- The Washington Times - Monday, January 23, 2006

AES Corp. ended a long period of uncertainty when it announced two strong quarters for earnings, restoring investor confidence and sending the stock price up nearly a dollar.

Investors had been cautious about the Arlington power company, which hadn’t reported quarterly earnings since May because of accounting problems over deferred tax balances.

“There was no question that the investment community had some concerns on the potential pitfalls on the restatements,” said Lasan Johong, director and senior analyst at investment research firm RBC Capital Markets in New York.

Thursday, the company reported its second and third quarter net income. In its second quarter ended June 30, net income rose 15 percent to $74 million. In the third quarter, net income rose 162 percent to $244 million.

In the earnings release, the company restated an earlier loss from continuing operations of $815 million to $1.37 billion. The restatement covered 13 quarters from 2002 to the first quarter of 2005.

The stock price rose nearly a dollar after the earnings report to close at $17.68 Thursday on the New York Stock Exchange.

AES’s stock fell 2 cents yesterday to close at $17.62.

“The restatement process was important and necessary and took a global effort over a significant period of time,” said AES President and Chief Executive Officer Paul Hanrahan. “In addition, we have continued to strengthen the effectiveness of our controls and processes throughout the organization to ensure transparency and accuracy of our financial information.”

Merrill Lynch research analyst Elizabeth A. Parrella said in a recent report that the earnings restatement had a negative impact of up to 10 cents on earnings per share.

In the long term, Mr. Johong of RBC, which has the stock rated as a buy, says AES is well positioned to take advantage of a global community with a big demand for power.

While Americans consume about 3000 kilowatts of power, the rest of the world consumes an average of .5 kilowatts per year.

“There is a huge thirst for power out there, especially in developing countries,” Mr. Johong said. “The question is not whether these power plants will get built, it’s questions of when and by whom … the matter of whom is where AES makes a difference.”

Mr. Johong does not own shares of AES and RBC does not have a business relationship with the company.

Investment firm Broadwell Capital in New York has the company rated a buy because of its strong cash flow, an important indicator for energy companies, analyst Brian Russo said.

AES had $183 million in its free cash flow in the second quarter of 2005, up from $100 million in 2004. In the third quarter, free cash flow was $380, up from $375 in 2004.

Neither Mr. Russo nor Broadwall have business relationships with AES.

AES said it expects 2005 earnings to be 85 cents per share, up from 76 cents in earlier estimates.

The company also has a new chief financial officer. Victoria Harker, former chief financial officer of MCI, began yesterday.

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