-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AyagUexqI+y2SMHjXKceERB7bkVnsOzx+anZbpoQQtqO80ZuLeOTgsQrslHONIDF WQQ+n26ICulgXiyIGVNA9w== 0000874761-98-000002.txt : 19980112 0000874761-98-000002.hdr.sgml : 19980112 ACCESSION NUMBER: 0000874761-98-000002 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980109 ITEM INFORMATION: FILED AS OF DATE: 19980109 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AES CORPORATION CENTRAL INDEX KEY: 0000874761 STANDARD INDUSTRIAL CLASSIFICATION: COGENERATION SERVICES & SMALL POWER PRODUCERS [4991] IRS NUMBER: 541163725 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-12291 FILM NUMBER: 98503910 BUSINESS ADDRESS: STREET 1: 1001 N 19TH ST STREET 2: STE 2000 CITY: ARLINGTON STATE: VA ZIP: 22209 BUSINESS PHONE: 7035221315 8-K 1 THE AES CORPORATION FORM 8-K. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report(Date of earliest event reported): October 27, 1997 THE AES CORPORATION (exact name of registrant as specified in its charter) DELAWARE 0-19281 54-1163725 (State of Incorporation) (Commission File No.) (I.R.S. Employer Identification No.) 1001 North 19th Street Arlington, Va 22209 (Address of principal executive offices, including zip code) Registrant's telephone number, including area code: (703) 522-1315 NOT APPLICABLE (Former Name or Former Address, if changed since last report) ITEM 7. Financial Statements and Exhibits a. (i) Financial Statements of Businesses Acquired. In connection with AES's acquisition of Companhia Centro-oeste de Distribuicao de Energia Eletrica-CEEE D2 ("CEEE D2") as previously reported in the Company's 8-k dated November 10, 1997, the Company submits the following audited financial statements. The following audited financial statements of Companhia Centro-oeste de Distribuicao de Energia Eletrica- CEEE D2 (formerly Midwest Division of Companhia Estadual de Energia Eletrica- CEEE) as of and for the nine months ended September 30, 1997, together with the Auditors' report are expressed in Brazilian Reais and prepared in accordance with accounting practices originating in Brazil's Corporation Law. COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2 (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE) FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 1997 WITH REPORT OF INDEPENDENT AUDITORS COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2 (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE) FINANCIAL STATEMENTS Nine months ended September 30, 1997 CONTENTS Report of Independent Auditors.................................................1 Audited Financial Statements Balance Sheet..................................................................2 Statement of Income............................................................4 Statement of Shareholders' Equity..............................................5 Statement of Changes in Financial Position.....................................6 Notes to Financial Statements..................................................7 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Shareholders Companhia Centro-Oeste de Distribuicao de Energia Eletrica We have examined the accompanying balance sheet of Companhia Centro-Oeste de Distribuicao de Energia Eletrica-CEEE D2 (formerly Midwest Division of Companhia Estadual de Energia Eletrica-CEEE) as of September 30, 1997, and the related statements of income, shareholders' equity and changes in financial position for the nine months then ended, expressed in Brazilian currency and prepared on the basis described in Note 2. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Companhia Centro-Oeste de Distribuicao de Energia Eletrica-CEEE D2 (formerly Midwest Division of Companhia Estadual de Energia Eletrica-CEEE) as of September 30, 1997, and the results of its operations, and changes in its shareholders' equity and financial position for the nine months then ended, in accordance with the accounting practices originating in Brazil's Corporation Law. Porto Alegre, December 30, 1997 Ernst & Young Auditores Independentes S.C. CRC-2 SP/15,199/O-6/S/RS Arnaldo C. Kurayama Accountant CRC-SP/101,151/S/RS A free translation from Portuguese into English of financial statements prepared in Brazilian currency in accordance with the accounting practices originating in Brazil's Corporation Law - ------------------------------------------------------------------------------- COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2 (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE) BALANCE SHEET (NOTE 2.A) September 30, 1997 (Expressed in thousands of reais) ASSETS CURRENT ASSETS Cash and cash equivalents 20,318 Customers accounts receivable 59,834 Allowance for doubtful accounts (3,000) Accounts receivable - CEEE 11,191 Other accounts receivable 3,857 Stores 1,424 Prepaid expenses 139 -------- TOTAL CURRENT ASSETS 93,763 LONG-TERM ASSETS Deferred income and social contribution taxes 21,134 Other credits 83 -------- TOTAL LONG-TERM ASSETS 21,217 PERMANENT ASSETS Investments 9,991 Property, plant and equipment - net 587,415 -------- TOTAL PERMANENT ASSETS 597,406 ======== TOTAL ASSETS 712,386 ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Suppliers 34,237 Taxes and social charges 28,316 Loans-Current portion 1,669 Accrual for retirement benefits 9,510 Payroll accruals 7,609 Other payables and accruals 5,882 -------- TOTAL CURRENT LIABILITIES 87,223 LONG-TERM LIABILITIES Loans 26,890 Accrual for retirement benefits 46,632 Provision for contingencies 4,700 Other long-term liabilities 3,039 -------- 81,261 Special obligations 21,795 -------- TOTAL LONG-TERM LIABILITIES 103,056 SHAREHOLDERS' EQUITY Capital 536,344 Capital reserves 335 Accumulated loss (14,572) -------- TOTAL SHAREHOLDERS' EQUITY 522,107 ======== TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 712,386 ======== See accompanying notes. COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2 (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE) STATEMENT OF INCOME (NOTE 2.B) Nine months ended September 30, 1997 (Expressed in thousands of reais) GROSS OPERATING REVENUE Electricity sales to final consumers 477,770 Electricity sales to other concessionaires 210 Other revenue 5,779 -------- 483,759 DEDUCTIONS FROM OPERATING REVENUE Regulatory charges (20,653) Value - added sales tax (ICMS) (94,711) COFINS and PASEP taxes (12,792) -------- (128,156) -------- NET OPERATING REVENUE 355,603 OPERATING EXPENSES Purchases of electricity (189,623) Personnel (44,323) Third party materials and services (13,700) Depreciation (24,279) Other expenses (20,399) -------- (292,324) -------- OPERATING INCOME BEFORE FINANCIAL INCOME 63,279 Financial income, net 5,953 -------- OPERATING INCOME 69,232 NONOPERATING INCOME Extraordinary items (50,786) Nonoperating income, net 22 -------- 50,764) -------- INCOME BEFORE TAXES 18,468 Income and social contribution taxes (27,140) Deferred income and social contribution taxes 21,134 ======== NET INCOME FOR THE PERIOD 12,462 ======== See accompanying notes. COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2 (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE) STATEMENT OF SHAREHOLDERS' EQUITY (NOTE 2.B) Nine months ended September 30, 1997 (Expressed in thousands of reais)
CAPITAL ACCUMULATED CAPITAL RESERVE LOSS TOTAL BALANCE AT DECEMBER 31, 1996 641,988 -- -- 641,988 Net assets and liabilities included in CEEE-D2 on December 31, 1996 and capital reserve and net income related to the period from January 1 to August 10, 1997, the amounts of which were not transferred to the new company (Companhia Centro-Oeste de Distribuicao de Energia Eletrica) created on July 28, 1997 and which started its operations on August 11, 1997 (See Note 2(b2)) (105,644) (2,610) (27,034) (135,288) Remuneration of construction in progress: Period from January 1 to August 10, 1997 -- 2,610 -- 2,610 Period from August 11 to September 30, 1997 -- 335 -- 335 Net income (loss): Period from January 1 to August 10, 1997 -- -- 27,034 27,034 Period from August 11 to September 30, 1997 -- -- (14,572) (14,572) ======== ====== ======== ======= BALANCE AT SEPTEMBER 30, 1997 536,344 335 (14,572) 522,107 ======== ====== ======== =======
See accompanying notes COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2 (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE) STATEMENT OF CHANGES IN FINANCIAL POSITION (NOTE 2.B) Nine months ended September 30, 1997 (Expressed in thousands of reais) SOURCES OF WORKING CAPITAL FROM OPERATIONS Net income for the period 12,462 Items which do not affect working capital: Depreciation 24,279 Long-term monetary variations 2,194 Provision for losses with investments 128 Provision for contingencies 4,700 Accrual for long-term retirement benefits 46,632 Deferred income and social contribution taxes (21,134) Cost of permanent assets disposed 1,705 -------- 70,966 FROM THIRD PARTIES Reduction of long-term assets 10,531 Increase in long-term liabilities 7,552 -------- 18,083 -------- TOTAL FUNDS PROVIDED 89,049 USES OF WORKING CAPITAL Property, plant and equipment 11,872 Investments 666 Reduction of net assets (see Note-2(b2)) 135,288 Transfer of long-term liabilities to current liabilities 1,527 -------- TOTAL FUNDS USED 149,353 ======== DECREASE IN WORKING CAPITAL (60,304) ======== CURRENT ASSETS At beginning of period 135,200 At end of period 93,763 -------- (41,437) CURRENT LIABILITIES At beginning of period 68,356 At end of period 87,223 -------- 18,867 ======== DECREASE IN WORKING CAPITAL (60,304) ======== See accompanying notes. COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2 (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE) NOTES TO FINANCIAL STATEMENTS September 30, 1997 (In thousands of reais) 1. OPERATIONS Companhia Estadual de Energia Eletrica-CEEE is a publicly traded corporation under Brazilian Law, controlled by the State of Rio Grande do Sul Government, and was included in the privatization program of the state government in 1996. In accordance with the model for sale approved by the State Government, the main electric energy operating activities of CEEE in generation, transmission and distribution by region, would be segregated and transferred to new companies to be created for these purposes. These companies were to be sold separately to different investor groups. Thus, CEEE formed six new companies, which were: two energy generating companies (thermal and hydro electric), one energy transmission company, and three energy distribution companies, separated by state regions: North-Northeast-D3, Midwest-D2 (CEEE-D2) and South-Southeast-D1. On October 21, 1997, the companies responsible for the distribution of energy in the North-Northeast-D3 and in the Midwest-D2 regions were privatized by way of an auction. Companies for the latter two regions were formed on July 28, 1997 and their operating activities began on August 11,1997. On October 27, 1997, the new shareholders (private sector) assumed their respective management. AES Guaiba Empreendimentos Ltda. (holding of CEEE-D2) acquired a share interest in the distribution operations of the Midwest region, known as CEEE-D2 (Companhia Centro-Oeste de Distribuicao de Energia Eletrica). The Midwest region (D2) concession area covers 125 municipalities, including three million inhabitants in the central west region of the State of Rio Grande do Sul. On September 30, 1997, the CEEE-D2 had 827,528 registered customers. Approximately 35% of its revenue is derived from the industrial sector, 39% from the residential sector, 15% from the commercial sector, 4% from the rural sector and 7% from the public sector. CEEE-D2 does not have any generating capabilities, so that all the necessary energy is supplied by third parties (ELETROSUL-36%, ITAIPU-38%, CEEE-14% and Companhia de Geracao Termica de Energia Eletrica - CGTEE - 12%). COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2 (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30, 1997 (In thousands of reais) 2. PRESENTATION OF THE FINANCIAL STATEMENTS In order to meet the requirements of the Securities and Exchange Commission of the United States (SEC), as to the presentation of the financial statements of the businesses being acquired, the operations are being treated as a business division for the purposes of this report and are presented for the nine months ended September 30,1997 separately from CEEE as a whole. Thus, the statements of income, shareholders' equity and changes in financial position for the period January 1 to August 10, 1997, included in the official books of CEEE, are added to the positions in the official books of Companhia Centro-Oeste de Distribuicao de Energia Eletrica for the period August 11 to September 30, 1997. The principles and assumptions used by CEEE management to segregate the distribution operations by region within the state of Rio Grande do Sul and specifically, for the Midwest region, are described in Note 2(b). The financial statements of CEEE-D2 were prepared in accordance with the accounting practices set out in Law No. 6,404/76 (Brazil's Corporation Law), the standards specified by the CVM - Comissao de Valores Mobiliarios (Brazilian Securities Commission), and the standards used to regulate public utilities established by government authorities through DNAEE - Departamento Nacional de Aguas e Energia Eletrica (National Department of Waters and Electric Energy). A) BALANCE SHEET AT SEPTEMBER 30, 1997 The balance sheet accounts, shown in the above financial statements, were prepared based on Companhia Centro-Oeste de Distribuicao de Energia Eletrica's current official books as of September 30, 1997 and duly adjusted for accruals as of that date, identified after the closing of the respective actual financial statements. To improve the presentation of the financial statements, the effects of these adjustments were reflected in the preparation of the September 30, 1997 financial statements, herein shown, conforming to the reconciliation shown below: COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2 (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30, 1997 (In thousands of reais) 2. PRESENTATION OF THE FINANCIAL STATEMENTS -- continued A) BALANCE SHEET AT SEPTEMBER 30, 1997 -- continued
SHAREHOLDERS' DESCRIPTION EQUITY NET INCOME ---------------------- ------------- ----------- Net income for the period of January 1 to August 10,1997 - 27,034 Net income for the period of August 11 to September 30, 1997 before - 23,625 adjustments -------- -------- BALANCE ON SEPTEMBER 30, 1997 BEFORE ADJUSTMENTS 560,304 50,659 Complement to the provision for PIS and COFINS (1,937) (1,937) Reversal of the provision for the reversion global reserve - RGR 6,783 6,783 Constitution of the allowance for doubtful accounts (3,000) (3,000) Duplicate energy invoice to ELETROSUL 1,824 1,824 Unrecorded energy invoices to CEEE and CGTEE (2,652) (2,652) Provision for labor contingencies (1,200) (1,200) Provision for contingencies related to the ELETROCEEE Foundation (3,500) (3,500) Provision for complementary retirement benefits (44,476) (44,476) Provision for contributions to ELETROCEEE for retirements (8,503) (8,503) Provision complement for income tax (1,681) (1,681) Provision complement for social contribution tax (550) (550) Constitution of deferred income tax 16,016 16,016 Constitution of deferred social contribution tax 5,118 5,118 Other adjustments (439) (439) -------- ------- TOTAL NET EFFECT (38,197) (38,197) ======== ======== BALANCE ON SEPTEMBER 30, 1997 (ADJUSTED) 522,107 12,462 ======== ========
B) STATEMENTS OF INCOME, SHAREHOLDERS' EQUITY AND CHANGES IN FINANCIAL POSITION The conditions for the preparation of these financial statements, including the allocation of financial-statement items to CEEE-D2, were based on: (i) the fractions of property, plant and equipment transferred to each division; (ii) the sector in which each division operates; (iii) the number of employees transferred or allocated to each division; and (iv) other information. Below are the main criteria used for the preparation of each statement: COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2 (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30, 1997 (In thousands of reais) 2. PRESENTATION OF THE FINANCIAL STATEMENTS -- continued B) STATEMENTS OF INCOME, SHAREHOLDERS' EQUITY AND CHANGES IN FINANCIAL POSITION -- continued b.1) Statement of income The statement of income for the period of January 1 to August 10,1997 was prepared based on the statement of income for the first six-month period of 1997 available from CEEE's privatization process which was adjusted, basically, by the cost of energy purchased for resale, which had been increased by energy supplied by CEEE through water power generation and by thermal energy from CGTEE, using the tariffs effectively contracted with these companies. The statement of income for the period July 1 to August 10, 1997 was prepared based on the same assumptions and criteria used for the first six-month period of 1997. The net income (loss) for the periods of January 1 to August 10, 1997 and August 11 to September 30, 1997 (official books of Companhia Centro-Oeste de Distribuicao de Energia Eletrica) amount to R$ 27,034 and (R$ 14,572), respectively. Below are described the criteria used for the segregation of the principal income accounts attributable to the CEEE-D2, originally recorded in the official books of CEEE: o Electricity sales - Allocated in each division according to the operating region (municipalities); o Deductions from operating revenue - Allocated in proportion to the billing attributable to each division; o Purchases of electricity - Allocated between each division in accordance with the energy volumes required to meet billing,djusted by the volume to be supplied by CEEE and CGTEE; o Personnel - Allocated based on the employees attributable to each division; o Third party materials and services - All identified expenses were attributed to each division based on their realization, the remaining balance was maintained in CEEE; o Depreciation - Proportional to the property, plant and equipment attributed to each division; COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2 (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30, 1997 (In thousands of reais) 2. PRESENTATION OF THE FINANCIAL STATEMENTS -- continued B) STATEMENTS OF INCOME, SHAREHOLDERS' EQUITY AND CHANGES IN FINANCIAL POSITION -- continued b.1) Statement of income -- continued o Other expenses - Allocated in each division based on the nature of each account and origin of expense. The accounts that could not be attributed to only one division, were allocated based on information from the user; o Financial income (expenses) - Financial income derived from overdue accounts was allocated to each division, in accordance with its region (municipality). Financial expenses were allocated in accordance with interest and restatement for each loan and note account; o Provision for income and social contribution taxes - Calculated using the rates in force on taxable income for each division. b.2) Statements of shareholders' equity and changes in financial position For the purposes of this report, the following amounts are being shown as reduction in the statements of shareholders' equity and changes in financial position: a) the shareholders' equity balance for the distribution operations in the CEEE-D2 region on December 31,1996 in the amount of R$ 105,644; b) the net income for the period January 1 to August 10, 1997 in the amount of R$ 27,034; and c) the capital reserve to be added to net equity for the period January 1 to August 10,1997 in the amount of R$ 2,610. The total of these amounts adds up to R$ 135,288, which was not transferred to the new company (Companhia Centro-Oeste de Distribuicao de Energia Eletrica) created to manage the operations in the Midwest region. COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2 (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30, 1997 (In thousands of reais) 2. PRESENTATION OF THE FINANCIAL STATEMENTS -- continued C) OPENING BALANCE SHEET - DECEMBER 31, 1996 The December 31, 1996 balance sheet was prepared based on the statements shown in the privatization process (Companhia Centro-Oeste de Distribuicao de Energia Eletrica), together with the criteria for carve-out of the balance sheet items of CEEE to be given to the Divisions, which were as follows: (i) the fractions of the property, plant and equipment transferred to each division; (ii) the sector in which each division operates; (iii) the number of employees transferred or allocated to each division; and (iv) other information. 3. PRINCIPAL ACCOUNTING PRACTICES A) STATEMENT OF INCOME Income and expenses are calculated based on the accrual method, including the effects of monetary adjustments on the assets and liabilities, as applicable. B) CASH AND CASH EQUIVALENTS Includes the amount of R$ 10,000 relating to short term financial investments which are monetarily corrected to their current values, as applicable. C) CUSTOMER ACCOUNTS RECEIVABLE Includes the accounts receivable for billed and unbilled monthly electricity consumption and recognized on the accrual basis. D) ALLOWANCE FOR DOUBTFUL ACCOUNTS An allowance for doubtful accounts is recorded by management to be sufficient to cover presently foreseeable losses. COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2 (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30, 1997 (In thousands of reais) 3. PRINCIPAL ACCOUNTING PRACTICES E) STORES Refers to the materials used for the maintenance of operating equipment, recorded at the average acquisition cost which does not exceed their market value. F) INVESTMENTS Are recorded at acquisition cost and adjusted to market value, as applicable. G) PROPERTY, PLANT AND EQUIPMENT Recorded at purchase or construction cost, monetarily corrected to December 31, 1995. Depreciation was calculated on the balance of assets in service, using the straight-line method and the rates described in Note 6. Material destined for construction is classified as construction in progress and is recorded at the aquisition cost. Construction in progress is being remunerated at the Long-Term Interest Rate - TJLP, limited to 10% per year, with the amount being attributed to capital and credited to shareholders' equity in a capital reserve account. H) SPECIAL OBLIGATIONS Special obligations are contributions received from customers, which are to be used exclusively for investment in the distribution network to provide energy to the contribuitors. I) INCOME AND SOCIAL CONTRIBUTION TAXES Income and social contribution taxes were calculated in accordance with the current legislation, especially Law 9,430 of December 27, 1996. The CEEE-D2 recorded deferred income and social contributions taxes, calculated based on the temporary differences presented in the financial statements. COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2 (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30, 1997 (In thousands of reais) 3. PRINCIPAL ACCOUNTING PRACTICES -- continued J) RELATED PARTY TRANSACTIONS CEEE-D2 maintains a current account with the Companhia Estadual de Energia Eletrica-CEEE, for the expenses paid by CEEE-D2 which are the responsibility of CEEE and for those paid by CEEE which are the responsibility of CEEE-D2. Up to September 30, 1997 these amounts had not been restated, not even for interest. The energy purchased, supplied by CEEE and CGTEE, is supported by supply contracts signed by all parts and approved by DNAEE and totaled R$ 32,135, recorded as energy purchased. The amount for energy purchased from January 1 to September 30, 1997 from CEEE and CGTEE was R$ 73,574, representing 38.8% of the cost of energy purchased. 4. TRADE ACCOUNTS RECEIVABLE DESCRIPTION BILLED UNBILLED TOTAL ------------------------------ -------- ---------- ------ Residential 16,471 10,505 26,976 Industrial 3,300 9,096 12,396 Commercial and services 4,827 3,998 8,825 Rural 1,659 1,382 3,041 Governments 2,286 647 2,933 Public lighting 2,401 259 2,660 Public service 1,969 574 2,543 Others 460 - 460 ========== ======= ======= TOTAL 33,373 26,461 59,834 ========== ======= ======= 5. DEFERRED INCOME AND SOCIAL CONTRIBUTION TAXES CEEE-D2 recorded deferred income tax of R$16,016 and social contribution tax of R$ 5,118, calculated on the temporary differences presented in the financial statements, which refer mainly to the nondeductible provision for retirement benefits. COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2 (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30, 1997 (In thousands of reais) 6. PROPERTY, PLANT AND EQUIPMENT
ACQUISITION OR PRECIATION CONSTRUCTION ACCUMULATED DESCRIPTION RATE COST DEPRECIATION NET --------------------------------------------------------------------------------------- IN SERVICE Land 2,831 - 2,831 Building and improvements 3% 22,935 (16,697) 6,238 Machinery and equipment 3 and 4% 846,635 (298,846) 547,789 Vehicles 3% 10,947 (2,559) 8,388 Office equipment and furnishings 3% 1,827 (949) 878 Land use rights 6,075 - 6,075 --------------------------------------- TOTAL IN SERVICE 891,250 (319,051) 572,199 CONSTRUCTION IN PROGRESS Construction in progress 10,144 - 10,144 Material held in stock 5,072 - 5,072 --------------------------------------- TOTAL IN PROGRESS 15,216 - 15,216 ======================================= TOTAL 906,466 (319,051) 587,415 =======================================
7. SUPPLIERS DESCRIPTION ----------- Centrais Eletricas do Sul do Brasil S.A. - ELETROSUL 11,993 ELETROSUL - ITAIPU repass 7,201 Companhia Estadual de Energia Eletrica - CEEE 9,120 Companhia de Geracao Termica de Energia Eletrica - CGTEE 2,886 --------- Total electricity suppliers 31,200 Other suppliers 3,037 ========== TOTAL 34,237 ==========
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2 (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30, 1997 (In thousands of reais) 8. TAXES AND SOCIAL CHARGES DESCRIPTION ----------- ICMS (State VAT) 11,631 COFINS (payroll tax) 1,463 PASEP (payroll tax) 475 INSS (social security) 706 FGTS (dismissal indemnity fund) 171 Social contribution tax based on income 3,370 Income tax 10,491 Other contributions 9 ======= TOTAL 28,316 ======= 9. LOANS INTEREST DESCRIPTION INDEX RATES(A) SHORT-TERM LONG-TERM TOTAL ----------- -------- ---------- ----------- --------- Fundacao ELETROCEEE INPC 9% p.a. 1,669 23,195 24,864 Customers - - - 3,695 3,695 ======= ======= ======= TOTAL 1,669 26,890 28,559 ======= ======= ======= The amount of the loan from the ELETROCEEE Pension fund refers todebt acceptance contract, assumed by CEEE-D2 as a result of the breaking up of the whole contract with CEEE. The loan is amortized on a monthly basis and is guaranteed by customer invoice remittances held by several banks. Customers refers to refund agreements, amounts advanced from customers interested in electric energy supply and loans to finance their electric connections, all generally involved with the expansion of the distribution network. These amounts will be returned in four years after the date of the conclusion of the installation, without interest or monetary correction. COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2 (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30, 1997 (In thousands of reais) 9. LOANS -- continued The due dates and the repayment amounts of the long-term loans with the ELETROCEEE Pension fund are as follows: DUE DATES -------------------------- Oct.-Nov.-Dec.-1998 419 1999 1,676 2000 1,676 2001 1,676 2002 1,676 From 2003 on 16,072 ====== TOTAL 23,195 ====== 10. ACCRUAL FOR RETIREMENT BENEFITS In accordance with the collective agreement the CEEE-D2 is responsible to pay a complementary retirement benefit for credit service that had been conceded by the Previdencia Oficial (Official Social Security) to regular participants in the ELETROCEEE Pension Fund and who had not yet fulfilled all the requirements to receive the benefits from the above mentioned Pension Fund. Such benefit will be paid by the Sponsors until all requirements are met, so that the participant would be considered definitively retired by the Pension Plan. An accrual for these future payments was recorded by CEEE-D2 and the calculation considered the average payment period of this benefit to be 132 months, representing calendar years of 13 months. The amount of that provision was adjusted to its present value using a rate of 12% per annum. The balances on September 30, 1997 are summarized below:
ADJUSTMENT ORIGINAL TO PRESENT NET LONG SHORT DESCRIPTION GROSS AMOUNT VALUE AMOUNT TERM TERM ------------------ -------------- --------- -------- -------- ------- Retirement complement 84,618 (36,979) 47,639 39,539 8,100 Contribution to Pension fund 14,730 (6,227) 8,503 7,093 1,410 ============= ========= =========== ======== ============= TOTAL 99,348 (43,206) 56,142 46,632 9,510 ============= ========= =========== ======== =============
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2 (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30, 1997 (In thousands of reais) 11. CONTINGENCIES Companhia Estadual de Energia Eletrica-CEEE, formerly controlling shareholder of CEEE-D2, is being cited in several lawsuits in the tax and civil areas. In the opinion of the Company's attorneys the probability of loss is remote. Thus, it is not necessary to create any provision for losses. As for the labor lawsuits against CEEE by employees up to August 11, 1997 subcontracted by (transferred to) Companhia Centro-Oeste de Distribuicao de Energia Eletrica (CEEE-D2) on that date, the responsibility for any contingencies up to that date is CEEE's, passing subsequently to CEEE-D2. Thus, a provision for labor contingencies for the 475 lawsuits by employees of CEEE-D2 has been constituted in the amount of R$ 1,200, including the responsibility period of CEEE-D2 from August 11, 1997 on. The ELETROCEEE (Pension fund) is being cited in two lawsuits in the tax area, where the collection of income tax at source on the earnings on fixed income investments (CDB, CDI, etc) and variable income (equity securities) of the Pension Fund is being questioned. These lawsuits are in the amount of R$ 84,000. CEEE-D2 is constituting a provision in the amount of R$ 3,500, which refers to the percentage of its participation of 4.21% in the Pension Fund. 12. SHAREHOLDERS' EQUITY CEEE-D2's capital is R$ 536,344, represented by 536,344,395 nominative, no par value, common shares. Each common share entitles the holder to one vote at shareholder meetings. CEEE-D2 corporate bylaws do not foresee the distribution of dividends to the shareholders. As a result, the regulations laid out by Law 6,404/76 (article 202) prevail, which determine that 50% of net income, adjusted by the following, be destined for dividends: (i) the amount destined for the creation of the legal reserve; (ii) the amount destined for the creation of the contingency reserve. The base used for the calculation of dividends is the net income as presented in the corporate books. COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2 (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30, 1997 (In thousands of reais) 13. PENSION FUND CEEE-D2 is co-sponsor of the Fundacao CEEE de Seguridade Social - ELETROCEEE (Pension fund), which has as its main objective supplementing the social benefits of its participants. The annual cost to the CEEE-D2 is estimated to be 7.5% for the normal cost (amortization of future service), 1.5% for administrative cost and 2.44% for supplementary cost with amortization of past service (Reserve to be amortized) of the payroll (SRC - real contribution salary). The sponsors are responsible for the coverage of any deficit calculated in the benefit plan of the Pension fund The benefits plan is of the "defined benefit" type, using the capitalizing method. The actuarial review was performed on the base date of September 30, 1997 which gives the following position:
TOTAL BALANCE BALANCE RECORDED BY ATTRIBUTABLE TO DESCRIPTION ELETROCEE CEEE-D2 ------------------------------------------------ ---------------- --------------- MATHEMATICAL RESERVES Vested benefit obligation - retired employees 230,964 - Non-Vested benefit obligation-current employees 666,908 47,260 Reserve to be amortized (106,491) (12,332) --------- -------- 791,381 34,928 TECHNICAL SURPLUS(DEFICIT) 3,908 (836) ========= ======== TECHNICAL RESERVE 795,289 34,092 ========= ======== TOTAL ASSETS AVAILABLE 811,793 34,092 ========= =========
COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2 (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30, 1997 (In thousands of reais) 14. FINANCIAL INSTRUMENTS All the assets and liabilities, which are considered financial instruments (loans, investments, etc.), included in the financial statements at September 30, 1997 do not represent significant changes between their market and accounting values. 15. EXTRAORDINARY ITEMS The following adjustments to the September 30, 1997 financial statements are being included as set out in Note 2(a). Among these adjustments, some are considered nonrecurring as they are not related to Division operations and because of their unusual and infrequent nature, and are shown below: DESCRIPTION ------------------------------------------------------- Tax contingencies related to ELETROCEEE (Pension fund) (3,500) Provision for retirement benefits (47,639) Contributions to the Pension fund for early retirements (8,503) Net provision for RGR received by CEEE 8,856 -------- TOTAL (50,786) -------------------------------------------------------- ======== 16. SUBSEQUENT EVENTS On October 21, 1997, by way of a Special Auction held by the Bolsa de Valores do Extremo Sul (Extreme South Stock Exchange) - BVES, the privatization of Companhia Centro-Oeste de Distribuicao de Energia Eletrica (CEEE-D2) took place, whereby 100% of the capital of CEEE-D2, which was held by Companhia Estadual de Energia Eletrica - CEEE, was sold for approximately R$ 1,510,000, at a premium 93.55%. As was established under the privatization bid agreement, the winner of the auction (AES Guaiba Empreendimentos Ltda.) assumed the following obligations: Submit to DNAEE , beforehand, any alterations to the Company bylaws that would imply any changes in shareholder control; COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2 (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30, 1997 (In thousands of reais) 16. SUBSEQUENT EVENTS -- continued o Submit, independently of the requirements of the concession contract, the requested documents or any other information relative to the Company, that has been asked for by monitoring, controlling or auditing State or Government Concession entities; o Ensure that at least one member of the Company's Administrative Council be freely chosen by the employees if the shares they own, including those acquired during the offer to employees, are not sufficient to ensure the election of a representative. The election process for the employee representative will be coordinated by the employee labor union representing the majority of employees; o Keep the Company as "a publicly traded company" for the period of the concession, except as the result of legal requirements, keeping the share register open for the trading of Company stock on the stock exchange for the minimum of 360 days after the purchase or sale of shares. If the stock register for the trading of shares on the stock exchange is not kept open for the above mentioned time, the controlling shareholders must make a public offer to purchase the shares held by the employees at the price per lot of one thousand shares set by the auction, restated by the IGPM, or any other index that has substituted it, within the period of 13 months from the date of the signing of the purchase or sale contract for the shares; o Assume as sponsor, relative to the employees of the Company, without the help of the Fundacao CEEE de Seguridade Social - ELETROCEEE (Pension fund), the guarantee for the current social security benefit plan for a three year minimum; o Be responsible for the financing of the amortization of the ELETROCEEE (Pension fund) reserve, in the time taken to amortize this reserve at the rates calculated by the actuary responsible for setting the amount, in proportion to the SRC (Real Contribution Salary) of the participants who are covered by the plan; o Maintain up to August 31, 2004, the current assistance and medical health benefits for the employees laid out in the agreement signed with the Sindicato dos Trabalhadores SENERGISUL (Labor Union); COMPANHIA CENTRO-OESTE DE DISTRIBUICAO DE ENERGIA ELETRICA-CEEE D2 (FORMERLY MIDWEST DIVISION OF COMPANHIA ESTADUAL DE ENERGIA ELETRICA-CEEE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30, 1997 (In thousands of reais) 16. SUBSEQUENT EVENTS -- continued O Assume, through subcontracts, the rights and obligations established in energy supply contracts, including those with guarantees given by CEEE to the supplier of the above mentioned contracts a. (ii) Pro forma Financial Information The following unaudited pro forma consolidated statements of operations information combine the results of AES's investment in CEMIG, Destec, and ESEBA which were previously reported in the AES Corporation's Form 8-K dated July 3, 1997, and in CEEE D2, which was previously reported in the AES Corporation's Form 8-K dated November 10, 1997, for the year ended December 31, 1996 and the nine months ended September 30, 1997 as if the acquisitions and the associated financings had occurred on January 1, 1996. The unaudited pro forma adjustments are based upon available information and certain assumptions and estimates which the Company believes are reasonable under the circumstances. The unaudited pro forma results do not purport to be indicative of the results that would have been obtained had the acquisitions and the financings occurred at the beginning of the periods presented, nor are they intended to be a projection of future results. The unaudited pro forma financial information should be read in conjunction with the notes herein. YEAR ENDED DECEMBER 31, 1996(1)(2)
- ----------------------------------------------------------------------------------------------------------------------------------- (UNAUDITED) ADJUSTMENTS PRO FORMA FOR THE ESEBA, FOR THE ESEBA, PRO FORMA CEMIG & DESTEC CEMIG & DESTEC CEEE D2 FOR ALL ACQUISITIONS ACQUISITIONS ACQUISITION ACQUISITIONS ACTUAL & FINANCINGS & FINANCINGS & FINANCING & FINANCINGS - ----------------------------------------------------------------------------------------------------------------------------------- ($ in millions, except per share amounts) TOTAL REVENUES(4) $ 835 $ 702 $ 1,537 $ 398 $ 1,935 TOTAL OPERATING COSTS AND EXPENSES 557 704 1,261 360 1,621 ----- ----- ------- ----- ------ OPERATING INCOME 278 (2) 276 38 314 OTHER INCOME AND (EXPENSE): Interest expense (144) (102) (246) (121) (367) Interest income 24 -- 24 -- 24 Equity in earnings of affiliates, net of tax 35 50 85 -- 85 ----- ----- ------- ----- ------ INCOME (LOSS) BEFORE INCOME TAX AND MINORITY INTEREST 193 (54) 139 (83) 56 Income tax (Benefit) 60 (41) 19 (36) (17) Minority interest 8 (2) 6 3 9 ----- ----- ------- ----- ------ NET INCOME (LOSS) $ 125 (11) $ 114 $ (50) $ 64 ===== ===== ======= ===== ====== NET INCOME (LOSS) PER SHARE(3) 0.72 (0.06) 0.66 (0.29) 0.37 ===== ===== ======= ===== ======
NINE MONTHS ENDED SEPTEMBER 30, 1997(1)(2)
- ----------------------------------------------------------------------------------------------------------------------------------- (UNAUDITED) ADJUSTMENTS PRO FORMA FOR THE ESEBA, FOR THE ESEBA, PRO FORMA CEMIG & DESTEC CEMIG & DESTEC CEEE D2 FOR ALL ACQUISITIONS ACQUISITIONS ACQUISITION ACQUISITIONS ACTUAL & FINANCINGS & FINANCINGS & FINANCING & FINANCINGS - ----------------------------------------------------------------------------------------------------------------------------------- ($ in millions, except per share amounts) TOTAL REVENUES(4) $ 880 $ 127 $ 1,007 $ 320 $ 1,327 TOTAL OPERATING COSTS AND EXPENSES 620 113 733 323 1,056 ------- ------- ------- ------- ------- OPERATING INCOME 260 14 274 (3) 271 OTHER INCOME AND (EXPENSE): Interest expense (154) (44) (198) (87) (285) Interest income 28 8 36 5 41 Equity in earnings of affiliates, net of tax 58 18 76 -- 76 ------- ------- ------- ------- ------- INCOME (LOSS) BEFORE INCOME TAX MINORITY INTEREST,AND EXTRAORDINARY ITEM 192 (4) 188 (85) 103 Income taxes 50 (9) 41 (35) 6 Minority interest 10 4 14 1 15 ------- ------- ------- ------- ------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 132 1 133 (51) 82 EXTRAORDINARY ITEM - NET LOSS ON EXTINGUISHMENT OF DEBT (LESS APPLICABLE INCOME TAXES OF $2 MILLION) (3) -- (3) -- (3) ------- ------- ------- ------- ------- NET INCOME (LOSS) 129 1 130 (51) 79 ======= ======= ======= ======= ======= NET INCOME (LOSS) PER SHARE: Before extraordinary loss 0.76 0.01 0.77 (0.30) 0.47 Extraordinary loss (0.02) - (0.02) - (0.02) ------- ------- ------- ------ ------- NET INCOME (LOSS) PER SHARE (3) $ 0.74 $ 0.01 $ 0.75 $(0.30) $ 0.45 ======= ======= ======= ====== =======
The following unaudited pro forma consolidated balance sheet information represents AES's financial position at September 30, 1997 as if the CEEE D2 acquisition and associated financing had occurred on that date. AS OF SEPTEMBER 30, 1997(1)(2)
- ---------------------------------------------------------------------------------------------------- (UNAUDITED) ADJUSTMENTS PROFORMA ACTUAL FOR THE CEEE D2 FOR THE CEEE D2 ACQUISITION ACQUISITION & FINANCING & FINANCING - ---------------------------------------------------------------------------------------------------- ($ in millions) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 358 $ 50 $ 408 Short-term investments 27 -- 27 Accounts receivable, less provision to reduced contract receivable of $39 206 52 258 Inventory 69 1 70 Receivable from affiliates 13 -- 13 Deferred tax 49 1 50 Prepaid expenses and other current assets 77 15 92 ------- ------- ------- TOTAL CURRENT ASSETS 799 119 918 PROPERTY, PLANT, & EQUIPMENT: Land 33 -- 33 Electric generation and distribution assets 2,563 1,156 3,719 Accum depreciation, depletion, and amortization (336) (291) (627) Construction in progress 800 14 814 ------- ------- ------- PROPERTY, PLANT AND EQUIPMENT, NET 3,060 879 3,939 OTHER ASSETS: Electricity concession agreements 229 765 994 Deferred costs, net 89 37 126 Project development costs 100 -- 100 Investments in and advances to affiliates 1,835 -- 1,835 Debt service reserves and other deposits 173 -- 173 Goodwill and other intangible assets, net 26 -- 26 Other assets 257 59 316 ------- ------- ------- TOTAL OTHER ASSETS 2,709 861 3,570 ------- ------- ------- TOTAL $ 6,568 $ 1,859 $ 8,427 ======== ======= ======= LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 74 $ 31 $ 105 Accrued interest 39 -- 39 Accrued and other liabilities 183 48 231 Project financing debt - current portion 533 -- 533 -------- ------- ------- TOTAL CURRENT LIABILITIES 829 79 908 LONG-TERM LIABILITIES: Project financing debt 2,814 650 3,464 Other notes payable 573 500 1,073 Deferred income taxes 231 103 334 Other long-term liabilities 48 179 227 ------- ------- ------- TOTAL LONG-TERM LIABILITIES 3,666 1,432 5,098 MINORITY INTEREST 379 48 427 COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF AES TRUST II 250 300 550 STOCKHOLDERS' EQUITY Common stock 2 -- 2 Additional paid-in capital 1,018 -- 1,018 Retained earnings 525 -- 525 Cumulative foreign currency translation adjustment (100) -- (100) Less treasury stock at cost (1) -- (1) ------- ------- ------- TOTAL STOCKHOLDERS' EQUITY 1,444 -- 1,444 ------- ------- -------- TOTAL $ 6,568 $ 1,859 $ 8,427 ======= ======= =======
(1) Basis of presentation: The Company's acquisitions of the Destec international assets, ESEBA, CEEE D2 and the 13% economic interest in CEMIG were accounted for as purchases. The purchase price allocations have been prepared on a preliminary basis pending completion of engineering, environmental, legal and valuation analyses, all of which are ongoing. The excess of the respective purchase price over the net assets acquired will be amortized over 40 years. The Company intends to sell its interest in the Hazelwood project, which was purchased as part of the Destec acquisition, and as a result, the financing costs and equity in earnings related to such interest are treated as adjustments to the Destec purchase price allocation. The Company's purchase of an economic interest of approximately 13% in CEMIG, which also represents an approximate voting interest of 30%, has been recorded as an investment in subsidiaries, and is being accounted for using the equity method. The summary unaudited pro forma financial information has been prepared based on the Company's estimates of each acquiree's financial position and results of operations in conformity with U.S. GAAP. As such, the unaudited pro forma financial information reflects estimated changes in the basis of assets and liabilities and the effects of such changes on depreciation and amortization expense. The unaudited pro forma statements of operations have been translated using the average exchange rates in effect during the periods. The unaudited pro forma balance sheet has been translated using the September 30, 1997 exchange rates of approximately R$1.10 to US$1.00. Income taxes have been recorded based on the historical rates in effect, adjusted as necessary to reflect any incremental U.S. federal income taxes. (2) Financing: (a) The acquisition of the Destec international assets was funded through the use of the proceeds from a $250 million TECONS offering in March 1997, the proceeds of a $150 million offering of AES Common Stock in March 1997, and funds under the Company's revolving bank loan ("Revolver"). The acquisition of the Company's interest in CEMIG was funded through the use of a $250 million bridge loan to AES CEMIG Funding Corporation, a wholly-owned subsidiary of AES("CEMIG Bridge") at an interest rate of 8.25%, a bridge loan to AES of $200 million at an interest rate of 7.75%, and project financing of $126 million at an interest rate of 9.75% provided by BNDES, the State Development Bank of Brazil. The remaining portion of the purchase price amounting to approximately $527 million is deferred, by contract, for a period of one year. Such obligation bears no interest and has been guaranteed by BNDES for a fee of 1% per year which is included in interest expense. Subsequently, the CEMIG Bridge was reduced with a portion of the proceeds from the issuance of the Company's common stock, as described below, to approximately $40 million. Included in the pro forma amounts is the interest expense associated with the refinanced amount of the CEMIG Bridge of $220 million at 8.25%. The ESEBA acquisition was funded through the use of a bridge loan to AESEBA Funding Corporation, a wholly-owned subsidiary of AES of $200 million at an interest rate of 8.25% ("ESEBA Bridge"), project financing debt of $148 million at an interest rate of 7.4% and the drawdown of funds under the Company's revolver. Subsequently, the ESEBA Bridge was reduced with a portion of the proceeds from the issuance of the Company's common stock, as described below, to approximately $32 million. Included in the pro forma amounts is the interest expense associated with the refinanced amount of the CEMIG Bridge of $180 million at 8.25%. The pro forma adjustments also include the Company's issuance of $325 million 8 3/8% Senior Subordinated Notes due 2007 in July 1997 and the issuance of 9.0 million shares of the Company's common stock at a price of $39.875 per share in July 1997, as if such offerings had occurred on January 1, 1996. (b) The Acquisition of CEEE D2 was funded through borrowings of $250 million under the Company's Revolver, short-term loans of $550 million under a bridge loan facility to AES, and project financing debt of $630 million at an interest rate of 7.5%. Subsequently, the borrowings under the Revolver and the short-term bridge loan were refinanced with proceeds from $375 million of 8.5% Senior Subordinated Notes, $125 million of 8.875% of Senior Subordinated Notes, and $300 million Term Convertible Preferred Securities with a 5 1/2% yield issued in October 1997. Interest expense associated with the above financing has been reflected in the pro forma adjustments. (3) Weighted average shares used to calculate pro forma earnings per share for the acquisition of the international assets of Destec include 5.1 million shares of AES Common Stock issued to finance the acquisition as though they were issued January 1, 1996. Weighted average shares have also been adjusted to reflect the issuance of approximately 5.0 million shares of AES Common Stock in connection with the Chigen Amalgamation in May 1997. 4) Includes $384 million and $370 million of revenues and costs, respectively, in the fiscal year ended 1996, related to services performed under construction contracts for 2 Destec projects, Elsta and Kingston. The Kingston project was completed in early 1997 and, as a result, such revenue and costs were reduced to $18 million and $17 million, respectively, for the nine months ended September 30, 1997. The Company's share of profits (based on its ownership interest in each respective project) resulting from services performed under these contracts is deferred and amortized over the life of the respective project. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. THE AES CORPORATION By: /s/ Barry J. Sharp Barry J. Sharp Vice President and Chief Financial Officer Date: January 9, 1998 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION 23.1 Consent of Independent Public Accountants EX-23.1 2 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statement (Form S-3 No. 333-39857) and related Prospectuses of The AES Corporation of our report dated December 30, 1997 with respect to the financial statements of Companhia Centro-Oeste de Energia Eletrica-CEEE-D2 (Fomerly Midwest Division of Companhia Estadual de Energia Eletrica-CEEE) as at and for the nine-month period ended September 30, 1997 prepared in accordance with accounting practices originating in Brazil's Corporation Law, which appear in Item 7 on Form 8-K of The AES Corporation dated January 9, 1998. Porto Alegre, RS, Brazil, January 6, 1998 Ernst & Young Auditores Independentes S.C. CRC-2-SP 15199/0-6/S/RS /s/ Arnaldo C. Kurayama Arnaldo C. Kurayama Accountant CRC-SP 101151/S/RS -----END PRIVACY-ENHANCED MESSAGE-----