UNITED STATES
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): October 27, 1997
THE AES CORPORATION
(exact name of registrant as specified in its charter)
DELAWARE 0-19281 54-1163725
(State of Incorporation) (Commission File No.) (I.R.S. Employer
Identification No.)
1001 North 19th Street
Arlington, Va 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 7. Financial Statements and Exhibits
a. (i) Financial Statements of Businesses Acquired.
In connection with AES's acquisition of Companhia Centro-oeste de
Distribuicao de Energia Eletrica-CEEE D2 ("CEEE D2") as previously reported in
the Company's 8-k dated November 10, 1997, the Company submits the following
audited financial statements. The following audited financial statements of
Companhia Centro-oeste de Distribuicao de Energia Eletrica- CEEE D2 (formerly
Midwest Division of Companhia Estadual de Energia Eletrica- CEEE) as of and for
the nine months ended September 30, 1997, together with the Auditors' report are
expressed in Brazilian Reais and prepared in accordance with accounting
practices originating in Brazil's Corporation Law.
<PAGE>
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
(FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)
FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1997
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE>
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
(FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)
FINANCIAL STATEMENTS
Nine months ended September 30, 1997
CONTENTS
Report of Independent Auditors.................................................1
Audited Financial Statements
Balance Sheet..................................................................2
Statement of Income............................................................4
Statement of Shareholders' Equity..............................................5
Statement of Changes in Financial Position.....................................6
Notes to Financial Statements..................................................7
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Companhia Centro-Oeste de Distribuicao de Energia Eletrica
We have examined the accompanying balance sheet of Companhia Centro-Oeste de
Distribuicao de Energia Eletrica-CEEE D2 (formerly Midwest Division of Companhia
Estadual de Energia Eletrica-CEEE) as of September 30, 1997, and the related
statements of income, shareholders' equity and changes in financial position for
the nine months then ended, expressed in Brazilian currency and prepared on the
basis described in Note 2. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. 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 audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Companhia Centro-Oeste de
Distribuicao de Energia Eletrica-CEEE D2 (formerly Midwest Division of Companhia
Estadual de Energia Eletrica-CEEE) as of September 30, 1997, and the results of
its operations, and changes in its shareholders' equity and financial position
for the nine months then ended, in accordance with the accounting practices
originating in Brazil's Corporation Law.
Porto Alegre, December 30, 1997
Ernst & Young
Auditores Independentes S.C.
CRC-2 SP/15,199/O-6/S/RS
Arnaldo C. Kurayama
Accountant CRC-SP/101,151/S/RS
<PAGE>
A free translation from Portuguese into English of financial statements prepared
in Brazilian currency in accordance with the accounting practices originating in
Brazil's Corporation Law
- -------------------------------------------------------------------------------
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
(FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)
BALANCE SHEET (NOTE 2.A)
September 30, 1997
(Expressed in thousands of reais)
ASSETS
CURRENT ASSETS
Cash and cash equivalents 20,318
Customers accounts receivable 59,834
Allowance for doubtful accounts (3,000)
Accounts receivable - CEEE 11,191
Other accounts receivable 3,857
Stores 1,424
Prepaid expenses 139
--------
TOTAL CURRENT ASSETS 93,763
LONG-TERM ASSETS
Deferred income and social contribution taxes 21,134
Other credits 83
--------
TOTAL LONG-TERM ASSETS 21,217
PERMANENT ASSETS
Investments 9,991
Property, plant and equipment - net 587,415
--------
TOTAL PERMANENT ASSETS 597,406
========
TOTAL ASSETS 712,386
========
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Suppliers 34,237
Taxes and social charges 28,316
Loans-Current portion 1,669
Accrual for retirement benefits 9,510
Payroll accruals 7,609
Other payables and accruals 5,882
--------
TOTAL CURRENT LIABILITIES 87,223
LONG-TERM LIABILITIES
Loans 26,890
Accrual for retirement benefits 46,632
Provision for contingencies 4,700
Other long-term liabilities 3,039
--------
81,261
Special obligations 21,795
--------
TOTAL LONG-TERM LIABILITIES 103,056
SHAREHOLDERS' EQUITY
Capital 536,344
Capital reserves 335
Accumulated loss (14,572)
--------
TOTAL SHAREHOLDERS' EQUITY 522,107
========
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 712,386
========
See accompanying notes.
<PAGE>
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
(FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)
STATEMENT OF INCOME (NOTE 2.B)
Nine months ended September 30, 1997
(Expressed in thousands of reais)
GROSS OPERATING REVENUE
Electricity sales to final consumers 477,770
Electricity sales to other concessionaires 210
Other revenue 5,779
--------
483,759
DEDUCTIONS FROM OPERATING REVENUE
Regulatory charges (20,653)
Value - added sales tax (ICMS) (94,711)
COFINS and PASEP taxes (12,792)
--------
(128,156)
--------
NET OPERATING REVENUE 355,603
OPERATING EXPENSES
Purchases of electricity (189,623)
Personnel (44,323)
Third party materials and services (13,700)
Depreciation (24,279)
Other expenses (20,399)
--------
(292,324)
--------
OPERATING INCOME BEFORE FINANCIAL INCOME 63,279
Financial income, net 5,953
--------
OPERATING INCOME 69,232
NONOPERATING INCOME
Extraordinary items (50,786)
Nonoperating income, net 22
--------
50,764)
--------
INCOME BEFORE TAXES 18,468
Income and social contribution taxes (27,140)
Deferred income and social contribution taxes 21,134
========
NET INCOME FOR THE PERIOD 12,462
========
See accompanying notes.
<PAGE>
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
(FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)
STATEMENT OF SHAREHOLDERS' EQUITY (NOTE 2.B)
Nine months ended September 30, 1997
(Expressed in thousands of reais)
<TABLE>
<CAPTION>
CAPITAL ACCUMULATED
CAPITAL RESERVE LOSS TOTAL
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 641,988 -- -- 641,988
Net assets and liabilities included in CEEE-D2 on December 31, 1996 and capital
reserve and net income related to the period from January 1 to August 10, 1997,
the amounts of which were not transferred to the new company (Companhia
Centro-Oeste de Distribuicao de Energia Eletrica) created on July 28, 1997 and
which started its operations on August 11, 1997 (See Note 2(b2))
(105,644) (2,610) (27,034) (135,288)
Remuneration of construction in progress:
Period from January 1 to August 10, 1997 -- 2,610 -- 2,610
Period from August 11 to September 30, 1997 -- 335 -- 335
Net income (loss):
Period from January 1 to August 10, 1997 -- -- 27,034 27,034
Period from August 11 to September 30, 1997 -- -- (14,572) (14,572)
======== ====== ======== =======
BALANCE AT SEPTEMBER 30, 1997 536,344 335 (14,572) 522,107
======== ====== ======== =======
</TABLE>
See accompanying notes
<PAGE>
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
(FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)
STATEMENT OF CHANGES IN FINANCIAL POSITION (NOTE 2.B)
Nine months ended September 30, 1997
(Expressed in thousands of reais)
SOURCES OF WORKING CAPITAL
FROM OPERATIONS
Net income for the period 12,462
Items which do not affect working capital:
Depreciation 24,279
Long-term monetary variations 2,194
Provision for losses with investments 128
Provision for contingencies 4,700
Accrual for long-term retirement benefits 46,632
Deferred income and social contribution taxes (21,134)
Cost of permanent assets disposed 1,705
--------
70,966
FROM THIRD PARTIES
Reduction of long-term assets 10,531
Increase in long-term liabilities 7,552
--------
18,083
--------
TOTAL FUNDS PROVIDED 89,049
USES OF WORKING CAPITAL
Property, plant and equipment 11,872
Investments 666
Reduction of net assets (see Note-2(b2)) 135,288
Transfer of long-term liabilities to current liabilities 1,527
--------
TOTAL FUNDS USED 149,353
========
DECREASE IN WORKING CAPITAL (60,304)
========
CURRENT ASSETS
At beginning of period 135,200
At end of period 93,763
--------
(41,437)
CURRENT LIABILITIES
At beginning of period 68,356
At end of period 87,223
--------
18,867
========
DECREASE IN WORKING CAPITAL (60,304)
========
See accompanying notes.
<PAGE>
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
(FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
(In thousands of reais)
1. OPERATIONS
Companhia Estadual de Energia Eletrica-CEEE is a publicly traded
corporation under Brazilian Law, controlled by the State of Rio Grande do
Sul Government, and was included in the privatization program of the state
government in 1996. In accordance with the model for sale approved by the
State Government, the main electric energy operating activities of CEEE in
generation, transmission and distribution by region, would be segregated
and transferred to new companies to be created for these purposes. These
companies were to be sold separately to different investor groups. Thus,
CEEE formed six new companies, which were: two energy generating companies
(thermal and hydro electric), one energy transmission company, and three
energy distribution companies, separated by state regions:
North-Northeast-D3, Midwest-D2 (CEEE-D2) and South-Southeast-D1. On October
21, 1997, the companies responsible for the distribution of energy in the
North-Northeast-D3 and in the Midwest-D2 regions were privatized by way of
an auction. Companies for the latter two regions were formed on July 28,
1997 and their operating activities began on August 11,1997. On October 27,
1997, the new shareholders (private sector) assumed their respective
management.
AES Guaiba Empreendimentos Ltda. (holding of CEEE-D2) acquired a share
interest in the distribution operations of the Midwest region, known as
CEEE-D2 (Companhia Centro-Oeste de Distribuicao de Energia Eletrica).
The Midwest region (D2) concession area covers 125 municipalities,
including three million inhabitants in the central west region of the State
of Rio Grande do Sul. On September 30, 1997, the CEEE-D2 had 827,528
registered customers. Approximately 35% of its revenue is derived from the
industrial sector, 39% from the residential sector, 15% from the commercial
sector, 4% from the rural sector and 7% from the public sector. CEEE-D2
does not have any generating capabilities, so that all the necessary energy
is supplied by third parties (ELETROSUL-36%, ITAIPU-38%, CEEE-14% and
Companhia de Geracao Termica de Energia Eletrica - CGTEE - 12%).
<PAGE>
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
(FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1997
(In thousands of reais)
2. PRESENTATION OF THE FINANCIAL STATEMENTS
In order to meet the requirements of the Securities and Exchange Commission
of the United States (SEC), as to the presentation of the financial
statements of the businesses being acquired, the operations are being
treated as a business division for the purposes of this report and are
presented for the nine months ended September 30,1997 separately from CEEE
as a whole. Thus, the statements of income, shareholders' equity and
changes in financial position for the period January 1 to August 10, 1997,
included in the official books of CEEE, are added to the positions in the
official books of Companhia Centro-Oeste de Distribuicao de Energia
Eletrica for the period August 11 to September 30, 1997.
The principles and assumptions used by CEEE management to segregate the
distribution operations by region within the state of Rio Grande do Sul and
specifically, for the Midwest region, are described in Note 2(b).
The financial statements of CEEE-D2 were prepared in accordance with the
accounting practices set out in Law No. 6,404/76 (Brazil's Corporation
Law), the standards specified by the CVM - Comissao de Valores Mobiliarios
(Brazilian Securities Commission), and the standards used to regulate
public utilities established by government authorities through DNAEE -
Departamento Nacional de Aguas e Energia Eletrica (National Department of
Waters and Electric Energy).
A) BALANCE SHEET AT SEPTEMBER 30, 1997
The balance sheet accounts, shown in the above financial statements,
were prepared based on Companhia Centro-Oeste de Distribuicao de Energia
Eletrica's current official books as of September 30, 1997 and duly
adjusted for accruals as of that date, identified after the closing of
the respective actual financial statements. To improve the presentation
of the financial statements, the effects of these adjustments were
reflected in the preparation of the September 30, 1997 financial
statements, herein shown, conforming to the reconciliation shown below:
<PAGE>
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
(FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1997
(In thousands of reais)
2. PRESENTATION OF THE FINANCIAL STATEMENTS -- continued
A) BALANCE SHEET AT SEPTEMBER 30, 1997 -- continued
<TABLE>
<CAPTION>
SHAREHOLDERS'
DESCRIPTION EQUITY NET INCOME
---------------------- ------------- -----------
<S> <C> <C>
Net income for the period of January 1 to August 10,1997 - 27,034
Net income for the period of August 11 to September 30, 1997 before - 23,625
adjustments -------- --------
BALANCE ON SEPTEMBER 30, 1997 BEFORE ADJUSTMENTS 560,304 50,659
Complement to the provision for PIS and COFINS (1,937) (1,937)
Reversal of the provision for the reversion global reserve - RGR 6,783 6,783
Constitution of the allowance for doubtful accounts (3,000) (3,000)
Duplicate energy invoice to ELETROSUL 1,824 1,824
Unrecorded energy invoices to CEEE and CGTEE (2,652) (2,652)
Provision for labor contingencies (1,200) (1,200)
Provision for contingencies related to the ELETROCEEE Foundation (3,500) (3,500)
Provision for complementary retirement benefits (44,476) (44,476)
Provision for contributions to ELETROCEEE for retirements (8,503) (8,503)
Provision complement for income tax (1,681) (1,681)
Provision complement for social contribution tax (550) (550)
Constitution of deferred income tax 16,016 16,016
Constitution of deferred social contribution tax 5,118 5,118
Other adjustments (439) (439)
-------- -------
TOTAL NET EFFECT (38,197) (38,197)
======== ========
BALANCE ON SEPTEMBER 30, 1997 (ADJUSTED) 522,107 12,462
======== ========
</TABLE>
B) STATEMENTS OF INCOME, SHAREHOLDERS' EQUITY AND CHANGES IN FINANCIAL POSITION
The conditions for the preparation of these financial statements, including
the allocation of financial-statement items to CEEE-D2, were based on: (i)
the fractions of property, plant and equipment transferred to each
division; (ii) the sector in which each division operates; (iii) the number
of employees transferred or allocated to each division; and (iv) other
information. Below are the main criteria used for the preparation of each
statement:
<PAGE>
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
(FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1997
(In thousands of reais)
2. PRESENTATION OF THE FINANCIAL STATEMENTS -- continued
B) STATEMENTS OF INCOME, SHAREHOLDERS' EQUITY AND CHANGES IN FINANCIAL
POSITION -- continued
b.1) Statement of income
The statement of income for the period of January 1 to August
10,1997 was prepared based on the statement of income for the
first six-month period of 1997 available from CEEE's privatization
process which was adjusted, basically, by the cost of energy
purchased for resale, which had been increased by energy supplied
by CEEE through water power generation and by thermal energy from
CGTEE, using the tariffs effectively contracted with these
companies. The statement of income for the period July 1 to August
10, 1997 was prepared based on the same assumptions and criteria
used for the first six-month period of 1997. The net income (loss)
for the periods of January 1 to August 10, 1997 and August 11 to
September 30, 1997 (official books of Companhia Centro-Oeste de
Distribuicao de Energia Eletrica) amount to R$ 27,034 and (R$
14,572), respectively. Below are described the criteria used for
the segregation of the principal income accounts attributable to
the CEEE-D2, originally recorded in the official books of CEEE:
o Electricity sales - Allocated in each division according to
the operating region (municipalities);
o Deductions from operating revenue - Allocated in proportion
to the billing attributable to each division;
o Purchases of electricity - Allocated between each division
in accordance with the energy volumes required to meet
billing,djusted by the volume to be supplied by CEEE and
CGTEE;
o Personnel - Allocated based on the employees attributable to
each division;
o Third party materials and services - All identified expenses
were attributed to each division based on their realization,
the remaining balance was maintained in CEEE;
o Depreciation - Proportional to the property, plant and
equipment attributed to each division;
<PAGE>
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2 (FORMERLY
MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE) NOTES TO
FINANCIAL STATEMENTS (CONTINUED) September 30, 1997 (In thousands of reais)
2. PRESENTATION OF THE FINANCIAL STATEMENTS -- continued
B) STATEMENTS OF INCOME, SHAREHOLDERS' EQUITY AND CHANGES IN FINANCIAL
POSITION -- continued
b.1) Statement of income -- continued
o Other expenses - Allocated in each division based on the
nature of each account and origin of expense. The accounts
that could not be attributed to only one division, were
allocated based on information from the user;
o Financial income (expenses) - Financial income derived from
overdue accounts was allocated to each division, in
accordance with its region (municipality). Financial
expenses were allocated in accordance with interest and
restatement for each loan and note account;
o Provision for income and social contribution taxes -
Calculated using the rates in force on taxable income for
each division.
b.2) Statements of shareholders' equity and changes in financial
position
For the purposes of this report, the following amounts are being
shown as reduction in the statements of shareholders' equity and
changes in financial position: a) the shareholders' equity balance
for the distribution operations in the CEEE-D2 region on December
31,1996 in the amount of R$ 105,644; b) the net income for the
period January 1 to August 10, 1997 in the amount of R$ 27,034;
and c) the capital reserve to be added to net equity for the
period January 1 to August 10,1997 in the amount of R$ 2,610. The
total of these amounts adds up to R$ 135,288, which was not
transferred to the new company (Companhia Centro-Oeste de
Distribuicao de Energia Eletrica) created to manage the operations
in the Midwest region.
<PAGE>
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
(FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1997
(In thousands of reais)
2. PRESENTATION OF THE FINANCIAL STATEMENTS -- continued
C) OPENING BALANCE SHEET - DECEMBER 31, 1996
The December 31, 1996 balance sheet was prepared based on the statements
shown in the privatization process (Companhia Centro-Oeste de
Distribuicao de Energia Eletrica), together with the criteria for
carve-out of the balance sheet items of CEEE to be given to the
Divisions, which were as follows: (i) the fractions of the property,
plant and equipment transferred to each division; (ii) the sector in
which each division operates; (iii) the number of employees transferred
or allocated to each division; and (iv) other information.
3. PRINCIPAL ACCOUNTING PRACTICES
A) STATEMENT OF INCOME
Income and expenses are calculated based on the accrual method,
including the effects of monetary adjustments on the assets and
liabilities, as applicable.
B) CASH AND CASH EQUIVALENTS
Includes the amount of R$ 10,000 relating to short term financial
investments which are monetarily corrected to their current values, as
applicable.
C) CUSTOMER ACCOUNTS RECEIVABLE
Includes the accounts receivable for billed and unbilled monthly
electricity consumption and recognized on the accrual basis.
D) ALLOWANCE FOR DOUBTFUL ACCOUNTS
An allowance for doubtful accounts is recorded by management to be
sufficient to cover presently foreseeable losses.
<PAGE>
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
(FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1997
(In thousands of reais)
3. PRINCIPAL ACCOUNTING PRACTICES
E) STORES
Refers to the materials used for the maintenance of operating
equipment, recorded at the average acquisition cost which does not
exceed their market value.
F) INVESTMENTS
Are recorded at acquisition cost and adjusted to market value, as
applicable.
G) PROPERTY, PLANT AND EQUIPMENT
Recorded at purchase or construction cost, monetarily corrected to
December 31, 1995. Depreciation was calculated on the balance of assets
in service, using the straight-line method and the rates described in
Note 6. Material destined for construction is classified as
construction in progress and is recorded at the aquisition cost.
Construction in progress is being remunerated at the Long-Term Interest
Rate - TJLP, limited to 10% per year, with the amount being attributed
to capital and credited to shareholders' equity in a capital reserve
account.
H) SPECIAL OBLIGATIONS
Special obligations are contributions received from customers, which
are to be used exclusively for investment in the distribution network
to provide energy to the contribuitors.
I) INCOME AND SOCIAL CONTRIBUTION TAXES
Income and social contribution taxes were calculated in accordance with
the current legislation, especially Law 9,430 of December 27, 1996. The
CEEE-D2 recorded deferred income and social contributions taxes,
calculated based on the temporary differences presented in the
financial statements.
<PAGE>
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
(FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1997
(In thousands of reais)
3. PRINCIPAL ACCOUNTING PRACTICES -- continued
J) RELATED PARTY TRANSACTIONS
CEEE-D2 maintains a current account with the Companhia Estadual de
Energia Eletrica-CEEE, for the expenses paid by CEEE-D2 which are the
responsibility of CEEE and for those paid by CEEE which are the
responsibility of CEEE-D2. Up to September 30, 1997 these amounts had
not been restated, not even for interest. The energy purchased,
supplied by CEEE and CGTEE, is supported by supply contracts signed by
all parts and approved by DNAEE and totaled R$ 32,135, recorded as
energy purchased. The amount for energy purchased from January 1 to
September 30, 1997 from CEEE and CGTEE was R$ 73,574, representing
38.8% of the cost of energy purchased.
4. TRADE ACCOUNTS RECEIVABLE
DESCRIPTION BILLED UNBILLED TOTAL
------------------------------ -------- ---------- ------
Residential 16,471 10,505 26,976
Industrial 3,300 9,096 12,396
Commercial and services 4,827 3,998 8,825
Rural 1,659 1,382 3,041
Governments 2,286 647 2,933
Public lighting 2,401 259 2,660
Public service 1,969 574 2,543
Others 460 - 460
========== ======= =======
TOTAL 33,373 26,461 59,834
========== ======= =======
5. DEFERRED INCOME AND SOCIAL CONTRIBUTION TAXES
CEEE-D2 recorded deferred income tax of R$16,016 and social contribution
tax of R$ 5,118, calculated on the temporary differences presented in the
financial statements, which refer mainly to the nondeductible provision for
retirement benefits.
<PAGE>
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
(FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1997
(In thousands of reais)
6. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
ACQUISITION OR
PRECIATION CONSTRUCTION ACCUMULATED
DESCRIPTION RATE COST DEPRECIATION NET
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
IN SERVICE
Land 2,831 - 2,831
Building and improvements 3% 22,935 (16,697) 6,238
Machinery and equipment 3 and 4% 846,635 (298,846) 547,789
Vehicles 3% 10,947 (2,559) 8,388
Office equipment and furnishings 3% 1,827 (949) 878
Land use rights 6,075 - 6,075
---------------------------------------
TOTAL IN SERVICE 891,250 (319,051) 572,199
CONSTRUCTION IN PROGRESS
Construction in progress 10,144 - 10,144
Material held in stock 5,072 - 5,072
---------------------------------------
TOTAL IN PROGRESS 15,216 - 15,216
=======================================
TOTAL 906,466 (319,051) 587,415
=======================================
</TABLE>
<TABLE>
<CAPTION>
7. SUPPLIERS
DESCRIPTION
-----------
<S> <C>
Centrais Eletricas do Sul do Brasil S.A. - ELETROSUL 11,993
ELETROSUL - ITAIPU repass 7,201
Companhia Estadual de Energia Eletrica - CEEE 9,120
Companhia de Geracao Termica de Energia Eletrica - CGTEE 2,886
---------
Total electricity suppliers 31,200
Other suppliers 3,037
==========
TOTAL 34,237
==========
</TABLE>
<PAGE>
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
(FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1997
(In thousands of reais)
8. TAXES AND SOCIAL CHARGES
DESCRIPTION
-----------
ICMS (State VAT) 11,631
COFINS (payroll tax) 1,463
PASEP (payroll tax) 475
INSS (social security) 706
FGTS (dismissal indemnity fund) 171
Social contribution tax based on income 3,370
Income tax 10,491
Other contributions 9
=======
TOTAL 28,316
=======
9. LOANS
INTEREST
DESCRIPTION INDEX RATES(A) SHORT-TERM LONG-TERM TOTAL
----------- -------- ---------- ----------- ---------
Fundacao ELETROCEEE INPC 9% p.a. 1,669 23,195 24,864
Customers - - - 3,695 3,695
======= ======= =======
TOTAL 1,669 26,890 28,559
======= ======= =======
The amount of the loan from the ELETROCEEE Pension fund refers todebt
acceptance contract, assumed by CEEE-D2 as a result of the breaking up of
the whole contract with CEEE. The loan is amortized on a monthly basis and
is guaranteed by customer invoice remittances held by several banks.
Customers refers to refund agreements, amounts advanced from customers
interested in electric energy supply and loans to finance their electric
connections, all generally involved with the expansion of the distribution
network. These amounts will be returned in four years after the date of the
conclusion of the installation, without interest or monetary correction.
<PAGE>
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
(FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1997
(In thousands of reais)
9. LOANS -- continued
The due dates and the repayment amounts of the long-term loans with the
ELETROCEEE Pension fund are as follows:
DUE DATES
--------------------------
Oct.-Nov.-Dec.-1998 419
1999 1,676
2000 1,676
2001 1,676
2002 1,676
From 2003 on 16,072
======
TOTAL 23,195
======
10. ACCRUAL FOR RETIREMENT BENEFITS
In accordance with the collective agreement the CEEE-D2 is responsible to
pay a complementary retirement benefit for credit service that had been
conceded by the Previdencia Oficial (Official Social Security) to regular
participants in the ELETROCEEE Pension Fund and who had not yet fulfilled
all the requirements to receive the benefits from the above mentioned
Pension Fund. Such benefit will be paid by the Sponsors until all
requirements are met, so that the participant would be considered
definitively retired by the Pension Plan.
An accrual for these future payments was recorded by CEEE-D2 and the
calculation considered the average payment period of this benefit to be 132
months, representing calendar years of 13 months. The amount of that
provision was adjusted to its present value using a rate of 12% per annum.
The balances on September 30, 1997 are summarized below:
<TABLE>
<CAPTION>
ADJUSTMENT
ORIGINAL TO PRESENT NET LONG SHORT
DESCRIPTION GROSS AMOUNT VALUE AMOUNT TERM TERM
------------------ -------------- --------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Retirement complement 84,618 (36,979) 47,639 39,539 8,100
Contribution to Pension fund 14,730 (6,227) 8,503 7,093 1,410
============= ========= =========== ======== =============
TOTAL 99,348 (43,206) 56,142 46,632 9,510
============= ========= =========== ======== =============
</TABLE>
<PAGE>
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
(FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1997
(In thousands of reais)
11. CONTINGENCIES
Companhia Estadual de Energia Eletrica-CEEE, formerly controlling
shareholder of CEEE-D2, is being cited in several lawsuits in the tax and civil
areas. In the opinion of the Company's attorneys the probability of loss is
remote. Thus, it is not necessary to create any provision for losses. As for the
labor lawsuits against CEEE by employees up to August 11, 1997 subcontracted by
(transferred to) Companhia Centro-Oeste de Distribuicao de Energia Eletrica
(CEEE-D2) on that date, the responsibility for any contingencies up to that date
is CEEE's, passing subsequently to CEEE-D2. Thus, a provision for labor
contingencies for the 475 lawsuits by employees of CEEE-D2 has been constituted
in the amount of R$ 1,200, including the responsibility period of CEEE-D2 from
August 11, 1997 on.
The ELETROCEEE (Pension fund) is being cited in two lawsuits in the tax
area, where the collection of income tax at source on the earnings on fixed
income investments (CDB, CDI, etc) and variable income (equity securities) of
the Pension Fund is being questioned. These lawsuits are in the amount of R$
84,000. CEEE-D2 is constituting a provision in the amount of R$ 3,500, which
refers to the percentage of its participation of 4.21% in the Pension Fund.
12. SHAREHOLDERS' EQUITY
CEEE-D2's capital is R$ 536,344, represented by 536,344,395 nominative, no
par value, common shares. Each common share entitles the holder to one vote at
shareholder meetings.
CEEE-D2 corporate bylaws do not foresee the distribution of dividends to
the shareholders. As a result, the regulations laid out by Law 6,404/76 (article
202) prevail, which determine that 50% of net income, adjusted by the following,
be destined for dividends: (i) the amount destined for the creation of the legal
reserve; (ii) the amount destined for the creation of the contingency reserve.
The base used for the calculation of dividends is the net income as
presented in the corporate books.
<PAGE>
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
(FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1997
(In thousands of reais)
13. PENSION FUND
CEEE-D2 is co-sponsor of the Fundacao CEEE de Seguridade Social -
ELETROCEEE (Pension fund), which has as its main objective supplementing the
social benefits of its participants.
The annual cost to the CEEE-D2 is estimated to be 7.5% for the normal cost
(amortization of future service), 1.5% for administrative cost and 2.44% for
supplementary cost with amortization of past service (Reserve to be amortized)
of the payroll (SRC - real contribution salary).
The sponsors are responsible for the coverage of any deficit calculated in
the benefit plan of the Pension fund
The benefits plan is of the "defined benefit" type, using the capitalizing
method. The actuarial review was performed on the base date of September 30,
1997 which gives the following position:
<TABLE>
<CAPTION>
TOTAL
BALANCE BALANCE
RECORDED BY ATTRIBUTABLE TO
DESCRIPTION ELETROCEE CEEE-D2
------------------------------------------------ ---------------- ---------------
<S> <C> <C>
MATHEMATICAL RESERVES
Vested benefit obligation - retired employees 230,964 -
Non-Vested benefit obligation-current employees 666,908 47,260
Reserve to be amortized (106,491) (12,332)
--------- --------
791,381 34,928
TECHNICAL SURPLUS(DEFICIT) 3,908 (836)
========= ========
TECHNICAL RESERVE 795,289 34,092
========= ========
TOTAL ASSETS AVAILABLE 811,793 34,092
========= =========
</TABLE>
<PAGE>
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
(FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1997
(In thousands of reais)
14. FINANCIAL INSTRUMENTS
All the assets and liabilities, which are considered financial instruments
(loans, investments, etc.), included in the financial statements at September
30, 1997 do not represent significant changes between their market and
accounting values.
15. EXTRAORDINARY ITEMS
The following adjustments to the September 30, 1997 financial statements
are being included as set out in Note 2(a). Among these adjustments, some are
considered nonrecurring as they are not related to Division operations and
because of their unusual and infrequent nature, and are shown below:
DESCRIPTION
-------------------------------------------------------
Tax contingencies related to ELETROCEEE (Pension fund) (3,500)
Provision for retirement benefits (47,639)
Contributions to the Pension fund for early retirements (8,503)
Net provision for RGR received by CEEE 8,856
--------
TOTAL (50,786)
-------------------------------------------------------- ========
16. SUBSEQUENT EVENTS
On October 21, 1997, by way of a Special Auction held by the Bolsa de
Valores do Extremo Sul (Extreme South Stock Exchange) - BVES, the privatization
of Companhia Centro-Oeste de Distribuicao de Energia Eletrica (CEEE-D2) took
place, whereby 100% of the capital of CEEE-D2, which was held by Companhia
Estadual de Energia Eletrica - CEEE, was sold for approximately R$ 1,510,000, at
a premium 93.55%. As was established under the privatization bid agreement, the
winner of the auction (AES Guaiba Empreendimentos Ltda.) assumed the following
obligations:
Submit to DNAEE , beforehand, any alterations to the Company bylaws that
would imply any changes in shareholder control;
<PAGE>
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
(FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA
ELETRICA-CEEE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30,
1997 (In thousands of reais)
16. SUBSEQUENT EVENTS -- continued
o Submit, independently of the requirements of the concession contract, the
requested documents or any other information relative to the Company, that
has been asked for by monitoring, controlling or auditing State or
Government Concession entities;
o Ensure that at least one member of the Company's Administrative Council be
freely chosen by the employees if the shares they own, including those
acquired during the offer to employees, are not sufficient to ensure the
election of a representative. The election process for the employee
representative will be coordinated by the employee labor union representing
the majority of employees;
o Keep the Company as "a publicly traded company" for the period of the
concession, except as the result of legal requirements, keeping the share
register open for the trading of Company stock on the stock exchange for
the minimum of 360 days after the purchase or sale of shares. If the stock
register for the trading of shares on the stock exchange is not kept open
for the above mentioned time, the controlling shareholders must make a
public offer to purchase the shares held by the employees at the price per
lot of one thousand shares set by the auction, restated by the IGPM, or any
other index that has substituted it, within the period of 13 months from
the date of the signing of the purchase or sale contract for the shares;
o Assume as sponsor, relative to the employees of the Company, without the
help of the Fundacao CEEE de Seguridade Social - ELETROCEEE (Pension fund),
the guarantee for the current social security benefit plan for a three year
minimum;
o Be responsible for the financing of the amortization of the ELETROCEEE
(Pension fund) reserve, in the time taken to amortize this reserve at the
rates calculated by the actuary responsible for setting the amount, in
proportion to the SRC (Real Contribution Salary) of the participants who
are covered by the plan;
o Maintain up to August 31, 2004, the current assistance and medical health
benefits for the employees laid out in the agreement signed with the
Sindicato dos Trabalhadores SENERGISUL (Labor Union);
<PAGE>
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2
(FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1997
(In thousands of reais)
16. SUBSEQUENT EVENTS -- continued
O Assume, through subcontracts, the rights and obligations established in
energy supply contracts, including those with guarantees given by CEEE to
the supplier of the above mentioned contracts
a. (ii) Pro forma Financial Information
The following unaudited pro forma consolidated statements of
operations information combine the results of AES's investment in CEMIG, Destec,
and ESEBA which were previously reported in the AES Corporation's Form 8-K dated
July 3, 1997, and in CEEE D2, which was previously reported in the AES
Corporation's Form 8-K dated November 10, 1997, for the year ended December 31,
1996 and the nine months ended September 30, 1997 as if the acquisitions and the
associated financings had occurred on January 1, 1996.
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 and the financings 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.
YEAR ENDED DECEMBER 31, 1996(1)(2)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
(UNAUDITED) ADJUSTMENTS PRO FORMA
FOR THE ESEBA, FOR THE ESEBA, PRO FORMA
CEMIG & DESTEC CEMIG & DESTEC CEEE D2 FOR ALL
ACQUISITIONS ACQUISITIONS ACQUISITION ACQUISITIONS
ACTUAL & FINANCINGS & FINANCINGS & FINANCING & FINANCINGS
- -----------------------------------------------------------------------------------------------------------------------------------
($ in millions, except per share amounts)
<S> <C> <C> <C> <C> <C>
TOTAL REVENUES(4) $ 835 $ 702 $ 1,537 $ 398 $ 1,935
TOTAL OPERATING COSTS AND EXPENSES 557 704 1,261 360 1,621
----- ----- ------- ----- ------
OPERATING INCOME 278 (2) 276 38 314
OTHER INCOME AND (EXPENSE):
Interest expense (144) (102) (246) (121) (367)
Interest income 24 -- 24 -- 24
Equity in earnings of affiliates, net of tax 35 50 85 -- 85
----- ----- ------- ----- ------
INCOME (LOSS) BEFORE INCOME TAX
AND MINORITY INTEREST 193 (54) 139 (83) 56
Income tax (Benefit) 60 (41) 19 (36) (17)
Minority interest 8 (2) 6 3 9
----- ----- ------- ----- ------
NET INCOME (LOSS) $ 125 (11) $ 114 $ (50) $ 64
===== ===== ======= ===== ======
NET INCOME (LOSS) PER SHARE(3) 0.72 (0.06) 0.66 (0.29) 0.37
===== ===== ======= ===== ======
</TABLE>
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1997(1)(2)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
(UNAUDITED) ADJUSTMENTS PRO FORMA
FOR THE ESEBA, FOR THE ESEBA, PRO FORMA
CEMIG & DESTEC CEMIG & DESTEC CEEE D2 FOR ALL
ACQUISITIONS ACQUISITIONS ACQUISITION ACQUISITIONS
ACTUAL & FINANCINGS & FINANCINGS & FINANCING & FINANCINGS
- -----------------------------------------------------------------------------------------------------------------------------------
($ in millions, except per share amounts)
<S> <C> <C> <C> <C> <C>
TOTAL REVENUES(4) $ 880 $ 127 $ 1,007 $ 320 $ 1,327
TOTAL OPERATING COSTS AND EXPENSES 620 113 733 323 1,056
------- ------- ------- ------- -------
OPERATING INCOME 260 14 274 (3) 271
OTHER INCOME AND (EXPENSE):
Interest expense (154) (44) (198) (87) (285)
Interest income 28 8 36 5 41
Equity in earnings of affiliates, net of tax 58 18 76 -- 76
------- ------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME TAX MINORITY
INTEREST,AND EXTRAORDINARY ITEM 192 (4) 188 (85) 103
Income taxes 50 (9) 41 (35) 6
Minority interest 10 4 14 1 15
------- ------- ------- ------- -------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 132 1 133 (51) 82
EXTRAORDINARY ITEM - NET LOSS ON EXTINGUISHMENT OF
DEBT (LESS APPLICABLE INCOME TAXES OF $2 MILLION) (3) -- (3) -- (3)
------- ------- ------- ------- -------
NET INCOME (LOSS) 129 1 130 (51) 79
======= ======= ======= ======= =======
NET INCOME (LOSS) PER SHARE:
Before extraordinary loss 0.76 0.01 0.77 (0.30) 0.47
Extraordinary loss (0.02) - (0.02) - (0.02)
------- ------- ------- ------ -------
NET INCOME (LOSS) PER SHARE (3) $ 0.74 $ 0.01 $ 0.75 $(0.30) $ 0.45
======= ======= ======= ====== =======
</TABLE>
The following unaudited pro forma consolidated balance sheet information
represents AES's financial position at September 30, 1997 as if the CEEE D2
acquisition and associated financing had occurred on that date.
<PAGE>
AS OF SEPTEMBER 30, 1997(1)(2)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
(UNAUDITED) ADJUSTMENTS PROFORMA
ACTUAL FOR THE CEEE D2 FOR THE CEEE D2
ACQUISITION ACQUISITION
& FINANCING & FINANCING
- ----------------------------------------------------------------------------------------------------
($ in millions)
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 358 $ 50 $ 408
Short-term investments 27 -- 27
Accounts receivable, less provision to
reduced contract receivable of $39 206 52 258
Inventory 69 1 70
Receivable from affiliates 13 -- 13
Deferred tax 49 1 50
Prepaid expenses and other current assets 77 15 92
------- ------- -------
TOTAL CURRENT ASSETS 799 119 918
PROPERTY, PLANT, & EQUIPMENT:
Land 33 -- 33
Electric generation and distribution assets 2,563 1,156 3,719
Accum depreciation, depletion, and amortization (336) (291) (627)
Construction in progress 800 14 814
------- ------- -------
PROPERTY, PLANT AND EQUIPMENT, NET 3,060 879 3,939
OTHER ASSETS:
Electricity concession agreements 229 765 994
Deferred costs, net 89 37 126
Project development costs 100 -- 100
Investments in and advances to affiliates 1,835 -- 1,835
Debt service reserves and other deposits 173 -- 173
Goodwill and other intangible assets, net 26 -- 26
Other assets 257 59 316
------- ------- -------
TOTAL OTHER ASSETS 2,709 861 3,570
------- ------- -------
TOTAL $ 6,568 $ 1,859 $ 8,427
======== ======= =======
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 74 $ 31 $ 105
Accrued interest 39 -- 39
Accrued and other liabilities 183 48 231
Project financing debt - current portion 533 -- 533
-------- ------- -------
TOTAL CURRENT LIABILITIES 829 79 908
LONG-TERM LIABILITIES:
Project financing debt 2,814 650 3,464
Other notes payable 573 500 1,073
Deferred income taxes 231 103 334
Other long-term liabilities 48 179 227
------- ------- -------
TOTAL LONG-TERM LIABILITIES 3,666 1,432 5,098
MINORITY INTEREST 379 48 427
COMPANY OBLIGATED MANDATORILY REDEEMABLE
PREFERRED SECURITIES OF AES TRUST II 250 300 550
STOCKHOLDERS' EQUITY
Common stock 2 -- 2
Additional paid-in capital 1,018 -- 1,018
Retained earnings 525 -- 525
Cumulative foreign currency translation
adjustment (100) -- (100)
Less treasury stock at cost (1) -- (1)
------- ------- -------
TOTAL STOCKHOLDERS' EQUITY 1,444 -- 1,444
------- ------- --------
TOTAL $ 6,568 $ 1,859 $ 8,427
======= ======= =======
</TABLE>
<PAGE>
(1) Basis of presentation:
The Company's acquisitions of the Destec international assets, ESEBA,
CEEE D2 and the 13% economic interest in CEMIG were accounted for as purchases.
The purchase price allocations have been prepared on a preliminary basis pending
completion of engineering, environmental, legal and valuation analyses, all of
which are ongoing. The excess of the respective purchase price over the net
assets acquired will be amortized over 40 years. The Company intends to sell its
interest in the Hazelwood project, which was purchased as part of the Destec
acquisition, 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 is being accounted for using the
equity method.
The summary unaudited pro forma financial information has been prepared
based on the Company's estimates of each acquiree's financial position and
results of operations in conformity with U.S. GAAP. As such, the unaudited pro
forma financial information reflects estimated changes in the basis of assets
and liabilities and the effects of such changes on depreciation and amortization
expense.
The unaudited pro forma statements of operations have been translated
using the average exchange rates in effect during the periods. The unaudited pro
forma balance sheet has been translated using the September 30, 1997 exchange
rates of approximately R$1.10 to US$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:
(a) The acquisition of the Destec international assets was funded
through the use of the proceeds from a $250 million TECONS offering in March
1997, the proceeds of a
<PAGE>
$150 million offering of AES Common Stock in March 1997, and funds under the
Company's revolving bank loan ("Revolver").
The acquisition of the Company's interest in CEMIG was funded through
the use of a $250 million bridge loan to AES CEMIG Funding Corporation, a
wholly-owned subsidiary of AES("CEMIG Bridge") at an interest rate of 8.25%, a
bridge loan to AES 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. Subsequently,
the CEMIG Bridge was reduced with a portion of the proceeds from the issuance of
the Company's common stock, as described below, to approximately $40 million.
Included in the pro forma amounts is the interest expense associated with the
refinanced amount of the CEMIG Bridge of $220 million at 8.25%.
The ESEBA acquisition was funded through the use of a bridge loan to
AESEBA Funding Corporation, a wholly-owned subsidiary of AES of $200 million at
an interest rate of 8.25% ("ESEBA Bridge"), project financing debt of $148
million at an interest rate of 7.4% and the drawdown of funds under the
Company's revolver. Subsequently, the ESEBA Bridge was reduced with a portion of
the proceeds from the issuance of the Company's common stock, as described
below, to approximately $32 million. Included in the pro forma amounts is the
interest expense associated with the refinanced amount of the CEMIG Bridge of
$180 million at 8.25%.
The pro forma adjustments also include the Company's issuance of $325
million 8 3/8% Senior Subordinated Notes due 2007 in July 1997 and the issuance
of 9.0 million shares of the Company's common stock at a price of $39.875 per
share in July 1997, as if such offerings had occurred on January 1, 1996.
(b) The Acquisition of CEEE D2 was funded through borrowings of $250
million under the Company's Revolver, short-term loans of $550 million under a
bridge loan facility to AES, and project financing debt of $630 million at an
interest rate of 7.5%. Subsequently, the borrowings under the Revolver and the
short-term bridge loan were refinanced with proceeds from $375 million of 8.5%
Senior Subordinated Notes, $125 million of 8.875% of Senior Subordinated Notes,
and $300 million Term Convertible Preferred Securities with a 5 1/2% yield
issued in October 1997. Interest expense associated with the above financing has
been reflected in the pro forma adjustments.
<PAGE>
(3) Weighted average shares used to calculate pro forma earnings per share for
the acquisition of the international assets of Destec include 5.1 million shares
of AES Common Stock issued to finance the acquisition as though they were issued
January 1, 1996. Weighted average shares have also been adjusted to reflect the
issuance of approximately 5.0 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, related to services performed under construction
contracts for 2 Destec projects, Elsta and Kingston. The Kingston project was
completed in early 1997 and, as a result, such revenue and costs were reduced to
$18 million and $17 million, respectively, for the nine months ended September
30, 1997. 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.
<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
By: /s/ Barry J. Sharp
Barry J. Sharp
Vice President
and Chief Financial Officer
Date: January 9, 1998
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
23.1 Consent of Independent Public Accountants
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement (Form
S-3 No. 333-39857) and related Prospectuses of The AES Corporation of our report
dated December 30, 1997 with respect to the financial statements of Companhia
Centro-Oeste de Energia Eletrica-CEEE-D2 (Fomerly Midwest Division of Companhia
Estadual de Energia Eletrica-CEEE) as at and for the nine-month period ended
September 30, 1997 prepared in accordance with accounting practices originating
in Brazil's Corporation Law, which appear in Item 7 on Form 8-K of The AES
Corporation dated January 9, 1998.
Porto Alegre, RS, Brazil, January 6, 1998
Ernst & Young
Auditores Independentes S.C.
CRC-2-SP 15199/0-6/S/RS
/s/ Arnaldo C. Kurayama
Arnaldo C. Kurayama
Accountant CRC-SP 101151/S/RS
