愛依斯電力 (AES) 2003 Q3 法說會逐字稿

Good morning. Welcome to the AES third quarter earnings conference call. At this time all participants have been place on a listen-only mode and the floor will be open for questions following the presentation. At this time it is my pleasure to turn the floor over Mr. Paul Hanrahan. Sir, you may begin.

Okay. Thank you for joining us this morning. Today I will comment on the financial results of our third quarter and talk about some other highlights for this quarter and issues facing us going forward. Barry Sharp, our CFO, will provide a detailed report in the financials and an update on the guidance for this year. As always, the comments we will be making today will contain forward-looking statements and as you know these entail some elements of risk.

These risks are discussed in detail in our various public filings that I encourage you to review. First I would like to make a few general comments about our financial results for the quarter. We have been pleased with our performance Year to Date. For the first nine months of 2003, our earnings from continuing operations were $.42 cents per share. Our Operating Income was $1.5 billion dollars, consolidated operating cash flow was $1.1 billion dollars and distributions from subsidiaries were $799 million dollars. These results were all generally in line with our expectations. The third quarter, our earnings from continuing operations were $.07 cents per share which is net of an $.08 cent per share write off in connection with our Bujagali project in Uganda. Barry Sharp will discuss these results in greater detail later in this call.

Now to cover highlights for the third quarter. Some of the major achievements in this quarter were covered last month, so I will only briefly review some of these. One of the things we did this quarter, we continue to reduce debt at the parent level. Net pay out at parent debt during the third quarter was $605 million dollars. This brings the total debt reduction since the beginning of 2003 to just over $1 billion dollars. We also made significant progress with respect to the restructurings of our businesses in Brazil and Chile which we would expect to be finalized by year-end. I'll talk about this in detail in a few moments. We also refinanced our $950 million dollar parent revolver and term debt facilities in July, which resulted in much improved profile of debt maturities and lower interest costs. With respect to asset sales, we reached an agreement for the sale of our interest in Midway Power in the UK.

We are also on track for the closing of our previously announced sales of interest in some of our Middle East businesses by the end of this year and the Bangladesh business sales by the end of the first quarter of 2004. Some of the other dispositions of businesses where it was uneconomic for us to continue were the Bujagali Project in Uganda, our Telocity business in the Republic of Georgia and the Drax business in the UK. A major milestone for us this quarter was reaching the financial close on our 1,200 megawatt combined cycle gas turbine project in Cartagena, Spain. This is a contract generation business. This is a good project with 24-year contracts for the supply of fuel and for power purchase. The total financing for this project amounts to $890 million dollars and the net investment from AES is anticipated to be $120 million dollars or less. It is important to note most of the investment has been funded. Also I would like to talk for a moment about our performance improvement initiatives because we have seen encouraging signs of the progress with these performance improvement initiatives and the global sourcing initiatives across the company. For example, with performance improvement, the 12-month rolling average availability of our generation fleet, which is one of our more important metrics improved from 84 percent to 87 percent over the past nine months.

With global sourcing, 5 months after launching this initiative we have implemented strategic sourcing transactions that will result in $55 million dollars of new operating and Capital Expenditure cash savings across the company. Now I would like to update you on the activities of the restructuring office. First let me start with Brazil. On September 8th, we announced that AES and the Development Bank of Brazil, called BNDES, went into the structuring of Eletropaulo holding company debt of $1.2 billion dollars. Pursuant to this MOU, AES will contribute its stake in Eletropaulo, AES Uruguaiana, AES Euro Ghana, and the second stage of this transaction, AES Zul into a new holding company. BNDES BES will convert approximately $600 million dollars of the current Eletropaulo holding company debt into a 49.9 percent equity stake in this new holding company. Although the remainder of the $1.2 billion dollars debt, which will be some $515 million dollars net or prepayment, will be assumed by the new HOLTCO and be reprofiled over a period of 10 to 12 years. AES is going to have a 50.1 percent interest in this new company. We believe the restructuring when completed will put our business in Brazil on the right footing to go forward and we are making good progress with respect to the documentation and implementation of the restructuring and expect it to be completed by the end of this year. Let me move on to Gener in Chile. As many of you know, our AES Gener business has large debt maturities coming due in 2005 and 2006. We will soon initiate an equity of the companies. The transaction will include $300 million dollars of new equity, $400 million dollars of new debt and the restructuring of certain subsidiaries of Gener.

This transaction will reduce Gener's debt by over $300 million dollars, significantly extend its remaining maturities and return it to investment grade status. AES will benefit by having a stronger Gener business and by the effective deleveraging achieved by this transaction. Given the expect of return levels for the equity investment, AES is prepared to contribute a substantial portion of the required equity, but as a result of the strong showing of support from Chilean and U.S. investors, we will have the high class problem of choosing between dilution with other investors money or investing in a business in a country we know and like very much. Now let me talk about some of the things that are not going well with respect to some of the businesses in the restructuring process. As you know we spent a great deal of effort cleaning up our businesses that are not performing. One of the purposes of establishing the restructuring office was to evaluate the viability of troubled businesses and decide whether such businesses can be restructured to be economically viable. In those cases where they can not, we will likely have to make the decisions to dispose of those businesses and this could obviously result in writeoffs. We still have a few businesses where we are continuing to assess whether our restructuring efforts can result in businesses that have sound economic futures. For these businesses, Barry Sharp will cover the financial impacts with respect to the AES Balance Sheet, Income Statement and Cash Flows. This will give you a sense of the range of the potential impacts in the clean up category. Those who include the following: First in the Dominican Republic. As we discussed in our second quarter call, we have concerns regarding Dominican Republic, we have interest in three generation plants and one distribution company. The country's economic crisis and the associated currency devaluation have resulted in significant liquidity problems for the power sector. So you know, the - Spanish utility has turned over two of its distribution companies back to the DR government in exchange for a note.

It was announced this week the government intends to resell these companies as well as the 50 percent piece that the government owns of our distribution company called Ede Este. We think it is a positive development as there seems to be a clear interest in resolving the problems in this sector and we will work with the government at the multilaterals to develop a long-term sustainable solution. Until such a solution is obtained, however, we are obviously unable to put any new money into these businesses and our investment in these businesses remains at risk as a result. Now let's talk about Argentina. The lack of tariff increases for the distribution companies and the wholesale generation market and received a lot of media attention. These have negative implications for our businesses in Argentina if left in place for an extended period of time, particularly our generation businesses. We continue to work toward a solution for these problems, but nonetheless, we have continuing exposure with respect to our remaining investment on the Balance Sheet. On previous calls we mentioned concerns about the effect of spark spreads on two gas fired merchant facilities in the United States. We will follow in Texas and Granite Ridge in New England. We work with lenders regarding long-term prospects, but little progress has been made in the restructurings we think is necessary for those businesses. With respect to projects in our portfolio, we are continuing to evaluate certain of our projects that are under development for several years in Poland, Bulgaria and the United States. Each of these that relate to the economic returns and impacts to the overall balance of our portfolio as we recently did with the Bujagali project. We are evaluating the viability and tend to resolve these in the future. We continue to work toward the resolution of various problems associated with each business as part of our overall effort to clean up the troubled businesses in our portfolio. While it is unlikely all these efforts will be unsuccessful, it is important that our investors understand the impacts and be able to bracket this exposure in aggregate.

As I mentioned, Barry will do that in his comments today. At this point I would like to turn the call over to Barry Sharp, our Chief Financial Officer, who will provide more detailed and financial results and update our guidance for the remainder of 2003. Barry?

Thanks, Paul. I would like to go through a brief summary of our results for the third quarter. Also, as per normal, our press release package includes significant detail and discussion about our earnings, our cash flow results from the parent and on a consolidated basis along with Balance Sheet information. There are several slides included on our website that include additional information with respect to parent only and consolidated cash flow data as well as parent debt maturities. With cash flow, we are on track with our expectations for the year with regard to consolidated operating cash flow as well as cash distributions received by the parent.

Cash from operating activities on a consolidated basis, which is shown on slide 7 and 8 of our website slides, was $349 million for the quarter bringing Year to Date totals to $1.1 billion. These amounts represent GAAP cash flow from operating activities after all interest payments at both our subsidiaries for their project financing debt as well as the parent on the recourse debt. Our operating cash flow performance for the third quarter is in line with our expectations for all of 2003, although the third quarter amounts were below the full year pace due to two items during the quarter that reduced operating cash flow, but didn't impact net income as significantly. These were the refinancing and associated cold contract extension and pricing buy down at Hawaii and IPS's election to contribute to their pension fund consistent with their Pension Liability Management Program. At Hawaii, the refinancing effort resulted in payments classified as uses of operating cash flow totaling $72 million to buy down the cold contract pricing and $29 million to terminate out of the money interest rate swaps associated with the previous floating rate bank loans. The coal contract buy down payments will be amortized through earnings over the life of the coal contract. At IPL, we funded $76 million dollars this quarter toward their long-term pension liability. This level of funding enables IPL to meet the PBGC's 90 percent funding threshold. Meeting this threshold completes IPL's intended funding for 2003 and allows IPL added flexibility in its future funding plans. Exclusive of these two events, consolidated net cash from operations was $526 million for the quarter.

DRAX is no longer included in consolidated operating cash flow beginning with the deconsolidation in September. Slide 7 shows the components of third quarter cash from operating activities divided between the subsidiaries and the parent. Operating Cash Flow at the subsidiary level for the third quarter was $454 million. This is again net of the payments mentioned previously related to Hawaii and IPL. Maintenance Capital Expenditures at our operating businesses for the quarter totalled $140 million, which is $355 million Year to Date. For the quarter, these expenditures were at IPL for $45 million, Eletropaulo for $19 million, and EDC for $18 million. Growth Capex of $165 million for the quarter and $523 million Year to Date, relates to amounts invested to complete assets in the portfolio under construction and primarily funded with nonrecourse loans. The most significant of these for the quarter were Cartagena, at $78 million, Rosslefan for $42, Andres, Panama, and Tisza for $30 million in aggregate. At the subsidiary level we repaid $758 million dollars of project level financing during the quarter, of which $189 million was refinanced in Hawaii, with the proceeds from a new issuance there of $500 million dollars in debt over a new debt term of 19 years. At the parent level, distributions from subsidiaries to the parent and our qualified holding companies, or QHC's, was $319 million dollars during the third quarter. That's up from $300 million during the second quarter and $180 million for the first quarter of 2003. This result -- these results include higher Dividends from the New York businesses, $76 million during the third quarter and $115 million Year to Date from New York because of higher captured prices at those plants over the last several months. The next scheduled distribution from these businesses will be in early 2004.

We also benefit from the release of approximately $60 million of operating cash flow at Hawaii that had been previously held as debt reserves and retained earnings. This was in addition to $160 million of proceeds received from the project debt I just mentioned. These distributions were offset by lower cash flows during the quarter from Pakistan because of slight timing delays until the fourth quarter and lower than expected distributions in the Dominican Republic and from Sonel and Cameroon. Cameroon cash flow is currently being used for Capital Expenditures in the business to improve reliability and add generating capability. The parent and QHC's received $19 million dollars during the third quarter in net proceeds from Asset sales and $192 million from the net proceeds from project level refinancing in returns of Capital. The major portion of which is $160 million received from Hawaii. During the quarter we completed a $950 million dollar refinancing of the bank loans and revolver at the corporate level as well as repaying our final sales loans. These financings reduce our interest costs to LIBOR [phonetic] plus 400 from LIBOR plus 650 on the bank loans and reduced from LIBOR plus 50 on the sells and returns all AES shares held but never issued and extends our maturities from 2004 and 2005 to 2007 and 2008. We made progress on our parent company delivering program during the quarter by calling $198 million of our ten and a quarter bonds and also making open market purchases in debt for equity swaps aggregating $258 million during the quarter. We also repaid approximately $149 million of our revolver and other debt since total debt reduction was $605 million.

These activities result in annual liquidity of $735 million dollars at the end of the third quarter. We expect cash flow of approximately $1.5 billion, of which, approximately $2.2 billion is expected from subsidiaries during the year. At the parent level, distributions to the parent and QHC's for the full year are expected to be $1.042 billion which is reduce from our previous guidance because of the current expectations from Argentina will be limited in part because of recent changes in the generation market settlement procedures, as Paul mentioned. We increase our expectations for proceeds from Asset sales to reflect the sale in Medway, it is an increase by $90 million to $1.07 billion based on closed and agreed Asset sales to date. We expect aggregate amounts to return to Capital on project financing to be $304 million. All these factors result in our year-end liquidity of $1.06 billion dollars. This estimate, however, for any liquidity will vary from dollar for dollar, as we continue our delivering program with discretionary debt repurchases and potential for additional investments from the parent level such as Gener. With respect to earnings for the third quarter, earnings from continuing operations from $.07 cents a share. I want to also note that included in this amount during the third quarter was the write off of $76 million dollars before taxes, or about $.08 cents per share associated with our decision during August to terminate the construction of the dam project in Uganda. There is significant detail in the press release covering the business and segment and geographic data but I want to highlight a few items as well as a few other segment highlights for the quarter. With respect to other components of note that are included this quarter, there are unusual items that you will be familiar with. During the third quarter we reclassified DRAX to discontinued operations due to the loss of the control of that business. As a result, all quarters in the comparable years revenues, expenses and Earnings per Share amounts from continuing operations have now been adjusted to exclude DRAX from the continuing operations line. Also during the quarter the net impact of all foreign currency gains and losses as well as the FAS 133 mark-to-market amounts was a loss of $.07 cents per share.

In addition to FX losses during the quarter, in Brazil, Argentina, and D.R., we had offsetting gains in Venezuela as well as net losses with FAS 133. Other earning impacts include the write off of the costs associated with the Hawaii refinancing. As well as deferred financing costs related to AES corporate debt. We also experienced net gains of $29 million from the early retirement of the debt purchased in the open market. And that's netted the elimination of any deferred costs. Together these items related to our debt activity aggregate a loss of $.02 cents per share included in this quarter's results. So in aggregate, the results of $.07 cents include reductions of $.08 cents for Bujagali, and $.07 cents related to FX transaction losses and FAS 133 mark-to-market amounts, and $.02 cents net charge related to our debt activity. Our four operating segments generate a combined gross margin of $654 million and income before taxes of $214 million in the third quarter. This excludes corporate interest and other costs. The income before tax amounts and the relevant quarter to quarter comparison also now include the impacts of both foreign currency gains and losses as well as FAS 133. Overall the gross margin from the operating businesses for the quarter was approximately 28 percent. It is consistent with the same period last year. The gross margin contribution was again most significant in the contract generation segment in the amount of $327 million for the third quarter of 2003, which is up 35 percent from $242 million in 2002. This represents a margin percentage of 40 percent for the quarter consistent with the prior year. New businesses contributed better than segment margins at Puerto Rico, Barka and Ras Lafan as well as significant year over year improvements in margins occurring in Chile, Brazil and plants in Pakistan and Red Oak in the U.S.

These were offset by a reduction in the margin at Shady Point due to a step down in the contract rates in 2003 and lower margins at Beaver Valley. In the utility segment, the overall margin improved to 2 percentage points year-over-year to 27 percent. While the total margin improved to $45 million to $244 million for the third quarter. Improvements occurred year over year at EDC and Eletropaulo in part due to improved currency conditions compared to the prior year as well as higher adjusted tearoffs in both businesses. They were offset by a margin reduction at IPALCO during the third quarter of 2003, due to a cooler summer in Indiana. Competitive supply, again now excluding DRAX in all periods showed a slight improvement year over year to $53 million. Up from $50 million in the prior year. Due to improvements in New York because of higher captured prices as well as improvements in Argentina. These improvements were offset by declines at Deep Water due to an extended turbine outage in 2003 and at Granite Ridge due to low spark spreads in the New England market. With respect to the New York plants there are currently 85 percent hedged to the remainder of 2003 and for 2004 we had 80 percent hedge. The growth distribution segment saw a reduction in margins year over year due to the difficult economic and regulatory environment as well as slow improvements in the electricity loss collections in the Dominican as well as reduced margins this quarter at Sonel and Cameroon. They were offset by improvements in the distribution businesses at Sul in Brazil and El Salvador and the Ukraine. Net interest increased slightly to $422 million up from $399 million for the third quarter of 2002. Included in Net Interest Expense for this quarter are the writeoffs of swap termination cost in Hawaii, as mentioned before. Finally, we also had income from discontinued operations of $.05 cents per share which is primarily due to the income associated with eliminating our negative investment balance at DRAX offset by a loss associated with the decision to discontinue and exit the telecom business in Bolivia.

With respect to the remainder of 2003 we now expect EPS to be at or better than our earlier guidance and anticipate reaching $.50 to $.52 cents for the full year. Again, as a reminder, this range is before taking into account the writeoffs with Bujagali or any other writeoffs that may occur as a result of the events in the 4th quarter. This range would also imply a break even or slightly positive 4th quarter. That is what what we would expect if our previously stated assumptions materialize. As you know, our results to date include a net $.07 cent positive related to FX and FAS 133, however, these amounts have been volatile through the year and we continue to expect some volatility for the remainder of 2003. We are assuming a devaluation at the Real and Argentine Peso to averages of the 4th quarter of 3.07 and 2.98 respectively even though these currency assumptions are conservative. We are assuming that there are no above the line net losses or gains with the potential restructuring of Eletropaulo holding debt. As Paul mentioned, we continue to evaluate the circumstances around certain regional businesses included in the restructuring office and businesses that are currently under stress including those in the Dominican Republic, Argentina, and our sparks spread dependant U.S. merchant plans. I wanted to outline our net equity exposure and P&L exposure at 9/30, '03. The net equity impact is an affect on stockholders equity after considering the FX transaction amounts included in equity. With respect to Argentina, our net equity exposure is $89 million in aggregate. With respect to the P&L, the gross investment exposure on the P&L is $879 million including recognizing through earnings the FX translation losses included in the Balance Sheet. With respect to the D.R., our net equity exposure and aggregate across our portfolio is $651 million and the P&L exposure is higher at $676 million. With are respect to the U.S. Merchant Facility, for Granite Ridge and Wolf Hollow is $332 million.

In aggregate, these businesses currently represent approximately $25 million in annual distributions to the parent out of our expectations of $1 billion 042 and with respect to earnings in aggregate for year 2003, represent a loss of approximately $.10 cents per share or $.06 cents per share excluding FX. A loss of $.06 cents per share excluding FX. For the summer remaining projects in early stage construction we have construction costs for these businesses that are approximately $86 million. Finally, additionally in the 4th quarter, we will be as we do each year, evaluating the reliability of the goodwill on our Balance Sheet. The two most significant amounts related to goodwill are with respect to Gener and Chile and approximately $70 million related to Ede Este. And as a final note, I want to remind you there is Balance Sheet information included in the press release. At the end of the third quarter our total assets were $30.4 billion and there is significant detail in the press release covering the components of that Asset mix. Now let's turn it back over to Paul.

Thanks, Barry. Operator, can we get questions at this point?

Thank you. The floor is now open for questions. If you have a question please press the number one followed by 4 on your touch tone phone. If at any point your question is answered, you may remove yourself from the queue by pressing the pound key. Questions will be taken in the order in which they are received. We ask that while you pose your question you pick up your hand set to provide the best sound quality. Please hold while we poll for questions. Our first question is from David Silverstein from Merrill Lynch. Your line is live.

Hi, guys. With respect to Venezuela, we noted that EDC would be paying a Dividend and you didn't include that in guidance. Would they not make the top distributors and how much do you expect to get from Venezuela?

They don't quite make the top distributors, probably in the neighborhood of 10 to $11 million dollars. The amount still has to be approved by the shareholderings meeting. That's why they haven't publicly disclosed that amount so that's something that is subject to the final shareholders' approval. But it is not a significant amount.

It would make your top 15 you have listed there. That's fine. And respect to 2004 distributions, can you give us any guidance on that?

At this point we are not putting out 2004 distributions as we mentioned in our investor call. We do expect some decline in '04 and '05 because of Capital investments being made at several businesses including IPL and EDC as well as a couple other businesses. But at this point, no further detail other than that information.

Okay. And in terms of the schedule for committed investments you have remaining, if you can include Cartagena and things like that, what do you have on the docket now?

Cartagena a is primarily funded. We have a little under $120 million in the business and that's how much we expect to be in it.

Another 40?

No, effectively another zero.

Great.

We pretty much got it in.

With respect to Chile, can you give as you better feel on this as far as how much equity you would put in?

Let me Joe Brandt, our Chief Operating Officer of our Integrated Utilities respond to that. Joe?

The equity required at Gener to reduce the leverage to bring the business back to investment grade is $300 million dollars. We expect to participate in the transaction significantly, but there is a significant amount of interest from Chilean investors. It is an active and well funded market as well as U.S. investors. And the actual amount that will be - the AES contribution of the 300 will depend significantly on the type of evaluation that we see coming out of that investor base.

I guess the other question would be -- so this is a little of a dilution issue is what kind of distributions would you see, obviously it depends on how much you put in now, right? But under a certain circumstance, if you put in 300, how much would you expect to see, and if you put in nothing how much would you expect to see as far as Dividends?

Yeah, it is not as binary as that. It depends on the evaluation you would get at any point below 300 for AES equity commitment. But roughly speaking, if you look at a reasonable range of evaluation in the market for that business, you would be looking going forward at distributions to the parent company in the range of approximately $40 million U.S. per year up to conceivably 60 or $70 million U.S. per year assuming that --

Let's see --

The money --

If most of the money came from AES, 60 or 70, but if you didn't put in anything, maybe theoretically, 40 still?

Again, it is totally dependant on the type of evaluation --

I understand. But from a rough guidance perspective.

From a rough standpoint, the transaction I expected to be completed by year-end, and then we will be able to give some pretty clear guidance as to exactly what the Dividend flow will be to all shareholders.

Thanks, guys. Thanks.

Thank you. Our next question is coming from Terren Miller of UBS. Your line is live.

Good morning. Barry, I was wondering if you can give us an update in terms of the Net Interest Expense at 422, what are the one time items in there?

The most significant is the write off associated with the swap termination costs at Hawaii, which on a P&L basis is $22 million. The rest is pretty much recurring interest across the portfolio.

Okay. And at the AM List conference you talked about growth opportunities. I was wondering if you can give us an update on what you have seen and how you are evaluating it and how the new process is going in terms of inflicting additional discipline as compared to past decision making.

Okay. Yeah, I think it has been interesting. Now that we have been back in the market for a while, we have seen really a change in the owners of the Assets in terms of who might be the sellers and who are the buyers. And in some areas we are surprised at the levels of competition.

I think that's primarily for what I termed the "plain vanilla" transactions out there where people are buying contracted Assets which is like buying a bond. I don't see we will be able to compete or want to compete in that arena. So we are looking for the kinds of opportunities that we think can have more exceptional returns and to do that we will be relying on our global footprint where the opportunities are and where we can take advantage of those. Opportunities that might be related to our existing Asset base. What has been surprising to me has been that there hasn't been more happening in the merchant sector, the distressed merchant sector in the U.S. It is not a question of if something will happen but when. I think we will look at that closely where we think there may be good values, but it is difficult to tell at this point. In terms of the process we are using, very simply, we are looking at a lot of different transactions. The basic model is, look at many quickly analyzed. If they are very attractive we will spend some time and effort to look at them further. But we are spending a lot more time looking at the various risks and screening them and taking them through the executive office at AES.

We have got a special committee at the board to look at these. We have a development committee. So I think we are finding there are a lot of deals we don't twant to do, but there might be some that might be interesting. Those projects get to a stage and we will tell you more about those. Right now there is nothing I would look at being particularly hot. The one advantage we have as a company is that we have this opportunity to deliver with fairly high cost debt. I think that in a way imposes another sense of discipline that we are comparing any transaction we do with an opportunity to deliver the company. And I think that in many ways gives us a built in investment opportunity. So that's basically how we are looking at it.

Okay. And the last question, Barry, you talked about I think it was some $258 million of debt retired for debt for equity and other transactions. Can you give us a little more detail on what happened there?

Yeah. In general we went out in the market and repurchased both outstanding bonds as well as some of the preferred. Most of it was done with cash purchases, although we did do some effectively for debt for equity swaps, particularly on the preferred amounts. So it was a total face amount of $258 million during the quarter.

Thank you.

Thank you. Our next question is coming from Ali Agha of Bernham [phonetic] Securities. Your line is live.

Thank you. Just a couple questions. First, Barry, I thought that most of the Latin American currencies, specifically Brazil and Argentina, had strengthened during the quarter and at the end of the quarter was this last year and year before, why did the FX impact end up being negative during the quarter?

The FX impact on the transaction loss is negative because of the change from the end of June to the end of September.

So it is the last --

Yes, it is not related to the prior year. It is from the prior quarter -- from the end of June to the end of September. So the effects have been positive for us this year in the first two quarters and once we dropped DRAX out of the numbers, effectively the FX and 133 amounts for the first quarter would have been a positive $.05 cents. For the second quarter, a positive $.09 cents, and for the third quarter a negative $.07 cents to get to a net positive $.07 Year to Date for us from the beginning of 2003.

Okay. Now when I looked at the geographic distribution that you guys provided us on an income before tax basis, North America this quarter was $123 million and listed at $5 million in the third quarter of last year. Could you clarify exactly what is causing that big swing?

Last year we had a write off associated with a North American business for approximately $165 million dollars. The business at Gray Stone, which is a gas plant under construction at the time that we terminated. That's in that number from the prior year.

Okay. So including that, the negative box spread issues would impact the - comparison?

It would on the plant, particularly with respect to Granite Ridge and Wolf Hollow, that's true.

If I heard you correctly, in the third quarter, Paul, I think you mentioned in total there has been $605 million of debt reduction. Is that number right? If so what are the components of that again?

On an overall basis for the quarter, it was $605 million, $198 million of that was the call of the 10 and a quarter notes. About $258 million was -- $256 million was the repurchases of the quarter and most of the rest of it was repaying the revolver of $149 million.

Thanks.

Thank you. Our next question is coming from Elizabeth Parrella of Merrill Lynch. Your line is live.

Excuse me. Thank you. Question on the BNDES restructuring. There was an article in the local papers last week suggesting that the guarantee that you had put in place on Tieta was still proving to be something of a stumbling block and I am wondering how you are coming along on that and maybe you could react to that?

Sure. The article suggested that there needed to be consent of the Tieta bond holders to the transaction with BNDES which is true. There are not surprisingly various covenants in the bonds respecting the ownership chain of Tieta, which prior to this transaction is -- runs straight up through AES in so far as the holding company where the bonds are concerned.

The process to get from signing the MOU to closing includes a number of consents including the bondholder consents. We expect to get the Tieta bondholder consents as the transaction is in their interest as well as ours and BNDES's given the purchase agreement between Tieta and Eletropaulo. I am not too surprised to see the Brazilian press speculating aloud about process with BNDES. It is somewhat of a sport in Brazil to follow what has been up to this point -- or at least up until the MOU was signed, some drama, but I expect we kill get the consents required and we also expect we will see a few more articles between now and the time it happens.

Okay. Could you update us on the status of Eletropaulo's own debt level?

We launched an operating company restructuring of the unsecured debt at Eletropaulo, approximately $800 million dollars of debt. That was launched about 3 1/2 weeks ago. The responses from the bank group has been virtually overwhelmingly positive. The proposal is essentially to keep the debt at that business at par and reprofile it over the next four to five years offering traunches of short-term and long-term to banks who wish to participate in various tenors. The process is going very, very well at this stage.

Okay. And then turning to the U.S.. you mentioned you are looking at -- or you are working to restructure Granite Ridge and Wolf Hollow. Can you talk more about whether that's about what things are looking at whether it is just sort of the -- with the lenders. Are you looking at moth bawling Granite Ridge. I think you said you have a partial contract?

We do have a partial contract at Wolf Hollow and we are looking at the forward markets and prices and visiting. We have also talked with the lenders in each case. We have one lender in Wolf Hollow and a group consortium in Granite Ridge. We are in discussions with the lenders at this point about possible restructuring to those two projects going forward.

Just a couple of numbers questions. You mentioned IPALCO had a mild summer. Can you talk about what the weather impact would have been in the summer versus normal, if you have it?

The change in margin kind of year over year is about 6 or $7 million dollars. I don't have the degree day comparisons from prior year, but we can get you that.

And that's versus 02, right?

Yes.

And the $29 million dollar gain I think it was in the quarter that you booked on these purchases and swapped?

Yes.

Where does that show up on the P&L?

It is in Other Income.

Okay. And one last question, could you give us the goodwill numbers again and break it out for Gener?

Yeah, the total goodwill is $1.38 billion. The largest is Gener at 836. Nigen at 137. Those are the largest three components and the rest are in 40 and $50 million dollar increments and spread over 8 businesses.

Thank you.

All right, operator we will take two more questions.

Thank you. Our next question is from Shaya Hazansiday of Credit Suisse First Boston.

Hi, Barry, I wanted to follow-up on the question on Vendez. Do you have a sense of the time line you are expecting to get the MOU consents on the bonds?

The expectation is there will be a closing with BNDES that would imply all the conditions are met by the end of the year.

Okay. And a quick question on the revolver, can you tell me how much is drawn and how much analysis are on the corporate revolver?

There is nothing drawn under the revolver currently and $77 million under the LC's.

Great, thank you.

Thank you. Our final question is coming from Steven Palms of Sanders Morris Harris. Your line is live.

Yeah, could you give us a little update on Wolf Hollow, you know, if it is fully operational, and what the litigation situation is there and what -- and whether you think you will be a 100 percent owner.

Yeah, this is John Ruggirello, the COO of the Generation Group. The equipment is fully operational. We are being dispatched daily. The machines -- the MHI machines perform very well. As I mentioned earlier, we will be having some discussions regarding restructuring and I don't think we would plan on commenting on litigation at this point.

Okay. Thank you.

Okay. I know many of have you to get on to another call here so we wanted to cut the questions off and let you get to that. In closing, as we highlighted during our September 9th Investor Conference and continue to demonstrate, we think we are making good progress on our plans to increase the value of AES.

We are getting improvement initiatives, reducing debt, pursuing attractive growth opportunities. We're also taking steps that we think are necessary to clean up our performing businesses and we have outlined the remaining businesses where we see the need to do this and what the potential impacts might be. We feel confident about our ability to deliver under these plans and to continue to increase the value of the company. Thank you for joining us and have a good day. Thanks.

Thank you. That does conclude this morning's teleconference. You may disconnect your line and have a wonderful day.