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, 2018
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, 2018 was 661,683,466.
 




THE AES CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2018
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
AOCI
Accumulated Other Comprehensive Income
AOCL
Accumulated Other Comprehensive Loss
ASC
Accounting Standards Codification
ASU
Accounting Standards Update
CAA
United States Clean Air Act
CAMMESA
Wholesale Electric Market Administrator in Argentina
CHP
Combined Heat and Power
COFINS
Contribution for the Financing of Social Security
DG Comp
Directorate-General for Competition
DP&L
The Dayton Power & Light Company
DPL
DPL Inc.
EPA
United States Environmental Protection Agency
EPC
Engineering, Procurement and Construction
EURIBOR
Euro Interbank Offered Rate
FASB
Financial Accounting Standards Board
FX
Foreign Exchange
GAAP
Generally Accepted Accounting Principles in the United States
GHG
Greenhouse Gas
GILTI
Global Intangible Low Taxed Income

GW
Gigawatts
HLBV
Hypothetical Liquidation Book Value
HPP
Hydropower Plant
IPALCO
IPALCO Enterprises, Inc.
IPL
Indianapolis Power & Light Company
ISO
Independent System Operator
LIBOR
London Interbank Offered Rate
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
OPGC
Odisha Power Generation Corporation
PIS
Program of Social Integration
PPA
Power Purchase Agreement
PREPA
Puerto Rico Electric Power Authority
RSU
Restricted Stock Unit
RTO
Regional Transmission Organization
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, 2018
 
December 31, 2017
 
(in millions, except share and per share data)
ASSETS
 
 
 
CURRENT ASSETS
 
 
 
Cash and cash equivalents
$
1,140

 
$
949

Restricted cash
379

 
274

Short-term investments
856

 
424

Accounts receivable, net of allowance for doubtful accounts of $17 and $10, respectively
1,423

 
1,463

Inventory
583

 
562

Prepaid expenses
116

 
62

Other current assets
682

 
630

Current held-for-sale assets
108

 
2,034

Total current assets
5,287

 
6,398

NONCURRENT ASSETS
 
 
 
Property, Plant and Equipment:
 
 
 
Land
480

 
502

Electric generation, distribution assets and other
24,269

 
24,119

Accumulated depreciation
(7,905
)
 
(7,942
)
Construction in progress
3,875

 
3,617

Property, plant and equipment, net
20,719

 
20,296

Other Assets:
 
 
 
Investments in and advances to affiliates
1,327

 
1,197

Debt service reserves and other deposits
623

 
565

Goodwill
1,059

 
1,059

Other intangible assets, net of accumulated amortization of $476 and $441, respectively
341

 
366

Deferred income taxes
83

 
130

Service concession assets, net of accumulated amortization of $0 and $206, respectively
—

 
1,360

Loan receivable
1,458

 
—

Other noncurrent assets
1,700

 
1,741

Total other assets
6,591

 
6,418

TOTAL ASSETS
$
32,597

 
$
33,112

LIABILITIES AND EQUITY
 
 
 
CURRENT LIABILITIES
 
 
 
Accounts payable
$
1,506

 
$
1,371

Accrued interest
200

 
228

Accrued and other liabilities
1,036

 
1,232

Non-recourse debt, includes $369 and $1,012, respectively, related to variable interest entities
1,235

 
2,164

Current held-for-sale liabilities
17

 
1,033

Total current liabilities
3,994

 
6,028

NONCURRENT LIABILITIES
 
 
 
Recourse debt
4,126

 
4,625

Non-recourse debt, includes $2,520 and $1,358, respectively, related to variable interest entities
14,230

 
13,176

Deferred income taxes
1,165

 
1,006

Other noncurrent liabilities
2,562

 
2,595

Total noncurrent liabilities
22,083

 
21,402

Commitments and Contingencies (see Note 8)
 
 
 
Redeemable stock of subsidiaries
863

 
837

EQUITY
 
 
 
THE AES CORPORATION STOCKHOLDERS’ EQUITY
 
 
 
Common stock ($0.01 par value, 1,200,000,000 shares authorized; 816,449,182 issued and 661,528,835 outstanding at June 30, 2018 and 816,312,913 issued and 660,388,128 outstanding at December 31, 2017)
8

 
8

Additional paid-in capital
8,402

 
8,501

Accumulated deficit
(1,234
)
 
(2,276
)
Accumulated other comprehensive loss
(1,988
)
 
(1,876
)
Treasury stock, at cost (154,920,347 and 155,924,785 shares at June 30, 2018 and December 31, 2017, respectively)
(1,879
)
 
(1,892
)
Total AES Corporation stockholders’ equity
3,309

 
2,465

NONCONTROLLING INTERESTS
2,348

 
2,380

Total equity
5,657

 
4,845

TOTAL LIABILITIES AND EQUITY
$
32,597

 
$
33,112

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,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
(in millions, except per share amounts)
Revenue:
 
 
 
 
 
 
 
Regulated
$
716

 
$
783

 
$
1,438

 
$
1,596

Non-Regulated
1,821

 
1,830

 
3,839

 
3,598

Total revenue
2,537

 
2,613

 
5,277

 
5,194

Cost of Sales:
 
 
 
 
 
 
 
Regulated
(617
)
 
(681
)
 
(1,218
)
 
(1,384
)
Non-Regulated
(1,320
)
 
(1,309
)
 
(2,803
)
 
(2,630
)
Total cost of sales
(1,937
)
 
(1,990
)
 
(4,021
)
 
(4,014
)
Operating margin
600

 
623

 
1,256

 
1,180

General and administrative expenses
(35
)
 
(49
)
 
(91
)
 
(103
)
Interest expense
(263
)
 
(276
)
 
(544
)
 
(563
)
Interest income
76

 
59

 
152

 
122

Gain (loss) on extinguishment of debt
(6
)
 
(12
)
 
(176
)
 
5

Other expense
(4
)
 
(7
)
 
(13
)
 
(31
)
Other income
7

 
14

 
20

 
87

Gain (loss) on disposal and sale of businesses
89

 
(48
)
 
877

 
(48
)
Asset impairment expense
(92
)
 
(90
)
 
(92
)
 
(258
)
Foreign currency transaction gains (losses)
(30
)
 
12

 
(49
)
 
(8
)
INCOME FROM CONTINUING OPERATIONS BEFORE TAXES AND EQUITY IN EARNINGS OF AFFILIATES
342

 
226

 
1,340

 
383

Income tax expense
(132
)
 
(86
)
 
(363
)
 
(153
)
Net equity in earnings of affiliates
14

 
2

 
25

 
9

INCOME FROM CONTINUING OPERATIONS
224

 
142

 
1,002

 
239

Income (loss) from operations of discontinued businesses, net of income tax expense of $2, $5, $2 and $7, respectively
(4
)
 
8

 
(5
)
 
9

Gain from disposal of discontinued businesses, net of income tax expense of $42, $0, $42 and $0, respectively
196

 
—

 
196

 
—

NET INCOME
416

 
150

 
1,193

 
248

Noncontrolling interests:
 
 
 
 
 
 
 
Less: Income from continuing operations attributable to noncontrolling interests and redeemable stocks of subsidiaries
(128
)
 
(89
)
 
(221
)
 
(210
)
Less: Loss (income) from discontinued operations attributable to noncontrolling interests
2

 
(8
)
 
2

 
(9
)
NET INCOME ATTRIBUTABLE TO THE AES CORPORATION
$
290

 
$
53

 
$
974

 
$
29

AMOUNTS ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS:
 
 
 
 
 
 
 
Income from continuing operations, net of tax
$
96

 
$
53

 
$
781

 
$
29

Income from discontinued operations, net of tax
194

 
—

 
193

 
—

NET INCOME ATTRIBUTABLE TO THE AES CORPORATION
$
290

 
$
53

 
$
974

 
$
29

BASIC EARNINGS PER SHARE:
 
 
 
 
 
 
 
Income from continuing operations attributable to The AES Corporation common stockholders, net of tax
$
0.15

 
$
0.08

 
$
1.18

 
$
0.04

Income from discontinued operations attributable to The AES Corporation common stockholders, net of tax
0.29

 
—

 
0.29

 
—

NET INCOME ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS
$
0.44

 
$
0.08

 
$
1.47

 
$
0.04

DILUTED EARNINGS PER SHARE:
 
 
 
 
 
 
 
Income from continuing operations attributable to The AES Corporation common stockholders, net of tax
$
0.15

 
$
0.08

 
$
1.18

 
$
0.04

Income from discontinued operations attributable to The AES Corporation common stockholders, net of tax
0.29

 
—

 
0.29

 
—

NET INCOME ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS
$
0.44

 
$
0.08

 
$
1.47

 
$
0.04

DILUTED SHARES OUTSTANDING
664

 
662

 
664

 
662

DIVIDENDS DECLARED PER COMMON SHARE
$
—

 
$
—

 
$
0.13

 
$
0.12

See Notes to Condensed Consolidated Financial Statements.

3



THE AES CORPORATION
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
(in millions)
NET INCOME
$
416

 
$
150

 
$
1,193

 
$
248

Foreign currency translation activity:
 
 
 
 
 
 
 
Foreign currency translation adjustments, net of income tax benefit (expense) of $1, $0, $1 and $(1), respectively
(142
)
 
(119
)
 
(117
)
 
(51
)
Reclassification to earnings, net of $0 income tax
18

 
95

 
2

 
98

Total foreign currency translation adjustments
(124
)
 
(24
)
 
(115
)
 
47

Derivative activity:
 
 
 
 
 
 
 
Change in derivative fair value, net of income tax benefit of $15, $13, $0 and $21, respectively
(40
)
 
(42
)
 
17

 
(47
)
Reclassification to earnings, net of income tax expense of $9, $10, $8 and $11, respectively
36

 
29

 
46

 
49

Total change in fair value of derivatives
(4
)
 
(13
)
 
63

 
2

Pension activity:
 
 
 
 
 
 
 
Reclassification to earnings, net of income tax expense of $2, $3, $2 and $6, respectively
2

 
7

 
4

 
13

Total pension adjustments
2

 
7

 
4

 
13

OTHER COMPREHENSIVE INCOME (LOSS)
(126
)
 
(30
)
 
(48
)
 
62

COMPREHENSIVE INCOME
290

 
120

 
1,145

 
310

Less: Comprehensive income attributable to noncontrolling interests
(180
)
 
(91
)
 
(302
)
 
(233
)
COMPREHENSIVE INCOME ATTRIBUTABLE TO THE AES CORPORATION
$
110

 
$
29

 
$
843

 
$
77

See Notes to Condensed Consolidated Financial Statements.

4



THE AES CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Six Months Ended June 30,
 
2018
 
2017
 
 
 
 
 
(in millions)
OPERATING ACTIVITIES:
 
 
 
Net income
$
1,193

 
$
248

Adjustments to net income:
 
 
 
Depreciation and amortization
512

 
581

Loss (gain) on disposal and sale of businesses
(877
)
 
48

Asset impairment expense
93

 
258

Deferred income taxes
183

 
(18
)
Provisions for contingencies
—

 
23

Loss (gain) on extinguishment of debt
176

 
(5
)
Net loss on sales of assets
2

 
19

Gain on sale of discontinued operations
(238
)
 
—

Other
126

 
102

Changes in operating assets and liabilities
 
 
 
(Increase) decrease in accounts receivable
6

 
(120
)
(Increase) decrease in inventory
(33
)
 
(43
)
(Increase) decrease in prepaid expenses and other current assets
(75
)
 
153

(Increase) decrease in other assets
15

 
(155
)
Increase (decrease) in accounts payable and other current liabilities
(90
)
 
(131
)
Increase (decrease) in income taxes payable, net and other taxes payable
(62
)
 
(61
)
Increase (decrease) in other liabilities
(17
)
 
63

Net cash provided by operating activities
914

 
962

INVESTING ACTIVITIES:
 
 
 
Capital expenditures
(994
)
 
(1,123
)
Acquisitions of businesses, net of cash acquired, and equity method investments
(42
)
 
(2
)
Proceeds from the sale of businesses, net of cash and restricted cash sold
1,808

 
33

Proceeds from the sale of assets
15

 
—

Sale of short-term investments
418

 
1,930

Purchase of short-term investments
(938
)
 
(1,876
)
Contributions to equity affiliates
(90
)
 
(43
)
Other investing
(57
)
 
(15
)
Net cash provided by (used in) investing activities
120

 
(1,096
)
FINANCING ACTIVITIES:
 
 
 
Borrowings under the revolving credit facilities
1,133

 
538

Repayments under the revolving credit facilities
(1,042
)
 
(524
)
Issuance of recourse debt
1,000

 
525

Repayments of recourse debt
(1,781
)
 
(860
)
Issuance of non-recourse debt
1,192

 
1,832

Repayments of non-recourse debt
(841
)
 
(982
)
Payments for financing fees
(25
)
 
(80
)
Distributions to noncontrolling interests
(128
)
 
(184
)
Contributions from noncontrolling interests and redeemable security holders
28

 
44

Dividends paid on AES common stock
(172
)
 
(158
)
Payments for financed capital expenditures
(120
)
 
(61
)
Other financing
27

 
(26
)
Net cash provided by (used in) financing activities
(729
)
 
64

Effect of exchange rate changes on cash
(20
)
 
6

(Increase) decrease in cash and restricted cash of discontinued operations and held-for-sale businesses
69

 
(15
)
Total increase (decrease) in cash, cash equivalents and restricted cash
354

 
(79
)
Cash, cash equivalents and restricted cash, beginning
1,788

 
1,960

Cash, cash equivalents and restricted cash, ending
$
2,142

 
$
1,881

SUPPLEMENTAL DISCLOSURES:
 
 
 
Cash payments for interest, net of amounts capitalized
$
522

 
$
612

Cash payments for income taxes, net of refunds
$
209

 
$
218

SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
 
 
 
Non-cash acquisition of intangible assets
$
5

 
$
—

Non-cash contributions of assets and liabilities for Fluence acquisition
$
20

 
$
—

Conversion of Alto Maipo loans and accounts payable into equity (see Note 10—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, 2018 and 2017
(Unaudited)
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 classified as discontinued operations as discussed in Note 16—Discontinued Operations. Certain prior period amounts have been reclassified to comply with newly adopted accounting standards. See further detail in the new accounting pronouncements discussion.
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, 2018, are not necessarily indicative of expected results for the year ending December 31, 2018. The accompanying condensed consolidated financial statements are unaudited and should be read in conjunction with the 2017 audited consolidated financial statements and notes thereto, which are included in the 2017 Form 10-K filed with the SEC on February 26, 2018 (the “2017 Form 10-K”).
Cash, Cash Equivalents, and Restricted Cash — The following table provides a summary of cash, cash equivalents, and restricted cash amounts reported on the Condensed Consolidated Balance Sheet that reconcile to the total of such amounts as shown on the Condensed Consolidated Statements of Cash Flows (in millions):
 
June 30, 2018
 
December 31, 2017
Cash and cash equivalents
$
1,140

 
$
949

Restricted cash
379

 
274

Debt service reserves and other deposits
623

 
565

Cash, Cash Equivalents, and Restricted Cash
$
2,142

 
$
1,788

New Accounting Pronouncements Adopted in 2018 — The following table provides a brief description of recent accounting pronouncements that had an impact on the Company’s consolidated financial statements. Accounting pronouncements not listed below were assessed and determined to be either not applicable or did not 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
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 costs 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 and prospective for the change in capitalization.
January 1, 2018
No material impact upon adoption of the standard.
2017-05, Other Income — Gains and Losses from the Derecognition of Nonfinancial Assets (Topic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets
This standard clarifies the scope and application of ASC 610-20 on the sale, transfer, and derecognition of nonfinancial assets and in substance nonfinancial assets to non-customers, including partial sales. It also provides guidance on how gains and losses on transfers of nonfinancial assets and in substance nonfinancial assets to non-customers are recognized. The standard also clarifies that the derecognition of businesses is under the scope of ASC 810. The standard must be adopted concurrently with ASC 606, however an entity will not have to apply the same transition method as ASC 606.
Transition method: modified retrospective.
January 1, 2018
As more transactions will not meet the definition of a business due to the adoption of ASU 2017-01, more dispositions or partial sales will be out of the scope of ASC 810 and will be under this standard.


6



2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business
The standard requires an entity to first evaluate whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, and if that threshold is met, the set is not a business. As a second step, to be considered a business at least one substantive process should exist. The revised definition of a business will reduce the number of transactions that are accounted for as business combinations.
Transition method: prospective.
January 1, 2018
Some acquisitions and dispositions will now fall under a different accounting model.
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
For the six months ended June 30, 2017, cash provided by operating activities increased by $8 million, cash used in investing activities decreased by $12 million, and cash used in financing activities was unchanged.
2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
The standard significantly revises an entity’s accounting related to (1) classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. It also amends certain disclosures of financial instruments.
Transition method: modified retrospective. Prospective for equity investments without readily determinable fair value.
January 1, 2018
No material impact upon adoption of the standard.
2014-09, 2015-14, 2016-08, 2016-10, 2016-12, 2016-20, 2017-10, 2017-13, Revenue from Contracts with Customers (Topic 606)

See discussion of the ASU below.
January 1, 2018
See impact upon adoption of the standard below.
On January 1, 2018, the Company adopted ASU 2014-09, "Revenue from Contracts with Customers," and its subsequent corresponding updates ("ASC 606"). Under this standard, 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. The Company applied the modified retrospective method of adoption to the contracts that were not completed as of January 1, 2018. Results for reporting periods beginning January 1, 2018 are presented under ASC 606, while prior period amounts were not adjusted and continue to be reported in accordance with the previous revenue recognition standard. For contracts that were modified before January 1, 2018, the Company reflected the aggregate effect of all modifications when identifying the satisfied and unsatisfied performance obligations, determining the transaction price and allocating the transaction price.
The cumulative effect to our January 1, 2018 Condensed Consolidated Balance Sheet resulting from the adoption of ASC 606 was as follows (in millions):
Condensed Consolidated Balance Sheet
Balance at December 31, 2017
 
Adjustments Due to ASC 606
 
Balance at
January 1, 2018
Assets
 
 
 
 
 
Other current assets
$
630

 
$
61

 
$
691

Deferred income taxes
130

 
(24
)
 
106

Service concession assets, net
1,360

 
(1,360
)
 
—

Loan receivable
—

 
1,490

 
1,490

Equity
 
 
 
 
 
Accumulated deficit
(2,276
)
 
67

 
(2,209
)
Accumulated other comprehensive loss
(1,876
)
 
19

 
(1,857
)
Noncontrolling interest
2,380

 
81

 
2,461

The Mong Duong II power plant in Vietnam is the primary driver of changes in revenue recognition under the new standard. This plant is operated under a build, operate, and transfer contract and will be transferred to the Vietnamese government after the completion of a 25-year PPA. Under the previous revenue recognition standard, construction costs were deferred to a service concession asset, which was expensed in proportion to revenue recognized for the construction element over the term of the PPA. Under ASC 606, construction revenue and associated costs are recognized as construction activity occurs. As construction of the plant was substantially completed in 2015, revenues and costs associated with the construction were recognized through retained earnings, and the service concession asset was derecognized. A loan receivable was recognized for the future expected payments for the construction performance obligation. As the payments for the construction performance obligation occur over a 25-year term, a significant financing element was determined to exist which is accounted for

7



under the effective interest rate method. The other performance obligation to operate and maintain the facility is measured based on the capacity made available.
The impact to our Condensed Consolidated Balance Sheet as of June 30, 2018 resulting from the adoption of ASC 606 as compared to the previous revenue recognition standard was as follows (in millions):
 
June 30, 2018
Condensed Consolidated Balance Sheet
As Reported
 
Balances Without Adoption of ASC 606
 
Adoption Impact
Assets
 
 
 
 
 
Other current assets
$
682

 
$
618

 
$
64

Deferred income taxes
83

 
107

 
(24
)
Service concession assets, net
—

 
1,313

 
(1,313
)
Loan receivable
1,458

 
—

 
1,458

TOTAL ASSETS
32,597

 
32,412

 
185

Liabilities
 
 
 
 
 
Accrued and other liabilities
1,036

 
1,034

 
2

Equity
 
 
 
 
 
Accumulated deficit
(1,234
)
 
(1,320
)
 
86

Accumulated other comprehensive loss
(1,988
)
 
(2,006
)
 
18

Noncontrolling interest
2,348

 
2,269

 
79

TOTAL LIABILITIES AND EQUITY
32,597

 
32,412

 
185

The impact to our Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2018 resulting from the adoption of ASC 606 as compared to the previous revenue recognition standard was as follows (in millions):
 
Three Months Ended June 30, 2018
Condensed Consolidated Statement of Operations
As Reported
 
Balances Without Adoption of ASC 606
 
Adoption Impact
Total revenue
$
2,537

 
$
2,562

 
$
(25
)
Total cost of sales
(1,937
)
 
(1,957
)
 
20

Operating margin
600

 
605

 
(5
)
Interest income
76

 
61

 
15

Income from continuing operations before taxes and equity in earnings of affiliates
342

 
332

 
10

Income tax expense
(132
)
 
(132
)
 
—

INCOME FROM CONTINUING OPERATIONS
224

 
214

 
10

NET INCOME
416

 
406

 
10

NET INCOME ATTRIBUTABLE TO THE AES CORPORATION
290

 
280

 
10

 
Six Months Ended June 30, 2018
Condensed Consolidated Statement of Operations
As Reported
 
Balances Without Adoption of ASC 606
 
Adoption Impact
Total revenue
$
5,277

 
$
5,313

 
$
(36
)
Total cost of sales
(4,021
)
 
(4,047
)
 
26

Operating margin
1,256

 
1,266

 
(10
)
Interest income
152

 
122

 
30

Income from continuing operations before taxes and equity in earnings of affiliates
1,340

 
1,320

 
20

Income tax expense
(363
)
 
(362
)
 
(1
)
INCOME FROM CONTINUING OPERATIONS
1,002

 
983

 
19

NET INCOME
1,193

 
1,174

 
19

NET INCOME ATTRIBUTABLE TO THE AES CORPORATION
974

 
955

 
19

New Accounting Pronouncements Issued But Not Yet Effective — The following table provides a brief description of recent accounting pronouncements that could have a material impact on the Company’s consolidated financial statements once adopted. 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.

8



New Accounting Standards Issued But Not Yet Effective
ASU Number and Name
Description
Date of Adoption
Effect on the financial statements upon adoption
2018-02, Income Statement — Reporting Comprehensive Income (Topic 220), Reclassification of Certain Tax Effects from AOCI
This amendment allows a reclassification of the stranded tax effects resulting from the implementation of the Tax Cuts and Jobs Act from AOCI to retained earnings. Because this amendment only relates to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected.
January 1, 2019. Early adoption is permitted.
The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
2017-12, Derivatives and Hedging (Topic 815): Targeted improvements to Accounting for Hedging Activities
The standard updates the hedge accounting model to expand the ability to hedge nonfinancial and financial risk components, reduce complexity, and ease certain documentation and assessment requirements. When facts and circumstances are the same as at the previous quantitative test, a subsequent quantitative effectiveness test is not required. The standard also eliminates the requirement to separately measure and report hedge ineffectiveness. For cash flow hedges, this means that the entire change in the fair value of a hedging instrument will be recorded in other comprehensive income and amounts deferred will be reclassified to earnings in the same income statement line as the hedged item.
Transition method: modified retrospective with the cumulative effect adjustment recorded to the opening balance of retained earnings as of the initial application date. Prospective for presentation and disclosures.
January 1, 2019. Early adoption is permitted.

The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
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 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 for 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.
2017-04, 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.
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. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking "expected loss" model that generally will result in the earlier recognition of allowance for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses as it is done today, except that the losses will be recognized as an allowance rather than a reduction in the amortized cost of the securities.
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, 2018-01, 2018-10, 2018-11, Leases (Topic 842)
See discussion of the ASU below.
January 1, 2019. Early adoption is permitted.
The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
ASU 2016-02 and its subsequent corresponding updates will require lessees to recognize assets and liabilities for most leases, and recognize expenses in a manner similar to the current accounting method. For Lessors, the guidance modifies the lease classification criteria and the accounting for sales-type and direct financing leases. The guidance also eliminates the current real estate-specific provisions.
The standard must be adopted using a modified retrospective approach at the beginning of the earliest comparative period presented in the financial statements (January 1, 2017). The FASB amended the standard to add an optional transition method. The additional transition method allows entities to continue to apply the guidance in ASC 840 Leases in the comparative periods presented in the year they adopt the new lease standard. Under this transition method, the entity would apply the transition provisions on January 1, 2019 (i.e., the effective date). At transition, lessees and lessors are permitted to make an election to apply a package of practical expedients that allow them not to reassess: (1) whether any expired or existing contracts are or contain leases, (2) lease classification for any expired or existing leases, and (3) whether initial direct costs for any expired or existing leases

9



qualify for capitalization under ASC 842. These three practical expedients must be elected as a package and must be consistently applied to all leases. Furthermore, entities are also permitted to make an election to use hindsight when determining lease term and lessees can elect to use hindsight when assessing the impairment of right-of-use assets.
The Company has established a task force focused on the identification of contracts that would be under the scope of the new standard and on the assessment and measurement of the right-of-use asset and related liability. Additionally, the implementation team has been working on the configuration of a lease accounting system that will support the implementation and the subsequent accounting. The implementation team is in the process of evaluating changes to our business processes, systems and controls to support recognition and disclosure under the new standard.
As the Company has preliminarily concluded that at transition it would be using the package of practical expedients, the main impact expected as of the effective date is the recognition of the right-of-use asset and the related liability in the financial statements for all those contracts that contain a lease and for which the Company is the lessee. However, income statement presentation and the expense recognition pattern is not expected to change.
Under ASC 842, it is expected that fewer contracts will contain a lease. However, due to the elimination of today's real estate-specific guidance and changes to certain lessor classification criteria, more leases will qualify as sales-type leases and direct financing leases. Under these two models, a lessor will derecognize the asset and will recognize a lease receivable. According to ASC 842, the lease receivable does not include variable payments that depend on the use of the asset (e.g. Mwh produced by a facility). Therefore, the lease receivable could be lower than the carrying amount of the underlying asset at lease commencement. In such circumstances, the difference between the initially recognized lease receivable and the carrying amount of the underlying asset is recognized as a loss at lease commencement. The Company is assessing how this guidance will apply to new renewable contracts executed or modified after the effective date where all the payments are contingent on the level of production and is also evaluating the related impact to the allocation of earnings under HLBV accounting.
2. INVENTORY
The following table summarizes the Company’s inventory balances as of the periods indicated (in millions):
 
June 30, 2018
 
December 31, 2017
Fuel and other raw materials
$
293

 
$
284

Spare parts and supplies
290

 
278

Total
$
583

 
$
562

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. For further information on our valuation techniques and policies, see Note 4—Fair Value in Item 8.—Financial Statements and Supplementary Data of our 2017 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 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:

10



 
June 30, 2018
 
December 31, 2017
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DEBT SECURITIES:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unsecured debentures (1)
$
—

 
$
297

 
$
—

 
$
297

 
$
—

 
$
207

 
$
—

 
$
207

Certificates of deposit
—

 
490

 
—

 
490

 
—

 
153

 
—

 
153

Total debt securities
—

 
787

 
—

 
787

 
—

 
360

 
—

 
360

EQUITY SECURITIES:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mutual funds
20

 
46

 
—

 
66

 
20

 
52

 
—

 
72

Other equity securities
—

 
3

 
—

 
3

 
—

 
—

 
—

 
—

Total equity securities
20

 
49

 
—

 
69

 
20

 
52

 
—

 
72

DERIVATIVES:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives
—

 
53

 
1

 
54

 
—

 
15

 
—

 
15

Cross-currency derivatives
—

 
23

 
—

 
23

 
—

 
29

 
—

 
29

Foreign currency derivatives
—

 
29

 
219

 
248

 
—

 
29

 
240

 
269

Commodity derivatives
—

 
14

 
10

 
24

 
—

 
30

 
5

 
35

Total derivatives — assets
—

 
119

 
230

 
349

 
—

 
103

 
245

 
348

TOTAL ASSETS
$
20

 
$
955

 
$
230

 
$
1,205

 
$
20

 
$
515

 
$
245

 
$
780

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DERIVATIVES:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives
$
—

 
$
70

 
$
112

 
$
182

 
$
—

 
$
111

 
$
151

 
$
262

Cross-currency derivatives
—

 
3

 
—

 
3

 
—

 
3

 
—

 
3

Foreign currency derivatives
—

 
51

 
—

 
51

 
—

 
30

 
—

 
30

Commodity derivatives
—

 
5

 
—

 
5

 
—

 
19

 
1

 
20

Total derivatives — liabilities
—

 
129

 
112

 
241

 
—

 
163

 
152

 
315

TOTAL LIABILITIES
$
—

 
$
129

 
$
112

 
$
241

 
$
—

 
$
163

 
$
152

 
$
315

_____________________________
(1) 
Includes non-convertible debentures at Guaimbê Solar Complex. See Note 18—Acquisitions for further information.
As of June 30, 2018, all AFS debt securities had stated maturities within one year. For the three and six months ended June 30, 2018 and 2017, 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,
 
2018
 
2017
 
2018
 
2017
Gross proceeds from sale of AFS securities
$
267

 
$
363

 
$
414

 
$
793

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, 2018 and 2017 (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, 2018
Interest Rate
 
Foreign Currency
 
Commodity
 
Total
Balance at April 1
$
(129
)
 
$
225

 
$
3

 
$
99

Total realized and unrealized gains (losses):
 
 
 
 
 
 
 
Included in earnings
13

 
3

 
—

 
16

Included in other comprehensive income — derivative activity
1

 
—

 
—

 
1

Included in regulatory (assets) liabilities
—

 
—

 
9

 
9

Settlements
4

 
(9
)
 
(2
)
 
(7
)
Balance at June 30
$
(111
)
 
$
219

 
$
10

 
$
118

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
$
15

 
$
(5
)
 
$
—

 
$
10


Three Months Ended June 30, 2017
Interest Rate
 
Foreign Currency
 
Commodity
 
Total
Balance at April 1
$
(183
)
 
$
231

 
$
2

 
$
50

Total realized and unrealized 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 assets/(liabilities), net 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


11




Six Months Ended June 30, 2018
Interest Rate
 
Foreign Currency
 
Commodity
 
Total
Balance at January 1
$
(151
)
 
$
240

 
$
4

 
$
93

Total realized and unrealized gains (losses):
 
 
 
 
 
 

Included in earnings
27

 
(3
)
 
1

 
25

Included in other comprehensive income — derivative activity
32

 
—

 
—

 
32

Included in regulatory liabilities
—

 
—

 
9

 
9

Settlements
10

 
(18
)
 
(4
)
 
(12
)
Transfers of assets/(liabilities), net into Level 3
(3
)
 
—

 
—

 
(3
)
Transfers of (assets)/liabilities, net out of Level 3
(26
)
 
—

 
—

 
(26
)
Balance at June 30
$
(111
)
 
$
219

 
$
10

 
$
118

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
$
31

 
$
(21
)
 
$
1

 
$
11


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 liabilities
—

 
—

 
10

 
10

Settlements
19

 
(16
)
 
(5
)
 
(2
)
Transfers of assets/(liabilities), net 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
)
The following table summarizes the significant unobservable inputs used for Level 3 derivative assets (liabilities) as of June 30, 2018 (in millions, except range amounts):
Type of Derivative
 
Fair Value
 
Unobservable Input
 
Amount or Range (Weighted Average)
Interest rate
 
$
(111
)
 
Subsidiaries’ credit spreads
 
2.38% to 4.38% (3.61%)
Foreign currency:
 
 
 
 
 
 
Argentine Peso
 
219

 
Argentine peso to USD currency exchange rate after one year
 
36.86 to 87.44 (61.98)
Commodity:
 
 
 
 
 
 
Other
 
10

 
 
 
 
Total
 
$
118

 
 
 
 
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
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 measured at fair value on a nonrecurring basis and their level within the fair value hierarchy (in millions):
 
Measurement Date
 
Carrying Amount (1)
 
Fair Value
 
Pretax Loss
Six months ended June 30, 2018
 
Level 1
 
Level 2
 
Level 3
 
Long-lived assets held and used: (2)
 
 
 
 
 
 
 
 
 
 
 
U.S. Generation Facility
06/30/2018
 
$
210

 
$
—

 
$
—

 
$
127

 
$
83

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

 
$
—

 
$
—

 
$
11

 
$
66

Other
02/28/2017
 
15

 
—

 
—

 
7

 
8

Held-for-sale businesses: (3)
 
 
 
 
 
 
 
 
 
 
 
Kazakhstan Hydroelectric
06/30/2017
 
190

 
—

 
92

 
—

 
90

Kazakhstan
03/31/2017
 
171

 
—

 
29

 
—

 
94

_____________________________
(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 17—Held-for-Sale and Dispositions for further information.

12



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, 2018 (in millions, except range amounts):
 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Range (Weighted Average)
Long-lived assets held and used:
 
 
 
 
 
 
 
U.S. Generation Facility
$
127

 
Market/Income approach (1)
 
Annual revenue growth
 
-1% to -3% (-2%)

 
 
 
 
 
Annual pretax operating margin
 
25% to 36% (30%)

 
 
 
 
 
Weighted average cost of capital
 
9
%
_____________________________
(1) 
A combination of the market approach, using prices and unobservable inputs from transactions involving comparable assets, and the income approach was used in determining the fair value.
Asset Retirement Obligation — The Company increased the asset retirement obligation associated with an ash pond at IPL by $32 million. This increase was due to increased costs and revised closure dates associated with an EPA rule regulating CCR. The Company uses the cost approach to determine the fair value of ARO liabilities, which is estimated by discounting expected cash outflows to their present value using market based rates at the initial recording of the liabilities. Cash outflows are based on the approximate future disposal costs as determined by market information, historical information or other management estimates. These inputs to the fair value of the ARO liabilities would be considered Level 3 inputs under the fair value hierarchy.
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, 2018 and December 31, 2017, but for which fair value is disclosed:
 
 
June 30, 2018
 
 
Carrying
Amount
 
Fair Value
 
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
Accounts receivable — noncurrent (1)
$
134

 
$
245

 
$
—

 
$
—

 
$
245

Liabilities:
Non-recourse debt
15,465

 
15,943

 
—

 
14,259

 
1,684

 
Recourse debt
4,130

 
4,169

 
—

 
4,169

 
—

 
 
December 31, 2017
 
 
Carrying
Amount
 
Fair Value
 
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
Accounts receivable — noncurrent (1)
$
163

 
$
217

 
$
—

 
$
6

 
$
211

Liabilities:
Non-recourse debt
15,340

 
15,890

 
—

 
13,350

 
2,540

 
Recourse debt
4,630

 
4,920

 
—

 
4,920

 
—

_____________________________
(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 $21 million and $31 million as of June 30, 2018 and December 31, 2017, respectively.
4. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
For further information on the derivative and hedging accounting policies see Note 1—General and Summary of Significant Accounting Policies—Derivatives and Hedging Activities of Item 8.—Financial Statements and Supplementary Data in the 2017 Form 10-K.
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, 2018, 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)
 
$
4,492

 
2042
Cross-Currency Swaps (Chilean Unidad de Fomento and Chilean peso)
 
373

 
2029
Foreign Currency:
 
 
 
 
Argentine peso
 
120

 
2026
Chilean peso
 
381

 
2021
Colombian peso
 
212

 
2020
Brazilian real
 
218

 
2018
Others, primarily with weighted average remaining maturities of a year or less
 
260

 
2020

13



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, 2018 and December 31, 2017 (in millions):
Fair Value
June 30, 2018
 
December 31, 2017
Assets
Designated
 
Not Designated
 
Total
 
Designated
 
Not Designated
 
Total
Interest rate derivatives
$
53

 
$
1

 
$
54

 
$
15

 
$
—

 
$
15

Cross-currency derivatives
23

 
—

 
23

 
29

 
—

 
29

Foreign currency derivatives
—

 
248

 
248

 
8

 
261

 
269

Commodity derivatives
—

 
24

 
24

 
5

 
30

 
35

Total assets
$
76

 
$
273

 
$
349

 
$
57

 
$
291

 
$
348

Liabilities
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives
$
179

 
$
3

 
$
182

 
$
125

 
$
137

 
$
262

Cross-currency derivatives
3

 
—

 
3

 
3

 
—

 
3

Foreign currency derivatives
26

 
25

 
51

 
1

 
29

 
30

Commodity derivatives
—

 
5

 
5

 
9

 
11

 
20

Total liabilities
$
208

 
$
33

 
$
241

 
$
138

 
$
177

 
$
315

 
June 30, 2018
 
December 31, 2017
Fair Value
Assets
 
Liabilities
 
Assets
 
Liabilities
Current
$
82

 
$
72

 
$
84

 
$
211

Noncurrent
267

 
169

 
264

 
104

Total
$
349

 
$
241

 
$
348

 
$
315

As of June 30, 2018, all derivative instruments subject to credit risk-related contingent features were in an asset position.
Credit Risk-Related Contingent Features (1)
 
 
 
 
 
 
December 31, 2017
Present value of liabilities subject to collateralization