Company and its Subsidiaries.
S-39
<PAGE> 40
"U.S. Government Obligations" is defined to mean securities which are (i) direct
obligations of the U.S. for the payment of which its full faith and credit is
pledged or (ii) obligations of a Person controlled or supervised by and acting
as an agency or instrumentality of the U.S. the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the U.S.,
which, in either case, are not callable or redeemable at the option of the
issuer thereof, and shall also include a depository receipt issued by a bank or
trust company as custodian with respect to any such U.S. Government Obligations
or a specific payment of interest on or principal of any such U.S. Government
Obligation held by such custodian for the account of the holder of a depository
receipt, provided that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in respect of the
U.S. Government Obligation or the specific payment of interest on or principal
of the U.S. Government Obligation evidenced by such depository receipt.
"Voting Stock" is defined to mean, with respect to any Person, Capital Stock of
any class or kind ordinarily having the power to vote for the election of
directors of such Person.
"Wholly-Owned Subsidiary" is defined to mean, with respect to any Person, any
Subsidiary of such Person if all the Capital Stock or other ownership interests
in such Subsidiary having ordinary voting power to elect the entire board of
directors or entire group of other persons performing similar functions (other
than any director's qualifying shares or Investments by foreign nationals
mandated by applicable law) is owned directly or indirectly by such Person.
UNDERWRITING
Subject to certain conditions contained in an underwriting agreement (the
"Underwriting Agreement"), each of the Underwriters named below has severally
agreed to purchase from AES the aggregate principal amount of Notes set forth
opposite its name below.
<TABLE>
<CAPTION>
------------
<S> <C>
PRINCIPAL
UNDERWRITER AMOUNT
- ------------------------------------------------------------------------------ ------------
J.P. Morgan Securities Inc. .................................................. $166,667,000
Goldman, Sachs & Co........................................................... 83,333,000
------------
Total.................................................................... $250,000,000
===========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the Underwriters
are obligated to purchase all the Notes offered hereby if any are purchased.
The Underwriters propose to offer the Notes to the public at the initial
offering price set forth on the cover page of this Prospectus Supplement, and to
certain dealers at such price less a concession not in excess of 0.275% of the
principal amount. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of 0.100% of the principal amount to certain other
dealers. After the initial public offering, the public offering price and such
concessions may from time to time be changed.
In the Underwriting Agreement, AES has agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act.
The rules of the National Association of Securities Dealers, Inc. (the "NASD")
provide that no NASD member shall participate in a public offering of an
issuer's securities where more than 10% of the net offering proceeds are
intended to be paid to members participating in the distribution of the offering
or associated or affiliated persons of such members, unless a "qualified
independent underwriter", as defined in Section 2(l) of Schedule E of the NASD's
By-Laws, shall have been engaged on the terms provided in such rules. In
connection with the Offering, greater than 10% of the net proceeds from the sale
of the Notes may be used to repay outstanding indebtedness of the Company to
Morgan Guaranty, an affiliate of J.P. Morgan Securities Inc., under the Bank
Credit Agreement or under the Reimbursement Agreement.
In view of such potential use of proceeds, the Offering is being conducted in
accordance with the rules of the NASD and Goldman, Sachs & Co. is acting as
"qualified independent underwriter" and will recommend the maximum price at
which the Notes may be offered hereby in accordance with the requirement of
Schedule E. Goldman, Sachs & Co. will receive compensation from the Company in
the amount of $10,000 for serving in such role. In connection with the Offering,
Goldman, Sachs & Co. in its role as qualified independent underwriter has
performed due diligence investigations and reviewed and participated in the
preparation of this Prospectus Supplement, the Prospectus and the Registration
Statement of which this Prospectus Supplement and the Prospectus form a part.
S-40
<PAGE> 41
THE AES CORPORATION AND SUBSIDIARIES
CALCULATIONS OF FIXED CHARGE RATIO
(IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
FOUR QUARTERS
YEAR ENDED DECEMBER 31 ENDED MARCH 31
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
ACTUAL:
Net Income........................ $42,626 $55,809 $71,000 $100,000 $107,000 $100,200 $111,000
Equity in Earnings of Affiliates
Less Than (in Excess of)
Distributions................... -- (2,509) (10,578) 2,700 3,701 3,000 2,915
Net Income From Wholly-Owned
Subsidiaries Less Than (in
Excess of) Distributions........ (39,258) (22,965) (38,061) (37,436) 12,301 8,674 6,933
------- ------- ------- -------- -------- -------- --------
Adjusted Consolidated Net
Income.......................... 3,368 30,335 22,361 65,264 123,002 111,874 120,848
Income Taxes...................... 6,822 10,008 2,000 3,000 6,000 2,548 6,793
Consolidated Fixed Charges........ 749 3,111 7,200 11,000 11,969 11,411 12,665
Depreciation and Amortization..... 608 494 789 1,465 1,470 1,737 1,472
Project Development and Other
Capitalized Expenses............ (12,981) (7,626) (2,286) (13,026) (32,383) (16,469) (27,167)
Other............................. 6,584 8,731 -- -- -- -- --
------- ------- ------- -------- -------- -------- --------
Consolidated EBITDA............... $ 5,150 $45,053 $30,064 $ 67,703 $110,058 $111,101 $114,611
======== ======== ======== ========= ========= ========= =========
Consolidated Fixed Charges........ $ 749 $ 3,111 $ 7,200 $ 11,000 $ 11,969 $ 11,411 $ 12,665
======== ======== ======== ========= ========= ========= =========
Fixed Charge Ratio................ 6.88x 14.48x 4.18x 6.15x 9.20x 9.74x 9.05x
PRO FORMA:
Net Income........................ $ 97,000 $102,000
Equity in Earnings of Affiliates
Less Than (in Excess of)
Distributions................... 1,201 415
Net Income From Wholly-Owned
Subsidiaries Less Than (in
Excess of) Distributions........ 12,301 6,933
-------- --------
Adjusted Consolidated Net
Income.......................... 110,502 109,348
Income Taxes...................... 6,000 6,793
Consolidated Fixed Charges........ 41,969 41,665
Depreciation and Amortization..... 6,470 6,472
Project Development and Other
Capitalized Expenses............
Changes in working capital
components...................... (32,383) (27,167)
Other............................. -- --
-------- --------
Consolidated EBITDA............... $132,558 $137,111
========= =========
Consolidated Fixed Charges........ $ 41,969 $ 41,665
========= =========
Fixed Charge Ratio................ 3.16x 3.29x
</TABLE>
R-1
<PAGE> 42
PROSPECTUS
(AES LOGO) THE AES CORPORATION
$250,000,000
Debt Securities
------------------
The AES Corporation (the "Company" or "AES") intends to offer from time to time
up to $250,000,000 aggregate principal amount of its debt securities (the "Debt
Securities") in one or more series on terms to be determined at the time or
times of sale, and otherwise as more fully described under "Description of Debt
Securities". The specific designation, aggregate principal amount, authorized
denominations, purchase price, maturity, rate and time of payment of interest,
any redemption terms or other specific terms and any listing on a securities
exchange of any Debt Securities in respect of which this Prospectus is being
delivered ("Offered Debt Securities") will be set forth in a Prospectus
Supplement to be delivered at the time of the offering and sale of such Offered
Debt Securities.
SEE "RISK FACTORS" BEGINNING ON PAGE 2 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------
The Company may sell the Debt Securities through underwriters, dealers or
agents, directly to one or a limited number of purchasers, or through a
combination of the foregoing. See "Plan of Distribution." The Prospectus
Supplement will set forth the names of the underwriters, dealers or agents, if
any, any applicable commissions or discounts and the net proceeds to the Company
from the sale of the Offered Debt Securities. Any such underwriter (or any
representative thereof), dealer or agent may include J.P. Morgan Securities Inc.
and Goldman, Sachs & Co.
No dealer, salesperson or other person is authorized to give any information or
to make any representations other than those contained in this Prospectus in
connection with the offer made by this Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company since the date hereof or that the
information contained or incorporated by reference herein is correct as of any
time subsequent to its date. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy the securities offered hereby by
anyone in any state in which such offer or solicitation is not authorized or in
which the person making such offer or solicitation is not qualified to do so or
to anyone to whom it is unlawful to make such offer or solicitation.
J.P. MORGAN & CO. GOLDMAN, SACHS & CO.
The date of this Prospectus is June 27, 1996
<PAGE> 43
AVAILABLE INFORMATION
The AES Corporation is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy and information statements and other
information with the Securities and Exchange Commission (the "Commission").
These reports, proxy and information statements and other information may be
inspected without charge and copied at the public reference facilities
maintained by the Commission at its principal offices at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and 7 World Trade Center, Suite 1300, New York, New
York 10048. Copies of such materials also can be obtained at prescribed rates
from the Public Reference Section of the Commission at the principal offices of
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549. Such material may also be inspected at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006. Such material may also be accessed electronically by means of the
Commission's home page on the Internet at http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on Form S-3
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Debt Securities offered hereby (including all amendments and
supplements thereto, the "Registration Statement"). This Prospectus, which forms
a part of the Registration Statement, does not contain all the information set
forth in the Registration Statement and the exhibits filed thereto, certain
parts of which have been omitted in accordance with the rules and regulations of
the Commission. Statements contained herein concerning the provisions of any
documents are not necessarily complete and, in each instance, reference is made
to the copy of such document filed as an exhibit to the Registration Statement
or otherwise filed with the Commission. Each such statement is qualified in its
entirety by such reference. The Registration Statement and the exhibits thereto
can be inspected and copied at the public reference facilities and regional and
other offices referred to above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates in this Prospectus by reference thereto and
makes a part hereof the following documents, heretofore filed with the
Commission pursuant to the Exchange Act: (i) the Company's Annual Report on Form
10-K for the year ended December 31, 1995; (ii) the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1996 and (iii) the Company's
Current Reports on Form 8-K filed on June 12, 1996, February 26, 1996 and
February 6, 1996.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date of this Prospectus and prior to
termination of the offering being made hereby shall be deemed to be incorporated
in this Prospectus by reference and to be a part hereof from the respective
dates of the filing of such documents. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus and the
Registration Statement of which it is a part to the extent that a statement
contained herein or in any subsequently filed document which also is, or is
deemed to be, incorporated by reference herein, modifies or supersedes such
earlier statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus or
such Registration Statement. Without limitation of the foregoing, the financial
statements contained in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 have been superseded by the financial statements of the
Company included herein.
The Company hereby undertakes to provide without charge to each person to whom a
copy of this Prospectus has been delivered, upon written or oral request of any
such person, a copy of any and all of the documents referred to above which have
been or may be incorporated in this Prospectus by reference, other than exhibits
to such documents which are not specifically incorporated by reference into such
documents. Requests for such copies should be directed to William R. Luraschi,
General Counsel and Secretary, The AES Corporation, 1001 North 19th Street,
Arlington, Virginia 22209, telephone (703) 522-1315.
i
<PAGE> 44
THE COMPANY
The AES Corporation is a global power company which supplies electricity to
customers world-wide. The Company markets power principally from electric
generating and other related facilities that it owns and operates. AES was one
of the original entrants in the independent power market and today is one of the
world's largest independent power companies, based on net equity ownership of
generating capacity (in megawatts) in operation or under construction.
Over the last five years, the Company has experienced significant growth. This
growth has resulted primarily from the development and construction of new
plants ("greenfield development") and also from the acquisition of existing
plants, primarily through competitively bid privatization initiatives outside
the United States. Since 1991, the Company's total generating capacity in
megawatts has grown by 293%, with the total number of plants in operation
increasing from 6 to 20. Additionally, the Company's revenues have increased
106% from $333 million in 1991 to $685 million in 1995, while EBITDA has grown
from $5 million to $110 million over the same period.
Through its subsidiaries and affiliated companies, AES operates and owns
(entirely or in part) a diverse portfolio of electric power plants with a total
generating capacity of 4,158 megawatts. Of that total, 1,069 are produced by
plants located in the United States, 1,420 in the United Kingdom, 840 in
Argentina, 788 in Brazil and 41 in China. Of the total megawatts, 29% are
produced by plants fueled by solid fuel, 19% are produced by plants fueled by
natural gas, 24% are produced by hydroelectric facilities and the remaining 28%
are produced by plants capable of burning multiple fossil fuels.
AES is now in the process of adding 1,462 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 four plants totaling 608
megawatts in China that will be coal and oil-fired. In total, AES's net equity
ownership in plants in operation and construction is 3,233 megawatts.
On May 30, 1996, a subsidiary of AES acquired common shares representing an
11.35% interest (the "Light Interest") in Light Servicos de Eletricidade S.A.
("Light"), a publicly-held corporation that operates as the concessionaire of an
approximately 3,800 megawatt electric power generation, transmission and
distribution system in Rio de Janeiro, Brazil. In connection with the
acquisition of the Light Interest, AES, through a subsidiary, is participating
in a consortium with certain other successful bidders, and the ownership
interest held by the consortium represents a controlling interest in Light.
THE GLOBAL INDEPENDENT POWER MARKET
The market for independent power generation has expanded from a U.S. market,
consisting of cogeneration and small power production projects, to a global
competitive market for power generation. Although many foreign countries
initiated restructuring policies after the advent of the independent power
market in the United States, many of these countries have put in place market
structures that the Company believes are more competitive than most markets
existing in the United States today. A part of AES's business strategy is to
participate in competitive generation markets both in the United States and
world-wide.
The Company believes that the growth in the need for new capacity in the United
States has and will continue to slow, partly because utilities are making more
efficient use of their existing resources by improving plant availability,
extending plant lives, repowering and taking advantage of attractive bulk power
purchases, and partly because utilities have initiated programs to reduce the
demand for electricity. As a result of the reduced need for new capacity in the
United States, AES and many of its competitors are seeking new business in
markets outside the United States. In addition, a number of foreign countries
have privatized (or are in the process of privatizing) their generation
capacity, which provides opportunities to purchase existing generation assets.
AES, through subsidiaries and affiliates, now operates 14 plants in non-U.S.
countries, is constructing six others overseas, and has offices in numerous
foreign locations to take advantage of the opportunities in these new markets.
1
<PAGE> 45
BUSINESS STRATEGY
The Company's primary objective is to help meet the need for electricity
world-wide by participating in competitive electricity markets as a clean, safe
and reliable power supplier. The Company's strategy is to participate in
competitive power generation markets as they develop either by greenfield
development or by acquiring and operating existing facilities in these markets.
Other elements of the Company's strategy include:
- Supplying energy to customers at the least cost possible, taking into
account factors such as reliability and environmental performance.
- Constructing or acquiring projects of a relatively large size (generally
larger than 100 megawatts).
- Entering into power sales contracts with electric utilities or other
customers with credit strength.
The Company also strives for operating excellence as a key element of its
strategy, which it believes it accomplishes by minimizing organizational layers
and maximizing company-wide participation in decision-making. AES has attempted
to create an operating environment that results in safe, clean and reliable
electricity generation. Because of this emphasis, the Company prefers to operate
all facilities which it develops or acquires; however, there can be no assurance
that the Company will have operating control of all of its facilities in the
future.
The Company's strategy also has been to attempt to finance its projects
primarily without credit recourse to the Company or to other projects, and to
construct new plants under fixed or guaranteed-maximum price contracts with
contractor-guaranteed performance standards ("turnkey" contracts). In addition,
the Company engages in careful site selection, taking into consideration
transportation, water and transmission access and attempting to gauge local
government and community receptivity to the environmental permitting process.
The Company is a Delaware corporation that was formed in 1981. The principal
office of the Company is located at 1001 North 19th Street, Arlington, Virginia
22209, and its telephone number is (703) 522-1315.
RISK FACTORS
Purchasers of the Debt Securities should read this entire Prospectus carefully.
Ownership of the Debt Securities involves certain risks. The following factors
should be considered carefully in evaluating AES and its business before
purchasing the Debt Securities offered by this Prospectus.
Leverage and Subordination. On a pro forma basis after giving effect to the
application of the net proceeds of the offering of $250 million in aggregate
principal amount of Debt Securities and the Company's recent acquisition of the
Light Interest, the Company and its subsidiaries had approximately $1.8 billion
of outstanding indebtedness at March 31, 1996. As a result of the Company's
level of debt, the Company might be significantly limited in its ability to meet
its debt service obligations, to finance the acquisition and development of
additional projects, to compete effectively or to operate successfully under
adverse economic conditions. As of March 31, 1996, the Company would have had,
on a pro forma basis after giving effect to the application of the net proceeds
from the offering of $250 million in aggregate principal amount of Debt
Securities and the Company's recent acquisition of the Light Interest, a
consolidated ratio of total debt to total book capitalization (including current
debt) of approximately 75%.
The Debt Securities will be subordinated to all Senior Debt, including, but not
limited to, the Company's current $425 million credit facility. As of March 31,
1996, on a pro forma basis after giving effect to the application of the net
proceeds of the offering of $250 million in aggregate principal amount of Debt
Securities and the Company's recent acquisition of the Light Interest, the
Company had approximately $246 million in aggregate principal amount of Senior
Debt. Upon any payment or distribution of assets to creditors upon any
liquidation, dissolution, winding up, receivership, reorganization, assignment
for the benefit of creditors, marshaling of assets and liabilities or any
bankruptcy, insolvency or similar proceedings of the Company, the holders of
Senior Debt will first be entitled to receive payment in full of all amounts due
or to become due under all Senior Debt before the holders of the Debt Securities
will be entitled to receive any payment in respect of the principal of, premium,
if any, or interest on the
2
<PAGE> 46
Debt Securities. No payments on account of principal, premium, if any, or
interest in respect of the Debt Securities may be made if there shall have
occurred and be continuing a default in any payment under any Senior Debt or,
during certain periods, an event of default under certain Senior Debt permitting
the lenders thereunder to accelerate the maturity thereof. See "Description of
Debt Securities -- Subordination".
The Debt Securities will be effectively subordinated to the indebtedness and
other obligations (including trade payables) of the Company's subsidiaries. At
March 31, 1996, the indebtedness and obligations of the Company's subsidiaries,
on a pro forma basis after giving effect to the application of the net proceeds
of the offering of $250 million in aggregate principal amount of Debt Securities
and the Company's recent acquisition of the Light Interest, aggregated
approximately $1.2 billion. The ability of the Company to pay principal of,
premium, if any, and interest on the Debt Securities will be dependent upon the
receipt of funds from its subsidiaries by way of dividends, fees, interest,
loans or otherwise. Most of the Company's subsidiaries with interests in power
generation facilities currently have in place, and the Indenture for the Debt
Securities will, under certain circumstances, permit the Company's subsidiaries
to enter into, arrangements that restrict their ability to make distributions to
the Company by way of dividends, fees, interest, loans or otherwise. The
Company's subsidiaries are separate and distinct legal entities and have no
obligation, contingent or otherwise, to pay any amounts due pursuant to the Debt
Securities or to make any funds available therefor, whether by dividends, loans
or other payments, and do not guarantee the payment of interest on or principal
of the Debt Securities. Any right of the Company to receive any assets of any of
its subsidiaries upon any liquidation, dissolution, winding up, receivership,
reorganization, assignment for the benefit of creditors, marshaling of assets
and liabilities or any bankruptcy, insolvency or similar proceedings of the
Company (and the consequent right of the holders of the Debt Securities to
participate in the distribution of, or to realize proceeds from, those assets)
will be effectively subordinated to the claims of any such subsidiary's
creditors (including trade creditors and holders of debt issued by such
subsidiary). The Company currently conducts substantially all of its operations
through its subsidiaries. See "Description of Debt Securities -- Subordination".
Doing Business Outside the United States. The Company's involvement in the
development of new projects and the acquisition of existing plants in locations
outside the United States is increasing and most of the Company's current
development and acquisition activities are in respect of projects and plants
outside the United States. The Company, through subsidiaries and joint ventures,
has ownership interests in 20 power plants outside the United States in
operation or under construction. Five of such power plants are located in
Argentina; four in Brazil; one in England; two in Northern Ireland; two in
Pakistan; and six in the People's Republic of China.
The financing, development and operation of projects outside the United States
entail significant political and financial uncertainties (including, without
limitation, uncertainties associated with first-time privatization efforts in
the countries involved, currency exchange rate fluctuations, currency
repatriation restrictions, currency convertibility, political instability, civil
unrest, and expropriation) and other structuring issues that have the potential
to cause substantial delays in respect of or material impairment of the value of
the project being developed or operated, which AES may not be capable of fully
insuring or hedging against. The ability to obtain financing on a commercially
acceptable non-recourse basis in developing nations may also require higher
investments by the Company than historically have been the case. In addition,
financing in countries with less than investment grade sovereign credit ratings
may also require substantial participation by multilateral financing agencies.
There can be no assurance that such financing can be obtained when needed.
The uncertainty of the legal environment in certain countries in which the
Company, its subsidiaries and its affiliates are or in the future may be
developing, constructing or operating could make it more difficult for the
Company to enforce its respective rights under agreements relating to such
projects. In addition, the laws and regulations of certain countries may limit
the Company's ability to hold a majority interest in some of the projects that
it may develop or acquire. International projects owned by the Company may, in
certain cases, be expropriated by applicable governments. Although AES may have
legal recourse in enforcing its rights under agreements and recovering damages
for breaches thereof, there can be no assurance that any such legal proceedings
will be successful.
Competition. The global power production market is characterized by numerous
strong and capable competitors, many of whom may have extensive and more
diversified developmental or operating experience (including both
3
<PAGE> 47
domestic and international experience) and greater financial resources than the
Company. Further, in recent years, the power production industry has been
characterized by strong and increasing competition with respect to both
obtaining power sales agreements and acquiring existing power generation assets.
In certain markets, these factors have caused reductions in prices contained in
new power sales agreements and, in many cases, have caused higher acquisition
prices for existing assets through competitive bidding practices. The evolution
of competitive electricity markets and the development of highly efficient
gas-fired power plants have also caused, or are anticipated to cause, price
pressure in certain power markets where the Company sells or intends to sell
power. There can be no assurance that the foregoing competitive factors will not
have a material adverse effect on the Company.
Development Uncertainties. The majority of the projects that AES develops are
large and complex and the completion of any such project is subject to
substantial risks. Development can require the Company to expend significant
sums for preliminary engineering, permitting, legal and other expenses in
preparation for competitive bids which the Company may not win or before it can
be determined whether a project is feasible, economically attractive or capable
of being financed. Successful development and construction is contingent upon,
among other things, negotiation on terms satisfactory to the Company of
engineering, construction, fuel supply and power sales contracts with other
project participants, receipt of required governmental permits and consents and
timely implementation and satisfactory completion of construction. There can be
no assurance that AES will be able to obtain new power sales contracts, overcome
local opposition, if any, obtain the necessary site agreements, fuel supply and
ash disposal agreements, construction contracts, steam sales contracts, licenses
and certifications, environmental and other permits and financing commitments
necessary for the successful development of its projects. There can be no
assurance that development efforts on any particular project, or the Company's
efforts generally, will be successful. If these development efforts are not
successful, the Company may abandon a project under development. At the time of
abandonment, the Company would expense all capitalized development costs
incurred in connection therewith and could incur additional losses associated
with any related contingent liabilities. The future growth of the Company is
dependent, in part, upon the demand for significant amounts of additional
electrical generating capacity and its ability to obtain contracts to supply
portions of this capacity. Any material unremedied delay in, or unsatisfactory
completion of, construction of the Company's projects could, under certain
circumstances, have an adverse effect on the Company's ability to meet its
obligations, including the payment of principal of, premium, if any and interest
on Notes. The Company also is faced with certain development uncertainties
arising out of doing business outside of the United States. See "-- Doing
Business Outside the United States."
Uncertainty of Access to Capital for Future Projects. Each of AES's projects
under development and those independent power facilities it may seek to acquire
may require substantial capital investment. Continued access to capital with
acceptable terms is necessary to assure the success of future projects and
acquisitions. 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.
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
4
<PAGE> 48
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.
The Company's ability to arrange for financing on either a fully recourse or a
substantially non-recourse basis and the costs of such capital are dependent on
numerous factors, including general economic and capital market conditions, the
availability of bank credit, investor confidence in the Company, the continued
success of current projects and provisions of tax and securities laws which are
conducive to raising capital in this manner. Should future access to capital not
be available, AES may decide not to build new plants or acquire existing
facilities. While a decision not to build new plants or acquire existing
facilities would not affect the results of operations of AES on its currently
operating facilities or facilities under construction, such a decision would
affect the future growth of AES.
Dependence on Utility Customers and Certain Projects. The nature of most of
AES's power projects is such that the facility generally relies on one power
sales contract with a single customer for the majority, if not all, of its
revenues over the life of the power sales contract. During 1995, four customers
accounted for 73% of the Company's revenues. The prolonged failure of any one
utility customer to fulfill its contractual obligations could have a substantial
negative impact on AES's primary source of revenues. AES has sought to reduce
this risk in part by entering into power sales contracts with utilities or other
customers of strong credit quality and by locating its plants in different
geographic areas in order to mitigate the effects of regional economic
downturns.
Four of the Company's plants collectively represented approximately 61% of AES's
consolidated total assets at December 31, 1995 and generated approximately 80%
of AES's consolidated total revenues for the year ended December 31, 1995.
Regulatory Uncertainty. AES' cogeneration operations are subject to the
provisions of various laws and regulations, including the Public Utility
Regulatory Policies Act of 1978, as amended ("PURPA") and the Public Utility
Holding Company Act, as amended ("PUHCA"). PURPA provides to qualifying
facilities ("QFs") certain exemptions from substantial federal and state
legislation, including regulation as public utilities. PUHCA regulates public
utility holding companies and their subsidiaries. AES is not and will not be
subject to regulation as a holding company under PUHCA as long as the domestic
power plants it owns are QFs under PURPA. QF status is conditioned on meeting
certain criteria, and would be jeopardized, for example, by the loss of a steam
customer. The Company believes that, upon the occurrence of an event that would
threaten the QF status of one of its domestic plants, it would be able to react
in a manner that would avoid the loss of QF status (such as by replacing the
steam customer). In the event the Company were unable to avoid the loss of such
status for one of its plants, to avoid public utility holding company status,
AES could apply to the Federal Energy Regulatory Commission ("FERC") to obtain
status as an Exempt Wholesale Generator ("EWG"), or could restructure the
ownership of the project subsidiary. EWGs, however, are subject to broad
regulation by FERC and may be subject to state public utility commissions
regulation regarding non-rate matters. In addition, any restructuring of a
project subsidiary would likely result in, among other things, a reduced
financial interest in such subsidiary, which could result in a gain or loss on
the sale of the interest in such subsidiary, the removal of such subsidiary from
the consolidated income tax group or the consolidated financial statements of
the Company, or an increase or decrease in the results of operations of the
Company.
The United States Congress is considering proposed legislation which would
repeal PURPA entirely, or at least repeal the obligation of utilities to
purchase from QFs. There is strong support for grandfathering existing QF
contracts if such legislation is passed, and also support for requiring
utilities to conduct competitive bidding for new electric generation if the
PURPA purchase obligation is eliminated. Various bills have also proposed repeal
of PUHCA. Repeal of PUHCA would allow both independents and vertically
integrated utilities to acquire retail utilities in the United States that are
geographically widespread, as opposed to the current limitations of PUHCA which
require that retail electric systems be capable of physical integration. In
addition, registered holding companies would be free to acquire non-utility
businesses, which they may not do now, with certain limited exceptions.
Competition for independent power generators from vertically integrated
utilities would likely increase. Repeal of PURPA and/or PUHCA may or may not be
part of comprehensive legislation to restructure the electric
5
<PAGE> 49
utility industry, allow retail competition, and deregulate most electric rates.
The effect of any such repeal cannot be predicted, although any such repeal
could have a material adverse effect on the Company.
Electric Utility Industry Restructuring Proposals. The FERC and many state
utility commissions are currently studying a number of proposals to restructure
the electric utility industry in the United States to permit utility customers
to choose their utility supplier in a competitive electric energy market. The
FERC issued a final rule in April 1996 which requires utilities to offer
wholesale customers and suppliers open access on utility transmission lines, on
a comparable basis to the utilities' own use of the lines. The final rule is
subject to rehearing and may become the subject of court litigation. Many
utilities have already filed "open access" tariffs. The utilities contend that
they should recover from departing customers their fixed costs that will be
"stranded" by the ability of their wholesale customers (and perhaps eventually,
their retail customers) to choose new electric power suppliers. The FERC final
rule endorses the recovery of legitimate and verifiable "stranded costs." These
may include the costs utilities are required to pay under many QF contracts
which the utilities view as excessive when compared with current market prices.
Many utilities are therefore seeking ways to lower these contract prices or
rescind the contracts altogether, out of concern that their shareholders will be
required to bear all or part of such "stranded" costs. Some utilities have
engaged in litigation against QFs to achieve these ends. In addition, future
United States electric rates may be deregulated in a restructured United States
electric utility industry and increased competition may result in lower rates
and less profit for United States electricity sellers. Falling electricity
prices and uncertainty as to the future structure of the industry is inhibiting
United States utilities entering into long-term power purchase contracts. The
effect of any such restructuring on the Company cannot be predicted, although
any such restructuring could have a material adverse effect on the Company.
Risk of Litigation Involving Light. Light is the subject of certain lawsuits by
industrial customers who have alleged that increases in electricity tariffs
introduced by Light and all other electric utilities in Brazil during a price
freeze imposed by the federal government of Brazil from March through November
1986 (the "Cruzado Period") were illegal. The plaintiffs are seeking
reimbursement for amounts relating to (i) increases paid during the Cruzado
Period, which Light estimates may range up to approximately $75 million, and
(ii) increases paid subsequent to the Cruzado Period on the basis that all
tariff increases after the Cruzado Period were illegal because they took into
account the allegedly illegal increase introduced during the Cruzado Period,
which Light estimates may range up to $700 million. The Company has been
informed by Light that the Superior Tribunal of Justice in Brazil has affirmed
lower court decisions that Light and the other utilities are required to
reimburse their industrial customers for the tariff increase during the Cruzado
Period and that the Superior Tribunal of Justice has, in an appellate proceeding
involving one other utility, ruled that the plaintiffs in that proceeding are
not entitled to reimbursement for tariff increases introduced after the Cruzado
Period. Although Brazilian counsel has advised the Company that such counsel
does not believe that it is likely that the lawsuits involving Light will be
decided differently by the Superior Tribunal of Justice, no assurance can be
given that amounts in excess of $75 million (attributable to tariff increases
after the Cruzado Period) will not be required to be reimbursed by Light.
Although Light has informed the Company that it may be able to recover amounts
it is required to reimburse to industrial customers through tariff rate
increases, the Company believes that, in the event that the government does not
allow such recovery, such claims for recovery may not be legally enforceable.
There can be no assurance that if Light were required to reimburse amounts for
tariff increases after the Cruzado Period, this would not have a material
adverse effect on the financial condition of Light.
Business Subject to Stringent Environmental Regulations. AES's activities are
subject to stringent environmental regulation by federal, state, local and
foreign governmental authorities. In addition, the Clean Air Act Amendments of
1990 impose more stringent standards than those previously in effect, and
require states to impose permit fees on certain emissions. Congress and other
foreign governmental authorities also may consider proposals to restrict or tax
certain emissions, which proposals, if adopted, could impose additional costs on
the operation of AES's power plants. There can be no assurance that AES would be
able to recover all or any increased costs from its customers or that its
business, financial condition or results of operations would not be materially
and adversely affected by future changes in domestic or foreign environmental
laws and regulations. The Company has made and will continue to make capital and
other expenditures to comply with environmental laws and regulations. There can
be no assurance that such expenditures will not have a material adverse effect
on the Company's financial condition or results of operations.
6
<PAGE> 50
Control by Existing Stockholders. As of February 1, 1996, AES's two founders,
Roger W. Sant and Dennis W. Bakke, and their immediate families together owned
beneficially approximately 28% of AES's outstanding Common Stock. As a result of
their ownership interests, Messrs. Sant and Bakke may be able to significantly
influence or exert control over the affairs of AES, including the election of
the Company's directors. As of February 1, 1996, all of AES's officers and
directors and their immediate families together owned beneficially approximately
39% of AES's outstanding Common Stock. To the extent that they decide to vote
together, these stockholders would be able to significantly influence or control
the election of AES's directors, the management and policies of AES and any
action requiring stockholder approval, including significant corporate
transactions.
Adherence to AES's Principles -- Possible Impact on Results of Operations. A
core part of AES's corporate culture is a commitment to "shared principles": to
act with integrity, to be fair, to have fun and to be socially responsible. The
Company seeks to adhere to these principles not as a means to achieve economic
success, but because adherence is a worthwhile goal in and of itself. However,
if the Company perceives a conflict between these principles and profits, the
Company will try to adhere to its principles -- even though doing so might
result in diminished or foregone opportunities.
No Prior Public Market -- Possible Price Volatility of Debt Securities. Prior
to the offering, there has been no public market for the Debt Securities. There
can be no assurance that an active trading market for the Debt Securities will
develop or be sustained. If such a market were to develop, the Debt Securities
could trade at prices that may be higher or lower than their initial offering
price depending upon many factors, including prevailing interest rates, the
Company's operating results and the markets for similar securities.
Historically, the market for non-investment grade debt has demonstrated
substantial volatility in the prices of securities similar to the Debt
Securities. There can be no assurance that the future market for the Debt
Securities will not be subject to similar volatility.
7
<PAGE> 51
USE OF PROCEEDS
The Company intends to use the net proceeds from the offering of the Debt
Securities to either repay amounts outstanding under a credit agreement dated as
of May 20, 1996, between the Company and Morgan Guaranty Trust Company of New
York, as Agent (the "Bank Credit Agreement"), repay amounts outstanding under a
reimbursement agreement dated as of May 20, 1996 between AES Light, Inc. and
Morgan Guaranty Trust Company of New York (the "Reimbursement Agreement") or for
general corporate purposes.
The Reimbursement Agreement bears interest at the rate of LIBOR plus 2.50% and
matures on November 20, 1997. The Company may use $225 million of the net
proceeds of the offering of the Debt Securities to repay the amount outstanding
of $225 million under the Reimbursement Agreement, which was incurred in
connection with the Company's acquisition of the Light Interest, and the
remainder of such net proceeds to repay a portion of the amount outstanding
under the Bank Credit Agreement.
The Bank Credit Agreement, the Company's working capital facility which was used
in part to finance its acquisition of the Light Interest, bears interest at a
rate of LIBOR plus 1.75% and matures on May 19, 1999. As of the date hereof, an
amount of $202 million is outstanding under the Bank Credit Agreement. If the
Company uses the proceeds of the offering of the Debt Securities to repay
indebtedness under the Bank Credit Agreement, the Company intends to use the
remainder of the net proceeds of the offering of the Debt Securities for general
corporate purposes. See "Description of Corporate Credit Facility."
All pro forma adjustments herein relating to the offering and sale of the Debt
Securities assume that all of the net proceeds from the offering of the Debt
Securities will be used to repay the entire amount outstanding under the
Reimbursement Agreement and a portion of the amount outstanding under the Bank
Credit Agreement, as described above.
8
<PAGE> 52
DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The AES Corporation and its subsidiaries and affiliates are primarily in the
business of selling electricity to customers in the U.S., England, Northern
Ireland, Argentina and China. Electricity sales accounted for 97% of total
revenues during 1995 and 95% during 1994. 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 4,158 megawatts. Of that total, 1,069 megawatts are produced by plants
located in the U.S., 1,420 in the U.K., 840 in Argentina, 788 in Brazil and 41
in China. Of the total megawatts, 29% are produced by plants fueled by solid
fuel, 19% are produced by plants fueled by natural gas, 24% are produced by
hydroelectric facilities and the remaining 28% are produced by plants capable of
burning multiple fossil fuels. 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 U.S.
AES is now in the process of adding 1,462 megawatts to its operating portfolio
by constructing two oil-fired power plants in Pakistan totalling 674 megawatts,
a 180 megawatt coal-fired plant in the U.S. and 4 plants totalling 608 megawatts
in China that will be coal and oil-fired. In total, AES's net equity ownership
in plants in operation and construction is 3,233 megawatts.
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 certain
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.
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
December 31, 1995, capitalized costs for projects under development were
approximately $41 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 U.K. 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. AES believes
that its experience in competitive
9
<PAGE> 53
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 which
is discussed further under "Cash Flows, Financial Resources and Liquidity") for
specific potential acquisitions. As a result, during 1996, the Company enhanced
its financial capabilities to respond to these more accelerated opportunities by
entering into the $425 million Bank Credit Agreement. In addition to using
additional indebtedness, AES may consider an exchange of project ownership
interests or the issuance of its common stock to fund future acquisition
opportunities.
RESULTS OF OPERATIONS
First Quarter 1996 and 1995
Revenues increased approximately $1 million (1%), to $172 million from the first
quarter of 1995 to the first quarter of 1996. Cost of sales and services
decreased approximately $3 million (3%), 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 approximately $4
million (6%), 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 Central Termica San Nicolas S.A. ("San
Nicolas") due to cost reduction efforts at the plant.
Selling, general and administrative expenses increased approximately $1 million
(13%) 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 approximately $3 million (5%), 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 approximately $3 million (10%), 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 at San Nicolas.
Interest income decreased approximately $2 million (29%), 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 net earnings of affiliates increased approximately $5 million (67%)
from the first quarter of 1995 to the first quarter of 1996. The increase is
primarily due to Medway, which was not in operation in 1995.
Income taxes increased approximately $1 million (7%), to $15 million from the
first quarter of 1995 to the first quarter of 1996. This increase resulted
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.
Fiscal Years 1995, 1994 and 1993
Revenues. Total revenues increased $152 million (29%) to $685 million in 1995
after increasing $14 million (3%) to $533 million in 1994 as compared to each
applicable preceding year. The increase in 1995 primarily reflects the
additional revenues arising from the acquisitions of a controlling interest in
San Nicolas and the outstanding debt of AES Deepwater during the year, improved
capacity factors at AES Thames and AES Barbers Point and increases in revenues
associated with wholesale power services provided by AES Power, the Company's
power marketing subsidiary. These increases were offset, in part, by decreased
energy revenues at AES Placerita. The 1994 increase was primarily attributable
to a higher capacity factor and contract rate increases at AES Beaver Valley and
increased service revenues associated with an affiliated plant under
construction, offset, in part, by an earthquake in California which temporarily
shut down AES Placerita in early 1994 and lower energy revenues at AES Shady
Point.
10
<PAGE> 54
The nature of most of the Company's operations is such that each power plant
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 customers accounted
for 73% of the Company's revenues. The prolonged failure of any one 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 customers 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.
A portion of the electricity sales at San Nicolas is not subject to a contract
and is available for sale, when economically advantageous, in the competitive
Argentine spot electricity market. The prices paid for electricity in the
Argentine market are significantly dependent on the behavior of the Argentine
economy, including the demand for and retail price of electricity and the
competitive price and availability of power from other suppliers, including
hydroelectric facilities. During 1994 and 1995, prices paid for electricity in
the Argentine spot market were often lower than San Nicolas's marginal cost of
production and as a result, sales of electricity in excess of its contracts were
curtailed. Such economic conditions may continue.
Costs of Sales and Services. Total costs of sales and services increased $136
million (51%) to $405 million in 1995 after remaining constant at $269 million
in 1994 as compared to each applicable preceding year. The increase in 1995 was
caused primarily by the additional operating costs arising from the acquisitions
of a controlling interest in San Nicolas and the purchase of the outstanding
debt of AES Deepwater during the year, increased fuel costs arising from a
higher capacity factor at AES Barbers Point and increased costs associated with
AES Power's wholesale power services, offset, in part, by decreased fuel and
operating costs at AES Placerita due to operating efficiency and cost reduction
efforts. Operating costs at both AES Thames and AES Shady Point were lower in
1994 as compared to 1993 due to operating efficiency and cost reduction efforts.
In addition, operating costs at AES Placerita were lower in 1994 due to the
temporary shutdown resulting from the earthquake. These reductions in costs were
offset by increases in operating costs at AES Beaver Valley due to higher
capacity factors in 1994 and increases in costs associated with operating and
construction services performed for affiliates.
Gross Margin. Gross margin (revenues less costs of sales and services)
increased $16 million (6%) to $280 million in 1995 after increasing $14 million
(6%) in 1994 as compared to each applicable preceding year. The improvement in
1995 reflects the acquisitions of a controlling interest in San Nicolas and the
outstanding debt of AES Deepwater during the year and improved operations at AES
Placerita and AES Thames, offset, in part by lower service revenues from
affiliates. The increase in 1994 was primarily due to improved operations at AES
Beaver Valley and service revenues from affiliates, offset, in part, by lower
revenues at AES Shady Point and the effect of the earthquake on AES Placerita.
As a percentage of total revenues, gross margin decreased to 41% in 1995, down
from 50% in 1994, and 48% in 1993.
Because the Company's operations 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
specific needs of each plant to perform routine (including annual or multi-year)
outages 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 generally are not reduced.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased less than $1 million (2%) to $32 million in
1995 after decreasing $3 million (9%) to $32 million in 1994 as compared to each
applicable preceding year. The 1995 increase is attributable to a slight
increase in administrative costs. The decrease in 1994 was due primarily to a
higher proportion of capitalized costs associated with certain projects under
development in 1994, offset, in part, by increased development and
administrative costs of AES Chigen. As a percentage of total revenue, selling,
general and administrative expenses decreased to 5% in 1995 down from 6% in 1994
and 7% in 1993.
11
<PAGE> 55
Operating Income. Operating income improved $16 million (7%) to $248 million in
1995 after increasing $39 million (20%) to $232 million in 1994 as compared to
each applicable preceding year. The increases result from the factors discussed
in the preceding paragraphs.
Other Income and Expense. Other income and expense decreased $6 million (7%) to
$81 million in 1995 after decreasing $17 million (16%) to $87 million in 1994 as
compared to each applicable preceding year. Interest expense increased 1% in
1995 and decreased 3% in 1994. The increase in 1995 reflects the additional
interest expense associated with the acquisition of a controlling interest in
San Nicolas offset almost entirely by declining balances of project financing
debt through the year. The decline in 1994 was also primarily due to declining
balances of project financing debt offset, in part, by the interest expense
associated with the issuance of the Company's 9 3/4% Senior Subordinated Notes
due 2000 in June 1993. AES capitalizes interest incurred during the development
and construction of its facilities. Capitalized interest totaled approximately
$8 million in 1995, $2 million in 1994 and $1 million in 1993.
Interest income increased 23% in 1995 and 100% in 1994. The 1995 increase
reflects higher cash and debt service reserve account balances at operating
plants, higher interest rates and a full year of interest on AES Chigen's
invested cash balances offset, in part, by investments in new projects at AES
Chigen and a decrease in the balance of corporate unrestricted cash and cash
equivalents. The 1994 increase was due to higher cash balances including, most
significantly, the funds raised in the initial public offering of AES Chigen of
approximately $152 million.
Equity in earnings of affiliates (after income taxes) increased 17% in 1995 and
20% in 1994. The increase in 1995 results most significantly from the start of
operations at Medway Power Ltd. ("Medway") in late 1995. Medway is a 660
megawatt gas-fired plant located east of London, England. AES operates the plant
and holds a 25% ownership interest in the joint venture. The increase in 1994
was attributable to improved results from NIGEN, Ltd.
Income Taxes. The Company's effective tax rate increased to 38% in 1995 and to
34% in 1994. The increase in 1995 is due to the elimination of the U.S. federal
valuation allowance resulting from the purchase in 1995 of the previously
outstanding debt of AES Deepwater. The 1994 increase resulted from the absence
of reductions to the valuation allowance that were recorded in 1993 in
connection with the Company's adoption of Statement of Financial Accounting
Standards No. 109 in that year.
Extraordinary Items. During 1994, the Company purchased and retired the
subordinated project financing debt and accrued interest at AES Placerita,
resulting in an extraordinary gain of $4 million, net of taxes. Also, in 1994,
the Company's affiliate, NIGEN, Ltd., refinanced its outstanding project
financing loan through a public debenture offering. The extinguishment of such
debt resulted in an extraordinary loss of $7 million. The Company's share, $2
million, net of taxes, resulted in an extraordinary loss.
OUTLOOK
Although recent activity in the U.S. electricity market has provided
opportunities for independent and competitive power generators like AES, most of
the country's generating capacity along with substantially all of the
transmission and distribution services continue to be regulated under a state
and federal regulatory framework. As consumers, regulators and suppliers
continue the debate about how to further decrease the regulatory aspects of
providing electricity services, the Company believes in and is encouraging an
orderly transition to a more competitive electricity market. Inherent in any
significant transition to competitive markets are risks associated with the
competitiveness of existing regulated enterprises, and as a result, their
ability to perform under long-term contracts such as the Company's electricity
sale contracts. Although AES strongly believes in the integrity of its
contracts, there can be no assurance that each of its customers, in a
restructured and competitive environment, will fulfill or will be capable in all
circumstances of fulfilling their financial and legal obligations.
It is also possible that as more of the world's markets for electricity move
towards competition (as in Argentina and the U.K.), an increasing proportion of
the Company's revenues may be dependent on prices determined in spot markets. In
order to capture a portion of the market share in competitive generation
markets, AES is considering and may elect to invest in and construct
technologically-advanced, low-cost electricity plants. Such an investment, which
would not necessarily be supported by a long-term contract for all or any of the
plant's expected output, would
12
<PAGE> 56
most likely require the Company (as well as its competitors) to make larger
equity contributions (as a percentage of the total capital cost) than the more
"traditional" contract-based investments.
CASH FLOWS, FINANCIAL RESOURCES AND LIQUIDITY
Cash from Operations. Cash flows provided by operating activities totaled $197
million during 1995 as compared to $164 million during 1994. The increase in
1995 was primarily due to increased pre-tax income.
Operating cash flows in the first quarter of 1996 provided $45 million.
Cash from Investing Activities. Net cash used in investing activities totaled
$343 million during 1995 as compared to $120 million during 1994. The 1995
amount primarily reflects the Company's investments in the outstanding debt of
AES Deepwater, additional ownership in AES San Nicolas, the acquisition of AES
Rio Juramento, and construction efforts at AES Lal Pir, AES Pak Gen and AES
Warrior Run, and AES Chigen's investments in the Wuxi and Yangchun Fuyang
projects. The 1994 amount primarily reflects the investment of cash in
short-term investments of $72 million and debt service reserves of $17 million,
capital additions of $10 million and investments in projects in development of
$17 million.
Approximately $45 million of cash for investing activities in the first quarter
of 1996 was used to fund construction in progress and to acquire Hidrotermica
San Juan, S.A., an Argentine company which operates two power plants in
Argentina.
Cash from Financing Activities. Net cash provided by financing activities
aggregated $130 million during 1995 as compared to $80 million during 1994.
During 1995, the Company borrowed $133 million in project financing loans
associated with the construction of AES Lal Pir and AES Warrior Run and $50
million under its revolving credit facility. Repayments of project finance
borrowings were $63 million during the year. During 1994, AES Chigen, a
controlled affiliate, raised $152 million (net of issuance costs) through an
initial public offering of 10.2 million shares of Class A common stock. These
proceeds are being used to fund the development, acquisition and construction of
electric power generation and related facilities in China, including equity
investments in, and loans to, joint venture companies, and for general corporate
purposes. Also during 1994, the Company made principal payments on project
financing debt of $72 million.
During the first quarter of 1996, financing activities included $12 million in
repayments on project financing, $19 million in repayments on the revolving
credit facility and $20 million in project finance borrowings related to
projects in construction.
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.
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 of its projects.
These investments have generally taken the form of equity investments or loans,
which are subordinated to the project
13
<PAGE> 57
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 Bank Credit Agreement. 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 1996,
AES entered into a new $425 million revolver, the Bank Credit Agreement, which
provides full availability as borrowings or letters of credit. Under the terms
of the Bank Credit Agreement, AES is required to reduce its direct borrowings to
$125 million for 30 consecutive days during each twelve month period. The terms
of the Bank 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.
See "Description of Corporate Credit Facility".
The ability of AES's subsidiaries to declare and to pay dividends to AES is
restricted under the terms of existing project financing debt agreements. See
Note 5 to the consolidated financial statements. In connection with its project
financings, AES has expressly undertaken certain limited obligations and
contingent liabilities, most of which will only be effective or will be
terminated upon the occurrence of future events. These obligations and
contingent liabilities, excluding letter of credit obligations under the
revolver, were limited by their terms as of March 31, 1996 to an aggregate of
approximately $176 million. Approximately $14 million of these guarantees are
supported by cash deposits or cash collateralized letters of credit. The Company
is obligated under other contingent liabilities which are limited to amounts, or
percentages of amounts received by AES as distributions from its project
subsidiaries. These contingent liabilities aggregated $37 million as of March
31, 1996. In addition, AES has expressly undertaken certain other contingent
obligations, which the Company does not expect to have a material adverse effect
on its results of operations, but which by their terms are not capped at a
dollar amount. Because each of the Company's plants and projects is a distinct
entity, the plants and projects are geographically diverse and the obligations
related to a single plant or project are based on contingencies of varying
types, the Company believes it is unlikely that it will be called upon to
perform under several of such obligations at any one time. AES's obligations and
contingent liabilities described above in certain cases take the form of, or are
supported by, letters of credit.
INFLATION, INTEREST RATES, EXCHANGE RATES, CHANGING ENERGY PRICES, AND
ENVIRONMENTAL PERFORMANCE
The Company attempts, whenever possible, to hedge certain aspects of its
projects against the effects of fluctuations in inflation, interest 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 plants. In some cases a portion of
revenues is associated with operations and maintenance costs, and as such is
indexed to adjust with inflation. AES has also used a hedging strategy to
insulate each plant's financial performance, where appropriate, against the risk
of fluctuations in interest rates. Depending on whether capacity payments are
fixed or vary with inflation, the Company generally hedges against interest rate
fluctuations by arranging fixed-rate or variable rate financing, respectively.
In certain cases, the Company executes interest rate swap agreements to
effectively fix the interest rate on the underlying variable rate financing.
Such swaps effectively increased the Company's weighted average borrowing rate
by 5.0%, 4.1% and 3.5% for the years ended December 31, 1993, 1994 and 1995.
Swap payments included in interest expense for those same periods were $53
million, $44 million and $24 million, respectively. In addition, certain
subsidiaries of the Company have interest rate cap agreements with terms ranging
from one to six years in an aggregate notional amount of $619 million.
The hedging mechanisms described above 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 contract.
The Company has 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 its portfolio, although significantly
hedged, will likely be somewhat affected by fluctuations in inflation,
14
<PAGE> 58
interest rates and energy prices. For example, AES's current portfolio of
operating plants generally performs better with higher oil and natural gas
prices and with lower interest rates. Performance is also 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 the applicable tax benefit, in cumulative translation adjustment
losses at December 31, 1995.
Because of the nature of AES's operations, its activities are subject to
stringent environmental laws and regulations by relevant authorities at each
plant location. If environmental laws or regulations were to change in the
future, there can be no assurance that AES would be able to recover all or any
increased costs from its customers or that its business and financial condition
or results of operations would not be materially and adversely affected. The
Company has made and will continue to make capital and other expenditures to
comply with such environmental laws and regulations. There can be no assurance
that such expenditures will not have a material adverse effect on the Company's
financial condition or results of operations.
15
<PAGE> 59
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
--------------------------------------------
QUARTER
ENDED
YEAR ENDED DECEMBER 31 MARCH 31
1991 1992 1993 1994 1995 1996
----- ----- ----- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.......................... 1.31 1.37 1.63 2.08 2.18 2.12
</TABLE>
For the purpose of computing the ratio of earnings to fixed charges, earnings
consist of income from continuing operations before income taxes and minority
interest, plus fixed charges, less capitalized interest, less excess of earnings
over dividends of less-than-fifty-percent-owned companies. Fixed charges consist
of interest (including capitalized interest) on all indebtedness, amortization
of debt discount and expense and that portion of rental expense which the
Company believes to be representative of an interest factor. A statement setting
forth the computation of the above ratios of earnings to fixed charges is on
file as an exhibit to the Registration Statement of which this Prospectus is a
part.
16
<PAGE> 60
DESCRIPTION OF DEBT SECURITIES
The Debt Securities are to be issued under an Indenture (the "Indenture")
between The First National Bank of Chicago, as Trustee (the "Trustee"), and the
Company. A copy of the form of Indenture is filed as an exhibit to the
Registration Statement of which this Prospectus is a part and is also available
for inspection at the office of the Trustee. The following summaries of certain
provisions of the Indenture do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, all provisions of the
Indenture, including the definitions therein of certain terms. Whenever
particular provisions of the Indenture or terms defined therein are referred to
herein, such provisions or definitions are incorporated by reference as a part
of the statements made, and the statements are qualified in their entirety by
such reference.
GENERAL
The Indenture does not limit the amount of Debt Securities which may be issued
thereunder and provides that Debt Securities may be issued thereunder up to the
aggregate principal amount which may be authorized from time to time by the
Company. Reference is made to the Prospectus Supplement for the following terms
of the Offered Debt Securities: (i) the designation, aggregate principal amount
and authorized denominations of the Offered Debt Securities; (ii) the date or
dates on which the Offered Debt Securities will mature; (iii) the rate or rates
per annum at which the Offered Debt Securities will bear interest; (iv) the
dates on which any such interest will be payable and the record dates for any
such interest payments; (v) any mandatory or optional redemption terms; (vi) the
place where the principal of and interest on the Offered Debt Securities will be
payable; (vii) if other than denominations of $1,000 or multiples thereof, the
denominations in which the Offered Debt Securities will be issuable; (viii)
whether the Offered Debt Securities shall be issued in the form of Global
Securities (as defined below) or certificates; (ix) additional provisions, if
any, relating to the defeasance of the Offered Debt Securities; (x) the currency
or currencies, if other than the currency of the United States, in which payment
of the principal of and interest on the Offered Debt Securities will be payable;
(xi) whether the Offered Debt Securities will be issuable in registered form or
bearer form ("Bearer Securities") or both and, if Bearer Securities are
issuable, any restrictions applicable to the exchange of one form for another
and the offer, sale and delivery of Bearer Securities; (xii) any applicable
United States federal income tax consequences, including whether and under what
circumstances the Company will pay additional amounts on Offered Debt Securities
held by a person who is not a U.S. Person (as defined in the Prospectus
Supplement) in respect of any tax, assessment or governmental charge withheld or
deducted and, if so, whether the Company will have the option to redeem such
Offered Debt Securities rather than pay such additional amounts; and (xiii)
other specific terms, including any additional events of default or covenants
provided for with respect to the Offered Debt Securities.
As described in each Prospectus Supplement relating to any particular series of
Debt Securities offered thereby, the Indenture may contain covenants limiting:
(i) the incurrence of debt by the Company; (ii) the incurrence of debt by
subsidiaries of the Company; (iii) the making of certain payments by the Company
and its subsidiaries; (iv) subsidiary mergers; (v) business activities of the
Company and its subsidiaries; (vi) the issuance of preferred stock of
subsidiaries; (vii) asset dispositions; (viii) transactions with affiliates;
(ix) liens; and (x) mergers and consolidations involving the Company.
The Debt Securities will be unsecured and will rank on a parity with all other
unsecured senior subordinated indebtedness of the Company. See
"-- Subordination."
BOOK-ENTRY SYSTEM
If so specified in the accompanying Prospectus Supplement, Debt Securities of
any series may be issued under a book-entry system in the form of one or more
global securities (each a "Global Security"). Each Global Security will be
deposited with, or on behalf of, a depositary, which, unless otherwise specified
in the accompanying Prospectus Supplement, will be The Depository Trust Company,
New York, New York (the "Depositary"). The Global Securities will be registered
in the name of the Depositary or its nominee.
The Depositary has advised the Company that the Depositary is a limited purpose
trust company organized under the laws of the State of New York, a "banking
organization" within the meaning of the New York banking law, a
17
<PAGE> 61
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. The
Depositary was created to hold securities of its participants and to facilitate
the clearance and settlement of securities transactions among its participants
through electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depositary's participants include securities brokers and dealers, banks, trust
companies, clearing corporations, and certain other organizations, some of which
(and/or their representatives) own the Depositary. Access to the Depositary's
book-entry system is also available to others, such as banks, brokers, dealers,
and trust companies that clear through or maintain a custodial relationship with
a participant, either directly or indirectly.
Upon the issuance of a Global Security in registered form, the Depositary will
credit, on its book-entry registration and transfer system, the respective
principal amounts of the Debt Securities represented by such Global Security to
the accounts of participants. The accounts to be credited will be designated by
the underwriters, dealers, or agents, if any, or by the Company, if such Debt
Securities are offered and sold directly by the Company. Ownership of beneficial
interests in the Global Security will be limited to participants or persons that
may hold interests through participants. Ownership of beneficial interests by
participants in the Global Security will be shown on, and the transfer of that
ownership interest will be effected only through, records maintained by such
participants. The laws of some jurisdictions may require that certain purchasers
of securities take physical delivery of such securities in definitive form. Such
laws may impair the ability to transfer beneficial interests in a Global
Security.
So long as the Depositary or its nominee is the owner of record of a Global
Security, the Depositary or such nominee, as the case may be, will be considered
the sole owner or holder of the Debt Securities represented by such Global
Security for all purposes under the Indenture. Except as set forth below, owners
of beneficial interests in a Global Security will not be entitled to have the
Debt Security represented by such Global Security registered in their names, and
will not receive or be entitled to receive physical delivery of such Debt
Securities in definitive form and will not be considered the owners or holders
thereof under the Indenture. Accordingly, each person owning a beneficial
interest in a Global Security must rely on the procedures of the Depositary and,
if such person is not a participant, on the procedures of the participant
through which such person owns its interest, to exercise any rights of a holder
of record under the Indenture. The Company understands that under existing
industry practices, if the Company requests any action of holders or if any
owner of a beneficial interest in a Global Security desires to give or take any
action which a holder is entitled to give or take under the Indenture, the
Depositary would authorize the participants holding the relevant beneficial
interests to give or take such action, and such participants would authorize
beneficial owners owning through such participants to give or take such action
or would otherwise act upon the instruction of beneficial owners holding through
them.
Payments of principal of, premium, if any, and interest on Debt Securities
represented by a Global Security registered in the name of the Depositary or its
nominee will be made to such Depositary or such nominee, as the case may be, as
the registered owner of such Global Security. None of the Company, the Trustee
or any other agent of the Company or agent of the Trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in such Global
Security or for maintaining, supervising, or reviewing any records relating to
such beneficial ownership interests.
The Company has been advised by the Depositary that the Depositary will credit
participants accounts with payments of principal, premium, if any, or interest
on the payment date thereof in amounts proportionate to their respective
beneficial interests in the principal amount of the Global Security as shown on
the records of the Depositary. The Company expects that payments by participants
to owners of beneficial interests in the Global Security held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers registered
in "street name," and will be the responsibility of such participants.
A Global Security may not be transferred except as a whole by the Depositary to
a nominee or successor of the Depositary or by a nominee of the Depositary to
another nominee of the Depositary. A Global Security representing all but not
part of the Debt Securities being offered hereby is exchangeable for Debt
Securities in definitive form of like tenor and terms if (i) the Depositary
notifies the Company that it is unwilling or unable to continue as depositary
for such Global Security or if at any time the Depositary is no longer eligible
to be or in good standing as
18
<PAGE> 62
a clearing agency registered under the Exchange Act, and in either case, a
successor depositary is not appointed by the Company within 90 days of receipt
by the Company of such notice or of the Company becoming aware of such
ineligibility, or (ii) the Company in its sole discretion at any time determines
not to have all of the Debt Securities represented by a Global Security and
notifies the Trustee thereof. A Global Security exchangeable pursuant to the
preceding sentence shall be exchangeable for Debt Securities registered in such
names and in such authorized denominations as the Depositary for such Global
Security shall direct. The Debt Securities of a series may also be issued in the
form of one or more bearer global Debt Securities (a "Bearer Global Security")
that will be deposited with a common depositary for Euro-clear and CEDEL, or
with a nominee for such depositary identified in the Prospectus Supplement
relating to such series. The specific terms and procedures, including the
Specific terms of the depositary arrangement, with respect to any portion of a
series of Securities to be represented by a Bearer Global Security will be
described in the Prospectus Supplement relating to such series.
SUBORDINATION
The payment of principal of, premium, if any, and interest on the Debt
Securities will, to the extent and in the manner set forth in the Indenture, and
as more fully described in the Prospectus Supplement, be subordinated in right
of payment to the prior payment in full, in cash or cash equivalents, of all
Senior Debt.
By reason of such subordination, in the event of insolvency, funds that would
otherwise be payable to holders of Debt Securities will be paid to the holders
of Senior Debt to the extent necessary to pay the Senior Debt in full, and the
Company may be unable to meet fully its obligations with respect to the Debt
Securities.
"Senior Debt" is defined to mean the principal of (and premium, if any) and
interest on all Debt of the Company whether created, incurred or assumed before,
on or after the date of the Indenture; provided that Senior Debt shall not
include (i) the Company's 9 3/4% Senior Subordinated Notes Due 2000 which rank
pari passu to the Debt Securities, (ii) the Company's 6 1/2% Convertible
Subordinated Debentures Due 2002 which rank junior to the Debt Securities, (iii)
Debt that, when incurred and without respect to any election under Section 1111
(b) of Title 11, U.S. Code, was without recourse to the Company, (iv) Debt of
the Company to any affiliate, (v) any other Debt of the Company which by the
terms of the instrument creating or evidencing the same are specifically
designated as not being senior in right of payment to the Debt Securities and
(vi) redeemable stock of the Company.
"Debt" is defined to mean, with respect to any person at any date of
determination (without duplication), (i) all indebtedness of such person for
borrowed money, (ii) all obligations of such person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
person in respect of letters of credit or bankers' acceptances or other similar
instruments (or reimbursement obligations with respect thereto), (iv) all
obligations of such person to pay the deferred purchase price of property or
services, except trade payables, (v) all obligations of such person as lessee
under capitalized leases, (vi) all Debt of others secured by a lien on any asset
of such person, whether or not such Debt is assumed by such person; provided
that, for purposes of determining the amount of any Debt of the type described
in this clause, if recourse with respect to such Debt is limited to such asset,
the amount of such Debt shall be limited to the lesser of the fair market value
of such asset or the amount of such Debt, (vii) all Debt of others guaranteed by
such person to the extent such Debt is Guaranteed by such person, (viii) all
redeemable stock valued at the greater of its voluntary or involuntary
liquidation preference plus accrued and unpaid dividends and (ix) to the extent
not otherwise included in this definition, all obligations of such person under
currency agreements and interest rate agreements.
EVENTS OF DEFAULT
An Event of Default, as defined in the Indenture and applicable to Debt
Securities, will occur with respect to the Debt Securities of any series if: (i)
the Company defaults in the payment of principal of (or premium if any, on) any
Debt Security of such series when the same becomes due and payable at maturity,
upon acceleration, redemption, mandatory repurchase, or otherwise; (ii) the
Company defaults in the payment of interest on any Debt Security of such series
when the same becomes due and payable, and such default continues for a period
of 30 days; (iii) the Company defaults in the performance of or breaches any
other covenant or agreement of the Company in the Indenture with respect to the
Debt Security of such series or under the Debt Securities of such Series and
such default or breach continues for a period of 30 consecutive days after
written notice by the Trustee or by the holders
19
<PAGE> 63
(as defined in the Indenture) of 25% or more in aggregate principal amount of
the Debt Securities of all series affected hereby; (iv) a court having
jurisdiction in the premises enters a decree or order for (A) relief in respect
of the Company or any of its subsidiaries in an involuntary case under any
applicable bankruptcy, insolvency, or other similar law now or hereafter in
effect, (B) appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator, or similar official of the Company or any of its subsidiaries or
for all or substantially all of the property and assets of the Company or any of
its subsidiaries or (C) the winding up or liquidation of the affairs of the
Company or any of its subsidiaries and, in each case, such decree or order shall
remain unstayed and in effect for a period of 60 consecutive days; (v) the
Company or any of its subsidiaries (A) commences a voluntary case under any
applicable bankruptcy, insolvency, or other similar law now or hereafter in
effect, or consents to the entry of an order for relief in an involuntary case
under any such law, (B) consents to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator, or similar
official of the Company or any of its subsidiaries or for all or substantially
all of the property and assets of the Company or any of its subsidiaries or (C)
effects any general assignment for the benefit of creditors; and (vi) any other
Events of Default set forth in the applicable Prospectus Supplement occur.
If an Event of Default (other than an Event of Default specified in clause (iv)
or (v) above that occurs with respect to the Company) occurs with respect to the
Debt Securities of any series then outstanding and is continuing under the
Indenture, then, and in each and every such case, except for any series of Debt
Securities the principal of which shall have already become due and payable,
either the Trustee or the holders of not less than 25% in aggregate principal
amount of the Debt Securities of any such series then outstanding under the
Indenture (each such series voting as a separate class) by written notice to the
Company (and to the Trustee if such notice is given by the holders (the
"Acceleration Notice")), may, and the Trustee at the request of such holders
shall, declare the principal of, premium, if any, and accrued interest on the
Debt Securities of such series to be immediately due and payable. Upon a
declaration of acceleration, such principal of, premium, if any, and accrued
interest shall be immediately due and payable. If an Event of Default specified
in clause (iv) or (v) above occurs with respect to the Company, the principal
of, premium, if any, and accrued interest on the Debt Securities then
outstanding shall ipso facto become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any holder. The
holders of at least a majority in principal amount of the outstanding Debt
Securities of any Series may, by written notice to the Company and to the
Trustee, waive all past defaults with respect to Debt Securities of such series
and rescind and annul a declaration of acceleration with respect to Debt
Securities of such series and its consequences if (i) all existing Events of
Default applicable to Debt Securities of such series, other than the nonpayment
of the principal of, premium, if any, and interest on the Debt Securities that
have become due solely by such declaration of acceleration, have been cured or
waived and (ii) the rescission would not conflict with any judgment or decree of
a court of competent jurisdiction. For information as to the waiver of defaults,
See "-- Modification and Waiver."
The holders of at least a majority in aggregate principal amount of the
outstanding Debt Securities of any series may direct the time, method, and place
of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee. However, the Trustee may
refuse to follow any direction that conflicts with law or the Indenture, that
may involve the Trustee in personal liability, or that the Trustee determines in
good faith may be unduly prejudicial to the rights of holders of such series of
Debt Securities not joining in the giving of such direction and may take any
other action it deems proper that is not inconsistent with any such direction
received from holders of Debt Securities of such series. A holder may not pursue
any remedy with respect to the Indenture or the Debt Securities of any Series
unless: (i) the holder gives the Trustee written notice of a continuing Event of
Default; (ii) the holders of at least 25% in aggregate principal amount of
outstanding Debt Securities of such series make a written request to the Trustee
to pursue the remedy; (iii) such holder or holders offer the Trustee indemnity
satisfactory to the Trustee against any costs, liability or expense; (iv) the
Trustee does not comply with the request within 60 days after receipt of the
request and the offer of indemnity; and (v) during such 60-day period, the
holders of a majority in aggregate principal amount of the outstanding Debt
Securities of such Series do not give the Trustee a direction that is
inconsistent with the request. However, such limitations do not apply to the
right of any holder of a Debt Security to receive payment of the principal of,
premium, if any, or interest on, such Debt Security or to bring suit for the
enforcement of any such payment, on or after the due date expressed in the Debt
Securities, which right shall not be impaired or affected without the consent of
the holder.
20
<PAGE> 64
The Indenture will require certain officers of the Company to certify, on or
before a date not more than four months after the end of each fiscal year, that
to the best of such officers knowledge, the Company has fulfilled all its
obligations under the Indenture. The Company will also be obligated to notify
the Trustee of any default or defaults in the performance of any covenants or
agreements under the Indenture.
MODIFICATION AND WAIVER
The Indenture provides that the Company and the Trustee may amend or supplement
the Indenture or the Debt Securities of any series without notice to or the
consent of any holder: (i) to cure any ambiguity, defect, or inconsistency in
the Indenture; provided that such amendments or supplements shall not adversely
affect the interests of the holders in any material respect; (ii) to comply with
Article 5 of the Indenture; (iii) to comply with any requirements of the
Commission in connection with the qualification of the Indenture under the Trust
Indenter Act of 1939, as amended; (iv) to evidence and provide for the
acceptance of appointment with respect to the Debt Securities of any or all
series by a successor Trustee; (v) to establish the form or forms or terms of
Debt Securities of any series or of the coupons pertaining to such Debt
Securities as permitted by the Indenture; (vi) to provide for uncertificated
Debt Securities and to make all appropriate changes for such purpose; and (vii)
to make any change that does not materially and adversely affect the rights of
any holder.
The Indenture also provides that modifications and amendments of the Indenture
may be made by the Company and the Trustee with the consent of the holders of
not less than a majority in aggregate principal amount of the outstanding Debt
Securities of each series affected thereby (each series voting as a separate
class); provided, however, that no such modification or amendment may, without
the consent of each holder affected thereby, (i) change the stated maturity of
the principal of, or any sinking fund obligation or any installment of interest
on, any Debt Security, (ii) reduce the principal amount of, or premium, if any,
or interest on, any Debt Security, (iii) reduce the above-stated percentage of
outstanding Debt Securities the consent of whose holders is necessary to modify
or amend the Indenture with respect to the Debt Securities of any series, (iv)
reduce the percentage or aggregate principal amount of outstanding Debt Security
of any series the consent of whose holders is necessary for waiver of compliance
with certain provisions of the Indenture or for waiver of certain defaults. A
supplemental indenture which changes or eliminates any covenant or other
provision of the Indenture which has expressly been included solely for the
benefit of one or more particular series of Debt Securities, or which modifies
the rights of holders of Debt Securities of such series with respect to such
covenant or provision, shall be deemed not to affect the rights under the
Indenture of the holders of Debt Securities of any other series or of the
coupons appertaining to such Debt Securities. It shall not be necessary for the
consent of the holders under this section of the Indenture to approve the
particular form of any proposed amendment, supplement, or waiver, but it shall
be sufficient if such consent approves the substance thereof. After an
amendment, supplement, or waiver under this section of the Indenture becomes
effective, the Company shall give to the holders affected thereby a notice
briefly describing the amendment, supplement, or waiver. The Company will mail
supplemental indentures to holders upon request. Any failure of the Company to
mail such notice, or any defect therein, shall not, however, in any way impair
or affect the validity of any such supplemental indenture or waiver.
RESTRICTION ON MERGERS, CONSOLIDATIONS AND SALES OF ASSETS
The Company may not consolidate with, merge with or into, or transfer all or
substantially all off its assets (as an entirety or substantially an entirety in
one transaction or a series of related transactions), to any Person unless: (i)
the Company shall be the continuing Person, or the Person (if other than the
Company) formed by such consolidation or into which the Company is merged or to
which properties and assets of the Company are transferred shall be a solvent
corporation organized and existing under the laws of the United States or any
State thereof or the District of Columbia and shall expressly assume in writing
all the obligations of the Company under the Notes; (ii) immediately after
giving effect to such transaction no Event of Default or event or condition
which through the giving of notice of lapse of time or both would become an
Event of Default shall have occurred and be continuing, and (iii) such other
conditions as may be established in connection with the issuance of the Debt
Securities of any series then outstanding.
21
<PAGE> 65
DEFEASANCE AND DISCHARGE
The Indenture provides that the Company shall be deemed to have paid and shall
be discharged from any and all obligations in respect of the Debt Securities of
any series, on the 123rd day after the deposit referred to below has been made,
and the provisions of the Indenture will no longer be in effect with respect to
the Debt Securities of such series (except for, among other matters, certain
obligations to register the transfer or exchange of the Debt Securities of such
series, to replace stolen, lost or mutilated Debt Securities of such series, to
maintain paying agencies and to hold monies for payment in trust) if, among
other things, (A) the Company has deposited with the Trustee, in trust, money
and/or U.S. Government Obligations that through the payment of interest and
principal in respect thereof, in accordance with their terms will provide money
in an amount sufficient to pay the principal of, premium, if any, and accrued
interest on the Debt Securities, on the due date thereof or earlier redemption
(irrevocably provided for under arrangements satisfactory to the Trustee), as
the case may be, in accordance with the terms of the Indenture and the Debt
Securities, (B) the Company has delivered to the Trustee (i) either (x) an
opinion of counsel to the effect that Holders will not recognize income, gain or
loss for federal income tax purposes as a result of the Company's exercise of
its option under this "Defeasance" provision and will be subject to federal
income tax on the same amount and in the same manner and at the same times as
would have been the case if such deposit, defeasance and discharge had not
occurred, which opinion of counsel must be based upon a ruling of the Internal
Revenue Service to the same effect unless there has been a change in applicable
federal income tax law or related treasury regulations after the date of the
Indenture such that a ruling is no longer required or (y) a ruling directed to
the Trustee received from the Internal Revenue Service to the same effect as the
aforementioned opinion of counsel and (ii) an opinion of counsel to the effect
that the creation of the defeasance trust does not violate the Investment
Company Act of 1940 and after the passage of 123 days following the deposit, the
trust fund will not be subject to the effect of Section 547 of the U.S.
Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law, (C)
immediately after giving effect to such deposit on a pro forma basis, no Event
of Default, or event that after the giving of notice or lapse of time or both
would become an Event of Default, shall have occurred and be continuing on the
date of such deposit or during the period ending on the 123rd day after the date
of such deposit, and such deposit shall not result in a breach or violation of,
or constitute a default under, any other agreement or instrument to which the
Company is a party or by which the Company is bound, (D) the Company is not
prohibited from making payments in respect of the Debt Securities by the
subordination provisions contained in the Indenture and (E) if at such time the
Debt Securities are listed on a national securities exchange, the Company has
delivered to the Trustee an opinion of counsel to the effect that the Debt
Securities will not be delisted as a result of such deposit, defeasance and
discharge.
As more fully described in the Prospectus Supplement, the Indenture also
provides for defeasance of certain covenants and certain events of default.
PLAN OF DISTRIBUTION
The Company may sell the Debt Securities in any of three ways (or in any
combination thereof): (i) through underwriters or dealers; (ii) directly to a
limited number of purchasers or to a single purchaser; or (iii) through agents.
The Prospectus Supplement with respect to any Offered Debt Securities will set
forth the terms of the offering of such Offered Debt Securities, including the
name or names of any underwriters, dealers or agents and the respective amounts
of such Offered Debt Securities underwritten or purchased by each of them, the
initial public offering price of such Offered Debt Securities and the proceeds
to the Company from such sale, any discounts, commissions or other items
constituting compensation from the Company and any discounts, commissions or
concessions allowed or reallowed or paid to dealers and any securities exchanges
on which such Offered Debt Securities may be listed. Any initial public offering
price and any discounts or concessions allowed or reallowed or paid to dealers
may be changed from time to time.
If underwriters are used in the sale of any Offered Debt Securities, such
Offered Debt Securities will be acquired by the underwriters for their own
account and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale. Such Offered Debt Securities may
be either offered to the public through underwriting syndicates represented by
managing underwriters, or directly by underwriters. Such managing underwriters
or underwriters may include
22
<PAGE> 66
J.P. Morgan Securities Inc. and Goldman, Sachs & Co. Unless otherwise set forth
in the Prospectus Supplement, the obligations of the underwriters to purchase
such Offered Debt Securities will be subject to certain conditions precedent and
the underwriters will be obligated to purchase all of such Offered Debt
Securities if any are purchased.
Debt Securities may be sold directly by the Company or through agents designated
by the Company from time to time. Any agent involved in the offer or sale of
Offered Debt Securities in respect of which this Prospectus is delivered will be
named, and any commissions payable by the Company to such agent will be set
forth, in the Prospectus Supplement. Unless otherwise indicated in the
Prospectus Supplement, any such agent will be acting on a best efforts basis for
the period of its appointment.
If so indicated in the Prospectus Supplement, the Company will authorize
underwriters, dealers or agents to solicit offers by certain purchasers to
purchase Offered Debt Securities from the Company at the public offering price
set forth in the Prospectus Supplement pursuant to delayed delivery contracts
providing for payment and delivery on a specified date in the future. Such
contracts will be subject only to those conditions set forth in the Prospectus
Supplement, and the Prospectus Supplement will set forth the commission payable
for solicitation of such contracts.
Agents and underwriters may be entitled under agreements entered into with the
Company to indemnification by the Company against certain civil liabilities,
including liabilities under the Securities Act, or to contribution with respect
to payments which the agents or underwriters may be required to make in respect
thereof. Agents and underwriters may be customers of, engage in transactions
with, or perform services for the Company in the ordinary course of business.
LEGAL MATTERS
The legality of the Debt Securities offered hereby will be passed upon for the
Company by Chadbourne & Parke LLP, 30 Rockefeller Plaza, New York, New York
10112. Unless otherwise indicated in the Prospectus Supplement relating to any
Offered Debt Securities, certain legal matters in connection with the offering
of the Offered Debt Securities will be passed upon for any underwriters or
agents by Davis Polk & Wardwell.
EXPERTS
The consolidated financial statements in this Prospectus, and the consolidated
financial statement schedules incorporated in this Prospectus by reference from
the Company's Annual Report on Form 10-K, for the year ended December 31, 1995
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports, which are included herein and incorporated by reference, herein,
respectively, and have been so included and incorporated, in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
The financial statements of Light incorporated in this Prospectus by reference
for the years ended December 31, 1995 and 1994 and for the years then ended have
been audited by Deloitte Touche Tohmatsu, Rio de Janeiro, Brazil, independent
auditors, as stated in their reports, which are incorporated herein by
reference, and have been so incorporated in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
23
<PAGE> 67
THE AES CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants............................................... F-2
Consolidated Balance Sheets at December 31, 1995 and 1994 and March 31, 1996
(unaudited).......................................................................... F-3
Consolidated Statements of Operations -- For the Years Ended December 31, 1995, 1994
and 1993 and For the Three Months Ended March 31, 1996 and 1995 (quarterly
unaudited)........................................................................... F-4
Consolidated Statements of Cash Flows -- For the Years Ended December 31, 1995, 1994
and 1993 and For the Three Months Ended March 31, 1996 and 1995 (quarterly
unaudited)........................................................................... F-5
Notes to Consolidated Financial Statements -- For the Years Ended December 31, 1995,
1994 and 1993........................................................................ F-8
</TABLE>
The Financial Statements at December 31, 1995 and 1994, and For the Three Years
Ended December 31, 1995 contained herein supersede the Financial Statements
incorporated by reference in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995.
F-1
<PAGE> 68
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of The AES Corporation:
We have audited the accompanying consolidated balance sheets of The AES
Corporation and its subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income and cash flows for each of the three
years in the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of The AES Corporation and
subsidiaries at December 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Washington, DC
February 20, 1996, except for Note 14,
as to which the date is May 30, 1996
F-2
<PAGE> 69
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
------------------------------
MARCH 31
DECEMBER 31 1996
In millions, except par values 1995 1994 -----------
------ ------ (unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................................. $ 239 $ 255 $ 207
Short-term investments................................................ 58 94 50
Accounts receivable................................................... 54 33 50
Inventory............................................................. 36 23 42
Receivable from affiliates............................................ 11 10 11
Prepaid expenses and other current assets............................. 27 20 34
------ ------ ---------
Total current assets.................................................... 425 435 394
Property, Plant and Equipment:
Land.................................................................. 9 2 10
Electric and steam generating facilities.............................. 1,594 1,328 1,619
Furniture and office equipment........................................ 11 7 11
Accumulated depreciation, depletion, and amortization................. (222) (162) (235)
Construction in progress.............................................. 158 9 198
------ ------ ---------
Property, plant and equipment, net...................................... 1,550 1,184 1,603
Other Assets:
Deferred costs, net................................................... 32 33 31
Project development costs............................................. 41 38 43
Investments in and advances to affiliates............................. 48 93 52
Debt service reserves and other deposits.............................. 168 122 178
Goodwill & other intangible assets, net............................... 37 -- 37
Other assets.......................................................... 19 10 15
------ ------ ---------
Total other assets...................................................... 345 296 356
------ ------ ---------
Total................................................................... $2,320 $1,915 $ 2,353
====== ====== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable...................................................... $ 33 $ 12 $ 43
Income taxes payable.................................................. -- 2 4
Accrued interest...................................................... 12 9 17
Accrued and other liabilities......................................... 49 23 33
Revolving bank loan................................................... 50 -- 31
Project financing debt -- current portion............................. 84 61 84
------ ------ ---------
Total current liabilities............................................... 228 107 212
Long-Term Liabilities:
Project financing debt................................................ 1,098 1,019 1,108
Other notes payable................................................... 125 125 125
Deferred income taxes................................................. 149 73 159
Other long-term liabilities........................................... 13 5 9
------ ------ ---------
Total long-term liabilities............................................. 1,385 1,222 1,401
Minority Interest....................................................... 158 21 158
Redeemable Common Stock of AES Chigen................................... -- 164 --
Commitments and Contingencies........................................... -- -- --
Stockholders' Equity:
Preferred stock (no par value; 1 million shares authorized; none
issued)............................................................. -- -- --
Common stock ($.01 par value; 100 million shares authorized; shares
issued and outstanding: 1995 -- 74.8 million; 1994 -- 74.7
million)............................................................ 1 1 1
Additional paid-in capital............................................ 293 240 294
Retained earnings..................................................... 271 164 300
Unrealized loss on investment securities available-for-sale........... -- (1) --
Cumulative foreign currency translation adjustment.................... (10) (3) (10)
------ ------ ---------
Less treasury stock at cost (.3 million shares)......................... (6) -- (3)
------ ------ ---------
Total stockholders' equity.............................................. 549 401 582
------ ------ ---------
Total................................................................... $2,320 $1,915 $ 2,353
====== ====== =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 70
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
----------------------------------------
YEAR ENDED THREE MONTHS
DECEMBER 31 ENDED MARCH 31
In millions, except per share amounts 1995 1994 1993 1996 1995
----- ----- ----- ----- -----
(unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES:
Sales.................................................. $ 672 $ 514 $ 508 $ 170 $ 167
Services............................................... 13 19 11 2 4
----- ----- ----- ----- -----
Total revenues........................................... 685 533 519 172 171
OPERATING COSTS AND EXPENSES:
Costs of sales......................................... 393 256 260 99 99
Costs of services...................................... 12 13 9 1 4
Selling, general and administrative expenses........... 32 32 35 9 8
Provision to reduce carrying value of leasehold
oil interests....................................... -- -- 22 -- --
----- ----- ----- ----- -----
Total operating costs and expenses....................... 437 301 326 109 111
----- ----- ----- ----- -----
Operating Income......................................... 248 232 193 63 60
OTHER INCOME AND (EXPENSE):
Interest expense....................................... (122) (121) (125) (28) (31)
Interest income........................................ 27 22 11 5 7
Equity in earnings of affiliates (net of income tax)... 14 12 10 5 3
----- ----- ----- ----- -----
INCOME BEFORE INCOME TAXES, MINORITY INTEREST AND
EXTRAORDINARY ITEM..................................... 167 145 89 45 39
INCOME TAXES............................................. 57 44 18 15 14
MINORITY INTEREST........................................ 3 3 -- 1 --
----- ----- ----- ----- -----
INCOME BEFORE EXTRAORDINARY ITEM......................... 107 98 71 29 25
Extraordinary item-net gain on extinguishment of debt
(less applicable income taxes of $1)................... -- 2 -- -- --
----- ----- ----- ----- -----
NET INCOME............................................... $ 107 $ 100 $ 71 $ 29 $ 25
===== ===== ===== ===== =====
NET INCOME PER SHARE:
Before extraordinary gain.............................. $1.41 $1.30 $0.98 $0.38 $0.33
Extraordinary gain..................................... -- 0.02 -- -- --
----- ----- ----- ----- -----
NET INCOME PER SHARE..................................... $1.41 $1.32 $0.98 $0.38 $0.33
===== ===== ===== ===== =====
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 71
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
----------------------------------------
YEAR ENDED THREE MONTHS
DECEMBER 31 ENDED
MARCH 31
In millions 1995 1994 1993 1996 1995
----- ----- ----- ----- -----
(unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............................................... $ 107 $ 100 $ 71 $ 29 $ 25
Adjustments to net income:
Depreciation, depletion and amortization............... 55 43 42 14 12
Provision for deferred taxes........................... 48 39 15 14 14
Undistributed earnings of affiliates................... 3 (3) (11) (4) (2)
Provision to reduce carrying value of leasehold oil
interests........................................... -- -- 22 -- --
Payments for deferred financing costs.................. (3) (6) (4) -- --
Other.................................................. 4 -- 4 1 1
Changes in working capital............................. (17) (9) (16) (9) (7)
----- ----- ----- ----- -----
Net cash provided by operating activities................ 197 164 123 45 43
INVESTING ACTIVITIES:
Property additions....................................... (158) (10) (14) (45) (11)
Acquisitions, net of cash acquired....................... (121) -- -- (20) (65)
Sale (purchase) of short-term investments................ 36 (72) (22) 8 23
Affiliate advances and investments....................... (10) -- (46) (1) --
Project development costs................................ (35) (17) (2) (2) (2)
Debt service reserves and other assets................... (55) (21) (46) (6) --
----- ----- ----- ----- -----
Net cash used in investing activities.................... (343) (120) (130) (66) (55)
FINANCING ACTIVITIES:
Net borrowings (repayments) under the revolver........... 50 -- -- (19) --
Issuance of project financing debt and other notes
payable................................................ 133 -- 75 20 --
Repayments of project financing debt..................... (63) (72) (65) (12) (15)
Other liabilities........................................ 8 -- (1) -- --
Payments (to)/from minority partners..................... 7 152 -- (1) 3
Sale (repurchase) of common stock........................ (5) -- 69 1 1
Dividends paid........................................... -- -- (13) -- --
----- ----- ----- ----- -----
Net cash provided by financing activities................ 130 80 65 (11) (11)
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS......... (16) 124 58 (32) (23)
CASH AND CASH EQUIVALENTS, BEGINNING..................... 255 131 73 239 255
===== ===== ===== ===== =====
CASH AND CASH EQUIVALENTS, ENDING........................ $ 239 $ 255 $ 131 $ 207 $ 232
===== ===== ===== ===== =====
SUPPLEMENTAL DISCLOSURES:
Cash payments for interest............................... $ 120 $ 127 $ 124 $ 25 $ 28
Cash payments for income taxes........................... 6 3 2 1 --
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The AES Corporation and its subsidiaries and affiliates, (collectively "AES" or
the "Company") is a global power company primarily engaged in developing, owning
and operating electric power generating facilities.
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements of the
Company include the accounts of AES, 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. The accounts of AES China Generating Co. Ltd. ("AES
Chigen"), a controlled affiliate, are included on the basis of a fiscal year
ended November 30. Intercompany transactions and balances have been eliminated.
CASH AND CASH EQUIVALENTS -- The Company considers cash on hand, deposits in
banks, certificates of deposit and short-term marketable securities with an
original maturity of three months or less as cash and cash equivalents.
INVESTMENTS -- During 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." Securities that the Company has both the positive intent
and ability to hold to maturity are classified as held-to-maturity and are
carried at historical cost. Other investments that the Company does not intend
to hold to maturity are classified as available-for-sale, and any unrealized
gains or losses are recorded as a separate component of stockholders' equity.
Interest and dividends on investments are reported in interest income.
Short-term investments consist of investments with original maturities in excess
of three months but less than one year. Debt service reserves and other
deposits, which might otherwise be considered cash and cash equivalents are
treated as noncurrent assets (see Note 3).
INVENTORY -- Inventory, valued at the lower of cost or market (first in, first
out method), consists of coal, raw materials, spare parts, and supplies.
Inventory consists of the following (in millions):
<TABLE>
<CAPTION>
------------
DECEMBER 31
1995 1994
---- ----
<S> <C> <C>
Coal and other raw materials................................... $24 $14
Spare parts, materials and supplies............................ 12 9
---- ----
Total.......................................................... $36 $23
==== ====
</TABLE>
PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment is stated at cost
including the cost of improvements. Depreciation, after consideration of salvage
value, is computed using the straight-line method over the estimated composite
lives of the assets, which range from 3 to 40 years. Maintenance and repairs are
charged to expense as incurred. Emergency and rotable spare parts inventories
are included in electric and steam generating facilities and are depreciated
over the useful life of the related components. In 1993, the Company recorded a
total after tax charge of $17 million ($.23 per share) related to the write-down
of leasehold oil interests in connection with enhanced oil recovery operations
at the AES Placerita facility due to economic impairment.
INTANGIBLE ASSETS -- Goodwill and other intangible assets are amortized on a
straight-line basis over their estimated periods of benefit or their estimated
lives. No amortization period exceeds 30 years. Intangible assets at December
31, 1995 are shown net of accumulated amortization of $1 million. The Company
will review its goodwill and intangibles for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable.
CONSTRUCTION IN PROGRESS -- Construction progress payments, engineering costs,
insurance costs, wages, interest and other costs relating to construction in
progress are capitalized. Construction in progress balances are transferred to
electric and steam generating facilities when the assets are ready for their
intended use. Capitalized interest during development and construction totaled
$8 million, $2 million and $1 million in 1995, 1994 and 1993, respectively.
F-6
<PAGE> 73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED COSTS -- Financing costs are deferred and amortized using the
straight-line method over the related financing period. Deferred costs are shown
net of accumulated amortization of $31 million and $26 million for 1995 and
1994, respectively.
PROJECT DEVELOPMENT COSTS -- The Company capitalizes the costs of developing new
projects. These costs represent amounts incurred for professional services,
salaries, permits, options, capitalized interest and other related costs. These
costs are included in investment in affiliates, or property when financing is
obtained, or expensed at the time the Company determines that a particular
project will no longer be developed. The continued capitalization is subject to
on-going risks related to successful completion, including those related to
political, siting, financing, construction, permitting and contract compliance.
FOREIGN CURRENCY TRANSLATION -- Foreign subsidiaries and affiliates translate
their assets and liabilities into U.S. dollars at the current exchange rates in
effect at the end of the fiscal period. The gains or losses that result from
this process which the Company does not intend to repatriate, and gains and
losses on intercompany transactions which are long-term in nature, are shown in
the cumulative translation adjustments balance in the stockholders' equity
section of the balance sheet, net of applicable taxes. The revenue and expense
accounts of foreign subsidiaries and affiliates are translated into U.S. dollars
at the average exchange rates that prevailed during the period.
REVENUE RECOGNITION AND CONCENTRATION -- Revenues from the sale of electricity
and steam are recorded based upon output delivered and capacity provided at
rates as specified under contract terms. Most of the Company's power plants rely
primarily on one power sales contract with a single customer for the majority of
its revenues. Four customers accounted for 24%, 18%, 18% and 13% of revenues in
1995; four customers accounted for 31%, 23%, 22% and 11% of revenues in 1994,
and three customers accounted for 33%, 23% and 23% of revenues in 1993. The
prolonged failure of any customer to fulfill its contractual obligations could
have a substantial negative impact on AES's revenues. However, the Company does
not anticipate non-performance by the customers under these contracts.
INTEREST RATE SWAP AND CAP AGREEMENTS -- The Company enters into interest rate
swap and cap agreements as a hedge against interest rate exposure on floating
rate project financing debt. The transactions are accounted for as a hedge and
interest is expensed or capitalized, as appropriate, using the effective
interest rates. Any fees or payments are amortized as yield adjustments. These
derivative financial instruments are classified as other than trading.
INCOME TAXES -- The Company uses an asset and liability approach in reporting
income taxes.
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 and stock dividends. 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 75.9 million, 75.8 million, and 73.0 million for 1995, 1994 and 1993,
respectively. Primary and fully diluted earnings per share are approximately the
same.
USE OF ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires the use of estimates. Actual
results could differ from those estimates.
RECLASSIFICATIONS -- Certain reclassifications have been made to prior period
amounts to conform with the 1995 presentation.
UNAUDITED QUARTERLY DATA -- Such data includes all such adjustments considered
necessary for a fair presentation. Such information is not indicative of the
results for a full year.
F-7
<PAGE> 74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS
On January 20, 1995, a subsidiary of the Company acquired the remaining
outstanding debt of AES Deepwater, a 140 megawatt cogeneration plant in
Pasadena, Texas, for $65 million from a syndicate of lenders. Prior to that
date, the Company did not maintain or exercise control over the utilization of
the AES Deepwater facility, and accordingly, recorded its investment using the
cost method. The acquisition resulted in the creation of goodwill of
approximately $24 million which is being amortized over the remaining estimated
life of the plant.
In June and July 1995, a subsidiary of the Company increased its ownership
interest in Central Termica San Nicolas, S. A. ("San Nicolas"), a 650 megawatt
power plant located in San Nicolas, Argentina from approximately 34% to
approximately 69% by purchasing the interests of two former minority
shareholders. The 1995 purchase price was $24 million. The net results
attributable to the Company's non-owned portion of earnings from San Nicolas in
1995 is reflected as minority interest.
In addition, in December 1995, another subsidiary of the Company purchased
Hidroelectrica Rio Juramento S.A. ("AES Rio Juramento") a 112 megawatt
hydroelectric system in the province of Salta, Argentina for $43 million. As a
result of this acquisition, the Company acquired intangible assets of $14
million which are being amortized over the life of the hydroelectric concession
of 30 years.
These acquisitions were accounted for as purchases. The accompanying financial
statements include the operating results of AES Deepwater from January 20, 1995,
the operating results of San Nicolas as of January 1, 1995 and the operating
results of AES Rio Juramento from December 1, 1995. The following table presents
supplemental unaudited proforma operating results as if the acquisitions of AES
Deepwater, San Nicolas, and AES Rio Juramento had occurred at the beginning of
1994 (in millions, except per share amounts):
<TABLE>
<CAPTION>
-----------------
YEAR ENDED
DECEMBER 31
1995 1994
----- -----
<S> <C> <C>
Revenues................................................... $ 690 $ 694
Income before extraordinary item........................... 108 96
Net income................................................. 108 97
Earnings per share before extraordinary item............... 1.42 1.28
Earnings per share......................................... 1.42 1.29
</TABLE>
The pro forma results are based upon assumptions and estimates which the Company
believes are reasonable. The proforma results do not purport to be indicative of
the results that actually would have been obtained had the acquisitions occurred
on January 1, 1994, nor are they intended to be a projection of future results.
3. INVESTMENTS
At December 31, 1995 and 1994, the Company's investments were classified as
either held-to-maturity or available-for-sale. The amortized cost and estimated
fair value of the investments at December 31, 1995 classified as held-to-
maturity and available-for-sale were approximately the same. A $1 million
unrealized loss, net of tax, was recorded by the Company as a separate component
of stockholders' equity on December 31, 1994 relating to $26 million of U.S.
Federal Agency securities classified as available-for-sale.
F-8
<PAGE> 75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
The short-term investments and debt service reserves and other deposits were
invested as follows (in millions):
<TABLE>
<CAPTION>
----------------------------
DECEMBER 31
1995 1994
------------ ------------
<S> <C> <C>
Restricted cash................................................... $144 $ 81
Held-to-maturity
US treasury and government agency securities...................... 33 29
Securities issued by foreign central governments.................. -- 5
Foreign certificates of deposit................................... 3 23
Commercial paper.................................................. 3 --
Corporate bonds................................................... -- 20
Floating rate notes............................................... 6 31
Asset-backed securities........................................... -- 2
------ ------
Subtotal.......................................................... 45 110
Available-for-sale
US treasury and government agency securities...................... 30 25
Certificates of deposit........................................... 4 --
Foreign certificates of deposit................................... 3 --
------ ------
Subtotal.......................................................... 37 25
------ ------
Total............................................................. $226 $216
=========== ===========
</TABLE>
Short-term investments classified as held-to-maturity and available-for-sale
were $44 and $14 million, respectively, at December 31, 1995. The short-term
investments of $94 million at December 31, 1994 were classified as held-to-
maturity.
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 the
accounts of NIGEN, Ltd. (47% owned UK affiliate) and Medway Power Ltd. (25%
owned UK affiliate) at 1995 and 1994, and for the years then ended, and the
accounts of San Nicolas (34% owned Argentine affiliate) at December 31, 1994 and
for the year then ended.
<TABLE>
<CAPTION>
-------------
1995 1994
---- -----
<S> <C> <C>
Sales......................................................................... $276 $ 335
Operating income.............................................................. 86 75
Net income.................................................................... 49 33
Current assets................................................................ 171 156
Noncurrent assets............................................................. 949 1,030
Current liabilities........................................................... 70 133
Noncurrent liabilities........................................................ 973 945
Stockholders' equity.......................................................... 77 108
</TABLE>
In 1994, NIGEN, Ltd. refinanced its outstanding project financing loan through a
public debenture offering. The extinguishment of such debt resulted in an
extraordinary loss of $7 million. The Company's share, $2 million, net of taxes,
is included in the accompanying financial statements as an extraordinary loss.
The Company's share of undistributed earnings of affiliates included in
consolidated retained earnings was $13 million and $19 million at December 31,
1995 and 1994, respectively. The Company charged and recognized
F-9
<PAGE> 76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INVESTMENTS IN AND ADVANCES TO AFFILIATES (CONTINUED)
management fees and interest on advances to its affiliates which aggregated $8
million, $18 million and $10 million for each of the years ended December 31,
1995, 1994 and 1993, respectively.
5. DEBT
PROJECT FINANCING DEBT -- Project financing debt at December 31, 1995 and 1994
consisted of the following (in millions):
<TABLE>
<CAPTION>
-----------------------------------------
INTEREST RATE
12/31/95 MATURITY 1995 1994
------------- -------- ------ ------
<S> <C> <C> <C> <C>
Senior Debt -- floating AES Beaver Valley............... 7.8% 1998 $ 33 $ 43
AES Thames.............................................. 7.0% 2004 181 199
AES Shady Point......................................... 8.3% 2004 320 336
AES Barbers Point....................................... 7.1% 2007 340 354
AES Lal Pir............................................. 5.3% 2007 28 --
AES Warrior Run......................................... 7.0% 2014 22 --
Senior Debt -- fixed
AES Placerita -- capital lease.......................... 8.2% 2009 111 115
AES Warrior Run-tax exempt bonds........................ 7.4% 2019 74 --
Subordinated Debt....................................... 11.3% 2010 73 33
------ ------
Subtotal................................................ 1,182 1,080
Less current maturities................................. (84) (61)
------ ------
Total................................................... $1,098 $1,019
====== ======
</TABLE>
Project financing debt borrowings are primarily collateralized by the capital
stock of the project subsidiary, the physical assets of such facility and all
project agreements associated with such facility.
In 1994, the Company purchased and retired subordinated project financing debt
and accrued interest at AES Placerita, resulting in an extraordinary gain of $4
million, net of taxes.
The Company has interest rate swap agreements in an aggregate notional principal
amount of $613 million at December 31, 1995. The swap agreements effectively
change the interest rate on the portion of the debt covered by the notional
amounts, to a weighted average fixed rate ranging from approximately 9.5% to
10.5%. The agreements expire at various dates from 1997 through 2007. In the
event of nonperformance by the counterparties, the subsidiaries may be exposed
to increased interest rates, however, the Company does not anticipate
nonperformance by the counterparties, which are multinational financial
institutions. At December 31, 1995, subsidiaries of the Company have interest
rate cap agreements with terms ranging from one to six years in an aggregate
notional amount of $619 million.
AES Shady Point and AES Barbers Point have issued commercial paper supported by
irrevocable letters of credit issued by multinational financial institutions. In
the event of nonperformance or credit deterioration of these institutions, the
Company may be exposed to the risk of higher effective interest rates. The
Company does not believe that such nonperformance or credit deterioration is
likely.
F-10
<PAGE> 77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. DEBT (CONTINUED)
OTHER NOTES PAYABLE -- Other notes payable at December 31, 1995 and 1994
consisted of the following (in millions):
<TABLE>
<CAPTION>
--------------------------------------
INTEREST RATE
12/31/95 MATURITY 1995 1994
------------- -------- ---- ----
<S> <C> <C> <C> <C>
Corporate revolving bank loan*............................. 7.70% 1998 $ 50 --
Senior subordinated notes.................................. 9.75% 2000 75 $ 75
Convertible subordinated debentures........................ 6.50% 2002 50 50
---- ----
Subtotal................................................... 175 125
Less current maturities.................................... (50) --
---- ----
Total...................................................... $125 $125
==== ====
</TABLE>
- ---------------
* floating rate loan
Under the terms of the $225 million corporate revolving bank loan and letter of
credit facility ("Revolver"), the Company must reduce its direct borrowings to
zero for 30 consecutive days annually to obtain additional loans. Commitment
fees on the unused portion at December 31, 1995 are .375% per annum, and as of
that date $120 million was available. The Company's senior subordinated notes
("Notes") and convertible subordinated debentures ("Debentures") are general
unsecured obligations of the Company. The Notes are redeemable at the Company's
option, in whole or in part, beginning June 1997 at redemption prices in excess
of par and are redeemable at par beginning June 1999. The Debentures are
convertible into common stock of the Company at the rate of $26.16 per common
share, and redeemable at the Company's option at redemption prices in excess of
par, and at par beginning March 1999.
FUTURE MATURITIES OF DEBT -- Scheduled maturities of long-term debt at December
31, 1995 are (in millions):
<TABLE>
<S> <C>
1996................................................ $ 134
1997................................................ 76
1998................................................ 90
1999................................................ 95
2000................................................ 176
Thereafter.......................................... 786
------
Total $1,357
======
</TABLE>
COVENANTS -- The terms of the Company's Revolver, Notes, Debentures and project
financing debt agreements contain certain covenants and provisions. The
covenants provide for, among other items, maintenance of certain reserves, and
require that minimum levels of working capital, net worth and certain financial
ratio tests are met. The most restrictive of these covenants include limitations
on incurring additional debt and on the payment of dividends to shareholders.
The project financing debt limitations of AES's subsidiaries permit the payment
of dividends to the parent company out of current cash flow for quarterly,
semi-annual or annual periods only at the end of such periods and only after
payment of principal and interest on project loans due at the end of such
periods. As of December 31, 1995, approximately $59 million was available under
project loan documents for distribution by subsidiaries.
6. COMMITMENTS AND CONTINGENCIES
As of December 31, 1995, the Company and its consolidated subsidiaries are
obligated under long-term non-cancelable operating leases, primarily for office
rental and site leases. Rental expense for operating leases was $3 million, $2
million and $2 million in the years ended 1995, 1994 and 1993, respectively. The
future minimum
F-11
<PAGE> 78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
lease commitments under these leases are $3 million for 1996, $2 million each
year for 1997 through 1999, $1 million for 2000, and $52 million for the years
thereafter.
Operating subsidiaries of the Company enter into various long-term contracts for
the purchase of fuel subject to termination only in certain limited
circumstances. These contracts have remaining terms of 4 to 12 years.
GUARANTEES -- In connection with certain of its project financing, acquisition,
disposition, and power purchase agreements, AES has expressly undertaken limited
obligations and commitments most of which will only be effective or will be
terminated upon the occurrence of future events. These obligations and
commitments, excluding letter of credit obligations discussed below, were
limited as of December 31, 1995, by the terms of the agreements, to an aggregate
of approximately $138 million. Approximately $15 million of these guarantees are
supported by cash deposits or cash collateralized letters of credit. The Company
is also obligated under other commitments which are limited to amounts, or
percentages of amounts, received by AES as distributions from its project
subsidiaries. These amounts aggregated $37 million as of December 31, 1995.
LETTERS OF CREDIT -- At December 31, 1995 and 1994, the Company had $56 million
and $11 million, respectively, of letters of credit outstanding under its credit
facility which operate to guarantee performance relating to certain project
development activities and subsidiary operations. The Company pays a letter of
credit fee of 1.75% on the outstanding amounts.
LITIGATION -- In 1992, a shareholder class action suit was filed against the
Company, its directors, certain of its officers and the underwriters of the
Company's 1991 initial public offering of common stock and its 1992 offering of
Debentures. 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 up to $4.5 million of cash plus warrants to purchase
up to .7 million shares of AES common stock at $29.43 per share through July
2000. 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. Plaintiffs' counsel are currently processing claims and, once
concluded, 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 fraud, 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 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.
F-12
<PAGE> 79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
--------------------
In millions 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Common stock
Balance at January 1 and December 31................................. $ 1 $ 1 $ 1
===== ===== =====
Additional paid-in capital
Balance at January 1................................................. $240 $203 $103
Issuance of common stock............................................. -- -- 68
Issuance of common stock under benefit plans and exercise of stock
options and warrants.............................................. 2 2 5
Common stock dividends (1993 -- $0.58 per share, 1994 -- 3% per
share)............................................................ -- 47 27
AES Chigen Class A redeemable common stock........................... 51 (12) --
---- ---- ----
Balance at December 31................................................. $293 $240 $203
===== ===== =====
Retained earnings
Balance at January 1................................................. $164 $111 $ 82
Net income for the year.............................................. 107 100 71
Common stock dividends (1993 -- $0.58 per share, 1994 -- 3% per
share)............................................................ -- (47) (42)
---- ---- ----
Balance at December 31................................................. $271 $164 $111
===== ===== =====
Unrealized gain/(loss) on investments
Balance at December 31............................................... $ -- $ (1) $ --
===== ===== =====
Cumulative translation adjustment
Balance at December 31............................................... $(10) $ (3) $ (6)
===== ===== =====
Treasury stock
Balance at December 31............................................... $ (6) $ -- $ --
===== ===== =====
</TABLE>
Common Stock -- During 1993, the Company declared three alternative cash or
stock dividends aggregating to $.58 per share. In connection with the 1993
alternative cash or stock dividends, the Company issued 1.5 million shares of
common stock.
Stock Split and Stock Dividend -- On December 7, 1993, the Board of Directors
authorized a three-for-two split, effected in the form of a stock dividend,
payable to stockholders of record on January 15, 1994. Additionally, on February
17, 1994, the Company declared a 3% stock dividend, payable to stockholders of
record on March 10, 1994. Accordingly, all outstanding share, per share and
stock option data in all periods presented have been restated to reflect the
split and the 3% stock dividend.
Stock Options and Warrants -- The Company has granted options or warrants for
shares of common stock under its stock option plans. One of the plans provides
for the grant of options to directors who are not employed by the Company. Under
the terms of the plans, the Company may issue options to purchase shares of the
Company's common stock at a price equal to 100% of the market price at the date
the option is granted. The options become eligible for exercise under various
schedules. At December 31, 1995, there were .7 million shares reserved for
F-13
<PAGE> 80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
future grants under the plans. A summary of the warrant and option activity
(with parenthetical prices per share) follows (in thousands of shares):
<TABLE>
<CAPTION>
--------------------------
DECEMBER 31
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Warrants and options outstanding -- beginning of year............. 3,540 2,999 2,995
Exercised during the year (from $1.04 to $22.75).................. (355) (187) (422)
Forfeitures during the year (from $1.55 to $21.36)................ (57) (12) (2)
Granted during the year (from $16.38 to $23.14 ).................. 935 740 428
------ ------ ------
Outstanding -- end of year (from $1.04 to $23.14)................. 4,063 3,540 2,999
====== ====== ======
Eligible for exercise -- end of year.............................. 1,209 990 1,102
====== ====== ======
Percentage of options outstanding to total common stock
outstanding..................................................... 5% 5% 4%
====== ====== ======
</TABLE>
At December 31, 1995, the weighted average exercise price for all options
outstanding was $14.56 per share. Of the total options outstanding,
approximately 1 million are eligible for exercise below the market price of the
common stock at December 31, 1995 and such options, if all were exercised, would
generate proceeds to the Company of approximately $11 million.
AES China Generating Co. Ltd. -- During 1994, AES Chigen completed an initial
public offering for the sale of 10.2 million shares of Class A redeemable common
stock. Prior to the offering, AES contributed $50 million to AES Chigen for 7.5
million shares of Class B common stock. AES, as the sole Class B holder, is
entitled to elect one-half of the board of directors of AES Chigen. As of
December 22, 1995, AES Chigen had entered into binding commitments to invest in
excess of $50 million in power projects in the People's Republic of China and
the previously held right of Class A Shareholders to require AES Chigen to
repurchase their shares has expired. As a result, the Company has allocated the
net proceeds from the issuance of the Class A shares to additional paid-in
capital and minority interest during 1995.
8. INCOME TAXES
Income Tax Provision -- The provision for income taxes attributable to
continuing operations consists of the following (in millions):
<TABLE>
<CAPTION>
--------------------
YEAR ENDED
DECEMBER 31
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Federal
Current........................................ $ 4 $ 2 $ 1
Deferred....................................... 47 35 11
State
Current........................................ 5 4 1
Deferred....................................... 1 3 5
---- ---- ----
Total............................................ $57 $44 $18
==== ==== ====
</TABLE>
F-14
<PAGE> 81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
Effective and Statutory Rate Reconciliation -- A reconciliation of the U.S.
statutory federal income tax rate to the Company's effective tax rate as a
percentage of income before taxes is as follows:
<TABLE>
<CAPTION>
--------------------
YEAR ENDED
DECEMBER 31
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory federal tax rate............................................. 35% 35% 35%
Change in valuation allowance.......................................... (6) (2) (18 )
State taxes, net of federal tax benefit................................ 6 5 6
Other -- net........................................................... 3 (4) --
---- ---- ----
Effective tax rate..................................................... 38% 34% 23%
==== ==== ====
</TABLE>
Deferred Income Taxes -- Deferred income taxes relate principally to accelerated
depreciation methods used for tax purposes and certain other expenses which are
deducted for income tax purposes, but not for financial reporting purposes.
Deferred income taxes reflect the net tax effects of (a) temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, and (b) operating loss
and tax credit carryforwards. These items are stated at the enacted tax rates
that are expected to be in effect when taxes are actually paid or recovered.
Deferred tax assets and deferred tax liabilities are as follows (in millions):
<TABLE>
<CAPTION>
-----------------------
YEAR ENDED
DECEMBER 31
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Differences between book and tax basis of property and total deferred
tax liability........................................................ $ 379 $ 219 $ 182
----- ----- -----
Operating loss carryforwards........................................... (167) (231) (224)
Tax credit carryforwards............................................... (71) (68) (67)
Other deductible temporary differences................................. (1) (15) (31)
----- ----- -----
Total gross deferred tax asset......................................... (239) (314) (322)
Less: valuation allowance.............................................. 9 168 171
----- ----- -----
Total net deferred tax asset........................................... (230) (146) (151)
----- ----- -----
Net deferred tax liability............................................. $ 149 $ 73 $ 31
===== ===== =====
</TABLE>
As of December 31, 1995, the Company had federal net operating loss
carryforwards for tax purposes of approximately $434 million expiring from 2001
through 2009, federal investment tax credit carryforwards for tax purposes of
approximately $61 million expiring in years 2001 through 2006, and federal
alternative minimum tax credits of approximately $5 million which carryforward
without expiration.
The valuation allowance decreased during the year by approximately $159 million
to $9 million at December 31, 1995. The primary reason for this decrease was the
Company's purchase of the outstanding debt of AES Deepwater on January 20, 1995,
which had the effect of reducing certain of the Company's deferred tax assets.
The $9 million valuation allowance at December 31, 1995 relates primarily to
state tax credits and foreign operating losses, the ultimate realization of
which is uncertain. The Company believes that it is more likely than not that
the remaining deferred tax assets will be realized.
Undistributed earnings of certain foreign affiliates aggregated $33 million on
December 31, 1995. The Company considers these earnings to be indefinitely
reinvested outside of the U.S. and, accordingly, no U.S. deferred taxes have
been recorded with respect to the earnings. Should the earnings be remitted as
dividends, the Company may be subject to additional U.S. taxes, net of allowable
foreign tax credits. It is not practicable to estimate the amount
F-15
<PAGE> 82
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
of any additional taxes which may be payable on the undistributed earnings. A
deferred tax asset of $2 million has been recorded as of December 31, 1995 for
the cumulative effects of certain foreign currency translations.
9. PROFIT SHARING AND DEFERRED COMPENSATION PLANS
Profit Sharing and Stock Ownership Plan -- The Company has a profit sharing and
stock ownership plan, qualified under section 401 of the Internal Revenue Code,
which is available to all AES people. The profit sharing plan provides for
Company matching contributions, other Company contributions at the discretion of
the Compensation Committee of the Board of Directors, and discretionary tax
deferred contributions from the participants. Participants are fully vested in
their own contributions and the Company's matching contributions. Participants
vest in other Company contributions over a five-year period. Company
contributions to the plan were $4 million for each of the years ended 1995, 1994
and 1993.
Deferred Compensation Plans -- The Company has a deferred compensation plan
under which directors of the Company may elect to have a portion or all of their
compensation deferred. The amounts allocated to each participant's deferred
compensation account may be converted into common stock units. Upon termination
or death of a participant, the Company is required to distribute, under various
methods, cash or the number of shares of common stock accumulated within the
participant's deferred compensation account. Distribution of stock is to be made
from common stock held in treasury or from authorized but previously unissued
shares. The plan terminates and full distribution is required to be made to all
participants upon any changes of control of the Company (as defined).
In addition, the Company has an executive officers' deferred compensation plan.
At the election of an executive officer, the Company will establish an unfunded,
non-qualified compensation arrangement for each officer who chooses to terminate
participation in the Company's profit sharing and employee stock ownership plan.
The participant may elect to forego payment of any portion of his or her
compensation and have an equal amount allocated to a contribution account. In
addition, the Company will credit the participant's account with an amount equal
to the Company's contributions (both matching and profit sharing) that would
have been made on such officer's behalf if he or she had been a participant in
the profit sharing plan. The participant may elect to have all or a portion of
the Company's contribution converted into stock units. Dividends paid on common
stock are allocated to the participant's account in the form of stock units. The
participant's account balances are distributable upon termination of employment
or death.
During 1995, the Company adopted a supplemental retirement plan covering certain
AES people. The plan provides incremental profit sharing and matching
contributions to participants that would have been paid to their accounts in the
Company's profit sharing plan if it were not for limitations imposed by income
tax regulations. All contributions to the plan are vested in the manner provided
in the Company's profit sharing plan, and once vested are nonforfeitable. The
participant's account balances are distributable upon termination of employment
or death.
The Company is not obligated under any post-retirement benefit plans other than
the profit sharing and deferred compensation plans described in this Note.
F-16
<PAGE> 83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. QUARTERLY DATA (UNAUDITED)
The following table summarizes the unaudited quarterly statements of operations
(in millions, except per share amounts):
<TABLE>
<CAPTION>
-----------------------------------
QUARTER ENDED 1995
MAR 31 JUN 30 SEP 30 DEC 31
------ ------ ------ ------
<S> <C> <C> <C> <C>
Sales and services........................................... $ 171 $ 167 $ 174 $ 173
Gross margin................................................. 67 67 73 73
Net income................................................... 25 27 27 28
Net income per share......................................... 0.33 0.35 0.36 0.37
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------
QUARTER ENDED 1994
MAR 31 JUN 30 SEP 30 DEC 31
------ ------ ------ ------
<S> <C> <C> <C> <C>
Sales and services........................................... $ 125 $ 136 $ 137 $ 135
Gross margin................................................. 60 69 67 68
Extraordinary item........................................... 4 -- -- (2)
Net income................................................... 25 25 26 24
Net income per share:
Before extraordinary item.................................... 0.28 0.34 0.34 0.35
Extraordinary item........................................... 0.05 -- -- (0.03)
------ ------ ------ -----
Net income per share......................................... 0.33 0.34 0.34 0.32
====== ===== ===== =====
</TABLE>
F-17
<PAGE> 84
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. GEOGRAPHIC SEGMENTS
Information about the Company's operations in different geographic areas is as
follows (in millions):
<TABLE>
<CAPTION>
------------------
YEAR ENDED
DECEMBER 31
1995 1994
------ ------
<S> <C> <C>
REVENUES
North America............................................................ $ 548 $ 523
Latin America............................................................ 131 2
Asia..................................................................... 1 --
Other.................................................................... 5 8
------ ------
Total.................................................................... $ 685 $ 533
====== ======
</TABLE>
<TABLE>
<CAPTION>
------------------
YEAR ENDED
DECEMBER 31
1995 1994
------ ------
<S> <C> <C>
OPERATING INCOME
North America............................................................ $ 246 $ 241
Latin America............................................................ 14 --
Asia..................................................................... (8) (11)
Other.................................................................... (4) 2
------ ------
Total.................................................................... $ 248 $ 232
====== ======
</TABLE>
<TABLE>
<CAPTION>
------------------
DECEMBER 31
1995 1994
------ ------
<S> <C> <C>
IDENTIFIABLE ASSETS
North America............................................................ $1,672 $1,569
Latin America............................................................ 230 46
Asia..................................................................... 328 221
Other.................................................................... 90 79
------ ------
Total.................................................................... $2,320 $1,915
====== ======
</TABLE>
- ---------------
In 1993, foreign operations and investments were insignificant.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's assets and liabilities have been
determined using available market information. The estimates are not necessarily
indicative of the amounts the Company could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
The fair value of current financial assets, current liabilities, debt service
reserves and other deposits, and other assets are assumed to be equal to their
reported carrying amounts. The fair value of project financing debt is estimated
differently based upon the type of loan. For variable rate loans, the carrying
value approximates fair value. For fixed rate loans, the fair value is estimated
using discounted cash flow analyses, based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements. The carrying value
and fair value of the AES Placerita capital lease have been excluded from this
disclosure. The carrying amount of commitments represents the Company's
aggregate maximum exposure. The fair value of other commitments are estimated
based on the amount of exposure and the Company's estimate of the likelihood of
performance being required. The fair value of swap agreements is the estimated
net amount that the Company would pay to terminate the agreements at
F-18
<PAGE> 85
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
the balance sheet date. The estimated fair values of the Debentures and Notes
are based on the quoted market price at December 31, 1995.
The estimated fair values of the Company's financial instruments at December 31,
1995 and 1994 are as follows (in millions):
<TABLE>
<CAPTION>
------------------------------------
1995 1994
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------ -------- -----
<S> <C> <C> <C> <C>
Project financing debt...................................... $1,071 $1,078 $965 $ 966
Other notes payable......................................... 175 180 125 119
Interest rate swaps......................................... -- 137 -- 52
Other commitments........................................... 231 19 72 6
</TABLE>
The fair value estimates presented herein are based on pertinent information
available as of December 31, 1995. The Company is not aware of any factors that
would significantly affect the estimated fair value amounts since that date.
13. NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 123, "Accounting for Stock Based Compensation" becomes effective and
will be adopted by the Company in 1996. The Company does not plan to adopt the
recognition and measurement provisions of SFAS No. 123. SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed of " was adopted by the Company in 1995. Such adoption had no effect
on the Company's financial position.
14. SUBSEQUENT EVENT
On May 30, 1996, AES, through its subsidiaries, acquired for $393 million the
common shares representing an 11.35% interest in Light Servicos de Eletricidade
S.A. ("Light"), a publicly-held corporation that operates as the concessionaire
of electric power generation, transmission and distribution public services in
28 municipalities of the state of Rio de Janeiro, Brazil. AES acquired its
interest through participation in a consortium (the "Consortium") that
concurrently won the bid for a controlling interest in Light under the Brazilian
privatization program auction of 60% of Light's outstanding shares held on May
21, 1996. The consortium's aggregate ownership interest of 50.44% represents a
controlling interest in Light.
The Consortium, organized pursuant to a shareholders agreement dated as of May
27, 1996, is comprised of the direct common share ownership interests held in
Light by affiliates of AES (11.35%), Electricite de France ("EDF") (11.35%),
Houston Industries Incorporated ("HI") (11.35%), Companhia Siderurgica Nacional
("CSN") (7.25%), and Banco Nacional de Desenvolvimento Economico e Social
("BNDES") (9.14%). The aggregate ownership interest of 50.44% held by the
members of the Consortium under the Shareholders Agreement represents the
controlling ownership of Light. Under the provisions of the Shareholders
Agreement, principal responsibilities for the various aspects of Light's
business will be allocated among AES, EDF, HI and CSN. AES will have principal
responsibility for the electric generation and bulk power supply operations of
Light.
F-19
<PAGE> 86
SUPPLEMENTAL INFORMATION
The Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1995 (the "1995 Form 10-K") is attached hereto. The delivery of the 1995 Form
10-K shall not be intended to create an implication that there has been no
change in the affairs of the Company since the date of filing thereof, nor that
the information contained or incorporated by reference therein is correct as of
any time subsequent to its date. Reference is made to the Company's Consolidated
Financial Statements beginning on page F-1 hereof which may include more recent
information. See "Recent Developments."
<PAGE> 87
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 COMMISSION FILE NUMBER [0-19281]
THE AES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 54-1163725
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1001 N. 19TH STREET, ARLINGTON, VIRGINIA 22209
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (703) 522-1315
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- -------------------------------------------------------------------------------------
<S> <C>
COMMON STOCK, PAR VALUE $0.01 PER SHARE NASDAQ NATIONAL MARKET SYSTEM
6 1/2% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2002 NONE
9 3/4% SENIOR SUBORDINATED NOTES DUE 2000 NONE
</TABLE>
-------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
--- -----
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED,
TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. / X /
-------------
THE AGGREGATE MARKET VALUE OF REGISTRANT'S VOTING STOCK HELD BY
NON-AFFILIATES OF REGISTRANT, AT FEBRUARY 26, 1996, WAS $1,084,594,950.
THE NUMBER OF SHARES OUTSTANDING OF REGISTRANT'S COMMON STOCK, PAR
VALUE $0.01 PER SHARE, AT MARCH 25, 1996, WAS 74,868,326.
DOCUMENTS INCORPORATED BY REFERENCE
(1) PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS OF THE
REGISTRANT TO BE HELD ON APRIL 16, 1996. CERTAIN INFORMATION THEREIN IS
INCORPORATED BY REFERENCE INTO PART III HEREOF.
(2) THE REGISTRANT'S 1995 ANNUAL REPORT TO STOCKHOLDERS. CERTAIN
INFORMATION THEREIN IS INCORPORATED BY REFERENCE INTO PART I, PART II AND PART
IV HEREOF.
<PAGE> 88
PART I
ITEM 1. BUSINESS
(a) General Development of Business
The Registrant (also hereinafter referred to as the "Company" or
"AES"), together with its subsidiaries and affiliates, is engaged in the
business of developing, acquiring, owning and operating electric power
generation facilities throughout the world. AES is one of the original
entrants in the market for electric power generated by independent power
producers which developed in the United States as a result of the enactment of
the Public Utility Regulatory Policies Act of 1978 ("PURPA"), as amended.
Today AES is one of the largest independent power producers in the world,
based on net equity ownership of generating capacity (in megawatts) in
operation or under construction, and the Company's objective is to become the
world's leading global power company.
The Company is a Delaware corporation and was incorporated in 1981.
Through subsidiaries and affiliates, AES 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 percent are fueled by solid fuel, 24
percent are fueled by natural gas, 6 percent are hydroelectric facilities and
the remaining 35 percent 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 two 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.
All of its existing operating U.S. power plants are cogeneration
facilities -- a power generation technology that provides for the sequential
generation of two or more useful forms of energy (e.g., electricity and steam)
from a single primary fuel source. The Company's foreign plants are not
cogeneration facilities. Other than the plants in Argentina and China, which
were financed solely by contributions from the Company, each of the Company's
domestic and foreign plants has been financed primarily through project
financing which is substantially non-recourse to AES and the other projects.
For a discussion of the terms "project financing" and "substantially
non-recourse," see "Description of Projects."
(b) Financial Information About Industry Segments
The Registrant operates in only one industry segment: electric power
generation.
(c) Narrative Description of Business
OVERALL STRATEGY
AES's primary objective is to help meet the need for electricity in
the United States and other countries by participating in competitive
electricity markets as a safe, clean and reliable power supplier. AES's
strategy is to participate in competitive power generation markets as they
develop, both in the United States and in other countries, either by
constructing and operating new generation facilities or by acquiring and
operating existing facilities in these markets.
1
<PAGE> 89
Other elements of the Company's strategy include:
- Supplying energy to customers at the least cost possible,
taking into account factors such as reliability and
environmental performance.
- Constructing or acquiring projects of a relatively large size
(generally larger than 100 megawatts).
- Entering into power sales contracts with electric utilities or
other customers with credit strength.
The Company's strategy also has been to finance each project, to the
maximum extent possible, without credit recourse to the Company or to other
projects, and to construct new plants under fixed or guaranteed-maximum price
contracts with contractor-guaranteed performance standards ("turnkey"
contracts). In addition, the Company engages in careful site selection,
taking into consideration transportation, water and transmission access and
attempting to gauge local government and community receptivity to the
environmental permitting process.
AES also strives for operating excellence as a key element of its
strategy. By minimizing organizational layers and maximizing company-wide
participation in decision-making, AES has attempted to create an operating
environment that results in safe, clean and reliable electricity generation.
Because of this emphasis, the Company prefers to operate all projects which it
develops or acquires.
THE GLOBAL INDEPENDENT POWER MARKET
The market for independent power generation has expanded from a U.S.
market, consisting of cogeneration and small power production projects, to a
global competitive market for power generation. Although many foreign
countries initiated restructuring policies after the advent of the independent
power market in the United States, many of these countries have put in place
market structures that the Company believes are more competitive than most
markets existing in the United States today. A part of AES's business
strategy is to participate in competitive generation markets both in the
United States and worldwide.
The Company believes that the growth in the need for new capacity in
the United States has and will continue to slow, partly because utilities are
making more efficient use of their existing resources by improving plant
availability, extending plant lives, repowering and taking advantage of
attractive bulk power purchases, and partly because utilities have initiated
programs to reduce the demand for electricity. In addition, over the past
decade, obtaining a power sales contract with a U.S. utility has become a
progressively more difficult, expensive and competitive process. Many states
now require power sales contracts to be awarded by competitive bidding, which
both increases the costs and decreases the chances of obtaining such
contracts. Bids significantly outnumber awards in most competitive
solicitations.
As a result of the reduced need for new capacity in the United
States, AES and many of its competitors are seeking new business in markets
outside the United States. In addition, a number of foreign countries have
privatized (or are in the process of privatizing) their generation capacity,
which provides opportunities to purchase existing generation assets. AES,
through subsidiaries and affiliates, now operates eight plants in non-U.S.
countries, is constructing four others , and has offices in numerous foreign
locations to take advantage of the opportunities in these new markets.
Development of new power generation projects in foreign markets is, however,
difficult and expensive, and many of AES's competitors in these foreign
markets have significantly larger capital resources and greater local market
knowledge than AES.
2
<PAGE> 90
PRINCIPLES AND PRACTICES
A core part of AES's corporate culture is a commitment to "shared
principles". These principles describe how AES people endeavor to behave,
recognizing that they don't always live up to these standards. The principles
are:
Integrity - AES strives to act with integrity, or "wholeness." The
Company seeks to honor its commitments. The goal is that the things
AES people say and do in all parts of the Company should fit
together with truth and consistency.
Fairness - AES wants to treat fairly its people, its customers, its
suppliers, its stockholders, governments and the communities in
which it operates. Defining what is fair is often difficult, but
the Company believes it is helpful to routinely question the
relative fairness of alternative courses of action.
Fun - AES desires that people employed by the Company and those
people with whom the Company interacts have fun in their work.
AES's goal has been to create and maintain an environment in which
each person can flourish in the use of his or her gifts and skills
and thereby enjoy the time spent at AES.
Social Responsibility - The Company believes that it has a
responsibility to be involved in projects that provide social
benefits, such as lower costs to customers, a high degree of safety
and reliability, increased employment and a cleaner environment.
AES recognizes that most companies have standards and ethics by
which they operate and that business decisions are based, at least in part, on
such principles. The Company believes that an explicit commitment to a
particular set of standards is a useful way to encourage ownership of those
values among its people. While the people at AES acknowledge that they won't
always live up to these standards, they believe that being held accountable to
these shared values will help them behave more consistently with such
principles.
AES makes an effort to support these principles in ways that
acknowledge a strong corporate commitment and encourage people to act
accordingly. For example, AES conducts annual surveys, both company-wide and
at each location, designed to measure how well its people are doing in
supporting these principles -- through interactions within the Company and
with people outside the Company. These surveys are perhaps most useful in
revealing failures, and helping to deal with those failures. AES's principles
are relevant because they help explain how AES people approach the Company's
business. The Company seeks to adhere to these principles, not as a means to
achieve economic success but because adherence is a worthwhile goal in and of
itself.
In order to create a fun working environment for its people and
implement its strategy of operational excellence, AES has adopted
decentralized organizational principles and practices. For example, AES
works to minimize the number of supervisory layers in its organization. Most
of the Company's plants operate without shift supervisors. The project
subsidiaries are responsible for all major facility-specific business
functions, including financing and capital expenditures. Criteria for hiring
new AES people include a person's willingness to accept responsibility and
AES's principles as well as a person's experience and expertise. Every AES
person has been encouraged to participate in strategic planning and new plant
design for the Company. The Company has generally organized itself into
multi-skilled teams to develop projects, rather than forming "staff" groups
(such as a human resources department or an engineering staff) to carry out
specialized functions.
3
<PAGE> 91
DESCRIPTION OF PROJECTS
The table below sets forth information on the Company's plants and
projects currently in operation or under construction.
<TABLE>
<CAPTION>
Year of
Acquisition or AES
Electricity Commercial Ownership
Plants and Projects Location (megawatts) Operations Fuel Interest
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
In operation (through
subsidiaries and
affiliates):
-----------------------
AES Deepwater U.S. 143 1986* Petroleum Coke 100%
AES Beaver Valley U.S. 125 1987 Coal 80%
AES Placerita U.S. 120 1989 Natural Gas 100%
AES Thames U.S. 181 1990 Coal 100%
AES Shady Point U.S. 320 1991 Coal 100%
AES Barbers Point U.S. 180 1992 Coal 100%
Kilroot U.K. 520 1992 Coal and Oil 47%
Belfast West U.K. 240 1992 Coal 47%
San Nicolas Argentina 650 1993 Multiple 69%
Xiangci China 26 1994 Hydro 24.5%
Yangchun-Fuyang China 15 1995 Oil 12%
Rio Juramento Argentina 112 1995 Hydro 98%
Medway Power U.K. 660 1995 Natural Gas 25%
San Juan Argentina 78 1996 Hydro 98%
Under construction:
---------------------
Fuling Aixi China 45 1996** Coal 33.6%
Wuxi China 63 1996** Oil 26.4%
AES Lal Pir Pakistan 337 1997** Oil 90%
AES Pak Gen Pakistan 337 1997** Oil 90%
AES Warrior Run U.S. 180 1999** Coal 100%
----
Total 4332
====
</TABLE>
* Plant operations commenced in 1986, but control was acquired in 1995.
** Estimated.
Except as noted below, AES's domestic and foreign plants sell
electricity under long-term power sales contracts. The Company attempts,
whenever possible, to structure the revenue provisions of its power sales
contracts such that changes in the cost components of a facility (primarily
fuel costs) correspond, as effectively as possible, to changes in the revenue
components of the contract. A plant's revenue from a power sales contract
usually consists of two components, energy payments and capacity payments.
Energy payments are based on a plant's net electrical output, with payment
rates usually indexed to the fuel costs of the contracting utility or to
general inflation indices. Capacity payments are based on either a plant's
net electrical output or its available capacity. Capacity payment rates vary
over the term of a power sales contract according to various schedules. Some
power sales contracts permit the utility customer to dispatch the plant (i.e.,
direct the plant to deliver a reduced amount of electric output) within
certain specified parameters. The power sales contract payments are
structured so that, even when dispatching occurs, the plant continues to
receive capacity payments (which provide substantially all of the plant's
profits, if any), while it receives reduced energy payments (which primarily
cover the variable operating, maintenance and fuel costs associated
4
<PAGE> 92
with operating at higher or lower levels). The hydroelectric plants in
Argentina sell electricity in the Argentine spot market. Electricity prices in
the Argentine spot market are based on the supply of and demand for electricity.
The San Nicolas plant sells electricity under two power sales contracts and in
the Argentine spot market. Revenues under the contracts consist of an energy
component (with prices indexed predominantly to natural gas prices) and a
notional capacity element (based on the number of units of electricity
delivered), with prices indexed to U.S. wholesale prices. The Company's plants
under construction in Pakistan and Maryland will, when constructed and in
commercial operation, sell electricity under long-term contracts similar to
those described above.
A portion of the steam produced by AES's domestic plants is utilized
for industrial and other purposes ("process steam"). One of such plants
produces steam for use by an AES subsidiary. The remaining domestic plants
sell process steam to unaffiliated industrial users, including oil refiners,
chemical producers and paper recyclers. AES's steam sales contracts generally
are long-term contracts which require a purchaser to take at least the minimum
process steam necessary for the project to retain its Qualifying Facility
("QF") status. Under some contracts, a steam purchaser can terminate the
contract if it no longer requires any steam, while under other contracts there
is no right to terminate.
Fuel for the Company's operating plants in the United States, the
United Kingdom and a portion of the San Nicolas plant is purchased under
long-term supply agreements. Four of the Company's domestic plants are fueled
with coal, one plant uses natural gas and one uses petroleum coke. Three of
the four domestic coal plants utilize circulating fluidized-bed ("CFB") boiler
technology. The two plants in Northern Ireland primarily utilize coal (with
oil as an alternative fuel) and the plant in England uses natural gas. The
San Nicolas plant utilizes coal as a primary source of fuel but also utilizes
oil, petroleum coke and/or natural gas. A portion of the plant's fuel
requirements is purchased under a long-term coal contract and the remainder is
purchased under short-term arrangements. Since the San Nicolas power sales
contracts have energy payments indexed predominantly to natural gas prices,
and the plant burns coal as a primary fuel source, the energy payments
received by the San Nicolas plant are not indexed to its fuel payments.
Contracts with outside parties, often the project's fuel supplier, provide for
the removal and disposal of waste ash. Because of the nature of the plant's
power sales contracts, the Company believes that short-term fuel purchases
should hedge against fluctuations in revenues. In addition, the flexibility
of the plant to utilize a variety of fuels allows for an adjustment of fuels
to take advantage of the least cost alternative. There can be no assurance,
however, that the Company will be successful in hedging its revenues with the
fuel costs for the San Nicolas plant, or that the Company's attempts to hedge
through fuel supply contracts at other plants will be successful.
Except for the plants in Argentina and China, the Company has
financed each domestic and foreign plant primarily under loan agreements and
related documents which, except as noted below, require the loans to be repaid
solely from the project's revenues and provide that the repayment of the loans
(and interest thereon) is secured solely by the capital stock, physical
assets, contracts and cash flow of that plant subsidiary or affiliate. This
type of financing is generally referred to as "project financing." The
lenders under these project financing structures cannot look to AES or its
other projects for repayment (that is, they are "non-recourse" to AES and the
other plants), unless such entity explicitly agrees to undertake liability.
AES has explicitly agreed to undertake certain limited obligations and
contingent liabilities, most of which by their terms will only be effective or
will be terminated upon the occurrence of future events. These obligations
and liabilities take the form of guaranties, letter of credit reimbursement
agreements, and agreements to pay, in certain circumstances, to project
lenders or other parties amounts up to the amounts of distributions previously
made by the applicable subsidiary or affiliate to AES. To the extent AES
becomes liable under guaranties and letter of credit reimbursement agreements,
distributions received by AES from other projects are subject to the
possibility of being utilized by AES to satisfy these obligations. To the
extent of these obligations, the lenders to a project effectively have
recourse to AES and to the distributions to AES from other projects. The
aggregate contractual liability of AES is, in each case, a small portion of
the aggregate project debt, and thus the project financing structures are
generally described throughout this Report as being "substantially
non-recourse" to AES and its other projects. See "1995 Financial Review -
Cash Flows,
5
<PAGE> 93
Financing Resources and Liquidity" on pages 29 through 31 of the
Company's 1995 Annual Report to Stockholders, which is incorporated herein by
reference.
AES's plants averaged 94 percent availability in 1995, 90 percent
availability in 1994, and 92 percent availability in 1993. In calculating
plant availability, the Company has adapted the utility industry's definition
of "equivalent availability factor" to the independent power industry. The
"equivalent availability factor" is defined as the percentage of time that a
plant is available for operation at full capacity in a given period (usually a
year), where each hour of availability is prorated if the plant is only
partially available. For an independent power producer like AES, full
capacity is generally defined as contracted-for electric generating capacity
(in megawatts). For plants that sell steam (except AES Deepwater and
AES Beaver Valley), full capacity includes contracted-for steam capacity, in
megawatt-equivalents. In calculating availability with respect to AES
Deepwater and AES Beaver Valley, the Company has used rated electric
generation capacity rather than contracted-for capacity due to the particular
characteristics of such projects.
AES SHADY POINT
AES Shady Point, Inc. ("AES Shady Point"), an indirectly owned
subsidiary of AES, owns and operates a 320 megawatt coal-fired CFB
cogeneration plant in LeFlore County, Oklahoma. The AES Shady Point facility
includes a 240-ton per day food grade, liquid CO plant, which utilizes in its
2
CO production processes approximately 65,000 pounds per hour of process steam
2
produced by the plant. AES Shady Point sells electricity to Oklahoma Gas and
Electric Company ("OG&E") under a contract with a remaining term of
approximately 12 years with three automatic five-year renewal terms unless the
contract is terminated by OG&E prior to the start of each renewal term.
The AES Shady Point plant uses coal supplied under contracts with
remaining terms of approximately 12 years from 4 Oklahoma coal companies.
Each contract can be terminated by the coal supplier if its costs of supplying
coal exceed the contract price for specified time periods. In addition, AES
Shady Point has negotiated a back-up coal supply contract to provide AES Shady
Point with coal from an out-of-state source in the event the Oklahoma coal
suppliers could not fulfill their contractual obligations. AES has guaranteed
the obligation of AES Shady Point under the back-up coal supply agreement to
pay price differentials between the monthly price of coal under the agreement
and the average price the coal supplier receives for coal sales to other
parties during the same period.
The plant generated revenues of $173 million in 1993, $168 million
in 1994, and $169 million in 1995.
AES THAMES
AES Thames, Inc. ("AES Thames"), an indirectly owned subsidiary of
AES, owns and operates a 181 megawatt coal-fired CFB cogeneration plant
located in Montville, Connecticut. Power generated by AES Thames is sold to
Connecticut Light and Power Company ("CL&P") under a contract with a remaining
term of approximately 19 years. AES has guaranteed to CL&P certain of AES
Thames's obligations under the power sales contract and has provided a limited
tax indemnity. The guaranteed amounts with respect to the power sales
contract vary over the term of the contract. The current maximum guaranteed
amount is $8 million through 2005, and falls to $5 million in 2006, where it
remains at that level through the remaining term of the contract. A tax
indemnity guaranty is limited to $1 million.
AES Thames, under a contract with a remaining initial term of
approximately nine years, sells steam to Stone Connecticut Paperboard
Corporation ("Stone Connecticut"), for use in its recycled paperboard plant
located adjacent to the plant. Stone Connecticut is obligated to take the
minimum amount of steam per year necessary for the AES Thames plant to
maintain QF status under PURPA, subject to a maximum annual amount.
6
<PAGE> 94
The plant's coal requirements are supplied under a contract with a
remaining term of approximately nine years.
Under the terms of AES Thames' project financing arrangements, AES
is obligated to return to a debt reserve account of AES Thames all or a
portion of a current year's distributions received if AES Thames does not meet
certain debt reserve levels in that year. In addition, AES has guaranteed the
provision of up to $1 million to fund the capital costs associated with
certain ash handling equipment modifications, if necessary.
The plant generated revenues of $121 million in 1993, $121 million
in 1994 and $126 million in 1995.
AES BARBERS POINT
AES Barbers Point, Inc. ("AES Barbers Point"), an indirectly owned
subsidiary of AES, owns and operates a 180 megawatt coal-fired CFB
cogeneration plant located in Kapolei, Oahu, Hawaii.
AES Barbers Point sells electricity to Hawaiian Electric Company, Inc.
("HECO") under a contract with a remaining term of 27 years. AES Barbers
Point has entered into a letter agreement with HECO to provide up to nine
additional megawatts of capacity on a preferred basis and expects to do so at
such time as HECO requires such added capacity. AES Barbers Point is required
to pay specified liquidated damages to HECO if the plant fails (unless due to
force majeure) to meet certain performance standards relating to, among other
things, availability levels. AES also has guaranteed to HECO the payment of
any liquidated damages resulting from these performance shortfalls, not to
exceed $25 million per occurrence.
Steam generated by the plant is sold to Chevron USA Inc. ("Chevron")
for use in its oil refining operations under a steam sales agreement with a
remaining term of 17 years.
The plant's requirements for coal are supplied under an agreement
with a remaining term of 17 years, subject to termination in 12 years in the
event the parties are unable to renegotiate the price of coal for the last
five years of the contract term.
The AES Barbers Point plant generated revenues of $119 million in
1993, $120 million in 1994 and $126 million in 1995.
AES BEAVER VALLEY
The AES Beaver Valley plant, located in Monaca, Pennsylvania, is a
125 megawatt pulverized coal-fired cogeneration facility owned by BV Partners,
a Pennsylvania partnership ("BV Partners").
AES Beaver Valley, Inc. ("AES Beaver Valley"), a subsidiary of AES,
and Shepperton Leasing Company ("SLC") are the sole partners in BV Partners.
AES Beaver Valley, as an 80% owner and managing partner, operates the plant
for the partnership. AES has guaranteed payment and performance obligations of
AES Beaver Valley to SLC under the BV Partners partnership agreement. The
material payment obligations of AES Beaver Valley include obligations to fund
operation and maintenance expenses incurred in excess of certain inflation
adjusted annual amounts, limited obligations to reduce any existing deficit in
its capital account prior to dissolution of the partnership, and limited
indemnity obligations to SLC for breaches of the partnership agreement.
West Penn Power Company ("West Penn") purchases electricity produced
by the plant under a power sales contract with a remaining term of
approximately 21 years. The West Penn contract is subject to termination if
the AES Beaver Valley facility fails to deliver to West Penn 80 percent of
7
<PAGE> 95
contracted capacity (125 megawatts), excluding outages due to force majeure or
dispatching, over a five-year rolling period. BV Partners has granted to West
Penn a mortgage and security interest (subordinated to the project lenders'
liens) in BV Partners' project assets to secure the partnership's obligations
to deliver electricity.
BV Partners sells steam to ARCO Chemical Company ("ARCO Chemical")
for use in its chemical processing activities under a requirements contract
with a remaining term of approximately seven years. If ARCO Chemical ceases
operations, it may terminate the contract upon 90 days' notice to BV Partners.
AES has provided a guarantee to ARCO Chemical, as a subordinated lender to BV
Partners, which provides for payment of certain amounts of unpaid interest or
principal to ARCO Chemical under limited circumstances.
Coal for the facility is supplied pursuant to a requirements
contract with a remaining term of three years with United Pittsburgh Coal
Sales, Inc.
Electricity from the AES Beaver Valley facility is transmitted
("wheeled") to the Duquesne-West Penn interconnection pursuant to a
transmission agreement with Duquesne Light Company ("Duquesne"). Duquesne's
obligations to wheel are subject to certain limitations and, as a result,
transmission interruptions adversely affecting BV Partners' revenues could
occur. No such interruptions have occurred to date.
The plant generated revenues of $48 million in 1993, $63 million in
1994 and $63 million in 1995.
AES DEEPWATER
AES Deepwater, Inc. ("AES Deepwater"), a subsidiary of AES, owns a
143 megawatt petroleum coke-fired cogeneration facility located in Houston,
Texas. The facility sells electricity to Houston Lighting and Power Company
("HL&P") under a power sales contract which expires in 1998. The power sales
contract with HL&P was originally entered into by AES and then assigned by AES
to AES Deepwater, but HL&P, although consenting to the assignment, did not
agree to release AES from the contract. If there were a failure to deliver
power from the AES Deepwater facility to the utility, HL&P might seek to hold
AES liable under the contract. While AES is unable to predict with certainty
the amount of damages, if any, HL&P might incur in such event, AES believes
that the amount of any such damages is unlikely to be material.
AES Deepwater, under a contract which expires in 1998, also produces
and delivers process steam to an ARCO Petroleum Products Company ("ARCO
Petroleum") refinery adjacent to the cogeneration facility. Under another
agreement which also expires in 1998, ARCO Petroleum supplies petroleum coke
fuel for the plant. ARCO Petroleum is entitled to receive a majority
allocation of the plant's cash flow available after operating expenses, debt
service and a project fee available to AES Deepwater of up to $3 million each
year. AES Deepwater is entitled to a minority allocation constituting the
balance of the remaining cash flow. To date, there has not been, and there is
not expected to be in the future, sufficient cash flow to make distributions
to either ARCO Petroleum or AES Deepwater because of significant deficiencies
in cash flows required to service the project debt.
Because the price received for electricity under the HL&P power
sales contract is linked to the price of natural gas, AES Deepwater has been
unable to convert its construction loans to term loans and its cash flows from
operations have been insufficient to cover interest or to repay the principal
due at the maturity of the construction loans. In January 1995, a subsidiary
of the Company acquired the remaining 90 percent of the outstanding debt of
AES Deepwater not already owned by such subsidiary.
8
<PAGE> 96
The Company intends to actively pursue new fuel supply and power
sales contracts to take effect after the expiration of the existing contracts
in 1998. The fuel supply contract is renewable by the fuel supplier annually.
There can be no assurance that such new arrangements can be made.
AES PLACERITA
AES Placerita, Inc. ("AES Placerita"), an indirectly owned
subsidiary of AES, leases and operates a combined-cycle gas turbine
cogeneration facility near Los Angeles, California. The plant currently has
the ability to generate up to 120 megawatts of electricity while also
producing approximately 80,000 pounds per hour of steam for "enhanced oil
recovery" operations (injecting steam into existing oil wells in order to
reduce the viscosity of heavy crude and thereby facilitate its recovery).
The plant generates electricity for sale to Southern California
Edison Company ("SCE") under a Standard Offer No. 4 contract with a remaining
term of approximately 18 years. AES Placerita sells steam to Hillside Oil
Partners, which is engaged in oil recovery operations, and ARCO Oil and Gas
Company ("ARCO OGC"). Steam sales to ARCO OGC commenced in the third quarter
of 1993.
AES Placerita purchases natural gas under an agreement with a
remaining term of approximately eight years. The agreement requires AES
Placerita to nominate, take and pay for a minimum quantity of gas each year.
In order to support its working capital needs, AES Placerita has
secured from its financing parties a line of credit, currently in an amount of
$6 million. AES has committed to provide $3 million of this facility. AES has
also agreed to purchase up to an additional $3 million of AES Placerita's
obligations outstanding under this line of credit in the event the indenture
trustee under the project financing facility forecloses against the project or
AES Placerita initiates or becomes subject to bankruptcy or other debt relief
action. Depending on AES Placerita's liquidity, AES may be requested to provide
additional working capital support in the future.
As a result of several factors, including lower than anticipated oil
production, mechanical failures of the plant's steam turbine in 1991 and
excessive maintenance requirements related to the plant's gas turbines, AES
Placerita's cash flow has not been sufficient to pay any dividends to AES and
AES does not anticipate receiving dividends for the next several years.
In the fourth quarter of 1993, the Company recorded a total after
tax charge of $17 million related to the write-down of its leasehold oil
interests in connection with its original investment in enhanced oil recovery
operations at the AES Placerita facility.
The plant generated revenues of $47 million in 1993, $41 million in
1994 and $37 million in 1995.
NIGEN
NIGEN Limited ("NIGEN"), a joint venture company owned by a U.K.
subsidiary of the Company and a subsidiary of Tractebel, S.A. ("Tractebel"), a
Belgian utility, owns and operates two power plants: Kilroot, an 12-year old
520 megawatt dual-fired (coal and oil) power plant, and Belfast West, a
36-year old 240 megawatt coal-fired power plant. NIGEN has established an
employee share ownership plan under which people at both plants will be able
to own up to a maximum of 15 percent of the stock in NIGEN. As of December
31, 1995, NIGEN has made grants under the plan equal to 5 percent of its
outstanding stock.
The Kilroot and Belfast West plants have entered into power sales
contracts, subject to cancellation in 14 years and 2 years, respectively, with
Northern Ireland Electricity, plc, a
9
<PAGE> 97
transmission and distribution company, and long-term coal supply contracts, with
remaining initial terms of 11 years and 1 year, respectively, with an affiliate
of Tractebel.
NIGEN obtained original project financing from a consortium of
commercial banks. This facility was refinanced in July 1994 through the
issuance of 199 million pound sterling ($308 million) 9.5 percent secured
debentures due 2006-2010. The issuer was Kilroot Electric Limited, a special
purpose subsidiary of Kilroot Power Limited, which has guaranteed the issue.
The Kilroot and Belfast West plants have obtained working capital lines of
credit in an amount of 10 million pound sterling ($16 million) and 4 million
pound sterling ($6 million) respectively.
AES British pound sterling (pound sterling) amounts set forth in
this Report have been translated into U.S. dollar ($) amounts at an exchange
rate of $1.55/pound sterling.
SAN NICOLAS PLANT
Central Termica San Nicolas S.A. ("San Nicolas"), an Argentine
corporation which is an indirectly owned subsidiary of AES, owns and operates
a 650 megawatt power plant in San Nicolas, Argentina. AES owns approximately
69 percent of San Nicolas, a subsidiary of a U.S. utility owns approximately
19 percent, and the remaining 12 percent is owned by an employee stock
ownership plan.
San Nicolas sells a total of 345 megawatts of electricity
(approximately 55 percent of the plant's output capability) under two power
sales contracts, each with a remaining term of five years. San Nicolas's
obligations under these contracts can be fulfilled either through electricity
generated by the plant or through purchases of electricity in the Argentine
spot market. In the event neither is possible, San Nicolas will be liable
for certain penalty payments. Under one of the contracts, Empresa Social de
Energia de Buenos Aires S.A. ("ESEBA"), a distribution company controlled by
the Argentine government, purchases 285 megawatts, except during the month of
April of each year, when the amount purchased is 57 megawatts. Under the
other contract, EDELAP, S.A. ("EDELAP"), a recently privatized Argentine
distribution company, purchases 60 megawatts of electricity. The plant sells
additional electricity, when profitable, into the Argentine spot market.
The San Nicolas power plant consists of five operational generating
units, two of which are fueled with oil and coal, two of which can be fueled
with oil or natural gas and the fifth and largest (350 megawatts) of which can
be fueled by oil, natural gas, coal and/or a blend of coal and petroleum coke.
In 1995, in response to a sustained decline in the price of electricity sold
on the Argentine spot market, San Nicolas decided to remove the four older
units from base load operation and began operating such units in the market as
reserve capacity. This change included a major reduction in fixed costs,
including people. San Nicolas continues to evaluate the economic and
technical feasibility of various plant operating strategies, particularly
regarding various fuel sources and expected prices in the Argentine spot
market costs.
Up to approximately 16 percent of the power plant's fuel
requirements is supplied under a coal contract with a privatized Argentine
coal company with a remaining term of seven years. San Nicolas is required
to purchase a maximum of 370,000 metric tons of coal per year from such
supplier even if the plant is unable to use coal as a fuel source. San
Nicolas's payment obligations under the contract are supported by a bank
guaranty in an amount up to $10 million. The current amount of the bank
guaranty is approximately $7 million, and AES has guaranteed its proportionate
share ($5 million) of such guaranty to the bank. The plant's remaining fuel
needs are purchased from international sources at prices which currently are
substantially lower than the contract price.
AES may seek the return of a portion of its investments, and as a
result, San Nicolas may consider project financings, where possible. There
can be no assurance that attempts to consummate such financing, if made, will
be successful.
10
<PAGE> 98
The plant generated revenues of $130 million in 1995.
RIO JURAMENTO
In November 1995, the Company acquired a 98 percent interest in
Hidroelectrica Rio Juramento S.A. ("Rio Juramento"), which leases and operates
a 112 megawatt hydroelectric station in the province of Salta, Argentina. The
station consists of a 101 megawatt facility with a large storage reservoir
capable of inter-year storage, and an 11 megawatt facility capable of
inter-seasonal storage. The Company paid $41 million for its interest. Two
percent of the facility is owned by a participation plan for the benefit of
the employees of Rio Juramento. Rio Juramento has exclusive rights to operate
the facility under a 30-year concession agreement, and sells electricity in
the Argentine spot market.
MEDWAY POWER
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. AES Medway owns 25 percent of Medway Power and the
subsidiaries of Southern and SEEBOARD each own 37.5 percent. AES Medway
Operations Limited ("AESMO"), an indirectly owned U.K. subsidiary of AES,
managed the construction of and operates and maintains the plant.
Medway Power sells its entire electrical output through national
electricity pool trading arrangements (the "Pool") at prices based on the
supply of, and demand for, electricity available in the Pool. In addition,
Medway Power has entered into a contract with each of Southern and SEEBOARD,
under which Southern and SEEBOARD will pay Medway Power, in exchange for a
transfer of payments received by Medway Power from sales of electricity to the
Pool, capacity payments based on the plant's available capacity, and energy
cost payments, based on the plant's actual sales of electricity to the Pool,
that reflect fuel costs and variable transmission charges incurred (each a
"Contract for Differences").
Fuel for the facility will be provided by British Gas plc ("British
Gas") on an interruptible basis under a gas supply agreement with a term of
15 years. The ability of British Gas to interrupt supply, other than due to
force majeure, is limited to a specified number of days in each year and in
the aggregate over the term of the agreement. Medway Power, however, has the
benefit of a long-term fuel oil supply agreement with BP Oil UK Limited to
enable the facility to run on fuel oil during periods of natural gas supply
interruption.
Medway Power contracted with TBV Power Limited and Europower
Development Limited for the engineering, procurement and construction of the
plant under a turnkey contract. During pre-commercial start-up operations in
the second quarter of 1995, the plant began experiencing equipment
difficulties, most notably with its turbine rotors. The difficulties have
prevented Medway Power from reaching commercial operations, as such term is
defined under the Contracts for Differences. As a result, Medway Power has
not accepted the facility and released the contractor from contractual
liability. In addition, the contract for the supply of natural gas for the
facility also has not yet become effective, and Medway Power has been
purchasing natural gas for the plant in the spot market. Medway Power has
amended its engineering, procurement and construction contract, whereby the
contractor has supplied an interim solution which has allowed the facility to
engage in limited operations, and is working to provide a permanent solution
to the rotor problems at its cost. In addition, the contractor is responsible
to the joint venture for any cumulative net losses arising through July 31,
1996. 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.
11
<PAGE> 99
Under the terms of Medway Power's loan agreements, AES Medway and
its affiliates are responsible for remaining equity contributions to Medway
Power of approximately 1 million pound sterling ($2 million). In addition,
AES Medway may be required to contribute up to approximately pound sterling 5
million ($8 million) in the event of project cost overruns. Both the expected
and contingent obligations are supported by a cash-collateralized letter of
credit. An additional contingent equity contribution obligation of AES Medway
in the amount of approximately 0.4 million pound sterling ($0.6 million) is
supported by a guaranty of AES.
Under its agreements to manage the construction of and to operate
and maintain the plant, AESMO has provided a letter of credit, which may
escalate up to 2 million pound sterling ($3 million), to support its
performance. AES has also provided a guaranty of up to 3 million
pound sterling ($5 million).
While siting, initial permitting and financing risks have been
largely overcome for the Medway Power project, there exist significant risks
to successful completion, including risks of completion of construction,
additional permitting and conversion from construction financing to permanent
financing.
SAN JUAN
In March 1996, AES acquired a 98 percent 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 combustion power plant. The remaining 2 percent
is owned by a participation plan for the employees of San Juan. San Juan will
sell electricity into the Argentine spot market.
PROJECTS UNDER CONSTRUCTION
LAL PIR AND PAK GEN
Two project subsidiaries of the Company, AES Lal Pir Limited ("AES
Lal Pir") and AES Pak Gen (Private) Company ("AES Pak Gen"), are constructing
two substantially identical, adjacent 337 megawatt oil-fired facilities in
Punjab Province, Pakistan. The Water and Power Development Authority
("WAPDA") has agreed to purchase the electrical capacity and electrical output
of the facilities through two separate 30-year power sales agreements. Fuel
for the facilities will be provided by the Pakistan State Oil Company ("PSO")
pursuant to the terms of fuel supply agreements for each plant. Certain of
the obligations of WAPDA under the power sales agreements and PSO under the fuel
supply agreements are guaranteed by the Government of Pakistan.
Financing for the AES Lal Pir project was completed in May 1995 and
is comprised of (i) a 20.25 billion Yen ($197 million) commercial loan provided
by a syndicate of lenders, (ii) an International Finance Corporation ("IFC")
loan of $40 million, and (iii) equity of $95 million. The Export-Import Bank
of Japan is providing a political risk guarantee for 95 percent of the
yen-denominated loans and Nichimen Corporation is providing a similar
guarantee for the remaining 5 percent. AES will fund 90 percent of the
equity, or approximately $85 million, and 10 percent of the equity will be
provided by IFC. AES has supported certain of AES Lal Pir's pre-completion
obligations in an aggregate amount of up to $42 million, and certain
post-completion obligations in an aggregate amount of up to $59 million. Each
of these obligations will only be effective or will be terminated upon the
occurrence of future events. The financing for the AES Pak Gen project was
completed in January 1996, and consists of (i) a buyer's credit facility
established by The Export Import Bank of Japan of US$40 million and 14.203
billion Yen (US$138 million), (ii) an IFC direct loan of US$20 million, (iii) an
IFC syndicated loan of US$50 million, and (iv) equity of $95 million. IFC
will make an equity investment in AES Pak Gen of US$9.5 million. AES has
committed to fund the remaining equity of US$85.5 million. AES has supported
certain of AES Pak Gen's pre-completion obligations in an aggregate amount of
up to $42 million, and certain post-completion obligations in an aggregate
amount of up to $65 million. Each of
12
<PAGE> 100
these obligations will only be effective or will be terminated upon the
occurrence of future events. The facilities are being built by Nichimen
Corporation under two "turn-key", lump sum price contracts, with key equipment
in each case being supplied by Mitsubishi Heavy Industries. The projects are
scheduled to commence commercial operations by the end of 1997. All yen amounts
set forth in this Report have been translated into U.S. dollar ($) amounts at an
exchange rate of 103Yen/$.
Substantial risks to the successful completion of these projects
exist, including those relating to political risk, exchange rate risk,
currency inconvertibility, 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 these projects will be completed.
AES WARRIOR RUN
AES WR Limited Partnership ("AES Warrior Run"), an indirectly owned
subsidiary of AES, is currently constructing a 180 megawatt coal-fired
cogeneration facility in Allegany County, Maryland. The Potomac Edison
Company ("Potomac Edison") will purchase all of the electrical capacity of the
facility pursuant to a 30-year dispatchable power sales contract. The
earliest estimated commercial operation date for the plant is October 1, 1999.
In the event AES Warrior Run does not commence commercial operations by
October 1, 1999, AES will be liable to Potomac Edison for up to $1.4 million
of termination payments unless AES elects to pay $45,000 per month to extend
the contract for one year. AES Warrior Run supports this potential obligation
to Potomac Edison with a letter of credit and cash deposits. The project
obtained its financing in September 1995 consisting of (i) commercial bank
loan commitments of $331 million, (ii) approximately $74 million of tax-exempt
bonds issued by the Maryland Energy Financing Administration and (iii) equity
of approximately $46 million. Construction services are being performed
under a lump sum, turn-key contract by a consortium consisting of Raytheon
Engineers & Constructors, Inc. and Combustion Engineering, Inc. with key
equipment supplied by ABB, Inc. Coal will be supplied to the project under a
20-year contract.
Substantial risks to the successful completion of this project
exist, including those relating to construction and permitting, and the
possible termination of the power sales contract as a result of a failure to
meet certain construction milestones and, as a result, no assurance can be
given that this project will be completed.
OTHER PROJECTS
An affiliate of the Company, San Francisco Energy Company, LP
("SFEC"), which is a joint venture between AES and Sonat Inc., is developing a
240 megawatt gas fired facility in San Francisco, California. The electrical
capacity of the facility is to be purchased by Pacific Gas & Electric
("PG&E") under a 30-year power sales agreement, which SFEC executed in April
1994. However, a ruling by the Federal Energy Regulatory Commission ("FERC")
has questioned the validity of the California Biennial Resource Plan Update
("BRPU"), pursuant to which SFEC was awarded its contract. The Company
believes that its contract with PG&E is valid, and that the ultimate
resolution of this matter will not have a material adverse effect on the
Company. However, substantial risks to the successful completion of this
project exist, including those relating to the FERC decision, siting,
financing, construction and permitting. No assurance can be given that this
project will be completed.
Another subsidiary of the Company, AES Puerto Rico, L.P. ("AES
Puerto Rico"), is developing a 454 megawatt coal-fired cogeneration facility
in Guayama, Puerto Rico. The Puerto Rico Electricity Power Authority has
agreed to purchase the electrical output of the facility pursuant to a 25-year
power sales agreement. However, substantial risks to the successful
completion of this project exist, including those relating to governmental
approvals, financing, construction and permitting, and possible termination of
the power sales contract as a result of a failure to meet certain development
or construction milestones. There can be no assurance that this project will
be completed.
13
<PAGE> 101
A project subsidiary of the Company, AES Ib Valley Corporation ("AES
Ib Valley") has been developing a 420 megawatt coal-fired facility in the
State of Orissa, India. Under the terms of an executed power sales agreement,
the Orissa State Electricity Board "(OSEB") agreed to purchase at least 85
percent of the electrical capacity of the facility pursuant to a 30-year
contract. Certain of OSEB's obligations are guaranteed by the Government of
Orissa ("GOO"). In addition, the Government of India ("GOI") agreed to
guarantee a portion of GOO's obligations. In July 1995, a newly elected state
government initiated a review of the terms and conditions of AES Ib Valley's
agreements with OSEB and GOO. This review has led OSEB and GOO to seek
significant modifications to the terms of the power sales agreement. In light
of this review AES has been unable to reach financial closing on this project
and has been forced to terminate certain financing and contractual commitments
relating to the project. AES Ib Valley is currently in negotiation with the
GOO and OSEB and may agree to changes, including those relating to the plant's
technical configuration, capital cost, size and the price paid for
electricity. Notwithstanding the Company's willingness to discuss
modifications to the project, the Company believes that its current agreements
with GOO, OSEB and GOI are valid, and if agreements cannot be restructured on
terms acceptable to AES, the Company intends to pursue its rights with respect
to enforcement of the existing contracts. No assurance can be given that
either (i) the terms of a new contract will be agreed to or (ii) if AES
pursues its legal claims, that it will be able to compel specific performance
or recover significant damages.
In October 1993, AES established a subsidiary, AES Power, Inc., for
the purpose of participating in the developing market for wholesale bulk power
in the U.S.
In March 1994, AES China Generating Co. Ltd. ("AES Chigen")
completed an initial public offering for the sale of 10,216,000 shares of
Class A Common stock. AES owns 7,500,000 shares of AES Chigen's Class B
Common Stock, and is entitled to elect one-half of the board of directors of
AES Chigen. Certain officers of AES also serve as officers and directors of
AES Chigen. AES provides development, construction management and operations
services to AES Chigen through a project service agreement. AES Chigen will
be the Company's exclusive investment for independent power project
development and acquisition opportunities in China. AES Chigen is currently
operating 41 megawatts of oil and hydroelectric facilities, and is
constructing 108 megawatts of new generating facilities in China.
AES has dedicated significant resources to pursue the development
and acquisition of additional projects located in the United States, Europe,
Pakistan, India, Southeast Asia, South America and Africa. Most the Company's
current development and acquisition activities are in respect of projects and
plants outside the United States. Acquisitions of existing power facilities
or companies could be accomplished by the payment of cash, by an exchange of
project ownership interests or by the issuance of the Company's securities.
The Company expects that its involvement in connection with any such
acquisitions will be consistent with its overall strategy. See "Overall
Strategy" above. In particular, the Company would generally seek projects of a
relatively large size that would likely be operated by the Company, have
long-term power sales contracts, and be financed, to the maximum extent
possible, with debt on a basis that is substantially non-recourse to AES and
its other projects. Based on the Company's experience, it is likely that no
more than a few of these projects or existing plants will be developed or
acquired. As of December 31, 1995, capitalized costs for projects under
development were approximately $41 million.
REGULATORY MATTERS
AES is subject to federal, state and local energy and environmental
laws and regulations applicable to the development, ownership and operation of
its U.S. plants. Federal laws and regulations govern transactions with
utilities, the types of fuel utilized, the type of energy produced and power
plant ownership. State regulatory commissions must approve the rates and, in
some instances, other terms under which utilities purchase electricity from
qualifying independent producers. Under certain circumstances, such state
commissions may have broad jurisdiction over non-utility power plants. Power
projects also are subject to laws and regulations governing emissions and
14
<PAGE> 102
other substances produced by a plant and the geographical location, zoning,
land use and operation of a plant. Applicable federal environmental laws
typically have state and local enforcement and implementation provisions.
These environmental laws and regulations generally require that a wide variety
of permits and other approvals be obtained before construction or operation of
a power plant commences and that the facility operate in compliance therewith.
The FERC must also approve rates charged by certain activities of power
marketers such as the Company's subsidiary, AES Power.
AES also has ownership interests in operating power plants in the
United Kingdom, Argentina and, through AES Chigen, China, is constructing two
plants in Pakistan and is developing projects in numerous other countries.
U.K. projects are subject to laws and regulations similar to many of those
encountered in the United States. The generation of electricity is subject to
licensing and the supply of natural gas (the fuel for the Medway Power
project) is regulated. Governmental approvals must be obtained in order to
burn natural gas for power generation, and pollutant emissions are regulated.
In Argentina, the production, distribution and use of electricity, and term
and spot markets for electricity, are regulated by the federal, state and
local governments, and environmental emissions also are regulated at the
federal and provincial levels. Foreign power projects owned by U.S. companies
must obtain exemptions to the Public Utility Holding Company Act, as amended
("PUHCA"), several of which are available to the Company.
Qualifying Facilities ("QF") are relieved of compliance with
extensive federal, state and local regulations that control the development,
financial structure and operation of power plants and the prices at and terms
on which power plants sell energy by the provisions of the Public Utility
Regulatory Policies Act, as amended ("PURPA"). Each of AES's current domestic
plants is a QF. Loss of QF status, if not prevented, would subject these
plants to more extensive regulations, and also permit the utility customer to
terminate the power sales contract for the AES Deepwater plant and, in the
case of the AES Beaver Valley, AES Thames and AES Shady Point plants, would
permit the utility customer to pay the lesser of the price under the
respective power sales contract or the rates then in effect under Federal
Energy Regulatory Commission ("FERC") rules. The Company believes, however,
that it will usually be able to react in a manner that would avoid the loss of
QF status.
State Regulation. State public utility commissions ("PUCs")
regulate both the retail rates and financial performance of electric
utilities. Since a wholesale power sales contract is generally reflected in a
utility's retail rates, power sales contracts from IPPs are indirectly under
the regulatory purview of PUCs. PUCs often will pre-approve contracts with
prices that do not exceed avoided costs because such contracts often have been
acquired through a competitive or market-based process. Recognizing the
competitive nature of the acquisition process, most PUCs will permit utilities
to "pass through" expenses associated with an independent power contract to
the utility's retail customers, although no assurance can be given that a PUC
will attempt to deny the "pass through" of these expenses in the future. The
Company believes that any such attempt by a PUC would, among other things, be
pre-empted by federal law.
ENVIRONMENTAL REGULATIONS
The construction and operation of power projects are subject to
extensive environmental and land use regulation. Those applicable to AES
primarily involve the discharge of emissions into the water and air and the
use of water, but can also include wetlands preservation, endangered species,
waste disposal and noise regulation. These laws and regulations often require
a lengthy and complex process of obtaining licenses, permits and approvals
from federal, state and local agencies. If such laws and regulations are
changed and AES's facilities are not grandfathered, extensive modifications to
project technologies and facilities could be required.
Based on current trends, AES expects that environmental and land use
regulation in the U.S. will become more stringent. Accordingly, AES plans to
continue to place a strong emphasis on the development and use of
"best-available" technology, as required under the Clean Air Act, to minimize
the environmental impact of its energy generation.
15
<PAGE> 103
Clean Air Act. In late 1990, Congress passed the Clean Air Act
Amendments of 1990 (the "1990 Amendments"). The original Clean Air Act of
1970 set guidelines for emissions standards for major pollutants (e.g., SO2
and NOx) from newly-built sources. All of AES's domestic operating plants
perform at levels better than federal performance standards mandated for such
plants under the Clean Air Act. The 1990 Amendments attempt to reduce
emissions from existing sources -- particularly large, older power plants that
were exempted from certain regulations under the original Clean Air Act.
The hazardous air pollutant provisions of the 1990 Amendments
presently exclude electric steam generating facilities such as AES' domestic
plants. However, two studies addressing mercury and hazardous air pollutant
emissions from such facilities are in progress. The Environmental Protection
Agency's ("EPA") final study reports are scheduled to be released in 1996, and
depending on the results, could prompt EPA to promulgate regulations to
address their findings. If this occurs, AES may be required to meet
additional pollution control requirements. Further, the Ozone Transport
Assessment Group ("OTAG"), composed of state and local air regulatory
officials from the 37 eastern-most states, is considering additional NOx
emission reduction requirements that would go beyond current federal
standards. If more stringent NOx standards are adopted by EPA and/or certain
states, AES could be required to install additional NOx emission control
technology at some of its plants. In addition, the National Ambient Air
Quality Standards for ozone and particulates are also currently undergoing
review by EPA. If EPA decides to make these standards more stringent,
additional control technology requirements may be imposed on existing AES
plants. The Company does not believe that the effect of any such additional
requirements, if implemented, will have a material adverse effect on its
consolidated financial position.
Hazardous Waste Regulation. Based on a 1988 study, EPA has decided
not to regulate most coal combustion ash as a hazardous waste; however, EPA
reserved making a decision with respect to coal ash from fluidized bed
combustion (the burning of coal in the presence of limestone), which is still
being evaluated by the Agency. If EPA decides to regulate fluidized bed coal
ash as a hazardous or special waste, AES could incur additional ash disposal
costs to dispose of ash from its plants that utilize fluidized bed boilers.
PROPOSED LEGISLATION
There is consideration in the U.S. Congress of legislation to repeal
PURPA entirely, or at least to repeal the obligation of utilities to purchase
from QFs. There is strong support for grandfathering existing QF contracts if
such legislation is passed, and also support for requiring utilities to
conduct competitive bidding for new electric generation if the PURPA purchase
obligation is eliminated. Various bills have also proposed repeal of PUHCA.
Repeal of PUHCA would allow both independents and vertically integrated
utilities to acquire retail utilities in the United States that are
geographically widespread, as opposed to the current limitations of PUHCA
which require that retail electric systems be capable of physical integration.
Also, registered holding companies would be free to acquire non-utility
businesses, which they may not do now, with certain limited exceptions. With
the repeal of PURPA or PUHCA, competition for independent power generators
from vertically integrated utilities would likely increase. The Company does
not believe that the effect of any such repeal will have a material adverse
effect on its consolidated financial position.
In addition, the FERC, many state PUCs and Congress are currently
studying a number of proposals to restructure the electric utility industry in
the United States to permit utility customers to choose their utility supplier
in a competitive electric energy market. The FERC has issued a proposed
rulemaking to require utilities to offer wholesale customers and suppliers
open access on their transmission lines on a comparable basis to the
utilities' own use of the lines. The FERC plans to issue a final rule in
1996, but many utilities have already filed "open access" tariffs. The
utilities contend that they should recover from departing customers their
fixed costs that will be "stranded" by the ability of their wholesale
customers (and perhaps eventually, their retail customers) to choose new
electric power suppliers. These include the costs utilities are required to
pay under many QF contracts
16
<PAGE> 104
which the utilities view as excessive when compared with current market prices.
Many utilities are therefore seeking ways to lower these contract prices or
rescind the contracts altogether, out of concern that their shareholders will be
required to bear all or part of such "stranded" costs. Some utilities have
engaged in litigation against QFs to achieve these ends. In addition, future
U.S. electric rates may be deregulated in a restructured U.S. electric utility
industry and increased competition may result in lower rates and less profit for
U.S. electricity sellers. Falling electricity prices and uncertainty as to the
future structure of the industry is inhibiting United States utilities entering
into long-term power purchase contracts. The effect of any such restructuring
on the Company cannot be predicted, although the Company does not believe that
any such restructuring will have a material adverse effect on its consolidated
financial position.
EMPLOYEES
At December 31, 1995, AES and its subsidiaries employed
approximately 800 people, approximately 685 of whom are involved in
operations or construction. Approximately 51 people are covered by a
collective bargaining agreement at the AES Beaver Valley plant. The total
number of people employed in facilities which AES operates or has an equity
interest is approximately 1250.
(d) Financial Information About Foreign and Domestic Operations and
Export Sales
See the information contained under the caption "Geographic
Segments" on page 46 of the Registrant's 1995 Annual Report to stockholders,
which information is incorporated herein by reference.
ITEM 1A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following is certain information concerning the executive
officers of the Company.
Roger W. Sant, 64 years old, co-founded the Company with Dennis
Bakke in 1981. He has been Chairman of the Board and a director of the
Registrant since its inception, and he held the office of Chief Executive
Officer through December 31, 1993. He currently is Chairman of the Board of
Directors of AES Chigen, an affiliate of the Registrant and The World Wildlife
Fund U.S., and serves on the Board of Directors of The World Resources
Institute, World Wide Fund for Nature, and Marriott International, Inc., and
serves on the National Council for The Environmental Defense Fund. He was
Assistant Administrator for Energy Conservation and the Environment of the
Federal Energy Agency (FEA) from 1974 to 1976 and the Director of the Energy
Productivity Center, an energy research organization affiliated with The
Mellon Institute at Carnegie-Mellon University, from 1977 to 1981.
Dennis W. Bakke, 50 years old, co-founded the Registrant with Roger
Sant in 1981 and has been a director of the Registrant since 1986. He has
been President of the Registrant since 1987 and Chief Executive Officer since
January 1, 1994. He currently is a director of AES Chigen. From 1987 to
1993, he served as Chief Operating Officer of the Registrant; from 1982 to
1986, he served as Executive Vice President of the Registrant; and from 1985
to 1986 he also served as Treasurer of the Registrant. He served with Mr.
Sant as Deputy Assistant Administrator of the FEA from 1974 to 1976 and as
Deputy Director of the Energy Productivity Center from 1978 to 1981. He is a
trustee of Geneva College.
Robert F. Hemphill, Jr., 52 years old, has been Executive Vice
President of the Registrant since 1987. From 1984 to 1987, he was Senior Vice
President and from 1982 to 1984 he served as a Vice President for project
development. He currently is Vice Chairman of AES Chigen, and served as
President and Chief Executive Officer of AES Chigen from December 1993 until
February 1995.
Kenneth R. Woodcock, 52 years old, has been Senior Vice President
for business development of the Registrant since 1987. From 1984 to 1987, he
served as a Vice President for business development.
17
<PAGE> 105
Thomas A. Tribone, 43 years old, has been Senior Vice President of
the Registrant since 1990, and now heads an AES division responsible for power
marketing, project development, construction and plant operations in South and
Central America. From 1987 to 1990 he served as Vice President for project
development and from 1985 to 1987 he served as project director of the AES
Shady Point plant. He currently is as a director of AES Chigen.
Mark S. Fitzpatrick, 45 years old, has served as a Vice President of
the Registrant since 1987, and became Managing Director of Applied Energy
Services Electric Limited for the United Kingdom and Western Europe operations
in 1990. From 1984 to 1987, he served as a project director of the AES Beaver
Valley and AES Thames projects.
David G. McMillen, 57 years old, was named Vice President of the
Company in December 1991. He was named President of AES Shady Point in 1995
and is currently plant manager of the AES Shady Point Plant. He was President
of AES Thames from 1989 to 1995. From 1985 to 1988, he served as plant
manager of the AES Beaver Valley plant and from 1986 to 1988 he served as
President of AES Beaver Valley.
Dr. Roger F. Naill, 48 years old, has been Vice President for
planning since 1981. Prior to joining the Registrant, Dr. Naill was Director
of the Office of Analytical Services at the U.S. Department of Energy.
Barry J. Sharp, 36 years old, has been Vice President and Chief
Financial Officer since 1987. He also served as Secretary of the Registrant
until February 1996. From 1986 to 1987, he served as Director of Finance and
Administration. Mr. Sharp is a CPA.
J. Stuart Ryan, 37 years old, was appointed Vice President of the
Registrant effective January 1, 1994, and heads an AES division responsible
for project development, construction and plant operations in Asia (excluding
China), California and Hawaii. He served as general manager of a group within
AES from 1988 to 1993.
Paul T. Hanrahan, 38 years old, was appointed Vice President of the
Registrant effective January 1, 1994. He currently is President and Chief
Executive Officer of AES Chigen, where he served as Executive Vice President,
Chief Operating Officer and Secretary from December 1993 until February 1995.
He was General Manager of AES Transpower, Inc., a subsidiary of the
Registrant, from 1990 to 1993.
ITEM 2. PROPERTIES
The Registrant leases its principal office in Arlington, Virginia.
The Arlington lease expires in April 1999, and the Registrant has two renewal
options thereafter for five years each. Subsidiaries of the Registrant also
lease office space in Richmond, England; San Francisco, California; San Juan,
Puerto Rico; Hong Kong; Beijing, China; Singapore; Buenos Aires, Argentina;
New Delhi, India; Lahore, Pakistan; and Sao Paolo, Brazil, none of which
leases or leased premises is material.
The following table shows the material properties owned or leased by
the Registrant, its subsidiaries, partnerships or affiliated plants. All of
these properties are subject to mortgages or other liens or encumbrances
granted to the lenders providing financing for the plant or project.
18
<PAGE> 106
<TABLE>
<CAPTION>
Ownership
Interest to
Plant or Project Location Land Plant Description
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AES Beaver Valley Monaca, Pennsylvania Leased Coal-fired cogeneration power
plant
AES Placerita Newhall, California Leased Natural gas-turbine power plant
AES Thames Montville, Connecticut Leased Coal-fired cogeneration power
plant
AES Shady Point LeFlore County, Owned Coal-fired cogeneration
Oklahoma facility and liquid carbon
dioxide power plant
AES Barbers Point Oahu, Hawaii Leased Coal-fired power plant
Kilroot Belfast Lough, Leased Coal and oil-fired power plant
Northern Ireland
Belfast West Belfast Port, Northern Leased Coal-fired power plant
Ireland
San Nicolas San Nicolas, Argentina Owned Power plant fueled by coal,
oil, gas or petroleum coke
Medway Isle of Grain, England Leased Gas-fired power plant
AES Warrior Run Cumberland, Maryland Owned Coal-fired power plant under
construction
AES Lal Pir and Pak Gen Punjab, Pakistan Owned Oil-fired power plants under
construction
Rio Juramento Salta, Argentina Leased Hydroelectric power plant
San Juan San Juan, Argentina Leased Hydroelectric power plant
Hunan Xiangci-AES Hydro Hunan Province, Land Use Hydroelectric power plant
Power Company Ltd. People's Republic of Right
China
Wuxi-AES-CARE Gas Turbine Jiangsu Province, Land Use Oil-fired Gas Turbine power
Power Company Ltd. People's Republic of Right plant currently under
China construction
Wuxi-AES-Zhonghang Power Jiangsu Province, Land Use Heat Recovery Steam Turbine
Company Ltd. People's Republic of Right power plant currently under
China construction
</TABLE>
19
<PAGE> 107
<TABLE>
<S> <C> <C> <C>
Yangchun Fuyang Diesel Guangdong Province, Land Use Diesel power plant
Engine Power Co. Ltd. People's Republic of Right
China
Sichuan Fuling Aixi Power Sichuan Province, Land Use Coal-fired Circulating
Company Ltd. People's Republic of Right Fluidized Bed Boiler power
China plant currently under
construction
- -----------------------------------------------------------------------------------------------------
</TABLE>
ITEM 3. 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 this matter will not have
a material adverse effect on its consolidated financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) Market Information
20
<PAGE> 108
See the information contained under the caption "Price Range of
Common Stock" on page 48 of the Registrant's 1995 Annual Report to
Stockholders, which information is incorporated herein by reference.
(b) Holders
On March 27, 1996, there were 791 record holders of Registrant's
Common Stock, par value $0.01 per share.
(c) Dividends
On December 7, 1993, the Board of Directors authorized a
three-for-two stock split, effected in the form of a stock dividend, payable
to stockholders of record on January 15, 1994. In addition, on February 17,
1994 the Board of Directors authorized a 3 percent stock dividend payable to
stockholders of record on March 10, 1994. Accordingly, all outstanding share
and per share data in all periods presented in Exhibit 11.1 and Item 6 of this
Report have been restated to reflect the split and the stock dividend. On
February 14, 1995, the Board of Directors decided to not issue either a cash
or stock dividend.
Under the terms of a corporate revolving loan and letters of credit
facility of $225 million entered into with a commercial bank syndicate, the
Company is currently prohibited from paying cash dividends. In addition, the
Registrant is precluded from paying cash dividends on its Common Stock under
the terms of a guaranty to the utility customer in connection with the AES
Thames project in the event certain net worth and liquidity tests of the
Registrant are not met. The Registrant has met these tests at all times since
making the guaranty.
The ability of the Registrant's project subsidiaries to declare and
pay cash dividends to the Registrant is subject to certain limitations in the
project loan and other documents entered into by such project subsidiaries.
Such limitations permit the payment of cash dividends out of current cash flow
for quarterly, semiannual or annual periods only at the end of such periods
and only after payment of principal and interest on project loans due at the
end of such periods, and in certain cases after providing for debt service
reserves. As of December 31, 1995, approximately $59 million was available
under project loan documents for distribution by subsidiaries to the
Registrant.
ITEM 6. SELECTED FINANCIAL DATA
See "Summary Financial Data" on page 48 of the Registrant's 1995
Annual Report to Stockholders, which information is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
See those portions of "1995 Financial Review" contained on pages 19
through 20, 22 through 25 inclusive, and 29 through 31 inclusive of the
Registrant's 1995 Annual Report to Stockholders, which discussion and analysis
are incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the information contained in the consolidated financial
statements on pages 20, 21, 26 through 28 inclusive, and 32 through 47
inclusive of the Registrant's 1995 Annual Report to Stockholders, which
information is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
21
<PAGE> 109
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See the information with respect to the ages of the Registrant's
directors in the table on page 4 and the information contained under the
caption "Election of Directors" on pages 1 through 3 inclusive, of the Proxy
Statement for the Annual Meeting of Stockholders of the Registrant to be held
on April 16, 1996, which information is incorporated herein by reference. See
also the information with respect to executive officers of the Registrant
under Item 1A of Part I hereof, which information is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
See the information contained under the captions "Compensation of
Executive Officers" on pages 9 through 11 inclusive and "Compensation of
Directors" on page 5, of the Proxy Statement for the Annual Meeting of
Stockholders of the Registrant to be held on April 16, 1996, which information
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
See the information contained under the caption "Security Ownership
of Certain Beneficial Owners, Directors, and Executive Officers" on page 4 of
the Proxy Statement for the Annual Meeting of Stockholders of the Registrant
to be held on April 16, 1996, which information is incorporated herein by
reference.
(b) Security Ownership of Management
See the information contained under the caption "Security Ownership
of Certain Beneficial Owners, Directors, and Executive Officers" on page 4 of
the Proxy Statement for the Annual Meeting of Stockholders of the Registrant
to be held on April 16, 1996, which information is incorporated herein by
reference.
(c) Changes in Control
Not applicable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the information contained under the caption "Certain
Relationships and Related Transactions" on page 3 of the Proxy Statement,
which information as incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements, Financial Statement Schedules and
Exhibits.
(1) Financial Statements (all financial statements listed below are
of the Company and its consolidated subsidiaries)
-- Report of Independent Public Accountants is incorporated
herein by reference to page 20 of the Registrant's 1995
Annual Report to Stockholders.
22
<PAGE> 110
-- Consolidated Balance Sheets at December 31, 1994 and 1995
are incorporated herein by reference to pages 26 and 27 of
the Registrant's 1995 Annual Report to Stockholders.
-- Consolidated Statements of Operations -- For the Years
Ended December 31, 1993, 1994 and 1995 are incorporated
herein by reference to page 28 of the Registrant's 1995
Annual Report to Stockholders.
-- Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1993, 1994 and 1995 are
incorporated herein by reference to pages 41 and 42 of the
Registrant's 1995 Annual Report to Stockholders.
-- Consolidated Statements of Cash Flows -- For the Years
Ended December 31, 1993, 1994 and 1995 are incorporated
herein by reference to page 21 of the Registrant's 1995
Annual Report to Stockholders.
-- Notes to Consolidated Financial Statements -- For the
Years Ended December 31, 1993, 1994 and 1995 are
incorporated herein by reference to pages 32 through 47
inclusive of the Registrant's 1995 Annual Report to
Stockholders.
(2) Financial Statement Schedules
-- See Index to Financial Statement Schedules of the
Registrant and subsidiaries at page S-1 hereof, which
Index is incorporated herein by reference.
(3) Exhibits
3.1 Amended and Restated Certificate of Incorporation of
The AES Corporation is incorporated herein by reference
to Exhibit 3.1 to the Registration Statement on Form
S-1 (Registration No. 33-40483).
3.2 By-Laws of The AES Corporation, as amended, are
incorporated herein by reference to Exhibit 3.2 to
Amendment No. 2 to the Registration Statement on Form
S-1 (Registration No.E33-40483).
4.1(a) Indenture dated as of March 1, 1992 between The AES
Corporation and Morgan Guaranty Trust Company of New
York, including the form of 6 1/2 percent Convertible
Subordinated Debenture Due 2002, is incorporated herein
by reference to Exhibit 4.1 to the Annual Report on
Form 10-K of the Registrant for the fiscal year ended
December 31, 1992.
4.1(b) Indenture dated as of June 15, 1993 between The AES
Corporation and The Bank of New York, including the
form of 9 3/4 percent Senior Subordinated Note Due
2000, is incorporated herein by reference to Amendment
No. 1 to the Registration Statement on Form S-3
(Registration No. 33-62910).
10.1 Agreement for Purchased Power, dated January 10, 1983,
between AES and Houston Lighting & Power Company, as
amended, is incorporated herein by reference to Exhibit
10.1 to the Registration Statement on Form S-1
(Registration No. 33-40483).
23
<PAGE> 111
10.2 Electric Energy Purchase Agreement, dated August 15,
1985, between BV Partners and West Penn Power Company
is incorporated herein by reference to Exhibit 10.2 to
the Registration Statement on Form S-1 (Registration
No. 33-40483).
10.3 Power Purchase Contract, dated November 14, 1984,
between Southern California Edison Company and AES
Placerita, Inc. is incorporated herein by reference to
Exhibit 10.3 to the Registration Statement on Form S-1
(Registration No. 33-40483).
10.4 Amendment No. 1 effective February 5, 1988 to the Power
Purchase Agreement between AES Placerita, Inc. and
Southern California Edison Company, is incorporated
herein by reference to Exhibit 10.3(a) to the Annual
Report on Form 10-K of the Registrant for the fiscal
year ended December 31, 1992.
10.5 Amendment No. 2 executed as of March 20, 1992 to the
Power Purchase Contract between AES Placerita, Inc. and
Southern California Edison Company, is incorporated
herein by reference to Exhibit 10.3(b) to the Annual
Report on Form 10-K of the Registrant for the fiscal
year ended December 31, 1992.
10.6 Amendment No. 3 executed as of March 20, 1992 to the
Power Purchase Contract between AES Placerita, Inc. and
Southern California Edison Company, is incorporated
herein by reference to Exhibit 10.3(c) to the Annual
Report on Form 10-K of the Registrant for the fiscal
year ended December 31, 1992.
10.7 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).
10.8 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).
10.9 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).
10.10 Amended and Restated Agreement for the Purchase of Firm
Capacity and Energy, dated as of July 2, 1990, between
AES Cedar Bay, Inc. and Florida Power & Light Company
is incorporated herein by reference to Exhibit 10.7 to
the Registration Statement on Form S-1 (Registration
No. 33-40483).
10.11 Indemnity and Assumption Agreement, dated as of March
31, 1993, between Cedar Bay Generating Company, Limited
Partnership and The AES Corporation is incorporated by
reference to Exhibit 10.7(b) to the Company's
Registration Statement on Form S-3 (Registration No.
33-62858).
24
<PAGE> 112
10.12 Amended and Restated Coal Supply Agreement, dated April
13, 1988, between BV Partners and United Pittsburgh
Coal Sales, Inc. is incorporated herein by reference to
Exhibit 10.8 to the Registration Statement on Form S-1
(Registration No. 33-40483).
10.13 Coal and Limestone Supply and Ash Disposal Agreement,
dated as of September 15, 1988, between LeFlore County
Coal Company and AES Shady Point, Inc., as amended, is
incorporated herein by reference to Exhibit 10.9 to the
Registration Statement on Form S-1 (Registration No.
33-40483).
10.14 Coal and Limestone Supply and Ash Disposal Agreement,
dated August 15, 1988, between P&K Co., Ltd. and AES
Shady Point, Inc. is incorporated herein by reference to
Exhibit 10.10 to Amendment No. 3 to the Registration
Statement on Form S-1 (Registration No. 33-40483).
10.15 Coal, Limestone, Waste Disposal and Railroad
Transportation Agreement, dated as of September 18,
1986, between CSX Transportation, Inc. and AES Thames,
Inc., as amended, is incorporated herein by reference
to Exhibit 10.11 to the Registration Statement on Form
S-1 (Registration No. 33-40483).
10.16 Amended and Restated Fuel Supply Agreement, dated as of
January 12, 1990, among AES Barbers Point, Inc., PT
Kaltim Prima Coal and Sprague Energy Corp., as amended,
is incorporated herein by reference to Exhibit 10.12 to
Amendment No. 3 to the Registration Statement on Form
S-1 (Registration No. 33-40483).
10.17 Gas Purchase Agreement, entered into in 1988, between
Union Pacific Resources Company and AES Placerita, Inc.
is incorporated herein by reference to Exhibit 10.13 to
Amendment No. 3 to the Registration Statement on Form
S-1 (Registration No. 33-40483).
10.18 Inducement, Assignment and Stock Pledge Agreement,
dated as of December 27, 1983, between Applied Energy
Services, Inc. and The Connecticut Bank and Trust
Company, National Association is Inc. herein by
reference to Exhibit 10.16 to the Registration
Statement on Form S-1 (Registration No. 33-40483).
10.19 Amended and Restated Guarantee, dated as of November
30, 1990, by Applied Energy Services, Inc. and AES
Connecticut Management, Inc. to The Connecticut Light
and Power Company is incorporated herein by reference
to Exhibit 10.17 to the Registration Statement on Form
S-1 (Registration No. 33-40483).
10.20 Guarantee Agreement, dated March 25, 1988, between
Applied Energy Services Inc. and Hawaiian Electric
Company, Inc., as amended, is incorporated herein by
reference to Exhibit 10.18 to the Registration
Statement on Form S-1 (Registration No. 33-40483).
10.21 Application for Letter of Credit and Reimbursement
Agreement, dated as of June 23, 1987, among AES Shady
Point, Inc., Security Pacific National Bank, Union
Bank, Credit Suisse, New York Branch, The Bank of Nova
Scotia and Standard Chartered Bank is incorporated
herein by reference
25
<PAGE> 113
to Exhibit 10.20 to the Registration Statement on Form
S-1 (Registration No. 33-40483).
10.22 Amended and Restated Credit Agreement, dated as of
November 30, 1990, among AES Montville, Inc., certain
banks named therein and Citibank, N.A., as agent, is
incorporated herein by reference to Exhibit 10.21 to
the Registration Statement on Form S-1 (Registration
No. 33-40483).
10.23 Ground Lease, dated as of August 15, 1985, between
Atlantic Richfield Company and BV Partners is
incorporated herein by reference to Exhibit 10.22 to
the Registration Statement on Form S-1 (Registration
No. 33-40483).
10.24 Facility Lease and Loan Agreement, dated as of August
15, 1988, between Manufacturers Hanover Trust Company
of California and AES Placerita, Inc. is incorporated
herein by reference to Exhibit 10.23 to the Registration
Statement on Form S-1 (Registration No. 33-40483).
10.25 Surface Lease, dated December 9, 1985, among Mobil Oil
Corporation, Tosco Enhanced Oil Recovery Corporation
and AES Placerita, Inc. is incorporated herein by
reference to Exhibit 10.24 to the Registration
Statement on Form S-1 (Registration No. 33-40483).
10.26 Surface Sublease, dated as of August 15, 1988, between
AES Placerita, Inc. and Manufacturers Hanover Trust
Company of California, as Trustee, is incorporated
herein by reference to Exhibit 10.25 to the
Registration Statement on Form S-1 (Registration No.
33-40483).
10.27 Ground Lease, dated as of November 25, 1986, between
Stone Connecticut Paperboard Corporation and AES
Thames, Inc., as amended, is incorporated herein by
reference to Exhibit 10.26 to the Registration
Statement on Form S-1 (Registration No. 33-40483).
10.28 Sublease, dated as of August 20, 1990, between Hawaii
Pacific Industries, Inc. and AES Barbers Point, Inc.,
as amended, is incorporated herein by reference to
Exhibit 10.27 to the Registration Statement on Form S-1
(Registration No. 33-40483).
10.29 The AES Corporation Profit Sharing and Stock Ownership
Plan is incorporated herein by reference to Exhibit 4c1
to the Registration Statement on Form S-8 (Registration
No. 33-49262).*
10.30 The AES Corporation Incentive Stock Option Plan of
1991, as amended.
10.31 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).*
10.32 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).
10.33 Deferred Compensation Plan for Directors, as amended,
is incorporated herein by reference to Exhibit 10.33 to
Amendment No. 1 to the Registration Statement on Form
S-1 (Registration No. 33-40483).*
26
<PAGE> 114
10.34 Assumption Agreement, dated as of November 30, 1990
among AES Montville, Inc., AES Thames, Inc. and
Citibank, N.A., as agent, is incorporated herein by
reference to Exhibit 10.35 to Amendment No. 1 to the
Registration Statement on Form S-1 (Registration No.
33-40483).
10.35 Credit and Reimbursement Agreement, dated as of March
20, 1990, among AES Barbers Point, Inc., certain banks
named therein and Security Pacific National Bank, as
agent, is incorporated herein by reference to Exhibit
10.36 to Amendment No. 1 to the Registration Statement
on Form S-1 (Registration No. 33-40483).
10.36 Agreement for Engineering, Procurement and Construction
Services, dated as of August 24, 1989, between AES
Barbers Point, Inc. and Multipower Associates is
incorporated herein by reference to Exhibit 10.40 to
Amendment No. 3 to the Registration Statement on Form
S-1 (Registration No. 33-40483).
10.37 Transmission Agreement, dated as of August 28, 1985,
between Duquesne Light Company and AES Beaver Valley,
Inc. is incorporated herein by reference to Exhibit
10.42 to Amendment No. 1 to the Registration Statement
on Form S-1 (Registration No. 33-40483).
10.38 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.*
10.39 Subordinated Debt Agreement between AES Shady Point,
Inc. and The AES Corporation dated as of December 6,
1991 is incorporated herein by reference to Exhibit
10.44 to the Registration Statement on Form S-1
(Registration No. 33-46011).
10.40 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).
10.41 Revolving Loan Agreement dated as of July 1, 1991
between Manufacturers Hanover Trust Company of
California, The AES Corporation, Ford Motor Credit
Company, Prudential Interfunding Corporation, AES
Placerita, Inc., ABB Energy Services Inc. and ABB
Energy Ventures Inc. is incorporated herein by
reference to Exhibit 10.46 to the Registration
Statement on Form S-1 (Registration No. 33-46011).
10.42 Amendment No. 1 dated as of July 16, 1987 to
Application for Letter of Credit and Reimbursement
Agreement, dated as of June 23, 1987, among AES Shady
Point, Inc., Security Pacific National Bank, Union
Bank, Credit Suisse, New York Branch, The Bank of Nova
Scotia and Standard Chartered Bank is incorporated
herein by reference to Exhibit 10.47 to the
Registration Statement on Form S-1 (Registration No.
33-46011).
10.43 Amendment No. 2 dated as of December 18, 1987 to
Application for Letter of Credit and Reimbursement
Agreement, dated as of June 23, 1987, among AES Shady
Point, Inc., Security Pacific National Bank, Union
Bank, Credit Suisse, New York Branch, The Bank of Nova
Scotia and Standard
27
<PAGE> 115
Chartered Bank is incorporated herein by reference to
Exhibit 10.48 to the Registration Statement on Form S-1
(Registration No. 33-46011).
10.44 Amendment No. 3 dated as of June 3, 1988 to Application
for Letter of Credit and Reimbursement Agreement, dated
as of June 23, 1987, among AES Shady Point, Inc.,
Security Pacific National Bank, Union Bank, Credit
Suisse, New York Branch, The Bank of Nova Scotia and
Standard Chartered Bank is incorporated herein by
reference to Exhibit 10.49 to the Registration
Statement on Form S-1 (Registration No. 33-46011).
10.45 Amendment No. 4 dated as of July 1, 1991 to Application
for Letter of Credit and Reimbursement Agreement, dated
as of June 23, 1987, among AES Shady Point, Inc.,
Security Pacific National Bank, Union Bank, Credit
Suisse, New York Branch, The Bank of Nova Scotia and
Standard Chartered Bank is incorporated herein by
reference to Exhibit 10.50 to the Registration
Statement on Form S-1 (Registration No. 33-46011).
10.46 Amendment No. 5 dated as of December 6, 1991 to
Application for Letter of Credit and Reimbursement
Agreement, dated as of June 23, 1987, among AES Shady
Point, Inc., Security Pacific National Bank, Union
Bank, Credit Suisse, New York Branch, The Bank of Nova
Scotia and Standard Chartered Bank is incorporated herein
by reference to Exhibit 10.51 to the Registration
Statement on Form S-1 (Registration No. 33-46011).
10.47 Guarantee letter agreement dated July 17, 1990 executed
by Applied Energy Services, Inc. in favor of Florida
Power & Light Company, is incorporated herein by
reference to Exhibit 10.53 to the Annual Report on Form
10-K of the Registrant for the fiscal year ended
December 31, 1992.
10.48 Agreement for the sale and purchase of the whole of the
issued share capital of Kilroot Power Limited, Belfast
West Power Limited and Cloghan Point (Holdings) Limited
dated March 6, 1992 between The Department of Economic
Development, Nigen Limited, The AES Corporation and
Powerfin S.A., is incorporated herein by reference to
Exhibit 10.54 to the Annual Report on Form 10-K of the
Registrant for the fiscal year ended December 31, 1992.
10.49 Variation Agreement dated May 31, 1992 between Cloghan
Limited, The Department of Economic Development, Nigen
Limited, The AES Corporation and Powerfin S.A., is
incorporated herein by reference to Exhibit 10.55 to
the Annual Report on Form 10-K of the Registrant for
the fiscal year ended December 31, 1992.
10.50 Lease of Belfast West Power Station dated April 1, 1992
between Northern Ireland Electricity plc and Belfast
West Power Limited, is incorporated herein by reference
to Exhibit 10.56 to the Annual Report on Form 10-K of
the Registrant for the fiscal year ended December 31,
1992.
10.51 Lease of Kilroot Power Station dated April 1, 1992
between Northern Ireland Electricity plc and Kilroot
Power Limited, is incorporated herein by reference to
Exhibit 10.57 to the Annual Report on Form 10-K of the
Registrant for the fiscal year ended December 31, 1992.
10.52 Facility Agreement dated May 31, 1992 between Nigen
Limited, Barclays Bank PLC and National Westminster
Bank Plc as Lead Arrangers, ABN
28
<PAGE> 116
AMRO Bank N.V., Banque Indosuez, Barclays Bank PLC, The
Industrial Bank of Japan, Limited and National
Westminster Bank Plc as arrangers, Generale Bank S.A./NV
as sponsor relationship bank, Barclays Bank PLC as agent,
Ulster Bank Limited and the financial institutions named
in the first schedule thereto, is incorporated herein by
reference to Exhibit 10.58 to the Annual Report on Form
10-K of the Registrant for the fiscal year ended December
31, 1992.
10.53 Coal and Oil Supply Contract for Kilroot Power Station
dated May 31, 1992 between Powerfin S.A., Tractebel
S.A. and Kilroot Power Limited, is incorporated herein
by reference to Exhibit 10.59 to the Annual Report on
Form 10-K of the Registrant for the fiscal year ended
December 31, 1992.
10.54 Coal Supply Contract for Belfast West Power Station
dated May 31, 1992 between Powerfin S.A., Tractebel
S.A. and Belfast West Power Limited, is incorporated
herein by reference to Exhibit 10.60 to the Annual
Report on Form 10-K of the Registrant for the fiscal
year ended December 31, 1992.
10.55 Agreement in Respect of Kilroot Power Station
Generating Unit GT1 dated April 1, 1992 between Kilroot
Power Limited and Northern Ireland Electricity plc., is
incorporated herein by reference to Exhibit 10.61 to
the Annual Report on Form 10-K of the Registrant for
the fiscal year ended December 31, 1992.
10.56 Schedule identifying a substantially identical
agreement to the Agreement constituting Exhibit 10.61
hereto entered into between Kilroot Power Limited and
Northern Ireland Electricity plc., is incorporated
herein by reference to Exhibit 10.61(a) to the Annual
Report on Form 10-K of the Registrant for the fiscal
year ended December 31, 1992.
10.57 Agreement in Respect of Kilroot Power Station
Generating Unit No. 1 dated April 1, 1992 between
Kilroot Power Limited and Northern Ireland Electricity
plc., is incorporated herein by reference to Exhibit
10.62 to the Annual Report on Form 10-K of the
Registrant for the fiscal year ended December 31, 1992.
10.58 Schedule identifying a substantially identical
agreement to the Agreement constituting Exhibit 10.62
hereto entered into between Kilroot Power Limited and
Northern Ireland Electricity plc., is incorporated
herein by reference to Exhibit 10.62(a) to the Annual
Report on Form 10-K of the Registrant for the fiscal
year ended December 31, 1992.
10.59 Agreement in Respect of Belfast West Power Station
Generating Unit No. 1 dated April 1, 1992 between
Belfast West Power Limited and Northern Ireland
Electricity plc., is incorporated herein by reference
to Exhibit 10.63 to the Annual Report on Form 10-K of
the Registrant for the fiscal year ended December 31,
1992.
10.60 Schedule identifying substantially identical agreements
to the Agreement constituting Exhibit 10.63 hereto
entered into between Belfast West Power Limited and
Northern Ireland Electricity plc., is incorporated
herein by reference to Exhibit 10.63(a) to the Annual
Report on Form 10-K of the Registrant for the fiscal
year ended December 31, 1992.
29
<PAGE> 117
10.61 $225,000,000 Credit Agreement dated as of September 8,
1995 among The AES Corporation, the Banks listed
therein, Barclays Bank PLC and Union Bank, as Fronting
Banks, Barclays Banks PLC, as Managing Agents, and
Morgan Guaranty Trust Company of New York, as Agent is
incorporated herein by reference to Exhibit 10.64 to
the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 1995.
10.62 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.
10.63 Sponsors' Support Agreement dated as of May 16, 1995
among AES Transpower, Inc. and The AES Corporation as
Sponsors; AES Lal Pir Limited as the Borrower; the
International Finance Corporation and The Bank of
Tokyo, Ltd. as Facility Agents.
10.64 Sponsors' Support Agreement dated as of January 5,
1996 among The AES Corporation as Sponsor; AES Pakistan
Holdings and AES Pak Gen Holdings, Inc. as Sponsors and
Shareholders; AES Pak Gen (Private) Company as
Borrower; the International Finance Corporation and The
Bank of Tokyo, Ltd. as Facility Agents.
11 Statement of computation of earnings per share.
12 Statement of computation of ratio of earnings to fixed
charges.
13 1995 Annual Report to Stockholders of the Registrant.
21 Significant subsidiaries of The AES Corporation.
23 Consent of Independent Public Accountants, Deloitte &
Touche LLP.
24 Power of Attorney.
(b) Reports on Form 8-K
Not applicable.
30
<PAGE> 118
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: April 1, 1996
THE AES CORPORATION
(COMPANY)
By:/s/Dennis W. Bakke
------------------
Dennis W. Bakke
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, this report has been signed below by the following persons on
behalf of Company and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C>
/s/Roger W. Sant* Chairman of the Board April 1, 1996
- -------------------------------
Roger W. Sant
/s/Dennis W. Bakke President, Chief Executive Officer and April 1, 1996
- ------------------------------- Director (Principal Executive Officer)
Dennis W. Bakke
/s/Vicki-Ann Assevero* Director April 1, 1996
- -------------------------------
Vicki-Ann Assevero
/s/Dr. Alice F. Emerson* Director April 1, 1996
- -------------------------------
Dr. Alice F. Emerson
/s/Frank Jungers* Director April 1, 1996
- -------------------------------
Frank Jungers
/s/Dr. Henry R. Linden* Director April 1, 1996
- -------------------------------
Dr. Henry R. Linden
/s/Russell E. Train* Director April 1, 1996
- -------------------------------
Russell E. Train
</TABLE>
<PAGE> 119
<TABLE>
<S> <C> <C>
/s/Thomas I. Unterberg* Director April 1, 1996
- -------------------------------
Thomas I. Unterberg
/s/Robert H. Waterman, Jr.* Director April 1, 1996
- -------------------------------
Robert H. Waterman, Jr.
/s/Barry J. Sharp Vice President and Chief Financial April 1, 1996
- ------------------------------- Officer (Principal Financial and Accounting
Barry J. Sharp Officer)
*By: Barry J. Sharp
- -------------------------------
Barry J. Sharp
Attorney-in-Fact*
</TABLE>
<PAGE> 120
THE AES CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
S-2 Independent Auditors' Report
S-3 Schedule I - Condensed Financial Information of Registrant
S-8 Schedule II - Valuation and Qualifying Accounts
Schedules other than those listed above are omitted as the
information is either not applicable, not required, or has been furnished in
the financial statements or notes thereto incorporated by reference in Item 8
hereof.
S-1
<PAGE> 121
INDEPENDENT AUDITORS' REPORT
The AES Corporation:
We have audited the consolidated financial statements of The AES Corporation as
of December 31, 1995 and 1994, and for each of the three years in the period
ended December 31, 1995, and have issued our report thereon dated February 20,
1996; such consolidated financial statements and report are included in your
1995 Annual Report and are incorporated herein by reference. Our audits also
included the consolidated financial statement schedules of The AES Corporation,
listed in the index to the consolidated financial statement schedules on page
S-1. These consolidated financial statement schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits. In our opinion, such consolidated financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE, LLP
Washington, D.C.
February 20, 1996
S-2
<PAGE> 122
THE AES CORPORATION SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
UNCONSOLIDATED BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
ASSETS December 31
- -------------------------------------------------------------------------------------
1994 1995
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 66 $ 2
Accounts receivable -- 2
Accounts and notes receivable from subsidiaries
129 64
Prepaid expenses and other 12 11
- -------------------------------------------------------------------------------------
Total current assets 207 79
Investment in subsidiaries (on the equity method) 306 556
Office Equipment:
Cost 5 4
Accumulated depreciation (2) (3)
- -------------------------------------------------------------------------------------
Office equipment, net 3 1
Other Assets:
Deferred costs (Less accumulated
amortization: 1994, $2, 1995, $3) 5 6
Project Development costs 38 40
Investment in affiliate 6 --
Deferred income taxes -- 8
Notes receivable from subsidiaries 43 40
Escrow deposits and other assets 5 9
- -------------------------------------------------------------------------------------
Total other assets 97 103
- -------------------------------------------------------------------------------------
TOTAL $613 $739
=====================================================================================
</TABLE>
See notes to Schedule I
S-3
<PAGE> 123
THE AES CORPORATION SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
UNCONSOLIDATED BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY December 31
- -------------------------------------------------------------------------------------
1994 1995
<S> <C> <C>
Current Liabilities:
Accounts payable $ 1 $ 3
Income taxes payable 2 9
Accrued liabilities 7 50
- -------------------------------------------------------------------------------------
Total current liabilities 10 62
Long-term Liabilities:
Other notes payable 125 125
Deferred income taxes 73 --
Other long-term liabilities 3 3
- -------------------------------------------------------------------------------------
Total long-term liabilities 201 128
Stockholders' Equity:
Preferred stock -- --
Common stock 1 1
Additional paid-in capital 240 293
Retained earnings 164 271
Treasury Stock -- (6)
Cumulative translation adjustment (3) (10)
- -------------------------------------------------------------------------------------
Total stockholders' equity 402 549
- -------------------------------------------------------------------------------------
TOTAL $613 $739
=====================================================================================
</TABLE>
See notes to Schedule I
S-4
<PAGE> 124
THE AES CORPORATION SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF UNCONSOLIDATED OPERATIONS
(in millions)
<TABLE>
<CAPTION>
For the Years Ended December 31
- ---------------------------------------------------------------------------------------------------------------
1993 1994 1995
<S> <C> <C> <C>
Revenues $ 46 $ 47 $ 64
Equity in earnings of subsidiaries 73 106 108
- ---------------------------------------------------------------------------------------------------------------
Total revenues 119 153 172
Operating Costs and Expenses:
Cost of sales and services 28 30 53
Selling, general and administrative expenses 35 25 20
- ---------------------------------------------------------------------------------------------------------------
Total operating costs and expenses 63 55 73
- ---------------------------------------------------------------------------------------------------------------
Operating Income 56 98 99
Interest Income, net 9 8 8
- ---------------------------------------------------------------------------------------------------------------
Income before income taxes, extraordinary item and
cumulative effect of change in accounting principle
65 106 107
Income Tax Expense (Benefit) (5) 4 --
- ---------------------------------------------------------------------------------------------------------------
Net income before extraordinary item and cumulative effect
of change in accounting principle 70 102 107
Extraordinary item - loss on extinguishment of debt (less
applicable income taxes of $1) -- 2 --
- ---------------------------------------------------------------------------------------------------------------
Net income before cumulative effect of change in 70 100 107
accounting principle
Cumulative effect (benefit) on prior years of change to a (1) -- --
different method of accounting for income tax
- ---------------------------------------------------------------------------------------------------------------
Net Income $71 $100 $107
===============================================================================================================
</TABLE>
See notes to Schedule I
S-5
<PAGE> 125
THE AES CORPORATION SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF UNCONSOLIDATED CASH FLOWS
(in millions)
<TABLE>
<CAPTION>
For the Years Ended December 31,
- ---------------------------------------------------------------------------------------------------------------
1993 1994 1995
<S> <C> <C> <C>
Net cash provided by (used in) operating activities $ (21) $ 1 $ 1
Investing Activities
Issuance of notes receivable -- (1) 2
Acquisitions -- -- (130)
Distributions from subsidiaries 32 62 88
Additions to office equipment -- (1) --
Project development costs, net (9) (17) (34)
Investment in subsidiaries (114) (6) (32)
Escrow deposits and other (4) 3 (4)
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (95) 40 (110)
Financing ActivitiesNet borrowings under the revolver -- -- 50
Proceeds from other notes payable 80 -- --
Principal payments on other notes payable (5) -- --
Proceeds from issuance of common stock 69 1 1
Purchased treasury stock -- -- (6)
Dividends paid (14) -- --
Other -- -- --
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 130 1 45
Increase/(decrease) in cash and cash equivalents 14 42 (64)
Cash and cash equivalents, beginning 10 24 66
- ---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, ending $ 24 $ 66 $ 2
===============================================================================================================
</TABLE>
See notes to Schedule I
S-6
<PAGE> 126
THE AES CORPORATION SCHEDULE I
NOTES TO SCHEDULE I
1. APPLICATION OF SIGNIFICANT ACCOUNTING PRINCIPLES
Accounting for Subsidiaries -- The AES Corporation has accounted for
the earnings of its subsidiaries on the equity method in the unconsolidated
condensed financial information.
Revenues -- Construction management fees earned by the parent from
its consolidated subsidiaries are eliminated.
Income Taxes -- Effective January 1, 1993, the Company adopted
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes. The cumulative effect on prior years of changing to a different
method of accounting for income taxes relates to the accumulated net tax
benefits of subsidiaries which will not be reimbursed by the Company. The
provision for income taxes reflects the difference between the effective
consolidated tax rate and the tax as allocated to each of the subsidiaries
computed as if each subsidiary were a separate taxpayer. All tax benefits
generated by subsidiaries which will not be reimbursed by the Company. The
Company's income or loss for income tax purposes is included in a consolidated
and other affiliated companies (the "group"). Prior to 1995, the consolidated
amount of current and deferred tax expense for the group was allocated to
each number as if it were a separate taxpayer and by allocating certain tax
benefits available to the group based on their respective net incomes before
taxation.
Effective January 1, 1995, the group changed its method of allocating
income taxes and no longer allocates tax benefits available from other members
of the group when calculating its tax balances. This more accurately depicts
the tax assets and liabilities of The AES Corporation and its subsidiaries on a
"stand alone" basis. The effect of this change on the unconsolidated balance
sheet was to decrease the deferred tax liability at the parent company level by
approximately $81 million and decrease the accounts and rates receivable from
subsidiaries by the same amount at January 1, 1995.
Accounts and Notes Receivable from Subsidiaries -- Such amounts have
been shown in current or long-term assets based on terms in agreements with
subsidiaries, but payment is dependent upon meeting conditions precedent in the
subsidiary loan agreements.
2. SCHEDULE OF MATURITIES
Long-term debt of $125.0 million at December 31, 1994 and 1995 is to
be repaid $75.0 in 2000 and $50.0 million 2002.
S-7
<PAGE> 127
THE AES CORPORATION SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(in millions)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND CONSTRUCTION END OF
DESCRIPTION PERIOD EXPENSES IN PROGRESS RETIREMENTS PERIOD
===================================================================================================================
<S> <C> <C> <C> <C> <C>
Amortization of deferred costs
Year ended December 31, 1993 20 3 --- --- 23
Year ended December 31, 1994 23 3 --- --- 26
Year ended December 31, 1995 26 5 --- --- 31
</TABLE>
S-8
<PAGE> 128
LOGO
