愛依斯電力 (AES) 2003 Q1 法說會逐字稿

Good morning ladies and gentlemen and welcome to the AES first quarter earnings conference. At this time, all participants have been placed on a listen-only mode and the floor will be open for questions following the presentation.

It is now my pleasure to turn the floor over to your host, Mr. Paul Hanrahan, President and CEO. Please go ahead, sir.

Alright, thank you.

Good morning everybody and welcome to our first quarter earnings call.

This morning, I'd like to provide an overview of the progress we've made during this quarter and then Barry Sharp, our Chief Financial Officer, is going to provide an update in the first quarter financial performance. We'll then open up the session for questions.

I'd also like to note we'd like to close this up prior to 9:00 because we have our annual shareholders meeting this morning and we'll have to end by 9:00.

Also, I'd like to point out that we have slides that have been posted on the first page of the AES investor relations web site and the title of that is, "Supplemental Financial Information, May 1, 2003 and Barry will be referring to that in his comments.

I'd like to start with a reflection on first quarter. Last quarter I talked about the steps we're taking in our three-phase turn around plan. And just reviewing quickly, the first phase which is complete, was the stabilization phase. The second phase, which is now in process is our performance improvement phase and the final phase we're aiming towards is a long-term growth period.

During the first quarter, we continued to execute on the second phase of this plan to build a stronger company, both operationally and financially. I'd just like to highlight a few accomplishments that we made during this quarter.

Following our $2.1 billion refinancing last December, we've executed some additional measures to strengthen our financial position, which is really one of our key goals going forward.

In terms of asset sales, we completed the SOCO sale for $500 million, completed the sale of Australia plants for $59 million, we reached an agreement to sell our Bangladesh plants for $127 million, and just yesterday we announced that we've completed the sale of our Africa plants, the Kelvin and Songas plants, for a total of $124 million.

In addition, we reached an agreement to sell a portfolio of projects in the Middle East called our Oasis business. We sold about a third of that, and that's committed to sell for roughly $150 million.

In addition, we sold a -- our Mountainview plant for $31 million and that's closed. If you add those up, we have roughly. committed sales or closed sales of approximately a billion dollars.

What that's given us is we've been able to, as a result of that, we've got strong liquidity, ending the quarter with $489 billion of liquidity. That really gives us a flexibility going forward of shifting from doing asset sales to bolster our liquidity to doing asset sales to enhance the value of the company or to enhance our credit profile.

I'd also like to talk briefly just about an update of our recapitalization plan. This month, as many of you know, we launched a private placement for approximately $1 billion of second priority senior secured notes. The proceeds of this offering will be used to fund bank debt, our tender offer, and to be used for general corporate purposes. Since the fact that this offer is in progress, I really can't comment on it, but I wanted to let you know that's going on. It's one more step in our overall plan to improve the credit profile of our company.

We've also always believed that we need the bond prices to recover to return to par before we could see any significant movement in our stock price. As you know, we're much closer to that goal today.

We've also successfully completed a consent solicitation to fix the definition of material subsidiary so as to avoid the possibility of any potential defaults related to bankruptcy events of certain subsidiaries, even if that was a very low probability. So this risk has now been completely removed.

On the operational front, a lot of focus on performance improvement. Our strategic sourcing initiative is well under way. We also, this quarter, established a captive insurance company and are beginning to capture the cost benefits of purchasing in bulk through all of our companies. We also have a lot of efforts going on in our individual businesses, sharing of best practices, working together to figure out how to reduce costs and we're beginning to see some progress in that front.

Let me talk a little bit about the restructuring office. I think as many of you know, this is the office that we set up to deal with troubled businesses in which we need some major debt or operational restructuring. We've added some businesses to this group recently. Originally, the restructuring office included Drax in Argentina, we then added Dominican Republic businesses and Gener in Chile and most recently we did an update on some of the activities there.

With Drax, we have a stand still agreement with the banks, and that continues through the end of this month. Working with the banks there towards a solution.

In Brazil, we've got several issues going on there, but the primary one is Electropaulo. We're continuing our negotiations with BNDS, we believe there's a workable solution that could work to the benefit of both AES and the Brazilian government. We're hopeful, but we also recognize that the whole code debt is in default and that the shares of Electropaulo are pledged as collateral to BNDS.

BNDS has actually taken steps, preliminary steps, that would allow them to foreclose on the shares of Electropaulo held by Transcast, that's the subsidiary that holds the noncontrolled shares, if they decided to do so. But I do want to emphasize that with the exception of corporate support of $50 million to our AES Sul business, none of our debt in Brazil portfolio was recourse to AES.

(INAUDIBLE) so we're currently in the process of negotiating a waiver related to a $30 million principle payment which was in default several months ago. Obviously we're working hard and trying to come up with a solution that's going to benefit all the parties but there's really no assurance that we can be successful on that front.

I also would like to talk about corporate governance. We have a couple of new additions to the Board. We have some new members this quarter, Charles Rossotti and Phil Odeen. Both of those people come to us with some very strong public and private sector experience and we're very pleased to have them joining us.

Also, as you saw, we announced that the earnings from continuing operations of 13 cents per share, they're in line with our expectations. If you deduct the effects of the foreign currency gains that we have, but our guidance remains at 50 cents per share.

I'd like to turn it over to Barry Sharp now, who will go through that in more detail.

Thanks, Paul.

I'd like to just go through a brief summary this morning of our first quarter 2003 so we can get to questions before our shareholders' meeting.

Our press release package includes significant detail and discussion about earnings and cash flow along with the schedules that Paul mentioned, that are posted on the web site. Starting with, on the cash flow front, we are on track with our expectations for the year. As cash flow from operating activities, on a consolidated basis, which is shown on Slide 6 of your package on the web site, was $446 million for the quarter. This represents GAAP cash flow from operating activities on a consolidated basis. After all interest payments at our subs, as well as the interest on the parent recourse debt.

Our performance to date is generally in line with our expectations for 2003, although slightly ahead of pace. Primarily, because we've -- we continue to hold 100% ownership interest in Drax which will likely not be the case for the full year, as well as we, in the cash flow numbers, received some benefit from the accrual but nonpayment of interest at places such as Transgas and ELPA.

Slide 6 also shows the components of first quarter cash from operating activities divided between our subsidiaries and the parent. Operating cash flow at the subsidiary level for the first quarter was $633 million. Out of that, maintenance capital expenditures at the operating businesses totaled $94 million. These additions were primarily at IPL, Electropaulo and (INAUDIBLE), our large utility businesses.

Growth CAP EX or other investments in new businesses were $287 million for the quarter. These primarily related to our assets under construction, most significantly Ross la Fan in Barka, Anres, Panama, Granite Ridge and Mil Paulo were completed. Also at the subsidiary level we repaid $226 million of financing during the quarter, and as a result, the cash at our subsidiaries increased over the quarter by $177 million to a total of $759 million at quarter end.

At the parent level, distributions from our subsidiaries to both the parent and what we'll call qualified holding companies, which are unrestricted holding companies, subsidiaries of the parent where we can leave cash unconstrained, the total was $180 million for the first quarter.

This amount was lower than our expectations for Q1, it's primarily because of a delay in the [Apaco] dividend. The dividend was made early in the second quarter, as opposed to our original expectation, which was late in the first. This delay resulted from the initiation of a notification process implemented by the Indiana commission in connection with the approval of financing for IPL solutions and control equipment expenditures coming up over the next year or two.

It's worth noting that we previously referred to these distributions from the parent and qualified holding companies, after netting out certain corporate level costs, as a measure we called parent operating cash flow, or POCF. As a result of the implementation of Reg G, for nonGAAP financial measures, we have revised our nomenclature to refer only to the distributions received by the parent and QHC's, consistent with the way we looked at those distributions in the past, we've just renamed it.

This corresponds to the GAAP cash flow terms that are included in the consolidated statement of cash flows as well as the schedule 1 that we include in our annual 10 k.

For those of you that want to continue to track that previous POCF-type measure, a good proxy for what we deducted from distributions, which was corporate costs, would be to use the SG&A line on the P&L on the quarterly statements.

To continue, during the first quarter, the parent also received approximately $630 million in net proceeds from asset sales, as Paul mentioned. And this ultimately resulted in a repayment under our refinanced bank loan of $288 million during the first quarter at the parent level.

Ending liquidity at the parent, including that at the QHC's as well as available revolver credit of $28 million increased to an aggregate of $489 million at the end of the first quarter. This has been a strong quarter for us as we significantly improved liquidity at the parent level both through cash flows as well as sales of assets.

Turning to the full year of 2003, which is shown on Slide 7 of the package on the web site. For cash flow, we continue to expect consolidated operating cash flow of approximately $1.5 billion. Of that, approximately $2.2 million is expected to be generated by the subsidiaries during the year. With the remainder down to $1.5 billion, representing the reduction using corporate costs and interest payments.

Distributions to the parent and qualified holding companies, we continue to expect to be approximately $1.065 billion, and that's consistent, again, with our earlier projections from a couple months ago.

Additionally, with net asset sale proceeds now anticipated to be $990 million over the course of the year based on closed as well as agreed asset sales to date, we anticipate repaying approximately $975 million in parent debt by the end of the year, including estimates of both the asset sale proceeded repayments as well as the cash flow sweeps that would happen at the very beginning of 2004.

These amounts, though, do exclude any additional repayments that may occur as a result of the announced but yet to be completed tender private placement for new bonds and additional bank loan repayments that Paul mentioned earlier.

Turning to earnings. Earnings per share for the first quarter from continuing operations was 13 cents a share. When combined with earnings from our discontinued businesses of 4 cents we had a resulting net income for the quarter of 17 cents a share.

As Paul mentioned, these results today are consistent with our expectations for the full year of 50 cents a share from continuing operations. There are a few components of note included in the quarter I think are also important to understand. First of all, included in the first quarter is a net 3-cent gain from the impact of all foreign currency transaction gains, losses, as well as FAS 133 mark-to-market amounts.

In addition to the gains that we saw in the quarter in Brazil and Argentina, we also experienced losses on intercompany loans of significance in the Dominican Republic because of the devaluation of the peso during the quarter.

Additionally, a loss representing approximately 3 cents a share in the current earnings arises from our current 100% ownership of Drax. You as will remember, we wrote off our investment in Drax last year and we are currently carrying it as an asset held for sale. These accounting losses may end up being reversed in whole or part depending upon the ultimate resolution of our ownership position with the Drax lenders.

We also wrote off this quarter an amount of approximately 1 cent per share related to the termination of a development project in the United States.

Turning to our business segments, our four operating segments generated combined income before income taxes of $253 million for the first quarter. It's important to remember that these amounts and the relevant quarter comparisions also now include the impacts of foreign currency transaction gains and losses as well as FAS 133 mark-to-market impacts. We no longer provide comparisons based on pro forma earnings analysis, although we have included the significant components of these factors in our press release detail, for those who are still interested.

On a geographic basis, income before tax for the quarter was generated 47% from North America, 21% from South America, 9% from Europe and Africa ,16% from Asia and 7% from the Caribbean.

On an overall basis, operating margins, or operating income including SG&A, for the quarter were approximately 26% versus 29% for the first quarter of 2002. The decline, which arises in the distribution segments, masks an overall improvement in the aggregate operating margins in our generating segments where the operating income contribution increased by 12% over the first quarter of 2002 to a total of $405 million. The aggregate margin percentage improved to 34% across both segments.

This improvement was despite the declines in margin and margin percentages associated with two of our most significant facilities, Drax, a competitive supply business, because of the termination of the TXU hedging arrangement at the end of the 2002, and Shady Point, where in 2003 we had a contractual step-down in prices that began in January. This improvement continues to show delivered progress in our efforts focussed on performance improvement and cost control throughout our portfolio.

We also benefitted in the first quarter of 2003 from higher prices in the New York region for our Eastern Energy plants, particularly compared to the first quarter of 2002.

The operating margin for the large utility segment declined to 23% for the first quarter, down from 30% for the first quarter of 2002. Due primarily to the devaluation, quarter over quarter, related to the Brazilian real and the Venezuelaian bolivar, as well as lingering effects on demand from rationing recovery in Brazil. IPALCO showed an increased contribution resulting from cooler winter weather.

The growth distribution businesses showed a decrease in margin during the first quarter, this was primarily due to reductions, again, quarter over quarter at Sul, arising from the devaluation of the real as well as lower margins at Telasi in Georgia and at EDE Este in the Dominican Republic. Net interest expense increased in 2003 primarily due to higher interest costs associated with the loans of Electropaulo and Drax, as well as the inclusion of a full quarter of Electropaulo's consolidated results in 2003. We began consolidating Electropaulo in February of '02.

Interest expense also increased with the full quarter of operations at AES Puerto Rico, as well as a result of the corporate refinancing that we completed at the end of 2002.

We ended the quarter with total assets of $32.9 billion primarily because of reductions that were associated with asset sales completed during the quarter, primarily Cilcorp, Kelvin, Mount Stewart and [EcoGen].

So at this point, I'd like to turn it back over to Paul.

Okay. Thanks, Barry.

Operator, at this point we'd like to open the call up for questions.

Thank you. The floor is now open for questions.

If you do have a question, please press the numbers 1 followed by 4 on your touch-tone phone at this time. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key.

We do ask that while you pose your question that you please pick up your hand set to provide optimum sound quality. Once again, that is 1 followed by 4 to register your question at this time. Thank you.

Our first question is coming from Lasan Johong of Baylock and Partners. Please go ahead with your question.

Hello, can you hear me?

Hello.

Hi, how are you? Quick question, you mentioned that New York plants contributed some additional earnings to your first quarter. Would you be able to highlight what that amount was or how aggressive that (INAUDIBLE) were in New York?

On a year-over-year basis, at the margin level, we improved our margin by about 17 or $18 million from the eastern energy plants. And I think, you know, for the rest of the year, we continue to expect, as we said before, kind of an average price of around $40 a megawatt hour on and offpeak with about a $50 per megawatt hour price.

It's a good point also to mention that for AES in the U.S., probably 10% of our cash flow, only up to 10% is really affected by spark spread because many our businesses are solid fuel and/or contracted. In New York, of course ,all of our generation, 1200 megawatts is coal-fired and we have at the best plants, a variable cost of about $13 per megawatt hour.

Great.

Just shifting focus back to some of the more troubled areas, in Electropaulo and Drax, in particular with Electropaulo, could you go over, again, what would happen if Electropaulo goes into an administrative receivership? How that would that affect your cash flows, balance sheet?

It looks to me that it might actually be somewhat beneficial in terms of debt reduction and consequent reduction in interest payments. Would that be the right way of looking at it?

Yeah.

I mean, effectively, we have no cross default anymore, as Paul mentioned, associated with Electropaulo being previously a material subsidiary. It is not currently a material subsidiary. So that wouldn't be a cross default.

In terms of the effect on the financials, consistent with where we were at the end of the year, the net assets of Electropaulo or the equity on our books for Electropaulo, is actually, when you combine it with the rest of Brazil, about a negative $1 billion. So that there would be effectively a positive benefit to the equity if it were to be removed.

But the -- you know, the likelihood is that, you know, it would be something less than that if there's some reduction of ownership interest or some piece of that whole portfolio were to go without losing the rest.

Great.

With Drax, there was talk and discussion about PXU making a lump-sum payment for obligatoin of the contract. I'm wondering what the status of that is?

The TXU companies that were the counter parties to Drax are currently in receivership administration in the U.K. AES Drax is a member of the Creditors' Committee of that administration, both at the TXU Eastern Europe Trading level, which is the counterparty, and the TXU Europe Group level, which is the guarantor.

As a result of our participation on the Creditor's Committee, we cannot discuss anything related to the disposition, the ultimate disposition of that administration in the U.K.

But is it still true that there is some sort of a settlement payment coming due?

There is an expectation, which has been widely reported in the press, that given the substantial sums that TXU Europe Group received for the sale of their retail business, that as a final tying up of the administration, those sums will be paid to creditors in the TXU Europe Group.

I see.

And does that mean that initially the payment will go to the Drax holding company -- I'm sorry, the -- what was reflected as Drax HoldCo, not the energy part?

The Drax business has a claim as a creditor of TXU Europe Group because of the default under the contract by TXU Europe Energy Trading. Any payment out of the administration would go to the creditors of the administration, which would include the Drax Operating Company, the place --

Okay, the operating company.

The place where the asset resides, which is known as AES Drax Holdings.

Right.

One last question. On the refinancing or the current tender offer and private placement of $1.4 billion, there seems to be an interest in increase in the size above and beyond potentially $1.4 billion. I know your limit is $1.3 billion for the tender offer.

Any chance of increasing that given that the average interest costs on the private placement seems to be less than what you would be having cheaper interest costs with an increase in size of the prior placement?

Yeah, unfortunately, we really can't discuss that right now. Just for clarification, it's a one point o -- it's $1 billion, not $1.4. But beyond that, we really can't discuss that because the offer's in progress.

I see. Thank you very much.

Okay, thanks.

Thank you.

Our next question is coming from Elizabeth Parrella of Merrill Lynch. Please go ahead with your question.

Thank you.

Just following up on Paul's comment about improving the overall credit profile of the company, do you feel that some type of equity issuance is a -- an important component of that improvement?

You know, Elizabeth, we tend to sort of dodge this question all the time. The real point is, I think, that we need to be competitive in this industry going forward, we have to significantly improve the credit profile.

I think the things that are going to play into that are, operating cash flows and how much of that we use to pay down debt and how much that helps boost the coverages. Asset sales, you know, we've done the ones we have to do for the liquidity purposes, beyond this it's really for credit enhancement. And incurring equity would be a part of the picture in the long-term because that would, I think, fast-forward you in terms of your credit profile.

So I think in the long term it's very likely it would be a part of it. But we'd never comment about what we're planning to do to the short term.

Okay.

Can you give us your take on the situation with IPALCO in terms of this dividend-approval process? Do you intend to pursue the court appeal?

That's a good question.

Really what's happened, just by way of background, is as part of our request for approval of financing to the commission for IPL, the order that came out approving that, which was a positive thing, also put in place a process whereby when we make a request for dividends, there's a 20-day period during which the commission can ask to see more information and potentially block a dividend.

You know, if you think about what's going on in the industry, what's going on with some of the owners, what was happening with AES six months ago and the position we were in, it's not unreasonable for commissions to be thinking about, how do you protect utility companies from owners that might try to strip out all the cash for when they get into situations where they're in distress?

I think what's changed now is, I think the concern about us being in a distressed situation is really -- has really been reduced. If you look at what's happened to our bond prices, you know, that fear has subsided quite a bit. So I think that element of it makes it less troubling to us.

I think at the same time it's not our intention to strip excessive amounts of cash out. But I think with the dividend profile we're thinking of, we don't anticipate that there would be any problem. So it's -- it's not something where we're worried about it, it's something, of course, we're - we'd like to get more clarification on, but in general it's not something that we're troubled by.

Okay. Two other quick questions.

You mentioned foreign currency transaction loss in the Dominican Republic. I don't think you really broke that out on the supplementary schedule. Can you tell us how much it was?

Yeah. It's about $22 million on a pretax basis.

Pretax?

Yes, so roughly just under 3 cents.

Okay.

And one last question on the earnings forecast or guidance of 50 cents, how are you treating the gains that you would, I think, most likely be booking on the retirement of debt in that outlook?

They're not included in that number at this point. We haven't included any transaction at this point until we close it.

Okay. Thank you. Thank you.

Thank you.

Our next question is coming from Shanon O Marra of Loomis Sayles. Please go ahead with your question.

Just a couple of cleanups from the comments.

Barry, can you tell me, can you split out recourse interest expense? I see that the line now includes cash payments for interest and taxes. Can you split those two out for the quarter and for the projected 2003 year?

On the -- for the year, the cash payments for interest and taxes is on, let's see, it's on there, Slide 3, and it represents $584 million for the year.

Of that, about $10 million is for taxes and the difference is for interest. And almost all of the -- as trust preferred dividends. For Q1, just about all of that $158 is interest.

Okay.

And can you go over, again, what you were saying about the difference between parent operating cash flow designed previously and total distributions from subsidiaries, how you're reconciling that?

Parent operating cash flow was the distributions from subsidiaries, less corporate costs, payments for corporate costs on a cash basis.

So effectively, what we've gone to is the GAAP definition of distributions from subsidiaries and eliminated the reduction for corporate costs. The corporate cost reduction was a cash flow measure that needs, you know, dramatic reconciliations to the balance sheet for timing for accruals and prepayments and everything else. But on an annualized basis what shows up in SG&A pretty much reflects that number.

So I think, you know, in the context of moving, you know, to continue to show cash flow information as well as the consolidating schedules for operating cash flow, we figure, if people want to continue to make that kind of parent operating cash flow measure, which some banks will do because it's a covenant measure for that purpose, then that's okay.

But I think we're just going to continue to give the distribution so people see what's coming up from the subs.

Okay. Thanks, that's it.

Thank you. Our next question is coming from Ali Aga of Belmont Securities. Please go ahead with your question.

Thank you.

Just a couple of quick ones.

Barry, I wanted to first off clarify, when you said at the beginning that the 13 cents that you reported on GAAP basis included a 3 cent gain for FX and FAS 133, et cetera, was that netting everything out, including Dominican Republic, et cetera or was that just Brazil?

No, that's everything, Ali. All net to 3 cents positive.

Okay. Okay.

Separately, Paul, a question for you.

As you look at the portfolio of businesses that you have today and what you consider core businesses, including or excluding stuff that you may be selling in the future, what do you think is sort of the core earnings power of this company assuming you don't add any new businesses? And how far away from that are you today based on how well these businesses are performing?

Well, I think a lot of this is going to come from the performance improvement efforts that we put in place. You know, I think you could see some significant improvement in the earnings power of the core group of businesses as we go forward. I don't want to give you any particular numbers now because I think we're refining that as we go forward. But, you know, clearly it will go up if we're successful in these efforts.

That's why I think we put so much effort in going forward with that performance improvementplan and why we've organized the company where we have with splitting out generation, the integrated utilities and putting the more troubled businesses in the restructuring office.

So I can't give you a detailed number right now but I can say it's significantly higher.

So we should think of the 50 cent, should we think of that as sort of a launching pad or how should we think about the earnings that you're going to generate this year?

50 cents is a good number for this year. And I think that's right, I'd look at 50 cents alaunching pad for continued improvement.

Okay.

Last question, just clarifying the Electropaulo situation.

As you probably saw, BNDS is talking about publically selling the Transgas shares. Presuming that that transaction happens, what does that mean in terms of just the ownership profile as it stands today, or what changes if they do that?

Bill Brandt, I'll let him answer that.

First, Ali, I think that what we've seen from BNDS in the last 18 hours or so that's been reported is on the one hand, a legal claim by the bank that they can sell the preferred or nonvoting shares. On the other hand, a reiteration, and a desire by the bank to go out of its way to say that they don't expect to do that and would much prefer a commercial solution. Which I think in the context of the negotiations that we've been having, fairly intensive negotiations, helps to frame the initial announcements that they are potentially moving to act against the nonvoting shares.

In terms of the actual effect of moving against the nonvoting shares, were those shares to be sold, the preferred shares which carry no control rights at all, would be, upon sale, the proceeds of which would be used to pay down the Transgas debt by an amount equal to whatever was raised in the auction for the sale of those shares.

And so you would then theoretically have a party or parties who held the Transgas preferred shares and you would have a reduced amount of debt owing to BNDS as a result of that transaction.

Okay. But I understand that those are nonvoting so they don't take away control but what would they do to your economic interest in Electropaulo?

They would reduce the economic interest by --

A little bit more than half, I believe.

-- by roughly 54% of the overall consolidated investment.

I see. Okay. Thank you.

Thank you.

Our next question is coming from Richard Madden of Omega Partners. Please go ahead with your questions.

Good morning.

Could you spend a moment talking about Venezuela and the potential there?

Yeah.

EDC is -- things are beginning to recover in Venezuela. The general strike is over now.

That's -- the effect of the general strike on EDC really was two fold. One was, they did not have their collection offices open so that the percentage of collections went down, which had some impacts on their liquidity, which was a concern at the time. But the second part was, you saw, just a general reduction in demand tied to the reduced economic growth of the country.

Both of those things are on the mend now, particularly on the collection side. Things are getting back in line to where we're back at normal levels of collections. So that's very positive.

We still have exchange controls in place which will prevent any cash coming back to AES. But at the beginning of the year, we did not project to have any cash coming back to AES.

Looking out longer term, that business really has the potential to dividend reasonable amounts of money to AES, probably run rate for dividends should be in the range of maybe $100 to $150 million. They could even in some cases go as high as $200 million on a going-forward basis.

But the real question is, at what point in time do exchange controls end and when will the economy go up a little, get back into -- get back on track in terms of growth? But they think that -- probably not -- I wouldn't count on it being for 2004, but for 2005 I would expect things to be back on track the way I mentioned.

Thank you.

One other quick question.

The $180 million CAP EX this year, what might that be next year?

It should go down for the discretionary CAP EX for the things we already have, down to roughly $50 million at the corporate level.

Now, that could change. If we decide to make any additional investments, again, entirely discretionary, that number would go up. I think what would be very different, though, is that prior to making commitments to make those investments, we'll have that money committed and on hand.

I think in the past we had started construction of projects without having the financing completely buttoned up, without having the equity in hand and going forward that will be a change in the way we decide to go forward with projects, we'll actually have the cash committed and on hand.

So it will be dealt with from a liquidity standpoint before we start. But with what we have in place right now, that would be $50 million for 2004.

Sir, does that answer your question?

Thank you very much.

Thank you, our next question is coming from Taryn Miller of UBS. Please go ahead with your question.

Good morning.

Barry, can you please get us from on page - Slide 6, the delta between the $118 cash to parents net of investments and subs and the $180? Can you bridge at that gap for us?

Basically, it's the cash distributions less the investment. So if you actually look at page 3, which is the sources and uses, it's the total distributions from subsidiaries of $180 million minus the investment in subs net of $64.

Okay. Thank you.

Thanks.

Thank you.

Our next question is coming from David Silverstein of Merrill Lynch. Please go ahead with your question.

Hi guys.

Just comparing the information you put in this supplemental financial information from earlier in the year, February, I think it was. You did not change at all the guidance in terms of the total operating cash flow, which you preannounced last week, but also there was no variation at all in the amount that you expected from the top 15 businesses, it appeared.

I was wondering if you could review again a couple of key components in here, including Gener (phonetic) the likelihood of distributions being received, the timing of which, and any other kind of issues that you kind of review that gives you confidence that you won't have any problems.

Yeah, I think that's true.

The guidance is still pretty consistent with where we were back in early February. You know, a couple of months ago.

The first quarter has come through for the most part, as we expected, although I did mention the delay from IPALCO had some effect on the actual results for the first quarter.

But I think looking at those businesses, you bring up Gener, we do expect that towards the end of 2003, that is somewhat dependent on our ability to reconfigure the financing at the Gener level, which we have confidence we can do, but nonetheless, in order to get that opearting cash flow out of the business we have to smooth out those maturities at the Gener level. So clearly there's potential exposure on that one.

On the other side, we continue to see $140 million from dividends from IPALCO, and as Paul mentioned, that would fit with our view of reasonable amounts out of that business under the current plan.

Also, as you can see at Eastern Energy, we've had distributions of $39 million of$ 70, and given the timing and the water fall, we've had a good first quarter that could have some positive benefit as we move to the later part of the year.

Can you give us any kind of sense in terms of dollar per megawatt hour impact on the distributions from Eastern Energy? Because we've seen pretty high power prices in this summer, the forward market for New York is pretty strong as well.

Yeah, I mean, part of the problem, Taryn, is that the cash sits there for six months.

This is David, not Taryn.

Oh, David, I'm sorry.

David, the cash will sit there for six months, soit's not a direct correlation with what's actually happening in the business on an instantaneous basis. But we would expect to see some of those benefits toward the end of the year and potentially improving the early part of '04, for some of that summer period of time.

Okay. And in terms of the other number of the $365 there, how much of that is -- of that "other" is still expected from Latin America?

It's a small amount. In the top 15, we've distributions anticipated from Gener, Alicura in Argentina, and Uruguaiana in Brazil, so the rest of it is very minimal, we expect really nothing else from Brazil or Argentina.

The total, the total proceeds, it's about 4% of that number actually is expected to come from Latin America.

4% of the $365?

Yes.

Thank you very much. I'm all set.

Thank you.

Our next question is coming from Maura Shaughnessy of MSS Investment Management. Please go ahead with your question.

Good morning.

Two questions.

First, on the maintenance capital expected this year, $500 million, what's expectation for next year? And are there two or three of the subsidiaries which are a large component of the maintenance and with the asset sales, is there a chance that that maintenance capital number is actually less?

This year, a large portion of it, and into next year, would relate to the completion control equipment going in place at IPL as well as some significant additions in the neighborhood of about $80 or $90 million at Electropaulo. So those make up the two largest pieces.

So what's the specific number at IPALCO for this year and next?

Uhm, I think in total it's about a total expenditure of between $250 and $300 million.

I think the ongoing run rate is expected to be about $350 for the plant.

By the time we get all the way through it.

And so with the asset sales, is there a chance that '04 is less and what is based on or based on the current assets, does that mean that that maintenance capital just falls a lot in '05 or what's the expectation?

I think most of it, again, is happening at the distribution businesses which are not subject so the asset sales. So several of the asset sales are newly completed construction facilities such as the businesses in Bangladesh and others. That really comes out of the growth CAP EX line, even though most of it's been spent. So other than kind of routine run rate of, say, $350 a year, I wouldn't see it changing much from the current asset sale level. As primarily we've been selling generation businesses.

So the expectation for next year, Barry, is $500 million as well?

I think it would be closer to $350 to $400.

Okay.

Just in the -- it says -- I forget what page that is, six or seven, $700 million in terms of growth investment and other. What is "other"?

We call it "other" because it's an equity investment in the parent company column. That's our equity investment in our subsidiaries. So the $700 million really is all growth capital investment at the subsidiary level. And for the most part, that's, you know, businesses that are under construction.

For the first quarter, it represents, you know, significant investments in Anres in the Dominican peculiar, Barka in the Middle East, completion of Granite Ridge in the northeast and most significantly, about -- just about half of it is Ras Laffan in the Middle East.

What's that number look like for '04?

For '04 at the parent level, as Paul mentioned, about $50 million. In terms of our equity investments into our subs. And that would translate into, you know, roughly closer to about $150 million total for the company in terms of both what the parent is funding and what's being funded by outside financing.

Another question, I'm not sure if you can answer or not, because it has to do with the debt deal.

Started out with approximately a billion, up to a billion 250 in terms of the initial deal that was announced earlier this week. $250 million that have could be used for general corporate purposes. Is that amount going to change if the amount of the bond deal changes?

Unfortunately, Maura with the private placement we can't comment on details.

Okay.

So but just let me understand that the repayment of the $975 that's shown on page 7, that assumes that you only do, what? You only do approximately the billion in deals this week?

The $975 is base on the assumption assumption that we'll pay down the debt with just asset sales and cash flow sweeps at the end of the year in the current bank deal.

So there are no impacts of this potential financing that is in a private placement right now in that number.

Okay. Great, thank you.

All right.

Operator, why don't we take one more question.

Thank you.

Our last question today is coming from Kate Jacay of Seneca Capital. Please go ahead with your question.

Hi, most of my questions have been answered but I noticed in your release you were talking about Shady Point being down due to step-down in contracted capacity payments.

Can you talk about 2004 outlook for Shady Point distributions?

Yes, basically it did step down, it's a one-time notch in the capacity payment but it remains at that flat gross slightly after that. So 2004, you'd expect it to be about the same, to slightly higher.

Great, thank you.

Okay. Well, thank you.

A couple things I'd just like to comment on before we close.

The first is that we're planning to hold our investor conference in September of this year. That will be a chance for us to give you an update on the progress we've made with our turn around efforts. We'll also talk about what we see going forward for the new AES. And the investor relations, our people there will be getting out information to you about the details of that conference.

And then finally, I'd just like to take a moment today to recognize somebody special. Our Chairman, Roger Sant, I think many of you know, will be stepping down today. Dick Darman, who's with us in the room today, will also be stepping up to be Chairman of the company when we go to our Board meeting process later today.

I'd just like to mention that it was early last year when Roger stepped back into the company and really interrupted his life. Since that time, he has selflessly served the company.

He has been completely committed to our turn around efforts, and to restoring the value of the company for the bond holders and the shareholders. I think from all of us here in the company, his leadership, his advice and counsel, have been invaluable. I think it's only fitting that the market now is beginning to recognize the contributions that he has made to the company. As you see our bonds getting close to par, it's one of the things he really pushed very hard when I stepped in as CEO, that it's something that we had to do to restore value to the company. So I think it's a fitting tribute to his efforts and accomplishment. Both Dick and I have been extremely pleased that Roger has agreed to stay on the Board as an active Board member. We look forward to him being on the Board with us for a long time.

With that, I'd like to end our call today. Thank you for joining us. I look forward to talking with you next quarter. Thank you and good day.

Thank you, ladies and gentlemen this does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day.