愛依斯電力 (AES) 2002 Q3 法說會逐字稿

Good morning ladies and gentlemen. Thank you for standing by and welcome to the AES Corporation third quarter earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards we will conduct a question and answer session. At that time if you have a question, you are going to press the "1" followed by the "4" on your telephone. As a reminder this conference is being recorded, Thursday, October 24, 2002. I would now turn the conference over to Mr. Paul Hanrahan, President and CEO. Please go ahead, Sir.

All right. Thank you operator and good morning everybody. Thank you for joining our call today. Today we are going to report on our third quarter results, also comment on the challenges today AES facing this time of uncertainty in our industry. I would also like to discuss the progress we are making with the longer-term plans to improve the financial performance of our businesses around the globe, and the financial health of AES. Our CFO, Barry Sharp, will then update you on the cash flow and earnings performances for the quarter, and discuss how things look going forward. Roger Sant, our Chairman also joins us today and he will provide some comments about his perspective on the current situation of our company. And then we will open it up for questions. I would also like to note, this call is also being web cast on the aes.com website, and given the feedback from many of our listeners we will also be limiting this call today to about an hour, and our investor relations people will be available to answer any calls that we don't get [through] today.

Prior to beginning our call, I would like to bring to your attention the fact that we will be making a number of comments in this call that could be consider forward-looking statements as defined by the SEC. These statements involve our expectations about future events and therefore involve risk and uncertainties that obviously could cause our actual results to differ from our expectations. So, I urge everyone to read our SEC documents particularly our 10-K for description of these types of risks.

But, let me just start by saying that the third quarter for was, has been a very challenging quarter. There's been a great deal of turmoil in our sector. It's affected some of our counter parties such as TXU Europe and Williams. There's been continued political uncertainty in Brazil and Venezuela. It's affected the currencies, financial markets, and economic growth in those countries. We are finding increased uncertainty with respect to some of the expected dividends from EDC in Venezuela and the expected project financing proceeds for power project in Nigeria called Ebute (ph).

We have also experienced some delays in reaching commercial operations with some of our construction projects, Puerto Rico and Granite Ridge in this case. These are also adding to challenges that we faced in the past quarter and we expect to face in the coming quarter. All these events are negatively impacting our projected liquidity and we are very focused on short-term liquidity as we approach the debts payments that we will be due by December 15th, which total $384 million, which includes our interest payments and also the other debt maturities in 2003, the amounts of $1.7 billion.

In order to address these concerns about our short-term liquidity, as many of you know, we launched our offer to exchange our 300 million December '02 bonds and $200 million June '03 bonds for combination of cash in new securities. At the same time, we launched an offer to our banks to rollover $1.6 billion of debt maturing in 2003 into a new multi-tranche facility. The [inaudible] debt that will be secured with the strong collateral package out of this proposed structure.

One thing I like to emphasis that it's critically important for AES to complete this rollover and exchange offer. It did two things were, first it would provide AES with adequate near-term liquidity, which is a major focus for us giving all the uncertainties that we are facing in the industry today, and also solves our problem with the large 2003 maturities and provides a much more manageable amortization schedule looking forward.

I would now like to provide an update on our Drax situation. As a result of TXU Corporation's announcement that it would no longer provide material support for the investment-grade rating of it's subsidiary TXU Europe, the guarantor of our hedging agreement with AES Drax, the company called TXU Europe TLC was downgraded below investment grade by all three rating agencies by October 14th 2002. As a result of these actions, AES Drax received similar downgrades and it is important to point out that neither Drax' counter party nor TXU Europe [TLC], which is a guarantor, neither of them are currently in default on the terms of the hedging agreement. However, TXU Corporation's announcement that it would no longer support its European subsidiary, TXU Europe and AES Drax were close to agreeing to terms for comprehensive restructuring of the Drax project. Currently, the two of us are discussing various potential amendments to the hedging agreement, which will have the affect of reducing fixed capacity fees as TXU Europe currently pays Drax under the hedging agreement.

Drax' bank lenders will be required to approve any such amendments obviously. In addition, Drax has been working cooperatively with its lenders to address liquidity needs for project including the letters of credit, which would be required for trading Drax' output. In event the Drax was to terminate the hedging agreement as a result of TXU Europe's breach of the agreement. In the event of termination of the contract TXU Europe would be liable to pay Drax no less than £270 million sterling.

It's also worth noting at this point that we have a number of situations under our corporate debt documents where the materiality or significance of the subsidiary is determined. In the case of Drax, although, it does not qualify as material for most of these tests, [inaudible] as a significant subsidiary for certain bankruptcy related events with the [fall]. Therefore certain bankruptcy events with the [fall] -- Therefore, certain bankruptcy events of Drax could result in defaults under our corporate debt agreements although the more common ways for lenders to proceed would not constitute the default on their corporate debt agreements.

But, I want to emphasize that given the numerous actions that are already taken and additional steps under way to stabilize the project in the events that we lose the TXU Europe hedging contract, as well as the good relationship we have with the Drax lenders, we think such an outcome this year is unlikely. Also depending on the outcome of these recent events AES may have to write off some or all of the assets of Drax. In addition, we are considering a sale of part or all of Drax. And it's worth noting that a write off or sale could effect whether Drax remains a significant subsidiary for covenant purposes.

Next, I would like to update you on what's happening with our Eletropaulo subsidiary, the distribution company in Sao Paulo Brazil. There has been good progress made in rolling over the debt at the operating company level. We are also in a process of renegotiating our debt payment scheduled for the two holding companies that own the control and preferred shares of Eletropaulo. Those are payment for [AES] CILCO (ph) hold [converted to hold cost] of $85 million due in October 15th and this payment was not made. A stand still agreement was reached with [PNDES], the Development Bank of Brazil which granted an extension to October 28 and that is likely to be extended, we think. And additionally we reached a separate [stance] agreement for a $6 million interest payment, which was due this week for the Transgas Ipalco and for this we have asked for an extension to November 25th.

Discussions are continuing with [PNDES] to restructure the holding company debt of Eletropaulo, and as you know we are committed to resolving these issues without contributing additional capital from AES. Well, I am hopeful these discussions will be successful. It's possible that the discussions breakdown, become protracted, or even if evolve into lengthy litigations.

Next, I would like to give you an update on our asset sales. We are still on track to complete our $800 billion of announced asset sales. In September, we completed the sale of New Energy ahead of schedule for $260 million. The sale of our CILCO business to [inaudible] continues to progress well and remains on track for closing by the end of the fist quarter in 2003. We expect to realize approximately $500 million in cash. With respect to the other assets, we are seeing strong interest in the assets outside the United States and South America, and our asset sales group is in advanced negotiations with several buyers. We expect they may possibly be able to announce some additional agreements for sales by the end of this year. However, the closing and receipt of proceeds would likely not occur until sometime in 2003.

I would also like to comment on something that's happening in many of our subsidiaries where our subsidiaries are delivering and I think this is significant because in a few cases our businesses were not able to meet the dividend targets for this year. To -- our significant [inaudible] and EDC which were both part of the projected top 10 cash providers for this year. That's been partially due to the extremely difficult financial conditions that exist in those countries. What was courteous and helpful to us from a liquidity standpoint, its what many of these companies have in fact been delivering. Thus equity value is being increased in those companies as a result of reducing debt at the subsidiary levels. An year-to-date for EDC and [inaudible] combine they delivered by a total of approximately $200 million.

Next I'd just like to discuss briefly the progress we're making with the performance of our business units. Despite the numerous set backs we have experienced this year, we're seeing some results from our efforts to improve the operating performance of our businesses. Our cost cutting and revenue enhancement program, as you know our target was to improve pre-tax earnings performance by $200 million in 2002. We continue to make good progress on this front and are pretty on track to reach or more likely exceed this target. But as you can see from earnings results, these efforts have not overcome the difficulties we have faced this year, but they've certainly helped to mitigate the negative impacts of the currency devaluations, low power prices in United States and United Kingdom, and the low demand growth form many of our [distinguished] companies.

As additional update evidence, we've also begun to see improved margins in many of businesses this year, especially in our contract generation business. We have also stepped up our efforts in tapping skill for our global network businesses particularly in [precumin] (ph) area. The person we've recruited, an experienced Vice President of [Sourcing] was putting together a team to lead our global [Precumin] activities. The bottom line is so we're beginning to get some traction in our plans to improve the performance of our businesses; to integrate our assets into more coherently defined business units and to capture some of the purchasing power of our large scale.

Next I would like to discuss current operation cash flow, and Barry Sharp, our Chief Financial Officer will discuss the earnings and cash flow results in more detail and projections going forward. But I'd first like to comment on our parent operating cash flow projections for 2003. Because we as a company are intently focused on cash flows and liquidity. And just for a review, our parent operating cash flow is [termed] as a first distributions from our subsidiary companies to the parent less parent overhead cost.

As you know in our July 25th press release, we projected parent operating cash flow for 2003 of $1.2 billion. Currently, many events have occurred with negative impacts to our businesses since then. As a result many annual supports are projecting current operating cash flow for 2003 to be approximately $900 million. We are also in the middle of our budgeting process for next year. So we are working through the various impacts of recent events to our business. Nevertheless I think this range of $900 million to $1.2 billion is probably a good range to use for our projection of current operating cash flow for 2003.

I don't want to imply that we as a company have given up of being able to achieve the $1.2 billion, but rather the difficulty factor of getting there has clearly gone up. There is a lot of work going on throughout our company as part of the budget process to figure out how we could recover from some of the possible downside events, which could cause us to be below the $1.2 billion. Barry will cover these potential downsides in his discussions. In closing, I would just like to reiterate the following to our investors, while we are optimistic about the future of AES, given the progress we were beginning to see in the operating performance of our businesses. This optimism is based on the success of our current refinancing efforts. The success of this refinancing effort will allow us to deal with our immediate liquidity issues and also to begin an orderly process to deliver the company to which we are committed. Thus building a long-term financial strength in the process. At this point I would like to turn the call over to Barry Sharp, our Chief Financial Officer to discuss our financial performance and projections going forward, Barry.

Thanks Paul and good morning. Now what I would like to do is cover briefly comments on earnings and segment results and then we will turn to parent cash flow. With respect to third quarter earnings, I will focus my comments on our comparable results from recurring operations. From these recurring operations numbers we have excluded several mark-to-market non-cash related items that are included under GAPP and I'll mention those in a minute and there are reconciliation's as most of you know included in our press release package along with several other statements and reports covering both earnings and cash flow.

Third quarter total revenues were $2.14 billion, which is up 16% from $1.85 billion in the third quarter of 2001. The results for 2002 include the consolidations of Eletropaulo beginning in February. If we exclude Eletropaulo, revenues would have declined approximately 8% year-on-year primarily due to lower prices in the competitive supply segments in the US and UK. The 2002 devaluation of the Peso in Argentina and lower revenues at EDC in Venezuela also due to the devaluation there.

On a geographic basis, revenues were distributed 27% to North America, 17% to the Caribbean, 32% from South America, 18% from Europe and Africa and the last 6% from Asia. The shift year-over-year towards South America during the third quarter is due to the inclusion of Eletropaulo's revenues in 2002. The operating margin or sales less cost of sales improved in the third quarter of 2002 to $590 million representing 28% of sales for the third quarter. That's compared to 483 million in the prior year or 26% of sales. So a 2% point increase. Excluding Eletropaulo from the 2002 amounts, the margins improved more significantly. The 31% in the third quarter of 2002 of related revenues, primarily on the strength of improved margins in the contract generation business as Paul mentioned which is beginning to show the benefits of our cost reduction efforts. As well as improvements at Tiete in Brazil due to the conclusion of rationing during early 2002.

On a business segment basis our two larger segments, contract generation and large utilities accounted for an aggregate 75% of the operating margin for the third quarter. That's an increase over a comparable total to prior year of about 64%. That reflects the combination of consolidating Eletropaulo. Improvements in the contract generation margin and lower prices in the competitive supply segment. Excluding Eletropaulo margins continued to grow at a 9% rate year-over-year. As a result after income taxes, net income from recurring operations was 92 million or 17 cents a share for the third quarter. As compared to a 151 million or 28 cents per share in 2001. With respect to business segments, as most of you know we have four; contract generation, large utilities, competitive supply, and gross distribution. Those four segments generated combined income before tax or EBIT of 257 million for the third quarter of 2002. That compares with 359 for the same period the year before. On a geographic basis the majority of EBIT for the third quarter, 71% was generated from North America.

In our contract generation segment, the operating margin showed significant improvement over the third quarter of '01 at 40% of revenues as compared to 26% for the previous year. Stronger margins and margin percentages arose during the quarter as most contract generation plants in South America, North America, Europe, and Africa and most significant improvement at Tiete in Brazil due to discontinuance of electricity ration. Also the several businesses showed improvements in margins and margin percentages reflecting the early stages of the impacts of our cost cutting efforts. Improved percentages were also evident in several businesses even though they were declines in absolute margins where volumes were lower in 2002 such as in Chile and California. As a result contract generation delivered a 142 million of EBIT in the third quarter of 2002.

In the competitive supply segment, the operating margin was 22% in the third quarter. That's a decrease from 25% in the prior year. The decrease in the margin of about 28 million is almost entirely attributable to our Placerita plant in Southern California, which had a capacity factor of approximately 3% during the quarter and much lower than the previous year when prices were higher in California. Overall the operating margin for competitive supply declined 22% to 98 million for the third quarter of '02. And as a result EBIT was 29 million or 11% of the total for the third quarter of '02. That's a decrease from 83 million the prior year.

In large utility segment the operating margin was 200 million for the quarter, an increase of 29% over 2001 due to the consolidation of Eletropaulo and an improvement in the operating margin at IPALCO. These increases were offset by declines in the operating margin at EDC related to the devaluation. As the percentage of sales the operating margin for large utilities was 26%, which is down from 36% from the prior year, again because of the margin reduction at EDC due to the devaluation of the Bolivar as well as lower margins than average of Eletropaulo during the third quarter of 2002 because of the slower than anticipated recovery of electricity demand from the effects of rationing that ended in early '02. So large utilities generated 87 million of earnings before tax with 34% of the total for the quarter. In the growth distribution business the operating margin was 48 million or 16% of revenues as compared to 49 million roughly flat with the year before. Improvements in margin amounts in both Europe and Africa were offset primarily by declines in Argentina due to the devaluation of the peso. Despite the reductions in revenue and operating margin arising from the devaluation in Argentina during '02, the margin percentages in the those distribution businesses in Argentina actually improved slightly as compared to the third quarter of 2001. Again as a result of increased cost reduction efforts. As a result, growth distribution business was break-even for the third quarter, a slight improvement from third quarter of 2001.

From earnings perspective the top ten businesses contributed 73% of our earnings before tax during the third quarter. That list consists of IPALCO, Shady Point, Somerset in New York, Lal Pir, Pac-Gen in Pakistan, Thames in the U.S., EDC Hawaii, Warrior Run, Gener and Cemig.

Turning to net income on a GAAP basis consistent with prior periods in the way in which we have given our earnings guidance, we have excluded the foreign currency transaction gains and losses and FAS 133 market-to-market adjustments. We reported a net loss this quarter of 58 cents per share after all net charges in discontinued operations. We have also listed these items in the related per share amounts in the press release and there is a schedule for [both] three and nine months. The non-cash charges for this quarter apply the income from continuing operations total 35 cents a share and relate primarily to foreign currency transactions losses, where we had losses net in Latin America of 33 cents per share. That consists of 37 cent loss from Brazil offset by 4 cent gain from Venezuela. And then we also had a 2 cent loss from FAS 133. Including those items the per share loss from continuing operations according to generally excepted accounting principles is 18 cents in the third quarter of 2002 as compared to an income of 1 cent for the third quarter of '01. The company also recorded a loss this quarter of 40 cents per share from the results of discontinued businesses. To that group this quarter we added, gray stone with the sale of that business and right off of that investment as well as new energy whether there is a small adjustment related to the final sale of the business intricacy and adjustments related to [operations--] discontinued operation at [inaudible].

With that I would like to turn to cash flow for the quarter. With respect to the parent cash flow for the third quarter of 2002, we ended with liquidity of 395 million on September 30th which when compared to our projections in July is about 73 million above our net expectations at that point. The net improvement is primarily the result of closing the new energy sale during September for net proceeds of 251 million of which 163 was used to repay and amend a portion of our acquisition loans related to EDC, New York. Previous projection anticipated at new energy sale would close in the fourth quarter of 2002. Current operating cash flow for the third quarter was $251 million. That's approximately 8 million less than we projected at the beginning of the quarter. For the year, that puts our nine-month historical parent operating cash flow at approximately 846 million with the five largest contributors during that nine months period including IPALCO, Shady Point, our Eastern energy plants in New York, EDC, and Lal Pir. For the year ended, September 30th, (inaudible) was up 7% to 1.24 billion compared with the year earlier results of 1.16. The primary drivers of that increase year-on-year have been the acquisition of IPALCO, additional dividends from Tri-Gen, and Lal Pir as well as increases in dividends from several other businesses. These positive variances were off set in part by decreased distributions from Brazil caused by the effects of rationing.

As we mentioned last quarter, we believe in another very relevant measure, a parent cash flow performance is what we call parent company free cash flow per share. This is parent operating cash flow, less development cost, taxes, and parent interests divided by our weighted average shares outstanding. For the third quarter, parent free cash flow per share was 17 cents a share equivalent to our -- 17 cents a share recurring earnings for the third quarter and year-to-date free cash flow per share is 71 cents a share as compared to recurring earnings of 76. We believe this is an important and relevant comparison when looking at our recurring earnings measure.

As for the rest of the year, we are currently expecting year-end liquidity to be approximately $158 million. This is a net decrease of 192 million from our pervious expectations of 350 million at the end of '02 and is based on the assumption that our currently outstanding tender offer and bank loan renewal proposal are completed as contemplated net of fees and expenses is paid during 2002 for such transactions. The negative variation from our previous forward-looking statement is composed to several components that will affect our projected corporate liquidity. Primarily a lower expectation for subsidiary dividends during the fourth quarter, a slight increase in corporate costs, delayed expectations related to the timing of financial close of two project financings, and an increased level in investments in businesses under construction due to delays in commercial operations.

I like to spend just a little bit of time on this specially, so you understand the variations. With respect to subsidiary distributions, a $92 million reduction from our previous forecast to 1 billion 123. This is due to several factors including our current expectation that EDC will not be in a position to make any further dividend payments during 2002 beyond the 55 million received to-date. A previous estimate included an additional 39 million from EDC and as Paul mentioned EDC has been delivering but the likelihood of any additional dividends this year to AES has been significantly reduced by the turmoil in the Venezuelan capital markets. Additional reductions include 10 million less from Puerto Rico because of commercial operations delays, 11 million due to trapped cash in Tiete, and the remainder of approximately 25 million across the combination of several businesses including Los Mina in the Dominican Republic, Caess in El Salvador and Wolf Hollow in Texas.

Our estimate of the timing of our subsidiary dividends of 246 million over the course of the fourth quarter is that we will see approximately half of those dividends by the end of November in the remaining half by the end of the year. After reducing expected subsidiary dividends by corporate costs, which have increased slightly our estimated parent operating cash flow for the quarter is now 224 million. [Over this --] overall this result is an estimate for all of 2002 of 1 billion [070] for parent cash flow and with reduction of about 106 million or 9% from our previous estimates. Certain other changes that don't effect our parent operating cash flow also have an impact on our estimated liquidity including our current view that the project financing proceeds that we expected by the end of the year from the financing of our Ebute project in Nigeria of about 46 million and the final disbursement from our earlier financing at Puerto Rico of about 20 million are not likely to be received prior to the end of the year. Although, we continued to believe these financings were closed, which results in the reduction of our estimated liquidity of about $66 million. We are also currently expecting to invest over the course of the year a total of $772 million. That's about 81 million or 11% more than our original expectations. Primarily in the projects under construction that are nearing completion experiencing some completion delays or delays in the commercial operation including Granite Ridge in New Hampshire and Puerto Rico as well as the expectation of settling outstanding claims on certain business for which we anticipate receiving assets or ownership interests in return for final payment.

Finally, we have included in our current estimates and net impact on corporate liquidity associated with successfully completing our currently outstanding tender offer and bank loan renewal which has the effect, is competed as we've outlined, of reducing our expected principal payments in 2002 by 112 million during December. As a result of these variations in our projections, we currently anticipate liquidity of about 150 million -- $158 million by the end of 2002.

Looking forward to 2003, as Paul mentioned, we are going to company-wide like budget process and working hard to factor in and forecast the impacts and changes that are occurring our business, the changing economic environments surrounding some of those businesses and the cost cutting and company-wide initiatives including our asset sales program, our cost reduction benchmarking efficiency efforts, and our determination to turn around or restructure our weaker business.

For 2002, we are confident that our current operating cash flow will be within the range, as Paul mentioned, of 900 million to 1.2 billion for the year. This range is consistent with what was provided to our banks to evaluate the current bank refinancing efforts while maintaining our expectation that we will benefit from our cost reduction efforts around the company that has began to materialize. From there, we see our estimate today, the low-end of the range or the down side scenario provided to the banks. It is consistent with scenario of no dividends from Brazil, Argentina, Venezuela, Dominican Republic, the UK and nothing from our thee businesses in Williams -- with Williams. We certainly expect to do better than that that low-ended 900 million, but given the current volatility in our industry environment, we are not confident enough yet to pick a most likely point in that range. As we get cleared in the future, we will continue to refine our expectations. Additionally, it is important to note that we anticipate the sale of [inaudible] to close in the first quarter of 2003 for an estimated proceeds of approximately $500 million, and we are pursing other significant assets sales, which could total 500-700 million by the end of 2003.

So as Paul mentioned and I will reiterate this quarter, we have also launched an exchange offer for our 2002 and 2003 notes as well as a new multi-tranche $1.6 billion senior secured credit facility. This is an extremely important transaction for AES as this will help address our new term liquidity issues, [permitting] the company to established more manageable debt maturity schedule over the next several years, as well providing the flexibility to [deliver] and strengthen the balance sheet. So with that I would like to turn it over to Roger.

Okay, thanks Barry. I would like to just finish up with a few -- it's really three comments, sort of summary or conclusion to what Paul and Barry have said. First as Paul said and as you know, the state of our industry is just plane horrible. The Wall Street Journal said the other day that it hasn't been this bad since the depression despite some of the views of my colleagues, I wasn't around in that depression, but I have been around since the mid-seventies and it is, without question, the worst shape it has been in all those years. The surprising collapse of TXU in Europe is just a latest example. With few exceptions, the move towards competitive power and de-regulations has virtually stopped or been reversed. That's probably bad for consumer bills around the world and probably will reduce economic growth. That's where it is. Paradoxically, this could be a good thing for a contract generating market, generator for us. In addition, the exciting experiment in global privatization and foreign investment had temporarily gone to aground primarily because of the incompatible regulatory processes and the lack of courts that will enforce contracts. Most visibly, electricity trading has all been - all but been extinguished, not so much because of flawed business model or because confidence has been so eroded that to make participation something almost everyone wants to avoid. And of course scandals and large losses have all been eliminated access to capital markets.

Most of this [snow] or at least [inaudible] conditions are not going to last for ever, but we have to assume it well. And that leads me to a second comment. We must get our near-term debt maturities evened up a bit or in order to keep stable if things stay the same in their bad conditions. We have to be in a position to reap the benefits when the markets do start to turn around. That's the purpose of our refinancing efforts. That's how we can begin to restore value to the company and [many of you], are in a position to help make that refinancing happen. Any of the plan B alternatives will be far less attractive as you know.

Finally, the people of AES are developing the discipline and skill necessary to come out of this depressed market as the best, the best power company in the world. Paul and Barry mentioned improving margins and cost cuttings as part of the evidence. Other things such as operating several businesses as a portfolio instead of separate businesses using our size and worldwide presence to better purchase supplies and services and selling our discontinued businesses -- selling our discontinuing business where we can't ever earn a premium on our cost of capital, provide further evidence that this place is really changing. Even though the sector is in terrible shape, I believe it's bound to improve at some point to stabilize it in the meantime and be able to take advantage of that turnaround when it comes, we must complete that exchange and continue to develop discipline around the company. Now let's turn to questions.

All right. Operator, let's open it up for questions.

Thank you. Ladies and gentlemen, if you would like to register a question for today's question and answer session, you will need to press the "1" followed by the "4" on your telephone. You will hear a three tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw you registration, please press the "1" followed by the "3". If you are using a speakerphone, please lift up your handset before entering your request. One moment please for the first question. The first question comes from George [Sear] (ph) [Sear Storeship], please go ahead with your question.

George Sear (ph): You have a deadline of tomorrow for early submission on the debt exchange, can you a percentage update on how that's going currently?

George, that's -- it's a private offering. So we can't give any update on that process at this point.

Will you update it after the close of business tomorrow?

We will update it as we move forward, yes.

George Sear (ph): Okay.

The next question comes from Elizabeth Parrella (ph) from Merrill Lynch, please go ahead with your question.

Elizabeth Parrella (ph): Regarding your comments on Drax, could you go into little bit more what might trigger an event of default, I think you said on your corporate debt securities because my understanding had been that under the bank revolver, the only significant subsidiary was IPALCO but maybe it's different from your corporate, could you just go in that little bit more, and then could you also tell us what would be the worst case right off figure for Drax?

This is Bill Luraschi. I'll handle in first part and then Barry, you can take the second one. Excuse me, Drax meets the 10% of the assets test which is contained in our bonded [interest] also in the credit agreement as well. Measured at the end of the last year I think was about 11%, the trigger across defaulted that Drax debt instruments does not [default] to any of cooperate documents. Certain bankruptcy event which really are either voluntary or court administrative proceedings for liquidation were triggered default most administrative proceeding that the lenders would exercise would not trigger that default]. As far as our investment in Drax, Elizabeth, if we include our equity investment plus letters of credit that we have [standing] to support some of the level of debt service before considering foreign currency translation losses, it's about $900 million.

Is that after-tax or pre-tax?

That's pre-tax.

Okay, and Bill I just don't understand it because of a lot of legal terms in there, are you saying that if the contract went into default that wouldn't meet there or that the Drax debt went into default that wouldn't necessarily trigger default on your corporate debt?

Yes, that's correct, it would not trigger that.

Okay. And one other question Barry, wondering if you could give us the what the '02 cash flow looks like now in terms of top 10 contributors?

Yeah, in terms of cash flow year-to-date, top actually if you can be bear with me I will give you the top 15.

Okay.

IPALCO 181, Shady Point at 73, New York at 64, EDC at 55, Lal Pir at 37, Eletropaulo at 36, Tisza at 33, Pak Gen at 32, Uruguaiana at 32, Kilroot at 26, Tri-Gen (ph) 24, Hawaii 23, Warrior Run at 22, Beaver Valley at 21, and OPGC at 20. A total of 678. That's on the current third quarter year-to-date numbers.

And do you have the '02 full year forecast in terms of the chief contributors?

It's consistent with what we've given before. The only, you know, significant variations were those -- the ones that I mentioned, which basically eliminating the rest of EDC, taking out dividends from -- small dividends from Puerto Rico and Tiete (ph) as well as of other three businesses in Central America.

Okay. Thank you.

Our next question comes from Fred Stein (ph) from Newburger Warner (ph). Please go ahead with your question.

Fred Stein (ph): Can you tell me if you will what affect if you didn't achieve the refinancing that you wanted, how close would that put the parent corporation to default? Can you go into where you stand now as far as your exposure to corporate default, which was a concern of investors earlier in the year? Thank you.

I think the message we're trying to get across to people is it's close and December 15th is the key date for us. That's when we have -- we've got the total $300 million payment due for the bonds, if you weren't able to complete this refinancing. I think the message we want to get across is that, you know, certainly the environment right now in the industry is such that its making us nervous and that's why we've decided this as a critical thing for us [to do] going forward. But that would really be a critical date for us, its December 15th, [whether or not] we can make that bond payment.

Fred Stein (ph): Well, can you take us through what happens if you didn't -- weren't able to make that bond payment? What kind of fallback positions do you have? And what's the effect on the credit -- on the backing behind the bonds and the other debt entities?

I'd say at this point its, you know, to speculate on what might happen would be, you know, a lot of different possible scenarios. I think that's why we said obviously this transaction is important to us and getting the debt maturity smoothed out so that we can amortize them with asset sale proceeds that we have coming in and we expect to have further coming in. It's the most sensible approach.

Fred Stein (ph): Are you going to put any kind of probability on your chances of achieving this on the 15th of December?

At this point I wouldn't speculate.

Fred Stein (ph): Thank you very much.

Our next question comes from Ali Agha from Banc of America Securities. Please go ahead with your question.

Hello! A couple of questions. One Barry, could we on the '03 budget, you talked about your cash flow range if you will. Has there been any change on the user side, particularly on the investment commitment side which previously you said was $200 million, has that number changed?

No Ali, not significantly. It actually may be going down slightly as we go through 2003, but at this point no significant change.

Okay. And with regards to how Drax sort of plays out from here, can you give us some key milestones we should be looking at between now and year end to, you know, basically monitor the progress there?

I'll have (inaudible) cover that. He has been working on this directly.

Yeah. Ali, at this point the TXU Europe is performing under the hedge agreement with us. They have paid as was required for the power that was called in September. They have made their variable payments for the power they are calling this month through the end of this week. And so, what we expect to happen over the next 60-90 days will be discussions with TXU Europe about what we do regarding the hedge going forward? Whether there is a restructuring of the hedge? When that restructuring might occur? Whether there is a potential termination of the hedge? That obviously will be carried out together with the banks and the senior syndicates. And so, you will not see any particular milestones between now and the yearend. You will just see a process of negotiations and discussions with TXU together with our banks at Drax, which is really an follow on to the negotiations with TXU Europe has been having over the past couple of weeks with various creditors and counter parties in the market.

To follow up, would you think that this is a process you said that really takes 60-90 days or, you now, as some press reporters have speculated this is something that really comes to head within the next 10-15 days?

Well, clearly there is the possibility that TXU Europe will not be able to successfully restructure the hedge with Drax, either because we choose not to restructure and choose instead to terminate, or because TXU Europe isn't capable of restructuring the hedge. That however is important to distinguish between the loss of hedge on the one hand and Drax going forward as a viable business on the other hand. Obviously, we have engaged during the time period that we have now been given on account of TXU Europe making their payments and some pretty significant contingency planning with our bank group, who are very interested in making sure that Drax is capable of running as a merchant plant in the event that we lose the TXU hedge through the winter months through roughly March of 2003, given that this is the high-priced period in the United Kingdom.

Okay. Upon coming back to your for a sec, when you talk about additional potential asset sales beyond CILCO, can you give us some sense of where you are in that process? We have heard you say that, you know, you should get additional sources by next year, but can you give us some timeframe again at what we are looking at there?

Yeah Ali, you know, basically the teams are making some good progress. I think we are -- we should be able to reach agreement with a couple of these by the end of the year and [announce the] agreements that have been reached. But as you know there are going to be some approvals required from the various projects and we probably don't have a closing and proceeds flowing until sometime in 2003. But at least you would expect to see if things go well, at least a couple of these things signed up by the end of the year.

And in '03 we are talking, you know, first quarter, end of the year, and what kind of timeframe are you envisioning?

Bill Luraschi will respond to that.

Ali this is Bill. Yeah. Just to put a little more, as you can probably guess we can't get at the whole lot of detail, both because of the confidentiality obligations with the potential buyers and also business reasons. But I think it is fair to say -- to repeat a little bit of what Paul said that we are in advanced negotiations probably on ten different transactions. Now, I don't think all ten will actually hit, but a sizeable majority of that we do expect to hit. We think we will be able to start announcing deals hopefully as early as within the next 2-4 weeks. As far as the timing of closing the proceeds, though it is much more difficult to predict, because there are a number of consents and approvals that are necessary in each of the cases and virtually all cases will be project lender approvals, in other cases there will be sovereign or regulatory approvals, and so those are all processes that are hard for us to predict with a high degree of certainty. I think we will see some close possibly in the first quarter of next year, but second and third is probably more likely, and I think once we sign and get deep into the consent process, we can give a better update at that point.

Thank you.

Our next question comes from Dan Miller (ph) from UBS Warburg. Please go ahead with your question.

Dan Miller (ph): Yes. Barry, can you give us some more detail in terms of the liquidity and the banks where you are? And how much is drawn? How much is LOCs (ph) and that type of details?

Yeah it's -- at this point we are, you know, reasonably close to essentially fully drawn. Since the quarter's end our parent liquidity has increased up to $433 million. The consolidated cash balance is $1.346 billion. As of today, we've received a total of approximately 925 from our subsidiaries, which represents 82% of our expected dividends for the year.

Dan Miller (ph): And of the restricted cash, can you give us some idea where that is concentrated?

Well, it's spread out across most of the businesses, you know, through working capital amounts and cash balances, you know, across all the businesses. I don't have every business here to list, but it's not a significant shift from where we've been in the past.

Dan Miller (ph): Okay and is it right to say that the 2003 top 10 is still the same or at the $900 million level, what would the top 10 look like?

At this point we're not going to speculate on individual contributions, but in general the top 10 would be a reasonably close list. Obviously, EDC as I mentioned, is in that list and we believe we can do a good job of getting dividends out of that next year. But that one had some variability in it and we haven't included anything from Eletropaulo in that top 10.

Dan Miller (ph): Thank you.

The next question comes from Richard Hayden (ph) from [Omega Advisors]. Please go ahead with your question.

Richard Hayden (ph): Good morning. On the asset sales that are you are planning, the $500 million plus, what sort of current EBITDA contribution are they making?

I think in general terms, I'd talk about it in reference to kind of parent cash flow numbers and I think if, you know, if all 10 of those hit we are probably talking about numbers in the neighborhood between $60-80 million on an annualized basis. It depends on which 10 go and, you know, several other more businesses that haven't been contributing up to today, you know, because they are in construction or have, you know, some debt constraints on them. But I think that's the reasonable estimate.

Richard Hayden (ph): If we can go back to the revolver, what sort of -- can you give us a framework of the collateral package, which is being offered to lenders?

I think, all we can really say is what's in the tender documents. But effectively it's a pledge of this -- the subsidiaries -- domestic subsidiary shares and two-thirds, 65% of the foreign subsidiary shares.

Richard Hayden (ph): Is it fair for us to assume that would amount to 2 to 1 coverage for them?

I think it would be an excess -- others have reported on that. I think, Standard and Poor's has a report out on that. So, I don't know if it's appropriate for me to value that but it's a fair assumption.

Richard Hayden (ph): Is it fair incentive to them to go along in this. One other thing, it's my understanding that the state of Illinois today, is beginning reviewing the CILCORP (ph) transaction. And that there is a chance that they could approve it by yearend, is that your understanding?

I think that's accurate.

Richard Hayden (ph): So, it's a little bit of having schedule relative to prior expectations?

Well the expectations have, sort of, moved back and forth. The owner approval is not only the approval necessary. There is also a FERC and an SEC approval. And in the context of the hotstart (ph) or [dino] (ph) approval, we got a, about a month ago, we had a second request for more information and so, that delayed it a little bit from our original expectations. Now taking that into account, I think, we feel that things are moving exceeding well in the CILCO front. And we could have, and we're hopeful that, the closing occurs early in the first quarter as opposed to later. But since there still needs to be the approval from Illinois and the others. Before those start to come in, I think it's premature to speculate with the too high of a degree of detail.

Richard Hayden (ph): Thank you.

Operator. Is the operator there?

Jason West (ph) with Deutsche Bank, please go ahead.

Jason West (ph): Yeah, Barry could you just review what are the milestones for the refinancing packages as far as when we should, first hear, you know, [some of the] numbers on the approvals or acceptance levels and things like that?

The expiration, the early tender date for the tender is tomorrow at the end of the day. So after that point we'll hear some expectation, and as well as commitment dates for the banks. Although that, you know, that may be less, less definitive with an expectation of closing around beginning of the second week of November.

Jason West (ph): Okay and one other thing -- wanted to know how much room you have left now under the recourse equity to capital, you know, covenant with the banks?

Approximately 1.6 billion.

Jason West (ph): And you said the Drax, you know, potential write off there would be closer to 900 million?

That 's correct.

Jason West (ph): Okay.

That was less tax.

That's less tax, that's the pre-tax number, so...

Jason West (ph): Right, okay thank you.

The next question comes from David [Silverstein] (ph) from Merrill Lynch. Please go ahead with your question.

David Silverstein (ph): Hi guys. Two things. Just with respect to the bankruptcy of Drax and how they would cause a default under your new indenture, just looking to [9038], because it's a material subsidiary. How does that apply then to Brazil, as it's the same case and how much -- what are we also looking at in terms of a write off in Brazil?

This is Bill Luraschi. On this -- Brazil, obviously, has about 4 or 5 companies, the largest of which is Eletropaulo. It does not apply to Eletropaulo; they are not currently a significant subsidiary under that task.

Okay.

In terms of the write off, the exposure to Eletropaulo, net investment is slightly under 1.6 at the current point after, you know, current losses from foreign currency and other items.

Okay, I mean this is really a technicality, probably something you go out and, may be, get some sort of consent at a later with respect to Drax, not that we are actually for it?

Yeah I think it's important to say, we don't foresee the event that would trigger a default happening, though. So, I think the -- as I said before the more normal way is for UK lenders to exercise their (inaudible) is in fact that's what they chose to do, would not constitute the technical kind of default we're talking about. And so we think the event, both as Joe said earlier from the financial perspective is manageable for the foreseeable future, but also failing that, the more normal types of remedies would not result in this trigger. To the extent we felt that that situation was worsening. Yes we have recourse, not only as Paul said through, if these events caused a write off or if there is a sale of assets -- or sale piece of Drax to bring it below the task, but also failing that, some type of modification with that particular indenture holders.

Okay and that's the, just one other thing here. Previously you had indicated that you guys thought you could always just bridge the sale or CILCORP to deal with short term equity issues just didn't seem economically feasible. But under the new bank arrangement that you guys were trying pitch out there combined with the new exchange offer, what assets sale proceeds have been earmarked for, let's say for those facilities and does that then preclude you from doing any type of bridge for CILCORP at this point?

The -- as the proposal in general does have -- give the lenders access to the portion of assets or proceeds, so effectively it would, you know, those proceeds would go for that purpose.

David Silverstein (ph): Can you give us some specifics on that?

I can't really speak to what's in the tender document. There, you know, there obviously would be an asset share -- an asset sale sharing ratio in terms of pay down on the debt. It varies over time, but they would be getting a proportion of the asset sales of CILCORP and others as we move forward.

David Silverstein (ph): Okay thank you.

The next question comes from Mitchell Spiegal (ph) from CS First Boston, please go ahead with your question.

Mitchell Spiegal (ph): Just two questions. First can you explain where on the cash flow statement the proceeds from the Greystone (ph) sale appear, because I don't see it on the table, you provided, the 36 million and then my second question was could you just repeat a little a bit a slower the top 15 contributor year-to-date?

Sure, the asset-sell proceeds from [Graceden] (ph), which were minimal, are included in the investment line at this point as we had a net amount invested in the business during the quarter including the proceeds. The top 15 are -- lets see -- Ipalco - 181, Shady Point at 73, New York at 64, EDC at 55, Lal Pir at 37, Metropolitan at 36, Tisza at 33, Pak-Gen at 32, Uruguaiana at 32, Kilroot at 26, Tri-Gen at 24, Hawaii at 23, Warrior Run at 22, Beaver Valley at 21 and OBGC at 20, the total 678.

Mitchell Spiegel (ph): Can you give any more details in terms of the 900 million for '03, and what are the top five contributors?

At this point not, as the range is 900 to 1.2 billion as we mentioned with the 900 being the downside case, excluding all the results -- any cash from Brazil, Venezuela, the DR, the UK, Argentina and our [William's] businesses, so that's the 900 kind of downside scenario and obviously those things would vary to get us up to the -- roughly to 1.2. But at this point given the uncertainty and the process that we are in the middle of with respect to evaluating both our assets sales, our budget and our turnaround efforts, we're gonna hold off on individual projections.

Mitchell Spiegel (ph): But can we assume the other categories still, you know, represents 40-50% of whatever range you come up with?

It's unclear at this point, that's one reason we have the given the top 15 to give a little more clarity on that without, you know, spending the whole call reading every business.

Mitchell Spiegel (ph): Okay, thank you.

Operator we will take two more questions.

All right, our next questions come from Neil Weiner (ph) from Triage Capital Management. Please go ahead with your question.

Neil Weiner (ph): Good morning gentlemen. Can you give a little bit more light on your negotiations with Williams in terms in tolling agreements and the collateral, or any other plans that where there's is collateral that you have requested and are negotiating for?

Yeah we have with us Stuart Ryan on the call, the Chief Operating Officer of North American Regional. I will ask Stuart to respond to that.

Okay, just to review there is three business that sell to Williams at AES Southland and there are no collateral issues between us and Williams at AES Southland. In addition, AES [Ironwood] is another business and there aren't any collateral issues outstanding on that business. AES Red Oak is a business that has just started commercial operations and that business is in discussions now with Williams to try to come up with reasonably acceptable alternative security arrangement in light of Williams recent down grade and that business is optimistic that they will be able to come up with something here in the near future.

Neil Weiner (ph): Are you requesting cash collateral or LC from them?

The discussions involved both those things, but it's not required that there would be either one.

Neil Weiner (ph): And are there any other plans outside the Williams polling agreements that you are asking for collateral or collateral is required?

At this point, I think it would only include Drax under the hedging arrangement with the TXU of Europe.

Neil Weiner (ph): Okay thank you.

Okay, last question.

Our last question comes from Elizabeth Parrella from Merrill Lynch. Please go ahead with your follow-up question.

Yes. Just wanted to ask while this is not the focus right now for most people, didn't really make any reference to your earnings outlook for this year, and I think in the last earning comments that you were saying $1-1.10, you obviously cited a number thing looking ahead to the fourth quarter that are running, you know, adverse to expectations. Just wondering if you wanted to provide any comment on the earnings outlook?

Yeah. In general, with our previous guidance with a $1-1.10, I think, you know, obviously with the elections in Brazil, and the currency movements there, as well as in Venezuela, you know, we are probably closer to the low end of that range and depending on where things end up, you know, we could be slightly below. Obviously, the Rial is doing worse than we expected as we went into this part of the year, but the Bolivar, you know, so far to date is actually being doing a little bit better. So I think, you know, we are at around the low end or slightly below the low end of the range for the year.

Okay, thank you.

Thanks everybody for joining us today. We look forward to talking with you soon. Thank you.

Ladies and gentleman that does concludes your conference call for today. You may all disconnect and thank you for participating.