Q2 2013 Form 10-Q



 
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, 2013
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 August 2, 2013 was 741,577,577.
 




THE AES CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2013
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.
 
 




PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
THE AES CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)

 
June 30,
2013
 
December 31,
2012
 
 
(in millions, except share
and per share data)
ASSETS
 
 
 
 
CURRENT ASSETS
 
 
 
 
Cash and cash equivalents
 
$
1,611

 
$
1,966

Restricted cash
 
765

 
748

Short-term investments
 
703

 
696

Accounts receivable, net of allowance for doubtful accounts of $287 and $306, respectively
 
2,417

 
2,671

Inventory
 
763

 
766

Deferred income taxes
 
207

 
222

Prepaid expenses
 
187

 
230

Other current assets
 
1,157

 
1,103

Current assets of discontinued operations and held for sale assets
 
—

 
63

Total current assets
 
7,810

 
8,465

NONCURRENT ASSETS
 
 
 
 
Property, Plant and Equipment:
 
 
 
 
Land
 
957

 
1,007

Electric generation, distribution assets and other
 
32,058

 
31,656

Accumulated depreciation
 
(9,747
)
 
(9,645
)
Construction in progress
 
2,600

 
2,783

Property, plant and equipment, net
 
25,868

 
25,801

Other Assets:
 
 
 
 
Investments in and advances to affiliates
 
1,177

 
1,196

Debt service reserves and other deposits
 
495

 
565

Goodwill
 
1,999

 
1,999

Other intangible assets, net of accumulated amortization of $200 and $276, respectively
 
408

 
429

Deferred income taxes
 
896

 
996

Other noncurrent assets
 
2,183

 
2,240

Noncurrent assets of discontinued operations and held for sale assets
 
—

 
139

Total other assets
 
7,158

 
7,564

TOTAL ASSETS
 
$
40,836

 
$
41,830

LIABILITIES AND EQUITY
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
Accounts payable
 
$
2,622

 
$
2,631

Accrued interest
 
275

 
295

Accrued and other liabilities
 
2,335

 
2,505

Non-recourse debt, including $287 and $282, respectively, related to variable interest entities
 
2,923

 
2,829

Recourse debt
 
118

 
11

Current liabilities of discontinued operations and held for sale businesses
 
—

 
48

Total current liabilities
 
8,273

 
8,319

NONCURRENT LIABILITIES
 
 
 
 
Non-recourse debt, including $1,172 and $1,076, respectively, related to variable interest entities
 
12,476

 
12,554

Recourse debt
 
5,553

 
5,951

Deferred income taxes
 
1,195

 
1,237

Pension and other post-retirement liabilities
 
2,203

 
2,455

Other noncurrent liabilities
 
3,251

 
3,705

Noncurrent liabilities of discontinued operations and held for sale businesses
 
—

 
17

Total noncurrent liabilities
 
24,678

 
25,919

Contingencies and Commitments (see Note 8)
 

 

Cumulative preferred stock of subsidiaries
 
78

 
78

EQUITY
 
 
 
 
THE AES CORPORATION STOCKHOLDERS’ EQUITY
 
 
 
 
Common stock ($0.01 par value, 1,200,000,000 shares authorized; 812,248,090 issued and 745,144,098 outstanding at June 30, 2013 and 810,679,839 issued and 744,263,855 outstanding at December 31, 2012)
 
8

 
8

Additional paid-in capital
 
8,481

 
8,525

Accumulated deficit
 
(15
)
 
(264
)
Accumulated other comprehensive loss
 
(2,939
)
 
(2,920
)
Treasury stock, at cost (67,103,992 shares at June 30, 2013 and 66,415,984 shares at December 31, 2012)
 
(786
)
 
(780
)
Total AES Corporation stockholders’ equity
 
4,749

 
4,569

NONCONTROLLING INTERESTS
 
3,058

 
2,945

Total equity
 
7,807

 
7,514

TOTAL LIABILITIES AND EQUITY
 
$
40,836

 
$
41,830

See Notes to Condensed Consolidated Financial Statements.

1



THE AES CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
 
2013
 
2012
 
2013
 
2012
 
 
(in millions, except per share amounts)
Revenue:
 
 
 
 
 
 
 
 
Regulated
 
$
2,093

 
$
2,105

 
$
4,339

 
$
4,589

Non-Regulated
 
1,975

 
1,984

 
3,994

 
4,086

Total revenue
 
4,068

 
4,089

 
8,333

 
8,675

Cost of Sales:
 
 
 
 
 
 
 
 
Regulated
 
(1,738
)
 
(1,869
)
 
(3,632
)
 
(3,925
)
Non-Regulated
 
(1,412
)
 
(1,527
)
 
(3,028
)
 
(2,985
)
Total cost of sales
 
(3,150
)
 
(3,396
)
 
(6,660
)
 
(6,910
)
Gross margin
 
918

 
693

 
1,673

 
1,765

General and administrative expenses
 
(59
)
 
(74
)
 
(120
)
 
(161
)
Interest expense
 
(346
)
 
(384
)
 
(723
)
 
(800
)
Interest income
 
63

 
82

 
129

 
173

Loss on extinguishment of debt
 
(165
)
 
—

 
(212
)
 
—

Other expense
 
(18
)
 
(15
)
 
(46
)
 
(43
)
Other income
 
13

 
14

 
81

 
32

Gain on sale of investments
 
20

 
5

 
23

 
184

Asset impairment expense
 
—

 
(18
)
 
(48
)
 
(28
)
Foreign currency transaction losses
 
(17
)
 
(101
)
 
(49
)
 
(102
)
Other non-operating expense
 
—

 
(1
)
 
—

 
(50
)
INCOME FROM CONTINUING OPERATIONS BEFORE TAXES AND EQUITY IN EARNINGS OF AFFILIATES
 
409

 
201

 
708

 
970

Income tax expense
 
(81
)
 
(75
)
 
(163
)
 
(343
)
Net equity in earnings of affiliates
 
2

 
11

 
6

 
24

INCOME FROM CONTINUING OPERATIONS
 
330

 
137

 
551

 
651

Income (loss) from operations of discontinued businesses, net of income tax (benefit) expense of $1, $3, $0, and $5, respectively
 
—

 
(5
)
 
14

 
1

Net gain (loss) from disposal and impairments of discontinued businesses, net of income tax (benefit) expense of $(1), $61, $(2), and $61, respectively
 
3

 
75

 
(33
)
 
70

NET INCOME
 
333

 
207

 
532

 
722

Noncontrolling interests:
 
 
 
 
 
 
 
 
Less: Income from continuing operations attributable to noncontrolling interests
 
(166
)
 
(67
)
 
(281
)
 
(240
)
Less: Income from discontinued operations attributable to noncontrolling interests
 
—

 
—

 
(2
)
 
(1
)
Total net income attributable to noncontrolling interests
 
(166
)
 
(67
)
 
(283
)
 
(241
)
NET INCOME ATTRIBUTABLE TO THE AES CORPORATION
 
$
167

 
$
140

 
$
249

 
$
481

AMOUNTS ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS:
 
 
 
 
 
 
 
 
Income from continuing operations, net of tax
 
$
164

 
$
70

 
$
270

 
$
411

Income (loss) from discontinued operations, net of tax
 
3

 
70

 
(21
)
 
70

Net income
 
$
167

 
$
140

 
$
249

 
$
481

BASIC EARNINGS PER SHARE:
 
 
 
 
 
 
 
 
Income from continuing operations attributable to The AES Corporation common stockholders, net of tax
 
$
0.22

 
$
0.09

 
$
0.36

 
$
0.54

Income (loss) from discontinued operations attributable to The AES Corporation common stockholders, net of tax
 
—

 
0.09

 
(0.03
)
 
0.09

NET INCOME ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS
 
$
0.22

 
$
0.18

 
$
0.33

 
$
0.63

DILUTED EARNINGS PER SHARE:
 
 
 
 
 
 
 
 
Income from continuing operations attributable to The AES Corporation common stockholders, net of tax
 
$
0.22

 
$
0.09

 
$
0.36

 
$
0.54

Income (loss) from discontinued operations attributable to The AES Corporation common stockholders, net of tax
 
—

 
0.09

 
(0.03
)
 
0.09

NET INCOME ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS
 
$
0.22

 
$
0.18

 
$
0.33

 
$
0.63

DIVIDENDS DECLARED PER COMMON SHARE
 
$
0.08

 
$
—

 
$
0.08

 
$
—



See Notes to Condensed Consolidated Financial Statements.

2



THE AES CORPORATION
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)

 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
 
2013
 
2012
 
2013
 
2012
 
 
(in millions)
NET INCOME
 
$
333

 
$
207

 
$
532

 
$
722

Available-for-sale securities activity:
 
 
 
 
 
 
 
 
Change in fair value of available-for-sale securities, net of income tax (expense) benefit of $0, $0, $1 and $0, respectively
 
(1
)
 
1

 
(1
)
 
1

Reclassification to earnings, net of income tax (expense) benefit of $0, $0, $0 and $0, respectively
 
1

 
(1
)
 
1

 
(1
)
Total change in fair value of available-for-sale securities
 
—

 
—

 
—

 
—

Foreign currency translation activity:
 
 
 
 
 
 
 
 
Foreign currency translation adjustments, net of income tax (expense) benefit of $2, $2, $2 and $1, respectively
 
(226
)
 
(383
)
 
(258
)
 
(241
)
Reclassification to earnings, net of income tax (expense) benefit of $0, $0, $0 and $0, respectively
 
44

 
(2
)
 
41

 
(3
)
Total foreign currency translation adjustments
 
(182
)
 
(385
)
 
(217
)
 
(244
)
Derivative activity:
 
 
 
 
 
 
 
 
Change in derivative fair value, net of income tax (expense) benefit of $(28), $24, $(28) and $20, respectively
 
102

 
(133
)
 
86

 
(112
)
Reclassification to earnings, net of income tax (expense) benefit of $(15), $(5), $(22) and $(33), respectively
 
61

 
40

 
85

 
126

Total change in fair value of derivatives
 
163

 
(93
)
 
171

 
14

Pension activity:
 
 
 
 
 
 
 
 
Reclassification to earnings due to amortization of net actuarial loss, net of income tax (expense) benefit of $(7), $(3), $(14) and $(6), respectively
 
13

 
7

 
27

 
13

Total pension adjustments
 
13

 
7

 
27

 
13

OTHER COMPREHENSIVE (LOSS)
 
(6
)
 
(471
)
 
(19
)
 
(217
)
COMPREHENSIVE INCOME (LOSS)
 
327

 
(264
)
 
513

 
505

Less: Comprehensive (income) loss attributable to noncontrolling interests
 
(147
)
 
114

 
(283
)
 
(131
)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION
 
$
180

 
$
(150
)
 
$
230

 
$
374




See Notes to Condensed Consolidated Financial Statements.

3



THE AES CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
 
Six Months Ended 
 June 30,
 
 
2013
 
2012
 
 
(in millions)
OPERATING ACTIVITIES:
 
 
 
 
Net income
 
$
532

 
$
722

Adjustments to net income:
 
 
 
 
Depreciation and amortization
 
661

 
706

Gain from sale of investments and impairment expense
 
46

 
(71
)
Deferred income taxes
 
(46
)
 
72

Provisions for contingencies
 
36

 
35

Loss on the extinguishment of debt
 
212

 
—

(Gain) loss on disposals and impairments - discontinued operations
 
31

 
(131
)
Other
 
23

 
50

Changes in operating assets and liabilities
 
 
 
 
(Increase) decrease in accounts receivable
 
191

 
(175
)
(Increase) decrease in inventory
 
(12
)
 
(43
)
(Increase) decrease in prepaid expenses and other current assets
 
55

 
18

(Increase) decrease in other assets
 
(147
)
 
(293
)
Increase (decrease) in accounts payable and other current liabilities
 
(252
)
 
228

Increase (decrease) in income tax payables, net and other tax payables
 
(134
)
 
(249
)
Increase (decrease) in other liabilities
 
(11
)
 
245

Net cash provided by operating activities
 
1,185

 
1,114

INVESTING ACTIVITIES:
 
 
 
 
Capital expenditures
 
(866
)
 
(1,071
)
Acquisitions - net of cash acquired
 
(3
)
 
(13
)
Proceeds from the sale of businesses, net of cash sold
 
135

 
332

Proceeds from the sale of assets
 
43

 
2

Sale of short-term investments
 
2,311

 
3,605

Purchase of short-term investments
 
(2,381
)
 
(3,261
)
Decrease (increase) in restricted cash
 
14

 
(73
)
Decrease in debt service reserves and other assets
 
18

 
26

Proceeds from government grants for asset construction
 
1

 
117

Other investing
 
22

 
(16
)
Net cash used in investing activities
 
(706
)
 
(352
)
FINANCING ACTIVITIES:
 
 
 
 
Borrowings (repayments) under the revolving credit facilities, net
 
33

 
(310
)
Issuance of recourse debt
 
750

 
—

Issuance of non-recourse debt
 
2,383

 
579

Repayments of recourse debt
 
(1,206
)
 
(5
)
Repayments of non-recourse debt
 
(2,169
)
 
(328
)
Payments for financing fees
 
(127
)
 
(17
)
Distributions to noncontrolling interests
 
(211
)
 
(578
)
Contributions from noncontrolling interests
 
76

 
12

Dividends paid on AES common stock
 
(60
)
 
—

Financed capital expenditures
 
(257
)
 
(12
)
Purchase of treasury stock
 
(18
)
 
(231
)
Other financing
 
7

 
28

Net cash used in financing activities
 
(799
)
 
(862
)
Effect of exchange rate changes on cash
 
(39
)
 
3

Decrease in cash of discontinued and held for sale businesses
 
4

 
97

Total decrease in cash and cash equivalents
 
(355
)
 
—

Cash and cash equivalents, beginning
 
1,966

 
1,688

Cash and cash equivalents, ending
 
$
1,611

 
$
1,688

SUPPLEMENTAL DISCLOSURES:
 
 
 
 
Cash payments for interest, net of amounts capitalized
 
$
700

 
$
783

Cash payments for income taxes, net of refunds
 
$
432

 
$
525


See Notes to Condensed Consolidated Financial Statements.

4



THE AES CORPORATION
Notes to Condensed Consolidated Financial Statements
For the Three and Six Months Ended June 30, 2013 and 2012
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 14 — 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,” “the Parent” 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 generally accepted accounting principles in the United States of America (“U.S. GAAP”), as contained in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification, for interim financial information and Article 10 of Regulation S-X issued by the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all the information and footnotes required by U.S. 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, 2013 are not necessarily indicative of results that may be expected for the year ending December 31, 2013. The accompanying condensed consolidated financial statements are unaudited and should be read in conjunction with the 2012 audited consolidated financial statements and notes thereto, which are included in the 2012 Form 10-K filed with the SEC on February 26, 2013 (the “2012 Form 10-K”).
Accounting Pronouncements Issued But Not Yet Effective
The following accounting standards have been issued, but are not yet effective for, and have not been adopted by AES.
ASU No. 2013-11, Income Taxes (Topic 740), "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB Emerging Issues Task Force)."
In July 2013, the FASB issued ASU No. 2013-11, which requires the netting of unrecognized tax benefits (“UTBs”) against a deferred tax asset for a loss or other carryforward that would apply in settlement of uncertain tax positions.  Under the new standard, UTBs will be netted against all available same-jurisdiction loss or other tax carryforwards that would be utilized, rather than only against carryforwards that are created by the UTBs.  ASU No. 2013-11 is effective for annual reporting periods beginning after December 15, 2013 and interim periods therein.  The new standard requires prospective adoption, but allows optional retrospective adoption.  Early adoption is permitted.  The Company is currently evaluating the method of adoption and the impact of adopting ASU No. 2013-11 on the Company's financial position.  It will have no impact on the results of operations and cash flows.
ASU No. 2013-7, Presentation of Financial Statements (Topic 205), "Liquidation Basis of Accounting"
In April 2013, the FASB issued ASU No. 2013-7, which requires an entity to prepare financial statements on a liquidation basis when liquidation is imminent, unless the liquidation is the same as the plan specified in an entity's governing documents created at its inception. Under the liquidation basis of accounting, an entity will measure and present assets at the estimated amount of cash proceeds or other consideration that it expects to collect in settling or disposing of those assets in carrying out its plan for liquidation. This includes assets the entity previously had not recognized under U.S. GAAP, but expects to either sell in liquidation or use in settling liabilities (for example, trademarks). An entity will recognize and measure its liabilities in accordance with U.S. GAAP that otherwise applies to those liabilities. An entity should not anticipate it will be legally released from being the primary obligor under those liabilities, either judicially or by creditors. An entity will also accrue and separately present the costs it expects to incur and the income it expects to earn during the course of the liquidation, including any costs

5



associated with the disposal or settlement of its assets and liabilities. ASU No. 2013-7 also requires additional disclosures. ASU No. 2013-7 is effective for annual reporting periods beginning after December 15, 2013. Early adoption is permitted. The adoption of ASU No, 2013-7 is not expected to have a significant impact on the Company's consolidated financial position, results of operations and cash flows.
ASU No. 2013-5, Foreign Currency Matters (Topic 830), “Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity.”
In March 2013, the FASB issued ASU No. 2013-5, which requires an entity to release any related cumulative translation adjustment into net income when it ceases to have a controlling financial interest in a subsidiary or group of assets that is a business (other than a sale of in-substance real estate) within a foreign entity. Accordingly, the cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. For an equity method investment that is a foreign entity, the partial sale guidance still applies. As such, a pro rata portion of the cumulative translation adjustment should be released into net income upon a partial sale of such an equity method investment. In those instances, the cumulative adjustment is released into net income only if the partial sale represents a complete or substantially complete liquidation of the foreign entity that contains the equity method investment. The amendments are effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. Early adoption is permitted. The Company is currently evaluating the impact of adopting ASU No. 2013-5 on the Company’s financial position and results of operations.
2. INVENTORY
The following table summarizes the Company’s inventory balances as of June 30, 2013 and December 31, 2012:
 
 
June 30, 2013
 
December 31, 2012
 
 
(in millions)
Coal, fuel oil and other raw materials
 
$
363

 
$
373

Spare parts and supplies
 
400

 
393

Total
 
$
763

 
$
766

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 have 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. There were no changes in fair valuation techniques during the period and the Company continues to follow the valuation techniques described in Note 4. — Fair Value in Item 8. — Financial Statements and Supplementary Data of its 2012 Form 10-K.

6




Recurring Measurements
The following table sets forth, 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 June 30, 2013 and December 31, 2012:
 
 
June 30, 2013
 
December 31, 2012
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
(in millions)
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AVAILABLE-FOR-SALE:(1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unsecured debentures
 
$
—

 
$
415

 
$
—

 
$
415

 
$
—

 
$
448

 
$
—

 
$
448

Certificates of deposit
 
—

 
196

 
—

 
196

 
—

 
143

 
—

 
143

Government debt securities
 
—

 
25

 
—

 
25

 
—

 
34

 
—

 
34

Subtotal
 
—

 
636

 
—

 
636

 
—

 
625

 
—

 
625

Equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mutual funds
 
—

 
52

 
—

 
52

 
—

 
56

 
—

 
56

Subtotal
 
—

 
52

 
—

 
52

 
—

 
56

 
—

 
56

Total available-for-sale
 
—

 
688

 
—

 
688

 
—

 
681

 
—

 
681

TRADING:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mutual funds
 
13

 
—

 
—

 
13

 
12

 
—

 
—

 
12

Total trading
 
13

 
—

 
—

 
13

 
12

 
—

 
—

 
12

DERIVATIVES:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives
 
—

 
40

 
—

 
40

 
—

 
2

 
—

 
2

Cross currency derivatives
 
—

 
5

 
—

 
5

 
—

 
6

 
—

 
6

Foreign currency derivatives
 
—

 
26

 
78

 
104

 
—

 
2

 
79

 
81

Commodity derivatives
 
—

 
27

 
12

 
39

 
—

 
8

 
3

 
11

Total derivatives
 
—

 
98

 
90

 
188

 
—

 
18

 
82

 
100

TOTAL ASSETS
 
$
13

 
$
786

 
$
90

 
$
889

 
$
12

 
$
699

 
$
82

 
$
793

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DERIVATIVES:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives
 
$
—

 
$
326

 
$
63

 
$
389

 
$
—

 
$
153

 
$
412

 
$
565

Cross currency derivatives
 
—

 
8

 
—

 
8

 
—

 
6

 
—

 
6

Foreign currency derivatives
 
—

 
16

 
8

 
24

 
—

 
7

 
7

 
14

Commodity derivatives
 
—

 
17

 
68

 
85

 
—

 
13

 
59

 
72

Total derivatives
 
—

 
367

 
139

 
506

 
—

 
179

 
478

 
657

TOTAL LIABILITIES
 
$
—

 
$
367

 
$
139

 
$
506

 
$
—

 
$
179

 
$
478

 
$
657

 _____________________________
(1) 
Amortized cost approximated fair value at June 30, 2013 and December 31, 2012.

7



The following tables present a reconciliation of net derivative assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2013 and 2012 (presented net by type of derivative where any foreign currency impacts are presented as part of gains (losses) in earnings or other comprehensive income as appropriate). 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, 2013
 
 
Interest
Rate
 
Foreign
Currency
 
Commodity
 
Total
 
 
(in millions)
Balance at April 1
 
$
(72
)
 
$
71

 
$
(68
)
 
$
(69
)
Total gains (losses) (realized and unrealized):
 
 
 
 
 
 
 
 
Included in earnings
 
(4
)
 
9

 
—

 
5

Included in other comprehensive income
 
13

 
—

 
—

 
13

Included in regulatory (assets) liabilities
 
—

 
—

 
11

 
11

Settlements
 
4

 
(1
)
 
1

 
4

Transfers of assets (liabilities) into Level 3
 
(42
)
 
—

 
—

 
(42
)
Transfers of (assets) liabilities out of Level 3
 
38

 
(9
)
 
—

 
29

Balance at June 30
 
$
(63
)
 
$
70

 
$
(56
)
 
$
(49
)
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
 
$
—

 
$
11

 
$
1

 
$
12

 
 
Three Months Ended June 30, 2012
 
 
Interest
Rate
 
Foreign
Currency
 
Commodity
 
Total
 
 
(in millions)
Balance at April 1
 
$
(124
)
 
$
48

 
$
(46
)
 
$
(122
)
Total gains (losses) (realized and unrealized):
 
 
 
 
 
 
 
 
Included in earnings
 
—

 
—

 
(13
)
 
(13
)
Included in other comprehensive income
 
(58
)
 
—

 
—

 
(58
)
Included in regulatory (assets) liabilities
 
—

 
—

 
7

 
7

Settlements
 
6

 
(1
)
 
—

 
5

Transfers of assets (liabilities) into Level 3
 
(105
)
 
—

 
—

 
(105
)
Balance at June 30
 
$
(281
)
 
$
47

 
$
(52
)
 
$
(286
)
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
)
 
$
(13
)
 
$
(14
)
 
 
Six Months Ended June 30, 2013
 
 
Interest
Rate
 
Foreign
Currency
 
Commodity
 
Total
 
 
(in millions)
Balance at January 1
 
$
(412
)
 
$
73

 
$
(57
)
 
$
(396
)
Total gains (losses) (realized and unrealized):
 
 
 
 
 
 
 
 
Included in earnings
 
(4
)
 
8

 
(11
)
 
(7
)
Included in other comprehensive income
 
83

 
—

 
—

 
83

Included in regulatory (assets) liabilities
 
—

 
—

 
10

 
10

Settlements
 
48

 
(2
)
 
2

 
48

Transfers of assets (liabilities) into Level 3
 
—

 
—

 
—

 
—

Transfers of (assets) liabilities out of Level 3
 
222

 
(9
)
 
—

 
213

Balance at June 30
 
$
(63
)
 
$
70

 
$
(56
)
 
$
(49
)
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
 
$
—

 
$
7

 
$
(9
)
 
$
(2
)


8



 
 
Six Months Ended June 30, 2012
 
 
Interest
Rate
 
Cross
Currency
 
Foreign
Currency
 
Commodity
 
Total
 
 
(in millions)
Balance at January 1
 
$
(128
)
 
$
(18
)
 
$
51

 
$
(53
)
 
$
(148
)
Total gains (losses) (realized and unrealized):
 
 
 
 
 
 
 
 
 
 
Included in earnings
 
(1
)
 
—

 
(2
)
 
(5
)
 
(8
)
Included in other comprehensive income
 
(19
)
 
4

 
—

 
—

 
(15
)
Included in regulatory (assets) liabilities
 
—

 
—

 
—

 
7

 
7

Settlements
 
13

 
8

 
(2
)
 
(1
)
 
18

Transfers of assets (liabilities) into Level 3
 
(146
)
 
—

 
—

 
—

 
(146
)
Transfers of (assets) liabilities out of Level 3
 
—

 
6

 
—

 
—

 
6

Balance at June 30
 
$
(281
)
 
$
—

 
$
47

 
$
(52
)
 
$
(286
)
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
 
$
—

 
$
—

 
$
(3
)
 
$
(5
)
 
$
(8
)

The following table summarizes the significant unobservable inputs used for the Level 3 derivative assets (liabilities) as of June 30, 2013:
Type of Derivative
 
Fair Value
 
Unobservable Input
 
Amount or Range
(Weighted Average)
 
 
(in millions)
 
 
 
 
Interest rate
 
$
(63
)
 
Subsidiaries’ credit spreads
 
3.13% - 5.95% (4.47%)
Foreign currency:
 
 
 
 
 
 
Embedded derivative — Argentine Peso
 
77

 
Argentine Peso to U.S. Dollar currency exchange rate after 3 years
 
18.15 - 31.85 (25.68)
Other
 
(7
)
 
 
 
 
Commodity:
 
 
 
 
 
 
Embedded derivative — Aluminum
 
(65
)
 
Market price of power for customer in Cameroon (per KWh)
 
$0.06 - $0.14 ($0.12)
Other
 
9

 
 
 
 
Total
 
$
(49
)
 
 
 
 
Nonrecurring Measurements
When evaluating impairment of long-lived assets, discontinued operations and held for sale businesses, 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 of asset groups at the evaluation date to their carrying amount. The following table summarizes major categories of assets and liabilities measured at fair value on a nonrecurring basis during the period and their level within the fair value hierarchy:
 
 
Six Months Ended June 30, 2013
 
 
Carrying
Amount
 
Fair Value
 
Gross
Loss
 
 
Level 1
 
Level 2
 
Level 3
 
 
 
(in millions)
Assets
 
 
 
 
 
 
 
 
 
 
Long-lived assets held and used:(1)
 
 
 
 
 
 
 
 
 
 
Beaver Valley
 
$
61

 
$
—

 
$
—

 
$
15

 
$
46

Long-lived assets held for sale:(1)
 
 
 
 
 
 
 
 
 
 
Wind turbines
 
25

 
—

 
25

 
—

 
—

Discontinued operations and held for sale businesses:(2)
 
 
 
 
 
 
 
 
 
 
Ukraine utilities
 
143

 
—

 
113

 
—

 
34

 
 
Six Months Ended June 30, 2012
 
 
Carrying
Amount
 
Fair Value
 
Gross
Loss
 
 
Level 1
 
Level 2
 
Level 3
 
 
 
(in millions)
Assets
 
 
 
 
 
 
 
 
 
 
Long-lived assets held and used:(1)
 
 
 
 
 
 
 
 
 
 
Kelanitissa
 
$
22

 
$
—

 
$
—

 
$
10

 
$
12

Long-lived assets held for sale:(1)
 
 
 
 
 
 
 
 
 
 
St. Patrick
 
33

 
—

 
22

 
—

 
11

Equity method investments
 
205

 
—

 
155

 
—

 
50

_____________________________

9




(1) 
See Note 13 — Asset Impairment Expense for further information.
(2) 
See Note 14 — Discontinued Operations and Held For Sale Businesses for further information. Also, the gross loss equals the carrying amount of the disposal group less its fair value less costs to sell.

The following table summarizes the significant unobservable inputs used in the Level 3 measurement of long-lived assets during the six months ended June 30, 2013:
 
 
Fair Value
 
Valuation
Technique
 
Unobservable Input
 
Range
(Weighted  Average)
 
 
(in millions)
 
 
 
 
 
($ in millions)
Long-lived assets held and used:
 
 
 
 
 
 
 
 
Beaver Valley
 
$
15

 
Discounted cash flow
 
Annual revenue growth
 
3% to 45% (19%)

 
 
 
 
 
 
Annual pretax operating margin
 
-42% to 41% (25%)

 
 
 
 
 
 
Weighted-average cost of capital
 
7
%
Financial Instruments not Measured at Fair Value in the Condensed Consolidated Balance Sheets
The following table sets forth 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, 2013 and December 31, 2012, but for which fair value is disclosed.
 
 
Carrying
Amount
 
Fair Value
 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
 
(in millions)
June 30, 2013
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
Accounts receivable — noncurrent(1)
 
$
300

 
$
163

 
$
—

 
$
—

 
$
163

Liabilities
 
 
 
 
 
 
 
 
 
 
Non-recourse debt
 
15,399

 
16,394

 
—

 
14,096

 
2,298

Recourse debt
 
5,671

 
6,032

 
—

 
6,032

 
—

December 31, 2012
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
Accounts receivable — noncurrent(1)
 
$
304

 
$
188

 
$
—

 
$
—

 
$
188

Liabilities
 
 
 
 
 
 
 
 
 
 
Non-recourse debt
 
15,383

 
16,110

 
—

 
13,811

 
2,299

Recourse debt
 
5,962

 
6,628

 
—

 
6,628

 
—

_____________________________

(1) 
These accounts receivable principally relate to amounts due from the independent system operator in Argentina and are included in “Noncurrent assets — Other” in the accompanying condensed consolidated balance sheets. The fair value of these accounts receivable excludes value-added tax of $52 million and $55 million at June 30, 2013 and December 31, 2012, respectively.
4. INVESTMENTS IN MARKETABLE SECURITIES
The Company’s investments in marketable debt and equity securities as of June 30, 2013 and December 31, 2012 by security class and by level within the fair value hierarchy have been disclosed in Note 3 — Fair Value. The security classes are determined based on the nature and risk of a security and are consistent with how the Company manages, monitors and measures its marketable securities. As of June 30, 2013, all available-for-sale debt securities had stated maturities within one year.
The following table summarizes the pretax gains and losses related to available-for-sale and trading securities for the three and six months ended June 30, 2013 and 2012. Gains and losses on the sale of investments are determined using the specific identification method. For the three and six months ended June 30, 2013 and 2012, there were no realized losses on the sale of available-for-sale securities and no other-than-temporary impairment of marketable securities recognized in earnings or other comprehensive income.

10



 
 
Three Months Ended 
 June 30,
 
 
Six Months Ended 
 June 30,
 
 
2013
 
2012
 
 
2013
 
2012
 
 
(in millions)
Gains included in earnings that relate to trading securities held at the reporting date
 
$
—

 
$
—

 
 
$
1

 
$
—

Unrealized gains on available-for-sale securities included in other comprehensive income
 
1

 
—

 
 
1

 
—

Gains reclassified out of other comprehensive income into earnings
 
1

 
—

 
 
1

 
—

Gross proceeds from sales of available-for-sale securities
 
619

 
2,080

 
 
2,323

 
3,603

Gross realized gains on sales
 
—

 
1

 
 
—

 
1

5. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
There have been no changes to the information disclosed under “Derivatives and Hedging Activities” in Note 1 — General and Summary of Significant Accounting Policies included in Item 8. — Financial Statements and Supplementary Data in the 2012 Form 10-K.
Volume of Activity
The following tables set forth, by type of derivative, the Company’s outstanding notional under its derivatives and the weighted-average remaining term as of June 30, 2013 regardless of whether the derivative instruments are in qualifying cash flow hedging relationships:
 
 
Current
 
Maximum
 
 
 
 
Interest Rate and Cross Currency
 
Derivative
Notional
 
Derivative
Notional
Translated
to USD
 
Derivative
Notional
 
Derivative
Notional
Translated
to USD
 
Weighted-
Average
Remaining
Term
 
% of Debt
Currently
Hedged
by Index(2)
 
 
(in millions)
 
(in years)
 
 
Interest Rate Derivatives:(1)
 
 
 
 
 
 
 
 
 
 
 
 
LIBOR (U.S. Dollar)
 
3,539

 
$
3,539

 
5,043

 
$
5,043

 
9
 
73
%
EURIBOR (Euro)
 
591

 
769

 
592

 
770

 
13
 
65
%
LIBOR (British Pound)
 
68

 
104

 
68

 
104

 
7
 
83
%
Cross Currency Swaps:
 
 
 
 
 
 
 
 
 
 
 
 
Chilean Unidad de Fomento
 
6

 
252

 
6

 
252

 
8
 
85
%
_____________________________

(1) 
The Company’s interest rate derivative instruments primarily include accreting and amortizing notionals. The maximum derivative notional represents the largest notional at any point between June 30, 2013 and the maturity of the derivative instrument, which includes forward-starting derivative instruments. The interest rate and cross currency derivatives range in maturity through 2030 and 2028, respectively.
(2) 
The percentage of variable-rate debt currently hedged is based on the related index and excludes forecasted issuances of debt and variable-rate debt tied to other indices where the Company has no interest rate derivatives.

11



 
 
June 30, 2013
Foreign Currency Derivatives
 
Notional(1)
 
Notional
Translated
to USD
 
Weighted-
Average
Remaining
Term(2)
 
 
(in millions)
 
(in years)
Foreign Currency Options and Forwards:
 
 
 
 
 
 
Chilean Unidad de Fomento
 
6

 
$
255

 
1
Chilean Peso
 
46,233

 
91

 
<1
Brazilian Real
 
104

 
47

 
<1
Euro
 
35

 
45

 
<1
Colombian Peso
 
179,416

 
97

 
<1
Argentine Peso
 
83

 
15

 
<1
British Pound
 
28

 
43

 
<1
Embedded Foreign Currency Derivatives:
 
 
 
 
 
 
Argentine Peso
 
821

 
152

 
11
Kazakhstani Tenge
 
811

 
5

 
4
Euro
 
1

 
2

 
10
_____________________________

(1) 
Represents contractual notionals. The notionals for options have not been probability adjusted, which generally would decrease them.
(2) 
Represents the remaining tenor of our foreign currency derivatives weighted by the corresponding notional. These options and forwards and these embedded derivatives range in maturity through 2016 and 2026, respectively.
 
 
June 30, 2013
Commodity Derivatives
 
Notional
 
Weighted-Average
Remaining Term(1)
 
 
(in millions)
 
(in years)
Aluminum (MWh)(2)
 
13

 
7
Power (MWh)
 
9

 
2
_____________________________

(1) 
Represents the remaining tenor of our commodity derivatives weighted by the corresponding volume. These derivatives range in maturity through 2019.
(2) 
Our exposure is to fluctuations in the price of aluminum while the notional is based on the amount of power we sell under the power purchase agreement ("PPA").


12



Accounting and Reporting
Assets and Liabilities
The following tables set forth the Company’s derivative instruments as of June 30, 2013 and December 31, 2012, first by whether or not they are designated hedging instruments, then by whether they are current or noncurrent to the extent they are subject to master netting agreements or similar agreements (where the rights to set-off relate to settlement of amounts receivable and payable under those derivatives) and by balances no longer accounted for as derivatives.

 
 
June 30, 2013
 
December 31, 2012
 
 
Designated
 
Not Designated
 
Total
 
Designated
 
Not Designated
 
Total
 
 
(in millions)
Assets
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives
 
$
38

 
$
2

 
$
40

 
$
—

 
$
2

 
$
2

Cross currency derivatives
 
5

 
—