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Equity | 1 Months Ended
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Feb. 05, 2021
Equity [Abstract] |
EQUITY | EQUITY Equity Units In March 2021, the Company issued 10,430,500 Equity Units with a total notional value of $1,043 million. Each Equity Unit has a stated amount of $100 and was initially issued as a Corporate Unit, consisting of a forward stock purchase contract (“2024 Purchase Contracts”) and a 10% undivided beneficial ownership interest in one share of 0% Series A Cumulative Perpetual Convertible Preferred Stock, issued without par and with a liquidation preference of $1,000 per share (“Series A Preferred Stock”). Upon reconsideration of the nature of the Equity Units, the Company re-evaluated its accounting assessment and concluded that the Equity Units should be accounted for as one unit of account based on the economic linkage between the 2024 Purchase Contracts and the Series A Preferred Stock, as well as the Company's assessment of the applicable accounting guidance relating to combining freestanding instruments. The Equity Units represent mandatorily convertible preferred stock. Accordingly, the shares associated with the combined instrument are reflected in diluted earnings per share using the if-converted method. In the fourth quarter of 2021, the Company also corrected the classification of certain amounts in the Consolidated Balance Sheet and Statement of Changes in Equity to reflect the 2024 Purchase Contracts and Series A Preferred Stock as one unit of account. The corrections have no impact on the Company's net earnings, total assets, cash flows, or segment information. In conjunction with the issuance of the Equity Units, the Company received approximately $1 billion in proceeds, net of underwriting costs and commissions, before offering expenses. The proceeds for the issuance of 1,043,050 shares are attributed to the Series A Preferred Stock for $838 million and $205 million for the present value of the quarterly payments due to holders of the 2024 Purchase Contracts ("Contract Adjustment Payments"). The proceeds will be used for the development of the AES renewable businesses, U.S. utility businesses, LNG infrastructure, and for other developments determined by management. The Series A Preferred Stock will initially not bear any dividends and the liquidation preference of the convertible preferred stock will not accrete. The Series A Preferred Stock has no maturity date and will remain outstanding unless converted by holders or redeemed by the Company. Holders of the shares of the convertible preferred stock will have limited voting rights. The Series A Preferred Stock is pledged as collateral to support holders’ purchase obligations under the 2024 Purchase Contracts and can be remarketed. In connection with any successful remarketing, the Company may increase the dividend rate, increase the conversion rate, and modify the earliest redemption date for the convertible preferred stock. After any successful remarketing in connection with which the dividend rate on the convertible preferred stock is increased, the Company will pay cumulative dividends on the convertible preferred stock, if declared by the board of directors, quarterly in arrears from the applicable remarketing settlement date. Holders of Corporate Units may create Treasury Units or Cash Settled Units from their Corporate Units as provided in the Purchase Contract Agreement by substituting Treasury securities or cash, respectively, for the Convertible Preferred Stock comprising a part of the Corporate Units. The Company may not redeem the Series A Preferred Stock prior to March 22, 2024. At the election of the Company, on or after March 22, 2024, the Company may redeem for cash, all or any portion of the outstanding shares of the Series A Preferred Stock at a redemption price equal to 100% of the liquidation preference, plus any accumulated and unpaid dividends. The 2024 Purchase Contracts obligate the holders to purchase, on February 15, 2024, for a price of $100 in cash, a maximum number of 57,256,144 shares of the Company’s common stock (subject to customary anti-dilution adjustments). The 2024 Purchase Contract holders may elect to settle their obligation early, in cash. The Series A Preferred Stock is pledged as collateral to guarantee the holders’ obligations to purchase common stock under the terms of the 2024 Purchase Contracts. The initial settlement rate determining the number of shares that each holder must purchase will not exceed the maximum settlement rate and is determined over a market value averaging period preceding February 15, 2024. The initial maximum settlement rate of 3.864 was calculated using an initial reference price of $25.88, equal to the last reported sale price of the Company’s common stock on March 4, 2021. As of June 30, 2022, due to the customary anti-dilution provisions, the maximum settlement rate was 3.8667, equivalent to a reference price of $25.86. If the applicable market value of the Company’s common stock is less than or equal to the reference price, the settlement rate will be the maximum settlement rate; and if the applicable market value of common stock is greater than the reference price, the settlement rate will be a number of shares of the Company’s common stock equal to $100 divided by the applicable market value. Upon successful remarketing of the Series A Preferred Stock (“Remarketed Series A Preferred Stock”), the Company expects to receive additional cash proceeds of $1 billion and issue shares of Remarketed Series A Preferred Stock. The Company pays Contract Adjustment Payments to the holders of the 2024 Purchase Contracts at a rate of 6.875% per annum, payable quarterly in arrears on February 15, May 15, August 15, and November 15, commencing on May 15, 2021. The $205 million present value of the Contract Adjustment Payments at inception reduced the Series A Preferred Stock. As each quarterly Contract Adjustment Payment is made, the related liability is reduced and the difference between the cash payment and the present value will accrete to interest expense, approximately $5 million over the three-year term. As of June 30, 2022, the present value of the Contract Adjustment Payments was $124 million. The holders can settle the purchase contracts early, for cash, subject to certain exceptions and conditions in the prospectus supplement. Upon early settlement of any purchase contracts, the Company will deliver the number of shares of its common stock equal to 85% of the number of shares of common stock that would have otherwise been deliverable. Equity Transactions with Noncontrolling Interests AES Clean Energy Development — During the second quarter of 2022, AES Clean Energy Development, through multiple transactions, sold noncontrolling interests in multiple project companies to tax equity partners, resulting in a $98 million increase to NCI. AES Clean Energy Development is reported in the US and Utilities SBU reportable segment. Guaimbê Holding — In April 2021, Guaimbê Solar Holding S.A (“Guaimbê Holding”), a subsidiary of AES Brasil which wholly owns the Guaimbê solar complex and the Alto Sertão II wind facility, issued preferred shares representing 19.9% ownership in the subsidiary for total proceeds of $158 million. The transaction decreased the Company’s indirect ownership interest in the operational entities from 45.3% to 36.3%. In January 2022, Guaimbê Holding issued additional preferred shares representing 3.5% ownership in the subsidiary for total proceeds of $63 million. The transaction further decreased the Company’s indirect ownership interest to 35.8%. As the Company maintained control after these transactions, Guaimbê Holding continues to be consolidated by the Company within the South America SBU reportable segment. Chile Renovables — Under its agreement with Global Infrastructure Management, LLC (“GIP”), the minority interest holder in Chile Renovables SpA since July 2021, AES Andes will contribute a specified pipeline of renewable development projects to Chile Renovables as the projects reach commercial operations, and GIP will make additional contributions to maintain its 49% ownership interest. In January 2022, AES Andes completed the sale of Andes Solar 2a to Chile Renovables for $37 million, resulting in an increase to NCI of $28 million and an increase to additional paid-in capital of $9 million. In June 2022, the sale of Los Olmos was completed for $80 million, resulting in an increase to NCI of $68 million and an increase to additional paid-in capital of $12 million. As the Company maintained control after these transactions, Chile Renovables continues to be consolidated by the Company within the South America SBU reportable segment. AES Andes — On December 29, 2020, AES Andes commenced a preemptive rights offering for its existing shareholders to subscribe for up to 1.98 billion of newly issued shares to fund its renewable growth program. The period ended on February 5, 2021 and Inversiones Cachagua SpA (“Cachagua”), an AES subsidiary, subscribed for 1.35 billion shares at a cost of $205 million, increasing AES’ indirect beneficial interest in AES Andes from 67% to 67.1%. The noncontrolling interest holders subscribed for 629 million shares, resulting in additional capital contributions of $94 million. In January 2022, Cachagua completed a tender offer for the shares of AES Andes held by minority shareholders for $522 million, net of transaction costs. Upon completion, AES' indirect beneficial interest in AES Andes increased from 67.1% to 98%. Through multiple transactions following the tender offer, Cachagua acquired an additional 1% ownership in AES Andes for $13 million, further increasing AES’ indirect beneficial interest to 99%. These transactions resulted in a $169 million decrease to Parent Company Stockholder’s Equity due to a decrease in additional paid-in capital of $93 million and the reclassification of accumulated other comprehensive losses from NCI to AOCL of $76 million. AES Andes is reported in the South America SBU reportable segment. AES Brasil — On December 18, 2020, the AES Tietê board approved a proposal for the corporate reorganization and exchange of shares issued by AES Tietê with newly issued shares of AES Brasil, a formerly wholly-owned entity of AES Tietê, with the intent to list AES Brasil on Novo Mercado, a listing segment of the Brazilian stock exchange that requires equity capital to be composed only of common shares, as the 100% shareholder of AES Tietê. The reorganization and the exchange of shares was completed on March 26, 2021, and the shares issued by AES Brasil started trading on Novo Mercado on March 29, 2021. The Company maintains majority representation on AES Brasil’s board of directors, and as such, continues to consolidate AES Brasil. Through multiple transactions in the first half of 2021, AES Holdings Brasil Ltda. acquired an additional 1.6% ownership in AES Brasil for $17 million. These transactions increased the Company’s ownership interest in AES Brasil to 45.7% and resulted in a $13 million decrease in Parent Company Stockholder’s Equity due to a decrease in additional paid-in capital of $6 million and the reclassification of accumulated other comprehensive losses from NCI to AOCL of $7 million. AES Brasil is reported in the South America SBU reportable segment. Accumulated Other Comprehensive Loss — The following table summarizes the changes in AOCL by component, net of tax and NCI, for the six months ended June 30, 2022 (in millions):
| Foreign currency translation adjustment, net |  | Unrealized derivative gains (losses), net |  | Unfunded pension obligations, net |  | Total
Balance at the beginning of the period | $ | (1,734) |  |  | $ | (456) |  |  | $ | (30) |  |  | $ | (2,220) |
Other comprehensive income (loss) before reclassifications | (15) |  |  | 490 |  |  | — |  |  | 475 |
Amount reclassified to earnings | — |  |  | 30 |  |  | 1 |  |  | 31 |
Other comprehensive income (loss) | (15) |  |  | 520 |  |  | 1 |  |  | 506 |
Reclassification from NCI due to share repurchases | (53) |  |  | (20) |  |  | (3) |  |  | (76) |
Balance at the end of the period | $ | (1,802) |  |  | $ | 44 |  |  | $ | (32) |  |  | $ | (1,790) |
Reclassifications out of AOCL are presented in the following table. Amounts for the periods indicated are in millions and those in parentheses indicate debits to the Condensed Consolidated Statements of Operations:
AOCL Components |  | Affected Line Item in the Condensed Consolidated Statements of Operations |  | Three Months Ended June 30, |  | Six Months Ended June 30,
|  | 2022 |  | 2021 |  | 2022 |  | 2021
Foreign currency translation adjustment, net |  |
|  | Gain (loss) on disposal and sale of business interests |  | $ | — |  |  | $ | (3) |  |  | $ | — |  |  | $ | (3) |
|  | Net income (loss) attributable to The AES Corporation |  | $ | — |  |  | $ | (3) |  |  | $ | — |  |  | $ | (3) |
Derivative gains (losses), net |  |  |  |  |  |  |  |
|  | Non-regulated revenue |  | $ | — |  |  | $ | — |  |  | $ | (1) |  |  | $ | — |
|  | Non-regulated cost of sales |  | (1) |  |  | (3) |  |  | (2) |  |  | (4) |
|  | Interest expense |  | (10) |  |  | (13) |  |  | (33) |  |  | (29) |
|  | Gain (loss) on disposal and sale of business interests |  | (16) |  |  | — |  |  | (16) |  |  | — |
|  | Asset impairment expense |  | — |  |  | (9) |  |  | — |  |  | (13) |
|  | Foreign currency transaction losses |  | — |  |  | (2) |  |  | — |  |  | (5) |
|  | Income from continuing operations before taxes and equity in earnings of affiliates |  | (27) |  |  | (27) |  |  | (52) |  |  | (51) |
|  | Income tax benefit (expense) |  | 3 |  |  | 6 |  |  | 13 |  |  | 13 |
|  | Net equity in earnings (losses) of affiliates |  | 4 |  |  | (5) |  |  | 1 |  |  | (11) |
|  | Net income (loss) |  | (20) |  |  | (26) |  |  | (38) |  |  | (49) |
|  | Less: Net loss (income) attributable to noncontrolling interests and redeemable stock of subsidiaries |  | (3) |  |  | 7 |  |  | 8 |  |  | 13 |
|  | Net income (loss) attributable to The AES Corporation |  | $ | (23) |  |  | $ | (19) |  |  | $ | (30) |  |  | $ | (36) |
Amortization of defined benefit pension actuarial gain (loss), net |  |  |  |  |  |  |  |
|  | Regulated cost of sales |  | $ | (1) |  |  | $ | (1) |  |  | $ | (1) |  |  | $ | (1) |
|  | Other expense |  | 1 |  |  | (1) |  |  | — |  |  | (1) |
|  | Income (loss) from continuing operations before taxes and equity in earnings of affiliates |  | — |  |  | (2) |  |  | (1) |  |  | (2) |
|  | Income tax benefit (expense) |  | — |  |  | 1 |  |  | — |  |  | 1 |
|  | Net income (loss) attributable to The AES Corporation |  | $ | — |  |  | $ | (1) |  |  | $ | (1) |  |  | $ | (1) |
Total reclassifications for the period, net of income tax and noncontrolling interests |  | $ | (23) |  |  | $ | (23) |  |  | $ | (31) |  |  | $ | (40) |
Common Stock Dividends — The Parent Company paid dividends of $0.1580 per outstanding share to its common stockholders during the first and second quarters of 2022 for dividends declared in December 2021 and February 2022. On July 15, 2022, the Board of Directors declared a quarterly common stock dividend of $0.1580 per share payable on August 15, 2022, to shareholders of record at the close of business on August 1, 2022.

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