Back to GetFilings.com

Use these links to rapidly review the document
TABLE OF CONTENTS
PART IV

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

COMMISSION FILE NUMBER 0-19281

The AES Corporation
(Exact name of registrant as specified in its charter)

Registrant's telephone number, including area code: (703) 522-1315

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ý    No o

The aggregate market value of Registrant's voting stock held by non-affiliates of Registrant, on June 30, 2003 (based on the closing sale price of $6.35 of the Registrant's Common Stock, as reported by the New York Stock Exchange on such date) was approximately $3,932,416,062. The number of shares outstanding of Registrant's Common Stock, par value $0.01 per share, on March 3, 2004, was 628,775,109.

DOCUMENTS INCORPORATED BY REFERENCE

 Certain information from the registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on April 28, 2004 is hereby incorporated by reference into Part III hereof.

THE AES CORPORATION
FISCAL YEAR 2003 FORM 10-K

TABLE OF CONTENTS

PART I

1

2

PART I

ITEM 1. BUSINESS

Overview

 The AES Corporation (including all its subsidiaries and affiliates, and collectively referred to herein as "AES", "the Company", "us" or "we") is a leading global power company. A Delaware corporation formed in 1981, AES is a holding company that, through its subsidiaries operates in four segments of the electricity industry: contract generation, competitive supply, large utilities and growth distribution. The Company's generating assets include interests in 114 facilities in 24 countries totaling over 38 gigawatts of capacity. AES's electricity distribution networks sell approximately 86,500 gigawatt hours per year.

How to Contact AES and Sources of Other Information

 Our principal offices are located at 1001 North 19th Street, Suite 2000, Arlington, Virginia 22209. Our telephone number is (703) 522-1315, and our web address is http://www.aes.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and any amendments to such reports filed pursuant to section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 are posted on our website at http://www.aes.com. After the reports are filed with the Securities and Exchange Commission, they are available from the Company free of charge. Material contained on our website is not part of and is not incorporated by reference in this report on Form 10-K.

Operating Segments

 We operate in four business segments: contract generation, competitive supply, large utilities and growth distribution. The following table shows the percentage of our revenues contributed by each of our business segments for fiscal year 2003:

Total Operating Revenue: $8.4 billion

3

 The following table shows the percentage of current operating capacity by fuel for fiscal year 2003:

Current Operating Capacity (MW) by Fuel (data as of December 31, 2003)

 See Note 20 to the Consolidated Financial Statements included in Item 8 of this Form 10-K for additional financial information about our business segments as well as information about our foreign and domestic operations.

Contract Generation

 Our contract generation line of business is comprised of generation facilities that have contractually limited their exposure to commodity price risks, primarily electricity price volatility, by entering into longer term (originally five years or longer) power sales agreements for 75% or more of their output capacity. These power sales agreements are typically entered into with one major wholesale customer, but also may involve a series of unrelated customers. These facilities are better able to manage their expenses because they have contracted buyers for a majority of their anticipated output. They can project their fuel supply requirements and generally enter into long-term agreements for most of their fuel supply requirements, thereby limiting their exposure to short-term fuel price volatility. In addition, these facilities may enter into tolling or "pass through" arrangements in which the counter-party directly assumes the risks associated with providing the necessary fuel and then markets the generated power. Through these types of contractual agreements, our contract generation businesses generally produce more predictable cash flows and earnings. The degree of predictability varies from business to business based on the degree to which their exposure is limited by the contracts they have negotiated with their buyers.

 Our contract generation segment is comprised of our interests in 61 power generating facilities totaling over 18 gigawatts of capacity located in 18 countries. It also includes minority interests in 7 power

4

generation facilities totaling over 4 gigawatts of capacity. Of the total 22 gigawatts of current operating capacity, 29% is derived from coal-fired facilities, 8% from oil-fired facilities, 49% from gas-fired facilities, 13% from hydro facilities and 1% from biomass facilities.

 In most of our contract generating businesses, a single customer contracts for most or all of a particular facility's generated power. To reduce the resulting counter-party credit risk, we seek to contract with customers who have investment grade debt ratings, including regulated utilities that are regulated by state or local public utility commissions ("PUCs") which tend to have stable cash flows. We also may obtain sovereign government guarantees of the customer's obligations. However, we do not limit our business solely to customers with investment grade debt ratings or to those countries with investment grade sovereign credit ratings. We believe that locating our plants in different geographic areas helps to mitigate the effects of regional economic downturns, thereby offsetting some of the risks associated with operating in less developed countries.

 Certain of our subsidiaries and affiliates (domestic and non-U.S.) are in various stages of developing and constructing greenfield power plants. Some have signed long-term contracts or made similar arrangements for the sale of electricity. We currently have one power generation facility under construction, totaling approximately 1,200 MW of capacity. We are also completing the construction of the second phase of the Ras Laffan combined cycle facility for an additional 346MW. As of December 31, 2003, capitalized costs for these projects under construction were approximately $584 million. We currently believe that these costs are recoverable but can provide no assurance that we will complete these individual projects and/or that these projects will reach commercial operation.

 In the contract generation segment, we face most of our competition prior to the execution of a power sales agreement during the development phase of a project. Our competitors in this business include other independent power producers as well as various utilities and their affiliates. During the operational phase, we traditionally have faced limited competition in this segment due to the long-term nature of the generation contracts. However, since competitive power markets have been introduced and new market participants have been added, we will encounter increased competition in attracting new customers and maintaining our current customers as our existing contracts expire. In particular, over the past year, in the United States, traditional regulated utilities have reserved their interest in purchasing either existing or under construction merchant power plants or development rights to new greenfield power plants within their service areas or construct their own generation under some form of cost-based regulation directly or through merchant affiliates.

Competitive Supply

 The facilities in our competitive supply segment sell electricity directly to wholesale customers in competitive markets. In contrast to the contract generation segment discussed above, these facilities generally sell less than 75% of their output under long-term contracts. They often sell into power pools under shorter-term contracts or into daily spot markets. The prices these facilities sell under short-term contracts and in the spot electricity markets are unpredictable and can be volatile. In addition, our operational results in this segment are more sensitive to the impact of market fluctuations in the price, natural gas, coal, oil and other fuels. These businesses also have more significant needs for working capital or credit to support their operations.

 Our competitive supply segment is comprised of our interests in 35 power generation facilities totaling over 15 gigawatts of capacity located in 8 countries. Of the total 15 gigawatts of current operating capacity, 55% is derived from coal-fired facilities, 17% from gas-fired facilities, 25% from hydro facilities, 2% from oil facilities, 1% from petroleum coke facilities and less than 1% from biomass facilities. We are currently constructing one competitive supply facility totaling 185 MW. As of December 31, 2003, we were completing the rehabilitation of one of our units at the Bayano facility in

5

Panama for an additional 12 MW. This unit was completed and went into commercial operations in February 2004.

 The absence of long-term contracts makes future production volumes uncertain, which in turn makes it difficult to forecast the amount of fuel needed to support those volumes. As a result, competitive supply businesses are exposed to volume risk in connection with their purchases of natural gas, coal and other raw materials. Where appropriate, we have hedged a portion of our financial performance against the effects of fluctuations in energy commodity prices using such strategies as commodity forward contracts, futures, swaps and options.

 Although we maintain credit policies with regard to our counterparties, there can be no assurance that these ultimately will be able to fulfill their contractual obligations. One of the principal outcomes of recent volatility in electricity markets has been a substantial increase in credit risk, a decline in the number and quality of market participants with strong credit ratings, and considerably less liquidity in energy markets.

 We compete in this segment with numerous other independent power producers, energy marketers and traders, energy merchants, transmission and distribution providers, and retail energy suppliers. Competitive factors in this segment include price, contract terms, including credit requirements, and quality of service.

Large Utilities

 Our large utility segment consists of electric utilities that are of significant size and maintain a monopoly franchise within a defined service area. In most cases our large utilities combine generation, transmission and distribution capabilities. Currently, this segment is comprised of three utilities: IPALCO Enterprises, Inc. ("IPALCO"), Eletropaulo, and EDC. We have a 100% common equity interest in IPALCO, a 70% common equity interest in Eletropaulo (50.01% after the January 2004 restructuring) and an 86% common equity interest in EDC. Our large utilities aggregate 5,854 gross MW of generation capacity and serve over 6.5 million customers with annual sales of nearly 58,900 gigawatt hours. Our large utilities are subject to extensive local, state and national regulation relating to ownership, marketing, delivery and pricing of electricity and gas with a focus on protecting customers. Large utility revenues result primarily from retail electricity sales to customers under regulated tariff or concession agreements and to a lesser extent from contractual agreements of varying lengths and provisions.

 IPALCO is a holding company and its principal subsidiary is Indianapolis Power & Light Company ("IPL"). IPL is engaged in generating, transmitting, distributing and selling electric energy to approximately 450,000 customers in the City of Indianapolis and neighboring areas within the state of Indiana. IPL owns and operates four generation facilities. Two generating facilities are primarily coal-fired plants. The third facility has a combination of units that use coal (base load capacity) and natural gas and/or oil (peaking capacity). The fourth facility is a small peaking station that uses gas-fired combustion turbine technology. IPL's net generation winter capability is 3,356 MW and net summer capability is 3,238 MW. We acquired IPALCO in March 2001. In connection with our acquisition of IPALCO, we were required under the U.S. Public Utility Holding Company Act ("PUHCA") to dispose of our 100% ownership interest in CILCORP, a utility holding company whose largest subsidiary is Central Illinois Light Company ("CILCO"), also a regulated utility. In January 2003, we sold CILCORP to Ameren Corporation in a transaction valued at $1.4 billion including the assumption of debt and preferred stock at the closing. As part of the transaction we also sold AES Medina Valley Cogen ("Medina Valley"), a gas-fired cogeneration facility located in CILCO's service territory on February 4, 2003. The CILCORP and Medina Valley sales generated net proceeds (after expenses) of approximately $500 million, subject to certain adjustments. CILCORP was previously reported in the large utilities segment.

6

 Eletropaulo has served the São Paulo, Brazil area for over 100 years and is the largest electricity distribution company in Latin America in terms of revenues. Eletropaulo's concession contract with the Brazilian National Electric Energy Agency ("ANEEL"), the government agency responsible for regulating the Brazilian electric industry, entitles Eletropaulo to distribute electricity in its service area for 30 years. Eletropaulo's service territory consists of 24 municipalities in the greater São Paulo metropolitan area and adjacent regions that account for approximately 15% of Brazil's GDP, covering 5.0 million customers or 44% of the population in the State of São Paulo, Brazil.

 We began consolidating Eletropaulo in February 2002 when we acquired a controlling interest in Eletropaulo by exchanging a minority interest in another large utility, Light Servicos de Eletricidade S.A. ("Light"), for an additional 31% common equity interest in Eletropaulo. In January 2004, we completed a restructuring of $1.3 billion (including interest) of indebtedness owed to the Brazilian National Development Bank, ("BNDES"), and its affiliate BNDESPAR Participações S.A. ("BNDESPAR") by some of our Brazilian holding companies. Pursuant to the restructuring, we and BNDES created a new company, Brasiliana Energia S.A ("Brasiliana Energia"), to which we contributed $90 million as well as our direct and indirect interests in Eletropaulo, Uruguaiana and Tiete. AES Sul may be contributed upon the successful completion of its financial restructuring. Pursuant to the shareholders agreement between us and BNDES, we control Brasiliana Energia through the ownership of a majority of the voting shares of the company. We own 50.01% of the common shares and BNDES owns 49.99% of the common shares plus non-voting preferred shares, giving BNDES approximately 53.84% of the total equity capital of Brasiliana Energia. The shareholders' agreement requires that we and BNDES act unanimously with respect to listed corporate events and actions. In return, Eletropaulo's debt owed to BNDES was reduced to $510 million, and is evidenced by convertible debentures of Brasiliana Energia, which are payable over an 11-year period (and remain non-recourse to us). The debentures are convertible into shares of Brasiliana Energia upon the occurrence of an event of default, which would give BNDES control of Brasiliana Energia.

 EDC was founded in 1895 and is the largest private-sector electric utility in Venezuela serving approximately one million customers. EDC generates, transmits and distributes electricity primarily to metropolitan Caracas and its surrounding area. EDC's distribution area covers 5,176 square kilometers. EDC has an installed generating capacity of 2,616 MW.

 Historically, energy utilities have operated within specific service territories where they were essentially the sole suppliers of electricity services. As a result, competition was limited to alternative means of energy such as gas and fuel. However, in certain locations, the large utilities business is currently facing significant challenges and increased competition as a result of changes in laws and regulations which allow wholesale and retail services to be provided on a competitive basis. We can provide no assurance that deregulation will not adversely affect our large utilities' future operations, cash flows and financial condition.

Growth Distribution

 Our growth distribution segment is comprised of our interests in electricity distribution facilities located in developing countries where the demand for electricity is expected to grow at a higher rate than in more developed parts of the world. The conditions of the business environment in a developing nation also provide for significant opportunities to implement operating improvements that may stimulate growth in earnings and cash flow performance. These growth rates may be greater than those typically achievable in our other business segments. Often, however, these businesses face particular challenges associated with their presence in developing countries such as outdated equipment, significant electricity theft-related losses, cultural problems associated with customer safety and non-payment, emerging economies, and potentially less stable governments or regulatory regimes. Distribution facilities included in this segment may include generation, transmission, distribution or related services companies. The results of operations of our growth distribution business are sensitive to changes in

7

economic growth and regulation, abnormal weather conditions affecting each local market, as well as the success of the operational changes that have been implemented.

 We derive growth distribution revenues from the distribution and sale of electricity pursuant to the provisions of long-term electricity sale concessions granted by the appropriate governmental authorities, or in some locations, under existing regulatory laws and provisions. One of our distribution facilities, SONEL, is "integrated," in that it also owns electric power plants for the purpose of generating a portion of the electricity it sells. The facilities currently in this segment contribute approximately 850 gross MW of generation and serve nearly 4.7 million customers with sales exceeding 25,600 gigawatt hours in Argentina, Brazil, Cameroon, El Salvador, and Ukraine.

 The facilities in the growth distribution segment face relatively little direct competition due to significant barriers to entry present in these markets. In this segment, we primarily face competition in our efforts to acquire businesses. We compete against a number of other participants, some of which have greater financial resources, have been engaged in growth distribution related businesses for periods longer than we have and have accumulated more significant portfolios. Relevant competitive factors include financial resources, governmental assistance, and access to non-recourse financing and regulatory factors.

 The following tables present information with respect to the facilities in each of our four business segments. The amounts under "Gross MW" and "Approximate Gigawatt Hours" represent the gross amounts for each facility without regard to our percentage of equity interest in the facility.

Contract Generation
(As of December 31, 2003)

8

(1)

As a result of the restructuring described above between some of our Brazilian holding companies and BNDES which was completed in January 2004, we will have a 46% ownership interest in AES Uruguaiana and a 24% interest in AES Tiete. AES will retain control of these entities through the holding company, Brasiliana Energia, S.A.

(2)

In December 2003, we sold a 39% interest in Oasis, a newly created company which owns a 90% interest in each of AES Lal Pir and AES Pak Gen, and an 85% interest in AES Barka.

9

Competitive Supply
(As of December 31, 2003)

10

(1)

In 2003, these plants were classified as discontinued operations.

(2)

Although our equity interest in these businesses is zero, we operate these businesses through a management agreement.

(3)

On March 9, 2004, the Company completed the sale of 100% of its ownership interest.

Large Utilities
(As of December 31, 2003)