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AES Reports Strong Second Quarter Results
Thursday August 9 9:21 PM
Second quarter income from continuing operations was $279 million or $0.41 per diluted share versus $193 million or $0.29 per diluted share in second quarter 2006. Second quarter net income was $247 million or $0.36 per diluted share versus net income of $175 million, or $0.26 in second quarter 2006. Adjusted earnings per share (a non-GAAP financial measure) was $0.41 versus $0.28 in second quarter 2006. This increase in adjusted earnings reflects the positive impacts of: a net positive per share impact of $0.15 due to one-time benefits from a gain associated with the acquisition of lessor interests and tax recoveries at certain subsidiaries; improvements in gross margin; decreases in net interest expense. Offsetting these positive impacts were: a higher effective tax rate; higher minority interest expense; and emissions sales that were lower by $24 million, or $0.03 impact per share.
During the quarter, the Company continued to expand its alternative energy business around the globe. The Company acquired two wind farm projects totaling 186 MW in the United States and acquired a 49% stake in a joint venture to construct and operate 225 MW of wind projects in China. The Company also completed the construction of its 233 MW Buffalo Gap II wind farm in Texas. In its core power business, the Company commenced construction of its first project in Jordan, a 370 MW gas-fired power plant located outside of Amman, and acquired a 51% stake in a 390 MW pipeline of hydroelectric projects in Turkey.
"We had a strong quarter in terms of both our operational results and building our growth pipeline," said Paul Hanrahan, AES President and CEO. "We continued to develop our alternative energy business and, with more than 1,000 MW of wind facilities in operations, we are on track to triple our wind generation capacity by 2011. We are also making good progress growing our traditional business, with expansions into the high growth markets of Turkey and the Middle East."
Second Quarter 2007 Consolidated Highlights
-- During the quarter, revenues increased by $482 million to $3.3 billion, reflecting: higher prices in all segments, particularly at our generating plants in Chile and New York; favorable foreign currency translation, primarily in Latin America; the acquisition of two petroleum coke-fired plants in Mexico (TEG and TEP); and the consolidation of Itabo, one of the Company's businesses in the Dominican Republic.
-- Gross margin increased by $21 million to $888 million, primarily due to: higher prices in New York and in Latin America; favorable foreign currency translation; and contributions from TEG and TEP in Mexico and from Itabo in the Dominican Republic. This was partially offset by a cumulative charge of $48 million relating to transmission fees accumulated from 2004 through 2007 at Tiete in Brazil, increased purchased energy and fuel costs at Uruguaiana in Brazil and lower emission sales of $24 million.
-- General and administrative expense increased $30 million to $88 million, largely from increased business development activities to support our growth initiatives, higher spending related to the strengthening of our financial organization and the completion of our May restatement.
-- Interest expense, net of interest income, decreased by $75 million, primarily due to increased interest income on investments and favorable foreign currency translation in Brazil and the benefits of debt retirement and refinancing activities primarily in Brazil.
-- Other income, net of other expense, increased by $245 million, primarily due to a non-cash gain of $137 million related to a previously disclosed acquisition of lessor interests, which is accounted for as a contract settlement in New York. The Company also recognized gross receipts tax recoveries of $93 million at two of its Latin American subsidiaries.
-- Minority interest expense increased by $66 million due to the Company's 2006 Brazil restructuring which resulted in lower ownership of Eletropaulo in Brazil.
-- The effective tax rate during the quarter was 35% compared to 20% in 2006. This increase was primarily due to appreciation of the Brazilian real at certain of the Company's Brazilian subsidiaries which increased the 2007 effective tax rate and the release of a valuation allowance at Eletropaulo in Brazil in the second quarter of 2006 which reduced the 2006 effective tax rate.
-- Income from continuing operations for the second quarter of 2007 was $279 million, or $0.41 diluted earnings per share, versus $193 million, or $0.29 diluted earnings per share, for the second quarter of 2006. Adjusted earnings per share (a non-GAAP financial measure) for the second quarter of 2007 was $0.41, compared to $0.28 in second quarter 2006.
-- During the quarter, operating cash flow increased by $84 million to $526 million This increase was primarily due to decreases in net working capital and the contributions from new businesses.
-- Free cash flow (a non-GAAP financial measure) decreased by $43 million to $220 million due to increased maintenance capital expenditures, including environmental projects at IPL in Indiana and Kilroot in Northern Ireland.
Second Quarter 2007 Segment Highlights
-- Latin America Generation revenue increased by $203 million to $823 million, primarily due to higher contract and spot prices at Gener in Chile, higher inter-company sales at Tiete in Brazil and the consolidation of Itabo in the Dominican Republic. Gross margin remained flat at Gener, primarily due to higher fuel costs. Gross margin decreased by $55 million to $200 million, primarily due to the cumulative charge of $48 million at Tiete in Brazil and increased purchased electricity and fuel costs at Uruguaiana in Brazil.
-- Latin America Utility revenue increased by $151 million to $1.3 billion, primarily due to the positive impact of foreign currency translation in Brazil and higher volumes at Eletropaulo. Gross margin increased by $22 million to $289 million, primarily due to favorable foreign currency translation.
-- North America Generation revenue increased by $87 million to $546 million, primarily due to the acquisition of TEG and TEP in Mexico and higher spot prices at Eastern Energy in New York. Gross margin increased by $48 million to $181 million, primarily due to the higher spot prices at Eastern Energy and the acquisition of TEG and TEP. These gains were partially offset by lower emission sales in New York.
-- North America Utility revenue increased by $8 million to $259 million, primarily due to higher volumes at IPL in Indiana, partially offset by lower fuel cost recovery revenue and lower emission sales. Gross margin increased by $19 million to $78 million, primarily due to higher volume and lower maintenance costs associated with generating unit overhauls in second quarter of 2006 at IPL
-- Europe & Africa Generation revenue increased by $28 million to $214 million, primarily due to higher volume at Tisza II in Hungary and in Kazakhstan and favorable foreign currency translation. These gains were partially offset by lower emission sales in Hungary and the Czech Republic. Gross margin decreased by $12 million to $43 million, primarily due to lower emission sales and a planned outage at Kilroot in Northern Ireland.
-- Europe & Africa Utility revenue increased by $23 million to $159 million, primarily due to higher volume and tariff rates in Ukraine and foreign currency translation gains. Gross margin decreased by $5 million to $24 million, primarily due to reduced rainfall in Cameroon which led to increased fuel costs at SONEL and higher fixed costs related to increased staffing and higher depreciation also at SONEL in Cameroon.
-- Asia Generation revenue increased by $11 million to $251 million, primarily due to higher volume in Pakistan and Sri Lanka, partially offset by lower volumes at Barka in Oman. Gross margin increased by $4 million to $60 million, primarily due to higher volumes in Pakistan.
Non-GAAP Financial Measures
See Non-GAAP Financial Measures for definitions of adjusted earnings per share and free cash flow and reconciliations to the most comparable GAAP financial measure.
Attachments
Condensed Consolidated Statements of Operations, Segment Information, Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Cash Flows, Non-GAAP Financial Measures, Parent Financial Information.
Conference Call Information
AES will host a conference call on Friday, August 10th, 2007 at 9:00 a.m. Eastern Daylight Time (EDT). The call may be accessed via a live webcast which will be available at www.aes.com by selecting "Investor Information" and then "Quarterly Financial Results" or by telephone in listen-only mode at (888)-694-4641. International callers should dial +1-(973)-582-2734. Please call at least ten minutes before the scheduled start time. You will be requested to provide your name and affiliation. The AES Financial Review presentation will be available prior to the call at www.aes.com by selecting "Investor Information" and then "Quarterly Financial Results."
A telephonic replay will be available at approximately 12:00 p.m. EDT by dialing (877)-519-4471 or +1-(973)-341-3080 for international callers. The system will ask for a reservation number; please enter 9121417 followed by the pound key (#). The telephonic replay will be available until August 31, 2007. A webcast replay, as well as a replay in downloadable .mp3 format, will be accessible at www.aes.com beginning shortly after the completion of the call.
About AES
AES is one of the world's largest global power companies, with 2006 revenues of $11.6 billion. With operations in 28 countries on five continents, AES's generation and distribution facilities have the capacity to serve 100 million people worldwide. Our 13 regulated utilities amass annual sales of over 73,000 GWh and our 117 generation facilities have the capacity to generate approximately 40,000 megawatts. Our global workforce of 30,000 people is committed to operational excellence and meeting the world's growing power needs. To learn more about AES, please visit www.aes.com or contact AES media relations at media@aes.com.
Safe Harbor Disclosure
This news release contains forward-looking statements within the meaning of the Securities Act of 1933 and of the Securities Exchange Act of 1934. Such forward-looking statements include, but are not limited to, those related to future earnings, growth and financial and operating performance. Forward-looking statements are not intended to be a guarantee of future results, but instead constitute AES's current expectations based on reasonable assumptions. Forecasted financial information is based on certain material assumptions. These assumptions include, but are not limited to, continued normal levels of operating performance and electricity volume at our distribution companies and operational performance at our generation businesses consistent with historical levels, as well as achievements of planned productivity improvements and incremental growth investments at normalized investment levels and rates of return consistent with prior experience.
Actual results could differ materially from those projected in our forward-looking statements due to risks, uncertainties and other factors. Important factors that could affect actual results are discussed in AES's filings with the Securities and Exchange Commission, including, but not limited to, the risks discussed under Item 1A "Risk Factors" in AES's 2006 Annual Report on Form 10-K/A. Readers are encouraged to read AES's filings to learn more about the risk factors associated with AES's business. AES undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
THE AES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
($ in millions, except per 2006 2007 2006
share amounts) 2007 (Restated) (Restated) (Restated)
------------------- ---------------------
Revenues $ 3,344 $ 2,862 $ 6,453 $ 5,668
Cost of sales (2,456) (1,995) (4,709) (3,896)
-------- ---------- ---------- ----------
GROSS MARGIN 888 867 1,744 1,772
General and administrative
expenses (88) (58) (171) (114)
Interest expense (411) (432) (833) (850)
Interest income 141 87 241 201
Other expense (24) (31) (65) (109)
Other income 262 24 299 43
Gain on sale of investments 9 2 10 89
Asset impairment expense - (16) - (16)
Foreign currency transaction
losses on net monetary
position (4) (4) (4) (27)
Equity in earnings of
affiliates 21 11 41 46
Other non-operating expense (6) - (45) -
-------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 788 450 1,217 1,035
Income tax expense (274) (88) (455) (275)
Minority interest expense (235) (169) (371) (243)
-------- ---------- ---------- ----------
INCOME FROM CONTINUING
OPERATIONS 279 193 391 517
Income from operations of
discontinued businesses,
net of tax 9 27 71 45
Loss from disposal of
discontinued businesses,
net of tax (41) (66) (677) (66)
Extraordinary item, net of
tax - 21 - 21
-------- ---------- ---------- ----------
NET INCOME (LOSS) $ 247 $ 175 $ (215) $ 517
======== ========== ========== ==========
DILUTED EARNINGS (LOSS) PER
SHARE
Income from continuing
operations $ 0.41 $ 0.29 $ 0.58 $ 0.77
Discontinued operations (0.05) (0.06) (0.90) (0.03)
Extraordinary items - 0.03 - 0.03
-------- ---------- ---------- ----------
DILUTED EARNINGS (LOSS) PER
SHARE $ 0.36 $ 0.26 $ (0.32) $ 0.77
======== ========== ========== ==========
Diluted weighted average
shares outstanding (in
millions) 692 669 678 684
======== ========== ========== ==========
THE AES CORPORATION
SEGMENT INFORMATION (unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2006 2007 2006
($ in millions) 2007 (Restated) (Restated) (Restated)
------------------ ---------------------
REVENUES
Latin America Generation $ 823 $ 620 $ 1,561 $ 1,220
Latin America Utilities 1,307 1,156 2,484 2,260
North America Generation 546 459 1,056 954
North America Utilities 259 251 522 506
Europe & Africa Generation 214 186 466 394
Europe & Africa Utilities 159 136 325 288
Asia Generation 251 240 451 420
Corp/Other & eliminations (215) (186) (412) (374)
------- ---------- ---------- ----------
Total revenues $3,344 $ 2,862 $ 6,453 $ 5,668
GROSS MARGIN
Latin America Generation $ 200 $ 255 $ 450 $ 514
Latin America Utilities 289 267 499 496
North America Generation 181 133 335 309
North America Utilities 78 59 159 123
Europe & Africa Generation 43 55 133 135
Europe & Africa Utilities 24 29 41 65
Asia Generation 60 56 106 105
Corp/Other & eliminations 13 13 21 25
------- ---------- ---------- ----------
Total gross margin $ 888 $ 867 $ 1,744 $ 1,772
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST
Latin America Generation $ 293 $ 203 $ 507 $ 441
Latin America Utilities 230 165 396 293
North America Generation 269 65 354 275
North America Utilities 52 29 102 63
Europe & Africa Generation 40 54 111 139
Europe & Africa Utilities 22 26 34 59
Asia Generation 47 42 76 73
Corp/Other & eliminations (165) (134) (363) (308)
------- ---------- ---------- ----------
Total income before
income taxes and
minority interest $ 788 $ 450 $ 1,217 $ 1,035
THE AES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
June 30, December 31,
($ in millions, except shares and par value) 2007 2006 (Restated)
------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,478 $ 1,379
Restricted cash 662 548
Short term investments 1,204 640
Accounts receivable, net of reserves of
$242 and $233, respectively 2,036 1,769
Inventory 497 471
Receivable from affiliates 94 76
Deferred income taxes - current 251 208
Prepaid expenses 147 109
Other current assets 1,168 927
Current assets of held for sale and
discontinued businesses 18 438
-------- ---------------
Total current assets 7,555 6,565
PROPERTY, PLANT AND EQUIPMENT
Land 996 928
Electric generation and distribution assets 24,216 21,835
Accumulated depreciation (7,106) (6,545)
Construction in progress 1,133 979
-------- ---------------
Property, plant and equipment, net 19,239 17,197
OTHER ASSETS
Deferred financing costs, net of
accumulated amortization of $202 and $188,
respectively 282 279
Investment in and advances to affiliates 721 595
Debt service reserves and other deposits 549 524
Goodwill, net 1,468 1,416
Other intangible assets, net of accumulated
amortization of $201 and $172,
respectively 341 298
Deferred income taxes - noncurrent 691 602
Other assets 1,739 1,634
Noncurrent assets of held for sale and
discontinued businesses 37 2,091
-------- ---------------
Total other assets 5,828 7,439
-------- ---------------
TOTAL ASSETS $32,622 $31,201
======== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 913 $ 795
Accrued interest 299 404
Accrued and other liabilities 2,314 2,131
Non-recourse debt - current portion 1,515 1,411
Recourse debt - current portion 415 -
Current liabilities of held for sale and
discontinued businesses 4 288
-------- ---------------
Total current liabilities 5,460 5,029
LONG-TERM LIABILITIES
Non-recourse debt 10,829 9,834
Recourse debt 4,380 4,790
Deferred income taxes - noncurrent 1,185 803
Pension liabilities and other post-
retirement liabilities 898 844
Other long-term liabilities 3,544 3,554
Long-term liabilities of held for sale and
discontinued businesses 2 434
-------- ---------------
Total long-term liabilities 20,838 20,259
Minority Interest (including discontinued
businesses of $0 and $175, respectively) 3,263 2,948
STOCKHOLDERS' EQUITY
Common stock ($.01 par value, 1,200,000,000
shares authorized; 668,336,299 and
665,126,309 shares issued and outstanding,
respectively) 7 7
Additional paid-in capital 6,791 6,654
Accumulated deficit (1,364) (1,096)
Accumulated other comprehensive loss (2,373) (2,600)
-------- ---------------
Total stockholders' equity 3,061 2,965
-------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $32,622 $31,201
======== ===============
THE AES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Three Months Ended Six Months Ended June
June 30, 30,
($ in millions) 2006 2007 2006
2007 (Restated) (Restated) (Restated)
------- ---------- ---------- ----------
OPERATING ACTIVITIES
Net cash provided by
operating activities $ 526 $ 442 $ 1,107 $ 951
INVESTING ACTIVITIES
Capital expenditures (714) (310) (1,190) (552)
Acquisitions, net of cash
acquired (82) (13) (256) (13)
Proceeds from the sales of
businesses 781 124 781 234
Proceeds from the sales of
assets 3 3 5 7
Sale of short-term
investments 428 482 754 758
Purchase of short-term
investments (697) (497) (1,167) (945)
Increase in restricted cash (165) (71) (179) (124)
Purchase of emission
allowances (1) (36) (2) (48)
Proceeds from the sales of
emission allowances 1 22 10 67
(Increase) decrease in debt
service reserves and other
assets (8) (20) 109 (10)
Purchase of long-term
available-for-sale
securities (15) (52) (23) (52)
Other investing (1) (12) 11 (1)
------- ---------- ---------- ----------
Net cash used in
investing activities (470) (380) (1,147) (679)
FINANCING ACTIVITIES
(Repayments) borrowings
under the revolving credit
facilities, net (369) 132 (183) 143
Issuance of non-recourse
debt 428 871 798 1,200
Repayments of recourse debt - - - (150)
Repayments of non-recourse
debt (227) (1,033) (597) (1,581)
Payments for deferred
financing costs (17) (39) (21) (55)
Distributions to minority
interests (212) (109) (266) (125)
Contributions from minority
interests 327 117 336 117
Issuance of common stock 15 20 29 28
Financed capital
expenditures (4) (17) (8) (17)
Other financing - (3) 1 (3)
------- ---------- ---------- ----------
Net cash (used in)
provided by financing
activities (59) (61) 89 (443)
Effect of exchange rate
changes on cash 33 (9) 50 27
------- ---------- ---------- ----------
Total increase (decrease)
in cash and cash
equivalents 30 (8) 99 (144)
Cash and cash equivalents,
beginning 1,448 1,040 1,379 1,176
------- ---------- ---------- ----------
Cash and cash equivalents,
ending $1,478 $ 1,032 $ 1,478 $ 1,032
======= ========== ========== ==========
THE AES CORPORATION
NON-GAAP FINANCIAL MEASURES (unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
($ in millions, except per 2006 2007 2006
share amounts) 2007 (Restated) (Restated) (Restated)
------------------ ---------------------
Diluted EPS From Continuing
Operations $ 0.41 $ 0.29 $ 0.58 $ 0.77
FAS 133 Mark to Market
(Gains)/Losses - (0.01) - (0.01)
Currency Transaction
(Gains)/Losses (0.01) - - -
Net Asset (Gains)/Losses
and Impairments 0.01 - 0.06 (0.13)
Debt Retirement
(Gains)/Losses - - - 0.04
------- ---------- ---------- ----------
Adjusted Earnings Per Share
(1) $ 0.41 $ 0.28 $ 0.64 $ 0.67
======= ========== ========== ==========
----------------------------- ------- ---------- ---------- ----------
Capital Expenditures
Maintenance Capital
Expenditures $ 311 $ 179 $ 510 $ 379
Growth Capital Expenditures 412 148 688 190
------- ---------- ---------- ----------
Total Capital Expenditures $ 723 $ 327 $ 1,198 $ 569
======= ========== ========== ==========
----------------------------- ------- ---------- ---------- ----------
Reconciliation of Free Cash
Flow
Net Cash from Operating
Activities $ 526 $ 442 $ 1,107 $ 951
Less: Maintenance Capital
Expenditures 311 179 510 379
------- ---------- ---------- ----------
Free Cash Flow (2) $ 215 $ 263 $ 597 $ 572
======= ========== ========== ==========
-----------------------
(1) Adjusted earnings per share (a non-GAAP financial measure) is
defined as diluted earnings per share from continuing operations
excluding gains or losses associated with (a) mark-to-market
amounts related to FAS 133 derivative transactions, (b) foreign
currency transaction impacts on the net monetary position
related to Brazil and Argentina, (c) significant asset gains or
losses due to disposition transactions and impairments, and (d)
costs related to the early retirement of recourse debt. AES
believes that adjusted earnings per share better reflects the
underlying business performance of the Company, and is
considered in the Company's internal evaluation of financial
performance. Factors in this determination include the
variability associated with mark-to-market gains or losses
related to certain derivative transactions, currency transaction
gains or losses, periodic strategic decisions to dispose of
certain assets which may influence results in a given period,
and the early retirement of corporate debt.
(2) Free cash flow (a non-GAAP financial measure) is defined as net
cash from operating activities less maintenance capital
expenditures. AES believes that free cash flow is a useful
measure for evaluating our financial condition because it
represents the amount of cash provided by operations less
maintenance capital expenditures as defined by our businesses,
that may be available for investing or for repaying debt.
THE AES CORPORATION
PARENT FINANCIAL INFORMATION
Parent only data: last
four quarters
($ in millions) 4 Quarters Ended
June 30, March 31, December 31, September 30,
Total subsidiary
distributions &
returns of capital to
Parent 2007 2007 2006 2006
------------------------
Actual Actual Actual Actual
-------- --------- ------------ -------------
Subsidiary distributions
(1) to Parent $1,058 $ 976 $ 971 $1,014
Returns of capital
distributions to Parent 92 87 72 68
-------- --------- ------------ -------------
Total subsidiary
distributions & returns
of capital to parent $1,150 $1,063 $1,043 $1,082
======== ========= ============ =============
Parent only data:
quarterly
($ in millions) Quarter Ended
June 30, March 31, December 31, September 30,
Total subsidiary
distributions &
returns of capital to
Parent 2007 2007 2006 2006
------------------------
Actual Actual Actual Actual
-------- --------- ------------ -------------
Subsidiary distributions
to Parent $ 259 $ 137 $ 311 $ 352
Returns of capital
distributions to Parent 34 15 9 34
-------- --------- ------------ -------------
Total subsidiary
distributions & returns
of capital to Parent $ 293 $ 152 $ 320 $ 386
======== ========= ============ =============
Liquidity (3) Balance at
------------------------
($ in millions) June 30, March 31, December 31, September 30,
2007 2007 2006 2006
Actual Actual Actual Actual
-------- --------- ------------ -------------
Cash at Parent $ 395 $ 54 $ 237 $ 172
Availability under
revolver 973 804 889 764
Cash at QHCs (2) 10 20 20 37
-------- --------- ------------ -------------
Ending liquidity $1,378 $ 878 $1,146 $ 973
======== ========= ============ =============
(1) Subsidiary Distributions (a non-GAAP financial measure) is defined
as cash distributions (primarily dividends and interest income) from
subsidiary companies to the parent company and qualified holding
companies. These cash flows are the source of cash flow to the
parent.
(2) The cash held at qualifying holding companies (QHCs) (a non-GAAP
financial measure) represents cash sent to subsidiaries of the
company domiciled outside of the US. Such subsidiaries had no
contractual restrictions on their ability to send cash to AES, the
Parent Company (Parent). Cash at those subsidiaries was used for
investment and related activities outside of the US. These
investments included equity investments and loans to other foreign
subsidiaries as well as development and general costs and expenses
incurred outside the US. Since the cash held by these QHCs is
available to the Parent, AES uses the combined measure of subsidiary
distributions to Parent and QHCs as a useful measure of cash
available to the Parent to meet its international liquidity needs.
(3) AES believes that unconsolidated parent company liquidity (a non-
GAAP financial measure) is important to the liquidity position of AES
as a parent company because of the non-recourse nature of most of
AES's indebtedness.
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