Form 6-K Algonquin Power & Utilities Corp.

Report of foreign issuer [Rules 13a-16 and 15d-16]

Published: 2019-01-22 17:00:39
Submitted: 2019-01-22
Period Ending In: 2019-01-22
form6k.htm 6-K


>

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 6-K



REPORT OF FOREIGN PRIVATE ISSUER
Pursuant to Rule 13a-16 or 15d-16 of the
Securities Exchange Act of 1934

Date: January 22, 2019

Commission File Number: 001-37946



Algonquin Power & Utilities Corp.
(Translation of registrant’s name into English)



354 Davis Road
Oakville, Ontario, L6J 2X1, Canada
(Address of principal executive offices)



Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F ☐    Form 40-F ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐



INCORPORATION BY REFERENCE

This Report on Form 6-K is hereby incorporated by reference into each of the following Registration Statements of Algonquin Power & Utilities Corp.:  (i) Forms S-8, File Nos. 333-177418, 333-213648, 333-213650 and 333-218810, (ii) Form F-10, File Nos. 333-216616 and 333-227245, and (ii) Form F-3, File Nos. 333-220059 and 333-227246.

EXHIBIT INDEX

The following exhibits are filed as part of this Form 6-K:

Exhibit
 
Description
   
 
Acquisition Report
     
 
Schedule A – Consolidated condensed unaudited interim financial statements of Atlantica Yield plc as of September 30, 2018 and December 31, 2017 and for the nine-month periods ended September 30, 2018 and 2017
     
99.3
 
Schedule B – Audited consolidated financial statements of Atlantica as of December 31, 2017 and 2016 and for the years ended December 31, 2017, 2016 and 2015 (incorporated by reference to Exhibit 99.1 to Algonquin’s Current Report on Form 6-K filed on April 16, 2018).
     
 
Schedule C – Unaudited pro forma consolidated financial statements, including the foreword and the notes thereto, as at September 30, 2018 and for the year ended December 31, 2017 and for the nine months ended September 30, 2018.
     
 
Auditor’s Consent


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
ALGONQUIN POWER & UTILITIES CORP.
 
(registrant)
   
Date: January 22, 2019
By:  /s/ David Bronicheski
 
Name: David Bronicheski
 
Title:   Chief Financial Officer


ex99_1.htm EXHIBIT 99.1


>

Exhibit 99.1

FORM 51-102F4
BUSINESS ACQUISITION REPORT

Item 1
Identity of Company

1.1
Name and Address of Company

Algonquin Power & Utilities Corp. (“Algonquin” or the “Company”)
354 Davis Road
Oakville, Ontario, L6J 2X1

1.2
Executive Officer

The following executive officer of the Company is knowledgeable about the significant acquisition and this report:

David Bronicheski
Chief Financial Officer
(905) 465-4512

Item 2
Details of Acquisition

2.1
Nature of Business Acquired

On November 27, 2018, Algonquin, through its indirect subsidiary AAGES (AY Holdings) B.V. (“AY Holdings”), purchased an additional 16.47% aggregate equity interest (the “Additional Atlantica Investment”) in Atlantica Yield plc (NASDAQ: AY) (“Atlantica”). As a result of the Additional Atlantica Investment and the 25% equity interest in Atlantica acquired by Algonquin on March 9, 2018, Algonquin currently holds an aggregate of 41,557,663 ordinary shares of Atlantica, representing approximately 41.47% of the issued and outstanding ordinary shares of Atlantica.

Atlantica is a total return company based in the United Kingdom that owns, manages and acquires renewable energy, efficient natural gas power, electric transmission lines and water assets, focused on North America (the United States and Mexico), South America (Peru, Chile and Uruguay) and EMEA (Spain, Algeria and South Africa).

According to Atlantica’s quarterly report for the nine-month period ended September 30, 2018 filed with the U.S. Securities and Exchange Commission on November 5, 2018, Atlantica owned or had interests in 22 assets, comprising 1,446 MW of renewable energy generation, 300 MW of efficient natural gas power generation, 10.5 M ft3 per day of water desalination and 1,099 miles of electric transmission lines. All of Atlantica’s assets have contracted revenues (regulated revenues in the case of Atlantica’s Spanish assets) with low-risk off-takers and collectively have a weighted average remaining contract life of approximately 19 years as of December 31, 2017.


2.2
Acquisition Date

The acquisition closed on November 27, 2018.

2.3
Consideration

Algonquin completed the purchase of the Additional Atlantica Investment (representing 16,503,348 ordinary shares) for a total purchase price of U.S. $20.90 per ordinary share of Atlantica, comprised of a payment on closing of approximately U.S. $305 million paid on closing, with up to U.S. $40 million payable at a later date contingent on satisfaction of certain conditions.

On April 17, 2018, concurrently with the announcement of the proposed Additional Atlantica Investment, Algonquin also announced that it had entered into an agreement with certain institutional investors under which the investors agreed to buy, and Algonquin agreed to issue and sell, approximately 37.5 million common shares in the capital of Algonquin (“Common Shares”) at a price of C$11.85 per Common Share for gross proceeds of approximately C$445 million (the “Offering”). On April 24, 2018, Algonquin closed the Offering. The net proceeds from the Offering were expected to be used, in part, to finance the Additional Atlantica Investment.

The funds for the U.S. $305 million paid on closing of the Additional Atlantica Investment were drawn on the Company’s existing credit agreement dated November 19, 2012, as amended from time to time (the “Company Credit Facility”).

On November 28, 2018, Abengoa-Algonquin Global Energy Solutions (“AAGES”), an international infrastructure construction company, jointly owned by Algonquin and Abengoa S.A., obtained a secured credit facility in the amount of U.S. $306.5 million (the “AAGES Secured Credit Facility”) and subscribed to a preference share ownership interest in AY Holdings, which subscription proceeds were distributed by AY Holdings to the Company and used by the Company to repay the U.S. $305 million drawn under the Company Credit Facility.  The AAGES Secured Credit Facility is collateralized through a pledge of all of the Atlantica shares held by AY Holdings.

2.4
Effect on Financial Position

The Company has no current plans for material changes in its business affairs or the affairs of Atlantica following closing of the Additional Atlantica Investment which may have a significant effect on the results of operations and financial position of the Company.

2.5
Prior Valuations

Not applicable.


2.6
Parties to Transaction

The Acquisition was not with an “informed person” (as such term is defined in Section 1.1 of National Instrument 51-102 – Continuous Disclosure Obligations), associate or affiliate of the Company.

2.7
Date of Report

January 22, 2019.

Item 3
Financial Statements and Other Information

The following financial statements are attached to this report as Schedule “A”, Schedule “B” and Schedule “C”, respectively, and form part of this report:


(a)
the consolidated condensed unaudited interim financial statements of Atlantica as of September 30, 2018 and December 31, 2017 and for the nine-month periods ended September 30, 2018 and 2017, including the related notes thereto;


(b)
the audited consolidated financial statements of Atlantica as of December 31, 2017 and 2016 and for the years ended December 31, 2017, 2016 and 2015, together with the notes thereto and the auditors’ report thereon; and


(c)
the unaudited pro forma consolidated financial statements of the Company, including the foreword and the notes thereto, as at and for the year ended December 31, 2017 and as at and for the nine months ended September 30, 2018.


SCHEDULE A


SCHEDULE B


SCHEDULE C



ex99_2.htm EXHIBIT 99.2



Exhibit 99.2


Schedule A
Consolidated Condensed Unaudited Interim Financial Statements of Atlantica Yield plc as of September 30, 2018 and December 31, 2017
and for the Nine-month Periods Ended September 30, 2018 and 2017




Table of Contents

   
Page
PART I – FINANCIAL INFORMATION
     
Item 1
11
     
Item 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations
47
     
Item 3
Quantitative and Qualitative Disclosures About Market Risk
71

     
Item 4
Controls and Procedures
73

     
PART II – OTHER INFORMATION
     
Item 1
Legal Proceedings
73
     
Item 1A
Risk Factors
74
     
Item 2
Unregistered Sales of Equity Securities and Use of Proceeds
74
     
Item 3
Defaults Upon Senior Securities
74
     
Item 4
Mine Safety Disclosures
74
     
Item 5
Other Information
74
     
Item 6
Exhibits
74
     
Signature
75

Definitions

Unless otherwise specified or the context requires otherwise in this quarterly report:


references to “2017 20-F” or “Annual Report” refer to the annual report on Form 20-F for the year ended December 31, 2017 and filed with the U.S. Securities and Exchange Commission on March 7, 2018;


references to “2019 Notes” refer to the 7.000% Senior Notes due 2019 in an aggregate principal amount of $255,000,000 issued on November 17, 2014;


references to “AAGES” refer to the joint venture between Algonquin and Abengoa to invest in the development and construction of clean energy and water infrastructure contracted assets;


references to “AAGES ROFO Agreement” refer to the agreement we entered into with AAGES on March 5, 2018, as amended from time to time, which became effective upon completion of the 25.0% Share Sale, that provides us a right of first offer to purchase any of the AAGES ROFO Assets;


references to “AAGES ROFO Assets” refer to any of AAGES’ contracted assets or proposed contracted assets that we expect to evaluate for future acquisition, with certain exceptions, for which AAGES has provided us a right of first offer to purchase if offered for sale by AAGES;


references to “Abengoa” refer to Abengoa, S.A., together with its subsidiaries or any of its subsidiaries independently considered, unless the context otherwise requires;


references to “Abengoa ROFO Agreement” refer to the agreement we entered into with Abengoa on June 13, 2014, as amended and restated on December 9, 2014, that provides us a right of first offer to purchase any of the existing or future contracted assets in renewable energy, efficient natural gas power, electric transmission and water of Abengoa that are in operation, and any other renewable energy, efficient natural gas power, electric transmission and water asset that is expected to generate contracted revenue and that Abengoa has transferred to an investment vehicle located in the United States, Canada, Mexico, Chile, Peru, Uruguay, Brazil, Colombia, or the European Union, and four additional assets in other selected regions, including a pipeline of specified assets that we expect to evaluate for future acquisition, for which Abengoa will provide us a right of first offer to purchase if offered for sale by Abengoa or an investment vehicle to which Abengoa has transferred them;


references to “ACBH” refer to Abengoa Concessões Brasil Holding, a subsidiary holding company of Abengoa that is engaged in the development, construction, investment and management of contracted concessions in Brazil, comprised mostly of transmission lines and which is currently undergoing a restructuring process in Brazil;


references to “Algonquin” refer to, as the context requires, either Algonquin Power & Utilities Corp., a North American diversified generation, transmission and distribution utility, together with its subsidiaries or any of its subsidiaries independently considered, unless the context otherwise requires;


references to “Annual Consolidated Financial Statements” refer to the audited annual consolidated financial statements as of December 31, 2017 and 2016 and for the years ended December 31, 2017, 2016 and 2015, including the related notes thereto, prepared in accordance with IFRS as issued by the IASB (as such terms are defined herein);


references to “Asset Transfer” refer to the transfer of assets contributed to us by Abengoa through a series of transactions prior to the consummation of our initial public offering;


references to “Atlantica” refer to Atlantica Yield plc together with its subsidiaries independently considered, unless and, where the context requires;


references to “cash available for distribution” refer to the cash distributions received by the Company from its subsidiaries minus all cash expenses of the Company, including debt service and general and administrative expenses;


references to “COD” refer to commercial operation date of the applicable facility;


references to “Consolidated Condensed Interim Financial Statements” refer to the consolidated condensed unaudited interim financial statements as of September 30, 2018 and December 31, 2017 and for the nine-month periods ended September 30, 2018 and 2017, including the related notes thereto, which form a part of this quarterly report;


references to “DOE” refer to the U.S. Department of Energy;


references to “EMEA” refer to Europe, Middle East and Africa;


references to “EPC” refer to engineering, procurement and construction;


references to “EURIBOR” refer to Euro Interbank Offered Rate, a daily reference rate published by the European Money Markets Institute, based on the average interest rates at which Eurozone banks offer to lend unsecured funds to other banks in the euro wholesale money market;


references to “euro” or “€” are to the single currency of the participating member states of the European and Monetary Union of the Treaty Establishing the European Community, as amended from time to time;


references to “Federal Financing Bank” refer to a U.S. government corporation by that name;


references to “Financial Support Agreement” refer to the Financial Support Agreement we entered into with Abengoa on June 13, 2014, as amended and restated on September 28, 2017, pursuant to which Abengoa agreed to maintain certain guarantees or letters of credit for a period of five years following our IPO;


references to “Former Revolving Credit Facility” refer to the revolving credit and guaranty agreement originally entered into on December 3, 2014, amended and restated on June 26, 2015 and canceled on May 16, 2018;


references to “Further Adjusted EBITDA” have the meaning set forth in Note 4 to the Consolidated Condensed Interim Financial Statements included in this quarterly report;


references to “gross capacity” or “gross MW” refer to the maximum, or rated, power generation capacity, in MW, of a facility or group of facilities, without adjusting by our percentage of ownership interest in such facility as of the date of this quarterly report;


references to “GW” refer to gigawatts;


references to “IASB” refer to International Accounting Standards Board, an independent, private-sector body that develops and approves International Financial Reporting Standards;


references to “IFRS as issued by the IASB” refer to International Financial Reporting Standards as issued by the International Accounting Standards Board;


reference to “IPO” refer to our initial public offering of ordinary shares in June 2014;


references to “ITC” refer to investment tax credits;


references to “ITC Cash Grants” refer to the tax credit cash grant issued by the U.S. Treasury;


references to “LIBOR” refer to London Interbank Offered Rate, a benchmark interest rate;


references to “MW” refer to megawatts;


references to “MMSCFD” refer to million standard cubic feet per day;


references to “Revolving Credit Facility” refer to the revolving credit facility entered into on May 10, 2018 by us, as borrower, the guarantors from time to time party thereto, Royal Bank of Canada, as administrative agent and Royal Bank of Canada and Canadian Imperial Bank of Commerce, as issuers of letters of credit;


references to “Note Issuance Facility” refer to the senior secured note facility dated February 10, 2017, of up to €275 million (approximately $319 million), with U.S. Bank as facility agent and a group of funds managed by Westbourne Capital as purchasers of the notes issued thereunder;


references to “O&M” refer to operation and maintenance;


references to “operation” refer to the status of projects that have reached COD (as defined above);


references to “PV” refer to photovoltaic;


references to “PPA” refer to the power purchase agreements through which our power generating assets have contracted to sell energy to various offtakers;


references to “ROFO” refer to a right of first offer;


references to “Shareholders Agreement” refer to the shareholders agreement signed with Algonquin which became effective upon the 25.0% Share Sale on March 9, 2018 and which we filed with the SEC on March 12, 2018;


references to “16.5% Share Sale” refer to the ongoing sale by Abengoa to Algonquin of 16.5% of our ordinary shares pursuant to an agreement entered into in April 2018, which the parties to the transaction expect to be completed in the fourth quarter of 2018;


references to “25.0% Share Sale” refer to the sale by Abengoa to Algonquin of 25% of our ordinary shares completed on March 9, 2018;


references to “UK” refer to the United Kingdom;


references to “U.S.” or “United States” refer to the United States of America;


references to “U.S. Internal Revenue Code” or “U.S. IRC” refer to the U.S. Internal Revenue Code of 1986;


references to “U.S. NOLs” refer to the net operating losses recognized under the U.S. Internal Revenue Code as a result of certain tax-deductible expenses exceeding taxable revenues for a taxable year;


references to “we,” “us,” “our” and the “Company” refer to Atlantica Yield plc and its subsidiaries, unless the context otherwise requires; and


references to “ZAR” refer to South African Rand.

Cautionary Statements Regarding Forward-Looking Statements

This quarterly report includes forward-looking statements. These forward-looking statements include, but are not limited to, all statements other than statements of historical facts contained in this quarterly report, including, without limitation, those regarding our future financial position and results of operations, our strategy, plans, objectives, goals and targets, future developments in the markets in which we operate or are seeking to operate or anticipated regulatory changes in the markets in which we operate or intend to operate. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “guidance,” “intend,” “is likely to,” “may,” “plan,” “potential,” “predict,” “projected,” “should” or “will” or the negative of such terms or other similar expressions or terminology.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements speak only as of the date of this quarterly report and are not guarantees of future performance and are based on numerous assumptions. Our actual results of operations, financial condition and the development of events may differ materially from (and be more negative than) those made in, or suggested by, the forward-looking statements. We do not undertake any obligation to update any forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of anticipated or unanticipated events or circumstances.

Investors should read the section entitled “Item 3.D—Risk Factors” in our Annual Report and the description of our segments and business sectors in the section entitled “Item 4.B—Business Overview” in our Annual Report for a more complete discussion of the factors that could affect us. Important risks, uncertainties and other factors that could cause these differences include, but are not limited to:


Difficult conditions in the global economy and in the global market and uncertainties in emerging markets where we have international operations;


Changes in government regulations providing incentives and subsidies for renewable energy, decreases in government expenditure budgets, reductions in government subsidies or other adverse changes in laws and regulations affecting our businesses and growth plan, including reduction of our revenues in Spain, which are mainly defined by regulation through parameters that could be reviewed at the end of each regulatory period;


Our ability to acquire solar projects due to the potential increase of the cost of solar panels;


Political, social and macroeconomic risks relating to the United Kingdom’s exit from the European Union;


Changes in general economic, political, governmental and business conditions globally and in the countries in which we do business;


Challenges in achieving growth and making acquisitions due to our dividend policy;


Inability to identify and/or consummate future acquisitions, under the AAGES ROFO Agreement, the Abengoa ROFO Agreement or otherwise, from third parties or from potential new partners, including as a result of not being able to find acquisition opportunities on favorable terms or at all.


Our ability to close acquisitions under our ROFO agreements with AAGES, Algonquin, Abengoa and others due to, among other things, not being offered assets that fit our portfolio, not reaching agreements on prices or, in the case of the Abengoa ROFO Agreement, the risk of Abengoa selling assets before they reach COD;


Our ability to renew the Abengoa ROFO Agreement after June 2019. The Abengoa ROFO Agreement has an initial term of five years and expires in June 2019. We will be able to unilaterally extend the term of the Abengoa ROFO Agreement as many times as desired for an additional three-year period, provided that we have executed at least one acquisition in the previous two years after having been offered at least four projects.


Our ability to identify and reach an agreement with new sponsors or partners similar to the ROFO agreements with AAGES, Algonquin or Abengoa;


·
Failure to close acquisitions recently announced;


·
Failure to meet our estimated returns and cash available for distribution estimations in acquisitions recently announced;


·
Failure of recently built assets to perform as expected, including acquisitions recently announced of assets which are currently under construction;


Legal challenges to regulations, subsidies and incentives that support renewable energy sources; extensive governmental regulation in a number of different jurisdictions, including stringent environmental regulation;


Increases in the cost of energy and gas, which could increase our operating costs;


Counterparty credit risk and failure of counterparties to our offtake agreements to fulfill their obligations;


Inability to enter into new offtaker agreements or replace expiring or terminated offtake agreements with similar agreements;


New technology or changes in industry standards;


Inability to manage exposure to credit, interest rates, foreign currency exchange rates, supply and commodity price risks;


Reliance on third-party contractors and suppliers;


Risks associated with acquisitions and investments;


Deviations from our investment criteria for future acquisitions and investments;


Failure to maintain safe work environments;


Effects of catastrophes, natural disasters, adverse weather conditions, climate change, unexpected geological or other physical conditions, criminal or terrorist acts or cyber-attacks at one or more of our plants;


Insufficient insurance coverage and increases in insurance cost;


Litigation and other legal proceedings, including claims due to Abengoa’s restructuring process;


Reputational risk, including potential damage caused to us by Abengoa’s reputation;


The loss of one or more of our executive officers;


Failure of information technology on which we rely to run our business;


Revocation or termination of our concession agreements or power purchase agreements;


Lowering of revenues in Spain that are mainly defined by regulation;


Risk that the 16.5% Share Sale will not be completed;


Inability to adjust regulated tariffs or fixed-rate arrangements as a result of fluctuations in prices of raw materials, exchange rates, labor and subcontractor costs;


Exposure to electricity market conditions which can impact revenue from our assets;


Changes to national and international law and policies that support renewable energy resources;


Lack of electric transmission capacity and potential upgrade costs to the electric transmission grid;


Disruptions in our operations as a result of our not owning the land on which our assets are located;


Risks associated with maintenance, expansion and refurbishment of electric generation facilities;


Failure of our assets to perform as expected, including Solana and Kaxu;


Failure to receive dividends from all projects and investments, including Solana and Kaxu;


Failure or delay to reach the “flip-date” by Liberty Interactive Corporation in its tax equity investment in Solana;


Variations in meteorological conditions;


Disruption of the fuel supplies necessary to generate power at our efficient natural gas power generation facilities;


Deterioration in Abengoa’s financial condition or negative impact potentially caused by Abengoa’s financial plan announced on September 30, 2018, including potential negative impacts in our assets;


Abengoa’s ability to meet its obligations under our agreements with Abengoa, to comply with past representations, commitments and potential liabilities linked to the time when Abengoa owned the assets, potential clawback of transactions with Abengoa, and other risks related to Abengoa;


Failure to meet certain covenants or payment obligations under our financing arrangements;


Failure to obtain pending waivers in relation to the minimum ownership by Abengoa and the cross-default provisions contained in some of our project financing agreements;


Failure of Abengoa to maintain existing guarantees and letters of credit under the Financial Support Agreement or failure by us to maintain guarantees;


Failure of Abengoa to maintain its obligations and production guarantees, pursuant to EPC contracts;


Changes in our tax position and greater than expected tax liability, including in Spain;


Conflicts of interest which may be resolved in a manner that is not in our best interests or the best interests of our minority shareholders, potentially caused by our ownership structure and certain service agreements in place with one of our current largest shareholders;


The divergence of interest between us and Abengoa, due to Abengoa’s sale of our shares;


Potential negative tax implications from being deemed to undergo an “ownership change” under section 382 of the Internal Revenue Code, including limitations on our ability to use U.S. NOLs to offset future income tax liability;


Negative implications from a potential change of control;


Negative implications of U.S. federal income tax reform and potential changes in tax regulation in other jusrisdictions;


Technical failure, design errors or faulty operation of our assets not covered by guarantees or insurance;


Failure to collect insurance proceeds in the expected amounts; and


Various other factors, including those factors discussed under “Item 3.D—Risk Factors” and “Item 5.A—Operating Results” in our Annual Report.

We caution that the important factors referenced above may not be all of the factors that are important to investors. Unless required by law, we undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or developments or otherwise. Additional factors affecting our business may arise periodically and we cannot predict such factors, nor can we assess the impact of all these factors on our business or the extent to which such factors or combination of factors could cause our results to materially differ from those contained in any forward-looking statement. Additionally, historical trends in our statements should not be interpreted as a guarantee that these trends will continue in the future.

Consolidated condensed statements of financial position as of September 30, 2018 and December 31, 2017

Amounts in thousands of U.S. dollars

         
As of
September 30,
   
As of
December 31,
 
   
Note (1)
   
2018
   
2017
 
Assets
                 
Non-current assets
                 
Contracted concessional assets
   
6
     
8,606,943
     
9,084,270
 
Investments carried under the equity method
   
7
     
54,776
     
55,784
 
Financial investments
   
8&9
     
52,947
     
45,242
 
Deferred tax assets
           
160,106
     
165,136
 
                         
Total non-current assets
           
8,874,772
     
9,350,432
 
                         
Current assets
                       
Inventories
           
18,785
     
17,933
 
Clients and other receivables
   
12
     
297,258
     
244,449
 
Financial investments
   
8
     
237,080
     
210,138
 
Cash and cash equivalents
           
744,636
     
669,387
 
                         
Total current assets
           
1,297,759
     
1,141,907
 
                         
Total assets
           
10,172,531
     
10,492,339
 

(1)
Notes 1 to 22 are an integral part of the consolidated condensed interim financial statements.

Consolidated condensed statements of financial position as of September 30, 2018 and December 31, 2017

Amounts in thousands of U.S. dollars

         
As of
September 30,
   
As of
December 31,
 
   
Note (1)
   
2018
   
2017
 
Equity and liabilities
                 
Equity attributable to the Company
                 
Share capital
   
13
     
10,022
     
10,022
 
Parent company reserves
   
13
     
2,066,018
     
2,163,229
 
Other reserves
           
105,959
     
80,968
 
Accumulated currency translation differences
           
(59,931
)
   
(18,147
)
Retained earnings
   
13
     
(363,605
)
   
(477,214
)
Non-controlling interest
   
13
     
134,768
     
136,595
 
                         
Total equity
           
1,893,231
     
1,895,453
 
                         
Non-current liabilities
                       
Long-term corporate debt
   
14
     
622,433
     
574,176
 
Long-term project debt
   
15
     
4,908,678
     
5,228,917
 
Grants and other liabilities
   
16
     
1,653,451
     
1,636,060
 
Related parties
   
11
     
78,734
     
141,031
 
Derivative liabilities
   
9
     
266,884
     
329,731
 
Deferred tax liabilities
           
251,479
     
186,583
 
                         
Total non-current liabilities
           
7,781,659
     
8,096,498
 
                         
Current liabilities
                       
Short-term corporate debt
   
14
     
19,352
     
68,907
 
Short-term project debt
   
15
     
305,997
     
246,291
 
Trade payables and other current liabilities
   
17
     
133,632
     
155,144
 
Income and other tax payables
           
38,660
     
30,046
 
                         
Total current liabilities
           
497,641
     
500,388
 
                         
Total equity and liabilities
           
10,172,531
     
10,492,339
 

(1)
Notes 1 to 22 are an integral part of the consolidated condensed interim financial statements.

Consolidated condensed income statements for the nine-month periods ended September 30, 2018 and 2017

Amounts in thousands of U.S. dollars

   
Note (1)
   
For the nine-month period ended September 30,
 
         
2018
   
2017
 
Revenue
   
4
     
836,925
     
775,179
 
Other operating income
   
20
     
112,214
     
56,499
 
Raw materials and consumables used
           
(7,652
)
   
(11,209
)
Employee benefit expenses
           
(15,793
)
   
(13,252
)
Depreciation, amortization, and impairment charges
   
4
     
(243,799
)
   
(236,431
)
Other operating expenses
   
20
     
(217,333
)
   
(193,673
)
                         
Operating profit
           
464,562
     
377,113
 
                         
Financial income
   
19
     
36,603
     
1,131
 
Financial expense
   
19
     
(306,340
)
   
(308,570
)
Net exchange differences
           
1,032
     
(4,294
)
Other financial income/(expense), net
   
19
     
(11,139
)
   
1,302
 
                         
Financial expense, net
           
(279,844
)
   
(310,431
)
                         
Share of profit/(loss) of associates carried under the equity method
           
4,690
     
3,700
 
                         
Profit/(loss) before income tax
           
189,408
     
70,382
 
                         
Income tax
   
18
     
(59,068
)
   
(25,330
)
                         
Profit/(loss) for the period
           
130,340
     
45,052
 
                         
Loss/(profit) attributable to non-controlling interests
           
(9,828
)
   
(2,470
)
                         
Profit/(loss) for the period attributable to the Company
           
120,512
     
42,582
 
                         
Weighted average number of ordinary shares outstanding (thousands)
   
21
     
100,217
     
100,217
 
                         
Basic earnings per share (U.S. dollar per share)
   
21
     
1,20
     
0.42
 

(1)
Notes 1 to 22 are an integral part of the consolidated condensed interim financial statements.

Consolidated condensed statements of comprehensive income for the nine-month periods ended September 30, 2018 and 2017

Amounts in thousands of U.S. dollars

   
For the nine-month period ended September 30,
 
   
2018
   
2017
 
Profit/(loss) for the period
   
130,340
     
45,052
 
Items that may be subject to transfer to income statement
               
Change in fair value of cash flow hedges
   
(6,753
)
   
(33,542
)
Currency translation differences
   
(44,906
)
   
103,485
 
Tax effect
   
(1,672
)
   
7,900
 
                 
Net income/(expenses) recognized directly in equity
   
(53,331
)
   
77,843
 
                 
Cash flow hedges
   
51,049
     
54,446
 
Tax effect
   
(12,762
)
   
(16,334
)
                 
Transfers to income statement
   
38,287
     
38,112
 
                 
Other comprehensive income/(loss)
   
(15,044
)
   
115,955
 
                 
Total comprehensive income/(loss) for the period
   
115,296
     
161,007
 
                 
Total comprehensive (income)/loss attributable to non-controlling interest
   
(7,994
)
   
(8,532
)
                 
Total comprehensive income/(loss) attributable to the Company
   
107,302
     
152,475
 

Consolidated condensed statements of changes in equity for the nine-month periods ended September 30, 2018 and 2017

Amounts in thousands of U.S. dollars

   
Share
Capital
   
Parent
company
reserves
   
Other
reserves
   
Retained
earnings
   
Accumulated
currency
translation
differences
   
Total
equity
attributable
to the
Company
   
Non-
controlling
interest
   
Total
equity
 
Balance as of January 1, 2017
   
10,022
     
2,268,457
     
52,797
     
(365,410
)
   
(133,150
)
   
1,832,716
     
126,395
     
1,959,111
 
                                                                 
Profit/(loss) for the nine-month period after taxes
   
     
     
     
42,582
     
     
42,582
     
2,470
     
45,052
 
Change in fair value of cash flow hedges
   
     
     
21,377
     
     
     
21,377
     
(473
)
   
20,904
 
Currency translation differences
   
     
     
     
     
97,142
     
97,142
     
6,343
     
103,485
 
Tax effect
   
     
     
(8,626
)
   
     
     
(8,626
)
   
192
     
(8,434
)
Other comprehensive income
   
     
     
12,751
     
     
97,142
     
109,893
     
6,062
     
115,955
 
                                                                 
Total comprehensive income
   
     
     
12,751
     
42,582
     
97,142
     
152,475
     
8,532
     
161,007
 
                                                                 
Dividend distribution
   
     
(76,165
)
   
     
     
     
(76,165
)
   
(4,573
)
   
(80,738
)
                                                                 
Balance as of September 30, 2017
   
10,022
     
2,192,292
     
65,548
     
(322,828
)
   
(36,008
)
   
1,909,026
     
130,354
     
2,039,380
 

   
Share
Capital
   
Parent
company
reserves
   
Other
reserves
   
Retained
earnings
   
Accumulated
currency
translation
differences
   
Total
equity
attributable
to the
Company
   
Non-
controlling
interest
   
Total
equity
 
Balance as of December 31, 2017
   
10,022
     
2,163,229
     
80,968
     
(477,214
)
   
(18,147
)
   
1,758,858
     
136,595
     
1,895,453
 
                                                                 
Application of new accounting standards (See Note 2)
   
     
     
1,326
     
(11,812
)
   
     
(10,486
)
   
     
(10,486
)
                                                                 
Balance as of January 1, 2018
   
10,022
     
2,163,229
     
82,294
     
(489,026
)
   
(18,147
)
   
1,748,372
     
136,595
     
1,884,967
 
                                                                 
Profit/(loss) for the nine-month period after taxes
   
     
     
     
120,512
     
     
120,512
     
9,828
     
130,340
 
Change in fair value of cash flow hedges
   
     
     
35,982
     
6,517
     
     
42,499
     
1,797
     
44,296
 
Currency translation differences
   
     
     
     
     
(41,784
)
   
(41,784
)
   
(3,122
)
   
(44,906
)
Tax effect
   
     
     
(12,317
)
   
(1,608
)
   
     
(13,925
)
   
(509
)
   
(14,434
)
Other comprehensive income
   
     
     
23,665
     
4,909
     
(41,784
)
   
(13,210
)
   
(1,834
)
   
(15,044
)
                                                                 
Total comprehensive income
   
     
     
23,665
     
125,421
     
(41,784
)
   
107,302
     
7,994
     
115,296
 
                                                                 
Dividend distribution
   
     
(97,211
)
   
     
     
     
(97,211
)
   
(9,821
)
   
(107,032
)
                                                                 
Balance as of September 30, 2018
   
10,022
     
2,066,018
     
105,959
     
(363,605
)
   
(59,931
)
   
1,758,463
     
134,768
     
1,893,231
 

Consolidated condensed cash flow statements for the nine-month periods ended September 30, 2018 and 2017

Amounts in thousands of U.S. dollars

   
For the nine-month period ended September 30,
 
   
2018
   
2017
 
I. Profit/(loss) for the period
   
130,340
     
45,052
 
Financial expense and non-monetary adjustments
   
494,829
     
528,408
 
                 
II. Profit for the period adjusted by financial expense and non-monetary adjustments
   
625,169
     
573,460
 
                 
III. Variations in working capital
   
(97,020
)
   
(47,503
)
                 
Net interest and income tax paid
   
(189,816
)
   
(198,667
)
                 
A. Net cash provided by operating activities
   
338,333
     
327,290
 
                 
Investment in contracted concessional assets*
   
61,084
     
(7,506
)
Other non-current assets/liabilities
   
(22,506
)
   
(6,609
)
Acquisitions of subsidiaries
   
(9,327
)
   
-
 
Dividends received from entities under the equity method
   
4,432
     
2,454
 
Other investments
   
2,521
     
27,361
 
B. Net cash provided by/(used in) investing activities
   
36,204
     
15,700
 
                 
Proceeds from Project & Corporate debt
   
73,767
     
287,051
 
Repayment of Project & Corporate debt
   
(248,904
)
   
(388,755
)
Dividends paid to company´s shareholders
   
(106,956
)
   
(70,803
)
                 
C. Net cash provided by/(used in) financing activities
   
(282,093
)
   
(172,507
)
                 
Net increase/(decrease) in cash and cash equivalents
   
92,444
     
170,483
 
                 
Cash and cash equivalents at beginning of the period
   
669,387
     
594,811
 
                 
Translation differences in cash or cash equivalent
   
(17,195
)
   
28,800
 
                 
Cash and cash equivalents at end of the period
   
744,636
     
794,094
 

* Includes proceeds for $60.8 million (see Note 6).

Notes to the consolidated condensed interim financial statements

Note 1.- Nature of the business
19
   
Note 2.- Basis of preparation
22
   
Note 3.- Financial risk management
28
   
Note 4.- Financial information by segment
28
   
Note 5.- Changes in the scope of the consolidated condensed interim financial statements
35
   
Note 6.- Contracted concessional assets
35
   
Note 7.- Investments carried under the equity method
36
   
Note 8.- Financial Investments
36
   
Note 9.- Derivative financial instruments
36
   
Note 10.- Fair Value of financial instruments
37
   
Note 11.- Related parties
38
   
Note 12.- Clients and other receivable
39
   
Note 13.- Equity
39
   
Note 14.- Corporate debt
40
   
Note 15.- Project debt
41
   
Note 16.- Grants and other liabilities
42
   
Note 17.-Trade payables and other current liabilities
43
   
Note 18.- Income tax
44
   
Note 19.- Financial income and expenses
44
   
Note 20.- Other operating income and expenses
45
   
Note 21.- Earnings per share
46
   
Note 22.- Subsequent events
46

Note 1. - Nature of the business

Atlantica Yield plc (“Atlantica” or the “Company”) was incorporated in England and Wales as a private limited company on December 17, 2013 under the name Abengoa Yield Limited. On March 19, 2014, the Company was re-registered as a public limited company, under the name Abengoa Yield plc. On May 13, 2016, the change of the Company´s registered name to Atlantica Yield plc was filed with the Registrar of Companies in the United Kingdom.

Atlantica is a total return company that owns, manages and acquires renewable energy, efficient natural gas, electric transmission lines and water assets focused on North America (the United States and Mexico), South America (Peru, Chile and Uruguay) and EMEA (Spain, Algeria and South Africa).

Atlantica’s shares began trading on the NASDAQ Global Select Market under the symbol “ABY” on June 13, 2014. The symbol changed to “AY” on November 11, 2017.

On February 28, 2018, the Company completed the acquisition of a 100% stake in a 4 MW hydroelectric power plant in Perú (“Mini-Hydro”) for approximately $9 million.

On March 9, 2018, Algonquin Power & Utilities (“Algonquin”) announced that it completed the acquisition from Abengoa S.A, (“Abengoa”) of a 25% equity interest in Atlantica, becoming the largest shareholder of the Company. Algonquin does not consolidate the Company in its consolidated financial statements.

The following table provides an overview of the concessional assets the Company owned as of September 30, 2018:
Assets
Type
Ownership
Location
Currency(8)
Capacity
 (Gross)
Counterparty
Credit Ratings(9)
COD
Contract
Years
Left (12)
                 
Solana
Renewable
 (Solar)
100%
Class B(1)
Arizona (USA)
USD
280 MW
A-/A2/A-
4Q 2013
26
                 
Mojave
Renewable
 (Solar)
100%
California
 (USA)
USD
280 MW
BBB/Baa1/BBB+
4Q 2014
22
                 
Solaben 2 & 3
Renewable
 (Solar)
70%(2)
Spain
Euro
2x50 MW
A-/Baa1/A-
3Q 2012 &
2Q 2012
20&19

Assets
Type
Ownership
Location
Currency(8)
Capacity
 (Gross)
Counterparty
Credit Ratings(9)
COD
Contract
Years
Left (12)
Solacor 1 & 2
Renewable
 (Solar)
87%(3)
Spain
Euro
2x50 MW
A-/Baa1/A-
1Q 2012 &
1Q 2012
19
                 
PS10/PS20
Renewable
 (Solar)
100%
Spain
Euro
31 MW
A-/Baa1/A-
1Q 2007 &
2Q 2009
14&16

Helioenergy 1 & 2
Renewable
 (Solar)
100%
Spain
Euro
2x50 MW
A-/Baa1/A-
3Q 2011&
4Q 2011
19
                 
Helios 1 & 2
Renewable
 (Solar)
100%
Spain
Euro
2x50 MW
A-/Baa1/A-
3Q 2012&
3Q 2012
20
                 
Solnova 1, 3 & 4
Renewable
 (Solar)
100%
Spain
Euro
3x50 MW
A-/Baa1/A-
2Q 2010 &
2Q 2010&
3Q 2010
17&17&18
                 
Solaben 1 & 6
Renewable
 (Solar)
100%
Spain
Euro
2x50 MW
A-/Baa1/A-
3Q 2013
21
                 
Seville PV
Renewable
 (Solar)
80%(7)
Spain
Euro
1 MW
A-/Baa1/A-
3Q 2006
18
                 
Kaxu
Renewable
 (Solar)
51%(4)
South Africa
Rand
100 MW
BB/Baa3/BB-
(10)
1Q 2015
17
                 
Palmatir
Renewable
 (Wind)
100%
Uruguay
USD
50 MW
BBB/Baa2/BBB-
(11)
2Q 2014
16
                 
Cadonal
Renewable
 (Wind)
100%
Uruguay
USD
50 MW
BBB/Baa2/BBB-
(11)
4Q 2014
17
                 
Mini-Hydro
Renewable
 (Hydraulic)
100%
Peru
USD
4 MW
BBB+/A3/BBB+
2Q 2012
15
                 
ACT
Efficient natural gas
100%
Mexico
USD
300 MW
BBB+/Baa3/BBB+
2Q 2013
15
                 
ATN
Transmission
line
100%
Peru
USD
362 miles
BBB+/A3/BBB+
1Q 2011
23
                 
ATS
Transmission
line
100%
Peru
USD
569 miles
BBB+/A3/BBB+
1Q 2014
26
                 
ATN 2
Transmission
line
100%
Peru
USD
81 miles
Not rated
2Q 2015
15
                 
Quadra 1
Transmission
line
100%
Chile
USD
49 miles
Not rated
2Q 2014
17
                 
Quadra 2
Transmission
line
100%
Chile
USD
32 miles
Not rated
1Q 2014
17
                 
Palmucho
Transmission
line
100%
Chile
USD
6 miles
BBB+/Baa1/BBB+
4Q 2007
20

Skikda
Water
34.2%(5)
Algeria
USD
3.5 M
ft3/day
Not rated
1Q 2009
16
                 
Honaine
Water
25.5%(6)
Algeria
USD
7 M ft3/
day
Not rated
3Q 2012
20

(1)
On September 30, 2013, Liberty Interactive Corporation invested $300,000 thousand in Class A membership interests in exchange for the right to receive between 54.06% and 61.20% of taxable losses and distributions until such time as Liberty reaches a certain rate of return, or the “Flip Date”, and 22.60% of taxable losses and distributions thereafter once certain conditions are met.

(2)
Itochu Corporation, a Japanese trading company, holds 30% of the shares in each of Solaben 2 and Solaben 3.

(3)
JGC, a Japanese engineering company, holds 13% of the shares in each of Solacor 1 and Solacor 2.

(4)
Kaxu is owned by the Company (51%), Industrial Development Corporation of South Africa (29%) and Kaxu Community Trust (20%).

(5)
Algerian Energy Company, SPA owns 49% of Skikda and Sadyt (Sociedad Anónima Depuración y Tratamientos) owns the remaining 16.83%.

(6)
Algerian Energy Company, SPA owns 49% of Honaine and Sadyt (Sociedad Anónima Depuración y Tratamientos) owns the remaining 25.5%.

(7)
Instituto para la Diversificación y Ahorro de la Energía (“IDAE”), a Spanish state owned company, holds 20% of the shares in Seville PV.

(8)
Certain contracts denominated in U.S. dollars are payable in local currency.

(9)
Reflects the counterparty’s credit ratings issued by Standard & Poor’s Ratings Services, or S&P, Moody’s Investors Service Inc., or Moody’s, and Fitch Ratings Ltd, or Fitch.

(10)
Refers to the credit rating of the Republic of South Africa. The offtaker is Eskom, which is a state-owned utility company in South Africa.

(11)
Refers to the credit rating of Uruguay, as UTE (Administración Nacional de Usinas y Transmisoras Eléctricas) is unrated.

(12)
As of December 31, 2017.

On November 27, 2015, Abengoa, reported that, it filed a communication pursuant to article 5 bis of the Spanish Insolvency Law 22/2003 with the Mercantile Court of Seville nº 2. On November 8, 2016, the Judge of the Mercantile Court of Seville declared judicial approval of Abengoa´s restructuring agreement. On March 31, 2017 Abengoa announced the completion of the restructuring. As a result, Atlantica Yield received Abengoa debt and equity instruments in exchange of the guarantee previously provided by Abengoa regarding the preferred equity investment in Abengoa Concessoes Brasil Holding (“ACBH”).

The financing arrangement of Kaxu contained cross-default provisions related to Abengoa, such that debt defaults by Abengoa, subject to certain threshold amounts and/or a restructuring process, could trigger defaults under such project financing arrangement. In March 2017, the Company signed a waiver which gives clearance to cross-defaults that might have arisen from Abengoa insolvency and restructuring up to that date, but does not extend to potential future cross-default events.

In addition, the financing arrangements of Kaxu, Solana and Mojave contained a change of ownership clause that would be triggered if Abengoa ceased to own a minimum of Atlantica Yield’s shares. Based on the most recent public information, Abengoa currently owns 16.47% of Atlantica Yield shares, all of which are pledged as guarantee of asset-backed notes. On March 9, 2018 Abengoa announced it made effective the sale of a 25% stake in Atlantica Yield to Algonquin. Additionally, Algonquin announced on April 17, 2018, that it had exercised an option to purchase the 16.47% remaining stake in Atlantica held by Abengoa, subject to approval by the U.S. Department of Energy (the “DOE”) and other conditions precedent. If Abengoa ceases to comply with its obligation to maintain its 16% ownership of Atlantica Yield
s shares, such reduced ownership would put the Company in breach of covenants under the applicable project financing arrangements.

In the case of Kaxu in March 2017 the Company signed a waiver, which allows reduction of ownership by Abengoa below the 35% threshold if it is done in the context of a restructuring plan.

In the case of Solana and Mojave, a forbearance agreement signed with the DOE in 2016 with respect to these assets allows reductions of Abengoa’s ownership of the shares of the Company if it results from (i) a sale or other disposition at any time pursuant and in connection with a subsequent insolvency proceeding by Abengoa, or (ii) capital increases by the Company. In other events of reduction of ownership by Abengoa below the minimum ownership threshold such as sales of stake in Atlantica Yield by Abengoa, the available DOE remedies will not include debt acceleration, but DOE remedies available could include limitations on distributions to the Company from Solana and Mojave. In addition, the minimum ownership threshold for Abengoa’s ownership of the shares of the Company has been reduced from 35% to 16%. In November 2017, in the context of the agreement reached between Abengoa and Algonquin for the acquisition by Algonquin of 25% of the shares of the Company and based on the obligations of Abengoa under the EPC contract the Company signed a consent with the DOE which reduces this minimum ownership required by Abengoa in Atlantica Yield to 16%, which became effective upon closing of the transaction on March 9, 2018.

These consolidated condensed interim financial statements were approved by the Board of Directors of the Company on October 31, 2018.

Note 2. - Basis of preparation

The accompanying unaudited consolidated condensed interim financial statements represent the consolidated results of the Company and its subsidiaries.

The Company entered into an agreement with Abengoa on June 13, 2014 (the “ROFO Agreement”), as amended and restated on December 9, 2014, that provides the Company with a right of first offer on any proposed sale, transfer or other disposition of any of Abengoa’s contracted renewable energy, efficient natural gas, electric transmission or water assets in operation and located in the United States, Canada, Mexico, Chile, Peru, Uruguay, Brazil, Colombia and the European Union, as well as four assets in selected countries in Africa, the Middle East and Asia.

The Company elected to account for the assets acquisitions under the ROFO Agreement using the Predecessor values as long as Abengoa had control over the Company, given that these were transactions between entities under common control. Any difference between the consideration given and the aggregate book value of the assets and liabilities of the acquired entities as of the date of the transaction has been reflected as an adjustment to equity.

Abengoa has not had control over the Company since December 31, 2015. Therefore, any acquisition from Abengoa is accounted for in the consolidated accounts of Atlantica Yield since December 31, 2015, in accordance with IFRS 3, Business Combinations.

The Company’s annual consolidated financial statements as of December 31, 2017, were approved by the Board of Directors on February 27, 2018.

These consolidated condensed interim financial statements are presented in accordance with International Accounting Standards (“IAS”) 34, “Interim Financial Reporting”. In accordance with IAS 34, interim financial information is prepared solely in order to update the most recent annual consolidated financial statements prepared by the Company, placing emphasis on new activities, occurrences and circumstances that have taken place during the nine-month period ended September 30, 2018 and not duplicating the information previously published in the annual consolidated financial statements for the year ended December 31, 2017. Therefore, the consolidated condensed interim financial statements do not include all the information that would be required in complete consolidated financial statements prepared in accordance with the IFRS-IASB (“International Financial Reporting Standards-International Accounting Standards Board”). In view of the above, for an adequate understanding of the information, these consolidated condensed interim financial statements must be read together with Atlantica’s consolidated financial statements for the year ended December 31, 2017 included in the 2017 20-F.

In determining the information to be disclosed in the notes to the consolidated condensed interim financial statements, Atlantica, in accordance with IAS 34, has taken into account its materiality in relation to the consolidated condensed interim financial statements.

The consolidated condensed interim financial statements are presented in U.S. dollars, which is the Company’s functional and presentation currency. Amounts included in these consolidated condensed interim financial statements are all expressed in thousands of U.S. dollars, unless otherwise indicated.

Certain prior period amounts have been reclassified to conform to the current period presentation.

Application of new accounting standards


a)
Standards, interpretations and amendments effective from January 1, 2018 under IFRS-IASB, applied by the Company in the preparation of these consolidated condensed interim financial statements:


·
IFRS 9 ‘Financial Instruments’

·
IFRS 15 ‘Revenues from contracts with Customers’

·
IFRS 15 (Clarifications) ‘Revenues from contracts with Customers’

·
IFRS 16 ‘Leases’. This Standard is applicable for annual periods beginning on or after January 1, 2019 under IFRS-IASB, earlier application is permitted, but conditioned to the application of IFRS 15.

·
IFRS 2 (Amendment) ‘Classification and Measurement of Share-based Payment Transactions’.

·
IFRS 4 (Amendment). Applying IFRS 9 ‘Financial Instruments’ with IFRS 4 ‘Insurance Contracts’.

·
Annual Improvements to IFRSs 2015-2017 cycles.

·
IFRIC 22 Foreign Currency Transactions and Advance Consideration.

·
IAS 40 (Amendment). Transfers of Investment Property. This amendment is mandatory for annual periods beginning on or after January 1, 2018 under IFRS-IASB, earlier application is permitted.

·
IAS 28 (Amendment). Long-term Interests in Associates and Joint Ventures. This amendment is mandatory for annual periods beginning on or after January 1, 2018 under IFRS-IASB, earlier application is permitted.

The applications of these amendments have not had any material impact on these consolidated condensed interim financial statements.

In relation to IFRS 15, IFRS 9 and IFRS 16, the Company performed the following analysis:

IFRS 15 ‘Revenues from contracts with Customers’

In May 2014, the IASB (International Accounting Standards Board) published IFRS 15 “Recognition of Revenue from Contracts with Customers”. This Standard brings together all the applicable requirements and replaces the current standards for recognizing revenue: IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Program, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers and SIC-31 Revenue—Barter Transactions Involving Advertising Services.

The new requirements may lead to changes in the current revenue profile, since the Standard’s main principle is that the Company must recognize its revenue in accordance with the transfer of goods or services to the customers in an amount which reflects the consideration that the Company expects to receive in exchange for these goods or services. The model laid out by the Standard is structured in five steps:


·
Step 1: Identifying the contract with the customer.


·
Step 2: Identifying the performance obligations.


·
Step 3: Determining the transaction price.


·
Step 4: Assigning the transaction price in the performance obligations identified in the contract.


·
Step 5: Recognition of revenue when (or as) the Company performs the performance obligations.

Contracted concessional assets and price purchase agreements (PPAs) include fixed assets financed through project debt, related to service concession arrangements recorded in accordance with International Financial Reporting Interpretations Committee 12 (“IFRIC 12”), except for Palmucho, which is recorded in accordance with IAS 17 and PS10, PS20 and Seville PV, which are recorded as tangible assets in accordance with IAS 16. The infrastructures accounted for by the Company as concessions are related to the activities concerning electric transmission lines, solar electricity generation plants, efficient natural gas plants, wind farms and water plants.

Currently, assets recorded in accordance with IFRIC 12 are classified as intangible assets or as financial assets, depending on the nature of the payment entitlements established in the contracts.

According to IFRS 15, the Company should assess the goods and services promised in the contracts with the customers and shall identify as a performance obligation each promise to transfer to the customer a good or service (or a bundle of goods or services).

In the case of contracts related to financial assets, the Company has identified two performance obligations (construction and operation of the asset). The contracts state that each service (construction and operation) has its own transaction price. For this reason, both performance obligations are separately identifiable in the context of the contract. The Company must allocate the total consideration to be received by the contract to each performance obligation. As mentioned above, the different services performed have been identified as two different performance obligations (construction and operation). Each performance obligation has its own transaction price stated in the contract. Such transaction prices are agreed in the contract by the parties in an orderly transaction, with no interrelation between both transaction prices and therefore correspond to the fair value of the goods and services provided in each case. As a result, for IFRS 15 purposes, the total transaction price will be allocated to each performance obligation in accordance with the two transaction prices stated within the contract, as they represent the respective fair values of the identified performance obligations.

For the assets classified as intangible assets, the Company has identified the same performance obligations, (construction and operation), but in this case the consideration received by the Company for the construction services is a license. The grantor makes a non-cash payment for the construction services by giving the operator an intangible asset. When allocating fair value for IFRS 15 purposes, the Company will recognize as revenue for the first performance obligation the fair value of the construction services, and the amount corresponding to the sales of energy as the fair value of second performance obligation (operation).

Additionally, in both cases, the services are satisfied over time. All the concessional assets of the Company are in operation and the Company satisfies the performance obligations and recognizes revenue over time. The same conclusion applies to concessional assets that are classified as tangible assets or leases.

IFRS 15 also incorporates specific criteria to determine which costs relating to a contract should be capitalized by distinguishing between incremental costs of obtaining a contract and costs associated with fulfilling a contract. No significant costs of obtaining a contract or compliance (other than those that are already capitalized) have been identified.

As the practice for revenue recognition applied until December 31, 2017, is consistent with the analysis above under IFRS 15, the Company considers that the adoption of this standard has no impact in the consolidated financial statements of the Company.

Also, the Company adopted IFRS 15 applying the full retrospective method to each prior reporting period presented, but without changes in the comparative reporting periods as the adoption of the standard has no effect in the financial statements.

IFRS 9 ‘Financial Instruments’

IFRS 9 Financial Instruments issued on 24 July 2014 is the IASB’s replacement of IAS 39 Financial Instruments: Recognition and Measurement. The standard addresses the classification, measurement and derecognition of financial assets and financial liabilities, introduces new rules for hedge accounting and a new impairment model for financial assets. The Company adopted the standard as of January 1, 2018, including the new requirements for hedge accounting. The Company adopted retrospectively without re-expressing comparative periods. The analysis performed by the Company is as follows:

-
Classification and measurement of financial instruments:

a)        Financial assets IFRS 9 classifies all financial assets that are currently in the scope of IAS 39 into two categories:  amortized cost and fair value. Where assets are measured at fair value, gains and losses are either recognized entirely in profit or loss (fair value through profit or loss, “FVTPL”), or recognized in other comprehensive income (fair value through other comprehensive income, “FVTOCI”). The new guidance has no significant impact on the classification and measurement of the financial assets of the Company as the vast majority of financial assets (except for derivatives) are currently measured at amortized cost, and meet the conditions for classification at amortized cost under IFRS 9. As a result, the Company maintained this classification.

b)        Financial liabilities: IFRS 9 does not change the basic accounting model for financial liabilities under IAS 39. Two measurement categories continue to exist: FVTPL and amortized cost. Financial liabilities held for trading are measured at FVTPL, and all other financial liabilities are measured at amortized cost unless the fair value option is applied. As a result, the Company concluded that there is no significant impact on the consolidated financial statements.

-
The new impairment model requires the recognition of impairment provisions based on expected credit losses (“ECL”) rather than only incurred credit losses as is the case under IAS 39. The Company reviewed its portfolio of financial assets subject to the new model of impairment under the new methodology (using credit default swaps, rating from credit agencies and other external inputs in order to estimate the probability of default), and recorded an adjustment to the opening balance sheet of these consolidated financial statements as detailed below in the table showing the adjustments arising from the application of IFRS 9.

-
The accounting for certain modifications and exchanges of financial liabilities measured at amortized cost (e.g. bank loans and issued bonds) changes on the transition from IAS 39 to IFRS 9. This change arises from a clarification by the IASB in the Basis for Conclusions of IFRS 9. Under IFRS 9 it is now clear that there can be an effect in the income statement for modification and exchanges of financial liabilities that are considered “non-substantial” (when the net present value of the cash flows, including any fees paid net of any fees received, is lower than 10% different from the net present value of the remaining cash flows of the liability prior to the modification, both discounted at the original effective interest rate). The Company reviewed retrospectively these transactions and recorded an adjustment to the opening balance sheet of these consolidated financial statements as detailed below in the table showing the adjustments arising from the application of IFRS 9.

-
IFRS 9 also introduces changes in hedge accounting. The hedge accounting requirements in IFRS 9 are optional and tend to facilitate the use of hedge accounting by preparers of financial statements. As a result, the Company reviewed its portfolio of derivatives and recorded an adjustment to the opening balance sheet of these consolidated financial statements as detailed below in the table showing the adjustments arising from the application of IFRS 9.

The impact of applying IFRS 9 to the condensed interim financial statements for the nine-month period ended September 30, 2018 is not significant.

IFRS 16 ‘Leases’

The IASB issued a new lease accounting standard, IFRS 16, in January 2016, which requires the recognition of lease contracts on the consolidated statement of financial position.

IFRS 16 eliminates the classification of leases as either operating leases or finance leases for a lessee. Instead all leases are treated in a similar way to finance leases applying IAS 17. Leases are ‘capitalized’ by recognizing the present value of the lease payments and showing them either as lease assets (right-of-use of assets) or together with contracted concessional assets. If lease payments are made over time, a company also recognizes a financial liability representing its obligation to make future lease payments.

In the income statement, IFRS 16 replaces the straight-line operating lease expense for those leases applying IAS 17, with a depreciation charge for the lease asset (included within operating expenses) and an interest expense on the lease liability (included within finance expenses). IFRS 16 also impacts the presentation of cash flows related to former off-balance sheet leases.

The Company performed its assessment of the impact on its consolidated financial statements. The most significant impact identified is that the Company recognizes new assets and liabilities for its existing operating leases of land rights, buildings, offices and equipment.

The standard is effective for annual periods beginning on or after January 1, 2019, with earlier application permitted for entities that apply IFRS 15 at or before the date of initial application of IFRS 16. The Company decided to early adopt the standard as of January 1, 2018.

An entity shall apply this standard using one of the following two methods: full retrospectively approach or a modified retrospective approach. The Company has chosen the latter and accounted for assets as an amount equal to liability at the date of initial application. The impact on the opening balance sheet of these consolidated financial statements is shown in the table below.

The impact of applying IFRS 16 to the condensed interim financial statements for the nine-month period ended September 30, 2018 is not significant.

Summary of adjustments arising from application of IFRS 9 and IFRS 16 as of December 31, 2017

         
IFRS 9 Adjustments
             
($ in thousands)
 
As
reported
   
Expected
credit
losses (*)
   
Modification
of financial
liabilities
   
Hedge
accounting
   
IFRS 16
Adjustments
   
Restated at
December
31, 2017
 
Contracted concessional assets
   
9,084,270
     
(53,048
)
   
     
     
62,982
     
9,094,204
 
Deferred tax assets
   
165,136
     
14,866
     
(3,055
)
   
     
     
176,947
 
                                                 
Long- term project debt
   
5,228,917
     
     
(39,599
)
   
     
     
5,189,318
 
Grants and other liabilities
   
1,636,060
     
     
     
     
62,982
     
1,699,042
 
Deferred tax liabilities
   
186,583
     
     
8,849
     
     
     
195,432
 
                                                 
Other Reserves
   
80,968
     
     
     
1,326
     
     
82,294
 
Retained Earnings
   
(477,214
)
   
(38,182
)
   
27,695
     
(1,326
)
   
     
(489,027
)

(*) The expected credit losses provision only applies to the concessional assets recorded as financial assets for an amount before provision of $936,004 thousand as of December 31, 2017 (see Note 6).

b)
Standards, interpretations and amendments published by the IASB that will be effective for periods beginning after September 30, 2018:


·
IFRS 9 (Amendments to IFRS 9): Prepayment Features with Negative Compensation. This Standard is applicable for annual periods beginning on or after January 1, 2019 under IFRS-IASB, earlier application is permitted.

·
IFRS 17 ‘Insurance Contracts’. This Standard is applicable for annual periods beginning on or after January 1, 2021 under IFRS-IASB, earlier application is permitted.

·
IAS 19 (Amendment). Amendments to IAS 19: Plan Amendment, Curtailment or Settlement. This amendment is mandatory for annual periods beginning on or after January 1, 2019 under IFRS-IASB, earlier application is permitted.

·
IFRIC 23: Uncertainty over Income Tax Treatments. This Standard is applicable for annual periods beginning on or after January 1, 2019 under IFRS-IASB.

·
IAS 28 (Amendment). Long-term Interests in Associates and Joint Ventures. This amendment is mandatory for annual periods beginning on or after January 1, 2019 under IFRS-IASB, earlier application is permitted.

·
Amendments to References to the Conceptual Frameworks in IFRS Standards. This Standard is applicable for annual periods beginning on or after January 1, 2020 under IFRS-IASB.

The Company does not anticipate any significant impact on the consolidated condensed interim financial statements derived from the application of the new standards and amendments that will be effective for annual periods beginning after September 30, 2018, although it is currently still in the process of evaluating such application.

Use of estimates

Some of the accounting policies applied require the application of significant judgment by management to select the appropriate assumptions to determine these estimates. These assumptions and estimates are based on the Company´s historical experience, advice from experienced consultants, forecasts and other circumstances and expectations as of the close of the financial period. The assessment is considered in relation to the global economic situation of the industries and regions where the Company operates, taking into account future development of our businesses. By their nature, these judgments are subject to an inherent degree of uncertainty; therefore, actual results could materially differ from the estimates and assumptions used. In such cases, the carrying values of assets and liabilities are adjusted.

The most critical accounting policies, which reflect significant management estimates and judgment to determine amounts in these consolidated condensed interim financial statements, are as follows:


Contracted concessional agreements.


Impairment of intangible assets and property, plant and equipment.


Assessment of control.


Derivative financial instruments and fair value estimates.


Income taxes and recoverable amount of deferred tax assets.

As of the date of preparation of these consolidated condensed interim financial statements, no relevant changes in the estimates made are anticipated and, therefore, no significant changes in the value of the assets and liabilities recognized at September 30, 2018 are expected.

Although these estimates and assumptions are being made using all available facts and circumstances, it is possible that future events may require management to amend such estimates and assumptions in future periods. Changes in accounting estimates are recognized prospectively, in accordance with IAS 8, in the consolidated income statement of the period in which the change occurs.

Note 3. - Financial risk management

Atlantica’s activities are exposed to various financial risks: market risk (including currency risk and interest rate risk), credit risk and liquidity risk. Risk is managed by the Company’s Risk Finance and Compliance Departments, which are responsible for identifying and evaluating financial risks quantifying them by project, region and company, in accordance with mandatory internal management rules. Written internal policies exist for global risk management, as well as for specific areas of risk. In addition, there are official written management regulations regarding key controls and control procedures for each company and the implementation of these controls is monitored through internal audit procedures.

These consolidated condensed interim financial statements do not include all financial risk management information and disclosures required for annual financial statements, and should be read together with the information included in Note 3 to Atlantica’s annual consolidated financial statements as of December 31, 2017.

Note 4. - Financial information by segment

Atlantica’s segment structure reflects how management currently makes financial decisions and allocates resources. Its operating segments are based on the following geographies where the contracted concessional assets are located:


North America


South America


EMEA

Based on the type of business, as of September 30, 2018, the Company had the following business sectors:

Renewable energy:
Renewable energy assets include two solar plants in the United States, Solana and Mojave, each with a gross capacity of 280 MW and located in Arizona and California, respectively. The Company owns eight solar platforms in Spain: Solacor 1 and 2 with a gross capacity of 100 MW, PS10 and PS20 with a gross capacity of 31 MW, Solaben 2 and 3 with a gross capacity of 100 MW, Helioenergy 1 and 2 with a gross capacity of 100 MW, Helios 1 and 2 with a gross capacity of 100 MW, Solnova 1, 3 and 4 with a gross capacity of 150 MW, Solaben 1 and 6 with a gross capacity of 100 MW and Seville PV with a gross capacity of 1 MW. The Company also owns a solar plant in South Africa, Kaxu with a gross capacity of 100 MW. Additionally, the Company owns two wind farms in Uruguay, Palmatir and Cadonal, with a gross capacity of 50 MW each, and a hydroelectric power plant in Peru with a gross capacity of 4 MW.

Efficient natural gas:
The Company´s sole efficient natural gas asset is ACT, a 300 MW cogeneration plant in Mexico, which is party to a 20-year take-or-pay contract with Pemex for the sale of electric power and steam.

Electric transmission lines
: Electric transmission assets include (i) three lines in Peru, ATN, ATS and ATN2, spanning a total of 1,012 miles; and (ii) three lines in Chile, Quadra 1, Quadra 2 and Palmucho, spanning a total of 87 miles.

Water:
Water assets include a minority interest in two desalination plants in Algeria, Honaine and Skikda with an aggregate capacity of 10.5 M ft3 per day.

Atlantica Yield’s Chief Operating Decision Maker (CODM) assesses the performance and assignment of resources according to the identified operating segments. The CODM considers the revenues as a measure of the business activity and the Further Adjusted EBITDA as a measure of the performance of each segment. Further Adjusted EBITDA is calculated as profit/(loss) for the period attributable to the parent company, after adding back loss/(profit) attributable to non-controlling interests from continued operations, income tax, share of profit/(loss) of associates carried under the equity method, finance expense net, depreciation, amortization and impairment charges of entities included in these consolidated financial statements, and compensation received from Abengoa in lieu of ACBH dividends (for the period up to the first quarter of 2017 only).

In order to assess performance of the business, the CODM receives reports of each reportable segment using revenues and Further Adjusted EBITDA. Net interest expense evolution is assessed on a consolidated basis. Financial expense and amortization are not taken into consideration by the CODM for the allocation of resources.

In the nine-month periods ended September 30, 2018 and September 30, 2017, Atlantica had four customers with revenues representing more than 10% of the total revenues, three in the renewable energy and one in the efficient natural gas business sectors.


a)
The following tables show Revenues and Further Adjusted EBITDA by operating segments and business sectors for the nine-month periods ended September 30, 2018 and 2017:

   
Revenue
   
Further Adjusted EBITDA
 
   
For the nine-month period ended
September 30,
   
For the nine-month period ended
September 30,
 
   
($ in thousands)
 
Geography
 
2018
   
2017
   
2018
   
2017
 
North America
   
294,625
     
270,037
     
272,157
     
243,289
 
South America
   
91,807
     
90,005
     
76,234
     
84,174
 
EMEA
   
450,493
     
415,137
     
359,970
     
296,464
 
Total
   
836,925
     
775,179
     
708,361
     
623,927
 

   
Revenue
   
Further Adjusted EBITDA
 
   
For the nine-month period ended
September 30,
   
For the nine-month period ended
September 30,
 
   
($ in thousands)
 
Business sector
 
2018
   
2017
   
2018
   
2017
 
Renewable energy
   
652,135
     
594,476
     
565,915
     
462,607
 
Efficient natural gas
   
95,355
     
89,653
     
71,724
     
79,969
 
Electric transmission lines
   
71,920
     
71,064
     
60,447
     
68,649
 
Water
   
17,515
     
19,986
     
10,275
     
12,702
 
Total
   
836,925
     
775,179
     
708,361
     
623,927
 

The reconciliation of segment Further Adjusted EBITDA with the profit/(loss) attributable to the Company is as follows:

   
For the nine-month period ended
September 30,
($ in thousands)
 
   
2018
   
2017
 
Profit/(Loss) attributable to the Company
 
$
120,512
     
42,582
 
(Loss)/Profit attributable to non-controlling interests
   
9,828
     
2,470
 
Income tax
   
59,068
     
25,330
 
Share of (profits)/losses of associates
   
(4,690
)
   
(3,700
)
Dividend from exchangeable preferred equity investment in ACBH (see Note 19)
   
-
     
10,383
 
Financial expense, net
   
279,844
     
310,431
 
Depreciation, amortization, and impairment charges
   
243,799
     
236,431
 
                 
Total segment Further Adjusted EBITDA
 
$
708,361
     
623,927
 


b)
The assets and liabilities by operating segments (and business sector) as of September 30, 2018 and December 31, 2017 are as follows:

Assets and liabilities by geography as of September 30, 2018:

   
North
America
   
South America
   
EMEA
   
Balance as of
September 30,
2018
 
Assets allocated
                       
Contracted concessional assets
   
3,555,079
     
1,081,123
     
3,970,741
     
8,606,943
 
Investments carried under the equity method
   
-
     
-
     
54,776
     
54,776
 
Current financial investments
   
133,526
     
73,301
     
29,370
     
236,197
 
Cash and cash equivalents (project companies)
   
226,938
     
39,225
     
343,390
     
609,553
 
Subtotal allocated
   
3,915,543
     
1,193,649
     
4,398,277
     
9,507,469
 
Unallocated assets
                               
Other non-current assets
                           
213,053
 
Other current assets (including cash and cash equivalents at holding company level)
                           
452,009
 
Subtotal unallocated
                           
665,062
 
Total assets
                           
10,172,531
 

   
North
America
   
South America
   
EMEA
   
Balance as of
September 30,
2018
 
Liabilities allocated
                       
Long-term and short-term project debt
   
1,773,589
     
834,164
     
2,606,922
     
5,214,675
 
Grants and other liabilities
   
1,556,388
     
5,113
     
91,950
     
1,653,451
 
Subtotal allocated
   
3,329,977
     
839,277
     
2,698,872
     
6,868,126
 
Unallocated liabilities
                               
Long-term and short-term corporate debt
                           
641,785
 
Other non-current liabilities
                           
597,097
 
Other current liabilities
                           
172,292
 
Subtotal unallocated
                           
1,411,174
 
Total liabilities
                           
8,279,300
 
Equity unallocated
                           
1,893,231
 
Total liabilities and equity unallocated
                           
3,304,405
 
Total liabilities and equity
                           
10,172,531
 

Assets and liabilities by geography as of December 31, 2017:

   
North
America
   
South America
   
EMEA
   
Balance as of
December 31,
2017
 
Assets allocated
                       
Contracted concessional assets
   
3,770,169
     
1,100,778
     
4,213,323
     
9,084,270
 
Investments carried under the equity method
   
-
     
-
     
55,784
     
55,784
 
Current financial investments
   
116,451
     
59,831
     
31,263
     
207,545
 
Cash and cash equivalents (project companies)
   
149,236
     
42,548
     
329,078
     
520,862
 
Subtotal allocated
   
4,035,856
     
1,203,157
     
4,629,448
     
9,868,461
 
Unallocated assets
                               
Other non-current assets
                           
210,378
 
Other current assets (including cash and cash equivalents at holding company level)
                           
413,500
 
Subtotal unallocated
                           
623,878
 
Total assets
                           
10,492,339
 

   
North
America
   
South America
   
EMEA
   
Balance as of
December 31,
2017
 
Liabilities allocated
                       
Long-term and short-term project debt
   
1,821,102
     
876,063
     
2,778,043
     
5,475,208
 
Grants and other liabilities
   
1,593,048
     
810
     
42,202
     
1,636,060
 
Subtotal allocated
   
3,414,150
     
876,873
     
2,820,245
     
7,111,268
 
Unallocated liabilities
                               
Long-term and short-term corporate debt
                           
643,083
 
Other non-current liabilities
                           
657,345
 
Other current liabilities
                           
185,190
 
Subtotal unallocated
                           
1,485,618
 
Total liabilities
                           
8,596,886
 
Equity unallocated
                           
1,895,453
 
Total liabilities and equity unallocated
                           
3,381,071
 
Total liabilities and equity
                           
10,492,339
 

Assets and liabilities by business sector as of September 30, 2018;

   
Renewable
energy
   
Efficient
natural
gas
   
Electric
transmission
lines
   
Water
   
Balance as of
September 30,
2018
 
Assets allocated
                             
Contracted concessional assets
   
7,058,009
     
591,666
     
869,682
     
87,586
     
8,606,943
 
Investments carried under the equity method
   
11,936
     
-
     
-
     
42,840
     
54,776
 
Current financial investments
   
15,616
     
133,505
     
72,398
     
14,678
     
236,197
 
Cash and cash equivalents (project companies)
   
569,075
     
16,742
     
13,743
     
9,993
     
609,553
 
Subtotal allocated
   
7,654,636
     
741,913
     
955,823
     
155,097
     
9,507,469
 
Unallocated assets
                                       
Other non-current assets
                                   
213,053
 
Other current assets  (including cash and cash equivalents at holding company level)
                                   
452,009
 
Subtotal unallocated
                                   
665,062
 
Total assets
                                   
10,172,531
 

   
Renewable
energy
   
Efficient
natural
gas
   
Electric
transmission
lines
   
Water
   
Balance as of
September 30,
2018
 
   
($ in thousands)
 
Liabilities allocated
                             
Long-term and short-term project debt
   
3,977,074
     
547,045
     
659,808
     
30,748
     
5,214,675
 
Grants and other liabilities
   
1,650,795
     
835
     
1,030
     
791
     
1,653,451
 
Subtotal allocated
   
5,627,869
     
547,880
     
660,838
     
31,539
     
6,868,126
 
Unallocated liabilities
                                       
Long-term and short-term corporate debt
                                   
641,785
 
Other non-current liabilities
                                   
597,097
 
Other current liabilities
                                   
172,292
 
Subtotal unallocated
                                   
1,411,174
 
Total liabilities
                                   
8,279,300
 
Equity unallocated
                                   
1,893,231
 
Total liabilities and equity unallocated
                                   
3,304,