AES

AES Corp. Q1 2002 Filing Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 2002. AES Corp. operates globally in four segments: Contract Generation, Competitive Supply, Large Utilities, and Growth Distribution. The quarter was significantly impacted by the consolidation of Eletropaulo (Brazil) following a share swap in February 2002, severe economic conditions in Argentina, and the adoption of new accounting standards regarding goodwill.

Key Financial Metrics

Note: Total debt includes $5.8 billion recourse and $18.8 billion non-recourse debt as of March 31, 2002.

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 9% to $2.719 billion, driven by a 21% increase in regulated revenues ($1.341 billion) primarily due to the consolidation of Eletropaulo. Non-regulated revenues remained flat at $1.378 billion.
• Net Loss: The company reported a net loss of $313 million compared to net income of $111 million in Q1 2001. This reversal was primarily caused by a $473 million cumulative effect of accounting change (SFAS No. 142 goodwill write-off) and a $57 million loss on the sale of an investment.
• Foreign Currency Impact: Significant foreign currency transaction losses of $70 million were recorded, largely due to the 73% devaluation of the Argentine Peso against the U.S. Dollar.
• Discontinued Operations: A $32 million loss (net of tax) was recorded from discontinued operations, including a write-off of the Fifoots generating plant in the U.K.

Guidance, Outlook, and Risks

• Accounting Change: The adoption of SFAS No. 142 eliminated goodwill amortization but required a one-time impairment test, resulting in the $473 million charge. Management does not currently expect further goodwill write-offs from this transition.
• Argentina Crisis: Ongoing political and economic instability in Argentina has led to currency devaluation and regulatory changes fixing electricity prices in pesos, negatively impacting results. The company changed the functional currency for Argentine businesses to the Peso.
• Liquidity and Debt: The company faces a consolidated net working capital deficit of $1.5 billion, largely due to current debt maturities. Approximately $1.2 billion of current debt is due in 2002 and requires refinancing. Parent company liquidity is supported by $240 million in cash and $39 million in revolver availability.
• Asset Sale: On April 28, 2002, AES agreed to sell CILCORP Inc. to Ameren Corporation for approximately $1.4 billion, subject to regulatory approval. Closing is expected in Q1 2003.
• Legal Proceedings: Litigation includes a lawsuit by PSEG Americas regarding terminated Argentina investments and bankruptcy proceedings involving the general contractor for the Huntington Beach plant.

Investor Verification Checklist

• Goodwill Impairment: Verify the extent of the $473 million goodwill write-off and confirm management's assertion that no further transitional write-offs are expected.
• Argentina Exposure: Assess the ongoing impact of the Argentine Peso devaluation and regulatory price controls on the $498 million investment in Argentine competitive supply businesses.
• Debt Refinancing: Monitor the company's ability to refinance the $1.2 billion in debt maturing in 2002, particularly given the current credit market environment.
• CILCORP Sale: Track the regulatory approval process for the $1.4 billion sale of CILCORP to Ameren Corporation.
• Derivative Valuation: Review the $83 million gain recorded on the Barry plant gas contract due to SFAS No. 133 accounting changes and the sensitivity of this asset to future gas price fluctuations.