TALEN ENERGY CORP ALLENTOWN, Pa., Nov. 10, 2016 /PRNewswire/ --
2016 Financial Results
(in millions) Three Months Nine Months
Ended Ended
September 30, September 30,
2016 2016
------------- -------------
Net Income (Loss) $88 $236
Adjusted EBITDA 247 614
Cash from Operations 549
Adjusted Free Cash Flow 523
2016 Guidance Ranges
-- Adjusted EBITDA projection narrowed to $705-$805 million
-- Adjusted Free Cash Flow projection increased and narrowed to $500-$600
million
Transaction Update
-- Stockholders voted overwhelmingly to approve merger with an affiliate of
Riverstone Holdings LLC
-- Merger approvals received from Federal Energy Regulatory Commission and
New York Public Service Commission
-- $600 million term loan B facility for merger financing successfully
priced
-- Transaction on schedule to close by end of 2016, subject to Nuclear
Regulatory Commission approval and satisfaction of other customary
closing conditions
Talen Energy Corporation (NYSE: TLN) today reported Net Income of $88 million for the three months ended September 30, 2016, compared with a Net Loss of $401 million for the three months ended September 30, 2015, and Adjusted EBITDA of $247 million, compared with $357 million for the three months ended September 30, 2015.
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For the nine months ended September 30, 2016, Talen Energy reported Net Income of $236 million, compared with a Net Loss of $279 million for the nine months ended September 30, 2015, and Adjusted EBITDA of $614 million, compared with Adjusted EBITDA of $765 million for the nine months ended September 30, 2015.
The 2015 Net Losses reflected non-cash goodwill and other asset impairment charges detailed at that time.
Based on results through the end of the third quarter, Talen Energy narrowed 2016 guidance for Adjusted EBITDA to $705-$805 million, and increased and narrowed 2016 guidance for Adjusted Free Cash Flow to $500-$600 million.
On June 3, 2016, Talen Energy announced a merger agreement with affiliates of Riverstone Holdings LLC, a private investment firm. Talen Energy stockholders overwhelmingly approved the merger on Oct. 6, 2016. The merger has been approved by the Federal Energy Regulatory Commission and the New York Public Service Commission. The parties also have been granted early termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act. The transaction is expected to close by the end of 2016, subject to approval by the Nuclear Regulatory Commission and satisfaction of other customary closing conditions.
A Talen Energy subsidiary, Talen Energy Supply LLC, has successfully priced a $600 million term loan B facility, the net proceeds of which are expected to be used to fund the payment of fees and expenses in connection with the term loan B issuance and the merger, for working capital needs and for other general corporate purposes of Talen Energy, including repayment of debt under Talen Energy Supply's revolving credit facility. Closing of the term loan B is subject to customary closing conditions and completion of the merger.
Looking at operating highlights, natural gas co-firing capability at the coal-fired Brunner Island plant in York County, Pa. is in commercial operation for Unit 3 and expected to be in commercial operation for Unit 2 by the end of 2016. The company decided to defer completion and commercial operation of co-firing capability for Unit 1 until the spring of 2017, to avoid taking the unit out of service during the winter demand season. Talen Energy also has decided to evaluate further plans it announced in June 2016 to add natural gas co-firing capability at the coal-fired Montour plant in Montour County, Pa., to consider operating experience and results from the Brunner Island Unit 3 project. There is no current timetable for completing the Montour project, and the company has excluded the estimated $70 million capital cost from its forecasted capital expenditures.
Review of Segment Results
Financial information presented in this news release for the nine months ended September 30, 2015 represents nine months of legacy Talen Energy Supply results, consolidated with four months of RJS Power results. Financial information for three and nine months ended September 30, 2015 excludes results from the Athens, Millennium and Harquahala plants because they were acquired in November 2015.
(in millions) Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2016 2015 2016 2015
---- ---- ---- ----
Operating Income (Loss)
East $221 $(345) $765 $33
West 16 39 (64) 18
Other (b) (44) (40) (149) (184)
---
Total $193 $(346) $552 $(133)
==== ===== ==== =====
EBITDA (a)
East $327 $(260) $1,072 $288
West 28 49 (28) 32
Other (b) (41) (39) (141) (183)
Total $314 $(250) $903 $137
==== ===== ==== ====
Adjusted EBITDA (a)
East $250 $331 $691 $817
West 21 49 (9) 53
Other (b) (24) (23) (68) (105)
Total $247 $357 $614 $765
==== ==== ==== ====
(a) EBITDA and Adjusted EBITDA are
non-U.S. GAAP financial measures
used by management, in addition
to Operating Income, to evaluate
Talen Energy's business on an
ongoing basis. For the
definitions of EBITDA and
Adjusted EBITDA, a detailed
itemization of adjustments, and a
reconciliation of EBITDA and
Adjusted EBITDA to Operating
Income (Loss), see the tables at
the end of this news release.
Management does not allocate
interest expense and income taxes
on a segment level and therefore
uses Operating Income (Loss) as
the most directly comparable U.S.
GAAP measure.
(b) General and administrative
expenses are not allocated to
each segment and are included in
the "Other" category.
East Segment
The East segment includes operations in PJM, New York ISO and ISO New England.
In the third quarter of 2016, Operating Income increased by $566 million compared with the third quarter of 2015 primarily due to the impact of non-recurring, non-cash goodwill and asset impairment charges in 2015, a coal contract modification charge in 2015, and unrealized gains from hedging activities, partially offset by factors that affected Adjusted EBITDA, which are described in the next paragraph.
In the third quarter of 2016, Adjusted EBITDA decreased by $81 million compared with the third quarter of 2015 primarily due to lower margins, partially offset by lower operation and maintenance costs. The decrease in margins was primarily due to lost energy and capacity revenues from assets sold in 2016, and lower capacity prices, realized energy prices and spark spreads, partially offset by the addition of margins from the Athens and Millennium plants acquired in 2015 and other portfolio margins. The decrease in operation and maintenance costs was primarily due to reduced non-outage costs at the Susquehanna nuclear plant and lower costs associated with assets sold in 2016, partially offset by additional costs associated with assets acquired in 2015.
For the first nine months of 2016, Operating Income increased by $732 million compared with the first nine months of 2015, primarily due to gains on assets sold in 2016, the impact of non-recurring, non-cash goodwill and asset impairment charges in the third quarter of 2015, and a coal contract modification charge in the third quarter of 2015, partially offset by an impairment charge related to the Bell Bend nuclear project in the second quarter of 2016, unrealized losses from hedging activities, higher depreciation driven by assets acquired in 2015, and factors that affected Adjusted EBITDA, which are described in the next paragraph.
For the first nine months of 2016, Adjusted EBITDA decreased by $126 million compared with the first nine months of 2015 primarily due to lower margins and higher operation and maintenance costs. The decrease in margins was primarily due to lost energy and capacity revenues from assets sold in 2016, and lower realized energy prices, nuclear plant availability, spark spreads and capacity prices, partially offset by the addition of margins from assets acquired in 2015 and other portfolio margins. Operation and maintenance costs increased primarily due to additional costs associated with assets acquired in 2015.
West Segment
The West segment includes operations in the ERCOT and WECC markets in Texas, Montana and Arizona.
In the third quarter of 2016, Operating Income decreased by $23 million compared with the third quarter of 2015, primarily due to factors that affected Adjusted EBITDA, which are described in the next paragraph.
In the third quarter of 2016, Adjusted EBITDA decreased by $28 million compared with the third quarter of 2015, primarily due to lower margins and higher operation and maintenance costs. Margins decreased primarily due to lower realized energy prices in Texas and Montana, partially offset by the addition of margins from the Harquahala plant acquired in 2015. Operation and maintenance costs increased primarily due to additional costs associated with assets acquired in 2015.
For the first nine months of 2016, Operating Income decreased by $82 million compared with the first nine months of 2015, primarily due to factors that affected Adjusted EBITDA, which are described in the next paragraph, and higher depreciation driven by assets acquired in 2015, partially offset by a decrease in unrealized losses from hedging activities.
For the first nine months of 2016, Adjusted EBITDA decreased by $62 million compared with the first nine months of 2015, primarily due to lower margins and higher operation and maintenance costs. Margins decreased primarily due to lower realized energy prices in Texas and Montana, and lower availability of the Colstrip plant, partially offset by the addition of margins from the Harquahala plant acquired in 2015. Operation and maintenance costs increased primarily due to additional costs associated with assets acquired in 2015.
Other
The "Other" category includes general and administrative expenses not allocated to a segment.
For the third quarter of 2016, Operating Loss and Adjusted EBITDA were relatively flat compared with the third quarter of 2015.
For the first nine months of 2016, Operating Loss decreased by $35 million and Adjusted EBITDA improved by $37 million compared with the first nine months of 2015, primarily due to lower corporate expenses.
Adjusted Free Cash Flow
(in millions) Nine Months Ended
-----------------
September 30, September 30,
2016 2015
------------- -------------
Cash from Operations $549 $731
Adjusted Free Cash
Flow (a) 523 421
(a) Adjusted Free Cash Flow is a
non-U.S. GAAP financial
measure used by management in
addition to Cash from
Operations. For the definition
of Adjusted Free Cash Flow, a
detailed itemization of
adjustments and a
reconciliation of Adjusted Free
Cash Flow to Cash from
Operations, see the tables at
the end of this news release.
Liquidity and Capital Resources
(in millions) September 30, December 31,
2016 2015
-------------- ------------
Cash and cash equivalents $1,358 $141
Short-term debt (a) 350 608
(a) December 31, 2015 figure
includes $108 million,
which at September 30, 2016
is classified as "Long-
term debt" on the Balance
Sheet at September 30, 2016
based on Talen Energy's
intent to refinance on a
long-term basis.
The decrease in short-term debt was primarily due to the use of proceeds from assets sold in 2016 to repay $600 million of outstanding borrowings under revolving credit facilities, partially offset by a drawdown on revolving credit facilities to repay $350 million in debt that matured in May 2016.
Net cash provided by (used in) operating, investing and financing activities for the nine months ended September 30, and the changes between periods were as follows.
(in millions) 2016 2015 Change - Cash
---- ---- -------------
Operating
activities $549 $731 $(182)
Investing
activities 1,219 (173) 1,392
Financing
activities (551) (262) (289)
2016 Financial Outlook
Talen Energy narrowed 2016 guidance for Adjusted EBITDA to $705-$805 million from the previously announced $655-$855 million. The company increased and narrowed guidance for Adjusted Free Cash Flow to $500-$600 million from the previously announced $260-$460 million. The primary drivers of the increase in Adjusted Free Cash Flow guidance include lower expected tax payments, updated working capital assumptions and lower capital expenditures.
For a detailed itemization of adjustments and reconciliations of Adjusted EBITDA to Operating Income (Loss) and Adjusted Free Cash Flow to Cash from Operations, see the tables at the end of the news release.
About Talen Energy
Talen Energy is one of the largest competitive energy and power generation companies in the United States. Our diverse generating fleet operates in well-developed, structured wholesale power markets. To learn more about us, visit www.talenenergy.com.
The Investors & Media section of the website contains a significant amount of information about Talen Energy, including financial and other information for investors. Talen Energy encourages investors to visit its website periodically to view new and updated information. Slides describing third quarter financial performance have been posted on the Events & Presentations page in the Investors & Media section of the website.
Forward-Looking Information
Statements contained in this news release, including statements with respect to future earnings, EBITDA, Adjusted EBITDA or Adjusted Free Cash Flow results, cash flows, tax attributes, financing, regulation and closing of the Merger, are "forward-looking statements" within the meaning of the federal securities laws. These statements often include such words as "believe," "expect," "anticipate," "intend," "plan," "estimate," "target," "project," "forecast," "seek," "will," "may," "should," "could," "would" or similar expressions. Although Talen Energy believes that the expectations and assumptions reflected in these forward-looking statements are reasonable, these statements are subject to a number of risks and uncertainties, and actual results may differ materially from the results discussed in the statements. Among the important factors that could cause actual results to differ materially from the forward-looking statements are: failure to complete the Merger as a result of the failure to obtain necessary regulatory approvals or otherwise; the payment by Talen Energy of a termination fee if the Merger Agreement is terminated in certain circumstances; the loss of key customers and suppliers resulting from any uncertainties associated with the Merger; the negative impact on Talen Energy's business and the market price for Talen Energy's common stock should the Merger not be consummated; adverse economic conditions; changes in commodity prices and related costs; the effectiveness of Talen Energy's risk management techniques, including hedging; accounting interpretations and requirements that may impact reported results; operational, price and credit risks in the wholesale and retail electricity markets; Talen Energy's ability to forecast the actual load needed to perform full-requirements sales contracts; weather conditions affecting generation, customer energy use and operating costs and revenues; disruptions in fuel supply; circumstances that may impact the levels of coal inventory that are held; the performance of transmission facilities and any changes in the structure and operation of, or the pricing limitations imposed by, the RTOs and ISOs that operate those facilities; blackouts due to disruptions in neighboring interconnected systems; competition; federal and state legislation and regulation; costs of complying with environmental and related worker health and safety laws and regulations; the impacts of climate change; the availability and cost of emission allowances; changes in legislative and regulatory policy; security and safety risks associated with nuclear generation; Talen Energy's level of indebtedness; the terms and conditions of debt instruments that may restrict Talen Energy's ability to operate its business; the performance of Talen Energy's subsidiaries and affiliates, on which its cash flow and ability to meet its debt obligations largely depend; the risks inherent with variable rate indebtedness; disruption in financial markets; Talen Energy's ability to access capital markets; acquisition or divestiture activities, and Talen Energy's ability to realize expected synergies and other benefits from such business transactions, including in connection with the completed MACH Gen acquisition; changes in technology; any failure of Talen Energy's facilities to operate as planned, including in connection with scheduled and unscheduled outages; Talen Energy's ability to optimize its competitive power generation operations and the costs associated with any capital expenditures, including the Brunner Island dual-fuel project; significant increases in operation and maintenance expenses; the loss of key personnel, the ability to hire and retain qualified employees and the impact of collective labor bargaining negotiations; war, armed conflicts or terrorist attacks, including cyber-based attacks; risks associated with federal and state tax laws and regulations; any determination that the transaction that formed Talen Energy does not qualify as a tax-free distribution under the Internal Revenue Code; Talen Energy's ability to successfully integrate the RJS Power businesses and to achieve anticipated synergies and cost savings as a result of the spinoff transaction and combination with RJS Power; costs of complying with reporting requirements as a newly public company and any related risks of deficiencies in disclosure controls and internal control over financial reporting as a standalone entity; and the ability of affiliates of Riverstone to exercise influence over matters requiring Board of Directors and/or stockholder approval. Any such forward-looking statements should be considered in light of such important factors and in conjunction with Talen Energy's Form 10-K for the year ended December 31, 2015, and other reports on file with the SEC.
Definition of Non-U.S. GAAP Financial Measures
In addition to disclosing financial results in accordance with U.S. GAAP, the accompanying earnings release contains non-U.S. GAAP financial measures EBITDA, Adjusted EBITDA and Adjusted Free Cash Flow, which we use as measures of our performance.
EBITDA represents net income (loss) before interest expense, income taxes, depreciation and amortization. Adjusted EBITDA represents EBITDA further adjusted for certain non-cash and other items that management believes are not indicative of ongoing operations, including, but not limited to, unrealized gains and losses on derivative contracts, stock-based compensation expense, asset retirement obligation accretion (net of gains or losses on retirements), gains and losses on securities in the nuclear decommissioning trust fund, impairments, gains or losses on sales, dispositions or retirements of assets, debt extinguishments, and transition, transaction and restructuring costs.
EBITDA and Adjusted EBITDA are not intended to represent cash flows from operations or net income (loss) as defined by U.S. GAAP as indicators of operating performance and are not necessarily comparable to similarly-titled measures reported by other companies. We believe EBITDA and Adjusted EBITDA are useful to investors and other users of our financial statements in evaluating our operating performance because they provide additional tools to compare business performance across companies and across periods. We believe that EBITDA is widely used by investors to measure a company's operating performance without regard to such items as interest expense, income 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. Additionally, we believe that investors commonly adjust EBITDA information to eliminate the effect of restructuring and other expenses, which vary widely from company to company and impair comparability. We adjust for these and other items, as our management believes that these items would distort their ability to efficiently view and assess our core operating trends. In summary, our management uses EBITDA and Adjusted EBITDA as measures of operating performance to assist in comparing performance from period to period on a consistent basis and to readily view operating trends, as measures for planning and forecasting overall expectations and for evaluating actual results against such expectations, and in communications with our Board of Directors, stockholders, creditors, analysts and investors concerning our financial performance.
Adjusted Free Cash Flow represents Cash from Operations less capital expenditures, excluding growth-related capital expenditures, adjusted for changes in counterparty collateral and further adjusted for after-tax transaction and restructuring costs, and certain other after-tax cash items that management believes are not indicative of ongoing operations. Adjusted Free Cash Flow should not be considered an alternative to Cash from Operations, which is determined in accordance with U.S. GAAP. We believe that Adjusted Free Cash Flow, although a non-U.S. GAAP measure, is an important measure to both management and investors as an indicator of the company's ability to sustain operations without additional outside financing beyond the requirement to fund maturing debt obligations. These measures are not necessarily comparable to similarly-titled measures reported by other companies as they may be calculated differently.
TALEN ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL INFORMATION (a)
Condensed Consolidated Balance Sheets (Unaudited)
(Unaudited)
(Millions of Dollars)
September 30, December 31,
2016 2015
---- ----
Assets
Cash and
cash
equivalents $1,358 $141
Restricted
cash and
cash
equivalents 46 106
Accounts
receivable
(less
reserve:
2016, $1;
2015, $1) 238 267
Unbilled
revenues 125 160
Fuel,
materials
and
supplies 407 508
Prepayments 45 52
Price risk
management
assets 350 562
Assets
held for
sale - 954
Other
current
assets 10 12
Investments 1,028 976
Property,
Plant and
Equipment 14,741 14,462
Less:
accumulated
depreciation 6,658 6,411
----- -----
Property,
plant and
equipment,
net 8,083 8,051
Construction
work in
progress 398 536
--- ---
Total
Property,
Plant and
Equipment,
net 8,481 8,587
----- -----
Other
intangibles 103 310
Price risk
management
assets 194 131
Other
noncurrent
assets 44 43
---
Total
Assets $12,429 $12,809
======= =======
Liabilities and Equity
Short-
term debt $350 $608
Long-term
debt due
within
one year 5 399
Accounts
payable 260 291
Liabilities
held for
sale - 33
Other
current
liabilities 661 757
Long-term
Debt 3,894 3,787
Deferred
income
taxes and
investment
tax
credits 1,617 1,602
Price risk
management
liabilities
-
noncurrent 126 108
Accrued
pension
obligations 318 340
Asset
retirement
obligations 506 490
Other
deferred
credits
and
noncurrent
liabilities 125 91
Common
Stock and
additional
paid-in
capital 4,710 4,702
Accumulated
deficit (137) (373)
Accumulated
other
comprehensive
income
(loss) (6) (26)
---
Total
Liabilities
and
Equity $12,429 $12,809
======= =======
(a) The Financial Statements in this
news release have been condensed
and summarized for the purposes
of presentation. Please refer to
Talen Energy Corporation's
periodic filings with the
Securities and Exchange
Commission for full Financial
Statements, including note
disclosures and certain defined
terms used herein.
TALEN ENERGY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
(Millions of Dollars, Except Share Data)
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2016 2015 2016 2015
---- ---- ---- ----
Operating Revenues
Wholesale energy $893 $887 $2,082 $2,124
Retail energy 202 277 650 831
Energy-related businesses 143 156 376 404
--- --- --- ---
Total Operating Revenues 1,238 1,320 3,108 3,359
----- ----- ----- -----
Operating Expenses
Operation
Fuel and energy purchases 564 589 1,402 1,486
Operation and maintenance 221 235 780 760
(Gain) loss on sale - - (563) -
Impairments 1 588 214 591
Depreciation 112 95 330 259
Taxes, other than income 12 9 34 17
Energy-related businesses 135 150 359 379
--- --- --- ---
Total Operating Expenses 1,045 1,666 2,556 3,492
----- ----- ----- -----
Operating Income (Loss) 193 (346) 552 (133)
Other Income (Expense) - net 9 1 21 11
Interest Expense 60 55 180 146
--- --- --- ---
Income (Loss) Before Income Taxes 142 (400) 393 (268)
Income Taxes 54 1 157 11
--- --- --- ---
Net Income (Loss) $88 $(401) $236 $(279)
=== ===== ==== =====
Earnings Per Share of Common Stock:
Basic $0.69 $(3.12) $1.84 $(2.69)
Diluted $0.68 $(3.12) $1.82 $(2.69)
Weighted-Average Shares of Common Stock Outstanding (in thousands)
Basic 128,527 128,509 128,527 103,627
Diluted 130,143 128,509 129,702 103,627
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Talen Energy Corporation and Subsidiaries
(Unaudited)
(Millions
of
Dollars)
Nine Months Ended
September 30,
-------------
2016 2015
---- ----
Cash Flows
from
Operating
Activities
Net income
(loss) $236 $(279)
Adjustments
to
reconcile
net income
(loss) to
net cash
provided by
operating
activities
Pre-tax
gain from
the sale
of certain
generation
facilities (595) -
Depreciation 330 259
Amortization 162 159
Defined
benefit
plans -
expense 33 35
Deferred
income
taxes and
investment
tax
credits (8) (30)
Impairment
of assets 216 595
Unrealized
(gains)
losses on
derivatives,
and other
hedging
activities (3) (80)
Other 29 51
Change in
current
assets and
current
liabilities
Accounts
receivable 17 64
Accounts
payable (30) (148)
Unbilled
revenues 35 93
Fuel,
materials
and
supplies 94 58
Counterparty
collateral (27) 76
Taxes
payable 88 (23)
Other 6 (18)
Other
operating
activities
Defined
benefit
plans -
funding (40) (74)
Other
assets and
liabilities 6 (7)
--- ---
Net cash
provided
by
operating
activities 549 731
--- ---
Cash Flows
from
Investing
Activities
Expenditures
for
property,
plant and
equipment (336) (252)
Proceeds
from the
sale of
certain
generation
facilities 1,525 -
Expenditures
for
intangible
assets (44) (35)
Purchases
of nuclear
plant
decommissioning
trust
investments (134) (154)
Proceeds
from the
sale of
nuclear
plant
decommissioning
trust
investments 121 143
Net
(increase)
decrease
in
restricted
cash and
cash
equivalents 60 110
Other
investing
activities 27 15
--- ---
Net cash
provided
by (used
in)
investing
activities 1,219 (173)
----- ----
Cash Flows
from
Financing
Activities
Issuance of
long-term
debt - 600
Retirement
of long-
term debt (395) (33)
Contributions
from
member - 82
Distributions
to
predecessor
member - (214)
Net
increase
(decrease)
in short-
term debt (150) (667)
Borrowings
on long-
term
revolving
credit
facility 33 -
Repayments
on long-
term
revolving
credit
facility (36) -
Other
financing
activities (3) (30)
--- ---
Net cash
provided
by (used
in)
financing
activities (551) (262)
---- ----
Net
Increase
(Decrease)
in Cash
and Cash
Equivalents 1,217 296
Cash and
Cash
Equivalents
at
Beginning
of Period 141 352
--- ---
Cash and
Cash
Equivalents
at End of
Period $1,358 $648
====== ====
TALEN ENERGY CORPORATION AND SUBSIDIARIES
Regulation G Reconciliations
Adjusted EBITDA
(Unaudited)
(Millions of Dollars)
Three Months Ended September 30,
--------------------------------
2016 2015
---- ----
East West Other Total East West Other Total
Net income (loss) $88 $(401)
Interest expense 60 55
Income taxes 54 1
Other (income) expense - net (9) (1)
Operating income (loss) $221 $16 $(44) $193 $(345) $39 $(40) $(346)
Depreciation 97 12 3 112 84 10 1 95
Other income (expense) - net 9 - - 9 1 - - 1
EBITDA $327 $28 $(41) $314 $(260) $49 $(39) $(250)
Margins:
Unrealized (gain) loss on derivative contracts (a) (85) (9) - (94) (50) - - (50)
Coal contract adjustment (d) - - - - 41 - - 41
Other (e) 5 - - 5 5 - - 5
Operation and maintenance:
Stock-based compensation expense (f) - - 2 2 - - 1 1
ARO accretion, net 10 1 - 11 8 - - 8
Impairments (g) - 1 - 1 588 - - 588
TSA costs - - 8 8 - - 14 14
Separation benefits - - 3 3 - - - -
Transaction and restructuring costs (i) - - 4 4 - - 1 1
Other income (expense):
(Gain) loss from NDT funds (7) - - (7) (1) - - (1)
Adjusted EBITDA $250 $21 $(24) $247 $331 $49 $(23) $357
==== === ==== ==== ==== === ==== ====
Nine Months Ended September 30,
-------------------------------
2016 2015
---- ----
East West Other Total East West Other Total
Net income (loss) $236 $(279)
Interest expense 180 146
Income taxes 157 11
Other (income) expense - net (21) (11)
Operating income (loss) $765 $(64) $(149) $552 $33 $18 $(184) $(133)
Depreciation 289 36 5 330 243 14 2 259
Other income (expense) - net 18 - 3 21 12 - (1) 11
EBITDA $1,072 $(28) $(141) $903 $288 $32 $(183) $137
Margins: -
Unrealized (gain) loss on derivative contracts (a) (29) 3 - (26) (120) 17 - (103)
Terminated derivative contracts (b) - - - - (13) - - (13)
Revenue adjustment (c) - - - - 7 - - 7
Coal contract adjustment (d) - - - - 41 - - 41
Other (e) 10 - - 10 9 - - 9
Operation and maintenance:
Stock-based compensation expense (f) - - 10 10 - - 41 41
ARO accretion, net 25 2 - 27 25 - - 25
Impairments (g) 204 10 - 214 591 - - 591
(Gain) loss on dispositions (j) (563) - - (563) - - - -
TSA costs - - 32 32 - - 19 19
Separation benefits - - 12 12 - - 2 2
Corette closure costs (h) - - - - - 4 - 4
Transaction and restructuring costs (i) - - 19 19 - - 16 16
Legal contingency (k) - 4 - 4 - - - -
Other (8) - - (8) - - - -
Other income (expense):
(Gain) loss from NDT funds (20) - - (20) (11) - - (11)
Adjusted EBITDA $691 $(9) $(68) $614 $817 $53 $(105) $765
==== === ==== ==== ==== === ===== ====
(a) Represents unrealized gains (losses) on
derivatives. Amounts have been adjusted for
option premiums of $3 million and $5 million for
the three months ended September 30, 2016 and
2015, and $8 million and $14 million for the nine
months ended September 30, 2016 and 2015.
(b) Represents net realized gains on certain
derivative contracts that were terminated due to
the spinoff transaction.
(c) Related to a prior period revenue adjustment for
the receipt of revenue under a transmission
operating agreement with Talen Energy Supply's
former affiliate, PPL Electric Utilities
Corporation.
(d) To mitigate the risk of oversupply, Talen Energy
incurred pre-tax charges for the three and nine
months ended September 30, 2015 to reduce its
contracted coal deliveries.
(e) Includes OCI amortization on non-active
derivative positions.
(f) For the periods prior to June 2015, represents the
portion of PPL's stock-based compensation cost
allocable to Talen Energy.
(g) 2016 includes charges for the Bell Bend Combined
Operating License Application and Harquahala
plant impairments. 2015 includes charges for
goodwill and certain long lived assets.
(h) Operations were suspended and the Corette plant
was retired in March 2015.
(i) Costs related to the spinoff transaction,
including expenses associated with FERC-required
mitigation and legal and professional fees. Also
includes transaction costs related to the
proposed merger with Riverstone affiliates that
was announced in June 2016.
(j) Relates to Ironwood, Holtwood, Lake Wallenpaupack
and C.P. Crane sales.
(k) Contingency relates to the termination of a gas
supply contract.
TALEN ENERGY CORPORATION AND SUBSIDIARIES
Regulation G Reconciliations
Adjusted Free Cash Flow
(Unaudited)
(Millions of Dollars)
Nine Months Ended September 30,
-------------------------------
2016 2015
Cash from Operations $549 $731
Capital Expenditures,
excluding growth (a) (303) (282)
Counterparty
collateral paid
(received) 27 (76)
--- ---
Adjusted Free Cash
Flow, including
other adjustments 273 373
--- ---
Cash adjustments:
Transition Services
Agreement costs 32 19
Coal contract
adjustment (b) - 41
Legal settlement (c) 3 -
Separation benefits 12 2
Corette closure costs
(d) - 4
Transaction and
restructuring costs
(e) 32 15
Taxes on above
adjustments (f) (32) (33)
Taxes on mitigated
asset sales (g) 203 -
Adjusted Free Cash
Flow $523 $421
==== ====
(a) Includes expenditures related to
intangible assets.
(b) To mitigate the risk of
oversupply, Talen Energy
incurred pre-tax charges for
the nine months ended September
30, 2015 to reduce its
contracted coal deliveries.
(c) Contingency relates to the
termination of a gas supply
contract.
(d) Operations were suspended and
the Corette plant was retired
in March 2015.
(e) Costs related to the spinoff
transaction, including FERC-
required mitigation plan
expenses and legal and
professional fees. Also
includes transaction costs
related to the proposed merger
with Riverstone affiliates that
was announced in June 2016.
(f) Assumed a marginal tax rate of
40%.
(g) Federal taxes paid on gains
associated with mitigated asset
sales.
TALEN ENERGY CORPORATION AND SUBSIDIARIES
Regulation G Reconciliations
Adjusted EBITDA Projections
(Unaudited)
(Millions of Dollars)
Low - 2016E Midpoint - 2016E High - 2016E
----------- ---------------- ------------
Net Income (Loss) $179 $209 $239
Income Taxes 117 137 157
Interest Expense 240 240 240
Depreciation and Amortization 442 442 442
EBITDA 978 1,028 1,078
--- ----- -----
Stock-based compensation 12 12 12
Asset retirement obligation, net 37 37 37
Unrealized (gains) losses on derivative contracts (a) (26) (26) (26)
Nuclear decommissioning trust losses (gains) (23) (23) (23)
(Gain) loss on dispositions (b) (563) (563) (563)
Impairments (c) 214 214 214
Transition Services Agreement costs and other adjustments (d) 76 76 76
Adjusted EBITDA $705 $755 $805
==== ==== ====
(a) Represents unrealized (gains) losses
on derivatives. Amounts have been
adjusted for option premiums.
(b) Relates to Ironwood, Holtwood, Lake
Wallenpaupack and C.P. Crane sales.
(c) Relates to Bell Bend Combined
Operating License Application costs
and Harquahala plant impairments.
(d) Other includes: (i) costs related to
the spinoff transaction, including
FERC-required mitigation plan
expenses and legal and professional
fees; (ii) separation benefits
related to workforce reductions; and
(iii) costs related to the proposed
merger with Riverstone affiliates
that was announced in June 2016.
TALEN ENERGY CORPORATION AND SUBSIDIARIES
Regulation G Reconciliations
Adjusted Free Cash Flow Projections
(Unaudited)
(Millions of Dollars)
Low - 2016E Midpoint -
2016E High - 2016E
----------- ----------- ------------
Cash from Operations (a) $582 $622 $662
Capital Expenditures,
excluding growth (b) (437) (427) (417)
Counterparty collateral paid
(received) 27 27 27
Transition Services Agreement
costs 40 40 40
Legal contingency (c) 3 3 3
Separation benefits 12 12 12
Transaction and restructuring
costs (d) 42 42 42
Taxes on above adjustments (e) (39) (39) (39)
Taxes on mitigated asset sales
(f) 270 270 270
Adjusted Free Cash Flow $500 $550 $600
==== ==== ====
(a) Includes taxes paid on gains
generated from the mitigated
asset sales.
(b) Includes expenditures related to
intangible assets.
(c) Contingency relates to the
termination of a gas supply
contract.
(d) Costs related to the spinoff
transaction, including FERC-
required mitigation plan
expenses and legal and
professional fees. Also
includes costs related to the
proposed merger with Riverstone
affiliates that was announced
in June 2016.
(e) Assumed a marginal tax rate of
40%.
(f) Estimated federal taxes
associated with mitigated asset
sales included in Cash from
Operations.
Contacts:
Media Relations - George Lewis, 610-774-4687
Investor Relations - Andy Ludwig, 610-774-3389
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SOURCE Talen Energy
