Virginia-based AES' Q2 net income up 21% from year ago to US$174M, as revenues grow 16% to US$4.54B on favorable impacts of foreign currency, income from new businesses, higher prices, volumes, increased demand

Rachel Carter

Rachel Carter

Aug 5, 2011 – AES

ARLINGTON, Virginia , August 5, 2011 (press release) – - Second Quarter Adjusted Earnings Per Share increased 17% year-over-year to $0.28, primarily due to the impact of new businesses and a lower effective tax rate
- Second Quarter Diluted Earnings Per Share from Continuing Operations increased 26% year-over-year to $0.24, primarily due to favorable foreign currency exchange rates, the impact of new businesses and a lower effective tax rate
- Previously announced acquisition of DPL Inc. on track to close in the Fourth Quarter of 2011 or First Quarter of 2012

The AES Corporation (NYSE: AES) today reported strong results for the second quarter of 2011. The Company's proportional gross margin increased 4% versus the second quarter of 2010, attributable to volume growth in Chile, contributions from new businesses in Northern Ireland, Chile and Bulgaria, and favorable foreign exchange rates. These positive trends were dampened by a generation outage in Panama related to tunnel repairs at a hydroelectric plant, as well as weaker results in Asia and Europe. In addition, the effective tax rate improved year-over-year due to the extension of the Tax Increase Prevention and Reconciliation Act of 2005 in the fourth quarter of 2010.

"Compared to the first quarter of this year, adjusted earnings per share growth reflects improvements in existing operations, as well as income from new construction projects and our recent acquisition in Northern Ireland. In addition, I am pleased with our recent progress on our remaining construction projects and we remain on track to achieve our 2011 guidance," said Paul Hanrahan, AES President and Chief Executive Officer.

"Our pending acquisition of DPL has been progressing on schedule and is expected to close later this year or early next year. During the quarter, we closed $2.05 billion in AES recourse financing in anticipation of the transaction's near-term close, allowing us to take advantage of current market interest rates as we had assumed at the time of announcement. We also received early termination of the Hart Scott Rodino Act waiting period; DPL has now set September 23, 2011 as the date for their shareholder vote on the transaction," said Victoria D. Harker, Executive Vice President and Chief Financial Officer.

Key drivers of Second Quarter results include (comparison of Q2 2011 vs. Q2 2010):

- Consolidated Revenue increased by $621 million to $4.5 billion, benefiting from: (i) favorable impacts of foreign currency of $274 million; (ii) contributions from new businesses including Ballylumford in Northern Ireland, Angamos in Chile and Maritza in Bulgaria; (iii) higher prices and volumes in Chile and Argentina; and (iv) increased demand at its Brazilian utilities. These gains were partially offset by: (i) lower prices at Eletropaulo in Brazil; and (ii) lower volume at Cartagena in Spain.

- Consolidated Gross Margin increased by $17 million to $1 billion, benefiting from: (i) favorable impacts of foreign currency of $61 million; (ii) contributions from new businesses; (iii) higher prices and volumes in Chile; and (iv) increased volume at its Brazilian utilities. These gains were mostly offset by: (i) an increase in fixed costs, primarily in Latin America; (ii) generation outage in Panama related to tunnel repairs; (iii) lower prices at Eletropaulo in Brazil; and (iv) lower spot prices and volumes at its Europe and Asia Generation businesses.

- Revenue has increased by 16% over the prior year, while Gross Margin has only increased 2%. This disparity in growth rates is driven primarily by the contractual or regulatory pass through of higher fuel costs and purchased energy, which increase revenue but do not have a corresponding impact on gross margin, as well as the increased fixed costs and the generation outage in Panama.

- Proportional Gross Margin (a non-GAAP financial measure, see Appendix for definition and reconciliation) increased by $24 million to $619 million.

- Consolidated Cash Flow from Operating Activities decreased by $72 million to $675 million. This decrease is primarily related to reduced operations at its New York plants and higher working capital needs at Puerto Rico, as well as lower operating income and higher working capital needs at its Asia Generation businesses.

- Proportional Cash Flow from Operating Activities (a non-GAAP financial measure, see Appendix for definition and reconciliation) decreased by $72 million to $294 million, driven primarily by Asia and North America Generation.

- Consolidated Free Cash Flow (a non-GAAP financial measure, see Appendix for definition and reconciliation) decreased by $128 million to $460 million, driven by lower operating cash flow discussed above, as well as higher maintenance capital expenditures of $67 million, primarily at its utilities in North America and in Cameroon.

- Proportional Free Cash Flow (a non-GAAP financial measure, see Appendix for definition and reconciliation) decreased by $101 million to $148 million.

- Diluted EPS from Continuing Operations increased $0.05 per share to $0.24 per share. This increase was driven by unrealized foreign currency transaction gains in 2011 versus losses in 2010, a lower effective tax rate in 2011 due to the extension of a U.S. tax law in the fourth quarter of 2010 and contributions from new businesses. These positive drivers were partially offset by costs associated with the pending acquisition of DPL and higher fixed costs.

- Adjusted EPS (a non-GAAP financial measure, see Appendix for definition and reconciliation) increased $0.04 to $0.28 per share. The increase was primarily attributable to contributions from new businesses, favorable foreign exchange rates and a lower effective tax rate. These positive drivers were partially offset by costs associated with the pending acquisition of DPL and higher fixed costs. Table 2 provides a reconciliation of Diluted EPS to Adjusted EPS for second quarter 2011 as compared to second quarter 2010.

Key drivers of Year-to-Date results include (comparison of Q2 YTD 2011 vs. Q2 YTD 2010):

- Consolidated Revenue increased by $965 million to $8.8 billion, benefiting from: (i) favorable impacts of foreign currency of $429 million; (ii) contributions from new businesses including Ballylumford in Northern Ireland, Angamos in Chile and Maritza in Bulgaria; (iii) higher prices and volumes in Chile and Argentina; and (iv) increased volume at its Brazilian utilities. These gains were partially offset by: (i) lower prices at its utility businesses in Brazil; (ii) lower volume at Cartagena in Spain and Tisza II in Hungary; and (iii) lower prices and volume at Masinloc in the Philippines.

- Consolidated Gross Margin increased by $72 million to $2 billion, benefiting from: (i) favorable impacts of foreign currency of $97 million; (ii) contributions from new businesses; (iii) higher prices and volumes in Chile; and (iv) increased volume at its Brazilian utilities. These gains were partially offset by: (i) an increase in fixed costs, primarily in Latin America; (ii) generation outage in Panama related to tunnel repairs; (iii) lower prices at its utility businesses in Brazil; (iv) lower prices and volume at Masinloc in the Philippines; (v) lower prices at Kilroot in Northern Ireland; and (vi) lower volume at IPL in Indiana and Hungary.

- Proportional Gross Margin (a non-GAAP financial measure, see Appendix for definition and reconciliation) increased by $27 million to $1.2 billion.

- Consolidated Cash Flow from Operating Activities decreased by $235 million to $1.2 billion. This decrease is primarily related to reduced operations at its New York plants and higher working capital needs at Puerto Rico, as well as lower operating income and higher working capital needs at its Asia Generation businesses.

- Proportional Cash Flow from Operating Activities (a non-GAAP financial measure, see Appendix for definition and reconciliation) decreased by $173 million to $616 million, driven primarily by Asia and North America Generation.

- Consolidated Free Cash Flow (a non-GAAP financial measure, see Appendix for definition and reconciliation) decreased by $377 million to $723 million, driven by lower operating cash flow discussed above, as well as higher maintenance capital expenditures of $153 million, primarily in Latin America and North America Utilities.

- Proportional Free Cash Flow (a non-GAAP financial measure, see Appendix for definition and reconciliation) decreased by $259 million to $307 million driven by lower operating cash flow discussed above, as well as higher maintenance capital expenditures, primarily in Latin America and North America Utilities.

- Diluted EPS from Continuing Operations increased $0.11 per share to $0.54 per share. This increase was driven by unrealized foreign currency transaction gains in 2011 versus losses in 2010, a lower effective tax rate in 2011 due to the renewal of a U.S. tax law in the fourth quarter of 2010 and contributions from new businesses. These positive drivers were partially offset by costs associated with the pending purchase of DPL, higher fixed costs and a net 5% share count increase.

- Adjusted EPS (a non-GAAP financial measure, see Appendix for definition and reconciliation) decreased $0.01 to $0.50 per share. The decrease was primarily attributable to costs associated with the pending acquisition of DPL, higher fixed costs and a higher share count. This was partially offset by the contribution from new businesses, lower effective tax rate and favorable foreign exchange rates. Table 3 provides a reconciliation of Diluted EPS to Adjusted EPS for year-to-date 2011 as compared to year-to-date 2010.

Other Highlights

- During May and June, the Company raised approximately $2.05 billion in financing in anticipation of the DPL acquisition.
- On June 14, the Company was advised that early termination of the Hart Scott Rodino Act waiting period had been granted with respect to the DPL acquisition.
- On July 8, Brasiliana, a 46.15% owned AES subsidiary, executed an agreement to sell Eletropaulo Telecomunicações Ltda. and AES Communications Rio de Janeiro S.A. to TIM Celular S.A. The agreed purchase price is approximately R$1.6 billion Reais subject to a purchase price adjustment. The completion of the sale is subject to corporate and regulatory approvals and is expected to occur in the fourth quarter of 2011.

Non-GAAP Financial Measures

See Non-GAAP Financial Measures for definitions of Adjusted Earnings Per Share, Proportional Gross Margin, Adjusted Gross Margin, Proportional Adjusted Gross Margin, Proportional Cash Flow From Operating Activities, Consolidated Free Cash Flow, Proportional Free Cash Flow as well as reconciliations to the most comparable GAAP financial measure.

Attachments

Consolidated Statements of Operations, Segment Information, Consolidated Balance Sheets, Consolidated Statements of Cash Flows, Non-GAAP Financial Measures, Parent Financial Information, 2011 Financial Guidance and 2012 Financial Guidance.

Conference Call Information

AES will host a conference call on Friday, August 5, 2011 at 10:00 a.m. Eastern Daylight Time (EDT). Interested parties may listen to the teleconference by dialing 1-800-857-6557 at least ten minutes before the start of the call. International callers should dial +1-415-228-4653. The participant passcode for this call is 8511. Internet access to the presentation materials will be available at 8:00 a.m. EDT on the AES website at http://www.aes.com by selecting "Investor Information" and then "Quarterly Financial Reports."

A telephonic replay of the call will be available from approximately 12:00 p.m. EDT on Friday, August 5, 2011 through Friday, August 26, 2011. Callers in the U.S. please dial 1-866-403-7104. International callers should dial +1-203-369-0576. The system will ask for a passcode; please enter 8511. A webcast replay, as well as a replay in downloadable MP3 format, will be accessible at http://www.aes.com beginning shortly after the completion of the call.

About AES

The AES Corporation (NYSE: AES) is a Fortune 200 global power company. We provide affordable, sustainable energy to 28 countries through our diverse portfolio of distribution businesses as well as thermal and renewable generation facilities. Our workforce of 29,000 people is committed to operational excellence and meeting the world's changing power needs. Our 2010 revenues were $17 billion and we own and manage $41 billion in total assets. To learn more, please visit http://www.aes.com.

 
THE AES CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
                                         
        Three Months Ended       Six Months Ended
        June 30,       June 30,
        2011       2010       2011       2010
                                         
        (in millions, except per share amounts)
Revenue:                                        
Regulated       $ 2,483       $ 2,213       $ 4,896       $ 4,454
Non-Regulated         2,061         1,710         3,912         3,389
Total revenue         4,544         3,923         8,808         7,843
Cost of Sales:                                        
Regulated         (1,905)         (1,641)         (3,728)         (3,307)
Non-Regulated         (1,620)         (1,280)         (3,045)         (2,573)
Total cost of sales         (3,525)         (2,921)         (6,773)         (5,880)
Gross margin         1,019         1,002         2,035         1,963
General and administrative expenses         (97)         (101)         (192)         (181)
Interest expense         (396)         (389)         (747)         (770)
Interest income         97         101         192         209
Other expense         (38)         (48)         (55)         (60)
Other income         34         68         50         77
Gain on sale of investments         1         -         7         -
Asset impairment expense         (33)         (1)         (33)         (1)
Foreign currency transaction gains (losses) on net monetary position         38         (71)         71         (122)
Other non-operating expense         -         (5)         -         (5)
INCOME FROM CONTINUING OPERATIONS BEFORE                                        
TAXES AND EQUITY IN EARNINGS OF AFFILIATES         625         556         1,328         1,110
Income tax expense         (178)         (261)         (396)         (447)
Net equity in earnings of affiliates         (3)         134         7         147
INCOME FROM CONTINUING OPERATIONS         444         429         939         810
Income (loss) from operations of discontinued businesses, net of income tax (benefit)                                        
expense of $(7), $(6), $(13) and $5, respectively         (17)         9         (29)         43
Gain from disposal of discontinued businesses, net of income tax (benefit)                                        
expense of $0, $0, $0 and $0, respectively         -         (9)         -         (22)
NET INCOME         427         429         910         831
Noncontrolling interests:                                        
Less: Income from continuing operations attributable to noncontrolling interests         (253)         (277)         (512)         (488)
Less: Income from discontinued operations attributable to noncontrolling interests         -         (8)         -         (12)
Total net income attributable to noncontrolling interests         (253)         (285)         (512)         (500)
NET INCOME ATTRIBUTABLE TO THE AES CORPORATION       $ 174       $ 144       $ 398       $ 331
BASIC EARNINGS PER SHARE:                                        
Income from continuing operations attributable to The AES Corporation                                        
common stockholders, net of tax       $ 0.24       $ 0.19       $ 0.55       $ 0.43
Discontinued operations attributable to The AES Corporation common                                        
stockholders, net of tax         (0.02)         (0.01)         (0.04)         0.01
NET INCOME ATTRIBUTABLE TO THE AES CORPORATION                                        
COMMON STOCKHOLDERS       $ 0.22       $ 0.18       $ 0.51       $ 0.44
DILUTED EARNINGS PER SHARE:                                        
Income from continuing operations attributable to The AES Corporation                                        
common stockholders, net of tax       $ 0.24       $ 0.19       $ 0.54       $ 0.43
Discontinued operations attributable to The AES Corporation common                                        
stockholders, net of tax         (0.02)         (0.01)         (0.04)         0.01
NET INCOME ATTRIBUTABLE TO THE AES CORPORATION                                        
COMMON STOCKHOLDERS       $ 0.22       $ 0.18       $ 0.50       $ 0.44
AMOUNTS ATTRIBUTABLE TO THE AES CORPORATION                                        
COMMON STOCKHOLDERS:                                        
Income from continuing operations, net of tax       $ 191       $ 152       $ 427       $ 322
Discontinued operations, net of tax         (17)         (8)         (29)         9
Net income       $ 174       $ 144       $ 398       $ 331
                                         
 

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