Financial Information

Second Quarter 2016

Talen Energy Reports Second Quarter 2016 Results

Aug 4, 2016
6:00am

ALLENTOWN, Pa., Aug. 4, 2016 /PRNewswire/ --

 

2016 Financial Results








(in millions)

Three Months Ended


Six Months Ended


June 30, 2016


June 30, 2016

Net Income (Loss)

$

(3)



$

148


Adjusted EBITDA

132



367


Cash from Operations



207


Adjusted Free Cash Flow



67


 

Talen Energy Logo

 

2016 Guidance Ranges

  • Adjusted EBITDA projection affirmed at $655-$855 million; Adjusted Free Cash Flow projection affirmed at $260-$460 million

Operating and Commercial Highlights

  • Merger transaction with affiliates of Riverstone Holdings LLC on schedule, expected to close by the end of 2016
  • Natural gas co-firing projects for about 3,000 megawatts of coal-fired capacity on schedule for expected completion in 2016 at Brunner Island plant, 2018 at Montour plant
  • Consent decree in environmental litigation involving Colstrip plant includes commitment to retire Units 1 and 2 no later than July 2022

Talen Energy Corporation (NYSE: TLN) reported this morning a Net Loss of $3 million for the three months ended June 30, 2016, compared with Net Income of $26 million for the three months ended June 30, 2015, and Adjusted EBITDA of $132 million, compared with $171 million for the three months ended June 30, 2015.

The Net Loss in the second quarter includes an after-tax, non-cash asset impairment charge of $122 million related to the proposed Bell Bend nuclear power plant project. Although the project's Combined Operating License Application remains on file, licensing and permitting activities are suspended, and Talen Energy has no plans to resume them.

For the six months ended June 30, 2016, Talen Energy reported Net Income of $148 million, compared with $122 million for the six months ended June 30, 2015, and Adjusted EBITDA of $367 million, compared with $408 million for the six months ended June 30, 2015.

"Our second quarter financial results reflect the unrelenting focus of Talen Energy employees on executing major projects designed to improve our resilience to low commodity prices, enhance the safe and reliable operation of our plants, and reduce corporate support costs even further," said Paul Farr, Talen Energy President and Chief Executive Officer.

The company is adding natural gas co-firing capability to about 3,000 megawatts of coal-fired generation in Pennsylvania that will enhance its operating flexibility by enabling those plants to use low-cost gas from nearby Marcellus shale. Co-firing at the Brunner Island plant is on schedule to be completed and in commercial operation by the end of 2016. In June, Talen Energy announced that it will proceed with natural gas co-firing capability at the Montour plant. Assuming timely receipt of necessary permits and regulatory approvals, completion is expected in the second quarter of 2018.

Affiliate Talen Montana is party to a settlement agreement in a lawsuit involving the Colstrip plant. The agreement, which was filed in July and is pending approval by a federal court, includes a commitment to retire Colstrip Units 1 and 2 no later than July 2022. Talen Montana owns 50 percent (307 megawatts) of those units.

Based on second quarter results, Talen Energy has affirmed 2016 guidance ranges for Adjusted EBITDA of $655-$855 million and for Adjusted Free Cash Flow of $260-$460 million.

On June 3, 2016, Talen Energy announced entry into a definitive merger agreement, executed on June 2, 2016, with affiliates of Riverstone Holdings LLC, a private investment firm. Filings have been made with the Nuclear Regulatory Commission, Federal Energy Regulatory Commission and other regulatory agencies. The parties 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 receipt of stockholder and regulatory approvals and satisfaction of other customary closing conditions.

Review of Segment Results

Financial information presented in this news release for three and six months ended June 30, 2015 represents three and six months of legacy Talen Energy Supply results, consolidated with one month of RJS Power results, and does not include MACH Gen results because that acquisition occurred later in 2015.

 

(in millions)

Three Months Ended June 30,


Six Months Ended June 30,


2016


2015


2016


2015

Operating Income (Loss)








East

$

152



$

147



$

544



$

378


West

(52)



(20)



(80)



(21)


Other (b)

(52)



(92)



(105)



(144)


Total

$

48



$

35



$

359



$

213










EBITDA (a)








East

$

253



$

233



$

745



$

548


West

(42)



(16)



(56)



(17)


Other (b)

(48)



(92)



(100)



(144)


Total

$

163



$

125



$

589



$

387










Adjusted EBITDA (a)








East

$

165



$

214



$

441



$

486


West

(20)



(1)



(30)



4


Other (b)

(13)



(42)



(44)



(82)


Total

$

132



$

171



$

367



$

408


 

(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 second quarter of 2016, Operating Income increased by $5 million compared with the second quarter of 2015 primarily due to the gain on the sale of the Holtwood and Lake Wallenpaupack hydroelectric plants, partially offset by the impairment charge related to the Bell Bend project, unrealized losses from economic hedging activities and factors that affected Adjusted EBITDA, which are described in the next paragraph.

In the second quarter of 2016, Adjusted EBITDA decreased by $49 million compared with the second quarter 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 nuclear availability, spark spreads and other portfolio margins, partially offset by higher margins from assets acquired during 2015. The increase in operation and maintenance costs was primarily due to additional costs associated with assets acquired during 2015.

For the first six months of 2016, Operating Income increased by $166 million compared with the first six months of 2015, primarily due to the gain on assets sold during 2016, partially offset by the impairment charge related to the Bell Bend project, unrealized losses from economic hedging activities and factors that affected Adjusted EBITDA, which are described in the next paragraph.

For the first six months of 2016, Adjusted EBITDA decreased by $45 million compared with the first six months of 2015 primarily due to higher operation and maintenance costs, partially offset by higher margins. Operation and maintenance costs increased primarily due to additional costs associated with assets acquired during 2015. Margins increased primarily due to additional margins from assets acquired during 2015, and higher capacity prices and other portfolio margins, partially offset by lost energy and capacity revenues from assets sold during 2016, and lower realized energy prices, nuclear availability and spark spreads.

West Segment

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

In the second quarter of 2016, Operating Income decreased by $32 million and Adjusted EBITDA decreased by $19 million compared with the second quarter of 2015, primarily due to additional operation and maintenance costs associated with assets acquired during 2015 and lower margins. Margins decreased primarily due to lower realized energy prices and generation in Montana, partially offset by higher margins from assets acquired during 2015.

For the first six months of 2016, Operating Income decreased by $59 million and Adjusted EBITDA decreased by $34 million compared with the first six months of 2015, primarily due to additional operation and maintenance costs associated with assets acquired during 2015 and lower margins. Margins decreased primarily due to lower realized energy prices and generation in Montana, partially offset by higher margins from assets acquired during 2015.

Other

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

For the second quarter of 2016, the $40 million improvement in Operating Income and the $29 million improvement in Adjusted EBITDA compared with the second quarter of 2015 are primarily due to lower corporate expenses following the spinoff from PPL Corporation.

For the first six months of 2016, the $39 million improvement in Operating Income and the $38 million improvement in Adjusted EBITDA compared with the first six months of 2015 are primarily due to lower corporate expenses following the spinoff from PPL Corporation.

 

Adjusted Free Cash Flow






(in millions)


Six Months Ended



June 30, 2016


June 30, 2015

Cash from Operations


$

207



$

355


Adjusted Free Cash Flow (a)


67



137


 

(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)



June 30, 2016


December 31, 2015

Cash and cash equivalents



$

1,091



$

141


Short-term debt (a)



350



608


 

(a)   

December 31, 2015 includes $108 million, which at June 30, 2015 is classified as "Long-term debt" on the Balance Sheet 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 Talen Energy's revolving credit facilities, partially offset by a drawdown on the revolving credit facility to repay $350 million in debt that matured in May 2016.

Net cash provided by (used in) operating, investing and financing activities for the six months ended June 30, and the changes between periods were as follows.

 

(in millions)


2016


2015


Change - Cash

Operating activities


$

207



$

355



$

(148)


Investing activities


1,290



(127)



1,417


Financing activities


(547)



(228)



(319)


 

2016 Financial Outlook

Talen Energy affirmed 2016 guidance ranges for Adjusted EBITDA and Adjusted Free Cash Flow. The forecast for Adjusted EBITDA is $655-$855 million. The forecast for Adjusted Free Cash Flow is $260-$460 million.

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.

Conference Call and Webcast

Talen Energy management will discuss these results during a conference call and webcast on August 4, 2016, 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 4143588.

The webcast, in audio format with slides of the presentation, will be accessible on 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.

Important Information for Investors and Stockholders

This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. The proposed acquisition of Talen Energy (the "Merger") by affiliates of Riverstone Holdings LLC ("Riverstone") will be submitted to the stockholders of Talen Energy for their consideration. On July 1, 2016, Talen Energy filed with the Securities and Exchange Commission ("SEC") a preliminary proxy statement in connection with the Merger. When completed, a definitive proxy statement and a form of proxy will be filed with the SEC and mailed to Talen Energy stockholders. Talen Energy also plans to file other documents with the SEC regarding the Merger. Investors and security holders of Talen Energy are urged to read the proxy statement and other relevant documents that will be filed with the SEC carefully and in their entirety when they become available because they will contain important information about the Merger. Investors and stockholders will be able to obtain free copies of the proxy statement and other documents containing important information about Talen Energy and Riverstone, once such documents are filed with the SEC, through the website maintained by the SEC at www.sec.gov. Copies of the documents filed with the SEC by Talen Energy will be available free of charge on Talen Energy's website at www.talenenergy.com under the Investors & Media section or by contacting Talen Energy's Investor Relations Department at (610) 774-3389. Talen Energy and certain of its directors and executive officers may be deemed to be participants in the solicitation of proxies from the stockholders of Talen Energy in connection with the Merger. Information about the directors and executive officers of Talen Energy is set forth in its proxy statement for its 2016 annual meeting of stockholders, which was filed with the SEC on April 12, 2016. This document may be obtained free of charge from the sources indicated above. Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the proxy statement and other relevant materials to be filed with the SEC when they become available.

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, closing of the Merger, completion of co-firing projects and litigation settlements 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 stockholder or 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; ability to secure final approval of the Colstrip settlement agreement from the federal court; 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 and Montour dual-fuel projects; 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 its 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)





June 30,


December 31,


2016


2015

Assets




Cash and cash equivalents

$

1,091



$

141


Restricted cash and cash equivalents

53



106


Accounts receivable (less reserve:  2016, $1; 2015, $1)

273



267


Unbilled revenues

136



160


Fuel, materials and supplies

482



508


Prepayments

57



52


Price risk management assets

429



562


Assets held for sale



954


Other current assets

14



12


Investments

1,002



976


Property, Plant and Equipment

14,605



14,462


Less: accumulated depreciation

6,533



6,411


Property, plant and equipment, net

8,072



8,051


Construction work in progress

492



536


Total Property, Plant and Equipment, net

8,564



8,587


Other intangibles

105



310


Price risk management assets

153



131


Other noncurrent assets

44



43


Total Assets

$

12,403



$

12,809










Liabilities and Equity




Short-term debt

$

350



$

608


Long-term debt due within one year

5



399


Accounts payable

262



291


Liabilities held for sale



33


Other current liabilities

865



757


Long-term Debt

3,896



3,787


Deferred income taxes and investment tax credits

1,470



1,602


Price risk management liabilities - noncurrent

127



108


Accrued pension obligations

352



340


Asset retirement obligations

501



490


Other deferred credits and noncurrent liabilities

110



91


Common Stock and additional paid-in capital

4,707



4,702


Accumulated deficit

(225)



(373)


Accumulated other comprehensive income (loss)

(17)



(26)


Total Liabilities and Equity

$

12,403



$

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


Six Months Ended


June 30,


June 30,


2016


2015


2016


2015

Operating Revenues








Wholesale energy

$

389



$

561



$

1,189



$

1,237


Retail energy

189



243



448



554


Energy-related businesses

119



144



233



248


Total Operating Revenues

697



948



1,870



2,039


Operating Expenses








Operation








Fuel and energy purchases

347



382



838



897


Operation and maintenance

277



306



559



528


(Gain) loss on sale

(423)





(563)




Impairments

213





213




Depreciation

109



87



218



164


Taxes, other than income

11



5



22



8


Energy-related businesses

115



133



224



229


Total Operating Expenses

649



913



1,511



1,826


Operating Income (Loss)

48



35



359



213


Other Income (Expense) - net

6



3



12



10


Interest Expense

60



55



120



91


Income (Loss) Before Income Taxes

(6)



(17)



251



132


Income Taxes

(3)



(43)



103



10


Income (Loss) After Income Taxes

(3)



26



148



122


Net Income (Loss)

$

(3)



$

26



$

148



$

122










Earnings Per Share of Common Stock:








Basic

$

(0.02)



$

0.26



$

1.15



$

1.34


Diluted

$

(0.02)



$

0.26



$

1.14



$

1.34










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








Basic

128,527



98,354



128,526



90,980


Diluted

128,527



98,376



129,475



91,002


 


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Talen Energy Corporation and Subsidiaries

(Unaudited)




(Millions of Dollars)





Six Months Ended


June 30,


2016


2015

Cash Flows from Operating Activities




  Net income (loss)

$

148



$

122


  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

218



164


     Amortization

93



93


     Defined benefit plans - expense

23



23


     Deferred income taxes and investment tax credits

(142)



(46)


     Impairment of assets

214



6


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

83



(40)


     Other

17



38


  Change in current assets and current liabilities




     Accounts receivable

(18)



50


     Accounts payable

(28)



(135)


     Unbilled revenues

24



80


     Fuel, materials and supplies

23



33


     Prepayments

(5)



37


     Counterparty collateral

(57)



36


     Taxes payable

212



(2)


     Other

(10)



(33)


  Other operating activities




     Defined benefit plans - funding



(74)


     Other assets

3



2


     Other liabilities

4



1


          Net cash provided by operating activities

207



355


Cash Flows from Investing Activities




  Expenditures for property, plant and equipment

(268)



(179)


Proceeds from the sale of certain generation facilities

1,525




  Expenditures for intangible assets

(29)



(19)


  Purchases of nuclear plant decommissioning trust investments

(101)



(108)


  Proceeds from the sale of nuclear plant decommissioning trust investments

92



100


  Net (increase) decrease in restricted cash and cash equivalents

53



67


  Other investing activities

18



12


          Net cash provided by (used in) investing activities

1,290



(127)


Cash Flows from Financing Activities




  Issuance of long-term debt



600


  Retirement of long-term debt

(394)



(2)


  Contributions from member



82


  Distributions to predecessor member



(214)


  Net increase (decrease) in short-term debt

(150)



(668)


  Borrowing on long-term revolving credit facility




  Other financing activities

(3)



(26)


          Net cash provided by (used in) financing activities

(547)



(228)


Net Increase (Decrease) in Cash and Cash Equivalents

950




  Cash and Cash Equivalents at Beginning of Period

141



352


  Cash and Cash Equivalents at End of Period

$

1,091



$

352


 


TALEN ENERGY CORPORATION AND SUBSIDIARIES

Regulation G Reconciliations

Adjusted EBITDA

(Unaudited)


(Millions of Dollars)



Three Months Ended June 30,


2016


2015


East


West


Other


Total


East


West


Other


Total

Net income (loss)







$

(3)









$

26


Interest expense







60









55


Income taxes







(3)









(43)


Other (income) expense - net







(6)









(3)


Operating income (loss)

$

152



$

(52)



$

(52)



$

48



$

147



$

(20)



$

(92)



$

35


Depreciation

97



11



1



109



82



4



1



87


Other income (expense) - net

4



(1)



3



6



4





(1)



3


EBITDA

$

253



$

(42)



$

(48)



$

163



$

233



$

(16)



$

(92)



$

125


Margins:
















Unrealized (gain) loss on derivative contracts (a)

137



13





150



(22)



15





(7)


Terminated derivative contracts (b)









(13)







(13)


Revenue adjustment (c)









7







7


Other (d)

2







2



1







1


Operation and maintenance:
















Stock-based compensation expense (e)





3



3







31



31


ARO accretion, net

6







6



9







9


Impairments (f)

204



9





213










(Gain) loss on dispositions (g)

(423)







(423)










TSA costs





11



11







5



5


Separation benefits





9



9







2



2


Transaction and restructuring costs (i)





12



12







12



12


Other

(5)







(5)



3







3


Other income (expense):
















(Gain) loss from NDT funds

(9)







(9)



(4)







(4)


Adjusted EBITDA

$

165



$

(20)



$

(13)



$

132



$

214



$

(1)



$

(42)



$

171


 


Six Months Ended June 30,


2016


2015


East


West


Other


Total


East


West


Other


Total

Net income (loss)







$

148









$

122


Interest expense







120









91


Income taxes







103









10


Other (income) expense - net







(12)









(10)


Operating income (loss)

$

544



$

(80)



$

(105)



$

359



$

378



$

(21)



$

(144)



$

213


Depreciation

192



24



2



218



159



4



1



164


Other income (expense) - net

9





3



12



11





(1)



10


EBITDA

$

745



$

(56)



$

(100)



$

589



$

548



$

(17)



$

(144)



$

387


Margins:
















Unrealized (gain) loss on derivative contracts (a)

56



12





68



(70)



17





(53)


Terminated derivative contracts (b)









(13)







(13)


Revenue adjustment (c)









7







7


Other (d)

5







5



4







4


Operation and maintenance:
















Stock-based compensation expense (e)





8



8







40



40


ARO accretion, net

15



1





16



17







17


Impairments (f)

204



9





213










(Gain) loss on dispositions (g)

(563)







(563)










TSA costs





24



24







5



5


Separation benefits





9



9







2



2


Corette closure costs (h)











4





4


Transaction and restructuring costs (i)





15



15







15



15


Legal contingency (j)



4





4










Other

(8)







(8)



3







3


Other income (expense):
















(Gain) loss from NDT funds

(13)







(13)



(10)







(10)


Adjusted EBITDA

$

441



$

(30)



$

(44)



$

367



$

486



$

4



$

(82)



$

408


 

(a)   

Represents unrealized (gains) losses on derivatives.  Amounts have been adjusted for insignificant option premiums for the three months ended June 30, 2016 and 2015, and $6 million and $9 million for the six months ended June 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)   

Includes OCI amortization on non-active derivative positions.

(e)    

For the periods prior to June 2015, represents the portion of PPL's stock-based compensation cost allocable to Talen Energy.

(f)    

Relates to Bell Bend Combined Operating License Application costs and Harquahala plant impairments.

(g)    

Relates to Ironwood, Holtwood, Lake Wallenpaupack and C.P. Crane sales.

(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)   

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)







Six Months Ended June 30,



2016


2015

Cash from Operations


$

207



$

355


Capital Expenditures, excluding growth (a)


(235)



(197)


Counterparty collateral paid (received)


57



(36)


Adjusted Free Cash Flow, including other adjustments


29



122


Cash adjustments:





Transition Services Agreement costs


23



5


Legal settlement (b)


3




Separation benefits


3



2


Corette closure costs (c)




4


Transaction and restructuring costs (d)


35



15


Taxes on above adjustments (e)


(26)



(11)


Adjusted Free Cash Flow


$

67



$

137


 

(a)   

Includes expenditures related to intangible assets.

(b)   

Contingency relates to the termination of a gas supply contract. 

(c)   

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

(d)   

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.

(e)    

Assumed a marginal tax rate of 40%.

 


TALEN ENERGY CORPORATION AND SUBSIDIARIES

Regulation G Reconciliations

Adjusted EBITDA Projections

(Unaudited)







(Millions of Dollars)









Low - 2016E


Midpoint - 2016E


High - 2016E

Net Income (Loss)


$

107



$

167



$

227


Income Taxes


72



112



152


Interest Expense


240



240



240


Depreciation and Amortization


424



424



424


EBITDA


843



943



1,043


Stock-based compensation


12



12



12


Asset retirement obligation, net


35



35



35


Unrealized (gains) losses on derivative contracts (a)


68



68



68


Nuclear decommissioning trust losses (gains)


(18)



(18)



(18)


(Gain) loss on sale (b)


(563)



(563)



(563)


Asset impairments (c)


213



213



213


Transition Services Agreement costs and other adjustments (d)


65



65



65


Adjusted EBITDA


$

655



$

755



$

855


 

(a)   

Represents unrealized (gains) losses on derivatives. Amounts have been adjusted for insignificant 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)


$

321



$

401



$

481


Capital Expenditures, excluding growth (b)


(467)



(447)



(427)


Counterparty collateral paid (received)


57



57



57


Transition Services Agreement costs


41



41



41


Legal settlement (c)


3



3



3


Separation benefits


3



3



3


Transaction and restructuring costs (d)


35



35



35


Taxes on above adjustments (e)


(33)



(33)



(33)


Taxes on mitigated asset sales (f)


300



300



300


Adjusted Free Cash Flow


$

260



$

360



$

460


 

(a)   

Excludes 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 taxes associated with asset sales included in Cash from Operations.

 

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

SOURCE Talen Energy Corporation


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