NRG Energy, Inc. Reports Third Quarter 2012 Results and Narrows Guidance to Middle of Range

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NRG Energy, Inc. Reports Third Quarter 2012 Results and Narrows Guidance to Middle of Range

Financial Highlights

  • $657 million of adjusted EBITDA, including $173 million delivered by NRG's retail businesses in the third quarter of 2012;
  • $1,496 million of adjusted EBITDA in the first nine months of 2012, including $504 million delivered by NRG's retail businesses;
  • $806 million of Free Cash Flow (FCF) before growth investments in the first nine months of 2012;
  • $2,710 million of total liquidity at the end of the third quarter, adjusted for the $270 million redemption of our Senior Notes in October

Guidance

  • 2012 Guidance Narrowed:
    • Adjusted EBITDA: $1,875-$1,925 million;
    • FCF before growth investments: $900-$950 million
  • 2013 and 2014 Guidance Reaffirmed (NRG standalone basis):
    • 2013 Adjusted EBITDA $1,700-$1,900 million;
    • 2013 FCF before growth investments: $650-$850 million;
    • 2014 Adjusted EBITDA $1,700-$1,900 million;
    • 2014 FCF before growth investments: $500-$700 million

Business and Operational Highlights

  • GenOn merger remains on track with closing expected by first quarter 2013;
  • $100 million in deleveraging, representing approximately $14 million in annual interest savings, achieved via refinancing of Senior Unsecured Notes, due 2017;
  • $110 million reduction in expected environmental capital expenditures through 2016 reflecting a decrease in costs related to changes in technology, completing projects below budget, and shifts in compliance schedules based on regulatory changes;
  • Retail customer count increased 124,000 since year end 2011 including 79,000 in the Northeast markets

PRINCETON, N.J.--(BUSINESS WIRE)-- NRG Energy, Inc. (NYS: NRG) today reported third quarter 2012 adjusted EBITDA of $657 million with Wholesale contributing $449 million, Retail contributing $173 million and Solar projects contributing $35 million. The Company reported third quarter 2012 net loss of $1 million, or ($0.01) per diluted common share compared, to a net loss of $55 million, or ($0.24) per diluted common share, for the third quarter of 2011.

Adjusted EBITDA for the nine months ended September 30, 2012, was $1,496 million and adjusted cash flow from operations was $993 million. Adjusted cash flow from operations improved $386 million as compared to the nine months ended September 30, 2011, due to improved operational results, reduced interest expense and reductions in collateral postings. Wholesale contributed $928 million of adjusted EBITDA, Retail contributed $504 million of adjusted EBITDA and Solar projects contributed $64 million. Year-to-date 2012 FCF before growth investments was $806 million. Net income for the first nine months of 2012 was $43 million, or $0.16 per diluted common share, compared to net income of $306 million, or $1.22 per diluted common share, for the first nine months of 2011.

"The twin focus of NRG management this quarter has been on achieving in a timely manner all of the milestones, including integration planning, towards closing the GenOn transaction and on delivering a solid third quarter 2012 financial performance. I am pleased to say that we have achieved both," commented David Crane, NRG's President and Chief Executive Officer. "As we move to realize the substantial EBITDA and cash flow synergies directly created by this powerful merger, we are also preparing to capture the 'knock on' benefits of the combination in terms of operational cost synergies, retail expansion and the like."

  

Segment Results

 

Table 1: Adjusted EBITDA

($ in millions)Three Months EndedNine Months Ended

Segment

 9/30/12 9/30/11 9/30/12 9/30/11
Retail173 145504 504
Texas324188689642
Northeast58438394
South Central314284106
West31346859
Other16155243

Alternative Energy(1)

24(5)35(9)
Corporate - (4) (19) (9)
Adjusted EBITDA(2) 657 458 1,496 1,430

(1) Alternative Energy includes the results of the Company's Solar projects
(2) Detailed adjustments by region are shown in Appendix A

 

Table 2: Net (Loss)/Income

($ in millions) Three Months Ended Nine Months Ended
Segment 9/30/12 9/30/11 9/30/12 9/30/11
Retail(300) 36504 350
Texas299(45)(202)193
Northeast336(20)(13)
South Central1921-46
West35274251
Other952514
Alternative Energy(9)(12)(40)(42)
Corporate (87) (93) (266) (293)

Net Income

 (1) (55) 43 306
 

Retail: Adjusted EBITDA for the third quarter of 2012 was $173 million; $28 million higher than in 2011. Gross margin was favorable by $87 million driven by the acquisition of Energy Plus which added $41 million, with the remaining difference due to increased customer count and usage, lower supply costs and favorable year over year weather impacts. Partially offsetting the higher margin realized in 2012 was an increase in operating costs which were the result of the acquisition of Energy Plus and continued efforts to drive market expansion and customer growth, resulting in an approximate 124,000 increase in customer count since December 31, 2011.

Texas (Generation): Adjusted EBITDA for the third quarter of 2012 was $324 million; $136 million higher compared to the third quarter of 2011. Gross Margin increased $150 million, driven by a combination of 21% higher realized energy margin and improved bi-lateral capacity contracts which together added $194 million. The substantial year-over-year increase in third quarter realized energy margin is largely attributable to the impact of the unprecedented hot weather and resulting ERCOT power price spikes in August of 2011. Partially offsetting the increase was a 13% decline in coal generation due to longer plant outages in 2012.

Northeast: Adjusted EBITDA for the third quarter of 2012 was $58 million; $15 million higher compared to the third quarter of 2011. The increase was driven by higher gross margin of $16 million as the Northeast benefited from additional energy sales to the Company's retail providers as a result of efforts to expand its retail presence in the region. Also contributing to the positive results were more favorable capacity pricing in the PJM markets and increased revenues resulting from the Reliability Support Services Agreement in Western New York.

South Central: Adjusted EBITDA for the third quarter of 2012 was $31 million; $11 million lower than the third quarter 2011. Gross margin in 2012 decreased by $10 million versus the third quarter of 2011 due to 12% lower average realized prices. The region experienced a 5% decline in coal generation that was partially offset by a 10% increase in generation at Cottonwood as compared to the third quarter of 2011.

West: Adjusted EBITDA for the third quarter of 2012 was $31 million; $3 million lower than the third quarter 2011 due to a decrease in capacity revenues partially offset by an increase in unrealized trading activity.

Alternative Energy: Adjusted EBITDA for the third quarter of 2012 was $24 million; up $29 million from 2011. Gross margin was $55 million, a $45 million increase driven by the addition of the Roadrunner facility, which began commercial operations in late 2011 and the addition of the Company's Agua Caliente solar facility, which as of September 30,2012 had reached commercial operations on 230 MWs. Offsetting the improved margin were NRG's continued development efforts in our other new businesses.

 

Liquidity and Capital Resources

 

Table 3: Corporate Liquidity

($ in millions)

9/30/12

6/30/12

12/31/11

Cash and Cash Equivalents1,6101,1491,105
Funds deposited by counterparties76135258
Restricted cash237208292
Total Cash and Funds Deposited1,9231,4921,655
Revolver Availability1,1331,049673
Total Liquidity3,0562,5412,328

Less: Funds deposited as collateral by hedge counterparties

(76)(135)(258)
Total Current Liquidity2,9802,4062,070
Less: Reserve for 2017 bond redemption(1)(270)--
Total Current Liquidity, adjusted2,7102,4062,070

(1) On October 24th, NRG redeemed the remaining $270 million outstanding of the 2017 Senior Notes

Total liquidity, adjusted as of September 30, 2012, was $2,710 million, an increase of $640 million from December 31, 2011 driven largely by a $460 million increase in Revolver availability primarily due to the sell-down of the Agua Caliente project. The $55 million decrease in restricted cash is primarily due to reduced collateral requirements for the Company's solar projects as NRG continues to contribute equity to these projects. Finally, cash and cash equivalents increased by $235 million due to the following items:

  • $993 million of adjusted cash flow from operations;
  • $174 million in proceeds from the sale of Schkopau;
  • $122 million in proceeds from the sell down of the Agua Caliente project;
  • Partially offset by $1,013 million of cash outflows consisting of the following items:
    • $180 million of cash paid for maintenance and environmental capital expenditures (net of financing of $9 million);
    • $527 million for solar and conventional growth investments (net of debt and third party funding of $1,704 million);
    • $172 million net paydown of Senior Unsecured Notes and $46 million of scheduled debt amortization; and
    • $47 million of changes in dividends, restricted cash and other investing and financing activities

Growth Initiatives and Developments

NRG continued to advance its leadership position in sustainable energy including:

Solar

  • Agua Caliente - As of September 30, 2012, 230 MWs of generation capacity have achieved commercial operation making Agua Caliente the largest operating solar PV project in the United States. Overall, construction at Agua Caliente is several months ahead of schedule. Power generated by Agua Caliente will be sold under a 25-year power purchase agreement (PPA) with Pacific Gas and Electric Co (PG&E).
  • CVSR - Construction of the California Valley Solar Ranch project is well advanced, with 22 MWs achieving operation on September 19, 2012. We continue to expect all other phases of the project to be completed earlier than the dates anticipated at the time the project was acquired, with 125 MWs on-line by the end of 2012 and the remaining 125 MWs completed in the third and fourth quarter of 2013. Power from this project will be sold to PG&E under 25-year PPAs.
  • Ivanpah - Unit 1 (124 MWs) is expected to produce its first steam in January 2013 and be completed and producing power in May 2013. The remaining two units (each at 127 MWs) are currently expected to be completed in the third and fourth quarter of 2013. Power from Units 1 and 3 will be sold to PG&E via two 25-year PPAs, and power from Unit 2 will be sold to Southern California Edison under a 20-year PPA.
  • Other Solar - NRG Solar also has several other smaller projects under construction that are expected to reach commercial operation within 2012; ranging from the Borrego project (26 MWs under a 25-year PPA with San Diego Gas and Electric) to smaller Distributed Generation scale installations, such as our "showcase" solar projects currently operating or under construction at four NFL stadiums.

Alternative Energy

  • Petra Nova - Petra Nova continues with the development of its peaking unit at NRG's WA Parish Generating Station and on August 14, 2012 signed a $24 million lump-sum, turnkey EPC contract. Petra Nova is targeting a May 2013 commercial operation date, and it is anticipated that the unit will eventually be used as a cogeneration facility dedicated to a Carbon Capture Utilization and Storage Project, sponsored in part by the Department of Energy, at the Parish facility. The peaking unit is being financed, in part with the proceeds of a $54 million tax-exempt bond financing that was completed on May 3, 2012, of which NRG has drawn $16 million through September 30, 2012.

Guidance Update

Notwithstanding the comparatively mild summer weather on the back of extremely mild weather last winter, NRG is pleased to narrow its adjusted EBITDA guidance for 2012 to the center of the previous range. For fiscal year 2012, NRG projects $1,875-$1,925 million of adjusted EBITDA on a standalone basis with Wholesale contributing $1,170-$1,195 million, Retail contributing $630-$650 million and Solar projects contributing $75-80 million. The Company is also narrowing its free cash flow before growth investments guidance range to $900-$950 million. For fiscal years 2013 and 2014, NRG also affirms the standalone guidance previously given.

 

Table 4: 2012 Reconciliation of Adjusted EBITDA Guidance

($ in millions)11/2/128/8/12
Adjusted EBITDA guidance1,875- 1,9251,825 - 2,000
Interest payments(659)(605)
Income tax(30)(50)
Collateral/working capital/other changes(36)(94)
Adjusted cash flow from operations1,150 - 1,2001,050 - 1,250
Maintenance capital expenditures,net(232)(240)-(260)
Environmental capital expenditures, net(6)(5)-(15)
Preferred dividends(9)(9)
Free cash flow - before growth investments900 - 950800 - 1,000

Note: Subtotals and totals are rounded

 

2012 Capital Allocation Program

On September 24, 2012, NRG issued $990 million aggregate principal amount at par of 6.625% Senior Notes due 2023. The Company used the net proceeds, $978 million, and additional cash on hand to redeem $820 million of the 2017 Notes through a tender offer at an early redemption percentage of 104.125%, with the remaining $270 million of notes redeemed during October. This refinancing reduces corporate debt by $100 million, decreases annual interest expense by $14 million and creates a single covenant package across credit facilities and debt securities enabling the Company to invest more opportunistically in growth initiatives and enhance its ability to efficiently return capital to all investors.

Earnings Conference Call

On November 2, 2012, NRG will host a conference call at 8:30 am eastern to discuss these results. Investors, the news media and others may access the live webcast of the conference call and accompanying presentation materials by logging on to NRG's website at http://www.nrgenergy.com and clicking on "Investors." The webcast will be archived on the site for those unable to listen in real time.

About NRG

NRG is at the forefront of changing how people think about and use energy. A Fortune 500 company, NRG is a pioneer in developing cleaner and smarter energy choices for our customers: whether as one of the largest solar power developers in the country, or by building the first privately funded electric vehicle charging infrastructure or by giving customers the latest smart energy solutions to better manage their energy use. Our diverse power generating facilities can support over 20 million homes and our retail electricity providers—Reliant, Green Mountain Energy Company and Energy Plus—serve more than two million customers. More information is available at nrgenergy.com. Connect with NRG Energy on Facebook and follow us on Twitter @nrgenergy.

Safe Harbor Disclosure

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

Forward-looking statements are not a guarantee of future performance and actual events or results may differ materially from any forward-looking statement as result of various risks and uncertainties, including, but not limited to, those relating to: the ability to satisfy the conditions to the proposed transaction between NRG and GenOn, the ability to successfully complete the proposed transaction (including any financing arrangements in connection therewith) in accordance with its terms and in accordance with expected schedule, the ability to obtain stockholder, regulatory or other approvals for the proposed transaction, or an inability to obtain them on the terms proposed or on the anticipated schedule, diversion of management attention on transaction-related issues, impact of the transaction on relationships with customers, suppliers and employees, the ability to finance the combined business post-closing and the terms on which such financing may be available, the financial performance of the combined company following completion of the proposed transaction, the ability to successfully integrate the businesses of NRG and GenOn, the ability to realize anticipated benefits of the proposed transaction (including expected cost savings and other synergies) or the risk that anticipated benefits may take longer to realize than expected, legislative, regulatory and/or market developments, the outcome of pending or threatened lawsuits, regulatory or tax proceedings or investigations, the effects of competition or regulatory intervention, financial and economic market conditions, access to capital, the timing and extent of changes in law and regulation (including environmental), commodity prices, prevailing demand and market prices for electricity, capacity, fuel and emissions allowances, weather conditions, operational constraints or outages, fuel supply or transmission issues, hedging ineffectiveness.

Additional information concerning other risk factors is contained in NRG's and GenOn's most recently filed Annual Reports on Form 10-K, subsequent Quarterly Reports on Form 10-Q, recent Current Reports on Form 8-K, and other SEC filings.

Many of these risks, uncertainties and assumptions are beyond NRG's ability to control or predict. Because of these risks, uncertainties and assumptions, you should not place undue reliance on these forward-looking statements. Furthermore, forward-looking statements speak only as of the date they are made, and NRG does not undertake any obligation to update publicly or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this communication. All subsequent written and oral forward-looking statements concerning NRG, GenOn, the proposed transaction, the combined company or other matters and attributable to NRG, GenOn or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements above.

Additional Information about the Proposed Transaction and Where You Can Find It

In connection with the proposed merger between NRG and GenOn, NRG filed with the Securities and Exchange Commission ("SEC") a registration statement on Form S-4 that includes a joint proxy statement of NRG and GenOn and that also constitutes a prospectus of NRG. The registration statement was declared effective by the SEC on October 5, 2012. NRG and GenOn first mailed the joint proxy statement/prospectus to their respective stockholders on or about October 10, 2012. NRG and GenOn may also file other documents with the SEC regarding the proposed transaction. INVESTORS AND SECURITY HOLDERS OF NRG AND GENON ARE URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS AND ANY OTHER RELEVANT DOCUMENTS THAT ARE FILED WITH THE SEC, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THESE DOCUMENTS, CAREFULLY AND IN THEIR ENTIRETY BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. Investors and stockholders may obtain free copies of the joint proxy statement/prospectus and other documents containing important information about NRG and GenOn through the website maintained by the SEC at www.sec.gov. In addition, NRG makes available free of charge at www.nrgenergy.com (in the "Investors" section), copies of materials it files with, or furnish to, the SEC.

Participants In The Merger Solicitation

NRG, GenOn, and certain of their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from the stockholders of NRG and GenOn in connection with the proposed transaction. Information about the directors and executive officers of NRG is set forth in its proxy statement for its 2012 annual meeting of stockholders, which was filed with the SEC on March 12, 2012. Information about the directors and executive officers of GenOn is set forth in its proxy statement for its 2012 annual meeting of stockholders, which was filed with the SEC on March 30, 2012. Other information regarding the participants in the proxy solicitation can be found in the above-referenced registration statement on Form S-4. These documents can be obtained free of charge from the sources indicated above.

   
 

NRG ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 

Three months ended September 30,

Nine months ended September 30,

2012 20112012 2011

(In millions, except for per share amounts)

Operating Revenues

Total operating revenues

$2,331$2,674$6,359$6,947
Operating Costs and Expenses

Cost of operations

1,7262,0534,6184,985

Depreciation and amortization

239238703665

Impairment charge on emissions allowance

 

160

 

160

Selling, general and administrative

253169681479

Acquisition-related transaction and integration costs

1818

Development costs

9112632

Total operating costs and expenses

2,2452,6316,0466,321
Operating Income8643313626

Other Income/(Expense)

Equity in earnings of unconsolidated affiliates

4162626

Impairment charge on investment

(1)(3)(2)(495)

Other income, net

1051413

Loss on debt extinguishment

(41)(32)(41)(175)

Interest expense

(163)(164)(495)(504)

Total other expense

(191)(178)(498)(1,135)
Loss Before Income Taxes(105)(135)(185)(509)

Income tax benefit

(113)(80)(246)(815)
Net Income/(Loss)8(55)61306

Less: Net income attributable to noncontrolling interest

918
Net Income/(Loss) Attributable to NRG Energy, Inc.(1)(55)43306

Dividends for preferred shares

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