| Business Combinations | 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, 2017 are final and not subject to revision. 2017 Acquisitions 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, February 24, 2017 and June 9, 2017, pursuant to which OpCo agreed to purchase an interest in the Kern Project. OpCo’s acquisition of the Kern Project was effectuated in phases as summarized below: (i) Phase 1(a): On January 26, 2016, 8point3 OpCo Holdings, LLC, a wholly owned subsidiary of OpCo (“OpCo Holdings”), 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): On June 9, 2017, the Kern Project Entity acquired the Kern Phase 2(c) Assets from SunPower. The fifth phase of the acquisition of the Kern Project is referred to herein as the “Kern Phase 2(c) Acquisition.” The aggregate purchase price for the acquisition was $31.7 million in cash, of which OpCo paid approximately $4.9 million on January 27, 2016 in connection with the closing of the first phase, approximately $9.2 million on September 9, 2016 in connection with the closing of the second phase, approximately $8.4 million on November 30, 2016 in connection with the closing of the third phase, approximately $6.0 million on February 24, 2017 in connection with the closing of the fourth phase and approximately $3.2 million on June 9, 2017 in connection with the closing of the fifth phase. The conditions precedent to the acquisition of the Kern Remaining Assets set forth in the Kern Letter Agreement were not met on or prior to September 30, 2017. On October 3, 2017, SunPower provided written notice to OpCo terminating the Kern Purchase Agreement, pursuant to Section 9.01(c) of the Kern Purchase Agreement. Pursuant to the terms of the Kern Letter Agreement, the Kern Remaining Assets are now considered SunPower ROFO Projects. 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 made capital contributions to fund purchase price payments of approximately $29.2 million , of which $0.9 million , $1.8 million , $1.3 million , $6.7 million , $8.2 million , $6.3 million and $4.0 million was paid on January 22, 2016, September 9, 2016, November 30, 2016, December 14, 2016, February 24, 2017, June 9, 2017 and September 28, 2017, respectively. The tax equity investor contributions were made when the Kern Project's phases met certain construction milestones and were subsequently transferred to SunPower as purchase price payments. All phases of the Kern Project attained COD prior to October 3, 2017. The Kern Phase 1(a) Acquisition, the Kern Phase 1(b) Acquisition, the Kern Phase 2(a) Acquisition, the Kern Phase 2(b) Acquisition and the Kern Phase 2(c) 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, the Kern Phase 2(b) Assets and the Kern Phase 2(c) 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) Kern Phase 2(c) (in thousands) Assets Assets Assets Assets Assets Property and equipment $ 9,510 $ 18,856 $ 15,659 $ 12,477 $ 6,464 Related party payable (1) (3,435 ) (7,123 ) (5,290 ) (4,892 ) (2,372 ) Asset retirement obligation (322 ) (785 ) (623 ) (493 ) (279 ) Noncontrolling interest (866 ) (1,794 ) (1,332 ) (1,078 ) (658 ) Net assets acquired $ 4,887 $ 9,154 $ 8,414 $ 6,014 $ 3,155 (1) Related party payable represents liabilities for amounts due to SunPower related to capital contributions to fund purchase price payments due from the tax equity investor after the acquisition date, all of which was subsequently settled. 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, the Kern Phase 2(b) Assets and the Kern Phase 2(c) 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 each phase of the Kern Project acquisition have been included in the Partnership’s consolidated statements of operations since their respective dates of acquisition. The Kern Phase 2(b) Assets and the Kern Phase 2(c) Assets contributed approximately $0.7 million to the Partnership’s operating revenue and increased operating income by $0.2 million in fiscal 2017. Pro forma results of operations have not been presented as the impact of the acquisitions on February 24, 2017 and June 9, 2017 are not material to the Partnership’s results of operations for the current or prior periods. Additionally, the Kern Phase 2(b) Assets and the Kern Phase 2(c) Assets became operational after the acquisition date and therefore, would not have had any pro forma results in the prior period. 2016 Acquisitions 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 the Kingbird Project for an aggregate consideration of $60.0 million in cash (the “Kingbird Acquisition”). 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, of which OpCo holds a controlling interest in effective March 31, 2016. Pursuant to the Kingbird Purchase Agreement, the purchase price of $60.0 million was paid by OpCo in installments, with $42.9 million in cash paid to First Solar on the closing date of March 31, 2016 and a $17.1 million contribution to FSAM Kingbird Solar Holdings, LLC, the acquired company, on May 31, 2016, which was subsequently paid to 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, and drawings under OpCo’s revolver and 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 $58.5 million , of which $11.7 million was paid on February 26, 2016 and $46.8 million was paid on May 31, 2016. The tax equity investor contributions were made when the Kingbird Project's phases met certain construction milestones and were subsequently transferred to First Solar as purchase price payments. 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 noncontrolling 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 Hooper Project for aggregate consideration of $53.5 million in cash. Effective April 1, 2016, a subsidiary of OpCo acquired from SunPower all of the class B limited liability company interests of the Hooper Class B Partnership. The Hooper Project Entity is an indirect subsidiary of the Hooper Class B Partnership, of which OpCo holds a controlling interest in effective April 1, 2016. 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, and drawings under OpCo’s revolver and 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 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 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 $ 76,477 Prepaid expense 240 Accounts receivable (1) 568 Accrued liabilities (2) (463 ) Noncontrolling interest (23,737 ) Net assets acquired (3) $ 53,085 (1) Accounts receivable represent the fair value of the trade accounts receivable acquired, all of which was subsequently 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. 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 Macy’s Maryland Project for aggregate consideration of $12.0 million in cash. 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. The Macy's Maryland Class B Partnership holds the class B limited liability company interests of Macy's Maryland Holdings, the direct owner of the Macy's Maryland Project Entity. Consideration for the Macy’s Maryland Acquisition comprised a $12.0 million contribution to the Macy’s Maryland Class B Partnership, the acquired company, on July 1, 2016, of which $6.4 million was paid to SunPower on July 1, 2016 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. 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 $ 19,317 Customer contract intangible (1) 1,844 Related party payable (2) (13,975 ) Asset retirement obligation (278 ) Noncontrolling interest (556 ) Net assets acquired (3) $ 6,352 (1) Customer contract intangible is amortized on a straight-line basis beginning on COD through the contract term end date of December 31, 2020, of which $0.4 million and $0.1 million reduced operating revenues in fiscal 2017 and fiscal 2016, respectively. (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 and $4.8 million was paid on September 21, 2016 and December 28, 2016, respectively. (3) The net purchase price for the acquisition represents $12.0 million of cash contributed by OpCo to the Macy’s Maryland Class B Partnership, the acquired company, of which $6.4 million was paid to SunPower on July 1, 2016 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. 2015 Acquisition 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. The purchase allocation for the acquired assets and liabilities of the Maryland Solar Project, the Solar Gen 2 Project, the North Star Project and the Lost Hills Blackwell Project is based on a valuation from a third-party valuation specialist as follows and includes a $2.3 million deferred tax liability for the difference between the fair value and tax basis of acquired assets and liabilities, which is reversed upon acquisition due to utilization of existing net operating losses of the Predecessor. (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 |
