II PRINCIPALES ASPECTOS DE LA EVOLUCIÓN ECONÓMICA DE LOS PRESUPUESTOS
COMUNIDAD AUTÓNOMA DE
C. A. DE LA REGIÓN DE MURCIA
The Company sponsors one defined contribution plan (“the Plan”), qualified under section 401 of the Internal Revenue Code. All U.S. employees of the Company are eligible to participate in the 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 the Plan. The Plan provides matching contributions in AES common stock, other contributions at the discretion of the Compensation Committee of the Board of Directors in AES common stock and discretionary tax deferred contributions from the participants. Participants are fully vested in their own contributions and the Company’s matching contributions. Participants vest in other company contributions ratably over a five-year period ending on the fifth anniversary of their hire date. For the year ended December 31, 2013, the Company’s contributions to the Plan were approximately $15 million, and for the years ended December 31, 2012 and 2011, contributions were $21 million and $22 million per year, respectively.
Defined Benefit Plans
Certain of the Company’s subsidiaries have defined benefit pension plans covering substantially all of their respective employees. Pension benefits are based on years of credited service, age of the participant and average earnings. Of the 30 active defined benefit plans as of December 31, 2013, 5 are at U.S. subsidiaries and the remaining plans are at foreign subsidiaries .
The following table reconciles the Company’s funded status, both domestic and foreign, as of December 31, 2013 and 2012:
December 31,
2013 2012
U.S. Foreign U.S. Foreign
(in millions)
CHANGE IN PROJECTED BENEFIT OBLIGATION:
Benefit obligation as of January 1 $ 1,210 $ 6,768 $ 1,044 $ 5,761
Service cost 16 26 14 18 Interest cost 46 515 48 509 Employee contributions — 4 — 5 Plan amendments — — 7 1 Plan settlements — — (1) (2) Benefits paid (75) (407) (51) (431)
Assumption of a plan due to the resolution of bankruptcy proceedings(1) — — 51 —
Actuarial (gain) loss (138) (1,436) 98 1,412
Effect of foreign currency exchange rate changes — (721) — (505)
Benefit obligation as of December 31 $ 1,059 $ 4,749 $ 1,210 $ 6,768
CHANGE IN PLAN ASSETS:
Fair value of plan assets as of January 1 $ 883 $ 4,712 $ 762 $ 4,400
Actual return on plan assets 81 (345) 97 944
Employer contributions 52 160 49 161
Employee contributions — 4 — 5
Plan settlements — — (1) (2)
Benefits paid (75) (407) (51) (431)
Assumption of a plan due to the resolution of bankruptcy proceedings(1) — — 27 —
Effect of foreign currency exchange rate changes — (519) — (365)
Fair value of plan assets as of December 31 $ 941 $ 3,605 $ 883 $ 4,712
RECONCILIATION OF FUNDED STATUS
Funded status as of December 31 $ (118) $ (1,144) $ (327) $ (2,056)
(1) The Company assumed the pension plan for AES Eastern Energy on December 28, 2012 as part of the settlement of the bankruptcy proceedings. See Note 23—Discontinued Operations and Held for Sale Businesses for further information.
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THE AES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2013, 2012, AND 2011
The following table summarizes the amounts recognized on the Consolidated Balance Sheets related to the funded status of the plans, both domestic and foreign, as of December 31, 2013 and 2012:
2013 2012
U.S. Foreign U.S. Foreign
(in millions)
AMOUNTS RECOGNIZED ON THE CONSOLIDATED BALANCE SHEETS
Noncurrent assets $ — $ 23 $ — $ —
Accrued benefit liability—current — (4) — (3)
Accrued benefit liability—noncurrent (118) (1,163) (327) (2,053)
Net amount recognized at end of year $ (118) $ (1,144) $ (327) $ (2,056)
The following table summarizes the Company’s accumulated benefit obligation, both domestic and foreign, as of December 31, 2013 and 2012:
2013 2012
U.S. Foreign U.S. Foreign
(in millions)
Accumulated Benefit Obligation $ 1,036 $ 4,686 $ 1,180 $ 6,662
Information for pension plans with an accumulated benefit obligation in excess of plan assets:
Projected benefit obligation $ 1,059 $ 4,412 $ 1,210 $ 6,398
Accumulated benefit obligation 1,036 4,366 1,180 6,319
Fair value of plan assets 941 3,246 883 4,360
Information for pension plans with a projected benefit obligation in excess of plan assets:
Projected benefit obligation $ 1,059 $ 4,425 (1) $ 1,210 $ 6,768
Fair value of plan assets 941 3,259 (1) 883 4,712
(1) $1.1 billion of the total net unfunded projected benefit obligation is due to Eletropaulo in Brazil.
The table below summarizes the significant weighted average assumptions used in the calculation of benefit obligation and net periodic benefit cost, both domestic and foreign, as of December 31, 2013 and 2012:
2013 2012
U.S. Foreign U.S. Foreign
Benefit Obligation:
Discount rates 4.89% 10.80%(2) 3.86% 8.28%(2)
Rates of compensation increase 3.94%(1) 6.44% 3.94%(1) 6.47%
Periodic Benefit Cost:
Discount rate 3.86% 8.28% 4.67% 9.54%
Expected long-term rate of return on plan assets 7.15% 11.16% 7.28% 10.81%
Rate of compensation increase 3.94%(1) 6.47% 3.94%(1) 5.99%
(1) A U.S. subsidiary of the Company has a defined benefit obligation of $651 million and $764 million as of December 31, 2013 and 2012, respectively, and uses salary bands to determine future benefit costs rather than rates of compensation increases. Rates of compensation increases in the table above do not include amounts related to this specific defined benefit plan.
(2) Includes an inflation factor that is used to calculate future periodic benefit cost, but is not used to calculate the benefit obligation. 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:
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THE AES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2013, 2012, AND 2011
• 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.
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 2013. 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, 2013 is affected by the assumptions as of that date. Pension expense for 2013 is affected by the December 31, 2012
assumptions. The impact on pension expense from a one percentage point change in these assumptions is shown in the table below (in millions):
Increase of 1% in the discount rate $ (59)
Decrease of 1% in the discount rate 48
Increase of 1% in the long-term rate of return on plan assets (52)
Decrease of 1% in the long-term rate of return on plan assets 52
The following table summarizes the components of the net periodic benefit cost, both domestic and foreign, for the years ended December 31, 2013, 2012, and 2011:
2013 2012 2011
Components of Net Periodic Benefit Cost: U.S. Foreign U.S. Foreign U.S. Foreign (in millions)
Service cost $ 16 $ 26 $ 14 $ 18 $ 8 $ 18
Interest cost 46 515 48 509 33 564
Expected return on plan assets (64) (484) (55) (444) (33) (509)
Amortization of prior service cost 5 — 4 — 4 —
Amortization of net loss 23 77 19 38 13 22
Loss on curtailment — — — — — 5
Settlement gain recognized — — — 1 — —
Total pension cost $ 26 $ 134 $ 30 $ 122 $ 25 $ 100
The following table summarizes the amounts reflected in Accumulated Other Comprehensive Loss, including accumulated other comprehensive loss attributable to noncontrolling interests, on the Consolidated Balance Sheet as of December 31, 2013, 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:
December 31, 2013 Accumulated Other
Comprehensive Income
(Loss) reclassified to earnings in next fiscal yearAmounts expected to be
U.S. Foreign U.S. Foreign
(in millions)
Prior service cost $ — $ (1) $ — $ —
Unrecognized net actuarial gain (loss) 20 (998) — (37)
Total $ 20 $ (999) $ — $ (37)
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THE AES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2013, 2012, AND 2011
The following table summarizes the Company’s target allocation for 2013 and pension plan asset allocation, both domestic and foreign, as of December 31, 2013 and 2012:
Percentage of Plan Assets as of December 31,
Target Allocations 2013 2012
Asset Category U.S. Foreign U.S. Foreign U.S. Foreign
Equity securities 45% 15% - 29% 37.09% 19.84% 32.28% 19.76%
Debt securities 51% 60% - 85% 46.97% 75.32% 46.66% 76.21%
Real estate 2% 0% - 4% 2.44% 2.77% —% 2.57%
Other 2% 0% - 6% 13.50% 2.07% 21.06% 1.46%
Total pension assets 100.00% 100.00% 100.00% 100.00%
The U.S. 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 meet or exceed the assumed actuarial rate; and • long-term competitive rate of return on investments, net of expenses, that is equal to 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, among other possible factors, 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. plan assets by category of investment and level within the fair value hierarchy as of December 31, 2013 and 2012:
December 31, 2013 December 31, 2012
U.S. Plans Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
(in millions)
Equity securities:
Common stock $ 46 $ — $ — $ 46 $ 134 $ — $ — $ 134
Mutual funds 303 — — 303 151 — — 151
Debt securities:
Government debt securities 24 8 — 32 32 — — 32
Corporate debt securities — 159 — 159 4 149 — 153
Mutual funds(1) 251 — — 251 227 — — 227
Real Estate:
Real Estate — 23 — 23 — — — —
Other:
Cash and cash equivalents 56 — — 56 43 — — 43
Other investments 40 31 — 71 38 105 — 143
Total plan assets $ 720 $ 221 $ — $ 941 $ 629 $ 254 $ — $ 883
(1) Mutual funds categorized as debt securities consist of mutual funds for which debt securities are the primary underlying investment.
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THE AES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2013, 2012, AND 2011
The investment strategy of the foreign 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 plan assets by category of investment and level within the fair value hierarchy as of December 31, 2013 and 2012:
December 31, 2013 December 31, 2012
Foreign Plans Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
(in millions) Equity securities: Common stock $ 23 $ — $ — $ 23 $ 28 $ — $ — $ 28 Mutual funds 322 — — 322 457 — — 457 Private equity(1) — — 370 370 — — 446 446 Debt securities: Certificates of deposit — 2 — 2 — 3 — 3 Unsecured debentures — 13 — 13 — 16 — 16
Government debt securities 12 95 — 107 9 206 — 215
Mutual funds(2) 174 2,410 — 2,584 139 3,208 — 3,347
Other debt securities — 9 — 9 — 10 — 10
Real estate:
Real estate(1) — — 100 100 — — 121 121
Other:
Cash and cash equivalents 15 — — 15 1 — — 1
Participant loans(3) — — 60 60 — — 68 68
Total plan assets $ 546 $ 2,529 $ 530 $ 3,605 $ 634 $ 3,443 $ 635 $ 4,712
(1) Plan assets of our Brazilian subsidiaries are invested in private equities and commercial real estate through the plan administrator in Brazil. The fair value of these assets is determined using the income approach through annual appraisals based on a discounted cash flow analysis.
(2) Mutual funds categorized as debt securities consist of mutual funds for which debt securities are the primary underlying investment. (3) Loans to participants are stated at cost, which approximates fair value.
The following table presents a reconciliation of all plan assets measured at fair value using significant unobservable inputs (Level 3) for the years ended December 31, 2013 and 2012:
2013 2012
(in millions)
Balance at January 1 $ 635 $ 755
Actual return on plan assets:
Returns relating to assets still held at reporting date (26) (64)
Returns relating to assets sold during the period
Purchases, sales and settlements, net — 3
Change due to exchange rate changes (79) (59)
Balance at December 31 $ 530 $ 635
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:
U.S. Foreign (in millions)
Expected employer contribution in 2014 $ 56 $ 167
Expected benefit payments for fiscal year ending:
2014 62 381 2015 63 396 2016 64 409 2017 66 425 2018 67 440 2019 - 2023 361 2,437 Table of Contents
THE AES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2013, 2012, AND 2011
16. EQUITY
Equity Transactions with Noncontrolling Interests
During the year ended December 31, 2013, the Company completed transactions which increased noncontrolling interests in Alto Maipo and Cochrane, two projects under development in Chile. Although there was a decrease in the Company's ownership interest, the Company retained control of both projects, which continue to be accounted for as consolidated subsidiaries. The difference between the fair value of the consideration received for these transactions and the corresponding adjustment to noncontrolling interest of $16 million was recognized as an equity transaction through Additional Paid-in Capital.
The following table summarizes the net income (loss) attributable to The AES Corporation and all transfers (to) from noncontrolling interests for the years ended December 31, 2013 and 2012.
2013 2012
(in millions)
Net income (loss) attributable to The AES Corporation $ 114 $ (912)
Transfers (to) from the noncontrolling interest:
Net increase in The AES Corporation's paid-in capital for sale of subsidiary shares 16 7 Increase (decrease) in The AES Corporation's paid-in capital for purchase of subsidiary shares (6) 4
Net transfers (to) from noncontrolling interest 10 11
Change from net income attributable to The AES Corporation and transfers (to) from noncontrolling interests $ 124 $ (901)
Accumulated Other Comprehensive Loss
The changes in accumulated other comprehensive loss by component, net of tax and noncontrolling interests for the year ended December 31, 2013 were as follows:
Unrealized derivative losses, net Unfunded pension obligations, net Available for sale securities, net Foreign currency translation
adjustment, net Total (in millions)
Balance at January 1 $ (481) $ (382) $ — $ (2,057) $ (2,920)
Other comprehensive income before reclassifications 46 78 (1) (263) (140)
Amounts reclassified from accumulated other
comprehensive loss 128 13 1 36 178
Net current-period other comprehensive income 174 91 — (227) 38
Balance at December 31 $ (307) $ (291) $ — $ (2,284) $ (2,882)
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THE AES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2013, 2012, AND 2011
Reclassifications out of accumulated other comprehensive loss for the year ended December 31, 2013 were as follows: Details About Accumulated Other
Comprehensive Loss Components Affected Line Item in the Consolidated Statement of Operations December 31, 2013Year Ended (1) (in millions)
Unrealized derivative losses, net
Non-regulated revenue $ (3)
Non-regulated cost of sales (7)
Interest expense (137)
Gain on sale of investments (21)
Foreign currency transaction gains (losses) (6)
Income from continuing operations before taxes and equity in earnings of affiliates (174)
Income tax expense 41
Net equity in earnings of affiliates (6)
Income from continuing operations (139)
Income from continuing operations attributable to noncontrolling interests 11
Net income attributable to The AES Corporation $ (128)
Amortization of defined benefit pension actuarial loss, net
Regulated cost of sales $ (73)
Non-regulated cost of sales (4)
General and administrative expenses (1)
Income from continuing operations before taxes and equity in earnings of affiliates (78)
Income tax expense 26
Income from continuing operations (52)
Income from continuing operations attributable to noncontrolling interests 39
Net income attributable to The AES Corporation $ (13)
Available-for-sale securities, net
Interest income $ (1)
Net income attributable to The AES Corporation $ (1)
Foreign currency translation adjustment, net
Gain on sale of investments $ (1)
Net loss from disposal and impairments of discontinued businesses (35)
Net income attributable to The AES Corporation $ (36)
Total reclassifications for the period, net of income tax and noncontrolling interests $ (178)
_____________________________
(1) Amounts in parentheses indicate debits to the consolidated statement of operations.
Dividend
On November 4, 2013, the Board of Directors of the Company declared a quarterly common stock dividend of $0.05 per share payable on February 18, 2014 to shareholders of record at the close of business on February 3, 2014.
Stock Repurchase Program
On December 11, 2013, the Board of Directors (the “Board”) of the Company increased the size of the common stock repurchase program (the “Program”) by authorizing the repurchase of up to an additional $211 million of the Company’s common stock, leaving approximately $450 million available for purchases of the Company’s common stock in one or more transactions, including through open-market repurchases, Rule 10b5-1 plans and privately negotiated transactions. There can be no assurances as to the amount, timing or prices of repurchases, which may vary based on market conditions and other factors. The Program does not have an expiration date and it can be modified or terminated by the Company’s Board at any time.
On December 18, 2013, the Company completed the underwritten secondary public offering (the “Offering”) of 46,000,000 shares (the “Offered Shares”) of its common stock by the Terrific Investment Corporation (the “Selling Stockholder”), a subsidiary controlled by China Investment Corporation at a price of $13.45 per share. The Offered Shares included the full exercise of the underwriters’ option to purchase up to 6,000,000 additional shares of the Company’s common stock to cover over-allotments, which option was exercised in full by the underwriters on December 13, 2013. The Company did not receive any of the proceeds from the Offering. Also, on December 18, 2013, the Company completed the repurchase of 20 million shares of its common stock from the Selling Stockholder at a price per share of $12.912 for an aggregate purchase price of $258 million.
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THE AES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2013, 2012, AND 2011
During the year ended December 31, 2013, shares of common stock repurchased under the Program (including the 20 million share repurchase in December referenced above) totaled 25,297,042 at a total cost of $322 million. The cumulative purchases under the Program totaled 94,728,430 shares at a total cost of $1.1 billion, which includes a nominal amount of commissions (average price per share of $12.10, including commissions). As of December 31, 2013, $191 million was available under the Program.
The common stock repurchased has been classified as treasury stock and accounted for using the cost method. A total of 90,808,168 and 66,415,984 shares were held as treasury stock at December 31, 2013 and 2012, 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.