The AES Corporation
Fourth Quarter & Full Year 2008
Financial Review
February 27, 2009
Contains Forward Looking Statements




Safe Harbor Disclosure


  Certain statements in the following presentation regard...
Contains Forward Looking Statements




Fourth Quarter & Full Year 2008 Results


   Overview
     Update on Q3 initiative...
Contains Forward Looking Statements




 Full Year 2008 Financial Highlights

                                            ...
Contains Forward Looking Statements




 Fourth Quarter 2008 Financial Highlights

                                       ...
Contains Forward Looking Statements




  Manageable Debt Profile
    In Millions, as of December 31, 2008

        At yea...
Contains Forward Looking Statements




 Consolidated Debt Is Well-Hedged
 As of December 31, 2008
          Debt Currency...
Contains Forward Looking Statements




 Other Financial Updates

            Full remediation of material weaknesses
    ...
Contains Forward Looking Statements




 2009 Guidance
 ($ in Millions), Except Earnings Per Share

                      ...
Contains Forward Looking Statements




 2009 Guidance Estimated Sensitivities
      Interest                          100...
Contains Forward Looking Statements




          3,403 MW Projects Under Construction
                                   ...
Contains Forward Looking Statements




Appendix




                                            12
Contains Forward Looking Statements

 Reconciliation of Fourth Quarter & Full Year
 2008 Cash Flow Items
 ($ Millions)
   ...
Contains Forward Looking Statements

 Reconciliation of Adjusted Earnings
 Per Share1


                                  ...
Contains Forward Looking Statements

 Reconciliation of Adjusted Earnings
 Per Share1
    Prior Definition (Effective Thro...
Contains Forward Looking Statements




   Parent Sources and Uses of Liquidity
   ($ Millions)
                          ...
Contains Forward Looking Statements

  Fourth Quarter/Full Year 2008
  Subsidiary Distributions1
  ($ Millions)
          ...
Contains Forward Looking Statements

 Reconciliation of Subsidiary Distributions
 and Parent Liquidity
 ($ Millions)

    ...
Contains Forward Looking Statements




 Reconciliation of 2009 Guidance
 ($ in Millions), Except Earnings Per Share
     ...
Contains Forward Looking Statements




Assumptions

Forecasted financial information is based on certain material assumpt...
Contains Forward Looking Statements




Definitions
                                                 Non-GAAP Financial Me...
Contains Forward Looking Statements




Definitions, Cont’d.
                                                        Subsi...
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AES 4Q 08 Review

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AES 4Q 08 Review

  1. 1. The AES Corporation Fourth Quarter & Full Year 2008 Financial Review February 27, 2009
  2. 2. Contains Forward Looking Statements 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 accurate projections of future interest rates, commodity prices and foreign currency pricing, continued normal or better levels of operating performance and electricity demand at our distribution companies and operational performance at our 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 Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, 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
  3. 3. Contains Forward Looking Statements Fourth Quarter & Full Year 2008 Results Overview Update on Q3 initiatives to strengthen liquidity and reassess development pipeline Met targets for 2008 cash flow Full Year & Fourth Quarter 2008 financial results Key performance drivers Update on financial operations Manageable debt profile 2009 Guidance Construction program of 3,400 MW on schedule 3
  4. 4. Contains Forward Looking Statements Full Year 2008 Financial Highlights 2008 Guidance1 2008 Actual 2007 Actual $2.2 billion2,3 Consolidated Operating Cash Flow $2.2 billion $2.2 billion $1.4 billion2,3 Consolidated Free Cash Flow $1.4 billion $1.4 billion Subsidiary Distributions4 $1.0-$1.1 billion $1.1 billion $1.1 billion Gross Margin $3.7-$3.8 billion $3.7 billion $3.4 billion Diluted Earnings Per Share from Continuing Operations $2.07 $1.80 $0.72 Adjusted Earnings Per Share2 $1.07 $0.99 $1.01 In 2008, Gross Margin increased 9% primarily due to improved performance at Latin American and European generation businesses, as well as favorable foreign currency exchange rates Diluted Earnings Per Share from Continuing Operations of $1.80 includes a gain from sale of northern Kazakhstan assets Actual 2008 EPS was $0.27 lower compared to guidance, primarily due to FAS 133 mark-to-market losses, impairments, foreign currency transaction losses, as well as higher tax rate Adjusted Earnings Per Share2 of $0.99 includes $0.19 of foreign currency transaction charges Guidance given November 7, 2008. 1. A non-GAAP financial measure. See Appendix for definition and reconciliation. 2. Excludes contributions from EDC, a business AES sold in May 2007. See Appendix for reconciliation. 3. See Appendix for definition. 4. 4
  5. 5. Contains Forward Looking Statements Fourth Quarter 2008 Financial Highlights Fourth Quarter 2008 Actuals 2007 Actuals Consolidated Operating Cash Flow $579 million $482 million Consolidated Free Cash Flow1 $314 million $283 million Subsidiary Distributions2 $386 million $343 million Gross Margin $674 million $809 million Diluted Earnings (Loss) Per Share from Continuing Operations ($0.10) $0.00 Adjusted Earnings Per Share1 $0.18 $0.19 Gross Margin in 2008 declined by $135 million, reflecting weaker foreign currency exchange rates and $85 million of non-cash charges primarily from mark-to-market derivative losses Diluted Earnings Per Share include $0.25 of non-cash losses resulting from impairments and FAS 133 mark-to-market adjustments; also include $0.11 impact of foreign currency transaction charges of which only $0.03 are excluded from Adjusted EPS Adjusted EPS1 includes $0.08 of foreign currency transaction charges 1. A non-GAAP financial measure. See Appendix for definition and reconciliation. 2. See Appendix for definition. 5
  6. 6. Contains Forward Looking Statements Manageable Debt Profile In Millions, as of December 31, 2008 At year end, Parent Company Liquidity1 plus Subsidiary Parent Subsidiaries Total Company Liquidity2 was $3.2 billion Cash & Cash Total Debt due in 2009 is 247 656 903 Equivalents $1.2 billion Bank Lines of Credit 1,143 1,138 2,281 1,3901 1,7942 Total Liquidity 3,184 Debt Maturities Restricted Cash - 729 729 2009 1,3824 1,3824 Short-Term Investments - Parent Company – Recourse Debt 154 Debt Service Reserve 1,0743 - 636 636 Subsidiaries – Non-Recourse Debt Accounts Total Liquidity Plus Total Debt Due in 2009 1,228 Additional Financial 1,390 4,541 5,931 Assets 1.This number represents Parent Liquidity. See Appendix. 2.This number represents Subsidiary Liquidity. See Appendix 3.Includes: Brazil, including Eletropaulo, Tiete & Sul $162 million, Middle East (Oman, Jordan and Pakistan) $157 million and Chigen (China) $73 million. 4.Includes: $1,195 million in Brazil. Note: The numbers presented above are consolidated. Because the Company’s individual subsidiaries rely primarily on non-recourse debt, they may not have access to consolidated liquidity and will instead rely upon their individual ability to manage their obligations. In addition, the Parent Company may not have access to the liquidity at various subsidiaries due to various restrictions. 6
  7. 7. Contains Forward Looking Statements Consolidated Debt Is Well-Hedged As of December 31, 2008 Debt Currency v. Revenue Currency Fixed v. Floating Rate Debt $18.1 Billion $18.1 Billion Matched Currency Floating Rate Debt $16.9 billion $3.5 billion 94% 19% 81% 6% Fixed Rate Debt1 Cross Currency $14.6 billion $1.2 billion AES generally attempts to match the currency of its debt to the currency of the revenues at each of its businesses AES has a policy to maintain a net floating rate debt level in the range of 15-25% 1. Fixed rate debt includes the notional amounts related to interest rate swaps. 7
  8. 8. Contains Forward Looking Statements Other Financial Updates Full remediation of material weaknesses Completed remediation of 10 material weaknesses, including 2 in 2008 Clarifying definition of Adjusted Earnings Per Share1 to better reflect the economic results of the underlying businesses Current definition (effective through December 31, 2008) excludes cash and non-cash foreign currency transaction gains or losses from Argentina and Brazil Updated definition (effective as of January 1, 2008) excludes non-cash foreign currency transaction gains or losses from all countries Introducing proportional financial metrics to provide additional transparency AES’s effective economic interest in subsidiaries 1. A non-GAAP financial measure. See Appendix for definition. 8
  9. 9. Contains Forward Looking Statements 2009 Guidance ($ in Millions), Except Earnings Per Share Consolidated Proportional $1,200-$1,3501 Operating Cash Flow $2,100-$2,300 Free Cash Flow1 $650-$8501 $1,400-$1,600 $2,050-$2,1501 Gross Margin $3,200-$3,400 Subsidiary Distributions2 $1,100-$1,300 Diluted Earnings Per Share $0.87-$0.97 Adjusted Earnings Per Share1 $0.97-$1.07 Reaffirming previously disclosed Subsidiary Distribution guidance of $1.1-$1.3 billion Lowering Adjusted EPS1 guidance from $1.15-$1.20 to $0.97-$1.07: $0.08 impact reflecting weaker foreign currencies particularly Brazilian Real, Argentine Peso and British Pound $0.02 impact reflecting unfavorable commodity prices resulting in weaker electricity prices particularly in Argentina 1.A non-GAAP financial measure. See Appendix for definition and reconciliation. 2.See Appendix for definition. Note: 2009 Guidance is based on expectations for future foreign exchange rates and commodity prices as of December 31, 2008. Actual results may differ. 9
  10. 10. Contains Forward Looking Statements 2009 Guidance Estimated Sensitivities Interest 100 bps move in interest rates is equal to change in EPS of approximately $0.02 Rates 10% appreciation in USD against the following key currencies1 is equal to following negative EPS impacts: Brazilian Real (BRL): approximately $0.03 Colombian Peso (COP): approximately $0.01 Currencies Euro (EUR): approximately $0.01 Argentine Peso (ARS): approximately $0.01 Hungarian Forint (HUF): approximately $0.01 British Pound (GBP): approximately $0.01 $10/ton move in coal2 (negative correlation) is equal to EPS impact of approximately $0.03 $10/barrel move in oil2 (positive correlation) is equal to EPS impact of approximately $0.04-$0.05 Commodity $1/mmbtu move in natural gas2 (positive correlation) is equal to EPS impact of: approximately $0.03 Sensitivity $5/ton move in Certified Emission Reductions (CER)2 (positive correlation) is equal to EPS impact of approximately $0.01 Note: All sensitivities are provided on a standalone basis, assuming no change in the other factors, and reflect the estimated full-year impact on 2009 Adjusted EPS. Actual results may differ from the sensitivities provided. 1. 2009 guidance is based on currency forward curves and forecasts as of 12/31/08. Assumptions for the COP, EUR, HUF and GBP are based on forward curves as of 12/31/08. For reference, the forward curves as of 12/31/08 implied annual average 2009 rates as follows: 2,336 COP/$, 0.72 EUR/$, 196 HUF/$ and 0.69 GBP/$. Assumptions for the BRL and ARS are based on forecasts as of 12/31/08. For reference, the forecast for the BRL has a starting point (12/31/08) of 2.31/$ and ending point (12/31/09) of 2.34/$ with an annual average 2009 rate of 2.34/$. The forecast for the ARS has a starting point (12/31/08) of 3.45/$ and ending point (12/31/09) of 4.01/$ with an annual average 2009 rate of 3.70/$. 2. 2009 guidance is based on commodity forward curves as of 12/31/08. For reference, the forward curves as of 12/31/08 implied annual average prices as follows: $76/ton Newcastle coal, $61/ton NYMEX coal, $55/barrel Brent crude oil, $6.11/mmbtu Henry Hub natural gas and €14 CER. 10
  11. 11. Contains Forward Looking Statements 3,403 MW Projects Under Construction Generation (Thermal) Generation (Renewables) Utility Chile Jordan Chile Bulgaria Chile Chile Chile Chile UK Panama Turkey Bulgaria China France Scotland Cameroon I.C. Guohua Santa Amman Guacolda Maritza Nueva Guacolda Kilroot Changuinola St. North Project Angamos Campiche Energy Energy InnoVent3 Dibamba Lidia East 3 East Ventanas 4 OCGT I Nikolas Rhins JV1 JV2 % Owned 71 37 35 100 71 35 71 71 99 83 51 89 49 40 51 56 Heavy Fuel Type Diesel Gas Coal Coal Coal Coal Coal Coal Diesel Hydro Hydro Wind Wind Wind Wind Oil 130 Gross MW 380 MW 152 MW 670 MW 270 MW 152 MW 518 MW 270 MW 80 MW 223 MW 62 MW 156 MW 198 MW 34 MW 22 MW 86 MW MW Expected Commercial 2009- 2009 2009 2009 2010 2010 2010 2011 2011 2009 2011 2010 2010 2009 2009 2009 Operations 2010 Date Significant portion of the capital cost for these projects already secured under long-term non-recourse financings More than 90% of capacity is under long-term contacts Approximately one-third of the total capacity will come online each year through 2011 1. Joint Venture with I.C. Energy. I.C. Energy plants: Damlapinar Konya, Kepezkaya Konya and Kumkoy Samsun. 2. Joint Venture with Guohua Energy Investment Co. Ltd. Guohua Energy plants: Huanghua I & II, Chenq Qi and Dong Qi. 3. InnoVent plants: Frenouville, Audrieu, Boisbergues, Gapree and Croixrault-Moencourt. 11
  12. 12. Contains Forward Looking Statements Appendix 12
  13. 13. Contains Forward Looking Statements Reconciliation of Fourth Quarter & Full Year 2008 Cash Flow Items ($ Millions) Fourth Quarter Full Year 2008 2007 2008 2007 Consolidated Operating Cash Flow $579 $482 $2,165 $2,353 EDC1 - - - $151 Consolidated Operating Cash Flow Without EDC2 $579 $482 $2,165 $2,202 Maintenance Capex1 $265 $199 $770 $878 EDC1 - - - $44 Maintenance Capex Without EDC2 $265 $199 $770 $834 Consolidated Free Cash Flow1 $314 $283 $1,395 $1,475 EDC1 - - - $107 Consolidated Free Cash Flow1 Without EDC2 $314 $283 $1,395 $1,368 Maintenance Capex1 $265 $199 $770 $878 Growth Capex1 $607 $505 $2,117 $1,582 Total Capex3 $872 $704 $2,887 $2,460 1. A non-GAAP financial measure as reconciled above. See “Definitions”. 2. Excludes contributions from EDC, a business AES sold in May 2007. 3. Includes capital expenditures under investing and financing activities. 13
  14. 14. Contains Forward Looking Statements Reconciliation of Adjusted Earnings Per Share1 Fourth Quarter Full Year 2008 2007 2008 2007 Diluted EPS from Continuing Operations ($0.10) - $1.80 $0.72 FAS 133 Mark to Market (Gains)/Losses 0.13 0.02 0.05 0.03 Currency Transaction (Gains)/Losses 0.03 - 0.03 - Net Asset (Gains)/Losses and Impairments 0.12 0.09 (1.14) 0.18 Debt Retirement (Gains)/Losses - 0.08 0.25 0.08 Adjusted Earnings per Share1 $0.18 $0.19 $0.99 $1.01 1. A non-GAAP financial measure as reconciled above. See “Definitions”. 14
  15. 15. Contains Forward Looking Statements Reconciliation of Adjusted Earnings Per Share1 Prior Definition (Effective Through 12/31/08) 2008 2007 2006 2005 Diluted EPS from Continuing Operations $1.80 $0.72 $0.25 $0.53 FAS 133 Mark to Market (Gains)/Losses 0.05 0.03 (0.05) 0.05 Currency Transaction (Gains)/Losses 0.03 - 0.01 0.03 Net Asset (Gains)/Losses and Impairments (1.14) 0.18 0.68 - Debt Retirement (Gains)/Losses 0.25 0.08 0.03 - Adjusted Earnings per Share1 $0.99 $1.01 $0.92 $0.61 New Definition (Effective as of 1/1/09) 2008 2007 2006 2005 Diluted EPS from Continuing Operations $1.80 $0.72 $0.25 $0.53 FAS 133 Mark to Market (Gains)/Losses 0.05 0.03 (0.05) 0.05 Currency Transaction (Gains)/Losses 0.16 (0.03) 0.02 0.02 Disposition/Acquisition (Gains)/Losses (1.27) (0.18) (0.15) - Impairment Losses 0.13 0.36 0.83 - Debt Retirement (Gains)/Losses 0.25 0.08 0.04 - Adjusted Earnings per Share1 $1.12 $0.98 $0.94 $0.60 1. A Non-GAAP financial measure as reconciled above. See “Definitions”. 15
  16. 16. Contains Forward Looking Statements Parent Sources and Uses of Liquidity ($ Millions) Fourth Quarter Full Year 2008 2007 2008 2007 Sources Total Subsidiary Distributions1 386 343 1,060 1,099 (1) 214 1,086 1,003 Proceeds from Asset Sales, Net - 1,974 616 1,974 Refinancing Proceeds, Net - - - - Increased Credit Facility Commitments 2 21 18 51 Issuance of Common Stock, Net 45 21 150 106 Total Returns of Capital Distributions and Project Financing Proceeds Beginning Parent Company Liquidity2 1,145 1,515 2,153 1,146 1,577 4,088 5,083 5,379 Total Sources Uses - (1,314) (1,037) (1,314) Repayments of Debt - - (143) - Repurchase of Equity (219) (268) (1,909) (1,120) Investments in Subsidiaries, Net (74) (68) (414) (323) Cash for Development, Selling, General and Administrative and Taxes (168) (128) (486) (425) Cash Payments for Interest 274 (157) 296 (44) Changes in Letters of Credit and Other, Net Ending Parent Company Liquidity2 (1,390) (2,153) (1,390) (2,153) (1,577) (4,088) (5,083) (5,379) Total Uses 1. See “Definitions”. 2. A non-GAAP financial measure. See “Definitions”. 16
  17. 17. Contains Forward Looking Statements Fourth Quarter/Full Year 2008 Subsidiary Distributions1 ($ Millions) Fourth Quarter / Full Year 2008 Subsidiary Distributions1 North Latin Europe Other2 Asia Total America America & Africa Utilities 31 / 124 57 / 61 2/3 -/- 90 / 188 Generation 62 / 310 29 / 158 137 / 251 47 / 75 275 / 794 Other 21 / 78 21 / 78 Total 93 / 434 86 / 219 139 / 254 47 / 75 21 / 78 386 / 1,060 Top 10 Subsidiary Distributions1 Fourth Quarter 2008 Full Year 2008 Business Amount Business Amount Business Amount Business Amount Pak Gen, Eastern Energy, Cartagena, Kilroot, UK 80 16 153 51 Pakistan USA Spain Lal Pir, Brasiliana, Ebute, Nigeria 45 15 IPALCO, USA 124 47 Pakistan Brazil CAESS/EEO, Brasiliana, Brazil 42 13 Kilroot, UK 105 Panama 46 El Salvador Southland, IPALCO, USA 31 12 Andres, DR 61 Gener, Chile 45 USA Global Shady Point, Andres, DR 19 12 Ebute, Nigeria 52 38 Insurance USA 1. See “Definitions”. 2. Other includes wind and other alternative energy projects. 17
  18. 18. Contains Forward Looking Statements Reconciliation of Subsidiary Distributions and Parent Liquidity ($ Millions) Quarter Ended Dec. 31, Sept. 30, June 30, Mar. 31, 2008 2008 2008 2008 Total Subsidiary Distributions1 to Parent & QHCs2 386 184 269 221 Total Return of Capital Distributions to Parent & QHCs2 45 24 81 1 Total Subsidiary Distributions & 431 208 350 222 Returns of Capital to Parent Balance as of Dec. 31, Sept. 30, June 30, Mar. 31, Liquidity3 Parent Company 2008 2008 2008 2008 Cash at Parent & QHCs2 247 455 695 737 Availability Under Revolver 1,143 690 815 786 Ending Liquidity 1,390 1,145 1,510 1,523 1. See “Definitions”. 2. Qualified Holding Company. See “Assumptions”. 3. A Non-GAAP financial measure. See “Definitions”. 18
  19. 19. Contains Forward Looking Statements Reconciliation of 2009 Guidance ($ in Millions), Except Earnings Per Share 2009 Adjustment Factors1 Proportional1,2 Consolidated Net Operating Cash Flow $2,100-$2,300 $900-$950 $1,200-$1,350 Free Cash Flow2 $1,400-$1,600 $750 $650-$850 Gross Margin $3,200-$3,400 $1,150-$1,250 $2,050-$2,150 Subsidiary Distributions3 $1,100-$1,300 Diluted Earnings Per Share $0.87-$0.97 Proforma Adjustments $0.10 Adjusted Earnings Per Share2 $0.97-$1.07 1. Economic share of third parties. 2. A non-GAAP financial measure. See “Definitions.” 3. See “Definitions.” Note: 2009 Guidance is based on expectations for future foreign exchange rates and commodity prices as of December 31, 2008. Actual results may differ. 19
  20. 20. Contains Forward Looking Statements Assumptions Forecasted financial information is based on certain material assumptions. Such assumptions include, but are not limited to: (a) no unforeseen external events such as wars, depressions, or economic or political disruptions occur; (b) businesses continue to operate in a manner consistent with or better than prior operating performance, including achievement of planned productivity improvements including benefits of global sourcing, and in accordance with the provisions of their relevant contracts or concessions; (c) new business opportunities are available to AES in sufficient quantity to achieve its growth objectives; (d) no material disruptions or discontinuities occur in GDP, foreign exchange rates, inflation or interest rates during the forecast period; and (e) material business-specific risks as described in the Company’s SEC filings do not occur individually or cumulatively. In addition, benefits from global sourcing include avoided costs, reduction in capital project costs versus budgetary estimates, and projected savings based on assumed spend volume which may or may not actually be achieved. Also, improvement in certain KPIs such as equivalent forced outage rate and commercial availability may not improve financial performance at all facilities based on commercial terms and conditions. These benefits will not be fully reflected in the Company’s consolidated financial results. The cash held at qualifying holding companies (QHCs) represents cash sent to subsidiaries of the Company domiciled outside of the U.S. Such subsidiaries had no contractual restrictions on their ability to send cash to AES, the Parent Company. Cash at those subsidiaries was used for investment and related activities outside of the U.S. These investments included equity investments and loans to other foreign subsidiaries as well as development and general costs and expenses incurred outside the U.S. Since the cash held by these QHCs is available to the Parent, AES uses the combined measure of subsidiary distributions to Parent and QHCs as a useful measure of cash available to the Parent to meet its international liquidity needs. AES believes that unconsolidated parent company liquidity is important to the liquidity position of AES as a parent company because of the non-recourse nature of most of AES’s indebtedness. 20
  21. 21. Contains Forward Looking Statements Definitions Non-GAAP Financial Measures Adjusted earnings per share (a non-GAAP financial measure) is defined as diluted earnings per share from continuing operations excluding gains or losses associated with (a) mark-to-market amounts related to FAS 133 derivative transactions, (b) foreign currency transaction impacts on the net monetary position related to Brazil and Argentina, (c) significant asset gains or losses due to disposition transactions and impairments, and (d) costs related to early retirement of debt. AES believes that adjusted earnings per share better reflects the underlying business performance of the Company, and is considered in the Company’s internal evaluation of financial performance. Factors in this determination include the variability associated with mark-to-market gains or losses related to certain derivative transactions, currency gains and losses, periodic strategic decisions to dispose of certain assets which may influence results in a given period, and the early retirement of debt. Please see the attached table for historical results and comparison against the revised definition. Effective January 1, 2009, in addition to clarifying certain elements of the current definition, the Company has revised its adjusted earnings per share definition to include only unrealized foreign currency transaction gains or losses from all countries. Following is the updated definition. Adjusted earnings per share (a non-GAAP financial measure) is defined as diluted earnings per share from continuing operations excluding gains or losses of the consolidated entity due to (a) mark-to-market amounts related to FAS 133 derivative transactions, (b) unrealized foreign currency gains or losses, (c) significant gains or losses due to dispositions and acquisitions of business interests, (d) significant losses due to impairments, and (e) costs due to the early retirement of debt. AES believes that adjusted earnings per share better reflects the underlying business performance of the Company, and is considered in the Company's internal evaluation of financial performance. Factors in this determination include the variability due to mark-to-market gains or losses related to derivative transactions, currency gains or losses, losses due to impairments and strategic decisions to dispose or acquire business interests or retired debt which affect results in a given period or periods. Free cash flow (a non-GAAP financial measure) is defined as net cash from operating activities less maintenance capital expenditures (including environmental capital expenditures). AES believes that free cash flow is a useful measure for evaluating our financial condition because it represents the amount of cash provided by operations less maintenance capital expenditures as defined by our businesses, that may be available for investing or for repaying debt Parent Company Liquidity (a non-GAAP financial measure) is defined as cash at the Parent Company plus availability under corporate revolver plus cash at qualifying holding companies (QHCs). AES believes that unconsolidated Parent Company liquidity is important to the liquidity position of AES as a Parent Company because of the non-recourse nature of most of AES’s indebtedness The AES Corporation (the “Company”) is a holding company that derives its income and cash flows from the activities of its subsidiaries, some of which may not be wholly-owned by the Company. Accordingly, the Company has presented certain financial metrics which are defined as Proportional (a non- GAAP financial measure). Proportional metrics present the Company’s estimate of its share in the economics of the underlying metric. The Company believes that the Proportional metrics are useful to investors because they exclude the economic share in the metric presented that is held by non-AES shareholders. For example, Operating Cash Flow is a GAAP metric which presents the Company’s cash flow from operations on a consolidated basis, including operating cash flow allocable to noncontrolling interests. Proportional Operating Cash Flow removes the share of operating cash flow allocable to noncontrolling interests and therefore may act as an aid in the valuation the Company. Proportional measures are considered in the Company’s internal evaluation of financial performance. Proportional metrics are reconciled to the nearest GAAP measure. Certain assumptions have been made to estimate our proportional financial measures. These assumptions include: (i) the Company’s economic interest has been calculated based on a blended rate for each consolidated business when such business represents multiple legal entities; (ii) the Company’s economic interest may differ from the percentage implied by the recorded net income or loss attributable to noncontrolling interests or dividends paid during a given period; (iii) the Company’s economic interest for entities accounted for using the hypothetical liquidation at book value method is 100%; (iv) individual operating performance of the Company’s equity method investments is not reflected and (v) all intercompany amounts have been excluded as applicable. 21
  22. 22. Contains Forward Looking Statements Definitions, Cont’d. Subsidiary Distributions Subsidiary Distributions should not be construed as an alternative to Net Cash Provided by Operating Activities which are determined in accordance with GAAP. Subsidiary Distributions are important to the Parent Company because the Parent Company is a holding company that does not derive any significant direct revenues from its own activities but instead relies on its subsidiaries’ business activities and the resultant distributions to fund the debt service, investment and other cash needs of the holding company. The reconciliation of difference between the Subsidiary Distributions and Net Cash Provided by Operating Activities consists of cash generated from operating activities that is retained at the subsidiaries for a variety of reasons which are both discretionary and non-discretionary in nature. These factors include, but are not limited to, retention of cash to fund capital expenditures at the subsidiary, cash retention associated with non-recourse debt covenant restrictions and related debt service requirements at the subsidiaries, retention of cash related to sufficiency of local GAAP statutory retained earnings at the subsidiaries, retention of cash for working capital needs at the subsidiaries, and other similar timing differences between when the cash is generated at the subsidiaries and when it reaches the Parent Company and related holding companies 22

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