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 OR 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".
On June 30, 1997, AES acquired the international assets of Destec Energy, Inc.
("Destec"), a large independent energy producer with headquarters in Houston,
Texas, at a total price to AES of approximately $436 million, which price is
subject to adjustment to reflect net cash flow adjustments. NGC Corporation
("NGC"), working in conjunction with AES, was selected as the winning bidder in
an auction for all of Destec at a total acquisition price of $1.27 billion. AES
acquired the international assets of Destec immediately following NGC's
acquisition of Destec. Destec's international assets acquired by AES include
ownership interests in the following five electric generating plants (with
ownership percentages in parentheses): (i) a 110 MW gas-fired combined cycle
plant in Kingston, Canada (50 percent); (ii) a 405 MW gas-fired combined cycle
plant in Terneuzen, Netherlands (50 percent); (iii) a 140 MW gas-fired simple
cycle plant in Cornwall, England (100 percent); (iv) a 235 MW oil-fired simple
cycle plant in Santo Domingo, Dominican Republic (99 percent); and (v) a 1,600
MW coal-fired plant ("Hazelwood") in Victoria, Australia (20 percent). Each of
such plants is currently in operation, except for the plant in Terneuzen which
is under construction. The acquisition by AES of Destec's international assets
also includes Destec's non-U.S. developmental stage power projects, including
projects in Taiwan, England, Germany, the Philippines, Australia and Colombia.
The foregoing transaction and the financing therefor described below are
referred to herein as the "Destec Acquisition".
On May 27, 1997, a subsidiary of AES, and its partner, Community Energy
Alternatives ("CEA"), acquired an aggregate of 90% (AES acquired 60% and CEA
acquired 30%) of two distribution companies of Empresa Social de Energia de
Buenos Aires S.A. ("ESEBA") serving certain portions of the Province of Buenos
Aires, Argentina for an aggregate purchase price of $565 million. AES's portion
of the purchase price after consideration of non-recourse debt was $244 million.
The remaining 10% will be owned by the employees of each of the two acquired
companies. The foregoing transaction is referred to herein as the "ESEBA
Acquisition".
AES funded its acquisition of Destec through cash on hand and borrowings under
its $425 million revolving credit facility (the "Revolver"). The net proceeds of
approximately $387 million from the Company's issuance and sale of its common
stock, par value $.01 per share (the "AES Common Stock"), and $2.6875 Term
Convertible Securities, Series A ("TECONS") in March 1997 was temporarily
applied to repay amounts outstanding under the Revolver. AES financed its
acquisitions of CEMIG and ESEBA through: (i) $450 million in non-recourse bridge
financing, comprised of a $250 million bridge loan (the "CEMIG Bridge") to AES
CEMIG Funding Corporation, a wholly-owned subsidiary of AES, by Morgan Guaranty
Trust Company of New York ("Morgan Guaranty"), and a syndicate of banks and a
$200 million bridge loan (the "ESEBA Bridge") to AESEBA Funding Corporation, a
wholly-owned subsidiary of AES by Morgan Guaranty, and a syndicate of banks;
(ii) a $200 million subordinated bridge loan to AES (the "AES Bridge Loan")
co-led by Morgan Guaranty, DLJ Bridge Finance, Inc., and Salomon Brothers
Holding Inc.; (iii) non-recourse project debt; (iv) borrowings under AES's $425
million Revolver provided by Morgan Guaranty and a syndicate of banks and (v)
cash on hand.
AES intends to repay the ESEBA Bridge and the CEMIG Bridge through a combination
of proceeds from: (i) the sale of AES's interest in Hazelwood; (ii) additional
borrowings at one or more AES projects; (iii) the replacement of cash reserves
with letters of credit at certain AES projects; and (iv) if exercised, the
proceeds from the exercise of The Southern Company's option to purchase up to a
25% interest in the AES Consortium from AES. None of the foregoing sources of
funds is committed. Accordingly, there can be no assurances that such sources or
any other sources will be available to repay the ESEBA Bridge and CEMIG Bridge.
The CEMIG Bridge and ESEBA Bridge mature in May 1998 or, in the case of the
ESEBA Bridge, earlier if AES sells its interest in Hazelwood. The interest
rates on both the CEMIG Bridge and the ESEBA Bridge will initially be LIBOR
plus 2.5% and will increase by 1.0% each month beginning January 1, 1998. These
loans are secured by a pledge of shares of AES Common Stock issued to a
subsidiary of AES.
<PAGE>
ITEM 5. OTHER EVENTS
This Current Report on Form 8-K includes the 1996 and the unaudited first
quarter 1997 consolidated financial statements filed under Item 7, together with
the Independent Auditors' Report on the financial statements for the year ended
December 31, 1996.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
a.(i) Financial statements of Businesses Acquired
The required audited financial statements of CEMIG will be filed on or
prior to August 31, 1997.
a.(ii) The Company's consolidated balance sheets as of December 31, 1996, and
1995, and March 1997 (unaudited) and the related consolidated statements of
operations and cash flows for each of the three years ended December 31, 1996,
1995 and 1994, and for the three months ended March 31, 1997 and 1996 (quarterly
unaudited), and related notes thereto.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders
Of The AES Corporation:
We have audited the accompanying consolidated balance sheets of The AES
Corporation and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations and cash flows for each of the three years
in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of The AES Corporation and
subsidiaries at December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Washington, DC
January 30, 1997, except for the penultimate paragraph of Note 6 as to which the
date is March 13, 1997 as to which the date is June 30, 1997
<PAGE>
The AES Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
------------------------------------
December 31, March 31,
--------------------- ------------
In millions, except par values 1996 1995 1997
--------- --------- ------------
(unaudited)
<S> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents ............................................. $ 185 $ 239 $ 423
Short-term investments ................................................ 20 58 26
Accounts receivable, net ................................................ 95 54 86
Inventory ............................................................... 81 36 71
Receivable from affiliates ............................................. 9 11 12
Deferred income taxes ................................................... 65 21 49
Prepaid expenses and other current assets .............................. 47 27 63
------- ------- -------
Total current assets ................................................... 502 446 730
Property, Plant and Equipment:
Land .................................................................. 30 9 30
Electric and steam generating facilities .............................. 1,884 1,594 1,889
Furniture and office equipment .......................................... 14 11 14
Accumulated depreciation and amortization .............................. (282) (222) (295)
Construction in progress ................................................ 574 158 666
------- ------- -------
Property, plant and equipment, net ....................................... 2,220 1,550 2,304
Other Assets:
Deferred costs, net ................................................... 47 32 59
Project development costs ............................................. 53 41 59
Investments in and advances to affiliates .............................. 491 48 590
Debt service reserves and other deposits .............................. 175 168 207
Goodwill & other intangible assets, net ................................. 52 37 52
------- ------- -------
Other assets ............................................................ 82 19 77
------- ------- -------
Total other assets ...................................................... 900 345 1,044
------- ------- -------
Total .................................................................. $ 3,622 $ 2,341 $ 4,078
======= ======= =======
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable ...................................................... $ 64 $ 33 $ 61
Income taxes payable ................................................... 4
Accrued interest ...................................................... 25 12 31
Accrued and other liabilities .......................................... 95 49 70
Other notes payable - current portion ................................. 88 50 -
Project financing debt - current portion .............................. 110 84 110
------- ------- -------
Total current liabilities ................................................ 382 228 276
Long-Term Liabilities:
Project financing debt ................................................ 1,558 1,098 1,841
Other notes payable ................................................... 450 125 325
Deferred income taxes ................................................... 243 170 228
Other long-term liabilities ............................................. 55 13 56
------- ------- -------
Total long-term liabilities ............................................. 2,306 1,406 2,450
Minority Interest ...................................................... 213 158 211
Commitments and Contingencies .......................................... - - -
Company-obligated Mandatorily Redeemable Preferred Securities of
AES ..................................................................... - - 250
Stockholders' Equity:
Preferred stock (no par value; 1 million shares authorized; none issued). - - -
Common stock ($.01 par value; 100 million shares authorized; shares
issued and outstanding: 1996 - 77.4 million; 1995 - 74.8 million). 1 1 1
Additional paid-in capital ............................................. 360 293 509
Retained earnings ...................................................... 396 271 436
Cumulative foreign currency translation adjustment ..................... (33) (10) (52)
Less treasury stock at cost (1996 - .1 million shares; 1995 -
.3 million shares) ...................................................... (3) (6) (3)
------- ------- -------
Total stockholders' equity ............................................. 721 549 891
------- ------- -------
Total .................................................................. $ 3,622 $ 2,341 $ 4,078
======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
The AES Corporation and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
-----------------------------------------------------
Three Months
Ended
December 31, March 31,
--------------------------------- ----------------
In millions, except per share amounts 1996 1995 1994 1997 1996
--------- --------- --------- ------- ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Sales ................................................ $ 824 $ 672 $ 514 $258 $171
Services ............................................. 11 7 19 3 1
------ ------ ------ ---- ------
Total revenues ....................................... 835 679 533 261 172
Operating Costs and Expenses:
Cost of sales ....................................... 495 388 252 165 97
Cost of services .................................... 7 6 13 2 1
Selling, general and administrative expenses ......... 35 32 32 9 9
Provision to reduce contract receivable ............... 20 - - 7 -
------ ------ ------ ---- ------
Total operating costs and expenses ..................... 557 426 297 183 107
------ ------ ------ ----- ------
Operating Income ....................................... 278 253 236 78 65
Other Income and (Expense):
Interest expense .................................... (144) (127) (125) (44) (30)
Interest income ....................................... 24 27 22 8 5
Equity in earnings of affiliates (net of income tax) . 35 14 12 16 5
------ ------ ------ ----- ------
Income Before Income Taxes,
Minority Interest,
and Extraordinary Item .............................. 193 167 145 58 45
Income Taxes .......................................... 60 57 44 16 15
Minority Interest .................................... 8 3 3 2 1
------ ------ ------ ---- ------
Income Before Extraordinary Item ..................... 125 107 98 40 29
Extraordinary item - net gain on extinguishment of
debt (less applicable income taxes of $1) ............ - - 2 - -
------ ------ ------ ---- ------
Net Income ............................................. $ 125 $ 107 $ 100 $40 $29
====== ====== ====== ==== ======
Net Income Per Share:
Before extraordinary gain ........................... $ 1.62 $ 1.41 $ 1.30 $0.50 $0.38
Extraordinary gain .................................... - - 0.02 -
------ ------ ------ ---- -----
Net Income Per Share ................................. $ 1.62 $ 1.41 $ 1.32 $0.50 $0.38
====== ====== ====== ===== ======
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
The AES Corporation and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
---------------------------------------------------
Three Months
For the Years Ended Ended
December 31, March 31,
--------------------------------- ---------------
In millions, except per share amounts 1996 1995 1994 1997 1996
----------- -------- -------- ------- -----
(unaudited)
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net income ............................................. $ 125 $ 107 $ 100 $40 $ 29
Adjustments to net income: ...........................
Depreciation and amortization ........................ 65 55 43 15 14
Provision for deferred taxes ........................ 26 48 39 5 14
Undistributed earnings of affiliates .................. (20) 3 (3) (16) (4)
Payments for deferred financing costs ............... (13) (3) (6)
Other ................................................ 6 4 - (12) 1
Changes in working capital ........................... (7) (17) (9) (22) (9)
-------- ------ ------ ------ -----
Net cash provided by operating activities ............ 182 197 164 10 45
Investing Activities:
Property additions .................................... (506) (171) (10) (97) (45)
Acquisitions, net of cash acquired ..................... (148) (121) - - (20)
Sale of short-term investments ........................ 103 254 132 8
Purchase of short-term investments ..................... (66) (218) (204) (6) -
Affiliate advances and investments ..................... (430) (10) - (90) (1)
Project development costs .............................. (16) (22) (17) (6) (2)
Debt service reserves and other assets ............... (72) (55) (21) (39) (6)
-------- ------ ------ ------ -----
Net cash used in investing activities .................. (1,135) (343) (120) (238) (66)
Financing Activities:
Net borrowings (repayments) under the revolver ......... 163 50 - (213) (19)
Issuance of company-obligated mandatorily
redeemable preferred securities ("TECONS") ............ - - - 244 -
Issuance of project financing debt and other notes pay-
able 802 133 - 296 20
Repayments of project financing debt .................. (75) (63) (72) (12) (12)
Other liabilities .................................... (3) 8 -
Contributions by minority interests .................. 10 7 152 2 (1)
Sale (repurchase) of common stock ..................... 2 (5) - 149 1
-------- ------ ------ ------ -----
Net cash provided by financing activities ............ 899 130 80 466 (11)
Increase/(decrease) in cash and cash
equivalents .......................................... (54) (16) 124 238 (32)
Cash and cash equivalents, beginning .................. 239 255 131 185 239
-------- ------ ------ ------ -----
Cash and cash equivalents, ending ..................... $ 185 $ 239 $ 255 $423 $207
======== ====== ====== ====== =====
Supplemental disclosures:
Cash payments for interest ........................... $ 134 $ 120 $ 127 $38 $ 23
Cash payments for income taxes ........................ 32 6 3 11 1
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
THE AES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The AES Corporation and its subsidiaries and affiliates (collectively "AES" or
the "Company") is a global power company primarily engaged in developing,
owning and operating electric power generating facilities.
Principles of Consolidation - The consolidated financial statements of the
Company include the accounts of AES, its subsidiaries and controlled
affiliates. Investments in 50% or less owned affiliates over which the Company
has the ability to exercise significant influence, but not control, are
accounted for using the equity method. The accounts of AES China Generating Co.
Ltd. ("AES Chigen"), a controlled affiliate, are consolidated based on its
fiscal year ended November 30. Intercompany transactions and balances have been
eliminated.
Cash and Cash Equivalents - The Company considers cash on hand, deposits in
banks, certificates of deposit and short-term marketable securities with an
original maturity of three months or less as cash and cash equivalents.
Investments - Securities that the Company has both the positive intent and
ability to hold to maturity are classified as held-to-maturity and are carried
at historical cost. Other investments that the Company does not intend to hold
to maturity are classified as available-for-sale, and any unrealized gains or
losses are recorded as a separate component of stockholders' equity. Interest
and dividends on investments are reported in interest income. Short-term
investments consist of investments with original maturities in excess of three
months but less than one year. Debt service reserves and other deposits, which
might otherwise be considered cash and cash equivalents are treated as
noncurrent assets (see Note 3).
Inventory - Inventory, valued at the lower of cost or market (first in, first
out method), consists of coal, raw materials, spare parts, and supplies.
Inventory consists of the following (in millions):
--------------
December 31,
--------------
1996 1995
---- ----
Coal and other raw materials ............ $57 $ 24
Spare parts, materials and supplies ...... 24 12
--- ----
Total .................................... $81 $ 36
=== ====
Property, Plant and Equipment - Property, plant and equipment is stated at cost
including the cost of improvements. Depreciation, after consideration of
salvage value, is computed using the straight-line method over the estimated
composite lives of the assets, which range from 3 to 40 years. Maintenance and
repairs are charged to expense as incurred. Emergency and rotable spare parts
inventories are included in electric and steam generating facilities and are
depreciated over the useful life of the related components.
Intangible Assets - Goodwill and other intangible assets are amortized on a
straight-line basis over their estimated periods of benefit or their estimated
lives, which range from 30 to 40 years. Intangible assets at December 31, 1996
and 1995 are shown net of accumulated amortization of $3 million and
$1 million, respectively. The Company will review its goodwill and intangibles
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
Construction in Progress - Construction progress payments, engineering costs,
insurance costs, wages, interest and other costs relating to construction in
progress are capitalized. Construction in progress balances are transferred to
electric and steam generating facilities when the assets are ready for their
intended use. Interest capitalized during development and construction totaled
$27 million, $8 million and $2 million in 1996, 1995 and 1994, respectively.
Deferred Costs - Financing costs are deferred and amortized using the
straight-line method over the related financing period, which does not differ
materially from the effective interest method of amortization. Deferred costs
are shown net of accumulated amortization of $36 million and $31 million for
1996 and 1995, respectively.
<PAGE>
Project Development Costs - The Company capitalizes the costs of developing new
projects. These costs represent amounts incurred for professional services,
salaries, permits, options, capitalized interest and other related direct
costs. These costs are included in investments in affiliates, or property when
financing is obtained, or expensed at the time the Company determines that a
particular project will no longer be developed. The continued capitalization is
subject to on-going risks related to successful completion, including those
related to political, siting, financing, construction, permitting and contract
compliance. Certain reimbursable costs related to one of the projects have been
classified as other assets at December 31, 1996.
Foreign Currency Translation - Foreign subsidiaries and affiliates translate
their assets and liabilities into U.S. dollars at the current exchange rates in
effect at the end of the fiscal period. The gains or losses that result from
this process, and gains and losses on intercompany transactions which are
long-term in nature, and which the Company does not intend to repatriate are
shown in the cumulative foreign currency translation adjustment balance in the
stockholders' equity section of the balance sheet. The revenue and expense
accounts of foreign subsidiaries and affiliates are translated into
U.S. dollars at the average exchange rates that prevailed during the period.
Revenue Recognition and Concentration - Revenues from the sale of electricity
and steam are recorded based upon output delivered and capacity provided at
rates as specified under contract terms. Most of the Company's power plants
rely primarily on one power sales contract with a single customer for the
majority of its revenues. Five customers accounted for 20%, 16%, 16%, 11% and
10% of revenues in 1996, four customers accounted for 24%, 18%, 18% and 13% of
revenues in 1995, and four customers accounted for 31%, 23%, 22% and 11% of
revenues in 1994. The prolonged failure of any of these customers to fulfill
its contractual obligations could have a substantial negative impact on AES's
revenues and profits. However, the Company does not anticipate non-performance
by the customers under these contracts.
Interest Rate Swap and Cap Agreements - The Company enters into interest rate
swap and cap agreements as a hedge against interest rate exposure on floating
rate project financing debt. The transactions are accounted for as a hedge and
interest is expensed or capitalized, as appropriate, using the effective
interest rates. Any fees or payments are amortized as yield adjustments. These
derivative financial instruments are classified as other than trading.
Net Income Per Share - Net income per share is based on the weighted average
number of common stock and common stock equivalents outstanding, after giving
effect to stock splits and stock dividends. Common stock equivalents result
from dilutive stock options, warrants and deferred compensation arrangements.
The effect of such common stock equivalents on net income per share is computed
using the treasury stock method. The shares used in computing net income per
share were 77.3 million, 75.9 million, and 75.8 million for 1996, 1995 and
1994, respectively. Primary and fully diluted earnings per share are
approximately the same.
New Accounting Pronouncements - Statement of Financial Accounting Standards
(SFAS) No. 128 "Earnings Per Share," was issued in early 1997. SFAS No. 128 is
effective for periods ending after December 15, 1997 and early adoption is not
permitted. SFAS No. 128 requires the Company to compute and present basic and
diluted earnings per share. Had the Company computed earnings per share in
accordance with SFAS No. 128 the basic and diluted amounts would have been as
follows:
-------------------------------------------
Quarters Ended
Years ended December 31, March 31,
-------------------------- ---------------
1996 1995 1994 1997 1996
------- ------- ------ ------- -----
(unaudited)
Basic earnings per share ......... $1.65 $1.43 $1.34 $0.52 $0.38
Diluted earnings per share ...... $1.59 $1.40 $1.31 $0.50 $0.37
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires the use of estimates. Actual
results could differ from those estimates.
Reclassifications - Certain reclassifications have been made to prior period
amounts to conform with the 1996 presentation.
<PAGE>
Unaudited quarterly data - Such data, includes all such adjustments considered
necessary for a fair presentation. Such information is not indicative of the
results for a full year.
2. ACQUISITIONS
In March 1996, the Company, through a subsidiary acquired a 98% interest in
Hidrotermica San Juan, S.A., ("AES San Juan"), which is the owner and operator
of a 78 megawatt Power Supply Business in the province of San Juan, Argentina.
The facility, which sells electricity into the Argentine spot market, includes
a 45 megawatt hydroelectric power plant and a 33 megawatt gas combustion plant.
As a result of this acquisition, the Company acquired intangible assets of
$17 million which are being amortized over the life of the hydroelectric
concession of 30 years.
In May 1996, AES, through certain subsidiaries, acquired for approximately
$393 million, common shares representing an 11.35% interest in Light Servicos
de Electricidade S. A. ("Light"), a publicly-held Brazilian corporation that
operates as the concessionaire of an approximately 3,800 megawatt 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 shareholders' 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.
In August 1996, the Company, through a subsidiary, acquired a controlling
interest in three power plants totaling 1,281 MW and a coal mine through the
purchase of an 81% share of Tiszai Eromu Rt. ("AES Tiszai") an electricity
generation company in Hungary for $110 million, and in December 1996 acquired
an additional 13% for $17 million.
Also, in August 1996, the Company acquired, through a subsidiary, a majority
controlling interest in a 4,000 megawatt coal-fired facility in Kazakstan,
("AES Ekibastuz"), for approximately $3 million. The facility sells power to a
government-owned utility under a 35 year power purchase agreement. Through
December 31, 1996, approximately $35 million (excluding VAT) has been billed
under the power sales contract for electricity delivered of which the purchaser
has paid approximately $5 million. The Company has recorded a provision of
$20 million to reduce the carrying value of the contract receivable at
December 31, 1996 to $10 million. As of December 31, 1996, the net assets of
the project were $24 million, a portion of which was represented by the
contract receivable referred to above. There can be no assurance as to the
ultimate collectibility of amounts owed to AES as of December 31, 1996 or
additional amounts related to future deliveries of electricity under the power
sales contract.
In January 1995, a subsidiary of the Company acquired the remaining outstanding
debt of AES Deepwater, a 140 megawatt cogeneration plant in Pasadena, Texas,
for $65 million from a syndicate of lenders. Prior to that date, the Company
did not maintain or exercise control or significant influence over the
utilization of the AES Deepwater facility, and accordingly, recorded its
investment using the cost method. The acquisition resulted in the creation of
goodwill of approximately $24 million which is being amortized over the
remaining estimated life of the plant.
In June and July 1995, a subsidiary of the Company increased its ownership
interest in Central Termica San Nicolas, S. A. ("AES San Nicolas"), a 650
megawatt power plant located in San Nicolas, Argentina from approximately 34%
to approximately 69% by purchasing the interests of two former minority
shareholders. The 1995 purchase price was $24 million. The net results
attributable to the Company's non-owned portion of earnings from AES San
Nicolas in 1995 is reflected as minority interest.
In addition, in December 1995, another subsidiary of the Company purchased
Hidroelectrica Rio Juramento S.A. ("AES Rio Juramento") a 112 megawatt
hydroelectric system in the province of Salta, Argentina for $43 million. As a
result of this acquisition, the Company acquired intangible assets of
$14 million which are being amortized over the life of the hydroelectric
concession of 30 years.
These acquisitions were accounted for as purchases. The purchase price
allocations for Light, AES Tiszai and AES Ekibastuz have been completed on a
preliminary basis, subject to adjustments resulting from new or additional
facts that may come to light when the engineering, environmental, and legal
analyses are completed during the allocation period. The accompanying financial
statements include the operating results of AES Tiszai from August 1, 1996, the
operating results of AES Ekibastuz from August 10, 1996, equity earnings from
Light from June 10, 1996, and the operating results of AES Deepwater from
January 20, 1995, the operating results of AES San Nicolas from January 1, 1995
and the operating results
<PAGE>
of AES Rio Juramento from December 1, 1995. The following table presents
supplemental unaudited proforma operating results as if all of the acquisitions
had occurred at the beginning of 1995 (in millions, except per share amounts):
-------------------
For the Years Ended
December 31,
-------------------
1996 1995
-------- -------
Revenues .............................. $1,013 $892
Net income ............................ 100 91
Earnings per share ................... $1.29 $1.20
The pro forma results are based upon assumptions and estimates which the
Company believes are reasonable. The pro forma results do not purport to be
indicative of the results that actually would have been obtained had the
acquisitions occurred on January 1, 1995, nor are they intended to be a
projection of future results.
3. INVESTMENTS
At December 31, 1996 AND 1995, the Company's investments were classified as
either held-to-maturity or available-for-sale. The amortized cost and estimated
fair value of the investments at December 31, 1996 and 1995 classified as held-
to-maturity and available-for-sale were approximately the same.
The short-term investments and debt service reserves and other deposits were
invested as follows (in millions):
--------------
December 31,
--------------
1996 1995
------- -----
Restricted cash and cash equivalents .......................... $104 $144
Held-to-maturity US treasury and government agency securities .. 1 33
Foreign certificates of deposit ................................ - 3
Commercial paper ............................................... 39 3
Floating rate notes ............................................ - 6
----- ----
Subtotal ........................................................ 40 45
Available-for-sale:
US treasury and government agency securities .................... 43 30
Certificates of deposit ......................................... 3 4
Commercial paper ............................................... 5 -
Foreign certificates of deposit ................................ - 3
----- ----
Subtotal ........................................................ 51 37
----- ----
Total ........................................................... $195 $226
===== ====
Short-term investments classified as held-to-maturity and available-for-sale
were $9 and $11 million, respectively, at December 31, 1996 and $44 million and
$14 million, respectively, at December 31, 1995.
<PAGE>
4. Investments In and Advances To Affiliates
The following table presents summarized financial information (in millions) for
equity method affiliates on a combined 100% basis. Amounts presented include
the accounts of NIGEN, Ltd. (47% owned UK affiliate), Medway Power Ltd. (25%
owned UK affiliate), Light (11.35% owned Brazilian affiliate) and AES Chigen's
affiliates at December 31, 1996, and for the year then ended, the accounts of
NIGEN, Ltd. and Medway Power Ltd. at December 31, 1995 and 1994 and for the
years then ended, and the accounts of San Nicolas (34% owned Argentine
affiliate) at December 31, 1994 and for the year then ended.
---------------------------
1996 1995 1994
-------- ------- ------
Sales ........................ $1,960 $276 $ 335
Operating income ............ 498 86 75
Net income .................. 383 49 33
Current assets ............... 891 171 156
Noncurrent assets ............ 4,928 949 1,030
Current liabilities ......... 868 70 133
Noncurrent liabilities ...... 2,111 973 945
Stockholders' equity ......... 2,840 77 108
In 1994, NIGEN, Ltd. refinanced its outstanding project financing loan through
a public debenture offering. The extinguishment of such debt resulted in an
extraordinary loss of $7 million. The Company's share, $2 million, net of
taxes, is included in the accompanying financial statements as an extraordinary
loss.
The Company's share of undistributed earnings of affiliates included in
consolidated retained earnings was $33 million and $13 million at December 31,
1996 and 1995, respectively. The Company charged and recognized management fees
and interest on advances to its affiliates which aggregated $9 million,
$8 million and $18 million for each of the years ended December 31, 1996, 1995
and 1994, respectively.
5. DEBT
Project Financing Debt - Project financing debt at December 31, 1996 and 1995
consisted of the following (in millions):
<TABLE>
<CAPTION>
Interest
Rate
@ 12/31/96 Final Maturity 1996 1995
------------ ---------------- --------- --------
<S> <C> <C> <C> <C>
Senior Debt-floating
AES Beaver Valley ..................... 7.4% 1998 $ 21 $ 33
AES Thames ........................... 6.8% 2004 163 181
AES Shady Point ........................ 7.4% 2004 306 320
AES Barbers Point ..................... 6.5% 2007 325 340
AES Lal Pir ........................... 5.0% 2008 135 28
AES Pak Gen ........................... 5.1% 2010 90 -
AES Coral Reef ........................ 10.1% 2003 168 -
AES Warrior Run ........................ 6.7% 2014 37 22
Other ................................. 10.4% 2001 8 -
Senior Debt-fixed
AES Placerita-capital lease ............ 8.1% 2009 105 111
AES Warrior Run-tax exempt bonds ...... 7.4% 2019 74 74
AES Pak Gen ........................... 4.3% 2007 85 -
AES San Nicolas ........................ 10.4% 2000 80 -
Subordinated Debt ..................... 13.6% 2010 71 73
------- -------
Subtotal .............................. 1,668 1182
Less current maturities ............... (110) (84)
------- -------
Total ................................. $ 1,558 $1,098
======= =======
</TABLE>
<PAGE>
Project financing debt borrowings are primarily collateralized by the capital
stock of the project subsidiary, the physical assets of such facility and all
project agreements associated with such facility.
In 1994, the Company purchased and retired subordinated project financing debt
and accrued interest at AES Placerita, resulting in an extraordinary gain of $4
million, net of taxes.
The Company has interest rate swap agreements in an aggregate notional principal
amount of $550 million at December 31, 1996. The swap agreements effectively
change the interest rate on the portion of the debt covered by the notional
amounts, to a weighted average fixed rate ranging from approximately 9.5% to
10.5%. The agreements expire at various dates from 1997 through 2007. In the
event of nonperformance by the counterparties, the subsidiaries may be exposed
to increased interest rates, however, the Company does not anticipate
nonperformance by the counterparties, which are multinational financial
institutions. At December 31, 1996, subsidiaries of the Company have interest
rate cap agreements at a ceiling of approximately 12.5% with remaining terms
ranging from three to six years in an aggregate notional amount of $280 million.
AES Shady Point and AES Barbers Point have issued commercial paper supported by
irrevocable letters of credit issued by multinational financial institutions.
In the event of nonperformance or credit deterioration of these institutions,
the Company may be exposed to the risk of higher effective interest rates. The
Company does not believe that such nonperformance or credit deterioration is
likely.
Other Notes Payable - Other notes payable at December 31, 1996 and 1995
consisted of the following (in millions):
<TABLE>
<CAPTION>
Interest Rate
@ 12/31/96 Final Maturity 1996 1995
-------------- ---------------- ------- ------
<S> <C> <C> <C> <C>
Corporate revolving bank loan(1) ......... 7.40% 1998 $ 213 $ 50
Senior subordinated notes ............... 9.75% 2000 75 75
Convertible subordinated debentures ...... 6.50% 2002 - 50
Senior subordinated notes ............... 10.25% 2006 250 -
----- -----
Subtotal ................................. 538 175
Less current maturities .................. (88) (50)
----- -----
Total .................................... $ 450 $125
===== =====
</TABLE>
- ----------
(1) Floating rate loan.
Under the terms of the $425 million corporate revolving bank loan and letter of
credit facility ("Revolver"), the Company must reduce its direct borrowings to
$125 million for 30 consecutive days annually to obtain additional loans.
Commitment fees on the unused portion at December 31, 1996 are .375% per annum,
and as of that date $89 million was available. The Company's 9 3/4% senior
subordinated notes due 2000 ("9 3/4% Notes) and 10 1/4% senior subordinated
notes due 2006 ("10 1/4% Notes") are general unsecured obligations of the
Company. The 9 3/4% Notes are redeemable at the Company's option, in whole or in
part, beginning June 1997 at redemption prices in excess of par and are
redeemable at par beginning June 1999. The 10 1/4% Notes are redeemable at the
Company's option, in whole or in part, beginning July 2001 at redemption prices
in excess of par and are redeemable at par beginning July 2003. The Company's
convertible subordinated debentures ("Debentures") were converted into common
stock of the Company at the rate of $26.16 per common share on August 30, 1996.
<PAGE>
Future Maturities of Debt - Scheduled maturities of total long-term debt at
December 31, 1996 are (in millions):
1997 .................................... $ 198
1998 .................................... 132
1999 .................................... 303
2000 .................................... 269
2001 .................................... 202
Thereafter .............................. 1,102
-------
Total .................................... $2,206
=======
Covenants - The terms of the Company's Revolver, 9 3/4% Notes, 10 1/4% Notes,
and project financing debt agreements contain certain covenants and provisions.
The covenants provide for, among other items, maintenance of certain reserves,
and require that minimum levels of working capital, net worth and certain
financial ratio tests are met. The most restrictive of these covenants include
limitations on incurring additional debt and on the payment of dividends to
shareholders.
The project financing debt limitations of AES's subsidiaries permit the payment
of dividends to the parent company out of current cash flow for quarterly,
semi-annual or annual periods only at the end of such periods and only after
payment of principal and interest on project loans due at the end of such
periods. As of December 31, 1996, approximately $63 million was available under
project loan documents for distribution by U.S. subsidiaries.
AES Chigen Notes - Subsequent to its fiscal year end, AES Chigen issued $180
million of 10 1/8% Notes due 2006.
6. COMMITMENTS AND CONTINGENCIES
As of December 31, 1996, the Company and its consolidated subsidiaries are
obligated under long-term non-cancelable operating leases, primarily for office
rental and site leases. Rental expense for operating leases was $4 million, $3
million and $2 million in the years ended 1996, 1995 and 1994, respectively. The
future minimum lease commitments under these leases are $6 million each year for
1997 and 1998, $5 million for 1999, $2 million each year for 2000 and 2001, and
$56 million for the years thereafter.
Operating subsidiaries of the Company enter into various long-term contracts
for the purchase of fuel subject to termination only in certain limited
circumstances. These contracts have remaining terms of 3 to 11 years.
Guarantees - In connection with certain of its project financing, acquisition,
disposition, and power purchase agreements, AES has expressly undertaken
limited obligations and commitments most of which will only be effective or
will be terminated upon the occurrence of future events. These obligations and
commitments, excluding letter of credit obligations discussed below, were
limited as of December 31, 1996, by the terms of the agreements, to an
aggregate of approximately $176 million. The Company is also obligated under
other commitments which are limited to amounts, or percentages of amounts,
received by AES as distributions from its project subsidiaries. These amounts
aggregated $33 million as of December 31, 1996.
Letters of Credit - At December 31, 1996 and 1995, the Company had $123 million
and $56 million, respectively, of letters of credit outstanding under its
credit facility which operate to guarantee performance relating to certain
project development activities and subsidiary operations. The Company pays a
letter of credit fee of 1.75% on the outstanding amounts.
Litigation - On February 25, 1993, an action was filed, jointly and severally,
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, four Texas cities,
McGinnes Industrial Maintenance Corporation, Roland McGinnes and Lawrence
McGinnes, claiming personal injuries, property, and punitive damages of
$20 billion, arising from alleged releases of hazardous and toxic substances to
air, soil and water at the McGinnes waste disposal site located in Galveston
County. This matter was consolidated with two other related cases in
December 1993. The complaint sets forth numerous causes of action, including
fraud, negligence and strict liability, including, among other things,
allegations that the defendants sent hazardous, toxic and noxious chemicals and
other waste products to the McGinnes site for disposal. In March 1995, the
Company entered into a settlement agreement with certain plaintiffs, pursuant
to which the Company paid seven thousand dollars in return for withdrawal of
their claims against the Company. Based on the Company's investigation
<PAGE>
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 results of operations or financial
position.
On December 17, 1996, AES was named defendant in a complaint filed in the Court
of Chancery in Delaware. The suit was brought by the holder of 750 shares of AES
Chigen Class A Common Stock individually and on behalf of a purported class of
public shareholders of AES Chigen in response to an amalgamation to be entered
into between AES Chigen and AES. The complaint alleges, among other things, that
AES breached its alleged fiduciary duty as a controlling shareholder to treat
the class with fairness, and questions the sufficiency of the consideration to
be paid to AES Chigen shareholders. The complaint sought damages and injunctive
relief. AES Chigen was not named in the suit. On March 13, 1997 settlement was
reached subject to court approval.
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 financial position.
7. STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
-----------------------------
1996 1995 1994
-------- -------- -------
In millions
<S> <C> <C> <C>
Common stock
Balance at January 1 and December 31 ................................. $ 1 $ 1 $ 1
====== ====== =====
Additional paid-in capital
Balance at January 1 ................................................ $ 293 $ 240 $ 203
Issuance of common stock under benefit plans and exercise of stock op-
tions and warrants 3 2 2
Tax benefit associated with the exercise of options .................. 15 - -
Issuance of common stock on conversion of 6.5% subordinated deben-
tures, net ($26.16 per share) 49 - -
Common stock dividends (1994-3% per share) ........................... - - 47
AES Chigen Class A redeemable common stock ........................... - 51 (12)
------ ------ -----
Balance at December 31 ................................................ $ 360 $ 293 $ 240
====== ====== =====
Retained earnings
Balance at January 1 ................................................ $ 271 $ 164 $ 111
Net income for the year ............................................. 125 107 100
Common stock dividends (1994-3% per share) ........................... - - (47)
------ ------ -----
Balance at December 31 ................................................ $ 396 $ 271 $ 164
====== ====== =====
Cumulative foreign currency translation adjustment
Balance at December 31 ................................................ $ (33) $ (10) $ (3)
====== ====== =====
Treasury stock
Balance at December 31 ................................................ $ (3) $ (6) $ -
====== ====== =====
</TABLE>
Stock Split and Stock Dividend - On December 7, 1993, the Board of Directors
authorized a three-for-two split, effected in the form of a stock dividend,
payable to stockholders of record on January 15, 1994. Additionally, on
February 17, 1994, the Company declared a 3% stock dividend, payable to
stockholders of record on March 10, 1994. Accordingly, all outstanding share,
per share and stock option data in all periods presented have been restated to
reflect the split and the 3% stock dividend.
<PAGE>
On July 30, 1996, the Company exercised its right to redeem the Debentures at a
redemption price equal to approximately 104% of the principal amount of the
debentures, together with accrued interest through the date of redemption. As a
result, $49.7 million of the debentures were converted into 1.9 million shares
of common stock of the Company at a conversion price of $26.16 per share.
Stock Options and Warrants - The Company has granted options for shares of
common stock under its stock option plans. Under the terms of the plans, the
Company may issue options to purchase shares of the Company's common stock at a
price equal to 100% of the market price at the date the option is granted. The
options become eligible for exercise under various schedules. At December 31,
1996, there were approximately 2 million shares reserved for future grants
under the plans. A summary of the option activity follows (in thousands of
shares):
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------
1996 1995 1994
---------------------- ---------------------- ----------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-------- ----------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding-beginning of year .. 4,063 $14.56 3,540 $12.07 2,999 $9.78
Exercised during the year ............. (480) 10.69 (355) 17.71 (187) 2.65
Forfeitures during the year ............ (216) 20.55 (57) 18.36 (12) 13.17
Granted during the year ............... 643 38.78 935 20.04 740 18.91
------ ------- ------ ------- ------ ------
Outstanding-end of year ............... 4,010 18.59 4,063 14.56 3,540 12.07
------ ------- ------ ------- ------ ------
$
Eligible for exercise-end of year ...... 2,132 12.86 1,209 $9.03 1,059 $6.02
====== ======= ====== ======= ====== ======
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1996 (in thousands of shares):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------- --------------------------------------
Remaining Life Weighted-Average Weighted-Average
Range of Exercise Prices Total Outstanding (in years) Exercise Price Total Exercisable Exercise Price
- -------------------------- ------------------- ---------------- ------------------ ------------------- -----------------
<S> <C> <C> <C> <C> <C>
$1.55 to $6.47............ 1,013 3.3 $5.14 1,011 $5.14
$11.65 to $19.75 ......... 1,261 6.9 17.54 492 17.44
$20.00 to $28.88 ......... 1,248 8.3 20.97 593 20.79
$31.75 to $44.13 ......... 488 10.0 43.14 36 36.31
------ ------
Total .................. 4,010 2,132
====== ======
</TABLE>
The Company accounts for its stock-based compensation plans under APB No. 25,
and as a result, no compensation expense has been recognized in connection with
the options, as all options have been granted only to AES people, including
Directors, with an exercise price equal to the market price of the Company's
common stock on the date of grant. The Company adopted SFAS No. 123 for
disclosure purposes in 1996. For SFAS No. 123 purposes, the fair value of each
option grant has been estimated as of the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions: risk-free
interest rate of 6.5%, 5.5%, and 7.5% and expected volatility of 28%, 24%, and
22% for the years ended 1996, 1995 and 1994, respectively, a dividend payout
rate of zero for each year and an expected option life of 7 years. Using these
assumptions, the weighted average fair value of the stock options granted is
$17.61 and $8.17 for 1996 and 1995, respectively. There were no adjustments
made in calculating the fair value to account for vesting provisions or for
non-transferability or risk of forfeiture.
<PAGE>
Had compensation expense been determined consistent with SFAS No. 123,
utilizing the assumptions detailed above, the Company's net income and earnings
per share for the year ended December 31, 1996, 1995 and 1994 would have been
reduced to the following pro forma amounts (in millions):
For the Years Ended
December 31,
--------------------------
1996 1995 1994
------- ------- ------
Net Income:
As Reported .............................. $ 125 $ 107 $ 100
Pro forma ................................. 121 106 100
Net income per common share:
As Reported .............................. $1.62 $1.41 $1.32
Pro forma ................................. 1.57 1.40 1.32
The use of such amounts and assumptions are not intended to forecast any
possible future appreciation of the Company's stock price or change in dividend
policy.
In addition to the options described above, the Company has outstanding
warrants to purchase up to 0.7 million shares of its common stock at $29.43 per
share through July 2000, which were issued as partial settlement of a
shareholder class action suit and were expensed in 1995. Warrants exercised
under this settlement were not significant at December 31, 1996.
AES China Generating Co. Ltd. - During 1994, AES Chigen completed an initial
public offering for the sale of 10.2 million shares of Class A redeemable
common stock. Prior to the offering, AES contributed $50 million to AES Chigen
for 7.5 million shares of Class B common stock. AES, as the sole Class B
holder, is entitled to elect one-half of the board of directors of AES Chigen.
As of December 22, 1995, AES Chigen had entered into binding commitments to
invest in excess of $50 million in power projects in the People's Republic of
China and the previously held right of Class A Shareholders to require AES
Chigen to repurchase their shares has expired. As a result, the Company has
allocated the net proceeds from the issuance of the Class A shares to
additional paid-in capital and minority interest during 1995. In November 1996,
the Company and AES Chigen signed a definitive agreement for the Company to
acquire the approximately 8.2 million outstanding Class A shares of AES Chigen.
The acquisition will be accomplished by amalgamating AES Chigen with a wholly
owned subsidiary of the Company. Subject to approval of the holders of the
Class A common stock, AES Chigen shareholders will receive shares of the
Company common stock at an exchange rate of 0.29 shares of the Company's common
stock for each share of AES Chigen common stock.
8. INCOME TAXES
Income Tax Provision - The provision for income taxes attributable to
continuing operations consists of the following (in millions):
--------------------------
For the Years Ended
December 31,
--------------------------
1996 1995 1994
------- ------- ------
Federal
Current .................................... $ 19 $ 4 $ 2
Deferred .................................... 27 47 35
State
Current .................................... 12 5 4
Deferred .................................... (2) 1 3
Foreign
Current .................................... 3 - -
Deferred .................................... 1 - -
---- ---- ----
Total ....................................... $ 60 $57 $44
==== ==== ====
<PAGE>
Effective and Statutory Rate Reconciliation - A reconciliation of the
U.S. statutory federal income tax rate to the Company's effective tax rate as a
percentage of income before taxes (excluding earnings and taxes from affiliates
accounted for on the equity method, and minority interests) is as follows:
--------------------------
For the Years Ended
December 31,
--------------------------
1996 1995 1994
------- ------- ------
Statutory federal tax rate .................. 35% 35% 35%
Change in valuation allowance ............... (2) (6) (2)
State taxes, net of federal tax benefit ...... 6 6 5
Foreign taxes ................................. 2 - -
Other-net .................................... (1) 3 (4)
---- ---- ----
Effective tax rate ........................... 40% 38% 34%
==== ==== ====
Deferred Income Taxes - Deferred income taxes relate principally to accelerated
depreciation methods used for tax purposes and certain other expenses which are
deducted for income tax purposes, but not for financial reporting purposes.
Deferred income taxes reflect the net tax effects of (a) temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, and (b) operating loss
and tax credit carryforwards. These items are stated at the enacted tax rates
that are expected to be in effect when taxes are actually paid or recovered.
Deferred tax assets and deferred tax liabilities are as follows (in millions):
<TABLE>
<CAPTION>
---------------------------------
For the Years Ended
December 31,
---------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Differences between book and tax basis of property and total
deferred tax liability .................................... $ 379 $ 379 $ 219
Operating loss carryforwards ................................. (124) (167) (231)
Tax credit carryforwards .................................... (97) (71) (68)
Other deductible temporary differences ..................... (13) (1) (15)
------ ------ ------
Total gross deferred tax asset .............................. (234) (239) (314)
Less: valuation allowance .................................... 33 9 168
------ ------ ------
Total net deferred tax asset ................................. (201) (230) (146)
------ ------ ------
Net deferred tax liability ................................. $ 178 $ 149 $ 73
====== ====== ======
</TABLE>
As of December 31, 1996, the Company had federal net operating loss
carryforwards for tax purposes of approximately $295 million expiring from 2001
through 2010, federal investment tax credit carryforwards for tax purposes of
approximately $54 million expiring in years 2001 through 2006, foreign tax
credit carryforwards of $3 million expiring in 2001 and federal alternative
minimum tax credits of approximately $30 million which carryforward without
expiration.
The valuation allowance increased during the current year by approximately
$24 million to $33 million at December 31, 1996. This increase resulted
primarily from the acquisition of foreign entities with certain pre-existing
deferred tax assets, the ultimate realization of which cannot be determined on
a more likely than not basis. The valuation allowance for these pre-existing
deferred tax assets was recorded as acquisition adjustments and had no effect
on the current year income tax expense. The $33 million valuation allowance at
December 31, 1996 relates primarily to state and foreign tax credits, state
operating losses, and deferred tax assets, the ultimate realization of which is
uncertain. The Company believes that it is more likely than not that the
remaining deferred tax assets will be realized.
<PAGE>
The valuation allowance decreased during 1995 by approximately $159 million to
$9 million. The primary reason for this decrease was the Company's purchase of
the outstanding debt of AES Deepwater on January 20, 1995, which had the effect
of reducing certain of the Company's deferred tax assets. The $9 million
valuation allowance at December 31, 1995 related primarily to state tax credits
and foreign operating losses, the ultimate realization of which is uncertain.
The Company believes that it is more likely than not that the remaining
deferred tax assets will be realized.
Undistributed earnings of certain foreign affiliates aggregated $85 million on
December 31, 1996. The Company considers these earnings to be indefinitely
reinvested outside of the U.S. and, accordingly, no U.S. deferred taxes have
been recorded with respect to the earnings. Should the earnings be remitted as
dividends, the Company may be subject to additional U.S. taxes, net of
allowable foreign tax credits. It is not practicable to estimate the amount of
any additional taxes which may be payable on the undistributed earnings.
9. PROFIT SHARING AND DEFERRED COMPENSATION PLANS
Profit Sharing and Stock Ownership Plan - The Company has a profit sharing and
stock ownership plan, qualified under section 401 of the Internal Revenue Code,
which is available to all AES people. The profit sharing plan provides for
Company matching contributions, other Company contributions at the discretion
of the Compensation Committee of the Board of Directors, and discretionary tax
deferred contributions from the participants. Participants are fully vested in
their own contributions and the Company's matching contributions. Participants
vest in other Company contributions over a five-year period. Company
contributions to the plan were $4 million for each of the years ended 1996,
1995 and 1994.
Deferred Compensation Plans - The Company has a deferred compensation plan
under which directors of the Company may elect to have a portion or all of
their compensation deferred. The amounts allocated to each participant's
deferred compensation account may be converted into common stock units. Upon
termination or death of a participant, the Company is required to distribute,
under various methods, cash or the number of shares of common stock accumulated
within the participant's deferred compensation account. Distribution of stock
is to be made from common stock held in treasury or from authorized but
previously unissued shares. The plan terminates and full distribution is
required to be made to all participants upon any changes of control of the
Company (as defined therein).
In addition, the Company has an executive officers' deferred compensation plan.
At the election of an executive officer, the Company will establish an
unfunded, non-qualified compensation arrangement for each officer who chooses
to terminate participation in the Company's profit sharing and employee stock
ownership plan. The participant may elect to forego payment of any portion of
his or her compensation and have an equal amount allocated to a contribution
account. In addition, the Company will credit the participant's account with an
amount equal to the Company's contributions (both matching and profit sharing)
that would have been made on such officer's behalf if he or she had been a
participant in the profit sharing plan. The participant may elect to have all
or a portion of the Company's contribution converted into stock units.
Dividends paid on common stock are allocated to the participant's account in
the form of stock units. The participant's account balances are distributable
upon termination of employment or death.
During 1995, the Company adopted a supplemental retirement plan covering
certain AES people. The plan provides incremental profit sharing and matching
contributions to participants that would have been paid to their accounts in
the Company's profit sharing plan if it were not for limitations imposed by
income tax regulations. All contributions to the plan are vested in the manner
provided in the Company's profit sharing plan, and once vested are
nonforfeitable. The participant's account balances are distributable upon
termination of employment or death.
The Company is not obligated under any post-retirement benefit plans other than
the profit sharing and deferred compensation plans described in this Note.
<PAGE>
10. QUARTERLY DATA (UNAUDITED)
The following table summarizes the unaudited quarterly statements of operations
(in millions, except per share amounts):
----------------------------------------
Quarters Ended 1996
----------------------------------------
Mar 31 Jun 30 Sep 30 Dec 31
-------- -------- -------- -------
Sales and services ......... $ 172 $ 174 $ 205 $ 284
Gross margin ............... 74 76 85 98
Net income ............... 29 28 32 36
Net income per share ...... $0.38 $0.37 $0.42 $0.46
----------------------------------------
Quarters Ended 1995
----------------------------------------
Mar 31 Jun 30 Sep 30 Dec 31
-------- -------- -------- -------
Sales and services ......... $ 169 $ 166 $ 173 $ 171
Gross margin ............... 69 69 73 74
Net income ............... 25 27 27 28
Net income per share ...... $0.33 $0.35 $0.36 $0.37
11. GEOGRAPHIC SEGMENTS
Information about the Company's operations in different geographic areas is as
follows (in millions):
-----------------------
For the Years Ended
December 31,
-----------------------
1996 1995 1994
------ ------ -----
Revenues
North America ...... $554 $542 $523
South America ...... 146 131 2
Asia ............... 45 1 -
Europe ............ 90 5 8
----- ----- -----
Total ............... $835 $679 $533
===== ===== =====
--------------------------
For the Years Ended
December 31,
--------------------------
1996 1995 1994
------ ------ --------
Operating Income
North America ...... $258 $251 $ 245
South America ...... 21 14 -
Asia ............... (9) (8) (11)
Europe ............ 8 (4) 2
----- ----- -----
Total ............... $278 $253 $ 236
===== ===== =====
<PAGE>
-----------------------------
For the Years Ended
December 31,
-----------------------------
1996 1995 1994
-------- -------- -------
Identifiable Assets
North America ...... $1,831 $1,693 $1,569
South America ...... 683 230 46
Asia ............... 744 328 221
Europe ............ 364 90 79
------- ------- -------
Total ............... $3,622 $2,341 $1,915
======= ======= =======
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's assets and liabilities have been
determined using available market information. The estimates are not
necessarily indicative of the amounts the Company could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
The fair value of current financial assets, current liabilities, debt service
reserves and other deposits, and other assets are assumed to be equal to their
reported carrying amounts. The fair value of project financing debt is
estimated differently based upon the type of loan. For variable rate loans,
carrying value approximates fair value. For fixed rate loans, the fair value is
estimated using discounted cash flow analyses based on the Company's current
incremental borrowing rates at which similar borrowing arrangements would be
made under current conditions, or by the estimated discount rate a prospective
seller would pay to a credit-worthy third party to assume the obligations. The
carrying value and fair value of the AES Placerita capital lease have been
excluded from this disclosure. The fair value of swap agreements is the
estimated net amount that the Company would pay to terminate the agreements at
the balance sheet date. The estimated fair values of the Debentures, 93|M/4%
Notes and 101|M/4% Notes are based on the quoted market prices at December 31,
1996 and 1995.
The estimated fair values of the Company's financial instruments at
December 31, 1996 and 1995 are as follows (in millions):
-------------------------------------------------
1996 1995
------------------------- -----------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
---------- ------------ --------- -----------
Project financing debt .... $1,562 $1,562 $1,071 $1,078
Other notes payable ....... 538 560 175 180
Interest rate swaps ....... - 68 - 137
The fair value estimates presented herein are based on pertinent information
available as of December 31, 1996 and 1995. The Company is not aware of any
factors that would significantly affect the estimated fair value amounts since
that date.
13. SUBSEQUENT EVENTS
On June 30, 1997, AES acquired the international assets of Destec Energy, Inc.
("Destec") for a total of $436 million. The purchase will include five electric
generating plants and a number of power projects in development. The plants to
be acquired by AES (with ownership percentages in parenthesis) include a 110 MW
gas-fired combined cycle plant in Kingston, Canada (50%); a 405 MW gas-fired
combined cycle plant in Terneuzen, Netherlands (50%); a 140 MW gas-fired simple
cycle plant in Cornwall, England (100%); a 235 MW oil-fired simple cycle plant
in Santo Domingo, Dominican Republic (99%); and a 1600 MW coal-fired plant in
Victoria, Australia (20%).
In May 1997, the Company and its partner, CEA acquired an aggregate of 90% (AES
acquired 60% and CEA acquired 30%) of two integrated electricity companies of
ESEBA serving certain portions of the province of Buenos Aires, Argentina for
an aggregate purchase price of $565 million. The remaining 10% will be owned by
the employees of each of the two acquired companies.
<PAGE>
On May 8, 1997, AES completed its amalgamation with AES China Generating Co.
Ltd. (see Note 7). As a result of the amalgation the Company issued
approximately 2.5 million shares of AES Common Stock in exchange for all of the
outstanding AES Chigen Class A Common Stock.
In May 1997, AES through a consortium agreed to acquire approximately 13% of
CEMIG, an integrated electric utility service in the State of Minas Gerais for
approximately $1 billion. These shares also represent a 33% voting interest in
CEMIG.
(b) Unaudited Pro Forma Consolidated Financial Information
The following tables and related notes present financial information at and for
the periods presented herein to give effect on a pro forma basis to the
Company's acquisitions of Destec's international assets and the interest in
CEMIG. The following pro forma information also gives effect to the financing of
the ESEBA Acquisition but does not give effect to the ESEBA Acquisition itself
because separate historical financial results of the two distribution companies
acquired by the Company pursuant to the ESEBA Acquisition are not separately
available. There can be no assurance that inclusion of such historical financial
information would not have had a material adverse effect on the following pro
forma financial information. The Company believes that the historical operating
results of ESEBA are not indicative of the future operating results of the two
distribution companies acquired in the ESEBA Acquisition because, among other
things (i) these distribution companies will be operated as separate entities
rather than as part of a unified company and (ii) in connection with the ESEBA
Acquisition AES negotiated new labor and concessionary arrangements. 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 acquisitions 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 herein.
The following unaudited pro forma consolidated statements of operations
information combine the results of AES's investment in CEMIG and Destec and the
ESEBA financing for the year ended December 31, 1996 and the quarter ended
March 31, 1997 as if the acquisitions had occurred on January 1, 1996.
<TABLE>
<CAPTION>
Year Ended December 31, 1996(1)(2)
-------------------------------------------------------------------
Adjustments Pro Forma
Adjustments for the ESEBA Adjustments for certain
Actual for CEMIG financing for Destec acquisitions
-------- ------------- --------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
In millions, except per share data
Statements of Operations Data:
Total revenues ........................ $ 835 $ - $ - $ 441(4) $ 1,276
Total operating cost and expenses ... 557 - - 421(4) 978
------- ------- -------- -------- -------
Operating income ..................... 278 - 20 298
Other income and (expense):
Interest expense ..................... (144) (56) (35) (10) (245)
Interest income ..................... 24 - - - 24
Equity in earnings of affiliates ...... 35 50 - - 85
------- ------- -------- -------- -------
Income (loss) before income taxes and
minority interest .................. 193 (6) (35) 10 162
Income tax (benefit) .................. 60 (22) (14) 1 25
Minority interest ..................... 8 5 - - 13
------- ------- -------- -------- -------
Net income (loss) ..................... $ 125 $ 11 $ (21) $ 9 $ 124
======= ======= ======== ======== =======
Net income (loss) per share(3) ...... $ 1.62 $ 0.14 $ (0.27) $ 0.11 $ 1.55
======= ======= ======== ======== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended March 31, 1997(1)(2)
-------------------------------------------------------------------
Adjustments
for the Pro Forma
Adjustments ESEBA Adjustments for certain
Actual for CEMIG financing for Destec acquisitions
-------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
In millions, except per share data
Statements of Operations Data:
Total revenues ........................... $ 261 $ - $ - $ 39 $ 300
Total operating cost and expenses ...... 183 - - 36 219
------- -------- -------- ------ ------
Operating income ........................ 78 - - 3 81
Other income and (expense):
Interest expense ........................ (44) (13) (8) (3) (68)
Interest income ........................ 8 - - - 8
Equity (loss) in earnings of affiliates 16 3 - 1 20
------- -------- --------- ------ ------
Income (loss) before income taxes and
minority interest ..................... 58 (10) (8) 1 41
Income taxes (benefit) .................. 16 (5) (3) (1) 7
Minority interest ........................ 2 - - - 2
------- -------- --------- ------ ------
Net income (loss) ........................ $ 40 $ (5) $ (5) $ 2 $ 32
======= ======== ========= ====== ======
Net income (loss) per share(3) ......... $ 0.50 $ (0.06) $ (0.06) $ 0.02 $ 0.39
======= ======== ========= ====== ======
</TABLE>
The following unaudited pro forma consolidated balance sheet information
represents AES's financial position at March 31, 1997 as if the recent
acquisitions described above had occurred on that date.
<TABLE>
<CAPTION>
As of March 31, 1997(1)(2)
------------------------------------------------------------------
Adjustments
for the Pro Forma
Adjustments ESEBA Adjustments for certain
Actual for CEMIG financing for Destec acquisitions
-------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
In millions
Balance Sheet Data:
Current assets ..................... $ 730 $ - $ - $ (103) $ 627
Non-current assets ............... 3,348 1,038 390 388 5,164
------- ------- ----- ------- -------
Total assets ..................... $4,078 $1,038 $390 $ 285 $ 5,791
======= ======= ===== ======= =======
Current liabilities ............... $ 276 $ 343 $242 $ 56 $ 917
Long-term liabilities ............ 2,450 656 148 229 3,483
Minority interest .................. 211 39 - - 250
Company-obligated mandatorily
redeemable preferred securities
of AES Trust I .................. 250 - - - 250
Shareholders' equity ............... 891 - - - 891
------- ------- ----- ------- -------
Total liabilities and shareholders'
equity ........................... $4,078 $1,038 $390 $ 285 $ 5,791
======= ======= ===== ======= =======
</TABLE>
<PAGE>
(1) Basis of presentation:
The Company's acquisition of the Destec international assets is being
accounted for as a purchase. The purchase price allocation has been prepared on
a preliminary basis pending completion of engineering, environmental, legal and
valuation analyses, all of which are ongoing. The excess of the purchase price
over the net assets acquired will be amortized over 40 years. The Company
intends to sell its interest in the Hazelwood project and as a result, the
financing costs and equity in earnings related to such interest are treated as
adjustments to the Destec purchase price allocation.
The Company's purchase of an economic interest of approximately 13% in
CEMIG, which also represents an approximate voting interest of 30%, has been
recorded as an investment in subsidiaries, and will be accounted for using the
equity method. The purchase price allocation has been prepared, on a
preliminary basis pending completion of engineering, environmental, legal and
valuation analyses, all of which are ongoing. The excess of the purchase price
over the net assets acquired will be amortized over 40 years.
The following pro forma information also gives effect to the financing for
the ESEBA Acquisition but does not give effect to the ESEBA Acquisition itself
because separate historical financial results of the two distribution companies
acquired by the Company pursuant to the ESEBA Acquisition are not separately
available.
The summary unaudited pro forma financial information has been prepared
based on the Company's estimate of CEMIG's and Destec's financial position and
results of operations in conformity with U.S. GAAP.
Equity in earnings of CEMIG has been translated at the average exchange
rate during the year of R$1.04 to U.S.$1.00. The statement of operations for
the quarter ended March 31, 1997 has been translated at the average exchange
rate during the quarter of R$1.07 to U.S.$1.00.
Income taxes have been recorded based on the historical rates in effect,
adjusted as necessary, to reflect any incremental U.S. federal income taxes.
(2) Financing - For purposes of the unaudited pro forma financial information
presented herein, the acquisitions are assumed to be funded, and the
adjustments are calculated, as follows:
(a) The acquisition of the Destec international assets is assumed to be
funded through the use of the proceeds from the $250 million TECONS offering,
the net proceeds of the $150 million offering of AES Common Stock, and funds
available under the Company's Revolver.
(b) The ESEBA financing is assumed to be funded through the use of the
ESEBA Bridge of $200 million, project financing debt of $148 million at an
interest rate of 7.4% related to the ESEBA Acquisition, and the drawdown of
funds available under the Company's Revolver.
(c) The acquisition of the Company's interest in CEMIG has been funded
assuming the use of the CEMIG Bridge of $250 million at an interest rate of
8.25%, 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 $527 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.
(3) Earnings per share for the Destec pro forma adjustment columns and those
columns that include Destec adjustments are calculated including 2.55 million
shares of AES Common Stock issued to finance that acquisition as though they
were issued January 1, 1996, but are not adjusted to reflect the issuance of
approximately 2.50 million shares of AES Common Stock in connection with the
Chigen Amalgamation in May 1997.
(4) Includes $384 million and $370 million of revenues and costs, respectively,
in the fiscal year ended 1996 and $9 million and $8 million, respectively, for
the quarter ended March 31, 1997, related to services performed under
construction contracts for the Elsta, Kingston, and Hazelwood projects. These
projects will be substantially complete in the near future and, as a result,
such revenue and costs will not continue after contract completion. The
Company's share of profits (based on its ownership interest in each respective
project) resulting from services performed under these contracts is deferred
and amortized over the life of the respective project.
(c) Exhibits:
10.1 Amendment No.1 dated May 22, 1997 to the Credit Agreement among the
Company, the banks party thereto, the fronting banks party thereto, and
Morgan Guaranty Trust Company of New York, as Agent.
23.1 Consent of Deloitte & Touche LLP.
<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 3, 1997 By /s/ Barry J. Sharp
---------------------------
Barry J. Sharp
Chief Financial Officer
EXECUTION COPY
AMENDMENT NO. 1 TO CREDIT AGREEMENT
AMENDMENT dated as of May 22, 1997 to the Credit Agreement dated as of
August 2, 1996 (the "Credit Agreement") among THE AES CORPORATION (the
"Borrower"), the BANKS party thereto (the "Banks") BARCLAYS BANK PLC, MORGAN
GUARANTY TRUST COMPANY OF NEW YORK, UNION BANK OF CALIFORNIA, N.A, and
NATIONSBANK, N.A., as Fronting Banks (the "Fronting Banks"), and MORGAN GUARANTY
TRUST COMPANY OF NEW YORK, as Agent (the "Agent").
W I T N E S S E T H :
WHEREAS, the parties hereto desire to amend the Credit Agreement to
permit the Borrower and its Subsidiaries to incur certain debt;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions; References. Unless otherwise specifically
defined herein, each term used herein which is defined in the Credit Agreement
has the meaning assigned to such term in the Credit Agreement. Each reference to
"hereof", "hereunder", "herein" and "hereby" and each other similar reference
and each reference to "this Agreement" and each other similar reference
contained in the Credit Agreement shall, after this Amendment becomes effective,
refer to the Credit Agreement as amended hereby.
SECTION 2. New Defined Terms. Section 1.01 of the Credit Agreement is
amended to insert the following defined terms:
"Additional Permitted Subordinated Debt Agreement" means the
indenture or other agreement pursuant to which any Additional Permitted
Subordinated Debt is issued or incurred, as the same may, subject to
Section 5.11, be amended, modified or supplemented and in effect from
time to time.
<PAGE>
"Additional Permitted Subordinated Debt" means Debt of AES
(other than Debt evidenced by the Existing Subordinated Notes) (i) in
an aggregate principal amount of not more than $250,000,000 and (ii)
which does not require any scheduled payment of principal prior to June
1, 2003 and which has subordination provisions no less favorable to the
Banks than those applicable to the Existing 10 1/4% Subordinated Notes
and other terms and provisions applicable to AES and its Subsidiaries
that are no more restrictive in any material respect (including,
without limitation, covenants and events of default) than (i) in the
case of Additional Permitted Subordinated Debt incurred under a bank-
type facility, those existing hereunder, (ii) in all other cases, those
applicable to the Existing 10 1/4% Subordinated Notes or (iii) in any
case, those otherwise acceptable to the Required Banks.
"CEMIG" means Companhia Energetica de Minas Gerais, an
integrated utility located in the state of Minas Gerais, Brazil.
"ESEBA" means Empresa Social de Energia de Buenos Aires S.A.,
an integrated utility servicing Buenos Aires which is being privatized
by the government of Argentina.
SECTION 3. Amendments to Defined Terms. (a) Definition of Consolidated
Tangible Net Worth. The definition of "Consolidated Tangible Net Worth" in
Section 1.01 of the Credit Agreement is amended to insert "(A)" after the words
"stockholders' equity" in the parenthetical clause contained in clause (ii)
thereof and to replace the word "but" following the word "LIGHT" in such
parenthetical clause with the expression: "and (B) the amount attributable to
the equity Investment by AES and its Consolidated Subsidiaries in CEMIG, but in
each case".
(b) Definition of Subordinated Debt. The definition of "Subordinated
Debt" in Section 1.01 of the Credit Agreement is amended to delete the word
"and" in the second line thereof and to add the following phrase at the end
thereof: "and the Additional Permitted Subordinated Debt".
(c) Definition of Subordinated Note Indenture. The definition of
"Subordinated Note Indenture" in Section 1.01 of the Credit Agreement is amended
to delete the word "and" in the second line thereof and to add the following
phrase at the end thereof: "and the Additional Permitted Subordinated Debt
Agreement."
2
<PAGE>
SECTION 4. Limitations on Project Exposure. The last sentence of
Section 5.07 of the Credit Agreement is amended to read in its entirety as
follows:
"The foregoing restriction shall not, so long as no Event of Default
hereunder is then continuing, prohibit or limit AES or any Subsidiary from
making Investments in (a) AES Light for the purpose of allowing AES Light to pay
principal, interest and other amounts due and owing under the Existing Light
Non-Recourse Facility, (b) any Subsidiary having a direct or indirect interest
in ESEBA (an "ESEBA Subsidiary") for the purpose of allowing an ESEBA Subsidiary
to pay principal, interest and other amounts due and owing in respect of Debt
incurred for the purpose of acquiring an interest in ESEBA or (c) any Subsidiary
having a direct or indirect interest in CEMIG (a "CEMIG Subsidiary") for the
purpose of allowing a CEMIG Subsidiary to pay principal, interest and other
amounts due and owing in respect of Debt incurred for the purpose of acquiring
an interest in CEMIG".
SECTION 5. Debt. Section 5.08 of the Credit Agreement is amended to
read in its entirety as follows:
"SECTION 5.08. Debt. (a) AES shall not, and shall not permit any
Subsidiary to, incur, assume, create or suffer to exist any Debt (including any
Guarantees of Debt and obligations in respect of letters of credit), except for:
(i) Debt under the Financing Documents (subject to
Section 5.15);
(ii) Debt incurred by a Subsidiary (A) (1) to finance
the development, acquisition, construction, maintenance or
working capital requirements of a Power Project operated or
managed (including on a joint basis with others), directly or
indirectly, by AES and in which such Subsidiary has an
interest or (2) in respect of any letter of credit issued in
replacement of funds on deposit in any debt service reserve or
other similar account of such Subsidiary (up to a maximum
aggregate stated amount of all such letters of credit of all
Subsidiaries equal to $100,000,000) to the extent that such
funds so replaced are received by AES as a result of such
funds being used to pay dividends or make distributions on the
capital stock of such Subsidiary and any other Subsidiary in
the chain of ownership between AES and such Subsidiary and (B)
that is not also the Debt of, or Guaranteed by, any other
Subsidiary with an interest in any other Power Project (except
for Debt incurred by AES Rio Diamante, Inc. consisting solely
of its pledge
3
<PAGE>
of stock of AES Ocean Springs Ltd. to secure the Debt of other
Subsidiaries of AES that is permitted under this paragraph
(ii), the proceeds of which are used to finance the
acquisition by such Subsidiaries from the government of
Argentina of equity interests in certain business units of
ESEBA);
(iii) Debt existing on the date hereof and identified
on Schedule I;
(iv) Debt owing to AES or a Consolidated Subsidiary
of AES;
(v) Debt of AES or its Subsidiaries representing a
refinancing, replacement or refunding of Debt permitted by
clauses (ii) and (iii) above; provided that (A) the aggregate
principal amount of such Debt outstanding or available will
not be increased at the time of such refinancing, replacement
or refunding (other than (1) in the case of Debt refinancing,
replacing or refunding Debt under the Existing AES Light
Non-Recourse Facility, an increase of up to $17,500,000 in
excess of the aggregate principal amount of Debt under the
Existing AES Light Non-Recourse Facility that is being
refinanced, replaced or refunded and (2) in the case of Debt
("Barbers Point Refinancing Debt") refinancing, replacing or
refunding Debt of AES Barbers Point, Inc. outstanding on May
15, 1997 (so long as such Barbers Point Refinancing Debt has
no scheduled principal repayments, or principal payments at
the option of the holder thereof in the absence of the
occurrence of specified events, prior to June 1, 2004) an
increase of up to $300,000,000 in excess of the aggregate
principal amount of Debt that is being refinanced, replaced or
refunded to the extent that proceeds in at least the amount of
such increase are received by AES as a result of such proceeds
being used to pay dividends or make distributions on the
capital stock of such Subsidiary and any other Subsidiary in
the chain of ownership between AES and such Subsidiary), (B)
no Obligor shall be liable for any such Debt except to the
extent that it was liable for the Debt so refinanced, replaced
or refunded, except that in the case of any Debt refinancing,
replacing or refunding Debt under the Existing AES Light
Non-Recourse Facility, any Subsidiary that has a direct or
indirect interest in LIGHT but does not have any direct or
indirect interest in any other Power Project may be liable for
such Debt and (C) if any Debt being refinanced, replaced or
refunded is
4
<PAGE>
subordinated to the Debt of either Borrower hereunder or of
any Subsidiary under any Guarantee thereof, such Debt shall be
subordinated at least to the same extent;
(vi) Guarantees by AES of Debt permitted by clauses
(ii)(A)(1) and (to the extent that the same constitutes a
refinancing of Debt permitted under such clause (ii)(A)(1))
(v) above;
(vii) Additional Permitted Subordinated Debt; and
(viii) Other Debt not described in clauses (i)
through (vii) above in an aggregate principal amount at any
time outstanding not to exceed $2,000,000.
(b) AES shall not issue any Additional Permitted Subordinated
Debt unless (i) both before and after giving effect to such issuance no
Default shall have occurred and be continuing and (ii) on a pro forma
basis after giving effect to such issuance and the application of the
proceeds thereof, AES would have been in compliance with Section 5.16
and 5.17 as of the last day of the fiscal quarter ended on, or most
recently ended prior to, the date of such issuance (assuming for this
purpose that such Additional Permitted Subordinated Debt was issued and
the proceeds applied on the first day of the period of four consecutive
fiscal quarters ended on such last day)."
SECTION 6. Representations of Borrower. The Borrower represents and
warrants that (i) the representations and warranties of the Borrower set forth
in Article 4 of the Credit Agreement will be true on and as of the Amendment
Effective Date and (ii) no Default will have occurred and be continuing on such
date.
SECTION 7. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
This Amendment may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
SECTION 8. Effectiveness. This Amendment shall become effective as of
the date hereof on the date (the "Amendment Effective Date") upon which the
Agent shall have received from each of the Borrower and the Required Banks a
5
<PAGE>
counterpart hereof signed by such party or facsimile or other written
confirmation (in form satisfactory to the Agent) that such party has signed a
counterpart hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day and year first above written.
THE AES CORPORATION
By /s/
-------------------------
Title:
BANKS
-----
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By /s/
-------------------------
Title:
BARCLAYS BANK PLC
By /s/
-------------------------
Title:
UNION BANK OF CALIFORNIA,
N.A.
By /s/
-------------------------
Title:
6
<PAGE>
NATIONSBANK, N.A.
By /s/
-------------------------
Title:
AUSTRALIA AND NEW ZEALAND
BANKING GROUP LIMITED
By /s/
-------------------------
Title:
THE FIRST NATIONAL BANK
OF BOSTON
By /s/
-------------------------
Title:
THE BANK OF NOVA SCOTIA
By /s/
-------------------------
Title:
CREDIT LYONNAIS NEW YORK
BRANCH
By /s/
-------------------------
Title:
7
<PAGE>
DRESDNER BANK AG, NEW YORK
AND GRAND CAYMAN
BRANCHES
By /s/
-------------------------
Title:
By /s/
-------------------------
Title:
THE FIRST NATIONAL BANK OF
CHICAGO
By /s/
-------------------------
Title:
THE INDUSTRIAL BANK OF JAPAN
TRUST COMPANY
By /s/
-------------------------
Title:
TORONTO DOMINION (NEW YORK),
INC.
By /s/
-------------------------
Title:
CIBC INC.
By /s/
-------------------------
Title:
8
<PAGE>
CREDIT LOCAL DE FRANCE
By /s/
----------------------------
Title:
CREDIT SUISSE
By /s/
----------------------------
Title:
By /s/
----------------------------
Title:
ING (U.S.) CAPITAL CORPORATION
By /s/
----------------------------
Title:
By /s/
----------------------------
Title:
THE NIPPON CREDIT BANK, LTD.,
LOS ANGELES AGENCY
By /s/
----------------------------
Title:
RIGGS BANK N.A.
9
<PAGE>
By /s/
-----------------------------------
Title:
THE SANWA BANK LIMITED,
NEW YORK BRANCH
By /s/
-----------------------------------
Title:
THE SAKURA BANK LIMITED
By /s/
-----------------------------------
Title
FRONTING BANKS
--------------
BARCLAYS BANK PLC, as Fronting Bank
By /s/
-----------------------------------
Title:
UNION BANK OF CALIFORNIA, N.A.,
as Fronting Bank
By /s/
-----------------------------------
Title:
NATIONSBANK, N.A., as Fronting Bank
By /s/
-----------------------------------
Title:
10
<PAGE>
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK,
as Fronting Bank
By /s/
-----------------------------------
Title:
AGENT
-----
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as Agent
By /s/
-----------------------------------
Title:
11
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-15487 of The AES Corporation on Form S-3 of our report dated January 30,
1997, except for the penultimate paragraph of Note 6, as to which the date is
March 13, 1997, and Note 13, as to which the date is June 30, 1997, appearing in
this Current Report on Form 8-K of The AES Corporation dated July 3, 1997.
/s/ Deloitte & Touche LLP
Washington, DC
July 3, 1997
