SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
Amendment No. 2
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): June 7, 2000
THE AES CORPORATION
(exact name of registrant as specified in its charter)
DELAWARE 0-19281 54-1163725
(State of Incorporation) (Commission File No.) (IRS Employer Identification No.)
1001 North 19th Street
Arlington, Virginia 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)
This Amendment No. 2 to the Current Report of The AES Corporation
(the "Company") on Form 8-K dated June 7, 2000 (the "Report") relates to the
Company's completion of the acquisition of 87.2% of the common stock of C.A. La
Electricidad de Caracas ("EDC") and Corporacion EDC, C.A. ("CEDC," and together
with EDC, "Grupo EDC"). The purpose of this Amendment is to provide the
separate reports of the independent accountants that are not the principal
accountant.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANT
To the Stockholders and the Board of Directors of
Grupo EDC:
We have audited the accompanying combined balance sheets of Grupo EDC (a
Venezuelan corporation) as identified in Note 1, as of December 31, 1999 and
1998, and the related combined statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
1999. 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 audits. We did not audit the financial statements of
Valle Energy Ventures, Inc., El Salvador Energy Holdings, Ltd., and HIEDC
Holdings, Ltd., the investments in which are reflected in the accompanying
financial statements using the equity method of accounting. The investment in
these companies represents 17% of combined total assets in 1999 and 1998,
respectively, and the equity in their net income represents 16%, 17% and 3%
of combined net income in 1999, 1998 and 1997, respectively. The main
components of the financial statements of these companies are represented by
the investments in the companies mentioned in Note 7, the statements of these
companies were audited by other auditors whose reports have been furnished to
us and our opinion, insofar as it relates to the amounts included such
companies, is based solely on the reports of the other auditors.
We conducted our audits 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 audits and the reports of other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors the
financial statements referred to above present fairly, in all material respects,
the financial position of Grupo EDC as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999 in conformity with generally accepted
accounting principles in the United States.
FAGUNDEZ Y ASOCIADOS
AN ASSOCIATE FIRM OF ARTHUR ANDERSEN
CARLOS RIVILLO
PUBLIC ACCOUNTANT CPC No 10517
CNV No R-707
Caracas, Venezuela
August 4, 2000
GRUPO EDC
COMBINED BALANCE SHEETS AS OF DECEMBER 31, 1999 AND 1998
(EXPRESSED IN THOUSANDS OF US DOLLARS)
1999 1998
----------------- -------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 503,400 $ 446,148
----------------- -------------------
Accounts receivable
Trade 167,392 143,965
Less: Allowance for doubtful accounts (26,790) (24,313)
----------------- -------------------
140,602 119,652
Affiliated and related companies 10,346 882
Other 136,962 23,968
----------------- -------------------
287,910 144,502
----------------- -------------------
Inventories, supplies and parts 70,758 67,970
Less: Allowance for obsolescence (4,380) (4,103)
----------------- -------------------
66,378 63,867
Deferred income tax 11,556 14,180
Prepaid expenses 1,959 4,182
----------------- -------------------
TOTAL CURRENT ASSETS 871,203 672,879
----------------- -------------------
Property, plant and equipment, net 1,927,588 1,938,832
Investments 1,034,107 946,554
Deferred income tax 322 -
Long-term accounts receivable 32,435 37,617
Intangible assets and deferred charges 30,238 32,515
Goodwill 5,947 6,654
Other assets 764 1,875
================= ===================
TOTAL ASSETS $ 3,902,604 $ 3,636,926
================= ===================
The accompanying notes are an integral part of these combined statements.
GRUPO EDC
COMBINED BALANCE SHEETS AS OF DECEMBER 31, 1999 AND 1998
(EXPRESSED IN THOUSANDS OF US DOLLARS EXCEPT PER SHARE AMOUNTS)
1999 1998
------------------ -------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank loans $ 427,440 $ 490,353
Current maturities of long-term debt 165,511 17,886
Accounts payable-trade 80,724 75,751
Accounts payable-affiliated and related companies 11,597 320
Dividends payable 48,283 20,068
Other current liabilities 57,891 61,772
------------------ -------------------
TOTAL CURRENT LIABILITIES 791,446 666,150
------------------ -------------------
NON-CURRENT LIABILITIES
Long-term debt 397,065 501,689
Labor liabilities 58,222 49,649
Other 12,972 11,021
Deferred income tax - 20,252
------------------ -------------------
TOTAL NON-CURRENT LIABILITIES 468,259 582,611
------------------ -------------------
Minority interest 8,203 10,597
------------------ -------------------
TOTAL LIABILITIES 1,267,908 1,259,358
------------------ -------------------
STOCKHOLDERS' EQUITY
Capital stock (Common stocks, $ 0.09 and $0.10 par
value as of December 31, 1999 and 1998, respectively,
7,266,412 and 6,228,353 of shares, respectively, issued
and outstanding)
664,740 649,599
Capital stock subscribed and not paid (5,596) -
------------------ -------------------
659,144 649,599
Paid-in surplus 226,619 208,655
Retained earnings 1,750,394 1,546,114
Treasury stock at cost (1,461) (26,800)
------------------ -------------------
TOTAL STOCKHOLDERS' EQUITY 2,634,696 2,377,568
================== ===================
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,902,604 $ 3,636,926
================== ===================
The accompanying notes are an integral part of these combined statements.
GRUPO EDC
COMBINED INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(EXPRESSED IN THOUSANDS OF US DOLLARS EXCEPT PER SHARE AND PER ADR AMOUNTS)
1999 1998 1997
----------------- --------------- -----------------
REVENUES
Sales of energy $ 773,846 $ 737,423 $ 581,814
Other services 11,666 45,692 22,792
----------------- --------------- -----------------
785,512 783,115 604,606
OPERATING EXPENSES
Generation and purchase of power 110,181 79,326 41,572
General and administrative 238,897 276,167 177,625
Depreciation and amortization 130,570 123,344 124,447
Transmission and distribution 75,483 64,044 57,307
----------------- --------------- -----------------
555,131 542,881 400,951
----------------- --------------- -----------------
OPERATING INCOME 230,381 240,234 203,655
Interest income (expense), net 14,159 (8,197) (11,587)
Other income (expense), net 6,179 (4,910) 9,259
Translation gain 1,932 22,733 8,403
Equity in net income of affiliated companies 58,214 45,786 5,546
----------------- --------------- -----------------
TOTAL OTHER INCOME, NET 80,484 55,412 11,621
----------------- --------------- -----------------
INCOME BEFORE INCOME TAX BENEFIT (PROVISION), MINORITY
INTEREST AND EXTRAORDINARY ITEM 310,865 295,646 215,276
Income tax benefit (provision) 9,143 (31,698) (28,172)
----------------- --------------- -----------------
INCOME BEFORE MINORITY INTEREST AND
EXTRAORDINARY ITEM 320,008 263,948 187,104
Minority interest - 144 116
Extraordinary item 17,649 - -
----------------- --------------- -----------------
NET INCOME $ 337,657 $ 264,092 $ 187,220
================= =============== =================
BASIC AND DILUTED EARNINGS PER SHARE $ 0.05 $ 0.04 $ 0.04
================= =============== =================
BASIC AND DILUTED EARNINGS PER ADR (BASED ON
50 SHARES PER ADR) $ 2.32 $ 1.82 $ -
================= =============== =================
WEIGHTED AVERAGE SHARES OUTSTANDING (IN THOUSANDS) 7,264,745 7,003,006 4,230,707
================= =============== =================
The accompanying notes are an integral part of these combined statements.
GRUPO EDC
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(EXPRESSED IN THOUSANDS OF US DOLLARS)
SUBSCRIBED TOTAL
CAPITAL AND NOT PAID-IN RETAINED TREASURY STOCKHOLDERS'
STOCK PAID TOTAL SURPLUS EARNINGS STOCK EQUITY
--------------------------------------------------------------------------------------------
BALANCES AS OF DECEMBER 31, 1996 $ 566,490 - $ 566,490 $ 78,277 $ 1,414,288 - $ 2,059,055
Incorporation of Corporacion EDC, C.A. 7,036 - 7,036 98,254 3 - 105,293
Capital stock increase 1,774 - 1,774 - - - 1,774
Paid-in surplus - - - 32,124 - - 32,124
Net income - - - - 187,220 - 187,220
Dividends declared 59,691 - 59,691 - (244,831) - (185,140)
--------------------------------------------------------------------------------------------
BALANCES AS OF DECEMBER 31, 1997 634,991 - 634,991 208,655 1,356,680 - 2,200,326
Capital stock increase 14,608 - 14,608 - - 14,608
Net income - - - - 264,092 - 264,092
Treasury stock acquired - - - - (26,800) (26,800)
Dividends declared - - - - (74,658) - (74,658)
--------------------------------------------------------------------------------------------
BALANCES AS OF DECEMBER 31, 1998 649,599 - 649,599 208,655 1,546,114 (26,800) 2,377,568
Capital stock increase 15,141 (5,596) 9,545 - - - 9,545
Paid-in surplus - - - 17,964 - - 17,964
Net income - - - - 337,657 - 337,657
Dividends declared - - - - (125,725) - (125,725)
Treasury stock - - - - (7,652) 25,339 17,687
============================================================================================
BALANCES AS OF DECEMBER 31, 1999 $ 664,740 $ (5,596) $ 659,144 $ 226,619 $ 1,750,394 $ (1,461) $ 2,634,696
============================================================================================
The accompanying notes are an integral part of these combined statements.
GRUPO EDC
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(EXPRESSED IN THOUSANDS OF US DOLLARS)
----------------- ----------------- -------------------
1999 1998 1997
----------------- ----------------- -------------------
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES
Net income $ 337,657 $ 264,092 $ 187,220
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Equity in net income of affiliated companies (58,214) (45,786) (5,546)
Incorporation of Corporacion EDC, C.A - - 105,293
Depreciation and amortization 130,570 123,344 124,447
Allowance for doubtful accounts 2,477 2,611 10,380
Minority interest - (144) (116)
NET CHANGES IN OPERATING ASSETS AND LIABILITIES
(INCREASE) DECREASE IN OPERATING ASSETS
Accounts receivable, net (145,885) 16,286 (27,108)
Inventories, supplies and parts, net (2,511) (17,124) 452
Prepaid expenses 2,223 (739) 4,267
Long-term accounts receivable 5,182 (35,695) 1,695
Intangible assets and deferred charges (45,495) (12,348) (4,091)
Other assets 1,112 (1,446) 11,897
INCREASE (DECREASE) IN OPERATING LIABILITIES
Accounts payable 16,250 11,663 (24,382)
Other current liabilities (3,629) 22,577 39,091
Labor liabilities 8,573 13,348 36,301
Other non-current liabilities 1,696 3,542 (56,421)
Deferred income tax (17,950) 3,867 17,204
Minority interest (2,394) 7,606 (897)
----------------- ----------------- -------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 229,662 355,654 419,686
CASH FLOWS USED IN INVESTING ACTIVITIES
Acquisitions of property, plant and equipment, net (71,554) (158,232) (156,413)
Investments (28,632) (409,887) (160,848)
----------------- ----------------- -------------------
NET CASH USED IN INVESTING ACTIVITIES (100,186) (568,119) (317,261)
CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES
(Decrease) Increase of bank loans (62,913) 271,834 145,497
Proceeds from loans 130,406 301,134 283
Payments of debt (87,404) (39,819) (5,264)
Result from capital stock increase 9,545 14,608 1,774
Increase of paid-in surplus 17,964 - 32,124
Treasury stock 17,687 (26,800) -
Payment of dividends in cash (97,509) (70,979) (170,751)
----------------- ----------------- -------------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (72,224) 449,978 3,633
INCREASE IN CASH AND CASH EQUIVALENTS 57,252 237,513 106,088
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 446,148 208,635 102,547
----------------- ----------------- -------------------
CASH AND CASH EQUIVALENTS AT YEAREND $ 503,400 $ 446,148 $ 208,635
================= ================= ===================
SUPPLEMENTAL INFORMATION:
Cash paid during the year for:
Interest $ 73,837 $ 68,874 $ 26,794
================= ================= ===================
Taxes $ 52,984 $ 66,186 $ 32,936
================= ================= ===================
The accompanying notes are an integral part of these combined statements.
GRUPO EDC
NOTES TO THE AUDITED COMBINED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999, 1998 AND 1997
(Expressed in thousands of US Dollars)
--------------------------------------------------------------------------------
NOTE 1- INCORPORATION, PURPOSE AND OPERATIONS
Grupo EDC (the "Company") is comprised of C.A. La Electricidad de Caracas
("EDC") and Corporacion EDC, C.A. ("CEDC") and their subsidiaries and
affiliates.
EDC, founded in 1895, is a vertically integrated regulated electric utility that
generates, transmits and distributes electricity to the metropolitan area of
Caracas, Guarenas, Guatire and San Felipe. The group is the largest privately
held electric utility company in Venezuela. In 1997, EDC underwent a
reorganization of its business dividing the electricity business regulated by
Venezuelan law from (i) other Venezuelan investments in regulated and
non-regulated businesses other than the regulated electricity business and (ii)
regulated and non-regulated businesses outside of Venezuela, including regulated
electricity businesses. On November 17, 1997, EDC issued separate shares of CEDC
to its shareholders, which are required to be traded as stapled shares. CEDC was
incorporated to carry out domestic and foreign investment activities; to
participate in commercial and industrial companies and utilities, as well as to
develop and execute projects related thereto; and to finance other commercial
operations.
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed in
the preparation of the combined financial statements:
A) BASIS OF PRESENTATION
The Company's combined financial statements include the consolidated accounts of
EDC and CEDC and all of their subsidiaries and affiliates (whether directly or
indirectly controlled) after elimination of significant intercompany balances
and transactions. The combined financial statements have been prepared in
accordance with accounting principles generally accepted in the United States.
B) USE OF ESTIMATES
The preparation of financial statements requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
C) BASIS OF COMBINATION AND CONSOLIDATION
The combined financial statements as of December 31 of each year include the
consolidated accounts of EDC and CEDC and all of their subsidiaries, as follows:
EDC:
The consolidated financial statements of EDC include the financial statements
of: C.A. Luz Electrica de Venezuela, C.A., Luz Electrica del Yaracuy, C.A., La
Electricidad de Guarenas y Guatire, EDC Columbian Holding, Inc. and subsidiaries
and C.A. Luz Electrica de Nueva Esparta as of December 31, 1997. The
subsidiaries Enerzul, C.A., C.A. Energia Electrica de Lara and Empresa
Suroriental de Energia, C.A. were added to the consolidated financial statements
as of December 31, 1998 and 1999. All consolidated subsidiaries are wholly owned
by EDC, except for C.A. Luz Electrica de Venezuela (99.83%) and C.A. La
Electricidad de Guarenas y Guatire (99.52%).
CEDC:
The consolidated financial statements of CEDC include the financial statements
of the following wholly owned subsidiaries: Generacion de Vapor GENEVAPCA, C.A.,
Inversiones Inextel, C.A., Operaciones Internacionales EDC, C.A., Grupo
Industrial EDC, C.A. and subsidiaries, Telematica EDC, C.A. and subsidiaries,
Inmobiliaria EDC, C.A. and subsidiaries and Energia EDC, C.A. and subsidiaries
as of December 31, 1997. The subsidiaries EDC Energy Ventures -Generacion
Colombia, EDC Energy Ventures -Distribucion Colombia and EDC Energy Ventures -El
Salvador were added to the consolidated financial statements as of December 31,
1998 and TD Communication Holdings for December 31, 1999. All the companies
consolidated are presented at their corresponding closing date, which represent
a twelve (12) month period. However, significant events between their closing
date (mostly November 30) and yearend have been included, except for GENEVAPCA,
whose closing date is September 30, but has been consolidated as of December 31.
The combined financial statements also include the accounts of Assinet
International, Inc and White Pearl Investment Corporation, owned in a 48% by
each company (96% by the combined group).
All significant intercompany balances and transactions have been eliminated.
D) BASIS OF TRANSLATION
For the years ended December 31, 1999, 1998 and 1997 the financial statements of
the Company and its subsidiaries and affiliates operating in Venezuela,
(originally issued in Venezuelan bolivars) have been remeasured into U.S.
dollars in accordance with Statement of Financial Accounting Standard No. 52
"FOREIGN CURRENCY TRANSLATION" (SFAS 52), which establishes that for entities
operating in highly inflationary economies, the U.S. Dollar is considered to be
the functional currency, and transaction gains and losses are included in
determining net income.
E) INFLATIONARY ECONOMY
The Venezuelan market, in which many of the Company's subsidiaries operate, has
volatile economic, political and social conditions that are frequently
unfavorable, including high inflation and interest rates. The accumulated
inflation rates for the years ended December 31, 1999, 1998 and 1997, were 20%,
30% and 38% respectively.
The exchange rate for purchases and sales of currencies is based on market
forces, but is subject to maximum and minimum bands established by the
Venezuelan government. For the years ended December 31, 1999, 1998 and 1997 the
exchange rates were Bs. 649.25, Bs. 565 and 504.75 per U.S. dollar,
respectively.
F) CASH AND CASH EQUIVALENTS
Cash and cash equivalents include short-term, highly liquid investments, which
have original maturities of three months or less. Additionally, due to the
relatively short-term nature of these investments, the reported book value,
shown in the accompanying financial statements, approximates market value.
G) INVENTORIES, SUPPLIES AND PARTS
Inventories include materials, supplies and parts that the Company uses in the
construction of its operating facilities and are presented at average cost, net
of the allowance for obsolescence.
H) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are presented at cost including capitalized
interest incurred in the construction of long-term assets as required by
Statement of Financial Accounting Standards ("SFAS") No. 34, "CAPITALIZATION OF
INTEREST COST". Depreciation has been calculated based on the estimated useful
life of the assets, using the straight-line method. Maintenance and repairs are
expensed as incurred, while expenditures for significant improvements and
renewals are capitalized. When assets are disposed of, or sold, the
corresponding costs and accrued depreciation are eliminated from the accounts
and the gain, or loss is reflected in results for the year.
I) INVESTMENTS
Investments include both long-term financial investments in financial
instruments, such as U.S. Treasury bonds, as well as affiliates. Subsidiaries
where the Company has between 20% and 50% ownership are accounted for under the
equity accounting method. Investments that represent less than 20% ownership of
the voting stock are presented at their cost.
J) INTANGIBLE ASSETS AND DEFERRED CHARGES
In accordance with Statement of Position ("SOP") 98-1, the costs of certain
purchased and internally developed computer software and systems are capitalized
and classified as intangible assets and are being amortized over an expected
useful life from two to five years. During the years ended December 31, 1999 and
1998, the Company capitalized
$10,739 and $8,618 of these costs, respectively. Amortization expense was
$2,557, $1,018 and $893 for the years ended December 31, 1999, 1998 and 1997,
respectively. Computer software includes those acquired, internally developed,
or modified solely to meet the internal needs of the Company and which the
Company has no plans to sell. Maintenance costs relating to existing software
are expensed as incurred.
Deferred charges include taxes assessed on the inflation-adjusted value of fixed
assets. In 1991, the Venezuelan Income Tax Law was revised to incorporate new
provisions. Under this new law, companies were required to pay an initial tax
equal to 3% of the inflation-adjusted value of fixed assets. This initial tax
was paid prior to 1996 and has been deferred and is being amortized over the
estimated useful lives of the related assets of 25 years.
K) GOODWILL
The Company recorded goodwill in connection with the acquisition of
S.A.Venezolana Domestica de Gas (DOMEGAS) on February 1998 and Phoenix
Internacional, C.A. on December 1999. This goodwill is being amortized over a
twenty-year period.
L) LONG-LIVED ASSETS
In accordance with SFAS No. 121, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF", the Company evaluates the
impairment of long-lived assets, including goodwill, based on the projection of
undiscounted cash flows whenever events or changes in circumstances indicate
that the carrying amounts of such assets may not be recoverable. In the event
such cash flows are not expected to be sufficient to recover the recorded value
of the assets, the assets are written down to their estimated fair values. The
company has not recorded any loss related to impairment for the yearsended
December 31, 1999, 1998 and 1997.
M) INCOME TAX
The provision for income tax is calculated based upon the taxable income of each
individual company included in the combined and consolidated financial
statements. Venezuelan tax legislation does not permit tax consolidation.
Deferred taxes are provided based on the timing differences between income and
expense amounts reported for financial statement and income tax purposes.
N) REVENUE RECOGNITION
Revenues for sales of energy and other services are recognized in the period
during which the sale occurs or the services are rendered. Sale of electricity
is recorded based upon output delivered at rates as specified under current
regulations. Revenues include unbilled revenues from energy supplied in the
amounts of $4,956, $6,482, and $6,380 for the years ended December 31, 1999,
1998 and 1997, respectively. These amounts are included in accounts receivable
in the accompanying combined balance sheets.
O) CONCENTRATIONS OF CREDIT RISK
Although Grupo EDC's cash and cash equivalents, financial instruments and
accounts receivables are exposed to potential credit loss, the Company does not
believe such risk to be significant. Cash and cash equivalents include
investments in high-grade, short-term securities, placed with highly rated
financial institutions. Most of the Company's accounts receivable are from a
broad and diverse group of customers, which as a whole, do not represent a
significant credit risk.
P) MARKET RISK
The Company is exposed to market risks, including changes in interest rates and
foreign currency exchange rates. The Company does not use derivative financial
instruments in its investment portfolio. The Company places its investments with
the highest quality European, U.S. and/or Latin American issuers and, by policy,
limits the amounts of credit exposure to any one issuer. The Company is averse
to principal loss and ensures the safety and preservation of its invested funds
by limiting default risk, market risk and reinvestment by investing with U.S.
issuers and/or Latin American issuers that are guaranteed by wholly-owned
foreign companies with the safest and highest credit quality securities.
The Company mitigates default risk by investing in highly liquid, U.S. dollar
and bolivar short-term investments, primarily time deposits and domestic public
bonds, which have maturities of three months or less. The Company does not
expect any material losses with respect to its investment portfolio.
Q) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, trade accounts receivable and
accounts payable trade and bank loans approximate their fair values. For
variable rate loans, carrying value approximates fair value. For fixed rate
loans, the fair value is estimated using discounted cash flow analyses based on
the Company's current incremental borrowing rates. The estimated fair value of
long term debt, including current maturities, was $576,007 as of December 31,
1999.
R) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Boards issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES". The Statement establishes accounting and
reporting standards requiring that every derivative instrument, including
certain derivative instruments embedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
Statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate, and assess the effectiveness
of transactions that receive hedge accounting.
SFAS 133, as amended by SFAS 137, is effective for fiscal years beginning after
June 15, 2000. A company may also implement the Statement as of the beginning of
any fiscal year
quarter after issuance. Statement No. 133 cannot be applied retroactively.
Statement No. 133 must be applied to (a) derivative instruments and (b) certain
derivative instruments embedded in hybrid contracts that were issued, acquired
or substantively modified after December 31, 1998. Upon adoption, it is not
anticipated that Statement No. 133 will have a significant impact on the
companies' results of operations or financial position.
NOTE 3- VENEZUELAN REGULATIONS
ELECTRIC REGULATIONS
The electric utility industry in Venezuela is regulated by the Electric Service
Law, adopted on September 17, 1999. The Electric Service Law establishes:
- Separation of the electric sector in Venezuela based on the following
activities: generation, transmission, distribution, dispatch and
commercialization of electrical power.
- Open competition in the generation and commercialization activities.
- Separation of the juridical, accounting and management areas of
generation.
- Free access to the national energy transmission and distribution
networks.
- Creation of the control agencies such as the National Electricity
Commission, which enforces the law, governs the retail market, proposes
rate bills, and applies sanctions; and the National Management Center,
which operates and controls the interconnected system and the
administration of the wholesale market.
- Definition of the Ministry of Energy and Mines as the supervisory
entity, which defines the energetic policy, grants concessions,
prepares the indicators and supervises the control agencies.
The Electric Service Law upon its publication went into effect and nullified
virtually all the regulations and decrees applicable to the electric industry
including Decree 1588, "STANDARDS FOR REGULATION OF THE ELECTRICITY SECTOR".
These standards provided the regulatory framework of the electric industry until
the adoption of the Electric Service Law.
The Electric Service Law contemplates the restructuring of the entire regulatory
system for the remuneration of electric utility companies. It requires electric
companies to separate its generation, distribution, transmission, and
commercialization activities into separate legal entities. While the legal
separation has been implemented, it requires electric companies to maintain
separate accounting for the different electric activities. While the new system
is being put in place, the current tariff regime will be binding until its
expiration on the year 2002. This resolution establishes new rates for the
electric industry and provides the guidelines for future annual increases on
January 1, until 2002, based on the trends of certain macroeconomic-indicators.
It also contemplates semiannual adjustments to account for deviations in these
indicators used in the tariff. Under these semiannual adjustments, in February
and June 1999, the Company reduced its residential tariffs, in accordance with
an agreement entered into with the Government. Under this agreement, the Company
obtains lower prices for oil and energy from the Government, as compensation for
the reduction of the tariffs.
The Electric Service Law also contemplates the creation of new regulatory
authorities in the sector. It mandates the creation of the Comision Nacional de
Energia Electrica (CNEE), which will be an agency with functional,
administrative and financial autonomy. The CNEE will be responsible for the
supervision and enforcement of the Electric Service Law among public and private
electric utility companies. Additionally it will establish the rules with
respect to the sale of electricity to the public and tariff rates that may be
charged by distribution companies among other duties.
The Electric Service Law allows the load dispatch of the electric system to be
governed by the Interconnection Agreement, signed in 1988 between C.V.G.
Electrificacion del Caroni, Compania Anonima de Administracion y Fomento
Electrico, Energia Electrica de Venezuela and EDC, until the government
publishes new regulations governing the load dispatch and establishes an
appropriate supervisory agency.
OTHER REGULATIONS
The Capital Markets Law mandates that the Company distributes every year among
shareholders not less than 50% of its annual net income based on Venezuelan
GAAP, determined on an unconsolidated basis and without reflecting its share
in the net income of its subsidiaries. Likewise, the Capital Markets Law
provides that at least 25% of such 50% must be paid to the shareholders in
the form of cash dividends.
NOTE 4- TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable as of December 31, are as follows:
1999 1998
--------------------------------
Customers 91,781 74,800
Government entities 72,211 65,566
Other 3,400 3,599
--------------------------------
167,392 143,965
Less: Allowance for doubtful accounts (26,790) (24,313)
--------------------------------
140,602 119,652
================================
The aging of accounts receivable due from government entities as of December 31,
1999, is as follows:
YEAR AMOUNT
---- ------
1999 40,618
1998 17,097
1997 11,802
1996 1,920
1995 226
1994 and prior 548
----------------
72,211
================
Venezuelan government entities represented 14.33%, 13.13% and 14.10% of energy
sales for the years ended December 31, 1999, 1998 and 1997, respectively.
In November 1999, the government approved the payment of $52,354 to EDC. In
December 1999, a bond issuance was approved for $15,710 related to the amount
due from Metro de Caracas for 1998 and 1999. In January 2000, a payment on such
bonds of $14,849 was received by EDC.
During the years ended December 31, 1999 and 1997, the Company and its
subsidiaries entered into collection agreements with several government
entities. These agreements were established with the purpose of collecting the
outstanding balances in the following fiscal year. During the years ended
December 31, 1999 and 1998, the Company collected, in connection with these
agreements, $87,622 and $102,251, respectively. Of the amount collected, 76% and
63% were billed to government entities within the respective year.
Management believes all amounts from government entities will be collected
either in cash and/or through Government bonds.
NOTE 5- TRANSACTIONS AND BALANCES WITH AFFILIATED AND RELATED COMPANIES
The most significant transactions between the Company and its affiliated and
related companies, are mainly for administrative services rendered and
received, such as: management advisory services, professional fees, security
purchasing and sales operations, and short and long-term financing.
Balances receivable and payable with affiliated and related companies are as
follows:
------------- -------------
1999 1998
------------- -------------
ACCOUNTS RECEIVABLE
Desarrollos A-18, C.A. 4,841 251
Empresa de Energia del Pacifico, S.A. E.S.P (EPSA) 3,532 566
Caribe Energy Holding, Ltd 1,933 -
Other 40 65
------------- ------------
10,346 882
============ =============
ACCOUNTS PAYABLE
El Salvador Energy Holdings 11,420 307
Other 177 13
------------- ------------
11,597 320
============ =============
The amounts included in the combined balance sheets as of December 31, 1999 and
1998 as long-term accounts receivable include $29,098 and $35,699, respectively,
granted to Fondo de Prevision de los Trabajadores de la C.A. La Electricidad de
Caracas y sus Empresas Filiales, which is a non-profit related company of EDC,
created to offer savings plans and loans to the workers. The current portion
amounts to $16,070 and $6,455 as of December 31, 1999 and 1998, respectively,
and is included in other accounts receivable.
NOTE 6- PROPERTY, PLANT AND EQUIPMENT, NET
The amounts included in the combined balance sheets as of December 31 as
property, plant and equipment, net consisted of the following:
ESTIMATED
AVERAGE USEFUL
LIFE
1999 1998 (YEARS)
-----------------------------------------------------
Generation plants of energy 1,231,975 1,295,572 20-38
Distribution 833,856 777,414 30
Transmission 496,191 371,467 25
Buildings, furniture, equipment and other 582,412 522,872 3-20
-------------------------------------
3,144,434 2,967,325
Accumulated depreciation (1,506,608) (1,423,967)
-------------------------------------
1,637,826 1,543,358
Land 26,872 24,773
Construction in process 262,890 370,701
-------------------------------------
1,927,588 1,938,832
=====================================
NOTE 7- INVESTMENTS
Balances shown in the combined balance sheets as of December 31 as investments
in affiliates include:
EQUITY
% 1999 1998
AFFILIATES OWNERSHIP
----------------------------------------------------
HIEDC Holdings, Ltd 50.00 258,352 230,397
El Salvador Energy Holdings 50.00 174,140 156,193
Valle Energy Ventures, Inc. 50.00 172,259 161,868
Other - 815 1,215
-----------------------------------
605,566 549,673
-----------------------------------
OTHER
Venworld Telecom C.A. 16.00 303,098 303,098
Empresa de Energia del Pacifico, S.A. E.S.P. 6.00 60,240 60,783
Convergence Communications Inc. 15.00 30,282 -
US Treasury Bonds - 29,443 27,195
Other - 5,478 5,805
-----------------------------------
428,541 396,881
-----------------------------------
1,034,107 946,554
===================================
During 1998, the Company incorporated the subsidiary EDC Energy
Ventures-Distribucion Colombia, which in turn incorporated the company HIEDC
Holding, Ltd. (HIEDC) (a joint-venture of Corporacion EDC, C.A. 50% and Reliant
Energy International, Inc. 50%), which in turn incorporated the company Caribe
Energy Holdings, Ltd., which acquired 65% of the shares of Electrificadora de la
Costa Atlantica S.A. E.S.P. (ELECTROCOSTA) and Electrificadora del Caribe S.A.
E.S.P. (ELECTRICARIBE). The main components of the financial statements of HIEDC
are represented by the assets of ELECTROCOSTA and ELECTRICARIBE, which are
audited by other auditors.
In February 1998, the Company incorporated the subsidiary EDC Energy Ventures-El
Salvador, which in turn incorporated the company El Salvador Energy Holdings,
which acquired 89% and 75% of the shares of the companies Empresa Electrica de
Oriente, S.A. de C.V. (EEO) and Compania de Alumbrado Electrico de San Salvador
(CAESS), respectively. During the month of June 1998, EDC Energy-Ventures-El
Salvador sold 50% of its shares of El Salvador Energy Holding to HIE Salvador
Holding Company Ltd., an unrelated company owned by Reliant Energy
International, Inc. The main components of the financial statements of El
Salvador Energy Holdings are represented by the assets of EEO and CAESS, which
are audited by other auditors.
Valle Energy Ventures, Inc., a 50% owned joint venture with Reliant Energy
International, holds a 44.71% share of Empresa de Energia del Pacifico, S.A.
E.S.P. (EPSA). Additionally, EDC, through its subsidiary EDC Columbian Holdings,
Inc., owns 6% of EPSA. Therefore, the 6% of direct investment of EDC in EPSA is
recorded using the equity participation method. The financial statements of
Valle Energy Ventures, Inc are audited by other auditors.
During 1999, CEDC through its subsidiary Telematica EDC, C.A. acquired 15% of
common stock of Convergence Communications Inc, a provider of integrated
broadband communications and Internet services in Mexico, Central America and
the Andean Region of South America.
The following is a summary of the main items of the financial statements of the
most significant affiliates:
Stockholders'
Assets Liabilities Equity Net Income
------------------------------------------------------------------
DECEMBER 31, 1999
HIEDC 517,213 - 517,213 31,433
Valle Energy Ventures, Inc. 437,388 94,741 342,647 35,618
El Salvador Energy Holdings 361,486 2,088 359,398 35,895
------------------------------------------------------------------
1,316,087 96,829 1,219,258 102,946
==================================================================
Stockholders'
Assets Liabilities Equity Net Income
------------------------------------------------------------------
DECEMBER 31, 1998
HIEDC 460,345 - 460,345 59,198
Valle Energy Ventures, Inc. 428,755 104,566 324,189 12,180
El Salvador Energy Holdings 317,438 - 317,438 12,160
------------------------------------------------------------------
1,206,538 104,566 1,101,972 83,538
==================================================================
NOTE 8- OTHER CURRENT LIABILITIES
Other current liabilities consisted of the following as of December 31:
1999 1998
-------------------------------
Labor liabilities 20,299 17,077
Accrued interest 13,649 7,371
Income, value-added and other taxes 7,756 16,868
Customer installation advances 8,167 5,322
Other provisions 8,020 15,134
-------------------------------
57,891 61,772
===============================
NOTE 9- LABOR LIABILITIES
Labor liabilities consisted of the following as of December 31:
1999 1998
----------------------------
Employee severance indemnities 14,170 11,233
Pension plans and other postretirement benefits 44,052 38,416
----------------------------
58,222 49,649
============================
EMPLOYEE SEVERANCE BENEFITS:
Employee severance benefits are calculated and recorded in accordance with the
Venezuelan labor law and the Company's current collective bargaining agreement.
Under the current labor law enacted in June 1997, employees earn a severance
indemnity equal to five days of salary per month, up to a total of 60 days per
year of service. Such indemnities are earned once an employee has completed
three months of continuous service. From the second year of service, the
employees earn an additional two days of salary for each year of service (or
fraction of a year greater than six months), cumulative up to a maximum of 30
days of salary. Severance benefits must be funded and deposited monthly
in either an individual trust or a severance fund or be accrued in the
employer's accounting records.
In the case of unjustified or involuntary termination, employees have the right
to an additional indemnification payment of one month of salary per year of
service up to a maximum of 150 days of the current salary. In the case of an
involuntary termination, an additional severance benefit of up to a maximum of
90 days of current salary based on length of employment must be paid.
Accordingly, the liability is being accrued, as required by the law and the
labor contracts in force.
ANNUAL PROFIT SHARING:
Additionally, the Venezuelan labor law requires a mandatory annual profit
sharing distribution to all employees. The Company made distributions equal to
120 days of salary for the year ended December 31, 1999, 1998 and 1997 totaling
$ 29,153, $ 21,615, and $ 11,528, respectively.
PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
The Company maintains a noncontributory defined benefit plan for its employees.
The benefits to be paid under the plans are based on years of service rendered
and the employee's average salary over the previous three years. SFAS No. 87,
"EMPLOYERS' ACCOUNTING FOR PENSIONS," requires the provision for pension plans
and other postretirement benefits to be recognized over the employees'
employment period based on actuarially determined calculations. Additionally, in
determining the employee termination liability for U.S. GAAP purposes, the
Company has applied Approach 2 of Emerging Issues Task Force ("EITF") No. 88-1.
This approach determines the actuarial present value of the vested benefit
obligation the employee is entitled to, at separation, based on the employee's
expected date of separation or retirement.
Postretirement benefits include the payment of health insurance premiums. In
accordance with SFAS No. 106, the Company recognizes the provision for various
employee benefit arrangements to be recognized over the employees' employment
period based on actuarially determined calculations.
In February 1998, the FASB issued SFAS No 132, "EMPLOYERS' DISCLOSURES ABOUT
PENSIONS AND OTHER POSTRETIREMENT BENEFITS" which revises employer disclosure
requirements for pension and other retiree benefits but does not change the
measurement or recognition of pension or other postretirement benefit plan.
The following table displays the assumptions used for pension plans and other
postretirement benefits costs, a reconciliation of the benefit obligations, and
funded status of the plans:
OTHER
PENSIONS PLANS BENEFITS POSTRETIREMENT BENEFITS
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------- ------------ -------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at January 1 $ 55,940 $ 50,021 $ 18,358 $ 17,413
Service cost 2,649 2,442 348 321
Interest cost 2,527 2,229 814 764
Actuarial (gain) loss (226) - (13) -
Benefit paid (2,623) (2,702) (1,506) (1,354)
Translation gain (7,402) (5,384) (2,360) (1,850)
------------ ------------- ------------ -------------
Benefit obligation at December 31 50,865 46,606 15,641 15,294
============ ============= ============ =============
RECONCILIATION OF FUNDED STATUS OF THE
PLANS
Funded status 50,865 46,606 15,641 15,294
Unrecognized net loss 211 - 10 -
Unrecognized net transition obligation (10,535) (11,125) (12,140) (12,359)
------------ ------------- ------------ ------------
Amount recognized in Balance Sheet 40,541 35,481 3,511 2,935
============ ============= ============ ============
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost 2,649 2,442 348 321
Interest cost 2,527 2,229 814 764
Net amortization 1,154 1,061 817 753
------------ ------------- ------------ ------------
Net periodic benefit cost $ 6,330 $ 5,732 $ 1,979 $ 1,838
============ ============= ============ ============
ASSUMPTIONS AS OF DECEMBER 31, 1999 AND 1998:
Discount rate 5%
Rate of compensation increase 0%
NOTE 10- DEBT
BANK LOANS
Bank loans, as of December 31, 1999 and 1998 include bank loans obtained from
local and foreign financial institutions, with short-term maturities and current
market rates averaging 26.27% and 39.28% for loans in bolivars and 5.76% and
6.15% for loans in U.S. dollars.
LONG-TERM DEBT
The Company's combined long-term debt balances, as of December 31, 1999 and
1998, including maturities and interest rates, are as follows:
INTEREST MATURITY
RATES YEAR 1999 1998
------------------------------------------------------------------
BEARER BONDS
SERIES "T1, T2, T3, T4, T5: 20.75 to 21%, annual
interest and premium payable
bimonthly. premium from 0.50 to
1.50% 2002 38,801 -
SERIES "A-1": for an amount
of $ 209,554, interest and premium LIBOR + 7/8 % to
payable semiannually. LIBOR + 41/2% 2003 72,235 149,429
SERIES "Collateralized". LIBOR 2005 39,836 39,836
Restructuring agreement in
US$. Payable in 24 semiannual and
consecutive installments LIBOR: + 7/8% to
interests payable. LIBOR + 4 1/2% 2003 5,998 7,086
Loan with the Brown Brothers
Harriman & Co, Interest payable
quarterly. LIBOR + 3% 2001 25,000 -
Loan with The Chase Manhattan
Bank. Interest Payable
semiannually, guaranteed by the
US Eximbank. LIBOR + 0.2% 2011 6,499 -
Loans with The Chase Manhattan LIBOR + 2.175% to
Bank in US$. LIBOR + 2.625% 2001 150,000 300,000
Promissory notes in bolivars,
interest payable quarterly. Averaging 23%-26% 2002 12,868 -
Loan with Credit Suisse First
Boston. Interest payable 23.13% 2005 24,836 -
quarterly.
Loan with Banco deVenezuela,
S.A.C.A. Interest payable -
quarterly. 23% 2001 10,013
Loan with Venezuelan Banks. -
Interest payable monthly. Monthly reviewed 2001 10,013
Other - - 966 5,338
----------------------------
TOTAL LONG-TERM DEBT 397,065 501,689
----------------------------
CURRENT MATURITIES 165,511 17,886
----------------------------
TOTAL DEBTS 562,576 519,575
============================
Significant covenants of the various debt instruments include:
- SERIES A-1: As of 1997, the bonds in this series are subject to a mandatory
prepayment clause as established in the Fiscal Agency Agreement, signed by
EDC and The Chase Manhattan Bank, N.T., as agent, if certain financial
conditions established in the agreement are not complied with at
consolidated level.
- COLLATERALIZED SERIES: A zero coupon bond guarantees the bonds in this
series issued by the Treasury of the United States of America, maturing in
August 2005. These bonds are included as investments in U.S. Treasury bonds
in the combined balance sheet. Yield obtained is capitalized to the bonds,
since it cannot be sold or swapped until payment of the related debt or upon
maturity.
- The Restructuring Agreement for its foreign debt with the Bank of Nova
Scotia signed on November 14, 1991 establishes a 12-year payment term and
includes a clause whereby the Company is committed to pay the debt in
advance, if certain financial conditions established in the Agreement are
not met at the consolidated level of EDC.
- Beginning on April 21, 1998 CEDC is subject to restrictive financial
covenants including certain debt ratios, interest coverage and equity of the
group as a result of loans obtained by EDC Energy Ventures El Salvador in
the aggregate amount of $ 300,000. In the event that the Company fails to
comply with these ratios, it will automatically be deemed to have defaulted
as established in the agreement. As of December 31, 1999 and 1998, the
Company has complied with all covenants.
As of December 31, 1999, the Company has substantially complied with all its
debt covenants. Additionally, the Company had unused bank lines of credit for
approximately $ 61.8 million. These lines of credit are subject to financial
covenants, which include a minimum consolidated tangible net worth of $ 1.5
million, a maximum ratio of consolidated debt to consolidated tangible net worth
of 1.1 and a minimum debt service coverage ratio of 1.2.
The future maturities of total debt as of December 31, 1999 are as follows:
2000 165,511
2001 215,676
2002 78,012
2003 33,830
2004 650
Thereafter 68,897
-----------------
562,576
=================
During the third quarter of 1999, EDC repurchased $ 67.9 million of its debt
Series "A-1". This transaction resulted in a gain of $ 17,649, which is included
as extraordinary item in the combined statements of income.
NOTE 11- TAXES
INCOME TAX PROVISION
In accordance with Venezuelan tax regulations, the Company is taxed on its net
income on the historical cost basis plus a tax inflation adjustment on the
Company's nonmonetary assets and liabilities, net of stockholders' equity.
In November 1993, the Venezuelan Government enacted the Corporate Assets Tax
Law, effective January 1, 1994. This law imposes a corporate assets minimum tax
of one percent (1%) per year on the average net value of tangible and intangible
assets. According to this law, the tax payable is an amount, if any, in excess
of the income tax payable for the year. This excess may be credited against
income taxes incurred in the three subsequent years. The corporate assets
minimum tax credits for 1997, 1998 and 1999 can be carried forward until 2000,
2001 and 2002, respectively.
The (benefit) provision for income taxes consists of the following:
1999 1998 1997
------------------ ------------------ ----------------
Current 9,090 26,814 11,120
Deferred (18,233) 4,884 17,052
------------------ ------------------ ----------------
(9,143) 31,698 28,172
================== ================== ================
A reconciliation of the statutory income tax rate to the Company's effective tax
rate is as follows:
1999 1998 1997
-------------------------------------------------------
Statutory tax rate 34% 34% 34%
Non-deductible FAS-52 translation effect 10% 12% 14%
Non-deductible loss from foreign subsidiaries 2% 3% 1%
Non-taxable equity in net income of affiliated
companies (6%) (5%) (1%)
Tax inflation adjustment (20%) (20%) (3%)
Investment tax credits (18%) (12%) (30%)
Non-taxable dividends received (2%) (2%) 0%
Non-taxable overseas interest (1%) 0% (2%)
Other (2%) 1% 0%
-------------------------------------------------------
TAX (BENEFIT) PROVISION (3%) 11% 13%
=======================================================
The Venezuelan Income Tax Law authorizes tax losses to be carried forward three
years. As of December 31, 1999, the company has tax loss carryforwards of $
11,717 that may be carried forward until the year 2000 and year 2001.
The Income Tax Law also authorizes a tax credit of 20% for new investments in
property, plant and equipment. Any portion of the credit that is not used may be
carried forward to the subsequent three
years. Carryforward investment tax credits as of December 31, 1999 are as
follows:
CAN BE CARRIED
YEAR OF ORIGIN AVAILABLE FORWARD UNTIL
-------------- --------- --------------
1997 66 2000
1998 1,876 2001
1999 19,756 2002
DEFERRED TAX
Deferred tax assets and liabilities are as follows:
1999 1998
------------------------------------
Capitalized interests, net 49,167 46,772
------------------------------------
Operating loss carryforwards (6,012) (5,505)
Bad debt and other book provisions (6,986) (7,400)
Retirement costs (15,146) (13,184)
Tax credit carryforwards (28,330) (7,831)
Other deductible temporary differences (7,743) (8,450)
------------------------------------
Total gross deferred tax asset (64,217) (42,370)
Less: valuation allowance 3,172 1,670
------------------------------------
Total net deferred tax asset (61,045) (40,700)
------------------------------------
Net deferred tax (asset) liability (11,878) 6,072
====================================
AMENDMENTS TO THE INCOME TAX LAW
On October 22, 1999, the National Government published an amendment to the
income tax law. The most significant changes of the amended tax law are as
follows:
- Implementation of a transfer pricing regulation for imports and exports
of goods and services between related companies.
- Carry-forward of losses from tax inflation adjustments for up to one
year, and exemption from tax adjustments for inflation for taxpayers in
the preoperating stage.
- Calculation of investment tax credit for capital expenditures using a
rate of 10% for industrial companies and carry-forward of credit for
five years after the effective date of the amended tax law.
- A new credit of 10% of salary increases for Venezuelan personnel hired
since the effective date of the Amended Law until December 31, 2000.
- Worldwide income, which includes income obtained abroad by individuals
or companies residing or domiciled in Venezuela, will be taxable in
Venezuela, and a credit for income taxes paid abroad will be available.
- A proportional tax of 34% on dividends was introduced. Net income to be
considered in the estimation of the taxable dividend is the excess of
taxable income and dividends received from other companies.
The new provisions of the Income Tax Law will go into effect on November 1,
2000, and the dividend tax will go into effect for amounts declared on income
for periods beginning on January 1, 2001.
NOTE 12- STOCKHOLDERS' EQUITY
a) RESTRICTIONS ON CAPITAL ACCOUNTS
As of December 31, 1999, 1998 and 1997, retained earnings shown in stockholders'
equity include required reserves of approximately $ 109,539, $ 51,325, and $
5,540, arising from the cumulative profits of the subsidiaries and affiliates.
In accordance with the Commercial Code and the Capital Markets Law, these
earnings are not available for dividend distributions by the Company until
the subsidiaries and affiliates declare their corresponding dividends.
As of December 31, 1999, 1998 and 1997, the retained earnings include at least
20% of the annual net profit designated as reserves, which are also not
available to be declared as dividends.
b) DIVIDENDS TO CEDC
For the years ended December 31, 1999 and 1998, dividends include dividends
payable in cash used as a contribution to increase the par value of the shares
of CEDC and an increase in the paid-in-capital surplus.
c) TREASURY STOCK
During 1999, the Company has repurchased 5,000,000 of its shares at market
value, based on the approval granted at the stockholders' meeting held on March
22, 1999. Additionally, through its subsidiary White Pearl Investment
Corporation, the Company repurchased 7,788,051 and 46,269,424 shares during 1999
and 1998, respectively, and reissued 54,057,475 shares during 1999. All shares
have been included in the statement of stockholder's equity.
NOTE 13- FINANCIAL INFORMATION BY BUSINESS SEGMENTS
As of December 31, the combined financial statements of the Company include the
results of their operations in the various industries. The following is a
summary of the assets, liabilities, stockholders' equity and results by business
segments, including separated information for the corporate company.
INFORMATION BY BUSINESS SEGMENT
CORPORATE
ELECTRICITY AND OTHER INTERSEGMENT TOTAL
----------- --------- ------------ -----
1999
Revenues 721,289 72,101 (7,878) 785,512
Operating income 216,692 13,754 (65) 230,381
Interest income (expense), net (7,519) 21,678 - 14,159
Pretax income 259,054 79,998 (28,187) 310,865
Equity in net income of affiliated
companies 42,595 51,458 (35,839) 58,214
Net income 278,679 88,658 (29,680) 337,657
Assets 2,802,724 1,280,886 (181,006) 3,902,604
Depreciation and Amortization 119,978 10,592 - 130,570
Acquisition of property, plant and
equipment 168,007 11,472 - 179,479
1998
Revenues 704,440 84,898 (6,223) 783,115
Operating income 220,084 20,150 - 240,234
Interest income (expense), net (1,078) (7,119) - (8,197)
Pretax income 250,014 47,123 (1,491) 295,646
Equity in net income of affiliated
companies 10,464 36,812 (1,490) 45,786
Net income 222,190 43,455 (1,553) 264,092
Assets 2,585,000 1,288,527 (236,601) 3,636,926
Depreciation and Amortization 113,238 10,106 - 123,344
Acquisition of property, plant and
equipment 113,056 45,180 - 158,236
1997
Revenues 549,646 62,070 (7,110) 604,606
Operating income 177,145 26,510 - 203,655
Interest income (expense), net (10,135) (1,452) - (11,587)
Pretax income 187,278 27,998 - 215,276
Equity in net income of affiliated
companies 5,161 385 - 5,546
Net income 162,524 24,696 - 187,220
Assets 2,302,696 572,222 (28,846) 2,846,072
Depreciation and Amortization 114,638 9,809 - 124,447
Acquisition of property, plant and
equipment 203,899 14,177 - 218,076
NOTE 14- EARNINGS PER SHARE
In accordance with SFAS No. 128, "Earnings per Share", basic earnings per share
is computed by dividing income available to common shareholders by the weighted
average number of common shares outstanding. The computation of diluted earnings
per share is increased to include any potential common shares. Potential shares
include options, warrants, and convertible securities. For the years ended
December 31, 1999, 1998 and 1997, the Company had no potential common shares
therefore basic and diluted earnings per share were equal.
The computation of basic and diluted earnings per share for the years ended
December 31, 1999, 1998 and 1997 are as follows:
BASIC AND DILUTED EARNING PER SHARE 1999 1998 1997
----------------------------------- ------------ ------------- --------------
Income before extraordinary item $ 320,008 $ 264,092 $ 187,220
Extraordinary item 17,649 - -
------------------------------------------
Net income available to common shareholders 337,657 264,092 187,220
Weighted average shares outstanding (in thousands) 7,264,745 7,003,006 4,230,707
------------------------------------------
Basic and diluted earnings per share $ 0.05 $ 0.04 $ 0.04
==========================================
NOTE 15- COMMITMENTS AND CONTINGENCIES
The Company has the following commitments and contingencies:
a) CAPITAL EXPENDITURES
The Company's capital expenditures for the year 2000 are currently estimated at
$443,735. A substantial portion of funding for these capital expenditures are
expected to be generated by the proceeds from loans.
b) OPERATING LEASES
The Company leases buildings and equipment under operating leases for periods of
one year or less. Lease agreements generally include automatic extension clauses
for equal terms, unless written termination notification is provided.
c) ENVIRONMENTAL MATTERS
EDC's activities in Venezuela are subject to national environmental regulation,
including criminal penalties. In 1992, EDC began to implement a program to
remove 95% of all polychlorinated biphenyls, known as PCB residues from its
facilities. By December 31, 1999, approximately 99% of such residues had been
removed, and EDC expects to have removed the remainder of such PCB residues by
the end of 2000. To date, the cost of this program has been approximately $3.29
million.
Environmental impact studies are prepared by outside experts and submitted to
the environmental authorities for approval before any expansion or construction
of a plant. In order to comply with
the requirements of the MINISTERIO DE AMBIENTE Y RECURSOS NATURALES RENOVABLES
("MARNR"), EDC conducts periodic evaluations of atmospheric emissions and
industrial and residual effluents from its CRZ and OAM facilities. EDC believes
that it continues to be in compliance in all material respects with the
requirements established by the MARNR and the laws of Venezuela. However, some
risk of environmental costs and liabilities are inherent in its operations, and
there can be no assurance that material costs and liabilities will not be
incurred in the future in this regard.
EDC does not believe that it will be required to incur substantial expenditures
to meet present environmental standards. There can be no assurance, however,
that the environmental authorities in Venezuela will not increase environmental
standards, which could have a material adverse effect on EDC's financial
condition and results of operations.
d) CLAIMS AND LAWSUITS
The Company is involved in several administrative and judicial proceedings
including a legal claim of approximately $52,368 filed during 1998 by a group
of employees asserting that certain contributions paid by the Company, should
be recognized as salary for severance indemnities and other benefits
calculation purposes. Based on the opinion of its legal counsel, management
considers that the majority of these actions will be resolved in the
Company's favor. Nevertheless, management believes that the Company has
recorded adequate reserves as of December 31, 1999 for all such matters.
e) BONDS AND GUARANTEES, GRANTED AND RECEIVED
EDC is the guarantor and the principal payer of all obligations contracted by
Compania Anonima Nacional Telefonos de Venezuela (CANTV) up to an amount
equivalent to sixteen percent (16%) of any amount of money related to the bond
granted by Banco Provincial, S.A.C.A. to the aforementioned Company up to the
amount of $ 6,045. The aforementioned bond was granted by Banco Provincial,
S.A.C.A., to CANTV up to the amount of $ 37,782 in order to guarantee the
Government compliance by the Company of all terms and conditions included in the
concession agreement and the modifying agreement entered into on October 12,
1991 and November 4, 1991, respectively, between the Government and CANTV. In
addition, in a Board of Directors' meeting held on October 14, 1997, the renewal
of such bond was approved for up to the amount of $ 40,114 for a term of two (2)
years, beginning October 13, 1997. On October 13, 1999, EDC was released of its
obligations as the guarantor and the principal payer of all obligations
contracted by CANTV.
EDC and CEDC, jointly and severally, are the solidary guarantors and principal
payers of all obligations contracted by EDC Columbian Holdings, Inc., with
regard to the $ 100,000 loan granted by The Chase Manhattan Bank (administrative
agent).
EDC and CEDC, jointly and severally, are the solidary guarantors and principal
payers of all obligations contracted by EDC Energy Ventures El Salvador, with
regard to the $ 280,000 loan granted by The Chase Manhattan Bank (administrative
agent) and a related loan of $ 20,000 granted by Corporacion Andina de Fomento.
Inversiones Inextel, C.A., a related company, granted a bond to EDC for the
payment of its foreign debt and for the import of goods and services to be used
in the Company's operations, in an amount up to $ 60,000.
Export-import bank of the United States is the sole guarantor and principal
payer of all obligations contracted by EDC with regard to the $ 21,630 loan
granted by The Chase Manhattan Bank.
CEDC is the collateral guarantor and principal payor of:
- All obligations contracted by Phoenix International, C.A. with regard
to the $ 1,552 loan granted by Banco Provincial S.A. and Banco
Exterior.
- All obligations contracted by Thronson International de Venezuela, with
regard to the $ 978 loan granted by this company.
- All obligations contracted by Turbinas y Generadores Turgenca, C.A.
with regard to the $253 loan granted by Inarco International Bank.
f) NATURAL CATASTROPHE
In December 1999, Venezuela experienced extraordinary torrential rains causing
mudslides and floods, which affected the states of Vargas and Miranda and the
Federal District of Caracas. As a result of these floods, the Company's
properties located in the affected areas sustained significant damage,
including:
- Damage to EDC's generating capacity at the 145 MW Arrecifes plant,
which was temporarily shut down,
- The total loss of three of its 15 transmission substations located in
the state of Vargas,
- Significant damage to seven of its 15 transmission substations located
in the state of Vargas and
- Varying degrees of damage to its overhead and underground transmission
lines located in the states of Vargas and Miranda.
The Company has a full coverage insurance policy, which covers material damages
and business interruption losses.
Other accounts receivable include approximately $115,000 related to the net book
value of some of the properties and materials damaged by mudslides in the states
of Vargas and Miranda.
NOTE 16- SUBSEQUENT EVENTS
a) DEBT
On January 19, 2000, EDC signed with the International Finance Corporation (IFC)
a loan for the
financing of distribution and transmission projects with the purpose of
electric service improvement, the reduction of energy losses and the
improvement of the safety of the public lighting, among other reasons. The
main characteristics of the loan are detailed below:
- Loan A- with the International Finance Corporation (IFC) for the amount of
$ 40,000, payable in 18 equal semi-annual and consecutive installments
starting on March 2001, interest payable at 4.5%, maturing in September 2009.
- Loan B- with the Citibank and Dresdner Bank for the amount of $ 35,000,
payable in 12 equal semi-annual and consecutive installments starting on
March 2001, interest payable at 4.1250%, maturing in September 2006.
b) CHANGE OF CONTROL
On April 28, 2000, AES Corporation (AES) had offered to buy a 51% of the
Company's outstanding common stock for $ 0.57 per share. AES completed the
acquisition of the Company on June 8, 2000. Approximately $ 1.7 billion was
required to complete the merger, which involved the purchase of 87% of the
Company's common stock. The acquisition was accounted for using the purchase
method of accounting.
Funding of Grupo EDC acquisition by AES is expected to be refinanced before
reaching maturity through debt and equity issuances at the AES Corporation
level.
c) AGREEMENT BETWEEN UNION FENOSA AND AES CORPORATION
AES Corporation entered into an agreement with Union Fenosa Desarrollo y Accion
Exterior S.A.(UF) on May 31, 2000. Under the agreement, AES will have EDC and
CEDC to sell certain companies owned directly or indirectly at UF's option
during 60 days after the change of control date, at specified prices less any
outstanding debt, as follows:
COMPANY PRICE
------- -----
Venezolana Domestica de Gas Domegas, S.A. $ 12,000
Caribe Energy Holdings, Ltd $ 135,000
EDC Colombian Holdings, Inc $ 100,000
Caribe Energy Holdings, Ltd owns shares of Electrificadora de la Costa Atlantica
S.A. E.S.P. and Electrificadora del Caribe S.A. E.S.P., and EDC Colombian
Holdings, Inc owns indirectly shares of Empresa de Energia del Pacifico, S.A.
(EPSA). Additionally, Generacion de vapor Genevapca, C.A. will be negotiated by
an offer made after 30 days that UF receives financial information of Genevapca
and AES presents the price in a sealed letter. In the case that the price
offered by AES was not at least $ 15 million in excess of the offered price by
UF, Genevapca will be sold. In the case that the price offered by AES is $15
million in excess of UF's offered price, AES will not sell Genevapca and will
pay UF a penalty fee of $ 15 million.
The loss for the sale of these companies has been estimated at $ 196,761 and has
been included in the purchase price.
GRUPO EDC
UNAUDITED CONDENSED COMBINED BALANCE SHEETS
AS OF JUNE 30, 2000 AND DECEMBER 31, 1999
(EXPRESSED IN THOUSANDS OF US DOLLARS)
JUNE 30, DECEMBER 31,
2000 1999
----------------- -------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 379,153 $ 503,400
----------------- -------------------
Accounts receivable
Trade 152,593 167,392
Less: Allowance for doubtful accounts (27,377) (26,790)
----------------- -------------------
125,216 140,602
Affiliates and related companies 1,614 10,346
Other 97,164 136,962
----------------- -------------------
223,994 287,910
----------------- -------------------
Inventories, supplies and parts 82,091 70,758
Less: Allowance for obsolescence (5,397) (4,380)
----------------- -------------------
76,694 66,378
Deferred income tax - 11,556
Prepaid expenses 2,375 1,959
----------------- -------------------
TOTAL CURRENT ASSETS 682,216 871,203
----------------- -------------------
Property, plant and equipment, net 1,953,499 1,927,588
Investments 1,065,646 1,034,107
Deferred income tax 14,745 322
Long-term accounts receivable 29,997 32,435
Intangible assets and deferred charges 29,699 30,238
Goodwill 8,726 5,947
Other assets 2,719 764
----------------- -------------------
TOTAL ASSETS $ 3,787,247 $ 3,902,604
================= ===================
The accompanying notes are an integral part of these combined statements.
GRUPO EDC
UNAUDITED CONDENSED COMBINED BALANCE SHEETS
AS OF JUNE 30, 2000 AND DECEMBER 31, 1999
(EXPRESSED IN THOUSANDS OF US DOLLARS EXCEPT PER SHARE AMOUNTS)
JUNE 30, DECEMBER 31,
2000 1999,
------------------ -------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank loans $ 359,553 $ 427,440
Current maturities of long-term debt 16,675 165,511
Accounts payable-trade 61,152 80,724
Accounts payable-affiliated and related companies - 11,597
Dividends payable 25,677 48,283
Other current liabilities 376,717 57,891
------------------ -------------------
TOTAL CURRENT LIABILITIES 839,774 791,446
------------------ -------------------
NON-CURRENT LIABILITIES
Long-term debt 450,509 397,065
Labor liabilities 58,384 58,222
Other 12,687 12,972
Deferred income tax 5,197 -
------------------ -------------------
TOTAL NON-CURRENT LIABILITIES 526,777 468,259
------------------ -------------------
Minority interest 1,614 8,203
------------------ -------------------
TOTAL LIABILITIES 1,368,165 1,267,908
------------------ -------------------
STOCKHOLDERS' EQUITY
Capital stock (Common stocks, $ 0.24 and $0.09 par value for June 30, 2000 and
December 31, 1999, respectively, 6,735,096 and 7,266,412 of shares,
respectively, issued and
outstanding) 675,426 664,740
Capital stock subscribed and not paid - (5,596)
------------------ -------------------
675,426 659,144
Paid in surplus 281,443 226,619
Retained earnings 1,592,533 1,750,394
Treasury stock at cost (130,320) (1,461)
------------------ -------------------
TOTAL STOCKHOLDERS' EQUITY 2,419,082 2,634,696
------------------ -------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,787,247 $ 3,902,604
================== ===================
The accompanying notes are an integral part of these combined statements.
GRUPO EDC
UNAUDITED CONDENSED COMBINED INCOME STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(EXPRESSED IN THOUSANDS OF US DOLLARS EXCEPT PER SHARE AND PER ADR AMOUNTS)
2000 1999
---------------------- -------------------
REVENUES
Sales of energy $ 382,318 $ 378,338
Other services 17,228 14,153
---------------------- -------------------
399,546 392,491
OPERATING EXPENSES
Generation and purchase of power 75,135 47,027
General and administrative 105,799 132,461
Depreciation and amortization 73,087 66,416
Transmission and distribution 39,689 34,983
---------------------- -------------------
293,710 280,887
---------------------- -------------------
OPERATING INCOME 105,836 111,604
Interest expense, net (18,103) (895)
Other income, net 9,975 14,963
Translation gain (loss) 7,698 (635)
Equity in net income of affiliated companies 9,199 9,019
---------------------- -------------------
TOTAL OTHER INCOME, NET 8,769 22,452
---------------------- -------------------
INCOME BEFORE INCOME TAX PROVISION AND MINORITY INTEREST
114,605 134,056
Income tax provision (16,331) (6,819)
---------------------- -------------------
INCOME BEFORE MINORITY INTEREST 98,274 127,237
Minority interest 1,578 (168)
---------------------- -------------------
NET INCOME $ 99,852 $ 127,069
====================== ===================
BASIC AND DILUTED EARNINGS PER SHARE $ 0.01 $ 0.02
====================== ===================
BASIC AND DILUTED EARNINGS PER ADR
(BASED ON 50 SHARES PER ADR) $ 0.74 $ 0.91
====================== ===================
WEIGHTED AVERAGE SHARES OUTSTANDING (IN THOUSANDS) 6,735,096 7,003,006
====================== ===================
The accompanying notes are an integral part of these combined statements.
GRUPO EDC
UNAUDITED COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(EXPRESSED IN THOUSANDS OF US DOLLARS)
TOTAL
CAPITAL SUBSCRIBED AND PAID-IN RETAINED TREASURY STOCKHOLDERS'
STOCK NOT PAID TOTAL SURPLUS EARNINGS STOCK EQUITY
-----------------------------------------------------------------------------------------------
BALANCES AS OF DECEMBER 31, 1999 $ 664,740 $ (5,596) $ 659,144 $ 226,619 $ 1,750,394 $ (1,461) $ 2,634,696
Capital stock increase 10,686 5,596 16,282 - - - 16,282
Paid-in surplus - - - 64,532 - - 64,532
Net income - - - - 99,852 - 99,852
Dividends declared - - - - (96,280) - (96,280)
Treasury stock - - - (9,708) (161,433) (128,859) (300,000)
-----------------------------------------------------------------------------------------------
BALANCES AS OF JUNE 30, 2000 $ 675,426 - $ 675,426 $ 281,443 $ 1,592,533 $ (130,320) $ 2,419,082
===============================================================================================
The accompanying notes are an integral part of these combined statements.
GRUPO EDC
UNAUDITED CONDENSED COMBINED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(EXPRESSED IN THOUSANDS OF US DOLLARS)
---------------- --------------
2000 1999
---------------- --------------
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES
Net income $ 99,852 $ 127,069
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Equity in net income of affiliated companies (9,199) (9,019)
Depreciation and amortization 73,087 66,416
Allowance for doubtful accounts 586 1,659
Minority interest (1,578) 168
NET CHANGES IN OPERATING ASSETS AND LIABILITIES
(INCREASE) DECREASE IN OPERATING ASSETS
Accounts receivable, net 63,329 (75,818)
Inventories, supplies and parts, net (10,317) (7,297)
Prepaid expenses (417) 922
Long-term accounts receivable 2,440 1,634
Intangible assets and deferred charges (6,490) (4,355)
Other assets (1,954) (1,365)
INCREASE (DECREASE) IN OPERATING LIABILITIES
Accounts payable (31,168) (1,089)
Other current liabilities 319,457 36,565
Labor liabilities 162 8,021
Other non-current liabilities 663 (3,525)
Deferred income tax 2,329 (9,262)
Minority interest (6,589) (1,997)
---------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 494,193 128,727
CASH FLOWS USED IN FINANCING ACTIVITIES
Acquisitions of property, plant and equipment, net (91,969) (62,010)
Investments (25,120) 32,679
---------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (117,089) (29,331)
CASH FLOWS USED IN FINANCING ACTIVITIES
Decrease in debt (67,887) (68,653)
Proceeds from loans 115,258 9,958
Payments of debt (210,649) (12,200)
Result from capital increase 16,282 9,545
Increase of paid-in surplus 64,532 17,964
Treasury stock (300,000) 2,651
Payment of dividends in cash (118,887) (61,296)
---------------- --------------
NET CASH USED IN FINANCING ACTIVITIES (501,351) (102,031)
DECREASE IN CASH AND CASH EQUIVALENTS (124,247) (2,635)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 503,400 446,148
================ ==============
CASH AND CASH EQUIVALENTS AT YEAR END $ 379,153 $ 443,513
================ ==============
SUPPLEMENTAL INFORMATION:
Cash paid during the period for:
================ ==============
Interest $ 46,890 $ 32,105
================ ==============
Taxes $ 20,153 $ 26,406
================ ==============
The accompanying notes are an integral part of these combined statements.
GRUPO EDC
NOTES TO THE UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
(Expressed in thousands of US Dollars)
--------------------------------------------------------------------------------
NOTE 1- BASIS OF PRESENTATION
The unaudited condensed combined financial statements of the Company included
herein have been prepared in accordance with the summary of significant
accounting principles and policies described in Note 2 to the accompanying
audited combined financial statements as of December 31, 1999 and 1998, and for
the three years ended December 31, 1999. Certain information and footnote
disclosures normally included in the combined financial statements of the
Company have been condensed or omitted pursuant to rules and regulations of the
SEC.
In the opinion of management of the Company, the condensed combined financial
statements include all adjustments, which consist only of normal recurring
accruals, necessary to present fairly the financial information for the periods
presented. These unaudited condensed combined financial statements should be
read in conjunction with the accompanying audited combined financial statements
of the Company as of December 31, 1999 and 1998, and for the three years ended
December 31, 1999.
The preparation of the financial statements in conformity with USGAAP, requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent items at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
NOTE 2- COMMITMENTS AND CONTINGENCIES
Various commitments and contingencies of the Company are disclosed in Note 15 to
the accompanying audited combined financial statements. There have been no
significant changes in these matters.
NOTE 3- EARNINGS PER SHARE
BASIC AND DILUTED EARNINGS PER SHARE 2000 1999
------------------------------------ -------------- -----------------
Net income available to common shareholders $ 99,852 $ 127,069
Weighted average shares outstanding (in thousands) 6,735,096 7,003,006
-------------- -----------------
Basic and diluted earnings per share $ 0.01 $ 0.02
============== ================
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Valle Energy Ventures, Inc.
We have audited the accompanying balance sheets of Valle Energy Ventures,
Inc. (the Company) as of December 31, 1999 and 1998, and the related
statements of income, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1999 (all expressed in U.S.
dollars). 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 audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits 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 audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1999 and
1998 and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Houston, Texas
March 23, 2000
REPORT OF INDEPENDENT PUBLIC ACCOUNTANT
To the Board of Directors and Stockholders of
Compania de Alumbrado Electrico de San Salvador, S.A. de C.V.
We have audited the accompanying consolidated balance sheets of Compania de
Alumbrado Electrico de San Salvador, S.A. de C.V. as of December 31, 1999 and
1998, and the related statements of income, stockholders' equity, and cash
flows for the years then ended. 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 audits.
We conducted our audits in accordance with International Auditing Standards.
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 audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Compania de Alumbrado Electrico
de San Salvador, S.A. de C.V. as of December 31, 1999 and 1998, and the
results of its operations and its cash flows for the years then ended in
conformity with International Accounting Standards.
ARIAS, MORALES Y CIA
Register No. 2103
Mario R. Navas A.
Partner
Register No. 1428
San Salvador, El Salvador
February 12, 2000
REPORT OF INDEPENDENT PUBLIC ACCOUNTANT
To the the Board of Directors and Stockholders of
Empresa Electrica de Oriente, S.A. de C.V.
We have audited the accompanying consolidated balance sheets of Empresa
Electrica de Oriente, S.A. de C.V. as of December 31, 1999 and 1998, and the
related statements of income, stockholders' equity, and cash flows for the
years then ended. 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 audits.
We conducted our audits in accordance with International Auditing Standards.
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 audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Empresa Electrica de Oriente,
S.A. de C.V. as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for the years then ended in conformity with
International Accounting Standards.
ARIAS, MORALES Y CIA
Register No. 2103
Mario R. Navas A.
Partner
Register No. 1428
San Salvador, El Salvador
January 20, 2000
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Electrificadora del Caribe S.A. E.S.P
We have audited the accompanying balance sheets of Electrificadora del Caribe
S.A. E.S.P (the Company) as of December 31, 1999 and 1998, and the related
statements of income, shareholders' equity and cash flows for the years then
ended. 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 audits.
We conducted our audits in accordance with auditing standards generally
accepted in Columbia. Those standards require that we plan and perform the
audits 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 audits provide
a reasonable basis for our opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1999 and 1998
and the results of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in Colombia.
Deloitte & Touche
Bogota, Columbia
February 18, 2000
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Electrificadora de la Costa Atlantica S.A. E.S.P
We have audited the accompanying balance sheets of Electrificadora de la Costa
Atlantica S.A. E.S.P. (the Company) as of December 31, 1999 and 1998, and the
related statements of income, shareholders' equity and cash flows for the years
then ended. 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 audits.
We conducted our audits in accordance with auditing standards generally
accepted in Columbia. Those standards require that we plan and perform the
audits 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 audits provide
a reasonable basis for our opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1999 and 1998
and the results of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in Colombia.
Deloitte & Touche
Bogota, Columbia
February 18, 2000
(B) PRO FORMA FINANCIAL INFORMATION.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited Pro Forma Condensed Consolidated Statements
of Operations for the six months ended June 30, 2000, and for the year ended
December 31, 1999, have been prepared as if AES's acquisition of 87.2% of
Grupo EDC had occurred on January 1, 1999. A Pro Forma Condensed Consolidated
Balance Sheet has been omitted because the acquisition of Grupo EDC is
reflected in AES's June 30, 2000, historical condensed consolidated balance
sheet. The unaudited Pro Forma Condensed Consolidated Financial Information
has been prepared using the purchase method of accounting whereby the assets
and liabilities of Grupo EDC are adjusted to estimated fair market value,
based upon preliminary estimates, which are subject to change as additional
information is obtained. The allocations of purchase costs are subject to
final determination based upon estimates and other evaluations of fair market
value. Therefore, the allocations reflected in the following unaudited Pro
Forma Condensed Consolidated Financial Information may differ from the
amounts ultimately determined. The unaudited Pro Forma Condensed Consolidated
Financial Information is presented for informational purposes only and is not
necessarily indicative of what AES's results of operations would have been if
the Grupo EDC acquisition had been completed on the dates indicated, nor does
it purport to be indicative of future financial positions or results of
operations. In the opinion of management, all material adjustments necessary
to reflect the effects of these transactions have been made.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(IN MILLIONS, EXCEPT PER SHARE DATA)
GRUPO
AES EDC PRO FORMA PRO FORMA
HISTORICAL HISTORICAL (a) ADJUSTMENTS (c) AES TOTAL
------------------------------ -------------- -------------------
Revenue $ 3,014 $ 332 $ 3,346
Cost of sales (2,260) (238) (16) (d) (2,514)
Selling, general and administrative expenses (48) - (b) (48)
Interest (expense) income, net (497) (21) (22) (f) (552)
(12) (g)
Equity in earnings of affiliate 217 5 222
Foreign currency gain (loss) 3 - 3
Other (expense) income, net 12 6 18
------------------------------ -------------------
INCOME BEFORE TAXES AND MINORITY INTEREST 441 84 475
------------------------------ -------------------
Income tax provision (benefit) 114 11 (18) (h) 107
Minority interest 35 (1) 13 (i) 47
------------------------------ -------------------
INCOME FROM CONTINUING OPERATIONS $ 292 $ 74 $ 321
============================== ===================
Basic earnings per share from continuing operations $ 0.69 $ 0.73
=============== ===================
Weighted average basic shares outstanding 423.4 16 (j) 439.0
=============== ===================
Diluted earnings per share from continuing operations $ 0.66 $ 0.70
=============== ===================
Weighted average diluted shares outstanding 461.6 16 (j) 477.2
=============== ===================
The accompanying Notes to Unaudited Pro Forma Condensed Consolidated
Financial Information are an integral part of these statements.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN MILLIONS, EXCEPT PER SHARE DATA)
GRUPO
AES EDC PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS (c) AES TOTAL
------------------------------ --------------- -------------------
Revenue $ 3,253 $ 786 $ 4,039
Cost of sales (2,257) (555) (38) (e) (2,850)
Selling, general and administrative expenses (71) - (b) (71)
Interest (expense) income, net (564) 14 (54) (f) (632)
(28) (g)
Equity in earnings of affiliate 21 58 79
Foreign currency gain (loss) 9 2 11
Other income, net 29 6 35
------------------------------ -------------------
INCOME BEFORE TAXES AND MINORITY INTEREST 420 311 611
------------------------------ -------------------
Income tax provision (benefit) 111 (9) (42) (h) 60
Minority interest 64 - 41 (i) 105
------------------------------ -------------------
INCOME FROM CONTINUING OPERATIONS $ 245 $ 320 $ 446
============================== ===================
Basic earnings per share from continuing operations $ 0.64 $ 1.11
=============== ===================
Weighted average basic shares outstanding 383.0 20 (j) 403.4
=============== ===================
Diluted earnings per share from continuing operations $ 0.62 $ 1.07
=============== ===================
Weighted average diluted shares outstanding 392.4 34 (k) 426.8
=============== ===================
The accompanying Notes to Unaudited Pro Forma Condensed Consolidated
Financial Information are an integral part of these statements.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
The Unaudited Pro Forma Condensed Consolidated Financial Information are based
on the following:
(a) Grupo EDC historical column for the six months ended June 30, 2000,
includes Grupo EDC's results of operations from January 1, 2000,
through the date of acquisition. Grupo EDC's results of operations
subsequent to the date of acquisition are included in the AES
historical column.
(b) Grupo EDC's historical selling, general and administrative expenses
have been included as cost of sales for the purpose of consistent
classification with AES's historical financial statements. In AES's
historical consolidated financial statements, selling, general and
administrative expenses consist of AES corporate expenses and all
business development expenses.
(c) The components of the aggregate purchase price of 87.2% of the common
stock of Grupo EDC are as follows:
Net consideration for common stock................... $ 1,526
Transaction costs.................................... 56
------------
$ 1,582
============
The purchase price was recorded and allocated to the various net
assets, which were adjusted to preliminary estimates of estimated fair
market value, as follows:
Purchase price ........................................................ $ 1,582
Less: Stockholders' equity of Grupo EDC
Capital stock ................................................ (508)
Paid-in surplus .............................................. (245)
Retained earnings ............................................ (1,353)
Treasury stock ............................................... 323
Adjustment of assets and liabilities to fair value:
Property and equipment ....................................... (1,578)
Contractually obligated losses on sale of assets ............. 185
Deferred income tax asset .................................... 419
Employee severance plan ...................................... 87
Investment in subsidiaries ................................... 36
Elimination of intangible asset - goodwill ................... 7
Other net assets ............................................. 25
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Excess of fair values of net assets acquired over purchase
price - negative goodwill ............................................. $(1,020)
========
(d) Represents net increase in depreciation expense due to the following:
Increase in depreciation expense due to step-up to record fair value of
property and equipment ................................................ $ 22
Decrease in depreciation expense due to the allocation of negative
goodwill to property and equipment .................................... (6)
--------
$ 16
========
Depreciation on property and equipment is computed using the
straight-line method over the estimated composite lives of the assets,
which range from 3 to 50 years.
(e) Represents net increase in depreciation expense due to the following:
Increase in depreciation expense due to step-up to record fair value of
property and equipment ................................................ $ 53
Decrease in depreciation expense due to the allocation of negative
goodwill to property and equipment .................................... (15)
--------
$ 38
========
Depreciation on property and equipment is computed using the
straight-line method over the estimated composite lives of the assets,
which range from 3 to 50 years.
(f) Represents increase in interest expense from issuance of $500 million
senior secured credit facility by AES EDC Funding, LLC, an AES
subsidiary, and from amortization of related deferred financing costs.
The interest rate on the facility, at the option of the Borrower, is
either a base rate, as defined by the Lender, plus 2.0% per annum or
the Eurodollar rate plus 3.0% per annum. The interest rate on the
facility was 9.7925% at June 30, 2000. The weighted average interest
rate of this debt was assumed to be 9.7925% for all periods presented.
(g) Represents increase in interest expense from issuance of 9.2 million
$3.00 trust convertible preferred securities offered by AES Trust VII,
for total proceeds of $460 million.
(h) Represents income tax benefit for the effects of pro forma adjustments
which effect taxable income at a statutory rate of 35%.
(i) Represents minority interest's share, or 12.8%, of Grupo EDC's income
from continuing operations for the period.
(j) Represents the weighted number of AES common shares issued in
connection with the acquisition of Grupo EDC.
(k) Represents the weighted number of AES common shares issued in
connection with the acquisition of Grupo EDC plus the dilutive
effect of common stock equivalents. For the year ended December 31,
1999, certain convertible securities that were anti-dilutive for the
historical period would have been dilutive had the Grupo EDC
acquisition occurred on January 1, 1999.
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
Date: March 16, 2001 By /s/ William R. Luraschi
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William R. Luraschi
Vice President and Secretary