Edgar Filing: AES CORP

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2007

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		54 1163725
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
4300 Wilson Boulevard Arlington, Virginia		22203
(Address of principal executive offices)		(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 filerx 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.

EXPLANATORY NOTE

As previously disclosed in the Company’s 2006 Form 10-K/A dated August 7, 2007 the Company is filing this Form 10-Q/A to correct certain errors that were contained in Item 1 and Item 2 of the Form 10-Q for the period ended March 31, 2007. The adjustments presented in this Form 10-Q/A are not material to any prior reported period. However, the Company has elected to file this Form 10-Q/A so that the quarterly report would conform to the categories of adjustments presented in the Form 10-K/A, which are further described below.

The errors primarily related to the accounting for certain contract modifications at our Pakistan subsidiaries. The impact of the restatement adjustment related to the contract modifications was a decrease to net income of $7 million and $6 million for the three months ended March 31, 2007 and 2006, respectively. Additionally, the March 31, 2007 condensed consolidated balance sheet has been restated to reflect the impact of the correction of all errors noted in our 2006 Form 10-K/A filed with the SEC on August 7, 2007; a reclassification adjustment related to our adoption of FIN 48 in the first quarter of 2007; and a reclassification to current from noncurrent debt related to a covenant violation at our TEG/TEP subsidiary. The impact of the FIN 48 balance sheet classification adjustment as of March 31, 2007 was an increase to current assets of $41 million, an increase to noncurrent assets of $13 million, a decrease to current liabilities of $9 million and an increase to noncurrent liabilities of approximately $63 million as of March 31, 2007. The impact of the covenant violation was an increase to the current portion of non-recourse debt and a decrease to noncurrent non-recourse debt of $384 million.

Other than the information relating to the restatement as described in Note 1, no attempt has been made in this 10-Q/A to amend or update other disclosures originally presented in the Form 10-Q as filed on June 21, 2007. Except as stated herein, this Form 10-Q/A does not reflect events occurring after the filing of the Form 10-Q on June 21, 2007 or amend or update those disclosures. Accordingly, this Form 10-Q/A should be read in conjunction with our filings with the SEC subsequent to the filings of the Form 10-Q for the period ended March 31, 2007.

THE AES CORPORATION
FORM 10-Q/A
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2007
TABLE OF CONTENTS

PART I:	FINANCIAL INFORMATION	3
ITEM 1.	FINANCIAL STATEMENTS	3
	Condensed Consolidated Statements of Operations	3
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	32
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	56
ITEM 4.	CONTROLS AND PROCEDURES	56
PART II:	OTHER INFORMATION	62
ITEM 1.	LEGAL PROCEEDINGS	62
ITEM 1A.	RISK FACTORS	70
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	70
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	70
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	70
ITEM 5.	OTHER INFORMATION	70
ITEM 6.	EXHIBITS	70
SIGNATURES		71

PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE AES CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)

	Three Months Ended March 31,
	2007				2006
	(Restated)(1)				(Restated)(1)
	(in millions, except per share data)
Revenues:
Regulated		$	1,606			$	1,511
Non-Regulated		1,503				1,295
Total revenues		3,109				2,806
Cost of Sales:
Regulated		(1,090		)		(985		)
Non-Regulated		(1,163		)		(916		)
Total cost of sales		(2,253		)		(1,901		)
Gross margin		856				905
General and administrative expenses		(83		)		(56		)
Interest expense		(422		)		(418		)
Interest income		100				114
Other expense		(41		)		(78		)
Other income		37				19
Gain on sale of investments		1				87
Foreign currency transaction losses on net monetary position		—				(23		)
Equity in earnings of affiliates		20				35
Other non-operating expense		(39		)		—
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST		429				585
Income tax expense		(181		)		(187		)
Minority interest expense		(136		)		(74		)
INCOME FROM CONTINUING OPERATIONS		112				324
Income from operations of discontinued businesses net of income tax expense of $12 and $13, respectively		62				18
Loss from disposal of discontinued businesses net of income tax expense of $—		(636		)		—
NET (LOSS) INCOME		$	(462	)		$	342
BASIC (LOSS) EARNINGS PER SHARE:
Income from continuing operations		$	0.17			$	0.49
Discontinued operations		(0.86		)		0.03
BASIC (LOSS) EARNINGS PER SHARE:		$	(0.69	)		$	0.52
DILUTED (LOSS) EARNINGS PER SHARE:
Income from continuing operations		$	0.17			$	0.48
Discontinued operations		(0.85		)		0.03
DILUTED (LOSS) EARNINGS PER SHARE:		$	(0.68	)		$	0.51

(1) See Note 1 related to the restated condensed consolidated financial statements

See Notes to Condensed Consolidated Financial Statements.

THE AES CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)

	March 31, 2007				December 31, 2006
	(Restated)(1)
	(in millions)
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	1,448			$	1,379
Restricted cash		496				548
Short-term investments		854				640
Accounts receivable, net of reserves of $239 and $233, respectively		1,860				1,769
Inventory		496				471
Receivable from affiliates		82				76
Deferred income taxes—current		228				208
Prepaid expenses		149				109
Other current assets		918				927
Current assets of held for sale and discontinued businesses		344				438
Total current assets		6,875				6,565
NONCURRENT ASSETS
Property, Plant and Equipment:
Land		952				928
Electric generation and distribution assets		22,822				21,835
Accumulated depreciation		(6,815		)		(6,545		)
Construction in progress		1,256				979
Property, plant and equipment, net		18,215				17,197
Other assets:
Deferred financing costs, net of accumulated amortization of $193 and $188, respectively		271				279
Investments in and advances to affiliates		608				595
Debt service reserves and other deposits		520				524
Goodwill, net		1,429				1,416
Other intangible assets, net of accumulated amortization of $185 and $172, respectively		320				298
Deferred income taxes—noncurrent		667				602
Other assets		1,664				1,634
Noncurrent assets of held for sale and discontinued businesses		1,478				2,091
Total other assets		6,957				7,439
TOTAL ASSETS		$	32,047			$	31,201
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable		$	897			$	795
Accrued interest		422				404
Accrued and other liabilities		2,128				2,131
Non-recourse debt-current portion		1,694				1,411
Current liabilities of held for sale and discontinued businesses		265				288
Total current liabilities		5,406				5,029
LONG-TERM LIABILITIES
Non-recourse debt		10,338				9,834
Recourse debt		4,939				4,790
Deferred income taxes-noncurrent		1,102				803
Pension liabilities and other post-retirement liabilities		864				844
Other long-term liabilities		3,393				3,554
Long-term liabilities of held for sale and discontinued businesses		431				434
Total long-term liabilities		21,067				20,259
Minority Interest (including discontinued businesses of $148 and $175, respectively)		3,108				2,948
Commitments and Contingent Liabilities (see Note 8)
STOCKHOLDERS’ EQUITY
Common stock ($.01 par value, 1,200,000,000 shares authorized; 667,010,861 and 665,126,309 shares issued and outstanding at March 31, 2007 and December 31, 2006, respectively)		7				7
Additional paid-in capital		6,688				6,654
Accumulated deficit		(1,611		)		(1,096		)
Accumulated other comprehensive loss		(2,618		)		(2,600		)
Total stockholders’ equity		2,466				2,965
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	32,047			$	31,201

(1) See Note 1 related to the restated condensed consolidated financial statements

See Notes to Condensed Consolidated Financial Statements.

THE AES CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)

	Three months ended March 31,
	2007				2006
	(in millions)
OPERATING ACTIVITIES:
Net cash provided by operating activities		$	581			$	509
INVESTING ACTIVITIES:
Capital Expenditures		(476		)		(242		)
Acquisitions—net of cash acquired		(174		)		—
Proceeds from the sales of businesses		—				110
Proceeds from the sales of assets		2				4
Sale of short-term investments		326				276
Purchase of short-term investments		(470		)		(448		)
Increase in restricted cash		(14		)		(53		)
Purchase of emission allowances		(1		)		(12		)
Proceeds from the sales of emission allowances		9				45
Decrease in debt service reserves and other assets		117				10
Purchase of long-term available-for-sale securities		(8		)		—
Other investing		12				11
Net cash used in investing activities		(677		)		(299		)
FINANCING ACTIVITIES:
Borrowings (repayments) under the revolving credit facilities, net		186				11
Issuance of non-recourse debt		370				329
Repayments of recourse debt		—				(150		)
Repayments of non-recourse debt		(370		)		(548		)
Payments for deferred financing costs		(4		)		(16		)
Distributions to minority interests		(54		)		(16		)
Contributions from minority interests		9				—
Issuance of common stock		14				8
Financed capital expenditures		(4		)		—
Other financing		1				—
Net cash provided by (used in) financing activities		148				(382		)
Effect of exchange rate changes on cash		17				36
Total increase (decrease) in cash and cash equivalents		69				(136		)
Cash and cash equivalents, beginning		1,379				1,176
Cash and cash equivalents, ending		$	1,448			$	1,040
SUPPLEMENTAL DISCLOSURES:
Cash payments for interest, net of amounts capitalized		$	415			$	344
Cash payments for income taxes, net of refunds		$	193			$	173
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Non-recourse debt assumed in acquisition of subsidiary		$	421			$	—

See Notes to Condensed Consolidated Financial Statements.

THE AES CORPORATION
Notes to Condensed Consolidated Financial Statements

1. FINANCIAL STATEMENT PRESENTATION

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/A are restated to reflect the correction of errors that were contained in the Company’s condensed consolidated financial statements and other financial information as of and for the three months ended March 31, 2007 and 2006. In addition, the prior period financial statements have been restated to reflect the change in the Company’s segment reporting as discussed in Note 10 and discontinued operations as discussed in Note 7 of the 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 months ended March 31, 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 2006 Form 10-K/A as filed with the SEC on August 7, 2007.

New Accounting Pronouncements

Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109

As discussed in Note 12, in June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”) which was effective for fiscal years beginning after December 15, 2006. The Company adopted FIN 48 on January 1, 2007 and recorded the cumulative effect of applying the provisions of this Interpretation as an adjustment to beginning retained earnings. FIN 48 applies to all tax positions accounted for in accordance with FASB Statement No. 109. The cumulative effect of the adoption resulted in an increase to beginning accumulated deficit of $53 million.

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 for the year ended December 31, 2006. As a result of these errors, the Company also restated its results of operations for the three month period ended March 31, 2006 on its Form 10-Q for the three months ended March 31, 2007 filed with the SEC on June 21, 2007. Subsequent to the date of that filing, certain other errors were noted related to both the three months ended March 31, 2007 and 2006, the corrections of which are reflected in this Form 10-Q/A.

May 2007 Restatement of Consolidated Financial Statements

In connection with the filing of our Form 10-Q on June 21, 2007, the results of operations for the three months ended March 31, 2006 were restated to reflect the correction of certain errors identified in our Form 10-K filed on May 23, 2007. The Company identified errors related to accounting for certain items in our Brazil and La Electricidad de Caracas (“EDC”) subsidiaries, derivative instruments, income taxes and share-based compensation.

The condensed consolidated financial statements for the interim period ended March 31, 2006 were restated and resulted in a decrease to previously reported income from continuing operations and net income of $2 million and $3 million, respectively.

The restatement adjustments included several key categories as described below:

Brazil Adjustments

Prior year errors related to certain subsidiaries in Brazil included adjustments of the U.S. GAAP fixed asset basis and related depreciation at Eletropaulo and other errors identified through account reconciliation or review procedures.

The cumulative impact of correcting errors related to our Brazil subsidiaries on net income was a decrease of $4 million for the quarter ended March 31, 2006.

La Electricidad de Caracas (“EDC”)

Prior year errors related to the Company’s former Venezuelan subsidiary, EDC, included adjustments of errors identified through account reconciliation or review procedures.

The cumulative impact of correcting errors related to EDC on net income was an increase of $1 million for the quarter ended March 31, 2006.

Capitalization of Certain Costs

Certain errors were discovered with fixed asset balances at several of the Company’s facilities related to capitalization of development costs, overhead and capitalized interest. The impact of correcting errors related to capitalization on net income was a decrease of $5 million for the quarter ended March 31, 2006.

Derivatives

Certain errors were identified resulting from the detailed review of certain prior year contracts and included the evaluation of hedge effectiveness; and the identification and evaluation of derivatives.

The impact of correcting all derivative errors on net income was an increase of $3 million for the quarter ended March 31, 2006.

Income Tax Adjustments

Income tax adjustments related to the correction of income tax expense for certain state deferred tax assets and other miscellaneous items.

The net impact of individual income tax errors resulted in an increase to income tax expense of $2 million for the quarter ended March 31, 2006.

Other Adjustments

As a result of work performed in the course of our year end closing process, certain other errors were identified which increased net income by $6 million for the quarter ended March 31, 2006.

Share-based Compensation

The Company recently concluded an internal review of accounting for share-based compensation (the “LTC Review”), which originally was disclosed in the Company’s Form 8-K filed on February 26, 2007. As a result of the LTC Review, the Company identified certain errors in its previous accounting for share based compensation. These errors required adjustments to the Company’s previous accounting for these awards under the guidance of Accounting Principles Board Opinion (“APB”) No. 25, Accounting for Stock Issued to Employees (“APB No. 25”), Statement of Financial Accounting Standard (“SFAS”) No. 123, Accounting for Stock-Based Compensation and SFAS No. 123R, Share-Based Payment (“SFAS 123R”). The Company recorded an immaterial adjustment related to share-based compensation for the quarter ended March 31, 2006.

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 May 23, 2007 2006 Annual Report on Form 10-K.

Selected Operations and Comprehensive Income Data

The following table sets forth the previously reported and restated amounts of selected items within the condensed consolidated statement of operations.

Selected Operations and Comprehensive Income Data:

	March 31, 2006
	As Previously Reported			10-Q as filed June 21, 2007
	(in millions, except per share data)
Interest expense		$	422		$	418
Foreign currency transaction losses on net monetary position		$	22		$	23
Income tax expense		$	183		$	186
Minority interest expense		$	84		$	81
Income from continuing operations		$	332		$	330
Net income		$	351		$	348
Foreign currency translation adjustment		$	68		$	52
Unrealized derivative losses		$	91		$	85
Comprehensive income		$	510		$	485
BASIC EARNINGS PER SHARE:
Income from continuing operations		$	0.50		$	0.50
Discontinued operations		0.03			0.03
BASIC EARNINGS PER SHARE:		$	0.53		$	0.53
DILUTED EARNINGS PER SHARE:
Income from continuing operations		$	0.49		$	0.49
Discontinued operations		0.03			0.03
DILUTED EARNINGS PER SHARE:		$	0.52		$	0.52

August 2007 Restatement of Consolidated Financial Statements

The tables to follow detail the impact of the restatement adjustments on the Company’s financial statements. Significant adjustments included:

Condensed Consolidated Statement of Operations

Revenue—Primarily related to the determination that certain power sales agreements at our AES Pakistan subsidiaries contained leases resulting in a decrease to revenue when accounted for on a straight-line basis of approximately $12 million and $11 million for the three months ended March 31, 2007 and 2006, respectively.

Minority Interest—Net impact of revenue adjustments resulted in a decrease of minority interest of approximately $5 million and $7 million for the three months ended March 31, 2007 and 2006, respectively.

Condensed Consolidated Balance Sheet

Other Current Assets —Increase of approximately $41 million related to the FIN 48 reclass adjustment.

Deferred Income Taxes, noncurrent—Increase of approximately $13 million related to the FIN 48 reclass adjustment.

Other Noncurrent Assets—Increase of approximately $29 million related to the AES Southland Lease adjustment.

Non-recourse debt—Increase of $384 million in non-recourse debt-current portion to reflect the default at TEG/TEP subsidiaries, offset by a decrease of $384 million in non-recourse debt noncurrent.

Other Long-Term Liabilities—Increase of $326 million primarily related to increase in the regulatory liability (“Special Obligation”) in Brazil of $141 million; an increase in the FIN 48 liability of $66 million; and an increase in deferred income of $108 million.

The following table details the impact of the restatement adjustments on the condensed consolidated statement of operations for the three months ended March 31, 2007:

	Three Months Ended March 31, 2007
	As Filed June 21, 2007				Restatement Adjustments				2007 1Q Form 10-Q/A
Revenues:
Regulated		$	1,606			$	—			$	1,606
Non-Regulated		1,515				(12		)		1,503
Total revenues		3,121				(12		)		3,109
Cost of Sales:
Regulated		(1,090		)		—				(1,090		)
Non-Regulated		(1,163		)		—				(1,163		)
Total cost of sales		(2,253		)		—				(2,253		)
Gross margin		868				(12		)		856
General and administrative expenses		(85		)		2				(83		)
Interest expense		(422		)		—				(422		)
Interest income		100				—				100
Other expense		(41		)		—				(41		)
Other income		39				(2		)		37
Gain (loss) on sale of investments		1				—				1
Foreign currency transaction losses on net monetary position		—				—				—
Equity in earnings of affiliates		20				—				20
Other non-operating expense		(39		)		—				(39		)
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST		441				(12		)		429
Income tax expense		(181		)		—				(181		)
Minority interest expense		(141		)		5				(136		)
INCOME FROM CONTINUING OPERATIONS		119				(7		)		112
Income (loss) from operations of discontinued businesses net of income tax		62				—				62
(Loss) gain from disposal of discontinued businesses net of income tax		(636		)		—				(636		)
NET LOSS		$	(455	)		$	(7	)		$	(462	)
BASIC EARNINGS (LOSS) PER SHARE:
Income from continuing operations		$	0.18			$	(0.01	)		$	0.17
Discontinued Operations		(0.86		)		—				(0.86		)
BASIC EARNINGS (LOSS) PER SHARE:		$	(0.68	)		$	(0.01	)		$	(0.69	)
DILUTED EARNINGS (LOSS) PER SHARE
Income from continuing operations		$	0.18			$	(0.01	)		$	0.17
Discontinued Operations		(0.85		)		—				(0.85		)
DILUTED EARNINGS (LOSS) PER SHARE		$	(0.67	)		$	(0.01	)		$	(0.68	)

The following table details the impact of the restatement adjustments on the condensed consolidated statement of operations for the three months ended March 31, 2006:

	Three Months Ended March 31, 2006
	As Filed June 21, 2007				Restatement Adjustments				2007 1Q Form 10-Q/A
Revenues:
Regulated		$	1,511			$	—			$	1,511
Non-Regulated		1,306				(11		)		1,295
Total revenues		2,817				(11		)		2,806
Cost of Sales:
Regulated		(985		)		—				(985		)
Non-Regulated		(915		)		(1		)		(916		)
Total cost of sales		(1,900		)		(1		)		(1,901		)
Gross margin		917				(12		)		905
General and administrative expenses		(57		)		1				(56		)
Interest expense		(418		)		—				(418		)
Interest income		114				—				114
Other expense		(78		)		—				(78		)
Other income		19				—				19
Gain (loss) on sale of investments		87				—				87
Foreign currency transaction losses on net monetary position		(23		)		—				(23		)
Equity in earnings of affiliates		36				(1		)		35
Other non-operating expense		—				—				—
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST		597				(12		)		585
Income tax expense		(186		)		(1		)		(187		)
Minority interest expense		(81		)		7				(74		)
INCOME FROM CONTINUING OPERATIONS		330				(6		)		324
Income (loss) from operations of discontinued businesses net of income tax		18				—				18
Loss from impairment of discontinued businesses net of income tax		—				—				—
NET INCOME		$	348			$	(6	)		$	342
BASIC EARNINGS (LOSS) PER SHARE:
Income from continuing operations		$	0.50			$	(0.01	)		$	0.49
Discontinued Operations		0.03				—				0.03
BASIC EARNINGS (LOSS) PER SHARE:		$	0.53			$	(0.01	)		$	0.52
DILUTED EARNINGS (LOSS) PER SHARE
Income from continuing operations		$	0.49			$	(0.01	)		$	0.48
Discontinued Operations		0.03				—				0.03
DILUTED EARNINGS (LOSS) PER SHARE		$	0.52			$	(0.01	)		$	0.51

The following table details the impact of the restatement on the Company’s Condensed Consolidated Balance Sheet as of March 31, 2007:

	March 31, 2007
	As Filed June 21, 2007				Aug-07 Restatement				2007 1Q Form 10-Q/A
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	1,448			$	—			$	1,448
Restricted cash		496				—				496
Short—term investments		854				—				854
Accounts receivable, net of reserves of $239		1,860				—				1,860
Inventory		496				—				496
Receivable from affiliates		82				—				82
Deferred income taxes—current		228				—				228
Prepaid expenses		149				—				149
Other current assets		877				41				918
Current assets of held for sale and discontinued businesses		344				—				344
Total current assets		6,834				41				6,875
NONCURRENT ASSETS
Property, Plant and Equipment:
Land		952				—				952
Electric generation and distribution assets		22,822				—				22,822
Accumulated depreciation		(6,815		)		—				(6,815		)
Construction in progress		1,256				—				1,256
Property, plant and equipment, net		18,215				—				18,215
Other assets:
Deferred financing costs, net of accumulated amortization of $193		271				—				271
Investments in and advances to affiliates		608				—				608
Debt service reserves and other deposits		520				—				520
Goodwill, net		1,429				—				1,429
Other intangible assets, net of accumulated amortization of $185		320				—				320
Deferred income taxes—noncurrent		654				13				667
Other assets		1,635				29				1,664
Noncurrent assets of held for sale and discontinued businesses		1,469				9				1,478
Total other assets		6,906				51				6,957
TOTAL ASSETS		$	31,955			$	92			$	32,047
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable		$	897			$	—			$	897
Accrued interest		422				—				422
Accrued and other liabilities		2,137				(9		)		2,128
Non-recourse debt-current portion		1,310				384				1,694
Current liabilities of held for sale and discontinued businesses		256				9				265
Total current liabilities		5,022				384				5,406
LONG-TERM LIABILITIES
Non-recourse debt		10,722				(384		)		10,338
Recourse debt		4,939				—				4,939
Deferred income taxes-noncurrent		1,095				7				1,102
Pension liabilities and other post-retirement liabilities		864				—				864
Other long-term liabilities		3,067				326				3,393
Long-term liabilities of held for sale and discontinued businesses		431				—				431
Total long-term liabilities		21,118				(51		)		21,067
Minority Interest (including discontinued businesses of $148)		3,270				(162		)		3,108
Commitments and Contingent Liabilities (Note 8)
STOCKHOLDERS’ EQUITY
Common stock ($.01 par value, 1,200,000,000 shares authorized; 667,010,861 shares issued and outstanding at March 31, 2007)		7				—				7
Additional paid-in capital		6,688				—				6,688
Accumulated deficit		(1,533		)		(78		)		(1,611		)
Accumulated other comprehensive loss		(2,617		)		(1		)		(2,618		)
Total stockholders’ equity		2,545				(79		)		2,466
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY		$	31,955			$	92			$	32,047

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.

2. INVENTORY

Inventory consists of the following:

	March 31, 2007				December 31, 2006
	(in millions)
Coal, Fuel oil and other raw materials		$	255			$	242
Spare parts and supplies		294				276
Less: Inventory of discontinued operations		(53		)		(47		)
Total		$	496			$	471

3. LONG-TERM DEBT

Non-Recourse Debt

Debt Defaults

Subsidiary non-recourse debt in default, classified as current debt in the accompanying condensed consolidated balance sheet, as of March 31, 2007 is as follows:

	Primary Nature	March 31, 2007
Subsidiary	of Default	Default			Net Assets
		(in millions)
Eden/Edes	Payment		$	87		$	(74	)
Hefei	Payment		4			22
TEG/TEP	Covenant		417			184
Kelanitissa(1)	Covenant		61			38
Tisza II	Material adverse change		93			145
Total			$	662

(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 March 31, 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 of 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, trigger an event of default and possible acceleration of the indebtedness under the AES Parent Company’s outstanding debt securities.

4. EARNINGS PER SHARE

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 March 31,
	2007								2006
	Income			Shares		$ per Share			Income			Shares		$ per Share
	(Restated)					(Restated)			(Restated)					(Restated)
BASIC EARNINGS PER SHARE
Income from continuing operations		$	112		666		$	0.17		$	324		657		$	0.49
EFFECT OF DILUTIVE SECURITIES
Convertible securities		—			—		—			7			19		(0.01		)
Stock options and warrants		—			9		—			—			10		—
Restrictive stock units		—			2		—			—			2		—
DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS		$	112		677		$	0.17		$	331		688		$	0.48

There were approximately 4,311,597 and 9,193,698 options outstanding at March 31, 2007 and 2006, respectively, that could potentially dilute basic earnings per share in the future. 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 period. In addition, all convertible debentures were omitted from the March 31, 2007 diluted earnings per share computation, because they were anti-dilutive. For the three months ended March 31, 2006, one convertible debenture was omitted from the calculation because it was anti-dilutive.

5. OTHER INCOME (EXPENSE)

The components of other income are summarized as follows:

Three Months Ended
March 31,