Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - TerraForm Power NY Holdings, Inc.Financial_Report.xls
EX-32 - EXHIBIT 32 - TerraForm Power NY Holdings, Inc.terraform-3312015xexhibit32.htm
EX-31.2 - EXHIBIT 31.2 - TerraForm Power NY Holdings, Inc.terraform-3312015xexhibit312.htm
EX-31.1 - EXHIBIT 31.1 - TerraForm Power NY Holdings, Inc.terraform-3312015xexhibit311.htm

 
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, 2015
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
 ______________________________________________________________
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.)
 
 
 
7550 Wisconsin Avenue, 9th Floor, Bethesda, Maryland
 
20814
(Address of principal executive offices)
 
(Zip Code)
240-762-7700
(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.    x  Yes    o  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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 or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
o
  
Accelerated filer
 
o
 
 
 
 
Non-accelerated filer
 
x (Do not check if a smaller reporting company)
  
Smaller reporting company
 
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
As of May 1, 2015, there were 56,301,690 shares of Class A common stock outstanding, 62,726,654 shares of Class B common stock outstanding, and 5,490,000 shares of Class B1 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
 





PART I - Financial Information

Item 1. Financial Statements.

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

 
Three Months Ended March 31,
 
2015
 
2014
Operating revenues, net
$
70,515

 
$
11,880

Operating costs and expenses:
 
 
 
Cost of operations
16,820

 
460

Cost of operations - affiliate
3,643

 
352

General and administrative
9,939

 
98

General and administrative - affiliate
6,027

 
1,590

Acquisition and related costs
13,722

 

Acquisition and related costs - affiliate
436

 

Depreciation, accretion and amortization
31,891

 
3,241

Total operating costs and expenses
82,478

 
5,741

Operating (loss) income
(11,963
)
 
6,139

Other expenses:
 
 
 
Interest expense, net
36,855

 
7,082

Loss on extinguishment of debt, net
20,038

 

Loss on foreign currency exchange, net
14,369

 
595

Other, net
480

 

Total other expenses, net
71,742

 
7,677

Loss before income tax benefit
(83,705
)
 
(1,538
)
Income tax benefit
(45
)
 
(457
)
Net loss
(83,660
)
 
(1,081
)
Less: Predecessor loss prior to initial public offering on July 23, 2014

 
(720
)
Less: Net loss attributable to redeemable non-controlling interests
(169
)
 

Less: Net loss attributable to non-controlling interests
(55,375
)
 
(361
)
Net loss attributable to TerraForm Power, Inc. Class A common stockholders
$
(28,116
)
 
$

 
 
 
 
Weighted average number of shares:
 
 
 
Class A common stock - Basic and diluted
49,694

 
 
Loss per share:
 
 
 
Class A common stock - Basic and diluted
$
(0.57
)
 
 


See accompanying notes to consolidated financial statements.

3


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

 
 
Three Months Ended March 31,
 
 
2015
 
2014
Net loss
 
$
(83,660
)
 
$
(1,081
)
Other comprehensive loss, net of tax:
 
 
 
 
Foreign currency translation adjustments:
 
 
 
 
Net unrealized losses arising during the period
 
(3,275
)
 

Hedging activities:
 
 
 
 
Net unrealized losses arising during the period
 
(2,248
)
 

Reclassification of net losses into earnings
 
2,857

 

Other comprehensive loss, net of tax
 
(2,666
)
 

Total comprehensive loss
 
(86,326
)
 
(1,081
)
Less: Predecessor comprehensive loss prior to initial public offering on July 23, 2014
 

 
(3,391
)
Less: comprehensive loss attributable to non-controlling interests
 
 
 
 
Net loss attributable to non-controlling interests
 
(55,375
)
 
(361
)
Foreign currency translation adjustments
 
(1,862
)
 

Hedging activities
 
168

 

Comprehensive loss attributable to non-controlling interests
 
(57,069
)
 
(361
)
Comprehensive loss attributable to TerraForm Power, Inc. Class A stockholders
 
$
(29,257
)
 
$
2,671



See accompanying notes to consolidated financial statements.


4


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

ASSETS
March 31, 2015
 
December 31, 2014
Current assets:
 
 
 
Cash and cash equivalents
$
153,423

 
$
468,554

Restricted cash, including consolidated variable interest entities of $25,022 and $39,898 in 2015 and 2014, respectively
78,076

 
70,545

Accounts receivable, including consolidated variable interest entities of $25,650 and $16,921 in 2015 and 2014, respectively
58,258

 
31,986

Due from SunEdison and affiliates, net
18,155

 

Prepaid expenses and other current assets
29,274

 
22,620

Total current assets
337,186

 
593,705

 
 
 
 
Property and equipment, net, including consolidated variable interest entities of $1,539,607 and $1,466,223 in 2015 and 2014, respectively
3,429,630

 
2,554,904

Intangible assets, net, including consolidated variable interest entities of $234,954 and $259,004 in 2015 and 2014, respectively
454,928

 
361,673

Deferred financing costs, net
51,359

 
42,113

Deferred income taxes
87

 
4,606

Other assets
92,428

 
29,419

Total assets
$
4,365,618

 
$
3,586,420



See accompanying notes to consolidated financial statements.

5


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

LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, 2015
 
December 31, 2014
Current liabilities:
 
 
 
Current portion of long-term debt and financing lease obligations, including consolidated variable interest entities of $20,986 and $20,907 in 2015 and 2014, respectively
$
229,517

 
$
84,104

Accounts payable, accrued expenses and other current liabilities, including consolidated variable interest entities of $27,060 and $27,284 in 2015 and 2014, respectively
81,146

 
82,605

Deferred revenue, including consolidated variable interest entities of $14,140 and $12,941 in 2015 and 2014, respectively
23,242

 
21,989

Due to SunEdison and affiliates, net

 
153,052

Total current liabilities
333,905

 
341,750

Other liabilities:
 
 
 
Long-term debt and financing lease obligations, less current portion, including consolidated variable interest entities of $621,336 and $620,853 in 2015 and 2014, respectively
1,965,161

 
1,568,517

Deferred revenue, including consolidated variable interest entities of $57,413 and $51,943 in 2015 and 2014, respectively
57,413

 
52,081

Deferred income taxes
5,983

 
7,702

Asset retirement obligations, including consolidated variable interest entities of $43,151 and $32,181 in 2015 and 2014, respectively
117,966

 
76,111

Other long-term liabilities
3,976

 

Total liabilities
2,484,404

 
2,046,161

 
 
 
 
Redeemable non-controlling interests
25,204

 
24,338

Stockholders' equity:
 
 
 
Preferred stock, $0.01 par value, 50,000 shares authorized, none issued and outstanding in 2015 and 2014

 

Class A common stock, $0.01 par value per share, 850,000 shares authorized, 55,952 and 42,218 issued and outstanding in 2015 and 2014, respectively.
535

 
387

Class B common stock, $0.01 par value per share, 140,000 shares authorized, 62,727 and 64,526 issued and outstanding in 2015 and 2014, respectively.
627

 
645

Class B1 common stock, $0.01 par value per share: 260,000 shares authorized, 5,840 issued and outstanding in 2015 and 2014
58

 
58

Additional paid-in capital
758,518

 
497,556

Accumulated deficit
(53,733
)
 
(25,617
)
Accumulated other comprehensive loss
(2,609
)
 
(1,637
)
Total TerraForm Power stockholders' equity
703,396

 
471,392

Non-controlling interests
1,152,614

 
1,044,529

Total stockholders' equity
1,856,010

 
1,515,921

Total liabilities, non-controlling interests and stockholders' equity
$
4,365,618

 
$
3,586,420



See accompanying notes to consolidated financial statements.

6





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

 
Controlling Interest
 
Non-controlling Interests
 
 
 
Preferred Stock
 
Class A Common Stock
 
Class B Common Stock
 
Class B1 Common Stock
 
Additional Paid-in Capital
 
Accumulated Deficit
 
Accumulated Other Comprehensive Income (Loss)
 
 
 
 
 
Accumulated Deficit
 
Accumulated Other Comprehensive Income (Loss)
 
 
 
Total Equity
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Total
 
Capital
 
 
 
Total
 
Balance at January 1, 2015

 
$

 
42,218

 
$
387

 
64,526

 
$
645

 
5,840

 
$
58

 
$
497,556

 
$
(25,617
)
 
$
(1,637
)
 
$
471,392

 
$
1,092,809

 
$
(44,451
)
 
$
(3,829
)
 
$
1,044,529

 
$
1,515,921

Issuance of Class A common stock related to the public offering, net of issuance costs

 

 
13,800

 
138

 
(1,799
)
 
(18
)
 

 

 
342,072

 

 

 
342,192

 

 

 

 

 
342,192

Stock-based compensation

 

 

 

 

 

 

 

 
5,144

 

 

 
5,144

 

 

 

 

 
5,144

Net loss (1)

 

 

 

 

 

 

 

 

 
(28,116
)
 

 
(28,116
)
 

 
(55,375
)
 

 
(55,375
)
 
(83,491
)
Forfeitures of restricted stock

 

 
(66
)
 
(1
)
 

 

 

 

 
1

 

 

 

 

 

 

 

 

Vesting of restricted stock

 

 

 
11

 

 

 

 

 
(11
)
 

 

 

 

 

 

 

 

Dividends

 

 

 

 

 

 

 

 
(15,125
)
 

 

 
(15,125
)
 

 

 

 

 
(15,125
)
Consolidation of non-controlling interests in acquired projects

 

 

 

 

 

 

 

 

 

 

 

 
114,442

 

 

 
114,442

 
114,442

Repurchase of non-controlling interest

 

 

 

 

 

 

 

 

 

 

 

 
(54,694
)
 

 

 
(54,694
)
 
(54,694
)
Contributions from SunEdison

 

 

 

 

 

 

 

 
22,872

 

 

 
22,872

 
30,148

 

 

 
30,148

 
53,020

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 
(972
)
 
(972
)
 

 

 
(1,694
)
 
(1,694
)
 
(2,666
)
Sale of membership interests in projects

 

 

 

 

 

 

 

 

 

 

 

 
10,096

 

 

 
10,096

 
10,096

Distributions to non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 
(28,829
)
 

 

 
(28,829
)
 
(28,829
)
Equity Reallocation

 

 

 

 

 

 

 

 
(93,991
)
 

 

 
(93,991
)
 
93,991

 

 

 
93,991

 

Balance at March 31, 2015

 
$

 
55,952

 
$
535

 
62,727

 
$
627

 
5,840

 
$
58

 
$
758,518

 
$
(53,733
)
 
$
(2,609
)
 
$
703,396

 
$
1,257,963

 
$
(99,826
)
 
$
(5,523
)
 
$
1,152,614

 
$
1,856,010

———
(1) Excludes net loss attributable to redeemable non-controlling interests


See accompanying notes to consolidated financial statements.

7


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

 
Three Months Ended March 31,
2015
 
2014
Cash flows from operating activities:
 
 
 
Net loss
$
(83,660
)
 
$
(1,081
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 
 
 
Non-cash incentive revenue
(647
)
 
(127
)
Non-cash interest expense
317

 
81

Stock compensation expense
5,144

 

Depreciation, accretion and amortization
31,891

 
3,241

Amortization of intangible assets
(336
)
 

Amortization of deferred financing costs and debt discounts
7,709

 
488

Recognition of deferred revenue
(73
)
 
(64
)
Loss on extinguishment of debt
20,038

 

Unrealized loss on derivatives
4,302

 

Unrealized loss on foreign currency exchange
14,369

 
595

Deferred taxes

 
(451
)
Other, net
881

 
(348
)
Changes in assets and liabilities:
 
 
 
Accounts receivable
(20,985
)
 
(7,507
)
Prepaid expenses and other current assets
4,420

 
(7,470
)
Accounts payable, accrued interest, and other current liabilities
417

 
18,112

Deferred revenue
6,658

 
1,577

Due to SunEdison and affiliates
(390
)
 
(27,657
)
Restricted cash from operating activities
(664
)
 

Net cash used in operating activities
(10,609
)
 
(20,611
)
Cash flows from investing activities:
 
 
 
Cash paid to third parties for renewable energy facility construction
(82,758
)
 
(103,047
)
Other investments
(10,000
)
 

Acquisitions of renewable energy facilities from third parties, net of cash acquired
(810,720
)
 
(14,211
)
Due to SunEdison and affiliates
(15,079
)
 

Change in restricted cash
494

 
19,855

Net cash used in investing activities
$
(918,063
)
 
$
(97,403
)


See accompanying notes to consolidated financial statements.











8


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

 
Three Months Ended March 31,
2015
 
2014
Cash flows from financing activities:
 
 
 
Proceeds from issuance of Class A common stock
$
342,192

 
$

Change in restricted cash for principal debt service

 
538

Proceeds from Senior Notes
793,712

 

Repayment of term loan
(573,500
)
 

Borrowings of long-term debt
275,987

 
314,169

Principal payments on long-term debt
(2,910
)
 
(568
)
Due to SunEdison and affiliates, net
(148,998
)
 
4,514

Contributions from non-controlling interests
10,497

 
545

Distributions to non-controlling interests
(12,884
)
 

Repurchase of non-controlling interest
(54,694
)
 

Distributions to SunEdison and affiliates
(16,659
)
 

Net SunEdison investment
53,020

 
35,529

Payment of dividends
(15,125
)
 

Debt prepayment premium
(6,429
)
 

Payment of deferred financing costs
(30,667
)
 
(15,267
)
Net cash provided by financing activities
613,542

 
339,460

Net decrease in cash and cash equivalents
(315,130
)
 
221,446

Effect of exchange rate changes on cash and cash equivalents
(1
)
 

Cash and cash equivalents at beginning of period
468,554

 
1,044

Cash and cash equivalents at end of period
$
153,423

 
$
222,490

 
 
 
 
Supplemental Disclosures:
 
 
 
Cash paid for interest, net of amounts capitalized of $641 and $1,961, respectively
$
12,497

 
$

Cash paid for income taxes
$

 
$

Schedule of non-cash activities:
 
 
 
Additions of asset retirement obligation (ARO) assets and liabilities
$
23,815

 
$

ARO assets and obligations from acquisitions
$
17,705

 
$

Principal payments on long-term debt from solar renewable energy certificates
$
330

 
$

Long-term debt assumed in connection with acquisitions
$
59,816

 
$



See accompanying notes to consolidated financial statements.


9

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



1. NATURE OF OPERATIONS

TerraForm Power, Inc. (the "Company") is a subsidiary of SunEdison, Inc. ("SunEdison"). The accompanying unaudited consolidated financial statements have been prepared in accordance with the Securities and Exchange Commission’s, or SEC’s, regulations for interim financial information. Accordingly, they do not include all of the information and notes required by U.S. generally accepted accounting principles ("U.S. GAAP") for complete financial statements. The following notes 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, 2014. Interim results are not necessarily indicative of results for a full year.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all material adjustments consisting of normal and recurring accruals necessary to present fairly the Company's unaudited consolidated financial position as of March 31, 2015, and the results of operations, comprehensive income and cash flows for the three months ended March 31, 2015, and 2014.

    
2. BASIS OF PRESENTATION

When renewable energy facilities are acquired from SunEdison, the Company is required to recast its historical financial statements to reflect the assets and liabilities and the results of operations of the acquired renewable energy facilities for the period it was owned by SunEdison in accordance with rules applicable to transactions between entities under common control. During the first quarter of 2015, the Company acquired 19 solar energy facilities with a combined nameplate capacity of 161.1 MW from SunEdison, which resulted in a recast of the balance sheet as of December 31, 2014, and the related statement cash flows for the year ended December 31, 2014. The facilities were not in operations in 2014 and there was no impact to the statement of operations or accumulated other comprehensive loss for the year ended December 31, 2014.

The following table presents the changes to previously reported amounts of the Company's consolidated balance sheet as of December 31, 2014 included in the Company's Annual Report on Form 10-K:
(In thousands)
Balance Sheet Caption
 
December 31, 2014 As Reported
 
Acquired Call Rights Projects
 
December 31, 2014 Recast
Cash and cash equivalents
 
$
468,393

 
$
161

 
$
468,554

Due from SunEdison and affiliates, net
 
19,640

 
(19,640
)
 

Prepaid expenses and other current assets
 
21,840

 
780

 
22,620

Property and equipment, net
 
2,327,803

 
227,101

 
2,554,904

Change in total assets
 

 
$
208,402

 

 
 
 
 
 
 
 
Current portion of long-term debt
 
$
80,133

 
$
3,971

 
$
84,104

Accounts payable, accrued expenses and other current liabilities
 
81,781

 
824

 
82,605

Due to SunEdison and affiliates, net
 

 
153,052

 
153,052

Long-term debt and financing lease obligations, less current portion
 
1,517,962

 
50,555

 
1,568,517

Change in total liabilities
 

 
$
208,402

 



10


The following table presents the changes to previously reported amounts of the Company's consolidated statement of cash flows for the year ended December 31, 2014, included in the Company's Annual Report on Form 10-K:
(In thousands)
Cash Flows Caption
 
December 31, 2014 As Reported
 
Acquired Call Rights Projects
 
December 31, 2014 Recast
Changes in assets and liabilities:
 
 
 
 
 
 
VAT receivable, prepaid expenses and other current assets
 
$
23,730

 
$
(819
)
 
$
22,911

Accounts payable, accrued interest, and other current liabilities
 
3,371

 
865

 
4,236

Cash flows from investing activities:
 
 
 
 
 
 
Cash paid to SunEdison and third parties for solar generation facility construction
 
(816,682
)
 
(236,189
)
 
(1,052,871
)
Deposit for acquisition of Call Right Projects
 
(34,000
)
 
34,000

 

Cash flows from financing activities:
 
 
 
 
 
 
Borrowings of long-term debt
 
399,806

 
62,111

 
461,917

Principal payments on long-term debt
 
(341,336
)
 
1,766

 
(339,570
)
Net increase in cash and cash equivalents
 
467,513

 
427

 
467,940

Effect of exchange rate changes on cash and cash equivalents
 
(164
)
 
(266
)
 
(430
)
Cash and cash equivalents at end of period
 
468,393

 
161

 
468,554


The amounts previously reported in the Company's consolidated statement of cash flows for the three months ended March 31, 2014 have been recast to reflect a $4,514 increase in cash paid to SunEdison and third parties within cash flows from investing activities and $4,514 of cash proceeds from SunEdison and affiliates within financing activities. The facilities were not in operations during 2014 and there was no impact to the statement of operations or accumulated other comprehensive loss for the three months ended March 31, 2014.

11

TERRAFORM POWER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

In preparing the unaudited consolidated financial statements, the Company used estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements. Such estimates also affect the reported amounts of revenues, expenses and cash flows during the reporting period. Actual results may differ from estimates under different assumptions or conditions.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. This standard will become effective for us on January 1, 2018. Early application is permitted but not before January 1, 2017. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is currently evaluating the effect that ASU No. 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method or determined the effect of the standard on its ongoing financial reporting.

In February 2015, the FASB issued ASU No. 2015-02 Consolidation (Topic 810) Amendments to the Consolidation Analysis, which affects the following areas of the consolidation analysis: limited partnerships and similar entities, evaluation of fees paid to a decision maker or service provider as a variable interest and in determination of the primary beneficiary, effect of related parties on the primary beneficiary determination and for certain investment funds. ASU No. 2015-02 is effective for us for our fiscal year ending December 31, 2016 and interim periods therein. We are evaluating the impact of this standard on our consolidated statements of financial position, results of operations and cash flows.

In April 2015, the FASB issued ASU No. 2015-03 Interest - Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs related to a recognized debt liability to be presented on the balance sheet as a direct deduction from the debt liability. ASU No. 2015-03 is effective for us for our fiscal year ending December 31, 2016 and interim periods therein. We are evaluating the impact of this standard on our consolidated balance sheet.

. 4. ACQUISITIONS

2015 Acquisitions

Acquisition of First Wind

On January 29, 2015, the Company, through Terra LLC, acquired from First Wind Holdings, LLC (together with its subsidiaries, “First Wind”) 521.1 MW of operating power assets, including 500.0 MW of wind power assets and 21.1 MW of solar power assets (the “First Wind acquisition”). The operating power assets the Company acquired are located in Maine, New York, Hawaii, Vermont and Massachusetts. The purchase price for this acquisition was $810.4 million, net of cash acquired. The initial accounting for this acquisition is not complete because the evaluation necessary to assess the fair values of certain net assets acquired is still in process. The provisional amounts for this acquisition, included in the table within the "Acquisition Accounting" section of this footnote below, are subject to revision until the evaluations are completed.

The operating revenues and net loss of the acquired facilities reflected in the accompanying unaudited consolidated statement of operations for the three months ended March 31, 2015 were $22.1 million and $6.2 million, respectively.

The following unaudited pro forma supplementary data presented in the table below gives effect to the 2014 Acquisitions as if the transactions had occurred on January 1, 2013 and the First Wind Acquisition as if the transaction had occurred on January 1, 2014. The pro forma supplementary data is provided for informational purposes only and should not be construed to be indicative of the Company’s results of operations had the acquisitions been consummated on the date assumed or of the Company’s results of operations for any future date.

12

TERRAFORM POWER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 
Three Months Ended March 31,
(In thousands, unaudited)
2015
 
2014
Total operating revenues, net
$
39,851

 
$
58,281

Net loss
6,987

 
21,987


Acquisition costs, including amounts for affiliates, related to the transactions above were $14.2 million for the three months ended March 31, 2015 and are reflected as acquisition and related costs in the accompanying unaudited consolidated statements of operations. There were no acquisition costs for the three months ended March 31, 2014.

Acquisition of Atlantic Power Corporation wind power plants

On March 31, 2015, the Company signed a definitive agreement to acquire 521.0 MW of operating wind power assets located in Idaho and Oklahoma from Atlantic Power Corporation, for total cash consideration of $350.0 million. The assets are contracted under long term PPAs with investment grade utilities with a weighted-average credit rating of A3 and a weighted-average remaining life of 18 years. The Company is pursuing funding for the acquisition through a drop down warehouse facility in partnership with third party equity investors and SunEdison. The assets would initially be acquired by the warehouse and the Company would be offered call rights to acquire the assets in the future.

2014 Acquisitions

Final

During the year ended December 31, 2014, the Company through various transactions, acquired the following renewable energy facilities: Nellis, CalRENEW-1, Atwell Island, Summit Solar Projects and MA Operating. The acquisition accounting for the acquisitions of these facilities was completed as of March 31, 2015, at which point the provisional fair values became final. The final estimated fair value of assets, liabilities and non-controlling interests is included in the table within the "Acquisition Accounting" section of this footnote below and reflects no material changes except for the following reallocations: a decrease to property and equipment of $4.9 million, an increase to intangible assets of $3.2 million, a decrease to accounts payable of $2.5 million and a total decrease for all other accounts of $0.7 million.

Preliminary

During the year ended December 31, 2014, the Company through various transactions, acquired the following renewable energy facilities: Stonehenge Operating Projects, Mt. Signal, Hudson Energy and Capital Dynamics. The initial accounting for these acquisitions is not complete because the evaluation necessary to assess the fair values of certain net assets acquired is still in process. The provisional amounts for these acquisitions, included in the table within the "Acquisition Accounting" section of this footnote below, are subject to revision until the evaluations are completed.

13

TERRAFORM POWER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


Acquisition Accounting

The estimated fair values of assets, liabilities and non-controlling interests as of March 31, 2015, are as follows:
 
2015 Preliminary
 
2014 Preliminary
 
2014 Final
 
Total Allocation
(In thousands)
First Wind
 
Mt. Signal
 
Capital Dynamics
 
Other
 
Other
 
Property and equipment
$
803,103

 
$
649,005

 
$
216,771

 
$
102,788

 
$
150,934

 
$
1,922,601

Accounts receivable
9,378

 
11,617

 
2,309

 
7,100

 
2,380

 
32,784

Restricted cash
6,630

 
22,165

 
15

 
5,564

 
9,156

 
43,530

Deferred income taxes

 

 
21,118

 

 

 
21,118

Other assets
68,671

 
12,621

 
1,490

 
1,455

 
3,896

 
88,133

Intangible assets
125,671

 
117,925

 
71,859

 
21,656

 
105,361

 
442,472

Total assets acquired
1,013,453

 
813,333

 
313,562

 
138,563

 
271,727

 
2,550,638

Long-term debt
59,816

 
413,464

 

 
65,084

 
72,930

 
611,294

Accounts payable, accrued expenses and other current liabilities
9,934

 
24,813

 
1,194

 
3,499

 
1,286

 
40,726

Asset retirement obligations
12,403

 
4,656

 
13,073

 
6,622

 
10,752

 
47,506

Deferred income taxes

 

 
25,191

 
990

 

 
26,181

Total liabilities assumed
82,153

 
442,933

 
39,458

 
76,195

 
84,968

 
725,707

Non-controlling interest
120,864

 
78,745

 
16,600

 
2,850

 
1,400

 
220,459

Purchase price, net of cash acquired
$
810,436

 
$
291,655

 
$
257,504

 
$
59,518

 
$
185,359

 
$
1,604,472


The acquired renewable energy facilities' non-financial assets represent estimates of the fair value of acquired power purchase agreements (PPAs) based on significant inputs that are not observable in the market and thus represent a Level 3 measurement. The estimated fair values were determined based on an income approach and the estimated useful lives of the intangible assets range from 10 to 25 years. See Note 6. Intangible Assets for additional disclosures related to the acquired intangible assets.

Acquisitions of Call Right Projects

The assets and liabilities transferred to the Company for the acquisitions listed below relate to interests under common control with SunEdison and accordingly, were recorded at historical cost basis. The difference between the cash purchase price and historical cost basis of the net assets acquired was recorded as a distribution to SunEdison and reduced the balance of its non-controlling interest.

Acquisition of U.K. Call Right Projects

During March 2015, the Company acquired eleven renewable energy facilities including an extension to our Crundale facility. The facilities are located in England and Wales and have a combined nameplate capacity of 152.1 MW. The Company paid $81.9 million in cash and assumed $174.3 million of short-term financing to acquire these renewable energy facilities from subsidiaries of SunEdison in a series of transactions. The extension was acquired by the Company exercising its option to acquire a 5.9 MW solar expansion under the terms of the amended engineering, procurement and construction contract. The remaining acquired facilities were Call Right Projects pursuant to the Support Agreement with SunEdison, see further discussion in Note 17. Related Parties.

Additions to DG 2014 Portfolio 1 and DG 2015 Portfolio 2

During the three months ended March 31, 2015, the Company acquired additional renewable energy facilities within the DG 2014 Portfolio 1 and the DG 2015 Portfolio 2, totaling 6.2 MW and 8.8 MW, respectively. As of March 31, 2015, the Company had paid the initial amounts due of $18.0 million to acquire these renewable energy facilities from subsidiaries of SunEdison in a series of transactions and assumed $1.9 million of revolving debt. The Company estimates that the final

14

TERRAFORM POWER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

amounts due for these acquisitions will be $8.7 million, which are scheduled to be paid during the second quarter of 2015. The acquired facilities were Call Right Projects pursuant to the Support Agreement with SunEdison.

The following table is a summary of assets and liabilities acquired from SunEdison in connection with these Call Right Projects:
(in thousands)
 
As of March 31, 2015
Current assets
 
$
19,424

Property, plant and equipment
 
274,685

Non-current assets
 
24,912

Total assets acquired
 
319,021

Long-term debt
 
174,467

Other liabilities
 
71,592

Total liabilities assumed
 
246,059

Net assets acquired
 
$
72,962

Cash Paid
 
$
89,621

Adjustments to equity reflected as distribution to non-controlling interests
 
16,659


Subsequent Events

Acquisitions of Call Right Projects

On April 28, 2015, the Company acquired a solar energy facility within the DG 2015 Portfolio 2 with a nameplate capacity of 3.2 MW. The Company paid the initial amount due of $2.3 million to acquire this facility from subsidiaries of SunEdison. The Company estimates that the final amount due for this acquisition will be $3.9 million, which is scheduled to be paid during the second quarter of 2015.The acquired facility was a Call Right Project pursuant to the Support Agreement with SunEdison.

On April 29, 2015, the Company acquired two additional solar energy facilities with a combined nameplate capacity of 23.5 MW which are located in England. The Company paid $9.8 million in cash and assumed $31.2 million of construction debt to acquire these renewable energy facilities from subsidiaries of SunEdison. The acquired facilities were Call Right Projects pursuant to the Support Agreement with SunEdison.

5. PROPERTY AND EQUIPMENT

Property and equipment, net consists of the following: 
 
 
March 31, 2015
 
December 31, 2014
(In thousands)
 
 
 
 
Renewable energy facilities
 
$
3,404,264

 
$
2,220,401

Less accumulated depreciation - renewable energy facilities
 
(74,957
)
 
(50,080
)
Property and equipment, net
 
3,329,307

 
2,170,321

Construction in progress - renewable energy facilities
 
100,323

 
384,583

Total property and equipment
 
$
3,429,630

 
$
2,554,904


The Company recorded depreciation expense related to property and equipment of $25.1 million and $3.1 million for the three months ended March 31, 2015 and 2014, respectively. Construction in progress represents $100.3 million of costs incurred to complete the construction of the facilities in the Company's current portfolio that were either contributed to the Company by SunEdison or acquired from SunEdison.

When projects are contributed or sold to the Company after completion by SunEdison, the Company retroactively recasts its historical financial statements to present the construction activity as if it consolidated the facility at inception of the

15

TERRAFORM POWER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

construction. All construction in progress costs are stated at SunEdison's historical cost. These costs include capitalized interest costs and amortization of deferred financing costs incurred during the asset's construction period, which totaled $641 and $2,110 for the three months ended March 31, 2015 and 2014, respectively.

6. INTANGIBLE ASSETS

The following table presents the gross carrying amount and accumulated amortization of intangible assets as of March 31, 2015:
(In thousands, except weighted average amortization period)
 
Weighted Average Amortization Period
 
Gross Carrying Amount
 
Accumulated Amortization
 
Accumulated Currency Translation Adjustment
 
Net Book Value
Energy revenue contracts
 
20 years
 
$
463,636

 
$
(5,329
)
 
$
(3,379
)
 
$
454,928

    
The following table presents the gross carrying amount and accumulated amortization of intangible assets as of December 31, 2014:
(In thousands, except weighted average amortization period)
 
Weighted Average Amortization Period
 
Gross Carrying Amount
 
Accumulated Amortization
 
Accumulated Currency Translation Adjustment
 
Net Book Value
Energy revenue contracts
 
21 years
 
$
371,765

 
$
(6,169
)
 
$
(3,923
)
 
$
361,673

    
As of March 31, 2015, the Company had energy revenue contracts representing long-term electricity sales agreements that were obtained through acquisitions (see Note. 4 Acquisitions). Energy revenue contracts are amortized on a straight-line basis over the remaining life of the agreements, which range from 10 to 25 years. Amortization expense related to the energy revenue contracts is recorded on the unaudited consolidated statements of operations as either a reduction or increase of energy revenue when the contract rate is above or below market rates or within depreciation, accretion and amortization expense when the contract rate is equal to market rates. Amortization expense was $5,329 during the three months ended March 31, 2015, $336 of which was an increase in energy revenue and $5,665 of which was recorded as depreciation, accretion and amortization expense in the accompanying unaudited consolidated statement of operations. There was no amortization expense during the three months ended March 31, 2014.

7. VARIABLE INTEREST ENTITIES

The Company is the primary beneficiary of ten VIEs in renewable energy facilities that were consolidated as of March 31, 2015, nine of which existed and were consolidated as of December 31, 2014. The VIEs own and operate renewable energy facilities in order to generate contracted cash flows. The VIEs were funded through a combination of equity contributions from the owners and non-recourse, project-level debt. No VIEs were deconsolidated during the three months ended March 31, 2015 and 2014.

The carrying amounts and classification of the consolidated VIEs’ assets and liabilities included in the Company's unaudited consolidated balance sheet are as follows:
(In thousands)
 
March 31, 2015
 
December 31, 2014
     Current assets
 
$
64,973

 
$
69,955

     Noncurrent assets
 
1,803,709

 
1,756,276

Total assets
 
$
1,868,682

 
$
1,826,231

     Current liabilities
 
$
57,898

 
$
64,324

     Noncurrent liabilities
 
729,644

 
707,989

Total liabilities
 
$
787,542

 
$
772,313


The amounts shown above in the table exclude any potential VIEs under the First Wind acquisition as we have not completed the accounting related to this business combination. All of the assets in the table above are restricted for settlement of the VIE obligations, and all of the liabilities in the table above can only be settled by using VIE resources.

16

TERRAFORM POWER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


8. LONG-TERM DEBT
    
Long-term debt consists of the following: 
(in thousands, except rates)

Description:
 
March 31, 2015
 
December 31, 2014
 
Interest Type
 
Current Interest Rate %
 
Financing Type
Corporate-level long-term debt:
 
 
 
 
 
 
 
 
 
 
Term Loan, due 2019
 
$

 
$
573,500

 
Variable
 
5.3 (1)
 
Term debt
Senior Notes, due 2023
 
800,000

 

 
Fixed
 
5.9
 
Senior notes
Revolver
 
150,000

 

 
Variable
 
2.7
 
Revolving loan
Project-level long-term debt:
 
 
 
 
 
 
 
 
 
 
Permanent financing
 
882,865

 
886,149

 
(2)
 
6.1 (3)
 
Term debt / Senior notes
Construction financing
 
212,072

 
97,518

 
Variable
 
2.9 (3)
 
Construction debt
Financing lease obligations
 
154,716

 
93,981

 
Imputed
 
5.1 (3)
 
Financing lease obligations
Total Principal long-term debt and financing lease obligations
 
$
2,199,653

 
$
1,651,148

 
 
 
5.9 (3)
 
 
Less current maturities
 
(229,517
)
 
(84,104
)
 
 
 
 
 
 
Net unamortized (discount) premium
 
(4,975
)
 
1,473

 
 
 
 
 
 
Long-term debt and financing lease obligations, less current portion
 
$
1,965,161

 
$
1,568,517

 
 
 
 
 
 
———
(1) The Company entered into an interest rate swap agreement (see Note 10. Derivatives) fixing the interest rate at 5.33%, which was terminated upon repayment of the Term Loan.
(2) Includes debt at variable or fixed interest rates. As of March 31, 2015, 38% of this balance had a variable interest rate and 62% of this balance had a fixed interest rate.
(3) Represents the weighted average effective interest rate as of March 31, 2015.

Corporate-level Financing Arrangements

Term Loan
    
On January 28, 2015, the Company repaid the remaining outstanding principal balance on the Term Loan of $573.5 million. The Company recognized a $12.0 million loss on the extinguishment of debt during the three months ended March 31, 2015, as a result of this repayment.

Revolving Credit Facilities

On January 28, 2015, the Company replaced its existing revolver with a new $550.0 million revolving credit facility (the "Revolver"). The Revolver consists of a revolving credit facility in an amount of at least $550.0 million (available for revolving loans and letters of credit) and permits Terra Operating LLC to increase commitments to up to $725.0 million in the aggregate, subject to customary closing conditions. The Company recognized a $1.3 million loss on the extinguishment of debt during the three months ended March 31, 2015 as a result of the exchange.

On May 1, 2015, the Company exercised its option to increase its borrowing capacity under the Revolver by $100.0 million. As a result of this transaction, the Company now has a total borrowing capacity of $650.0 million under the Revolver.

The Revolver matures on January 27, 2020. Each of Terra Operating LLC's existing and subsequently acquired or organized domestic restricted subsidiaries (excluding non-recourse subsidiaries) and Terra LLC are or will become guarantors under the Revolver.

At Terra Operating LLC’s option, all outstanding amounts under the Revolver will bear interest initially at a rate per annum equal to either (i) a base rate plus a margin of 1.50% or (ii) a reserve adjusted Eurodollar rate plus a margin of 2.50%.

17

TERRAFORM POWER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

After the fiscal quarter ended June 30, 2015, the base rate margin will range between 1.25% and 1.75% and the Eurodollar rate margin will range between 2.25% and 2.75% as determined by reference to a leverage-based grid.

The Revolver provides for voluntary prepayments, in whole or in part, subject to notice periods, and requires Terra Operating LLC to prepay outstanding borrowings in an amount equal to 100% of the net cash proceeds received by Terra LLC or its restricted subsidiaries from the incurrence of indebtedness not permitted by the Revolver by Terra Operating LLC or its restricted subsidiaries.

The Revolver, each guaranty and any interest rate, currency hedging or hedging of Renewable Energy Certificate ("REC") obligations of Terra Operating LLC or any guarantor owed to the administrative agent, any arranger or any lender under the Revolver is secured by first priority security interests in (i) all of Terra Operating LLC's and each guarantor’s assets, (ii) 100% of the capital stock of each of Terra Operating LLC’s and its domestic restricted subsidiaries and 65% of the capital stock of Terra Operating LLC’s foreign restricted subsidiaries, and (iii) all intercompany debt. Notwithstanding the foregoing, collateral under the Revolver excludes the capital stock of non-recourse subsidiaries.

Senior Notes

On January 28, 2015, through our indirect subsidiary, Terra Operating LLC, the Company issued $800.0 million of 5.875% senior notes due 2023 at a price of 99.214% or the "Senior Notes." Terra Operating LLC used the net proceeds from the offering to fund a portion of the price of the First Wind acquisition. The Senior Notes are senior obligations of Terra Operating LLC and are guaranteed by Terra LLC and each of Terra Operating LLC's existing and future subsidiaries that guarantee its senior secured credit facility, subject to certain exceptions. Interest on the Senior Notes is payable on February 1 and August 1 of each year, beginning on August 1, 2015.

Bridge Facility
    
On March 31, 2015, the Company entered into an agreement with Morgan Stanley Senior Funding, Inc. which provides the Company with up to $515.0 million of senior unsecured bridge facility (the "Bridge Facility"). The Bridge Facility may be used by the Company, subject to certain conditions, to fund acquisitions, to repay certain indebtedness of acquisition facilities and to pay related fees and expenses. On April 20, 2015, the Bridge Facility was amended to add Citigroup Global Markets Inc., Barclays Capital Inc. and J.P. Morgan Securities LLC as participants to the Bridge Facility in addition to Morgan Stanley Senior Funding, Inc.

Project-level Financing Arrangements

The Company's renewable energy facilities have long-term debt obligations in separate legal entities. The Company typically finances its renewable energy facilities through project entity specific debt secured by the renewable energy facility's assets (mainly the renewable energy facility) with no recourse to the Company. Typically, these financing arrangements provide for a construction loan, which upon completion may or may not be converted into a term loan.

Financing Lease Obligations

In certain transactions, the Company accounts for the proceeds of sale leasebacks as financings, which are typically secured by the renewable energy facility asset and its future cash flows from energy sales, and without recourse to the Company under the terms of the arrangement.

Bull Hill Financing

As a result of the First Wind acquisition, the Company assumed $59.8 million of financing lease obligations. The financing lease obligations assumed by the Company include those pursuant to a sale-leaseback agreement, entered into by First Wind on November 21, 2012, whereby First Wind sold substantially all of the property, plant and equipment of the Bull Hill facility to a financial institution and simultaneously entered into a long-term lease with that financial institution for the use of the assets. Under the terms of the agreement, the Company will continue to operate the wind facility and has the option to extend the lease or repurchase the assets sold at the end of the lease term. The sale-leaseback transaction was accounted for as a failed sale and the remaining obligations as of the date of the First Wind acquisition have been recorded as a financing lease obligation.


18

TERRAFORM POWER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

First Wind Debt Extinguishments

As part of the First Wind acquisition, the Company repaid certain long-term indebtedness of the First Wind Operating Entities. The Company recognized a loss on the extinguishment of debt of $6.4 million during the three months ended March 31, 2015 as a result of this repayment.

Maturities

The aggregate amounts of payments on long-term debt including financing lease obligations, and excluding amortization of debt discounts, due after March 31, 2015 are as follows:
(In thousands)
Remainder of 2015 (1)
 
2016 (2)
 
2017
 
2018
 
2019
 
Thereafter
 
Total
Maturities of long-term debt as of March 31, 2015
$
227,879

 
$
264,521

 
$
37,902

 
$
39,337

 
$
50,104

 
$
1,579,910

 
$
2,199,653

———
(1) The amount of long-term debt due in 2015 includes CAD 47.8 million (USD $37.8 million) of construction debt for SunE Perpetual Lindsay, which will be repaid by SunEdison in the third quarter of 2015 and an outstanding balance of $150.0 million on our Revolver.
(2) The amount of long-term debt due in 2016 includes GBP 152.5 million (USD $225.6 million) of debt for the Fairwinds & Crundale facilities and the U.K. Call Right Projects.

9. INCOME TAXES

Effective Tax Rate

The income tax provision consisted of the following:
 
 
Three Months Ended March 31,
(In thousands, except effective tax rate)
 
2015
 
2014
Loss before income tax benefit
 
$
(83,705
)
 
$
(1,538
)
Income tax benefit
 
(45
)
 
(457
)
Effective tax rate
 
0.1
%
 
29.7
%
        
As of March 31, 2015, the Company owns 44.9% of Terra LLC and consolidates the results of Terra LLC through its controlling interest. The Company records SunEdison's 50.4% and Riverstone's 4.7% ownership of Terra LLC as a non-controlling interests in the financial statements. Terra LLC is treated as a partnership for income tax purposes. As such, the Company records income tax on its 44.9% of Terra LLC's taxable income and SunEdison records income tax on its 50.4% share of taxable income generated by Terra LLC.

For the three months ended March 31, 2015, the overall effective tax rate was different than the statutory rate of 35% primarily due to the recording of a valuation allowance on certain tax benefits attributed to the Company and to lower statutory income tax rates in our foreign jurisdictions. For the three months ended March 31, 2014, the tax benefits for losses realized prior to the IPO were recognized primarily because of existing deferred tax liabilities. As of March 31, 2015, most jurisdictions are in a net deferred tax asset position. A valuation allowance is recorded against the deferred tax assets primarily because of the history of losses in those jurisdictions.

10. DERIVATIVES

As part of the Company’s risk management strategy, the Company has entered into derivative instruments which include interest rate swaps, foreign currency contracts and commodity contracts to mitigate interest rate, foreign currency and commodity price exposure. If the Company elects to do so and if the instrument meets the criteria specified in Accounting Standards Codification ("ASC") 815, Derivatives and Hedging, the Company designates its derivative instruments as cash flow hedges. The Company enters into interest rate swap agreements in order to hedge the variability of expected future cash interest payments. Foreign currency contracts are used to reduce risks arising from the change in fair value of certain foreign currency denominated assets and liabilities. The objective of these practices is to minimize the impact of foreign currency fluctuations on

19

TERRAFORM POWER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

operating results. The Company also enters into commodity contracts to economically hedge price variability inherent in electricity sales arrangements. The objectives of these transactions are to minimize the impact of variability in spot electricity prices and stabilize estimated revenue streams. The Company does not use derivative instruments for speculative purposes.

As of March 31, 2015 and December 31, 2014, fair values of the following derivative instruments were included in the line items indicated.
 
 
Fair Value of Derivative Instruments
 
 
 
 
 
 
 
 
Hedging Contracts
 
Derivatives Not Designated as Hedges
 
 
 
 
 
 
(In thousands)
 
Interest Rate Swaps
 
Interest Rate Swaps
 
Foreign Currency Contracts
 
Commodity Contracts
 
Gross Amounts of Assets/Liabilities Recognized
 
Gross Amounts Offset in Consolidated Balance Sheet
 
Net Amounts in Consolidated Balance Sheet
As of March 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Prepaid expenses and other current assets
 
$

 
$

 
$
2,669

 
$
8,482

 
$
11,151

 
$
(1,155
)
 
$
9,996

Other assets
 

 

 
1,861

 
31,970

 
33,831

 
(781
)
 
33,050

Total assets
 
$

 
$

 
$
4,530

 
$
40,452

 
$
44,982

 
$
(1,936
)
 
$
43,046

Accounts payable and other current liabilities
 
$
845

 
$

 
$

 
$

 
$
845

 
$

 
$
845

Other long-term liabilities
 
470

 
1,381

 
3,711

 

 
5,562

 
(1,936
)
 
3,626

Total liabilities
 
$
1,315

 
$
1,381

 
$
3,711

 
$

 
$
6,407

 
$
(1,936
)
 
$
4,471

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Prepaid expenses and other current assets
 
$

 
$

 
$

 
$

 
$

 
$

 
$

Other assets
 

 

 
1,811

 

 
1,811

 

 
1,811

Total assets
 
$

 
$

 
$
1,811

 
$

 
$
1,811

 
$

 
$
1,811

Accounts payable and other current liabilities
 
$
1,925

 
$
1,279

 
$
685

 
$

 
$
3,889

 
$

 
$
3,889

Other long-term liabilities
 

 

 

 

 

 

 

Total liabilities
 
$
1,925

 
$
1,279

 
$
685

 
$

 
$
3,889

 
$

 
$
3,889


As of March 31, 2015 and December 31, 2014, notional amounts for derivative instruments consisted of the following:
 
 
Notional Amount as of
(In thousands)
 
March 31, 2015
 
December 31, 2014
Derivatives designated as hedges:
 
 
 
 
Interest rate swaps (USD)
 
$
50,150

 
$
349,213

Derivatives not designated as hedges:
 
 
 
 
Interest rate swaps (USD)
 
16,857

 
16,861

Foreign currency contracts (GBP)
 
56,348

 
58,710

Foreign currency contracts (CAD)
 
25,097

 
25,415

Commodity contracts (MWhs)
 
2,248

 



20

TERRAFORM POWER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The Company has elected to net derivative assets and liabilities on the balance sheet as a right to setoff exists. For interest rate swaps, the Company has a master netting arrangement with only one counterparty, however, no amounts were netted under this arrangement as each of the interest rate swaps subject to this arrangement were in a loss position as of March 31, 2015. For foreign currency contracts, amounts are netted by currency in accordance with a master netting arrangement. For commodity contracts, the Company has a master netting arrangement, however, no amounts were netted under this arrangement as each of the commodity contracts subject to this arrangement were in a gain position as of March 31, 2015.

Gains and losses on derivatives not designated as hedges for the three months ended March 31, 2015 and 2014 consisted of the following:
 
 
 
 
Three Months Ended March 31,
(In thousands)
Location of Loss Recognized in Income
2015
 
2014
Interest rate swaps
 
Interest expense, net
 
$
236

 
$

Foreign currency contracts
 
Loss on foreign currency exchange, net
 
97

 

Commodity contracts
 
Operating revenues, net
 
4,259

 


Losses recognized related to interest rate swaps designated as cash flow hedges for the three months ended March 31, 2015 and 2014 consisted of the following:
 
 
Three Months Ended March 31,
 
 
Loss Recognized in Other Comprehensive Income (Effective Portion)
 
Location of Loss Reclassified from Accumulated Other Comprehensive Income into Income (Effective Portion)
 
Amount of Loss Reclassified from Accumulated Other Comprehensive Income into Income (Effective Portion)
 
Amount of Loss Recognized in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing)
(In thousands)
 
2015
2014
 
 
2015
2014
 
2015
2014
Interest rate swaps
 
$
2,248

$

 
Interest expense, net
 
$
2,857

$

 
$

$


As of March 31, 2015, the Company has posted letters of credit in the amount of $19.5 million as collateral related to certain commodity contracts. Certain derivative contracts contain provisions providing the counterparties a lien on specific assets as collateral. There was no cash collateral received or pledged as of December 31, 2014 related to our derivative transactions.

Derivatives Designated as Hedges

Interest Rate Swaps

In September 2014, the Company entered into an interest rate swap agreement to hedge floating rate debt under the Term Loan. The interest rate swap qualified for hedge accounting and was designated as a cash flow hedge. Under the interest rate swap agreement, the Company paid a fixed rate and the counterparty to the agreement paid the Company a floating interest rate. This interest rate swap agreement was terminated on January 28, 2015 due to the extinguishment of the Term Loan by the Company on the same date, as discussed in Note 8. Long-term Debt. Due to the termination of the Term Loan, the Company reclassified the loss of $2.5 million that was previously deferred in other comprehensive income into earnings as the forecasted transaction is considered probable of not occurring. The reclassified amounts were recorded in interest expense, net during the current period. Additionally, the Company recognized a loss of extinguishment of debt of $0.3 million during the three months ended March 31, 2015 for fees incurred to terminate the interest rate swap.

The Company has an interest rate swap agreement to hedge floating rate project-level debt. This interest rate swap qualifies for hedge accounting and was designated as a cash flow hedge. Under the interest rate swap agreement, the project pays a fixed rate and the counterparty to the agreement pays a floating interest rate. The amounts deferred in other comprehensive income and reclassified into earnings during the period related to the interest rate swap are provided in the table above. The loss expected to be reclassified into earnings over the next twelve months is approximately $0.8 million.


21

TERRAFORM POWER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Derivatives Not Designated as Hedges

Interest Rate Swaps

The Company has interest rate swap agreements that are economic hedges for project-level debt. These interest rate swaps are used to hedge floating rate debt. Under the interest rate swap agreements, the projects pay a fixed rate and the counterparties to the agreements pay a floating interest rate. As these hedges are not accounted for under hedge accounting, the changes in fair value are recorded in interest expense, net in the unaudited consolidated statement of operations, as provided in the table above.

Foreign Currency Contracts

The Company has foreign currency contracts in order to economically hedge its exposure to foreign currency fluctuations. The settlement of these hedges occurs on a quarterly basis through maturity. As these hedges are not accounted for under hedge accounting, the changes in fair value are recorded in loss/(gain) on foreign currency exchange, net in the unaudited consolidated statement of operations, as provided in the table above.

Commodity Contracts

In first quarter 2015, the Company acquired commodity contracts through its acquisition of First Wind. These agreements economically hedge commodity price variability inherent in certain electricity sales arrangements. If the Company sells electricity to an independent system operator market and there is no PPA available, it may enter into a commodity contract to hedge all or a portion of their estimated revenue stream. These commodity contracts require periodic settlements in which the Company receives a fixed price based on specified quantities of electricity and pays the counterparty a floating market price based on the same specified quantity of electricity. As these hedges are not accounted for under hedge accounting, the changes in fair value are recorded in operating revenues net, in the unaudited consolidated statement of operations, as provided in the table above.

11. FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount and estimated fair value of the Company's long-term debt as of March 31, 2015 and December 31, 2014 is as follows:

 
 
As of March 31, 2015
 
As of December 31, 2014
(In thousands)
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
Long-term debt, including current portion
 
$
2,194,678

 
$
2,249,970

 
$
1,652,621

 
$
1,659,883


The fair value of the Company's long-term debt was determined using inputs classified as Level 2 and a discounted cash flow approach using market rates for similar debt instruments.

Recurring Fair Value Measurements

The following table summarizes the financial instruments measured at fair value on a recurring basis classified in the fair value hierarchy (Level 1, 2 or 3) based on the inputs used for valuation in the accompanying unaudited consolidated balance sheet:


22

TERRAFORM POWER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(In thousands)
As of March 31, 2015
 
As of December 31, 2014
Assets
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Foreign currency contracts
$

 
$
2,594

 
$

 
$
2,594

 
$

 
$
1,811

 
$

 
$
1,811

Commodity contracts

 
$
40,452

 
$

 
40,452

 

 

 

 

Total derivative assets
$

 
$
43,046

 
$

 
$
43,046

 
$

 
$
1,811

 
$

 
$
1,811

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
$

 
$
2,696

 
$

 
$
2,696

 
$

 
$
3,204

 
$

 
$
3,204

Foreign currency contracts

 
1,775

 

 
1,775

 

 
685

 

 
685

Total derivative liabilities
$

 
$
4,471

 
$

 
$
4,471

 
$

 
$
3,889

 
$

 
$
3,889


The fair value of assets and liabilities are determined using either unadjusted quoted prices in active markets (Level 1) or pricing inputs that are observable (Level 2) whenever that information is available and using unobservable inputs (Level 3) to estimate fair value only when relevant observable inputs are not available. The Company uses valuation techniques that maximize the use of observable inputs. Assets and liabilities are classified in their entirety based on the lowest priority level of input that is significant to the fair value measurement. Where observable inputs are available for substantially the full term of the asset or liability, the instrument is categorized in Level 2. If the inputs into the valuation are not corroborated by market data, in such instances, the valuation for these contracts is established using techniques including extrapolation from or interpolation between actively traded contracts as well as calculation of implied volatilities. When such inputs have a significant impact on the measurement of fair value, the instrument is categorized as Level 3. The Company regularly evaluates and validates the inputs used to determine fair value by using pricing services to support the underlying market price of commodity, interest rates and foreign currency exchange rates.

The Company uses a discounted valuation technique to fair value its derivative assets and liabilities. The primary inputs in the valuation models for commodity contracts are market observable forward commodity curves and risk-free discount rates and to a lesser degree credit spreads.

The primary inputs into the valuation of interest rate swaps and foreign currency contracts are forward interest rates, foreign currency exchange rates, and to a lesser degree, credit spreads.
    
The Company's interest rate swaps, foreign currency contracts, and commodity contracts are considered Level 2, since all significant inputs are corroborated by market observable data. There were no transfers in or out of Level 1, Level 2 and Level 3 during the period.
    
12. STOCKHOLDER'S EQUITY

Follow-on Public Offering

On January 22, 2015, the Company sold 13,800,000 shares of its Class A common stock to the public in a registered offering, including 1,800,000 shares sold pursuant to the underwriters' overallotment option. The Company received net proceeds of $390.6 million, $50.9 million of which was used to repurchase Class B common stock and Class B units from SunEdison and the remainder was used to acquire 13,800,000 Class A units of Terra LLC. Terra LLC used the proceeds from the sale of its Class A units to pay, among other things, for part of the purchase price of the First Wind acquisition and to repay remaining amounts outstanding under the Term Loan.

As of March 31, 2015, the following shares of the Company were outstanding:
Shares:
 
Number Outstanding
 
Shareholder(s)
Class A common stock
 
55,951,690

 
*
Class B common stock
 
62,726,654

 
SunEdison
Class B1 common stock
 
5,840,000

 
Riverstone
Total Shares
 
124,518,344

 
 
———

23

TERRAFORM POWER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

* Class A common stockholders are comprised of: public and private investors, executive officers, management and personnel who provide services to the Company. The par value of Class A common stock reflected on the unaudited consolidated balance sheets and unaudited consolidated statement of stockholders' equity excludes 2,445,464 shares of unvested restricted Class A common stock awards.

As of March 31, 2015, the Company owned 44.9% of Terra LLC and consolidated the results of Terra LLC through its controlling interest, with SunEdison's 50.4% interest and Riverstone's 4.7% interest shown as non-controlling interests.

Dividends

On December 22, 2014, the Company declared a quarterly dividend for the fourth quarter on the Company's Class A common stock of $0.27 per share, or $1.08 per share on an annualized basis. The fourth-quarter dividend was paid on March 16, 2015 to shareholders of record as of March 2, 2015.

13. STOCK-BASED COMPENSATION

The Company has equity incentive plans that provide for the award of incentive and nonqualified stock options, restricted stock awards ("RSAs") and restricted stock units ("RSUs") to personnel and directors who provide services to the Company, including personnel and directors who provide services to SunEdison. As of March 31, 2015, an aggregate of 1,696,198 shares of Class A common stock were available for issuance under these plans. The stock-based compensation expense related to issued stock options, RSAs, and RSUs is recorded as a component of general and administrative expenses in the Company’s unaudited consolidated statements of operations and totaled $5.1 million for the three months ended March 31, 2015. Upon exercise of the RSAs, RSUs, or stock options, the Company will issue shares that have been previously authorized to be issued.

Restricted Stock Awards

The following table presents information regarding outstanding RSAs as of March 31, 2015, and changes during the three months ended March 31, 2015:
 
 
Number of RSAs Outstanding
 
Weighted Average Grant Date Fair Value Per Share
Balance at January 1, 2015
 
4,876,567

 
$
1.12

Granted
 

 

Forfeited
 
(132,588
)
 
0.68

Modified
 
66,294

 
35.05

Balance at March 31, 2015
 
4,810,273