AES 4Q 08 Review
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Transcript of AES 4Q 08 Review
The AES CorporationFourth Quarter & Full Year 2008Financial ReviewFebruary 27, 2009
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 accurate projections of future interest rates, commodity prices and foreign currency pricing, 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, 2008, 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
Contains Forward Looking Statements
Fourth Quarter & Full Year 2008 Results
Overview Update on Q3 initiatives to strengthen liquidity and reassess development pipeline
Met targets for 2008 cash flow
Full Year & Fourth Quarter 2008 financial resultsKey performance drivers
Update on financial operations
Manageable debt profile
2009 Guidance
Construction program of 3,400 MW on schedule
4
Contains Forward Looking Statements
Full Year 2008 Financial Highlights
$0.72$1.80$2.07Diluted Earnings Per Share from Continuing Operations
$3.4 billion$3.7 billion$3.7-$3.8 billionGross Margin
$0.99
$1.1 billion
$1.4 billion
$2.2 billion
2008 Actual
$1.01
$1.1 billion
$1.4 billion2,3
$2.2 billion2,3
2007 Actual
$2.2 billionConsolidated Operating Cash Flow
$1.07Adjusted Earnings Per Share2
$1.0-$1.1 billionSubsidiary Distributions4
$1.4 billionConsolidated Free Cash Flow
2008 Guidance1
1. Guidance given November 7, 2008.2. A non-GAAP financial measure. See Appendix for definition and reconciliation. 3. Excludes contributions from EDC, a business AES sold in May 2007. See Appendix for reconciliation.4. See Appendix for definition.
In 2008, Gross Margin increased 9% primarily due to improved performance at Latin American and European generation businesses, as well as favorable foreign currency exchange rates
Diluted Earnings Per Share from Continuing Operations of $1.80 includes a gain from sale of northern Kazakhstan assets
Actual 2008 EPS was $0.27 lower compared to guidance, primarily due to FAS 133 mark-to-market losses, impairments, foreign currency transaction losses, as well as higher tax rate
Adjusted Earnings Per Share2 of $0.99 includes $0.19 of foreign currency transaction charges
5
Contains Forward Looking Statements
Fourth Quarter 2008 Financial Highlights
$0.00($0.10)Diluted Earnings (Loss) Per Share from Continuing Operations
Fourth Quarter
$809 million$674 millionGross Margin
$0.18
$386 million
$314 million
$579 million
2008 Actuals
$0.19
$343 million
$283 million
$482 million
2007 Actuals
Consolidated Operating Cash Flow
Adjusted Earnings Per Share1
Subsidiary Distributions2
Consolidated Free Cash Flow1
1. A non-GAAP financial measure. See Appendix for definition and reconciliation. 2. See Appendix for definition.
Gross Margin in 2008 declined by $135 million, reflecting weaker foreign currency exchange rates and $85 million of non-cash charges primarily from mark-to-market derivative losses
Diluted Earnings Per Share include $0.25 of non-cash losses resulting from impairments and FAS 133 mark-to-market adjustments; also include $0.11 impact of foreign currency transaction charges of which only $0.03 are excluded from Adjusted EPS
Adjusted EPS1 includes $0.08 of foreign currency transaction charges
6
Contains Forward Looking Statements
Manageable Debt Profile
1,228
1,0743
154
2009
Debt Maturities
Total Debt Due in 2009
Subsidiaries – Non-Recourse Debt
Parent Company – Recourse Debt
1.This number represents Parent Liquidity. See Appendix.2.This number represents Subsidiary Liquidity. See Appendix3.Includes: Brazil, including Eletropaulo, Tiete & Sul $162 million, Middle East (Oman, Jordan and Pakistan) $157 million and Chigen (China) $73 million.4.Includes: $1,195 million in Brazil.Note: The numbers presented above are consolidated. Because the Company’s individual subsidiaries rely primarily on non-recourse debt, they may not have access to consolidatedliquidity and will instead rely upon their individual ability to manage their obligations. In addition, the Parent Company may not have access to the liquidity at various subsidiaries due to various restrictions.
5,9314,5411,390Total Liquidity Plus Additional Financial Assets
729729-Restricted Cash
1,38241,3824-Short-Term Investments
636636-Debt Service Reserve Accounts
3,1841,79421,3901Total Liquidity
1,138
656
Subsidiaries
1,143
247
Parent Company
Bank Lines of Credit
Cash & Cash Equivalents
2,281
903
Total
In Millions, as of December 31, 2008
At year end, Parent Company Liquidity1 plus Subsidiary Liquidity2 was $3.2 billion
Total Debt due in 2009 is $1.2 billion
7
Contains Forward Looking Statements
Consolidated Debt Is Well-Hedged
Fixed v. Floating Rate Debt$18.1 Billion
Debt Currency v. Revenue Currency$18.1 Billion
AES generally attempts to match the currency of its debt to the currency of the revenues at each of its businessesAES has a policy to maintain a net floating rate debt level in the range of 15-25%
Matched Currency $16.9 billion
Cross Currency $1.2 billion
Floating Rate Debt $3.5 billion
Fixed Rate Debt1$14.6 billion
6%
94% 19%
81%
1. Fixed rate debt includes the notional amounts related to interest rate swaps.
As of December 31, 2008
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Contains Forward Looking Statements
Other Financial Updates
Full remediation of material weaknesses
Completed remediation of 10 material weaknesses, including 2 in 2008
Clarifying definition of Adjusted Earnings Per Share1 to better reflect the economic results of the underlying businesses
Current definition (effective through December 31, 2008) excludes cash and non-cash foreign currency transaction gains or losses from Argentina and Brazil
Updated definition (effective as of January 1, 2008) excludes non-cash foreign currency transaction gains or losses from all countries
Introducing proportional financial metrics to provide additionaltransparency
AES’s effective economic interest in subsidiaries
1. A non-GAAP financial measure. See Appendix for definition.
9
Contains Forward Looking Statements
2009 Guidance
$0.87-$0.97Diluted Earnings Per Share
$650-$8501$1,400-$1,600Free Cash Flow1
$0.97-$1.07Adjusted Earnings Per Share1
$1,200-$1,3501$2,100-$2,300Operating Cash Flow
$1,100-$1,300Subsidiary Distributions2
$2,050-$2,1501
Proportional
$3,200-$3,400Gross Margin
Consolidated
1.A non-GAAP financial measure. See Appendix for definition and reconciliation. 2.See Appendix for definition.Note: 2009 Guidance is based on expectations for future foreign exchange rates and commodity prices as of December 31, 2008. Actual results may differ.
($ in Millions), Except Earnings Per Share
Reaffirming previously disclosed Subsidiary Distribution guidance of $1.1-$1.3 billion
Lowering Adjusted EPS1 guidance from $1.15-$1.20 to $0.97-$1.07:
$0.08 impact reflecting weaker foreign currencies particularly Brazilian Real, Argentine Peso and British Pound
$0.02 impact reflecting unfavorable commodity prices resulting in weaker electricity prices particularly in Argentina
10
Contains Forward Looking Statements
2009 Guidance Estimated Sensitivities
100 bps move in interest rates is equal to change in EPS of approximately $0.02Interest Rates
10% appreciation in USD against the following key currencies1 is equal to following negative EPS impacts:
Brazilian Real (BRL): approximately $0.03Colombian Peso (COP): approximately $0.01Euro (EUR): approximately $0.01Argentine Peso (ARS): approximately $0.01Hungarian Forint (HUF): approximately $0.01British Pound (GBP): approximately $0.01
Currencies
$10/ton move in coal2 (negative correlation) is equal to EPS impact of approximately $0.03$10/barrel move in oil2 (positive correlation) is equal to EPS impact of approximately $0.04-$0.05$1/mmbtu move in natural gas2 (positive correlation) is equal to EPS impact of: approximately $0.03$5/ton move in Certified Emission Reductions (CER)2 (positive correlation) is equal to EPS impact of approximately $0.01
Commodity Sensitivity
Note: All sensitivities are provided on a standalone basis, assuming no change in the other factors, and reflect the estimated full-year impact on 2009 Adjusted EPS. Actual results may differ from the sensitivities provided.1. 2009 guidance is based on currency forward curves and forecasts as of 12/31/08. Assumptions for the COP, EUR, HUF and GBP are based on forward curves as of 12/31/08. For reference, the forward curves as of 12/31/08 implied annual average 2009 rates as follows: 2,336 COP/$, 0.72 EUR/$, 196 HUF/$ and 0.69 GBP/$. Assumptions for the BRL and ARS are based on forecasts as of 12/31/08. For reference, the forecast for the BRL has a starting point (12/31/08) of 2.31/$ and ending point (12/31/09) of 2.34/$ with an annual average 2009 rate of 2.34/$. The forecast for the ARS has a starting point (12/31/08) of 3.45/$ and ending point (12/31/09) of 4.01/$ with an annual average 2009 rate of 3.70/$.2. 2009 guidance is based on commodity forward curves as of 12/31/08. For reference, the forward curves as of 12/31/08 implied annual average prices as follows: $76/ton Newcastle coal, $61/ton NYMEX coal, $55/barrel Brent crude oil, $6.11/mmbtu Henry Hub natural gas and €14 CER.
11
Contains Forward Looking Statements
3,403 MW Projects Under Construction
2011
223 MW
Hydro
83
Changuinola I
Panama
Generation (Renewables)
2010
62 MW
Hydro
51
I.C. Energy
JV1
Turkey
2010
156 MW
Wind
89
St. Nikolas
Bulgaria
2009-2010
198 MW
Wind
49
GuohuaEnergy
JV2
China
2009
34 MW
Wind
40
InnoVent3
France
2009
22 MW
Wind
51
North Rhins
Scotland
2009
86 MW
Heavy Fuel Oil
56
Dibamba
Cameroon
Utility
2009
130 MW
Diesel
71
Santa Lidia
Chile
Generation (Thermal)
2009
380 MW
Gas
37
Amman East
Jordan
2009
152 MW
Coal
35
Guacolda 3
Chile
2010
670 MW
Coal
100
Maritza East
Bulgaria
2010
270 MW
Coal
71
Nueva Ventanas
Chile
2010
152 MW
Coal
35
Guacolda 4
Chile
2011
518 MW
Coal
71
Angamos
Chile
2011
270 MW
Coal
71
Campiche
Chile
2009
80 MW
Diesel
99
Kilroot OCGT
UK
% Owned
Project
Type
Gross MW
Expected Commercial Operations Date
1. Joint Venture with I.C. Energy. I.C. Energy plants: Damlapinar Konya, Kepezkaya Konya and Kumkoy Samsun.2. Joint Venture with Guohua Energy Investment Co. Ltd. Guohua Energy plants: Huanghua I & II, Chenq Qi and Dong Qi.3. InnoVent plants: Frenouville, Audrieu, Boisbergues, Gapree and Croixrault-Moencourt.
Significant portion of the capital cost for these projects already secured under long-term non-recourse financings
More than 90% of capacity is under long-term contacts
Approximately one-third of the total capacity will come online each year through 2011
12
Contains Forward Looking Statements
Appendix
13
Contains Forward Looking Statements
Reconciliation of Fourth Quarter & Full Year 2008 Cash Flow Items
1. A non-GAAP financial measure as reconciled above. See “Definitions”. 2. Excludes contributions from EDC, a business AES sold in May 2007. 3. Includes capital expenditures under investing and financing activities.
($ Millions)
$2,460$2,887$704$872Total Capex3
$1,582$2,117$505$607Growth Capex1
$878$770$199$265Maintenance Capex1
$1,368$1,395$283$314Consolidated Free Cash Flow1 Without EDC2
$107---EDC1
$2,353$2,165$482$579Consolidated Operating Cash Flow
$1,475$1,395$283$314Consolidated Free Cash Flow1
$834$770$199$265Maintenance Capex Without EDC2
$44---EDC1
$878$770$199$265Maintenance Capex1
$2,202
$151
2007
$579
-
2008
Fourth Quarter
$482
-
2007
$2,165
-
2008
Full Year
Consolidated Operating Cash Flow Without EDC2
EDC1
14
Contains Forward Looking Statements
1. A non-GAAP financial measure as reconciled above. See “Definitions”.
Reconciliation of Adjusted Earnings Per Share1
$0.99
0.25
(1.14)
0.03
0.05
$1.80
2008
Full Year
$1.01
0.08
0.18
-
0.03
$0.72
2007
$0.18
-
0.12
0.03
0.13
($0.10)
2008
Fourth Quarter
$0.19
0.08
0.09
-
0.02
-
2007
Diluted EPS from Continuing Operations
Adjusted Earnings per Share1
Debt Retirement (Gains)/Losses
Net Asset (Gains)/Losses and Impairments
Currency Transaction (Gains)/Losses
FAS 133 Mark to Market (Gains)/Losses
15
Contains Forward Looking Statements
1. A Non-GAAP financial measure as reconciled above. See “Definitions”.
Reconciliation of Adjusted Earnings Per Share1
2005200620072008Prior Definition (Effective Through 12/31/08)
$0.92
0.03
0.68
0.01
(0.05)
$0.25
$0.61
-
-
0.03
0.05
$0.53
$0.99
0.25
(1.14)
0.03
0.05
$1.80
$1.01
0.08
0.18
-
0.03
$0.72Diluted EPS from Continuing Operations
Adjusted Earnings per Share1
Debt Retirement (Gains)/Losses
Net Asset (Gains)/Losses and Impairments
Currency Transaction (Gains)/Losses
FAS 133 Mark to Market (Gains)/Losses
-0.040.080.25Debt Retirement (Gains)/Losses
2005200620072008New Definition (Effective as of 1/1/09)
$0.94
0.83
(0.15)
0.02
(0.05)
$0.25
$0.60
-
-
0.02
0.05
$0.53
$1.12
0.13
(1.27)
0.16
0.05
$1.80
$0.98
0.36
(0.18)
(0.03)
0.03
$0.72Diluted EPS from Continuing Operations
Adjusted Earnings per Share1
Impairment Losses
Disposition/Acquisition (Gains)/Losses
Currency Transaction (Gains)/Losses
FAS 133 Mark to Market (Gains)/Losses
16
Contains Forward Looking Statements
Parent Sources and Uses of Liquidity
-(143)--Repurchase of Equity
Uses
Sources
(1,577)(1,390)
274(168)(74)(219)
-
1,5771,145
452--
(1)386
2008Fourth Quarter
(4,088)(2,153)(157)(128)(68)(268)
(1,314)
4,0881,515
2121-
1,974214343
2007
(5,083)(1,390)
296(486)(414)
(1,909)
(1,037)
5,0832,15315018-
6161,0861,060
2008Full Year
(5,379)(2,153)
(44)(425)(323)
(1,120)
(1,314)
5,3791,14610651-
1,9741,0031,099
2007
Total UsesEnding Parent Company Liquidity2
Changes in Letters of Credit and Other, NetCash Payments for InterestCash for Development, Selling, General and Administrative and TaxesInvestments in Subsidiaries, Net
Repayments of Debt
Total SourcesBeginning Parent Company Liquidity2
Total Returns of Capital Distributions and Project Financing ProceedsIssuance of Common Stock, NetIncreased Credit Facility CommitmentsRefinancing Proceeds, NetProceeds from Asset Sales, NetTotal Subsidiary Distributions1
1. See “Definitions”.2. A non-GAAP financial measure. See “Definitions”.
($ Millions)
17
Contains Forward Looking Statements
Fourth Quarter/Full Year 2008 Subsidiary Distributions1
1. See “Definitions”.2. Other includes wind and other alternative energy projects.
Fourth Quarter / Full Year 2008 Subsidiary Distributions1
386 / 1,06021 / 7847 / 75139 / 25486 / 21993 / 434Total21 / 7821 / 78Other
275 / 79447 / 75137 / 25129 / 15862 / 310Generation90 / 188- / -2 / 357 / 6131 / 124Utilities
TotalOther2AsiaEurope& Africa
LatinAmerica
North America
38Shady Point, USA52Ebute, Nigeria12Global
Insurance19Andres, DR
45Gener, Chile61Andres, DR12Southland, USA31IPALCO, USA
46Panama105Kilroot, UK13CAESS/EEO, El Salvador42Brasiliana, Brazil
47Brasiliana, Brazil124IPALCO, USA15Lal Pir,
Pakistan45Ebute, Nigeria
51Cartagena, Spain153Eastern Energy,
USA16Pak Gen, Pakistan80Kilroot, UK
AmountBusinessAmountBusinessAmountBusinessAmountBusinessFull Year 2008Fourth Quarter 2008
Top 10 Subsidiary Distributions1
($ Millions)
18
Contains Forward Looking Statements
Reconciliation of Subsidiary Distributionsand Parent Liquidity
1. See “Definitions”.2. Qualified Holding Company. See “Assumptions”.3. A Non-GAAP financial measure. See “Definitions”.
222350208431Total Subsidiary Distributions & Returns of Capital to Parent
1812445Total Return of Capital Distributions to Parent & QHCs2
221269184386Total Subsidiary Distributions1 to Parent & QHCs2
Mar. 31, 2008
June 30, 2008
Sept. 30, 2008
Dec. 31, 2008
Quarter Ended
1,5231,5101,1451,390Ending Liquidity
7868156901,143Availability Under Revolver
737695455247Cash at Parent & QHCs2
Mar. 31, 2008
June 30, 2008
Sept. 30, 2008
Dec. 31, 2008Parent Company Liquidity3
Balance as of
($ Millions)
19
Contains Forward Looking Statements
Reconciliation of 2009 Guidance
2009
$1,150-$1,250
$750
$900-$950
Adjustment Factors1
$3,200-$3,400
$1,400-$1,600
$2,100-$2,300
Consolidated
$650-$850Free Cash Flow2
$1,200-$1,350Net Operating Cash Flow
$2,050-$2,150Gross Margin
Proportional1,2
1. Economic share of third parties.2. A non-GAAP financial measure. See “Definitions.”3. See “Definitions.”Note: 2009 Guidance is based on expectations for future foreign exchange rates and commodity prices as of December 31, 2008. Actual results may differ.
($ in Millions), Except Earnings Per Share
$0.10Proforma Adjustments
$0.87-$0.97Diluted Earnings Per Share
$1,100-$1,300Subsidiary Distributions3
$0.97-$1.07Adjusted Earnings Per Share2
20
Contains Forward Looking Statements
Forecasted financial information is based on certain material assumptions. Such assumptions include, but are not limited to: (a) no unforeseen external events such as wars, depressions, or economic or political disruptions occur; (b) businesses continue to operate in a manner consistent with or better than prior operating performance, including achievement of planned productivity improvements including benefits of global sourcing, and in accordance with the provisions of their relevant contracts or concessions; (c) new business opportunities are available to AES in sufficient quantity to achieve its growth objectives; (d) no material disruptions or discontinuities occur in GDP, foreign exchange rates, inflation or interest rates during the forecast period; and (e) material business-specific risks as described in the Company’s SEC filings do not occur individually or cumulatively. In addition, benefits from global sourcing include avoided costs, reduction in capital project costs versus budgetary estimates, and projected savings based on assumed spend volume which may or may not actually be achieved. Also, improvement in certain KPIs such as equivalent forced outage rate and commercial availability may not improve financial performance at all facilities based on commercial terms and conditions. These benefitswill not be fully reflected in the Company’s consolidated financial results.
The cash held at qualifying holding companies (QHCs) represents cash sent to subsidiaries of the Company domiciled outside of the U.S. Such subsidiaries had no contractual restrictions on their ability to send cash to AES, the Parent Company. Cash at those subsidiaries was used for investment and related activities outside of the U.S. These investments included equity investments and loans to other foreign subsidiaries as well as development and general costs and expenses incurred outside the U.S. Since the cash held by these QHCs is available to the Parent, AES uses the combined measure of subsidiary distributions to Parent and QHCs as a useful measure of cash available to the Parent to meet its international liquidity needs. AES believes that unconsolidated parent company liquidity is important to the liquidity position of AES as a parent company because of the non-recourse nature of most ofAES’s indebtedness.
Assumptions
21
Contains Forward Looking Statements
Definitions
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. Please see the attached table for historical results and comparison against the revised definition.Effective January 1, 2009, in addition to clarifying certain elements of the current definition, the Company has revised its adjusted earnings per share definition to include only unrealized foreign currency transaction gains or losses from all countries. Following is the updated definition. Adjusted earnings per share (a non-GAAP financial measure) is defined as diluted earnings per share from continuing operations excluding gains or losses of the consolidated entity due to (a) mark-to-market amounts related to FAS 133 derivative transactions, (b) unrealized foreign currency gains or losses, (c) significant gains or losses due to dispositions and acquisitions of business interests, (d) significant losses due to impairments, and (e) costs due to the 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 due to mark-to-market gains or losses related to derivative transactions, currency gains or losses, losses due to impairments and strategic decisions to dispose or acquire business interests or retired debt which affect results in a given period or periods.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 Parent Company Liquidity (a non-GAAP financial measure) is 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 indebtednessThe AES Corporation (the “Company”) is a holding company that derives its income and cash flows from the activities of its subsidiaries, some of which may not be wholly-owned by the Company. Accordingly, the Company has presented certain financial metrics which are defined as Proportional (a non-GAAP financial measure).Proportional metrics present the Company’s estimate of its share in the economics of the underlying metric. The Company believes that the Proportional metrics are useful to investors because they exclude the economic share in the metric presented that is held by non-AES shareholders. For example, Operating Cash Flow is a GAAP metric which presents the Company’s cash flow from operations on a consolidated basis, including operating cash flow allocable to noncontrolling interests. Proportional Operating Cash Flow removes the share of operating cash flow allocable to noncontrolling interests and therefore may act as an aid in the valuation the Company. Proportional measures are considered in the Company’s internal evaluation of financial performance. Proportional metrics are reconciled to the nearest GAAP measure. Certain assumptions have been made to estimate our proportional financial measures. These assumptions include: (i) the Company’s economic interest has been calculated based on a blended rate for each consolidated business when such business represents multiple legal entities; (ii) the Company’s economic interest may differ from the percentage implied by the recorded net income or loss attributable to noncontrolling interests or dividends paid during a given period; (iii) the Company’s economic interest for entities accounted for using the hypothetical liquidation at book value method is 100%; (iv) individual operating performance of the Company’s equity method investments is not reflected and (v) all intercompany amounts have been excluded as applicable.
Non-GAAP Financial Measures
22
Contains Forward Looking Statements
Definitions, Cont’d.
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 retentionassociated with non-recourse debt covenant restrictions and related debt service requirements at the subsidiaries, retention of cash related to sufficiency of local GAAP statutory retained earnings at the subsidiaries, retention of cash for working capital needs at the subsidiaries, and other similar timing differences between when the cash is generated at the subsidiaries and when it reaches the Parent Company and related holding companies
Subsidiary Distributions