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EX-32.2 - EXHIBIT 32.2 - AES CORPaes03312016exhibit322.htm
EX-31.1 - EXHIBIT 31.1 - AES CORPaes03312016exhibit311.htm
EX-32.1 - EXHIBIT 32.1 - AES CORPaes03312016exhibit321.htm
EX-31.2 - EXHIBIT 31.2 - AES CORPaes03312016exhibit312.htm



 
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 March 31, 2016
or
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-12291
THE AES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
 
54 1163725
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
4300 Wilson Boulevard Arlington, Virginia
 
22203
(Address of principal executive offices)
 
(Zip Code)
(703) 522-1315
Registrant’s telephone number, including area code:
______________________________________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x
 
Accelerated filer ¨
 
Non-accelerated filer ¨
 
Smaller reporting company ¨
 
 
 
 
 
 
 
 
 
 
 
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
______________________________________________________________________________________________
The number of shares outstanding of Registrant’s Common Stock, par value $0.01 per share, on May 2, 2016 was 659,001,121
 





THE AES CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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
AFUDC
Allowance for Funds Used During Construction
ANEEL
Brazilian National Electric Energy Agency
AOCL
Accumulated Other Comprehensive Loss
ASC
Accounting Standards Codification
ASU
Accounting Standards Update
BNDES
Brazilian Development Bank
BoD
Board of Directors
CAA
United States Clean Air Act
CAMMESA
Wholesale Electric Market Administrator in Argentina
CCR
Coal Combustion Residuals
CDPQ
La Caisse de depot et placement du Quebec
CESCO
Central Electricity Supply Company of Orissa Ltd.
CFE
Federal Commission of Electricity
CO2
Carbon Dioxide
CTA
Cumulative Translation Adjustment
DP&L
The Dayton Power & Light Company
DPL
DPL Inc.
DPLER
DPL Energy Resources, Inc.
EPA
United States Environmental Protection Agency
EPC
Engineering, Procurement and Construction
EURIBOR
Euro Interbank Offered Rate
FASB
Financial Accounting Standards Board
FCA
Federal Court of Appeals
FERC
Federal Energy Regulatory Commission
FX
Foreign Exchange
GAAP
Generally Accepted Accounting Principles in the United States
GHG
Greenhouse Gas
GSA
Gas Supply Agreement
GWh
Gigawatt Hours
ICC
International Chamber of Commerce
IPALCO
IPALCO Enterprises, Inc.
IPL
Indianapolis Power & Light Company
IURC
Indiana Utility Regulatory Commission
KPI
Key Performance Indicator
kWh
Kilowatt Hours
LIBOR
London Interbank Offered Rate
MATS
Mercury and Air Toxics Standards
MRE
Energy Reallocation Mechanism
MW
Megawatts
MWh
Megawatt Hours
NEK
Natsionalna Elektricheska Kompania (state-owned electricity public supplier in Bulgaria)
NOV
Notice of Violation
NOX
Nitrogen Oxides
NCI
Noncontrolling Interest
OCI
Other Comprehensive Income
O&M
Operations and Maintenance
OPGC
Odisha Power Generation Corporation
Parent Company
The AES 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
SING
Northern Interconnected Electricity System
SBU
Strategic Business Unit
SEC
United States Securities and Exchange Commission
SO2
Sulfur Dioxide
TA
Transportation Agreement
U.S.
United States
USD
United States Dollar
VAT
Value-Added Tax
VIE
Variable Interest Entity

1




PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE AES CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
 
March 31, 2016
 
December 31, 2015
 
(in millions, except share and per share data)
ASSETS
 
 
 
CURRENT ASSETS
 
 
 
Cash and cash equivalents
$
1,185

 
$
1,262

Restricted cash
294

 
295

Short-term investments
628

 
484

Accounts receivable, net of allowance for doubtful accounts of $103 and $95, respectively
2,581

 
2,473

Inventory (see Note 2)
682

 
675

Prepaid expenses
116

 
108

Other current assets
1,461

 
1,449

Assets of held-for-sale businesses

 
96

Total current assets
6,947

 
6,842

NONCURRENT ASSETS
 
 
 
Property, Plant and Equipment:
 
 
 
Land
751

 
711

Electric generation, distribution assets and other
28,997

 
28,491

Accumulated depreciation
(9,768
)
 
(9,449
)
Construction in progress
3,436

 
3,063

Property, plant and equipment, net
23,416

 
22,816

Other Assets:
 
 
 
Investments in and advances to affiliates (see Note 6)
611

 
610

Debt service reserves and other deposits
415

 
565

Goodwill
1,157

 
1,157

Other intangible assets, net of accumulated amortization of $100 and $97, respectively
209

 
214

Deferred income taxes
599

 
543

Service concession assets, net of accumulated amortization of $52 and $34, respectively
1,505

 
1,543

Other noncurrent assets
2,041

 
2,180

Total other assets
6,537

 
6,812

TOTAL ASSETS
$
36,900

 
$
36,470

LIABILITIES AND EQUITY
 
 
 
CURRENT LIABILITIES
 
 
 
Accounts payable
$
1,739

 
$
1,721

Accrued interest
333

 
251

Accrued and other liabilities
2,280

 
2,436

Non-recourse debt, including $247 and $261, respectively, related to variable interest entities (see Note 7)
2,220

 
2,505

Liabilities of held-for-sale businesses

 
13

Total current liabilities
6,572

 
6,926

NONCURRENT LIABILITIES
 
 
 
Recourse debt (see Note 7)
4,924

 
4,966

Non-recourse debt, including $1,503 and $1,539, respectively, related to variable interest entities (see Note 7)
13,413

 
12,956

Deferred income taxes
1,118

 
1,090

Pension and other post-retirement liabilities (see Note 9)
985

 
927

Other noncurrent liabilities
3,032

 
2,896

Total noncurrent liabilities
23,472

 
22,835

Commitments and Contingencies (see Note 8)

 

Redeemable stock of subsidiaries
672

 
538

EQUITY (see Note 10)
 
 
 
THE AES CORPORATION STOCKHOLDERS’ EQUITY
 
 
 
Common stock ($0.01 par value, 1,200,000,000 shares authorized; 815,894,592 issued and 658,997,660 outstanding at March 31, 2016 and 815,846,621 issued and 666,808,790 outstanding at December 31, 2015)
8

 
8

Additional paid-in capital
8,706

 
8,718

Retained earnings
198

 
143

Accumulated other comprehensive loss
(3,807
)
 
(3,883
)
Treasury stock, at cost (156,896,932 shares at March 31, 2016 and 149,037,831 at December 31, 2015)
(1,904
)
 
(1,837
)
Total AES Corporation stockholders’ equity
3,201

 
3,149

NONCONTROLLING INTERESTS
2,983

 
3,022

Total equity
6,184

 
6,171

TOTAL LIABILITIES AND EQUITY
$
36,900

 
$
36,470

See Notes to Condensed Consolidated Financial Statements.

2




THE AES CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
 
Three Months Ended March 31,
 
2016
 
2015
 
(in millions, except per share amounts)
Revenue:
 
 
 
Regulated
$
1,776

 
$
2,080

Non-Regulated
1,695

 
1,904

Total revenue
3,471

 
3,984

Cost of Sales:
 
 
 
Regulated
(1,672
)
 
(1,807
)
Non-Regulated
(1,295
)
 
(1,456
)
Total cost of sales
(2,967
)
 
(3,263
)
Operating margin
504

 
721

General and administrative expenses
(48
)
 
(55
)
Interest expense
(364
)
 
(363
)
Interest income
130

 
90

Gain (loss) on extinguishment of debt
4

 
(23
)
Other expense
(8
)
 
(20
)
Other income
13

 
15

Gain on sale of businesses
47

 
1

Asset impairment expense
(159
)
 
(8
)
Foreign currency transaction gains (losses)
43

 
(23
)
Other non-operating expense
(2
)
 

INCOME FROM OPERATIONS BEFORE TAXES AND EQUITY IN EARNINGS OF AFFILIATES
160

 
335

Income tax expense
(92
)
 
(96
)
Net equity in earnings of affiliates
6

 
15

NET INCOME
74

 
254

Less: Net loss (income) attributable to noncontrolling interests
52

 
(112
)
NET INCOME ATTRIBUTABLE TO THE AES CORPORATION
$
126

 
$
142

BASIC EARNINGS PER SHARE:
 
 
 
NET INCOME ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS
$
0.19

 
$
0.20

DILUTED EARNINGS PER SHARE:
 
 
 
NET INCOME ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS
$
0.19

 
$
0.20

DILUTED SHARES OUTSTANDING
663

 
706

DIVIDENDS DECLARED PER COMMON SHARE
$
0.11

 
$

See Notes to Condensed Consolidated Financial Statements.

3




THE AES CORPORATION
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
 
Three Months Ended 
 March 31,
 
2016
 
2015
 
(in millions)
NET INCOME
$
74

 
$
254

Foreign currency translation activity:
 
 
 
Foreign currency translation adjustments, net of $0 income tax for all periods
128

 
(421
)
Total foreign currency translation adjustments
128

 
(421
)
Derivative activity:
 
 
 
Change in derivative fair value, net of income tax benefit of $21 and $17, respectively
(64
)
 
(72
)
Reclassification to earnings, net of income tax benefit (expense) of $3 and $(2), respectively
(1
)
 
12

Total change in fair value of derivatives
(65
)
 
(60
)
Pension activity:
 
 
 
Change in pension adjustments due to prior service cost, net of $0 income tax for all periods
1

 

Change in pension adjustments due to net actuarial gain (loss) for the period, net of $0 income tax for all periods
(1
)
 

Reclassification to earnings due to amortization of net actuarial loss, net of income tax (expense) of $(1) and $(3), respectively
3

 
5

Total pension adjustments
3

 
5

OTHER COMPREHENSIVE INCOME (LOSS)
66

 
(476
)
COMPREHENSIVE INCOME (LOSS)
140

 
(222
)
Less: Comprehensive loss attributable to noncontrolling interests
62

 
88

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION
$
202

 
$
(134
)
See Notes to Condensed Consolidated Financial Statements.

4




THE AES CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Three Months Ended March 31,
 
2016
 
2015
 
(in millions)
OPERATING ACTIVITIES:
 
 
 
Net income
$
74

 
$
254

Adjustments to net income:
 
 
 
Depreciation and amortization
290

 
298

Gain on sale of businesses
(47
)
 
(1
)
Impairment expenses
161

 
8

Deferred income taxes
31

 
(12
)
(Reversals of) provisions for contingencies
(1
)
 
14

(Gain) loss on extinguishment of debt
(4
)
 
23

Other
(3
)
 
65

Changes in operating assets and liabilities
 
 
 
(Increase) decrease in accounts receivable
37

 
(337
)
(Increase) decrease in inventory
(24
)
 
(35
)
(Increase) decrease in prepaid expenses and other current assets
274

 
68

(Increase) decrease in other assets
(21
)
 
(290
)
Increase (decrease) in accounts payable and other current liabilities
(72
)
 
273

Increase (decrease) in income tax payables, net and other tax payables
(148
)
 
(15
)
Increase (decrease) in other liabilities
93

 
124

Net cash provided by operating activities
640

 
437

INVESTING ACTIVITIES:
 
 
 
Capital expenditures
(640
)
 
(619
)
Acquisitions, net of cash acquired
(6
)
 
(17
)
Proceeds from the sale of businesses, net of cash sold
115

 

Sale of short-term investments
1,603

 
1,076

Purchase of short-term investments
(1,708
)
 
(1,054
)
Decrease (increase) in restricted cash, debt service reserves and other assets
96

 
(75
)
Other investing
(8
)
 
(31
)
Net cash used in investing activities
(548
)
 
(720
)
FINANCING ACTIVITIES:
 
 
 
Borrowings under the revolving credit facilities
248

 
101

Repayments under the revolving credit facilities
(116
)
 
(62
)
Repayments of recourse debt
(116
)
 
(336
)
Issuance of non-recourse debt
161

 
574

Repayments of non-recourse debt
(248
)
 
(269
)
Payments for financing fees
(11
)
 
(9
)
Distributions to noncontrolling interests
(78
)
 
(19
)
Contributions from noncontrolling interests
28

 
67

Proceeds from the sale of redeemable stock of subsidiaries
134

 
247

Dividends paid on AES common stock
(73
)
 
(70
)
Payments for financed capital expenditures
(10
)
 
(42
)
Purchase of treasury stock
(79
)
 
(35
)
Other financing
(20
)
 
(34
)
Net cash (used in) provided by financing activities
(180
)
 
113

Effect of exchange rate changes on cash
7

 
(27
)
Increase (decrease) in cash of held-for-sale businesses
4

 
(5
)
Total decrease in cash and cash equivalents
(77
)
 
(202
)
Cash and cash equivalents, beginning
1,262

 
1,539

Cash and cash equivalents, ending
$
1,185

 
$
1,337

SUPPLEMENTAL DISCLOSURES:
 
 
 
Cash payments for interest, net of amounts capitalized
$
228

 
$
242

Cash payments for income taxes, net of refunds
$
182

 
$
103

SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
 
 
 
Assets acquired through capital lease and other liabilities
$
3

 
$
5

Dividends declared but not yet paid
$
75

 
$

See Notes to Condensed Consolidated Financial Statements.

5




THE AES CORPORATION
Notes to Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2016 and 2015
1. FINANCIAL STATEMENT PRESENTATION
Consolidation
In this Quarterly Report the terms “AES,” “the Company,” “us” or “we” refer to the consolidated entity including its subsidiaries and affiliates. The terms “The AES Corporation,” “the Parent” or “the Parent Company” refer only to the publicly held holding company, The AES Corporation, excluding its subsidiaries and affiliates. Furthermore, variable interest entities (“VIEs”) in which the Company has a variable interest have been consolidated where the Company is the primary beneficiary. Investments in which the Company has the ability to exercise significant influence, but not control, are accounted for using the equity method of accounting. All intercompany transactions and balances have been eliminated in consolidation.
Interim Financial Presentation
The accompanying unaudited condensed consolidated financial statements and footnotes have been prepared in accordance with 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 months ended March 31, 2016 are not necessarily indicative of results that may be expected for the year ending December 31, 2016. The accompanying condensed consolidated financial statements are unaudited and should be read in conjunction with the 2015 audited consolidated financial statements and notes thereto, which are included in the 2015 Form 10-K filed with the SEC on February 23, 2016 (the “2015 Form 10-K”).
New Accounting Pronouncements
The following table provides a brief description of recent accounting pronouncements that had and/or could have a material impact on the Company’s consolidated financial statements:
New Accounting Standards Adopted
ASU Number and Name
Description
Date of Adoption
Effect on the financial statements upon adoption
2015-03, Interest — Imputation of Interest (Subtopic 835-30)
The standard simplifies the presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the standard. Transition method: retrospective.
January 1, 2016
Deferred financing costs of $24 million previously classified within other current assets and $357 million previously classified within other noncurrent assets were reclassified to reduce the related debt liabilities as of December 31, 2015.
2015-15, Interest — Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements
Given the absence of authoritative guidance within ASU 2015-03, this standard clarifies that the SEC Staff would not object to an entity presenting debt issuance costs related to line-of-credit arrangements as an asset that is subsequently amortized ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. Transition method: retrospective.
January 1, 2016
Deferred financing costs related to lines-of-credit of $1 million recorded within other current assets and $23 million recorded within other noncurrent assets were not reclassified as of December 31, 2015.
2015-02, Consolidation — Amendments to the Consolidation Analysis (Topic 810)
The standard makes targeted amendments to the current consolidation guidance and ends the deferral granted to investment companies from applying the VIE guidance. The standard amends the evaluation of whether (1) fees paid to a decision-maker or service providers represent a variable interest, (2) a limited partnership or similar entity has the characteristics of a VIE and (3) a reporting entity is the primary beneficiary of a VIE. Transition method: retrospective.
January 1, 2016
None, other than that some entities previously consolidated under the voting model are now consolidated under the VIE model.
New Accounting Standards Issued But Not Yet Effective
ASU Number and Name
Description
Date of Adoption
Effect on the financial statements upon adoption
2016-09, 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.

6




2016-06, Derivatives and Hedging (Topic 815) — Contingent Put and Call Options in Debt Instruments
This standard clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. When a call (put) option is contingently exercisable, an entity will no longer assess whether the event that triggers the ability to exercise a call (put) option is related to interest rates or credit risks. Transition method: a modified retrospective basis to existing debt instruments as of the effective date.
January 1, 2017. Early adoption is permitted.
The Company is currently evaluating the impact of adopting the standard, but does not anticipate a material impact on its consolidated financial statements.
2016-05, Derivatives and Hedging (Topic 815) — Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships
The standard clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815 does not require de-designation of that hedging relationship provided that all other hedge accounting criteria (including those in paragraphs 815-20-35-14 through 35-18) continue to be met. Transition method: prospective or a modified retrospective basis.
January 1, 2017. Early adoption is permitted.
The Company is currently evaluating the impact of adopting the standard, but does not anticipate a material impact on its consolidated financial statements.
2016-02, Leases (Topic 842)
The standard creates Topic 842, Leases which supersedes Topic 840, Leases, and introduces a lessee model that brings substantially all leases onto the balance sheet while retaining most of the principles of the existing lessor model in U.S. GAAP and aligning many of those principles with ASC 606, Revenue from Contracts with Customers. Transition method: modified retrospective approach with certain practical expedients.
January 1, 2019. Early adoption is permitted.
The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
2016-01, Financial Instruments — Overall (Topic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
The standard significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. Also, it amends certain disclosure requirements associated with the fair value of financial instruments. Transition: cumulative effect in Retained Earnings as of adoption or prospectively for equity investments without readily determinable fair value.
January 1, 2018. Limited early adoption permitted.
The Company is currently evaluating the impact of adopting the standard, but does not anticipate a material impact on its consolidated financial statements.
2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory
The standard replaces the current lower of cost or market test with a lower of cost or net realizable value test. Transition method: prospectively.
January 1, 2017. Early adoption is permitted.
The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
2014-09, Revenue from Contracts with Customers (Topic 606)
The standard provides a single and comprehensive revenue recognition model for all contracts with customers to improve comparability. The revenue standard contains principles that an entity will apply to determine the measurement of revenue and timing of when it is recognized. 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. Transition method: a full retrospective or modified retrospective approach.
January 1, 2018 (as deferred by ASU No. 2015-14). Earlier application is permitted only as of January 1, 2017.
The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
2016-08, Revenue from Contracts with Customers (Topic 606) — Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
The standard clarifies how an entity should identify the unit of accounting for the principal versus agent evaluation and apply the control principle to certain types of arrangements. The amendments also re-frame the indicators to focus on evidence that an entity is acting as a principal rather than as an agent, revise existing examples and add new ones. Transition method: a full retrospective or modified retrospective approach.
January 1, 2018 (as deferred by ASU No. 2015-14). Earlier application is permitted only as of January 1, 2017.
The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing
This standard clarifies the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. This standard reduces the cost and complexity of applying Topic 606 to the identification of promised goods or services, and it also includes implementation guidance on licensing. Transition method: a full retrospective or modified retrospective approach.
January 1, 2018 (as deferred by ASU No. 2015-14). Earlier application is permitted only as of January 1, 2017.
The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
2. INVENTORY
The following table summarizes the Company’s inventory balances as of the periods indicated (in millions):
 
March 31, 2016
 
December 31, 2015
Fuel and other raw materials
$
354

 
$
343

Spare parts and supplies
328

 
332

Total
$
682

 
$
675

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

7




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.
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 a security and are consistent with how the Company manages, monitors and measures its marketable securities:
 
March 31, 2016
 
December 31, 2015
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AVAILABLE FOR SALE: (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unsecured debentures
$

 
$
568

 
$

 
$
568

 
$

 
$
327

 
$

 
$
327

Certificates of deposit

 
37

 

 
37

 

 
135

 

 
135

Government debt securities

 
11

 

 
11

 

 
28

 

 
28

Subtotal

 
616

 

 
616

 

 
490

 

 
490

Equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mutual funds

 
15

 

 
15

 

 
15

 

 
15

Subtotal

 
15

 

 
15

 

 
15

 

 
15

Total available for sale

 
631

 

 
631

 

 
505

 

 
505

TRADING:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mutual funds
14

 

 

 
14

 
15

 

 

 
15

Total trading
14

 

 

 
14

 
15

 

 

 
15

DERIVATIVES:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency derivatives

 
37

 
304

 
341

 

 
35

 
292

 
327

Commodity derivatives

 
67

 
4

 
71

 

 
41

 
7

 
48

Total derivatives

 
104

 
308

 
412

 

 
76

 
299

 
375

TOTAL ASSETS
$
14

 
$
735

 
$
308

 
$
1,057

 
$
15

 
$
581

 
$
299

 
$
895

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DERIVATIVES:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives
$

 
$
48

 
$
416

 
$
464

 
$

 
$
54

 
$
304

 
$
358

Cross-currency derivatives

 
33

 

 
33

 

 
43

 

 
43

Foreign currency derivatives

 
46

 
14

 
60

 

 
41

 
15

 
56

Commodity derivatives

 
46

 
4

 
50

 

 
29

 
4

 
33

Total derivatives

 
173

 
434

 
607

 

 
167

 
323

 
490

TOTAL LIABILITIES
$

 
$
173

 
$
434

 
$
607

 
$

 
$
167

 
$
323

 
$
490

 _____________________________
(1) 
Amortized cost approximated fair value at March 31, 2016 and December 31, 2015.
As of March 31, 2016, $605 million of AFS debt securities had stated maturities within one year and $11 million had stated maturities between 1 and 1.5 years. Gains and losses on the sale of investments are determined using the specific-identification method. For the three months ended March 31, 2016 and 2015, pretax realized gains and losses related to AFS and trading securities were less than $1 million, there was approximately $1 million in unrealized losses on AFS securities, and no other-than-temporary impairments of marketable securities were recognized in earnings or OCI. The table below presents the gross proceeds from sale of AFS securities for the periods indicated (in millions):
 
Three Months Ended March 31,
 
2016
 
2015
Gross proceeds from sale of AFS securities
$
1,619

 
$
1,086

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 months ended March 31, 2016 and 2015 (presented in millions and net by type of derivative). 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

8




Three Months Ended March 31, 2016
Interest Rate
 
Foreign Currency
 
Commodity
 
Total
Balance at the beginning of the period
$
(304
)
 
$
277

 
$
3

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

Included in earnings
3

 
47

 

 
50

Included in other comprehensive income — derivative activity
(99
)
 
3

 

 
(96
)
Included in other comprehensive income — foreign currency translation activity
(3
)
 
(33
)
 

 
(36
)
Settlements
18

 
(1
)
 
(3
)
 
14

Transfers of assets (liabilities) into Level 3
(31
)
 

 

 
(31
)
Transfers of (assets) liabilities out of Level 3

 
(3
)
 

 
(3
)
Balance at the end of the period
$
(416
)
 
$
290

 
$

 
$
(126
)
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
$
4

 
$
45

 
$

 
$
49

Three Months Ended March 31, 2015
Interest Rate
 
Foreign Currency
 
Commodity
 
Cross Currency
 
Total
Balance at the beginning of the period
$
(210
)
 
$
209

 
$
6

 
$

 
$
5

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

 
22

 
3

 

 
25

Included in other comprehensive income — derivative activity
(35
)
 

 

 

 
(35
)
Included in other comprehensive income — foreign currency translation activity
11

 
(6
)
 

 

 
5

Settlements
6

 
(2
)
 
(5
)
 

 
(1
)
Transfers of assets (liabilities) into Level 3
(74
)
 

 

 
(33
)
 
(107
)
Balance at the end of the period
$
(302
)
 
$
223

 
$
4

 
$
(33
)
 
$
(108
)
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
$

 
$
21

 
$
3

 
$

 
$
24

The table below summarizes the significant unobservable inputs used for Level 3 derivative assets (liabilities) as of March 31, 2016 ($ in millions):
Type of Derivative
 
Fair Value
 
Unobservable Input
 
Amount or Range (Weighted Avg)
Interest rate
 
$
(416
)
 
Subsidiaries’ credit spreads
 
2.88% — 9.7% (5.65%)
Foreign currency:
 
 
 
 
 
 
Argentine Peso
 
304

 
Argentine Peso to USD currency exchange rate after one year
 
18.91 — 37.07 (27.78)
Other
 
(14
)
 
 
 
 
Total
 
$
(126
)
 
 
 
 
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 major categories of assets and liabilities measured at fair value on a nonrecurring basis and their level within the fair value hierarchy (in millions):
Three Months Ended March 31, 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 II
03/31/2016
 
$
251

 
$

 
$

 
$
92

 
$
159

Three Months Ended March 31, 2015
Measurement Date
 
Carrying Amount (1)
 
Fair Value
 
Pretax Loss
Assets
 
Level 1
 
Level 2
 
Level 3
 
Long-lived assets held and used:
 
 
 
 
 
 
 
 
 
 
 
Other
Various
 
$
29

 
$

 
$
21

 
$

 
$
8

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

 

 

 
29

 

_____________________________
(1) 
Represents the carrying values at the dates of measurement, before fair value adjustment.
(2) 
See Note 13—Asset Impairment Expense for further information.
The following table summarizes the significant unobservable inputs used in the Level 3 measurement on a nonrecurring basis during the three months ended March 31, 2016 ($ in millions):
 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Range (Weighted Average)
Long-lived assets held and used:
 
 
 
 
 
 
 
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

9




of March 31, 2016 and December 31, 2015, but for which fair value is disclosed:
 
 
March 31, 2016
 
December 31, 2015
 
 
Carrying
Amount
 
Fair Value
 
Carrying
Amount
 
Fair Value
 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
Accounts receivable  noncurrent(1)
$
258

 
$
337

 
$

 
$

 
$
337

 
$
270

 
$
342

 
$

 
$
20

 
$
322

Liabilities:
Non-recourse debt
15,633

 
16,064

 

 
13,654

 
2,410

 
15,461

 
15,939

 

 
13,672

 
2,267

 
Recourse debt
4,924

 
4,998

 

 
4,998

 

 
4,966

 
4,696

 

 
4,696

 

_____________________________
(1) 
These amounts principally relate to amounts due from CAMMESA, and are included in Noncurrent assets—Other in the accompanying Condensed Consolidated Balance Sheets. The fair value and carrying amount of these receivables exclude VAT of $24 million and $27 million as of March 31, 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.
Volume of Activity — The following table presents the Company’s outstanding notional (in millions) under its types of derivatives as of March 31, 2016 with significant notionals, regardless of whether they are in qualifying cash flow hedging relationships, and the date through which the maturities for each type of derivative range:
Derivatives
 
Current Notional Translated to USD
 
Latest Maturity
Interest Rate (LIBOR and EURIBOR)
 
$
3,201

 
2033
Cross-Currency Swaps (Chilean Unidad de Fomento)
 
169

 
2028
Foreign Currency:
 
 
 
 
Argentine Peso
 
162

 
2026
Chilean Unidad de Fomento
 
304

 
2019
Others, primarily with weighted average remaining maturities of a year or less
 
687

 
2017
Accounting and Reporting Assets and Liabilities — The following tables present amounts about assets and liabilities related to the Company’s derivative instruments as of March 31, 2016 and December 31, 2015 (in millions):
Fair Value
March 31, 2016
 
December 31, 2015
Assets
Designated
 
Not Designated
 
Total
 
Designated
 
Not Designated
 
Total
Foreign currency derivatives
$
14

 
$
327

 
$
341

 
$
8

 
$
319

 
$
327

Commodity derivatives
37

 
34

 
71

 
30

 
18

 
48

Total assets
$
51

 
$
361

 
$
412

 
$
38

 
$
337

 
$
375

Liabilities
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives
$
464

 
$

 
$
464

 
$
358

 
$

 
$
358

Cross-currency derivatives
33

 

 
33

 
43

 

 
43

Foreign currency derivatives
35

 
25

 
60

 
35

 
21

 
56

Commodity derivatives
11

 
39

 
50

 
12

 
21

 
33

Total liabilities
$
543

 
$
64

 
$
607

 
$
448

 
$
42

 
$
490

 
March 31, 2016
 
December 31, 2015
Fair Value
Assets
 
Liabilities
 
Assets
 
Liabilities
Current
$
92

 
$
145

 
$
86

 
$
144

Noncurrent
320

 
462

 
289

 
346

Total
$
412

 
$
607

 
$
375

 
$
490

 
 
 
 
 
 
 
 
Credit Risk-Related Contingent Features
 
 
 
 
March 31, 2016
 
December 31, 2015
Present value of liabilities subject to collateralization based on credit rating of certain subsidiaries
 
$
68

 
$
58

Cash collateral held by third parties or in an escrow account as a result of the credit rating
 
$
40

 
$
38


10




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 March 31,
2016
 
2015
Effective portion of cash flow hedges:
 
 
 
 
Gain (Losses) recognized in AOCL
 
 
 
 
Interest rate derivatives
 
$
(130
)
 
$
(98
)
Cross-currency derivatives
 
8

 

Foreign currency derivatives
 

 
2

Commodity derivatives
 
37

 
7

Total
 
$
(85
)
 
$
(89
)
Gain (Losses) reclassified from AOCL into earnings
 
 
 
 
Interest rate derivatives
 
$
(29
)
 
$
(24
)
Cross-currency derivatives
 
9

 
(1
)
Foreign currency derivatives
 
2

 
6

Commodity derivatives
 
22

 
5

Total
 
$
4


$
(14
)
Gain (Losses) recognized in earnings related to
 
 
 
 
Ineffective portion of cash flow hedges
 
$
2

 
$
(2
)
Not designated as hedging instruments:
 
 
 
 
Foreign currency derivatives
 
$
40

 
$
32

Other
 
(9
)
 
(8
)
Total
 
$
31

 
$
24

 
 
 
 
 
 
 
 
 
Twelve Months Ended March 31, 2017
AOCL expected to increase (decrease) pre-tax income from continuing operations (primarily interest rate derivatives)
 
$
(104
)
 
 
 
 
 
 
 
5. FINANCING RECEIVABLES
Financing receivables are defined as receivables that have contractual maturities of greater than one year. The Company primarily has financing receivables pursuant to amended agreements or government resolutions that are due from certain governmental bodies in Argentina. Presented below are financing receivables by country as of the periods indicated (in millions):
 
March 31, 2016
 
December 31, 2015
Argentina
$
219

 
$
237

United States
21

 
20

Brazil
42

 
39

Total long-term financing receivables
$
282

 
$
296

Argentina — Collection of the principal and interest on these receivables is subject to various business risks and uncertainties including, but not limited to, the completion and operation of power plants which generate cash for payments of these receivables, regulatory changes that could impact the timing and amount of collections, and economic conditions in Argentina. The Company monitors these risks including the credit ratings of the Argentine government on a quarterly basis to assess the collectability of these receivables. The Company accrues interest on these receivables once the recognition criteria have been met. The Company’s collection estimates are based on assumptions that it believes to be reasonable, but are inherently uncertain. Actual future cash flows could differ from these estimates.
6. INVESTMENTS IN AND ADVANCES TO AFFILIATES
Summarized Financial Information — The following table summarizes financial information of the Company’s 50%-or-less-owned affiliates that are accounted for using the equity method (in millions):
 
Three Months Ended March 31,
50%-or-less-Owned Affiliates
2016
 
2015
Revenue
$
134

 
$
184

Operating margin
35

 
56

Net income
15

 
36

7. DEBT
Recourse Debt
During the first quarter of 2016, the Parent Company redeemed $125 million of its senior unsecured notes outstanding. The repayment included a portion of the 7.375% senior notes due in 2021, the 4.875% senior notes due in 2023, the 5.5% senior notes due in 2024, the 5.5% senior notes due in 2025 and the floating rate senior

11




notes due in 2019.
As a result of these transactions, the Company recognized a net gain on extinguishment of debt of $7 million that is included in the Condensed Consolidated Statement of Operations.
In March 2015, the Company redeemed in full the $151 million balance of its 7.75% senior unsecured notes due October 2015 and the $164 million balance of its 9.75% senior unsecured notes due April 2016. As a result of these transactions, the Company recognized a loss on extinguishment of debt of $23 million for the three months ended March 31, 2015 that is included in the Condensed Consolidated Statement of Operations.
Non-Recourse Debt
During the three months ended March 31, 2016, the Company’s subsidiaries engaged in the following significant debt transactions:
Subsidiary
 
Issuances
 
Repayments
 
Gain (Loss) on Extinguishment of Debt
IPALCO
 
$
148

  
$
83

 
$

Other
 
161

 
259

 
(2
)
 
 
$
309

 
$
342

 
$
(2
)
Non-recourse Debt in default — The following table summarizes the Company’s subsidiary non-recourse debt in default as of March 31, 2016 (in millions). Due to the defaults, these amounts are included in the current portion of non-recourse debt:
Subsidiary
 
Primary Nature of Default
 
Debt in Default
 
Net Assets
Maritza (Bulgaria) (1)
 
Covenant
 
$
551

 
$
719

Kavarna (Bulgaria)
 
Covenant
 
138

 
83

Sogrinsk (Kazakhstan)
 
Covenant
 
6

 
8

 
 
 
 
$
695

 
 
_____________________________
(1) See Note 18Subsequent Events for updates after March 31, 2016 impacting Maritza’s debt in default.
The above defaults are not payment defaults. All of the subsidiary non-recourse debt defaults were triggered by failure to comply with covenants and/or other conditions such as (but not limited to) failure to meet information covenants, complete construction or other milestones in an allocated time, meet certain minimum or maximum financial ratios, or other requirements contained in the non-recourse debt documents of the applicable subsidiary.
In the event that there is a default, bankruptcy or maturity acceleration at a subsidiary or group of subsidiaries that meets the applicable definition of materiality under the Parent Company’s corporate debt agreements, there could be a cross-default to the Company’s recourse debt. Materiality is defined in the Parent’s senior secured credit facility as having provided 20% or more of the total cash distributions from businesses to the Parent Company for the four most recently completed fiscal quarters. As of March 31, 2016, none of the defaults listed above individually or in the aggregate result in or are at risk of triggering a cross-default under the recourse debt of the Parent Company. In the event the Parent Company is not in compliance with the financial covenants of its senior secured credit facility, restricted payments will be limited to regular quarterly shareholder dividends at the then-prevailing rate. Payment and bankruptcy defaults would preclude the making of any restricted payments.
8. COMMITMENTS AND CONTINGENCIES
Guarantees, Letters of Credit and Commitments — In connection with certain project financing, acquisition, power purchase and other agreements, the Parent Company has expressly undertaken limited obligations and commitments, most of which will only be effective or will be terminated upon the occurrence of future events. In the normal course of business, the Parent Company has entered into various agreements, mainly guarantees and letters of credit, to provide financial or performance assurance to third parties on behalf of AES subsidiaries. These agreements are entered into primarily to support or enhance the creditworthiness otherwise achieved by a business on a stand-alone basis, thereby facilitating the availability of sufficient credit to accomplish their intended business purposes. Most of the contingent obligations relate to future performance commitments which the Company or its businesses expect to fulfill within the normal course of business. The expiration dates of these guarantees vary from less than one year to more than 19 years.
Presented below are the Parent Company’s current undiscounted exposure to guarantees and the range of maximum undiscounted potential exposure. The maximum exposure is not reduced by the amounts, if any, that could be recovered under the recourse or collateralization provisions in the guarantees. The table below summarizes the Parent Company’s contingent contractual obligations as of March 31, 2016 ($ in millions).
Contingent Contractual Obligations
 
Amount
 
No. of Agreements
 
Maximum Exposure Range for Each Agreement
Guarantees and commitments
 
$
355

 
13

 
<$1 — 53
Asset sale related indemnities (1)
 
27

 
1

 
$27
Cash collateralized letters of credit
 
31

 
3

 
$3 — 15
Letters of credit under the senior secured credit facility
 
62

 
9

 
<$1 — 29
Total
 
$
475

 
26

 
 
_____________________________
(1) 
Excludes normal and customary representations and warranties in agreements for the sale of assets (including ownership in associated legal entities) where the associated risk is considered to be nominal.
During the three months ended March 31, 2016, the Company paid letter of credit fees ranging from 0.2% to 2.5% per annum on the outstanding amounts of letters of credit.
Contingencies
Environmental — The Company periodically reviews its obligations as they relate to compliance with environmental laws, including site restoration and remediation. As of March 31, 2016 and December 31, 2015, the Company had recognized liabilities of $10 million for both periods, relating to projected environmental remediation costs. Due to the uncertainties associated with environmental assessment and remediation activities, future costs of compliance or remediation with current legislation or costs for new legislation introduced could be higher or lower than the amount currently accrued. Moreover, where no liability has been recognized, it is reasonably possible that the Company may be required to incur remediation costs or make expenditures in amounts that could be material but could not be estimated as of March 31, 2016. In aggregate, the Company estimates the potential losses related to environmental matters, where estimable, to be up to $1 million. The amounts considered reasonably possible do not include amounts accrued as discussed above.
Litigation The Company is involved in certain claims, suits and legal proceedings in the normal course of business. The Company accrues for litigation and claims when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. The Company has evaluated claims in accordance with the accounting guidance for contingencies that it deems both probable and reasonably estimable and, accordingly, has recognized aggregate liabilities for all claims of approximately $234 million and $189 million as of March 31, 2016 and December 31, 2015, respectively. The increase in the current period is primarily related to the resolution of a dispute involving certain AES companies, for which the Company expects to be indemnified. Recognized aggregate liabilities for these claims are reported on the Condensed Consolidated Balance Sheets within Accrued and other liabilities and Other noncurrent liabilities. A significant portion of these accrued liabilities relate to labor and employment, non-income tax and customer disputes in international jurisdictions, principally Brazil where there are a number of labor and employment lawsuits. The complaints generally seek unspecified monetary damages, injunctive relief, or other relief. The AES subsidiaries have denied any liability and intend to vigorously defend themselves in all of these proceedings. There can be no assurance that these accrued liabilities will be adequate to cover all existing and future claims or that we will have the liquidity to pay such claims as they arise.
The Company believes, based upon information it currently possesses and taking into account established accruals for liabilities and its insurance coverage, that the ultimate outcome of these proceedings and actions is unlikely to have a material effect on the Company’s consolidated financial statements. However, where no accrued liability has been recognized, it is reasonably possible that some matters could be decided unfavorably to the Company and could require the Company to pay damages or make expenditures in amounts that could be material

12




but could not be estimated as of March 31, 2016. The material contingencies where a loss is reasonably possible primarily include (1) claims under financing agreements; (2) disputes with offtakers, suppliers and EPC contractors; (3) alleged violation of monopoly laws and regulations; (4) income tax and non-income tax matters with tax authorities; and (5) regulatory matters. In aggregate, the Company estimates that the range of potential losses, where estimable, related to these reasonably possible material contingencies is between $1.3 billion and $1.6 billion. Certain claims are in settlement negotiations. These claims considered reasonably possible do not include the amounts accrued, as discussed in the preceding paragraph, nor do they include income tax-related contingencies which are considered part of our uncertain tax positions.
Regulatory — During the fourth quarter of 2013, the Company recognized a regulatory liability of $269 million for a contingency related to an administrative ruling which required Eletropaulo to refund customers’ amounts related to the regulatory asset base. During the second half of 2014, Eletropaulo started refunding customers as part of the tariff. In January 2015, ANEEL updated the tariff to exclude any further customer refunds. On June 30, 2015, ANEEL included in the tariff reset the reimbursement to Eletropaulo of these amounts previously refunded to customers to begin in July 2015. During the second quarter of 2015, as a result of favorable events, management reassessed the contingency and determined that it no longer meets the recognition criteria under ASC 450 Contingencies. Management believes that it is now only reasonably possible that Eletropaulo will have to refund these amounts to customers. Accordingly, the Company reversed the remaining regulatory liability for this contingency of $161 million in the second quarter of 2015, which increased Regulated Revenue by $97 million and reduced Interest Expense by $64 million. Amounts related to this case are now included as part of our reasonably possible contingent range mentioned in the preceding paragraph.
9. PENSION PLANS
Total pension cost and employer contributions were as follows for the periods indicated (in millions):
 
 
Three Months Ended March 31,
 
 
2016
 
2015
 
 
U.S.
 
Foreign
 
U.S.
 
Foreign
Service cost
 
$
3

 
$
3

 
$
4

 
$
4

Interest cost
 
10

 
81

 
12

 
102

Expected return on plan assets
 
(17
)
 
(52
)
 
(17
)
 
(72
)
Amortization of prior service cost
 
2

 

 
2

 

Amortization of net loss
 
5

 
4

 
5

 
8

Total pension cost
 
$
3

 
$
36

 
$
6

 
$
42

 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2016
 
Remainder of 2016 (Expected)
 
 
U.S.
 
Foreign
 
U.S.
 
Foreign
Total employer contributions
 
$
21

 
$
22

 
$

 
$
72


13




10. EQUITY
Changes in Equity — The table below is a reconciliation of the beginning and ending equity attributable to stockholders of The AES Corporation, noncontrolling interests (“NCI”) and total equity as of the periods indicated (in millions):
 
Three Months Ended March 31, 2016
 
Three Months Ended March 31, 2015
 
The Parent Stockholders’ Equity
 
NCI
 
Total Equity
 
The Parent Stockholders’ Equity
 
NCI
 
Total Equity
Balance at the beginning of the period
$
3,149

 
$
3,022

 
$
6,171

 
$
4,272

 
$
3,053

 
$
7,325

Net income (loss)
126

 
(52
)
 
74

 
142

 
112

 
254

Total foreign currency translation adjustment, net of income tax
100

 
28

 
128

 
(251
)
 
(170
)
 
(421
)
Total change in derivative fair value, net of income tax
(25
)
 
(40
)
 
(65
)
 
(26
)
 
(34
)
 
(60
)
Total pension adjustments, net of income tax
1

 
2

 
3

 
1

 
4

 
5

Cumulative effect of a change in accounting principle

 

 

 
(5
)
 

 
(5
)
Disposition of businesses

 
(2
)
 
(2
)
 

 

 

Distributions to noncontrolling interests
(2
)
 
(17
)
 
(19
)
 

 
(19
)
 
(19
)
Contributions from noncontrolling interests

 
28

 
28

 

 
67

 
67

Dividends declared on common stock
(71
)
 

 
(71
)
 

 

 

Purchase of treasury stock
(79
)
 

 
(79
)
 
(35
)
 

 
(35
)
Issuance and exercise of stock-based compensation benefit plans, net of income tax
4

 

 
4

 
5

 

 
5

Sale of subsidiary shares to noncontrolling interests

 
17

 
17

 
(81
)
 

 
(81
)
Acquisition of subsidiary shares from noncontrolling interests
(2
)
 
(3
)
 
(5
)
 

 

 

Balance at the end of the period
$
3,201

 
$
2,983

 
$
6,184

 
$
4,022

 
$
3,013

 
$
7,035

Equity Transactions with Noncontrolling Interests
IPALCO — In March 2016, La Caisse de depot et placement du Quebec (“CDPQ”) completed its investment commitment in IPALCO by investing $134 million in IPALCO Enterprises, Inc. (“IPALCO”). As a result of this transaction, IPALCO is owned by AES U.S. Investments (82.35%) and CDPQ (17.65%), and AES U.S. Investments is owned by AES U.S. Holdings, LLC (85%) and CDPQ (15%).
As a cumulative result of CDPQ’s investment transactions, the Company recognized an increase of $463 million to additional paid-in capital and a reduction to retained earnings of $463 million for the excess of the fair value of the shares over their book value. Additionally, $84 million in taxes and transaction costs were recognized as a net decrease to equity. Since the NCI is contingently redeemable, the total fair value of the consideration received of $594 million is classified in temporary equity as redeemable stock of subsidiaries on the Condensed Consolidated Balance Sheet as of March 31, 2016. No gain or loss was recognized in net income as the sale is not considered to be a sale of in-substance real estate. Any subsequent adjustments to allocate earnings and dividends to CDPQ will be classified as NCI within permanent equity and adjustments to the amount in temporary equity will occur only if and when it is probable that the shares will become redeemable. As the Company maintained control after the sale, IPALCO continues to be accounted for as a consolidated subsidiary within the US SBU reportable segment.
Jordan — On February 18, 2016, the Company completed the sale of 40% of its interest in a wholly owned subsidiary in Jordan which owns a controlling interest in the Jordan IPP4 gas-fired plant, for $21 million. The transaction was accounted for as a sale of in-substance real estate and a pretax gain of $4 million, net of transaction costs, was recognized in net income. The cash proceeds from the sale is reflected in Proceeds from the sale of businesses, net of cash sold on the Consolidated Statement of Cash Flows for the period ended March 31, 2016. After completion of the sale, the Company owns a 36% net ownership interest in Jordan IPP4 and will continue to manage and operate the plant, with 40% owned by Mitsui Ltd. and 24% owned by Nebras Power Q.S.C. As the Company maintained control after the sale, Jordan IPP4 continues to be consolidated by the Company within the Europe SBU reportable segment.
Accumulated Other Comprehensive Loss See below for the changes in AOCL by component, net of tax and NCI, for the three months ended March 31, 2016 (in millions):
 
Foreign currency translation adjustment, net
 
Unrealized derivative gains (losses), net
 
Unfunded pension obligations, net
 
Total
Balance at the beginning of the period
$
(3,256
)
 
$
(353
)
 
$
(274
)
 
$
(3,883
)
Other comprehensive income (loss) before reclassifications
100

 
(25
)
 

 
75

Amount reclassified to earnings

 

 
1

 
1

Other comprehensive income (loss)
100

 
(25
)
 
1

 
76

Balance at the end of the period
$
(3,156
)
 
$
(378