AES 3Q 08 Review

1

The AES CorporationThird Quarter 2008Financial ReviewNovember 7, 2008

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, 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, 2007, as well as our other SEC filings. AES undertakes no obligation to update or revise any forward-looking statements, whether as a resultof new information, future events or otherwise.

3


Overview

Review of key points in current economic environment

2008 & 2009 guidance

Construction update

Third Quarter 2008 results

Detail on Third Quarter results & 2008 guidance

Update on financial operations

Debt profile

4


2008 Guidance Update

$1.0-$1.1 bn

$1.0-$1.1 bn

$0.3-$0.4 bn$0.7 bnSubsidiary Distributions3

$1.1 bn

$1.6 bn

$0.81

YTD Q3 2008

$0.3 bn

$0.6 bn

$0.26

Q42008

$1.4 bn

$2.2 bn

$1.07

2008 Updated

Guidance

$1.4 bnConsolidated Free Cash Flow2

$2.2 bnNet Operating Cash Flow

$1.16Adjusted Earnings per Share2

2008Prior

Guidance1

1. Guidance previously updated on August 8, 2008.2. A non-GAAP financial measure. See Appendix for reconciliation.3. See Appendix.

5


2009 Guidance Update & Sensitivities

100 bps move in interest rates is equal to $0.02-$0.03 p.a. change in EPS

Interest Rates

10% appreciation in USD against major currencies2 is equal to negative $0.08 in EPS Currencies

$10 move in coal3 (negative correlation) is equal to EPS impact of $0.04-$0.05$10 move in oil2 (positive correlation) is equal to EPS impact of $0.02$1 move in natural gas3 (positive correlation) is equal to EPS impact of $0.03

Commodity Sensitivity

1. A non-GAAP financial measure. See Appendix.2. Currency sensitivities are based on a basket of currencies including, but not limited to, Brazilian Real (BRL), Chilean Peso (CLP), Euro, Argentine Peso (ARP)

and Philippine Peso (PHP). Average rates for 2009 are based on the current spot prices as of 11/5/2008: BRL 2.13, CLP 632, Euro 1.29, ARP 3.30 and PHP 48.0.

3. Average commodity rates for 2009 are budgeted as follows: Central Appalachian Coal $83/ton and Newcastle $103/ton; Brent oil $70/ton; and Natural gas HH $7.065/mmBTU.

Note: Commodity price sensitivities assume movement in only one commodity price (all others unchanged).

2009 Adjusted EPS1 Lowered by $0.05 to $1.15-$1.20

6


We Will Complete Projects Already UnderConstruction Which Have Built-in Growth

835149569980804080100403780% Owned

2H 2008

130 MW

Diesel

Santa Lidia

Chile

Core Power

Simple Cycle: July

2008Combined

Cycle: 1H 2009

380 MW

Gas

Amman East

Jordan

2H 2009

152 MW

Coal

Guacolda 3

Chile

Unit 1: 1H 2010

Unit 2: 2H 2010

670 MW

Coal

Maritza East

Bulgaria

1H 2010

267 MW

Coal

Nueva Ventanas

Chile

2H 2010

152 MW

Coal

Guacolda 4

Chile

Unit 1: 1H 2011

Unit 2: 2H 2011

518 MW

Coal

Angamos

Chile

1H 2011

270 MW

Coal

Campiche

Chile

NA

1H 2009

80 MW

Diesel

Kilroot OCGT

UK

2009

86 MW

Heavy Fuel Oil

Dibamba

Cameroon

Renewables

China Turkey Panama

Project Huanghua JV

I.C. Energy

JV1Changuinola I

Type Wind Hydro Hydro

Gross MW 49 MW 62 MW 223 MW

Expected Commercial Operations Date

2009 2H 2010 1H 2011

Long-Term Offtake Contract

NA

1. Joint Venture with I.C. Energy. I.C. Energy plants: Damlapinar Konya, Kepezkaya Konya and Kumkoy Samsun.

6

7


Key earnings growth drivers were increased pricing and demand in Latin AmericaQ3 2008 Diluted EPS and Adjusted EPS include $0.09 of mark-to-market foreign currency transaction losses associated with our net monetary positions primarily in the Philippines and Chile

1. A Non-GAAP financial measure. See Appendix.

($ Millions Except Earnings per Share)

Third Quarter 2008:Gross Margin, EPS & Cash On Track

Gross Margin

$847

$958

Q3 2007(Restated)

Q3 2008

Diluted EPS fromContinuing Operations Adjusted EPS1

$0.14$0.22

Q3 2007(Restated)

Q3 2008

$0.17$0.25

Q3 2007(Restated)

Q3 2008

8


$0.14

$0.14

($0.02)

$0.03

($0.09)

$0.02

$0.22

Third Quarter 2008 Period Over Period Earnings from Continuing Operations Bridge

Q3 2007 GAAP EPS

Operational Improvements

FX Translation

FX Transaction

Tax Rate Q3 2008 GAAP EPS

Other Non-Operating

Items1

Operational improvements largely reflect contributions from Latin AmericaForeign currency transaction losses primarily represent unrealized mark-to-market losses associated with our net monetary positions in the Philippines and Chile

1. Includes impairments and FAS 133 mark-to-market fuel and Power Purchase Agreement (PPA) derivatives.

($ per Diluted Share)

9


Third Quarter 2008 Period Over Period Adjusted EPS1 Bridge

Operational improvements largely reflect contributions from Latin American and European generation businessesQ3 2007 negatively impacted $0.07 by gas curtailments and unfavorable hydrology in Chile and Argentina

1. A Non-GAAP financial measure. See Appendix for reconciliation.


$0.17

$0.14

($0.02)

$0.03

($0.09)

$0.02

$0.25

Q3 2007 Adjusted

EPS1


FX Translation

FX Transaction

Tax Rate Q3 2008 Adjusted

EPS1

Other Non-Operating

Items

10


Cash Flow Highlights

Net Operating Cash Flow

$758 $784

Q3 2007(Restated)

Q3 2008

Consolidated Free Cash Flow1

$590$642

Q3 2007(Restated)

Q3 2008

$26 million increase in operating cash flow was largely driven by improved operations in Latin America$52 million increase in consolidated free cash flow reflects a combination of higher operating cash flow and lower maintenance capital expenditures

1. A Non-GAAP financial measure. See Appendix for reconciliation.

($ Millions)

11


Manageable Debt Profile

1,511

1,0924

419

2010

847

6933

154

2009

Maturity Schedule

Consolidated

Subsidiaries2

AES Corp1

1.Recourse debt.2.Non-recourse debt.3.Includes: Brazil, including Eletropaulo, Tiete & Sul ($171 million), Kilroot in Northern Ireland ($85 million) and Puerto Rico ($60 million).4.Includes: Brazil, including Eletropaulo, Tiete & Sul ($445 million), Chigen in China ($178 million) and Kilroot in Northern Ireland ($90 million).5.Includes: $1,364 million in Brazil.Note: The numbers presented above are consolidated. Because the Company’s individual subsidiaries rely primarily on non-recourse debt, theymay not have access to consolidated cash and will instead rely upon their individual ability to manage their obligations.

5,6364,4911,145Total Liquidity

610610-Debt Service Reserve Accounts

1,45351,4535-Short-Term Investments

552

624

1,252

Subsid-iaries

-

690

455

AES Corp

Restricted Cash

Bank Lines of Credit

Cash & Cash Equivalents

552

1,314

1,707

Consol-idated

In Millions, as of Sept. 30, 2008

12


Consolidated Debt Is Well-Hedged

Fixed v. Floating Rate Debt$18.6 Billion1

Debt v. Functional Currency$18.6 Billion1

Wherever possible, the debt denomination matches the functional currency, creating a natural hedge between debt payments and revenueAES targets a net floating rate debt level in the range of 15-25%

Same Currency Debt $17,402 million

Cross Currency Debt $1,242 million

Floating Rate Debt $3,853 million

Fixed Rate Debt2$14,791 million

7%

93% 21%

79%

1. As of September 30, 2008.2. Fixed rate debt includes variable rate debt swapped to fixed.

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Appendix

Detailed update on 2008 guidance elements (Slide 14-15)

YTD Financial results (Slide 16-18)

Parent Company cash flows (Slide 19-22)

Quarterly segment analysis (Slide 23-29)

Reconciliation of Adjusted EPS (Slide 30)

Assumptions & Definitions (Slide 31-32)

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$1.0-$1.1 billion$1.0-$1.1 billionSubsidiary Distributions4

$2.4-$2.5 billion$2.4-$2.5 billionGrowth Capital Expenditures

$1.4 billion$1.4 billionFree Cash Flow6

$0.8 billion$0.8 billionMaintenance Capital Expenditures

$2.2 billion$2.2 billionNet Cash from Operating Activities

Cash Flow Elements$1.16$1.07Adjusted Earnings Per Share2

($1.06)4($1.00)3Adjusted Earnings Per Share Factors2

$2.22$2.07Diluted Earnings Per Share from Continuing Operations1

$3.1-$3.2 billion$3.1-$3.2 billionIncome Before Tax & Minority Interest1$3.7-$3.8 billion$3.7-$3.8 billionGross Margin

Income Statement Elements

8/8/2008 Previous 2008 Guidance

11/7/2008 Revised 2008 Guidance

1. Includes net gain of approximately $908 million or $1.31 per share primarily from sale of two indirectly owned subsidiaries in Kazakhstan.2. A non-GAAP financial measure. See “Definitions”. 3. Adjustment factors include: net gain of approximately $908 million or $1.31 per share from sale of two indirectly owned subsidiaries in Kazakhstan; tax expense of

approximately $131 million or $0.19 per share related to the repatriation of a portion of the Kazakhstan sale proceeds; approximately $69 million or $0.06 in losses on the retirement of debt at the Parent in connection with a refinancing in May 2008 and at one of our North American subsidiaries associated with a $375 million refinancing in April 2008; South Africa peaker development cost write-off of $11 million or $0.02 per share; and loss on sale of a portion of its interest in a Latin American subsidiary of $25 million or $0.04 per share.

4. Adjustment factors include: net gain of approximately $908 million or $1.31 per share from sale of two indirectly owned subsidiaries in Kazakhstan; tax expense of approximately $131 million or $0.19 per share related to the repatriation of a portion of the Kazakhstan sale proceeds; and approximately $69 million or $0.06 in losses on the retirement of debt at the Parent in connection with a refinancing in May 2008 and at one of our North American subsidiaries associated with a $375 million refinancing in April 2008.

5. Non-GAAP financial measure as reconciled in the table. Maintenance capital expenditures reflect total capital expenditures of $3.2 to $3.3 billion less growth capital expenditures of $2.4 to $2.5 billion including certain growth projects not yet awarded.

6. See “Definitions”.

15



$1.1-$1.3 billion$1.1-$1.3 billionSubsidiary Distributions2

$1.20-$1.25$1.15-$1.20Adjusted Earnings Per Share1

-$0.06Adjusted Earnings Per Share Factors1

$1.20-$1.25$1.09-$1.14Diluted Earnings Per Share from Continuing Operations

3/17/2008 Previous 2009 Guidance

11/7/2008 Revised 2009 Guidance

1. A non-GAAP financial measure. See “Definitions”.2. See “Definitions”.

16


Operational improvements primarily reflect improved operations at our Latin American and European generation businessesYTD results show significant improvement period over period after excluding both $0.15 of one-timegains in 2007 and net Portfolio Management adjustments of $1.05 in 2008

$0.73 ($0.15)

$0.58

$0.21 $0.07 $0.07

($0.12)

$0.01

$1.05

$1.87

Q3 YTD 2007 GAAP

EPS

Third Quarter 2008 YTD Period Over Period Earnings from Continuing Operations Bridge

NY Lease/LatAm Tax

Asset Recovery in 2007

Q3 YTD 2007 EPS, Excluding for NY &

LatAm Tax


Other Non-Operating

Items1

Tax Rate Portfolio Management2

Q3 YTD 2008 GAAP

EPS

FX Translation

FX Transaction


1. Includes FAS 133 mark-to-market fuel and PPA derivative adjustments, including $0.07 net gain Q3 YTD 2008 related primarily to Hawaii and Gener.2. Portfolio Management adjustments of $1.05 reflect a $908 million or $1.31 net gain on sale of Northern Kazakhstan businesses, offset in part by a

$144 million or ($0.21) tax expense associated with the repatriation of approximately $636 million of Kazakhstan sale proceeds and $55 million or ($0.05) of corporate debt refinancing charges.

17


Operational improvements primarily reflect improved operations at our Latin American and European generation businessesForeign currency transaction losses ($0.12) are attributable primarily to the impact of a stronger US dollar on our businesses in the Philippines (Masinloc – Philippine peso functional currency with US dollar denominated debt) and Chile (Gener – US dollar functional currency with peso denominated receivables)The $0.02 loss in Portfolio Management reflects tax expense associated with the repatriation of a portion of the Kazakhstansale proceeds

$0.83

($0.15)

$0.68

$0.21

($0.02)

$0.07

($0.12)

$0.01

($0.02)

$0.81

Third Quarter 2008 YTD Period Over Period Adjusted EPS1 Bridge

Q3 YTD 2007

Adjusted EPS1

NY Lease/LatAm Tax

Asset Recovery in 2007

Q3 YTD 2008 EPS, Excluding for NY &

LatAm Tax


Other Non-Operating

Items2

Tax Rate Portfolio Management

Q3 YTD 2008

Adjusted EPS1

FX Translation

FX Transaction


1. A non-GAAP financial measure. See “Definitions”.2. Excludes net period over period adjustments of $0.08 corresponding to $0.07 of mark-to-market derivative gains Q3 YTD 2008 (primarily at Hawaii

and Gener) and a $0.01 loss in Q2 2008 associated with debt refinancing charges at IPALCO, an Indiana utility; negative balance reflects increased interest expense, $0.02 of which is attributable to higher average debt balances at Corporate.

18


$1,086

$107

$1,070

YTD Q3 2007(Restated)

YTD Q3 2008

Year-to-Date Cash Flow Highlights

$1,721

$151

$1,575

YTD Q3 2007(Restated)

YTD Q3 2008

Contribution from EDC, a Business AES Sold in Q2 2007

Net Operating Cash Flow Consolidated Free Cash Flow1

Decrease in net operating cash flow primarily reflects sale of EDC in May 2007 combined with increased net working capital requirements in Asia due to higher commodity pricesDecrease in free cash flow reflects lower operating cash flow offset in part by reduced maintenance capex

1. A Non-GAAP financial measure. See “Definitions”.

($ Millions)

19


Parent Sources and Uses of Liquidity

-(143)-(143)Repurchase of Equity

Uses

Sources

(1,712)(1,145)

24(64)(92)(292)

-

1,7121,510

241--

(7)184

2008Third Quarter

(1,833)(1,515)

28(83)(89)(174)

-

1,8331,378

355--

54361

2007

(4,651)(1,145)

23(318)(340)

(1,691)

(1,037)

4,6512,15310616-

6161,086674

2008Year-to-Date

(2,805)(1,515)

115(298)(255)(852)

-

2,8051,146

8430--

788757

2007

Total UsesEnding Liquidity2

Changes in Letters of Credit and Other, NetCash Payments for InterestCash for Development, Selling, General and Administrative and TaxesInvestments in Subsidiaries, Net

Repayments of Debt

Total SourcesBeginning Liquidity2

Total Returns of Capital Distributions and Project Financing ProceedsIssuance of Common Stock, NetIncreased Credit Facility CommitmentsRefinancing Proceeds, NetProceeds from Asset Sales, NetTotal Subsidiary Distributions1

1. See “Definitions”.2. A non-GAAP financial measure. See “Definitions”.

($ Millions)

20


Third Quarter/YTD Subsidiary Distributions1

1. See “Definitions”.2. Other includes wind and other alternative energy projects.

Third Quarter 2008/YTD Subsidiary Distributions1

184 / 67419 / 581 / 2824 / 11422 / 133118 / 341Total19 / 5819 / 58Other

133 / 5181 / 2823 / 11322 / 12987 / 248Generation32 / 98- / -1 / 1- / 431 / 93Utilities

TotalOther2AsiaEurope& Africa

LatinAmerica

North America

22Warrior Run, USA42Andres, DR5Shady Point,

USA8Warrior Run, USA

23Global Insurance48Cartagena,

Spain5Itabo, DR17Panama

25Kilroot, UK48Gener, Chile5Southland, USA17Hungary

28Shady Point, USA93IPALCO, USA6Hawaii, USA31IPALCO, USA

34Panama153Eastern Energy, USA6Elsta,

Netherlands50Eastern Energy, USA

AmountBusinessAmountBusinessAmountBusinessAmountBusinessYTDThird Quarter 2008

Top 10 Subsidiary Distributions1

($ Millions)

21


Reconciliation of Third Quarter Cash Flow Items


$1,756

1,077

$679

2007 (Restated)

3,200-3,300

2,400-2,500

$800

2008

Full Year

Capital Expenditures

$579

437

$142

2008

Third Quarter

$632

464

$168

2007 (Restated)

$2,015

1,510

$505

2008

YTD

Capital Expenditures

Growth Capital Expenditures

Maintenance Capital Expenditures

Reconciliation of Free Cash Flow

$1,400

800

$2,200

2008

Full Year

$1,193

679

$1,872

2007 (Restated)

$642

142

$784

2008

Third Quarter

$590

168

$758

2007 (Restated)

$1,070

505

$1,575

2008

YTD

Free Cash Flow1

Less: Maintenance Capital Expenditures

Net Cash from Operating Activities

($ Millions)

22


Reconciliation of Subsidiary Distributionsand Parent Liquidity

1. See “Definitions”.2. A Non-GAAP financial measure. See “Definitions”. 3. Qualified Holding Company. See “Assumptions”.

364222350208Total Subsidiary Distributions & Returns of Capital to Parent

2118124Total Return of Capital Distributions

343221269184Total Subsidiary Distributions1

Dec. 31, 2007

Mar. 31, 2008

June 30, 2008

Sept. 30, 2008

Quarter Ended

2,1531,5231,5101,145Ending Liquidity

838786815690Availability Under Revolver

1,315737695455Cash at Parent & QHCs2,3

Dec. 31, 2007

Mar. 31, 2007

June 30, 2008

Sept. 30, 2008Parent Company Liquidity2

Balance as of

($ Millions)

23


Third Quarter Segment HighlightsLatin America Generation

Latin America Generation revenue increased by $278 million to $1.2 billion, primarily due to higher contract and spot prices at Gener of $92 million, higher volumes at our businesses in Argentina and the Dominican Republic of $77 million, higher spot prices at our businesses in the Dominican Republic of $54 million and favorable foreign currency translation of $39 million in Brazil and Argentina.

Gross margin increased by $201 million to $385 million, primarily due to higher contract and spot prices at Gener of $75 million, higher spot prices and volume at our businesses in Argentina, the Dominican Republic and Panama of $100 million, higher contract prices at Tiete in Brazil of $24 million and favorable foreign currency translation of $25 million. These increases were partially offset by higher fixed costs at Gener and our businesses in Argentina of $20 million.

IBTEE&MI increased by $215 million to $350 million, primarily due to the improvement in gross margin.

Segment Highlights

109%30%Total

7%

-

102%

Gross Margin

2%

-

28%

Revenue

Currency (Net)

New Businesses/Projects

Volume/Price/Mix

% Change Comparison

Third Quarter

159%

109%

30%

%Change

$135

$184

$918

2007 (Restated)

$350IBTEE&MI

$385Gross Margin

$1,196Revenues

2008

($ Millions)

24


Third Quarter Segment HighlightsLatin America Utilities

Latin America Utilities revenue increased by $306 million to $1.6 billion, primarily due to favorable foreign currency translation of $193 million and increased volume of $68 million at Eletropaulo and Sul in Brazil.

Gross margin decreased by $22 million to $232 million, primarily due to higher PIS/COFINS taxes at Eletropaulo of $57 million, higher energy purchases of $26 million due to higher volume, higher fixed costs at Eletropaulo due to higher provision for bad debts and lower loss recoveries of $42 million and higher labor and civil contingencies of $18 million, partially offset by higher volume at Eletropaulo and Sul of $68 million and favorable foreign currency translation in Brazil of $27 million.

IBTEE&MI decreased by $4 million to $186 million, primarily due to the reduction in gross margin, offset in part by a $15 million gain on sale of land at Eletropaulo.

Segment Highlights

(9%)23%Total

11%

-

(20%)

Gross Margin

15%

-

8%

Revenue

Currency (Net)


Volume/Price/Mix

% Change Comparison

Third Quarter

(2%)

(9%)

23%

%Change

$190

$254

$1,312

2007 (Restated)

$186IBTEE&MI

$232Gross Margin

$1,618Revenues

2008

($ Millions)

25


Third Quarter Segment HighlightsNorth America Generation

North America Generation revenue increased by $39 million to $615 million, primarily due to a $17 million variance in the mark-to-market derivative adjustment at Deepwater in Texas, higher revenue at Merida in Mexico and in New York of $24 million, higher volume due to no significant outages at Warrior Run in Maryland in 2008 of $6 million and favorable foreign currency impacts in our Mexican businesses of $6 million. These effects were partially offset by lower volume in New York due to outages and lower market capacity factors of $10 million.

Gross margin decreased by $60 million to $147 million, primarily due to a $57 million mark-to-market derivative loss on a coal supply contract in Hawaii, lower volumes in New York of $6 million and higher costs associated with replacement power due to higher outages at TEG TEP in Mexico of $7 million. These effects were partially offset by a variance in the mark-to-market derivative adjustment of $17 million at Deepwater, higher margin at Warrior Run of $5 million and higher gross margin at our businesses in New York of $4 million.

IBTEE&MI increased by $16 million to $111 million, primarily due to $35 million of impairments at North America subsidiaries in 2007 and a $29 million legal settlement at Southland, offset in part by the Hawaii derivative loss.

Segment Highlights

(29%)7%Total

0%

-

(29%)

Gross Margin

1%

-

6%

Revenue

Currency (Net)


Volume/Price/Mix

% Change Comparison

Third Quarter

17%

(29%)

7%

%Change

$95

$207

$576

2007 (Restated)

$111IBTEE&MI

$147Gross Margin

$615Revenues

2008

($ Millions)

26


Third Quarter Segment HighlightsNorth America Utilities

North America Utilities revenue increased by $14 million to $288 million, primarily due to a $15 million increase in rate adjustments at IPL in Indiana related to recoverable environmental investments and the pass through of higher fuel and purchased power costs of $10 million. These were partially offset by $10 million of lower retail volumes, which were primarily driven by unfavorable weather compared to prior year.

Gross margin decreased by $4 million to $82 million, primarily due to a $5 million decrease in retail margin, related to unfavorable weather and an increase of $3 million in maintenance expenses, offset in part by a $6 million increase in rates tied to the recovery of approved environmental investments.

IBTEE&MI decreased by $7 million to $50 million, primarily due to the decrease in gross margin.

Segment Highlights

(5%)5%Total

-

-

(5%)

Gross Margin

-

-

5%

Revenue

Currency (Net)


Volume/Price/Mix

% Change Comparison

Third Quarter

(12%)

(5%)

5%

%Change

$57

$86

$274

2007 (Restated)

$50IBTEE&MI

$82Gross Margin

$288Revenues

2008

($ Millions)

27


Third Quarter Segment HighlightsEurope & Africa Generation1

1. Includes CIS countries.

Europe & Africa Generation revenue increased by $62 million to $278 million, primarily due to an increase in capacity income, higher fuel pass-through revenues and higher volume at Kilroot in Northern Ireland of $47 million, an increase in volume and rates of $35 million at our businesses in Hungary and favorable foreign currency exchange of $21 million at our businesses in Hungary. This increase was partially offset by lower revenue in our businesses in Kazakhstan of $45 million due to the sale of certain business units in second quarter 2008.

Gross margin increased by $14 million to $49 million, primarily due to increases in capacity income and volume at Kilroot of $14 million and higher rates and volume in Hungary of $6 million. This increase was partially offset by lower margin in our businesses in Kazakhstan of $9 million due to sale of certain business units in second quarter 2008.

IBTEE&MI increased by $7 million to $35 million, primarily due to the improvement in gross margin.

Segment Highlights

40%29%Total

0%

-

40%

Gross Margin

8%

-

21%

Revenue

Currency (Net)


Volume/Price/Mix

% Change Comparison

Third Quarter

25%

40%

29%

%Change

$28

$35

$216

2007 (Restated)

$35IBTEE&MI

$49Gross Margin

$278Revenues

2008

($ Millions)

28


Third Quarter Segment HighlightsEurope & Africa Utilities1

1. Includes CIS countries.

Europe & Africa Utilities revenue increased by $42 million to $197 million, primarily due to increased tariff rates of $19 million at our businesses in Ukraine and higher rates and volume of $10 million and favorable foreign currency translation of $9 million at Sonel in Cameroon.

Gross margin increased by $1 million to $23 million, primarily due to an increase in higher rates and volume at Sonel of $8 million and an increase in rates at our businesses in Ukraine of $7 million and the impact of favorable foreign currency translation of $2 million at Sonel, offset by a $16 million increase in fixed costs at Sonel due to higher provision for bad debts.

Segment Highlights

5%27%Total

9%

-

(4%)

Gross Margin

8%

-

19%

Revenue

Currency (Net)


Volume/Price/Mix

% Change Comparison

Third Quarter

(25%)

5%

27%

%Change

$20

$22

$155

2007 (Restated)

$15IBTEE&MI

$23Gross Margin

$197Revenues

2008

($ Millions)

29


Third Quarter Segment HighlightsAsia Generation1

1. Includes the Middle East.

Third Quarter

(204%)

(26%)

69%

%Change

$23

$47

$235

2007 (Restated)

($24)IBTEE&MI

$35Gross Margin

$398Revenues

2008 Asia Generation revenue increased by $163 million to $398 million, primarily due to increased volume at Lal Pir in Pakistan of $14 million, increased tariffs as a result of higher fuel costs at Lal Pir and Pak Gen in Pakistan of $98 million, $52 million of revenue generated from our new business, Masinloc, in the Philippines, which was acquired in April 2008, higher rates at Kelanitissain Sri Lanka of $25 million, partially offset by unfavorable foreign currency translation of $37 million at Lal Pir and Pak Gen.

Gross margin decreased by $12 million to $35 million, primarily due to increased fuel costs at LalPir, Pak Gen and Chigen in China of $12 million and ($5) million net gross margin attributable to higher fuel costs at Masinloc partially offset by lower fixed costs of $7 million at Ras Laffan in Qatar.

IBTEE&MI decreased by $47 million to ($24) million, primarily due primarily to interest expense at Masinloc and the decrease in gross margin.

(26%)69%Total

(3%)

(10%)

(13%)

Gross Margin

(14%)

22%

61%

Revenue

Currency (Net)


Volume/Price/Mix

% Change Comparison

Segment Highlights

($ Millions)

30



Reconciliation of Adjusted Earnings per Share1

$1.07

0.25

(1.20)

-

(0.05)

$2.07

2008

Full Year

$0.81

0.25

(1.24)

-

(0.07)

$1.87

2008

YTD

$0.83

-

0.09

-

0.01

$0.73

2007 (Restated)

$1.15-$1.20

-

(0.02)

0.02

$0.06

$1.09-$1.14

2009

$0.25

-

0.02

-

0.01

$0.22

2008

Third Quarter

$0.17

-

0.03

-

-

$0.14

2007 (Restated)

Diluted EPS from Continuing Operations

Adjusted Earnings per Share1

Debt Retirement (Gains)/Losses

Net Asset (Gains)/Losses and Impairments

Currency Transaction (Gains)/Losses

FAS 133 Mark to Market (Gains)/Losses

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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 benefitswill 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 ofAES’s indebtedness.

Assumptions

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Definitions

Adjusted earnings per share – 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. Effective January 1, 2008, the Company now includes in its definition of adjusted earnings per share, costs associated with early retirement of non-recourse debt, in addition to recourse debt. There would be no impact to 2007 reported adjusted EPS as a result of this changeFree cash flow – 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 Liquidity – 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

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

Non-GAAP Financial Measures

Subsidiary Distributions

AES 3Q 08 Review

Economy & Finance

Transcript of AES 3Q 08 Review