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Acquisitions and Dispositions | 6 Months Ended
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Jun. 30, 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 Smart Home, Inc. and Jetson Merger Sub, Inc., a wholly-owned subsidiary of the Company (“Merger Sub”) pursuant to which Merger Sub merged with and into Vivint Smart Home, Inc., with Vivint Smart Home, Inc. surviving the merger as a wholly-owned subsidiary of the Company. Dedicated to redefining the home experience with intelligent products and services, Vivint Smart Home brings approximately two million subscribers to NRG. Vivint Smart Home'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 subscriber 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 $2.6 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 $635 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 9, Long-term Debt and Finance Leases. Acquisition costs of $2 million and $38 million for the three and six months ended June 30, 2023, respectively, 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 Acquisition Closing Date fair value. 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 Smart Home, Inc. common shares outstanding as of March 10, 2023 of 216,901,639 at $12.00 per share |  | $ | 2,603 |
Other Vivint Smart Home, Inc. equity instruments (Cash out RSUs and PSUs, Stock Appreciation Rights, Private Placement Warrants) |  | 6 |
Total Cash Consideration |  | $ | 2,609 |
Fair value of acquired Vivint Smart Home, Inc. 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) | 3,492 |
Intangible assets, net(b): |
Customer relationships | 1,740 |
Technology | 860 |
Trade name | 160 |
Sales channel contract | 10 |
Intangible assets, net | 2,770 |
Deferred income taxes | 381 |
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 Smart Home Purchase Price | $ | 2,623 |
(a)Goodwill arising from the acquisition is attributed to the value of the platform acquired, cross-selling opportunities, subscriber growth and the synergies expected from combining the operations of Vivint Smart Home with NRG's existing businesses. None of the goodwill recorded is expected to be deductible for tax purposes (b)The weighted average amortization period for total amortizable intangible assets is approximately ten years Measurement Period Adjustments The following measurement period adjustments were recognized during the quarter ended June 30, 2023:
(In millions) | (Decrease)/Increase
Goodwill | $ | (200) |
Intangible assets, net | 270 |
Deferred income taxes | (70) |
Net change in assets | $ | — |
The measurement period adjustments to the provisional amounts are primarily attributable to refinement of the underlying assumptions used to estimate the fair value of assets acquired as more information was obtained about facts and circumstances that existed as of the Acquisition Closing Date. 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 Smart Home’s subscriber 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 subscriber 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 subscriber relationships are amortized to depreciation and amortization, ratably based on discounted future cash flows. The weighted average amortization period is twelve years. 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. The weighted average amortization period is five years. 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 an amortization period of ten years. Fair Value Measurement of Acquired Vivint Smart Home Debt The Company acquired $2.7 billion in aggregate principal of Vivint Smart Home’s 2027 Senior Secured Notes, 2029 Senior notes and 2028 Senior Secured Term Loan (together, the "Acquired Vivint Smart Home 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 Smart Home Debt, of $152 million, is being amortized through interest expense over the remaining term of the debt. The Acquired Vivint Smart Home 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 9, 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 Smart Home’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 and six months ended June 30, 2023 and 2022 The following table provides pro forma combined financial information of NRG and Vivint Smart Home, after giving effect to the Vivint Smart Home 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 prospective operating synergies.
| Three months ended June 30, |  | Six months ended June 30,
(In millions) | 2023 |  | 2022 |  | 2023 |  | 2022
Total operating revenues | $ | 6,348 |  |  | $ | 7,690 |  |  | $ | 14,356 |  |  | $ | 15,978 |
Net income/(loss) | 342 |  |  | 466 |  |  | (955) |  |  | 2,018 |
Amounts above reflect certain pro forma adjustments that were directly attributable to the Vivint Smart Home 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 Smart Home amortization of capitalized contract costs and reversal of historical Vivint Smart Home other income recorded for the change in fair value of warrant derivative liabilities, as the warrants are assumed to be cashed out upon the Acquisition Closing Date. (ii)One time expenses directly related to the acquisition. (iii)Adjustments to reflect all acquisition and related transactions costs in the six months ended June 30, 2022. (iv)Interest expense assumes the financing transactions directly attributable to the Vivint Smart Home acquisition occurred on January 1, 2022. (v)Adjustments related to recording Vivint Smart Home'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 six months ended June 30, 2022 period instead of the six months ended June 30, 2023 period. (vii)Income tax effect of the acquisition accounting adjustments and financing adjustments (adjusted for permanents book/tax differences) based on combined blended federal/state tax rate for all periods presented. Dispositions Planned sale of the 44% equity interest in STP On May 31, 2023, the Company entered into a definitive equity purchase agreement with Constellation Energy Generation ("Constellation") to sell its 44% equity interest in STP for $1.75 billion, subject to customary purchase price adjustments. The transaction is expected to close by the end of 2023 and is subject to regulatory approval by the NRC. The waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, expired in July 2023. In July 2023, the City Public Service Board of San Antonio (“CPS”) filed a lawsuit claiming the existence of a right of first refusal to the STP sale transaction (the “CPS Lawsuit”). Austin Energy intervened in the CPS Lawsuit claiming a similar right of first refusal. On July 31, 2023, CPS and Austin Energy jointly filed a motion with the NRC seeking to dismiss the pending License Transfer Application (“LTA”) between NRG and Constellation, or to halt their review of the LTA pending resolution of the CPS lawsuit. NRG filed its answer to the CPS/Austin Energy motion on August 4, 2023. 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 after decommissioning is complete. Sale of Watson On June 1, 2022, the Company closed on the sale of its 49% ownership in the Watson natural gas generating facility for $59 million. The Company recorded a gain on the sale of $46 million. Held-for-sale As of June 30, 2023, the following is classified as held for sale in the Condensed Consolidated Balance Sheets, primarily related to the planned sale of STP, which is in the Texas segment:
| (In millions)
Inventory | $ | 63 |
Prepayments and other current assets | 12 |
Current assets - held-for-sale | $ | 75 |
Property, plant and equipment, net | $ | 227 |
Intangible assets, net | 12 |
Nuclear decommissioning trust fund | 922 |
Non-current assets - held-for-sale | $ | 1,161 |
Total assets held-for-sale | $ | 1,236 |
Current liabilities - held-for-sale | $ | 36 |
Nuclear decommissioning reserve | $ | 336 |
Nuclear decommissioning trust liability | 551 |
Other non-current liabilities | 60 |
Non-current liabilities - held-for-sale | $ | 947 |
Total liabilities held-for-sale | $ | 983 |
The Company recorded income before income taxes from its 44% equity interest in STP as follows:
| Three months ended June 30, |  | Six months ended June 30,
(In millions) | 2023 |  | 2022 |  | 2023 |  | 2022
Income before income taxes(a) | $ | 23 |  |  | $ | 121 |  |  | $ | 7 |  |  | $ | 156 |

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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 -Topic 805 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//805/tableOfContent Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 205 -SubTopic 20 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//205-20/tableOfContent + Details
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