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Acquisitions and Dispositions | 3 Months Ended
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Mar. 31, 2023
Business Combination and Asset Acquisition [Abstract] |
Acquisitions and Dispositions | Acquisitions and Dispositions Acquisitions Vivint Smart Home Acquisition On March 10, 2023 (the "Acquisition Closing Date"), the Company completed the acquisition of Vivint Smart Home Inc., pursuant to the Agreement and Plan of Merger, dated as of December 6, 2022, by and among the Company, Vivint and Jetson Merger Sub, Inc., a wholly-owned subsidiary of the Company (“Merger Sub”) pursuant to which Merger Sub merged with and into Vivint, with Vivint surviving the merger as a wholly-owned subsidiary of the Company. Dedicated to redefining the home experience with intelligent products and services, Vivint brings nearly two million customers to NRG. Vivint's single, expandable platform incorporates artificial intelligence and machine learning into its operating system and its vertically integrated business model includes hardware, software, sales, installation, support and professional monitoring, enabling superior customer experiences and a complete end-to-end smart home experience. The acquisition accelerates the realization of NRG's consumer-focused growth strategy and creates a leading essential home services platform fueled by market-leading brands, unparalleled insights, proprietary technologies and complementary sales channels. NRG paid $12 per share, or $2.609 billion in cash. The Company funded the acquisition using: •proceeds of $724 million from newly issued $740 million 7.000% Senior Secured First Lien Notes due 2033, net of issuance costs and discount; •proceeds of $636 million from newly issued $650 million 10.25% Series A Fixed-Rate Reset Cumulative Redeemable Perpetual Preferred Stock, net of issuance costs; •proceeds of approximately $900 million drawn from its Revolving Credit Facility and Receivables Securitization Facilities; and •cash on hand. In February 2023, the Company increased its Revolving Credit Facility by $600 million to meet the additional liquidity requirements related to the acquisition. For further discussion see Note 8, Long-term Debt and Finance Leases. Acquisition costs of $36 million for the three months ended March 31, 2023 are included in acquisition-related transaction and integration costs in the Company's consolidated statement of operations. The acquisition has been recorded as a business combination under ASC 805, with identifiable assets and liabilities acquired provisionally recorded at their estimated fair values on the Acquisition Closing Date. The initial accounting for the business combination is not complete because the evaluation necessary to assess the fair value of certain net assets acquired and the amount of goodwill to be recognized is still in process. The provisional amounts are subject to revision until the evaluations are completed to the extent that additional information is obtained about the facts and circumstances that existed as of the Acquisition Closing Date. The total consideration of $2.623 billion includes:
|  | (In millions)
Vivint common shares outstanding as of March 10, 2023 of 216,901,639 at $12.00 per share |  | $ | 2,603 |
Other Vivint equity instruments (Cash out RSUs and PSUs, Stock Appreciation Rights, Private Placement Warrants) |  | 6 |
Total Cash Consideration |  | $ | 2,609 |
Fair value of acquired Vivint equity awards attributable to pre-combination service |  | 14 |
Total Consideration |  | $ | 2,623 |
The purchase price is provisionally allocated as follows:
| (In millions)
Current Assets |
Cash and cash equivalents | $ | 120 |
Accounts receivable, net | 60 |
Inventory | 113 |
Prepayments and other current assets | 37 |
Total current assets | 330 |
Property, plant and equipment, net | 49 |
Other Assets |
Operating lease right-of-use assets, net | 35 |
Goodwill(a) | 3,692 |
Intangibles assets, net | 2,500 |
Deferred income taxes | 451 |
Other non-current assets | 14 |
Total other assets | 6,692 |
Total Assets | $ | 7,071 |
Current Liabilities |
Current portion of long-term debt and finance leases | $ | 14 |
Current portion of operating lease liabilities | 13 |
Accounts payable | 109 |
Derivatives instruments | 80 |
Deferred revenue current | 517 |
Accrued expenses and other current liabilities | 207 |
Total current liabilities | 940 |
Other Liabilities |
Long-term debt and finance leases | 2,572 |
Non-current operating lease liabilities | 28 |
Derivatives instruments | 32 |
Deferred income taxes | 18 |
Deferred revenue non-current | 835 |
Other non-current liabilities | 23 |
Total other liabilities | 3,508 |
Total Liabilities | $ | 4,448 |
Vivint Purchase Price | $ | 2,623 |
(a) Goodwill arising from the acquisition is attributed to the value of the platform acquired, cross-selling opportunities, customer growth and the synergies expected from combining the operations of Vivint with NRG's existing businesses. None of the goodwill recorded is expected to be deductible for tax purposes. Fair Value Measurement of Intangible Assets The fair values of intangible assets as of the Acquisition Closing Date were measured primarily based on significant inputs that are observable and unobservable in the market and thus represent Level 2 and Level 3 measurements, respectively. Significant inputs were as follows: Customer relationships — Customer relationships, reflective of Vivint’s customer base, were valued using an excess earning method of the income approach, and is classified as level 3. Under this approach, the Company estimated the present value of expected future cash flows resulting from existing customer relationships, considering attrition and charges for contributory assets (such as net working capital, fixed assets, workforce, trade name and technology) utilized in the business, discounted using a weighted average cost of capital of comparable companies. The customer relationships are amortized to depreciation and amortization, ratably based on discounted future cash flows. Technology – Developed technology was valued using a "relief from royalty" method of the income approach, and is classified as Level 3. Under this approach, the fair value was estimated to be the present value of royalties saved which assumed the value of the asset based on discounted cash flows of the amount that would be paid by a hypothetical market participant had they not owned the asset and instead licensed the asset from another company. The estimated cash flows from the developed technology considered the obsolescence factor and was discounted using a weighted average cost of capital of comparable companies. The developed technology is amortized to depreciation and amortization, ratably based on discounted future cash flows. Trade name — Trade name was valued using a "relief from royalty" method of the income approach, and is classified as level 3. Under this approach, the fair value is estimated to be the present value of royalties saved which assumed the value of the asset based on discounted cash flows of the amount that would be paid by a hypothetical market participant had they not owned the asset and instead licensed the asset from another company. The estimated cash flows from the trade name considered the expected probable use of the asset and was discounted using a weighted average cost of capital of comparable companies. The trade name is amortized to depreciation and amortization, on a straight line basis, over the expected life of the asset. Fair Value Measurement of Acquired Vivint’s Debt The Company acquired $2.7 billion in aggregate principal of Vivint’s 2027 Senior Secured Notes, 2029 Senior notes and 2028 Senior Secured Term Loan (together, the Acquired Vivint’s Debt) which were recorded at fair value as of the Acquisition Closing Date. The difference between the fair value at the Acquisition Closing Date and the principal outstanding of the Acquired Vivint’s Debt, of $152 million, is being amortized through interest expense over the remaining term of the debt. The Acquired Vivint’s Debt are classified as level 2 and were measured at fair value using observable market inputs based on interest rates at the Acquisition Closing Date. For additional discussion see Note 8, Long-term Debt and Finance Leases. Fair Value Measurement of Derivatives Liabilities The derivative liabilities are recorded in connection with the contractual future payment obligations with the financing providers under Vivint’s Consumer Financing Program. The fair values of the derivatives liabilities as of the Acquisition Closing Date were valued using a discounted cash flow model, with inputs consisting of available market data, such as market yield discount rates, as well as unobservable internally derived assumptions, such as collateral prepayment rates, collateral default rates and loss severity rates. These derivatives are priced using a credit valuation adjustment methodology, and are classified as level 3. Changes to the fair value are recorded through other income, net in the Consolidated Statement of Operations. For additional discussion see Note 7, Accounting for Derivative Instruments and Hedging Activities. Supplemental Pro Forma Financial Information for the three months ended March 31, 2023 and 2022 The following table provides pro forma combined financial information of NRG and Vivint, after giving effect to the Vivint acquisition and related financing transactions as if they had occurred on January 1, 2022. The pro forma financial information has been prepared for illustrative and informational purposes only, and is not intended to project future operating results or be indicative of what the Company's financial performance would have been had the transactions occurred on the date acquired. No effect has been given to operating synergies.
(In millions) | Three months ended March 31, 2023 |  | Three months ended March 31, 2022
Total operating revenues | $ | 8,008 |  |  | $ | 8,288 |
Net (loss)/ income | (1,329) |  |  | 1,558 |
Amounts above reflect certain pro forma adjustments that were directly attributable to the Vivint acquisition. These adjustments include the following: (i)Income statement effects of fair value adjustments based on the preliminary purchase price allocation including amortization of intangible assets, reversal of historical Vivint amortization of capitalized contract costs and reversal of historical Vivint other income recorded for the change in fair value of warrant derivative liabilities, as the warrants are assumed to be cashed out upon the close of the Acquisition. (ii)Adjustments to record additional stock-based compensation expense related to acquired Vivint equity awards in the 2022 period. Additionally, one-time stock-based compensation expense related primarily to the acceleration of Vivint equity awards is removed from the three months ended March 31, 2023 and reflected in the 2022 period. (iii)Adjustments to reflect all acquisition and related transactions costs occurring during the three months ended March 31, 2022. (iv)Interest expense assumes the financing transactions directly attributable to the Vivint acquisition occurred on January 1, 2022. (v)Adjustments related to recording Vivint's historical debt at Acquisition Closing Date fair value. (vi)Adjustments to reflect the write-off of short-term deferred financing costs related to the bridge facility put in place for the acquisition prior to securing permanent financing during the 2022 period instead of the 2023 period. (vii)Tax effects of pro forma adjustments on both periods and the shifting of the recognition of one-time tax benefits resulting from the acquisition from the three months ended March 31, 2023 to the 2022 period. Dispositions Sale of Astoria On January 6, 2023, the Company closed on the sale of land and related generation assets from the Astoria site, within the East region of operations, for initial proceeds of $212 million, subject to transaction fees of $3 million and certain indemnifications, resulting in a $199 million gain. As part of the transaction, NRG entered into an agreement to lease the land back for the purpose of operating the Astoria gas turbines. The lease agreement is expected to terminate by the end of the year.

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI https://asc.fasb.org/subtopic&trid=2122178 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI https://asc.fasb.org/topic&trid=2303972 + Details
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