AES Reports Adjusted Earnings Per Share of $0.32 for Second Quarter 2013 and Reaffirms Full Year 201

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AES Reports Adjusted Earnings Per Share of $0.32 for Second Quarter 2013 and Reaffirms Full Year 2013 Guidance

Significant Announcements

  • Commenced construction of the 532 MW Cochrane project in Chile and completed construction of 252 MW
  • Repurchased 5.3 million shares at an average price of $11.81 per share, for a total investment of $63 million
  • Prepaid $300 million of recourse debt and refinanced $750 million of recourse debt to improve the parent maturity profile and reduce interest expense
  • Closed two asset sales for $56 million in equity proceeds to AES

ARLINGTON, Va.--(BUSINESS WIRE)-- The AES Corporation (NYS: AES) today reported Adjusted Earnings Per Share (Adjusted EPS, a non-GAAP financial measure) of $0.32 for second quarter 2013, an increase of $0.14 from second quarter 2012. In addition, second quarter 2013 Diluted Earnings Per Share from Continuing Operations increased $0.13 to $0.22 from second quarter 2012. Results for the quarter were driven by a lower effective tax rate, the addition of new capacity and higher availability in Chile, cost reductions and capital allocation decisions, including share repurchases. The unfavorable impact of dry hydrological conditions in Latin America partially offset these positive trends.


"We had a solid second quarter, despite facing significant headwinds in Latin America as a result of some of the driest hydrological conditions in many decades. We remain on track to hit our 2013 guidance metrics," said Andrés Gluski, AES President and Chief Executive Officer. "Since the first quarter, we continued to make progress on asset sales, overhead reduction and capital allocation. We closed asset sales for $56 million in proceeds to AES and exited Trinidad, reducing the number of countries in our portfolio to 21 from 28 in 2011. We invested $63 million in share repurchases, prepaid $300 million of recourse debt and reduced general and administrative expense by $15 million relative to second quarter 2012."

"We are pleased to have successfully completed $1.8 billion in parent debt refinancing and de-levering since the first quarter," said Tom O'Flynn, AES Executive Vice President and Chief Financial Officer. "We are reaffirming our guidance for 2013 on all metrics. We are offsetting the challenge of dry hydrological conditions with favorability on our effective tax rate, accelerated cost reductions, and share repurchases."

Table 1: Key Financial Results

          

$ in Millions, Except Per Share Amounts

  Second Quarter  

Year-to-date

June 30,

  

Full Year 2013

Guidance

2013 20122013 

2012

Adjusted EPS1$0.32$0.18$0.58$0.55$ 1.24-$1.32
Diluted EPS from Continuing Operations$0.22$0.09$0.36$0.54N/A
Proportional Free Cash Flow1$148$213$500$448$750-$1,050
Consolidated Net Cash Provided by Operating Activities  $567  $580   $1,185  $1,114   $ 2,500-$3,100
1 A non-GAAP financial measure. See "Non-GAAP Financial Measures" for definitions and reconciliations to the most comparable GAAP financial measures.
 

Discussion of Operating Drivers of Adjusted Pre-Tax Contribution (Adjusted PTC, a non-GAAP financial measure) and Adjusted EPS

The Company manages its portfolio in six market-oriented Strategic Business Units (SBUs): US (United States), Andes (Chile, Colombia and Argentina), Brazil, MCAC (Mexico, Central America and the Caribbean), EMEA (Europe, Middle East and Africa), and Asia.

Second quarter 2013 Adjusted EPS increased $0.14 to $0.32. A lower effective tax rate represented approximately $0.06 of the increase. Approximately $0.03 of the lower tax rate benefit was anticipated in the Company's guidance, while the remaining $0.03 was related to the quarterly impacts of geographical income mix and benefits related to the resolution of outstanding tax audits during the quarter. Cost reductions and capital allocation decisions, including share repurchases, accounted for $0.03 of the increase. Operating results at the SBUs, as described below, contributed $0.05, net of the unfavorable impact of $0.05 from low hydrology in Latin America.

Table 2: Adjusted PTC1 by SBU and Adjusted EPS1

      
$ in Millions, Except Per Share Amounts  Second Quarter Year-to-date June 30,
2013 2012 Variance2013 2012 

Variance

US$65$74$(9)$200$167$33
Andes$85$49$36$165$160$5
Brazil$77$54$23$119$162$(43)
MCAC$103$93$10$160$171$(11)
EMEA$58$51$7$151$240$(89)
Asia  $40  $55  $(15) $71  $87  $(16)
Total SBUs$428$376$52$866$987$(121)
Corp/Other  $(157) $(170) $13  $(330) $(368) $38 
Total AES Adjusted PTC1,2$271$206$65$536$619$(83)
Adjusted Effective Tax Rate12%37%20%34%
Diluted Share Count751768750769
Adjusted EPS1  $0.32  $0.18  $0.14  $0.58  $0.55  $0.03 

1

 A non-GAAP financial measure. See "Non-GAAP Financial Measures" for definitions and reconciliations to the most comparable GAAP financial measures.
2Includes $2 million and $11 million of after-tax equity in earnings for second quarter 2013 and second quarter 2012, respectively. Includes $6 million and $24 million of after-tax equity in earnings for year-to-date June 30, 2013 and year-to-date June 30, 2012, respectively.
 

Second quarter 2013 Adjusted PTC increased $65 million. Key operating drivers of Adjusted PTC included:

  • US: An overall decrease of $9 million driven primarily by modest declines at US utilities, due to the impact of customers switching to competitive suppliers and lower capacity prices at DPL and the unfavorable impact of milder weather on retail margin at IPL. In addition, Southland recorded a decline as a result of the temporary restart of operations at Huntington Beach units 3 and 4 in 2012 and these units did not run in 2013. An increase of Adjusted PTC from wind generation facilities partially offset these declines.
  • Andes: An overall increase of $36 million driven by the contributions of Ventanas IV, a 270 MW coal-fired plant that commenced operations in March 2013, and higher availability in Chile. This was partially offset by lower volumes due to low water inflows in Colombia and Chile.
  • Brazil: An overall increase of $23 million due to the favorable reversal of a liability at Uruguaiana after a decision by an arbitration panel. The Adjusted EPS impact of the favorable reversal of the liability was approximately $0.03. A higher tariff at Eletropaulo, as a result of the tariff reset provision recorded in second quarter 2012, was largely offset by the impact of the April 2013 tariff reset at Sul, as anticipated.
  • MCAC: An overall increase of $10 million as a result of higher spot sales in the Dominican Republic and higher tariffs in El Salvador. This was partially offset by a decline in Panama, due to reduced volumes as a result of low water inflows.
  • EMEA: An overall increase of $7 million due to improved margins at generation facilities in the United Kingdom, partially offset by a decline in Turkey due to a loss on an embedded foreign currency derivative of approximately $0.02, which is not excluded from Adjusted EPS because the business is an equity method investment.
  • Asia: An overall decrease of $15 million, due primarily to lower spot prices and lower contract prices at the Masinloc facility in the Philippines, as the plant signed a 7-year contract to reduce merchant exposure.
  • Corp/Other: A favorable decrease of $13 million due to reduced general and administrative expense.

For the six months ended June 30, 2013, Adjusted PTC decreased $83 million. Key operating drivers of Adjusted PTC included:

  • US: An overall increase of $33 million primarily due to the favorable impact of the termination of the PPA at Beaver Valley. This was partially offset by a decline at Hawaii, as a result of higher outages and related fixed costs.
  • Andes: An overall increase of $5 million driven by the contribution from Ventanas IV, as described above, and higher availability in Chile, which was partially offset by lower dispatch of gas-fired generation in Chile and the impact of lower water inflows in Colombia.
  • Brazil: An overall decrease of $43 million driven by a decline at Sul as a result of lower demand, as well as the impact of the April 2013 tariff reset, as anticipated. In addition, lower volumes and higher purchased energy costs due to low water inflows resulted in a decline at Tietê. These declines were partially offset by a favorable reversal of a liability at Uruguaiana after a decision by an arbitration panel and higher tariffs at Eletropaulo, as described above.
  • MCAC: An overall decrease of $11 million, driven by low volumes and higher purchased energy costs in Panama, due to low water inflows, partially offset by higher spot sales in the Dominican Republic and a higher tariff in El Salvador.
  • EMEA: An overall decrease of $89 million, due primarily to a favorable one-time arbitration settlement at Cartagena in Spain in first quarter 2012 and a decline at Ballylumford in the United Kingdom, driven by a reduction in contracted capacity prices.
  • Asia: An overall decrease of $16 million, due primarily to lower prices and lower spot sales at the Masinloc facility in the Philippines, as the plant signed a 7-year contract to reduce merchant exposure.
  • Corp/Other: A favorable decrease of $38 million as a result of lower general and administrative expenses.

For the six months ended June 30, 2013, Adjusted EPS increased $0.03 to $0.58. Adjusted PTC declined as described above, but Adjusted EPS increased as a result of a lower effective tax rate and a lower share count. The impact of low hydrology in Latin America was $0.08 for the first half of 2013.

Discussion of Diluted Earnings per Share from Continuing Operations

Second quarter diluted earnings per share from continuing operations increased $0.13, or 144%, to $0.22 principally due to higher gross margin, lower foreign currency losses, a lower effective tax rate, and lower interest expense, partially offset by the loss on extinguishment of debt at the Parent Company.

For the six months ended June 30, 2013, diluted earnings per share from continuing operations decreased $0.18, or 33%, principally due to the loss on the early extinguishment of debt at the Parent Company and Masinloc, a lower gain on sale of investments in 2013 from the sale of the Company's remaining 20% interest in Cartagena compared to the prior gain from the sale of 80% of its interest in Cartagena in first quarter 2012 and lower gross margin, partially offset by lower tax expense, and lower interest expense.

Discussion of Cash Flow

Second quarter 2013 Proportional Free Cash Flow (a non-GAAP financial measure) was $148 million, a decrease of $65 million from second quarter 2012. This performance was driven by lower operating cash flow in Chile, due to a value-added tax refund in second quarter 2012, and an increase in environmental capital expenditures in the United States and Chile, as anticipated.

Second quarter 2013 Consolidated Net Cash Provided by Operating Activities was $567 million, a decrease of $13 million from second quarter 2012, driven by lower operating cash flow in Chile, as described above, partially offset by higher operating cash flow in Brazil, as a result of lower working capital requirements.

For the six months ended June 30, 2013, Proportional Free Cash Flow was $500 million, an increase of $52 million from the six months ended June 30, 2012, driven by higher operating cash flow in the United States, as a result of the Beaver Valley PPA termination payment, and in the Dominican Republic, as a result of lower working capital requirements. These positive trends were partially offset by lower operating cash flow in Chile and Colombia due to higher working capital requirements.

For the six months ended June 30, 2013, Consolidated Net Cash Provided by Operating Activities was $1,185 million, an increase of $71 million from the six months ended June 30, 2012, driven by lower working capital requirements in the Dominican Republic and Brazil, partially offset by lower operating cash flow in Chile and Colombia, as a result of higher working capital requirements.

Discussion of Other Announcements

  • The Company reduced G&A costs by $15 million during second quarter 2013
    • In 2012, the Company reduced G&A costs by $90 million
    • The Company accelerated its 2013 expected cost reductions by $15 million to $45 million for the year
    • On track to achieve $145 million in cumulative annual cost reductions in 2014, including G&A and cost of sales reductions
  • The Company closed two asset sales for $56 million in equity proceeds to AES
    • In June 2013, the Company sold its wind turbine inventory
    • In July 2013, the Company sold its 10% interest in the 720 MW gas-fired plant in Trinidad
    • Since September 2011, the Company has closed 16 asset sales representing $1.1 billion in equity proceeds to AES and exited operations in 7 countries
  • The Company repurchased 5.3 million shares at an average price of $11.81 per share for a total investment of $63 million
    • During second quarter 2013, the Company repurchased 1.6 million shares for a total investment of $18 million; subsequent to June 30, 2013, the Company repurchased an additional 3.7 million shares for a total investment of $45 million
    • Since September 2011, the Company has repurchased 39 million shares for a total investment of $453 million
  • During second quarter 2013, the Company prepaid $300 million of recourse debt and refinanced $750 million of recourse debt to improve its maturity profile and reduce interest expense
    • In July 2013, the Company extended its $800 million revolver by 3.5 years through June 2018
    • Since September 2011, the Company has prepaid more than $800 million of recourse debt and approximately $200 million of non-recourse debt
  • On schedule to complete 2,191 MW of capacity under construction expected to come on-line through 2016
    • In April 2013, the Company commenced construction of the 532 MW coal-fired Cochrane project
    • In May 2013, the Company achieved commercial operations of the 216 MW gas-fired Kribi plant in Cameroon
    • In July 2013, the Company achieved commercial operations of two wind plants (36 MW in total) in the United Kingdom
  • In July 2013, AES Gener signed a partnership agreement with Antofagasta Minerals for a 40% stake in the Alto Maipo 531 MW hydroelectric generation development project in Chile; Antofagasta also agreed to 20-year power purchase agreements for up to 160 MW of output

2013 Guidance

The Company reaffirmed its full year guidance for 2013, which is based on foreign exchange and commodity price forward curves as of June 30, 2013. The Company's guidance reflects an expected unfavorable impact of $0.12 related to low hydrology in Latin America, an increase of $0.06 from the estimated impact of $0.06 included in its prior guidance. The impact of low hydrology was largely offset by a favorable reduction in the expected effective tax rate for 2013. The Company now expects a full year effective tax rate in the 23% to 25% range, compared to previous expectations of 26% to 28%.

Table 3: 2013 Guidance Reconciliation

     
$ in Millions, Except Per Share Amounts   

Full Year 2013

Guidance

Adjusted EPS1$1.24 - $1.32
Proportional Free Cash Flow1 (a)$750 - $1,050
Reconciling Factor2 (b)$1,750 - $2,050
Consolidated Net Cash Provided by Operating Activities (a + b)   $2,500 - $3,100
1 A non-GAAP financial measure. See "Non-GAAP Financial Measures" for definitions and reconciliations to the most comparable GAAP financial measures.
2Primarily includes minority interest, maintenance capex and environmental capex. See Appendix for details of the reconciliation.
 

Non-GAAP Financial Measures

See Non-GAAP Financial Measures for definitions of Adjusted Earnings Per Share, Adjusted Pre-Tax Contribution, Proportional Free Cash Flow, as well as reconciliations to the most comparable GAAP financial measure.

In providing its full year 2013 Adjusted EPS guidance, the Company notes that there could be differences between expected reported earnings and estimated operating earnings for matters such as, but not limited to: (a) unrealized gains or losses related to derivative transactions (as of June 30, 2013, $(0.05) per share); (b) unrealized foreign currency gains or losses (as of June 30, 2013, $0.04 per share); (c) gains or losses due to dispositions and acquisitions of business interests; (as of June 30, 2013, $(0.03) per share); (d) losses due to impairments (as of June 30, 2013, $0.05 per share); and (e) costs due to the early retirement of debt (as of June 30, 2013, $0.21 per share). At this time, management is not able to estimate the aggregate impact, if any, of these items on reported earnings. Accordingly, the Company is not able to provide a corresponding GAAP equivalent for its Adjusted EPS guidance.

Attachments

Consolidated Statements of Operations, Consolidated Balance Sheets, Segment Information, Consolidated Statements of Cash Flows, Non-GAAP Financial Measures, Parent Financial Information and 2013 Financial Guidance Elements.

Conference Call Information

AES will host a conference call on Thursday, August 8, 2013 at 10:00 a.m. Eastern Daylight Time (EDT). Interested parties may listen to the teleconference by dialing 1-800-857-6557 at least ten minutes before the start of the call. International callers should dial +1-415-228-4653. The participant passcode for this call is 8813. Internet access to the presentation materials will be available on the AES website at www.aes.com by selecting "Investors" and then "Quarterly Financial Results."

A telephonic replay of the call will be available from approximately 12:00 p.m. EDT on Thursday, August 8, 2013 through Thursday, August 29, 2013. Callers in the U.S. please dial 1-800-839-1174. International callers should dial +1-203-369-3029. The system will ask for a passcode; please enter 8813. A webcast replay, as well as a replay in downloadable MP3 format, will be accessible at www.aes.com beginning shortly after the completion of the call.

About AES

The AES Corporation (NYS: AES) is a Fortune 200 global power company. We provide affordable, sustainable energy to 21 countries through our diverse portfolio of distribution businesses as well as thermal and renewable generation facilities. Our workforce of 25,000 people is committed to operational excellence and meeting the world's changing power needs. Our 2012 revenues were $18 billion and we own and manage $42 billion in total assets. To learn more, please visit www.aes.com.

Safe Harbor Disclosure

This news release contains forward-looking statements within the meaning of the Securities Act of 1933 and of the Securities Exchange Act of 1934. Such forward-looking statements include, but are not limited to, those related to future earnings, growth and financial and operating performance. Forward-looking statements are not intended to be a guarantee of future results, but instead constitute AES' current expectations based on reasonable assumptions. Forecasted financial information is based on certain material assumptions. These assumptions include, but are not limited to, our accurate projections of future interest rates, commodity price and foreign currency pricing, continued normal levels of operating performance and electricity volume at our distribution companies and operational performance at our generation businesses consistent with historical levels, as well as achievements of planned productivity improvements and incremental growth investments at normalized investment levels and rates of return consistent with prior experience.

Actual results could differ materially from those projected in our forward-looking statements due to risks, uncertainties and other factors. Important factors that could affect actual results are discussed in AES' filings with the Securities and Exchange Commission (the "SEC"), including, but not limited to, the risks discussed under Item 1A "Risk Factors" and Item 7: Management's Discussion & Analysis in AES' 2012 Annual Report on Form 10-K and in subsequent reports filed with the SEC. Readers are encouraged to read AES' filings to learn more about the risk factors associated with AES' business. AES undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Any Stockholder who desires a copy of the Company's 2012 Annual Report on Form 10-K dated on or about February 26, 2013 with the SEC may obtain a copy (excluding Exhibits) without charge by addressing a request to the Office of the Corporate Secretary, The AES Corporation, 4300 Wilson Boulevard, Arlington, Virginia 22203. Exhibits also may be requested, but a charge equal to the reproduction cost thereof will be made. A copy of the Form 10-K may be obtained by visiting the Company's website at www.aes.com.

  

THE AES CORPORATION

Condensed Consolidated Statements of Operations

(Unaudited)

 

Three Months Ended

June 30,

Six Months Ended

June 30,

2013 20122013 2012
(in millions, except per share amounts)
Revenue:
Regulated$2,093$2,105$4,339$4,589
Non-Regulated1,975 1,984 3,994 4,086 
Total revenue4,068 4,089 8,333 8,675 
Cost of Sales:
Regulated(1,738)(1,869)(3,632)(3,925)
Non-Regulated(1,412)(1,527)(3,028)(2,985)
Total cost of sales(3,150)(3,396)(6,660)(6,910)
Gross margin918 693 1,673 1,765 
General and administrative expenses(59)(74 Read Full Story

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