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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 28, 2017

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File Number: 001-37447

 

8point3 Energy Partners LP

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

47-3298142

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

77 Rio Robles

San Jose, California

95134

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (408) 240-5500

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No    

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  (Do not check if a small reporting company)

  

Small reporting company

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of April 3, 2017, the registrant had outstanding 28,076,907 Class A shares representing limited partner interests and 51,000,000 Class B shares representing limited partner interests.

 

 

 

 

 


Table of Contents

 

 

 

Page

GLOSSARY

2

 

 

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

7

 

Condensed Consolidated Balance Sheets

7

 

Condensed Consolidated Statements of Operations

8

 

Condensed Consolidated Statements of Redeemable Noncontrolling Interests and Equity

9

 

Condensed Consolidated Statements of Cash Flows

10

 

Notes to Unaudited Condensed Consolidated Financial Statements

11

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

32

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

46

Item 4.

Controls and Procedures

47

 

 

 

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

47

Item 1A.

Risk Factors

47

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

49

Item 3.

Defaults Upon Senior Securities

49

Item 4.

Mine Safety Disclosures

49

Item 5.

Other Information

49

Item 6.

Exhibits

50

Signatures

51

Exhibit Index

52

 

 

 

 

i


 

GLOSSARY

References in this Quarterly Report on Form 10-Q to:

“2016 10-K” refers to our Annual Report on Form 10-K dated January 26, 2017, as amended.

“(ac)” refers to alternating current.

“AMAs” refers to asset management agreements.

“AROs” refers to asset retirement obligations.

“ATM Program” refers to the Partnership’s at-the-market offering program established on January 30, 2017 under the Equity Distribution Agreement by and among the Partnership and the General Partner, on the one hand, and Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Mizuho Securities USA Inc. (collectively, the “ATM Agents”), on the other hand, under which the Partnership may sell its Class A Shares from time to time to or through the ATM Agents.

“Blackwell Project” refers to the solar energy project located in Kern County, California, that is held by the Blackwell Project Entity and has a nameplate capacity of 12 MW.

“Blackwell Project Entity” refers to Blackwell Solar, LLC.

“C&I” refers to commercial and industrial.

“C&I Holdings” refers to SunPower Commercial Holding Company I, LLC, an indirect subsidiary of OpCo and the holder of the Macy’s California Project Entities and the UC Davis Project Entity.

“C&I Project Entities” refers to, collectively, the Kern Project Entity, the Macy’s California Project Entities, the Macy’s Maryland Project Entity and the UC Davis Project Entity.

“COD” refers to the commercial operation date.

“DG Solar” refers to distributed solar generation.  DG Solar systems are deployed at the site of end-use, such as businesses and homes.

“EPC” refers to engineering, procurement and construction.

“Exchange Act” refers to the Securities Exchange Act of 1934, as amended.

“FASB” refers to the Financial Accounting Standards Board.

“First Solar” refers to First Solar, Inc., a corporation formed under the laws of the State of Delaware, in its individual capacity or to First Solar, Inc. and its subsidiaries, as the context requires. Unless otherwise specifically noted, references to First Solar and its subsidiaries exclude us, the General Partner, Holdings and our subsidiaries, including OpCo.

“First Solar MSA” refers to the Management Services Agreement, dated as of June 24, 2015, as amended, among the Partnership, OpCo, the General Partner and First Solar 8point3 Management Services, LLC.

“First Solar ROFO Agreement” refers to the Right of First Offer Agreement, dated as of June 24, 2015, as amended, by and between OpCo and First Solar.

“First Solar ROFO Projects” refers to, collectively, the projects set forth in the chart in Part I, Item 1 of the 2016 10-K, under the heading “Business—Our Portfolio—ROFO Projects” with First Solar listed as the “Developing Sponsor” and as to which we have a right of first offer under the First Solar ROFO Agreement should First Solar decide to sell them (but excluding (a) the Stateline Project, which we acquired on December 1, 2016, as further described in Part II, Item 8. “Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 17—Subsequent Events,” (b) First Solar’s indirect interest in the Switch Station project, as further described in Part I, Item 1. “Financial Information—Notes to Unaudited Condensed Consolidated Financial Statements—Note 12—Related Parties,” (c) First Solar’s indirect interest in the Cuyama project, as further described in Part I, Item 1.

 

2


 

“Financial Information—Notes to Unaudited Condensed Consolidated Financial Statements—Note 15—Subsequent Events” and (d) First Solar’s indirect interest in the California Flats project, as further described in Part I, Item 1. “Financial Information—Notes to Unaudited Condensed Consolidated Financial Statements—Note 15—Subsequent Events”).

“General Partner” or “our general partner” refers to 8point3 General Partner, LLC, our general partner, a limited liability company formed under the laws of the State of Delaware and a wholly-owned subsidiary of Holdings.

“GW” refers to a gigawatt, or 1,000,000,000 watts. As used in this Quarterly Report on Form 10-Q, all references to watts (e.g., MW or GW) refer to measurements of alternating current, except where otherwise noted.

“Henrietta Holdings” refers to Parrey Holding Company, LLC.

“Henrietta Project” refers to the solar energy project that is located in Kings County, California and is held by the Henrietta Project Entity.

“Henrietta Project Entity” refers to Parrey, LLC.

“HLBV Method” refers to Hypothetical Liquidation at Book Value Method.

“Holdings” refers to 8point3 Holding Company, LLC, a limited liability company formed under the laws of the State of Delaware, which is jointly owned by First Solar and SunPower and is the parent of the General Partner.

“Hooper Project” refers to the solar energy project located in Alamosa County, Colorado, that is held by the Hooper Project Entity and has a nameplate capacity of 50 MW.

“Hooper Project Entity” refers to Solar Star Colorado III, LLC.

“IPO” refers to the Partnership’s initial public offering of its Class A shares, which was completed on June 24, 2015.

“IPO First Solar Project Entities” refers to the Lost Hills Project Entity, the Blackwell Project Entity, the Maryland Solar Project Entity, the North Star Project Entity and the Solar Gen 2 Project Entity and, with respect to certain of the foregoing, one or more of its direct or indirect holding companies.

“IPO Project Entities” refers to, collectively, the IPO First Solar Project Entities and the IPO SunPower Project Entities.

“IPO SunPower Project Entities” refers to the Macy’s California Project Entities, the Quinto Project Entity, the RPU Project Entity, the UC Davis Project Entity and the Residential Portfolio Project Entity and, with respect to certain of the foregoing, one or more of its direct or indirect holding companies.

“ITCs” refers to investment tax credits.

“Kern Class B Partnership” refers to SunPower Commercial II Class B, LLC.

“Kern Phase 1(a) Assets” refers to the assets comprising the first phase of the Kern Project, with a nameplate capacity of approximately 3 MW.

“Kern Phase 1(b) Assets” refers to the assets comprising the second phase of the Kern Project, with a nameplate capacity of approximately 5 MW.

“Kern Phase 2(a) Assets” refers to the assets comprising the third phase of the Kern Project, with a nameplate capacity of approximately 5 MW.  

“Kern Phase 2(b) Assets” refers to the assets comprising the fourth phase of the Kern Project, with a nameplate capacity of approximately 3 MW.

“Kern Phase 2(c) Assets” refers to the assets comprising the fifth phase of the Kern Project, with a nameplate capacity of up to approximately 5 MW.

 

3


 

“Kern Project” refers to the solar energy project located in Kern County, California, that is held by the Kern Project Entity and has an aggregate nameplate capacity of up to approximately 21 MW. OpCo’s acquisition of the Kern Project is being effectuated in five phases, with the closing for the Kern Phase 1(a) Assets having occurred on January 26, 2016 (the “Kern Phase 1(a) Acquisition”), the closing for the Kern Phase 1(b) Assets having occurred on September 9, 2016 (the “Kern Phase 1(b) Acquisition”), the closing for the Kern Phase 2(a) Assets having occurred on November 30, 2016 (the “Kern Phase 2(a) Acquisition”), the closing for the Kern Phase 2(b) Assets having occurred on February 24, 2017 (the “Kern Phase 2(b) Acquisition”), and the closing for the Kern Phase 2(c) Assets to occur in the future.

“Kern Project Entity” refers to Kern High School District Solar (2), LLC.

“Kingbird Project” refers to the solar energy project located in Kern County, California, that is held by the Kingbird Project Entities and has an aggregate nameplate capacity of 40 MW.

“Kingbird Project Entities” refers to, collectively, Kingbird Solar A, LLC and Kingbird Solar B, LLC.

“Lost Hills Blackwell Holdings” refers to Lost Hills Blackwell Holdings, LLC.

“Lost Hills Blackwell Project” refers to the solar energy project held collectively by the Lost Hills Project Entity and the Blackwell Project Entity that is comprised of the Lost Hills Project and the Blackwell Project and has a nameplate capacity of 32 MW.

“Lost Hills Project” refers to the solar energy project located in Kern County, California, that is held by the Lost Hills Project Entity and has a nameplate capacity of 20 MW.

“Lost Hills Project Entity” refers to Lost Hills Solar, LLC.

“Macy’s California Project” refers to the solar energy project consisting of seven sites in Northern California that is held by the Macy’s California Project Entities and has an aggregate nameplate capacity of 3 MW.

“Macy’s California Project Entities” refers to, collectively, Solar Star California XXX, LLC and Solar Star California XXX (2), LLC.

“Macy’s Maryland Project” refers to the solar energy project which holds roof-mounted solar photovoltaic systems with an aggregate system size of approximately 5 MW, which is being installed at certain Macy’s department stores in Maryland and is held by the Macy’s Maryland Project Entity.

“Macy’s Maryland Project Entity” refers to Northstar Macys Maryland 2015, LLC.

“Maryland Solar Project” refers to the solar energy project located in Washington County, Maryland, that is held by the Maryland Solar Project Entity and has a nameplate capacity of 20 MW.

“Maryland Solar Project Entity” refers to Maryland Solar LLC.

“MSAs” refers, collectively, to the First Solar MSA and the SunPower MSA.

“MW” refers to a megawatt, or 1,000,000 watts. As used in this Quarterly Report on Form 10-Q, all references to watts (e.g., MW or GW) refer to measurements of alternating current, except where otherwise noted.

“North Star Holdings” refers to NS Solar Holdings, LLC.

“North Star Project” refers to the solar energy project located in Fresno County, California, that is held by the North Star Project Entity and has a nameplate capacity of 60 MW.

“North Star Project Entity” refers to North Star Solar, LLC.

“NPV” refers to net present value.

“O&M” refers to operations and maintenance services.

 

4


 

“offtake agreements” refers to PPAs, leases and other offtake agreements.

“offtake counterparties” refers to the customer under a PPA lease or other offtake agreement.

“Omnibus Agreement” refers to the Amended and Restated Omnibus Agreement, dated as of April 6, 2016, as amended, among the Partnership, OpCo, the General Partner, Holdings, First Solar and SunPower. Please read Part I, Item 1. “Financial Information—Notes to Unaudited Condensed Consolidated Financial Statements—Note 12—Related Parties” for further details.

“OpCo” refers to 8point3 Operating Company, LLC and its subsidiaries.

“Partnership Agreement” refers to our partnership agreement.

“PG&E” refers to Pacific Gas and Electric Company.

“Portfolio” refers to, collectively, our portfolio of solar energy projects as of February 28, 2017, which consists of the Henrietta Project, the Hooper Project, the Kern Phase 1(a) Assets, the Kern Phase 1(b) Assets, the Kern Phase 2(a) Assets, the Kern Phase 2(b) Assets, the Kingbird Project, the Lost Hills Blackwell Project, the Macy’s California Project, the Macy’s Maryland Project, the Maryland Solar Project, the North Star Project, the Quinto Project, the Solar Gen 2 Project, the Stateline Project, the RPU Project, the UC Davis Project and the Residential Portfolio.

“PPA” refers to a power purchase agreement.

“Predecessor” refers to the operation of the IPO SunPower Project Entities prior to the completion of the IPO.

“Project Entities” refers to, collectively, the IPO First Solar Project Entities, the IPO SunPower Project Entities, the Henrietta Project Entity, the Hooper Project Entity, the Kern Project Entity, the Kingbird Project Entities, the Macy’s Maryland Project Entity and the Stateline Project Entity.

“Quinto Holdings” refers to SSCA XIII Holding Company, LLC, an indirect subsidiary of OpCo and the indirect holder of the Quinto Project Entity.

“Quinto Project” refers to the solar energy project located in Merced County, California, that is held by the Quinto Project Entity and has a nameplate capacity of 108 MW.

“Quinto Project Entity” refers to Solar Star California XIII, LLC.

“Residential Portfolio” refers to the approximately 5,900 solar installations located at homes in Arizona, California, Colorado, Hawaii, Massachusetts, New Jersey, New York, Pennsylvania and Vermont, that is held by the Residential Portfolio Project Entity and has an aggregate nameplate capacity of 39 MW.

“Residential Portfolio Project Entity” refers to SunPower Residential I, LLC.

“ROFO Projects” refers to, collectively, the First Solar ROFO Projects and the SunPower ROFO Projects.

“RPS” refers to renewable portfolio standards mandated by state law that require a regulated retail electric utility to procure a specified percentage of its total electricity delivered to retail customers in the state from eligible renewable energy resources, such as solar energy projects, by a specified date.

“RPU Holdings” refers to SSCA XXXI Holding Company, LLC, an indirect subsidiary of OpCo and the holder of the RPU Project Entity.

“RPU Project” refers to the solar energy project located in Riverside, California, that is held by the RPU Project Entity and has a nameplate capacity of 7 MW.

“RPU Project Entity” refers to Solar Star California XXXI, LLC.

“SDG&E” refers to San Diego Gas & Electric Company.

 

5


 

“SG&A” refers to selling, general and administrative services.

“SG2 Holdings” refers to SG2 Holdings, LLC.

“Solar Gen 2 Project” refers to the solar energy project located in Imperial County, California, that is held by the Solar Gen 2 Project Entity and has a nameplate capacity of 150 MW.

“Solar Gen 2 Project Entity” refers to SG2 Imperial Valley, LLC.

“Sponsors” refers, collectively, to First Solar and SunPower.

“SRECs” refers to Solar Renewable Energy Credits.

“Stateline Project” refers to the solar energy project located in San Bernardino, California that is held by the Stateline Project Entity and has a nameplate capacity of 300 MW.

“Stateline Project Entity” refers to Desert Stateline, LLC.

“Stateline Promissory Note” means the Promissory Note in the principal amount of $50.0 million issued by OpCo in favor of First Solar Asset Management, LLC, a wholly-owned subsidiary of First Solar, in connection with our acquisition of interests in the Stateline Project.

“SunPower” refers to SunPower Corporation, a corporation formed under the laws of the State of Delaware, in its individual capacity or to SunPower Corporation and its subsidiaries, as the context requires. Unless otherwise specifically noted, references to SunPower and its subsidiaries exclude us, the General Partner, Holdings and our subsidiaries, including OpCo.

“SunPower Capital” refers to SunPower Capital Services, LLC, a wholly owned subsidiary of SunPower.

“SunPower MSA” refers to the Management Services Agreement, dated as of June 24, 2015, as amended, among the Partnership, OpCo, the General Partner and SunPower Capital.

“SunPower ROFO Agreement” refers to the Right of First Offer Agreement, dated as of June 24, 2015, as amended, by and between OpCo and SunPower.

“SunPower ROFO Projects” refers to, collectively, the projects set forth in the chart in Part I, Item 1 of the 2016 10-K, under the heading “Business—Our Portfolio—ROFO Projects” with SunPower listed as the Developing Sponsor and as to which we have a right of first offer under the SunPower ROFO Agreement should SunPower decide to sell them (but excluding SunPower’s interest in the El Pelicano facility, as further described in Part I, Item 1. “Financial Information—Notes to Unaudited Condensed Consolidated Financial Statements—Note 12—Related Parties”).

“UC Davis Project” refers to the solar energy project located in Solano County, California, that is held by the UC Davis Project Entity and has a nameplate capacity of 13 MW.

“UC Davis Project Entity” refers to Solar Star California XXXII, LLC.

“U.S. GAAP” refers to U.S. generally accepted accounting principles.

“Utility Project Entities” refers to the Henrietta Project Entity, the Hooper Project Entity, the Kingbird Project Entities, the Lost Hills Project Entity, the Blackwell Project Entity, the Maryland Solar Project Entity, the North Star Project Entity, the Quinto Project Entity, the RPU Project Entity, the Solar Gen 2 Project Entity and the Stateline Project Entity.

 

 

 

 

 

 

6


 

PART I—FINANCIAL INFORMATION

 

Item 1. Financial Statements.

8point3 Energy Partners LP

Condensed Consolidated Balance Sheets

(In thousands, except share data)

(Unaudited)

 

 

 

February 28,

 

 

November 30,

 

 

 

2017

 

 

2016

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

7,010

 

 

$

14,261

 

Accounts receivable and short-term financing receivables, net

 

 

5,665

 

 

 

5,401

 

Prepaid and other current assets1

 

 

9,369

 

 

 

15,745

 

Total current assets

 

 

22,044

 

 

 

35,407

 

Property and equipment, net

 

 

726,189

 

 

 

720,132

 

Long-term financing receivables, net

 

 

79,232

 

 

 

80,014

 

Investments in unconsolidated affiliates

 

 

788,000

 

 

 

475,078

 

Other long-term assets

 

 

25,515

 

 

 

24,432

 

Total assets

 

$

1,640,980

 

 

$

1,335,063

 

Liabilities and Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and other current liabilities1

 

$

11,144

 

 

$

23,771

 

Short-term debt and financing obligations1

 

 

2,200

 

 

 

1,964

 

Deferred revenue, current portion

 

 

612

 

 

 

870

 

Total current liabilities

 

 

13,956

 

 

 

26,605

 

Long-term debt and financing obligations1

 

 

708,473

 

 

 

384,436

 

Deferred revenue, net of current portion

 

 

243

 

 

 

308

 

Deferred tax liabilities

 

 

31,264

 

 

 

30,733

 

Asset retirement obligations

 

 

14,129

 

 

 

13,448

 

Total liabilities

 

 

768,065

 

 

 

455,530

 

Redeemable noncontrolling interests

 

 

17,346

 

 

 

17,624

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

Class A shares, 28,076,907 and 28,072,680 issued and outstanding as of

   February 28, 2017 and November 30, 2016, respectively

 

 

249,194

 

 

 

249,138

 

Class B shares, 51,000,000 issued and outstanding as of

   February 28, 2017 and November 30, 2016

 

 

 

 

 

 

Accumulated earnings

 

 

16,311

 

 

 

22,440

 

Total shareholders' equity attributable to 8point3 Energy Partners LP

 

 

265,505

 

 

 

271,578

 

Noncontrolling interests

 

 

590,064

 

 

 

590,331

 

Total equity

 

 

855,569

 

 

 

861,909

 

Total liabilities and equity

 

$

1,640,980

 

 

$

1,335,063

 

1

The Partnership has related-party balances for transactions made with the Sponsors and tax equity investors. Related-party balances recorded within “Prepaid and other current assets” in the unaudited condensed consolidated balance sheets were $0.8 million and $0.9 million as of February 28, 2017 and November 30, 2016, respectively. Related-party balances recorded within “Accounts payable and other current liabilities” in the unaudited condensed consolidated balance sheets were $6.4 million and $19.7 million due to Sponsors as of February 28, 2017 and November 30, 2016, respectively, and $1.0 million due to tax equity investors as of both February 28, 2017 and November 30, 2016. Related-party balances recorded within “Short-term debt and financing obligations” and “Long-term debt and financing obligations” in the unaudited condensed consolidated balance sheets were $2.2 million and $47.8 million, respectively, as of February 28, 2017, and $2.0 million and zero, respectively, as of November 30, 2016.  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

7


 

8point3 Energy Partners LP

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

February 28,

 

 

February 29,

 

 

 

2017

 

 

2016

 

Revenues:

 

 

 

 

 

 

 

 

Operating revenues1

 

$

9,897

 

 

$

7,102

 

Total revenues

 

 

9,897

 

 

 

7,102

 

Operating costs and expenses1:

 

 

 

 

 

 

 

 

Cost of operations

 

 

2,222

 

 

 

1,266

 

Selling, general and administrative

 

 

1,902

 

 

 

1,636

 

Depreciation and accretion

 

 

6,763

 

 

 

4,626

 

Acquisition-related transaction costs

 

 

13

 

 

 

833

 

Total operating costs and expenses

 

 

10,900

 

 

 

8,361

 

Operating loss

 

 

(1,003

)

 

 

(1,259

)

Other expense (income):

 

 

 

 

 

 

 

 

Interest expense

 

 

5,495

 

 

 

2,873

 

Interest income

 

 

(271

)

 

 

(285

)

Other expense (income):

 

 

(834

)

 

 

74

 

Total other expense, net

 

 

4,390

 

 

 

2,662

 

Loss before income taxes

 

 

(5,393

)

 

 

(3,921

)

Income tax provision

 

 

(533

)

 

 

(3,537

)

Equity in earnings of unconsolidated investees

 

 

606

 

 

 

405

 

Net loss

 

 

(5,320

)

 

 

(7,053

)

Less: Net loss attributable to noncontrolling interests

   and redeemable noncontrolling interests

 

 

(6,181

)

 

 

(12,361

)

Net income attributable to 8point3 Energy Partners LP

   Class A shares

 

$

861

 

 

$

5,308

 

Net income per Class A share:

 

 

 

 

 

 

 

 

Basic

 

$

0.03

 

 

$

0.27

 

Diluted

 

$

0.03

 

 

$

0.27

 

Distributions per Class A share:

 

$

0.25

 

 

$

0.22

 

Weighted average number of Class A shares:

 

 

 

 

 

 

 

 

Basic

 

 

28,073

 

 

 

20,007

 

Diluted

 

 

43,573

 

 

 

35,507

 

 

1

The Partnership has related-party activities for transactions made with the Sponsors. Related party transactions recorded within “Operating revenues” in the unaudited condensed consolidated statement of operations were $1.3 million for each of the three months ended February 28, 2017 and February 29, 2016. Related party transactions recorded within “Operating costs and expenses” in the unaudited condensed consolidated statement of operations were $2.0 million and $1.4 million for the three months ended February 28, 2017 and February 29, 2016, respectively.

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

 

 

 

 

 

 

8


 

8point3 Energy Partners LP

Condensed Consolidated Statements of Redeemable Noncontrolling Interests and Equity

(In thousands, except share data)

(Unaudited)

 

 

 

Redeemable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

Noncontrolling

 

 

Class A Shares

 

 

Class B Shares

 

 

Accumulated

 

 

Shareholders'

 

 

Noncontrolling

 

 

 

 

 

 

 

Interests

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Earnings

 

 

Equity

 

 

Interests

 

 

Total Equity

 

Balance as of November 30, 2015

 

$

89,747

 

 

 

20,007,281

 

 

$

392,748

 

 

 

51,000,000

 

 

$

 

 

$

15,580

 

 

$

408,328

 

 

$

194,058

 

 

$

602,386

 

Noncontrolling interests obtained through acquisition

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

40,128

 

 

 

40,128

 

Cash and accrued distributions to noncontrolling

   interests - tax equity investors

 

 

(3,580

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,574

)

 

 

(3,574

)

Issuance of Class A shares, net of issuance costs

 

 

 

 

 

8,050,000

 

 

 

113,325

 

 

 

 

 

 

 

 

 

 

 

 

113,325

 

 

 

 

 

 

113,325

 

Reclassification of noncontrolling interests

  due to issuance of Class A shares

 

 

 

 

 

 

 

 

(257,159

)

 

 

 

 

 

 

 

 

 

 

 

(257,159

)

 

 

257,159

 

 

 

 

Share-based compensation

 

 

 

 

 

15,399

 

 

 

224

 

 

 

 

 

 

 

 

 

 

 

 

224

 

 

 

 

 

 

224

 

Contributions from SunPower

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,973

 

 

 

9,973

 

Contributions from tax equity investors

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

50,507

 

 

 

50,507

 

Cash distributions to Class A shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(20,241

)

 

 

(20,241

)

 

 

 

 

 

(20,241

)

Cash distributions to Sponsors as OpCo unitholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,271

)

 

 

(12,271

)

Net income (loss)

 

 

(68,543

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

27,101

 

 

 

27,101

 

 

 

54,351

 

 

 

81,452

 

Balance as of November 30, 2016

 

$

17,624

 

 

 

28,072,680

 

 

$

249,138

 

 

 

51,000,000

 

 

$

 

 

$

22,440

 

 

$

271,578

 

 

$

590,331

 

 

$

861,909

 

Noncontrolling interests obtained through acquisition

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,078

 

 

 

1,078

 

Cash and accrued distributions to noncontrolling

   interests - tax equity investors

 

 

(613

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(880

)

 

 

(880

)

Share-based compensation

 

 

 

 

 

4,227

 

 

 

56

 

 

 

 

 

 

 

 

 

 

 

 

56

 

 

 

 

 

 

56

 

Contributions from tax equity investors

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18,750

 

 

 

18,750

 

Cash distributions to Class A shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,990

)

 

 

(6,990

)

 

 

 

 

 

(6,990

)

Cash distributions to Sponsors as OpCo unitholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,699

)

 

 

(12,699

)

Net income (loss)

 

 

335

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

861

 

 

 

861

 

 

 

(6,516

)

 

 

(5,655

)

Balance as of February 28, 2017

 

$

17,346

 

 

 

28,076,907

 

 

$

249,194

 

 

 

51,000,000

 

 

$

 

 

$

16,311

 

 

$

265,505

 

 

$

590,064

 

 

$

855,569

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

9


 

8point3 Energy Partners LP

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

February 28,

 

 

February 29,

 

 

 

2017

 

 

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(5,320

)

 

$

(7,053

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation, amortization and accretion

 

 

6,871

 

 

 

4,626

 

Unrealized loss (gain) on interest rate swap

 

 

(670

)

 

 

74

 

Distributions from unconsolidated investees

 

 

1,107

 

 

 

2,694

 

Equity in earnings of unconsolidated investees

 

 

(606

)

 

 

(405

)

Deferred income taxes

 

 

531

 

 

 

3,537

 

Share-based compensation

 

 

56

 

 

 

56

 

Amortization of debt issuance costs

 

 

237

 

 

 

153

 

Other, net

 

 

(8

)

 

 

95

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable and financing receivable, net

 

 

501

 

 

 

(546

)

Prepaid and other current assets

 

 

5,627

 

 

 

(550

)

Deferred revenue

 

 

(319

)

 

 

(336

)

Accounts payable and other current liabilities

 

 

1,457

 

 

 

553

 

Net cash provided by operating activities

 

 

9,464

 

 

 

2,898

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Cash provided by (used in) purchases of property and equipment

 

 

(86

)

 

 

1,341

 

Cash paid for acquisitions

 

 

(304,432

)

 

 

(4,887

)

Distributions from unconsolidated investees

 

 

16,604

 

 

 

3,584

 

Net cash provided by (used in) investing activities

 

 

(287,914

)

 

 

38

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of bank loans, net of issuance costs

 

 

275,987

 

 

 

 

Repayment of promissory note to First Solar

 

 

(1,964

)

 

 

 

Capital contributions from SunPower

 

 

 

 

 

9,973

 

Cash distribution to Class A shareholders

 

 

(6,990

)

 

 

(4,341

)

Cash distributions to Sponsors as OpCo unit holders

 

 

(12,699

)

 

 

 

Cash contributions from noncontrolling interests and redeemable noncontrolling

   interests - tax equity investors

 

 

18,750

 

 

 

 

Cash distributions to noncontrolling interests and redeemable noncontrolling

   interests - tax equity investors

 

 

(1,885

)

 

 

(484

)

Net cash provided by financing activities

 

 

271,199

 

 

 

5,148

 

Net increase (decrease) in cash and cash equivalents

 

 

(7,251

)

 

 

8,084

 

Cash and cash equivalents, beginning of period

 

 

14,261

 

 

 

56,781

 

Cash and cash equivalents, end of period

 

$

7,010

 

 

$

64,865

 

Non-cash transactions:

 

 

 

 

 

 

 

 

Issuance by OpCo of promissory note to First Solar in connection

   with the Stateline Acquisition

 

$

50,000

 

 

$

 

Property and equipment acquisitions funded by liabilities

 

 

4,287

 

 

 

3,435

 

Noncontrolling interests obtained through acquisition

 

 

1,078

 

 

 

864

 

Accrued distributions to noncontrolling interests and redeemable

   noncontrolling interests - tax equity investors

 

 

581

 

 

 

630

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

10


 

8point3 Energy Partners LP

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1. Description of Business

The Partnership

8point3 Energy Partners LP (together with its subsidiaries, the “Partnership”) is a limited partnership formed on March 3, 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. As of February 28, 2017, 8point3 Energy Partners LP owned a controlling non-economic managing member interest in 8point3 Operating Company, LLC (“OpCo”) and a 35.5% limited liability company interest in OpCo, and the Sponsors collectively owned a noncontrolling 64.5% limited liability company interest in OpCo.

The following table provides an overview of the assets that comprise the Portfolio as of February 28, 2017:

 

Project

 

Location

 

Commercial

Operation Date(1)

 

MW(ac)

(2)

 

 

Counterparty

 

Remaining

Term of

Offtake Agreement

(in years)(3)

 

Utility

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maryland Solar

 

Maryland

 

February 2014

 

 

20

 

 

FirstEnergy

Solutions

 

 

16.1

 

Solar Gen 2

 

California

 

November 2014

 

 

150

 

 

San Diego Gas &

Electric

 

 

22.7

 

Lost Hills Blackwell

 

California

 

April 2015

 

 

32

 

 

City of

Roseville/Pacific

Gas and Electric

 

26.8(4)

 

North Star

 

California

 

June 2015

 

 

60

 

 

Pacific Gas and

Electric

 

 

18.3

 

RPU

 

California

 

September 2015

 

 

7

 

 

City of Riverside

 

 

23.6

 

Quinto

 

California

 

November 2015

 

 

108

 

 

Southern California

Edison

 

 

18.8

 

Hooper

 

Colorado

 

December 2015

 

 

50

 

 

Public Service

Company of Colorado

 

 

18.8

 

Kingbird

 

California

 

April 2016

 

 

40

 

 

Southern California

Public Power Authority(5)

 

 

19.2

 

Henrietta

 

California

 

October 2016

 

 

102

 

 

Pacific Gas and

Electric

 

 

19.6

 

Stateline

 

California

 

August 2016

 

 

300

 

 

Southern California

Edison

 

 

19.5

 

Commercial & Industrial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

UC Davis

 

California

 

September 2015

 

 

13

 

 

University of

California

 

 

18.5

 

Macy's California

 

California

 

October 2015

 

 

3

 

 

Macy's Corporate

Services

 

 

18.7

 

Macy’s Maryland

 

Maryland

 

December 2016

 

 

5

 

 

Macy's Corporate

Services

 

 

19.8

 

Kern(6)

 

California

 

June 2017

 

 

16

 

 

Kern High School District

 

19.8(7)

 

Residential Portfolio

 

U.S. – Various

 

June 2014

 

 

39

 

 

Approx. 5,900

homeowners(8)

 

15.5(9)

 

Total

 

 

 

 

 

 

945

 

 

 

 

 

 

 

 

 

(1)

For the Macy’s California Project, the Macy’s Maryland Project, and the Kern Project, 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 Project, respectively, have achieved or are expected to achieve COD. For the Residential Portfolio, COD represents the first date on which all of the residential systems within the Residential Portfolio have achieved COD.

 

11


8point3 Energy Partners LP

Notes to Unaudited Condensed Consolidated Financial Statements — Continued

 

(2)

The 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. Please read Part I, Item 1. “Business—Tax Equity Financing” of our 2016 10-K for a description of our tax equity structures, which such description reflects the Partnership’s ownership on a net basis.

(3)

Remaining term of offtake agreement is measured from the later of February 28, 2017 or the expected COD of the applicable project.

(4)

Remaining term comprised of 1.8 years on a PPA with the City of Roseville, California, followed by a 25-year PPA with 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)

OpCo’s acquisition of the Kern Project is being effectuated in five phases, with the closing of the first phase, reflecting a nameplate capacity of approximately 3 MW, having occurred on January 26, 2016, the closing of the second phase, reflecting a nameplate capacity of approximately 5 MW, having occurred on September 9, 2016, the closing of the third phase, reflecting a nameplate capacity of approximately 5 MW, having occurred on November 30, 2016, the closing of the fourth phase, reflecting a nameplate capacity of approximately 3 MW, having closed on February 24, 2017, and the closing of the Kern Phase 2(c) Assets to occur in the future.

(7)

Remaining term is the weighted average duration of the first four phases of the Kern Project.

(8)

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 the Residential Portfolio Project Entity and have an aggregate nameplate capacity of 39 MW.

(9)

Remaining term is the weighted average duration of all of the residential leases, in each case measured from February 28, 2017.

Basis of Presentation and Preparation

The direct and indirect contributions of the IPO Project Entities by the Sponsors to OpCo in connection with the IPO resulted in a business combination for accounting purposes with the IPO SunPower Project Entities being considered the acquirer of the interests contributed by First Solar in the IPO First Solar Project Entities. 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:

 

the Macy’s California Project Entities, which hold the Macy’s California Project;

 

the Quinto Project Entity, which holds the Quinto Project;

 

the RPU Project Entity, which holds the RPU Project;

 

the UC Davis Project Entity, which holds the UC Davis Project; and

 

the Residential Portfolio Project Entity, which holds the Residential Portfolio Project; and

 

the IPO First Solar Project Entities, including:

 

the Lost Hills Blackwell Project, which holds the Lost Hills Project and the Blackwell Project;

 

the Maryland Solar Project Entity, which holds the Maryland Solar Project;

 

the North Star Project Entity, which holds the North Star Project; and

 

the Solar Gen 2 Project Entity, which holds the Solar Gen 2 Project.

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.

 

12


8point3 Energy Partners LP

Notes to Unaudited Condensed Consolidated Financial Statements — Continued

 

Since November 30, 2015, the partnership completed six acquisitions from our Sponsors, four from SunPower and two from First Solar.  Four of the acquisitions are treated as business combinations:

 

the Kern Project Entity, which holds the Kern Project;

 

the Kingbird Project Entities, which holds the Kingbird Project;

 

the Hooper Project Entity, which holds the Hooper Project; and

 

the Macy’s Maryland Project Entity, which holds the Macy’s Maryland Project.

Two of the acquisitions are accounted for as equity method investments:

 

the Henrietta Project Entity, which holds the Henrietta Project. OpCo owns a 49% economic interest in the Henrietta Project Entity; and

 

the Stateline Project Entity, which holds the Stateline Project. OpCo owns a 34% economic interest in the Stateline Project Entity.

Principles of Consolidation

The unaudited condensed consolidated financial statements are prepared in accordance with 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 Part II, Item 8. “Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 1—Description of Business” and “—Note 2—Summary of Significant Accounting Policies” of the 2016 10-K. Interim results are not necessarily indicative of results for a full year.  

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 allowances for doubtful accounts related to accounts receivable and financing receivables; estimates of 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 system output performance warranty and AROs; and income taxes including the related valuation allowance. Actual results could materially differ from those estimates.

Recent Accounting Pronouncements

In January 2017, the FASB issued an update to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions of assets or businesses. This new guidance becomes effective for the Partnership in the first quarter of fiscal 2019 and is applied prospectively. The Partnership is evaluating the impact of this standard on its unaudited condensed consolidated financial statements and disclosures.

In October 2016, the FASB issued an update which amends the guidance on related parties that are under common control. Specifically, this update requires that a single decision maker consider indirect interests held by related parties under common control on a proportionate basis in a manner consistent with its evaluation of indirect interests held through other related parties. That is, the single decision maker does not consider indirect interests held through related parties as equivalent to direct interests in determining whether it meets the economics criterion to be a primary beneficiary. This new guidance becomes effective for the Partnership in the first quarter of fiscal 2018. Early adoption is permitted, including adoption in an interim period. The Partnership is evaluating the impact of this standard on its unaudited condensed consolidated financial statements and disclosures.

 

13


8point3 Energy Partners LP

Notes to Unaudited Condensed Consolidated Financial Statements — Continued

 

In October 2016, the FASB issued an update which eliminates a prior exception and now requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory, such as property and equipment, when such transfer occurs. This new guidance becomes effective for the Partnership in the first quarter of fiscal 2020 and shall be applied on a modified retrospective basis through a cumulative–effect adjustment directly to retained earnings as of the beginning of the period of adoption. Early adoption is permitted. The Partnership is evaluating the impact of this standard on its unaudited condensed consolidated financial statements and disclosures.

In August 2016, 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.

In February 2016, the FASB issued an update to the lease accounting guidance, which requires entities to begin recording assets and 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 standard on its unaudited condensed consolidated financial statements and disclosures.

In August 2014, the FASB issued an update to the standards to require management to evaluate whether there are conditions and events that raise substantial doubt about the Partnership’s ability to continue as a going concern within one year after the date the financial statements are issued, and to provide related disclosures. The Partnership adopted the new guidance beginning on December 1, 2016 and the impact of this standard on its unaudited condensed consolidated financial statements and disclosures is not material.

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. The FASB has issued several updates to the standard which (i) clarify the application of the principal versus agent guidance; (ii) clarify the guidance relating to performance obligations and licensing; and (iii) clarify assessment of the collectability criterion, presentation of sales taxes, measurement date for non-cash consideration and completed contracts at transaction. The new revenue recognition standard, amended by the updates, becomes effective for the Partnership in the first quarter of fiscal 2019 and is to be applied retrospectively using one of two prescribed methods. Early adoption is permitted. The Partnership is currently evaluating and considering the possibility of early adoption of the new standard effective December 1, 2017. The Partnership’s ability to early adopt, potentially using the modified retrospective method, is dependent on process, internal control and system readiness and a complete evaluation of all the disclosures required under the new standard. While the Partnership is continuing to assess all potential impacts of the standard, it currently believes the impact on its unaudited condensed consolidated financial statements is not material because over 90% of the Partnership’s total revenue for all periods is comprised of lease revenue, which is substantially unchanged under the new standard.

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 unaudited condensed consolidated financial statements.

 

 

14


8point3 Energy Partners LP

Notes to Unaudited Condensed Consolidated Financial Statements — Continued

 

 

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. The Partnership’s purchase price allocations for acquisitions completed through November 30, 2016 are final and not subject to revision. For the acquisition completed during the three months ended February 28, 2017, 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, November 30, 2016 and February 24, 2017, pursuant to which OpCo agreed to purchase an interest in the Kern Project. OpCo’s acquisition of the Kern Project is being effectuated in five phases summarized below:

 

(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 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 the Kern Phase 1(b) Assets from SunPower. The second phase of the acquisition of the Kern Project is referred to herein as the “Kern Phase 1(b) Acquisition.”

 

(iii)

Phase 2(a): On November 30, 2016, the Kern Project Entity acquired the Kern Phase 2(a) Assets from SunPower. The third phase of the acquisition of the Kern Project is referred to herein as the “Kern Phase 2(a) Acquisition.”

 

(iv)

Phase 2(b): On February 24, 2017, the Kern Project Entity acquired the Kern Phase 2(b) Assets from SunPower. The fourth phase of the acquisition of the Kern Project is referred to herein as the “Kern Phase 2(b) Acquisition.”

 

(v)

Phase 2(c): At a future closing date, the Kern Project Entity will acquire the Kern Phase 2(c) Assets from SunPower.

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, approximately $9.2 million on September 9, 2016 in connection with the closing of the second phase on September 9, 2016, approximately $8.4 million on November 30, 2016 in connection with the closing of the third phase on November 30, 2016 and approximately $6.0 million on February 24, 2017 in connection with the closing of the fourth phase on February 24, 2017. OpCo will pay the remaining balance of up to $8.1 million purchase price at the closing of the fifth phase.

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 monthly 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 $30.0 million, of which $0.9 million, $1.8 million, $1.3 million, $6.7 million and $8.2 million was paid on January 22, 2016, September 9, 2016, November 30, 2016, December 14, 2016 and February 24, 2017, respectively. The remaining capital contribution balance of up to $11.1 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 2016 10-K.

 

15


8point3 Energy Partners LP

Notes to Unaudited Condensed Consolidated Financial Statements — Continued

 

The Kern Phase 1(a) Acquisition, the Kern Phase 1(b) Acquisition, the Kern Phase 2(a) Acquisition and the Kern Phase 2(b) Acquisition qualify as business combinations and the Partnership accounts for the transactions under the acquisition method.  The purchase allocation of the identifiable assets acquired, liabilities assumed and noncontrolling interests of the Kern Phase 1(a) Assets, the Kern Phase 1(b) Assets, the Kern Phase 2(a) Assets and the Kern Phase 2(b) Assets are disclosed in the following table.  

 

 

 

Fair Value

 

 

 

Kern Phase 1(a)

 

 

Kern Phase 1(b)

 

 

Kern Phase 2(a)

 

 

Kern Phase 2(b)

 

(in thousands)

 

Assets

 

 

Assets

 

 

Assets

 

 

Assets

 

Property and equipment

 

$

9,510

 

 

$

18,856

 

 

$

14,873

 

 

$

11,872

 

Related party payable

 

 

(3,435

)

 

 

(7,123

)

 

 

(4,504

)

 

 

(4,287

)

Asset retirement obligation

 

 

(322

)

 

 

(785

)

 

 

(623

)

 

 

(493

)

Noncontrolling interest

 

 

(866

)

 

 

(1,794

)

 

 

(1,332

)

 

 

(1,078

)

Net assets acquired

 

$

4,887

 

 

$

9,154

 

 

$

8,414

 

 

$

6,014

 

 

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 Kern Phase 2(a) Assets and the Kern Phase 2(b) Assets. 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 Kern Phase 1(b) Assets, the Kern Phase 2(a) Assets and the Kern Phase 2(b) Assets have been included in the Partnership’s consolidated statements of operations since their respective dates of acquisition. No revenue was generated from the Kern Phase 2(b) Assets in the quarter ended February 28, 2017. Pro forma results of operations have not been presented as the impact of the acquisition on February 24, 2017 is not material to the Partnership’s results of operations for the current or prior periods. Additionally, the Kern Phase 2(b) Assets became operational after the acquisition date; therefore, would not have had any pro forma results in the prior period.

 

 

 

Note 3. Investment in Unconsolidated Affiliates

On November 11, 2016, OpCo entered into the Stateline Purchase Agreement with First Solar to acquire a 34% interest in the Stateline Project for $329.5 million (the “Stateline Acquisition”). The Stateline Acquisition closed on December 1, 2016 and the Partnership recorded an investment of $329.9 million after consideration of acquisition-related costs.

 

16


8point3 Energy Partners LP

Notes to Unaudited Condensed Consolidated Financial Statements — Continued

 

As of February 28, 2017, the Partnership owns a 49% ownership interest in each of SG2 Holdings, North Star Holdings, Lost Hills Blackwell Holdings and Henrietta Holdings, and a 34% ownership interest in Stateline Holdings. The minority membership interests are accounted for as equity method investments, as the Partnership is able to exercise significant influence through its governing board, while the non-affiliated majority owner otherwise controls. The following table summarizes the activity of the Partnership’s investments in its unconsolidated affiliates during the three months ended February 28, 2017 and February 29, 2016, respectively:

 

 

 

Three Months Ended

 

 

 

February 28,