AES 2Q 08 Review

The AES CorporationSecond Quarter 2008Financial ReviewAugust 8, 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


Second Quarter Results and Key Highlights

Increased full year Adjusted EPS guidance to $1.16 (+0.02)Lowered consolidated operating cash flow to $2.2 billion (previously $2.3 to 2.4 billion) reflecting higher working capital and recoverable energy purchase costs

Reaffirmed free cash flow of $1.4 billion at the lower end of previously announced guidance ($1.4 to 1.6 billion)

Amended Corporate debt covenants to achieve financial flexibility

Reported Q2 2008 Adjusted EPS of $0.17, including $0.08 of foreign currency transaction losses and $0.02 of one-time tax expense related to the repatriation of a portion of the Kazakhstan sale proceeds

Began construction on four power projects in three countries totaling 954 MW (100% platform expansion)

Chile: 788 MW; 80 MW in UK; and 86 MW in Cameroon

Expanded wind platform in China by acquiring 49 MW wind farm and reached an agreement to begin construction on another 49 MW wind project

Registered the Company’s first greenfield methane recovery project in Malaysia

4


Financial Highlights($ Millions Except Earnings per Share)

Key earnings growth drivers were increased demand in Latin America and higher pricing at our European businesses2007 Adjusted EPS includes a gain of approximately $0.15 related to the acquisition of a leasehold interest in the Eastern Energy business in New York of $0.12 and the recovery of certain tax assets in Latin America of $0.032008 Adjusted EPS includes $0.08 of FX transaction losses primarily in Chile and the Philippines and $0.02 ofone-time tax expense related to the repatriation of a portion of the Kazakhstan sale proceeds

$3,340$4,146

Q2 2007(Restated)

Q2 2008

Revenue Gross Margin Income Before Taxes Equity Earnings & Minority Interest

$904

$1,029

Q2 2007(Restated)

Q2 2008

$787

$1,457

Q2 2007(Restated)

Q2 2008

Diluted EPS fromContinuing Operations Adjusted EPS1,2

$0.42

$1.31

Q2 2007(Restated)

Q2 2008

$0.41

$0.17

Q2 2007(Restated)

Q2 2008

1. A Non-GAAP financial measure. See Appendix2. Q2 2007 Adjusted EPS excludes FAS 133 mark-to-market (gains)/losses of $(0.01) and net asset (gains)/losses and impairments of $0.01. Q2 2008

Adjusted EPS excludes FAS 133 mark-to-market (gains)/losses of $(0.08) and net asset (gains)/losses and impairments of $(1.30)

5


Financial Highlights (cont’d)($ Millions)

Net Operating Cash Flow

$514$320

Q2 2007(Restated)

Q2 2008

Free Cash Flow1

$207$135

Q2 2007(Restated)

Q2 2008

Decrease in net operating cash flow primarily reflects planned outages at our North America generation businesses, higher corporate interest and previously announced tariff resets at our Latin America utilitiesDecrease in free cash flow reflects lower operating cash flow offset in part by reduced maintenance capex

1. A Non-GAAP financial measure. See Appendix

6


Second Quarter 2008 Period Over Period Earnings from Continuing Operations Bridge

Q2 2007 GAAP

($ per Diluted Share)

$0.42 ($0.15)$0.27

$0.01 $0.03

($0.01)

$0.03

($0.08) ($0.01)

$1.05 $0.02

$1.31

NY Lease/LatAm Tax Recovery in 2007

Q2 2007 EPS,

Excluding NY &

LatAm Tax

Operational Improvements1

Other Non-Operating

Items1

Impairments FX Translation

SGA Portfolio Management2

Tax Rate Q2 2008 Q2 GAAP

FX Transaction

Operational improvements are driven by increased demand in Latin America $0.03 and higher pricing in Europe $0.02 offset in part by planned outages in North America ($0.03) and higher fuel prices in Asia ($0.01)The positive impact of the Hawaii mark-to-market derivative adjustment offsets the negative impacts associated with planned outages in North America and the previously announced tariff resets in Brazil and El Salvador.

1. Includes fuel derivatives2. Portfolio Management includes: $1.31 net gain on sale of Northern Kazakhstan businesses, ($0.21) tax impact on repatriation of approximately $636

million of Kazakhstan sale proceeds; and ($0.05) of corporate debt refinancing charges

7


Q2 2007 Adjusted

EPS

Second Quarter 2008 Period Over Period Adjusted EPS Bridge($ per Diluted Share)

$0.41($0.15)

$0.26

$0.01

($0.04)

$0.03

($0.08) ($0.01)($0.02)

$0.02

$0.17

NY Lease/LatAm Tax Recovery in 2007

Q2 2007 Adjusted

EPS, Excluding

NY & LatAm Tax

Operational Improvements

Other Non-Operating

Items1

FX Translation

SGA One Time Asset Sale

Tax Expense

Tax Rate Q2 2008 Q2 Adjusted

FX Transaction

Operational improvements are driven by increased demand in Latin America of $0.03 and higher pricing in Europe of $0.02 offset in part by planned outages in North America ($0.03) and higher fuel prices in Asia ($0.01)Foreign currency transaction losses ($0.08) primarily reflect 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)

1. Negative $0.04 balance primarily reflects increased interest expense, $0.02 of which is attributable to higher average debt balances at Corporate related to $600 million net borrowing in Q4 2007 and $625 million debt issuance in Q2 2008

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Appendix

9


Financial Highlights($ Millions)

Net Operating Cash Flow

$963

$151

$791

YTD Q2 2007(Restated)

YTD Q2 2008

Free Cash Flow1

$496

$107

$427

YTD Q2 2007(Restated)

YTD Q2 2008

Contribution from EDC, a Business AES Sold in Q2 2007

Decrease in net operating cash flow primarily reflects sale of EDC in May 2007 combined with increased working capital due to higher energy prices, higher corporate interest costs, and the impact of tariff resets in Latin AmericaDecrease in free cash flow reflects lower operating cash flow offset in part by reduced maintenance capex

1. A Non-GAAP financial measure. See Appendix

10


Q2 YTD 2007 GAAP

Second Quarter 2008 YTD Period Over Period Earnings from Continuing Operations Bridge($ per Diluted Share)

$0.59 ($0.15)$0.44

$0.13 $0.05 $0.01 $0.05

($0.05) ($0.03)

$1.05

$1.65

NY Lease/LatAm Tax

Asset Recovery in 2007

Q2 YTD 2007 EPS, Excluding for NY &

LatAm Tax


Other Non-Operating

Items1

Impairments SGA Portfolio Management2

Q2 YTD 2008 Q2 GAAP

FX Translation

FX Transaction

Operational improvements primarily reflect higher rates and volumes in the Southern Cone region of Latin America of $0.12 and our generation businesses in Europe of $0.07 offset in part by planned outages in North America ($0.03) and higher fuel prices in Asia ($0.02)YTD results show significant improvement period over period after excluding both $0.15 of one-time gains in 2007 and net Portfolio Management adjustments of $1.05 in 20082

1. Includes FAS 133 mark-to-market fuel derivative adjustments, including $0.08 net gain in Q2 2008 related primarily to Hawaii and Deepwater2. 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

11


Second Quarter 2008 YTD Period Over Period Adjusted EPS Bridge

Q2 YTD 2007

Adjusted EPS

($ per Diluted Share)

$0.66

($0.15)

$0.51

$0.13

($0.03)

$0.05

($0.05) ($0.03) ($0.02)

$0.56

NY Lease/LatAm Tax

Asset Recovery in 2007

Q2 YTD 2007 Adjusted EPS, Excluding for NY & LatAm

Tax


Other Non-Operating

Items

SGA Portfolio Management

Q2 YTD 2008 Q2 Adjusted

FX Translation

FX Transaction

Operational improvements primarily reflect higher rates and volumes in the Southern Cone region of Latin America of $0.12 and higher pricing in Europe of $0.07 offset by planned outages in North America ($0.03) and higher fuel prices in Asia ($0.02)Foreign currency transaction losses ($0.08) 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 Kazakhstan sale proceeds

• Excludes net period over period adjustments of $0.09 corresponding to $0.08 of mark-to-market derivative gains in Q2 2008 (primarily at Hawaii and Deepwater) 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

12


Parent Sources and Uses of Liquidity($ Millions)

Second Quarter

2008Sources

2691,093616

-1281

1,5233,594

(1,037)(755)(105)(172)(15)

(1,510)(3,594)

2007

Total Subsidiary Distributions1 259Proceeds from Asset Sales, Net 734Refinancing Proceeds, Net -Increased Credit Facility Commitments -Issuance of Common Stock, Net 14Total Returns of Capital Distributions and Project Financing Proceeds 34Beginning Liquidity1 878Total Sources 1,919

UsesRepayments of Debt -Investments in Subsidiaries, Net (362)Cash for Development, Selling, General and Administrative and Taxes (67)Cash Payments for Interest (133)Changes in Letters of Credit and Other, Net 21Ending Liquidity1 (1,378)Total Uses (1,919)

1. A Non-GAAP financial measure. See Slide 27.

13


Second Quarter Subsidiary Distributions($ Millions)

Second Quarter 2008 Subsidiary Distributions1

North America

LatinAmerica

Europe& Africa Asia Other2 Total

Utilities 43 - - - 43Generation 42 84 60 27 213Other 13 13Total 85 84 60 27 13 269

NA Generation7TEG TEPLA Generation17PanamaNA Generation8Eastern EnergyLA Generation19AndresNA Generation10Shady PointNA Utilities43IPALCONA Generation10HawaiiE&A Generation48Cartagena

Asia Generation12Ras LaffanLA Generation48GenerSegmentAmountBusinessSegmentAmountBusiness

Top 10 Second Quarter 2008 Subsidiary Distributions1

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

14


Second Quarter Consolidated Cash Flow($ Millions)

1. Depreciation & amortization from continuing operations was $255 million for 2Q08 and $227 million for 2Q07. Changes in net working capital were $271 million for 2Q08 and ($289) million for 2Q07

Note: Certain amounts have been netted, condensed and rounded for presentation purposes

Second Quarter2008

Net Cash Provided by Operating Activities1 $320 $514

Proceeds from the Sale of Businesses 1,093 781

Loan Advances (173) -

Financed Capital Expenditures (42) (4)

($525) ($475)

$197 ($60)

$1,743 $1,455

Increase in Debt Service Reserves and Other Assets (47) (12)

Net Cash Used in Investing ActivitiesBorrowings under the Revolving Credit Facilities, Net 21 (357)Issuance of Recourse Debt 625 -Repayments of Recourse Debt (1,037) -Issuance of Non-Recourse Debt 1,307 428Repayments of Non-Recourse Debt (576) (238)Payments for Deferred Financing Costs (31) (17)Distributions of Minority Interests (240) (212)Contributions from Minority Interests 157 325

Other Financing 13 15Net Cash Provided by (Used in) Financing ActivitiesEffect of Exchange Rate Changes on Cash (15) 33Total (Decrease) Increase in Cash & Cash Equivalents (23) 12Cash & Cash Equivalents, Beginning 1,766 1,443Cash & Cash Equivalents, Ending

Equity Investments and Advances to Affiliates 120 (1)

Repayment of Affiliate Loan 40 -Other Investing 32 (13)

(752)(951)

721,607

(1,514)(52)

2007 (Restated)

Capital Expenditures (640)Acquisitions - Net of Cash Acquired (141)

Proceeds from the Sale of Assets 3Proceeds from the Sale of Short-Term Investments 428Purchase of Short-Term Investments (715)Increase in Restricted Cash (165)

15


Second Quarter Segment HighlightsLatin America Generation($ Millions)

Second Quarter

2008 2007 (Restated)

%Change

$818 44%

61%

(28%)

$198

$294

Revenues $1,176

Gross Margin $319

IBTEE&MI $212

Latin America Generation revenue increased by $358 million to $1.2 billion, primarily due to higher contract and spot prices at Gener of $151 million in Chile, higher volumes, contract and spot prices at our businesses in Argentina, the Dominican Republic and Panama of $152 million, combined with favorable foreign currency translation of approximately $52 million in Brazil

Gross margin increased by $121 million to $319 million, primarily due to higher volume and spot prices at our businesses in Argentina of $47 million, lower fixed costs of $36 million at Tiete in Brazil, foreign currency translation of $29 million, higher spot prices at our businesses in the Dominican Republic of $19 million, and higher volume at Tiete of $17 million, offset in part by lower volumes and increased purchased electricity costs at Gener of $32 million

IBTEE&MI decreased by $82 million to $212 million, primarily due to a $93 million tax asset recovery at Brazilian subsidiaries in 2007, approximately $36 million of higher interest expense at Tiete and approximately $34 million of foreign currency transaction losses at Gener

Segment Highlights

61%44%Total

15%

0%

46%

Gross Margin

6%

0%

38%

Revenue

Currency (Net)

New Businesses/Projects

Volume/Price/Mix

% Change Comparison

16


Second Quarter Segment HighlightsLatin America Utilities($ Millions)

Second Quarter


%Change

$1,306 20%

(12%)

36%

$304

$247

Revenues $1,563

Gross Margin $268

IBTEE&MI $335

Latin America Utilities revenue increased by $257 million to $1.6 billion, primarily due to approximately $231 million in favorable foreign currency translation and increased volume of approximately $29 million at Eletropaulo and Sul in Brazil

Gross margin decreased by $36 million to $268 million, primarily due to decreased rates at Eletropaulo of $74 million, combined with an increase in fixed costs at Eletropaulo of approximately $20 million due to higher labor contingencies and provisions for bad debts, offset in part by favorable foreign currency translation in Brazil of $41 million and higher volume at Eletropaulo of approximately $33 million

IBTEE&MI increased by $88 million to $335 million, primarily due to a $117 million gain related to the extinguishment of a non-income tax liability at one of the Company’s subsidiaries in Brazil offset in part by the decline in gross margin

Segment Highlights

(12%)20%Total

(25%)

0%

13%

Gross Margin

18%

0%

2%

Revenue

Currency (Net)


Volume/Price/Mix

% Change Comparison

17


Second Quarter Segment HighlightsNorth America Generation($ Millions)

Second Quarter


%Change

$551 (2%)

29%

(31%)

$187

$272

Revenues $539

Gross Margin $242

IBTEE&MI $187

North America Generation revenue decreased by $12 million to $539 million, primarily due to a $30 million variance in the mark-to-market derivative adjustment at Deepwater in Texas and lower volume in New York of approximately $11 million, partially offset by higher revenue at Merida in Mexico of $17 million and higher volume at TEG TEP in Mexico of approximately $11 million

Gross margin increased by $55 million to $242 million, primarily due to a $110 million mark-to-market derivative gain on a coal supply agreement at Hawaii, offset in part by a $30 million variance in the mark-to-market derivative adjustment at Deepwater, as well as lower volumes primarily due to scheduled outages at Eastern Energy in New York and at Ironwood in Pennsylvania of $25 million

IBTEE&MI decreased by $85 million to $187 million, primarily due to the $135 million contract settlement gain in 2007 related to the acquisition of the New York leasehold interest

Segment Highlights

29%(2%)Total

0%

0%

29%

Gross Margin

1%

0%

(3%)

Revenue

Currency (Net)


Volume/Price/Mix

% Change Comparison

18


Second Quarter Segment HighlightsNorth America Utilities($ Millions)

Second Quarter


%Change

$258 3%

(23%)

(71%)

$78

$52

Revenues $267

Gross Margin $60

IBTEE&MI $15

North America Utilities revenue increased by $9 million to $267 million, primarily due to an increase in rate adjustments at IPL related to recoverable environmental investments of $13 million and the pass through of higher fuel and purchased power expenses of $10 million, offset in part by $11 million of lower retail volumes and $2 million of lower wholesale revenue

Gross margin decreased by $18 million to $60 million due to higher labor and benefit costs of $4 million, higher maintenance expenses of $3 million primarily due to storms and outages, and lower retail margin of $6 million

IBTEE&MI decreased by $37 million to $15 million due primarily to gross margin changes combined with $14 million of one-time charges at IPALCO related to a debt refinancing of approximately $375 million in April

Segment Highlights

(23%)3%Total

0%

0%

(23%)

Gross Margin

0%

0%

3%

Revenue

Currency (Net)


Volume/Price/Mix

% Change Comparison

19


Second Quarter Segment HighlightsEurope & Africa Generation1

($ Millions)

Second Quarter


%Change

$215 32%

60%

3,116%

$43

$31

Revenues $283

Gross Margin $69

IBTEE&MI $997

Europe & Africa Generation revenue increased by $68 million to $283 million, primarily due to an increase in capacity income, higher fuel pass-through revenues and higher volume at Kilroot of approximately $30 million, favorable foreign currency translation of approximately $17 million and higher rates of approximately $11 million at our businesses in Hungary and an increase in volume and prices of approximately $5 million at our businesses in Kazakhstan

Gross margin increased by $26 million to $69 million, primarily due to higher rates in Kazakhstan of approximately $13 million, higher rates and volume in Hungary of approximately $11 million and an increase in capacity income at Kilroot of approximately $9 million

IBTEE&MI increased by $966 million to $997 million, due primarily to the $908 million net gain on sale of its Northern Kazakhstan businesses combined with the improvement in gross margin

Segment Highlights

60%32%Total

5%

0%

55%

Gross Margin

8%

0%

24%

Revenue

Currency (Net)


Volume/Price/Mix

% Change Comparison

1. Includes CIS countries

20


Second Quarter Segment HighlightsEurope & Africa Utilities1

($ Millions)

Second Quarter


%Change

$157 24%

(5%)

(50%)

$21

$20

Revenues $195

Gross Margin $20

IBTEE&MI $10

Europe & Africa Utilities revenue increased by $38 million to $195 million, primarily due to increased tariff rates of approximately $17 million at our businesses in Ukraine, favorable foreign currency translation of $14 million and higher volume of $8 million at Sonel in Cameroon

Gross margin decreased by $1 million to $20 million, primarily due to increased fixed costs at Sonel of approximately $14 million, offset in part by higher volume at Sonel of approximately $12 million and higher rates of approximately $7 million in the Ukraine

IBTEE&MI decreased by $10 million to $10 million, primarily due to higher interest expense of approximately $5 million at Sonel as a result of a debt issuance in fourth quarter 2007

Segment Highlights

(5%)24%Total

10%

0%

(15%)

Gross Margin

10%

0%

14%

Revenue

Currency (Net)


Volume/Price/Mix

% Change Comparison

1. Includes CIS countries

21


Second Quarter Segment HighlightsAsia Generation1

($ Millions)

Second Quarter


%Change

$251 28%

(35%)

(169%)

$60

$36

Revenues $321

Gross Margin $39

IBTEE&MI ($25)

Asia Generation revenue increased by $70 million to $321 million, primarily due to higher rates at both Pak Gen and Lal Pir of approximately $35 million and $27 million respectively, as well as the addition of Masinloc in the Philippines of approximately $36 million, offset in part by lower volumes at Kelanitissa of approximately $15 million due to a decrease in demand from the off-taker and lower volume at Lal Pir and Pak Gen of approximately $5 million each

Gross margin decreased by $21 million to $39 million, primarily due to higher fuel costs not fully passed-through to the tariff at Lal Pir, Pak Gen and Chigen and lower rates at Ras Laffan of approximately $11 million, combined with the impact associated with unplanned outages of $3 million at Ras Laffan

IBTEE&MI decreased by $61 million due primarily to the decline in gross margin and approximately $30 million of foreign currency transaction losses at Masinloc

Segment Highlights

(35%)28%Total

2%

(5%)

(32%)

Gross Margin

(4%)

14%

18%

Revenue

Currency (Net)


Volume/Price/Mix

% Change Comparison

1. Includes the Middle East

22


Reconciliation of Second Quarter Adjusted Earnings per Share1

Second Quarter

2008

Diluted EPS from Continuing Operations $1.31 $0.42

(0.08)

(0.01)

(1.30)

0.25

$0.17 $0.41

2007 (Restated)

FAS 133 Mark to Market (Gains)/Losses (0.01)

Currency Transaction (Gains)/Losses (0.01)

Net Asset (Gains)/Losses and Impairments 0.01

Debt Retirement (Gains)/Losses -

Adjusted Earnings per Share1

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

23


Reconciliation of Second Quarter YTD Adjusted Earnings per Share1

Year-to-Date

2008

Diluted EPS from Continuing Operations $1.65 $0.59

(0.08)

-

(1.26)

0.25

$0.56 $0.66

2007 (Restated)

FAS 133 Mark to Market (Gains)/Losses 0.01

Currency Transaction (Gains)/Losses -

Net Asset (Gains)/Losses and Impairments 0.06

Debt Retirement (Gains)/Losses -

Adjusted Earnings per Share1


24


Reconciliation of Second Quarter Cash Flow Items($ Millions)

Second Quarter

2008

Capital Expenditures$185

609

$794 $644

2007 (Restated)

Maintenance Capital Expenditures $307

Growth Capital Expenditures 337

Capital Expenditures

$207$135

Reconciliation of Free Cash Flow

185

$320

2008

Second Quarter

Free Cash Flow1

307Less: Maintenance Capital Expenditures

$514Net Cash from Operating Activities

2007 (Restated)


25


Reconciliation of Second Quarter YTD Cash Flow Items($ Millions)

Year-to-Date

2008

Capital Expenditures$364

1,072

$1,436 $1,124

2007 (Restated)

Maintenance Capital Expenditures $511

Growth Capital Expenditures 613

Capital Expenditures

$603$427

Reconciliation of Free Cash Flow

364

$791

2008

Year-to-Date

Free Cash Flow1

511Less: Maintenance Capital Expenditures

$1,114Net Cash from Operating Activities

2007 (Restated)


26


Reconciliation of Subsidiary Distributionsand Parent Liquidity($ Millions)

Quarter Ended

June 30, 2008

Mar. 31, 2008

Dec. 31, 2007

Sept. 30, 2007

Total Subsidiary Distributions 269 221 343 361

Total Return of Capital Distributions 81 1 21 35

Total Subsidiary Distributions & Returns of Capital to Parent 350 222 364 396

1,5152,1531,5231,510Ending Liquidity

896838786815Availability Under Revolver

6191,315737695Cash at Parent & QHCs1,2

Sept. 30, 2007

Dec. 31, 2007

Mar. 31, 2008

June 30, 2008Parent Company Liquidity1

Balance as of

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

27


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 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.

28


DefinitionsNon-GAAP Financial Measures

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 change.Free 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 retainedearnings 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

Subsidiary Distributions

Economy & Finance

AES 2Q 08 Review