AES 3Q 2006
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Transcript of AES 3Q 2006
AES CorporationThird Quarter 2006 Financial Review
November 6, 2006
The Global Power Company
2 www.aes.com3Q06 Financial Review
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 Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005, 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.
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10%
2%
2%
14%
(1) Non-GAAP financial measures. See Appendix.(2) New projects include Buffalo Gap I in the U.S. and consolidation of Itabo in the Dominican Republic.
Price/Volume/Allowances
New projects (2)
Currency
Total
Revenue ComparisonPeriod-Over-PeriodChange
($ Millions except earnings per share and percent)
Third Quarter 2006 Highlights
Adjusted EPS (1)
190 b.p. Return on Invested Capital (ROIC) (1)
Diluted (Loss) Earnings Per Share from Continuing Operations
(Loss) Income Before Income Taxes and Minority Interest (IBT&MI)
as % of Sales
Gross Margin
Revenues
10.6% 8.7%
2006 2005
10%
(269%)
(114%)
(160) b.p.
9%
14%
$0.34
($0.54)
($67)
30.9%
$974
$3,150
$0.31
$0.32
$484
32.5%
$897
$2,759
Third Quarter
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Reconciliation of Adjusted Earnings Per Share
($ Per Share)
(1) 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, Venezuela, and Argentina, (c) significant asset gains or losses due to disposition transactions and impairments, and (d) costs related to early retirement of recourse 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 transaction gains or losses, periodic strategic decisions to dispose of certain assets which may influence results in a given period, and the early retirement of corporate debt.
Debt Retirement (Gains)/Losses
Net Asset (Gains)/Losses and Impairments
Diluted Earnings Per Share From Continuing Operations
FAS 133 Mark to Market (Gains)/Losses
Currency Transaction (Gains)/Losses
Adjusted Earnings Per Share (1)
--
$0.31
--
$0.32
(0.01)
--
--
$0.34
0.84
($0.54)
0.02
0.02
2006 2005Third Quarter
--
$0.59
--
$0.64
--
(0.05)
0.03
$1.05
0.68
$0.32
0.01
0.01
2006 2005
Nine Months Ended Sept. 30,
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Third Quarter 2006 Earnings Bridge
BrasilianaRestructuring
Impacts(4)
3Q06 DilutedEPS from
ContinuingOperations
AdjustedEPS
Factors (5) (6)
3Q06Adjusted
EPS (5) (6)
Higher NetInterest
Expense (1)
Higher Non-OperatingExpenses
(1) (2) (3)
Higher Income Taxes
& MinorityInterest and
Lower DilutedShares (3)
3Q05 DilutedEPS from
ContinuingOperations
Higher GrossMargin
(1)
Higher G&AExpense
(1)
(1) Shown on a pre-tax basis.(2) Including other expense and FX transaction losses, net of higher equity in earnings of affiliates.(3) Excluding the impacts of the Brasiliana restructuring, except diluted share count impacts.(4) Calculated as $500 million divided by 658 million diluted shares.(5) Non-GAAP financial measures. See Appendix.(6) Includes $0.07 per share Brasiliana restructuring non-recurring benefit.
$0.32
($0.54)
$0.34
$0.11
($0.03) ($0.03)($0.06)
($0.10)
($0.76)
$0.88
($ Per Share)
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2005
Third Quarter Cash Flow Highlights
Subsidiary Distributions (2)
Return of Capital from Subsidiaries (2)
Recourse Debt Repayment (1)
Subsidiary Net Cash from Operating Activities (1) (2)
Net Cash from Operating Activities (1)
Free Cash Flow (1) (2) (3)
($ Millions)
$352
$34
--
$966
$837
$664
2006
(1) Results exclude businesses placed in discontinued operations effective June 30, 2006.(2) Non-GAAP financial measures. See Appendix.(3) Excludes $45 and $28 million in proceeds from the net sale of emission allowances included in investing activities in 2006 and 2005 periods,
respectively.
Subsidiary-Only
Consolidated
Parent-Only$274
--
$143
$728
$619
$380
Third Quarter
7 www.aes.com3Q06 Financial Review
Third Quarter/Nine Months Ended9/30/06 Subsidiary Distributions
(1) Non-GAAP financialmeasure. See Appendix.
($ Millions)
35% of Third Quarter 2006 distributions and 50% of Nine Months Ended September 30, 2006 were from North American Regulated Utilities and Worldwide
Contract Generation.
TotalAsia &
Middle EastEurope &
AfricaLatin
AmericaNorth
America
$145/238--/--$5/15$106/125$34/98RegulatedUtilities
$90/232$1/40$26/59--/31$63/102Contract Generation
$352/660$1/40$31/74$107/164$213/382Total (1)
$117/190--/----/--$1/8$116/182Competitive Supply
Third Quarter/Nine Months Ended September 30, 2006 Subsidiary Distributions (1)
8 www.aes.com3Q06 Financial Review
7%
6%
13%
($ Millions except as noted)
Third Quarter Segment Highlights Regulated Utilities
Revenues
Gross Margin
as % of Sales
IBT&MI
$1,565
$438
28.0%
($257)
$1,387
$339
24.4%
$195
Volume/Price/Mix
Currency (Net)
Total
Revenue Comparison (QOQ) % Change
13%
29%
360 b.p.
(232%)
2006 2005%
Change Segment HighlightsThird Quarter
• Revenues increased primarily from favorable foreign exchange rates as well as higher tariff rates in Latin America and North America, and increased demand in Latin America.
• Gross margin increase driven by higher volumes and favorable foreign exchange in Latin America. Gross margin as a percent of sales increased due to favorable fixed costs adjustments at Eletropaulo and Sonel.
• IBT&MI decreased largely due to the loss on sale of investments related to financial restructuring of Brasiliana.
9 www.aes.com3Q06 Financial Review
15%
5%
--
20%
($ Millions except as noted)
Third Quarter Segment Highlights Contract Generation
Revenues
Gross Margin
as % of Sales
IBT&MI
$1,250
$451
36.1%
$302
$1,046
$452
43.2%
$347
Volume/Price/Mix
New Projects (1)
Currency (Net)
Total
Revenue Comparison (QOQ) % Change
19%
--
(710) b.p.
(13%)
2006 2005%
Change Segment HighlightsThird Quarter
(1) New projects include Buffalo Gap I in the U.S. and consolidation of Itabo in the Dominican Republic.
• Higher revenue was the result of the consolidation of Itabo in the Dominican Republic, higher dispatch in Pakistan, and higher volume at Tiete.
• Gross margin was flat as favorable volume was offset by higher maintenance costs in North America and Latin America. The decline in gross margin as a percent of sales was driven by higher fuels costs, and higher maintenance in North America and at Gener in Chile.
• IBT&MI decreased due to higher interest rates at Tiete, Southland’s legal contingency related to User Utility Tax and liquidated damages at Cartagena.
10 www.aes.com3Q06 Financial Review
4%
(1%)
3%
($ Millions except as noted)
Third Quarter Segment Highlights Competitive Supply
Revenues
Gross Margin
as % of Sales
IBT&MI
$335
$85
25.4%
$56
$326
$105
32.2%
$86
Volume/Price/Mix
Currency (Net)
Total
Revenue Comparison (QOQ) % Change
3%
(19%)
(680) b.p.
(35%)
2006 2005%
Change Segment HighlightsThird Quarter
• Revenues increased as a result of better prices in Latin America and North America, offset partially by lower volume in North America due to outages.
• Gross margin and gross margin as a percent of sales decreased mostly due to lost volume and higher maintenance and fuel costs in North America.
• IBT&MI decreased as a result of the decline in gross margin.
11 www.aes.com3Q06 Financial Review
2006 Financial Guidance Update:Income Statement
2006 Guidance Element
Revenue Growth (% Change vs. Prior Year)
Gross Margin
Income Before Tax & Minority Interest (1)
Diluted Earnings Per Share From Continuing Operations
Adjusted Earnings Per Share Factors (2) (3)
Adjusted Earnings Per Share (2) (3)
(1) Includes estimated $630 million non-recurring Brazil restructuring charges. Prior business segment income before tax and minority interest guidance is withdrawn.
(2) Non-GAAP financial measures. See Appendix.(3) Updated guidance includes approximately $0.05 per share Brazil restructuring non-recurring benefit.
Note: Certain foreign exchange and interest rate sensitivities previously provided have not been updated.
Contains Forward Looking Statements
Updated Guidance
9 to 10 %
$3.5 to $3.6 billion
$1.1 to $1.2 billion
$0.28
$0.81
$1.09
Prior Guidance
7 to 8 %
$3.5 to $ 3.6 billion
--
$1.05
($0.04)
$1.01
12 www.aes.com3Q06 Financial Review
2006 Guidance Element
Net Cash From Operating Activities
Maintenance Capital Expenditures (1)
Free Cash Flow (1)
Subsidiary Distributions (1)
Parent Growth Investments (2)
(1) Non-GAAP financial measures. See Appendix.(2) Excludes other sources of funds. Total 2006 property additions are estimated to be $1.6 to $1.7 billion, including certain growth projects not
yet awarded. Maintenance capital expenditures are expected to be $800 million to $900 million, and growth capital expenditures are expected to be $800 million to $900 million.
Contains Forward Looking Statements
Updated Guidance
$2.3 to $2.4 billion
$800 to $900 million
$1.4 to $1.6 billion
$1.0 billion
$500 to $600 million
2006 Financial Guidance Update:Cash Flow Elements
Prior Guidance
$2.2 to $2.3 billion
$800 to $900 million
$1.3 to $1.5 billion
$1.0 billion
$500 to $600 million
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Appendix
14 www.aes.com3Q06 Financial Review
(1) Non-GAAP financial measure. See Appendix.(2) Includes redemption of 8.875% Sr. Subordinated notes due 2027 (approximately $115 million aggregate principal amount plus a make-whole
premium of $35 million) in the first quarter of 2006.
Parent Sources and Uses of Cash
($ Millions)
Total Uses
Sources
Ending Liquidity (1)
Changes in Letters of Credit and Other, Net
Cash Payments for Interest
Cash for Development, Selling, General and Administrative and Taxes
Investments in Subsidiaries, Net
Repayments of Debt (2)
Uses
Total Sources
Beginning Liquidity (1)
Total Returns of Capital Distributions and Project Financing Proceeds
Increased Senior Unsecured Credit Facility Commitments
Refinancing Proceeds, Net
Proceeds from Asset Sales, Net
Total Subsidiary Distributions (1)
Issuance of Common Stock, Net
$1,091
Third Quarter2006
(973)
92
(82)
(41)
(87)
$--
$1,091
645
34
--
--
28
$352
32
$2,222
Nine Months Ended
September 30,2006
(973)
(200)
(291)
(177)
(431)
$(150)
$2,222
624
63
600
--
216
$660
59
15 www.aes.com3Q06 Financial Review
Parent Debt (Including Letters of Credit) at 12/31/05 (1)Debt Reconciliation
$4,783Parent Debt (Excluding Letters of Credit) at 9/30/06
(486)Less: Letters of Credit Outstanding at 9/30/06
$5,176
Discretionary Debt Repayments:(115)Prepayment of Debt
$5,269Parent Debt (Including Letters of Credit) at 9/30/06
208Other (2)
--Scheduled Debt Maturities:
Third Quarter 2006 Reconciliation of Changes to Debt Balances
($ Millions)
(1) Amount reflects recourse debt of $4,882 million and $294 million of letters of credit under the parent revolver. Revolver availability at 12/31/05 was $356 million.
(2) Other includes $192 million increase in letters of credit, a $3 million change in unamortized discounts, and a $12 million increase due to foreign currency changes.
16 www.aes.com3Q06 Financial Review
$966
(342)--
5553
(118)459
(17)6--
(4)(7)
1
131
(27)--
353--
(486)(5)
(85)----
(54)(4)57
(310)
(561)
536(10)
1,256
$1,782
($ Millions) ConsolidatedEliminationsAES Corp (1)Subsidiaries
(1) Includes activity at qualified holding companies.(2) Consolidated depreciation and amortization was $179 million in 2006 and $233 million in 2005.Note: Certain amounts have been netted, condensed and rounded for presentation purposes.
Third Quarter 2006Consolidated Cash Flow
$176
(83)(9)28----
(1)--------8
(94)49
(102)
(12)--2--
78(5)----
32----
(10)(24)
61
135(4)78
$209
($305)
----------------------
101(50)
51
----
(30)--
(1)------------
(47)334
256
2--
(4)
($2)
$837
(425)(9)
5833
(118)449
(17)6--4----
80
(39)--
325--
(409)(10)(85)
--32
(54)(4)----
(244)
673(14)
1,330
$1,989
Net Cash Provided by Operating Activities (2)
Capital ExpendituresAcquisitions, Net of Cash AcquiredProceeds from the Sale of BusinessProceeds from the Sales of AssetsPurchase/Sale of Short–Term Investments, Net(Increase)/Decrease in Restricted CashProceeds from the Sale of Emission AllowancesPurchase of Emission AllowancesDecrease in Debt Service Reserves and Other AssetsPurchase of Long Term Available for Sale SecuritiesOther InvestingInvestment in SubsidiariesReturns of Capital from Subsidiaries
Net Cash Provided by (Used in) Investing Activities
Borrowings under the Revolving Credit Facilities, NetIssuance of Recourse DebtIssuance of Non-Recourse DebtRepayments of Recourse DebtRepayments for Non-Recourse DebtPayments of Deferred Financing CostsDistributions to Minority InterestsContributions from Minority InterestsIssuance of Common StockFinanced Capital ExpendituresOther FinancingEquity Contributions by ParentDistributions to Parent
Net Cash (Used in) Provided by Financing Activities
Total Increase in Cash & Cash EquivalentsEffect of Exchange Rate Changes on CashCash & Cash Equivalents, Beginning
Cash & Cash Equivalents, Ending
17 www.aes.com3Q06 Financial Review
$2,282
(913)(13)67910
(302)(48)
75(30)
1--
(16)(51)
25
(583)
17--
1,645--
(2,238)(51)
(210)117
--(54)(7)
217(496)
(1,060)
63922
1,119
$1,780
($ Millions) ConsolidatedEliminationsAES Corp (1)Subsidiaries
(1) Includes activity at qualified holding companies.(2) Consolidated depreciation and amortization was $652 million in 2006 and $672 million in 2005.Note: Certain amounts have been netted, condensed and rounded for presentation purposes.
Nine Months Ended September 2006Consolidated Cash Flow
$192
(132)(9)
138----
(3)------
(52)--
(333)79
(312)
87--2
(150)77
(13)----
59----
44(37)
69
(51)(8)
268
$209
($660)
----------------------
384(104)
280
----
(75)--
183------------
(261)533
380
------
$--
$1,814
(1,045)(22)81710
(302)(51)
75(30)
1(52)(16)
----
(615)
104--
1,572(150)
(1,978)(64)
(210)11759
(54)(7)----
(611)
58814
1,387
$1,989
Net Cash Provided by Operating Activities (2)
Capital ExpendituresAcquisitions, Net of Cash AcquiredProceeds from the Sale of BusinessProceeds from the Sales of AssetsPurchase/Sale of Short–Term Investments, NetIncrease in Restricted CashProceeds from the Sale of Emission AllowancesPurchase of Emission AllowancesDecrease in Debt Service Reserves and Other AssetsPurchase of Long Term Available for Sale SecuritiesOther InvestingInvestment in SubsidiariesReturns of Capital from SubsidiariesNet Cash (Used in) Provided by Investing Activities
Borrowings Under the Revolving Credit Facilities, NetIssuance of Recourse DebtIssuance of Non-Recourse DebtRepayments of Recourse DebtRepayments for Non-Recourse DebtPayments of Deferred Financing CostsDistributions to Minority InterestsContributions from Minority InterestsIssuance of Common StockFinanced Capital ExpendituresOther FinancingEquity Contributions by ParentDistributions to ParentNet Cash (Used in) Provided by Financing Activities
Total Increase (Decrease) in Cash & Cash EquivalentsEffect of Exchange Rate Changes on CashCash & Cash Equivalents, Beginning
Cash & Cash Equivalents, Ending
18 www.aes.com3Q06 Financial Review
Reconciliation of Subsidiary Distributions and Parent Liquidity
($ Millions)
See following page for further information.
Total subsidiary distributions& returns of capital to Parent
Subsidiary distributions to ParentNet distributions to/(from) QHCsTotal subsidiary distributions
Returns of capital distributions to ParentNet returns of capital distributions to/(from) QHCs
Total returns of capital distributions
Combined distributions & return of capitalreceived
Less: combined net distributions & returnsof capital to/(from) QHCs
Total subsidiary distributions & returns of capital to Parent
Liquidity
Availability under revolverCash at QHCsEnding liquidity
Cash at Parent
29
June 30,2006
$177--
177
29
--
206
--
$206
March 31,2006
$132--
132
--
----
132
--
$132
Dec. 31,2005
$354
354
5
--5
359
--
$359
Sept. 30,2005
$274--
274
--
----
274
--
$274
Quarter EndedSept. 30,
2006
$352--
352
34
--34
386
--
$386
7$645
June 30,2006
$71567
17$1,063
Mar. 31,2006
$148898
6$624
Dec. 31,2005
$262356
Balance as of
9$436
Sept. 30,2005
$146281
$973
Sept. 30,2006
$17276437
19 www.aes.com3Q06 Financial Review
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 so that AES can capture its historical market share or increase its share; (d) no material disruptions or discontinuities occur in GDP, foreign exchange rates, inflation or interest rates during the forecast period; (e) negative factors do not combine to create highly negative low-probability business situations; and (f) material business-specific risks as described in the Company’s SEC filings do not occur. 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 QHCsis 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 www.aes.com3Q06 Financial Review
Definitions of Non-GAAP Financial Measures
• Adjusted earnings per share – 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, Venezuela, and Argentina, (c) significant asset gains or losses due to disposition transactions and impairments, and (d) early retirement of recourse 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 corporate debt.
• Free cash flow – Net cash flow from operating activities less maintenance capital expenditures. Maintenance capital expenditures reflect property additions less growth capital expenditures.
• Liquidity – Cash at the parent company plus availability under corporate revolver plus cash at qualifying holding companies (QHCs).
• Return on invested capital (ROIC) – Net operating profit after tax (NOPAT) divided by average capital. NOPAT is defined as income before tax and minority expense plus interest expense less income taxes less tax benefit on interest expense at effective tax rate. Average capital is defined as the average of beginning and ending total debt plus minority interest plus stockholders’ equity less debt service reserves and other deposits.
• Subsidiary distributions – Cash distributions (primarily dividends and interest income) from subsidiary companies to the parent company and qualified holding companies. These cash flows are the source of cash flow to the parent to meet corporate interest, overhead, cash taxes, and discretionary uses such as recourse debt reductions and corporate investments.
21 www.aes.com3Q06 Financial Review
Capital Expenditures ($ Millions)Third Quarter
Nine Months Ended Sept. 30,
Maintenance Capital Expenditures
Growth Capital Expenditures
Capital Expenditures
$239
31
$270
$173
306
$479
2006 2005
$509
290
$799
$539
560
$1,099
2006 2005
Reconciliation of Cash Flow Items
Subsidiaries
$966Third Quarter 2006
Net Cash from Operating Activities ($ Millions)
$2,282Nine Months Ended September 30, 2006
AES Corp & QHCs (1)
$176
$192
Eliminations
($305)
($660)
Consolidated
$837
$1,814
Reconciliation of Free Cash Flow ($ Millions)Third Quarter
Nine Months Ended Sept. 30,
Net Cash from Operating Activities
Less: Maintenance Capital Expenditures
Free Cash Flow
$619
239
$380
$837
173
$664
2006 2005 (2)
$1,464
509
$955
$1,814
539
$1,275
2006 2005 (2)
(1) Includes activity at qualified holding companies.(2) Results exclude businesses placed in discontinued operations effective June 30, 2006.
(2)
22 www.aes.com3Q06 Financial Review
Third Quarter Return on Invested Capital
($ Millions except percent)
Return on Invested Capital Calculation
Income Before Tax & Minority Interest (IBT&MI)
Interest Expense
Income Taxes (1)
Net Operating Profit After Tax (NOPAT) (2)
Average Capital
Return on Invested Capital (ROIC) (3)
Rolling 12 Months3Q05
$1,249
1,880
(1,365)
1,764
20,250
8.7%
3Q06
$1,457
1,864
(1,064)
2,257
21,268
10.6%
Effective Tax Rate CalculationIncome Tax Expense
Income Before Tax & Minority Interest
Effective Tax Rate (4)
$545
1,249
43.6%
$467
1,457
32.1%
Average Capital Calculation
Total Debt
Minority Interest
Stockholders’ Equity
Debt Service Reserves and Other Deposits
Total Capital (5)
Average Capital (6)
As of9/30/04
$18,358
1,005
1,557
(555)
20,365
9/30/05
$17,792
1,549
1,402
(609)
20,134
20,250
9/30/06
$17,409
2,940
2,673
(621)
22,401
21,268
Rolling 12 Months Calculations
Income Before Tax & Minority Interest
Interest Expense
Income Tax Expense
4Q04
$204
491
145
1Q05
$375
466
147
2Q05
$186
475
80
3Q05
$484
448
173
Rolling12 Months
3Q05
$1,249
1,880
545
4Q05
$408
502
97
1Q06
$633
432
190
2Q06
$483
442
106
3Q06
($67)
488
74
Rolling12 Months
3Q06
$1,457
1,864
467
Note: Prior period amounts have been adjusted to exclude subsidiaries classified as discontinued operations in 2Q06. 3Q06 amounts include the non-cash impactsof the Brazil holding company restructuring. Although the non-GAAP reconciliation presentation of ROIC has changed as of this quarter, the ROIC calculation has not changed.(1) Income taxes are calculated by multiplying the sum of IBT&MI and interest expense by the effective tax rate for the period, thereby excluding the tax benefit on interest expense.(2) Net operating profit after tax, a non-GAAP financial measure, is defined as IBT&MI plus interest expense less income taxes (excluding the tax benefit on interest expense).(3) Return on invested capital, a non-GAAP financial measure, is calculated over a rolling 12 month period and is defined as NOPAT divided by average capital.(4) The effective tax rate is calculated by dividing income tax expense by IBT&MI.(5) Total capital, a non-GAAP financial measure, is defined as total debt plus minority interest plus stockholders’ equity less debt service reserves and other deposits.(6) Average capital is defined as the average of beginning and ending total capital over a 12 month period.
23 www.aes.com3Q06 Financial Review
16.1% E
Brasiliana Restructuring: Ownership Changes
AES BNDES
Brasiliana (1)
Elpa
Eletropaulo
V = Voting ownershipE = Economic ownershipNet AES ownership
50.1% V
Eletropaulo Ownership StructurePost-Restructuring
Transgás sold 15.8 billion Class B preferred shares of Eletropaulo, representing a 38% economic ownership interest in Eletropaulo (2)
This reduced AES Corp.’s net ownership interest in Eletropaulo from 34% to 16%Brasiliana continues to have a controlling interest in Eletropaulo since the Transgás shares that were sold were non-voting and Brasiliana’s voting ownership of Eletropaulo is unchangedAES continues to have a controlling interest in Brasiliana and hence EletropauloOwnership interests in all other parts of the Brasiliana chain are unchanged
Holding company
Intermediary holding co.
Operating company
46.2% E 49.9% V 53.8% E
77.8% V 31.0% E
98.3% V 98.3% E
38.2% V
35%74%73%74%Brasiliana (1)
Ownership Interest in EletropauloPost-RestructuringPre-Restructuring
38%
0%
Voting
16%34%38%AES Corp. net
0%38%0%Transgás
EconomicEconomicVoting
0% V 4.4% E
(1) This a successor entity of Brasiliana Energia S.A. Through a series of mergers of entities under common control, the legal name of the entity is now Companhia de Brasiliana Energia.
(2) 2.1 billion of these shares were sold when the over-allotment option was exercised on October 5, 2006.
24 www.aes.com3Q06 Financial Review
Brasiliana Restructuring: Debt Changes
As of December 31, 2005 (1)
BrasilianaEnergia$553 MM100% USD
0% BRL
AES TietêEmpr.No debt
EnergiaPaulista$79 MM0% USD
100% BRL
IHB$294 MM100% USD
0% BRL
Eletropaulo$1,155 MM
11% USD89% BRL
Tietê$616 MM0% USD
100% BRL
Telecom$2 MM0% USD
100% BRL
NewBrasiliana
$368 MM0% USD
100% BRL
Eletropaulo$1,015 MM
4% USD96% BRL
Tietê$633 MM0% USD
100% BRL
Telecom$1 MM0% USD
100% BRL
Post-Restructuring (1) (2)
Principal (US GAAP, US$ Millions)
Total debt: $3,017 millionAverage life: 3.1 yearsAverage cost: 16.9% per annum60% denominated in local currency
Total debt: $2,016 millionAverage life: 3.4 yearsAverage cost: 16.3% per annum98% denominated in local currency
(1) Uruguaiana and InfoEnergy are also owned by Brasiliana Energia, but do not have any project-level debt.(2) As of September 30, 2006, except for Brasiliana Energia, which is pro forma to reflect the repayment of the BNDES debt and the refinancing of the
IHB and Energia Paulista debt and assumes the BRL:USD foreign currency exchange rate as of September 29, 2006.
25 www.aes.com3Q06 Financial Review
$368
$51$134 $133
$335
$63
$114
$24
$95$95 $95
$95
$95
$134
$183
2006 2007 2008 2009 2010 2011 Thereafter
Brasiliana Restructuring:Debt Maturities Summary
Amortization Schedule Post-Restructuring (1) (2) (3)
(US$ Millions)
(1) As of September 30, 2006, except for Brasiliana Energia, which is pro forma to reflect the repayment of the BNDES debt and the refinancing of the IHB and Energia Paulista debt and assumes the BRL:USD foreign currency exchange rate as of September 29, 2006.
(2) Future debt maturities are shown in their USD equivalents, using the exchange rate as of September 29, 2006.(3) The Telecom debt of $1 MM amortizes from 2006 to 2010.
Brasiliana Energia Eletropaulo Tietê