Summary of Significant Accounting Policies and Procedures (Policies) | 3 Months Ended |
Mar. 31, 2015 |
Accounting Policies [Abstract] | |
Basis of Presentation and Principles of Consolidation | Basis of Presentation and Principles of Consolidation |
The accompanying condensed 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 6, VIE 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 subsidiary, Silevo, Inc., or Silevo, which continues to have fiscal quarters based on 13-week periods and fiscal years based on 52-week periods. Silevo’s first fiscal quarter of 2015 began on December 28, 2014 and ended on March 28, 2015, and it did not have any material activity after March 28, 2015 and through March 31, 2015. |
Reclassifications | Reclassifications |
Certain prior period amounts have been reclassified to conform to the current period presentation. |
Use of Estimates | Use of Estimates |
The preparation of the condensed consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the condensed 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. |
Short-Term Investments | Short-Term Investments |
The Company’s short-term investments are comprised 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 condensed consolidated balance sheets. 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 condensed consolidated statements 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. |
As of March 31, 2015, short-term investments were comprised of $115.0 million of corporate debt securities and $14.2 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 three months ended March 31, 2015. As of March 31, 2015, all short-term investments were scheduled to mature within the next twelve months. |
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 March 31, 2015, the assets and liabilities carried at fair value on a recurring basis included cash equivalents, short-term investments and contingent consideration. |
As of March 31, 2015, 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 | | $ | 43,082 | | | $ | — | | | $ | — | |
Term deposits | | $ | — | | | $ | 3,001 | | | $ | — | |
Short-term investments: | | | | | | | | | | | | |
Corporate debt securities | | $ | — | | | $ | 115,033 | | | $ | — | |
Asset-backed securities | | $ | — | | | $ | 14,133 | | | $ | — | |
Liabilities: | | | | | | | | | | | | |
Contingent consideration | | $ | — | | | $ | — | | | $ | 118,931 | |
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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 term deposits, corporate debt securities and asset-backed securities within Level 2 because their fair values are determined using alternative pricing sources or 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 unobservable estimated discount rates applicable to the acquisition to determine the fair value. Furthermore, during the three months ended March 31, 2015, 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. The fair value of the contingent consideration is directly proportional to the estimated probabilities of achievement of these milestones. As of March 31, 2015, the estimated probabilities ranged from 90% to 95%, the estimated discount rates ranged from 5.0% to 7.0%, $42.5 million was included under accrued and other current liabilities on the condensed consolidated balance sheets and $76.4 million was included under other liabilities and deferred credits on the condensed consolidated balance sheets. |
The following table summarizes the activity of the Level 3 contingent consideration balance in the three months ended March 31, 2015 (in thousands): |
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Balance - beginning of the period | | $ | 117,197 | | | | | | | | | |
Change in fair value recorded in other expense - net | | | 1,734 | | | | | | | | | |
Balance - end of the period | | $ | 118,931 | | | | | | | | | |
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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, the participation interest, solar asset-backed notes, convertible senior notes, Solar Bonds and long-term debt. The carrying values of these financial instruments other than customer notes receivable, 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 March 31, 2015 and December 31, 2014 (Level 1). |
The Company estimates the fair value of convertible senior notes based on their last actively traded prices (Level 1). The Company estimates the fair value of customer notes receivable, the participation interest, solar asset-backed notes, Solar Bonds and long-term debt based on rates currently offered for instruments with similar maturities and terms (Level 3). |
The following table presents the estimated fair values of the participation interest, solar asset-backed notes and convertible senior notes (in thousands): |
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| | 31-Mar-15 | | | 31-Dec-14 | | | | | |
Participation interest | | $ | 14,259 | | | $ | 14,102 | | | | | |
Solar asset-backed notes | | $ | 320,756 | | | $ | 328,313 | | | | | |
Convertible senior notes | | $ | 745,100 | | | $ | 752,176 | | | | | |
The Company has estimated the fair value of customer notes receivable, Solar Bonds and long-term debt to approximate their carrying values based on rates currently offered for instruments with similar maturities and terms. |
Customer Notes Receivable | Customer Notes Receivable |
In determining the allowance and credit quality for customer loans under MyPower, 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 March 31, 2015, 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 March 31, 2015. |
Deferred Revenue and Deferred Costs under MyPower Contracts | Deferred Revenue and Deferred Costs under MyPower Contracts |
For solar energy systems sold under a MyPower contract, the Company initially defers the revenue associated with the sale of a solar energy system when it delivers a system that has passed inspection by the utility or the authority having jurisdiction. The Company recognizes revenue for the system on a cash basis over the term of the contract as the customer pays the loan’s principal and interest. The deferred revenue is included in the condensed 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, issued by a subsidiary of the Company, to finance the solar energy system purchase. |
MyPower deferred revenue activity was as follows (in thousands): |
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| | As of and for the | | | | | | | | | |
| | Three Months Ended | | | | | | | | | |
| | March 31, | | | | | | | | | |
| | 2015 | | | | | | | | | |
Balance - beginning of the period | | $ | 33,651 | | | | | | | | | |
MyPower systems delivered under executed contracts | | | 96,857 | | | | | | | | | |
MyPower revenue recognized within solar energy systems and components sales | | | (1,013 | ) | | | | | | | | |
Balance - end of the period | | $ | 129,495 | | | | | | | | | |
Of the balance outstanding as of March 31, 2015, $1.0 million is included in the condensed consolidated balance sheet under current portion of deferred revenue. The balances in the table above do not include $9.8 million allocated to remote monitoring services and $2.0 million allocated to sales taxes. |
The costs associated with solar energy systems sold under MyPower contracts, including the costs of acquisition of solar energy systems component, personnel costs associated with system installations and costs to originate the contracts such as sales commissions, referral fees and some incremental contract administration costs, are initially capitalized as deferred costs. Subsequently these costs are recognized as a component of cost of revenue from solar energy systems and components sales for the costs associated with system components and installation, or as a component of operating expenses for costs associated with contract origination, generally in proportion to the reduction of the MyPower loan’s outstanding principal over 30 years. The deferred cost is included in the condensed consolidated balance sheets under prepaid expenses and other current assets for the portion expected to be recognized in the condensed consolidated income statement in the next twelve months, and the non-current portion is included under other assets. MyPower deferred costs activity was as follows (in thousands): |
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| | As of and for the | | | | | | | | | |
| | Three Months Ended | | | | | | | | | |
| | March 31, | | | | | | | | | |
| | 2015 | | | | | | | | | |
Balance - beginning of the period | | $ | 13,571 | | | | | | | | | |
MyPower systems delivered under executed contracts(1) | | | 48,056 | | | | | | | | | |
MyPower cost of revenue within solar energy systems and components sales | | | (454 | ) | | | | | | | | |
Balance - end of the period | | $ | 61,173 | | | | | | | | | |
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-1 | Included in MyPower systems delivered under executed contracts was $6.2 million of MyPower contract origination costs incurred in the three months ended March 31, 2015. | | | | | | | | | | | |
Of the balance outstanding as of March 31, 2015, $0.4 million is included in the condensed consolidated balance sheet under prepaid and current assets. |
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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, including sales under MyPower contracts, 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 1 to 25 years. |
The changes in the accrued warranty balance, recorded as a component of accrued and other current liabilities on the condensed consolidated balance sheets, consisted of the following (in thousands): |
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| | As of and for the | | | | | | | | | |
| | Three Months Ended | | | | | | | | | |
| | March 31, | | | | | | | | | |
| | 2015 | | | | | | | | | |
Balance - beginning of the period | | $ | 8,607 | | | | | | | | | |
Reduction in liability (payments) | | | (43 | ) | | | | | | | | |
Increase in liability (new customer warranties) | | | 6,936 | | | | | | | | | |
Balance - end of the period | | $ | 15,500 | | | | | | | | | |
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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 up to 30 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 March 31, 2015 and December 31, 2014, the Company had recorded liabilities of $1.7 million and $1.6 million, respectively, under accrued and other current liabilities in the condensed consolidated balance sheets, relating to these guarantees based on the Company’s assessment of its current exposure. |
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 condensed consolidated statements of operations, for the periods presented. |
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 executive team is the Company’s chief operating decision maker, 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 executive team 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. |
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, stock options, restricted stock units and convertible senior notes are 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, 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 condensed consolidated financial statements. |
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements – Going Concern, 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 condensed consolidated financial statements. |
In February 2015, the FASB issued ASU No. 2015-02, 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 condensed consolidated financial statements. |
In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, to require debt issuance costs to be presented as an offset against debt outstanding. The ASU is effective for interim and annual periods beginning after December 15, 2015. Adoption of the ASU is retrospective to each prior period presented. The Company does not anticipate that the adoption of the ASU will have a material impact on its condensed consolidated balance sheets. |