UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2007
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-19281
THE AES CORPORATION
(Exact name of registrant as specified in its charter)
|
Delaware |
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54 1163725 |
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(State or other
jurisdiction of |
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(I.R.S. Employer |
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4300 Wilson Boulevard Arlington, Virginia |
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22203 |
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(Address of principal executive offices) |
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(Zip Code) |
Registrant’s telephone number, including area code: (703) 522-1315
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 o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x Accelerated filer o Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The number of shares outstanding of Registrant’s Common Stock, par value $0.01 per share, at July 31, 2007, was 668,613,428.
As previously disclosed in the Company’s Form 8-K dated February 26, 2007 and 10-K/A dated August 7, 2007, the financial statements presented in Item 1 and the accompanying management’s discussion and analysis of financial condition and results of operations set forth in Item 2 are restated to reflect the correction of errors that were contained in the Company’s condensed consolidated financial statements and other financial information for the three and six months ended June 30, 2006. In addition, the prior period financial statements have been restated to reflect the change in the Company’s segments as discussed in Note 9 and discontinued operations as discussed in Note 6 of the condensed consolidated financial statements.
THE
AES CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2007
TABLE OF CONTENTS
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3 |
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5 |
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6 |
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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29 |
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54 |
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54 |
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60 |
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60 |
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67 |
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67 |
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67 |
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68 |
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68 |
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68 |
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69 |
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2
THE AES CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2007 |
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2006 |
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2007 |
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2006 |
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(Restated)(1) |
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(Restated)(1) |
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(Restated)(1) |
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(in millions, except per share data) |
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(in millions, except per share data) |
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Revenues: |
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Regulated |
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$ |
1,708 |
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$ |
1,543 |
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$ |
3,314 |
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$ |
3,054 |
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Non-Regulated |
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1,636 |
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1,319 |
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3,139 |
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2,614 |
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Total revenues |
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3,344 |
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2,862 |
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6,453 |
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5,668 |
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Cost of Sales: |
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Regulated |
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(1,117 |
) |
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(992 |
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(2,207 |
) |
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(1,977 |
) |
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Non-Regulated |
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(1,339 |
) |
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(1,003 |
) |
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(2,502 |
) |
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(1,919 |
) |
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Total cost of sales |
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(2,456 |
) |
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(1,995 |
) |
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(4,709 |
) |
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(3,896 |
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Gross margin |
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888 |
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867 |
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1,744 |
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1,772 |
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General and administrative expenses |
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(88 |
) |
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(58 |
) |
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(171 |
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(114 |
) |
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Interest expense |
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(411 |
) |
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(432 |
) |
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(833 |
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(850 |
) |
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Interest income |
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141 |
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87 |
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241 |
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201 |
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Other expense |
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(24 |
) |
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(31 |
) |
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(65 |
) |
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(109 |
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Other income |
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262 |
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24 |
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299 |
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43 |
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Gain on sale of investments |
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9 |
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2 |
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10 |
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89 |
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Asset impairment expense |
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— |
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(16 |
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— |
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(16 |
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Foreign currency transaction losses on net monetary position |
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(4 |
) |
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(4 |
) |
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(4 |
) |
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(27 |
) |
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Equity in earnings of affiliates |
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21 |
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11 |
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41 |
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46 |
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Other non-operating expense |
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(6 |
) |
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— |
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(45 |
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— |
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INCOME BEFORE INCOME TAXES AND MINORITY INTEREST |
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788 |
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450 |
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1,217 |
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1,035 |
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Income tax expense |
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(274 |
) |
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(88 |
) |
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(455 |
) |
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(275 |
) |
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Minority interest expense |
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(235 |
) |
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(169 |
) |
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(371 |
) |
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(243 |
) |
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INCOME FROM CONTINUING OPERATIONS |
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279 |
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193 |
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391 |
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517 |
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Income from operations of discontinued businesses net of income tax expense of $11, $26, $23 and $39, respectively |
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9 |
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27 |
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71 |
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45 |
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Loss from disposal of discontinued businesses net of income tax expense of $— |
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(41 |
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(66 |
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(677 |
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(66 |
) |
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Income from extraordinary item net of income tax expense of $— |
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— |
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21 |
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— |
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21 |
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NET INCOME (LOSS) |
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$ |
247 |
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$ |
175 |
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$ |
(215 |
) |
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$ |
517 |
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BASIC EARNINGS (LOSS) PER SHARE: |
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Income from continuing operations |
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$ |
0.42 |
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$ |
0.30 |
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$ |
0.59 |
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$ |
0.79 |
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Discontinued operations |
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(0.05 |
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(0.06 |
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(0.91 |
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(0.03 |
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Extraordinary item |
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— |
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0.03 |
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— |
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0.03 |
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BASIC EARNINGS (LOSS) PER SHARE: |
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$ |
0.37 |
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$ |
0.27 |
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$ |
(0.32 |
) |
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$ |
0.79 |
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DILUTED EARNINGS (LOSS) PER SHARE: |
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Income from continuing operations |
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$ |
0.41 |
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$ |
0.29 |
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$ |
0.58 |
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$ |
0.77 |
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Discontinued operations |
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(0.05 |
) |
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(0.06 |
) |
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(0.90 |
) |
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(0.03 |
) |
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Extraordinary item |
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|
— |
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|
0.03 |
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|
|
— |
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|
|
0.03 |
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||||
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DILUTED EARNINGS (LOSS) PER SHARE: |
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$ |
0.36 |
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$ |
0.26 |
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$ |
(0.32 |
) |
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$ |
0.77 |
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(1) See Note 1 related to the restated condensed consolidated financial statements
See Notes to Condensed Consolidated Financial Statements.
3
THE AES CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
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June 30, |
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December 31, |
|
||||||
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2007 |
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2006 |
|
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(in millions) |
|
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ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents |
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$ |
1,478 |
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$ |
1,379 |
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Restricted cash |
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662 |
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|
548 |
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Short-term investments |
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1,204 |
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|
640 |
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||
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Accounts receivable, net of reserves of $242 and $233, respectively |
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|
2,036 |
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1,769 |
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Inventory |
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|
497 |
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|
471 |
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||
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Receivable from affiliates |
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|
94 |
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|
|
76 |
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|
||
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Deferred income taxes—current |
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|
251 |
|
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|
208 |
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|
||
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Prepaid expenses |
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|
147 |
|
|
|
109 |
|
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||
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Other current assets |
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|
1,168 |
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|
|
927 |
|
|
||
|
Current assets of held for sale and discontinued businesses |
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|
18 |
|
|
|
438 |
|
|
||
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Total current assets |
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|
7,555 |
|
|
|
6,565 |
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||
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NONCURRENT ASSETS |
|
|
|
|
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|
|
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||
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Property, Plant and Equipment: |
|
|
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|
|
|
|
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|
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Land |
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|
996 |
|
|
|
928 |
|
|
||
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Electric generation and distribution assets |
|
|
24,216 |
|
|
|
21,835 |
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|
||
|
Accumulated depreciation |
|
|
(7,106 |
) |
|
|
(6,545 |
) |
|
||
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Construction in progress |
|
|
1,133 |
|
|
|
979 |
|
|
||
|
Property, plant and equipment, net |
|
|
19,239 |
|
|
|
17,197 |
|
|
||
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Other assets: |
|
|
|
|
|
|
|
|
|
||
|
Deferred financing costs, net of accumulated amortization of $202 and $188, respectively |
|
|
282 |
|
|
|
279 |
|
|
||
|
Investments in and advances to affiliates |
|
|
721 |
|
|
|
595 |
|
|
||
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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 |
|
|
|
|
|
|
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CURRENT LIABILITIES |
|
|
|
|
|
|
|
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Accounts payable |
|
|
$ |
913 |
|
|
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$ |
795 |
|
|
|
Accrued interest |
|
|
299 |
|
|
|
404 |
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|
||
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Accrued and other liabilities |
|
|
2,314 |
|
|
|
2,131 |
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||
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Non-recourse debt-current portion |
|
|
1,515 |
|
|
|
1,411 |
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||
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Recourse debt-current portion |
|
|
615 |
|
|
|
— |
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Current liabilities of held for sale and discontinued businesses |
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|
4 |
|
|
|
288 |
|
|
||
|
Total current liabilities |
|
|
5,660 |
|
|
|
5,029 |
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|
||
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LONG-TERM LIABILITIES |
|
|
|
|
|
|
|
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|
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Non-recourse debt |
|
|
10,829 |
|
|
|
9,834 |
|
|
||
|
Recourse debt |
|
|
4,180 |
|
|
|
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 |
|
|
20,638 |
|
|
|
20,259 |
|
|
||
|
Minority Interest (including discontinued businesses of $- and $175, respectively) |
|
|
3,263 |
|
|
|
2,948 |
|
|
||
|
Commitments and Contingent Liabilities (see Note 7) |
|
|
|
|
|
|
|
|
|
||
|
STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
||
|
Common stock ($.01 par value, 1,200,000,000 shares authorized; 668,336,299 and 665,126,309 shares issued and outstanding at June 30, 2007 and December 31, 2006, 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 |
|
|
See Notes to Condensed Consolidated Financial Statements.
4
THE AES CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
Six months ended |
|
||||||
|
|
|
June 30, |
|
||||||
|
|
|
2007 |
|
2006 |
|
||||
|
|
|
|
|
(Restated)(1) |
|
||||
|
|
|
(in millions) |
|
||||||
|
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
||
|
Net cash provided by operating activities |
|
$ |
1,107 |
|
|
$ |
951 |
|
|
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
||
|
Capital Expenditures |
|
(1,190 |
) |
|
(552 |
) |
|
||
|
Acquisitions—net of cash acquired |
|
(256 |
) |
|
(13 |
) |
|
||
|
Proceeds from the sales of businesses |
|
781 |
|
|
234 |
|
|
||
|
Proceeds from the sales of assets |
|
5 |
|
|
7 |
|
|
||
|
Sale of short-term investments |
|
754 |
|
|
758 |
|
|
||
|
Purchase of short-term investments |
|
(1,167 |
) |
|
(945 |
) |
|
||
|
Increase in restricted cash |
|
(179 |
) |
|
(124 |
) |
|
||
|
Purchase of emission allowances |
|
(2 |
) |
|
(48 |
) |
|
||
|
Proceeds from the sales of emission allowances |
|
10 |
|
|
67 |
|
|
||
|
Decrease (increase) in debt service reserves and other assets |
|
109 |
|
|
(10 |
) |
|
||
|
Purchase of long-term available-for-sale securities |
|
(23 |
) |
|
(52 |
) |
|
||
|
Other investing |
|
11 |
|
|
(1 |
) |
|
||
|
Net cash used in investing activities |
|
(1,147 |
) |
|
(679 |
) |
|
||
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
||
|
(Repayments) borrowings under the revolving credit facilities, net |
|
(183 |
) |
|
143 |
|
|
||
|
Issuance of non-recourse debt |
|
798 |
|
|
1,200 |
|
|
||
|
Repayments of recourse debt |
|
— |
|
|
(150 |
) |
|
||
|
Repayments of non-recourse debt |
|
(597 |
) |
|
(1,581 |
) |
|
||
|
Payments for deferred financing costs |
|
(21 |
) |
|
(55 |
) |
|
||
|
Distributions to minority interests |
|
(266 |
) |
|
(125 |
) |
|
||
|
Contributions from minority interests |
|
336 |
|
|
117 |
|
|
||
|
Issuance of common stock |
|
29 |
|
|
28 |
|
|
||
|
Financed capital expenditures |
|
(8 |
) |
|
(17 |
) |
|
||
|
Other financing |
|
1 |
|
|
(3 |
) |
|
||
|
Net cash provided by (used in) financing activities |
|
89 |
|
|
(443 |
) |
|
||
|
Effect of exchange rate changes on cash |
|
50 |
|
|
27 |
|
|
||
|
Total increase (decrease) in cash and cash equivalents |
|
99 |
|
|
(144 |
) |
|
||
|
Cash and cash equivalents, beginning |
|
1,379 |
|
|
1,176 |
|
|
||
|
Cash and cash equivalents, ending |
|
$ |
1,478 |
|
|
$ |
1,032 |
|
|
|
SUPPLEMENTAL DISCLOSURES: |
|
|
|
|
|
|
|
||
|
Cash payments for interest, net of amounts capitalized |
|
$ |
919 |
|
|
$ |
846 |
|
|
|
Cash payments for income taxes, net of refunds |
|
$ |
350 |
|
|
$ |
258 |
|
|
|
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
||
|
Assets acquired in acquisition |
|
$ |
392 |
|
|
$ |
— |
|
|
|
Non-recourse debt assumed in acquisitions |
|
$ |
657 |
|
|
$ |
— |
|
|
|
Liabilities relieved due to sale of assets |
|
$ |
39 |
|
|
$ |
— |
|
|
|
Liabilities assumed in acquisition |
|
$ |
134 |
|
|
$ |
— |
|
|
(1) See Note 1 related to the restated condensed consolidated financial statements
See Notes to Condensed Consolidated Financial Statements.
5
THE AES CORPORATION
Notes to Condensed Consolidated Financial Statements
1. FINANCIAL STATEMENT PRESENTATION
As previously disclosed in the Form 8-K of The AES Corporation (“the Company”) dated February 26, 2007 and Form 10-K/A dated August 7, 2007, the financial statements presented in Item 1 and the accompanying management’s discussion and analysis of financial condition and results of operations set forth in Item 2 of this Form 10-Q are restated to reflect the correction of errors that were contained in the Company’s condensed consolidated financial statements and other financial information for the three and six months ended June 30, 2006. In addition, the prior period financial statements have been restated to reflect the change in the Company’s segments as discussed in Note 9 and discontinued operations as discussed in Note 6 of these condensed consolidated financial statements.
Consolidation
In this Quarterly Report the terms “AES”, “the Company”, “us” or “we” refer to the consolidated entity including its subsidiaries and affiliates. The term “The AES Corporation” or “the Parent” refers only to the publicly-held holding company, The AES Corporation, excluding its subsidiaries and affiliates. Furthermore, variable interest entities in which the Company has an interest have been consolidated where the Company is identified as the primary beneficiary. Investments in which the Company has the ability to exercise significant influence but not control are accounted for using the equity method. All intercompany transactions and balances have been eliminated in consolidation.
Interim Financial Presentation
The accompanying unaudited condensed consolidated financial statements and footnotes have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all the information and footnotes required by GAAP for annual fiscal reporting periods. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair statement of the results of operations, financial position and cash flows for the interim periods. The results of operations for the three and six months ended June 30, 2007, are not necessarily indicative of results that may be expected for the year ending December 31, 2007. The accompanying condensed consolidated financial statements are unaudited and should be read in conjunction with the restated audited 2006 consolidated financial statements and notes thereto, which are included in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2006, as filed with the SEC on August 7, 2007.
Restatement of Consolidated Financial Statements
The Company restated its consolidated financial statements for the years ended December 31, 2006, December 31, 2005 and December 31, 2004 in its 2006 Form 10-K/A filed with the SEC on August 7, 2007. The adjustments presented in the restatement are the result of the identification of certain financial statement errors relating to these years which, had they been corrected on a cumulative basis in the 2006 consolidated financial statements, would have materially misstated the results of prior periods. The Company is also restating the previously issued interim periods ending March 31, 2006, June 30, 2006 and September 30, 2006. The errors that were identified related to accounting for derivative instruments, leases, income taxes, share-based compensation and certain items in our Brazil and La Electricidad de Caracas (“EDC”) subsidiaries.
6
The condensed consolidated financial statements have been restated in this Form 10-Q to reflect the impact of correcting these errors for the three and six months ended June 30, 2006 and resulted in an increase to net income of $6 million and a decrease to net income of $3 million, respectively. The impact of the restatement resulted in a decrease of previously reported net income of $57 million for the full year ended December 31, 2006. The Company also plans to amend its previously filed Form 10-Q for the three months ended March 31, 2007 to reflect the impact of certain additional errors noted in the aforementioned restatement adjustments that were not previously reflected in the Form 10-Q filed with the SEC on June 21, 2007. The impact of all adjustments on net income for the three months ended March 31, 2007 and 2006 is a decrease of $7 million and $6 million, respectively, and is reflected in the condensed consolidated statement of operations balances for the six months ended June 30, 2007.
The restatement adjustments reflect the correction of errors included in the May 23, 2007 Form 10-K and the August 7, 2007 Form 10-K/A. Significant adjustments included:
Revenue—The determination that modification of power sales agreements contained leases in our AES Pakistan subsidiaries and the correction of unbilled revenues in Venezuela decreased revenue by $12 million and $23 million for the three and six months ended June 30, 2006, respectively. The $12 million decrease for the three months ended June 30, 2006 was offset by an $8 million Sul tariff adjustment.
Cost of Sales—Decrease of the US GAAP fixed asset basis and related depreciation at Eletropaulo of $6 million and $11 million for the three and six months ended June 30, 2006, respectively.
Equity in Earnings of Affiliates—The deconsolidation of the Cartegena business, due to application of Financial Accounting Standards Board Interpretation No. 46, Variable Interest Entities, reduced earnings of equity affiliates by $10 million and $11 million for the three and six months ended June 30, 2006, respectively.
Income Tax Expense—The tax effect of other adjustments increased income tax expense by $6 million and $10 million for the three and six months ended June 30, 2006, respectively.
Other Expense—The deconsolidation of the Cartegena business and the correction of the timing of impairment of the Totem investment reduced other expense by $28 million for the three and six months ended June 30, 2006.
7
The following table details the impact of the restatement adjustments on the condensed consolidated statement of operations for the three months ended June 30, 2006:
|
|
|
Three Months Ended June 30, 2006 |
|
|||||||||||||||||||||
|
|
|
|
|
Discontinued |
|
|
|
|
|
|||||||||||||||
|
Revenues: |
|
As Originally |
|
EDC |
|
Central |
|
Restatement |
|
2007 2Q |
|
|||||||||||||
|
Regulated |
|
|
$ |
1,506 |
|
|
$ |
(161 |
) |
|
$ |
— |
|
|
|
$ |
198 |
|
|
|
1,543 |
|
|
|
|
Non-Regulated |
|
|
1,532 |
|
|
— |
|
|
(9 |
) |
|
|
(204 |
) |
|
|
1,319 |
|
|
|||||
|
Total revenues |
|
|
3,038 |
|
|
(161 |
) |
|
(9 |
) |
|
|
(6 |
) |
|
|
2,862 |
|
|
|||||
|
Cost of Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Regulated |
|
|
(1,098 |
) |
|
104 |
|
|
— |
|
|
|
2 |
|
|
|
(992 |
) |
|
|||||
|
Non-Regulated |
|
|
(1,021 |
) |
|
— |
|
|
12 |
|
|
|
6 |
|
|
|
(1,003 |
) |
|
|||||
|
Total cost of sales |
|
|
(2,119 |
) |
|
104 |
|
|
12 |
|
|
|
8 |
|
|
|
(1,995 |
) |
|
|||||
|
Gross margin |
|
|
919 |
|
|
(57 |
) |
|
3 |
|
|
|
2 |
|
|
|
867 |
|
|
|||||
|
General and administrative expenses |
|
|
(59 |
) |
|
— |
|
|
— |
|
|
|
1 |
|
|
|
(58 |
) |
|
|||||
|
Interest expense |
|
|
(442 |
) |
|
12 |
|
|
— |
|
|
|
(2 |
) |
|
|
(432 |
) |
|
|||||
|
Interest income |
|
|
90 |
|
|
(5 |
) |
|
— |
|
|
|
2 |
|
|
|
87 |
|
|
|||||
|
Other expense |
|
|
(61 |
) |
|
1 |
|
|
— |
|
|
|
29 |
|
|
|
(31 |
) |
|
|||||
|
Other income |
|
|
26 |
|
|
(3 |
) |
|
— |
|
|
|
1 |
|
|
|
24 |
|
|
|||||
|
Gain (loss) on sale of investments |
|
|
2 |
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
2 |
|
|
|||||
|
Loss on sale of subsidiary stock |
|
|
— |
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|||||
|
Asset impairment expense |
|
|
(16 |
) |
|
— |
|
|
— |
|
|
|
— |
|
|
|
(16 |
) |
|
|||||
|
Foreign currency transaction losses on net monetary position |
|
|
1 |
|
|
(3 |
) |
|
— |
|
|
|
(2 |
) |
|
|
(4 |
) |
|
|||||
|
Equity in earnings of affiliates |
|
|
23 |
|
|
— |
|
|
— |
|
|
|
(12 |
) |
|
|
11 |
|
|
|||||
|
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST |
|
|
483 |
|
|
(55 |
) |
|
3 |
|
|
|
19 |
|
|
|
450 |
|
|
|||||
|
Income tax expense |
|
|
(106 |
) |
|
25 |
|
|
(1 |
) |
|
|
(6 |
) |
|
|
(88 |
) |
|
|||||
|
Minority interest expense |
|
|
(166 |
) |
|
6 |
|
|
— |
|
|
|
(9 |
) |
|
|
(169 |
) |
|
|||||
|
INCOME FROM CONTINUING OPERATIONS |
|
|
211 |
|
|
(24 |
) |
|
2 |
|
|
|
4 |
|
|
|
193 |
|
|
|||||
|
Income (loss) from operations of discontinued businesses net of income tax |
|
|
— |
|
|
24 |
|
|
(2 |
) |
|
|
5 |
|
|
|
27 |
|
|
|||||
|
(Loss) gain from disposal of discontinued businesses net of income tax |
|
|
(63 |
) |
|
— |
|
|
— |
|
|
|
(3 |
) |
|
|
(66 |
) |
|
|||||
|
INCOME BEFORE EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE |
|
|
148 |
|
|
— |
|
|
— |
|
|
|
6 |
|
|
|
154 |
|
|
|||||
|
Income from extraordinary items net of income tax |
|
|
21 |
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
21 |
|
|
|||||
|
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE |
|
|
169 |
|
|
— |
|
|
— |
|
|
|
6 |
|
|
|
175 |
|
|
|||||
|
Cumulative effect of change in accounting principle net of income tax |
|
|
— |
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|||||
|
Net income |
|
|
$ |
169 |
|
|
$ |
— |
|
|
— |
|
|
|
$ |
6 |
|
|
|
$ |
175 |
|
|
|
|
BASIC EARNINGS (LOSS) PER SHARE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Income from continuing operations |
|
|
0.32 |
|
|
(0.04 |
) |
|
— |
|
|
|
0.02 |
|
|
|
0.30 |
|
|
|||||
|
Discontinued Operations |
|
|
(0.09 |
) |
|
0.04 |
|
|
— |
|
|
|
(0.01 |
) |
|
|
(0.06 |
) |
|
|||||
|
Extraordinary item |
|
|
0.03 |
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
0.03 |
|
|
|||||
|
BASIC EARNINGS (LOSS) PER SHARE: |
|
|
0.26 |
|
|
— |
|
|
— |
|
|
|
0.01 |
|
|
|
0.27 |
|
|
|||||
|
DILUTED EARNINGS (LOSS) PER SHARE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Income from continuing operations |
|
|
0.31 |
|
|
(0.04 |
) |
|
— |
|
|
|
0.02 |
|
|
|
0.29 |
|
|
|||||
|
Discontinued Operations |
|
|
(0.09 |
) |
|
0.04 |
|
|
— |
|
|
|
(0.01 |
) |
|
|
(0.06 |
) |
|
|||||
|
Extraordinary item |
|
|
0.03 |
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
0.03 |
|
|
|||||
|
DILUTED EARNINGS (LOSS) PER SHARE |
|
|
0.25 |
|
|
— |
|
|
— |
|
|
|
0.01 |
|
|
|
0.26 |
|
|
|||||
8
The following table details the impact of the restatement adjustments on the condensed consolidated statement of operations for the six months ended June 30, 2006:
|
|
|
Six Months Ended June 30, 2006 |
|
|||||||||||||||||||||
|
|
|
|
|
Discontinued |
|
|
|
|
|
|||||||||||||||
|
Revenues: |
|
As Originally |
|
EDC |
|
Central |
|
Restatement |
|
2007 2Q |
|
|||||||||||||
|
Regulated |
|
|
$ |
2,976 |
|
|
$ |
(309 |
) |
|
$ |
— |
|
|
|
$ |
387 |
|
|
|
3,054 |
|
|
|
|
Non-Regulated |
|
|
3,044 |
|
|
— |
|
|
(16 |
) |
|
|
(414 |
) |
|
|
2,614 |
|
|
|||||
|
Total revenues |
|
|
6,020 |
|
|
(309 |
) |
|
(16 |
) |
|
|
(27 |
) |
|
|
5,668 |
|
|
|||||
|
Cost of Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Regulated |
|
|
(2,202 |
) |
|
212 |
|
|
— |
|
|
|
13 |
|
|
|
(1,977 |
) |
|
|||||
|
Non-Regulated |
|
|
(1,948 |
) |
|
— |
|
|
20 |
|
|
|
9 |
|
|
|
(1,919 |
) |
|
|||||
|
Total cost of sales |
|
|
(4,150 |
) |
|
212 |
|
|
20 |
|
|
|
22 |
|
|
|
(3,896 |
) |
|
|||||
|
Gross margin |
|
|
1,870 |
|
|
(97 |
) |
|
4 |
|
|
|
(5 |
) |
|
|
1,772 |
|
|
|||||
|
General and administrative expenses |
|
|
(114 |
) |
|
— |
|
|
— |
|
|
|
— |
|
|
|
(114 |
) |
|
|||||
|
Interest expense |
|
|
(874 |
) |
|
22 |
|
|
— |
|
|
|
2 |
|
|
|
(850 |
) |
|
|||||
|
Interest income |
|
|
206 |
|
|
(8 |
) |
|
— |
|
|
|
3 |
|
|
|
201 |
|
|
|||||
|
Other expense |
|
|
(138 |
) |
|
1 |
|
|
— |
|
|
|
28 |
|
|
|
(109 |
) |
|
|||||
|
Other income |
|
|
57 |
|
|
(4 |
) |
|
— |
|
|
|
(10 |
) |
|
|
43 |
|
|
|||||
|
Gain (loss) on sale of investments |
|
|
87 |
|
|
— |
|
|
— |
|
|
|
2 |
|
|
|
89 |
|
|
|||||
|
Loss on sale of subsidiary stock |
|
|
— |
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|||||
|
Asset impairment expense |
|
|
(16 |
) |
|
— |
|
|
— |
|
|
|
— |
|
|
|
(16 |
) |
|
|||||
|
Foreign currency transaction losses on net monetary position |
|
|
(21 |
) |
|
(3 |
) |
|
— |
|
|
|
(3 |
) |
|
|
(27 |
) |
|
|||||
|
Equity in earnings of affiliates |
|
|
59 |
|
|
— |
|
|
— |
|
|
|
(13 |
) |
|
|
46 |
|
|
|||||
|
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST |
|
|
1,116 |
|
|
(89 |
) |
|
4 |
|
|
|
4 |
|
|
|
1,035 |
|
|
|||||
|
Income tax expense |
|
|
(296 |
) |
|
32 |
|
|
(1 |
) |
|
|
(10 |
) |
|
|
(275 |
) |
|
|||||
|
Minority interest expense |
|
|
(254 |
) |
|
10 |
|
|
— |
|
|
|
1 |
|
|
|
(243 |
) |
|
|||||
|
INCOME FROM CONTINUING OPERATIONS |
|
|
566 |
|
|
(47 |
) |
|
3 |
|
|
|
(5 |
) |
|
|
517 |
|
|
|||||
|
Income (loss) from operations of discontinued businesses net of income tax |
|
|
— |
|
|
47 |
|
|
(3 |
) |
|
|
1 |
|
|
|
45 |
|
|
|||||
|
(Loss) gain from disposal of discontinued businesses net of income tax |
|
|
(67 |
) |
|
— |
|
|
— |
|
|
|
1 |
|
|
|
(66 |
) |
|
|||||
|
INCOME BEFORE EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE |
|
|
499 |
|
|
— |
|
|
— |
|
|
|
(3 |
) |
|
|
496 |
|
|
|||||
|
Income from extraordinary items net of income tax |
|
|
21 |
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
21 |
|
|
|||||
|
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE |
|
|
520 |
|
|
— |
|
|
— |
|
|
|
(3 |
) |
|
|
517 |
|
|
|||||
|
Cumulative effect of change in accounting principle net of income tax |
|
|
— |
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|||||
|
Net income |
|
|
$ |
520 |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
$ |
(3 |
) |
|
|
$ |
517 |
|
|
|
BASIC EARNINGS (LOSS) PER SHARE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Income from continuing operations |
|
|
0.86 |
|
|
(0.07 |
) |
|
— |
|
|
|
— |
|
|
|
0.79 |
|
|
|||||
|
Discontinued Operations |
|
|
(0.10 |
) |
|
0.07 |
|
|
— |
|
|
|
— |
|
|
|
(0.03 |
) |
|
|||||
|
Extraordinary item |
|
|
0.03 |
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
0.03 |
|
|
|||||
|
BASIC EARNINGS (LOSS) PER SHARE: |
|
|
0.79 |
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
0.79 |
|
|
|||||
|
DILUTED EARNINGS (LOSS) PER SHARE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Income from continuing operations |
|
|
0.85 |
|
|
(0.07 |
) |
|
— |
|
|
|
(0.01 |
) |
|
|
0.77 |
|
|
|||||
|
Discontinued Operations |
|
|
(0.10 |
) |
|
0.07 |
|
|
— |
|
|
|
— |
|
|
|
(0.03 |
) |
|
|||||
|
Extraordinary item |
|
|
0.03 |
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
0.03 |
|
|
|||||
|
DILUTED EARNINGS (LOSS) PER SHARE |
|
|
0.78 |
|
|
— |
|
|
— |
|
|
|
(0.01 |
) |
|
|
0.77 |
|
|
|||||
9
The effects of the restatement adjustments, primarily due to the Cartegena deconsolidation, was a reduction of cash provided by operating activities of $26 million, a reduction in cash used in investing activities of $16 million and a reduction in cash used in financing activities of $76 million.
The Company has been cooperating with an informal inquiry by the Staff of the Securities Exchange Commission (“SEC Staff”) concerning the Company’s restatement of its consolidated financial statements and related matters, and has been providing information and documents to the SEC Staff on a voluntary basis. Because the Company is unable to predict the outcome of this inquiry and the SEC Staff may disagree with the manner in which the Company has accounted for and reported the financial impact of the adjustments to previously filed consolidated financial statements, there is the risk that the inquiry by the SEC could lead to circumstances in which the Company may have to further restate previously filed financial statements, amend prior filings or take other actions not currently contemplated.
For further discussion of other aspects of the Company’s restatement of its financial statements, see Part I—Restatement of Consolidated Financial Statements in the Company’s 2006 Form 10-K/A.
Inventory consists of the following:
|
|
|
June 30, 2007 |
|
December 31, 2006 |
|
||||||
|
|
|
(in millions) |
|
||||||||
|
Coal, fuel oil and other raw materials |
|
|
$ |
245 |
|
|
|
$ |
242 |
|
|
|
Spare parts and supplies |
|
|
255 |
|
|
|
276 |
|
|
||
|
Less: Inventory of discontinued operations. |
|
|
(3 |
) |
|
|
(47 |
) |
|
||
|
Total |
|
|
$ |
497 |
|
|
|
$ |
471 |
|
|
Non-Recourse Debt
Debt Defaults
Subsidiary non-recourse debt in default, classified as current debt in the accompanying condensed consolidated balance sheet, as of June 30, 2007 is as follows:
|
|
|
Primary Nature |
|
June 30, 2007 |
|
||||||||||
|
Subsidiary |
|
|
|
of Default |
|
Default |
|
Net Assets |
|
||||||
|
|
|
|
|
(in millions) |
|
||||||||||
|
Ekibastuz |
|
Covenant |
|
|
$ |
1 |
|
|
|
$ |
(113 |
) |
|
||
|
Hefei |
|
Payment |
|
|
4 |
|
|
|
17 |
|
|
||||
|
Kelanitissa (1) |
|
Covenant |
|
|
61 |
|
|
|
41 |
|
|
||||
|
TEG/TEP |
|
Covenant |
|
|
441 |
|
|
|
192 |
|
|
||||
|
Tisza II |
|
Material adverse change |
|
|
93 |
|
|
|
150 |
|
|
||||
|
Total |
|
|
|
|
$600 |
|
|
|
|
|
|
||||
(1) Kelanitissa is in violation of a covenant under its $65 million credit facility because of a cross default to a material agreement for the plant. The outstanding debt balance as of June 30, 2007 was $61 million.
None of the subsidiaries listed above that are currently in default are considered to be a material subsidiary under AES’s corporate debt agreements; defaults by a material subsidiary would trigger an event of default or permit acceleration under such indebtedness. However, as a result of additional dispositions of assets, other significant reductions in asset carrying values or other matters in the future that may impact our financial position and results of operations, it is possible that one or more of these subsidiaries could fall within the definition of a “material subsidiary” and thereby, upon an acceleration,
10
trigger an event of default and possible acceleration of the indebtedness under the AES Parent Company’s outstanding debt securities.
Recourse Debt
Debt Defaults
As of the date of this filing, we are in default under our secured and unsecured credit facilities as a result of the recent restatement as discussed in Part I of the Company's 2006 10-K/A filed August 7, 2007. In addition, we need to obtain waivers of this default relating to our previously delivered financial statements before we will be able to borrow additional funds under our credit facilities. The Company is pursuing waivers with its senior bank lenders and expects to obtain them in the near term. As a result, the senior secured term loan was classified as a current maturity as of June 30, 2007.
Basic and diluted earnings per share 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 effects of dilutive 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, as applicable. The following table presents a reconciliation (in millions, except per share amounts) of the numerators and denominators of the basic and diluted earnings per share computation. In the table below, income represents the numerator and shares represent the denominator:
|
|
|
Three Months Ended June 30, |
|
||||||||||||||||||||||||
|
|
|
2007 |
|
2006 |
|
||||||||||||||||||||||
|
|
|
Income |
|
Shares |
|
$ per |
|
Income |
|
Shares |
|
$ per |
|
||||||||||||||
|
|
|
|
|
|
|
|
|
(Restated) |
|
|
|
(Restated) |
|
||||||||||||||
|
BASIC EARNINGS PER SHARE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Income from continuing operations |
|
|
$ |
279 |
|
|
|
667 |
|
|
$ |
0.42 |
|
|
$ |
193 |
|
|
|
658 |
|
|
|
$ |
0.30 |
|
|
|
EFFECT OF DILUTIVE SECURITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Convertible securities |
|
|
5 |
|
|
|
15 |
|
|
(0.01 |
) |
|
— |
|
|
|
— |
|
|
|
— |
|
|
||||
|
Stock options and warrants |
|
|
— |
|
|
|
9 |
|
|
— |
|
|
— |
|
|
|
9 |
|
|
|
(0.01 |
) |
|
||||
|
Restricted stock units |
|
|
— |
|
|
|
1 |
|
|
— |
|
|
— |
|
|
|
2 |
|
|
|
— |
|
|
||||
|
DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS |
|
|
$ |
284 |
|
|
|
692 |
|
|
$ |
0.41 |
|
|
$ |
193 |
|
|
|
669 |
|
|
|
$ |
0.29 |
|
|
There were approximately 6,273,271 and 7,709,112 options outstanding at June 30, 2007 and 2006, respectively, that could potentially dilute basic earnings per share. Those options were not included in the computation of diluted earnings per share because the exercise price exceeded the average market price during the related periods. For the three months ended June 30, 2007, there was one anti-dilutive convertible debenture omitted from the calculation because it was anti-dilutive and for the three months ended June 30, 2006 all convertible debentures were omitted from the earnings per share calculation because they were anti-dilutive.
11
|
|
|
Six Months Ended June 30, |
|
||||||||||||||||||||||||||
|
|
|
2007 |
|
2006 |
|
||||||||||||||||||||||||
|
|
|
Income |
|
Shares |
|
$ per |
|
Income |
|
Shares |
|
$ per |
|
||||||||||||||||
|
|
|
(Restated) |
|
|
|
(Restated) |
|
(Restated) |
|
|
|
(Restated) |
|
||||||||||||||||
|
BASIC EARNINGS PER SHARE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Income from continuing operations |
|
|
$ |
391 |
|
|
|
667 |
|
|
|
$ |
0.59 |
|
|
|
$ |
517 |
|
|
|
658 |
|
|
|
$ |
0.79 |
|
|
|
EFFECT OF DILUTIVE SECURITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||