Financial Information

Fourth Quarter 2015

Talen Energy Reports 2015 Results; Announces 2016 Guidance

Feb 25, 2016
6:15am

ALLENTOWN, Pa., Feb. 25, 2016 /PRNewswire/ --

2015 Financial Results

(in millions)

Year Ended


December 31, 2015

Adjusted EBITDA (Reported Results) (1)

$

1,002


Adjusted EBITDA (Guidance Basis) (2)

1,082


Adjusted Free Cash Flow (Reported Results) (1)

314


Adjusted Free Cash Flow (Guidance Basis) (2)

403


Net Income (Loss)

(341)


Cash from Operations

768


 

  • Adjusted EBITDA of $1,082 million on a guidance basis for the year ended December 31, above midpoint of previously announced range of $1,050-$1,100 million
  • Adjusted Free Cash Flow of $403 million on a guidance basis for the year ended December 31, above midpoint of previously announced range of $375-$425 million
  • Adjusted EBITDA of $237 million for the three months ended December 31

Financial Outlook

  • Company announces guidance ranges for 2016: Adjusted EBITDA of $635-$835 million and Adjusted Free Cash Flow of $250-$450 million(3)(4)

Operating and Commercial Highlights

  • Synergies of more than $135 million on an annualized basis achieved in 2015; company remains on track to realize updated synergies target of $165-$175 million by 2017
  • Susquehanna nuclear plant set new single-year plant generation record and achieved 2015 capacity factor of over 94 percent
  • Company expects to meet required FERC mitigation through previously announced asset sales that will provide $1.5 billion in pre-tax cash proceeds when completed; Ironwood and C.P. Crane sales have closed, Holtwood and Lake Wallenpaupack sale expected to close in March 2016
  • Construction under way on Brunner Island natural gas co-firing project, which is on track to be completed by the end of 2016

Talen Energy Corporation (NYSE: TLN) reported Thursday (2/25) Adjusted EBITDA of $1,002 million for 2015, compared with $759 million in 2014, and a Net Loss of $341 million for 2015, compared with Net Income of $410 million in 2014. The company also reported Adjusted Free Cash Flow of $314 million for 2015, compared with $229 million in 2014.

On a guidance basis, 2015 Adjusted EBITDA was $1,082 million and 2015 Adjusted Free Cash Flow was $403 million. Both figures were just above the midpoints of previously announced 2015 guidance ranges of $1,050-$1,100 million for Adjusted EBITDA and $375-$425 million for Adjusted Free Cash Flow.

Reported 2015 Adjusted EBITDA and Adjusted Free Cash Flow include 12 months of legacy Talen Energy Supply results, consolidated with seven months of RJS results and two months of MACH Gen results. Guidance ranges and guidance basis results for 2015 included 12 months of legacy Talen Energy Supply results and 12 months of RJS results, but excluded PPL Corporation allocated costs incurred before spinoff that are not expected to continue in future periods, and MACH Gen results. For more information about how 2015 reported figures compare with 2015 guidance, see the tables at the end of this news release.

The 2015 Net Loss includes non-cash goodwill and other asset impairment charges of $557 million after tax and a one-time charge of $80 million after tax for the retirement of certain debt securities in October.(5)

For the fourth quarter of 2015, Talen Energy reported Adjusted EBITDA of $237 million, compared with $154 million in the fourth quarter of 2014, and a Net Loss of $62 million, compared with Net Income of $362 million for the fourth quarter of 2014.

The fourth-quarter 2015 Net Loss includes a non-cash asset impairment charge of $40 million after tax and the one-time charge for the debt securities repurchase mentioned above.

"Our 2015 performance reflects strong execution of our business strategy and improved operations despite the challenges of launching a new, stand-alone competitive power generation company in this period of declining energy prices," said President and Chief Executive Officer Paul Farr.

"In just seven months, we integrated 8,000 megawatts of acquired generating capacity that established our presence in the Texas, New York and New England markets. We also executed on required asset sales that will provide an expected $1.5 billion in pre-tax cash proceeds," he said. Sales of the Ironwood and C.P. Crane plants were completed in February 2016. Talen Energy expects to complete the sale of the Holtwood and Lake Wallenpaupack hydroelectric facilities in March 2016.

"I'm proud of how we drove financial results ahead of the increased guidance midpoints we gave after the third quarter. We achieved cost reductions faster and at greater levels than our original guidance, and the entire Talen Energy team remains focused on this imperative in the current business environment. We are positioning Talen Energy to be more resilient to market volatility, and focusing on strategic priorities that are designed to increase value for our stockholders. The priorities include a project that will enhance our generating flexibility by enabling the coal-fired Brunner Island plant to run on natural gas as well. We expect to complete that project by the end of 2016," he said.

From an operational perspective, Talen Energy realized more than $135 million in synergies on an annualized basis in 2015, and remains on track to achieve synergies of $165-$175 million by 2017. The Susquehanna nuclear power plant generated 20.6 million megawatt-hours in 2015, a plant record, while achieving an annualized capacity factor of 94 percent.

Talen Energy provided full-year guidance for 2016 Adjusted EBITDA of $635-$835 million and 2016 Adjusted Free Cash Flow of $250-$450 million(6). The 2016 guidance excludes contributions to Adjusted EBITDA and Adjusted Free Cash Flow from the Ironwood, C.P. Crane, Holtwood and Lake Wallenpaupack facilities that Talen Energy has sold or announced it will sell to satisfy mitigation requirements associated with the RJS Power acquisition.

Review of Segment Results


Three Months Ended December 31,


Year Ended December 31,

(in millions)

2015


2014


2015


2014

Operating Income (Loss)








East (b)

$

165



$

283



$

198



$

558


West (b)

(16)



39



2



71


Other (c)

(55)



(51)



(239)



(232)


Total

$

94



$

271



$

(39)



$

397










EBITDA (a)








East (b)

$

255



$

361



$

544



$

883


West (b)

(5)



40



26



72


Other (c)

(188)



(51)



(371)



(231)


Total

$

62



$

350



$

199



$

724










Adjusted EBITDA (a)








East (b)

$

262



$

180



$

1,080



$

898


West (b)

4



18



56



40


Other (c)

(29)



(44)



(134)



(179)


Total

$

237



$

154



$

1,002



$

759




(a)

EBITDA and Adjusted EBITDA are non-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 GAAP measure.

(b)

Results from Talen Energy Supply operations in Montana, which were reported in the East Segment in prior periods, have been reclassified to the West Segment for the three months and year ended Dec. 31, 2015. All figures shown in the table have been reclassified to reflect that change.

(c)

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.

Operating Income for 2015 was $198 million, a decrease of $360 million from 2014 affected by, among other items, non-cash goodwill and other asset impairment charges of $657 million.

Adjusted EBITDA for 2015 increased by $182 million compared with 2014, primarily due to higher margins driven by newly acquired facilities, higher realized energy prices, improved spark spreads, higher nuclear availability, and lower average fuel prices, partially offset by lower capacity prices, gains that were realized in 2014 on certain commodity positions, the net effect of unusual market and weather volatility in the first quarter of 2014, lower volumes on full-requirements sales contracts, and retail electric sales activity. The net margin improvements were partially offset by higher operation and maintenance expenses due to newly acquired facilities, which were partially offset by lower planned outage costs for coal-fired units and other cost reductions attributable to the spinoff from PPL.

Operating Income for the fourth quarter of 2015 was $165 million, a decrease of $109 million from the fourth quarter of 2014, affected by, among other items, a non-cash asset impairment charge of $66 million.

Adjusted EBITDA for the fourth quarter of 2015 increased by $91 million compared with the fourth quarter of 2014, primarily due to higher margins driven by newly acquired facilities, higher capacity prices, lower average fuel prices, and improved spark spreads. The net margin improvements were partially offset by higher operation and maintenance expenses due to newly acquired facilities.

West Segment

The West segment includes operations in the ERCOT and WECC markets in Texas, Montana and Arizona.

Operating Income for 2015 was $2 million, a decrease of $69 million from 2014.

Adjusted EBITDA for 2015 increased by $16 million compared with 2014, primarily due to newly acquired facilities, partially offset by higher coal-fired plant outage costs.

The segment reported an Operating Loss for the fourth quarter of 2015 of $16 million, a decrease of $64 million compared with the fourth quarter of 2014.

Adjusted EBITDA for the fourth quarter of 2015 decreased by $23 million compared with the fourth quarter of 2014, primarily due to lower generation volumes as a result of the Corette plant retirement, partially offset by newly acquired facilities.

Other

The "Other" category includes general and administrative expenses not allocated to a segment.

The 2015 improvement of $45 million in Adjusted EBITDA and the quarter-over-quarter improvement of $15 million in Adjusted EBITDA were due to lower corporate expenses, which were primarily a result of cost reductions attributable to the spinoff from PPL.

Adjusted Free Cash Flow

(in millions)


Year Ended December 31,



2015


2014

Cash from Operations


$

768



$

462


Adjusted Free Cash Flow (a)


314



229




(a)

Adjusted Free Cash Flow is a non-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)



December 31, 2015


December 31, 2014

Cash and cash equivalents



$

141



$

352


Short-term debt



608



630


Net cash provided by (used in) operating, investing and financing activities for the year ended December 31 and the changes between periods were as follows.

(in millions)


2015


2014


Change - Cash

Operating activities


$

768



$

462



$

306


Investing activities


(915)



497



(1,412)


Financing activities


(64)



(846)



782


2016 Financial Outlook

Talen Energy's guidance for 2016 Adjusted EBITDA is a range of $635-$835 million, and 2016 Adjusted Free Cash Flow is a range of $250-$450 million(7).

The company expects lower Adjusted EBITDA and Adjusted Free Cash Flow in 2016 compared with 2015 primarily due to lower energy margins. This guidance excludes contributions to Adjusted EBITDA and Adjusted Free Cash Flow from assets Talen Energy has sold or has announced it will sell in 2016. The guidance assumes that asset sale proceeds will be used to retire pre-payable, short-term and maturing debt, and for other general corporate purposes. Beginning in 2016, all interest incurred during construction associated with growth-related capital expenditures will reduce Talen Energy's Adjusted Free Cash Flow.

For a detailed itemization of adjustments and reconciliations of Adjusted EBITDA to Operating Income (Loss) and Adjusted Free Cash Flow to Cash Flow from Operations, see the tables at the end of the news release.

Conference Call and Webcast

Talen Energy management will discuss these results during a conference call and webcast on Thursday, Feb. 25, beginning at 8 a.m. Eastern time. The phone number to join the conference call is 1-888-317-6003. Participants from outside of the United States should call 1-412-317-6061. The entry number to join the call is 0763819.

The webcast, in audio format with slides of the presentation, will be accessible on the Events & Presentations page of the Investors & Media section of the company's website. A replay will be available on the website for those who are unable to listen live.

The Investors & Media section of the company's 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.

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.

Forward-Looking Information

Statements contained in this presentation, including statements with respect to future earnings, EBITDA, Adjusted EBITDA or Adjusted Free Cash Flow results, cash flows, tax attributes, financing, regulation and corporate strategy 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 Corporation 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: 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; unforeseen 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, including the pending sale of the Holtwood and Lake Wallenpaupack plants, 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 Holdings, LLC, 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 Corporation's prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b)(3) on Nov. 3, 2015, as supplemented, Form 10-Q for the quarter ended September 30, 2015 and its other reports on file with the Securities and Exchange Commission.

Definition of Non-GAAP Financial Measures

In addition to disclosing financial results in accordance with U.S. GAAP, the accompanying earnings release contains non-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 certain 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, 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 GAAP. We believe that Adjusted Free Cash Flow, although a non-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

CONSOLIDATED FINANCIAL INFORMATION (a)

Consolidated Balance Sheets


(Millions of Dollars)





2015


2014

Assets




Cash and cash equivalents

$

141



$

352


Restricted cash and cash equivalents

106



176


Accounts receivable (less reserve:  2015, $1; 2014, $2)

267



289


Accounts receivable from affiliates



36


Unbilled revenues

160



218


Fuel, materials and supplies

508



455


Prepayments

52



70


Price risk management assets

562



1,079


Assets held for sale

954




Other current assets

12



26


Investments

976



980


Property, Plant and Equipment

14,462



12,235


Less: accumulated depreciation

6,411



6,242


Property, plant and equipment, net

8,051



5,993


Construction work in progress

536



443


Total Property, Plant and Equipment, net

8,587



6,436


Goodwill



72


Other intangibles

310



257


Price risk management assets

131



239


Other noncurrent assets

60



75


Total Assets

$

12,826



$

10,760



Liabilities and Equity




Short-term debt

608



630


Long-term debt due within one year

399



535


Accounts payable

291



361


Accounts payable to affiliates



50


Liabilities held for sale

33




Other current liabilities

757



1,314


Long-term Debt

3,804



1,683


Deferred income taxes and investment tax credits

1,602



1,250


Price risk management liabilities - noncurrent

108



193


Accrued pension obligations

340



299


Asset retirement obligations

490



415


Other deferred credits and noncurrent liabilities

91



123


Predecessor Member's Equity (a)



3,930


Common Stock and additional paid-in capital

4,702




Accumulated deficit

(373)




Accumulated other comprehensive income (loss)

(26)



(23)


Total Liabilities and Equity

$

12,826



$

10,760










(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

Consolidated Statements of Income

(Millions of Dollars, Except Share Data)









Three Months Ended
December 31,


Year Ended
December 31,


2015


2014


2015


2014

Operating Revenues








Wholesale energy

$

718



$

875



$

2,828



$

2,653


Wholesale energy to affiliate



16



14



84


Retail energy

264



330



1,095



1,243


Energy-related businesses

140



132



544



601


Total Operating Revenues

1,122



1,353



4,481



4,581


Operating Expenses








Operation








Fuel

229



243



1,194



1,196


Energy purchases

203



372



676



1,054


Other operation and maintenance

283



261



1,052



1,007


Impairments

66





657




Depreciation

97



72



356



297


Taxes, other than income

15



12



65



57


Energy-related businesses

135



122



520



573


Total Operating Expenses

1,028



1,082



4,520



4,184


Operating Income (Loss)

94



271



(39)



397


Other Income (Expense) - net

(129)



7



(118)



30


Interest Expense

65



29



211



124


Income (Loss) from Continuing Operations Before Income Taxes

(100)



249



(368)



303


Income Taxes

(38)



100



(27)



116


Income (Loss) from Continuing Operations After Income Taxes

(62)



149



(341)



187


Income (Loss) from Discontinued Operations (net of income taxes)



213





223


Net Income (Loss)

$

(62)



$

362



$

(341)



$

410










Earnings Per Share of Common Stock Attributable to Talen
Energy Corporation Stockholders:








Basic:








Income (Loss) from continuing operations after income taxes

$

(0.48)



$

1.78



$

(3.10)



$

2.24


Income (Loss) from discontinued operations (net of income taxes)



2.55





2.67


Net Income (Loss)

$

(0.48)



$

4.33



$

(3.10)



$

4.91


Diluted:








Income (Loss) from continuing operations

$

(0.48)



$

1.78



$

(3.10)



$

2.24


Income (Loss) from discontinued operations (net of income taxes)



2.55





2.67


Net Income (Loss)

$

(0.48)



$

4.33



$

(3.10)



$

4.91


Weighted-Average Shares of Common Stock Outstanding (in thousands)








Basic

128,509



83,524



109,898



83,524


Diluted

128,509



83,524



109,898



83,524


 


 

CONSOLIDATED STATEMENTS OF CASH FLOWS

Talen Energy Corporation and Subsidiaries







(Millions of Dollars)







2015


2014


2013

Cash Flows from Operating Activities






  Net income (loss)

$

(341)



$

410



$

(229)


  Adjustments to reconcile net income (loss) to net cash provided by operating activities






     Pre-tax gain from the sale of Montana hydroelectric generation business (Note 6)



(315)




     Depreciation

356



313



318


     Amortization

222



163



156


     Defined benefit plans - expense

50



42



51


     Deferred income taxes and investment tax credits

(61)



(26)



(296)


     Impairment of assets

662



20



65


     Unrealized (gains) losses on derivatives, and other hedging activities

(119)



4



171


Loss on lease termination (Note 6)





426


     Other

46



36



2


  Change in current assets and current liabilities






     Accounts receivable

115



17



23


     Accounts payable

(147)



2



(56)


     Unbilled revenues

58



68



83


     Fuel, materials and supplies

12



(97)



(31)


     Prepayments

31



(53)



(5)


     Counterparty collateral

63



(17)



(81)


     Price risk management assets and liabilities

(14)



(30)



7


     Taxes payable

(23)



(3)



(31)


     Other

(49)



(40)



(16)


  Other operating activities






     Defined benefit plans - funding

(74)



(35)



(113)


     Other assets

4



3



(4)


     Other liabilities

(23)





(30)


          Net cash provided by operating activities

768



462



410


Cash Flows from Investing Activities






  Expenditures for property, plant and equipment

(451)



(416)



(583)


  Proceeds from the sale of Montana hydroelectric generation business (Note 6)



900




Expenditures for intangible assets

(70)



(46)



(42)


Acquisition of MACH Gen

(603)






  Purchases of nuclear plant decommissioning trust investments

(196)



(170)



(159)


  Proceeds from the sale of nuclear plant decommissioning trust investments

180



154



144


  Proceeds from the receipt of grants



164



3


  Proceeds from the sale of the Renewable business

116






  Net (increase) decrease in restricted cash and cash equivalents

87



(108)



(22)


  Other investing activities

22



19



28


          Net cash provided by (used in) investing activities

(915)



497



(631)


Cash Flows from Financing Activities






  Issuance of long-term debt

600






  Retirement of long-term debt

(335)



(309)



(747)


  Contributions from predecessor member

82



739



1,577


  Distributions to predecessor member

(217)



(1,906)



(408)


  Net increase (decrease) in short-term debt

(162)



630



(356)


  Other financing activities

(32)





(19)


          Net cash provided by (used in) financing activities

(64)



(846)



47


Net Increase (Decrease) in Cash and Cash Equivalents

(211)



113



(174)


  Cash and Cash Equivalents at Beginning of Period

352



239



413


  Cash and Cash Equivalents at End of Period

$

141



$

352



$

239


 


 

TALEN ENERGY CORPORATION AND SUBSIDIARIES

Regulation G Reconciliations

Adjusted EBITDA

(Unaudited)


(Millions of Dollars)



Three Months Ended December 31,


2015


2014


East


West


Other


Total


East


West


Other


Total

Net income (loss)







$

(62)









$

362


(Income) loss from discontinued operations (net of tax)















(213)


Interest expense







65









29


Income taxes







(38)









100


Other (income) expense - net







129









(7)


Operating income (loss)

$

165



$

(16)



$

(55)



$

94



$

283



$

39



$

(51)



$

271


Depreciation

83



13



1



97



71



1





72


Other income (expense) - net

7



(2)



(134)



(129)



7







7


EBITDA

$

255



$

(5)



$

(188)



$

62



$

361



$

40



$

(51)



$

350


Unrealized (gain) loss on derivative contracts (a)

(55)



8





(47)



(187)



(22)





(209)


Stock-based compensation expense (b)





(1)



(1)







3



3


(Gain) loss from NDT funds

(4)







(4)



(5)







(5)


ARO accretion

8



1





9



9







9


Impairments (d)

66







66










REPS Remarketing





134



134










Transition services agreement costs





10



10










Separation benefits (f)













3



3


RJS transaction costs





14



14










Restructuring costs (j)





2



2







1



1


Other (k)

(8)







(8)



2







2


Adjusted EBITDA

$

262



$

4



$

(29)



$

237



$

180



$

18



$

(44)



$

154


 

 


Year Ended December 31,


2015


2014


East


West


Other


Total


East


West


Other


Total

Net income (loss)







$

(341)









$

410


(Income) loss from discontinued operations (net of tax)















(223)


Interest expense







211









124


Income taxes







(27)









116


Other (income) expense - net







118









(30)


Operating income (loss)

$

198



$

2



$

(239)



$

(39)



$

558



$

71



$

(232)



$

397


Depreciation

327



26



3



356



296



1





297


Other income (expense) - net

19



(2)



(135)



(118)



29





1



30


EBITDA

$

544



$

26



$

(371)



$

199



$

883



$

72



$

(231)



$

724


Unrealized (gain) loss on derivative contracts (a)

(175)



25





(150)



15



(32)





(17)


Stock-based compensation expense (b)





40



40







18



18


(Gain) loss from NDT funds

(15)







(15)



(26)







(26)


ARO accretion

33



1





34



32







32


Coal contract adjustment (c)

41







41










Impairments (d)

657







657










REPS Remarketing





134



134










Mechanical subsidiary revenue adjustment (e)









(17)







(17)


Transition service agreement costs





29



29










Separation benefits (f)





2



2







33



33


Corette closure costs (g)



4





4










Terminated derivative contracts (h)

(13)







(13)










Revenue adjustment (i)

7







7










Transaction costs





20



20










Restructuring costs (j)





12



12







1



1


Other (k)

1







1



11







11


Adjusted EBITDA

$

1,080



$

56



$

(134)



$

1,002



$

898



$

40



$

(179)



$

759


MACH Gen, RJS and PPL Allocations (l)







80










Adjusted EBITDA (Guidance)







$

1,082



















(a)

Represents unrealized gains (losses) on derivatives.  Amounts have been adjusted for option premiums of $8 million and $(10) million for 2015 and 2014.

(b)

2015 includes a charge for the acceleration of expense as a result of the spinoff.  For periods prior to June 2015, represents the portion of PPL's stock-based compensation cost allocable to Talen Energy.  Amounts for the 2014 periods were cash settled with a former affiliate.

(c)

To mitigate the risk of oversupply, Talen Energy incurred pre-tax charges of $41 million in 2015 in connection with an agreement to reduce its contracted coal deliveries.

(d)

2015 includes charges for goodwill and certain long-lived assets.  2013 includes a charge for the Corette plant and related emission allowances.

(e)

In 2014, Talen Energy recorded $17 million to "Energy-related businesses" revenues related to prior periods and the timing of revenue recognition for a mechanical contracting and engineering subsidiary.

(f)

In June 2014, Talen Energy Supply's largest IBEW local ratified a new three-year labor agreement.  In connection with the new agreement, estimated bargaining unit one-time voluntary retirement benefits of $17 million were recorded.  In addition, 2014 includes separation costs of $16 million related to the spinoff transaction.

(g)

Operations were suspended and the Corette plant was retired in March 2015.

(h)

Represents net realized gains on certain derivative contracts that were early-terminated due to the spinoff transaction.

(i)

Relates 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.

(j)

Costs related to the spinoff transaction, including expenses associated with the FERC-required mitigation and legal and professional fees.

(k)

All periods include OCI amortization on non-active derivative positions and 2015 includes a gain on the sale of the renewable energy business.

(l)

Includes performance from RJS and removes PPL allocations for the five month period prior to spinoff and removes two months of performance from MACH Gen.

 


 

TALEN ENERGY CORPORATION AND SUBSIDIARIES

Regulation G Reconciliations

Adjusted Free Cash Flow

(Unaudited)





(Millions of Dollars)







Year Ended December 31,



2015


2014

Cash from Operations


$

768



$

462


Capital Expenditures, excluding growth


(491)



(447)


Counterparty collateral paid (received)


(63)



17


Adjusted Free Cash Flow, including other adjustments


214



32


Cash adjustments (after tax):





Coal contract adjustment


25




MACH Gen Bridge Financing


4




Tax related to gain on sale of Renewables


28




Tax related to gain on sale of Montana hydro business




176


Transition Services Agreement costs


17




Insurance proceeds


4




Separation benefits


1



20


Corette closure costs (a)


2




RJS transaction costs


12




Restructuring costs (b)


7



1


Adjusted Free Cash Flow


$

314



$

229


MACH Gen, RJS and PPL allocations (c)


89




Adjusted Free Cash Flow (Guidance)


$

403





(a)

Operations were suspended and the Corette plant was retired in March 2015.

(b)

Costs related to the spinoff transaction, including FERC-required mitigation plan expenses and legal and professional fees.

(c)

Includes performance from RJS and removes PPL allocations for the five month period prior to spinoff and removes two months of performance from MACH Gen.

 

 


TALEN ENERGY CORPORATION AND SUBSIDIARIES

Regulation G Reconciliations

Adjusted EBITDA Projections

(Unaudited)







(Millions of Dollars)









Low - 2016E


Midpoint -
2016E


High - 2016E

Net Income (Loss)


$

(44)



$

16



$

76


Income Taxes


(36)



4



44


Interest Expense


223



223



223


Depreciation and Amortization


409



409



409


EBITDA


552



652



752


Non-Cash Compensation


12



12



12


Asset Retirement Obligation


40



40



40


MTM losses (gains)







Nuclear decommissioning trust losses (gains)


(10)



(10)



(10)


Adjusted EBITDA, including other adjustments


594



694



794


Other Adjustments:







Transition Services Agreement costs and allocations


41



41



41


Other







Adjusted EBITDA


$

635



$

735



$

835


 

 


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


$

678



$

758



$

838


Capital Expenditures, excluding growth (a)


(453)



(433)



(413)


Adjusted Free Cash Flow, including other adjustments


225



325



425


Cash adjustments (after tax):







Transition Services Agreement costs and allocations


25



25



25


Other







Adjusted Free Cash Flow


$

250



$

350



$

450




(a)

Includes allocated capitalized interest associated with growth capital expenditures of $15 million.  This capitalized interest was previously excluded from the calculation of Adjusted Free Cash Flow.

 

 

 

(1)

For 2015, includes 12 months of legacy Talen Energy Supply results, seven months of RJS results and two months of MACH Gen results.

(2)

For 2015, includes 12 months of legacy Talen Energy Supply results and 12 months of RJS results; excludes PPL Corporation allocations and MACH Gen results.

(3)

Excludes contributions to Adjusted EBITDA and Adjusted Free Cash Flow from assets Talen Energy has sold or has announced it will sell in 2016.

(4)

Includes $15 million of capitalized interest related to capital expenditures classified as growth projects, which was previously excluded from the calculation of Adjusted Free Cash Flow.

(5)

In October 2015, Talen Energy Supply's $300 million of 5.70% REset Put Securities (REPS) due 2035 were subject to mandatory tender to the remarketing dealer. Talen Energy Supply and the dealer agreed to terminate the dealer's right to remarket the REPS and Talen Energy Supply repurchased the REPS at par.

(6)

Includes $15 million of capitalized interest related to capital expenditures classified as growth projects, which was previously excluded from the calculation of Adjusted Free Cash Flow.

(7)

Includes $15 million of capitalized interest related to capital expenditures classified as growth projects, which was previously excluded from the calculation of Adjusted Free Cash Flow.

 

Contacts:    
Media Relations - George Lewis, 610-774-4687
Investor Relations - Andy Ludwig, 610-774-3389

SOURCE Talen Energy Corporation


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