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Original Source: FD (FAIR DISCLOSURE) WIRE
. Ahmed Pasha, AES Corporation, IR . Victoria Harker, AES Corporation, CFO . Paul Hanrahan, AES Corporation, President, CEO . Greg Orrill, Lehman Brothers, Analyst . Elizabeth Parrella, Merrill Lynch, Analyst
. Bill Luraschi, AES Corporation, EVP and President, Alternative
Energy . Mitchell Spiegel, Credit Suisse, Analyst . Brian Chin, Citigroup, Analyst . Lasan Johong, RBC Capital Markets, Analyst . Sergio Tomashiro, Banco Ital, Analyst . Annie Tsao, AllianceBernstein, Analyst . Brian Miller, AES Corporation, EVP, General Counsel, Corporate
Secretary . Brian Russo, Ladenburg Thalmann, Analyst
AES reported 1Q07 revenue growth of 11%. Effective tax rate was 41% for 1Q07. 1Q07 weighted avg. shares outstanding were 677m. 1Q07 total CapEx was $488m. 1Q07 free cash flow was $377m. Financial outlook for 2007 has not changed from the guidance Co. gave on its year-end call.
A. Key Data From Call 1. 1Q07 revenue growth = 11%. 2. 1Q07 total CapEx = $488m.
S1. 1Q07 Financial Review (V.H.) 1. Milestones Achieved: 1. During 1Q07, Co. delivered strong results, while continuing to successfully pursue its growth strategy. 2. In Feb., Co. acquired (indiscernible) TEG and TEP facilities in Mexico for a negotiated transaction.
1. These two power plants added 460-megawatts of fully contracted generating capacity to Co.'s portfolio. 3. Also announced a partnership with GE Energy Financial Services during 1Q07 to develop greenhouse gas emission offsets in the US. 1. Through this partnership, Co. intends to produce "10m" greenhouse gas offsets annually by 2010.
2. Because Co. does not anticipates selling these offsets on
the European market, they will be fully incremental to the target of "26m" offsets per year represented in its long-term guidance just a few weeks ago. 4. 1Q07 results reflect the agreement with PDVSA for the sale of Co.'s Venezuelan subsidiary, EDC which closed on May 16. 1. As a result, EDC has been classified in discontinued
operations for 1Q07. 5. As anticipated and previously disclosed, Co. recognizes the non-cash impairment charge of $638m or $0.94 impact on diluted loss per share net of taxes. 6. 1Q07 and prior period results also reflect Co.'s decision to sell two businesses, Central Valley, and Eden, which are also now reflected in discontinued operations. 2. 1Q07 Financial Overview: 1. Revenue grew 11%. 1. Specifically, 2% of that growth was attributable to favorable foreign currency rates in Brazil and Europe. 2. After adjusting for foreign currency, the remaining 9% increase was primarily due to higher prices and volumes in the generation businesses in Latin America, and from the newly acquired TEG and TEP plants in Mexico, and the consolidation of Itabo in the Dominican Republic into Co.'s results. 2. On a YoverY basis, [in-qtr.] GM decreased by $49m to $868m. 1. This decrease was primarily due to a reduction in emission sales of $39m vs. 1Q06. 2. Does not anticipate emission sales to be a driver of earnings in 2007 as it had largely brought its portfolio now into balance. 3. Most significant emission sales during 2006 were in 1Q06 and 2Q06, which included $47m and $26m in emission sales respectively. 4. GM vs. 1Q06 was also negatively impacted by a $32m cost recovery for (indiscernible) Eletropaulo during 1Q06, but did not occur in 2007. 5. Excluding the impact of these 1Q06 events, Co.'s GM in 1Q07 increased by $22m.
3. G&A cost increased by $28m vs. 1Q06 to $85m primarily due to
increased staffing associated with the strengthening of its
financial infrastructure worldwide. 1. Cost associated with the recent restatement and higher levels of business development activity. 4. YoverY in-qtr. interest expense, net of interest income
increased by $18m, largely driven by lower interest income due
to a one-time benefit in 1Q06, and the acquisition of debt at
TEG and TEP, offset by the positive impacts of several debt
retirements and refinancings Co. accomplished in 2006. 5. Net other expense decreased by $57m from 1Q06 primarily due to
the absence of the charges of $62m related to debt retirements
at the parent and at Co.'s El Salvador subsidiary that occurred in 1Q06. 1. This was partially offset by a $22m reserve related to an adverse court ruling at Co.'s subsidiary in-house expense
regarding pricing dispute. 2. Co. does not agree with this decision, and it will pursue an appeal to the appropriate legal channel.
3. Gains on sale and investments decreased by $86m vs. 1Q06 due
to the recognition of a one-time gain of $87m in 1Q06 related to the sale of Kingston. 4. In 1Q07, Co. recognized a non-cash impairment of $35m in its investments in the marketable equity securities of AgCert, a UK-based producer of emission reduction credit. 5. This appears on Co.'s income statement, and other non-OpEx. 6. Co. owns less than 10% of the outstanding shares of AgCert, and under FAS-115, this form of investment is recorded at fair value based on the traded stock price. 7. During 1Q07, AgCert's stock price declined, and Co. concluded that the decrease met the FAS-115 criteria for being other than temporary. 8. Recorded the fair value adjustment through this impairment charge accordingly. 6. Effective tax rate was 41% vs. 31% in 1Q06. 1. This difference in tax rate was driven in part by a change in tax law in China, and unfavorable impacts related to the impairment of AgCert and the charge related to the court ruling in Kazakhstan. 2. This compares negatively to the favorable impacts of the tax rate due to a tax-free gain in Kingston recorded during 1Q06. 3. These impacts were partially offset by tax benefits through the release of a valuation allowance at one of Co.'s subsidiaries in Argentina. 4. Believes …