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SEC Filings
10-K
TERRAFORM POWER, INC. filed this Form 10-K on 03/15/2019
Entire Document
 

The tax effects of the major items recorded as deferred tax assets and liabilities were as follows:
 
 
As of December 31,
(In thousands)
 
2018
 
2017
Deferred tax assets:
 
 
 
 
Net operating losses and tax credit carryforwards
 
$
587,833

 
$
498,245

Derivative liabilities1
 
33,261

 

Interest expense limitation carryforward
 
67,887

 

Total deferred tax assets
 
688,981

 
498,245

Valuation allowance
 
(386,336
)
 
(383,710
)
Net deferred tax assets
 
302,645

 
114,535

Deferred tax liabilities:
 
 
 
 
Investment in partnership
 
221,693

 
103,322

Renewable energy facilities
 
30,261

 
29,541

Deferred revenue
 

 
13

Intangible assets1
 
229,363

 

Other
 
176

 
6,632

Total deferred tax liabilities
 
481,493

 
139,508

Net deferred tax liabilities
 
$
178,848

 
$
24,973

———
(1)
Represents recorded deferred income taxes related to the acquisition of Saeta, as discussed in Note 4. Acquisitions and Dispositions.

For U.S. income tax purposes, Terra LLC is taxed as a U.S. partnership and controls the underlying renewable energy facilities. Thus, the tax effects of temporary differences related to the Company's portfolio companies are captured within the net deferred tax liability for the investment in the partnership. At December 31, 2018, the Company has gross net operating loss carryforwards of $2.1 billion in the U.S. and gross net operating loss carryforwards of $133.0 million in foreign jurisdictions that will both expire in tax years beginning in 2035. Of the $2.1 billion of gross net operating loss carryforwards generated in the U.S., approximately $600.0 million are limited and are expected to expire unused. For the remaining $1.5 billion, the Company does not believe it is more likely than not that it will generate sufficient taxable income to realize this entire amount. Consequently, the Company has recorded a valuation allowance against its deferred tax assets, net of the deferred tax liability related to the Company’s partnership investments that is expected to reverse within the net operating loss carryforward period with the exception of certain net operating losses at its Canadian, Portuguese, Spanish and Uruguay operations. The current year movement in the valuation allowance is related to current year activity.

During 2018, the Company identified adjustments related to the outside basis in its investment in partnership at Terra, LLC that impact prior periods. These adjustments created depreciable step-ups for Federal income tax purposes. Therefore, the Company has increased the tax effected NOL deferred tax asset by $96.1 million, decreased the deferred tax liability for its investment in partnership by $135.5 million and increased the related valuation allowance by $231.6 million for the year ended December 31, 2017. These adjustments had no impact to the reported consolidated balance sheets, statements of operations, stockholders’ equity or cash flows. The Company’s management assessed the impact of these adjustments and concluded the impact on the prior period consolidated financial statements was immaterial to each of the affected reporting periods and therefore amendment of previously filed reports was not required. However, management elected to correct the 2017 footnote presentation to reflect the adjustments in the 2017 period.

Prior to the acquisition of Saeta, the Company’s foreign entities had cumulative negative earnings & profits (“E&P”) and therefore had no earnings to repatriate back to the U.S. Following the enactment of the Tax Act and the current year acquisition of Saeta, the Company is not asserting indefinite reinvestment related to undistributed earnings of its foreign subsidiaries. The Company determined there was no material deferred tax liabilities that needed to be recognized as of December 31, 2018.

In December 2017, the U.S. Securities and Exchange Commission released Staff Accounting Bulletin (“SAB”) 118, which allowed for a measurement period up to one year after the enactment date of the Tax Act to finalize related income tax impacts directly related to the Tax Act. SAB 118 summarized a three-step process to be applied at each reporting period to account for and


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