Attached files
Exhibit 99.4
CALIFORNIA RIDGE CLASS B HOLDINGS LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
As of June 30, 2015 | As of December 31, 2014 | |||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash and cash equivalents | $ | 491,718 | $ | 355,947 | ||||
Restricted cash | 1,802,498 | 225,407 | ||||||
Accounts receivable | 3,499,491 | 5,125,870 | ||||||
Prepaid expenses | 383,409 | 316,206 | ||||||
Total current assets | 6,177,116 | 6,023,430 | ||||||
LONG-TERM ASSETS: | ||||||||
Property, plant and equipment - net | 317,929,245 | 325,065,546 | ||||||
Restricted cash | 15,311,593 | 11,012,718 | ||||||
Long-term inventory | 353,549 | 278,667 | ||||||
Capitalized finance costs - net | 6,958,886 | 7,322,457 | ||||||
Long-term risk management assets | 547,529 | 626,038 | ||||||
Other long-term assets | 395,575 | 395,575 | ||||||
Total long-term assets | 341,496,377 | 344,701,001 | ||||||
TOTAL | $ | 347,673,493 | $ | 350,724,431 | ||||
See notes to Condensed Consolidated Financial Statements (Unaudited)
CALIFORNIA RIDGE CLASS B HOLDINGS LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(CONTINUED)
As of June 30, 2015 | As of December 31, 2014 | |||||||
LIABILITIES AND EQUITY | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable | $ | 70,724 | $ | 29,903 | ||||
Accounts payable - related parties | 357,613 | 360,326 | ||||||
Current portion of long-term debt | 14,806,071 | 14,680,445 | ||||||
Risk management liabilities | 1,331,968 | 1,471,941 | ||||||
Property taxes payable | 3,438,482 | 2,466,949 | ||||||
Other liabilities and accrued expenses | 1,063,036 | 877,505 | ||||||
Total current liabilities | 21,067,894 | 19,887,069 | ||||||
LONG-TERM LIABILITIES: | ||||||||
Long-term debt | 275,166,141 | 284,327,260 | ||||||
Asset retirement obligation | 6,274,597 | 6,072,681 | ||||||
Other long-term liabilities | 1,726,358 | 1,475,339 | ||||||
Total long-term liabilities | 283,167,096 | 291,875,380 | ||||||
Total liabilities | 304,234,990 | 311,762,449 | ||||||
COMMITMENTS AND CONTINGENCIES (See Note 7) | — | — | ||||||
EQUITY: | ||||||||
Member's equity | 38,119,832 | 33,862,755 | ||||||
Non-controlling interest | 5,318,671 | 5,099,227 | ||||||
Total equity | 43,438,503 | 38,961,982 | ||||||
TOTAL | $ | 347,673,493 | $ | 350,724,431 | ||||
See notes to Condensed Consolidated Financial Statements (Unaudited)
CALIFORNIA RIDGE CLASS B HOLDINGS LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Six Months Ended June 30, | ||||||||
2015 | 2014 | |||||||
OPERATING REVENUES | $ | 30,064,780 | $ | 33,047,687 | ||||
OPERATING EXPENSES: | ||||||||
Plant operating and maintenance expense | 4,074,713 | 3,609,087 | ||||||
Depreciation and accretion expense | 7,363,678 | 7,344,685 | ||||||
General and administrative expense | 393,765 | 417,645 | ||||||
Taxes (other than income taxes) | 1,233,475 | 1,233,475 | ||||||
Total operating expenses | 13,065,631 | 12,604,892 | ||||||
INCOME FROM OPERATIONS | 16,999,149 | 20,442,795 | ||||||
OTHER INCOME (EXPENSE): | ||||||||
Interest expense | (9,015,322 | ) | (9,339,592 | ) | ||||
Other - net | (60,365 | ) | (128,914 | ) | ||||
Total other expense | (9,075,687 | ) | (9,468,506 | ) | ||||
NET INCOME | 7,923,462 | 10,974,289 | ||||||
NON-CONTROLLING INTEREST SHARE | 600,000 | 836,000 | ||||||
NET INCOME ATTRIBUTABLE TO MEMBER | $ | 7,323,462 | $ | 10,138,289 | ||||
See notes to Condensed Consolidated Financial Statements (Unaudited)
CALIFORNIA RIDGE CLASS B HOLDINGS LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
For the Six Months Ended June 30, | ||||||||
2015 | 2014 | |||||||
NET INCOME | $ | 7,923,462 | $ | 10,974,289 | ||||
OTHER COMPREHENSIVE (INCOME) LOSS: | ||||||||
Risk management activity | 61,464 | (1,192,033 | ) | |||||
COMPREHENSIVE INCOME | 7,984,926 | 9,782,256 | ||||||
NON-CONTROLLING INTEREST SHARE OF COMPREHENSIVE INCOME | 603,000 | 776,000 | ||||||
COMPREHENSIVE LINCOME ATTRIBUTABLE TO MEMBER | $ | 7,381,926 | $ | 9,006,256 | ||||
See notes to Condensed Consolidated Financial Statements (Unaudited)
CALIFORNIA RIDGE CLASS B HOLDINGS LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF MEMBER'S EQUITY (UNAUDITED)
Member | ||||||||||||||||
Total | Accumulated Other Comprehensive Income (Loss) | Contributed Capital and Retained Earnings | Non-controlling Interest | |||||||||||||
BEGINNING EQUITY - January 1, 2015 | $ | 38,961,982 | $ | (977,902 | ) | $ | 34,840,657 | $ | 5,099,227 | |||||||
Comprehensive income: | ||||||||||||||||
Net income | 7,923,462 | — | 7,323,462 | 600,000 | ||||||||||||
Other comprehensive income - risk management activity | 61,464 | 58,464 | — | 3,000 | ||||||||||||
Total comprehensive income | 7,984,926 | 58,464 | 7,323,462 | 603,000 | ||||||||||||
Capital distributions | (3,508,405 | ) | — | (3,124,849 | ) | (383,556 | ) | |||||||||
ENDING EQUITY - June 30, 2015 | $ | 43,438,503 | $ | (919,438 | ) | $ | 39,039,270 | $ | 5,318,671 | |||||||
Member | ||||||||||||||||
Total | Accumulated Other Comprehensive Income (Loss) | Contributed Capital and Retained Earnings | Non-controlling Interest | |||||||||||||
BEGINNING EQUITY - January 1, 2014 | $ | 41,672,656 | $ | 322,525 | $ | 36,178,357 | $ | 5,371,774 | ||||||||
Comprehensive income: | ||||||||||||||||
Net income | 10,974,289 | — | 10,138,289 | 836,000 | ||||||||||||
Other comprehensive income - risk management activity | (1,192,033 | ) | (1,132,033 | ) | — | (60,000 | ) | |||||||||
Total comprehensive income | 9,782,256 | (1,132,033 | ) | 10,138,289 | 776,000 | |||||||||||
Capital distributions | (811,728 | ) | — | (421,281 | ) | (390,447 | ) | |||||||||
ENDING EQUITY - June 30, 2014 | $ | 50,643,184 | $ | (809,508 | ) | $ | 45,695,365 | $ | 5,757,327 | |||||||
See notes to Condensed Consolidated Financial Statements (Unaudited)
CALIFORNIA RIDGE CLASS B HOLDINGS LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For Six Months Ended June 30, | ||||||||
2015 | 2014 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income | $ | 7,923,462 | $ | 10,974,289 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and accretion expense | 7,363,678 | 7,344,685 | ||||||
Amortization of capitalized finance costs | 363,571 | 363,582 | ||||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | 1,626,379 | 2,115,948 | ||||||
Prepaid expenses | (67,203 | ) | (82,123 | ) | ||||
Long-term inventory | (74,882 | ) | 22,125 | |||||
Accounts payable | 40,821 | (1,473 | ) | |||||
Accounts payable - related parties | (3,143 | ) | (35,977 | ) | ||||
Other liabilities and accrued expenses | 1,408,412 | 2,040,114 | ||||||
Net cash provided by operating activities | 18,581,095 | 22,741,170 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Additions to property, plant and equipment | (25,460 | ) | (188,817 | ) | ||||
Restricted cash | (5,875,966 | ) | (12,702,453 | ) | ||||
Net cash provided by (used in) investing activities | (5,901,426 | ) | (12,891,270 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Debt repayments | (9,035,493 | ) | (9,080,754 | ) | ||||
Capital distributions to member | (3,124,849 | ) | (421,281 | ) | ||||
Capital distributions to non-controlling interest | (383,556 | ) | (390,447 | ) | ||||
Net cash used in financing activities | (12,543,898 | ) | (9,892,482 | ) | ||||
NET DECREASE IN CASH AND CASH EQUIVALENTS | 135,771 | (42,582 | ) | |||||
CASH AND CASH EQUIVALENTS - Beginning of year | 355,947 | 478,667 | ||||||
CASH AND CASH EQUIVALENTS - End of period | $ | 491,718 | $ | 436,085 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION - Cash paid during the period for interest | $ | 8,652,821 | $ | 8,977,112 | ||||
See notes to Condensed Consolidated Financial Statements (Unaudited)
CALIFORNIA RIDGE CLASS B HOLDINGS LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANIAL STATEMENTS (UNAUDITED)
1. | DESCRIPTION OF BUSINESS |
California Ridge Class B Holdings LLC, a Delaware limited liability company, together with its subsidiaries is herein defined as the “Company.” The purpose of the Company is to own, operate and maintain the California Ridge Wind Energy Center (the “Project”) located in Champaign and Vermilion counties, both in Illinois.
The Project is a 214 megawatt (“MW”) electricity generating facility with 134 wind turbine generator units. The Project commenced commercial operations in December 2012.
The Company is owned 100% by Invenergy Wind Operational Holdings LLC (“IWOH”). The Company owns 100% of the Class B membership interest in California Ridge Holdings LLC (“Holdings”), which directly owns 100% of the membership interest in California Ridge Wind Energy LLC (“California Ridge”), the direct owner of the Project. The membership interest of Holdings includes a third party investor, which is classified as non-controlling interest of the Company.
On June 30, 2015, Invenergy Wind Global LLC (“IWG”), an affiliate of the Company, entered into a Purchase and Sale Agreement (the “PSA”) with a third party to sell 90.1% of the equity interests in the Company. IWG will retain the remaining 9.9% equity interests in the Company. The sale is expected to close by the end of 2015.
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Presentation
In the opinion of management, the accompanying unaudited condensed consolidated financial statements of the Company include all adjustments (consisting of normal, recurring items) necessary to present fairly its financial position and results of operations and cash flows for the periods presented. The Company has presented the condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information. Accordingly, the condensed consolidated financial statements do not include all the information and disclosures required by GAAP for complete financial statements. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the annual financial statements for the fiscal year ended December 31, 2014.
Subsequent events were evaluated through August 17, 2015, the date the condensed consolidated financial statements were available to be issued.
Management Estimates
The preparation of condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.
Restricted Cash
Restricted cash consists of cash held for purposes of paying operating and maintenance costs, capital expenditures and debt service obligations. Classification on the condensed consolidated balance sheet is consistent with related agreements. Fluctuations in restricted cash relate to seasonality of revenue and timing of payment obligations. The carrying amount of restricted cash approximates fair market value because of the short maturity of these instruments.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued an update to accounting for revenue recognition, which provides a universal method for recognizing revenue. The guidance provides that an entity should recognize revenue to depict the transfer of promised 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 guidance is effective for annual reporting periods beginning after December 15, 2018, and will be applied retrospectively to all prior periods presented or apply the requirements in the year of adoption, through a cumulative adjustment. Early adoption is permitted for the year ending December 31, 2017. The Company is currently evaluating the potential impact of the adoption of this revised accounting guidance on its revenue recognition policy.
In February 2015, the FASB issued updated guidance which amends consolidation guidance by including changes to the variable and voting interest models used by entities to evaluate whether an entity should be consolidated. The guidance is effective for annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company is currently evaluating the potential impact of the updated guidance on the condensed consolidated balance sheets, statements of operations and comprehensive income and statements of cash flows.
In April 2015, the FASB issued an update to the guidance of interest on simplifying the presentation of debt issuance costs, which requires debt issuance costs related to a recognized debt liability to be presented on the condensed consolidated balance sheets as a direct deduction from the debt liability. The guidance is effective for annual reporting periods beginning after December 15, 2015. The Company is evaluating the potential impact of the updated guidance on the condensed consolidated balance sheets.
3. | PROPERTY, PLANT AND EQUIPMENT - NET |
Property, plant and equipment - net, consisted of the following:
June 30, 2015 | December 31, 2014 | |||||||
Land | $ | 5,961,878 | $ | 5,961,878 | ||||
Plant | 345,031,714 | 345,031,714 | ||||||
Other property and equipment | 5,631,103 | 5,605,643 | ||||||
Subtotal | 356,624,695 | 356,599,235 | ||||||
Less accumulated depreciation | (38,695,450 | ) | (31,533,689 | ) | ||||
Property, plant and equipment - net | $ | 317,929,245 | $ | 325,065,546 | ||||
The Company recorded $7,161,761 and $7,155,359 of depreciation expense for the six months ended June 30, 2015, and 2014, respectively, on the condensed consolidated statements of operations.
4. | FAIR VALUE MEASUREMENTS |
Fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal market in which the reporting entity transacts based on the assumptions market
participants would use when pricing the asset or liability. The fair value hierarchy prioritizes the information used to develop those assumptions giving priority, from highest to lowest, to quoted prices in active markets for identical assets and liabilities (Level 1); observable inputs not included in Level 1, for example, quoted prices for similar assets and liabilities (Level 2); and unobservable data (Level 3), for example, a reporting entity’s own internal data based on the best information available in the circumstances.
Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.
The Company identified its interest rate swaps (“Swaps”) as items governed by fair value accounting. The Company uses market participant assumptions including assumptions of credit risk to value these derivatives. The Company performed a sensitivity analysis around the credit risk by considering changes to the utilized credit rating to determine whether such changes result in a significant change to the fair values. These inputs can be readily observable or market corroborated and are rendered Level 2 for purposes of disclosure.
The Company’s risk management assets and liabilities by level within the fair value hierarchy are summarized as follows:
Fair Value as of June 30, 2015 | ||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||
Risk Management Assets | ||||||||||||
Interest rate swaps | $ | — | $ | 547,529 | $ | — | ||||||
Risk Management Liabilities | ||||||||||||
Interest rate swaps | $ | — | $ | 1,331,968 | $ | — | ||||||
Fair Value as of December 31, 2014 | ||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||
Risk Management Assets | ||||||||||||
Interest rate swaps | $ | — | $ | 626,038 | $ | — | ||||||
Risk Management Liabilities | ||||||||||||
Interest rate swaps | $ | — | $ | 1,471,941 | $ | — | ||||||
The determination of the fair values above incorporates various factors such as the liquidity premiums that may be demanded by market participants and the credit standing of the counterparties involved. Such valuation adjustments represent the amount of probable change due to default either by the Company or a third party. The credit reserve is developed based on the Company’s expectation of the market participants’ perspective of potential credit exposure. The calculation of the credit reserve on net asset positions is based on available market information including credit ratings and credit default swap rates. The Company also incorporates non-performance risk in net liability positions based on an assessment of market participants’ assumptions of the Company’s potential risk of default.
5. | DEBT |
On April 27, 2012, California Ridge entered into a credit agreement to provide term loan financing, a fixed rate note and letters of credit (see Note 7). The term loan bears interest of the London InterBank Offered Rate (“LIBOR”) plus a fixed margin ranging from 2.75% to 3.25% through March 2023. The interest rate of the term loan totaled 3.03% and 2.98% at June 30, 2015, and December 31, 2014, respectively. The fixed rate note has an interest rate of 6.25% and matures in June 2032. The credit agreement contains provisions which prevent the distribution of available cash if there is an event of default or specified financial ratios are not met during a
payment period. No such restrictions exist as of June 30, 2015. The credit agreement is secured by the Project assets.
The fair value of debt, including the current portion, is estimated by calculating the present value of the future principal and interest payments based on projections of LIBOR and market-adjusted estimates of credit risk.
The carrying values and fair values of the debt obligations are summarized in the tables below:
June 30, 2015 | ||||||||
Debt Obligation | Carrying Value | Fair Value | ||||||
Term Loan | $ | 115,904,425 | $ | 130,204,000 | ||||
Fixed Rate Note | 174,067,787 | 247,238,000 | ||||||
Total | $ | 289,972,212 | $ | 377,442,000 | ||||
December 31, 2014 | ||||||||
Debt Obligation | Carrying Value | Fair Value | ||||||
Term Loan | $ | 124,939,918 | $ | 141,129,000 | ||||
Fixed Rate Note | 174,067,787 | 252,107,000 | ||||||
Total | $ | 299,007,705 | $ | 393,236,000 | ||||
6. | INTEREST RATE SWAPS |
The Company has executed Swaps, which meet the definition of derivative instruments. These Swaps are entered into in accordance with and as required by the covenants of the credit agreement and are secured in the same manner as the underlying debt.
The terms of the Swaps are summarized as follows:
Term | Notional | Pay Fixed Rate | Receive Floating Rate | Cash Flow Hedge Accounting Election Date | |
December 3, 2012 through | Resets from $123,457,821 | 1.945 | % | Three-month | April 27, 2012 |
December 31, 2022 | to $5,599,987 | LIBOR | |||
Balance - June 30, 2015 | $91,586,789 | ||||
Balance - December 31, 2014 | $98,719,874 | ||||
The following tables summarize amounts recorded related to the Swaps:
June 30, 2015 | Six Months Ended June 30, 2015 | |||||||||
Long-Term Risk Management Assets | Current Risk Management Liabilities | Settlement Payments Recorded in Interest Expense | ||||||||
$ | 547,529 | $ | 1,331,968 | $ | 833,299 | |||||
December 31, 2014 | Six Months Ended June 30, 2014 | |||||||||
Long-Term Risk Management Assets | Current Risk Management Liabilities | Settlement Payments Recorded in Interest Expense | ||||||||
$ | 626,038 | $ | 1,471,941 | $ | 942,357 | |||||
The following tables represent the activity recorded in accumulated other comprehensive income (loss) (“AOCI” or “AOCL”) for the Swaps:
June 30, 2015 | June 30, 2014 | |||||||
Balance - January 1 | $ | (977,902 | ) | $ | 322,525 | |||
Changes in fair value | (786,421 | ) | (2,147,627 | ) | ||||
Reclasses from AOCL to interest expense | 847,885 | 955,594 | ||||||
Non-controlling interest share | (3,000 | ) | 60,000 | |||||
Balance - June 30 | $ | (919,438 | ) | $ | (809,508 | ) | ||
The portion of AOCL expected to be reclassified into interest expense on the condensed consolidated statements of operations during the next twelve months is $1,331,968 and $1,708,287 as of June 30, 2015 and 2014, respectively.
The Company’s Swaps contain cross-default provisions that, if triggered, would permit the counterparty to declare a default and require settlement of the outstanding amount. These cross-default provisions could be triggered if there was a non-performance event under specified indebtedness in excess of a certain threshold. On an ongoing basis, the Company assesses the appropriateness of these cross-default provisions in our contracts. The fair value of net derivative liabilities subject to cross-default provisions totaled $784,439 and $845,903 as of June 30, 2015 and December 31, 2014, respectively. The Company believes that a non-performance event under these provisions is unlikely.
7. | COMMITMENTS AND CONTINGENCIES |
California Ridge leases land used by the Project under various operating lease agreements expiring on various dates through 2037. Lease expense is recognized on a straight-line basis if the agreement includes known escalating payments over the lease term. Some of the lease agreements include contingent rent payments based on a predetermined percentage of operating revenues of the Project.
The Company recorded $1,043,139 and $1,152,467 of total lease expense, of which $830,072 and $813,796 represented minimum rent and $22,487 and $131,815 represented contingent rent payments for the six months ended June 30, 2015, and 2014, respectively.
The Company had available letter of credit lines totaling $32,792,933 and $32,616,933, of which $30,446,748 and $30,529,768 letters of credit were issued as of June 30, 2015, and December 31, 2014, respectively. The letters of credit provide security for obligations under Project-related contracts.
Pursuant to terms under the power purchase agreement, the Company is required to make payments to Tennessee Valley Authority (“TVA”), if the guaranteed supply of energy is not met. The Company does not believe that such payments are likely to be required in the future.
8. | RELATED PARTY TRANSACTIONS |
On April 27, 2012, the Company entered into a Facility Management Agreement (“Agreement”) with Invenergy Services LLC (“Services”). The Agreement calls for a fixed monthly administrative payment of $14,500, escalating annually for the Consumer Price Index (“CPI”) which covers home office labor and out-of-pocket expenses. Under the Agreement, Services shall also be reimbursed for direct operating expenses. Per the Agreement, the Company shall pay Services a monthly management fee of $13,800 and an annual remote monitoring and reset fee of $184,250, each escalating annually for CPI. The Company recorded $958,368 and $794,084 of such related party transactions for the six months ended June 30, 2015, and 2014, respectively, on the condensed consolidated statements of operations.
Some third-party invoices are paid by Services or other related affiliates on behalf of the Company. Such invoices
are billed to the Company and reimbursed at cost.
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