|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(in millions, except per share amounts)
|
2016
|
|
2015
|
|
$ change
|
|
% change
|
|
2016
|
|
2015
|
|
$ change
|
|
% change
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US SBU
|
$
|
811
|
|
|
$
|
831
|
|
|
$
|
(20
|
)
|
|
-2
|
%
|
|
$
|
1,666
|
|
|
$
|
1,828
|
|
|
$
|
(162
|
)
|
|
-9
|
%
|
Andes SBU
|
575
|
|
|
630
|
|
|
(55
|
)
|
|
-9
|
%
|
|
1,197
|
|
|
1,242
|
|
|
(45
|
)
|
|
-4
|
%
|
Brazil SBU
|
895
|
|
|
1,113
|
|
|
(218
|
)
|
|
-20
|
%
|
|
1,734
|
|
|
2,217
|
|
|
(483
|
)
|
|
-22
|
%
|
MCAC SBU
|
530
|
|
|
601
|
|
|
(71
|
)
|
|
-12
|
%
|
|
1,049
|
|
|
1,199
|
|
|
(150
|
)
|
|
-13
|
%
|
Europe SBU
|
222
|
|
|
299
|
|
|
(77
|
)
|
|
-26
|
%
|
|
468
|
|
|
629
|
|
|
(161
|
)
|
|
-26
|
%
|
Asia SBU
|
201
|
|
|
187
|
|
|
14
|
|
|
7
|
%
|
|
395
|
|
|
306
|
|
|
89
|
|
|
29
|
%
|
Corporate and Other
|
1
|
|
|
6
|
|
|
(5
|
)
|
|
-83
|
%
|
|
2
|
|
|
10
|
|
|
(8
|
)
|
|
-80
|
%
|
Intersegment eliminations
|
(6
|
)
|
|
(11
|
)
|
|
5
|
|
|
45
|
%
|
|
(11
|
)
|
|
(17
|
)
|
|
6
|
|
|
35
|
%
|
Total Revenue
|
3,229
|
|
|
3,656
|
|
|
(427
|
)
|
|
-12
|
%
|
|
6,500
|
|
|
7,414
|
|
|
(914
|
)
|
|
-12
|
%
|
Operating Margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US SBU
|
133
|
|
|
125
|
|
|
8
|
|
|
6
|
%
|
|
247
|
|
|
298
|
|
|
(51
|
)
|
|
-17
|
%
|
Andes SBU
|
140
|
|
|
119
|
|
|
21
|
|
|
18
|
%
|
|
263
|
|
|
250
|
|
|
13
|
|
|
5
|
%
|
Brazil SBU
|
78
|
|
|
224
|
|
|
(146
|
)
|
|
-65
|
%
|
|
121
|
|
|
401
|
|
|
(280
|
)
|
|
-70
|
%
|
MCAC SBU
|
134
|
|
|
165
|
|
|
(31
|
)
|
|
-19
|
%
|
|
230
|
|
|
268
|
|
|
(38
|
)
|
|
-14
|
%
|
Europe SBU
|
47
|
|
|
64
|
|
|
(17
|
)
|
|
-27
|
%
|
|
130
|
|
|
167
|
|
|
(37
|
)
|
|
-22
|
%
|
Asia SBU
|
46
|
|
|
47
|
|
|
(1
|
)
|
|
-2
|
%
|
|
83
|
|
|
71
|
|
|
12
|
|
|
17
|
%
|
Corporate and Other
|
(4
|
)
|
|
12
|
|
|
(16
|
)
|
|
NM
|
|
|
4
|
|
|
24
|
|
|
(20
|
)
|
|
-83
|
%
|
Intersegment eliminations
|
—
|
|
|
(1
|
)
|
|
1
|
|
|
NM
|
|
|
5
|
|
|
(3
|
)
|
|
8
|
|
|
NM
|
|
Total Operating Margin
|
574
|
|
|
755
|
|
|
(181
|
)
|
|
-24
|
%
|
|
1,083
|
|
|
1,476
|
|
|
(393
|
)
|
|
-27
|
%
|
General and administrative expenses
|
(47
|
)
|
|
(50
|
)
|
|
3
|
|
|
-6
|
%
|
|
(95
|
)
|
|
(105
|
)
|
|
10
|
|
|
-10
|
%
|
Interest expense
|
(390
|
)
|
|
(287
|
)
|
|
(103
|
)
|
|
36
|
%
|
|
(732
|
)
|
|
(630
|
)
|
|
(102
|
)
|
|
16
|
%
|
Interest income
|
138
|
|
|
116
|
|
|
22
|
|
|
19
|
%
|
|
255
|
|
|
195
|
|
|
60
|
|
|
31
|
%
|
Gain (loss) on extinguishment of debt
|
—
|
|
|
(117
|
)
|
|
117
|
|
|
NM
|
|
|
4
|
|
|
(141
|
)
|
|
145
|
|
|
NM
|
|
Other expense
|
(21
|
)
|
|
(12
|
)
|
|
(9
|
)
|
|
75
|
%
|
|
(29
|
)
|
|
(29
|
)
|
|
—
|
|
|
—
|
%
|
Other income
|
12
|
|
|
15
|
|
|
(3
|
)
|
|
-20
|
%
|
|
25
|
|
|
30
|
|
|
(5
|
)
|
|
-17
|
%
|
Gain (loss) on disposal and sale of businesses
|
(17
|
)
|
|
—
|
|
|
(17
|
)
|
|
NM
|
|
|
30
|
|
|
—
|
|
|
30
|
|
|
NM
|
|
Asset impairment expense
|
(235
|
)
|
|
(37
|
)
|
|
(198
|
)
|
|
NM
|
|
|
(394
|
)
|
|
(45
|
)
|
|
(349
|
)
|
|
NM
|
|
Foreign currency transaction gains (losses)
|
(36
|
)
|
|
13
|
|
|
(49
|
)
|
|
NM
|
|
|
4
|
|
|
(8
|
)
|
|
12
|
|
|
NM
|
|
Income tax benefit (expense)
|
7
|
|
|
(123
|
)
|
|
130
|
|
|
NM
|
|
|
(90
|
)
|
|
(223
|
)
|
|
133
|
|
|
-60
|
%
|
Net equity in earnings of affiliates
|
7
|
|
|
1
|
|
|
6
|
|
|
NM
|
|
|
14
|
|
|
15
|
|
|
(1
|
)
|
|
-7
|
%
|
INCOME (LOSS) FROM CONTINUING OPERATIONS
|
(8
|
)
|
|
274
|
|
|
(282
|
)
|
|
NM
|
|
|
75
|
|
|
535
|
|
|
(460
|
)
|
|
-86
|
%
|
Income (loss) from operations of discontinued businesses, net of income tax (expense) benefit of $(1), $3, $3 and $7, respectively
|
3
|
|
|
(10
|
)
|
|
13
|
|
|
NM
|
|
|
(6
|
)
|
|
(17
|
)
|
|
11
|
|
|
-65
|
%
|
Net loss from disposal and impairments of discontinued businesses, net of income tax benefit of $401, $0, $401 and $0, respectively
|
(382
|
)
|
|
—
|
|
|
(382
|
)
|
|
100
|
%
|
|
(382
|
)
|
|
—
|
|
|
(382
|
)
|
|
100
|
%
|
NET INCOME (LOSS)
|
(387
|
)
|
|
264
|
|
|
(651
|
)
|
|
NM
|
|
|
(313
|
)
|
|
518
|
|
|
(831
|
)
|
|
NM
|
|
Less: Net income attributable to noncontrolling interests
|
(95
|
)
|
|
(195
|
)
|
|
100
|
|
|
-51
|
%
|
|
(43
|
)
|
|
(307
|
)
|
|
264
|
|
|
-86
|
%
|
NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION
|
$
|
(482
|
)
|
|
$
|
69
|
|
|
$
|
(551
|
)
|
|
NM
|
|
|
$
|
(356
|
)
|
|
$
|
211
|
|
|
$
|
(567
|
)
|
|
NM
|
|
AMOUNTS ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of tax
|
$
|
(103
|
)
|
|
$
|
79
|
|
|
$
|
(182
|
)
|
|
NM
|
|
|
$
|
32
|
|
|
$
|
228
|
|
|
$
|
(196
|
)
|
|
-86
|
%
|
Loss from discontinued operations, net of tax
|
(379
|
)
|
|
(10
|
)
|
|
(369
|
)
|
|
NM
|
|
|
(388
|
)
|
|
(17
|
)
|
|
(371
|
)
|
|
NM
|
|
NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION
|
$
|
(482
|
)
|
|
$
|
69
|
|
|
$
|
(551
|
)
|
|
NM
|
|
|
$
|
(356
|
)
|
|
$
|
211
|
|
|
$
|
(567
|
)
|
|
NM
|
|
Net cash provided by operating activities
|
$
|
723
|
|
|
$
|
153
|
|
|
$
|
570
|
|
|
NM
|
|
|
$
|
1,363
|
|
|
$
|
590
|
|
|
$
|
773
|
|
|
NM
|
|
DIVIDENDS DECLARED PER COMMON SHARE
|
$
|
—
|
|
|
$
|
0.10
|
|
|
$
|
(0.10
|
)
|
|
-100
|
%
|
|
$
|
0.11
|
|
|
$
|
0.10
|
|
|
$
|
0.01
|
|
|
10
|
%
|
NM - Not Meaningful
Components of Revenue, Cost of Sales, Operating Margin, and Operating Cash Flow —
Revenue includes revenue earned from the sale of energy from our utilities and the production of energy from our generation plants, which are classified as regulated and non-regulated
,
respectively, on the Condensed Consolidated Statements of Operations. Revenue also includes the gains or losses on derivatives associated with the sale of electricity.
Cost of sales includes costs incurred directly by the businesses in the ordinary course of business. Examples include electricity and fuel purchases, O&M costs, depreciation and amortization expense, bad debt expense and recoveries, and general administrative and support costs (including employee-related costs directly associated with the operations of the business). Cost of sales also includes the gains or losses on derivatives (including embedded derivatives other than foreign currency embedded derivatives) associated with the purchase of electricity or fuel.
Operating margin is defined as revenue less cost of sales.
Consolidated Revenue and Operating Margin — Executive Summary
Three months ended June 30, 2016
:
Consolidated Revenue
— Revenue
decrease
d
$427 million
, or
12%
, to
$3.2 billion
for the three months ended
June 30, 2016
, compared with
$3.7 billion
for the three months ended
June 30, 2015
. This
decrease
was driven by
unfavorable
FX impact of
$219 million
, primarily in Brazil, of $152 million. Additionally, revenues were impacted in Brazil due to lower rates for energy sold under new contracts at Tietê, Uruguiana operating in 2015 but not in 2016, and the reversal of a contingent regulatory liability at Eletropaulo in 2015. These decreases were partially offset by higher retail revenue driven by environmental revenues and higher rates due to a new rate order at IPL and the impact of a full three months of operations at Mong Duong in comparison with commencement of principal operations in mid-April 2015.
Consolidated Operating Margin
— Operating margin
decrease
d
$181 million
, or
24%
, to
$574 million
for the three months ended
June 30, 2016
, compared with
$755 million
for the three months ended
June 30, 2015
. In addition to the
unfavorable
FX impact of
$31 million
primarily in Kazakhstan, Brazil, and Colombia, the
decrease
was driven primarily by the reversal of a contingent regulatory liability at Eletropaulo in 2015, higher fixed costs, and lower demand due to economic decline. These decreases were partially offset by higher margin and lower fixed costs at Gener and higher margin driven by environmental revenues and higher rates due to a new rate order at IPL.
Six months ended June 30, 2016
:
Consolidated Revenue
— Revenue
decrease
d
$914 million
, or
12%
, to
$6.5 billion
for the
six months ended
June 30, 2016
, compared with
$7.4 billion
for the
six months ended
June 30, 2015
. This
decrease
was driven by
unfavorable
FX impact of
$686 million
, primarily in Brazil, of
$530 million
. Additionally, revenues were impacted in Brazil due to lower rates for energy sold under new contracts at Tietê, Uruguiana operating in 2015 but not in 2016, and the reversal of a contingent regulatory liability at Eletropaulo in 2015. Revenues also declined due to lower pass-through costs at El Salvador and IPP4 plant in Jordan, the sale of DPLER in January 2016 and lower rates at DPL. These decreases were partially offset by the impact of full operations at Mong Duong in 2016 compared to Unit 1 in March 2015 with principal operations commencing in April 2015.
Consolidated Operating Margin
— Operating margin
decrease
d
$393 million
, or
27%
, to
$1.1 billion
for the
six months ended
June 30, 2016
, compared with
$1.5 billion
for the
six months ended
June 30, 2015
. In addition to the
unfavorable
FX impact of
$72 million
primarily in Kazakhstan, Brazil, and Colombia, the
decrease
was driven primarily by the reversal of a contingent regulatory liability in 2015 and higher fixed costs at Eletropaulo and lower rates for energy sold under new contracts at Tietê. These decreases were partially offset by higher margin and lower fixed costs at Gener.
See Item 2.—
SBU Performance Analysis
of this Form 10-Q for additional discussion and analysis of operating results for each SBU.
Consolidated Results of Operations — Other
General and administrative expenses
General and administrative expenses
decrease
d
$3 million
, or
6%
, to
$47 million
for the three months ended
June 30, 2016
. The
decrease
was primarily due to decreased employee-related costs.
General and administrative expenses
decrease
d
$10 million
, or
10%
, to
$95 million
for the
six months ended
June 30, 2016
. The
decrease
was primarily due to decreased employee-related costs and professional fees.
Interest expense
Interest expense
increase
d
$103 million
, or
36%
, to
$390 million
for the three months ended
June 30, 2016
. The increase was primarily due to a
$100 million
increase at Eletropaulo as a result of the prior year reversal of
$64 million
in interest expense, previously recognized on a contingent regulatory liability, and higher interest expense due to higher regulatory liability balances and higher interest rates.
Interest expense
increase
d
$102 million
, or
16%
, to
$732 million
for the
six months ended
June 30, 2016
. The increase was primarily due to a
$104 million
increase at Eletropaulo as a result of the prior year reversal of $
64 million
in interest expense previously recognized on a contingent regulatory liability and higher interest expense due to higher regulatory liability balances and higher interest rates; an increase of
$23 million
at Mong Duong mainly due to lower capitalized interest as a result of the commencement of operations in April 2015. These increases were partially offset by lower interest expense of
$18 million
at the Parent Company and DPL due to a reduction in debt principal and lower interest rates, and lower interest expense of
$8 million
at IPALCO mainly due to increased capitalized interest.
Interest income
Interest income
increase
d
$22 million
, or
19%
, to
$138 million
for the three months ended
June 30, 2016
. The
increase
was primarily due to higher interest income of
$24 million
at Eletropaulo due to an increase in regulatory assets and higher interest rates.
Interest income
increase
d
$60 million
, or
31%
, to
$255 million
for the
six months ended
June 30, 2016
. The
increase
was primarily due to higher interest income of
$39 million
at Eletropaulo mainly due to an increase in regulatory assets and
$26 million
recognized on the financing element of the service concession arrangement at Mong Duong, which only became fully operational from April 2015.
Gain (loss) on extinguishment of debt
Gain on extinguishment of debt was
zero
and
$4 million
for the
three and six
months ended
June 30, 2016
, and loss on extinguishment of debt was
$117 million
and
$141 million
for the
three and six
months ended
June 30, 2015
, respectively. See Note
7
—
Debt
included in Item 1.—
Financial Statements
of this Form 10-Q for further information.
Other income and expense
Other income was
$12 million
and
$25 million
for the
three and six
months ended
June 30, 2016
, and
$15 million
and
$30 million
for the
three and six
months ended
June 30, 2015
, respectively.
Other expense was
$21 million
and
$29 million
for the
three and six
months ended
June 30, 2016
, and
$12 million
and
$29 million
for the
three and six
months ended
June 30, 2015
, respectively.
See Note
12
—
Other Income and Expense
included in Item 1.—
Financial Statements
of this Form 10-Q for further information.
Gain (loss) on disposal and sale of businesses
Loss on disposal and sale of businesses was
$17 million
for the three months ended
June 30, 2016
whereas
there was
no
comparable amount for the three months ended
June 30, 2015
. This decrease was primarily due to a loss on deconsolidation of
$20 million
for UK Wind during the three months ended
June 30, 2016
.
Gain on disposal and sale of businesses was
$30 million
for the six months ended
June 30, 2016
, whereas there was
no
comparable amount for the six months ended
June 30, 2015
. This increase was primarily due to a gain on sale of
$49 million
for the sale of the Company’s interest in DPLER, partially offset by a loss on deconsolidation of
$20 million
for UK Wind during the six months ended
June 30, 2016
.
See Note
16
—
Dispositions
included in Item 1.—
Financial Statements
of this Form 10-Q for further information.
Asset impairment expense
Asset impairment expense was
$235 million
and
$394 million
for the
three and six
months ended
June 30, 2016
, and
$37 million
and
$45 million
for the
three and six
months ended
June 30, 2015
, respectively. See Note
13
—
Asset Impairment Expense
included in Item 1.—
Financial Statements
of this Form 10-Q for further information.
Foreign currency transaction gains (losses)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(in millions)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Argentina
|
$
|
(29
|
)
|
|
$
|
2
|
|
|
$
|
1
|
|
|
$
|
17
|
|
Parent Company
|
(13
|
)
|
|
14
|
|
|
(5
|
)
|
|
(19
|
)
|
Other
|
6
|
|
|
(3
|
)
|
|
8
|
|
|
(6
|
)
|
Total
(1)
|
$
|
(36
|
)
|
|
$
|
13
|
|
|
$
|
4
|
|
|
$
|
(8
|
)
|
___________________________________________
|
|
(1)
|
Includes
$22 million
of losses and
$10 million
of gains on foreign currency derivative contracts for the
three months ended June 30, 2016
and
2015
, respectively, and
$23 million
and
$46 million
of gains on foreign currency derivative contracts for the
six months ended
June 30, 2016
and
2015
, respectively.
|
The Company recognized net foreign currency transaction losses of
$36 million
for the three months ended
June 30, 2016
, primarily due to:
|
|
•
|
a loss of
$29 million
in Argentina, which was primarily related to the unfavorable impact of foreign currency derivatives associated with government receivables at AES Argentina (an Argentine Peso functional currency subsidiary), and losses from devaluation of the Argentine Peso associated with U.S. Dollar denominated debt; and
|
|
|
•
|
a loss of
$13 million
at the Parent Company, which was primarily related to remeasurement losses on intercompany notes.
|
The Company recognized net foreign currency transaction gains of
$13 million
for the three months ended
June 30, 2015
, primarily due to:
|
|
•
|
a gain of
$14 million
at the Parent Company resulting from net gains on remeasurement of intercompany notes, partially offset by losses on foreign currency options.
|
There were no significant foreign currency transaction gains or losses for the
six months ended
June 30, 2016
.
The Company recognized net foreign currency transaction losses of
$8 million
for the
six months ended
June 30, 2015
, primarily due to:
|
|
•
|
a loss of
$19 million
at the Parent Company, which was primarily due to net remeasurement losses on intercompany notes, partially offset by gains on foreign currency options; and
|
|
|
•
|
a gain of
$17 million
in Argentina, which was primarily related to the favorable impact of foreign currency derivatives associated with government receivables at AES Argentina (an Argentine Peso functional currency subsidiary), partially offset by losses from the remeasurement of U.S. Dollar denominated debt, and losses from the remeasurement of local currency asset balances at Termoandes (a U.S. Dollar functional currency subsidiary).
|
Income tax benefit (expense)
Income tax benefit was
$7 million
for the three months ended
June 30, 2016
as compared to income tax expense of $
123 million
for the three months ended
June 30, 2015
. The Company’s effective tax rates were
32%
and
31%
for the three months ended
June 30, 2016
and
2015
, respectively.
The net
increase
in the effective tax rate for the three months ended
June 30, 2016
, compared to the same period in
2015
was principally due to the release of the valuation allowance at our Vietnam operating subsidiary during the second quarter of 2015, partially offset by tax benefit related to the devaluation of the Peso in certain of
our Mexican subsidiaries during the second quarter of 2016.
Income tax expense
decrease
d
$133 million
, or
60%
, to
$90 million
for the
six months ended
June 30, 2016
compared to
$223 million
for the
six months ended
June 30, 2015
. The Company’s effective tax rates were
60%
and
30%
for the
six months ended
June 30, 2016
and
2015
, respectively.
The net
increase
in the effective tax rate for the
six months ended
June 30, 2016
, compared to the same period in
2015
was principally due to the unfavorable impact of Chilean income tax law reform enacted during the first quarter of 2016 and the 2016 asset impairments recorded at Buffalo Gap II and DPL. See Note
13
—
Asset Impairment Expense
included in Item 1.—
Financial Statements
of this Form 10-Q for further information regarding the Buffalo Gap II and DPL asset impairments.
Our effective tax rate reflects the tax effect of significant operations outside the U.S. which are generally taxed at lower rates than the U.S. statutory rate of 35%. A future proportionate change in the composition of income before income taxes from foreign and domestic tax jurisdictions could impact our periodic effective tax rate.
Net equity in earnings of affiliates
Net equity in earnings of affiliates
increase
d
$6 million
to
$7 million
for the three months ended
June 30, 2016
compared to the three months ended
June 30, 2015
. The
increase
was primarily due to higher earnings at Guacolda.
Net equity in earnings of affiliates
decrease
d
$1 million
to
$14 million
for the
six months ended
June 30, 2016
compared to the
six months ended
June 30, 2015
. There were no significant changes in earnings at our equity method affiliates.
Net income attributable to noncontrolling interests
Net income attributable to NCI
decrease
d
$100 million
, or
51%
, to
$95 million
for the three months ended
June 30, 2016
. The
decrease
was primarily due to lower operating margin at Eletropaulo resulting from the reversal of a contingent regulatory liability in 2015 with no similar reversal in 2016.
Net income attributable to NCI
decrease
d
$264 million
, or
86%
, to
$43 million
for the
six months ended
June 30, 2016
. The
decrease
was primarily due to lower operating margin at Eletropaulo resulting from the the reversal of a contingent regulatory liability in 2015, impairment at Buffalo Gap II in 2016, and lower operating margin at Tietê resulting from lower rates.
Discontinued operations
Net losses from discontinued operations were
$379 million
and
$388 million
for the
three and six
months ended
June 30, 2016
, and
$10 million
and
$17 million
for the
three and six
months ended
June 30, 2015
, respectively. See Note
15
—
Discontinued Operations and Held-for-Sale Businesses
included in Item 1.—
Financial Statements
of this Form 10-Q for further information regarding the Sul discontinued operations.
Net (loss) income attributable to The AES Corporation
Net income attributable to The AES Corporation
decrease
d
$551 million
to a loss of
$482 million
in the three months ended
June 30, 2016
compared to income of
$69 million
in the three months ended
June 30, 2015
. Key drivers of the
decrease
were:
|
|
•
|
impairments at discontinued business;
|
|
|
•
|
lower operating margins at our Brazil and MCAC SBUs;
|
|
|
•
|
higher impairment expense on long lived assets;
|
|
|
•
|
higher interest expense;
|
|
|
•
|
unfavorable foreign currency exchange.
|
These
decrease
s were partially offset by:
|
|
•
|
lower losses on extinguishment of debt.
|
Net income attributable to The AES Corporation
decrease
d
$567 million
to a loss of
$356 million
in the
six months ended
June 30, 2016
compared to income of
$211 million
in the six months ended
June 30, 2015
. Key drivers of the
decrease
were:
|
|
•
|
impairments at discontinued business;
|
|
|
•
|
lower operating margins at our Brazil, US, MCAC and Europe SBUs;
|
|
|
•
|
higher impairment expense on long lived assets;
|
|
|
•
|
higher interest expense.
|
These
decrease
s were partially offset by:
|
|
•
|
higher gains on extinguishment of debt;
|
|
|
•
|
gain on sale of our interest in DPLER;
|
|
|
•
|
higher interest income.
|
SBU Performance Analysis
Non-GAAP Measures
Adjusted Operating Margin, Adjusted PTC, Adjusted EPS, and Proportional Free Cash Flow are non-GAAP supplemental measures that are used by management and external users of our consolidated financial statements such as investors, industry analysts and lenders. The Adjusted Operating Margin, Adjusted PTC, and Proportional Free Cash Flow by SBU for the three and
six months ended June 30, 2016
are shown below. The percentages represent the contribution by each SBU to the gross metric, excluding Corporate.
Three months ended June 30, 2016
:
Six months ended June 30, 2016
:
Adjusted Operating Margin
Operating Margin is defined as revenue less cost of sales. Cost of sales includes costs incurred directly by the businesses in the ordinary course of business. Examples include electricity and fuel purchases, O&M costs, depreciation and amortization expense, bad debt expense and recoveries, and general administrative and support costs (including employee-related costs directly associated with the operations of the business). Cost of sales also includes the gains or losses on derivatives (including embedded derivatives other than foreign currency embedded derivatives) associated with the purchase of electricity or fuel.
We define Adjusted Operating Margin as Operating Margin, adjusted for the impact of NCI, excluding unrealized gains or losses related to derivative transactions.
The GAAP measure most comparable to Adjusted Operating Margin is Operating Margin. We believe that Adjusted Operating Margin better reflects the underlying business performance of the Company. Factors in this determination include the impact of NCI, where AES consolidates the results of a subsidiary that is not wholly owned by the Company, as well as the variability due to unrealized derivatives gains or losses. Adjusted Operating Margin should not be construed as an alternative to Operating Margin, which is determined in accordance with GAAP.
Adjusted PTC and Adjusted EPS
We define Adjusted PTC as pretax income from continuing operations attributable to The AES Corporation excluding gains or losses of the consolidated entity due to (a) unrealized gains or losses related to derivative transactions, (b) unrealized foreign currency gains or losses, (c) gains or losses due to dispositions and acquisitions of business interests, (d) losses due to impairments, and (e) costs due to the early retirement of debt. Adjusted PTC also includes net equity in earnings of affiliates on an after-tax basis adjusted for the same gains or losses excluded from consolidated entities.
Adjusted PTC reflects the impact of NCI and excludes the items specified in the definition above. In addition to the revenue and cost of sales reflected in Operating Margin, Adjusted PTC includes the other components of our income statement, such as
general and administrative expense
in the corporate segment, as well as business development costs;
interest expense
and
interest income
;
other expense
and
other income
;
realized foreign currency transaction gains and losses
; and
net equity in earnings of affiliates
.
We define Adjusted EPS as diluted earnings per share from continuing operations excluding gains or losses of both consolidated entities and entities accounted for under the equity method due to (a) unrealized gains or losses related to derivative transactions, (b) unrealized foreign currency gains or losses, (c) gains or losses due to dispositions and acquisitions of business interests, (d) losses due to impairments, and (e) costs due to the early retirement of debt.
The GAAP measure most comparable to Adjusted PTC is
income from continuing operations attributable to The AES Corporation
. The GAAP measure most comparable to Adjusted EPS is diluted earnings per share from continuing operations. We believe that Adjusted PTC and Adjusted EPS better reflect the underlying business performance of the Company and are considered in the Company’s internal evaluation of financial performance. Factors in this determination include the variability due to unrealized gains or losses related to derivative transactions, unrealized foreign currency gains or losses, losses due to impairments and strategic decisions to dispose of or acquire business interests or retire debt, which affect results in a given period or periods. In addition, for Adjusted PTC, earnings before tax represents the business performance of the Company before the application of statutory income tax rates and tax adjustments, including the effects of tax planning, corresponding to the various jurisdictions in which the Company operates. Adjusted PTC and Adjusted EPS should not be construed as alternatives to income from continuing operations attributable to The AES Corporation and diluted earnings per share from continuing operations, which are determined in accordance with GAAP.
Proportional Free Cash Flow
Refer to Item 2.—
Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Resources and Liquidity—Proportional Free Cash Flow (a non-GAAP measure)
for the discussion and reconciliation of Proportional Free Cash Flow to its nearest GAAP measure.
Reconciliations of Non-GAAP Measures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Operating Margin (in millions)
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
US SBU
|
$
|
114
|
|
|
$
|
117
|
|
|
$
|
218
|
|
|
$
|
292
|
|
Andes SBU
|
94
|
|
|
90
|
|
|
182
|
|
|
189
|
|
Brazil SBU
|
16
|
|
|
44
|
|
|
25
|
|
|
84
|
|
MCAC SBU
|
108
|
|
|
136
|
|
|
183
|
|
|
214
|
|
Europe SBU
|
44
|
|
|
57
|
|
|
120
|
|
|
154
|
|
Asia SBU
|
21
|
|
|
22
|
|
|
39
|
|
|
33
|
|
Corporate and Other
|
1
|
|
|
12
|
|
|
10
|
|
|
24
|
|
Intersegment Eliminations
|
—
|
|
|
(1
|
)
|
|
5
|
|
|
(3
|
)
|
Total Adjusted Operating Margin
|
398
|
|
|
477
|
|
|
782
|
|
|
987
|
|
Noncontrolling Interests Adjustment
|
184
|
|
|
277
|
|
|
315
|
|
|
492
|
|
Unrealized derivative gains (losses)
|
(8
|
)
|
|
1
|
|
|
(14
|
)
|
|
(3
|
)
|
Operating Margin
|
$
|
574
|
|
|
$
|
755
|
|
|
$
|
1,083
|
|
|
$
|
1,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted PTC
(1)
(in millions)
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
US SBU
|
$
|
58
|
|
|
$
|
56
|
|
|
$
|
143
|
|
|
$
|
162
|
|
Andes SBU
|
84
|
|
|
81
|
|
|
145
|
|
|
172
|
|
Brazil SBU
|
7
|
|
|
51
|
|
|
12
|
|
|
82
|
|
MCAC SBU
|
75
|
|
|
106
|
|
|
123
|
|
|
156
|
|
Europe SBU
|
34
|
|
|
41
|
|
|
103
|
|
|
126
|
|
Asia SBU
|
26
|
|
|
30
|
|
|
48
|
|
|
42
|
|
Corporate and Other
|
(124
|
)
|
|
(105
|
)
|
|
(229
|
)
|
|
(218
|
)
|
Total Adjusted PTC
|
$
|
160
|
|
|
$
|
260
|
|
|
$
|
345
|
|
|
$
|
522
|
|
Reconciliation to Income from continuing operations, net of tax, attributable to The AES Corporation:
|
Non-GAAP Adjustments:
|
|
|
|
|
|
|
|
Unrealized derivative (losses) gains
|
(30
|
)
|
|
2
|
|
|
4
|
|
|
17
|
|
Unrealized foreign currency (losses) gains
|
(17
|
)
|
|
4
|
|
|
(9
|
)
|
|
(43
|
)
|
Disposition/acquisition (losses) gains
|
(17
|
)
|
|
4
|
|
|
2
|
|
|
9
|
|
Impairment losses
|
(235
|
)
|
|
(30
|
)
|
|
(285
|
)
|
|
(36
|
)
|
Loss on extinguishment of debt
|
(6
|
)
|
|
(112
|
)
|
|
(6
|
)
|
|
(138
|
)
|
Pretax contribution
|
(145
|
)
|
|
128
|
|
|
51
|
|
|
331
|
|
Income tax benefit (expense) attributable to The AES Corporation
|
42
|
|
|
(49
|
)
|
|
(19
|
)
|
|
(103
|
)
|
Income from continuing operations, net of tax, attributable to The AES Corporation
|
$
|
(103
|
)
|
|
$
|
79
|
|
|
$
|
32
|
|
|
$
|
228
|
|
_____________________________
|
|
(1)
|
Adjusted PTC for each segment includes the effect of intercompany transactions with other segments, except for interest, charges for certain management fees, and the write-off of intercompany balances.
|
Adjusted EPS
The Company reported a loss from continuing operations of $
0.16
per share
for the three months ended June 30, 2016
. For purposes of measuring diluted loss per share under GAAP, common stock equivalents were excluded from weighted-average shares as their inclusion would be anti-dilutive. However, for purposes of computing Adjusted EPS, the Company has included the impact of dilutive common stock equivalents. The table below reconciles the weighted-average shares used in GAAP diluted earnings per share to the weighted-average shares used in calculating the non-GAAP measure of Adjusted EPS.
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Denominator Used For Adjusted Earnings Per Share
|
|
Three Months Ended June 30, 2016
|
(in millions, except per share data)
|
|
Loss
|
|
Shares
|
|
$ per share
|
GAAP DILUTED (LOSS) PER SHARE
|
|
|
|
|
|
|
Loss from continuing operations attributable to The AES Corporation common stockholders
|
|
$
|
(103
|
)
|
|
659
|
|
|
$
|
(0.16
|
)
|
EFFECT OF DILUTIVE SECURITIES
|
|
|
|
|
|
|
Restricted stock units
|
|
—
|
|
|
3
|
|
|
—
|
|
NON-GAAP DILUTED (LOSS) PER SHARE
|
|
$
|
(103
|
)
|
|
662
|
|
|
$
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EPS
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Diluted earnings per share from continuing operations
|
$
|
(0.16
|
)
|
|
$
|
0.11
|
|
|
$
|
0.05
|
|
|
$
|
0.33
|
|
|
Unrealized derivative losses (gains)
|
0.04
|
|
|
—
|
|
|
—
|
|
|
(0.02
|
)
|
|
Unrealized foreign currency transaction losses
|
0.02
|
|
|
—
|
|
|
—
|
|
|
0.06
|
|
|
Disposition/acquisition losses (gains)
|
0.03
|
|
(6)
|
(0.01
|
)
|
|
—
|
|
(7)
|
(0.01
|
)
|
|
Impairment losses
|
0.36
|
|
(8)
|
0.04
|
|
(9)
|
0.43
|
|
(10)
|
0.05
|
|
(9)
|
Loss on extinguishment of debt
|
0.01
|
|
|
0.16
|
|
(11)
|
0.01
|
|
|
0.20
|
|
(12)
|
Less: Net income tax benefit
(1) (2) (3) (4) (5)
|
(0.13
|
)
|
|
(0.04
|
)
|
|
(0.17
|
)
|
|
(0.09
|
)
|
|
Adjusted EPS
|
$
|
0.17
|
|
|
$
|
0.26
|
|
|
$
|
0.32
|
|
|
$
|
0.52
|
|
|
_____________________________
|
|
(1)
|
The per share income tax benefit (expense) associated with unrealized derivative (gains) losses were
$0.01
and
$0.00
in the three months ended
June 30, 2016
and
2015
, and
$0.00
and
$0.00
in the six months ended
June 30, 2016
and
2015
, respectively.
|
|
|
(2)
|
The per share income tax benefit (expense) associated with unrealized foreign currency transaction losses were
$0.01
and
$(0.01)
in the three months ended
June 30, 2016
and
2015
, and
$0.00
and
$0.03
in the six months ended
June 30, 2016
and
2015
, respectively.
|
|
|
(3)
|
The per share income tax benefit (expense) associated with disposition/acquisition (gains) losses were
$0.00
and
$0.00
in the three months ended
June 30, 2016
and
2015
, and
$(0.01)
and
$0.00
in the six months ended
June 30, 2016
and
2015
, respectively.
|
|
|
(4)
|
The per share income tax benefit (expense) associated with impairment losses were
$0.11
and
$0.00
in the three months ended
June 30, 2016
and
2015
, and
$0.18
and
$0.00
in the six months ended
June 30, 2016
and
2015
, respectively.
|
|
|
(5)
|
The per share income tax benefit (expense) associated with loss on extinguishment of debt were
$0.00
and
$0.05
in the three months ended
June 30, 2016
and
2015
, and
$0.00
and
$0.06
in the six months ended
June 30, 2016
and
2015
, respectively.
|
|
|
(6)
|
Amount primarily relates to the loss from the deconsolidation of UK Wind of
$20 million
, or
$0.03
per share.
|
|
|
(7)
|
Amount primarily relates to the loss from the deconsolidation of UK Wind of
$20 million
, or
$0.03
per share; and the gain from the sale of DPLER of
$22 million
, or $0.03 per share.
|
|
|
(8)
|
Amount primarily relates to the asset impairment at DPL of
$235 million
, or
$0.36
per share.
|
|
|
(9)
|
Amount primarily relates to the asset impairment at UK Wind of
$37 million
(
$30 million
or
$0.04
per share, net of NCI).
|
|
|
(10)
|
Amount primarily relates to the asset impairment at DPL of
$235 million
,or
$0.36
per share; and at Buffalo Gap II of
$159 million
(
$49 million
, or
$0.07
per share, net of NCI).
|
|
|
(11)
|
Amount primarily relates to the loss on early retirement of debt at the Parent Company of
$85 million
, or
$0.12
per share; and at IPL of
$19 million
(
$15 million
, or
$0.02
per share, net of NCI).
|
|
|
(12)
|
Amount primarily relates to the loss on early retirement of debt at the Parent Company of
$111 million
, or
$0.16
per share; and at IPL of
$19 million
(
$15 million
, or
$0.02
per share, net of NCI).
|
US SBU
The following table summarizes Operating Margin, Adjusted Operating Margin, Adjusted PTC, and Proportional Free Cash Flow (in millions) for our US SBU for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2016
|
|
2015
|
|
$ Change
|
|
% Change
|
|
2016
|
|
2015
|
|
$ Change
|
|
% Change
|
Operating Margin
|
$
|
133
|
|
|
$
|
125
|
|
|
$
|
8
|
|
|
6
|
%
|
|
$
|
247
|
|
|
$
|
298
|
|
|
$
|
(51
|
)
|
|
-17
|
%
|
Noncontrolling Interests Adjustment
|
(19
|
)
|
|
(8
|
)
|
|
|
|
|
|
(33
|
)
|
|
(10
|
)
|
|
|
|
|
Derivatives Adjustment
|
—
|
|
|
—
|
|
|
|
|
|
|
4
|
|
|
4
|
|
|
|
|
|
Adjusted Operating Margin
|
$
|
114
|
|
|
$
|
117
|
|
|
$
|
(3
|
)
|
|
-3
|
%
|
|
$
|
218
|
|
|
$
|
292
|
|
|
$
|
(74
|
)
|
|
-25
|
%
|
Adjusted PTC
|
$
|
58
|
|
|
$
|
56
|
|
|
$
|
2
|
|
|
4
|
%
|
|
$
|
143
|
|
|
$
|
162
|
|
|
$
|
(19
|
)
|
|
-12
|
%
|
Proportional Free Cash Flow
|
$
|
117
|
|
|
$
|
104
|
|
|
$
|
13
|
|
|
13
|
%
|
|
$
|
250
|
|
|
$
|
259
|
|
|
$
|
(9
|
)
|
|
-3
|
%
|
Operating Margin for the three months ended
June 30, 2016
increase
d by
$8 million
, or
6%
, which was driven primarily by the following (in millions):
|
|
|
|
|
IPL
|
|
Higher retail margin driven by environmental revenues and higher rates due to a new rate order
|
$
|
10
|
|
Change in accrual resulting from the implementation of new base rates
|
18
|
|
Total IPL Increase
|
28
|
|
US Generation
|
|
Southland due to lower availability during peak periods and higher depreciation expense due to a change in useful lives
|
(5
|
)
|
Impact from sale of Armenia Mountain in July 2015
|
(4
|
)
|
Hawaii due to better availability primarily due to major outages in 2015
|
8
|
|
Other
|
(4
|
)
|
Total US Generation Decrease
|
(5
|
)
|
DPL
|
|
Impact of lower wholesale prices and completion of DP&L’s required transition to a competitive-bid market
|
(17
|
)
|
Decrease in RTO capacity and other revenues, primarily due to lower capacity cleared in the auction
|
(4
|
)
|
Decrease in generating facility maintenance and other expenses
|
6
|
|
Total DPL Decrease
|
(15
|
)
|
Total US SBU Operating Margin Increase
|
$
|
8
|
|
Adjusted Operating Margin
decrease
d by
$3 million
for the US SBU due to the drivers above, adjusted for NCI and excluding unrealized gains and losses on derivatives. AES owns 100% of its businesses in the U.S. with the exception of IPL, which is wholly owned by its indirect subsidiary IPALCO. As of
June 30, 2016
, CDPQ owns a combined direct and indirect interest in IPALCO of 30%.
Adjusted PTC
increase
d by
$2 million
, driven by lower interest expense at DPL and IPL, offset by the
$3 million
decrease
in Adjusted Operating Margin described above and a decrease in the Company’s share of earnings under the HLBV accounting allocation at Buffalo Gap.
Proportional Free Cash Flow
increase
d by
$13 million
, primarily driven by lower proportional interest payments of $19 million due to the timing of interest payments and lower interest rates on new bonds issued by IPL in 2016, which was partially offset by the
$3 million
decrease
in Adjusted Operating Margin as described above.
Operating Margin for the
six months ended
June 30, 2016
decrease
d by
$51 million
, or
17%
, which was driven primarily by the following (in millions):
|
|
|
|
|
DPL
|
|
Impact of lower wholesale prices and completion of DP&L’s required transition to a competitive-bid market
|
$
|
(46
|
)
|
Decrease in RTO capacity and other revenues, primarily due to lower capacity cleared in the auction
|
(10
|
)
|
Other
|
(2
|
)
|
Total DPL Decrease
|
(58
|
)
|
US Generation
|
|
Impact from sale of Armenia Mountain in July 2015
|
(10
|
)
|
Southland primarily an increase in depreciation expense due to a change in estimated useful lives of the plants
|
(9
|
)
|
Hawaii due to better availability primarily due to major outages in 2015
|
10
|
|
Other
|
(6
|
)
|
Total US Generation Decrease
|
(15
|
)
|
IPL
|
|
Higher retail margin driven by environmental revenues and higher rates due to a new rate order
|
10
|
|
Change in accrual resulting from the implementation of new rates
|
18
|
|
Unfavorable weather impact on retail margin
|
(6
|
)
|
Total IPL Increase
|
22
|
|
Total US SBU Operating Margin Decrease
|
$
|
(51
|
)
|
Adjusted Operating Margin
decrease
d by
$74 million
for the US SBU due to the drivers above, adjusted for NCI and excluding unrealized gains and losses on derivatives. AES owns 100% of its businesses in the U.S. with the exception of IPL, which is wholly owned by its indirect subsidiary IPALCO. As of
June 30, 2016
, CDPQ owns a combined direct and indirect interest in IPALCO of 30%.
Adjusted PTC
decrease
d by
$19 million
, driven by the
$74 million
decrease
in Adjusted Operating Margin described above, partially offset by a gain on contract termination at DP&L and lower interest expense at DPL and IPL in part due to the sell-down impacts as discussed above.
Proportional Free Cash Flow
decrease
d by
$9 million
, primarily driven by the
$74 million
decrease
in Adjusted Operating Margin as described above, which was partially offset by a $27 million decrease in coal purchases at IPL due to the ongoing conversion of two coal-fired plants to natural gas and a build-up of inventory in December 2015 due to mild winter weather, a net increase of $17 million in settlements of accounts receivables primarily due to the
sale of DPLER in 2016, lower coal purchases of $9 million at DPL from inventory optimization efforts, and lower interest payments of $15 million due to the timing of interest payments and lower interest rates on new bonds issued by IPL in 2016.
ANDES SBU
The following table summarizes Operating Margin, Adjusted Operating Margin, Adjusted Proportional Free Cash Flow (in millions) for our Andes SBU for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2016
|
|
2015
|
|
$ Change
|
|
% Change
|
|
2016
|
|
2015
|
|
$ Change
|
|
% Change
|
Operating Margin
|
$
|
140
|
|
|
$
|
119
|
|
|
$
|
21
|
|
|
18
|
%
|
|
$
|
263
|
|
|
$
|
250
|
|
|
$
|
13
|
|
|
5
|
%
|
Noncontrolling Interests Adjustment
|
(46
|
)
|
|
(29
|
)
|
|
|
|
|
|
(81
|
)
|
|
(61
|
)
|
|
|
|
|
Adjusted Operating Margin
|
$
|
94
|
|
|
$
|
90
|
|
|
$
|
4
|
|
|
4
|
%
|
|
$
|
182
|
|
|
$
|
189
|
|
|
$
|
(7
|
)
|
|
-4
|
%
|
Adjusted PTC
|
$
|
84
|
|
|
$
|
81
|
|
|
$
|
3
|
|
|
4
|
%
|
|
$
|
145
|
|
|
$
|
172
|
|
|
$
|
(27
|
)
|
|
-16
|
%
|
Proportional Free Cash Flow
|
$
|
56
|
|
|
$
|
(20
|
)
|
|
$
|
76
|
|
|
NM
|
|
|
$
|
60
|
|
|
$
|
(3
|
)
|
|
$
|
63
|
|
|
NM
|
|
Including
unfavorable
FX and remeasurement impacts of
$12 million
, Operating Margin for the three months ended
June 30, 2016
increase
d by
$21 million
, or
18%
, which was driven primarily by the following (in millions):
|
|
|
|
|
Gener
|
|
Lower spot prices on energy and coal purchases
|
$
|
22
|
|
Higher spot sales driven by better availability and higher contract sales, partially offset by termination of Nueva Renca tolling agreement.
|
11
|
|
Lower fixed costs, mainly associated with lower maintenance expenses and lower salaries
|
11
|
|
Other
|
2
|
|
Total Gener Increase
|
46
|
|
Argentina
|
|
Higher fixed costs, mainly driven by higher inflation and maintenance costs
|
(13
|
)
|
Lower availability mainly associated with planned major maintenance
|
(12
|
)
|
Unfavorable FX impact
|
(3
|
)
|
Higher rates driven by annual price review
|
12
|
|
Other
|
1
|
|
Total Argentina Decrease
|
(15
|
)
|
Chivor
|
|
Unfavorable FX impact
|
(8
|
)
|
Other
|
(2
|
)
|
Total Chivor Decrease
|
(10
|
)
|
Total Andes SBU Operating Margin Increase
|
$
|
21
|
|
Adjusted Operating Margin
increase
d by
$4 million
due to the drivers above, adjusted for the impact of NCI. AES owned 71% of Gener and Chivor as of
June 30, 2015
and 67% as of
June 30, 2016
, and 100% of AES Argentina.
Adjusted PTC
increase
d by
$3 million
, driven by the
increase
of
$4 million
in Adjusted Operating Margin described above.
Proportional Free Cash Flow
increase
d by
$76 million
, primarily driven by collections of $27 million from CAMMESA for increases in tariffs and non-recurring remuneration of maintenance costs, $16 million in lower income tax payments in Chile and Argentina, a decrease in fuel purchases of $12 million in Argentina, a $10 million decrease in interest payments primarily associated with a change in the repayment schedule after the Ventanas debt refinancing in July 2015 and the
$4 million
increase
in Adjusted Operating Margin as described above. These positive impacts were partially offset by $17 million in higher income tax payments in Colombia as a consequence of the increase in 2015 taxable income.
Including
unfavorable
FX and remeasurement impacts of
$28 million
, Operating Margin for the
six months ended
June 30, 2016
increase
d by
$13 million
, or
5%
, which was driven primarily by the following (in millions):
|
|
|
|
|
Gener
|
|
Higher spot sales driven by better availability and higher contract sales, partially offset by decrease in margin from Nueva Renca tolling agreement in 2015
|
$
|
36
|
|
Lower fixed costs mainly associated with lower maintenance expenses and lower salaries
|
19
|
|
Lower spot prices on energy and coal purchases, partially offset by impact of lower spot prices on sales in the SIC
|
4
|
|
Higher depreciation expenses related to capitalization of environmental equipment and Cochrane transmission line
|
(4
|
)
|
Other
|
3
|
|
Total Gener Increase
|
58
|
|
Argentina
|
|
Higher fixed costs, mainly driven by higher inflation and planned major maintenance costs
|
(32
|
)
|
Lower availability mainly associated with planned major maintenance
|
(12
|
)
|
Unfavorable FX impact
|
(12
|
)
|
Higher rates driven by annual price review
|
40
|
|
Other
|
(1
|
)
|
Total Argentina Decrease
|
(17
|
)
|
Chivor
|
|
Unfavorable FX impact
|
(16
|
)
|
Lower margin on contracted energy associated a decrease in volume and prices
|
(16
|
)
|
Higher margin on spot sales, partially offset by lower ancillary services
|
3
|
|
Other
|
1
|
|
Total Chivor Decrease
|
(28
|
)
|
Total Andes SBU Operating Margin Increase
|
$
|
13
|
|
Adjusted Operating Margin
decrease
d by
$7 million
due to the drivers above, adjusted for the impact of NCI. AES owned 71% of Gener and Chivor as of
June 30, 2015
and 67% as of
June 30, 2016
, and 100% of AES Argentina.
Adjusted PTC
decrease
d by
$27 million
, driven by the
decrease
of
$7 million
in Adjusted Operating Margin described above, as well as higher realized FX losses associated with the sale of short term investments at Termoandes and negative results on settlement of FX forwards at Gener and higher interest expenses mainly associated with tax payment programs in Argentina. These results were partially offset by lower interest expenses at Gener due to the sell down in 2015.
Proportional Free Cash Flow
increase
d by
$63 million
, primarily driven by collections of $12 million from CAMMESA associated with non-recurring remuneration of maintenance costs, $27 million at Chivor associated with collections from prior periods, $47 million of lower payments for fuel, a decrease of $12 million in proportional maintenance and non-recoverable environmental capital expenditures due to lower expenditures on emissions control equipment at Chile, and lower interest payments of $8 million associated with the Ventanas debt refinancing in July 2015. These positive impacts were partially offset by higher net tax payments of $40 million primarily related to withholding taxes paid on Chilean distributions to AES affiliates and higher taxable income in Colombia, $10 million of higher insurance payments, and the
$7 million
decrease
in Adjusted Operating Margin as described above.
BRAZIL SBU
The following table summarizes Operating Margin, Adjusted Operating Margin, Adjusted PTC, and Proportional Free Cash Flow (in millions) for our Brazil SBU for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2016
|
|
2015
|
|
$ Change
|
|
% Change
|
|
2016
|
|
2015
|
|
$ Change
|
|
% Change
|
Operating Margin
|
$
|
78
|
|
|
$
|
224
|
|
|
$
|
(146
|
)
|
|
-65
|
%
|
|
$
|
121
|
|
|
$
|
401
|
|
|
$
|
(280
|
)
|
|
-70
|
%
|
Noncontrolling Interests Adjustment
|
(62
|
)
|
|
(180
|
)
|
|
|
|
|
|
(96
|
)
|
|
(317
|
)
|
|
|
|
|
Adjusted Operating Margin
|
$
|
16
|
|
|
$
|
44
|
|
|
$
|
(28
|
)
|
|
-64
|
%
|
|
$
|
25
|
|
|
$
|
84
|
|
|
$
|
(59
|
)
|
|
-70
|
%
|
Adjusted PTC
|
$
|
7
|
|
|
$
|
51
|
|
|
$
|
(44
|
)
|
|
-86
|
%
|
|
$
|
12
|
|
|
$
|
82
|
|
|
$
|
(70
|
)
|
|
-85
|
%
|
Proportional Free Cash Flow
|
$
|
48
|
|
|
$
|
(20
|
)
|
|
$
|
68
|
|
|
NM
|
|
|
$
|
82
|
|
|
$
|
(67
|
)
|
|
$
|
149
|
|
|
NM
|
|
Including
unfavorable
FX impacts of
$11 million
, Operating Margin for the three months ended
June 30, 2016
decrease
d by
$146 million
, or
65%
, which was driven primarily by the following (in millions):
|
|
|
|
|
Eletropaulo
|
|
Negative impact of reversal of contingent regulatory liability in 2015
|
$
|
(97
|
)
|
Higher fixed costs driven by salaries and wages and higher bad debt expense
|
(49
|
)
|
Lower demand mainly due to economic decline
|
(22
|
)
|
Higher tariffs
|
54
|
|
Other
|
(4
|
)
|
Total Eletropaulo Decrease
|
(118
|
)
|
Tietê
|
|
Lower rates for energy sold under new contracts
|
(19
|
)
|
Unfavorable FX impacts
|
(9
|
)
|
Lower purchase spot prices/volume
|
12
|
|
Total Tietê Decrease
|
(16
|
)
|
Uruguaiana
|
|
No operation in 2016 compared to 61 days of operation in 2015
|
(12
|
)
|
Total Uruguaiana Decrease
|
(12
|
)
|
Total Brazil SBU Operating Margin Decrease
|
$
|
(146
|
)
|
Adjusted Operating Margin
decrease
d by
$28 million
, primarily due to the drivers discussed above, adjusted for the impact of NCI. As of
June 30, 2016
, AES owns 16% of Eletropaulo, 46% of Uruguaiana and 24% of Tietê.
Adjusted PTC
decrease
d by
$44 million
, driven by the
decrease
of
$28 million
in Adjusted Operating Margin as described above, as well as higher interest expense of $10 million related to the reversal of a contingent regulatory liability at Eletropaulo in 2015.
Proportional Free Cash Flow
increase
d by
$68 million
, primarily driven by favorable timing of $96 million in net collections of higher costs deferred in the prior year at Eletropaulo and Sul as a result of unfavorable hydrology in prior periods, favorable timing of $57 million in collections on current year energy sales, lower interest payments of $13 million at Sul due to its debt restructuring in 2016, and the positive impact of Sul’s $16 million in Operating Margin included in operating cash flows but classified as a discontinued operation on the income statement. These positive impacts were offset by the
$28
million
decrease
in Adjusted Operating Margin as described above (excluding the $16 million non-cash impact included in Adjusted Operating Margin related to the reversal of a contingent regulatory liability at Eletropaulo in 2015), and unfavorable timing of $95 million of payments for energy purchases and regulatory charges.
Including
unfavorable
FX impacts of
$21 million
, Operating Margin for the
six months ended
June 30, 2016
decrease
d by
$280 million
, or
70%
, which was driven primarily by the following (in millions):
|
|
|
|
|
Eletropaulo
|
|
Negative impact of reversal of contingent regulatory liability in 2015
|
$
|
(97
|
)
|
Higher fixed costs driven by salaries and wages, higher bad debt expense and penalties
|
(91
|
)
|
Lower demand mainly due to economic decline
|
(35
|
)
|
Higher tariffs
|
70
|
|
Other
|
(2
|
)
|
Total Eletropaulo Decrease
|
(155
|
)
|
Tietê
|
|
Lower rates for energy sold under new contracts
|
(88
|
)
|
Unfavorable FX impacts
|
(24
|
)
|
Lower purchase spot prices/volume
|
10
|
|
Other
|
(4
|
)
|
Total Tietê Decrease
|
(106
|
)
|
Uruguaiana
|
|
No operation in 2016 compared to 108 days of operation in 2015
|
(19
|
)
|
Total Uruguaiana Decrease
|
(19
|
)
|
Total Brazil SBU Operating Margin Decrease
|
$
|
(280
|
)
|
Adjusted Operating Margin
decrease
d by
$59 million
, primarily due to the drivers discussed above, adjusted for the impact of NCI. As of
June 30, 2016
, AES owns 16% of Eletropaulo, 46% of Uruguaiana and 24% of Tietê.
Adjusted PTC
decrease
d by
$70 million
, driven by the
decrease
of
$59 million
in Adjusted Operating Margin as described above, as well as higher interest expense of $10 million related to the reversal of a contingent regulatory liability at Eletropaulo in 2015.
Proportional Free Cash Flow
increase
d by
$149 million
, primarily driven by favorable timing of $279 million in net collections of higher costs deferred in the prior year at Eletropaulo and Sul as a result of unfavorable hydrology in prior periods, favorable timing of $99 million in collections on current year energy sales, lower energy purchases
of $26 million at Tietê due to favorable hydrology, lower interest payments of $16 million at Sul due to its debt restructuring in 2016, and the positive impact of Sul’s $11 million in Operating Margin included in operating cash flows but classified as a discontinued operation on the income statement. These favorable impacts were offset by the
$59 million
decrease
in Adjusted Operating Margin as described above (excluding the $16 million non-cash impact included in Adjusted Operating Margin related to the reversal of a contingent regulatory liability at Eletropaulo in 2015), and unfavorable timing of $229 million in payments for energy purchases and regulatory charges at Eletropaulo and Sul.
MCAC SBU
The following table summarizes Operating Margin, Adjusted Operating Margin, Adjusted PTC, and Proportional Free Cash Flow (in millions) for our MCAC SBU for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2016
|
|
2015
|
|
$ Change
|
|
% Change
|
|
2016
|
|
2015
|
|
$ Change
|
|
% Change
|
Operating Margin
|
$
|
134
|
|
|
$
|
165
|
|
|
$
|
(31
|
)
|
|
-19
|
%
|
|
$
|
230
|
|
|
$
|
268
|
|
|
$
|
(38
|
)
|
|
-14
|
%
|
Noncontrolling Interests Adjustment
|
(24
|
)
|
|
(29
|
)
|
|
|
|
|
|
(46
|
)
|
|
(52
|
)
|
|
|
|
|
Derivatives Adjustment
|
(2
|
)
|
|
—
|
|
|
|
|
|
|
(1
|
)
|
|
(2
|
)
|
|
|
|
|
Adjusted Operating Margin
|
$
|
108
|
|
|
$
|
136
|
|
|
$
|
(28
|
)
|
|
-21
|
%
|
|
$
|
183
|
|
|
$
|
214
|
|
|
$
|
(31
|
)
|
|
-14
|
%
|
Adjusted PTC
|
$
|
75
|
|
|
$
|
106
|
|
|
$
|
(31
|
)
|
|
-29
|
%
|
|
$
|
123
|
|
|
$
|
156
|
|
|
$
|
(33
|
)
|
|
-21
|
%
|
Proportional Free Cash Flow
|
$
|
(6
|
)
|
|
$
|
18
|
|
|
$
|
(24
|
)
|
|
NM
|
|
|
$
|
7
|
|
|
$
|
132
|
|
|
$
|
(125
|
)
|
|
-95
|
%
|
Operating Margin for the three months ended
June 30, 2016
decrease
d by
$31 million
, or
19%
, which was driven primarily by the following (in millions):
|
|
|
|
|
Panama
|
|
Lower generation and higher energy purchases driven by weaker hydrological conditions
|
$
|
(6
|
)
|
Expenses related to the construction in progress of a natural gas generation plant and a liquefied natural gas terminal
|
(5
|
)
|
Total Panama Decrease
|
(11
|
)
|
Dominican Republic
|
|
Lower fuel costs due to timing of cargoes
|
6
|
|
Lower gas sales to third parties due to lower demand
|
(7
|
)
|
Lower availability
|
(4
|
)
|
Other
|
(5
|
)
|
Total Dominican Republic Decrease
|
(10
|
)
|
Puerto Rico
|
|
Residual waste disposal expense adjustment
|
(3
|
)
|
Lower availability
|
(2
|
)
|
Total Puerto Rico Decrease
|
(5
|
)
|
Other Business Drivers
|
(5
|
)
|
Total MCAC SBU Operating Margin Decrease
|
$
|
(31
|
)
|
Adjusted Operating Margin
decrease
d by
$28 million
due to the drivers above, adjusted for the impact of NCI and excluding unrealized gains and losses on derivatives. As of
June 30, 2016
, AES owns 90% of Changuinola and 49% of its other generation facilities in Panama, 90% of Andres and Los Mina (92% in 2015) and 45% of Itabo (46% in 2015) in the Dominican Republic, 99% of TEG/TEP and 55% of Merida in Mexico, and a weighted average of 77% of its businesses in El Salvador.
Adjusted PTC
decrease
d by
$31 million
, driven by the
decrease
of
$28 million
in Adjusted Operating Margin as described above.
Proportional Free Cash Flow
decrease
d by $
24 million
, primarily driven by the
$28 million
decrease
in Adjusted Operating Margin described above, $21 million from unfavorable timing of collections and lower sales in the Puerto Rico, and $15 million from unfavorable timing of coal payments in Puerto Rico. These decreases were partially offset in the Dominican Republic by $14 million of lower tax payments due to the timing of tax filings, $12 million of lower LNG payments, and $8 million of lower interest payments.
Operating Margin for the
six months ended
June 30, 2016
decrease
d by
$38 million
, or
14%
, which was driven primarily by the following (in millions):
|
|
|
|
|
Mexico
|
|
Lower availability and related costs
|
$
|
(11
|
)
|
Asset retirement obligation recognized in the first quarter of 2016
|
(4
|
)
|
Other
|
(2
|
)
|
Total Mexico Decrease
|
(17
|
)
|
Panama
|
|
Lower generation and higher energy purchases driven by weaker hydrological conditions
|
(15
|
)
|
Expenses related to the construction in progress of a natural gas generation plant and a liquefied natural gas terminal
|
(9
|
)
|
Commencement of power barge operations at the end of March 2015
|
10
|
|
Other
|
2
|
|
Total Panama Decrease
|
(12
|
)
|
Puerto Rico
|
|
Lower availability
|
(7
|
)
|
Other
|
(1
|
)
|
Total Puerto Rico Decrease
|
(8
|
)
|
El Salvador
|
|
Lower energy sales margin
|
(10
|
)
|
Lower energy losses due to lower prices
|
5
|
|
Other
|
(1
|
)
|
Total El Salvador Decrease
|
(6
|
)
|
Dominican Republic
|
|
Lower fuel costs due to timing of cargoes
|
23
|
|
Lower gas sales to third parties due to lower demand
|
(12
|
)
|
Lower frequency regulation due to changes in regulations
|
(6
|
)
|
Other
|
(1
|
)
|
Total Dominican Republic Increase
|
4
|
|
Other business drivers
|
1
|
|
Total MCAC SBU Operating Margin Decrease
|
$
|
(38
|
)
|
Adjusted Operating Margin
decrease
d by
$31 million
due to the drivers above, adjusted for the impact of NCI and excluding unrealized gains and losses on derivatives. As of
June 30, 2016
, AES owns 90% of Changuinola and 49% of its other generation facilities in Panama, 90% of Andres and Los Mina (92% in 2015) and 45% of Itabo (46% in 2015) in the Dominican Republic, 99% of TEG/TEP and 55% of Merida in Mexico, and a weighted average of 77% of its businesses in El Salvador.
Adjusted PTC
decrease
d by
$33 million
, driven by the
decrease
of
$31 million
in Adjusted Operating Margin as described above.
Proportional Free Cash Flow
decrease
d by
$125 million
, primarily driven by the
$31 million
decrease
in Adjusted Operating Margin described above, $34 million from unfavorable timing of collections and lower sales in the Dominican Republic, $13 million of higher tax payments in the Dominican Republic primarily related to withholding taxes paid on distributions to AES affiliates, and $46 million of lower collections in Puerto Rico due to lower sales.
EUROPE SBU
The following table summarizes Operating Margin, Adjusted Operating Margin, Adjusted PTC, and Proportional Free Cash Flow (in millions) for our Europe SBU for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2016
|
|
2015
|
|
$ Change
|
|
% Change
|
|
2016
|
|
2015
|
|
$ Change
|
|
% Change
|
Operating Margin
|
$
|
47
|
|
|
$
|
64
|
|
|
$
|
(17
|
)
|
|
-27
|
%
|
|
$
|
130
|
|
|
$
|
167
|
|
|
$
|
(37
|
)
|
|
-22
|
%
|
Noncontrolling Interests Adjustment
|
(8
|
)
|
|
(6
|
)
|
|
|
|
|
|
(15
|
)
|
|
(14
|
)
|
|
|
|
|
Derivatives Adjustment
|
5
|
|
|
(1
|
)
|
|
|
|
|
|
5
|
|
|
1
|
|
|
|
|
|
Adjusted Operating Margin
|
$
|
44
|
|
|
$
|
57
|
|
|
$
|
(13
|
)
|
|
-23
|
%
|
|
$
|
120
|
|
|
$
|
154
|
|
|
$
|
(34
|
)
|
|
-22
|
%
|
Adjusted PTC
|
$
|
34
|
|
|
$
|
41
|
|
|
$
|
(7
|
)
|
|
-17
|
%
|
|
$
|
103
|
|
|
$
|
126
|
|
|
$
|
(23
|
)
|
|
-18
|
%
|
Proportional Free Cash Flow
|
$
|
343
|
|
|
$
|
35
|
|
|
$
|
308
|
|
|
NM
|
|
|
$
|
419
|
|
|
$
|
174
|
|
|
$
|
245
|
|
|
NM
|
|
Including
unfavorable
FX impacts of
$9 million
, Operating Margin for the three months ended
June 30, 2016
decrease
d by
$17 million
, or
27%
, which was driven primarily by the following (in millions):
|
|
|
|
|
Kazakhstan
|
|
FX impact
|
$
|
(10
|
)
|
Other
|
(4
|
)
|
Total Kazakhstan Decrease
|
(14
|
)
|
Ballylumford
|
|
Lower plant capacity resulting from the retirement of one generation facility
|
(4
|
)
|
Higher fixed costs
|
(2
|
)
|
Higher contracted revenues partially offset by lower regulated prices
|
3
|
|
Other
|
(3
|
)
|
Total Ballylumford Decrease
|
(6
|
)
|
Kilroot
|
|
Higher availability and plant dispatch due to lower planned outages
|
13
|
|
Lower depreciation due to impairment in prior year
|
5
|
|
Lower coal/gas spread, lower hedge income as well as unfavorable FX impact
|
(12
|
)
|
Total Kilroot Increase
|
6
|
|
Maritza
|
|
Lower contracted capacity prices due to PPA negotiation
|
(5
|
)
|
Other
|
1
|
|
Total Maritza Decrease
|
(4
|
)
|
Other business drivers
|
1
|
|
Total Europe SBU Operating Margin Decrease
|
$
|
(17
|
)
|
Adjusted Operating Margin
decrease
d by
$13 million
due to the drivers above, adjusted for NCI and excluding unrealized gains and losses on derivatives. As of
June 30, 2016
, AES owns 89% of Kavarna in Bulgaria, and 37% and 36% respectively, of the Amman East and IPP4 projects in Jordan.
Adjusted PTC
decrease
d by
$7 million
, driven by the
decrease
of
$13 million
in Adjusted Operating Margin described above,
partially offset by lower interest expense in Bulgaria due to less debt and a non-recurring provision in Kazakhstan in 2015.
Proportional Free Cash Flow
increase
d by
$308 million
, primarily driven by $306 million of increased collections at Maritza from NEK, net of payments to the fuel supplier (MMI), and lower capital expenditures in Kazakhstan and Ballylumford. These favorable increases were partially offset by the
$13 million
decrease
in Adjusted Operating Margin as described above.
Including
unfavorable
FX impacts of
$23 million
, Operating Margin for the
six months ended
June 30, 2016
decrease
d by
$37 million
, or
22%
, which was driven primarily by the following (in millions):
|
|
|
|
|
Kazakhstan
|
|
FX impact
|
$
|
(22
|
)
|
Other
|
(1
|
)
|
Total Kazakhstan Decrease
|
(23
|
)
|
Ballylumford
|
|
Lower plant capacity resulting from the retirement of one generation facility
|
(10
|
)
|
Higher contracted revenues partially offset by lower regulated prices
|
6
|
|
Other
|
(1
|
)
|
Total Ballylumford Decrease
|
(5
|
)
|
Jordan IPP4
|
|
Primarily lower plant dispatch
|
(5
|
)
|
Maritza
|
|
Lower contracted capacity prices due to PPA negotiation
|
(8
|
)
|
Lower fixed costs
|
4
|
|
Other
|
2
|
|
Total Maritza Decrease
|
(2
|
)
|
Other business drivers
|
(2
|
)
|
Total Europe SBU Operating Margin Decrease
|
$
|
(37
|
)
|
Adjusted Operating Margin
decrease
d by
$34 million
due to the drivers above, adjusted for NCI and excluding unrealized gains and losses on derivatives. As of
June 30, 2016
, AES owns 89% of Kavarna in Bulgaria, and 37% and 36% respectively, of the Amman East and IPP4 projects in Jordan.
Adjusted PTC
decrease
d by
$23 million
, driven by the
decrease
of
$34 million
in Adjusted Operating Margin described above,
partially offset by lower interest expense in Bulgaria due to less debt and a non-recurring provision in Kazakhstan in 2015.
Proportional Free Cash Flow
increase
d by
$245 million
, primarily driven by $293 million of increased collections at Maritza from NEK, net of payments to the fuel supplier (MMI). This favorable increase was partially offset by the
$34 million
decrease
in Adjusted Operating Margin as described above.
ASIA SBU
The following table summarizes Operating Margin, Adjusted Operating Margin, Adjusted PTC, and Proportional Free Cash Flow (in millions) for our Asia SBU for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2016
|
|
2015
|
|
$ Change
|
|
% Change
|
|
2016
|
|
2015
|
|
$ Change
|
|
% Change
|
Operating Margin
|
$
|
46
|
|
|
$
|
47
|
|
|
$
|
(1
|
)
|
|
-2
|
%
|
|
$
|
83
|
|
|
$
|
71
|
|
|
$
|
12
|
|
|
17
|
%
|
Noncontrolling Interests Adjustment
|
(25
|
)
|
|
(25
|
)
|
|
|
|
|
|
(44
|
)
|
|
(38
|
)
|
|
|
|
|
Adjusted Operating Margin
|
$
|
21
|
|
|
$
|
22
|
|
|
$
|
(1
|
)
|
|
-5
|
%
|
|
$
|
39
|
|
|
$
|
33
|
|
|
$
|
6
|
|
|
18
|
%
|
Adjusted PTC
|
$
|
26
|
|
|
$
|
30
|
|
|
$
|
(4
|
)
|
|
-13
|
%
|
|
$
|
48
|
|
|
$
|
42
|
|
|
$
|
6
|
|
|
14
|
%
|
Proportional Free Cash Flow
|
$
|
19
|
|
|
$
|
5
|
|
|
$
|
14
|
|
|
NM
|
|
|
$
|
62
|
|
|
$
|
9
|
|
|
$
|
53
|
|
|
NM
|
|
Operating Margin for the three months ended
June 30, 2016
decrease
d by
$1 million
, or
2%
, with no significant drivers.
Adjusted Operating Margin
decrease
d by
$1 million
due to Operating Margin adjusted for the impact of NCI. As of
June 30, 2016
, AES owns 51% of Masinloc, 90% of Kelanitissa (prior to sale in January 2016) and 51% of Mong Duong.
Adjusted PTC
decrease
d by
$4 million
, primarily driven by the
decrease
of
$1 million
in Adjusted Operating Margin described above as well as a net decrease of $3 million at Mong Duong due to higher interest expense, as interest is no longer capitalized partially offset by a component of service concession revenue recognized as interest income.
Proportional Free Cash Flow
increase
d by
$14 million
, primarily driven by a decrease of $28 million in working capital requirements at Muong Dong due to a buildup in the prior year in preparation for commencement of plant operations. This favorable increase was partially offset by higher interest expense of $13 million as interest is no longer capitalized as part of service concession asset expenditures, and the
$1 million
decrease
in Adjusted Operating Margin as described above.
Operating margin for the
six months ended
June 30, 2016
increase
d by
$12 million
, or
17%
, which was driven primarily by the following (in millions):
|
|
|
|
|
Mong Duong
|
|
Impact of full year operations for 2016 compared to commencement of principal operations in April 2015
|
$
|
11
|
|
Total Mong Duong Increase
|
11
|
|
Other business drivers
|
1
|
|
Total Asia SBU Operating Margin Increase
|
$
|
12
|
|
Adjusted Operating Margin
increase
d by
$6 million
due to the driver above adjusted for the impact of NCI. As of
June 30, 2016
, AES owns 51% of Masinloc, 90% of Kelanitissa (prior to sale in January 2016) and 51% of Mong Duong.
Adjusted PTC
increase
d by
$6 million
, primarily driven by the
increase
of
$6 million
in Adjusted Operating Margin described above.
Proportional Free Cash Flow
increase
d by
$53 million
, primarily driven by a decrease of $54 million in working capital requirements at Mong Duong due to a build up in the prior year in preparation for commencement of plant operations, and the
$6 million
increase
in Adjusted Operating Margin as described above.
Key Trends and Uncertainties
During the remainder of
2016
and beyond, we expect to face the following challenges at certain of our businesses. Management expects that improved operating performance at certain businesses, growth from new businesses and global cost reduction initiatives may lessen or offset their impact. If these favorable effects do not occur, or if the challenges described below and elsewhere in this section impact us more significantly than we currently anticipate, or if volatile foreign currencies and commodities move more unfavorably, then these adverse factors, a combination of factors, (or other adverse factors unknown to us) may have a material impact on our operating margin, net income attributable to The AES Corporation and cash flows. We continue to monitor our operations and address challenges as they arise.
Macroeconomic and Political
During the past few years, economic conditions in some countries where our subsidiaries conduct business have deteriorated. Global economic conditions remain volatile and could have an adverse impact on our businesses in the event these recent trends continue.
Brazil
— In Brazil, economic conditions remain unfavorable, as indicated by such factors as higher interest rates and inflation, increasing unemployment, and a negative GDP growth rate for 2015, which is expected to continue for the remainder of 2016 and recover in 2017. As a consequence, our distribution businesses have experienced a decline in demand. If these economic conditions persist or worsen, there could be a material impact on our businesses and AES’ results of operations, particularly in our distribution businesses in Brazil.
In addition, the political landscape in Brazil remains uncertain. President Dilma Rousseff’s impeachment proceedings are ongoing and Michel Temer, Vice President of Brazil, has been appointed as interim president until the impeachment trial is complete. Mr. Temer has committed to implement needed fiscal reforms, which has had a positive response in the market. As the interim government has only been in place for a few months, it is too early to determine the impact that these changes in the political landscape will have on our businesses.
In June 2016, AES announced the sale of the Company’s 100% ownership interest in AES Sul. The sale is due to a recent portfolio evaluation where it was determined that AES Sul is no longer aligned with the Company’s strategic goals and therefore its disposal is part of a strategic shift in the Brazil distribution sector. Upon completion of the sale in the second half of 2016, the Company expects to realize an after-tax loss on disposal of approximately
$700 million
, subject to foreign currency movements and adjustments to the final sale proceeds. The cumulative impact of the sale to earnings is expected to be approximately $1.1 billion. This includes the reclassification of approximately $1 billion of cumulative foreign currency translation losses, resulting in an expected net reduction to AES equity of approximately $100 million.
In addition, AES Sul has deferred tax assets (“DTA”) of $451 million as of June 30, 2016. These relate primarily to the impact of impairments on fixed assets as well as net operating loss carryforwards which are not subject to expiration. Realization is dependent on generating sufficient taxable income. Although realization is not assured, management believes it is more likely than not that all of the DTA will be realized. The amount of DTA that is considered realizable, however, could be reduced in the near term if estimates of future taxable income are reduced. The DTA is classified held-for-sale in the Condensed Consolidated Balance Sheet and its impact is reflected in the expected after-tax loss on completion of the sale.
United Kingdom
—
On
June 23, 2016, the United Kingdom (U.K.) held a referendum in which voters approved an exit from the European Union (“E.U.”), commonly referred to as “Brexit”. As a result of the referendum, it is expected that the British government will begin negotiating the terms of the U.K.’s future relationship with the E.U. Although it is unclear what the long-term global implications will be, it is possible that the European or U.K. economy could weaken and our businesses may experience a decline in demand. While the full impact of the Brexit is uncertain, these changes may adversely affect our operations and financial results. The most immediate impact has been a devaluation of the pound and euro against the US dollar. For 2016, the Company has hedged against these foreign currency movements, however, the impact could be greater in future years.
Bulgaria
- As of June 30, 2016, Maritza’s total outstanding receivables were $24 million, none of which were overdue. On April 26, 2016, Maritza received payments from NEK totaling $291 million pursuant to the previously disclosed PPA amendment executed in August 2015. In addition to this payment, NEK directly paid $57 million to MMI, a Maritza fuel supplier, for invoices due to MMI from Maritza. See additional background within our 2015 Form 10-K-Part I.-Item 1-
Business
-
Our Organization and Segments
-
Europe
-
Bulgaria
-
Regulatory Framework.
Puerto Rico
— Our subsidiaries in Puerto Rico have long term PPAs with state-owned PREPA. Due to the ongoing economic situation in the territory, PREPA faces significant financial challenges.
On June 28, 2014, the Puerto Rico Public Corporation Debt Enforcement and Recovery Act (the “Recovery Act”) was signed into law, which allows public corporations, including PREPA, to adjust their debts. As a result of this event, on July 6, 2014, PREPA entered into a Forbearance Agreement with its lenders in order to permit an opportunity for negotiation of a possible financial restructuring of PREPA. In February 2015, the negotiating position of PREPA was weakened when the federal court deemed the Recovery Act unconstitutional. The Supreme Court upheld the federal court’s opinion on June 13, 2016. Despite this setback, PREPA managed to extend the expiration of the Forbearance Agreement several times, achieving in December 2015 certain preliminary restructuring agreements, called Restructuring Support Agreements (“RSAs”). Under these agreements, bondholders would take a reduction in principal after exchanging their bonds for new securities that would be backed by a special charge on clients’ bills. For its part, the utility would receive five-year debt-service relief, while freeing up cash to modernize its power plants.
On June 28, 2016, PREPA authorized the issuance of the restructuring bonds, based on the approval of the Puerto Rico Energy Commission of a transition charge and adjustment mechanism that PREPA had proposed to pay for the utility’s securitized debt. PREPA is expecting to complete this new bond issuance by December 31
st
,
2016. As a result of the impending restructuring, Fitch has downgraded PREPA´s bonds to “C”, from “CC”, causing the downgrade of AES Puerto Rico, as PREPA is our only off taker.
On June 30, 2016, the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) was signed into law. PROMESA creates a structure for exercising federal oversight over the fiscal affairs of U.S. territories and allows for the establishment an Oversight Board with broad powers of budgetary and financial control over Puerto Rico. PROMESA also creates procedures for adjusting debts accumulated by the Puerto Rico government and, potentially, other territories. Finally, PROMESA expedites the approval of key energy projects and other critical projects in Puerto Rico. The impact PROMESA will have on PREPAs contracts and PPA is uncertain.
Other than the downgrade of AES Puerto Rico discussed above, there have been no adverse impacts to AES Puerto Rico due to PREPA’s financial challenges. AES Puerto Rico’s receivables balance as of
June 30, 2016
, is
$91 million
, of which $28 million was overdue. Subsequent to June 30, 2016, the full overdue amount has been collected. If the situation declines, there could be a material impact on the Company.
Macroeconomic and Political
—
Summary
If global economic conditions deteriorate further, it could also affect the prices we receive for the electricity we generate or transmit. Utility regulators or parties to our generation contracts may seek to lower our prices based on prevailing market conditions pursuant to PPAs, concession agreements or other contracts as they come up for renewal or reset. In addition, rising fuel and other costs coupled with contractual price or tariff decreases could restrict our ability to operate profitably in a given market. Additionally, we operate in multiple countries and as such are subject to volatility in exchange rates at the subsidiary level and between our functional currency, the U.S. Dollar, and currencies of the countries in which we operate. The above mentioned market drivers have already impacted us significantly in 2016 and we expect them to continue to do so during the remainder of the year. See Item 3.—Q
uantitative and Qualitative Disclosures About Market Risk
for further information
.
Each of these factors, as well as those discussed above, could result in a decline in the value of our assets including those at the businesses we operate, our equity investments and projects under development could result in asset impairments that could be material to our operations. We continue to monitor our projects and businesses.
Regulatory
In March 2016, the IURC issued an order authorizing IPL to increase its basic rates and charges by approximately $31 million annually. The order also authorized IPL to collect, over a ten-year period, approximately $118 million of previously deferred regulatory assets related to IPL’s participation in the regional transmission organization known as MISO. Such deferred costs will be amortized to expense over ten years. The rate order also authorized an increase in IPL’s depreciation rates of $24 million annually compared to the twelve months ended June 30, 2014, which is the period upon which the rate increase was calculated. IPL also received approval to implement three new rate riders for current recovery of ongoing MISO costs, capacity costs and sharing of wholesale sales margins with customers at 50%. The order approved recovery of IPL’s pension expenses and return on IPL’s discretionary pension fundings. As part of the order, the IURC also noted that they found IPL’s service company cost allocations to be reasonable and directed IPL to request FERC to review its Service Company allocations. The IURC also closed their investigation into IPL’s underground network. Some of the intervening parties in the IURC rate case have filed petitions for reconsideration of the IURC's March 2016 order with respect to certain issues. The IURC has not yet acted on those petitions. In addition, the Indiana Office of Utility Consumer Counselor and some other intervening parties have filed notices of appeal of the order.
In June 2016, the Supreme Court of Ohio issued an opinion to repeal the current electric security plan (“ESP”)of DPL which had been approved by the Public Utilities Commission of Ohio (“PUCO”) in September 2013 and was in effect for the years 2014-2016 (“ESP 2”). ESP 2, among other matters, permitted DPL to collect a non-bypassable service stability rider (“SSR”) equal to approximately $9 million per month for each of those years. In the opinion, the court briefly stated, without expanding upon the basis, that the PUCO’s approval of ESP 2 was reversed on the authority of one of the court’s prior rulings in a separate case not involving DPL. In view of that reversal, on July 27, 2016, DPL filed a motion to withdraw its ESP 2 and implement rates consistent with those in effect under its June 2009 ESP (ESP 1). If PUCO approves DPL’s request, the ESP 1 rates will be in place temporarily until the rates consistent with the outcome of DPL’s pending ESP filed in February 2016 (“ESP 3”) become effective. The impact of reverting to the ESP 1 rates, if implemented, is expected to be neutral during this interim period.
DPL’s $445 million 1.875% Bonds are due September 15, 2016. DPL intends to refinance these bonds prior to maturity with newly issued debt. If the terms of the regulatory outcome as discussed above are not favorably resolved, this could have a significant adverse impact on the DPL results of operations, financial condition, cash
flows, credit ratings and ability to refinance this debt with favorable terms. It could also impact the earnings of AES in the periods in which the SSR is lost or reduced. However, since DPL and its subsidiaries do not pay dividends to AES, there would be no material impact on AES dividends from subsidiaries.
Operational
Sensitivity to Hydrological Conditions
— Our hydroelectric generation facilities are sensitive to changes in the weather, particularly the level of water inflows into generation facilities. At times, dry hydrological conditions in Panama, Brazil, Colombia and Chile have presented challenges for our businesses in these markets. While these dry conditions are expected to continue to abate over the course of 2016, there still remains a risk that low rainfall and water inflows could reduce reservoir levels, generation output, and increase prices for electricity. Alternatively, wet conditions could also have an adverse impact by depressing spot prices for excess energy sales for generation businesses. For distribution businesses, wet conditions could result in lowered demand as well as floods and other damage which could disrupt service and require emergency repairs. Future hydrology conditions are always uncertain, but currently the Company does not expect a material impact due to hydrology in 2016.
Foreign Exchange and Commodities
Our businesses are exposed to and proactively manage market risk. Our primary market risk exposure is to the price of commodities, particularly electricity, oil, natural gas, coal, and environmental credits. In 2015, large declines in commodities and appreciation in the USD had a significant impact on our results. During the six months ended June 30, 2016, commodities and FX have remained volatile; continued volatility in these markets could have a material impact on our full year 2016 results. For additional information, refer to Item 3.—
Quantitative and Qualitative Disclosures About Market Risk
.
Impairments
Long-lived Assets
—
During the
six months ended
June 30, 2016
, the Company recognized an asset impairment expense of
$159 million
(
$49 million
attributable to AES) at Buffalo Gap II. See Note
13
—
Asset Impairment Expense
included in Item 1.—
Financial Statements
of this Form 10-Q for further information. After recognizing this asset impairment expense at Buffalo Gap II, the carrying value of the long-lived asset groups at Buffalo Gap I, II, and III totaled
$325 million
at
June 30, 2016
.
During the
six months ended
June 30, 2016
, the Company recognized an asset impairment expense of
$235 million
at DPL. See Note
13
—
Asset Impairment Expense
included in Item 1.—
Financial Statements
of this Form 10-Q for further information. After recognizing this asset impairment expense at DPL, the carrying value of the long-lived asset groups at DPL, including those that were not impaired, totaled
$1,047 million
at
June 30, 2016
.
Events or changes in circumstances that may necessitate further recoverability tests and potential impairments of long-lived assets may include, but are not limited to, adverse changes in the regulatory environment, unfavorable changes in power prices or fuel costs, increased competition due to additional capacity in the grid, technological advancements, declining trends in demand, or an expectation that it is more likely than not that the asset will be disposed of before the end of its previously estimated useful life.
Environmental
The Company is subject to numerous environmental laws and regulations in the jurisdictions in which it operates. The Company expenses environmental regulation compliance costs as incurred unless the underlying expenditure qualifies for capitalization under its property, plant and equipment policies. The Company faces certain risks and uncertainties related to these environmental laws and regulations, including existing and potential GHG legislation or regulations, and actual or potential laws and regulations pertaining to water discharges, waste management (including disposal of coal combustion byproducts) and certain air emissions, such as SO
2
, NO
x
, particulate matter and mercury. Such risks and uncertainties could result in increased capital expenditures or other compliance costs which could have a material adverse effect on certain of our U.S. or international subsidiaries and our consolidated results of operations. For further information about these risks, see Item 1A.—
Risk Factors—Our businesses are subject to stringent environmental laws and regulations; Our businesses are subject to enforcement initiatives from environmental regulatory agencies; and Regulators, politicians, non-governmental organizations and other private parties have expressed concern about greenhouse gas, or GHG, emissions and the potential risks associated with climate change and are taking actions which could have a material adverse impact on our consolidated results of operations, financial condition and cash flows
included in the 2015 Form 10-K. The following discussion of the impact of environmental laws and regulations on the Company updates the discussion provided in Item 1.—
Business—Environmental and Land Use Regulations
of the 2015 Form 10-K.
Update on National Ambient Air Quality Standards
— As discussed in
Item 1.
—
Business
—
United States Environmental and Land
—
Use Regulations-National Ambient Air Quality Standards (“NAAQS”)
in the Company’s 2015 Form 10-K, on August 23, 2010, a new one-hour SO
2
primary NAAQS became effective. On August 5, 2013, EPA published in the Federal Register its final designations, which include portions of Marion, Morgan, and Pike counties in Indiana as nonattainment with respect to the one-hour SO
2
standard. On September 30, 2015, IDEM published its final rule establishing reduced SO
2
limits for IPL facilities in accordance with a new one-hour standard of 75 parts per billion, for the areas in which IPL’s Harding Street, Petersburg, and Eagle Valley Generating Stations operate with compliance required by January 1, 2017. There will be no impact for Eagle Valley or Harding Street Generating Stations because these facilities have ceased coal combustion in advance of the compliance date. Improvements to the existing flue gas desulphurization (“FGD”) systems at Petersburg will be required in order to comply. IPL estimates costs for compliance at Petersburg at approximately $48 million for measures that enhance the performance and integrity of the FGDs systems. On May 31, 2016, IPL filed its SO
2
NAAQS compliance plans with the IURC. IPL is seeking approval for a CPCN for these measures at its Petersburg Generating Station. IPL expects to recover through its environmental rate adjustment mechanism any operating or capital expenditures related to compliance with these requirements. Recovery of these costs is sought through an Indiana statute that allows for 80% recovery of qualifying costs through a rate adjustment mechanism, with the remainder recorded as a regulatory asset to be considered for recovery in the next base rate case proceeding. However, there can be no assurances that IPL will be successful in that regard. In light of the uncertainties at this time, we cannot predict the impact of these permit requirements on our consolidated results of operations, cash flows, or financial condition, but it may be material.
Update on Waste Management
—
As discussed in Item 1.—
Business
—
United States Environmental and Land Use Regulations
—
Waste Management Regulation
in the Company's 2015 Form 10-K, the EPA’s rule regulating CCR under the Resource Conservation and Recovery Act became effective in October 2015. The rule established nationally applicable minimum criteria for the disposal of CCR in new and currently operating landfills and surface impoundments, and may impose closure and/or corrective action requirements for existing CCR landfills and impoundments under certain specified conditions. IPL does not reasonably anticipate that the existing ash ponds at its Petersburg Generating Station will be able to successfully demonstrate compliance with certain structural stability requirements set forth in the CCR rule by the October 17, 2016 deadline. As such, IPL would be required to cease use of the ash ponds by April 17, 2017. However, the Indiana Department of Environmental Management (“IDEM”) has granted IPL a variance extending that deadline to April 11, 2018. In order to handle the bottom ash material that would otherwise be sluiced to the ash ponds, IPL plans to install a dry bottom ash handling system at an estimated cost of approximately $47 million. On May 31, 2016, IPL filed its CCR compliance plans with the Indiana Utility Regulatory Commission (“IURC”). IPL is seeking approval for a Certificate of Public Convenience and Necessity (“CPCN”) to install the bottom ash dewatering system at its Petersburg Generating Station. IPL expects to recover through its environmental rate adjustment mechanism any operating or capital expenditures related to compliance with these requirements. Recovery of these costs is sought through an Indiana status that allows for 80% recovery of qualifying costs through a rate adjustment mechanism with the remainder recorded as a regulator asset to be considered for recovery in the next base rate case proceeding. However, there can be no assurances that IPL will be successful in that regard. In light of the uncertainties at this time, we cannot predict the impact of these permit requirements on our consolidated results of operations, cash flows, or financial condition, but it may be material.
Capital Resources and Liquidity
Overview
—
As of
June 30, 2016
, the Company had unrestricted cash and cash equivalents of
$1.3 billion
, of which
$30 million
was held at the Parent Company and qualified holding companies. The Company had
$544 million
in short-term investments, held primarily at subsidiaries. In addition, we had restricted cash and debt service reserves of
$950 million
. The Company also had non-recourse and recourse aggregate principal amounts of debt outstanding of
$15.9 billion
and
$4.9 billion
, respectively. Of the approximately
$1.6 billion
of our current non-recourse debt,
$1.5 billion
was presented as such because it is due in the next 12 months and
$138 million
relates to debt considered in default due to covenant violations. The defaults are not payment defaults, but are instead technical defaults triggered by failure to comply with other covenants and/or conditions such as (but not limited to) failure to meet information covenants, complete construction or milestones in an allocated time, and meet minimum or maximum financial ratios, or other requirements contained in the non-recourse debt documents of the Company.
We expect such current maturities will be repaid from net cash provided by operating activities of the subsidiary to which the debt relates, through opportunistic refinancing activity, or some combination thereof.
None
of our recourse debt matures within the next twelve months. From time to time, we may elect to repurchase our outstanding debt through cash purchases, privately negotiated transactions or otherwise when management
believes that such securities are attractively priced. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements and other factors. The amounts involved in any such repurchases may be material.
We rely mainly on long-term debt obligations to fund our construction activities. We have, to the extent available at acceptable terms, utilized non-recourse debt to fund a significant portion of the capital expenditures and investments required to construct and acquire our electric power plants, distribution companies and related assets. Our non-recourse financing is designed to limit cross-default risk to the Parent Company or other subsidiaries and affiliates. Our non-recourse long-term debt is a combination of fixed and variable interest rate instruments. Generally, a portion or all of the variable rate debt is fixed through the use of interest rate swaps. In addition, the debt is typically denominated in the currency that matches the currency of the revenue expected to be generated from the benefiting project, thereby reducing currency risk. In certain cases, the currency is matched through the use of derivative instruments. The majority of our non-recourse debt is funded by international commercial banks, with debt capacity supplemented by multilaterals and local regional banks.
Given our long-term debt obligations, the Company is subject to interest rate risk on debt balances that accrue interest at variable rates. When possible, the Company will borrow funds at fixed interest rates or hedge its variable rate debt to fix its interest costs on such obligations. In addition, the Company has historically tried to maintain at least 70% of its consolidated long-term obligations at fixed interest rates, including fixing the interest rate through the use of interest rate swaps. These efforts apply to the notional amount of the swaps compared to the amount of related underlying debt. Presently, the Parent Company’s only material unhedged exposure to variable interest rate debt relates to indebtedness under its floating rate senior unsecured notes due 2019. On a consolidated basis, of the Company’s
$15.9 billion
of total non-recourse debt outstanding as of
June 30, 2016
, approximately
$3.6 billion
bore interest at variable rates that were not subject to a derivative instrument which fixed the interest rate.
In addition to utilizing non-recourse debt at a subsidiary level when available, the Parent Company provides a portion, or in certain instances all, of the remaining long-term financing or credit required to fund development, construction or acquisition of a particular project. These investments have generally taken the form of equity investments or intercompany loans, which are subordinated to the project’s non-recourse loans. We generally obtain the funds for these investments from our cash flows from operations, proceeds from the sales of assets and/or the proceeds from our issuances of debt, common stock and other securities. Similarly, in certain of our businesses, the Parent Company may provide financial guarantees or other credit support for the benefit of counterparties who have entered into contracts for the purchase or sale of electricity, equipment or other services with our subsidiaries or lenders. In such circumstances, if a business defaults on its payment or supply obligation, the Parent Company will be responsible for the business’ obligations up to the amount provided for in the relevant guarantee or other credit support. At
June 30, 2016
, the Parent Company had provided outstanding financial and performance-related guarantees, indemnities or other credit support commitments to or for the benefit of our businesses, which were limited by the terms of the agreements, of approximately
$443 million
in aggregate (excluding those collateralized by letters of credit and other obligations discussed below). These amounts exclude 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.
As a result of the Parent Company’s below-investment-grade rating, counterparties may be unwilling to accept our general unsecured commitments to provide credit support. Accordingly, with respect to both new and existing commitments, the Parent Company may be required to provide some other form of assurance, such as a letter of credit, to backstop or replace our credit support. The Parent Company may not be able to provide adequate assurances to such counterparties. To the extent we are required and able to provide letters of credit or other collateral to such counterparties, this will reduce the amount of credit available to us to meet our other liquidity needs. At
June 30, 2016
, we had
$7 million
in letters of credit outstanding, provided under our senior secured credit facility,
$75 million
in letters of credit outstanding under unsecured credit facilities and
$2 million
in cash collateralized letters of credit outstanding outside of our senior secured credit facility. These letters of credit operate to guarantee performance relating to certain project development activities, construction activities and subsidiary operations. During the quarter ended
June 30, 2016
, the Company paid letter of credit fees ranging from
0.2%
to
2.5%
per annum on the outstanding amounts.
We expect to continue to seek, where possible, non-recourse debt financing in connection with the assets or businesses that we or our affiliates may develop, construct or acquire. However, depending on local and global market conditions and the unique characteristics of individual businesses, non-recourse debt may not be available on economically attractive terms or at all. If we decide not to provide any additional funding or credit support to a subsidiary project that is under construction or has near-term debt payment obligations and that subsidiary is unable to obtain additional non-recourse debt, such subsidiary may become insolvent, and we may lose our
investment in that subsidiary. Additionally, if any of our subsidiaries lose a significant customer, the subsidiary may need to withdraw from a project or restructure the non-recourse debt financing. If we or the subsidiary choose not to proceed with a project or are unable to successfully complete a restructuring of the non-recourse debt, we may lose our investment in that subsidiary.
Many of our subsidiaries depend on timely and continued access to capital markets to manage their liquidity needs. The inability to raise capital on favorable terms, to refinance existing indebtedness or to fund operations and other commitments during times of political or economic uncertainty may have material adverse effects on the financial condition and results of operations of those subsidiaries. In addition, changes in the timing of tariff increases or delays in the regulatory determinations under the relevant concessions could affect the cash flows and results of operations of our businesses.
Long-Term Receivables
— As of
June 30, 2016
, the Company had approximately
$248 million
and
$29 million
of accounts receivable classified as
Noncurrent assets—other
and
Current assets—Accounts receivable
, respectively, related to certain of its generation businesses in Argentina and the United States, and its utility business in Brazil. The noncurrent portion primarily consists of accounts receivable in Argentina that, pursuant to amended agreements or government resolutions, have collection periods that extend beyond
June 30,
2017
, or one year from the latest balance sheet date. The majority of Argentinian receivables have been converted into long-term financing for the construction of power plants. See Note
5
—Financing Receivables
included in Part I—Item 1.—
Financial Statements
of this Form 10-Q and Item 1.—
Business—Regulatory Matters—Argentina
included in our
2015
Form 10-K for further information.
Consolidated Cash Flows
The following table reflects the changes in operating, investing, and financing cash flows for the comparative
three and six
month periods (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
Cash flows provided by (used in):
|
|
2016
|
|
2015
|
|
$ Change
|
|
2016
|
|
2015
|
|
$ Change
|
Operating activities
|
|
$
|
723
|
|
|
$
|
153
|
|
|
$
|
570
|
|
|
$
|
1,363
|
|
|
$
|
590
|
|
|
$
|
773
|
|
Investing activities
|
|
(778
|
)
|
|
(350
|
)
|
|
(428
|
)
|
|
(1,326
|
)
|
|
(1,070
|
)
|
|
(256
|
)
|
Financing activities
|
|
137
|
|
|
(124
|
)
|
|
261
|
|
|
(43
|
)
|
|
(11
|
)
|
|
(32
|
)
|
Operating Activities
The following table summarizes the key components of our consolidated operating cash flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(in millions)
|
|
2016
|
|
2015
|
|
$ Change
|
|
2016
|
|
2015
|
|
$ Change
|
Net Income
|
|
$
|
(387
|
)
|
|
$
|
264
|
|
|
$
|
(651
|
)
|
|
$
|
(313
|
)
|
|
$
|
518
|
|
|
$
|
(831
|
)
|
Depreciation and amortization
|
|
296
|
|
|
299
|
|
|
(3
|
)
|
|
586
|
|
|
597
|
|
|
(11
|
)
|
Impairment expenses
|
|
1,018
|
|
|
37
|
|
|
981
|
|
|
1,179
|
|
|
45
|
|
|
1,134
|
|
(Gain) loss on the extinguishment of debt
|
|
—
|
|
|
122
|
|
|
(122
|
)
|
|
(4
|
)
|
|
145
|
|
|
(149
|
)
|
Other adjustments to net income
|
|
(339
|
)
|
|
(101
|
)
|
|
(238
|
)
|
|
(359
|
)
|
|
(35
|
)
|
|
(324
|
)
|
Non-cash adjustments to net income
|
|
975
|
|
|
357
|
|
|
618
|
|
|
1,402
|
|
|
752
|
|
|
650
|
|
Net income, adjusted for non-cash items
|
|
$
|
588
|
|
|
$
|
621
|
|
|
$
|
(33
|
)
|
|
$
|
1,089
|
|
|
$
|
1,270
|
|
|
$
|
(181
|
)
|
Net change in operating assets and liabilities
(1)
|
|
$
|
135
|
|
|
$
|
(468
|
)
|
|
$
|
603
|
|
|
$
|
274
|
|
|
$
|
(680
|
)
|
|
$
|
954
|
|
Net Cash Provided by Operating Activities
(2)
|
|
$
|
723
|
|
|
$
|
153
|
|
|
$
|
570
|
|
|
$
|
1,363
|
|
|
$
|
590
|
|
|
$
|
773
|
|
(1)
Refer to the table below for explanations of the variance in operating assets and liabilities.
(2)
Amounts included in the table above include the results of discontinued operations, where applicable.
The variance of
$603 million
in changes in operating assets and liabilities for the
three months ended June 30, 2016
compared to the
three months ended June 30, 2015
was driven by:
|
|
|
|
|
|
(In millions)
|
Decreases in:
|
|
Accounts receivable, primarily at Maritza
|
$
|
436
|
|
Prepaid expenses and other current assets, primarily regulatory assets at Eletropaulo
|
135
|
|
Other assets, primarily long-term regulatory assets at Eletropaulo
|
374
|
|
Accounts payable and other current liabilities, primarily at Eletropaulo
|
(391
|
)
|
Other operating assets and liabilities
|
49
|
|
Total increase in cash from changes in operating assets and liabilities
|
$
|
603
|
|
The variance of
$954 million
in changes in operating assets and liabilities for the
six months ended June 30, 2016
compared to the
six months ended June 30, 2015
was driven by:
|
|
|
|
|
|
(In millions)
|
Decreases in:
|
|
Accounts receivable, primarily at Maritza and Eletropaulo
|
$
|
810
|
|
Prepaid expenses and other current assets, primarily regulatory assets at Eletropaulo and Sul
|
341
|
|
Other assets, primarily long-term regulatory assets at Eletropaulo
|
643
|
|
Accounts payable and other current liabilities, primarily at Eletropaulo and Sul
|
(736
|
)
|
Income taxes payable, net and other taxes payable, primarily at Tietê and Chivor
|
(124
|
)
|
Other operating assets and liabilities
|
20
|
|
Total increase in cash from changes in operating assets and liabilities
|
$
|
954
|
|
Investing Activities
Net cash used in investing activities increased by
$428 million
for the
three months ended June 30, 2016
, compared to the
three months ended June 30, 2015
, which was primarily driven by:
|
|
|
|
|
Increases in:
|
(In millions)
|
Capital expenditures
(1)
|
$
|
(66
|
)
|
Proceeds from the sales of businesses, net of cash sold (primarily related to the sale of Cameroon)
|
38
|
|
Restricted cash, debt service and other assets
|
(262
|
)
|
Decrease in:
|
|
Net sales of short-term investments
|
(107
|
)
|
Other investing activities
|
(31
|
)
|
Total increase in net cash used in investing activities
|
$
|
(428
|
)
|
|
|
(1)
|
Refer to the tables below for a breakout of capital expenditures by type and by primary business driver.
|
Net cash used in investing activities increased
$256 million
for the
six months ended June 30, 2016
, compared to the
six months ended June 30, 2015
, which was primarily driven by:
|
|
|
|
|
Increases in:
|
(In millions)
|
Capital expenditures
(1)
|
$
|
(87
|
)
|
Proceeds from the sales of businesses, net of cash sold (primarily related to the sales of DPLER, Cameroon, Kelanitissa and Jordan)
|
153
|
|
Net purchases of short-term investments
|
(234
|
)
|
Restricted cash, debt service and other assets
|
(91
|
)
|
Other investing activities
|
3
|
|
Total increase in net cash used in investing activities
|
$
|
(256
|
)
|
|
|
(1)
|
Refer to the tables below for a breakout of capital expenditures by type and by primary business driver.
|
Capital Expenditures
The following table summarizes the Company's capital expenditures for growth investments, maintenance, and environmental reported in investing cash activities for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(In millions)
|
|
2016
|
|
2015
|
|
$ Change
|
|
2016
|
|
2015
|
|
$ Change
|
Growth Investments
|
|
$
|
(395
|
)
|
|
$
|
(316
|
)
|
|
$
|
(79
|
)
|
|
$
|
(787
|
)
|
|
$
|
(742
|
)
|
|
$
|
(45
|
)
|
Maintenance
|
|
(156
|
)
|
|
(157
|
)
|
|
1
|
|
|
(317
|
)
|
|
(304
|
)
|
|
(13
|
)
|
Environmental
(1)
|
|
(64
|
)
|
|
(76
|
)
|
|
12
|
|
|
(151
|
)
|
|
(122
|
)
|
|
(29
|
)
|
Total capital expenditures
|
|
$
|
(615
|
)
|
|
$
|
(549
|
)
|
|
$
|
(66
|
)
|
|
$
|
(1,255
|
)
|
|
$
|
(1,168
|
)
|
|
$
|
(87
|
)
|
|
|
(1)
|
Includes both recoverable and non-recoverable environmental capital expenditures. See Non-GAAP Proportional Free Cash Flow for more information.
|
Cash used for capital expenditures
increased
by
$66 million
for the
three months ended June 30, 2016
, compared to the
three months ended June 30, 2015
, which was primarily driven by:
|
|
|
|
|
Increases in:
|
(In millions)
|
Growth expenditures at IPALCO, due to additional spending related to CCGT and Transmission & Distribution projects
|
$
|
(28
|
)
|
Growth expenditures at Atlantico, due to the timing of construction activities related to the Colon project
|
(43
|
)
|
Growth expenditures at Los Mina, due to the timing of construction activities related to Combined Cycle project at DPP
|
(17
|
)
|
Other capital expenditures
|
(18
|
)
|
Decreases in:
|
|
Growth expenditures at Gener, due to lower spending related to Andes Solar and the Cochrane unit 1 project, partially offset by a higher spending at Alto Maipo
|
25
|
|
Maintenance and environmental expenditures at IPALCO, primarily due to lower spending on the MATS compliance project
|
15
|
|
Total increase in net cash used for capital expenditures
|
$
|
(66
|
)
|
Cash used for capital expenditures
increased
by
$87 million
for the
six months ended June 30, 2016
, compared to the
six months ended June 30, 2015
, which was primarily driven by:
|
|
|
|
|
Increases in:
|
(In millions)
|
Growth expenditures at IPALCO, due to additional spending related to CCGT and Transmission & Distribution projects
|
$
|
(110
|
)
|
Growth expenditures at Atlantico, due to the timing of construction activities related to the Colon project
|
(74
|
)
|
Growth expenditures at Los Mina, due to the timing of construction activities related to Combined Cycle project at DPP
|
(35
|
)
|
Growth expenditures at Masinloc, due to construction of a coal fired plant and investments in battery energy storage
|
(29
|
)
|
Maintenance and environmental expenditures at IPALCO, due to additional spending related to the NPDES, Harding Street refueling and CCR compliance projects, partially offset by a decrease in MATS spending
|
(23
|
)
|
Other capital expenditures
|
(15
|
)
|
Decreases in:
|
|
Growth expenditures at Gener, due to lower spending related to Andes Solar and the Cochrane unit 1 project, partially offset by a higher payment at Alto Maipo
|
199
|
|
Total increase in net cash used for capital expenditures
|
$
|
(87
|
)
|
Financing Activities
Net cash provided by financing activities increased
$261 million
for the
three months ended June 30, 2016
, compared to the
three months ended June 30, 2015
, which was primarily driven by:
|
|
|
|
|
|
(In millions)
|
Increase in borrowing under the revolving credit facilities, primarily at the Parent Company of $138
|
$
|
156
|
|
Increase in repayment under the revolving credit facilities, primarily at the Parent Company of $158 and IPALCO of $153
|
(268
|
)
|
Increase in distributions to noncontrolling interests, primarily at Tietê of $99, partially offset by decrease at Brasiliana Participações of $15 and Itabo $9
|
(64
|
)
|
Decrease in non-recourse debt repayment, primarily at Sul of $320, IPALCO of $292 and Panama of $275, partially offset by an increase in repayment, primarily at Gener of $227, Andres of $180, and Maritza of $71
(1)
|
382
|
|
Decrease in proceeds from the sale of redeemable stock of subsidiaries at IPALCO
|
(214
|
)
|
Decrease in purchases of treasury stock by the Parent Company
|
272
|
|
Other financing activities
|
(3
|
)
|
Total increase in net cash provided by financing activities
|
$
|
261
|
|
|
|
(1)
|
See Note
7
—
Debt
in Item 1—
Financial Statements
of this Form 10-Q for more information regarding significant non-recourse debt transactions.
|
Net cash used in financing activities increased
$32 million
for the
six months ended June 30, 2016
, compared to the
six months ended June 30, 2015
, which was primarily driven by:
|
|
|
|
|
|
(In millions)
|
Increase in borrowing under the revolving credit facilities, primarily at the Parent Company of $238 and IPALCO of $91
|
$
|
303
|
|
Increase in repayment under the revolving credit facilities, primarily at IPALCO of $221 and the Parent Company of $178
|
(322
|
)
|
Increase in distributions to noncontrolling interests, primarily at Tietê of $99 and Brasiliana Participações of $22
|
(123
|
)
|
Increase in payments for financing fees, primarily at Andres of $8 and the Parent Company of $6
|
(15
|
)
|
Decrease in proceeds from the sale of redeemable stock of subsidiaries at IPALCO
|
(327
|
)
|
Decrease in net repayments of recourse debt at the Parent Company
(1)
|
229
|
|
Decrease in purchases of treasury stock by the Parent Company
|
228
|
|
Other financing activities
|
(5
|
)
|
Total increase in net cash used in financing activities
|
$
|
(32
|
)
|
|
|
(1)
|
See Note
7
—
Debt
in Item 1—
Financial Statements
of this Form 10-Q for more information regarding significant recourse debt transactions.
|
Reconciliation of Proportional Free Cash Flow (a non-GAAP measure)
We define Proportional Free Cash Flow as cash flows from operating activities (adjusted for service concession asset capital expenditures), less maintenance capital expenditures (including non-recoverable environmental capital expenditures and net of reinsurance proceeds), adjusted for the estimated impact of NCI. The proportionate share of cash flows and related adjustments attributable to NCI in our subsidiaries comprise the proportional adjustment factor presented in the reconciliation below. Upon the Company’s adoption of the accounting guidance for service concession arrangements effective January 1, 2015, capital expenditures related to service concession assets that would have been classified as investing activities on the Condensed Consolidated Statement of Cash Flows are now classified as operating activities. See Note 1
—Financial Statement Presentation
included in Item 1.—
Financial Statements
of this Form 10-Q for further information on the adoption of this guidance.
Beginning in the quarter ended March 31, 2015, the Company changed the definition of Proportional Free Cash Flow to exclude the cash flows for capital expenditures related to service concession assets that are now classified within net cash provided by operating activities on the Condensed Consolidated Statement of Cash Flows. The proportional adjustment factor for these capital expenditures is presented in the reconciliation below.
We exclude environmental capital expenditures that are expected to be recovered through regulatory, contractual or other mechanisms. An example of recoverable environmental capital expenditures is IPALCO’s
investment in MATS-related environmental upgrades that are recovered through a tracker. See Item 1.
—Business—US SBU—IPALCO—Environmental Matters
included in our 2015 Form 10-K for details of these investments.
The GAAP measure most comparable to proportional free cash flow is cash flows from operating activities. We believe that proportional free cash flow better reflects the underlying business performance of the Company, as it measures the cash generated by the business, after the funding of maintenance capital expenditures, that may be available for investing or repaying debt or other purposes. Factors in this determination include the impact of NCI, where AES consolidates the results of a subsidiary that is not wholly owned by the Company.
The presentation of free cash flow has material limitations. Proportional free cash flow should not be construed as an alternative to cash from operating activities, which is determined in accordance with GAAP. Proportional free cash flow does not represent our cash flow available for discretionary payments because it excludes certain payments that are required or to which we have committed, such as debt service requirements and dividend payments. Our definition of proportional free cash flow may not be comparable to similarly titled measures presented by other companies.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
Calculation of Proportional Free Cash Flow
|
|
2016
|
|
2015
|
|
$ Change
|
|
2016
|
|
2015
|
|
$ Change
|
Net Cash provided by operating activities
|
|
$
|
723
|
|
|
153
|
|
|
$
|
570
|
|
|
$
|
1,363
|
|
|
$
|
590
|
|
|
$
|
773
|
|
Add: capital expenditures related to service concession assets
(1)
|
|
2
|
|
|
51
|
|
|
(49
|
)
|
|
26
|
|
|
71
|
|
|
(45
|
)
|
Adjusted Operating Cash Flow
|
|
$
|
725
|
|
|
$
|
204
|
|
|
$
|
521
|
|
|
$
|
1,389
|
|
|
$
|
661
|
|
|
$
|
728
|
|
Less: proportional adjustment factor on operating cash activities
(2) (3)
|
|
(185
|
)
|
|
(13
|
)
|
|
(172
|
)
|
|
(474
|
)
|
|
(85
|
)
|
|
(389
|
)
|
Proportional Adjusted Operating Cash Flow
|
|
$
|
540
|
|
|
$
|
191
|
|
|
$
|
349
|
|
|
$
|
915
|
|
|
$
|
576
|
|
|
$
|
339
|
|
Less: proportional maintenance capital expenditures, net of reinsurance proceeds
(2)
|
|
(114
|
)
|
|
(117
|
)
|
|
3
|
|
|
(226
|
)
|
|
(230
|
)
|
|
4
|
|
Less: proportional non-recoverable environmental capital expenditures
(2) (4)
|
|
(9
|
)
|
|
(12
|
)
|
|
3
|
|
|
(19
|
)
|
|
(19
|
)
|
|
—
|
|
Proportional Free Cash Flow
|
|
$
|
417
|
|
|
$
|
62
|
|
|
$
|
355
|
|
|
$
|
670
|
|
|
$
|
327
|
|
|
$
|
343
|
|
____________________________
|
|
(1)
|
Service concession asset expenditures excluded from proportional free cash flow non-GAAP metric.
|
|
|
(2)
|
The proportional adjustment factor, proportional maintenance capital expenditures (net of reinsurance proceeds) and proportional non-recoverable environmental capital expenditures are calculated by multiplying the percentage owned by noncontrolling interests for each entity by its corresponding consolidated cash flow metric and are totaled to the resulting figures. For example, Parent Company A owns 80% of Subsidiary Company B, a consolidated subsidiary. Thus, Subsidiary Company B has a 20% noncontrolling interest. Assuming a consolidated net cash flow from operating activities of $100 from Subsidiary B, the proportional adjustment factor for Subsidiary B would equal ($20), or $100 x (20%). The Company calculates the proportional adjustment factor for each consolidated business in this manner and then sums these amounts to determine the total proportional adjustment factor used in the reconciliation. The proportional adjustment factor may differ from the proportion of income attributable to noncontrolling interests as a result of (a) non-cash items which impact income but not cash and (b) AES' ownership interest in the subsidiary where such items occur.
|
|
|
(3)
|
Includes proportional adjustment amount for service concession asset expenditures of
$1 million
and
$26 million
for the three months ended June 30, 2016
and
2015
, as well as,
$13 million
and
$36 million
for the
six months ended
June 30, 2016
and
2015
, respectively.
|
|
|
(4)
|
Excludes IPALCO's proportional recoverable environmental capital expenditures of
$38 million
and
$47 million
for the three months ended June 30, 2016
and
2015
, as well as,
$94 million
and
$86 million
for the
six months ended June 30, 2016
and
2015
, respectively.
|
Operating Cash Flow and Proportional Free Cash Flow Analysis
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Cash Flow by Segment
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(in millions)
|
|
2016
|
|
2015
|
|
$ Change
|
|
2016
|
|
2015
|
|
$ Change
|
US
|
|
$
|
193
|
|
|
$
|
166
|
|
|
$
|
27
|
|
|
$
|
400
|
|
|
$
|
378
|
|
|
$
|
22
|
|
Andes
|
|
105
|
|
|
(4
|
)
|
|
109
|
|
|
143
|
|
|
56
|
|
|
87
|
|
Brazil
|
|
168
|
|
|
(6
|
)
|
|
174
|
|
|
409
|
|
|
(37
|
)
|
|
446
|
|
MCAC
|
|
21
|
|
|
36
|
|
|
(15
|
)
|
|
60
|
|
|
198
|
|
|
(138
|
)
|
Europe
|
|
363
|
|
|
59
|
|
|
304
|
|
|
455
|
|
|
212
|
|
|
243
|
|
Asia
|
|
31
|
|
|
(40
|
)
|
|
71
|
|
|
103
|
|
|
(42
|
)
|
|
145
|
|
Corporate
|
|
(158
|
)
|
|
(58
|
)
|
|
(100
|
)
|
|
(207
|
)
|
|
(175
|
)
|
|
(32
|
)
|
Total
|
|
$
|
723
|
|
|
$
|
153
|
|
|
$
|
570
|
|
|
$
|
1,363
|
|
|
$
|
590
|
|
|
$
|
773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proportional Free Cash Flow by Segment
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(in millions)
|
|
2016
|
|
2015
|
|
$ Change
|
|
2016
|
|
2015
|
|
$ Change
|
US
|
|
$
|
117
|
|
|
$
|
104
|
|
|
$
|
13
|
|
|
$
|
250
|
|
|
$
|
259
|
|
|
$
|
(9
|
)
|
Andes
|
|
56
|
|
|
(20
|
)
|
|
76
|
|
|
60
|
|
|
(3
|
)
|
|
63
|
|
Brazil
|
|
48
|
|
|
(20
|
)
|
|
68
|
|
|
82
|
|
|
(67
|
)
|
|
149
|
|
MCAC
|
|
(6
|
)
|
|
18
|
|
|
(24
|
)
|
|
7
|
|
|
132
|
|
|
(125
|
)
|
Europe
|
|
343
|
|
|
35
|
|
|
308
|
|
|
419
|
|
|
174
|
|
|
245
|
|
Asia
|
|
19
|
|
|
5
|
|
|
14
|
|
|
62
|
|
|
9
|
|
|
53
|
|
Corporate
|
|
(160
|
)
|
|
(60
|
)
|
|
(100
|
)
|
|
(210
|
)
|
|
(177
|
)
|
|
(33
|
)
|
Total
|
|
$
|
417
|
|
|
$
|
62
|
|
|
$
|
355
|
|
|
$
|
670
|
|
|
$
|
327
|
|
|
$
|
343
|
|
____________________________
|
|
(1)
|
Operating cash flow and proportional free cash flow as presented above include the effects of intercompany transactions with other segments except for interest, tax sharing, charges for management fees and transfer pricing.
|
US SBU
The following table summarizes Operating Cash Flow and Proportional Free Cash Flow for our US SBU for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
Calculation of Proportional Free Cash Flow
|
|
2016
|
|
2015
|
|
$ Change
|
|
2016
|
|
2015
|
|
$ Change
|
Net Cash Provided by Operating Activities
|
|
$
|
193
|
|
|
$
|
166
|
|
|
$
|
27
|
|
|
$
|
400
|
|
|
$
|
378
|
|
|
$
|
22
|
|
Less: proportional adjustment factor on operating cash activities
|
|
(18
|
)
|
|
(4
|
)
|
|
(14
|
)
|
|
(37
|
)
|
|
(7
|
)
|
|
(30
|
)
|
Proportional Adjusted Operating Cash Flow
|
|
175
|
|
|
162
|
|
|
13
|
|
|
363
|
|
|
371
|
|
|
(8
|
)
|
Less: proportional maintenance capital expenditures, net of reinsurance proceeds
|
|
(57
|
)
|
|
(58
|
)
|
|
1
|
|
|
(111
|
)
|
|
(111
|
)
|
|
—
|
|
Less: proportional non-recoverable environmental capital expenditures
(1)
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
|
(2
|
)
|
|
(1
|
)
|
|
(1
|
)
|
Proportional Free Cash Flow
|
|
$
|
117
|
|
|
$
|
104
|
|
|
$
|
13
|
|
|
$
|
250
|
|
|
$
|
259
|
|
|
$
|
(9
|
)
|
____________________________
|
|
(1)
|
Excludes IPALCO's proportional recoverable environmental capital expenditures of
$38 million
and
$47 million
for the three months ended June 30, 2016
and
2015
, as well as,
$94 million
and
$86 million
for the
six months ended June 30, 2016
and
2015
, respectively.
|
Three months ended June 30, 2016
:
The
increase
in Operating Cash Flow of
$27 million
was driven primarily by the following:
|
|
|
|
|
|
US SBU
|
|
(In millions)
|
DPL
|
|
|
Lower operating margin
|
|
$
|
(15
|
)
|
Timing of receivable settlement related to sale of MC2 in previous year
|
|
(16
|
)
|
Timing of payments, primarily for O&M and purchased power
|
|
(7
|
)
|
Timing of coal purchases
|
|
(5
|
)
|
Decreased storm collections
|
|
(6
|
)
|
Other
|
|
(7
|
)
|
Total DPL Decrease
|
|
(56
|
)
|
IPL
|
|
|
Lower coal inventory purchases due to the ongoing conversion to natural gas and higher inventory levels at December 2015 due to mild Winter weather
|
|
30
|
|
Higher operating margin
|
|
28
|
|
Lower interest payments due to the timing of interest payments and lower rates on new bonds issued in 2016
|
|
24
|
|
Higher receivables due to higher rates as a result of the new rate order
|
|
(24
|
)
|
Other
|
|
10
|
|
Total IPL Increase
|
|
68
|
|
Southland
|
|
|
Timing of annual property insurance premium payments to Corporate
|
|
10
|
|
Other
|
|
3
|
|
Total Southland Increase
|
|
13
|
|
Other business drivers
|
|
2
|
|
Total US SBU Operating Cash Increase
|
|
$
|
27
|
|
Proportional Free Cash Flow
increased
by
$13 million
primarily due to the drivers above, adjusted for the impact of noncontrolling interests and reflective of an increase in the proportional adjustment factor as a result of the additional sell-down of IPL in 2016.
Six months ended June 30, 2016
:
The
increase
in Operating Cash Flow of
$22 million
was driven primarily by the following:
|
|
|
|
|
|
US SBU
|
|
(In millions)
|
DPL
|
|
|
Lower operating margin
|
|
$
|
(58
|
)
|
Net impact of receivable settlements related to the sale of DPLER in the current year and MC2 in the previous year
|
|
17
|
|
Lower coal inventory purchases
|
|
9
|
|
Other
|
|
(8
|
)
|
Total DPL Decrease
|
|
(40
|
)
|
IPL
|
|
|
Lower coal inventory purchases due to the ongoing conversion to natural gas and higher inventory levels at December 2015 due to mild Winter weather
|
|
38
|
|
Higher operating margin
|
|
22
|
|
Lower interest payments due to the timing of interest payments and lower rates on new bonds issued in 2016
|
|
16
|
|
Decreased contribution to defined benefit plans
|
|
9
|
|
Higher receivables due to higher rates as a result of the new rate order
|
|
(28
|
)
|
Other
|
|
4
|
|
Total IPL Increase
|
|
61
|
|
Other business drivers
|
|
1
|
|
Total US SBU Operating Cash Increase
|
|
$
|
22
|
|
Proportional Free Cash Flow
decreased
by
$9 million
primarily due to the drivers above, adjusted for the impact of noncontrolling interests and reflective of an increase in the proportional adjustment factor as a result of the additional sell-down of IPL in 2016.
ANDES SBU
The following table summarizes Operating Cash Flow and Proportional Free Cash Flow for our Andes SBU for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
Calculation of Proportional Free Cash Flow
|
|
2016
|
|
2015
|
|
$ Change
|
|
2016
|
|
2015
|
|
$ Change
|
Net Cash Provided by Operating Activities
|
|
$
|
105
|
|
|
$
|
(4
|
)
|
|
$
|
109
|
|
|
$
|
143
|
|
|
$
|
56
|
|
|
$
|
87
|
|
Less: proportional adjustment factor on operating cash activities
|
|
(27
|
)
|
|
6
|
|
|
(33
|
)
|
|
(47
|
)
|
|
(11
|
)
|
|
(36
|
)
|
Proportional Adjusted Operating Cash Flow
|
|
78
|
|
|
2
|
|
|
76
|
|
|
96
|
|
|
45
|
|
|
51
|
|
Less: proportional maintenance capital expenditures, net of reinsurance proceeds
|
|
(21
|
)
|
|
(12
|
)
|
|
(9
|
)
|
|
(32
|
)
|
|
(32
|
)
|
|
—
|
|
Less: proportional non-recoverable environmental capital expenditures
|
|
(1
|
)
|
|
(10
|
)
|
|
9
|
|
|
(4
|
)
|
|
(16
|
)
|
|
12
|
|
Proportional Free Cash Flow
|
|
$
|
56
|
|
|
$
|
(20
|
)
|
|
$
|
76
|
|
|
$
|
60
|
|
|
$
|
(3
|
)
|
|
$
|
63
|
|
Three months ended June 30, 2016
:
The
increase
in Operating Cash Flow of
$109 million
was driven primarily by the following:
|
|
|
|
|
|
Andes SBU
|
|
(In millions)
|
Gener
|
|
|
Higher operating margin
|
|
$
|
46
|
|
Higher income tax and VAT refunds
|
|
18
|
|
Lower interest payments as a result of a change in debt repayment schedule
|
|
13
|
|
Other
|
|
6
|
|
Total Gener Increase
|
|
83
|
|
Argentina
|
|
|
Increased collections as a result of tariff increases and collections from prior periods
|
|
27
|
|
Lower fuel purchases
|
|
12
|
|
Lower income tax payments
|
|
8
|
|
Lower operating margin
|
|
(15
|
)
|
Other
|
|
1
|
|
Total Argentina Increase
|
|
33
|
|
Colombia
|
|
|
Lower payment advances for energy purchases to Market Administrator
|
|
12
|
|
Higher income tax payments
|
|
(25
|
)
|
Lower operating margin
|
|
(10
|
)
|
Other
|
|
16
|
|
Total Colombia Decrease
|
|
(7
|
)
|
Total Andes SBU Operating Cash Increase
|
|
$
|
109
|
|
Proportional Free Cash Flow
increased
by
$76 million
primarily due to the drivers above, adjusted for the impact of noncontrolling interests.
Six months ended June 30, 2016
:
The
increase
in Operating Cash Flow of
$87 million
was driven primarily by the following:
|
|
|
|
|
|
Andes SBU
|
|
(In millions)
|
Gener
|
|
|
Higher operating margin
|
|
$
|
58
|
|
Lower interest payments as a result of a change in debt repayment schedule
|
|
11
|
|
Lower fuel purchases
|
|
29
|
|
Higher withholding taxes paid on dividend distributions to AES affiliates
|
|
(27
|
)
|
Other
|
|
(4
|
)
|
Total Gener Increase
|
|
67
|
|
Argentina
|
|
|
Lower operating margin
|
|
(17
|
)
|
Higher insurance payments
|
|
(10
|
)
|
Increased collections as a result of tariff increases and collections from prior periods
|
|
12
|
|
Lower fuel purchases
|
|
25
|
|
Other
|
|
11
|
|
Total Argentina Increase
|
|
21
|
|
Colombia
|
|
|
Higher collections from prior periods
|
|
40
|
|
Higher income tax payments
|
|
(28
|
)
|
Lower operating margin
|
|
(28
|
)
|
Other
|
|
15
|
|
Total Colombia Decrease
|
|
(1
|
)
|
Total Andes SBU Operating Cash Increase
|
|
$
|
87
|
|
Proportional Free Cash Flow
increased
$63 million
primarily due to the drivers above, adjusted for the impact of noncontrolling interests, as well as a
$12 million
net
decrease
in proportional maintenance and non-recoverable environmental capital expenditures primarily from lower payments for emissions reduction equipment at the Tocopilla and Ventanas Plants.
BRAZIL SBU
The following table summarizes Operating Cash Flow and Proportional Free Cash Flow for our Brazil SBU for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
Calculation of Proportional Free Cash Flow
|
|
2016
|
|
2015
|
|
$ Change
|
|
2016
|
|
2015
|
|
$ Change
|
Net Cash Provided by Operating Activities
|
|
$
|
168
|
|
|
$
|
(6
|
)
|
|
$
|
174
|
|
|
$
|
409
|
|
|
$
|
(37
|
)
|
|
$
|
446
|
|
Less: proportional adjustment factor on operating cash activities
|
|
(101
|
)
|
|
(1
|
)
|
|
(100
|
)
|
|
(291
|
)
|
|
(1
|
)
|
|
(290
|
)
|
Proportional Adjusted Operating Cash Flow
|
|
67
|
|
|
(7
|
)
|
|
74
|
|
|
118
|
|
|
(38
|
)
|
|
156
|
|
Less: proportional maintenance capital expenditures, net of reinsurance proceeds
|
|
(19
|
)
|
|
(13
|
)
|
|
(6
|
)
|
|
(36
|
)
|
|
(29
|
)
|
|
(7
|
)
|
Proportional Free Cash Flow
|
|
$
|
48
|
|
|
$
|
(20
|
)
|
|
$
|
68
|
|
|
$
|
82
|
|
|
$
|
(67
|
)
|
|
$
|
149
|
|
Three months ended June 30, 2016
:
The
increase
in Operating Cash Flow of
$174 million
was driven primarily by the following:
|
|
|
|
|
|
Brazil SBU
|
|
(In millions)
|
Sul
|
|
|
Timing of collections on net regulatory assets and liabilities (net recovery of costs from prior periods)
|
|
$
|
41
|
|
Timing of collections on energy sales in the current year
|
|
40
|
|
Higher operating margin due to higher tariff in current year
|
|
16
|
|
Lower interest payments due to the restructuring of Sul’s debt in March 2016
|
|
13
|
|
Timing of payments for energy purchases in the current year
|
|
(45
|
)
|
Other
|
|
(2
|
)
|
Total Sul Increase
|
|
63
|
|
Eletropaulo
|
|
|
Timing of payments on energy purchases in the current year
|
|
(185
|
)
|
Timing of payments related to regulatory charges and tariff flags due to improved hydrology in 2016
|
|
(92
|
)
|
Lower operating margin, net of the $97 non-cash impact of the reversal of a contingent regulatory liability in 2015
|
|
(21
|
)
|
Timing of collections on net regulatory assets and liabilities (net recovery of costs from prior periods)
|
|
341
|
|
Timing of collections on higher tariffs in the current year
|
|
106
|
|
Other
|
|
12
|
|
Total Eletropaulo Increase
|
|
161
|
|
Tietê
|
|
|
Timing of payments for energy purchases in the spot market in the prior year
|
|
(21
|
)
|
Higher interest payments due to higher debt and interest rates
|
|
(7
|
)
|
Other
|
|
(7
|
)
|
Total Tietê Decrease
|
|
(35
|
)
|
Other business drivers
|
|
(15
|
)
|
Total Brazil SBU Operating Cash Increase
|
|
$
|
174
|
|
Proportional Free Cash Flow
increased
by
$68 million
primarily due to the drivers above, adjusted for the impact of noncontrolling interests.
Six months ended June 30, 2016
:
The
increase
in Operating Cash Flow of
$446 million
was driven primarily by the following:
|
|
|
|
|
|
Brazil SBU
|
|
(In millions)
|
Sul
|
|
|
Timing of collections on net regulatory assets and liabilities (net recovery of costs from prior periods)
|
|
$
|
167
|
|
Timing of collections on energy sales in the current year
|
|
62
|
|
Lower interest payments due to the restructuring of Sul’s debt in March 2016
|
|
16
|
|
Higher operating margin due to higher tariff in current year
|
|
11
|
|
Timing of payments for energy purchases in the current year
|
|
(122
|
)
|
Timing of payments for regulatory charges due to improved hydrology
|
|
(29
|
)
|
Other
|
|
(1
|
)
|
Total Sul Increase
|
|
104
|
|
Eletropaulo
|
|
|
Timing of collections on net regulatory assets and liabilities (net recovery of costs from prior periods)
|
|
694
|
|
Timing on collections of higher tariffs in the current year
|
|
227
|
|
Timing of payments related to regulatory charges and tariff flags due to improved hydrology in 2016
|
|
(361
|
)
|
Timing of payments on energy purchases in the current year
|
|
(125
|
)
|
Lower operating margin, net of the $97 non-cash impact of the reversal of a contingent regulatory liability in 2015
|
|
(58
|
)
|
Other
|
|
(36
|
)
|
Total Eletropaulo Increase
|
|
341
|
|
Tietê
|
|
|
Lower margin due lower contracted pricing of energy sales
|
|
(106
|
)
|
Lower energy purchases in spot market in the current year as result of favorable hydrology
|
|
110
|
|
Other
|
|
13
|
|
Total Tietê Increase
|
|
17
|
|
Other business drivers
|
|
(16
|
)
|
Total Brazil SBU Operating Cash Increase
|
|
$
|
446
|
|
Proportional Free Cash Flow
increased
by
$149 million
primarily due to the drivers above, adjusted for the impact of noncontrolling interests.
MCAC SBU
The following table summarizes Operating Cash Flow and Proportional Free Cash Flow for our MCAC SBU for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
Calculation of Proportional Free Cash Flow
|
|
2016
|
|
2015
|
|
$ Change
|
|
2016
|
|
2015
|
|
$ Change
|
Net Cash Provided by Operating Activities
|
|
$
|
21
|
|
|
$
|
36
|
|
|
$
|
(15
|
)
|
|
$
|
60
|
|
|
$
|
198
|
|
|
$
|
(138
|
)
|
Less: proportional adjustment factor on operating cash activities
|
|
(12
|
)
|
|
1
|
|
|
(13
|
)
|
|
(18
|
)
|
|
(32
|
)
|
|
14
|
|
Proportional Adjusted Operating Cash Flow
|
|
9
|
|
|
37
|
|
|
(28
|
)
|
|
42
|
|
|
166
|
|
|
(124
|
)
|
Less: proportional maintenance capital expenditures, net of reinsurance proceeds
|
|
(13
|
)
|
|
(18
|
)
|
|
5
|
|
|
(33
|
)
|
|
(33
|
)
|
|
—
|
|
Less: proportional non-recoverable environmental capital expenditures
|
|
(2
|
)
|
|
(1
|
)
|
|
(1
|
)
|
|
(2
|
)
|
|
(1
|
)
|
|
(1
|
)
|
Proportional Free Cash Flow
|
|
$
|
(6
|
)
|
|
$
|
18
|
|
|
$
|
(24
|
)
|
|
$
|
7
|
|
|
$
|
132
|
|
|
$
|
(125
|
)
|
Three months ended June 30, 2016
:
The
decrease
in Operating Cash Flow of
$15 million
was driven primarily by the following:
|
|
|
|
|
|
MCAC SBU
|
|
(In millions)
|
Puerto Rico
|
|
|
Lower collections from the off-taker primarily due to lower sales from Q1 2016
|
|
$
|
(21
|
)
|
Timing of coal payments
|
|
(15
|
)
|
Total Puerto Rico Decrease
|
|
(36
|
)
|
El Salvador
|
|
|
Higher income tax payment as a result of higher taxable income in 2015 vs. 2014
|
|
(18
|
)
|
Other
|
|
(1
|
)
|
Total El Salvador Decrease
|
|
(19
|
)
|
Dominican Republic
|
|
|
Lower income tax payment due to timing of tax return filings
|
|
19
|
|
Lower LNG Payments in current year due to lower purchase volumes and lower prices
|
|
12
|
|
Other
|
|
6
|
|
Total Dominican Republic Increase
|
|
37
|
|
Other business drivers
|
|
3
|
|
Total MCAC Operating Cash Decrease
|
|
$
|
(15
|
)
|
Proportional Free Cash Flow
decreased
by
$24 million
primarily due to the drivers above, adjusted for the impact of noncontrolling interests.
Six months ended June 30, 2016
:
The
decrease
in Operating Cash Flow of
$138 million
was driven primarily by the following:
|
|
|
|
|
|
MCAC SBU
|
|
(In millions)
|
Puerto Rico
|
|
|
Lower collections from the off-taker primarily due to lower sales from Q4 2015
|
|
$
|
(46
|
)
|
Other
|
|
(6
|
)
|
Total Puerto Rico Decrease
|
|
(52
|
)
|
Dominican Republic
|
|
|
Lower collections from distribution companies due primarily to lower sales
|
|
(41
|
)
|
Total Dominican Republic Decrease
|
|
(41
|
)
|
El Salvador
|
|
|
Higher income tax payment as a result of higher taxable income in 2015 vs. 2014
|
|
(17
|
)
|
Other
|
|
(7
|
)
|
Total El Salvador Decrease
|
|
(24
|
)
|
Mexico
|
|
|
Lower operating margin
|
|
(17
|
)
|
Other
|
|
(2
|
)
|
Total Mexico Decrease
|
|
(19
|
)
|
Other business drivers
|
|
(2
|
)
|
Total MCAC Operating Cash Decrease
|
|
$
|
(138
|
)
|
Proportional Free Cash Flow
decreased
by
$125 million
primarily due to the drivers above, adjusted for the impact of noncontrolling interests.
EUROPE SBU
The following table summarizes Operating Cash Flow and Proportional Free Cash Flow for our Europe SBU for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
Calculation of Proportional Free Cash Flow
|
|
2016
|
|
2015
|
|
$ Change
|
|
2016
|
|
2015
|
|
$ Change
|
Net Cash Provided by Operating Activities
|
|
$
|
363
|
|
|
$
|
59
|
|
|
$
|
304
|
|
|
$
|
455
|
|
|
$
|
212
|
|
|
$
|
243
|
|
Less: proportional adjustment factor on operating cash activities
|
|
(10
|
)
|
|
(10
|
)
|
|
—
|
|
|
(16
|
)
|
|
(17
|
)
|
|
1
|
|
Proportional Adjusted Operating Cash Flow
|
|
353
|
|
|
49
|
|
|
304
|
|
|
439
|
|
|
195
|
|
|
244
|
|
Less: proportional maintenance capital expenditures, net of reinsurance proceeds
|
|
(5
|
)
|
|
(13
|
)
|
|
8
|
|
|
(9
|
)
|
|
(20
|
)
|
|
11
|
|
Less: proportional non-recoverable environmental capital expenditures
|
|
(5
|
)
|
|
(1
|
)
|
|
(4
|
)
|
|
(11
|
)
|
|
(1
|
)
|
|
(10
|
)
|
Proportional Free Cash Flow
|
|
$
|
343
|
|
|
$
|
35
|
|
|
$
|
308
|
|
|
$
|
419
|
|
|
$
|
174
|
|
|
$
|
245
|
|
Three months ended June 30, 2016
:
The
increase
in Operating Cash Flow of
$304 million
was driven primarily by the following:
|
|
|
|
|
|
Europe SBU
|
|
(In millions)
|
Maritza
|
|
|
Increase in collections from NEK (off-taker)
|
|
$
|
378
|
|
Higher payments to fuel suppliers
|
|
(72
|
)
|
Other
|
|
2
|
|
Total Maritza Increase
|
|
308
|
|
Other business drivers
|
|
(4
|
)
|
Total Europe SBU Operating Cash Increase
|
|
$
|
304
|
|
Proportional Free Cash Flow
increased
by
$308 million
primarily due to the drivers above, adjusted for the impact of noncontrolling interests.
Six months ended June 30, 2016
:
The
increase
in Operating Cash Flow of
$243 million
was driven primarily by the following:
|
|
|
|
|
|
Europe SBU
|
|
(In millions)
|
Maritza
|
|
|
Increase in collections from NEK (the off-taker)
|
|
$
|
388
|
|
Higher payments to fuel suppliers
|
|
(95
|
)
|
Other
|
|
(6
|
)
|
Total Maritza Increase
|
|
287
|
|
Kazakhstan
|
|
|
Lower operating margin
|
|
(23
|
)
|
Other
|
|
2
|
|
Total Altai Decrease
|
|
(21
|
)
|
Ballylumford
|
|
|
Increase in income tax payments
|
|
(7
|
)
|
Lower operating margin
|
|
(5
|
)
|
Other
|
|
(4
|
)
|
Total Ballylumford Decrease
|
|
(16
|
)
|
Other business drivers
|
|
(7
|
)
|
Total Europe SBU Operating Cash Increase
|
|
$
|
243
|
|
Proportional Free Cash Flow
increased
$245 million
primarily due to the drivers above, adjusted for the impact of noncontrolling interests.
ASIA SBU
The following table summarizes Operating Cash Flow and Proportional Free Cash Flow for our Asia SBU for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
Calculation of Proportional Free Cash Flow
|
|
2016
|
|
2015
|
|
$ Change
|
|
2016
|
|
2015
|
|
$ Change
|
Net Cash Provided by Operating Activities
|
|
$
|
31
|
|
|
$
|
(40
|
)
|
|
$
|
71
|
|
|
$
|
103
|
|
|
$
|
(42
|
)
|
|
$
|
145
|
|
Add: capital expenditures related to service concession assets
(1)
|
|
2
|
|
|
51
|
|
|
(49
|
)
|
|
26
|
|
|
71
|
|
|
(45
|
)
|
Adjusted Operating Cash Flow
|
|
33
|
|
|
11
|
|
|
22
|
|
|
129
|
|
|
29
|
|
|
100
|
|
Less: proportional adjustment factor on operating cash activities
(2)
|
|
(17
|
)
|
|
(5
|
)
|
|
(12
|
)
|
|
(65
|
)
|
|
(17
|
)
|
|
(48
|
)
|
Proportional Adjusted Operating Cash Flow
|
|
16
|
|
|
6
|
|
|
10
|
|
|
64
|
|
|
12
|
|
|
52
|
|
Less: proportional maintenance capital expenditures, net of reinsurance proceeds
|
|
3
|
|
|
(1
|
)
|
|
4
|
|
|
(2
|
)
|
|
(3
|
)
|
|
1
|
|
Proportional Free Cash Flow
|
|
$
|
19
|
|
|
$
|
5
|
|
|
$
|
14
|
|
|
$
|
62
|
|
|
$
|
9
|
|
|
$
|
53
|
|
(1)
Service concession asset expenditures are included in operating cash flows but are excluded from the calculation of proportional free cash flows.
(2)
Includes proportional adjustment for service concession asset expenditures of
$1 million
and
$26 million
for the three months ended June 30,
2016
and 2015, as well as,
$13 million
and
$36 million
for the six months ended June 30, 2016 and
2015
, respectively.
Three months ended June 30, 2016
:
The
increase
in Operating Cash Flow of
$71 million
was driven primarily by the following:
|
|
|
|
|
|
Asia SBU
|
|
(In millions)
|
Mong Duong
|
|
|
Decrease in working capital requirements as the plant was fully operational in 2016
|
|
$
|
55
|
|
Reduction in service concession asset expenditures, net of previously capitalized interest payments
|
|
23
|
|
Other
|
|
1
|
|
Total Mong Duong Increase
|
|
79
|
|
Other business drivers
|
|
(8
|
)
|
Total Asia SBU Operating Cash Increase
|
|
$
|
71
|
|
Proportional Free Cash Flow
increased
by
$14 million
primarily due to the drivers above, adjusted for the impact of noncontrolling interests and exclusive of the
$49 million
favorable decrease in service concession asset expenditures, which are excluded from the calculation of proportional free cash flows.
Six months ended June 30, 2016
:
The
increase
in Operating Cash Flow of
$145 million
was driven primarily by the following:
|
|
|
|
|
|
Asia SBU
|
|
(In millions)
|
Mong Duong
|
|
|
Decrease in working capital requirements as the plant was fully operational in 2016
|
|
$
|
105
|
|
Higher interest income as a result of the financing component under service concession accounting
|
|
26
|
|
Reduction in service concession asset expenditures, net of previously capitalized interest payments
|
|
19
|
|
Other
|
|
(5
|
)
|
Total Asia SBU Operating Cash Increase
|
|
$
|
145
|
|
Proportional Free Cash Flow
increased
by
$53 million
primarily due to the drivers above, adjusted for the impact of noncontrolling interests and exclusive of the
$45 million
favorable decrease in service concession asset expenditures, which are excluded from the calculation of proportional free cash flows.
CORPORATE AND OTHER
The following table summarizes Operating Cash Flow and Proportional Free Cash Flow for our Corporate and Other operations for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
Calculation of Proportional Free Cash Flow
|
|
2016
|
|
2015
|
|
$ Change
|
|
2016
|
|
2015
|
|
$ Change
|
Net Cash Used by Operating Activities
|
|
$
|
(158
|
)
|
|
$
|
(58
|
)
|
|
$
|
(100
|
)
|
|
$
|
(207
|
)
|
|
$
|
(175
|
)
|
|
$
|
(32
|
)
|
Proportional Adjusted Operating Cash Flow
|
|
(158
|
)
|
|
(58
|
)
|
|
(100
|
)
|
|
(207
|
)
|
|
(175
|
)
|
|
(32
|
)
|
Less: proportional maintenance capital expenditures, net of reinsurance proceeds
|
|
(2
|
)
|
|
(2
|
)
|
|
—
|
|
|
(3
|
)
|
|
(2
|
)
|
|
(1
|
)
|
Proportional Free Cash Flow
|
|
$
|
(160
|
)
|
|
$
|
(60
|
)
|
|
$
|
(100
|
)
|
|
$
|
(210
|
)
|
|
$
|
(177
|
)
|
|
$
|
(33
|
)
|
Three months ended June 30, 2016
:
The
decrease
in Operating Cash Flow of
$100 million
was driven primarily by the following:
|
|
|
|
|
|
Corporate
|
|
(In millions)
|
Timing of annual property insurance premiums received from SBUs due to change in policy year to a calendar year basis
|
|
$
|
(21
|
)
|
Timing of payments for reinsurance costs
|
|
(17
|
)
|
Decrease in cash from higher premiums and net settlements of FX derivatives
|
|
(17
|
)
|
Higher payments for people-related costs, primarily due to inflation
|
|
(10
|
)
|
Other
|
|
(35
|
)
|
Total Corporate and Other Operating Cash Decrease
|
|
$
|
(100
|
)
|
Proportional Free Cash Flow
decreased
by
$100 million
primarily due to the drivers above.
Six months ended June 30, 2016
:
The
decrease
in Operating Cash Flow of
$32 million
was driven primarily by the following:
|
|
|
|
|
|
Corporate
|
|
(In millions)
|
Timing of annual property insurance premiums received from SBUs
|
|
$
|
59
|
|
Lower interest payments due principal repayments on debt
|
|
14
|
|
Decrease in cash from higher premiums and net settlements of FX derivatives
|
|
(29
|
)
|
Timing of net settlements on intercompany payables and receivables with SBUs
|
|
(26
|
)
|
Timing of payments for reinsurance costs
|
|
(17
|
)
|
Higher payments for people-related costs, primarily due to inflation and severance
|
|
(14
|
)
|
Other
|
|
(19
|
)
|
Total Corporate and Other Operating Cash Decrease
|
|
$
|
(32
|
)
|
Proportional Free Cash Flow
decreased
by
$33 million
primarily due to the drivers above.
Parent Company Liquidity
The following discussion is included as a useful measure of the liquidity available to The AES Corporation, or the Parent Company, given the non-recourse nature of most of our indebtedness. Parent Company Liquidity as outlined below is a non-GAAP measure and should not be construed as an alternative to
cash and cash equivalents
which are determined in accordance with GAAP as a measure of liquidity, and are disclosed in the Condensed Consolidated Statements of Cash Flows. Parent Company Liquidity may differ from similarly titled measures used by other companies.
The principal sources of liquidity at the Parent Company level are dividends and other distributions from our subsidiaries, including refinancing proceeds; proceeds from debt and equity financings at the Parent Company level, including availability under our credit facility; and proceeds from asset sales.
Cash requirements at the Parent Company level are primarily (1) to fund interest; (2) principal repayments of debt; (3) acquisitions; (4) construction commitments; (5) other equity commitments; (6) common stock repurchases and dividends; (7) taxes; and (8) Parent Company overhead and development costs.
The Company defines Parent Company Liquidity as cash available to the Parent Company plus available borrowings under existing credit facility. The cash held at qualified holding companies represents cash sent to subsidiaries of the Company domiciled outside of the U.S. Such subsidiaries have no contractual restrictions on their ability to send cash to the Parent Company. Parent Company Liquidity is reconciled to its most directly comparable GAAP financial measure,
cash and cash equivalents
, at the periods indicated as follows (in millions):
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
December 31, 2015
|
Consolidated cash and cash equivalents
|
$
|
1,265
|
|
|
$
|
1,257
|
|
Less: Cash and cash equivalents at subsidiaries
|
(1,235
|
)
|
|
(857
|
)
|
Parent and qualified holding companies’ cash and cash equivalents
|
30
|
|
|
400
|
|
Commitments under Parent credit facilities
|
800
|
|
|
800
|
|
Less: Letters of credit under the credit facilities
|
(7
|
)
|
|
(62
|
)
|
Less: Borrowings under the credit facilities
|
(60
|
)
|
|
—
|
|
Borrowings available under Parent credit facilities
|
733
|
|
|
738
|
|
Total Parent Company Liquidity
|
$
|
763
|
|
|
$
|
1,138
|
|
The Company paid dividends of
$0.11
per share to its common stockholders during both the first and second quarters of
2016
for dividends declared in December 2015 and February 2016, respectively. While we intend to continue payment of dividends, and believe we will have sufficient liquidity to do so, we can provide no assurance that we will continue to pay dividends, or if continued, the amount of such dividends.
Recourse Debt
Our total recourse debt was
$4.9 billion
and
$5.0 billion
as of
June 30, 2016
and
December 31, 2015
, respectively. See Note
7
—
Debt
in Item 1.—
Financial Statements
of this Form 10-Q and Note 12—
Debt
in Item 8.—
Financial Statements and Supplementary Data
of our
2015
Form 10-K for additional detail.
While we believe that our sources of liquidity will be adequate to meet our needs for the foreseeable future, this belief is based on a number of material assumptions, including, without limitation, assumptions about our ability to access the capital markets (see Item 2.—
Key Trends and Uncertainties
)
, the operating and financial performance of our subsidiaries, currency exchange rates, power market pool prices, and the ability of our subsidiaries to pay dividends. In addition, our subsidiaries’ ability to declare and pay cash dividends to us (at the Parent Company level) is subject to certain limitations contained in loans, governmental provisions and other agreements. We can provide no assurance that these sources will be available when needed or that the actual cash requirements will not be greater than anticipated. We have met our interim needs for shorter-term and working capital financing at the Parent Company level with our senior secured credit facility. See Item 1A.—
Risk Factors
—
The AES Corporation is a holding company and its ability to make payments on its outstanding indebtedness, including its public debt securities, is dependent upon the receipt of funds from its subsidiaries by way of dividends, fees, interest, loans or otherwise
of the Company’s
2015
Form 10-K for additional information.
Various debt instruments at the Parent Company level, including our senior secured credit facility, contain certain restrictive covenants. The covenants provide for — among other items — (1) limitations on other indebtedness; (2) liens, investments and guarantees, limitations on dividends, stock repurchases and other equity transactions; (3) restrictions and limitations on mergers and acquisitions, sales of assets, leases, transactions with affiliates and off-balance sheet and derivative arrangements; (4) maintenance of certain financial ratios; and (5) financial and other reporting requirements. As of
June 30, 2016
, we were in compliance with these covenants at the Parent Company level.
Non-Recourse Debt
While the lenders under our non-recourse debt financings generally do not have direct recourse to the Parent Company, defaults thereunder can still have important consequences for our results of operations and liquidity, including, without limitation:
|
|
•
|
Reducing our cash flows as the subsidiary will typically be prohibited from distributing cash to the Parent Company during the time period of any default;
|
|
|
•
|
Triggering our obligation to make payments under any financial guarantee, letter of credit or other credit support we have provided to or on behalf of such subsidiary;
|
|
|
•
|
Causing us to record a loss in the event the lender forecloses on the assets; and
|
|
|
•
|
Triggering defaults in our outstanding debt at the Parent Company.
|
For example, our senior secured credit facility and outstanding debt securities at the Parent Company include events of default for certain bankruptcy-related events involving material subsidiaries. In addition, our senior secured credit facility at the Parent Company includes events of default related to payment defaults and accelerations of outstanding debt of material subsidiaries.
Some of our subsidiaries are currently in default with respect to all or a portion of their outstanding indebtedness. The total non-recourse debt classified as current in the accompanying Condensed Consolidated Balance Sheets amounts to
$1.6 billion
. The portion of current debt related to such defaults was
$138 million
at
June 30, 2016
, all of which was non-recourse debt related to two subsidiaries — Kavarna and Sogrinsk. See Note
7
—
Debt
in Item 1.—
Financial Statements
of this Form 10-Q for additional detail.
None of the subsidiaries that are currently in default are subsidiaries that met the applicable definition of materiality under AES’ corporate debt agreements as of
June 30, 2016
, in order for such defaults to trigger an event of default or permit acceleration under AES’ indebtedness. However, as a result of additional dispositions of assets, other significant reductions in asset carrying values or other matters in the future that may impact our financial position and results of operations or the financial position of the individual subsidiary, it is possible that one or more of these subsidiaries could fall within the definition of a “material subsidiary” and thereby upon an acceleration trigger an event of default and possible acceleration of the indebtedness under the Parent Company’s outstanding debt securities. A material subsidiary is defined in the Company’s senior secured credit facility as any business that contributed 20% or more of the Parent Company’s total cash distributions from businesses for the four most recently ended fiscal quarters. As of
June 30, 2016
, none of the defaults listed above individually or in the aggregate results in or is at risk of triggering a cross-default under the recourse debt of the Company.
Critical Accounting Policies and Estimates
The condensed consolidated financial statements of AES are prepared in conformity with U.S. GAAP, which requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods presented. The Company’s significant accounting policies are described in Note 1—
General and Summary of Significant Accounting Policies
of our
2015
Form 10-K. The Company’s critical accounting estimates are described in
Management’s Discussion and Analysis of Financial Condition and Results of Operations
in the
2015
Form 10-K. An accounting estimate is considered critical if the estimate requires management to make an assumption about matters that were highly uncertain at the time the estimate was made, different estimates reasonably could have been used, or if changes in the estimate that would have a material impact on the Company’s financial condition or results of operations are reasonably likely to occur from period to period. Management believes that the accounting estimates employed are appropriate and resulting balances are reasonable; however, actual results could differ from the original estimates, requiring adjustments to these balances in future periods. The Company has reviewed and determined that these remain as critical accounting policies as of and for the
six months ended June 30, 2016
.