SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): June 18, 1997
THE AES CORPORATION
(exact name of registrant as specified in its charter)
DELAWARE 333-15487 54-1163725
(State of (Commission File No.) (IRS Employer
Incorporation) Identification No.)
1001 North 19th Street, Suite 2000
Arlington, Virginia 22209
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code:
(703) 522-1315
NOT APPLICABLE
(Former Name or Former Address, if changed since last report)
<PAGE>
ITEM 2. ACQUISITION OF DISPOSITION OF ASSETS
On June 18, 1997, AES together with The Southern Company and The Opportunity
Fund, a Brazilian investment fund, (collectively, the "AES Consortium"),
acquired 14.41% of Companhia Energtica de Minas Gerais ("CEMIG"), an integrated
electric utility serving the State of Minas Gerais in Brazil, for a total
purchase price of approximately $1.056 billion, $654 million of the financing
for which was in the form of non-recourse financing provided by Banco Nacional
de Desenvolvimento Economico e Social ("BNDES"). AES's portion of the purchase
price was approximately $364 million after consideration of the BNDES facility.
The shares of CEMIG, which represent approximately 33% of the voting interest,
have been purchased from the State of Minas Gerais in a partial privatization of
CEMIG. Initially, AES and The Opportunity Fund will have a 90.6% and a 9.4%
economic interest in the AES Consortium, respectively. The Southern Company has
an option until January 9, 1998 to purchase up to a 25% interest in the AES
Consortium from AES. Pursuant to a shareholders agreement between the AES
Consortium and the State of Minas Gerais, AES will have significant operating
influence, including the right to appoint the chief operating officer of CEMIG,
and will otherwise share control of CEMIG with the State of Minas Gerais. CEMIG
owns approximately 5,000 MW of generating plants and serves approximately 4
million customers. The foregoing transaction and the financing therefor
described below are referred to herein as the "CEMIG Acquisition".
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
a.(i) Financial statements of Businesses Acquired
The following audited financial statements of Companhia Energetica
de Minas Gerais - CEMIG as of and for the years ended December 31, 1996 and
1995, together with the Independent Auditors' Report are prepared in accordance
with generally accepted accounting principles in Brazil.
<PAGE>
Rua dos Inconfidentes, 1190 9' Telefone (031) 261-6322
Caixa Postal 289 Fax (031) 261-6950
30161-970 Belo Horizonte, MG-Brasil
Price Waterhouse
Report of Independent Accountants
February 28, 1997
To the Board of Directors and Stockholders
Companhia Energetica de Minas Gerais - CEMIG
1 We have audited the accompanying balance sheets of Companhia Energetica de
Minas Gerais - CEMIG as of December 31, 1996 and 1995 and the related
statements of income, of changes in stockholders' equity and of changes in
financial position for the years then ended, expressed in currency of
constant purchasing power. These financial statements are the
responsibility of the company's management. Our responsibility is to
express an opinion on these financial statements.
2 We conducted our audits in accordance with Brazilian approved auditing
standards which require that we perform the audit to obtain reasonable
assurance about whether the financial statements are fairly presented in
all material respects. Accordingly, our work included, among other
procedures: (a) planning our audits taking into consideration the
significance of balances, the volume of transactions and the accounting and
internal control systems of the company; (b) examining, on a test basis,
evidence and records supporting the amounts and disclosures in the
financial statements; and (c) assessing the accounting practices used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.
3 In our opinion, the financial statements audited by us present fairly, in
all material respects, the financial position of Companhia Energetica de
Minas Gerais - CEMIG at December 31, 1996 and 1995 and the results of its
operations, the changes in stockholders' equity and the changes in its
financial position for the years then ended, in conformity with accounting
principles generally accepted in Brazil.
4 The U. S. dollar amounts shown in these financial statements are presented
solely for the convenience of the reader. These amounts were translated on
the bases explained in Note 2.2 to the financial statements.
/s/ Price Waterhouse
Price Waterhouse
Auditores Independentes
CRC--SP-16O "S" MG
/s/ Jorge R. Manoel
Jorge R. Manoel
Partner
Contador CRC-SP-110.719 "T" MG
<PAGE>
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
BALANCE SHEET
AT DECEMBER 31, 1996 AND 1995
IN THOUSANDS OF REAIS AND IN THOUSANDS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
R$ US$
-------------------------- ------------
ASSETS 1996 1995 1996
------------ ------------ ------------
CURRENT ASSETS
Cash and banks 154,348 160,481 148,497
------------ ------------ ------------
<S> <C> <C> <C>
Accounts receivable, securities
and other assets
Consumers and dealers 338,157 305,060 325,339
Income receivable 6,329 l0,815 6,089
Recoverable taxes and social contribution 99,960 59,569 96,171
Sundry debtors 56,226 24,646 54,094
Other receivables 14,543 2,038 13,992
Allowance for doubtful
accounts (31,223) (15,336) (30,039)
Stores 94,918 84,292 91,320
Services in process 13,919 5,727 13,391
------------ ------------ ------------
592,829 476,811 570,357
------------ ------------ ------------
Prepaid expenses 3,161 3,262 3,041
------------ ------------ ------------
750,338 640,554 721,895
------------ ------------ ------------
LONG-TERM RECEIVABLES
Securities 135,461 130,327
Judicial deposits 1,714 1,816 1,649
Other receivables 933,501 880,346 898,115
------------ ------------ ------------
l,070,676 882,162 l,030,091
------------ ------------ ------------
PERMANENT ASSETS
Investments l08,917 91,842 104,788
Property, plant and equipment 11,268,491 9,431,734 10,841,342
Deferred charges 5,170 1,548,709 4,974
------------ ------------ ------------
11,382,578 ll,072,285 l0,951,104
------------ ------------ ------------
TOTAL ASSETS 13,203,592 12,595,001 12,703,090
</TABLE>
<PAGE>
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
BALANCE SHEET
AT DECEMBER 31, 1996 AND 1995
IN THOUSANDS OF REAIS AND IN
THOUSANDS OF U.S. DOLLARS (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
R$ US$
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995 1996
------------ ---------- -----------
<S> <C> <C> <C>
CURRENT LIABILITIES
Suppliers 118,876 128,186 114,370
Payroll 2,486 6,900 2,392
Financial charges l0,909 10,067 10,495
Taxes and social contribution 185,617 148,634 178,581
Proposed dividends 130,787 141,903 125,829
Loans and financings 141,029 79,291 135,683
Accrued liabilities 182,014 189,683 175,115
Taxes charged to consumers 66,057 75,134 63,553
Profit sharing 12,918 12,428
Advance billing of electric power 47,832 3,337 46,019
Other 94,306 74,266 90,731
------------ ---------- -----------
992,831 857,401 955,196
------------ ---------- -----------
LONG-TERM LIABILITIES
Loans and financings 879,807 746,634 846,456
Deferred taxes 523,720 492,098 503,868
Advance billing of electric power 64,315 61,877
Other 30,374 64,556 29,223
------------ ---------- -----------
1,498,216 1,303,288 1,441,424
Special contributions 1,143,350 1,041,397 l,l00,0l0
------------ ---------- -----------
2,641,566 2,344,685 2,541,434
------------ ---------- -----------
STOCKHOLDERS' EQUITY
Capital 1,736,116 1,735,045 1,670,306
Capital reserves 5,846,192 5,683,970 5,624,583
Revenue reserves 1,929,301 1,946,941 1,856,168
Retained earnings 45,989 15,396 44,246
------------ ---------- -----------
9,557,598 9,381,352 9,195,303
Funds for future capital
increase 11,597 11,563 11,157
------------ ---------- -----------
9,569,195 9,392 915 9,206,460
------------ ---------- -----------
TOTAL LIABILITIES 13,203,592 12,595,001 12,703,090
============ ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
BALANCE SHEET
AT DECEMBER 31, 1996 AND 1995
IN THOUSANDS OF REAIS AND IN THOUSANDS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
R$ US$
------------------------- ---------
1996 1995 1996
----------- ------------ ---------
<S> <C> <C> <C>
OPERATING REVENUE
Electricity sales
to final consumers 2,462,677 2,276,246 2,369,326
Electricity sales to the Interconnected
Power System and other
concessionaires 98,868 79,920 95,120
Other 42,582 30,874 40,968
----------- ------------ ---------
2,604,127 2,387,040 2,505,414
Deduction from operating revenue
Global reversal of reserve quota (60,401) (121,781) (58,112)
Fuel consumption account quota (81,806) (75,983) (78,705)
Taxes and contributions on revenue (506,188) (463,342) (487,000)
----------- ------------ ---------
(648,395) (661,106) (623,817)
----------- ------------ ---------
NET OPERATING REVENUE 1,955,732 1,725,934 1,881,597
----------- ------------ ---------
OPERATING EXPENSES
Personnel (553,328) (509,730) (535,353)
Supplies (38,921) (35,842) (37,446)
Third-party services (129,070) (ll0,267) (124,177)
Electric power purchased
for resale (435,253) (461,733) (418,754)
Depreciation and amortization (441,436) (466,480) (424,703)
Royalties for the use of
water resources (24,637) (25,375) (23,703)
Leasing, rents and loans of assets (16,104) (15,631) (15,494)
Formation of operating provisions (39,901) (19,667) (38,389)
Other expenses, net (42,651) (66,139) (41,034)
----------- ------------ ---------
(1,721,301) (1,710,864) (1,656,053)
----------- ------------ ---------
</TABLE>
<PAGE>
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
STATEMENT OF INCOME
YEARS DECEMBER 31, 1996 AND 1995
IN THOUSANDS OF REAIS AND IN
THOUSANDS OF U.S. DOLLARS (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
R$ US$
--------------------- ---------
1996 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
FINANCIAL INCOME (EXPENSES)
Income from financial investments 32,394 70,065 31,166
Interest on electricity bills
paid in arrears 59,484 60,044 57,229
Finance charges (57,546) (66,475) (55,364)
Net monetary variations and others 61,276 43,513 58,953
--------- --------- ---------
95,608 107,147 91,984
--------- --------- ---------
OPERATING PROFIT 330,039 122,217 317,528
--------- --------- ---------
Non-operating income 17,001 19,546 16,357
Non-operating expenses (13,982) (26,448) (13,452)
--------- --------- ---------
3,019 (6,902) 2,905
--------- --------- ---------
INCOME BEFORE TAXATION
AND PROFIT SHARING 333,058 115,315 320,433
INCOME TAX AND SOCIAL CONTRIBUTION (78,151) (68,160) (75,189)
REVERSAL OF DEFERRED TAXES 8,082 189,873 7,776
EMPLOYEES' PROFIT SHARING (21,414) (20,602)
--------- --------- ---------
NET INCOME FOR THE YEAR 241,575 237,028 232,418
========= ========= =========
NET INCOME PER THOUSAND
SHARES R$/US$ 1.86 1.83 1.79
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
IN THOUSANDS OF REAIS
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FUNDS
RESTATED OTHER FOR FUTURE
PAID-UP CAPITAL REVENUE RETAINED CAPITAL
CAPITAL RESERVES RESERVES EARNINGS INCREASE TOTAL
----------- ---------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1995 1,735,045 5,683,970 1,946,941 15,396 11,563 9,392,915
----------- ---------- ---------- ---------- ------------ -----------
Capital increase (EGM of 11.08.96) 1,071 (1,071)
Premium on share subscription 3,211 (3,211)
Remuneration of construction in progress
financed by own resources 156,973 156,973
Funds for capital increase - advances received 4,316 4,316
Reversal of income tax and social contribution
on special restatement of special contributions (51,316) (51,316)
Difference in social contribution rate (49,113) (49,113)
Transfer relating to reduction in 1992 income tax rate 98,807 (98,807)
Investment credits 4,805 4,805
Treasury stock (1,145) (1,145)
Reversal of dividends relating to treasury stock 56 56
Net income for the year 241,575 241,575
Transfer to retained profits reserve 122,499 (122,499)
Reversal of unrealized profits reserve (41,388) 41,388
Proposed dividends R$ 1.00 per thousand shares) (129,871) (129 871)
----------- ---------- ---------- ---------- ------------ -----------
AT DECEMBER 31, 1996 1,736,116 5,846,192 1,929,301 45,989 11,597 9,569,195
----------- ---------- ---------- ---------- ------------ -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
IN THOUSANDS OF REAIS (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FUNDS
RESTATED OTHER FOR FUTURE
PAID-UP CAPITAL REVENUE RETAINED CAPITAL
CAPITAL RESERVES RESERVES EARNINGS INCREASE TOTAL
----------- ---------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1994 1,666,410 4,370,666 891,643 969,817 130,710 8,029,246
----------- ---------- ---------- ---------- ------------ -----------
Capital increase (AGM de 03.27.95 e EGM 12.11.95) 68,635 (68,635)
Premium on share subscription 72,122 (72,122)
Remuneration of construction in progress
financed by own resources 134,587 134,587
Funds for capital increase - advances received 21,610 21,610
Income tax on special restatement - adjustment
of rate - Law 9249/95 328,036 328,036
Investment credits
Credit assignment of results account for offset - CRC 771,745 771,745
Others 6,814 6,814
Adjustment of deferred taxes 5,606 5,606
Net income for the year 237,028 237,028
Transfer to reserves:
Legal 11,849 (11,849)
Retained profits 854,482 (854,482)
Unrealized profits 225,134 (225,134)
Reversal of unrealized profits reserve (36,167) 36,167
Proposed dividends (R$ 1.OO per thousand shares) (141,757) (141.757)
----------- ---------- ---------- ---------- ------------ -----------
AT DECEMBER 31, 1995 1,735,045 5,683,970 1,946,941 15,396 11,563 9,392,915
----------- ---------- ---------- ---------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FUNDS
RESTATED OTHER FOR FUTURE
PAID-UP CAPITAL REVENUE RETAINED CAPITAL
CAPITAL RESERVES RESERVES EARNINGS INCREASE TOTAL
----------- ---------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1995 1,669,276 5,468 511 1,873,139 14,812 11,125 9,036,863
----------- ---------- ---------- ---------- ------------ -----------
Capital increase (EGM of 11.08.96) 1,030 (1,030)
Premium on share subscription 3,089 (3,089)
Remuneration of construction in progress financed by
own resources 151,023 151,023
Funds for capital increase - advances received 4,151 4,151
Reversal of income tax and social contribution on
special restatement of special contributions (49,371) (49,371)
Difference in social contribution rate (47,251) (47,251)
Transfer relating to reduction in 1992 income tax rate 95,061 (95,061)
Investment credits 4,623 4,623
Treasury stock (1,102) (1,102)
Reversal of dividends relating to treasury stock 54 54
Net income for the year 232,418 232,418
Transfer to retained profits reserve 117,855 (117,855)
Reversal of unrealized profits reserve (39,819) 39,819
Proposed dividends (US$ 0 96 per thousand shares) (124,948) (124,948)
----------- ---------- ---------- ---------- ------------ ------------
AT DECEMBER 31, 1996 1,670,306 5,624,583 1,856,168 44,246 11,157 9,206,460
----------- ---------- ---------- ---------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
BALANCE SHEET
AT DECEMBER 31, 1996 AND 1995
IN THOUSANDS OF REAIS AND IN THOUSANDS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
R$ US$
------------------------- ------------
1996 1995 1996
----------- ------------ ------------
<S> <C> <C> <C>
FINANCIAL RESOURCES WERE PROVIDED BY:
Operations
Net income for the year 241,575 237,028 232,418
Expenses (income) not affecting
working capital: 441,436 466,480 424,703
Depreciation and amortization 21 (416) 20
Allowance for doubtful accounts - long-term (15,561)
Remuneration of construction in progress (13,967) 6,073 (13,437)
Increase in deferred income tax
Equity in the earnings of subsidiary (501) (4,810) (482)
company (80,724) (23,354) (77,664)
Long-term gains and losses 14,110 25,002 13,575
Residual value of asset disposals 9,680 12,637 9,313
Adjustments to present value -
long-term receivables (8,082) (189,873) (7,776)
Reversal of deferred taxes
Interest and charges on
long-term receivables (62,629) (31,907) (60,255)
----------- ------------ ------------
540,919 481,299 520,415
----------- ------------ ------------
Stockholders
Advances for future capital increase 4,316 21,61O 4,151
----------- ------------ ------------
Third-parties
Financing 292,984 210,368 281,879
Transfer from current to long-term 120,132
financing - renegotiations 4,805 1,615 4,623
Investment credits
Write down of fixed assets on discontinued 25,539 2,714 24,571
operations 101,953 91,420 98,088
Special contributions
Increase in other long-term
liabilities 69,192 2,043 66,569
Other 56 27 54
----------- ------------ ------------
494,529 428,319 475,783
----------- ------------ ------------
TOTAL FUNDS PROVIDED 1,039,764 931,228 1,000,350
----------- ------------ ------------
</TABLE>
<PAGE>
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
STATEMENT OF CHANGES IN FINANCIAL POSITION
YEARS ENDED DECEMBER 31, 1996 AND 1995
IN THOUSANDS OF REAIS AND IN
THOUSANDS OF U.S. DOLLARS (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
R$ US$
------------------------ -----------
1996 1995 1996
---------- ---------- -----------
<S> <C> <C> <C>
FINANCIAL RESOURCES WERE USED FOR:
Property, plant end equipment 624,798 642,943 601,114
Proposed dividends 129,871 141,757 124,948
Increase in long-term receivables 127,674 75,304 122,834
Increase in investments 8,480 2,982 8,158
Transfer from long-term to current
liabilities
Deferred taxes 5,181 73,064 4,985
Loans and Financing 145,163 82,748 139,660
Other 23,041 17,728 22,168
Increase in deferred charges 57 60 55
Treasury stock 1,145 1,102
---------- ---------- -----------
TOTAL FUNDS USED 1,065,410 1,036,586 1,025,024
---------- ---------- -----------
DECREASE IN WORKING CAPITAL (25,646) (105,358) (24,674)
---------- ---------- -----------
CHANGES IN WORKING CAPITAL
CURRENT ASSETS
At the beginning of the year 640,554 536,166 616,273
At the end of the year 750,338 640,554 721,895
---------- ---------- -----------
109,784 104,388 105,622
---------- ---------- -----------
CURRENT LIABILITIES
At the beginning of the year 857,401 647,655 824,900
At the end of the year 992,831 857,401 955,196
---------- ---------- -----------
135,430 209,746 130,296
---------- ---------- -----------
DECREASE IN WORKING CAPITAL (25,646) (105,358) (24,674)
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
NOTES TO THE FINANCIAL STATEMENTS AT
DECEMBER 31, 1996 AND 1995 IN THOUSANDS OF
REAIS AND IN THOUSANDS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
1 OPERATIONS
Companhia Energetica de Minas Gerais - CEMIG, a Brazilian listed
corporation registered under GEMEC/RCA certificate No. 200-75/109 and the
General Taxpayers' Register (C.G.C) No. 17.155.730/0001 -64, is an electric
power public utility concessionaire controlled by the Minas Gerais State
Government. Its principal business activities are the construction and
operation of systems used in the generation, transformation, transmission,
distribution and sale of electric power, as well as the development of
activities in diverse energy-related areas for business purposes.
The concession area held by CEMIG covers 562,762 km(2), approximately 97%
of the territory of the State of Minas Gerais, providing power to some
4,248 thousand (1995 - 4,049 thousand) consumers. It has 35 power plants,
mainly hydroelectric, with a generating capacity of approximately 5,068 MW
(1995 - 4,962 MW).
The construction of the following hydroelectric power plants is still in
progress:
* Miranda, with a generating capacity of 390 MW. Start-up of operations
of the first unit is programmed for 1997. The total estimated cost is
R$ 848,628 (US$ 816,459), which is being financed with the company's
own funds and funds from Eletrobras and from IMPSA. R$ 618,820 (US$
595,363) of this amount has already been expended to date, net of
interest on construction.
* Igarapava, with a generating capacity of 210 MW, is a joint venture
with private enterprise. The total estimated cost is R$ 243,599 (US$
234,365), of which CEMIG's participation is 14.5%.
The company has 14,923 employees (16,452 in 1995) and the minimum and
maximum monthly salaries in December 1996 were R$ 389.00 (US$ 374.25) and
R$ 8,943.00 (US$ 8,604.00), respectively.
<PAGE>
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
NOTES TO THE FINANCIAL STATEMENTS AT
DECEMBER 31, 1996 AND 1995 IN THOUSANDS OF
REAIS AND IN THOUSANDS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
2 PRESENTATION OF THE FINANCIAL STATEMENTS
The financial statements were prepared in conformity with the requirements
of Brazilian corporate legislation and the Brazilian Securities Commission
(CVM). The procedures adopted may be summarized as follows:
MONETARY ITEMS
Monetary items which include anticipated inflation and interest were
adjusted to present value by using the National Association of Investment
Banks and Securities Dealers (ANBID) rate.
Monetary gains and losses, as well as the adjustments to present value,
were allocated to the statement of income accounts according to their
nature. In the specific cases of suppliers, consumers and dealers, monetary
gains and losses were allocated to the financial income (expense) accounts.
NON-MONETARY ITEMS
These are shown at restated cost expressed in currency of constant
purchasing power at December 31, 1996.
ITEMS IN THE STATEMENTS OF INCOME, OF CHANGES IN STOCKHOLDERS' EQUITY AND
OF CHANGES IN FINANCIAL POSITION
These are restated as from the date or month they were recorded through
December 31, 1996, adjusted both for gains and losses on monetary items and
for the adjustment to present value of receivables and payables.
COMPARATIVE FINANCIAL STATEMENTS
The financial statements for the year ended December 31, 1995 were adjusted
for comparative purposes to currency of constant purchasing power at
December 31, 1996, using the variation of the General Market Price Index
(IGP-M) in 1996 as the basis for restatement.
Monetary gains and losses, adjustments to present value and the restatement
of inventories and monetary items were allocated to the income and expense
accounts to which they relate as follows:
GAINS AND LOSSES NET OF RESTATEMENTS (1996)
<PAGE>
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
NOTES TO THE FINANCIAL STATEMENTS AT
DECEMBER 31, 1996 AND 1995 IN THOUSANDS OF
REAIS AND IN THOUSANDS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INCOME AND EXPENSE ACCOUNTS R$ US$ MONETARY ITEMS
- ------------------------------------------------------------------------------------------------------------------------------------
Deductions from operating revenue
Reserve/fuel consumption quotas 5,590 5,378 Taxes charged to consumers
Taxes and contributions on revenue 3,766 3,623 Taxes and social contributions - ICMS
OPERATING EXPENSES
Personnel 8,664 8,336 Payroll and social security contributions
Supplies (5,001) (4,811) Stores
Third party services (1,146) (1,103) Services in progress
Royalties for the use of
water resources 380 366 Water resources
Other operating expenses 35,371 34,030 Sundry
FINANCIAL INCOME (EXPENSES)
Finance charges 646 622 Finance charges payable
Other 10,626 10,223 Sundry
NON-OPERATING INCOME (554) (533) Services in progress
PROVISION FOR INCOME TAX 41,596 40,019 Provision for income tax
- ------------------------------------------------------------------------------------------------------------------------------------
GAINS AND LOSSES NET OF RESTATEMENTS (1995)
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME AND EXPENSE ACCOUNTS R$ MONETARY ITEMS
- ------------------------------------------------------------------------------------------------------------------------------------
Deductions from operating revenue
Reserve/fuel consumption quotas 6,745 Taxes charged to consumers
Taxes and contributions on revenue 12,316 Taxes and social contributions - ICMS
OPERATING EXPENSES
Personnel 24,984 Payroll and social security contributions
Supplies (9,488) Stores
Third party services (2,181) Services in progress
Royalties for the use of
water resources 934 Water resources
Social charges not related
to payroll 195 Taxes and social charges payable
Other operating expenses 13,256 Sundry
FINANCIAL INCOME (EXPENSES)
Finance charges 871 Finance charges payable
Other 10,873 Sundry
NON-OPERATING INCOME (177) Services in progress
PROVISION FOR INCOME TAX 3,108 Provision for income tax
</TABLE>
<PAGE>
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
NOTES TO THE FINANCIAL STATEMENTS AT
DECEMBER 31, 1996 AND 1995 IN THOUSANDS OF
REAIS AND IN THOUSANDS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
ADJUSTMENT TO PRESENT VALUE AND RESTATEMENT OF INVENTORIES (1996)
<TABLE>
<CAPTION>
OPERATING REVENUE R$ US$
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Electricity sales (28,076) (27,012) Consumers and dealers
OPERATING EXPENSES
Supplies 8,259 7,946 Stores - special restatement
126 121 Suppliers
Third-party services 1,875 1,804 Suppliers
Electric power purchased for resale 1,040 1,001 Suppliers
Other expenses 471 453 Suppliers
FINANCIAL INCOME (EXPENSES)
Commercial financial income 28,390 27,314 Consumers and dealers
Commercial financial expense (11,055) (10,636) Suppliers
---------- --------
1,030 991
EFFECT OF INCOME TAX (315) (303)
---------- --------
715 688
========== ========
<CAPTION>
ADJUSTMENTS TO PRESENT VALUE AND RESTATEMENT OF INVENTORIES (1995)
OPERATING REVENUE R$
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Electricity sales (46,193) Consumers and dealers
OPERATING EXPENSES
Supplies 14,816 Stores - special restatement
286 Suppliers
Third-party services 2,808 Suppliers
Electric power purchased
for resale 1,797 Suppliers
Other expenses 606 Suppliers
FINANCIAL INCOME (EXPENSES)
Commercial financial income 46,310 Consumers and dealers
Commercial financial expense (20,364) Suppliers
----------
66
EFFECT OF INCOME TAX (21)
----------
45
==========
</TABLE>
<PAGE>
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
NOTES TO THE FINANCIAL STATEMENTS AT
DECEMBER 31, 1996 AND 1995 IN THOUSANDS OF
REAIS AND IN THOUSANDS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
2.1 SIGNIFICANT ACCOUNTING PRINCIPLES
The accounting principles comply with the requirements of Brazilian
corporate legislation, of the Brazilian Securities Commission (CVM) and
with those of the regulatory authority - the National Water and Electric
Power Department - DNAEE. The main principles are the following:
* Assets and liabilities in foreign currency are restated based on the
exchange rates ruling at the balance sheet dates;
* Other assets and liabilities, subject to monetary correction by force
of law or contract, are restated to show amounts at the balance sheet
dates, using the indices determined by law or the related contracts;
* The electric power supplied at the balance sheet dates, but not yet
billed, was accounted for on the accrual basis;
* The allowance for doubtful accounts is recorded at an amount
considered sufficient to cover probable losses, both short and
long-term;
* Inventories of materials, classified as current assets, are stated at
their average cost;
* Investment in subsidiary company is recorded on the equity method of
accounting;
* Property, plant and equipment in use is depreciated on the
straight-line basis at rates determined by the regulatory authority.
Depreciation is charged to operating expenses or the cost of expansion
projects, depending on the use of the assets concerned.
* Remuneration of own resources used to finance construction of assets
and installations is based on the Long-term Interest Rate (TJLP),
limited to 10% a year and recorded in property, plant and equipment
with counter entries credited to stockholders' equity.
* Interest and other financial charges on financing from third parties
related to construction in progress were appropriated to property,
plant and equipment during the course of construction.
* The provision for income tax is recorded gross and is charged against
results for the year net of credits from tax losses and from the
effects of tax temporary differences.
<PAGE>
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
NOTES TO THE FINANCIAL STATEMENTS AT
DECEMBER 31, 1996 AND 1995 IN THOUSANDS OF
REAIS AND IN THOUSANDS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
2.2 TRANSLATION INTO U.S. DOLLARS
The amounts in U.S. dollars in these financial statements as at and for the
years ended December 31,1996 were translated from the amounts in the reais
financial statements expressed in constant currency at December 31,1996 at
the exchange rate of R$ 1.0394 to US$ 1.00. Such translation should not be
construed as representing that the reais amounts represent or have been or
could be converted into U.S. dollars at that or any other rate.
3 CONSUMERS AND DEALERS
<TABLE>
<CAPTION>
R$ US$
----------------------------- -----------
1996 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
Consumers - Invoices rendered 159,858 142,848 153,799
Consumers - Invoices not yet rendered 108,637 103,727 104,519
Consumers - Renegotiated receivables 33,817 41,096 32,535
Dealers - Billed 9,968 10,708 9,590
Other 25,877 6,681 24,896
---------- ----------- -----------
338,157 305,060 325,339
========== =========== ===========
</TABLE>
4 OTHER LONG-TERM RECEIVABLES
<TABLE>
<CAPTION>
R$ US$
----------------------------- -----------
1996 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
Renegotiated contracts with consumers 77,025 77,735 74,105
Credit assignment contracts (CRC) 855,860 802,185 823,417
Other 616 426 593
---------- ----------- -----------
933,501 880,346 898,115
========== =========== ===========
</TABLE>
<PAGE>
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
NOTES TO THE FINANCIAL STATEMENTS AT
DECEMBER 31, 1996 AND 1995 IN THOUSANDS OF
REAIS AND IN THOUSANDS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
5 INVESTMENTS
<TABLE>
<CAPTION>
R$ US$
----------------------------- -----------
1996 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
Long-term equity investments 36,939 30,366 35,539
(-) Provision for loss (357) (357) (343)
Project studies 50,645 40,004 48,725
Jequitinhonha river control project 13,548 14,009 13,034
Other investments 8,142 7,820 7,833
---------- ----------- -----------
108,917 91,842 104,788
========== =========== ===========
</TABLE>
Long-term equity investments include R$ 31,215 (US$ 30,032) representing a
95.05% holding in the capital of Companhia de Gas de Minas Gerais - GASMIG.
CEMIG intends to sell control of this subsidiary company, approval for
which was given in State Law 12279 of July 29, 1996.
Project studies relate to expenses for technical and economic feasibility
studies for the construction of power plants and installations,
sub-stations and transmission lines to be carried out in the company's
concession area and in particular with the Formoso, Bocaina and Irape
projects. Once projects start, expenses are transferred to construction in
progress accounts.
<PAGE>
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
NOTES TO THE FINANCIAL STATEMENTS AT
DECEMBER 31, 1996 AND 1995 IN THOUSANDS OF
REAIS AND IN THOUSANDS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
6 PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
R$ US$
----------------------------- -----------
1996 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
In operation
Generation
Thermoelectric plants 141,253 148,430 135,899
Hydroelectric plants and other 5,376,803 4,349,675 5,172,987
Transmission 2,656,873 2,403,098 2,556,160
Distribution 5,076,539 4,545,913 4,884,105
Intangibles 19,185 17,796 18,458
Other 1,077,030 1,031,339 1,036,204
---------- ----------- -----------
14,347,683 12,496,251 13,803,813
(-) Accumulated depreciation
and amortization (5,246,872) (4,456,105) (5,047,982)
---------- ----------- -----------
9,l00,811 8,040,146 8,755,831
Constructions in progress 2,167,680 1,391,588 2,085,511
---------- ----------- -----------
11,268,491 9,431,734 10,841,342
========== =========== ===========
</TABLE>
Depreciation and amortization are calculated at the following annual rates
specifically established for electric power concessionaires: Thermoelectric
plants and intangibles -5%; distribution assets -4% and all other assets -
3%.
Construction in progress relates mainly to the expansion of the generation,
transmission and distribution systems, as follows:
<TABLE>
<CAPTION>
R$ US$
----------------------------- ------------
1996 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
Generation 1,080,018 405,251 1,039,078
Transmission 485,790 322,977 467,376
Distribution 14,531 28,320 13,980
Material in stores 125,506 111,888 120,749
Dams for river control 253,353 222,381 243,749
Other 208,482 300,771 200,579
---------- ----------- -----------
2,167,680 1,391,588 2,085,511
========== =========== ===========
</TABLE>
<PAGE>
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
NOTES TO THE FINANCIAL STATEMENTS AT
DECEMBER 31, 1996 AND 1995 IN THOUSANDS OF
REAIS AND IN THOUSANDS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
As prescribed in articles 63 and 64 of Decree 41,019 of February 26, 1957,
assets and installations used in the generation, transmission and
distribution of electricity cannot be withdrawn, sold, lent or mortgaged
without prior specific authorization by the regulatory authority.
As from 1996, the company is capitalizing financial charges and
inflationary effects on the construction financing as part of the cost of
property, plant and equipment as prescribed in Article 2 of DNAEE
Administrative Rule 526, of November 22, 1995, The following amounts were
capitalized in 1996:
R$ US$
--------- ---------
Financial charges 21,440 20,627
Inflationary effects 11,035 10,617
--------- ---------
32,475 31,244
========= =========
Expenses have been incurred on river control works which are included in
the property, plant and equipment accounts. The company has started
negotiations with the State Government for their transfer. At December 31,
1996, amounts incurred are as follows:
R$ US$
--------- ---------
Investments 13,548 13,035
Constructions in progress 253,353 243,749
--------- ----------
266,901 256,784
========== ==========
These amounts include approximately R$ 80,000 (US$ 76,967) related to
interest capitalized on construction.
<PAGE>
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
NOTES TO THE FINANCIAL STATEMENTS AT
DECEMBER 31, 1996 AND 1995 IN THOUSANDS OF
REAIS AND IN THOUSANDS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
7 DEFERRED CHARGES
<TABLE>
<CAPTION>
R$ US$
----------------------------- -----------
1996 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
Expenses on remuneration of
construction in progress 1,880,164
Financial charges and
inflationary effects 102,309
Other deferred items 11,053 22,127 10,634
---------- ----------- -----------
11,053 2,004,600 10,634
(-) Accumulated amortization (5,883) (455,891) (5,660)
---------- ----------- -----------
5,170 1,548,709 4,974
========== =========== ===========
</TABLE>
Expenses on remuneration of construction in progress, financial charges and
inflationary effects recorded as deferred charges up to December 31, 1995
were transferred to the respective Construction in progress and Services
accounts in 1996, under the terms of DNAEE Administrative Rule 526, of
November 22, 1995.
8 ADVANCE BILLING OF ELECTRIC POWER
In October 1996, the company sold 3,980,400 MW of electricity to a private
sector consumer over a 30-month period. The amount agreed between the
parties of R$ 118,572 (US$ 114,077) was fully received and is substantially
invested in long-term securities.
At December 31, 1996, the amount related to future sales is reflected in
liabilities as follows:
R$ US$
--------- ---------
Short-term 47,832 46,019
Long-term 64,315 61,877
--------- ---------
112,147 107,896
========= =========
Balances are subject to restatement based on the U. S. dollar variation.
<PAGE>
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
NOTES TO THE FINANCIAL STATEMENTS AT
DECEMBER 31, 1996 AND 1995 IN THOUSANDS OF
REAIS AND IN THOUSANDS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
9 LOANS AND FINANCING
Most of the loans and financing are secured by guarantees from the Federal
and State Governments and were contracted in order to generate resources
for the expansion of the generation, transmission and distribution of
electric power systems in its concession area.
The composition of loans and financing outstanding at December 31, 1996 is
presented as follows:
<PAGE>
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
NOTES TO THE FINANCIAL STATEMENTS
AT DECEMBER 31, 1996 AND 1995
IN THOUSANDS OF REAIS
<TABLE>
<CAPTION>
FOREIGN CURRENCY DEBT (1) 1996
------------------------------
ANNUAL SHORT LONG
INSTITUTIONS DUE DATE INTEREST(%) CURRENCY TERM TERM TOTAL
- -------------------------------------------- ------------- ----------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Interamerican Development Bank (BID) 1984/2O06 4.0 to 9.25 Sundry 26,496 90,235 116,731
International Bank for Reconstruction
and Development (IBRD) 1981/2002 7.25 Sundry 5,141 28,791 33,932
Chase Manhattan Bank 1997/1998 9.88125 US$ 34,647 17,323 51,970
IMPSA - Industria Metalurgica Pescarmona S/A 1999/2003 9.8 US$ 43,776 43,776
Banco do Brasil S/A (2) 1997/2024 Sundry US$ 370 111,354 111,724
Citibank N.A. 1997 8.8125 US$ 2,868 2,868
Sundry (3) 2004 9.125 US$ l55,9l0 l55,9l0
Autotrol S.A.C.I.A.F. & I 1999/2002 12.0 US$ 215 215
Bank Boston 1997 5.8125 and 5.8750 US$ 4,307 4,307
S.B.E./Asea 1997/1999 10.5 US$ 26,207 50,846 77,053
Siemens S/A 2000 9.97 US$ 1,205 1,205
Nativa S/A 2000 9.97 US$ 2,641 2,641
--------- --------- ---------
Total foreign currency debt 100,036 502,296 602,332
--------- --------- - --------
</TABLE>
<PAGE>
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
NOTES TO THE FINANCIAL STATEMENTS
AT DECEMBER 31, 1996 AND 1995
IN THOUSANDS OF REAIS
<TABLE>
<CAPTION>
LOCAL CURRENCY DEBT 1996
------------------------------
ANNUAL SHORT LONG
INSTITUTIONS DUE DATE INTEREST(%) TERM TERM TOTAL
- -------------------------------------------- ------------- ----------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Centrais Eletricas Brasileiras S/A - ELETROBRAS 1995/2024 5 to 10 38,715 365,584 404,299
Fundacao Forluminas de Seguridade Social - FORLUZ 1985/1996 10.0
Major consumers - TELEMIG / CVRD 1982/1998 Sundry 1,367 10,886 12,253
Consumers - RECON/REDES A. PARTICULARES 1994/1997 6.0 773 773
FINEP 1997/2000 10.0 138 734 872
INEPAR 1998/2002 14.48 307 307
----------- --------- --------
Total local currency debt 40,993 377,511 418,504
----------- --------- --------
Total debt (4) 141,029 879,807 1,020,836
----------- --------- --------
The long-term amounts fall due as follows: 1) Amounts are payable in foreign currency, however, in order to facilitate
presentation they were translated into reais.
1996 1995 2) Interest rates vary: - 4% to 8% a year
------- ------- - LIBOR readjusted half-yearly, plus interest from O.8125 to 0.8750% a year
1997 134,513 3) In 1996, the company raised funds in foreign markets through the issue of fixed
1998 167,861 117,450 rate notes and the balance at December 31, 1996 amounts to R$ 155,910.
1999 93,348 95,165 4) At December 31, 1996, in addition to these loans and financing, the company had
2000 85,366 78,180 unused lines of credit of R$ 158,990, of which R$ 71,235 in Brazil and
2001 to 2004 533,232 321,326 R$ 87,755 abroad, which are to be used in the construction program.
------- -------
879,807 746,634
------- -------
</TABLE>
<PAGE>
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
NOTES TO THE FINANCIAL STATEMENTS
AT DECEMBER 31, 1996 AND 1995
IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
FOREIGN CURRENCY DEBT (1) 1996
-----------------------------------------
ANNUAL SHORT LONG
INSTITUTIONS DUE DATE INTEREST(%) CURRENCY TERM TERM TOTAL
- -------------------------------------------- ------------- ----------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Interamerican Development Bank (BID) 1984/2006 4.0 to 9.25 Sundry 25,491 86,815 112,306
International Bank for Reconstruction
and Development (IBRD) 1981/2002 7.25 Sundry 4,946 27,700 32,646
Chase Manhattan Bank 1997/1998 9.88125 US$ 33,334 16,666 50,000
IMPSA - Industria Metalurgica Pescarmona S/A 1999/2003 9.8 US$ 42,117 42,117
Banco do Brasil S/A (2) 1997/2024 Sundry US$ 356 107,133 107,489
Citibank N.A. 1997 8.8125 US$ 2,759 2,759
Sundry (3) 2004 9.125 US$ l50,000 l50,000
Autotrol S.A.C.I.A.F. & I 1999/2002 12.0 US$ 207 207
Bank Boston 1997 5.8125 and 5.8750 US$ 4,144 4,144
S.B.E./Asea 1997/1999 10.5 US$ 25,213 48,919 74,132
Siemens S/A 2000 9.97 US$ 1,159 1,159
Nativa S/A 2000 9.97 US$ 2,541 2,541
--------- --------- ---------
Total foreign currency debt 96,243 483,257 579,500
--------- --------- ---------
</TABLE>
<PAGE>
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
NOTES TO THE FINANCIAL STATEMENTS
AT DECEMBER 31, 1996 AND 1995
IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
LOCAL CURRENCY DEBT (1) 1996
-------------------------------
ANNUAL SHORT LONG
INSTITUTIONS DUE DATE INTEREST(%) TERM TERM TOTAL
- -------------------------------------------- ------------- ----------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Centrais Eletricas Brasileiras S/A - ELETROBRAS 1995/2024 5 to 10 37,247 351,726 388,973
Fundacao Forluminas de Seguridade Social - FORLUZ 1985/1996 10.0
Major consumers - TELEMIG / CVRD 1982/1998 Sundry 1,315 10,473 11,788
Consumers - RECON/REDES A. PARTICULARES 1994/1997 6.0 744 744
FINEP 1997/2000 10.0 133 706 839
INEPAR 1998/2002 14.48 294 295
----------- --------- --------
Total local currency debt 39,439 363,199 402,639
----------- --------- --------
Total debt (4) 135,682 846,456 982,139
----------- --------- --------
The long-term amounts fall due as follows: 1) Amounts are payable in local currency, however, in order to facilitate
presentation they were translated into U.S. dollars.
1996 1995 2) Interest rates vary: - 4% to 8% a year
------- ------- - LIBOR readjusted half-yearly, plus from 0.8125 to 0.8750%
1997 129,414 a year
1998 161,498 112,998 3) In 1996, the company raised funds in foreign markets through the issue of fixed
1999 89,810 91,558 rate notes and the balance at December 31, 1996 amounts to US$ 150,000.
2000 82,130 75,216 4) At December 31, 1996, in addition to these loans and financing, the company had
2001 to 2004 513,019 309,146 unused lines of credit of US$ 152,963, of which US$ 68,535 in Brazil and
------- ------- US$ 84,428 abroad, which are to be used in the construction program.
846,457 718,332
------- -------
</TABLE>
<PAGE>
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
NOTES TO THE FINANCIAL STATEMENTS AT
DECEMBER 31, 1996 AND 1995 IN THOUSANDS OF
REAIS AND IN THOUSANDS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
Percentage participation of currencies in loans and financing at December
31, 1996.
ABROAD BRAZIL
----------------------------------------------- ----------------------
CURRENCY % CURRENCY % INDEX %
-------- ----- --------- ------ ------- ------
US$ 81 FLS 1 IGP-M 57
DM 3 SWFR 4 FINEL 37
Y 2 Unit of account 9 Other 6
The percentage variations in the principal currencies and indexes used to
adjust loans and financing during 1996 were as follows:
CURRENCY/INDEX VARIATION % CURRENCY/INDEX VARIATION %
-------------- ----------- -------------- ------------
FINEL 1.78 DM (1.25)
IGP-M 9.19 SWFR (8.60)
US$ 6.88 SRLS (6.88)
Y (5.28) FLS (162)
Accounting Monetary Unit (UMC)(1.06)
<PAGE>
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
NOTES TO THE FINANCIAL STATEMENTS AT
DECEMBER 31, 1996 AND 1995 IN THOUSANDS OF
REAIS AND IN THOUSANDS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
10 DEFERRED TAXES
<TABLE>
<CAPTION>
R$ US$
----------------------------- -----------
1996 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
INCOME TAX
Inflationary gain 14,711
Result of the special
restatement 426,886 413,109 410,704
426,886 427,820 410,704
Tax credits (temporary timing
differences and tax losses) (43,923) (64,764) (42,258)
Adjustments on inflationary effects 15,753 15,156
Effects of present value adjustments
and restatement of inventories (5,271) (5,586) (5,071)
393,445 357,470 378,531
SOCIAL CONTRIBUTION
Result of special restatement 136,605 134,628 131,427
Tax credits on temporary
timing differences (6,330) (6,090)
---------- ----------- -----------
523,720 492,098 503,868
========== =========== ===========
</TABLE>
11 INCOME TAX AND SOCIAL CONTRIBUTION
The main effects on the 1996 financial statements are the following:
(a) Income tax - due to the non-deductibility of the social contribution as
from 1997 when determining taxable income as prescribed in Law 9316 of
November 22,1996, the balance of the Income Tax on the Special Price-level
Restatement was increased by R$ 38,9O7(US$ 37,432), with a counter entry to
the Special Price-Level Restatement Reserve account.
<PAGE>
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
NOTES TO THE FINANCIAL STATEMENTS AT
DECEMBER 31, 1996 AND 1995 IN THOUSANDS OF
REAIS AND IN THOUSANDS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
(b) Social Contribution - due to the increase in the Social Contribution rate
from 7.4O7% to 8% as from 1997, the deferred Social Contribution asset
balance and the Special Price-Level Restatement balance were increased by
R$ 468 (US$ 450) and R$ 10,206 (US$ 9,819), respectively of which R$ 468
(US$ 450) was credited to net income for the year.
(c) The company prepaid at a discount Income Tax on inflationary gains as
permitted by paragraph 3 of Article 7 of Law 9249/95. This option reduced
the provision for deferred income tax by R$ 8,082 (US$ 7,776), related to
realizations occurred in 1996. The most significant effects arising from
this option were recorded in the year ended December 31, 1995.
(d) The company reversed Income Tax and Social Contribution on the Special
Price-Level Restatement of Special Contributions due to the non-realization
of these taxes because of the specific characteristics of the special
contributions. The reversals of R$ 38,877 (US$37,4O4) and R$ 12,439
respectively, were made against the Special Price-level Restatement Reserve
Account.
12 TAX LOSSES FOR OFFSET AND TIMING DIFFERENCES
The company recorded in the Taxable Income Control Register (LALUR),
accumulated tax losses and timing differences which may be offset against
future taxable income and amount to R$ 1,924 (US$ 1,851) and R$ 41,999
respectively.
13 SPECIAL CONTRIBUTIONS
<TABLE>
<CAPTION>
R$ US$
----------------------------- -----------
1996 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
Consumer contributions 1,134,496 1,032,543 1,091,492
Federal Government participations 8,804 8,804 8,470
Others 50 5O 48
---------- ----------- -----------
1,143,350 1 041.397 1,100,010
========== =========== ===========
</TABLE>
Consumer contributions represent funds received to finance expansion to
enable the company to meet increased demands for the supply of electricity.
Because of their nature these contributions do not represent effective
financial obligations and, accordingly, should not be considered as
liabilities when calculating economic-financial ratios.
<PAGE>
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
NOTES TO THE FINANCIAL STATEMENTS AT
DECEMBER 31, 1996 AND 1995 IN THOUSANDS OF
REAIS AND IN THOUSANDS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
14 STOCKHOLDERS' EQUITY
Fully subscribed and paid-up capital amounts to R$ 1,736,116 (US$
1,670,306). Shares have a nominal value of R$ 0.01 (US$ 0.01) each and are
held as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES IN 1996
STOCKHOLDERS ORDINARY % PREFERRED % TOTAL %
---------------- ------- ----------------- ------ ----------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Minas Gerais
State 28,938,227,169 51 3,948,482,470 5 32,886,709,639 25
MGI 18,719,600,000 33 2,608,329,828 4 21,327,929,828 16
ELETROBRAS 831,165,440 1 831,165,440 1
Others
Local 6,701,522,734 12 15,216,956,279 21 21,918,479,013 17
Foreign 1,597,5O6,860 35 51,364,174,420 70 52,961,681,280 41
---------------- ------- ----------------- ------ ----------------- ---------
Total 56,788,022,203 100 73,137,942,997 100 129,925,965,200 100
================ ======= ================= ====== ================= =========
</TABLE>
<PAGE>
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
NOTES TO THE FINANCIAL STATEMENTS AT
DECEMBER 31, 1996 AND 1995 IN THOUSANDS OF
REAIS AND IN THOUSANDS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF SHARES IN 1995
STOCKHOLDERS ORDINARY % PREFERRED % TOTAL %
---------------- ------- ----------------- ------ ----------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Minas Gerais
State 34,070,765,444 60 12,989,050,573 18 47,059,816,017 36
MGI 13,587,OOO,OOO 24 13,587,000,000 1O
ELETROBRAS 831,165,440 1 1,269,618,153 2 2,100,783,593 2
Others
Local 7,641,965,418 14 20,748,409,835 28 28,390,375,253 22
Foreign 610,744,695 1 38,071,134,442 52 38,681,879,137 30
---------------- ------- ----------------- ------ ----------------- ---------
Total 56,741,640,997 100 73,078,213,003 100 129,819,854 000 100
================ ======= ================= ====== ================= =========
</TABLE>
Preference shares have priority in the return of capital and the right to a
minimum annual dividend equal to 1O% of their nominal value, and share equally
with the ordinary shares when the ordinary stockholders receive dividends in
excess of 10% However, such dividends can never be less than 25% of net income
for the year as adjusted by law. In accordance with legislation and the
company's statutes, the issue of stock dividends up on capitalizing the reserve
resulting from the price-level restatement of capital must comply with the
following:
* Preference shares are to be treated in the same manner as ordinary shares.
* New shares may be issued or the value of those already held may be
increased.
* Capitalization is subject to the decision of shareholders in General
Meeting, but is mandatory once the balance of the restatement reserve
account exceeds 50% of capital.
The company's statutes assure, and the State of Minas Gerais guarantees
(pursuant to Article 9 of State Law 828, of December 14,1951, and Article I of
State Law 8796 of April 29,1985) that private stockholders are entitled to a
minimum dividend of 6% per year in the years the company does not have
sufficient profits to pay dividends to its stockholders.
<PAGE>
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
NOTES TO THE FINANCIAL STATEMENTS AT
DECEMBER 31, 1996 AND 1995 IN THOUSANDS OF
REAIS AND IN THOUSANDS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
Proposed 1996 dividends are equivalent to 10% of the total capital of
R$1,736,116 (US$ 1,670,306), excluding the treasury stock whose nominal
value is R$ 554 (US4 533), appropriated from:
R$ US$
----------- ----------
Realization of unrealized profits reserves 41,388 39,819
Part of net income for the year 88,483 85,129
----------- ----------
129,871 124,948
The amount transferred to the Retained Profits Reserve is intended to
strengthen working capital as well as to set aside resources for
investments in generating, transmission and distribution projects.
Treasury stock relates to the transfer of shares originating from funds
invested in the company's projects in the SUDENE area (Superintendency for
the Development of the Northeast) by the Northeast Investment Fund (FINOR),
as fiscal incentives.
<PAGE>
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
NOTES TO THE FINANCIAL STATEMENTS
AT DECEMBER 31, 1996 AND 1995
IN THOUSANDS OF REAIS AND
IN THOUSANDS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
The composition of other Capital Reserves and Revenue Reserves is as follows:
R$ US$
---------------------- ----------
1996 1995 1996
---------- ---------- ----------
Other capital reserves
Capital restatement - Special
price-level restatement
reserve - Law 8.200/91 1,537,412 1,539,033 1,479,134
Remuneration of construction
in progress financed
by own resources 1,303,225 1,146,252 1,253,824
Investment credits 2,931,367 2,926,563 2,820,249
Premium on capital
subscription 75,333 72,122 72,477
Treasury stock (1,145) (1,101)
---------- ---------- ----------
5,846,192 5,683,970 5,624,583
---------- ---------- ----------
R$
---------------------- ----------
1996 1995 1996
---------- ---------- ----------
Revenue reserves
Legal 102,829 102 829 98,931
Unrealized profits 941,473 982 861 905,785
Retained profits 878,230 854,482 844,939
Other 6,769 6,769 6,513
---------- ---------- ----------
1,929,301 1,946,941 1,856,168
---------- ---------- ----------
<PAGE>
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
NOTES TO THE FINANCIAL STATEMENTS
AT DECEMBER 31, 1996 AND 1995
IN THOUSANDS OF REAIS AND
IN THOUSANDS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
15 ELECTRICITY SALES
<TABLE>
<CAPTION>
Electric power sales, analyzed by class of consumer, are as follows:
MWH R$ US$
----------------------------- ---------------------- -----------
NUMBER OF
CONSUMERS 1996 1995 1996 1995 1996
--------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Residential 3,501,576 6,331,111 5,826,442 767,569 580,541 738,473
Industrial 53,715 20,948,387 20,685,703 1,090,626 1,117,702 1,049,284
Commercial,
services and other
activities 400,873 2,601,781 2,395,838 320,316 292,424 308,174
Rural 245,899 1,268,356 1,157,049 99,976 96,247 96,186
Public authorities 35,960 453,092 419,562 51,831 51,737 49,866
Streetlighting 3,748 812,125 770,105 60,284 53,790 58,000
Public services 4,660 824,193 780,319 57,572 57,371 55,390
Own consumption 1,638 77,052 78,020 7,444
--------- ---------- ----------- ---------- ---------- ----------
4,248,069 33,316,097 32,113,038 2,448,174 2,257,256 2,355,373
--------- ---------- ----------- ---------- ---------- ----------
Supply 11 4,219,122 3,791,983 98,868 79,920 95,120
--------- ---------- ----------- ---------- ---------- ----------
4,248,080 37,535,219 35,905,021 2,547,042 2,337,176 2,450,493
Power supplied
not yet billed 14,503 18,990 13,953
Other income 42,582 30,874 40,968
---------- ---------- ----------
2,604,127 2,387,040 2,505,414
Deductions from
operating revenue (648,395) (661,106) (623,817)
--------- ---------- ----------- ---------- ---------- ----------
Total 4,248,080 37,535219 35,905,021 1,955,732 1,725,934 1,881,597
--------- ---------- ----------- ---------- ---------- ----------
</TABLE>
16 DEDUCTIONS FROM OPERATING REVENUE
As from 1996, the Global Reversal of Reserve quota (RGR) is being
calculated in accordance with the requirements of Decree 1771/96 of January
3, 1996, which determined the rate of 2.5% on assets subject to reversal
but limited to 3% of annual sales of the concessionaire. In prior years the
RGR was calculated at 3% of such assets limited to 12% of annual sales.
<PAGE>
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
NOTES TO THE FINANCIAL STATEMENTS
AT DECEMBER 31, 1996 AND 1995
IN THOUSANDS OF REAIS AND
IN THOUSANDS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
17 PROFIT SHARING
The collective labor agreement established the criteria for determining
employees' profit sharing and defined the parameters for establishing this
amount, to include: Investment Remuneration Rate, Consumers Satisfaction
Index, Electricity Billed per Employee, Time Equivalent Interruption by
Consumer and Voluntary Absenteeism. Based on this criteria, a provision
for profit sharing in 1996 was set up of R$ 13,118 (US$ 12,620).
Also in 1996, the 1995 Employees' Profit Sharing of R$ 8,296 (US$ 7,982)
was paid. Since the profit sharing agreement was signed in May 1996,
performance targets in 1995 were not established.
18 RELATED PARTY TRANSACTIONS
The principal transactions with related parties are the financing received
from ELETROBRAS and FORLUZ (Note 9) and negotiation of the remaining
balance of the Compensation of Rate Shortfalls Account (CRC), as described
in Note 21. Transactions with Minas Gerais State Government entities were
carried out at normal market prices. No other related party transactions
are significant apart from those referred to above.
19 SUPPLEMENTARY RETIREMENT AND PENSION PLAN
Since 1973, the company has sponsored the Fundacao Forluminas de
Seguridade Social - FORLUZ, a non-profit making entity, whose main
objective is to supplement the social security benefits of CEMIG
employees. FORLUZ bases the calculation and accumulation of the funds
required by its benefit plans on the "Established Benefits Plan" and the
"Financial Capitalization System". Accordingly, regular contributions
(from the sponsor and participants) are used to cover, at present values,
the benefits payable to participants, accumulated as from the date they
joined the plan, and also to amortize benefits related to prior periods
which were not covered by additional contributions from the sponsor. The
last actuarial review was carried out in December 1996. The benefits
related to prior periods, estimated at R$ 472,521 (US$ 454,609) as of
December 31, 1996 and R$ 431,226 at December 31, 1995, are being
amortized. through additional monthly contributions based on the
consistent installments system (Price Table) with interest of 6% per year
and readjusted yearly based on the General Price Index - Internal
Availability (IGP-DI) variation. This amortization system has been in
effect since July 1996. CEMIG is responsible for the differences in the
mathematical reserve, actuarially calculated, of R$ 113,182 (US 108,892)
at December 31, 1996 related to the granting of special retirement in
anticipation of length of service retirement, except for those
participants enrolled after January 29, 1996. The balance related to
unamortized reserves must be amortized during a period actuarially
prescribed of no
<PAGE>
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
NOTES TO THE FINANCIAL STATEMENTS
AT DECEMBER 31, 1996 AND 1995
IN THOUSANDS OF REAIS AND
IN THOUSANDS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
longer than 28 years. Additional contributions from the company to FORLUZ
amounted to R$$ 44,472 (US$ 42,786) in 1996 and R$ 23,060 in 1995, for
normal cost R$ 25,065 (US$ 24,115) in 1996 and R$ 19,460 in 1995 and for
special retirement, R$ 24,578. These amounts were charged against the net
income of CEMIG. Any insufficiency in the reserves for beneficiaries are
the responsibility of the sponsor. Financial information on the plan at
December 31,1996, prepared by independent actuaries is as follows:
R$ US$
---------------------- ----------
1996 1995 1996
---------- ---------- ----------
TECHNICAL RESERVES 829,904 621,359 798,445
MATHEMATICAL RESERVES
Benefits granted 1,038,092 682,063 998,742
Benefits to be granted 430,784 450 398 414,454
---------- ---------- ----------
1,468,876 1,132,461 1,413,196
UNAMORTIZED RESERVES (585,703) (431,226) (563,501)
TECHNICAL DEFICIT
FOR THE YEAR (53,269) (79,876) (51,250)
---------- ---------- ----------
As from 1997, all expenses previously covered by the health plans for
retired employees will no longer be the responsibility of CEMIG, including
any possible insufficiency in this program. CEMIG still pays,
independently part of the life insurance premium for retired employees.
The actuarial estimate corresponding to potential liabilities for this
benefit amounts to R$ 141,642 (US$ 136,273) at December 31,1996.
20 INSURANCE
Insurance cover, mainly against fire, is maintained in conformity with the
company's policy of considering the degree of risk to which each asset is
exposed, individually, and the cost of the insurance premium.
<PAGE>
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
NOTES TO THE FINANCIAL STATEMENTS AT
DECEMBER 31, 1996 AND 1995 IN THOUSANDS OF
REAIS AND IN THOUSANDS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
21 Financial Instruments
(a) The present value at December 31, 1996 of the main financial instruments
which are recorded in the account "other receivables", is calculated as
prescribed by Article 3 of the Brazilian Securities Commission (CVM)
Instruction 235 of March 23, 1995 based on the discounted cash flow method
using a discount rate of 12% a year, as shown below:
R$ US$
--------------------- --------------------
Contracts Contracts
Book - present Book - present
value value value value
--------- ----------- -------- -----------
Renegotiated contract with
private sector consumers 79,300 53,820 76,294 51,780
Credit assignment contract
of the balance of the
Compensation of Rate
Shortfall Account (CRC)
to the Government of the
State of Minas Gerais 855,860 544,159 823,417 523,532
--------- ----------- -------- -----------
935,160 597,979 899,711 575,312
--------- ----------- -------- -----------
R$ 4,956 (US4 4,768) of the renegotiated contract with private sector
consumers is short-term.
The remaining credit balance of the Compensation of Rate Shortfall Account
(CRC) was transferred to the Government of the State of Minas Gerais
through a credit assignment contract under the terms of Law 8724/93, with a
grace period of three years after which time the amount will be received in
monthly installments over a period of seventeen years. The receivable is
subject to restatement based on the Fiscal Reference Unit (UFIR) variation
and to interest of 6 % a year as from May 2, 1995 and is guaranteed by the
State Government's participation in taxes collected by the Federal
Government (FPE).
(b) Swap operations, in which pre-fixed interest rates are exchanged for
post-fixed rates, are recorded in the amount of R$ 9,488 (US$ 9,128) which
represents market value.
Management of financial instruments is accomplished by using operating
strategies and controls to achieve liquidity, profitability and security.
<PAGE>
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
NOTES TO THE FINANCIAL STATEMENTS AT
DECEMBER 31, 1996 AND 1995 IN THOUSANDS OF
REAIS AND IN THOUSANDS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
22 CONTINGENCIES
Several industrial consumers took legal action against the increase in
tariffs approved by DNAEE Regulations O38/86 and O45/86 - Cruzado Plan.
Based on the opinion of its legal advisors, the company expects no loss and
does not consider it necessary to make any provision for contingencies.
23 OTHER INFORMATION
On December 27, 1996, Law 9430 was approved and changed income tax and
social contribution legislation, and also introduced other changes
effective as from January 1, 1997. The main changes are as follows:
o The option to prepare quarterly or annual tax computations.
o The creation of a system of transfer prices for transactions with
related parties in local and foreign markets;
o The deductibility limit of the allowance for doubtful accounts was
changed;
o The full deductibility of directors' remuneration is permitted.
<PAGE>
a.(ii) The following condensed unaudited quarterly financial information of
Companhia Energetica de Minas Gerais - CEMIG as of March 31, 1997 and
for the quarters ended March 31, 1997 and 1996 have been derived from
the financial report prepared by CEMIG to meet their statutory
reporting requirements stipulated by Comissao de Valores Mobiliarios
("CVM"), the governmental body which regulates securities in Brazil.
<PAGE>
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
CONDENSED UNAUDITED STATEMENTS OF OPERATIONS
FOR THE QUARTERS ENDED MARCH 31, 1997 AND MARCH 31, 1996
(Expressed in thousands of Brazilian Reais, except per share amounts)
1997 1996
---- ----
Net Sales R$484,284 R$451,761
Operating Costs and Expenses 423,123 386,708
------------- -------------
Operating Income 61,161 65,053
Interest Expense (35,032) (31,084)
Interest Income 34,706 43,040
Other Income (Expense) (20,859) (16,838)
------------- -------------
Income Before Taxes 39,976 60,171
Income Taxes 13,272 18,185
------------- -------------
NET INCOME R$26,704 R$41,986
============= =============
Income Per 1,000 Shares R$0.21 R$0.32
============= =============
See Notes to Condensed Unaudited Financial Information
<PAGE>
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
CONDENSED UNAUDITED BALANCE SHEETS FOR MARCH 31, 1997 AND MARCH 31, 1996
(Expressed in thousands of Brazilian Reais)
1997 1996
---- ----
ASSETS
CURRENT ASSETS
Cash and cash equivalents R$61,885 R$36,409
Investments 234,299 117,939
Receivables 439,006 500,730
Inventories 55,432 54,602
Prepaid and other 1,278 3,161
--------------- ----------------
Total current assets 791,900 712,841
--------------- ----------------
Fixed Assets 10,481,843 10,401,464
Investments 100,843 100,290
Receivables 958,310 1,070,676
Deferred Charges 4,373 4,678
TOTAL ASSETS R$12,337,269 R$12,289,949
=============== ================
See Notes to Condensed Unaudited Financial Information
<PAGE>
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
CONDENSED UNAUDITED BALANCE SHEETS FOR MARCH 31, 1997 AND MARCH 31, 1996
(Expressed in thousands of Brazilian Reais)
1997 1996
---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade payables R$136,570 R$136,884
Accrued taxes 206,651 181,308
Other accrued liabilities 658,142 679,362
--------------- ----------------
Total current liabilities 1,001,363 997,554
--------------- ----------------
LONG-TERM LIABILITIES
Debt 869,884 879,807
Other 1,652,275 1,659,554
--------------- ----------------
Total long-term liabilities 2,522,159 2,539,361
--------------- ----------------
STOCKHOLDERS' EQUITY
Capital 1,299,260 1,299,260
Capital reserves 5,696,741 5,662,732
Revenue reserves 1,766,072 1,766,072
Retained earnings 51,674 24,970
--------------- ----------------
Total stockholders' equity 8,813,747 8,753,034
--------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY R$12,337,269 R$12,289,949
=============== ================
See Notes to Condensed Unaudited Financial Information
<PAGE>
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
NOTES TO THE CONDENSED UNAUDITED FINANCIAL INFORMATION
1. Basis of Presentation
The condensed unaudited quarterly financial information is derived from
the Company's March 31, 1997 statutory report filed with the CVM. All
amounts are in Brazilian reais and have been prepared in conformity
with accounting principles generally accepted in Brazil.
2. Subsequent Event
At an auction on May 28, 1997 at Rio de Janeiro Stock Exchange, a group
of investors headed by Southern Electric and AES bought 33% of the
Company's common shares for R$1,130,000. These shares were offered by
the Government of the State of Minas Gerais in accordance with the
tender and stockholders' agreement published in Minas Gerais on March
12, 1997.
<PAGE>
b. Unaudited Pro Forma Consolidated Financial Information
On June 18, 1997, AES together with The Southern Company and the Opportunity
Fund, a Brazilian investment Fund (collectively, the "AES Consortium"), acquired
14.41% of Companhia Energtica de Minas Gerais ("CEMIG"), an integrated electric
utility serving the State of Minas Gerais in Brazil, for a total purchase price
of approximately $1.056 billion. Initially, AES and the Opportunity Fund will
have a 90.6% and a 9.4% economic interest in the AES Consortium, respectively.
The Southern Company has an option until January 9, 1998 to purchase up to a 25%
interest in the AES Consortium from AES. Pursuant to a shareholders agreement
between the AES Consortium and the State of Minas Gerais, AES will have
significant operating influence. The foregoing transaction is referred to herein
as the "CEMIG Acquisition."
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 CEMIG
Acquisition. 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
CEMIG Acquisition 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 the CEMIG Acquisition for
the year ended December 31, 1996 and the quarter ended March 31, 1997 on the
equity method as if the CEMIG Acquisition had occurred at the beginning of the
periods.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996(1)(2)(3)
------------------------------------
ADJUSTMENTS
FOR THE
CEMIG PRO FORMA
ACTUAL ACQUISITION AS ADJUSTED
-------- ------------- -------------
<S> <C> <C> <C>
In millions except per share data
Statement of Operations Data:
Total revenues......................................... $ 835 $ -- $ 835
Total operating cost and expenses...................... 557 -- 557
-------- ------------- -------------
Operating income....................................... 278 -- 278
Other income and (expense):
Interest expense...................................... (144) (56)(d) (200)
Interest income....................................... 24 -- 24
Equity in earnings of affiliates....................... 35 50 (c) 85
-------- ------------- -------------
Income (loss) before income taxes and minority
interest.............................................. 193 (6) 187
Income taxes........................................... 60 (22)(e) 38
Minority interest...................................... 8 5 (f) 13
-------- ------------- -------------
Net income (loss)...................................... $ 125 $ 11 $ 136
======== ============= =============
Net income (loss) per share............................ $1.62 $0.14 $1.76
======== ============= =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31, 1997(1)(2)(3)
------------------------------------
ADJUSTMENTS
FOR THE
CEMIG PRO FORMA
ACTUAL ACQUISITION AS ADJUSTED
-------- ------------- -------------
<S> <C> <C> <C>
Statement of Operations Data:
Total revenues.................................. $ 261 $ -- $ 261
Total operating cost and expenses............... 183 -- 183
-------- ------------- -------------
Operating income................................ 78 -- 78
Other income and (expense):
Interest expense............................... (44) (13)(d) (57)
Interest income................................ 8 -- 8
Equity in earnings of affiliates................ 16 3 (c) 19
-------- ------------- -------------
Income before income taxes and minority
interest....................................... 58 (10) 48
Income taxes.................................... 16 (5)(e) 11
Minority interest............................... 2 -- (f) 2
-------- ------------- -------------
Net income...................................... $ 40 $ (5) $ 35
======== ============= =============
Net income per share............................ $0.50 $(0.06) $ 0.44
======== ============= =============
</TABLE>
The following unaudited pro forma consolidated balance sheet information
represents AES's financial position at March 31, 1997 as if the acquisition by
the Company of the CEMIG Interest had occurred on that date.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997 (1)(2)(3)
------------------------------------
ADJUSTMENTS
FOR THE
CEMIG PRO FORMA
ACTUAL ACQUISITION AS ADJUSTED
-------- ------------- -------------
<S> <C> <C> <C>
In millions except ratios
Balance Sheet Data:
Assets
Current Assets:
Cash and cash equivalents............... $ 423 $ -- $ 423
Other current assets.................... 307 -- 307
-------- ---------- --------
Total Current Assets.................... 730 -- 730
Property, plant and equipment, net ..... 2,304 -- 2,304
Investments in and advances to
affiliates............................ 590 1,077(a) 1,667
Other assets............................ 454 -- 454
-------- ---------- --------
Total.............................. $4,078 $1,077 $5,155
======== ========== ========
Current Liabilities:
Other notes payable..................... $ -- 134(b) 134
Project financing debt.................. 110 250(b) 360
Other current liabilities............... 166 -- 166
-------- ---------- --------
Total current liabilities............... 276 384 660
-------- ---------- --------
Long-Term Liabilities:
Other notes payable..................... 325 -- 325
Project financing debt.................. 1,841 654(b) 2,495
Other long-term liabilities............. 284 -- 284
-------- ---------- --------
Total long-term liabilities............. 2,450 654 3,104
-------- ---------- --------
Minority interest....................... 211 39(f) 250
Company-obligated mandatorily
Redeemable Preferred Securities of AES
Trust I................................. 250 -- 250
Stockholders' equity.................... 891 -- 891
-------- ---------- --------
Total Liabilities & Stockholders
Equity................................ $4,078 $1,077 $5,155
======== ========== ========
</TABLE>
- -------------
(1) Basis of presentation. Pursuant to a shareholders agreement between the AES
Consortium and the State of Minas Gerais, the AES consortium will have
significant operating influence, including the right to appoint the chief
operating officer of CEMIG, and will otherwise share control of CEMIG with
the State of Minas Gerais. The AES Consortium will account for its
investment in CEMIG using the equity method. AES will reflect in minority
interest its non-owned portion of the earnings and net assets of the AES
Consortium.
The unaudited pro forma financial information presented is based on
CEMIG's financial position and results of operations as of March 31, 1997
and for the periods ended December 31, 1996 and March 31, 1997. The
unaudited pro forma financial information has been prepared based on the
Company's estimate of CEMIG's financial position and results of operation
in conformity with U.S. generally accepted accounting principles.
<PAGE>
Equity in earnings of CEMIG for the year ended December 31, 1996 has been
translated into U.S. dollars at the average rate during the year of R$1.04 to
U.S.$1.00, and at the average rate for the quarter ended March 31, 1997, of
R$1.07 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 its 40
year life.
(3) Financing. For purposes of the unaudited pro forma financial information
presented herein, the acquisition of the CEMIG Interest was funded at the AES
level assuming the use of the CEMIG Bridge of $250 million at an interest rate
of 8.25%, a portion of the AES Bridge Loan of $200 million at an interest rate
of 7.75%, and project financing of $126 million at an interest rate of 9.75%,
provided by BNDES, the State Development Bank of Brazil. The remaining portion
of the purchase price amounting to approximately $528 million is deferred, by
contract, for a period of one year. Such obligation bears no interest and has
been guaranteed by BNDES for a fee of 1% per year which is included in interest
expense. No additional subsequent financing costs are assumed in these pro
formas.
(4) Description of unaudited pro forma entries.
(a) Represents the CEMIG Investment of $1,056 million and costs of $21 million
financed by borrowings described in (3), above.
(b) Represents the financing of the transaction described in (3), above.
(c) Represents equity in earnings of CEMIG, net of goodwill amortization.
(d) Represents interest expense associated with the borrowings described in
(3), above.
(e) Represents the income tax benefit related to the interest costs.
(f) Represents the minority interest of The Opportunity Fund, which has a
9.4% interest in the AES consortium.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE AES CORPORATION
-------------------
(Registrant)
Date: July 16, 1997 By /s/ Barry J. Sharp
---------------------------
Barry J. Sharp
Chief Financial Officer
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statement on Form S-3 (NO. 333-15487) of
The AES Corporation of our report dated February 28, 1997 relating to the
financial statements of Companhia Energetica de Mina Gerais - CEMIG as at and
for the years ended December 31, 1996 and 1995 prepared in accordance with
accounting principles generally accepted in Brazil, which appears in the Item 7
on Form 8-K of The AES Corporation dated July 16, 1997 and to the reference to
us under the heading "Experts" in the Prospectus or Prospectus Supplement which
are part of such registration Statement.
Price Waterhouse
Auditores Independentes
Belo Horizonte, MG-Brazil
July 16, 1997
