UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-19281
THE AES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
54-1163725
(IRS Employer Identification No.)
1001 North 19th Street
Arlington, Virginia 22209
(Address of principal executive office)
Telephone Number (703) 522-1315
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No/ /
The total number of shares of the registrant's Common Stock, $.01 par value,
outstanding on July 31, 1996, was 75,117,079.
<PAGE>
THE AES CORPORATION
INDEX
Page
PART 1. FINANCIAL INFORMATION
Item 1. Interim Financial Statements:
Consolidated Statements of Operations 2
Consolidated Balance Sheets 3
Consolidated Statements of Cash Flow 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signature 19
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements.
THE AES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED JUNE 30, 1995 AND 1996
(Unaudited) Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
06/30/95 06/30/96 06/30/95 06/30/96
($ in millions, except per share amounts)
REVENUES:
Sales and services $ 167 $ 174 $ 338 $ 346
OPERATING COSTS AND EXPENSES:
Cost of sales and services 100 99 203 199
Selling, general and administrative expenses 6 6 14 15
---- ---- ---- ----
Total operating costs and expenses 106 105 217 214
---- ---- ---- ----
OPERATING INCOME 61 69 121 132
OTHER INCOME AND (EXPENSE):
Interest expense (31) (31) (62) (59)
Interest income 7 5 13 10
Equity in net earnings of affiliates 4 2 6 7
---- ---- ---- ----
INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST 41 45 78 90
Income taxes 15 16 28 31
Minority interest (1) 1 (1) 2
---- ---- ---- ----
NET INCOME $ 27 $ 28 $ 51 $ 57
==== ==== ==== ====
NET INCOME PER SHARE: $0.35 $0.37 $0.68 $0.75
---- ---- ---- ----
See Notes to Consolidated Financial Statements
<PAGE>
THE AES CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND JUNE 30, 1996
(Unaudited)
12/31/95 06/30/96
($ in millions)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 239 $ 220
Short-term investments 58 36
Accounts receivable 54 65
Inventory 36 40
Receivable from affiliates 11 9
Prepaid expenses and other current assets 27 41
---- ----
Total current assets 425 411
PROPERTY, PLANT AND EQUIPMENT:
Land 9 20
Electric and steam generating facilities 1,594 1,657
Furniture and office equipment 11 12
Accumulated depreciation, depletion, and amortization (222) (249)
Construction in progress 158 322
---- ----
Property, plant and equipment, net 1,550 1,762
OTHER ASSETS:
Deferred costs, net 32 40
Project development costs 41 46
Investments in and advances to affiliates 48 446
Debt service reserves and other deposits 168 178
Goodwill and other intangible assets, net 37 41
Other assets 19 17
---- ----
Total other assets 345 768
---- ----
TOTAL $ 2,320 $ 2,941
===== =====
See Notes to Consolidated Financial Statements
<PAGE>
THE AES CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND JUNE 30, 1996
(Unaudited)
12/31/95 06/30/96
($ in millions)
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 33 $ 35
Income taxes payable -- 4
Accrued interest 12 14
Accrued and other liabilities 49 39
Revolving bank loan - current portion 50 80
Project financing debt - current portion 84 93
---- ----
Total current liabilities 228 265
LONG-TERM LIABILITIES:
Project financing debt 1,098 1,460
Revolving bank loan -- 125
Other notes payable 125 125
Deferred income taxes 149 167
Other long-term liabilities 13 9
---- ----
Total long-term liabilities 1,385 1,886
MINORITY INTEREST 158 180
STOCKHOLDERS' EQUITY:
Common stock 1 1
Additional paid-in capital 293 294
Retained earnings 271 328
Cumulative foreign currency translation adjustment (10) (10)
Less treasury stock at cost (6) (3)
---- ----
Total stockholders' equity 549 610
---- ----
TOTAL $ 2,320 $ 2,941
===== =====
See Notes to Consolidated Financial Statements
<PAGE>
THE AES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(Unaudited) Six Six
Months Months
Ended Ended
6/30/95 6/30/96
($ in millions)
OPERATING ACTIVITIES:
Net Income $ 51 $ 57
Adjustments to net income:
Depreciation, depletion and amortization 24 29
Provision for deferred taxes 27 22
Undistributed earnings of affiliates 7 --
Change in working capital (12) (32)
Other 8 (8)
---- ----
Net cash provided by operating activities 105 68
INVESTING ACTIVITIES:
Property additions (41) (205)
Acquisitions, net of cash acquired (79) (20)
Sale of short-term investments 52 22
Affiliate advances and investments (3) (393)
Project development costs (16) (8)
Debt service reserves and other assets (11) (12)
---- ----
Net cash used in investing activities (98) (616)
FINANCING ACTIVITIES:
Net borrowings under the revolver 10 155
Issuance of project financing debt -- 390
Repayments of project financing debt (31) (21)
Payments to/from minority partners 4 4
Sale/ (repurchase) of common stock (2) 1
---- ----
Net cash used in financing activities (19) 529
Decrease in cash and cash equivalents (12) (19)
Cash and cash equivalents, beginning 255 239
---- ----
Cash and cash equivalents, ending $ 243 $ 220
==== ====
See Notes to Consolidated Financial Statements
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
The consolidated financial statements include the accounts of AES, its
subsidiaries, and controlled affiliates. Intercompany transactions and balances
have been eliminated. Investments in 50% or less owned affiliates over which the
Company has the ability to exercise significant influence, but not control, are
accounted for using the equity method. Under the equity method, the Company's
investment is recorded at cost and is adjusted to recognize its proportional
share of all earnings or losses of the entity. Distributions received reduce the
carrying amount of the Company's investment.
In the Company's opinion, all adjustments necessary for a fair presentation of
the unaudited results of operations for the six months ended June 30, 1995 and
1996, respectively, are included. All such adjustments are accruals of a normal
and recurring nature. The results of operations for the six months ended June
30, 1996 are not necessarily indicative of the results of operations to be
expected for the full year. The financial statements are unaudited.
2. Net Income Per Share
Net income per share is based on the weighted average number of common stock and
common stock equivalents outstanding, after giving effect to stock splits.
Common stock equivalents result from dilutive stock options, warrants and
deferred compensation arrangements. The effect of such common stock equivalents
on net income per share is computed using the treasury stock method. The shares
used in computing net income per share were 75.9 million and 76.2 million for
the quarters ended June 30, 1995 and 1996 respectively, and 75.8 million and
76.1 million for the six months ended June 30, 1995 and 1996, respectively.
3. Inventory
Inventory, valued at the lower of cost (principally first in, first out method)
or market, consists of coal and other raw materials used in generating
electricity and steam, and spare parts, materials and supplies. Inventory at
December 31, 1995 and June 30, 1996 consisted of the following (in millions):
1995 1996
Coal and other raw materials 24 26
Spare parts, materials and supplies 12 14
---- ----
Total $36 $40
==== ====
<PAGE>
4. Acquisition
In May, 1996, AES, through certain subsidiaries, acquired for approximately $393
million, common shares representing an 11.35% interest in Light Servi(os de
Electricidade S.A. (OLightO), a publicly-held Brazilian corporation that
operates as the concessionaire of an approximately 3,800 MW integrated electric
power generation, transmission and distribution system which serves Rio de
Janeiro, Brazil. The AES subsidiary which owns an interest in Light is
participating in a consortium established through a shareholdersO agreement that
owns a 50.44% controlling interest. As a result, the Company has the ability to
exert significant influence over the operation of Light, and is recording its
investment using the equity method.
The acquisition was accounted for as a purchase. The accompanying financial
statements include equity earnings of Light, net of tax as of June 1, 1996. The
goodwill created as a result of the acquisition is being amortized using the
straight line method over the 30 year length of the concession.
The following table presents supplemental unaudited proforma financial
information as if the acquisition of Light had occurred at the beginning of the
periods presented (in million, except per share amounts):
Six Months Six Months Year Ended
6/30/95 6/30/96 12/31/95
---------- ---------- ----------
Revenues $338 $346 $685
Net Income 50 59 102
Net Income Per Share 0.66 0.77 1.34
5. Litigation
In re The AES Corporation Securities Litigation was a purported class action
suit brought in the U.S. District Court for the Southern District of New York by
certain persons who claimed to have purchased shares of common stock and
debentures issued by AES between June 25, 1991 and June 23, 1992 and who
purported to sue on behalf of others similarly situated. The litigation
consolidated four purported class actions previously filed against AES in June
and July 1992. In February 1995, the Company entered into a settlement agreement
with plaintiffs' counsel on behalf of the class. The settlement was on a
claims-made basis, and consisted of $4.5 million, as well as warrants to
purchase approximately 716,800 shares of AES Common Stock. Insurance proceeds
were 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 was approved by the court and the
settlement proceeds have been distributed. This matter is now concluded.
<PAGE>
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.
The Company is involved in certain other legal proceedings in the normal course
of business. It is the opinion of the Company that none of the pending
litigation is expected to have a material adverse effect on its results of
operations or consolidated financial position.
Item 2. Discussion and Analysis of Financial Condition and Results of
Operations.
General
The AES Corporation and its subsidiaries and affiliates (collectively "AES" or
the "Company") are primarily engaged in the business of developing, acquiring,
owning and operating electric power generation and related facilities throughout
the world. Electricity sales accounted for 97% of total revenues during 1995.
Other sales arise from the sale of steam and other commodities related to the
Company's cogeneration operations. Service revenues represent fees earned in
connection with energy consulting, wholesale power services and services
provided by AES to its affiliates.
Electricity is generated (or manufactured) by power plants owned or leased by
the Company's subsidiaries and affiliates. AES operates and owns (entirely or in
part) a diverse portfolio of electric power plants with a total capacity of
approximately 10,900 MW, of which 9,400 are in operation and approximately 1,500
are in construction. Because of the significant magnitude and complexity of
building electric generating plants, construction periods often range from two
<PAGE>
to four years, depending on the technology and location. AES currently expects
that projects now under construction will reach commercial operation and begin
to sell electricity at various dates through 1999. The commercial operation date
is generally supported by a guarantee from each plant's construction contractor;
however, it remains possible, due changes in the economic, political,
technological, regulatory or logistical circumstances surrounding individual
plants and their locations, that commercial operations may be delayed or, in
extreme circumstances, prohibited.
AES believes that there is significant demand for both new and more efficiently
operated electric generating capacity in many regions around the world. In an
effort to further grow and diversify the Company's portfolio of electric
generating plants, AES is pursuing, through its integrated divisions, additional
greenfield developments and acquisitions in North America, India, Pakistan,
China, other areas in Southeast Asia, South America, Europe, the Middle East and
Africa. From time to time, AES also investigates possible acquisitions of
existing power plant facilities or energy companies that would be consistent
with its objectives and strategy. Such acquisitions may be accomplished by a
cash purchase, by an exchange of project ownership interests or by the issuance
of the Company's capital stock.
Certain subsidiaries of the Company (domestic and non-U.S.) have signed
long-term contracts for the sale of electricity and are in various stages of
developing the related greenfield projects. Because these potential projects
have yet to begin construction or procure committed long-term financing
("financial closing"), there exist substantial risks to their successful
completion, including, but not limited to, those relating to failures of siting,
financing, construction, permitting, governmental approvals or termination of
the power sales contract as a result of a failure to meet milestones. As of June
30 1996, capitalized costs for projects under development were approximately $46
million. The Company believes that the costs are recoverable; however, no
assurance can be given that changes in circumstances related to individual
projects will not occur or that any of these projects will be completed.
As discussed above, AES has been successful in acquiring a portion of its
portfolio of generating capacity by participating in competitive bidding under
government sponsored privatization initiatives and has been particularly
interested in acquiring existing assets in electricity markets that are
promoting competition, such as the United Kingdom and Argentina. Sellers
generally seek to complete competitive solicitations in less than one year, much
quicker than greenfield development, and require payment in full on transfer.
AES believes that its experience in competitive markets and its divisional
structure, with geographically dispersed locations, enable it to react quickly
and creatively in such situations.
<PAGE>
Because of this relatively quick process, it may not be possible to arrange
"project financing" (the Company's historically preferred financing method) for
specific potential acquisitions. As a result, the Company enhanced its financial
capabilities to respond to these more accelerated opportunities by executing a
$425 million revolving credit facility in the second quarter of 1996. During the
second quarter of 1996, a subsidiary the Company also entered into a
Reimbursement Agreement (Othe LoanO) in the amount of $225 million in connection
with the acquisition of its interest in Light. In addition, on July 2, 1996, the
Company completed the issuance and sale of its 10(%, $250 million principal
amount of Senior Subordinated Notes due 2006. (See Cash Flow, Financial
Resources, and Liquidity). In the future, AES may also consider an exchange of
project ownership interests or the issuance of its common stock to fund future
acquisition opportunities.
The nature of most of the Company's domestic independent power operations is
such that each facility generally relies on one power sales contract with a
single electric utility customer or a regional or national transmission and
distribution customer for the majority, if not all, of its revenues. During
1995, four customers accounted for 73% of the Company's revenues. The prolonged
failure of any one utility customer to fulfill its contractual payment
obligations in the future could have a substantial negative impact on AES's
primary source of revenues. Where possible, the Company has sought to reduce
this risk, in part, by entering into power sales contracts with utilities that
have their debt or preferred stock rated "investment grade" by nationally
recognized rating agencies and by locating its plants in different geographic
areas in order to mitigate the effects of regional economic downturns.
Because the Company's plants are located in different geographical areas,
seasonal variations are not generally expected to have a significant effect on
quarterly financial results. However, unusual weather conditions and the needs
of each plant to perform routine (including annual or multi-year) or
unanticipated facility maintenance may have an effect on quarterly financial
results. In addition, some power sales contracts permit the utility customer to
significantly dispatch the related plant (i.e., direct the plant to deliver a
reduced amount of electrical output) within certain specified parameters. Such
dispatching, however, does not have a material impact on the results of
operations of the related subsidiary because, even when dispatched, the plant's
capacity payments are not reduced.
The Company's activities are subject to stringent environmental regulation by
federal, state, local and foreign governmental authorities. There can be no
assurance that AES would be able to recover all or any part of increased costs
from its customers or that its business and financial condition would not be
materially and adversely affected by future changes in environmental laws or
regulations. The Company strives to comply with all environmental laws,
regulations, permits and licenses but, despite such efforts, at times has been
<PAGE>
in non-compliance. No such instance of non-compliance has resulted in revocation
of any permit or license.
Medway Power Limited ("Medway Power"), a joint venture among AES Medway Electric
Limited, an indirectly owned U.K. subsidiary of AES ("AES Medway"), and
subsidiaries of Southern Electric plc ("Southern") and SEEBOARD plc
("SEEBOARD"), owns a 660 MW combined cycle gas-fired power plant in southeast
England on the Isle of Grain. The plant began operations in November 1995.
During pre-commercial start-up operations in the second quarter of 1995, the
plant began experiencing equipment difficulties, most notably with its turbine
rotors. Medway Power and the plant's construction contractor are working to
provide a permanent solution to the rotor problems. For a more complete
description of this matter, please see the Company's Annual Report on Form 10-K
for the year ended December 31, 1995. Although no assurance can be given that
the contractor, and as a result, Medway Power, will be able to adequately
correct the equipment difficulties, the Company believes that the outcome of
this matter will not have a material adverse effect on its consolidated
financial position.
In May 1996, a subsidiary of AES, along with its partners, acquired a 50.44%
controlling interest in Light, a 3,800 MW integrated electric power generation,
transmission and distribution system which serves Rio de Janeiro, Brazil. AESOs
interest in Light is 11.35%. Light currently serves approximately 2.8 million
customers, or approximately 70% of the population of the state of Rio de
Janeiro. Light generates about 17% of the total electricity it distributes
through four hydroelectric complexes having an installed generating capacity of
approximately 788 MW. Light purchases the remaining 83% of the electricity it
distributes. Under a shareholdersO agreement AES co-manages the business with
the other members of the consortium, and is responsible for the electric
generation and bulk power supply aspects of Light.
In August 1996, the Company, through a subsidiary, acquired three power plants
totaling 1,281 MW and a coal mine through the purchase of an 81% share of Tiszai
Eromu Rt., an electricity generation company in Hungary for up to $143 million.
The facility includes an oil and natural gas fired plant supported by a 15 year
contract and two coal-fired plants with two and five year contracts,
respectively. The transaction also includes the right for AES to develop and
operate a 150-300 MW coal-fired power plant that uses circulating fluidized bed
boilers. AES expects to sell electricity generated by the new facility to the
Hungarian transmission company under a long term power purchase agreement.
In August 1996, a subsidiary of the Company won a bid to develop, own and
operate a 288 MW simple-cycle gas turbine power station in Townsville,
Queensland, Australia. The plant will burn liquefied petroleum gas and will sell
electricity to the Queensland Transmission and Supply Corporation under a 10
year power purchase agreement which is expected to be executed shortly. Numerous
<PAGE>
steps remain to be completed prior to plant operations, including execution of
the power purchase agreement, permitting, and construction of the facility.
Commencement of commercial operations is scheduled for January 1999, but no
assurance can be given that this project will be completed.
Also in August 1996, the Company acquired a 70% interest in a 4,000 MW
coal-fired facility in Kazakhstan. The facility will sell power to a government
owned utility under a 35 year power purchase agreement.
Second Quarter 1996 and 1995 Results of Operations
Revenues increased 4% or approximately $7 million, to $174 million from the
second quarter of 1995 to the second quarter of 1996. Cost of sales and services
decreased 1% or approximately $1 million, to $99 million from the second quarter
of 1995 to the second quarter of 1996. Gross margin, which represents total
revenues reduced by cost of sales and services, increased 12%, or approximately
$8 million, to $75 million during the same period. Gross margin as a percentage
of total revenues was 43% for the second quarter of 1996 and 40% for the same
period of 1995. The increase in gross margin was primarily due to better
performance at San Nicol++s due to cost reduction efforts at the plant and
higher prices in the Argentine electricity market, improved results at Deepwater
due to higher natural gas prices during the quarter, higher production at
Thames, better performance at Placerita resulting from a planned outage in the
second quarter of 1995, the acquisition of Rio Juramento in late 1995 and San
Juan in early 1996, and the start of commercial operations of an AES Chigen
subsidiary which was previously under construction.
Revenues increased 2% or approximately $8 million to $346 million from the first
half of 1995 to the first half of 1996. Cost of sales and services decreased 2%
or approximately $4 million to $199 million from the first six months of 1995 to
the same period of 1996. Gross margin increased 9% or approximately $12 million,
to $147 million during the same period. Gross margin as a percentage of total
revenues was 42% for the first six months of 1996 and 40% for the same period of
1996. The increase in gross margin was primarily due to better performance at
San Nicolas due to cost reduction efforts at the plant and higher prices in the
Argentine electricity market, improved results at Deepwater due to higher
natural gas prices, better performance at Placerita due to cost reduction
efforts and a planned outage in 1995, offset in part by construction fees for
Medway which were recognized in 1995.
Selling, general and administrative expenses were approximately $6 million for
the second quarter of 1995 and 1996, and as a percentage of total revenue, were
4% of revenues. Selling, general and administrative expenses increased 7% or
approximately $1 million from the first six months of 1995 to the first six
months of 1996, but as a percentage of total revenue, remained constant at 4% of
revenues.
<PAGE>
Operating income increased 13%, or approximately $8 million, to $69 million from
the second quarter of 1995 to the second quarter of 1996, and increased 9% or
approximately $11 million to $132 million from the first six months of 1995 to
the same period of 1996. These increases were the result of the factors
discussed above.
Interest expense remained constant at $31 million from the second quarter of
1995 to the second quarter of 1996. Interest expense decreased 5%, or
approximately $3 million, to $59 million from the first six months of 1995 to
the first six months of 1996. During the quarter, decreases in interest expense
due to declining balances of project financing debt at US plants and lower
interest expense at San Nicolas were offset by the interest expenses associated
with borrowings under the credit facility and the Loan for the Light
acquisition. The decrease for the first six months is primarily due to the
declining balances of project financing debt at U.S. plants and lower interest
expense at San Nicolas.
Interest income decreased 29%, or approximately $2 million, to $5 million from
the second quarter of 1995 to the second quarter of 1996, and decreased 23% or
approximately $3 million, to $10 million from the first six months of 1995 to
the same period of 1996. These decreases were primarily due to investments in
new projects at AES Chigen and a decrease in the balance of unrestricted cash
and cash equivalents.
Equity in earnings of affiliates (net of income taxes) decreased 50% to
approximately $2 million from the second quarter of 1995 to the same period of
1996. The decrease was primarily due to a planned outage at NIGEN during 1996.
From the first six months of 1995 to the first six months of 1996, equity
earnings increased 17% or approximately $1 million to $7 million. This increase
was primarily due to limited operations at Medway, which was not in operation in
1995, offset in part by a planned outage at NIGEN.
Income taxes increased 7% or approximately $1 million, to $16 million from the
second quarter of 1995 to the second quarter of 1996, and increased 11% or
approximately $3 million, to $31 million from the first six months of 1995 to
the same period of 1996. These increases 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.
Cash Flows, Financial Resources and Liquidity
At June 30, 1996 cash and cash equivalents totaled approximately $220 million,
as compared to $239 million at the beginning of the year. The $19 million
decrease in cash resulted from a use of $616 million for investing activities
which were funded by $529 million from financing activities and $68 million
provided by operating activities. Significant investing activities were the
acquisition of Light for $393 million, property and construction in progress
additions of $205 million and the acquisition of Hidrotermica San Juan, S.A. for
<PAGE>
approximately $20 million. Furthermore, the net source of cash from financing
activities was primarily the result of borrowing $155 million under the
revolving credit facility, borrowing $390 million in project financing debt
offset by repayments of $21 million of other project financing debt.
Unrestricted net cash flow of the parent company amounted to approximately $108
million for the four quarters ended June 30, 1996.
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 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 the
credit facility, the Loan, issuances of senior subordinated notes, convertible
debentures and common stock of the Company.
In the second quarter of 1996, the Company entered into the Loan which was used
to fund a portion of the CompanyOs investment in Light. In July 1996, the
Company completed the issuance of $250 million of Notes. A portion of the
proceeds from the Notes were used to reduce the borrowing under the Loan, the
remaining amount was used to fund the CompanyOs investment in Tisza, and for
general corporate purpose. The Loan has a current balance of $150 million. The
<PAGE>
net proceeds to the Company after deducting expenses of the offering were
approximately $244 million.
Interim needs for shorter-term and working capital financing have been met with
borrowings under AES's revolving line of credit and letter of credit facility
("credit facility"). Over the past several years, the Company has increased the
amount of available financing under the credit facility while striving to
enhance its flexibility and usefulness. In the second quarter of 1996, AES
increased the size of its credit facility to $425 million. The credit facility
provides full availability as borrowings or letters of credit. Under the terms
of the credit facility, AES is required to reduce its direct borrowings to $125
million for 30 consecutive days during each twelve month period. The terms of
the credit agreement also include financial covenants related to net worth, cash
flow and investments and restrictions related to the incurrence of additional
debt and certain other obligations and limitations on cash dividends.
Inflation, Interest Rates, Exchange Rates and Changing Energy Prices
The Company attempts, whenever possible, to hedge certain aspects of its
projects against the effects of fluctuations in inflation, interest and currency
exchange rates and energy prices. AES has generally structured the energy
payments in its power sales contracts to adjust with similar price indices as do
its contracts with the fuel suppliers for the corresponding projects. In some
cases a portion of revenues is associated with operations and maintenance, and
as such is indexed to adjust with inflation. AES has also used a hedging
strategy to insulate each project's financial performance, where appropriate,
against the risk of fluctuations in interest rates. Depending on whether a
project's capacity payments are either fixed or vary with inflation, the Company
attempts to hedge against interest rate fluctuations by arranging fixed-rate or
variable-rate financing. In certain cases, the Company executes interest rate
swap agreements, or interest rate caps, to effectively fix, or in the case of
interest rate caps, limit, the interest rate on the underlying variable rate
financing.
Such hedging techniques are implemented through contractual provisions with fuel
suppliers and international financial institutions. As a result, their
effectiveness is dependent, in part, on each counterparty's ability to perform
in accordance with the provisions of the relevant contracts. The Company has
sought to reduce this risk by entering into contracts with creditworthy
organizations, where possible, and where not possible, as in the case of certain
local fuel suppliers, to execute standby or option agreements with a
creditworthy organization. Because of the complexity of hedging strategies and
the diverse nature of AES's operations, the financial performance of AES's
portfolio, although significantly hedged, will likely be somewhat affected by
fluctuations in inflation, interest rates and energy prices. For example, AES's
current portfolio of projects generally performs better with high oil and
<PAGE>
natural gas prices and with lower interest rates. The Company's performance also
is sensitive to the difference between inflation and interest rates, and
generally performs better when increases in inflation are higher than increases
in interest rates.
Through its equity investments in foreign affiliates, AES operates in
jurisdictions dealing in currencies other than the Company's functional
currency, the U.S. dollar. Such investments were made to fund equity
requirements and to provide collateral for contingent obligations. Due primarily
to the long-term nature of the investments, the Company accounts for any
adjustments resulting from translation as a charge or credit directly to a
separate component of stockholders' equity. The Company had approximately $10
million, net of tax, in cumulative translation adjustment losses at June 30,
1996.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In re The AES Corporation Securities Litigation was a purported class action
suit brought in the U.S. District Court for the Southern District of New York by
certain persons who claimed to have purchased shares of common stock and
debentures issued by AES between June 25, 1991 and June 23, 1992 and who
purported to sue on behalf of others similarly situated. The litigation
consolidated four purported class actions previously filed against AES in June
and July 1992. In February 1995, the Company entered into a settlement agreement
with plaintiffs' counsel on behalf of the class. The settlement was on a
claims-made basis, and consisted of $4.5 million, as well as warrants to
purchase approximately 716,800 shares of AES Common Stock. Insurance proceeds
were 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 was approved by the court and the
settlement proceeds have been distributed. This matter is now concluded.
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
<PAGE>
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 position.
Item 2. Changes in Securities
In May 1996 the Company issued stock warrants to purchase approximately 716,800
shares of Common Stock at $29.43 per share pursuant to a settlement agreement
associated with the 1992 shareholder class action suit.
On July 2, 1996, the Company completed the issuance and sale of $250 million of
Senior Subordinated Notes. The Company originally filed a OshelfO registration
statement in February 1996 for the issuance of the notes. The notes bear
interest at a rate of 10(%, are due in 2006 and are callable at the CompanyOs
option beginning in July 2001.
On July 29, 1996, the Company issued a notice of redemption to holders of its
$50 million principal amount of 6(% Convertible Subordinated Debentures due 2002
at a redemption price of 103.727% of the principal amount of the debenture, with
accrued interest through August 30, 1996. Holders have the right to convert the
debentures into shares of AES Common Stock at a conversion price of $26.16 no
later than August 30, 1996. If the entire $50 million principal amount of
convertible subordinated debenture holders exercise their right to conversion,
the Company will issue 1,911,315 shares of Common Stock.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
(a)The Annual Meeting of Stockholders of the Company was held on April 16, 1996.
(b)Proposition 1: Election of Directors
Nine unopposed nominees for directors were elected by the stockholders. There
were no fewer than 61,365,907 affirmative votes (98%) and no more than 1,547,863
votes withheld for any nominee. There were no abstentions.
<PAGE>
Proposition 2: Election of Auditors
The accounting firm of Deloitte & Touche, LLP was elected as auditors of the
Company by a vote of 62,889,633 affirmative votes (99.9%) to 9,892 negative
votes with 14,245 abstentions.
Proposition 3: Adoption of Incentive Stock Plan
Certain amendments relating to the number of authorized shares and employees
eligible under the Incentive Stock Plan (OPlanO) were approved by the
stockholders by a vote of 60,819,318 votes cast for (96.7%), to 1,999,432 votes
cast against and 95,020 abstentions.
Item 5. Other Information
The Company's By-Laws were amended on May 28, 1996, to increase the number of
directors from nine to ten, and Robert F. Hemphill, Jr., formerly the Executive
Vice President of the Company, was appointed to fill the vacancy, effective July
1, 1996. Mr. Hemphill resigned as Executive Vice President, effective June 30,
1996.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit Number Document
11 Consolidated Statements Regarding Computation
of Earnings Per Share
20 Press Release dated August 12, 1996
27 Financial Data Schedule, which is submitted
electronically to the Securities and Exchange Commission for
information only and not filed.
(b) Reports on Form 8-K
The Registrant filed a current report on Form 8-K, dated June 12, 1996 with
respect to its acquisition of an ownership interest in an electric power
generation, transmission and distribution system which serves Rio de Janeiro,
Brazil.
The Registrant filed a current report on Form 8-K, dated July 1, 1996 in
connection with the registration by the Company of up to $250,000,000 of Debt
Securities (Registration Statement No. 333-01286 and Registration Statement No.
333-07041), the First Supplemental Indenture dated as of July 1, 1996, relating
to the Company's 10-1/4% Senior Subordinated Notes due 2006, entered into with
The First National Bank of Chicago.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The AES Corporation
(Registrant)
By/s/ BARRY J. SHARP
- --------------------
BARRY J. SHARP
Vice President and Chief Financial Officer
Dated: August 14, 1996
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
11 Consolidated Statements Regarding Computation of Earnings
Per Share
20 Press Release dated August 12, 1996
27 Financial Data Schedule, which is submitted electronically
to the Securities and Exchange Commission for information only
and not filed.
STATEMENTS REGARDING COMPUTATION OF EARNINGS PER SHARE
FOR THE PERIODS ENDED JUNE 30, 1995 AND 1996
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
6/30/95 6/30/96 6/30/95 6/30/96
($ in millions, except per share amounts)
PRIMARY
Weighted Average Number of Shares
of Common Stock Outstanding 75.1 75.0 74.9 74.9
Net effect of Dilutive Stock Options and
Warrants Based on the Treasury Stock
Method Using Average Market Price 0.6 0.9 0.7 0.9
Stock Units Allocated to the Deferred
Compensation Plans for
Executives and Directors 0.2 0.3 0.2 0.3
---- ---- ---- ----
Weighted average shares
outstanding 75.9 76.2 75.8 76.1
==== ==== ==== ====
Net Income $ 27.0 $ 28.0 $ 51.0 $ 57.0
==== ==== ==== ====
Per Share Amount $0.35 $0.37 $0.68 $0.75
==== ==== ==== ====
FULLY DILUTED
Weighted Average Number of Shares
of Common Stock Outstanding 75.1 75.0 74.9 74.9
Net effect of Dilutive Stock Options and
Warrants Based on the Treasury Stock
Method Using Ending Market Price 0.7 1.2 0.7 1.2
Stock Units Allocated to the Deferred
Compensation Plans for
Executives and Directors 0.2 0.3 0.2 0.3
Effect of Convertible Debt - Based on
the If-Converted Method 1.9 1.9 1.9 1.9
---- ---- ---- ----
Weighted average shares
outstanding 77.9 78.4 77.7 78.3
==== ==== ==== ====
Net Income $ 27.0 $ 28.0 $ 51.0 $ 57.0
Additional Contribution to Net Income if
Convertible Debt is fully converted 1.0 1.0 1.0 1.0
---- ---- ---- ----
Adjusted Net Income $ 28.0 $ 29.0 $ 52.0 $ 58.0
==== ==== ==== ====
Per Share Amount $0.35 $0.36 $0.67 $0.74
==== ==== ==== ====
The AES Corporation
The Global Power Company
News Release
FOR IMMEDIATE RELEASE
AES AND PARTNER ACQUIRE 4000MW POWER STATION IN KAZAKSTAN
ARLINGTON, VA, August 12, 1996-- The AES Corporation (NASDAQ: AESC) announced
today that, together with its partner, Suntree Ltd., it acquired the largest
power station in Kazakstan, the 4000 MW Ekibastuz GRES-1 facility and signed a
35 year agreement to sell power from the facility to the government owned
utility. The joint venture company, called AES Suntree Power Ltd., won the
rights to the station in a recently organized tender process conducted by the
government of Kazakstan. AES will begin operating and refurbishing the plant
immediately.
AES has a minimum 70% stake in the joint venture and controls all aspects of the
business. Suntree (a privately held organisation operating mainly in the CIS and
Israel) owns approximately 30% of the joint venture and with its strong,
multifaceted presence in Kazakstan, has led the governmental relations side of
the development effort to date and will continue to operate in a similar role
going forward.
Ekibastuz is a mine-mouth, low-grade coal-fired facility located in Northeastern
Kazakstan. It purchases coal from the largest open cast mine in the world. The
economies of scale of the mining operation combined with the efficient design of
the station, result in the station being one of the lowest cost electricity
producers in the world.
AES Suntree Power Ltd. has agreed to invest amounts necessary to upgrade all
aspects of the power station with specific attention to the correction of safety
and environmental problems. This may require an investment in the facility of
$500 million or more over the next 5 or 6 years. Due to economic difficulties
over the last 10 years, the station has been deprived of necessary maintenance
funds, has experienced a reduction in performance and run at approximately 20%
capacity factor. AESOs goal within the 5 year period is to enhance plant
performance levels to be commensurate with other facilities with similar
technology.
Mr. Mark Fitzpatrick, Managing Director of AES Electric Ltd., commented, "We are
grateful to Mr. Barry Swersky and his team at Suntree for introducing AES to
Kazakstan and for being the driving force. Further, we would like to acknowledge
the professionalism and commitment of the Kazakstan government, particularly Mr.
Viktor Khrapunov, Minister of Energy and Coal Industry, Mr. Akezhan Kazhegeldin
and Mr. Garry Shtoik, the Prime Minister and Deputy Prime Minister,
respectively, and Mr. Nursultan Nazarbaev, the President. We are also grateful
to US Ambassador to Kazakstan, Elizabeth Jones, and her staff for their ongoing
support and encouragement."
Mr. Dennis Bakke, President & CEO of AES, stated, "This is one of the biggest
challenges and opportunities in the history of AES as we try to make a positive
contribution in the world. Building a business through refurbishing and
operating an established power plant is an AES strength. We are very excited to
take this giant step in what we are hopeful will become one of the strongest
economies of all nations transitioning from the former Soviet Union."
The transaction will increase to nearly 11,000 MWs the generating capacity of
plants in which AES has an ownership interest, which includes plants in
operation and under construction. AES owns all or part of 31 generating
stations. These facilities have assets totaling more than $5 billion and,
combined with the Rio de Janeiro utility in which it has a major interest,
employs over 20,000 people worldwide.
1996 has become a banner year for AES. Development milestones include the
following:
In July, AES won a bid to supply electricity from a new, greenfield 288 MW
simple cycle, gas turbine power station in Townville, Queensland, Australia.
In July, AES acquired three power plants totaling 1,281 MW and a coal mine
through the purchase of an 81% share of Tiszai Eromu Rt., an electricity
generation company in Hungary.
In May, AES, along with Electricite de France, Houston Industries Energy, CSN
and NDES (BrazilOs National Development Bank) completed the purchase of a
controlling interest in Light, the 3,800 MW integrated electric utility that
serves Rio de Janeiro, Brazil.
In April, AES Chigen funded Jiazuo Wan Fang, a 250 MW coal-fired facility which
is under construction and located in Henan Province, China. In August, AES
Chigen funded Wuhu Zhaoda, a 250 MW coal-fired facility under construction in
Anhui Province, China. These projects bring the total number of megawatts in
construction or operation for AES Chigen to 649 MW. AES Chigen is 48% owned by
AES.
In April, AES reached agreement to acquire a site in northern Poland, which
included the exclusive right to negotiate a power sales agreement for a
natural-gas-fired project. This step was the result of a competitive
solicitation in 1995.
In March, AES purchased AES San Juan, a hydro-thermal company in Argentina that
consists of the 45 MW Ullum hydro facility and the 33 MW Sarmiento thermal
plant.
In January, AES closed the financing of the 337 MW PakGen oil-fired plant in
Pakistan.
AES is a leading global power company that generates, sells or markets
electricity in over 35 countries. The Company currently has over $2.8 billion in
assets and, for the year ending December 31, 1995, earned net income of $107
million on revenues of $685 million.
* * * * *
For more general information visit our web site at www.aesc.com or contact
investor relations at [email protected]
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