10-Q 1 q22016form10-q.htm 10-Q Document



 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________________________________________________________________________
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2016
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-12291
THE AES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
 
54 1163725
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
4300 Wilson Boulevard Arlington, Virginia
 
22203
(Address of principal executive offices)
 
(Zip Code)
(703) 522-1315
Registrant’s telephone number, including area code:
______________________________________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x
 
Accelerated filer ¨
 
Non-accelerated filer ¨
 
Smaller reporting company ¨
 
 
 
 
 
 
 
 
 
 
 
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
______________________________________________________________________________________________
The number of shares outstanding of Registrant’s Common Stock, par value $0.01 per share, on July 29, 2016 was 659,089,478
 





THE AES CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2016
TABLE OF CONTENTS
 
 
 
 
 
 
ITEM 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 2.
 
 
 
ITEM 3.
 
 
 
ITEM 4.
 
 
 
 
 
ITEM 1.
 
 
 
ITEM 1A.
 
 
 
ITEM 2.
 
 
 
ITEM 3.
 
 
 
ITEM 4.
 
 
 
ITEM 5.
 
 
 
ITEM 6.
 
 





GLOSSARY OF TERMS
The following terms and acronyms appear in the text of this report and have the definitions indicated below:
Adjusted EPS
Adjusted Earnings Per Share, a non-GAAP measure
Adjusted PTC
Adjusted Pretax Contribution, a non-GAAP measure of operating performance
AES
The Parent Company and its subsidiaries and affiliates
AFS
Available For Sale
ANEEL
Brazilian National Electric Energy Agency
AOCL
Accumulated Other Comprehensive Loss
ASC
Accounting Standards Codification
ASU
Accounting Standards Update
BNDES
Brazilian Development Bank
BoD
Board of Directors
CAA
United States Clean Air Act
CAMMESA
Wholesale Electric Market Administrator in Argentina
CCR
Coal Combustion Residuals
CCGT
Combined Cycle Gas Turbine
CDPQ
La Caisse de depot et placement du Quebec
CFE
Federal Commission of Electricity
CO2
Carbon Dioxide
CTA
Cumulative Translation Adjustment
DP&L
The Dayton Power & Light Company
DPL
DPL Inc.
DPLER
DPL Energy Resources, Inc.
EPA
United States Environmental Protection Agency
EPC
Engineering, Procurement and Construction
EURIBOR
Euro Interbank Offered Rate
FASB
Financial Accounting Standards Board
FCA
Federal Court of Appeals
FERC
Federal Energy Regulatory Commission
FX
Foreign Exchange
GAAP
Generally Accepted Accounting Principles in the United States
GHG
Greenhouse Gas
GWh
Gigawatt Hours
HLBV
Hypothetical Liquidation Book Value
ICC
International Chamber of Commerce
IPALCO
IPALCO Enterprises, Inc.
IPL
Indianapolis Power & Light Company
IURC
Indiana Utility Regulatory Commission
kWh
Kilowatt Hours
LIBOR
London Interbank Offered Rate
MATS
Mercury and Air Toxics Standards
MW
Megawatts
MWh
Megawatt Hours
NEK
Natsionalna Elektricheska Kompania (state-owned electricity public supplier in Bulgaria)
NOV
Notice of Violation
NOX
Nitrogen Oxides
NCI
Noncontrolling Interest
OCI
Other Comprehensive Income
O&M
Operations and Maintenance
OPGC
Odisha Power Generation Corporation
PIS
Partially Integrated System
PPA
Power Purchase Agreement
PREPA
Puerto Rico Electric Power Authority
RSU
Restricted Stock Unit
RTO
Regional Transmission Organization
SIC
Central Interconnected Electricity System
SBU
Strategic Business Unit
SEC
United States Securities and Exchange Commission
SO2
Sulfur Dioxide
TA
Transportation Agreement
U.S.
United States
USD
United States Dollar
VAT
Value-Added Tax

1




PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE AES CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
 
June 30, 2016
 
December 31, 2015
 
 
 
 
 
(in millions, except share and per share data)
ASSETS
 
 
 
CURRENT ASSETS
 
 
 
Cash and cash equivalents
$
1,265

 
$
1,257

Restricted cash
250

 
295

Short-term investments
544

 
469

Accounts receivable, net of allowance for doubtful accounts of $108 and $87 respectively
2,087

 
2,302

Inventory (see Note 2)
655

 
671

Prepaid expenses
91

 
106

Other current assets
1,441

 
1,318

Current assets of discontinued operations and held-for-sale businesses
1,048

 
424

Total current assets
7,381

 
6,842

NONCURRENT ASSETS
 
 
 
Property, Plant and Equipment:
 
 
 
Land
785

 
702

Electric generation, distribution assets and other
28,416

 
27,751

Accumulated depreciation
(9,705
)
 
(9,327
)
Construction in progress
3,539

 
3,029

Property, plant and equipment, net
23,035

 
22,155

Other Assets:
 
 
 
Investments in and advances to affiliates (see Note 6)
615

 
610

Debt service reserves and other deposits
700

 
555

Goodwill
1,157

 
1,157

Other intangible assets, net of accumulated amortization of $97 and $93, respectively
219

 
207

Deferred income taxes
483

 
410

Service concession assets, net of accumulated amortization of $71 and $34, respectively
1,486

 
1,543

Other noncurrent assets
1,898

 
2,109

Noncurrent assets of discontinued operations and held-for-sale businesses

 
882

Total other assets
6,558

 
7,473

TOTAL ASSETS
$
36,974

 
$
36,470

LIABILITIES AND EQUITY
 
 
 
CURRENT LIABILITIES
 
 
 
Accounts payable
$
1,434

 
$
1,571

Accrued interest
249

 
236

Accrued and other liabilities
2,082

 
2,286

Non-recourse debt, including $190 and $258, respectively, related to variable interest entities (see Note 7)
1,610

 
2,172

Current liabilities of discontinued operations and held-for-sale businesses
841

 
661

Total current liabilities
6,216

 
6,926

NONCURRENT LIABILITIES
 
 
 
Recourse debt (see Note 7)
4,909

 
4,966

Non-recourse debt, including $1,059 and $1,531, respectively, related to variable interest entities (see Note 7)
14,261

 
12,943

Deferred income taxes
1,036

 
1,090

Pension and other post-retirement liabilities (see Note 9)
1,054

 
919

Other noncurrent liabilities
3,072

 
2,794

Noncurrent liabilities of discontinued operations and held-for-sale businesses

 
123

Total noncurrent liabilities
24,332

 
22,835

Commitments and Contingencies (see Note 8)

 

Redeemable stock of subsidiaries
753

 
538

EQUITY (see Note 10)
 
 
 
THE AES CORPORATION STOCKHOLDERS’ EQUITY
 
 
 
Common stock ($0.01 par value, 1,200,000,000 shares authorized; 815,894,592 issued and 659,001,121 outstanding at June 30, 2016 and 815,846,621 issued and 666,808,790 outstanding at December 31, 2015)
8

 
8

Additional paid-in capital
8,714

 
8,718

Retained earnings (accumulated deficit)
(284
)
 
143

Accumulated other comprehensive loss
(3,768
)
 
(3,883
)
Treasury stock, at cost (156,893,471 shares at June 30, 2016 and 149,037,831 at December 31, 2015)
(1,904
)
 
(1,837
)
Total AES Corporation stockholders’ equity
2,766

 
3,149

NONCONTROLLING INTERESTS
2,907

 
3,022

Total equity
5,673

 
6,171

TOTAL LIABILITIES AND EQUITY
$
36,974

 
$
36,470

See Notes to Condensed Consolidated Financial Statements.

2




THE AES CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
(in millions, except per share amounts)
Revenue:
 
 
 
 
 
 
 
Regulated
$
1,565

 
$
1,794

 
$
3,141

 
$
3,628

Non-Regulated
1,664

 
1,862

 
3,359

 
3,786

Total revenue
3,229

 
3,656

 
6,500

 
7,414

Cost of Sales:
 
 
 
 
 
 
 
Regulated
(1,431
)
 
(1,432
)
 
(2,898
)
 
(2,989
)
Non-Regulated
(1,224
)
 
(1,469
)
 
(2,519
)
 
(2,949
)
Total cost of sales
(2,655
)
 
(2,901
)
 
(5,417
)
 
(5,938
)
Operating margin
574

 
755

 
1,083

 
1,476

General and administrative expenses
(47
)
 
(50
)
 
(95
)
 
(105
)
Interest expense
(390
)
 
(287
)
 
(732
)
 
(630
)
Interest income
138

 
116

 
255

 
195

Gain (loss) on extinguishment of debt

 
(117
)
 
4

 
(141
)
Other expense
(21
)
 
(12
)
 
(29
)
 
(29
)
Other income
12

 
15

 
25

 
30

Gain (loss) on disposal and sale of businesses
(17
)
 

 
30

 

Asset impairment expense
(235
)
 
(37
)
 
(394
)
 
(45
)
Foreign currency transaction gains (losses)
(36
)
 
13

 
4

 
(8
)
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES AND EQUITY IN EARNINGS OF AFFILIATES
(22
)
 
396

 
151

 
743

Income tax benefit (expense)
7

 
(123
)
 
(90
)
 
(223
)
Net equity in earnings of affiliates
7

 
1

 
14

 
15

INCOME (LOSS) FROM CONTINUING OPERATIONS
(8
)
 
274

 
75

 
535

Income (loss) from operations of discontinued businesses, net of income tax (expense) benefit of $(1), $3, $3 and $7, respectively
3

 
(10
)
 
(6
)
 
(17
)
Net loss from disposal and impairments of discontinued businesses, net of income tax benefit of $401, $0, $401 and $0, respectively
(382
)
 

 
(382
)
 

NET INCOME (LOSS)
(387
)
 
264

 
(313
)
 
518

Less: Net income attributable to noncontrolling interests
(95
)
 
(195
)
 
(43
)
 
(307
)
NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION
$
(482
)
 
$
69

 
$
(356
)
 
$
211

AMOUNTS ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS:
 
 
 
 
 
 
 
Income (loss) from continuing operations, net of tax
$
(103
)
 
$
79

 
$
32

 
$
228

Loss from discontinued operations, net of tax
(379
)
 
(10
)
 
(388
)
 
(17
)
NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION
$
(482
)
 
$
69

 
$
(356
)
 
$
211

BASIC EARNINGS PER SHARE:
 
 
 
 
 
 
 
Income (loss) from continuing operations attributable to The AES Corporation common stockholders, net of tax
$
(0.16
)
 
$
0.11

 
$
0.05

 
$
0.33

Loss from discontinued operations attributable to The AES Corporation common stockholders, net of tax
(0.57
)
 
(0.01
)
 
(0.59
)
 
(0.03
)
NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS
$
(0.73
)
 
$
0.10

 
$
(0.54
)
 
$
0.30

DILUTED EARNINGS PER SHARE:
 
 
 
 
 
 
 
Income (loss) from continuing operations attributable to The AES Corporation common stockholders, net of tax
$
(0.16
)
 
$
0.11

 
$
0.05

 
$
0.33

Loss from discontinued operations attributable to The AES Corporation common stockholders, net of tax
(0.57
)
 
(0.01
)
 
(0.59
)
 
(0.03
)
NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS
$
(0.73
)
 
$
0.10

 
$
(0.54
)
 
$
0.30

DILUTED SHARES OUTSTANDING
659

 
695

 
662

 
701

DIVIDENDS DECLARED PER COMMON SHARE
$

 
$
0.10

 
$
0.11

 
$
0.10

See Notes to Condensed Consolidated Financial Statements.

3




THE AES CORPORATION
Condensed Consolidated Statements of Comprehensive (Loss) Income
(Unaudited)
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
(in millions)
NET INCOME (LOSS)
$
(387
)
 
$
264

 
$
(313
)
 
$
518

Foreign currency translation activity:
 
 
 
 
 
 
 
Foreign currency translation adjustments, net of income tax benefit of $1, $0, $1 and $0 respectively
120

 
77

 
248

 
(344
)
Total foreign currency translation adjustments
120

 
77

 
248

 
(344
)
Derivative activity:
 
 
 
 
 
 
 
Change in derivative fair value, net of income tax benefit (expense) of $25, $(20), $46 and $(3), respectively
(93
)
 
82

 
(157
)
 
10

Reclassification to earnings, net of income tax expense of $4, $1, $1 and $3, respectively
3

 
7

 
2

 
19

Total change in fair value of derivatives
(90
)
 
89

 
(155
)
 
29

Pension activity:
 
 
 
 
 
 
 
Change in pension adjustments due to prior service cost, net of $0 income tax for all periods

 

 
1

 

Change in pension adjustments due to net actuarial loss for the period, net of $0 income tax for all periods

 

 
(1
)
 

Reclassification to earnings due to amortization of net actuarial loss, net of income tax expense of $1, $2, $2 and $5, respectively
4

 
4

 
7

 
9

Total pension adjustments
4

 
4

 
7

 
9

OTHER COMPREHENSIVE INCOME (LOSS)
34

 
170

 
100

 
(306
)
COMPREHENSIVE INCOME (LOSS)
(353
)
 
434

 
(213
)
 
212

Less: Comprehensive loss attributable to noncontrolling interests
(90
)
 
(261
)
 
(28
)
 
(173
)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION
$
(443
)
 
$
173

 
$
(241
)
 
$
39

See Notes to Condensed Consolidated Financial Statements.

4




THE AES CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Six Months Ended June 30,
 
2016
 
2015
 
 
 
 
 
(in millions)
OPERATING ACTIVITIES:
 
 
 
Net income (loss)
$
(313
)
 
$
518

Adjustments to net income:
 
 
 
Depreciation and amortization
586

 
597

Gain on sales and disposals of businesses
(30
)
 

Impairment expenses
396

 
45

Deferred income taxes
(443
)
 
17

Provisions for (reversals of) contingencies
21

 
(134
)
(Gain) loss on extinguishment of debt
(4
)
 
145

Loss on sales of assets
14

 
12

Impairments of discontinued operations and held-for-sale businesses
783

 

Other
79

 
70

Changes in operating assets and liabilities
 
 
 
(Increase) decrease in accounts receivable
366

 
(444
)
(Increase) decrease in inventory
12

 
(54
)
(Increase) decrease in prepaid expenses and other current assets
473

 
132

(Increase) decrease in other assets
(172
)
 
(815
)
Increase (decrease) in accounts payable and other current liabilities
(557
)
 
179

Increase (decrease) in income tax payables, net and other tax payables
(255
)
 
(131
)
Increase (decrease) in other liabilities
407

 
453

Net cash provided by operating activities
1,363

 
590

INVESTING ACTIVITIES:
 
 
 
Capital expenditures
(1,255
)
 
(1,168
)
Acquisitions, net of cash acquired
(11
)
 
(18
)
Proceeds from the sale of businesses, net of cash sold
156

 
2

Sale of short-term investments
2,762

 
2,460

Purchase of short-term investments
(2,806
)
 
(2,270
)
Increase in restricted cash, debt service reserves and other assets
(142
)
 
(51
)
Other investing
(30
)
 
(25
)
Net cash used in investing activities
(1,326
)
 
(1,070
)
FINANCING ACTIVITIES:
 
 
 
Borrowings under the revolving credit facilities
664

 
361

Repayments under the revolving credit facilities
(681
)
 
(359
)
Issuance of recourse debt
500

 
575

Repayments of recourse debt
(611
)
 
(915
)
Issuance of non-recourse debt
1,534

 
1,940

Repayments of non-recourse debt
(1,054
)
 
(1,457
)
Payments for financing fees
(55
)
 
(40
)
Distributions to noncontrolling interests
(236
)
 
(113
)
Contributions from noncontrolling interests
94

 
97

Proceeds from the sale of redeemable stock of subsidiaries
134

 
461

Dividends paid on AES common stock
(145
)
 
(141
)
Payments for financed capital expenditures
(87
)
 
(84
)
Purchase of treasury stock
(79
)
 
(307
)
Other financing
(21
)
 
(29
)
Net cash used in financing activities
(43
)
 
(11
)
Effect of exchange rate changes on cash
8

 
(19
)
Decrease in cash of discontinued operations and held-for-sale businesses
6

 
12

Total increase (decrease) in cash and cash equivalents
8

 
(498
)
Cash and cash equivalents, beginning
1,257

 
1,517

Cash and cash equivalents, ending
$
1,265

 
$
1,019

SUPPLEMENTAL DISCLOSURES:
 
 
 
Cash payments for interest, net of amounts capitalized
$
615

 
$
665

Cash payments for income taxes, net of refunds
$
347

 
$
247

SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
 
 
 
Assets acquired through capital lease and other liabilities
$
5

 
$
10


See Notes to Condensed Consolidated Financial Statements.

5




THE AES CORPORATION
Notes to Condensed Consolidated Financial Statements
For the Three and Six Months Ended June 30, 2016 and 2015
1. FINANCIAL STATEMENT PRESENTATION
The prior-period condensed consolidated financial statements in this Quarterly Report on Form 10-Q (“Form 10-Q”) have been reclassified to reflect the businesses held-for-sale and discontinued operations as discussed in Note 15—Discontinued Operations and Held-for-Sale Businesses.
Consolidation In this Quarterly Report the terms “AES,” “the Company,” “us” or “we” refer to the consolidated entity including its subsidiaries and affiliates. The terms “The AES Corporation” or “the Parent Company” refer only to the publicly held holding company, The AES Corporation, excluding its subsidiaries and affiliates. Furthermore, variable interest entities (“VIEs”) in which the Company has a variable interest have been consolidated where the Company is the primary beneficiary. Investments in which the Company has the ability to exercise significant influence, but not control, are accounted for using the equity method of accounting. All intercompany transactions and balances have been eliminated in consolidation.
Interim Financial Presentation The accompanying unaudited condensed consolidated financial statements and footnotes have been prepared in accordance with GAAP, as contained in the FASB ASC, for interim financial information and Article 10 of Regulation S-X issued by the SEC. Accordingly, they do not include all the information and footnotes required by GAAP for annual fiscal reporting periods. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair presentation of the results of operations, financial position, comprehensive income and cash flows. The results of operations for the three and six months ended June 30, 2016 are not necessarily indicative of results that may be expected for the year ending December 31, 2016. The accompanying condensed consolidated financial statements are unaudited and should be read in conjunction with the 2015 audited consolidated financial statements and notes thereto, which are included in the 2015 Form 10-K filed with the SEC on February 23, 2016 (the “2015 Form 10-K”).
New Accounting Pronouncements The following table provides a brief description of recent accounting pronouncements that had and/or could have a material impact on the Company’s consolidated financial statements:
New Accounting Standards Adopted
ASU Number and Name
Description
Date of Adoption
Effect on the financial statements upon adoption
2015-03, Interest — Imputation of Interest (Subtopic 835-30)
The standard simplifies the presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the standard. Transition method: retrospective.
January 1, 2016
Deferred financing costs of $24 million previously classified within other current assets and $357 million previously classified within other noncurrent assets were reclassified to reduce the related debt liabilities as of December 31, 2015.
2015-15, Interest — Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements
Given the absence of authoritative guidance within ASU 2015-03, this standard clarifies that the SEC Staff would not object to an entity presenting debt issuance costs related to line-of-credit arrangements as an asset that is subsequently amortized ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. Transition method: retrospective.
January 1, 2016
Deferred financing costs related to lines-of-credit of $1 million recorded within other current assets and $23 million recorded within other noncurrent assets were not reclassified as of December 31, 2015.
2015-02, Consolidation — Amendments to the Consolidation Analysis (Topic 810)
The standard makes targeted amendments to the current consolidation guidance and ends the deferral granted to investment companies from applying the VIE guidance. The standard amends the evaluation of whether (1) fees paid to a decision-maker or service providers represent a variable interest, (2) a limited partnership or similar entity has the characteristics of a VIE and (3) a reporting entity is the primary beneficiary of a VIE. Transition method: retrospective.
January 1, 2016
None, other than that some entities previously consolidated under the voting model are now consolidated under the VIE model.
New Accounting Standards Issued But Not Yet Effective
ASU Number and Name
Description
Date of Adoption
Effect on the financial statements upon adoption
2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
The standard updates the impairment model for financial assets measured at amortized cost to an expected loss model rather than an incurred loss model. It also allows for the presentation of credit losses on available-for-sale debt securities as an allowance rather than a write down. Transition method: various.
January 1, 2020 Early adoption is permitted only as of January 1, 2019.
The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.

6




2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
The standard simplifies the following aspects of accounting for share-based payments awards: accounting for income taxes, classification of excess tax benefits on the statement of cash flows, forfeitures, statutory tax withholding requirements, classification of awards as either equity or liabilities and classification of employee taxes paid on statement of cash flows when an employer withholds shares for tax-withholding purposes. Transition method: various.
January 1, 2017. Early adoption is permitted.

The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
2016-06, Derivatives and Hedging (Topic 815) — Contingent Put and Call Options in Debt Instruments
This standard clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. When a call (put) option is contingently exercisable, an entity will no longer assess whether the event that triggers the ability to exercise a call (put) option is related to interest rates or credit risks. Transition method: a modified retrospective basis to existing debt instruments as of the effective date.
January 1, 2017. Early adoption is permitted.
The Company is currently evaluating the impact of adopting the standard, but does not anticipate a material impact on its consolidated financial statements.
2016-05, Derivatives and Hedging (Topic 815) — Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships
The standard clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument does not require de-designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. Transition method: prospective or a modified retrospective basis.
January 1, 2017. Early adoption is permitted.
The Company is currently evaluating the impact of adopting the standard, but does not anticipate a material impact on its consolidated financial statements.
2016-02, Leases (Topic 842)
The standard creates Topic 842, Leases, which supersedes Topic 840, Leases. It introduces a lessee model that brings substantially all leases onto the balance sheet while retaining most of the principles of the existing lessor model in U.S. GAAP and aligning many of those principles with ASC 606, Revenue from Contracts with Customers. Transition method: modified retrospective approach with certain practical expedients.
January 1, 2019. Early adoption is permitted.
The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
2016-01, Financial Instruments — Overall (Topic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
The standard significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. Also, it amends certain disclosure requirements associated with the fair value of financial instruments. Transition method: cumulative effect in Retained Earnings as of adoption or prospectively for equity investments without readily determinable fair value.
January 1, 2018. Limited early adoption permitted.
The Company is currently evaluating the impact of adopting the standard, but does not anticipate a material impact on its consolidated financial statements.
2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory
The standard replaces the current lower of cost or market test with a lower of cost or net realizable value test. Transition method: prospectively.
January 1, 2017. Early adoption is permitted.
The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
2014-09, 2016-08, 2016-10, 2016-12 Revenue from Contracts with Customers (Topic 606),


The Revenue from Contracts with Customers standard provides a single and comprehensive revenue recognition model for all contracts with customers to improve comparability. The standard contains principles to determine the measurement and timing of revenue recognition. The standard requires an entity to recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. The amendments to the standard provide further clarification on contract revenue recognition specifically related to the implementation of the principal versus agent evaluation, the identification of performance obligations, clarification on accounting for licenses of intellectual property, and allows for the election to account for shipping and handling activities performed after control of a good has been transferred to the customer as a fulfillment cost. Transition method: a full retrospective or modified retrospective approach.
January 1, 2018 (deferred by ASU No. 2015-14). Earlier application is permitted only as of January 1, 2017.
The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
2. INVENTORY
The following table summarizes the Company’s inventory balances as of the periods indicated (in millions):
 
June 30, 2016
 
December 31, 2015
Fuel and other raw materials
$
312

 
$
343

Spare parts and supplies
343

 
328

Total
$
655

 
$
671

3. FAIR VALUE
The fair value of current financial assets and liabilities, debt service reserves and other deposits approximate their reported carrying amounts. The estimated fair value of the Company’s assets and liabilities has been determined using available market information. By virtue of these amounts being estimates and based on hypothetical transactions to sell assets or transfer liabilities, the use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. The Company made no changes during the period to the fair valuation techniques described in Note 4.—Fair Value in Item 8.—Financial Statements and Supplementary Data of its 2015 Form 10-K.

7




Recurring Measurements The following table presents, by level within the fair value hierarchy, the Company’s financial assets and liabilities that were measured at fair value on a recurring basis as of the periods indicated (in millions). For the Company’s investments in marketable debt and equity securities, the security classes presented are determined based on the nature and risk of the security and are consistent with how the Company manages, monitors and measures its marketable securities:
 
June 30, 2016
 
December 31, 2015
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AVAILABLE FOR SALE:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unsecured debentures
$

 
$
299

 
$

 
$
299

 
$

 
$
318

 
$

 
$
318

Certificates of deposit

 
213

 

 
213

 

 
129

 

 
129

Government debt securities

 
9

 

 
9

 

 
28

 

 
28

Subtotal

 
521

 

 
521

 

 
475

 

 
475

Equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mutual funds

 
24

 

 
24

 

 
15

 

 
15

Subtotal

 
24

 

 
24

 

 
15

 

 
15

Total available for sale

 
545

 

 
545

 

 
490

 

 
490

TRADING:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mutual funds
16

 

 

 
16

 
15

 

 

 
15

Total trading
16

 

 

 
16

 
15

 

 

 
15

DERIVATIVES:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cross-currency derivatives

 
1

 

 
1

 

 

 

 

Foreign currency derivatives

 
46

 
271

 
317

 

 
35

 
292

 
327

Commodity derivatives

 
53

 
13

 
66

 

 
41

 
7

 
48

Total derivatives

 
100

 
284

 
384

 

 
76

 
299

 
375

TOTAL ASSETS
$
16

 
$
645

 
$
284

 
$
945

 
$
15

 
$
566

 
$
299

 
$
880

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DERIVATIVES:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives
$

 
$
104

 
$
421

 
$
525

 
$

 
$
54

 
$
304

 
$
358

Cross-currency derivatives

 
39

 

 
39

 

 
43

 

 
43

Foreign currency derivatives

 
66

 

 
66

 

 
41

 
15

 
56

Commodity derivatives

 
56

 
2

 
58

 

 
29

 
4

 
33

Total derivatives

 
265

 
423

 
688

 

 
167

 
323

 
490

TOTAL LIABILITIES
$

 
$
265

 
$
423

 
$
688

 
$

 
$
167

 
$
323

 
$
490


As of June 30, 2016, all AFS debt securities had stated maturities within one year. Gains and losses on the sale of investments are determined using the specific-identification method. For the three and six months ended June 30, 2016 and 2015 no other-than-temporary impairments of marketable securities were recognized in earnings or OCI. The table below presents gross proceeds from the sale of available for sale securities during the periods indicated (in millions):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Gross proceeds from sale of AFS securities
$
785

 
$
1,170

 
$
2,404

 
$
2,180

The following tables present a reconciliation of net derivative assets and liabilities by type measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2016 and 2015 (in millions). Transfers between Level 3 and Level 2 are determined as of the end of the reporting period and principally result from changes in the significance of unobservable inputs used to calculate the credit valuation adjustment.
Three Months Ended June 30, 2016
Interest Rate
 
Foreign Currency
 
Commodity
 
Total
Balance at the beginning of the period
$
(416
)
 
$
290

 
$

 
$
(126
)
Total realized and unrealized gains (losses):
 
 
 
 
 
 
 
Included in earnings

 
(31
)
 
2

 
(29
)
Included in other comprehensive income — derivative activity
(80
)
 

 

 
(80
)
Included in other comprehensive income — foreign currency translation activity
1

 
(4
)
 

 
(3
)
Included in regulatory (assets) liabilities

 

 
11

 
11

Settlements
21

 
(3
)
 
(2
)
 
16

Transfers of liabilities into Level 3
(17
)
 

 

 
(17
)
Transfers of liabilities out of Level 3
70

 
19

 

 
89

Balance at the end of the period
$
(421
)
 
$
271

 
$
11

 
$
(139
)
Total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities held at the end of the period
$
1

 
$
(28
)
 
$
2

 
$
(25
)

8




Three Months Ended June 30, 2015
Interest Rate
 
Foreign Currency
 
Commodity
 
Cross Currency
 
Total
Balance at the beginning of the period
$
(302
)
 
$
223

 
$
4

 
$
(33
)
 
$
(108
)
Total realized and unrealized gains (losses):
 
 
 
 
 
 
 
 
 
Included in earnings

 
7

 

 

 
7

Included in other comprehensive income — derivative activity
57

 

 

 

 
57

Included in other comprehensive income — foreign currency translation activity
(4
)
 
(6
)
 

 

 
(10
)
Included in regulatory liabilities

 

 
8

 

 
8

Settlements
5

 
(2
)
 
5

 
1

 
9

Transfers of liabilities out of Level 3
53

 

 

 
32

 
85

Balance at the end of the period
$
(191
)
 
$
222

 
$
17

 
$

 
$
48

Total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities held at the end of the period
$

 
$
5

 
$
(1
)
 
$

 
$
4

Six Months Ended June 30, 2016
Interest Rate
 
Foreign Currency
 
Commodity
 
Total
Balance at the beginning of the period
$
(304
)
 
$
277

 
$
3

 
$
(24
)
Total realized and unrealized gains (losses):
 
 
 
 
 
 

Included in earnings
2

 
16

 
2

 
20

Included in other comprehensive income — derivative activity
(174
)
 
5

 

 
(169
)
Included in other comprehensive income — foreign currency translation activity
(1
)
 
(38
)
 

 
(39
)
Included in regulatory liabilities

 

 
11

 
11

Settlements
37

 
(5
)
 
(5
)
 
27

Transfers of liabilities into Level 3
(51
)
 

 

 
(51
)
Transfers of liabilities out of Level 3
70

 
16

 

 
86

Balance at the end of the period
$
(421
)
 
$
271

 
$
11

 
$
(139
)
Total gains for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities held at the end of the period
$
5

 
$
17

 
$
2

 
$
24

Six Months Ended June 30, 2015
Interest Rate
 
Foreign Currency
 
Commodity
 
Total
Balance at the beginning of the period
$
(210
)
 
$
209

 
$
6

 
$
5

Total realized and unrealized gains (losses):
 
 
 
 
 
 
 
Included in earnings

 
30

 
2

 
32

Included in other comprehensive income — derivative activity
3

 

 

 
3

Included in other comprehensive income — foreign currency translation activity
7

 
(13
)
 

 
(6
)
Included in regulatory liabilities

 

 
8

 
8

Settlements
9

 
(4
)
 
1

 
6

Balance at the end of the period
$
(191
)
 
$
222

 
$
17

 
$
48

Total gains for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities held at the end of the period
$

 
$
26

 
$
2

 
$
28

The table below summarizes the significant unobservable inputs used for Level 3 derivative assets (liabilities) as of June 30, 2016 (in millions, except range amounts):
Type of Derivative
 
Fair Value
 
Unobservable Input
 
Amount or Range (Weighted Avg)
Interest rate
 
$
(421
)
 
Subsidiaries’ credit spreads
 
2.9% to 11.2% (4.4%)
Foreign currency:
 
 
 
 
 
 
Argentine Peso
 
271

 
Argentine Peso to USD currency exchange rate after one year
 
18.6 to 35.2 (26.8)
Other
 
11

 
 
 
 
Total
 
$
(139
)
 
 
 
 
Nonrecurring Measurements
When evaluating impairment of long-lived assets and equity method investments, the Company measures fair value using the applicable fair value measurement guidance. Impairment expense is measured by comparing the fair value at the evaluation date to its then-latest available carrying amount. The following table summarizes our major categories of assets and liabilities measured at fair value on a nonrecurring basis and their level within the fair value hierarchy (in millions):

9




Six Months Ended June 30, 2016
Measurement Date
 
Carrying Amount (1)
 
Fair Value
 
Pretax Loss
Assets
 
Level 1
 
Level 2
 
Level 3
 
Long-lived assets held and used: (2)
 
 
 
 
 
 
 
 
 
 
 
DPL
06/30/2016
 
$
324

 
$

 
$

 
$
89

 
$
235

Buffalo Gap II
03/31/2016
 
251

 

 

 
92

 
159

Discontinued operations and held-for-sale businesses: (3)
 
 
 
 
 
 
 
 
 
 
 
Sul
06/30/2016
 
1,581

 

 
470

 

 
783

Six Months Ended June 30, 2015
Measurement Date
 
Carrying Amount (1)
 
Fair Value
 
Pretax Loss
Assets
 
Level 1
 
Level 2
 
Level 3
 
Long-lived assets held and used: (2)
 
 
 
 
 
 
 
 
 
 
 
UK Wind
06/30/2015
 
$
38

 
$

 
$
1

 
$

 
$
37

Other
Various
 
29

 

 
21

 

 
8

Equity method investments:
 
 
 
 
 
 
 
 
 
 
 
 Solar Spain
02/09/2015
 
29

 

 

 
29

 

_____________________________
(1) 
Represents the carrying values at the dates of measurement, before fair value adjustment.
(2) 
See Note 13—Asset Impairment Expense for further information.
(3) 
Per the Company’s policy, pre-tax loss is limited to the impairment of long-lived assets. Any additional loss will be recognized on completion of the sale. See Note 15—Discontinued Operations and Held-for-Sale Businesses for further information.
The following table summarizes the significant unobservable inputs used in the Level 3 measurement on a nonrecurring basis during the six months ended June 30, 2016 (in millions, except range amounts):
 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Range (Weighted Average)
Long-lived assets held and used:
 
 
 
 
 
 
 
DPL
$
89

 
Discounted cash flow
 
Annual revenue growth
 
-11% to 13% (1%)

 
 
 
 
 
Annual pretax operating margin
 
-50% to 60% (5%)

 
 
 
 
 
Weighted-average cost of capital
 
7% to 12%

Buffalo Gap II
$
92

 
Discounted cash flow
 
Annual revenue growth
 
-17% to 21% (20%)

 
 
 
 
 
Annual pretax operating margin
 
-166% to 48% (18%)

 
 
 
 
 
Weighted-average cost of capital
 
9
%
Financial Instruments not Measured at Fair Value in the Condensed Consolidated Balance Sheets
The next table presents (in millions) the carrying amount, fair value and fair value hierarchy of the Company’s financial assets and liabilities that are not measured at fair value in the Condensed Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015, but for which fair value is disclosed:
 
 
June 30, 2016
 
 
Carrying
Amount
 
Fair Value
 
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
Accounts receivable — noncurrent (1)
$
224

 
$
316

 
$

 
$

 
$
316

Liabilities:
Non-recourse debt
15,871

 
16,216

 

 
14,761

 
1,455

 
Recourse debt
4,909

 
5,176

 

 
5,176

 

 
 
December 31, 2015
 
 
Carrying
Amount
 
Fair Value
 
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
Accounts receivable — noncurrent (1)
$
238

 
$
310

 
$

 
$
20

 
$
290

Liabilities:
Non-recourse debt
15,115

 
15,592

 

 
13,325

 
2,267

 
Recourse debt
4,966

 
4,696

 

 
4,696

 

_____________________________
(1) 
These amounts principally relate to amounts due from CAMMESA, and are included in Noncurrent assets—Other in the accompanying Condensed Consolidated Balance Sheets. The fair value and carrying amount of these receivables exclude VAT of $24 million and $27 million as of June 30, 2016 and December 31, 2015, respectively.
4. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
There are no changes to the information disclosed in Note 1—General and Summary of Significant Accounting PoliciesDerivatives and Hedging Activities of Item 8.—Financial Statements and Supplementary Data in the 2015 Form 10-K.

10




Volume of Activity — The following table presents the Company’s significant outstanding notional (in millions) by type of derivative as of June 30, 2016, regardless of whether they are in qualifying cash flow hedging relationships, and the dates through which the maturities for each type of derivative range:
Derivatives
 
Current Notional Translated to USD
 
Latest Maturity
Interest Rate (LIBOR and EURIBOR)
 
$
3,267

 
2033
Cross-Currency Swaps (Chilean Unidad de Fomento and Chilean Peso)
 
375

 
2029
Foreign Currency:
 
 
 
 
Argentine Peso
 
161

 
2026
Chilean Unidad de Fomento
 
264

 
2019
Others, primarily with weighted average remaining maturities of a year or less
 
861

 
2018
Accounting and Reporting Assets and Liabilities — The following tables present the fair value of assets and liabilities related to the Company’s derivative instruments as of June 30, 2016 and December 31, 2015 (in millions):
Fair Value
June 30, 2016
 
December 31, 2015
Assets
Designated
 
Not Designated
 
Total
 
Designated
 
Not Designated
 
Total
Cross-currency derivatives
$
1

 
$

 
$
1

 
$

 
$

 
$

Foreign currency derivatives
10

 
307

 
317

 
8

 
319

 
327

Commodity derivatives
27

 
39

 
66

 
30

 
18

 
48

Total assets
$
38

 
$
346

 
$
384

 
$
38

 
$
337

 
$
375

Liabilities
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives
$
524

 
$
1

 
$
525

 
$
358

 
$

 
$
358

Cross-currency derivatives
39

 

 
39

 
43

 

 
43

Foreign currency derivatives
36

 
30

 
66

 
35

 
21

 
56

Commodity derivatives
26

 
32

 
58

 
12

 
21

 
33

Total liabilities
$
625

 
$
63

 
$
688

 
$
448

 
$
42

 
$
490

 
June 30, 2016
 
December 31, 2015
Fair Value
Assets
 
Liabilities
 
Assets
 
Liabilities
Current
$
104

 
$
172

 
$
86

 
$
144

Noncurrent
280

 
516

 
289

 
346

Total
$
384

 
$
688

 
$
375

 
$
490

 
 
 
 
 
 
 
 
Credit Risk-Related Contingent Features (1)
 
 
 
 
June 30, 2016
 
December 31, 2015
Present value of liabilities subject to collateralization
 
$
68

 
$
58

Cash collateral held by third parties or in escrow
 
$
34

 
$
38

 _____________________________
(1) 
Based on the credit rating of certain subsidiaries
Earnings and Other Comprehensive (Loss) Income — The next table presents (in millions) the pretax gains (losses) recognized in AOCL and earnings related to all derivative instruments for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
2016
 
2015
 
2016
 
2015
Effective portion of cash flow hedges:
 
 
 
 
 
 
 
Gain (Losses) recognized in AOCL
 
 
 
 
 
 
 
Interest rate derivatives
$
(90
)
 
$
94

 
$
(220
)
 
$
(4
)
Cross-currency derivatives
(11
)
 
1

 
(3
)
 
1

Foreign currency derivatives
(5
)
 
(1
)
 
(5
)
 
1

Commodity derivatives
(12
)
 
8

 
25

 
15

Total
$
(118
)
 
$
102

 
$
(203
)
 
$
13

Gain (Losses) reclassified from AOCL into earnings
 
 
 
 
 
 
 
Interest rate derivatives
$
(26
)
 
$
(16
)
 
$
(55
)
 
$
(40
)
Cross-currency derivatives
1

 

 
10

 
(1
)
Foreign currency derivatives
2

 
2

 
4

 
8

Commodity derivatives
16

 
6

 
38

 
11

Total
$
(7
)
 
$
(8
)
 
$
(3
)

$
(22
)
Gain (Losses) recognized in earnings related to
 
 
 
 
 
 
 
Ineffective portion of cash flow hedges
$

 
$
(1
)
 
$
2

 
$
(3
)
Not designated as hedging instruments:
 
 
 
 
 
 
 
Foreign currency derivatives
(24
)
 
7

 
15

 
39

Commodity derivatives and Other
(9
)
 

 
(17
)
 
(8
)
Total
$
(33
)
 
$
7

 
$
(2
)
 
$
31

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Twelve Months Ended June 30, 2017
AOCL expected to decrease pre-tax income from continuing operations (1)
 
$
119

_____________________________
(1) 
Primarily due to interest rate derivatives

11




5. FINANCING RECEIVABLES
Financing receivables are defined as receivables with contractual maturities of greater than one year. The Company’s financing receivables are primarily related to amended agreements or government resolutions that are due from CAMMESA. Presented below are financing receivables by country as of the periods indicated (in millions):
 
June 30, 2016
 
December 31, 2015
Argentina
$
218

 
$
237

United States
21

 
20

Brazil
9

 
7