愛依斯電力 (AES) 2005 Q2 法說會逐字稿

Good morning, ladies and gentlemen. My name is Lawrence and I will be your conference facilitator today. At this time, I would like to welcome everyone to the AES financial review for the second and third quarter results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (Operator Instructions). Thank you. It is now my pleasure to turn the floor over to your host, Mr. Scott Cunningham. Sir, you may begin your conference.

Thank you very much and good morning everyone. Joining me today as additional speakers are of course Paul Hanrahan, President and CEO, and Barry Sharp, Chief Financial Officer. The financial statements and press release we will refer to, as well as the presentation materials we have made available, are available on our website at AES.com.

In addition to our normal financial review presentation, we have also updated an AES investor presentation reflecting both our business model and growth strategies. Our comments today will refer to pages in the financial review presentation only.

As described on page 2 of the presentation, certain statements regarding AES business operations may constitute forward-looking statements as defined by the SEC. Such statements are not historical facts, but are predictions about the future which inherently involve risks and uncertainties. These risks and uncertainties could cause our actual results to differ from those contained in the forward-looking statements.

In addition, AES disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date hereof. We urge investors to read our descriptions and discussions of these risks that are contained under the section Cautionary Statements and Risk Factors in the Company's 2004 annual report Form 10-K amended, as well as other SEC filings.

Also, please note that this teleconference is being held during our formal quiet period for fourth quarter and full-year results. We have provided updated financial guidance for the full-year and provided related disclosure in our other documents, but we will otherwise not comment any further on the fourth quarter. In our formal remarks, I will cover the financial highlights year-to-date, updated financial guidance and our new segment reporting format. Barry is then going to provide his usual quarterly results review in a somewhat abbreviated format and a restatement perspective. Paul will then talk about his views on the state of the business.

Please turn to Page 3 of the presentation. We were certainly pleased with the strong financial results for the first nine months of the year. Revenues were up 17% to a record $8.1 billion and up 10% on a constant currency basis. Gross margin increased 8% to 2.25 billion, reflecting good growth despite a second quarter receivables reserve that Barry will discuss.

Nine month income from continuing operations was $453 million or $0.68 per diluted share. This compares favorably to the restated diluted EPS of 231 million or $0.36 a share in the first nine months of last year. Cash flow also continued to be strong, increasing 31% to almost 1.5 billion in line with our full-year guidance. Free cash flow, a non-GAAP measure we define as net cash from operating activities less the maintenance capital components of property additions, was 957 million, up 27% from the same period in 2004.

On page 4 of the presentation, we show our adjusted EPS reconciliation. Adjusted EPS for the first nine months was $0.64. The principal difference from diluted EPS related to foreign currency transaction gains, largely in Brazil. Included in the nine months results as recorded and on an adjusted EPS basis, are favorable impacts related to the Eletropaulo tariff adjustment announced in July. As many of you know, this tariff adjustment favorably resolved certain asset-based issues left open from the 2003 tariff revision. This represents 1.5% of the overall 6.4% increase in the tariff that was approved, which also includes separate tax recovery provisions.

The accounting treatment is presented in detail in our first quarter amended 10-Q. Under U.S. GAAP, we recognize that portion of the tariff increase which relates to prior periods in the first period of the year being reported, which was the first quarter of 2005. This is not a restatement item, but it was included in our amended first quarter 10-Q and as reflected in the year-to-date results.

The adjustment covers a recovery of certain prior periods, operating costs, and the inclusion of the increased asset-based returns from July 2003 through the first part of this year. The impact in the prior year and first quarter 2005 was about $0.01 a share and is reflected in the year-to-date results. The positive cash flow effects were prospective beginning in July. Barry will comment on the first quarter restatement impacts in his restatement remarks. Please turn to page 5.

We have increased our estimate of full-year diluted EPS from continuing operations to $0.85 from $0.76 per share previously. This reflects our strong year-to-date results, including the positive impact of foreign currency transaction gains. We have also reaffirmed our estimate of adjusted EPS of $0.83 a share.

We think it's important to note, however, that the updated guidance no longer includes any expected tariff contribution from EDC, our Venezuela utility. This, you may recall, was originally included in our guidance for the second half of the year. In addition, our updated guidance does include the cost of the restatement process of a couple of pennies a share.

As shown on page 6 of the presentation, we also reaffirmed our estimates of cash flow. This concludes subsidiary distributions of $993 million, with 68% expected to come from a combination of IPL and our worldwide contract generation portfolio. An updated profile of that guidance on [a new] reporting basis is on the following page. Nine-month year-to-date actual distributions are included in page 16.

If you go back to page 6, we continue to see consolidated operating cash flow of $1.9 to $2 billion and free cash flow in the 1.2 to 1.3 billion range. We achieved 254 million of our aggregate 600 million parent debt reduction target [in] 2005 and 2006. The balance is likely to be completed later this year than we originally planned. This simply anticipates some attractive new growth opportunities that could come to fruition, which may also draw on our free cash flow. There's nothing to do with expected 2006 parent cash flow and in no way reduces our commitment to improving credit quality and achieving our stated BB credit objectives this year.

We have also reaffirmed our longer-term financial guidance through 2008 for EPS growth, gross margin, and return on capital. We've been talking about this key hole in the underlying assumptions for these goals in our investor presentations for sometime. The update is included in the investor presentation I mentioned earlier that is available on our website.

Please remember these include the three key components. First, (technical difficulty) [face] EPS growth of 13 to 19%. We continue to see the same 2008 EPS range, which is $1.34 a share in the 19% gross scenario despite a slightly lower restated EPS base. Keep in mind this guidance has always been on a GAAP EPS base basis, not on adjusted EPS basis.

Second, we continue to expect 2008 gross margin in the 3.5 billion area compared to 2.8 billion in 2004. And finally, we continue to target return on invested capital of 11% in 2008 compared to 7.6% last year. We will provide comments on the 2006 outlook when we report fourth-quarter results in early March.

The last point I will cover is our new segment reporting. Please turn to page 8. Beginning in the second quarter, we revised our segment reporting in response to the new management structure announced in May. We did determine that one change in business segment reporting was appropriate -- to report a single regulated utilities segment rather than prior two segments, large utilities and growth distribution. This aligns with how we manage our business internally under one utility performance management system.

We have also revised our geographical reporting within our reportable segments to align with the regional management structure led by four regional presidents. The presentation shows the migration of the five former regions into the four new regions. Please turn to page 9 of the presentation and Barry will cover the financial review and the restatement.

Thanks, Scott. And good morning everyone. Before turning to the details, I certainly would like to mention that we appreciate your patience as investors as we went through and completed his restatement. Today, I will go through and cover some of the specifics of the second and third quarters and then turn to a summary of the restatement, so I will probably test your patience just a little bit more in that process.

Also with me here today, though, are the key leaders in the corporate finance group who along with their teams here and our finance professionals around the world really are responsible for successfully completing what has been a very significant effort for AES. So with that, with the turn to the second quarter first.

Second quarter revenues were a record 2.6 billion, increasing 18% with strong growth primarily results from higher electricity prices as well as demand growth, which together contributed 10% of the 18% growth. Foreign currency translation effects improved revenues by the remaining 8% year-over-year.

Gross margin declined 130 million in the second quarter to 526 million from the second quarter of 2004. This includes the 192 million Brazil receivable reserve that Scott mentioned. Absent the amount of that reserve in the second quarter of 2005, the gross margin would have increased 10% with gains across all segments. Gross margin as a percentage of sales fell -- [this] 19.7% from 29.0. This was largely due to the receivable reserve and higher fuel costs that were partially offset by the sale of excess emission allowances here in the U.S.

The receivable reserve of 192 million relates to certain [age] municipal receivables at both Eletropaulo and at Sul. Our subsidiaries are entitled to these amounts and are clearly taking all necessary steps to ensure recovery. However, this often involves a somewhat protracted legal process. Our second quarter financial statements had not yet been released at the time of our determination that it was necessary to provide this reserve for these potential uncollectible amounts, and therefore the reserve is reflected in the second quarter rather than in the third.

Of this total amount, the largest component relates to Eletropaulo and is the same reserve of approximately 346 million Reais that was previously announced by Eletropaulo locally in Brazil. The reserve coverage periods from 1996 to 2003 -- partially offsetting this in the quarter was a $70 million favorable reversal of a prior tax accrual recorded for us as other income. It was no longer required following expiration of the relevant statute of limitations in Brazil.

Interest expense increased 5 million in the second quarter due primarily to the negative effect of foreign currency translation that was partially offset by debt reductions. Interest income increased 23 million due to both higher short-term rates and higher cash balances across the portfolio. Other income and expense increased 66 million largely due to the $70 million Brazilian business tax reversal.

Income before tax and minority interest therefore decreased to 186 million, which was down 5 million from the prior year with comparisons affected by the Brazilian items that I mentioned as well as the favorable $46 million reduction in foreign currency transaction losses year-over-year. This is related principally to Brazil with lesser impacts Venezuela and Argentina, and these effects are largely excluded in our definition of pro forma EPS.

The income tax rate in the quarter was 44%. This was due primarily to higher U.S. taxes on distributions from and earnings of certain of our non-U.S. subs. An added factor was the treatment of unrealized foreign currency gains on the U.S. dollar held by some of those subsidiaries. These contributed to a higher rate [were] partially offset by the positive impact of a change in the effective tax rate in Puerto Rico.

2004's second quarter tax rate of approximately 9% reflects the book income tax benefit relating to a weakening Real, resulting in unrealized foreign currency losses. That's the reverse of the impact in the same quarter in 2005.

Second quarter diluted EPS from continuing operations therefore $0.13 per share compared to $0.16 per share last year. Adjusted EPS was $0.11 in the same 2005 period and 2005 amounts include the net $0.06 negative per-share reserve impact I mentioned earlier.

Our strong cash flow performance for the second quarter is summarized on page 10 of the presentation. Full consolidating cash flow schedules showing subsidiary and parent related cash flow information are included in the presentation appendix. And consolidated net cash flow from operating activity increased 55% to 329 million in the quarter.

Cash flow generated by the subsidiaries, excluding parent related cash costs, was 497 million. The strong growth reflects higher net income, favorable working capital comparisons, particularly in Brazil. Last year, cash flow comparisons were impacted by our Brazilian businesses paying some long dated payables, so this year we are seeing more of a normalized annual trend. Free cash flow, a non-GAAP measure which we define as operating cash flow less maintenance capital expenditures, also increased -- up 91% to 183 million in the quarter.

With that, I would like to view second quarter performance for each of our segments, starting with the regulated utilities group. Please turn to Page 11 of the presentation. Segment revenues increased 22% largely due to favorable currency translation effects and higher tariffs in Brazil. There was a more moderate increase at IPL due to recoveries from new environmental projects and fuel pass-through, with additional contributions from camera Cameroon and Argentina.

Revenue comparisons for Venezuela were hampered by the first quarter devaluation despite an 8% increase in demand. Demand growth was impacted at Eletropaulo by the migration of low margin industrial customers to the free market. These are generally lower margin accounts, so it has not significantly affected our gross margin in the financials. For the segment overall, volume and price together contributed approximately 8% to revenue growth in the quarter.

Foreign currency translation effects at the non-U.S. utilities contribute the remaining 14% of the revenue growth, primarily due to a strong Real. Segment gross margin declined to 114 million versus the prior year and gross margin as a percent of sales decreased from 24.3 to 8.2%.

Lower gross margin was largely driven by the receivable reserve, higher purchased electricity costs in Brazil, and cost inflation Venezuela. These amounts were partially mitigated by favorable revenue pricing and foreign currency translation, and excluding the impact of the Brazilian receivable charge gross margin as a percentage of sales would have been 21.9% for the quarter.

Turning to contract generation on page 12, segment revenues increased 14%. Foreign currency translation added approximately 2% to the revenues, with the remaining 12% driven largely from increased contract pricing at our facilities in Brazil and Chile, primarily related to energy cost escalation and full cycle operation in Qatar versus simple cycle last year. This is partially offset by the scheduled contract capacity price decline in Shady Point in Oklahoma.

Segment gross margin increased 9% to 353 million, due primarily to higher pricing in Chile and at Tiete in Brazil as well as higher production volumes in Qatar in Chile. Gross margin comparisons as a percent of sales fell to 35.7% from 37.4% last year, as the strong revenue growth trailed recoveries of the higher cost of fuel and purchased electricity in Chile resulting from Argentina's continued restrictions on natural gas exports.

An important second quarter development was the new electricity law passed in Chile. Since June, the regulated energy price increased by more than 40%, although it recently decreased to a net 30% increase as a result of indexation principally related to the December pullback in international oil prices. This price increase largely mitigated the financial impacts of the seasonal gas restrictions from Argentina that began in the third quarter. The gas restrictions adversely affected our business overall in Latin America by about $0.02 per share in the second quarter, and the Chilean law change [and no] price increases also do provide structural foundations for some potential new investments in Chile that Paul will discuss in a little bit.

Please turn to Page 13. In the competitive supply segment representing generation plants operating under short to medium-term contracts, revenues increased 15% with 14% increased excluding the impacts of foreign currency. Sales of excess environmental emission allowances in the U.S. were the principal reason for the increase, partially offset by a planned maintenance salvage at one of the U.S. plants.

The emission credit sales totaled 27 million, primarily related to AES Eastern Energy in New York. The credit sales also help offset the lower forecasted capacity factors of our coal plants -- of two of our coal plants, and now are very much a part of our overall coal-fired competitive supply business economics in the U.S.

More broadly, AES expects to continue to benefit from its investment in advanced air pollution control equipment at many of our coal plants, and we expect to continue to [modify] the value of some of those excess credits as it relates to our expected dispatch in future years.

Gross margin increased 11% due primarily to the allowance sales, partially offset by higher fuel prices in Hungary. The U.S. gross margin as a percentage of sales fell about 70 basis points to 20.7% due to higher fuel prices, some of which were hedged and partially offset by the emission allowance sale.

Let's now go to the third quarter highlights, starting on page 14. Third quarter revenues also set a record at 2.78 billion for the quarter, up 15%. Higher electricity prices in our competitive supply segments accounted for a portion of the increase, with favorable impacts of foreign currency translation contributing approximately 5% to the 15% growth.

Gross margin increased 22% to 899 million with gains in all segments. Gross margin as a percent of sales increased to 32.3 from 30.4% due to the higher pricing. SG&A increased 9 million, primarily reflecting the cost of the restatement process as well as general overall cost inflation. Interest expense fell 28 million. Debt reduction and lower derivative-related impacts were partially offset by higher interest rates and strong foreign currency translation effects.

Interest income increased significantly to 97 million from 52 million last year, again due to both higher balances combined with higher short-term rates. The effective tax rate for the quarter was 30% versus 51% in the prior year. The third quarter 2005 rate was impacted by a 41 million or $0.06 per share Argentine tax reserve reversal. This relates to the anticipated recovery of net operating losses subsequent to the tariff increases approved for two of our Argentine utilities (technical difficulty) [the payment of debt] that was done in the third quarter.

This was partially offset by increased tax expense related to increased earnings and distributions from our international businesses and the impact of unrealized foreign currency gains on U.S. dollar debt held in some of our Latin American businesses.

Overall income from continuing operations was strong at 244 million or $0.37 per diluted share, including that favorable $0.06 tax adjustment. Last year's third quarter restated income from continuing operations was 86 million or $0.13 per diluted share. Third-quarter 2005 adjusted EPS was $0.35 compared to $0.14 per share last year.

Cash flow also remained strong in the quarter as shown on page 15. Third-quarter consolidated net cash from operating activities, which includes parent Company costs and interest expense, increased 24% to 619 million. Cash flow generated by the subsidiaries was 728 million and free cash flow was 380 million for the quarter, up 10 million from the prior year reflecting a $110 million increase in maintenance capital expenditures year-over-year.

Parent liquidity also remained strong that 436 million at the end of the quarter, well in excess of our operating requirements. We increased our corporate credit facility by 200 million in September to 650 million, which we continue to use primarily for letter of credit support. We are also benefiting from the lower pricing in our credit facilities we obtained in June, saving 50 basis points on our $200 million term loan and 75 basis points on our credit facility.

In the second and third quarters, we redeemed $254 million in parent debt as part of our target of 600 million in parent debt reduction in 2005 and 2006. Page 16 shows nine-month subsidiary distributions of 639 million on a segment and regional basis, and we continue to demonstrate the benefit of portfolio diversification which is reflected in our updated full-year guidance.

With that, I would like to review third-quarter performance highlights for each of our segments, again starting with the regulated utility. Revenues increased 12% in the regulated utility segment. The increase in revenue is attributable to the impact of favorable foreign currency translation largely in Brazil, which contributed 14% to revenue growth. Warm weather also helped IPL in the quarter, where retail demand increased 8% on a 57% increase in cooling degree days as did recoveries related to their air emission compliance program.

Segment gross margin increased 13% to 340 million due largely to favorable currency translation impact, higher prices and favorable demand trends. Gross margin as a percent of sales was slightly higher at 24.2%. In addition to the Eletropaulo adjustment I discussed earlier, we were also encouraged by recent tariff decisions in Argentina.

We received the first tariff increase for our Edelap utility following the tariff freeze that has been in place for several years. The increase, which received final governmental approval on July 15, provides for a transition distribution value added, or DBA, adjustment which started in August 2005, of a 28% increase for nonresidential customers, with plans for a further increase in 2006.

Edelap was the first national public service company to receive a tariff increase this year. We also received an average 19% DBA adjustment for our other two Argentine utilities, which operate under provincial rather than federal regulations also effective in the third quarter. This was the event that resulted in the favorable tax impact during the third quarter that I mentioned earlier.

Also, as Scott mentioned, we have not included in the impact from our Venezuelan tariff increase in our updated guidance. We continue to make our case to the Venezuelan government for the need for a tariff increase, and we believe that some relief will be forthcoming in 2006. At the same time, we can understand investors taking conservative stance on tariff increases in their earnings models for the foreseeable future.

Our business team there is managing costs very aggressively to help mitigate the absence of tariff relief, and favorable hydrology has let us purchase significant quantities of hydroelectric power at a lower cost than self-generated electricity. In the meantime, we continue to see demand growth in Venezuela with a 6% increase during the third quarter. Please turn to Page 18 of the presentation.

Contract generation segment revenues increased 15%. Estimated impacts of favorable foreign currency translation added 1% to revenues, with the remaining 14% driven largely in the contractual pass-through of higher energy costs as well as our Chilean generation tariff increase. The scheduled contract price adjustment at Shady Point in the U.S. continues to partially offset these gains.

Segment gross margin increased 22% primarily due to higher pricing in Brazil and Chile, partially offset by the Shady Point contract price adjustment, and the financial effects of the failure of utility transmission line used by our Thames plant in Connecticut. Gross margin as a percent of sales increased 240 basis points to 43.3%, reflecting improved pricing in Latin America.

As shown on page 19, the competitive supply revenues increased 25% or 23% including foreign currency. This largely reflected higher prices and increased dispatch and Argentina, where we're seeing strong economic growth and favorable coal-fired economics, as well as higher average energy prices at the New York plant due to energy price increases as result of increasing fuel prices.

Gross margin increased 66% due primarily to higher average pricing in the U.S. and Argentina, only partially offset by higher fuel costs. Gross margin increased sharply to 32.1 from 24.2% in the prior year quarter. Overall, we feel very good about our year-to-date performance. The restatement process, while time-consuming, did not affect our business' ability to meet customer needs and deliver the financial performance we expected so far in 2005.

With that, allow me to finish with a few comments and a summary of the effects of our statement. We have provided a detailed summary in the press release and the supporting schedules, and more complete disclosure in the amended 2004 10-KA on pages 41 to 49 as well as in the footnotes to the financial statements. In the presentation appendix and press release we provided schedules highlighting the primary line item impact for the restatement changes.

The need to restate came about as a result of our remediation efforts to fix a material weakness we had identified and reported at the end of 2004 regarding accounting for deferred taxes in some of our international businesses. During the second quarter of 2005, with assistance from an international accounting firm, we embarked upon a Company-wide process to review our historical deferred tax calculations and perform more detailed reconciliations within our businesses, both foreign and domestic. By the end of July, we began to understand that we had historical errors which would give rise to a restatement.

At this point, before discussing the specific items, I would like step back for just a minute and outline the overall nature of the effects under deferred tax accounting as best as I can to provide a context for our specifics. For those of you on the call who have a full understanding of deferred tax accounting, I'm sorry for the diversion. But at least for me, it is a complex area and my perception is that it is not generally well understood. My perception, though, is really based only my own informal polling.

Deferred taxes arise on our balance sheet because we are reporting and calculating our financial results and income tax expense to investors under one set of principles and rules for financial reporting purposes. That is U.S. GAAP in AES' case. And then we file tax returns and openly pay income taxes under several other sets of rules or laws, each specific to an individual country, and in some places like the U.S., also individual states.

Thus, we need to reflect in our U.S. GAAP income tax expense calculation, that information based on pre-tax results of our operations under the U.S. GAAP set of rules while also reflecting the timing, or deferral, and the [exclusion] or exclusion of some of the components of income that will differ under the various tax laws in the jurisdictions we file tax returns in. Therefore, you read an MD&A in footnotes about temporary or permanent differences.

Temporary differences created deferred tax assets, effectively prepaid taxes for future U.S. GAAP expense, or deferred tax liabilities that are future tax payments to for currently recorded U.S. GAAP expense. Permanent differences are items that do not have overlapping U.S. GAAP and local tax treatments, such as nondeductible expenses, to create expense for U.S. GAAP reporting purposes but don't create tax deductions under the laws of a local country. These items are reflected as changes in the current year income tax rate on U.S. GAAP income.

The balance sheet assets and liabilities for deferred income taxes can also be significantly affected through acquisitions of companies or assets that happen at a tax basis amount that differ from the actual purchase price paid, or booked cost. This can give rise to significant deferred tax asset and liability positions on the first day of an acquisition that must be reflected on the U.S. GAAP balance sheet.

In fact, and to be specific, the most significant adjustments in our restatement resulted from a complex interpretation regarding the appropriate treatment of under U.S. GAAP surrounding the acquisition of our business in EDC in 2000. This interpretation revolved around how to reflect for U.S. GAAP the tax basis of EDC's fixed assets and equity purchased by AES.

The difficulty in interpretation arose because Venezuelan tax law actually provides for an escalation of income tax basis for local inflation, obviously not a part of U.S. GAAP, that provides for increasing deductions under local tax rules and an increased layer of beneficial income tax basis or future deductions that had to be valued for U.S. GAAP on the purchase date. Under U.S. GAAP acquisition accounting, we have now determined that this additional basis representing approximately 668 million of the value of the purchase at the original date should have been reflected as a deferred tax asset.

Our original accounting conclusions at the time allocated that amount of purchase price to fixed assets. So effectively, under this restatement, we reclassified 668 million in 2000 related to EDC from fixed assets to deferred tax assets, with no P&L effect on the date of the purchase in June of the year. However, the classification of those assets have different impacts on the financial reporting income statement as they move forward from the purchase date.

Originally the 668 million as a component of fixed assets was depreciated straight line over the estimated lives of those assets, on average between 20 and 30 years, and was therefore reflected as depreciation expense calculated each year. The reduction of the fixed asset has therefore caused us to show reductions in depreciation expense under the restatement over the period beginning in June 2000.

On the other hand, the deferred tax asset is in Venezuelan Bolivars, and now replaces a fixed asset balance in a way that's considered a monetary asset under the provisions of U.S. GAAP, and therefore is adjusted according to the foreign currency re-measurement and translation impacts under U.S. GAAP. As the Bolivar has devalued significantly over the several years since acquisition, the value of that asset has now reduced much more rapidly from the balance sheet through the income statement -- much more rapidly than its thirty-year fixed asset depreciation. And is now reflected through increased -- through an increase in the calculation of foreign currency transaction losses as a part of the restated results.

You'll therefore see that our foreign currency transaction losses have increased significantly for some years under the restatement due to the devaluation of that asset. The value of the remaining deferred asset, which started at 668 million, is now at the end of Q2 has been reduced to approximately $100 million on our balance sheet. So you can see that the net effect of the decreased depreciation expense to date is nowhere near as significant as the increased devaluation expense that has reduced the value of that deferred tax asset, thus generating a significant reduction in net income over the cumulative period in our restatement, calculated as I just mentioned.

I'm sorry for spending probably too much time explaining that one item, but I feel it's an important component of the restatement not only because of its numerical magnitude, but also because it highlights the various and significant mathematical impacts that can result from calculations embedded in the U.S. GAAP accounting rules. Even though such calculations have no real impact on the actual amount of income tax payments we make for cash flow purposes in the U.S. and around the world, as such our reported GAAP results have been adjusted. But there is no significant impact on our cash tax payments or our anticipated cash tax payments in the future.

It is also important to note as discussed in the footnotes, we currently have a net operating loss carryforward position for U.S. tax purposes of approximately $1.9 billion of the end of 2004 and an additional non-U.S. net operating loss carryforward of $2.9 billion. I won't thrill you with similar full details on the other items included in our restatement, as they are described in full in our 10-KA, where again we would point you to the restatement descriptions on pages 41 to 49.

Overall then, the previous errors that we identified fell into three major income tax related categories. First, the calculation of deferred income taxes related to fair market value adjustments arising upon acquisition of certain subsidiaries prior to 2002. The EDC example I just covered is the primary component of that group.

Second, the translation of deferred income taxes in some of our foreign subsidiaries whose functional currencies are maintained in U.S. dollars. And third, the identification of other income tax related adjustments arising from a complete and thorough review of previously filed income tax returns and the effect thereof around the world.

The effect of the tax adjustments largely impacted income tax accounts including deferred taxes, but also impacted other accounts like fixed assets and goodwill in situations where the tax balances were not recorded correctly on the acquisition balance sheet. In general, income statement adjustments impacted depreciation and amortization due to the change in fixed assets or goodwill and related adjustments to goodwill impairment expense for those entities where the goodwill arising from acquisition was subsequently impaired or written off.

Currency transaction gains and losses on deferred taxes which arise in foreign entities where the U.S. dollar is a functional currency thus requiring us to record currency adjustments to the income statement. And then income tax expense adjustments that reflect the impact of our overall reconciliation work.

During the review process, arising from our assessment of items requiring restatement and looking back several years, we identified certain other errors which did not relate to taxes but which required restating. The most significant were the correction of currency translation related to the balance sheet of our subsidiary in Cameroon and other purchase accounting corrections, the recording of a non income tax liability at one of our Brazilian holding companies which was inadvertently recorded in our Brazilian GAAP books but not in our U.S. GAAP financial statements.

The correction of the impact of inflation on interest expense at one of our Brazilian distribution companies, recording of revenue deferral for our Brazilian distribution companies related to tariff collections for certain future energy efficiency expenditures and along with the reclassifications of certain balance sheet amounts from cash to short-term investments for certain subsidiaries, most notably TSA in Brazil.

A reclassification of balance sheet accounts -- amounts from currency translation adjustments related to the correction of the consolidation in investment elimination process. And finally, recording currency translation related to certain intercompany loans denominated in currencies other than the entity's functional currency.

The restatement and process included the years 2004 through 2000 -- excuse me, 2000 through 2004 as reflected in our 2004 Form 10-K amendment and the first quarter of 2005 as reflected in our amended first quarter 10-Q. As we mentioned in our earlier release, the restatement did not have a material impact on revenues nor did affect the cash flows of the businesses, and there were no material changes in those [factors].

The most significant cumulative impacts, as you can see in the slides, our press release schedules and in our filings, were below gross margin and result from adjustments to income tax expense, additional foreign currency transaction losses due to the translation of local currency income tax balances, and certain U.S. dollar functional currency subsidiaries such as EDC, and higher goodwill impairment associated with the correction of acquisition-related deferred tax liability and goodwill balances.

The factors vary in different periods in part due to the changes in foreign currency rates. Some of this impact as reflected in foreign currency transaction losses is reduced through our calculation of adjusted earnings per share, although not the changes in tax expense itself associated with changes in foreign currency rates.

As a result of our evaluation of the errors, we have concluded that all errors were inadvertent and unintentional. And certain cases, they involved very complex and technical accounting interpretations which generally require significant judgments to be made under the rules. These complex areas of accounting included the application of FAS 109 which relates to accounting for income taxes, and FAS 52, which relates to foreign currency translation.

Unfortunately, a few of our many original judgments, interpretations, and resulting conclusions under the accounting rules turned out to be wrong in retrospect. There were certain other historical errors that can be attributed to a lack of financial resources and data collection processes during a time of rapid growth in the Company, and to a certain extent not enough U.S. GAAP knowledgeable accounting professionals in our early acquisition days.

For most of these businesses, the acquisition by AES became their first exposure to U.S. GAAP accounting. We continue to strengthen our tax and accounting teams, both at our businesses and at corporate while we have also implemented additional controls, procedures, and systems enhancements over the past several years. And we continue to focus on enhancing the effectiveness of these controls in the future.

As a result of the adjustments from the restatement work, we have also identified corresponding material weaknesses that are reported under our 404 disclosures. We have identified the material weaknesses related to income taxes previously. The details are in both the press release and our SEC filings. I do want to highlight that the Company takes these findings very seriously. I believe the amount of work we have undertaken in completing the restatement process to identify the issues and put action plans in place, together with a significantly stronger financial organization we have put in place over the last few years will help us completely required work process corrections and demonstrate that our controls are working effectively.

I know a lot of you have wondered why all of this took so long. Candidly, it took longer far longer than any of us probably originally thought, especially with the complexity surrounding most of our tax and accounting work going back a number of years, the timing of which I underestimated last fall we thought we'd be done in September. We are truly grateful for your endurance and patience while we got this done well.

Also, as you can imagine, this is not an easy process for a Company and a team of people to go through, but I'm extremely honored to have been a part of a finance team of very talented and dedicated people here in Arlington and around the world who all made sure we got this done well. I cannot say enough about their dedication and professionalism. The Board of Directors and the audit committee have also played an important role, as well as they have been actively involved in guiding our approach and commitment to a solid result. Overall from my personal viewpoint, AES is in very good hands. I will turn the call over to Paul.

Thanks, Barry. I would just like to make one comment with regard to our restated financials. Barry's walked you through the details of the restatement. But the one point I want to stress is that our view of the fundamental value of our Company has not changed. As Barry mentioned, the underlying cash flows of our business in the past have not changed. Our cash flows continued to be strong this year. Our view of future cash flows has not been affected.

As we at AES focus as much on cash flows as much as any other financial metrics we make and evaluate our investment decisions, this is important to emphasize.

Today is a noteworthy date for AES, as this is Barry's last earnings call before he steps down as our CFO. I would just like to take this opportunity to thank him for 20 years of dedicated and successful service. I personally have the highest regard for his professional capabilities, his unquestioned integrity and his commitment to do the best in whatever challenges he assumed at AES. His contributions went well beyond the finance function at AES, and Barry was instrumental in our turnaround in 2002 and many of the improvements that have been made since then. Thank you Barry.

Thanks, Paul.

And as we announced this morning, Victoria Harker will be joining us as our new CFO. Victoria was most recently Senior Vice President and Treasurer of MCI. Victoria brings a strong set of skills and professional capabilities to our group and we're very pleased to have her as part of our team. She will be assuming the duties of CFO beginning on Monday.

[Now I will] turn for a few minutes to comment on our growth prospects. Looking forward, I'm quite encouraged about the progress we're making around the world in terms of rebuilding our development pipeline. As we have discussed in the past, we segment new growth opportunities into four categories -- green field, new field, privatizations, M&A opportunities, and platform expansions which are opportunities which allow us to build off of our existing platforms. We haven't had a chance to review these with you recently so I'll now provide a brief overview.

Let me first start with two green field opportunities. First is our Maritza project in Bulgaria, a country which is in the process of joining the European Union. This is a $1.4 billion, 670 MW lignite-fired power plant supported by a 15 year power purchase agreement with the national utility in Bulgaria.

Our debt financing commitments are in place for the non-recourse debt financing, and we're in the process of completing the conditions precedent associated with this financing. We expect to commence construction the first half of 2006 and the project will come on-line in two stages in 2009 and 2010.

The second new green field opportunity is in Asia, and it is in a much earlier stage of development. And [there's] also development of a 1000 MW coal-fired power plant Vietnam with the state-owned coal company as our partner and the state-owned utility as the (indiscernible) (technical difficulty) [maker] under a long-term PPA.

We also have several examples of platform expansions. Most of these involve lower levels of investment, but we're finding that they are generally quite economically attractive as we are leveraging off of our existing asset base in some cases, or leveraging our knowledge and expertise in certain markets.

As many of you know, AESGener is the second-largest generator in Chile today, where the market for electricity is growing at 6.5% per year. With the new electricity law in place which Barry referenced, the economic support grew long-term contract generation investment while helping a country diversify its fuel mix away from imported natural gas.

We recently commenced construction of a $37 million 120 MW diesel based peaking facility called the San Pedro project. It will receive capacity payments consistent with the Chilean tariff methodology. This project will be funded from cash that was not available for distribution from AESGener, and the plan is expected to be on-line by the end of this year.

In North America, we are also well along on a number of regional platform expansion opportunities, some of which also overlap with our efforts to improve the environmental performance of our plants. We're very encouraged by the position of our New York coal-fired fleet. We continue to look at investments that will offer more dispatch of these plants.

One example is our coal plant in Greenwich, New York where we have a $48 million [multi-fluorescent] control project that we will complete this year. It's supported by a $10 million Department of Energy funding and will extend the life of the plant by over 20 years, as well as radically improve the environmental performance of a 53-year-old 107 MW coal-fired power plant.

We also have another platform expansion underway with the first AES plant ever built, our 160 MW deep water petroleum coke-fired plants in Houston, Texas. We'll be a selective catalytic reduction or SCR, which is a control technology to reduce NOx emissions. We're doing this in order to meet the stringent NOx emission standards for the Houston/Galveston area. And as a result, we will be extending the life of solid fuel fired plants in a region where natural gas drives the [marginal] prices for power. We have commenced the engineering and expect completion by the fourth quarter of 2006.

With our statement restatement now completed and our development pipeline beginning to take shape, I'm quite encouraged about our ability to create value going forward both in terms of improving the performance of our existing assets as well as adding more to our fleet of businesses around the globe. We will have the opportunity to discuss our prospects in more detail when we report the final year-end numbers for 2005. Thanks for your attention. I will now open up the call for your questions. Lawrence, could you open up the call for Q&A please?

(OPERATOR INSTRUCTIONS). Craig Shere, Calyon Securities.

Congratulations on finishing the restatements and kudos to Barry for sticking it out through this rough patch. Probably not the most enjoyable last few days, but a great end to a long career there.

Thanks, Craig.

I got three quick questions. First, is there a plan now to have lower and shorter dated hedges on the coal plants in New York? Second, what kind of prospects -- Barry's comments didn't sound overly optimistic, but what kind of prospects do you all see for 2006 Venezuelan rate relief? And finally, on page 30 of your third quarter Q, you all say that you actually see total potential growth projects that may actually exceed available cash flow, which is actually not a bad problem to have. In prior guidance, you all had said if you had to access external capital for growth investment, you all were definitely looking at 20% plus compound EPS growth. Can you kind of give some color on that?

Sure, Craig. Let me take that last question first. And I will have David Gee who heads up our North American business talk about your first question, and Andres Gluski who heads up Latin America talk about the second one.

But with respect to growth projects, if we do have opportunities to exceed our internally generated cash flow, we're really going to look at what's best available source of funding of the time. And we look at all of the opportunities available, which could involve asset sales in some cases. We've seen a fairly frothy market for asset sales. That would be one possibility.

You have also -- we always look at the debt and equity markets and the opportunities there, as well as bringing on partners who in many cases are looking for the places to invest but for looking a Company like AES that has the operational capabilities. But I think in terms of our long-term guidance, I think that still stands as Scott mentioned, we think it's a combination of performance improvements which have been going well and been giving us good growth, as well as the new projects we're bringing on-line.

What that entails, I think it's difficult to say exactly how high earnings per share growth could be until we actually get those projects on-line. But I believe the range we gave was up to 21% with additional growth projects. So we basically said 13 to 19% growth, just from our existing assets. And it could go up another couple percentage points as a result of new opportunities. So that still looks good and promising and we do -- as I mentioned, we do see some good opportunities out there.

Let me now turn it over to David, who will talk about the hedging in New York.

Thank you, Paul. In New York, we have typically hedged about three years out. At the end of the third quarter, we were about two-thirds hedged for 2006 and about 25% for 2007 and 2008. Subsequent to then, we have increased the hedges a little bit because of the very attractive margins that we have seen as a result of the natural gas price run-ups with coal-fired fleet in New York. So we've got some more hedges that extend out through the 2009 period.

Great. Thank you.

Now Andres Gluski will discuss the situation in Venezuela.

Okay. Thanks, Paul. I think what's important is ADC is a Venezuelan company with 60,000 local shareholders as well. 110 years it has been operating in Venezuela. At present, what we had last year was offset for about half of the effect of not getting the distribution value added tariff increase. These offsets were by having cheaper fuel and cheaper energy.

Our efforts to get the tariff increase continue and we are optimistic that due to the high-level of service and reliability of ADC, we will get those tariff increases next year, part of those tariff increases next year.

Lasan Johong, RBC Capital Markets.

Good morning everyone. Barry, thanks for all your help for the last five years. I appreciate that and have a good retirement. A couple of quick questions. I think the EDC tariff increase was supposed to be about $0.02 earnings per share in 2006. Is that correct? I'm sorry, 2005.

This is Scott. We had said in the second half of the year there was about $0.02 sensitivity -- the second half of 2005, which as Barry alluded to, we have been able to absorb in the overall performance of the business, [impart] the improvements that Andres alluded to. So second half of 2005 is about $0.02.

So actually, the adjusted earnings per share on an equivalent guidance basis is $0.85, not $0.83 which is a $0.02 to increase?

This is Scott again. I think we would say our guidance reflects the underlying performance of the business as is. I think we're certainly pleased we were able to offset it.

Just for clarity, it's no longer guidance. We did not get the tariff increase in 2005, so it -- our guidance that we gave out of $0.83 reflects the actual -- the lack of tariff increase in 2005. And the real issue is what will we project in 2006? We'll let you know that as we provide the 2006 guidance when we provide the final year end numbers.

Okay. And also, in terms of NOLs, did I hear this correctly -- $1.9 billion of NOLs in foreign jurisdictions and 2.9 billion in the U.S.?

Opposite. It's 1.9 billion in the U.S. and 2.9 billion in foreign jurisdictions.

Okay. And in the past, AES talked about potentially selling some equity in either the Caracas exchange and/or the Sao Paolo exchange. Is that still a possibility?

Well I think, what we are looking at -- and you're right, we're looking at all the opportunities where we can raise other sources of funds. Many -- we have some public companies already -- the Eletropaulo, EDC is public, Gener is public. And we will always look at the opportunities to raise capital there where we think it's attractive in -- to some extent, we are advantaged as a Company in that we have multiple sources of ways to raise financings either locally, both debt and equity markets in some cases. We may look at expanding our ability to do that in the future. And it just does give us a number of different ways to look at raising capital where it's most beneficial.

Okay. And one last question. Given that [PuLka] is gone now, any chance that AES would look at making more utility acquisitions in the U.S.?

Yes, we talked about this in the past that we look at a number of utilities. We will continue to do that, but we have set some standards and limits in terms of what sorts of things we're willing to do. And I just -- a general comment, I think with the pricing of some of the utility companies we have seen, it does not look attractive to us. But we will continue to look for opportunities where we think it's the kind of thing that we would strategically benefit as a Company and also add some meaningful shareholder value if we were to do something like that.

Great. Thank you and much relieved to see that the financials are in good shape. Thank you.

Elizabeth Parrella, Merrill Lynch.

Thank you. A couple of questions. First, wondering if we could get a quick update on the construction status at Cartagena and Buffalo Gap.

Yes, Bill do want you talk about Buffalo Gap?

Sure. Thanks, Paul. Buffalo Gap is a 120 MW wind farm in Texas. It is substantially complete. We're working out of the final performance issues with the contractor and I think we expect it to come on-line either this quarter or in the second quarter of this year.

Yes, with Cartagena we will provide a little bit more detail in terms of the guidance there [as it closes] to the earnings projections, but my thinking right now, it's probably the middle of the year when we see Cartagena coming on-line. It's had a couple of months of delay related to getting the [gas] connections completed, that looks like it's about the middle of 2006.

Okay. And then on the financials, wondering if I could ask, just with respect to kind of the ongoing earnings impact of the restatement, you mentioned the sort of three key categories of depreciation, foreign currency gains and losses, and the income tax expense. And the Q1 2005 impact looked like it was about negative $0.02. Is it possible to talk about kind of how we should be thinking about the ongoing or permanent impact of earnings? Which I assume would be diminishing overtime as you mentioned in detail on the EDC, but that asset has been worked down pretty considerably, so it shouldn't be as much of a drag going forward, but it is impossible to talk about that?

Yes, in general, you hit the right points. The depreciation reduction is obviously something that just continues now through the life of EDC for us, so that continues to roll forward. On the tax side, in general I think what -- the effects will be kind of counterbalancing. In one effect, the tax expense will now have some more volatility associated with it quarter to quarter that adds because of the changes in foreign currency. Effectively, that volatility will be going opposite of the volatility that is in the gross margin. So it will tend to have a dampening effect at the net income line from a GAAP standpoint.

But that mostly depends on what happens in Brazil, Argentina, and Venezuela as you mentioned. So we don't really have a sensitivity number to give you at this point. If the currencies go this direction, everything goes in particular increments. But in general, it will tend to have a dampening effect of on an annualized basis in terms of net income. On a quarterly basis though, it will tend to have more of a dramatic impact as you have seen in some of the variances we've talked about, where rates have been as low as 9% and as high as 40 or so -- 45.

And [what] are we thinking about the sort of a consolidated effective tax rate going forward?

Well I think at this point we have not dramatically changed our expectations. The rate applying from our minority interest has gone up a little bit and will be more detailed when we get through the longer-term projections. But in general, we're probably looking as we have before in kind of the 36 to 38% range, but I would highlight that is probably less stable on a quarterly basis and will be a little harder frankly for us, and therefore you, to predict on a quarterly basis.

Yes, and then one other topic. You mentioned that you sold excess emission credits in the second quarter out of the Eastern Energy plant. And I think it was 27 million revenues. Can you talk about whether that all drops down to pre-tax income or those credits that you would have been allocated that had no basis, for example? And could you also talk a little bit more generally about the strategy there in terms of how much excess credit you have or -- and whether you sold current year credits or future year credits?

Yes, I will let David the cover the strategic elements. It does basically drop to the bottom line straight in. So --

Yes, these were allowances with no basis, so they do fall to the bottom line. We try and actively manage the allowance bank. I don't know which vintages specifically we sold in this year; I can't recall. But as you know, we've got a lot of control equipment on the fleet in New York. We put some of it in early and generated early reduction credits, which is part of what you're seeing. Paul talked about the Greenwich project that we're putting in. That will obviously create more allowances going forward. We closely monitor it.

We actually -- I think in looking at the scrubbing that we do, operate at something well in excess of benchmark levels of reduction that helps us generate. We also look at the market prices on a regular basis and sometimes the right answer is actually not run a unit and sell the allowances because you can make more money that way.

And so we view it -- the phrase they use up there is a business within a business, to try and optimize what's the right mix in terms of the running decision, the coal qualities to run, looking at the allowance and the sales that we have there. At today's high allowance prices, obviously that's been a factor that has impacted some of the operating decisions up there that we look at on a regular monthly or even sometimes weekly basis.

We do -- so the short answer is how much is depends a lot on the operations going forward and the relative market prices. But we do view them, as I said, as a business within a business that we should continue to see some revenue from going forward.

Thank you. And a special thanks and best wishes to Barry.

Thanks, Elizabeth. I appreciate that.

[Leslie Rich], [Columbian Management Group].

On your investor presentation, you talk about some potential expansion projects in Chile above and beyond the San Pedro project that you mentioned in your transcript, specifically two coal-fired plants with a 2009 startup. And I just wondered if you could you talk about your outlook for Chile and why that is an attractive place to invest $600 million.

Okay, Andres Gluski will answer that question.

The Chilean market is one of the markets with the best regulation in South America. Demand is growing about 6% plus per year. This basically means that they need about 500 MW of new installed capacity every year or every two years. We're very well positioned with coal plants in Chile, and given the relative pricing of coal gas and also the availability of natural gas from Argentina, we believe that we have expansion opportunities in places like [Nuevo Ventanas]. So we will be bidding for new contracts with the distribution company, and based on those contracts we see a nice opportunity to expand our existing coal facilities in Chile.

Okay, so you would move forward if you could secure a long-term contract?

That's correct.

And also, saw that you are thinking about an LNG facility in Maryland. Wondered if you could talk about your thoughts on that.

Sure. Bill Luraschi, who heads up our corporate development group, is working that LNG business. I will let him respond to that.

Sure. First off, that's an early stage green field development project for us in the LNG area. In general, our approach on LNG has a fairly specific focus. It's not exclusively U.S. focused, but it's predominately U.S. focused. And our approach is to try to be able to site and permit facilities that are market-based. In other words, not bring in LNG through the Gulf of Mexico, which is where it's predominately is coming from, because the infrastructure on the pipeline to get into the markets, particularly in the Northeast, hasn't been upgraded in about 20 to 25 years. And the capacity to get a large new supply is pretty limited from that respect.

It is difficult to permit those projects in the Northeast. We're trying one to access mid-Atlantic market in Baltimore. We're at the early stages of gauging local community support and beginning the initial consultations with the FERC, as well as we have a similar approach up in Boston, although that's even more early stage because our approach has the requirement of some local Massachusetts legislation that we need to get enacted first if they're in favor of that. I'm not sure; does that answer your question?

Yes. Thank you.

Brian Chin, Citigroup.

Just [taking] back one more on the question about excess emissions allowances, can you quantify how much excess emissions allowances you generate per year? And with the additional investment and equipment, how much might that change as we move forward through the remainder of the decade towards the [care of] phase 1?

I don't have those numbers and it really depends a lot on relative market prices of coal gas allowances in the operating decisions and the quality of the coal that we run going forward. It is a very difficult number to really know with any kind of precision.

What I will say is it's also affected by our putting these emission control technologies on the plants. The prices of the allowances are such that it is attractive to do this. And I think that's one of the things that's going into our investment decisions. To some extent, we can manufacture these allowances or excess allowances by investment decisions we make, and right now it's driving us to produce more.

[Michael Husee], [Buska & Rodgers].

I have three questions. I guess I'll ask them one at a time waiting for your answers. The first one is Paul, in the press release you say you are confident about the Company's ability to tap its unique skills in broad portfolio for, quote, resources of growth in renewable energy in other markets. Can you elaborate on what you are talking about there a little bit?

I think it's with our acquisition of SeaWest that brought into the Company a number of people who have been very successful in terms of developing wind energy projects, which we think in the current environment with just more demand, requirements for renewables, high fuel prices. Which when (technical difficulty) competes with it just becomes more competitive. And it's not just in the United States.

I was in China last month meeting with people in the electricity sector, and they are making a big push into renewables there. Legislation isn't there yet, but we believe they are moving towards requiring more renewables and encouraging more renewables. I think what we have as an advantage as a Company is the ability to take a product or product line of business and to (technical difficulty) [it's] right in the United States or some other place and roll it out across the globe.

We are seeing that when our SeaWest people can help our folks in China or in India or other locations come up with ways to apply those technologies in countries as those requirements are being put in place, [so] the opportunities arise. So that's really what I'm trying to get at is, I think we are uniquely positioned to be able to do that. There are not many people that can take a good idea from one country and very quickly transfer it to another part of the world and leverage that.

My second question is, you mentioned in your remarks and also in the investor presentation, that their company is now focused on rebuilding the development pipeline. That comment sort of implies that the development effort has been neglected perhaps for a while. I will say just from my perspective, it certainly seems like 2005 was a -- notwithstanding the restatement and all of that activity, it was a year of not a whole lot of news on the development front. Am I incorrect in that perception? And tell me how -- if I'm correct, how much did the development effort slip, qualitatively speaking?

Well, I think you are right in that our focus wasn't on new development. For the past few years, we have been focused as much on rebuilding the Company. And we were very much focused on deleveraging the Company, putting us into a position where we could grow the Company. We think we are there now.

In terms of the lack of news in 2005, there is a lot of development effort going on. And really, because I mentioned the four different categories we have, the longer one -- the one that takes a little more time is the green field development and you have got to build a pipeline to do that. To develop and permit a plant like the Bulgaria plant, that effort started in the late 1990s and it is now just going to be going into construction. Normally, they won't take that long, but they do take several years. But those are economically more attractive.

The other opportunities, the M&A opportunities, we looked at a number of those. Those are the ones that tend to be quicker additions to the fleet, but what we've found is that prices were too high in many cases. Returns were not adequate for the kinds of returns we want to generate for the Company. So we didn't do many of those, and I think that's as much attributed to the development folks who decided that look, we see better opportunities with our platform expansions and developing new green field activities. It's a better value proposition we think for us as a Company, for our shareholders, and that's why we focused on that.

So I think you will be seeing more efforts, but we will move them back and forth between where we think the best opportunities are, whether it be platform expansions, green field development. M&A activity could pick up depending on prices and levels of competition and where it's located. So I think it's just going to vary on the market dynamics. The thing that is I think an advantage of AES is that we are in so many different markets looking to a different kind of opportunities, that we do have the opportunity to take advantage of the kinds of opportunities that others might not see.

Okay, and lastly, you reiterated in your remarks and also on the investor presentation the 13 to 19% diluted recurring EPS goal off of the 2003 base. That guidance is frankly getting a little bit long in the tooth, and I'm wondering when we might be able to expect it to be updated a little bit.

That's a good comment, and will take that for action. I think we do need to update that, but we're not in a position to do it today.

Best of luck, Barry.

Thanks Mike.

[Brian Russo], [Broadwall Capital].

Could you highlight some of the growth projects that help support that implied 2008 EPS of $1.34? Then, any other projects that are being considered that we could consider incremental?

Well the -- remember the range of 13 to 19% was without adding any new growth opportunities. So -- and the number really would be without adding additional businesses. In terms of the -- I highlighted some of the ones that are ongoing right now and I think we will probably be able to do a little bit more on that in the next call. I just don't have that list in front of me.

There's a number of opportunities being pursued around the Company. I really just went through some of the ones that I think are more realistic. You might hear about more as we go forward, but we like it to take into a certain level of reality before we talk about it too much with investors.

Okay. Second question, are there any subsidiary refining -- refinancing opportunities in the near future? And how could we treat the non-recourse or subsidiary debt reduction naturally going forward?

I think there's been a number of refinancings that have been going on over the past several years. We just completed one in the Dominican Republic which was actually quite successful. It's something we are continuously doing to -- refinancing at better terms or in some cases, it might be refinancing of the subsidiary to reduce debt at the parent level. So that's probably a more likely model for us going forward.

But in some cases, what you're finding is that we have cash that we're not able to take out of the business [resulting in a case] like that where we used be trapped cash flow to pay down debt. Other cases, for example in Chile, we can't dividend out more than our net income and we can use the cash to do things like pay down debt. Or in the case of Gener, expansion opportunities -- we do have some good growth opportunities like the San Pedro project, like the other projects Andres discussed.

So I think you should see that number could move up or down. I think as a whole though, we expect the total debt number for the Company to be coming down. But if we had a preference, we would like to buy some more towards (technical difficulty) [adding] debt at the subsidiaries on a non-recourse basis and less at the parent.

Okay. My last question, you have a depreciation and amortization expense number for 2005? I'm sorry -- 2006?

No, we have not provided guidance on that number yet. But we will include that in our overall guidance later.

This is Scott Cunningham. We should probably take our last question.

Clark Orsky, KDP Investment Advisers.

Thanks. Just -- you talked about getting to BB sort of credit status. Can you remind us of kind of what that would look like at the parent level?

Yes, Chip, do want to cover that answer? Chip Hoagland, Treasurer.

Our target at the parent level is kind of a 5 -- a 4.75, 5 times debt to parent cash flow measure.

And I would take this down to about 4.5 billion of debt at the parent level.

4.5 to 4.8.

And our target is still to do that -- we talked about a $600 million debt pay down in 2005. I think if you noticed with the guidance, we've given ourselves a little bit more wiggle room and pushed it out through 2006. And it's primarily because we think that still the right answer. But in terms of the exact timing of doing it, we'll try to optimize that with the other opportunities that we see around the Company. But it's still an objective of ours to get the BB rating.

The other thing I would add to that is the coverage [is] debt and cash flow, and it's dependent on the cash flows of the business which [have] been strong and we continue to see those improving as we move forward. So reaching those thresholds is important. And obviously, we have a couple of levers, and the better we can do increasing our cash flow, that is also an important aspect of target. And we've seen better improvement in that than we expected, frankly, in the last couple of years.

Okay a couple others. One of the presentations today showed a parent free cash flow for 2005 of I think 350 million. Can you kind of walk through how you get there, some of the pieces?

Basically, it's cash flow from operating activities less maintenance capital expenditures, which for us are the kind of required capital expenditures around the Company. What we're excluding really from that are just the capital expenditures associated with buying or building new businesses, because generally we are out financing those with external financing. So we look at the maintenance capital as kind of the required ongoing capital cash cost of the Company. So it's just those two factors. And there is I think in the presentation kind of a reconciliation of how we arrive at that number from -- for all the quarters presented.

And this is Scott. The other part within the parent level, specifically we're trying to look at how much of the cash -- free cash flow that has been generated by the businesses ends up at the corporate level. The majority of the free cash flow, as the presentation shows, stays in the businesses which is the source of debt reduction locally for local growth opportunities. And we said the rough split is roughly 30%/70% parent versus subsidiary is as a rough guideline.

Right. And what about EDC in terms of distribution this year? Do you expect to get any?

Speaking of 2005?

I'm sorry, from 2005 and then kind of depending what happens with the tariffs in 2006.

Yes, for 2005 we've distributed about $100 million in dividends and we had [those set] portions which was held by [AVRs]. We received the dollars [too at ED] and they were paid off before the end of the year.

And I think -- we haven't given guidance for 2006, but think you could assume -- we would expect further distributions from EDC. The exact amounts we'll be able to talk about in more detail when we get the guidance.

Thanks a lot.

Thank you very much. This is Scott Cunningham to wrap up. We appreciate the time. For those of you have any follow-up questions that may have still been in the queue, please do hesitate to call either [Kelly Huntington] or myself at investor relations. And of course any media inquiries should follow-up with Robin Pence, our Vice President of Communications. Thanks, everyone, and have a good day.

This concludes today's AES financial review for the second and third quarter results conference call. You may now disconnect your lines at this time. Have a wonderful day.