愛依斯電力 (AES) 2009 Q1 法說會逐字稿

Good morning. My name is Crystal and I will be your conference operator today. At this time, I would like to welcome everyone to the Q1 2009 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). Mr. Pasha, you may begin your conference.

Thank you, Crystal. Good morning, everybody and welcome to our first-quarter 2009 earnings conference call and webcast. Joining me today are Paul Hanrahan, President and Chief Executive Officer; Victoria Harker, our Chief Financial Officer; and Andres Gluski, our Chief Operating Officer.

Before we begin this morning, I would like to remind you that any statements made here about future operating results or other future events are forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from such forward-looking statements. A discussion of factors that could cause actual results or events to vary is contained in the filings and in the Investor Section of our website, www.AES.com. And now I would like to turn the call over to Paul.

Okay, thanks, Ahmed and I would like to thank all of you on the call for joining us this morning. Today, I plan to focus my comments on three areas -- the results for the quarter, good progress in bolstering our liquidity and a brief update on construction projects coming online and our thinking on allocating capital in the current environment.

Let me begin first with our first-quarter results. We are very pleased with our financial results for the quarter. Victoria is going to cover in more detail, but when comparing the results of the first quarter of 2009 to the first quarter of last year, as expected, our gross margin decreased primarily due to, one, reduced commodity spreads in the Southern Cone in the US and two, the strengthening of the US dollar relative to currencies in Latin America and Europe.

But despite this decrease in gross margin, our adjusted earnings per share increased slightly as a result of the Kazakhstan performance bonus and aggressive reductions in SG&A. As a result, we are on track to meet our guidance for adjusted earnings per share for the full year.

And as always, we continue to focus on cash flow. In the last call, we introduced the metric of proportional free cash flow or our share of the free cash flows of our businesses based on ownership interest. The quarter-over-quarter proportional free cash flow increased from $163 million in 2008 to $203 million in 2009. This was primarily due to working capital improvements in our Asia generation segment, which more than offset the gross margin decline and working capital increases in Latin America. As a result, we are also on track to meet our guidance for proportional free cash flow for 2009.

Now turning to the steps we have taken to build up our overall liquidity position. Since our year-end call, we have made good progress in strengthening our liquidity position for the next several years. As you know, we began 2009 with a very manageable debt maturity for the year. During the past quarter, we focused our efforts on reducing the amount of debt maturing in 2010. As part of this effort, we have raised approximately $500 million by issuing seven-year bonds, which allowed us to retire $425 million of an expensive $600 million unsecured credit facility scheduled to mature in the first quarter of 2010.

In addition, we extended $605 million of our $750 million revolver until the third quarter of 2011. The combination of those actions effectively reduced our 2010 maturities to repayment of a $214 million bond in September and retirement of the remaining $175 million of the unsecured credit facility in March.

I think there are really two key takeaways for our investors with respect to liquidity looking forward. The first is that our parent level maturities through 2012 are now very manageable with a total of only an additional $451 million maturing in 2011 and 2012. The other is that we continue to enjoy good access to the capital markets in a difficult market environment.

At this point, I will turn the call over to Victoria Harker, our Chief Financial Officer, who will provide a more comprehensive look at the results for the first quarter and following her discussion, I will briefly comment on our construction program and how we're thinking about capital allocation. Victoria?

Thanks, Paul and good morning, everyone. In addition to the accomplishments that Paul has just discussed, we also had a very strong start to the year in terms of quarterly financial results. As you may recall, we performed very well in the first quarter of 2008 and we are very pleased that our earnings and subsidiary distributions kept pace again this year despite the extraordinary economic backdrop of the current market.

Year over year, significant contributions came from our Latin America generation businesses and our North America utility, Indianapolis Power & Light. We also benefited this quarter from our performance incentive bonus related to our management of the northern Kazakhstan businesses we sold in 2008. These factors helped offset substantial foreign exchange currency headwinds, particularly in Brazil and lower electricity prices in both New York and the Southern Cone of Latin America, which impacted margins there.

With that brief overview of several of the key drivers for the quarter, I'll now walk you through the financial results for the quarter followed by an update on our 2009 guidance.

Gross margin. Compared to prior year, gross margin decreased by $159 million to $883 million, which was predominately due to $130 million foreign currency exchange rate impacts. Beyond this, lower electricity prices tied to natural gas price declines decreased our returns in Argentina and New York. However, we were very pleased that several key businesses improved their profitability in the quarter. For example, on a year-over-year basis, we benefited from improved returns at IPALCO in the US and Uruguaiana in Brazil. In Brazil, we terminated unprofitable power supply contracts due to the lack of gas from Argentina.

As part of our continued efforts to improve operational performance, we successfully reduced outages at our businesses, particularly in Chile. We also had two new businesses come online during the second half of 2008, which have now begun to contribute to this year's results in a more substantial way. These projects include the simple cycle operation of our Amman East project in Georgia and the Buffalo Gap III wind project in Texas.

On a proportional basis, which takes into account AES' economic interests in the portfolio of businesses, gross margin decreased nearly the same amount or $152 million to $543 million. It is important to note that even with these foreign exchange and electricity price headwinds, we still achieved 26% of our full-year guidance of $2.1 billion during the quarter, which puts us in a good position for the remainder of the year.

Earnings per share. This quarter, we reported diluted earnings from continuing operations of $0.33 a share as compared to $0.34 a share in the first quarter of 2008. The decrease was primarily driven by unfavorable currency rates, which were offset in part by an $80 million, or $0.12 per share performance incentive bonus associated with our management of the northern Kazakhstan businesses. Although we sold the businesses in 2008, we were pleased that the strength our operational management enabled us to achieve this bonus. Our performance this quarter puts us on track for achieving our full-year 2009 earnings targets as well.

We are also pleased to have generated adjusted earnings per share of $0.37 as compared to $0.35 in the first quarter of 2008, which was roughly the same as the prior year given that the 2009 results exclude $0.03 of non-cash mark-to-market foreign currency transaction losses. All in all, adjusted earnings reflect the steady operational results in many of our key businesses.

Now let's turn to cash flow results. For the quarter, our consolidated operating cash flow decreased $94 million to $376 million, reflecting lower gross margin due to unfavorable foreign exchange rates and higher taxes paid in Brazil. Offsetting these were increased collections and improved working capital at our Asia generation businesses, which was strong evidence of our focus on working capital in the region in which DSO has improved two full days since last year.

Importantly, on a proportional basis, AES' operating cash flow increased by $36 million to $323 million. This improvement reflects the benefit of initiatives we put in place early in 2008 to improve our working capital across all of the businesses. These were specifically focused on receivables, which had increased on an absolute basis in 2008 due to higher commodity prices, but face the very real potential for slower liquidation as the economy weakened.

As I mentioned, this did not occur and many businesses' agings have slightly improved overall. Vigilance to cash collection along with expense reduction programs in operations, finance and development gave us momentum to achieve a full 25% of our full-year proportional operating cash flow guidance during the first quarter alone.

This brings me to free cash flow, which we define as operating cash flow less maintenance CapEx. Our consolidated free cash flow for the quarter decreased $71 million to $220 million. The decrease in consolidated free cash flow reflects similar declines in consolidating operating cash flow driven largely by fixed electricity prices, offset in part by lower spending as many businesses reassessed the mission-critical nature of certain maintenance projects. And similar to our proportional operating cash flow, our proportional free cash flow actually increased by $40 million to $203 million representing 27% of our annual guidance.

Subsidiary cash distributions to the parent for the first three months of the year increased by $9 million year over year to $230 million, again indicating the businesses are performing at least as well as prior year in a very challenging economic environment. This result is in line with our expectations and puts us on track to meet our full-year target of $1.1 billion to $1.3 billion.

Parent company liquidity. At quarter-end, parent company liquidity remained a strong $1.4 billion with $168 million of cash on hand. As Paul mentioned, we substantially strengthened our liquidity by raising about $500 million to replace a portion of our senior unsecured credit facility, reducing substantial carrying costs associated with it. With 2009 debt maturities of only $154 million remaining, we continue to have a very manageable parent debt profile.

Our emphasis on conservative cash management in a market fraught with volatility also extends to our businesses where there is now over $4.5 billion of liquidity and financial assets available to address about $800 million of nonrecourse debt maturities within the next 12 months.

In closing, I would like to now discuss our outlook for the remainder of the year. As I have said, we are very pleased with our first-quarter financial results, which show we are tracking well toward most of our key earnings and cash flow targets for the year. We'll continue to monitor these trends and assess our going-forward estimates, but we do not currently project any material changes.

We are reaffirming our earnings, subsidiary distributions and proportional cash flow guidance. For the full year, we expect our adjusted EPS to be in the range of $0.97 to $1.07. Subsidiary distributions are expected to be between $1.1 billion and $1.3 billion. Our proportional free cash flow is expected to be between $650 million and $850 million.

However, we are lowering our guidance range for consolidated operating cash flow and consolidated free cash flow, which are being decreased by roughly $150 million, primarily due to working capital changes in Brazil. The revised guidance range for the full-year consolidated operating free cash flow is $2.0 billion to $2.2 billion and for consolidated free cash flow is $1.3 billion to $1.5 billion. The decrease in consolidated cash flow is primarily driven by a timeline between when we incur increased electricity purchase prices at Eletropaulo and when we can recover the purchase price as a pass-through. As is required by Eletropaulo's regulatory framework, the tariff is reset each July. We expect to begin to recover the higher electricity prices over 12 months beginning in July 2009.

As you may know, because AES has less than 20% economic interest in Eletropaulo, the impact of this change on our proportional share is not as significant. This is an example of why we introduced proportional metrics last quarter as we feel these better reflect AES' own underlying performance.

To further aid in transparency, we have also detailed in our presentation the published exchange rate forwards and forecasts for currencies and commodities as of March 31, which is what our current guidance is based on.

Like many companies, we continue to see extreme volatilities in these indicators. We have now provided update sensitivities on these rates for full-year 2009 adjusted EPS for key currencies and commodities and our online investor presentation as well. Likewise, we have also provided sensitivities for key commodity prices, including coal, natural gas and oil.

While these factors are largely beyond our control, we remain focused on key areas of cash production such as working capital, days sales outstanding, expense reductions and efficiency initiatives while keeping a watchful eye on capital spending.

To give you additional color on how we manage this real time, I will now hand the call back to Paul who will discuss capital allocation and progress made on our construction program.

Thanks, Victoria. Now I would like to discuss our project construction and a little bit about capital allocation. As we have stated before, a high priority for our capital allocation is the completion of our 3400 megawatt construction program. Because we already have the necessary financings in place, only $210 million of additional funding is required to complete our construction program and equipment purchases.

It is worth noting that for this minimal amount of incremental funding, we will be able to complete $6 billion worth of projects and as much of our future growth will come from these projects when they are brought online, these remain a very high priority for us to complete.

Our construction program is moving ahead as expected. We have outlined when we expect these projects to come online on slide 18 in the earnings deck. One project that has recently been completed is our Santa Lidia peaking plant in Chile. This is a 130 megawatt diesel-fired gas turbine plant, which has now been commissioned, is dispatching electricity into the central grid of Chile and is receiving capacity payments from the system. By adding a diesel facility to our portfolio in Chile, we are diversifying our fuel mix in the country, which will also allow us to benefit from sales into the spot market during drier years when hydro capacity is not available.

Another project recently completed was our 80 megawatt diesel-fired open cycle gas turbine plant in Northern Ireland, which came online in April. This expansion of our Kilroot facility is an example of our ability to leverage our existing platform of assets and something we continue to believe gives us a competitive advantage in our industry.

Another project expected to come online this year is combined cycle operations of our 380 megawatt gas-fired plant in Jordan.

In terms of allocating capital beyond the $210 million of cash needed to complete the 3400 megawatt pipeline, we will continue to evaluate what the best uses of these funds would be on a real-time basis. Our options continue to be, one, to pay down debt; two, to buy back stock at attractive prices; three, to invest in projects in areas that are of strategic importance and have attractive returns; or four, to continue to build up liquidity to take advantage of more attractive opportunities that may potentially arise in the future.

Currently having excess liquidity is a competitive advantage in today's environment and it is why we are so focused on generating free cash flow in our businesses and distributing excess cash back to the parent company.

One final comment that I would like to make relates to our stock price performance. As I mentioned on our last call, getting the stock price back to levels that we feel reflects the fundamental value of the Company is a key priority for me. It seems to me what some investors may be missing is the relatively high free cash flow yield of our stock. Using proportional metrics, it is 14% based on yesterday's closing price.

But it is also how that free cash flow yield will grow over time as the greenfield construction projects in which we have been investing go into commercial operation. In order to provide more visibility into the value of AES, we intend to host an Investor Day in New York on May 27 as we have previously announced and during that half-day session, we will give an update on our construction program, as well as providing guidance on key financial metrics that will result from the projects that will be coming online through the end of 2011.

We will also provide a detailed update on our businesses across the globe, including our wind and solar businesses. Our Chairman, Phil Odeen, and I will both be attending this event along with other members of the senior management team. We hope to see many of you at that event and Ahmed will provide a little more detail about that day at the conclusion of this call.

I would like to thank all of you for taking the time to join our call this morning and at this point, we will open up the call to questions and answers. Crystal, would you please open up the lines for questions?

(Operator Instructions). Lasan Johong.

Thank you. Congratulations on a fantastic quarter and I am loving this new short format conference call situation. I wanted to ask you just -- obviously the quarter was just spectacular. Why are you not increasing guidance?

I think the -- Lasan, this is Victoria. I think obviously, and we have said this repeatedly throughout both Paul's comments and my comments, the wildcard continues to be the impact relative to commodity prices and FX. So we obviously continue to monitor this. It's in the online investor presentation in terms of sensitivities and it is only the first quarter, so I think it is early in the year.

Yes, but those factors -- I mean looking at sensitivities -- aren't terribly too big of a factor. I mean $10 ton moving coal price is $0.02. But all right, fine. I will accept that.

I think by comparison, FX was $0.06 of an impact this quarter. So I mean it gives you a sense for the swing even just based on the best knowledge we had three months ago.

That was a $0.06 impact.

Right, to EPS to the quarter.

Right. So you are already starting behind. Anyway, I can take this off-line with Ahmed.

Let me just -- the other thing that you just need to take into account is with the Kazakhstan payment, we really frontloaded that a little bit by bringing that into the first quarter and it was part of really a negotiation on our part as part of the put negotiation for the Kazakh plant to basically frontload that cash to us. We just thought it would have more value to us now. That has been taken into account into our guidance. We are really seeing that coming to the first quarter and we really had expected that to come later in the year.

Just to answer what I suspect will be a question on that, we have accrued for it obviously in the first quarter. We didn't actually receive the cash till April. So there is a little bit of a timing disconnect on the cash versus what is in earnings.

Right. But I mean you are going to have that similar payment in January of next year, no?

Around 104, 105.

Okay, all right. So that doesn't bother me too much either way. Second, Paul, it sounds like emerging markets are kind of starting to wake up and start stretching out and looking for the upside potential here. Can you guys give us some color on what you are seeing around the world in terms of economic performance?

Yes, I think in terms of economic performance, we get the best read in our utilities segments. We are only looking back over the historical, but what we have seen across the board is really industrial demand going down, probably double-digit declines maybe in the teens in the industrial demand. But you have seen commercial and residential, in some cases, being up a little bit; in some cases, flat, maybe down slightly. So you are seeing the industrial demand go down. I think we will just have to wait and see how the emerging markets react. But that has been the biggest driver is the reduction in industrial demand in our utilities segments.

I think the other driver has been just the commodity price spread where you are pricing off of gas or oil and you have got coal as your fuel. Spreads have been compressed across the board. We are seeing some positive indications with what is happening with the gas and oil prices, but what we really focus on is the spread and we will just have to see how that plays out over the next several months.

Do you think we are over the worst?

I think so. I think, in some cases, we are down to the point where coal plants are running and that is setting, to some extent, a natural floor for where the gas prices can go. So that spread, I think when it gets down close to zero, then you can't get much worse.

One last question. Any updates on asset sale programs?

On the asset sales, we have been pursuing that. I think our read on this is that that market is not -- it is -- initially the indications were we had a few buyers out there that were fairly interested in transacting at reasonable prices. We have seen, I would say over the last month, is a number of people, possibly because they have concerns about their own liquidity, pulling back and essentially saying they are not sure they want to transact anymore.

It is not really an issue of return as much as it is, I think, entities that we are going to transact are now starting to worry about their own liquidity and are starting to build up their liquidity. So that may impact our ability to get asset sales. So we have a couple more that are still out there, but our basic view is if we can get attractive prices, we can transact. If not, we will wait.

So that is not -- doesn't hurt you if you don't, right?

No, I mean that is one of the biggest advantages I think. This quarter, I think the big news is what has happened with our liquidity and it is continuing to be strong. We have got limited capital commitments out there, as I said. $210 billion and we get 3400 megawatts coming on line. That is a great bargain. Beyond that, it is completely discretionary and what we have been doing over the past several months is really just trying to build up our liquidity because we think, over time, having more liquidity can only benefit us.

Great, thank you.

Ameet Thakkar, Deutsche Bank.

Good morning, guys. Hey, Paul, I just wanted to ask a quick follow-up question on a comment you just made earlier. You were talking I think a little bit about some of the dispatch economics between coal and gas. Now is that something you guys have seen and we have obviously seen some coal to gas switching in the US? Is that something you are seeing in markets abroad as well?

Not as much. I think what we are seeing is particularly where you've got oil prices on the margin, in some cases, you benefit from that. I think we saw a little bit of the spread, commodity price decreases in Argentina for example. There you have got diesel prices setting that spread. They have been compressed, but you haven't seen a lot of switching there. It is more about just the spread to the coal, because we are the only coal plant -- we may be one of the two coal plants in the system. Therefore, you don't have a lot of that switching going on. But it has been most pronounced in the United States.

Okay. And then just turning to slide 9 on your sensitivities, it looks like a lot of the curves you used were as of 3/31/09. And I kind of just took a quick look at my screen, it looks like coal has kind of been flat and we have got a little bit of a pickup in oil and in gas prices. So I guess to the extent relative to where you kind of stand in the year, I mean is that kind of a little bit of a benefit you guys are seeing right now?

It is slightly positive as of -- I guess the 6th is the last time we looked at this and it is somewhere between $0.015 and $0.02 uptick relative to 3/31's rate.

Great. And then if I could just ask one more quick sort of housekeeping question. It looks like in the quarter in your Q, you talked about a $129 million tax credit settlement related to Eletropaulo. Can you tell us how we should think about that? Is that more of a one-time item?

Andres Gluski, our Chief Operating Officer, can give you a little bit more color on that one.

Sure, this is Finsocial, which was basically a tax that we had withheld in the past above the amount that was due to the government. We had this fully provisioned and the court decided in our favor. So this provision was reversed. So this is the Finsocial, $[129] million at Eletropaulo.

Okay, and now is that going to lower your effective tax rate going forward at Eletropaulo or is this just a dispute resolution?

This is just a dispute resolution. It won't have any effect going forward.

And just to translate that relative to the ownership adjustment, it is about $0.02 per share for us.

Okay. I understand now. Thank you very much.

Brian Russo, Ladenburg Thalmann.

Just to be clear, the guidance of earnings of $0.97 to $1.07, that includes the $.12 gain on Kazakhstan, correct?

Yes, that's correct.

Okay, so there has to be several I guess offsetting drivers to that, which, had you guys maintained your guidance, and I think you mentioned foreign currency translation, could you just quantify some of the other drivers for us?

I think what I first should mention is that that was part of our -- for the year guidance, that was included in the guidance, it is actually coming a little bit earlier than we had expected. So from a total year perspective, it is really not a big change. So it is really not -- so there really aren't any offsetting things there that are making up for that.

We have built into our numbers -- we expected to have commodity price squeeze as we expected to have lower foreign currencies and that is pretty much playing out as expected. The other piece that we have built into our guidance was some aggressive cutting of costs and SG&A and that is actually coming through as expected. So I think we are pretty much on target to hit the numbers we thought we would.

Okay. You mentioned the $6 billion development pipeline, most of these projects come online in 2010, 2011. I realize you guys are probably going to convey more details, outlook or guidance in your May 27 meeting, but I am just wondering what kind of returns do you look for on these projects or would expect from these projects once they become operational? Return on investment, return on equity, something like that?

Brian, this is Ahmed. I think we are talking about mid-teen returns.

Okay, great. Mid-teens and that is return on --?

Equity.

Okay. And thank you for that. And then just update us on your share buyback program.

Yes, share buyback program, the buyback program had expired I think it was the end of the year and we haven't initiated any share buybacks at this point mainly because my feeling is, in today's environment, I am not quite sure what the best use of money is. And we have just been building up our liquidity, trying to get as much as we can at the parent. That will just remain an option we can use. We are going to be restricted though to $350 million worth of stock buybacks whatever we would do just due to covenant restrictions.

Okay, so to be clear, the Board authorized $400 million. I think you completed $150 million, which gives you restricted to $250 million, but that share buyback is no longer ongoing.

Well, yes, that expired and if we elected to proceed with it, we would go back to the Board, get approval and continue. But the restriction, independent of that, will be the covenants to $350 million.

Okay, understood. And then just one more question. We have seen some companies in the Latin American region comment on consolidation and potential acquisitions in that region. I was just wondering what your thoughts were on your Latin American assets and where you feel comfortable on either side of the table.

Well, I think what I have seen in the emerging markets is when you've got people out there looking to buy things, they are really looking for distressed prices and that is not going to be attractive to us. So I don't think we are going to be seeing many opportunities to sell assets in Latin America right now. If somebody were to come to us and make us an offer that made a lot of sense, that is clearly something that could be attractive to us, but I am not optimistic that we would see that in today's market.

Okay, great. Thank you.

Gregg Orrill, Barclays Capital.

I was wondering if you could comment on hedge profile within the backlog, whether it is offtake agreements, counterparties you have in place or the native load maybe on some of the bigger projects. Thank you.

Yes, I think what we probably could talk about is our -- it is primarily in North America with our New York businesses and our deepwater business. But Rich Santoroski could talk about that a little bit because we've typically hedged out a certain profile and we've modified that a little bit. But maybe Rich could talk about what our hedging strategies look out a couple years and New York is really our biggest exposure there.

Well, really on the backlog, like for instance in Bulgaria and the coal plants in Chile, that would be great just to give a little bit more certainty.

Yes, I think -- Gregg, this is Ahmed. I think in terms of our construction program, most of the capacity, which is roughly more than 96% of the capacity of 3000 megawatts, is contracted and over 15 to 20 projects. And we have normally for each project one standalone customer. For example, Bulgaria has a state-owned utility that is our customer. And in terms of capacity, 100% of the capacity is sold and we get paid a capacity fee that covers our fixed cost and debt service requirements.

So in terms of the volume, it doesn't matter in our case because we get a fixed fee regardless and then we get, on top of that, fuel cost if we operate. So it doesn't matter how much volume we sell. Our key focus is on the capacity fee that we get paid based on our availability. That is the key thing we want to make sure we are available when they call us.

The same is true for our Chilean projects where we have offtake contracts with mining, one of the least cost mining mines in Chile. So we have a similar structure there -- capacity fee and then we get paid the fuel price as a pass-through.

Great, thanks.

Leslie Rich, Columbia Management.

Hi, just to follow-up on Gregg's question, could you talk about the New York and deepwater -- the US hedges for power and fuel?

Sure. I will let Rich Santoroski who is our Chief Risk Officer give you an update on that.

Sure. For New York for the balance of 2009, it will probably hedge to about 75% of the capacity of the assets. But as Paul had mentioned earlier, with narrowing spreads, it is almost 100% of the current economic assets and as the spread widens, some of the smaller plants that aren't running today because the spread had narrowed provides more upside for the balance of the year. So I think as Paul mentioned on the gas earlier, there is little downside and more upside as the units come back on as the spread increases.

For 2010, we have a smaller volume hedged and probably in the range of 10% right now. But as the coal and gas spread starts to look more attractive, as it has over the last few days in particular, we are in a position where we are going to begin executing more hedges for that period.

Deepwater, it is hedged in part probably about 20% for the rest of 2009 with no hedges for 2010. But again, as we are seeing the gas price in 2010 now break 630 or at those levels, we are looking more at hedging 2010 as well.

And your coal hedges for New York?

Coal hedges for Eastern -- it pretty much is 100% hedged for 2009 and slightly more coal hedged in 2010 than the power. But we generally try to keep the spreads balanced in that perspective. So we try to hedge the spread and do the coal and power together.

Deepwater, particularly now with the lower pet coke price, our pet coke is an index purchase, but generally it is low. So that is pretty much a must-run unit versus the gas price setting in ERCOT.

Okay. And Paul, when you talked about your capital allocation, one, pay down debt; two, repurchase stock; three reinvest; and four, build liquidity, was that in order of preference?

No, it was just -- I think in order of preference right now I would say number four is the highest preference and the other three, you really have to evaluate it as we go forward on a real-time basis. But right now, I just don't know what the right thing to do is. We have got the liquidity to pay down some debt, we have got liquidity to make some investments and we have got liquidity to buy back some stock. But it is really just, at this point, accumulating liquidity because it gives us the options to do some things going forward that could be attractive to us. So I would say number four is really the primary one for now and then the other three will depend on the relative attractiveness over time.

Okay, and then, finally, on the income statement under other income, it is $222 million. Is that partially the Kazakhstan payment?

Yes, it is.

Okay, thank you.

Ed Shen, Ivory.

Hey, guys. Just wanted to clarify the Kazakhstan payment. You said that that was a $0.12 contribution to earnings. But I believe in a prior question you said that that is a payment that you expect to get next year as well.

Sorry. The point I was making -- this is Victoria -- the point I was making actually was the cash payment for what we had accrued in the first quarter didn't hit until April for that. So they are bifurcated from a quarter perspective and that was the management performance incentive payout. The subsequent one is actually the payment on the put itself, which doesn't occur until 2010.

Essentially what we did is we could have gone for another couple of years and gotten these payments. We just elected to exercise the put and what you do then is you get a performance payment, which is related to the operations of the facility. That counts as income. The other amount, if I have it right, counts as a sale of the asset, but it will be cash that will be backed up by an LC, come in January of 2010, but backed up by an LC, which would be put in place in the next month or so.

Okay. So the $100 million will not be counted as earnings; it will be counted against return of capital of some sort?

Correct. Yes.

Okay. And then the $0.02 benefit you got from the Brazilian tax settlement, is that also included in your adjusted earnings guidance?

Yes.

It is? Okay. But that is, in effect, a nonrecurring thing because it's a legal settlement?

That is correct.

I will say though with Brazil, it does seem that there is a recurring legal settlement issue that goes on every year. So there is just a constant backlog of these things.

Okay. And then that is why you include it in your adjusted earnings instead of --?

We do, yes.

Got it. And then in terms of the investments necessary to complete the projects, I believe you said it was $210 million. That is contributions from the parent going forward, is that correct?

Yes, think of it as all the other money is either raised through third-party project financing or in their level, they have raised some bonds to fund their construction. They have got the equity onhand. But in terms of what is required from the parent, roughly $210 million is what we need to contribute. That is what we are really watching is what is liquidity of AES parent, what do we need to get those plants all operating and online and it is only a remaining $210 million. What we really wanted to stress was you really want to get those plants completed because you've got all the money there, it is raised. So we don't have any funding issues, we have got all that taken care of. And as they come online, they will start generating earnings and cash flow.

And how much equity have you contributed to those projects to date from the parent?

I don't know that number off the top of my head. We did give guidance though I believe last call about what the contributions would be coming from those projects in construction. Ahmed, do you have that handy?

It is -- I think your question is how much we have already invested?

Correct.

It is roughly about $1 billion, but we will discuss that in more detail I think at our Analyst Day.

Let me just review what we gave out because this will be helpful -- this is what we said last time. For our 3400 megawatt construction program, they would, once they are all up and operating, annual EPS contribution of $0.25, proportional cash flow of $300 million to $400 million and subsidiary distributions of $150 million and that is by 2011 when they are all up and running. So that helps you calibrate too what the contributions will be.

Got it. And then one last question. The tax rate this quarter it looks like about 26%. What are you assuming for the full year?

We are still looking at something in the mid-30%s. That was depressed by the tax-free nature of some of the Kazakhastan earnout. So we would not assume that we would continue to enjoy the benefit of that over the balance of the year.

Okay, thank you very much, guys.

Humberto Medina, Macquarie.

My questions have been answered. Thank you.

David Bunzel, Aletheia Research.

My questions have been answered already. Thank you.

(Operator Instructions).

It seems like we don't have any other questions. Ahmed, do you want to just mention the Investor Day?

Sure. This is Ahmed. I want to say thank you very much for everyone for participating today. As Paul mentioned, we are planning to hold an Investor Day in New York on May 27 at the Westin Times Square. Members of our senior management will provide presentations to attendees and will be available for Q&A. For those of you who will not be able to join us in New York, we encourage you to participate through the webcast. We look forward to seeing you there.

In the meantime, if you have any questions, please call either Michael Cranna or myself and for any media inquiries, please call Meghan Dotter. Thank you and have a nice day.

This concludes today's conference call. You may now disconnect.