| 1. General and Summary
of Significant Accounting Policies
The AES Corporation and its subsidiaries and
affiliates, (collectively "AES" or "the Company") is a glob-
al power company primarily engaged in owning and operating
electric power generation and distribution businesses in many
countries around the world.
Principles
of Consolidation - The consolidated financial statements
of the Company include the accounts of The AES Corporation,
its subsidiaries, and controlled affiliates. Investments in
50% or less owned affiliates, over which the Company has the
ability to exercise significant influence but not control,
are accounted for using the equity method. Intercompany transactions
and balances have been eliminated.
Cash
and Cash Equivalents - The Company considers unrestricted
cash on hand, deposits in banks, certificates of deposit,
and short-term marketable securities with an original maturity
of three months or less to be cash and cash equivalents.
Investments
- Securities that the Company has both the positive intent
and ability to hold to maturity are classified as held-to-maturity
and are carried at historical cost. Other investments that
the Company does not intend to hold to maturity are classified
as available-for-sale, and any significant unrealized gains
or losses are recorded as a separate component of stockholders'
equity. Interest and dividends on investments are reported
in interest income. Gains and losses on sales of investments
are recorded using the specific identification method. Short-term
investments consist of investments with original maturities
in excess of three months but less than one year. Debt service
reserves and other deposits, which might other-wise be considered
cash and cash equivalents, are treated as concurrent assets
(see Note 5).
Inventory
- Inventory, valued at the lower of cost or market (first
in, first out method), consists of coal, fuel oil, raw materials,
spare parts and supplies. Inventory consists of the following
(in millions):
|
| December 31, |
1999
|
1998
|
|
| Coal, fuel oil, and other |
|
|
| raw materials |
$191
|
$ 63
|
| Spare parts and supplies |
116
|
56
|
|
| Total |
$307
|
$119
|
|
Property,
Plant, and Equipment - Property, plant, and equipment,
including improvements, is stated at cost. Depreciation, after
consideration of salvage value, is computed using the straight-line
method over the estimated composite lives of the assets, which
range from 3 to 40 years. Maintenance and repairs are charged
to expense as incurred. Emergency and rotable spare parts
inventories are included in electric
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generation and distribution assets and are
depreciated over the useful life of the related components.
Construction
in Progress - Construction progress payments, engineering
costs, insurance costs, salaries, interest, and other costs
relating to construction in progress are capitalized. Construction
in progress balances are transferred to electric generation
and distribution assets when the assets are ready for their
intended use. Interest capitalized during development and construction
totaled $104 million, $79 million, and $67 million in 1999,
1998, and 1997, respectively. Intangible
Assets - Goodwill and electricity sales concessions and
contracts are amortized on a straight- line basis over their
estimated periods of benefit which range from 15 to 40 years.
Intangible assets at December 31, 1999 and 1998 are shown net
of accumulated amortization of $70 million and $39 million,
respectively.
Long-Lived
Assets - In accordance with Statement of Financial Accounting
Standard (SFAS) No. 121, Accounting for the Impairment of Long-Lived
Assets and/or Long-Lived Assets to Be Disposed Of, the Company
evaluates the impairment of long-lived assets, including goodwill,
based on the projection of undiscounted cash flows whenever
events or changes in circumstances indicate that the carrying
amounts of such assets may not be recoverable. In the event
such cash flows are not expected to be sufficient to recover
the recorded value of the assets, the assets are written down
to their estimated fair values (see Note 12). Deferred
Financing Costs - Financing costs are deferred and amortized
over the related financing period using the effective interest
method or the straight-line method when it does not differ materially
from the effective interest method of amortization. Deferred
financing costs are shown net of accumulated amortization of
$87 million and $70 million as of December 31, 1999 and 1998,
respectively.
Project
Development Costs - The Company capitalizes the costs of
developing new construction projects after achieving certain
project-related milestones that indicate that the project is
probable of completion. These costs represent amounts incurred
for professional services, permits, options, capitalized interest,
and other costs directly related to construction. These costs
are transferred to property when significant construction activity
commences, or expensed at the time the Company determines that
a particular project will no longer be developed. The continued
capitalization of such costs is subject to ongoing risks related
to successful completion, including those related to government
approvals, siting, financing, construction, permitting, and
contract compliance.
Income
Taxes - The Company follows SFAS No. 109, Accounting for
Income Taxes. Under the asset and liability method of SFAS No.
109, deferred tax |
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