UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________________________________________________________________________
FORM 10-Q
(Mark One)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2015
or
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-12291
THE AES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
 
54 1163725
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification No.)
4300 Wilson Boulevard Arlington, Virginia
 
22203
(Address of principal executive offices)
 
(Zip Code)
(703) 522-1315
Registrant’s telephone number, including area code:
______________________________________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  x No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  x
 
Accelerated filer  ¨
 
Non-accelerated filer  ¨
 
Smaller reporting company  ¨
 
 
 
 
 
 
 
 
 
 
 
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨  No  x
______________________________________________________________________________________________
The number of shares outstanding of Registrant’s Common Stock, par value $0.01 per share, on August 5, 2015 was 682,826,854
 




THE AES CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2015
TABLE OF CONTENTS
 
 
 
 
 
 
ITEM 1.
 
 
 
 
 
 
 
 
ITEM 2.
 
 
 
ITEM 3.
 
 
 
ITEM 4.
 
 
 
 
 
ITEM 1.
 
 
 
ITEM 1A.
 
 
 
ITEM 2.
 
 
 
ITEM 3.
 
 
 
ITEM 4.
 
 
 
ITEM 5.
 
 
 
ITEM 6.
 
 




GLOSSARY OF TERMS
When the following terms and abbreviations appear in the text of this report, they have the meanings indicated below:
Adjusted EPS
Adjusted Earnings Per Share, a non-GAAP measure
Adjusted PTC
Adjusted Pretax Contribution, a non-GAAP measure of operating performance
AES
The Parent Company and its subsidiaries and affiliates
AFS
Available For Sale
AFUDC
Allowance for Funds Used During Construction
ANEEL
Brazilian National Electric Energy Agency
AOCL
Accumulated Other Comprehensive Loss
ASC
Accounting Standards Codification
ASU
Accounting Standards Update
BNDES
Brazilian Development Bank
CA
Commercial Availability
CAA
United States Clean Air Act
CAMMESA
Wholesale Electric Market Administrator in Argentina
CCR
Coal Combustion Residuals
CDPQ
La Caisse de depot et placement du Quebec
CEEE
Companhia Estadual de Energia
CESCO
Central Electricity Supply Company of Orissa Ltd.
CFE
Federal Commission of Electricity
CO 2
Carbon Dioxide
COSO
Committee of Sponsoring Organizations of the Treadway Commission
CPCN
Certificate of Public Convenience and Necessity
DP&L
The Dayton Power & Light Company
DPL
DPL Inc.
DPLER
DPL Energy Resources, Inc.
EPA
United States Environmental Protection Agency
EPC
Engineering, Procurement, and Construction
ERC
Energy Regulatory Commission
EURIBOR
Euro Interbank Offered Rate
FASB
Financial Accounting Standards Board
FCA
Federal Court of Appeals
FX
Foreign Exchange
GAAP
Generally Accepted Accounting Principles in the United States
GHG
Greenhouse Gas
GSA
Gas Supply Agreement
GWh
Gigawatt Hours
HTA
Heads of Terms Agreement
ICC
International Chamber of Commerce
IPALCO
IPALCO Enterprises, Inc.
IPL
Indianapolis Power & Light Company
IURC
Indiana Utility Regulatory Commission
KPI
Key Performance Indicator
kWh
Kilowatt Hours
LIBOR
London Interbank Offered Rate
LNG
Liquefied Natural Gas
MATS
Mercury and Air Toxics Standards
MRE
Energy Reallocation Mechanism
MW
Megawatts
MWh
Megawatt Hours
NEK
Natsionalna Elektricheska Kompania (state-owned electricity public supplier in Bulgaria)
NOV
Notice of Violation
NO X
Nitrogen Dioxide
NPDES
National Pollutant Discharge Elimination System
OCI
Other Comprehensive Income
O&M
Operations and Maintenance
OPGC
Odisha Power Generation Corporation
Parent Company
The AES Corporation
PIS
Partially Integrated System
PM
Particulate Matter
PPA
Power Purchase Agreement
PREPA
Puerto Rico Electric Power Authority
RSU
Restricted Stock Unit
SAIDI
System Average Interruption Duration Index
SAIFI
System Average Interruption Frequency Index
SBU
Strategic Business Unit
SEC
United States Securities and Exchange Commission
SO 2
Sulfur Dioxide
SSR
Service Stability Rider
TA
Transportation Agreement
VAT
Value-added tax
VIE
Variable Interest Entity

1



PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE AES CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
 
June 30,
2015
 
December 31,
2014
 
(in millions, except share and per share data)
ASSETS
 
 
 
CURRENT ASSETS
 
 
 
Cash and cash equivalents
$
1,022

 
$
1,539

Restricted cash
308

 
283

Short-term investments
439

 
709

Accounts receivable, net of allowance for doubtful accounts of $94 and $96, respectively
2,877

 
2,709

Inventory
734

 
702

Deferred income taxes
213

 
275

Prepaid expenses
115

 
175

Other current assets
1,799

 
1,434

Current assets of held-for-sale businesses
8

 
—

Total current assets
7,515

 
7,826

NONCURRENT ASSETS
 
 
 
Property, Plant and Equipment:
 
 
 
Land
801

 
870

Electric generation, distribution assets and other
30,136

 
30,459

Accumulated depreciation
(9,996
)
 
(9,962
)
Construction in progress
2,499

 
3,784

Property, plant and equipment, net
23,440

 
25,151

Other Assets:
 
 
 
Investments in and advances to affiliates
562

 
537

Debt service reserves and other deposits
403

 
411

Goodwill
1,473

 
1,458

Other intangible assets, net of accumulated amortization of $130 and $158, respectively
241

 
281

Deferred income taxes
571

 
662

Service concession assets
1,538

 
—

Other noncurrent assets
2,691

 
2,640

Noncurrent assets of held-for-sale businesses
150

 
—

Total other assets
7,629

 
5,989

TOTAL ASSETS
$
38,584

 
$
38,966

LIABILITIES AND EQUITY
 
 
 
CURRENT LIABILITIES
 
 
 
Accounts payable
$
1,994

 
$
2,278

Accrued interest
244

 
260

Accrued and other liabilities
2,317

 
2,326

Non-recourse debt, including $220 and $240, respectively, related to variable interest entities
1,999

 
1,982

Recourse debt
—

 
151

Current liabilities of held-for-sale businesses
9

 
—

Total current liabilities
6,563

 
6,997

NONCURRENT LIABILITIES
 
 
 
Non-recourse debt, including $1,058 and $1,030, respectively, related to variable interest entities
13,750

 
13,618

Recourse debt
5,014

 
5,107

Deferred income taxes
1,281

 
1,277

Pension and other post-retirement liabilities
1,183

 
1,342

Other noncurrent liabilities
3,110

 
3,222

Noncurrent liabilities of held-for-sale businesses
61

 
—

Total noncurrent liabilities
24,399

 
24,566

Contingencies and Commitments (see Note 9)

 

Redeemable stock of subsidiaries
538

 
78

EQUITY
 
 
 
THE AES CORPORATION STOCKHOLDERS’ EQUITY
 
 
 
Common stock ($0.01 par value, 1,200,000,000 shares authorized; 815,558,389 issued and 682,607,128 outstanding at June 30, 2015 and 814,539,146 issued and 703,851,297 outstanding at December 31, 2014)
8

 
8

Additional paid-in capital
8,705

 
8,409

Retained earnings
258

 
512

Accumulated other comprehensive loss
(3,445
)
 
(3,286
)
Treasury stock, at cost (132,951,261 shares at June 30, 2015 and 110,687,849 shares at December 31, 2014)
(1,662
)
 
(1,371
)
Total AES Corporation stockholders’ equity
3,864

 
4,272

NONCONTROLLING INTERESTS
3,220

 
3,053

Total equity
7,084

 
7,325

TOTAL LIABILITIES AND EQUITY
$
38,584

 
$
38,966

See Notes to Condensed Consolidated Financial Statements.

2



THE AES CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(in millions, except per share amounts)
Revenue:
 
 
 
 
 
 
 
Regulated
$
2,008

 
$
2,116

 
$
4,088

 
$
4,258

Non-Regulated
1,850

 
2,195

 
3,754

 
4,315

Total revenue
3,858

 
4,311

 
7,842

 
8,573

Cost of Sales:
 
 
 
 
 
 
 
Regulated
(1,634
)
 
(1,844
)
 
(3,441
)
 
(3,776
)
Non-Regulated
(1,470
)
 
(1,648
)
 
(2,926
)
 
(3,184
)
Total cost of sales
(3,104
)
 
(3,492
)
 
(6,367
)
 
(6,960
)
Operating margin
754

 
819

 
1,475

 
1,613

General and administrative expenses
(50
)
 
(52
)
 
(105
)
 
(103
)
Interest expense
(310
)
 
(323
)
 
(673
)
 
(696
)
Interest income
133

 
73

 
223

 
136

Loss on extinguishment of debt
(122
)
 
(15
)
 
(145
)
 
(149
)
Other expense
(14
)
 
(17
)
 
(34
)
 
(25
)
Other income
15

 
33

 
31

 
45

Goodwill impairment expense
—

 
—

 
—

 
(154
)
Asset impairment expense
(37
)
 
(63
)
 
(45
)
 
(75
)
Foreign currency transaction gains (losses)
15

 
7

 
(8
)
 
(12
)
Other non-operating expense
—

 
(44
)
 
—

 
(44
)
INCOME FROM CONTINUING OPERATIONS BEFORE TAXES AND EQUITY IN EARNINGS OF AFFILIATES
384

 
418

 
719

 
536

Income tax expense
(120
)
 
(157
)
 
(216
)
 
(211
)
Net equity in earnings of affiliates
—

 
20

 
15

 
45

INCOME FROM CONTINUING OPERATIONS
264

 
281

 
518

 
370

Income from operations of discontinued businesses, net of income tax expense of $0, $8, $0 and $22, respectively
—

 
7

 
—

 
27

Net loss from disposal and impairments of discontinued businesses, net of income tax expense (benefit) of $0, $5, $0 and $4, respectively
—

 
(13
)
 
—

 
(56
)
NET INCOME
264

 
275

 
518

 
341

Noncontrolling interests:
 
 
 
 
 
 
 
Less: (Income) from continuing operations attributable to noncontrolling interests
(195
)
 
(139
)
 
(307
)
 
(275
)
Less: (Income) loss from discontinued operations attributable to noncontrolling interests
—

 
(3
)
 
—

 
9

Total net income attributable to noncontrolling interests
(195
)
 
(142
)
 
(307
)
 
(266
)
NET INCOME ATTRIBUTABLE TO THE AES CORPORATION
$
69

 
$
133

 
$
211

 
$
75

AMOUNTS ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS:
 
 
 
 
 
 
 
Income from continuing operations, net of tax
$
69

 
$
142

 
$
211

 
$
95

Loss from discontinued operations, net of tax
—

 
(9
)
 
—

 
(20
)
Net income
$
69

 
$
133

 
$
211

 
$
75

BASIC EARNINGS PER SHARE:
 
 
 
 
 
 
 
Income from continuing operations attributable to The AES Corporation common stockholders, net of tax
$
0.10

 
$
0.20

 
$
0.30

 
$
0.13

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

 
(0.02
)
 
—

 
(0.03
)
NET INCOME ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS
$
0.10

 
$
0.18

 
$
0.30

 
$
0.10

DILUTED EARNINGS PER SHARE:
 
 
 
 
 
 
 
Income from continuing operations attributable to The AES Corporation common stockholders, net of tax
$
0.10

 
$
0.20

 
$
0.30

 
$
0.13

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

 
(0.02
)
 
—

 
(0.03
)
NET INCOME ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS
$
0.10

 
$
0.18

 
$
0.30

 
$
0.10

DILUTED SHARES OUTSTANDING
695

 
728

 
701

 
728

DIVIDENDS DECLARED PER COMMON SHARE
$
0.10

 
$
0.05

 
$
0.10

 
$
0.05

See Notes to Condensed Consolidated Financial Statements.

3



THE AES CORPORATION
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2015
 
2014
 
2015
 
2014
 
(in millions)
NET INCOME
$
264

 
$
275

 
$
518

 
$
341

Foreign currency translation activity:
 
 
 
 
 
 
 
Foreign currency translation adjustments, net of income tax (expense) benefit of $0, $(7), $0 and $(8), respectively
77

 
24

 
(344
)
 
29

Reclassification to earnings, net of income tax (expense) benefit of $0 for all periods
—

 
(53
)
 
—

 
(47
)
Total foreign currency translation adjustments
77

 
(29
)
 
(344
)
 
(18
)
Derivative activity:
 
 
 
 
 
 
 
Change in derivative fair value, net of income tax (expense) benefit of $(20), $22, $(3) and $46, respectively
82

 
(105
)
 
10

 
(225
)
Reclassification to earnings, net of income tax (expense) benefit of $(1), $(10), $(3) and $(13), respectively
7

 
13

 
19

 
32

Total change in fair value of derivatives
89

 
(92
)
 
29

 
(193
)
Pension activity:
 
 
 
 
 
 
 
Change in pension adjustments due to prior service cost, net of income tax (expense) benefit of $0, $(1), $0, and $(1), respectively
—

 
1

 
—

 
1

Change in pension adjustments due to disposal of discontinued operations for the period, net of income tax (expense) benefit of $0, $(9), $0 and $(9), respectively
—

 
14

 
—

 
14

Reclassification to earnings due to amortization of net actuarial loss, net of income tax (expense) benefit of $(2), $2, $(5) and $(1), respectively
4

 
10

 
9

 
16

Total pension adjustments
4

 
25

 
9

 
31

OTHER COMPREHENSIVE INCOME (LOSS)
170

 
(96
)
 
(306
)
 
(180
)
COMPREHENSIVE INCOME
434

 
179

 
212

 
161

Less: Comprehensive (income) attributable to noncontrolling interests
(261
)
 
(102
)
 
(173
)
 
(227
)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION
$
173

 
$
77

 
$
39

 
$
(66
)
See Notes to Condensed Consolidated Financial Statements.

4



THE AES CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Six Months Ended June 30,
 
2015
 
2014
 
(in millions)
OPERATING ACTIVITIES:
 
 
 
Net income
$
518

 
$
341

Adjustments to net income:
 
 
 
Depreciation and amortization
597

 
625

Impairment expenses
45

 
273

Deferred income taxes
17

 
52

Releases of contingencies
(134
)
 
(48
)
Loss on the extinguishment of debt
145

 
149

Loss on sale of assets
12

 
8

Loss on disposals and impairments — discontinued operations
—

 
51

Other
70

 
45

Changes in operating assets and liabilities
 
 
 
(Increase) decrease in accounts receivable
(444
)
 
(312
)
(Increase) decrease in inventory
(54
)
 
(39
)
(Increase) decrease in prepaid expenses and other current assets
132

 
(72
)
(Increase) decrease in other assets
(815
)
 
(316
)
Increase (decrease) in accounts payable and other current liabilities
179

 
(194
)
Increase (decrease) in income tax payables, net and other tax payables
(131
)
 
(176
)
Increase (decrease) in other liabilities
453

 
66

Net cash provided by operating activities
590

 
453

INVESTING ACTIVITIES:
 
 
 
Capital expenditures
(1,168
)
 
(908
)
Acquisitions, net of cash acquired
(18
)
 
(728
)
Proceeds from the sale of businesses, net of cash sold
2

 
890

Proceeds from the sale of assets
1

 
16

Sale of short-term investments
2,460

 
2,198

Purchase of short-term investments
(2,270
)
 
(1,925
)
(Increase) decrease in restricted cash, debt service reserves and other assets
(51
)
 
127

Other investing
(26
)
 
(61
)
Net cash used in investing activities
(1,070
)
 
(391
)
FINANCING ACTIVITIES:
 
 
 
Borrowings under the revolving credit facilities
361

 
737

Issuance of recourse debt
575

 
1,525

Issuance of non-recourse debt
1,940

 
1,710

Repayments under the revolving credit facilities
(359
)
 
(607
)
Repayments of recourse debt
(915
)
 
(1,663
)
Repayments of non-recourse debt
(1,457
)
 
(1,349
)
Payments for financing fees
(40
)
 
(105
)
Distributions to noncontrolling interests
(113
)
 
(197
)
Contributions from noncontrolling interests
97

 
110

Proceeds from the sale of redeemable stock of subsidiaries
461

 
—

Dividends paid on AES common stock
(141
)
 
(72
)
Payments for financed capital expenditures
(84
)
 
(312
)
Purchase of treasury stock
(307
)
 
(32
)
Other financing
(29
)
 
5

Net cash used in financing activities
(11
)
 
(250
)
Effect of exchange rate changes on cash
(19
)
 
(14
)
(Decrease) increase in cash of discontinued and held-for-sale businesses
(7
)
 
75

Total decrease in cash and cash equivalents
(517
)
 
(127
)
Cash and cash equivalents, beginning
1,539

 
1,642

Cash and cash equivalents, ending
$
1,022

 
$
1,515

SUPPLEMENTAL DISCLOSURES:
 
 
 
Cash payments for interest, net of amounts capitalized
$
665

 
$
676

Cash payments for income taxes, net of refunds
$
247

 
$
332

SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
 
 
 
Assets received upon sale of subsidiaries
$
—

 
$
44

Assets acquired through capital lease
$
10

 
$
13

See Notes to Condensed Consolidated Financial Statements.

5



THE AES CORPORATION
Notes to Condensed Consolidated Financial Statements
For the Three and Six Months Ended June 30, 2015 and 2014
1 . FINANCIAL STATEMENT PRESENTATION
Consolidation
In this Quarterly Report the terms “AES,” “the Company,” “us” or “we” refer to the consolidated entity including its subsidiaries and affiliates. The terms “The AES Corporation,” “the Parent” or “the Parent Company” refer only to the publicly held holding company, The AES Corporation, excluding its subsidiaries and affiliates. Furthermore, VIEs in which the Company has a variable interest have been consolidated where the Company is the primary beneficiary. Investments in which the Company has the ability to exercise significant influence, but not control, are accounted for using the equity method of accounting. All intercompany transactions and balances have been eliminated in consolidation.
Interim Financial Presentation
The accompanying unaudited condensed consolidated financial statements and footnotes have been prepared in accordance with GAAP, as contained in the FASB ASC, for interim financial information and Article 10 of Regulation S-X issued by the SEC. Accordingly, they do not include all the information and footnotes required by GAAP for annual fiscal reporting periods. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair presentation of the results of operations, financial position, comprehensive income and cash flows. The results of operations for the three and six months ended June 30, 2015 are not necessarily indicative of results that may be expected for the year ending December 31, 2015 . The accompanying condensed consolidated financial statements are unaudited and should be read in conjunction with the 2014 audited consolidated financial statements and notes thereto, which are included in the 2014 Form 10-K filed with the SEC on February 25, 2015 (the “ 2014 Form 10-K”).
New Accounting Pronouncements Adopted
ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity
Effective July 1, 2014, the Company prospectively adopted ASU No. 2014-08, which significantly changed the previous accounting guidance on discontinued operations. Under ASU No. 2014-08, only those disposals of components of an entity that represent a strategic shift that has (or will have) a major effect on an entity’s operations and financial results will be reported as discontinued operations. Other changes were as follows: equity method investments that were previously scoped-out of the discontinued operations accounting guidance are now included in the scope; a business can meet the criteria to be classified as held-for-sale upon acquisition and can be reported in discontinued operations; and components where an entity retains significant continuing involvement or where operations and cash flows will not be eliminated from ongoing operations as a result of a disposal transaction can meet the definition of discontinued operations. Additionally, where summarized amounts are presented on the face of the financial statements, reconciliations of those amounts to major classes of line items are also required. ASU No. 2014-08 requires additional disclosures for individually material components that do not meet the definition of discontinued operations. Under the previous accounting guidance, the UK Wind and Ebute disposals in the third and fourth quarters of 2014, respectively, would have met the discontinued operations criteria and would have been reclassified accordingly. Additionally, Armenia Mountain, which met the held-for-sale criteria in the first quarter of 2015, would have met the discontinued operations criteria under the previous accounting guidance and would have been reclassified accordingly.
ASU No. 2014-05, Service Concession Arrangements (Topic 853)
Effective January 1, 2015, the Company adopted ASU No. 2014-05, which states that certain service concession arrangements with public-sector entity grantors are not in scope of ASC 840, Leases and that entities should not recognize the related infrastructure as property, plant and equipment, but should apply other GAAP. The Company has a small number of entities that fall within the scope of this guidance, with the Company’s Mong Duong generation facility in Vietnam being the most significant.
Mong Duong is a build, operate and transfer agreement with the Vietnam government. Management concluded there were two deliverables included within the arrangement, as well as a financing element. Due to the contingent nature of the revenue stream, no amounts of revenue could be recognized during the build phase of the contract. All amounts billed during the operate phase are recognized as revenue when billed, with amounts allocated between the financing element and build and operate deliverables. The financing element is recognized as interest income using the effective interest method as payments for construction of the plant are received over the life of the contract. Costs are expensed as incurred. As the related infrastructure is no longer considered property, plant and equipment, there are no longer any capitalizable expenses beyond those related to the initial build, and accordingly these will be expensed as incurred. All cash flows, excluding those related to the debt incurred

6



by AES for these arrangements will be reflected in cash flows from operating activities on the Company’s Condensed Consolidated Statements of Cash Flows prospectively.
The guidance was applied on a modified retrospective basis to service concession arrangements in existence at January 1, 2015. Upon adoption of this standard, the impact to the Company’s Condensed Consolidated Balance Sheet as of January 1, 2015 resulted in a reclassification of $1.5 billion from property, plant and equipment to service concession assets, as well as a cumulative adjustment to retained earnings and cumulative translation adjustment of $(18) million , net of tax, and $13 million , respectively.
Accounting Pronouncements Issued But Not Yet Effective
The following accounting standards have been issued but are not yet effective for, nor have been adopted by AES:
ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory
In July 2015, the FASB issued ASU No. 2015-11, which simplifies the subsequent measurement of inventory. It replaces the current lower of cost or market test with a lower of cost or net realizable value test. The standard is effective for public entities for annual reporting periods beginning after December 15, 2016, and interim periods therein. Early adoption is permitted. The new guidance must be applied prospectively. The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
ASU No. 2015-05, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement
In April 2015, the FASB issued ASU No. 2015-05, which clarifies how customers in cloud computing arrangements should determine whether the arrangement includes a software license and eliminates the existing requirement for customers to account for software licenses they acquired by analogizing to the accounting guidance on leases. The standard is effective for annual reporting periods beginning after December 15, 2015 and interim periods therein. Early adoption is permitted. The standard permits the use of a prospective or retrospective approach. The Company has not yet selected a transition method and is currently evaluating the impact of adopting the standard on its consolidated financial statements.
ASU No. 2015-03, Interest — Imputation of Interest (Subtopic 835-30)
In April 2015, the FASB issued ASU No. 2015-03, which simplifies the presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. The standard is effective for annual reporting periods beginning after December 15, 2015 and interim periods therein, and requires the use of the full retrospective approach. Early adoption is permitted for financial statements that have not been previously issued. As of June 30, 2015 , the Company had approximately $385 million in deferred financing costs classified in other noncurrent assets that would be reclassified to reduce the related debt liabilities upon adoption of ASU No. 2015-03.
ASU No. 2015-02, Consolidation — Amendments to the Consolidation Analysis (Topic 810)
In February 2015, the FASB issued ASU 2015-02, which makes targeted amendments to the current consolidation guidance and ends the deferral granted to investment companies from applying the VIE guidance. The standard amends the evaluation of whether (1) fees paid to a decision-maker or service providers represent a variable interest, (2) a limited partnership or similar entity has the characteristics of a VIE and (3) a reporting entity is the primary beneficiary of a VIE. The standard is effective for annual periods beginning after December 15, 2015 and interim periods therein. Early adoption is permitted. The Company is currently assessing the impact of the standard on its consolidated financial statements.
ASU No. 2014-12, Compensation — Stock Compensation (Topic 718)
In June 2014, the FASB issued ASU No. 2014-12, which is intended to resolve the diverse accounting treatment in practice with compensation awards. The objective of the new standard is to clarify the treatment of accounting for performance targets that affect award vesting. The standard is effective for annual reporting periods beginning after December 15, 2015 and interim periods therein. Early adoption is permitted. The standard permits the use of either a prospective or modified retrospective approach. The Company has not yet selected a transition method and is currently evaluating the impact of the standard on its financial position and results of operations.
ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606)
In May 2014, the FASB issued ASU No. 2014-09 which clarifies principles for recognizing revenue and will result in a common revenue standard for U.S. GAAP and International Financial Reporting Standards. The objective of the new standard is to provide a single and comprehensive revenue recognition model for all contracts with customers to improve comparability. The revenue standard contains principles that an entity will apply to determine the measurement of revenue and timing of when

7



it is recognized. The standard requires an entity to recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. In July 2015, the FASB decided to defer the effective date by one year, resulting in the new revenue standard being effective for annual reporting periods beginning after December 15, 2017 and interim periods therein. Early adoption is now permitted only as of the original effective date for public entities (that is, no earlier than 2017 for calendar year-end entities). The standard permits the use of either a full retrospective or modified retrospective approach. The Company has not yet selected a transition method and is currently evaluating the impact of adopting the standard on its consolidated financial statements.
2 . INVENTORY
The following table summarizes the Company’s inventory balances as of the periods indicated:
 
June 30, 2015
 
December 31, 2014
 
(in millions)
Fuel and other raw materials
$
391

 
$
357

Spare parts and supplies
343

 
345

Total
$
734

 
$
702

3 . FAIR VALUE
The fair value of current financial assets and liabilities, debt service reserves and other deposits approximate their reported carrying amounts. The estimated fair value of the Company’s assets and liabilities have been determined using available market information. By virtue of these amounts being estimates and based on hypothetical transactions to sell assets or transfer liabilities, the use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. There were no changes in fair valuation techniques during the period and the Company continues to follow the valuation techniques described in Note 4.— Fair Value in Item 8.— Financial Statements and Supplementary Data of its 2014 Form 10-K.
Recurring Measurements
The following table sets forth, by level within the fair value hierarchy, the Company’s financial assets and liabilities that were measured at fair value on a recurring basis as of the periods indicated:
 
June 30, 2015
 
December 31, 2014
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in millions)
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AVAILABLE FOR SALE: (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unsecured debentures
$
—

 
$
332

 
$
—

 
$
332

 
$
—

 
$
501

 
$
—

 
$
501

Certificates of deposit
—

 
79

 
—

 
79

 
—

 
151

 
—

 
151

Government debt securities
—

 
33

 
—

 
33

 
—

 
57

 
—

 
57

Subtotal
—

 
444

 
—

 
444

 
—

 
709

 
—

 
709

Equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mutual funds
—

 
18

 
—

 
18

 
—

 
25

 
—

 
25

Subtotal
—

 
18

 
—

 
18

 
—

 
25

 
—

 
25

Total available for sale
—

 
462

 
—

 
462

 
—

 
734

 
—

 
734

TRADING:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mutual funds
15

 
—

 
—

 
15

 
15

 
—

 
—

 
15

Total trading
15

 
—

 
—

 
15

 
15

 
—

 
—

 
15

DERIVATIVES:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency derivatives
—

 
14

 
237

 
251

 
—

 
18

 
218

 
236

Commodity derivatives
—

 
44

 
18

 
62

 
—

 
37

 
7

 
44

Total derivatives
—

 
58

 
255

 
313

 
—

 
55

 
225

 
280

TOTAL ASSETS
$
15

 
$
520

 
$
255

 
$
790

 
$
15

 
$
789

 
$
225

 
$
1,029

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DERIVATIVES:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives
$
—

 
$
178

 
$
191

 
$
369

 
$
—

 
$
206

 
$
210

 
$
416

Cross-currency derivatives
—

 
32

 
—

 
32

 
—

 
29

 
—

 
29

Foreign currency derivatives
—

 
38

 
15

 
53

 
—

 
43

 
9

 
52

Commodity derivatives
—

 
23

 
1

 
24

 
—

 
16

 
1

 
17

Total derivatives
—

 
271

 
207

 
478

 
—

 
294

 
220

 
514

TOTAL LIABILITIES
$
—

 
$
271

 
$
207

 
$
478

 
$
—

 
$
294

 
$
220

 
$
514

 _____________________________
(1)  
Amortized cost approximated fair value at June 30, 2015 and December 31, 2014 .

8



The following tables present a reconciliation of net derivative assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2015 and 2014 (presented net by type of derivative). Transfers between Level 3 and Level 2 are determined as of the end of the reporting period and principally result from changes in the significance of unobservable inputs used to calculate the credit valuation adjustment.
 
Three Months Ended June 30, 2015
 
Interest Rate
 
Foreign Currency
 
Commodity
 
Cross Currency
 
Total
 
(in millions)
Balance at the beginning of the period
$
(302
)
 
$
223

 
$
4

 
$
(33
)
 
$
(108
)
Total gains (losses) (realized and unrealized):
 
 
 
 
 
 
 
 
 
Included in earnings
—

 
7

 
—

 
—

 
7

Included in other comprehensive income —  derivative activity
57

 
—

 
—

 
—

 
57

Included in other comprehensive income —  foreign currency translation activity
(4
)
 
(6
)
 
—

 
—

 
(10
)
Included in regulatory (assets) liabilities
—

 
—

 
8

 
—

 
8

Settlements
5

 
(2
)
 
5

 
1

 
9

Transfers of (assets) liabilities out of Level 3
53

 
—

 
—

 
32

 
85

Balance at the end of the period
$
(191
)
 
$
222

 
$
17

 
$
—

 
$
48

Total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities held at the end of the period
$
—

 
$
5

 
$
(1
)
 
$
—

 
$
4

 
Three Months Ended June 30, 2014
 
Interest Rate
 
Foreign Currency
 
Commodity
 
Total
 
(in millions)
Balance at the beginning of the period
$
(87
)
 
$
101

 
$
—

 
$
14

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

 
10

 
3

 
13

Included in other comprehensive income —  derivative activity
(30
)
 
—

 
—

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

 
(2
)
 
—

 
(2
)
Included in regulatory (assets) liabilities
—

 
—

 
15

 
15

Settlements
3

 
(2
)
 
(2
)
 
(1
)
Transfers of assets (liabilities) into Level 3
(69
)
 
—

 
—

 
(69
)
Balance at the end of the period
$
(183
)
 
$
107

 
$
16

 
$
(60
)
Total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities held at the end of the period
$
—

 
$
9

 
$
—

 
$
9

 
Six Months Ended June 30, 2015
 
Interest Rate
 
Foreign Currency
 
Commodity
 
Total
 
(in millions)
Balance at the beginning of the period
$
(210
)
 
$
209

 
$
6

 
$
5

Total gains (losses) (realized and unrealized):
 
 
 
 
 
 


Included in earnings
—

 
30

 
2

 
32

Included in other comprehensive income —  derivative activity
3

 
—

 
—

 
3

Included in other comprehensive income —  foreign currency translation activity
7

 
(13
)
 
—

 
(6
)
Included in regulatory (assets) liabilities
—

 
—

 
8

 
8

Settlements
9

 
(4
)
 
1

 
6

Balance at the end of the period
$
(191
)
 
$
222

 
$
17

 
$
48

Total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities held at the end of the period
$
—

 
$
26

 
$
2

 
$
28

 
Six Months Ended June 30, 2014
 
Interest Rate
 
Foreign Currency
 
Commodity
 
Total
 
(in millions)
Balance at the beginning of the period
$
(101
)
 
$
93

 
$
4

 
$
(4
)
Total gains (losses) (realized and unrealized):
 
 
 
 
 
 
 
Included in earnings
1

 
37

 
1

 
39

Included in other comprehensive income —  derivative activity
(99
)
 
(1
)
 
—

 
(100
)
Included in other comprehensive income —  foreign currency translation activity
—

 
(20
)
 
—

 
(20
)
Included in regulatory (assets) liabilities
—

 
—

 
12

 
12

Settlements
16

 
(3
)
 
(1
)
 
12

Transfers of (assets) liabilities out of Level 3
—

 
1

 
—

 
1

Balance at the end of the period
$
(183
)
 
$
107

 
$
16

 
$
(60
)
Total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities held at the end of the period
$
1

 
$
34

 
$
—

 
$
35


9



The table below summarizes the significant unobservable inputs used for Level 3 derivative assets (liabilities) as of June 30, 2015 :
Type of Derivative
 
Fair Value
 
Unobservable Input
 
Amount or Range (Weighted Avg)
 
 
(in millions)
 
 
 
 
Interest rate
 
$
(191
)
 
Subsidiaries’ credit spreads
 
3.75% — 7.34% (5.17%)
Foreign currency:
 
 
 
 
 
 
Derivative — Argentine Peso
 
220

 
Argentine Peso to USD currency exchange rate after one year
 
13.71 — 36.10 (24.25)
Embedded derivative — Euro
 
2

 
Subsidiaries’ credit spreads
 
4.84% — 7.34% (6.09%)
Commodity:
 
 
 
 
 
 
Other
 
17

 
 
 
 
Total
 
$
48

 
 
 
 
Nonrecurring Measurements
When evaluating impairment of goodwill, long-lived assets, discontinued operations and held-for-sale businesses, and equity method investments, the Company measures fair value using the applicable fair value measurement guidance. Impairment expense is measured by comparing the fair value at the evaluation date to their then-latest available carrying amount. The following table summarizes major categories of assets and liabilities measured at fair value on a nonrecurring basis during the period indicated and their level within the fair value hierarchy:
 
Six Months Ended June 30, 2015
 
Carrying
Amount (1)
 
Fair Value (5)
 
Pretax
Loss
 
Level 1
 
Level 2
 
Level 3
 
 
(in millions)
Assets
 
 
 
 
 
 
 
 
 
Equity method investment:
 
 
 
 
 
 
 
 
 
Solar Spain
$
29

 
$
—

 
$
—

 
$
29

 
$
—

Long-lived assets held and used: (2)
 
 
 
 
 
 
 
 
 
UK Wind (Development Projects)
38

 
—

 
1

 
—

 
37

Other
29

 
—

 
21

 
—

 
8

 
Six Months Ended June 30, 2014
 
Carrying
Amount (1)
 
Fair Value (5)
 
Pretax
Loss
 
Level 1
 
Level 2
 
Level 3
 
 
(in millions)
Assets
 
 
 
 
 
 
 
 
 
Long-lived assets held and used: (2)
 
 
 
 
 
 
 
 
 
DPL (East Bend)
$
14

 
$
—

 
$
2

 
$
—

 
$
12

Ebute
99

 
—

 
—

 
47

 
52

UK Wind (Newfield)
11

 
—

 
—

 
—

 
11

Discontinued operations and held-for-sale businesses: (3)
 
 
 
 
 
 
 
 


Cameroon
372

 
—

 
334

 
—

 
38

Equity method investments
 
 
 
 
 
 
 
 
 
Silver Ridge Power
317

 
—

 
—

 
273

 
44

Goodwill: (4)
 
 
 
 
 
 
 
 
 
DPLER
136

 
—

 
—

 
—

 
136

Buffalo Gap
28

 
—

 
—

 
10

 
18

_____________________________
(1)  
Represents the carrying value at the date of measurement, before fair value adjustment.
(2)  
See Note 15 —Asset Impairment Expense for further information.
(3)  
See Note 17 —Discontinued Operations and Held-For-Sale Businesses for further information. Fair value of long-lived assets held-for-sale excludes costs to sell.
(4)  
See Note 14 —Goodwill Impairment for further information.
(5)  
Fair value measurements were estimated at various dates within the applicable reporting period and not necessarily as of the period’s end date.
The following table summarizes the significant unobservable inputs used in the Level 3 measurement of long-lived assets during the six months ended June 30, 2015 :
 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Range (Weighted Average)
 
(in millions)
 
 
 
 
 
 
Equity method investment:
 
 
 
 
 
 
 
Solar Spain
$
29

 
Discounted cash flow
 
Annual revenue growth
 
-3% to 0% (0%)

 
 
 
 
 
Annual pretax operating margin
 
-13% to 56% (24%)

 
 
 
 
 
Cost of equity
 
12
%
Financial Instruments not Measured at Fair Value in the Condensed Consolidated Balance Sheets
The following table sets forth the carrying amount, fair value and fair value hierarchy of the Company’s financial assets and liabilities that are not measured at fair value in the Condensed Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014 , but for which fair value is disclosed.

10



 
Carrying
Amount
 
Fair Value
 
Total
 
Level 1
 
Level 2
 
Level 3
 
(in millions)
June 30, 2015
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
Accounts receivable — noncurrent (1)
$
260

 
$
247

 
$
—

 
$
—

 
$
247

Liabilities
 
 
 
 
 
 
 
 
 
Non-recourse debt
15,749

 
16,101

 
—

 
12,644

 
3,457

Recourse debt
5,014

 
5,150

 
—

 
5,150

 
—

December 31, 2014
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
Accounts receivable — noncurrent   (1)
$
301

 
$
290

 
$
—

 
$
—

 
$
290

Liabilities
 
 
 
 
 
 
 
 
 
Non-recourse debt
15,600

 
16,008

 
—

 
12,538

 
3,470

Recourse debt
5,258

 
5,552

 
—

 
5,552

 
—

_____________________________
(1)  
These accounts receivable principally relate to amounts due from CAMMESA, and are included in Noncurrent assets—Other in the accompanying Condensed Consolidated Balance Sheets. The fair value and carrying amount of these receivables exclude VAT of $31 million and $36 million at June 30, 2015 and December 31, 2014 , respectively.
4 . INVESTMENTS IN MARKETABLE SECURITIES
The Company’s investments in marketable debt and equity securities as of June 30, 2015 and December 31, 2014 by security class and by level within the fair value hierarchy have been disclosed in Note  3 —Fair Value . The security classes are determined based on the nature and risk of a security and are consistent with how the Company manages, monitors and measures its marketable securities. As of June 30, 2015 , $411 million of AFS debt securities had stated maturities within one year and $33 million had stated maturities between one and two years. Gains and losses on the sale of investments are determined using the specific-identification method. For the three and six months ended June 30, 2015 and 2014 , pretax realized gains and losses related to AFS and trading securities were less than $1 million , there were no unrealized losses on AFS securities, and no other-than-temporary impairments of marketable securities were recognized in earnings or OCI. The following table summarizes the gross proceeds from sale of AFS securities for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(in millions)
Gross proceeds from sales of AFS securities
$
1,395

 
$
1,158

 
$
2,481

 
$
2,218

5 . DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
There have been no changes to the information disclosed under Derivatives and Hedging Activities in Note 1— General and Summary of Significant Accounting Policies included in Item 8.— Financial Statements and Supplementary Data in the 2014 Form 10-K.
Volume of Activity — The following three tables set forth, by type of derivative, the Company’s outstanding notional under its derivatives and the weighted average remaining term as of June 30, 2015 regardless of whether the derivative instruments are in qualifying cash flow hedging relationships:
 
 
Current
 
Maximum
 
 
 
 
Interest Rate and Cross-Currency (1)
 
Derivative
Notional
 
Derivative Notional Translated to USD
 
Derivative
Notional
 
Derivative Notional Translated to USD
 
Weighted Average Remaining Term
 
% of Debt Currently Hedged by Index (2)
 
 
(in millions)
 
(in years)
 
 
Interest Rate Derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
LIBOR (U.S. Dollar)
 
2,689

 
$
2,689

 
3,061

 
$
3,061

 
11
 
55
%
EURIBOR (Euro)
 
506

 
564

 
506

 
564

 
7
 
75
%
Cross-Currency Swaps:
 
 
 
 
 
 
 
 
 
 
 
 
Chilean Unidad de Fomento
 
4

 
172

 
4

 
172

 
13
 
82
%
_____________________________
(1)  
The Company’s interest rate derivative instruments primarily include accreting and amortizing notionals. The maximum derivative notional represents the largest notional at any point between June 30, 2015 and the maturity of the derivative instrument, which includes forward-starting derivative instruments. The interest rate and cross-currency derivatives range in maturity through 2033 and 2028 , respectively.
(2)  
The percentage of variable-rate debt currently hedged is based on the related index and excludes forecasted issuances of debt and variable-rate debt tied to other indices where the Company has no interest rate derivatives.
Foreign Currency Derivatives
 
Notional (1)
 
Notional Translated to USD
 
Weighted Average Remaining Term (2)
 
 
(in millions)
 
(in years)
Foreign Currency Options and Forwards:
 
 
 
 
 
 
Chilean Unidad de Fomento
 
8

 
$
311

 
<1
Chilean Peso
 
80,373

 
126

 
<1
Brazilian Real
 
103

 
33

 
<1
Euro
 
107

 
119

 
<1
Colombian Peso
 
145,874

 
56

 
<1
Argentine Peso
 
2,032

 
224

 
10
British Pound
 
16

 
24

 
<1
Philippine Peso
 
751

 
17

 
<1
Embedded Foreign Currency Derivatives:
 
 
 
 
 
 
Kazakhstani Tenge
 
3,761

 
20

 
1
_____________________________

11



(1)  
Represents contractual notionals. The notionals for options have not been probability adjusted, which generally would decrease them.
(2)  
Represents the remaining tenor of our foreign currency derivatives weighted by the corresponding notional. These options and forwards and these embedded derivatives range in maturity through 2025 and 2017 , respectively.
Commodity Derivatives
 
Notional
 
Weighted-Average Remaining Term (1)
 
 
(in millions)
 
(in years)
Power (MWh)
 
9

 
2
Coal (Metric tons)
 
1

 
2
_____________________________
(1)  
Represents the remaining tenor of our commodity derivatives weighted by the corresponding volume. These derivatives range in maturity through 2017 .
Accounting and Reporting — Assets and Liabilities — The following tables present the fair values of the Company’s derivative instruments as of June 30, 2015 and December 31, 2014 , first by whether they are designated hedging instruments, then by whether they are current or noncurrent, to the extent they are subject to master netting agreements or similar agreements (where the rights to set-off relate to settlement of amounts receivable and payable under those derivatives) and by balances no longer accounted for as derivatives.
 
June 30, 2015
 
December 31, 2014
 
Designated
 
Not Designated
 
Total
 
Designated
 
Not Designated
 
Total
 
(in millions)
Assets
 
 
 
 
 
 
 
 
 
 
 
Foreign currency derivatives
$
7

 
$
244

 
$
251

 
$
6

 
$
230

 
$
236

Commodity derivatives
31

 
31

 
62

 
25

 
19

 
44

Total assets
$
38

 
$
275

 
$
313

 
$
31

 
$
249

 
$
280

Liabilities
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives
$
369

 
$
—

 
$
369

 
$
416

 
$
—

 
$
416

Cross-currency derivatives
32

 
—

 
32

 
29

 
—

 
29

Foreign currency derivatives
32

 
21

 
53

 
38

 
14

 
52

Commodity derivatives
11

 
13

 
24

 
7

 
10

 
17

Total liabilities
$
444

 
$
34

 
$
478

 
$
490

 
$
24

 
$
514

 
June 30, 2015
 
December 31, 2014
 
Assets
 
Liabilities
 
Assets
 
Liabilities
 
(in millions)
Current
$
91

 
$
151

 
$
77

 
$
148

Noncurrent
222

 
327

 
203

 
366

Total
$
313

 
$
478

 
$
280

 
$
514

Derivatives subject to master netting agreement or similar agreement:
 
 
 
 
 
 
 
Gross amounts recognized in the balance sheet
$
36

 
$
425

 
$
53

 
$
507

Gross amounts of derivative instruments not offset
(11
)
 
(11
)
 
(10
)
 
(10
)
Gross amounts of collateral received/pledged not offset
—

 
(31
)
 
—

 
(26
)
Net amount
$
25

 
$
383

 
$
43

 
$
471

Other balances that had been, but are no longer, accounted for as derivatives that are to be amortized to earnings over the remaining term of the associated PPA
$
153

 
$
173

 
$
161

 
$
180

Effective Portion of Cash Flow Hedges — The following tables set forth the pretax gains (losses) recognized in AOCL and earnings related to the effective portion of derivative instruments in qualifying cash flow hedging relationships (including amounts that were reclassified from AOCL as interest expense related to interest rate derivative instruments that previously, but no longer, qualify for cash flow hedge accounting), as defined in the accounting standards for derivatives and hedging, for the periods indicated:
 
 
Gains (Losses) Recognized in AOCL
 
 
 
Gains (Losses) Reclassified from AOCL into Earnings
 
 
Three Months Ended June 30,
 
Classification in Condensed Consolidated Statements of Operations
 
Three Months Ended June 30,
Type of Derivative
 
2015
 
2014
 
2015
 
2014
 
 
(in millions)
 
 
 
(in millions)
Interest rate derivatives
 
$
94

 
$
(124
)
 
Interest expense
 
$
(15
)
 
$
(33
)
 
 
 
 
 
 
Non-regulated cost of sales
 
(1
)
 
—

 
 
 
 
 
 
Net equity in earnings of affiliates
 
—

 
(2
)
Cross-currency derivatives
 
1

 
—

 
Interest expense
 
—

 
2

 
 
 
 
 
 
Foreign currency transaction gains
 
—

 
4

Foreign currency derivatives
 
(1
)
 
3

 
Foreign currency transaction gains
 
2

 
3

Commodity derivatives
 
8

 
(6
)
 
Non-regulated revenue
 
10

 
6

 
 


 


 
Non-regulated cost of sales
 
(4
)
 
(3
)
Total
 
$
102

 
$
(127
)
 
 
 
$
(8
)
 
$
(23
)

12



 
 
Gains (Losses) Recognized in AOCL
 
 
 
Gains (Losses) Reclassified from AOCL into Earnings
 
 
Six Months Ended June 30,
 
Classification in Condensed Consolidated Statements of Operations
 
Six Months Ended June 30,
Type of Derivative
 
2015
 
2014
 
2015
 
2014
 
 
(in millions)
 
 
 
(in millions)
Interest rate derivatives
 
$
(4
)
 
$
(274
)
 
Interest expense
 
$
(39
)
 
$
(64
)
 
 
 
 
 
 
Non-regulated cost of sales
 
(1
)
 
(1
)
 
 
 
 
 
 
Net equity in earnings of affiliates
 
—

 
(3
)
Cross-currency derivatives
 
1

 
(3
)
 
Interest expense
 
(1
)
 
1

 
 
 
 
 
 
Foreign currency transaction losses
 
—

 
(6
)
Foreign currency derivatives
 
1

 
(12
)
 
Foreign currency transaction gains
 
8

 
10

Commodity derivatives
 
15

 
18

 
Non-regulated revenue
 
15

 
19

 
 
 
 
 
 
Non-regulated cost of sales
 
(4
)
 
(1
)
Total
 
$
13

 
$
(271
)
 
 
 
$
(22
)
 
$
(45
)
The pretax accumulated other comprehensive income (loss) expected to be recognized as an increase (decrease) to income from continuing operations before income taxes over the next 12 months as of June 30, 2015 is $(123) million for interest rate hedges, $(5) million for cross-currency swaps, $8 million for foreign currency hedges, and $12 million for commodity and other hedges.
For the three and six months ended June 30, 2014 , pretax gains of $6 million , net of noncontrolling interests, were reclassified into earnings as a result of the discontinuance of a cash flow hedge because it was probable that the forecasted transaction would not occur by the end of the originally specified time period (as documented at the inception of the hedging relationship) or within an additional two-month time period thereafter. There were no such reclassifications for the three and six months ended June 30, 2015 .
Ineffective Portion of Cash Flow Hedges — The following table presents the pretax gains (losses) recognized in earnings related to the ineffective portion of derivative instruments in qualifying cash flow hedging relationships, as defined in the accounting standards for derivatives and hedging, for the periods indicated:
 
 
Classification in Condensed Consolidated Statements of Operations
 
Three Months Ended June 30,
 
Six Months Ended June 30,
Type of Derivative
 
2015
 
2014
 
2015
 
2014
 
 
 
 
(in millions)
Interest rate derivatives
 
Interest expense
 
$
(1
)
 
$
1

 
$
(1
)
 
$
1

Foreign currency derivatives
 
Foreign currency transaction losses
 
—

 
—

 
$
(2
)
 
$
—

Cross-currency derivatives
 
Interest expense
 
—

 
(1
)
 
—

 
(1
)
Total
 
 
 
$
(1
)
 
$
—

 
$
(3
)
 
$
—

Not Designated for Hedge Accounting — The following table sets forth the gains (losses) recognized in earnings related to derivative instruments not designated as hedging instruments under the accounting standards for derivatives and hedging and the amortization of balances that had been, but are no longer, accounted for as derivatives, for the periods indicated:
 
 
Classification in Condensed Consolidated Statements of Operations
 
Three Months Ended June 30,
 
Six Months Ended June 30,
Type of Derivative
 
2015
 
2014
 
2015
 
2014
 
 
 
 
(in millions)
Foreign currency derivatives
 
Foreign currency transaction gains
 
$
7

 
$
6

 
39

 
29

 
 
Net equity in earnings of affiliates
 
—

 
9

 
—

 
5

Commodity and other derivatives
 
Non-regulated revenue
 
1

 
1

 
(4
)
 
4

 
 
Regulated revenue
 
—

 
—

 
—

 
—

 
 
Non-regulated cost of sales
 
—

 
2

 
1

 
2

 
 
Regulated cost of sales
 
(1
)
 
2

 
(5
)
 
(6
)
 
 
Income (loss) from operations of discontinued businesses
 
—

 
(2
)
 
—

 
(7
)
 
 
Net loss from disposal and impairments of discontinued businesses
 
—

 
72

 
—

 
72

Total
 
 
 
$
7

 
$
90

 
$
31

 
$
99

Credit Risk-Related Contingent Features — DP&L has certain over-the-counter commodity derivative contracts under master netting agreements that contain provisions that require DP&L to maintain an investment-grade issuer credit rating from credit rating agencies. Since DP&L’s rating is below investment grade, certain of the counterparties to the derivative contracts have requested immediate and ongoing full overnight collateralization of the mark-to-market loss (fair value excluding credit valuation adjustments), which was $19 million and $12 million as of June 30, 2015 and December 31, 2014 , respectively, for all derivatives with credit risk-related contingent features. As of June 30, 2015 and December 31, 2014 , DP&L had posted $7 million and $5 million , respectively, of cash collateral directly with third parties and in a broker margin account and DP&L held no cash collateral from counterparties to its derivative instruments that were in an asset position.
6 . FINANCING RECEIVABLES
Financing receivables are defined as receivables that have contractual maturities of greater than one year. The Company primarily has financing receivables pursuant to amended agreements or government resolutions that are due from certain governmental bodies in Argentina. The following table presents financing receivables by country as of the periods indicated:

13



 
June 30, 2015
 
December 31, 2014
 
(in millions)
Argentina
$
256

 
$
278

Cameroon sale (1)
—

 
44

United States
20

 
—

Brazil
15

 
15

Total long-term financing receivables
$
291

 
$
337

_____________________________
(1)  
Represents non-contingent consideration to be received in 2016 from the sale of the Cameroon businesses in 2014. Balance is classified as short-term as of June 30, 2015 . See Note 17 —Discontinued Operations and Held-For-Sale Businesses .
Argentina — Collection of the principal and interest on these receivables is subject to various business risks and uncertainties including, but not limited to, the completion and operation of power plants which generate cash for payments of these receivables, regulatory changes that could impact the timing and amount of collections, and economic conditions in Argentina. The Company monitors these risks including the credit ratings of the Argentine government on a quarterly basis to assess the collectability of these receivables. The Company accrues interest on these receivables once the recognition criteria have been met. The Company’s collection estimates are based on assumptions that it believes to be reasonable, but are inherently uncertain. Actual future cash flows could differ from these estimates.
7 . INVESTMENTS IN AND ADVANCES TO AFFILIATES
Summarized Financial Information — The following table summarizes financial information of the Company’s 50%-or-less-owned affiliates that are accounted for using the equity method.
 
Six Months Ended June 30,
50%-or-less-Owned Affiliates
2015
 
2014
 
(in millions)
Revenue
$
357

 
$
568

Operating margin
86

 
150

Net income
35

 
107

Guacolda — On April 11, 2014, AES Gener undertook a series of transactions, pursuant to which AES Gener acquired the interests that it did not previously own in Guacolda for $728 million and simultaneously sold the ownership interest to Global Infrastructure Partners ("GIP") for $730 million . The transaction provided GIP with substantive participating rights in Guacolda and, as a result, the Company continues to account for its investment in Guacolda using the equity method of accounting.
8 . DEBT
Recourse Debt — In April 2015, the Company issued $575 million aggregate principal amount of 5.50% senior notes due 2025. Concurrent with this offering, the Company redeemed via tender offers $344 million aggregate principal of its existing 8.00% senior unsecured notes due 2017, and $156 million of its existing 8.00% senior unsecured notes due 2020. As a result of the latter transaction, the Company recognized a loss on extinguishment of debt of $82 million for the three and six months ended June 30, 2015 that is included in the Condensed Consolidated Statement of Operations.
In March 2015, the Company redeemed in full the $151 million balance of its 7.75% senior unsecured notes due October 2015 and the $164 million balance of its 9.75% senior unsecured notes due April 2016. As a result of these transactions, the Company recognized a loss on extinguishment of debt of $23 million for the six months ended June 30, 2015 that is included in the Condensed Consolidated Statement of Operations.
On May 20, 2014, the Company issued $775 million aggregate principal amount of senior unsecured floating rate notes due June 2019. The notes bear interest at a rate of 3% above three-month LIBOR, reset quarterly. Concurrent with this offering, the Company repaid $767 million of its existing senior secured term loan due 2018. As a result of the latter transaction, the Company recognized a loss on extinguishment of debt of $10 million for the three and six months ended June 30, 2014 that is included in the Condensed Consolidated Statement of Operations. On June 16, 2014, the Company repaid in full the remaining balance of $29 million of its senior secured term loan due 2018.
In February 2014, the Company redeemed in full the $110 million balance of its 7.75% senior unsecured notes due March 2014. On March 7, 2014, the Company issued $750 million aggregate principal amount of 5.50% senior notes due 2024. Concurrent with this offering, the Company redeemed via tender offers $625 million aggregate principal of its existing 8.00% senior unsecured notes due 2017. As a result of the latter transaction, the Company recognized a loss on extinguishment of debt of $132 million for the six months ended June 30, 2014 that is included in the Condensed Consolidated Statement of Operations.
Non-Recourse Debt — Significant transactions — During the six months ended June 30, 2015 , the Company’s subsidiaries had the following significant debt transactions:
•
Sul issued new debt of $499 million , partially offset by repayments of $468 million ;

14



•
IPALCO issued new debt of $405 million , partially offset by repayments of $384 million ;
•
Panama issued new debt of $300 million , partially offset by repayments of $287 million ;
•
Cochrane drew $297 million under its existing construction loans;
•
Gener drew $150 million on an existing credit facility;
•
Eletropaulo issued new debt of $118 million ; and
•
Mong Duong drew $104 million under its construction loan facility.
Debt in default — The following table summarizes the Company’s subsidiary non-recourse debt in default as of June 30, 2015 . Due to the defaults, these amounts are included in the current portion of non-recourse debt:
 
 
Primary Nature of Default
 
June 30, 2015
Subsidiary
 
Debt in Default
 
Net Assets
 
 
 
 
(in millions)
Maritza (Bulgaria)
 
Covenant
 
$
605

 
$
612

Kavarna (Bulgaria)
 
Covenant
 
147

 
78

Altai (Kazakhstan)
 
Covenant
 
$
12

 
16

 
 
 
 
$
764

 
 
The above defaults are not payment defaults. All of the subsidiary non-recourse debt defaults were triggered by failure to comply with covenants and/or other conditions such as (but not limited to) failure to meet information covenants, complete construction or other milestones in an allocated time, meet certain minimum or maximum financial ratios, or other requirements contained in the non-recourse debt documents of the applicable subsidiary.
In the event that there is a default, bankruptcy or maturity acceleration at a subsidiary or group of subsidiaries that meets the applicable definition of materiality under the Parent Company’s corporate debt agreements, there could be a cross-default to the Company’s recourse debt. Materiality is defined in the Parent’s senior secured credit facility as having provided 20% or more of the total cash distributions from businesses to the Parent Company for the four most recently completed fiscal quarters. As of June 30, 2015 , none of the defaults listed above individually or in the aggregate result in or are at risk of triggering a cross-default under the recourse debt of the Parent Company. In the event the Parent Company is not in compliance with the financial covenants of its senior secured credit facility, restricted payments will be limited to regular quarterly shareholder dividends at the then-prevailing rate. Payment defaults and bankruptcy defaults would preclude the making of any restricted payments.
9 . CONTINGENCIES AND COMMITMENTS
Guarantees, Letters of Credit and Commitments — In connection with certain project financing, acquisition, power purchase and other agreements, the Parent Company has expressly undertaken limited obligations and commitments, most of which will only be effective or will be terminated upon the occurrence of future events. In the normal course of business, the Parent Company has entered into various agreements, mainly guarantees and letters of credit, to provide financial or performance assurance to third parties on behalf of AES subsidiaries. These agreements are entered into primarily to support or enhance the creditworthiness otherwise achieved by a business on a stand-alone basis, thereby facilitating the availability of sufficient credit to accomplish their intended business purposes. Most of the contingent obligations relate to future performance commitments which the Company or its businesses expect to fulfill within the normal course of business. The expiration dates of these guarantees vary from less than one year to more than 19 years .
Amounts in the table below represent the Parent Company’s current undiscounted exposure to guarantees and the range of maximum undiscounted potential exposure. The maximum exposure is not reduced by the amounts, if any, that could be recovered under the recourse or collateralization provisions in the guarantees. The amounts include contingent obligations of $18 million made by the Parent Company for the direct benefit of the lenders associated with the non-recourse debt of its businesses. The following table summarizes the Parent Company’s contingent contractual obligations as of June 30, 2015 ($ in millions).
Contingent Contractual Obligations
 
Amount
 
Number of
Agreements
 
Maximum Exposure Range for
Each Agreement
Guarantees and commitments
 
$
359

 
14

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

 
1

 
$27
Cash collateralized letters of credit
 
49

 
6

 
<$1 — 30
Letters of credit under the senior secured credit facility
 
61

 
7

 
<$1 — 29
Total
 
$
496

 
28

 
 
_____________________________
(1)  
Excludes normal and customary representations and warranties in agreements for the sale of assets (including ownership in associated legal entities) where the associated risk is considered to be nominal.
During the three months ended June 30, 2015 , the Company paid letter of credit fees ranging from 0.2% to 2.5%  per annum on the outstanding amounts of letters of credit.

15



Environmental — The Company periodically reviews its obligations as they relate to compliance with environmental laws, including site restoration and remediation. As of June 30, 2015 and December 31, 2014 , the Company had recognized liabilities of $10 million and $12 million , respectively, for projected environmental remediation costs. Due to the uncertainties associated with environmental assessment and remediation activities, future costs of compliance or remediation with current legislation or costs for new legislation introduced could be higher or lower than the amount currently accrued. Moreover, where no liability has been recognized, it is reasonably possible that the Company may be required to incur remediation costs or make expenditures in amounts that could be material but could not be estimated as of June 30, 2015 . In aggregate, the Company estimates that the range of potential losses related to environmental matters, where estimable, to be up to $1 million . The amounts considered reasonably possible do not include amounts accrued as discussed above.
Litigation — The Company is involved in certain claims, suits and legal proceedings in the normal course of business. The Company accrues for litigation and claims when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. The Company has evaluated claims in accordance with the accounting guidance for contingencies that it deems both probable and reasonably estimable and, accordingly, has recognized aggregate liabilities for all claims of approximately $199 million as of June 30, 2015 and December 31, 2014 . These amounts are reported on the Condensed Consolidated Balance Sheets within Accrued and other liabilities and Other noncurrent liabilities . A significant portion of these accrued liabilities relate to labor and employment, non-income tax and customer disputes in international jurisdictions, principally Brazil where there are a number of labor and employment lawsuits. The complaints generally seek unspecified monetary damages, injunctive relief, or other relief. The subsidiaries have denied any liability and intend to vigorously defend themselves in all of these proceedings. There can be no assurance that these accrued liabilities will be adequate to cover all existing and future claims or that we will have the liquidity to pay such claims as they arise.
The Company believes, based upon information it currently possesses and taking into account established accruals for liabilities and its insurance coverage, that the ultimate outcome of these proceedings and actions is unlikely to have a material effect on the Company’s consolidated financial statements. However, where no accrued liability has been recognized, it is reasonably possible that some matters could be decided unfavorably to the Company and could require the Company to pay damages or make expenditures in amounts that could be material but could not be estimated as of June 30, 2015 . The material contingencies where a loss is reasonably possible primarily include claims under financing agreements; disputes with offtakers, suppliers and EPC contractors, alleged violation of monopoly laws and regulations, income tax and non-income tax matters with tax authorities, and regulatory matters. In aggregate, the Company estimates that the range of potential losses, where estimable, related to these reasonably possible material contingencies to be between $1.2 billion and $1.3 billion . Certain claims are in settlement negotiations. The amounts considered reasonably possible do not include amounts accrued, as discussed above. These material contingencies do not include income tax-related contingencies which are considered part of our uncertain tax positions.
Regulatory — During the fourth quarter of 2013, the Company recognized a regulatory liability of $269 million for a contingency related to an administrative ruling which required Eletropaulo to refund customers’ amounts related to the regulatory asset base. During the second half of 2014, Eletropaulo started refunding customers as part of the tariff. In January 2015, ANEEL updated the tariff to exclude any further customer refunds. On June 30, 2015, ANEEL included in the tariff reset the reimbursement to Eletropaulo of these amounts previously refunded to customers to begin in July 2015. During the second quarter of 2015, as a result of favorable events, management reassessed the contingency and determined that it no longer meets the recognition criteria under ASC 450. Management believes that it is now only reasonably possible that Eletropaulo will have to refund these amounts to customers. Accordingly, the Company reversed the remaining regulatory liability for this contingency of $161 million in the second quarter of 2015, which increased Regulated Revenue by $97 million and reduced Interest Expense by $64 million . Amounts related to this case are now included as part of our reasonably possible contingent range mentioned in the preceding paragraph.
10 . PENSION PLANS
Total pension cost for the periods indicated included the following components:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
U.S.
 
Foreign
 
U.S.
 
Foreign
 
U.S.
 
Foreign
 
U.S.
 
Foreign
 
(in millions)
Service cost
$
4

 
$
4

 
$
4

 
$
4

 
$
8

 
$
8

 
$
7

 
$
8

Interest cost
11

 
95

 
12

 
129

 
23

 
197

 
24

 
251

Expected return on plan assets
(17
)
 
(66
)
 
(16
)
 
(96
)
 
(34
)
 
(138
)
 
(32
)
 
(186
)
Amortization of prior service cost
2

 
—

 
1

 
1

 
4

 
—

 
3

 
2

Amortization of net loss
5

 
7

 
3

 
9

 
10

 
15

 
6

 
17

Total pension cost
$
5

 
$
40

 
$
4

 
$
47

 
$
11

 
$
82

 
$
8

 
$
92

Total employer contributions for the six months ended June 30, 2015 for the Company’s U.S. and foreign subsidiaries were $26 million and $48 million , respectively. The expected remaining scheduled employer contributions for 2015 are $0

16



million and $35 million for U.S. and foreign subsidiaries, respectively.
11 . EQUITY
Changes in Equity — The following table provides a reconciliation of the beginning and ending equity attributable to stockholders of The AES Corporation, noncontrolling interests and total equity as of the periods indicated:
 
Six Months Ended June 30, 2015
 
Six Months Ended June 30, 2014
 
The AES Corporation Stockholders’ Equity
 
Noncontrolling Interests
 
Total Equity
 
The AES Corporation Stockholders’ Equity
 
Noncontrolling Interests
 
Total Equity
 
(in millions)
Balance at the beginning of the period
$
4,272

 
$
3,053

 
$
7,325

 
$
4,330

 
$
3,321

 
$
7,651

Net income
211

 
307

 
518

 
75

 
266

 
341

Total foreign currency translation adjustment, net of income tax
(204
)
 
(140
)
 
(344
)
 
(56
)
 
38

 
(18
)
Total change in derivative fair value, net of income tax
30

 
(1
)
 
29

 
(99
)
 
(94
)
 
(193
)
Total pension adjustments, net of income tax
2

 
7

 
9

 
14

 
17

 
31

Cumulative effect of a change in accounting principle
(5
)
 
—

 
(5
)
 
—

 
—

 
—

Capital contributions from noncontrolling interests
—

 
97

 
97

 
—

 
113

 
113

Distributions to noncontrolling interests
—

 
(119
)
 
(119
)
 
—

 
(215
)
 
(215
)
Acquisition of business   (1)
—

 
16

 
16

 
—

 
—

 
—

Disposition of businesses
—

 
—

 
—

 
—

 
(151
)
 
(151
)
Acquisition of treasury stock
(307
)
 
—

 
(307
)
 
(32
)
 
—

 
(32
)
Issuance and exercise of stock-based compensation benefit plans, net of income tax
17

 
—

 
17

 
16

 
—

 
16

Dividends declared on common stock
(70
)
 
—

 
(70
)
 
(36
)
 
—

 
(36
)
Sale of subsidiary shares to noncontrolling interests
(82
)
 
—

 
(82
)
 
—

 
—

 
—

Transaction between entities under common control
—

 
—

 
—

 
5

 
2

 
7

Acquisition of subsidiary shares from noncontrolling interests
—

 
—

 
—

 
(6
)
 
—

 
(6
)
Balance at the end of the period
$
3,864

 
$
3,220

 
$
7,084

 
$
4,211

 
$
3,297

 
$
7,508

_____________________________
(1) Fair value of a tax equity partner’s right to preferential returns as a result of the acquisition of Solar Power PR, LLC (Solar Puerto Rico), which was previously accounted for as an equity method investment.
Equity Transactions with Noncontrolling Interests
IPALCO — On December 14, 2014, the Company executed sale and subscription agreements with CDPQ, whereby in the first quarter of 2015, CDPQ acquired a 15% noncontrolling interest in AES US Investments, Inc., a wholly-owned subsidiary, for $247 million . Prior to these agreements, AES US Investments, Inc. owned 100% of IPALCO. Under the subscription agreement, CDPQ committed to invest an additional $349 million in IPALCO through 2016 in exchange for a 17.65% equity stake, by funding existing growth and environmental projects at Indianapolis Power & Light Company. In April 2015, CDPQ invested $214 million of the $349 million in IPALCO, which resulted in CDPQ’s combined equity interest in IPALCO to be 24.90% . Upon investing the remaining commitment of $135 million , CDPQ's equity interests in IPALCO will total 30% .
As a result of these transactions, $82 million in taxes and transaction costs were recognized as a net decrease to equity. The Company also recognized an increase of $377 million to additional paid-in capital and a reduction to retained earnings of $377 million for the excess of the fair value of the shares over their book value. Since the noncontrolling interest is contingently redeemable, the fair value of the consideration received of $461 million is classified in temporary equity as redeemable stock of subsidiaries on the Condensed Consolidated Balance Sheets. No gain or loss was recognized in net income as the sale is not considered to be a sale of in-substance real estate. Any subsequent adjustments to allocate earnings and dividends to CDPQ will be classified as noncontrolling interest within permanent equity and adjustments to the amount in temporary equity will occur only if and when it is probable that the shares will become redeemable. As the Company maintained control after the sale, IPALCO continues to be accounted for as a consolidated subsidiary within the US SBU reportable segment.
Jordan — On March 15, 2015, the Company executed an agreement to sell 40% of its interest in a wholly owned subsidiary in Jordan that owns a controlling interest in the 247 MW Jordan IPP4 gas-fired plant for $30 million . The sale is expected to be completed during 2015.
Accumulated Other Comprehensive Loss — See below for the changes in AOCL by component, net of tax and noncontrolling interests, for the six months ended June 30, 2015 :
 
Unrealized derivative gains (losses), net
 
Unfunded pension obligations, net
 
Foreign currency translation adjustment, net
 
Total
 
(in millions)
Balance at the beginning of the period
$
(396
)
 
$
(295
)
 
$
(2,595
)
 
$
(3,286
)
Other comprehensive income (loss) before reclassifications
18

 
—

 
(204
)
 
(186
)
Amount reclassified to earnings
12

 
2

 
—

 
14

Other comprehensive income (loss)
30

 
2

 
(204
)
 
(172
)
Cumulative effect of a change in accounting principle
—

 
—

 
13

 
13

Balance at the end of the period
$
(366
)
 
$
(293
)
 
$
(2,786
)
 
$
(3,445
)

17



Reclassifications out of AOCL for the periods indicated were as follows:
Details About
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
AOCL Components
 
Affected Line Item in the Condensed Consolidated Statements of Operations
 
2015
 
2014
 
2015
 
2014
Foreign currency translation adjustment, net
 
(in millions)   (1)
 
 
Net loss from disposal and impairments of discontinued businesses
 
—

 
53

 
—

 
$
47

 
 
Net income attributable to The AES Corporation
 
$
—

 
$
53

 
$
—

 
$
47

Unrealized derivative gains (losses), net
 
 
 
 
Non-regulated revenue
 
$
10

 
$
6

 
$
15

 
$
19

 
 
Non-regulated cost of sales
 
(5
)
 
(3
)
 
(5
)
 
$
(2
)
 
 
Interest expense
 
(15
)
 
(31
)
 
(40
)
 
(63
)
 
 
Foreign currency transaction gains (losses)
 
2

 
7

 
8

 
4

 
 
Income from continuing operations before taxes and equity in earnings of affiliates
 
(8
)
 
(21
)
 
(22
)
 
(42
)
 
 
Income tax expense
 
1

 
10

 
3

 
13

 
 
Net equity in earnings of affiliates
 
—

 
(2
)
 
—

 
(3
)
 
 
Income from continuing operations
 
(7
)
 
(13
)
 
(19
)
 
(32
)
 
 
Income from continuing operations attributable to noncontrolling interests
 
4

 
15

 
7

 
15

 
 
Net income attributable to The AES Corporation
 
$
(3
)
 
$
2

 
$
(12
)
 
$
(17
)
Amortization of defined benefit pension actuarial loss, net
 
 
 
 
Regulated cost of sales
 
$
(6
)
 
$
(9
)
 
$
(14
)
 
$
(17
)
 
 
Non-regulated cost of sales
 
—

 
1

 
—

 
—

 
 
Other income
 
—

 
(2
)
 
—

 
(2
)
 
 
Income from continuing operations before taxes and equity in earnings of affiliates
 
(6
)
 
(10
)
 
(14
)
 
(19
)
 
 
Income tax expense
 
2

 
(2
)
 
5

 
1

 
 
Income from continuing operations
 
(4
)
 
(12
)
 
(9
)
 
(18
)
 
 
Net loss from disposal and impairments of discontinued businesses
 
—

 
2

 
—

 
2

 
 
Net income
 
(4
)
 
(10
)
 
(9
)
 
(16
)
 
 
Income from continuing operations attributable to noncontrolling interests
 
3

 
7

 
7

 
11

 
 
Net income attributable to The AES Corporation
 
$
(1
)
 
$
(3
)
 
$
(2
)
 
$
(5
)
Total reclassifications for the period, net of income tax and noncontrolling interests
 
$
(4
)
 
$
52

 
$
(14
)
 
$
25

_____________________________
(1)  
Amounts in parentheses indicate debits to the Condensed Consolidated Statements of Operations.
Common Stock Dividends
The Company paid dividends of $0.10 per outstanding share to its common stockholders during each of the first and second quarters of 2015 for dividends declared in December 2014 and April 2015, respectively. For information on dividends declared after the second quarter of 2015 , see Note 20 — Subsequent Events.
Secondary Offering and Concurrent Stock Repurchase
On May 18, 2015, the Parent Company completed an underwritten secondary public offering (the “Offering”) of 60 million shares of its common stock by the Terrific Investment Corporation (the “Selling Stockholder”), a subsidiary controlled by China Investment Corporation at a price of $13.25 per share. Of the 60 million shares, 40 million were sold to the market and 20 million were reserved to be repurchased by the Parent Company. The Parent Company did not receive any of the proceeds from the Offering and the Selling Stockholder has fully sold its stake in AES common stock. Concurrent with this offering, on May 18, 2015, the Parent Company completed the repurchase of the 20 million shares of its common stock from the Selling Stockholder at a price per share of $13.07 , for an aggregate purchase price of $261 million .
Stock Repurchase Program
During the three months ended June 30, 2015 , the Parent Company repurchased 20.8 million shares of its common stock (including the 20 million share repurchase in May referenced above) at a total cost of $271 million under the existing stock repurchase program (the “Program”). The cumulative repurchases from the commencement of the Program in July 2010 through June 30, 2015 totaled 129.5 million shares for a total cost of $1.6 billion , at an average price per share of $12.47 (including a nominal amount of commissions). As of June 30, 2015 , $117 million remained available for repurchase under the Program. For information on stock repurchases after the second quarter of 2015, see Note 20 — Subsequent Events.
12 . SEGMENTS
The segment reporting structure uses the Company’s management reporting structure as its foundation to reflect how the Company manages the businesses internally and is organized by geographic regions which provide better socio-political-economic understanding of our business. The management reporting structure is organized along six SBUs — led by our Chief Executive Officer (“CEO”). Using the accounting guidance on segment reporting, the Company has determined that it has six reportable segments corresponding to its six SBUs:
•
US SBU;
•
Andes SBU;

18



•
Brazil SBU;
•
MCAC SBU;
•
Europe SBU; and
•
Asia SBU
Corporate and Other — Corporate overhead costs which are not directly associated with the operations of our six reportable segments are included in “Corporate and Other.” Also included are certain intercompany charges such as self-insurance premiums which are fully eliminated in consolidation.
The Company uses Adjusted PTC as its primary segment performance measure. Adjusted PTC, a non-GAAP measure, is defined by the Company as pretax income from continuing operations attributable to AES excluding unrealized gains or losses related to derivative transactions, unrealized foreign currency gains or losses, gains or losses due to dispositions and acquisitions of business interests, losses due to impairments and costs due to the early retirement of debt. The Company has concluded that Adjusted PTC best reflects the underlying business performance of the Company and is the most relevant measure considered in the Company’s internal evaluation of the financial performance of its segments. Additionally, given its large number of businesses and complexity, the Company concluded that Adjusted PTC is a more transparent measure that better assists investors in determining which businesses have the greatest impact on the overall Company results.    
All intra-segment activity has been eliminated with respect to revenue and Adjusted PTC within the segment. Inter-segment activity has been eliminated within the total consolidated results.
Information about the Company’s operations by segment for the periods indicated was as follows:
Revenue
Total Revenue
 
Intersegment
 
External Revenue
Three Months Ended June 30,
2015
 
2014
 
2015
 
2014
 
2015
 
2014
 
(in millions)
US SBU
$
831

 
$
893

 
$
—

 
$
—

 
$
831

 
$
893

Andes SBU
630

 
724

 
(2
)
 
(1
)
 
628

 
723

Brazil SBU
1,315

 
1,533

 
—

 
—

 
1,315

 
1,533

MCAC SBU
601

 
692

 
(1
)
 
—

 
600

 
692

Europe SBU
299

 
305

 
(3
)
 
—

 
296

 
305

Asia SBU
187

 
163

 
—

 
—

 
187

 
163

Corporate and Other
6

 
5

 
(5
)
 
(3
)
 
1

 
2

Total Revenue
$
3,869

 
$
4,315

 
$
(11
)
 
$
(4
)
 
$
3,858

 
$
4,311

Revenue
Total Revenue
 
Intersegment
 
External Revenue
Six Months Ended June 30,
2015
 
2014
 
2015
 
2014
 
2015
 
2014
 
(in millions)
US SBU
$
1,828

 
$
1,894

 
$
—

 
$
—

 
$
1,828

 
$
1,894

Andes SBU
1,242

 
1,344

 
(4
)
 
(1
)
 
1,238

 
1,343

Brazil SBU
2,645

 
2,978

 
—

 
—

 
2,645

 
2,978

MCAC SBU
1,199

 
1,330

 
(2
)
 
(1
)
 
1,197

 
1,329

Europe SBU
629

 
696

 
(3
)
 
—

 
626

 
696

Asia SBU
306

 
331

 
—

 
—

 
306

 
331

Corporate and Other
10

 
7

 
(8
)
 
(5
)
 
2

 
2

Total Revenue
$
7,859

 
$
8,580

 
$
(17
)
 
$
(7
)
 
$
7,842

 
$
8,573

Adjusted PTC (1)
Total Adjusted PTC
 
Intersegment
 
External Adjusted PTC
Three Months Ended June 30,
2015
 
2014
 
2015
 
2014
 
2015
 
2014
 
(in millions)
US SBU
$
56

 
$
80

 
$
3

 
$
3

 
$
59

 
$
83

Andes SBU
81

 
104

 
5

 
1

 
86

 
105

Brazil SBU
41

 
115

 
—

 
—

 
41

 
115

MCAC SBU
106

 
95

 
5

 
10

 
111

 
105

Europe SBU
41

 
73

 
(1
)
 
3

 
40

 
76

Asia SBU
30

 
23

 
1

 
—

 
31

 
23

Corporate and Other
(104
)
 
(150
)
 
(13
)
 
(17
)
 
(117
)
 
(167
)
Total Adjusted PTC
$
251

 
$
340

 
$
—

 
$
—

 
$
251

 
$
340

Reconciliation to Income from Continuing Operations before Taxes and Equity Earnings of Affiliates:
Non-GAAP Adjustments:
 
 
 
 
Unrealized derivative gains
 
2

 
22

Unrealized foreign currency gains (losses)
 
3

 
(7
)
Disposition/acquisition gains (losses)
 
4

 
(2
)
Impairment losses
 
(30
)
 
(99
)
Loss on extinguishment of debt
 
(115
)
 
(13
)
Pretax contribution
 
115

 
241

Add: Income from continuing operations before taxes, attributable to noncontrolling interests
 
269

 
197

Less: Net equity in earnings of affiliates
 
—

 
20

Income from continuing operations before taxes and equity in earnings of affiliates
 
$
384

 
$
418


19



Adjusted PTC (1)
Total Adjusted PTC
 
Intersegment
 
External Adjusted PTC
Six Months Ended June 30,
2015
 
2014
 
2015
 
2014
 
2015
 
2014
 
(in millions)
US SBU
$
162

 
$
155

 
$
6

 
$
6

 
$
168

 
$
161

Andes SBU
172

 
157

 
8

 
4

 
180

 
161

Brazil SBU
62

 
184

 
1

 
1

 
63

 
185

MCAC SBU
156

 
160

 
9

 
14

 
165

 
174

Europe SBU
126

 
188

 
2

 
6

 
128

 
194

Asia SBU
42

 
31

 
1

 
1

 
43

 
32

Corporate and Other
(217
)
 
(292
)
 
(27
)
 
(32
)
 
(244
)
 
(324
)
Total Adjusted PTC
$
503

 
$
583

 
$
—

 
$
—

 
$
503

 
$
583

Reconciliation to Income from Continuing Operations before Taxes and Equity Earnings of Affiliates:
Non-GAAP Adjustments:
 
 
 
 
Unrealized derivative gains
 
17

 
32

Unrealized foreign currency losses
 
(44
)
 
(33
)
Disposition/acquisition gains (losses)
 
9

 
(1
)
Impairment losses
 
(36
)
 
(265
)
Loss on extinguishment of debt
 
(142
)
 
(147
)
Pretax contribution
 
307

 
169

Add: Income from continuing operations before taxes, attributable to noncontrolling interests
 
427

 
412

Less: Net equity in earnings of affiliates
 
15

 
45

Income from continuing operations before taxes and equity in earnings of affiliates
 
$
719

 
$
536

_____________________________
(1)  
Adjusted PTC in each segment before intersegment eliminations includes the effect of intercompany transactions with other segments except for interest, charges for certain management fees and the write-off of intercompany balances.
Total Assets
 
June 30, 2015
 
December 31, 2014
 
 
(in millions)
US SBU
 
$
10,089

 
$
10,062

Andes SBU
 
8,349

 
7,888

Brazil SBU
 
7,790

 
8,439

MCAC SBU
 
5,031

 
4,948

Europe SBU
 
3,497

 
3,525

Asia SBU
 
3,127

 
2,972

Assets of held-for-sale businesses
 
158

 
—

Corporate and Other & eliminations
 
543

 
1,132

Total Assets
 
$
38,584

 
$
38,966

13 . OTHER INCOME AND EXPENSE
Other Income — Other income includes gains on asset sales and liability extinguishments, favorable judgments on contingencies, and other income from miscellaneous transactions. The components of other income are summarized as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(in millions)
Contingency reversal (Kazakhstan)
$
—

 
$
18

 
$
—

 
$
18

Gain on sale of assets
6

 
8

 
11

 
10

Allowance for Funds Used During Construction (IPL)
3

 
1

 
7

 
2

Other
6

 
6

 
13

 
15

Total other income
$
15

 
$
33

 
$
31

 
$
45

Other Expense — Other expense generally includes losses on asset sales and dispositions, losses on legal contingencies and losses from other miscellaneous transactions. The components of other expense are summarized as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(in millions)
Loss on sale and disposal of assets
$
8

 
$
12

 
$
23

 
$
19

Legal settlement
5

 
—

 
8

 
—

Other
1

 
5

 
3

 
6

Total other expense
$
14

 
$
17

 
$
34

 
$
25

14 . GOODWILL IMPAIRMENT
There were no goodwill impairments for the three and six months ended June 30, 2015 or for the three months ended June 30, 2014.
DPLER — During the first quarter of 2014, the Company performed an interim impairment test on the $136 million in goodwill at its DPLER reporting unit, a competitive retail marketer selling retail electricity to customers in Ohio and Illinois. The DPLER reporting unit was identified as being “at risk” during the fourth quarter of 2013. The impairment indicators arose based on market information available regarding actual and proposed sales of competitive retail marketers, which indicated a significant decline in valuations during the first quarter of 2014.
In Step 1 of the interim impairment test, the fair value of the reporting unit was determined to be less than its carrying

20



amount under both the market approach and the income approach using a discounted cash flow valuation model. The significant assumptions included commodity price curves, estimated electricity to be demanded by its customers, changes in its customer base through attrition and expansion, discount rates, the assumed tax structure and the level of working capital required to operate the business. 
In Step 2 of the interim impairment test, the goodwill was determined to have an implied fair value of  zero  after the hypothetical purchase price allocation; thus the Company accordingly recognized a full impairment of the $136 million in goodwill at the DPLER reporting unit during the three months ended March 31, 2014. DPLER is reported in the US SBU reportable segment. 
Buffalo Gap — During the first quarter of 2014, the Company recognized an $18 million impairment of its goodwill at its Buffalo Gap reporting unit, which is composed of three  wind projects in Texas with an aggregate generation capacity of  524  MW, and is reported in the US SBU reportable segment.
15 . ASSET IMPAIRMENT EXPENSE
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(in millions)
DP&L (East Bend)
$
—

 
$
—

 
$
—

 
$
12

Ebute
—

 
52

 
—

 
52

UK Wind
37

 
11

 
37

 
11

Other
—

 
—

 
8

 
$
—

Total asset impairment expense
$
37

 
$
63

 
$
45

 
$
75

UK Wind (Development Projects) — During the second quarter of 2015, the Company decided to no longer pursue two wind projects in the United Kingdom based on recent regulatory clarifications specific to these projects, resulting in a full impairment. Impairment indicators were also identified at four other wind projects based on their current development status and a reassessment of the likelihood that each project would be pursued given aviation concerns, regulatory changes, economic considerations and other factors. The Company determined that the carrying amounts of each of these asset groups, which totaled $38 million , were not recoverable. In aggregate, the asset groups were determined to have a fair value of $1 million using the market approach and, as a result, the Company recognized asset impairment expense of $37 million . The UK Wind projects are reported in the Europe SBU reportable segment.
DP&L (East Bend) — During the first quarter of 2014, the Company tested the recoverability of long-lived assets at East Bend, a  186  MW coal-fired plant in Ohio jointly owned by DP&L (a wholly owned subsidiary of AES). Indications during that quarter that the fair value of the asset group was less than its carrying amount were determined to be impairment indicators given how narrowly these long-lived assets had passed the recoverability test during the fourth quarter of 2013. During the first quarter of 2014, the Company determined that the carrying amount of the asset group was not recoverable. The East Bend asset group was determined to have a fair value of $2 million using the market approach. As a result, the Company recognized asset impairment expense of  $12 million . The Company’s interest in East Bend was sold in December 2014. Prior to its sale, East Bend was reported in the US SBU reportable segment.
Ebute — During the second quarter of 2014, the Company identified impairment indicators at Ebute in Nigeria, resulting from the continued lack of gas supply and the increased likelihood of selling the asset group before the end of its useful life. The Company determined that the carrying amount of the asset group was not recoverable. The Ebute asset group was determined to have a fair value of $47 million using primarily the market approach based on indications about the proceeds that could be received from a future sale, the amount of cash flows estimated to be received until that sale under its power purchase agreement and the amount of cash on hand. As a result, the Company recognized an asset impairment expense of $52 million . In November 2014, the Company completed the sale of its interest in Ebute. Prior to its sale, Ebute was reported in the Europe SBU reportable segment.
UK Wind (Newfield) — During the second quarter of 2014, the Company tested the recoverability of long-lived assets at its Newfield wind development project in the United Kingdom after the UK government refused to grant a permit necessary for the project to continue. The Company determined that the carrying amount of the asset group was not recoverable. The Newfield asset group was determined to have no fair value using the income approach. As a result, the Company recognized an asset impairment expense of $11 million . UK Wind (Newfield) is reported in the Europe SBU reportable segment.
16 . OTHER NON-OPERATING EXPENSE
There was no other non-operating expense for the three and six months ended June 30, 2015.
Silver Ridge — On June 16, 2014, the Company executed an agreement to sell its 50% ownership interest in Silver Ridge Power, LLC (“SRP”) for a purchase price of $165 million , subject to certain purchase price adjustments, and excluding the Company’s indirect ownership interests in SRP’s solar generation businesses in Italy, Puerto Rico and Spain. SRP is a solar power joint venture of AES and Riverstone Holdings LLC with each partner having a 50% ownership interest in SRP. As a

21



result of the Company's continuing interests and involvement in SRP's solar generation businesses in Italy, Puerto Rico, and Spain, the transaction will not result in a sale for accounting purposes until all continuing involvement by AES has been eliminated. The buyer also has an option to purchase the Company's indirect 50% interest in the Italy solar generation business for additional consideration of $42 million by August 2015.
During the second quarter of 2014, the Company determined that there was a decline in the fair value of its equity method investment in SRP that was other than temporary based on indications about the fair value of the projects in Italy and Spain that resulted from actual and proposed changes to their tariffs. As a result, the Company recognized a pretax impairment loss of $44 million in other non-operating expense in the second quarter of 2014. The sale of the 50% ownership interest in SRP closed on July 2, 2014 for $179 million , including purchase price adjustments.
17 . DISCONTINUED OPERATIONS AND HELD-FOR-SALE BUSINESSES
As discussed in Note 1 — Financial Statement Presentation , effective July 1, 2014, the Company prospectively adopted ASU No. 2014-08. There have been no businesses classified as a discontinued operation subsequent to the adoption of the new accounting standard.
The following table summarizes the revenue, income from operations, income tax expense, impairment and loss on disposal of all businesses classified as a discontinued operation prior to the adoption of ASU No. 2014-08 for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(in millions)
Revenue
$
—

 
$
104

 
$
—

 
$
233

Income from operations of discontinued businesses, before income tax
$
—

 
$
15

 
$
—

 
$
49

Income tax expense
—

 
(8
)
 
—

 
(22
)
Income from operations of discontinued businesses, after income tax
$
—

 
$
7

 
$
—

 
$
27

Net loss from disposal & impairments of discontinued businesses, after income tax
$
—

 
$
(13
)
 
$
—

 
$
(56
)
U.S. wind project s — In November 2013, the Company executed an agreement for the sale of its 100% membership interests in three wind projects with an aggregate generation capacity of 234 MW: Condon in California, Lake Benton I in Minnesota and Storm Lake II in Iowa. The sale transaction closed on January 30, 2014 and net proceeds of $27 million were received. These wind projects were previously reported in the US SBU reportable segment.
Under the terms of the sale agreement, the buyer was provided an option to purchase the Company's 100% interest in Armenia Mountain, a 101 MW wind project in Pennsylvania, at a fixed price of $75 million . Approximately $3 million of the $27 million net proceeds was deferred and allocated to this option.
The buyer exercised the option on March 31, 2015 and the sale was completed on July 1, 2015. Accordingly, Armenia Mountain has been classified as held-for-sale as of June 30, 2015, but does not meet the criteria to be reported as a discontinued operation. Armenia Mountain’s results are therefore reflected within continuing operations in the Condensed Consolidated Statements of Operations. Armenia Mountain’s pretax income attributable to AES was $2 million and $6 million , respectively, for the three and six months ended June 30, 2015, and $2 million and $5 million , respectively, for the three and six months ended June 30, 2014. Armenia Mountain is reported in the US SBU reportable segment.
Saurashtra — In October 2013, the Company executed a sale agreement for the sale of its wholly owned subsidiary AES Saurashtra Private Ltd, a 39 MW wind project in India. The sale transaction closed on February 24, 2014 and net proceeds of $8 million were received. Saurashtra was previously reported in the Asia SBU reportable segment.
Cameroon — In September 2013, a subsidiary of the Company executed agreements for the sale of AES White Cliffs B.V. (owner of 56% of AES SONEL S.A), AES Kribi Holdings B.V. (owner of 56% of Kribi Power Development Company S.A.) and AES Dibamba Holdings B.V. (owner of 56% of Dibamba Power Development Company S.A.). In June 2014, the Company sold its entire equity interest in all three businesses in Cameroon. Net proceeds from the sale transaction were $200 million with $156 million received and non-contingent consideration of $44 million to be received in 2016. The carrying amount of $44 million , which approximates fair value, and is secured by a $40 million letter of credit from a well-capitalized, multinational bank. Between meeting the held-for-sale criteria in September 2013 through the first quarter of 2014, the Company recognized impairment charges totaling $101 million , representing the difference between the aggregate carrying amount of $435 million and fair value less costs to sell of $334 million . During the second quarter of 2014, the Company recognized an additional loss on sale of $7 million . These businesses were previously reported in the Europe SBU reportable segment.
18 . ACQUISITIONS
Main Street Power — On February 18, 2015, the Company completed the acquisition of the 100% of the common stock of Main Street Power Company, Inc. for approximately $25 million pursuant to the terms and condition of a definitive

22



agreement dated January 24, 2015. The purchase consideration was comprised of cash of $20 million and the fair value of earn-out payments of $5 million . At June 30, 2015, the assets acquired and liabilities assumed in the acquisition were recorded at provisional amounts based on the preliminary purchase price allocation. The Company is in the process of obtaining additional information to measure all assets acquired and liabilities assumed in the acquisition within the measurement period, which could be up to one year from the date of acquisition. The preliminary purchase price allocation has resulted in the recognition of $14 million of goodwill. Subsequent changes to the fair value of earn-out payments will be reflected in earnings.
19 . EARNINGS PER SHARE
Basic and diluted earnings per share are based on the weighted average number of shares of common stock and potential common stock outstanding during the period. Potential common stock, for purposes of determining diluted earnings per share, includes the effects of dilutive RSUs, stock options and convertible securities. The effect of such potential common stock is computed using the treasury stock method or the if-converted method, as applicable. The following tables present a reconciliation of the numerator and denominator of the basic and diluted earnings per share computation for income from continuing operations for the periods indicated. In the table below, income represents the numerator and weighted average shares represent the denominator:
 
Three Months Ended June 30,
 
2015
 
2014
 
Income
 
Shares
 
$ per Share
 
Income
 
Shares
 
$ per Share
 
(in millions except per share data)
BASIC EARNINGS PER SHARE
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations attributable to The AES Corporation common stockholders
$
69

 
693

 
$
0.10

 
$
142

 
725

 
$
0.20

EFFECT OF DILUTIVE SECURITIES
 
 
 
 

 
 
 
 
 
 
Stock options
—

 
—

 
—

 
—

 
1

 
—

Restricted stock units
—

 
2

 
—

 
—

 
2

 
—

DILUTED EARNINGS PER SHARE
$
69

 
695

 
$
0.10

 
$
142

 
728

 
$
0.20

 
Six Months Ended June 30,
 
2015
 
2014
 
Income
 
Shares
 
$ per Share
 
Income
 
Shares
 
$ per Share
 
(in millions except per share data)
BASIC EARNINGS PER SHARE
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations attributable to The AES Corporation common stockholders
$
211

 
698

 
$
0.30

 
$
95

 
725

 
$
0.13

EFFECT OF DILUTIVE SECURITIES
 
 
 
 
 
 
 
 
 
 
 
Stock options
—

 
1

 
—

 
—

 
1

 
—

Restricted stock units
—

 
2

 
—

 
—

 
2

 
—

DILUTED EARNINGS PER SHARE
$
211

 
701

 
$
0.30

 
$
95

 
728

 
$
0.13

For the three and six months ended June 30, the calculation of diluted earnings per share excluded 6 million and 7 million outstanding stock awards for 2015 and 2014, respectively, that could potentially dilute basic earnings per share in the future. Additionally, for the three and six months ended June 30, 2015 and 2014 , all 15 million shares of potential common stock associated with convertible debentures were omitted from the earnings per share calculation. These were not included because the impact would have been anti-dilutive.
20 . SUBSEQUENT EVENTS
Armenia Mountain Wind — On July 1, 2015 , the Company completed the sale of its interest in Armenia Mountain Wind and received net proceeds of $70 million . The Company expects to recognize a gain on this transaction in the third quarter of 2015. See Note 17 — Discontinued Operations and Held-for-Sale Businesses for additional information .
Stock Repurchase Program — Subsequent to June 30, 2015 , the Parent Company repurchased an additional 2.2 million shares at a cost of $29 million , bringing the cumulative repurchases total from July 2010 through August 7, 2015 to 131.7 million shares for a total cost of $1.6 billion , at an average price per share of $12.48 (including a nominal amount of commissions). As of August 7, 2015, $88 million remains available under the Program. See Note 11 — Equity for additional information .
Dividends — On July 10, 2015, the Parent Company’s Board of Directors declared a dividend of $0.10 per outstanding common share payable on August 17, 2015 to the shareholders of record at the close of business on August 3, 2015.
Solar Spain — On July 29, 2015 , the Company signed an agreement to sell all of its 50% interest in Solar Spain, an equity method investment with 31 MW peak capacity in operations, for approximately $32 million , subject to customary closing conditions.

23



ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In this Quarterly Report on Form 10-Q (“Form 10-Q”), the terms “AES,” “the Company,” “us,” or “we” refer to the consolidated entity and all of its subsidiaries and affiliates, collectively. The term “The AES Corporation”, “the Parent Company”, or “the Parent” refers only to the parent, publicly held holding company, The AES Corporation, excluding its subsidiaries and affiliates. The condensed consolidated financial statements included in Item 1.— Financial Statements of this Form 10-Q and the discussions contained herein should be read in conjunction with our 2014 Form 10-K.
FORWARD-LOOKING INFORMATION
The following discussion may contain forward-looking statements regarding us, our business, prospects and our results of operations that are subject to certain risks and uncertainties posed by many factors and events that could cause our actual business, prospects and results of operations to differ materially from those that may be anticipated by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those described in Item 1A.— Risk Factors and Item 7.— Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2014 Form 10-K and subsequent filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date of this report. We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements. Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC that advise of the risks and factors that may affect our business.
Overview of Our Business — We are a diversified power generation and utility company organized into six market-oriented SBUs:
•
US (United States),
•
Andes (Chile, Colombia, and Argentina),
•
Brazil,
•
MCAC (Mexico, Central America and the Caribbean),
•
Europe (Europe and Middle East), and
•
Asia.
For additional information regarding our business, see Item 1.— Business of our 2014 Form 10-K.
Within our six SBUs listed above, we have two lines of business. The first business line is generation, where we own and/or operate power plants to generate and sell power to customers such as utilities, industrial users, and other intermediaries. The second business line is utilities, where we own and/or operate utilities to generate or purchase, distribute, transmit and sell electricity to end-user customers in the residential, commercial, industrial and governmental sectors within a defined service area. In certain circumstances, our utilities also generate and sell electricity on the wholesale market.
Key Topics in Management’s Discussion and Analysis — Our discussion covers the following:
•
Overview of Q2 2015 Results and Strategic Performance
•
Review of Consolidated Results of Operations
•
Non-GAAP Measures and SBU Analysis
•
Key Trends and Uncertainties
•
Capital Resources and Liquidity
Overview of Q2 2015 Results and Strategic Performance
Management’s Strategic Priorities — Management is focused on the following priorities:
•
Reducing complexity: By exiting businesses and markets where we do not have a competitive advantage, we are simplifying our portfolio and reducing risk.
•
Leveraging our platforms: Focusing our growth on platform expansions, including adjacencies, in markets where we already operate and have a competitive advantage to realize attractive risk-adjusted returns. We currently have 5,859 MW under construction. These projects represent $7 billion in total capital expenditures, with the majority of AES’ $1.3 billion in equity already funded and are on track to come online from 2015 through 2018.
◦
During the second quarter, we brought on-line the 1,240 MW coal-fired Mong Duong 2 project in Vietnam, which has a 25-year PPA with EVN, the state-owned utility.
•
Performance excellence: We strive to be the low-cost manager of a portfolio of assets and to derive synergies and scale

24

from our businesses.
•
Expanding access to capital: By building strategic partnerships at the project and business level. Through these partnerships, we aim to optimize our risk-adjusted returns in our existing businesses and growth projects. By selling down portions of certain businesses, we can adjust our global exposure to commodity, fuel, country and other macroeconomic risks. Partial sell-downs of our assets can also serve to highlight or enhance the value of businesses in our portfolio.
◦
During the second quarter, CDPQ invested $214 million in IPALCO, the Parent Company of IPL in Indiana. We expect CDPQ to invest an additional $135 million in IPALCO by 2016. After completion of this investment, CDPQ’s direct and indirect interests in IPALCO will total 30%. There will be no change in management or operational control of IPALCO as a result of these transactions.
•
Allocating capital in a disciplined manner: Our top priority is to maximize risk-adjusted returns to our shareholders, which we achieve by investing our discretionary cash and recycling the capital we receive from asset sales and strategic partnerships.
◦
In the second quarter of 2015, we invested $271 million by repurchasing 21 million shares, including repurchasing 20 million shares from China Investment Corporation in May 2015.
◦
In the first six months of 2015, we repurchased 24 million shares for $306 million and in July and August 2015, we repurchased 2.2 million shares for $29 million . We currently have $88 million of authorization available for further buybacks.
◦
In the first six months of 2015, we paid $141 million in shareholder dividends and made $279 million of investments in our subsidiaries.
Q 2 2015 Strategic Performance
Earnings Per Share Results in Q 2 2015
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
Change
 
% Change
 
2015
 
2014
 
Change
 
% Change
Diluted earnings per share from continuing operations
$
0.10

 
$
0.20

 
$
(0.10
)
 
-50
 %
 
$
0.30

 
$
0.13

 
$
0.17

 
131
 %
Adjusted EPS (a non-GAAP measure) (1)
$
0.25

 
$
0.28

 
$
(0.03
)
 
-11
 %
 
$
0.50

 
$
0.53

 
$
(0.03
)
 
-6
 %
_____________________________
(1)
See reconciliation and definition under Non-GAAP Measures.     
Three Months Ended June 30, 2015
Diluted earnings per share from continuing operations decreased $0.10 , or 50% , to $0.10 primarily due to the timing of planned maintenance at certain businesses, unfavorable foreign currency exchange, lower demand and contracting strategy in Brazil, the net impact from the reversal of liabilities in Brazil and Europe, and increased debt extinguishment expense of $0.11 primarily related to costs incurred to retire and refinance near-term debt maturities. These negative impacts were partially offset by lower impairment expense, improved hydrology in Panama and Colombia, lower interest expense at the Parent Company, lower share count, and a lower effective tax rate.
Adjusted EPS, a non-GAAP measure, decreased $0.03 , or 11% , to $0.25 primarily due to the timing of planned maintenance at certain businesses, unfavorable foreign currency exchange, lower demand and contracting strategy in Brazil, and the net impact from the reversal of liabilities in Brazil and Europe. These negative impacts were partially offset by improved hydrology in Panama and Colombia, lower interest expense at the Parent Company, lower share count, and a lower adjusted effective tax rate.
Six Months Ended June 30, 2015
Diluted earnings per share from continuing operations increased $0.17, or 131%, to $0.30 primarily due to $0.21 of lower impairment expense, contributions from new businesses, improved hydrology in Panama and Colombia, lower interest expense at the Parent Company, lower share count, and a lower effective tax rate. These increases were partially offset by the effects of unfavorable foreign currency exchange, lower demand and contracting strategy in Brazil, and the net impact from the reversal of liabilities in Brazil and Europe.
Adjusted EPS, a non-GAAP measure, decreased $0.03 , or 6% , to $0.50 primarily due to the effects of unfavorable foreign currency exchange, lower demand and contracting strategy in Brazil, and the net impact of the reversal of liabilities in Brazil and Europe. These negative impacts were partially offset by contributions from new businesses, improved hydrology in Panama and Colombia, lower interest expense at the Parent Company, lower share count, and a lower adjusted effective tax rate.
Capital Management and Allocation
We continue to focus on improving cash generation and optimizing the use of our parent discretionary cash. During the

25

second quarter of 2015 , we generated $153 million of cash flow from operating activities. We utilized cash consistent with our strategy, as we paid a quarterly dividend of $70 million ( $0.10 per share), repurchased common stock under the existing stock repurchase program at a total cost of $271 million , and refinanced $500 million of recourse debt at the Parent Company.
Safe, Reliable and Sustainable Operations
Our safety performance was down in the second quarter of 2015 for lost-time incident case rates for both employees and operational contractors. However, safety is our first value and a top priority. We consistently analyze and evaluate our safety performance in order to capture lessons learned and strengthen mitigation plans that improve our safety performance.
Generation in GWh was down 4% compared to the first six months of 2014 , mainly driven by dry hydrological conditions in Brazil and higher unplanned outages at our generation plants in Indiana and Ohio.
Compared to the first half of 2014 , our KPIs performance was mixed, as our generation KPIs declined while indicators for our utilities improved. Our CA and heat rate performance deteriorated, largely driven by unplanned outages at our generation plants in Ohio and longer maintenance at our generation plants in the Dominican Republic and Chile. Most of the unplanned outage events have been resolved and mitigation plans have been implemented. For utilities, our performance on SAIFI and non-technical losses improved compared to the first half of 2014 . The table below presents our KPIs for the periods indicated.
 
For the Six Months Ended June 30,
KPIs
2015
 
2014
 
Variance
Safety: Employee Lost-Time Incident Case Rate
0.134

 
0.120

 
-12
 %
Safety: Operational Contractor Lost-Time Incident Case Rate
0.127

 
0.051

 
-149
 %
Generation
 
 
 
 
 
Commercial Availability (CA, %)
87.9
%
 
91.3
%
 
-3.4
 %
Equivalent Forced Outage Factor (EFOF, %)
3.3
%
 
3.9
%
 
0.6
 %
Heat Rate (BTU/kWh)
10,058

 
9,796

 
-262

Utility
 
 
 
 
 
System Average Interruption Duration Index (SAIDI, hours)
5.8

 
5.8

 
—

System Average Interruption Frequency Index (SAIFI, number of interruptions)
3.3

 
3.7

 
0.4

Non-Technical Losses (%)
1.8
%
 
2.0
%
 
0.2
 %
_________________________________________________
Definitions:
•
Lost-Time Incident Case Rate: Number of lost-time cases per number of full-time employees or contractors.
•
CA: Actual variable margin, as a percentage of potential variable margin if the unit had been available at full capacity during outages.
•
EFOF: The percentage of the time that a plant is not capable of producing energy due to unplanned operational reductions in production.
•
Heat Rate: The amount of energy used by an electrical generator or power plant to generate one kWh.
•
SAIDI: The total hours of interruption the average customer experiences annually. Trailing 12-month average.
•
SAIFI: The average number of interruptions the average customer experiences annually. Trailing 12-month average.
•
Non-Technical Losses: Delivered energy that was not billed due to measurement error, theft or other reasons. Trailing 12-month average.

26



Review of Consolidated Results of Operations
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
$ change
 
% change
 
2015
 
2014
 
$ change
 
% change
 
($ in millions, except per share amounts)
Revenue:
 
 
 
 
 
 
 
 
 
US SBU
$
831

 
$
893

 
$
(62
)
 
-7
 %
 
$
1,828

 
$
1,894

 
$
(66
)
 
-3
 %
Andes SBU
630

 
724

 
(94
)
 
-13
 %
 
1,242

 
1,344

 
(102
)
 
-8
 %
Brazil SBU
1,315

 
1,533

 
(218
)
 
-14
 %
 
2,645

 
2,978

 
(333
)
 
-11
 %
MCAC SBU
601

 
692

 
(91
)
 
-13
 %
 
1,199

 
1,330

 
(131
)
 
-10
 %
Europe SBU
299

 
305

 
(6
)
 
-2
 %
 
629

 
696

 
(67
)
 
-10
 %
Asia SBU
187

 
163

 
24

 
15
 %
 
306

 
331

 
(25
)
 
-8
 %
Corporate and Other
6

 
5

 
1

 
20
 %
 
10

 
7

 
3

 
43
 %
Intersegment eliminations
(11
)
 
(4
)
 
(7
)
 
175
 %
 
(17
)
 
(7
)
 
(10
)
 
143
 %
Total Revenue
3,858

 
4,311

 
(453
)
 
-11
 %
 
7,842

 
8,573

 
(731
)
 
-9
 %
Operating Margin:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
US SBU
125

 
144

 
(19
)
 
-13
 %
 
298

 
278

 
20

 
7
 %
Andes SBU
119

 
148

 
(29
)
 
-20
 %
 
250

 
239

 
11

 
5
 %
Brazil SBU
223

 
270

 
(47
)
 
-17
 %
 
400

 
591

 
(191
)
 
-32
 %
MCAC SBU
165

 
146

 
19

 
13
 %
 
268

 
235

 
33

 
14
 %
Europe SBU
64

 
77

 
(13
)
 
-17
 %
 
167

 
210

 
(43
)
 
-20
 %
Asia SBU
47

 
27

 
20

 
74
 %
 
71

 
37

 
34

 
92
 %
Corporate and Other
12

 
4

 
8

 
200
 %
 
24

 
26

 
(2
)
 
-8
 %
Intersegment eliminations
(1
)
 
3

 
(4
)
 
-133
 %
 
(3
)
 
(3
)
 
—

 
—
 %
Total Operating Margin
754

 
819

 
(65
)
 
-8
 %
 
1,475

 
1,613

 
(138
)
 
-9
 %
General and administrative expenses
(50
)
 
(52
)
 
2

 
-4
 %
 
(105
)
 
(103
)
 
(2
)
 
2
 %
Interest expense
(310
)
 
(323
)
 
13

 
-4
 %
 
(673
)
 
(696
)
 
23

 
-3
 %
Interest income
133

 
73

 
60

 
82
 %
 
223

 
136

 
87

 
64
 %
Loss on extinguishment of debt
(122
)
 
(15
)
 
(107
)
 
713
 %
 
(145
)
 
(149
)
 
4

 
-3
 %
Other expense
(14
)
 
(17
)
 
3

 
-18
 %
 
(34
)
 
(25
)
 
(9
)
 
36
 %
Other income
15

 
33

 
(18
)
 
-55
 %
 
31

 
45

 
(14
)
 
-31
 %
Goodwill impairment expense
—

 
—

 
—

 
—
 %
 
—

 
(154
)
 
154

 
-100
 %
Asset impairment expense
(37
)
 
(63
)
 
26

 
-41
 %
 
(45
)
 
(75
)
 
30

 
-40
 %
Foreign currency transaction gains (losses)
15

 
7

 
8

 
114
 %
 
(8
)
 
(12
)
 
4

 
-33
 %
Other non-operating expense
—

 
(44
)
 
44

 
-100
 %
 
—

 
(44
)
 
44

 
-100
 %
Income tax expense
(120
)
 
(157
)
 
37

 
-24
 %
 
(216
)
 
(211
)
 
(5
)
 
2
 %
Net equity in earnings of affiliates
—

 
20

 
(20
)
 
-100
 %
 
15

 
45

 
(30
)
 
-67
 %
INCOME FROM CONTINUING OPERATIONS
264

 
281

 
(17
)
 
-6
 %
 
518

 
370

 
148

 
40
 %
Income from operations of discontinued businesses, net of income tax expense of $0, $8, $0 and $22, respectively
—

 
7

 
(7
)
 
-100
 %
 
—

 
27

 
(27
)
 
-100
 %
Net loss from disposal and impairments of discontinued businesses, net of income tax expense (benefit) of $0, $5, $0 and $4, respectively
—

 
(13
)
 
13

 
-100
 %
 
—

 
(56
)
 
56

 
-100
 %
NET INCOME
264

 
275

 
(11
)
 
-4
 %
 
518

 
341

 
177

 
52
 %
Noncontrolling interests:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Less: (Income) from continuing operations attributable to noncontrolling interests
(195
)
 
(139
)
 
(56
)
 
40
 %
 
(307
)
 
(275
)
 
(32
)
 
12
 %
Less: (Income) loss from discontinued operations attributable to noncontrolling interests
—

 
(3
)
 
3

 
-100
 %
 
—

 
9

 
(9
)
 
-100
 %
NET INCOME ATTRIBUTABLE TO THE AES CORPORATION
$
69

 
$
133

 
$
(64
)
 
-48
 %
 
$
211

 
$
75

 
$
136

 
181
 %
AMOUNTS ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations, net of tax
$
69

 
$
142

 
$
(73
)
 
-51
 %
 
$
211

 
$
95

 
$
116

 
122
 %
Loss from discontinued operations, net of tax
—

 
(9
)
 
9

 
-100
 %
 
—

 
(20
)
 
20

 
-100
 %
Net income
$
69

 
$
133

 
$
(64
)
 
-48
 %
 
$
211

 
$
75

 
$
136

 
181
 %
Net cash provided by operating activities
$
153

 
$
232

 
$
(79
)
 
-34
 %
 
$
590

 
$
453

 
$
137

 
30
 %
DIVIDENDS DECLARED PER COMMON SHARE
$
0.10

 
$
0.05

 
$
0.05

 
100
 %
 
$
0.10

 
$
0.05

 
$
0.05

 
100
 %
Components of Revenue, Cost of Sales and Operating Margin — 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 on the Consolidated Statements of Operations, respectively. 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, 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.
Three months ended June 30, 2015 :
Consolidated Revenue — Revenue decrease d $453 million , or 11% , to $3.9 billion in the three months ended June 30, 2015 compared with $4.3 billion in the three months ended June 30, 2014 , including unfavorable foreign exchange impacts of

27



$657 million . The decrease in revenue was driven primarily by the key operating drivers at the following businesses:
•
US — An overall decrease of $62 million driven by:
◦
Lower wholesale volumes at IPL in Indiana due to a decrease in demand as a result of milder temperatures during 2015 compared to 2014 and lower pass-through costs;
◦
The sale of the MC 2 business in April 2015, which reduced volumes at DPL in Ohio;
◦
Increased customer switching at DPL, milder temperatures during 2015 compared to 2014 and lower retail prices, which were partially offset by higher capacity prices;
◦
Higher outages and lower dispatch at Hawaii; and
◦
Lower production and prices at Wind businesses.
•
Andes — An overall decrease of $94 million driven by:
◦
Unfavorable foreign exchange impacts of $52 million , primarily at Chivor in Colombia; and
◦
Lower spot and contract sales at Gener in Chile.
•
Brazil — An overall decrease of $218 million driven by:
◦
Unfavorable foreign exchange impacts of $570 million ; and
◦
Higher contracted volumes sold by Tietê to Eletropaulo in 2015 compared to sales in the spot market in 2014.
◦
The results above were partially offset at Eletropaulo, driven by the reversal of a contingent regulatory liability and a higher tariff. See Key Trends and Uncertainties—Regulatory of this Form 10-Q for further information.
•
MCAC — An overall decrease of $91 million driven by:
◦
Lower LNG sales to third parties and lower PPA and spot prices in the Dominican Republic;
◦
Lower pass-through costs at El Salvador; and
◦
Lower availability, lower pass-through costs, and unfavorable foreign exchange impacts at Mexico.
•
Europe — An overall decrease of $6 million driven by:
◦
Unfavorable foreign exchange impacts of $31 million (primarily at Maritza in Bulgaria and Northern Ireland in the UK);
◦
Lower dispatch, the timing of outages, and lower prices at Kilroot in the UK;
◦
The sales of UK Wind and Ebute in Nigeria in August and November 2014, respectively; and
◦
Lower pass-through costs at Amman East in Jordan.
◦
The results above were partially offset by new operations at IPP4 in Jordan (commencing in July 2014), the timing of outages at Maritza, and higher generation and prices at Kazakhstan.
•
Asia — An overall increase of $24 million driven by:
◦
Contributions from Mong Duong in Vietnam, which commenced its principal operations in April 2015.
◦
The results above were partially offset by Kelanitissa in Sri Lanka which has not been dispatched in 2015, and Masinloc in the Philippines due to lower pass-through costs.
Consolidated Operating Margin — Operating margin decrease d $65 million , or 8% , to $754 million in the three months ended June 30, 2015 compared with $819 million in the three months ended June 30, 2014 , including unfavorable foreign exchange impacts of $114 million . The decrease in operating margin was driven primarily by the key operating drivers at the following businesses:
•
US — An overall decrease of $19 million driven by:
◦
Higher outages and related fixed costs at Hawaii;
◦
Lower production and prices at Wind businesses; and
◦
Lower wholesale margins at IPL.
◦
The results above were partially offset at DPL, primarily due to the impact of increased net capacity prices and lower fixed costs.
•
Andes — An overall decrease of $29 million driven by:
◦
Unfavorable foreign exchange impacts of $17 million (primarily at Chivor);
◦
The timing of planned outages and related costs at Gener;

28



◦
Lower contract prices in Chile and higher gas prices at TermoAndes; and
◦
The timing of planned maintenance and higher fixed costs due to inflation at Argentina.
◦
The results above were partially offset by higher generation at Chivor.
•
Brazil — An overall decrease of $47 million driven by:
◦
Unfavorable foreign exchange impacts of $88 million ;
◦
Higher contracted volumes at Tietê sold to Eletropaulo in the second quarter of 2015 compared to sales in the spot market in the second quarter of 2014; and
◦
Higher fixed costs, lower volumes, and a favorable 2014 true-up of subsidies at Sul.
◦
The results above were partially offset at Eletropaulo, driven by the reversal of a contingent regulatory liability and a higher tariff.
•
MCAC — An overall increase of $19 million driven by:
◦
Improved hydrological conditions and the commencement of power barge operations at Panama, which resulted in higher generation and lower energy purchases.
◦
The results above were partially offset at the Dominican Republic, driven by lower availability arising from higher outages, and at Mexico due to higher fuel costs and lower availability.
•
Europe — An overall decrease of $13 million driven by:
◦
Unfavorable foreign exchange impacts of $9 million ;
◦
Lower dispatch, lower prices and the timing of planned outages in Kilroot; and
◦
The sales of UK Wind and Ebute as discussed above.
◦
The results above were partially offset by higher volumes and prices driven by improved hydrology at Kazakhstan, new operations at IPP4 in Jordan, and the timing of planned outages at Maritza.
•
Asia — An overall increase of $20 million driven by:
◦
Better availability at Masinloc; and
◦
Mong Duong due to the commencement of its principal operations in April 2015.
Six months ended June 30, 2015 :
Consolidated Revenue — Revenue decrease d $731 million , or 9% , to $7.8 billion in the six months ended June 30, 2015 compared with $8.6 billion in the six months ended June 30, 2014 , including unfavorable foreign exchange impacts of $1.1 billion . The decrease in revenue was driven primarily by the key operating drivers at the following businesses:
•
US — An overall decrease of $66 million driven by:
◦
Lower wholesale volumes at IPL due to higher outages, lower pass-through costs, and a decrease in demand as a result of milder temperatures during 2015 compared to 2014;
◦
The sale of the MC 2 business in April 2015, which reduced volumes at DPL;
◦
Increased customer switching at DPL; and
◦
Lower production and prices at Wind businesses.
◦
The results above were partially offset by higher capacity, wholesale and retail prices at DPL.
•
Andes — An overall decrease of $102 million driven by:
◦
Unfavorable foreign exchange impacts of $85 million , primarily at Chivor; and
◦
Lower spot sales and prices at Gener.
◦
The results above were partially offset by new contracts at Gener and higher generation at Chivor.
•
Brazil — An overall decrease of $333 million driven by:
◦
Unfavorable foreign exchange impacts of $898 million ; and
◦
Higher contracted volumes at Tietê sold to Eletropaulo in the first half of 2015 compared to sales in the spot market in the first half of 2014.
◦
The results above were partially offset at Eletropaulo, driven by the reversal of a contingent regulatory liability and a higher tariff. Additionally, Uruguaiana benefited from a longer period of operations and higher pass-through costs.

29



•
MCAC — An overall decrease of $131 million driven by:
◦
Lower prices in the Dominican Republic, primarily related to lower LNG sales to third parties, lower PPA and spot prices, and lower availability;
◦
A decrease in energy pass-through costs at El Salvador; and
◦
Lower availability, lower pass-through costs, and unfavorable foreign exchange impacts at Mexico.
•
Europe — An overall decrease of $67 million driven by:
◦
Unfavorable foreign exchange impacts of $66 million (primarily at Maritza and Northern Ireland);
◦
Lower dispatch, the timing of planned outages, and prices at Kilroot;
◦
Lower pass-through costs at Amman East in Jordan; and
◦
The sale of the UK Wind business and Ebute in August and November 2014, respectively.
◦
The results above were partially offset by the commencement of operations at IPP4 in Jordan in July 2014.
•
Asia — An overall decrease of $25 million driven by:
◦
Kelanitissa not being dispatched in 2015; and
◦
Lower pass-through costs at Masinloc.
◦
The results above were partially offset by contributions from Mong Duong, which commenced its principal operations in April 2015.
Consolidated Operating Margin — Operating margin decrease d $138 million , or 9% , to $1.5 billion in the six months ended June 30, 2015 compared with $1.6 billion in the six months ended June 30, 2014 , including unfavorable foreign exchange impacts of $177 million . The decrease in operating margin was driven primarily by the key operating drivers at the following businesses:
•
US — An overall increase of $20 million driven by:
◦
Increased capacity prices, lower fixed costs, and higher margin at DPL, primarily due to outages and lower gas availability in the first quarter of 2014.
◦
The results above were partially offset by lower production at the US Wind businesses, lower availability and dispatch in Hawaii, and lower wholesale margin at IPL.
•
Andes — An overall increase of $11 million driven by:
◦
A new tolling agreement and higher capacity revenue in Gener related to a settlement occurring in the first quarter of 2014; and
◦
Higher prices in Argentina due to the impact of Resolution 482 in the second quarter 2015, which updated Resolution 529 passed in May 2014.
◦
The results above were partially offset by unfavorable foreign exchange impacts of $27 million (primarily at Chivor), and lower generation, higher planned outages, and higher fixed costs (driven by inflation) in Argentina.
•
Brazil — An overall decrease of $191 million driven by:
◦
Unfavorable foreign exchange impacts of $126 million ;
◦
Higher contracted volumes sold by Tietê to Eletropaulo in the first half of 2015 compared to sales in the spot market in the first half of 2014; and
◦
Higher fixed costs and lower volumes at Sul.
◦
The results above were partially offset at Eletropaulo, driven by the reversal of a contingent regulatory liability and a higher tariff.
•
MCAC — An overall increase of $33 million driven by:
◦
Improved hydrological conditions and the commencement of power barge operations at Panama, which resulted in higher generation and lower energy purchases; and
◦
A one-time unfavorable adjustment in 2014 to unbilled revenue in El Salvador.
◦
The results above were partially offset by lower PPA and spot sales in the Dominican Republic triggered by higher outages and higher purchases; and higher fuel costs, lower availability, and unfavorable foreign exchange impacts in Mexico.
•
Europe — An overall decrease of $43 million driven by:
◦
Unfavorable foreign exchange impacts of $23 million ;

30



◦
Lower dispatch, the timing of planned outages, and prices at Kilroot; and
◦
The sales of UK Wind and Ebute as discussed above.
◦
The results above were partially offset by higher volumes and prices due to improved hydrology in Kazakhstan, new operations at IPP4 in Jordan, and the timing of planned outages in Maritza.
•
Asia — An overall increase of $34 million driven by:
◦
Higher availability at Masinloc in 2015 and an unfavorable impact occurring in the first quarter of 2014 due to the market operator’s retrospective adjustment to energy prices calculated in November and December 2013; and
◦
Mong Duong due to the commencement of its principal operations in April 2015.
 
General and administrative expenses
General and administrative expenses decrease d $2 million , or 4% , to $50 million for the three months ended June 30, 2015 primarily due to decreased professional fees partially offset by increased employee-related costs.
General and administrative expenses increase d $2 million , or 2% , to $105 million for the six months ended June 30, 2015 primarily due to increased business development costs and employee-related costs partially offset by decreased professional fees.
Interest expense
Interest expense decrease d $13 million , or 4% , to $310 million  for the three months ended June 30, 2015 . The decrease was primarily due to the reversal of $64 million in interest expense previously recognized on a contingent regulatory liability at Eletropaulo (see Key Trends and Uncertainties—Regulatory of this Form 10-Q for further information). Additionally, lower interest expense of $21 million at the Parent Company resulted from lower rates and a reduction in principal. These decreases were partially offset by an increase at Sul related to a $47 million reversal of contingent interest accruals in the prior year, and $18 million at Mong Duong as principal operations commenced in April 2015 and interest is no longer capitalized.
Interest expense decrease d $23 million , or 3% , to $673 million  for the six months ended June 30, 2015 . The decrease was primarily due to a reversal of $64 million in interest expense at Eletropaulo discussed above. Additionally, lower interest expense of $36 million at the Parent Company resulted from lower rates and a reduction in principal. These decreases were partially offset by an increase at Sul related to a $47 million reversal of contingent interest accruals in the prior year, and $21 million at Mong Duong as principal operations commenced in April 2015 and interest is no longer capitalized.
Interest income
Interest income increase d $60 million , or 82% , to $133 million for the three months ended June 30, 2015 . The increase was primarily due to an increase of $34 million at Mong Duong in Vietnam associated with the financing element of its service concession arrangement, $19 million at our utilities in Brazil resulting from higher regulatory asset balances and higher interest rates, and $6 million in Argentina due to increased receivable balances earning interest.
Interest income increase d $87 million , or 64% , to $223 million for the six months ended June 30, 2015 . The increase was primarily due to an increase of $41 million at Mong Duong in Vietnam associated with the financing element of its service concession arrangement, $32 million at our utilities in Brazil resulting from higher regulatory asset balances and higher interest rates, and $15 million in Argentina due to increased receivable balances earning interest.
Loss on extinguishment of debt
Loss on extinguishment of debt was $122 million and $145 million for the three and six months ended June 30, 2015 and $15 million and $149 million for the three and six months ended June 30, 2014. Amounts in both periods were primarily related to debt extinguishments at the Parent Company. See Note 8 — Debt in Item 1.— Financial Statements of this Form 10-Q for further information.
Other income and expense
Other income was $15 million and $31 million for the three and six months ended June 30, 2015 and $33 million and $45 million for the three and six months ended June 30, 2014 , respectively.
Other expense was $14 million and $34 million for the three and six months ended June 30, 2015 and $17 million and $25 million for the three and six months ended June 30, 2014 , respectively.
See discussion of other income and expense in Note 13 — Other Income and Expense in Item 1.— Financial Statements of this Form 10-Q for further information.

31



Goodwill impairment
There was no goodwill impairment expense for the three and six months ended June 30, 2015 . Goodwill impairment expense for the three and six months ended June 30, 2014 was $0 and $154 million , respectively. See Note 14 — Goodwill Impairment included in Item 1.— Financial Statements of this Form 10-Q for further information.
Asset impairment expense
Asset impairment expense was $37 million and $45 million for the three and six months ended June 30, 2015 and $63 million and $75 million for the three and six months ended June 30, 2014 , respectively. See Note 15 — Asset Impairment Expense in Item 1.— Financial Statements of this Form 10-Q for further information.
Foreign currency transaction gains (losses)
Foreign currency transaction gains (losses) were as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(in millions)
Parent Company
$
14

 
$
(1
)
 
$
(19
)
 
$
(3
)
Argentina
2

 
1

 
17

 
(14
)
Other
(1
)
 
7

 
(6
)
 
5

Total (1)
$
15

 
$
7

 
$
(8
)
 
$
(12
)
___________________________________________
(1)  
Includes $10 million and $10 million of gains on foreign currency derivative contracts for the three months ended June 30, 2015 and 2014, respectively, and $46 million and $43 million of gains on foreign currency derivative contracts for the six months ended June 30, 2015 and 2014 , respectively.
The Company recognized net foreign currency transaction gains of $15 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 three months ended June 30, 2014.
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).
The Company recognized foreign currency transaction losses of $12 million for the six months ended June 30, 2014 primarily due to:
•
losses of $14 million in Argentina, primarily due to the devaluation of the Argentine Peso against the U.S. Dollar, resulting in remeasurement losses at AES Argentina (an Argentine Peso functional currency subsidiary) associated with its U.S. Dollar denominated debt, and losses at Termoandes (a U.S. Dollar functional currency subsidiary) from the remeasurement of local currency asset balances. These losses were partially offset by the favorable impact of foreign currency embedded derivatives associated with government receivables at AES Argentina.
Other non-operating expense
There was no other non-operating expense for the three and six months ended June 30, 2015 . Other non-operating expense was $44 million for the three and six months ended June 30, 2014 . See Note 16 — Other Non-Operating Expense included in Item 1.— Financial Statements of this Form 10-Q for further information.
Income tax expense
Income tax expense decrease d $37 million , or 24% , to $120 million for the three months ended June 30, 2015 compared to $157 million for the three months ended June 30, 2014 . The Company’s effective tax rates were 31% and 38% for the three months ended June 30, 2015 and 2014 , respectively.
The net decrease in the effective tax rate for the three months ended June 30, 2015 compared to the same period in 2014 was due, in part, to certain asset impairments recorded during the second quarter of 2014 with no related tax benefit, as well as the release of the valuation allowance at our Vietnam operating subsidiary during the second quarter of 2015. See Note 15 —

32



Asset Impairment Expense in Item 1.— Financial Statements of this Form 10-Q for further information on the asset impairments.
Income tax expense increase d $5 million , or 2% , to $216 million for the six months ended June 30, 2015 compared to $211 million for the six months ended June 30, 2014 . The Company’s effective tax rates were 30% and 39% for the six months ended June 30, 2015 and 2014 , respectively.
The net decrease in the effective tax rate for the six months ended June 30, 2015 compared to the same period in 2014 was due, in part, to the nondeductible goodwill impairments recorded during the first quarter of 2014 and certain asset impairments recorded in the second quarter of 2014 with no related tax benefit. Further, the 2015 effective tax rate benefited from release of the valuation allowance at our Vietnam operating subsidiary. See Note 14 — Goodwill Impairment and Note 15 — Asset Impairment Expense in Item 1.— Financial Statements of this Form 10-Q for additional information regarding goodwill impairment and asset impairment, respectively.
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 decreased $20 million to zero for the three months ended June 30, 2015 . The decrease was primarily due to debt retirement expense incurred at Guacolda in Chile.
Net equity in earnings of affiliates decrease d $30 million to $15 million for the six months ended June 30, 2015 . The decrease was primarily due to a reduction at Guacolda in Chile resulting from the prior year gain on the sale of transmission assets and the current year recognition of debt retirement expense.
Income from continuing operations attributable to noncontrolling interests
Income from continuing operations attributable to noncontrolling interests increase d $56 million , or 40% , to $195 million for the three months ended June 30, 2015 . The increase was primarily due to increased earnings at Eletropaulo in Brazil associated with the regulatory liability reversal, increased earnings at Mong Duong in Vietnam as operations commenced in the current year, and an increase at Masinloc in the Philippines resulting from the sale of an additional noncontrolling interest in that business in July 2014 and increased gross margin in the current year.
Income from continuing operations attributable to noncontrolling interests increase d $32 million , or 12% , to $307 million for the six months ended June 30, 2015 . The increase was primarily due to increased earnings at Eletropaulo in Brazil associated with the regulatory liability reversal, increased earnings at Panama due to better hydrological conditions, increased earnings at Mong Duong in Vietnam as operations commenced in the current year, and increases at Masinloc in the Philippines resulting from the sale of an additional noncontrolling interest in that business in July 2014 and increased gross margin in the current year. These increases were partially offset by decreased earnings at Tietê in Brazil due to lower hydrological production.
Discontinued operations
There were no discontinued operations for the three and six months ended June 30, 2015. Losses from discontinued operations were $6 million and $ 29 million for the three and six months ended June 30, 2014, respectively. See Note 17 — Discontinued Operations and Held-for-Sale Businesses in Item 1.— Financial Statements of this Form 10-Q for further information.
Effective July 1, 2014, the Company prospectively adopted ASU No. 2014-08, which significantly changes the existing accounting guidance on discontinued operations. See Note 1 — Financial Statement Presentation in Item 1.— Financial Statements of this Form 10-Q for further information.
Net income attributable to The AES Corporation
Net income attributable to The AES Corporation decrease d $64 million to $69 million in the three months ended June 30, 2015 compared to $133 million in the three months ended June 30, 2014 . The key drivers of the decrease include:
•
The timing of planned maintenance at certain businesses;
•
Unfavorable foreign currency exchange;
•
Lower demand and contracting strategy in Brazil;
•
The net impact from the reversal of liabilities in Brazil and Europe; and
•
Increased losses from debt extinguishments.

33



These decreases were partially offset by:
•
Lower impairment expense;
•
Improved hydrology in Panama and Colombia;
•
Lower interest expense at the Parent; and
•
A lower effective tax rate.
Net income attributable to The AES Corporation increase d $136 million to $211 million in the six months ended June 30, 2015 compared to $75 million in the six months ended June 30, 2014. The key drivers of the increase include:
•
Lower impairment expense;
•
Improved hydrology in Panama and Colombia;
•
Lower interest expense at the Parent Company; and
•
A lower effective tax rate.
These increases were partially offset by:
•
Unfavorable foreign currency exchange;
•
Lower demand and contracting strategy in Brazil; and
•
The net impact from the reversal of liabilities in Brazil and Europe.

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.
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, such as:
•
Electricity and fuel purchases,
•
O&M costs,
•
Depreciation and amortization expense,
•
Bad debt expense and recoveries,
•
General administrative and support costs at the businesses, and
•
Gains or losses on derivatives associated with the purchase and sale of electricity or fuel.
We define Adjusted Operating Margin as Operating Margin, adjusted for the impact of noncontrolling interests, 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 noncontrolling interests, 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 noncontrolling interests 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;

34



•
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
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
($’s in millions)
US
$
117

 
$
144

 
$
292

 
$
287

Andes
90

 
116

 
189

 
183

Brazil
44

 
82

 
84

 
168

MCAC
136

 
126

 
214

 
223

Europe
57

 
68

 
154

 
195

Asia
22

 
26

 
33

 
36

Corp/Other
12

 
4

 
24

 
26

Intersegment Eliminations
(1
)
 
3

 
(3
)
 
(3
)
Total Adjusted Operating Margin
477

 
569

 
987

 
1,115

Noncontrolling Interests Adjustment
276

 
243

 
491

 
501

Derivatives Adjustment
1

 
7

 
(3
)
 
(3
)
Operating Margin
$
754

 
$
819

 
$
1,475

 
$
1,613

Adjusted PTC (1)
Total Adjusted PTC
 
Intersegment
 
External Adjusted PTC
Three Months Ended June 30,
2015
 
2014
 
2015
 
2014
 
2015
 
2014
 
(in millions)
US SBU
$
56

 
$
80

 
$
3

 
$
3

 
$
59

 
$
83

Andes SBU
81

 
104

 
5

 
1

 
86

 
105

Brazil SBU
41

 
115

 
—

 
—

 
41

 
115

MCAC SBU
106

 
95

 
5

 
10

 
111

 
105

Europe SBU
41

 
73

 
(1
)
 
3

 
40

 
76

Asia SBU
30

 
23

 
1

 
—

 
31

 
23

Corporate and Other
(104
)
 
(150
)
 
(13
)
 
(17
)
 
(117
)
 
(167
)
Total Adjusted PTC
$
251

 
$
340

 
$
—

 
$
—

 
$
251

 
$
340

Reconciliation to Income from continuing operations, net of tax, attributable to The AES Corporation:
Non-GAAP Adjustments:
 
 
 
 
Unrealized derivative gains
 
2

 
22

Unrealized foreign currency gains (losses)
 
3

 
(7
)
Disposition/acquisition gains (losses)
 
4

 
(2
)
Impairment losses
 
(30
)
 
(99
)
Loss on extinguishment of debt
 
(115
)
 
(13
)
Pretax contribution
 
115

 
241

Income tax expense attributable to The AES Corporation
 
(46
)
 
(99
)
Income from continuing operations, net of tax, attributable to The AES Corporation
 
$
69

 
$
142


35



Adjusted PTC (1)
Total Adjusted PTC
 
Intersegment
 
External Adjusted PTC
Six Months Ended June 30,
2015
 
2014
 
2015
 
2014
 
2015
 
2014
 
(in millions)
US SBU
$
162

 
$
155

 
$
6

 
$
6

 
$
168

 
$
161

Andes SBU
172

 
157

 
8

 
4

 
180

 
161

Brazil SBU
62

 
184

 
1

 
1

 
63

 
185

MCAC SBU
156

 
160

 
9

 
14

 
165

 
174

Europe SBU
126

 
188

 
2

 
6

 
128

 
194

Asia SBU
42

 
31

 
1

 
1

 
43

 
32

Corporate and Other
(217
)
 
(292
)
 
(27
)
 
(32
)
 
(244
)
 
(324
)
Total Adjusted PTC
$
503

 
$
583

 
$
—

 
$
—

 
$
503

 
$
583

Reconciliation to Income from continuing operations, net of tax, attributable to The AES Corporation:
Non-GAAP Adjustments:
 
 
 
Unrealized derivative gains
17

 
32

Unrealized foreign currency losses
(44
)
 
(33
)
Disposition/acquisition gains (losses)
9

 
(1
)
Impairment losses
(36
)
 
(265
)
Loss on extinguishment of debt
(142
)
 
(147
)
Pretax contribution
307

 
169

Income tax expense attributable to The AES Corporation
(96
)
 
(74
)
Income from continuing operations, net of tax, attributable to The AES Corporation
$
211

 
$
95

_____________________________
(1)  
Adjusted PTC in each segment before intersegment eliminations 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
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2015
 
2014
 
2015
 
2014
 
Diluted earnings per share from continuing operations
$
0.10

 
$
0.20

 
$
0.30

 
$
0.13

 
Unrealized derivative (gains) losses   (1)
—

 
(0.02
)
 
(0.02
)
 
(0.03
)
 
Unrealized foreign currency transaction (gains) losses   (2)
—

 
—

 
0.04

 
0.03

 
Disposition/acquisition (gains) losses
(0.01
)

—

 
(0.01
)

—

 
Impairment losses
0.04

(3)  
0.09

(4)  
0.05

(3)  
0.26

(5)  
Loss on extinguishment of debt
0.12

(6)  
0.01

(7)  
0.14

(8)  
0.14

(9)  
Adjusted EPS
$
0.25

 
$
0.28

 
$
0.50

 
$
0.53

 
_____________________________
(1)  
Unrealized derivative (gains) losses were net of income tax per share of $ 0.00 and $ (0.01) in the three months ended June 30, 2015 and 2014 , and of $ (0.01) and $ (0.01) in the six months ended June 30, 2015 and 2014 , respectively.
(2)  
Unrealized foreign currency transaction (gains) losses were net of income tax per share of $ (0.01) and $ 0.00 in the three months ended June 30, 2015 and 2014 , and of $ 0.02 and $ 0.01 in the six months ended June 30, 2015 and 2014 , respectively.
(3)  
Amount primarily relates to the asset impairment at UK Wind of $ 37 million ($ 30 million, or $ 0.04 per share, net of income tax per share of $ 0.00 ).
(4)  
Amount primarily relates to the asset impairment at Ebute of $ 52 million ($ 34 million, or $ 0.05 per share, net of income tax per share of $ 0.02 ) and at Newfield of $ 11 million ($ 6 million, or $ 0.00 per share, net of income tax per share of $ 0.00 ) and other-than-temporary impairment of our Silver Ridge equity method investment of $ 44 million ($ 30 million, or $ 0.04 per share, net of income tax per share of $0.02 ).
(5)  
Amount primarily relates to the goodwill impairments at DPLER of $ 136 million ($ 92 million, or $ 0.13 per share, net of income tax per share of 0.06 ), at Buffalo Gap of $ 18 million ($ 18 million, or $ 0.03 per share, net of income tax per share of $ 0.00 ) and asset impairments at Ebute of $ 52 million ($ 34 million, or $ 0.05 per share, net of income tax per share of $ 0.02 ), at Newfield of $ 11 million ($ 6 million, or $ 0.00 per share, net of income tax per share of $ 0.00 ), at DPL of $ 12 million ($ 8 million, or $ 0.01 per share, net of income tax per share of $ 0.00 ) and other-than-temporary impairment of our Silver Ridge equity method investment of $ 44 million ($ 30 million, or $ 0.04 per share, net of income tax per share of $ 0.02 ).
(6)  
Amount primarily relates to the loss on early retirement of debt at the Parent Company of $ 85 million ($ 58 million, or $ 0.08 per share, net of income tax per share of $ 0.04 ), at IPL of $ 19 million ($ 10 million, or $ 0.01 per share, net of income tax per share of $ 0.01 ), at Panama of $ 16 million ($ 5 million, or $ 0.01 per share, net of income tax per share of $ 0.00 ) and at Sul of $ 4 million ($ 3 million, or $ 0.00 per share, net of income tax per share of $ 0.00 ).
(7)  
Amount primarily relates to the loss on early retirement of debt at the Parent Company of $ 13 million ($ 8 million, or $ 0.01 per share, net of income tax per share of $ 0.01 ).
(8)  
Amount primarily relates to the loss on early retirement of debt at the Parent Company of $ 111 million ($ 76 million, or $ 0.11 per share, net of income tax per share of $ 0.05 ), at IPL of $ 19 million ($ 10 million, or $ 0.01 per share, net of income tax per share of $ 0.01 ), at Panama of $ 16 million ($ 5 million, or $ 0.01 per share, net of income tax per share of $ 0.00 ) and at Sul of $ 4 million ($ 3 million, or $ 0.00 per share, net of income tax per share of $ 0.00 ).
(9)  
Amount primarily relates to the loss on early retirement of debt at the Parent Company of $ 145 million ($ 99 million, or $ 0.14 per share, net of income tax per share of $ 0.06 ).
Operating Margin and Adjusted PTC Analysis
US SBU
The following table summarizes Operating Margin, Adjusted Operating Margin and Adjusted PTC for our US SBU for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
$ Change
 
% Change
 
2015
 
2014
 
$ Change
 
% Change
 
($ in millions)
Operating Margin
$
125

 
$
144

 
$
(19
)
 
-13
 %
 
$
298

 
$
278

 
$
20

 
7
%
Noncontrolling Interests Adjustment
(8
)
 
—

 
 
 
 
 
(10
)
 
—

 
 
 
 
Derivatives Adjustment
—

 
—

 
 
 
 
 
4

 
9

 
 
 
 
Adjusted Operating Margin
$
117

 
$
144

 
$
(27
)
 
-19
 %
 
292

 
287

 
$
5

 
2
%
Adjusted PTC
$
56

 
$
80

 
$
(24
)
 
-30
 %
 
$
162

 
$
155

 
$
7

 
5
%

36



Operating Margin for the three months ended June 30, 2015 decrease d by $19 million , or 13% . The decrease in operating margin was driven primarily by the key operating drivers at the following businesses:
•
US Generation decreased by $23 million, driven by a decrease of $10 million in Hawaii primarily due to higher outages and related fixed costs, and lower production and prices across the US Wind businesses of $8 million; and
•
IPL decreased by $10 million, driven by lower wholesale margin due to outages and lower market prices of electricity.
These decreases were partially offset by:
•
DPL increased by $13 million, driven by lower fixed costs of $8 million due to decreased marketing, employee benefit related costs, and depreciation expense. Additionally, $5 million of the increase was primarily driven by higher capacity prices and decreased transmission and congestion charges. These increases were partially offset by decreased margins as a result of more of DP&L's generation being sold in the wholesale market at lower prices compared to supplying DP&L retail customers in 2014 as required for DP&Ls transition to market.
Adjusted Operating Margin decrease d by $27 million for the US SBU due to the drivers above, adjusted for noncontrolling interests and excluding unrealized gains and losses on derivatives. AES owns 100% of its businesses in the US with the exception of IPL with ownership of 85% as of March 2015 and 75% as of June 2015. AES owned 100% of IPL in 2014.
Adjusted PTC decrease d by $24 million driven by the decrease of $27 million in Adjusted Operating Margin described above.
Operating Margin for the six months ended June 30, 2015 increase d by $20 million , or 7% . This increase in operating margin was driven primarily by the key operating drivers following businesses:
•
DPL increased by $58 million, primarily driven by an increase of $38 million due to outages and lower gas availability that occurred in the first quarter of 2014, as well as increased capacity prices and decreased transmission and congestion charges. In addition, fixed costs decreased $20 million driven by decreases in marketing, storm restoration, employee benefit related costs, and depreciation expense.
This increase was partially offset by:
•
US Generation decreased by $28 million, driven primarily by lower production and prices across the US Wind businesses of $19 million, and a decrease of $7 million in Hawaii primarily due to lower availability and dispatch; and
•
IPL decreased by $11 million driven by lower wholesale margin due to outages and lower market prices of electricity.
Adjusted Operating Margin increase d by $5 million for the US SBU due to the drivers above, adjusted for noncontrolling interests and excluding unrealized gains and losses on derivatives. AES owns 100% of its businesses in the US with the exception of IPL with ownership of 85% as of March 2015 and 75% as of June 2015. AES owned 100% of IPL in 2014.
Adjusted PTC increase d by $7 million , driven by the $5 million increase in Adjusted Operating Margin described above.
Andes SBU
The following table summarizes Operating Margin, Adjusted Operating Margin and Adjusted PTC for our Andes SBU for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
$ Change
 
% Change
 
2015
 
2014
 
$ Change
 
% Change
 
($ in millions)
Operating Margin
$
119

 
$
148

 
$
(29
)
 
-20
 %
 
$
250

 
$
239

 
$
11

 
5
%
Noncontrolling Interests Adjustment
(29
)
 
(32
)
 
 
 
 
 
(61
)
 
(56
)
 
 
 
 
Derivatives Adjustment
—

 
—

 
 
 
 
 
—

 
—

 
 
 
 
Adjusted Operating Margin
$
90

 
$
116

 
$
(26
)
 
-22
 %
 
$
189

 
$
183

 
$
6

 
3
%
Adjusted PTC
$
81

 
$
104

 
$
(23
)
 
-22
 %
 
$
172

 
$
157

 
$
15

 
10
%
Operating Margin for the three months ended June 30, 2015 decrease d by $29 million , or 20% , including unfavorable FX and remeasurement impacts of $17 million . The decrease in operating margin was driven primarily by the key operating drivers at the following businesses:
•
Argentina decreased by $17 million, driven by the timing of planned maintenance and related costs of $11 million, and higher fixed costs of $6 million primarily due to inflation; and
•
Gener decreased by $18 million, driven by the timing of planned outages and related costs of $18 million, lower contract prices in Chile and higher gas prices for Termoandes of $13 million, and higher depreciation expense of $5 million due to new capital investment. These results were partially offset by higher volumes of $19 million due to a new tolling agreement, net of lower hydro generation.

37



These decreases were partially offset by:
•
Chivor increased by $5 million, driven by higher generation of $15 million primarily due to higher inflows, and lower fixed costs of $7 million due to tunnel maintenance costs that were incurred in 2014. These results were partially offset by an unfavorable FX impact of $14 million.
Adjusted Operating Margin decrease d by $26 million due to the drivers above, adjusted for the impact of noncontrolling interests. AES owns 71% of Gener and Chivor and 100% of AES Argentina.
Adjusted PTC decrease d by $23 million , driven by the decrease of $26 million in Adjusted Operating Margin described above, as well as lower equity in earnings and realized FX gains in 2014. These results were partially offset by favorable interest expense and realized FX gains at Chivor and recognition of interest income on receivables in Argentina.
Operating Margin for the six months ended June 30, 2015 increase d by $11 million , or 5% , including unfavorable FX and remeasurement impacts of $26 million. The increase in operating margin was driven primarily by the key operating drivers at the following businesses:
•
Gener increased by $32 million, driven by a new tolling agreement of $26 million, higher capacity revenue of $5 million driven by a settlement occurring in the first quarter of 2014, and better prices of $8 million driven primarily by lower prices on purchased power. These results were partially offset by higher fixed and other costs of $13 million, primarily related to maintenance and depreciation.
This increase was offset by:
•
Chivor decreased by $15 million, driven by unfavorable FX impacts of $25 million, partially offset by higher generation of $12 million; and
•
Argentina decreased by $7 million, driven by lower generation, higher planned outages and related costs of $12 million, and higher fixed costs of $10 million primarily due to inflation. These results were partially offset by higher prices of $16 million, primarily due to the impact of Resolution 482 in the second quarter of 2015, which updated Resolution 529 passed in May 2014.
Adjusted Operating Margin increase d by $6 million due to the drivers above, adjusted for the impact of noncontrolling interests. AES owns 71% of Gener and Chivor and 100% of AES Argentina.
Adjusted PTC increase d by $15 million , driven by the increase of $6 million in Adjusted Operating Margin described above, as well as higher recognition of interest income on receivables in Argentina of $15 million and lower interest expense at Chivor. These results were partially offset by lower equity earnings of $17 million from Guacolda in Chile, primarily due to a gain on the sale of a transmission line that occurred in 2014 and a higher income tax rate.
Brazil SBU
The following table summarizes Operating Margin, Adjusted Operating Margin and Adjusted PTC for our Brazil SBU for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
$ Change
 
% Change
 
2015
 
2014
 
$ Change
 
% Change
 
($ in millions)
Operating Margin
$
223

 
$
270

 
$
(47
)
 
-17
 %
 
$
400

 
$
591

 
$
(191
)
 
-32
 %
Noncontrolling Interests Adjustment
(179
)
 
(188
)
 
 
 
 
 
(316
)
 
(423
)
 
 
 
 
Derivatives Adjustment
—

 
—

 
 
 
 
 
—

 
—

 
 
 
 
Adjusted Operating Margin
$
44

 
$
82

 
$
(38
)
 
-46
 %
 
$
84

 
$
168

 
$
(84
)
 
-50
 %
Adjusted PTC
$
41

 
$
115

 
$
(74
)
 
-64
 %
 
$
62

 
$
184

 
$
(122
)
 
-66
 %
Operating Margin for the three months ended June 30, 2015 decrease d by $47 million , or 17% , including unfavorable FX impacts of $88 million . This decrease was driven primarily by the key operating drivers at the following businesses:
•
Tietê decreased by $104 million, driven by unfavorable FX impacts of $29 million, the net impact of $71 million of higher contracted volumes sold to Eletropaulo in the second quarter of 2015 compared to sales in the spot market in the second quarter of 2014, and higher energy purchases due to lower hydrological production in the system ; and
•
Sul decreased by $27 million, driven by higher fixed costs of $11 million, lower volumes of $8 million due to lower demand, and a $7 million favorable true-up of subsidies occurring in 2014.
These decreases were partially offset by:
•
Eletropaulo increased by $81 million, driven by a $97 million ($135 million excluding FX) increase due to the reversal of a contingent regulatory liability, and a higher tariff of $36 million. These results were partially offset by unfavorable FX impacts of $55 million and higher fixed costs of $31 million, primarily due to higher bad debt expense, employee-related costs, and penalties.

38



Adjusted Operating Margin decrease d by $38 million , primarily due to the drivers discussed above, adjusted for the impact of noncontrolling interests. AES owns 16% of Eletropaulo, 46% of Uruguaiana, 100% of Sul and 24% of Tietê.
Adjusted PTC decrease d by $74 million , due to the decrease of $38 million in Adjusted Operating Margin as described above, as well as a reversal of $47 million in contingent interest accruals at Sul in 2014. These results were offset by a reversal of accrued interest expense of $14 million related to the reversal of contingent regulatory liabilities at Eletropaulo as discussed above.
Operating Margin for the six months ended June 30, 2015 decrease d by $191 million , or 32% , including unfavorable FX impacts of $126 million . The decrease in operating margin was driven primarily by the key operating drivers at the following businesses:
•
Tietê decreased by $216 million, driven by unfavorable FX impacts of $55 million, the net impact of $161 million due to higher contracted volumes sold to Eletropaulo in the first half of 2015 compared to sales in the spot market in the first half of 2014, and higher energy purchases due to lower hydrological production in the system ; and
•
Sul decreased by $45 million, driven by lower volumes of $22 million due to lower demand, and higher fixed costs of $17 million.
These decreases were partially offset by:
•
Eletropaulo increased by $63 million, driven by a $97 million ($135 million excluding FX) increase due to the reversal of a contingent regulatory liability, and a higher tariff of $47 million. These results were partially offset by unfavorable FX impacts of $65 million and higher fixed costs of $60 million, primarily due to higher bad debt expense, employee-related costs, and penalties.
Adjusted Operating Margin decrease d by $84 million primarily due to the drivers discussed above, adjusted for the impact of noncontrolling interests. AES owns 16% of Eletropaulo, 46% of Uruguaiana, 100% of Sul and 24% of Tietê.
Adjusted PTC decrease d by $122 million , due to the decrease of $84 million in Adjusted Operating Margin as described above as well as a reversal of $47 million in contingent interest accruals at Sul in 2014. These results were offset by lower interest expense of $14 million related to the reversal of a contingent regulatory liability at Eletropaulo as discussed above.
MCAC SBU
The following table summarizes Operating Margin, Adjusted Operating Margin and Adjusted PTC for our MCAC SBU for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
$ Change
 
% Change
 
2015
 
2014
 
$ Change
 
% Change
 
($ in millions)
Operating Margin
$
165

 
$
146

 
$
19

 
13
%
 
$
268

 
$
235

 
$
33

 
14
 %
Noncontrolling Interests Adjustment
(29
)
 
(17
)
 
 
 
 
 
(52
)
 
(10
)
 
 
 
 
Derivatives Adjustment
—

 
(3
)
 
 
 
 
 
(2
)
 
(2
)
 
 
 
 
Adjusted Operating Margin
$
136

 
$
126

 
$
10

 
8
%
 
$
214

 
$
223

 
$
(9
)
 
-4
 %
Adjusted PTC
$
106

 
$
95

 
$
11

 
12
%
 
$
156

 
$
160

 
$
(4
)
 
-3
 %
Operating Margin for the three months ended June 30, 2015 increase d by $19 million , or 13% . The increase in operating margin was driven primarily by the key operating drivers at the following businesses:
•
Panama increased by $34 million, mainly driven by better hydrological conditions which resulted in higher generation and lower energy purchases of $45 million, and $7 million due to the commencement of power barge operations at the end of March 2015. These results were partially offset by lower compensation from the government of Panama of $15 million due to lower volumes of energy purchased at lower spot prices.
This increase was partially offset by:
•
Mexico decreased by $11 million, driven by higher fuel costs and lower availability; and
•
Dominican Republic decreased by $7 million, mainly related to a lower availability impact of $9 million. Results at Andres and Los Mina were essentially neutral, primarily related to lower LNG fuel costs of $32 million driven by lower commodity prices, which was offset by lower spot results of $18 million, lower frequency regulation of $6 million, and lower gas sales to third parties of $4 million.
Adjusted Operating Margin increase d by $10 million due to the drivers above, adjusted for the impact of noncontrolling interests and excluding unrealized gains and losses on derivatives. AES owns 90% of Changuinola and 49% of its other generation facilities in Panama, 92% of Andres and Los Mina (compared to 100% in 2014) and 46% of Itabo (compared to 50% in 2014) 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 (compared to 75% in 2014).

39



Adjusted PTC increase d by $11 million , driven by the $10 million increase in Adjusted Operating Margin as described above.
Operating Margin for the six months ended June 30, 2015 increase d by $33 million , or 14% , including unfavorable FX impacts of $1 million . The increase in operating margin was driven primarily by the key operating drivers at the following businesses:
•
Panama increased by $91 million, mainly driven by better hydrological conditions which resulted in higher generation and lower energy purchases of $114 million, and $7 million due to the commencement of power barge operations at the end of March 2015. These results were partially offset by lower compensation from the government of Panama of $20 million due to lower volumes of energy purchased at lower spot prices, and lower frequency regulation of $8 million; and
•
El Salvador increased by $18 million, primarily due to a 2014 one-time unfavorable adjustment to unbilled revenue of $12 million, as well as lower regulated fees and energy losses.
These increases were partially offset by:
•
Dominican Republic decreased by $59 million, mainly related to lower PPA and spot sales of $36 million, lower availability of $22 million, lower gas sales to third parties of $14 million, lower frequency regulation of $12 million, and higher fixed costs of $9 million. These results were partially offset by lower LNG fuel costs of $35 million, driven by lower commodity prices; and
•
Mexico decreased $18 million, driven by higher fuel costs and lower availability.
Adjusted Operating Margin decrease d by $9 million due to the drivers above, adjusted for the impact of noncontrolling interests and excluding unrealized gains and losses on derivatives. AES owns 90% of Changuinola and 49% of its other generation facilities in Panama, 92% of Andres and Los Mina (compared to 100% in 2014) and 46% of Itabo (compared to 50% in 2014) 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 (compared to 75% in 2014).
Adjusted PTC decrease d by $4 million , driven by the decrease of $9 million in Adjusted Operating Margin as described above, partially offset by lower interest expense due to lower debt at Puerto Rico.
Europe SBU
The following table summarizes Operating Margin, Adjusted Operating Margin and Adjusted PTC for our Europe SBU for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
$ Change
 
% Change
 
2015
 
2014
 
$ Change
 
% Change
 
($ in millions)
Operating Margin
$
64

 
$
77

 
$
(13
)
 
-17
 %
 
$
167

 
$
210

 
$
(43
)
 
-20
 %
Noncontrolling Interests Adjustment
(6
)
 
(5
)
 
 
 
 
 
(14
)
 
(11
)
 
 
 
 
Derivatives Adjustment
(1
)
 
(4
)
 
 
 
 
 
1

 
(4
)
 
 
 
 
Adjusted Operating Margin
$
57

 
$
68

 
$
(11
)
 
-16
 %
 
$
154

 
$
195

 
$
(41
)
 
-21
 %
Adjusted PTC
$
41

 
$
73

 
$
(32
)
 
-44
 %
 
$
126

 
$
188

 
$
(62
)
 
-33
 %
Operating Margin for the three months ended June 30, 2015 decrease d by $13 million , or 17% , including unfavorable FX impacts of $9 million . The decrease in operating margin was driven primarily by the key operating drivers at the following businesses:
•
Kilroot decreased by $29 million, driven by lower volumes and prices of $19 million primarily due to lower dispatch, and the timing of planned outages and related costs of $11 million; and
•
Loss of operations of $8 million from the sale of UK Wind assets and Ebute in August and November 2014, respectively.
These decreases were partially offset by:
•
Kazakhstan increased by $11 million, driven by higher volumes and prices of $13 million, primarily due to better hydrology;
•
New operations at IPP4 in Jordan of $9 million, which commenced operations in July 2014; and
•
Maritza increased by $7 million, driven by the timing of planned outages of $17 million. These results were partially offset by unfavorable FX impacts of $9 million.
Adjusted Operating Margin decrease d by $11 million due to the drivers above, adjusted for noncontrolling interests and excluding unrealized gains and losses on derivatives. AES owns 89% of Kavarna in Bulgaria, and 37% and 60%, respectively, of the Amman East and IPP4 projects in Jordan.

40



Adjusted PTC decrease d by $32 million , as a result of the decrease of $11 million in Adjusted Operating Margin described above, as well as a 2014 reversal of an $18 million liability in Kazakhstan due to the expiration of a statute of limitations for the Republic of Kazakhstan to claim payment from AES. These results were partially offset by lower interest expense at Kavarna and Maritza.
Operating Margin for the six months ended June 30, 2015 decrease d by $43 million , or 20% , including unfavorable FX impacts of $23 million . The decrease in operating margin was driven primarily by the key operating drivers at the following businesses:
•
Kilroot decreased by $37 million, primarily driven by lower volumes and prices of $25 million related to lower dispatch, and the timing of planned outages and related costs of $11 million;
•
Loss of operations of $23 million from the sale of UK Wind assets and Ebute in August and November 2014, respectively; and
•
Maritza decreased by $7 million, driven by unfavorable FX impacts of $17 million, partially offset by the timing of planned outages of $15 million.
These decreases were partially offset by:
•
New operations at IPP4 in Jordan of $19 million, which commenced operations in July 2014; and
•
Kazakhstan increased by $8 million, driven by higher volumes and prices of $13 million due primarily to better hydrology. These results were partially offset by unfavorable FX impacts of $3 million.
Adjusted Operating Margin decrease d by $41 million due to the drivers above adjusted for noncontrolling interests and excluding unrealized gains and losses on derivatives. AES owns 89% of Kavarna in Bulgaria, and 37% and 60% respectively, of the Amman East and IPP4 projects in Jordan.
Adjusted PTC decrease d by $62 million as a result of the decrease of $41 million in Adjusted Operating Margin described above, as well as a 2014 reversal of an $18 million liability in Kazakhstan described above, partially offset by lower interest expense at Kavarna and Maritza.
Asia SBU
The following table summarizes Operating Margin, Adjusted Operating Margin and Adjusted PTC for our Asia SBU for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
$ Change
 
% Change
 
2015
 
2014
 
$ Change
 
% Change
 
($ in millions)
Operating Margin
$
47

 
$
27

 
$
20

 
74
 %
 
$
71

 
$
37

 
$
34

 
92
 %
Noncontrolling Interests Adjustment
(25
)
 
(1
)
 
 
 
 
 
(38
)
 
(1
)
 
 
 
 
Derivatives Adjustment
—

 
—

 
 
 
 
 
—

 
—

 
 
 
 
Adjusted Operating Margin
$
22

 
$
26

 
$
(4
)
 
-15
 %
 
$
33

 
$
36

 
$
(3
)
 
-8
 %
Adjusted PTC
$
30

 
$
23

 
$
7

 
30
 %
 
$
42

 
$
31

 
$
11

 
35
 %
Operating margin for the three months ended June 30, 2015 increase d by $20 million , or 74% . The increase in operating margin was driven primarily by the key operating drivers at the following business:
•
Mong Duong provided $10 million due to commencement of its principal operations in April 2015; and
•
Masinloc increased by $9 million, driven by better availability.
Adjusted Operating Margin decrease d by $4 million due to the drivers above, adjusted for the impact of noncontrolling interests resulting primarily from the sell-down of our ownership in Masinloc from 92% to 51% in mid-July 2014. AES also owns 90% of Kelanitissa and 51% of Mong Duong.
Adjusted PTC increase d by $7 million , as the decrease of $4 million in Adjusted Operating Margin described above was primarily offset by an additional net impact of $9 million at Mong Duong due to a component of service concession revenue recognized as interest income, net of higher interest expense as interest is no longer capitalized. See Note 1 — Financial Statement Presentation in Item 1.— Financial Statements of this Form 10-Q for further information regarding the accounting for service concession arrangements.
Operating margin for the six months ended June 30, 2015 increase d by $34 million , or 92% . The increase in operating margin was driven primarily by the key operating drivers at the following business:
•
Masinloc increased by $20 million, primarily due to higher availability of $14 million and an unfavorable impact of $15 million occurring in the first quarter of 2014 due to the market operator’s retrospective adjustment to energy prices calculated in November and December 2013; and

41



•
Mong Duong increased by $11 million due to the commencement of its principal operations in April 2015.
Adjusted Operating Margin decrease d by $3 million due to the drivers above, adjusted for the impact of noncontrolling interests resulting primarily from the sell-down of our ownership in Masinloc from 92% to 51% in mid-July 2014. AES also owns 90% of Kelanitissa and 51% of Mong Duong.
Adjusted PTC increase d by $11 million , as the decrease of $3 million in Adjusted Operating Margin described above was primarily offset by lower interest expense at Masinloc, which was partially driven by the sell-down, and an additional net impact of $10 million at Mong Duong due to a component of service concession revenue recognized as interest income, net of higher interest expense as interest is no longer capitalized. See Note 1 — Financial Statement Presentation in Item 1.— Financial Statements of this Form 10-Q for further information regarding the accounting for service concession arrangements.
Key Trends and Uncertainties
During the remainder of 2015 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.
Regulatory
Brazil — On June 30, 2015, ANEEL included in Eletropaulo’s tariff reset the reimbursement of amounts previously refunded to customers from July 2014 through early January 2015. These refunded amounts were related to certain disputed assets included in the regulatory asset base dating back to 2007. See additional background within the Company’s 2014 Form 10-K— Item 1 — Business — Our Organization and Segments — Brazil — Brazil Utility Businesses — Regulatory Framework and Note 11 —Regulatory Assets and Liabilities included in Part II.—Item 8.— Financial Statements and Supplementary Data . In addition to ANEEL’s failure thus far to suspend the injunction through the appeals process in the Brazilian courts, the tariff reset resulted in management’s reassessment of the probability of refunding customers these disputed amounts. The Company now considers it only reasonably possible that Eletropaulo will be required to refund these amounts to customers prior to the ultimate resolution of the pending court case. As a result, during the three months ended June 30, 2015, the Company reversed the remaining regulatory liability for this contingency of $161 million . Eletropaulo believes it has meritorious arguments on this matter and will continue to pursue its objections to ANEEL’s rulings vigorously, however there can be no assurance that Eletropaulo will prevail.
Chile — In June 2015, the Chilean Government published Decree N°7, which allowed the export of energy to Argentina using the transmission line which connects the SING (Chilean Northern Grid) with the SADI (Argentine Grid). The AES transmission line has a capacity of 600 MW, but will only be operated at 200 MW at present. AES Gener is in conversations with other generators in order to export electricity to Argentina.
Operational
Sensitivity to Dry Hydrological Conditions — Our hydroelectric generation facilities are sensitive to changes in the weather, particularly the level of water inflows into generation facilities. Since 2013, dry hydrological conditions in Brazil, Panama, Chile and Colombia have presented challenges for our businesses in these markets. Low rainfall and water inflows have caused reservoir levels to be below historical levels, reduced generation output, and increased prices for electricity. If hydrological conditions do not improve and our hydroelectric generation facilities cannot generate sufficient energy to meet contractual arrangements, we may need to purchase energy to fulfill our obligations, which could have a material adverse impact on our results of operations. According to the National Oceanic and Atmospheric Administration (“NOAA”) there is a greater than 90% chance that the El Niño phenomena will continue through the Northern Hemisphere winter 2015-16, and around an 80% chance it will last through the first quarter of 2016.
 Even if rainfall and water inflows return to historical averages, in some cases high market prices and low generation could persist until reservoir levels are fully recovered.
Brazil — In Brazil, the system operator controls all hydroelectric generation dispatch and reservoir levels, and a mechanism known as MRE was created to share hydrological risk across all hydro generators. If the hydroelectric generation facilities in MRE generate less than the total assured energy of the mechanism, the shortfall is shared among generators, and depending on a generator's contract level, is fulfilled with spot market purchases. The consequences of unfavorable hydrology are (i) thermal plants (more expensive to the system) being dispatched, (ii) lower hydropower generation with deficits in the MRE and (iii) high spot prices. During 2014, spot prices sustained significantly high levels causing financial stress to most entities in the energy sector. From February to April 2014, the spot price was at the cap level of R$822/MWh, contributing to

42

the average spot price of R$689/MWh for all of 2014. During October and November 2014, ANEEL conducted a public hearing to define a new spot price cap, reducing it from R$822/MWh to R$388/MWh from January 2015 forward. The lower cap price results in a meaningful reduction of expenses for entities negatively exposed to the spot price in 2015.
We expect the system operator in Brazil to continue to pursue a more conservative reservoir management strategy going forward, including the dispatch of up to 15-17 GW of thermal generation capacity, which could result in lower dispatch of hydroelectric generation facilities and electricity prices at high levels. AES Tietê has contract obligations throughout 2015 and may need to fulfill some of these obligations with spot purchases, so they will be sensitive to generation output and spot prices for electricity during this period. In addition, the costs incurred on energy purchases by our distribution companies (AES Eletropaulo and AES Sul) are passed through to customers with adjustments on a yearly basis, so working capital will be sensitive to significant increases in energy prices. In order to reduce potential working capital needs, in February 2015, ANEEL opened two public hearings i) to discuss an Extraordinary Tariff Review (“ETR”) requested by distribution companies and ii) to discuss adjustments to a tariff flag mechanism that may change the tariff to customers on a monthly basis depending on energy prices. These items were approved by ANEEL and made effective on March 2, 2015. The ETR represented an average tariff increase of 32% in AES Eletropaulo and 39% at AES Sul. The tariff flag mechanism, a temporary measure in response to higher energy prices due to dry hydrological conditions, was improved by incorporating i) a higher tariff increase depending on the energy purchase costs and ii) resources collected by the tariff flag being centralized in an account and shared among distribution companies in proportion to their respective involuntary exposure. These mechanisms are expected to reduce working capital needs for distribution companies.
Finally, if dry conditions persist until the beginning and/or through the next rainy season starting in November 2015 and there is no sufficient load demand reduction in the system, there is a risk that the government of Brazil could implement a rationing program in 2016. If rationing were to occur, we would expect rules to be implemented that may include, but are not limited to, i) adjustments to hydroelectric generation PPAs in accordance with the overall load reduction affecting contracting position of hydroelectric generators and distribution companies; ii) reductions in energy consumption impacting hydroelectric generation and margins of distribution companies; iii) increases in costs for distribution companies to provide additional customer services, communications, and to comply with rationing decree rules; and iv) increases in losses and delinquency for distribution companies due to higher tariffs and potential penalties. As a result, if poor hydrology persists and/or Brazil implements a rationing program, we would expect there to be an adverse impact on our results of operations and cash flows of our generation and distribution businesses in Brazil.
In Brazil, economic conditions remain unfavorable, as indicated by such factors as a negative GDP growth expectation for 2015, higher interest rates and inflation, and increasing unemployment. 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's results of operations, particularly in our distribution businesses in Brazil, AES Sul and AES Eletropaulo.
Panama — In Panama, dry hydrological conditions continued in 2015 especially in the Pacific river basins reducing generation output from hydroelectric facilities in those systems. This effect was partially offset by higher than historical average inflows in the Caribbean river basins. According to local hydrological forecast, the expectation is to have marginally below historical average inflows through the second half of 2015. Moreover, the effects of the El Niño phenomena could potentially intensify the dry hydrology conditions for the rest of the year and extend it to the first quarter of 2016.
AES Panama has to purchase energy on the spot market to fulfill its contract obligations when its generation output is below contract levels, and we expect this trend to continue through the second half of the year which will continue to impact our results of operations. As authorized on March 31, 2014, the Government of Panama agreed to reduce the financial impact of spot electricity purchases and transmission constraints equivalent to a 70 MW reduction in contracted capacity from 2014 to 2016 by compensating AES Panama for adverse variances between spot prices and a fixed price, equivalent to the average contract price, up to a maximum of $40 million in 2014, $30 million in 2015 and $30 million in 2016, not adjusted for ownership. Compensation payments recognized through December 31, 2014 and June 30, 2015 were $40 million and $4 million, respectively, of which $7 million are pending to be collected. The lower compensation rate in 2015 is a due to spot prices falling as a result of lower oil prices. Additionally, as part of our strategy to reduce our reliance on hydrology, in September 2014, AES Panama acquired a 72 MW power barge for $27 million, financed with non-recourse debt, which became operational in March 2015. As of June 30, 2015 , amounts capitalized include $49 million recorded in Electric Generation Assets and $10 million recorded in Construction in Progress related to some components still in process. T he provisional commercial operation certificate was obtained in April 2015.
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.

43

Argentina — In Argentina, economic conditions remain unfavorable, as measured by indicators such as non-receding inflation, increased government deficits, diminished sovereign reserves, lack of foreign currency accessibility, the potential for continued devaluation of the local currency, and a decline in expectations for economic growth. Many of these economic conditions in conjunction with the restrictions to freely access the foreign exchange currency established by the Argentine Government since 2012, have contributed to the development of a limited parallel unofficial foreign exchange market that is less favorable than the official exchange. At June 30, 2015 , all transactions at our businesses in Argentina were translated using the official exchange rate published by the Argentine Central Bank. See Note 7— Financing Receivables in Item 8.— Financial Statements and Supplementary Data of the 2014 Form 10-K for further information on the long-term receivables. In January 2014, the Argentine Peso devalued by approximately 20%, the most rapid depreciation since 2002. While the currency stabilized in the latter part of 2014 and throughout the first semester of 2015, further weakening of the Argentine Peso and local economic activity could cause significant volatility in our results of operations, cash flows, the ability to pay dividends to the Parent Company, and the value of our assets.
Argentina defaulted on its public debt in 2001, when it stopped making payments on approximately $100 billion amid a deep economic crisis. In 2005 and 2010, Argentina restructured its defaulted bonds into new securities valued at about 33 cents on the dollar. Between the two transactions, 93% of the bondholders agreed to exchange their defaulted bonds for new bonds. The remaining 7% did not accept the restructured deal. Since then, a certain group of the “hold-out” bondholders have been in judicial proceedings with Argentina regarding payment. More recently, the United States District Court ruled that Argentina would need to make payment to such hold-out bondholders according to the original applicable terms. Despite intense negotiations with the hold-out bondholders through the U.S. District Court Appointed Special Master, on July 30, 2014 the parties failed to reach a settlement agreement and consequently (as referred by S&P and Fitch ratings) Argentina fell into a selective default resulting from failure to make interest payments on its Discount Bonds maturing in December 2033. Although this situation remains unresolved, it has not caused any significant changes that impact our current exposures; however, as noted above, there could be impacts on our businesses in the future.
Bulgaria — A set of changes to the Energy Law were prepared by the Energy Commission of the Parliament, voted and enacted in March 2015. Main changes include the limitation of electricity purchases from co-generators at preferential prices, the allocation of the proceeds from the sale of state CO 2 allowances to NEK, and increase of the Regulator’s independence through appointment of its members by the Parliament and not by the Council of Ministers.
Another component of the energy sector restructuring is the negotiation of an amendment of Maritza’s PPA. Maritza has engaged in negotiations with NEK and other Bulgarian state bodies concerning these matters. In April 2015, the Company signed a non-binding Heads of Terms Agreement (“HTA”) with NEK regarding proposed amendments to the existing PPA with NEK. Under the framework set forth in the HTA, both parties will endeavor to make certain changes to the PPA, under which Maritza sells its output to NEK through 2026 (“PPA Term”). Under this framework, Maritza and NEK would reduce the capacity payment to Maritza under the PPA by 14% through the PPA Term, without impacting the energy price component. In exchange, NEK would pay Maritza its overdue receivables. Payment of the overdue receivables is contingent upon NEK obtaining financing support. NEK and Maritza are seeking to enter into the binding amendment of Maritza’s PPA by the end of 2015, however, there is no guarantee that a binding agreement will be reached.
In July 2015, additional measures were voted by the Parliament to complement the first measures taken in March 2015. A new fund will be created to help NEK meet its obligations with energy producers, financed with a 5% contribution from all energy producers on their energy revenues as well as with proceeds from the sale of state CO 2 allowances. Maritza will be able to pass-through this additional contribution to NEK since it falls under a change in law provision under the PPA.
For the period April through June 2015 NEK paid in total EUR 48 million which is in line with payments from the previous year. As of June 30, 2015 , Maritza’s total outstanding receivables were $281 million, of which $29 million were current and $252 million were overdue. Total receivables increased by $19 million from December 31, 2014 due to seasonality impacts during the period April through June (lower demand combined with higher renewable generation).
Unless and until a complete and binding resolution is in place, there remains a risk that we may still face a loss of earnings and/or cash flows from the affected businesses (or be unable to exercise remedies for a breach of the PPA) and may have to provide loans or equity to support affected businesses or projects, restructure them, write down their value and/or face the possibility that these projects cannot continue operations or provide returns consistent with our expectations, any of which could have a material impact on the Company.
As of June 30, 2015 , we concluded that the HTA signed with NEK in April is considered an indicator of an impairment of the long-lived assets in Bulgaria for Maritza, which were $1.1 billion and total debt of $605 million. Therefore, a test of recoverability was performed and management believes the carrying amount of the asset groups is recoverable as of June 30, 2015 . Long-lived assets for Kavarna were $221 million and total debt of $147 million.
India — AES has one coal-fired project under development with a total capacity of 1,320 MW which is an expansion of our existing OPGC business. The project started construction in April 2014 and is currently expected to begin operations in

44

2018. In August 2014, the Supreme Court of India invalidated the allocation of coal blocks to companies with certain levels of private ownership. In order to comply with the ruling, OPGC has formed a JV company with Odisha Hydro Power Corporation Ltd. and, in March 2015, this JV company has been re-allocated the coal blocks for the OPGC expansion project.
Puerto Rico — As stated in Item 7.— Management’s discussion and analysis of financial condition and results of operations — Key Trends and Uncertainties — Puerto Rico of the Company’s 2014 Form 10-K, our subsidiaries in Puerto Rico have long term PPAs with PREPA, a state-owned entity. Due to the ongoing economic situation in the country, 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. 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. The expiration of this agreement was subsequently extended to September 15, 2015. On December 14, 2014, PREPA presented the first stage of its restructuring plan. In February 2015, the negotiating position of PREPA was weakened when the federal court deemed the Recovery Act unconstitutional. The Puerto Rican government is appealing the decision of the court. PREPA presented a restructuring plan on June 1, 2015, as announced. The plan calls for a “shared burden” among all stakeholders, contemplates capital investments, as well as a greater role for private enterprises in the utility's operations, particularly in the generation component. It also recommends revising PREPA’s price structure, including a likely hike to electricity bills. PREPA is also reportedly seeking a moratorium on some of its future debt payments, which would protect the utility from a potential default while it restructures its operations. Subsequently, several milestones have been agreed between all parties, including the execution of a Restructuring Support Agreement no later than September 1, 2015.
AES Puerto Rico’s receivables balance from PREPA as of June 30, 2015 was $81 million, of which $23 million was overdue but subsequently has been collected.
As the events pertaining to the Forbearance Agreement continued to unfold, as of June 30, 2015 , we concluded that there was no indicator of an impairment of the long-lived assets in Puerto Rico, which were $637 million and total debt of $544 million. Therefore, management believes the carrying amount of the asset group is recoverable as of June 30, 2015 .
Macroeconomics — Conclusion
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. 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.
Impairments
Goodwill — In the first quarter of 2014, the Company recognized a full goodwill impairment of $136 million at DPLER and a goodwill impairment of $18 million at Buffalo Gap. During 2014, the Company recognized total goodwill impairment expense of $164 million . The Company has no reporting units considered to be “at risk”. A reporting unit is considered “at risk” when its fair value is not higher than its carrying amount by more than 10%. The Company monitors its reporting units at risk of step 1 failure on an ongoing basis. It is possible that the Company may incur goodwill impairment charges at any reporting units containing goodwill in future periods if adverse changes in their business or operating environments occur. See Note 10— Goodwill and Other Intangible Assets included in Item 8.— Financial Statements and Supplementary Data of our 2014 Form 10-K for further information.
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

45

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 set forth in the Company’s Form 10-K for the year ended December 31, 2014. 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 Company’s Form 10-K for the year ended December 31, 2014.
Update on MATS
As further discussed in Item 1.— Business — United States Environmental and Land-Use Regulations — MATS in the Company’s Form 10-K for the year ended December 31, 2014, the U.S. Supreme Court granted certiorari in several petitions for review of the decision by the U.S. Court of Appeals for the District of Columbia Circuit (the “D.C. Circuit”) to uphold MATS. On June 29, 2015, the U.S. Supreme Court reversed the D.C. Circuit’s decision, and remanded MATS to the D.C. Circuit for further proceedings. MATS remains in effect until the D.C. Circuit acts; however, we currently cannot predict the outcome of this litigation, or its impact, if any, on our MATS compliance planning.
Update on Waste Management
As further discussed in Item 1. —Business—United States Environmental and Land-Use Regulations—Waste Management in the Company’s Form 10-K for the year ended December 31, 2014, in December 2014, the EPA announced a final rule regulating CCR under Subtitle D of the Resource Conservation and Recovery Act. The final rule establishes 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. The EPA published the final rule in the Federal Register on April 17, 2015, and it will become effective on October 19, 2015. The Company’s U.S. subsidiaries are still analyzing the potential impact and compliance cost associated with this final rule, and there can be no assurance that the Company’s businesses, financial condition or results of operations would not be materially and adversely affected by such rule.
Update on Water Discharges
On October 16, 2014, IPL filed its wastewater compliance plans with the Indiana Utility Regulatory Commission (“IURC”). On July 29, 2015, IPL received approval for a Certificate of Public Convenience and Necessity from the IURC to convert Unit 7 at the Harding Street Station from coal-fired to natural gas-fired, and also to install and operate wastewater treatment technologies at Harding Street Station and Petersburg Generation Station in southern Indiana. IPL will invest $326 million in these projects to ensure compliance with the wastewater treatment requirements by 2017. 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.
On June 29, 2015, the EPA and the U.S. Army Corps of Engineers published a final rule defining federal jurisdiction over waters of the United States. This rule, which becomes effective on August 28, 2015, may expand or otherwise change the number and types of waters or features subject to federal permitting. Several states and industry groups have filed suit to challenge the rule. We cannot at this time determine the timing or impact of this regulation or litigation, but it could have a material impact on our business, financial condition or results of operations.
Update on GHG Emissions
Consistent with the discussion in Item 1. —Business—United States Environmental and Land-Use Regulations—Greenhouse Gas Emissions in the Company's Form 10-K for the year ended December 31, 2014, on August 3, 2015, the EPA released the final CO 2 emissions rules for existing power plants under Clean Air Act Section 111(d), called the Clean Power Plan (the “CPP”). The CPP provides for interim emissions performance rates that must be achieved beginning in 2022 and final emissions performance rates by 2030. It is too soon to determine whether the CPP will survive the expected legal challenges, and if it does survive such challenges, its potential impact on our business, operations or financial condition, but any such impact could be material.
 
Capital Resources and Liquidity
Overview — As of June 30, 2015 , the Company had unrestricted cash and cash equivalents of $1.0 billion , of which $40 million was held at the Parent Company and qualified holding companies. The Company had $439 million in short-term investments, held primarily at subsidiaries. In addition, we had restricted cash and debt service reserves of $711 million . The Company also had non-recourse and recourse aggregate principal amounts of debt outstanding of $15.7 billion and $5.0 billion , respectively. Of the approximately $2.0 billion of our current non-recourse debt, $1.2 billion was presented as such because it is due in the next 12 months and $764 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 other conditions

46



such as (but not limited to) failure to meet information covenants, complete construction or other milestones in an allocated time, meet certain minimum or maximum financial ratios, or other requirements contained in the non-recourse debt documents of the Company.
We expect such current maturities will be repaid from net cash provided by operating activities of the subsidiary to which the debt relates or through opportunistic refinancing activity or some combination thereof. None of our recourse debt matures within the next 12 months.
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 $15.7 billion of total non-recourse debt outstanding as of June 30, 2015 , 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, 2015 , 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 $386 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, 2015 , we had $61 million in letters of credit outstanding, provided under our senior secured credit facility and $49 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, 2015 , 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

47



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.
Financing Receivables — As of June 30, 2015 , the Company had approximately $291 million and $103 million of accounts receivable classified as Noncurrent assets—other and Current assets—Accounts receivable , respectively, primarily related to certain of its generation businesses in Argentina and the United States, and its utility businesses in Brazil and Cameroon (sold in 2014). 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, 2016 , 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 6 —Financing Receivables included in Part I Item 1.— Financial Statements of this Form 10-Q and Item 1.— Business—Regulatory Matters—Argentina included in the 2014 Form 10-K for further information.
Consolidated Cash Flows — During the three and six months ended June 30, 2015 , cash and cash equivalents decrease d $ 315 million and $517 million , respectively to $1.0 billion . The table below reflects the changes in cash flows for the comparative periods:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
$ Change
 
% Change
 
2015
 
2014
 
$ Change
 
% Change
Cash flows provided by (used in):
(in millions)
Operating activities
$
153

 
$
232

 
$
(79
)
 
-34
 %
 
$
590

 
$
453

 
$
137

 
30
 %
Investing activities
(350
)
 
(65
)
 
(285
)
 
438
 %
 
(1,070
)
 
(391
)
 
(679
)
 
174
 %
Financing activities
(124
)
 
(118
)
 
(6
)
 
5
 %
 
(11
)
 
(250
)
 
239

 
-96
 %
Effect of exchange rate changes on cash
8

 
8

 
—

 
—
 %
 
(19
)
 
(14
)
 
(5
)
 
36
 %
Decrease in cash of discontinued and held-for sale businesses
(2
)
 
45

 
(47
)
 
-104
 %
 
(7
)
 
75

 
(82
)
 
-109
 %
Net (decrease) increase in cash and cash equivalents
(315
)
 
102

 
(417
)
 
-409
 %
 
(517
)
 
(127
)
 
(390
)
 
307
 %
Cash and cash equivalents at beginning of period
$
1,337

 
$
1,413

 
$
(76
)
 
-5
 %
 
$
1,539

 
$
1,642

 
$
(103
)
 
-6
 %
Cash and cash equivalents at end of period
$
1,022

 
$
1,515

 
$
(493
)
 
-33
 %
 
$
1,022

 
$
1,515

 
$
(493
)
 
-33
 %
Net Cash Flows from Operating Activities — Net cash provided by operating activities was driven by:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
$ in millions
2015
 
2014
 
$ Change
 
% Change
 
2015
 
2014
 
$ Change
 
% Change
Net Income
$
264

 
$
275

 
$
(11
)
 
-4
 %
 
$
518

 
$
341

 
$
177

 
52
 %
Depreciation and amortization
299

 
319

 
(20
)
 
-6
 %
 
597

 
625

 
(28
)
 
-4
 %
Impairment expenses
37

 
107

 
(70
)
 
-65
 %
 
45

 
273

 
(228
)
 
-84
 %
Loss on the extinguishment of debt
122

 
15

 
107

 
713
 %
 
145

 
149

 
(4
)
 
-3
 %
Other non-cash adjustments
(101
)
 
(43
)
 
(58
)
 
-135
 %
 
(35
)
 
108

 
(143
)
 
-132
 %
Net income, adjusted for non-cash items
$
621

 
$
673

 
$
(52
)
 
-8
 %
 
$
1,270

 
$
1,496

 
$
(226
)
 
-15
 %
Net change in operating assets and liabilities (1)
$
(468
)
 
$
(441
)
 
$
(27
)
 
-6
 %
 
$
(680
)
 
$
(1,043
)
 
$
363

 
35
 %
Net cash provided by operating activities (2)
$
153

 
$
232

 
$
(79
)
 
-34
 %
 
$
590

 
$
453

 
$
137

 
30
 %
_____________________________
(1)  
Refer to the first four tables below for explanations by operating assets and liabilities.
(2)  
Refer to the last two tables below for drivers by business.
Net change in operating assets and liabilities ($ in millions) for the three months ended June 30, 2015 and 2014 was driven by:
 
Three Months Ended June 30, 2015
Increase in other assets primarily regulatory assets at Eletropaulo and Sul, and service concession assets at Mong Duong
$
(525
)
Decrease in net income tax payable and other tax payables primarily at Chivor, Alicura, Maritza and in the US
(116
)
Increase in accounts receivable primarily at Eletropaulo, Mong Duong and Maritza, partially offset by a decrease at Uruguaiana
(107
)
Increase in other liabilities primarily regulatory liabilities at Eletropaulo and Sul
329

Other operating assets and liabilities
(49
)
Net change in operating assets and liabilities
$
(468
)
 
Three Months Ended June 30, 2014
Decrease in accounts payable and other current liabilities primarily at Eletropaulo, Sul and the Parent Company
$
(609
)
Increase in accounts receivable primarily at Sul and Alicura
(93
)
Decrease in other assets, primarily regulatory assets at Eletropaulo and Sul
128

Increase in other liabilities primarily regulatory liabilities at Eletropaulo and Sul
128

Other operating assets and liabilities
5

Net change in operating assets and liabilities
$
(441
)

48



Net change in operating assets and liabilities ($ in millions) for the six months ended June 30, 2015 and 2014 was driven by:
 
Six Months Ended June 30, 2015
Increase in other assets, primarily regulatory assets at Eletropaulo and Sul, and service concession assets at Mong Duong
$
(815
)
Increase in accounts receivable primarily at Eletropaulo, Mong Duong, Sul, Alicura and Gener
(444
)
Decrease in net income tax payables and other tax payables primarily in the US and at Chivor
(131
)
Increase in inventory primarily at Mong Duong and IPALCO
(54
)
Increase in other liabilities primarily in regulatory liabilities at Eletropaulo and Sul, partially offset by IPALCO
453

Increase in accounts payable and other current liabilities primarily at Eletropaulo and Sul, partially offset by Tietê
179

Decrease in prepaid expense and other current assets primarily at Eletropaulo and DPL, partially offset by Sul
132

Net change in operating assets and liabilities
$
(680
)
 
Six Months Ended June 30, 2014
Increase in other assets primarily regulatory assets at Eletropaulo and Sul
$
(316
)
Increase in accounts receivable primarily at Sul, Alicura, Gener, Uruguaiana and Maritza
(312
)
Decrease in accounts payable and other current liabilities, primarily regulatory liabilities at Eletropaulo
(194
)
Decrease in net income tax and other tax payables primarily in the US and Brazil
(176
)
Other operating assets and liabilities
(45
)
Net change in operating assets and liabilities
$
(1,043
)
Net operating activities for the three months ended June 30, 2015 compared to the three months ended June 30, 2014 decreased $79 million driven primarily by the following SBUs and key operating drivers excluding intercompany related transactions or adjustments pertaining to interest, tax sharing, charges for management fee, transfer pricing , but including timing of intercompany expenses paid on behalf of businesses ($ in millions):
 
 
Amount
Brazil —   decrease of $93 million primarily due to:
 
 
Decrease at Tietê primarily due to higher spot market energy purchases from unfavorable hydrology, higher transmission costs and lower collections
 
$
(160
)
Increase at Eletropaulo primarily due to higher collections mainly attributable to higher tariffs, partially offset by higher energy purchases resulting from unfavorable hydrology and higher transmission costs
 
59

Andes —  decrease of $53 million primarily due to:
 
 
Decrease at Chivor in Colombia primarily due to higher current year tax payments resulting from higher taxable income in the prior year
 
(50
)
Corporate  — increase of $53 million primarily due to:
 
 
Increase primarily at the Parent Company driven by lower current year interest payments, swap termination payments made in the prior year upon refinance of debt, lower benefit requirements as well as the collection of realized gains resulting from the Company’s corporate hedging program
 
53

Other business drivers
 
19

 
 
$
(79
)
Net operating activities for the six months ended June 30, 2015 compared to the six months ended June 30, 2014 increased $137 million driven primarily by the following SBUs and key operating drivers excluding intercompany related transactions or adjustments pertaining to interest, tax sharing, charges for management fee, transfer pricing, but including timing of intercompany expenses paid on behalf of businesses ($ in millions):
 
 
Amount
US —   increase of $116 million primarily due to:
 
 
Increase at DPL primarily due to timing of collections, collection of deferred storm costs, lower interest paid and higher collateral deposits in the prior year as a result of outages
 
$
119

Asia  — decrease of $91 million primarily due to:
 
 
Decrease at Mong Duong primarily due to payment of service concession assets
 
(72
)
Decrease at Masinloc primarily attributable to timing of customer collections and payables to the wholesale market for replacement power during outages, partially offset by higher collections resulting from better plant availability in 2015
 
(18
)
MCAC  — increase of $85 million primarily due to:
 
 
Increase in Panama primarily due to lower energy purchases resulting from favorable hydrology
 
77

Increase in El Salvador primarily due to lower energy purchase costs resulting from a decrease in fuel prices
 
50

Increase in Puerto Rico primarily due to lower energy purchase costs resulting from a decrease in commodities prices and higher collections from the offtaker
 
29

Decrease in the Dominican Republic primarily due to lower collections from distribution companies and higher payments for energy in the spot market
 
(67
)
Corporate and other business drivers
 
19

 
 
$
137


49



Net Cash Flows from Investing Activities — Net cash used in investing activities were driven by:

Six Months Ended June 30,
 
2015
 
2014
 
$ Change
 
% Change
 
($ in millions)
Capital expenditures (1)
$
(1,168
)
 
$
(908
)
 
$
(260
)
 
-29
 %
Acquisitions, net of cash acquired:
 
 
 
 

 

Corporate —  Main Street Power
$
(17
)
 
$
—

 
$
(17
)
 
NA

Andes —  Gener — related to the purchase of 50% interest in our equity investment in Guacolda
—

 
(728
)
 
728

 
100
 %
Other businesses
(1
)
 
—

 
(1
)
 
NA

Total acquisitions, net of cash acquired
$
(18
)
 
$
(728
)
 
$
710

 
100
 %
Proceeds from the sale of businesses, net of cash sold:
 
 
 
 

 

Andes — Gener — related to the sale of 50% less one share of our interest in Guacolda
$
—

 
$
730

 
$
(730
)
 
-100
 %
Corporate — related to the sale of businesses in Cameroon
—

 
132

 
(132
)
 
-100
 %
Asia —  related to the sale of wind projects in India
—

 
21

 
(21
)
 
-100
 %
US — related to the sale of US wind projects
—

 
7

 
(7
)
 
-100
 %
Other businesses
2

 
—

 
2

 
NA

Total proceeds from the sale of businesses, net of cash sold
$
2

 
$
890

 
$
(888
)
 
-100
 %
Sales of short-term investments, net of purchases:
 
 
 
 
 
 
 
Brazil —  primarily at Tietê, Sul and Eletropaulo
$
175

 
$
263

 
$
(88
)
 
-33
 %
Other businesses
15

 
10

 
5

 
50
 %
Total sales of short-term investments, net of purchases
$
190

 
$
273

 
$
(83
)
 
-30
 %
Other investing activities
$
(76
)

$
82

 
$
(158
)
 
-193
 %
Net cash used in investing activities
$
(1,070
)
 
$
(391
)
 
$
(679
)
 
-174
 %
__________________
(1)  
Refer to table below for capital expenditures types and drivers by business.
Net cash used for capital expenditures were driven by:
 

Six Months Ended June 30,
 
 
2015
 
2014
 
$ Change
 
% Change
SBU
Growth capital expenditures:
($ in millions)
Andes
 Gener —  primarily related to Alto Maipo and Cochrane construction projects
$
(445
)
 
$
(250
)
 
$
(195
)
 
-78
 %
US
 IPALCO —  primarily related to replacement generation projects
(116
)
 
(28
)
 
(88
)
 
-314
 %
Brazil
 Eletropaulo —  primarily related to customer connection and distribution grid projects
(53
)
 
(83
)
 
30

 
36
 %
MCAC
 Dominican Republic —  primarily at Los Mina
(39
)
 
(1
)
 
(38
)
 
NM

Brazil
 Sul —  primarily related to distribution grid projects
(21
)
 
(25
)
 
4

 
16
 %
Europe
 Jordan —  IPP4 construction project
—

 
(38
)
 
38

 
100
 %
Asia
 Mong Duong — 2014 balance related to service concession assets
—

 
(45
)
 
45

 
100
 %
 
 Other businesses
(68
)

(66
)
 
(2
)
 
-3
 %
 
Total growth capital expenditures
$
(742
)
 
$
(536
)
 
$
(206
)
 
-38
 %
 
Maintenance and environmental capital expenditures:
 
 
 
 
 
 
 
US
 IPALCO —  primarily related to MATS project and maintenance on equipment
$
(177
)
 
$
(105
)
 
$
(72
)
 
-69
 %
US
 DPL —  related to maintenance on generating units and trans/distribution equipment
(41
)
 
(32
)
 
(9
)
 
-28
 %
Andes
 Gener —  primarily related to the SING and the Ventanas Unit 1 and 2 plants
(37
)
 
(33
)
 
(4
)
 
-12
 %
Brazil
 Eletropaulo —  primarily related to customer connection and distribution grid projects
(34
)
 
(42
)
 
8

 
19
 %
Brazil
 Tietê —  primarily related to modernization of generating units
(21
)
 
(40
)
 
19

 
48
 %
Brazil
 Sul —  primarily related to distribution grid projects
(19
)
 
(28
)
 
9

 
32
 %
 
 Other businesses
(97
)

(92
)
 
(5
)
 
-5
 %
 
Total maintenance and environmental capital expenditures
$
(426
)
 
$
(372
)
 
$
(54
)
 
-15
 %
 
Total capital expenditures
$
(1,168
)
 
$
(908
)
 
$
(260
)
 
-29
 %
_____________________________
NM - Not Meaningful

50



Net Cash Flows from Financing Activities — Net cash used in financing activities were driven by:

Six Months Ended June 30,
 
2015
 
2014
 
$ Change
 
% Change
 
($ in millions)
Issuances of recourse and non-recourse debt:
 
 
 
 
 
 
 
Corporate —  Parent Company
$
575

 
$
1,525

 
$
(950
)
 
-62
 %
Brazil —  Sul
499

 
92

 
407

 
442
 %
Andes —  Gener
485

 
926

 
(441
)
 
-48
 %
US —  IPALCO
405

 
130

 
275

 
212
 %
MCAC —  Panama
300

 
50

 
250

 
500
 %
Brazil —  Eletropaulo
118

 
—

 
118

 
NA

Asia — Mong Duong
104

 
271

 
(167
)
 
-62
 %
Brazil — Tietê
—

 
129

 
(129
)
 
-100
 %
Other businesses
29


112

 
(83
)
 
-74
 %
Total issuances of recourse and non-recourse debt
$
2,515

 
$
3,235

 
$
(720
)
 
-22
 %
Repayments of recourse and non-recourse debt:
 
 
 
 
 
 
 
Corporate —  Parent Company
$
(915
)
 
$
(1,663
)
 
$
748

 
45
 %
Brazil —  Sul
(468
)
 
(6
)
 
(462
)
 
NM

US —  IPALCO
(384
)
 
—

 
(384
)
 
NA

MCAC —  Panama
(287
)
 
—

 
(287
)
 
NA

Brazil — Tietê
(97
)
 
(132
)
 
35

 
27
 %
Brazil —  Eletropaulo
(63
)
 
(12
)
 
(51
)
 
-425
 %
Europe —  Maritza
(31
)
 
(31
)
 
—

 
—
 %
MCAC —  Puerto Rico
(24
)
 
(42
)
 
18

 
43
 %
Andes — Gener
(15
)
 
(885
)
 
870

 
98
 %
US —  Shady Point
—

 
(51
)
 
51

 
100
 %
Other businesses
(88
)

(190
)

102

 
54
 %
Total repayments of recourse and non-recourse debt
$
(2,372
)
 
$
(3,012
)
 
$
640

 
21
 %
Proceeds from the sale of redeemable stock of subsidiaries:
 
 
 
 
 
 
 
Corporate and US —  IPALCO
$
461

 
$
—

 
$
461

 
NA

Total proceeds from the sale of redeemable stock of subsidiaries
$
461

 
$
—

 
$
461

 
NA

Dividends paid on The AES Corporation common stock
 
 
 
 
 
 
 
Corporate —  Parent Company
$
(141
)
 
$
(72
)
 
$
(69
)
 
-96
 %
Total dividends paid on The AES Corporation common stock
$
(141
)
 
$
(72
)
 
$
(69
)
 
-96
 %
Payments for financed capital expenditures:
 
 
 
 
 
 
 
Andes —  Gener
$
(81
)
 
$
(33
)
 
$
(48
)
 
-145
 %
Asia — Mong Duong
—

 
(272
)
 
272

 
100
 %
Other businesses
(3
)
 
(7
)
 
4

 
57
 %
Total payments for financed capital expenditures
$
(84
)
 
$
(312
)
 
$
228

 
73
 %
Purchase of treasury stock
 
 
 
 
 
 
 
Corporate —  Parent Company
$
(307
)
 
$
(32
)
 
$
(275
)
 
-859
 %
Total purchase of treasury stock
$
(307
)
 
$
(32
)
 
$
(275
)
 
-859
 %
Other financing activities
$
(83
)

$
(57
)
 
$
(26
)
 
-46
 %
Net cash used in financing activities
$
(11
)
 
$
(250
)
 
$
239

 
96
 %
_____________________________
NM - Not Meaningful
Proportional Free Cash Flow (a non-GAAP measure) — We define Proportional Free Cash Flow as cash flows from operating activities less maintenance capital expenditures (including non-recoverable environmental capital expenditures), adjusted for the estimated impact of noncontrolling interests. The proportionate share of cash flows and related adjustments attributable to noncontrolling interests 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 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 IPL’s investment in MATS-related environmental upgrades that are recovered through a tracker. See Item 1. —Business—US SBU—IPALCO—Environmental Matters in our 2014 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

51



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 noncontrolling interests, 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.
Calculation of Proportional Free Cash Flow
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
$ Change
 
% Change
 
2015
 
2014
 
$ Change
 
% Change
 
(in millions)
 
(in millions)
Net Cash provided by operating activities
$
153

 
232

 
$
(79
)
 
-34
 %
 
$
590

 
$
453

 
$
137

 
30
 %
Add: capital expenditures related to service concession assets   (1)
51

 
—

 
51

 
NA

 
71

 
—

 
71

 
NA

Adjusted Operating Cash Flow
$
204

 
$
232

 
$
(28
)
 
-12
 %
 
$
661

 
$
453

 
$
208

 
46
 %
Less: proportional adjustment factor on operating cash activities   (2) (3)
(13
)
 
(64
)
 
51

 
80
 %
 
(85
)
 
(44
)
 
(41
)
 
-93
 %
Proportional Adjusted Operating Cash Flow
$
191

 
$
168

 
$
23

 
14
 %
 
$
576

 
$
409

 
$
167

 
41
 %
Less: proportional maintenance capital expenditures, net of reinsurance proceeds   (2)
(117
)
 
(102
)
 
(15
)
 
-15
 %
 
(230
)
 
(206
)
 
(24
)
 
-12
 %
Less: proportional non-recoverable environmental capital expenditures   (2) (4)
(12
)
 
(19
)
 
7

 
37
 %
 
(19
)
 
(27
)
 
8

 
30
 %
Proportional Free Cash Flow
$
62

 
$
47

 
$
15

 
32
 %
 
$
327

 
$
176

 
$
151

 
86
 %
____________________________
(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 adding up the resulting figures. For example, the Company owns approximately 71% of AES Gener, its subsidiary in Chile. Assuming a consolidated net cash flow from operating activities of $100 from AES Gener, the proportional adjustment factor for AES Gener would equal approximately $29 (or $100 x 29%). The Company calculates the proportional adjustment factor for each consolidated business in this manner and then adds these amounts together 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 $26 million and $36 million for the three and six months ended June 30, 2015 . The Company adopted service concession accounting effective January 1, 2015.
(4)  
Excludes IPALCO’s proportional recoverable environmental capital expenditures of $47 million and $52 million for the three months ended June 30, 2015 and June 30, 2014 , as well as, $86 million and $74 million for the six months ended June 30, 2015 and June 30, 2014 , respectively.
Proportional Free Cash Flow by SBU ($ in millions)
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
$ Change
 
% Change
 
2015
 
2014
 
$ Change
 
% Change
US SBU
$
104

 
$
105

 
$
(1
)
 
-1
 %
 
$
259

 
$
186

 
$
73

 
39
 %
Andes SBU
(20
)
 
17

 
(37
)
 
-218
 %
 
(3
)
 
40

 
(43
)
 
-108
 %
Brazil SBU
(20
)
 
(2
)
 
(18
)
 
-900
 %
 
(67
)
 
(64
)
 
(3
)
 
-5
 %
MCAC SBU
18

 
6

 
12

 
200
 %
 
132

 
80

 
52

 
65
 %
Europe SBU
35

 
32

 
3

 
9
 %
 
174

 
150

 
24

 
16
 %
Asia SBU
5

 
7

 
(2
)
 
-29
 %
 
9

 
48

 
(39
)
 
-81
 %
Corporate SBU
(60
)
 
(118
)
 
58

 
49
 %
 
(177
)
 
(264
)
 
87

 
33
 %
Proportional Free Cash Flow —  Total SBUs
$
62

 
$
47

 
$
15

 
32
 %
 
$
327

 
$
176

 
$
151

 
86
 %
Proportional Free Cash Flow for the three months ended June 30, 2015 compared to the three months ended June 30, 2014 increased $15 million , driven primarily by the following SBUs and key operating drivers excluding intercompany related transactions or adjustments pertaining to interest, tax sharing and charges for management fee and transfer pricing, but including timing of intercompany expenses paid on behalf of the businesses ($ in millions):
US SBU
 
Amount
Increase at DPL primarily due to higher collections, collection of deferred storm costs and lower interest paid
 
$
61

Decrease at IPALCO primarily due to lower collections driven by lower wholesale margins resulting from outages and lower prices as well as an increase in maintenance capital expenditures
 
(31
)
Decrease at Shady Point primarily driven by increased inventory, lower collections during unit repairs and an increase in maintenance capital expenditures
 
(10
)
Decrease at Buffalo Gap primarily due to lower collections as a result of lower wind production
 
(6
)
Other business drivers
 
(15
)
Total
 
$
(1
)
Andes SBU
 
Amount
Decrease at Chivor in Colombia primarily due to higher current year tax payments resulting from higher taxable income in the prior year
 
$
(37
)
Total
 
$
(37
)

52



Brazil SBU
 
Amount
Decrease at Tietê primarily due to higher spot market energy purchases from unfavorable hydrology, higher transmission costs and lower collections
 
$
(36
)
Increase at Eletropaulo primarily due to higher collections mainly attributable to higher tariffs, partially offset by higher energy purchases resulting from unfavorable hydrology and higher transmission costs
 
12

Other business drivers
 
6

Total
 
$
(18
)
MCAC SBU
 
Amount
Increase in Panama primarily due to lower energy purchases resulting from favorable hydrology
 
$
22

Increase in El Salvador primarily due to lower energy purchase costs resulting from a decrease in fuel prices
 
12

Decrease in Puerto Rico primarily due to timing of coal payments partially offset by lower fuel purchase costs resulting from a decrease in commodities prices and higher collections from the offtaker
 
(18
)
Other business drivers
 
(4
)
Total
 
$
12

Europe SBU
 
Amount
Increase at Maritza primarily due to lower payments to fuel supplier
 
$
20

Increase due to operating cash provided by new operations at IPP4 in Jordan which commenced operations in July 2014
 
7

Decrease at Kilroot primarily due to lower collections resulting from lower volume, timing of outages and lower rates
 
(13
)
Decrease in operating cash at Ebute as a result of sale of business in 2014
 
(12
)
Other business drivers
 
1

Total
 
$
3

Asia SBU
 
Amount
Decrease in proportional operating cash flow at Masinloc resulting from 2014 business sell down as well as timing of customer collections, partially offset by higher collections resulting from better plant availability in 2015
 
$
(2
)
Other business drivers
 
—

Total
 
$
(2
)
Corporate SBU
 
Amount
Increase primarily at the Parent Company driven by lower current year interest payments, swap termination payments made in the prior year upon refinance of debt, lower benefit requirements as well as the collection of realized gains resulting from the Company’s corporate hedging program

 
$
58

Total
 
$
58

Proportional Free Cash Flow for the six months ended June 30, 2015 compared to the six months ended June 30, 2014 increased $151 million , driven primarily by the following SBUs and key operating drivers excluding intercompany related transactions or adjustments pertaining to interest, tax sharing and charges for management fee and transfer pricing, but including timing of intercompany expenses paid on behalf of the businesses ($ in millions)
US SBU
 
Amount
Increase at DPL primarily due to higher collections, collection of deferred storm costs, lower interest paid and higher collateral deposits in the prior year as a result of outages
 
$
110

Decrease at Shady Point primarily driven by increases in inventory, lower collections during unit repairs, timing of collections as well as an increase in maintenance capital expenditures
 
(17
)
Decrease at Laurel Mountain primarily due to lower collections as a result of lower energy prices in the PJM market
 
(12
)
Decrease at IPALCO primarily due to lower collections driven by lower wholesale margins resulting from outages and lower prices as well as an increase in maintenance capital expenditures, partially offset by lower required pension contributions
 
(9
)
Other business drivers
 
1

Total
 
$
73

Andes SBU
 
Amount
Decrease at Chivor in Colombia primarily due to higher current year tax payments resulting from higher taxable income in the prior year
 
$
(44
)
Other business drivers
 
1

Total
 
$
(43
)
Brazil SBU
 
Amount
Decrease at Tietê primarily due to higher energy purchases in the spot market resulting from unfavorable hydrology, higher transmission costs, and decreased collections, partially offset by lower income tax payments
 
$
(48
)
Decrease at Cemig due to income tax refund received in the prior year
 
(14
)
Increase at Eletropaulo primarily due to higher collections mainly attributable to higher tariffs, partially offset by higher energy purchases resulting from unfavorable hydrology and higher transmission costs
 
32

Increase at Sul primarily due to higher collections mainly attributable to higher tariffs, partially offset by higher energy purchases resulting from unfavorable hydrology, higher transmission costs and higher interest on debt
 
21

Other business drivers
 
6

Total
 
$
(3
)

53



MCAC SBU
 
Amount
Increase in Panama primarily due to lower energy purchases resulting from favorable hydrology
 
$
43

Increase in El Salvador primarily due to lower energy purchase costs resulting from a decrease in fuel prices
 
37

Increase in Puerto Rico primarily due to lower fuel purchase costs from a decrease in commodities prices and higher collections from the offtaker
 
29

Decrease in the Dominican Republic due to lower collections from distribution companies, higher payments for energy in the spot market and higher maintenance capital expenditures due to higher planned outages
 
(53
)
Other business drivers
 
(4
)
Total
 
$
52

Europe SBU
 
Amount
Increase at Maritza primarily due to higher collections from the offtaker and lower payments to fuel supplier
 
$
61

Increase due to operating cash provided by new operations at IPP4 in Jordan which commenced operations in July 2014
 
13

Decrease at Kilroot primarily due to lower collections resulting from lower volume, timing of outages and lower rates
 
(24
)
Decrease in operating cash at Ebute as a result of sale of business in 2014
 
(18
)
Other business drivers
 
(8
)
Total
 
$
24

Asia SBU
 
Amount
Decrease in proportional operating cash flow at Masinloc resulting from 2014 business sell down as well as timing of customer collections and payables to the wholesale market for replacement power during outages, partially offset by higher collections resulting from better plant availability in 2015
 
$
(37
)
Other business drivers
 
(2
)
Total
 
$
(39
)
Corporate SBU
 
Amount
Increase primarily at the Parent Company driven by lower interest payments, the collection of realized gains resulting from the Company’s corporate hedging program, swap termination payments made in the prior year upon refinance of debt, as well as a reduction in capital expenditures and incentive payments
 
87

Total
 
$
87

Parent Company Liquidity — The following discussion of Parent Company Liquidity has been included because we believe it is 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. Cash and cash equivalents 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 to fund:
•
interest;
•
principal repayments of debt;
•
acquisitions;
•
construction commitments;
•
other equity commitments;
•
common stock repurchases and dividends;
•
taxes; and
•
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 U.S. GAAP financial measure, cash and cash equivalents , at the periods indicated as follows:

54



 
June 30, 2015
 
December 31, 2014
 
(in millions)
Consolidated cash and cash equivalents
$
1,022

 
$
1,539

Less: Cash and cash equivalents at subsidiaries
(982
)
 
(1,032
)
Parent and qualified holding companies’ cash and cash equivalents
40

 
507

Commitments under Parent credit facility
800

 
800

Less: Letters of credit under the credit facility
(61
)
 
(61
)
Borrowings available under Parent credit facility
739

 
739

Total Parent Company Liquidity
$
779

 
$
1,246

The Company paid a dividend of $0.10 per share to its common stockholders during the three months ended June 30, 2015 . While we intend to continue payment of dividends and believe we will have sufficient liquidity to do so, we can provide no assurance we will be able to continue the payment of dividends.
Recourse Debt — Our total recourse debt was $5.0 billion and $5.3 billion as of June 30, 2015 and December 31, 2014 , respectively. See Note 8 — 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 2014 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 Key Trends and Uncertainties in this Item 2), 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 2014 Form 10-K.
Various debt instruments at the Parent Company level, including our senior secured credit facility, contain certain restrictive covenants. As of June 30, 2015 , the Parent Company was in compliance with these covenants which provide for, among other items:
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limitations on other indebtedness, liens, investments and guarantees;
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limitations on dividends, stock repurchases and other equity transactions;
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restrictions and limitations on mergers and acquisitions, sales of assets, leases, transactions with affiliates and off-balance sheet and derivative arrangements;
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maintenance of certain financial ratios; and
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financial and other reporting requirements.
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:
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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;
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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;
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causing us to record a loss in the event the lender forecloses on the assets; and
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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 $2.0 billion . The portion of current debt related to such defaults was $764 million  at June 30, 2015 , all of which was non-recourse debt related to three subsidiaries — Maritza, Kavarna and Altai. See Note 8 — Debt in Item 1.— Financial Statements of this Form 10-Q for additional detail.

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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, 2015 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 completed fiscal quarters. As of June 30, 2015 , 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 to the consolidated financial statements included in our 2014 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 2014 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, 2015 .
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Overview Regarding Market Risks — Our generation and utility 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. We operate in multiple countries and as such are subject to volatility in exchange rates at varying degrees at the subsidiary level and between our functional currency, the U.S. Dollar, and currencies of the countries in which we operate. We are also exposed to interest rate fluctuations due to our issuance of debt and related financial instruments.
These disclosures set forth in this Item 3 are based upon a number of assumptions; actual effects may differ. The safe harbor provided in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 shall apply to the disclosures contained in this Item 3. For further information regarding market risk, see Item 1A.— Risk Factors , Our financial position and results of operations may fluctuate significantly due to fluctuations in currency exchange rates experienced at our foreign operations ; Our businesses may incur substantial costs and liabilities and be exposed to price volatility as a result of risks associated with the wholesale electricity markets, which could have a material adverse effect on our financial performance ; and We may not be adequately hedged against our exposure to changes in commodity prices or interest rates of the 2014 Form 10-K.
Commodity Price Risk — Although we prefer to hedge our exposure to the impact of market fluctuations in the price of electricity, fuels and environmental credits, some of our generation businesses operate under short-term sales or under contract sales that leave an un-hedged exposure on some of our capacity or through imperfect fuel pass-throughs. In our utility businesses, we may be exposed to commodity price movements depending on our excess or shortfall of generation relative to load obligations and sharing or pass-through mechanisms. These businesses subject our operational results to the volatility of prices for electricity, fuels and environmental credits in competitive markets. We employ risk management strategies to hedge our financial performance against the effects of fluctuations in energy commodity prices. The implementation of these strategies can involve the use of physical and financial commodity contracts, futures, swaps and options.
When hedging the output of our generation assets, we utilize contract strategies that lock in the spread per MWh between variable costs and the price at which the electricity can be sold. The portion of our sales and purchases that are not subject to such agreements or contracted businesses where indexation is not perfectly matched to business drivers will be exposed to commodity price risk.
AES businesses will see changes in variable margin performance as global commodity prices shift. As of June 30, 2015 , the portfolio’s pretax earnings exposure for the remainder of 2015 to a 10% move in commodity prices would be approximately $10 million for U.S. power (DPL), $5 million for natural gas, $5 million for oil and $5 million for coal. Our estimates exclude correlation of oil with coal or natural gas. For example, a decline in oil or natural gas prices can be accompanied by a decline in coal price if commodity prices are correlated. In aggregate, the Company’s downside exposure occurs with lower oil, lower

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natural gas, and higher coal prices. Exposures at individual businesses will change as new contracts or financial hedges are executed, and our sensitivity to changes in commodity prices generally increases in later years with reduced hedge levels at some of our businesses.
Commodity prices affect our businesses differently depending on the local market characteristics and risk management strategies. Spot power prices, contract indexation provisions and generation costs can be directly or indirectly affected by movements in the price of natural gas, oil and coal. We have some natural offsets across our businesses such that low commodity prices may benefit certain businesses and be a cost to others. Exposures are not perfectly linear or symmetric. The sensitivities are affected by a number of local or indirect market factors. Examples of these factors include hydrology, local energy market supply/demand balances, regional fuel supply issues, regional competition, bidding strategies and regulatory interventions such as price caps. Operational flexibility changes the shape of our sensitivities. For instance, certain power plants may limit downside exposure by reducing dispatch in low market environments. Volume variation also affects our commodity exposure. The volume sold under contracts or retail concessions can vary based on weather and economic conditions resulting in a higher or lower volume of sales in spot markets. Thermal unit availability and hydrology can affect the generation output available for sale and can affect the marginal unit setting power prices.
In the US SBU, the generation businesses are largely contracted but may have residual risk to the extent contracts are not perfectly indexed to the business drivers. IPL sells power at wholesale once retail demand is served, so retail sales demand may affect commodity exposure. Additionally, at DPL, open access allows our retail customers to switch to alternative suppliers; falling energy prices may increase the rate of switching; DPL sells generation in excess of its retail demand under short-term sales. Given that natural gas-fired generators set power prices for many markets, higher natural gas prices expand margins. The positive impact on margins will be moderated if natural gas-fired generators set the market price only during some periods.
In the Andes SBU, our business in Chile owns assets in the central and northern regions of the country and has a portfolio of contract sales in both. In the central region, the contract sales generally cover the efficient generation from our coal-fired and hydroelectric assets. Any residual spot price risk will primarily be driven by the amount of hydrological inflows. In the case of low hydroelectric generation, spot price exposure is capped by the ability to dispatch our natural gas/diesel assets, the price of which depends on fuel pricing at the time required. There is a small amount of coal generation in the northern region that is not covered by the portfolio of contract sales and therefore subject to spot price risk. In both regions, generators with oil or oil-linked fuel generally set power prices. In Colombia, we operate under a short-term sales strategy and have commodity exposure to unhedged volumes. Because we own hydroelectric assets there, contracts are not indexed to fuel.
In the Brazil SBU, the hydroelectric generating facility is covered by contract sales. Under normal hydrological volatility, spot price risk is mitigated through a regulated sharing mechanism across all hydroelectric generators in the country. Under drier conditions, the sharing mechanism may not be sufficient to cover the business’ contract position, and therefore it may have to purchase power at spot prices driven by the cost of thermal generation.
In the MCAC SBU, our businesses have commodity exposure on unhedged volumes. Panama is highly contracted under a portfolio of fixed volume contract sales. To the extent hydrological inflows are greater than or less than the contract sales volume, the business will be sensitive to changes in spot power prices which may be driven by oil prices in some time periods. In the Dominican Republic, we own natural gas-fired assets contracted under a portfolio of contract sales and a coal-fired asset contracted with a single contract, and both contract and spot prices may move with commodity prices. Additionally, the contract levels do not always match our generation availability and our assets may be sellers of spot prices in excess of contract levels or a net buyer in the spot market to satisfy contract obligations.
In the Europe SBU, our Kilroot facility operates on a short-term sales strategy. To the extent that sales are unhedged, the commodity risk at our Kilroot business is to the clean dark spread — the difference between electricity price and our coal-based variable dispatch cost including emissions. Natural gas-fired generators set power prices for many periods, so higher natural gas prices generally expand margins and higher coal or emissions prices reduce them. Similarly, increased wind generation displaces higher cost generation, reducing Kilroot’s margins, and vice versa.
In the Asia SBU, our Masinloc business is a coal-fired generation facility which hedges its output under a portfolio of contract sales that are indexed to fuel prices, with generation in excess of contract volume or shortfalls of generation relative to contract volumes settled in the spot market. Low oil prices may be a driver of margin compression since oil affects spot power sale prices.
Foreign Exchange Rate Risk — In the normal course of business, we are exposed to foreign currency risk and other foreign operations risks that arise from investments in foreign subsidiaries and affiliates. A key component of these risks stems from the fact that some of our foreign subsidiaries and affiliates utilize currencies other than our consolidated reporting currency, the U.S. Dollar. Additionally, certain of our foreign subsidiaries and affiliates have entered into monetary obligations in the U.S. Dollar or currencies other than their own functional currencies. We have varying degrees of exposure to changes in the exchange rate between the U.S. Dollar and the following currencies: Argentine Peso, Brazilian Real, British Pound, Chilean Peso, Colombian Peso, Dominican Peso, Euro, Indian Rupee, Kazakhstan Tenge, Mexican Peso and Philippine Peso. These

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subsidiaries and affiliates have attempted to limit potential foreign exchange exposure by entering into revenue contracts that adjust to changes in foreign exchange rates. We also use foreign currency forwards, swaps and options, where possible, to manage our risk related to certain foreign currency fluctuations.
We have entered into hedges to partially mitigate the exposure of earnings translated into the U.S. Dollar to foreign exchange volatility. The largest foreign exchange risks over a 12-month forward-looking period stem from the following currencies: Argentine Peso, British Pound, Brazilian Real, Colombian Peso, Euro and Kazakhstani Tenge. As of June 30, 2015 , assuming a 10% U.S. Dollar appreciation, adjusted pretax earnings attributable to foreign subsidiaries exposed to movement in the exchange rate of the Brazilian Real, Colombian Peso and Kazakhstani Tenge relative to the U.S. Dollar are projected to be reduced by $5 million for each currency for the remainder of 2015. The Argentine Peso, Euro and British Pound impacts relative to the U.S. Dollar are projected to be less than $5 million for each currency. These numbers have been produced by applying a one-time 10% U.S. Dollar appreciation to forecasted exposed pretax earnings for 2015 coming from the respective subsidiaries exposed to the currencies listed above, net of the impact of outstanding hedges and holding all other variables constant. The numbers presented above are net of any transactional gains/losses. These sensitivities may change in the future as new hedges are executed or existing hedges are unwound. Additionally, updates to the forecasted pretax earnings exposed to foreign exchange risk may result in further modification. The sensitivities presented do not capture the impacts of any administrative market restrictions or currency inconvertibility.
Interest Rate Risks — We are exposed to risk resulting from changes in interest rates as a result of our issuance of variable and fixed-rate debt, as well as interest rate swap, cap and floor and option agreements.
Decisions on the fixed-floating debt ratio are made to be consistent with the risk factors faced by individual businesses or plants. Depending on whether a plant’s capacity payments or revenue stream is fixed or varies with inflation, we partially hedge against interest rate fluctuations by arranging fixed-rate or variable-rate financing. In certain cases, particularly for non-recourse financing, we execute interest rate swap, cap and floor agreements to effectively fix or limit the interest rate exposure on the underlying financing. Most of our interest rate risk is related to non-recourse financings at our businesses.
As of June 30, 2015 , the portfolio’s pretax earnings exposure for the remainder of 2015 to a 100-basis-point increase in interest rates for our Argentine Peso, Brazilian Real, Colombian Peso, Euro, Kazakhstani Tenge and U.S. Dollar denominated debt would be approximately $15 million based on the impact of a one time, 100-basis-point upward shift in interest rates on interest expense for the debt denominated in these currencies. The amounts do not take into account the historical correlation between these interest rates.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures — The Company, under the supervision and with the participation of its management, including the Company’s CEO and Chief Financial Officer (“CFO”), evaluated the effectiveness of its “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were effective as of June 30, 2015 to ensure that information required to be disclosed by the Company in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures.
Changes in Internal Controls over Financial Reporting — There were no changes that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in certain claims, suits and legal proceedings in the normal course of business. The Company has accrued for litigation and claims where it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. The Company believes, based upon information it currently possesses and taking into account established reserves for estimated liabilities and its insurance coverage, that the ultimate outcome of these proceedings and actions is unlikely to have a material adverse effect on the Company’s financial statements. It is reasonably possible, however, that some matters could be decided unfavorably to the Company and could require the Company to pay damages or make expenditures in amounts that could be material but cannot be estimated as of June 30, 2015 .
In 1989, Centrais Elétricas Brasileiras S.A. (“Eletrobrás”) filed suit in the Fifth District Court in the State of Rio de Janeiro (“FDC”) against Eletropaulo Eletricidade de São Paulo S.A. (“EEDSP”) relating to the methodology for calculating monetary adjustments under the parties’ financing agreement. In April 1999, the FDC found for Eletrobrás and in September 2001, Eletrobrás initiated an execution suit in the FDC to collect approximately R$1.7 billion ( $536 million ) from Eletropaulo (as estimated by Eletropaulo) and a lesser amount from an unrelated company, Companhia de Transmissão de Energia Elétrica Paulista (“CTEEP”) (Eletropaulo and CTEEP were spun off of EEDSP pursuant to its privatization in 1998). In November 2002, the FDC rejected Eletropaulo’s defenses in the execution suit. On appeal, the case was remanded to the FDC for further proceedings to determine whether Eletropaulo is liable for the debt. In December 2012, the FDC issued a decision that Eletropaulo is liable for the debt. However, that decision was annulled on appeal and the case was remanded to the FDC for further proceedings. On remand at the FDC, the FDC has appointed an accounting expert who will issue a report on the amount of the alleged debt and the responsibility for its payment in light of the privatization. The parties will be entitled to take discovery and present arguments on the issues to be determined by the expert. If the FDC again finds Eletropaulo liable for the debt, after the amount of the alleged debt is determined, Eletrobrás will be entitled to resume the execution suit in the FDC. If Eletrobrás does so, Eletropaulo will be required to provide security for its alleged liability. In that case, if Eletrobrás requests the seizure of such security and the FDC grants such request, Eletropaulo’s results of operations may be materially adversely affected and, in turn, the Company’s results of operations could be materially adversely affected. In addition, in February 2008, CTEEP filed a lawsuit in the FDC against Eletrobrás and Eletropaulo seeking a declaration that CTEEP is not liable for any debt under the financing agreement. Eletropaulo believes it has meritorious defenses to the claims asserted against it and will defend itself vigorously in these proceedings; however, there can be no assurances that it will be successful in its efforts.
In September 1996, a public civil action was asserted against Eletropaulo and Associação Desportiva Cultural Eletropaulo (the “Associação”) relating to alleged environmental damage caused by construction of the Associação near Guarapiranga Reservoir. The initial decision that was upheld by the Appellate Court of the State of São Paulo in 2006 found that Eletropaulo should repair the alleged environmental damage by demolishing certain construction and reforesting the area, and either sponsor an environmental project which would cost approximately R$1.7 million ($ 538 thousand ) as of December 31, 2014, or pay an indemnification amount of approximately R$15 million ($ 4.7 million ). Eletropaulo has appealed this decision to the Supreme Court and the Supreme Court affirmed the decision of the Appellate Court. Following the Supreme Court’s decision, the case has been remanded to the court of first instance for further proceedings and to monitor compliance by the defendants with the terms of the decision. In January 2014, Eletropaulo informed the court that it intended to comply with the court’s decision by donating a green area inside a protection zone and restore watersheds, the aggregate cost of which is expected to be approximately R$1.7 million ($ 538 thousand ). Eletropaulo also requested that the court add the current owner of the land where the Associação facilities are located, Empresa Metropolitana de Águas e Energia S.A. (“EMAE”), as a party to the lawsuit and order EMAE to perform the demolition and reforestation aspects of the court’s decision. In July 2014, the court requested the Secretary of the Environment for the State of São Paulo to notify the court of its opinion regarding the acceptability of the green areas to be donated by Eletropaulo to the State of São Paulo. In January 2015, the Secretary of the Environment for the State of São Paulo notified Eletropaulo and the court that it would not accept Eletropaulo’s proposed green areas donation. Instead of such green areas donation, the Secretary of the Environment proposed in March 2015 that Eletropaulo undertake an environmental project to offset the alleged environmental damage. The cost of such project is currently estimated to be R$1.7 million ( $538 thousand ). Eletropaulo is considering the Secretary of the Environment’s proposal.
In December 2001, Gridco Ltd. (“Gridco”) served a notice to arbitrate pursuant to the Indian Arbitration and Conciliation Act of 1996 on the Company, AES Orissa Distribution Private Limited (“AES ODPL”), and Jyoti Structures (“Jyoti”) pursuant to the terms of the shareholders agreement between Gridco, the Company, AES ODPL, Jyoti and the Central Electricity Supply Company of Orissa Ltd. ("CESCO"), an affiliate of the Company. In the arbitration, Gridco asserted that a comfort letter issued by the Company in connection with the Company’s indirect investment in CESCO obligates the Company to provide additional financial support to cover all of CESCO’s financial obligations to Gridco. Gridco appeared to be seeking approximately $189 million in damages, plus undisclosed penalties and interest, but a detailed alleged damage analysis was not filed by Gridco. The Company counterclaimed against Gridco for damages. In June 2007, a 2-to-1 majority of the arbitral tribunal rendered its

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award rejecting Gridco’s claims and holding that none of the respondents, the Company, AES ODPL, or Jyoti, had any liability to Gridco. The respondents’ counterclaims were also rejected. A majority of the tribunal later awarded the respondents, including the Company, some of their costs relating to the arbitration. Gridco filed challenges of the tribunal’s awards with the local Indian court. Gridco’s challenge of the costs award has been dismissed by the court, but its challenge of the liability award remains pending. The Company believes that it has meritorious defenses to the claims asserted against it and will defend itself vigorously in these proceedings; however, there can be no assurances that it will be successful in its efforts.
In March 2003, the office of the Federal Public Prosecutor for the State of São Paulo, Brazil (“MPF”) notified Eletropaulo that it had commenced an inquiry into the BNDES financings provided to AES Elpa and AES Transgás, the rationing loan provided to Eletropaulo, changes in the control of Eletropaulo, sales of assets by Eletropaulo, and the quality of service provided by Eletropaulo to its customers. The MPF requested various documents from Eletropaulo relating to these matters. In July 2004, the MPF filed a public civil lawsuit in the Federal Court of São Paulo (“FCSP”) alleging that BNDES violated Law 8429/92 (“the Administrative Misconduct Act”) and BNDES’s internal rules by (1) approving the AES Elpa and AES Transgás loans; (2) extending the payment terms on the AES Elpa and AES Transgás loans; (3) authorizing the sale of Eletropaulo’s preferred shares at a stock-market auction; (4) accepting Eletropaulo’s preferred shares to secure the loan provided to Eletropaulo; and (5) allowing the restructurings of Light Serviços de Eletricidade S.A. and Eletropaulo. The MPF also named AES Elpa and AES Transgás as defendants in the lawsuit because they allegedly benefited from BNDES’s alleged violations. In May 2006, the FCSP ruled that the MPF could pursue its claims based on the first, second, and fourth alleged violations noted above. The MPF subsequently filed an interlocutory appeal with the Federal Court of Appeals (“FCA”) seeking to require the FCSP to consider all five alleged violations. In April 2015, the FCA issued a decision holding that the FCSP should consider all five alleged violations. In June 2015, AES Elpa and AES Brasiliana (the successor of AES Transgás) filed a motion for clarification of the FCA’s decision. The lawsuit remains pending before the FCSP, but it will remain suspended until the interlocutory appeal before the FCA has been finally decided, including the motion for clarification. AES Elpa and AES Brasiliana believe they have meritorious defenses to the allegations asserted against them and will defend themselves vigorously in these proceedings; however, there can be no assurances that they will be successful in their efforts.
Pursuant to their environmental audit, AES Sul and AES Florestal discovered 200 barrels of solid creosote waste and other contaminants at a pole factory that AES Florestal had been operating. The conclusion of the audit was that a prior operator of the pole factory, CEEE, had been using those contaminants to treat the poles that were manufactured at the factory. On their initiative, AES Sul and AES Florestal communicated with Brazilian authorities and CEEE about the adoption of containment and remediation measures. In March 2008, the State Attorney of the State of Rio Grande do Sul, Brazil filed a public civil action against AES Sul, AES Florestal and CEEE seeking an order requiring the companies to recover the contaminated area located on the grounds of the pole factory and an indemnity payment (approximately R$6 million ( $2 million )) to the State’s Environmental Fund. In October 2011, the State Attorney Office filed a request for an injunction ordering the defendant companies to contain and remove the contamination immediately. The court granted injunctive relief on October 18, 2011, but determined only that defendant CEEE was required to proceed with the removal work. In May 2012, CEEE began the removal work in compliance with the injunction. The removal costs are estimated to be approximately R$60 million ( $19 million ) and the work was completed in February 2014. In parallel with the removal activities, a court-appointed expert investigation took place, which was concluded in May 2014. The court-appointed expert final report was presented to the State Attorneys in October 2014, and in January 2015 to the defendant companies. In March 2015, AES Sul and AES Florestal submitted comments and supplementary questions regarding the expert report. The Company believes that it has meritorious defenses to the claims asserted against it and will defend itself vigorously in these proceedings; however, there can be no assurances that it will be successful in its efforts.
In March 2009, AES Uruguaiana Empreendimentos S.A. (“AESU”) in Brazil initiated arbitration in the ICC against YPF S.A. (“YPF”) seeking damages and other relief relating to YPF’s breach of the parties’ GSA. Thereafter, in April 2009, YPF initiated arbitration in the ICC against AESU and two unrelated parties, Companhia de Gas do Estado do Rio Grande do Sul and Transportador de Gas del Mercosur S.A. (“TGM”), claiming that AESU wrongfully terminated the GSA and caused the termination of a transportation agreement (“TA”) between YPF and TGM (“YPF Arbitration”). YPF sought an unspecified amount of damages from AESU, a declaration that YPF’s performance was excused under the GSA due to certain alleged force majeure events, or, in the alternative, a declaration that the GSA and the TA should be terminated without a finding of liability against YPF because of the allegedly onerous obligations imposed on YPF by those agreements. In addition, in the YPF Arbitration, TGM asserted that if it was determined that AESU was responsible for the termination of the GSA, AESU was liable for TGM’s alleged losses, including losses under the TA. In April 2011, the arbitrations were consolidated into a single proceeding. The hearing on liability issues took place in December 2011. In May 2013, the arbitral Tribunal issued a liability award in AESU’s favor. YPF thereafter challenged the award in Argentine court. That challenge remains pending. Also, there are competing decisions of the Argentine and Uruguayan courts on whether the arbitration should be suspended, including an Argentine appellate court’s decision purporting to suspend the arbitration and a Uruguayan appellate court’s decision directing the arbitration to continue. Given the competing decisions, the Tribunal suspended the damages phase of the arbitration until February 2, 2015, at which time the Tribunal was to consider whether to lift the suspension. In April 2015, the Tribunal issued

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an order lifting the suspension. The Tribunal has scheduled the damages hearing for November 16-17, 2015. AESU believes it has meritorious claims and defenses and will assert them vigorously; however, there can be no assurances that it will be successful in its efforts.
In April 2009, the Antimonopoly Agency in Kazakhstan initiated an investigation of certain power sales of Ust-Kamenogorsk HPP (“UK HPP”) and Shulbinsk HPP, hydroelectric plants under AES concession (collectively, the “Hydros”). The Antimonopoly Agency determined that the Hydros had abused their market position and charged monopolistically high prices for power from January-February 2009. The Agency sought an order from the administrative court requiring UK HPP to pay an administrative fine of approximately KZT 120 million ($ 630 thousand ) and to disgorge profits for the period at issue, estimated by the Antimonopoly Agency to be approximately KZT 440 million ($ 2.3 million ). No fines or damages have been paid to date, however, as the proceedings in the administrative court have been suspended due to the initiation of related criminal proceedings against officials of the Hydros. In the course of criminal proceedings, the financial police expanded the periods at issue to the entirety of 2009 for UK HPP and from January-October 2009 for Shulbinsk HPP, and sought increased damages of KZT 1.2 billion ($ 6.4 million ) from UK HPP and KZT 1.3 billion ($ 6.9 million ) from Shulbinsk HPP. The Hydros believe they have meritorious defenses and will assert them vigorously in these proceedings; however, there can be no assurances that they will be successful in their efforts.
In October 2009, AES Mérida III, S. de R.L. de C.V. (“AES Mérida”), one of our businesses in Mexico, initiated arbitration against its fuel supplier and electricity offtaker, Comisión Federal de Electricidad (“CFE”), seeking a declaration that CFE breached the parties’ power purchase agreement (“PPA”) by supplying gas that did not comply with the PPA’s specifications. Alternatively, AES Mérida requested a declaration that the supply of such gas by CFE is a force majeure event under the PPA. CFE disputed the claims. Although it did not assert counterclaims, in its closing brief CFE asserted that it is entitled to a partial refund of the capacity charge payments that it made for power generated with the out-of-specification gas. In July 2012, the arbitral Tribunal issued an award in AES Mérida’s favor. In December 2012, CFE initiated an action in Mexican court seeking to nullify the award. AES Mérida opposed the request and asserted a counterclaim to confirm the award. In February 2014, the court rejected CFE's claims and granted AES Mérida's request to confirm the award. CFE has appealed the court's decision. The appeal is pending before the Mexican Supreme Court. AES Mérida believes it has meritorious grounds to defeat that action; however, there can be no assurances that it will be successful.
In October 2009, IPL received a NOV and Finding of Violation from the EPA pursuant to the CAA Section 113(a). The NOV alleges violations of the CAA at IPL’s three primarily coal-fired electric generating facilities dating back to 1986. The alleged violations primarily pertain to the Prevention of Significant Deterioration and nonattainment New Source Review requirements under the CAA. Since receiving the letter, IPL management has met with EPA staff regarding possible resolutions of the NOV. At this time, we cannot predict the ultimate resolution of this matter. However, settlements and litigated outcomes of similar cases have required companies to pay civil penalties, install additional pollution control technology on coal-fired electric generating units, retire existing generating units, and invest in additional environmental projects. A similar outcome in this case could have a material impact to IPL and could, in turn, have a material impact on the Company. IPL would seek recovery of any operating or capital expenditures related to air pollution control technology to reduce regulated air emissions; however, there can be no assurances that it would be successful in that regard.
In November 2009, April 2010, December 2010, April 2011, June 2011, August 2011, November 2011, and October 2014, substantially similar personal injury lawsuits were filed by a total of 50 residents and decedent estates in the Dominican Republic against the Company, AES Atlantis, Inc., AES Puerto Rico, LP, AES Puerto Rico, Inc., and AES Puerto Rico Services, Inc., in the Superior Court for the State of Delaware. In each lawsuit, the plaintiffs allege that the coal combustion by-products of AES Puerto Rico’s power plant were illegally placed in the Dominican Republic from October 2003 through March 2004 and subsequently caused the plaintiffs’ birth defects, other personal injuries, and/or deaths. The plaintiffs did not quantify their alleged damages, but generally alleged that they are entitled to compensatory and punitive damages. The Company is not able to estimate damages, if any, at this time. The AES defendants moved for partial dismissal of both the November 2009 and April 2010 lawsuits on various grounds. In July 2011, the Superior Court dismissed the plaintiffs’ international law and punitive damages claims, but held that the plaintiffs had stated intentional tort, negligence, and strict liability claims under Dominican law, which the Superior Court found governed the lawsuits. The Superior Court granted the plaintiffs leave to amend their complaints in accordance with its decision, and in September 2011, the plaintiffs in the November 2009 and April 2010 lawsuits did so. In November 2011, the AES defendants again moved for partial dismissal of those amended complaints, and in both lawsuits, the Superior Court dismissed the plaintiffs’ claims for future medical monitoring expenses but declined to dismiss their claims under Dominican Republic Law 64-00. The AES defendants filed an answer to the November 2009 lawsuit in June 2012. The Superior Court has stayed the six lawsuits filed between April 2010 and November 2011, and has also stayed the October 2014 lawsuit. Presently, discovery has been conducted only in the November 2009 lawsuit and only on causation and exposure issues. The AES defendants believe they have meritorious defenses and will defend themselves vigorously; however, there can be no assurances that they will be successful in their efforts.
On February 11, 2011, Eletropaulo received a notice of violation from São Paulo State’s Environmental Authorities for

61



allegedly destroying 0.32119 hectares of native vegetation at the Conservation Park of Serra do Mar (“Park”), without previous authorization or license. The notice of violation asserted a fine of approximately R$1 million ($ 317 thousand ) and the suspension of Eletropaulo activities in the Park. As a response to this administrative procedure before the São Paulo State Environmental Authorities (“São Paulo EA”), Eletropaulo timely presented its defense on February 28, 2011 seeking to vacate the notice of violation or reduce the fine. In December 2011, the São Paulo EA declined to vacate the notice of violation but reduced the fine to R$757 thousand ( $240 thousand ) and recognized the possibility of an additional 40% reduction of the fine if Eletropaulo agrees to recover the affected area with additional vegetation. Eletropaulo did not appeal the decision and discussed the terms of a possible settlement with the São Paulo EA, including a plan to recover the affected area by primarily planting additional trees. In March 2012, the State of São Paulo Prosecutor’s Office of São Bernardo do Campo initiated a Civil Proceeding to review the compliance by Eletropaulo with the terms of any possible settlement. The Park Administrator subsequently approved an area for the recovery project different from the affected area, which was no longer available. On January 23, 2015, AES Eletropaulo entered into a Recovery and Compensation Agreement with the Coordenadoria de Fiscaliz a ção Ambiental (“CFA”) to restore 3.2 hectares during the course of two years, which restoration is currently estimated to cost R$592 thousand ( $187 thousand ). In June 2015, the State of São Paulo Prosecutor’s Office of São Bernardo do Campo decided to close its Civil Proceeding, subject to the approval of the Superior Counsel of the Public Prosecutor’s Office. Upon completion of the recovery project as approved and established in the Recovery and Compensation Agreement, AES will be entitled to a 40% reduction ( R$303 thousand or $96 thousand ) of the fine as legally provided.
In June 2011, the São Paulo Municipal Tax Authority (the “Municipality”) filed 60 tax assessments in São Paulo administrative court against Eletropaulo, seeking to collect services tax (“ISS”) that allegedly had not been paid on revenues for services rendered by Eletropaulo. Eletropaulo challenged the assessments on the ground that the revenues at issue were not subject to ISS. In October 2013, the First Instance Administrative Court determined that Eletropaulo was liable for ISS, interest, and related penalties totaling approximately R$3.2 billion ( $1 billion ) as estimated by Eletropaulo. Eletropaulo has appealed to the Second Instance Administrative Court. No tax is due while the appeal is pending. Eletropaulo believes it has meritorious defenses to the assessments and will defend itself vigorously in these proceedings; however, there can be no assurances that it will be successful in its efforts.
In January 2012, the Brazil Federal Tax Authority issued an assessment alleging that AES Tietê paid PIS and COFINS taxes from 2007 to 2010 at a lower rate than the tax authority believed was applicable. AES Tietê challenged the assessment on the ground that the tax rate was set in the applicable legislation. In April 2013, the First Instance Administrative Court determined that AES Tietê should have calculated the taxes at the higher rate and that AES Tietê was liable for unpaid taxes, interest and penalties totaling approximately R$885 million ( $280 million ) as estimated by AES Tietê. AES Tietê appealed to the Second Instance Administrative Court (“SAIC”). In January 2015, the SAIC issued a decision in AES Tietê’s favor, finding that AES Tietê was not liable for unpaid taxes. The public prosecutor subsequently filed an appeal, which was denied as untimely. The Tax Authority thereafter filed a motion for clarification of the SAIC’s decision, which motion remains pending. AES Tietê believes it has meritorious defenses to the claim and will defend itself vigorously in these proceedings; however, there can be no assurances that it will be successful in its efforts.
In August 2012, Fondo Patrimonial de las Empresas Reformadas (“FONPER”) (the Dominican instrumentality that holds the Dominican Republic’s shares in Empresa Generadora de Electricidad Itabo, S.A. (“Itabo”)) filed a criminal complaint against certain current and former employees of AES. The criminal proceedings include a related civil component initiated against, among others, Coastal Itabo, Ltd. (“Coastal”) (the AES affiliate shareholder of Itabo) and New Caribbean Investment, S.A. (“NC”) (the AES affiliate that manages Itabo). FONPER asserts claims relating to the alleged mismanagement of Itabo and seeks approximately $270 million in damages. The Dominican District Attorney (“DA”) has admitted the criminal complaint and is investigating the allegations set forth therein. In September 2012, one of the individual defendants responded to the criminal complaint, denying the charges and seeking an immediate dismissal of same. In April 2013, the DA requested that the Dominican Republic’s Camara de Cuentas (“Camara”) perform an audit of the allegations in the criminal complaint. The audit is ongoing and the Camara has not issued its final report to date. Further, in August 2012, Coastal and NC initiated an international arbitration proceeding against FONPER and the Dominican Republic (“Respondents”), seeking a declaration that Coastal and NC have acted both lawfully and in accordance with the relevant contracts with the Respondents in relation to the management of Itabo. Coastal and NC also seek a declaration that the criminal complaint is a breach of the relevant contracts between the parties, including the obligation to arbitrate disputes. Coastal and NC further seek damages from the Respondents resulting from their breach of contract. The Respondents have denied the claims and challenged the jurisdiction of the arbitral Tribunal. The Tribunal has established the procedural schedule for the arbitration, but has not yet scheduled dates for the final evidentiary hearing. In February 2015, the Respondents made an application requesting that the Tribunal rule on their jurisdictional objections prior to giving any consideration to the merits of the claims of Coastal and NC. Coastal and NC have opposed the application. At the Tribunal’s direction, the parties are briefing supplemental issues relating to the Respondents’ application. The AES parties believe they have meritorious claims and defenses, which they will assert vigorously; however, there can be no assurances that they will be successful in their efforts.

62



ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors as previously disclosed in our 2014 Form 10-K in Part 1—Item 1A.— Risk Factors .
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table presents information regarding purchases made by The AES Corporation of its common stock:
Repurchase Period
 
Total Number of Shares Purchased
 
Average Price Paid Per Share
 
Total Number of Shares Repurchased as part of a Publicly Announced Purchase Plan (1)
 
Dollar Value of Maximum Number Of Shares To Be Purchased Under the Plan (2)
4/1/2015 — 4/30/15
 
591,028

 
$
12.75

 
591,028

 
$
380,935,833

5/1/2015 — 5/30/15
 
20,000,000

 
13.07

 
20,000,000

 
119,535,833

6/1/2015 — 6/30/15
 
175,740

 
13.16

 
175,740

 
117,225,388

Total
 
20,766,768

 

 
20,766,768

 
 
_____________________________
(1)  
See Note 11 —Equity—Stock Repurchase Program to the condensed consolidated financial statements in Item 1.—Financial Statements for further information.
(2)  
The authorization permits the Company to repurchase stock through a variety of methods, including open market repurchases, purchases by contract (including, without limitation, accelerated stock repurchase programs or 10b5-1 plans) and/or privately negotiated transactions. There is no assurance as to the amount, timing or prices of repurchases, which may vary based on market conditions and other factors. The stock repurchase program may be modified, extended or terminated by the Board of Directors at any time.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
4.1
 
Nineteenth Supplemental Indenture, dated April 6, 2015, between The AES Corporation and Wells Fargo Bank, N.A., as Trustee is incorporated herein by reference to Exhibit 4.1 to the Company’s Form 8-K filed on April 6, 2015.

10.1
 
Form of Performance Unit Award Agreement Pursuant to The AES Corporation 2003 Long Term Compensation Plan (filed herewith).
 
 
 
10.2
 
Form of Restricted Stock Unit Award Agreement Pursuant to The AES Corporation 2003 Long Term Compensation Plan (filed herewith).
 
 
 
 
 
 
10.3
 
Form of Performance Stock Unit Award Agreement Pursuant to The AES Corporation 2003 Long Term Compensation Plan (filed herewith).
 
 
 
10.4
 
Form of Nonqualified Stock Option Award Agreement Pursuant to The AES Corporation 2003 Long Term Compensation Plan (filed herewith).
 
 
 
10.5
 
The AES Corporation Amended and Restated Executive Severance Plan dated April 23, 2015 (filed herewith).
 
 
 
10.6
 
The AES Corporation Severance Plan, as amended and restated on April 23, 2015 (filed herewith).
 
 
 
10.7
 
Form of Retroactive Consent To Provide for Double-Trigger In Change-In-Control Transactions (filed herewith).
 
 
 
31.1
 
Rule13a-14(a)/15d-14(a) Certification of Andrés Gluski (filed herewith).
 
 
31.2
 
Rule 13a-14(a)/15d-14(a) Certification of Thomas M. O’Flynn (filed herewith).
 
 
32.1
 
Section 1350 Certification of Andrés Gluski (filed herewith).
 
 
32.2
 
Section 1350 Certification of Thomas M. O’Flynn (filed herewith).
 
 
101.INS
 
XBRL Instance Document (filed herewith).
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document (filed herewith).
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document (filed herewith).
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document (filed herewith).
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith).


63



SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
THE AES CORPORATION
(Registrant)
 
 
 
 
 
 
Date:
August 7, 2015
By:
 
/s/ T HOMAS  M. O’F LYNN
 
 
 
 
Name:
Thomas M. O’Flynn
 
 
 
 
Title:
Executive Vice President and Chief Financial Officer (Principal Financial Officer)
 
 
 
 
 
 
 
 
By:
 
 /s/ F ABIAN  E. S OUZA
 
 
 
 
Name:
Fabian E. Souza
 
 
 
 
Title:
Vice President and Controller (Principal Accounting Officer)

64


PERFORMANCE UNIT AWARD AGREEMENT
PURSUANT TO
THE AES CORPORATION 2003 LONG TERM COMPENSATION PLAN
The AES Corporation, a Delaware Corporation (the “Company”), grants to the Employee named below, pursuant to The AES Corporation 2003 Long Term Compensation Plan, as amended (the “Plan”), and this Performance Unit Award Agreement (this “Agreement”), this Award of Performance Units (“Performance Units”), the value of which is related to and contingent upon the achievement of a predetermined Performance Target (as set forth herein). Capitalized terms not otherwise defined herein shall each have the meaning assigned to them in the Plan.
1.
This Award of Performance Units is subject to all terms and conditions of this Agreement and the Plan, the terms of which are incorporated herein by reference:
Name of Employee:
 
 
 
Fidelity System ID:
 
 
 
Grant Date:
 
 
 
Total Number of Performance Units:
 
 
 
Target Value:
 

Notwithstanding any provision of the Plan to the contrary, this Award of Performance Units is subject to the terms and conditions of this Agreement and the Plan regardless of whether the Employee is a Covered Person, as defined in the Plan.
2.
The Employee is hereby granted an Award of the total number of Performance Units set forth above. The Performance Units will be reflected in a book account by the Company during the Performance Period (as defined below). Contingent upon achieving or exceeding 75% or more of the Performance Target, the value of vested Performance Units, will be paid in cash in calendar year following the completion of the Performance



Period (the “Payment Date”), as soon as administratively practicable following the end of the Performance Period.
3.
The “Performance Period” is the three calendar year period beginning on January 1st in the year of grant and ending on December 31st in the second year following the grant date.
4.
Except as otherwise provided in this Agreement, this Award of Performance Units will vest, in accordance with and subject to the terms of this Agreement, in three equal installments on December 31st in each year during the Performance Period (each a “Vesting Date”); provided, however, that if:
(A)
the Employee Separates from Service prior to the end of the Performance Period by reason of the Employee’s death or a Separation from Service on account of Disability, all Performance Units referenced in the chart above shall vest on such termination date and a cash amount equal to $1 for each Performance Unit shall be paid to the Employee on the date of Separation from Service; provided, however, any payment due to the Employee by reason of a Separation from Service on account of Disability shall be delayed to the extent required by Section 14(k)(i) of the Plan;
(B)
(i) the Employee Separates from Service prior to the Payment Date by reason of a Separation from Service by the Company for cause (as determined by the Committee in its sole discretion for all purposes of this Agreement) or (ii) the Employee Separates from Service prior to the final Vesting Date by reason of a voluntary Separation from Service by the Employee (including any retirement other than a Qualified Retirement), this Award of Performance Units (including any vested portion) will be forfeited in full and cancelled by the Company, and shall cease to be outstanding, upon such termination date; and
(C)
the Employee Separates from Service for any other reason, including on account of a Qualified Retirement, by reason of death or Disability subsequent to the end of the Performance Period, or by reason of a Separation from Service by the Company (other than for cause, voluntarily by the Employee not as part of a Qualified Retirement or by reason of death or Disability as provided in paragraphs 4(A) and 4(B)), the Employee will be eligible to receive the value of his or her vested Performance Units on the Payment Date in accordance with and subject to the terms set forth in paragraph 5 below. For purposes of this Agreement, “Qualified Retirement” means the Employee’s retirement at a time when such Employee is at least 60 years of age and has at least seven years of service as an employee of the Company and/or one or more of its Affiliates.

2

Any Performance Units that have not vested on or before the date that an Employee Separates from Service for any reason (other than by reason of death or Disability), (i) will not subsequently vest; and (ii) will be immediately cancelled and forfeited without payment or further obligation by the Company or any Affiliate. In addition, the Employee’s right to receive the applicable Performance Unit value in respect of vested Performance Units that have not been forfeited will be paid on the Payment Date, if, and only if, all relevant performance conditions are met, in accordance with the terms and conditions of this Agreement and the Plan.
5.
Each Performance Unit represents a right to receive the applicable Performance Unit value in the chart below, in cash on the Payment Date, if and only if, such Performance Unit (i) has not been forfeited prior to its Vesting Date and (ii) has vested in accordance with the terms of this Agreement.
The value of each Performance Unit will depend upon the Company’s actual Proportional-Adjusted EBITDA minus Mandatory CapEx (“Adjusted EBITDA”) as defined below, over the Performance Period as compared to the performance target approved by the Committee and as follows:
ACTUAL ADJUSTED EBITDA
OVER THE PERFORMANCE PERIOD
PERFORMANCE UNIT VALUE
Below 75% of Performance Target =
USD$0.00
Equal to 87.5% of Performance Target =
USD$0.50
Equal to 100% of Performance Target =
USD$1.00
Equal to or greater than 125% of Performance Target =
USD$2.00
For Adjusted EBITDA levels achieved greater than 75% and less than 87.5% of performance target, greater than 87.5% and less than 100% of performance target, and greater than 100% and less than 125% of performance target, the Performance Unit value will be determined based on straight-line interpolation. The maximum value of a Performance Unit is $2.00.
Notwithstanding the performance level achieved, the Committee may reduce or terminate the Performance Units altogether, but in no event may the Committee increase the value of a Performance Unit underlying this Award of Performance Units beyond the performance levels achieved.
6.
Notwithstanding the foregoing, in the event of a (i) Change in Control (as defined in Section 6(A) below) and (ii) a Qualifying Event (as defined in Section 6(B) below) prior to the end of the Performance Period, if the Performance Units described herein have not already been previously forfeited or cancelled, such Performance Units shall become

3

fully vested (for the total number of Performance Units set forth in paragraph 1) and payable in a cash amount equal to $1.00 for each Performance Unit and the Payment Date will occur contemporaneous with the Qualifying Event; provided, however, that in connection with a Change in Control, payment of any obligation payable pursuant to the preceding sentence may be made in cash of equivalent value and/or securities or other property in the Committee’s discretion.
(A)
Change in Control means the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company to any Person or group (as that term is used in Section 13(d) (3) of the Exchange Act) of Persons, (ii) a Person or group (as so defined) of Persons (other than Management of the Company on the date of the most recent adoption of the Plan by the Company's stockholders or their Affiliates) shall have become the beneficial owner (as defined below) of more than 35% of the outstanding voting stock of the Company, (iii) during any one-year period, individuals who at the beginning of such period constitute the Board (together with any new Director whose election or nomination was approved by a majority of the Directors then in office who were either Directors at the beginning of such period or who were previously so approved, but excluding under all circumstances any such new Director whose initial assumption of office occurs as a result of an actual or threatened election contest or other actual or threatened solicitation of proxies or consents by or on behalf of any individual, corporation, partnership or other entity or group, including through the use of proxy access procedures as may be provided in the Company’s bylaws) cease to constitute a majority of the Board, or (iv) the consummation of a merger, consolidation, business combination or similar transaction involving the Company unless securities representing 65% or more of the then outstanding voting stock of the corporation resulting from such transaction are held subsequent to such transaction by the Person or Persons who were the beneficial owners of the outstanding voting stock of the Company immediately prior to such transaction in substantially the same proportions as their ownership immediately prior to such transaction. Notwithstanding the foregoing or any provision to the contrary, if an Award is subject to Section 409A (and not excepted therefrom) and a Change in Control is a distribution event for purposes of an Award, the foregoing definition of Change in Control shall be interpreted, administered and construed in a manner necessary to ensure that the occurrence of any such event shall result in a Change in Control only if such event qualifies as a change in the ownership or effective control of a corporation, or a change in the ownership of a substantial portion of the assets of a corporation,

4

as applicable, within the meaning of Treas. Reg. § 1.409A-3(i)(5). For purposes of this Agreement, “beneficial owner(s)” shall have the meaning set forth in Rule 13d-3 of the Exchange Act
(B)
Qualifying Event means the occurrence of one or more of the following events: (i) immediately upon the consummation of a Change in Control event, failure of the successor company in a Change in Control event to provide Substitute Awards that are substantially similar in both nature and terms (including having an equivalent realizable pre-tax value to the Performance Units assuming vesting and delivery at the consummation of the Change in Control); (ii) within two years of the consummation of a Change in Control event, an involuntary termination without cause of the Employee; or (iii) within two years of the consummation of a Change in Control event, a Good Reason Termination (as defined in Section 6(C) below) by the Employee.
(C)
Good Reason Termination means, without an Employee’s written consent, the Separation from Service (for reasons other than death, Disability or cause) by an Employee due to any of the following events occurring within two years of the consummation of a Change in Control: (i) the relocation of an Employee’s principal place of employment to a location that is more than 50 miles from the principal place of employment in effect immediately prior to such Change in Control; (ii) a material diminution in the duties or responsibilities of an Employee from those in place immediately prior to such Change in Control; and (iii) a material reduction in the base salary or annual incentive opportunity of an Employee from what was in place immediately prior to such Change in Control.
In order for an Employee to have a Good Reason Termination, (i) an Employee must notify the successor entity in writing, within ninety (90) days of the event constituting Good Reason of the Employee’s intent to terminate employment for Good Reason, that specifically identifies in reasonable detail the manner of the Good Reason event, (ii) the event must remain uncorrected for thirty (30) days following the date that an Employee notifies the successor entity in writing of the Employee’s intent to terminate employment for Good Reason (the “Notice Period”), and (iii) the termination date must occur within sixty (60) days after expiration of the Notice Period.
7.
Notices hereunder and under the Plan, if to the Company, shall be delivered to the Plan Administrator (as so designated by the Company) or mailed to the Company’s principal office, 4300 Wilson Boulevard, Arlington, VA 22203 (or as subsequently designated by the Company), attention of the Plan Administrator, or, if to the Employee, shall be

5

delivered to the Employee, which may include electronic delivery, or mailed to his or her address as the same appears on the records of the Company.
8.
All decisions and interpretations made by the Board of Directors or the Committee with regard to any question arising hereunder or under the Plan shall be binding and conclusive on all persons. Unless otherwise specifically provided herein, in the event of any inconsistency between the terms of the Plan and this Agreement, the terms of the Plan will govern.
9.
By accepting this Award of Performance Units, the Employee acknowledges receipt of a copy of the Plan and the prospectus relating to this Award of Performance Units, and agrees to be bound by the terms and conditions set forth in the Plan and this Agreement, as in effect and/or amended from time to time.

The Employee further acknowledges that the Plan and related documents, which may include the Plan prospectus, may be delivered electronically. Such means of delivery may include the delivery of a link to a Company intranet site or the internet site of a third party involved in administering the Plan, the delivery of the documents via e-mail or CD-ROM or such other delivery determined at the Plan Administrator’s discretion. The Employee acknowledges that the Employee may receive from the Company a paper copy of any documents delivered electronically at no cost if the Employee contacts the Human Resources department of the Company by telephone at (703) 682-6553 or by mail to 4300 Wilson Boulevard, Suite 1100, Arlington, Virginia 22203. The Employee further acknowledges that the Employee will be provided with a paper copy of any documents delivered electronically if electronic delivery fails.
10.
This Award is intended to satisfy the requirements of Section 409A of the Code (or an exception thereto) and shall be administered, interpreted and construed accordingly. A payment shall be treated as made on the specified date of payment if such payment is made at such date or a later date in the same calendar year or, if later, by the 15th day of the third calendar month following the specified date of payment, as provided and in accordance with Treas. Reg. § 1.409A-3(d). The Company may, in its sole discretion and without the Employee’s consent, modify or amend the terms and conditions of this Award, impose conditions on the timings and effectiveness of the payment of the Performance Units, or take any other action it deems necessary or advisable, to cause this Award to comply with Section 409A of the Code (or an exception thereto). Notwithstanding, the Employee recognizes and acknowledges that Section 409A of the Code may impose upon the Employee certain taxes or interest charges for which the Employee is and shall remain solely responsible.

6

11.
The Employee acknowledges that any income for federal, state or local income tax purposes that the Employee is required to recognize on account of the vesting of the Performance Units and/or payment in settlement of the Performance Units to the Employee shall be subject to withholding of tax by the Company.  In accordance with administrative procedures established by the Company, the Company shall mandatorily satisfy the Employee’s minimum statutory withholding tax obligations, if any, by withholding from the payment in settlement of the Performance Units to be made to the Employee a sufficient amount equal to the applicable minimum statutory withholding tax obligation.
12.
Notwithstanding any other provisions in this Agreement, any Performance Units subject to recovery under any law, government regulation, stock exchange listing requirement, or Company policy, shall be subject to such deductions, recoupment and clawback as may be required to be made pursuant to such law, government regulation, stock exchange listing requirement or Company policy.
13.
This Agreement will be governed by the laws of the State of Delaware without giving effect to its choice of law provisions.
The AES CORPORATION

By:
Tish Mendoza
Senior Vice President and Chief Human Resources Officer

7

RESTRICTED STOCK UNIT AWARD AGREEMENT
PURSUANT TO
THE AES CORPORATION 2003 LONG TERM COMPENSATION PLAN
The AES Corporation, a Delaware corporation (the “Company”), grants to the Employee named below, pursuant to The AES Corporation 2003 Long Term Compensation Plan, as amended (the “Plan”), and this Restricted Stock Unit Award Agreement (this “Agreement”), this Award of Restricted Stock Units (“RSUs”) upon the terms and conditions set forth herein. Capitalized terms not otherwise defined herein will each have the meaning assigned to them in the Plan.
1.
This Award of RSUs is subject to all terms and conditions of this Agreement and the Plan, the terms of which are incorporated herein by reference:
Name of Employee:
 
 
 
Fidelity System ID:
 
 
 
Grant Date:
 
 
 
Grant Price:
 
 
 
Total Number of RSUs Granted:
 

2.
Each RSU represents a right to receive one Share on the appropriate Vesting Date (as defined below) in accordance with the terms of this Agreement.
3.
Unless otherwise determined by the Committee, each RSU shall also represent a right to receive an additional amount, payable in cash, equal to the accumulated cash dividends paid by the Company on the RSU between the Grant Date and the Vesting Date (as defined below) for the RSU. The additional dividend amounts that are accumulated subject to an RSU will be subject to the same terms and conditions (including, without limitation, any applicable vesting requirements and forfeiture provisions) as the RSU to which they relate under the Award. Any payment due to the Employee under this Agreement shall be made promptly following the date the RSUs vest under paragraph 4



or 5 of this Agreement, but in no event later than March 15th of the calendar year following the calendar year in which the RSUs vest.
4.
An RSU (i) carries no voting rights and (ii) the holder will not have any stockholder rights, unless the vesting conditions of the RSU are met and the RSU is paid out with Shares.
5.
Except as otherwise provided in this Agreement, this Award of RSUs will vest, in accordance with and subject to the terms of this Agreement, in three equal installments on each of the first three anniversaries of the grant date (each a “Vesting Date”) provided, however, that if:
(A)
the Employee Separates from Service prior to the applicable Vesting Date by reason of the Employee’s death or a Separation from Service on account of Disability, all RSUs that have not previously vested shall vest and be paid to the Employee; and
(B)
if the Employee Separates from Service prior to the applicable Vesting Date for any reason , including, but not limited to, voluntarily by the Employee, on account of Qualified Retirement, or by reason of a Separation from Service by the Company with or without Cause ( other than by reason of death or Disability ), all RSUs that have not previously vested shall be immediately cancelled and forfeited without payment or further obligation by the Company or any Affiliate.
6.
In the event of a (i) Change in Control (as defined in Section 6(A) below) and (ii) a Qualifying Event (as defined in Section 6(B) below) prior to the applicable Vesting Date, if the RSUs described herein have not already been previously forfeited or cancelled, such RSUs will become fully vested contemporaneous with the Qualifying Event; provided, however, that in connection with a Change in Control, payment of any obligation payable pursuant to the preceding sentence may be made in cash of equivalent value and/or securities or other property in the Committee’s discretion.
(A)
Change in Control means the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company to any Person or group (as that term is used in Section 13(d) (3) of the Exchange Act) of Persons, (ii) a Person or group (as so defined) of Persons (other than Management of the Company on the date of the most recent adoption of the Plan by the Company's stockholders or their Affiliates) shall have become the beneficial owner (as defined below) of more than 35% of the outstanding voting stock of the Company, (iii) during any one-year period, individuals who at the beginning of such period constitute the Board (together with any new Director whose election or nomination was approved by a majority of the Directors

2

then in office who were either Directors at the beginning of such period or who were previously so approved, but excluding under all circumstances any such new Director whose initial assumption of office occurs as a result of an actual or threatened election contest or other actual or threatened solicitation of proxies or consents by or on behalf of any individual, corporation, partnership or other entity or group, including through the use of proxy access procedures as may be provided in the Company’s bylaws) cease to constitute a majority of the Board, or (iv) the consummation of a merger, consolidation, business combination or similar transaction involving the Company unless securities representing 65% or more of the then outstanding voting stock of the corporation resulting from such transaction are held subsequent to such transaction by the Person or Persons who were the beneficial owners of the outstanding voting stock of the Company immediately prior to such transaction in substantially the same proportions as their ownership immediately prior to such transaction. Notwithstanding the foregoing or any provision to the contrary, if an Award is subject to Section 409A (and not excepted therefrom) and a Change in Control is a distribution event for purposes of an Award, the foregoing definition of Change in Control shall be interpreted, administered and construed in a manner necessary to ensure that the occurrence of any such event shall result in a Change in Control only if such event qualifies as a change in the ownership or effective control of a corporation, or a change in the ownership of a substantial portion of the assets of a corporation, as applicable, within the meaning of Treas. Reg. § 1.409A-3(i)(5). For purposes of this Agreement, “beneficial owner(s)” shall have the meaning set forth in Rule 13d-3 of the Exchange Act.
(B)
Qualifying Event means the occurrence of one or more of the following events: (i) immediately upon the consummation of a Change in Control event, failure of the successor company in a Change in Control event to provide Substitute Awards that are substantially similar in both nature and terms (including having an equivalent realizable pre-tax value to RSUs assuming vesting and delivery at the consummation of the Change in Control); (ii) within two years of the consummation of a Change in Control event, an involuntary termination without Cause of the Employee; or (iii) within two years of the consummation of a Change in Control event, a Good Reason Termination (as defined in Section 6(C) below) by the Employee.
(C)
Good Reason Termination means, without an Employee’s written consent, the Separation from Service (for reasons other than death, Disability or Cause) by an Employee due to any of the following events occurring within two years of the consummation of a Change in Control: (i) the relocation of an Employee’s principal place of employment to a location that is more than 50 miles from the principal place of employment in effect immediately prior to such Change in Control; (ii) a material diminution in the duties or responsibilities of an Employee from those in place immediately prior to such Change in

3

Control; and (iii) a material reduction in the base salary or annual incentive opportunity of an Employee from what was in place immediately prior to such Change in Control.
In order for an Employee to have a Good Reason Termination, (i) an Employee  must notify the successor entity in writing, within ninety (90) days of the event constituting Good Reason of the Employee’s intent to terminate employment for Good Reason, that specifically identifies in reasonable detail the manner of the Good Reason event, (ii) the event must remain uncorrected for thirty (30) days following the date that an Employee notifies the successor entity in writing of the Employee’s intent to terminate employment for Good Reason (the “Notice Period”), and (iii) the termination date must occur within sixty (60) days after expiration of the Notice Period.
7.
It is intended that under current U.S. federal income tax laws, the Employee will not be subject to income tax unless and until Shares and/or cash are delivered to the Employee on the Vesting Date, at which time the Fair Market Value of the Shares and/or cash will be reportable as ordinary income, and subject to income tax withholding as well as social security and Medicare (FICA) taxes. In accordance with administrative procedures established by the Company, any statutory withholding tax obligations of Employee on account of the issuance of Shares or settlement of this Award for Shares or cash shall be satisfied by the Company mandatorily withholding a sufficient number of Shares to be issued, or an amount of cash to be delivered, to the Employee hereunder equal to such applicable minimum statutory withholding tax obligation. The Employee should consult his or her personal advisor to determine the effect of this Award of RSUs on his or her own tax situation
8.
Notices hereunder and under the Plan, if to the Company, will be delivered to the Plan Administrator (as so designated by the Company) or mailed to the Company’s principal office, 4300 Wilson Boulevard, Arlington, VA 22203, attention of the Plan Administrator, or, if to the Employee, will be delivered to the Employee, which may include electronic delivery, or mailed to his or her address as the same appears on the records of the Company.
9.
All decisions and interpretations made by the Board of Directors or the Committee with regard to any question arising hereunder or under the Plan will be binding and conclusive on all persons. Unless otherwise specifically provided herein, in the event of any inconsistency between the terms of this Agreement and the Plan, the Plan will govern.
10.
By accepting this Award of RSUs, the Employee acknowledges receipt of a copy of the Plan and the prospectus relating to this Award of RSUs, and agrees to be bound by the terms and conditions set forth in this Agreement and the Plan, as in effect and/or amended

4

from time to time.

The Employee further acknowledges that the Plan and related documents, which may include the Plan prospectus, may be delivered electronically. Such means of delivery may include the delivery of a link to a Company intranet site or the internet site of a third party involved in administering the Plan, the delivery of the documents via e-mail or CD-ROM or such other delivery determined at the Plan Administrator’s discretion. The Employee acknowledges that the Employee may receive from the Company a paper copy of any documents delivered electronically at no cost if the Employee contacts the Human Resources department of the Company by telephone at (703) 682-6553 or by mail to 4300 Wilson Boulevard, Suite 1100, Arlington, Virginia 22203. The Employee further acknowledges that the Employee will be provided with a paper copy of any documents delivered electronically if electronic delivery fails.
11.
This Award is intended to be excepted from coverage under Section 409A of the Code and shall be administered, interpreted and construed accordingly. The Employee shall have no right to designate the date of any payment under this Agreement. Each payment under this Agreement is intended to be excepted under the short-term deferral exception as specified in Treas. Reg. § 1.409A-1(b)(4). The Company may, in its sole discretion and without the Employee’s consent, modify or amend the terms and conditions of this Award, impose conditions on the timing and effectiveness of the issuance of the Shares, or take any other action it deems necessary or advisable, to cause this Award to comply with Section 409A of the Code (or an exception thereto). Notwithstanding, the Employee recognizes and acknowledges that Section 409A of the Code may impose upon the Employee certain taxes or interest charges for which the Employee is and shall remain solely responsible.
12.
Notwithstanding any other provisions in this Agreement, any RSUs subject to recovery under any law, government regulation, stock exchange listing requirement, or Company policy, shall be subject to such deductions, recoupment and clawback as may be required to be made pursuant to such law, government regulation, stock exchange listing requirement or Company policy.
13.
This Agreement will be governed by the laws of the State of Delaware without giving effect to its choice of law provisions.
The AES CORPORATION


5

By:
Tish Mendoza
Senior Vice President and Chief Human Resources Officer

6

PERFORMANCE STOCK UNIT AWARD AGREEMENT
PURSUANT TO
THE AES CORPORATION 2003 LONG TERM COMPENSATION PLAN
The AES Corporation, a Delaware corporation (the “Company”), grants to the Employee named below, pursuant to The AES Corporation 2003 Long Term Compensation Plan, as amended (the “Plan”), and this Performance Stock Unit Award Agreement (this “Agreement”), this Award of Performance Stock Units (“PSUs”) upon the terms and conditions set forth herein. Capitalized terms not otherwise defined herein will each have the meaning assigned to them in the Plan.

1.
This Award of PSUs is subject to all terms and conditions of this Agreement and the Plan, the terms of which are incorporated herein by reference:  

Name of Employee:
 
 
 
Fidelity System ID:
 
 
 
Grant Date:
 
 
 
Grant Price:
 
 
 
Total Number of PSUs Granted:
 
 
2.
Each PSU represents a right to receive one Share on the Payment Date (as defined below) in accordance with the terms of this Agreement.

3.
Unless otherwise determined by the Committee, each PSU shall also represent a right to receive an additional amount, payable in cash, equal to the accumulated cash dividends paid by the Company on the PSU between the Grant Date and payout of the PSU (if any). The additional dividend amounts that are accumulated subject to a PSU will be subject to the same terms and conditions (including, without limitation, any applicable vesting requirements and forfeiture provisions) as the PSU to which they relate under the Award. Any payment due to the Employee under this Agreement shall be made promptly following the date vested PSUs become earned and payable under paragraph 5(a), paragraph 6 or paragraph 7 of this Agreement, as applicable (the “Payment Date”), but in no event later than March 15th of the calendar year following the calendar year containing the Payment Date.

4.
A PSU (i) carries no voting rights and (ii) the holder will not have an equity interest in the Company or any of such shareholder rights, unless the vesting and performance conditions of the PSU are met and the PSU is paid out.

5.
Except as otherwise provided in this Agreement, this Award of PSUs will vest, in accordance with and subject to the terms of this Agreement, in three equal installments on December 31st in each year during the Performance Period (each a “Vesting Date”), provided, however, that if:
 
(a)
the Employee Separates from Service prior to the end of the Performance Period by reason of the Employee’s death or a Separation from Service on account of Disability, all PSUs that have not previously vested shall vest and the Employee’s PSUs referenced in the chart above shall be paid to the Employee at the rate of one Share for each PSU;

(b)
if (i) the Employee Separates from Service prior to the Payment Date by reason of a Separation from Service by the Company for cause (as determined by the Committee in its sole discretion for all purposes of this Agreement) or (ii) the Employee Separates from Service prior to the final Vesting Date by reason of a voluntary Separation from Service by the Employee (including any retirement other than a Qualified Retirement (as defined below)), this Award of PSUs (including any time-vested portion) shall immediately upon such termination be cancelled and forfeited without payment or further obligation by the Company; and

(c)
if the Employee Separates from Service for any other reason, including, but not limited to, on account of a Qualified Retirement, by reason of a death or Disability subsequent to the end of the Performance Period, or by reason of a Separation from Service by the Company without cause (other than for cause, voluntarily by the Employee not as part of a Qualified Retirement or by reason of death or Disability as provided in paragraphs 5(a) and 5(b)), the Employee will be eligible to receive the value of his or her vested PSUs on the Payment Date in accordance with and subject to the terms set forth in paragraph 6 below. Any PSUs that have not vested prior to the date that an Employee Separates from Service for any reason (other than by reason of death or Disability), (i) will not subsequently vest; and (ii) will be immediately cancelled and forfeited without payment or further obligation by the Company or any Affiliate. In addition, the Employee’s right to receive Shares in respect of vested PSUs that have not been forfeited will be paid on the Payment Date if, and only if, all relevant performance conditions are met, in accordance with the terms and conditions of this Agreement and the Plan. For purposes of this Agreement, “Qualified Retirement” means the Employee’s retirement at a time when such Employee is at least 60 years of age and has had at least seven years of service as an employee of the Company and/or one or more of its Affiliates.
 
6.
The Company will issue and deliver Shares in satisfaction of vested PSUs subject to and conditioned upon the attainment of the performance conditions set forth below, as approved by the Committee at the time of grant; provided, however, notwithstanding the performance level achieved, the Committee may reduce the number of PSUs earned or terminate this Award of PSUs altogether, but in no event may the Committee increase the value of a PSU underlying this Award beyond the performance levels achieved. For purposes of this Agreement, the “Performance Period” is the three calendar year period beginning on January 1st in the year of grant and ending on December 31st in the second year following the grant date.

(i)    Total Shareholder Return (50% weighted)
The value of fifty percent (50%) of the Employee’s vested PSUs will depend upon the performance of the Total Shareholder Return on AES common stock (“AES-TSR”) against the Total Shareholder Return on the S&P 500 Utilities Sector Index (“S&P Utilities Index - TSR”), in each case, as measured over the Performance Period, as set forth below:

 
 
 
 
 
ACTUAL AES-TSR COMPARED TO
S&P Utilities Index -TSR FOR THE
PERFORMANCE PERIOD
SHARES EARNED
Below 30 th  Percentile
None (0%)
Equal to the 30 th  Percentile
50%
(0.5 x 50% of number of vested PSUs)
Equal to the 50 th  Percentile
100%
(1.0 x 50% of number of vested PSUs)
Equal to or greater than 70 th
Percentile
150%
(1.5 x 50% of number of vested PSUs)
Equal to or greater than 90 th
Percentile
200%
(2.0 x 50% of number of vested PSUs)

 For AES-TSR levels achieved greater than the 30th percentile and less than the 50th percentile, greater than 50th percentile and less than 70th percentile, and greater than the 70th percentile and less than the 90th percentile, the number of Shares eligible for vesting will be determined based on straight-line interpolation. The maximum value of a PSU is 2 Shares.
All PSUs subject to this paragraph 6(i) shall be forfeited and will cease to be outstanding as of the end of the Performance Period if the AES-TSR over the Performance Period is below the 30th percentile of the S&P Utilities Index -TSR.

(ii)    Adjusted EBITDA (50% weighted)
The value of the remaining fifty percent (50%) of the Employee’s vested PSUs will depend upon the Company’s actual Adjusted EBITDA 1 over the Performance Period as compared to the performance target approved by the Committee and as set forth below.

 
 
 
 
ACTUAL ADJUSTED EBITDA OVER THE
PERFORMANCE PERIOD
SHARES EARNED
Below 75% of Performance Target =
None (0%)
Equal to 87.5% of Performance Target =
50%
(0.5 x 50% of number of vested PSUs)
Equal to 100% of Performance Target =
100%
(1.0 x 50% of number of vested PSUs)
Equal to or greater than 125% of
Performance Target =
200%
(2.0 x 50% of number of vested PSUs)

All PSUs subject to this paragraph 6(ii) shall be forfeited and will cease to be outstanding as of the end of the Performance Period if the Adjusted EBITDA for the Performance Period is below 75% of the performance target.
For Adjusted EBITDA levels achieved greater than 75% and less than 87.5% of performance target, greater than 87.5% and less than 100% of performance target, and greater than 100% and less than 125% of performance target, the value will be determined based on straight line interpolation. The maximum value of a PSU is 2 Shares.
7.
Notwithstanding the foregoing, in the event of a (i) Change in Control (as defined in Section 7(A) below) and (ii) a Qualifying Event (as defined in Section 7(B) below) prior to the end of the Performance Period, if the PSUs described herein have not already been previously forfeited or cancelled, such PSUs will become fully vested (for the total amount of PSUs set forth in paragraph 1) and the Payment Date will occur contemporaneous with the Qualifying Event; provided, however, that in connection with a Change in Control, payment of any obligation payable pursuant to the preceding sentence may be made in cash of equivalent value and/or securities or other property in the Committee’s discretion.
(A)
Change in Control means the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company to any Person or group (as that term is used in Section 13(d) (3) of the Exchange Act) of Persons, (ii) a Person or group (as so defined) of Persons (other than Management of the Company on the date of the most recent adoption of the Plan by the Company's stockholders or their Affiliates) shall have become the beneficial owner (as defined below) of more than 35% of the outstanding voting stock of the Company, (iii) during any one-year period, individuals who at the beginning of such period constitute the Board (together with any new Director whose election or nomination was approved by a majority of the Directors then in office who were either Directors at the beginning of such period or who were previously so approved, but excluding under all circumstances any such new Director whose initial assumption of office occurs as a result of an actual or threatened election contest or other actual or threatened solicitation of proxies or consents by or on behalf of any individual, corporation, partnership or other entity or group, including through the use of proxy access procedures as may be provided in the Company’s bylaws) cease to constitute a majority of the Board, or (iv) the consummation of a merger, consolidation, business combination or similar transaction involving the Company unless securities representing 65% or more of the then outstanding voting stock of the corporation resulting from such transaction are held subsequent to such transaction by the Person or Persons who were the beneficial owners of the outstanding voting stock of the Company immediately prior to such transaction in substantially the same proportions as their ownership immediately prior to such transaction. Notwithstanding the foregoing or any provision to the contrary, if an Award is subject to Section 409A (and not excepted therefrom) and a Change in Control is a distribution event for purposes of an Award, the foregoing definition of Change in Control shall be interpreted, administered and construed in a manner necessary to ensure that the occurrence of any such event shall result in a Change in Control only if such event qualifies as a change in the ownership or effective control of a corporation, or a change in the ownership of a substantial portion of the assets of a corporation, as applicable, within the meaning of Treas. Reg. § 1.409A-3(i)(5). For purposes of this Agreement, “beneficial owner(s)” shall have the meaning set forth in Rule 13d-3 of the Exchange Act.

(B)
Qualifying Event means the occurrence of one or more of the following events: (i) immediately upon the consummation of a Change in Control event, failure of the successor company in a Change in Control event to provide Substitute Awards that are substantially similar in both nature and terms (including having an equivalent realizable pre-tax value to the PSUs assuming vesting and delivery at the consummation of the Change in Control); (ii) within two years of the consummation of a Change in Control event, an involuntary termination without cause of the Employee; or (iii) within two years of the consummation of a Change in Control event, a Good Reason Termination (as defined in Section 7(C) below) by the Employee.

(C)
Good Reason Termination means, without an Employee’s written consent, the Separation from Service (for reasons other than death, Disability or cause) by an Employee due to any of the following events occurring within two years of the consummation of a Change in Control: (i) the relocation of an Employee’s principal place of employment to a location that is more than 50 miles from the principal place of employment in effect immediately prior to such Change in Control; (ii) a material diminution in the duties or responsibilities of an Employee from those in place immediately prior to such Change in Control; and (iii) a material reduction in the base salary or annual incentive opportunity of an Employee from what was in place immediately prior to such Change in Control.

In order for an Employee to have a Good Reason Termination, (i) an Employee must notify the successor entity in writing, within ninety (90) days of the event constituting Good Reason of the Employee’s intent to terminate employment for Good Reason, that specifically identifies in reasonable detail the manner of the Good Reason event, (ii) the event must remain uncorrected for thirty (30) days following the date that an Employee notifies the successor entity in writing of the Employee’s intent to terminate employment for Good Reason (the “Notice Period”), and (iii) the termination date must occur within sixty (60) days after expiration of the Notice Period.

8.
It is intended that under current U.S. federal income tax laws, the Employee will not be subject to income tax unless and until Shares are delivered to the Employee on the Payment Date, at which time the Fair Market Value of the Shares will be reportable as ordinary income, and subject to income tax withholding as well as social security and Medicare (FICA) taxes. In accordance with administrative procedures established by the Company, any statutory withholding tax obligations of Employee on account of the issuance of Shares or settlement of this Award for Shares or cash shall be satisfied by the Company mandatorily withholding a sufficient number of Shares to be issued, or an amount of cash to be delivered, to the Employee hereunder equal to such applicable minimum statutory withholding tax obligation. The Employee should consult his or her personal advisor to determine the effect of this Award of PSUs on his or her own tax situation.  

9.
Notices hereunder and under the Plan, if to the Company, will be delivered to the Plan Administrator (as so designated by the Company) or mailed to the Company’s principal office, 4300 Wilson Boulevard, Arlington, VA 22203, attention of the Plan Administrator, or, if to the Employee, will be delivered to the Employee, which may include electronic delivery, or mailed to his or her address as the same appears on the records of the Company.
10.
All decisions and interpretations made by the Board of Directors or the Committee with regard to any question arising hereunder or under the Plan will be binding and conclusive on all persons. Unless otherwise specifically provided herein, in the event of any inconsistency between the terms of this Agreement and the Plan, the Plan will govern.
11.
By accepting this Award of PSUs, the Employee acknowledges receipt of a copy of the Plan and the prospectus relating to this Award of PSUs, and agrees to be bound by the terms and conditions set forth in this Agreement and the Plan, as in effect and/or amended from time to time.

The Employee further acknowledges that the Plan and related documents, which may include the Plan prospectus, may be delivered electronically. Such means of delivery may include the delivery of a link to a Company intranet site or the internet site of a third party involved in administering the Plan, the delivery of the documents via e-mail or CD-ROM or such other delivery determined at the Plan Administrator’s discretion. The Employee acknowledges that the Employee may receive from the Company a paper copy of any documents delivered electronically at no cost if the Employee contacts the Human Resources department of the Company by telephone at (703) 682-6553 or by mail to 4300 Wilson Boulevard, Suite 1100, Arlington, Virginia 22203. The Employee further acknowledges that the Employee will be provided with a paper copy of any documents delivered electronically if electronic delivery fails.

12.
This Award is intended to be excepted from coverage under Section 409A of the Code and shall be administered, interpreted and construed accordingly. The Employee shall have no right to designate the date of any payment under this Agreement. Each payment under this Agreement is intended to be excepted under the short-term deferral exception as specified in Treas. Reg. § 1.409A-1(b)(4). The Company may, in its sole discretion and without the Employee’s consent, modify or amend the terms and conditions of this Award, impose conditions on the timing and effectiveness of the issuance of the Shares, or take any other action it deems necessary or advisable, to cause this Award to comply with Section 409A of the Code (or an exception thereto).

Notwithstanding, the Employee recognizes and acknowledges that Section 409A of the Code may impose upon the Employee certain taxes or interest charges for which the Employee is and shall remain solely responsible.
13.
Notwithstanding any other provisions in this Agreement, any PSUs subject to recovery under any law, government regulation, stock exchange listing requirement, or Company policy, shall be subject to such deductions, recoupment and clawback as may be required to be made pursuant to such law, government regulation, stock exchange listing requirement or Company policy.
 
14.
This Agreement will be governed by the laws of the State of Delaware without giving effect to its choice of law provisions.
 
The AES CORPORATION
 
 
By:
 
Tish Mendoza
Senior Vice President and Chief Human Resources Officer






NONQUALIFIED STOCK OPTION AWARD AGREEMENT
PURSUANT TO
THE AES CORPORATION 2003 LONG TERM COMPENSATION PLAN

The AES Corporation, a Delaware Corporation (the "Company"), grants to the Employee named below, pursuant to The AES Corporation 2003 Long Term Compensation Plan, as amended (the "Plan"), and this Nonqualified Stock Option Award Agreement (this "Agreement"), this Award of a Nonqualified Stock Option ("Option") to purchase full shares of common stock of the Company ("Shares") upon the terms and conditions set forth herein. Capitalized terms not otherwise defined herein will each have the meaning assigned to them in the Plan.

1.
The Award of this Option is subject to all terms and conditions of this Agreement and the Plan, the terms of which are herein incorporated by reference:

Name of Employee:
 
 
 
Fidelity System ID:
 
 
 
Grant Date:
 
 
 
Total Number of Shares Granted:
 
 
 
Option Price per Share:
 

2.
The Employee referenced above is hereby granted an Option representing a right to purchase the number of Shares set forth above at the option price per Share set forth above (which option price is the Fair Market Value of a Share on the date hereof), upon the terms set forth herein and in the Plan, if and only to the extent, the relevant portion of such Option (i) has not been forfeited or canceled prior to its Vesting Date (as defined below) and (ii) has vested in accordance with this Agreement.

3.
This Option will expire no later than ten years from the grant date provided, however, that this Option may expire sooner pursuant to the terms set forth herein and in the Plan.

4.
Except as otherwise provided in this Agreement, this Option will vest, in accordance with and subject to the terms of this Agreement, in three equal installments on each of the first three anniversaries of the grant date, (each a "Vesting Date"); provided, however, that if:





(A)
the Employee Separates from Service prior to the applicable Vesting Date by reason of the Employee's death or a Separation of Service on account of Disability , the portion of this Option that has not previously vested will vest and will become immediately exercisable, and will expire one year after the date the Employee Separates from Service;

(B)
the Employee Separates from Service prior to the applicable Vesting Date by reason of a Separation from Service by the Company for cause (as determined by the Committee in its sole discretion for all purposes of this Agreement), the portion of this Option that has previously vested will expire three months after the date the Employee Separates from Service, and the portion of this Option that has not previously vested will be immediately cancelled and forfeited without payment or further obligation by the Company or any Affiliate; and

(C)
the Employee Separates from Service prior to the applicable Vesting Date for any other reason, including, but not limited to, voluntarily by the Employee, on account of Qualified Retirement, or by reason of a Separation from Service by the Company (other than for cause or by reason of death or Disability) , the portion of this Option that has previously vested will expire one hundred and eighty (180) days after the date the Employee Separates from Service, and any portion of this Option that has not previously vested will be immediately cancelled and forfeited without payment or further obligation by the Company or any Affiliate.

In addition, in the event that a Separation from Service described in clause (A), clause (B) or clause (C) above occurs on or after the applicable Vesting Date, to the extent that all or any portion of this Option has vested but not yet expired as of such date, such portion of this Option will expire on the earlier of (i) the last day of the time period described in clause (A), clause (B) or clause (C) above, as applicable, or (ii) the date such portion of this Option would have expired, had such employment or provision of services continued.

5.
Subject to the terms and conditions of the Plan and this Agreement, the Employee may exercise any vested portion of this Option by giving appropriate notice to the Company’s plan administrator, together with provision for payment (i) of the full option price of the Shares for which such vested portion of this Option is exercised and (ii) applicable withholding taxes. The notice must specify the portion of this Option to be exercised (i.e., the number of Shares). The full option price of the Shares of common stock as to which such vested portion of this Option is exercised (including applicable withholding taxes) must be paid in cash to the plan administrator in full, as otherwise approved by the Committee, or alternative adequate provision for such payment must be made (including an irrevocable instruction to a broker to deliver the option price at a future date), at the time of exercise.

6.
Notwithstanding the foregoing, in the event of a (i) Change in Control (as defined in Section 6(A) below) and (ii) a Qualifying Event (as defined in Section 6(B) below) prior to the applicable Vesting Date, to the extent that all or any portion of this Option has not already been previously forfeited or cancelled, such portion of this Option will become fully vested and exercisable contemporaneous with the Qualifying

2



Event; provided, however, that in connection with a Change in Control or certain other events, the Committee may, in its discretion (i) cancel any or all outstanding Options issued pursuant to the Plan in consideration for payment to the holders of such cancelled Options of an amount equal to the portion of the consideration that would have been payable to such holders pursuant to such transaction if such Options had been fully vested and exercisable, and had been fully exercised, immediately prior to such transaction, less the Option price, if any, that would have been payable therefore, or (ii) if the net amount referred to in clause (i) would be negative, cancel such Options for no consideration of any kind. Payment of any obligation payable pursuant to the preceding sentence may be made in cash of equivalent value and/or securities or other property in the Committee’s discretion.

(A)
Change in Control means the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company to any Person or group (as that term is used in Section 13(d) (3) of the Exchange Act) of Persons, (ii) a Person or group (as so defined) of Persons (other than Management of the Company on the date of the most recent adoption of the Plan by the Company's stockholders or their Affiliates) shall have become the beneficial owner (as defined below) of more than 35% of the outstanding voting stock of the Company, (iii) during any one-year period, individuals who at the beginning of such period constitute the Board (together with any new Director whose election or nomination was approved by a majority of the Directors then in office who were either Directors at the beginning of such period or who were previously so approved, but excluding under all circumstances any such new Director whose initial assumption of office occurs as a result of an actual or threatened election contest or other actual or threatened solicitation of proxies or consents by or on behalf of any individual, corporation, partnership or other entity or group, including through the use of proxy access procedures as may be provided in the Company’s bylaws) cease to constitute a majority of the Board, or (iv) the consummation of a merger, consolidation, business combination or similar transaction involving the Company unless securities representing 65% or more of the then outstanding voting stock of the corporation resulting from such transaction are held subsequent to such transaction by the Person or Persons who were the beneficial owners of the outstanding voting stock of the Company immediately prior to such transaction in substantially the same proportions as their ownership immediately prior to such transaction. Notwithstanding the foregoing or any provision to the contrary, if an Award is subject to Section 409A (and not excepted therefrom) and a Change in Control is a distribution event for purposes of an Award, the foregoing definition of Change in Control shall be interpreted, administered and construed in a manner necessary to ensure that the occurrence of any such event shall result in a Change in Control only if such event qualifies as a change in the ownership or effective control of a corporation, or a change in the ownership of a substantial portion of the assets of a corporation, as applicable, within the meaning of Treas. Reg. § 1.409A-3(i)(5). For purposes of this Agreement, “beneficial owner(s)” shall have the meaning set forth in Rule 13d-3 of the Exchange Act.


3



(B)
Qualifying Event means the occurrence of one or more of the following events: (i) immediately upon the consummation of a Change in Control event, failure of the successor company in a Change in Control event to provide Substitute Awards that are substantially similar in both nature and terms (including having an equivalent realizable pre-tax value to the Option assuming vesting and delivery at the consummation of the Change in Control); (ii) within two years of the consummation of a Change in Control event, an involuntary termination without cause of the Employee; or (iii) within two years of the consummation of a Change in Control event, a Good Reason Termination (as defined in Section 6(C) below) by the Employee.

(C)
Good Reason Termination means, without an Employee’s written consent, the Separation from Service (for reasons other than death, Disability or cause) by an Employee due to any of the following events occurring within two years of the consummation of a Change in Control: (i) the relocation of an Employee’s principal place of employment to a location that is more than 50 miles from the principal place of employment in effect immediately prior to such Change in Control; (ii) a material diminution in the duties or responsibilities of an Employee from those in place immediately prior to such Change in Control; and (iii) a material reduction in the base salary or annual incentive opportunity of an Employee from what was in place immediately prior to such Change in Control.

In order for an Employee to have a Good Reason Termination, (i) an Employee must notify the successor entity in writing, within ninety (90) days of the event constituting Good Reason of the Employee’s intent to terminate employment for Good Reason, that specifically identifies in reasonable detail the manner of the Good Reason event, (ii) the event must remain uncorrected for thirty (30) days following the date that an Employee notifies the successor entity in writing of the Employee’s intent to terminate employment for Good Reason (the “Notice Period”), and (iii) the termination date must occur within sixty (60) days after expiration of the Notice Period.

7.
The Company and its subsidiaries and Affiliates have the right to condition the Employee’s right to exercise any portion of this Option on the Employee making arrangements satisfactory to the Company or any of its subsidiaries or affiliates to enable any related tax obligation of the Employee to be satisfied. The Employee should consult his or her personal advisor to determine the effect of this Option on his or her own tax situation.    

8.
Notices hereunder and under the Plan, if to the Company, must be delivered to the Plan Administrator (as so designated by the Company) or mailed to the Company’s principal office, 4300 Wilson Boulevard, Arlington, VA 22203 (or as subsequently designated by the Company), to the attention of the Plan Administrator, or, if to the Employee, will be delivered to the Employee, which may include electronic delivery, or mailed to his or her address as the same appears on the records of the Company.

9.
Subject to the terms and conditions of the Plan, unless the Committee determines otherwise, if an Employee is adjudicated to be mentally incompetent while in the

4



continuous employment of the Company or an Affiliate or during a period of permanent and total Disability which commenced while in such employment, the Employee’s guardian, conservator or legal representative will have the right to exercise this Option on behalf of the Employee.

10.
All decisions and interpretations made by the Board of Directors or the Committee with regard to any question arising hereunder or under the Plan will be binding and conclusive on all persons. Unless otherwise specifically provided herein, in the event of any inconsistency between the terms of the Plan and this Agreement, the Plan will govern.

11.
By accepting the Award of this Option, the Employee acknowledges receipt of a copy of the Plan and the prospectus related to this Option and agrees to be bound by the terms and conditions set forth in this Agreement and the Plan, as in effect and/or amended from time to time.

The Employee further acknowledges that the Plan and related documents, which may include the Plan prospectus, may be delivered electronically. Such means of delivery may include the delivery of a link to a Company intranet site or the internet site of a third party involved in administering the Plan, the delivery of the documents via e-mail or CD-ROM or such other delivery determined at the plan administrator’s discretion. The Employee acknowledges that the Employee may receive from the Company a paper copy of any documents delivered electronically at no cost if the Employee contacts the Human Resources department of the Company by telephone at (703) 682-6553 or by mail to 4300 Wilson Boulevard, Suite 1100, Arlington, Virginia 22203. The Employee further acknowledges that the Employee will be provided with a paper copy of any documents delivered electronically if electronic delivery fails.

12.
This Option is intended to be excepted from coverage under Section 409A and shall be administered, interpreted and construed accordingly. The Company may, in its sole discretion and without the Employee's consent, modify or amend the terms of this Agreement, impose conditions on the timing and effectiveness of the exercise of the Option by Employee, or take any other action it deems necessary or advisable, to cause the Option to be excepted from Section 409A (or to comply therewith to the extent the Company determines it is not excepted). Notwithstanding, Employee recognizes and acknowledges that Section 409A of the Code may impose upon the Employee certain taxes or interest charges for which the Employee is and shall remain solely responsible.
13.
Notwithstanding any other provisions in this Agreement, any Options subject to recovery under any law, government regulation, stock exchange listing requirement, or Company policy, shall be subject to such deductions, recoupment and clawback as may be required to be made pursuant to such law, government regulation, stock exchange listing requirement or Company policy.

14.
This Agreement will be governed by the laws of the State of Delaware without giving effect to its choice of law provisions.


5





The AES CORPORATION

By:

Tish Mendoza
Senior Vice President and Chief Human Resources Officer

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THE AES CORPORATION
AMENDED AND RESTATED
EXECUTIVE SEVERANCE PLAN









ARTICLE I
GENERAL PROVISIONS
1.1      Establishment and Purpose .
The purpose of The AES Corporation Amended and Restated Executive Severance Plan (the "Plan") is to provide eligible executives of The AES Corporation (the "Company") who (i) are designated to participate in the Plan by the Board and/or Administrator, (ii) agree to the Plan terms, and (iii) are involuntarily terminated from employment in certain limited circumstances, with severance and welfare benefits as set forth in this Plan. Benefits payable under this Plan are generally intended for Eligible Employees who are involuntarily terminated without Cause. The AES Corporation Executive Severance Plan was approved and adopted by the Board on October 6, 2011, and amended and restated by the Board on August 1, 2012 and April 23, 2015, to address certain administrative matters and to adopt or amend Benefit Schedules relating to the Plan.
The Plan is not intended to be an "employee pension benefit plan" or "pension plan" within the meaning of Section 3(2) of ERISA. Rather, this Plan is intended to be a "welfare benefit plan" within the meaning of Section 3(1) of ERISA and to meet the descriptive requirements of a plan constituting a "severance pay plan" within the meaning of regulations published by the Secretary of Labor at Title 29, Code of Federal Regulations, Section 2510.3-2(b). Accordingly, the benefits paid by the Plan are not deferred compensation and no employee shall have a vested right to such benefits.
1.2      Term .
The Plan shall generally be effective on the Effective Date. This Plan supersedes any prior severance plans, policies, guidelines, arrangements, agreements, letters and/or other communication, whether formal or informal, written or oral sponsored by the Employer and/or entered into by any representative of the Employer. This Plan represents exclusive severance benefits provided to Eligible Employees and such individuals shall not be eligible for other benefits provided in other severance plans, policies, programs, guidelines, arrangements, letters, etc. of the Company.
1.3      Definitions .
Except as may otherwise be specified or as the context may otherwise require, for purposes of the Plan, the following terms shall have the respective meanings ascribed thereto, or as set forth on a Benefit Schedule to the Plan.
" Administrator " means the Compensation Committee of the Board or such other committee or persons designated by the Board and/or Compensation Committee to assume duties of the Administrator.
" Affiliated Employer " means any corporation which is a member of a controlled group of corporations (as defined in Section 414(b) of the Code) which includes the Company; any trade or business (whether or not incorporated) which is under common control (as defined in Section 414(c) of the Code) with the Company; any organization (whether or not incorporated) which is a member of an affiliated service group (as defined in Section 414(m) of the Code) which includes the Company; and any other entity required to be aggregated with the Company pursuant to regulations under Section 414(o) of the Code.
" Annual Compensation " means an Eligible Employee's annualized base salary as in effect as of the Eligible Employee's Termination Date. Unless otherwise provided on a Benefit Schedule, Annual Compensation shall: (i) include: pre-tax employee contributions under any qualified defined contribution retirement plan, salary deferrals under any unfunded nonqualified deferred compensation plan, and amounts deferred (to include employee premiums) under a flexible spending account established pursuant to Section 125 of the Code; and (ii) exclude: any amounts contributed by the Employer to any plan established pursuant to Section 125 of the Code, bonuses, annual incentive payments, long-term incentive awards (including, but not limited to, stock options, restricted stock and performance unit awards), and any other form of supplemental compensation.
" Benefit Schedule " means any schedule attached to the Plan which sets forth the benefits of specified groups of Eligible Employees, as approved by the Company and updated by the Administrator from time to time.
" Board " means the Board of Directors of the Company.
" Bonus " means an Eligible Employee's annual target bonus compensation as established by the Employer and in effect on the Eligible Employee's Termination Date.
" Cause " means, except as otherwise provided in a Benefit Schedule, Separation From Service by action of the Employer, or resignation in lieu of such Separation From Service, on account of the Eligible Employee's dishonesty; insubordination; continued and repeated failure to perform the Eligible Employee's assigned duties or willful misconduct in the performance of such duties; intentionally engaging in unsatisfactory job performance; failing to make a good faith effort to bring unsatisfactory job performance to an acceptable level; violation of the Employer's policies, procedures, work rules or recognized standards of behavior; misconduct related to the Eligible Employee's employment; or a charge, indictment or conviction of, or a plea of guilty or nolo contendere to, a felony, whether or not in connection with the performance by the Eligible Employee of his or her duties or obligations to the Employer.
" Change in Control " means the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company to any Person or group (as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”)) of Persons, (ii) a Person or group (as so defined) of Persons (other than Management of the Company on the date of the most recent adoption of the 2003 Long Term Compensation Plan (or successor plan) by the Company's stockholders or their “affiliates” (as defined below)) shall have become the “beneficial owner” of more than 35% of the outstanding voting stock of the Company, (iii) during any one-year period, individuals who at the beginning of such period constitute the Board (together with any new Director whose election or nomination was approved by a majority of the Directors then in office who were either Directors at the beginning of such period or who were previously so approved, but excluding under all circumstances any such new Director whose initial assumption of office occurs as a result of an actual or threatened election contest or other actual or threatened solicitation of proxies or consents by or on behalf of any individual, corporation, partnership or other entity or group, including through the use of proxy access procedures as may be provided in the Company’s bylaws) cease to constitute a majority of the Board, or (iv) the consummation of a merger, consolidation, business combination or similar transaction involving the Company unless securities representing 65% or more of the then outstanding voting stock of the corporation resulting from such transaction are held subsequent to such transaction by the Person or Persons who were the “beneficial owners” (as defined below) of the outstanding voting stock of the Company immediately prior to such transaction in substantially the same proportions as their ownership immediately prior to such transaction. Notwithstanding the foregoing or any provision to the contrary, if a payment under this Plan is subject to Section 409A (and not excepted therefrom) and a Change in Control affects the time or schedule for such payment, the foregoing definition of Change in Control shall be interpreted, administered and construed in a manner necessary to ensure that the occurrence of any such event shall result in a Change in Control only if such event qualifies as a change in the ownership or effective control of a corporation, or a change in the ownership of a substantial portion of the assets of a corporation, as applicable, within the meaning of Treas. Reg. § 1.409A-3(i)(5). For purposes of this definition, (i) “ beneficial owner(s) ” shall have the meaning set forth in Rule 13d-3 of the Exchange Act and (ii) " affiliate " means: (A) any Subsidiary of the Company; (B) any entity or Person or group of Persons that, directly or through one or more intermediaries, is controlled by the Company; and (C) any entity or Person or group of Persons in which the Company has a significant equity interest, as determined by the Compensation Committee, including any “affiliates” which become such after the adoption of this Plan.
" Chief Executive Officer " means an Eligible Employee or Participant, as the context requires, who is the Chief Executive Officer of the Company.
" COBRA Coverage " means medical, dental and vision coverage which is required to be offered to terminated employees under Section 4980B of the Code and Section 606 of ERISA; provided, however, that no provision of this Plan shall be construed to require the Employer to contribute on behalf of an Eligible Employee towards continuation coverage for a health spending account.
" Code " means the Internal Revenue Code of 1986, as amended.
" Company" or "AES " means The AES Corporation, a Delaware corporation, or any successor thereto.
" Compensation Committee " means the Compensation Committee of the Board.
" Disability " or " Disability Termination " means, except as otherwise provided in a Benefit Schedule, a Separation From Service: (a) on account of the Eligible Employee's failure to return to full-time employment following exhaustion of short-term disability benefits provided by the Employer; (b) following the date the Eligible Employee is determined to be eligible for: (i) long-term disability benefits under any long-term disability insurance policy or plan maintained by the Employer; or (ii) disability pension or retirement benefits under any qualified retirement plan maintained by the Employer; or (c) due to a physical or mental condition that substantially restricts the Eligible Employee's ability to perform his or her usual duties, as determined by the Employer.
" Effective Date " means August 1, 2012.
" Eligible Employee " means any Employee of the Employer who: (i) is not an Ineligible Employee (within the meaning of Section 2.2); (ii) has completed one Year-of-Service as a full-time Employee (except as otherwise approved by the Administrator or the Board); (iii) has been designated by the Board as a participant in the Plan; and (iv) has executed the document set forth on Exhibit A , thereby understanding and agreeing to be bound by all of the terms and conditions set forth in the Plan and Benefit Schedule. "Eligible Employee" shall include Executive Officers and the Chief Executive Officer.
" Employee " means any person who is employed by the Company or a Subsidiary as a common law employee and is listed as an employee on the U.S. payroll records of the Employer as a full-time employee. Any person hired by the Employer as a consultant or independent contractor and any other individual whom the Employer does not treat as its employee for federal income tax purposes shall not be an Employee for purposes of this Plan, even if it is subsequently determined by a court or administrative agency that such individual should be, or should have been, properly classified as a common law employee of the Employer.
" Employer " means the Company and any Affiliated Employer that participates in the Plan with the consent of the Company. The Administrator shall maintain a list of participating Employers.
" ERISA " means the Employee Retirement Income Security Act of 1974, as amended.
" Executive" or "Executive Officer " means an Eligible Employee or Participant, as the context requires (other than the Chief Executive Officer), who is an executive officer of the Company as defined under Rule 3b-7 of the Securities Exchange Act of 1934, as amended, or was otherwise approved as an officer by the Board and/or Compensation Committee.
" Good Reason" or "Good Reason Termination " has the meaning set forth in any applicable Benefit Schedule.
" Ineligible Termination " means, except as otherwise provided in a Benefit Schedule, an Eligible Employee's Separation From Service on account of:
•
The Eligible Employee's voluntary resignation, including but not limited to the Eligible Employee's unilateral Separation From Service at any time prior to the Termination Date established by the Employer;
•
Any Separation From Service that the Employer determines (either before or after the Separation From Service and whether or not any notice is given to the employee) the payment of benefits under the Plan in connection with such Separation From Service would be inconsistent with the intent and purposes of the Plan;
•
A Separation From Service in connection with an Eligible Employee's failure to return to work immediately following the conclusion of an approved leave-of-absence.
•
A Separation From Service for, or on account of, Cause;
•
A Disability Termination;
•
The Eligible Employee's death;
•
The Eligible Employee declines to accept a New Job Position offered by the Employer that is located within 50 miles of the Eligible Employee's then assigned work site of the Employer;
•
The Sale of Business Rule set forth in Section 2.3 herein; or
•
The voluntary transfer of employment from Eligible Employee's Employer to another AES related entity, irrespective of whether the Eligible Employee is required to relocate or whether the AES related entity qualifies as an Affiliated Employer.
" Involuntary Termination " means an Executive's involuntary Separation From Service that is (i) not an Ineligible Termination and (ii) by action of the Employer on account of:
•
Reduction-in-force that eliminates the Executive's existing job position;
•
Permanent job elimination of the Executive;
•
The restructuring or reorganization of a business unit, division, department or other segment, which directly affects the Executive;
•
Termination by Mutual Consent; or
•
Executive declines to accept a New Job Position offered by the Employer that requires the Executive to relocate to a work site location that is located greater than 50 miles from the Executive's then assigned work site of the Employer; provided, however, that except as provided in Section 2.3 or in connection with a Separation From Service following a Change in Control, an Executive who functions at or above a Group Manager position (or its equivalent) shall not incur an Involuntary Termination if such Executive declines a New Job Position (regardless of its location) at a time when the Executive's existing job position is being eliminated.
" New Job Position " means: (i) with respect to an Eligible Employee who has demonstrated inadequate or unsatisfactory performance, as determined by the Employer, any job position offered by the Employer; or (ii) with respect to all other Eligible Employees, a full-time job position offered by the Employer that does not result in a reduction of the Employee's Annual Compensation.
" Participant " has the meaning set forth in Section 2.1.
" Person " means any individual, corporation, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.
" Plan " means The AES Corporation Amended and Restated Executive Severance Plan as set forth herein, and as the same may from time to time be amended.
" Section 409A " shall mean Section 409A of the Code, the regulations and other binding guidance promulgated thereunder.
" Separation From Service " shall mean an Eligible Employee's termination of employment with the Company and all of its controlled group members within the meaning of Section 409A of the Code. For purposes hereof, the determination of controlled group members shall be made pursuant to the provisions of Section 414(b) and 414(c) of the Code; provided that the language "at least 50 percent" shall be used instead of "at least 80 percent" in each place it appears in Section 1563(a)(1), (2) and (3) of the Code and Treas. Reg. § 1.414(c)-2; provided, further, where legitimate business reasons exist (within the meaning of Treas. Reg. § 1.409A-1(h)(3)), the language "at least 20 percent" shall be used instead of "at least 80 percent" in each place it appears. Whether an Employee has a Separation From Service will be determined based on all of the facts and circumstances and in accordance with the guidance issued under Section 409A.
" Specified Employee " means a key employee (as defined in Section 416(i) of the Code without regard to paragraph (5) thereof) of the Company as determined in accordance with the regulations issued under Code Section 409A and the procedures established by the Company.
" Subsidiary " means any entity in which the Company owns or otherwise controls, directly or indirectly, stock or other ownership interests having the voting power to elect a majority of the board of directors, or other governing group having functions similar to a board of directors, as determined by the Company.
" Termination by Mutual Consent " means an involuntary Separation From Service pursuant to which the Company agrees, in its sole discretion, that benefits are payable under this Plan.
" Termination Date " means the date of the Eligible Employee's Separation From Service (or scheduled date of Separation From Service, as applicable).
" Year-of-Service " means each twelve-month period measured from the Eligible Employee's first day of employment with an Employer, as reduced to reflect breaks in service and/or services performed during such period the Eligible Employee was otherwise ineligible to participate in the Plan, as determined under the rules promulgated by the Administrator. Service with a predecessor employer (that was not an Affiliated Employer) shall be recognized to the extent such service is recognized under The AES Corporation Retirement Savings Plan. Service shall also include services performed prior to the effective date of the Plan. In the event an Eligible Employee's Separation From Service and the Eligible Employee is subsequently reemployed by the Employer, the Eligible Employee's service for calculation of any severance benefits under Article IV of the Plan shall be based only upon the Eligible Employee's service credited since the most recent date of employment with the Employer.
ARTICLE II     
PARTICIPATION
2.1      Eligibility .
An Eligible Employee shall, upon execution of the release in the form specified in Article III of this Plan in the time and manner set forth in Section 3.1 of the Plan, be eligible for the severance benefits provided under Article IV of this Plan if the Eligible Employee's Separation From Service is by reason of an Involuntary Termination or Good Reason Termination, as applicable. An Eligible Employee who fails to execute the release in the time and manner set forth in Section 3.1 or who subsequently revokes execution of the release in accordance with its terms shall not be entitled to receive benefits under this Plan. An Eligible Employee who satisfies all of the terms and conditions specified in this Plan and who becomes entitled to receive benefits hereunder shall be referred to herein as a "Participant."
2.2      Ineligible Employees . Notwithstanding any provision of this Plan to the contrary, no Employees shall be eligible to participate in the Plan unless so designated by the Board and/or the Administrator.
2.3      Sale of Business Rule .
An Eligible Employee shall not be eligible for benefits under the Plan if the Eligible Employee's Separation From Service is in connection with the sale of the stock or other ownership interests of the Employer or other related entity, or the sale, lease, or other transfer of the assets, products, services or operations of the Employer or other related entity to another organization if either of the following occurs:
•
The Eligible Employee is employed by the new organization immediately following the sale, transfer or lease or is so employed within a time period specified in an agreement between the Employer and the new organizations; or
•
The Employer terminates the employment of an Eligible Employee who did not accept an offer of employment from the new organization when the new organization offered a compensation and benefits package that was, in the aggregate, generally comparable to the compensation and benefits provided by the Employer; provided that such Eligible Employee was not required to relocate to a work site location that is located greater than 50 miles from the Employee's then assigned work site of the Employer.
Notwithstanding the foregoing, this Section 2.3 shall not apply if an Eligible Employee's Separation From Service occurs in connection with a Change of Control and, as such, any such Separation From Service will not be an Ineligible Termination solely on the basis of the Sale of Business Rule.
ARTICLE III     
RELEASES
3.1      Release .
Notwithstanding anything in this Plan to the contrary, no benefits of any sort or nature (other than as provided in Section 3.3) shall be due or paid under this Plan to any Eligible Employee unless the Eligible Employee executes a written release and covenant not to sue, in form and substance satisfactory to the Employer, in its sole discretion, within the time stated in the release; provided, however, that in all cases such release must become final, binding and irrevocable within sixty (60) days following the Eligible Employee's Termination Date. The written release shall waive any and all claims against the Employer and all related parties including, but not limited to, claims arising out of the Eligible Employee's employment by the Employer, the Eligible Employee's Separation From Service and claims relating to the benefits paid under this Plan. At the sole discretion of the Employer, the release shall also include such noncompetition, nonsolicitation and nondisclosure provisions as the Employer considers necessary or appropriate.
3.2      Revocation .
The release described in Section 3.1 must be executed and binding on the Eligible Employee within the timeframe specified by the Company before benefits are due or paid. An Eligible Employee who revokes execution of the release in accordance with the terms of the release shall not be entitled to receive benefits under the Plan.
3.3      Outplacement Services .
Notwithstanding the foregoing provisions of this Article III, the Outplacement Services set forth under Section 4.3 herein may or may not be provided, at the discretion of the Employer, to an Eligible Employee prior to the execution of a release under this Plan.
ARTICLE IV     
SEVERANCE BENEFITS
4.1      Separation Payment .
4.1.1      A Participant shall be entitled to receive a separation payment as set forth on the applicable Benefit Schedule. Except as otherwise provided in a Benefit Schedule, the separation payment shall be paid at least monthly in substantially equal installments as salary continuation in accordance with the Employer's established payroll policies and practices over the same time period upon which the separation payment is based, which shall be set forth in the Benefit Schedule. The separation payments will commence on the Employer's next normal pay date occurring after the date the Eligible Employee's release becomes final, binding and irrevocable.
4.1.2      For purposes of Section 409A: (i) the right to salary continuation installment payments under Section 4.1.1 shall be treated as the right to a series of separate payments; and (ii) a payment shall be treated as made on the scheduled payment date if such payment is made at such date or a later date in the same calendar year or, if later, by the 15th day of the third calendar month following the scheduled payment date. A Participant shall have no right to designate the date of any payment under the Plan. For purposes of the Plan, each salary continuation installment payment in Section 4.1.1 is intended to be excepted from Section 409A to the maximum extent provided under Section 409A as follows: (i) each salary continuation installment payment that is scheduled to be made on or before March 15th of the calendar year following the calendar year containing the Termination Date is intended to be excepted under the short-term deferral exception as specified in Treas. Reg. § 1.409A-1(b)(4); and (ii) each salary continuation installment payment that is not otherwise excepted under the short-term deferral exception is intended to be excepted under the involuntary pay exception as specified in Treas. Reg. § 1.409A-1(b)(9)(iii).
4.2      Continuation of Certain Welfare Benefits .
4.2.1      Medical/Dental/Vision . For the period set forth below in Section 4.2.3 and beginning in the calendar month following the calendar month in which the Termination Date occurs, the Participant shall be eligible to participate in the Employer's medical, dental and vision employee welfare benefit plans applicable to the Participant on his Termination Date. To receive such benefits, the Participant must properly enroll in COBRA coverage, and must also pay such premiums and other costs for such coverage as generally applicable to the Employer's active employees. The Employer will continue to pay its share of the applicable premiums under the medical, dental and vision plans for the same level and type of coverage in which the Participant is enrolled as of the Termination Date.
Except as provided in a Benefit Schedule to the Plan, if a Participant has elected the "no benefit coverage" option under the medical, dental or vision plans as of his actual Termination Date, the Participant shall not be entitled to continuation coverage or cash in lieu thereof. Following expiration of coverage under this Section 4.2.1, a Participant may, to the extent eligible, continue to participate in such plans for the remainder of the COBRA continuation period, if any.
4.2.2      Concurrent COBRA Period . The continuation period for medical, dental and vision coverage under this Plan shall be deemed to run concurrent with the continuation period federally mandated by COBRA (generally 18 months), or any other legally mandated and applicable federal, state, or local coverage period for benefits provided to terminated employees under the health care plan. The continuation period will be deemed to commence on the first day of the calendar month following the month in which the Termination Date falls. Notwithstanding the foregoing, COBRA Coverage will only be available if the Participant is eligible for and timely elects COBRA Coverage, and timely remits payment of the premiums for COBRA Coverage.
4.2.3      Length of Benefits. Except as provided in a Benefit Schedule, benefits under this Section 4.2 shall be for the same time period upon which the separation payment was based; provided, however that in no event will the time period exceed 18 months.
4.2.4      Implications of Section 409A . Post-termination medical benefits are intended to be excepted from Section 409A under the medical benefits exceptions as specified in Treas. Reg. § 1.409A-1(b)(9)(v)(B).
4.3      Outplacement Services .
As set forth on the applicable Benefit Schedule, a Participant shall be eligible for such outplacement services typically provided to employees of the same job classification or level. Outplacement services may be provided by an independent agency or by the Employer. Notwithstanding the foregoing, the availability, duration, and appropriateness of outplacement services shall be determined by the Administrator in its sole discretion; provided, however, that outplacement expenses must be reasonable, must be actually incurred by the Participant and may not extend beyond the December 31 of the second calendar year following the calendar year in which the Termination Date occurred (or such shorter period as specified by the Employer). Any such reimbursement shall be as soon as administratively feasible, but in no event later than December 31st of the third calendar year following the calendar year in which the Termination Date occurred. Post-termination outplacement benefits are intended to be excepted from Section 409A under the separation payment benefits exceptions as specified in Treas. Reg. § 1.409A-1(b)(9)(v)(A).
4.4      Bonus Compensation .
As set forth on the applicable Benefit Schedule and subject to any deferral election that the Participant has made with respect to such amounts, a Participant will be eligible for (i) a prorated Bonus; and (ii) any accrued but unpaid bonus compensation for completed performance periods. The prorated Bonus specified in Section 4.4(i) will be prorated based on the amount of time the Participant was actively at work on a full-time basis in the calendar year in which the Participant's Termination Date falls, and will be paid within the applicable 2 1/2 month period specified in Treas. Reg. § 1.409A-1(b)(4). The bonus compensation specified in Section 4.4(ii) shall be paid no later than the time that such amounts are paid to similarly situated employees in accordance with the applicable plan terms. Notwithstanding the foregoing, with respect to bonuses paid in accordance with the terms of The AES Corporation Performance Incentive Plan (or any successor plan, the " Performance Incentive Plan "), any such bonus compensation shall be paid only to the extent earned in accordance with the terms of the Performance Incentive Plan and on the payment date specified therein.
4.5      Enhanced Benefits .
In the event a Participant is Involuntarily Terminated or terminates for Good Reason within two years following a Change in Control, a Participant shall receive a separation payment under Section 4.1 and medical/dental/vision benefits under Section 4.2 as set forth in a Benefit Schedule. Notwithstanding the foregoing, unless otherwise specifically provided in the Benefit Schedule, the time period for medical/dental/vision benefits set forth in Section 4.2 will never exceed eighteen (18) months, as described in Section 4.2.3.
4.6      Delay in Payment.
Notwithstanding any provision of this Plan to the contrary, to the extent that a payment hereunder is subject to Section 409A (and not excepted therefrom), such payment shall be delayed for a period of six months after the Termination Date (or, if earlier, the death of the Participant) for any Participant that is a Specified Employee. Any payment that would otherwise have been due or owing during such six-month period will be paid on the first business day of the seventh month following the Separation From Service .
ARTICLE V     
CONFIDENTIALITY, COVENANT NOT TO COMPETE, NON-SOLICITATION AND NON-DISPARAGEMENT PROVISIONS
5.1      General Provisions .
As a condition of participation in the Plan, the Eligible Employee agrees that restrictions on his or her activities during and after employment are necessary to protect the goodwill, Confidential Information (as defined below) and other legitimate interests of the Company and its Subsidiaries, and that the agreed restrictions set forth below will not deprive the Eligible Employee of the ability to earn a livelihood.
5.2      Confidential Information .
The Eligible Employee acknowledges that the Company and its Subsidiaries continually develop Confidential Information (as defined in Section 5.5(d), below), that the Eligible Employee may develop Confidential Information for the Company or its Subsidiaries and that the Eligible Employee may learn of Confidential Information during the course of his or her employment. The Eligible Employee will comply with the policies and procedures of the Company and its Subsidiaries for protecting Confidential Information and shall not disclose to any person (except as required by applicable law or legal process or for the proper performance of his or her duties and responsibilities to the Company and its Subsidiaries, or in connection with any litigation between the Company and the Eligible Employee (provided that the Company shall be afforded a reasonable opportunity in each case to obtain a protective order)), or use for his or her own benefit or gain, any Confidential Information obtained by the Eligible Employee incident to his or her employment or other association with the Company or any of its Subsidiaries. The Eligible Employee understands that this restriction shall continue to apply after his or her employment terminates, regardless of the reason for such termination. All documents, records, tapes and other media of every kind and description relating to the business, present or otherwise, of the Company or its Subsidiaries and any copies, in whole or in part, thereof (the " Documents "), whether or not prepared by the Eligible Employee, shall be the sole and exclusive property of the Company and its Subsidiaries. The Eligible Employee shall safeguard all Documents and shall surrender to the Company at the time employment terminates, or at such earlier time or times as the Board or its designee may specify, all Documents then in the Eligible Employee's possession or control.
5.3      Noncompete/Nonsolicit Provisions .
Except in the event of a Change in Control, while the Eligible Employee is in the employment of the Company and for a period of twelve months, or such other period specified in the Benefit Schedule for the Eligible Employee, after a termination of Eligible Employee's employment with the Company (the " Non-Competition Period "), the Eligible Employee shall not, directly or indirectly, whether as owner, partner, investor, consultant, agent, employee, co-venturer or otherwise, engage in Competitive Activity (as defined below). For purposes of this Plan, "Competitive Activity" means any activity that is (i) directly or indirectly competitive with the business of the Company or any of its Subsidiaries, as conducted or which has been proposed by management to be conducted within six (6) months prior to termination of the Eligible Employee's employment and (ii) conducted in the geographic areas in which the Company or any of its Subsidiaries operate upon the Eligible Employee's Separation From Service date. Competitive Activity also includes, without limitation, accepting employment or a consulting position with any person who is, or at any time within twelve (12) months prior to termination of the Eligible Employee's employment has been, a licensee of the Company or any of its Subsidiaries. For the purposes of this Article, the business of the Company and its Subsidiaries, as currently conducted, consists of the generation, sale, supply or distribution of electricity.
The Eligible Employee agrees that during the Non-Competition Period, the Eligible Employee will not, either directly or through any agent or employee, Solicit (as defined in Section 5.5(d), below) any employee of the Company or any of its Subsidiaries to terminate his or her relationship with the Company or any of its Subsidiaries or to apply for or accept employment with any enterprise engaged in Competitive Activity with the Company, or Solicit any customer, supplier, licensee or vendor of the Company or any of its Subsidiaries to terminate or materially modify its relationship with them, or, in the case of a customer, to conduct with any Person any business or activity which such customer conducts or could conduct with the Company or any of its Subsidiaries.
5.4      Nondisparagement .
Following any termination of the Eligible Employee's employment, (i) the Eligible Employee shall not make statements or representations, otherwise communicate, directly or indirectly, in writing, orally, or otherwise, or take any action which may, directly or indirectly, disparage or be damaging to the Company or any if its Subsidiaries or affiliates or their respective former or current officers, directors, employees, advisors, businesses or reputations, (ii) the Company shall instruct its Board members and senior management to not make statements or representations, otherwise communicate, directly or indirectly, in writing, orally or otherwise, or take any action which may, directly or indirectly, disparage or be damaging to the Eligible Employee or his reputation. Nothing in this paragraph is intended to undermine any obligations the Eligible Employee or the Company may have to comply with applicable law, or prohibit the Eligible Employee or the Company from providing truthful testimony or information pursuant to subpoena, court order, discovery demand or similar legal process, or truthfully responding to lawful inquiries by any governmental or regulatory entity.
5.5      Miscellaneous .
(a)      Nothing in this Article V shall prevent the Eligible Employee, during the Non-Competition Period and following Separation From Service, from acquiring or holding, solely as an investment, publicly traded securities of any competitor corporation so long as such securities do not, in the aggregate, constitute more than 3% of the outstanding voting securities of such corporation.
(b)      The Eligible Employee agrees that all inventions, improvements, discoveries, patents, trade concepts and copyrightable materials made, conceived or developed by Eligible Employee, in respect of the business of the Company, either singly or in collaboration with others, shall be the sole and exclusive property of the Company.
(c)      Without limiting the foregoing, it is understood that the Company shall not be obligated to make any of the payments or to provide for any of the benefits specified in Article IV or on a Benefit Schedule hereof in connection with the termination of an Eligible Employee's employment, and shall be entitled to recoup the pro rata portion of any such payments and of the value of any such benefits previously provided to the Eligible Employee in the event of a material breach by the Eligible Employee of the provisions of this Article (such pro ration to be determined as a fraction, the numerator of which is the number of days from such breach to the first anniversary of the date on which the Eligible Employee terminates employment and the denominator of which is 365), which breach continues without having been cured within fifteen (15) days after written notice to the Eligible Employee specifying the breach in reasonable detail.
(d)      Definitions. For purposes of this Article, the following definitions shall apply:
(i)      " Confidential Information " means any and all information of the Company and its Subsidiaries that is not generally known by others with whom they compete or do business, or with whom they plan to compete or do business and any and all information not readily available to the public, which, if disclosed by the Company or its Subsidiaries could reasonably be of benefit to such person or business in competing with or doing business with the Company. Confidential Information includes, without limitation, such information relating to (A) the development, research, testing, manufacturing, store operational processes, marketing and financial activities, including costs, profits and sales, of the Company and its Subsidiaries, (B) the costs, sources of supply, financial performance and strategic plans of the Company and its Subsidiaries, (C) the identity and special needs of the customers and suppliers of the Company and its Subsidiaries and (D) the people and organizations with whom the Company and its Subsidiaries have business relationships and those relationships. Confidential Information also includes comparable information that the Company or any of its Subsidiaries have received belonging to others or which was received by the Company or any of its Subsidiaries with an agreement by the Company that it would not be disclosed. Confidential Information does not include information which (1) is or becomes available to the public generally (other than as a result of a disclosure by the Eligible Employee), (2) was within the Eligible Employee's possession prior to its being furnished to the Eligible Employee by or on behalf of the Company, provided that the source of such information was not bound by a confidentiality agreement with or other contractual, legal or fiduciary obligation of confidentiality to the Company or any other party with respect to such information, (3) becomes available to the Eligible Employee on a nonconfidential basis from a source other than the Company, provided that such source is not bound by a confidentiality agreement with or other contractual, legal or fiduciary obligation of confidentiality to the Company or any other party with respect to such information, or (4) was independently developed the Eligible Employee without reference to the Confidential Information.
(ii)      " Solicit " means any direct or indirect communication of any kind whatsoever, regardless of by whom initiated, inviting, advising, encouraging or requesting any person or entity, in any manner, with respect to any action.
ARTICLE VI     
PLAN ADMINISTRATION
6.1      Operation of the Plan .
The Administrator shall be the named fiduciary responsible for carrying out the provisions of the Plan. The Administrator may delegate any and all of its powers and responsibilities hereunder or appoint agents to carry out such responsibilities, and any such delegation or appointment may be rescinded at any time. The Administrator shall establish the terms and conditions under which any such agents serve. The Administrator shall have the full and absolute authority to employ and rely on such legal counsel, actuaries and accountants (which may also be those of the Employer) as it may deem advisable to assist in the administration of the Plan.
6.2      Administration of the Plan .
To the extent that the Administrator in its sole discretion deems necessary or desirable, the Administrator may establish rules for the administration of the Plan, prescribe appropriate forms, and adopt procedures for handling claims and the denial of claims. The Administrator shall have the exclusive authority and discretion to interpret, construe, and administer the provisions of the Plan and to decide all questions concerning the Plan and its administration. Without limiting the foregoing, the Administrator shall have the authority to determine the level of an Employee, to determine eligibility for and the amount of any benefits due in accordance with the applicable Benefit Schedule, to make factual determinations, to correct deficiencies, and to supply omissions, including resolving any ambiguity or uncertainty arising under or existing in the terms and provisions of the Plan or any Benefit Schedule. Any and all such determinations of the Administrator shall be final, conclusive, and binding on the Employer, the Employee and any and all interested parties.
6.3      Funding .
The Plan shall be unfunded and all payments hereunder and expenses incurred in connection with this Plan shall be paid from the general assets of the Employer. Benefits will be paid directly by the Employer employing the Participant, and no other Employer or Affiliated Employer will be responsible for any benefits hereunder.
6.4      Code Section 409A .
Notwithstanding any provision of the Plan to the contrary, if any benefit provided under this Plan is subject to the provisions of Section 409A of the Code and the regulations issued thereunder, the provisions of the Plan will be administered, interpreted and construed in a manner necessary to comply with Section 409A or an exception thereto (or disregarded to the extent such provision cannot be so administered, interpreted, or construed). With respect to payments subject to Section 409A of the Code: (i) it is intended that distribution events authorized under the Plan qualify as permissible distribution events for purposes of Section 409A of the Code; and (ii) the Company and each Employer reserve the right to accelerate and/or defer any payment to the extent permitted and consistent with Section 409A.  Notwithstanding any provision of the Plan to the contrary, i n no event shall the Administrator, the Company, an Affiliated Employer or Subsidiary (or their employees, officers, directors or affiliates) have any liability to any Participant (or any other person) due to the failure of the Plan to satisfy the requirements of Section 409A or any other applicable law.
ARTICLE VII     
CLAIMS
7.1      General .
Except as otherwise provided in a Benefit Schedule relating to notice periods, if an Employee believes that he or she is eligible for benefits under the Plan and has not been so notified, an Employee should submit a written request for benefits to the Administrator. Any claim for benefits must be made within six months of an Employee's Termination Date, or the Employee will be forever barred from pursuing a claim. For purposes of this Article VI, an Employee making a claim for benefits under the Plan shall be referred to as a "claimant". The claimant shall file the claim with and in the manner prescribed by the Administrator. The Administrator shall make the initial determination concerning rights to and amount of benefits payable under this Plan.
7.2      Claim Evaluation .
A properly filed claim will be evaluated and the claimant will be notified of the approval or the denial of the claim within ninety (90) days after the receipt of the claim, unless special circumstances require an extension of time for processing. Written notice of the extension will be furnished to the claimant prior to the expiration of the initial ninety-day (90-day) period, and will specify the special circumstances requiring an extension and the date by which a decision will be reached (provided the claim evaluation will be completed within one hundred and twenty (120) days after the date the claim was filed).
7.3      Notice of Disposition .
A claimant will be given a written notice in which the claimant will be advised as to whether the claim is granted or denied, in whole or in part. If a claim is denied, in whole or in part the notice will contain: (i) the specific reasons for the denial; (ii) references to pertinent Plan provisions upon which the denial is based; (iii) a description of any additional material or information necessary to perfect the claim and an explanation of why such material or information is necessary; and (iv) the claimant's rights to seek review of the denial.
7.4      Appeals .
If a claim is denied, in whole or in part, the claimant, or his duly authorized representative, has the right to (i) request that the Administrator review the denial, (ii) review pertinent documents, and (iii) submit issues and comments in writing, provided that the claimant files a written appeal with the Administrator within sixty (60) days after the date the claimant received written notice of the denial. Within sixty (60) days after an appeal is received, the review will be made and the claimant will be advised in writing of the decision, unless special circumstances require an extension of time for reviewing the appeal, in which case the claimant will be given written notice within the initial sixty-day (60-day) period specifying the reasons for the extension and when the review will be completed (provided the review will be completed within one hundred and twenty (120) days after the date the appeal was filed). The decision on appeal will be forwarded to the claimant in writing and will include specific reasons for the decision and references to the Plan provisions upon which the decision is based. A decision on appeal will be final and binding on all persons for all purposes. If a claimant's claim for benefits is denied in whole or in part, the claimant may file suit in a state or federal court.
Notwithstanding the aforementioned, before the claimant may file suit in a state or federal court, the claimant must exhaust the Plan's administrative claims procedure set forth in this Article VI. If any such state or federal judicial or administrative proceeding is undertaken, the evidence presented will be strictly limited to the evidence timely presented to the Administrator. In addition, any such state or federal judicial or administrative proceeding must be filed within six (6) months after the Administrator's final decision. Any such state or federal judicial or administrative proceeding relating to this Plan shall only be brought in the Circuit Court for Arlington County, Virginia or in the United States District Court for the Eastern District of Virginia, Alexandria Division.  If any such action or proceeding is brought in any other location, then the filing party expressly consents to the transfer of such action to the Circuit Court for Arlington County, Virginia or the United States District Court for the Eastern District of Virginia, Alexandria Division.  Nothing in this clause shall be deemed to prevent any party from removing an action or proceeding to enforce or interpret this Plan from the Circuit Court for Arlington County, Virginia to the United States District Court for the Eastern District of Virginia, Alexandria Division. 
ARTICLE VIII     
PLAN AMENDMENTS
8.1      Amendment Authority .
The Board may, at any time and in its sole discretion, amend, modify or terminate the Plan, including any Benefit Schedule, as the Board, in its judgment shall deem necessary or advisable. The Board may delegate its amendment authority to the Administrator or such other persons as the Board considers appropriate. Notwithstanding the foregoing or any provision of the Plan to the contrary, the Board (or its designee) may at any time (in its sole discretion and without the consent of any Participant) modify, amend or terminate any or all of the provisions of this Plan or take any other action, to the extent necessary or advisable to conform the provisions of the Plan with Section 409A of the Code, the regulations issued thereunder or an exception thereto, regardless of whether such modification, amendment or termination of this Plan or other action shall adversely affect the rights of an Eligible Employee or Participant under the Plan. Termination of this Plan shall not be a distribution event under the Plan unless otherwise permitted under Section 409A.
ARTICLE IX     
MISCELLANEOUS

9.1      Summary Plan Description .
To the extent the summary plan description or any other writing communication to an Eligible Employee conflicts with this Plan, the Plan document shall control.
9.2      Impact on Other Benefits .
Except as otherwise provided herein, any amounts paid to a Participant under this Plan shall have no effect on the Participant's rights or benefits under any other employee benefit plan sponsored by the Employer; provided, however, that in no event shall any Participant be entitled to any payment or benefit under the Plan which duplicates a payment or benefit received or receivable by the Participant under any severance plan, policy, guideline, arrangement, agreement, letter and/or other communication, whether formal or informal, written or oral sponsored by the Employer or an affiliate thereof and/or entered into by any representative of the Employer and/or any affiliate thereof. Further, any such amounts shall not be used to determine eligibility for or the amount of any benefit under any employee benefit plan, policy, or arrangement sponsored by the Employer or any affiliate thereof.
9.3      Tax Withholding .
The Employer shall have the right to withhold from any benefits payable under the Plan or any other wages payable to a Participant an amount sufficient to satisfy federal, state and local tax withholding requirements, if any, arising from or in connection with the Participant's receipt of benefits under the Plan.
9.4      No Employment or Service Rights .
Nothing contained in the Plan shall confer upon any Employee any right with respect to continued employment with the Employer, nor shall the Plan interfere in any way with the right of the Employer to at any time reassign an Employee to a different job, change the compensation of the Employee or terminate the Employee's employment for any reason.
9.5      Nontransferability .
Notwithstanding any other provision of this Plan to the contrary, the benefits payable under the Plan may not be subject to voluntary or involuntary anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by creditors of the Participant or such other person, other than pursuant to the laws of descent and distribution, without the consent of the Company.
9.6      Successors .
The Company and its affiliates shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company and its affiliates (taken as a whole) expressly to assume and agree to perform under the terms of the Plan in the same manner and to the same extent that the Company and its affiliates would be required to perform if no such succession had taken place (provided that such a requirement to perform which arises by operation of law shall be deemed to satisfy the requirements for such an express assumption and agreement), and in such event the Company and its affiliates (as constituted prior to such succession) shall have no further obligation under or with respect to the Plan.
9.7      Headings and Captions .
The headings and captions herein are provided for reference and convenience only. They shall not be considered as part of the Plan and shall not be employed in the construction of the Plan.
9.8      Gender and Number .
Where the context admits, words in any gender shall include any other gender, and, except where clearly indicated by the context, the singular shall include the plural and vice-versa.
9.9      Nonalienation of Benefits .
None of the payments, benefits or rights of any Participant shall be subject to any claim of any creditor of any Participant and, in particular, to the fullest extent permitted by law, all such payments, benefits and rights shall be free from attachment, garnishment (if permitted under applicable law), trustee's process, or any other legal or equitable process available to any creditor of such Participant. No Participant shall have the right to alienate, anticipate, commute, plead, encumber or assign any of the benefits or payments that he or she may expect to receive under this Plan.
9.10      Governing Law .
Except as otherwise preempted by the laws of the United States, this Plan shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to its conflict of law provisions. If any provision of this Plan shall be held illegal or invalid for any reason, such determination shall not affect the remaining provisions of this Plan.
The AES Corporation Amended and Restated Executive Severance Plan has been duly executed by the undersigned on this 23 rd day of April, 2015.
The AES Corporation
 
 
 
By: /s/ Brian A. Miller             
   Brian A. Miller, Executive Vice President, General Counsel and Corporate Secretary
 

APPENDIX A
CHIEF EXECUTIVE OFFICER
BENEFIT SCHEDULE
The Chief Executive Officer shall receive the severance benefits outlined in the Plan document, except as otherwise modified or provided in this Benefit Schedule.
A.     Definitions . The following definitions apply to this Benefit Schedule and override any contrary (or duplicative) terms of the Plan as they relate to the Chief Executive Officer.
" Cause " means (a) the willful and continued failure by the Chief Executive Officer to substantially perform his duties with the Company (other than any such failure resulting from the Chief Executive Officer's incapability due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination by the Chief Executive Officer for Good Reason), after demand for substantial performance is delivered by the Company that specifically identifies the manner in which the Company believes that the Chief Executive Officer has not substantially performed his duties, or (b) the willful engaging by the Chief Executive Officer in misconduct which is demonstrably and materially injurious to the Company, monetarily or otherwise (including, but not limited to, conduct that constitutes a violation of Article V of the Plan). No act, or failure to act, on the Chief Executive Officer's part shall be considered "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. Notwithstanding the foregoing, the Chief Executive Officer shall not be deemed to have been terminated for Cause without (1) reasonable notice from the Board to the Chief Executive Officer setting forth the reasons for the Company's intention to terminate for Cause and (2) delivery to the Chief Executive Officer of a Notice of Termination, which shall include a resolution duly adopted by the affirmative vote of two-thirds or more of the Board then in office (excluding the Chief Executive Officer) at a meeting of the Board called and held for such purpose, and at which the Chief Executive Officer, together with his counsel, is given an opportunity to be heard, finding that in the good faith opinion of the Board, the Chief Executive Officer was guilty of the conduct and specifying the particulars thereof in detail. "Notice of Termination" shall mean a notice which shall indicate the specific termination provision relied upon in the Plan and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Chief Executive Officer's employment.
" Disability " means that the Chief Executive Officer is unable, due to physical or mental incapacity, to substantially perform his full time duties and responsibilities for a period of six (6) consecutive months (as determined by a medical doctor selected by the Company and the Chief Executive Officer). If the parties cannot agree on a medical doctor for purposes of such determination, each party shall select a medical doctor and the two doctors shall select a third who shall be the approved doctor for this purpose.
" Good Reason" or "Good Reason Termination " means, without the Chief Executive Officer's written consent, the involuntary Separation From Service of the Chief Executive Officer due to any of the following events: (a) the failure of the Company to have any successor to all or substantially all of the business and/or assets of the Company expressly assume and agree to perform the Plan in accordance with Section 9.6 of the Plan; (b) following a Change in Control, the relocation of the Chief Executive Officer's principal place of employment to a site outside of the metropolitan area of the Chief Executive Officer's principal place of employment; (c) following a Change in Control, any material adverse change in the Chief Executive Officer's overall responsibilities, duties and authorities from those then in place immediately prior to such Change in Control; and (d) following a Change in Control, the failure by the Company to continue the Chief Executive Officer's participation in a long-term cash or equity award or equity-based grant program (or in a comparable substitute program) on a basis not materially less favorable than that provided to the Chief Executive Officer immediately prior to such Change in Control.
For purposes of any determination regarding the existence of Good Reason following a Change in Control, any good faith claim by the Chief Executive Officer that Good Reason exists shall be presumed to be correct unless the Company establishes by clear and convincing evidence that Good Reason does not exist. In order for the Chief Executive Officer to terminate for Good Reason, (i) the Chief Executive Officer must notify the Board, in writing, within ninety (90) days of the event constituting Good Reason of the Chief Executive Officer's intent to terminate employment for Good Reason, that specifically identifies in reasonable detail the manner of the Good Reason event, (ii) the event must remain uncorrected for thirty (30) days following the date that the Chief Executive Officer notifies the Board in writing of the Chief Executive Officer's intent to terminate employment for Good Reason (the "Notice Period"), and (iii) the termination date must occur within sixty (60) days after expiration of the Notice Period.
B.     Separation Payments .
(1)     Termination by Executive for Good Reason or by the Company (other than Disability, Cause or due to Death) . If the Chief Executive Officer Separates From Service on account of an involuntary termination by the Company (other than for Disability or for Cause or due to death), or the Executive Separates From Service for Good Reason, the Chief Executive Officer shall be entitled to (i) Annual Compensation through the Termination Date, (ii) a Pro Rata Bonus (as defined below), and (iii) receive a severance payment within ten (10) days following the Chief Executive Officer's Termination Date (or, if later, the date the Chief Executive Officer has provided a release in accordance with Section 3.1 of the Plan), a cash lump sum payment equal to the product of (A) two (2) and (B) the sum of (1) the Chief Executive Officer's Annual Compensation, and (2) the Chief Executive Officer's Bonus.
(2)     Upon Termination due to Disability . If the Chief Executive Officer Separates From Service on account of Disability, and subject to the execution of a release in accordance with Section 3.1 of the Plan, the Chief Executive Officer shall receive the following: (i) disability benefits in accordance with the terms of the long-term disability program then in effect for senior executives of the Company, (ii) Annual Compensation through the Termination Date or, if earlier, the end of the month immediately preceding the month in which such disability benefits commence, and (iii) to the extent earned and at the time bonuses are customarily paid to senior executive officers in accordance with the terms of the Performance Incentive Plan (or any successor plan), a bonus for the year in which the Separation From Service occurs equal to the Chief Executive Officer's annual bonus for such year, multiplied by a fraction, the numerator of which is the number of days during such year that the Executive was employed by the Company and the denominator which is 365 (the " Pro Rata Bonus ").
(3)     Upon Termination due to Death . If the Chief Executive Officer Separates From Service on account of death, the Chief Executive Officer shall receive (i) Annual Compensation through the Termination Date and (ii) the Pro Rata Bonus.
C.     Continuation of Certain Welfare Benefits .
(1)      If the Chief Executive Officer Separates From Service on account of an involuntary termination by the Company (other than for Disability or for Cause or due to death), or the Chief Executive Officer Separates From Service for Good Reason, the Chief Executive Officer shall be entitled to participate in the following welfare and other benefits for the twenty-four (24) month period immediately following the Chief Executive Officer's Termination Date as follows:
(a)     Medical/Dental/Vision Benefits . If the Chief Executive Officer elects COBRA Continuation Coverage, he shall continue to participate in all medical, dental and vision insurance plans he was participating in on his Termination Date. If, however, any such plan does not permit his continued participation following the end of the COBRA Continuation Period (as defined below), then the Company will reimburse the Chief Executive Officer for the actual cost to the Chief Executive Officer of any individual health insurance policy obtained by the Chief Executive Officer. To the extent such benefits are available under the above-referenced plans and the Chief Executive Officer had coverage immediately prior to the Separation From Service, such continuation of benefits for the Chief Executive Officer shall also cover the Executive's dependents for so long as the Chief Executive Officer is receiving benefits under this subsection (a). The provisions of Section 4.2.2 and 4.2.4 of the Plan shall also apply. "COBRA Continuation Period" means the continuation period for medical, dental and vision insurance to be provided under the terms of the Plan and herein which shall commence on the first day of the calendar month following the month in which the Termination Date falls and generally shall continue for an 18-month period.
(b)     Outplacement Services . The Chief Executive Officer shall be eligible to receive outplacement services, as set forth in Section 4.3 of the Plan.
(c)     Reimbursement Limitations . Reimbursement under subsections (a) and (b) above will be available only to the extent that (1) such expense is actually incurred for any particular calendar year and is reasonably substantiated; (2) reimbursement shall be made no later than the end of the calendar year following the year in which such expense is incurred by the Chief Executive Officer; and (3) no reimbursement will be provided for any expense incurred following the twenty-four (24) month anniversary of the Separation From Service or for any expense which relates to insurance coverage after such date.
(d)     Offset . Benefits or payments otherwise received under Sections B or C hereof shall be reduced to the extent benefits of the same type are received or made available to the Chief Executive Officer by a subsequent employer during the twenty-four (24) month period following the Termination Date (and any such benefits received or made available to the Chief Executive Officer shall be reported to the Company by the Chief Executive Officer).
D.     Change in Control Payments .
If the Chief Executive Officer has a Separation From Service on account of an involuntary termination by the Company (other than for Cause or Disability or due to death), or if the Chief Executive Officer has a Separation From Service for Good Reason, in either case within two (2) years following a Change in Control, then (i) the Chief Executive Officer shall receive the payments set forth in Section B(1) above, except that the two (2) times multiplier shall be increased to three (3) and (ii) the Chief Executive Officer shall receive the benefits set forth in Section C above except the twenty-four (24) month benefit continuation period set forth in Section C(1)(a) and C(1)(c) above shall be increased to thirty-six (36) months.
E.     Tax Provision .
(1)    Notwithstanding anything in the Plan to the contrary, in the event that it shall be determined that any compensation, payment or benefit (including any accelerated vesting of options or other equity awards) made or provided, or to be made or provided, by the Company (or any successor thereto or affiliate thereof) to or for the benefit of the Chief Executive Officer, whether pursuant to the terms of this Plan, any other agreement, plan, program or arrangement of or with the Company (or any successor thereto or affiliate thereof) or otherwise (a “Payment”), will be subject to the excise tax imposed by Section 4999 of the Code or any comparable tax imposed by any replacement or successor provision of United States tax law, then the Company will apply a limitation on the Payment amount as set forth in clause (a) below (a “Parachute Cap”), unless the provisions of clause (b) below apply.
(a)    If clause (b) does not apply, the aggregate present value of the Payments under this Plan (“Plan Payments”) shall be reduced (but not below zero) to the Reduced Amount. The “Reduced Amount” shall be an amount expressed in present value which maximizes the aggregate present value of Plan Payments without causing any Payment to be subject to the limitation of deduction under Section 280G of the Code or the imposition of any excise tax under Section 4999 of the Code. For purposes of this clause (a), “present value” shall be determined in accordance with Section 280G(d)(4) of the Code. In the event that it is determined that the amount of the Plan Payments will be reduced in accordance with this clause (a), the Plan Payments shall be reduced on a nondiscretionary basis in such a way as to minimize the reduction in the economic value deliverable to the Chief Executive Officer. In applying this principle, the reduction shall be made in a manner consistent with the requirements of Section 409A of the Code, and where more than one payment has the same value for this purpose and they are payable at different times, they will be reduced on a pro-rata basis.
(b)    It is the intention of the parties that the Parachute Cap apply only if application of the Parachute Cap is beneficial to the Chief Executive Officer. Therefore, if the net amount that would be retained by the Chief Executive Officer under this Agreement without the Parachute Cap, after payment of any excise tax under Section 4999 of the Code or any other applicable taxes by the Chief Executive Officer, exceeds the net amount that would be retained by the Chief Executive Officer with the Parachute Cap, then the Company shall not apply the Parachute Cap to the Chief Executive Officer’s payments.
(2)    All determinations to be made under this Section E shall be made by a nationally recognized independent public accounting firm selected by the Company (“Accounting Firm”), which Accounting Firm shall provide its determinations and any supporting calculations to the Company and the Chief Executive Officer within ten days of the Termination Date. Any such determination by the Accounting Firm shall be binding upon the Company and the Chief Executive Officer.
(3)    All of the fees and expenses of the Accounting Firm in performing the determinations referred to in this Section E shall be borne solely by the Company.
F.      Miscellaneous . For purposes of clarity:
(1)     The Chief Executive Officer shall not be entitled to any benefits and payments associated with an Involuntary Termination (as defined and provided for in the Plan) and the definition of Ineligible Termination shall not apply.
(2)    Section 2.3 of the Plan shall not apply to the Chief Executive Officer.
(3)    Section 4.2.1 and Section 4.2.3 of the Plan shall not apply to the Chief Executive Officer.
(4)    For the Chief Executive Officer, the Non-Competition Period under Article V of the Plan applies while the Chief Executive Officer is employed with the Company and for a period of twenty-four months after the Termination Date.
The number "365" in Section 5.5(c) of the Plan, in the case of the Chief Executive Officer, shall be replaced with "730" and the reference to “first anniversary” shall be replaced with “second anniversary”.

APPENDIX B
EXECUTIVE BENEFIT SCHEDULE
The following Executives shall receive the severance benefits outlined in this Plan, except as otherwise modified or provided in this Benefit Schedule: Edward (Ned) Hall, Brian Miller, Andrew Vesey, Elizabeth Hackenson, Gardner Walkup, Thomas O’Flynn and such other Executives as approved by the Administrator and/or the Board from time to time (collectively, the “Appendix B Executives” and individually, an “Appendix B Executive”).
A.     Definitions . The following definitions apply to this Benefit Schedule and override any contrary (or duplicative) terms of the Plan as they relate to the Appendix B Executives. If not otherwise stated in this Benefit Schedule, the terms of the Plan apply.
" Good Reason" or "Good Reason Termination " means, without an Appendix B Executive’s written consent, the involuntary Separation From Service (for reasons other than death, Disability or Cause) of an Appendix B Executive due to any of the following events following a Change in Control: (a) the relocation of an Appendix B Executive’s principal place of employment to a location that is more than 50 miles from the principal place of employment in effect immediately prior to such Change in Control; (b) a material diminution in the duties or responsibilities of an Appendix B Executive from those in place immediately prior to such Change in Control; (c) a material reduction in the base salary or annual incentive opportunity of an Appendix B Executive from what was in place immediately prior to such Change in Control; and (d) the failure of any successor entity to the Company following a Change in Control to assume the Plan, as in effect immediately prior to such Change in Control.
In order for an Appendix B Executive to terminate for Good Reason, (i) an Appendix B Executive must notify the Board, in writing, within ninety (90) days of the event constituting Good Reason of the Appendix B Executive’s intent to terminate employment for Good Reason, that specifically identifies in reasonable detail the manner of the Good Reason event, (ii) the event must remain uncorrected for thirty (30) days following the date that an Appendix B Executive notifies the Board in writing of the Appendix B Executive’s intent to terminate employment for Good Reason (the "Notice Period"), and (iii) the termination date must occur within sixty (60) days after expiration of the Notice Period.
B.     Separation Payments .
If an Appendix B Executive Separates From Service on account of an Involuntary Termination, an Appendix B Executive shall be entitled to (i) Annual Compensation through the Termination Date, (ii) Pro Rata Bonus (as defined below), and (iii) receive a severance payment within ten (10) days following the Appendix B Executive’s Termination Date (or, if later, the date the Appendix B Executive has provided a release in accordance with Section 3.1 of the Plan), a cash lump sum payment equal to the product of (A) one (1) and (B) the sum of (1) the Appendix B Executive's Annual Compensation, and (2) the Appendix B Executive's Bonus.
The term “Pro Rata Bonus” means, to the extent earned and at the time bonuses are customarily paid to senior executive officers in accordance with the terms of the Performance Incentive Plan (or any successor plan), a bonus for the year in which the Separation From Service occurs equal to the respective Appendix B Executive's annual bonus for such year, multiplied by a fraction, the numerator of which is the number of days during such year that the Appendix B Executive was employed by the Company and the denominator which is 365.
C.     Continuation of Certain Welfare Benefits .
(a)      If an Appendix B Executive Separates From Service on account of an Involuntary Termination, the Appendix B Executive shall be entitled to participate in the health and welfare benefits described in Section 4.2.1 of the Plan for the twelve (12) month period immediately following an Appendix B Executive’s Termination Date.
(b)    An Appendix B Executive shall be eligible to receive outplacement services, as set forth in Section 4.3 of the Plan.
(c)    Reimbursement under subsections (a) and (b) above, if applicable, will be available only to the extent that (1) such expense is actually incurred for any particular calendar year and is reasonably substantiated; (2) reimbursement, if applicable, shall be made no later than the end of the calendar year following the year in which such expense is incurred by an Appendix B Executive; and (3) no reimbursement, if applicable, will be provided for any expense incurred following the twelve (12) month anniversary of the Separation From Service or for any expense which relates to insurance coverage after such date.
D.     Change in Control Payments .
If an Appendix B Executive has a Separation From Service on account of an Involuntary Termination, or if an Appendix B Executive has a Separation From Service for Good Reason, in either case within two (2) years following a Change in Control, then (i) such Appendix B Executive shall receive the payments set forth in Section B above, except that the one (1) times multiplier shall be increased to two (2) and (ii) such Appendix B Executive shall receive the benefits set forth in Section C above except the twelve (12) month benefit continuation period set forth in Section C(a) and C(c) above shall be increased to eighteen (18) months.
E.     Tax Provisions .
(a)    Notwithstanding anything in the Plan to the contrary, in the event that it shall be determined that any compensation, payment or benefit (including any accelerated vesting of options or other equity awards) made or provided, or to be made or provided, by the Company (or any successor thereto or affiliate thereof) to or for the benefit of an Appendix B Executive, whether pursuant to the terms of this Plan, any other agreement, plan, program or arrangement of or with the Company (or any successor thereto or affiliate thereof) or otherwise (a “Payment”), will be subject to the excise tax imposed by Section 4999 of the Code or any comparable tax imposed by any replacement or successor provision of United States tax law, then the Company will apply a limitation on the Payment amount as set forth in clause (i) below (a “Parachute Cap”), unless the provisions of clause (ii) below apply.
i.    If clause (ii) does not apply, the aggregate present value of the Payments under this Plan (“Plan Payments”) shall be reduced (but not below zero) to the Reduced Amount. The “Reduced Amount” shall be an amount expressed in present value which maximizes the aggregate present value of Plan Payments without causing any Payment to be subject to the limitation of deduction under Section 280G of the Code or the imposition of any excise tax under Section 4999 of the Code. For purposes of this clause (i), “present value” shall be determined in accordance with Section 280G(d)(4) of the Code. In the event that it is determined that the amount of the Plan Payments will be reduced in accordance with this clause (i), the Plan Payments shall be reduced on a nondiscretionary basis in such a way as to minimize the reduction in the economic value deliverable to the Appendix B Executive. In applying this principle, the reduction shall be made in a manner consistent with the requirements of Section 409A of the Code, and where more than one payment has the same value for this purpose and they are payable at different times, they will be reduced on a pro-rata basis.
ii.    It is the intention of the parties that the Parachute Cap apply only if application of the Parachute Cap is beneficial to an Appendix B Executive. Therefore, if the net amount that would be retained by an Appendix B Executive under this Agreement without the Parachute Cap, after payment of any excise tax under Section 4999 of the Code or any other applicable taxes by an Appendix B Executive, exceeds the net amount that would be retained by an Appendix B Executive with the Parachute Cap, then the Company shall not apply the Parachute Cap to the Appendix B Executive’s payments.
(b)    All determinations to be made under this Section E shall be made by a nationally recognized independent public accounting firm selected by the Company (“Accounting Firm”), which Accounting Firm shall provide its determinations and any supporting calculations to the Company and the Appendix B Executive within ten days of the Termination Date. Any such determination by the Accounting Firm shall be binding upon the Company and the Appendix B Executive.
(c)    All of the fees and expenses of the Accounting Firm in performing the determinations referred to in this Section E shall be borne solely by the Company.

 

Exhibit A

THE AES CORPORATION
AMENDED AND RESTATED EXECUTIVE SEVERANCE PLAN


Executive Acknowledgment and Agreement



I hereby agree to the terms and conditions of The AES Corporation Amended and Restated Executive Severance Plan, as in effect on the date set forth below ("Plan"), including but not limited to the post-termination restrictive covenants described in Article V of the Plan. I understand that pursuant to my agreement to be covered under the Plan, as indicated by my signature below, the terms of the Plan will exclusively govern all subject matter addressed by the Plan and I understand that the Plan supersedes and replaces, as applicable, any and all agreements, plans, policies, guidelines or other arrangements with respect to the subject matter covered under the Plan.


Dated: ____________________

EXECUTIVE

_____________________________
Name:


THE AES CORPORATION
AMENDED AND RESTATED EXECUTIVE SEVERANCE PLAN
List of Participating Employers
[The Administrator is required to maintain a list of Participating Employers]*













































THE AES CORPORATION
SEVERANCE PLAN
(Amended and Restated April 23, 2015)
Originally Effective October 28, 2011








ARTICLE I
GENERAL PROVISIONS
1.1      Establishment and Purpose .
The purpose of the AES Corporation Severance Plan, as amended (the "Plan"), is to provide eligible employees who are involuntarily terminated from employment in certain limited circumstances, with severance and welfare benefits as set forth in this Plan. Benefits payable under this Plan are generally intended for Eligible Employees who are involuntarily terminated without Cause.
The Plan is not intended to be an "employee pension benefit plan" or "pension plan" within the meaning of Section 3(2) of ERISA. Rather, this Plan is intended to be a "welfare benefit plan" within the meaning of Section 3(1) of ERISA and to meet the descriptive requirements of a plan constituting a "severance pay plan" within the meaning of regulations published by the Secretary of Labor at Title 29, Code of Federal Regulations, Section 2510.3-2(b). Accordingly, the benefits paid by the Plan are not deferred compensation and no employee shall have a vested right to such benefits.
1.2      Term .
The Plan shall generally be effective on the Effective Date. This Plan supersedes any prior severance plans, policies, guidelines, arrangements, agreements, letters and/or other communication, whether formal or informal, written or oral sponsored by the Employer and/or entered into by any representative of the Employer. This Plan represents exclusive severance benefits provided to Eligible Employees and such individuals shall not be eligible for other benefits provided in other severance plans, policies, programs, guidelines, arrangements, letters, etc. of the Company.
1.3      Definitions .
Except as may otherwise be specified or as the context may otherwise require, for purposes of the Plan, the following terms shall have the respective meanings ascribed thereto, or as set forth on a Benefit Schedule to the Plan.
" Administrator " means the Compensation Committee of the Board or such other committee or persons designated by the Board and/or Compensation Committee to assume duties of the Administrator.
" Affiliated Employer " means any corporation which is a member of a controlled group of corporations (as defined in Section 414(b) of the Code) which includes the Company; any trade or business (whether or not incorporated) which is under common control (as defined in Section 414(c) of the Code) with the Company; any organization (whether or not incorporated) which is a member of an affiliated service group (as defined in Section 414(m) of the Code) which includes the Company; and any other entity required to be aggregated with the Company pursuant to regulations under Section 414(o) of the Code.
" Annual Compensation " means (i) an Eligible Employee's annualized base salary as in effect as of the Eligible Employee's Termination Date or (ii) in the event that an Eligible Employee is an hourly employee, the person’s cumulative base earnings (excluding bonuses for the previous completed calendar year prior to the Eligible Employee’s termination date. Unless otherwise provided on a Benefit Schedule, Annual Compensation shall: (i) include: pre-tax employee contributions under any qualified defined contribution retirement plan, salary deferrals under any unfunded nonqualified deferred compensation plan, and amounts deferred (to include employee premiums) under a flexible spending account established pursuant to Section 125 of the Code; and (ii) exclude: any amounts contributed by the Employer to any plan established pursuant to Section 125 of the Code, overtime pay, bonuses, shift differential, annual incentive payments, long-term incentive awards (including, but not limited to, stock options, restricted stock and performance unit awards), and any other form of supplemental compensation.
" Benefit Schedule " means any schedule attached to the Plan which sets forth the benefits of specified groups of Eligible Employees, as approved by the Company and updated by the Administrator from time to time.
" Board " means the Board of Directors of the Company.
" Bonus " means an Eligible Employee's annual target bonus compensation as established by the Employer and in effect on the Eligible Employee's Termination Date.
" Cause " means, except as otherwise provided in a Benefit Schedule, Separation From Service by action of the Employer, or resignation in lieu of such Separation From Service, on account of the Eligible Employee's dishonesty; insubordination; continued and repeated failure to perform the Eligible Employee's assigned duties or willful misconduct in the performance of such duties; intentionally engaging in unsatisfactory job performance; failing to make a good faith effort to bring unsatisfactory job performance to an acceptable level; violation of the Employer's policies, procedures, work rules or recognized standards of behavior; misconduct related to the Eligible Employee's employment; or a charge, indictment or conviction of, or a plea of guilty or nolo contendere to, a felony, whether or not in connection with the performance by the Eligible Employee of his or her duties or obligations to the Employer.
" Change in Control " means the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company to any Person or group (as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”)) of Persons, (ii) a Person or group (as so defined) of Persons (other than Management of the Company on the date of the most recent adoption of the 2003 Long Term Compensation Plan (or successor plan) by the Company's stockholders or their ”affiliates” (as defined below)) shall have become the “beneficial owner” (as defined below) of more than 35% of the outstanding voting stock of the Company, (iii) during any one-year period, individuals who at the beginning of such period constitute the Board (together with any new Director whose election or nomination was approved by a majority of the Directors then in office who were either Directors at the beginning of such period or who were previously so approved, but excluding under all circumstances any such new Director whose initial assumption of office occurs as a result of an actual or threatened election contest or other actual or threatened solicitation of proxies or consents by or on behalf of any individual, corporation, partnership or other entity or group, including through the use of proxy access procedures as may be provided in the Company’s bylaws) cease to constitute a majority of the Board, or (iv) the consummation of a merger, consolidation, business combination or similar transaction involving the Company unless securities representing 65% or more of the then outstanding voting stock of the corporation resulting from such transaction are held subsequent to such transaction by the Person or Persons who were the “beneficial owners” (as defined below) of the outstanding voting stock of the Company immediately prior to such transaction in substantially the same proportions as their ownership immediately prior to such transaction. Notwithstanding the foregoing or any provision to the contrary, if a payment under this Plan is subject to Section 409A (and not excepted therefrom) and a Change in Control affects the time or schedule for such payment, the foregoing definition of Change in Control shall be interpreted, administered and construed in a manner necessary to ensure that the occurrence of any such event shall result in a Change in Control only if such event qualifies as a change in the ownership or effective control of a corporation, or a change in the ownership of a substantial portion of the assets of a corporation, as applicable, within the meaning of Treas. Reg. § 1.409A-3(i)(5). For purposes of this definition, (i) “ beneficial owner(s) ” shall have the meaning set forth in Rule 13d-3 of the Exchange Act and (ii) " affiliate " means: (A) any Subsidiary of the Company; (B) any entity or Person or group of Persons that, directly or through one or more intermediaries, is controlled by the Company; and (C) any entity or Person or group of Persons in which the Company has a significant equity interest, as determined by the Compensation Committee, including any “affiliates” which become such after adoption of this Plan.
" COBRA Coverage " means medical, dental and vision coverage which is required to be offered to terminated employees under Section 4980B of the Code and Section 606 of ERISA; provided, however, that no provision of this Plan shall be construed to require the Employer to contribute on behalf of an Eligible Employee towards continuation coverage for a health spending account.
" Code " means the Internal Revenue Code of 1986, as amended.
" Company" or "AES " means The AES Corporation, a Delaware corporation, or any successor thereto.
" Compensation Committee " means the Compensation Committee of the Board.
" Disability " or " Disability Termination " means, except as otherwise provided in a Benefit Schedule, a Separation From Service: (a) on account of the Eligible Employee's failure to return to full-time employment following exhaustion of short-term disability benefits provided by the Employer; (b) following the date the Eligible Employee is determined to be eligible for: (i) long-term disability benefits under any long-term disability insurance policy or plan maintained by the Employer; or (ii) disability pension or retirement benefits under any qualified retirement plan maintained by the Employer; or (c) due to a physical or mental condition that substantially restricts the Eligible Employee's ability to perform his or her usual duties, as determined by the Employer.
" Eligible Employee " means any Employee of the Employer who: (i) is not an Ineligible Employee (within the meaning of Section 2.2); (ii) has completed one Year-of-Service as a full-time Employee.
" Employee " means any person who is employed by the Company or a Subsidiary as a common law employee and is listed as an employee on the payroll records of the Employer as a full-time employee. Any person hired by the Employer as a consultant or independent contractor and any other individual whom the Employer does not treat as its employee for federal income tax purposes shall not be an Employee for purposes of this Plan, even if it is subsequently determined by a court or administrative agency that such individual should be, or should have been, properly classified as a common law employee of the Employer.
" Employer " means the Company and any Affiliated Employer that participates in the Plan with the consent of the Company. The Administrator shall maintain a list of participating Employers.
" ERISA " means the Employee Retirement Income Security Act of 1974, as amended.
" Executive" or "Executive Officer " means an Eligible Employee or Participant, as the context requires (other than the Chief Executive Officer), who is an executive officer of the Company as defined under Rule 3b-7 of the Securities Exchange Act of 1934, as amended, or was otherwise approved as an officer by the Board and/or Compensation Committee.
“ Good Reason ” or “ Good Reason Termination ” means , without an Employee’s written consent, the Separation From Service (for reasons other than death, Disability or Cause) by an Employee due to any of the following events occurring within two years of the consummation of a Change in Control: (i) the relocation of an Employee’s principal place of employment to a location that is more than 50 miles from the principal place of employment in effect immediately prior to such Change in Control; (ii) a material diminution in the duties or responsibilities of an Employee from those in place immediately prior to such Change in Control; and (iii) a material reduction in the base salary or annual incentive opportunity of an Employee from what was in place immediately prior to such Change in Control.
In order for an Employee to terminate for Good Reason, (i) an Employee  must notify the successor entity in writing, within ninety (90) days of the event constituting Good Reason of the Employee’s intent to terminate employment for Good Reason, that specifically identifies in reasonable detail the manner of the Good Reason event, (ii) the event must remain uncorrected for thirty (30) days following the date that an Employee notifies the successor entity in writing of the Employee’s intent to terminate employment for Good Reason (the “ Notice Period ”), and (iii) the termination date must occur within sixty (60) days after expiration of the Notice Period.
" Ineligible Termination " means, except as otherwise provided in a Benefit Schedule, an Eligible Employee's Separation From Service on account of:
•
The Eligible Employee's voluntary resignation, including but not limited to the Eligible Employee's unilateral Separation From Service at any time prior to the Termination Date established by the Employer;
•
Any Separation From Service that the Employer determines (either before or after the Separation From Service and whether or not any notice is given to the employee) the payment of benefits under the Plan in connection with such Separation From Service would be inconsistent with the intent and purposes of the Plan;
•
A Separation From Service in connection with an Eligible Employee's failure to return to work immediately following the conclusion of an approved leave-of-absence;
•
A Separation From Service for, or on account of, Cause;
•
A Disability Termination;
•
The Eligible Employee's death;
•
The Eligible Employee declines to accept a New Job Position offered by the Employer that is located within 50 miles of the Eligible Employee's then assigned work site of the Employer;
•
The Sale of Business Rule set forth in Section 2.4 herein; or
•
The voluntary transfer of employment from Eligible Employee's Employer to another AES related entity, irrespective of whether the Eligible Employee is required to relocate or whether the AES related entity qualifies as an Affiliated Employer.
" Involuntary Termination " means an Eligible Employee’s involuntary Separation From Service that is (i) not an Ineligible Termination and (ii) by action of the Employer on account of:
•
Reduction-in-force;
•
Permanent job elimination;
•
The restructuring or reorganization of a business unit, division, department or other segment;
•
Termination by Mutual Consent; or
•
Eligible Employee declines to accept a New Job Position offered by the Employer that requires the Eligible Employee to relocate to a work site location that is located greater than 50 miles from the Employee's then assigned work site of the Employer; provided, however, that except as provided in Section 2.4 or in connection with a Separation From Service following a Change in Control, an Employee who functions at or above a Group Manager position (or its equivalent) shall not incur an Involuntary Termination if such Eligible Employee declines a New Job Position (regardless of its location) at a time when the Employee's existing job position is being eliminated.
" New Job Position " means: (i) with respect to an Eligible Employee who has demonstrated inadequate or unsatisfactory performance, as determined by the Employer, any job position offered by the Employer; or (ii) with respect to all other Eligible Employees, a full-time job position offered by the Employer that does not result in a reduction of the Employee's Annual Compensation.
" Participant " has the meaning set forth in Section 2.1.
" Person " means any individual, corporation, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.
" Plan " means The AES Corporation Severance Plan as set forth herein, and as the same may from time to time be amended.
" Section 409A " shall mean Section 409A of the Code, the regulations and other binding guidance promulgated thereunder.
" Separation From Service " shall mean an Eligible Employee's termination of employment with the Company and all of its controlled group members within the meaning of Section 409A of the Code. For purposes hereof, the determination of controlled group members shall be made pursuant to the provisions of Section 414(b) and 414(c) of the Code; provided that the language "at least 50 percent" shall be used instead of "at least 80 percent" in each place it appears in Section 1563(a)(1), (2) and (3) of the Code and Treas. Reg. § 1.414(c)-2; provided, further, where legitimate business reasons exist (within the meaning of Treas. Reg. § 1.409A-1(h)(3)), the language "at least 20 percent" shall be used instead of "at least 80 percent" in each place it appears. Whether an Employee has a Separation From Service will be determined based on all of the facts and circumstances and in accordance with the guidance issued under Section 409A.
" Specified Employee " means a key employee (as defined in Section 416(i) of the Code without regard to paragraph (5) thereof) of the Company as determined in accordance with the regulations issued under Code Section 409A and the procedures established by the Company.
" Subsidiary " means any entity in which the Company owns or otherwise controls, directly or indirectly, stock or other ownership interests having the voting power to elect a majority of the board of directors, or other governing group having functions similar to a board of directors, as determined by the Company.
" Termination by Mutual Consent " means an involuntary Separation From Service pursuant to which the Company agrees, in its sole discretion, that benefits are payable under this Plan.
" Termination Date " means the date of the Eligible Employee's Separation From Service (or scheduled date of Separation From Service, as applicable).
“ Weeks Compensation ” means one fifty second (1/52) of an Eligible Employee’s Annual Compensation.
" Year-of-Service " means each twelve-month period measured from the Eligible Employee's first day of employment with an Employer, as reduced to reflect breaks in service and/or services performed during such period the Eligible Employee was otherwise ineligible to participate in the Plan, as determined under the rules promulgated by the Administrator. Service with a predecessor employer (that was not an Affiliated Employer) shall be recognized to the extent such service is recognized under The AES Corporation Retirement Savings Plan. Service shall also include services performed prior to the effective date of the Plan. In the event an Eligible Employee's Separation From Service and the Eligible Employee is subsequently reemployed by the Employer, the Eligible Employee's service for calculation of any severance benefits under Article IV of the Plan shall be based only upon the Eligible Employee's service credited since the most recent date of employment with the Employer.
ARTICLE II     
PARTICIPATION
2.1      Eligibility .
An Eligible Employee shall, upon execution of the release in the form specified in Article III of this Plan in the time and manner set forth in Section 3.1 of the Plan, be eligible for the severance benefits provided under Article IV of this Plan if the Eligible Employee's Separation From Service is by reason of an Involuntary Termination or for Good Reason. An Eligible Employee who fails to execute the release in the time and manner set forth in Section 3.1 or who subsequently revokes execution of the release in accordance with its terms shall not be entitled to receive benefits under this Plan. An Eligible Employee who satisfies all of the terms and conditions specified in this Plan and who becomes entitled to receive benefits hereunder shall be referred to herein as a "Participant."
2.2      Ineligible Employees . Notwithstanding any provision of this Plan to the contrary, the following Employees (“Ineligible Employees”) are not eligible to participate in the Plan:
•
Any Employee who has been hired to work on a part-time, seasonal or temporary basis or who is classified as a part-time, seasonal or temporary Employee, or a student intern on the Employer’s records;
•
Any Employee who has been hired by the Employer to work in a job share position (provided that such Employee is not otherwise employed on a full-time basis);
•
An Employee who is member of a collective bargaining unit to which this Plan has not been specifically extended by a collective bargaining agreement;
•
An Employee entitled to a severance type payment pursuant to any other plan, policy, arrangement, agreement, letter or other communication sponsored by, or entered into with, or maintained by the Employer, including but not limited to an employment agreement;
•
Leased employees, including those within the meaning of section 414(n) of the Code;
•
Nonresident aliens (other than those nonresident aliens to whom the Employer has extended participation in the Plan with the written consent of the Company;
•
Any individual who has agreed in writing that he or she waives his or her eligibility to receive benefits under the Plan; and
•
Any Employee who has an enforceable right to resume employment or to be recalled to employment with the Employer.
2.3      Transfer of Employment.
If an Eligible Employee transfers to a location of AES to which this Plan has not been extended, such Employee shall cease to be eligible to participate in this Plan unless the Eligible Employee’s prior Employer has agreed in writing to continue to extend participation in the Plan to the Employee with the consent of the Company.
2.4      Sale of Business Rule .
An Eligible Employee shall not be eligible for benefits under the Plan if the Eligible Employee's Separation From Service is in connection with the sale of the stock or other ownership interests of the Employer or other related entity, or the sale, lease, or other transfer of the assets, products, services or operations of the Employer or other related entity to another organization if either of the following occurs:
•
The Eligible Employee is employed by the new organization immediately following the sale, transfer or lease or is so employed within a time period specified in an agreement between the Employer and the new organizations; or
•
The Employer terminates the employment of an Eligible Employee who did not accept an offer of employment from the new organization when the new organization offered a compensation and benefits package that was, in the aggregate, generally comparable to the compensation and benefits provided by the Employer; provided that such Eligible Employee was not required to relocate to a work site location that is located greater than 50 miles from the Employee's then assigned work site of the Employer.
Notwithstanding the foregoing, this Section 2.4 shall not apply if an Eligible Employee's Separation From Service occurs in connection with a Change of Control.
ARTICLE III     
RELEASES
3.1      Release .
Notwithstanding anything in this Plan to the contrary, no benefits of any sort or nature (other than as provided in Section 3.3) shall be due or paid under this Plan to any Eligible Employee unless the Eligible Employee executes a written release and covenant not to sue, in form and substance satisfactory to the Employer, in its sole discretion, within the time stated in the release; provided, however, that in all cases such release must become final, binding and irrevocable within sixty (60) days following the Eligible Employee's Termination Date. The written release shall waive any and all claims against the Employer and all related parties including, but not limited to, claims arising out of the Eligible Employee's employment by the Employer, the Eligible Employee's Separation From Service and claims relating to the benefits paid under this Plan. At the sole discretion of the Employer, the release shall also include such noncompetition, nonsolicitation and nondisclosure provisions as the Employer considers necessary or appropriate.
3.2      Revocation .
The release described in Section 3.1 must be executed and binding on the Eligible Employee within the timeframe specified by the Company before benefits are due or paid. An Eligible Employee who revokes execution of the release in accordance with the terms of the release shall not be entitled to receive benefits under the Plan.
3.3      Outplacement Services .
Notwithstanding the foregoing provisions of this Article III, the Outplacement Services set forth under Section 4.3 herein may or may not be provided, at the discretion of the Employer, to an Eligible Employee prior to the execution of a release under this Plan.
ARTICLE IV     
SEVERANCE BENEFITS
4.1      Separation Payment .
4.1.1      A Participant shall be entitled to receive a separation payment as set forth on the applicable Benefit Schedule and herein. Except as otherwise provided in a Benefit Schedule, the separation payment shall be paid at least monthly in substantially equal installments as salary continuation in accordance with the Employer's established payroll policies and practices over the same time period upon which the separation payment is based, which shall be set forth in the Benefit Schedule. The separation payments will commence on the Employer's next normal pay date occurring after the date the Eligible Employee's release becomes final, binding and irrevocable.
4.1.2      For purposes of Section 409A: (i) the right to salary continuation installment payments under Section 4.1.1 shall be treated as the right to a series of separate payments; and (ii) a payment shall be treated as made on the scheduled payment date if such payment is made at such date or a later date in the same calendar year or, if later, by the 15th day of the third calendar month following the scheduled payment date. A Participant shall have no right to designate the date of any payment under the Plan. For purposes of the Plan, each salary continuation installment payment in Section 4.1.1 is intended to be excepted from Section 409A to the maximum extent provided under Section 409A as follows: (i) each salary continuation installment payment that is scheduled to be made on or before March 15th of the calendar year following the calendar year containing the Termination Date is intended to be excepted under the short-term deferral exception as specified in Treas. Reg. § 1.409A-1(b)(4); and (ii) each salary continuation installment payment that is not otherwise excepted under the short-term deferral exception is intended to be excepted under the involuntary pay exception as specified in Treas. Reg. § 1.409A-1(b)(9)(iii).
4.2      Continuation of Certain Welfare Benefits .
4.2.1      Medical/Dental/Vision . For the period set forth below in Section 4.2.3 and beginning in the calendar month following the calendar month in which the Termination Date occurs, the Participant shall be eligible to participate in the Employer's medical, dental and vision employee welfare benefit plans applicable to the Participant on his Termination Date. To receive such benefits, the Participant must properly enroll in COBRA coverage, and must also pay such premiums and other costs for such coverage as generally applicable to the Employer's active employees. The Employer will continue to pay its share of the applicable premiums under the medical, dental and vision plans for the same level and type of coverage in which the Participant is enrolled as of the Termination Date.
Except as provided in a Benefit Schedule to the Plan, if a Participant has elected the "no benefit coverage" option under the medical, dental or vision plans as of his actual Termination Date, the Participant shall not be entitled to continuation coverage or cash in lieu thereof. Following expiration of coverage under this Section 4.2.1, a Participant may, to the extent eligible, continue to participate in such plans for the remainder of the COBRA continuation period, if any.
4.2.2      Concurrent COBRA Period . The continuation period for medical, dental and vision coverage under this Plan shall be deemed to run concurrent with the continuation period federally mandated by COBRA (generally 18 months), or any other legally mandated and applicable federal, state, or local coverage period for benefits provided to terminated employees under the health care plan. The continuation period will be deemed to commence on the first day of the calendar month following the month in which the Termination Date falls. Notwithstanding the foregoing, COBRA Coverage will only be available if the Participant is eligible for and timely elects COBRA Coverage, and timely remits payment of the premiums for COBRA Coverage.
4.2.3      Length of Benefits. Except as provided in a Benefit Schedule, benefits under this Section 4.2 shall be for the same time period upon which the separation payment was based; provided, however that in no event will the time period exceed 18 months.
4.2.4      Implications of Section 409A . Post-termination medical benefits are intended to be excepted from Section 409A under the medical benefits exceptions as specified in Treas. Reg. § 1.409A-1(b)(9)(v)(B).
4.3      Outplacement Services .
As set forth on the applicable Benefit Schedule, a Participant shall be eligible for such outplacement services typically provided to employees of the same job classification or level. Outplacement services may be provided by an independent agency or by the Employer. Notwithstanding the foregoing, the availability, duration, and appropriateness of outplacement services shall be determined by the Administrator in its sole discretion; provided, however, that outplacement expenses must be reasonable, must be actually incurred by the Participant and may not extend beyond the December 31 of the second calendar year following the calendar year in which the Termination Date occurred (or such shorter period as specified by the Employer). Any such reimbursement shall be as soon as administratively feasible, but in no event later than December 31st of the third calendar year following the calendar year in which the Termination Date occurred. Post-termination outplacement benefits are intended to be excepted from Section 409A under the separation payment benefits exceptions as specified in Treas. Reg. § 1.409A-1(b)(9)(v)(A).
4.4      Bonus Compensation .
As set forth on the applicable Benefit Schedule and subject to any deferral election that the Participant has made with respect to such amounts, a Participant will be eligible for (i) a prorated Bonus; and (ii) any accrued but unpaid bonus compensation for completed performance periods. The prorated Bonus specified in Section 4.4(i) will be prorated based on the amount of time the Participant was actively at work on a full-time basis in the calendar year in which the Participant's Termination Date falls, and will be paid within the applicable 2½ month period specified in Treas. Reg. § 1.409A-1(b)(4). The bonus compensation specified in Section 4.4(ii) shall be paid no later than the time that such amounts are paid to similarly situated employees in accordance with the applicable plan terms. Notwithstanding the foregoing, with respect to bonuses paid in accordance with the terms of The AES Corporation Performance Incentive Plan (or any successor plan, the " Performance Incentive Plan "), any such bonus compensation shall be paid only to the extent earned in accordance with the terms of the Performance Incentive Plan and on the payment date specified therein.
4.5      Enhanced Benefits .
In the event a Participant has a Separation From Service due to an Involuntary Termination by the Company (other than for Cause or Disability or due to death), or the Participant has a Separation From Service for Good Reason, in either case within two (2) years following a Change in Control, then the Participant shall receive a separation payment under Section 4.1 multiplied by 2.0 and medical/dental/vision benefits under Section 4.2 multiplied by 2.0; provided, however, that unless otherwise specifically provided in the Benefit Schedule, the time period for medical/dental/vision benefits set forth in Section 4.2 will never exceed eighteen (18) months, as described in Section 4.2.3.
4.6      Delay in Payment.
Notwithstanding any provision of this Plan to the contrary, to the extent that a payment hereunder is subject to Section 409A (and not excepted therefrom), such payment shall be delayed for a period of six months after the Termination Date (or, if earlier, the death of the Participant) for any Participant that is a Specified Employee. Any payment that would otherwise have been due or owing during such six-month period will be paid on the first business day of the seventh month following the Separation From Service .
ARTICLE V     
PLAN ADMINISTRATION
5.1      Operation of the Plan .
The Administrator shall be the named fiduciary responsible for carrying out the provisions of the Plan. The Administrator may delegate any and all of its powers and responsibilities hereunder or appoint agents to carry out such responsibilities, and any such delegation or appointment may be rescinded at any time. The Administrator shall establish the terms and conditions under which any such agents serve. The Administrator shall have the full and absolute authority to employ and rely on such legal counsel, actuaries and accountants (which may also be those of the Employer) as it may deem advisable to assist in the administration of the Plan.
5.2      Administration of the Plan .
To the extent that the Administrator in its sole discretion deems necessary or desirable, the Administrator may establish rules for the administration of the Plan, prescribe appropriate forms, and adopt procedures for handling claims and the denial of claims. The Administrator shall have the exclusive authority and discretion to interpret, construe, and administer the provisions of the Plan and to decide all questions concerning the Plan and its administration. Without limiting the foregoing, the Administrator shall have the authority to determine the level of an Employee, to determine eligibility for and the amount of any benefits due in accordance with the applicable Benefit Schedule, to make factual determinations, to correct deficiencies, and to supply omissions, including resolving any ambiguity or uncertainty arising under or existing in the terms and provisions of the Plan or any Benefit Schedule. Any and all such determinations of the Administrator shall be final, conclusive, and binding on the Employer, the Employee and any and all interested parties.
5.3      Funding .
The Plan shall be unfunded and all payments hereunder and expenses incurred in connection with this Plan shall be paid from the general assets of the Employer. Benefits will be paid directly by the Employer employing the Participant, and no other Employer or Affiliated Employer will be responsible for any benefits hereunder.
5.4      Code Section 409A .
Notwithstanding any provision of the Plan to the contrary, if any benefit provided under this Plan is subject to the provisions of Section 409A of the Code and the regulations issued thereunder, the provisions of the Plan will be administered, interpreted and construed in a manner necessary to comply with Section 409A or an exception thereto (or disregarded to the extent such provision cannot be so administered, interpreted, or construed). With respect to payments subject to Section 409A of the Code: (i) it is intended that distribution events authorized under the Plan qualify as permissible distribution events for purposes of Section 409A of the Code; and (ii) the Company and each Employer reserve the right to accelerate and/or defer any payment to the extent permitted and consistent with Section 409A.  Notwithstanding any provision of the Plan to the contrary, i n no event shall the Administrator, the Company, an Affiliated Employer or Subsidiary (or their employees, officers, directors or affiliates) have any liability to any Participant (or any other person) due to the failure of the Plan to satisfy the requirements of Section 409A or any other applicable law.
ARTICLE VI     
CLAIMS
6.1      General .
If an Employee believes that he or she is eligible for benefits under the Plan and has not been so notified, an Employee should submit a written request for benefits to the Administrator. Any claim for benefits must be made within six months of an Employee's Termination Date, or the Employee will be forever barred from pursuing a claim. For purposes of this Article VI, an Employee making a claim for benefits under the Plan shall be referred to as a "claimant". The claimant shall file the claim with and in the manner prescribed by the Administrator. The Administrator shall make the initial determination concerning rights to and amount of benefits payable under this Plan.
6.2      Claim Evaluation .
A properly filed claim will be evaluated and the claimant will be notified of the approval or the denial of the claim within ninety (90) days after the receipt of the claim, unless special circumstances require an extension of time for processing. Written notice of the extension will be furnished to the claimant prior to the expiration of the initial ninety-day (90-day) period, and will specify the special circumstances requiring an extension and the date by which a decision will be reached (provided the claim evaluation will be completed within one hundred and twenty (120) days after the date the claim was filed).
6.3      Notice of Disposition .
A claimant will be given a written notice in which the claimant will be advised as to whether the claim is granted or denied, in whole or in part. If a claim is denied, in whole or in part the notice will contain: (i) the specific reasons for the denial; (ii) references to pertinent Plan provisions upon which the denial is based; (iii) a description of any additional material or information necessary to perfect the claim and an explanation of why such material or information is necessary; and (iv) the claimant's rights to seek review of the denial.
6.4      Appeals .
If a claim is denied, in whole or in part, the claimant, or his duly authorized representative, has the right to (i) request that the Administrator review the denial, (ii) review pertinent documents, and (iii) submit issues and comments in writing, provided that the claimant files a written appeal with the Administrator within sixty (60) days after the date the claimant received written notice of the denial. Within sixty (60) days after an appeal is received, the review will be made and the claimant will be advised in writing of the decision, unless special circumstances require an extension of time for reviewing the appeal, in which case the claimant will be given written notice within the initial sixty-day (60-day) period specifying the reasons for the extension and when the review will be completed (provided the review will be completed within one hundred and twenty (120) days after the date the appeal was filed). The decision on appeal will be forwarded to the claimant in writing and will include specific reasons for the decision and references to the Plan provisions upon which the decision is based. A decision on appeal will be final and binding on all persons for all purposes. If a claimant's claim for benefits is denied in whole or in part, the claimant may file suit in a state or federal court.
Notwithstanding the aforementioned, before the claimant may file suit in a state or federal court, the claimant must exhaust the Plan's administrative claims procedure set forth in this Article VI. If any such state or federal judicial or administrative proceeding is undertaken, the evidence presented will be strictly limited to the evidence timely presented to the Administrator. In addition, any such state or federal judicial or administrative proceeding must be filed within six (6) months after the Administrator's final decision. Any such state or federal judicial or administrative proceeding relating to this Plan shall only be brought in the Circuit Court for Arlington County, Virginia or in the United States District Court for the Eastern District of Virginia, Alexandria Division.  If any such action or proceeding is brought in any other location, then the filing party expressly consents to the transfer of such action to the Circuit Court for Arlington County, Virginia or the United States District Court for the Eastern District of Virginia, Alexandria Division.  Nothing in this clause shall be deemed to prevent any party from removing an action or proceeding to enforce or interpret this Plan from the Circuit Court for Arlington County, Virginia to the United States District Court for the Eastern District of Virginia, Alexandria Division. 
ARTICLE VII     
PLAN AMENDMENTS
7.1      Amendment Authority .
The Board may, at any time and in its sole discretion, amend, modify or terminate the Plan, including any Benefit Schedule, as the Board, in its judgment shall deem necessary or advisable. The Board may delegate its amendment authority to the Administrator or such other persons as the Board considers appropriate. Notwithstanding the foregoing or any provision of the Plan to the contrary, the Board (or its designee) may at any time (in its sole discretion and without the consent of any Participant) modify, amend or terminate any or all of the provisions of this Plan or take any other action, to the extent necessary or advisable to conform the provisions of the Plan with Section 409A of the Code, the regulations issued thereunder or an exception thereto, regardless of whether such modification, amendment or termination of this Plan or other action shall adversely affect the rights of an Eligible Employee or Participant under the Plan. Termination of this Plan shall not be a distribution event under the Plan unless otherwise permitted under Section 409A.
ARTICLE VIII     
MISCELLANEOUS

8.1      Summary Plan Description .
To the extent the summary plan description or any other writing communication to an Eligible Employee conflicts with this Plan, the Plan document shall control.
8.2      Impact on Other Benefits .
Except as otherwise provided herein, any amounts paid to a Participant under this Plan shall have no effect on the Participant's rights or benefits under any other employee benefit plan sponsored by the Employer; provided, however, that in no event shall any Participant be entitled to any payment or benefit under the Plan which duplicates a payment or benefit received or receivable by the Participant under any severance plan, policy, guideline, arrangement, agreement, letter and/or other communication, whether formal or informal, written or oral sponsored by the Employer or an affiliate thereof and/or entered into by any representative of the Employer and/or any affiliate thereof. Further, any such amounts shall not be used to determine eligibility for or the amount of any benefit under any employee benefit plan, policy, or arrangement sponsored by the Employer or any affiliate thereof.
8.3      Tax Withholding .
The Employer shall have the right to withhold from any benefits payable under the Plan or any other wages payable to a Participant an amount sufficient to satisfy federal, state and local tax withholding requirements, if any, arising from or in connection with the Participant's receipt of benefits under the Plan.
8.4      No Employment or Service Rights .
Nothing contained in the Plan shall confer upon any Employee any right with respect to continued employment with the Employer, nor shall the Plan interfere in any way with the right of the Employer to at any time reassign an Employee to a different job, change the compensation of the Employee or terminate the Employee's employment for any reason.
8.5      Nontransferability .
Notwithstanding any other provision of this Plan to the contrary, the benefits payable under the Plan may not be subject to voluntary or involuntary anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by creditors of the Participant or such other person, other than pursuant to the laws of descent and distribution, without the consent of the Company.
8.6      Successors .
The Company and its affiliates shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company and its affiliates (taken as a whole) expressly to assume and agree to perform under the terms of the Plan in the same manner and to the same extent that the Company and its affiliates would be required to perform if no such succession had taken place (provided that such a requirement to perform which arises by operation of law shall be deemed to satisfy the requirements for such an express assumption and agreement), and in such event the Company and its affiliates (as constituted prior to such succession) shall have no further obligation under or with respect to the Plan.
8.7      Headings and Captions .
The headings and captions herein are provided for reference and convenience only. They shall not be considered as part of the Plan and shall not be employed in the construction of the Plan.
8.8      Gender and Number .
Where the context admits, words in any gender shall include any other gender, and, except where clearly indicated by the context, the singular shall include the plural and vice-versa.
8.9      Nonalienation of Benefits .
None of the payments, benefits or rights of any Participant shall be subject to any claim of any creditor of any Participant and, in particular, to the fullest extent permitted by law, all such payments, benefits and rights shall be free from attachment, garnishment (if permitted under applicable law), trustee's process, or any other legal or equitable process available to any creditor of such Participant. No Participant shall have the right to alienate, anticipate, commute, plead, encumber or assign any of the benefits or payments that he or she may expect to receive under this Plan.
8.10      Governing Law .
Except as otherwise preempted by the laws of the United States, this Plan shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to its conflict of law provisions. If any provision of this Plan shall be held illegal or invalid for any reason, such determination shall not affect the remaining provisions of this Plan.
The AES Corporation Severance Plan has been duly executed by the undersigned and is effective the 28th day of October, 2011 as amended and restated on April 23, 2015.
The AES Corporation
 
 
 
By:                   
   Brian A. Miller, Executive Vice President
   General Counsel and Corporate Secretary

BENEFITS SCHEDULE
 

Title/Grade Classification
Severance Benefits
(Min. 1 Year-of-Service for Eligibility)


Executive Officers (CFO excluded because of contract)  

 
One (1) times (Annual Compensation + Bonus) (Section 4.1)
Health Benefits (Section 4.2)
Outplacement Benefits (Section 4.3)
Prorated Bonus (Section 4.4)
Special Enhanced Benefits (Section 4.5)
Excise Tax Reimbursement (see Appendix A for specific participant eligibility)


Grades 24 -27

One (1) times (Annual Compensation) (Section 4.1)
Health Benefits (Section 4.2)
Outplacement Benefits (Section 4.3)
Prorated Bonus (Section 4.4)
Special Enhanced Benefits (Section 4.5)


Grades 19 -23


Three (3) months prorated Annual Compensation plus two (2) Weeks' Compensation for each Year-of-Service up to a maximum of thirty-nine (39) Week's Compensation (Section 4.1)
Health Benefits (Section 4.2)



Grades 18 and below

Two (2) months prorated Annual Compensation plus two (2) Weeks’ Compensation for each Year-of-Service up to a maximum of twenty-six (26) Week's Compensation (Section 4.1)
Health Benefits (Section 4.2)


THE AES CORPORATION SEVERANCE PLAN
List of Participating Employers
[The Administrator is required to maintain a list of Participating Employers]*











































Retroactive Consent Request for Double-Trigger
The AES Corporation is requesting consent to retroactively apply the newly approved double-trigger Change In Control language to your outstanding LTC awards granted in 2014 and 2015.
As per Section 12 of The AES Corporation 2003 Long Term Compensation Plan (as amended on April 22, 2010) that governs these awards, the Compensation Committee is able to amend any terms of an award prospectively or retroactively provided, however that no such action shall impair the rights of a participant without their consent. The Compensation Committee approved the management proposal to retroactively implement the double-trigger Change In Control language retroactively to 2015 and 2014 awards. Thus, your consent is required for each outstanding award agreement regarding stock options, performance stock units, restricted stock units and performance units granted in those years for the proposed changes to take effect.
The proposed change would amend the language in your current awards agreements noted to read as below. (Please acknowledge your consent by reviewing and signing the final page of this document)
Section 7 of Performance Stock Unit award agreements for February 21, 2014 and February 20, 2015 grants would be amended to read as follows:
In the event of a (i) Change in Control and (ii) a Qualifying Event (as defined in Section 7(A) below) prior to the end of the Performance Period, if the PSUs described herein have not already been previously forfeited or cancelled, such PSUs will become fully vested (for the total amount of PSUs set forth in paragraph 1) and the Payment Date will occur contemporaneous with the Qualifying Event; provided, however, that in connection with a Change in Control, payment of any obligation payable pursuant to the preceding sentence may be made in cash of equivalent value and/or securities or other property in the Committee’s discretion.
(A)
Qualifying Event means the occurrence of one or more of the following events: (i) immediately upon the consummation of a Change in Control Event, failure of the successor company in a Change in Control event to provide Substitute Awards that are substantially similar in both nature and terms (including having an equivalent realizable pre-tax value to outstanding awards assuming vesting and delivery at the consummation of the Change in Control); (ii) within two years of the consummation of a Change in Control event, an involuntary termination without Cause of the Employee; or (iii) within two years of the consummation of a Change in Control event, a Good Reason Termination (as defined in Section 7(B) below) by the Employee.
(B)
Good Reason Termination means, without an Employee’s written consent, the Separation From Service (for reasons other than death, Disability or Cause) by an Employee due to any of the following events occurring within two years of the consummation of a Change in Control: (i) the relocation of an Employee’s principal place of employment to a location that is more than 50 miles from the principal place of employment in effect immediately prior to such Change in Control; (ii) a material diminution in the duties or responsibilities of an Employee from those in place immediately prior to such Change in Control; and (iii) a material reduction in the base salary or annual incentive opportunity of an Employee from what was in place immediately prior to such Change in Control. In order for an Employee to terminate for a Good Reason Termination, (i) an Employee must notify the successor entity in writing, within ninety (90) days of the event constituting Good Reason of the Employee’s intent to terminate employment for Good Reason, that specifically identifies in reasonable detail the manner of the Good Reason event, (ii) the event must remain uncorrected for thirty (30) days following the date that an Employee notifies the successor entity in writing of the Employee’s intent to terminate employment for Good Reason (the “Notice Period”), and (iii) the termination date must occur within sixty (60) days after expiration of the Notice Period.
Section 6 of Restricted Stock Unit award agreements for February 21, 2014 and February 20, 2015 grants would be amended to read as follows:
In the event of a (i) Change in Control and (ii) a Qualifying Event (as defined in Section 6(A) below) prior to the applicable Vesting Date, if the RSUs described herein have not already been previously forfeited or cancelled, such RSUs will become fully vested contemporaneous with the Qualifying Event; provided, however, that in connection with a Change in Control, payment of any obligation payable pursuant to the preceding sentence may be made in cash of equivalent value and/or securities or other property in the Committee’s discretion.
(A)
Qualifying Event means the occurrence of one or more of the following events: (i) immediately upon the consummation of a Change in Control Event, failure of the successor company in a Change in Control event to provide Substitute Awards that are substantially similar in both nature and terms (including having an equivalent realizable pre-tax value to outstanding awards assuming vesting and delivery at the consummation of the Change in Control); (ii) within two years of the consummation of a Change in Control event, an involuntary termination without Cause of the Employee; or (iii) within two years of the consummation of a Change in Control event, a Good Reason Termination (as defined in Section 6(B) below) by the Employee.
(B)
Good Reason Termination means, without an Employee’s written consent, the Separation From Service (for reasons other than death, Disability or Cause) by an Employee due to any of the following events occurring within two years of the consummation of a Change in Control: (i) the relocation of an Employee’s principal place of employment to a location that is more than 50 miles from the principal place of employment in effect immediately prior to such Change in Control; (ii) a material diminution in the duties or responsibilities of an Employee from those in place immediately prior to such Change in Control; and (iii) a material reduction in the base salary or annual incentive opportunity of an Employee from what was in place immediately prior to such Change in Control. In order for an Employee to terminate for a Good Reason Termination, (i) an Employee must notify the successor entity in writing, within ninety (90) days of the event constituting Good Reason of the Employee’s intent to terminate employment for Good Reason, that specifically identifies in reasonable detail the manner of the Good Reason event, (ii) the event must remain uncorrected for thirty (30) days following the date that an Employee notifies the successor entity in writing of the Employee’s intent to terminate employment for Good Reason (the “Notice Period”), and (iii) the termination date must occur within sixty (60) days after expiration of the Notice Period.
Section 6 of Stock Option award agreements for February 21, 2014 and February 21, 2015 grants would be amended to read as follows:
In the event of a (i) Change in Control and (ii) a Qualifying Event (as defined in Section 6(A) below) prior to the applicable Vesting Date , to the extent that all or any portion of this Option has not already been previously forfeited or cancelled, such portion of this Option will become fully vested and exercisable contemporaneous with the Qualifying Event ; provided, however, that in connection with a Change of Control or certain other events, the Committee may, in its discretion (i) cancel any or all outstanding Options issued pursuant to the Plan in consideration for payment to the holders of such cancelled Options of an amount equal to the portion of the consideration that would have been payable to such holders pursuant to such transaction if such Options had been fully vested and exercisable, and had been fully exercised, immediately prior to such transaction, less the option price, if any, that would have been payable therefore, or (ii) if the net amount referred to in clause (i) would be negative, cancel such Options for no consideration of any kind. Payment of any obligation payable pursuant to the preceding sentence may be made in cash of equivalent value and/or securities or other property in the Committee’s discretion.

(A)
Qualifying Event means the occurrence of one or more of the following events: (i) immediately upon the consummation of a Change in Control Event, failure of the successor company in a Change in Control event to provide Substitute Awards that are substantially similar in both nature and terms (including having an equivalent realizable pre-tax value to outstanding awards assuming vesting and delivery at the consummation of the Change in Control); (ii) within two years of the consummation of a Change in Control event, an involuntary termination without Cause of the Employee; or (iii) within two years of the consummation of a Change in Control event, a Good Reason Termination (as defined in Section 6(B) below) by the Employee.
(B)
Good Reason Termination means, without an Employee’s written consent, the Separation From Service (for reasons other than death, Disability or Cause) by an Employee due to any of the following events occurring within two years of the consummation of a Change in Control: (i) the relocation of an Employee’s principal place of employment to a location that is more than 50 miles from the principal place of employment in effect immediately prior to such Change in Control; (ii) a material diminution in the duties or responsibilities of an Employee from those in place immediately prior to such Change in Control; and (iii) a material reduction in the base salary or annual incentive opportunity of an Employee from what was in place immediately prior to such Change in Control. In order for an Employee to terminate for a Good Reason Termination, (i) an Employee must notify the successor entity in writing, within ninety (90) days of the event constituting Good Reason of the Employee’s intent to terminate employment for Good Reason, that specifically identifies in reasonable detail the manner of the Good Reason event, (ii) the event must remain uncorrected for thirty (30) days following the date that an Employee notifies the successor entity in writing of the Employee’s intent to terminate employment for Good Reason (the “Notice Period”), and (iii) the termination date must occur within sixty (60) days after expiration of the Notice Period.


Consent for Retroactive Implementation of Double-Trigger Language
I hereby consent to and authorize The AES Corporation to retroactively amend the above-noted award agreements, as applicable, with the language provided above as required under Section 12 of The AES Corporation 2003 Long Term Compensation Plan (as amended and restated on April 22, 2010).

_____________________________________        _______________
[Name of Executive]                    Date




Exhibit 31.1
CERTIFICATIONS
I, Andrés Gluski, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of The AES Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 7, 2015
 
/ s / A NDRÉS  G LUSKI
Name: Andrés Gluski
President and Chief Executive Officer





Exhibit 31.2
CERTIFICATIONS
I, Thomas M. O’Flynn, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of The AES Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 7, 2015
 
/s/ T HOMAS  M. O’F LYNN
Name: Thomas M. O’Flynn
Executive Vice President and Chief Financial Officer





Exhibit 32.1
CERTIFICATION OF PERIODIC FINANCIAL REPORTS
I, Andrés Gluski, President and Chief Executive Officer of The AES Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)
the Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 , (the “Periodic Report”) which this statement accompanies fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2)
information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of The AES Corporation.
Date: August 7, 2015
 
/ S / A NDRÉS  G LUSKI
Name: Andrés Gluski
President and Chief Executive Officer





Exhibit 32.2
CERTIFICATION OF PERIODIC FINANCIAL REPORTS
I, Thomas M. O’Flynn, Executive Vice President and Chief Financial Officer of The AES Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)

(1)
the Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 , (the “Periodic Report”) which this statement accompanies fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2)
information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of The AES Corporation.
Date: August 7, 2015
 
/s/ T HOMAS  M. O’F LYNN
Name: Thomas M. O’Flynn
Executive Vice President and Chief Financial Officer