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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 _____________________________________________________________________________
FORM 10-Q
 _____________________________________________________________________________
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number: 001-36542
 ______________________________________________________________
image0a22.jpg
TerraForm Power, Inc.
(Exact name of registrant as specified in its charter)
 _____________________________________________________________________________
Delaware
 
46-4780940
(State or other jurisdiction of incorporation or organization)
 
(I. R. S. Employer Identification No.)
200 Liberty Street, 14th Floor, New York, New York
 
10281
(Address of principal executive offices)
 
(Zip Code)
646-992-2400
(Registrant’s telephone number, including area code)
 _________________________________________________
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
x
 
Accelerated filer
 
o
Non-accelerated filer
 
o
 
Smaller reporting company
 
o
Emerging growth company
 
o
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  o    No  x









Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock, Class A, par value $0.01
TERP
Nasdaq Global Select Market

As of April 26, 2019, there were 209,141,720 shares of Class A common stock outstanding.
 




TerraForm Power, Inc. and Subsidiaries
Table of Contents
Form 10-Q

 
 
Page
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 





CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. These statements involve estimates, expectations, projections, goals, assumptions, known and unknown risks, and uncertainties and typically include words or variations of words such as “expect,” “anticipate,” “believe,” “intend,” “plan,” “seek,” “estimate,” “predict,” “project,” “opportunities,” “goal,” “guidance,” “outlook,” “initiatives,” “objective,” “forecast,” “target,” “potential,” “continue,” “would,” “will,” “should,” “could,” or “may” or other comparable terms and phrases. All statements that address operating performance, events, or developments that the Company expects or anticipates will occur in the future are forward-looking statements. They may include estimates of expected cash available for distribution, dividend growth, earnings, revenues, income, loss, capital expenditures, liquidity, capital structure, margin enhancements, cost savings, future growth, financing arrangements and other financial performance items (including future dividends per share), descriptions of management’s plans or objectives for future operations, products, or services, or descriptions of assumptions underlying any of the above. Forward-looking statements provide the Company’s current expectations or predictions of future conditions, events, or results and speak only as of the date they are made. Although the Company believes its expectations and assumptions are reasonable, it can give no assurance that these expectations and assumptions will prove to have been correct and actual results may vary materially.

Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are listed below and further disclosed under the section entitled Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2018:

risks related to weather conditions at our wind and solar assets;
our ability to enter into contracts to sell power on acceptable prices and terms, including as our offtake agreements expire;
government regulation, including compliance with regulatory and permit requirements and changes in tax laws, market rules, rates, tariffs, environmental laws and policies affecting renewable energy;
our ability to compete against traditional utilities and renewable energy companies;
pending and future litigation;
our ability to successfully integrate projects we acquire from third parties, including Saeta Yield S.A.U., and our ability to realize the anticipated benefits from such acquisitions;
our ability to implement and realize the benefit of our cost and performance enhancement initiatives, including the long-term service agreements with an affiliate of General Electric and our ability to realize the anticipated benefits from such initiatives;
the willingness and ability of counterparties to fulfill their obligations under offtake agreements;
price fluctuations, termination provisions and buyout provisions in offtake agreements;
risks related to the ability of our hedging activities to adequately manage our exposure to commodity and financial risk;
risks related to our operations being located internationally, including our exposure to foreign currency exchange rate fluctuations and political and economic uncertainties;
the regulated rate of return of renewable energy facilities in our Regulated Wind and Solar segment, a reduction of which could have a material negative impact on our results of operations;
the condition of the debt and equity capital markets and our ability to borrow additional funds and access capital markets, as well as our substantial indebtedness and the possibility that we may incur additional indebtedness in the future;
operating and financial restrictions placed on us and our subsidiaries related to agreements governing indebtedness;
our ability to identify or consummate any future acquisitions, including those identified by Brookfield Asset Management Inc. (“Brookfield”);
our ability to grow and make acquisitions with cash on hand, which may be limited by our cash dividend policy;
risks related to the effectiveness of our internal control over financial reporting; and
risks related to our relationship with Brookfield, including our ability to realize the expected benefits of sponsorship.

The Company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions, factors, or expectations, new information, data, or methods, future events, or other changes, except as required by law. The foregoing list of factors that might cause results to differ materially from those contemplated in the forward-


4



looking statements should be considered in connection with information regarding risks and uncertainties, which are described in our Annual Report on Form 10-K for the year ended December 31, 2018 and in subsequent Quarterly Reports on Form 10-Q, as well as additional factors we may describe from time to time in our other filings with the Securities and Exchange Commission (the “SEC”). We operate in a competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and you should understand that it is not possible to predict or identify all such factors and, consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.


5



PART I - Financial Information

Item 1. Financial Statements.

TERRAFORM POWER, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)


 
Three Months Ended March 31,
 
2019
 
2018
Operating revenues, net
$
225,332

 
$
127,547

Operating costs and expenses:
 
 
 
Cost of operations
60,751

 
37,323

General and administrative expenses
23,162

 
24,284

General and administrative expenses - affiliate
5,164

 
3,474

Acquisition costs
182

 
3,080

Acquisition costs - affiliate

 
605

Impairment of renewable energy facilities

 
15,240

Depreciation, accretion and amortization expense
106,969

 
65,590

Total operating costs and expenses
196,228

 
149,596

Operating income (loss)
29,104

 
(22,049
)
Other expenses (income):
 
 
 
Interest expense, net
86,287

 
53,554

Gain on extinguishment of debt, net
(5,543
)
 

(Gain) loss on foreign currency exchange, net
(8,752
)
 
891

Other (income) expenses, net
(2,680
)
 
849

Total other expenses, net
69,312

 
55,294

Loss before income tax benefit
(40,208
)
 
(77,343
)
Income tax benefit
(4,151
)
 
(1,030
)
Net loss
(36,057
)
 
(76,313
)
Less: Net loss attributable to redeemable non-controlling interests
(9,381
)
 
(2,022
)
Less: Net loss attributable to non-controlling interests
(18,049
)
 
(157,087
)
Net (loss) income attributable to Class A common stockholders
$
(8,627
)
 
$
82,796

 
 
 
 
Weighted average number of shares:
 
 
 
Class A common stock - Basic
209,142

 
148,139

Class A common stock - Diluted
209,142

 
148,166

 
 
 
 
(Loss) earnings per share:
 
 
 
Class A common stock - Basic and diluted
$
(0.04
)
 
$
0.56

 
 
 
 
Dividends declared per share:
 
 
 
Class A common stock
$
0.2014

 
$
0.19



See accompanying notes to unaudited condensed consolidated financial statements.

6



TERRAFORM POWER, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)



 
Three Months Ended March 31,
 
2019
 
2018
Net loss
$
(36,057
)
 
$
(76,313
)
Other comprehensive income (loss), net of tax:
 
 
 
Foreign currency translation adjustments:
 
 
 
Net unrealized gain (loss) arising during the period
4,822

 
(3,283
)
Hedging activities:
 
 
 
Net unrealized loss arising during the period
(9,160
)
 
(10,492
)
Reclassification of net realized gain into earnings
(2,911
)
 
(962
)
Other comprehensive loss, net of tax
(7,249
)
 
(14,737
)
Total comprehensive loss
(43,306
)
 
(91,050
)
Less comprehensive (loss) income attributable to non-controlling interests:
 
 
 
Net loss attributable to redeemable non-controlling interests
(9,381
)
 
(2,022
)
Net loss attributable to non-controlling interests
(18,049
)
 
(157,087
)
Hedging activities
676

 
(1,243
)
Comprehensive loss attributable to non-controlling interests
(26,754
)
 
(160,352
)
Comprehensive (loss) income attributable to Class A common stockholders
$
(16,552
)
 
$
69,302




See accompanying notes to unaudited condensed consolidated financial statements.

7



TERRAFORM POWER, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)


 
March 31,
2019
 
December 31, 2018
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
286,400

 
$
248,524

Restricted cash, current
27,598

 
27,784

Accounts receivable, net
152,342

 
145,161

Derivative assets, current, including consolidated variable interest entities of $3,276 and $2,038 in 2019 and 2018, respectively
29,970

 
14,371

Prepaid expenses and other current assets
51,085

 
65,149

Due from affiliate

 
196

Total current assets
547,395

 
501,185

 
 
 
 
Renewable energy facilities, net, including consolidated variable interest entities of $3,168,619 and $3,064,675 in 2019 and 2018, respectively
6,629,437

 
6,470,026

Intangible assets, net, including consolidated variable interest entities of $727,444 and $751,377 in 2019 and 2018, respectively
1,932,795

 
1,996,404

Goodwill
114,867

 
120,553

Restricted cash
95,836

 
116,501

Derivative assets, including consolidated variable interest entities of $78,335 and $78,916 in 2019 and 2018, respectively
94,238

 
90,984

Other assets
37,261

 
34,701

Total assets
$
9,451,829

 
$
9,330,354

 
 
 
 
Liabilities, Redeemable Non-controlling Interests and Stockholders' Equity
 
 
 
Current liabilities:
 
 
 
Current portion of long-term debt, including consolidated variable interest entities of $50,252 and $64,251 in 2019 and 2018, respectively
$
429,094

 
$
464,332

Accounts payable, accrued expenses and other current liabilities, including consolidated variable interest entities of $54,847 and $55,996 in 2019 and 2018, respectively
191,913

 
181,400

Due to affiliates
6,260

 
6,991

Derivative liabilities, current portion
35,595

 
35,559

Total current liabilities
662,862

 
688,282

 
 
 
 
Long-term debt, less current portion, including consolidated variable interest entities of $881,583 and $885,760 in 2019 and 2018, respectively
5,277,976

 
5,297,513

Operating lease obligations, less current portion, including consolidated variable interest entities of $126,976 in 2019
246,871

 

Asset retirement obligations, including consolidated variable interest entities of $87,642 and $86,456 in 2019 and 2018, respectively
213,912

 
212,657

Derivative liabilities, less current portion
105,525

 
93,848

Deferred income taxes
169,030

 
178,849

Other liabilities
92,910

 
90,788

Total liabilities
6,769,086

 
6,561,937

 
 
 
 
Redeemable non-controlling interests
31,459

 
33,495

Stockholders' equity:
 
 
 
Class A common stock, $0.01 par value per share, 1,200,000,000 shares authorized, 209,642,140 shares issued in 2019 and 2018, and 209,141,720 shares outstanding in 2019 and 2018
2,096

 
2,096

Additional paid-in capital
2,341,576

 
2,391,435

Accumulated deficit
(368,230
)
 
(359,603
)
Accumulated other comprehensive income
32,313

 
40,238

Treasury stock, 500,420 shares in 2019 and 2018
(6,712
)
 
(6,712
)
Total TerraForm Power, Inc. stockholders' equity
2,001,043

 
2,067,454

Non-controlling interests
650,241

 
667,468

Total stockholders' equity
2,651,284

 
2,734,922

Total liabilities, redeemable non-controlling interests and stockholders' equity
$
9,451,829

 
$
9,330,354


See accompanying notes to unaudited condensed consolidated financial statements.

8



TERRAFORM POWER, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In thousands)


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-controlling Interests
 
 
 
Class A Common Stock Issued
 
Additional Paid-in Capital
 
Accumulated Deficit
 
Accumulated Other Comprehensive Income
 
Common Stock Held in Treasury
 
 
 
 
 
Accumulated Deficit
 
Accumulated Other Comprehensive Income (Loss)
 
 
 
Total Equity
 
Shares
 
Amount
 
 
 
 
Shares
 
Amount
 
Total
 
Capital
 
 
 
Total
 
Balance as of December 31, 2017
148,586

 
$
1,486

 
$
1,866,206

 
$
(398,629
)
 
$
48,018

 
(500
)
 
$
(6,712
)
 
$
1,510,369

 
$
1,057,301

 
$
(198,196
)
 
$
894

 
$
859,999

 
$
2,370,368

Cumulative-effect adjustment

 

 

 
24,578

 
(4,164
)
 

 

 
20,414

 

 
(308
)
 

 
(308
)
 
20,106

Net income (loss)

 

 

 
83,233

 

 

 

 
83,233

 

 
(157,087
)
 

 
(157,087
)
 
(73,854
)
Dividends

 

 
(28,008
)
 

 

 

 

 
(28,008
)
 

 

 

 

 
(28,008
)
Other comprehensive loss

 

 

 

 
(13,494
)
 

 

 
(13,494
)
 

 

 
(1,243
)
 
(1,243
)
 
(14,737
)
Contributions from non-controlling interests in renewable energy facilities

 

 

 

 

 

 

 

 
7,685

 

 

 
7,685

 
7,685

Distributions to non-controlling interests in renewable energy facilities

 

 

 

 

 

 

 

 
(5,204
)
 

 

 
(5,204
)
 
(5,204
)
Other

 

 
3,494

 

 

 

 

 
3,494

 

 
(500
)
 

 
(500
)
 
2,994

Balance as of March 31, 2018
148,586

 
$
1,486

 
$
1,841,692

 
$
(290,818
)
 
$
30,360

 
(500
)
 
$
(6,712
)
 
$
1,576,008

 
$
1,059,782

 
$
(356,091
)
 
$
(349
)
 
$
703,342

 
$
2,279,350

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-controlling Interests
 
 
 
Class A Common Stock Issued
 
Additional Paid-in Capital
 
Accumulated Deficit
 
Accumulated Other Comprehensive Income
 
Common Stock Held in Treasury
 
 
 
 
 
Accumulated Deficit
 
Accumulated Other Comprehensive Income
 
 
 
Total Equity
 
Shares
 
Amount
 
 
 
 
Shares
 
Amount
 
Total
 
Capital
 
 
 
Total
 
Balance as of December 31, 2018
209,642

 
$
2,096

 
$
2,391,435

 
$
(359,603
)
 
$
40,238

 
(500
)
 
$
(6,712
)
 
$
2,067,454

 
$
1,040,771

 
$
(373,420
)
 
$
117

 
$
667,468

 
$
2,734,922

Stock-based compensation

 

 
160

 

 

 

 

 
160

 

 

 

 

 
160

Net (loss)

 

 

 
(8,627
)
 

 

 

 
(8,627
)
 

 
(18,049
)
 

 
(18,049
)
 
(26,676
)
Dividends

 

 
(41,987
)
 

 

 

 

 
(41,987
)
 

 

 

 

 
(41,987
)
Other comprehensive (loss) income

 

 

 

 
(7,925
)
 

 

 
(7,925
)
 

 

 
676

 
676

 
(7,249
)
Contributions from non-controlling interests in renewable energy facilities

 

 

 

 

 

 

 

 
5,562

 

 

 
5,562

 
5,562

Distributions to non-controlling interests in renewable energy facilities

 

 

 

 

 

 

 

 
(5,023
)
 

 

 
(5,023
)
 
(5,023
)
Purchase of redeemable non-controlling interests in renewable energy facilities

 

 
(687
)
 

 

 

 

 
(687
)
 
(393
)
 

 

 
(393
)
 
(1,080
)
Non-cash redemption of redeemable non-controlling interests

 

 
(7,345
)
 

 

 

 

 
(7,345
)
 

 

 

 

 
(7,345
)
Balance as of March 31, 2019
209,642

 
$
2,096

 
$
2,341,576

 
$
(368,230
)
 
$
32,313

 
(500
)

$
(6,712
)
 
$
2,001,043

 
$
1,040,917

 
$
(391,469
)
 
$
793

 
$
650,241

 
$
2,651,284



See accompanying notes to unaudited condensed consolidated financial statements.

9



TERRAFORM POWER, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)


 
Three Months Ended March 31,
2019
 
2018
Cash flows from operating activities:
 
 
 
Net loss
$
(36,057
)
 
$
(76,313
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation, accretion and amortization expense
106,969

 
65,590

Amortization of favorable and unfavorable rate revenue contracts, net
9,138

 
9,817

Impairment of renewable energy facilities

 
15,240

Amortization of deferred financing costs and debt discounts
2,453

 
2,684

Unrealized loss on interest rate swaps
13,925

 

Unrealized (gain) loss on commodity contract derivatives, net
(804
)
 
2,148

Recognition of deferred revenue
(209
)
 
(464
)
Stock-based compensation expense
160

 

Gain on extinguishment of debt, net
(5,543
)
 

Loss on disposal of renewable energy facilities
1,933

 

Unrealized (gain) loss on foreign currency exchange, net
(6,718
)
 
779

Deferred taxes
(4,318
)
 
(936
)
Other, net
313

 
2,907

Changes in assets and liabilities:
 
 
 
Accounts receivable
(9,058
)
 
(6,410
)
Prepaid expenses and other current assets
10,345

 
15,390

Accounts payable, accrued expenses and other current liabilities
(1,888
)
 
18,895

Due to affiliates
(535
)
 
(599
)
Other, net
4,893

 
3,361

Net cash provided by operating activities
84,999

 
52,089

Cash flows from investing activities:
 
 
 
Capital expenditures
(7,368
)
 
(2,720
)
Proceeds from reimbursable interconnection costs
2,836

 
4,084

Other investing activities
729

 

Net cash (used in) provided by investing activities
(3,803
)
 
1,364

Cash flows from financing activities:
 
 
 
Revolving credit facility draws
50,000

 
52,000

Revolving credit facility repayments
(15,000
)
 
(42,000
)
Term Loan principal payments
(875
)
 
(875
)
Principal payments and prepayments on non-recourse long-term debt
(50,194
)
 
(8,681
)
Debt financing fees
(1,197
)
 
(2,134
)
Sale of membership interests and contributions from non-controlling interests in renewable energy facilities
5,562

 
7,685

Purchase of membership interests and distributions to non-controlling
interests in renewable energy facilities
(6,103
)
 
(5,786
)
Due to/from affiliates, net

 
3,214

Payment of dividends
(41,987
)
 
(28,008
)
Net cash used in financing activities
(59,794
)
 
(24,585
)
Net increase in cash, cash equivalents and restricted cash
21,402

 
28,868

Effect of exchange rate changes on cash, cash equivalents and restricted cash
(4,377
)
 
(258
)
Cash, cash equivalents and restricted cash at beginning of period
392,809

 
224,787

Cash, cash equivalents and restricted cash at end of period
$
409,834

 
$
253,397

Supplemental Disclosures:
 
 
 
Cash paid for interest
$
71,818

 
$
20,173

Cash paid for income taxes

 


See accompanying notes to unaudited condensed consolidated financial statements.

10



TERRAFORM POWER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data, unless otherwise noted)


1. NATURE OF OPERATIONS AND ORGANIZATION

Nature of Operations

TerraForm Power, Inc. (“TerraForm Power” and, together with its subsidiaries, the “Company”) is a holding company and its primary asset is an equity interest in TerraForm Power, LLC (“Terra LLC”). TerraForm Power is the managing member of Terra LLC and operates, controls and consolidates the business affairs of Terra LLC, which through its subsidiaries owns and operates renewable energy facilities that have long-term contractual arrangements to sell the electricity generated by these facilities to third parties. The related green energy certificates, ancillary services and other environmental attributes generated by these facilities are also sold to third parties. The Company is sponsored by Brookfield Asset Management Inc. (“Brookfield”), and the Company’s primary business strategy is to acquire operating solar and wind assets in North America and Western Europe. As of March 31, 2019, affiliates of Brookfield held approximately 65% of TerraForm Power’s Class A common stock.
    
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the results of wholly-owned and partially-owned subsidiaries in which the Company has a controlling interest with all significant intercompany accounts and transactions eliminated and have been prepared in accordance with the SEC regulations for interim financial information. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements. Certain prior period amounts in the condensed consolidated financial statements and accompanying notes have been reclassified to conform to the current period’s presentation. The financial statements should be read in conjunction with the accounting policies and other disclosures as set forth in the notes to the Company’s annual financial statements for the year ended December 31, 2018, filed with the SEC on Form 10-K on March 15, 2019. Interim results are not necessarily indicative of results for a full year.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all material adjustments consisting of normal and recurring accruals necessary to present fairly the Company’s financial position as of March 31, 2019 and the results of operations, comprehensive income (loss), and cash flows for the three months ended March 31, 2019 and 2018.
Use of Estimates

In preparing the unaudited condensed consolidated financial statements, the Company uses estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements. Such estimates also affect the reported amounts of revenues, expenses and cash flows during the reporting period. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations would be affected.

Recently Adopted Accounting Standards - Guidance Adopted in 2019

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which primarily changes the lessee’s accounting for operating leases by requiring the recognition of lease right-of-use assets and lease liabilities. The guidance also eliminates previous real estate specific provisions. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842), Targeted Improvements, which amended the standard to give entities another option to apply the requirements of the standard in the period of adoption (January 1, 2019) or Effective Date Method. The Company adopted the new accounting guidance on January 1, 2019, using a modified retrospective approach reflecting the Effective Date Method of adoption, in which the Company continued to apply the guidance in ASC 840, Leases to the comparable periods presented in the year of adoption.


11




The Company made the following elections provided under the standard:

Package of practical expedients that permits the Company to retain its existing lease assessment and classification;
Practical expedient that allows the Company to not evaluate existing and expired land easements;
Practical expedient to not separate non-lease components in power purchase agreement in which the Company is the lessor in providing energy, capacity, and incentive products for a bundled fixed rate; and
The Company elected not to apply the recognition requirements for short-term operating leases, defined as a term of 12-months or less from the commencement date.

The Company evaluated the impact of Topic 842 as it relates to operating leases for land, buildings, and equipment for which it is the lessee and reviewed its existing contracts for embedded leases. The adoption of the new standard resulted in the recognition of right-of-use assets and lease liabilities of approximately $278.0 million and $270.6 million respectively, as of January 1, 2019 for operating leases, whereas the Company’s accounting for finance leases remained substantially unchanged. See Note 7. Leases for additional details.

A significant majority of the Company’s operating revenues are generated from delivering electricity and related products from owned solar and wind renewable energy facilities under power purchase agreements (“PPAs”) in which the Company is the lessor. Revenue is recognized when electricity is delivered and is accounted for as rental income under the lease standard. The adoption of ASC 842 did not have an impact on the accounting of rental income from the Company’s PPAs in which it is the lessor. The Company elected the package of practical expedients available under ASC 842, which did not require the Company to reassess its lease classification from ASC 840. Additionally, the Company elected the practical expedient to not separate lease and non-lease components for lessors. This election allows energy (lease component) and environmental incentives or renewable energy certificates (non-lease components) under bundled PPAs to be accounted as a singular lease unit of account under ASC 842.

In October 2018, the FASB issued ASU No. 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (“SOFR”) Overnight Index Swap (“OIS”) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. This ASU expands the list of U.S. benchmark interest rates permitted in the application of hedge accounting by adding the SOFR as a permissible U.S. benchmark rate. The Company does not have any derivative instruments involving SOFR as a benchmark interest rate, accordingly, the adoption of ASU No. 2018-16 as of January 1, 2019 did not have an impact on the Company’s consolidated financial statements.

Recently Issued Accounting Standards Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), to provide financial statement users with more useful information about expected credit losses. This ASU changes how entities measure credit losses on financial instruments and the timing of when such losses are recognized. The guidance is effective for fiscal years and interim periods within those years beginning after January 1, 2020, with early adoption permitted for periods beginning after December 15, 2018. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework —Changes to the Disclosure Requirements for Fair Value Measurement. This ASU removes some disclosure requirements, modifies others, and adds some new disclosure requirements. The guidance is effective January 1, 2020, with early adoption permitted. The Company is currently evaluating the effect of the new guidance on its consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU amends the definition of a hosting arrangement and requires a customer in a cloud computing arrangement that is a service contract to follow the internal use software guidance in ASC 350-402 to determine which implementation costs to capitalize as assets. Capitalized implementation costs are amortized over the term of the hosting arrangement, beginning when the module or component of the hosting arrangement is ready for its intended use. The guidance is effective January 1, 2020, with early adoption permitted. The Company is currently evaluating the effect of the new guidance on its consolidated financial statements.
    
In October 2018, the FASB issued ASU No. 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities. The amendments in this ASU require reporting entities to consider indirect interests held through related parties under common control for determining whether fees paid to decision makers and service provider are variable interests. These indirect interests should be considered on a proportional basis rather than as the equivalent of a direct interest in its entirety (as currently required in U.S. GAAP). The guidance is effective January 1, 2020,


12




with early adoption permitted. Entities are required to apply the amendments in this guidance retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period presented. The Company is currently evaluating the effect of the new guidance on its consolidated financial statements.

3. REVENUE

The following table presents the Company's recognized operating revenues, net and disaggregated by revenue source:
 
 
Three Months Ended March 31, 2019
 
Three Months Ended March 31, 2018
(In thousands)
 
Solar
 
Wind2
 
Regulated Solar and Wind2
 
Total
 
Solar
 
Wind
 
Total
PPA rental income
 
$
37,769

 
$
57,845

 
$

 
$
95,614


$
36,768

 
$
52,413

 
$
89,181

Commodity derivatives
 

 
15,609

 

 
15,609



 
11,007

 
11,007

PPA and market energy revenue
 
5,604

 
25,320

 
23,151

 
54,075


6,507

 
6,692

 
13,199

Capacity revenue from remuneration programs1
 

 

 
45,837

 
45,837

 

 

 

Amortization of favorable and unfavorable rate revenue contracts, net
 
(1,366
)
 
(7,772
)
 

 
(9,138
)

(1,977
)
 
(7,840
)
 
(9,817
)
Energy revenue
 
42,007

 
91,002

 
68,988

 
201,997


41,298

 
62,272

 
103,570

Incentive revenue
 
15,349

 
1,637

 
6,349

 
23,335


18,425

 
5,552

 
23,977

Operating revenues, net
 
$
57,356

 
$
92,639

 
$
75,337

 
$
225,332


$
59,723

 
$
67,824

 
$
127,547

———
(1)
Represents the remuneration related to the Company’s investments in renewable energy facilities in Spain.
(2)
The Company’s Regulated Solar and Wind segment and wind operations in Portugal and Uruguay were added in the second quarter of 2018, upon acquiring a controlling interest in Saeta (as defined below in Note 4. Acquisitions).

4. ACQUISITIONS

Saeta Acquisition

On February 7, 2018, the Company announced that it intended to launch a voluntary tender offer (the “Tender Offer”) to acquire 100% of the outstanding shares of Saeta Yield S.A.U. (“Saeta” or “European Platform”, as the context may require) a Spanish renewable power company with then 1,028 MW of wind and solar facilities (approximately 250 MW of solar and 778 MW of wind) located primarily in Spain. The Tender Offer was for 12.20 in cash per share of Saeta. On June 8, 2018, the Company announced that Spain’s National Securities Market Commission confirmed an over 95% acceptance of shares of Saeta in the Tender Offer (the “Tendered Shares”). On June 12, 2018, the Company completed the acquisition of the Tendered Shares for total aggregate consideration of $1.12 billion and the assumption of $1.91 billion of project-level debt. Having acquired 95.28% of the shares of Saeta, the Company then pursued a statutory squeeze out procedure under Spanish law to procure the remaining approximately 4.72% of the shares of Saeta for $54.6 million.

The Company funded the $1.12 billion purchase price of the Tendered Shares with $650.0 million of proceeds from the private placement of its Class A common stock to Orion Holdings and BBHC Orion Holdco L.P. (both affiliates of Brookfield), along with approximately $471.0 million from its existing liquidity, including (i) the proceeds of a $30.0 million draw on its Sponsor Line (as defined in Note 17. Related Parties), (ii) a $359.0 million as part of a draw on the Company’s Revolver (as defined in Note 10. Long-term Debt), and (iii) approximately $82.0 million of cash on hand. The Company funded the purchase of the remaining approximately 4.72% non-controlling interest in Saeta using $54.6 million of the total proceeds from an additional draw on its Sponsor Line.


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The Company accounted for the acquisition of Saeta under the acquisition method of accounting for business combinations. The final accounting for the Saeta acquisition has not been completed because the evaluation necessary to assess the fair values of acquired assets and assumed liabilities is still in process. The preliminary allocation of the acquisition-date fair values of assets, liabilities and redeemable non-controlling interests pertaining to this business combination as of March 31, 2019, were as follows:
(In thousands)
 
As of June 12, 2018, reported at March 31, 2019
Renewable energy facilities in service
 
$
1,993,520

Accounts receivable
 
91,343

Intangible assets
 
1,034,176

Goodwill
 
123,106

Other assets
 
43,402

Total assets acquired
 
3,285,547

Accounts payable, accrued expenses and other current liabilities
 
93,032

Long-term debt, including current portion
 
1,906,831

Deferred income taxes
 
171,373

Asset retirement obligations
 
67,706

Derivative liabilities, including current portion
 
137,002

Other long-term liabilities
 
23,002

Total liabilities assumed
 
2,398,946

Redeemable non-controlling interests1
 
55,117

Purchase price, net of cash and restricted cash acquired2
 
$
831,484

———
(1)
The fair value of the non-controlling interest was determined using a market approach using a quoted price for the instrument. As discussed above, the Company acquired the remaining shares of Saeta pursuant to a statutory squeeze out procedure under Spanish law, which closed on July 2, 2018. The quoted price for the purchase of the non-controlling interest is the best indicator of fair value and was supported by a discounted cash flow technique.
(2)
The Company acquired cash and cash equivalents of $187.2 million and restricted cash of $95.1 million as of the acquisition date.

The acquired non-financial assets primarily represent estimates of the fair value of acquired renewable energy facilities and intangible assets from concession and license agreements using the cost and income approach. Key inputs used to estimate fair value included forecasted power pricing, operational data, asset useful lives, and a discount rate factor reflecting current market conditions at the time of the acquisition. These significant inputs are not observable in the market and thus represent Level 3 measurements (as defined in Note 13. Fair Value of Financial Instruments). Refer below for additional disclosures related to the acquired finite-lived intangible assets.
    
The excess of the purchase price over the estimated fair value of the net assets acquired was recorded as goodwill. As of the date of these unaudited financial statements, the analysis of the fair values of renewable energy facilities, intangible assets, asset retirement obligations, long-term debt and deferred income taxes have yet to be completed. The additional information needed by the Company to finalize the measurement of these provisional amounts include the assessment of the estimated removal costs and salvage values of renewable energy facilities, credit spreads of non-recourse project debt and additional information related to the renewable energy tariff system in certain markets. The provisional amounts for this business combination are subject to revision until these evaluations are completed.

The results of operations of Saeta are included in the Company’s consolidated results since the date of acquisition. The operating revenues and net loss of Saeta reflected in the unaudited condensed consolidated statements of operations for the three months ended March 31, 2019 were $93.6 million and $4.0 million, respectively.









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Intangibles at Acquisition Date
    
The following table summarizes the estimated fair value and weighted average amortization period of acquired intangible assets as of the acquisition date for Saeta. The Company attributed intangible asset value to concessions and licensing agreements in-place from solar and wind facilities. These intangible assets are amortized on a straight-line basis over the estimated remaining useful lives of the facilities from the Company’s acquisition date.
 
 
As of June 12, 2018
 
 
Fair Value (In thousands)
 
Weighted Average Amortization Period (In years)1
Intangible assets - concession and licensing contracts

 
$
1,034,176

 
15 years
———
(1)