Summary of Significant Accounting Policies and Procedures (Policies) | 12 Months Ended |
Dec. 31, 2014 |
Accounting Policies [Abstract] | |
Basis of Presentation and Principles of Consolidation | Basis of Presentation and Principles of Consolidation |
The accompanying consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles, or GAAP, and reflect the accounts and operations of the Company and those of its subsidiaries in which the Company has a controlling financial interest. In accordance with the provisions of Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, 810, Consolidation, the Company consolidates any variable interest entity, or VIE, of which it is the primary beneficiary. The typical condition for a controlling financial interest ownership is holding a majority of the voting interests of an entity; however, a controlling financial interest may also exist in entities, such as VIEs, through arrangements that do not involve controlling voting interests. ASC 810 requires a variable interest holder to consolidate a VIE if that party has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company does not consolidate a VIE in which it has a majority ownership interest when the Company is not considered the primary beneficiary. The Company has determined that it is the primary beneficiary of a number of VIEs (see Note 3, Acquisitions, and Note 12, VIE Fund Arrangements). The Company evaluates its relationships with all the VIEs on an ongoing basis to ensure that it continues to be the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation. |
The Company and its subsidiaries’ fiscal quarters and years are the same as calendar quarters and years except for one acquired subsidiary, Silevo, Inc., or Silevo, which continues to have fiscal quarters based on 13-week periods and fiscal years based on 52-week periods. For 2014, Silevo’s fiscal year ended on December 27, 2014, and it did not have any material activity between that date and December 31, 2014. |
Reclassifications | Reclassifications |
Prior period research and development expenses were reclassified from general and administrative expense and disclosed separately as research and development expense in the consolidated financial statements and accompanying notes in order to provide comparability to current period balances. The reclassifications did not impact prior period results of operations, cash flows, total assets, total liabilities or total equity. |
Use of Estimates | Use of Estimates |
The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Management regularly makes significant estimates and assumptions regarding the selling price of undelivered elements for revenue recognition purposes, the collectability of accounts and rebates receivable, the valuation of inventories, the labor costs for long-term contracts used as a basis for determining the percentage of completion for such contracts, the fair values and residual values of solar energy systems subject to leases, the accounting for business combinations, the fair values and useful lives of acquired tangible and intangible assets, the fair value of debt assumed under business combinations, the fair value of contingent consideration payable under business combinations, the fair value of short-term investments, the useful lives of solar energy systems, property, plant and equipment, the determination of accrued warranty, the determination of accrued performance guarantee, the determination of lease pass-through financing obligations, the discount rates used to determine the fair values of investment tax credits, the valuation of stock-based compensation, the determination of valuation allowances associated with deferred tax assets, asset impairment and other items. Management bases its estimates on historical experience and on various other assumptions believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ materially from those estimates. |
Cash and Cash Equivalents | Cash and Cash Equivalents |
The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. The Company maintains cash and cash equivalents, which consist principally of demand deposits with high-credit-quality financial institutions. The Company has exposure to credit risk to the extent cash and cash equivalent balances, including any restricted cash balances on deposit, exceed amounts covered by federal deposit insurance. The Company believes that its credit risk is not significant. |
Short-Term Investments | Short-Term Investments |
The Company’s short-term investments comprise of corporate debt securities and asset-backed securities. The Company classifies short-term investments as available-for-sale and carries them at fair value, with any unrealized gains or losses recognized as other comprehensive income or loss in the consolidated balance sheet. The specific identification method is used to determine the cost of any securities disposed of, with any realized gains or losses recognized as other income or expense in the consolidated statement of operations. Short-term investments are anticipated to be used for current operations and are, therefore, classified as current assets even though their maturities may extend beyond one year. The Company periodically reviews short-term investments for impairment. In the event a decline in value is determined to be other-than-temporary, an impairment loss is recognized. When determining if a decline in value is other-than-temporary, the Company takes into consideration the current market conditions and the duration and severity of and the reason for the decline, as well as the likelihood that it would need to sell the security prior to a recovery of par value. |
The Company did not have any short-term investments as of December 31, 2013. As of December 31, 2014, short-term investments were comprised of $126.2 million of corporate debt securities and $12.1 million of asset-backed securities. The costs of these securities approximated their fair values, and there were no material gross realized or unrealized gains, gross realized or unrealized losses or impairment losses recognized for the year ended December 31, 2014. As of December 31, 2014, all short-term investments were scheduled to mature within the next twelve months. |
Restricted Cash | Restricted Cash |
Restricted cash includes cash received from certain fund investors that had not been released for use by the Company, cash held to service certain payments under various securitization transactions including management expenses and principal and interest payments to solar asset-backed note holders and balances collateralizing outstanding letters of credit, outstanding credit card borrowing facilities and obligations under certain operating leases. |
Accounts Receivable | Accounts Receivable |
Accounts receivable primarily represent trade receivables from sales to residential and commercial customers recorded at net realizable value. The Company maintains an allowance for doubtful accounts to reserve for potentially uncollectible accounts receivable. The Company reviews its accounts receivable by aging category to identify significant customer balances with known disputes or collection issues. In determining the allowance, the Company makes judgments about the creditworthiness of a majority of its customers based on ongoing credit evaluations. The Company also considers its historical level of credit losses and current economic trends that might impact the level of future credit losses. The Company writes off accounts receivable when they are deemed uncollectible. |
Customer Notes Receivable | Customer Notes Receivable |
In the fourth quarter of 2014, the Company launched MyPower, a program that offers residential customers the option to finance the purchase of solar energy systems through a 30-year loan provided by a wholly owned subsidiary of the Company. In order to qualify for a loan, a customer must pass the Company’s credit evaluation process, and the loans are secured by the solar energy systems financed. The outstanding loan balances, net of any allowance for potentially uncollectible amounts, are presented on the consolidated balance sheets as a component of prepaid expenses and other current assets for the current portion and as customer notes receivable, net of current portion, for the long-term portion. In determining the allowance and credit quality, the Company identifies significant customers with known disputes or collection issues and considers its historical level of credit losses and current economic trends that might impact the level of future credit losses. Customer notes receivable that are individually impaired are charged-off as a write-off of allowance for losses. As of December 31, 2014, there were no significant customers with known disputes or collection issues, and the amount of potentially uncollectible amounts was also insignificant. Accordingly, the Company did not establish an allowance for losses against customer notes receivable. In addition, there were no non-accrual or past due customer notes receivable as of December 31, 2014. |
Rebates Receivable | Rebates Receivable |
Rebates receivable represent rebates due from utility companies and government agencies. These receivables include rebates that have been assigned to the Company by its cash customers on state-approved solar energy system installations sold to the customers and also uncollected incentives from state and local government agencies for solar energy system installations that have been leased to customers or are used to generate and sell electricity to customers under power purchase agreements. For the rebates assigned to the Company by its customers, the Company assumes the responsibility for the application and collection of the rebate. The processing cycle for these rebates and incentives involves a multi-step process in which the Company accumulates and submits information required by the utility company or state agency necessary for the collection of the rebate. The entire process typically can take up to several months to complete. The Company recognizes rebates receivable upon the solar energy system passing inspection by the utility or authority having jurisdiction after completion of system installation. The Company maintains an allowance to reserve for potentially uncollectible rebates. In determining the allowance, the Company makes judgments based on the length of period that a rebate amount has been outstanding and reasons for the delays in collecting the rebate. |
Concentrations of Risk | Concentrations of Risk |
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments, accounts receivable and rebates receivable. The associated risk of concentration for cash and cash equivalents is mitigated by banking with creditworthy institutions. At certain times, amounts on deposit exceed federal deposit insurance limits. The associated risk of concentration for short-term investments is mitigated by holding a diversified portfolio of highly rated short-term investments. The Company does not require collateral or other security to support accounts receivable. To reduce credit risk, management performs periodic credit evaluations and ongoing evaluations of its customers’ financial condition. Rebates receivable are due from various states and local governments as well as various utility companies. The Company maintains reserves for any amounts that it considers to be uncollectable. |
Fair Value of Financial Instruments | Fair Value of Financial Instruments |
ASC 820, Fair Value Measurements, clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. |
ASC 820 requires that the valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 establishes a three-tier fair value hierarchy, which prioritizes inputs that may be used to measure fair value as follows: |
— | Level 1—Observable inputs that reflect quoted prices for identical assets or liabilities in active markets. | | | | | | | | | | |
— | Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | | | | | | | | | | |
— | Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. | | | | | | | | | | |
As of December 31, 2013, there were no fair value measurements of assets or liabilities subsequent to initial recognition. As of December 31, 2014, the assets and liabilities carried at fair value on a recurring basis included cash equivalents, short-term investments and contingent consideration (see Note 3, Acquisitions). As of December 31, 2014, the fair value of the Company’s cash equivalents, short-term investments and contingent consideration were as follows (in thousands): |
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| Level 1 | | | Level 2 | | | Level 3 | |
Cash equivalents: | | | | | | | | | | | |
Money market funds | $ | 54,229 | | | $ | — | | | $ | — | |
Corporate debt securities | $ | — | | | $ | 7,599 | | | $ | — | |
Short-term investments: | | | | | | | | | | | |
Corporate debt securities | $ | — | | | $ | 126,159 | | | $ | — | |
Asset-backed securities | $ | — | | | $ | 12,152 | | | $ | — | |
Liabilities: | | | | | | | | | | | |
Contingent consideration | $ | — | | | $ | — | | | $ | 117,197 | |
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The Company classified its money market funds within Level 1 because their fair values are based on their quoted market prices. The Company classified its corporate debt securities and asset-backed securities within Level 2 because their fair values are determined using alternative pricing sources and models that utilized market observable inputs to determine their fair values. The Company classified its contingent consideration within Level 3 because their fair values are determined using unobservable probability estimates and an unobservable estimated discount rate applicable to the acquisition to determine the fair value. Furthermore, during the year ended December 31, 2014, there were no transfers between the levels of the fair value hierarchy. |
The contingent consideration is dependent on the achievement of specified production milestones for the acquired business as discussed in Note 3, Acquisitions. The fair value of the contingent consideration is directly proportional to the estimated probabilities of achievement of these milestones. As of December 31, 2014, the estimated probabilities ranged from 90% to 95%, the estimated discount rates ranged from 5.0% to 7.0%, $42.0 million was included under accrued and other current liabilities on the consolidated balance sheets and $75.2 million was included under other liabilities and deferred credits on the consolidated balance sheets. The following table summarizes the activity of the Level 3 contingent consideration balance in the year ended December 31, 2014 (in thousands): |
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Balance - beginning of the period | | $ | — | | | | | | | | |
Acquisition of Silevo | | | 115,319 | | | | | | | | |
Change in fair value recorded in other income (expense) - net | | | 1,878 | | | | | | | | |
Balance - end of the period | | $ | 117,197 | | | | | | | | |
The Company’s financial instruments that are not re-measured at fair value include accounts receivable, customer notes receivable, rebates receivable, accounts payable, customer deposits, distributions payable to noncontrolling interests and redeemable noncontrolling interests, participation interest, solar asset-backed notes, convertible senior notes, Solar Bonds and long-term debt. The carrying values of these financial instruments other than the participation interest, solar asset-backed notes, convertible senior notes, Solar Bonds and long-term debt approximate their fair values due to the fact that they were short-term in nature at December 31, 2014 and 2013 (Level 1). The fair value of convertible senior notes was $752.2 million and $273.0 million as of December 31, 2014 and 2013, respectively, based on their last actively traded prices (Level 1). The Company estimates the fair value of customer notes receivable, solar asset-backed notes, Solar Bonds and long-term debt based on rates currently offered for debt with similar maturities and terms (Level 3). The Company has estimated the fair value of customer notes receivable, Solar Bonds and long-term debt to approximate their carrying values. The Company has estimated the fair value of solar asset-backed notes to be $328.3 million and $52.9 million as of December 31, 2014 and 2013, respectively. The Company has estimated the fair value of the participation interest to be $14.1 million and $15.1 million as of December 31, 2014 and 2013, respectively, based on rates currently offered for instruments with similar maturities and terms (Level 3). |
Business Combinations | Business Combinations |
The Company accounts for business acquisitions under ASC 805, Business Combinations. The cost of an acquisition is measured at the fair value of the assets given, equity instruments issued and liabilities assumed at the acquisition date. Costs that are directly attributable to the acquisition are expensed as incurred. Identifiable assets, including intangible assets, acquired and liabilities, including contingent liabilities, assumed in the acquisition are measured initially at their fair values at the acquisition date. Any noncontrolling interests in the acquired business are also initially measured at fair value. The Company recognizes goodwill if the aggregate fair value of the total purchase consideration and the noncontrolling interests is in excess of the aggregate fair value of the identifiable assets acquired and the liabilities assumed. |
Goodwill | Goodwill |
Goodwill represents the difference between the purchase price and the aggregate fair value of the identifiable assets acquired and the liabilities assumed in a business combination. The Company assesses goodwill impairment annually, in the fourth quarter of each fiscal year, and whenever events or changes in circumstances indicate that the carrying value of goodwill may exceed its fair value at the consolidated-level, which is the sole reporting unit. When assessing goodwill for impairment, the Company considers its market capitalization adjusted for a control premium and, if necessary, the Company’s discounted cash flow model, which involves significant assumptions and estimates, including the Company’s future financial performance, weighted-average cost of capital and interpretation of currently enacted tax laws. Circumstances that could indicate impairment and require the Company to perform an impairment test include a significant decline in the Company’s financial results, a significant decline in the Company’s market capitalization relative to its net book value, an unanticipated change in competition or the Company’s market share and a significant change in the Company’s strategic plans. |
Inventories | Inventories |
Inventories include raw materials that include silicon wafers, process gasses, chemicals and other consumables used in solar cell production, solar cells, photovoltaic panels, inverters, mounting hardware and miscellaneous electrical components. Inventories also include work in process that includes raw materials partially installed and direct and indirect capitalized installation costs. Raw materials and work in process are stated at the lower of cost or market (on a first-in-first-out basis). Work in process primarily relates to solar energy systems that will be sold to customers, which are under construction and have yet to pass inspection. |
The Company also evaluates its inventory reserves on a quarterly basis and writes down the value of inventories for estimated excess and obsolete inventories based upon assumptions about future demand and market conditions. |
Solar Energy Systems, Leased and To Be Leased | Solar Energy Systems, Leased and To Be Leased |
The Company is the operating lessor of the solar energy systems under leases that qualify as operating leases. The Company accounts for the leases in accordance with ASC 840, Leases. To determine lease classification, the Company evaluates lease terms to determine whether there is a transfer of ownership or bargain purchase option at the end of the lease, whether the lease term is greater than 75% of the useful life, or whether the present value of minimum lease payments exceed 90% of the fair value at lease inception. The Company utilizes periodic appraisals to estimate useful life and fair values at lease inception, and residual values at lease termination. Solar energy systems are stated at cost, less accumulated depreciation. |
Depreciation and amortization is calculated using the straight-line method over the estimated useful lives of the respective assets as follows. |
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| | Useful Lives | | | | | | | | | |
Solar energy systems leased to customers | | 30 years | | | | | | | | | |
Initial direct costs related to customer solar energy | | Lease term | | | | | | | | | |
system lease acquisition costs | (10 to 20 years) | | | | | | | | | |
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Solar energy systems held for lease to customers are installed systems pending interconnection with the respective utility companies and will be depreciated as solar energy systems leased to customers when the respective systems have been interconnected and placed in service. |
Solar energy systems under construction represents systems that are under installation, which will be depreciated as solar energy systems leased to customers when the respective systems are completed, interconnected and subsequently leased to customers. |
Initial direct costs related to customer solar energy system lease acquisition costs are capitalized and amortized over the term of the related customer lease agreements. |
Presentation of Cash Flows Associated with Solar Energy Systems | Presentation of Cash Flows Associated with Solar Energy Systems |
The Company classifies cash flows associated with solar energy systems in accordance with ASC 230, Statement of Cash Flows. The Company determines the appropriate classification of cash payments related to solar energy systems depending on the activity that is likely to be the predominant source of cash flows for the item being paid for. Accordingly, the Company presents payments made in a period for costs incurred to install solar energy systems that will be leased to customers, including the payments for cost of the inventory that is utilized in such systems, as investing activities in the consolidated statement of cash flows. Payments made for inventory that will be utilized for solar energy systems that will be sold to customers are presented as cash flows from operations in the consolidated statement of cash flows. |
Property and Equipment | Property, Plant and Equipment |
Property, plant and equipment, including leasehold improvements, are stated at cost, less accumulated depreciation and amortization. |
Depreciation and amortization is calculated using the straight-line method over the estimated useful lives of the respective assets as follows. |
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| | Useful Lives | | | | | | | | | |
Furniture and fixtures | | 3-7 years | | | | | | | | | |
Vehicles | | 5 years | | | | | | | | | |
Computer hardware and software | | 3-10 years | | | | | | | | | |
Manufacturing & lab equipment | | 2 to 3 years | | | | | | | | | |
Buildings | | 20 years | | | | | | | | | |
Land & land use rights | | 50 years | | | | | | | | | |
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Leasehold improvements are amortized over the shorter of the lease term or their estimated useful lives, currently seven years. |
Repairs and maintenance costs are expensed as incurred. |
Upon disposition, the cost and related accumulated depreciation of the assets are removed from property, plant and equipment and the resulting gain or loss is reflected in the consolidated statements of operations. |
Property, Plant and Equipment, Impairment [Policy Text Block] | Long-Lived Assets |
The Company’s long-lived assets include property, plant and equipment, solar energy systems, leased and to be leased, and intangible assets acquired through business combinations. Intangible assets with definite useful lives are amortized over their estimated useful lives, which range from 1 to 30 years. |
In accordance with ASC 360, Property, Plant, and Equipment, the Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of a long-lived asset, or group of assets, as appropriate, may not be recoverable. If the aggregate undiscounted future net cash flows expected to result from the use and the eventual disposition of a long-lived asset is less than its carrying value, then the Company would recognize an impairment loss based on the discounted future net cash flows. No impairment charges were recorded for the years ended December 31, 2014, 2013 or 2012. |
Capitalization of Software Costs | Capitalization of Software Costs |
For costs incurred in development of internal use software, the Company capitalizes costs incurred during the application development stage. Costs related to preliminary project activities and post implementation activities are expensed as incurred. Internal-use software is amortized on a straight-line basis over its estimated useful life of 10 years. The Company evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. |
Warranties | Warranties |
The Company warrants its products for various periods against defects in material or installation workmanship. The Company generally provides a warranty on the generating and non-generating parts of the solar energy systems it sells of typically between 10 to 30 years. The manufacturer’s warranty on the solar energy systems’ components, which is typically passed-through to customers, ranges from one to 25 years. The changes in the accrued warranty balance, recorded as a component of accrued and other current liabilities on the consolidated balance sheets, consisted of the following (in thousands): |
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| | As of and for the | | | | |
| | Year Ended | | | | |
| | December 31, | | | | |
| | 2014 | | | 2013 | | | | |
Balance - beginning of the period | | $ | 7,502 | | | $ | 4,019 | | | | |
Change in estimate (credited) charged to warranty expense | | | (468 | ) | | | 1,514 | | | | |
Current year provision charged to warranty expense | | | 2,022 | | | | 2,257 | | | | |
Assumed warranty obligation arising from business | | | — | | | | 188 | | | | |
acquisitions | | | |
Less warranty claims | | | (449 | ) | | | (476 | ) | | | |
Balance - end of the period | | $ | 8,607 | | | $ | 7,502 | | | | |
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Solar Energy Systems Performance Guarantees | Solar Energy Systems Performance Guarantees |
The Company guarantees certain specified minimum solar energy production output for certain systems leased or sold to customers generally for a term of 20 years. The Company monitors the solar energy systems to ensure that these outputs are being achieved. The Company evaluates if any amounts are due to its customers. As of December 31, 2014 and 2013, the Company had recorded liabilities of $1.6 million and $1.0 million, respectively, under accrued and other current liabilities in the consolidated balance sheets, relating to these guarantees based on the Company’s assessment of its current exposure. |
Deferred U.S. Treasury Grants Income | Deferred U.S. Treasury Grants Income |
The Company is eligible for U.S. Treasury grants received or receivable on eligible property as defined under Section 1603 of the American Recovery and Reinvestment Act of 2009, as amended by the Tax Relief Unemployment Insurance Reauthorization and Job Creation Act of December 2010, which includes solar energy system installations, upon approval by the U.S. Treasury Department. However, to be eligible for U.S. Treasury grants, a solar energy system must have commenced construction in 2011 either physically or through the incurrence of sufficient project costs. For solar energy systems under lease pass-through fund arrangements, as described in Note 13, Lease Pass-Through Financing Obligation, the Company reduces the financing obligation and records deferred income for the U.S. Treasury grants which are paid directly to the investors upon receipt of the grants by the investors. The benefit of the U.S. Treasury grants is recorded as deferred income and is amortized on a straight-line basis over the estimated useful lives of the related solar energy systems of 30 years. The amortization of the deferred income is recorded as a reduction to depreciation expense, which is a component of the cost of revenue of operating leases and solar energy systems incentives in the consolidated statements of operations. A catch-up adjustment is recorded in the period in which the grant is approved by the U.S. Treasury Department or received by lease pass-through investors to recognize the portion of the grant that matches proportionally the amortization for the period between the date of placement in service of the solar energy systems and approval by the U.S. Treasury Department or receipt by lease pass-through investors of the associated grant. The changes in deferred U.S. Treasury grants income were as follows (in thousands): |
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Balance at January 1, 2012 | | $ | 137,434 | | | | | | | | |
U.S. Treasury grants received and receivable | | | 112,520 | | | | | | | | |
U.S. Treasury grants received by investors under lease | | | 58,685 | | | | | | | | |
pass-through fund arrangements | | | | | | | |
Amortized as a credit to depreciation expense | | | (10,379 | ) | | | | | | | |
Balance at December 31, 2012 | | | 298,260 | | | | | | | | |
U.S. Treasury grants received and receivable | | | 124,404 | | | | | | | | |
U.S. Treasury grants received by investors under lease | | | 20,599 | | | | | | | | |
pass-through fund arrangements | | | | | | | |
Amortized as a credit to depreciation expense | | | (15,454 | ) | | | | | | | |
Balance at December 31, 2013 | | | 427,809 | | | | | | | | |
U.S. Treasury grants received and receivable | | | 342 | | | | | | | | |
Amortized as a credit to depreciation expense | | | (15,335 | ) | | | | | | | |
Balance at December 31, 2014 | | $ | 412,816 | | | | | | | | |
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Of the balance outstanding as of December 31, 2014 and 2013, $397.5 million and $412.5 million, respectively, are classified as noncurrent deferred U.S. Treasury grants income in the consolidated balance sheets. |
Deferred Investment Tax Credits Revenue | Deferred Investment Tax Credits Revenue |
The Company’s solar energy systems are eligible for investment tax credits, or ITCs, that accrue to eligible property under the Internal Revenue Code. Under Section 50(d)(5) of the Internal Revenue Code and the related regulations, a lessor of qualifying property may elect to treat the lessee as the owner of such property for the purposes of claiming government ITCs associated with such property. These regulations enable the ITCs to be separated from the ownership of the property and allow the transfer of these ITCs. Under the lease pass-through fund arrangements, the Company can make a tax election to pass through the ITCs to the investor, who is the legal lessee of the property. The Company is therefore able to monetize the ITCs to investors who can utilize them in return for cash payments. The Company considers the monetization of ITCs to constitute one of the key elements of realizing the value associated with solar energy systems. The Company therefore views the proceeds from the monetization of ITCs to be a component of revenue generated from the solar energy systems. |
For the lease pass-through fund arrangements, the Company allocates a portion of the aggregate payments received from the investor to the estimated fair value of the assigned ITCs and the balance to the future customer lease payments that are also assigned to the investors. The estimated fair value of the ITCs are determined by discounting the estimated cash flows impact of the ITCs using an appropriate discount rate that reflects a market interest rate. |
The Company recognizes the revenue associated with the monetization of ITCs in accordance with ASC 605-10-S99, Revenue Recognition-Overall-SEC Materials. The revenue associated with the monetization of the ITCs is recognized when (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the sales price is fixed or determinable and (4) collection of the related receivable is reasonably assured. The ITCs are subject to recapture under the Internal Revenue Code if the underlying solar energy system either ceases to be a qualifying property or undergoes a change in ownership within five years of its placed in service date. The recapture amount decreases on the anniversary of the placed in service date. As the Company has an obligation to ensure the solar energy system is in service and operational for a term of five years to avoid any recapture of the ITCs, the Company recognizes revenue as the recapture provisions lapse assuming the other aforementioned revenue recognition criteria have been met. The monetized ITCs are initially recorded as deferred revenue on the consolidated balance sheet, and subsequently, one-fifth of the monetized ITCs is recognized as revenue from operating leases and solar energy systems incentives in the consolidated statement of operations on each anniversary of the solar energy system’s placed in service date over the next five years. |
The Company guarantees its fund investors that in the event of a subsequent recapture of the ITCs by the taxing authority due to the Company’s noncompliance with the applicable ITC guidelines, the Company will compensate the investor for any recaptured credits. The Company has concluded that the likelihood of a recapture event is remote and consequently has not recorded any liability in the consolidated financial statements for any potential recapture exposure. |
The balance of deferred investment tax credits revenue, which is included as part of deferred revenue in the consolidated balance sheets, as of December 31, 2014 and 2013 was $210.9 million and $139.5 million, respectively. For the year ended December 31, 2014 and 2013, the Company recognized $28.2 million and $0.5 million, respectively, of revenue related to the monetization of ITCs, which is included in operating leases and solar energy systems incentives revenue in the consolidated statements of operations. The Company had not recognized any revenue related to the monetization of ITCs prior to 2013. |
Deferred Revenue | Deferred Revenue |
The Company records as deferred revenue any amounts that are collected from customers, including lease prepayments, in excess of revenue recognized. Deferred revenue also includes the portion of rebates and incentives received from utility companies and various local and state government agencies, which are recognized as revenue over the lease term, as well as the remote monitoring fee (discussed below), which is recognized as revenue ratably over the respective customer contract term. As of December 31, 2014 and 2013, deferred revenue related to customer payments, which is included in the deferred revenue balances in the consolidated balance sheets, amounted to $229.5 million and $186.9 million, respectively. As of December 31, 2014 and 2013, deferred revenue from rebates and incentives, which is included in the deferred revenue balances in the consolidated balance sheets, amounted to $169.6 million and $143.6 million, respectively. In addition, under MyPower customer contracts, all initial revenue associated with financed sales of solar energy systems are also recorded as a component of deferred revenue. As of December 31, 2014, deferred revenue from MyPower contracts amounted to $33.7 million. |
Revenue Recognition | Revenue Recognition |
The Company provides design, installation, maintenance services and ongoing remote monitoring services for solar energy systems to residential and commercial customers. Customers generally purchase solar energy systems from the Company under fixed-price contracts or lease Company-owned solar energy systems, which also include remote monitoring services. A residential customer that purchases a solar energy system has the option to pay the full purchase price for the system at the time of purchase or finance the purchase through a 30-year loan from a wholly owned subsidiary of the Company, under the new MyPower program that the Company launched in the fourth quarter of 2014. The Company can also earn rebates, where available, that have been assigned to the Company by its customers on state-approved solar energy system installations sold to the customers, as well as rebates and incentives from utility companies and state and local governments on solar energy systems leased to customers or used to sell electricity to customers under power purchase agreements. The Company had also offered energy efficiency solutions aimed at improving residential energy efficiency and lowering overall residential energy costs. The energy efficiency services were comprised of energy efficiency evaluations and upgrades to homes and household appliances to improve energy efficiency. |
Solar Energy Systems and Components Sales |
For solar energy systems and components sales in which customers pay the full purchase price upon delivery of the system, the Company recognizes revenue, net of any applicable governmental sales taxes, in accordance with ASC 605-25, Revenue Recognition—Multiple-Element Arrangements, and ASC 605-10-S99, Revenue Recognition—Overall—SEC Materials. Revenue is recognized when (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the sales price is fixed or determinable and (4) collection of the related receivable is reasonably assured. Components comprise of photovoltaic panels and solar energy system mounting hardware. In instances where there are multiple deliverables in a single arrangement, the Company allocates the arrangement consideration to the various elements in the arrangement based on the relative selling price method. The Company recognizes revenue when it installs a solar energy system and the solar energy system passes inspection by the utility or the authority having jurisdiction, provided all other revenue recognition criteria have been met. Costs incurred on residential installations before the solar energy systems are completed are included in inventories as work in progress in the consolidated balance sheets. |
The Company recognizes revenue for solar energy systems constructed for certain commercial customers according to ASC 605-35, Revenue Recognition—Construction-Type and Production Type Contracts. Revenue is recognized on a percentage-of-completion basis, based on the ratio of labor costs incurred to date to total projected labor costs. Provisions are made for the full amount of any anticipated losses on a contract-by-contract basis. The Company recognized $2.1 million, $2.9 million and $2.6 million of total losses for these types of contracts for the years ended December 31, 2014, 2013 and 2012, respectively. Costs in excess of billings are recorded where costs recognized are in excess of amounts billed to customers of purchased commercial solar energy systems. Costs in excess of billings as of December 31, 2014 and 2013 were $0.3 million and $0.1 million, respectively, and are included in prepaid expenses and other current assets in the consolidated balance sheets. Billings in excess of costs as of December 31, 2014 and 2013 were $0.2 million and $0.2 million, respectively, and are included in deferred revenue in the consolidated balance sheets. |
For solar energy systems sold under a MyPower contract, the Company has determined that the arrangement consideration may not currently be fixed or determinable due to the lack of Company-specific or market history for similar programs with similar asset classes over an extended term. Accordingly, the Company initially defers the revenue associated with the sale of a solar energy system under a MyPower contract when it delivers a system that has passed inspection by the utility or the authority having jurisdiction. In instances where there are multiple deliverables in a single MyPower contract, the Company also allocates the arrangement consideration to the various elements in the contract based on the relative selling price method. Then, the Company recognizes revenue for the system over the term of the contract as the customer pays the loan’s principal and interest. The deferred revenue is included in the consolidated balance sheets under current portion of deferred revenue for the portion expected to be recognized as revenue in the next 12 months, and the non-current portion is included under deferred revenue, net of current portion. The Company records a note receivable when the customer secures a loan from a subsidiary of Company to finance the purchase. |
The costs associated with solar energy systems sold under MyPower contracts are initially capitalized as deferred costs of revenue and subsequently recognized as a component of cost of revenue from solar energy systems and components sales, generally in proportion to the reduction of the loan’s outstanding principal. The deferred cost of revenue is included in the consolidated balance sheets under prepaid expenses and other current assets for the portion expected to be recognized as cost of revenue in the next twelve months, and the non-current portion is included under other assets. |
The deferred revenue activity under MyPower was as follows (in thousands): |
|
| | As of and for the | | | | | | | | |
| | Year Ended | | | | | | | | |
| | December 31, | | | | | | | | |
| | 2014 | | | | | | | | |
Balance - beginning of the period | | $ | — | | | | | | | | |
MyPower agreements executed in the period | | | 33,738 | | | | | | | | |
Recognized in the period | | | (87 | ) | | | | | | | |
Balance - end of the period | | $ | 33,651 | | | | | | | | |
Of the ending balance, $1.0 million is included in the consolidated balance sheets under current portion of deferred revenue, as of December 31, 2014. The balances in the table above do not include amounts allocated to remote monitoring services, other deliverables or sales taxes. |
The deferred cost of revenue activity under MyPower was as follows (in thousands): |
|
| | As of and for the | | | | | | | | |
| | Year Ended | | | | | | | | |
| | December 31, | | | | | | | | |
| | 2014 | | | | | | | | |
Balance - beginning of the period | | $ | — | | | | | | | | |
MyPower agreements executed in the period | | | 13,614 | | | | | | | | |
Recognized in the period | | | (43 | ) | | | | | | | |
Balance - end of the period | | $ | 13,571 | | | | | | | | |
Of the ending balance, $0.4 million is included in the consolidated balance sheets under prepaid expenses and other current assets, as of December 31, 2014. |
Operating Leases and Power Purchase Agreements |
The Company is the lessor under lease agreements for solar energy systems, which are accounted for as operating leases in accordance with ASC 840. The Company records operating lease revenue from minimum lease payments, including upfront rebates and incentives earned from such systems, on a straight-line basis over the life of the lease term, assuming all other revenue recognition criteria are met. For incentives that are earned based on amount of electricity generated by the system, the Company records revenue as the amounts are earned. |
The difference between the payments received and the revenue recognized is recorded as deferred revenue in the consolidated balance sheets. |
For solar energy systems where customers purchase electricity from the Company under power purchase agreements, the Company has determined that these agreements should be accounted for, in substance, as operating leases pursuant to ASC 840. Revenue is recognized based upon the amount of electricity delivered at rates specified under the contracts, assuming all other revenue recognition criteria are met. |
The portion of rebates and incentives recognized within operating leases and solar energy systems incentives revenue for the years ended December 31, 2014, 2013 and 2012 was $33.4 million, $26.6 million and $18.2 million, respectively. |
Initial direct costs related to customer solar energy system lease acquisition costs (the incremental cost of contract administration, referral fees and sales commissions) are capitalized as an element of solar energy systems and amortized over the term of the related lease or power purchase agreement, which generally ranges from 10 to 20 years. Refer to Note 7, Solar Energy Systems, Leased and To Be Leased – Net, for a summary of initial direct costs related to customer solar energy system lease acquisition costs. |
Remote Monitoring Services |
The Company provides solar energy system remote monitoring services, which are generally bundled with both sales and leases of solar energy systems. The Company allocates revenue between remote monitoring services and the other elements in a bundled sale of a solar energy system using the relative selling price method. The selling prices used in the allocation are determined by reference to the prices charged by third parties for similar services and products on a standalone basis. For remote monitoring services bundled with a sale of a solar energy system, the Company recognizes the revenue allocated to remote monitoring services over the term specified in the associated contract or over the warranty period of the solar energy system if the contract does not specify the term. To date, remote monitoring services revenue has not been material and is included in the consolidated statements of operations under both operating leases and solar energy systems incentives revenue, when remote monitoring services are bundled with leases of solar energy systems, and solar energy system sales revenue, when remote monitoring services are bundled with sales of solar energy systems. |
Sale-Leaseback |
The Company is party to master lease agreements that provide for the sale of solar energy systems to third parties and the simultaneous leaseback of the systems, which the Company then subleases to customers. In sale-leaseback arrangements, the Company first determines whether the solar energy system under the sale-leaseback arrangement is “integral equipment.” A solar energy system is determined to be integral equipment when the cost to remove the system from its existing location, including the shipping and reinstallation costs of the solar energy system at the new site, including any diminution in fair value, exceeds ten percent of the fair value of the solar energy system at the time of its original installation. When the leaseback arrangements expire, the Company has the option to purchase the solar energy system, and in most cases, the lessor has the option to sell the system back to the Company, though in some instances the lessor can only sell the system back to the Company prior to expiration of the arrangement. |
For solar energy systems that the Company has determined to be integral equipment, the Company has concluded that these rights create a continuing involvement. Therefore, the Company uses the financing method to account for the sale-leaseback of such solar energy systems. Under the financing method, the Company does not recognize as revenue any of the sale proceeds received from the lessor that contractually constitutes a payment to acquire the solar energy system. Instead, the Company treats any such sale proceeds received as financing capital to install and deliver the solar energy system and accordingly records the proceeds as a sale-leaseback financing obligation in the consolidated balance sheets. The Company allocates the leaseback payments made to the lessor between interest expense and a reduction to the sale-leaseback financing obligation. Interest on the financing obligation is calculated using the Company’s incremental borrowing rate at the inception of the arrangement on the outstanding financing obligation. The Company determines its incremental borrowing rate by reference to the interest rates that it would obtain in the financial markets to borrow amounts equal to the sale-leaseback financing obligation over a term similar to the master lease term. |
For solar energy systems that the Company has determined not to be integral equipment, the Company determines if the leaseback is classified as a capital lease or an operating lease. For leasebacks classified as capital leases, the Company initially records a capital lease asset and capital lease obligation in the consolidated balance sheet equal to the lower of the present value of the future minimum leaseback payments or the fair value of the solar energy system. For capital leasebacks, the Company does not recognize any revenue but defers the gross profit comprising of the net of the revenue and the associated cost of sale. For leasebacks classified as operating leases, the Company recognizes a portion of the revenue and the associated cost of sale and defers the portion of revenue and cost of sale that represents the gross profit that is equal to the present value of the future minimum lease payments over the master leaseback term. For both capital and operating leasebacks, the Company records the deferred gross profit in the consolidated balance sheet as deferred income and amortizes the deferred income over the leaseback term as a reduction to the leaseback rental expense included in operating leases and solar energy systems incentives cost of revenue in the consolidated statement of operations. |
Cost of Revenue | Cost of Revenue |
Operating leases and solar energy systems incentives cost of revenue is primarily comprised of depreciation of the cost of leased solar energy systems reduced by amortization of U.S. Treasury grants income, maintenance costs associated with those systems and amortization of initial direct lease costs associated with those systems. |
Solar energy systems and components sales cost of revenue includes direct and indirect material and labor costs, warehouse rent, freight, warranty expense, depreciation on vehicles and other overhead costs. In addition, for solar energy systems and components sales accounted for under the percentage-of-completion method, cost of revenue includes the full amount of any anticipated future losses on a contract-by-contract basis. However, for solar energy systems sold under MyPower contracts, the cost of revenue in a period is recognized in proportion to the revenue recognized for each system in the period. |
Advertising Costs | Advertising Costs |
Advertising costs are expensed as incurred and are included as an element of sales and marketing expense in the consolidated statement of operations. The Company incurred advertising costs of $3.4 million, $0.5 million and $3.8 million for the years ended December 31, 2014, 2013 and 2012, respectively. |
Income Taxes | Income Taxes |
The Company accounts for income taxes under an asset and liability approach. Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for financial reporting purposes and the amounts recognized for income tax reporting purposes, net operating loss, or NOL, carryforwards and other tax credits measured by applying currently enacted tax laws. A valuation allowance is provided when necessary to reduce deferred tax assets to an amount that is more likely than not to be realized. The Company is eligible for federal investment tax credits. The Company accounts for federal investment tax credits under the flow-through method of accounting. As permitted in ASC 740-10-25-46, under the “flow-through” method of accounting, the tax benefit from an investment tax credit is recorded as a reduction of federal income taxes in the period that the credit is generated. |
The Company determines whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The Company uses a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon tax authority examination, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. |
The Company’s policy is to include interest and penalties related to unrecognized tax benefits, if any, within the provision for taxes in the consolidated statements of operations. |
Comprehensive Income (Loss) | Comprehensive Income (Loss) |
The Company accounts for comprehensive income (loss) in accordance with ASC 220, Comprehensive Income. Under ASC 220, the Company is required to report comprehensive income (loss), which includes net income (loss) as well as other comprehensive income (loss). There were no significant other comprehensive income (losses) and no significant differences between comprehensive loss as defined by ASC 220 and net loss as reported in the consolidated statements of operations, for the periods presented. |
Solar Renewable Energy Credits | Solar Renewable Energy Credits |
The Company accounts for solar renewable energy credits, or SRECs, when they are minted by government agencies, purchased by the Company or sold to third parties. For SRECs generated by the Company’s solar energy systems and minted by government agencies, the Company does not recognize any specifically identifiable costs for those SRECs. For SRECs purchased by the Company, the Company carries these SRECs at their purchase price, subject to testing for impairment. When a SREC is sold to a third party, the Company recognizes operating leases and solar energy systems incentives revenue upon transfer of the SREC to the third party, and the cost of the SREC, if any, is recorded to operating leases and solar energy systems incentives cost of revenue. |
Stock-Based Compensation | Stock-Based Compensation |
The Company accounts for stock-based compensation costs under the provisions of ASC 718, Compensation—Stock Compensation, which requires the measurement and recognition of compensation expense related to the fair value of stock-based compensation awards that are ultimately expected to vest. Stock-based compensation expense recognized includes the compensation cost for all share-based payments granted to employees based on the grant date fair value estimated in accordance with the provisions of ASC 718. ASC 718 is also applied to awards modified, repurchased, or canceled during the periods reported. |
The Company applies ASC 718 and ASC Subtopic 505-50, Equity-Based Payments to Non Employees, to options and other stock-based awards issued to nonemployees. In accordance with ASC 718 and ASC Subtopic 505-50, the Company uses the Black-Scholes option-pricing model to measure the fair value of the options at the measurement date. The measurement of stock-based compensation is subject to periodic adjustments as the awards vest and the resulting change in fair value is recognized in the consolidated statements of operations in the period the related services are rendered. |
Noncontrolling Interests and Redeemable Noncontrolling Interests | Noncontrolling Interests and Redeemable Noncontrolling Interests |
Noncontrolling interests and redeemable noncontrolling interests represent third-party interests in the net assets under certain funding arrangements, or funds, that the Company has entered into to finance the cost of solar energy systems under operating leases. The Company has determined that the contractual provisions in the funds represent substantive profit sharing arrangements. The Company has further determined that the appropriate methodology for calculating the noncontrolling interest and redeemable noncontrolling interests balances that reflect the substantive profit sharing arrangements is a balance sheet approach using the hypothetical liquidation at book value, or HLBV, method. The Company therefore determines the amount of the noncontrolling interests and redeemable noncontrolling interests in the net assets at each balance sheet date using the HLBV method, which is presented on the consolidated balance sheets as noncontrolling interests in subsidiaries and redeemable noncontrolling interests in subsidiaries. Under the HLBV method, the amounts reported as noncontrolling interests and redeemable noncontrolling interests in the consolidated balance sheets represent the amounts the third parties would hypothetically receive at each balance sheet date under the liquidation provisions of the funds, assuming the net assets of the funds were liquidated at the recorded amounts determined in accordance with GAAP and distributed to the third parties. The third parties’ interests in the results of operations of the funds is determined as the difference in the noncontrolling interests and redeemable noncontrolling interests balance in the consolidated balance sheets between the start and end of each reporting period, after taking into account any capital transactions between the funds and the third parties. However, the redeemable noncontrolling interests balance is at least equal to the redemption amount. The noncontrolling interests and redeemable noncontrolling interests balance is presented as a component of permanent equity in the consolidated balance sheets or as temporary equity in the mezzanine section of the consolidated balance sheets as redeemable noncontrolling interests when the third-parties have the right to redeem their interests in the funds for cash or other assets. |
Segment Information | Segment Information |
Operating segments are defined as components of a company about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is the executive team, which is comprised of the chief executive officer, the chief technology officer, the chief revenue officer, chief operating officer and the chief financial officer. Based on the financial information presented to and reviewed by the chief operating decision maker in deciding how to allocate the resources and in assessing the performance of the Company, the Company has determined that it has a single operating and reporting segment: solar energy products and services. The Company’s principal operations, revenue and decision-making functions are located in the United States. |
Basic and Diluted Net Income (Loss) Per Share | Basic and Diluted Net Income (Loss) Per Share |
The Company’s basic net income (loss) per share attributable to common stockholders is calculated by dividing the net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. |
Prior to the Company’s initial public offering of its common stock, its convertible redeemable preferred stock was entitled to receive dividends of up to $0.01 per share if dividends would have been declared on the common stock and thereafter would have participated pro rata on an as-converted basis with the common stockholders on any distributions to common stockholders. The convertible redeemable preferred stock was therefore a participating security. As a result, the Company calculated the net income (loss) per share using the two-class method. Accordingly, the net income (loss) attributable to common stockholders was derived from the net income (loss) for the period and, in periods in which the Company had net income attributable to common stockholders, an adjustment was made for the noncumulative dividends and allocations of earnings to participating securities based on their outstanding shareholder rights. Under the two-class method, the net loss attributable to common stockholders was not allocated to the convertible redeemable preferred stockholders as the convertible redeemable preferred stock did not have a contractual obligation to share in the Company’s losses. |
The diluted net income (loss) per share attributable to common stockholders is computed by giving effect to all potential common stock equivalents outstanding for the period determined using the treasury stock method or the if-converted method, as applicable. In periods when the Company incurred a net loss attributable to common stockholders, convertible redeemable preferred stock, stock options, restricted stock units, warrants to purchase common stock, warrants to purchase convertible redeemable preferred stock and convertible senior notes were considered to be common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is antidilutive. |
Recently Issued Accounting Standards | Recently Issued Accounting Standards |
In May 2014, the FASB issued Accounting Standards Update, or ASU, No. 2014-09, Revenue from Contracts with Customers (Topic 606), to replace the existing revenue recognition criteria for contracts with customers and to establish the disclosure requirements for revenue from contracts with customers. The ASU is effective for interim and annual periods beginning after December 15, 2016. Adoption of the ASU is either retrospective to each prior period presented or retrospective with a cumulative adjustment to retained earnings or accumulated deficit as of the adoption date. The Company is currently assessing the impact of the ASU on its consolidated financial statements. |
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements — Going Concern (Subtopic 205-40), to provide guidance within GAAP requiring management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and requiring related disclosures. The ASU is effective for annual periods ending after December 15, 2016. The Company believes that the ASU will have no impact on its consolidated financial statements. |
In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810) — Amendments to the Consolidation Analysis, to amend the criteria for consolidation of certain legal entities. The ASU is effective for interim and annual periods beginning after December 15, 2015. Adoption of the ASU is either retrospective to each prior period presented or retrospective with a cumulative adjustment to retained earnings or accumulated deficit as of the adoption date. The Company is currently assessing the impact of the ASU on its consolidated financial statements. |