<PAGE>
--------------------------------------------------------------------------------
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
OR
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
COMMISSION FILE NUMBER 0-19281
------------------------
THE AES CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 54-1163725
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1001 NORTH 19TH STREET, ARLINGTON, 22209
VIRGINIA (Zip Code)
(Address of Principal Executive
Offices)
</TABLE>
(703) 522-1315
(Registrant's Telephone Number, Including Area Code)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
------------------------
The number of shares outstanding of Registrant's Common Stock, par value
$0.01 per share, at October 31, 2000, was 458,601,795.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
THE AES CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Interim Financial Statements:
Consolidated Statements of Operations....................... 1
Consolidated Balance Sheets................................. 2
Consolidated Statements of Cash Flows....................... 3
Notes to Consolidated Financial Statements.................. 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 12
Item 3. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 18
Item 2. Changes in Securities and Use of Proceeds................... 18
Item 3. Defaults Upon Senior Securities............................. 18
Item 4. Submission of Matters to a Vote of Security Holders......... 18
Item 5. Other Information........................................... 18
Item 6. Exhibits and Reports on Form 8-K............................ 18
Signatures........................................................... 23
</TABLE>
<PAGE>
THE AES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------- ---------------------
9/30/2000 9/30/1999 9/30/2000 9/30/1999
--------- --------- --------- ---------
($ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
REVENUES:
Sales and services.................................... $1,761 $ 847 $4,775 $2,125
OPERATING COSTS AND EXPENSES:
Cost of sales and services............................ 1,308 609 3,568 1,439
Selling, general and administrative expenses.......... 21 13 69 44
------ ----- ------ ------
TOTAL OPERATING COSTS AND EXPENSES...................... 1,329 622 3,637 1,483
------ ----- ------ ------
OPERATING INCOME........................................ 432 225 1,138 642
OTHER INCOME AND (EXPENSE):
Interest expense...................................... (365) (141) (947) (417)
Interest and other income............................. 48 15 148 46
Equity in earnings (loss) before income tax........... 103 (3) 320 (57)
------ ----- ------ ------
INCOME BEFORE INCOME TAXES, MINORITY INTEREST AND
EXTRAORDINARY ITEM.................................... 218 96 659 214
Income tax provision.................................. 52 27 166 55
Minority interest..................................... 32 11 66 43
------ ----- ------ ------
Income before extraordinary item...................... 134 58 427 116
EXTRAORDINARY ITEM, NET OF TAX--EARLY EXTINGUISHMENT OF
DEBT.................................................. -- -- (7) --
------ ----- ------ ------
NET INCOME.............................................. $ 134 $ 58 $ 420 $ 116
====== ===== ====== ======
BASIC EARNINGS PER SHARE:
Before extraordinary item............................. $ 0.29 $0.15 $ 0.99 $ 0.31
Extraordinary item.................................... -- -- (0.02) --
------ ----- ------ ------
Total................................................. $ 0.29 $0.15 $ 0.97 $ 0.31
====== ===== ====== ======
DILUTED EARNINGS PER SHARE:
Before extraordinary item............................. $ 0.29 $0.15 $ 0.95 $ 0.30
Extraordinary item.................................... -- -- (0.02) --
------ ----- ------ ------
Total................................................. $ 0.29 $0.15 $ 0.93 $ 0.30
====== ===== ====== ======
</TABLE>
See Notes to Consolidated Financial Statements.
1
<PAGE>
THE AES CORPORATION
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
($ IN MILLIONS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 1,106 $ 669
Short-term investments.................................... 286 164
Accounts receivable (net of reserves of $186 and $104
respectively)........................................... 1,363 934
Inventory................................................. 505 307
Receivable from affiliates................................ 37 2
Deferred income taxes..................................... 331 184
Contract receivable....................................... 543 --
Prepaid expenses and other current assets................. 599 327
------- -------
Total current assets...................................... 4,770 2,587
PROPERTY, PLANT AND EQUIPMENT:
Land...................................................... 262 216
Electric generation and distribution assets............... 15,353 12,552
Accumulated depreciation and amortization................. (1,061) (763)
Construction in progress.................................. 2,453 1,442
------- -------
Property, plant and equipment, net........................ 17,007 13,447
OTHER ASSETS:
Deferred financing costs, net............................. 309 236
Project development costs................................. 98 53
Investments in and advances to affiliates................. 3,562 1,575
Debt service reserves and other deposits.................. 492 328
Electricity sales concessions and contracts, net.......... 1,254 1,056
Goodwill, net............................................. 953 795
Other assets.............................................. 1,025 803
------- -------
Total other assets........................................ 7,693 4,846
------- -------
TOTAL....................................................... $29,470 $20,880
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 594 $ 381
Accrued interest.......................................... 427 218
Accrued and other liabilities............................. 1,123 755
Other notes payable--current portion...................... -- 335
Project financing debt--current portion................... 2,118 881
------- -------
Total current liabilities................................. 4,262 2,570
LONG-TERM LIABILITIES:
Project financing debt.................................... 11,153 8,651
Other notes payable....................................... 3,294 2,167
Deferred income taxes..................................... 2,373 1,787
Other long-term liabilities............................... 1,453 602
------- -------
Total long-term liabilities............................... 18,273 13,207
MINORITY INTEREST........................................... 1,401 1,148
COMPANY-OBLIGATED CONVERTIBLE MANDATORILY REDEEMABLE
PREFERRED SECURITIES OF SUBSIDIARY TRUSTS HOLDING SOLELY
JUNIOR SUBORDINATED DEBENTURES OF AES..................... 1,528 1,318
STOCKHOLDERS' EQUITY:
Common stock.............................................. 5 2
Additional paid-in capital................................ 3,788 2,617
Retained earnings......................................... 1,541 1,120
Accumulated other comprehensive loss...................... (1,328) (1,102)
------- -------
Total stockholders' equity................................ 4,006 2,637
------- -------
TOTAL....................................................... $29,470 $20,880
======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
THE AES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
2000 1999
-------- --------
($ IN MILLIONS)
<S> <C> <C>
OPERATING ACTIVITIES:
Net cash provided by operating activities................. $ 309 $ 343
INVESTING ACTIVITIES:
Property additions........................................ (1,355) (641)
Acquisitions, net of cash acquired........................ (1,517) (1,439)
Proceeds from the sales of assets......................... 13 666
Sales/purchases of short-term investments, net............ 25 (14)
Affiliate advances and equity investments................. (288) (142)
Project development costs................................. (85) (44)
Increase in restricted cash............................... (144) --
Debt service reserves and other assets.................... (94) (123)
------- -------
Net cash used in investing activities..................... (3,445) (1,737)
FINANCING ACTIVITIES:
Borrowings (repayments) under the revolver................ (55) (91)
Issuance of project financing debt and other coupon
bearing securities...................................... 4,974 1,947
Repayments of project financing debt and other coupon
bearing securities...................................... (1,931) (706)
Payments for deferred financing costs..................... (110) (12)
Payment of other liabilities.............................. (210) (40)
Minority interest payments................................ (16) (7)
Sales of common stock..................................... 921 514
------- -------
Net cash provided by financing activities................. 3,573 1,605
Increase in cash and cash equivalents..................... 437 211
Cash and cash equivalents, beginning...................... 669 491
------- -------
Cash and cash equivalents, ending......................... $ 1,106 $ 702
======= =======
SUPPLEMENTAL INTEREST AND INCOME TAXES DISCLOSURES:
Cash payments for interest.................................. $ 748 $ 326
======= =======
Cash payments for income taxes.............................. $ 37 $ 53
======= =======
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
Liabilities assumed in purchase transactions................ $ 2,508 $ 201
======= =======
Common stock issued......................................... $ 8 $ 49
======= =======
</TABLE>
See Notes to Consolidated Finacial Statements.
3
<PAGE>
THE AES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of The AES
Corporation, its subsidiaries and controlled affiliates (the Company or AES).
Intercompany transactions and balances have been eliminated. Investments in 50%
or less owned affiliates, over which the Company has the ability to exercise
significant influence, but not control, are accounted for using the equity
method.
In the Company's opinion, all adjustments necessary for a fair presentation
of the unaudited results of operations for the periods ended September 30, 2000
and 1999, respectively, are included. All such adjustments are accruals of a
normal and recurring nature. The results of operations for the period ended
September 30, 2000 are not necessarily indicative of the results of operations
to be expected for the full year. The financial statements are unaudited and
should be read in conjunction with the consolidated financial statements, which
are incorporated by reference in the Company's Annual Report on Form 10-K for
the year ended December 31, 1999.
2. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." In June 1999, the FASB issued
SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133." SFAS
No. 137 amends SFAS No. 133 to require implementation of SFAS No. 133 for all
fiscal quarters of fiscal years beginning after June 15, 2000.
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that an entity recognize all
derivatives (including derivatives embedded in other contracts) as either assets
or liabilities on the balance sheet and measure those instruments at fair value.
Changes in the derivative's fair value are to be recognized currently in
earnings, unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses in fair value to
offset related results of the hedged item in the income statement and requires
that a company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting.
SFAS No. 133 cannot be applied retroactively and must be applied to
(a) derivative instruments and (b) certain derivative instruments embedded in
hybrid contracts. With respect to hybrid instruments, a company may elect to
apply SFAS No. 133, as amended, to (1) all hybrid contracts, (2) only those
hybrid instruments that were issued, acquired or substantively modified after
December 31, 1997 or (3) only those hybrid instruments that were issued,
acquired or substantively modified after December 31, 1998.
AES is in the process of quantifying the effect on the financial statements
of adopting SFAS No. 133. The impact of adopting SFAS No. 133 may be
significantly affected by certain implementation issues that are due for
discussion at the December 2000 meeting of the Derivatives Implementation Group.
The final adoption could increase volatility in earnings. AES has completed a
comprehensive inventory of all derivatives that will be subject to the
accounting prescribed in SFAS No. 133. Additionally, the Company has finalized
its risk management and accounting policies required to qualify appropriate
derivatives for hedge accounting treatment under SFAS No. 133.
4
<PAGE>
THE AES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
2. NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In June 2000, the FASB issued SFAS No. 138, "Accounting for Derivative
Instruments and Hedging Activities--an Amendment of FASB Statement No. 133."
SFAS No. 138 expands the "normal purchase and sale" exemption under SFAS
No. 133. This amendment places a majority of the Company's normal physical
energy purchases and sales outside of the scope of SFAS No. 133.
AES does utilize interest rate swaps and options to reduce fluctuations in
financial performance against the risk of fluctuations in interest rates, where
appropriate. Additionally, AES utilizes foreign currency swaps and forward
agreements to limit foreign exchange rate exposure on certain underlying
monetary assets and liabilities. AES also utilizes commodity futures contracts,
options and swaps in certain of our businesses to reduce market or price risk.
With respect to these instruments, AES believes that it has implemented
procedures to formally designate and document hedge accounting relationships,
when applicable, in accordance with the hedge accounting provisions in SFAS
No. 133.
3. EARNINGS PER SHARE
Basic and diluted earnings per share computations are based on the weighted
average number of shares of common stock and potential common stock outstanding
during the period, after giving effect to stock splits. Potential common stock,
for purposes of determining diluted earnings per share, includes the dilutive
effects of stock options, warrants, deferred compensation arrangements and
convertible securities. The effect of such potential common stock is computed
using the treasury stock method or the if-converted method, in accordance with
SFAS No. 128, Earnings Per Share.
The reconciliation of basic earnings per share to diluted earnings per share
is shown below. All share data has been adjusted for the two-for-one stock split
effective June 1, 2000.
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30,
---------------------------------------------------------------
2000 1999
------------------------------ ------------------------------
WEIGHTED WEIGHTED
NET AVERAGE NET AVERAGE
INCOME SHARES EPS INCOME SHARES EPS
-------- -------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share:
Income before extraordinary item..................... $134 456 $0.29 $58 384 $0.15
Effect of assumed conversion of dilutive securities:
Options............................................ -- 9 -- -- 8 --
Warrants........................................... -- 1 -- -- 2 --
Deferred Compensation Plan......................... -- 1 -- -- -- --
Debt Securities.................................... -- 16 -- -- -- --
Interest savings from conversion of Debt
Securities......................................... 4 -- -- -- -- --
---- --- ----- --- --- -----
Dilutive earnings per share:......................... $138 483 $0.29 $58 394 $0.15
==== === ===== === === =====
</TABLE>
5
<PAGE>
THE AES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
3. EARNINGS PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------------
2000 1999
------------------------------ ------------------------------
WEIGHTED WEIGHTED
NET AVERAGE NET AVERAGE
INCOME SHARES EPS INCOME SHARES EPS
-------- -------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share:
Income before extraordinary item..................... $427 433 $0.99 $116 374 $0.31
Effect of assumed conversion of dilutive securities:
Options............................................ -- 9 -- -- 7 --
Warrants........................................... -- 2 -- -- 2 --
Deferred Compensation Plan......................... -- 1 -- -- -- --
Debt Securities.................................... -- 24 -- -- -- --
Interest savings from conversion of debt
securities......................................... 17 -- -- -- -- --
---- --- ----- ---- --- -----
Dilutive earnings per share:......................... $444 469 $0.95 $116 383 $0.30
==== === ===== ==== === =====
</TABLE>
4. BUSINESS COMBINATIONS
On August 28, 2000, a subsidiary of the Company completed the acquisition of
a 59% equity interest in a Hidroelectrica Alicura S.A. (Alicura) in Argentina
from Southern Energy, Inc. and its partners. Alicura holds the concession to
operate a 1,000 MW peaking hydro facility located in the province of Neuquen,
Argentina. The purchase price of approximately $205 million includes the
assumption of debt obligations.
On June 7, 2000, pursuant to its tender offer for American Depositary Shares
(ADSs), a subsidiary of the Company purchased approximately 36 million ADSs,
each representing 50 shares, of C.A. La Electricidad de Caracas and Corporacion
EDC, C.A. (together, EDC) at US$28.50 per ADS, and on June 12, 2000, pursuant to
its tender offer for all outstanding shares of EDC, a subsidiary of the Company
purchased approximately 1.1 billion shares of EDC at US$0.57 per share. The
purchases brought the Company's ownership interest in EDC to approximately 73%.
Subsequently, the Company's total ownership reached approximately 87% primarily
due to a stock buyback program initiated by management of EDC in July. EDC has
interests in several distribution businesses in Venezuela, Colombia and El
Salvador, which serve over 2.8 million customers. In addition, EDC operates
several generation facilities in Venezuela and Colombia, which provide 3,500 MW
of capacity. EDC also holds interests in other businesses involved in
telecommunications, oil and gas processing, gas distribution, security services,
engineering, property and stock transfer services in Venezuela.
In March 2000, a subsidiary of the Company acquired GeoUtilities, Inc.
(GeoUtilities), an internet-based superstore which is able to offer to consumers
in deregulated markets all the current choices of energy, telecom and other
services from those providers that operate in their respective area, for
approximately $8 million in AES common stock and an additional 94,674 shares of
common stock to be paid over a two-year period upon GeoUtilities meeting
specified future earnings targets.
6
<PAGE>
THE AES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
4. BUSINESS COMBINATIONS (CONTINUED)
The table below presents supplemental unaudited pro forma operating results
as if all of the acquisitions had occurred at the beginning of the periods shown
(in millions, except per share amounts):
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Revenues.................................................... $5,133 $3,757
Income before extraordinary item............................ $ 446 $ 238
Net income.................................................. $ 439 $ 238
Basic earnings per share before extraordinary item.......... $ 1.00 $ 0.61
Diluted earnings per share before extraordinary item........ $ 0.96 $ 0.59
</TABLE>
The pro forma results are based upon assumptions and estimates that 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, 1999, nor are they intended to be a
projection of future results. Other acquisitions, which were acquired from
October 1999 through December 1999, are included in the pro forma numbers
presented above as if they had occurred on January 1, 1999.
PENDING BUSINESS COMBINATIONS
On April 28, 2000, the Company also announced its intention to launch a
tender offer to acquire all outstanding common and preferred shares of the
Brazilian generation company Companhia de Geracao de Energia Eletrica Tiete
(Tiete). Tiete is a hydroelectric generation company in the state of Sao Paulo
with an installed capacity of 2,644 MW. The Company currently owns 71.3% of the
voting common stock and 14.0% of the preferred stock of Tiete, the majority of
which was acquired when Tiete was privatized in October 1999. The Company
expects the transaction to be completed by the middle of the fourth quarter of
2000.
On May 10, 2000, the Company won a bid to purchase a controlling interest in
the 1,580 MW Mohave Generating Station (Mohave) in Laughlin, Nevada from
Southern California Edison Company and Nevada Power Company for $667 million.
Mohave provides power to Phoenix, Arizona, Las Vegas, Nevada and Southern
California. The acquisition remains subject to certain approvals by the Federal
Energy Regulatory Commission (FERC), the U.S. Department of Justice and the
California Public Utilities Commission (CPUC). The timing for the receipt of the
CPUC approval has been delayed because of current uncertainty surrounding the
regulation of the California electricity markets.
On July 15, 2000, the Company entered into a share exchange agreement to
acquire IPALCO Enterprises, Inc. (IPALCO) for $25.00 per share, or approximately
$2.15 billion, plus the assumption of $890 million of debt and preferred stock,
in a business combination expected to be accounted for as a pooling of
interests. IPALCO is a utility holding company headquartered in Indianapolis,
Indiana, whose primary subsidiary, Indianapolis Power & Light, is an integrated
electric utility that owns and operates 3,000 megawatts of coal-fired generation
and provides retail electric service to 433,000 customers in the greater
Indianapolis area. Under the terms of the share exchange agreement, upon
closing, each share of IPALCO common stock will be exchanged for a number of the
Company's shares such that IPALCO
7
<PAGE>
THE AES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
4. BUSINESS COMBINATIONS (CONTINUED)
shareholders will receive a fixed value of $25.00 per IPALCO share. The final
exchange ratio will be determined five business days prior to closing, based
upon the average daily closing prices of the Company's common stock for the
preceding twenty trading days and capped at a ratio of 0.794 of the Company's
shares for each IPALCO share. Upon closing, IPALCO will become a wholly-owned
subsidiary of the Company. This business combination is subject to certain
conditions, including the receipt of certain regulatory approvals. The Company
anticipates receiving all regulatory approvals and closing the business
combination during early 2001.
On October 4, 2000, a subsidiary of the Company completed the acquisition of
Reliant Energy International's interest in El Salvador Energy Holdings, S.A.
(ESEH), which owns three distribution companies in El Salvador. The three
distribution companies, Compania de Alumbrado Electrico de San Salvador, S.A. de
C.V. (CAESS), Empresa Electrica de Oriente, S.A. de C.V. (EEO) and Distribuidora
Electrica de Usulutan, S.A. De C.V. (DEUSEM) serve 3.5 million people,
approximately 60 percent of the population of El Salvador, including the capital
city of San Salvador. Through the purchase of Reliant Energy International's
ownership interest, the Company owns a controlling interest in the three
distribution companies.
On November 3, 2000, the Company announced its intention to make an offer to
acquire all outstanding Gener S.A. American Depository shares (ADSs) in exchange
for AES common stock having a value of US$16 per ADS and that it has commenced
in Chile an offer to acquire 3,466,600,000 Gener shares at the Chilean Peso
equivalent of US$0.235294118 per share in cash. The shares to be acquired in the
Chilean offer represent in the aggregate approximately 75% of the current
outstanding Gener shares not including Gener shares represented by ADS. The
price per Gener share pursuant to the two offers is equivalent given that each
Gener ADS represents 68 Gener shares. Based on the reported number of Gener ADSs
outstanding, the aggregate consideration to be paid pursuant to the U.S. and
Chilean offers is approximately US$1.056 billion.
5. INVESTMENTS IN AND ADVANCES TO AFFILIATES
The Company is a party to joint venture/consortium agreements through which
the Company has equity investments in several operating companies. The joint
venture/consortium parties generally share operational control of the investee.
The agreements prescribe ownership and voting percentages as well as other
matters. The Company records its share of earnings from its equity investees on
a pre-tax basis. The Company's share of the investee's income taxes is recorded
in income tax expense.
Effective May 1, 2000, the Company disposed of its investment in
Northern/AES Energy. The disposition of the investment did not have a material
effect on the Company's financial condition or results of operations.
On May 12, 2000, the Company completed the acquisition of 100% of Tractebel
Power Ltd (TPL) for $67 million together with an obligation to repay existing
debt of $15 million. TPL owns 46% of NIGEN. With the completion of this
transaction, the Company owns approximately 92% of NIGEN's common stock and
consolidates its financial results.
8
<PAGE>
THE AES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
5. INVESTMENTS IN AND ADVANCES TO AFFILIATES (CONTINUED)
On May 17, 2000, a subsidiary of the Company acquired an additional 5% of
the preferred, non-voting shares of Eletropaulo S.A. (Eletropaulo) via a
required tender offer for approximately $90 million, as a continuation of an
acquisition that occurred in January 2000. In January 2000, 59% of the
preferred, non-voting shares were acquired for approximately $1 billion at
auction from BNDES, the National Development Bank of Brazil. The price
established at auction, for both acquisitions, was approximately $72.18 per
1,000 shares, to be paid in four annual installments commencing with a payment
of 18.5% of the total price upon closing of the transaction and installments of
25.9%, 27.1% and 28.5% of the total price to be paid annually. The Company
directly and indirectly through its ownership in Light, owns approximately 46.5%
of the total equity of Eletropaulo.
The following table presents summarized unaudited financial information (in
millions) for the equity method affiliates on a combined 100% basis.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
-------------------
9/30/00 9/30/99
-------- --------
<S> <C> <C>
Revenues.................................................... $2,894 $2,461
Operating Income............................................ 894 781
Net Income (Loss)........................................... 473 (381)
</TABLE>
Equity ownership percentages for these investments are presented below:
<TABLE>
<CAPTION>
EQUITY OWNERSHIP AT
----------------------------
SEPTEMBER 30, DECEMBER 31,
AFFILIATE COUNTRY 2000 1999
------------------- --------------- ------------- ------------
<S> <C> <C> <C>
Cemig Brazil 9.45% 9.45%
Elsta Netherlands 50.00 50.00
Kingston Canada 50.00 50.00
Light Brazil 17.68 17.68
Medway Power, Ltd. United Kingdom 25.00 25.00
NIGEN United Kingdom n/a 46.17
Northern/AES Energy United States n/a 50.00
OPGC India 49.00 49.00
Chigen affiliates China 30.00 30.00
</TABLE>
On October 2, 2000, the Company announced an agreement with EDF
International S.A. (EDF) to jointly acquire the 11.68% interest in Light, which
is held by two subsidiaries of Reliant Energy for $430 million. Pursuant to the
agreement, AES will purchase approximately 30% of the shares while EDF will
purchase the remainder. Closing of the transaction will follow the receipt of
certain consents and approvals from Brazilian regulatory authorities. The sale
is expected to close by the end of 2000.
9
<PAGE>
THE AES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
6. LITIGATION
The Company is also involved in certain 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. COMPREHENSIVE INCOME
Comprehensive income (loss) consists of net income and foreign currency
translation adjustments. It includes $126 million and $119 million of foreign
currency translation adjustment losses for the quarters ended September 30, 2000
and 1999, respectively, and $226 million and $971 million for the nine months
ended September 30, 2000 and 1999, respectively. Comprehensive income is
$8 million for the quarter ended September 30, 2000 and comprehensive loss is
$61 million for the quarter ended September 30, 1999. Comprehensive income is
$194 million for the nine months ended September 30, 2000, and comprehensive
loss is $855 million for the nine months ended September 30, 1999.
8. SEGMENTS
Information about the Company's operations by segment are as follows (in
millions):
<TABLE>
<CAPTION>
EQUITY
GROSS EARNINGS/
REVENUE(1) MARGIN (LOSS)
---------- -------- ---------
<S> <C> <C> <C>
QUARTER ENDED SEPTEMBER 30, 2000
Generation.................................................. $ 894 $ 342 $ 3
Distribution................................................ 867 111 100
------ ------ ----
Total..................................................... $1,761 $ 453 $103
====== ====== ====
QUARTER ENDED SEPTEMBER 30, 1999
Generation.................................................. $ 534 $ 198 $ 10
Distribution................................................ 313 40 (13)
------ ------ ----
Total..................................................... $ 847 $ 238 $ (3)
====== ====== ====
NINE MONTHS ENDED SEPTEMBER 30, 2000
Generation.................................................. $2,602 $1,005 $ 38
Distribution................................................ 2,173 202 282
------ ------ ----
Total..................................................... $4,775 $1,207 $320
====== ====== ====
NINE MONTHS ENDED SEPTEMBER 30, 1999
Generation.................................................. $1,339 $ 552 $ 36
Distribution................................................ 786 134 (93)
------ ------ ----
Total..................................................... $2,125 $ 686 $(57)
====== ====== ====
</TABLE>
------------------------
(1) Intersegment revenues for the quarter ended September 30, 2000 and 1999 were
$24 million and $23 million, respectively, and for nine months ended
September 30, 2000 and 1999 were $61 million and $68 million, respectively.
10
<PAGE>
THE AES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
9. SUBSEQUENT EVENT
On November 7, 2000, the Company announced plans to redeem all of the
outstanding $2.75 Term Convertible Securities, Series B (TECONS B) on
December 15, 2000. The redemption price is 103.438% plus accrued interest and
unpaid distributions thereon to the redemption date. The TECONS B are
convertible into common stock of the Company at any time prior to the close of
business on December 14, 2000 at a conversion ratio of 1.7828 shares of AES
common stock for each TECON B with a liquidation value of $50. The effective
conversion price on the TECONS B is $28.05. The Company believes that most
holders of TECONS B will exercise their option to convert such securities into
common stock prior to the close of business on December 14, 2000 as long as the
market price of the Company's stock remains above the effective conversion price
of the securities. There can be no assurances that the security holders will
exercise their right to convert to common shares of the Company.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
The AES Corporation and its subsidiaries and affiliates (collectively "AES"
or the "Company") are a global power company committed to serving the world's
needs for electricity in a socially responsible way. AES's electricity
"generation" business consists of sales to wholesale customers (generally
electric utilities, regional electric companies or wholesale commodity markets
known as "power pools") for further resale to end-users. AES also sells
electricity directly to end users such as commercial, industrial, governmental
and residential customers through its "distribution" business.
AES's generation business represented 51% of total revenues for the nine
months ended September 30, 2000 compared to 63% for the nine months ended
September 30, 1999. Sales within the generation business are made under
long-term contracts from power plants owned by the Company's subsidiaries, as
well as directly into power pools. The Company owns new plants constructed for
such purposes ("greenfield" plants) as well as older power plants acquired
through competitively bid privatization initiatives or negotiated acquisitions.
AES's distribution business represented 49% of total revenues for the nine
months ended September 30, 2000 compared to 37% for the nine months ended
September 30, 1999. Electricity sales by AES's distribution businesses,
including affiliates, are generally made pursuant to the provisions of long-term
electricity sale concessions granted by the appropriate governmental authorities
or pursuant to the regulatory environment in which the entity operates. In
certain cases, these distribution companies are "integrated", in that they also
own electric power plants for the purpose of generating a portion of the
electricity they sell.
Certain subsidiaries and affiliates of the Company (domestic and non-U.S.)
have signed long-term contracts or made similar arrangements for the sale of
electricity and are in various stages of developing the related greenfield power
plants. Successful completion depends upon overcoming substantial risks,
including, but not limited to, risks relating to failures of siting, financing,
construction, permitting, governmental approvals or termination of the power
sales contract as a result of a failure to meet certain milestones. At
September 30, 2000, capitalized costs for projects under development and in
early stage construction were approximately $98 million. The Company believes
that these costs are recoverable; however, no assurance can be given that
individual projects will be completed and reach commercial operation.
The Company has been actively involved in the acquisition and operation of
electricity assets in countries that are restructuring and deregulating the
electricity industry. Some of these acquisitions have been made from other
electricity companies that have chosen to exit the electricity generation
business. In such situations, sellers generally seek to complete competitive
solicitations in less than one year, which is much faster than the time incurred
to complete greenfield developments, and require payment in full on transfer.
AES believes that its experience in competitive markets and its
worldwide-integrated group structure (with its significant geographic coverage
and presence) enable it to react quickly and creatively in such situations. The
Company strives for operating excellence as a key element of its strategy, which
it believes it accomplishes by minimizing organizational layers and maximizing
company-wide participation in decision-making. In meeting these goals, the
Company may from time to time implement restructuring and severance plans, which
may have a material impact on results of operations in the period in which the
plan is implemented. The Company also believes that control of its businesses is
an important requirement for implementing the Company's philosophy and business
strategy, and it will actively seek to acquire control or divest of its interest
in those businesses it does not currently control. To the extent the Company
decides to divest its interest in businesses, such transactions may result in a
gain or loss. The Company continues to evaluate its strategy as it relates to
certain businesses in the U.S., South America and Asia.
12
<PAGE>
The financing of such acquisitions, in contrast to that for greenfield
development, often must be arranged quickly and therefore may preclude the
Company from arranging non-recourse project financing (the Company's
historically preferred financing method, which is discussed further under
"Capital Resources, Liquidity and Market Risk" in the Company's Annual Report on
Form 10-K for the year ended December 31, 1999). Moreover, acquisitions that are
large, that occur simultaneously with one another or those occurring
simultaneously with commencing construction on several greenfield developments
would potentially require the Company to obtain substantial additional
financing, including both debt and equity. As a result, and in order to enhance
its financial capabilities to respond to these more accelerated opportunities,
on March 31, 2000 the Company executed an $850 million credit agreement.
In the United States, the Company is currently operating or constructing 8
generation plants representing approximately 7,000 MWs that use natural gas to
make electricity. Five of these plants representing approximately 5,500 MWs have
entered into tolling agreements wherein the Company converts the natural gas
supplied by a third party into electricity for their use in return for a fixed
payment. Therefore, the Company's results of operations from these plants should
not be materially adversely impacted due to changes in the natural gas prices.
As a result of the current shortage of electricity in California, the
generating facilities of one of our subsidiaries (AES Southland) has operated at
substantially higher than expected capacity factors for most of 2000. The
Company believes that these higher than expected capacity factors may cause AES
Southland to exceed its annual inventory of nitrogen oxide (NOx) air emission
allocations. Due to the extreme electricity shortage in California, AES
Southland may continue to run some or all of its units or it may curtail
generation. In either situation, this will impact AES Southland's ability to
generate electricity until new allowances are received in January 2001. Because
of these exceedances, AES Southland may receive a notice of violation from the
South Coast Air Quality Management District (SCAQMD) for violation of its rules.
AES Southland could contest this notice of violation through the California
state court system. However, if unsuccessful, the notice of violation could
result in the imposition of fines, penalties and the requirements to install
pollution control equipment. AES Southland is currently in discussions with
SCAQMD about this situation to determine a mutually agreeable resolution;
however, no assurance can be given that an acceptable resolution will be
negotiated or that AES Southland will not incur substantially increased
operating or capital costs.
On August 22, 2000, as part of a wide ranging investigation into wholesale
electricity prices in California, all electric generating facilities in the
state, including the Company and its subsidiaries, were served with requests for
production of documents from the California Public Utilities Commission (CPUC)
requesting information about their facilities generating and bidding behavior.
The Company is responding to the CPUC's document request.
In August 2000, the Federal Energy Regulatory Commission (FERC) announced an
investigation into the national wholesale power markets, particularly the
California market, to determine whether there has been anti-competitive activity
by wholesale electricity generators and power marketers. In connection
therewith, subsidiaries of AES have received a request to produce certain
information. Pursuant to this investigation, on November 1, 2000, the FERC
issued an order proposing new regulations for California's wholesale power
market. These proposals include: (i) eliminating the requirement that the
California investor owned utilities buy all of their generation from the
California Power Exchange; and (ii) imposing a $150 per Megawatt Hour price cap
on all short term energy and energy related products, with provisions for
generators to receive more than $150 in certain circumstances.
The FERC proposal rejected requests by the CPUC and others to require
electricity sellers to refund amounts representing profits from selling
electricity during high price periods as well as requests to impose regulated
tariffs upon generators based upon their verifiable cost of generation.
13
<PAGE>
The FERC expects to issue a final order on November 22, 2000. During its
hearing, the FERC indicated certain aspects of the proposed order may be
changed. As currently drafted, the Company does not expect the new regulations
to adversely affect its results of operations.
RESULTS OF OPERATIONS
REVENUES. Revenues increased $913 million, or 108%, to $1.76 billion for
the three months ended September 30, 2000 from $847 million for the three months
ended September 30, 1999. Revenues increased $2.65 billion, or 124%, to
$4.78 billion for the nine months ended September 30, 2000 from $2.13 billion
for the nine months ended September 30, 1999. The increase in revenues for both
the three months and the nine months ended September 30, 2000 is due primarily
to acquisitions of new generation and distribution businesses.
Generation revenues increased $360 million, or 67%, to $894 million for the
three months ended September 30, 2000 from $534 million for the three months
ended September 30, 1999. Generation revenues increased $1.26 billion, or 94%,
to $2.60 billion for the nine months ended September 30, 2000 compared to
$1.34 billion for the nine months ended September 30, 1999. The increase in
generation revenues for both the three months and the nine months ended
September 30, 2000 is due primarily to the acquisitions of Tiete and Drax and
the start of commercial operations at Warrior Run and Merida III. The percentage
increase in generation revenues for the nine months ended September 30, 2000 is
greater than for the three months ended September 30, 2000, because of the
seasonality at Southland, Drax and the New York plants during the three months
ended September 30, 2000.
Distribution revenues increased $554 million, or 177%, to $867 million for
the three months ended September 30, 2000 from $313 million for the three months
ended September 30, 1999. Distribution revenues increased $1.38 billion, or
176%, to $2.17 billion for the nine months ended September 30, 2000 from
$786 million for the nine months ended September 30, 1999. The increase in
distribution revenues for both the three months and the nine months ended
September 30, 2000 is due primarily to the acquisitions of EDC, CILCORP,
NewEnergy, EDE Este and CESCO.
GROSS MARGIN. Gross margin, which represents total revenues reduced by cost
of sales, increased $215 million, or 90%, to $453 million for the three months
ended September 30, 2000 from $238 million for the three months ended
September 30, 1999. Gross margin as a percentage of revenues decreased to 26%
for the three months ended September 30, 2000 from 28% for the three months
ended September 30, 1999. Gross margin increased $524 million, or 76%, to
$1.21 billion for the nine months ended September 30, 2000 from $686 million for
the nine months ended September 30, 1999. Gross margin as a percentage of
revenues decreased to 25% for the nine months ended September 30, 2000 from 32%
for the nine months ended September 30, 1999. Existing businesses accounted for
25% and 9% of the increase in gross margin with the remainder from acquisitions
of new businesses for the three and nine months ended September 30, 2000,
respectively. The decrease in gross margin as a percentage of revenues for the
three and nine months ended September 30, 2000 is due mainly to lower gross
margins at newly acquired distribution companies.
The generation gross margin increased $144 million, or 73%, to $342 million
for the three months ended September 30, 2000 from $198 million for the three
months ended September 30, 1999. The generation gross margin as a percentage of
revenues remained constant at 38% for the three months ended September 30, 2000
and 37% for the three months ended September 30, 1999. The overall increase in
generation gross margin is due primarily to new acquisitions. The generation
gross margin increased $458 million, or 83%, to $1.01 billion for the nine
months ended September 30, 2000 from $552 million for the nine months ended
September 30, 1999. The generation gross margin as a percentage of revenues
decreased to 39% for the nine months ended September 30, 2000 from 41% for the
nine months ended September 30, 1999. The decrease in the generation gross
margin as a percentage of revenue for the nine
14
<PAGE>
months ended September 30, 2000 is due primarily to lower gross margins at
certain of the generation businesses in Asia.
The distribution gross margin increased $71 million, or 178%, to
$111 million for the three months ended September 30, 2000 from $40 million for
the three months ended September 30, 1999. The distribution gross margin as a
percentage of revenues remained constant at 13% for the three months ended
September 30, 2000 as compared to the three months ended September 30, 1999. The
increase in distribution gross margin is due primarily to the acquisitions of
CILCORP and EDC offset slightly by losses at EDE Este and New Energy. The
distribution gross margin increased $68 million, or 51%, to $202 million for the
nine months ended September 30, 2000 from $134 million for the nine months ended
September 30, 1999. The distribution gross margin as a percentage of revenues
decreased to 9% for the nine months ended September 30, 2000 from 17% for the
nine months ended September 30, 1999. The decrease in distribution gross margin
as a percentage of revenue for the nine months ended September 30, 2000 is due
to losses at NewEnergy, EDE Este and CESCO.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $8 million, or 62%, to $21 million for the
three months ended September 30, 2000 from $13 million for the three months
ended September 30, 1999. Selling, general and administrative expenses as a
percentage of revenues were 1% for the three months ended September 30, 2000 and
were 2% for the three months ended September 30, 1999. Selling, general and
administrative expenses increased $25 million, or 57%, to $69 million for the
nine months ended September 30, 2000 from $44 million for the nine months ended
September 30, 1999. Selling, general and administrative expenses as a percentage
of revenues were 1% for the nine months ended September 30, 2000 and 2% the nine
months ended September 30, 1999. The overall increase in selling, general and
administrative expenses during both the three and the nine months ended
September 30, 2000 is due to increased development activities.
INTEREST EXPENSE. Interest Expense increased $224 million, or 159%, to
$365 million for the three months ended September 30, 2000 from $141 million for
the three months ended September 30, 1999. Interest expense as a percentage of
revenues was 21% for the three months ended September 30, 2000 and 17% for the
three months ended September 30, 1999. Interest expense increased $530 million,
or 127%, to $947 million for the nine months ended September 30, 2000 from
$417 million for the nine months ended September 30, 1999. Interest expense as a
percentage of revenues was 20% for both the nine months ended September 30, 2000
and 1999. Interest expense increased due to increased project financing for new
businesses and asset acquisitions, as well as from additional corporate interest
from debt issued to finance new investments.
INTEREST AND OTHER INCOME. Interest and other income increased
$33 million, or 220%, to $48 million for the three months ended September 30,
2000 from $15 million for the three months ended September 30, 1999. Interest
and other income as a percentage of revenues was 3% for the three months ended
September 30, 2000 and was 2% for the three months ended September 30, 1999.
Interest and other income increased $102 million, or 222%, to $148 million for
the nine months ended September 30, 2000 from $46 million for the nine months
ended September 30, 1999. Interest and other income as a percentage of revenues
was 3% for the nine months ended September 30, 2000 and was 2% for the nine
months ended September 30, 1999. The increase in interest income accounted for
64% of the total increase for the three months ended September 30, 2000 and 72%
of the total increase for the nine months ended September 30, 2000. Foreign
exchange gains and gains from asset sales comprise other income.
EQUITY IN EARNINGS OF AFFILIATES. Equity in earnings of affiliates (before
income taxes) increased $106 million to $103 million for the three months ended
September 30, 2000 from a loss of $3 million for the three months ended
September 30, 1999. Equity in earnings of affiliates (before income taxes)
increased $377 million to $320 million for the nine months ended September 30,
2000 from a loss of $57 million for the nine months ended September 30, 1999.
The increase in equity in earnings is due to the increase in equity in earnings
from distribution affiliates offset by a slight decrease in equity in earnings
15
<PAGE>
from generation affiliates for the nine months ended September 30, 2000. The
loss for the nine months ended September 30, 1999 includes $198 million of
foreign currency transaction losses from distribution affiliates in Brazil.
Equity in earnings of generation affiliates decreased $7 million, or 70%, to
$3 million for the three months ended September 30, 2000 from $10 million for
the three months ended September 30, 1999. The decrease in equity in earnings of
generation affiliates is due primarily to the acquisition of a controlling
interest in NIGEN, which was previously reported as an equity investment, as
well as a slight decrease in the contribution from Elsta and Medway. Equity in
earnings of generation affiliates increased $2 million, or 6%, to $38 million
for the nine months ended September 30, 2000 from $36 million for the nine
months ended September 30, 1999.
Equity in earnings of distribution affiliates increased $113 million to
$100 million for the three months ended September 30, 2000 from a loss of
$13 million for the three months ended September 30, 1999. Equity in earnings of
distribution affiliates increased $375 million to $282 million for the nine
months ended September 30, 2000 from a loss of $93 million for the nine months
ended September 30, 1999. The increase in equity in earnings of distribution
affiliates is due to an additional ownership in Eletropaulo and improved
economic conditions in Brazil, which resulted in greater contributions from
Eletropaulo and CEMIG for both the three and nine months ended September 30,
2000. Equity in earnings of distribution affiliates includes $27 million of
foreign currency transaction losses in Brazil during the nine months ended
September 30, 2000 and $198 million of foreign currency transaction losses in
Brazil during the nine months ended September 30, 1999. The Brazilian Real/U.S.
Dollar exchange rate at September 30, 2000 and December 31, 1999 was 1.8437 and
1.789, respectively. Further devaluation in the Brazilian Real will reduce the
equity in earnings of distribution affiliates and result in additional foreign
currency transaction losses.
INCOME TAX PROVISION. The provision for income taxes increased
$25 million, or 93%, to $52 million for the three months ended September 30,
2000 from $27 million for the three months ended September 30, 1999. The
provision for income taxes increased $111 million, or 202%, to $166 million for
the nine months ended September 30, 2000 from $55 million for the nine months
ended September 30, 1999. The Company's effective tax rate was 28% for all
periods in 2000 and was 32% for all periods in 1999. The decrease in the
effective tax rate is due to the increase in earnings of certain foreign
businesses which are taxed at a rate lower than the U.S. income tax rate.
MINORITY INTEREST. Minority interest increased $21 million, or 191%, to
$32 million for the three months ended September 30, 2000 from $11 million for
the three months ended September 30, 1999. Minority interest increased
$23 million, or 53%, to $66 million for the nine months ended September 30, 2000
from $43 million for the nine months ended September 30, 1999. During the three
and nine months ended September 30, 2000, both the generation and distribution
minority interest increased.
Generation minority interest increased $13 million, or 118%, to $24 million
for the three months ended September 30, 2000 from $11 million for the three
months ended September 30, 1999. Generation minority interest increased
$18 million, or 58%, to $49 million for the nine months ended September 30, 2000
from $31 million for the nine months ended September 30, 1999. The increase in
generation minority interest is due primarily to increased contributions from
generation businesses in South America.
Distribution minority interest increased $7 million for the three months
ended September 30, 2000 from less than $1 million for the three months ended
September 30, 1999. Distribution minority interest increased $5 million, or 42%,
to $17 million for the nine months ended September 30, 2000 from $12 million for
the nine months ended September 30, 1999. During the three and nine months ended
September 30, 2000, the increases in distribution minority interest at EDC and
Cemig were offset by losses at Eden/Edes, Edelap, EDE Este and CESCO.
16
<PAGE>
EXTRAORDINARY ITEM. During the nine months ended September 30, 2000, the
Company renegotiated the corporate revolving bank loan to incorporate the letter
of credit facility. Since the corporate revolving bank loan was not due until
December 2000, the Company wrote-off the related deferred financing costs
resulting in an extraordinary item for the early extinguishments of debt of
$7 million, net of tax.
NET INCOME. Net income increased $76 million, or 131%, to $134 million for
the three months ended September 30, 2000 from $58 million for the three months
ended September 30, 1999. The increase in net income during the three months
ended September 30, 2000 is due to the increase in income from generation
businesses offset by an increase in corporate interest. Income from distribution
businesses remained fairly constant during the three months ended September 30,
2000 and the three months ended September 30, 1999. Net income increased
$304 million, or 262%, to $420 million for the nine months ended September 30,
2000 from $116 million for the nine months ended September 30, 1999. The
increase in net income during the nine months ended September 30, 2000 is due to
increases in income from both generation and distribution businesses. The
Company recorded $141 million (after income taxes) of foreign currency
transaction losses during the nine months ended September 30, 1999.
FINANCIAL POSITION, CASH FLOWS AND FOREIGN CURRENCY EXCHANGE RATES
At September 30, 2000, cash and cash equivalents totaled approximately
$1.1 billion, as compared to $669 million at December 31, 1999. The
$437 million increase resulted from $309 million of cash provided by operating
activities and $3.6 billion of cash provided from financing activities offset by
a use of $3.4 billion for investing activities. Significant investing activities
includes the acquisition of EDC, additions to property, plant and equipment as
well as continued development activities at various projects. The net cash
provided from financing activities was primarily the result of project finance
borrowings of $5.0 billion, the issuance of $850 million, 9 3/8% Senior Notes,
Due 2010 and proceeds from the issuance of common stock of $921 million, offset
by repayments of project finance borrowings of $1.9 billion. Parent EBITDA and
the related fixed charge ratio for the four quarters ended September 30, 2000
were $593 million and approximately 3.04x, respectively.
At September 30, 2000, the Company had approximately $2.1 billion
outstanding in current debt, which is non-recourse in nature. Current debt is
comprised of balances representing deferred purchase price obligations, normal
amortization of longer-term debt, financings obtained in areas where long-term
financing is not available due to sovereign risk and amounts whereby the
business has chosen to use short-term financing over long-term options. It is
anticipated that all of these obligations will be met through cash flow from
normal operations, refinancing obtained by the respective subsidiary or payment
by the parent company from cash flow from subsidiaries, future debt and/or
equity transactions. The Company anticipates it will be able to meet its future
funding obligations however; there can be no assurances that the necessary
transactions will occur to ensure all obligations are met. Also there can be no
assurances that any debt raised or refinanced will be obtained at interest rates
as favorable as those currently held.
Weighted average shares outstanding have increased during the year due to
current year equity issuances and due to direct issuances to meet purchase
obligations. Since these issuances have been made throughout the year, there
have been gradual increases in our weighted average shares outstanding for the
first three quarters of 2000, and the Company expects the trend to continue.
Therefore, the sum of earnings per share for each of the individual quarters may
not add up to the earnings per share reported for the entire year due to
differing weighted average share calculations in each period.
Through its equity investments in foreign affiliates and subsidiaries, AES
operates in jurisdictions with currencies other than the Company's functional
currency, the U.S. dollar. Such investments and advances were made to fund
equity requirements and to provide collateral for contingent obligations. Due
primarily to the long-term nature of the investments and advances, the Company
accounts for any adjustments resulting from translation of the financial
statements of its foreign investments as a charge or credit
17
<PAGE>
directly to a separate component of stockholders' equity until such time as the
Company realizes such charge or credit. At that time, any differences would be
recognized in the statement of operations as gains or losses.
In addition, certain of the Company's foreign subsidiaries have entered into
obligations in currencies other than their own functional currencies or the U.S.
dollar. These subsidiaries have attempted to limit potential foreign exchange
exposure by entering into revenue contracts that adjust to changes in the
foreign exchange rates. Certain foreign affiliates and subsidiaries operate in
countries where the local inflation rates are greater than U.S. inflation rates.
In such cases the foreign currency tends to devalue relative to the U.S. dollar
over time. The Company's subsidiaries and affiliates have entered into revenue
contracts which attempt to adjust for these differences, however, there can be
no assurance that such adjustments will compensate for the full effect of
currency devaluation, if any. The Company had approximately $1.3 billion in
cumulative foreign currency translation adjustment losses at September 30, 2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The company believes that there have been no material changes in exposure to
market risks during the third quarter of 2000 from those set forth in the
Company's Annual Report filed with the Commission on Form 10-K for the year
ended December 31, 1999.
18
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See discussion of litigation and other proceedings in all of the Company's
previously filed reports on Form 10-K, Form 10-Q or Form 8-K.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
<TABLE>
<C> <S>
3.1 Fifth Amended and Restated Certificate of Incorporation of
The AES Corporation is incorporated here in by reference to
Exhibit 3.1 to the Quarterly Report on Form 10-Q of the
Registrant for the quarterly period ended June 30, 1998
filed August 14, 1998.
3.2 By-Laws of The AES Corporation, as amended is incorporated
here in by reference to Exhibit 3.2 to the Quarterly Report
on Form 10-Q of the Registrant for the quarterly period
ended June 30, 1998 filed August 14, 1998.
4.1 Amended and Restated Declaration of Trust of AES Trust I,
among The AES Corporation, The First National Bank of
Chicago and First Chicago Delaware, Inc., to provide for the
issuance of the $2.6875 Term Convertible Securities,
Series A is incorporated herein by reference to Exhibit 4.1
to Annual Report on Form 10-K of the Registrant for the year
ended December 31, 1997 filed March 30, 1998.
4.2 Junior Subordinated Indenture, between The AES Corporation
and The First National Bank of Chicago, to provide for the
issuance of the $2.6875 Term Convertible Securities,
Series A is incorporated herein by reference to Exhibit 4.1
to Annual Report on Form 10-K of the Registrant for the year
ended December 31, 1997 filed March 30, 1998.
4.3 First Supplemental Indenture to Junior Subordinated
Indenture, between The AES Corporation and The First
National Bank of Chicago, as trustee, to provide for the
issuance of the $2.6875 Term Convertible Securities,
Series A is incorporated herein by reference to Exhibit 4.1
to Annual Report on Form 10-K of the Registrant for the year
ended December 31, 1997 filed March 30, 1998.
</TABLE>
19
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<TABLE>
<C> <S>
4.4 Guarantee Agreement, between The AES Corporation and The
First National Bank of Chicago, as initial guarantee
trustee, to provide for the issuance of the $2.6875 Term
Convertible Securities, Series A is incorporated herein by
reference to Exhibit 4.1 to Annual Report on Form 10-K of
the Registrant for the year ended December 31, 1997 filed
March 30, 1998.
4.5 Second Supplemental Indenture dated as of October 13, 1997
between the Company and the First National Bank of Chicago,
as trustee, to provide for the issuance from time to time of
the 10.25% Senior Subordinated Notes Due 2006, is
incorporated herein by reference to Exhibit 4.2.1 of the
Registration Statement on Form S-3/A (Registration
No. 333-39857) filed November 19, 1997.
4.6 Indenture dated as of October 29, 1997 between The AES
Corporation and The First National Bank of Chicago, as
trustee, to provide for the issuance from time to time of
the 8.50% Senior Subordinated Notes due 2007 of the Company
and the 8.875% Senior Subordinated Debentures due 2027, is
incorporated herein by reference to Exhibit 4.1 to the
Registration Statement on Form S-4 (Registration
No. 333-44845) filed January 23, 1998.
4.7 First Supplemental Indenture dated as of November 21, 1997
between The AES Corporation and The First National Bank of
Chicago, as trustee, to provide for the issuance from time
to time of the 8.50% Senior Subordinated Notes due 2007 of
the Company and the 8.875% Senior Subordinated Debentures
due 2027, is incorporated herein by reference to
Exhibit 4.1.2 to the Registration Statement on Form S-4
(Registration No. 333-44845) filed January 23, 1998.
4.8 Junior Subordinated Debt Trust Securities Indenture dated as
of March 1, 1997 between the Company and The First National
Bank of Chicago, to provide for the issuance of the $2.75
Term Convertible Securities, Series B, is incorporated
herein by reference to Exhibit 4.1 to the Registration
Statement on Form S-3 (Registration No. 333-46189) filed
February 12, 1998.
4.9 Second Supplemental Indenture dated as of October 29, 1997
between the Company and The First National Bank of Chicago,
to provide for the issuance of the $2.75 Term Convertible
Securities, Series B, is incorporated herein by reference to
Exhibit 4.1.1 to the Registration Statement on Form S-3
(Registration No. 333-46189) filed February 12, 1998.
4.10 Amended and Restated Declaration of Trust of AES Trust II,
to provide for the issuance of the $2.75 Term Convertible
Securities, Series B, is incorporated herein by reference to
Exhibit 4.3 to the Registration Statement on Form S-3
(Registration No. 333-46189) filed February 12, 1998.
4.11 Restated Certificate of Trust of AES Trust II, to provide
for the issuance of the $2.75 Term Convertible Securities,
Series B, is incorporated herein by reference to
Exhibit 4.4 to the Registration Statement on Form S-3
(Registration No. 333-46189) filed February 12, 1998.
4.12 Form of Preferred Security, to provide for the issuance of
the $2.75 Term Convertible Securities, Series B, is
incorporated herein by reference to Exhibit 4.5 to the
Registration Statement on Form S-3 (Registration
No. 333-46189) filed February 12, 1998.
4.13 Form of Junior Subordinated Debt Trust Security, to provide
for the issuance of the $2.75 Term Convertible Securities,
Series B, is incorporated herein by reference to
Exhibit 4.6 to the Registration Statement on Form S-3
(Registration No. 333-46189) filed February 12, 1998.
4.14 Preferred Securities Guarantee with respect to Preferred
Securities, to provide for the issuance of the $2.75 Term
Convertible Securities, Series B, is incorporated herein by
reference to Exhibit 4.7 to the Registration Statement on
Form S-3 (Registration No. 333-46189) filed February 12,
1998.
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4.15 Junior Subordinated Indenture dated as of August 10, 1998,
between The AES Corporation and The First National Bank of
Chicago, as trustee, to provide for the issuance of the 4.5%
Convertible Junior Subordinated Debentures due 2005 is
incorporated here in by reference to Exhibit 4.15 to the
Quarterly Report on Form 10-Q of the Registrant for the
quarterly period ended June 30, 1998 filed August 14, 1998.
4.16 First Supplemental Indenture dated as of August 10. 1998, to
the Junior Subordinated Indenture dated as of August 10,
1998, between The AES Corporation and The First National
Bank of Chicago, as trustee, to provide for the issuance of
the 4.5% Convertible Junior Subordinated Debentures due 2005
is incorporated here in by reference to Exhibit 4.16 to the
Quarterly Report on Form 10-Q of the Registrant for the
quarterly period ended June 30, 1998 filed August 14, 1998.
4.17 Senior Indenture dated December 8, 1998 between the
Registrant and the First National Bank of Chicago to provide
for the issuance of $200 million of 8% Senior Note due 2008
is incorporated herein by reference to Exhibit 4.01 to the
Current Report on Form 8-K of the Registrant filed
December 11, 1998.
4.18 First Supplemental Indenture dated December 8, 1998 to the
Senior Indenture between the Registrant and the First
National Bank of Chicago to provide for the issuance of
$200 million of 8% Senior Note due 2008 is incorporated
herein by reference to Exhibit 4.02 to the Current Report on
Form 8-K of the Registrant filed December 11, 1998.
4.19 Other instruments defining the rights of holders of
long-term indebtedness of the Registrant and its
consolidated subsidiaries is incorporated here in by
reference to Exhibit 4.17 to the Quarterly Report on
Form 10-Q of the Registrant for the quarterly period ended
June 30, 1998 filed August 14, 1998.
10.1 Amended Power Sales Agreement, dated as of December 10,
1985, between Oklahoma Gas and Electric Company and AES
Shady Point, Inc. is incorporated herein by reference to
Exhibit 10.5 to the Registration Statement on Form S-1
(Registration No. 33-40483).
10.2 First Amendment to the Amended Power Sales Agreement, dated
as of December 19, 1985, between Oklahoma Gas and Electric
Company and AES Shady Point, Inc. is incorporated herein by
reference to Exhibit 10.45 to the Registration Statement on
Form S-1 (Registration No. 33-46011).
10.3 Electricity Purchase Agreement, dated as of December 6,
1985, between The Connecticut Light and Power Company and
AES Thames, Inc. is incorporated herein by reference to
Exhibit 10.4 to the Registration Statement on Form S-1
(Registration No. 33-40483).
10.4 Power Purchase Agreement, dated March 25, 1988, between AES
Barbers Point, Inc. and Hawaiian Electric Company, Inc., as
amended, is incorporated herein by reference to
Exhibit 10.6 to the Registration Statement on Form S-1
(Registration No. 33-40483).
10.5 The AES Corporation Profit Sharing and Stock Ownership Plan
is incorporated herein by reference to Exhibit 4(c)(1) to
the Registration Statement on Form S-8 (Registration
No. 33-49262).
10.6 The AES Corporation Incentive Stock Option Plan of 1991, as
amended, is incorporated herein by reference to
Exhibit 10.30 to the Annual Report on Form 10-K of the
Registrant for the fiscal year ended December 31, 1995.
10.7 Applied Energy Services, Inc. Incentive Stock Option Plan of
1982 is incorporated herein by reference to Exhibit 10.31 to
the Registration Statement on Form S-1 (Registration
No. 33-40483).
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10.8 Deferred Compensation Plan for Executive Officers, as
amended, is incorporated herein by reference to
Exhibit 10.32 to Amendment No. 1 to the Registration
Statement on Form S-1 (Registration No. 33-40483).
10.9 Deferred Compensation Plan for Directors is incorporated
herein by reference to Exhibit 10.9 to the Quarterly Report
on Form 10-Q of the Registrant for the quarter ended
March 31, 1998, filed May 15, 1998.
10.10 The AES Corporation Stock Option Plan for Outside Directors
is incorporated herein by reference to Exhibit 10.43 to the
Annual Report on Form 10-K of Registrant for the Fiscal Year
ended December 31, 1991.
10.11 The AES Corporation Supplemental Retirement Plan is
incorporated herein by reference to Exhibit 10.64 to the
Annual Report on Form 10-K of the Registrant for the year
ended December 31, 1994.
10.12 $600,000,000 Credit Agreement dated as of December 19, 1997
(amended and restated as of March 31, 1999) among AES, The
Banks Listed Therein, The Fronting Banks Listed Therein, and
Morgan Guaranty Trust Company of New York, as agent.
10.13 Amendment No.1 dated as of May 21, 1999 to the $600,000,000
Credit Agreement dated as of December 19, 1997 (amended and
restated as of March 31, 1999) among AES, The Banks Listed
Therein, The Fronting Banks Listed Therein, and Morgan
Guaranty Trust Company of New York, as agent.
10.14 Amendment No.2 dated as of July 27, 1999 to the $600,000,000
Credit Agreement dated as of December 19, 1997 (amended and
restated as of March 31, 1999) among AES, The Banks Listed
Therein, The Fronting Banks Listed Therein, and Morgan
Guaranty Trust Company of New York, as agent.
10.15 Amendment No.3 dated as of September 28, 1999 to the
$600,000,000 Credit Agreement dated as of December 19, 1997
(amended and restated as of March 31, 1999) among AES, The
Banks Listed Therein, The Fronting Banks Listed Therein, and
Morgan Guaranty Trust Company of New York, as agent.
10.16 Guaranty dated as of September 30, 1999 made by AES Oklahoma
Management Co., Inc., AES Hawaii Management Company, Inc.,
AES Southland Funding LLC, and AES Warrior Run Funding LLC
in favor of the banks and the Fronting Banks party to the
Credit Agreement and Morgan Guaranty Trust Company of New
York, as agent.
10.17 Letter of Credit and Reimbursement Agreement dated as of
October 19, 1999 among AES, the several Banks and Financial
Institutions parties thereto from time to time, the Letter
of Credit Issuing Banks thereto from time to time, Union
Bank of California, N.A. as Administrative Agent, Morgan
Guaranty Trust Company of New York as Syndication Agent, and
Bank of America, N.A. as Documentation Agent.
10.18 Credit Agreement dated as of March 31, 2000 among AES, The
Banks Listed Therein, The Fronting Banks Listed Therein,
Bank of America, N.A., as Documentation Agent, Morgan
Guarantee Trust Company of New York, as Syndication Agent
and Citibank, N.A., as Agent.
27 Financial Data Schedule.
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(b) REPORTS ON FORM 8-K.
Registrant filed a Current Report on Form 8-K dated July 27, 2000 relating
to the Company's acquisition of IPALCO Enterprises, Inc.
22
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Registrant filed a Current Report on Form 8-K dated July 28, 2000 relating
to the Company's results of operations for the quarter ended June 30, 2000.
Registrant filed a Current Report on Form 8-K/A dated August 18, 2000, which
is an amendment to Form 8-K dated June 7, 2000, containing the audited and pro
forma financial statements for C.A. La Electricidad de Caracas.
Registrant filed a Current Report on Form 8-K dated September 1, 2000
relating to the acquisitions of Hidroelectrica Alicura and CAESS/EEO/DEUSEM,
potential contingencies relating to Nox allowances at the Southland plants and a
Notice of Violation received by two of the New York plants.
23
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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 thereunto duly authorized.
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THE AES CORPORATION
(Registrant)
By: /s/ BARRY J. SHARP
-----------------------------------------
Name: Barry J. Sharp
Title: Senior Vice President and
Chief Financial Officer
Date: November 14, 2000
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EXHIBIT INDEX
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SEQUENTIALLY
EXHIBIT DESCRIPTION OF EXHIBIT NUMBERED PAGE
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27 Financial Data Schedule.....................................
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