AES Reports Record Third Quarter Revenues and Cash Flow
biz.yahoo.com
Monday November 6, 8:01 am ET
Brazil Restructuring Allowing AES to Receive Future Brazil Dividends
Results in Non-Cash Charge of $500 Million
ARLINGTON, Va.--(BUSINESS WIRE)--The AES Corporation (NYSE: AES) today reported record revenues and net cash from operating activities for the third quarter of 2006. Revenues increased 14% to $3.15 billion, compared to $2.76 billion in the third quarter of 2005, while net cash from operating activities increased 35% to $837 million, compared to $619 million last year.
During the quarter, the Company completed a portion of a broad financial restructuring of its Brazil businesses by selling part of its interest in Eletropaulo, a regulated utility. AES voting control was unaffected by the sale, and the proceeds were used in early October to repay in full $608 million in debt and accrued interest owed to the Brazilian National Development Bank (BNDES). Refinancing of the remaining holding company debt is expected to be completed later in the fourth quarter. The restructuring resulted in a $500 million after-tax, non-cash charge, or $0.76 diluted loss per share impact, resulting in a third quarter 2006 GAAP loss and reducing year to date GAAP earnings. Included in the non-cash charge is a $0.07 per share favorable adjusted earnings per share benefit. The charge and estimated impact was previously disclosed on the Company's second quarter 2006 earnings conference call on August 7, 2006. The loss related primarily to the non-cash realization of cumulative currency translation losses associated with the Eletropaulo share sale.
On a GAAP basis, which includes the one-time charge, the third quarter 2006 net loss was $340 million, or $0.52 diluted loss per share, while the net loss from continuing operations was $353 million, or $0.54 diluted loss per share. Adjusted earnings per share (a non-GAAP financial measure) was a positive $0.34 per share for the quarter. These results compare to third quarter 2005 net income of $244 million, or $0.37 diluted earnings per share, net income from continuing operations of $214 million, or $0.32 diluted earnings per share, and adjusted earnings per share of $0.31.
For the nine months ending September 30, 2006 compared to the same 2005 period:
Revenues increased 14% to $9.17 billion from last year's $8.05 billion.
Net cash from operating activities increased 24% to $1.81 billion from last year's $1.46 billion.
Net income was $180 million, or $0.27 diluted earnings per share, versus $453 million, or $0.68 diluted earnings per share.
Net income from continuing operations was $213 million, or $0.32 diluted earnings per share, compared to $423 million, or $0.64 diluted earnings per share.
Adjusted earnings per share were $1.05 compared to $0.59.
"This successful restructuring of our Brazil holding company allows us to reduce subsidiary debt and to receive future dividends from these businesses," said Paul Hanrahan, President and Chief Executive Officer. "During the quarter, we continued to grow our business. We signed a long-term power purchase agreement and began construction in Texas of our largest wind project to date. We also signed a new power purchase agreement for a coal and biomass-fired power plant in Canada and continued to add quality projects to our business development pipeline."
Prior period results reflect the decision in the second quarter of this year to dispose of two businesses and account for them as discontinued operations.
The Company reported the following highlights for the third quarter of 2006:
The 14% revenue increase (approximately 12% excluding estimated foreign currency translation impacts) reflects higher prices in all segments, higher demand in Contract Generation and Regulated Utilities and consolidation of Itabo in Contract Generation.
Gross margin increased 9% over the prior year due to higher demand, consolidation of Itabo and favorable foreign exchange rates in Brazil. Gross margin as a percent of revenue declined 160 basis points to 30.9% driven by higher fuel and maintenance costs in both Contract Generation and Competitive Supply.
General and administrative expense increased $17 million, largely from higher business development spending and increased corporate staffing. The Company continues to strengthen its finance function in areas such as accounting and tax.
The $500 million after-tax, non-cash Brazil restructuring charge includes $537 million recorded as loss on sale of subsidiary stock, $18 million of foreign currency transaction losses related to a transaction-related hedge, $121 million in favorable tax benefits, and $66 million of minority interest expense.
Income tax for the 2006 period includes a $20 million unfavorable adjustment due to the recent identification and correction of an error on the 2004 income tax return.
Net income for the third quarter includes $13 million associated with discontinued operations including a $5 million gain on the previously announced sale of our Indian Queens business in the U.K. and operating earnings from the discontinued operations.
Free cash flow (a non-GAAP financial measure) increased to $664 million from $380 million in the third quarter of 2005. See the attached Non-GAAP Measures for further information on adjusted earnings per share and free cash flow.
The Company also reported the following segment highlights for the third quarter:
Regulated Utilities segment revenues increased 13%, or approximately 7% excluding estimated foreign currency translation impacts, primarily driven by higher prices and demand in Latin America. Gross margin increased 29%, largely resulting from the increased revenues, while gross margin as a percent of revenue improved to 28.0% primarily due to lower transmission costs in Latin America and a favorable business tax settlement in Cameroon. Eletropaulo recorded an increase in labor contingencies which was offset by a correction to depreciation expense.
Contract Generation segment revenues increased 20%. Foreign currency translation was not a significant factor in the quarter. The increase largely relates to consolidation of Itabo, a Dominican Republic business previously carried as an equity investment, and higher demand. Gross margin was consistent with the prior quarter as higher emission allowance sales in Europe were offset by higher maintenance costs in Latin America and North America. Gross margin as a percent of revenue fell to 36.1% due to higher fuel costs and maintenance expenses.
Competitive Supply segment revenues grew 3%, or approximately 4% excluding the estimated impacts of foreign currency translation, primarily reflecting higher prices in Argentina and New York. Gross margin fell 20% and gross margin as a percent of revenues declined to 25.4% largely due to outage related costs in North America.
The Company revised its guidance for earnings from continuing operations to $0.28 per share from $1.05 per share previously, largely reflecting the Brazil restructuring charge impacts in the third and fourth quarters. It increased its adjusted earnings per share guidance to $1.09 per share, which includes an estimated $0.05 per share non-recurring benefit from the Brazil restructuring, from $1.01 per share previously. The updated guidance also includes expected costs associated with certain fourth quarter debt refinancing transactions. The operating scenario underlying this guidance assumes a number of factors, including effective tax rate, foreign exchange rates, commodity prices, interest rates, tariff increases, new investments, and other significant factors, which could make actual results vary from the guidance.
During the quarter, the Company continued to build a strong business development pipeline that includes projects focusing on platform expansion and greenfield investments that generally follow the long-term contract generation business model, complemented by continued growth in the alternative energy business. As of September 30, 2006, the Company had almost 2,400 MW of new generation capacity under construction or in advanced engineering and design in Bulgaria, Chile, Panama, Spain, and the U.S. including fossil fuel and renewable energy projects. During the quarter the Company also acquired 73 MW of wind generation assets in California. |
