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EX-32.2 - EX-32.2 - ATLANTIC POWER CORPat-20180331ex322760f44.htm
EX-32.1 - EX-32.1 - ATLANTIC POWER CORPat-20180331ex3211f60d2.htm
EX-31.2 - EX-31.2 - ATLANTIC POWER CORPat-20180331ex3126f7268.htm
EX-31.1 - EX-31.1 - ATLANTIC POWER CORPat-20180331ex311bab570.htm
EX-10.1 - EX-10.1 - ATLANTIC POWER CORPat-20180331ex10137219d.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10‑Q

 

 

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

For the quarterly period ended March 31, 2018

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 001‑34691

ATLANTIC POWER CORPORATION

(Exact name of registrant as specified in its charter)

 

 

British Columbia, Canada
(State or other jurisdiction of
incorporation or organization)

55‑0886410
(I.R.S. Employer
Identification No.)

3 Allied Drive, Suite 220
Dedham, MA
(Address of principal executive offices)

02026
(Zip code)

 

(617) 977‑2400

(Registrant’s telephone number, including area code)

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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act. (Check one):

 

 

 

 

Large accelerated filer ☐

Accelerated filer ☒

Non‑accelerated filer ☐
(Do not check if a
smaller reporting company)

Smaller reporting company ☐

Emerging growth company ☐

 

 

 

 

 

 

 

 

If an emerging company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ 

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

The number of shares outstanding of the registrant’s Common Stock as of May 3, 2018 was 112,463,640.

 

 

 

 


 

 

ATLANTIC POWER CORPORATION

 

FORM 10‑Q

 

THREE MONTHS ENDED MARCH 31, 2018

 

Index

 

 

General :

    

3

 

PART I—FINANCIAL INFORMATION

 

 

ITEM 1.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES

 

 

 

Consolidated Balance Sheets as of March 31, 2018 (unaudited) and December 31, 2017

 

4

 

Consolidated Statements of Operations for the three months ended March 31, 2018 (unaudited) and March 31, 2017 (unaudited)

 

5

 

Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2018 (unaudited) and March 31, 2017 (unaudited)

 

6

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2018 (unaudited) and March 31, 2017 (unaudited)

 

7

 

Condensed Notes to Consolidated Financial Statements (unaudited)

 

8

ITEM 2. 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

31

ITEM 3. 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

47

ITEM 4. 

CONTROLS AND PROCEDURES

 

48

 

PART II—OTHER INFORMATION

 

 

ITEM 1A. 

RISK FACTORS

 

48

ITEM 2. 

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

48

ITEM 6. 

EXHIBITS

 

50

 

 

 

 


 

 

GENERAL

 

In this Quarterly Report on Form 10‑Q, references to “Cdn$” and “Canadian dollars” are to the lawful currency of Canada and references to “$”, “US$” and “U.S. dollars” are to the lawful currency of the United States. All dollar amounts herein are in U.S. dollars, unless otherwise indicated.

 

Unless otherwise stated, or the context otherwise requires, references in this Quarterly Report on Form 10‑Q to “we,” “us,” “our,” “Atlantic Power” and the “Company” refer to Atlantic Power Corporation, those entities owned or controlled by Atlantic Power Corporation and predecessors of Atlantic Power Corporation.

3


 

ATLANTIC POWER CORPORATION

 

CONSOLIDATED BALANCE SHEETS

 

(in millions of U.S. dollars)

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

 

 

2018

 

2017

    

Assets

    

(unaudited)

    

 

    

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

82.6

 

$

78.7

 

Restricted cash

 

 

5.7

 

 

6.2

 

Accounts receivable

 

 

26.7

 

 

52.7

 

Current portion of derivative instruments asset (Notes 7 and 8)

 

 

4.8

 

 

2.7

 

Inventory

 

 

16.1

 

 

17.7

 

Prepayments

 

 

6.3

 

 

6.9

 

Income taxes receivable

 

 

0.8

 

 

1.0

 

Other current assets

 

 

3.8

 

 

3.1

 

Total current assets

 

 

146.8

 

 

169.0

 

Property, plant, and equipment, net

 

 

585.8

 

 

602.3

 

Equity investments in unconsolidated affiliates (Note 4)

 

 

169.4

 

 

163.7

 

Power purchase agreements and intangible assets, net

 

 

178.5

 

 

191.2

 

Goodwill

 

 

21.3

 

 

21.3

 

Derivative instruments asset (Notes 7 and 8)

 

 

3.4

 

 

2.8

 

Other assets

 

 

7.9

 

 

8.5

 

Total assets

 

$

1,113.1

 

$

1,158.8

 

Liabilities

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

5.7

 

$

2.2

 

Accrued interest

 

 

3.7

 

 

0.3

 

Other accrued liabilities

 

 

16.4

 

 

25.5

 

Current portion of long-term debt (Note 5)

 

 

83.6

 

 

99.5

 

Current portion of derivative instruments liability (Notes 7 and 8)

 

 

6.4

 

 

4.4

 

Other current liabilities

 

 

0.3

 

 

1.0

 

Total current liabilities

 

 

116.1

 

 

132.9

 

Long-term debt, net of unamortized discount and deferred financing costs (Note 5)

 

 

597.1

 

 

616.3

 

Convertible debentures, net of discount and unamortized deferred financing costs (Note 6)

 

 

98.9

 

 

105.4

 

Derivative instruments liability (Notes 7 and 8)

 

 

18.0

 

 

19.9

 

Deferred income taxes

 

 

14.3

 

 

11.7

 

Power purchase and fuel supply agreement liabilities, net

 

 

23.3

 

 

24.1

 

Other long-term liabilities

 

 

50.8

 

 

51.7

 

Total liabilities

 

 

918.5

 

 

962.0

 

Equity

 

 

 

 

 

 

 

Common shares, no par value, unlimited authorized shares; 112,978,994 and 115,211,976 issued and outstanding at March 31, 2018 and December 31, 2017

 

 

1,269.0

 

 

1,274.8

 

Accumulated other comprehensive loss (Note 3)

 

 

(139.1)

 

 

(134.8)

 

Retained deficit

 

 

(1,142.6)

 

 

(1,158.4)

 

Total Atlantic Power Corporation shareholders’ equity

 

 

(12.7)

 

 

(18.4)

 

Preferred shares issued by a subsidiary company (Note 12)

 

 

207.3

 

 

215.2

 

Total equity

 

 

194.6

 

 

196.8

 

Total liabilities and equity

 

$

1,113.1

 

$

1,158.8

 

 

See accompanying notes to consolidated financial statements.

4


 

ATLANTIC POWER CORPORATION

 

CONSOLIDATED STATEMENTS OF OPERATIONS

 

(in millions of U.S. dollars, except per share amounts)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

 

2018

 

2017

 

Project revenue:

    

 

    

    

 

    

    

Energy sales (Note 2)

 

$

38.4

 

$

37.1

 

Energy capacity revenue (Note 2)

 

 

20.1

 

 

19.5

 

Other  (Note 2)

 

 

21.5

 

 

41.8

 

 

 

 

80.0

 

 

98.4

 

Project expenses:

 

 

 

 

 

 

 

Fuel

 

 

22.2

 

 

28.9

 

Operations and maintenance

 

 

21.2

 

 

20.4

 

Depreciation and amortization

 

 

23.8

 

 

29.5

 

 

 

 

67.2

 

 

78.8

 

Project other income:

 

 

 

 

 

 

 

Change in fair value of derivative instruments (Notes 7 and 8)

 

 

3.8

 

 

(1.2)

 

Equity in earnings of unconsolidated affiliates (Note 4)

 

 

12.3

 

 

9.0

 

Interest, net

 

 

(0.6)

 

 

(2.2)

 

Other income, net

 

 

 —

 

 

0.1

 

 

 

 

15.5

 

 

5.7

 

Project income

 

 

28.3

 

 

25.3

 

Administrative and other expenses:

 

 

 

 

 

 

 

Administration

 

 

6.0

 

 

6.4

 

Interest expense, net

 

 

15.1

 

 

17.3

 

Foreign exchange (gain) loss

 

 

(8.2)

 

 

2.5

 

Other income, net (Note 8)

 

 

(2.0)

 

 

 —

 

 

 

 

10.9

 

 

26.2

 

Income (loss) from operations before income taxes

 

 

17.4

 

 

(0.9)

 

Income tax expense (benefit) (Note 9)

 

 

3.2

 

 

(0.3)

 

Net income (loss)

 

 

14.2

 

 

(0.6)

 

Net (loss) income attributable to preferred shares of a subsidiary company (Note 12)

 

 

(1.7)

 

 

2.1

 

Net income (loss) attributable to Atlantic Power Corporation

 

$

15.9

 

$

(2.7)

 

Net income (loss) per share attributable to Atlantic Power Corporation shareholders: (Note 11)

 

 

 

 

 

 

 

Basic

 

$

0.14

 

$

(0.02)

 

Diluted

 

 

0.12

 

 

(0.02)

 

Weighted average number of common shares outstanding: (Note 11)

 

 

 

 

 

 

 

Basic

 

 

114.8

 

 

114.8

 

Diluted

 

 

137.5

 

 

114.8

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

5


 

ATLANTIC POWER CORPORATION

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 

(in millions of U.S. dollars)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

 

2018

 

2017

 

Net income (loss)

    

$

14.2

    

$

(0.6)

    

Other comprehensive (loss) income, net of tax:

 

 

 

 

 

 

 

Unrealized gain (loss) on hedging activities

 

$

0.2

 

$

(0.2)

 

Net amount reclassified to earnings

 

 

0.1

 

 

0.3

 

Net unrealized gain on derivatives

 

 

0.3

 

 

0.1

 

Defined benefit plan, net of tax

 

 

 —

 

 

0.1

 

Foreign currency translation adjustments

 

 

(4.6)

 

 

2.0

 

Other comprehensive (loss) income, net of tax

 

 

(4.3)

 

 

2.2

 

Comprehensive income

 

 

9.9

 

 

1.6

 

Less: Comprehensive (loss) income attributable to preferred shares of a subsidiary company

 

 

(1.7)

 

 

2.1

 

Comprehensive income (loss) attributable to Atlantic Power Corporation

 

$

11.6

 

$

(0.5)

 

 

See accompanying notes to consolidated financial statements.

6


 

ATLANTIC POWER CORPORATION

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(in millions of U.S. dollars)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

 

 

March 31, 

 

 

 

2018

 

2017

 

Cash provided by operating activities:

    

 

    

    

 

    

    

Net income (loss)

 

$

14.2

 

$

(0.6)

 

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

23.8

 

 

29.5

 

Stock-based compensation

 

 

0.5

 

 

0.4

 

Equity in earnings from unconsolidated affiliates

 

 

(12.3)

 

 

(9.0)

 

Distributions from unconsolidated affiliates

 

 

6.6

 

 

3.7

 

Unrealized foreign exchange (gain) loss

 

 

(8.0)

 

 

2.5

 

Change in fair value of derivative instruments

 

 

(3.8)

 

 

1.2

 

Change in fair value of convertible debenture conversion option derivative

 

 

(2.1)

 

 

 —

 

Amortization of debt discount and deferred financing costs

 

 

3.4

 

 

2.7

 

Change in deferred income taxes

 

 

2.2

 

 

(1.2)

 

Change in other operating balances

 

 

 

 

 

 

 

Accounts receivable

 

 

26.1

 

 

0.2

 

Inventory

 

 

1.6

 

 

(0.1)

 

Prepayments and other assets

 

 

0.8

 

 

(3.2)

 

Accounts payable

 

 

3.2

 

 

(0.4)

 

Accruals and other liabilities

 

 

(5.9)

 

 

8.4

 

Cash provided by operating activities

 

 

50.3

 

 

34.1

 

Cash used in investing activities:

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(1.1)

 

 

(2.0)

 

Cash used in investing activities

 

 

(1.1)

 

 

(2.0)

 

Cash used in financing activities:

 

 

 

 

 

 

 

Proceeds from convertible debenture issuance

 

 

92.2

 

 

 —

 

Repayment of convertible debentures

 

 

(88.1)

 

 

 —

 

Common share repurchases

 

 

(6.4)

 

 

 —

 

Preferred share repurchases

 

 

(4.0)

 

 

 —

 

Repayment of corporate and project-level debt

 

 

(32.4)

 

 

(27.4)

 

Deferred financing costs

 

 

(4.8)

 

 

 —

 

Dividends paid to preferred shareholders

 

 

(2.2)

 

 

(2.1)

 

Cash used in financing activities:

 

 

(45.7)

 

 

(29.5)

 

Net increase in cash and cash equivalents

 

 

3.5

 

 

2.6

 

Cash, restricted cash and cash equivalents at beginning of period

 

 

84.8

 

 

98.8

 

Cash, restricted cash and cash equivalents at end of period

 

$

88.3

 

$

101.4

 

Supplemental cash flow information

 

 

 

 

 

 

 

Interest paid

 

$

8.6

 

$

13.1

 

Income taxes paid, net

 

$

1.0

 

$

0.9

 

Accruals for construction in progress

 

$

0.3

 

$

 —

 

 

See accompanying notes to consolidated financial statements.

 

 

7


 

Table of Contents

ATLANTIC POWER CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(in millions U.S. dollars, except per‑share amounts)

 

(Unaudited)

 

1. Nature of business

 

General

 

Atlantic Power is an independent power producer that owns power generation assets in nine states in the United States and two provinces in Canada. Our power generation projects, which are diversified by geography, fuel type, dispatch profile and offtaker, sell electricity to utilities and other large customers predominantly under long‑term power purchase agreements (“PPAs”), which seek to minimize exposure to changes in commodity prices. As of March 31, 2018, the Company’s portfolio consisted of twenty-two projects with an aggregate electric generating capacity of approximately 1,793 megawatts (“MW”) on a gross ownership basis and approximately 1,440 MW on a net ownership basis. Eighteen of the projects are majority‑owned and operated by the Company. At March 31, 2018, three of our Ontario projects were not in operation, two because of contract expirations at December 31, 2017, and the other, Tunis, has a forward-starting 15-year contractual agreement that will commence with commercial operation of the plant in the third quarter of 2018. In early February 2018, our three plants in San Diego, totaling 112 MW on a gross and net ownership basis, ceased operations. The sixteen projects in operation at March 31, 2018 have generating capacity of approximately 1,561 MW on a gross ownership basis and approximately 1,208 MW on a net ownership basis.

 

Atlantic Power is a corporation established under the laws of the Province of Ontario on June 18, 2004 and continued to the Province of British Columbia on July 8, 2005. Our shares trade on the Toronto Stock Exchange (“TSX”) under the symbol “ATP” and on the New York Stock Exchange (“NYSE”) under the symbol “AT.” Our registered office is located at 215-10451 Shellbridge Way, Richmond, British Columbia V6X 2W8 Canada and our headquarters is located at 3 Allied Drive, Suite 220, Dedham, Massachusetts 02026, USA. Our telephone number in Dedham is (617) 977‑2400 and the address of our website is www.atlanticpower.com. Information contained on Atlantic Power’s website or that can be accessed through its website is not incorporated into and does not constitute a part of this Quarterly Report on Form 10‑Q. We have included our website address only as an inactive textual reference and do not intend it to be an active link to our website. We make available on our website, free of charge, our Annual Report on Form 10‑K, Quarterly Reports on Form 10‑Q, Current Reports on Form 8‑K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (“SEC”). Additionally, we make available on our website our Canadian securities filings, which are not incorporated by reference into our Exchange Act filings.

 

Basis of presentation

 

The interim condensed consolidated financial statements included in this Quarterly Report on Form 10‑Q have been prepared in accordance with the SEC regulations for interim financial information and with the instructions to Form 10‑Q. The following notes should be read in conjunction with the accounting policies and other disclosures as set forth in the notes to our financial statements in our Annual Report on Form 10‑K for the year ended December 31, 2017. Interim results are not necessarily indicative of results for the full year.

 

In our opinion, the accompanying unaudited interim condensed consolidated financial statements present fairly our consolidated financial position as of March 31, 2018, the results of operations and comprehensive income (loss) for the three months ended March 31, 2018 and 2017, and our cash flows for the three months ended March 31, 2018 and 2017 in accordance with U.S generally accepted accounting policies. In the opinion of management, all adjustments (consisting of normal recurring accruals and other adjustments) considered necessary for a fair presentation have been included.

 

8


 

Table of Contents

ATLANTIC POWER CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(in millions U.S. dollars, except per‑share amounts)

 

(Unaudited)

 

Use of estimates

 

The preparation of financial statements requires us 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 financial statements and the reported amounts of revenue and expenses during the year. Actual results could differ from those estimates. During the periods presented, we have made a number of estimates and valuation assumptions, including the useful lives and recoverability of property, plant and equipment, valuation of goodwill, intangible assets and liabilities related to PPAs and fuel supply agreements, the recoverability of equity investments, the recoverability of deferred tax assets, tax provisions, the fair value of financial instruments and derivatives, pension obligations, asset retirement obligations and equity-based compensation. In addition, estimates are used to test long-lived assets and goodwill for impairment and to determine the fair value of impaired assets. These estimates and valuation assumptions are based on present conditions and our planned course of action, as well as assumptions about future business and economic conditions. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2017. As better information becomes available or actual amounts are determinable, the recorded estimates are revised. Should the underlying valuation assumptions and estimates change, the recorded amounts could change by a material amount.

 

Recently issued accounting standards

 

Adopted

 

In May 2017, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance to address diversity in practice and cost and complexity of applying the guidance relating to stock compensation when there is a change to the terms or conditions of a share-based payment award. The guidance is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. We adopted this guidance on January 1, 2018 and it did not have an impact on the consolidated financial statements.

 

In November 2016, the FASB issued authoritative guidance to address diversity in practice of presenting changes in restricted cash on the statement of cash flows. The new guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. We adopted this guidance on January 1, 2018 and it was applied retrospectively to cash flows provided by investing activities on the consolidated statements of cash flows for the three months ended March 31, 2017. As a result of adoption, cash flows used in investing activities was retrospectively decreased by $3.3 million for the three months ended March 31, 2017.

 

In October 2016, the FASB issued authoritative guidance, which amends existing guidance related to the recognition of current and deferred income taxes for intra-entity asset transfers. Under the new guidance, current and deferred income tax consequences of an intra-entity asset transfer, other than an intra-entity asset transfer of inventory, are now recognized when the transfer occurs. We adopted this guidance on January 1, 2018 and it did not have an impact on the consolidated financial statements.

 

In August 2016, the FASB issued authoritative guidance intended to clarify classification of specific cash flows that have aspects of more than one class of cash flows. As a result of this new guidance, entities should be applying specific GAAP in the following eight cash flow issues: Debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies; distributions received from equity method investees; beneficial interests in securitization transactions; and separately

9


 

Table of Contents

ATLANTIC POWER CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(in millions U.S. dollars, except per‑share amounts)

 

(Unaudited)

 

identifiable cash flows and application of the predominance principle. We adopted this guidance on January 1, 2018 and it did not have an impact on the consolidated financial statements.

 

In May 2014, the FASB issued new recognition and disclosure requirements for revenue from contracts with customers, which supersedes the existing revenue recognition guidance. The new recognition requirements focus on when the customer obtains control of the goods or services, rather than the current risks and rewards model of recognition. The core principle of the new standard is that an entity recognizes revenue when it transfers goods or services to its customers in an amount that reflects the consideration an entity expects to be entitled to for those goods or services. We adopted this guidance on January 1, 2018 and it did not have an impact on the consolidated financial statements. Accordingly, we did not record a transition adjustment. The standard also requires new disclosures that include information intended to communicate the nature, amount, timing and any uncertainty of revenue and cash flows from applicable contracts, including any significant judgments and changes in judgments and assets recognized from the costs to obtain or fulfill a contract. These disclosures can be found in Note 2, Revenue.

 

Issued

 

In February 2016, the FASB issued authoritative guidance intended to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. Under the new guidance, lessees will be required to recognize a right-of-use asset and a lease liability, measured on a discounted basis, at the commencement date for all leases with terms greater than twelve months. Additionally, this guidance will require disclosures to help investors and other financial statement users to better understand the amount, timing, and uncertainty of cash flows arising from leases, including qualitative and quantitative requirements. The guidance should be applied under a modified retrospective transition approach for leases existing at the beginning of the earliest comparative period presented in the adoption-period financial statements. Any leases that expire before the initial application date will not require any accounting adjustment. This guidance is effective for annual reporting periods beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. In January 2018, the FASB issued further authoritative guidance to provide an optional practical transition expedient to not evaluate existing or expired land easements that were not previously accounted for as leases under the current guidance. We expect to elect certain of the practical expedients permitted, including the expedient that permits us to retain our existing lease assessment and classification. We are currently working through an adoption plan which includes the evaluation of lease contracts compared to the new standard. While we are currently evaluating the impact the new guidance will have on our financial position and results of operations, we expect to recognize lease liabilities and right of use assets. The extent of the increase to assets and liabilities associated with these amounts remains to be determined pending our review of our existing lease contracts and PPAs currently accounted for as operating leases. As this review is still in process, it is currently not practicable to quantify the impact of adopting this guidance at this time.

In August 2017, the FASB issued authoritative guidance to align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The guidance expands and refines hedge accounting for both nonfinancial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The guidance is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. We do not expect this to have a material impact to the consolidated financial statements upon adoption.

 

In February 2018, the FASB issued authoritative guidance to allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. The guidance is effective for fiscal years beginning after December 15, 2018. We do not expect this to have a material impact to the consolidated financial statements upon adoption.

 

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ATLANTIC POWER CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(in millions U.S. dollars, except per‑share amounts)

 

(Unaudited)

 

2. Revenue from contracts

 

Accounting policy

 

We recognize energy sales revenue on a gross basis when electricity and steam are delivered and capacity revenue when capacity is provided under the terms of the related contracts. PPAs, steam purchase arrangements and energy services agreements are long‑term contracts with performance obligations to provide electricity, steam and capacity on a predetermined basis.

 

For certain PPAs determined to be operating leases, we recognize lease income consistent with the recognition of energy sales and capacity revenue. When energy is delivered and capacity is provided, we recognize lease income as a component of energy sales and capacity revenue.

 

Nature of goods and services

 

We sell the majority of the capacity and energy from our power generation projects under PPAs to a variety of utilities and other parties. Under the PPAs, which have expiration dates ranging from September 30, 2018 to December 31, 2037, we receive payments for electric energy sold to our customers (known as energy payments), in addition to payments for electric generation capacity (known as capacity payments). We also sell steam from a number of our projects to industrial purchasers under steam sales agreements. Sales of electricity are generally higher during the summer and winter months, when temperature extremes create demand for either summer cooling or winter heating.

 

The following is a description of principal activities from which we generate our revenue.

 

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ATLANTIC POWER CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(in millions U.S. dollars, except per‑share amounts)

 

(Unaudited)

 

 

 

 

Products and services

Nature, timing of satisfaction of performance obligations, and significant payment terms

Energy

Energy revenue is recognized upon transmission to the customer. Physical transactions, or the sale of generated electricity to meet supply and demand, are recorded on a gross basis in our consolidated statements of operations. The price of energy could be contracted under PPAs at set prices or merchant sales based on market merchant price. Energy revenue is billed and paid on a monthly basis.

Energy capacity

Capacity revenues are recognized when contractually earned, and consist of revenues billed to a third party at a negotiated contract price under the applicable PPAs for making installed generation capacity available in order to satisfy reliability requirements.  Energy capacity is billed and paid on a monthly basis.

Other revenue includes the following:

Steam energy and capacity

Steam revenue is recognized upon delivery to the customer. Steam revenue is billed and paid on a monthly basis. Steam capacity payments under the applicable PPAs are recognized as the amount billable under the respective PPA. Steam capacity is billed and paid on a monthly basis.

Waste heat

We recognize revenue from generated waste heat. Waste heat is billed and paid monthly.

Enhanced dispatch contracts

We also bill and are paid for curtailment of energy generation under certain contractual arrangements with our offtaker.  This revenue is recognized monthly under the terms of those agreements. 

Ancillary and transmission services

We provide ancillary and transmission services to our customers under PPAs. These services are billed and paid on a monthly basis.

Asset management and operation, operation and maintenance

We provide asset management and operation supervision to the Frederickson project, a facility that we jointly own with Puget Sound Energy. We also provide operation and maintenance services to several electric energy customers under the PPAs.  All services are billed and paid on a monthly basis.

 

Disaggregation of revenue

 

We have four reportable segments: East U.S., West U.S., Canada and Un-Allocated Corporate.  Each segment contains various power generation projects and performance obligations as described above.  For more detailed information about reportable segments, see Note 13, Segments. Revenue, receivables and contract liabilities by segment consists of following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended  March 31, 2018

 

 

    

    

 

 

    

 

 

    

 

    

Un-Allocated

    

Consolidated

     

 

 

East U.S.

 

West U.S.

 

Canada

 

Corporate

 

Total

 

Project revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Energy sales

 

$

25.3

 

$

5.1

 

$

8.0

 

$

 —

 

$

38.4

 

Energy capacity revenue

 

 

11.3

 

 

5.9

 

 

2.9

 

 

 —

 

 

20.1

 

Steam energy and capacity revenue

 

 

3.6

 

 

2.8

 

 

 —

 

 

 —

 

 

6.4

 

Waste heat revenue

 

 

 —

 

 

 —

 

 

0.1

 

 

 —

 

 

0.1

 

Enhanced dispatch contracts

 

 

 —

 

 

 —

 

 

9.1

 

 

 —

 

 

9.1

 

Ancillary and transmission services

 

 

1.4

 

 

 —

 

 

4.4

 

 

 —

 

 

5.8

 

Asset management and operation

 

 

 —

 

 

 —

 

 

 —

 

 

0.2

 

 

0.2

 

Miscellaneous revenue

 

 

 —

 

 

(0.2)

 

 

0.1

 

 

 —

 

 

(0.1)

 

 

 

 

41.6

 

 

13.6

 

 

24.6

 

 

0.2

 

 

80.0

 

 

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ATLANTIC POWER CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(in millions U.S. dollars, except per‑share amounts)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended  March 31, 2017

 

 

    

    

 

 

    

 

 

    

 

    

    

Un-Allocated

    

    

Consolidated

 

 

 

 

East U.S.

 

 

West U.S.

 

 

Canada

 

 

Corporate

 

 

Total

 

Project revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Energy sales

 

$

21.8

 

$

8.5

 

$

6.8

 

$

 —

 

$

37.1

 

Energy capacity revenue

 

 

10.1

 

 

6.7

 

 

2.7

 

 

 —

 

 

19.5

 

Steam energy and capacity revenue

 

 

3.2

 

 

8.5

 

 

 —

 

 

 —

 

 

11.7

 

Waste heat revenue

 

 

 —

 

 

 —

 

 

0.1

 

 

 —

 

 

0.1

 

Enhanced dispatch contracts

 

 

 —

 

 

 —

 

 

24.2

 

 

 —

 

 

24.2

 

Ancillary and transmission services

 

 

1.0

 

 

 —

 

 

4.8

 

 

 —

 

 

5.8

 

Asset management and operation

 

 

 —

 

 

 —

 

 

 —

 

 

0.2

 

 

0.2

 

Miscellaneous revenue

 

 

 —

 

 

(0.3)

 

 

0.1

 

 

 —

 

 

(0.2)

 

 

 

 

36.1

 

 

23.4

 

 

38.7

 

 

0.2

 

 

98.4

 

 

Contract balances

 

The following table provides information about receivables, contract assets and contract liabilities from contracts with customers.

 

 

 

 

 

 

 

 

    

March 31, 

    

December 31,

 

 

2018

 

2017

Accounts receivables

 

$

26.7

 

$

52.7

Contract assets

 

 

 —

 

 

 —

Contract liabilities

 

 

0.3

 

 

1.0

 

Contract liabilities as of March 31, 2018 include a  water license fee at Mamquam, which is a pass-through cost. Contract liabilities as of December 31, 2017 include recoverable wood fuel costs under the PPA and property tax at Williams Lake, which is proportionally estimated, pending receipt of an actual tax bill. The total $1.0 million was recognized as revenues from ancillary and transmission services in the three months ended March 31, 2018.

 

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ATLANTIC POWER CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(in millions U.S. dollars, except per‑share amounts)

 

(Unaudited)

 

3. Changes in accumulated other comprehensive loss by component

 

The changes in accumulated other comprehensive loss by component were as follows:

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

 

2018

 

2017

 

Foreign currency translation

    

 

    

    

 

    

 

Balance at beginning of period

 

$

(134.3)

 

$

(148.3)

 

Other comprehensive loss:

 

 

 

 

 

 

 

Foreign currency translation adjustments(1)

 

 

(4.6)

 

 

2.0

 

Balance at end of period

 

$

(138.9)

 

$

(146.3)

 

Pension

 

 

 

 

 

 

 

Balance at beginning of period

 

$

(1.6)

 

$

(0.9)

 

Other comprehensive loss:

 

 

 

 

 

 

 

Curtailment gain

 

 

 —

 

 

0.1

 

Tax benefit (expense)

 

 

 —

 

 

 —

 

Total Other comprehensive income before reclassifications, net of tax

 

 

 —

 

 

0.1

 

Total amount reclassified from accumulated other comprehensive loss, net of tax

 

 

 —

 

 

 —

 

Total other comprehensive income

 

 

 —

 

 

0.1

 

Balance at end of period

 

$

(1.6)

 

$

(0.8)

 

Cash flow hedges

 

 

 

 

 

 

 

Balance at beginning of period

 

$

1.1

 

$

0.7

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

Net change from periodic revaluations

 

 

0.3

 

 

(0.3)

 

Tax (expense) benefit

 

 

(0.1)

 

 

0.1

 

Total Other comprehensive income (loss) before reclassifications, net of tax

 

 

0.2

 

 

(0.2)

 

Net amount reclassified to earnings:

 

 

 

 

 

 

 

Interest rate swaps(2)

 

 

0.1

 

 

0.5

 

Tax expense

 

 

 —

 

 

(0.2)

 

Total amount reclassified from accumulated other comprehensive loss, net of tax

 

 

0.1

 

 

0.3

 

Total other comprehensive income

 

 

0.3

 

 

0.1

 

Balance at end of period

 

$

1.4

 

$

0.8

 


(1)

In all periods presented, there were no tax impacts related to rate changes and no amounts were reclassified to earnings (loss).

 

(2)

This amount was included in interest expense, net on the accompanying consolidated statements of operations.

 

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ATLANTIC POWER CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(in millions U.S. dollars, except per‑share amounts)

 

(Unaudited)

 

4. Equity method investments in unconsolidated affiliates

 

The following summarizes the operating results for the three months ended March 31, 2018 and 2017, respectively, for our proportional ownership interest in equity method investments:

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

Operating results

    

2018

    

2017

Revenue

 

 

 

 

 

 

Frederickson

 

$

5.1

 

$

5.3

Orlando Cogen, LP

 

 

14.4

 

 

13.2

Koma Kulshan Associates

 

 

0.2

 

 

0.3

Chambers Cogen, LP

 

 

13.2

 

 

12.3

Selkirk Cogen Partners, LP (1)

 

 

 —

 

 

0.7

 

 

 

32.9

 

 

31.8

Project expenses

 

 

 

 

 

 

Frederickson

 

 

3.2

 

 

4.3

Orlando Cogen, LP

 

 

7.1

 

 

7.1

Koma Kulshan Associates

 

 

0.3

 

 

0.3

Chambers Cogen, LP

 

 

9.6

 

 

9.2

Selkirk Cogen Partners, LP (1)

 

 

 —

 

 

1.4

 

 

 

20.2

 

 

22.3

Project other expense

 

 

 

 

 

 

Frederickson

 

 

 —

 

 

 —

Orlando Cogen, LP

 

 

 —

 

 

 —

Koma Kulshan Associates

 

 

 —

 

 

 —

Chambers Cogen, LP

 

 

(0.4)

 

 

(0.5)

Selkirk Cogen Partners, LP (1)

 

 

 —

 

 

 —

 

 

 

(0.4)

 

 

(0.5)

Project income (loss)

 

 

 

 

 

 

Frederickson

 

 

1.9

 

 

1.0

Orlando Cogen, LP

 

 

7.3

 

 

6.1

Koma Kulshan Associates

 

 

(0.1)

 

 

 —

Chambers Cogen, LP

 

 

3.2

 

 

2.6

Selkirk Cogen Partners, LP (1)

 

 

 —

 

 

(0.7)

Equity in earnings of unconsolidated affiliates

 

$

12.3

 

$

9.0

 

 

 

 

 

 

 

Distributions from equity method investments

 

 

(6.6)

 

 

(3.7)

Surplus of earnings of equity method investments, net of distributions

 

$

5.7

 

$

5.3


(1)

In November 2017, we sold our 17.7% interest in Selkirk.

 

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ATLANTIC POWER CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(in millions U.S. dollars, except per‑share amounts)

 

(Unaudited)

 

5. Long‑term debt

 

Long‑term debt consists of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

March 31, 

    

December 31, 

    

 

    

 

 

 

 

2018

 

2017

 

Interest Rate

 

Recourse Debt:

 

 

 

 

 

 

 

 

 

 

 

Senior secured term loan facility, due 2023(1)

 

$

510.0

 

$

540.0

 

LIBOR(2)

plus

3.50

%

Senior unsecured notes, due June 2036 (Cdn$210.0)

 

 

162.9

 

 

167.4

 

 

 

5.95

%

Non-Recourse Debt:

 

 

 

 

 

 

 

 

 

 

 

Epsilon Power Partners term facility, due 2019

 

 

5.6

 

 

7.2

 

LIBOR

plus

3.125

%

Cadillac term loan, due 2025 (3)

 

 

23.3

 

 

24.0

 

LIBOR

plus

1.49

%

Other long-term debt

 

 

 —

 

 

0.1

 

5.50

%  -

6.70

%

Less: unamortized discount

 

 

(11.8)

 

 

(12.8)

 

 

 

 

 

Less: unamortized deferred financing costs

 

 

(9.3)

 

 

(10.1)

 

 

 

 

 

Less: current maturities

 

 

(83.6)

 

 

(99.5)

 

 

 

 

 

Total long-term debt

 

$

597.1

 

$

616.3

 

 

 

 

 

 

Current maturities consist of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

March 31, 

    

December 31, 

    

 

 

 

 

 

 

2018

 

2017

 

Interest Rate

 

Current Maturities:

 

 

 

 

 

 

 

 

 

 

 

Senior secured term loan facility, due 2023(1)

 

$

75.0

 

$

90.0

 

LIBOR(2)

plus

3.50

%

Epsilon Power Partners term facility, due 2019

 

 

5.6

 

 

6.5

 

LIBOR

plus

3.125

%

Cadillac term loan, due 2025 (3)

 

 

3.0

 

 

3.0

 

LIBOR

plus

1.49

%

Total current maturities

 

$

83.6

 

$

99.5

 

 

 

 

 


(1)

On a quarterly basis, we make a cash sweep payment to fund the principal balance, based on terms as defined in the term loan credit agreement. The portion of the senior secured term loan facility classified as current is based on principal payments required to reduce the aggregate principal amount of senior secured term loan outstanding to achieve a target principal amount that declines quarterly based on a pre-determined specified schedule.

(2)

London Interbank Offered Rate (“LIBOR”) cannot be less than 1.00%. We have entered into interest rate swap agreements to mitigate the exposure to changes in LIBOR for $357.6 million of the $510 million outstanding aggregate borrowings under our senior secured term loan facility at March 31, 2018. See Note 8,  Accounting for derivative instruments and hedging activities for further details. On April 19, 2018, the repricing of the $510 million senior secured term loan facility became effective. As a result of the repricing, the interest rate margin on the term loan and revolver was reduced by 0.50% to LIBOR plus 3.00%.

(3)

We have entered into interest rate swap agreements to economically fix our exposure to changes in interest rates for this non-recourse debt. See Note 8, Accounting for derivative instruments and hedging activities, for further details.

 

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ATLANTIC POWER CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(in millions U.S. dollars, except per‑share amounts)

 

(Unaudited)

 

6. Convertible debentures

 

Convertible debentures consist of the following:

 

 

 

 

 

 

 

 

 

 

March 31, 

    

December 31, 

 

 

2018

 

2017

6.00% Debentures due January 2025 (Series E) (Cdn $115.0 million)

 

 

89.2

 

 

 —

5.75% Debentures due June 2019 (Series C)