Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of The AES Corporation:

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of The AES Corporation (the Company) as of December 31, 2017 and 2016, and the related consolidated statements of operations, comprehensive loss, changes in equity, and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and the financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2017 and 2016, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 26, 2018, expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company's auditor since 2008.

Tysons, Virginia

February 26, 2018

THE AES CORPORATION

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2017 AND 2016

	2017				2016
	(in millions, except share and per share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	949			$	1,244
Restricted cash	274				277
Short-term investments	424				530
Accounts receivable, net of allowance for doubtful accounts of $10 and $17, respectively	1,463				1,421
Inventory	562				622
Prepaid expenses	62				72
Other current assets	630				657
Current assets of discontinued operations and held-for-sale businesses	2,034				1,593
Total current assets	6,398				6,416
NONCURRENT ASSETS
Property, Plant and Equipment:
Land	502				518
Electric generation, distribution assets and other	24,119				24,911
Accumulated depreciation	(7,942		)		(7,919		)
Construction in progress	3,617				2,905
Property, plant and equipment, net	20,296				20,415
Other Assets:
Investments in and advances to affiliates	1,197				621
Debt service reserves and other deposits	565				438
Goodwill	1,059				1,157
Other intangible assets, net of accumulated amortization of $441 and $399, respectively	366				287
Deferred income taxes	130				227
Service concession assets, net of accumulated amortization of $206 and $114, respectively	1,360				1,445
Other noncurrent assets	1,741				1,775
Noncurrent assets of discontinued operations and held-for-sale businesses	—				3,343
Total other assets	6,418				9,293
TOTAL ASSETS	$	33,112			$	36,124
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable	$	1,371			$	1,238
Accrued interest	228				216
Accrued and other liabilities	1,232				1,117
Non-recourse debt, including $1,012 and $273, respectively, related to variable interest entities	2,164				1,052
Current liabilities of discontinued operations and held-for-sale businesses	1,033				1,654
Total current liabilities	6,028				5,277
NONCURRENT LIABILITIES
Recourse debt	4,625				4,671
Non-recourse debt, including $1,358 and $1,502 respectively, related to variable interest entities	13,176				13,731
Deferred income taxes	1,006				804
Pension and other postretirement liabilities	230				237
Other noncurrent liabilities	2,365				2,327
Noncurrent liabilities of discontinued operations and held-for-sale businesses	—				2,595
Total noncurrent liabilities	21,402				24,365
Commitments and Contingencies (see Notes 11 and 12)
Redeemable stock of subsidiaries	837				782
EQUITY
THE AES CORPORATION STOCKHOLDERS’ EQUITY
Common stock ($0.01 par value, 1,200,000,000 shares authorized; 816,312,913 issued and 660,388,128 outstanding at December 31, 2017 and 816,061,123 issued and 659,182,232 outstanding at December 31, 2016)	8				8
Additional paid-in capital	8,501				8,592
Accumulated deficit	(2,276		)		(1,146		)
Accumulated other comprehensive loss	(1,876		)		(2,756		)
Treasury stock, at cost (155,924,785 and 156,878,891 shares at December 31, 2017 and 2016, respectively)	(1,892		)		(1,904		)
Total AES Corporation stockholders’ equity	2,465				2,794
NONCONTROLLING INTERESTS	2,380				2,906
Total equity	4,845				5,700
TOTAL LIABILITIES AND EQUITY	$	33,112			$	36,124

See Accompanying Notes to Consolidated Financial Statements.

THE AES CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2017, 2016, AND 2015

	2017				2016				2015
	(in millions, except per share amounts)
Revenue:
Regulated	$	3,109			$	3,310			$	3,240
Non-Regulated	7,421				6,971				8,020
Total revenue	10,530				10,281				11,260
Cost of Sales:
Regulated	(2,656		)		(2,844		)		(3,074		)
Non-Regulated	(5,410		)		(5,057		)		(5,523		)
Total cost of sales	(8,066		)		(7,901		)		(8,597		)
Operating margin	2,464				2,380				2,663
General and administrative expenses	(215		)		(194		)		(196		)
Interest expense	(1,170		)		(1,134		)		(1,145		)
Interest income	244				245				256
Loss on extinguishment of debt	(68		)		(13		)		(182		)
Other expense	(57		)		(79		)		(24		)
Other income	120				64				84
Gain (loss) on disposal and sale of businesses	(52		)		29				29
Goodwill impairment expense	—				—				(317		)
Asset impairment expense	(537		)		(1,096		)		(285		)
Foreign currency transaction gains (losses)	42				(15		)		106
INCOME FROM CONTINUING OPERATIONS BEFORE TAXES AND EQUITY IN EARNINGS OF AFFILIATES	771				187				989
Income tax expense	(990		)		(32		)		(412		)
Net equity in earnings of affiliates	71				36				105
INCOME (LOSS) FROM CONTINUING OPERATIONS	(148		)		191				682
Income (loss) from operations of discontinued businesses, net of income tax benefit (expense) of $(21), $229, and $(53), respectively	(18		)		151				80
Net loss from disposal and impairments of discontinued businesses, net of income tax benefit of $0, $266, and $0, respectively	(611		)		(1,119		)		—
NET INCOME (LOSS)	(777		)		(777		)		762
Noncontrolling interests:
Less: Income from continuing operations attributable to noncontrolling interests and redeemable stock of subsidiaries	(359		)		(211		)		(364		)
Less: Income from discontinued operations attributable to noncontrolling interests	(25		)		(142		)		(92		)
NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION	$	(1,161	)		$	(1,130	)		$	306
AMOUNTS ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS:
Income (loss) from continuing operations, net of tax	$	(507	)		$	(20	)		$	318
Loss from discontinued operations, net of tax	(654		)		(1,110		)		(12		)
NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION	$	(1,161	)		$	(1,130	)		$	306
BASIC EARNINGS PER SHARE:
Income (loss) from continuing operations attributable to The AES Corporation common stockholders, net of tax	$	(0.77	)		$	(0.04	)		$	0.46
Loss from discontinued operations attributable to The AES Corporation common stockholders, net of tax	(0.99		)		(1.68		)		(0.01		)
NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS	$	(1.76	)		$	(1.72	)		$	0.45
DILUTED EARNINGS PER SHARE:
Income (loss) from continuing operations attributable to The AES Corporation common stockholders, net of tax	$	(0.77	)		$	(0.04	)		$	0.46
Loss from discontinued operations attributable to The AES Corporation common stockholders, net of tax	(0.99		)		(1.68		)		(0.02		)
NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS	$	(1.76	)		$	(1.72	)		$	0.44
DIVIDENDS DECLARED PER COMMON SHARE	$	0.49			$	0.45			$	0.41

See Accompanying Notes to Consolidated Financial Statements.

THE AES CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

YEARS ENDED DECEMBER 31, 2017, 2016, AND 2015

	2017				2016				2015
	(in millions)
NET INCOME (LOSS)	$	(777	)		$	(777	)		$	762
Foreign currency translation activity:
Foreign currency translation adjustments, net of income tax benefit (expense) of $17, $1, and $1, respectively	(9		)		189				(1,019		)
Reclassification to earnings, net of $0 income tax for all periods	643				992				—
Total foreign currency translation adjustments	634				1,181				(1,019		)
Derivative activity:
Change in derivative fair value, net of income tax benefit (expense) of $10, $(7) and $16, respectively	(12		)		5				(57		)
Reclassification to earnings, net of income tax expense of $1, $8 and $11, respectively	50				37				66
Total change in fair value of derivatives	38				42				9
Pension activity:
Change in pension adjustments due to prior service cost, net of income tax expense of $1, $6, and $0 respectively	2				11				1
Change in pension adjustments due to net actuarial gain (loss) for the period, net of income tax benefit (expense) of $6, $106, and $(29), respectively	(21		)		(208		)		60
Reclassification to earnings, net of income tax expense of $135, $3, and $9, respectively	266				10				16
Total pension adjustments	247				(187		)		77
OTHER COMPREHENSIVE INCOME (LOSS)	919				1,036				(933		)
COMPREHENSIVE INCOME (LOSS)	142				259				(171		)
Less: Comprehensive income attributable to noncontrolling interests	(390		)		(262		)		(133		)
COMPREHENSIVE LOSS ATTRIBUTABLE TO THE AES CORPORATION	$	(248	)		$	(3	)		$	(304	)

See Accompanying Notes to Consolidated Financial Statements.

THE AES CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

YEARS ENDED DECEMBER 31, 2017, 2016, AND 2015

	THE AES CORPORATION STOCKHOLDERS
	Common Stock							Treasury Stock							Additional Paid-In Capital				Retained Earnings (Accumulated Deficit)				Accumulated Other Comprehensive Loss				Noncontrolling Interests
(in millions)	Shares			Amount				Shares			Amount
Balance at December 31, 2014	814.5			$	8			110.7			$	(1,371	)		$	8,409			$	512			$	(3,286	)		$	3,053
Net income	—			—				—			—				—				306				—				456
Total foreign currency translation adjustment, net of income tax	—			—				—			—				—				—				(674		)		(345		)
Total change in derivative fair value, net of income tax	—			—				—			—				—				—				43				(34		)
Total pension adjustments, net of income tax	—			—				—			—				—				—				21				56
Total other comprehensive loss																							(610		)		(323		)
Cumulative effect of a change in accounting principle	—			—				—			—				—				(18		)		13				—
Acquisition of a business (1)	—			—				—			—				—				—				—				15
Disposition of businesses	—			—				—			—				—				—				—				(41		)
Distributions to noncontrolling interests	—			—				—			—				(27		)		—				—				(383		)
Contributions from noncontrolling interests	—			—				—			—				—				—				—				126
Dividends declared on common stock	—			—				—			—				—				(280		)		—				—
Purchase of treasury stock	—			—				39.7			(482		)		—				—				—				—
Issuance and exercise of stock-based compensation benefit plans, net of income tax	1.3			—				(1.4	)		16				13				—				—				—
Sale of subsidiary shares to noncontrolling interests	—			—				—			—				323				(377		)		—				119
Balance at December 31, 2015	815.8			$	8			149.0			$	(1,837	)		$	8,718			$	143			$	(3,883	)		$	3,022
Net income (loss)	—			—				—			—				—				(1,130		)		—				353
Total foreign currency translation adjustment, net of income tax	—			—				—			—				—				—				1,109				72
Total change in derivative fair value, net of income tax	—			—				—			—				—				—				30				12
Total pension adjustments, net of income tax	—			—				—			—				—				—				(12		)		(175		)
Total other comprehensive income (loss)																							1,127				(91		)
Fair value adjustment (2)	—			—				—			—				17				(4		)		—				(17		)
Disposition of businesses	—			—				—			—				—				—				—				(2		)
Distributions to noncontrolling interests	—			—				—			—				(10		)		—				—				(430		)
Contributions from noncontrolling interests	—			—				—			—				—				—				—				60
Dividends declared on common stock	—			—				—			—				(226		)		(71		)		—				—
Purchase of treasury stock	—			—				8.7			(79		)		—				—				—				—
Issuance and exercise of stock-based compensation benefit plans, net of income tax	0.3			—				(0.8	)		12				11				—				—				—
Sale of subsidiary shares to noncontrolling interests	—			—				—			—				84				(84		)		—				17
Acquisition and reclassification of subsidiary shares from noncontrolling interests	—			—				—			—				(2		)		—				—				(17		)
Less: Net loss attributable to redeemable stock of subsidiaries (3)	—			—				—			—				—				—				—				11
Balance at December 31, 2016	816.1			$	8			156.9			$	(1,904	)		$	8,592			$	(1,146	)		$	(2,756	)		$	2,906
Net income (loss)	—			—				—			—				—				(1,161		)		—				384
Total foreign currency translation adjustment, net of income tax	—			—				—			—				—				—				661				(27		)
Total change in derivative fair value, net of income tax	—			—				—			—				—				—				23				15
Total pension adjustments, net of income tax	—			—				—			—				—				—				229				18
Total other comprehensive income																							913				6
Cumulative effect of a change in accounting principle	—			—				—			—				—				31				—				—
Fair value adjustment (2)	—			—				—			—				(25		)		—				—				—
Disposition of businesses	—			—				—			—				—				—				—				(666		)
Distributions to noncontrolling interests	—			—				—			—				—				—				—				(426		)
Contributions from noncontrolling interests	—			—				—			—				—				—				—				11
Dividends declared on common stock	—			—				—			—				(324		)		—				—				—
Issuance and exercise of stock-based compensation benefit plans, net of income tax	0.2			—				(1.0	)		12				5				—				—				—
Sale of subsidiary shares to noncontrolling interests	—			—				—			—				13				—				7				83
Acquisition of subsidiary shares from noncontrolling interests	—			—				—			—				240				—				(40		)		68
Less: Net loss attributable to redeemable stock of subsidiaries (3)	—			—				—			—				—				—				—				14
Balance at December 31, 2017	816.3			$	8			155.9			$	(1,892	)		$	8,501			$	(2,276	)		$	(1,876	)		$	2,380

(1) Fair value of a tax equity partner's right to preferential returns recognized as a result of the acquisition of Solar Power PR, LLC, which was previously accounted for as an equity method investment.

(2) Adjustment to the carrying amount of noncontrolling interest and redeemable stock of subsidiaries to fair value.

(3) Net income attributable to noncontrolling interest of $398 million and net loss attributable to redeemable stock of subsidiaries of $14 million for the year ended December 31, 2017. Net income attributable to noncontrolling interest of $364 million and net loss attributable to redeemable stock of subsidiaries of $11 million for the year ended December 31, 2016.

See Accompanying Notes to Consolidated Financial Statements

THE AES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2017, 2016, AND 2015

	2017				2016				2015
OPERATING ACTIVITIES:	(in millions)
Net income (loss)	$	(777	)		$	(777	)		$	762
Adjustments to net income (loss):
Depreciation and amortization	1,169				1,176				1,144
Loss (gain) on sales and disposals of businesses	52				(29		)		(29		)
Impairment expenses	537				1,098				602
Deferred income taxes	672				(793		)		(50		)
Provisions for (reversals of) contingencies	34				48				(72		)
Loss on extinguishment of debt	68				20				186
Loss on sale and disposal of assets	43				38				20
Net loss from disposal and impairments of discontinued businesses	611				1,383				—
Other	146				168				8
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable	(177		)		237				(378		)
(Increase) decrease in inventory	(28		)		42				(26		)
(Increase) decrease in prepaid expenses and other current assets	107				870				655
(Increase) decrease in other assets	(295		)		(251		)		(1,305		)
Increase (decrease) in accounts payable and other current liabilities	163				(620		)		31
Increase (decrease) in income tax payables, net and other tax payables	53				(199		)		53
Increase (decrease) in other liabilities	111				473				533
Net cash provided by operating activities	2,489				2,884				2,134
INVESTING ACTIVITIES:
Capital expenditures	(2,177		)		(2,345		)		(2,308		)
Acquisitions of businesses, net of cash acquired, and equity method investments	(625		)		(55		)		(17		)
Proceeds from the sale of businesses, net of cash sold, and equity method investments	108				631				138
Sale of short-term investments	3,540				4,904				4,851
Purchase of short-term investments	(3,310		)		(5,151		)		(4,801		)
Increase in restricted cash, debt service reserves, and other assets	(135		)		(61		)		(159		)
Contributions to equity investments	(89		)		(6		)		(3		)
Other investing	(61		)		(25		)		(67		)
Net cash used in investing activities	(2,749		)		(2,108		)		(2,366		)
FINANCING ACTIVITIES:
Borrowings under the revolving credit facilities	2,156				1,465				959
Repayments under the revolving credit facilities	(1,742		)		(1,433		)		(937		)
Issuance of recourse debt	1,025				500				575
Repayments of recourse debt	(1,353		)		(808		)		(915		)
Issuance of non-recourse debt	3,222				2,978				4,248
Repayments of non-recourse debt	(2,360		)		(2,666		)		(3,312		)
Payments for financing fees	(100		)		(105		)		(90		)
Distributions to noncontrolling interests	(424		)		(476		)		(326		)
Contributions from noncontrolling interests and redeemable security holders	73				190				126
Proceeds from the sale of redeemable stock of subsidiaries	—				134				461
Dividends paid on AES common stock	(317		)		(290		)		(276		)
Payments for financed capital expenditures	(179		)		(113		)		(150		)
Purchase of treasury stock	—				(79		)		(482		)
Proceeds from sales to noncontrolling interests, net of transaction costs	94				—				154
Other financing	(52		)		(44		)		(7		)
Net cash provided by (used in) financing activities	43				(747		)		28
Effect of exchange rate changes on cash	3				9				(52		)
Decrease (increase) in cash of discontinued operations and held-for-sale businesses	(81		)		(12		)		25
Total increase (decrease) in cash and cash equivalents	(295		)		26				(231		)
Cash and cash equivalents, beginning	1,244				1,218				1,449
Cash and cash equivalents, ending	$	949			$	1,244			$	1,218
SUPPLEMENTAL DISCLOSURES:
Cash payments for interest, net of amounts capitalized	$	1,196			$	1,273			$	1,265
Cash payments for income taxes, net of refunds	$	377			$	487			$	388
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Assets acquired through capital lease and other liabilities	$	—			$	5			$	18
Dividends declared but not yet paid	$	86			$	174			$	135
Conversion of Alto Maipo loans and accounts payable into equity (see Note 14—Equity)	$	279			$	—			$	—
Return Share Transfer Payment due (see Note 22—Held-for-Sale Businesses and Dispositions)	$	75			$	—			$	—

See Accompanying Notes to Consolidated Financial Statements.

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017, 2016, AND 2015

1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The AES Corporation is a holding company (the "Parent Company") that, through its subsidiaries and affiliates, (collectively, "AES" or "the Company") operates a geographically diversified portfolio of electricity generation and distribution businesses. Generally, the liabilities of individual operating entities are non-recourse to the Parent Company and are isolated to the operating entities. Most of our operating entities are structured as limited liability entities, which limit the liability of shareholders. The structure is generally the same regardless of whether a subsidiary is consolidated under a voting or variable interest model. The preparation of these consolidated financial statements is in conformity with accounting principles generally accepted in the United States of America ("US GAAP").

PRINCIPLES OF CONSOLIDATION — The consolidated financial statements of the Company include the accounts of The AES Corporation and its controlled subsidiaries. Furthermore, VIEs in which the Company has an ownership interest and is the primary beneficiary, thus controlling the VIE, have been consolidated. Intercompany transactions and balances are eliminated in consolidation. Investments in entities where the Company has the ability to exercise significant influence, but not control, are accounted for using the equity method of accounting.

NONCONTROLLING INTERESTS — Noncontrolling interests are classified as a separate component of equity in the Consolidated Balance Sheets and Consolidated Statements of Changes in Equity. Additionally, net income and comprehensive income attributable to noncontrolling interests are reflected separately from consolidated net income and comprehensive income on the Consolidated Statements of Operations and Consolidated Statements of Changes in Equity. Any change in ownership of a subsidiary while the controlling financial interest is retained is accounted for as an equity transaction between the controlling and noncontrolling interests (unless the transaction qualifies as a sale of in-substance real estate). Losses continue to be attributed to the noncontrolling interests, even when the noncontrolling interests' basis has been reduced to zero.

Equity securities with redemption features that are not solely within the control of the issuer are classified outside of permanent equity. Generally, initial measurement will be at fair value. Subsequent measurement and classification vary depending on whether the instrument is probable of becoming redeemable. Where the equity instrument is not probable of becoming redeemable subsequent allocation of income and dividends is classified in permanent equity. For those securities where it is probable that the instrument will become redeemable or that are currently redeemable, AES recognizes changes in the fair value at each accounting period against retained earnings subject to the floor of the initial fair value. Further, the allocation of income and dividends, as well as the adjustment to fair value, is classified outside permanent equity. Amounts that are mandatory redeemable are classified as a liability.

EQUITY METHOD INVESTMENTS — Investments in entities over which the Company has the ability to exercise significant influence, but not control, are accounted for using the equity method of accounting and reported in Investments in and advances to affiliates on the Consolidated Balance Sheets. The Company’s proportionate share of the net income or loss of these companies is included in our results of operations.

The Company utilizes the cumulative earning approach to determine whether distributions received from equity method investees are returns on investment or returns of investment. The Company discontinues the application of the equity method when an investment is reduced to zero and the Company is not otherwise committed to provide further financial support to the investee. The Company resumes the application of the equity method accounting to the extent that net income is greater than the share of net losses not previously recorded.

Upon acquiring the investment, we determine the fair value of the identifiable assets and assumed liabilities and the basis difference between each fair value and the carrying amount of the corresponding asset or liability in the financial statements of the investee. The AES share of the amortization of the basis difference is recognized in our net equity in earnings of affiliates over the life of the asset or liability.

The Company periodically assesses if impairment indicators exist at our equity method investments. When an impairment is observed, any excess of the carrying amount over its estimated fair value is recognized as impairment expense when the loss in value is deemed other-than-temporary and included in Other non-operating expense in the Consolidated Statements of Operations.

ALLOCATION OF EARNINGS — Certain of the Company's businesses are subject to profit-sharing arrangements where the allocation of cash distributions and the sharing of tax benefits are not based on fixed

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

ownership percentages. These arrangements exist for certain renewable generation partnerships to designate different allocations of value among investors, where the allocations change in form or percentage over the life of the partnership. For these businesses, the Company uses the hypothetical liquidation at book value (“HLBV”) method when it is a reasonable approximation of the profit-sharing arrangement. The HLBV method calculates the proceeds that would be attributable to each partner based on the liquidation provisions of the respective operating partnership agreement if the partnership was to be liquidated at book value at the balance sheet date. Each partner’s share of income in the period is equal to the change in the amount of net equity they are legally able to claim based on a hypothetical liquidation of the entity at the end of a reporting period compared to the beginning of that period, adjusted for any capital transactions.

The HLBV method is used both to allocate the equity earnings attributable to AES when the Company accounts for the renewable business as an equity method investment and to calculate the earnings attributable to noncontrolling interest when the business is consolidated by AES. Where, prior to the commencement of operating activities for a respective renewable energy facility, HLBV results in an immediate decrease in the hypothetical liquidation proceeds attributable to the tax equity investor due to the recognition of ITCs or other adjustments as required by the U.S. Internal Revenue Code, the Company records the impact (sometimes referred to as the ‘Day one gain’) to income in the same period.

USE OF ESTIMATES — US GAAP requires the Company to make estimates and assumptions that affect the asset and liability balances reported as of the date of the consolidated financial statements, as well as the revenues and expenses recognized during the reporting period. Actual results could differ from those estimates. Items subject to such estimates and assumptions include: the carrying amount and estimated useful lives of long-lived assets; asset retirement obligations; impairment of goodwill, long-lived assets and equity method investments; valuation allowances for receivables and deferred tax assets; the recoverability of regulatory assets; regulatory liabilities; the fair value of financial instruments; the fair value of assets and liabilities acquired in a business combination; the measurement of equity method investments or noncontrolling interest using the HLBV method for certain renewable generation partnerships; the determination of whether a sale of noncontrolling interests is considered to be a sale of in-substance real estate (as opposed to an equity transaction); pension liabilities; environmental liabilities; the impact of U.S. tax reform; and potential litigation claims and settlements.

HELD-FOR-SALE BUSINESSES — A business classified as held-for-sale is reflected on the balance sheet at the lower of its carrying amount or estimated fair value less cost to sell. A loss is recognized if the carrying amount of the business exceeds its estimated fair value less cost to sell. This loss is limited to the carrying value of long lived assets until the completion of the sale, at which point, any additional loss is recognized. If the fair value of the business subsequently exceeds the carrying amount while the business is still held-for-sale, any impairment expense previously recognized will be reversed up to the lower of the previously recognized expense or the subsequent excess.

Assets and liabilities related to a business classified as held-for-sale are segregated in the current balance sheet in the period in which the business is classified as held-for-sale. Assets and liabilities of held-for-sale businesses are classified as current when they are expected to be disposed of within twelve months. Transactions between the business held-for-sale and businesses that are expected to continue to exist after the disposal are not eliminated to appropriately reflect the continuing operations and balances held-for-sale. See Note 22—Held-for-Sale Businesses and Dispositions for further information.

DISCONTINUED OPERATIONS — Discontinued operations reporting occurs only when the disposal of a business or a group of businesses represents a strategic shift that has (or will have) a major effect on the Company's operations and financial results. The Company reports financial results for discontinued operations separately from continuing operations to distinguish the financial impact of disposal transactions from ongoing operations. Prior period amounts in the statement of operations and balance sheet are retrospectively revised to reflect the businesses determined to be discontinued operations. The cash flows of businesses that are determined to be discontinued operations are included within the relevant categories within operating, investing and financing activities on the face of the Statements of Cash Flows.

Transactions between the businesses determined to be discontinued operations and businesses that are expected to continue to exist after the disposal are not eliminated to appropriately reflect the continuing operations and balances held for sale. The results of discontinued operations include any gain or loss recognized on closing or adjustment of the carrying amount to fair value less cost to sell, including gains or losses associated with

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

noncontrolling interests upon completion of the disposal transaction. See Note 21—Discontinued Operations for further information.

RECLASSIFICATIONS — To comply with newly adopted accounting standards, certain prior period amounts in the consolidated financial statements have been reclassified to conform to the current presentation. The recognition of excess tax benefits related to share-based payments resulted in a reclassification from Deferred income taxes to Retained earnings in the Consolidated Balance Sheet for the year ended December 31, 2016. See further detail in the new accounting pronouncements discussion.

FAIR VALUE — Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly, hypothetical transaction between market participants at the measurement date, or exit price. The Company applies the fair value measurement accounting guidance to financial assets and liabilities in determining the fair value of investments in marketable debt and equity securities, included in the Consolidated Balance Sheet line items Short-term investments and Other assets (noncurrent); derivative assets, included in Other current assets and Other assets (noncurrent); and, derivative liabilities, included in Accrued and other liabilities (current) and Other long-term liabilities. The Company applies the fair value measurement guidance to nonfinancial assets and liabilities upon the acquisition of a business or in conjunction with the measurement of an asset retirement obligation or a potential impairment loss on an asset group or goodwill.

When determining the fair value measurements for assets and liabilities required to be reflected at their fair values, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the assets or liabilities, such as inherent risk, transfer restrictions and risk of nonperformance. The Company is prohibited from including transaction costs and any adjustments for blockage factors in determining fair value.

In determining fair value measurements, the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs. Assets and liabilities are categorized within a fair value hierarchy based upon the lowest level of input that is significant to the fair value measurement:

•	Level 1: Quoted prices in active markets for identical assets or liabilities

•

Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or

•	Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair values of the assets or liabilities

Any transfers between all levels within the fair value hierarchy levels are recognized at the end of the reporting period.

CASH AND CASH EQUIVALENTS — The Company considers unrestricted cash on hand, cash balances not restricted as to withdrawal or usage, deposits in banks, certificates of deposit and short-term marketable securities with original maturities of three months or less to be cash and cash equivalents.

RESTRICTED CASH AND DEBT SERVICE RESERVES — Cash balances restricted as to withdrawal or usage, primarily via contract, are considered restricted cash.

INVESTMENTS IN MARKETABLE SECURITIES — The Company's marketable investments are primarily unsecured debentures, certificates of deposit, government debt securities and money market funds.

Short-term investments consist of marketable equity securities and debt securities with original maturities in excess of three months with remaining maturities of less than one year. Marketable debt securities where the Company has both the positive intent and ability to hold to maturity are classified as held-to-maturity and are carried at amortized cost. Remaining marketable securities are classified as available-for-sale or trading and are carried at fair value.

Available-for-sale and trading investment's unrealized gains or losses are reflected in AOCL, a separate component of equity, and the Consolidated Statements of Operations, respectively .. Interest and dividends on investments are reported in interest income and other income, respectively. Gains and losses on sales of investments are determined using the specific identification method.

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

ACCOUNTS AND NOTES RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS — Accounts and notes receivable are carried at amortized cost. The Company periodically assesses the collectability of accounts receivable, considering factors such as historical collection experience, the age of accounts receivable and other currently available evidence supporting collectability, and records an allowance for doubtful accounts for the estimated uncollectible amount as appropriate. Certain of our businesses charge interest on accounts receivable. Interest income is recognized on an accrual basis. When collection of such interest is not reasonably assured, interest income is recognized as cash is received. Individual accounts and notes receivable are written off when they are no longer deemed collectible.

INVENTORY — Inventory primarily consists of fuel and other raw materials used to generate power, and operational spare parts and supplies used to maintain power generation and distribution facilities. Inventory is carried at lower of cost or net realizable value. Cost is the sum of the purchase price and expenditures incurred to bring the inventory to its existing location. Inventory is primarily valued using the average cost method. Generally, if it is expected fuel inventory will not be recovered through revenue earned from power generation, an impairment is recognized to reflect the fuel at market value. The carrying amount of spare parts and supplies is typically reduced only in instances where the items are considered obsolete.

LONG-LIVED ASSETS — Long-lived assets include property, plant and equipment, assets under capital leases and intangible assets subject to amortization (i.e., finite-lived intangible assets).

Property, plant and equipment — Property, plant and equipment are stated at cost, net of accumulated depreciation. The cost of renewals and improvements that extend the useful life of property, plant and equipment are capitalized.

Construction progress payments, engineering costs, insurance costs, salaries, interest and other costs directly relating to construction in progress are capitalized during the construction period, provided the completion of the construction project is deemed probable, or expensed at the time construction completion is determined to no longer be probable. The continued capitalization of such costs is subject to risks related to successful completion, including those related to government approvals, site identification, financing, construction permitting and contract compliance. Construction-in-progress balances are transferred to electric generation and distribution assets when an asset group is ready for its intended use. Government subsidies, liquidated damages recovered for construction delays, and income tax credits are recorded as a reduction to property, plant and equipment and reflected in cash flows from investing activities. Maintenance and repairs are charged to expense as incurred.

Depreciation, after consideration of salvage value and asset retirement obligations, is computed using the straight-line method over the estimated useful lives of the assets, which are determined on a composite or component basis. Capital spare parts, including rotable spare parts, are included in electric generation and distribution assets. If the spare part is considered a component, it is depreciated over its useful life after the part is placed in service. If the spare part is deemed part of a composite asset, the part is depreciated over the composite useful life even when being held as a spare part.

The Company's Brazilian subsidiaries operate under concession contracts. Certain estimates are utilized to determine depreciation expense for the Brazilian subsidiaries, including the useful lives of the property, plant and equipment and the amounts to be recovered at the end of the concession contract. The amounts to be recovered under these concession contracts are based on estimates that are inherently uncertain and actual amounts recovered may differ from those estimates. These concession contracts are not within the scope of ASC 853—Service Concession Arrangements.

Intangible Assets Subject to Amortization — Finite-lived intangible assets are amortized over their useful lives which range from 3 – 50 years. The Company accounts for purchased emission allowances as intangible assets and records an expense when they are utilized or sold. Granted emission allowances are valued at zero.

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

Impairment of Long-lived Assets — When circumstances indicate the carrying amount of long-lived assets in a held-for-use asset group may not be recoverable, the Company evaluates the assets for potential impairment using internal projections of undiscounted cash flows resulting from the use and eventual disposal of the assets. Events or changes in circumstances that may necessitate a recoverability evaluation include, but are not limited to, adverse changes in the regulatory environment, unfavorable changes in power prices or fuel costs, increased competition due to additional capacity in the grid, technological advancements, declining trends in demand, or an expectation it is more likely than not that the asset will be disposed of before the end of its previously estimated useful life. If the carrying amount of the assets exceeds the undiscounted cash flows, an impairment expense is recognized for the amount by which the carrying amount of the asset group exceeds its fair value (subject to the carrying amount not being reduced below fair value for any individual long-lived asset that is determinable without undue cost and effort). An impairment expense for certain assets may be reduced by the establishment of a regulatory asset if recovery through approved rates is probable.

SERVICE CONCESSION ASSETS — Service concession assets are stated at cost, net of accumulated amortization, in accordance with ASC 853. Service concession assets represent the cost of all infrastructure to be transferred to the public-sector entity grantors at the end of the concession. These costs primarily represent construction progress payments, engineering costs, insurance costs, salaries, interest and other costs directly relating to construction of the service concession infrastructure. Government subsidies, liquidated damages recovered for construction delays and income tax credits are recorded as a reduction to Service Concession Assets. Service concession assets are amortized and recognized in earnings as a cost of goods sold as infrastructure construction revenue is recognized. Services provided under concession arrangements are recognized on a straight line basis.

DEBT ISSUANCE COSTS — Costs incurred in connection with the issuance of long-term debt are deferred and presented as a direct reduction from the face amount of that debt and amortized over the related financing period using the effective interest method. Debt issuance costs related to a line-of-credit or revolving credit facility are deferred and presented as an asset and amortized over the related financing period. Make-whole payments in connection with early debt retirements are classified as cash flows used in financing activities.

GOODWILL AND INDEFINITE-LIVED INTANGIBLE ASSETS — The Company evaluates goodwill and indefinite-lived intangible assets for impairment on an annual basis and whenever events or changes in circumstances necessitate an evaluation for impairment. The Company's annual impairment testing date is October first.

Goodwill — Goodwill represents the excess of the purchase price of the business acquisition over the fair value of identifiable net assets acquired. Goodwill resulting from an acquisition is assigned to the reporting units that are expected to benefit from the synergies of the acquisition. Generally, each AES business with a goodwill balance constitutes a reporting unit as they are not similar to other businesses in a segment nor are they reported to segment management together with other businesses.

Goodwill is evaluated for impairment either under the qualitative assessment option or the two-step quantitative test. If goodwill is determined to be impaired, the fair value of individual assets and liabilities is determined to compute the implied fair value of goodwill. If the carrying amount of goodwill exceeds its implied fair value, the excess is recognized as an impairment loss up to the carrying amount of the goodwill.

Indefinite-Lived Intangible Assets — The Company's indefinite-lived intangible assets primarily include land-use rights and water rights. Indefinite-lived Intangible Assets are evaluated for impairment either under the qualitative assessment option or the two-step quantitative test. If the carrying amount of an intangible asset being tested for impairment exceeds its fair value, the excess is recognized as impairment expense.

ACCOUNTS PAYABLE AND OTHER ACCRUED LIABILITIES — Accounts payable consists of amounts due to trade creditors related to the Company's core business operations. These payables include amounts owed to vendors and suppliers for items such as energy purchased for resale, fuel, maintenance, inventory and other raw materials. Other accrued liabilities include items such as income taxes, regulatory liabilities, legal contingencies and employee-related costs, including payroll, benefits and related taxes.

REGULATORY ASSETS AND LIABILITIES — The Company recognizes assets and liabilities that result from regulated ratemaking processes. Regulatory assets generally represent incurred costs which have been deferred due to the probable future recovery via customer rates. Generally, returns earned on regulatory assets are reflected in the Consolidated Statement of Operations within Interest Income. Regulatory liabilities generally represent

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

obligations to refund customers. Management continually assesses whether regulatory assets are probable of future recovery and regulatory liabilities are probable of future payment by considering factors such as applicable regulatory changes, recent rate orders applicable to other regulated entities, and the status of any pending or potential deregulation legislation. If future recovery of costs previously deferred ceases to be probable, the related regulatory assets are written off and recognized in income from continuing operations.

PENSION AND OTHER POSTRETIREMENT PLANS — The Company recognizes in its Consolidated Balance Sheets an asset or liability reflecting the funded status of pension and other postretirement plans with current-year changes in actuarial gains or losses recognized in AOCL, except for those plans at certain of the Company's regulated utilities that can recover portions of their pension and postretirement obligations through future rates. All plan assets are recorded at fair value. AES follows the measurement date provisions of the accounting guidance, which require a year-end measurement date of plan assets and obligations for all defined benefit plans.

INCOME TAXES — Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of the existing assets and liabilities, and their respective income tax bases. The Company establishes a valuation allowance when it is more likely than not that all or a portion of a deferred tax asset will not be realized. The Company's tax positions are evaluated under a more likely than not recognition threshold and measurement analysis before they are recognized for financial statement reporting.

Uncertain tax positions have been classified as noncurrent income tax liabilities unless expected to be paid within one year. The Company's policy for interest and penalties related to income tax exposures is to recognize interest and penalties as a component of the provision for income taxes in the Consolidated Statements of Operations.

The Company has not yet determined its accounting policy election, as outlined by SAB 118, with respect to the new GILTI provisions of U.S. tax reform, applicable from January 1, 2018. See Note 20—Income Taxes for additional discussion regarding the U.S. tax reform.

ASSET RETIREMENT OBLIGATIONS — The Company records the fair value of a liability for a legal obligation to retire an asset in the period in which the obligation is incurred. When a new liability is recognized, the Company capitalizes the costs of the liability by increasing the carrying amount of the related long-lived asset. The liability is accreted to its present value each period and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the obligation, the Company eliminates the liability and, based on the actual cost to retire, may incur a gain or loss.

FOREIGN CURRENCY TRANSLATION — A business's functional currency is the currency of the primary economic environment in which the business operates and is generally the currency in which the business generates and expends cash. Subsidiaries and affiliates whose functional currency is a currency other than the U.S. dollar translate their assets and liabilities into U.S. dollars at the current exchange rates in effect at the end of the fiscal period. Adjustments arising from the translation of the balance sheet of such subsidiaries are included in AOCL. The revenue and expense accounts of such subsidiaries and affiliates are translated into U.S. dollars at the average exchange rates for the period. Gains and losses on intercompany foreign currency transactions that are long-term in nature and which the Company does not intend to settle in the foreseeable future, are also recognized in AOCL. Gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in determining net income. Accumulated foreign currency translation adjustments are reclassified from AOCL to net income only when realized upon sale or upon complete or substantially complete liquidation of the investment in a foreign entity. The accumulated adjustments are included in carrying amounts in impairment assessments where the Company has committed to a plan that will cause the accumulated adjustments to be reclassified to earnings.

REVENUE RECOGNITION — Revenue from utilities is classified as regulated in the Consolidated Statements of Operations. Revenue from the sale of energy is recognized in the period during which the sale occurs. The calculation of revenue earned but not yet billed is based on the number of days not billed in the month, the estimated amount of energy delivered during those days and the estimated average price per customer class for that month. Differences between actual and estimated unbilled revenue are usually immaterial. The Company has businesses where it sells and purchases power to and from ISOs and RTOs. In those instances, the Company accounts for these transactions on a net hourly basis because the transactions are settled on a net hourly basis.

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

Revenue from generation businesses is classified as non-regulated in the Consolidated Statements of Operations. Revenue is recognized based upon output delivered and capacity provided, at rates as specified under contract terms or prevailing market rates. Certain of the Company's PPAs meet the definition of an operating lease or contain similar arrangements. Typically, minimum lease payments from such PPAs are recognized as revenue on a straight-line basis over the lease term whereas contingent rentals are recognized when earned. Revenue is recorded net of any taxes assessed on and collected from customers, which are remitted to the governmental authorities.

SHARE-BASED COMPENSATION — The Company grants share-based compensation in the form of stock options, restricted stock units, performance stock units, and performance cash units. The expense is based on the grant-date fair value of the equity or liability instrument issued and is recognized on a straight-line basis over the requisite service period, net of estimated forfeitures. The Company uses a Black-Scholes option pricing model to estimate the fair value of stock options granted to its employees.

GENERAL AND ADMINISTRATIVE EXPENSES — General and administrative expenses include corporate and other expenses related to corporate staff functions and initiatives, primarily executive management, finance, legal, human resources and information systems, which are not directly allocable to our business segments. Additionally, all costs associated with corporate business development efforts are classified as general and administrative expenses.

DERIVATIVES AND HEDGING ACTIVITIES — Under the accounting standards for derivatives and hedging, the Company recognizes all contracts that meet the definition of a derivative, except those designated as normal purchase or normal sale at inception, as either assets or liabilities in the Consolidated Balance Sheets and measures those instruments at fair value. See the Company's fair value policy and Note 4—Fair Value and Fair value in this section for additional discussion regarding the determination of fair value.

PPAs and fuel supply agreements are evaluated to assess if they contain either a derivative or an embedded derivative requiring separate valuation and accounting. Generally, these agreements do not meet the definition of a derivative, often due to the inability to be net settled. On a quarterly basis, we evaluate the markets for commodities to be delivered under these agreements to determine if facts and circumstances have changed such that the agreements could be net settled and meet the definition of a derivative.

The Company typically designates its derivative instruments as cash flow hedges if they meet the criteria specified in ASC 815, Derivatives and Hedging. The Company enters into interest rate swap agreements in order to hedge the variability of expected future cash interest payments. Foreign currency contracts are used to reduce risks arising from the change in fair value of certain foreign currency denominated assets and liabilities. The objective of these practices is to minimize the impact of foreign currency fluctuations on operating results. The Company also enters into commodity contracts to economically hedge price variability inherent in electricity sales arrangements. The objectives of the commodity contracts are to minimize the impact of variability in spot electricity prices and stabilize estimated revenue streams. The Company does not use derivative instruments for speculative purposes.

For our hedges, changes in fair value that are considered highly effective are deferred in AOCL and are recognized into earnings as the hedged transactions affect earnings. Any ineffectiveness is recognized in earnings immediately. If a derivative is no longer highly effective, hedge accounting will be discontinued prospectively. For cash flow hedges of forecasted transactions, AES estimates the future cash flows of the forecasted transactions and evaluates the probability of the occurrence and timing of such transactions.

Changes in the fair value of derivatives not designated and qualifying as cash flow hedges are immediately recognized in earnings. Regardless of when gains or losses on derivatives are recognized in earnings, they are generally classified as interest expense for interest rate and cross-currency derivatives, foreign currency transaction gains or losses for foreign currency derivatives, and non-regulated revenue or non-regulated cost of sales for commodity and other derivatives. Cash flows arising from derivatives are included in the Consolidated Statements of Cash Flows as an operating activity given the nature of the underlying risk being economically hedged and the lack of significant financing elements, except that cash flows on designated and qualifying hedges of variable-rate interest during construction are classified as an investing activity. The Company has elected not to offset net derivative positions in the financial statements.

NEW ACCOUNTING PRONOUNCEMENTS — The following table provides a brief description of recent accounting pronouncements that had and/or could have a material impact on the Company’s consolidated financial statements. Accounting pronouncements not listed below were assessed and determined to be either not applicable

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

or are expected to have no material impact on the Company’s consolidated financial statements.

New Accounting Standards Adopted
ASU Number and Name	Description	Date of Adoption	Effect on the financial statements upon adoption
2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting	The standard simplifies the following aspects of accounting for share-based payments awards: accounting for income taxes, classification of excess tax benefits on the statement of cash flows, forfeitures, statutory tax withholding requirements, classification of awards as either equity or liabilities and classification of employee taxes paid on statement of cash flows when an employer withholds shares for tax-withholding purposes. Transition method: The recognition of excess tax benefits and tax deficiencies arising from vesting or settlement were applied retrospectively. The elimination of the requirement that excess tax benefits be realized before they are recognized was adopted on a modified retrospective basis.	January 1, 2017	The recognition of excess tax benefits in the provision for income taxes in the period when the awards vest or are settled, rather than in paid-in-capital in the period when the excess tax benefits are realized, resulted in a decrease of $31 million to deferred tax liabilities, offset by an increase to retained earnings.

New Accounting Standards Issued But Not Yet Effective
ASU Number and Name	Description	Date of Adoption	Effect on the financial statements upon adoption
2018-02, Income Statement — Reporting Comprehensive Income (Topic 220), Reclassification of Certain Tax Effects from AOCI	This amendment allows a reclassification of the stranded tax effects resulting from the implementation of the Tax Cuts and Jobs Act from AOCI to retained earnings. Because this amendment only relates to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected.	January 1, 2019. Early adoption is permitted.	The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
2017-12, Derivatives and Hedging (Topic 815): Targeted improvements to Accounting for Hedging Activities	The standard updates the hedge accounting model to expand the ability to hedge nonfinancial and financial risk components, reduce complexity, and ease certain documentation and assessment requirements. When facts and circumstances are the same as at the previous quantitative test, a subsequent quantitative effectiveness test is not required. The standard also eliminates the requirement to separately measure and report hedge ineffectiveness. For cash flow hedges, this means that the entire change in the fair value of a hedging instrument will be recorded in other comprehensive income and amounts deferred will be reclassified to earnings in the same income statement line as the hedged item. Transition method: modified retrospective with the cumulative effect adjustment recorded to the opening balance of retained earnings as of the initial application date. Prospective for presentation and disclosures.	January 1, 2019. Early adoption is permitted.	The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): Accounting for Certain Financial Instruments and Certain Mandatorily Redeemable Noncontrolling Interests	Part 1 of this standard changes the classification of certain equity-linked financial instruments when assessing whether the instrument is indexed to an entity’s own stock. Transition method: retrospective.	January 1, 2019. Early adoption is permitted.	The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
2017-08, Receivables — Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities	This standard shortens the period of amortization for the premium on certain callable debt securities to the earliest call date. Transition method: modified retrospective.	January 1, 2019. Early adoption is permitted.	The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
2017-05, Other Income — Gains and Losses from the Derecognition of Nonfinancial Assets (Topic 610-20)	This standard clarifies the scope and application of ASC 610-20 on the sale, transfer, and derecognition of nonfinancial assets and in substance nonfinancial assets to non-customers, including partial sales. It also clarifies that the derecognition of businesses is under scope of ASC 810. The standard must be adopted concurrently with ASC 606, however an entity will not have to apply the same transition method as ASC 606. Transition method: full or modified retrospective. Under a modified retrospective approach, the guidance shall be applied to all contracts that are not completed as of the initial application date (January 1, 2018). The Company has identified contracts executed during Q4 2017 that would not be completed as of this date and is in the process of assessing those under the new standard. However, no adjustment is expected as of the initial application date.	January 1, 2018. Early adoption is permitted only as of January 1, 2017.	The Company does not expect any impact on its consolidated financial statements upon adoption of the standard, will adopt the standard on January 1, 2018, and plans to use the modified retrospective approach.

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

2017-04, Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment	This standard simplifies the accounting for goodwill impairment by removing the requirement to calculate the implied fair value. Instead, it requires that an entity records an impairment charge based on the excess of a reporting unit's carrying amount over its fair value. Transition method: prospective.	January 1, 2020. Early adoption is permitted as of January 1, 2017.	The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business	The standard requires an entity to first evaluate whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, and if that threshold is met, the set is not a business. As a second step, to be considered a business at least one substantive process should exist. The revised definition of a business will reduce the number of transactions that are accounted for as business combinations. Transition Method: prospective.	January 1, 2018. Early adoption is permitted.	This revised definition will reduce the number of transactions that are accounted for as a business, therefore, acquisitions and disposition would fall under a different accounting model.
2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)	This standard requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. Transition method: retrospective.	January 1, 2018. Early adoption is permitted.	The Company has performed a preliminary evaluation and expects an increase in cash provided by operating activities of approximately $5 million for 2017 and 2016 and a decrease of $5 million in 2015. Net cash used in investing activities are expected to decrease by approximately $150 million and $230 million for 2017 and 2015, respectively, with an increase of $10 million expected for 2016.
2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments	The standard updates the impairment model for financial assets measured at amortized cost. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking "expected loss" model that generally will result in the earlier recognition of allowance for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses as it is done today, except that the losses will be recognized as an allowance rather than a reduction in the amortized cost of the securities. Transition method: various.	January 1, 2020. Early adoption is permitted only as of January 1, 2019.	The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
2016-02, 2018-01, Leases (Topic 842)	See discussion of the ASU below.	January 1, 2019. Early adoption is permitted.	The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements and intends to adopt the standard as of January 1, 2019.
2014-09, 2015-14, 2016-08, 2016-10, 2016-12, 2016-20, 2017-10, 2017-13, Revenue from Contracts with Customers (Topic 606)	See discussion of the ASU below.	January 1, 2018. Early adoption is permitted only as of January 1, 2017.	The Company will adopt the standard on January 1, 2018; see below for the evaluation of the impact of its adoption on the consolidated financial statements.

ASU 2014-09 and its subsequent corresponding updates provides the principles an entity must apply to measure and recognize revenue. The core principle is that an entity shall recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Amendments to the standard were issued that provide further clarification of the principle and to provide certain transition expedients. The standard will replace most existing revenue recognition guidance in GAAP.

The standard requires retrospective application and allows either a full retrospective adoption in which all of the periods are presented under the new standard or a modified retrospective approach in which the cumulative effect of initially applying the guidance is recognized at the date of initial application.

In 2016, the Company established a cross-functional implementation team and is in the process of evaluating changes to our business processes, systems and controls to support recognition and disclosure under the new standard. At this time, we do not expect any significant impact on our financial systems or a material change to controls as a result of the implementation of the new revenue recognition standard.

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

Given the complexity and diversity of our non-regulated arrangements, the Company is assessing the standard on a contract by contract basis applying the interpretations reached during 2017 on key issues. These include the application of the practical expedient for measuring progress toward satisfaction of a performance obligation, when variable quantities would be considered variable consideration versus an option to acquire additional goods and services, how to allocate variable consideration to one or more, but not all, distinct goods or services promised in a series of distinct goods or services that forms part of a single performance obligation. Additionally, the Company has been working on the application of the standard to contracts that are under the scope of Service Concession Arrangements (Topic 853) and assessing the gross versus net presentation for spot energy sales and purchases. Through this assessment, the Company to date has identified limited situations where revenue recognized under ASC 606 could differ from that recognized under ASC 605 and where the presentation of sales to and purchases from the energy spot markets will change.

The cumulative effect of applying the new standard that the Company expects to recognize at the date of initial application is mainly related to a contract under the scope of Topic 853. For this contract, the Company has concluded that revenue recognized since the inception of the agreement would be higher through January 1, 2018 under ASC 606. This will result in a decrease to the opening balance of Accumulated deficit of approximately $60 million and Accumulated other comprehensive loss of approximately $20 million, and an increase to the opening balance of Noncontrolling interest of approximately $80 million. Additionally, the application of ASC 606 will result in a reclassification from Service concession assets to Other noncurrent assets of $1,360 million. Given the limited impact, the Company expects to use the modified retrospective approach.

We are continuing to work with various non-authoritative industry groups, and monitoring the FASB and Transition Resource Group activity.

ASU 2016-02 and its subsequent corresponding updates require lessees to recognize assets and liabilities for most leases but recognize expenses in a manner similar to today’s accounting. For Lessors, the guidance modifies the lease classification criteria and the accounting for sales-type and direct financing leases. The guidance also eliminates today’s real estate-specific provisions.

The standard must be adopted using a modified retrospective approach at the beginning of the earliest comparative period presented in the financial statements (January 1, 2017). The FASB proposed amending the standard to give another option for transition. The proposed transition method would allow entities to not apply the new lease standard in the comparative periods presented in their financial statements in the year of adoption. Under the proposed transition method, the entity would apply the transition provisions on January 1, 2019 (i.e., the effective date). At transition, lesses and lessors are permitted to make an election to apply a package of practical expedients that allow them not to reassess: (1) whether any expired or existing contracts are or contain leases, (2) lease classification for any expired or existing leases, and (3) whether initial direct costs for any expired or existing leases qualify for capitalization under ASC 842. These three practical expedients must be elected as a package and must be consistently applied to all leases. Furthermore, entities are also permitted to make an election to use hindsight when determining lease term and lessees can elect to use hindsight when assessing the impairment of right-of-use assets.

The Company has established a task force focused on the identification of contracts that would be under the scope of the new standard and on the assessment and measurement of the right-of-use asset and related liability. Additionally, the implementation team has been working on the identification and selection of a lease accounting system that would support the implementation and the subsequent accounting. The implementation team is in the process of evaluating changes to our business processes, systems and controls to support recognition and disclosure under the new standard.

As the Company has preliminarily concluded that at transition it would be using the package of practical expedients, the main impact expected as of the effective date is the recognition of the right to use asset and the related liability in the financial statements for all those contracts that contain a lease and for which the Company is the lessee. However, income statement presentation and the expense recognition pattern will not change.

Under ASC 842, it is expected that fewer contracts will contain a lease. However, due to the elimination of today's real estate-specific guidance and changes to certain lessor classification criteria, more leases will qualify as sales-type leases and direct financing leases. Under these two models, a lessor will derecognize the asset and will recognize a lease receivable. According to ASC 842, the lease receivable does not include variable payments that depend on the use of the asset (e.g. Mwh produced by a facility). Therefore, the lease receivable could be lower than the carrying amount of the underlying asset at lease commencement, In such circumstances, the difference

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

between the initially recognized lease receivable and the carrying amount of the underlying asset is recognized as a selling loss at lease commencement. The Company is assessing how this guidance will apply to new renewable contracts executed or modified after the effective date where all the payments are contingent on the level of production and is also evaluating the related impact to HLBV accounting.

2. INVENTORY

Inventory is valued primarily using the average-cost method. The following table summarizes the Company's inventory balances as of the dates indicated (in millions):

December 31,		2017				2016
Fuel and other raw materials		$	284			$	302
Spare parts and supplies		278				320
Total		$	562			$	622

3. PROPERTY, PLANT AND EQUIPMENT

The following table summarizes the components of the electric generation and distribution assets and other property, plant and equipment (in millions) with their estimated useful lives (in years). The amounts are stated net of all prior asset impairment losses recognized.

			December 31,
	Estimated Useful Life	2017				2016
Electric generation and distribution facilities	8 - 40		$	21,529			$	22,337
Other buildings	5 - 71		1,971				1,906
Furniture, fixtures and equipment	2 - 32		284				303
Other	5 - 44		335				365
Total electric generation and distribution assets and other			24,119				24,911
Accumulated depreciation			(7,942		)		(7,919		)
Net electric generation and distribution assets and other			$	16,177			$	16,992

The following table summarizes depreciation expense (including the amortization of assets recorded under capital leases and the amortization of asset retirement obligations) and interest capitalized during development and construction on qualifying assets for the periods indicated (in millions):

Years Ended December 31,		2017				2016				2015
Depreciation expense		$	1,005			$	1,002			$	958
Interest capitalized during development and construction		139				118				84

Property, plant and equipment, net of accumulated depreciation, of $10 billion was mortgaged, pledged or subject to liens as of December 31, 2017 and 2016, including assets classified as held-for-sale.

The following table summarizes regulated and non-regulated generation and distribution property, plant and equipment and accumulated depreciation as of the dates indicated (in millions):

December 31,		2017				2016
Regulated generation, distribution assets and other, gross		$	8,093			$	7,815
Regulated accumulated depreciation		(3,357		)		(3,299		)
Regulated generation, distribution assets and other, net		4,736				4,516
Non-regulated generation, distribution assets and other, gross		16,026				17,096
Non-regulated accumulated depreciation		(4,585		)		(4,620		)
Non-regulated generation, distribution assets and other, net		11,441				12,476
Net electric generation, distribution assets and other		$	16,177			$	16,992

The following table presents amounts recognized related to asset retirement obligations for the periods indicated (in millions):

		2017				2016
Balance at January 1		$	357			$	247
Additional liabilities incurred		1				12
Liabilities settled		(21		)		(4		)
Accretion expense		16				15
Change in estimated cash flows		25				86
Other		(10		)		1
Balance at December 31		$	368			$	357

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

The Company's asset retirement obligations primarily include active ash landfills, water treatment basins and the removal or dismantlement of certain plants and equipment. The $25 million increase in estimated cash flows for 2017 is primarily related to the legal obligations for the demolition of the Huntington Beach Units in connection with the Southland re-powering project.

4. FAIR VALUE

The fair value of current financial assets and liabilities, debt service reserves and other deposits approximate their reported carrying amounts. The estimated fair values of the Company's assets and liabilities have been determined using available market information. By virtue of these amounts being estimates and based on hypothetical transactions to sell assets or transfer liabilities, the use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

Valuation Techniques — The fair value measurement accounting guidance describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach, (2) income approach and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on current market expectations of the return on those future amounts. The cost approach is based on the amount that would currently be required to replace an asset. The Company measures its investments and derivatives at fair value on a recurring basis. Additionally, in connection with annual or event-driven impairment evaluations, certain nonfinancial assets and liabilities are measured at fair value on a nonrecurring basis. These include long-lived tangible assets (i.e., property, plant and equipment), goodwill and intangible assets (e.g., sales concessions, land use rights and water rights, etc.). In general, the Company determines the fair value of investments and derivatives using the market approach and the income approach, respectively. In the nonrecurring measurements of nonfinancial assets and liabilities, all three approaches are considered; however, the value estimated under the income approach is often the most representative of fair value.

Investments — The Company's investments measured at fair value generally consist of marketable debt and equity securities. Equity securities are either measured at fair value using quoted market prices or based on comparisons to market data obtained for similar assets. Debt securities primarily consist of unsecured debentures and certificates of deposit held by our Brazilian subsidiaries. Returns and pricing on these instruments are generally indexed to the market interest rates in Brazil. Debt securities are measured at fair value based on comparisons to market data obtained for similar assets.

Derivatives — Derivatives are measured at fair value using quoted market prices or the income approach utilizing volatilities, spot and forward benchmark interest rates (such as LIBOR and EURIBOR), foreign exchange rates, credit data, and commodity prices, as applicable. When significant inputs are not observable, the Company uses relevant techniques to determine the inputs, such as regression analysis or prices for similarly traded instruments available in the market.

The Company's methodology to fair value its derivatives is to start with any observable inputs; however, in certain instances the published forward rates or prices may not extend through the remaining term of the contract and management must make assumptions to extrapolate the curve, which necessitates the use of unobservable inputs, such as proxy commodity prices or historical settlements to forecast forward prices. Specifically, where there is limited forward curve data with respect to foreign exchange contracts, beyond the traded points, the Company utilizes the interest rate differential approach to construct the remaining portion of the forward curve. Similarly, in certain instances, the spread that reflects the credit or nonperformance risk is unobservable requiring the use of proxy yield curves of similar credit quality.

To determine the fair value of a derivative, cash flows are discounted using the relevant spot benchmark interest rate. The Company then makes a credit valuation adjustment ("CVA"), as applicable, by further discounting the cash flows for nonperformance or credit risk based on the observable or estimated debt spread of the Company's subsidiary or its counterparty and the tenor of the respective derivative instrument. The CVA for potential future scenarios in which the derivative is in an asset position is based on the counterparty's credit ratings, credit default swap spreads, and debt spreads, as available. The CVA for potential future scenarios in which the derivative is in a liability position is based on the Parent Company's or the subsidiary's current debt spread. In the absence of readily obtainable credit information, the Parent Company's or the subsidiary's estimated credit rating (based on applying a standard industry model to historical financial information and then considering other relevant

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

information) and spreads of comparably rated entities or the respective country's debt spreads are used as a proxy. All derivative instruments are analyzed individually and are subject to unique risk exposures.

The fair value hierarchy of an asset or a liability is based on the level of significance of the input assumptions. An input assumption is considered significant if it affects the fair value by at least 10%. Assets and liabilities are classified as Level 3 when the use of unobservable inputs is significant. When the use of unobservable inputs is insignificant, assets and liabilities are classified as Level 2. Transfers between Level 3 and Level 2 are determined as of the end of the reporting period and result from changes in significance of unobservable inputs used to calculate the CVA.

Debt — Recourse and non-recourse debt are carried at amortized cost. The fair value of recourse debt is estimated based on quoted market prices. The fair value of non-recourse debt is estimated based upon interest rates and other features of the loan. In general, the carrying amount of variable rate debt is a close approximation of its fair value. For fixed rate loans, the fair value is estimated using quoted market prices or discounted cash flow ("DCF") analyses. The fair value of recourse and non-recourse debt excludes accrued interest at the valuation date. The fair value was determined using available market information as of December 31, 2017. The Company is not aware of any factors that would significantly affect the fair value amounts subsequent to December 31, 2017.

Nonrecurring measurements — For nonrecurring measurements derived using the income approach, fair value is generally determined using valuation models based on the principles of DCF. The income approach is most often used in the impairment evaluation of long-lived tangible assets, equity method investments, goodwill, and intangible assets. Where the use of market observable data is limited or not available for certain input assumptions, the Company develops its own estimates using a variety of techniques such as regression analysis and extrapolations. Depending on the complexity of a valuation, an independent valuation firm may be engaged to assist management in the valuation process.

For nonrecurring measurements derived using the market approach, recent market transactions involving the sale of identical or similar assets are considered. The use of this approach is limited because it is often difficult to identify sale transactions of identical or similar assets. This approach is used in impairment evaluations of certain intangible assets. Otherwise, it is used to corroborate the fair value determined under the income approach.

For nonrecurring measurements derived using the cost approach, fair value is typically based upon a replacement cost approach. This approach involves a considerable amount of judgment, which is why its use is limited to the measurement of long-lived tangible assets. Like the market approach, this approach is also used to corroborate the fair value determined under the income approach.

Fair Value Considerations — In determining fair value, the Company considers the source of observable market data inputs, liquidity of the instrument, the credit risk of the counterparty and the risk of the Company's or its counterparty's nonperformance. The conditions and criteria used to assess these factors are:

Sources of market assumptions — The Company derives most of its market assumptions from market efficient data sources (e.g., Bloomberg and Reuters). To determine fair value, where market data is not readily available, management uses comparable market sources and empirical evidence to develop its own estimates of market assumptions.

Market liquidity — The Company evaluates market liquidity based on whether the financial or physical instrument, or the underlying asset, is traded in an active or inactive market. An active market exists if the prices are fully transparent to market participants, can be measured by market bid and ask quotes, the market has a relatively large proportion of trading volume as compared to the Company's current trading volume and the market has a significant number of market participants that will allow the market to rapidly absorb the quantity of assets traded without significantly affecting the market price. Another factor the Company considers when determining whether a market is active or inactive is the presence of government or regulatory controls over pricing that could make it difficult to establish a market-based price when entering into a transaction.

Nonperformance risk — Nonperformance risk refers to the risk that an obligation will not be fulfilled and affects the value at which a liability is transferred or an asset is sold. Nonperformance risk includes, but may not be limited to, the Company or its counterparty's credit and settlement risk. Nonperformance risk adjustments are dependent on credit spreads, letters of credit, collateral, other arrangements available and the nature of master netting arrangements. The Company is party to various interest rate swaps and options; foreign currency options and forwards; and derivatives and embedded derivatives, which subject the Company to nonperformance risk. The financial and physical instruments held at the subsidiary level are generally non-recourse to the Parent Company.

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

Nonperformance risk on the investments held by the Company is incorporated in the fair value derived from quoted market data to mark the investments to fair value.

Recurring Measurements — The following table presents, by level within the fair value hierarchy, as described in Note 1—General and Summary of Significant Accounting Policies, the Company's financial assets and liabilities that were measured at fair value on a recurring basis as of the dates indicated (in millions). For the Company's investments in marketable debt and equity securities, the security classes presented are determined based on the nature and risk of the security and are consistent with how the Company manages, monitors and measures its marketable securities:

		December 31, 2017																December 31, 2016
		Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3				Total
Assets
AVAILABLE FOR SALE:
Debt securities:
Unsecured debentures		$	—			$	207			$	—			$	207			$	—			$	205			$	—			$	205
Certificates of deposit		—				153				—				153				—				260				—				260
Government debt securities		—				—				—				—				—				9				—				9
Subtotal		—				360				—				360				—				474				—				474
Equity securities:
Mutual funds		—				52				—				52				—				48				—				48
Subtotal		—				52				—				52				—				48				—				48
Total available for sale		—				412				—				412				—				522				—				522
TRADING:
Equity securities:
Mutual funds		20				—				—				20				16				—				—				16
Total trading		20				—				—				20				16				—				—				16
DERIVATIVES:
Interest rate derivatives		—				15				—				15				—				18				—				18
Cross-currency derivatives		—				29				—				29				—				4				—				4
Foreign currency derivatives		—				29				240				269				—				54				255				309
Commodity derivatives		—				30				5				35				—				38				7				45
Total derivatives — assets		—				103				245				348				—				114				262				376
TOTAL ASSETS		$	20			$	515			$	245			$	780			$	16			$	636			$	262			$	914
Liabilities
DERIVATIVES:
Interest rate derivatives		$	—			$	111			$	151			$	262			$	—			$	121			$	179			$	300
Cross-currency derivatives		—				3				—				3				—				18				—				18
Foreign currency derivatives		—				30				—				30				—				64				—				64
Commodity derivatives		—				19				1				20				—				40				2				42
Total derivatives — liabilities		—				163				152				315				—				243				181				424
TOTAL LIABILITIES		$	—			$	163			$	152			$	315			$	—			$	243			$	181			$	424

As of December 31, 2017, all AFS debt securities had stated maturities within one year. For the years ended December 31, 2017, 2016, and 2015, no other-than-temporary impairment of marketable securities were recognized in earnings or Other Comprehensive Income (Loss). Gains and losses on the sale of investments are determined using the specific-identification method. The following table presents gross proceeds from sale of AFS securities for the periods indicated (in millions):

Year Ended December 31,		2017				2016				2015
Gross proceeds from sales of AFS securities		$	1,398			$	1,726			$	1,226

Any Level 1 derivative instruments are exchange-traded commodity futures for which the pricing is observable in active markets, and as such, these are not expected to transfer to other levels. There have been no transfers between Level 1 and Level 2.

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 years ended December 31, 2017 and 2016 (presented net by type of derivative in millions). Transfers between Level 3 and Level 2 are determined as of the end of the reporting period and principally result from changes in the significance of unobservable inputs used to calculate the credit valuation adjustment.

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

Year Ended December 31, 2017	Interest Rate				Foreign Currency				Commodity				Total
Balance at January 1	$	(179	)		$	255			$	5			$	81
Total realized and unrealized gains (losses):
Included in earnings	(1		)		21				1				21
Included in other comprehensive income — derivative activity	(23		)		—				—				(23		)
Included in regulatory liabilities	—				—				10				10
Settlements	36				(36		)		(12		)		(12		)
Transfers of liabilities into Level 3	(4		)		—				—				(4		)
Transfers of liabilities out of Level 3	20				—				—				20
Balance at December 31	$	(151	)		$	240			$	4			$	93
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	$	7			$	(15	)		$	1			$	(7	)

Year Ended December 31, 2016	Interest Rate				Foreign Currency				Commodity				Total
Balance at January 1	$	(304	)		$	277			$	3			$	(24	)
Total realized and unrealized gains (losses):
Included in earnings	—				31				2				33
Included in other comprehensive income — derivative activity	(36		)		6				—				(30		)
Included in other comprehensive income — foreign currency translation activity	3				(52		)		—				(49		)
Included in regulatory liabilities	—				—				11				11
Settlements	72				(22		)		(11		)		39
Transfers of liabilities into Level 3	(32		)		—				—				(32		)
Transfers of assets out of Level 3	118				15				—				133
Balance at December 31	$	(179	)		$	255			$	5			$	81
Total gains for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities held at the end of the period	$	6			$	16			$	2			$	24

The following table summarizes the significant unobservable inputs used for the Level 3 derivative assets (liabilities) as of December 31, 2017 (in millions, except range amounts):

Type of Derivative		Fair Value				Unobservable Input		Amount or Range (Weighted Average)
Interest rate		$	(151	)		Subsidiaries’ credit spreads		1.9% - 5.1% (4.9%)
Foreign currency:
Argentine peso		240				Argentine peso to U.S. dollar currency exchange rate after one year (1)		22.8 - 52.3 (36.6)
Commodity:
Other		4
Total		$	93

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(1)	During the year ended December 31, 2017, the Company began utilizing the interest rate differential approach to construct the remaining portion of the forward curve after one year (beyond the traded points). In previous periods, the Company used the purchasing price parity approach to construct the forward curve.

For interest rate derivatives, and foreign currency derivatives, increases (decreases) in the estimates of the Company's own credit spreads would decrease (increase) the value of the derivatives in a liability position. For foreign currency derivatives, increases (decreases) in the estimate of the above exchange rate would increase (decrease) the value of the derivative.

Nonrecurring Measurements

When evaluating impairment of long-lived assets and equity method investments, the Company measures fair value using the applicable fair value measurement guidance. Impairment expense is measured by comparing the fair value at the evaluation date to 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 and their level within the fair value hierarchy (in millions):

Year Ended December 31, 2017		Measurement Date		Carrying Amount (1)				Fair Value												Pre-tax Loss
Assets			Level 1				Level 2				Level 3
Long-lived assets held and used: (2)
Laurel Mountain		12/31/2017		$	154			$	—			$	—			$	33			$	121
Kilroot		12/31/2017		69				—				—				20				37
DPL		02/28/2017		77				—				—				11				66
Other		Various		18				—				—				—				18
Dispositions and held-for-sale businesses: (3)
DPL Peaker Assets		12/31/2017		346				—				237				—				109
Kazakhstan Hydroelectric (4)		06/30/2017		190				—				92				—				92
Kazakhstan CHPs		03/31/2017		171				—				29				—				94

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

Year Ended December 31, 2016		Measurement Date		Carrying Amount (1)				Fair Value												Pre-tax Loss
Assets			Level 1				Level 2				Level 3
Long-lived assets held and used: (2)
DPL		12/31/2016		$	787			$	—			$	60			$	103			$	624
Buffalo Gap I		08/31/2016		113				—				—				36				77
DPL		06/30/2016		324				—				—				89				235
Buffalo Gap II		03/31/2016		251				—				—				92				159
Discontinued operations: (3)
Sul		06/30/2016		1,581				—				470				—				783

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(1)	Represents the carrying values at the dates of measurement, before fair value adjustment.

(2)	See Note 19—Asset Impairment Expense for further information.

(3)	Per the Company's policy, pre-tax loss is limited to the impairment of long-lived assets. Any additional loss will be recognized on completion of the sale. Upon disposal of Sul, we incurred an additional pre-tax loss on sale of $602 million. See Note 21—Discontinued Operations and Note 22—Held-for-Sale Businesses and Dispositions for further information.

(4)	Per the Company's policy, pre-tax loss is limited to the impairment of long-lived assets. Any additional loss will be recognized on completion of the sale. Upon disposal of Kazakhstan HPPs, we incurred an additional pre-tax loss on disposal of $33 million. See Note 19—Asset Impairment Expense and Note 22—Held-for-Sale Businesses and Dispositions for further information.

The following table summarizes the significant unobservable inputs used in the Level 3 measurement of long-lived assets held and used measured on a nonrecurring basis during the year ended December 31, 2017 (in millions, except range amounts):

December 31, 2017		Fair Value				Valuation Technique		Unobservable Input		Range (Weighted Average)
Long-lived assets held and used:
Laurel Mountain		$	33			Discounted cash flow		Annual revenue growth		-30% to 2% (0%)
								Pre-tax operating margin (through remaining life)		61% to 73% (64%)
								Weighted-average cost of capital		9%
Kilroot		20				Discounted cash flow		Annual revenue growth		-85% to 17% (-16%)
								Annual pre-tax operating margin		-32% to 28% (6%)
								Weighted-average cost of capital		8%
DPL		11				Discounted cash flow		Pre-tax operating margin (through remaining life)		10% to 22% (15%)
								Weighted-average cost of capital		7%
Total		$	64

Financial Instruments not Measured at Fair Value in the Consolidated Balance Sheets

The following table presents (in millions) the carrying amount, fair value and fair value hierarchy of the Company's financial assets and liabilities that are not measured at fair value in the Consolidated Balance Sheets as of the periods indicated, but for which fair value is disclosed.

			December 31, 2017
			Carrying Amount				Fair Value
			Total				Level 1				Level 2				Level 3
Assets:	Accounts receivable — noncurrent (1)		$	163			$	217			$	—			$	6			$	211
Liabilities:	Non-recourse debt		15,340				15,890				—				13,350				2,540
	Recourse debt		4,630				4,920				—				4,920				—

			December 31, 2016
			Carrying Amount				Fair Value
			Total				Level 1				Level 2				Level 3
Assets:	Accounts receivable — noncurrent (1)		$	232			$	342			$	—			$	20			$	322
Liabilities:	Non-recourse debt		14,783				15,185				—				14,140				1,045
	Recourse debt		4,671				4,899				—				4,899				—

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(1)	These amounts primarily relate to amounts due from CAMMESA, the administrator of the wholesale electricity market in Argentina, and are included in Other noncurrent assets in the accompanying Consolidated Balance Sheets. The fair value and carrying amount of these receivables exclude VAT of $31 million and $24 million as of December 31, 2017 and 2016, respectively.

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

5. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Volume of Activity — The following table presents the Company's maximum notional (in millions) over the remaining contractual period by type of derivative as of December 31, 2017, regardless of whether they are in qualifying cash flow hedging relationships, and the dates through which the maturities for each type of derivative range:

Derivatives		Maximum Notional Translated to USD				Latest Maturity
Interest Rate (LIBOR and EURIBOR)		$	4,481			2036
Cross-Currency Swaps (Chilean Unidad de Fomento and Chilean Peso)		410				2029
Foreign Currency:
Argentine Peso		187				2026
Chilean Peso		410				2020
Colombian Peso		305				2019
Others, primarily with weighted average remaining maturities of a year or less		303				2020

Accounting and Reporting — Assets and Liabilities — The following tables present the fair value of assets and liabilities related to the Company's derivative instruments as of the periods indicated (in millions):

Fair Value		December 31, 2017												December 31, 2016
Assets		Designated				Not Designated				Total				Designated				Not Designated				Total
Interest rate derivatives		$	15			$	—			$	15			$	18			$	—			$	18
Cross-currency derivatives		29				—				29				4				—				4
Foreign currency derivatives		8				261				269				9				300				309
Commodity derivatives		5				30				35				20				25				45
Total assets		$	57			$	291			$	348			$	51			$	325			$	376
Liabilities
Interest rate derivatives		$	125			$	137			$	262			$	295			$	5			$	300
Cross-currency derivatives		3				—				3				18				—				18
Foreign currency derivatives		1				29				30				19				45				64
Commodity derivatives		9				11				20				26				16				42
Total liabilities		$	138			$	177			$	315			$	358			$	66			$	424

		December 31, 2017								December 31, 2016
Fair Value		Assets				Liabilities				Assets				Liabilities
Current		$	84			$	211			$	99			$	155
Noncurrent		264				104				277				269
Total		$	348			$	315			$	376			$	424
Credit Risk-Related Contingent Features (1)										December 31, 2017				December 31, 2016
Present value of liabilities subject to collateralization										$	15			$	41
Cash collateral held by third parties or in escrow										9				18

---

(1)	Based on the credit rating of certain subsidiaries

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

Earnings and Other Comprehensive Income (Loss) — The following table presents (in millions) the pre-tax gains (losses) recognized in AOCL and earnings related to all derivative instruments for the periods indicated:

		Years Ended December 31,
2017				2016				2015
Effective portion of cash flow hedges
Gains (losses) recognized in AOCL
Interest rate derivatives		$	(66	)		$	(35	)		$	(103	)
Cross-currency derivatives		31				21				(20		)
Foreign currency derivatives		(5		)		(4		)		10
Commodity derivatives		18				30				40
Total		$	(22	)		$	12			$	(73	)
Gains (losses) reclassified from AOCL to earnings
Interest rate derivatives		$	(82	)		$	(101	)		$	(116	)
Cross-currency derivatives		34				8				(24		)
Foreign currency derivatives		(20		)		(8		)		32
Commodity derivatives		17				56				31
Total		$	(51	)		$	(45	)		$	(77	)
Loss reclassified from AOCL to earnings due to discontinuance of hedge accounting (1)		$	(13	)		$	—			$	—
Gain (losses) recognized in earnings related to
Ineffective portion of cash flow hedges		$	3			$	(1	)		$	(6	)
Not designated as hedging instruments:
Foreign currency derivatives		$	1			$	19			$	211
Commodity derivatives and other		14				(16		)		(29		)
Total		$	15			$	3			$	182

---

(1)	Cash flow hedge was discontinued because it was probable the forecasted transaction will not occur.

The AOCL expected to decrease pre-tax income from continuing operations, primarily due to interest rate derivatives, for the twelve months ended December 31, 2017 is $58 million.

6. FINANCING RECEIVABLES

Receivables with contractual maturities of greater than one year are considered financing receivables, primarily related to amended agreements or government resolutions due from CAMMESA. The following table presents financing receivables by country as of the dates indicated (in millions):

December 31,		2017				2016
Argentina		$	177			$	236
Other		17				20
Total		$	194			$	256

Argentina

Collection of the principal and interest on these receivables is subject to various business risks and uncertainties, including, but not limited to, the continued 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 if collectability is reasonably assured. The Company's collection estimates are based on assumptions it believes to be reasonable, but are inherently uncertain. Actual future cash flows could differ from these estimates. The decrease in Argentina financing receivables was primarily due to planned collections and unfavorable FX impacts.

FONINVEMEM Agreements — As a result of energy market reforms in 2004 and 2010, AES Argentina entered into three agreements with the Argentine government, referred to as the FONINVEMEM Agreements, to contribute a portion of their accounts receivable into a fund for financing the construction of combined cycle and gas-fired plants. These receivables accrue interest and are collected in monthly installments over 10 years once the related plant begins operations. In addition, AES Argentina receives an ownership interest in these newly built plants once the receivables have been fully repaid.

The FONINVEMEM receivables are denominated in Argentine pesos, but indexed to U.S. dollars, which represents a foreign currency derivative. As of December 31, 2017 and 2016, the amount of the foreign currency-

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

related derivative assets associated with the FONINVEMEM financing receivables that were excluded from the table above had a fair value of $240 million and $255 million, respectively.

The receivables under the FONINVEMEM Agreements have been actively collected since the related plants commenced operations in 2010 and 2016. In assessing the collectability of the receivables under these agreements, the Company also considers historic collection evidence in accordance with the agreements.

Other Agreements — Other agreements primarily consist of resolutions passed by the Argentine government in which AES Argentina will receive compensation for investments in new generation plants and technologies. The timing of collections depend on corresponding agreements and collectability of these receivables are assessed on an ongoing basis.

7. INVESTMENTS IN AND ADVANCES TO AFFILIATES

The following table summarizes the relevant effective equity ownership interest and carrying values for the Company's investments accounted for under the equity method as of the periods indicated:

December 31,			2017				2016				2017			2016
Affiliate	Country		Carrying Value (in millions)								Ownership Interest %
sPower	United States		$	508			$	—			50	%		—	%
Guacolda (1)	Chile		357				362				33	%		33	%
OPGC (2)	India		269				195				49	%		49	%
Elsta (3)	Netherlands		38				41				50	%		50	%
Equity method investments of Distributed Energy (3)	United States		15				22				95	%		95	%
Barry (3)	United Kingdom		—				—				100	%		100	%
Other affiliates	Various		10				1
Total			$	1,197			$	621

---

(1)	The Company's ownership in Guacolda is held through AES Gener, a 67%-owned consolidated subsidiary. AES Gener owns 50% of Guacolda, resulting in an AES effective ownership in Guacolda of 33%.

(2)	OPGC has one coal-fired project under development which is an expansion of our existing OPGC business. The project started construction in April 2014 and is expected to begin operations in 2019.

(3)	Represent VIEs in which the Company holds a variable interest, but is not the primary beneficiary.

sPower — In February 2017, the Company and Alberta Investment Management Corporation (“AIMCo”) entered into an agreement to acquire FTP Power LLC (“sPower”). In July 2017, AES closed on the acquisition of its 48% ownership interest in sPower for $461 million. In November 2017, AES acquired an additional 2% ownership interest in sPower for $19 million. As the Company does not control sPower, it is accounted for as an equity method investment. The sPower portfolio includes solar and wind projects in operation, under construction, and in development located in the United States. The sPower equity method investment is reported in the US SBU reportable segment.

Guacolda — In September 2015, AES Gener and Global Infrastructure Partners ("GIP") executed a restructuring of Guacolda that increased Guacolda's tax basis in certain long-term assets and AES Gener's equity investment. As a result, AES Gener recorded $66 million in net equity in earnings of affiliates for the year ended December 31, 2015, of which $46 million is attributable to The AES Corporation.

AES Barry Ltd. — The Company holds a 100% ownership interest in AES Barry Ltd. ("Barry"), a dormant entity in the U.K. that disposed of its generation and other operating assets. Due to a debt agreement, no material financial or operating decisions can be made without the banks' consent, and the Company does not control Barry. As of December 31, 2017 and 2016, other long-term liabilities included $45 million and $41 million related to this debt agreement.

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

Summarized Financial Information — The following tables summarize financial information of the Company's 50%-or-less-owned affiliates and majority-owned unconsolidated subsidiaries that are accounted for using the equity method (in millions):

	50%-or-less Owned Affiliates												Majority-Owned Unconsolidated Subsidiaries
Years ended December 31,	2017				2016				2015				2017				2016				2015
Revenue	$	762			$	586			$	641			$	16			$	23			$	24
Operating margin	165				145				152				5				9				11
Net income (loss)	72				64				210				(15		)		(2		)		6
December 31,	2017				2016								2017				2016
Current assets	$	418			$	308							$	70			$	16
Noncurrent assets	5,372				2,577								102				181
Current liabilities	633				626								10				10
Noncurrent liabilities	2,629				1,209								147				122
Stockholders' equity	2,527				1,048								15				65

At December 31, 2017, retained earnings included $254 million related to the undistributed earnings of the Company's 50%-or-less owned affiliates. Distributions received from these affiliates were $69 million, $24 million, and $18 million for the years ended December 31, 2017, 2016, and 2015, respectively. As of December 31, 2017, the aggregate carrying amount of our investments in equity affiliates exceeded the underlying equity in their net assets by $46 million.

8. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill — The following table summarizes the carrying amount of goodwill by reportable segment for the years ended December 31, 2017 and 2016 (in millions):

	US				Andes				MCAC				Eurasia				Total
Balance as of December 31, 2016
Goodwill	$	2,674			$	899			$	149			$	190			$	3,912
Accumulated impairment losses	(2,633		)		—				—				(122		)		(2,755		)
Net balance	41				899				149				68				1,157
Transfer to assets held-for-sale (1)	—				(30		)		—				(68		)		(98		)
Balance as of December 31, 2017
Goodwill	2,674				869				149				122				3,814
Accumulated impairment losses	(2,633		)		—				—				(122		)		(2,755		)
Net balance	$	41			$	869			$	149			$	—			$	1,059

---

(1)	See Note 22---Held-For-Sale Businesses and Dispositions for further information.

DP&L — During the fourth quarter of 2015, the Company performed the annual goodwill impairment test at its DP&L reporting unit and recognized a goodwill impairment expense of $317 million. The reporting unit failed Step 1 as its fair value was less than its carrying amount, which was primarily due to a decrease in forecasted dark spreads that were driven by decreases in projected forward power prices, and lower than expected revenues from a new CP product. The fair value of the reporting unit was determined under the income approach using a discounted cash flow valuation model. The significant assumptions included within the discounted cash flow valuation model were forward commodity price curves, the amount of non-bypassable charges from the pending ESP, expected revenues from the new CP product, and planned environmental expenditures. In Step 2, goodwill was determined to have an implied negative fair value after the hypothetical purchase price allocation under the accounting guidance for business combinations; therefore, a full impairment of the remaining goodwill balance of $317 million was recognized. DP&L is reported in the US SBU reportable segment.

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

Other Intangible Assets — The following table summarizes the balances comprising Other intangible assets in the accompanying Consolidated Balance Sheets (in millions) as of the periods indicated:

	December 31, 2017												December 31, 2016
	Gross Balance				Accumulated Amortization				Net Balance				Gross Balance				Accumulated Amortization				Net Balance
Subject to Amortization
Internal-use software	$	416			$	(330	)		$	86			$	396			$	(304	)		$	92
Contracts	92				(21		)		71				53				(15		)		38
Contractual payment rights (1)	65				(47		)		18				56				(42		)		14
Project development rights	57				(1		)		56				4				(1		)		3
Other (2)	98				(42		)		56				103				(37		)		66
Subtotal	728				(441		)		287				612				(399		)		213
Indefinite-Lived Intangible Assets
Land use rights	45				—				45				47				—				47
Water rights	20				—				20				17				—				17
Other	14				—				14				10				—				10
Subtotal	79				—				79				74				—				74
Total	$	807			$	(441	)		$	366			$	686			$	(399	)		$	287

---

(1)	Represent legal rights to receive system reliability payments from the regulator.

(2)	Includes management rights, sales concessions, gas extraction rights, and other individually insignificant intangible assets.

The following tables summarize other intangible assets acquired during the periods indicated (in millions):

December 31, 2017	Amount				Subject to Amortization/Indefinite-Lived		Weighted Average Amortization Period (in years)		Amortization Method
Project Development Rights	$	53			Subject to Amortization		30		Straight-line
Contracts	34				Subject to Amortization		25		Straight-line
Internal-use software	17				Subject to Amortization		7		Straight-line
Other	8				Various		N/A		N/A
Total	$	112

December 31, 2016	Amount				Subject to Amortization/Indefinite-Lived		Weighted Average Amortization Period (in years)		Amortization Method
Internal-use software	$	41			Subject to Amortization		4		Straight-line
Contracts	24				Subject to Amortization		26		Straight-line
Other	5				Subject to Amortization		13		Straight-line
Total	$	70

The following table summarizes the estimated amortization expense by intangible asset category for 2018 through 2022:

(in millions)	2018				2019				2020				2021				2022
Internal-use software	$	17			$	14			$	12			$	10			$	9
Contracts	5				5				5				5				5
Other	11				12				10				8				9
Total	$	33			$	31			$	27			$	23			$	23

Intangible asset amortization expense was $34 million, $37 million and $47 million for the years ended December 31, 2017, 2016 and 2015, respectively.

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

9. REGULATORY ASSETS AND LIABILITIES

The Company has recorded regulatory assets and liabilities (in millions) that it expects to pass through to its customers in accordance with, and subject to, regulatory provisions as follows:

December 31,	2017				2016				Recovery/Refund Period
REGULATORY ASSETS
Current regulatory assets:
El Salvador tariff recoveries	$	59			$	54			Quarterly as part of the tariff adjustment
Other	60				34				Various
Total current regulatory assets	119				88
Noncurrent regulatory assets:
IPL and DPL defined benefit pension obligations (1)	298				316				Various
IPL and DPL income taxes recoverable from customers (1)	—				87				Various
IPL deferred Midwest ISO costs	102				114				9 years
IPL environmental costs	48				41				Various
Other	94				97				Various
Total noncurrent regulatory assets	542				655
TOTAL REGULATORY ASSETS	$	661			$	743
REGULATORY LIABILITIES
Current regulatory liabilities:
DPL efficiency program costs	$	10			$	14			Annually as part of the tariff adjustment
Other	7				27				Various
Total current regulatory liabilities	17				41
Noncurrent regulatory liabilities:
IPL and DPL asset retirement obligations	830				795				Over life of assets
IPL and DPL deferred income taxes	243				2				Various
Other	6				5				Various
Total noncurrent regulatory liabilities	1,079				802
TOTAL REGULATORY LIABILITIES	$	1,096			$	843

---

(1)	Past expenditures on which the Company earns a rate of return.

Our regulatory assets primarily consist of costs that are generally non-controllable, such as purchased electricity, energy transmission, the difference between actual fuel costs and the fuel costs recovered in the tariffs, and other sector costs. These costs are recoverable or refundable as defined by the laws and regulations in our various markets. Our regulatory assets also include defined pension and postretirement benefit obligations equal to the previously unrecognized actuarial gains and losses and prior services costs that are expected to be recovered through future rates. Other current and noncurrent regulatory assets primarily consist of:

•	Demand charges at DPL;

•	Unamortized premiums reacquired or redeemed on long term debt at IPL and DPL, which are amortized over the lives of the original issuances; and

•	Unrecovered fuel and purchased power costs at IPL and DPL.

Our regulatory liabilities primarily consist of obligations for removal costs which do not have an associated legal retirement obligation. Our regulatory liabilities also include deferred income taxes associated with the reduction of the U.S. federal income tax rate which will be passed through to our regulated customers via a decrease in future retail rates, see Note 20—Income Taxes for further information.

In the accompanying Consolidated Balance Sheets the current regulatory assets and liabilities are reflected in Other current assets and Accrued and other liabilities, respectively, and the noncurrent regulatory assets and liabilities are reflected in Other noncurrent assets and Other noncurrent liabilities, respectively. The following table summarizes regulatory assets and liabilities by reportable segment in millions as of the periods indicated:

	December 31, 2017								December 31, 2016
	Regulatory Assets				Regulatory Liabilities				Regulatory Assets				Regulatory Liabilities
US SBU	$	602			$	1,095			$	689			$	842
MCAC SBU	59				—				54				—
Brazil SBU	—				1				—				1
Total	$	661			$	1,096			$	743			$	843

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

10. DEBT

NON-RECOURSE DEBT — The following table summarizes the carrying amount and terms of non-recourse debt at our subsidiaries as of the periods indicated (in millions):

NON-RECOURSE DEBT	Weighted Average Interest Rate		Maturity		December 31,
2017				2016
Variable Rate: (1)
Bank loans	4.52%		2018 – 2050		$	2,488			$	2,601
Notes and bonds	8.06%		2020 – 2026		900				471
Debt to (or guaranteed by) multilateral, export credit agencies or development banks (2)	3.28%		2023 – 2034		3,668				3,189
Fixed Rate:
Bank loans	4.54%		2018 – 2040		993				767
Notes and bonds	5.68%		2019 – 2073		7,388				7,822
Debt to (or guaranteed by) multilateral, export credit agencies or development banks (2)	5.35%		2023 – 2034		271				328
Other	5.81%		2018 – 2061		26				30
Unamortized (discount) premium & debt issuance (costs), net					(394		)		(425		)
Subtotal					$	15,340			$	14,783
Less: Current maturities					(2,164		)		(1,052		)
Noncurrent maturities					$	13,176			$	13,731

---

(1)

The interest rate on variable rate debt represents the total of a variable component that is based on changes in an interest rate index and of a fixed component. The Company has interest rate swaps and option agreements in an aggregate notional principal amount of approximately $3.6 billion on non-recourse debt outstanding at December 31, 2017. These agreements economically fix the variable component of the interest rates on the portion of the variable-rate debt being hedged so that the total interest rate on that debt has been fixed at rates ranging from approximately 2.49% to 8.00%. The debt agreements expire at various dates from 2018 through 2073.

(2)	Multilateral loans include loans funded and guaranteed by bilaterals, multilaterals, development banks and other similar institutions.

Non-recourse debt as of December 31, 2017 is scheduled to reach maturity as shown below (in millions):

December 31,	Annual Maturities
2018	$	2,245
2019	796
2020	1,396
2021	1,833
2022	1,768
Thereafter	7,696
Unamortized (discount) premium & debt issuance (costs), net	(394		)
Total	$	15,340

As of December 31, 2017, AES subsidiaries with facilities under construction had a total of approximately $1.8 billion of committed but unused credit facilities available to fund construction and other related costs. Excluding these facilities under construction, AES subsidiaries had approximately $1.7 billion in a number of available but unused committed credit lines to support their working capital, debt service reserves and other business needs. These credit lines can be used for borrowings, letters of credit, or a combination of these uses.

Significant transactions — During the year ended December 31, 2017, the Company's subsidiaries had the following significant debt transactions:

Subsidiary		Issuances				Repayments				Gain (Loss) on Extinguishment of Debt
IPALCO		$	608			$	(528	)		$	(9	)
Tietê		585				(293		)		(5		)
Southland		557				—				—
Gener		335				(426		)		(20		)
AES Argentina		310				(181		)		65
Los Mina		303				(275		)		(4		)
Colon		262				—				—
Masinloc		160				(51		)		—
DPL		103				(249		)		(3		)
Other		285				(547		)		(1		)
Total		$	3,508			$	(2,550	)		$	23

Southland — In June 2017, AES Southland Energy LLC closed on $2 billion of aggregate principal long-term non-recourse debt financing to fund the Southland re-powering construction projects (“the Southland financing”). The Southland financing consists of $1.5 billion senior secured notes, amortizing through 2040, and $492 million senior secured term loan, amortizing through 2027. The long-term debt financing has a combined weighted average

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

cost of approximately 4.5%. As of December 31, 2017, $557 million of the senior secured notes were outstanding under the Southland financing.

AES Argentina — In February 2017, AES Argentina issued $300 million aggregate principal of unsecured and unsubordinated notes due in 2024. The net proceeds from this issuance were used for the prepayment of $75 million of non-recourse debt related to the construction of the San Nicolas Plant resulting in a gain on extinguishment of debt of approximately $65 million.

Non-Recourse Debt Covenants, Restrictions and Defaults — The terms of the Company's non-recourse debt include certain financial and nonfinancial covenants. These covenants are limited to subsidiary activity and vary among the subsidiaries. These covenants may include, but are not limited to, maintenance of certain reserves and financial ratios, minimum levels of working capital and limitations on incurring additional indebtedness.

As of December 31, 2017 and 2016, approximately $642 million and $535 million, respectively, of restricted cash was maintained in accordance with certain covenants of the non-recourse debt agreements, and these amounts were included within Restricted cash and Debt service reserves and other deposits in the accompanying Consolidated Balance Sheets.

Various lender and governmental provisions restrict the ability of certain of the Company's subsidiaries to transfer their net assets to the Parent Company. Such restricted net assets of subsidiaries amounted to approximately $2.8 billion at December 31, 2017.

The following table summarizes the Company's subsidiary non-recourse debt in default (in millions) as of December 31, 2017. Due to the defaults, these amounts are included in the current portion of non-recourse debt:

	Primary Nature of Default		December 31, 2017
Subsidiary	Default				Net Assets
Alto Maipo (Chile)	Covenant		$	618			$	352
AES Puerto Rico	Covenant/Payment		365				692
AES Ilumina	Covenant		36				54
Total			$	1,019

The amounts in default related to Puerto Rico are covenant and payment defaults. In November 2017, AES Puerto Rico signed Forbearance and Standstill Agreements with their lenders to prevent the lenders from taking action against the Company due to these default events. These agreements will expire on March 22, 2018.

All other defaults listed are not payment defaults. All of the subsidiary non-recourse defaults were triggered by failure to comply with covenants and/or 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.

The AES Corporation's recourse debt agreements include cross-default clauses that will trigger if a subsidiary or group of subsidiaries for which the non-recourse debt is in default provides 20% or more of the Parent Company's total cash distributions from businesses for the four most recently completed fiscal quarters. As of December 31, 2017, the Company has no defaults which 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 revolving 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.

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

RECOURSE DEBT — The following table summarizes the carrying amount and terms of recourse debt of the Company as of the periods indicated (in millions):

	Interest Rate		Final Maturity		December 31, 2017				December 31, 2016
Senior Unsecured Note	LIBOR + 3.00%		2019		$	—			$	240
Senior Unsecured Note	8.00%		2020		228				469
Senior Unsecured Note	7.38%		2021		690				966
Drawings on secured credit facility	LIBOR + 2.00%		2021		207				—
Senior Secured Term Loan	LIBOR + 2.00%		2022		521				—
Senior Unsecured Note	4.88%		2023		713				713
Senior Unsecured Note	5.50%		2024		738				738
Senior Unsecured Note	5.50%		2025		573				573
Senior Unsecured Note	6.00%		2026		500				500
Senior Unsecured Note	5.13%		2027		500				—
Term Convertible Trust Securities	6.75%		2029		—				517
Unamortized (discount) premium & debt issuance (costs), net					(40		)		(45		)
Subtotal					$	4,630			$	4,671
Less: Current maturities					(5		)		—
Noncurrent maturities					$	4,625			$	4,671

The following table summarizes the principal amounts due under our recourse debt for the next five years and thereafter (in millions):

December 31,	Net Principal Amounts Due
2018	$	5
2019	5
2020	234
2021	902
2022	500
Thereafter	3,024
Unamortized (discount) premium & debt issuance (costs), net	(40		)
Total recourse debt	$	4,630

In August 2017, the Company issued $500 million aggregate principal amount of 5.125% senior notes due in 2027. The Company used these proceeds to redeem at par $240 million aggregate principal of its existing LIBOR + 3.00% senior unsecured notes due in 2019 and repurchased $217 million of its existing 8.00% senior unsecured notes due in 2020. As a result of the latter transactions, the Company recognized a loss on extinguishment of debt of $36 million.

In May 2017, the Company closed on $525 million aggregate principal LIBOR + 2.00% secured term loan due in 2022. In June 2017, the Company used these proceeds to redeem at par all $517 million aggregate principal of its existing Term Convertible Securities. As a result of the latter transaction, the Company recognized a loss on extinguishment of debt of $6 million.

In March 2017, the Company redeemed via tender offers $276 million aggregate principal of its existing 7.375% senior unsecured notes due in 2021 and $24 million of its existing 8.00% senior unsecured notes due in 2020. As a result of these transactions, the Company recognized a loss on extinguishment of debt of $47 million.

In July 2016, the Company redeemed in full the $181 million balance of its 8.00% outstanding senior unsecured notes due 2017 using proceeds from its senior secured credit facility. As a result, the Company recognized a loss on extinguishment of debt of $16 million.

In May 2016, the Company issued $500 million aggregate principal amount of 6.00% senior notes due 2026. The Company used these proceeds to redeem, at par, $495 million aggregate principal of its existing LIBOR + 3.00% senior unsecured notes due 2019. As a result of the latter transaction, the Company recognized a loss on extinguishment of debt of $4 million.

In January 2016, the Company redeemed $125 million of its senior unsecured notes outstanding. The repayment included a portion of the 7.375% senior notes due in 2021, the 4.875% senior notes due in 2023, the 5.5% senior notes due in 2024, the 5.5% senior notes due in 2025 and the floating rate senior notes due in 2019. As a result of these transactions, the Company recognized a net gain on extinguishment of debt of $7 million.

Recourse Debt Covenants and Guarantees — The Company's obligations under the senior secured credit facility and senior secured term loan are, subject to certain exceptions, secured by (i) all of the capital stock of

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

domestic subsidiaries owned directly by the Company and 65% of the capital stock of certain foreign subsidiaries owned directly or indirectly by the Company; and (ii) certain intercompany receivables, certain intercompany notes and certain intercompany tax sharing agreements.

The senior secured credit facility and senior secured term loan is subject to mandatory prepayment under certain circumstances, including the sale of certain assets. In such a situation, the net cash proceeds from the sale must be applied pro rata to repay the term loan, if any, using 60% of net cash proceeds, reduced to 50% when and if the parent's recourse debt to cash flow ratio is less than 5:1. The lenders have the option to waive their pro rata redemption.

The senior secured credit facility contains customary covenants and restrictions on the Company's ability to engage in certain activities, including, but not limited to, limitations on other indebtedness, liens, investments and guarantees; limitations on restricted payments such as shareholder dividends and equity repurchases; restrictions on mergers and acquisitions, sales of assets, leases, transactions with affiliates and off-balance sheet or derivative arrangements; and other financial reporting requirements.

The senior secured credit facility also contains financial covenants, evaluated quarterly, requiring the Company to maintain a minimum ratio of adjusted operating cash flow to interest charges on recourse debt of 1.3 times and a maximum ratio of recourse debt to adjusted operating cash flow of 7.5 times.

The terms of the Company's senior unsecured notes and senior secured term loan contain certain covenants including, without limitation, limitation on the Company's ability to incur liens or enter into sale and leaseback transactions.

TERM CONVERTIBLE TRUST SECURITIES — In 1999, AES Trust III, a wholly-owned special purpose business trust and a VIE, issued approximately 10.35 million of $50 par value TECONS with a quarterly coupon payment of $0.844 for total proceeds of $517 million and concurrently purchased $517 million of 6.75% Junior Subordinated Convertible Debentures due 2029 (the "6.75% Debentures") issued by AES. AES, at its option, may redeem the 6.75% Debentures which would result in the required redemption of the TECONS issued by AES Trust III for $50 per TECON. As of December 31, 2016, the sole assets of AES Trust III were the 6.75% Debentures. In June 2017, the Company redeemed the 6.75% Debentures and redeemed at par all remaining aggregate principal of its existing TECONs.

11. COMMITMENTS

LEASES — The Company enters into long-term non-cancelable lease arrangements which, for accounting purposes, are classified as either operating or capital leases. Operating leases primarily include certain transmission lines, office rental and site leases. Operating lease rental expense for the years ended December 31, 2017, 2016, and 2015 was $61 million, $61 million and $45 million, respectively. Capital leases primarily include transmission lines, vehicles, offices, and other operating equipment. Capital leases are recognized in Property, Plant and Equipment within Electric generation, distribution assets and other. The gross value of the capital lease assets as of December 31, 2017 and 2016 was $27 million and $22 million, respectively. The following table shows the future minimum lease payments under operating and capital leases for continuing operations together with the present value of the net minimum lease payments under capital leases as of December 31, 2017 for 2018 through 2022 and thereafter (in millions):

	Future Commitments for
December 31,	Capital Leases				Operating Leases
2018	$	2			$	58
2019	1				58
2020	1				58
2021	1				59
2022	1				58
Thereafter	12				644
Total	$	18			$	935
Less: Imputed interest	(10		)
Present value of total minimum lease payments	$	8

CONTRACTS — The Company enters into long-term contracts for construction projects, maintenance and service, transmission of electricity, operations services and purchase of electricity and fuel. In general, these contracts are subject to variable quantities or prices and are terminable only in limited circumstances. The following table shows the future minimum commitments for continuing operations under these contracts as of December 31,

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

2017 for 2018 through 2022 and thereafter as well as actual purchases under these contracts for the years ended December 31, 2017, 2016, and 2015 (in millions):

Actual purchases during the year ended December 31,	Electricity Purchase Contracts				Fuel Purchase Contracts				Other Purchase Contracts
2015	$	545			$	1,262			$	1,833
2016	420				1,790				817
2017	747				1,619				1,945
Future commitments for the year ending December 31,
2018	$	581			$	1,759			$	1,488
2019	508				1,051				931
2020	440				591				470
2021	469				538				234
2022	438				454				547
Thereafter	2,065				1,466				1,314
Total	$	4,501			$	5,859			$	4,984

12. CONTINGENCIES

Guarantees and Letters of Credit — In connection with certain project financings, acquisitions and dispositions, power purchases 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 businesses. 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 expects to fulfill within the normal course of business. The expiration dates of these guarantees vary from less than one year to more than 17 years.

The following table summarizes the Parent Company's contingent contractual obligations as of December 31, 2017. Amounts presented in the following table 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. There were no obligations made by the Parent Company for the direct benefit of the lenders associated with the non-recourse debt of its businesses.

Contingent Contractual Obligations		Amount (in millions)				Number of Agreements		Maximum Exposure Range for Each Agreement (in millions)
Guarantees and commitments		$	815			21		$1 — 272
Letters of credit under the unsecured credit facility		52				4		$2 — 26
Asset sale related indemnities (1)		27				1		27
Letters of credit under the senior secured credit facility		36				21		<$1 — 13
Total		$	930			47

---

(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 year ended December 31, 2017, the Company paid letter of credit fees ranging from 0.25% to 2.25% per annum on the outstanding amounts of letters of credit.

Environmental — The Company periodically reviews its obligations as they relate to compliance with environmental laws, including site restoration and remediation. As of December 31, 2017 and 2016 the Company had recognized liabilities of $5 million and $9 million, respectively, for projected environmental remediation costs. Due to the uncertainties associated with environmental assessment and remediation activities, future costs of compliance or remediation 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 December 31, 2017. In aggregate, the Company estimates that the range of potential losses related to environmental matters, where estimable, to be up to $18 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 AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

the amount of loss can be reasonably estimated. The Company has recognized aggregate liabilities for all claims of approximately $50 million and $59 million as of December 31, 2017 and 2016, respectively. These amounts are reported on the Consolidated Balance Sheets within Accrued and other liabilities and Other noncurrent liabilities. A significant portion of these accrued liabilities relate to regulatory matters and commercial disputes in international jurisdictions. 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.

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 December 31, 2017. 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 $140 million and $173 million. 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.

13. BENEFIT PLANS

Defined Contribution Plan — The Company sponsors four defined contribution plans ("the DC Plans"). Two plans cover U.S. non-union employees; one for Parent Company and certain US SBU business employees, and one for DPL employees. The remaining two plans include union and non-union employees at IPL and union employees at DPL. The DC Plans are qualified under section 401 of the Internal Revenue Code. Most U.S. employees of the Company are eligible to participate in the appropriate plan except for those employees who are covered by a collective bargaining agreement, unless such agreement specifically provides that the employee is considered an eligible employee under a plan. Within the DC Plans, the Company provides matching contributions in addition to other non-matching contributions. Participants are fully vested in their own contributions. The Company's contributions vest over various time periods ranging from immediate up to five years. For the years ended December 31, 2017, 2016 and 2015, costs for defined contribution plans were approximately $23 million, $15 million and $18 million, respectively.

Defined Benefit Plans — Certain of the Company's subsidiaries have defined benefit pension plans covering substantially all of their respective employees ("the DB Plans"). Pension benefits are based on years of credited service, age of the participant, and average earnings. Of the 31 active DB Plans as of December 31, 2017, five are at U.S. subsidiaries and the remaining plans are at foreign subsidiaries.

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

The following table reconciles the Company's funded status, both domestic and foreign, as of the periods indicated (in millions):

		2017								2016
		U.S.				Foreign				U.S.				Foreign
CHANGE IN PROJECTED BENEFIT OBLIGATION:
Benefit obligation as of January 1		$	1,188			$	411			$	1,172			$	374
Service cost		13				10				13				9
Interest cost		41				22				42				21
Employee contributions		—				1				—				1
Plan amendments		1				(1		)		—				(4		)
Plan curtailments		3				—				2				—
Plan settlements		—				(2		)		—				—
Benefits paid		(71		)		(22		)		(60		)		(19		)
Actuarial loss		82				29				19				58
Effect of foreign currency exchange rate changes		—				22				—				(29		)
Benefit obligation as of December 31		$	1,257			$	470			$	1,188			$	411
CHANGE IN PLAN ASSETS:
Fair value of plan assets as of January 1		$	1,044			$	402			$	1,021			$	379
Actual return on plan assets		141				31				61				59
Employer contributions		13				18				22				18
Employee contributions		—				1				—				1
Plan settlements		—				(2		)		—				—
Benefits paid		(71		)		(22		)		(60		)		(19		)
Effect of foreign currency exchange rate changes		—				27				—				(36		)
Fair value of plan assets as of December 31		$	1,127			$	455			$	1,044			$	402
RECONCILIATION OF FUNDED STATUS
Funded status as of December 31		$	(130	)		$	(15	)		$	(144	)		$	(9	)

The following table summarizes the amounts recognized on the Consolidated Balance Sheets related to the funded status of the DB Plans, both domestic and foreign, as of the periods indicated (in millions):

December 31,		2017								2016
Amounts Recognized on the Consolidated Balance Sheets		U.S.				Foreign				U.S.				Foreign
Noncurrent assets		$	—			$	69			$	—			$	60
Accrued benefit liability—current		—				(6		)		—				(5		)
Accrued benefit liability—noncurrent		(130		)		(78		)		(144		)		(64		)
Net amount recognized at end of year		$	(130	)		$	(15	)		$	(144	)		$	(9	)

The following table summarizes the Company's U.S. and foreign accumulated benefit obligation as of the periods indicated (in millions):

December 31,	2017								2016
	U.S.				Foreign				U.S.				Foreign
Accumulated Benefit Obligation	$	1,236			$	433			$	1,167			$	384
Information for pension plans with an accumulated benefit obligation in excess of plan assets:
Projected benefit obligation	$	1,257			$	109			$	1,188			$	90
Accumulated benefit obligation	1,236				97				1,167				80
Fair value of plan assets	1,127				33				1,044				25
Information for pension plans with a projected benefit obligation in excess of plan assets:
Projected benefit obligation	$	1,257			$	238			$	1,188			$	212
Fair value of plan assets	1,127				154				1,044				142

The following table summarizes the significant weighted average assumptions used in the calculation of benefit obligation and net periodic benefit cost, both domestic and foreign, as of the periods indicated:

December 31,		2017						2016
		U.S.			Foreign			U.S.			Foreign
Benefit Obligation:	Discount rate	3.67	%		5.23	%		4.28	%		5.83	%
	Rate of compensation increase	3.34	%		4.65	%		3.34	%		4.86	%
Periodic Benefit Cost:	Discount rate	4.28	%		5.83	%	(1)	4.44	%		6.10	%	(1)
	Expected long-term rate of return on plan assets	6.67	%		5.30	%		6.67	%		5.09	%
	Rate of compensation increase	3.34	%		4.86	%		3.34	%		4.45	%

---

(1)	Includes an inflation factor that is used to calculate future periodic benefit cost, but is not used to calculate the benefit obligation.

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

The Company establishes its estimated long-term return on plan assets considering various factors, which include the targeted asset allocation percentages, historic returns, and expected future returns.

The measurement of pension obligations, costs, and liabilities is dependent on a variety of assumptions. These assumptions include estimates of the present value of projected future pension payments to all plan participants, taking into consideration the likelihood of potential future events such as salary increases and demographic experience. These assumptions may have an effect on the amount and timing of future contributions.

The assumptions used in developing the required estimates include the following key factors: discount rates; salary growth; retirement rates; inflation; expected return on plan assets; and mortality rates. The effects of actual results differing from the Company's assumptions are accumulated and amortized over future periods and, therefore, generally affect the Company's recognized expense in such future periods. Unrecognized gains or losses are amortized using the “corridor approach,” under which the net gain or loss in excess of 10% of the greater of the projected benefit obligation or the market-related value of the assets, if applicable, is amortized.

Sensitivity of the Company's pension funded status to the indicated increase or decrease in the discount rate and long-term rate of return on plan assets assumptions is shown below. Note that these sensitivities may be asymmetric and are specific to the base conditions at year-end 2017. They also may not be additive, so the impact of changing multiple factors simultaneously cannot be calculated by combining the individual sensitivities shown. The funded status as of December 31, 2017 is affected by the assumptions as of that date. Pension expense for 2017 is affected by the December 31, 2016 assumptions. The impact on pension expense from a one percentage point change in these assumptions is shown in the following table (in millions):

Increase of 1% in the discount rate		$	(13	)
Decrease of 1% in the discount rate		12
Increase of 1% in the long-term rate of return on plan assets		(15		)
Decrease of 1% in the long-term rate of return on plan assets		15

The following table summarizes the components of the net periodic benefit cost, both domestic and foreign, for the years indicated (in millions):

December 31,		2017								2016								2015
Components of Net Periodic Benefit Cost:		U.S.				Foreign				U.S.				Foreign				U.S.				Foreign
Service cost		$	13			$	10			$	13			$	9			$	16			$	10
Interest cost		41				23				42				21				48				23
Expected return on plan assets		(69		)		(21		)		(68		)		(19		)		(70		)		(20		)
Amortization of prior service cost		6				—				7				(1		)		7				—
Amortization of net loss		18				2				18				2				20				2
Curtailment loss recognized		4				—				4				—				—				—
Total pension cost		$	13			$	14			$	16			$	12			$	21			$	15

The following table summarizes in millions the amounts reflected in AOCL, including AOCL attributable to noncontrolling interests, on the Consolidated Balance Sheet as of December 31, 2017, that have not yet been recognized as components of net periodic benefit cost and amounts expected to be reclassified to earnings in the next fiscal year (in millions):

December 31, 2017	Accumulated Other Comprehensive Income (Loss)								Amounts expected to be reclassified to earnings in next fiscal year
	U.S.				Foreign				U.S.				Foreign
Prior service cost	$	(1	)		$	1			$	—			$	—
Unrecognized net actuarial loss	(22		)		(81		)		(2		)		(3		)
Total	$	(23	)		$	(80	)		$	(2	)		$	(3	)

The following table summarizes the Company's target allocation for 2017 and pension plan asset allocation, both domestic and foreign, as of the periods indicated:

					Percentage of Plan Assets as of December 31,
	Target Allocations				2017						2016
Asset Category	U.S.		Foreign		U.S.			Foreign			U.S.			Foreign
Equity securities	33%		4%		31.90	%		4.61	%		50.96	%		18.66	%
Debt securities	65%		93%		64.53	%		93.10	%		45.88	%		78.35	%
Real estate	2%		—%		3.20	%		0.44	%		3.16	%		0.75	%
Other	—%		3%		0.37	%		1.85	%		—	%		2.24	%
Total pension assets					100.00	%		100.00	%		100.00	%		100.00	%

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

The U.S. DB Plans seek to achieve the following long-term investment objectives:

•	maintenance of sufficient income and liquidity to pay retirement benefits and other lump sum payments;

•	long-term rate of return in excess of the annualized inflation rate;

•	long-term rate of return, net of relevant fees, that meets or exceeds the assumed actuarial rate; and

•	long-term competitive rate of return on investments, net of expenses, that equals or exceeds various benchmark rates.

The asset allocation is reviewed periodically to determine a suitable asset allocation which seeks to manage risk through portfolio diversification and takes into account the above-stated objectives, in conjunction with current funding levels, cash flow conditions and economic and industry trends. The following table summarizes the Company's U.S. DB Plan assets by category of investment and level within the fair value hierarchy as of the periods indicated (in millions):

		December 31, 2017																December 31, 2016
U.S. Plans		Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3				Total
Equity securities:	Mutual funds	$	359			$	—			$	—			$	359			$	532			$	—			$	—			$	532
Debt securities:	Government debt securities	135				—				—				135				86				—				—				86
	Mutual funds (1)	593				—				—				593				393				—				—				393
Real estate:	Real estate	—				36				—				36				—				33				—				33
Other:	Cash and cash equivalents	4				—				—				4				—				—				—				—
	Total plan assets	$	1,091			$	36			$	—			$	1,127			$	1,011			$	33			$	—			$	1,044

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(1)	Mutual funds categorized as debt securities consist of mutual funds for which debt securities are the primary underlying investment.

The investment strategy of the foreign DB Plans seeks to maximize return on investment while minimizing risk. The assumed asset allocation has less exposure to equities in order to closely match market conditions and near term forecasts. The following table summarizes the Company's foreign DB plan assets by category of investment and level within the fair value hierarchy as of the periods indicated (in millions):

		December 31, 2017																December 31, 2016
Foreign Plans		Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3				Total
Equity securities:	Mutual funds	$	20			$	—			$	—			$	20			$	71			$	—			$	—			$	71
	Private equity	—				—				1				1				—				—				4				4
Debt securities:	Government debt securities	11				—				—				11				10				—				—				10
	Mutual funds (1)	323				90				—				413				215				90				—				305
Real estate:	Real estate	—				—				2				2				—				—				3				3
Other:	Participant loans (2)	—				—				—				—				—				—				2				2
	Other assets	1				—				7				8				4				—				3				7
	Total plan assets	$	355			$	90			$	10			$	455			$	300			$	90			$	12			$	402

---

(1)	Mutual funds categorized as debt securities consist of mutual funds for which debt securities are the primary underlying investment.

(2)	Loans to participants are stated at cost, which approximates fair value.

The following table summarizes the estimated cash flows for U.S. and foreign expected employer contributions and expected future benefit payments, both domestic and foreign (in millions):

		U.S.				Foreign
Expected employer contribution in 2018		$	39			$	15
Expected benefit payments for fiscal year ending:
2018		71				23
2019		73				23
2020		74				25
2021		75				26
2022		76				27
2023 - 2027		380				170

14. EQUITY

Equity Transactions with Noncontrolling Interests

Alto Maipo — In March 2017, AES Gener completed the legal and financial restructuring of Alto Maipo. As part of this restructuring, AES indirectly acquired the 40% ownership interest of the noncontrolling shareholder, for a de minimis payment, and sold a 6.7% interest in the project to the construction contractor. This transaction resulted in a $196 million increase to the Parent Company’s Stockholders’ Equity due to an increase in additional paid-in-capital

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

of $229 million, offset by the reclassification of accumulated other comprehensive losses from NCI to the Parent Company Stockholders’ Equity of $33 million. No gain or loss was recognized in net income as the sale was not considered to be a sale of in-substance real estate. After completion of the sale, the Company has an effective 62% economic interest in Alto Maipo. As the Company maintained control of the partnership after the sale, Alto Maipo continues to be consolidated by the Company within the Andes SBU reportable segment.

Dominican Republic — As part of a purchase agreement executed in 2014, Estrella and Linda Groups, an investor-based group in the Dominican Republic, had options to acquire additional interests in our businesses in the Dominican Republic. In December 2015, Estrella and Linda Groups exercised their first call option to acquire an additional 2% of our businesses in the Dominican Republic for $18 million, resulting in a net increase of $7 million to additional paid-in-capital. No gain or loss was recognized in net income as the sale was not considered to be a sale of in-substance real estate. After exercising this option, Estrella and Linda Groups held a 10% interest in our businesses in the Dominican Republic. Estrella and Linda Groups had a final option to acquire an additional 10% of our businesses in the Dominican Republic for $125 million which expired in December 2017.

In September 2017, Linda Group acquired 5% of our Dominican Republic business for $60 million, pre-tax. This transaction resulted in a net increase of $25 million to the Company’s additional paid-in-capital and noncontrolling interest, respectively. No gain or loss was recognized in net income as the sale was not considered a sale of in-substance real estate. As the Company maintained control after the sale, our businesses in the Dominican Republic continue to be consolidated by the Company within the MCAC SBU reportable segment.

Jordan — In February 2016, the Company completed the sale of 40% of its interest in a wholly-owned subsidiary in Jordan that owns a controlling interest in the Jordan IPP4 gas-fired plant for $21 million. The transaction was accounted for as a sale of in-substance real estate and a pre-tax gain of $4 million, net of transaction costs, was recognized in net income. The cash proceeds from the sale are reflected in Proceeds from the sale of businesses, net of cash sold on the Consolidated Statement of Cash Flows for the period ended December 31, 2016. After completion of the sale, the Company has a 36% economic interest in Jordan IPP4 and continues to manage and operate the plant, with 40% owned by Mitsui Ltd. and 24% owned by Nebras Power Q.S.C. As the Company maintained control after the sale, Jordan IPP4 continues to be consolidated by the Company within the Eurasia SBU reportable segment.

Brazil Reorganization — In 2015, the Company completed a restructuring of Tietê. This transaction resulted in no change of ownership or control. The $27 million impact of this equity transaction was recognized in additional paid-in-capital.

Gener — In November 2015, the Company sold a 4% stake in AES Gener S.A. ("Gener") through its 99.9% owned subsidiary Inversiones Cachagua S.p.A ("Cachagua") for $145 million, net of transaction costs. The sale was of previously issued common shares of Gener to certain institutional investors and is not a sale of in-substance real estate. While the sale decreased Parent ownership interest from 70.7% to 66.7%, the Parent continues to retain its controlling financial interest in the subsidiary. The difference of $24 million between the fair value of the consideration received, net of taxes and transaction costs, and the amount by which the NCI is adjusted was recognized in additional paid-in-capital. No pre-tax gain or loss was recognized in net income as a result of this transaction.

The following table summarizes the net income attributable to The AES Corporation and all transfers (to) from noncontrolling interests for the periods indicated (in millions):

		December 31,
		2017				2016				2015
Net income (loss) attributable to The AES Corporation		$	(1,161	)		$	(1,130	)		$	306
Transfers from noncontrolling interest:
Net increase in The AES Corporation's paid-in capital for sale of subsidiary shares		13				84				323
Additional paid-in-capital, IPALCO shares, transferred to redeemable stock of subsidiaries (1)		—				(84		)		(377		)
Increase (decrease) in The AES Corporation's paid-in-capital for purchase of subsidiary shares		240				(2		)		—
Net transfers (to) from noncontrolling interest		253				(2		)		(54		)
Change from net income (loss) attributable to The AES Corporation and transfers (to) from noncontrolling interests		$	(908	)		$	(1,132	)		$	252

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(1)	See Note 17—Redeemable stock of subsidiaries for further information on increase in paid-in-capital transferred to redeemable stock of subsidiaries.

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

Deconsolidations

UK Wind — During 2016, the Company determined it no longer had control of its wind development projects in the United Kingdom (“UK Wind”) as the Company no longer held seats on the board of directors. In accordance with accounting guidance, UK Wind was deconsolidated and a loss on deconsolidation of $20 million was recorded to Gain (loss) on disposal and sale of businesses in the Consolidated Statement of Operations to write off the Company’s noncontrolling interest in the project. The UK Wind projects were reported in the Eurasia SBU reportable segment.

Accumulated Other Comprehensive Loss — The changes in AOCL by component, net of tax and noncontrolling interests, for the periods indicated were as follows (in millions):

	Foreign currency translation adjustment, net				Unrealized derivative losses, net				Unfunded pension obligations, net				Total
Balance at December 31,2015	$	(3,256	)		$	(353	)		$	(274	)		$	(3,883	)
Other comprehensive income (loss) before reclassifications	117				2				(13		)		106
Amount reclassified to earnings	992				28				1				1,021
Other comprehensive income (loss)	$	1,109			$	30			$	(12	)		$	1,127
Balance at December 31, 2016	$	(2,147	)		$	(323	)		$	(286	)		$	(2,756	)
Other comprehensive loss before reclassifications	$	18			$	(14	)		$	(19	)		$	(15	)
Amount reclassified to earnings	643				37				248				928
Other comprehensive income	$	661			$	23			$	229			$	913
Reclassification from NCI due to Alto Maipo Restructuring	—				(33		)		—				(33		)
Balance at December 31, 2017	$	(1,486	)		$	(333	)		$	(57	)		$	(1,876	)

Reclassifications out of AOCL are presented in the following table. Amounts for the periods indicated are in millions and those in parenthesis indicate debits to the Condensed Consolidated Statements of Operations:

Details About				December 31,
AOCL Components		Affected Line Item in the Consolidated Statements of Operations		2017				2016				2015
Foreign currency translation adjustments, net
		Gain (loss) on disposal and sale of businesses		$	(188	)		$	—			$	—
		Net loss from disposal and impairments of discontinued operations		(455		)		(992		)		—
		Net income (loss) attributable to The AES Corporation		$	(643	)		$	(992	)		$	—
Unrealized derivative gains (losses), net
		Non-regulated revenue		$	25			$	111			$	43
		Non-regulated cost of sales		(12		)		(57		)		(14		)
		Interest expense		(79		)		(107		)		(112		)
		Gain (loss) on disposal and sale of businesses		—				—				(4		)
		Foreign currency transaction gains		15				8				12
		Income from continuing operations before taxes and equity in earnings of affiliates		(51		)		(45		)		(75		)
		Income tax expense		1				8				11
		Net equity in earnings of affiliates		—				—				(2		)
		Income (loss) from continuing operations		(50		)		(37		)		(66		)
		Less: (Income) from continuing operations attributable to noncontrolling interests		13				9				18
		Net income (loss) attributable to The AES Corporation		$	(37	)		$	(28	)		$	(48	)
Amortization of defined benefit pension actuarial losses, net
		Non-regulated cost of sales		1				—				2
		General and administrative expenses		(1		)		(1		)		(2		)
		Other expense		—				(1		)		—
		Income from continuing operations before taxes and equity in earnings of affiliates		—				(2		)		—
		Income tax expense		—				3				9
		Income from continuing operations		—				1				9
		Net loss from disposal and impairments of discontinued operations		(266		)		(11		)		(25		)
		Net income (loss)		(266		)		(10		)		(16		)
		Less: (Income) from continuing operations attributable to noncontrolling interests		—				9				14
		Add: Loss from discontinued operations attributable to noncontrolling interests		18				—				—
		Net income (loss) attributable to The AES Corporation		$	(248	)		$	(1	)		$	(2	)
Total reclassifications for the period, net of income tax and noncontrolling interests				$	(928	)		$	(1,021	)		$	(50	)

Common Stock Dividends — The Parent Company paid dividends of $0.12 per outstanding share to its common stockholders during the first, second, third and fourth quarters of 2017 for dividends declared in December 2016, February, July, and October 2017, respectively.

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

On December 8, 2017, the Board of Directors declared a quarterly common stock dividend of $0.13 per share payable on February 15, 2018 to shareholders of record at the close of business on February 1, 2018.

Stock Repurchase Program — No shares were repurchased in 2017. The cumulative repurchases from the commencement of the Program in July 2010 through December 31, 2017 totaled 154.3 million shares for a total cost of $1.9 billion, at an average price per share of $12.12 (including a nominal amount of commissions). As of December 31, 2017, $246 million remained available for repurchase under the Program.

The common stock repurchased has been classified as treasury stock and accounted for using the cost method. A total of 155,924,785 and 156,878,891 shares were held as treasury stock at December 31, 2017 and 2016, respectively. Restricted stock units under the Company's employee benefit plans are issued from treasury stock. The Company has not retired any common stock repurchased since it began the Program in July 2010.

15. SEGMENTS AND GEOGRAPHIC INFORMATION

The segment reporting structure uses the Company's organizational structure as its foundation to reflect how the Company manages the businesses internally and is organized by geographic regions which provides a socio-political-economic understanding of our business. During the third quarter of 2017, the Europe and Asia SBUs were merged in order to leverage scale and are now reported as part of the Eurasia SBU. The management reporting structure is organized by five SBUs led by our President and Chief Executive Officer: US, Andes, Brazil, MCAC and Eurasia SBUs. The Company determined that it has five operating and five reportable segments corresponding to its SBUs. All prior period results have been retrospectively revised to reflect the new segment reporting structure. In February 2018, we announced a reorganization as a part of our ongoing strategy to simplify our portfolio, optimize our cost structure, and reduce our carbon intensity. The Company is currently evaluating the impact this reorganization will have on our segment reporting structure.

Corporate and Other — Corporate overhead costs which are not directly associated with the operations of our five 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 pre-tax 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, losses and associated benefits and costs due to dispositions and acquisitions of business interests, including early plant closures; (d) losses due to impairments; (e) gains, losses and costs due to the early retirement of debt; and (f) costs directly associated with a major restructuring program, including, but not limited to, workforce reduction efforts, relocations, and office consolidation. 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. The Company has concluded Adjusted PTC better 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 Company's results.

Revenue and Adjusted PTC are presented before inter-segment eliminations, which includes the effect of intercompany transactions with other segments except for interest, charges for certain management fees, and the write-off of intercompany balances, as applicable. All intra-segment activity has been eliminated within the segment. Inter-segment activity has been eliminated within the total consolidated results.

The following tables present financial information by segment for the periods indicated (in millions):

	Total Revenue
Year Ended December 31,	2017				2016				2015
US SBU	$	3,229			$	3,429			$	3,593
Andes SBU	2,710				2,506				2,489
Brazil SBU	542				450				962
MCAC SBU	2,448				2,172				2,353
Eurasia SBU	1,590				1,670				1,875
Corporate and Other	35				77				31
Eliminations	(24		)		(23		)		(43		)
Total Revenue	$	10,530			$	10,281			$	11,260

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

Reconciliation from Income from Continuing Operations before Taxes and Equity in Earnings of Affiliates:	Total Adjusted PTC
Year Ended December 31,	2017				2016				2015
Income from continuing operations before taxes and equity in earnings of affiliates	$	771			$	187			$	989
Add: Net equity earnings in affiliates	71				36				105
Less: Income from continuing operations before taxes, attributable to noncontrolling interests	(521		)		(354		)		(513		)
Pre-tax contribution	321				(131		)		581
Unrealized derivative gains	(3		)		(9		)		(166		)
Unrealized foreign currency (gains) losses	(59		)		22				95
Disposition/acquisition (gains) losses	123				6				(42		)
Impairment losses	542				933				504
Loss on extinguishment of debt	62				29				179
Restructuring costs (1)	31				—				—
Total Adjusted PTC	$	1,017			$	850			$	1,151

---

(1)	One-time restructuring charges consisting of severance costs related to workforce reductions.

	Total Adjusted PTC
Year Ended December 31,	2017				2016				2015
US SBU	$	361			$	347			$	360
Andes SBU	386				390				482
Brazil SBU	60				38				92
MCAC SBU	340				267				327
Eurasia SBU	290				283				331
Corporate and Other	(420		)		(475		)		(441		)
Total Adjusted PTC	$	1,017			$	850			$	1,151

	Total Assets												Depreciation and Amortization												Capital Expenditures
Year Ended December 31,	2017				2016				2015				2017				2016				2015				2017				2016				2015
US SBU	$	9,852			$	9,333			$	9,800			$	437			$	471			$	443			$	858			$	809			$	861
Andes SBU	8,840				8,971				8,594				250				218				175				443				538				949
Brazil SBU	2,034				1,516				1,179				51				33				39				34				31				47
MCAC SBU	5,532				5,162				4,820				172				165				155				482				480				201
Eurasia SBU	4,557				5,777				6,200				127				149				166				211				279				131
Assets of discontinued operations and held-for-sale businesses	2,034				4,936				5,411				123				128				146				315				303				252
Corporate and Other	263				429				541				9				12				20				13				18				17
Total	$	33,112			$	36,124			$	36,545			$	1,169			$	1,176			$	1,144			$	2,356			$	2,458			$	2,458

	Interest Income												Interest Expense
Year Ended December 31,	2017				2016				2015				2017				2016				2015
US SBU	$	—			$	—			$	—			$	258			$	236			$	262
Andes SBU	50				57				77				205				178				154
Brazil SBU	45				38				31				92				69				58
MCAC SBU	18				11				30				168				163				179
Eurasia SBU	130				139				116				167				179				158
Corporate and Other	1				—				2				280				309				334
Total	$	244			$	245			$	256			$	1,170			$	1,134			$	1,145

	Investments in and Advances to Affiliates												Net Equity in Earnings of Affiliates
Year Ended December 31,	2017				2016				2015				2017				2016				2015
US SBU	$	527			$	23			$	1			$	41			$	9			$	—
Andes SBU	358				363				345				28				15				83
MCAC SBU	3				(1		)		—				(4		)		(2		)		—
Eurasia SBU	307				236				248				9				13				18
Corporate and Other	2				—				16				(3		)		1				4
Total	$	1,197			$	621			$	610			$	71			$	36			$	105

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

The following table presents information, by country, about the Company's consolidated operations for each of the three years ended December 31, 2017, 2016, and 2015, and as of December 31, 2017 and 2016 (in millions). Revenue is recorded in the country in which it is earned and assets are recorded in the country in which they are located.

	Total Revenue												Property, Plant & Equipment, net
Year Ended December 31,	2017				2016				2015				2017				2016
United States	$	3,240			$	3,489			$	3,597			$	7,403			$	7,397
Non-U.S.:
Chile	1,944				1,707				1,523				5,066				4,995
Dominican Republic	826				614				632				935				914
El Salvador	686				601				736				340				327
Brazil	541				450				962				1,286				789
Philippines	449				401				406				—				866
Argentina	435				359				399				223				195
Bulgaria	367				334				382				1,290				1,174
Mexico	352				342				383				687				699
Panama	338				312				297				1,615				1,233
Colombia	332				437				557				332				451
United Kingdom	328				337				396				108				151
Vietnam (1)	278				340				233				2				1
Puerto Rico	247				301				302				565				583
Jordan	95				136				248				431				452
Kazakhstan	67				103				155				—				178
Other Non-U.S.	5				18				52				13				10
Total Non-U.S.	7,290				6,792				7,663				12,893				13,018
Total	$	10,530			$	10,281			$	11,260			$	20,296			$	20,415

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(1)	The Mong Duong II power project is accounted for as a service concession arrangement. Costs of construction of the plant have been deferred in Service concession assets on the Consolidated Balance Sheets.

16. SHARE-BASED COMPENSATION

RESTRICTED STOCK

Restricted Stock Units — The Company issues restricted stock units ("RSUs") under its long-term compensation plan. The RSUs are generally granted based upon a percentage of the participant's base salary. The units have a three-year vesting schedule and vest in one-third increments over the three-year period. In all circumstances, RSUs granted by AES do not entitle the holder the right, or obligate AES, to settle the RSU in cash or other assets of AES.

For the years ended December 31, 2017, 2016, and 2015, RSUs issued had a grant date fair value equal to the closing price of the Company's stock on the grant date. The Company does not discount the grant date fair values to reflect any post-vesting restrictions. RSUs granted to employees during the years ended December 31, 2017, 2016, and 2015 had grant date fair values per RSU of $11.93, $9.42 and $12.03, respectively.

The following table summarizes the components of the Company's stock-based compensation related to its employee RSUs recognized in the Company's consolidated financial statements (in millions):

December 31,		2017				2016				2015
RSU expense before income tax		$	17			$	14			$	13
Tax benefit		(4		)		(4		)		(3		)
RSU expense, net of tax		$	13			$	10			$	10
Total value of RSUs converted (1)		$	10			$	7			$	16
Total fair value of RSUs vested		$	15			$	13			$	12

---

(1)	Amount represents fair market value on the date of conversion.

Cash was not used to settle RSUs or compensation cost capitalized as part of the cost of an asset for the years ended December 31, 2017, 2016, and 2015. As of December 31, 2017, total unrecognized compensation cost related to RSUs of $17 million is expected to be recognized over a weighted average period of approximately 1.8 years. There were no modifications to RSU awards during the year ended December 31, 2017.

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

A summary of the activity of RSUs for the year ended December 31, 2017 follows (RSUs in thousands):

		RSUs			Weighted Average Grant Date Fair Values				Weighted Average Remaining Vesting Term
Non-vested at December 31, 2016		3,037			$	10.70
Vested		(1,337	)		11.37
Forfeited and expired		(280	)		10.94
Granted		1,546			11.93
Non-vested at December 31, 2017		2,966			$	11.02			1.4
Vested and expected to vest at December 31, 2017		2,711			$	11.01

The Company initially recognizes compensation cost on the estimated number of instruments for which the requisite service is expected to be rendered. In 2017, AES has estimated a weighted average forfeiture rate of 10.35% for RSUs granted in 2017. This estimate will be revised if subsequent information indicates that the actual number of instruments forfeited is likely to differ from previous estimates. Based on the estimated forfeiture rate, the Company expects to expense $17 million on a straight-line basis over a three-year period.

The following table summarizes the RSUs that vested and were converted during the periods indicated (RSUs in thousands):

Year Ended December 31,		2017			2016			2015
RSUs vested during the year		1,337			1,063			954
RSUs converted during the year, net of shares withheld for taxes		865			705			1,238
Shares withheld for taxes		472			358			549

OTHER SHARE BASED COMPENSATION

The Company has three other share-based award programs. The Company has recorded expenses of $8 million, $10 million and $8 million for 2017, 2016 and 2015, respectively, related to these programs.

Stock options — AES grants options to purchase shares of common stock under stock option plans to employees and non-employee directors. Under the terms of the plans, the Company may issue options to purchase shares of the Company's common stock at a price equal to 100% of the market price at the date the option is granted. Stock options issued in 2015 have a three-year vesting schedule and vest in one-third increments over the three-year period. The stock options have a contractual term of ten years. In all circumstances, stock options granted by AES do not entitle the holder the right, or obligate AES, to settle the stock option in cash or other assets of AES.

Performance Stock Units — In 2015, 2016 and 2017, the Company issued performance stock units ("PSUs") to officers under its long-term compensation plan. PSUs are restricted stock units; certain units awarded include a market condition and the remaining awards include performance conditions. Performance conditions are based on Company's Adjusted EBITDA targets for 2015 and Free Cash Flow targets for 2016 and 2017. For the units subject to market conditions, the total stockholder return on AES common stock must exceed the total stockholder return of the Standard and Poor's 500 Utilities Sector Index over a three-year measurement period. The market and performance conditions determine the vesting and final share equivalent per PSU and can result in earning an award payout range of 0% to 200%, depending on the achievement. The Company believes that it is probable that the performance condition will be met and will continue to be evaluated throughout the performance period. In all circumstances, PSUs granted by AES do not entitle the holder the right, or obligate AES, to settle the RSU in cash or other assets of AES.

Performance Cash Units — In 2016 and 2017, the Company issued Performance Cash Units ("PCUs") to its officers under its long-term compensation plan. The value of these units depends on the total stockholder return on AES common stock as compared to the total stockholder return of the Standard and Poor's 500 Utilities Sector Index, Standard and Poor's 500 Index and MSCI Emerging Market Index over a three-year measurement period. Since PCUs are settled in cash, they qualify for liability accounting and periodic measurement is required.

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

17. REDEEMABLE STOCK OF SUBSIDIARIES

The following table is a reconciliation of changes in redeemable stock of subsidiaries (in millions):

December 31,	2017				2016
Balance at the beginning of the period	$	782			$	538
Sale of redeemable stock of subsidiaries	—				134
Contributions from holders of redeemable stock of subsidiaries	50				130
Net loss attributable to redeemable stock of subsidiaries	(14		)		(11		)
Fair value adjustment (1)	25				4
Other comprehensive income (loss) attributable to redeemable stock of subsidiaries	(2		)		6
Acquisition and reclassification of stock of subsidiaries	(4		)		(19		)
Balance at the end of the period	$	837			$	782

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(1)	$5 million increase in fair value of DP&L preferred shares offset by $1 million decrease in fair value of Colon common stock in 2016.

The following table summarizes the Company's redeemable stock of subsidiaries balances as of the periods indicated (in millions):

December 31,	2017				2016
IPALCO common stock	$	618			$	618
Colon quotas (1)	159				100
IPL preferred stock	60				60
Other common stock	—				4
Total redeemable stock of subsidiaries	$	837			$	782

---

(1)	Characteristics of quotas are similar to common stock.

Colon — Our partner in Colon made capital contributions of $50 million and $106 million during the year ended December 31, 2017 and 2016, respectively. Any subsequent adjustments to allocate earnings and dividends to our partner, or measure the investment at fair value, will be classified as temporary equity each reporting period as it is probable that the shares will become redeemable.

IPL — IPL had $60 million of cumulative preferred stock outstanding at December 31, 2017 and 2016, which represent five series of preferred stock. The total annual dividend requirements were approximately $3 million at December 31, 2017 and 2016. Certain series of the preferred stock were redeemable solely at the option of the issuer at prices between $100 and $118 per share. Holders of the preferred stock are entitled to elect a majority of IPL's board of directors if IPL has not paid dividends to its preferred stockholders for four consecutive quarters. Based on the preferred stockholders' ability to elect a majority of IPL's board of directors in this circumstance, the redemption of the preferred shares is considered to be not solely within the control of the issuer and the preferred stock is considered temporary equity.

DPL — DPL had $18 million of cumulative preferred stock outstanding as of December 31, 2015, for which redemption became probable in September 2016. As such, the Company recorded an adjustment of $5 million to retained earnings to adjust the preferred shares to their redemption value of $23 million. In October 2016, DPL redeemed all of its preferred shares. Upon redemption, the preferred shares were no longer outstanding and all rights of the shareholders of DPL ceased to exist.

IPALCO — In February 2015, CDPQ purchased 15% of AES US Investment, Inc., a wholly-owned subsidiary of IPALCO, for $247 million, with an option to invest an additional $349 million in IPALCO through 2016 in exchange for a 17.65% equity stake. In April 2015, CDPQ invested an additional $214 million in IPALCO, which resulted in CDPQ's combined direct and indirect interest in IPALCO of 24.90%. As a result of these transactions, $84 million in taxes and transaction costs were recognized as a net decrease to equity. The Company also recognized an increase 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. No gain or loss was recognized in net income as the transaction was not considered to be a sale of in-substance real estate.

In March 2016, CDPQ exercised its remaining option by investing $134 million in IPALCO, which resulted in CDPQ's combined direct and indirect interest in IPALCO of 30%. The Company also recognized an increase to additional paid-in-capital and a reduction to retained earnings of $84 million for the excess of the fair value of the shares over their book value. In June 2016, CDPQ contributed an additional $24 million to IPALCO, with no impact to the ownership structure of the investment. Any subsequent adjustments to allocate earnings and dividends to

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

CDPQ will be classified as NCI within permanent equity as it is not probable that the shares will become redeemable.

18. OTHER INCOME AND EXPENSE

Other Income — Other income generally includes gains on asset sales and liability extinguishments, favorable judgments on contingencies, gains on contract terminations, allowance for funds used during construction and other income from miscellaneous transactions. The components are summarized as follows (in millions):

Year Ended December 31,	2017				2016				2015
Legal settlements (1)	$	60			$	—			$	—
Allowance for funds used during construction (US Utilities)	26				29				17
Gain on sale of assets	1				4				17
Contract termination	—				—				20
Other	33				31				30
Total other income	$	120			$	64			$	84

---

(1)	In December 2016, the Company and YPF entered into a settlement in which all parties agreed to give up any and all legal action related to gas supply contracts that were terminated in 2008 and have been in dispute since 2009. In January 2017, the YPF board approved the agreement and paid the Company $60 million, thereby resolving all uncertainties around the dispute.

Other Expense — Other expense generally includes losses on asset sales and dispositions, losses on legal contingencies, and losses from other miscellaneous transactions. The components are summarized as follows (in millions):

Year Ended December 31,	2017				2016				2015
Allowance for other receivables (1)	$	—			$	52			$	—
Loss on sale and disposal of assets	28				12				—
Water rights write-off	19				6				10
Other	10				9				14
Total other expense	$	57			$	79			$	24

---

(1)

During the fourth quarter of 2016, we recognized a full allowance on a non-trade receivable in the MCAC SBU as a result of payment delays and discussions with the counterparty. The allowance relates to certain reimbursements the Company was expecting in connection with a legal matter. Management believes the counterparty is obligated to pay and plans to continue to attempt to fully collect the non-trade receivable.

19. ASSET IMPAIRMENT EXPENSE

Year ended December 31, (in millions)		2017				2016				2015
DPL		$	175			$	859			$	—
Laurel Mountain		121				—				—
Kazakhstan Hydroelectric		92				—				—
Kazakhstan CHPs		94				—				—
Kilroot		37				—				121
Buffalo Gap II		—				159				—
Buffalo Gap I		—				77				—
Buffalo Gap III		—				—				116
U.K. Wind		—				—				37
Other		18				1				11
Total		$	537			$	1,096			$	285

Laurel Mountain — During the fourth quarter of 2017, the Company tested the recoverability of its long-lived assets at Laurel Mountain, a wind farm in the U.S. Impairment indicators were identified based on a decline in forward pricing. The Company determined that the carrying amount was not recoverable. The Laurel Mountain asset group was determined to have a fair value of $33 million using the income approach. As a result, the Company recognized an asset impairment expense of $121 million. Laurel Mountain is reported in the US SBU reportable segment.

Kilroot — During the fourth quarter of 2017, the Company tested the recoverability of its long-lived assets at Kilroot, a coal and oil-fired plant in Northern Ireland, as Kilroot was not successful in bidding its coal units into the December 2017 capacity auction for the newly implemented I-SEM market. The Company determined that the carrying amount of the asset group was not recoverable. The Kilroot asset group was determined to have a fair value of $20 million using the income approach. As a result, the Company recognized an asset impairment expense of $37 million, which was limited to the carrying value of the coal units. Kilroot is reported in the Eurasia SBU reportable segment.

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

During 2015, the Company tested the recoverability of long-lived assets at Kilroot when the regulator established lower capacity prices for the I-SEM. The Company determined that the carrying amount of the asset group was not recoverable. The Kilroot asset group was determined to have a fair value of $70 million using the income approach. As a result, the Company recognized asset impairment expense of $121 million. Kilroot is reported in the Eurasia SBU reportable segment.

Kazakhstan Hydroelectric — In April 2017, the Republic of Kazakhstan stated the concession agreements would not be extended for Shulbinsk HPP and Ust-Kamenogorsk HPP, two hydroelectric plants in Kazakhstan, and initiated the process to transfer these plants back to the government. Upon meeting the held-for-sale criteria in the second quarter of 2017, the Company performed an impairment analysis and determined the carrying value of the asset group of $190 million, which included cumulative translation losses of $100 million, was greater than its fair value less costs to sell of $92 million. As a result, the Company recognized asset impairment expense of $92 million limited to the carrying value of the long-lived assets. The Company completed the transfer of the plants in October 2017. Prior to their transfer, the Kazakhstan hydroelectric plants were reported in the Eurasia SBU reportable segment. See Note 22—Held-for-Sale Businesses and Dispositions for further information.

Kazakhstan CHPs — In January 2017, the Company entered into an agreement for the sale of Ust-Kamenogorsk CHP and Sogrinsk CHP, its combined heating and power coal plants in Kazakhstan. Upon meeting the held-for-sale criteria in the first quarter of 2017, the Company performed an impairment analysis and determined that the carrying value of the asset group of $171 million, which included cumulative translation losses of $92 million, was greater than its fair value less costs to sell of $29 million. As a result, the Company recognized asset impairment expense of $94 million limited to the carrying value of the long-lived assets. The Company completed the sale of its interest in the Kazakhstan CHP plants in April 2017. Prior to their sale, the plants were reported in the Eurasia SBU reportable segment. See Note 22—Held-for-Sale Businesses and Dispositions for further information.

DPL — In March 2017, the Board of Directors of DPL approved the retirement of the DPL operated and co-owned Stuart coal-fired and diesel-fired generating units, and the Killen coal-fired generating unit and combustion turbine on or before June 1, 2018. The Company performed an impairment analysis and determined that the carrying amounts of the facilities were not recoverable. The Stuart and Killen asset groups were determined to have fair values of $3 million and $8 million, respectively, using the income approach. As a result, the Company recognized total asset impairment expense of $66 million. DPL is reported in the US SBU reportable segment.

In December 2017, DPL entered into an agreement for the sale of six of its combustion turbine and diesel-fired generation facilities and related assets ("DPL peaker assets"). Upon meeting the held-for-sale criteria, the Company performed an impairment analysis and determined that the carrying value of the asset group of $346 million was greater than its fair value less costs to sell of $237 million. As a result, the Company recognized asset impairment expense of $109 million. The DPL peaker assets are reported in the US SBU reportable segment. See Note 22—Held-for-Sale Businesses and Dispositions for further information.

During the second quarter of 2016, the Company tested the recoverability of its long-lived generation assets at DPL. Uncertainty created by the Supreme Court of Ohio’s June 20, 2016 opinion regarding ESP 2, lower expectations of future revenue resulting from the most recent PJM capacity auction and higher anticipated environmental compliance costs resulting from third party studies were collectively determined to be an impairment indicator for these assets. The Company performed an impairment analysis and determined that the carrying amount of Killen, a coal-fired generation facility, and certain DPL peaking generation facilities were not recoverable. The Killen and DPL peaking generation asset groups were determined to have a fair value of $84 million and $5 million, respectively, using the income approach. As a result, the Company recognized total asset impairment expense of $235 million. DPL is reported in the US SBU reportable segment.

During the fourth quarter of 2016, the Company tested the recoverability of its long-lived coal-fired generation assets and one gas-fired peaking plant at DPL. Uncertainty around the useful life of Stuart and Killen related to the Company’s ESP proceedings and lower forward dark spreads and capacity prices were collectively determined to be an impairment indicator for these assets. Market information indicating a significant decrease in the fair value of Zimmer and Miami Fort was determined to be an indicator of impairment for these assets. The lower forward dark spreads and capacity prices, along with the indicators at the other coal-fired facilities, collectively, resulted in an indicator of impairment for the Conesville asset group. For the gas-fired peaking plant, significant incremental capital expenditures relative to its fair value, and an impairment charge taken at this facility in the second quarter of 2016, were collectively determined to be impairment indicators for this asset. The Company performed an impairment analysis for each of these asset groups and determined that their carrying amounts were not

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

recoverable. The Stuart, Killen, Miami Fort, Zimmer, Conesville and the gas-fired peaking plant asset groups were determined to have fair values of $57 million, $43 million, $36 million, $24 million, $1 million and $2 million, respectively, using the market approach for Miami Fort and Zimmer and the income approach for the remaining asset groups. As a result, the Company recognized total asset impairment expense of $624 million. DPL is reported in the US SBU reportable segment.

Buffalo Gap I — During 2016, the Company tested the recoverability of its long-lived assets at Buffalo Gap I. Low wind production during 2016 resulted in management lowering future expectations of production and therefore future forecasted revenues. As such this was determined to be an impairment indicator. The Company determined that the carrying amount of the asset group was not recoverable. The Buffalo Gap I asset group was determined to have a fair value of $36 million using the income approach. As a result, the Company recognized asset impairment expense of $77 million ($23 million attributable to AES). Buffalo Gap I is reported in the US SBU reportable segment.

Buffalo Gap II — During 2016, the Company tested the recoverability of its long-lived assets at Buffalo Gap II. Impairment indicators were identified based on a decline in forward power curves. The Company determined that the carrying amount was not recoverable. The Buffalo Gap II asset group was determined to have a fair value of $92 million using the income approach. As a result, the Company recognized asset impairment expense of $159 million ($49 million attributable to AES). Buffalo Gap II is reported in the US SBU reportable segment.

Buffalo Gap III — During 2015, the Company tested the recoverability of its long-lived assets at Buffalo Gap III, a wind farm in Texas. Impairment indicators were identified based on a decline in forward power curves coupled with the near term expiration of favorable contracted cash flows. The Company determined that the carrying amount was not recoverable. The Buffalo Gap III asset group was determined to have a fair value of $118 million using the income approach. As a result, the Company recognized asset impairment expense of $116 million. Buffalo Gap III is reported in the US SBU reportable segment.

U.K. Wind — During 2015, the Company decided to no longer pursue two wind projects in the U.K. based on 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 U.K. Wind Projects are reported in the Eurasia SBU reportable segment. See Note 22—Held-for-Sale Businesses and Dispositions for further information.

20. INCOME TAXES

U.S. Tax Reform — On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “2017 Act”). The 2017 Act significantly changes U.S. corporate income tax law. Among other changes effective in 2017, the 2017 Act requires companies to pay a one-time tax on certain unrepatriated earnings of foreign subsidiaries.

The Company recognized the income tax effects of the 2017 Act in accordance with Staff Accounting Bulletin No. 118 (“SAB 118”) which provides SEC guidance on the application of ASC 740, Income Taxes, in the reporting period in which the 2017 Act was signed into law. Accordingly, the Company’s financial statements reflect provisional amounts for those impacts for which the accounting under ASC 740 is incomplete, but a reasonable estimate could be determined.

The Company has calculated its best estimate of the impact of the 2017 Act in its income tax provision for the year ended December 31, 2017 in accordance with its understanding of the 2017 Act and guidance available as of the date of this filing, and as a result recognized $714 million of tax expense in the fourth quarter of 2017.

This total includes a provisional tax expense of $39 million related to the remeasurement of certain deferred tax assets and liabilities from 35% to 21%. The most material deferred taxes to be remeasured related to net operating losses (after reduction for the one-time transition tax) and property, plant and equipment. Additional time is required to finalize remeasurement effects. In accordance with U.S. GAAP, the remeasurement of deferred tax assets and liabilities related to regulated utilities was recorded as a regulatory liability.

The fourth quarter impact also includes provisional tax expense of $675 million related to the one-time

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

transition tax on the deemed repatriation of foreign earnings. The calculation of the one-time tax is quite complex, requiring determinations of liquid asset balances over three years, determination of foreign earnings and profits (“E&P," a U.S. tax measure) at multiple dates, and multiple other computations. Our estimated tax expense was impacted by cash and restricted cash balances at foreign subsidiaries, unbilled receivables, and other liquid assets taxable at a 15.5% rate and the balance of non-cash E&P taxable at 8%. We anticipate further guidance on the determination of fair value for federal tax purposes of the shares we hold in our publicly traded subsidiaries, which are considered components of our foreign subsidiaries' "cash position" and taxed at the 15.5% rate, and may materially impact our provisional estimate. The one-time transition tax had a significant impact on our 2017 effective tax rate and utilized approximately $1.9 billion or 51% of our U.S. net operating losses. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the 2017 Act. The accounting is expected to be complete when the 2017 U.S. corporate income tax return is filed in 2018.

Argentine Tax Reform — In December 2017, the Argentine government enacted reforms to its income tax laws that resulted in a decrease to statutory income tax rates for our Argentine businesses from 35% to 30% in 2018-2019 and to 25% for 2020 and future years. The impact of remeasuring deferred taxes to account for the enacted change in future applicable income tax rates was recognized as income tax benefit in the fourth quarter of 2017, resulting in a decrease of $21 million to consolidated income tax expense.

Chilean Tax Reform — In February 2016, the Chilean government enacted further reforms to its income tax laws that resulted in an increase to statutory income tax rates for most of our Chilean businesses from 25% to 25.5% in 2017 and to 27% for 2018 and future years. The impact of remeasuring deferred taxes to account for the enacted change in future applicable income tax rates was recognized as a discrete income tax expense in the first quarter of 2016, resulting in an increase of $26 million to consolidated income tax expense.

Income Tax Provision — The following table summarizes the expense for income taxes on continuing operations for the periods indicated (in millions):

December 31,		2017				2016				2015
Federal:	Current	$	—			$	2			$	9
	Deferred	545				(361		)		(63		)
State:	Current	—				1				1
	Deferred	1				(4		)		(5		)
Foreign:	Current	335				318				470
	Deferred	109				76				—
Total		$	990			$	32			$	412

Effective and Statutory Rate Reconciliation — The following table summarizes a reconciliation of the U.S. statutory federal income tax rate to the Company's effective tax rate as a percentage of income from continuing operations before taxes for the periods indicated:

December 31,		2017			2016			2015
Statutory Federal tax rate		35	%		35	%		35	%
State taxes, net of Federal tax benefit		(7	)%		(18	)%		(6	)%
Taxes on foreign earnings		—	%		(46	)%		5	%
Valuation allowance		10	%		10	%		(5	)%
Uncertain tax positions		—	%		4	%		(1	)%
Noncontrolling Interest on Buffalo Gap impairments		—	%		31	%		3	%
Change in tax law		90	%		12	%		—	%
Goodwill impairment		—	%		—	%		11	%
Other—net		—	%		(11	)%		—	%
Effective tax rate		128	%		17	%		42	%

For 2017, the 90% change in tax law item relates primarily to the impact of U.S. and Argentina tax reform enacted in the current period. The impact of the U.S one-time transition tax and remeasurement of deferred taxes represents 88% and 5%, respectively, which is partially offset by the tax benefit resulting from Argentina tax reform representing 3%.

For 2016, the 31% Buffalo Gap impairments item relates to the amounts of impairment allocated to noncontrolling interest which is nondeductible.

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

Income Tax Receivables and Payables — The current income taxes receivable and payable are included in Other Current Assets and Accrued and Other Liabilities, respectively, on the accompanying Consolidated Balance Sheets. The noncurrent income taxes receivable and payable are included in Other Noncurrent Assets and Other Noncurrent Liabilities, respectively, on the accompanying Consolidated Balance Sheets. The following table summarizes the income taxes receivable and payable as of the periods indicated (in millions):

December 31,		2017				2016
Income taxes receivable—current		$	147			$	136
Total income taxes receivable		$	147			$	136
Income taxes payable—current		$	129			$	149
Income taxes payable—noncurrent		17				22
Total income taxes payable		$	146			$	171

Deferred Income Taxes — Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and (b) operating loss and tax credit carryforwards. These items are stated at the enacted tax rates that are expected to be in effect when taxes are actually paid or recovered.

As of December 31, 2017, the Company had federal net operating loss carryforwards for tax purposes of approximately $1.9 billion expiring in years 2027 to 2036. The Company also had federal general business tax credit carryforwards of approximately $21 million expiring primarily from 2021 to 2037, and federal alternative minimum tax credits of approximately $5 million that may be fully recovered by 2021 under the 2017 Act. The Company had state net operating loss carryforwards as of December 31, 2017 of approximately $9.3 billion expiring in years 2018 to 2037. As of December 31, 2017, the Company had foreign net operating loss carryforwards of approximately $2.8 billion that expire at various times beginning in 2018 and some of which carry forward without expiration, and tax credits available in foreign jurisdictions of approximately $28 million, $18 million of which expire in 2021, $1 million of which expire in years 2023 to 2028, and $9 million of which carry forward without expiration.

Valuation allowances increased $112 million during 2017 to $988 million at December 31, 2017. This net increase was primarily the result of valuation allowance activity at certain of our Brazil subsidiaries.

Valuation allowances decreased $18 million during 2016 to $876 million at December 31, 2016. This net decrease was primarily the result of valuation allowance releases and foreign exchange gains at certain of our Brazil subsidiaries.

The Company believes that it is more likely than not that the net deferred tax assets as shown below will be realized when future taxable income is generated through the reversal of existing taxable temporary differences and income that is expected to be generated by businesses that have long-term contracts or a history of generating taxable income.

The following table summarizes deferred tax assets and liabilities, as of the periods indicated (in millions):

December 31,		2017				2016
Differences between book and tax basis of property		$	(1,424	)		$	(1,926	)
Other taxable temporary differences		(143		)		(335		)
Total deferred tax liability		(1,567		)		(2,261		)
Operating loss carryforwards		1,439				2,088
Capital loss carryforwards		63				59
Bad debt and other book provisions		66				96
Tax credit carryforwards		51				54
Other deductible temporary differences		60				263
Total gross deferred tax asset		1,679				2,560
Less: valuation allowance		(988		)		(876		)
Total net deferred tax asset		691				1,684
Net deferred tax (liability)		$	(876	)		$	(577	)

The Company considers undistributed earnings of certain foreign subsidiaries to be indefinitely reinvested outside of the U.S. Except for the one-time transition tax in the U.S., no taxes have been recorded with respect to our indefinitely reinvested earnings in accordance with the relevant accounting guidance for income taxes. Should the earnings be remitted as dividends, the Company may be subject to additional foreign withholding and state income taxes. Under the 2017 Act, generally future distributions from foreign subsidiaries will be subject to a dividends received deduction in the U.S. As of December 31, 2017, the cumulative amount of U.S. GAAP foreign

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

un-remitted earnings upon which additional income taxes have not been provided is approximately $4 billion. It is not practicable to estimate the amount of any additional taxes which may be payable on the undistributed earnings.

Income from operations in certain countries is subject to reduced tax rates as a result of satisfying specific commitments regarding employment and capital investment. The Company's income tax benefits related to the tax status of these operations are estimated to be $26 million, $20 million and $21 million for the years ended December 31, 2017, 2016 and 2015, respectively. The per share effect of these benefits after noncontrolling interests was $0.03, $0.02 and $0.02 for the years ended December 31, 2017, 2016 and 2015, respectively. Included in the Company's income tax benefits is the benefit related to our operations in Vietnam, which is estimated to be $13 million, $15 million and $8 million for the years ended December 31, 2017, 2016 and 2015, respectively. The per share effect of these benefits related to our operations in Vietnam after noncontrolling interest was $0.01, $0.01 and $0.01 for the years ended December 31, 2017, 2016 and 2015, respectively.

The following table shows the income (loss) from continuing operations, before income taxes, net equity in earnings of affiliates and noncontrolling interests, for the periods indicated (in millions):

December 31,		2017				2016				2015
U.S.		$	(511	)		$	(1,305	)		$	(612	)
Non-U.S.		1,282				1,492				1,601
Total		$	771			$	187			$	989

Uncertain Tax Positions — Uncertain tax positions have been classified as noncurrent income tax liabilities unless they are expected to be paid in one year. The Company's policy for interest and penalties related to income tax exposures is to recognize interest and penalties as a component of the provision for income taxes in the Consolidated Statements of Operations. The following table shows the total amount of gross accrued income taxes related to interest and penalties included in the Consolidated Balance Sheets for the periods indicated (in millions):

December 31,		2017				2016
Interest related		$	7			$	6
Penalties related		—				—

The following table shows the expense/(benefit) related to interest and penalties on unrecognized tax benefits for the periods indicated (in millions):

December 31,		2017				2016				2015
Total expense (benefit) for interest related to unrecognized tax benefits		$	1			$	2			$	(2	)
Total expense for penalties related to unrecognized tax benefits		—				—				—

We are potentially subject to income tax audits in numerous jurisdictions in the U.S. and internationally until the applicable statute of limitations expires. Tax audits by their nature are often complex and can require several years to complete. The following is a summary of tax years potentially subject to examination in the significant tax and business jurisdictions in which we operate:

Jurisdiction		Tax Years Subject to Examination
Argentina		2011-2017
Brazil		2012-2017
Chile		2014-2017
Colombia		2015-2017
Dominican Republic		2015-2017
El Salvador		2014-2017
Netherlands		2014-2017
Philippines		2013-2017
United Kingdom		2012-2017
United States (Federal)		2014-2017

As of December 31, 2017, 2016 and 2015, the total amount of unrecognized tax benefits was $348 million, $352 million and $364 million, respectively. The total amount of unrecognized tax benefits that would benefit the effective tax rate as of December 31, 2017, 2016 and 2015 is $332 million, $332 million and $343 million, respectively, of which $29 million, $24 million and $24 million, respectively, would be in the form of tax attributes that would warrant a full valuation allowance.

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

The total amount of unrecognized tax benefits anticipated to result in a net decrease to unrecognized tax benefits within 12 months of December 31, 2017 is estimated to be between $5 million and $15 million, primarily relating to statute of limitation lapses and tax exam settlements.

The following is a reconciliation of the beginning and ending amounts of unrecognized tax benefits for the periods indicated (in millions):

December 31,		2017				2016				2015
Balance at January 1		$	352			$	364			$	384
Additions for current year tax positions		—				2				2
Additions for tax positions of prior years		2				1				12
Reductions for tax positions of prior years		(5		)		(1		)		(7		)
Effects of foreign currency translation		—				—				(3		)
Settlements		—				(13		)		(17		)
Lapse of statute of limitations		(1		)		(1		)		(7		)
Balance at December 31		$	348			$	352			$	364

The Company and certain of its subsidiaries are currently under examination by the relevant taxing authorities for various tax years. The Company regularly assesses the potential outcome of these examinations in each of the taxing jurisdictions when determining the adequacy of the amount of unrecognized tax benefit recorded. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, we believe we have appropriately accrued for our uncertain tax benefits. However, audit outcomes and the timing of audit settlements and future events that would impact our previously recorded unrecognized tax benefits and the range of anticipated increases or decreases in unrecognized tax benefits are subject to significant uncertainty. It is possible that the ultimate outcome of current or future examinations may exceed our provision for current unrecognized tax benefits in amounts that could be material, but cannot be estimated as of December 31, 2017. Our effective tax rate and net income in any given future period could therefore be materially impacted.

21. DISCONTINUED OPERATIONS

Due to a portfolio evaluation in the first half of 2016, management decided to pursue a strategic shift of its distribution companies in Brazil, Sul and Eletropaulo, to reduce the Company's exposure to the Brazilian distribution market.

Eletropaulo — In November 2017, Eletropaulo converted its preferred shares into ordinary shares and transitioned the listing of those shares into the Novo Mercado, which is a listing segment of the Brazilian stock exchange with the highest standards of corporate governance. Upon conversion of the preferred shares into ordinary shares, AES no longer controlled Eletropaulo, but maintained significant influence over the business. As a result, the Company deconsolidated Eletropaulo. After deconsolidation, the Company's 17% ownership interest is reflected as an equity method investment. The Company recorded an after-tax loss on deconsolidation of $611 million, which primarily consisted of $455 million related to cumulative translation losses and $243 million related to pension losses reclassified from AOCL.

In December 2017, all the remaining criteria were met for Eletropaulo to qualify as a discontinued operation. Therefore, its results of operations and financial position were reported as such in the consolidated financial statements for all periods presented. Eletropaulo's pre-tax loss attributable to AES, including the loss on deconsolidation, for the years ended December 31, 2017 and 2016 was $633 million and $192 million, respectively. Eletropaulo's pre-tax income attributable to AES for the year ended December 31, 2015 was $73 million. Prior to its classification as discontinued operations, Eletropaulo was reported in the Brazil SBU reportable segment.

Sul — The Company executed an agreement for the sale of Sul, a wholly-owned subsidiary, in June 2016. The results of operations and financial position of Sul are reported as discontinued operations in the consolidated financial statements for all periods presented. Upon meeting the held-for-sale criteria, the Company recognized an after-tax loss of $382 million comprised of a pre-tax impairment charge of $783 million, offset by a tax benefit of $266 million related to the impairment of the Sul long lived assets and a tax benefit of $135 million for deferred taxes related to the investment in Sul. Prior to the impairment charge, the carrying value of the Sul asset group of $1.6 billion was greater than its approximate fair value less costs to sell. However, the impairment charge was limited to the carrying value of the long lived assets of the Sul disposal group.

On October 31, 2016, the Company completed the sale of Sul and received final proceeds less costs to sell of $484 million, excluding contingent consideration. Upon disposal of Sul, the Company incurred an additional after-tax

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

loss on sale of $737 million. The cumulative impact to earnings of the impairment and loss on sale was $1.1 billion. This includes the reclassification of approximately $1 billion of cumulative translation losses resulting in a net reduction to the Company’s stockholders’ equity of $92 million.

Sul’s pre-tax loss attributable to AES for the years ended December 31, 2016 and 2015 was $1.4 billion and $32 million, respectively. Prior to its classification as discontinued operations, Sul was reported in the Brazil SBU reportable segment.

The following table summarizes the carrying amounts of the major classes of assets and liabilities of discontinued operations at December 31, 2017 and December 31, 2016:

(in millions)	December 31, 2017				December 31, 2016
Assets of discontinued operations and held-for-sale businesses:
Cash and cash equivalents	$	—			$	61
Short-term investments	—				268
Accounts receivable, net of allowance for doubtful accounts of $0 and $94, respectively	—				745
Other current assets	—				499
Property, plant and equipment and intangibles, net	—				2,504
Investments in and advances to affiliates (1)	86				—
Deferred income taxes	—				554
Other classes of assets that are not major	—				305
Total assets of discontinued operations	$	86			$	4,936
Other assets of businesses classified as held-for-sale (2)	1,948				—
Total assets of discontinued operations and held-for-sale businesses (3)	$	2,034			$	4,936
Liabilities of discontinued operations and held-for-sale businesses:
Accounts payable	$	—			$	418
Accrued and other liabilities	—				954
Non-recourse debt	—				1,009
Pension and other postretirement liabilities	—				1,159
Other noncurrent liabilities	—				678
Other classes of liabilities that are not major	—				31
Total liabilities of discontinued operations	$	—			$	4,249
Other liabilities of businesses classified as held-for-sale (2)	1,033				—
Total liabilities of discontinued operations and held-for-sale businesses (3)	$	1,033			$	4,249

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(1)	Represents the Company's 17% ownership interest in Eletropaulo.

(2)	Masinloc, Eletrica Santiago, and the DPL peaker assets were classified as held-for-sale as of December 31, 2017. See Note 22—Held-for-Sale Businesses and Dispositions for further information.

(3)	Amounts at December 31, 2016 are classified as both current and long-term on the Consolidated Balance Sheet.

The following table summarizes the major line items constituting losses from discontinued operations for the periods indicated (in millions):

December 31,	2017				2016				2015
Income (loss) from discontinued operations, net of tax:
Revenue — regulated	$	3,320			$	4,036			$	4,430
Cost of sales	(3,151		)		(3,954		)		(4,227		)
Other income and expense items that are not major (1)	(166		)		(160		)		(70		)
Income (loss) from operations of discontinued businesses	3				(78		)		133
Loss from disposal and impairments of discontinued businesses	(611		)		(1,385		)		—
Income (loss) from discontinued operations	(608		)		(1,463		)		133
Less: Net income attributable to noncontrolling interests	(25		)		(142		)		(92		)
Income (loss) from discontinued operations attributable to The AES Corporation	(633		)		(1,605		)		41
Income tax benefit (expense)	(21		)		495				(53		)
Loss from discontinued operations, net of tax	$	(654	)		$	(1,110	)		$	(12	)

---

(1)	Includes a loss contingency recognized by our equity method investment in discontinued operations.

The following table summarizes the operating and investing cash flows from discontinued operations for the periods indicated (in millions):

December 31,	2017				2016				2015
Cash flows provided by (used in) operating activities of discontinued operations	$	164			$	529			$	(125	)
Cash flows used in investing activities of discontinued operations	(288		)		(368		)		(65		)

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

22. HELD-FOR-SALE BUSINESSES AND DISPOSITIONS

Held-for-Sale Businesses

Masinloc — In December 2017, the Company entered into an agreement to sell its entire 51% equity interest in Masinloc for approximately $1 billion, subject to customary purchase price adjustments. Masinloc consists of a coal-fired generation plant in operation, a coal-fired generation plant currently under construction, and an energy storage facility all located in the Philippines. Closing of the sale is expected during the first half of 2018, subject to certain regulatory approvals. As of December 31, 2017, Masinloc was classified as held-for-sale, but did not meet the criteria to be reported as discontinued operations. On a consolidated basis, the net carrying value of Masinloc at December 31, 2017 was $475 million. Masinloc is reported in the Eurasia SBU reportable segment.

In 2014, the Company completed the sale of 45% of its ownership interest in Masinloc for $436 million, including $23 million of consideration that was contingent upon the achievement of certain tax restructuring efficiencies. The transaction was accounted for as a sale of in-substance real estate. In December 2017, the related contingency expired and the $23 million of contingent consideration was recognized as a gain in Gain (loss) on disposal and sale of businesses in the Consolidated Statement of Operations.

Electrica Santiago — In December 2017, AES Gener entered into an agreement to sell Electrica Santiago, comprised of four gas and diesel-fired generation plants in Chile, for $300 million, subject to customary purchase price adjustments. The sale is expected to close during the first half of 2018, subject to conditions precedent in the agreement. As of December 31, 2017, Electrica Santiago was classified as held-for-sale, but did not meet the criteria to be reported as discontinued operations. Electrica Santiago's carrying value at December 31, 2017 was $186 million. Electrica Santiago is reported in the Andes SBU reportable segment.

DPL Peaker Assets — In December 2017, DPL entered into an agreement to sell six of its combustion turbine and diesel-fired generation facilities and related assets ("DPL peaker assets") for $241 million, subject to purchase price adjustments. The sale is subject to regulatory approvals, and is expected to close in the first half of 2018. As of December 31, 2017, the DPL peaker assets were classified as held-for-sale but did not meet the criteria to be reported as discontinued operations. After impairment, the net carrying value of the DPL peaker assets at December 31, 2017 was $237 million. The DPL peaker assets are reported in the US SBU reportable segment. See Note 19—Asset Impairment Expense for further information.

Excluding any impairment charges or gain/loss on sale, pre-tax income attributable to AES of businesses held-for-sale as of December 31, 2017 was as follows (in millions):

Year Ended December 31,	2017				2016				2015
Masinloc	$	103			$	103			$	99
Electrica Santiago	9				11				10
DPL Peaker Assets	17				20				24
Total	$	129			$	134			$	133

Dispositions

Zimmer and Miami Fort — In December 2017, DPL and AES Ohio Generation completed the sale of Zimmer and Miami Fort, two coal-fired generating plants, for net proceeds of $70 million, resulting in a gain on sale of $13 million. The sale did not meet the criteria to be reported as discontinued operations. Prior to their sale, Zimmer and Miami Fort were reported in the US SBU reportable segment.

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

Kazakhstan Hydroelectric — Affiliates of the Company (the “Affiliates”) previously operated Shulbinsk HPP and Ust-Kamenogorsk HPP (the “HPPs”), two hydroelectric plants in Kazakhstan, under a concession agreement with the Republic of Kazakhstan (“RoK”). In April 2017, the RoK initiated the process to transfer these plants back to the RoK. The RoK indicated that arbitration would be necessary to determine the correct Return Share Transfer Payment ("RST") and, rather than paying the Affiliates, deposited the RST into an escrow account. In exchange, the Affiliates transferred 100% of the shares in the HPPs to the RoK, under protest and with a full reservation of rights. The Company recorded a loss on disposal of $33 million in the fourth quarter of 2017. In February 2018, the Affiliates initiated the arbitration process in international court to recover at least $75 million of the RST placed in escrow, based on the September 30, 2017 RST calculation. Additional losses may be incurred if some or all of the disputed consideration is not paid by the RoK via a mutually acceptable settlement, or upon any unfavorable decision rendered by the arbiter. The transfer did not meet the criteria to be reported as discontinued operations. Prior to their transfer, the Kazakhstan HPPs were reported in the Eurasia SBU reportable segment. See Note 19—Asset Impairment Expense for further information.

Kazakhstan CHPs — In April 2017, the Company completed the sale of Ust-Kamenogorsk CHP and Sogrinsk CHP, its combined heating and power coal plants in Kazakhstan, for net proceeds of $24 million. The Company recognized a pre-tax loss on sale of $49 million, primarily related to cumulative translation losses. The sale did not meet the criteria to be reported as discontinued operations. Prior to their sale, the Kazakhstan CHP plants were reported in the Eurasia SBU reportable segment. See Note 19—Asset Impairment Expense for further information.

U.K. Wind — During the second quarter of 2016, the Company deconsolidated UK Wind and recorded a loss on deconsolidation of $20 million to Gain (loss) on disposal and sale of businesses in the Consolidated Statement of Operations. Prior to deconsolidation, UK Wind was reported in the Eurasia SBU reportable segment. See Note 14—Equity and Note 19—Asset Impairment Expense for further information.

DPLER — In January 2016, the Company completed the sale of DPLER, a competitive retail marketer selling electricity to customers in Ohio, and recognized a gain on sale of $49 million. Proceeds of $76 million were received in December 2015. DPLER did not meet the criteria to be reported as a discontinued operation. DPLER's results were therefore reflected within continuing operations in the Consolidated Statements of Operations. Prior to its sale, DPLER was reported in the US SBU reportable segment.

Kelanitissa — In January 2016, the Company completed the sale of its interest in Kelanitissa, a diesel-fired generation plant in Sri Lanka, for $18 million, resulting in a loss on sale of $5 million. The sale did not meet the criteria to be reported as discontinued operations. Kelanitissa's results were therefore reflected within continuing operations in the Consolidated Statements of Operations. Prior to its sale, Kelanitissa was reported in the Eurasia SBU reportable segment.

Armenia Mountain — Under the terms of the sale agreement for certain U.S. Wind Projects, the buyer was provided an option to purchase the Company's 100% interest in Armenia Mountain, a wind project in Pennsylvania, for $75 million. The buyer exercised this option and AES completed the sale of Armenia Mountain in July 2015. The sale did not meet the criteria to be reported as discontinued operations. Upon completion, net proceeds of $64 million were received and a pre-tax gain on sale of $22 million was recognized. Prior to its sale, Armenia Mountain was reported in the US SBU reportable segment.

Excluding any impairment charge or gain/loss on sale, pre-tax income (loss) attributable to AES of disposed businesses was as follows (in millions):

Year Ended December 31,	2017				2016				2015
Zimmer and Miami Fort	$	26			$	(14	)		$	6
Kazakhstan Hydroelectric	33				34				52
Kazakhstan CHPs	13				12				16
DPLER	—				—				11
Armenia Mountain	—				—				6
Total	$	72			$	32			$	91

23. ACQUISITIONS

Alto Sertão II — On August 3, 2017, the Company completed the acquisition of 100% of the Alto Sertão II Wind Complex (“Alto Sertão II”) from Renova Energia S.A. for $181 million, subject to customary purchase price adjustments, plus the assumption of $348 million of non-recourse debt, and up to $30 million of contingent

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

consideration. At closing, the Company made an initial cash payment of $143 million, which excludes holdbacks related to indemnifications and purchase price adjustments. As of December 31, 2017, the purchase price allocation for Alto Sertão II is preliminary. The Company is in the process of assessing the fair value of the assets acquired and liabilities assumed in the acquisition, and expects to complete the purchase price allocation within the one year measurement period. Alto Sertão II is a wind farm reported in the Brazil SBU reportable segment.

Bauru Solar Complex — On September 25, 2017, AES Tietê executed an investment agreement with Cobra do Brasil to provide approximately $140 million of non-convertible debentures in project financing for the construction of photovoltaic solar plants in Brazil. As of December 31, 2017, approximately $45 million of non-convertible debentures have been executed and distributed to the project. Upon completion of the project, expected in the first half of 2018 and subject to the solar plants’ compliance with certain technical specifications defined in the agreement, Tietê expects to acquire the solar complex in exchange for the non-convertible debentures and an additional investment of approximately $55 million.

Distributed Energy — On February 18, 2015, the Company completed the acquisition of 100% of the common stock of Main Street Power Company, Inc. for approximately $25 million. The purchase consideration was composed of $20 million cash. After the date of acquisition, Main Street Power Company, Inc. was renamed Distributed Energy, Inc.

In September 2016, Distributed Energy acquired the equity interest of various projects held by multiple partnerships for approximately $43 million. These partnerships were previously classified as equity method investments. In accordance with the accounting guidance for business combinations, the Company has recorded the opening balance sheets of the acquired businesses based on the purchase price allocation as of the acquisition date.

24. 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 restricted stock units, 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 table is a reconciliation of the numerator and denominator of the basic and diluted earnings per share computation for income from continuing operations for the years ended December 31, 2017, 2016 and 2015, where income represents the numerator and weighted-average shares represent the denominator. Values are in millions except per share data:

Year Ended December 31,	2017											2016											2015
	Loss				Shares			$ per Share				Loss				Shares			$ per Share				Income				Shares			$ per Share
BASIC EARNINGS PER SHARE
Income (loss) from continuing operations attributable to The AES Corporation common stockholders (1)	$	(507	)		660			$	(0.77	)		$	(25	)		660			$	(0.04	)		$	318			687			$	0.46
EFFECT OF DILUTIVE SECURITIES
Restricted stock units	—				—			—				—				—			—				—				2			—
DILUTED EARNINGS PER SHARE	$	(507	)		660			$	(0.77	)		$	(25	)		660			$	(0.04	)		$	318			689			$	0.46

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(1)	Loss from continuing operations, net of tax, of $20 million less the $5 million adjustment to retained earnings to record the DP&L redeemable preferred stock at its redemption value as of December 31, 2016.

The calculation of diluted earnings per share excluded 7 million, 8 million and 8 million stock awards outstanding for the years ended December 31, 2017, 2016 and 2015, respectively, that could potentially dilute basic earnings per share in the future. Additionally, for the years ended December 31, 2016 and 2015, all 15 million convertible debentures were omitted from the earnings per share calculation. The Company redeemed all of its existing TECONs in June 2017. The stock awards and convertible debentures were excluded from the calculation because they were anti-dilutive.

25. RISKS AND UNCERTAINTIES

AES is a diversified power generation and utility company organized into five market-oriented SBUs. See additional discussion of the Company's principal markets in Note 15—Segment and Geographic Information. Within our five SBUs, we have two primary lines of business: Generation and Utilities. The Generation line of business

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

uses a wide range of fuels and technologies to generate electricity such as coal, gas, hydro, wind, solar and biomass. Our Utilities business comprises businesses that transmit, distribute, and in certain circumstances, generate power. In addition, the Company has operations in the renewables area. These efforts include projects primarily in wind and solar.

Operating and Economic Risks — The Company operates in several developing economies where macroeconomic conditions are usually more volatile than developed economies. Deteriorating market conditions often expose the Company to the risk of decreased earnings and cash flows due to, among other factors, adverse fluctuations in the commodities and foreign currency spot markets. Additionally, credit markets around the globe continue to tighten their standards, which could impact our ability to finance growth projects through access to capital markets. Currently, the Company has a below-investment grade rating from Standard & Poor's of BB-. This could affect the Company's ability to finance new and/or existing development projects at competitive interest rates. As of December 31, 2017, the Company had $949 million of unrestricted cash and cash equivalents.

During 2017, 69% of our revenue was generated outside the U.S. and a significant portion of our international operations is conducted in developing countries. We continue to invest in several developing countries to expand our existing platform and operations. International operations, particularly the operation, financing and development of projects in developing countries, entail significant risks and uncertainties, including, without limitation:

•	economic, social and political instability in any particular country or region;

•	inability to economically hedge energy prices;

•	volatility in commodity prices;

•	adverse changes in currency exchange rates;

•	government restrictions on converting currencies or repatriating funds;

•	unexpected changes in foreign laws, regulatory framework, or in trade, monetary or fiscal policies;

•	high inflation and monetary fluctuations;

•	restrictions on imports of coal, oil, gas or other raw materials required by our generation businesses to operate;

•	threatened or consummated expropriation or nationalization of our assets by foreign governments;

•	unwillingness of governments, government agencies, similar organizations or other counterparties to honor their commitments;

•	unwillingness of governments, government agencies, courts or similar bodies to enforce contracts that are economically advantageous to subsidiaries of the Company and economically unfavorable to counterparties, against such counterparties, whether such counterparties are governments or private parties;

•	inability to obtain access to fair and equitable political, regulatory, administrative and legal systems;

•	adverse changes in government tax policy;

•	difficulties in enforcing our contractual rights, enforcing judgments, or obtaining a just result in local jurisdictions; and

•	potentially adverse tax consequences of operating in multiple jurisdictions.

Any of these factors, individually or in combination with others, could materially and adversely affect our business, results of operations and financial condition. In addition, our Latin American operations experience volatility in revenue and earnings which have caused and are expected to cause significant volatility in our results of operations and cash flows. The volatility is caused by regulatory and economic difficulties, political instability, indexation of certain PPAs to fuel prices, and currency fluctuations being experienced in many of these countries. This volatility reduces the predictability and enhances the uncertainty associated with cash flows from these businesses.

Our inability to predict, influence or respond appropriately to changes in law or regulatory schemes, including any inability to obtain reasonable increases in tariffs or tariff adjustments for increased expenses, could adversely impact our results of operations or our ability to meet publicly announced projections or analysts' expectations. Furthermore, changes in laws or regulations or changes in the application or interpretation of regulatory provisions in jurisdictions where we operate, particularly our Utility businesses where electricity tariffs are subject to regulatory review or approval, could adversely affect our business, including, but not limited to:

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

•	changes in the determination, definition or classification of costs to be included as reimbursable or pass-through costs;

•	changes in the definition or determination of controllable or noncontrollable costs;

•	adverse changes in tax law;

•	changes in the definition of events which may or may not qualify as changes in economic equilibrium;

•	changes in the timing of tariff increases;

•	other changes in the regulatory determinations under the relevant concessions; or

•	changes in environmental regulations, including regulations relating to GHG emissions in any of our businesses.

Any of the above events may result in lower margins for the affected businesses, which can adversely affect our results of operations.

Alto Maipo — The Company's subsidiary, AES Gener, is currently constructing Alto Maipo, a hydroelectric facility near Santiago Chile. Increased project costs, or delays in construction, at Alto Maipo could have an adverse impact on the Company. Alto Maipo has experienced construction difficulties, which have resulted in an increase in projected costs over the original $2 billion budget. These overages led to a series of negotiations with the intention of restructuring the project’s existing financial structure and obtaining additional funding. On March 17, 2017, AES Gener completed the legal and financial restructuring of Alto Maipo, and through the Company’s 67% ownership interest in AES Gener, AES now has an effective 62% indirect economic interest in Alto Maipo. See Note 14—Equity for additional information regarding the restructuring.

Following the restructuring described above, the project continued to face construction difficulties, including greater than expected costs and slower than anticipated productivity by construction contractors toward agreed-upon milestones. Furthermore, during the second quarter of 2017, as a result of the failure to perform by one of its construction contractors, Constructora Nuevo Maipo S.A. (“CNM”), Alto Maipo terminated CNM’s contract. As a result of the termination of CNM, Alto Maipo’s construction debt of $618 million and derivative liabilities of $132 million are in technical default and presented as current in the balance sheet as of December 31, 2017.

Construction at the project is continuing and the project is over 61% complete. In February 2018, Alto Maipo signed an amended EPC contract with Strabag, the permanent replacement contractor selected to complete CNM’s work, subject to approval by the project's senior lenders as part of the second refinancing. Alto Maipo is working to resolve the challenges described above, however, there can be no assurance that Alto Maipo will succeed in these efforts and if there are further delays or cost overruns, or if Alto Maipo is unable to reach an agreement with the non-recourse lenders, there is a risk these lenders may seek to exercise remedies available as a result of the default noted above, or Alto Maipo may not be able to meet its contractual or other obligations and may be unable to continue with the project. If any of the above occur, there could be a material impairment for the Company.

The carrying value of the long-lived assets and deferred tax assets of Alto Maipo as of December 31, 2017 was approximately $1.4 billion and $60 million, respectively. Even though certain of the construction difficulties have not been formally resolved, construction costs continue to be capitalized as management believes the project is probable of completion. Management believes the carrying value of the long-lived asset group is recoverable and was not impaired as of December 31, 2017. In addition, management believes it is more likely than not that the deferred tax assets will be realized, they could be reduced if estimates of future taxable income are decreased.

Puerto Rico — In September 2017, Puerto Rico was severely impacted by Hurricanes Irma and Maria, disrupting the operations of AES Puerto Rico and AES Ilumina. Puerto Rico’s infrastructure was severely damaged, including electric infrastructure and transmission lines. The extensive structural damage caused by hurricane winds and flooding is expected to take considerable time to repair. The Company sustained modest damage to its AES Ilumina solar plant, resulting in a $2 million loss, and minor damage to its AES Puerto Rico thermal plants.

Our subsidiaries in Puerto Rico have long-term PPAs with state-owned PREPA. As a result of the hurricanes, PREPA has declared an event of Force Majeure. However, both units of AES Puerto Rico and approximately 75% of AES Ilumina are available to generate electricity which, in accordance with the PPAs, will allow AES Puerto Rico to invoice capacity, even under Force Majeure.

Due to the extensive damage from the hurricanes, energy demand in Puerto Rico has decreased and is expected to remain low until economic activity has recovered. Despite the decrease in demand, AES Puerto Rico

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

was dispatched starting in February 2018. AES Puerto Rico continues to be the lowest cost and EPA compliant energy provider in Puerto Rico. Therefore, we expect AES Puerto Rico to continue to be a critical supplier to PREPA.

Starting prior to the hurricanes, PREPA has been facing economic challenges that could impact the Company, and on July 2, 2017, filed for bankruptcy under Title III. As a result of the bankruptcy filing, AES Puerto Rico and AES Ilumina’s non-recourse debt of $365 million and $36 million, respectively, is in default and has been classified as current as of December 31, 2017. In November 2017, AES Puerto Rico signed a Forbearance and Standstill Agreement with its lenders to prevent the lenders from taking any action against the company due to the default events. This agreement will expire on March 22, 2018.

The Company's receivable balances in Puerto Rico as of December 31, 2017 totaled $86 million, of which $53 million was overdue. After the filing of Title III protection, and up until the disruption caused by the hurricanes, AES in Puerto Rico was collecting the overdue amounts from PREPA in line with historic payment patterns.

Considering the information available as of the filing date, management believes the carrying amount of our assets in Puerto Rico of $627 million is recoverable as of December 31, 2017 and no reserve on the receivables is required.

Foreign Currency Risks — AES operates businesses in many foreign countries and such operations could be impacted by significant fluctuations in foreign currency exchange rates. Fluctuations in currency exchange rate between U.S. dollar and the following currencies could create significant fluctuations in earnings and cash flows: the Argentine peso, the Brazilian real, the Dominican Republic peso, the Euro, the Chilean peso, the Colombian peso, and the Philippine peso.

Concentrations — Due to the geographical diversity of its operations, the Company does not have any significant concentration of customers or sources of fuel supply. Several of the Company's generation businesses rely on PPAs with one or a limited number of customers for the majority of, and in some cases all of, the relevant businesses' output over the term of the PPAs. However, no single customer accounted for 10% or more of total revenue in 2017, 2016 or 2015.

The cash flows and results of operations of our businesses depend on the credit quality of our customers and the continued ability of our customers and suppliers to meet their obligations under PPAs and fuel supply agreements. If a substantial portion of the Company's long-term PPAs and/or fuel supply were modified or terminated, the Company would be adversely affected to the extent that it would be unable to replace such contracts at equally favorable terms.

26. RELATED PARTY TRANSACTIONS

Certain of our businesses in Panama and the Dominican Republic are partially owned by governments either directly or through state-owned institutions. In the ordinary course of business, these businesses enter into energy purchase and sale transactions, and transmission agreements with other state-owned institutions which are controlled by such governments. At two of our generation businesses in Mexico, the offtakers exercise significant influence, but not control, through representation on these businesses' Boards of Directors. These offtakers are also required to hold a nominal ownership interest in such businesses. In Chile, we provide capacity and energy under contractual arrangements to our investment which is accounted for under the equity method of accounting. Additionally, the Company provides certain support and management services to several of its affiliates under various agreements.

The Company's Consolidated Statements of Operations included the following transactions with related parties for the periods indicated (in millions):

Years Ended December 31,	2017				2016				2015
Revenue—Non-Regulated	$	1,297			$	1,100			$	1,099
Cost of Sales—Non-Regulated	220				210				330
Interest income	8				4				25
Interest expense	36				39				33

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

The following table summarizes the balances receivable from and payable to related parties included in the Company's Consolidated Balance Sheets as of the periods indicated (in millions):

December 31,	2017				2016
Receivables from related parties	$	250			$	218
Accounts and notes payable to related parties	727				892

The Company entered into an equity transaction with our related party, Linda Group, see Note 14—Equity for further information.

27. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

Quarterly Financial Data — The following tables summarize the unaudited quarterly Condensed Consolidated Statements of Operations for the Company for 2017 and 2016 (amounts in millions, except per share data). Amounts have been restated to reflect discontinued operations in all periods presented and reflect all adjustments necessary in the opinion of management for a fair statement of the results for interim periods.

Quarter Ended 2017	Mar 31				June 30				Sept 30				Dec 31
Revenue	$	2,581			$	2,613			$	2,693			$	2,643
Operating margin	554				625				642				643
Income (loss) from continuing operations, net of tax (1)	97				141				236				(622		)
Income (loss) from discontinued operations, net of tax	1				9				25				(664		)
Net income (loss)	$	98			$	150			$	261			$	(1,286	)
Net income (loss) attributable to The AES Corporation	$	(24	)		$	53			$	152			$	(1,342	)
Basic income (loss) per share:
Income (loss) from continuing operations attributable to The AES Corporation common stockholders, net of tax	$	0.04			$	0.08			$	0.22			$	(1.03	)
Income (loss) from discontinued operations attributable to The AES Corporation common stockholders, net of tax	—				—				0.01				(1.00		)
Basic income (loss) per share attributable to The AES Corporation	$	0.04			$	0.08			$	0.23			$	(2.03	)
Diluted income (loss) per share:
Income (loss) from continuing operations attributable to The AES Corporation common stockholders, net of tax	$	0.04			$	0.08			$	0.22			$	(1.03	)
Loss from discontinued operations attributable to The AES Corporation common stockholders, net of tax	—				—				0.01				(1.00		)
Diluted income (loss) per share attributable to The AES Corporation	$	0.04			$	0.08			$	0.23			$	(2.03	)
Dividends declared per common share	$	0.12			$	—			$	0.12			$	0.25

Quarter Ended 2016	Mar 31				June 30				Sept 30				Dec 31
Revenue	$	2,530			$	2,452			$	2,639			$	2,660
Operating margin	501				556				691				632
Income (loss) from continuing operations, net of tax (2)	87				2				238				(136		)
Loss from discontinued operations, net of tax	(13		)		(389		)		(9		)		(557		)
Net income (loss)	$	74			$	(387	)		$	229			$	(693	)
Net income (loss) attributable to The AES Corporation	$	126			$	(482	)		$	175			$	(949	)
Basic income (loss) per share:
Income (loss) from continuing operations attributable to The AES Corporation common stockholders, net of tax	$	0.21			$	(0.15	)		$	0.26			$	(0.35	)
Loss from discontinued operations attributable to The AES Corporation common stockholders, net of tax	(0.02		)		(0.58		)		—				(1.09		)
Basic income (loss) per share attributable to The AES Corporation	$	0.19			$	(0.73	)		$	0.26			$	(1.44	)
Diluted income (loss) per share:
Income (loss) from continuing operations attributable to The AES Corporation common stockholders, net of tax	$	0.20			$	(0.15	)		$	0.26			$	(0.35	)
Loss from discontinued operations attributable to The AES Corporation common stockholders, net of tax	(0.01		)		(0.58		)		—				(1.09		)
Diluted income (loss) per share attributable to The AES Corporation	$	0.19			$	(0.73	)		$	0.26			$	(1.44	)
Dividends declared per common share	$	0.11			$	—			$	0.11			$	0.23

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(1)	Includes pre-tax impairment expense of $168 million, $90 million, $2 million and $277 million, for the first, second, third and fourth quarters of 2017, respectively. See Note 19—Asset Impairment Expense for further discussion.

(2)	Includes pre-tax impairment expense of $159 million, $235 million, $79 million and $623 million, for the first, second, third and fourth quarters of 2016, respectively. See Note 19—Asset Impairment Expense for further discussion.

28. SUBSEQUENT EVENTS

Fluence — In July 2017, the Company entered into a joint venture with Siemens AG to form a global energy storage technology and services company under the name Fluence. On January 1, 2018, Siemens and AES closed

THE AES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2017, 2016, AND 2015

on the creation of the joint venture with each party holding a 50% ownership interest. Since AES does not have the ability to control Fluence, the joint venture will be accounted for as an equity affiliate.