The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
Note 1. Description of Business and Basis of Presentation
The Partnership
8point3 Energy Partners LP (together with its subsidiaries, the “Partnership”) is a limited partnership formed on March 10, 2015 under a master formation agreement by SunPower Corporation (“SunPower”) and First Solar, Inc. (“First Solar” and, together with SunPower, the “Sponsors”) to own, operate and acquire solar energy generation systems. The Partnership’s initial public offering (the “IPO”) was completed on June 24, 2015. 8point3 General Partner, LLC (the “General Partner”), the Partnership’s general partner, is a wholly-owned subsidiary of 8point3 Holding Company, LLC (“Holdings”), an entity owned by SunPower and First Solar. As of August 31, 2016, 8point3 Energy Partners LP owned a controlling non-economic managing member interest in 8point3 Operating Company, LLC (“OpCo”) and a 28.2% limited liability company interest in OpCo, and the Sponsors collectively owned a noncontrolling 71.8% limited liability company interest in OpCo.
The following table provides an overview of the assets that comprise the Partnership’s portfolio (the “Portfolio”) as of August 31, 2016:
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
|
|
Term of
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
Offtake Agreement
|
|
Project
|
|
Operation Date(1)
|
|
MW(ac)(2)
|
|
|
Counterparty
|
|
(in years)(3)
|
|
Utility
|
|
|
|
|
|
|
|
|
|
|
|
|
Maryland Solar
|
|
February 2014
|
|
|
20
|
|
|
First Energy
Solutions
|
|
|
16.6
|
|
Solar Gen 2
|
|
November 2014
|
|
|
150
|
|
|
San Diego Gas &
Electric
|
|
|
23.2
|
|
Lost Hills Blackwell
|
|
April 2015
|
|
|
32
|
|
|
City of
Roseville/Pacific
Gas and Electric
|
|
27.3(4)
|
|
North Star
|
|
June 2015
|
|
|
60
|
|
|
Pacific Gas and
Electric
|
|
|
18.8
|
|
RPU
|
|
September 2015
|
|
|
7
|
|
|
City of Riverside
|
|
|
24.1
|
|
Quinto
|
|
November 2015
|
|
|
108
|
|
|
Southern California
Edison
|
|
|
19.3
|
|
Hooper
|
|
December 2015
|
|
|
50
|
|
|
Public Service
Company of Colorado
|
|
|
19.3
|
|
Kingbird
|
|
April 2016
|
|
|
40
|
|
|
Southern California
Public Power Authority (5)
|
|
|
19.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & Industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
UC Davis
|
|
September 2015
|
|
|
13
|
|
|
University of
California
|
|
|
19.0
|
|
Macy's California
|
|
October 2015
|
|
|
3
|
|
|
Macy's Corporate
Services
|
|
|
19.2
|
|
Macy’s Maryland
|
|
October 2016
|
|
|
5
|
|
|
Macy's Corporate
Services
|
|
|
20.0
|
|
Kern Phase 1(a) Assets
|
|
December 2016
|
|
|
3
|
|
|
Kern High School District
|
|
|
20.0
|
|
Residential Portfolio
|
|
June 2014
|
|
|
39
|
|
|
Approx. 5,900
homeowners(6)
|
|
16.0(7)
|
|
Total
|
|
|
|
|
530
|
|
|
|
|
|
|
|
|
(1)
|
For the Macy’s California Project, the Macy’s Maryland Project and the Kern Phase 1(a) Assets (as defined below), commercial operation date (“COD”) represents the first date on which all of the solar generation systems within each of the Macy’s California Project, the Macy’s Maryland Project and the Kern Phase 1(a) Assets, respectively, have achieved or are expected to achieve COD. Please read “—Note 2—Business Combinations—2016 Acquisitions” for further details on the
|
12
Table of Contents
8point3 Energy Partners LP
Notes to Unaudited Condensed Consolidated Financial Statements — Continued
|
|
Kern Phase 1(a) Assets and the Macy’s
Maryland Project. For the Residential Portfolio, COD represents the first date on which all of the residential systems within the Residential Portfolio have achieved COD.
|
|
(2)
|
The megawatts (“MW”) for the projects in which the Partnership owns less than a 100% interest or in which the Partnership is the lessor under any sale-leaseback financing are shown on a gross basis.
|
|
(3)
|
Remaining term of offtake agreement is measured from the later of August 31, 2016 or the COD of the applicable project.
|
|
(4)
|
Remaining term comprised of 2.3 years on a power purchase agreement (“PPA”) with the City of Roseville, California, followed by a 25-year PPA with Pacific Gas and Electric Company (“PG&E”) starting in 2019.
|
|
(5)
|
The Kingbird Project is subject to two separate PPAs with member cities of the Southern California Public Power Authority.
|
|
(6)
|
Comprised of the approximately 5,900 solar installations located at homes in Arizona, California, Colorado, Hawaii, Massachusetts, New Jersey, New York, Pennsylvania and Vermont, that are held by SunPower Residential I, LLC (the “Residential Portfolio Project Entity”) and has an aggregate nameplate capacity of 39 MW.
|
|
(7)
|
Remaining term is the weighted average duration of all of the residential leases, in each case measured from August 31, 2016.
|
Basis of Presentation and Preparation
The direct and indirect contributions of the IPO Project Entities (as defined below) by the Sponsors to OpCo in connection with the IPO resulted in a business combination for accounting purposes with the IPO SunPower Project Entities (as defined below) being considered the acquirer of the interests contributed by First Solar in the IPO First Solar Project Entities (as defined below). Therefore, the IPO SunPower Project Entities constitute the “Predecessor.” As used herein, the term “IPO Project Entities” refers to:
|
·
|
the IPO SunPower Project Entities, including:
|
|
·
|
Solar Star California XXX, LLC and Solar Star California XXX (2), LLC (collectively, the “Macy’s California Project Entities”), which hold the Macy’s California Project (as defined in the glossary in this
Quarterly
Report on Form 10-Q (the “Glossary”));
|
|
·
|
Solar Star California XIII, LLC (the “Quinto Project Entity”), which holds the Quinto Project (as defined in the Glossary);
|
|
·
|
Solar Star California XXXI, LLC (the “RPU Project Entity”), which holds the RPU Project (as defined in the Glossary);
|
|
·
|
Solar Star California XXXII, LLC (the “UC Davis Project Entity”), which holds the UC Davis Project (as defined in the Glossary); and
|
|
·
|
the Residential Portfolio Project Entity, which holds the Residential Portfolio Project (as defined in the Glossary); and
|
|
·
|
the IPO First Solar Project Entities, including:
|
|
·
|
Lost Hills Solar, LLC (the “Lost Hills Project Entity”), which holds the Lost Hills Project, and Blackwell Solar, LLC (the “Blackwell Project Entity”), which holds the Blackwell Project (the Lost Hills Project and the Blackwell Project, each defined in the Glossary, together constitute the “Lost Hills Blackwell Project”);
|
|
·
|
Maryland Solar LLC (the “Maryland Solar Project Entity”), which holds the Maryland Solar Project (as defined in the Glossary);
|
|
·
|
North Star Solar, LLC (the “North Star Project Entity”), which holds the North Star Project (as defined in the Glossary); and
|
|
·
|
SG2 Imperial Valley, LLC (the “Solar Gen 2 Project Entity”), which holds the Solar Gen 2 Project (as defined in the Glossary).
|
In connection with the IPO, SunPower contributed a nearly 100% interest in each of the IPO SunPower Project Entities to OpCo, subject, in the case of the Quinto Project, the RPU Project, the UC Davis Project and the Macy’s California Project, to the tax equity investor’s right to a varying portion of the cash flows from the projects. In connection with the IPO, First Solar directly contributed to OpCo a 100% interest in the Maryland Solar Project Entity and indirectly contributed to OpCo a 49% economic interest in each of the Lost Hills Blackwell Project, the North Star Project and the Solar Gen 2 Project.
13
Table of Contents
8point3 Energy Partners LP
Notes to Unaudited Condensed Consolidated Financial Statements — Continued
On January 26, 2016, OpCo entered into a Purchase, Sale and Contribution Agreement (the “Kern Purchas
e Agreement”) with SunPower pursuant to which OpCo agreed
to purchase an interest in the Kern Project, as further described below in “—Note 2—Business Combinations—2016 Acquisitions.” Effective January 26, 2016, a subsidiary of OpCo acquired from SunPower
all of the class B limited liability company interests of
SunPower Commercial II Class B, LLC (the “Kern Class B Partnership”)
.
Kern High School District Solar (2), LLC (the “Kern Project Entity”) is an indirect subsidiary of the Kern Class B Partnership,
and OpCo holds a controlling interest in the Kern Class B Partnership effective January 26, 2016. The Partnership has concluded that OpCo is the primary beneficiary of the Kern Class B Partnership as it has the power to direct the activities that most sign
ificantly impact its economic performance and absorbs the majority of losses and has the right to receive benefits over the life of the project. Therefore, OpCo consolidates this less-than-wholly-owned entity. Please read “—Note 2—Business Combinations—20
16 Acquisitions” for further details.
On March 31, 2016, OpCo entered into a Purchase and Sale Agreement (the “Kingbird Purchase Agreement”) with First Solar and First Solar Asset Management, LLC, a wholly-
owned subsidiary of First Solar (“Kingbird Seller”), to acquire an interest in the Kingbird Project, as further described below in “—Note 2—Business Combinations—2016 Acquisitions.” Effective March 31, 2016, a subsidiary of OpCo acquired FSAM Kingbird Solar Holdings, LLC from First Solar. FSAM Kingbird Solar Holdings, LLC holds the class B limited liability company interests of Kingbird Solar, LLC. Kingbird Solar A, LLC and Kingbird Solar B, LLC (the “Kingbird Project Entities”) are direct subsidiaries of Kingbird Solar, LLC, and OpCo holds a controlling interest in the Kingbird Solar, LLC effective March 31, 2016. The Partnership has concluded that OpCo is the primary beneficiary of Kingbird Solar, LLC as it has the power to direct the activities that most significantly impact its economic performance and absorbs the majority of losses and has the right to receive benefits over the life of the project. Therefore, OpCo consolidates this less-than-wholly-owned entity. Please read “—Note 2—Business Combinations—2016 Acquisitions” for further details.
On March 31, 2016, OpCo entered into a Contribution Agreement (the “Hooper Purchase Agreement”) with SunPower and SunPower AssetCo, LLC, a wholly-owned subsidiary of SunPower, to acquire an interest in the Hooper Project, as further described below in “—Note 2—Business Combinations—2016 Acquisitions.” Effective April 1, 2016, a subsidiary of OpCo acquired from SunPower all of the class B limited liability company interests of SSCO III Class B Holdings, LLC (the “Hooper Class B Partnership”). Solar Star Colorado III, LLC (the “Hooper Project Entity”) is an indirect subsidiary of the
Hooper Class B Partnership
, and OpCo holds a controlling interest in the
Hooper Class B Partnership
effective April 1, 2016. The Partnership has concluded that OpCo is the primary beneficiary of the Hooper Class B Partnership as it has the power to direct the activities that most significantly impact its economic performance and absorbs the majority of losses and has the right to receive benefits over the life of the project. Therefore, OpCo consolidates this less-than-wholly-owned entity. Please read “—Note 2—Business Combinations—2016 Acquisitions” for further details.
On June 29, 2016, OpCo entered into a Contribution
Agreement (the “Macy’s Maryland Purchase Agreement”)
with SunPower and SunPower AssetCo, LLC to acquire an interest in the Macy’s Maryland Project
, as further described below in “—Note 2—Business Combinations—2016 Acquisitions.” Effective July 1, 2016, a subsidiary of OpCo acquired from SunPower all of the class B limited liability company interests of SunPower Commercial
III Class B, LLC (the “Macy’s Maryland Class B Partnership”). Northstar Macys Maryland 2015, LLC (the “Macy’s Maryland Project Entity”) is an indirect subsidiary of the Macy’s Maryland Class B Partnership, and OpCo holds a controlling interest in the Macy’s Maryland Class B Partnership effective July 1, 2016. The Partnership has concluded that OpCo is the primary beneficiary of the Macy’s Maryland Class B Partnership as it has the power to direct the activities that most significantly impact its economic performance and absorbs the majority of losses and has the right to receive benefits over the life of the project. Therefore, OpCo consolidates this less-than-wholly-owned entity. Please read “—Note 2—Business Combinations—2016 Acquisitions” for further details.
The Partnership’s unaudited condensed consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), and include the accounts of the Partnership, and all of its subsidiaries, as appropriate under consolidation accounting guidelines. The year-end condensed consolidated balance sheet data was derived from the audited financial statements, but does not include all disclosures required by U.S. GAAP. Investments in unconsolidated affiliates in which the Partnership has less than a controlling interest are accounted for using the equity method of accounting. All significant inter-entity accounts and transactions have been eliminated in consolidation. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments (consisting of normal, recurring items) necessary to state fairly its financial position, results of operations and cash flows for the periods presented. The unaudited condensed consolidated financial statements should be read in conjunction with the accounting policies previously disclosed in “Note 1. Description of Business and Summary of Significant Accounting Policies” and “Note 2. Summary of Significant Accounting Policies” of the 2015 10-K. Interim results are not necessarily indicative of results for a full year
.
14
Table of Contents
8point3 Energy Partners LP
Notes to Unaudited Condensed Consolidated Financial Statements — Continued
Fiscal Years
On June 24, 2015, in connection with the closing of the IPO, the Partnership amended the Partnership Agreement to include a change in the fiscal year to November 30. The third quarter of the Partnership’s fiscal 2016 includes the period from June 1, 2016 to August 31, 2016, and the corresponding third quarter of the Partnership’s fiscal 2015 includes the period from June 1, 2015 to August 31, 2015, which are consistent with the Partnership’s November 30 fiscal year end.
The accompanying unaudited condensed consolidated financial statements cover the period from December 1, 2015 to August 31, 2016, representing the entire nine-month period of the Partnership’s first, second and third quarters of fiscal year 2016. The prior year’s comparable eight-month period covers the period from December 29, 2014 through August 31, 2015, representing the first eight months of the Partnership’s recently adopted fiscal year. As a result of the change in the Partnership’s fiscal year end, the quarterly periods of its newly adopted fiscal year do not coincide with the historical quarterly periods previously reported by the Predecessor. Financial information for the nine months ended August 31, 2015 has not been included in this Quarterly Report on Form 10-Q for the following reasons: (i) the eight months ended August 31, 2015 provide as meaningful a comparison to the nine months ended August 31, 2016 as would the nine months ended August 31, 2015; (ii) the Partnership believes that there are no significant factors, seasonal or otherwise, that would impact the comparability of information if the results for the nine months ended August 31, 2015 were presented in lieu of results for the eight months ended August 31, 2015; and (iii) it was not practicable or cost justified to prepare this information.
Management Estimates
The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Significant estimates in these unaudited condensed consolidated financial statements include the assumptions and methodology underlying the allocations of expenses incurred on the Predecessor’s behalf that were recorded in the Predecessor’s condensed carve-out financial statements, as well as: allowances for doubtful accounts related to accounts receivable and financing receivables; estimates for future cash flows and economic useful lives of property and equipment; the fair value and residual value of leased solar power systems; fair value of financial instruments; fair value of acquired assets and liabilities; valuation of certain accrued liabilities such as accrued warranty and asset retirement obligation (“ARO”); and income taxes including the related valuation allowance. Actual results could materially differ from those estimates.
Recent Accounting Pronouncements
In August 2016, the Financial Accounting Standards Board (the “FASB”) issued an update to the statement of cash flows guidance, which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. One identified cash flow issue relates to distributions received from equity method investees whereby the reporting entity should make an accounting policy election to classify distributions received from equity method investees using either the cumulative earnings approach or the nature of the distribution approach. This new guidance becomes effective for the Partnership in the first quarter of fiscal 2018 and is applied retrospectively. Early adoption is permitted, including adoption in an interim period. The Partnership is evaluating the change in accounting policy from the cumulative earnings approach to the nature of the distribution approach and the impact on its unaudited condensed consolidated statements of cash flows and disclosures.
In March 2016, the FASB issued an update to the equity method investments guidance, which eliminates the requirement that an entity retroactively adopt the equity method of accounting if an investment qualifies for use of the equity method as a result of an increase in the level of ownership or degree of influence. The update requires that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. This new guidance will be effective for the Partnership beginning on December 1, 2017 using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply. The Partnership is evaluating the impact of this standard on its unaudited condensed consolidated financial statements and disclosures.
15
Table of Contents
8point3 Energy Partners LP
Notes to Unaudited Condensed Consolidated Financial Statements — Continued
In February 2016, the FASB issued an update to the lease accounting guidance, which requires entities to begin recording assets a
nd liabilities arising from substantially all leases on the balance sheet. The new guidance will also require significant additional disclosures about the amount, timing and uncertainty of cash flows from leases. This new guidance will be effective for the
Partnership beginning on December 1, 2019 using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply. The Partnership is evaluating the impact of this st
andard on its unaudited condensed consolidated financial statements and disclosures.
In November 2015, the FASB issued an update which requires entities that present a classified balance sheet to classify all deferred taxes as noncurrent assets or noncurrent liabilities. The Partnership adopted the new guidance retrospectively beginning on June 1, 2016. Since the Partnership’s formation, it has not classified any deferred tax assets or deferred tax liabilities as current on its balance sheet; therefore, there is no effect of the accounting change on prior periods.
In May 2014, the FASB issued a new revenue recognition standard based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. In August 2015, the FASB deferred the effective date of this standard for all entities by one year. The new revenue recognition standard becomes effective for the Partnership in the first quarter of fiscal 2019, and is to be applied retrospectively using one of two prescribed methods. The Partnership is evaluating the application method and impact on its unaudited condensed consolidated financial statements and disclosures.
Other than as described above, there has been no issued accounting guidance not yet adopted by the Partnership that it believes is material or potentially material to its consolidated financial statements.
Note 2. Business Combinations
Acquisition accounting is dependent upon certain valuations and other studies that must be completed as of the acquisition date. The judgments made in the context of the purchase price allocation can materially impact the Partnership’s future results of operations.
2016 Acquisitions
For the acquisitions completed during the nine months ended August 31, 2016, the valuation is based on the preliminary assessment of the fair values of the assets acquired, liabilities assumed and noncontrolling interests as of the acquisition date, and is subject to change as the Partnership obtains additional information for its estimates during the respective measurement period.
Kern Acquisition:
On January 26, 2016, OpCo and SunPower entered into the Kern Purchase Agreement, which was amended on September 28, 2016, pursuant to which OpCo agreed
to purchase an interest in a
solar energy project consisting of
systems attached to fixed-tilt carports located at 27 school sites in the Kern High School District
located in Kern County, California, and having an aggregate nameplate capacity of up to 21 MW (the “Kern Project”)
. OpCo’s acquisition of the Kern Project will be effectuated in four phases, with the closing of the first phase having occurred simultaneously with the execution of the Kern Purchase Agreement. The following describes the acquisition of each phase:
|
(i)
|
Phase 1(a):
On January 26, 2016,
8point3 OpCo Holdings, LLC
, a wholly owned subsidiary of OpCo, acquired from SunPower all of the class B limited liability company interests of
the Kern Class B Partnership
. Prior to the date of the execution of the Kern Purchase Agreement and in connection with the closing of the tax equity financing for the Kern Project,
described below, the Kern Project Entity, an indirect subsidiary of the Kern Class B Partnership,
acquired the assets included in Phase 1(a) (the “Kern Phase 1(a) Assets”). The initial phase of the acquisition of the Kern Project is referred to herein as the “Kern Phase 1(a) Acquisition”.
|
|
(ii)
|
Phase 1(b):
On September 9, 2016, the Kern Project Entity acquired the assets included in Kern Phase 1(b) (the “Kern Phase 1(b) Assets”) from SunPower.
|
|
(iii)
|
Phase 2:
At two future closing dates, which are expected to occur in the fiscal quarter ending February 28, 2017, the Kern Project Entity will acquire the Kern Phase 2 assets from SunPower.
|
16
Table of Contents
8point3 Energy Partners LP
Notes to Unaudited Condensed Consolidated Financial Statements — Continued
The aggregate purchase price for the acquisition is up to $36.6 million in cash, of which OpCo paid approximately $4.9 million on January
27, 2016 in connection with the closing of the first phase on January 26, 2016 and approximately $9.2 million on September 9, 2016 in connection with the closing of the second phase on September 9, 2016. OpCo will pay the remaining balance of up to $22.5
million purchase price at the closings of the third and fourth phases.
In addition, on January 22, 2016, a subsidiary of the Kern Class B Partnership entered into a tax equity financing facility with a third-party investor, which allocates to OpCo a certain share of cash flows from the Kern Project pursuant to a distribution waterfall. Pursuant to this distribution waterfall, the tax equity investor is entitled to a quarterly amount of project cash flow until a specified “flip” point is achieved. After the “flip” point, the cash allocations to OpCo increase. In addition, upon reaching the flip point, OpCo has a right to purchase the tax equity investor’s interests in the project for an amount that is not less than its fair market value. The tax equity investor will make capital contributions to fund purchase price payments up to approximately $31.2 million, of which $0.9 million and $1.8 million was paid on January 22, 2016 and September 9, 2016, respectively, and the remaining balance of up to $28.5 million will be made when the Kern Project’s phases meet certain construction milestones and will be transferred to affiliates of SunPower for the remaining purchase price payments. For more information about our tax equity structures in general, please read Part I, Item 1. “Business—Tax Equity Financing” of our 2015 10-K
.
The Kern Phase 1(a) Acquisition and the Kern Phase 1(b) Acquisition qualify as a business combination and the Partnership accounts for the transaction under the acquisition method. The purchase allocation of the identifiable assets acquired, liabilities assumed and noncontrolling interests of the Kern Phase 1(a) Assets is disclosed in the following table.
Please read “—Note 15—Subsequent Events” for the
purchase allocation of the identifiable assets acquired, liabilities assumed and noncontrolling interests of the Kern Phase 1(b) Assets.
(in thousands)
|
|
Fair Value
|
|
Property and equipment
|
|
$
|
9,733
|
|
Related party payable
|
|
|
(3,435
|
)
|
Asset retirement obligation
|
|
|
(547
|
)
|
Noncontrolling interest
|
|
|
(864
|
)
|
Net assets acquired
|
|
$
|
4,887
|
|
Kingbird Acquisition:
On March 31, 2016, OpCo entered into the Kingbird Purchase Agreement with First Solar, pursuant to which OpCo agreed to acquire an interest in two 20 MW photovoltaic solar generating projects located in Kern County, California (together, the “Kingbird Project”) for aggregate consideration of $60.0 million in cash (the “Kingbird Acquisition”). Consideration for the Kingbird Acquisition comprised a $42.9 million payment on the closing date of March 31, 2016 to Kingbird Seller and a $17.1 million contribution to FSAM Kingbird Solar Holdings, LLC, the acquired company, on May 31, 2016 which was subsequently paid to an affiliate of First Solar for the remaining balance due under the Kingbird Project’s EPC contract. The closing of the Kingbird Acquisition occurred simultaneously with the execution of the Kingbird Purchase Agreement and OpCo funded 100% of the payment for the Kingbird Project with a combination of cash on hand, drawings under OpCo’s revolver and drawings under OpCo’s delayed draw facility.
Ownership and cash flows of the Kingbird Project are subject to a tax equity financing facility with a third-party investor, which allocates to OpCo a certain share of cash flows from the Kingbird Project pursuant to a distribution waterfall. Pursuant to this distribution waterfall, the tax equity investor is entitled to a quarterly amount of project cash flow until a specified “flip” point, based on the achievement of a targeted internal rate of return. After the “flip” point, the cash allocations to OpCo increase. In addition, upon reaching the flip point, OpCo has a right to purchase the tax equity investor’s interests in the project for an amount that is not less than its fair market value. The tax equity investor made capital contributions to fund purchase price payments of approximately $11.7 million on February 26, 2016 and $46.8 million on May 31, 2016, which were made when the Kingbird Project’s phases met certain construction milestones and were transferred to an affiliate of First Solar for the remaining purchase price payments.
For more information about our tax equity structures in general, please read Part I, Item 1. “Business—Tax Equity Financing” of our 2015 10-K.
17
Table of Contents
8point3 Energy Partners LP
Notes to Unaudited Condensed Consolidated Financial Statements — Continued
The Kingbird Acquisition qualifies as a business combination and the Partnership accounts for the transaction under the acquisition method. The purchase allocation of the identifiable assets acquired, liabilities assumed and noncontrol
ling interests of the Kingbird Project is as follows:
(in thousands)
|
|
Fair Value
|
|
Property and equipment
|
|
$
|
117,473
|
|
Prepaid transmission services
|
|
|
1,982
|
|
Interest receivable
|
|
|
72
|
|
Related party payable (1)
|
|
|
(63,971
|
)
|
Asset retirement obligation
|
|
|
(981
|
)
|
Noncontrolling interest
|
|
|
(11,709
|
)
|
Net assets acquired
|
|
$
|
42,866
|
|
|
(1)
|
Related party payable represents liabilities for amounts due to an affiliate of First Solar related to the construction of the project and consisted of: (i) a $17.1 million contribution to FSAM Kingbird Solar Holdings, LLC, the acquired company, by OpCo on May 31, 2016, which was subsequently paid by the acquired company and (ii) a $46.8 million payment made from the capital contribution by the tax equity investor on May 31, 2016.
|
Hooper
Acquisition
:
On March 31, 2016, OpCo entered into the Hooper Purchase Agreement with SunPower, pursuant to which OpCo agreed to acquire an interest in the 50 MW photovoltaic solar generating project located in Alamosa County, Colorado (the “Hooper Project”)
for aggregate consideration of
$53.5 million in cash (the “Hooper Acquisition”). The Hooper Acquisition closed on April 1, 2016 and OpCo funded 100% of the purchase price for the Hooper Project with a combination of cash on hand, drawings under OpCo’s revolver and drawings under OpCo’s delayed draw facility.
Ownership and cash flows of the Hooper Project are subject to a tax equity financing
facility with a third-party investor, which allocates to OpCo a certain share of cash flows from the Hooper Project pursuant to a distribution waterfall.
Pursuant to this distribution waterfall, the tax equity investor is entitled to a quarterly amount of project cash flow until a specified “flip” point is achieved. After the “flip” point, the cash allocations to OpCo increase. In addition, upon reaching the flip point, OpCo has a right to purchase the tax equity investor’s interests in the project for an amount that is not less than its fair market value.
For more information about our tax equity structures in general, please read Part I, Item 1. “Business—Tax Equity Financing” of our 2015 10-K.
The Hooper Acquisition qualifies as a business combination and the Partnership accounts for the transaction under the acquisition method. The purchase allocation of the identifiable assets acquired, liabilities assumed and noncontrolling interests of the Hooper Project is as follows:
(in thousands)
|
|
Fair Value
|
|
Property and equipment
|
|
$
|
76,419
|
|
Prepaid expense
|
|
|
240
|
|
Accounts receivable (1)
|
|
|
568
|
|
Accrued liabilities (2)
|
|
|
(463
|
)
|
Noncontrolling interest
|
|
|
(23,679
|
)
|
Net assets acquired (3)
|
|
$
|
53,085
|
|
|
(1)
|
Accounts receivable represent the fair value of the trade accounts receivable acquired, all of which are expected to be collected.
|
|
(2)
|
Accrued liabilities includes $0.3 million of cash distributions payable that was paid to the tax equity investor on April 30, 2016.
|
|
(3)
|
The net purchase price for the acquisition represents $53.5 million of cash paid by OpCo, offset by $0.4 million cash acquired in the Hooper Project Entity.
|
18
Table of Contents
8point3 Energy Partners LP
Notes to Unaudited Condensed Consolidated Financial Statements — Continued
Macy’s Maryland Acquisition:
On June 29, 2016, OpCo entered into the Macy’s Maryland Purchase Agreement with SunPower, pursuant to which OpCo agreed to acquire an interest in the 5 MW roof-mounted solar photovoltaic project being installed at seven Macy’s department stores in Maryland (“Macy’s Maryland Project”) for aggregate consideration of $12.0 million in cash (the “Macy’s Maryland Acquisition”). Consideration for the Macy’s Maryland Acquisition comprised a $12.0 million contribution to Macy’s Maryland Class B Partnership, the acquired company, on July 1, 2016 of which $6.4 million was subsequently paid to SunPower and the $5.6 million remaining balance due was paid to SunPower on September 21, 2016 when the Macy’s Maryland Project met certain construction milestones.
Ownership and cash flows of the Macy’s Maryland Project are subject to a tax equity financing facility with a third-party investor, which allocates to OpCo a certain share of cash flows from the Macy’s Maryland Project pursuant to a distribution waterfall. Pursuant to this distribution waterfall, the tax equity investor is entitled to a quarterly amount of project cash flows until a specified “flip” point is achieved. After the “flip” point, the cash allocations to OpCo increase. In addition, upon reaching the flip point, OpCo has a right to purchase the tax equity investors’ interests in the project for an amount that is not less than its fair market value. For more information about our tax equity structures in general, please read Part I, Item 1. “Business—Tax Equity Financing” of our 2015 10-K.
The Macy’s Maryland Acquisition qualifies as a business combination and the Partnership accounts for the transaction under the acquisition method. The purchase allocation of the identifiable assets acquired, liabilities assumed and noncontrolling interests of the Macy’s Maryland Project is as follows:
(in thousands)
|
|
Fair Value
|
|
Property and equipment
|
|
$
|
19,807
|
|
Customer contract intangible (1)
|
|
|
1,348
|
|
Related party payable (2)
|
|
|
(13,975
|
)
|
Asset retirement obligation
|
|
|
(278
|
)
|
Noncontrolling interest
|
|
|
(550
|
)
|
Net assets acquired (3)
|
|
$
|
6,352
|
|
|
(1)
|
Customer contract intangible will be amortized on a straight-line basis beginning on COD through the contract term end date of December 31, 2020.
|
|
(2)
|
Related party payable represents liabilities for amounts due to SunPower related to the construction of the project and consisted of: (i) $5.6 million paid to SunPower on September 21, 2016 when the Macy’s Maryland Project met certain construction milestones and (ii) $8.3 million of capital contributions due by the tax equity investor of which $3.3 million was paid on September 21, 2016.
|
|
(3)
|
The net purchase price for the acquisition represents $12.0 million of cash contributed by OpCo to Macy’s Maryland Class B Partnership, the acquired company, of which $6.4 million was subsequently paid to SunPower and the $5.6 million remaining balance due was paid to SunPower on September 21, 2016 when the Macy’s Maryland Project met certain construction milestones.
|
Valuation methodology:
The Partnership utilized the discounted cash flow method under the income approach to value property and equipment for the Kern Phase 1(a) Assets, the Kern Phase 1(b) Assets, the Kingbird Project, the Hooper Project and the Macy’s Maryland Project, to value noncontrolling interests for the Hooper Project and to value the customer contract intangible for the Macy’s Maryland Project. Key assumptions used in the discounted cash flow method included forecasted pre-tax cash flows, forecasted taxable income and discount rates. All estimates, key assumptions and forecasts were reviewed by the Partnership and the fair value analyses and related valuations represent the conclusions of management.
Supplementary Data:
The results of operations for the Kern Phase 1(a) Assets, the Kingbird Project, the Hooper Project and the Macy’s Maryland Project have been included in the Partnership’s unaudited condensed consolidated statements of operations since their respective dates of acquisition. The Kern Phase 1(a) Assets, the Kingbird Project, the Hooper Project and the Macy’s Maryland Project contributed approximately $4.6 million and $6.8 million to the Partnership’s operating revenue in the three and nine months ended August 31,
19
Table of Contents
8point3 Energy Partners LP
Notes to Unaudited Condensed Consolidated Financial Statements — Continued
2016, respectively, and increased operating income by approximately $2.3 million and $3.3 million, respectively. The Kern Phase 1(b) Acqu
isition occurred after August 31, 2016, and as such the Kern Phase 1(b) Assets have not been included in the Partnership’s unaudited condensed consolidated statements of operations for the three and nine months ended August 31, 2016.
2015 Acquisitions
For the acquisitions completed in fiscal 2015, the Partnership obtained valuations from a third-party valuation specialist. The valuations calculated from these estimates were based on information available at the acquisition date. Therefore, the Partnership’s purchase price allocations are final and not subject to revision.
On June 24, 2015, the Partnership acquired a 100% interest in the Maryland Solar Project Entity, and a 49% indirect interest in each of the Solar Gen 2 Project, the North Star Project and the Lost Hills Blackwell Project, each of which is described in more detail below.
Maryland Solar
The Maryland Solar Project, located in Maryland, is a fully operational 20 MW grid-connected system contracted to serve a 20-year PPA with FirstEnergy Solutions, a subsidiary of FirstEnergy Corp.
Solar Gen 2
The Solar Gen 2 Project, located in California, is a fully operational 150 MW grid-connected system spanning three separate 50 MW sites. Electricity generated by the three separate systems is contracted to serve a 25-year PPA with San Diego Gas & Electric Company (“SDG&E”), a subsidiary of Sempra Energy.
North Star
The North Star Project, located in California, is a fully operational 60 MW grid-connected system contracted to serve a 20-year PPA with PG&E, a subsidiary of PG&E Corporation.
Lost Hills
Blackwell
The Lost Hills Blackwell Project, located in California, is a fully operational 32 MW grid-connected system contracted to serve a 25-year PPA with PG&E, a subsidiary of PG&E Corporation, starting in 2019. The Lost Hills Blackwell Project is also contracted to serve a short-term PPA with the City of Roseville, California prior to the system’s PPA with PG&E.
The purchase allocation
for the acquired assets and liabilities of the above
IPO First Solar Project Entities
is as follows:
(in thousands)
|
|
Fair Value
|
|
Property and equipment
|
|
$
|
56,497
|
|
Equity method investment - Solar Gen 2
|
|
|
216,483
|
|
Equity method investment - North Star
|
|
|
103,849
|
|
Equity method investment - Lost Hills Blackwell
|
|
|
34,121
|
|
Asset retirement obligation
|
|
|
(2,130
|
)
|
Total purchase price
|
|
$
|
408,820
|
|
20
Table of Contents
8point3 Energy Partners LP
Notes to Unaudited Condensed Consolidated Financial Statements — Continued
The following unaudited pro forma supplementary data gives effect to the 2015 Acquisitions as if the transactions had occurred on December 30, 2013. The unaudited pro
forma supplementary data is provided for informational purposes only and should not be construed as indicative of the Partnership’s results of operations had the 2015 Acquisitions been consummated on the date assumed or of the Partnership’s results
of oper
ations for any future date.
|
|
Three Months Ended
|
|
|
Eight Months Ended
|
|
|
|
August 31,
|
|
|
August 31,
|
|
(in thousands)
|
|
2015
|
|
|
2015
|
|
Operating revenues
|
|
$
|
3,764
|
|
|
$
|
9,441
|
|
Net loss
|
|
|
2,993
|
|
|
|
(11,090
|
)
|
Net income attributable to 8point3 Energy Partners LP Class A shares
|
|
|
1,358
|
|
|
|
1,849
|
|
Net income per Class A share - Basic and Diluted
|
|
$
|
0.07
|
|
|
$
|
0.09
|
|
Note 3. Investment in Unconsolidated Affiliates
As of August 31, 2016, the Partnership owns a 49% ownership interest in each of SG2 Holdings, North Star Holdings and Lost Hills Blackwell Holdings. On September 20, 2016, OpCo entered into a Contribution Agreement with SunPower and SunPower AssetCo, LLC, a wholly-owned subsidiary of SunPower, to acquire a 49% interest in a substantially completed, 102 MW photovoltaic solar generating facility located in Kings County, California (the “Henrietta Project”) for $134.0 million in cash (the “Henrietta Acquisition”).
An affiliate of Southern Company, which is not affiliated with the Partnership, owns the other 51% ownership interest in SG2 Holdings, North Star Holdings, Lost Hills Blackwell Holdings and the Henrietta Project. The minority membership interests are accounted for as equity method investments. The following table summarizes the activity of the Partnership’s investments in its unconsolidated affiliates during the three and nine months ended August 31, 2016. The Partnership’s investment in the Henrietta Project will be included in the Partnership’s unaudited condensed consolidated financial statements beginning September 29, 2016. Please read “—Note 15—Subsequent Events” for further details.
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
August 31,
|
|
|
August 31,
|
|
Projects
|
|
2016
|
|
|
2016
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Balance at the beginning of the period
|
|
$
|
348,588
|
|
|
$
|
352,070
|
|
Equity in earnings in unconsolidated affiliates (1)
|
|
|
8,075
|
|
|
|
13,504
|
|
Distributions from unconsolidated affiliates (2)
|
|
|
(6,872
|
)
|
|
|
(15,783
|
)
|
Balance at the end of the period
|
|
$
|
349,791
|
|
|
$
|
349,791
|
|
(1)
|
The net income (loss) used to determine the Partnership’s equity in earnings of unconsolidated affiliates reflects adjustments pursuant to the equity method of accounting, including the amortization of basis differences resulting from the Partnership’s proportionate share of certain equity method investees’ net assets exceeding their carrying values.
|
(2)
|
On the consolidated statements of cash flows, the Partnership classifies distributions received from unconsolidated investees accounted for under the equity method using the cumulative earnings approach. Under the cumulative earnings approach, the Partnership compares cumulative distributions received, less distributions received in prior year that was determined to be returns of investment, to its share of cumulative equity in earnings (as adjusted for basis differences) for each unconsolidated investee on an inception-to-date basis. If the Partnership’s inception-to-date distributions are greater than its inception-to-date equity in earnings for an unconsolidated investee, the distributions up to its inception-to-date equity in earnings are considered a return on investment and are therefore classified as cash flows from operating activities while the distributions of that unconsolidated investee in excess of its inception-to-date equity in earnings are considered to be a return of investment and are classified as cash flows from investing activities. If the Partnership’s inception-to-date distributions are less than its inception-to-date equity in earnings for an unconsolidated investee, such distributions are considered to be a return on investment and are classified as cash flows from operating activities.
|
21
Table of Contents
8point3 Energy Partners LP
Notes to Unaudited Condensed Consolidated Financial Statements — Continued
The difference between the amounts at which the Partnership’s investments in unconsolidated affiliates are carried and the Partnership’s proportionate share of the equity method investee’s net assets for equity method investments was $55.2 million and $56.5 million as of August 31, 2016 and November 30, 2015, respectively. The Partnership accretes the basis difference over the life of the underlying assets and the accretion was $0.4 million and $1.2 million for the three and nine months ended August 31, 2016, respectively, and $0.3 million for both of the three and eight months ended August 31, 2015.
The following table presents summarized financial information of SG2 Holdings, North Star Holdings and Lost Hills Blackwell Holdings as derived from the unaudited condensed consolidated financial statements of the affiliates for the three and nine months ended August 31, 2016 and the three and eight months ended August 31, 2015:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
Eight Months Ended
|
|
|
|
August 31,
|
|
|
August 31,
|
|
|
August 31,
|
|
|
August 31,
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Summary statements of operations information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
24,433
|
|
|
$
|
23,178
|
|
|
$
|
52,140
|
|
|
$
|
40,497
|
|
Operating expenses
|
|
|
11,201
|
|
|
|
12,102
|
|
|
|
34,483
|
|
|
|
25,480
|
|
Net income
|
|
|
13,346
|
|
|
|
11,155
|
|
|
|
17,964
|
|
|
|
15,025
|
|
Note 4. Balance Sheet Components
Financing Receivables
The Partnership’s net investment in sales-type leases presented in “Accounts receivable and short-term financing receivables, net” and “Long-term financing receivables, net” on the unaudited condensed consolidated balance sheets is as follows:
|
|
As of
|
|
|
|
August 31,
|
|
|
November 30,
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
Minimum lease payment receivable, net (1)
|
|
$
|
101,667
|
|
|
$
|
106,432
|
|
Unguaranteed residual value
|
|
|
12,929
|
|
|
|
12,969
|
|
Less: unearned income
|
|
|
(31,301
|
)
|
|
|
(33,655
|
)
|
Net financing receivables
|
|
$
|
83,295
|
|
|
$
|
85,746
|
|
Short-term financing receivables, net (2)
|
|
$
|
2,472
|
|
|
$
|
2,370
|
|
Long-term financing receivables, net
|
|
$
|
80,823
|
|
|
$
|
83,376
|
|
(1)
|
Allowance for losses on financing receivables was $0.6 million and $0.3 million as of August 31, 2016 and November 30, 2015, respectively.
|
(2)
|
Accounts receivable and short-term financing receivables, net on the unaudited condensed consolidated balance sheets includes other trade accounts receivable of $7.9 million and $1.9 million as of August 31, 2016 and November 30, 2015, respectively.
|
22
Table of Contents
8point3 Energy Partners LP
Notes to Unaudited Condensed Consolidated Financial Statements — Continued
Current and Non-current Assets
|
|
As of
|
|
|
|
August 31,
|
|
|
November 30,
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
Prepaid expense and other current assets
|
|
|
|
|
|
|
|
|
Reimbursable network upgrade costs (1)
|
|
$
|
12,107
|
|
|
$
|
6,535
|
|
Other current assets (2)
|
|
|
2,346
|
|
|
|
1,498
|
|
Total
|
|
$
|
14,453
|
|
|
$
|
8,033
|
|
Property and equipment, net
|
|
|
|
|
|
|
|
|
Utility solar power systems
|
|
$
|
553,773
|
|
|
$
|
361,241
|
|
Leased solar power systems
|
|
|
137,517
|
|
|
|
137,703
|
|
Land
|
|
|
1,020
|
|
|
|
—
|
|
Construction-in-progress (3)
|
|
|
29,334
|
|
|
|
—
|
|
|
|
$
|
721,644
|
|
|
$
|
498,944
|
|
Less: accumulated depreciation
|
|
|
(27,861
|
)
|
|
|
(12,002
|
)
|
Total
|
|
$
|
693,783
|
|
|
$
|
486,942
|
|
|
|
|
|
|
|
|
|
|
Other long-term assets
|
|
|
|
|
|
|
|
|
Reimbursable network upgrade costs (1)
|
|
$
|
23,475
|
|
|
$
|
26,142
|
|
Intangible assets (4)
|
|
|
1,348
|
|
|
|
—
|
|
|
|
$
|
24,823
|
|
|
$
|
26,142
|
|
|
(1)
|
For the Quinto Project and Kingbird Project, the construction costs related to the network upgrade of a transmission grid belonging to a utility company are reimbursable by that utility company over five years from the date the project reached commercial operation.
|
|
(2)
|
Other current assets included $0.7 million due from SunPower related to system output performance warranties and system repairs in connection with $0.2 million of system output performance warranty accrual and $0.5 million of system repairs accrual recorded in the “Accounts payable and other current liabilities” line item on the unaudited condensed consolidated balance sheets as of August 31, 2016. Similarly, other current assets included $0.9 million due from SunPower related to system output performance warranties and system repairs in connection with $0.2 million of system output performance warranty accrual and $0.7 million of system repairs accrual recorded in the “Accounts payable and other current liabilities” line item on the unaudited condensed consolidated balance sheets as of November 30, 2015.
|
|
(3)
|
Construction-in-progress is comprised of project assets related to the Kern Phase 1(a) Assets and the Macy’s Maryland Project.
|
|
(4)
|
Intangible assets represent customer contract intangible from the Macy’s Maryland Acquisition and will be amortized on a straight-line basis beginning on COD through the contract term end date of December 31, 2020.
|
23
Table of Contents
8point3 Energy Partners LP
Notes to Unaudited Condensed Consolidated Financial Statements — Continued
Current and Non-current Liabilities
|
|
As of
|
|
|
|
August 31,
|
|
|
November 30,
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
Accounts payable and other current liabilities
|
|
|
|
|
|
|
|
|
Trade and accrued accounts payable
|
|
$
|
1,877
|
|
|
$
|
713
|
|
Related party payable (1)
|
|
|
17,620
|
|
|
|
171
|
|
System output performance warranty
|
|
|
199
|
|
|
|
237
|
|
Residential lease system repairs accrual
|
|
|
544
|
|
|
|
728
|
|
Derivative financial instruments
|
|
|
—
|
|
|
|
611
|
|
Other short-term liabilities
|
|
|
1,118
|
|
|
|
152
|
|
|
|
$
|
21,358
|
|
|
$
|
2,612
|
|
Other long-term liabilities
|
|
|
|
|
|
|
|
|
Asset retirement obligations
|
|
|
11,883
|
|
|
|
9,992
|
|
Deferred tax liabilities
|
|
|
27,771
|
|
|
|
12,491
|
|
Derivative financial instruments
|
|
|
75
|
|
|
|
—
|
|
|
|
$
|
39,729
|
|
|
$
|
22,483
|
|
(1)
|
Related party payable on the unaudited condensed consolidated balance sheets consists of (i) $3.4 million related to the purchase price payable by tax equity investors to SunPower for the Kern Phase 1(a) Acquisition as of August 31, 2016; (ii) $5.6 million due to SunPower as of August 31, 2016 and paid on September 21, 2016 when the Macy’s Maryland Project met certain construction milestones; (iii) $8.3 million due to SunPower as of August 31, 2016 related to the purchase price payable by tax equity investors for the Macy’s Maryland Acquisition of which $3.3 million was paid on September 21, 2016; and (iv) $0.2 million as of both August 31, 2016 and November 30, 2015 for accounts payable to related parties associated with O&M, AMA and MSA fees owed to the Sponsors.
|
Note 5. Commitments and Contingencies
Land Use Commitments
The Partnership is a party to various agreements that provide for payments to landowners for the right to use the land upon which projects under PPAs are located.
The total minimum lease and easement commitments at August 31, 2016 under these land use agreements are as follows:
(in thousands)
|
|
2016 (remaining
three months)
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
Thereafter
|
|
|
Total
|
|
Land use payments
|
|
$
|
334
|
|
|
$
|
1,293
|
|
|
$
|
1,329
|
|
|
$
|
1,686
|
|
|
$
|
1,742
|
|
|
$
|
58,193
|
|
|
$
|
64,577
|
|
Solar Power System Performance Warranty
Lease agreements require the Partnership to undertake a system output performance warranty. The Partnership has recorded in “Accounts payable and other current liabilities” amounts related to these system output performance warranties totaling $0.2 million as of August 31, 2016 and November 30, 2015. The Partnership has also recorded in “Other current assets” amounts of $0.2 million as of August 31, 2016 and November 30, 2015 relating to anticipated performance warranty reimbursements from the O&M provider.
24
Table of Contents
8point3 Energy Partners LP
Notes to Unaudited Condensed Consolidated Financial Statements — Continued
The following table summarizes accrued solar power systems performance warranty activity for the three and nine months ended August 31, 2016, and three and eight months ended August 31, 2015, respectively:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
Eight Months Ended
|
|
|
|
August 31,
|
|
|
August 31,
|
|
|
August 31,
|
|
|
August 31,
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Balance at the beginning of the period
|
|
$
|
140
|
|
|
$
|
420
|
|
|
$
|
237
|
|
|
$
|
525
|
|
Settlements during the period
|
|
|
(51
|
)
|
|
|
(62
|
)
|
|
|
(207
|
)
|
|
|
(149
|
)
|
Adjustments during the period
|
|
|
110
|
|
|
|
(83
|
)
|
|
|
169
|
|
|
|
(101
|
)
|
Balance at the end of the period
|
|
$
|
199
|
|
|
$
|
275
|
|
|
$
|
199
|
|
|
$
|
275
|
|
Asset Retirement Obligations (“ARO”)
The Partnership’s AROs are based on estimated third-party costs associated with the decommissioning of the applicable project assets. These costs may increase or decrease in the future as a result of changes in regulations, engineering designs and technology, permit modifications, inflation or other factors. Decommissioning activities generally are made over a period of time commencing at the end of the system’s life.
The following table summarizes ARO activity for the three and nine months ended August 31, 2016 and three and eight months ended August 31, 2015, respectively:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
Eight Months Ended
|
|
|
|
August 31,
|
|
|
August 31,
|
|
|
August 31,
|
|
|
August 31,
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Balance at the beginning of the period
|
|
$
|
11,542
|
|
|
$
|
3,868
|
|
|
$
|
9,992
|
|
|
$
|
—
|
|
ARO assumed in acquisition
|
|
|
278
|
|
|
|
2,130
|
|
|
|
1,806
|
|
|
|
2,130
|
|
Accretion expense
|
|
|
141
|
|
|
|
—
|
|
|
|
387
|
|
|
|
—
|
|
Liabilities incurred during the period
|
|
|
—
|
|
|
|
2,452
|
|
|
|
—
|
|
|
|
6,320
|
|
Adjustments to ARO during the period
|
|
|
(78
|
)
|
|
|
—
|
|
|
|
(302
|
)
|
|
|
—
|
|
Balance at the end of the period
|
|
$
|
11,883
|
|
|
$
|
8,450
|
|
|
$
|
11,883
|
|
|
$
|
8,450
|
|
Legal Proceedings
In the normal course of business, the Partnership may be notified of possible claims or assessments. The Partnership will record a provision for these claims when it is both probable that a liability has been incurred and the amount of the loss, or a range of the potential loss, can be reasonably estimated. These provisions are reviewed regularly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information or events pertaining to a particular case.
Although the Partnership may, from time to time, be involved in litigation and claims arising from its operations in the ordinary course of business, the Partnership is not a party to any litigation or governmental or other proceeding that the Partnership believes will have a material adverse impact on its financial position, results of operations, or liquidity.
Environmental Contingencies
The Partnership reviews its obligations as they relate to compliance with environmental laws, including site restoration and remediation. During each of the three and nine months ended August 31, 2016 and three and eight months ended August 31, 2015, there were no known environmental contingencies that required the Partnership to recognize a liability.
25
Table of Contents
8point3 Energy Partners LP
Notes to Unaudited Condensed Consolidated Financial Statements — Continued
Note 6. Lease Agreements and Power Purchase Agreements
Lease Agreements
As of August 31, 2016, the Partnership’s
unaudited
condensed consolidated financial statements include approximately 5,900 residential lease agreements which have original terms of 20 years and are classified as either operating or sales-type leases. In addition, the lease agreement for the Maryland Solar Project has a lease term that will expire on December 31, 2019, and the lessee, who is an affiliate of First Solar, is obligated to pay a fixed amount of rent that is set based on the expected operations of the plant.
The following table presents the Partnership’s minimum future rental receipts on operating leases (including the lease agreement for the Maryland Solar Project and the residential lease portfolio) placed in service as of August 31, 2016:
(in thousands)
|
|
2016 (remaining
three months)
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
Thereafter
|
|
|
Total
|
|
Minimum future rentals on residential
operating leases placed in service (1)
|
|
$
|
923
|
|
|
$
|
3,703
|
|
|
$
|
3,723
|
|
|
$
|
3,744
|
|
|
$
|
3,766
|
|
|
$
|
46,360
|
|
|
$
|
62,219
|
|
Maryland Solar lease
|
|
|
792
|
|
|
|
5,231
|
|
|
|
5,173
|
|
|
|
4,912
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16,108
|
|
Total operating leases
|
|
$
|
1,715
|
|
|
$
|
8,934
|
|
|
$
|
8,896
|
|
|
$
|
8,656
|
|
|
$
|
3,766
|
|
|
$
|
46,360
|
|
|
$
|
78,327
|
|
(1)
|
Minimum future rentals on operating leases placed in service do not include contingent rentals that may be received from customers under agreements that include performance-based incentives and executory costs.
|
As of August 31, 2016, future maturities of net financing receivables for sales-type leases are as follows:
(in thousands)
|
|
2016 (remaining
three months)
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
Thereafter
|
|
|
Total
|
|
Scheduled maturities of minimum lease
payments receivable (1)
|
|
$
|
1,381
|
|
|
$
|
5,604
|
|
|
$
|
5,691
|
|
|
$
|
5,778
|
|
|
$
|
5,870
|
|
|
$
|
77,343
|
|
|
$
|
101,667
|
|
(1)
|
Minimum future rentals on sales-type leases placed in service do not include contingent rentals that may be received from customers under agreements that include performance-based incentives and executory costs.
|
Power Purchase Agreements
Under the terms of various PPAs, the Partnership’s contracted counterparties may be obligated to take all or part of the output from the system at stipulated prices over defined periods. All PPAs associated with solar generation systems operating as of August 31, 2016 are accounted for as operating leases, have no minimum lease payments and all of the rental income under these leases is recorded as revenue when the electricity is delivered.
Note 7. Debt and Financing Obligations
Term Loan and Revolving Credit Facility
On June 5, 2015, OpCo entered into a $525.0 million credit facility, consisting of a $300.0 million term loan facility, a $25.0 million delayed draw term loan facility and a $200.0 million revolving credit facility. OpCo borrowed $300.0 million under the term loan facility on June 5, 2015, which indebtedness will mature on the fifth anniversary of its issuance, at which point all amounts outstanding under the $525.0 million credit facility will become due and payable. There will be no principal amortization over the term of the credit facility. The discount and incremental debt issuance costs associated with these borrowings were $3.1 million, which included $1.7 million of debt issuance costs paid with a portion of the proceeds and $1.4 million related to a reclassification of capitalized issuance costs on the Predecessor’s historical financial statements, and were reported as a direct deduction from the face amount of the note. The Partnership used the net proceeds of the term loan facility to pay distributions of $129.4 million and $168.9 million to First Solar and SunPower, respectively.
On March 30, 2016, in connection with the Kingbird Acquisition and the Hooper Acquisition, OpCo drew down $40.0 million from its revolving credit facility and $25.0 million from its delayed draw term loan facility.
As of August 31, 2016, the full amount of the $300.0 million borrowed under the term loan facility, the full amount of the $25.0 million borrowed under the delayed draw term
26
Table of Contents
8point3 Energy Partners LP
Notes to Unaudited Condensed Consolidated Financial Statements — Continued
loan facility, $40.0 million borrowed unde
r the revolving credit facility, and approximately $58.6 million of letters of credit under the revolving credit facility were outstanding. As of November 30, 2015, the full amount of the $300.0 million borrowed under the term loan facility and approximate
ly $48.8 million of letters of credit under the revolving credit facility were outstanding. The remaining portion of the revolving credit facility was undrawn
.
OpCo’s credit facility is collateralized by a pledge of the equity of OpCo and certain of its subsidiaries. The Partnership and each of OpCo’s subsidiaries, other than certain non-guarantor subsidiaries, have guaranteed the obligations of OpCo under the credit facility.
Loans outstanding under the credit facility bear interest at either (i) a base rate, which is the highest of (x) the federal funds rate plus 0.50%, (y) the administrative agent’s prime rate and (z) one-month LIBOR, in each case, plus an applicable margin; or (ii) one-, two-, three- or six-month LIBOR plus an applicable margin. The unused portion of the revolving credit facility and delayed draw term loan facility is subject to a commitment fee of 0.30% per annum. OpCo may prepay the borrowings under the term loan facility and the delayed draw term loan facility at any time. The term loan bears an interest rate of approximately
2.52
% and 2.41% per annum as of August 31, 2016 and November 30, 2015, respectively. OpCo has entered into interest rate swap agreements to hedge the interest rate on the borrowings under the term loan facility. For more details, p
lease read “—Note 8. Fair Value.”
Subject to certain conditions, the credit facility includes conditional borrowing capacity for incremental commitments to increase the term loan facility and the revolving credit facility by $250.0 million, with any increase in the revolving credit facility not to exceed $100.0 million. On September 30, 2016, OpCo entered into an amendment and joinder agreement (the “Joinder Agreement”) under its existing senior secured credit facility, pursuant to which OpCo exercised this accordion feature and obtained a new
$250.0 million incremental term loan facility, increasing the maximum borrowing capacity under the credit facility to $775.0 million.
Please read “—Note 15—Subsequent Events” for further details.
The credit facility contains covenants, including among others, requiring the Partnership to maintain the following financial ratios: (i) a debt to cash flow ratio of not more than (a) 5.50 to 1.00 for the fiscal quarters ending August 31, 2016 through May 31, 2017, and (b) 5.00 to 1.00 for each fiscal quarter ending thereafter; and (ii) a debt service coverage ratio of not less than 1.75 to 1.00. In addition, an event of default occurs under the credit facility upon a change of control. The credit facility defines a change of control as occurring when, among other things, (i) the Sponsors (or either of them) cease to direct the management, directly or indirectly, of the Partnership or OpCo, or (ii) the Sponsors collectively cease to own 35% of the economic interest in OpCo. In addition, the credit facility contains customary non-financial covenants and certain restrictions that will limit the Partnership’s, OpCo’s and certain of the Partnership’s and its domestic subsidiaries’ ability to, among other things, incur or guarantee additional debt and to make distributions on or redeem or repurchase OpCo common units. As of August 31, 2016, the Partnership was in compliance with the debt covenants.
On April 6, 2016, the parties thereto amended OpCo’s credit facility (i) to provide for the lenders’ consent to the Amended and Restated Omnibus Agreement, (ii) to expand OpCo’s ability to further amend the Amended and Restated Omnibus Agreement without lender consent in the future, subject to certain conditions, (iii) to permit certain customary restrictions on transfers of the equity interests of certain Project Entities, which are jointly owned, indirectly, by OpCo and SunPower, (iv) to supplement the Pledge and Security Agreement between the parties in light of the foregoing amendment, and (v) to make certain clarifying modifications to definitions and cross references.
The following table summarizes the Partnership’s long-term debt:
|
|
August 31, 2016
|
|
|
November 30, 2015
|
|
(in thousands)
|
|
Amount
|
|
|
Interest Rate
|
|
|
Amount
|
|
|
Interest Rate
|
|
Term loan due June 2020
|
|
$
|
300,000
|
|
|
|
2.52
|
%
|
|
$
|
300,000
|
|
|
|
2.41
|
%
|
Delayed draw term loan facility due June 2020
|
|
|
25,000
|
|
|
|
2.52
|
%
|
|
|
—
|
|
|
N/A
|
|
Revolving credit facility due June 2020
|
|
|
40,000
|
|
|
|
2.52
|
%
|
|
|
—
|
|
|
N/A
|
|
Less: debt issuance costs
|
|
|
(2,343
|
)
|
|
N/A
|
|
|
|
(2,794
|
)
|
|
N/A
|
|
Total
|
|
$
|
362,657
|
|
|
|
|
|
|
$
|
297,206
|
|
|
|
|
|
27
Table of Contents
8point3 Energy Partners LP
Notes to Unaudited Condensed Consolidated Financial Statements — Continued
Quinto Solar Project Financing
In order to facilitate the construction of certain projects, the Predecessor obtained non-recourse project loans from third-party financial institutions. On October 17, 2014, the Predecessor, through its wholly-owned subsidiary, the Quinto Project Entity, entered into an approximately $377.0 million credit facility with Santander Bank, N.A., Mizuho Bank, Ltd. and Credit Agricole Corporate & Investment Bank (the “Quinto Credit Facility”) in connection with the construction of the Quinto Project.
On June 24, 2015, in connection with the closing of the IPO and the concurrent transfer of the Quinto Project to OpCo, the Quinto Project Entity repaid the full amount outstanding under the Quinto Credit Facility and terminated the agreement early. Immediately before termination, there were outstanding borrowings of $224.3 million under the Quinto Credit Facility. Termination of the Quinto Credit Facility became effective upon full repayment by the Quinto Project Entity on June 24, 2015. The Quinto Project Entity paid a $0.6 million fee for early repayment of the Quinto Credit Facility.
Residential Lease Financing
The Predecessor entered into two financing arrangements under which leased solar power systems were financed by two third-party investors. Under the terms of these financing arrangements, the investors provided upfront payments to the Predecessor, which the Predecessor recognized as a financing obligation that was reduced over the specified term of the arrangement as customer receivables and federal cash grants were received by the third-party investors. Non-cash interest expense was recognized on the Partnership’s unaudited condensed consolidated statement of operations using the effective interest rate method calculated at a rate of approximately 14%-15%.
On January 30, 2015, the Predecessor entered into an agreement with the third-party investor for one of the residential lease financing arrangements that terminated such financing arrangement. In conjunction with the termination of the arrangement, the Predecessor paid $10.8 million to terminate the $10.1 million outstanding financing obligation.
On January 23, 2015, the Predecessor entered into an agreement with the third-party investor for the other residential lease financing arrangement that allowed the Predecessor to repay the outstanding financing obligation and terminate the associated agreements on or before September 30, 2015. This repayment was exercised on May 4, 2015. The Predecessor paid $29.0 million to terminate the $21.1 million outstanding financing obligation and $1.9 million accrued financing fee.
August 2011 Letter of Credit Facility with Deutsche Bank
In August 2011, the Predecessor’s parent, SunPower, entered into a letter of credit facility agreement with Deutsche Bank, as administrative agent, and certain financial institutions. Payment of obligations under the letter of credit facility is guaranteed by the majority shareholder of SunPower, Total S.A. As of August 31, 2016 and November 30, 2015
letters of credit issued and outstanding under the August 2011 letter of credit facility with Deutsche Bank which is available to SunPower for the Quinto Project and the RPU Project totaled $14.0
million and $30.7 million, respectively. The associated fees incurred for the letters of credit to Deutsche Bank were $0.1 million and $0.3 million during the three and nine months ended August 31, 2016, respectively, and $0.1 million and $0.4 million during the three and eight months ended August 31, 2015, respectively, and were recognized as interest expense in the unaudited condensed consolidated statements of operations. Pursuant to the Original Omnibus Agreement, SunPower as the Sponsor who contributed the Quinto Project cancelled one of its letter of credit facilities associated with the Quinto Project upon its achieving COD in November 2015. However, SunPower will continue to maintain the remaining letters of credit under the credit facility in connection with certain reimbursable network upgrade costs related to the Quinto Project and will bear the associated fees until no later than November 2016. Since the RPU Project achieved COD in September 2015, SunPower as the Sponsor who contributed the RPU Project is in the process of terminating the related letters of credit, and the Partnership has issued the required letters of credit under its revolving credit facility.
28
Table of Contents
8point3 Energy Partners LP
Notes to Unaudited Condensed Consolidated Financial Statements — Continued
Note 8.
Fair Value
Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement (observable inputs are the preferred basis of valuation):
|
·
|
Level 1—Quoted prices in active markets for identical assets or liabilities.
|
|
·
|
Level 2—Measurements are inputs that are observable for assets or liabilities, either directly or indirectly, other than quoted prices included within Level 1.
|
|
·
|
Level 3—Prices or valuations that require management inputs that are both significant to the fair value measurement and unobservable.
|
The first two levels in the hierarchy are considered observable inputs and the last is considered unobservable.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents the Partnership’s assets and liabilities measured at fair value on a recurring basis, categorized in accordance with the fair value hierarchy:
|
|
August 31, 2016
|
|
|
November 30, 2015
|
|
|
|
FAIR VALUE MEASUREMENTS
|
|
|
FAIR VALUE MEASUREMENTS
|
|
(in thousands)
|
|
Level 1
|
|
|
Level 2
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Total
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
—
|
|
|
$
|
75
|
|
|
$
|
75
|
|
|
$
|
—
|
|
|
$
|
611
|
|
|
$
|
611
|
|
Total liabilities
|
|
$
|
—
|
|
|
$
|
75
|
|
|
$
|
75
|
|
|
$
|
—
|
|
|
$
|
611
|
|
|
$
|
611
|
|
Derivative financial instruments: On July 17, 2015, OpCo entered into interest rate swap agreements intended to hedge the interest rate risk on the outstanding borrowings under the term loan with an aggregate notional value of $240.0 million. Under the interest rate swap agreements, OpCo paid a fixed swap rate of interest of 1.55% and the counterparties to the agreements paid a floating interest rate based on three-month LIBOR at quarterly intervals through the maturity date of August 31, 2018. OpCo had the right to cancel the interest rate swap agreements on August 31, 2016 and any quarterly fixed payment date thereafter with a minimum of five business days’ notification. OpCo exercised its right to cancel the interest rate swap agreements on August 31, 2016 and entered into new interest rate swap agreements intended to hedge the interest rate risk on the outstanding borrowings under the term loan with an aggregate notional value of $250.0 million. Under the new interest rate swap agreements, OpCo will pay a fixed swap rate of interest of approximately 0.85% and the counterparties to the agreements will pay a floating interest rate based on one-month LIBOR at monthly intervals through the maturity date of August 31, 2018.
As of both August 31, 2016 and November 30, 2015, these interest rate swap agreements had not been designated as cash flow hedges and are reflected at fair value on the unaudited condensed consolidated balance sheets. As of August 31, 2016, these interest rate swap agreements have been presented in other long-term liabilities on the unaudited condensed consolidated balance sheet since the maturity date is two years after the balance sheet date. As of November 30, 2015, these interest rate swap agreements had been presented in other current liabilities on the unaudited condensed consolidated balance sheet since OpCo had the right to cancel the swap agreements within one year of the balance sheet date. During the three and nine months ended August 31, 2016, the Partnership recorded a change in fair value of $0.3 million and $0.5 million, respectively, within other income in the unaudited condensed consolidated statements of operations as compared to each of the three and eight months ended August 31, 2015, where the Partnership recorded a change in fair value of $0.8 million within other expense. The primary inputs into the valuation of interest rate swaps are interest yield curves, interest rate volatility, and credit spreads. The Partnership's interest rate swaps are classified within Level 2 of the fair value hierarchy, 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.
The Predecessor entered into interest rate swap agreements, designated as cash flow hedges, in the fourth quarter of the year ended December 28, 2014 on the outstanding and forecasted future borrowings under the Quinto Credit Facility to reduce the impact of changes in interest rates. These swap agreements allowed the Predecessor to effectively convert floating-rate payments into fixed-rate payments periodically over the life of the agreements. These derivatives had a maturity of more than 12 months. The Predecessor assessed the effectiveness of these cash flow hedges at inception and on a quarterly basis. If it was determined that a derivative instrument was not
29
Table of Contents
8point3 Energy Partners LP
Notes to Unaudited Condensed Consolidated Financial Statements — Continued
highly effective or the transaction was no longer deemed probable of occurring, the Predecessor discontinued hedge accounting and
recognized the ineffective portion in current period earnings. In March 2015, the Predecessor discontinued hedge accounting prospectively for its interest rate swap agreements under the Quinto Credit Facility, as it was no longer deemed probable that the h
edge transactions will occur. However, because it remained possible that the forecasted hedge transactions would occur, previously recognized loss of $3.0 million on the interest rate swaps remained in accumulated other comprehensive loss as of March 29, 2
015, and such loss was reclassified into earnings during the quarter ended June 28, 2015, the same period that the forecasted hedged transactions affect earnings or was otherwise deemed to be improbable of occurrence.
During the three and eight months ended August 31, 2015, $2.7 million and $5.4 million, respectively, related to the ineffective portion was recognized in earnings within other expense in the unaudited condensed consolidated statement of operations.
Liabilities Measured at Fair Value on a Nonrecurring Basis
Long-term debt and financing obligations: The estimated fair value of the Partnership’s long-term debt was classified within Level 2 of the fair value hierarchy as of August 31, 2016 and November 30, 2015, and approximated its carrying value of $
362.7
million and $297.2 million, respectively, as the term loan facility is a variable rate debt with the interest rate indexed to the market and reset on a frequent and short-term basis
.
Note 9. Noncontrolling Interests
Noncontrolling interests represent the portion of net assets in consolidated subsidiaries that are not attributable, directly or indirectly, to the Partnership. For accounting purposes, the holders of noncontrolling interests of the Partnership include the Sponsors, which are SunPower and First Solar, as described in Part I, Item 1. “Financial Information—Notes to Unaudited Condensed Consolidated Financial Statements—Note 1—Description of Business and Basis of Presentation,” and third-party investors under the tax equity financing facilities
.
As of both August 31, 2016 and November 30, 2015, First Solar and SunPower had noncontrolling interests of 31.1% and 40.7%, respectively, in OpCo.
In addition, certain subsidiaries of OpCo have entered into tax equity financing facilities with third-party investors under which the parties invest in entities that hold the solar power systems. The Partnership, through OpCo, holds controlling interests in these less-than-wholly-owned entities and has therefore fully consolidated these entities. The Partnership accounts for the portion of net assets using the Hypothetical Liquidation at Book Value (“HLBV”) Method in the consolidated entities attributable to the investors as "Redeemable noncontrolling interests" and "Noncontrolling interests" in its unaudited condensed consolidated financial statements. Noncontrolling interests in subsidiaries that are redeemable at the option of the noncontrolling interest holder are classified as "Redeemable noncontrolling interests in subsidiaries" between liabilities and equity on the unaudited condensed consolidated balance sheets and the balance is the greater of the carrying value calculated under the HLBV Method or the redemption value.
As of August 31, 2016, redeemable noncontrolling interests attributable to tax equity investors was $17.6 million after adjusting the carrying amount to the redemption value. As of November 30, 2015, redeemable noncontrolling interests attributable to tax equity investors was
$89.7 million calculated under the HLBV Method and was greater than the redemption value.
As of August 31, 2016 and November 30, 2015, noncontrolling interests attributable to tax equity investors were $50.8 million and
$11.8 million
, respectively.
In addition, in connection with the Kern Phase 1(a) Acquisition on January 26, 2016, the Kingbird Acquisition on March 31, 2016, the Hooper Acquisition on April 1, 2016, and the Macy’s Maryland Acquisition on July 1, 2016, OpCo acquired the noncontrolling interest balances totaling $0.9 million,
$11.7 million, $23.7 million, and $0.6 million, respectively.
Please read
“
—
Note 2
—Business Combinations—2016 Acquisitions”
for further details.
30
Table of Contents
8point3 Energy Partners LP
Notes to Unaudited Condensed Consolidated Financial Statements — Continued
During the three and nine months ended August 31, 2016, such indirect subsidiaries of OpCo received zero and $47.2 million, re
spectively, in contributions from third-party investors under the related facilities, of which $46.8 million was transferred to an affiliate of First Solar for the remaining purchase price payment of the Kingbird Project. During the three and nine months e
nded August 31, 2016, such indirect subsidiaries of OpCo attributed $24.3
million and $112.1 million, respectively, in income to the third-party investors primarily as a result of allocating certain assets, including tax credits, if any, to the investors.
During both the three and eight months ended August 31, 2015, such indirect subsidiaries of OpCo received $7.0 million in contributions from third-party investors under the related facilities and attributed
$0.7 million
in losses to the third-party investo
rs primarily as a result of allocating certain assets, including tax credits, if any, to the investors.
During the three and nine months ended August 31, 2016, such indirect subsidiaries of OpCo made distributions to third-party investors under the related facilities of $2.3
million and $4.9 million, respectively, compared to distributions of zero for both the three and eight months ended August 31, 2015.
The following table presents the noncontrolling interest balances by entity, reported in shareholders’ equity in the unaudited condensed consolidated balance sheets as of August 31, 2016 and November 30, 2015:
|
|
As of
|
|
|
|
August 31,
|
|
|
November 30,
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
First Solar
|
|
$
|
202,063
|
|
|
$
|
159,624
|
|
SunPower
|
|
|
88,132
|
|
|
|
22,661
|
|
Tax equity investors
|
|
|
50,810
|
|
|
|
11,773
|
|
Total
|
|
$
|
341,005
|
|
|
$
|
194,058
|
|
Note 10. Shareholders’ Equity
On June 24, 2015, the Partnership completed its IPO by issuing 20,000,000 of its Class A shares representing limited partner interests in the Partnership to the public. As of August 31, 2016, the Partnership owned a 28.2% limited liability company interest in OpCo as well as a controlling noneconomic managing member interest in OpCo and the Sponsors collectively owned 51,000,000 Class B shares representing limited partner interests in the Partnership, and together, having owned a noncontrolling 71.8% limited liability company interest in OpCo. As of August 31, 2016, the following shares of the Partnership were outstanding:
|
|
Number
|
|
|
|
Shares
|
|
Outstanding
|
|
|
Shareholder
|
Class A shares
|
|
|
20,018,276
|
|
|
Public
|
Class B shares
|
|
|
22,116,925
|
|
|
First Solar
|
Class B shares
|
|
|
28,883,075
|
|
|
SunPower
|
Total shares outstanding
|
|
|
71,018,276
|
|
|
|
On September 28, 2016 the Partnership sold in an underwritten registered public offering 8,050,000 Class A shares representing limited partner interests in the Partnership (the “Public Offering”). Please read “—Note 15—Subsequent Events” for further details.
Cash Distribution
The Partnership is required to distribute its available cash (as defined in the Partnership Agreement) to the holders of Class A shares each quarter as described in “Note 12. Shareholders’ Equity” of the 2015 10-K. On
July 15, 2016
, the Partnership paid its second quarter distribution of $4.7 million to Class A shareholders for the period from March 1, 2016 to May 31, 2016.
Note 11. Net Income Per Share
Basic net income per share is computed by dividing net income for the three and nine months ended August 31, 2016 and the three and eight months ended August 31, 2015, respectively, attributable to Class A shareholders by the weighted average number of Class A shares outstanding for the applicable period. Diluted net income per share is computed using basic weighted average Class A shares outstanding plus, if dilutive, any potentially dilutive securities outstanding during the period using the treasury-stock-type method. Pursuant to the Exchange Agreement entered into among the
Partnership, the General Partner, OpCo, a wholly owned
31
Table of Contents
8point3 Energy Partners LP
Notes to Unaudited Condensed Consolidated Financial Statements — Continued
subsidiary of SunPower and a wholly owned subsidiary of First Solar, the Sponsors can tender OpCo common units and an equal numb
er of such Sponsor’s Class B shares for redemption, and the Partnership has the right to directly purchase the tendered OpCo common units and Class B shares for, subject to the approval of its conflicts committee, cash or the issuance of Class A shares of
the Partnership. If the Partnership elects to issue Class A shares, it would cancel the tendered Class B shares and hold the OpCo common units with the other OpCo common units it previously held, since the number of Class A shares issued must at all time e
qual the number of OpCo common units held by the Partnership. Since the Partnership would be holding additional OpCo common units, the net income
attributable to Class A shares would proportionately increase, resulting in no change to net income per share
for the three and nine months ended August 31, 2016 and the three and eight months ended August 31, 2015, respectively. In addition, there were no potentially dilutive securities (including any stock options, restricted stock and restricted stock units) fo
r the three and nine months ended August 31, 2016 and the three and eight months ended August 31, 2015, respectively. Accordingly, basic and diluted net income per share for the three and nine months ended August 31, 2016 and the three and eight months end
ed August 31, 2015, respectivly, was as follows:
|
|
Three
Months Ended
|
|
|
Nine Months Ended
|
|
|
Eight Months Ended
|
|
|
|
August 31,
|
|
|
August 31,
|
|
|
August 31,
|
|
|
August 31,
|
|
(in thousands, except per share amounts)
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Basic net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Class A shareholders
|
|
$
|
7,593
|
|
|
$
|
1,033
|
|
|
$
|
22,923
|
|
|
$
|
1,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average shares
|
|
|
20,015
|
|
|
|
20,002
|
|
|
|
20,011
|
|
|
|
20,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$
|
0.38
|
|
|
$
|
0.05
|
|
|
$
|
1.15
|
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Class A shareholders
|
|
$
|
7,593
|
|
|
$
|
1,033
|
|
|
$
|
22,923
|
|
|
$
|
1,033
|
|
Add: Additional net income attributable to
Class A shares due to increased percentage
ownership in OpCo, net of tax, from the
conversion of Class B shares
|
|
|
5,985
|
|
|
|
757
|
|
|
|
17,897
|
|
|
|
757
|
|
|
|
$
|
13,578
|
|
|
$
|
1,790
|
|
|
$
|
40,820
|
|
|
$
|
1,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average shares
|
|
|
20,015
|
|
|
|
20,002
|
|
|
|
20,011
|
|
|
|
20,002
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B shares (1)
|
|
|
15,500
|
|
|
|
14,413
|
|
|
|
15,500
|
|
|
|
14,413
|
|
Diluted weighted-average shares
|
|
|
35,515
|
|
|
|
34,415
|
|
|
|
35,511
|
|
|
|
34,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share
|
|
$
|
0.38
|
|
|
$
|
0.05
|
|
|
$
|
1.15
|
|
|
$
|
0.05
|
|
|
(1)
|
Up to the amount of OpCo common units held by Sponsors
|
32
Table of Contents
8point3 Energy Partners LP
Notes to Unaudited Condensed Consolidated Financial Statements — Continued
Note 12. Related Parties
Management Services Agreements
Immediately prior to the completion of the IPO on June 24, 2015, the Partnership, together with the General Partner, OpCo and Holdings, entered into similar but separate Management Services Agreements (the “MSAs”) with affiliates of each of the Sponsors (each, a “Service Provider”). Under the MSAs, the Service Providers will provide or arrange for the provision of certain administrative and management services for the Partnership and certain of its subsidiaries, including managing the Partnership’s day-to-day affairs, in addition to those services that are provided under existing O&M agreements and asset management agreements (“AMAs”) between affiliates of the Sponsors and certain of the subsidiaries of the Partnership. In August 2015, the First Solar MSA and the SunPower MSA were amended to adjust the annual management fee payable to each respective Service Provider. In the case of the First Solar MSA, OpCo will initially pay an annual management fee of $0.6 million to the First Solar Service Provider. In the case of the SunPower MSA, OpCo will initially pay an annual management fee of $1.1 million to the SunPower Service Provider. These payments are subject to annual adjustments for inflation. Between December 1, 2015 and November 30, 2016, each Service Provider will have a one-time right to increase the management fee by an amount not to exceed 15%.
Costs incurred for these services were $0.4
million and $1.2 million for the three and nine months ended August 31, 2016, respectively. Costs incurred for these services were $0.3 million in each of the three and eight months ended August 31, 2015.
Engineering, Procurement and Construction Agreements
Various projects are designed, engineered, constructed and commissioned pursuant to EPC agreements with affiliates of the Sponsors, which may include a 2- to 10-year system warranty against defects in materials, construction, fabrication and workmanship, and in some cases, may include a 25-year power and product warranty on certain modules.
As of August 31, 2016, all of the projects contributed by the Sponsors on the date of the IPO have achieved COD and the Kern Phase 1(a) Assets and the Macy’s Maryland Project are construction-in-progress and expected to achieve COD in December 2016 and October 2016, respectively. SunPower as the EPC provider is required to complete the Kern Phase 1(a) Assets, the Kern Phase 1(b) Assets and the Macy’s Maryland Project and pursuant to the Amended and Restated Omnibus Agreement, all the associated costs to complete the Kern Phase 1(a) Assets, the Kern Phase 1(b) Assets and the Macy’s Maryland Project are obligations of SunPower.
Operations and Maintenance Agreements and Asset Management Agreements
The Project Entities and certain other subsidiaries have entered into O&M agreements and AMAs with affiliates of the Sponsors, as applicable (except where such persons are otherwise subject to O&M agreements or AMAs with unaffiliated third parties). Under the terms of the O&M agreements and the AMAs, such affiliates have agreed to provide a variety of operation, maintenance and asset management services, and certain performance warranties or availability guarantees, to the subsidiaries of the Partnership in exchange for annual fees, which are subject to certain adjustments.
O&M services to the leased solar power systems, also known as executory costs, were allocated to the Predecessor by SunPower and disclosed as cost of operations-SunPower in the combined carve-out statement of operations of the Predecessor.
Costs incurred for O&M and AMA services
were $1.5 million and $3.8 million for the three and nine months ended August 31, 2016, respectively, compared to $0.1 million and $0.5 million for the three and eight months ended August 31, 2015, respectively
.
Omnibus Agreement
In connection with the IPO, the Partnership entered into an omnibus agreement (the “Original Omnibus Agreement”), with its Sponsors, the General Partner, OpCo and Holdings, under which (i) each Sponsor was granted an exclusive right to perform certain services not otherwise covered by an O&M agreement or an AMA on behalf of the IPO Project Entities contributed by such Sponsor, (ii) with respect to any project in the Portfolio that did not achieve commercial operation as of the closing of the IPO, the Sponsor who contributed such project will pay to OpCo all costs required to complete such project, as well as certain liquidated damages in the event such project fails to achieve operability pursuant to an agreed schedule, (iii) each Sponsor agreed to certain undertakings on the part of its affiliates who are members of the IPO Project Entities or who provide asset management, construction, operating and maintenance and other services to the IPO Project Entities contributed by such Sponsor, (iv) to the extent a Sponsor continues to post credit support on behalf of an IPO Project Entity after it has been contributed to OpCo, OpCo agreed to reimburse such Sponsor upon
33
Table of Contents
8point3 Energy Partners LP
Notes to Unaudited Condensed Consolidated Financial Statements — Continued
any demand or draw under such credit support, and the Sponsor agreed to maintain such support pursuant to the applicable underlying contractual or regulatory requirements, (v) each Sponsor agreed to indemnify OpCo fo
r any costs it incurs with respect to certain tax-related events and events in connection with tax equity financing arrangements, and (vi) the parties agreed to a mutual undertaking regarding confidentiality and use of names, trademarks, trade names and ot
her insignias.
In August 2015, the Original Omnibus Agreement was amended to provide that (i) with respect to each of the North Star Project and the Quinto Project, which were contributed to the Partnership by First Solar and SunPower, respectively, the Sponsors agreed to pay to OpCo the difference, if any, between the amount of network upgrade refunds projected to be received in respect of the Sponsor’s project at the time of contribution and the amount of network upgrade refunds projected to be received in respect of such project at the commencement of commercial operation of such project; and (ii) SunPower agreed to indemnify OpCo for certain costs it may incur in connection with the termination of certain tax equity financing arrangements relating to the contributed residential lease portfolios, which occurred before the Partnership’s IPO. During the three months ended February 29, 2016, the Partnership received a $10.0 million indemnity payment for a shortfall associated with the network upgrade refunds projected to be received.
In November 2015, the Original Omnibus Agreement was amended to provide that the indemnity for energy produced prior to commercial operation owed by each Sponsor to OpCo will be calculated on an aggregate basis with respect to all projects contributed by such Sponsor in connection with the IPO, rather than on a project-by-project basis. As a result of this indemnity, the Partnership received $3.9 million as an indemnity payment from SunPower for a test energy shortfall associated with the Quinto Project.
On January 26, 2016, March 31, 2016 and April 1, 2016, in connection with the Kern Phase 1(a) Acquisition, Kingbird Acquisition and Hooper Acquisition, respectively, the Original Omnibus Agreement was amended to update the schedules thereto to include the solar power systems held indirectly by the Kern Class B Partnership at the closing of the Kern Phase 1(a) Acquisition, the Kingbird Project and the Hooper Project, respectively, for all purposes, except for certain tax indemnities which are included in the Kern Purchase Agreement, Kingbird Purchase Agreement and Hooper Purchase Agreement.
On April 6, 2016, the Partnership amended and restated the Original Omnibus Agreement (as amended and restated, the “Amended and Restated Omnibus Agreement”) with its Sponsors, the General Partner, OpCo and Holdings (i) to expand each sponsor’s tax equity indemnification obligations (as further discussed below), (ii) to provide that the sponsors’ obligation to cover costs required to achieve commercial operation (as further discussed below) will be reduced to the extent OpCo and its affiliates receive alternate funds that are contemplated to be used to pay project expenses, and such funds are applied accordingly, and (iii) to integrate changes from prior amendments to the Original Omnibus Agreement disclosed above. The material provisions of the Amended and Restated Omnibus Agreement are as follows: (a) each Sponsor was granted an exclusive right to perform certain services not otherwise covered by an O&M agreement or an AMA on behalf of the Project Entities contributed by such Sponsor; (b) with respect to any project in the Portfolio that has not achieved commercial operation, the Sponsor who contributed such project will pay to OpCo all costs required to complete such project, subject to certain exclusions; (c) with respect to any project in the Portfolio that did not achieve commercial operation as of the closing of the IPO, the Sponsor who contributed such project will pay to OpCo certain liquidated damages in the event such project fails to achieve operability pursuant to an agreed schedule; (d) with respect to the Quinto Project and the North Star Project, the Sponsor who contributed such project will pay to OpCo the difference, if any, between the amount of network upgrade refunds projected to be received in respect of such sponsor’s project at the time of contribution and the amount of network upgrade refunds projected to be received given the actual amount of upgrade costs incurred in respect of such project; (e) certain undertakings on the part of each Sponsor’s affiliates who act as a manager of any Project Entity or who provide asset management, construction, operating and maintenance and other services to the Project Entities contributed by such Sponsor; (f) to the extent a Sponsor continues to post credit support on behalf of a Project Entity after it has been contributed to OpCo, OpCo agreed to reimburse such Sponsor upon any demand or draw under such credit support, and the Sponsor agreed to maintain such support pursuant to the applicable underlying contractual or regulatory requirements; (g) each Sponsor agreed to indemnify OpCo for any costs it incurs with respect to certain tax-related events and events in connection with tax equity financing arrangements; and (h) the parties agreed to a mutual undertaking regarding confidentiality and use of names, trademarks, trade names and other insignias. Upon the execution of the Amended and Restated Omnibus Agreement, the tax indemnities included in the Kern Purchase Agreement, the Kingbird Purchase Agreement and the Hooper Purchase Agreement automatically terminated
.
On July 1, 2016 and September 9, 2016, in connection with the Macy’s Maryland Acquisition and the Kern Phase 1(b) Acquisition,
respectively, the Amended and Restated Omnibus Agreement was amended to update the schedules thereto to include the Macy’s Maryland Project and
the solar power systems held indirectly by the Kern Class B Partnership at the closing of the Kern Phase 1(b) Acquisition
for all purposes.
34
Table of Contents
8point3 Energy Partners LP
Notes to Unaudited Condensed Consolidated Financial Statements — Continued
Promissory Note
On November 25, 2015, OpCo, issued a Promissory Note to First Solar in the principal amount of $2.0 million (the “Note”), in exchange for First Solar’s loan of such amount to OpCo. Upon the receipt of certain payments by the Solar Gen 2 Project Entity from SDG&E under the power purchase agreement between the Solar Gen 2 Project Entity and SDG&E, which had been previously withheld pending completion of an administrative requirement (each, a “Specified Payment”), OpCo is obligated to repay a portion of the principal amount of the Note equal to such Specified Payment and the unpaid balance of all interest accrued under the Note to and including the date of such repayment. Interest will accrue at a rate of 1% on the portion of the principal of the Note equal to the amount of each Specified Payment from the date SDG&E remits such payment to the Solar Gen 2 Project Entity through the date that OpCo repays such amount to First Solar as described above. OpCo is permitted to prepay the Note at any time without penalty or premium.
Purchase and Sale Agreements
Prior to the closing of the IPO, each of (i) SSCA XIII Holding Company, LLC, an indirect subsidiary of OpCo and the holder of the Quinto Project Entity (“Quinto Holdings”), (ii) SSCA XXXI Holding Company, LLC, an indirect subsidiary of OpCo and the indirect holder of the RPU Project Entity (“RPU Holdings”), and (iii) SunPower Commercial Holding Company I, LLC, an indirect subsidiary of OpCo and the holder of the UC Davis Project Entity and the Macy’s California Project Entities (“C&I Holdings,” and together with Quinto Holdings and RPU Holdings, the “SP Holding Companies”), entered into purchase and sale agreements (collectively, the “PSAs”) with affiliates of SunPower in connection with SunPower’s contribution of the SP Holding Companies to OpCo, and also entered into certain tax equity financing arrangements with third party investors to finance the purchases of the SP Holding Companies. Pursuant to the PSAs, the purchase prices were paid in installments, which were made when the projects met certain construction milestones, with final installment payments due upon COD.
Since all of these projects have attained COD, there are no purchase price payments remaining.
On January 26, 2016, OpCo entered into the Kern Purchase Agreement with SunPower pursuant to which OpCo agreed to purchase an interest in the Kern Project, as further described above in “—Note 2—Business Combinations—2016 Acquisitions.” Effective January 26, 2016, a subsidiary of OpCo acquired from SunPower all of the class B limited liability company interests of the Kern Class B Partnership. Pursuant to the Kern Purchase Agreement, the purchase price for the Kern Project will be paid by OpCo when each phase of the project reaches “mechanical completion.” In addition, on January 22, 2016, a subsidiary of the Kern Class B Partnership entered into a tax equity financing facility with a third-party investor, which allocates to OpCo a certain share of cash flows from the Kern Project pursuant to a specified distribution waterfall. Purchase price payments of up to approximately $31.2 million will be funded by the tax equity investor’s capital contributions, of which $0.9 million and $1.8 million was paid on January 22, 2016 and September 9, 2016, respectively, and the remaining balance of up to $28.5 million will be made when the Kern Project’s phases meet certain construction milestones and will be transferred to affiliates of SunPower for the remaining purchase price payments. Please read “—Note 2—Business Combinations—2016 Acquisitions” for further details.
On March 31, 2016, OpCo entered into the Kingbird Purchase Agreement with First Solar, pursuant to which OpCo agreed to acquire an interest in the Kingbird Project, as further described above in “—Note 2—Business Combinations—2016 Acquisitions.” Effective March 31, 2016, a subsidiary of OpCo acquired FSAM Kingbird Solar Holdings, LLC from First Solar. FSAM Kingbird Solar Holdings, LLC holds the class B limited liability company interests of Kingbird Solar, LLC. The Kingbird Project Entities are direct subsidiaries of Kingbird Solar, LLC, and OpCo holds a controlling interest in the Kingbird Solar, LLC effective March 31, 2016. Pursuant to the Kingbird Purchase Agreement, the $60.0 million purchase price due from OpCo to acquire an interest in the Kingbird Project was paid in installments with $42.9 million in cash paid to First Solar on March 31, 2016 and a $17.1 million contribution to FSAM Kingbird Solar Holdings, LLC on May 31, 2016 which was subsequently paid to an affiliate of First Solar for the remaining balance due under the Kingbird Project’s EPC contract. In addition, Kingbird Solar, LLC entered into a tax equity financing facility with a third-party investor, which allocates to OpCo a certain share of cash flows from the Kingbird Project pursuant to a specified distribution waterfall. The tax equity investor made capital contributions to fund purchase price payments of approximately $11.7 million on February 26, 2016 and $46.8 million on May 31, 2016, which were made when the Kingbird Project’s phases met certain construction milestones and were transferred to an affiliate of First Solar for the remaining purchase price payments. Since the Kingbird Project has attained COD as of May 31, 2016 there are no purchase price payments remaining. Please read “—Note 2—Business Combinations—2016 Acquisitions” for further details.
On March 31, 2016, OpCo entered into the Hooper Purchase Agreement with SunPower, pursuant to which OpCo agreed to acquire an interest in the Hooper Project, as further described above in “—Note 2—Business Combinations—2016 Acquisitions.” Effective April 1, 2016, a subsidiary of OpCo acquired from SunPower all of the class B limited liability company interests of the
35
Table of Contents
8point3 Energy Partners LP
Notes to Unaudited Condensed Consolidated Financial Statements — Continued
Hooper Class B Partnership for a cash purchase price of $53.5 million. Since the Hooper Project attained COD prior to the acquisition date there are no purchase price payments remaining. Please read “—Note 2—Business Combinations—2016 A
cquisitions” for further details.
On June 29, 2016, OpCo entered into the Macy’s Maryland Purchase Agreement with SunPower pursuant to which OpCo agreed to purchase an interest in the Macy’s Maryland Project, as further described above in “—Note 2—Business Combinations—2016 Acquisitions.” Effective July 1, 2016, a subsidiary of OpCo acquired from SunPower all of the class B limited liability company interests of the Macy’s Maryland Class B Partnership. Pursuant to the Macy’s Maryland Purchase Agreement,
the $12.0 million purchase price due from OpCo to acquire an interest in the Macy’s Maryland Project was contributed to
Macy’s Maryland Class B Partnership, the acquired company, on July 1, 2016 of which $6.4 million was subsequently paid to SunPower and the $5.6 million remaining balance was paid to SunPower on September 21, 2016 when the Macy’s Maryland Project met certain construction milestones.
In addition, a subsidiary of the
Macy’s Maryland Class B Partnership
entered into a tax equity financing facility with a third-party investor, which allocates to OpCo a certain share of cash flows from the Macy’s Maryland Project pursuant to a specified distribution waterfall.
Purchase price payments of $8.9 million will be funded by the tax equity investor’s capital contributions, of which $0.6 million and $3.3 million was paid on May 6, 2016 and September 21, 2016, respectively, and the remaining balance of $5.0 million will be made when the Macy’s Maryland Project’s phases meet certain construction milestones and will be transferred to affiliates of SunPower for the remaining purchase price payments
.
On September 20, 2016, OpCo entered into a Contribution Agreement with SunPower and SunPower AssetCo, LLC, a wholly-owned subsidiary of SunPower, to acquire a 49% interest in the Henrietta Project for $134.0 million in cash. Please read “—Note 15—Subsequent Events” for further details.
First Solar ROFO Agreement
On March 28, 2016 and June 28, 2016, OpCo entered into an Amendment and Waiver to Right of First Offer Agreement (“Waiver No. 1”) and into an Amendment and Waiver No. 2 to the First Solar ROFO Agreement (“Waiver No. 2”) with First Solar. Pursuant to Waiver No. 1 and Waiver No. 2, OpCo waived certain of its rights under the First Solar ROFO Agreement, dated as of June 24, 2015, between OpCo and First Solar, and First Solar and OpCo agreed to amend certain provisions of the First Solar ROFO Agreement. Pursuant to the First Solar ROFO Agreement, First Solar previously granted to OpCo a right of first offer to purchase certain solar energy generating facilities for a period of five years. Such solar projects included the 300 MW Stateline facility in San Bernardino County, California (“Stateline”)
and the 250 MW Moapa solar generation project in Clark County, Nevada (“Moapa”). Pursuant to Waiver No. 1
and Waiver No. 2, OpCo waived its rights under the First Solar ROFO Agreement with respect to 24% of the aggregate interest in Stateline
and 100% of the aggregate interest in Moapa, respectively. Concurrently
with Waiver No. 1, OpCo’s rights under the First Solar ROFO Agreement were expanded to cover First Solar’s 100 MW Switch Station 1 and 79-MW Switch Station 2 facilities in Clark County, Nevada (collectively, “Switch Station”), which had not previously been subject to the First Solar ROFO Agreement. Additionally, OpCo and First Solar agreed to impose certain limitations on First Solar’s right to offer projects to OpCo under the First Solar ROFO Agreement (each, a “ROFO Offer”). These limitations include commitments by First Solar (i) to not make ROFO Offers in respect of Switch Station or Stateline before February 1, 2017 and October 1, 2016, respectively, and (ii) during the period between October 1, 2016 and December 31, 2016, to limit all ROFO Offers in respect of Stateline to either (A) an offer for 50% of First Solar’s remaining indirect interest or (B) an offer pursuant to which OpCo may elect to purchase either 50% or 100% of First Solar’s remaining indirect interest. Concurrently with Waiver No. 2, OpCo’s rights under the First Solar ROFO Agreement were expanded to cover First Solar’s 130 MW California Flats and 150 MW California Flats facilities in Monterey County, California, which had not previously been subject to the First Solar ROFO Agreement.
SunPower ROFO Agreement
On September 30, 2016,
OpCo entered into an amendment and waiver to the Right of First Offer Agreement with SunPower. Please read “—Note 15—Subsequent Events” for further details.
Maryland Solar Lease Arrangement
The Maryland Solar Project Entity has leased the Maryland Solar Project to an affiliate of First Solar. Under the arrangement, First Solar’s affiliate is obligated to pay a fixed amount of rent that is set based on the expected operations of the plant. The lease agreement will expire on December 31, 2019.
36
Table of Contents
8point3 Energy Partners LP
Notes to Unaudited Condensed Consolidated Financial Statements — Continued
Operating Expense Allocations
The Predecessor’s condensed carve-out financial statements include allocations of certain SunPower operating expenses. The allocations include: (i) charges that were incurred by SunPower that were specifically identified as attributable to the Predecessor; and (ii) an allocation of applicable SunPower operating expenses based on the proportional level of effort attributable to the operation of the Predecessor’s portfolio of solar power systems leased to residential homeowners and projects under construction. These expenses include legal, accounting, tax, treasury, information technology, insurance, employee benefit costs, human resources, procurement and other corporate services and infrastructure costs. The allocation of applicable SunPower operating expenses was principally based on management’s estimate of the proportional level of effort devoted by corporate resources. The amounts allocated to the Predecessor related to SunPower operating expenses were $0.8 million and $4.8 million for the three and eight months ended August 31, 2015, respectively, and are disclosed as SG&A expenses on the unaudited condensed consolidated statement of operations.
Note 13. Income Taxes
The provision for income taxes differed from the amount computed by applying the statutory U.S. federal rate of 35% primarily due to the tax impact of equity in earnings, the tax impact of noncontrolling interest, a permanent difference between the amount recognized as deductible for U.S. GAAP and tax purposes related to board of director share-based compensation, and state tax rates (net of federal benefit) in various jurisdictions, most significantly California.
The Partnership’s financial reporting year-end is November 30 while its tax year-end is December 31. The Partnership has elected to base the tax provision on the financial reporting year; therefore, since the 2016 financial reporting year is December 1, 2015 through November 30, 2016, the taxable income (loss) included in the 2016 tax provision is for the tax year ended December 31, 2015. The provision accrued at the financial reporting year-end will be a discrete period computation, and the tax credits and permanent differences recognized in that accrual will be those generated between the tax year-end date and the financial reporting year-end date. Since 2015 is the Partnership’s year of formation, any amounts recorded for income tax provision (benefit) following the IPO primarily represent deferred income taxes being provided on the net income before taxes of OpCo, a non-taxable partnership, which is allocated to the Partnership. The Predecessor’s loss for the period from December 28, 2014 to the date of the IPO was approximately $20.1 million or $7.0 million tax-effected.
Although organized as a limited partnership under state law, the Partnership elected to be treated as a corporation for U.S. federal income tax purposes. Accordingly, the Partnership is subject to U.S. federal income taxes at regular corporate rates on its net taxable income, and distributions it makes to holders of its Class A shares will be taxable as ordinary dividend income to the extent of its current and accumulated earnings and profits as computed for U.S. federal income tax purposes.
The Partnership accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the unaudited condensed consolidated financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Partnership recognizes deferred tax assets to the extent that it believes these assets are more likely than not to be realized. In making such a determination, the Partnership considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies and results of recent operations. If the Partnership determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, it would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
The Partnership records uncertain tax positions in accordance with ASC 740 — Income Taxes on the basis of a two-step process whereby (1) it determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Partnership recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
Note 14. Segment Information
The Partnership manages its Portfolio as one segment that operates a portfolio of solar energy generation systems. It operates as a single reportable segment based on the “management” approach.
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8point3 Energy Partners LP
Notes to Unaudited Condensed Consolidated Financial Statements — Continued
All operating revenues for the three and nine months ended August 31, 2016 and three and eight months ende
d August 31, 2015 were from customers located in the United States and over 90% of the Partnership’s total revenue for all periods was comprised of lease revenue. Operating revenues from one customer, First Solar, as lessee of the Maryland Solar Project, a
ccounted for less than 10% of total operating revenues for the three and nine months ended August 31, 2016, compared to
32% and 15%
in the three and eight months ended August 31, 2015, respectively. Long-lived assets consisting of property and equipment, n
et, were located in the United States.
Note 15. Subsequent Events
On September 9, 2016, OpCo paid approximately $9.2 million with cash on hand in connection with the Kern Phase 1(b) Acquisition. The Kern Phase 1(b) Acquisition qualifies as a business combination and the Partnership accounts for the transaction under the acquisition method. The purchase allocation of the Kern Phase 1(b) Assets disclosed in the following table is
based on the preliminary assessment of the fair values of the assets acquired, liabilities assumed and noncontrolling interests as of the acquisition date, and is subject to change as the Partnership obtains additional information for its estimates during the respective measurement period
. Pro forma results of operations for the acquisition have not been presented as the impact of the acquisition is not material to the Partnership’s consolidated results of operations for the current or prior periods. The results of operations of the Kern Phase 1(b) Assets will be included in the Partnership’s consolidated results of operations beginning September 9, 2016.
Please read “—Note 2—Business Combinations” for more details
. On September 28, 2016, the Kern Purchase Agreement was amended pursuant to which the aggregate nameplate capacity of the Kern Project increased by up to 1 MW and OpCo’s aggregate purchase price for the acquisition increased by up to $1.6 million.
(in thousands)
|
|
Fair Value
|
|
Property and equipment
|
|
$
|
18,853
|
|
Related party payable
|
|
|
(7,123
|
)
|
Asset retirement obligation
|
|
|
(785
|
)
|
Noncontrolling interest
|
|
|
(1,791
|
)
|
Net assets acquired
|
|
$
|
9,154
|
|
On September 19, 2016, the board of directors of our general partner declared a cash distribution for its Class A shares of $0.2406 per share for the third quarter of 2016. The board of directors declared a corresponding cash distribution for OpCo’s common and subordinated units, which includes all common and subordinated units held by First Solar and SunPower. The third quarter distribution will be paid on October 14, 2016 to shareholders and unitholders of record as of October 3, 2016.
On September 20, 2016, OpCo entered into a Contribution Agreement with SunPower and SunPower AssetCo, LLC, a wholly-owned subsidiary of SunPower, to acquire a 49% interest in the Henrietta Project for $134.0 million in cash. A subsidiary of Southern Company owns the other 51% of the Henrietta Project and controls the governing board of the project. The Henrietta Acquisition closed on September 29, 2016 and OpCo funded the purchase price with a combination of net proceeds of the Public Offering, cash on hand and drawings under OpCo’s revolving credit facility.
On September 28, 2016, the Partnership sold 8,050,000 Class A shares in the Public Offering for net proceeds of $113.7 million ($117.9 million gross proceeds, or $14.65 per Class A share, less $3.5 million of underwriting discount and $0.7 million of transaction fees).
On September 30, 2016, OpCo entered into the Joinder Agreement under its existing senior secured credit facility, pursuant to which OpCo obtained a new $250.0 million incremental term loan facility, increasing the maximum borrowing capacity under the credit facility to $775.0 million. The Joinder Agreement also amends OpCo’s credit facility to, among other things, (i) permit OpCo to incur up to $50.0 million in subordinated indebtedness from First Solar or its affiliate to pay a portion of the purchase price for the potential acquisition of an interest in a solar energy project located in San Bernardino County, California, that has a nameplate capacity of 300 MW (the “Stateline Project”), and (ii) increase OpCo’s maximum debt-to-cash-flow ratio (as more fully defined in the OpCo’s credit facility) in respect of the fiscal quarters ending November 30, 2016 through November 30, 2017 from 5.50:1.00 to 6.00:1.00, and for all fiscal quarters thereafter from 5.00:1.00 to 5.50:1.00 (except that the prior thresholds will continue to apply under certain circumstances). All other existing terms of OpCo’s senior secured credit facility remain unchanged.
On September 30, 2016, OpCo entered into an amendment and waiver to the Right of First Offer Agreement with SunPower (the “SunPower ROFO Waiver”). Pursuant to the SunPower ROFO Agreement, SunPower previously granted to OpCo a right of first
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8point3 Energy Partners LP
Notes to Unaudited Condensed Consolidated Financial Statements — Continued
offer to purchase certain solar energy generating facilities for a period of five years. Such solar projects included the 54 MW Stanford solar generation project in Kern County, California (“Stanford”) and the 20 MW
IPT Solar Gen
solar generation project in
the Ishikawa prefecture
, Japan (“IPT”). Pursuant to the SunPower ROFO Waiver, OpCo waived its r
ights under the SunPower ROFO Agreement with respect to Stanford and IPT. Concurrently, OpCo’s rights under the SunPow
er ROFO Agreement were expanded to cover SunPower’s 100 MW Boulder Solar 1 facility in Clark County, Nevada and SunPower’s 42 MW Commercial Portfolio #3 located in various U.S. states, which had not previously been subject to the SunPower ROFO Agreement.
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