U.S. dollars in thousands (except share and per share data)
|
a.
|
SolarEdge Technologies, Inc. (the “Company”) and its subsidiaries design, develop, and sell an intelligent inverter solution designed to maximize power generation at the individual photovoltaic (“PV”) module level while lowering the cost of energy produced by the solar PV system and providing comprehensive and advanced safety features. The Company’s products consist mainly of (i) power optimizers designed to maximize energy throughput from each and every module through constant tracking of Maximum Power Point individually per module, (ii) inverters which invert direct current (DC) from the PV module to alternating current (AC), (iii) a related cloud-based monitoring platform, that collects and processes information from the power optimizers and inverters of a solar PV system to enable customers and system owners as applicable, to monitor and manage the solar PV systems and (iv) a storage solution that is used to increase energy independence and maximize self-consumption for homeowners by utilizing a battery that is sold separately by third party manufacturers, to store and supply power as needed (the “StorEdge solution”). The StorEdge solution is designed to provide smart energy functions such as maximizing self-consumption, Time-of-Use programming for desired hours of the day, and home energy backup solutions.
|
The Company and its subsidiaries sell their products worldwide through large distributors and electrical equipment wholesalers to smaller solar installers as, well as directly to large solar installers and engineering, procurement and construction firms (“EPCs”).
In 2018, the Company completed certain strategic acquisitions in order to further expand its business.
In July and October 2018, the Company completed the acquisition ("Gamatronic Acquisition") of substantially all of the assets and activities of Gamatronic Electronic Industries Ltd ("Gamatronic IL") and all of the outstanding shares of its wholly owned subsidiary Gamatronic (UK) Limited (“Gamatronic UK”), respectively. Both companies ("UPS Division") are providers and manufacturers of Uninterruptible Power Supplies ("UPS") devices (see note 8).
On October 17, 2018, the Company completed the acquisition of 74.5% of the outstanding common shares and voting rights of Kokam Co., Ltd. (“Kokam”), a Korean company whose shares are traded on the Korean OTC market, a provider of Lithium-ion cells, batteries and energy storage solutions (see note 8). Since the Kokam acquisition date through December 31, 2018, the Company has increased its shareholdings in Kokam to 91.6%.
|
b.
|
Basis of presentation:
|
Effective December 31, 2016, the Company changed its fiscal year end from June 30 to December 31. This change was made in order to align the Company’s fiscal year end with other companies within the industry. As a result of this change, the consolidated financial statements include presentation of the six month transition period from July 1, 2016 through December 31, 2016.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
|
c.
|
For the years ended December 31, 2018, and December 31, 2017, and the six months ended December 31, 2016, the Company had one major customer (customer with attributable revenues that represents more than 10% of total revenues) that accounted for approximately 19.4%, 14.8% and 11.2% of the Company’s consolidated revenues, respectively. For the year ended June 30, 2016, the Company had three major customers that accounted for approximately 32.6% of the Company’s consolidated revenues (see Note 19).
|
|
d.
|
As of December 31, 2018 and 2017, the Company had two major customers (customer with a balance that represents more than 10% of total trade receivables) which accounted in the aggregate for approximately 41.3% and 35.2%, respectively, of the Company’s consolidated trade receivables.
|
As of December 31, 2016, the Company had one major customer, which accounted for approximately 20.2% of the Company’s consolidated trade receivables.
|
e.
|
The Company depends on three contract manufacturers and several limited or single source component suppliers. The Company is in a process of discontinuing its activity with one of those contract manufacturers. Reliance on these vendors makes the Company vulnerable to possible capacity constraints and reduced control over component availability, delivery schedules, manufacturing yields, and costs.
|
These contract manufacturers collectively accounted for 58.8%, 51.6% and 61.0% of the Company’s total trade payables as of December 31, 2018, 2017 and 2016, respectively.
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES
|
The consolidated financial statements are prepared according to United States generally accepted accounting principles (“U.S. GAAP”).
|
a.
|
Principles of consolidation:
|
The consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany transactions and balances including profits from intercompany sales not yet realized outside the Company have been eliminated upon consolidation.
The preparation of financial statements, in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company evaluates its assumptions on an ongoing basis. The Company’s management believes that the estimates, judgment, and assumptions used are reasonable based upon information available at the time they are made.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.
|
c.
|
Financial statements in U.S. dollars:
|
The functional currency of the Company and most of its foreign subsidiaries is the U.S. dollar, as the U.S. dollar is the currency of the primary economic environment in which the Company has operated and expects to continue to operate in the foreseeable future. Currently, the operations of these subsidiaries and the Company are primarily conducted in Israel, and a significant portion of its expenses are paid in U.S. dollars. Financing activities, including cash investments are primarily made in U.S. dollars.
Accordingly, monetary accounts maintained in currencies other than the U.S. dollar are translated into U.S. dollars in accordance with Financial Accounting Standards Board Accounting Standards Codification (“ASC”) No. 830 “Foreign Currency Matters”. All transaction gains and losses of the re-measurement of monetary balance sheet items are reflected in the statements of operations as financial income or expenses, as appropriate.
The financial statements of other Company’s subsidiaries whose functional currency is other than the U.S. dollar have been translated into U.S dollars. Assets and liabilities have been translated using the exchange rates in effect on the balance sheet date. Statements of operations amounts have been translated using the average exchange rate for the relevant periods.
The resulting translation adjustments are reported as a component of stockholders’ equity in accumulated other comprehensive loss.
Accumulated other comprehensive gains (losses) related to foreign currency translation adjustments, net amounted to $132, $(178) and $(207) as of December 31, 2018, 2017 and 2016, respectively.
|
d.
|
Basic and Diluted Net
Earnings
Per Share Attributable to
SolarEdge
Technologies, Inc.
:
|
Basic net earnings per share is computed by dividing the net earnings attributable to SolarEdge Technologies, Inc. by the weighted-average number of shares of common stock outstanding during the period.
Diluted net earnings per share is computed by giving effect to all potential shares of common stock, including stock options, to the extent dilutive, all in accordance with ASC No. 260, "Earnings Per Share."
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
No shares were excluded from the calculation of diluted net earnings per share due to their anti-dilutive effect for the year ended December 31, 2018.
The total weighted average number of shares related to the outstanding stock options, excluded from the calculation of diluted net earnings per share due to their anti-dilutive effect was 197,516, 374,156 and 16,208 for the years ended December 31, 2017, the six months ended December 31, 2016 and the year ended June 30, 2016, respectively.
The following table presents the computation of basic and diluted net earnings per share attributable to SolarEdge Technologies, Inc. for the periods presented (in thousands, except share and per share data):
|
|
Year ended December 31,
|
|
|
Six months
ended
December 31,
|
|
|
Year ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
128,046
|
|
|
$
|
84,172
|
|
|
$
|
25,381
|
|
|
$
|
76,609
|
|
Net loss attributable to Non-controlling interests
|
|
|
787
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net income attributable to SolarEdge Technologies, Inc.
|
|
$
|
128,833
|
|
|
$
|
84,172
|
|
|
$
|
25,381
|
|
|
$
|
76,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing net earnings per share of common stock, basic
|
|
|
45,235,310
|
|
|
|
42,209,238
|
|
|
|
41,026,926
|
|
|
|
39,987,935
|
|
Effect of stock-based awards
|
|
|
2,744,692
|
|
|
|
3,216,069
|
|
|
|
2,812,416
|
|
|
|
4,388,140
|
|
Shares used in computing net earnings per share of common stock, diluted
|
|
|
47,980,002
|
|
|
|
45,425,307
|
|
|
|
43,839,342
|
|
|
|
44,376,075
|
|
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
|
e.
|
Cash and cash equivalents:
|
Cash equivalents are short-term, highly liquid investments that are readily convertible to cash, with original maturities of three months or less at the date acquired.
|
f.
|
Short-term bank deposits:
|
Short-term bank deposits are deposits with an original maturity of more than three months from the date of investment and which do not meet the definition of cash equivalents. The deposits are presented according to their term deposits.
|
g.
|
Marketable Securities:
|
Marketable securities consist of corporate and governmental bonds. The Company determines the appropriate classification of marketable securities at the time of purchase and re-evaluates such designation at each balance sheet date. In accordance with FASB ASC No. 320 “Investments - Debt and Equity Securities”, the Company classifies marketable securities as available-for-sale. Available-for-sale securities are stated at fair value, with unrealized gains and losses reported in accumulated other comprehensive income (loss), a separate component of stockholders’ equity, net of taxes.
Realized gains and losses on sales of marketable securities, as determined on a specific identification basis, are included in financial income (expenses), net. The amortized cost of marketable securities is adjusted for amortization of premium and accretion of discount to maturity, both of which, together with interest, are included in financial income (expenses), net.
The Company classifies its marketable securities as either short-term or long-term based on each instrument’s underlying contractual maturity date. Marketable securities with maturities of 12 months or less are classified as short-term and marketable securities with maturities greater than 12 months are classified as long-term.
The Company recognizes an impairment charge when a decline in the fair value of its investments in debt securities below the cost basis of such securities is judged to be other-than-temporary. Factors considered in making such a determination include the duration and severity of the impairment, the reason for the decline in value, the potential recovery period, and the Company’s intent to sell, including whether it is more likely than not that the Company will be required to sell the investment before recovery of cost basis. If the Company does not intend to sell the security or it is not more likely than not that it will be required to sell the security before it recovers in value, the Company must estimate the net present value of cash flows expected to be collected. If the amortized cost exceeds the net present value of cash flows, such excess is considered a credit loss and an other-than-temporary impairment has occurred. For securities that are deemed other-than-temporarily impaired (“OTTI”), the amount of impairment is recognized in the statement of operations and is limited to the amount related to credit losses, while impairment related to other factors is recognized in other comprehensive income (loss). The Company did not recognize OTTI on its marketable securities during the years ended December 31, 2018, and December 31, 2017, the six months ended December 31, 2016, and the year ended June 30, 2016.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
Restricted cash is primarily invested in short-term bank deposits, which are primarily used as a guarantee to the Company’s landlords for its office leases and as security for the Company’s credit cards.
Inventories are stated at the lower of cost or market value. Cost includes depreciation, labor, material and overhead costs. Inventory reserves are provided to cover risks arising from slow-moving items or technological obsolescence.
The Company periodically evaluates the quantities on hand relative to historical, current, and projected sales volume. Based on this evaluation, an impairment charge is recorded when required to write-down inventory to its market value. Cost of finished goods and raw materials is determined using the moving average cost method.
|
j.
|
Property, plant and equipment:
|
Property, plant and equipment are stated at cost, net of accumulated depreciation. Machinery and equipment in progress is the construction or development of property and equipment that have not yet been placed in service for the Company's intended use. Depreciation is calculated by the straight-line method over the estimated useful lives of the assets, at the following rates:
|
|
%
|
|
|
|
Buildings and plants
|
|
2.5 – 5 (mainly 2.5)
|
Computers and peripheral equipment
|
|
15 – 33 (mainly 33)
|
Office furniture and equipment
|
|
7 – 25 (mainly 7)
|
Machinery and equipment
|
|
7 – 33 (mainly 20)
|
Laboratory equipment
|
|
15 – 25 (mainly 15)
|
Leasehold improvements
|
|
over the shorter of the lease term
or useful economic life
|
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
The Company allocates the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair value. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired technology, useful lives and discount rates.
Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is not to exceed one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.
The Company evaluates the recoverability of finite-lived intangible assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. The evaluation is performed at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If such review indicates that the carrying amount of intangible assets is not recoverable, the carrying amount of such assets is reduced to fair value. The Company has not recorded any impairment charges during the year ended December 31, 2018.
Acquired identifiable finite-lived intangible assets are amortized on a straight-line basis or accelerated method over the estimated useful lives of the assets. The Company believes the basis of amortization
approximates the pattern in which the assets are utilized, over their estimated useful lives
.
The Company routinely reviews the remaining estimated useful lives of finite-lived intangible assets. If the Company reduces the estimated useful life assumption for any asset, the remaining unamortized balance is amortized or depreciated over the revised estimated useful life (see Note 9).
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
The Company evaluates goodwill for impairment annually, or more frequently when an event occurs or circumstances change that indicate the carrying value may not be recoverable. In testing goodwill for impairment, the Company may elect to utilize a qualitative assessment to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment indicates that goodwill impairment is more likely than not, than a two-step impairment test is performed. The Company tests goodwill for impairment under the two-step impairment test by first comparing the book value of net assets to the fair value of the reporting unit. If the fair value is determined to be less than the book value or qualitative factors indicate that it is more likely than not that goodwill is impaired, a second step is performed to compute the amount of impairment as the difference between the estimated fair value of goodwill and the carrying value. The Company estimates the fair value of the reporting units using discounted cash flows. Forecasts of future cash flows are based on the Company's management best estimate of future net sales and operating expenses that are based primarily on expected category expansion, pricing, and general economic conditions.
The Company completes the required annual testing of goodwill for impairment for the reporting units on October 1 of each year and accordingly, determines whether goodwill should be impaired.
As of December 31, 2018, no impairment of goodwill has been identified.
|
n.
|
Impairment of long-lived assets:
|
The Company’s long-lived assets are reviewed for impairment in accordance with ASC 360 “Property, Plants and Equipment”, whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset (or asset group) to the future undiscounted cash flows expected to be generated by the assets (or asset group).
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds their fair value. For the years ended December 31, 2018, December 31, 2017, the six months ended December 31, 2016, and the year ended June 30, 2016, no impairment losses have been identified.
o.
Severance pay:
Pursuant to Israel’s Severance Pay Law, Israeli employees are entitled to severance pay equal to one month’s salary for each year of employment, or a portion thereof. The employees of the Company’s Israeli subsidiary have elected to be included under section 14 of the Severance Pay Law, 1963, under which these employees are entitled only to monthly deposits made in their name with insurance companies, at a rate of 8.33% of their monthly salary. These payments cause the Company to be released from any future obligation under the Israeli Severance Pay Law to make severance payments in respect of those employees; therefore, related assets and liabilities are not presented in the balance sheet.
For the years ended December 31, 2018, December 31, 2017, the six months ended December 31, 2016, and the year ended June 30, 2016, the Company recorded $4,331, $2,995, $1,131, and $1,761, in severance expenses related to its employees in Israel, respectively.
Severance expenses related to all other employees are immaterial to the Company’s consolidated statements of operations.
The Company adopted Accounting Standards Codification 606, Revenue from Contracts with Customers (ASC 606), effective as of January 1, 2018, which changed the Company’s revenue recognition accounting policy, as detailed below.
The Company’s products consist mainly of (i) power optimizers, (ii) inverters, (iii) a related cloud-based monitoring platform, (iv) a storage solution, (v) UPS units and (vi) Lithium-ion cells, batteries and energy storage solutions.
The Company recognizes revenue under the core principle that transfer of control to the Company’s customers should be depicted in an amount reflecting the consideration the Company expects to receive in revenue. In order to achieve that core principle, the Company applies the following five-step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied.
Revenue disaggregated by revenue source for the years ended December 31, 2018, 2017, the six months ended December 31, 2016 and the year ended June 30, 2016 consists of the following:
|
|
Year ended December 31,
|
|
|
Six months
ended
December 31,
|
|
|
Year ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Solar
|
|
$
|
914,285
|
|
|
$
|
607,045
|
|
|
$
|
239,997
|
|
|
$
|
489,843
|
|
Non-solar
|
|
|
22,952
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total revenues
|
|
$
|
937,237
|
|
|
$
|
607,045
|
|
|
$
|
239,997
|
|
|
$
|
489,843
|
|
|
(1)
|
Identify the contract with a customer
|
A contract is an agreement between two or more parties that creates enforceable rights and obligations. In evaluating the contract, the Company analyzes the customer’s intent and ability to pay the amount of promised consideration (credit risk) and considers the probability of collecting substantially all of the consideration.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
The Company determines whether collectability is reasonably assured on a customer-by-customer basis pursuant to its credit review policy. The Company typically sells to customers with whom it has a long-term business relationship and a history of successful collection. For a new customer, or when an existing customer substantially expands its commitments, the Company evaluates the customer’s financial position, the number of years the customer has been in business, the history of collection with the customer, and the Customer’s ability to pay, and typically assigns a credit limit based on that review.
|
(2)
|
Identify the performance obligations in the contract
|
At a contract’s inception, the Company assesses the goods or services promised in a contract with a customer and identifies the performance obligations.
The main performance obligations are the provisions of the following:
Power optimizers; Inverters; UPS devices; Lithium-ion cells, batteries and energy storage solutions; cloud based monitoring services; extended warranty services and communication services.
|
(3)
|
Determine the transaction price
|
The transaction price is the amount of consideration to which the Company is entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties.
Generally, the Company does not provide price protection, stock rotation, and/or right of return. The Company determines the transaction price for all satisfied and unsatisfied performance obligations identified in the contract from contract inception to the beginning of the earliest period presented.
Rebates or discounts on goods or services are accounted for as variable consideration. The rebate or discount program is applied retrospectively for future purchases. Provisions for rebates, sales incentives, and discounts to customers are accounted for as reductions in revenue in the same period the related sales are recorded.
When a contract provides a customer with payment terms of more than a year, the Company considers whether those terms create variability in the transaction price and whether a significant financing component exists.
The performance obligations that extend for a period greater than one year are those that include a financial component: (i) warranty extension services, (ii) cloud-based monitoring, and (iii) communication services.
|
(4)
|
Allocate the transaction price to the performance obligations in the contract
|
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
The Company performs an allocation of the transaction price to each separate performance obligation, in proportion to their relative standalone selling prices.
|
(5)
|
Recognize revenue when a performance obligation is satisfied
|
Revenue is recognized when or as performance obligations are satisfied by transferring control of a promised good or service to a customer. Control either transfers over time or at a point in time, which affects when revenue is recorded.
Revenues from sales of products are recognized when control is transferred (based on the agreed International Commercial terms, or “INCOTERMS”). Revenues related to warranty extension services, cloud-based monitoring, and communication services are recognized over time on a straight-line basis.
Deferred revenues consist of deferred cloud-based monitoring services, communication services, warranty extension services and advance payments received from customers for the Company’s products. Deferred revenues are classified as short-term and long-term deferred revenues based on the period in which revenues are expected to be recognized.
The Company recognizes financing component expenses in its consolidated statement of income in relation to advance payments for performance obligations that extend for a period greater than one year. These financing component expenses are reflected in the Company’s deferred revenues balance. The application of the new standard includes reference to such performance obligations that include a financing component, specifically: (i) warranty extension services, (ii) cloud-based monitoring, and (iii) communication services.
The effect of the changes made to the consolidated January 1, 2018 balance sheets following the adoption of ASC 606, Revenue - Revenue from Contracts with Customers were as follows:
|
|
Balance as of
December 31, 2017
|
|
|
Adjustments due
following adoption
of ASC 606
|
|
|
Balance as of
January 1, 2018
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Revenues - Current term
|
|
$
|
2,559
|
|
|
$
|
(89
|
)
|
|
$
|
2,470
|
|
Deferred Revenues - Long term
|
|
|
31,453
|
|
|
|
3,961
|
|
|
|
35,414
|
|
Retained earnings
|
|
$
|
66,172
|
|
|
$
|
(3,872
|
)
|
|
$
|
62,300
|
|
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
In accordance with the new revenue standard requirements, the disclosure of the impact of adoption on the Company’s consolidated statements of operations, cash flows, and balance sheets were as follows:
|
|
Year ended December 31, 2018
|
|
|
|
As Reported
|
|
|
Balances before
adoption of
ASC 606
|
|
|
Effect of change
|
|
Statements of operations
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
937,237
|
|
|
$
|
937,168
|
|
|
$
|
69
|
|
Financial expenses (income), net
|
|
|
2,297
|
|
|
|
(122
|
)
|
|
|
2,419
|
|
Net income
|
|
|
128,046
|
|
|
|
130,396
|
|
|
|
(2,350
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
128,046
|
|
|
|
130,396
|
|
|
|
(2,350
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenues
|
|
|
37,041
|
|
|
|
34,789
|
|
|
|
2,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018
|
|
|
|
As Reported
|
|
|
Balances before
adoption of
ASC 606
|
|
|
Effect of change
|
|
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Revenues - Current
|
|
|
14,351
|
|
|
|
14,559
|
|
|
|
(208
|
)
|
Deferred Revenues - Long term
|
|
|
60,670
|
|
|
|
54,240
|
|
|
|
6,430
|
|
Retained earnings
|
|
$
|
191,133
|
|
|
$
|
195,005
|
|
|
$
|
(3,872
|
)
|
Cost of revenues sold includes the following: product costs consisting of purchases from contract manufacturers and other suppliers, direct and indirect manufacturing costs, shipping and handling costs, support, warranty expenses and changes in warranty provision, provision for losses related to slow moving and dead inventory, personnel and logistics costs, and royalty expense payments to the Israel Innovation Authority (“IIA”).
|
r.
|
Shipping and handling costs:
|
Shipping and handling costs, which amounted to $45,821, $29,693, $8,131 and $21,922, for the years ended December 31, 2018, December 31, 2017, the six months ended December 31, 2016, and the year ended June 30, 2016, respectively, are included in cost of revenues in the consolidated statements of operations. Shipping and handling costs include all costs associated with the distribution of finished goods from the Company’s point of sale directly to its customers.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
The Company provides a warranty for its solar related products as follows: a 10-year limited warranty for StorEdge products, a minimum 12-year limited warranty for inverters, and a 25-year limited warranty for power optimizers. In certain cases, the Company provides extended warranties for inverters that brings the warranty period up to 25 years. The Company maintains reserves to cover the expected costs that could result from these warranties. The warranty liability is generally in the form of product replacement and associated costs. Warranty reserves are based on the Company’s best estimate of such costs and are included in cost of revenues. The reserve for the related warranty expenses is based on various factors including assumptions about the frequency of warranty claims on product failures, derived from results of accelerated lab testing, field monitoring, analysis of the history of product field failures, and the Company’s reliability estimates.
The Company has established a reliability measurement system based on the units’ estimated mean time between failure, or MTBF, a metric that equates to a steady-state failure rate per year for each product generation. The MTBF predicts the expected failure rate of each product within the Company's products installed base during the expected product warranted lifetime.
The Company performs accelerated life cycle testing, which simulates the service life of the product in a short period of time.
The accelerated life cycle tests incorporate test methodologies derived from standard tests used by solar module vendors to evaluate the period over which solar modules wear out. Corresponding replacement costs are updated periodically to reflect changes in the Company’s actual and estimated production costs for its products, rate of usage of refurbished units as a replacement of faulty units, and other costs related to logistic and subcontractors’ services associated with the replacement products.
In addition, through the collection of actual field failure statistics, the Company has identified several additional failure causes that are not included in the MTBF model. Such causes, which mostly consist of design errors, workmanship errors caused during the manufacturing process and, to a lesser extent, replacement of non-faulty units by installers, are generating additional replacement costs to the replacement costs projected under the MTBF model. The Company identified those causes, its failure pattern and the relative ratio compared to the pattern of malfunctions identified under the MTBF model and accrued additional provisions for the occurrence of such malfunctioning. For the major causes of failures, the Company evaluates the continuation of these occurrences and the appearance of potential additional malfunctioning cases beyond the MTBF pattern and accrues additional expenses accordingly.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
For other products the Company accrued for warranty costs based on the Company’s best estimate of product and associated costs. The Company’s other products are sold with a standard limited warranties that typically range in duration from one to ten years, and in some cases for a longer period.
Warranty obligations are classified as short-term and long-term obligations based on the period in which the warranty is expected to be claimed.
|
t.
|
Research and development costs:
|
Research and development costs, net of grants received, are charged to the consolidated statement of operations as incurred.
|
u.
|
Concentrations of credit risks:
|
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, restricted cash, short-term bank deposits, trade receivables, other accounts receivable, and marketable securities.
Cash and cash equivalents are mainly invested in major banks in the U.S., Israel, Korea, Germany, Australia and Japan. Management believes that the financial institutions that hold the Company’s investments are financially sound and, accordingly, minimal credit risk exists with respect to these investments.
The Company’s marketable securities consist of corporate and governmental bonds.
The Company's marketable securities include investments in highly-rated corporate debentures (mainly of U.S., UK, Australia, Cayman Islands, Canada, and other countries) and governmental bonds. The financial institutions that hold the Company's marketable securities are major financial institutions located in the United States. Management believes that the Company's marketable securities portfolio is a diverse portfolio of highly-rated securities and the Company's investment policy limits the amount the Company may invest in each issuer, and accordingly, management believes that minimal credit risk exists from geographic or credit concentration with respect to these securities.
The trade receivables of the Company derive from sales to customers located primarily in North America, Europe, and Australia.
The Company generally does not require collateral, however, in certain circumstances, the Company may require letters of credit, other collateral, or additional guarantees.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
An allowance for doubtful accounts is determined with respect to specific receivables that are doubtful of collection. The Company accrued $427, $128, and $226 as allowance for doubtful accounts as of December 31, 2018, 2017 and 2016, respectively.
In addition, an accrual for rebates is allocated to specific receivables. The Company accrued $39,018, $17,428, and $9,089 for rebates as of December 31, 2018, 2017 and 2016, respectively.
The Company and its subsidiaries have no off-balance sheet concentration of credit risk except for certain derivative instruments as mentioned below.
v.
Fair value of financial instruments:
The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:
The carrying value of cash and cash equivalents, restricted cash, short-term bank deposits, trade receivables, short and long term bank loans, prepaid expenses and other current assets, trade payables, employee and payroll accruals and accrued expenses and other current liabilities approximate their fair values due to the short-term maturities of such instruments.
Assets measured at fair value on a recurring basis as of December 31, 2018, 2017 and 2016 are comprised of money market funds, foreign currency derivative contracts and marketable securities (see Note 4).
The Company applies ASC 820 “Fair Value Measurements and Disclosures”, with respect to fair value measurements of all financial assets and liabilities.
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.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
A three-tiered fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:
|
Level 1-
|
Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
Level 2-
|
Include other inputs that are directly or indirectly observable in the marketplace.
|
|
Level 3-
|
Unobservable inputs which are supported by little or no market activity.
|
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
|
w.
|
Accounting for stock-based compensation:
|
The Company accounts for stock-based compensation in accordance with ASC 718 “Compensation-Stock Compensation”. ASC 718 requires companies to estimate the fair value of equity-based payment awards on the date of grant using an Option-Pricing Model (“OPM”). The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company’s consolidated statements of operations.
The Company recognizes compensation expenses for the value of its awards granted based on the straight-line method over the requisite service period of each of the awards, net of estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Estimated forfeitures are based on actual historical pre-vesting forfeitures (pursuant to the adoption of ASU 2016-09, the Company made a policy election to estimate the number of awards that are expected to vest).
The Company selected the Black-Scholes-Merton option-pricing model as the most appropriate fair value method for its stock-option awards and Employee Stock Purchase Plan. The option-pricing model requires a number of assumptions, of which the most significant are the fair market value of the underlying common stock, expected stock price volatility, and the expected option term. Expected volatility for stock-option awards was calculated until December 31, 2017 based upon certain peer companies that the Company considered to be comparable and starting January 1, 2018 based upon the Company’s actual historical stock price movements
over the most recent periods
. Expected volatility for Employee Stock Purchase Plan was calculated based upon the Company’s stock prices. The expected option term represents the period of time that options granted are expected to be outstanding. The expected option term is determined based on the simplified method in accordance with SAB No. 110, as adequate historical experience is not available to provide a reasonable estimate. The simplified method will continue to apply until enough historical experience is available to provide a reasonable estimate of the expected term. The risk-free interest rate is based on the yield from U.S. treasury bonds with an equivalent term.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
The Company has not declared or paid any dividends on its common stock and does not expect to pay any dividends in the foreseeable future.
The fair value for options granted to employees and executive directors and Employee Stock Purchase Plan in the years ended December 31, 2018, December 31, 2017, the six months ended December 31, 2016, and the year ended June 30, 2016, are estimated at the date of grant using a Black-Scholes-Merton option-pricing model with the following assumptions:
|
|
Year ended December 31,
|
|
|
Six months
ended December
31, 2016
|
|
|
Year Ended
June
30, 2016
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Stock Options
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest
|
|
|
2.32
|
%
|
|
|
2.14% - 2.17
|
%
|
|
|
1.28% - 1.34
|
%
|
|
|
1.39% - 1.97
|
%
|
Dividend yields
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Volatility
|
|
|
56.53
|
%
|
|
|
58.08% - 58.10
|
%
|
|
|
55.33% - 55.34
|
%
|
|
|
55.45%-56.03
|
%
|
Expected option term in years
|
|
|
6.06
|
|
|
|
6.06
|
|
|
|
6.06
|
|
|
|
5.50-6.11
|
|
Estimated forfeiture rate
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
10.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Stock Purchase Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest
|
|
|
2.10% - 2.52
|
%
|
|
|
0.60% - 1.07
|
%
|
|
|
0.60
|
%
|
|
|
0.40
|
%
|
Dividend yields
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Volatility
|
|
|
54.13% - 56.67
|
%
|
|
|
45.60% - 48.08
|
%
|
|
|
48.08
|
%
|
|
|
62.84
|
%
|
Expected term
|
|
6 months
|
|
|
6 months
|
|
|
6 months
|
|
|
6 months
|
|
The following table set forth the parameters used in computation of the options compensation
to non-employee consultants in the years ended December 31, 2018, December 31, 2017, the six months ended December 31, 2016 and the year ended June 30, 2016, using a Black-Scholes-Merton option-pricing model with the following assumptions:
|
|
Year ended
December
31, 2018
|
|
|
Year ended
December
31, 2017
|
|
|
Six months
ended December
31, 2016
|
|
|
Year ended
June
30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest
|
|
|
2.81%-2.84
|
%
|
|
|
2.12% - 2.42
|
%
|
|
|
1.16% - 2.45
|
%
|
|
|
1.15%-2.21
|
%
|
Dividend yields
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Volatility
|
|
|
58.18%-59.33
|
%
|
|
|
61.21% - 62.62
|
%
|
|
|
55.33% - 58.57
|
%
|
|
|
55.37%-55.75
|
%
|
Contractual life in years
|
|
|
6-10
|
|
|
|
6-10
|
|
|
|
6 - 10
|
|
|
|
6.4-10
|
|
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
The Company recognizes compensation expenses for the value of its restricted stock unit (“RSU”) awards, based on the straight-line method over the requisite service period of each of the awards, net of estimated forfeitures. The fair value of each RSU is the market value of the Company’s stock as determined by the closing price of the common stock on the day of grant.
The Company and its subsidiaries account for income taxes in accordance with ASC 740, “Income Taxes.” ASC 740 prescribes the use of the liability method, whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates that will be in effect when the differences are expected to reverse.
Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered.
Deferred tax assets are evaluated for future realization and reduced by a valuation allowance to the extent we believe they will not be realized.
The Company may incur additional tax liability in the event of intercompany dividend distributions by some of its subsidiaries. Such additional tax liability in respect of these subsidiaries has not been provided when the Company intends to permanently reinvest earnings of foreign subsidiaries indefinitely.
Tax liabilities that would apply in the event of disposal of investments in subsidiaries have not been taken into account in computing the deferred taxes, as it is the Company’s intention to hold, and not to realize, these investments.
The Company accounts for uncertain tax positions in accordance with ASC 740. ASC 740-10 contains a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% (cumulative probability) likely to be realized upon ultimate settlement.
The Company records reserves for uncertain tax positions to the extent it is more likely than not that the tax position will not be sustained on audit, based on the technical merits of the position.
|
y.
|
Derivative financial instruments:
|
The Company accounts for derivatives and hedging based on ASC 815 “Derivatives and Hedging”. ASC 815 requires the Company to recognize all derivatives on the balance sheet at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship.
To protect against the increase in value of forecasted foreign currency cash flows resulting from salary and lease payments of its Israeli facilities denominated in the Israeli currency, the New Israeli Shekel (“NIS”), the Company instituted a foreign currency cash flow hedging program. The Company hedges portions of the anticipated payroll and lease payments denominated in NIS for a period of one to twelve months with hedging contracts. These hedging contracts are designated as cash flow hedges, as defined by ASC 815 and are all effective hedges.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
In accordance with ASC 815, for derivative instruments that are designated and qualify as a cash flow hedge (i.e. hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Any gain or loss on a derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item is recognized in current earnings during the period of change.
In addition to the above-mentioned cash flow hedges transactions, the Company also entered into derivative instrument arrangements to hedge the Company’s exposure to currencies other than the U.S. dollar. These derivative instruments are not designated as cash flow hedges, as defined by ASC 815, and therefore all gains and losses, resulting from fair value remeasurement, were recorded immediately in the statement of operations, as financial income (expenses).
As of December 31, 2018, the Company had no outstanding derivative instruments.
As of December 31, 2017, the Company entered into forward contracts and put and call options to sell Euros for U.S. dollars in the amount of €54 million.
As of December 31, 2017, the Company had no derivative instruments that were designated as cash flow hedges.
As of December 31, 2016, the Company entered into forward contracts to sell U.S. dollars for NIS in the amount of $5,098. These hedging contracts do not contain any credit-risk-related contingency features. See Note 4 for information on the fair value of these hedging contracts.
As of December 31, 2016, the Company had no derivative instruments that were not designated as cash flow hedges.
The fair value of derivative assets and derivative liabilities as of December 31, 2017, was $221 and $401, respectively, which was recorded at net amount in accrued expenses and other current liabilities in the consolidated balance sheets.
The fair value of derivative assets as of December 31, 2016 was $19, which was recorded in prepaid expenses and other current assets in the consolidated balance sheets.
The Company recorded changes in the fair value (i.e., gains or losses) of the derivatives in the accompanying consolidated statements of cash flows as changes in operating activities.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
The Company reports comprehensive income in accordance with ASC 220 (“Comprehensive Income”). ASC 220 establishes standards for the reporting and presentation of comprehensive income and its components in a full set of general purpose financial statements.
Total comprehensive income and the components of accumulated other comprehensive income are presented in the consolidated statements of stockholders’ equity. Accumulated other comprehensive income consists of foreign currency translation effects, unrealized gains and losses on available-for-sale marketable securities and hedging contracts.
|
aa.
|
New accounting pronouncements not yet effective:
|
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2016-02 (Topic 842) "Leases". Topic 842 supersedes the lease requirements in Accounting Standards Codification (ASC) Topic 840, "Leases". Under Topic 842, lessees are required to recognize assets and liabilities on the balance sheet for most leases and provide enhanced disclosures. ASU No. 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018. In July 2018, the FASB issued amendments in ASU 2018-11, which provide a transition election to not restate comparative periods for the effects of applying the new standard. This transition election permits entities to change the date of initial application to the beginning of the earliest comparative period presented, or retrospectively at the beginning of the period of adoption through a cumulative-effect adjustment. The Company has elected to apply the standard retrospectively at the beginning of the period of adoption through a cumulative-effect adjustment. The Company also expects to elect certain relief options offered in ASU 2016-02 including certain available transitional practical expedients. Based on the Company's current portfolio of leases, approximately $32 million of lease assets (net of lease incentive) and $34 million lease liabilities would be recognized on its balance sheet, primarily relating to real estate. The Company has established a cross-functional team and it is continuing to evaluate the new standard and prepare for implementation. The Company will adopt Topic 842 effective January 1, 2019.
In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment". ASU 2017-04 was issued to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. The amendments in ASU 2017-04 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. The Company is evaluating the potential impact of this pronouncement.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the more timely recognition of losses. ASU 2016-13 also applies to employee benefit plan accounting, with an effective date of the first quarter of fiscal 2022. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated balance sheets, statements of operations and cash flows.
|
ab.
|
Recently issued and adopted pronouncements:
|
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). The Company adopted the new standard, effective January 1, 2018, using the modified retrospective method applied to those contracts which were not substantially completed as of the adoption date (see Note 2p).
In November 2016, the FASB issued Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18), which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted ASU 2016-18 during the first quarter of 2018. The adoption of this new guidance had no material impact on the Company’s consolidated balance sheets, statements of operations and cash flows.
In June 2018, the FASB issued Accounting Standards Update No. 2018-07, "Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting" (ASU 2018-07). ASU 2018-07 was issued to simplify several aspects of the accounting for nonemployee share-based payment transactions resulting from expanding the scope of Topic 718, Compensation - Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The Company adopted ASU 2018-07 effective July 1, 2018. The adoption of this new guidance had no material impact on the Company’s consolidated balance sheets, statements of operations and cash flows.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Cuts and Jobs Act. December 22, 2018 marked the end of the measurement period for purposes of SAB 118.
In October 2016, the FASB issued Accounting Standards Update No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers Other than Inventory (ASU 2016-16), which requires companies to recognize the income-tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs, rather than when the asset has been sold to an outside party. The Company adopted ASU 2016-16 during the first quarter of 2018. The adoption of this new guidance had no material impact on the Company’s consolidated balance sheets, statements of operations and cash flows.
|
ac.
|
Certain prior period amounts have been reclassified to conform to the current period presentation.
|
NOTE 3:-
|
MARKETABLE SECURITIES
|
The following is a summary of available-for-sale marketable securities at December 31, 2018:
|
|
Amortized
cost
|
|
|
Gross unrealized
gains
|
|
|
Gross unrealized
losses
|
|
|
Fair
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale – matures within one year:
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
110,904
|
|
|
$
|
-
|
|
|
$
|
(519
|
)
|
|
$
|
110,385
|
|
Governmental bonds
|
|
|
8,343
|
|
|
|
-
|
|
|
|
(48
|
)
|
|
|
8,295
|
|
|
|
|
119,247
|
|
|
|
-
|
|
|
|
(567
|
)
|
|
|
118,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for-sale – matures after one year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
74,564
|
|
|
|
-
|
|
|
|
(308
|
)
|
|
|
74,256
|
|
|
|
|
74,564
|
|
|
|
-
|
|
|
|
(308
|
)
|
|
|
74,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
193,811
|
|
|
$
|
-
|
|
|
$
|
(875
|
)
|
|
$
|
192,936
|
|
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 3:-
|
MARKETABLE SECURITIES (Cont.)
|
The following is a summary of available-for-sale marketable securities at December 31, 2017:
|
|
Amortized
cost
|
|
|
Gross unrealized
gains
|
|
|
Gross unrealized
losses
|
|
|
Fair
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for-sale – matures within one year:
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
68,392
|
|
|
$
|
1
|
|
|
$
|
(121
|
)
|
|
$
|
68,272
|
|
Governmental bonds
|
|
|
9,019
|
|
|
|
-
|
|
|
|
(27
|
)
|
|
|
8,992
|
|
|
|
|
77,411
|
|
|
|
1
|
|
|
|
(148
|
)
|
|
|
77,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for-sale – matures after one year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
95,540
|
|
|
|
-
|
|
|
|
(380
|
)
|
|
|
95,160
|
|
Governmental bonds
|
|
|
8,023
|
|
|
|
-
|
|
|
|
(63
|
)
|
|
|
7,960
|
|
|
|
|
103,563
|
|
|
|
-
|
|
|
|
(443
|
)
|
|
|
103,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
180,974
|
|
|
$
|
1
|
|
|
$
|
(591
|
)
|
|
$
|
180,384
|
|
The following is a summary of available-for-sale marketable securities at December 31, 2016:
|
|
Amortized
cost
|
|
|
Gross unrealized
gains
|
|
|
Gross unrealized
losses
|
|
|
Fair
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for-sale – matures within one year:
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
71,753
|
|
|
$
|
20
|
|
|
$
|
(54
|
)
|
|
$
|
71,719
|
|
Governmental bonds
|
|
|
2,758
|
|
|
|
-
|
|
|
|
(12
|
)
|
|
|
2,746
|
|
|
|
|
74,511
|
|
|
|
20
|
|
|
|
(66
|
)
|
|
|
74,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for-sale – matures after one year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
39,435
|
|
|
|
3
|
|
|
|
(159
|
)
|
|
|
39,279
|
|
Governmental bonds
|
|
|
5,004
|
|
|
|
-
|
|
|
|
(21
|
)
|
|
|
4,983
|
|
|
|
|
44,439
|
|
|
|
3
|
|
|
|
(180
|
)
|
|
|
44,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
118,950
|
|
|
$
|
23
|
|
|
$
|
(246
|
)
|
|
$
|
118,727
|
|
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 3:-
|
MARKETABLE SECURITIES (Cont.)
|
The following table presents gross unrealized losses and fair values for those investments that were in an unrealized loss position as of December 31, 2018, 2017 and 2016, based on the investments maturity date:
|
|
12 months or less
|
|
|
Greater than 12 months
|
|
|
|
Fair value
|
|
|
Gross unrealized losses
|
|
|
Fair value
|
|
|
Gross unrealized losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
December 31, 2018
|
|
$
|
118,680
|
|
|
$
|
(567
|
)
|
|
$
|
74,256
|
|
|
$
|
(308
|
)
|
As of
December 31, 2017
|
|
$
|
72,269
|
|
|
$
|
(148
|
)
|
|
$
|
103,116
|
|
|
$
|
(443
|
)
|
As of
December 31, 2016
|
|
$
|
51,124
|
|
|
$
|
(66
|
)
|
|
$
|
39,373
|
|
|
$
|
(180
|
)
|
As of December 31, 2018, 2017 and 2016, management believes the unrealized losses are not other than temporary and therefore such unrealized losses were recorded in accumulated other comprehensive loss.
Proceeds from maturity of available-for-sale marketable securities during the years ended December 31, 2018, December 31, 2017, the six months ended December 31, 2016, and the year ended June 30, 2016, were $
84,497
, $80,269, $32,782 and $6,350, respectively. Proceeds from sales of available-for-sale marketable securities during the year ended December 31, 2018 were $44,848, which lead to a realized loss of $137. During the years ended December 31, 2017, the six months ended December 31, 2016, and the year ended June 30, 2016, the Company had no proceeds from sales of available-for-sale marketable securities, therefore no realized gains or losses from the sale of available-for sale marketable securities were recognized. The Company determines realized gains or losses from the sale of available-for-sale marketable securities based on the specific identification method.
NOTE 4:-
|
FAIR VALUE MEASUREMENTS
|
In accordance with ASC 820, the Company measures its cash equivalents, foreign currency derivative contracts, and marketable securities, at fair value using the market approach valuation technique.
Cash equivalents and marketable securities are classified within Level 1 or Level 2. This is because these assets are valued using quoted market prices or alternative pricing sources and models utilizing market observable inputs.
Foreign currency derivative contracts are classified within the Level 2 value hierarchy, as the valuation inputs are based on quoted prices and market observable data of similar instruments.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 4:-
|
FAIR VALUE MEASUREMENTS (cont.)
|
The following table sets forth the Company’s assets that were measured at fair value as of December 31, 2018, 2017 and 2016 by level within the fair value hierarchy:
|
|
Fair Value
Hierarchy
|
|
Fair value measurements
as of December 31,
|
|
Description
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
Money market mutual funds
|
|
Level 1
|
|
$
|
1,767
|
|
|
$
|
6,163
|
|
|
$
|
6,510
|
|
Derivative instruments asset
|
|
Level 2
|
|
|
-
|
|
|
|
-
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
Level 2
|
|
|
110,385
|
|
|
|
68,272
|
|
|
|
71,719
|
|
Governmental bonds
|
|
Level 2
|
|
|
8,295
|
|
|
|
8,992
|
|
|
|
2,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
Level 2
|
|
|
74,256
|
|
|
|
95,160
|
|
|
|
39,279
|
|
Governmental bonds
|
|
Level 2
|
|
|
-
|
|
|
|
7,960
|
|
|
|
4,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term Earn-out provision
|
|
Level 3
|
|
|
(332
|
)
|
|
|
-
|
|
|
|
-
|
|
Derivative instruments liability
|
|
Level 2
|
|
|
-
|
|
|
|
(180
|
)
|
|
|
-
|
|
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 5:-
|
PREPAID EXPENSES AND OTHER CURRENT ASSETS
|
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Vendor non-trade receivables
(*)
|
|
$
|
28,284
|
|
|
$
|
33,719
|
|
|
$
|
15,209
|
|
Prepaid expenses and other
|
|
|
11,038
|
|
|
|
5,083
|
|
|
|
3,553
|
|
Government authorities
|
|
|
5,751
|
|
|
|
3,421
|
|
|
|
2,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
45,073
|
|
|
$
|
42,223
|
|
|
$
|
21,347
|
|
(*) Vendor non-trade receivables related to contract manufacturers
derive
from the sale of components to manufacturing vendors who manufacture products for the Company. The Company purchases these components directly from other suppliers. The Company does not reflect the sale of these components to the contract manufacturers in revenues (see also Note 15c).
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
39,380
|
|
|
$
|
25,887
|
|
|
$
|
10,053
|
|
Work in process
|
|
|
18,115
|
|
|
|
-
|
|
|
|
-
|
|
Finished goods
|
|
|
84,024
|
|
|
|
57,105
|
|
|
|
57,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
141,519
|
|
|
$
|
82,992
|
|
|
$
|
67,363
|
|
The Company recorded inventory write-downs of $943, $1,352, $113, and $2,539 for the year ended December 31, 2018, 2017, the six months ended December 31, 2016 and for the year ended June 30, 2016, respectively.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 7:-
|
PROPERTY, PLANT AND EQUIPMENT, NET
|
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Cost:
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
6,592
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Buildings and plants
|
|
|
18,196
|
|
|
|
-
|
|
|
|
-
|
|
Computers and peripheral equipment
|
|
|
13,896
|
|
|
|
9,872
|
|
|
|
6,053
|
|
Office furniture and equipment
|
|
|
9,005
|
|
|
|
1,785
|
|
|
|
1,505
|
|
Laboratory and testing equipment
|
|
|
18,160
|
|
|
|
13,732
|
|
|
|
9,589
|
|
Machinery and equipment
|
|
|
113,553
|
|
|
|
38,461
|
|
|
|
26,298
|
|
Leasehold improvements
|
|
|
11,741
|
|
|
|
7,536
|
|
|
|
5,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross property, plant and equipment
|
|
|
191,143
|
|
|
|
71,386
|
|
|
|
49,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less - accumulated depreciation
|
|
|
71,814
|
|
|
|
20,204
|
|
|
|
13,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property, plant and equipment, net
|
|
$
|
119,329
|
|
|
$
|
51,182
|
|
|
$
|
36,122
|
|
Equipment in progress under construction and development with a cost basis of $22,890, $8,783, and $10,698 was included in machinery and equipment as of December 31, 2018, 2017 and 2016, respectively.
Depreciation expenses for the years ended December 31, 2018, and December 31, 2017, the six months ended December 31, 2016, and the year ended June 30, 2016 were $11,426, $7,011, $2,702 and $3,763, respectively.
NOTE 8:-
|
BUSINESS COMBINATION
|
Gamatronic Electronic Industries Ltd.
On July 1, 2018, the Company completed the acquisition of substantially all of the assets and activities of Gamatronic Electronic Industries Ltd. ("Gamatronic IL"), at the aggregate amount of $12,083. The asset purchase agreement (the "Gamatronic Agreement") also includes an earn-out provision requiring the Company to pay an amount of 50% and 33% of the Company’s UPS business division’s net income for the first and second years following the Acquisition Date, respectively. The Company estimated the fair value of the contingent consideration based on Monte-Carlo model. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in ASC 820.
On October 4, 2018, the Company exercised its right to purchase all of the outstanding shares of Gamatronic (UK) Limited ("Gamatronic UK"), a wholly owned subsidiary of Gamatronic IL, for approximately $1.0 million, net of cash acquired. This right was contemplated as part of the Gamatronic Agreement.
The primary reason for Gamatronic Acquisition was to acquire UPS technology and to expand and diversify the Company’s business by entering into the UPS global market.
The Company determined that the Gamatronic Acquisition will be accounted for as a business combination in accordance with ASC 805 "Business Combinations".
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 8:-
|
BUSINESS COMBINATION (Cont.)
|
Kokam Co., Ltd.
On October 17, 2018, the Company completed the acquisition of 74.5% of the outstanding common shares and voting rights of Kokam Co., Ltd. (“Kokam”), a provider of Lithium-ion cells, batteries and energy storage solutions for approximately $82.5 million, net of cash acquired (the "Kokam Acquisition").
The primary reason for the acquisition was to acquire technology that will enable the Company to offer its customers battery solutions for a wide-variety of industries, including ESS (energy storage systems), residential and commercial solar systems, UPS, electric vehicles, aerospace, marine and more.
The Company determined that the Kokam Acquisition will be accounted for as a business combination in accordance with ASC 805 "Business Combinations".
The fair value of the 25.5% non-controlling interests (“NCI”) in Kokam is estimated to be $22 million. The fair value of the NCI was based on the transaction price.
During the period from the Kokam Acquisition date through December 31, 2018, the Company purchased additional common shares of Kokam in a total amount of $14.2 million. As of December 31, 2018, the Company holds 91.6% of the outstanding common shares and voting rights of Kokam.
The purchase price allocations for the business combinations completed during the year ended December 31, 2018 have been prepared on a preliminary basis and changes to those allocations may occur as additional information becomes available during the respective measurement periods (up to one year from the respective acquisition dates). Fair values still under review include values assigned to identifiable intangible assets, goodwill, deferred income taxes and contingent liabilities.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 8:-
|
BUSINESS COMBINATION (Cont.)
|
The following table summarizes the preliminary estimated allocations of the purchase prices for the business combinations completed during the year ended December 31, 2018:
|
|
Kokam
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Components of Purchase Price:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
87,004
|
|
|
$
|
12,322
|
|
|
$
|
99,326
|
|
Less cash acquired
|
|
|
(4,477
|
)
|
|
|
(112
|
)
|
|
|
(4,589
|
)
|
Earn-out provision
|
|
|
-
|
|
|
|
860
|
|
|
|
860
|
|
Total purchase price
|
|
$
|
82,527
|
|
|
$
|
13,070
|
|
|
$
|
95,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of Purchase Price:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net tangible assets (liabilities):
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables, net
|
|
$
|
4,113
|
|
|
$
|
220
|
|
|
$
|
4,333
|
|
Prepaid expenses and other current assets
|
|
|
1,390
|
|
|
|
23
|
|
|
|
1,413
|
|
Inventories
|
|
|
30,633
|
|
|
|
6,351
|
|
|
|
36,984
|
|
Property, plant and equipment, net
|
|
|
41,079
|
|
|
|
857
|
|
|
|
41,936
|
|
Other non-current assets
|
|
|
3,568
|
|
|
|
-
|
|
|
|
3,568
|
|
Trade payables
|
|
|
(5,956
|
)
|
|
|
(110
|
)
|
|
|
(6,066
|
)
|
Employees and payroll accruals
|
|
|
(2,046
|
)
|
|
|
-
|
|
|
|
(2,046
|
)
|
Accrued expenses and other current liabilities
|
|
|
(6,426
|
)
|
|
|
(43
|
)
|
|
|
(6,469
|
)
|
Loans
|
|
|
(23,670
|
)
|
|
|
-
|
|
|
|
(23,670
|
)
|
Warranty obligations
|
|
|
(1,059
|
)
|
|
|
(61
|
)
|
|
|
(1,120
|
)
|
Deferred tax liabilities, net
|
|
|
(2,271
|
)
|
|
|
-
|
|
|
|
(2,271
|
)
|
Other non-current liabilities
|
|
|
(1,399
|
)
|
|
|
-
|
|
|
|
(1,399
|
)
|
Total net tangible assets
|
|
$
|
37,956
|
|
|
$
|
7,237
|
|
|
$
|
45,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable intangible assets (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology
|
|
$
|
28,389
|
|
|
$
|
2,048
|
|
|
$
|
30,437
|
|
Customer relationships
|
|
|
3,007
|
|
|
|
810
|
|
|
|
3,817
|
|
Backlog
|
|
|
-
|
|
|
|
193
|
|
|
|
193
|
|
Tradename
|
|
|
3,671
|
|
|
|
-
|
|
|
|
3,671
|
|
Total identifiable intangible assets acquired
|
|
$
|
35,067
|
|
|
$
|
3,051
|
|
|
$
|
38,118
|
|
Goodwill (2)
|
|
$
|
31,663
|
|
|
$
|
2,782
|
|
|
$
|
34,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interests
|
|
$
|
(22,159
|
)
|
|
|
-
|
|
|
$
|
(22,159
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchase price allocation
|
|
$
|
82,527
|
|
|
$
|
13,070
|
|
|
$
|
95,597
|
|
|
(1)
|
Gamatronic's definite-lived intangible assets include current technology of $2,048 (7 years weighted-average useful life), customer relationships of $810 (7 years weighted-average useful life) and backlog of $193 (2 months weighted-average useful life.
|
Kokam’s definite-lived intangible assets include technology of $28,389 (8 years weighted-average useful life), customer relationships of $3,007 (13 years useful life), and tradename of $3,671 (9 years weighted-average useful life).
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 8:-
|
BUSINESS COMBINATION (Cont.)
|
|
(2)
|
The goodwill
resulted from the Gamatronic Acquisition
is attributable primarily to acquired technology, expected synergies and the assembled workforce from the UPS Division. The goodwill is expected to be deductible for income tax purposes over a period of 10 years.
|
The goodwill
resulted from Kokam’s Acquisition is attributable primarily to acquired technology, tradename, customer relationship,
expected synergies and the assembled workforce of Kokam
. The goodwill is not expected to be deductible for income tax purposes.
The Company recognized $1,260 of aggregate acquisition-related costs that were expensed in the consolidated statement of operations in general and administrative expenses.
The amounts of revenue and net loss of both
acquired companies
included in the Company’s consolidated statements of operations for the period from the acquisitions dates to December 31, 2018 are $22,952 and $7,466, respectively.
The following represents the pro-forma (unaudited) consolidated statements of operations as if both acquisitions had been included in the consolidated results of the Company for the years ended December 31, 2018 and 2017:
|
|
Year ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
Unaudited
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
976,827
|
|
|
$
|
671,570
|
|
Net income
|
|
$
|
|
|
|
$
|
66,011
|
|
These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of both acquisitions to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets had been applied since the acquisitions date, together with the consequential tax effects.
These pro-forma results are based on estimates and assumptions, which we believe are reasonable. They are not the results that would have been realized had the acquisitions actually occurred on January 1, 2017 and are not necessarily indicative of our consolidated results of operations in future periods. The pro-forma results include adjustments related to purchase accounting, primarily depreciation of property and equipment, and amortization of intangible assets.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 9:-
|
INTANGIBLE ASSETS AND GOODWILL
|
Acquired intangible assets consisted of the following as of
December 31, 2018, 2017 and 2016
:
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets with finite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Technology
|
|
$
|
30,821
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Customer relationships
|
|
|
3,857
|
|
|
|
-
|
|
|
|
-
|
|
Trade names
|
|
|
3,721
|
|
|
|
-
|
|
|
|
-
|
|
Patents
|
|
|
1,400
|
|
|
|
1,400
|
|
|
|
1,400
|
|
Backlog
|
|
|
193
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross intangible assets
|
|
|
39,992
|
|
|
|
1,400
|
|
|
|
1,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less - accumulated amortization
|
|
|
(1,488
|
)
|
|
|
(285
|
)
|
|
|
(141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets, net
|
|
$
|
38,504
|
|
|
$
|
1,115
|
|
|
$
|
1,259
|
|
Amortization expenses for the years ended December 31, 2018, December 31, 2017, the six months ended December 31, 2016, and the year ended June 30, 2016, were $1,193, $144, $57, and $84, respectively.
The reported amount of net acquisition-related intangible assets can fluctuate due to the impact of changes in foreign currency exchange rates on intangible assets not denominated in U.S. dollars.
Expected future amortization expenses of acquired intangible assets as of December 31, 2018 are as follows:
2019
|
|
$
|
4,673
|
|
2020
|
|
|
4,769
|
|
2021
|
|
|
4,818
|
|
2022
|
|
|
4,883
|
|
2023
|
|
|
4,868
|
|
2024 and thereafter
|
|
|
14,493
|
|
|
|
|
|
|
|
|
$
|
38,504
|
|
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 9:-
|
INTANGIBLE ASSETS AND GOODWILL (Cont.)
|
The following summarizes the goodwill activity for the year ended December 31, 2018:
|
|
Total
|
|
|
|
|
|
Goodwill at January 1, 2018
|
|
$
|
-
|
|
Business combinations
|
|
|
34,445
|
|
Foreign currency translation
|
|
|
429
|
|
|
|
|
|
|
Goodwill at December 31, 2018
|
|
$
|
34,874
|
|
NOTE 10:-
|
ACCRUED EXPENSES AND OTHER ACCOUNTS PAYABLE
|
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
14,859
|
|
|
$
|
14,863
|
|
|
$
|
4,209
|
|
Government authorities
|
|
|
11,344
|
|
|
|
1,905
|
|
|
|
1,568
|
|
Loss provision related to contractual inventory purchase obligations and others*
|
|
|
3,525
|
|
|
|
3,610
|
|
|
|
2,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
29,728
|
|
|
$
|
20,378
|
|
|
$
|
8,648
|
|
* See Note 15c.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
The following table summarizes the Company’s long-term bank loans:
Maturities calendar year
|
|
|
As of December 31, 2018
|
|
|
Effective interest rate*
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
$
|
15,919
|
|
|
|
0.60%-0.89%
|
|
2020
|
|
|
|
2,430
|
|
|
|
0.68%-0.75%
|
|
2018 - 2020
|
|
|
|
900
|
|
|
|
0.67%
|
|
2016 - 2021
|
|
|
|
900
|
|
|
|
0.69%
|
|
|
|
|
|
$
|
20,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less - current maturities bank loans
|
|
|
$
|
(16,639
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term bank loans net of Current maturities
|
|
|
$
|
3,510
|
|
|
|
|
|
*
The effective interest rate for the period from October 17, 2018 to December 31, 2018.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 11:-
|
BANK LOANS (Cont.)
|
All the bank loans are denominated in KRW except for one loan, which is denominated in USD at the amount of $3,000. The bank loans bear interest at a variable rate and mainly payable monthly. The bank loans do not contain financial covenants.
During the year ended December 31, 2018, the Company recognized $132 of interest expenses related to the bank loans in the consolidated statement of operations in financial expenses (income), net.
As of December 31, 2018, the Company secured its bank loans with an aggregate principal amount of $11,029 against part of its manufacturing facilities.
Subsequent to the balance sheet date, the Company extended a few of its bank loans for a period of one year with an aggregate principal amount of $12,703. The principal of the extended bank loans is to be paid in one installment due on December 31, 2019.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 12:-
|
WARRANTY OBLIGATIONS
|
Changes in the Company’s product warranty obligations for the years ended December 31, 2018, 2017 and 2016, were as follows:
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Balance, at beginning of year
|
|
$
|
78,811
|
|
|
$
|
58,375
|
|
|
$
|
51,192
|
|
Additions and adjustments to cost of revenues
|
|
|
70,854
|
|
|
|
34,650
|
|
|
|
13,749
|
|
Usage and current warranty expenses
|
|
|
(27,839
|
)
|
|
|
(14,214
|
)
|
|
|
(6,566
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, at end of year
|
|
|
121,826
|
|
|
|
78,811
|
|
|
|
58,375
|
|
Less current portion
|
|
|
(28,868
|
)
|
|
|
(14,785
|
)
|
|
|
(13,616
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term portion
|
|
$
|
92,958
|
|
|
$
|
64,026
|
|
|
$
|
44,759
|
|
NOTE 13:- OTHER NON-CURRENT LIABILTIES
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Tax liabilities
|
|
$
|
7,147
|
|
|
$
|
16,840
|
|
|
$
|
2,061
|
|
Lease incentive obligations
|
|
|
1,468
|
|
|
|
1,765
|
|
|
|
-
|
|
Other
|
|
|
776
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,391
|
|
|
$
|
18,605
|
|
|
$
|
2,061
|
|
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 14:- ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table summarizes the changes in accumulated balances of other comprehensive loss, net of taxes, for the year ended December 31, 2018:
|
|
Unrealized losses on available-for-sale marketable securities
|
|
|
Unrealized gains on cash flow hedges
|
|
|
Unrealized gains losses on foreign currency translation
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
(433
|
)
|
|
$
|
-
|
|
|
$
|
(178
|
)
|
|
$
|
(611
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
(360
|
)
|
|
|
31
|
|
|
|
310
|
|
|
|
(19
|
)
|
Loses (gains) reclassified from accumulated other comprehensive income
|
|
|
137
|
|
|
|
(31
|
)
|
|
|
-
|
|
|
|
106
|
|
Net current period other comprehensive income (loss)
|
|
|
(223
|
)
|
|
|
-
|
|
|
|
310
|
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
(656
|
)
|
|
$
|
-
|
|
|
$
|
132
|
|
|
$
|
(524
|
)
|
The following table summarizes the changes in accumulated balances of other comprehensive, net of taxes, for the year ended December 31, 2017:
|
|
Unrealized losses on available-for-sale marketable securities
|
|
|
Unrealized gains on cash flow hedges
|
|
|
Unrealized losses on foreign currency translation
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
(136
|
)
|
|
$
|
19
|
|
|
$
|
(207
|
)
|
|
$
|
(324
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
(297
|
)
|
|
|
975
|
|
|
|
29
|
|
|
|
707
|
|
Gains reclassified from accumulated other comprehensive income
|
|
|
-
|
|
|
|
(994
|
)
|
|
|
-
|
|
|
|
(994
|
)
|
Net current period other comprehensive income (loss)
|
|
|
(297
|
)
|
|
|
(19
|
)
|
|
|
29
|
|
|
|
(287
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
(433
|
)
|
|
$
|
-
|
|
|
$
|
(178
|
)
|
|
$
|
(611
|
)
|
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 14:- ACCUMULATED OTHER COMPREHENSIVE LOSS (Cont.)
The following table summarizes the changes in accumulated balances of other comprehensive loss, net of taxes, for the six months ended December 31, 2016:
|
|
Unrealized gains (losses) on available-for-sale marketable securities
|
|
|
Unrealized gains on cash flow hedges
|
|
|
Unrealized losses on foreign currency translation
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
57
|
|
|
$
|
243
|
|
|
$
|
(29
|
)
|
|
$
|
271
|
|
Other comprehensive income (loss) before reclassifications
|
|
|
(193
|
)
|
|
|
93
|
|
|
|
(178
|
)
|
|
|
(278
|
)
|
Gains reclassified from accumulated other comprehensive income
|
|
|
-
|
|
|
|
(317
|
)
|
|
|
-
|
|
|
|
(317
|
)
|
Net current period other comprehensive loss
|
|
|
(193
|
)
|
|
|
(224
|
)
|
|
|
(178
|
)
|
|
|
(595
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
(136
|
)
|
|
$
|
19
|
|
|
$
|
(207
|
)
|
|
$
|
(324
|
)
|
The following table summarizes the changes in accumulated balances of other comprehensive income, net of taxes, for the year ended June 30, 2016:
|
|
Unrealized gains on available-for-sale marketable securities
|
|
|
Unrealized gains on cash flow hedges
|
|
|
Unrealized losses on foreign currency translation
|
|
|
Total
|
|
Beginning balance
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(222
|
)
|
|
$
|
(222
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
56
|
|
|
|
412
|
|
|
|
193
|
|
|
|
661
|
|
Losses (gains) reclassified from accumulated other comprehensive income (loss)
|
|
|
1
|
|
|
|
(169
|
)
|
|
|
-
|
|
|
|
(168
|
)
|
Net current period other comprehensive income
|
|
|
57
|
|
|
|
243
|
|
|
|
193
|
|
|
|
493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
57
|
|
|
$
|
243
|
|
|
$
|
(29
|
)
|
|
$
|
271
|
|
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 14:- ACCUMULATED OTHER COMPREHENSIVE LOSS (Cont.)
The
following table provides details about reclassifications out of accumulated other comprehensive income (loss):
Components
|
|
Amount Reclassified from
Accumulated Other
Comprehensive Income (Loss)
|
|
Affected Line Item in the Statements of Operations
|
|
|
Year ended
December 31,
|
|
|
Six months
ended
December 31,
|
|
|
Year ended
June 30,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
|
Unrealized gains on cash flow hedges
|
|
$
|
3
|
|
|
$
|
166
|
|
|
$
|
47
|
|
|
$
|
30
|
|
Cost of revenues
|
|
|
|
19
|
|
|
|
570
|
|
|
|
227
|
|
|
|
115
|
|
Research and development
|
|
|
|
5
|
|
|
|
151
|
|
|
|
58
|
|
|
|
33
|
|
Sales and marketing
|
|
|
|
4
|
|
|
|
153
|
|
|
|
46
|
|
|
|
24
|
|
General and administrative
|
|
|
|
31
|
|
|
|
1,040
|
|
|
|
378
|
|
|
|
202
|
|
Total, before income taxes
|
|
|
|
-
|
|
|
|
46
|
|
|
|
61
|
|
|
|
33
|
|
Income tax expenses
|
|
|
|
31
|
|
|
|
994
|
|
|
|
317
|
|
|
|
169
|
|
Total, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses on available-for-sale marketable securities
|
|
|
(137
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
Financial income, net
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(137
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
Total, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications for the period
|
|
$
|
(106
|
)
|
|
$
|
994
|
|
|
$
|
317
|
|
|
$
|
168
|
|
Total, net of income taxes
|
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 15:-
|
COMMITMENTS AND CONTINGENT LIABILITIES
|
The Company and its subsidiaries lease their operating facilities under non-cancelable operating lease agreements, which expire over the next ten years, with the last lease ending in September 2027.
On July 10, 2017 the Company entered into a ten years lease agreement, intended for the establishment of a manufacturing facility and includes extension period options. The Company accounts for this lease as an operating lease according to ASC 840 (“Leases”).
The future minimum lease commitments of the Company under various non-cancelable operating lease agreements in respect of premises, that are in effect as of December 31, 2018, are as follows:
2019
|
|
|
6,933
|
|
2020
|
|
|
4,677
|
|
2021
|
|
|
2,633
|
|
2022
|
|
|
2,380
|
|
2023
|
|
|
2,350
|
|
2024 and thereafter
|
|
|
2,444
|
|
|
|
|
|
|
|
|
$
|
21,417
|
|
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 15:-
|
COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
|
Rent expenses for years ended December 31, 2018, December 31, 2017, the six months ended December 31, 2016 and the year ended June 30, 2016, were approximately $6,231, $3,449, $1,199, and $2,238, respectively.
As of December 31, 2018, contingent liabilities exist regarding guarantees in the amounts of $1,354, $323 and $172 in respect of office rent lease agreements, customs transactions and credit card limits, respectively.
|
c.
|
Contractual purchase obligations:
|
The Company has contractual obligations to purchase goods and raw materials. These contractual purchase obligations relate to inventories held by contract manufacturers and purchase orders initiated by the contract manufacturers, which cannot be canceled without penalty. The Company utilizes third parties to manufacture its products.
In addition, it acquires raw materials or other goods and services, including product components, by issuing to suppliers authorizations to purchase based on its projected demand and manufacturing needs. As of December 31, 2018, the Company had non-cancelable purchase obligations totaling approximately $262,979, out of which the Company already recorded a provision for loss in the amount of $1,759.
As of December 31, 2018, the Company had contractual obligations for capital expenditures totaling approximately $40,052. These commitments reflect purchases of automated assembly lines and other machinery related to the Company’s manufacturing
From time to time, the Company may be involved in various claims and legal proceedings. The Company reviews the status of each matter and assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, the Company accrues a liability for the estimated loss. These accruals are reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular matter.
In June 2018, the Company was served with a complaint from a trustee of a former customer that filed for bankruptcy in the US. The lawsuit seeks to recover approximately $2,481 based on theories of preferential and fraudulent transfers. The Company believes it has valid defenses to the claims in this lawsuit and does not expect the outcome of the litigation matters to have a material effect on its balance sheets, statements of operations or cash flows.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 15:-
|
COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
|
On September 20, 2018, the Company’s German subsidiary, SolarEdge Technologies GmbH received a complaint filed by competitor SMA Solar Technology AG. The complaint, filed in the District Court Düsseldorf, Germany, alleges that SolarEdge's 12.5kW - 27.6kW inverters infringe plaintiff’s patents EP 2 228 895 B1 and EP 1 610 452 B1. In its complaint, SMA Solar Technology requests inter alia an injunction and a determination for a claim for damages for sales in Germany. Plaintiff also suggests a value in dispute of €5 million (approximately $5.8 million) for both patents. The Company believes that it has meritorious defenses to the claims asserted and intends to vigorously defend against this lawsuit and does not expect the outcome of the litigation matters to have a material effect on its balance sheets, statements of operations or cash flows.
In 2017, Kokam received a claim for losses related to a fire that occurred at a plant of S&C Electric
in the U.S., to which Kokam supplied products, alleging that the damage was caused by a container-type UPS manufactured by S&C Electric that contained batteries supplied by Kokam. The claim was originally for damages in the amount of approximately $4 million and following the Kokam acquisition by the Company, Kokam received an amended claim for damages in the amount of approximately $12 million. The Company has specific indemnification from the major selling shareholder of Kokam in the amount of up to $5 million for losses that may be incurred relating to this claim. Kokam also has product liability insurance. The claim has not developed into a lawsuit nor has Kokam received the supporting documents substantiating the claimed amount. As of December 31, 2018, the Company has not recorded any provision for the above claim.
|
a.
|
Composition of common stock capital of the Company:
|
|
|
Number of shares
|
|
|
|
Authorized
as of December 31,
|
|
|
Issued and outstanding
as of December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock of $0.0001 par value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
125,000,000
|
|
|
|
125,000,000
|
|
|
|
125,000,000
|
|
|
|
46,052,802
|
|
|
|
43,812,601
|
|
|
|
41,259,391
|
|
Common stock confers upon its holders the right to receive notice of, and to participate in, all general meetings of the Company, where each share of common stock shall have one vote for all purposes; to share equally, on a per share basis, in bonuses, profits, or distributions out of fund legally available therefor; and to participate in the distribution of the surplus assets of the Company in the event of liquidation of the Company.
The Company’s 2007 Global Incentive Plan (the “2007 Plan”) was adopted by the board of directors on August 30, 2007. The 2007 Plan terminated upon the Company’s IPO on March 31, 2015 and no further awards may be granted thereunder. All outstanding awards will continue to be governed by their existing terms and 379,358 available options for future grant were transferred to the Company’s 2015 Global Incentive Plan (the “2015 Plan”) and are reserved for future issuances under the 2015 plan. The 2015 Plan became effective upon the consummation of the IPO. The 2015 Plan provides for the grant of options, RSUs, and other share-based awards to directors, employees, officers, and consultants of the Company and its Subsidiaries. As of December 31, 2018, a total of 8,080,717 shares of common stock were reserved for issuance pursuant to stock awards under the 2015 Plan (the “Share Reserve”).
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 16:-
|
STOCK CAPITAL (Cont.)
|
The Share Reserve will automatically increase on January 1st of each year during the term of the 2015 Plan, commencing on January 1st of the year following the year in which the 2015 Plan becomes effective, in an amount equal to 5% of the total number of shares of capital stock outstanding on December 31st of the preceding calendar year; provided, however, that the Company’s board of directors may determine that there will not be a January 1st increase in the Share Reserve in a given year or that the increase will be less than 5% of the shares of capital stock outstanding on the preceding December 31st.
The aggregate maximum number of shares of common stock that may be issued on the exercise of incentive stock options is 10,000,000. As of December 31, 2018, an aggregate of 8,946,316 options are still available for future grant under the 2015 Plan.
A summary of the activity in the share options granted to employees and members of the board of directors for the year ended December 31, 2018 and related information follows:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
average
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
remaining
|
|
|
|
|
|
|
Number
|
|
|
average
|
|
|
contractual
|
|
|
Aggregate
|
|
|
|
of
|
|
|
exercise
|
|
|
term
|
|
|
intrinsic
|
|
|
|
options
|
|
|
price
|
|
|
in years
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2017
|
|
|
3,524,310
|
|
|
|
7.40
|
|
|
|
6.35
|
|
|
|
106,251
|
|
Granted
|
|
|
180,983
|
|
|
|
38.05
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,280,057
|
)
|
|
|
4.89
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(23,343
|
)
|
|
|
8.35
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2018
|
|
|
2,401,893
|
|
|
|
11.04
|
|
|
|
6.19
|
|
|
|
58,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest as of December 31, 2018
|
|
|
2,359,484
|
|
|
|
10.94
|
|
|
|
6.17
|
|
|
|
57,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of December 31, 2018
|
|
|
1,843,014
|
|
|
|
7.93
|
|
|
|
5.64
|
|
|
|
50,173
|
|
The aggregate intrinsic value in the tables above represents the total intrinsic value (the difference between the fair value of the Company’s common stock as of the last day of each period and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on the last day of each period.
The total intrinsic value of options exercised during the years ended December 31, 2018, December 31, 2017, the six months ended December 31, 2016 and the year ended June
30,
2016, was $58,601, $44,625, $1,790, and $30,670, respectively.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 16:-
|
STOCK CAPITAL (Cont.)
|
The weighted average grant date fair values of options granted to employees and executive directors during the years ended December 31, 2018, December 31, 2017, the six months ended December 31, 2016 and the year ended June 30, 2016
,
were $20.83, $7.94, $8.86, and $13.27, respectively.
The options outstanding as of December 31, 2018, have been separated into exercise price ranges as follows:
|
|
|
Options
|
|
|
Weighted
|
|
|
Options
|
|
|
Weighted
|
|
|
|
|
outstanding
|
|
|
average
|
|
|
exercisable
|
|
|
average
|
|
Range of
|
|
|
as of
|
|
|
remaining
|
|
|
as of
|
|
|
remaining
|
|
exercise
|
|
|
December 31,
|
|
|
contractual
|
|
|
December 31,
|
|
|
contractual
|
|
price
|
|
|
2018
|
|
|
Life in years
|
|
|
2018
|
|
|
Life in years
|
|
$0.87 – $1.50
|
|
|
|
22,236
|
|
|
|
0.57
|
|
|
|
22,236
|
|
|
|
0.57
|
|
$2.01 – $2.46
|
|
|
|
331,482
|
|
|
|
2.56
|
|
|
|
331,482
|
|
|
|
2.56
|
|
$3.03 – $5.01
|
|
|
|
1,080,892
|
|
|
|
5.86
|
|
|
|
1,043,120
|
|
|
|
5.86
|
|
$9.36
|
|
|
|
10,546
|
|
|
|
6.08
|
|
|
|
10,098
|
|
|
|
6.08
|
|
$13.70 – $14.85
|
|
|
|
426,181
|
|
|
|
8.14
|
|
|
|
180,479
|
|
|
|
8.14
|
|
$15.34 – $17.14
|
|
|
|
183,623
|
|
|
|
7.66
|
|
|
|
100,571
|
|
|
|
7.66
|
|
$20.81 – $25.09
|
|
|
|
165,950
|
|
|
|
6.68
|
|
|
|
121,100
|
|
|
|
6.68
|
|
$38.05
|
|
|
|
180,983
|
|
|
|
9.01
|
|
|
|
33,928
|
|
|
|
9.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,401,893
|
|
|
|
6.19
|
|
|
|
1,843,014
|
|
|
|
5.64
|
|
A summary of the activity in the RSUs granted to employees and members of the board of directors for the year ended December 31, 2018, is as follows:
|
|
No. of
RSUs
|
|
|
Weighted average
grant date
fair value
|
|
Unvested as of January 1, 2018
|
|
|
2,087,992
|
|
|
|
24.33
|
|
Granted
|
|
|
1,744,621
|
|
|
|
41.45
|
|
Vested
|
|
|
(811,376
|
)
|
|
|
24.97
|
|
Forfeited
|
|
|
(214,005
|
)
|
|
|
29.36
|
|
Unvested as of December 31, 2018
|
|
|
2,807,232
|
|
|
|
34.40
|
|
The weighted-average grant-date fair value of RSUs granted during the years ended December 31, 2018, 2017, the six months ended December 31, 2016 and the year ended June 30, 2016, was $41.45, $27.30, $15.74 and $24.77, respectively.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 16:-
|
STOCK CAPITAL (Cont.)
|
Options and RSUs issued to non-employee consultants:
The Company has granted options and RSU’s to purchase common shares to non-employee consultants as of December 31, 2018 as follows:
|
|
Options & RSU’s
|
|
|
|
|
|
|
|
|
|
|
outstanding
|
|
|
Range
|
|
|
Exercisable
|
|
|
|
|
as of
|
|
|
of
|
|
|
as of
|
|
|
Issuance
|
|
December 31,
|
|
|
Exercise
|
|
|
December 31,
|
|
Exercisable
|
Date
|
|
2018
|
|
|
price
|
|
|
2018
|
|
Through
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
6,478
|
|
|
|
$3.51 - $5.01
|
|
|
|
4,923
|
|
October 29, 2024
|
2015
|
|
|
5,918
|
|
|
|
$0
|
|
|
|
-
|
|
|
2016
|
|
|
7,126
|
|
|
|
$0 - $15.34
|
|
|
|
-
|
|
September 21, 2026
|
2017
|
|
|
18,626
|
|
|
|
$0 - $13.70
|
|
|
|
-
|
|
March 15, 2027
|
2018
|
|
|
20,783
|
|
|
|
$0
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,931
|
|
|
|
|
|
|
|
4,923
|
|
|
In connection with the grant of stock options to non-employee consultants, the Company recorded stock compensation expenses in
the
years ended December 31, 2018, December 31, 2017, the six months ended December 31, 2016 and the year ended June 30, 2016, in the amounts of $1,299, $986, $66, and $524, respectively.
|
d.
|
Employee Stock Purchase Plan (“ESPP”):
|
The Company adopted an Employee Stock Purchase Plan (the “ESPP”) effective upon the consummation of the IPO. As of December 31, 2018, total of 1,739,280 shares were reserved for issuance under this plan. The number of shares of common stock reserved for issuance under the ESPP will increase automatically on January 1st of each year, for ten years, by the lesser of 1% of the total number of shares of the Company’s common stock outstanding on December 31st of the preceding calendar year or 487,643 shares.
However, the Company’s board of directors may reduce the amount of the increase in any particular year at their discretion, including a reduction to zero.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 16:-
|
STOCK CAPITAL (Cont.)
|
The ESPP is implemented through an offering every six months. According to the ESPP, eligible employees may use up to 10% of their salaries to purchase common stock shares up to an aggregate limit of $10 per participant for every six months plan. The price of an ordinary share purchased under the ESPP is equal to 85% of the lower of the fair market value of the ordinary share on the subscription date of each offering period or on the purchase date.
As of December 31, 2018, 385,646 common stock shares had been purchased under the ESPP.
As of December 31, 2018, 1,353,634 common stock shares were available for future issuance under the ESPP.
In accordance with ASC No. 718, the ESPP is compensatory and, as such, results in recognition of compensation cost.
|
e.
|
Stock-based compensation expense for employees and non-employee consultants:
|
The Company recognized stock-based compensation expenses related to stock options and RSUs granted to employees and non-employee consultants and ESPP in the consolidated statement of operations for the
years ended December 31, 2018, and December 31, 2017, the six months ended December 31, 2016, and the year ended June 30, 2016
, as follows:
|
|
Year ended December 31,
|
|
|
Six months ended
December 31,
|
|
|
Year ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
$
|
4,343
|
|
|
$
|
2,250
|
|
|
$
|
871
|
|
|
$
|
945
|
|
Research and development, net
|
|
|
11,205
|
|
|
|
5,703
|
|
|
|
2,061
|
|
|
|
2,364
|
|
Selling and marketing
|
|
|
9,111
|
|
|
|
5,387
|
|
|
|
1,852
|
|
|
|
2,915
|
|
General and administrative
|
|
|
5,959
|
|
|
|
4,224
|
|
|
|
1,816
|
|
|
|
2,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
30,618
|
|
|
$
|
17,564
|
|
|
$
|
6,600
|
|
|
$
|
9,044
|
|
As of December 31, 2018, there were total unrecognized compensation expenses of $98,826 related to non-vested equity-based compensation arrangements granted under the Company’s Plans. These expenses are expected to be recognized during the period from January 1, 2019 through February 28, 2023.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 17:-
INCOME TAXES
The Company is subject to U.S. federal tax at the rate of 21%.
On December 22, 2017, the Tax Cuts and Jobs Act (the "TCJA") was signed into law making significant changes to U.S. income tax law. These changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings (the “E&P”) as of December 31, 2017.
The one-time transition tax is based on the Company’s total post-1986 earnings and profits (E&P
). The
Company
has elected to pay its transition tax
over
the eight-
year
period provided in the TCJA.
Additionally, the TCJA requires certain Global Intangible Low Taxed Income (“GILTI”) earned by controlled foreign corporations (“CFCs”) to be included in the gross income of the CFCs’ U.S. shareholder. GAAP allows the Company to either: (i) treat taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”); or (ii) factor such amounts into its measurement of deferred taxes (the “deferred method”).
In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), which allowed the Company to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. As a result, the Company previously provided a provisional estimate of the effect of the TCJA in its financial statements.
In 2017, the Company calculated its best estimate of the impact of the TCJA in its year end income tax provision in accordance with its understanding of the TCJA and guidance available as of the date of the respective filing and as a result recorded $19.2 million as an additional income tax expense in the period in which the legislation was enacted.
In August, September and December 2018, the Internal Revenue Service (“IRS”) issued proposed regulations related to the one-time transition tax and GILTI. Due to the timing of the enactment and the complexity in applying the provisions of the TCJA,
changes made in fourth quarter 2018 to the Company’s provisional amounts are
based on the Company’s analysis of the TCJA and additional guidance issued by the U.S. Treasury Department, IRS, FASB, and other standard-setting and regulatory bodies.
In the fourth quarter of 2018
, upon further analyses of the TCJA and proposed regulations by the U.S. Department of the Treasury and the IRS, the Company completed its analysis to determine the effect of the TCJA with respect to the on-time transition tax and recorded a reduction of $1,297 as of December 31, 2018.
Additionally, the Company finalized its decision on treating the tax effects of GILTI as a period expense, evaluated the impact of the proposed regulations related to GILTI and
recorded a provision in the amount of $12,043 for such GILTI tax.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 17:-
INCOME TAXES (Cont.)
As of December 31, 2018, the U.S. Treasury Department and the Internal Revenue Service (“IRS”) are still in the process of issuing various TCJA regulations. Accordingly, future adjustments to the financial statements may be necessary as regulations are issued and when the Company files its fiscal year 2018 tax returns with the IRS and foreign tax authorities in the current fiscal year.
|
b.
|
Kokam is subject to Korean tax on progressive tax rates of up to 22%.
|
|
c.
|
Corporate tax in Israel:
|
Taxable income of Israeli companies was subject to corporate tax at the rate of 25% in the year ended June 30, 2016.
The Israeli subsidiary is also eligible for tax benefits as further described in note 17k.
In December 2016, the Israeli Parliament approved the Economic Efficiency Law 2016 (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years), which reduces the corporate income tax rate to 24% effective from January 1, 2017 and to 23% effective from January 1, 2018 onwards.
|
d.
|
Carryforward tax losses:
|
As of December 31, 2018, the Company has no federal or state carryforward tax losses.
As of December 31, 2018, the Israeli subsidiary has no carryforward tax losses.
As of December 31, 2018, Kokam has carryforward tax losses of $18,887.
|
e.
|
Deferred income taxes:
|
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
The Company’s Israeli subsidiary’s tax-exempt profit from Benefited Enterprises is permanently reinvested, as the Company’s management and the Board of Directors has determined that the Company does not currently intend to distribute dividends. Therefore, deferred taxes have not been provided for such tax-exempt income. The Company intends to continue to reinvest these profits and does not currently foresee a need to distribute dividends out of such tax-exempt income. Therefore, no deferred taxes have been provided in respect of such tax-exempt income as the undistributed tax-exempt income is essentially permanent in duration.
The Company may incur additional tax liability in the event of intercompany dividend distributions by some of its subsidiaries. Such additional tax liability in respect of these subsidiaries has not been provided for in the Financial Statements as the Company’s management and the Board of Directors has determined that the Company intends to reinvest earnings of its subsidiaries indefinitely.
Taxes that would apply in the event of disposal of investments in subsidiaries have not been taken into account in computing deferred income taxes, as the Company’s management and the Board of Directors has determined that the Company’s intention to hold, and not to realize, these investments.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 17:-
INCOME TAXES (Cont.)
Significant components of the Company’s deferred tax liabilities and assets are as follows:
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and Development carryforward expenses
|
|
$
|
9,482
|
|
|
$
|
5,380
|
|
|
$
|
908
|
|
Carryforward tax losses
|
|
|
4,155
|
|
|
|
-
|
|
|
|
-
|
|
Stock based compensation expenses
|
|
|
3,160
|
|
|
|
1,622
|
|
|
|
1,039
|
|
Inventory Impairment
|
|
|
1,471
|
|
|
|
-
|
|
|
|
-
|
|
Allowance and other reserves
|
|
|
4,340
|
|
|
|
1,338
|
|
|
|
868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets, net
|
|
$
|
22,608
|
|
|
$
|
8,340
|
|
|
$
|
2,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase price allocation adjustments
|
|
|
(9,408
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities, net
|
|
$
|
(9,408
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded as:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets, net
|
|
$
|
14,699
|
|
|
$
|
8,340
|
|
|
$
|
2,815
|
|
Deferred tax liabilities, net
|
|
|
(1,499
|
)
|
|
|
-
|
|
|
|
-
|
|
Net deferred tax assets
|
|
$
|
13,200
|
|
|
$
|
8,340
|
|
|
$
|
2,815
|
|
|
f.
|
Uncertain tax positions:
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Balance at January 1,
|
|
$
|
579
|
|
|
$
|
249
|
|
|
$
|
-
|
|
Increases related to current year tax positions
|
|
|
8,499
|
|
|
|
330
|
|
|
|
249
|
|
Decreases related to prior year tax positions
|
|
|
(579
|
)
|
|
|
-
|
|
|
|
-
|
|
Balance at December 31,
|
|
$
|
8,499
|
|
|
$
|
579
|
|
|
$
|
249
|
|
|
g.
|
Income before taxes are comprised as follows:
|
|
|
Year ended December 31,
|
|
|
Six months
ended
December 31,
|
|
|
Year ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
13,405
|
|
|
$
|
7,461
|
|
|
$
|
3,165
|
|
|
$
|
3,758
|
|
Foreign
|
|
|
123,718
|
|
|
|
92,783
|
|
|
|
27,433
|
|
|
|
68,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
137,123
|
|
|
$
|
100,244
|
|
|
$
|
30,598
|
|
|
$
|
72,230
|
|
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 17:-
INCOME TAXES (Cont.)
|
h.
|
Taxes on income (tax benefit) are comprised as follows:
|
|
|
Year ended December 31,
|
|
|
Six months
ended
December 31,
|
|
|
Year ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
Current taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal & State
|
|
$
|
13,894
|
|
|
$
|
19,889
|
|
|
$
|
1,047
|
|
|
$
|
1,737
|
|
Foreign
|
|
|
2,276
|
|
|
|
1,639
|
|
|
|
518
|
|
|
|
263
|
|
Total current taxes
|
|
|
16,170
|
|
|
|
21,528
|
|
|
|
1,565
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal & State
|
|
|
(1,284
|
)
|
|
|
(42
|
)
|
|
|
507
|
|
|
|
(1,380
|
)
|
Foreign
|
|
|
(5,809
|
)
|
|
|
(5,414
|
)
|
|
|
3,145
|
|
|
|
(4,999
|
)
|
Total deferred taxes
|
|
|
(7,093
|
)
|
|
|
(5,456
|
)
|
|
|
3,652
|
|
|
|
(6,379
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes, net
|
|
$
|
9,077
|
|
|
$
|
16,072
|
|
|
$
|
5,217
|
|
|
$
|
(4,379
|
)
|
|
i.
|
Reconciliation of theoretical tax expense to actual tax expense:
|
The differences between the statutory tax rate of the Company and the effective tax rate are primarily accounted for by the non-recognition of tax benefits from accumulated net carryforward tax losses among the Company and various subsidiaries due to uncertainty of the realization of such tax benefits.
A reconciliation between the theoretical tax expense, assuming all income is taxed at the statutory tax rate applicable to income of the Company, and the actual tax expense (benefit) as reported in the consolidated statements of operations is as follows:
|
|
Year ended December 31,
|
|
|
Six months
ended
December 31,
|
|
|
Year ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes, as reported in the consolidated statements of operations
|
|
$
|
137,123
|
|
|
$
|
100,244
|
|
|
$
|
30,598
|
|
|
$
|
72,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory tax rate
|
|
|
21
|
%
|
|
|
34
|
%
|
|
|
34
|
%
|
|
|
34
|
%
|
Theoretical tax benefits on the above amount at the US statutory tax rate
|
|
|
28,796
|
|
|
|
34,083
|
|
|
|
10,403
|
|
|
|
24,558
|
|
Income tax at rate other than the U.S. statutory tax rate
|
|
|
(26,861
|
)
|
|
|
(34,734
|
)
|
|
|
(5,396
|
)
|
|
|
(30,229
|
)
|
Tax Cuts and Jobs Act of 2017
|
|
|
8,062
|
|
|
|
18,735
|
|
|
|
-
|
|
|
|
-
|
|
Non-deductible expenses
|
|
|
(644
|
)
|
|
|
(1,545
|
)
|
|
|
164
|
|
|
|
1,514
|
|
Other individually immaterial income tax items, net
|
|
|
(276
|
)
|
|
|
(467
|
)
|
|
|
46
|
|
|
|
(222
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual tax expense (tax benefit)
|
|
$
|
9,077
|
|
|
$
|
16,072
|
|
|
$
|
5,217
|
|
|
$
|
(4,379
|
)
|
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 17:-
INCOME TAXES (Cont.)
As of December 31, 2018, the Company and certain of its subsidiaries filed U.S. federal and various state and foreign income tax returns. The statute of limitations relating to the consolidated U.S. federal income tax return is closed for all tax years up to and including 2014. Net operating losses generated in years prior to 2015 and carried forward are available to adjustment and subject to the statute of limitation provisions of such year when the net operating losses were utilized.
The statute of limitations related to tax returns of the Company’s Israeli subsidiary for all tax years up to and including 2012 has lapsed.
The statute of limitations related to tax returns of Kokam for all tax years up to and including 2013 has lapsed.
The statute of limitations related to tax returns of the Company’s German subsidiary, one of its Chinese subsidiaries and Gamatronic UK for all tax years up to and including 2014 has lapsed.
With respect to the Company’s French subsidiary, the statute of limitations related to its tax returns for all tax years up to and including 2015 has lapsed.
The statute of limitations related to tax returns of the Company’s Japanese subsidiary for all tax years up to and including 2017 has lapsed.
With respect to the Company’s Australian, Dutch, UK, Italian, Bulgarian, Turkish, Belgian, Indian, Swedish, Korean, and Romanian subsidiaries as well as its other Chinese subsidiary, the statute of limitations with respect to these entities’ tax returns for all tax years since incorporation has yet to lapse.
The Company believes that it has adequately provided for reasonably foreseeable outcomes related to tax audits and settlements. The final tax outcome of any Company tax audits could be different from that which is reflected in the Company’s income tax provisions and accruals. Such differences could have a material effect on the Company’s income tax provision and net income (loss) in the period in which such determination is made.
|
k.
|
Tax benefits for Israeli companies under the Law for the Encouragement of Capital Investments, 1959 (the “Investments Law”):
|
The Israeli subsidiary elected tax year 2012 as a "Year of Election" for “Benefited Enterprise” status under the Investments Law. According to the Investments Law, the Israeli subsidiary elected to participate in the alternative benefits program which provides certain benefits, including tax exemptions and reduced tax rates. Income not eligible for Benefited Enterprise benefits is taxed at a regular corporate tax rate (which depend on, inter alia, the geographic location in Israel). Upon meeting the requirements under the Investments Law, undistributed income derived from Benefited Enterprise from productive activity will be exempt from tax for two years from the year in which the Israeli subsidiary first has taxable income, provided that 12 years have not passed from the beginning of the year of election.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 17:-
INCOME TAXES (Cont.)
In the six months ended December 31, 2016, the Israeli subsidiary utilized all of its operating loss carryforwards in Israel and became profitable for tax purposes.
On October 24, 2018, the Company’s Israeli subsidiary received an approval from the Israeli Tax Authorities confirming the applicability of the two-year tax exemption as provided in the Encouragement of Capital Investments Law, 1959 until December 31, 2018.
If dividends (or deemed dividends) are distributed out of tax-exempt profits, the Israeli subsidiary will then become liable for tax, with respect of the gross amount of the dividend at the rate applicable to its profits from the Benefited Enterprise in the year in which the income was earned, at the applicable corporate tax that would otherwise have been payable on such income.
The dividend recipient is subject to withholding tax at the rate of 15% applicable to dividends from Benefited enterprises, or such lower rate as may be provided in an applicable tax treaty, which would generally be withheld at source by the distributing company.
The Israeli subsidiary currently has no plans to distribute dividends and intends to retain future earnings to finance the development of its business.
Through December 31, 2018, the Israeli subsidiary had generated income under the provision of the Investments Law.
As of December 31, 2018, approximately $289,900 was derived from tax exempt profits earned by the Israeli subsidiary “Benefited Enterprises”. The Company has determined that such tax-exempt income will not be distributed as dividends and intends to reinvest the amount of its tax exempt income earned by the Israeli subsidiary. Accordingly, no provision for deferred income taxes has been provided on income attributable to the Israeli subsidiary “Benefited Enterprises” as such income is essentially permanently reinvested.
If the Israeli subsidiary retained tax-exempt income is distributed, the income would be taxed at the applicable corporate tax rate which depends on the foreign ownership in each tax year, and the tax rate can range between 10% (when foreign ownership exceeds 90%) to 25% (when foreign ownership is below 49%).
Amendment to the Law for the Encouragement of Capital Investments, 1959 (Amendment 71):
On August 5, 2013, the Israeli Parliament issued the Law for Changing National Priorities (Legislative Amendments for Achieving Budget Targets for 2013 and 2014), 2013 which consists of Amendment 71 to the Law for the Encouragement of Capital Investments (the “Amendment"). According to the Amendment, the tax rate on preferred income from a preferred enterprise in 2014 and thereafter will be 16% (in development area A (as defined therein and which details specific areas in development in Israel) will be 9%).
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 17:-
INCOME TAXES (Cont.)
The Amendment also prescribes that any dividends distributed to individuals or foreign residents from the preferred enterprise's earnings as above will be subject to tax at a rate of 20%.
Amendment to the Law for the Encouragement of Capital Investments, 1959 (Amendment 73):
In December 2016, the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years), 2016 which includes Amendment 73 to the Law for the Encouragement of Capital Investments (the “2017 Amendment") was published. According to the 2017 Amendment, a preferred enterprise located in development area A will be subject to a tax rate of 7.5% instead of 9% effective from January 1, 2017 and thereafter (the tax rate applicable to preferred enterprises located in other areas remains at 16%).
The Company’s production facilities in Israel are not located in Development Zone A.
The Company notified the ITA of its election to implement the Amendment with effect on and from January 1, 2019.
The 2017 Amendment also prescribes special tax tracks for preferred technological enterprises (“PTE”), which are subject to rules that were issued by the Ministry of Finance.
The new tax tracks under the 2017 Amendment are as follows:
According to the 2017 Amendment, preferred technological enterprise, as defined in the Investments Law, which is located in the center of Israel will be subject to tax at a rate of 12% on profits deriving from intellectual property (in development area A - a tax rate of 7.5%).
A Preferred Company distributing dividends from Preferred Income or income derived from its PTE, would subject the recipient to a tax at the rate of 20% (or lower, if so provided under an applicable tax treaty). To benefit from any lower tax rates under an applicable tax treaty, a non-resident of Israel would need to receive in advance a valid certificate from the ITA allowing for a reduced tax rate, or to file an appropriate tax return with the ITA claiming a refund based on the lower rate under the applicable tax treaty.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 17:-
INCOME TAXES (Cont.)
The 2017 Amendment further provides that, in certain circumstances, a dividend distributed to a corporate shareholder who is not an Israeli resident for tax purposes, would be subject to a tax at the rate of 4%. Such taxes would generally be withheld at source by the distributing company.
On June 14, 2017, the Encouragement of Capital Investments Regulations (
Preferred Technological Income and Capital Gain for Technological Enterprise), 2017 (the “Regulations”)
were published. The Regulations applied
Action 5 under the Action Plan on Base Erosion and Profit Shifting (BEPS)
. The Regulations describe, inter alia, the mechanism used to determine the calculation of the benefits under the PTE regime and determine certain requirements relating to documentation of intellectual property for the purpose of the PTE. According to these provisions, a company that complies with the terms under the PTE regime may be entitled to certain tax benefits with respect to income generated during the company’s regular course of business and derived from the preferred intangible asset (as determined in the Investment Law), excluding income derived from intangible assets used for marketing and income attributed to production activity. In the event that intangible assets used for marketing purposes generate over 10% of the PTE’s income, the relevant portion, calculated using a transfer pricing study, would be subject to regular corporate income tax. If such income does not exceed 10%, the PTE will not be required to exclude the marketing income from the PTE’s total income. The Regulations establish a presumption of direct production expenses plus 10% with respect to income related to production, which can be countered by the results of a supporting transfer pricing study. Tax rates applicable to such production income expenses will be similar to the tax rates under the Preferred Enterprise regime to the extent such income would be considered as eligible. In order to calculate the preferred income, the PTE is required to take into account the income and the research and development expenses that are attributed to each single preferred intangible asset. Nevertheless, it should be noted that the transitional provisions allow companies to take into account the income and research and development expenses attributed to all of the preferred intangible assets they have.
The Israeli subsidiary is entitle to the above mentioned preferred technological enterprise benefits and will be subject to tax at a rate of 12% on profits deriving from intellectual property or 7.5% in development area A, under the 2017 Amendment.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 17:-
INCOME TAXES (Cont.)
Tax Benefits for Research and Development:
Israeli tax law (section 20A to the Israeli Tax Ordinance
(New Version), 1961
) allows, under certain conditions, a tax deduction for research and development expenses, including capital expenses, for the year in which they are paid. Such expenses must relate to scientific research in industry, agriculture, transportation, or energy, and must be approved by the relevant Israeli government ministry, determined by the field of research. Furthermore, the research and development must be for the promotion of the company’s business and carried out by or on behalf of the company seeking such tax deduction. However, the amount of such deductible expenses is reduced by the sum of any funds received through government grants for the finance of such scientific research and development projects. As for expenses incurred in scientific research that is not approved by the relevant Israeli government ministry, they will be deductible over a three-year period starting from the tax year in which they are paid. As of December 31, 2018, t
he Company’s Israeli subsidiary did not obtain such approval.
|
l.
|
Tax benefits under the Law for the Encouragement of Industry (Taxes), 1969:
|
The Company’s Israeli subsidiary claim currently to be qualified as ‘industrial company’ as defined by this law and as such, is entitled to certain tax benefits, consisting mainly of accelerated depreciation and amortization of patents and certain other intangible property.
NOTE 18:-
|
FINANCIAL EXPENSES (INCOME), NET
|
|
|
Year ended
December 31,
|
|
|
Six months
ended
December 31,
|
|
|
Year ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income on marketable securities
|
|
$
|
(5,629
|
)
|
|
$
|
(4,398
|
)
|
|
$
|
(1,504
|
)
|
|
$
|
(1,112
|
)
|
Exchange rate loss (income), net
|
|
|
4,725
|
|
|
|
(8,111
|
)
|
|
|
3,521
|
|
|
|
(27
|
)
|
Interest expenses
|
|
|
2,536
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Amortization of marketable securities premium and accretion of discount, net
|
|
|
1,242
|
|
|
|
2,017
|
|
|
|
685
|
|
|
|
532
|
|
Expenses (income), net, related to hedging transactions
|
|
|
(698
|
)
|
|
|
1,334
|
|
|
|
87
|
|
|
|
136
|
|
Other financial expenses, net
|
|
|
121
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,297
|
|
|
$
|
(9,158
|
)
|
|
$
|
2,789
|
|
|
$
|
(471
|
)
|
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 19:-
|
SEGMENT, GEOGRAPHIC, MAJOR CUSTOMER AND PRODUCT INFORMATION
|
The Company's chief operating decision maker (“CODM”) is our Chief Executive Officer who makes resource allocation decisions and assesses performance based on financial information presented on a consolidated basis. Accordingly, we have determined that we have a single reportable segment - the solar segment.
Total segment assets include corporate assets, such as cash and cash equivalents, marketable securities and tax assets. Total segment assets reconciled to consolidated amounts are as follows:
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Solar
|
|
$
|
866,868
|
|
|
$
|
641,305
|
|
|
$
|
424,743
|
|
Non-Solar
|
|
|
97,604
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
964,472
|
|
|
$
|
641,305
|
|
|
$
|
424,743
|
|
The reconciliations of non-reportable segments' revenues, profit or loss and other items of information to the Company’s consolidated totals are immaterial.
The Company's Non-solar activities constituted 2.4% of the Company's consolidated revenues for the year ended December 31, 2018.
|
b.
|
Geographic Information:
|
The following is a summary of revenues within geographic areas:
|
|
Year ended December 31,
|
|
|
Six months
ended
December 31,
|
|
|
Year ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues based on Customers’ location:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
505,469
|
|
|
$
|
348,949
|
|
|
$
|
160,321
|
|
|
$
|
334,260
|
|
Europe (*)
|
|
|
175,894
|
|
|
|
128,295
|
|
|
|
37,500
|
|
|
|
74,830
|
|
Netherlands
|
|
|
123,959
|
|
|
|
70,067
|
|
|
|
23,099
|
|
|
|
36,377
|
|
Rest of the world
|
|
|
131,915
|
|
|
|
59,734
|
|
|
|
19,077
|
|
|
|
44,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
937,237
|
|
|
$
|
607,045
|
|
|
$
|
239,997
|
|
|
$
|
489,843
|
|
(*) Except for Netherlands
The following is a summary of major customer data as a percentage of total revenues:
|
|
Year ended December 31,
|
|
|
Six months
ended
December 31,
|
|
|
Year ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer A
|
|
|
19.4
|
%
|
|
|
14.8
|
%
|
|
|
11.2
|
%
|
|
|
11.6
|
%
|
Customer B
|
|
|
6.8
|
%
|
|
|
8.1
|
%
|
|
|
8.4
|
%
|
|
|
10.1
|
%
|
Customer C
|
|
|
-
|
|
|
|
3.0
|
%
|
|
|
8.7
|
%
|
|
|
10.9
|
%
|
The following is a summary of revenues by product family:
|
|
Year ended December 31,
|
|
|
Six months
ended
December 31,
|
|
|
Year ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inverters
|
|
$
|
416,966
|
|
|
$
|
290,632
|
|
|
$
|
112,585
|
|
|
$
|
223,756
|
|
Optimizers
|
|
|
432,410
|
|
|
|
286,856
|
|
|
|
115,229
|
|
|
|
244,852
|
|
Others
|
|
|
87,861
|
|
|
|
29,557
|
|
|
|
12,183
|
|
|
|
21,235
|
|
Total revenues
|
|
$
|
937,237
|
|
|
$
|
607,045
|
|
|
$
|
239,997
|
|
|
$
|
489,843
|
|
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 19:-
|
SEGMENT, GEOGRAPHIC, MAJOR CUSTOMER AND PRODUCT INFORMATION (Cont.)
|
|
e.
|
Long-lived assets by geographic region:
|
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Israel
|
|
$
|
59,126
|
|
|
$
|
43,273
|
|
|
$
|
35,055
|
|
Korea
|
|
|
41,268
|
|
|
|
-
|
|
|
|
-
|
|
China
|
|
|
10,433
|
|
|
|
5,985
|
|
|
|
36
|
|
Europe
|
|
|
6,600
|
|
|
|
1,219
|
|
|
|
466
|
|
U.S.
|
|
|
1,369
|
|
|
|
567
|
|
|
|
515
|
|
Other
|
|
|
533
|
|
|
|
138
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-lived assets*
|
|
$
|
119,329
|
|
|
$
|
51,182
|
|
|
$
|
36,122
|
|
* Long-lived assets are comprised of property and equipment, net (marketable securities, other non-current assets, goodwill, intangible assets and deferred tax assets are not included).
NOTE 20:-
|
SUBSEQUENT EVENTS
|