AES 01192006
- 1. AES Corporation Second and Third Quarter 2005 Financial Review January 19, 2006 The Global Power Company
- 2. Safe Harbor Disclosure Certain statements in the following presentation regarding AES’s business operations may constitute “forward looking statements.” Such forward-looking statements include, but are not limited to, those related to future earnings, growth and financial and operating performance. Forward-looking statements are not intended to be a guarantee of future results, but instead constitute AES’s current expectations based on reasonable assumptions. Forecasted financial information is based on certain material assumptions. These assumptions include, but are not limited to continued normal or better levels of operating performance and electricity demand at our distribution companies and operational performance at our contract generation businesses consistent with historical levels, as well as achievements of planned productivity improvements and incremental growth from investments at investment levels and rates of return consistent with prior experience. For additional assumptions see the Appendix to this presentation. Actual results could differ materially from those projected in our forward-looking statements due to risks, uncertainties and other factors. Important factors that could affect actual results are discussed in AES’s filings with the Securities and Exchange Commission, including, but not limited to the risks discussed under the caption “Cautionary Statements and Risk Factors” in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2004, as well as our other SEC filings. AES undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 2 2Q05 and 3Q05 Financial Review www.aes.com
- 3. Nine Months Ended September 30, 2005 Highlights ($ Millions except earnings per share and percent) Nine Months Ended Revenue Comparison September 30, 2005 2004 (1) 2005 Change Period-Over-Period Revenues $8,113 $6,940 17% Volume/Price/Mix 10% Gross Margin $2,249 $2,076 8% Currency 7% Total as % of Sales 27.7% 29.9% (220) b.p. 17% Income Before Income Taxes and Minority Interest $1,047 $613 71% (IBT&MI) Diluted EPS from Continuing Operations $0.68 $0.36 89% Adjusted EPS (2) $0.64 $0.49 31% Return on Invested Capital (ROIC) (2) 9.0% (1) Restated. (2) Non-GAAP measure. See page 4 and Appendix. 3 2Q05 and 3Q05 Financial Review www.aes.com
- 4. Reconciliation of Adjusted Earnings Per Share ($ Per Share) Nine Months Ended Third Quarter Second Quarter First Quarter September 30, (2) (3) (4) (3) (3) (5) (3) (6) (3) (6) 2005(2) (4) (5) 2004 2005 2004 2005 2004 2005 2004 Adjusted Earnings Per Share (1) $0.35 $0.14 $0.64 $0.49 $0.11 $0.20 $0.18 $0.15 FAS 133 Mark-to-Market Gains/(Losses) (6) 0.01 (0.01) (0.01) (0.07) (0.01) (0.01) -- (0.05) Currency Transaction Gains/(Losses) 0.01 -- 0.05 (0.05) 0.03 (0.03) 0.01 (0.02) Net Asset Gains/(Losses and Impairments) -- -- -- -- -- -- -- -- Debt Retirement Gains/(Losses) -- -- -- (0.01) -- -- -- (0.01) Diluted EPS from Continuing Operations $0.37 $0.13 $0.68 $0.36 $0.13 $0.16 $0.19 $0.07 (1) Adjusted earnings per share (a non-GAAP financial measure), exclude from diluted earnings per share from continuing operations the effects of (i) gains or losses from mark-to-market accounting adjustments related to derivatives, (ii) certain foreign currency transaction gains and losses, (iii) significant impacts from net asset disposals or impairments, and (iv) early retirement of recourse debt. (2) Includes $0.06 per share benefit related to an Argentina valuation allowance reversal. (3) Restated. (4) Includes ($0.06) per share related to Brazilian receivable reserve costs net of a reversal of a business tax reserve. (5) Includes $0.01 increase in Q1 2005 diluted EPS from continuing operations as restated, due to a tariff increase at our Eletropaulo regulated utility in Brazil that was received in July 2005 and recorded retroactively in the first quarter of 2005 and is reflected in year to date results. (6) Includes Gener debt restructuring cost of ($0.03) per share. 4 2Q05 and 3Q05 Financial Review www.aes.com
- 5. Guidance Elements: Income Statement Contains Forward Looking Statements Guidance Element Updated Guidance (1) Prior Guidance 16 - 17% 4% Revenue Growth Gross Margin Change (75) – (100) b.p. +50 b.p. (As % of Revenues) Business Segment Income Before Taxes $ 2.0 billion $2.0 billion and Minority Interest (IBT&MI) (Excludes Corporate Costs of $650 Million) Allocated by Segment as a % of Total • Regulated Utilities 38% 45% • Contract Generation 49% 43% • Competitive Supply 13% 12% $0.83 $0.83 Adjusted EPS (2) Adjusted EPS Factors (2) $0.02 $(0.07) $0.85 $0.76 Diluted EPS from Continuing Operations (1) Updated guidance reflects restatement impacts on prior period results. (2) Non-GAAP measure. See Appendix. 5 2Q05 and 3Q05 Financial Review www.aes.com
- 6. Guidance Elements: Cash Flow Contains Forward Looking Statements Guidance Element Updated Guidance Prior Guidance $1.9 - 2.0 billion $1.9 - 2.0 billion Net Cash From Operating Activities $600 - 700 million $700 million Maintenance Capital Expenditures $1.2 - 1.3 billion $1.2 - 1.3 billion Free Cash Flow (1) $993 million $1.0 billion Subsidiary Distributions (1) $600 million in $600 million by Parent Debt Repayment (2) 2005-2006 Early 2006 See Assumptions in Appendix for further information. (1) Non-GAAP measure. See Appendix. (2) $254 million in parent debt repaid in 2005. 6 2Q05 and 3Q05 Financial Review www.aes.com
- 7. 2005 Guidance Elements: Subsidiary Distributions ($ Millions) 2005 Subsidiary Distributions Guidance (Current/Prior) (1) North Latin Europe, Middle America America Asia East & Africa Total Regulated $208/211 $123/120 $--/-- $28/30 $359/361 Utilities Contract 234/245 36/50 37/40 158/145 465/480 Generation Competitive 104/101 47/40 18/18 --/-- 169/159 Supply Total* $546/557 $206/210 $55/58 $186/175 $993/1,000 68% of distributions are expected to come from North American Regulated Utilities and Worldwide Contract Generation (prior guidance 69%). (1) Non-GAAP measure. 7 2Q05 and 3Q05 Financial Review www.aes.com
- 8. Segment Reporting Changes New Reporting Format Prior Reporting Format Business Segments Contract Generation Contract Generation Competitive Supply Competitive Supply Regulated Utilities Large Utilities Growth Distribution Geographic Segments North America Asia North America Caribbean US/Puerto Rico China US/Puerto Rico Colombia Canada India Canada Dominican Republic Mexico Kazakhstan El Salvador Europe/Africa Sri Lanka Mexico Europe/Africa/Middle East Cameroon Panama Cameroon Latin America Czech Republic Venezuela Czech Republic Argentina Hungary Hungary Brazil Asia Netherlands Netherlands Chile China Nigeria Nigeria Colombia India Spain Oman Dominican Republic Kazakhstan Ukraine Pakistan El Salvador Oman United Kingdom Qatar Panama Pakistan Spain Venezuela Qatar South America Ukraine Sri Lanka Argentina United Kingdom Brazil Chile Note: Changes in Bold 8 2Q05 and 3Q05 Financial Review www.aes.com
- 9. Second Quarter 2005 Highlights ($ Millions except earnings per share and percent) Second Second Quarter Quarter Revenue Comparison 2004 (1) 2005 Change Quarter-Over-Quarter (QOQ) Revenues $2,668 $2,262 18% Volume/Price/Mix 10% Gross Margin (2) $526 $656 (20%) Currency 8% Total as % of Sales (2) 19.7% 29.0% (930) b.p. 18% Income Before Income Taxes and Minority Interest (IBT&MI) (2) (3) $186 $191 (3%) Diluted EPS from Continuing Operations (2) (3) (4) $0.13 $0.16 (19%) Adjusted EPS (2) (3) (4) (5) $0.11 $0.20 (45%) Return on Invested Capital (ROIC) (2) (3) (5) 7.4% (1) Restated. (2) Includes the impact of a $192 million reserve related to the collectability of certain prior period municipal government receivables at our Brazilian regulated utilities. (3) Includes the favorable impact of the reversal of a $70 million Brazilian business tax accrual no longer required. (4) Includes the impact of ($0.06) on diluted earnings per share from continuing operations and adjusted earnings per share as a result of the Brazilian receivables reserve net of the reversal of the business tax accrual. (5) Non-GAAP measure. See page 4 and Appendix. 9 2Q05 and 3Q05 Financial Review www.aes.com
- 10. Second Quarter Cash Flow Highlights ($ Millions) Six Months Ended Second Quarter June 30, 2004 (2) 2004 (2) 2005 2005 Subsidiary-Only Subsidiary Net Cash from Operating Activities (1) $497 $404 $1,169 $933 Consolidated Net Cash from Operating Activities $329 $212 $847 $613 Free Cash Flow (1) $183 $100 $577 $379 Parent-Only Subsidiary Distributions (1) $170 $302 $365 $506 Return of Capital from Subsidiaries (1) $50 -- $52 $3 Recourse Debt Repayment (3) $115 $3 $115 $809 (1) Non-GAAP measure. See Appendix. (2) Restated. (3) Includes $3 million repaid for notes related to Directors’ and Officers’ Insurance. 10 2Q05 and 3Q05 Financial Review www.aes.com
- 11. Second Quarter Segment Highlights Regulated Utilities ($ Millions except as noted) Second Second Quarter Quarter % (1) 2005 2004 Change Segment Highlights Revenues $1,395 $1,146 22% • Revenues grew as a result of favorable currency effects in Brazil and higher Gross Margin $114 $278 (59%) tariffs in Brazil. as % of Sales 8.2% 24.3% (1,610) b.p. • Gross margin decreased as a result of IBT&MI $87 $116 (25%) a $192 million reserve related to the collectability of certain prior period municipal government receivables in Revenue Comparison (QOQ) % Change Brazil. Volume/Price/Mix 8% • IBT&MI includes the impact of the Currency (Net) 14% receivables reserve, which was partially offset by the favorable impact of the Total 22% reversal of a $70 million Brazilian business tax accrual no longer required. (1) Restated. 11 2Q05 and 3Q05 Financial Review www.aes.com
- 12. Second Quarter Segment Highlights Contract Generation ($ Millions except as noted) Second Second Quarter Quarter % (1) 2005 2004 Change Segment Highlights Revenues $988 $868 14% • Revenues grew as a result of increased contract pricing in Brazil and Gross Margin $353 $325 9% Chile, higher dispatch in Chile and at as % of Sales 35.7% 37.4% (170) b.p. our new Ras Laffan project in Qatar, and favorable currency effects largely IBT&MI $212 $199 7% in Chile and Brazil. These positive effects were partially offset by a Revenue Comparison (QOQ) % Change scheduled contract price reduction in the U.S. Volume/Price/Mix 12% • Gross margin increased primarily as a Currency (Net) 2% result of higher revenues. The decline Total 14% in gross margin percentage was driven by higher fuel and energy purchase costs in Chile and the scheduled contract price reduction in the U.S. (1) Restated. 12 2Q05 and 3Q05 Financial Review www.aes.com
- 13. Second Quarter Segment Highlights Competitive Supply ($ Millions except as noted) Second Second Quarter Quarter % (1) 2005 2004 Change Segment Highlights Revenues $285 $248 15% • Revenues grew as a result of sales of excess emission allowances at our Gross Margin $59 $53 11% New York plants, partially offset by as % of Sales 20.7% 21.4% (70) b.p. lower dispatch in New York due to a planned maintenance outage. IBT&MI $49 $39 26% • Gross margin increased primarily as a result of the allowance sales and Revenue Comparison (QOQ) % Change higher prices. The decline in gross Volume/Price/Mix 14% margin percentage occurred as higher fuel prices in Europe and New York Currency (Net) 1% partially offset the allowance sales. Total 15% (1) Restated. 13 2Q05 and 3Q05 Financial Review www.aes.com
- 14. Third Quarter 2005 Highlights ($ Millions except earnings per share and percent) Third Third Quarter Quarter Revenue Comparison 2004 (1) 2005 Change Quarter-Over-Quarter (QOQ) Revenues $2,782 $2,422 15% Volume/Price/Mix 10% Gross Margin $899 $736 22% Currency 5% Total as % of Sales 32.3% 30.4% 190 b.p. 15% Income Before Income Taxes and Minority Interest $484 $251 93% (IBT&MI) Diluted EPS from Continuing Operations (2) $0.37 $0.13 185% Adjusted EPS (2) (3) $0.35 $0.14 150% Return on Invested Capital (ROIC) (2) (3) 9.0% . (1) Restated. (2) Includes the favorable impact of the reversal of a $41 million tax reserve related to the recovery of net operating losses at two of our subsidiaries in Argentina, resulting in a positive impact of $0.06 on diluted earnings per share from continuing operations and adjusted earnings per share. (3) Non-GAAP measure. See page 4 and Appendix. 14 2Q05 and 3Q05 Financial Review www.aes.com
- 15. Third Quarter Cash Flow Highlights ($ Millions) Nine Months Ended Third Quarter September 30, 2004 (2) 2004 (2) 2005 2005 Subsidiary-Only Subsidiary Net Cash from Operating Activities (1) $728 $610 $1,897 $1,543 Consolidated Net Cash from Operating Activities $619 $504 $1,466 $1,117 Free Cash Flow (1) $380 $375 $957 $754 Parent-Only Subsidiary Distributions (1) $274 $221 $639 $727 Return of Capital from Subsidiaries (1) $-- $121 $52 $124 Recourse Debt Repayment (3) $143 $-- $258 $809 (1) Non-GAAP measure. See Appendix. (2) Restated. (3) Includes $4 million repaid for notes related to Directors’ and Officers’ Insurance. 15 2Q05 and 3Q05 Financial Review www.aes.com
- 16. Third Quarter/Nine Months Ended 9/30/05 Subsidiary Distributions ($ Millions) Third Quarter/Nine Months Ended September 30, 2005 Subsidiary Distributions (1) North Latin Europe, Middle America America Asia East & Africa Total Regulated $55/154 $29/51 --/-- $--/1 $84/206 Utilities Contract $68/179 $--/11 $6/13 $51/121 $125/324 Generation Competitive $53/87 $12/19 $--/3 --/-- $65/109 Supply Total* $176/420 $41/81 $6/16 $51/122 $274/639 66% of Third Quarter distributions and 75% of Nine Months Ended September 30, 2005 distributions were from North American Regulated Utilities and Worldwide Contract Generation. (1) Non-GAAP measure. See Appendix. 16 2Q05 and 3Q05 Financial Review www.aes.com
- 17. Third Quarter Segment Highlights Regulated Utilities ($ Millions except as noted) Third Third Quarter Quarter % (1) 2005 2004 Change Segment Highlights Revenues $1,406 $1,251 12% • Revenues grew as a result of favorable currency effects in Brazil more than Gross Margin $340 $301 13% offsetting unfavorable currency effects as % of Sales 24.2% 24.1% 10 b.p. in Venezuela. Warm weather and recovery relating to environmental IBT&MI $195 $168 16% investments contributed to higher revenues in the U.S. Revenue Comparison (QOQ) % Change • Gross margin increased primarily as a Volume/Price/Mix (2%) result of higher revenues in Brazil and the U.S., as well as favorable Currency (Net) 14% purchased electricity cost comparisons Total 12% in Brazil. (1) Restated. 17 2Q05 and 3Q05 Financial Review www.aes.com
- 18. Third Quarter Segment Highlights Contract Generation ($ Millions except as noted) Third Third Quarter Quarter % (1) 2005 2004 Change Segment Highlights Revenues $1,046 $906 15% • Revenues grew as a result of increased contract pricing in Brazil and Gross Margin $453 $371 22% Chile, and favorable currency effects in as % of Sales 43.3% 40.9% 240 b.p. Chile and Brazil. IBT&MI $348 $197 77% • Gross margin and gross margin percentage increased as higher Latin American revenues more than offset Revenue Comparison (QOQ) % Change increases in fuel prices and other Volume/Price/Mix 14% costs, and a scheduled contract price reduction and failure of a utility Currency (Net) 1% transmission line serving a plant in the Total 15% U.S. (1) Restated. 18 2Q05 and 3Q05 Financial Review www.aes.com
- 19. Third Quarter Segment Highlights Competitive Supply ($ Millions except as noted) Third Third Quarter Quarter % (1) 2005 2004 Change Segment Highlights Revenues $330 $265 25% • Revenues grew as a result of increased competitive market prices in Gross Margin $106 $64 66% Argentina, Panama and New York, as as % of Sales 32.1% 24.2% 790 b.p. well as higher dispatch in Argentina. IBT&MI $86 $44 95% • Gross margin and gross margin percentage increased as higher competitive market prices more than Revenue Comparison (QOQ) % Change offset increases in fuel prices in New Volume/Price/Mix 23% York and Argentina. Currency (Net) 2% Total 25% (1) Restated. 19 2Q05 and 3Q05 Financial Review www.aes.com
- 20. Appendix 20 2Q05 and 3Q05 Financial Review www.aes.com
- 21. Restatement Summary Income Statement Effects 2002-2004 ($ Millions) Year Ended December 31, (1) Revenue was impacted by the deferral of revenue at Eletropaulo and Sul to correctly match the earning of revenue with the expenditures 2004 2003 2002 required by the regulator in relation to its energy efficiency program. In addition, revenue was adjusted for the correction of certain acquisition Income (loss) from continuing liabilities related to the Cameroonian utility. These liabilities impacted operations as previously reported $366 $332 $(1,646) the initial valuation of the quot;concession assetquot; which represented excess purchase cost over the fair value of identifiable assets and liabilities. Changes in income (loss) from This concession asset is amortized through revenue. continuing operations from restatement due to: (2) Depreciation expense was impacted by changes in deferred tax balances as of the acquisition date of certain subsidiaries. These (Decrease) in revenues (23) (2) (3) (1) deferred tax adjustments in turn affected the amount of excess Decrease in cost of sales (2) 33 25 21 purchase cost originally allocated to fixed assets, thus impacting subsequent depreciation amounts. (Increase) in interest expense (3) (31) -- (48) (3) Interest expense was impacted primarily by the correct accounting for (Increase) in goodwill impairment changes in inflation on certain Brazilian debt instruments. expense (4) -- -- (97) (4) Goodwill impairment expense was impacted by the correction of Decrease/(increase) in foreign currency acquisition deferred tax balances, which adjusted the acquired entity's transaction gains/(losses) (5) (29) (31) (185) excess fair value over identifiable assets or liabilities (goodwill). For (Increase) in income tax expense (6) (126) (7) (168) certain of these subsidiaries, goodwill subsequent to the acquisition was impaired and written off in 2002. Therefore the corrections to the Decrease/(increase) in minority interest goodwill balances were also written off. expense (7) 71 (10) 55 (5) Foreign currency translation gains (losses) were impacted by the correct Other changes affecting income (loss) remeasurement of deferred tax balances at current rates at entities from continuing operations (3) 4 7 where the U.S. dollar is the functional currency. Total changes in income (loss) from (6) Income tax expense was impacted by the creation and subsequent continuing operations $(108) $(21) $(418) adjustment of deferred tax assets or liabilities related to the foreign currency changes on U.S. dollar denominated debt at certain Brazilian Income (loss) from continuing subsidiaries; the recording of an adjustment related to Sul (a dual tax operations as restated $258 $311 $(2,064) status entity) recognizing the tax impact of potential future foreign income included in the U.S. return; the creation of additional valuation allowances; and the reconciliation of deferred tax balances as a result of reconciling tax return records to related accounting records. (7) Minority interest (income) expense was impacted by tax and other corrections to minority owned subsidiaries' earnings. 21 2Q05 and 3Q05 Financial Review www.aes.com
- 22. Restatement Summary Income Statement Effects Quarters ($ Millions) Quarter Ended Dec. 31, Sept. 30, June 30, March 31, March 31, 2005 2004 2004 2004 2004 Income from continuing operations as previously reported $133 $92 $133 $67 $74 Change in income from continuing operations from restatement due to: Increase/(decrease) in revenues 18 (20) (1) (1) (1) Decrease in cost of sales 24 13 6 9 5 (Increase) in interest expense -- (5) (8) (10) (8) Decrease/(increase) in foreign currency transaction gains/(losses) (19) (5) (6) 8 (26) Decrease/(increase) in income tax expense (21) (107) (50) 42 (11) Decrease/(increase) in minority interest expense (15) 59 15 (12) 9 Other changes affecting income from continuing operations 4 -- (3) -- -- Total changes in income from continuing operations $(9) $(65) $(47) $36 $(32) Income from continuing operations as restated $124 $27 $86 $103 $42 22 2Q05 and 3Q05 Financial Review www.aes.com
- 23. Restatement Summary Earnings per Share Effects 2002-2005 Quarter Ended Year Ended March 31, 2005 December 31, 2004 December 31, 2003 December 31, 2002 As Previously As Previously As Previously As Previously Reported As Restated Reported As Restated Reported As Restated Reported As Restated Adjusted earnings (loss) per share $0.17 $0.18 $0.73 $0.58 $ 0.56 FAS 133 mark-to-market gains/(losses) -- -- (0.06) (0.06) (0.07) Currency transaction gains/(losses) 0.03 0.01 (0.02) (0.06) 0.19 Net asset gains/(losses and impairments) -- -- (0.05) (0.05) (0.24) Debt retirement gains/(losses) -- -- (0.03) (0.01) 0.12 Diluted earnings (loss) per share from continuing operations $0.20 $0.19 $0.57 $0.40 $0.56 $0.52 $(3.06) $(3.83) 23 2Q05 and 3Q05 Financial Review www.aes.com
- 24. Restatement Summary Earnings per Share Effects 2004 Quarters Quarter Ended December 31, 2004 September 30, 2004 June 30, 2004 March 31, 2004 As Previously As Previously As Previously As Previously Reported As Restated Reported As Restated Reported As Restated Reported As Restated Adjusted earnings (loss) per share $0.19 $0.10 $0.21 $0.14 $0.15 $0.20 $0.17 $0.15 FAS 133 mark-to-market gains/(losses) 0.01 0.01 (0.02) (0.01) (0.01) (0.01) (0.04) (0.05) Currency transaction gains/(losses) (0.01) (0.01) 0.01 -- (0.04) (0.03) -- (0.02) Net asset gains/(losses and impairments) (0.05) (0.05) -- -- -- -- -- -- Debt retirement gains/(losses) -- (0.01) -- -- -- -- (0.01) (0.01) Diluted earnings (loss) per share from continuing operations $0.14 $0.04 $ 0.20 $0.13 $0.10 $0.16 $0.12 $0.07 24 2Q05 and 3Q05 Financial Review www.aes.com
- 25. Restatement Summary Balance Sheet Effects 2003-2005 ($ Millions) Asset Effects As of March 31, December 31, December 31, 2005 2004 2003 Total assets as previously reported $29,663 $29,732 $29,787 Changes in assets from restatement due to: Cash & cash equivalents (56) (127) (74) Short-term investments 57 127 75 Deferred income taxes – current 95 31 60 Property, plant and equipment, net (603) (611) (632) Deferred financing costs, net (169) (170) (128) Goodwill, net 38 41 43 Deferred income taxes – non-current (58) (39) 18 Other changes in assets, net (22) (61) (12) Total changes in assets $(718) $(809) $(650) Total assets as restated $28,945 $28,923 $29,137 25 2Q05 and 3Q05 Financial Review www.aes.com
- 26. Restatement Summary Balance Sheet Effects 2003-2005 ($ Millions) Liabilities and Stockholders’ Equity Effects As of March 31, December 31, December 31, 2005 2004 2003 Total liabilities and minority interest as previously reported $27,915 $28,087 $29,242 Changes in liabilities and minority interest from restatement due to: Deferred income taxes 52 -- (149) Other long-term liabilities 109 114 119 Minority interest (311) (326) (68) Other changes in liabilities, net 87 76 61 Total changes in liabilities and minority interest $(63) $(136) $(37) Total liabilities and minority interest as restated $27,852 $27,951 $29,205 Total stockholders’ equity as previously reported $1,748 $1,645 $545 Changes in stockholders’ equity from restatement due to: Additional paid-in-capital 86 82 2 Accumulated deficit (1,011) (1,002) (908) Accumulated other comprehensive loss 270 247 293 Total changes in stockholders’ equity $(655) $(673) $(613) Total stockholders’ equity as restated $1,093 $972 $(68) 26 2Q05 and 3Q05 Financial Review www.aes.com
- 27. Sarbanes-Oxley Section 404 Update Status of Previously Reported Remediation Remediation Steps Material Weakness • Expanding internal tax staff and external assistance and providing tax accounting training Income Tax Accounting Underway • Implementing rigorous approach to communicate, document and reconcile subsidiary income tax assets and liabilities • Continuing to identify and implement additional best practice solutions regarding efficient data collection, integration and controls • Implementing additional procedures in the identification and evaluation of non-recurring tax adjustments and in tracking movements in deferred tax accounts recorded by the parent company and its subsidiaries • Recording all tax accounting adjustments on the appropriate subsidiaries’ books • Hired additional accounting personnel at SONEL, including new CFO Aggregate of Control Underway Deficiencies at • Implementing controls around preparation and review of financial statements account analyses Cameroonian Subsidiary • Utilizing the Company’s internal audit resources to provide remediation assistance and review and (SONEL) evaluate new control procedures • Supplemented existing accounting policies with additional guidance related to the proper classification of Lack of U.S. GAAP Underway cash and investments in accordance with SFAS 95 and communicated this to all subsidiaries Expertise in Brazilian • Hired additional supervisory personnel with US GAAP knowledge at AES subsidiaries who are Businesses responsible for reviewing and analyzing the financial results of the businesses in Brazil • Providing additional detailed accounting policy and procedures guidance for the identification of and Newly Identified accounting for complex or unusual transactions by the subsidiaries, including specific guidance on the proper application of U.S. GAAP • Collected, reviewed and validated supporting documentation for consolidation adjustments and entries Consolidation Completed recorded at the parent company Accounting • Performed a review of intercompany loans to ensure proper application of SFAS 52 and provided Accounting for Underway additional guidance to subsidiaries on SFAS 52 requirements related to intercompany loan transactions Intercompany Loans • Implementing additional procedures to ensure documentation and testing of the proper determination of Denominated in non- an entity’s functional currency on a periodic basis Functional Currencies • Performed reassessment of certain fuel and power purchase contracts Derivative Accounting Underway • Provided and will continue to provide training on derivative instruments and embedded derivatives to accounting and non-financial personnel across AES • Enhancing risk management policies and procedures related to material purchase or sale contracts • Increasing technical accounting staff to support AES subsidiaries on derivative accounting 27 2Q05 and 3Q05 Financial Review www.aes.com
- 28. Second Quarter Subsidiary Distributions ($ Millions) Second Quarter Subsidiary Distributions (1) North Latin Europe, Middle America America Asia East & Africa Total Regulated $52 $-- $-- $1 $53 Utilities Contract $52 $11 $-- $40 $103 Generation Competitive $6 $5 $3 $-- $14 Supply Total* $110 $16 $3 $41 $170 91% of Second Quarter distributions were from North American Regulated Utilities and Worldwide Contract Generation. (1) Non-GAAP measure. See Appendix. 28 2Q05 and 3Q05 Financial Review www.aes.com
- 29. Parent Sources and Uses of Cash ($ Millions) First Second Third Nine Months Ended Quarter Quarter Quarter September 30, 2005 2005 2005 2005 Sources Total Subsidiary Distributions (1) $195 $170 $274 $639 Proceeds From Asset Sales, Net 1 2 -- 1 -- -- Refinancing Proceeds, Net -- -- Increased Revolver Commitments -- -- 200 200 8 8 Issuance of Common Stock, Net 4 20 Total Returns of Capital Distributions and Project Financing Proceeds -- 52 2 50 643 477 Beginning Liquidity (1) 379 643 $848 $706 Total Sources $858 $1,556 Uses Repayments of Debt (2) $-- $(115) $(143) $(258) Investments in Subsidiaries, Net (34) (153) (99) (20) Cash for Development, Selling, General (54) (36) and Administrative and Taxes (33) (123) Cash Payments for Interest (77) (291) (78) (136) (140) (20) Other (135) (295) Ending Liquidity (1) (477) (379) (436) (436) $(848) $(706) $(858) $(1,556) Total Uses (1) Non-GAAP financial measure. See Appendix. (2) Repayments of debt in second quarter 2005 included $112 million for Senior Subordinated Notes and $3 million for Directors & Officers insurance premium financing. Repayments of debt in third quarter 2005 included $142 million for Junior Convertible Debentures and $1 million for Directors and Officers insurance premium financing. 29 2Q05 and 3Q05 Financial Review www.aes.com
- 30. Second Quarter Reconciliation of Changes to Debt Balances ($ Millions) Debt Reconciliation Parent Debt (Including Letters of Credit) at 12/31/04 (1) $5,250 Scheduled Debt Maturities -- Mandatory Debt Repayments -- Discretionary Debt Repayments: Prepayment of Debt (112) Other (2) 130 Parent Debt (Including Letters of Credit) at 6/30/05 $5,268 Less: Letters of Credit Outstanding at 6/30/05 (235) Parent Debt (Excluding Letters of Credit) at 6/30/05 $5,033 (1) Amounts reflect recourse debt of $5,152 million and $98 million of letters of credit under the parent revolver. Revolver availability at 6/30/05 was $215 million. (2) Other includes $137 million increase in letters of credit and $10 million decrease due to foreign currency changes. 30 2Q05 and 3Q05 Financial Review www.aes.com
- 31. Third Quarter Reconciliation of Changes to Debt Balances ($ Millions) Debt Reconciliation Parent Debt (Including Letters of Credit) at 12/31/04 (1) $5,250 Scheduled Debt Maturities -- Mandatory Debt Repayments -- Discretionary Debt Repayments: Prepayment of Debt (254) Other (2) 259 Parent Debt (Including Letters of Credit) at 9/30/05 $5,255 Less: Letters of Credit Outstanding at 9/30/05 (369) Parent Debt (Excluding Letters of Credit) at 9/30/05 $4,886 (1) Amounts reflect recourse debt of $5,152 million and $98 million of letters of credit under the parent revolver. Revolver availability at 9/30/05 was $281 million. (2) Other includes $271 million increase in letters of credit and $14 million decrease due to foreign currency changes. 31 2Q05 and 3Q05 Financial Review www.aes.com
- 32. Second Quarter 2005 Consolidated Cash Flow ($ Millions) AES Corp (1) Subsidiaries Eliminations Consolidated Net Cash from Operating Activities $2 $(170) $329 $497 Maintenance Capital Expenditures (6) -- (146) (140) Growth Capital Expenditures -- -- (114) (114) Investment in Subsidiaries (22) 22 -- -- Returns of Capital from Subsidiaries 50 (50) -- -- Net Proceeds from Asset Sales 1 -- 3 2 Proceeds from the Sale of Emission Allowances -- -- 27 27 Sale of Short Term Investments, Net of Purchases -- -- 33 33 Cash Paid for Acquisitions -- -- -- -- Increase in Restricted Cash (2) -- (74) (72) Decrease in Debt Service Reserves and Other Assets -- -- 46 46 Other 1 -- (3) (4) Net Cash (for) from Investments 22 (28) (228) (222) Financing Proceeds for Growth Capital Expenditures -- -- 60 60 Financing Proceeds from Other Financings Including Refinancings -- -- 470 470 Equity Proceeds 8 -- 8 -- Repayments, Net (Including Refinancings) (124) -- (776) (652) Payments for Financing Costs (2) -- (9) (7) Equity Contributions by Parent -- (22) -- 22 Distributions to Parent -- 170 -- (170) Returns of Capital to Parent -- 50 -- (50) Other -- -- (17) (17) Net Cash (for) from Financing (118) 198 (264) (344) Increase (Decrease) in Cash & Cash Equivalents (94) (163) -- (69) Effect of FX (1) 45 -- 46 Beginning Cash & Cash Equivalents Balance 259 1,499 -- 1,240 Ending Cash & Cash Equivalents Balance 164 1,381 -- 1,217 Includes activity at qualified holding companies. (1) Note: Certain amounts have been netted, condensed and rounded for presentation purposes. 32 2Q05 and 3Q05 Financial Review www.aes.com
- 33. Third Quarter 2005 Consolidated Cash Flow ($ Millions) AES Corp (1) Subsidiaries Eliminations Consolidated Net Cash from Operating Activities $165 $(274) $619 $728 Maintenance Capital Expenditures (4) -- (239) (235) Growth Capital Expenditures -- -- (31) (31) Investment in Subsidiaries (34) 34 -- -- Returns of Capital from Subsidiaries -- -- -- -- Net Proceeds from Asset Sales 1 -- 15 14 Proceeds from the Sale of Emission Allowances -- -- 1 1 Sale of Short Term Investments, Net of Purchases -- -- (143) (143) Cash Paid for Acquisitions -- -- -- -- Decrease in Restricted Cash -- -- 24 24 Decrease in Debt Service Reserves and Other Assets -- -- 15 15 Other -- -- (5) (5) Net Cash (for) from Investments (37) 34 (363) (360) Financing Proceeds for Growth Capital Expenditures -- -- 13 13 Financing Proceeds from Other Financings Including Refinancings -- -- 545 545 Equity Proceeds 4 -- 4 -- Repayments, Net (Including Refinancings) (143) -- (959) (816) Payments for Financing Costs -- -- -- -- Equity Contributions by Parent -- (34) -- 34 Distributions to Parent -- 274 -- (274) Returns of Capital to Parent -- -- -- -- Other -- -- (81) (81) Net Cash (for) from Financing (139) 240 (478) (579) Increase (Decrease) in Cash & Cash Equivalents (11) -- (222) (211) Effect of FX 2 -- 5 3 Beginning Cash & Cash Equivalents Balance 164 1,381 -- 1,217 Ending Cash & Cash Equivalents Balance 155 1,164 -- 1,009 Includes activity at qualified holding companies. (1) Note: Certain amounts have been netted, condensed and rounded for presentation purposes. 33 2Q05 and 3Q05 Financial Review www.aes.com
- 34. Nine Months Ended September 30, 2005 Consolidated Cash Flow ($ Millions) AES Corp (1) Subsidiaries Eliminations Consolidated Net Cash from Operating Activities $208 $(639) $1,466 $1,897 Maintenance Capital Expenditures (12) -- (509) (497) Growth Capital Expenditures -- -- (292) (292) Investment in Subsidiaries (68) 68 -- -- Returns of Capital from Subsidiaries 52 (52) -- -- Net Proceeds from Asset Sales 2 -- 21 19 Proceeds from the Sale of Emission Allowances -- -- 30 30 Sale of Short Term Investments, Net of Purchases -- -- 48 48 Cash Paid for Acquisitions (85) -- (85) -- Decrease in Restricted Cash -- -- 17 17 Decrease in Debt Service Reserves and Other Assets -- -- 88 88 Other -- -- (15) (15) Net Cash (for) from Investments (111) 16 (697) (602) Financing Proceeds for Growth Capital Expenditures -- -- 165 165 Financing Proceeds from Other Financings Including Refinancings -- -- 1,334 1,334 Equity Proceeds 20 -- 20 -- Repayments, Net (Including Refinancings) (252) -- (2,306) (2,054) Payments for Financing Costs (2) -- (10) (8) Equity Contributions by Parent -- (68) -- 68 Distributions to Parent -- 639 -- (639) Returns of Capital to Parent -- 52 -- (52) Other -- -- (121) (121) Net Cash (for) from Financing (234) 623 (918) (1,307) Increase (Decrease) in Cash & Cash Equivalents (137) -- (149) (12) Effect of FX 1 -- 32 31 Beginning Cash & Cash Equivalents Balance 291 1,281 -- 990 Ending Cash & Cash Equivalents Balance 155 1,164 -- 1,009 Includes activity at qualified holding companies. (1) Note: Certain amounts have been netted, condensed and rounded for presentation purposes. 34 2Q05 and 3Q05 Financial Review www.aes.com
- 35. Reconciliation of Subsidiary Distributions and Parent Liquidity ($ Millions) Second and Third Quarter 2005 Reconciliation Quarter Ended Six Months Ended Nine Months Ended Total subsidiary distributions June 30, March 31, Dec. 31, Sep. 30, June 30, Mar. 31, June 30, June 30, Sep. 30, Sep. 30, Sep. 30, & returns of capital to parent 2005 2005 2004 2004 2004 2004 2005 2004 2005 2004 2005 $170 $190 $286 $209 $292 $204 $360 $496 $634 $705 Subsidiary distributions to parent $274 -- 5 (9) 12 10 -- 5 10 5 22 Net distributions to/(from) QHCs -- 170 195 277 221 302 204 365 506 639 727 Total subsidiary distributions 274 37 2 3 110 -- 3 39 3 39 113 Returns of capital distributions to parent -- Net returns of capital distributions to/ 13 -- -- 11 -- -- 13 -- 13 11 (from) QHCs -- 50 2 3 121 -- 3 52 3 52 124 Total returns of capital distributions -- Combined distributions & return of capital 220 197 280 342 302 207 417 509 691 851 received 274 Less: combined net distributions & returns (13) (5) 9 (23) (10) -- (18) (10) (18) (33) of capital to/(from) QHCs -- Total subsidiary distributions & $207 $192 $289 $319 $292 $207 $399 $499 $673 $818 returns of capital to parent $274 Balance as of March 31, Dec. 31, Sep. 30, June 30, Liquidity 2005 2004 2005 2005 Cash at parent $256 $287 $146 $145 Availability under revolver 218 352 281 215 9 19 3 4 Cash at QHCs Ending liquidity 436 379 477 643 See following page for further information. 35 2Q05 and 3Q05 Financial Review www.aes.com