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, 2017
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-12291
aeslogominia02a01a01a02a03.jpg
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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
 
Accelerated filer ¨
 
Smaller reporting company ¨
 
Emerging growth company ¨
 
 
 
 
 
 
 
Non-accelerated filer ¨
 
(Do not check if a smaller reporting company)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
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 31, 2017 was 660,256,748.
 




THE AES CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2017
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
AFS
Available For Sale
AOCL
Accumulated Other Comprehensive Loss
ASC
Accounting Standards Codification
ASU
Accounting Standards Update
BNDES
Brazilian Development Bank
CAA
United States Clean Air Act
CAMMESA
Wholesale Electric Market Administrator in Argentina
CCGT
Combined Cycle Gas Turbine
CCR
Coal Combustion Residuals
CDPQ
La Caisse de depot et placement du Quebec
CHP
Combined Heat and Power
COFINS
Contribuição para o Financiamento da Seguridade Social
DP&L
The Dayton Power & Light Company
DPL
DPL Inc.
DPLER
DPL Energy Resources, Inc.
DPP
Dominican Power Partners, LDC
EPA
United States Environmental Protection Agency
EPC
Engineering, Procurement and Construction
EURIBOR
Euro Interbank Offered Rate
FASB
Financial Accounting Standards Board
FERC
Federal Energy Regulatory Commission
FX
Foreign Exchange
GAAP
Generally Accepted Accounting Principles in the United States
GHG
Greenhouse Gas
IPALCO
IPALCO Enterprises, Inc.
IPL
Indianapolis Power & Light Company
kWh
Kilowatt Hours
LIBOR
London Interbank Offered Rate
LNG
Liquid Natural Gas
MATS
Mercury and Air Toxics Standards
MMI
Mini Maritsa Iztok (state-owned electricity public supplier in Bulgaria)
MW
Megawatts
MWh
Megawatt Hours
NCI
Noncontrolling Interest
NEK
Natsionalna Elektricheska Kompania (state-owned electricity public supplier in Bulgaria)
NM
Not Meaningful
NOV
Notice of Violation
NOX
Nitrogen Oxides
NPDES
National Pollutant Discharge Elimination System
PIS
Partially Integrated System
PJM
PJM Interconnection, LLC
PPA
Power Purchase Agreement
PREPA
Puerto Rico Electric Power Authority
RSU
Restricted Stock Unit
SBU
Strategic Business Unit
SEC
United States Securities and Exchange Commission
SO2
Sulfur Dioxide
U.S.
United States
USD
United States Dollar
VAT
Value-Added Tax
VIE
Variable Interest Entity

1



PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE AES CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
 
June 30, 2017
 
December 31, 2016
 
(in millions, except share and per share data)
ASSETS
 
 
 
CURRENT ASSETS
 
 
 
Cash and cash equivalents
$
1,213

 
$
1,305

Restricted cash
313

 
278

Short-term investments
740

 
798

Accounts receivable, net of allowance for doubtful accounts of $112 and $111, respectively
2,173

 
2,166

Inventory
633

 
630

Prepaid expenses
83

 
83

Other current assets
1,061

 
1,151

Current assets of held-for-sale businesses
102

 
—

Total current assets
6,318

 
6,411

NONCURRENT ASSETS
 
 
 
Property, Plant and Equipment:
 
 
 
Land
776

 
779

Electric generation, distribution assets and other
28,697

 
28,539

Accumulated depreciation
(9,841
)
 
(9,528
)
Construction in progress
3,560

 
3,057

Property, plant and equipment, net
23,192

 
22,847

Other Assets:
 
 
 
Investments in and advances to affiliates
683

 
621

Debt service reserves and other deposits
578

 
593

Goodwill
1,157

 
1,157

Other intangible assets, net of accumulated amortization of $543 and $519, respectively
397

 
359

Deferred income taxes
757

 
781

Service concession assets, net of accumulated amortization of $159 and $114, respectively
1,404

 
1,445

Other noncurrent assets
1,983

 
1,905

Total other assets
6,959

 
6,861

TOTAL ASSETS
$
36,469

 
$
36,119

LIABILITIES AND EQUITY
 
 
 
CURRENT LIABILITIES
 
 
 
Accounts payable
$
1,684

 
$
1,656

Accrued interest
225

 
247

Accrued and other liabilities
1,893

 
2,066

Non-recourse debt, includes $454 and $273, respectively, related to variable interest entities
2,572

 
1,303

Current liabilities of held-for-sale businesses
37

 
—

Total current liabilities
6,411

 
5,272

NONCURRENT LIABILITIES
 
 
 
Recourse debt
4,380

 
4,671

Non-recourse debt, includes $1,292 and $1,502, respectively, related to variable interest entities
13,815

 
14,489

Deferred income taxes
746

 
804

Pension and other postretirement liabilities
1,347

 
1,396

Other noncurrent liabilities
2,905

 
3,005

Total noncurrent liabilities
23,193

 
24,365

Commitments and Contingencies (see Note 8)

 

Redeemable stock of subsidiaries
791

 
782

EQUITY
 
 
 
THE AES CORPORATION STOCKHOLDERS’ EQUITY
 
 
 
Common stock ($0.01 par value, 1,200,000,000 shares authorized; 816,126,361 issued and 660,191,726 outstanding at June 30, 2017 and 816,061,123 issued and 659,182,232 outstanding at December 31, 2016)
8

 
8

Additional paid-in capital
8,732

 
8,592

Accumulated deficit
(1,086
)
 
(1,146
)
Accumulated other comprehensive loss
(2,741
)
 
(2,756
)
Treasury stock, at cost (155,934,635 and 156,878,891 shares at June 30, 2017 and December 31, 2016, respectively)
(1,892
)
 
(1,904
)
Total AES Corporation stockholders’ equity
3,021

 
2,794

NONCONTROLLING INTERESTS
3,053

 
2,906

Total equity
6,074

 
5,700

TOTAL LIABILITIES AND EQUITY
$
36,469

 
$
36,119

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,
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
(in millions, except per share data)
Revenue:
 
 
 
 
 
 
 
Regulated
$
1,637

 
$
1,565

 
$
3,364

 
$
3,141

Non-Regulated
1,833

 
1,664

 
3,598

 
3,359

Total revenue
3,470

 
3,229

 
6,962

 
6,500

Cost of Sales:
 
 
 
 
 
 
 
Regulated
(1,488
)
 
(1,431
)
 
(3,066
)
 
(2,898
)
Non-Regulated
(1,312
)
 
(1,224
)
 
(2,633
)
 
(2,519
)
Total cost of sales
(2,800
)
 
(2,655
)
 
(5,699
)
 
(5,417
)
Operating margin
670

 
574

 
1,263

 
1,083

General and administrative expenses
(49
)
 
(47
)
 
(103
)
 
(95
)
Interest expense
(333
)
 
(390
)
 
(681
)
 
(732
)
Interest income
93

 
138

 
190

 
255

Gain (loss) on extinguishment of debt
(12
)
 
—

 
5

 
4

Other expense
(18
)
 
(21
)
 
(48
)
 
(29
)
Other income
15

 
12

 
87

 
25

Gain (loss) on disposal and sale of businesses
(48
)
 
(17
)
 
(48
)
 
30

Asset impairment expense
(90
)
 
(235
)
 
(258
)
 
(394
)
Foreign currency transaction gains (losses)
12

 
(36
)
 
(8
)
 
4

INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES AND EQUITY IN EARNINGS OF AFFILIATES
240

 
(22
)
 
399

 
151

Income tax benefit (expense)
(92
)
 
7

 
(160
)
 
(90
)
Net equity in earnings of affiliates
2

 
7

 
9

 
14

INCOME (LOSS) FROM CONTINUING OPERATIONS
150

 
(8
)
 
248

 
75

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

 
3

 
—

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

 
(382
)
 
—

 
(382
)
NET INCOME (LOSS)
150

 
(387
)
 
248

 
(313
)
Less: Net income attributable to noncontrolling interests and redeemable stock of subsidiaries
(97
)
 
(95
)
 
(219
)
 
(43
)
NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION
$
53

 
$
(482
)
 
$
29

 
$
(356
)
AMOUNTS ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS:
 
 
 
 
 
 
 
Income (loss) from continuing operations, net of tax
$
53

 
$
(103
)
 
$
29

 
$
32

Loss from discontinued operations, net of tax
—

 
(379
)
 
—

 
(388
)
NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION
$
53

 
$
(482
)
 
$
29

 
$
(356
)
BASIC EARNINGS PER SHARE:
 
 
 
 
 
 
 
Income (loss) from continuing operations attributable to The AES Corporation common stockholders, net of tax
$
0.08

 
$
(0.16
)
 
$
0.04

 
$
0.05

Loss from discontinued operations attributable to The AES Corporation common stockholders, net of tax
—

 
(0.57
)
 
—

 
(0.59
)
NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS
$
0.08

 
$
(0.73
)
 
$
0.04

 
$
(0.54
)
DILUTED EARNINGS PER SHARE:
 
 
 
 
 
 
 
Income (loss) from continuing operations attributable to The AES Corporation common stockholders, net of tax
$
0.08

 
$
(0.16
)
 
$
0.04

 
$
0.05

Loss from discontinued operations attributable to The AES Corporation common stockholders, net of tax
—

 
(0.57
)
 
—

 
(0.59
)
NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS
$
0.08

 
$
(0.73
)
 
$
0.04

 
$
(0.54
)
DILUTED SHARES OUTSTANDING
662

 
659

 
662

 
662

DIVIDENDS DECLARED PER COMMON SHARE
$
—

 
$
—

 
$
0.12

 
$
0.11

See Notes to Condensed Consolidated Financial Statements.

3



THE AES CORPORATION
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
 
Three Months Ended 
 June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
(in millions)
NET INCOME (LOSS)
$
150

 
$
(387
)
 
$
248

 
$
(313
)
Foreign currency translation activity:
 
 
 
 
 
 
 
Foreign currency translation adjustments, net of income tax benefit (expense) of $0, $1, $(1) and $1, respectively
(119
)
 
120

 
(51
)
 
248

Reclassification to earnings, net of $0 income tax for all the periods
95

 
—

 
98

 
—

Total foreign currency translation adjustments
(24
)
 
120

 
47

 
248

Derivative activity:
 
 
 
 
 
 
 
Change in derivative fair value, net of income tax benefit of $13, $25, $21 and $46, respectively
(42
)
 
(93
)
 
(47
)
 
(157
)
Reclassification to earnings, net of income tax expense of $10, $4, $11 and $1, respectively
29

 
3

 
49

 
2

Total change in fair value of derivatives
(13
)
 
(90
)
 
2

 
(155
)
Pension activity:
 
 
 
 
 
 
 
Reclassification to earnings due to amortization of net actuarial loss, net of income tax expense of $3, $1, $6 and $2, respectively
7

 
4

 
13

 
7

Total pension adjustments
7

 
4

 
13

 
7

OTHER COMPREHENSIVE INCOME (LOSS)
(30
)
 
34

 
62

 
100

COMPREHENSIVE INCOME (LOSS)
120

 
(353
)
 
310

 
(213
)
Less: Comprehensive loss attributable to noncontrolling interests
(91
)
 
(90
)
 
(233
)
 
(28
)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION
$
29

 
$
(443
)
 
$
77

 
$
(241
)
See Notes to Condensed Consolidated Financial Statements.

4



THE AES CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Six Months Ended June 30,
 
2017
 
2016
 
 
 
 
 
(in millions)
OPERATING ACTIVITIES:
 
 
 
Net income (loss)
$
248

 
$
(313
)
Adjustments to net income:
 
 
 
Depreciation and amortization
581

 
586

Loss (gain) on sales and disposals of businesses
48

 
(30
)
Impairment expenses
258

 
396

Deferred income taxes
(18
)
 
(443
)
Provisions for contingencies
23

 
21

Gain on extinguishment of debt
(5
)
 
(4
)
Loss on sales of assets
19

 
14

Impairments of discontinued operations
—

 
783

Other
94

 
79

Changes in operating assets and liabilities
 
 
 
(Increase) decrease in accounts receivable
(120
)
 
366

(Increase) decrease in inventory
(43
)
 
12

(Increase) decrease in prepaid expenses and other current assets
156

 
473

(Increase) decrease in other assets
(155
)
 
(172
)
Increase (decrease) in accounts payable and other current liabilities
(134
)
 
(557
)
Increase (decrease) in income tax payables, net and other tax payables
(61
)
 
(255
)
Increase (decrease) in other liabilities
63

 
407

Net cash provided by operating activities
954

 
1,363

INVESTING ACTIVITIES:
 
 
 
Capital expenditures
(1,123
)
 
(1,255
)
Acquisitions, net of cash acquired
(2
)
 
(11
)
Proceeds from the sale of businesses, net of cash sold, and equity method investments
33

 
156

Sale of short-term investments
1,930

 
2,762

Purchase of short-term investments
(1,876
)
 
(2,806
)
Increase in restricted cash, debt service reserves and other assets
(12
)
 
(142
)
Other investing
(58
)
 
(30
)
Net cash used in investing activities
(1,108
)
 
(1,326
)
FINANCING ACTIVITIES:
 
 
 
Borrowings under the revolving credit facilities
538

 
664

Repayments under the revolving credit facilities
(524
)
 
(681
)
Issuance of recourse debt
525

 
500

Repayments of recourse debt
(860
)
 
(611
)
Issuance of non-recourse debt
1,832

 
1,534

Repayments of non-recourse debt
(982
)
 
(1,054
)
Payments for financing fees
(80
)
 
(55
)
Distributions to noncontrolling interests
(184
)
 
(236
)
Contributions from noncontrolling interests and redeemable security holders
44

 
94

Proceeds from the sale of redeemable stock of subsidiaries
—

 
134

Dividends paid on AES common stock
(158
)
 
(145
)
Payments for financed capital expenditures
(61
)
 
(87
)
Purchase of treasury stock
—

 
(79
)
Other financing
(26
)
 
(21
)
Net cash provided by (used in) financing activities
64

 
(43
)
Effect of exchange rate changes on cash
6

 
8

(Increase) decrease in cash of discontinued operations and held-for-sale businesses
(8
)
 
6

Total increase (decrease) in cash and cash equivalents
(92
)
 
8

Cash and cash equivalents, beginning
1,305

 
1,257

Cash and cash equivalents, ending
$
1,213

 
$
1,265

SUPPLEMENTAL DISCLOSURES:
 
 
 
Cash payments for interest, net of amounts capitalized
$
612

 
$
615

Cash payments for income taxes, net of refunds
$
218

 
$
347

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

 
$
5

Reclassification of Alto Maipo loans and accounts payable into equity (see Note 11—Equity)
$
279

 
$
—


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, 2017 and 2016
1. FINANCIAL STATEMENT PRESENTATION
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, 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, 2017, are not necessarily indicative of results that may be expected for the year ending December 31, 2017. The accompanying condensed consolidated financial statements are unaudited and should be read in conjunction with the 2016 audited consolidated financial statements and notes thereto, which are included in the 2016 Form 10-K filed with the SEC on February 27, 2017 (the “2016 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. Accounting pronouncements not listed below were assessed and determined to be either not applicable or are expected to have no 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
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: The recognition of excess tax benefits and tax deficiencies arising from vesting or settlement were applied retrospectively. The elimination of the requirement that excess tax benefits be realized before they are recognized was adopted on a modified retrospective basis.
January 1, 2017
The recognition of excess tax benefits in the provision for income taxes in the period when the awards vest or are settled, rather than in paid-in-capital in the period when the excess tax benefits are realized, resulted in a decrease of $31 million to deferred tax liabilities, offset by an increase to retained earnings. 

6



New Accounting Standards Issued But Not Yet Effective
ASU Number and Name
Description
Date of Adoption
Effect on the financial statements upon adoption
2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): Accounting for Certain Financial Instruments and Certain Mandatorily Redeemable Noncontrolling Interests
Part 1 of this standard changes the classification analysis of certain equity-linked financial instruments when assessing whether the instrument is indexed to an entity’s own stock.
Transition method: retrospective.
January 1, 2019. Early adoption is permitted.
The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
2017-08, Receivables — Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities
This standard shortens the period of amortization of the premium on certain callable debt securities to the earliest call date.
Transition method: modified retrospective.
January 1, 2019. Early adoption is permitted.
The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
2017-07, Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
This standard changes the presentation of non-service cost expense associated with defined benefit plans and updates the guidance so that only the service cost component will be eligible for capitalization.
Transition method: Retrospective for presentation of non-service cost expense. Prospective for the change in capitalization.
January 1, 2018. Early adoption is permitted.
The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements and does not plan to early adopt.
2017-04, Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
This standard simplifies the accounting for goodwill impairment by removing the requirement to calculate the implied fair value. Instead, it requires that an entity records an impairment charge based on the excess of a reporting unit's carrying amount over its fair value.
Transition method: prospective.
January 1, 2020. Early adoption is permitted as of January 1, 2017.
The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business
This standard provides guidance to assist entities with evaluating when a set of transferred assets and activities is a business.
Transition method: prospective.
January 1, 2018. Early adoption is permitted.
The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)
This standard requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.
Transition method: retrospective.
January 1, 2018. Early adoption is permitted.
The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory
This standard requires that an entity recognizes the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs.
Transition method: modified retrospective.
January 1, 2018. Early adoption is permitted.
The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
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.
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. The Company intends to adopt the standard as of January 1, 2019.
2014-09, 2015-14, 2016-08, 2016-10, 2016-12, 2016-20, 2017-05, Revenue from Contracts with Customers (Topic 606)
See discussion of the ASU below.
January 1, 2018. Earlier application is permitted only as of January 1, 2017.
The Company will adopt the standard on January 1, 2018; see below for the evaluation of the impact of its adoption on the consolidated financial statements.
ASU 2014-09 and its subsequent corresponding updates provide the principles an entity must apply to measure and recognize revenue. The core principle is that an entity shall recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Amendments to the standard were issued that provide further

7



clarification of the principle and to provide certain transition expedients. The standard will replace most existing revenue recognition guidance in GAAP, including the guidance on recognizing other income upon the sale or transfer of non-financial assets (including in-substance real estate).
The standard requires retrospective application and allows either a full retrospective adoption in which all of the periods are presented under the new standard or a modified retrospective approach in which the cumulative effect of initially applying the guidance is recognized at the date of initial application. We are currently working toward adopting the standard using the full retrospective method. However, the Company will continue to assess this conclusion which is dependent on the final impact to the financial statements.
In 2016, the Company established a cross-functional implementation team and is in the process of evaluating changes to our business processes, systems and controls to support recognition and disclosure under the new standard. At this time, we do not expect any significant impact on our financial systems or a material change to controls as a result of the implementation of the new revenue recognition standard.
Given the complexity and diversity of our non-regulated arrangements, the Company is assessing the standard on a contract-by-contract basis and is in the process of completing the contract assessments by applying interpretations reached during 2017 on key issues. These issues include the application of the practical expedient for measuring progress towards satisfaction of a performance obligation, when variable quantities would be considered variable consideration versus an option to acquire additional goods and services and how to allocate variable consideration to one or more, but not all, distinct goods or services promised in a series of distinct goods or services that forms part of a single performance obligation. Additionally, the Company is working on the application of the standard to contracts that are under the scope of Service Concession Arrangements (Topic 853) and assessing the gross versus net presentation for spot energy sale and purchases. Through this assessment, the Company to date has identified limited situations where revenue recognized under ASC 606 could differ from that recognized under ASC 605. The Company will continue its work to complete the assessment of the full population of contracts and determine the overall impact to the consolidated financial statements. We are continuing to work with various non-authoritative industry groups, and monitoring the FASB and Transition Resource Group activity, as we finalize our accounting policy on these and other industry specific interpretative issues which is expected in 2017.
2. INVENTORY
The following table summarizes the Company’s inventory balances as of the periods indicated (in millions):
 
June 30, 2017
 
December 31, 2016
Fuel and other raw materials
$
330

 
$
302

Spare parts and supplies
303

 
328

Total
$
633

 
$
630

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 values 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. 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 2016 Form 10-K.
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 dates 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:

8



 
June 30, 2017
 
December 31, 2016
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AVAILABLE FOR SALE:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unsecured debentures
$
—

 
$
271

 
$
—

 
$
271

 
$
—

 
$
360

 
$
—

 
$
360

Certificates of deposit
—

 
407

 
—

 
407

 
—

 
372

 
—

 
372

Government debt securities
—

 
—

 
—

 
—

 
—

 
9

 
—

 
9

Subtotal
—

 
678

 
—

 
678

 
—

 
741

 
—

 
741

Equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mutual funds
—

 
51

 
—

 
51

 
—

 
49

 
—

 
49

Subtotal
—

 
51

 
—

 
51

 
—

 
49

 
—

 
49

Total available for sale
—

 
729

 
—

 
729

 
—

 
790

 
—

 
790

TRADING:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mutual funds
19

 
—

 
—

 
19

 
16

 
—

 
—

 
16

Total trading
19

 
—

 
—

 
19

 
16

 
—

 
—

 
16

DERIVATIVES:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives
—

 
13

 
—

 
13

 
—

 
18

 
—

 
18

Cross-currency derivatives
—

 
5

 
—

 
5

 
—

 
4

 
—

 
4

Foreign currency derivatives
—

 
31

 
239

 
270

 
—

 
54

 
255

 
309

Commodity derivatives
—

 
42

 
11

 
53

 
—

 
38

 
7

 
45

Total derivatives — assets
—

 
91

 
250

 
341

 
—

 
114

 
262

 
376

TOTAL ASSETS
$
19

 
$
820

 
$
250

 
$
1,089

 
$
16

 
$
904

 
$
262

 
$
1,182

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DERIVATIVES:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives
$
—

 
$
106

 
$
195

 
$
301

 
$
—

 
$
121

 
$
179

 
$
300

Cross-currency derivatives
—

 
14

 
—

 
14

 
—

 
18

 
—

 
18

Foreign currency derivatives
—

 
29

 
—

 
29

 
—

 
64

 
—

 
64

Commodity derivatives
—

 
17

 
2

 
19

 
—

 
40

 
2

 
42

Total derivatives — liabilities
—

 
166

 
197

 
363

 
—

 
243

 
181

 
424

TOTAL LIABILITIES
$
—

 
$
166

 
$
197

 
$
363

 
$
—

 
$
243

 
$
181

 
$
424

As of June 30, 2017, all AFS debt securities had stated maturities within one year. For the three and six months ended June 30, 2017 and 2016, no other-than-temporary impairments of marketable securities were recognized in earnings or Other Comprehensive Income (Loss). Gains and losses on the sale of investments are determined using the specific-identification method. The following table presents gross proceeds from the sale of AFS securities during the periods indicated (in millions):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Gross proceeds from sale of AFS securities
$
1,041

 
$
1,044

 
$
1,962

 
$
2,404

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, 2017 and 2016 (presented net by type of derivative 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, 2017
Interest Rate
 
Foreign Currency
 
Commodity
 
Total
Balance at April 1
$
(183
)
 
$
231

 
$
2

 
$
50

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

 
16

 
(1
)
 
15

Included in other comprehensive income — derivative activity
(17
)
 
—

 
—

 
(17
)
Included in regulatory (assets) liabilities
—

 
—

 
10

 
10

Settlements
9

 
(8
)
 
(2
)
 
(1
)
Transfers of liabilities into Level 3
(4
)
 
—

 
—

 
(4
)
Balance at June 30
$
(195
)
 
$
239

 
$
9

 
$
53

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
$
—

 
$
8

 
$
—

 
$
8


9



Three Months Ended June 30, 2016
Interest Rate
 
Foreign Currency
 
Commodity
 
Total
Balance at April 1
$
(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 June 30
$
(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
)
Six Months Ended June 30, 2017
Interest Rate
 
Foreign Currency
 
Commodity
 
Total
Balance at January 1
$
(179
)
 
$
255

 
$
5

 
$
81

Total realized and unrealized gains (losses):
 
 
 
 
 
 

Included in earnings
—

 
—

 
(1
)
 
(1
)
Included in other comprehensive income — derivative activity
(28
)
 
—

 
—

 
(28
)
Included in regulatory (assets) liabilities
—

 
—

 
10

 
10

Settlements
19

 
(16
)
 
(5
)
 
(2
)
Transfers of liabilities into Level 3
(7
)
 
—

 
—

 
(7
)
Balance at June 30
$
(195
)
 
$
239

 
$
9

 
$
53

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
$
2

 
$
(16
)
 
$
—

 
$
(14
)
Six Months Ended June 30, 2016
Interest Rate
 
Foreign Currency
 
Commodity
 
Total
Balance at January 1
$
(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 (assets) liabilities
—

 
—

 
11

 
11

Settlements
37

 
(5
)
 
(5
)
 
27

Transfers of liabilities into Level 3
(51
)
 
—

 
—

 
(51
)
Transfers of assets out of Level 3
70

 
16

 
—

 
86

Balance at June 30
$
(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

The following table summarizes the significant unobservable inputs used for Level 3 derivative assets (liabilities) as of June 30, 2017 (in millions, except range amounts):
Type of Derivative
 
Fair Value
 
Unobservable Input
 
Amount or Range (Weighted Average)
Interest rate
 
$
(195
)
 
Subsidiaries’ credit spreads
 
2.4% to 5.1% (4.8%)
Foreign currency:
 
 
 
 
 
 
Argentine Peso
 
239

 
Argentine Peso to USD currency exchange rate after one year (1)
 
19.7 to 43.1 (30.9)
Commodity:
 
 
 
 
 
 
Other
 
9

 
 
 
 
Total
 
$
53

 
 
 
 
 _____________________________
(1) 
During the three months ended June 30, 2017, the Company began utilizing the interest rate differential approach to construct the remaining portion of the forward curve after one year (beyond the traded points). In previous periods, the Company used the purchasing price parity approach to construct the forward curve.
Changes in the above significant unobservable inputs that lead to a significant and unusual impact to current period earnings are disclosed to the Financial Audit Committee. For interest rate derivatives, and foreign currency derivatives, increases (decreases) in the estimates of the Company’s own credit spreads would decrease (increase) the value of the derivatives in a liability position. For foreign currency derivatives, increases (decreases) in the estimate of the above exchange rate would increase (decrease) the value of the derivative.
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 the 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):

10



Six Months Ended June 30, 2017
Measurement Date
 
Carrying Amount (1)
 
Fair Value
 
Pretax Loss
Assets
 
Level 1
 
Level 2
 
Level 3
 
Long-lived assets held and used: (2)
 
 
 
 
 
 
 
 
 
 
 
DPL
02/28/2017
 
$
77

 
$
—

 
$
—

 
$
11

 
$
66

Tait Energy Storage
02/28/2017
 
15

 
—

 
—

 
7

 
8

Dispositions and held-for-sale businesses: (3)
 
 
 
 
 
 
 
 
 
 
 
Kazakhstan Hydroelectric
06/30/2017
 
190

 
—

 
92

 
—

 
90

Kazakhstan CHPs
03/31/2017
 
171

 
—

 
29

 
—

 
94

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

_____________________________
(1) 
Represents the carrying values at the dates of measurement, before fair value adjustment.
(2) 
See Note 14—Asset Impairment Expense for further information.
(3) 
Per the Company’s policy, pretax loss is limited to the impairment of long-lived assets. Any additional loss will be recognized on completion of the sale. See Note 16—Held-for-Sale Businesses and Dispositions 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, 2017 (in millions, except range amounts):
 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Range (Weighted Average)
Long-lived assets held and used:
 
 
 
 
 
 
 
DPL
$
11

 
Discounted cash flow
 
Pretax operating margin (through remaining life)
 
10% to 22% (15%)
 
 
 
 
 
Weighted average cost of capital
 
7%
Tait Energy Storage
7

 
Discounted cash flow
 
Annual pretax operating margin
 
46% to 85% (80%)
 
 
 
 
 
Weighted average cost of capital
 
9%
Financial Instruments not Measured at Fair Value in the Condensed Consolidated Balance Sheets
The following 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, 2017 and December 31, 2016, but for which fair value is disclosed:
 
 
June 30, 2017
 
 
Carrying
Amount
 
Fair Value
 
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
Accounts receivable — noncurrent (1)
$
244

 
$
312

 
$
—

 
$
19

 
$
293

Liabilities:
Non-recourse debt
16,387

 
16,905

 
—

 
14,942

 
1,963

 
Recourse debt
4,384

 
4,687

 
—

 
4,687

 
—

 
 
December 31, 2016
 
 
Carrying
Amount
 
Fair Value
 
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
Accounts receivable — noncurrent (1)
$
264

 
$
350

 
$
—

 
$
20

 
$
330

Liabilities:
Non-recourse debt
15,792

 
16,188

 
—

 
15,120

 
1,068

 
Recourse debt
4,671

 
4,899

 
—

 
4,899

 
—

_____________________________
(1) 
These amounts primarily relate to amounts due from CAMMESA, the administrator of the wholesale electricity market in Argentina, and are included in Other noncurrent assets in the accompanying Condensed Consolidated Balance Sheets. The fair value and carrying amount of these receivables exclude VAT of $35 million and $24 million as of June 30, 2017 and December 31, 2016, respectively.
4. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
There are no changes to the information disclosed in Note 1—General and Summary of Significant Accounting Policies—Derivatives and Hedging Activities of Item 8.—Financial Statements and Supplementary Data in the 2016 Form 10-K.

11



Volume of Activity — The following table presents the Company’s maximum notional (in millions) over the remaining contractual period by type of derivative as of June 30, 2017, 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
 
Maximum Notional Translated to USD
 
Latest Maturity
Interest Rate (LIBOR and EURIBOR)
 
$
4,168

 
2035
Cross-Currency Swaps (Chilean Unidad de Fomento and Chilean Peso)
 
379

 
2029
Foreign Currency:
 
 
 
 
Argentine Peso
 
155

 
2026
Colombian Peso
 
239

 
2019
Euro
 
192

 
2019
Others, primarily with weighted average remaining maturities of a year or less
 
290

 
2019
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, 2017 and December 31, 2016 (in millions):
Fair Value
June 30, 2017
 
December 31, 2016
Assets
Designated
 
Not Designated
 
Total
 
Designated
 
Not Designated
 
Total
Interest rate derivatives
$
13

 
$
—

 
$
13

 
$
18

 
$
—

 
$
18

Cross-currency derivatives
5

 
—

 
5

 
4

 
—

 
4

Foreign currency derivatives
—

 
270

 
270

 
9

 
300

 
309

Commodity derivatives
10

 
43

 
53

 
20

 
25

 
45

Total assets
$
28

 
$
313

 
$
341

 
$
51

 
$
325

 
$
376

Liabilities
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives
$
157

 
$
144

 
$
301

 
$
295

 
$
5

 
$
300

Cross-currency derivatives
14

 
—

 
14

 
18

 
—

 
18

Foreign currency derivatives
—

 
29

 
29

 
19

 
45

 
64

Commodity derivatives
5

 
14

 
19

 
26

 
16

 
42

Total liabilities
$
176

 
$
187

 
$
363

 
$
358

 
$
66

 
$
424

 
June 30, 2017
 
December 31, 2016
Fair Value
Assets
 
Liabilities
 
Assets
 
Liabilities
Current
$
94

 
$
223

 
$
99

 
$
155

Noncurrent
247

 
140

 
277

 
269

Total
$
341

 
$
363

 
$
376

 
$
424

 
 
 
 
 
 
 
 
Credit Risk-Related Contingent Features (1)
 
 
 
 
June 30, 2017
 
December 31, 2016
Present value of liabilities subject to collateralization
 
$
20

 
$
41

Cash collateral held by third parties or in escrow
 
10

 
18

 _____________________________
(1) 
Based on the credit rating of certain subsidiaries
Earnings and Other Comprehensive Income (Loss) — 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,
2017
 
2016
 
2017
 
2016
Effective portion of cash flow hedges
 
 
 
 
 
 
 
Gains (losses) recognized in AOCL
 
 
 
 
 
 
 
Interest rate derivatives
$
(51
)
 
$
(90
)
 
$
(73
)
 
$
(220
)
Cross-currency derivatives
(10
)
 
(11
)
 
2

 
(3
)
Foreign currency derivatives
4

 
(5
)
 
(11
)
 
(5
)
Commodity derivatives
2

 
(12
)
 
14

 
25

Total
$
(55
)
 
$
(118
)
 
$
(68
)
 
$
(203
)
Gains (losses) reclassified from AOCL into earnings
 
 
 
 
 
 
 
Interest rate derivatives
$
(20
)
 
$
(26
)
 
$
(44
)
 
$
(55
)
Cross-currency derivatives
—

 
1

 
4

 
10

Foreign currency derivatives
(21
)
 
2

 
(23
)
 
4

Commodity derivatives
2

 
16

 
3

 
38

Total
$
(39
)
 
$
(7
)
 
$
(60
)

$
(3
)
Gains (losses) recognized in earnings related to
 
 
 
 
 
 
 
Ineffective portion of cash flow hedges
$
—

 
$
—

 
$
—

 
$
2

Not designated as hedging instruments:
 
 
 
 
 
 
 
Foreign currency derivatives
$
14

 
$
(24
)
 
$
(18
)
 
$
15

Commodity derivatives and other
8

 
(9
)
 
6

 
(17
)
Total
$
22

 
$
(33
)
 
$
(12
)
 
$
(2
)
Pretax gains (losses) reclassified to earnings as a result of discontinuance of cash flow hedge because it was probable that the forecasted transaction would not occur
$
(19
)
 
$
—

 
$
(16
)
 
$
—


12



The AOCL expected to decrease pretax income from continuing operations, primarily due to interest rate derivatives, for the twelve months ended June 30, 2018, is $63 million<