Note 2. Business Combinations

Acquisition accounting is dependent upon certain valuations and other studies that must be completed as of the acquisition date. The judgments made in the context of the purchase price allocation can materially impact the Partnership’s future results of operations.

2016 Acquisitions

For the acquisitions completed during the nine months ended August 31, 2016, the valuation is based on the preliminary assessment of the fair values of the assets acquired, liabilities assumed and noncontrolling interests as of the acquisition date, and is subject to change as the Partnership obtains additional information for its estimates during the respective measurement period.

Kern Acquisition:

On January 26, 2016, OpCo and SunPower entered into the Kern Purchase Agreement, which was amended on September 28, 2016, pursuant to which OpCo agreed to purchase an interest in a solar energy project consisting of systems attached to fixed-tilt carports located at 27 school sites in the Kern High School District located in Kern County, California, and having an aggregate nameplate capacity of up to 21 MW (the “Kern Project”). OpCo’s acquisition of the Kern Project will be effectuated in four phases, with the closing of the first phase having occurred simultaneously with the execution of the Kern Purchase Agreement. The following describes the acquisition of each phase:

(i)

Phase 1(a): On January 26, 2016, 8point3 OpCo Holdings, LLC, a wholly owned subsidiary of OpCo, acquired from SunPower all of the class B limited liability company interests of the Kern Class B Partnership. Prior to the date of the execution of the Kern Purchase Agreement and in connection with the closing of the tax equity financing for the Kern Project, described below, the Kern Project Entity, an indirect subsidiary of the Kern Class B Partnership, acquired the assets included in Phase 1(a) (the “Kern Phase 1(a) Assets”). The initial phase of the acquisition of the Kern Project is referred to herein as the “Kern Phase 1(a) Acquisition”.

(ii)

Phase 1(b): On September 9, 2016, the Kern Project Entity acquired the assets included in Kern Phase 1(b) (the “Kern Phase 1(b) Assets”) from SunPower.

(iii)

Phase 2: At two future closing dates, which are expected to occur in the fiscal quarter ending February 28, 2017, the Kern Project Entity will acquire the Kern Phase 2 assets from SunPower.

The aggregate purchase price for the acquisition is up to $36.6 million in cash, of which OpCo paid approximately $4.9 million on January 27, 2016 in connection with the closing of the first phase on January 26, 2016 and approximately $9.2 million on September 9, 2016 in connection with the closing of the second phase on September 9, 2016. OpCo will pay the remaining balance of up to $22.5 million purchase price at the closings of the third and fourth phases.

In addition, on January 22, 2016, a subsidiary of the Kern Class B Partnership entered into a tax equity financing facility with a third-party investor, which allocates to OpCo a certain share of cash flows from the Kern Project pursuant to a distribution waterfall. Pursuant to this distribution waterfall, the tax equity investor is entitled to a quarterly amount of project cash flow until a specified “flip” point is achieved. After the “flip” point, the cash allocations to OpCo increase. In addition, upon reaching the flip point, OpCo has a right to purchase the tax equity investor’s interests in the project for an amount that is not less than its fair market value. The tax equity investor will make capital contributions to fund purchase price payments up to approximately $31.2 million, of which $0.9 million and $1.8 million was paid on January 22, 2016 and September 9, 2016, respectively, and the remaining balance of up to $28.5 million will be made when the Kern Project’s phases meet certain construction milestones and will be transferred to affiliates of SunPower for the remaining purchase price payments. For more information about our tax equity structures in general, please read Part I, Item 1. “Business—Tax Equity Financing” of our 2015 10-K.

The Kern Phase 1(a) Acquisition and the Kern Phase 1(b) Acquisition qualify as a business combination and the Partnership accounts for the transaction under the acquisition method. The purchase allocation of the identifiable assets acquired, liabilities assumed and noncontrolling interests of the Kern Phase 1(a) Assets is disclosed in the following table. Please read “—Note 15—Subsequent Events” for the purchase allocation of the identifiable assets acquired, liabilities assumed and noncontrolling interests of the Kern Phase 1(b) Assets.

(in thousands)	Fair Value
Property and equipment	$	9,733
Related party payable		(3,435	)
Asset retirement obligation		(547	)
Noncontrolling interest		(864	)
Net assets acquired	$	4,887

Kingbird Acquisition:

On March 31, 2016, OpCo entered into the Kingbird Purchase Agreement with First Solar, pursuant to which OpCo agreed to acquire an interest in two 20 MW photovoltaic solar generating projects located in Kern County, California (together, the “Kingbird Project”) for aggregate consideration of $60.0 million in cash (the “Kingbird Acquisition”). Consideration for the Kingbird Acquisition comprised a $42.9 million payment on the closing date of March 31, 2016 to Kingbird Seller and a $17.1 million contribution to FSAM Kingbird Solar Holdings, LLC, the acquired company, on May 31, 2016 which was subsequently paid to an affiliate of First Solar for the remaining balance due under the Kingbird Project’s EPC contract. The closing of the Kingbird Acquisition occurred simultaneously with the execution of the Kingbird Purchase Agreement and OpCo funded 100% of the payment for the Kingbird Project with a combination of cash on hand, drawings under OpCo’s revolver and drawings under OpCo’s delayed draw facility.

Ownership and cash flows of the Kingbird Project are subject to a tax equity financing facility with a third-party investor, which allocates to OpCo a certain share of cash flows from the Kingbird Project pursuant to a distribution waterfall. Pursuant to this distribution waterfall, the tax equity investor is entitled to a quarterly amount of project cash flow until a specified “flip” point, based on the achievement of a targeted internal rate of return. After the “flip” point, the cash allocations to OpCo increase. In addition, upon reaching the flip point, OpCo has a right to purchase the tax equity investor’s interests in the project for an amount that is not less than its fair market value. The tax equity investor made capital contributions to fund purchase price payments of approximately $11.7 million on February 26, 2016 and $46.8 million on May 31, 2016, which were made when the Kingbird Project’s phases met certain construction milestones and were transferred to an affiliate of First Solar for the remaining purchase price payments. For more information about our tax equity structures in general, please read Part I, Item 1. “Business—Tax Equity Financing” of our 2015 10-K.

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 50 MW photovoltaic solar generating project located in Alamosa County, Colorado (the “Hooper Project”) for aggregate consideration of $53.5 million in cash (the “Hooper Acquisition”). The Hooper Acquisition closed on April 1, 2016 and OpCo funded 100% of the purchase price for the Hooper Project with a combination of cash on hand, drawings under OpCo’s revolver and drawings under OpCo’s delayed draw facility.

Ownership and cash flows of the Hooper Project are subject to a tax equity financing facility with a third-party investor, which allocates to OpCo a certain share of cash flows from the Hooper Project pursuant to a distribution waterfall. Pursuant to this distribution waterfall, the tax equity investor is entitled to a quarterly amount of project cash flow until a specified “flip” point is achieved. After the “flip” point, the cash allocations to OpCo increase. In addition, upon reaching the flip point, OpCo has a right to purchase the tax equity investor’s interests in the project for an amount that is not less than its fair market value. For more information about our tax equity structures in general, please read Part I, Item 1. “Business—Tax Equity Financing” of our 2015 10-K.

The Hooper Acquisition qualifies as a business combination and the Partnership accounts for the transaction under the acquisition method. The purchase allocation of the identifiable assets acquired, liabilities assumed and noncontrolling interests of the Hooper Project is as follows:

(in thousands)	Fair Value
Property and equipment	$	76,419
Prepaid expense		240
Accounts receivable (1)		568
Accrued liabilities (2)		(463	)
Noncontrolling interest		(23,679	)
Net assets acquired (3)	$	53,085

(1)

Accounts receivable represent the fair value of the trade accounts receivable acquired, all of which are expected to be collected.

(2)

Accrued liabilities includes $0.3 million of cash distributions payable that was paid to the tax equity investor on April 30, 2016.

(3)

The net purchase price for the acquisition represents $53.5 million of cash paid by OpCo, offset by $0.4 million cash acquired in the Hooper Project Entity.

Macy’s Maryland Acquisition:

On June 29, 2016, OpCo entered into the Macy’s Maryland Purchase Agreement with SunPower, pursuant to which OpCo agreed to acquire an interest in the 5 MW roof-mounted solar photovoltaic project being installed at seven Macy’s department stores in Maryland (“Macy’s Maryland Project”) for aggregate consideration of $12.0 million in cash (the “Macy’s Maryland Acquisition”). Consideration for the Macy’s Maryland Acquisition comprised a $12.0 million contribution to Macy’s Maryland Class B Partnership, the acquired company, on July 1, 2016 of which $6.4 million was subsequently paid to SunPower and the $5.6 million remaining balance due was paid to SunPower on September 21, 2016 when the Macy’s Maryland Project met certain construction milestones.

Ownership and cash flows of the Macy’s Maryland Project are subject to a tax equity financing facility with a third-party investor, which allocates to OpCo a certain share of cash flows from the Macy’s Maryland Project pursuant to a distribution waterfall. Pursuant to this distribution waterfall, the tax equity investor is entitled to a quarterly amount of project cash flows until a specified “flip” point is achieved. After the “flip” point, the cash allocations to OpCo increase. In addition, upon reaching the flip point, OpCo has a right to purchase the tax equity investors’ interests in the project for an amount that is not less than its fair market value. For more information about our tax equity structures in general, please read Part I, Item 1. “Business—Tax Equity Financing” of our 2015 10-K.

The Macy’s Maryland Acquisition qualifies as a business combination and the Partnership accounts for the transaction under the acquisition method. The purchase allocation of the identifiable assets acquired, liabilities assumed and noncontrolling interests of the Macy’s Maryland Project is as follows:

(in thousands)	Fair Value
Property and equipment	$	19,807
Customer contract intangible (1)		1,348
Related party payable (2)		(13,975	)
Asset retirement obligation		(278	)
Noncontrolling interest		(550	)
Net assets acquired (3)	$	6,352

(1)

Customer contract intangible will be amortized on a straight-line basis beginning on COD through the contract term end date of December 31, 2020.

(2)

Related party payable represents liabilities for amounts due to SunPower related to the construction of the project and consisted of: (i) $5.6 million paid to SunPower on September 21, 2016 when the Macy’s Maryland Project met certain construction milestones and (ii) $8.3 million of capital contributions due by the tax equity investor of which $3.3 million was paid on September 21, 2016.

(3)

The net purchase price for the acquisition represents $12.0 million of cash contributed by OpCo to Macy’s Maryland Class B Partnership, the acquired company, of which $6.4 million was subsequently paid to SunPower and the $5.6 million remaining balance due was paid to SunPower on September 21, 2016 when the Macy’s Maryland Project met certain construction milestones.

Valuation methodology:

The Partnership utilized the discounted cash flow method under the income approach to value property and equipment for the Kern Phase 1(a) Assets, the Kern Phase 1(b) Assets, the Kingbird Project, the Hooper Project and the Macy’s Maryland Project, to value noncontrolling interests for the Hooper Project and to value the customer contract intangible for the Macy’s Maryland Project. Key assumptions used in the discounted cash flow method included forecasted pre-tax cash flows, forecasted taxable income and discount rates. All estimates, key assumptions and forecasts were reviewed by the Partnership and the fair value analyses and related valuations represent the conclusions of management.

Supplementary Data:

The results of operations for the Kern Phase 1(a) Assets, the Kingbird Project, the Hooper Project and the Macy’s Maryland Project have been included in the Partnership’s unaudited condensed consolidated statements of operations since their respective dates of acquisition. The Kern Phase 1(a) Assets, the Kingbird Project, the Hooper Project and the Macy’s Maryland Project contributed approximately $4.6 million and $6.8 million to the Partnership’s operating revenue in the three and nine months ended August 31, 2016, respectively, and increased operating income by approximately $2.3 million and $3.3 million, respectively. The Kern Phase 1(b) Acquisition occurred after August 31, 2016, and as such the Kern Phase 1(b) Assets have not been included in the Partnership’s unaudited condensed consolidated statements of operations for the three and nine months ended August 31, 2016.

2015 Acquisitions

For the acquisitions completed in fiscal 2015, the Partnership obtained valuations from a third-party valuation specialist. The valuations calculated from these estimates were based on information available at the acquisition date. Therefore, the Partnership’s purchase price allocations are final and not subject to revision.

On June 24, 2015, the Partnership acquired a 100% interest in the Maryland Solar Project Entity, and a 49% indirect interest in each of the Solar Gen 2 Project, the North Star Project and the Lost Hills Blackwell Project, each of which is described in more detail below.

Maryland Solar

The Maryland Solar Project, located in Maryland, is a fully operational 20 MW grid-connected system contracted to serve a 20-year PPA with FirstEnergy Solutions, a subsidiary of FirstEnergy Corp.

Solar Gen 2

The Solar Gen 2 Project, located in California, is a fully operational 150 MW grid-connected system spanning three separate 50 MW sites. Electricity generated by the three separate systems is contracted to serve a 25-year PPA with San Diego Gas & Electric Company (“SDG&E”), a subsidiary of Sempra Energy.

North Star

The North Star Project, located in California, is a fully operational 60 MW grid-connected system contracted to serve a 20-year PPA with PG&E, a subsidiary of PG&E Corporation.

Lost Hills Blackwell

The Lost Hills Blackwell Project, located in California, is a fully operational 32 MW grid-connected system contracted to serve a 25-year PPA with PG&E, a subsidiary of PG&E Corporation, starting in 2019. The Lost Hills Blackwell Project is also contracted to serve a short-term PPA with the City of Roseville, California prior to the system’s PPA with PG&E.

The purchase allocation for the acquired assets and liabilities of the above IPO First Solar Project Entities is as follows:

(in thousands)	Fair Value
Property and equipment	$	56,497
Equity method investment - Solar Gen 2		216,483
Equity method investment - North Star		103,849
Equity method investment - Lost Hills Blackwell		34,121
Asset retirement obligation		(2,130	)
Total purchase price	$	408,820

The following unaudited pro forma supplementary data gives effect to the 2015 Acquisitions as if the transactions had occurred on December 30, 2013. The unaudited pro forma supplementary data is provided for informational purposes only and should not be construed as indicative of the Partnership’s results of operations had the 2015 Acquisitions been consummated on the date assumed or of the Partnership’s results of operations for any future date.

	Three Months Ended		Eight Months Ended
	August 31,		August 31,
(in thousands)	2015		2015
Operating revenues	$	3,764	$	9,441
Net loss		2,993		(11,090	)
Net income attributable to 8point3 Energy Partners LP Class A shares		1,358		1,849
Net income per Class A share - Basic and Diluted	$	0.07	$	0.09