November 4, 2016 - 6:47 AM EDT
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NRG Energy, Inc. Reports Third Quarter Results and Initiates 2017 Financial Guidance

Key Highlights

  • Increasing and narrowing 2016 Adjusted EBITDA guidance, and initiating 2017 Adjusted EBITDA and Free Cash Flow before Growth (FCFbG) guidance
  • Repurchased $440 million1 of corporate debt since second quarter 2016; total of $1.0 billion of corporate debt retired since third quarter 2015 generating approximately $78 million2 of net annualized interest savings
  • Acquisition of 1.5 GWac3 (2.1 GWdc) of utility-scale and 29 MWac distributed renewable generation from SunEdison

NRG Energy, Inc. (NYSE:NRG):

Financial Results

    Three Months Ended   Nine Months Ended
($ in millions) 9/30/16   9/30/15 9/30/16   9/30/15
Net Income/(Loss) $ 393 $ 67 $ 164 $ (78 )
Cash From Operations $ 860 $ 934 $ 1,733 $ 1,392

Adjusted EBITDA

$ 1,173 $ 1,103 $ 2,765 $ 2,585
Free Cash Flow (FCF) Before Growth Investments     $ 911     $ 861     $ 1,131     $ 1,135  
 
  • Net income of $393 million in the third quarter 2016, compared with a net income of $67 million in the third quarter 2015. After adjusting for the $266 million gain on sale of assets in the third quarter 2016 and $263 million of impairments in the third quarter 2015, net income declined $203 million related to lower energy margins and increased debt extinguishment costs.
  • Adjusted EBITDA of $1,173 million for the third quarter 2016 represents a $70 million increase compared to the third quarter 2015.

NRG Energy, Inc. (NYSE:NRG) today reported third quarter net income of $393 million. The net income for the first nine months of 2016 was $164 million, or $0.91 per diluted common share compared to a net loss of $78 million, or $(0.25) per diluted common share for the first nine months of 2015. Adjusted EBITDA for the three and nine months ended September 30, 2016, was $1,173 million and $2,765 million, respectively. Year-to-date cash from operations totaled $1,733 million.

“Our unique integrated platform delivered another strong quarter despite a subdued price environment,” said Mauricio Gutierrez, NRG's President and Chief Executive Officer. “We remain focused on capital discipline with the retirement of $1 billion of corporate debt, while opportunistically deploying capital for growth, as evidenced by the SunEdison transaction. It is the consistent performance of our generation-retail model that drives our 2016 performance and our 2017 guidance announced today.”

1 Represents $1.312 billion of corporate debt retired, net of $1.25 billion of 2027 Senior Notes issuance, in third quarter 2016, and completed repurchases of $186 million of Senior Notes due 2018 and $193 million of Senior Notes due 2021, on October 18, 2016 and November 3, 2016, respectively.
2 Net of refinanced term loan interest cost of $16 million.
3 1,384 MW acquired as of November 4, 2016; acquisition of 154 MW construction-ready solar facility in Texas expected to close in November 2016.
4For comparability, 2015 results have been restated to include the negative contribution from residential solar of $42 million and $129 million for the three and nine months ended September 30, 2015.
       

Segment Results

 

Table 1: Net Income/(Loss)

 
($ in millions) Three Months Ended Nine Months Ended
Segment 9/30/16     9/30/15 9/30/16     9/30/15
Generation $ 630 $ 164 $ 418 $ 213
Retail Mass 2 197 644 523
Renewables 1 11 (16 ) (102 ) (74 )
NRG Yield 1 47 32 111 53
Corporate 2 (297 ) (310 ) (907 ) (793 )
Net Income/(Loss) 3 $ 393   $ 67   $ 164   $ (78 )
 
1 In accordance with GAAP, 2015 results have been restated to include full impact of the assets in the NRG Yield Drop Down transactions which closed on November 3, 2015, and September 1, 2016.
2 Includes residential solar.
3 Includes mark-to-market gains and losses of economic hedges.
       

Table 2: Adjusted EBITDA

 
($ in millions) Three Months Ended Nine Months Ended
Segment 9/30/16     9/30/15 9/30/16     9/30/15
Generation 1 $ 605 $ 674 $ 1,340 $ 1,525
Retail Mass 266 225 629 606
Renewables 2 84 60 161 132
NRG Yield 2 246 221 692 569
Corporate 3 (28 ) (77 ) (57 ) (247 )
Adjusted EBITDA 4 $ 1,173   $ 1,103   $ 2,765   $ 2,585  
 
1 See Appendices A-6 through A-9 for Generation regional Reg G reconciliations.
2 In accordance with GAAP, 2015 results have been restated to include full impact of the assets in the NRG Yield Drop Down transactions which closed on November 3, 2015, and September 1, 2016.
3 2016 includes residential solar. 2015 results have been restated to include negative contribution of $42 million and $129 million for the three and nine months ended September 30, 2015, respectively.
4 See Appendices A-1 through A-4 for Operating Segment Reg G reconciliations.
 

Generation: Third quarter Adjusted EBITDA was $605 million, $69 million lower than third quarter 2015 primarily driven by:

  • Gulf Coast Region: $94 million decrease due primarily to lower realized energy margins in Texas from the decline in power prices and lower South Central capacity revenues.
  • East Region: $26 million lower due to lower realized energy margins on lower dispatch and asset sales and lower capacity prices; partially offset by the partial monetization of $98 million in 2017-2019 hedges at GenOn and lower operating costs due to decreased dispatch, reduced outages, deactivations and plant sales.
  • West Region: $44 million increase due to gain from sale of real property at Potrero site partially offset by lower capacity prices.
  • Business Solutions: $7 million in lower costs primarily driven by favorable settlement of a Texas sales tax audit.

Retail Mass: Third quarter Adjusted EBITDA was $266 million, $41 million higher than third quarter 2015 driven by operating cost efficiencies, lower supply costs and favorable weather in 2016 compared to 2015.

Renewables: Third quarter Adjusted EBITDA was $84 million, $24 million higher than third quarter 2015 due primarily to increased generation at Ivanpah.

NRG Yield: Third quarter Adjusted EBITDA was $246 million, $25 million higher than third quarter 2015 primarily due to higher generation across the wind portfolio.

Corporate: Third quarter Adjusted EBITDA was $(28) million, $49 million favorable to third quarter 2015 due to reduced operating expenses at residential solar and favorable trading results at BETM.

       

Liquidity and Capital Resources

 

Table 3: Corporate Liquidity

 

($ in millions) 9/30/16 12/31/15
Cash at NRG-Level 1 $ 941 $ 693
Revolver 1,374 1,373
NRG-Level Liquidity $ 2,315 $ 2,066
Restricted cash 480 414
Cash at Non-Guarantor Subsidiaries   1,494   825
Total Liquidity   $ 4,289   $ 3,305
 

1 September 30, 2016, balance includes $250 million of unrestricted cash held at Midwest Generation (a non-guarantor subsidiary) which can be distributed to NRG without limitation.

 

NRG-Level cash as of September 30, 2016, was $941 million, an increase of $248 million from the end of 2015, and $1.4 billion was available under the Company’s credit facilities at the end of the third quarter 2016. Total liquidity was $4.3 billion, including restricted cash and cash at non-guarantor subsidiaries (primarily GenOn and NRG Yield).

NRG Strategic Developments

University of Pittsburgh Medical Center (UPMC) Thermal Project

On October 31, 2016, subsidiaries of NRG and NRG Yield, Inc., entered into an Engineering, Procurement and Construction (EPC) agreement for the construction of a 73 MWt district energy system for NRG Yield to provide approximately 150 kpph of steam, 6,750 tons of chilled water and 7.5 MW of emergency backup power service to UPMC. The initial term of the energy services agreement (under fixed capacity payments) with UPMC Mercy will be for a period of twenty years from the service commencement date. Pursuant to the terms of the EPC agreement, NRG Yield will pay NRG $79 million, subject to adjustment based upon certain conditions in the EPC agreement, upon substantial completion of the project. The project is expected to achieve commercial operations in the first quarter of 2018.

SunEdison Utility-Scale Solar and Wind Acquisition

On September 15, 2016, the Company entered into an agreement with SunEdison to acquire (i) an equity interest in a tax-equity portfolio of 530 MW mechanically-complete solar assets of which NRG’s net interest based on cash to be distributed will be 265 MW, and an additional 937 MW of solar and wind assets in development, (ii) a 154 MW construction-ready solar facility in Texas and (iii) a 182 MW portfolio of construction-ready and development solar assets in Hawaii. The acquisition of the portfolio of solar assets in Hawaii was completed on October 7, 2016, for upfront cash consideration of $2 million and the acquisition of the 530 MW tax-equity portfolio and 937 MW of development assets was completed on November 2, 2016, for upfront cash consideration of $111 million. The Company expects to pay total upfront cash consideration for the three acquisitions of $129 million, with an estimated $59 million in additional payments contingent upon future development milestones.

SunEdison Solar Distributed Generation Acquisition

On October 3, 2016, the Company acquired a 29 MW portfolio of mechanically-complete and construction-ready distributed generation solar assets from SunEdison for cash consideration of approximately $68 million, subject to post-closing adjustments. The Company expects to sell these assets into a tax-equity financed portfolio within the distributed generation partnership with NRG Yield.

Drop Down to NRG Yield

On September 1, 2016, NRG completed the previously announced sale of its 51.05% interest in the CVSR facility to NRG Yield Operating LLC for total cash consideration of approximately $78.5 million plus assumed debt.

Outlook for 2016 and Initiation of 2017 Guidance

NRG has increased and narrowed the range of its Adjusted EBITDA and narrowed FCF before growth investments guidance for 2016 and is also initiating guidance for fiscal year 2017 as set forth below.

       

Table 4: 2016 and 2017 Adjusted EBITDA and FCF before Growth Investments Guidance

 
  2016 2017
($ in millions) Prior Guidance    

Narrowed
Guidance

Guidance
Adjusted EBITDA1 $3,000 – 3,200 $3,250 – 3,350 $2,700 - $2,900
Cash From Operations $2,055 – 2,255 $1,975 – 2,075 $1,355 - $1,555
Free Cash Flow – before Growth Investments $1,000 – 1,200 $1,100 – 1,200 $800 - $1,000
 

1 Non-GAAP financial measure; see Appendix Table A-11 for GAAP Reconciliation to Net Income that excludes fair value adjustments related to derivatives. The Company is unable to provide guidance for Net Income due to the impact of such fair value adjustments related to derivatives in a given year.

 

Capital Allocation Update

In October 2016, the Company redeemed $186 million of its 7.625% 2018 Senior Notes through a tender offer, at an average early redemption percentage of 107.75%. On November 3, 2016, the Company redeemed $193 million of its 7.875% 2021 Senior Notes, at a redemption price of 103.94%.

Year-to-date through November 4, 2016, NRG has reduced corporate debt by $777 million. Combined with the debt repurchases in 2015 and the extension of debt maturities at a lower average coupon rate, NRG has retired $1.0 billion of corporate debt resulting in an annual interest savings of approximately $78 million, plus an additional $10 million in dividend savings from the repurchase of 100% of its outstanding $345 million, 2.822% convertible perpetual preferred stock for $226 million.

On October 19, 2016, NRG declared a quarterly dividend on the company's common stock of $0.03 per share, payable November 15, 2016, to stockholders of record as of November 1, 2016, representing $0.12 on an annualized basis.

The Company’s common stock dividend, debt reduction and share repurchases are subject to available capital, market conditions and compliance with associated laws and regulations.

Earnings Conference Call

On November 4, 2016, NRG will host a conference call at 8:00 a.m. Eastern to discuss these results. Investors, the news media and others may access the live webcast of the conference call and accompanying presentation materials by logging on to NRG’s website at http://www.nrg.com and clicking on “Investors.” The webcast will be archived on the site for those unable to listen in real time.

About NRG

NRG is the leading integrated power company in the U.S., built on the strength of the nation’s largest and most diverse competitive electric generation portfolio and leading retail electricity platform. A Fortune 200 company, NRG creates value through best in class operations, reliable and efficient electric generation, and a retail platform serving residential and commercial customers. Working with electricity customers, large and small, we continually innovate, embrace and implement sustainable solutions for producing and managing energy. We aim to be pioneers in developing smarter energy choices and delivering exceptional service as our retail electricity providers serve almost 3 million residential and commercial customers throughout the country. More information is available at www.nrg.com. Connect with NRG Energy on Facebook and follow us on Twitter @nrgenergy.

Safe Harbor Disclosure

In addition to historical information, the information presented in this communication includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act. These statements involve estimates, expectations, projections, goals, assumptions, known and unknown risks and uncertainties and can typically be identified by terminology such as “may,” “should,” “could,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “expect,” “intend,” “seek,” “plan,” “think,” “anticipate,” “estimate,” “predict,” “target,” “potential” or “continue,” or the negative of these terms or other comparable terminology. Such forward-looking statements include, but are not limited to, statements about the Company’s future revenues, income, indebtedness, capital structure, plans, expectations, objectives, projected financial performance and/or business results and other future events, and views of economic and market conditions.

Although NRG believes that its expectations are reasonable, it can give no assurance that these expectations will prove to be correct, and actual results may vary materially. Factors that could cause actual results to differ materially from those contemplated above include, among others, general economic conditions, hazards customary in the power industry, weather conditions, including wind and solar performance, competition in wholesale power markets, the volatility of energy and fuel prices, failure of customers to perform under contracts, changes in the wholesale power markets, changes in government regulation of markets and of environmental emissions, the condition of capital markets generally, our ability to access capital markets, unanticipated outages at our generation facilities, adverse results in current and future litigation, failure to identify or successfully implement acquisitions and repowerings, our ability to implement value enhancing improvements to plant operations and companywide processes, the ability for GenOn to continue as a going concern, our ability to obtain federal loan guarantees, the inability to maintain or create successful partnering relationships with NRG Yield and other third parties, our ability to operate our businesses efficiently including NRG Yield, our ability to retain retail customers, our ability to realize value through our commercial operations strategy and the creation of NRG Yield, the ability to successfully integrate the businesses of acquired companies, the ability to realize anticipated benefits of acquisitions (including expected cost savings and other synergies) and the ability to sell assets to NRG Yield, Inc. or the risk that anticipated benefits may take longer to realize than expected and our ability to pay dividends and initiate share or debt repurchases under our capital allocation plan, which may be made from time to time subject to market conditions and other factors, including as permitted by United States securities laws. Furthermore, any common stock dividend or debt repurchases are subject to available capital and market conditions.

NRG undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. The adjusted EBITDA and free cash flow guidance are estimates as of November 4, 2016. These estimates are based on assumptions the company believed to be reasonable as of that date. NRG disclaims any current intention to update such guidance, except as required by law. The foregoing review of factors that could cause NRG’s actual results to differ materially from those contemplated in the forward-looking statements included in this Earnings press release should be considered in connection with information regarding risks and uncertainties that may affect NRG’s future results included in NRG’s filings with the Securities and Exchange Commission at www.sec.gov.

 

NRG ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

       

Three months ended
September 30,

Nine months ended
September 30,

(In millions, except for per share amounts)

2016     2015 2016     2015
Operating Revenues
Total operating revenues $ 3,952   $ 4,434   $ 9,819   $ 11,663  
Operating Costs and Expenses
Cost of operations 2,793 3,042 6,738 8,551
Depreciation and amortization 357 382 979 1,173
Impairment losses 8 263 123 263
Selling, general and administrative 282 327 802 878
Acquisition-related transaction and integration costs 3 7 16
Development activity expenses 23   38   67   109  
Total operating costs and expenses 3,463 4,055 8,716 10,990
Gain on sale of assets and postretirement benefits curtailment, net 266     215   14  
Operating Income 755   379   1,318   687  
Other Income/(Expense)
Equity in earnings of unconsolidated affiliates 16 24 13 29
Impairment loss on investment (8 ) (147 )
Other income, net 9 4 35 27
Loss on debt extinguishment, net (50 ) (2 ) (119 ) (9 )
Interest expense (280 ) (291 ) (841 ) (855 )
Total other expense (313 ) (265 ) (1,059 ) (808 )
Income/(Loss) Before Income Taxes 442 114 259 (121 )
Income tax expense/(benefit) 49   47   95   (43 )
Net Income/(Loss) 393 67 164 (78 )
Less: Net (loss)/income attributable to noncontrolling interest and redeemable noncontrolling interests (9 ) 1   (49 ) (10 )
Net Income/(Loss) Attributable to NRG Energy, Inc. 402 66 213 (68 )
Gain on redemption, net of dividends for preferred shares   5   (73 ) 15  
Income/(Loss) Available for Common Stockholders $ 402   $ 61   $ 286   $ (83 )
Earnings/(Loss) per Share Attributable to NRG Energy, Inc. Common Stockholders
Weighted average number of common shares outstanding — basic 316 331 315 334
Earnings/(Loss) per Weighted Average Common Share — Basic $ 1.27   $ 0.18   $ 0.91   $ (0.25 )
Weighted average number of common shares outstanding — diluted 317 332 316 334
Earnings/(Loss) per Weighted Average Common Share — Diluted $ 1.27   $ 0.18   $ 0.91   $ (0.25 )
Dividends Per Common Share $ 0.03   $ 0.15   $ 0.21   $ 0.44  
 
       

NRG ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

(Unaudited)

 

Three months ended
September 30,

Nine months ended
September 30,

2016     2015 2016     2015
(In millions)
Net Income/(Loss) $ 393 $ 67 $ 164 $ (78 )
Other Comprehensive Income/(Loss), net of tax
Unrealized gains/(losses) on derivatives, net of income tax (benefit)/expense of $(1), $(12), $1 and $(6) 27 (6 ) (8 ) (2 )
Foreign currency translation adjustments, net of income tax benefit of $0 , $5, $0 and $6 3 (8 ) 6 (10 )
Available-for-sale securities, net of income tax expense of $0, $6, $0 and $1 (7 ) 1 (11 )
Defined benefit plans, net of tax expense of $0, $2, $0 and $6 31   3   32   9  
Other comprehensive income/(loss) 61   (18 ) 31   (14 )
Comprehensive Income/(Loss) 454 49 195 (92 )
Less: Comprehensive loss attributable to noncontrolling interest and redeemable noncontrolling interests (2 ) (17 ) (70 ) (34 )
Comprehensive Income/(Loss) Attributable to NRG Energy, Inc. 456 66 265 (58 )
Gain on redemption, net of dividends for preferred shares   5   (73 ) 15  
Comprehensive Income/(Loss) Available for Common Stockholders $ 456   $ 61   $ 338   $ (73 )
 
       

NRG ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

September 30,
2016

December 31,
2015

(In millions, except shares)

(unaudited)  
ASSETS
Current Assets
Cash and cash equivalents $ 2,435 $ 1,518
Funds deposited by counterparties 16 106
Restricted cash 480 414
Accounts receivable, net 1,362 1,157
Inventory 1,017 1,252
Derivative instruments 964 1,915
Cash collateral paid in support of energy risk management activities 337 568
Renewable energy grant receivable, net 34 13
Current assets held-for-sale 6
Prepayments and other current assets 369   442  
Total current assets 7,014   7,391  
Property, plant and equipment, net 18,203   18,732  
Other Assets
Equity investments in affiliates 900 1,045
Notes receivable, less current portion 21 53
Goodwill 999 999

Intangible assets, net

2,106 2,310
Nuclear decommissioning trust fund 605 561
Derivative instruments 256 305
Deferred income taxes 189 167
Non-current assets held-for-sale 105
Other non-current assets 1,198   1,214  
Total other assets 6,274   6,759  
Total Assets $ 31,491   $ 32,882  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Current portion of long-term debt and capital leases $ 1,221 $ 481
Accounts payable 945 869
Derivative instruments 969 1,721
Cash collateral received in support of energy risk management activities 16 106
Current liabilities held-for-sale 2
Accrued expenses and other current liabilities 1,150   1,196  
Total current liabilities 4,301   4,375  
Other Liabilities
Long-term debt and capital leases 18,018 18,983
Nuclear decommissioning reserve 284 326
Nuclear decommissioning trust liability 309 283
Deferred income taxes 47 19
Derivative instruments 475 493
Out-of-market contracts, net 1,065 1,146
Non-current liabilities held-for-sale 4
Other non-current liabilities 1,480   1,488  
Total non-current liabilities 21,678   22,742  
Total Liabilities 25,979   27,117  
2.822% convertible perpetual preferred stock 302
Redeemable noncontrolling interest in subsidiaries 19 29
Commitments and Contingencies
Stockholders’ Equity
Common stock 4 4
Additional paid-in capital 8,370 8,296
Retained deficit (2,791 ) (3,007 )
Less treasury stock, at cost — 102,140,814 and 102,749,908 shares, respectively (2,399 ) (2,413 )
Accumulated other comprehensive loss (142 ) (173 )
Noncontrolling interest 2,451   2,727  
Total Stockholders’ Equity 5,493   5,434  
Total Liabilities and Stockholders’ Equity $ 31,491   $ 32,882  
   

NRG ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

Nine months ended
September 30,

2016     2015
(In millions)
Cash Flows from Operating Activities
Net Income/(Loss) $ 164 $ (78 )
Adjustments to reconcile net income/(loss) to net cash provided by operating activities:
Distributions and equity in earnings of unconsolidated affiliates 44 28
Depreciation and amortization 979 1,173
Provision for bad debts 36 49
Amortization of nuclear fuel 39 36
Amortization of financing costs and debt discount/premiums 3 (9 )
Adjustment to loss on debt extinguishment 21 9
Amortization of intangibles and out-of-market contracts 73 68
Amortization of unearned equity compensation 23 37
Impairment losses 270 263
Changes in deferred income taxes and liability for uncertain tax benefits 29 (72 )
Changes in nuclear decommissioning trust liability 24 1
Changes in derivative instruments 82 180
Changes in collateral deposits supporting energy risk management activities 231 (180 )
Proceeds from sale of emission allowances 47 (6 )
Gain on sale of assets and equity method investments, net and postretirement benefits curtailment (224 ) (14 )
Cash used by changes in other working capital (108 ) (93 )
Net Cash Provided by Operating Activities 1,733   1,392  
Cash Flows from Investing Activities
Acquisitions of businesses, net of cash acquired (18 ) (31 )
Capital expenditures (898 ) (889 )
Increase in restricted cash, net (30 ) (41 )
(Increase)/decrease in restricted cash to support equity requirements for U.S. DOE funded projects (36 ) 1
Decrease in notes receivable 2 10
Purchases of emission allowances (32 ) (40 )
Proceeds from sale of emission allowances 47 45
Investments in nuclear decommissioning trust fund securities (378 ) (500 )
Proceeds from the sale of nuclear decommissioning trust fund securities 354 499
Proceeds from renewable energy grants and state rebates 11 62
Proceeds from sale of assets, net of cash disposed of 636 1
Investments in unconsolidated affiliates (23 ) (357 )
Other 44   8  
Net Cash Used by Investing Activities (321 ) (1,232 )
Cash Flows from Financing Activities
Payment of dividends to common and preferred stockholders (66 ) (152 )
Payment for treasury stock (353 )
Payment for preferred shares (226 )
Net receipts from settlement of acquired derivatives that include financing elements 129 138
Proceeds from issuance of long-term debt 5,237 679
Payments for short and long-term debt (5,357 ) (954 )
Distributions from, net of contributions to, noncontrolling interest in subsidiaries (127 ) 651
Proceeds from issuance of common stock 1 1
Payment of debt issuance costs (70 ) (14 )
Other - contingent consideration (10 ) (22 )
Net Cash Used by Financing Activities (489 ) (26 )
Effect of exchange rate changes on cash and cash equivalents (6 ) 15  
Net Increase in Cash and Cash Equivalents 917 149
Cash and Cash Equivalents at Beginning of Period 1,518   2,116  
Cash and Cash Equivalents at End of Period $ 2,435   $ 2,265  
 
             

Appendix Table A-1: Third Quarter 2016 Adjusted EBITDA Reconciliation by Operating Segment

The following table summarizes the calculation of Adj. EBITDA and provides a reconciliation to net income/(loss):

 
($ in millions)     Retail Mass   Generation   Renewables   Yield   Corp/Elim   Total
Net income/(loss)     2     630     11     47     (297 )   393  
Plus:
Interest expense, net 14 34 70 157 275
Income tax (2 ) (3 ) 13 41 49
Loss on debt extinguishment 50 50
Depreciation, amortization and ARO expense 25 198 48 76 16 363
Amortization of contracts     (1 )   (15 )       17         1  
EBITDA 26 825 90 223 (33 ) 1,131
Adjustment to reflect NRG share of adjusted EBITDA in unconsolidated affiliates 7 2 23 (2 ) 30
Reorganization costs 6 6
Deactivation costs 3 1 4
Gain on sale of business (194 ) (4 ) (198 )
Other non recurring charges 6 (6 )
Impairments 13 (1 ) 4 16
Mark to market (MtM) (gains)/losses on economic hedges     240     (55 )   (1 )           184  
Adjusted EBITDA     266     605     84     246     (28 )   1,173  
 

Third Quarter 2016 condensed financial information by Operating Segment:

             
($ in millions)     Retail Mass   Generation   Renewables   Yield   Corp/Elim   Total
Operating revenues 1,618 2,322 139 289 (325 ) 4,043
Cost of sales     1,156     1,276     1     18     (341 )   2,110
Economic gross margin 462 1,046 138 271 16 1,933
Operations & maintenance (a) 54 369 19 36 3 481
Selling, marketing, general and administrative(b) 118 101 12 4 41 276
Other income/(expense)     24     (29 )   23     (15 )       3
Adjusted EBITDA     266     605     84     246     (28 )   1,173
 
(a) Excludes deactivation costs of $4 million.
(b) Excludes reorganization costs of $6 million.
 
             

The following table reconciles the condensed financial information to Adjusted EBITDA:

 
($ in millions)    

Condensed
financial
information

 

Interest, tax,
depr., amort.

  MtM   Deactivation   Other adj.  

Adjusted
EBITDA

Operating revenues 3,952 12 79 4,043
Cost of operations     2,218     (3 )   (105 )           2,110
Gross margin 1,734 15 184 1,933
Operations & maintenance 485 (4 ) 481
Selling, marketing, general & administrative (a) 282 (6 ) 276
Other expense/(income) (b)     574     (723 )           152     3
Net income     393     738     184     4     (146 )   1,173
 
(a) Other adj. includes reorganization costs of $6 million.
(b) Other adj. includes impairments, loss on sale of business, and acquisition-related transaction & integration costs.
 
           

Appendix Table A-2: Third Quarter 2015 Adjusted EBITDA Reconciliation by Operating Segment

The following table summarizes the calculation of Adjusted EBITDA and provides a reconciliation to net income/(loss):

 
($ in millions)   Retail Mass   Generation   Renewables   Yield   Corp/Elim   Total
Net income/(loss)   197     164     (16 )   32     (310 )   67  
Plus:
Interest expense, net 17 22 70 177 286
Income tax 2 (4 ) 8 41 47
Loss on debt extinguishment 2 2
Depreciation amortization and ARO expense 30 231 46 71 17 395
Amortization of contracts   (1 )   (11 )       14         2  
EBITDA 226 403 48 197 (75 ) 799
Adjustment to reflect NRG share of adjusted EBITDA in unconsolidated affiliates 10 3 20 (4 ) 29
Acquisition-related transaction & integration costs 1 2 3
Deactivation costs 2 2
Gain on sale of business (2 ) (2 )
Other non recurring charges (13 ) 8 6 1 2
Impairments 36 222 5 263
MtM (gains)/losses on economic hedges   (24 )   29         2         7  
Adjusted EBITDA   225     674     60     221     (77 )   1,103  
 
           

Third Quarter 2015 condensed financial information by Operating Segment:

 
($ in millions)   Retail Mass   Generation   Renewables   Yield   Corp/Elim   Total
Operating revenues 1,698 2,692 123 272 (378 ) 4,407
Cost of sales   1,255     1,449         20     (364 )   2,360
Economic gross margin 443 1,243 123 252 (14 ) 2,047
Operations & maintenance (a) 50 384 39 38 (3 ) 508
Selling, marketing, general & administrative 116 127 16 3 65 327
Other income/(expense) (b)   52     58     8     (10 )   1     109
Adjusted EBITDA   225     674     60     221     (77 )   1,103
 
(a) Excludes deactivation costs of $2 million.
(b) Excludes acquisition-related transaction & integration costs of $3 million.
 
             

The following table reconciles the condensed financial information to Adjusted EBITDA:

 
($ in millions)    

Condensed
financial
information

 

Interest, tax,
depr., amort.

  MtM   Deactivation   Other adj.  

Adjusted
EBITDA

Operating revenues 4,434 8 (35 ) 4,407
Cost of operations     2,409     (7 )   (42 )           2,360
Gross margin 2,025 15 7 2,047
Operations & maintenance 510 (2 ) 508
Selling, marketing, general & administrative 327 327
Other expense/(income) (a)     1,121     (718 )           (294 )   109
Net income     67     733     7     2     294     1,103
(a) Other adj. includes impairments and acquisition-related transaction & integration costs.
 
             

Appendix Table A-3: YTD Third Quarter 2016 Adjusted EBITDA Reconciliation by Operating Segment

The following table summarizes the calculation of Adj. EBITDA and provides a reconciliation to net income/(loss):

 
($ in millions)     Retail Mass   Generation   Renewables   Yield   Corp/Elim   Total
Net income/(loss)     644     418     (102 )   111     (907 )   164  
Plus:
Interest expense, net 56 84 212 478 830
Income tax (1 ) (14 ) 25 85 95
Loss on debt extinguishment 119 119
Depreciation, amortization and ARO expense 80 506 144 226 50 1,006
Amortization of contracts         (46 )       57     (3 )   8  
EBITDA 724 933 112 631 (178 ) 2,222
Adjustment to reflect NRG share of adjusted EBITDA in unconsolidated affiliates 23 16 58 (4 ) 93
Acquisition-related transaction & integration costs 7 7
Reorganization costs 5 1 3 17 26
Deactivation costs 15 1 16
(Gain)/loss on sale of business (223 ) 79 (144 )
Other non recurring charges 17 5 3 2 27
Impairments 226 25 19 270
Market to market (MtM) (gains)/losses on economic hedges     (100 )   348                 248  
Adjusted EBITDA     629     1,340     161     692     (57 )   2,765  
 
             

YTD Third Quarter 2016 condensed financial information by Operating Segment:

 
($ in millions)     Retail Mass   Generation   Renewables   Yield   Corp/Elim   Total
Operating revenues 3,868 6,131 336 840 (723 ) 10,452
Cost of sales     2,711     3,166     3     48     (796 )   5,132
Economic gross margin 1,157 2,965 333 792 73 5,320
Operations & maintenance (a) 164 1,239 96 118 9 1,626
Selling, marketing, general & administrative (b) 299 311 40 10 116 776
Other expense/(income) (c)     65     75     36     (28 )   5     153
Adjusted EBITDA     629     1,340     161     692     (57 )   2,765
 
(a) Excludes deactivation costs of $16 million.
(b) Excludes reorganization costs of $26 million.
(c) Excludes acquisition-related transaction & integration costs of $7 million.
 
             

The following table reconciles the condensed financial information to Adjusted EBITDA:

 
($ in millions)    

Condensed
financial
information

 

Interest, tax,
depr., amort.

  MtM   Deactivation   Other adj.  

Adjusted
EBITDA

Operating revenues 9,819 41 592 10,452
Cost of operations     4,794     (6 )   344             5,132
Gross margin 5,025 47 248 5,320
Operations & maintenance 1,642 (16 ) 1,626
Selling, marketing, general & administrative(a) 802 (26 ) 776
Other expense/(income) (b)     2,417     (2,011 )           (253 )   153
Net income     164     2,058     248     16     279     2,765
 
(a) Other adj. includes reorganization costs of $26 million.
(b) Other adj. includes impairments, gain/(loss) on sale of business and acquisition-related transaction & integration costs.
 
           

Appendix Table A-4: YTD Third Quarter 2015 Adjusted EBITDA Reconciliation by Operating Segment

The following table summarizes the calculation of Adjusted EBITDA and provides a reconciliation to net income/(loss):

 
($ in millions)     Retail Mass   Generation   Renewables   Yield   Corp/Elim Total
Net income/(loss)     523     213     (74 )   53     (793 ) (78 )
Plus:
Interest expense, net 52 61 199 532 844
Income tax 3 (13 ) 8 (41 ) (43 )
Loss on debt extinguishment 9 9
Depreciation amortization and ARO expense 94 706 134 224 43 1,201
Amortization of contracts         (41 )   1     40     1   1  
EBITDA 617 933 109 533 (258 ) 1,934
Adjustment to reflect NRG share of adjusted EBITDA in unconsolidated affiliates 22 13 34 (2 ) 67
Acquisition-related transaction & integration costs 1 2 13 16
Deactivation costs 8 8
Gain on sale of business (2 ) (2 )
Other non recurring charges (14 ) 19 5 1 11
Impairments 36 222 5 263
MtM (gains)/losses on economic hedges     (34 )   321     2     (1 )     288  
Adjusted EBITDA     606     1,525     132     569     (247 ) 2,585  
 
             

YTD Third Quarter 2015 condensed financial information by Operating Segment:

 
($ in millions)     Retail Mass   Generation   Renewables   Yield   Corp/Elim   Total
Operating revenues 4,308 7,442 307 768 (969 ) 11,856
Cost of sales     3,136     4,023     6     58     (941 )   6,282
Economic gross margin 1,172 3,419 301 710 (28 ) 5,574
Operations & maintenance (a) 165 1,384 96 120 9 1,774
Selling, marketing, general & administrative 306 343 37 9 183 878
Other expense/(income) (b)     95     167     36     12     27     337
Adjusted EBITDA     606     1,525     132     569     (247 )   2,585
 
(a) Excludes deactivation costs of $8 million.
(b) Excludes acquisition-related transaction & integration costs of $16 million.
 
             

The following table reconciles the condensed financial information to Adjusted EBITDA:

 
($ in millions)    

Condensed
financial
information

 

Interest, tax,
depr., amort.

  MtM   Deactivation   Other adj.  

Adjusted
EBITDA

Operating revenues 11,663 28 165 11,856
Cost of operations     6,416     (11 )   (123 )           6,282
Gross margin 5,247 39 288 5,574
Operations & maintenance 1,782 (8 ) 1,774
Selling, marketing, general & administrative 878 878
Other expense/(income) (a)     2,665     (1,974 )           (354 )   337
Net loss     (78 )   2,013     288     8     354     2,585
 
(a) Other adj. includes impairments and acquisition-related transaction & integration costs.
 
   

Appendix Table A-5: 2016 and 2015 QTD and YTD Third Quarter Adjusted Cash Flow from Operations Reconciliations

The following table summarizes the calculation of adjusted cash flow operating activities providing a reconciliation to net cash provided by operating activities:

 
Three Months Ended
($ in millions)     September 30, 2016     September 30, 2015
Net Cash Provided by Operating Activities 860     934
Reclassifying of net receipts for settlement of acquired derivatives that include financing elements 26 47
Sale of Potrero Land 74
Merger, integration and cost-to-achieve expenses (1) 22 1
Return of capital from equity investments (5 )
Adjustment for change in collateral     119       68  
Adjusted Cash Flow from Operating Activities     1,096       1,050  
Maintenance CapEx, net (2) (103 ) (125 )
Environmental CapEx, net (48 ) (30 )
Preferred dividends (2 )
Distributions to non-controlling interests     (34 )     (32 )
Free Cash Flow - before Growth Investments     911       861  
 
(1) Cost-to-achieve expenses associated with the $150 million savings announced on September 2015 call.
(2) Includes insurance proceeds of $2 million in 2016; excludes merger and integration capex of $2 million in 2015.
 
   
Nine Months Ended
($ in millions)     September 30, 2016     September 30, 2015
Net Cash Provided by Operating Activities 1,733     1,392
Reclassifying of net receipts for settlement of acquired derivatives that include financing elements 129 138
Sale of Potrero Land 74
Merger, integration and cost-to-achieve expenses (1) 47 18
Return of capital from equity investments 6
Adjustment for change in collateral     (231)     180  
Adjusted Cash Flow from Operating Activities     1,758     1,728  
Maintenance CapEx, net (2) (272) (314 )
Environmental CapEx, net (237) (157 )
Preferred dividends (2) (7 )
Distributions to non-controlling interests     (116)     (115 )
Free Cash Flow - before Growth Investments     1,131     1,135  
 
(1) Cost-to-achieve expenses associated with the $150 million savings announced on September 2015 call.
(2) Includes insurance proceeds of $33 million in 2016; excludes merger and integration capex of $11 million in 2015.
 
         

Appendix Table A-6: Third Quarter 2016 Regional Adjusted EBITDA Reconciliation for Generation

The following table summarizes the calculation of Adjusted EBITDA and provides a reconciliation to net (loss)/income:

 
($ in millions)   East   Gulf Coast   West  

Business
Solutions

  Total
Net income/(loss)   385     216     110     (81 )   630  
Plus:
Interest expense, net 14 14
Income tax (2 ) (2 )
Depreciation, amortization and ARO expense 50 127 20 1 198
Amortization of contracts   (17 )   1         1     (15 )
EBITDA 432 342 130 (79 ) 825
Adjustment to reflect NRG share of adjusted EBITDA in unconsolidated affiliates 2 5 7
Deactivation costs 2 1 3
Gain on sale of assets (188 ) (6 ) (194 )
Other non recurring charges 6 6
Impairments 1 13 (1 ) 13
Market to market (MtM) losses/(gains) on economic hedges   38     (207 )   (3 )   117     (55 )
Adjusted EBITDA   285     154     123     43     605  
 
           

Third Quarter 2016 condensed financial information for Generation:

 
($ in millions)   East   Gulf Coast   West  

Business
Solutions

  Elims.   Total
Operating revenues 1,002 804 147 394 (25 ) 2,322
Cost of sales   452     454     60     331     (21 )   1,276  
Economic gross margin 550 350 87 63 (4 ) 1,046
Operations & maintenance (a) 188 143 33 5 369
Selling, marketing, general & administrative 43 31 7 20 101
Other expense/(income)   34     22     (76 )   (5 )   (4 )   (29 )
Adjusted EBITDA   285     154     123     43         605  
 
(a) Excludes deactivation costs of $3 million.
 
           

The following table reconciles the condensed financial information to Adjusted EBITDA:

 
($ in millions)  

Condensed
financial
information

 

Interest, tax,
depr., amort.

  MtM   Deactivation   Other adj.  

Adjusted
EBITDA

Operating revenues 2,390 (4 ) (64 ) 2,322
Cost of operations   1,287     (2 )   (9 )           1,276  
Gross margin 1,103 (2 ) (55 ) 1,046
Operations & maintenance 372 (3 ) 369
Selling, marketing, general & administrative 101 101
Other expense/(income) (a)   -     (197 )           168     (29 )
Net income   630     195     (55 )   3     (168 )   605  
 
(a) Other adj. includes impairments and acquisition-related transaction & integration costs.
 
         

Appendix Table A-7: Third Quarter 2015 Regional Adjusted EBITDA Reconciliation for Generation

The following table summarizes the calculation of Adjusted EBITDA and provides a reconciliation to net income/(loss):

 
($ in millions)   East   Gulf Coast   West  

Business
Solutions

  Total
Net (loss)/income   (12 )   124     63     (11 )   164  
Plus:
Interest expense, net 17 17
Income tax 2 2
Depreciation amortization and ARO expense 68 143 17 3 231
Amortization of contracts   (18 )   1     4     2     (11 )
EBITDA 55 268 84 (4 ) 403
Adjustment to reflect NRG share of adjusted EBITDA in unconsolidated affiliates 4 3 3 10
Deactivation costs 2 2
Other non recurring charges 1 7 8
Impairments 222 222
MtM (gains)/losses on economic hedges   31     (31 )   (8 )   37     29  
Adjusted EBITDA   311     248     79     36     674  
 
           

Third Quarter 2015 condensed financial information for Generation:

 
($ in millions)   East   Gulf Coast   West  

Business
Solutions

  Elims.   Total
Operating revenues 1,143 905 201 446 (3 ) 2,692
Cost of sales   515     465     90     379         1,449
Economic gross margin 628 440 111 67 (3 ) 1,243
Operations & maintenance (a) 221 128 29 6 384
Selling, marketing, general & administrative 53 41 11 22 127
Other expense/(income)   43     23     (8 )   3     (3 )   58
Adjusted EBITDA   311     248     79     36         674
 
(a) Excludes deactivation costs of $2 million.
 
           

The following table reconciles the condensed financial information to Adjusted EBITDA:

 
($ in millions)  

Condensed
financial
information

Interest, tax,
depr., amort.

MtM Deactivation Other adj.

Adjusted
EBITDA

Operating revenues 2,695 (4 ) 1 2,692
Cost of operations   1,484     (7 )   (28 )           1,449
Gross margin 1,211 3 29 1,243
Operations & maintenance 386 (2 ) 384
Selling, marketing, general & administrative 127 127
Other expense/(income) (a)   534     (236 )           (240 )   58
Net income   164     239     29     2     240     674
 
(a) Other adj. includes impairments.
 
           

Appendix Table A-8: YTD Third Quarter 2016 Regional Adjusted EBITDA Reconciliation for Generation

The following table summarizes the calculation of Adjusted EBITDA and provides a reconciliation to net income/ (loss)

 
($ in millions)     East   Gulf Coast   West  

Business
Solutions

  Total
Net income/(loss)     493     (246 )   73     98     418  
Plus:
Interest expense, net 56 1 (1 ) 56
Income tax (2 ) 1 (1 )
Depreciation, amortization and ARO expense 162 281 55 8 506
Amortization of contracts     (52 )   4     (3 )   5     (46 )
EBITDA 659 38 125 111 933
Adjustment to reflect NRG share of adjusted EBITDA in unconsolidated affiliates 5 7 11 23
Reorganization costs 1 1
Deactivation costs 15 15
Gain on sale of assets (217 ) (6 ) (223 )
Other non recurring charges 3 14 17
Impairments 17 151 58 226
Market to market (MtM) losses/(gains) on economic hedges     175     208     15     (50 )   348  
Adjusted EBITDA     652     416     199     73     1,340  
 
           

Third YTD Quarter 2016 condensed financial information for Generation:

 
($ in millions)   East   Gulf Coast   West  

Business
Solutions

  Elims.   Total
Operating revenues 2,662 2,089 358 1,055 (33 ) 6,131
Cost of sales   1,070     1,082     111     924     (21 )   3,166
Economic gross margin 1,592 1,007 247 131 (12 ) 2,965
Operations & maintenance (a) 698 429 95 17 1,239
Selling, marketing, general & administrative (b) 133 98 24 56 311
Other expense/(income)   109     64     (71 )   (15 )   (12 )   75
Adjusted EBITDA   652     416     199     73         1,340
 
(a) Excludes deactivation costs of $15 million.
(b) Excludes reorganization costs of $1 million.
 
             

The following table reconciles the condensed financial information to Adjusted EBITDA:

 
($ in millions)    

Condensed
financial
information

 

Interest, tax,
depr., amort.

  MtM   Deactivation   Other adj.  

Adjusted
EBITDA

Operating revenues 5,599 (11 ) 543 6,131
Cost of operations     2,973     (2 )   195             3,166
Gross Margin 2,626 (9 ) 348 2,965
Operations & maintenance 1,254 (15 ) 1,239
Selling, marketing, general & administrative 312 (1 ) 311
Other expense/(income) (a)     642     (524 )           (43 )   75
Net loss     418     515     348     15     44     1,340
 
(a) Other adj. includes impairments and acquisition-related transaction & integration costs.
 
         

Appendix Table A-9: YTD Third Quarter 2015 Regional Adjusted EBITDA Reconciliation for Generation

The following table summarizes the calculation of Adjusted EBITDA and provides a reconciliation to net income/(loss)

 
($ in millions)   East   Gulf Coast   West  

Business
Solutions

  Total
Net income/(loss)   181     49     30     (47 )   213  
Plus:
Interest expense, net 52 52
Income tax 3 3
Depreciation amortization and ARO expense 220 431 46 9 706
Amortization of contracts   (50 )   3     1     5     (41 )
EBITDA 403 483 77 (30 ) 933
Adjustment to reflect NRG share of adjusted EBITDA in unconsolidated affiliates 5 6 11 22
Deactivation costs 5 3 8
Other non recurring charges 2 17 19
Impairments 222 222
MtM losses on economic hedges   253     (20 )   5     83     321  
Adjusted EBITDA   885     485     91     64     1,525  
 
             

Third YTD Quarter 2015 condensed financial information for Generation:

 
($ in millions)     East   Gulf Coast   West  

Business
Solutions

  Elims.   Total
Operating revenues 3,518 2,386 366 1,182 (10 ) 7,442
Cost of sales     1,601     1,236     142     1,044         4,023
Economic gross margin 1,917 1,150 224 138 (10 ) 3,419
Operations & maintenance (a) 776 488 102 18 1,384
Selling, marketing, general & administrative 141 114 30 58 343
Other expense/(income)     115     63     1     (2 )   (10 )   167
Adjusted EBITDA     885     485     91     64         1,525
 
(a) Excludes deactivation costs of $8 million.
 
           

The following table reconciles the condensed financial information to Adjusted EBITDA:

 
($ in millions)  

Condensed
financial
information

 

Interest, tax,
depr., amort.

  MtM   Deactivation   Other adj.  

Adjusted
EBITDA

Operating revenues 7,325 (12 ) 129 7,442
Cost of operations   4,225     (10 )   (192 )           4,023
Gross margin 3,100 (2 ) 321 3,419
Operations & maintenance 1,392 (8 ) 1,384
Selling, marketing, general & administrative 343 343
Other expense/(income) (a)   1,152     (721 )           (264 )   167
Net income   213     719     321     8     264     1,525
 
(a) Other adj. includes impairments and acquisition-related transaction & integration costs.
 
 

Appendix Table A-10: YTD Third Quarter 2016 Sources and Uses of Liquidity

The following table summarizes the sources and uses of liquidity in the first nine months of 2016:

 
($ in millions)   Nine Months Ended

September 30, 2016

Sources:
Adjusted cash flow from operations 1,758
Asset sales 562
Issuance of NRG Yield Senior Notes due 2026 350
Monetization of capacity revenues at Midwest Gen 253
Collateral 231
Issuance of CVSR HoldCo debt 200
Capistrano debt proceeds, net of debt repayment 108
Tax Equity Proceeds 11
Increase in credit facility   1  
Uses:
Maintenance and environmental capex, net (1) (509 )
Debt repayments, discretionary, net of proceeds (corporate-level) (380 )
Debt repayments, non-discretionary (363 )
Growth investments and acquisitions, net (312 )
Proceeds from NRG Yield revolver, net of payments (306 )
Redemption of convertible preferred stock (226 )
Distributions to non-controlling interests (116 )
Capistrano distribution of debt proceeds to non-controlling interests (87 )
Debt Issuance Costs (70 )
Common and Preferred Stock Dividends (66 )
Merger, integration and cost-to-achieve expenses (2) (47 )
Other Investing and Financing   (8 )
Change in Total Liquidity   984  
 
(1) Includes insurance proceeds of $33 million.
(2) Cost-to-achieve expenses associated with the $150 million savings announced on September 2015 call.
 
   

Appendix Table A-11: 2016 and 2017 Adjusted EBITDA Guidance Reconciliation

The following table summarizes the calculation of Adjusted EBITDA providing reconciliation to net income:

 
2016 Adjusted EBITDA

Prior Guidance

($ in millions) Low     High
GAAP Net Income 1 180 380
Income Tax 100 100
Interest Expense & Debt Extinguishment Costs 1,185 1,185
Depreciation, Amortization, Contract Amortization and ARO Expense 1,445 1,445
Adjustment to reflect NRG share of adjusted EBITDA in unconsolidated affiliates 45 45
Other Costs 2 45   45
Adjusted EBITDA 3,000 3,200
 
   
2016 Adjusted EBITDA

Revised Guidance

($ in millions) Low     High
GAAP Net Income 1 235 335
Income Tax 100 100
Interest Expense & Debt Extinguishment Costs 1,228 1,228
Depreciation, Amortization, Contract Amortization and ARO Expense 1,352 1,352
Adjustment to reflect NRG share of adjusted EBITDA in unconsolidated affiliates 115 115
Other Costs 2 220   220
Adjusted EBITDA 3,250 3,350
 
   
2017 Adjusted EBITDA
($ in millions) Low     High
GAAP Net Income 1 60 260
Income Tax 80 80
Interest Expense & Debt Extinguishment Costs 1,155 1,155
Depreciation, Amortization, Contract Amortization and ARO Expense 1,235 1,235
Adjustment to reflect NRG share of adjusted EBITDA in unconsolidated affiliates 110 110
Other Costs 2 60   60
Adjusted EBITDA 2,700 2,900
 
(1) For purposes of guidance, fair value adjustments related to derivatives are assumed to be zero.
(2) Includes deactivation costs, gain on sale of businesses, reorganization costs, asset write-offs, impairments and other non-recurring charges
 
       

Appendix Table A-12: 2016 and 2017 FCFbG Guidance Reconciliation

The following table summarizes the calculation of Free Cash Flow before Growth providing reconciliation to Cash from Operations:

 

 

2016 2017
($ in millions) Prior Guidance    

Narrowed
Guidance

Guidance
Adjusted EBITDA $3,000 – 3,200 $3,250 – 3,350 $2,700 - $2,900
Cash Interest payments (1,090) (1,115) (1,065)
Debt Extinguishment Cash Cost (100) (120) 0
Cash Income tax (40) (40) (40)
Collateral / working capital / other 285 0 (240)
Cash From Operations $2,055 – 2,255 $1,975 – 2,075 $1,355 - $1,555
Adjustments: Acquired Derivatives, Cost-to-Achieve, Return of Capital Dividends, Collateral and Other (210) 25 0
Adjusted Cash flow from operations $1,845 – 2,045 $2,000 – 2,100 $1,355 - $1,555
Maintenance capital expenditures, net (435) – (465) (435) – (450) (310) - (340)
Environmental capital expenditures, net (285) – (315) (280) – (290) (10) - (30)
Preferred dividends (2) (2) 0
Distributions to non-controlling interests (170) – (180) (160) – (170) (185) - (205)
Free Cash Flow – before Growth Investments $1,000 – 1,200 $1,100 – 1,200 $800 - $1,000
 

EBITDA and Adjusted EBITDA are non-GAAP financial measures. These measurements are not recognized in accordance with GAAP and should not be viewed as an alternative to GAAP measures of performance. The presentation of Adjusted EBITDA should not be construed as an inference that NRG’s future results will be unaffected by unusual or non-recurring items.

EBITDA represents net income before interest (including loss on debt extinguishment), taxes, depreciation and amortization. EBITDA is presented because NRG considers it an important supplemental measure of its performance and believes debt-holders frequently use EBITDA to analyze operating performance and debt service capacity. EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our operating results as reported under GAAP. Some of these limitations are:

  • EBITDA does not reflect cash expenditures, or future requirements for capital expenditures, or contractual commitments;
  • EBITDA does not reflect changes in, or cash requirements for, working capital needs;
  • EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on debt or cash income tax payments;
  • Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements; and
  • Other companies in this industry may calculate EBITDA differently than NRG does, limiting its usefulness as a comparative measure.

Because of these limitations, EBITDA should not be considered as a measure of discretionary cash available to use to invest in the growth of NRG’s business. NRG compensates for these limitations by relying primarily on our GAAP results and using EBITDA and Adjusted EBITDA only supplementally. See the statements of cash flow included in the financial statements that are a part of this news release.

Adjusted EBITDA is presented as a further supplemental measure of operating performance. As NRG defines it, Adjusted EBITDA represents EBITDA excluding impairment losses, gains or losses on sales, dispositions or retirements of assets, any mark-to-market gains or losses from accounting for derivatives, adjustments to exclude the Adjusted EBITDA related to the non-controlling interest, gains or losses on the repurchase, modification or extinguishment of debt, the impact of restructuring and any extraordinary, unusual or non-recurring items plus adjustments to reflect the Adjusted EBITDA from our unconsolidated investments. The reader is encouraged to evaluate each adjustment and the reasons NRG considers it appropriate for supplemental analysis. As an analytical tool, Adjusted EBITDA is subject to all of the limitations applicable to EBITDA. In addition, in evaluating Adjusted EBITDA, the reader should be aware that in the future NRG may incur expenses similar to the adjustments in this news release.

Management believes Adjusted EBITDA is useful to investors and other users of NRG's financial statements in evaluating its operating performance because it provides an additional tool to compare business performance across companies and across periods and adjusts for items that we do not consider indicative of NRG’s future operating performance. This measure is widely used by debt-holders to analyze operating performance and debt service capacity and by equity investors to measure our operating performance without regard to items such as interest expense, taxes, depreciation and amortization, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired. Management uses Adjusted EBITDA as a measure of operating performance to assist in comparing performance from period to period on a consistent basis and to readily view operating trends, as a measure for planning and forecasting overall expectations, and for evaluating actual results against such expectations, and in communications with NRG's Board of Directors, shareholders, creditors, analysts and investors concerning its financial performance.

Adjusted cash flow from operating activities is a non-GAAP measure NRG provides to show cash from operations with the reclassification of net payments of derivative contracts acquired in business combinations from financing to operating cash flow, as well as the add back of merger, integration and related restructuring costs. The Company provides the reader with this alternative view of operating cash flow because the cash settlement of these derivative contracts materially impact operating revenues and cost of sales, while GAAP requires NRG to treat them as if there was a financing activity associated with the contracts as of the acquisition dates. The Company adds back merger, integration related restructuring costs as they are one time and unique in nature and do not reflect ongoing cash from operations and they are fully disclosed to investors.

Free cash flow (before Growth investments) is adjusted cash flow from operations less maintenance and environmental capital expenditures, net of funding, preferred stock dividends and distributions to non-controlling interests and is used by NRG predominantly as a forecasting tool to estimate cash available for debt reduction and other capital allocation alternatives. The reader is encouraged to evaluate each of these adjustments and the reasons NRG considers them appropriate for supplemental analysis. Because we have mandatory debt service requirements (and other non-discretionary expenditures) investors should not rely on free cash flow before Growth investments as a measure of cash available for discretionary expenditures.

Free Cash Flow before Growth Investment is utilized by Management in making decisions regarding the allocation of capital. Free Cash Flow before Growth Investment is presented because the Company believes it is a useful tool for assessing the financial performance in the current period. In addition, NRG’s peers evaluate cash available for allocation in a similar manner and accordingly, it is a meaningful indicator for investors to benchmark NRG's performance against its peers. Free Cash Flow before Growth Investment is a performance measure and is not intended to represent net income (loss), cash from operations (the most directly comparable U.S. GAAP measure), or liquidity and is not necessarily comparable to similarly titled measures reported by other companies.

NRG Energy, Inc.
Media:
Karen Cleeve, 609-524-4608
or
Marijke Shugrue, 609-524-5262
or
Investors:
Kevin L. Cole, , 609-524-4526
CFA
or
Lindsey Puchyr, 609-524-4527


Source: Business Wire (November 4, 2016 - 6:47 AM EDT)

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