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 September 30, 2016
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, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x
 
Accelerated filer ¨
 
Non-accelerated filer ¨
 
Smaller reporting company ¨
 
 
 
 
 
 
 
 
 
 
 
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
______________________________________________________________________________________________
The number of shares outstanding of Registrant’s Common Stock, par value $0.01 per share, on October 31, 2016 was 659,175,940
 





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





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

1




PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE AES CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
 
September 30, 2016
 
December 31, 2015
 
(in millions, except share and per share data)
ASSETS
 
 
 
CURRENT ASSETS
 
 
 
Cash and cash equivalents
$
1,325

 
$
1,257

Restricted cash
291

 
295

Short-term investments
596

 
469

Accounts receivable, net of allowance for doubtful accounts of $113 and $87, respectively
2,081

 
2,302

Inventory
637

 
671

Prepaid expenses
92

 
106

Other current assets
1,266

 
1,318

Current assets of discontinued operations and held-for-sale businesses
1,006

 
424

Total current assets
7,294

 
6,842

NONCURRENT ASSETS
 
 
 
Property, Plant and Equipment:
 
 
 
Land
780

 
702

Electric generation, distribution assets and other
29,087

 
27,751

Accumulated depreciation
(9,884
)
 
(9,327
)
Construction in progress
3,300

 
3,029

Property, plant and equipment, net
23,283

 
22,155

Other Assets:
 
 
 
Investments in and advances to affiliates
626

 
610

Debt service reserves and other deposits
644

 
555

Goodwill
1,157

 
1,157

Other intangible assets, net of accumulated amortization of $94 and $93, respectively
227

 
207

Deferred income taxes
503

 
410

Service concession assets, net of accumulated amortization of $93 and $34, respectively
1,465

 
1,543

Other noncurrent assets
1,909

 
2,109

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

 
882

Total other assets
6,531

 
7,473

TOTAL ASSETS
$
37,108

 
$
36,470

LIABILITIES AND EQUITY
 
 
 
CURRENT LIABILITIES
 
 
 
Accounts payable
$
1,426

 
$
1,571

Accrued interest
368

 
236

Accrued and other liabilities
2,026

 
2,286

Non-recourse debt, includes $247 and $258, respectively, related to variable interest entities
1,091

 
2,172

Current liabilities of discontinued operations and held-for-sale businesses
802

 
661

Total current liabilities
5,713

 
6,926

NONCURRENT LIABILITIES
 
 
 
Recourse debt
4,944

 
4,966

Non-recourse debt, includes $1,494 and $1,531, respectively, related to variable interest entities
14,796

 
12,943

Deferred income taxes
1,042

 
1,090

Pension and other post-retirement liabilities
1,035

 
919

Other noncurrent liabilities
3,035

 
2,794

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

 
123

Total noncurrent liabilities
24,852

 
22,835

Commitments and Contingencies (see Note 8)

 

Redeemable stock of subsidiaries
775

 
538

EQUITY
 
 
 
THE AES CORPORATION STOCKHOLDERS’ EQUITY
 
 
 
Common stock ($0.01 par value, 1,200,000,000 shares authorized; 816,061,123 issued and 659,175,940 outstanding at September 30, 2016 and 815,846,621 issued and 666,808,790 outstanding at December 31, 2015)
8

 
8

Additional paid-in capital
8,645

 
8,718

Retained earnings (accumulated deficit)
(114
)
 
143

Accumulated other comprehensive loss
(3,753
)
 
(3,883
)
Treasury stock, at cost (156,885,183 shares at September 30, 2016 and 149,037,831 at December 31, 2015)
(1,904
)
 
(1,837
)
Total AES Corporation stockholders’ equity
2,882

 
3,149

NONCONTROLLING INTERESTS
2,886

 
3,022

Total equity
5,768

 
6,171

TOTAL LIABILITIES AND EQUITY
$
37,108

 
$
36,470

See Notes to Condensed Consolidated Financial Statements.

2




THE AES CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
(in millions, except per share amounts)
Revenue:
 
 
 
 
 
 
 
Regulated
$
1,785

 
$
1,691

 
$
4,926

 
$
5,319

Non-Regulated
1,757

 
1,831

 
5,116

 
5,617

Total revenue
3,542

 
3,522

 
10,042

 
10,936

Cost of Sales:
 
 
 
 
 
 
 
Regulated
(1,623
)
 
(1,458
)
 
(4,521
)
 
(4,447
)
Non-Regulated
(1,231
)
 
(1,399
)
 
(3,750
)
 
(4,348
)
Total cost of sales
(2,854
)
 
(2,857
)
 
(8,271
)
 
(8,795
)
Operating margin
688

 
665

 
1,771

 
2,141

General and administrative expenses
(40
)
 
(45
)
 
(135
)
 
(150
)
Interest expense
(354
)
 
(365
)
 
(1,086
)
 
(995
)
Interest income
110

 
126

 
365

 
321

Loss on extinguishment of debt
(16
)
 
(20
)
 
(12
)
 
(161
)
Other expense
(13
)
 
(18
)
 
(42
)
 
(47
)
Other income
18

 
12

 
43

 
42

Gain on disposal and sale of businesses

 
24

 
30

 
24

Asset impairment expense
(79
)
 
(231
)
 
(473
)
 
(276
)
Foreign currency transaction gains (losses)
(20
)
 
12

 
(16
)
 
4

INCOME FROM CONTINUING OPERATIONS BEFORE TAXES AND EQUITY IN EARNINGS OF AFFILIATES
294

 
160

 
445

 
903

Income tax expense
(75
)
 
(43
)
 
(165
)
 
(266
)
Net equity in earnings of affiliates
11

 
81

 
25

 
96

INCOME FROM CONTINUING OPERATIONS
230

 
198

 
305

 
733

(Loss) income from operations of discontinued businesses, net of income tax benefit (expense) of $0, $(1), $4 and $6, respectively
(1
)
 
5

 
(7
)
 
(12
)
Net loss from disposal and impairments of discontinued businesses, net of income tax benefit of $401 for the nine months ended September 30, 2016

 

 
(382
)
 

NET INCOME (LOSS)
229

 
203

 
(84
)
 
721

Less: Net income attributable to noncontrolling interests
(57
)
 
(23
)
 
(105
)
 
(330
)
Less: Net loss attributable to redeemable stocks of subsidiaries
3

 

 
8

 

NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION
$
175

 
$
180

 
$
(181
)
 
$
391

AMOUNTS ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS:
 
 
 
 
 
 
 
Income from continuing operations, net of tax
$
176

 
$
175

 
$
208

 
$
403

(Loss) income from discontinued operations, net of tax
(1
)
 
5

 
(389
)
 
(12
)
NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION
$
175

 
$
180

 
$
(181
)
 
$
391

BASIC EARNINGS PER SHARE:
 
 
 
 
 
 
 
Income from continuing operations attributable to The AES Corporation common stockholders, net of tax
$
0.26

 
$
0.26

 
$
0.31

 
$
0.58

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

 
0.01

 
(0.59
)
 
(0.01
)
NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS
$
0.26

 
$
0.27

 
$
(0.28
)
 
$
0.57

DILUTED EARNINGS PER SHARE:
 
 
 
 
 
 
 
Income from continuing operations attributable to The AES Corporation common stockholders, net of tax
$
0.26

 
$
0.26

 
$
0.31

 
$
0.58

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

 

 
(0.59
)
 
(0.02
)
NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS
$
0.26

 
$
0.26

 
$
(0.28
)
 
$
0.56

DILUTED SHARES OUTSTANDING
662

 
682

 
662

 
694

DIVIDENDS DECLARED PER COMMON SHARE
$
0.11

 
$
0.10

 
$
0.22

 
$
0.20

See Notes to Condensed Consolidated Financial Statements.

3




THE AES CORPORATION
Condensed Consolidated Statements of Comprehensive (Loss) Income
(Unaudited)
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
(in millions)
NET INCOME (LOSS)
$
229

 
$
203

 
$
(84
)
 
$
721

Foreign currency translation activity:
 
 
 
 
 
 
 
Foreign currency translation adjustments, net of income tax benefit (expense) of $(1), $1, $0 and $1, respectively
(16
)
 
(513
)
 
232

 
(857
)
Total foreign currency translation adjustments
(16
)
 
(513
)
 
232

 
(857
)
Derivative activity:
 
 
 
 
 
 
 
Change in derivative fair value, net of income tax benefit (expense) of $(7), $22, $39 and $22, respectively
19

 
(70
)
 
(138
)
 
(73
)
Reclassification to earnings, net of income tax expense of $4, $0, $5 and $6, respectively
21

 
14

 
23

 
46

Total change in fair value of derivatives
40

 
(56
)
 
(115
)
 
(27
)
Pension activity:
 
 
 
 
 
 
 
Reclassification to earnings due to amortization of net actuarial loss, net of income tax expense of $2, $3, $4 and $8, respectively
3

 
4

 
10

 
13

Total pension adjustments
3

 
4

 
10

 
13

OTHER COMPREHENSIVE INCOME (LOSS)
27

 
(565
)
 
127

 
(871
)
COMPREHENSIVE INCOME (LOSS)
256

 
(362
)
 
43

 
(150
)
Less: Comprehensive (income) loss attributable to noncontrolling interests
(66
)
 
229

 
(94
)
 
56

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION
$
190

 
$
(133
)
 
$
(51
)
 
$
(94
)
See Notes to Condensed Consolidated Financial Statements.

4




THE AES CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Nine Months Ended September 30,
 
2016
 
2015
 
 
 
 
 
(in millions)
OPERATING ACTIVITIES:
 
 
 
Net income (loss)
$
(84
)
 
$
721

Adjustments to net income:
 
 
 
Depreciation and amortization
877

 
880

Gain on sales and disposals of businesses
(30
)
 
(24
)
Impairment expenses
475

 
276

Deferred income taxes
(475
)
 
(8
)
Provisions for (reversals of) contingencies
28

 
(91
)
Loss on extinguishment of debt
12

 
165

Loss on sales of assets
26

 
23

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

 

Other
106

 
50

Changes in operating assets and liabilities
 
 
 
(Increase) decrease in accounts receivable
335

 
(314
)
(Increase) decrease in inventory
36

 
(11
)
(Increase) decrease in prepaid expenses and other current assets
670

 
377

(Increase) decrease in other assets
(237
)
 
(1,103
)
Increase (decrease) in accounts payable and other current liabilities
(567
)
 
238

Increase (decrease) in income tax payables, net and other tax payables
(270
)
 
(126
)
Increase (decrease) in other liabilities
497

 
452

Net cash provided by operating activities
2,182

 
1,505

INVESTING ACTIVITIES:
 
 
 
Capital expenditures
(1,770
)
 
(1,687
)
Acquisitions, net of cash acquired
(61
)
 
(17
)
Proceeds from the sale of businesses, net of cash sold, and equity method investments
157

 
96

Sale of short-term investments
3,747

 
3,683

Purchase of short-term investments
(3,797
)
 
(3,605
)
Increase in restricted cash, debt service reserves and other assets
(123
)
 
(60
)
Other investing
(22
)
 
(49
)
Net cash used in investing activities
(1,869
)
 
(1,639
)
FINANCING ACTIVITIES:
 
 
 
Borrowings under the revolving credit facilities
1,079

 
677

Repayments under the revolving credit facilities
(856
)
 
(644
)
Issuance of recourse debt
500

 
575

Repayments of recourse debt
(808
)
 
(915
)
Issuance of non-recourse debt
2,118

 
3,281

Repayments of non-recourse debt
(1,720
)
 
(2,468
)
Payments for financing fees
(86
)
 
(65
)
Distributions to noncontrolling interests
(356
)
 
(182
)
Contributions from noncontrolling interests and redeemable security holders
154

 
117

Proceeds from the sale of redeemable stock of subsidiaries
134

 
461

Dividends paid on AES common stock
(218
)
 
(209
)
Payments for financed capital expenditures
(108
)
 
(110
)
Purchase of treasury stock
(79
)
 
(408
)
Other financing
(12
)
 
(24
)
Net cash (used in) provided by financing activities
(258
)
 
86

Effect of exchange rate changes on cash
7

 
(40
)
Decrease in cash of discontinued operations and held-for-sale businesses
6

 
7

Total increase (decrease) in cash and cash equivalents
68

 
(81
)
Cash and cash equivalents, beginning
1,257

 
1,517

Cash and cash equivalents, ending
$
1,325

 
$
1,436

SUPPLEMENTAL DISCLOSURES:
 
 
 
Cash payments for interest, net of amounts capitalized
$
837

 
$
875

Cash payments for income taxes, net of refunds
$
425

 
$
319

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

 
$
12


See Notes to Condensed Consolidated Financial Statements.

5




THE AES CORPORATION
Notes to Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2016 and 2015
1. FINANCIAL STATEMENT PRESENTATION
The prior-period condensed consolidated financial statements in this Quarterly Report on Form 10-Q (“Form 10-Q”) have been reclassified to reflect the businesses held-for-sale and discontinued operations as discussed in Note 16—Discontinued Operations.
Consolidation In this Quarterly Report the terms “AES,” “the Company,” “us” or “we” refer to the consolidated entity including its subsidiaries and affiliates. The terms “The AES Corporation” or “the Parent Company” refer only to the publicly held holding company, The AES Corporation, excluding its subsidiaries and affiliates. Furthermore, variable interest entities (“VIEs”) in which the Company has a variable interest have been consolidated where the Company is the primary beneficiary. Investments in which the Company has the ability to exercise significant influence, but not control, are accounted for using the equity method of accounting. All intercompany transactions and balances have been eliminated in consolidation.
Interim Financial Presentation The accompanying unaudited condensed consolidated financial statements and footnotes have been prepared in accordance with GAAP, as contained in the FASB ASC, for interim financial information and Article 10 of Regulation S-X issued by the SEC. Accordingly, they do not include all the information and footnotes required by GAAP for annual fiscal reporting periods. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair presentation of the results of operations, financial position, comprehensive income and cash flows. The results of operations for the three and nine months ended September 30, 2016 are not necessarily indicative of results that may be expected for the year ending December 31, 2016. The accompanying condensed consolidated financial statements are unaudited and should be read in conjunction with the 2015 audited consolidated financial statements and notes thereto, which are included in the 2015 Form 10-K filed with the SEC on February 23, 2016 (the “2015 Form 10-K”).
New Accounting Pronouncements The following table provides a brief description of recent accounting pronouncements that had and/or could have a material impact on the Company’s consolidated financial statements. 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
2015-03, 2015-15, Interest — Imputation of Interest (Subtopic 835-30)
These standards simplify the presentation of debt issuance costs by requiring that debt issuance costs related to a tranche of debt be presented on the balance sheet as a direct deduction from the carrying amount of that debt, consistent with debt discounts. Debt issuance costs related to a line-of-credit can still be presented as an asset and subsequently amortized over the term of the line-of-credit, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The recognition and measurement guidance for debt issuance costs are not affected by the standard. Transition method: retrospective.
January 1, 2016
Deferred financing costs of $24 million previously classified within other current assets and $357 million previously classified within other noncurrent assets were reclassified to reduce the related debt liabilities as of December 31, 2015.
2015-02, Consolidation — Amendments to the Consolidation Analysis (Topic 810)
The standard makes targeted amendments to the current consolidation guidance and ends the deferral granted to investment companies from applying the VIE guidance. The standard amends the evaluation of whether (1) fees paid to a decision-maker or service providers represent a variable interest, (2) a limited partnership or similar entity has the characteristics of a VIE and (3) a reporting entity is the primary beneficiary of a VIE. Transition method: retrospective.
January 1, 2016
None, other than that some entities previously consolidated under the voting model are now consolidated under the VIE model.


6




New Accounting Standards Issued But Not Yet Effective
ASU Number and Name
Description
Date of Adoption
Effect on the financial statements upon adoption
2016-17, Consolidation (Topic 810): Interest Held through Related Parties That Are under Common Control
This standard amends the evaluation of whether a reporting entity is the primary beneficiary of a VIE by amending how a reporting entity, that is a single decision maker of a VIE, treats indirect interests in that entity held through related parties that are under common control. Transition method: retrospectively.
January 1, 2017. 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 method.
January 1, 2018. Early adoption is permitted.
The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)
This standard provides specific guidance on how certain cash transactions are presented and classified in the statement of cash flows. Transition method: retrospective method.
January 1, 2018. Early adoption is permitted.
The Company is currently evaluating the impact of adopting the standard, but does not anticipate a material impact on its consolidated financial statements.
2016-13, 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.
2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
The standard simplifies the following aspects of accounting for share-based payments awards: accounting for income taxes, classification of excess tax benefits on the statement of cash flows, forfeitures, statutory tax withholding requirements, classification of awards as either equity or liabilities and classification of employee taxes paid on statement of cash flows when an employer withholds shares for tax-withholding purposes. Transition method: various.
January 1, 2017. Early adoption is permitted.

The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
2016-02, 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.
2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory
The standard replaces the current lower of cost or market test with a lower of cost or net realizable value test. Transition method: prospectively.
January 1, 2017. Early adoption is permitted.
The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
2014-09, 2015-14, 2016-08, 2016-10, 2016-12, Revenue from Contracts with Customers (Topic 606),


The Revenue from Contracts with Customers standard provides a single and comprehensive revenue recognition model for all contracts with customers to improve comparability. The standard contains principles to determine the measurement and timing of revenue recognition. The standard requires an entity to recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. The amendments to the standard provide further clarification on contract revenue recognition specifically related to the implementation of the principal versus agent evaluation, the identification of performance obligations, clarification on accounting for licenses of intellectual property, and allows for the election to account for shipping and handling activities performed after control of a good has been transferred to the customer as a fulfillment cost. Transition method: a full retrospective or modified retrospective approach.
January 1, 2018. Earlier application is permitted only as of January 1, 2017.
The Company will adopt the standard on January 1, 2018; and it is currently evaluating the impact of its adoption on the consolidated financial statements.
2. INVENTORY
The following table summarizes the Company’s inventory balances as of the periods indicated (in millions):
 
September 30, 2016
 
December 31, 2015
Fuel and other raw materials
$
294

 
$
343

Spare parts and supplies
343

 
328

Total
$
637

 
$
671

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

7




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

 
$
372

 
$

 
$
372

 
$

 
$
318

 
$

 
$
318

Certificates of deposit

 
168

 

 
168

 

 
129

 

 
129

Government debt securities

 
9

 

 
9

 

 
28

 

 
28

Subtotal

 
549

 

 
549

 

 
475

 

 
475

Equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mutual funds

 
40

 

 
40

 

 
15

 

 
15

Subtotal

 
40

 

 
40

 

 
15

 

 
15

Total available for sale

 
589

 

 
589

 

 
490

 

 
490

TRADING:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mutual funds
16

 

 

 
16

 
15

 

 

 
15

Total trading
16

 

 

 
16

 
15

 

 

 
15

DERIVATIVES:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cross-currency derivatives

 
3

 

 
3

 

 

 

 

Foreign currency derivatives

 
42

 
274

 
316

 

 
35

 
292

 
327

Commodity derivatives

 
52

 
10

 
62

 

 
41

 
7

 
48

Total derivatives — assets

 
97

 
284

 
381

 

 
76

 
299

 
375

TOTAL ASSETS
$
16

 
$
686

 
$
284

 
$
986

 
$
15

 
$
566

 
$
299

 
$
880

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DERIVATIVES:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives
$

 
$
194

 
$
307

 
$
501

 
$

 
$
54

 
$
304

 
$
358

Cross-currency derivatives

 
26

 

 
26

 

 
43

 

 
43

Foreign currency derivatives

 
82

 

 
82

 

 
41

 
15

 
56

Commodity derivatives

 
37

 
1

 
38

 

 
29

 
4

 
33

Total derivatives — liabilities

 
339

 
308

 
647

 

 
167

 
323

 
490

TOTAL LIABILITIES
$

 
$
339

 
$
308

 
$
647

 
$

 
$
167

 
$
323

 
$
490

As of September 30, 2016, all AFS debt securities had stated maturities within one year. Gains and losses on the sale of investments are determined using the specific-identification method. For the three and nine months ended September 30, 2016 and 2015 no other-than-temporary impairments of marketable securities were recognized in earnings or OCI. The table below presents gross proceeds from the sale of available for sale securities during the periods indicated (in millions):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Gross proceeds from sale of AFS securities
$
812

 
$
1,105

 
$
3,216

 
$
3,285

The following tables present a reconciliation of net derivative assets and liabilities by type measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2016 and 2015 (in millions). Transfers between Level 3 and Level 2 are determined as of the end of the reporting period and principally result from changes in the significance of unobservable inputs used to calculate the credit valuation adjustment.
Three Months Ended September 30, 2016
Interest Rate
 
Foreign Currency
 
Commodity
 
Total
Balance at the beginning of the period
$
(421
)
 
$
271

 
$
11

 
$
(139
)
Total realized and unrealized gains (losses):
 
 
 
 
 
 
 
Included in earnings
(1
)
 
12

 
1

 
12

Included in other comprehensive income — derivative activity
6

 

 

 
6

Included in other comprehensive income — foreign currency translation activity

 
(5
)
 

 
(5
)
Settlements
17

 
(4
)
 
(3
)
 
10

Transfers of liabilities into Level 3
(2
)
 

 

 
(2
)
Transfers of liabilities out of Level 3
94

 

 

 
94

Balance at the end of the period
$
(307
)
 
$
274

 
$
9

 
$
(24
)
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

 
$
1

 
$
9


8




Three Months Ended September 30, 2015
Interest Rate
 
Foreign Currency
 
Commodity
 
Total
Balance at the beginning of the period
$
(191
)
 
$
222

 
$
17

 
$
48

Total realized and unrealized gains (losses):
 
 
 
 
 
 
 
Included in earnings
(1
)
 
19

 

 
18

Included in other comprehensive income — derivative activity
(33
)
 

 

 
(33
)
Included in other comprehensive income — foreign currency translation activity

 
(8
)
 

 
(8
)
Included in regulatory (assets) liabilities

 

 
(20
)
 
(20
)
Settlements
7

 
(2
)
 
12

 
17

Transfers of liabilities into Level 3
(65
)
 

 

 
(65
)
Balance at the end of the period
$
(283
)
 
$
231

 
$
9

 
$
(43
)
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
$

 
$
18

 
$

 
$
18

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

 
$
3

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

Included in earnings

 
30

 
3

 
33

Included in other comprehensive income — derivative activity
(172
)
 
6

 

 
(166
)
Included in other comprehensive income — foreign currency translation activity
(3
)
 
(43
)
 

 
(46
)
Included in regulatory (assets) liabilities

 

 
11

 
11

Settlements
56

 
(8
)
 
(8
)
 
40

Transfers of liabilities into Level 3
(2
)
 

 

 
(2
)
Transfers of liabilities out of Level 3
118

 
12

 

 
130

Balance at the end of the period
$
(307
)
 
$
274

 
$
9

 
$
(24
)
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

 
$
25

 
$
3

 
$
33

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

 
$
6

 
$
5

Total realized and unrealized gains (losses):
 
 
 
 
 
 
 
Included in earnings
(1
)
 
49

 
2

 
50

Included in other comprehensive income — derivative activity
(30
)
 

 

 
(30
)
Included in other comprehensive income — foreign currency translation activity
7

 
(21
)
 

 
(14
)
Included in regulatory (assets) liabilities

 

 
(12
)
 
(12
)
Settlements
16

 
(6
)
 
13

 
23

Transfers of liabilities into Level 3
(65
)
 

 

 
(65
)
Balance at the end of the period
$
(283
)
 
$
231

 
$
9

 
$
(43
)
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
$

 
$
44

 
$
2

 
$
46

The table below summarizes the significant unobservable inputs used for Level 3 derivative assets (liabilities) as of September 30, 2016 (in millions, except range amounts):
Type of Derivative
 
Fair Value
 
Unobservable Input
 
Amount or Range (Weighted Avg)
Interest rate
 
$
(307
)
 
Subsidiaries’ credit spreads
 
2.4% to 31.5% (4.3%)
Foreign currency:
 
 
 
 
 
 
Argentine Peso
 
274

 
Argentine Peso to USD currency exchange rate after one year
 
17.5 to 32.7 (25.4)
Other
 
9

 
 
 
 
Total
 
$
(24
)
 
 
 
 
Nonrecurring Measurements
When evaluating impairment of long-lived assets and equity method investments, the Company measures fair value using the applicable fair value measurement guidance. Impairment expense is measured by comparing the fair value at the evaluation date to its then-latest available carrying amount. The following table summarizes our major categories of assets and liabilities measured at fair value on a nonrecurring basis and their level within the fair value hierarchy (in millions):

9




Nine Months Ended September 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)
 
 
 
 
 
 
 
 
 
 
 
Buffalo Gap I
08/31/2016
 
$
113

 
$

 
$

 
$
35

 
$
78

DPL
06/30/2016
 
324

 

 

 
89

 
235

Buffalo Gap II
03/31/2016
 
251

 

 

 
92

 
159

Discontinued operations: (3)
 
 
 
 
 
 
 
 
 
 
 
Sul
06/30/2016
 
1,581

 

 
470

 

 
783

Nine Months Ended September 30, 2015
Measurement Date
 
Carrying Amount (1)
 
Fair Value
 
Pretax Loss
Assets
 
Level 1
 
Level 2
 
Level 3
 
Long-lived assets held and used: (2)
 
 
 
 
 
 
 
 
 
 
 
Buffalo Gap III
09/30/2015
 
$
234

 
$

 
$

 
$
116

 
$
118

Kilroot
08/28/2015
 
191

 

 

 
78

 
113

UK Wind
06/30/2015
 
38

 

 
1

 

 
37

Other
Various
 
29

 

 
21

 

 
8

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

 

 

 
29

 

_____________________________
(1) 
Represents the carrying values at the dates of measurement, before fair value adjustment.
(2) 
See Note 14—Asset Impairment Expense for further information.
(3) 
Per the Company’s policy, pre-tax loss is limited to the impairment of long-lived assets. Any additional loss will be recognized on completion of the sale. See Note 16—Discontinued Operations for further information.
The following table summarizes the significant unobservable inputs used in the Level 3 measurement on a nonrecurring basis during the nine months ended September 30, 2016 (in millions, except range amounts):
 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Range (Weighted Average)
Long-lived assets held and used:
 
 
 
 
 
 
 
Buffalo Gap I
$
35

 
Discounted cash flow
 
Annual revenue growth
 
-20% to 9% (-14%)

 
 
 
 
 
Annual pretax operating margin
 
-40% to 42% (29%)

 
 
 
 
 
Weighted-average cost of capital
 
9
%
DPL
89

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

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

 
 
 
 
 
Weighted-average cost of capital
 
7% to 12%

Buffalo Gap II
92

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

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

 
 
 
 
 
Weighted-average cost of capital
 
9
%
Financial Instruments not Measured at Fair Value in the Condensed Consolidated Balance Sheets
The next table presents (in millions) the carrying amount, fair value and fair value hierarchy of the Company’s financial assets and liabilities that are not measured at fair value in the Condensed Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015, but for which fair value is disclosed:
 
 
September 30, 2016
 
 
Carrying
Amount
 
Fair Value
 
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
Accounts receivable — noncurrent (1)
$
222

 
$
312

 
$

 
$

 
$
312

Liabilities:
Non-recourse debt
15,887

 
16,411

 

 
14,381

 
2,030

 
Recourse debt
4,944

 
5,298

 

 
5,298

 

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

 
$
310

 
$

 
$
20

 
$
290

Liabilities:
Non-recourse debt
15,115

 
15,592

 

 
13,325

 
2,267

 
Recourse debt
4,966

 
4,696

 

 
4,696

 

_____________________________
(1) 
These amounts principally relate to amounts due from CAMMESA, and are included in Other noncurrent assets in the accompanying Condensed Consolidated Balance Sheets. The fair value and carrying amount of these receivables exclude VAT of $23 million and $27 million as of September 30, 2016 and December 31, 2015, respectively.
4. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
There are no changes to the information disclosed in Note 1—General and Summary of Significant Accounting PoliciesDerivatives and Hedging Activities of Item 8.—Financial Statements and Supplementary Data in the 2015 Form 10-K.

10




Volume of Activity — The following table presents the Company’s significant outstanding notional (in millions) by type of derivative as of September 30, 2016, regardless of whether they are in qualifying cash flow hedging relationships, and the dates through which the maturities for each type of derivative range:
Derivatives
 
Current Notional Translated to USD
 
Latest Maturity
Interest Rate (LIBOR and EURIBOR)
 
$
3,324

 
2033
Cross-Currency Swaps (Chilean Unidad de Fomento and Chilean Peso)
 
379

 
2029
Foreign Currency:
 
 
 
 
Argentine Peso
 
158

 
2026
Chilean Unidad de Fomento
 
196

 
2019
Others, primarily with weighted average remaining maturities of a year or less
 
1,227

 
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 September 30, 2016 and December 31, 2015 (in millions):
Fair Value
September 30, 2016
 
December 31, 2015
Assets
Designated
 
Not Designated
 
Total
 
Designated
 
Not Designated
 
Total
Cross-currency derivatives
$
3

 
$

 
$
3

 
$

 
$

 
$

Foreign currency derivatives
11

 
305

 
316

 
8

 
319

 
327

Commodity derivatives
28

 
34

 
62

 
30

 
18

 
48

Total assets
$
42

 
$
339

 
$
381

 
$
38

 
$
337

 
$
375

Liabilities
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives
$
495

 
$
6

 
$
501

 
$
358

 
$

 
$
358

Cross-currency derivatives
26

 

 
26

 
43

 

 
43

Foreign currency derivatives
35

 
47

 
82

 
35

 
21

 
56

Commodity derivatives
20

 
18

 
38

 
12

 
21

 
33

Total liabilities
$
576

 
$
71

 
$
647

 
$
448

 
$
42

 
$
490

 
September 30, 2016
 
December 31, 2015
Fair Value
Assets
 
Liabilities
 
Assets
 
Liabilities
Current
$
110

 
$
158

 
$
86

 
$
144

Noncurrent
271

 
489

 
289

 
346

Total
$
381

 
$
647

 
$
375

 
$
490

 
 
 
 
 
 
 
 
Credit Risk-Related Contingent Features (1)
 
 
 
 
September 30, 2016
 
December 31, 2015
Present value of liabilities subject to collateralization
 
$
47

 
$
58

Cash collateral held by third parties or in escrow
 
21

 
38

 _____________________________
(1) 
Based on the credit rating of certain subsidiaries
Earnings and Other Comprehensive (Loss) Income — The next table presents (in millions) the pretax gains (losses) recognized in AOCL and earnings related to all derivative instruments for the periods indicated:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
2016
 
2015
 
2016
 
2015
Effective portion of cash flow hedges:
 
 
 
 
 
 
 
Gain (Losses) recognized in AOCL
 
 
 
 
 
 
 
Interest rate derivatives
$
7

 
$
(110
)
 
$
(213
)
 
$
(130
)
Cross-currency derivatives
15

 
3

 
12

 
4

Foreign currency derivatives
(6
)
 
5

 
(11
)
 
6

Commodity derivatives
10

 
10

 
35

 
25

Total
$
26

 
$
(92
)
 
$
(177
)
 
$
(95
)
Gain (Losses) reclassified from AOCL into earnings
 
 
 
 
 
 
 
Interest rate derivatives
$
(26
)
 
$
(33
)
 
$
(81
)
 
$
(88
)
Cross-currency derivatives
4

 
(1
)
 
14

 
(3
)
Foreign currency derivatives
(7
)
 
12

 
(3
)
 
20

Commodity derivatives
4

 
8

 
42

 
19

Total
$
(25
)
 
$
(14
)
 
$
(28
)

$
(52
)
Gain (Losses) recognized in earnings related to
 
 
 
 
 
 
 
Ineffective portion of cash flow hedges
$
(2
)
 
$
(2
)
 
$

 
$
(6
)
Not designated as hedging instruments:
 
 
 
 
 
 
 
Foreign currency derivatives
$
(6
)
 
$
23

 
$
10

 
$
62

Commodity derivatives and Other
7

 
(10
)
 
(11
)
 
(18
)
Total
$
1

 
$
13

 
$
(1
)
 
$
44

 
 
 
 
 
 
 
 
 
 
 
 
 
Twelve Months Ended September 30, 2017
AOCL expected to decrease pre-tax income from continuing operations (1)
 
$
133
 
_____________________________
(1) 
Primarily due to interest rate derivatives

11




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