This summary is based on the third quarter fiscal 2006 earnings call conducted by The AES Corp. (AES: chart) on November 06, 2006.

Key Investors Issues

- EPS were 52 cents compared to 37 cents a year ago.
- Revenue grew 14% to $3.2 billion from $2.8 billion during the same period a year ago.
- Fiscal 2006 EPS from continuing operations is anticipated to be $1.05.

Third Quarter Highlights

Revenue grew 14% to $3.2 billion from $2.8 billion a year ago.

The revenue of 2% was attributable to favorable currency impacts and another 2% to the full consolidation of Itabo and the contribution of Buffalo Gap 1. Sales of excess emission allowances, which have been an important driver of results in other quarters, totaled just $5 million, which was $3 million more than the third quarter of 2005. This is lower than the $73 million of sales recorded in the first half of 2006, which were largely in the US and above current price levels.

Gross margin increased 9% in the quarter led by favorable demand, the contribution of Itabo, and foreign currency translation in Brazil.

As a percentage of revenue, gross margin did decline 160 basis points, which was primarily due to higher fuel and maintenance costs at some businesses.

G&A costs increased $17 million in the quarter to $66 million.

This was primarily due to a higher level of business development activity and increased corporate staffing, largely related to strengthening the finance infrastructure.

Net interest income increased 5% in the quarter, reflecting higher market-to-market impact of interest rate derivatives, partially offset by lower debt balances.

Debt reduction at existing businesses is somewhat offset as new investment projects like those in Spain and Bulgaria draw down on project financing to fund their construction. These figures do not yet reflect the October repayment of $568 million of US dollar denominated debt principal in Brazil in connection with the restructuring there.

- The company recorded a $537 million loss on the sale of subsidiary stock as the result of the write-off of previously deferred currency translation losses related to the Brasiliana Holding company restructuring.
- AES recognized an $18 million hedge loss related to repayment of holding company debt, which was recorded in foreign currency transaction losses.
- It recognized the $121 million of income tax benefit related to Brazilian tax of Eletropaulo shares and the release of valuation deferred tax asset.
- It recognized $66 million in additional minority interest expense.

In total, the restructuring resulted in a $500 million after-tax non-cash charge to net income in the third quarter. AES''s net economic ownership in Eletropaulo has reduced by roughly half, but given that the share of sale occurred late in the quarter, it had a negligible impact on recurring earnings. Excluding the effects of the Brasiliana restructuring and a $20 million return to accrual adjustment due to the recent identification and correction of an error on the 2004 tax return, the effective tax rate was 36%, which is the same as it was in the third quarter last year.

Minority interest expense, net of tax, increased $115 million from the prior period to $212 million.

Aside from the $66 million in incremental expense related to the Brasiliana restructuring, the increase is primarily due to higher after-tax earnings in Brazil. Weighted average shares outstanding were flat in the third quarter compared to the second quarter and were up from the prior year period, primarily due to compensation-related share issuances. Diluted shares declined versus the prior year period because stock options and restricted stock did not have dilutive impact in the current quarter.

The company reported a diluted loss from continuing operations per share of 54 cents versus earnings per share of 32 cents in the third quarter of 2005.

The current quarter results include $500 million in after-tax non-cash charges related to the restructuring, which had a 76 cents dilutive loss per share impact. Setting aside the restructuring impact, the quarter over quarter numbers reflect strong operating results offset by higher income taxes related to the return to accrual adjustment, higher G&A expense, and several accrual related adjustments such as increased reserves for labor contingencies in Brazil.

Earnings per share were 34 cents and include 7 cents of earnings per share favorable impact primarily from the tax benefits of the Brasiliana restructuring.

EPS definition does not include asset sale impacts, but not impacts related to subsidiary refinancing. Adjusted earnings per share were 31 cents in the third quarter of 2005. Overall, it is estimated that foreign currency translation had a 3 cents unfavorable impact on both diluted EPS from continuing operations and adjusted EPS.